Selecting Technologies Robert Conway Senior Manager, Business Development and Licensing Carnegie Mellon University Center for Technology Transfer and Enterprise Creation © Copyright 2007-2008 Robert D. Conway All Rights Reserved 1 References Teece, David J., “Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy”, UC Berkeley, School of Business Administration, June 1986 Porter, Michael, Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York, Simon & Schuster, 1998 Porter, Michael, Harvard Business School, various published articles on “Porter’s Five Forces”, beginning in 1980, e.g. www.quickmba.com/strategy/generic.shtml © Copyright 2007-2008 Robert D. Conway All Rights Reserved 2 Center for Technology Transfer Inventors Technology Transfer Process Overview Researchers create a technology Does CMU own it? Who else has rights? Is there commercial potential? Should we protect it, e.g. patent, copyright? Market the technology to potential licensees Industry Roundtable Negotiate license Licensee Invention Disclosure form Negotiate license Monitor licensee performance Licensee creates product Product sales generate revenue Half of net proceeds Public Dedication Commercialization, patent costs License revenue to CMU Half of net proceeds © Copyright 2007-2008 Robert D. Conway All Rights Reserved 3 Market Characteristics What is the market – who will pay, and how much? How will the resulting product/service be positioned? Market size Market growth rate Industry sector: concentrated or fragmented? Competitors Complimentary assets © Copyright 2007-2008 Robert D. Conway All Rights Reserved 4 Technology Characteristics What problem does it solve? What pain does it remove or risk does it reduce? Revolutionary leap or evolutionary improvement? Product differentiation - benefits Substitutions or comparables Regulatory environment Network effects Protected technology? © Copyright 2007-2008 Robert D. Conway All Rights Reserved 5 Industry Stage Preparadigmatic phase: many designs, no industry standard yet complementary assets not yet a critical factor Paradigmatic phase: industry standard has emerged complementary assets critical to success of technology © Copyright 2007-2008 Robert D. Conway All Rights Reserved 6 Complimentary Assets Complementary assets may prove a hindrance to selling, marketing, distributing, or supporting products based on this technology. Complementary assets are generalized and easily accessible (no hindrance) Complementary assets are specialized and are available (at some cost, which needs to be considered) Complementary assets are specialized to the product and not available One or more critical complementary assets are owned by one or two firms Complementary assets necessary for commercialization are not available and may require considerable investment to develop List companies that maintain critical complementary assets © Copyright 2007-2008 Robert D. Conway All Rights Reserved 7 Appropriability Regime Tight or weak appropriability Tight - technology can be protected through patents, copyrights or trade secrets (tacit knowledge) Weak – cannot protect, easily learned or discovered process or knowledge Technology is easy to protect: includes both easy to defend patent and tacit knowledge Technology is fairly easy to protect with some tacit knowledge Technology is not easy to protect and knowledge is easily transferable or copied Technology is difficult to protect. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 8 Time to Market Investment Long Period Short Period Minor OK if timing is Invest not critical ment Full Steam Ahead Major Forget It Invest ment OK if cost position tolerable Source: Teece, David J., “Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy”, UC Berkeley, School of Business Administration, June 1986 © Copyright 2007-2008 Robert D. Conway All Rights Reserved 9 The Acid Test 1. What is the value of the invention over existing methods? 2X, 10X, or 100X better than existing products? [<10X do not pursue] 2. What is the economic or other benefit benefits over present products? (cost, quality, benefits = competitive advantage) 3. Can other solutions achieve the same result? 4. Is there sufficient potential demand to provide an ample ROI? 5. How much product development is required? (Invention maturity - time required for product development, marketing and sales) 6. Can it generate significant revenue in the first five years? 7. Are there other applications for this invention? (Identify specific companies in each industry that might want a license) 8. Do you have personal contacts at companies that may be interested? Who will you call first, next, etc.? © Copyright 2007-2008 Robert D. Conway All Rights Reserved 10 Could this be a startup company? © Copyright 2007-2008 Robert D. Conway All Rights Reserved 11 Startup Assessment Tool (StAT) Inventor Focus – startup interest, startup experience, protected knowledge, industry relationships Market Focus – emerging market, platform technology, network effects Competitive Focus – market size, complimentary assets, regulatory barriers, substitution Other – subjective factors (appropriability regime, industry stage, etc.) © Copyright 2007-2008 Robert D. Conway All Rights Reserved 12 Industry Roundtable Evaluation Four to seven industry experts plus the inventors One hour Related industries Serial entrepreneurs Experienced business people – government regulations, union rules, tax implications, sales, marketing, insurance, etc. (IT, HR, accounting) 5 min – introductions 10 min – inventor presentation 45 min – moderated discussion No NDAs – no enabling or proprietary information © Copyright 2007-2008 Robert D. Conway All Rights Reserved 13 Porter’s Forces and Generic Strategies © Copyright 2007-2008 Robert D. Conway All Rights Reserved 14 Porter’s Five Forces Industries have different profitability – some of this difference is determined by industry structure Professor Michael Porter - Harvard Business School – described five forces that drive competition within an industry (1980) The intensity of rivalry among existing competitors The threat of entry by new competitors Pressure from substitute products The bargaining power of buyers The bargaining power of suppliers © Copyright 2007-2008 Robert D. Conway All Rights Reserved 15 Diagram of Porter’s Five Forces SUPPLIER POWER - Supplier concentration - Importance of volume to supplier - Differentiation of inputs - Impact of inputs on cost or differentiation - Switching costs of firms in the industry - Presence of substitute inputs - Threat of forward integration - Cost relative to total purchases in industry BARRIERS TO ENTRY - Absolute cost advantages - Proprietary learning curve - Access to inputs - Government policy - Economies of scale - Capital requirements - Brand identity - Switching costs - Access to distribution - Expected retaliation - Proprietary products THREAT OFSUBSTITUTES -Switching costs -Buyer inclination to substitute -Price-performance trade-off of substitutes BUYER POWER - Bargaining leverage - Buyer volume - Buyer information - Brand identity - Price sensitivity - Threat of backward integration - Product differentiation - Buyer concentration vs. industry - Substitutes available - Buyers' incentives DEGREE OF RIVALRY - Exit barriers - Industry concentration - Fixed costs/Value added - Industry growth - Intermittent overcapacity - Product differences - Switching costs - Brand identity - Diversity of rivals - Corporate stakes Porter’s Generic Strategies Three generic business strategies regardless of industry Strategies depend on market size (broad/narrow) Industry leaders pursue a single strategy Often the strategies are incompatible Combining strategies can lead to stagnation Corporations create separate businesses to follow different strategies Strategic focus does not guarantee success – companies are still vulnerable to those that can undermine their position © Copyright 2007-2008 Robert D. Conway All Rights Reserved 17 Generic Strategies Advantage Target Scope Low Cost Product Uniqueness Broad (Industry Wide) Cost Leadership Strategy Differentiation Strategy Narrow (Market Segment) Focus Strategy (low cost) Focus Strategy (differentiation) © Copyright 2007-2008 Robert D. Conway All Rights Reserved 18 Broad Industry Strategies Low Cost Product Uniqueness Cost Leadership Strategy Differentiation Strategy Cost Leadership Low cost provider Larger market share, lower profits Differentiation Superior features Smaller market share, higher profits © Copyright 2007-2008 Robert D. Conway All Rights Reserved 19 Focus Strategy Narrow (Market Segment) Low Cost Product Uniqueness Focus Strategy (low cost) Focus Strategy (differentiation) Cost or differentiation advantage in narrow segment High customer loyalty deters rivals and new entrants Lower volumes result in less supplier bargaining power May pass higher costs to customers since substitute products don’t exist Vulnerable to imitators and changes in customer preferences Other focusers may be able to control sub-segments © Copyright 2007-2008 Robert D. Conway All Rights Reserved 20 Forces and Strategies Industry Force Generic Strategies Cost Leadership Differentiation Entry Ability to cut price in Customer loyalty can retaliation deters discourage potential Barriers potential entrants. entrants. Buyer Power Supplier Power Focusing develops core competencies that can act as an entry barrier. Ability to offer lower Large buyers have less price to powerful power to negotiate because buyers. of few close alternatives. Large buyers have less power to negotiate because of few alternatives. Better insulated from powerful suppliers. Suppliers have power because of low volumes, but a differentiationfocused firm is better able to pass on supplier price increases. use low price Threat of Can to defend against Substitutes substitutes. Rivalry Focus Better able to compete on price. Better able to pass on supplier price increases to customers. Customer's become Specialized products & core attached to differentiating competency protect against attributes, reducing threat of substitutes. substitutes. Brand loyalty to keep customers from rivals. Rivals cannot meet differentiation-focused customer needs. © Copyright 2007-2008 Robert D. Conway All Rights Reserved 21 Selecting Technologies Robert Conway Senior Manager, Business Development and Licensing Carnegie Mellon University Center for Technology Transfer and Enterprise Creation © Copyright 2007-2008 Robert D. Conway All Rights Reserved 22 Research 2005 AUTM Survey $42.3 billion Invention 17,382 disclosures 1 per $2.43 million IP Protection 9,536 new patent applications 1 per $4.4 million Commercialization 4,932 licenses and options 628 company starts New Product Introductions 3641 new 527 new products first available in 2005 products introduced from 1998 to 2005 Source: Association of University Technology Managers survey FY2005 © Copyright 2007-2008 Robert D. Conway All Rights Reserved 24 New Company Startups 628 new company startups in FY2005 5171 startup companies formed since 1980 Source: Association of University Technology Managers survey FY2005 © Copyright 2007-2008 Robert D. Conway All Rights Reserved 25 Stanford Experience over 30 years: 4,300 disclosures received Approximately 30% were licensed 50% of the licenses produced less than $10,000 Only 30 deals generated $1,000,000 or more cumulatively Of the 378 licenses generating any royalties, only 39 generated $100,000 or more Only one out of 4,300 was a blockbuster Source: Katherine Ku, Director Stanford OTL © Copyright 2007-2008 Robert D. Conway All Rights Reserved 26 Carnegie Mellon 1993-2005 Start-ups 74% related to Carnegie Mellon: 171 within the Pittsburgh region Average per year: 12 (peak of 29 in 2000; 8 in FY06 to date) Licenses to small, local companies: 68 Technologies all sizes: 114 licensed to local companies of © Copyright 2007-2008 Robert D. Conway All Rights Reserved 27 CMU Inventions by School (%) Heinz, 1 CFA, 2 H&SS, 1 Provost, 5 Other, 8 CIT, 40 MCS, 11 SCS, 33 Source: CTT 2005 Annual Report © Copyright 2007-2008 Robert D. Conway All Rights Reserved 28 CMU Technology Transfer Statistics FY05 FY04 FY03 FY02 Innovators Served 321 302 312 297 - - 308 Invention Disclosures 132 95 97 102 114 106 108 Patents Filed 75 61 85 69 41 39 62 Patents Issued 33 35 81 33 27 27 39 License Agreements 23 21 26 18 16 16 20 102 64 48 35 37 27 52 7 4 1 4 5 4 4 All Agreements Startup Companies FY01 © Copyright 2007-2008 Robert D. Conway All Rights Reserved FY00 Average 29