Commercialization of New Technology-Based Product

Business

1. Unit 8:
Commercialization of
New Technology-Based Product
1Entrepreneurship Dept,FBM (2009)ENT 600/UNIT 8: COMMERCIALIZATION
TECHNOLOGY ENTREPRENEURSHIP
(ENT 600)

2. Introduction
•Thewordtechnology-basedproductinthisunit
encompassesphysicalproducts,servicesand
processes.
•Newtechnology-basedproductistheoutput
developedfrominnovativeactivitiesthattakeplace
inasuccessfulR&D(researchanddevelopment).
•Researchanddevelopmentactivitiesmaytakeplace
inpublicuniversitiesorresearchinstitutesownedby
governmentorprivateresearchinstitutions.
2Entrepreneurship Dept,FBM (2009) ENT 600/UNIT 8: COMMERCIALIZATION

3. Technology-based Industry in Malaysia
•ThefutureofMalaysiantechnology-based
industryisverymuchdependentonlocally
developedtechnology-basedventures.
•Thesuccessofhome-growntechnology-
basedventureisdeterminedbythestrength
andefficiencyofcommercializationofR&D
(researchanddevelopment)outputand
enforcementofintellectualproperty(IP)lawin
Malaysia.
3Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION

4. Commercialization of
Research & Development
•TheproductofR&Dwillnotgeneraterevenueunless
theyaresuccessfullycommercialized.
•CommercializationofResearchandDevelopmentrefers
toeffortstakentointroducenewtechnology-based
producttothemarketwiththeaimofgaining
commercialreturn.
•Thecommercialvalueofaresearchismeasuredbythe
contributionoftheresearchfindingstothedevelopment
ofnewprocess,newservicesorproduct.
4
Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION

5. Taking R&D Output to The Market
Therearetwo(2)approachesthroughwhichresearch
findingscouldbebroughttothemarketby:
1.Disseminatinginnovationfreelythroughacademic
publicationsuchasjournalsandproceedingsof
researchconference.Thisapproachdoesnotpromise
maximumbenefittotheinnovator.
2.Allowingtheresearcher(innovator)tomonopolizethe
benefitsofresearchanddevelopmentintheformof
intellectualproperties(IP)andcommercializationofthe
IP.
5Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION

6. Options to Commercialize Research & Development
There are five (5) options to commercialize R&D:
1.OutrightsaleoftheR&DoutputbeforesecuringIP
(intellectualproperties).
2.Getintolicensingagreementwithestablishedprivate
organizationaftersecuringIP.
3.GetintoAssignationagreementwithbuyer.
4.Spin-offbystartinganewventurefromwithinthe
establishedresearchorganization.
5.Spin-outbystartinganewventureindependentofthe
researchorganizationwherethenewtechnology-based
productwasdeveloped.
6Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION

7. Commercialization Pattern of R&D
Spin-off
Company
Established
LicensingAgreement
Established with
Existing Private
SectorOrganization.
Production
Patent Application
R & D
Outrightsaleof
researchproduct
beforesecuringIP
Spin-out
Company
Established
AssignationAgreement
Established with
ExistingPrivateSector
Organization.
7Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION

8. Commercialization Options:
1. Outright Sale of The R&D Output
TheresearchermaydecidestoselltheR&Doutputbefore
applyingforpatentrightsduetoanyofthefollowing
reasons:
•Costtosecureapatentrightishigherthantheproduct
potentialvalue
•Thenewtechnology-basedproductiscompetingwitha
promisingsubstituteproduct(thedevelopedtechnology
isalreadymatureandfacingsubstitutionstage)
•Highmarketdevelopmentcostrequiredbecausemarket
isnotyetreadyfortheproduct
•Toavoidthehasslesassociatedwithpatentapplication
8Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION

9. Commercialization Options:
2. Licensing A Patent
•Licensingapatenttoanestablishedbusiness
organizationisconsideredasoneofthemostviable
meansofcommercializinganewtechnology-based
product.
•Apatentholderwholicenseshispatentisknownasthe
licensor,whilethepersontowhomthepatentis
licensedtoiscalledthelicensee.
•Whenapatentislicensedtoalicensee,thelicenseeis
giventhe“exploitationright”.
•“Exploitationright”meanstherighttocreate,market
andsellsomethingbasedonwhatthepatentprotects.
9Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION

10. Commercialization Options:
Licensing A Patent..continue
•Inreturn,thelicensorwillexpectfinancialreturnintheformof
royaltiesfromthelicensee.
•Apatentlicensebasicallyisalegalcontractthatspellsout
termsandconditionsforexamples:
Theareaofexploitationallowedbythelicensingagreement.
Performanceobligationdemandedbythelicensoroverthe
licenseeinordertoascertainconsistentfinancialreturn.
Theamountandfrequencyofroyaltiestobepaidbythe
licensee.
•Inthiscontextalicenseisrevocableorcancellableifcertain
termsandconditionsarenotmet.
10Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION

11. Commercialization Options:
3. Patent Assignation
•Patentassignationisanirrevocableexploitationright
givenbyanassignortoanassignee.Theassignorrefers
totheoriginalpatentholder,theassigneeisonewho
receivesassignmentofthepatent.
•Assignationisnotlikelicensing:
Assignationentailsthesaleoroutrighttransferofthe
patentbytheassignortotheassignee.
Assignationissoughtifanirrevocableexploitationright
isneededbythepartiesinvolved.
•Thedisadvantageofpatentassignmentisthatwhen
assigneefailedtopayroyaltiesthiswillnotrevokethe
rightsthatalreadyassignedtothebuyer.
11Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION

12. Valuing a Patent
Determiningthemonetaryvalueofapatentisveryimportant
becauseithelpsthepatentholdertodetermine:
•Therightvaluetosellthepatenttoassignee
•Therightamountofroyaltiestobechargedtopatent
licensee.
Howmuchapatentisworthdependsonthefollowingfactors:
1.Thesizeofthepotentialmarket
2.Thevalueofcomparablepatents
3.Validityofthepatent(theriskofthepromotedpatenttobe
invalidiftheinventordoesnotmeetthestatutory
requirementforobtainingthepatent).
Example:
•Theywerenottheinventors
•Hadpublishedtheinformationabouttheinvention
•Hadofferedtheinventionforsalebeforethedateof
application
12Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION

13. Valuing a Patent….continue
4.Determineifthepatentoverlapswithotherpatents,the
highertheprobabilitythatapatentmayoverlapwith
another,thelowerthevalueofthatparticularpatent.
5.Assesshowmuchitcostsforsomeonetousethenext
bestpatentinsteadofbuyingorsubscribinglicenseof
yourpatent.
6.Determinethereasonsforsellingorlicensingthe
patent.
13Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION

14. Commercialization Options:
4. Spin-Off into a New Venture
•Alternativetolicensingandassignation,aninnovator
maychoosetocommercializehisinventionthroughthe
creationofanewtechnology-basedventure.
•Inthiscontexttheinnovatorassumestheroleofa
technopreneurbycreatinganewventurefromwithinan
establishedorganizationlikeauniversityoracompany.
•Inventuringintothespin-offcompanythetechnopreneur
himself“exploits”thepatentrightshehadsecured.
•Priortoventuringintoanewtechnology-basedbusiness
atechnopreneurneedstodevelopabusinessplan,
determinesfinancialrequirementsandseekssourcesof
financing.
14Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION

15. Commercialization Options:
5. Spin-Out Into An Independent New Venture
•Innovatorsmayalsohavetheoptiontoleavetheparent
organizationandestablishedanindependentnew
venturetocommercializedthepatentheowned.Inthis
contexttheinnovatorassumestheroleofa
technopreneurbycreatinganewventureindependently.
•Similartoaspin-offventure,inaspin-outventurethe
technopreneurhimself“exploits”thepatentrightshe
hadsecuredandneedstodevelopabusinessplanprior
toventuringintothenewventure.
•However,inthecaseofaspin-outventurethe
technopreneurhastobeartheriskofthenewventure
alone.
15Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION

16. The Risk of A New Venture
Inspinningofforspinningoutintoanewventure,the
technopreneurfacesthefollowingrisks:
1.Technologicaluncertainty
2.Strategicuncertainty
3.Uncertaintyinfirsttimebuyers
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Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION 16

17. The Risk of A New Venture (continue)
1.TechnologicalUncertainty:
•Todetermineorderwinningproductconfiguration
•Todeterminethemostefficientproductiontechnology
•Todeterminethelevelofdifficultytodevelopthis
technology
2.StrategicUncertainty
•Newproductsareoftencharacterizedbytheabsenceof
aprovenmarketingstrategy.Hence,firmneedstoutilize
moreresourcesinordertoensuresuccess.
3.UncertaintyinFirst-timeBuyers
•Customersofanewventurenormallyarefirsttime
buyers.Themarketingtaskistosubstitutewhatbuyers
usedtopurchaseandtoencouragethesebuyersto
makeinitialpurchaseofthenewproducts.
Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION 17

18. Barriers To Entry
•Anewventuremayfacedifficultytoestablishentryintoa
particularindustry.
•Entrybarriersrefertotheaccessibilityofanewventure
intoaparticularindustry.Factorsthatcontributetoentry
barriersare:
–Thecostofadoptingtechnologyintheindustry
–Accesstodistributionchannel
–Accesstorawmaterial
–Costinefficiencyduetolackofexperience
–Thecostofcapitalrequiredtolaunchthenewventure
•Someofthesebarriersdisappearastheindustry
develops.
18Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION

19. Considering Business Incubators
To Increase The Chance For New Venture Survival
•BusinessIncubatormeansafacilitywithadaptablespace
thatanewventurecanleaseonflexibletermsandat
reducedrents.
•Thepurposeofanincubatorintheearlystageofthenew
ventureistoincreasethechanceofsurvivalfornewstartup
business.
•Businessincubatorsofferfinancial,managerial,technical,
andadministrativesupportserviceswhichareavailableon
sharingbasis.
•Mostincubatorslimitthetimefornewventureoccupying
spaceinthefacilityrangingfromtwotofiveyears
19Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION

20. Technology Life Cycle
•Theperformanceoftechnologyandproducthasa
recognizedpatternovertime.
•Thispatterncanbeveryhelpfulinthestrategicplanning
processofthetechnology-basedventure.
•Thus,managingatechnologyventurerequiresdeep
understandingofthelifecycleofthetechnology,
product,processandsystem.
•Atechnologicalrateofperformanceimprovementis
dependentontheeffortsuchasresearchand
developmentdevotedtothetechnologyimprovement.
20Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION

21. Technology Life Cycle (continue)
•Anewertechnologymayhavehigherlimitof
performanceforthesameparameterandmayreplace
theoldertechnologyatcertainperiodoftime.
•Technologyperformanceisexpressedintermofany
attributesuchasdensityinelectronicindustry(for
examplenumberoftransistorper-chip),speedinmile
per-hour,energyconsumptioninKWattper-hourorfuel
consumptioninmileper-Km.
•Thetechnologyperformancebecomevulnerableto
substitutionorobsoletewhenaneworbettertechnology
emerges.
Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION 21

22. Technology Life Cycle
Physical Limit
Time
Technology
Performance
Parameters
New
Invention
Period
Embryonic
Technology
Improvement
Period
Growth
Maturity
Mature
Technology
Period
Aging
The S-curve of Technological Progress
Source: Tarek Khalil (2000), “Management of Technology; the Key Competitiveness
And Wealth Creation”, McGraw-Hill International Ed., Singapore, (pg 81).
22Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION

23. Stages in the TLC
Technologyprogressesthroughathree-stage
technologicallifecycle(TLC):
1.Thenewinventionperiodknownasthe
embryonicstage.
2.Thetechnologyimprovementperiod,also
knownasthegrowthstage.
3.Thematuretechnologyperiodormaturity
stage.
23Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION

24. TLC Stages:
1. New Invention Periodor
Embroynic Stage
•Thenewinventionperiodischaracterized
byaperiodofslowinitialgrowth.
•Thisisbecauseexperimentationand
initialproblemsareworkedoutofthe
system.
Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION 24

25. TLC Stages:
2. Technology Improvement Period/
Growth Stage
•Thetechnologyimprovementperiodis
characterizedbyrapidandsustained
growth.
•Alsoknownasthegrowthstage.
Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION 25

26. TLC Stages:
3. Technology Mature Period /
Maturity Stage
•Thematuretechnologyperiodstartswhentheupperlimit
ofthetechnologyisapproachedandprogressin
performanceslowsdown.
•Thisoccurswhenthetechnologyreachesitsnaturallimit.
•Thetechnologybecomevulnerablewhentechnological
substitutiontakesplaceorwhenthetechnologybecomes
obsolete.Thatiswhenbetternewtechnologyemerges.
•Investmentintheongoingtechnologyatthisstagemay
beriskiereventhoughsomemaythriveinthedeclining
technology.
Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION 26

27. TLC and the Market
•Incommercializingnewtechnologyorproduct
onemustidentifythestageofthetechnologyin
itslifecycle.
•Technologyunderdevelopmentstagehasnoreal
income-producingvalueandthetechnologythat
isnotbeingmarketed(technologyontheshelf)
providesnoreturn.
•Whentechnologyreachesthemarketit
generatesincome.
Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION 27

28. The Technology Market Life-Cycle
•Astechnologydevelopsalongwiththe
recognizedtechnologylife-cycle,the
technologybeginstopenetrateitsmarket
andsubsequentlyexperiencesmarket
growth.
•Thecorrespondingmarketgrowthphases
ofthetechnologyiscalledtheTechnology
MarketLife-cycleandisexpressedas
marketvolume.
28Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION

29. The Technology Market Life-Cycle Phases
•Overtimethetechnologywillexperiencesix
phasesofmarketlife-cycle:
1.Technology development phase
2.Application launch phase
3.Application growth phase
4.Technology mature phase
5.Technology substitution phase
6.Technology obsolescence phase
29Entrepreneurship Dept,FBM (2009)ENT 600/UNIT 8: COMMERCIALIZATION

30. Technology Market Life-cycle
1. Technology Development Phase
•AttheTechnologyDevelopmentPhasethe
marketdoesnotrecognizethetechnologyat
all.
•Duringthistimetheresearchersareputtingin
mucheffortandutilizingsignificantamountsof
resourcestocreatethetechnology,develop
prototypeandtestingthenewtechnology.
•Duringthisperiodrevenueisnotgenerated
andwhereeverpossible,timespentinthis
phasehastobereduced.
30Entrepreneurship Dept,FBM (2009)ENT 600/UNIT 8: COMMERCIALIZATION

31. Technology Market Life-cycle
2. Application Launch Phase
•Thisisthephasewherethetechnologyis
launchedonthemarketasanewapplication
(e.g.anewproductorprocess).
•Oncethenewtechnologyapplicationis
launchedthemarketvolumewillpickupwith
thepathofthetechnologicalprogress.
•Itischaracterizedbyslowbeginningand
followedbyrapidgrowth.
31Entrepreneurship Dept,,FBM (2009) ENT 600/UNIT 8: COMMERCIALIZATION

32. Technology Market Life-cycle
3. Application Growth Phase
•IntheApplicationGrowthPhasethe
technologyapplicationwillbegintopenetrate
orgodeepintothemarket.
•Extendofpenetrationofthetechnologyinto
themarketwilldependontherateof
innovationandthemarketneedsofthenew
technology.
32Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION

33. Technology Market Life-cycle
4. Technology Mature Phase
•IntheTechnologyMaturePhase,themarket
growthrateslowsdownasthetechnology
approachesitsmaturity.
•Themarketvolumemayreachapeakand
thenstartstodecline.
33Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION

34. Technology Market Life-cycle
5. Technology Substitution Phase
•TheTechnologySubstitutionphaseis
characterizedbydecliningmarketvolumeas
thetechnologyisfacedwithbeingsubstituted
bynewtechnologies.
•Companiesthatcontinuetoutilizetheold
technologywillbegintoexperiencedeclinein
marketshareandrevenue.
34Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION

35. Technology Market Life-cycle
6. Technology Obsolescence Phase
•IntheTechnologyObsolescencePhasethe
technologyapplicationhasbecomeobsolete
andhaslittleornovalueatall.
•Investmentinthetechnologyduringthisphase
isnotattractive.
35Entrepreneurship
Dept,FBM (2009)
ENT 600/UNIT 8: COMMERCIALIZATION