BRINGING NEW TECHNOLOGY TO MARKET
Kathleen R. Allen
Instructor’sManual
Table of Contents
CHAPTER
1
1
CHAPTER
2
8
CHAPTER
3
17
CHAPTER
4
23
CHAPTER
5
29
CHAPTER
6
34
CHAPTER
7
39
CHAPTER
8
44
CHAPTER
9
49
CHAPTER
10
55
CHAPTER
11
61
CHAPTER
12
66
CHAPTER
13
72
CHAPTER
14
77
CHAPTER
15
83
NOTES
TO
SAMPLE
SAMPLE
SYLLABI
SYLL ABI
89
90
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
1
Chapter
Innovation and
Commercialization
T
he process of taking an invention from idea to business concept and then to market
is called technology commercialization. This dynamic process faces a unique set of
challenges and opportunities in a fast-paced market. Consequently, products must
be developed faster, prototyped earlier, and brought to market in record time.
Small entrepreneurial companies are in a good position to do that as they tend to be more
flexible and quick to respond to environmental changes. In contrast, large established
companies have the challenge of breaking away from traditional strategic thinking and the
inertia of success.
It is important that students begin with a fundamental understanding of what is meant
by technology, technological change, innovation, and commercialization. With a good
ground and common terms, it will be easier to get into more
I C O N K E Y
detail later on. The focus of this book is radical innovation
 Supplementary Lecture
because I believe that every technology business at one time or
Material
another needs to engage in radical innovation to sustain its
 Additional Web Resources competitive advantage. Radical innovation presents a more
 Answers to Discussion
complex and difficult challenge for the commercialization
Questions
process. Therefore, if students can understand and have
practice experiencing strategies for radical innovation, they can easily modify those strategies
to accommodate the far less complex and challenging strategies associated with incremental
innovation.
This chapter

Discusses the effect of technological change on economic principles.

Explores the foundations of technological innovation

Presents key disruptive technologies for the new millennium

Details the innovation and commercialization process
1
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T

Supplementary Lecture Material
The following material provides some “sound bytes” that can be used to
stimulate additional discussion or to inspire the instructor to introduce a
variety of new topics into the curriculum. As the field of technology
commercialization changes rapidly, it’s important to supplement the
foundational material in the text with current examples on a regular basis. For each of the
supplements a resource has been given and I encourage you to explore the original source
for additional information and links.
Wireless Technology Hits the Dirt
Take a wireless Ethernet connection, a laser-based measuring device, a mound of dirt, and
what can you do? You can estimate the cost of excavation of a building site, a task that has
always been difficult if not impossible to measure with any degree of accuracy. The National
Institute of Standards and Technology (NIST) is developing information networks that have
the potential to automate every element of a construction project. The system can generate
a 3-D model of a construction site’s terrain before excavation, which makes it easier to
measure what needs to be excavated. It is expected that eventually the system will measure
more than dirt; it will be able to track pipes, beams, and even hammers at a site. It should be
ready by 2006. To learn more and find related stories, go to “Building Bots” by Kevin
Hogan, Technology Review, May 2002.
http://www.techreview.com/articles/innovation50502.asp
Thinking Out of the Box
In 1974, Robert Langer, a professor of Chemical and Biomedical Engineering at MIT, began
a postdoc at the cancer lab at Boston’s Children’s Hospital. Though he was out of his field
of synthetic polymers among surgeons and scientists, he discovered that he could take what
he knew about molding materials and come up with revolutionary medical cures. He has
managed to build from plastic implantable dispensing machines for drug therapies. Not
content to rest on his success, he is now delving into the field of tissue engineering where his
synthetic polymers help researchers grow replacement body parts in the laboratory. The
common thread is all of Langer’s inventions is biomaterials, any substance other than food
or drugs that comes in contact with biological tissues or fluids. Dental fillings are a good
example and, in fact, are the most common biomaterial in use today. Biomaterials have the
potential to revolutionize the way we treat many medical problems with smart systems that
behave like real body parts. What are the potential opportunities for this core technology?
Source: Antonio Regalado, “Ideas are Like Children,” MIT Technology Review, January-February, 1999.
http://www.techreview.com/articles/qa0199.asp
Is Technology Taking Over?
Futurist John Naisbitt believes that technology is changing faster than humans can adjust.
Will humans lose in the end? Naisbitt and others are not so pessimistic. In fact, they believe
that humans are in a good position to shape their future. Until recently, technology had
been driven by economics—the computer at the expense of the poet, in the words of
2
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
Naisbitt. But now, instead of technology being at the forefront, it is becoming a ubiquitous
part of everyone’s life. John Sculley, former CEO of PepsiCo and Apple Computer,
believes that humans eventually will be “always on;” that is, they will wear wireless
connections that keep them in touch with anything they want to stay in touch with. But this
constant association with technology and the barrage of information it brings us is causing a
syndrome that Linda Stone, former VP at Microsoft, calls continuous partial attention. It
describes the way people cope with the deluge of information that hits them daily. She
believes that to have a successful business, a CEO needs to tune out, pause, reflect, and
focus. Is all the information that technology is providing helping or hurting? Will
technology ever fall to the background as Bill Gates predicted it should?
Source: Jill Hecht Maxwell, “Stop the Net, I Want to Get Off,” Inc Magazine, January 1, 2002.

Additional Web Resources
Invention
Dimension: The
http://web.mit.edu/invent/
interesting inventors.
Lemelson-MIT
Awards
Program.
This is a great source for stories on
Transistorized: The History of the Transistor. http://www.pbs.org/transistor/
The
transistor is arguably the most important invention of the 20 century. This site presents the
story of the invention.
th
This is a threepart series that features ground-breaking biomedical treatments and research. It contains
original articles and animations that help explain the treatments, among other resources.
Innovation: Cracking the Code. http://www.pbs.org/wnet/innovation/
Innovation: The Magazine of Research and Technology.
http://www.innovationmagazine.com/
This magazine explores the latest in technology
from a Pacific Rim perspective.
Films to Rent
“Biomedics”
How technology is helping doctors improve diagnosis and treatment to provide
better health care. Includes a discussion of hip implants and digitized instruments
www.films.com
26 minutes
Item: BVL7553
Format: VHS
List Price: $129.95
Rental Price: $75.00
3
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
“Material World”
This program stresses the role of computer technology in the design and
development of materials, and examines the evolution of materials engineering.
Materials were the basis of the tiles on the space shuttle and many medical
implants.
www.films.com
25 minutes
Item: BVL7551
Format: VHS
List Price: $129.95
Rental Price: $75.00
“Surviving the Technology Revolution: Promise or Peril?”
This program explores the impact of technology transformation on business and
society, and explains how people can prepare for the relentless progress of the
brave new digital world.
www.films.com
26 minutes
Item: BVL7554
Format: VHS
List Price: $129.95
Rental Price: $75.00

Answers to Discussion Questions
1. Why is continual innovation critical to business success today?
Continual innovation is required to meet the demand for
better, faster, cheaper technology products in a rapidly
changing marketplace. Intellectual property, once a cost center for most
corporations, has now become an important revenue center and a critical
competitive advantage for the firms that hold it. However, as the text points
out, incremental innovation will only carry a company so far. Radical
innovation is critical for long-term sustainability, and this is where most
companies have had far less success. Many companies have disappeared from
the corporate map because they failed to innovate and were overtaken by their
more agile counterparts. Fully 40 percent of major corporations in business in
1975 are not in business today due in large part to their failure to link emerging
technologies with emerging markets.
4
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
2. In what ways has the product development process changed and why?
An increase in venture capital funding, in addition to the enormous infusion
of corporate capital, is driving innovation and causing it to accelerate. Venture
capital stimulates new competition and the need for companies to innovate and
get to market quickly. This translates into faster product development times
and shorter product life cycles.
Globalization has increased the level of competition in the market and resulted
in companies from all parts of the world imposing their standards on products
and processes. But globalization has also contributed to the increase in
innovation by providing new partners and cost effective ways to manufacture.
Customers are more sophisticated, which means that companies must
differentiate their products on many levels just to compete. Customer demand
superior performance and value-based pricing, which is difficult to achieve from
a product development standpoint. Customers are also savvy about the value of
incremental innovations and may refuse to purchase additional bells and
whistles in favor of a radically new innovation.
Technology is changing at an increasingly rapid pace.
But mainstream
customers purchase technology based on its ability to solve a need or provide a
solution. To compete and capture the attention of customers, companies must
not only produce innovative technologies and their associated products, they
must also develop innovative processes that are integrated with their products,
making it difficult for a competitor to produce at the same quality level and at
the same cost.
New products are subject to shrinking product development timelines.
These shortened product life cycles are forcing companies to innovate
constantly just to stay ahead of the game. They are also effectively shortening
the temporary monopoly enjoyed by companies with proprietary technology.
3. When it comes time to commercialize an invention, what options are available to an
inventor to navigate the business side of commercialization, and what are the advantages
and disadvantages of each?
The answer to this question comes from understanding the overview of the
commercialization process. It requires that students think about the
requirements of commercialization and the expertise that a scientist/engineer
inventor may or may not have. Three options come to mind: 1) the inventor
handles the business side himself; 2) the inventor seeks partners with business
expertise; 3) the inventor connects with a university or other organization that
may be able to provide business expertise.
5
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
This approach is fraught
with problems if the inventor is a scientist or engineer with no business
experience. Understanding how to conduct feasibility analysis and answer all
the questions related to deciding customers, entry strategy, first application, and
so forth represent a domain of knowledge that the scientist/engineer generally
does not possess.
The inventor handles the business side himself.
The inventor seeks partners with business expertise.
Here the inventor will
look for a partner or partners that have experience starting and running
businesses, or at a minimum have a degree in business. It’s important to bring
this business expertise into the picture early in the development of the
technology to make sure that the market and potential customers can provide
input.
The inventor connects with a university or other organization that may be
able to provide business expertise. Many entrepreneur programs in
universities have courses in feasibility analysis and business planning with
students who are eager to work on a real development team.
4. Choose one of the principal disruptive technologies for the next decade. What are two
possible businesses that could be developed to exploit that technology that were not
mentioned in the text?
The answer to this question will vary by student. This is an excellent question to
get the students to move beyond the text and do an Internet search to read
more about one of the disruptive technologies mentioned in the text: gene
therapy, nanotechnology, and wireless technology. In their search, they will
encounter a variety of potential business opportunities. Good sources are
www.techreview.com, www.wired.com, and www.inc.com,
5. What are the advantages and disadvantages of a first mover or pioneering strategy?
Under what conditions would first mover be essential?
The first mover or pioneer disrupts the technology that preceded it and requires
customers to identify with a need they didn’t know they had. The primary
advantage to this strategy is that it provides the pioneer with a temporary
monopoly or quiet period in which to establish the technology in the market
before competitors enter. This temporary monopoly is the result of intellectual
property protections. The pioneer also has the opportunity to establish the
technology standard and reap the enormous profits that ultimately come from
successfully introducing a radical technology.
Disadvantages of the first-mover strategy are that it is more costly to execute
(disruptive technologies often do not reap their full value until they achieve
mass-market acceptance and the valley of death is much longer), the pioneering
6
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
products typically display poor performance and address a latent need that the
customer has yet to recognize, and, therefore, it’s difficult to get the mainstream
market to switch to the new technology. Clayton Christensen’s research has
studied the incumbent’s curse, which is the fact that incumbents, generally large
companies, suffer from technology inertia or the fear of straying too far from
their successes, so they are not very successful at the pioneering strategy.
7
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
2
Chapter
Recognizing and Screening
Technology Opportunities
I
deas and opportunities are not the same concepts. An opportunity is an idea that can
be turned into a business or commercialized in some manner. Today nearly every
technology company is pursuing new opportunities and new ways to serve customers
and solve problems. Opportunities typically come about when a need is apparent. But
breakthrough innovations are normally the result of a serendipitous connection that, with
experimentation, leads to a new technology and eventually a product in the market. This
chapter is designed to help the reader understand the process of invention and opportunity
recognition so that the reader can create an environment that encourages creativity,
innovation, and opportunity recognition.
For students used to having an instructor tell them what to do and when, I find that
understanding and practicing the creativity necessary to recognize opportunity is difficult
and frustrating for many students. I suggest interspersing some creative exercises into the
first few classes to break the ice and get the students thinking out of the box. I have put a
few of my favorites in this section of the manual.
This chapter

Discusses the role of creativity in innovation

Explores how opportunity recognition comes about

Presents some sources of opportunity

Details how to screen technology opportunities
8
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T

Supplementary Lecture Material
The following material provides some “sound bytes” that can be used to
stimulate additional discussion or to inspire the instructor to introduce a
variety of new topics into the curriculum. As the field of technology
commercialization changes rapidly, it’s important to supplement the
foundational material in the text with current examples on a regular basis. For each of the
supplements a resource has been given and I encourage you to explore the original source
for additional information and links.
Science Imitates Art
Professor Mark L Winston, of the Department of Biological Sciences at Simon Fraser
University in British Columbia, tested the notion that someone who is well read in what he
calls literary science or science-oriented prose will be more successful. In fact, he asked his
biological science students on the first day of class what the first book was they had read
outside of a textbook and was stunned to discover that hardly any of them had ever read a
book about science. Most didn’t read at all outside of class. While everyone in the class was
planning to become a professional biologist, few had ever explored the issues relevant to the
field.
While many people attribute this lack of reading to television and Web surfing, Professor
Winston believes that student’s education is too focused on data and the regurgitation of
facts rather than on helping students improve their analytical and critical thinking skills. This
is a serious problem when you consider that most scientific discoveries come about through
connections of thing that are not normally associated with each other and through
serendipitous insights. Reading in diverse areas can serve to precipitate new insights and
connections. How many of your students read outside of class? What types of things do
they read? Consider assigning a book outside the field and ask them to make a connection
to your course.
Source: Mark L. Winston, “The Profound Moments in Science Often Lie in the Arts,” Creativity at Work
http://www.creativityatwork.com/read.htm
Sternberg’s Theory of Creativity
Many theories of creativity have populated the literature and often they don’t seem to fit
with creative people we observe in the real world. Ronald B. Standler writes in a working
paper “Creativity in Science and Engineering,” that the theory that seems to most reflect
what we see in creative scientists and engineers comes from the work of psychology
professor Robert J. Sternberg at Yale University. He believes that creativity requires the
following essential elements to occur:
1.
Intelligence.
This includes synthetic intelligence or the ability to combine existing
information in new ways; analytic intelligence, the ability to distinguish worthy and nonworthy ideas; and practical intelligence, the ability to promote one’s ideas and persuade.
9
B R I N G I N G
N E W
T E C H N O L O G Y
2.
Knowledge.
3.
Thinking Styles.
4.
Personality.
5.
Motivation.
6.
Environmental Context.
T O
M A R K E T
This is the ability to recognize what is actually new. It also provides skills
required to undertake experimentation and design new products.
Creative people typically challenge current thought and rarely
passively accept conventional wisdom. So creative people also have a tolerance for
conflict.
Creative people tend to be risk takers, are courageous, and seem to persist
in the face of objection and criticism.
Creative people tend to be intrinsically motivated, setting their own goals.
They are less motivated by external or extrinsic motivators like money.
stimulate their creativity.
Creative people place themselves in environments that
Real creativity will not happen without all of these elements in place. Do you agree or
disagree? Can you think of a very creative person who did not display these characteristics?
Recall Drs. Yoshiro Nakamatsu and Claude Elwood Shannon from the case study at the end
of the chapter. Did they display these characteristics?
Sources: Standler, Ronald B. (1998). “Creativity in Science and Engineering,”
http://www.rbs0.com/create.htm#anchor1000010
Sternberg, R. J., Kaufman, J., & Pretz, J. E. (2002). The creativity a conundrum: A propulsion model of creative contributions.
Philadelphia: Psychology Press.
Sternberg, R. J., & Grigorenko, E. L. (2002). Dynamic testing. New York: Cambridge University Press.
Sternberg, R. J. (1997). Successful intelligence. New York: Plume.
Sternberg, R. J. (1997). Thinking styles. New York: Cambridge University Press.
Sternberg, R. J., & Lubart, T. I. (1995). Defying the crowd: Cultivating creativity in a culture of conformity. New York: Free
Press.
Why the Newest Products Succeed Best
The body of literature about what makes for a successful new product launch is growing.
Recently, Schneider & Associates in conjunction with Boston University and Harvard
University conducted a study focused on launches in the consumer packaging field. They
interviewed 12 launch experts and then surveyed 100 corporate executives who had been
working for at least five years in the field of consumer product launches.
The study found that “newness” was a key factor in determining the ultimate success of a
new product at launch. Here “newness” was defined as products that were totally new to
the company and those that were dependent on technology that was new to the company.
10
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
The most successful products were more likely to be based on breakthrough technology
than the less successful products.
They explained the findings by noting that, in general, more organizational resources are
allocated to products that have the potential to be highly successful. Second, it’s easier to
generate support internally for a new product that has huge potential. What do these
findings suggest about the kind of environment that companies should create to ensure that
they increase their chances of benefiting from “newness” in their product launches?
Source: Schneider, Joan. (2002). “The Launch: Why New Products Blast Off or Fizzle,” Visions Magazine.
http://www.pdma.org/visions/
My Favorite Creative Exercises
These exercises have been handed down and some form of them can be found in almost
any book on creativity. Have fun with them and your students will too.
Creative Activity A: Find Your Team
Objective:
To discover common backgrounds and form teams
In this exercise, the goal is for students to introduce themselves to as many people as
possible in a two-minute time frame. At the end of two minutes, the instructor will ask
them to form into groups of three. They have two minutes to find three things that they all
have in common—they cannot be job related (ie. You all work for the same company). As
soon as a group has its three common factors, it should shout out “we’re done.”
The discussion will revolve around looking at the types of commonalities found and the
advantages/disadvantages of those commonalities for forming a team.
Creative Activity #2: Pass the Problem
Purpose: To discover multiple solutions and opportunities from a single problem.
In teams, each person should think about a current problem or concern that needs a
solution or a need that hasn’t been met. Students should try to come up with a problem that
the typical consumer or business is facing. They will have 5 minutes to think and write their
problem or need on a piece of paper.
When the instructor cues the students, they should pass their papers to the person next
to them. That person reads the problem or need just received and jots down below it the
first thoughts that come to mind to solve the problem or address the need. The students
have 30 seconds.
This process is repeated every 30 seconds until each person gets his/her own sheet back.
11
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
Discussion Questions:
1. Did anyone discover novel solutions that you had not previously considered?
2. Can you see any value in trying some of these suggestions?
3. Do some of these suggestions trigger other ideas or solutions for you?
4. What lesson does this teach us about reaching out to technical students to assist
them in recognizing opportunities?
Creative Activity #3: Taking Advantage of a Disconnect
Purpose: To experience the opportunity creation process. To learn that one core
invention
can
produce
multiple
applications
and
opportunities.
This exercise is based on the premise that many opportunities are created by going through a
process that involves:

Connecting dissimilar concepts

Experimentation

Inventing something new based on connections and experimentation

Finding applications for the invention/opportunity created
Form groups of 3-5. Someone in each group should turn a piece of paper into a paper
airplane. Then the group decides on a word that they are going to write on the paper
airplane. It should be a noun. When all the groups have written a word on their airplanes, at
the signal of the instructor, each group flies its plane to another group. It is that group’s job
to add another word to the plane. This pattern continues for four rounds. On the last two
rounds, the word may be an adjective, adverb, or noun.
Then each group takes the airplane they end up with that has four words on it and
moves into Phase One – connecting the words in a relationship such that a potential
invention opportunity appears. Write that opportunity on the plane and label it
“opportunity.” Once all of the groups have completed this phase and at the signal of the
instructor, each group will send its airplane to another group. Phase Two begins. It is the
job of each group to consider the invention opportunity and enhance it by adding new
information. Write it next to the “opportunity.” At the signal of the instructor, each group
then sends their plane to another group. Phase Three begins. Each group will determine
the final invention opportunity based on the information given them and write it on the
airplane. At a signal from the instructor, Phase Four begins. Each group will send the
airplane to another group. It will be that group’s job to find an application for the invention
– in other words, how can it be used. At the signal of the instructor, each group will fly its
plane to another group and that group will find a different application for the invention and
write it as “Application 2” on the plane. This will continue one more time. The instructor
will then ask the groups to report on the applications created for their inventions.
12
B R I N G I N G
N E W
T E C H N O L O G Y

T O
M A R K E T
Additional Web Resources
This site
provides a reference guide to personal creativity and organizational
innovation. It is designed as a resource for developing personal creativity
and to explore the thinking and skills of artists, scientists, inventors, leaders and visionaries.
Creativity at Work.
http://www.creativityatwork.com/
This site provides a searchable database
of creative and original ideas. It’s free and encourages users to contribute new ideas.
Creativity Pool. http://www.creativitypool.com/
This
site provides a variety of resources for understanding and using creativity, including idea
recording, creativity kick starts, and an idea and problem bank.
Creativity Web. http://members.ozemail.com.au/~caveman/Creative/index2.html
This site was created to help users develop
their latent creativity through entertaining games and techniques.
Enchanted Mind. http://enchantedmind.com/
Higher Awareness: Creativity http://www.higherawareness.com/creativity.shtml
This site offers programs, coaching, and resources for developing creativity. You can also
sign up for a free weekly newsletter
Films to Rent
“The Deep Dive: One Company’s Secret Weapon for Innovation”
This film looks at how product development superstar IDEO uses a highly effective
form of brainstorming called the “deep dive.” It is a type of focused chaos that in
this film is used to redesign a shopping cart.
www.films.com
23 minutes
Item: BVL9249
Format: VHS
List Price: $129.95
Rental Price: $75.00.
“Intelligence, Creativity, and Thinking Styles”
This film explores how multiple intelligences and different thinking styles relate to
IQ and the role that creativity should play in the development of intelligence. It
includes an interview with Yale psychologist Robert Sternberg.
www.films.com
13
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
30 minutes
Item: BVL9173
Format: VHS
List Price: $129.95
Rental Price: $75.00
“Jamming”
This film is based on the work of John Kao in “Jamming: The Art and Discipline of
Business Creativity.” It proposes that creativity can be stimulated inside
organizations through innovative thinking and flexible improvisation.
www.films.com
41 minutes
Item: BVL7237
Format: VHS
List Price: $149.95
Rental Price: $75.00
“Oil on Canvas”
Here is a chance to think out of the box. This film explains and demonstrates the
art and science of painting. The discussion of creativity and thinking skills is drawn
from the masters of world art. This is a six-part series.
www.films.com
30 minutes each
Item: BVL7762
Format: VHS
List Price: $699.95

Answers to Discussion Questions
1. Provide two examples that illustrate the difference between an idea and an
opportunity.
The range of answers to this question is wide. If you consider the
Leonardo Da Vinci example in the section “Understanding the Creative Process,” you
see that the first two stages—connection and discovery—are really about the idea of
managing water flows. The invention itself is the bridge to the opportunity, which is
the application of the idea in the real world as a canal system—a business opportunity.
Any idea for a product is just that—an idea, until the inventor figures out a way to
apply that idea or commercialize it with a business model. That is precisely why so
14
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
many Internet businesses failed in 2000. They were simply ideas with no viable way to
make money by selling something of value to customers. Selling groceries online was
an idea with merit in some markets, but the idea involved delivering groceries free to
the consumer, a concept that prevented the idea from becoming a viable opportunity
because there was no way for the entrepreneur to make a profit under that kind of
business model.
2. What two challenges do you face in becoming more creative? How will you deal with those
challenges?
This question is designed to get students to look introspectively at who they are and the
role that creativity plays in their lives. After asking the typical question, “are you a
creative person?” and getting the typical response of no, it’s time to explore the kinds
of environments that students put themselves in during the day. Generally, you will
find that their work environments and educational environments do not inspire
creative thought. In fact, these environments may actually stifle creative thinking.
Once students understand the nature of their individual environments, begin to explore
ways that they can overcome them and provide for time each day for creative thought.
Get the students to come up with ideas that go beyond those suggestions presented in
the chapter.
3. Why is studying an industry one of the most important things you can do to find an opportunity?
It is generally agreed that increasing knowledge and experience in an industry in which
the student is interested will enhance the chances that they will find an opportunity they
want to pursue. In general most entrepreneurs discover their best opportunities in
industries in which they have had experience. Trends, changes, and emerging needs in
an industry present gaps or white spaces that can be turned into opportunities.
Learning an industry also means meeting all the players in that industry: suppliers,
competitors, manufacturers, distributors, and customers. By getting involved in the
industry and spending some time working in that industry, the student will develop a
diverse network of strong and weak professional ties that will be needed once the
opportunity is identified. Assuming they apply their newfound creativity to this
industry, they are likely to become very opportunistic and discover many problems that
need to be solved.
4. What do we mean when we speak of the economic life of a technology product? How does that
compare with technology life and product life?
The economic life of a technology product is the length of time during which it can
generate revenue for the business. As the chapter points out, that earning period is
affected by
15
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
a. the probability that the competition will be able to design around the patent and
develop competing product.
b. the probability that the patent will be challenged
c. higher than estimated technology development costs
d. the potential impact of new laws
e. the escalation of supply pricing or actual loss of supply
The technology life is generally determined by the patent period, which is 20 years
from the date of application, although some technologies have survived far beyond
their patent life.
The product life is the length of time that an application of a technology survives
before it is made obsolete by new technology entering the market.
16
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
3
Chapter
Developing and Testing a
Technology Business
Concept
B
efore you ever consider starting a business, you need to develop a testable concept
that can be proven in the marketplace with real customers. Absent that vital effort,
the chances of failure skyrocket. A business opportunity is described through a
business concept that spells out the product/service, customer, value proposition,
and distribution channel. That concept can then be tested using an analytical tool and
process called feasibility analysis to determine the conditions under which you are willing to go
forward with the concept, that is, start the business.
It is difficult to understand how instructors can teach students to write business plans before
making them go through the process of feasibility analysis. Without knowing that the
business concept is feasibility, a business plan is an exercise in fiction writing. The feasibility
analysis forces the student to carefully define the business concept and test the various
components of it in the marketplace with potential customers. This chapter

Discusses the development of the business concept

Details the analytical tools of feasibility analysis

Explains how to analyze an industry

Discusses technological feasibility

Details how to conduct a market analysis

Explains how to evaluate a distribution channel

Discusses the evaluation of the founding team

Suggests how to present an effective feasible business model
17
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T

Supplementary Lecture Material
The following material provides some “sound bytes” that can be used to
stimulate additional discussion or to inspire the instructor to introduce a
variety of new topics into the curriculum. As the field of technology
commercialization changes rapidly, it’s important to supplement the
foundational material in the text with current examples on a regular basis. For each of the
supplements a resource has been given and I encourage you to explore the original source
for additional information and links.
How About Molecular Farming?
Who ever thought that the drugs that save our lives may have come from green plants? The
reality is that for at least 16 years, we’ve been making human proteins from green plants that
are as biologically active as those made from mammalian, yeast, or bacterial systems. One
French company, Meristern Therapeutics, engineered corn to produce recombinant
mammalian gastric lipase used in treating exocrine pancreatic insufficiency. Although
molecular farming companies insist that they can produce more product than a cell culture
facility at a fraction of the cost, there is still the question of what will induce biotech and
pharmaceutical companies to adopt the technology? In other words, is molecular farming
feasible in a commercial sense?
One of the stumbling blocks to the acceptance of genetically modified crops is
environmental groups like Greenpeace who believe they pose a danger to animals, beneficial
insects, soil microorganisms, and the food chain in general. Still, all the companies involved
in transgenic plant-based manufacturing claim that it is far more cost effective than more
traditional biologics manufacturing. One company says that it’s “plant-based production
technology can make the same annual quantity of drugs with 200 acres of corn that a $300
million factory would produce using a mammalian cell-based system.”
With all these positives, why aren’t pharmaceutical companies buying? It appears that the
companies does the transgenic development must develop more data to convince pharmas
that the risk is small for using this process. In fact, the pharmas themselves are conducting
feasibility studies to evaluate alternative technologies. Only time will tell if molecular
farming will become the standard.
Source: Van Brunt, Jennifer, (Feb. 19, 2002) “Molecular Farming’s Factories,” Signals Magazine.
http://www.signalsmag.com/
Spying on the Competition
Studying the competition is one of the most important tactics an entrepreneur can use to
gather the market intelligence needed to successfully compete. In 1998, CEO and Chairman
of office-supply superstore Staples, Tom Sternberg, spent at least one day every week
dropping into one of his competitor’s stores as well as one of his own. He even visited the
18
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
stores of retailers that didn’t compete with Staples because everywhere he went he learned
something.
The purpose of “spying” on the competitors is not to validate what you’re doing but to find
out what they do better than you and learn from it. How does your competitor treat its
customers? Of course, there is a risk is copying your competitors, even what they’re doing
right. Just because it’s working for them doesn’t mean it will work for you. What is equally,
if not more, important is focusing on the customer and what the customer wants. That is
where visiting your own outlets helps because you want to see your company from the
customer’s point of view.
Source: Sternberg, Tom and Stephanie L Gruner, “Spies Like Us,” Inc Magazine, August 1, 1998.

Additional Web Resources
RHK Telecommunications Industry Analysis.
http://www.rhk.com/
This site is the leading provider of research and analysis on the
telecommunications industry. It is a good example of how you can stay
up-to-date in a particular industry.
Corporate Information.
http://www.corporateinformation.com/ussector/Energy.html
This site provides a wealth of information and resources related to the energy industry as
well as aerospace, automotive, chemicals, computers, construction, and electronics.
This site provides industry
analysis and resources on the biotech industry including genomics, proteomics,
bioinformatics, biotherapeutics, bioengineering, drug discover, and immunotech.
Bio.com. http://www.bio.com/industryanalysis/index.jhtml
http://www.signalsmag.com/
This is the online magazine of
biotechnology industry analysis. It provides analysis of trends of interest to those in
biotechnology, medical device, and pharmaceutical companies.
Signals Magazine.
This site is a free source of market
research information containing tools, articles, legislative information, and a directory of
market research companies.
ResearchInfo.com. http://www.researchinfo.com/
Films to Rent
“Interviewing the CEO, Part 2”
19
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
This film demonstrates how to gather primary data to help the researcher make an
investment decision. It uses an interview with the CEO and CFO of Tambrands, a
Procter & Gamble subsidiary.
www.films.com
23 minutes
Item: BVL11295
Format: VHS
List Price: $129.95
Rental Price: $75.00
“Adaptation and Innovation: Japanese Technology”
This film explores how the Japanese have learned from the West and in many cases
overtaken their teachers. It focuses on the semiconductor industry.
www.films.com
30 minutes
Item: BVL2013
Format: VHS
List Price: $89.95
“Amazon.com and the World of E-Commerce”
The first part of this program, filmed before the dot com bust, looks at Amazon.com
and Drugstore.com to see how they developed their competitive strategies. The
second part examines the rise of dotcoms and their affect on society.
www.films.com
29 minutes each
Item: BVL10069
Format: VHS
List Price: $89.95

Answers to Discussion Questions
1. Why is it important to define the business broadly but focus the business
concept?
The business should be defined broadly enough to allow for change
when the business environment changes. In the HeadBlade example in the text,
Greene did not say that he was in the razor business because that would limit the
potential of the business going forward. Instead, he chose to say that HeadBlade is in
20
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
the consumer products business, which allows for the opportunity to move in a
number of different directions as the company grows: accessories, apparel, and other
branded items.
The business concept is another matter. It should be very focused so that the various
components can be tested. The business concept is essentially the launch version of
the business. With limited resources and the need to gain a foothold in the market and
survive the challenging start-up phase, the business concept must be very focused and
target the initial customer who will most likely purchase from the business.
2. You have developed a new software product that more effectively performs natural language
searches through databases using voice recognition technology. What would your plan be for test
this product with customers?
This question is designed to get students to think about the kinds of information they
might want to capture from potential customers and how they will go about collecting
and analyzing that information. The section on Market Research in the chapter
highlights the critical information and suggests some ways to talk to customers. One of
the issues with this particular example is the need to have a physical prototype of the
product so that customers can actually use it in some form.
Any plan should include customer input at every stage of development of the product
through beta trials with early adopter types. With this type of product, simply using
storyboards to illustrate how the software works will not be very effective because
customers will not understand the concept of voice recognition and how it plays into
the uniqueness of the product.
3. Based on the product in question 2, what would you want to know about the industry to feel
confident that you could enter it with a new venture? Be specific.
In general, you will want to gather evidence about the volatility, complexity, and
uncertainty in the industry. Doing a Porter Five Forces analysis is one way to
characterize the industry and its players. Any industry can provide opportunities for
successful business entry under the right circumstances. For example, a stable industry
with major players can still offer a new venture an opportunity if that new venture has
defined a niche that is not being served or enters with a disruptive technology. As
presented in the chapter, some of the key questions to be answered include:
a. Is the industry growing?
b. Where are the opportunities? Trends and patterns of change?
c. How does the industry respond to new technology?
d. How much is spent on R&D?
e. Who are the major competitors?
f. Are young firms surviving?
g. What are the long-term trends?
21
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
h. What are the threats to the industry?
i. What are the gross margins in the industry?
4. What are some ways that you can fill in the gaps in expertise and experience in the founding
team?
This question will spawn a variety of responses including the following suggested in the
chapter:
a. Find a partner with the required expertise and experience
b. Form an advisory board and fill it with people who have expertise in areas you’re
lacking.
c. Outsource to another company for expertise you need.
5. Suppose you determine that there are not enough customers for the new product. What could you
do, short of abandoning the product?
You need to reconsider the initial target market you defined to see if perhaps you
missed a larger niche with customers who better understand your product. You would
certainly want to get input from your customers as to how you might modify the
product to encourage more sales. Finally, you should reconsider the business concept
to see if you can modify the conditions in such a way as to make it more feasible from a
revenue standpoint. Identify what is keeping you from gaining more customers and
work to change it, whether it be the distribution channel, something about the product
itself, or the value proposition, which may not have come across clearly to customers.
22
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
4
Chapter
High Technology Product
Development Strategies
T
he product development process has undergone a number of important changes in
the past decade including a new emphasis on business growth through R&D,
market capitalization of companies based principally on intangible assets, more
R&D resources being allocated to new business projects over basic research, and an
increase in the number of strategic alliances and mergers and acquisitions for the purpose of
acquiring technology. With all this activity being directed toward new product development,
it seems odd that the statistics on new product success are not very encouraging. One in
four projects started never sees the marketplace. Consequently, companies are constantly
looking for ways to improve their success rate.
The product development process is nonlinear and iterative beginning with the discovery or
recognition of an opportunity. This activity is followed by a period of technology screening
and platform identification to determine which project the company intends to undertake.
Once the technology is identified, technical and business feasibility activities take place
simultaneously and lead to a period of in-house and limited market testing with customers.
Today many companies outsource all or part of their product development activity to other
firms with core competencies in areas they do not have.
Many texts skip the discussion of product develop, and I wonder how students ever
understand how a new product idea goes from concept to physical product ready for the
commercial market.
Since the product development aspect of technology
commercialization is so important to the ultimate success of the technology in the
marketplace, the topic is worth of a chapter.
This chapter

Discusses the new product development process

Explains some metrics for product development

Considers how outsourcing of technology innovation can be implemented
23
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T

Supplementary Lecture Material
The following material provides some “sound bytes” that can be used to
stimulate additional discussion or to inspire the instructor to introduce a
variety of new topics into the curriculum. As the field of technology
commercialization changes rapidly, it’s important to supplement the
foundational material in the text with current examples on a regular basis. For each of the
supplements a resource has been given and I encourage you to explore the original source
for additional information and links.
Managing the Pipeline for Product Development Success
Pipeline management is the management of a company’s new product development
capacity. Given that most companies have limited resources that must be allocated across a
variety of projects, the ability to manage these resources becomes a critical component in
successful new product development.
Most companies use an approach that prioritizes projects so that they come into alignment
with the strategic goals of the company. But the reality is that many non-project demands
also put pressure on limited resources. In fact, a recent study found that subject matter
experts typically spend as much as 80 percent of their work week on non-project demands
instead of the project for which they are responsible. The Theory of Constraints (TOC) was
proposed to enable project managers to deal with non-project demands and to separate nonproject from project demands. TOC provides for buffers or safety days, which are
positioned at strategic points in a project, to give a measure of the status or health of a
project at any given time. In this way, project managers more effectively manage their time
as well as the project’s limited resources.
Source: Eugene Kania, “New Directions in Pipeline Management: A Theory of Constraints Approach,” Visions
Magazine, January 2002. www.pdma.org/visions/print.php?doc=jan02/pipeline.html
When One Product is Enough
Jinny Crum-Jones thought her timing was impeccable. It was early 1999 and she was search
for venture capital for her Internet software company, Persimmon IT, based in Durham,
N.C. Her latest product, UnifyIT, was designed to streamline the management of clinical
drug trials in the pharmaceutical industry and save millions of dollars. The problem was that
Crum-Jones did just have that one product in development. She had three, targeting
customers in different industries Why? Because she had received a sizeable investment from
German technology giant Siemens who took a 20 percent stake in her company, so she felt
confident that multiple products initially was the way to go. But the ramp-up in personnel
caused her monthly burn rate to escalate to $500,000 and none of the products was ready
for market when they needed to be.
Her efforts to find additional investment capital failed. Investors saw the company as
unfocused and too risky. Friendly money to the tune of $10 million kept the company alive
24
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
for a time. By April 1999, the company owed nearly $300,000 in back rent and was being
evicted. In May, Crum-Jones liquidated the company. Each of the products was acquired
by different companies. The lesson? In the early stages of a new venture, it’s important to
focus and become the best at one thing. When the company has established a foothold in
the niche it has created, it can begin to diversify its product line.
Source: Julie Carrick Dalton, “Start-Up’s Epitaph: One Product Beats Three,” Inc Magazine, February 1, 2000.

Additional Web Resources
Glossary of Product Development Terms
http://www.pdma.org/library/glossary.html .
Here you’ll find terms,
phrases, and definitions contributed by the directors, editors, and authors
of The PDMA ToolBook for New Product Development.
site focuses on the commercial
development of the space frontier. Here you can find out about NASA partnerships with
business to conduct research in space and develop products that can be used in space.
NASA Space Product Development http://spd.nasa.gov/
Product Development and Management Association (PDMA) http://www.pdma.org/
PDMA is a non-profit organization of corporate practitioners of new product development.
This site houses a number of resources including Visions magazine with interesting and
timely articles on issues related to new product development.
This is a free
association of new product development organizations inside major corporations. The
association conducts benchmarking studies to identify best practices among member
organizations.
Product Development Benchmarking Association http://www.pdba.org/
This site
is a source of information on new product development, concurrent engineering, integrated
product development as well as a number of other relevant topics. It provides a searchable
database of topics.
Product Development Forum http://members.aol.com/drmassoc/pdforum.html
This institute is dedicated
to helping companies improve their new product development processes using the work of
Robert G. Cooper. Recent articles and a description of the stage-gate process are provided.
Product Development Institute Inc. http://www.prod-dev.com/
25
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
Films to Rent
“Dr. Fad”
Dr. Fad is an unusual entrepreneur-consultant-professor who has the ability to
recognize the next multimillion-dollar market success. This is a 60 Minutes
presentation where he analyzes how these successes come about with numerous
illustrations.
www.films.com
14 minutes
Item: BVL2087
Format: VHS
List Price: $69.95
“Tissue Engineering: Custom-Made Organs on Demand”
This film features experts from MIT, the Georgia Institute of Technology, and
Advanced Tissue Sciences, a leader in tissue engineering technology. They discuss
the industry challenges and the need for difficulty of forming strategic alliances for
research and development.
www.films.com
22 minutes
Item: BVL11124
Format: VHS
List Price: $129.95
Rental Price: $75.00

Answers to Discussion Questions
1. As a product developer, what are the three most important things that should
be remembered when formulating a product development strategy?
In the section on Increasing R&D Effectiveness, the text points to
a. Forming internal links between technical and non technical groups recognizing that
it takes the effort and input of all areas of a company to create a successful new
product.
b. Involving customers and suppliers in R&D at very early stages of the process.
c. Measure the effectiveness of the product development process and make continual
26
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
improvements.
2. In what ways can a company increase its chances of designing right the first time?
Entrepreneurs can increase their chances of designing right the first time by getting
customers involved early in the design process so they can provide valuable input and
insure that the company is building a product that customers will purchase. Involving
the manufacturing, financial, and market areas of the business will make sure that the
company has the capability to produce, market, and distribute the product and that the
product design is congruent with those capabilities. Early prototyping will also
contribute to fewer design changes later on.
3. Every R&D project carries with it some degree of risk. Suppose an entrepreneur is proposing to
develop a wearable PDA that is unobtrusive and responds to voice commands. What are some of
the risks in the development of this product? How should they be managed?
Risk #1: There is no market for the product
Manage the risk by doing extensive market research before committing significant resources to the
project. See Chapter 3 for information about conducting market research.
Risk #2: The cost of R&D goes well beyond the budget due to design changes and reengineering.
Getting customers and other functional areas of the company involved in product design at the
earliest stages, as well as early prototyping of the product, will help to keep R&D within budget.
Risk #3: It takes too long to develop the product and get it to market.
Some ways to reduce cycle time include 1) documenting the workflow associated with the product
development process to uncover duplicated efforts, potential bottlenecks, and other problems that
might delay the process; 2) set goals for completion times; and 3) make the team accountable for
its performance.
4. What are the major advantages and disadvantages of outsourcing innovation?
Advantages of outsourcing include:
a. Sharing the risk of product development with others
b. Lowering the cost of product development
c. Decreasing cycle times
d. Developing a network of expertise.
Disadvantages include:
a. Daily familiarity that often distorts priorities and goals
b. Internal groups want to protect their turf.
c. Informal discussions are often not formalized in writing and, therefore, may be
27
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
forgotten or not implemented.
d. With the constant flow of ideas, the tendency to continually add new features and
improvements may actually slow the development process.
e. Face-to-face meetings are cancelled more often than electronic meetings.
28
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
5
Chapter
The Concept of Intellectual
Property
I
ntellectual property consists of all those proprietary rights in the form of patents,
trademarks, copyrights, and trade secrets that are granted by the U.S. Patent and
Trademark Office and the U.S. Copyright Office or through common law as in the
case of trade secrets. These IP rights give the holder the right to exclude others from
making and using the protected property. It is important that anyone involved in business
understand the role of intellectual property because every business, whether product
oriented or not, possesses some form of IP. This chapter serves to help the reader
understand the fundamentals of IP in terms of the specific protections provided and the
process for securing the protection. It also guides the reader in the decision of which IP is
appropriate for a particular situation. In addition, this chapter

Presents the theory behind intellectual property

Discusses the nature of trade secrets

Explains copyrights and how to obtain them

Details trademark law

Discusses patents and the process for acquiring them
29
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T

Supplementary Lecture Material
The following material provides some “sound bytes” that can be used to
stimulate additional discussion or to inspire the instructor to introduce a
variety of new topics into the curriculum. As the field of technology
commercialization changes rapidly, it’s important to supplement the
foundational material in the text with current examples on a regular basis. For each of the
supplements a resource has been given and I encourage you to explore the original source
for additional information and links.
Software Piracy Does Not Pay
John Sankus, Jr., age 28, was sentenced to 48 months in federal prison for conspiring to
violate the criminal copyright laws. Sankus was the leader of one of the oldest and largest
piracy rings on the Internet. He was known by his screen name “eriFlleH” (HellFire spelled
backwards) and was known for his ability to acquire new software and releasing it over the
Internet. His group, known as DrinkOrDie, consisted of 65 members from 12 countries.
The group used highly sophisticated technology and security devices to protect their
transmissions and they believed they were invincible. They would typically acquire software
from member “suppliers” days before it was released commercially by the victim company,
companies like Adobe, Autodesk, and Symantec. Many times, the companies from whom
they stole software were small start-ups that relied on the revenues from their software for
survival. Then “crackers” would defeat the copyright protections and allow for
reproduction.
Sankus was caught in the net of the US. Customs Service’s Operation Buccaneer, which is
the largest international copyright piracy investigation ever undertaken. Why do young
Internet users believe they have a right to make proprietary software free? What can
companies do to protect themselves?
Source U.S. Department of Justice, Press Release, May 17, 2002.
Copyrighting “Look and Feel”
In 2000, the Walt Disney Co. paid $21 million to Internet site GoTo.com to settle a dispute
over a green-light logo that it put on its Go.com web site that looked very similar to that on
the GoTo.com site. Disney was infringing on GoTo’s trademark and the copyright of its
Web design. This situation is not as straight-forward as it may appear on the surface as the
whole issue of the “look and feel” of a Web site design is very muddy under the law.
Copyright law does protect the “original creative expression” of ideas, not the ideas
themselves. So you can’t copy the source code from a design and paste it into your site
without violating copyright law. The question then becomes, how much is too much?
Source: Jill Hecht Maxwell, “Copying Web Design: How Much is Too Much? Inc Magazine, March 15, 2001.
30
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
The Status of the Doctrine of Equivalents
Over the past ten years, the Doctrine of Equivalents has been involved in a series of court
cases that have served to weaken its impact. Patents can be infringed upon literally or under
the doctrine of equivalents. A patent is literally infringed when the violator infringes on the
claims of the patent precisely and unambiguously. The doctrine of equivalents was designed
to prevent a potential infringer from simply making minor changes to the invention that
were not specifically stated in the patent application. In general, anything outside the claims
is considered to be in the public domain.
In March 2002, the Federal Circuit Court in Johnson & Johnson Associates, Inc. v. R.E.
Service Co., Inc. ruled that technical material disclosed in the patent application but not
claimed, that is, not specified as a claim of novelty in the patent application, is unclaimed and
thereby public domain and does not fall under the Doctrine of Equivalents. The court ruled
that using the doctrine of equivalents to cover subjects specifically left out of the claims
would “conflict with the primacy of the claim in the defining the scope of the patentees’
exclusive right.” (Sage Products, Inc. v. Devon Industries, 126 F.3d 1420, 1424 (Fed. Cir.
1997)) Still, a patentee who mistakenly fails to claim disclosed subject matter is allowed,
within two years of the grant of the original patent, to file a reissue application and enlarge
the scope of the original claims.
The outcome of this ruling will be that inventors will need to file broad generic claims to
attempt to cover all possible subject matter and to guess at every possible use or application
of an invention and its various components.
Sources: Scott Fields, “The Final Coffin Nail in the Doctrine of Equivalents?” Patent Café: Technology Enterprise
www.cafezine.com. May 8, 2002; Gregory J. Kirsch, “Narrowing the Doctrine of Equivalents in Patent Cases,”
GigaLaw.com, May 21, 2002.

Additional Web Resources
This site is a portal that
provides practical information about copyrights and many examples as
well as current issues in copyright litigation.
Copyright Web site http://www.benedict.com/
This About.com page provides
links to a variety of sources of trademark information including on to register a trademark
and search the various classifications for trademarks.
Inventors. http://inventors.about.com/cs/trademarks/
This is the companion site to the
trademark site on About.com. It provides some excellent links to information related to
copyrights.
Inventors. http://inventors.about.com/cs/copyrights/
31
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
http://www.patentcafe.com/
This site is a resource on a variety of things
related to patents, trademarks, and copyrights including licensing, an IP magazine, inventor
forums, and a young inventors site.
Patent Cafe.
Films to Rent
“Human Genes Decoded!”
This film explores the issues surrounding the mapping of the human genome and
whether aspects of it should be patentable. The perspectives are both private and
public and address the uses and possible misuses of patents and licensing of gene
therapies.
www.films.com
31 minutes
Item: BVL11198
Format: VHS
List Price: $129.95
Rental Price: $75.00
“Fred’s Story: Back in the Race”
Dr. Robert Klapper holds nine patents on an angled telescope and unique tools to
perform an operation to avoid hip replacement surgery in people with arthritis.
This is a Discovery Channel Production.
www.films.com
24 minutes
Item: BVL12024
Format: VHS
List Price: $129.95
Rental Price: $75.00

Answers to Discussion Questions
1. An inventor has just developed a new type of collapsible furniture that will be
useful for students in college dormitories where space is limited. What kinds
of protections should the inventor consider for this product and the business
that would be developed to commercialize it?
The inventor may be able to apply for a utility patent on the functionality of the
furniture if the collapsible feature presents a novel approach. He may also be able to
apply for a design patent to protect the appearance of the furniture. Certainly, the
inventor will want to trademark the name of the company that will produce and market
the furniture and may even trademark a name to describe the furniture. The inventor
will want to protect through secrecy any proprietary methods for producing the
32
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
furniture unless the process involves something unique and novel, which then may
make it eligible for a process patent. Promotional materials can be copyrighted.
2. An inventor has developed a new financial software application. What will determine if the
inventor may apply for a patent or seek copyright protection?
Software does not present a straight forward determination as to patentability. In some
cases patents can be obtained; in others, copyrights are the only mechanism for
protection. Recall that utility patents protect functional works whereas copyrights
protect expressive works. Software is both functional and expressive. Software can
always be copyrighted, but, in general, patents are more difficult to obtain.
Manufacturers now protect their investments in software development of test
functions, test methods, and failure-analysis systems through patents.
3. Why would an inventor choose to file a provisional patent application rather than a disclosure
document?
The provisional patent is more powerful legally than a disclosure document and
permits the inventor to label the invention as patent pending. Therefore, it provides
the same legal protections as a formal patent application, whereas a disclosure
document merely documents the date of conception of an invention.
4. For what reasons might an inventor decide not to patent an invention that is clearly patentable?
This question will spawn a variety of responses including the following suggested in the
chapter:
a. the patent process is relatively lengthy and costly
b. The patent would not be strong enough to withstand assault by copycats.
c. The company doesn’t want the proprietary technology or process disclosed through
a patent to the public.
5. What kinds of things are best protected through trade secrets?
a. novel and useful inventions for which the company chooses not to seek patent
protection
b. computer source code
c. manufacturing processes
d. designs and drawings
e. technical know-how
f. business information such as customer lists, vendors, supply sources, marketing
plans, and in-house talent
33
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
6
Chapter
Licensing Intellectual
Property
T
oday more than ever before, companies are finding that they need to diversify their
revenue streams so as not to rely solely on revenues from sales. They need to
license their technologies and define the benefits of that technology to the licensee
and conduct market research to determine if what the potential licensee says about
the market for the technology is reliable. They also need to value the license agreement,
which is a difficult task at best. The licensee must also do due diligence on the licensor and
prepare a business plan to demonstrate the licensee’s ability to commercialize the
technology. This chapter

Examines licensing form the licensor’s point of view

Explores licensing from the licensee’s point of view

Details the license agreement

Discusses a company’s licensing strategy

Supplementary Lecture Material
The following material provides some “sound bytes” that can be used to
stimulate additional discussion or to inspire the instructor to introduce a
variety of new topics into the curriculum. As the field of technology
commercialization changes rapidly, it’s important to supplement the
foundational material in the text with current examples on a regular basis. For each of the
supplements a resource has been given and I encourage you to explore the original source
for additional information and links.
34
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
A Toll Bridge for the Web
For years, software developers have argued that what makes the Internet powerful is that it
is free and its Web pages are available to any device that can connect to the Internet because
they’re free. But concerns about whether that freedom will continue stem from the fact that
many companies today hold patents on key components of what will be the next generation
of Web standards. The MIT-based World Wide Web Consortium claims that its goal is to
provide incentives for patent holders to participate early the in the standards process while
still protecting independent developers and those who advocate open-source software.
One of the basic Web standards in common use is hypertext transfer protocol (http), which
manages the communication process between Web servers where content is stored and
browsers where it is displayed. Developers declined to collect royalties for their software out
of concern for legal issues and the lack of a realistic way to collect the fees. Those on the
side of free and open software argue that the best software will be developed where
developers can take what someone else has developed and make it better. The opposing
argument is if no money is forthcoming to recover the large R&D costs of development, the
only developers that will play will be large companies and independently wealthy individuals.
Where do you stand on this issue and why?
Source: Wade Rouch, “Web Tolls Ahead? MIT Technology Review, January/February 2002.
How Much Protection Does a Patent Really Give You?
If you owned a patent on your invention, could the government suspend that patent for
period and require you to license it to the government at less than market value? The
answer is most certainly yes. Recall in October of 2001 a debate arose over the drug Cipro
(patent holder Bayer) needed to combat anthrax. The federal government questioned its
right to override the patent and require Bayer to supply it to the government at a
substantially lower price.
The precedent for government acquisition of private patents goes back to World War I
when the airplane was a new technology. At that time, Wright-Martin Aircraft (founded by
the Wright brothers) had a monopoly in the U.S. market. The Wright Brothers’ patent was
threatening to prevent the government from producing aircraft to fight in the war, so the
government demanded that the Wright Brothers license their broad patent for the airplane.
The outcome was the development of the most successful aircraft of the time, the Curtiss
JN-4D or “Jenny.”
In extraordinary times, should the government be able to take extraordinary measures to
safeguard its citizens? And should those measures include violating the intellectual property
rights of inventors?
Source: Seth Shulman, “Protecting People Above Patents,” MIT Technology Review, January/February, 2002.
35
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
DNA Patent was a Good Source of Revenue
In 1980, Stanford University received a patent for a “process for producing biological
functional molecular chimeras,” also known as the Cohen-Boyer gene-splicing patent, one
of the fundamental biological patents. It described a process for taking a gene from one
organism’s cells and inserting it into a bacterium to produce a protein, and in 1974, its
inventors, UC’s Herbert Boyer and Stanford’s Stanley Cohen, were not convinced that they
should even apply for a patent.
Stanford University and UC took an unusual tact with this patent. It made it available to the
world even before the patent was actually issued in the belief that the license should be nonexclusive and easily available to any company or inventor. The original license agreement
called for a $10,000 up-front payment and a minimum annual advance of $10,000 to apply
the patent. Royalties were in the range of 0.5% to 3% of sales. At the time the patent
expired in 1997, the two universities had collected in excess of $200 million. For Stanford,
the royalties represented about 62 percent of their licensing income; for UC, it was 29
percent.
In a side note, Herb Boyer later joined forces with venture capitalist Robert Swanson to start
biotechnology giant Genentech, Inc.
Sources: Joan O’C. Hamilton, “Stanford’s DNA Patent ‘Enforcer’ Grolle Closes the $200M Book on Cohen-Boyer,
Signals Magazine, Nov. 11, 1997.

Additional Web Resources
This site offers solutions to protect
inventors from “aggressive competitive patents.”
IP.com. http://www.ip.com/
This site is a free resource with
answers to questions about copyright law and licensing music for use and distribution over
the Internet.
Kohn on Music Licensing. http://www.kohnmusic.com/
Licensing Electronic Resources. http://www.arl.org/scomm/licensing/licbooklet.html
This site presents “strategic and practical considerations for signing electronic information
delivery agreements.” It also includes additional resources.
Films to Rent
“Biotechnology: Friend or Foe?”
36
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
The question raised in this film is “how should the knowledge of genetic science be
used?” Presenting a balanced view of the biotechnology revolution, the film
considers such issues as genetically modified food crops, gene patenting, and the
use of transgenic animals for organ transplants.
www.films.com
55 minutes
Item: BVL11530
Format: VHS
List Price: $149.95
Rental Price: $75.00

Answers to Discussion Questions
1. Why is it important today for any technology company to have a licensing
strategy?
A licensing strategy is important today because licensing speeds the
adoption of the technology and stimulates further innovation. Furthermore, it is often
more profitable for the owner of a technology to become a licensor than to try to
develop and market all the possible applications of the invention. There are also nonfinancial reasons to have a licensing strategy in place. Licensing lets the original
manufacturer enjoy the benefits of reaching multiple markets without the expense of
setting up distribution channels.
2. From the licensor’s perspective, what would be important to have in place prior to speaking to
potential licensees?
Prior to speaking to potential licensees, you would want to have completed a business
plan for the technology that defines a customer and supports a need in the market for
the benefit that the technology provides. You would also want to describe the ideal
licensee for the technology and the terms of any potential agreement.
3.
Suppose you have found a core technology that you want to license to develop and sell applications
in your industry. In addition to the technology, what would you want to have transferred under
the license agreement?
In addition to the technology, you would want to have the know-how transferred and
receive assistance in implementing the technology. In general, you would want all of
the information and tacit knowledge required to understand and use the technology.
4.
Under what circumstances might a technology company not want to license technology it owns?
It may not want to license technology that it needs to maintain a competitive advantage
in the market or technology that it uses in its processes to give it a unique advantage.
37
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
5. Why is it important to have a performance clause in the license agreement?
A performance clause specifies that the licensee must produce and sell a certain
number of units by a certain date to meet the terms of the agreement. This clause is
important from the licensor’s perspective to ensure that the licensee feels the urgency
to move forward and sell units.
38
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
7
Chapter
Intellectual Property
Strategy
I
ntellectual property is an increasing source of wealth, competitive advantage, and risk
for companies. The potential to create new revenue sources from existing patents that
have never been commercialized is enormous. At the same time, the need to defend
IP against infringers has never been greater. For these reasons and more, companies
need to have a well thought-out IP strategy in place that contains an arsenal of weapons,
strategies and tactics, to strengthen their proprietary position in the market and protect all
their forms of intellectual property. This chapter

Discusses the value of developing and ways to develop a patent strategy

Explores ways to create and defend a trademark strategy

Considers issues in intellectual property strategy

Supplementary Lecture Material
The following material provides some “sound bytes” that can be used to
stimulate additional discussion or to inspire the instructor to introduce a
variety of new topics into the curriculum. As the field of technology
commercialization changes rapidly, it’s important to supplement the
foundational material in the text with current examples on a regular basis. For each of the
supplements a resource has been given and I encourage you to explore the original source
for additional information and links.
Can a Yodeler Settle With Yahoo for Copyright Infringement?
Wylie Gustafson is a yodeler who performs with the band Wylie & The Wild West. Seems
that in 1996, he sang a three-note yodel for Yahoo, the Internet search engine company, and
was paid $590 for what he though was permission to use the yodel in a regional
advertisement. Recently, he heard his Yodel for Yahoo during the Super Bowl and on a
39
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
variety of other national broadcasts. That’s when he decided that he hadn’t been paid
enough and filed a lawsuit. Yahoo quickly responded, settled the disagreement and now has
permission to run advertising that claims, “Wylie Gustafson yodels on for Yahoo!”
Source: Associated Press, “Yahoo Yodeler Settles Lawsuit,” The Wall Street Journal, April 22, 2002.
Lawsuits as an Income Source?
Jerome Lemelson is known as one of the five most prolific investors of this century (he
received an average of one patent a month for more than 40 years) and for being the
individual patent holder who has earned more from licensing patents than anyone else,
nearly $1.5 billion. And he has been deceased since 1997. More than 750 companies pay
license fees on his portfolio of 558 patents, including companies like Alcoa, Ford, IBM, and
U.S. Steel. His organization is involved in over 400 lawsuits for patent infringement.
But recently, the Lemelson organization faced a lawsuit of its own brought by a group of
bar-code-equipment and machine vision manufacturers. Oddly enough, that is one group
that Lemelson never sued. The leader of the charge is Robert Shillman, co-founder of
Cognex, a machine-vision manufacturer outside Boston. Shillman himself holds 105 patents
on the technology. His goal was to invalidate the Lemelson patents and seven other
manufacturers joined him in the effort. No court “has ever made a substantive ruling on the
validity of Lemelson’s machine-vision and bar-code patents.” If Cognex wins a favorable
ruling in a case that goes to trial in August 2002, the Lemelson licensing program will
probably end. If it loses, the 400 companies that are currently in litigation with Lemelson
will likely begin to look at settlement. What do you think of this strategy for creating
revenues? Advantages? Disadvantages?
Source: Nicholas Varchaver, “The Patent King,” Fortune, May 14, 2001.

Additional Web Resources
A New Defense to Patent Infringement.
http://www.tkhr.com/articles/defpat.html This article by Jeffery
Kuester, IP attorney, explores a recent doctrine of “separate
patentability,” which is now recognized as a factor in “determining whether an accused
product infringes another patent under the doctrine of equivalents.” Read more about this
development at this site.
America’s Inventor.
http://www.inventionconvention.com/americasinventor/dec97issue/section16.html
This site is devoted to the art and science of invention and contains a wealth of information
and a tribute to Jerome Lemelson.
40
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
http://www.chillingeffects.org/index.cgi
This site is a joint project of
the law school clinics at Harvard, Stanford, Berkeley, and University of San Francisco and
the Electronic Frontier Foundation. It explores issues related to online rights.
Chilling Effects.
Films to Rent
“No More Privacy: All About You”
This interesting film starts with a camera crew that picks a car license number at
random from a freeway and they shows what they were able to learn from public
records in just half a day without permission..
www.films.com
59 minutes
Item: BVL4299
Format: VHS
List Price: $149.95
Rental Price: $75.00
“Selling the Future”
This film explores the electronic, technological, and conceptual world and what it
means to be a human in the age of technology.
www.films.com
52 minutes
Item: BVL5803
Format: VHS
List Price: $149.95
Rental Price: $75.00

Answers to Discussion Questions
1. In what ways can an effective patent strategy contribute to the success of a
technology venture?
a. Give the company a temporary monopoly that lets it take
advantage of a first-mover strategy in a market with no competitors. This position
helps protect core technologies and leverage them to create a family of branded
products.
b. Improve the company’s financial performance by better utilizing undervalued
41
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
intellectual assets and finding new ways to generate revenues and cross-licensing
agreements.
c. Increase the company’s competitiveness through cross-licensing and using patents as
bargaining chips to avoid high royalty payments.
2. What is the value of developing a trademark strategy?
Trademark infringement is increasing at a rapid rate are companies are now having to
exercise greater care in protecting their trademarks. Moreover, the growth of the
Internet has made the protection of trademarks much more challenging. To protect a
trademark against infringement, the chapter suggests that the company do the
following:
a. Conduct an Internet audit of domain names and trademarks on the Web and the
company’s email system to check for infringement.
b. Monitor the company’s domain name portfolio on a monthly basis
c. Perform a monthly audit of the Web, UseNet, and other areas where infringers are
likely to operate.
d. Check to make sure that appropriate trademark and copyright notices are posted.
e. Make certain that the company is entitled to use any images or content that appear
on its Web site.
3. What issues need to be considered when outsourcing innovation or collaborating on inventions?
As more companies outsource noncore competencies in an effort to speed up cycle
times and reduce time to market, they leave themselves vulnerable to those companies
for critical components of their business. Traditionally, companies have cross-licensed
intellectual property to avoid patent infringement claims, but today more of them are
seeking patent protections.
Trade secrets are far more difficult to protect under outsourcing arrangements. The
company needs to albel trade secrets as such and take measure to preserve their
secrecy. In the course of developing an intellectual property strategy, the level and type
of protection required is determined, and of course, with outsourcing, extra precautions
will need to be taken in the form of contracts and secrecy measures.
4. What steps should a company take if it suspects that an infringer is violating its patent?
If a company suspects that its patent is being infringed, it should do the following:
a. Have your intellectual property attorney review the potential infringement.
b. If warranted, send a cease and desist letter and, if appropriate, request for payment of
royalties.
c. If there is no response to the letter, your attorney can file an injunction to prevent
42
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
further manufacture or use of the infringing product. The attorney can also go to court
and seek to enjoin or close down the infringer’s operation.
d. You can attempt to seek a settlement or agreement between the parties that involves
an agreed-upon royalty in exchange for permission to use the patented invention.
43
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
8
Chapter
Building and Valuing the
Business Model
T
echnology is only one piece of the equation. Equally important is the issue of how
to make money and create value for shareholders, investors, customers, and value
chain partners. The biggest challenge today is how to sustain a good business
model over time and protect it from imitation that will dilute it. You have to think
of the business model as a dynamic, evolving part of the business concept that provides for
multiple streams of revenues and serves as a key source of the valuation of the technology
and the company.
Many students confuse the business model with the business concept. The business
concept is what you plan to do: customer, benefit, product/service, and distribution. The
business model is the economic model, that is, how you’re going to make money, achieve a
positive cash flow, and earn a profit. Today, more than ever and precisely because of the
smoke-and-mirrors business models of the dotcom era, investors are looking for business
models that are built are making a profit early in the business’s life.
This chapter

Discusses radical innovation business models

Explains the drivers of value

Presents some typical financial models for assessing value

Supplementary Lecture Material
The following material provides some “sound bytes” that can be used to
stimulate additional discussion or to inspire the instructor to introduce a
variety of new topics into the curriculum. As the field of technology
commercialization changes rapidly, it’s important to supplement the
44
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
foundational material in the text with current examples on a regular basis. For each of the
supplements a resource has been given and I encourage you to explore the original source
for additional information and links.
Reality Sets In
Historically, entrepreneurs have relied on their intuition to tell them whether or not to start a
business. In the up and down world of technology, intuition hasn’t always translated to
survival as a business. When Larry Broderick was debating with himself about what it would
take to get him to start a business, he came up with a list of 37 things, such as location, and
gut feel for the idea. But the most important of the criteria in his mind were price stability of
products and the ability to exit. That meant that he didn’t want to fall in love with a business
idea; he wanted to do something that had a serious business model behind it. He didn’t
want to rely on his passion over good judgment.
For Broderick, the list of criteria grew to 40 before he actually founded Denver-based
SteelWorks in the early 1990s.. On the financial side, he had 11 items including ability to
exit, margins, float (how fast would he have to pay vendors) and minimum rate of return on
investment. His plan worked because by 2001, company sales had grown to $25 million.
Source: Joshua Hyatt, “The Rationalist: The Death of Gut Instinct,” Inc Magazine, January 1, 2001.
A New Business Model for Transplants?
Replacements for aging or dying body parts have been the dream of scientists for thousands
of years. Certainly, contact lenses, peg legs, hook hands, and so forth were early versions of
these replacement parts. Organ transplantation has not had as easy a path. There are far
fewer organs than there is demand. So the future seems to lie in artificial organs from inert
materials that will not be rejected.
All of these approaches require millions of dollars just to implement clinical trials with
humans. For example, Denise Faustman, a professor of medicine at Harvard Medical
School, discovered that her laboratory mice were regenerating their pancreatic tissue and
were becoming independent of insulin. But it would take $1.5 million to make enough
tumor necrosis factor (TNF) to conduct clinical trials. Most investors tend to prefer the
mechanistic approach over the organic because the return on investment will come much
sooner than with an organic approach. It is expected that the organic approach will take at
least a decade more of research to find better ways to stop rejection and develop more easily
transplantable animal organs.
Source: Thomas Maeder and Philip E. Ross, “Machines for Living,” Red Herring, May 6, 2002.
45
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T

Additional Web Resources
http://www.valuationresources.com/
This
site provides a wealth of business valuation resources that include
publications, industry resources, economic data, public company
information, and so forth.
Valuation Resources.
Valuation: New York University.
http://www.stern.nyu.edu/~adamodar/New_Home_Page/valuation/val.htm#ch5
This site
provides good examples and explanations of various valuation techniques. It is searchable.
Films to Rent
“Optimizing the Value Chain”
This film uses an Italian clothing company to illustrate how value chains work and
how benefit is added at each stage from producer to consumer. While it is not
technology related, it does depict the concept of the value chain.
www.films.com
29 minutes
Item: BVL10834
Format: VHS
List Price: $129.95
Rental Price: $75.00
“Danger Behind Closed Doors: hidden Agendas and Power Plays”
This film uses the situation of a merger to expose how hidden agendas and power
plays can derail a business deal. It also treats the issue of valuation.
www.films.com
27 minutes
Item: BVL30191
Format: VHS
List Price: $129.95
Rental Price: $75.00
“Fundamental Concepts in Financial Management”
This film explains the concepts of risks and rates of return, the time value of money,
and bond and stock valuation.
www.films.com
46
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
40 minutes
Item: BVL5845
Format: VHS
List Price: $149.95
Rental Price: $75.00

Answers to Discussion Questions
1. What should an effective business model accomplish?
a. Provide for multiple revenue streams
b. Reflect the company’s position in the value chain
c. Reflect the company’s ability to defend what it is doing.
2. How do the drivers of value integrate with the business model?
The drivers of value are both tangible and intangible and they affect the valuation of
the company at every stage. The rate of growth will affect the business model; high
rates of growth require large infusions of cash through debt or equity vehicles. They
also produce higher valuations. In general, R&D can provide annual returns of 20
percent or more. Building the business model for an emerging technology is a
precursor to any valuation of technological intellectual property. The IP must be
identifiable and distinguished from other company assets. It must also be capable of
producing future economic benefits. A balanced portfolio also provides value because
a diversified and balanced portfolio provides a lot of flexibility, especially if one project
generates a lot of free cash flow. It can fund the launch of a new product. A solid
licensing agreement can also enhance the value of the technology and the company.
3. Which of the financial models for assessing value are most appropriate for a new technology
venture? Why?
Market value is the most appropriate assumption for new ventures. Therefore, the
most commonly used tool for valuing early stage companies is the discounted cash
flow model. It calculates the present value of the company’s projected cash flow for a
period of 3 to 5 years. Several factors should be addressed with any financial model:
a. the economic life of the intellectual property
b. the economic life of the technology
c. the transfer capability of the technology
d. restrictions on commercialization
e. the cost of developing a substitute product
f. the return on investment commensurate with the type of technology
4.
What is the primary disadvantage of cost-based valuation and how can it be rectified?
47
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
The biggest disadvantage of cost-based valuation is that there is no correlation between
the amount of money spent on researching and developing a new technology and what
the actual market value of that technology is. Cost-based methods are best used as
hurdle rates coupled with other methods to provide more accuracy.
48
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
9
Chapter
Funding the Technology
Start-up
N
ew ventures face the difficult challenge of finding the many resources they need.
At the same time, resource providers understand the risk of start-ups and
therefore are often reluctant to provide those resources. Seed capital is often
required to finish product development and it generally comes in the form of
friendly money and government grants. Once the business is operational, however, the need
for larger sums of money often requires that the entrepreneur seek capital from outside
sources like angel investors and venture capitalists.
Students, like many other people considering starting a business, automatically think that
what they need is venture capital. Nothing could be further from the truth. While it is true
that some high technology ventures with breakthrough innovations can secure professional
venture capital in the first round, these ventures represent less than one percent of all new
ventures started. It’s important to ground the students in reality before you begin to talk
about what the possibilities are. It’s a rude awakening, but having put that notion to the
side, you can get down to some creative thinking about what it really takes to fund a start-up
and where that money will realistically come from.
This chapter focuses on funding a technology start-up. It

Considers start-up risks and stages of financing

Explores the issues related to seed and early stage capital

Investigates government funding sources

Discusses the cost of raising capital
49
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T

Supplementary Lecture Material
The following material provides some “sound bytes” that can be used to
stimulate additional discussion or to inspire the instructor to introduce a
variety of new topics into the curriculum. As the field of technology
commercialization changes rapidly, it’s important to supplement the
foundational material in the text with current examples on a regular basis. For each of the
supplements a resource has been given and I encourage you to explore the original source
for additional information and links.
MouseDriver: A Start-Up Experience
This supplementary material follows the diary of two young entrepreneurs and was
presented in its entirety in Inc Magazine (see source below) and the Insider newsletters that can
be found at the MouseDriver.com web site. In 1999, Harrison and Lusk started Platinum
Concepts Inc, which makes computer mice “shaped like the heads of driver golf clubs.”
Right away, the two unique entrepreneurs learned the value of networking as they shared
their start-up story in real time with anyone who would read their newsletter. In fact, it was
one reader who actually put them onto the vacant massage parlor that became their first
official office.
At start-up they had no income, no venture capital funding, and their inventory was being
financed by credit cards. By August 11, 2000, they had paid themselves a salary only three
times in 13 months. They are still in business and still updating their clever and newsy dairy.
What is important about these diaries is that they realistically depict the highs and lows of
entrepreneurship in real-time as these two entrepreneurs were going through them.
Recommended use: Assign the diaries in three parts, beginning, middle, and end of the semester, for example.
Then use each part as a basis for discussing the material being discussed from the text at that point.
Mike Hofman, “An American Start-Up,” Inc Magazine, February 1, 2001.
http://www.mousedriver.com/history/insider.html
Start-up Funding for Medical Device Companies
The interest in medical device companies is increasing as the baby boom generation reaches
the stage where healthcare becomes critical and enormous demands are placed on the
healthcare system. This demand translates to opportunities for entrepreneurs to find ways
to improve therapies, reduce costs, or improve the quality of life as we age.
Medical device start-ups are often funded with venture capital or other forms of outside
funding. To attract the attention of funders, these entrepreneurs must demonstrate three
things:
1. A compelling market of about $350 to $500 million per year at a minimum.
50
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
2. A technology that significantly improves on existing technology and is protected by
patents.
3. An experienced team with a particular advantage in their market.
4. A solid business model with margins sufficiently large to overcome the costs of
R&D, clinical trials, and distribution.
Having demonstrated these achievements, the entrepreneur must also plot out how much
money is needed and when in the form of milestones. In general, the highest risk for the
investor comes in the early stages of the company, so the cost of money will be substantial.
Why are medical device companies more likely to get venture capital financing than other
types of technology businesses? Do the requirements that investors look for in these
ventures differ from what they require from any business they fund?
Source: Leslie Bottorff, “Funding a Medical Device Start-Up,” Medical Devicelink, January, 2000.
http://www.devicelink.com/mddi/archive/00/01/004.html
Putting Your Money Where Your Mouth is
When finding money becomes very difficult, you may have to look to your own resources to
solve a cash problem. Vivek Wadhwa did just that when his new business, Relativity
Technologies, began running out of money. He had tried the investor route but found the
terms more difficult than he was willing to bear. On top of that, investors were giving the
company a valuation that was below what it had been worth two years ago. It may have
been a reasonable valuation for the times, but Wadhwa couldn’t accept it. Relativity
Technologies produces software that brings older computer systems up to Internet
standards. Instead of raising $5 million of outside capital, he decided to reduce spending
and return to his original investors with a new deal. The management team offered to put
up $700,000 against a proposed $1.3 million from the investors at a lower valuation than the
previous year, but still significantly better than what the VCs were offering. Why did this
strategy work for investors? Why do you suppose Wadhwa took this route?
Source: Lisa Bransten, “Techie Puts his Money Where His Business Is,” The Wall Street Journal Online, May, 2002.
http://www.startupjournal.com/columnists/startinggate/20011206-startgate.html

51
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
Additional Web Resources
Converge Network Digest .
http://www.convergedigest.com/Startups/funding.asp
This site brings together information on companies in broadband and networking
technologies that have received funding. It is a searchable site, you can look by type of
company.
Raising Start-Up Capital Guide, Inc Magazine.
http://www.inc.com/finance_and_capital/guides/20797.html
This guide, written by Carole
Matthews, provides an overview of financing sources and links to additional information.
Small Business Administration Start-up Kit, “Finding the Money You Need,”
http://www.sba.gov/starting/finding.html
This site explains the various sources of start-
up capital and directs the user to SBA resources. It also explains how to prepare a loan
application.
Search Venture Capital Firms Online. Wall Street Journal Online.
http://www.startupjournal.com/partners/kennedy.html Here you
can search by industry
for venture capital firms that invest in that area.
Films to Rent
“Andrew Carnegie: Maverick Millionaire”
Andrew Carnegie, once the richest man in the world, revolutionized the steel
industry and then went on to become the world’s greatest benefactor when he gave
all his money away.
www.films.com
52 minutes
Item: BVL5143
Format: VHS
List Price: $89.95
“Bootstrap Capitalism”
The premise of this film is that micro-lending to entrepreneurs with no collateral
has value. The film talks about one such program and its business boot camp.
www.films.com
15 minutes
Item: BVL8615
Format: VHS
List Price: $69.95
“Dotcoms Gone Bust”
52
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
This film is a sequel to “The Internet Money Machine.” It tracks what happened to
TheGlobe.com and Pseudo.com after the dotcom bust
www.films.com
23 minutes
Item: BVL29093
Format: VHS
List Price: $149.95
Rental Price: $75.00

Answers to Discussion Questions
1. Suppose you want to launch a radical innovation. You have a working
prototype and have begun to test the early adopter market. It will take a lot
of capital to cross the chasm to mainstream adoption. What would your
financial strategy be?
The amount of money needed and the cost of capital at any point in time is a function
of the stage of the venture. During product development, the risks are generally related
to the technical feasibility of the technology and whether an effective and efficient
means of manufacturing is available. At this stage, friendly money, private investors,
and government grants typically fund the activities of the company. Once the business
is launched, the focus shifts to the market and the risks associated with entering the
market and capturing enough customers to create a critical mass for product
acceptance. That critical mass is required to push the product into the mainstream
market. At this stage, private investors and venture capital come into play as well as
strategic partners.
The response above presents the typical pattern and types of funding, but students
should be encouraged to use their creativity and to apply the question to a particular
industry or business to demonstrate that a financial strategy is a function of the
industry, the business model, the stage of the business, and where it wants to go.
2. Compare the roles and goals of angel investors with those of venture capitalists.
Angel investors generally fill the gap between friendly money and venture capital up to
about $1 million. Angel investors are private individuals, usually ex-entrepreneurs, who
want to participate in the venture, so they are not passive investors, for the most part.
Angels often band together in organizations to pool their resources. They also tend to
mentor early stage companies more than venture capitalists do. They like to invest in
53
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
industries with which they’re familiar and like venture capitalists, they place a lot of
importance on the management team. Also like VCs, they need a way to exit the
business, though they often stay with a business much longer than a VC would.
Venture capitalists manage professional pools of funds generally much larger than an
angel investor would have. Recently we have seen several billion dollar funds emerge.
What this means is that VCs typically make larger investments, usually in the second
round when the risk is less. They are attracted to superstar businesses with a unique
technology and a liquidity event such as an IPO or acquisition in its future. VCs
require higher rates of growth and returns on their investment in a shorter period of
time. They will require a big chunk of equity
3. What are the unique issues related to biotech start-ups that make them different from other hightech ventures in the start-up stage?
One of the unique issues related to biotech start-ups is the extraordinarily long research
and development period, about 7 to 9 years for a new drug, up to 5 years for a medical
device. This means that the venture team is constantly in fund-raising mode, which can
detract from its research efforts. Most biotech is licensed from universities and
research institutes and not owned by the company. It’s also very difficult to calculate
the value of biotech firms as their value is measured by intangibles such as their patent
portfolio and the credibility of their scientific team.
4.
What role does the government play in the commercialization of new technology?
Most radically new technology begins as basic research funded by government
agencies. Government grants also serve as seed capital for prototype development and
testing. SBIR and STTR grants as discussed in the section “Small Business Innovation
Research Grants” are specifically designed to encourage the transfer and
commercialization of technologies of U.S. companies with fewer than 500 employees.
5.
How can strategic partners be used to speed up the process of innovation and commercialization?
Strategic partners can provide an infusion of capital or in-kind expertise and capability.
Although cash from strategic partners is generally in smaller amounts, it can be the
cement to a relationship that carries with it long-term benefits for the new company.
Strategic partners can also supply a needed expertise that will help the new venture get
to market more quickly: manufacturing capability and distribution, to name two.
54
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
10
Chapter
Funding Growth
G
rowth is one of the most exciting times in the life of a new venture, but it
significantly strains the venture’s resources and generally requires infusions of
capital from outside sources if the growth is rapid. Entrepreneurs raise capital by
securing debt or selling equity stakes in their companies. Raising growth capital
requires a plan with milestones, triggers, and strategies for achieving the milestones. Since
venture capital is an appropriate source of funding for high technology companies, it is
discussed in this chapter. The liquidity events that VCs seek in a funding deal are also
discussed. This chapter

Compares the advantages and disadvantages of debt and equity for funding growth

Discusses how to prepare a financing strategy for growth

Explains the role and nature of venture capital funding

Discusses the private offering and how it is used to raise capital

Walks through the initial public offering and discusses its advantages and disadvantages

Explains how to present a business concept to investors

Supplementary Lecture Material
The following material provides some “sound bytes” that can be used to
stimulate additional discussion or to inspire the instructor to introduce a
variety of new topics into the curriculum. As the field of technology
commercialization changes rapidly, it’s important to supplement the
foundational material in the text with current examples on a regular basis. For each of the
supplements a resource has been given and I encourage you to explore the original source
for additional information and links.
55
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
Venture Capital Chinese Style
It was bound to happen. China needs Western technology to bring it into the 21st Century,
and it needs capital to do that—venture capital to be exact. China now has two venture
capital firms ready to do what U.S. venture capital firms do: bring new technologies to
market. NewMargin Venture Capital (funded by the Chinese government) and SanFrancisco-based Chengwei Ventures are bringing the best of Silicon Valley style funding to
China. Both firms were started by Chinese who were educated abroad.
The Chinese market is attractive just based on its size, more than a billion people, but the
reality is that about 250 million actually live in the major cities and have the income to
purchase U.S. goods and services so many successful U.S. companies have failed at
penetrating the Chinese market, companies like Qualcomm, Whirlpool, and BellSouth..
In an effort to attract the West to China, these new venture capital firms are offering an
“alternative to traditional foreign joint ventures and wholly owned foreign enterprises.” They
want to build companies that produce product for Chinese consumers. Since July 1999,
NewMargin has considered about 2,500 Chinese start-ups and invested in 17 of them.
Chengwei, which also invests solely in Chinese start-ups, chose to base out of San Francisco
to maintain its ties to the Silicon Valley, although they also have an office in Shanghai.
Both companies face enormous challenges in developing an entrepreneurial spirit in China
and that, in fact, may be their most important contribution. Both firms spend a lot of their
time coaching would-be entrepreneurs.
Source: Blaise Zerega, “What Would Mao Think?” Red Herring, October, 2000.
Time for a Buyout
With IPOs running hot and cold, many entrepreneurs have considered buyouts as a way to
grow because there appears to be money available to finance the purchase. Buyouts are also
a popular vehicle for management (called an MBO) that wants to purchase the firm it works
for, which is one way to get a business up and running more quickly than starting from
scratch. As a sidenote, the term management buyout replaced the term leveraged buyout (LBO)
when that term fell into disfavor after the junk bond excesses of the 1980s. In the late 1980s,
Wall Street could identify only about six buyout funds with $1 billion to invest. Today it is
estimated that there are at least 500 buyout firms with about $150 billion to invest.
A common scenario might be a new project team that, rather than spinning out of their
company to start a new venture to commercialize their technology, decides to put together a
buyout offer and purchase the firm for which they work so they can leverage existing
resources for the new project and have control over the destiny of the company. So that
this does not appear to be a hostile action, the entrepreneur typically approaches the own
and suggests that if he or she ever decides to sell the company, the entrepreneur would be
interesting in buying. Alternatively, the buyout firm could approach the owner on the
entrepreneur’s behalf.
56
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
Here is the way a typical simple buyout might occur. Of course, there are many variations.
The buyer:
1. Understands why he wants to do the deal and what he’s willing to pay for the business.
2. Determines how the company can make more money than it currently is.
3. Develops a business plan that is aggressive but achievable.
4. Negotiates an agreement with the seller, but with the help of an attorney. Since people
like to negotiate, it’s best to come in on the low side of value.
5. Negotiates a deal with an equity investor (the buyout firm).
6. With the buyout firm’s guidance, arranges bank financing
7. Conducts due diligence on the company
8. Closes the deal
in
Source: Paul B. Brown, “Buyout,” Inc Magazine, June 1, 2001.
What Happens When an IPO is not an Option
Look at the numbers in 2001. Only 1 out of every 39 companies completed an IPO and the
pipeline is rapidly drying up. Those that do succeed don’t seem to be pulling as much capital
as projected. Yes, IPOs have seasons and they will come back but no one knows when, so
entrepreneurs must consider the alternatives. In this new environment, the watchwords
seem to be “grow smarter, not faster.”
Current advice is, if you think you need capital to grow, stop first and consider how you’re
spending what you have. If you’re not breaking even, something is wrong and it’s not about
more money. The quickest way to find money is to start with customers and a profitable
business. It’s similar to the old adage about bankers—they’re most willing to lend you
money when you don’t need it! Sometimes it takes creativity to get to the next milestone:
getting upfront payments from customer, licensing your product to a major partner. The
bottom line is you must get your business in order and profitable before you go knocking on
the doors of investors.
Source: Rekha Balu, “(No) Exit Ahead?” Fast Company, April 2001.
57
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T

Additional Web Resources
This
site is a news collection, publishing, and consulting business about private
equity markets and growth company financing.
Capital Growth Interactive http://www.capitalgrowth.com/
CNNMoney. http://money.cnn.com/
Anything you want to know about money, you can
probably find at this site including investment advice.
This trade association
represents the venture capital industry. It provides research and professional development
for its members.
National Venture Capital Association
http://www.nvca.org/
This
fund was established in 1997 to make equity investments in early and expansion stage
women-owned and/or managed businesses. Though it is currently fully invested, the site
provides information and resources.
Women’s Growth Capital Fund http://www.womensgrowthcapital.com/home.cfm
Films to Rent
“Strategic Long-Term Investment Decisions”
This film focuses on cost of capital, the basics of capital budgeting, cash flow
estimation, and risk analysis.
www.films.com
50 minutes
Item: BVL5846
Format: VHS
List Price: $149.95
Rental Price: $75.00
“Warren Buffett: The Ultimate Entrepreneur”
Buffet’s Berkshire Hathaway is one of the most profitable companies in existence
today. This film is a rare interview with the founder, Warren Buffett.
www.films.com
25 minutes
Item: BVL9132
Format: VHS
List Price: $89.95
58
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T

Answers to Discussion Questions
1. When growing a company, why would an entrepreneur choose debt over
equity?
An entrepreneur might chose debt as a growth vehicle to avoid
giving up control of their company by selling equity. But today with more companies
having fewer tangible assets, it becomes more difficult to secure debt. Debt is
advantageous when the returns on the business exceed the cost of borrowing the
money, which includes search time interest, fees, and conditions. The entrepreneur’s
company generally achieves a profit sooner with debt because they have to generate
cash to service it.
2. What elements should an effective financing strategy contain?
a. vision of where the company will be in five years
b. identification of milestones for first customer, multiple customers, and multiple
products.
c. trigger points or what must happen to achieve each milestone
d. amount and timing of money to achieve milestones and five-year goal
e. the sources of funding most appropriate for the business and at each milestone
f. the appropriate financial instruments
g. the least amount of money required at each milestone
3. What is meant by control rights and how do venture capitalists exercise them?
Venture capitalists protect their investment during high risk stages through control
rights, which specify the allocation of control over the company and its decisions.
Typically, VCs exercise s disproportionately large share of control over the
entrepreneurs; control rights are not static but rather are changed and refined over
time; where significant asymmetric information exists, greater control rights are
assigned to the VC.
4. What effect does the timing of funding have on a growing venture’s success? Why?
Timing is everything. VCs typically stage an investment and tie funding to milestones
to reduce their risk. If the entrepreneur achieves the first milestone, which is usually
tied to profit and/or revenues, the VC will release the next stage of funding. From the
VCs point of view, timing the funding helps the venture achieve a consistent pattern of
growth without any stops and starts. From the entrepreneur’s point of view, it means
planning growth in stages and estimating the correct amount of capital required at each
stage.
59
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
5. What important tasks must take place prior to undertaking an IPO?
To undertake an IPO, the entrepreneur must have a compelling need to raise a
significant amount of capital for a specific purpose. The company anticipating an IPO
must immediately start acting like a public company; that is, it must begin to manage
the expectations of its investors and improve its ability to accurately forecast earnings
on a quarterly basis. It must also develop methods for communicating regularly with
stakeholders. The entrepreneur should also consult with many people who have gone
through the process and make sure that accounting systems and controls are in place.
60
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
11
Chapter
Moving From R&D to
Operations
T
he move from R&D to operations is a difficult one that requires a completely
different set of skills. Planning for operations is challenging for teams that have
been comprised primarily of technology people. At this stage, the team is being
pulled in a variety of directions as they grapple with unexpected technical issues at
the same time as they are trying to launch a company. Now the team has to define and
coordinate the various processes inside the new organization, in particular those that
contribute to the manufacture of the product. The team also has to determine the legal
form it will take.
Many instructors skip over the operations chapter in a book like this but that is a
mistake. One of the biggest problems technology teams have is managing the transition
from the laboratory to an operating company. Not only might they need a different
management team, but different advisors and funding sources as well. In the laboratory,
scientists and engineers had the luxury of failing, moving at their own pace, and being
accountable to no one but themselves. Now the picture changes. The team is under
pressure to generate cash flow for a business that has done nothing but burn cash during
product development. Needless to say, understanding what faces the team once R&D is
complete is critical to the success launch of a new venture. This chapter

Discusses the transition from R&D to operations

Explains the options for organizational models

Details the legal forms of organization
61
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T

Supplementary Lecture Material
The following material provides some “sound bytes” that can be used to
stimulate additional discussion or to inspire the instructor to introduce a
variety of new topics into the curriculum. As the field of technology
commercialization changes rapidly, it’s important to supplement the
foundational material in the text with current examples on a regular basis. For each of the
supplements a resource has been given and I encourage you to explore the original source
for additional information and links.
Jazz Improvisation as an Organizational Form
In the past, product innovation found itself in the domain of the rational-functionalist
paradigm, but that approach seems out of place today in a highly competitive and dynamic
environment. What is needed today is a flexible model with minimal structure based loosely
on jazz improvisation as in the world of music. Jazz improvisation involves composing and
performing almost simultaneously, that is, acting without prior planning. Now, that may go
against the grain of everything we teach because we tout the importance of planning, but the
reality is that in the everyday operating environment of the business, things happen that can’t
be easily predicted. Someone in the organization must be able to act and learn while doing;
in other words, someone must have the ability to improvise.
Improvisation has three characteristics: it happens while you’re doing something, it is
impromptu, and it’s deliberate. That word deliberate is important because improvisation is
not chaotic. It takes place inside a minimal structure that gives all the players some common
ground from which to work and everyone respects those norms. Within the common
ground are social and technical structures that are implicit and tacit to the group. One of the
early examples of this improvisational model was the skunkworks, a flexible organizational
form existing inside but apart from a large organization with the freedom to respond and
adapt to a changing environment.
Should the improvisational model be used inside an entire organization?
advantages and disadvantages?
What are
Source: Ken Kamoche, “Minimal Structures: From Jazz Improvisation to Product Innovation,” Organizational Studies,
September/October, 2001.
The Many Reasons to Use an Attorney When Selecting the Legal Form
1. Contracts: The entrepreneur will need to sign contracts for space, supplies, services,
not to mention employee contracts and contracts with investors.
2. Registering, licensing, and permits. The business may have specific legal
requirements because of the type of business it is. At a minimum, a business license
will be required.
62
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
3. Control: To avoid being responsible or liable or the wrongs of employees or
partners, you must choose the right legal form.
4. Multi-state business. Doing business across state lines means understanding the
requirements of the non-home state and what protections you have in your home
state that are not valid in the other state.
5. Strict conformity: It is important to understand how strictly you must conform to
the state laws governing your business or you may lose its benefits and protections.
6. Capital: The entrepreneur may need to raise money and will have to be fiscally
responsible. Each legal entity has its own requirements regarding the raising of
capital.
7. Variety of entities: There are many options within each general type of legal entity
that determine important things like liability and taxing.
8. Autonomy: Sometimes the things you make decisions about are decided for you.
Most states have Uniform Laws to fill in the gaps. You may not know these exist.
9. Tax. Each business form treats income tax liability differently and has different
advantages and disadvantages.
10. Liability: Each form has different protections and personal liability risks associated
with it.
Source: “Top 10 Reasons to Contact an Attorney Before Choosing a Business Form,” FindLaw.
http://smallbiz.biz.findlaw.com/startup/structures/be2_2topten.html?startup/ca

Additional Web Resources
American Management Association.
http://www.amanet.org/index.htm, This site contains articles and
resources related to the management of organizations. It is a trade
association for those in the management field.
This is a resource site of
the Institute for Operations Research and the Management Sciences. It provides a portal to
newsgroups, email lists, journals, and other resources.
Informs Resources. http://www.informs.org/Resources/
63
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
Society for Human Resource Management. http://www.shrm.org/
This is a resource site
for members and non-members alike. It contains news, articles, and professional emphasis
groups.
Films to Rent
“Reinventing the Corporation”
Using a hypothetical corporation, this film brings together a panel of experts to
wrestle with the issues of effective corporate governance and maximizing
shareholder value.
www.films.com
57 minutes
Item: BVL10430
Format: VHS
List Price: $149.95
Rental Price: $75.00
“Tom Peters: Radically Reengineering Business”
Tom Peters has some very radical views of how business needs to change itself.
Using four case studies, Peters presents a compelling case for change.
www.films.com
59 minutes
Item: BVL9210
Format: VHS
List Price: $149.95
Rental Price: $75.00

Answers to Discussion Questions
1. What are the key challenges a technology team faces when moving from
R&D to operations?
a. Operations require different skills than R&D, skills that most
technical teams don’t have.
b. It takes a lot of planning to include manufacturing and organizational processes.
c. Lingering technical issues must be dealt with simultaneous to the operations issues.
d. The team may require different business partners
2. Why is developing a mission statement so important to the new venture? What is the strategy for
constructing a mission statement?
64
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
Research has found a positive relationship between a company’s mission statement and
its performance. It’s a four-part process that includes determining what stakeholders
contribute to the performance of the company, identifying the components of the
mission statement (customer groups satisfied, customer needs satisfied, and the way in
which customer needs are satisfied), development of the mission statement, and
communication to the stakeholders.
3. Compare the commitment organizational model with the Silicon Valley model. Which is more
effective for a start-up company? Why?
The commitment model consists of an informal peer group that controls the activities
of the organization and becomes the cultural center of the organization. The Stanford
research discussed in the chapter found that the commitment model was the best
predictor of an initial public offering. This model also had the highest success rate
among all the models tested. By contrast, the Silicon Valley model relies on a mobile
labor force, independent contractors, signing bonuses and stock options, and draconian
working hours. In other words, it is a free agency model that does not encourage
commitment, so it’s difficult to develop a sustainable corporate culture.
4. Why is the corporate form the most popular for high-tech ventures?
a. It is a legal entity so it can survive the death or separation of its owners.
b. It offers limited liability and multiple classes of stock
c. It permits employee incentive plans such as pension plans and stock options.
d. It gives the business more clout, which makes it easier to form alliances and raise
capital.
65
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
12
Chapter
Marketing High Technology
H
igh-technology markets display a unique blend of market uncertainty, technology
uncertainty, and competitive uncertainty. A market-driven approach relies on
internal and external knowledge to find a solution to a customer need in the
market. By contrast, a technology-driven approach puts technology in the driver’s
seat without firm knowledge that a market even exists for it. This is the classic solution
looking for a problem. A more effective approach combines knowledge about the
technology with knowledge about customer needs and then tells a compelling story.
Breakthough innovations have a more challenging task because they address latent
customer needs, that is, needs that customers don’t yet know they have. In this situation,
entrepreneurs must seek out early adopters who are constantly seeking the latest technology.
This chapter

Presents the characteristics of technology markets

Identifies the key decisions for technology-intensive markets

Explains the value of understanding customer needs

Discusses how to collect market intelligence

Details how to price high-technology products

Explains how to develop a marketing plan

Discusses how to promote high-technology products.
66
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T

Supplementary Lecture Material
The following material provides some “sound bytes” that can be used to
stimulate additional discussion or to inspire the instructor to introduce a
variety of new topics into the curriculum. As the field of technology
commercialization changes rapidly, it’s important to supplement the
foundational material in the text with current examples on a regular basis. For each of the
supplements a resource has been given and I encourage you to explore the original source
for additional information and links.
Tales of Guerrilla Marketing
Guerrilla marketing is the entrepreneurial strategy for getting the most promotion for your
company without spending a lot of money. It was first championed by Jay Conrad
Levinson and now has a cult following. Here are some examples.
What do you do when you’re selling something that is not unique and there’s already a lot of
it? You mix it with something else and create a new product, even if it’s a fish! Dennis
Buchner was having trouble selling his minnows because the market was saturated with
minnows. One day he got the bright idea of buying hybrid minnows from a thousand miles
away and mixing them with other fish to create a brand new fish. He created a new fish that
everyone now wants.
Another guerrilla, Scott Matthew, president of Realty Electronics Inc. in Wisconsin,
developed what he calls a Talking House. It consists of a small radio transmitter that sits
in a house that is for sale. Customers can tune in on their car radios while they’re parked in
front of the house to hear a customized marketing message.
It is generally assumed that every business today has a Web site, which is a good source of
promotion. But helping people find your Web site is a more challenging task. David
Gresser attracts people to his sheet music catalog site by searching for music sites and
putting links to them on his site. Then he asks the webmaster of the site to which he
provided the link if they would do the same for him. Without much more effort than that,
he collected 50 links.
Source: Guerrilla Tactics http://www.gmarketing.com/tactics/tales_arch.html
Forget About Benefits
Kristin Zhivago was hired by a software company to analyze its Web site and recommend
how it could more effectively sell its products. She found the site to be well designed and it
was easy to navigate, but when it came to content, all she found was hype, no substance.
She soon discovered that the company had not talked to customers to find out what they
wanted to see on the site so they weren’t giving customers what they wanted. Zhivago
identified two reasons why the site was not effective.
67
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
1. The company thought it was supposed to be emphasizing benefits, but in fact, the
benefits they touted were all cliché. Customers were told that their businesses
would run more smoothly and given other promises that customers, who had heard
them time and time again, didn’t believe. Zhivago believes that the company needs
to answer the questions that customers have when they’re using the web site.
2. The marketing strategy made sense from the product point of view but not the
customer’s point of view. Again, talking with customers and getting their feedback
before the strategy is implemented will avoid this problem.
The bottom line is that technology companies need to get past the technology and focus on
the customer. The customer will tell them what they need to do to market the product.
Source: Kristin Zhivago, “ReadMe.1st,” Technology Marketing, May 28, 2002.
http://www.technologymarketing.com/mc/search/article_display.jsp?vnu_content_id=1471557
Getting Technology Adopted
The work of Everett M. Rogers has provided some key ideas about what it takes to get a
technology adopted.

Relative advantage:

Compatibility:

Complexity:

Testability:

Observability:
This is the “degree to which the new technology is perceived as
better than the idea it supersedes.” What that means is that customers readily see the
advantage of adopting the technology.
This is the degree to which the technology solves a real need and relates
to previous technology customers are accustomed to using. If the technology requires
that customer acquire a new set of skill, the switching costs may be too high.
If a technology is too technical, customers may shy away. Ease of use is a
critical element to adoption.
The adoption rate will increase if the technology can be tested by the
customer for a limited period.
This is the extent to which what the technology does can be seen.
Customers need to “see” the benefits.
Source: “how to Get Your New Technology Quickly Adopted,” Tutorial. MarketingProfs .com
http://www.marketingprofs.com/Tutorials/rogersforces.asp
68
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T

Additional Web Resources
Dr. Jakki Mohr’s Useful Links.
http://www.business.umt.edu/faculty/mohr/New%20Links/tech_links.h
tm This is the author of Marketing of High Technology Products and
Innovations cited at the end of the chapter. The site contains some good
links related to technology marketing.
Guerrilla Marketing. http://www.gmarketing.com/ This is the official site for Jay
Levinson’s guerrilla marketing tips.
MindBranch. http://www.mindbranch.com/ A community site for market research
across multiple industries. This is a good source for research publications and free white
papers.
Technology Marketing. http://www.technologymarketing.com/mc/index.jsp This
site contains news and reports on issues related to marketing in technology companies.
Web Marketing Info Center. http://www.wilsonweb.com/webmarket/ Here you’ll find
links to thousands of online articles about Web marketing.
Films to Rent
“Branding: The Marketing Advantage”
Using case studies of well-known companies, the film investigates the role of
service and relationship marketing as well as how a company should approach
globalization.
www.films.com
Item: BVL7229
Format: VHS
List Price: $799.95
“Creating Customer Value: The Essentials of Marketing”
This film deals with how companies successfully challenge industry leaders, turn
around negative public perceptions, or secure a niche in a crowded market.
www.films.com
46 minutes
Item: BVL10804
Format: VHS
List Price: $149.95
Rental Price: $75.00
69
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
“Marketing Research and Information”
This film provides information on how to gather consumer data.
www.films.com
9 minutes
Item: BVL10140
Format: VHS
List Price: $89.95

Answers to Discussion Questions
1. How do the characteristics of high-technology markets affect the marketing
strategy of a new venture?
a. Market uncertainty results from the difficulty in correctly assessing
customer needs and matching those needs to a particular technology application. In
addition, customer needs are changing at a more rapid pace and in unpredictable ways,
co customers will not adopt a new technology until they’re certain it will be the
standard. This means that entrepreneurs must be in constant communication with
customers and develop a variety of niches and licensing agreements to establish the
technology as the standard.
b. Technological uncertainty speaks to the question of whether the new venture can
deliver on its promises and meet the needs of customers. Customers are also
concerned that the technology will be rendered obsolete by new technology, given the
rapid pace of technological change. The technology company must develop a careful
marketing plan that secures its brand in the market and delivers on its promises to
customers.
2. What is the most effective strategy for collecting market intelligence?
a. vision of where the company will be in five years
b. identification of milestones for first customer, multiple customers, and multiple
products.
c. trigger points or what must happen to achieve each milestone
d. amount and timing of money to achieve milestones and five-year goal
e. the sources of funding most appropriate for the business and at each milestone
f. the appropriate financial instruments
g. the least amount of money required at each milestone
3. When pricing high-technology products, what factors should be taken into consideration?
Venture capitalists protect their investment during high risk stages through control
70
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
rights, which specify the allocation of control over the company and its decisions.
Typically, VCs exercise s disproportionately large share of control over the
entrepreneurs; control rights are not static but rather are changed and refined over
time; where significant asymmetric information exists, greater control rights are
assigned to the VC.
4. What is the purpose of a marketing plan? What is the value of compressing the plan into one
paragraph?
Timing is everything. VCs typically stage an investment and tie funding to milestones
to reduce their risk. If the entrepreneur achieves the first milestone, which is usually
tied to profit and/or revenues, the VC will release the next stage of funding. From the
VCs point of view, timing the funding helps the venture achieve a consistent pattern of
growth without any stops and starts. From the entrepreneur’s point of view, it means
planning growth in stages and estimating the correct amount of capital required at each
stage.
5. What role does branding play in the promotional strategy of a new high-tech venture?
To undertake an IPO, the entrepreneur must have a compelling need to raise a
significant amount of capital for a specific purpose. The company anticipating an IPO
must immediately start acting like a public company; that is, it must begin to manage
the expectations of its investors and improve its ability to accurately forecast earnings
on a quarterly basis. It must also develop methods for communicating regularly with
stakeholders. The entrepreneur should also consult with many people who have gone
through the process and make sure that accounting systems and controls are in place.
71
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
13
Chapter
Growing the High Tech
Venture
G
rowth is one of the most exciting times in the life of a new venture, but it
significantly strains the venture’s resources and generally requires infusions of
capital from outside sources if the growth is rapid. Entrepreneurs raise capital by
securing debt or selling equity stakes in their companies. Raising growth capital
requires a plan with milestones, triggers, and strategies for achieving the milestones. Since
venture capital is an appropriate source of funding for high technology companies, it is
discussed in this chapter. The liquidity events that VCs seek in a funding deal are also
discussed. This chapter

Compares the advantages and disadvantages of debt and equity for funding growth

Discusses how to prepare a financing strategy for growth

Explains the role and nature of venture capital funding

Discusses the private offering and how it is used to raise capital

Walks through the initial public offering and discusses its advantages and disadvantages

Explains how to present a business concept to investors

Supplementary Lecture Material
The following material provides some “sound bytes” that can be used to
stimulate additional discussion or to inspire the instructor to introduce a
variety of new topics into the curriculum. As the field of technology
commercialization changes rapidly, it’s important to supplement the
72
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
foundational material in the text with current examples on a regular basis. For each of the
supplements a resource has been given and I encourage you to explore the original source
for additional information and links.
Sustaining a Competitive Advantage
The goal of successful companies is not just to beat their competitors but to sustain
supernormal profits over a long period of time. What exactly is a sustainable competitive
advantage? It consists of a unique capability that makes a company stand out from the
crowd. Usually that capability must relate to at least one of the product features or benefits
upon which customers make their decision to purchase. Changing the rules of the industry
from the bottom up is another way to gain a sustainable competitive advantage. When a
company changes the rules, it puts itself in the unique position of being the only company
that knows the rules. One way to write new rules is to invest in new technology before the
rest of the industry understands that the current technology is about to be made obsolete.
This idea was popularized in the 1986 McKinsey Quarterly article describing technology scurves. What this theory says is that new technology yields a low return on investment in
the early stages. Then it moves into a period of rapid growth, followed by diminishing
returns as it moves toward commodity status and then obsolescence.
Some competitive advantages are worth more than others. To have real value, three things
must happen.
1. There must be a perception of a difference that customers can see.
2. That difference must fill a capability gap.
3. The difference and the capability gap must endure over time.
Source: “Gaining Advantage Over Competitors,” The McKinsey Quarterly, November 14, 2001.
www.mckinseyquarterly.com
Partnering is Sometimes the Only Way to Grow
The technology may be feasible; it appears you have a market, but there may still be a fatal
flaw in your growth strategy. Shazam is a UK-based company that lets a mobile phone user
identify songs heard in public places like an experienced DJ and even forward a 30-second
audio clip to a friend.
With $7.5 million in capital raised and a proven technology, it would seem that they are
ready to penetrate the market. But for this concept to be successful, the company needs to
develop a database of the music that people are most likely to hear in public, and that’s
where the rub is. It would take about 40,000 titles initially to launch the company. This
means scanning the most popular current music into the database. But the other problem is
for Shazam to work, it needs to keep people on the phone and wireless services could easily
begin to charge for the time it takes to send a 30-second music clip via a cell phone.
73
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
The record labels like the concept because it gets their music in front of more people. But
no one seems to know how to place a value on the service, so Shazam can’t get the labels to
sign with it. One of the issues is music rights; no one is certain exactly what rights apply to
Shazam’s service. The music-rights people want to protect the right to use and distribute
their content, but Shazam claims that its service is providing promotion for the music labels.
It believes that it’s in everyone’s interest to form alliances to work out rights issues and help
the recording companies reach more customers. It is only through alliances that Shazam can
develop a business model that will let it make money. In the UK, mobile phone services
have a three-way split: the operator, the service provider, and the tax collector. If a service
like Shazam collects, say, $100 in call charges from the customer, a portion (17%) would go
for taxes and the remaining $83 would likely be split between Shazam and the mobile
operator. That $40+ would have to pay for Shazam’s continued development and
overhead. If Shazam then had to pay rights fees of 15 percent, it could probably not make
money.
It is clear that to grow this company, relationships will have to be cemented that provide for
a win-win situation for all. Everyone will have to give a little for this to work.
Source: Michael Parsons, “I Got Music, I Got Algorithm,” Red Herring, May 9, 2002.

Additional Web Resources
Capital Growth Interactive http://www.capitalgrowth.com/ This
site is a news collection, publishing, and consulting business about private
equity markets and growth company financing.
Films to Rent
“Business and Industrial Growth, Part 1: From Boom to Bust”
This film explores the first three decades of the 20th century, from the
mechanization of agriculture to the mass production of consumer goods. It is
anchored by Peter Jennings.
www.films.com
29 minutes
Item: BVL10294
Format: VHS
List Price: $89.95
“Business and Industrial Growth, Part 2: Riding the Cycles”
In this film, Peter Jennings reviews the ups and downs of the U.S. economy, from
the New Deal to the early years of the Clinton administration.
74
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
www.films.com
40 minutes
Item: BVL10295
Format: VHS
List Price: $89.95

Answers to Discussion Questions
1. When growing a company, why would an entrepreneur choose debt over
equity?
An entrepreneur might chose debt as a growth vehicle to avoid
giving up control of their company by selling equity. But today with more companies
having fewer tangible assets, it becomes more difficult to secure debt. Debt is
advantageous when the returns on the business exceed the cost of borrowing the
money, which includes search time interest, fees, and conditions. The entrepreneur’s
company generally achieves a profit sooner with debt because they have to generate
cash to service it.
2. What elements should an effective financing strategy contain?
a. vision of where the company will be in five years
b. identification of milestones for first customer, multiple customers, and multiple
products.
c. trigger points or what must happen to achieve each milestone
d. amount and timing of money to achieve milestones and five-year goal
e. the sources of funding most appropriate for the business and at each milestone
f. the appropriate financial instruments
g. the least amount of money required at each milestone
3. What is meant by control rights and how do venture capitalists exercise them?
Venture capitalists protect their investment during high risk stages through control
rights, which specify the allocation of control over the company and its decisions.
Typically, VCs exercise s disproportionately large share of control over the
entrepreneurs; control rights are not static but rather are changed and refined over
time; where significant asymmetric information exists, greater control rights are
assigned to the VC.
4. What effect does the timing of funding have on a growing venture’s success? Why?
Timing is everything. VCs typically stage an investment and tie funding to milestones
75
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
to reduce their risk. If the entrepreneur achieves the first milestone, which is usually
tied to profit and/or revenues, the VC will release the next stage of funding. From the
VCs point of view, timing the funding helps the venture achieve a consistent pattern of
growth without any stops and starts. From the entrepreneur’s point of view, it means
planning growth in stages and estimating the correct amount of capital required at each
stage.
5. What important tasks must take place prior to undertaking an IPO?
To undertake an IPO, the entrepreneur must have a compelling need to raise a
significant amount of capital for a specific purpose. The company anticipating an IPO
must immediately start acting like a public company; that is, it must begin to manage
the expectations of its investors and improve its ability to accurately forecast earnings
on a quarterly basis. It must also develop methods for communicating regularly with
stakeholders. The entrepreneur should also consult with many people who have gone
through the process and make sure that accounting systems and controls are in place.
76
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
14
Chapter
Entrepreneurial Venturing
Inside a Corporation
A
lthough it is often believed that large firms have the advantage when it comes to
innovation because of their deep resources, the reality is that they don’t have a
good track record, in particular when it comes to radical innovation. One of the
biggest reasons is the inertia of success. Large firms are driven by current markets
and rigid financial structures that influence the way they look at new product investments.
Radical innovations are high risk projects that don’t make immediate financial sense. Still,
established organizations have one critical resource that most new start-ups do not enjoy:
the core competencies and tacit knowledge that have developed in the organization over
time. As long as those competencies don’t become core rigidities, the large organization will
still have some advantages over the new venture.
If you are teaching to a graduate population of students, the topic of corporate venturing
will be very relevant because many of those students will already be working inside large
organizations and they may have already discovered the processes and cultures that are not
effective to move from idea from concept to market. They will also want to know how they
can contribute to changing what may be a fairly bureaucratic culture to a more
entrepreneurial one; therefore, the content and suggestions in this chapter will be able to be
applied rather rapidly. This chapter

Examines the nature of corporate venturing

Discusses the role of change in facilitating corporate venturing

Explores the paths to corporate venturing

Suggests how to be successful as a corporate entrepreneur
77
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T

Supplementary Lecture Material
The following material provides some “sound bytes” that can be used to
stimulate additional discussion or to inspire the instructor to introduce a
variety of new topics into the curriculum. As the field of technology
commercialization changes rapidly, it’s important to supplement the
foundational material in the text with current examples on a regular basis. For each of the
supplements a resource has been given and I encourage you to explore the original source
for additional information and links.
A New Role for CTOs
CTOs of large corporations have taken on the role of corporate venturers, managing large
investment funds, incubating start-ups, spinning out companies with new technologies, and
supporting active R&D departments. In times when no new ventures are in the pipelines,
CTOs begin to look at strategic alliances and acquisitions to keep moving forward. For
example, Kodak is beginning to play in the wireless personal area networks (WPANs) area
and is supporting a new architecture for cost-effective memory chips by investing in a threedimensional semiconductor known as CMOS developed by Silicon Valley company Matrix
Semiconductor. Kodak believes that the only way to stay competitive is to invest in external
R&D instead of relying on its own incremental innovations. The strategy also lets Kodak
avoid all the disadvantages of in-house product development of radically new technologies,
something that established organizations have not effectively done.
British Telecommunications is approaching its corporate venturing from a different angle. It
has built a corporate technology incubator called Brightstar. Grandville, Michigan-based XRite, a manufacturer of color measurement instruments, uses online medical focus groups to
find and sell new products.
Does BT’s incubator approach have advantages over Kodak’s acquisition strategy?
Source: Eugene Grygo, “Corporate Venturing on the Edge,” InfoWorld, March 11, 2002.
Gaining Access to New Technologies
Before it became fashionable to acquire small companies for their technologies, Ventana
founder Tom Gephart had a goal “to link big business global enterprises with small
entrepreneurial technology companies to build billion-dollar enterprises.” He figured that
big companies need to find new technologies and small companies need access to the global
marketplace. He established what he called a “culturally sensitive link” between internal
strategic and financial investors and U.S. entrepreneurial companies.
From the beginning, Ventana’s investors came from all over the world. It tapped into the
rapidly growing pool of corporate venture funds and offered them the skills and
78
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
management expertise they didn’t have. Since 1984, Ventana has invested in more than 78
technology companies for its 76 global working partners in 20 countries, producing higher
than average returns for its investors. Each deal amounts to between $1 million and $2
million and is often the seed round for the start-up. When it comes time for a second
round, Ventana secures co-investors with larger funds.
Source: Business Editors, “Spotlight on Corporate Venturing,” Business Wire, June 20, 2000.
What it Takes to Innovate
Creating new innovations inside a large organization takes five different types of people who
are equally important.
1. Idea people. Find the people who have the ability to think out of the box and give them
the opportunity to use their talents to come up with new innovations for the company
to exploit.
2. Corporate entrepreneurs. Next you need the people who know how to take ideas and
turn them into opportunities. These people can recognize potential in a segment of the
market that is not being served and know how to do the market research and gather the
resources to make the opportunity happen.
3. The team. Every new venture requires a start-up team of entrepreneurial types who
bring with them a wealth of different expertise and resources.
4. The champion. This is the person in upper management in the organization who has
taken on this new project as his personal mission. This is the leading blocker and a
significant decision maker in the company.
5. The climate maker. This is the person who, when forward movement falters or support
for the project wanes, takes over and finds new sources of support and inspiration.
Source: “The Five People of Innovation,” The Pinchot Company.
http://www.pinchot.com/MainPages/BooksArticles/InnovationIntraprenuring/FivePeople.html
Approaching a Corporate Venture Model
When a large company invests in external R&D, it finds a win-win situation. As an investor,
it can access new technologies; as an investor in an in-house venture fund, it can send
technology it doesn’t want to develop to a new company it creates. While these approaches
are often used as examples of the benefits of the corporate venture model, rarely do you
hear about the pitfalls of the model.
One of the biggest problems with corporate ventures is related to the economics of venture
capital. A senior vice-president of a large corporation acting as general partner in a $300
million fund, if it’s successful and the partners receive 20 percent of the profit, which is
79
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
common, could potentially earn more than the CEO of the parent company. Furthermore,
it’s not uncommon for a fund manager to take his successes to the open marketplace and
seek a new position.
Another problem is that in the current environment, there is a lot of pent-up capital looking
for the best deals. That means that funds need to move quickly or lose an opportunity.
This can also mean that it’s easier to make mistakes.
What this means is that large companies need to think carefully about establishing their own
wholly-owned venture funds.
Source: Joseph Bartlett, “The Four Horsemen of the New Economy,” Fast Company, November, 2000.

Additional Web Resources
Capital Growth Interactive http://www.capitalgrowth.com/ This
site is a news collection, publishing, and consulting business about private
equity markets and growth company financing.
Intrapreneurship:
http://entrepreneurs.about.com/library/weekly/1999/aa040999.htm
Here is an article about the history of intrapreneurship. It serves as a value background to
the field.
Intrapreneurship in Japan: http://web.sfc.keio.ac.jp/~jjs/page9.html
Here is some
interesting information about how Japan is using intrapreneurship to recover from its weak
economy.

Answers to Discussion Questions
1. How are corporate ventures distinguished from other projects inside large
organizations and from entrepreneurial start-ups?
A corporate venture is distinct from other corporate projects in
several important ways. A corporate venture is a project that is new to the company
and carries a much higher risk of failure than other projects. A great deal of uncertainty
is associated with the project, so it often managed separately at some point in time.
Corporate ventures are generally undertaken to move the company in new directions,
reinvent the company, increase sales, or to help the company become more
competitive. Corporate ventures are distinct from start-up ventures in the depth of
their resources, which gives the corporate venture a significant edge over the
independent start-up. Their core competencies and the tacit knowledge they have
80
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
developed over time give them a significant advantage over start-ups. The gestation
period for a corporate venture tends to be nearly twice as long as that for an
independent start-up, taking much longer to reach profitability. Also, in the corporate
venture, the development schedule is usually set by people external to the project. In
start-up ventures, the founding team normally has complete control.
2. What are some of the reasons that corporate venturing has had a relatively poor track record?
Corporate venturing has had a poor track record because for large companies, the
projects undertaken are generally a much higher risk. Since large organizations are
generally driven by current markets and rigid financial structures that influence the way
they look at new product investments, they don’t normally fit well with the core
competencies of the company. Senior management is bound principally to achieve the
larger corporate goals, so it’s difficult to find a champion who will stick with a project.
It’s also difficult to get sufficient funding to support the proof of concept.
3. What is the role of the venture champion in taking a new idea to the project stage and beyond?
Venture champions are the corporate entrepreneurs who are willing to take a high
degree of risk to make the new venture happen. They have the technical skills and the
negotiating talent to get the firm past its natural tendency to stick to its core
competency and rely on incremental innovation. Venture champions are the keepers
of the entrepreneurial spirit inside large companies.
4. Consider the three paths to corporate venturing discussed in the chapter (skunk works, strategic
integration, and entrepreneurial immersion). What are the ramifications of each to the company
in terms of level of commitment and difficulty?
Skunk Works
Strategic
Integration
Entrepreneurial
Immersion
Level of
Commitment
Relatively low
Moderate level of
commitment
High level of
commitment
Level of
Difficulty
Relatively easy
Moderate level of
difficulty
High level of difficulty
5. What are the critical factors in becoming a successful corporate entrepreneur?
a. An entrepreneurial vision with support for entrepreneurship at the top.
81
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
b. The customer on the team to help drive innovation.
c. Experimentation and the acceptance of failure as part of the process.
d. Time for innovation as part of everyone’s job description.
e. Resources available for innovation.
f. Cross-disciplinary teams
g. Champions or sponsors empowered to influence and support a project from start to
finish.
h. Employee-flight incentives that give employees a stake in the new venture.
i. Core values but challenge everything else.
82
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
15
Chapter
Developing a Business Plan
for Sustained Innovation
B
usiness plans are an essential part of any venture, whether that venture be an
independent start-up, a rapidly growing company, or a new venture inside a large
corporation. Business plans have a different purpose than feasibility analyses.
Feasibility analysis is designed to test a concept in the market and determine the
conditions under which the business should go forward. In contrast, the business plan is
about designing a company to execute the business concept. The business plan answers the
questions:
1) What is the need that is being met?
2) Is there a team that can serve the need?
3) Why should this business be done now?
4) Will the venture return enough on the effort and investment to make it worthwhile to do?
5) Is there an effective execution plan for the business?
I will never say that businesses have not been started without a business plan in place
because chances are most businesses have not had them. But today’s business environment
is complex, dynamic, and unforgiving. In these circumstances, entrepreneurs will enhance
their chances of success if they go through the process of writing a business plan. This
chapter

Discusses the audience for the business plan

Presents the components of the business plan
83
B R I N G I N G

N E W
T E C H N O L O G Y
T O
M A R K E T
Explains the timeline for start-up

Supplementary Lecture Material
The following material provides some “sound bytes” that can be used to
stimulate additional discussion or to inspire the instructor to introduce a
variety of new topics into the curriculum. As the field of technology
commercialization changes rapidly, it’s important to supplement the
foundational material in the text with current examples on a regular basis. For each of the
supplements a resource has been given and I encourage you to explore the original source
for additional information and links.
What’s Your Next Business
In March 2002, Inc Magazine decided to ask some of the movers and shakers in the business
what business they would start given the economic climate at the time. Of the 12 people
they talked to, only one said he would not start a business in the 2002 economic climate.
Here’s a summary of what a few of them had to say.
Michael Dell, Dell Computer Corp. He would look for a different market where there
wasn’t so much pressure in terms of efficiency and pricing.
Gary Hoover, Bookstop Inc. (now part of Barnes & Noble) and Hoover’s Inc (Hoover’s
Online). He would consider something in financial services, health services, travel, and
education. All of these are based on the aging of the baby boomers.
Paul Saffo, Institute for the Future. He advises looking for something that has been failing
for about 20 years because it takes about that long before a new technology like wireless
really takes off.
Bob Johnson, Founder and CEO of BET Holdings II Inc., the parent company of Black
Entertainment Television. He would start a business aimed at the growing-older generation,
perhaps a medical facility focusing on total wellness.
Terri Lonier, Founder and president of Working Solo Inc. She would start a business that
helps people learn how to start businesses. It would have in-person centers and online
programs.
Source: Thea Singer, “What Business Would You Start?” Inc Magazine, March 1, 2002.
Here’s a 60-Second Business Plan
The invention is a cross between a mountain bike and a pair of skis and it provides the
ability to climb and steer on wheels while at the same time permitting the gliding and carving
of skiing. Will Page patented the steering system and named the product Crosskates. His
target customers are adventure oriented people in their twenties and thirties and it’s a billion
84
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
dollar market, according to Page. But his research also discovered that Rollerblade, the
industry leader, recently took its off-road inline skates off the market due to lack of interest
and too small a market. Page claims that his product is superior and that his $750 price tag
(twice that of Rollerblade’s model) is not an obstacle. Still, he understands that building a
phenomenon is time-consuming and costly.
Page raised $200,000 from his personal savings, another $500,000 from angel investors, and
$500,000 in bridge financing from current investors. What are his chances? Is this a viable
business plan?
Some entrepreneur experts weighed in on the concept.
David Moross, CEO of Sports Capital Partner, a private equity firm, rated the concept a 3.5
on a 10-point scale. He believes the market is too small and the price tag is too high. He
considers the product too high risk and faddish.
Marc Sani, publisher of Outdoor Retailer and Bicycle Retailer & Industry News, rates it a 5. Again,
he believes it will only appeal to the hard core inline skaters and the market is too small.
Robert Carr, editor of Inside Sporting Goods, gave it an 8.5 saying that he thought the product
was great and had the makings of a follow-up to Rollerblade, but it needs a lot of
professional exposure. Like Rollerblade, this company will need to focus on marketing and
a continual stream of improvements.
Source: Tahl Raz, “60-Second Business Plan: Downhill and Dirty,” Inc Magazine, February 2, 2002.

Additional Web Resources
Center for Business Planning.
http://www.businessplans.org/
This a library of resources and links to hundreds of sites containing
research materials related to business planning.
MIT Enterprise Forum Inc.
http://web.mit.edu/entforum/www/Business_Plans/bplans.html
Here is a comprehensive
collection of resources focused on writing a business plan.
Moot Corp Competition Business Plans. http://www.businessplans.org/mootcorp.html
Here you can find examples of business plans written by MBAs from some of the best
business schools in the world. These were selected by panels of investors.
Films to Rent
“Formulating a Business Plan”
85
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
This program has three modules that consider the process of creating a business
plan from three perspectives: the market, the financial feasibility, and potential
investors.
www.films.com
30 minutes
Item: BVL10841
Format: VHS
List Price: $129.95
Rental Price: $75.00
“Planning”
Here the direct of the Pennsylvania Small Business Development Center at the
Wharton School looks at planning in businesses and how a business plan should be
developed..
www.films.com
25 minutes
Item: BVL2003
Format: VHS
List Price: $89.95

Answers to Discussion Questions
1. In what ways is a business plan different from a feasibility analysis?
Business plans have a different purpose than feasibility analyses. The
feasibility analysis is designed to test a concept in the market and
determine the conditions under which the business should go forward. In contrast, the
business plan is about designing a company to execute the business concept. The
business plan serves as a reality check for entrepreneurs to make sure that they are
committed to the concept. The process of doing a business plan uncovers flaws and
potential challenges that might not otherwise have been seen. The business plan is also
a living guide to the business and a statement of intent for third parties.
2. How would an investor’s view of the business plan be different from a banker’s view? A strategic
partner’s view?
Investor’s view: They are interested in appreciation of their investment, how they will
reap the rewards of their investment (the exit strategy), and whether the management
team can execute the business concept.
Banker’s view: They are most interested in the company’s ability to repay any loan, so
they look at gross profit margins and cash flow.
86
B R I N G I N G
N E W
T E C H N O L O G Y
T O
M A R K E T
Strategic partners: They look at the business plan to determine how much business they
might get in the future. They also want to know that the new venture can pay for the
work the partner does on behalf of the venture.
3. What is the strategic role of the executive summary?
The executive summary is perhaps the most important document relative to the
business plan because it is the first document an interested party typically sees. It is
designed to give a potential investor or other interested party enough information to
stimulate their interest, but no enough to disclose anything proprietary.
4.
How is a business plan for a growing company different from one for a start-up?
A start-up business plan focuses on the business concept, but the business plan for an
existing business that is attempting to grow has a different focus. It must show how
the business will use the capital is secures to grow the business to a particular milestone
and it must demonstrate that the company has an effective and experienced
management team in place.
87
B R I N G I N G
N E W
T E C H N O L O G Y
T O
88
M A R K E T