Business Skills for
Chemical Scientists
The Basic Rules of
Business
Every Business Starts with a Plan!
 The business plan gives credibility to your proposal
 A statement of business goals
 The reasons these goals are attainable
 The plan for reaching those goals over the next 3 – 5 years
 A business plan typically contains:
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Background information about the company & management
Background information about the product/service
Analysis of the market and a marketing plan
Business strategy i.e. how you will implement the plan
A forecast of the financial profit and costs
Basic Business Plan Structure
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Title, legal notices, company details etc.
Executive Summary
The Proposition – description of the product/service/technology
Market Research – size, structure, drivers and competition
Market Validation – proof the customer will buy your product at your price
Marketing Plan – how you will get your product to the customer
 Advertising, PR, promotion, sales, sales forecast
 Beating the competition, IP protection, patents
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Operational Plan – the nuts and bolts of your business
 Manufacturing, distribution, premises, personnel, management team etc.
Exit Strategy – timescale, forecast etc.
Financial Plan – cash flow, P&L, balance sheet, investment needed and when
Appendices – full CVs of management team, external reports etc.
See hand out for an example
Communicating Your Plan
There are many methods of communicating your business plan
 The ‘Elevator Pitch’
 Pitching to investors (e.g. the ‘Dragons’ Den’ pitch)
 Written report (typically 20 – 40 pages)
Every business plan is different and must be tailored to it’s
audience. Typical audiences include:
 Investors (e.g. banks, venture capitalists etc.)
 Customers
 Internal management
Learning Outcomes
This presentation aims to introduce some of the basic skills,
concepts and understanding you need to develop your
business plan
Many of these skills will form the basis of your group’s ‘Dragons’
Den’ Pitch at the end of this course
These skills include:
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Market awareness (i.e. market need)
Business strategy – understanding your capabilities
Project management
Reward and risk management
Considerations for gaining investment
Methods of commercialising your idea
Market Need
We all have ideas, but how do we:
 Pick winners?
 Maximise progress and financial return?
 Minimise the risk of failure?
Success!!
Success starts with
understanding the
needs of your market
Market
Need
Your
Capability
Reward
£
Market Need
Megatrends in society drive market need
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Growing & Aging Population
Energy Demand & Climate Protection
Disease and Urbanisation
Mobility and Transport
Technology Changes….etc.
You can only sell things if people want to buy them
People (largely) don’t want things, they want what
those things do for them
Understanding Your Market
You need to understand:
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What is the problem that you are addressing?
What is your solution?
Who is your market (i.e. who benefits)?
Where is your market, what is it’s size and can you access it?
Is your market growing or declining?
How long can you stay in this market?
Who are your competitors in this market?
Are there significant regulatory costs & requirements?
How much money can you expect to make?
It takes much research to get a good picture of your market
Prozac
Prozac is an anti-depressant drug
developed by Eli Lilly in 1974.
It was submitted to the FDA in 1977 and approved in 1987.
It came off patent in 2001.
Q. What was the marketing position of Prozac in 1987?
What is the problem is that Prozac addresses?
 It improves the quality of people’s lives
 Major depression, OCD, bulimia nervosa, panic disorder
What is Eli Lilly’s solution?
 Make (through considerable R&D) a new anti-depressant drug
Who is the market for Prozac (i.e. who benefits)?
 Society & the people with depression and other related disorders
Where is the market for Prozac? What is the market size?
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People worldwide suffer from depression
17% of Americans have major depression
Typically 8 – 12% of the population worldwide, or 500 – 800 million people
worldwide
Can the market be accessed?
 Yes, but drug regulations will restrict access to different markets worldwide
Is the market growing or declining?
 Prozac is the first and only treatment for depression on the market
 The market will grow through better awareness and diagnosis of depression
How long can Eli Lilly stay in this market?
 Eli Lilly can dominate this market until the patent expires in 2001
Who are Eli Lilly’s competitors in this market?
 None in 1987 – Eli Lilly had a patent stopping others making Prozac
 Other, non-related anti-depressant drugs may be developed
Are there significant regulatory costs & requirements?
 Yes & these costs are significant (R&D, clinical trials, patents etc.)
 These costs need to be recouped before profit is made
How much money can Eli Lilly expect to make?
 Predicted to be no more than $70 million per year in 1987
Prozac – Looking Back from Today
In it’s first year, Prozac took $350 million in sales
Between 1987 – 2001 Eli Lilly made $21 billion from Prozac sales
Prozac came off patent in 2001
 Eli Lilly could not longer exclusively make Prozac
 A range of generic drugs were released onto the market
 This cost Eli Lilly $2.4 billion per year in sales
Prozac generics are still popular today
 In 2010 there were 24.4 million prescriptions of Prozac generics
 Still the 3rd most prescribed anti-depressant
Summary – Market Need
 You must understand the needs of your market/customer
 This takes considerable market research
 Key points….
You can only sell things if people want to buy them
People don’t want things,
they want what those things do for them
Capability
Your capability to develop
and deliver your product to
your market
Business
strategy
achieve your goal
make money
Success!!
Market
Need
Your
Capability
to
and
Reward
£
Capability
Development of your concept
 Do you have a proven technical concept with unique attributes?
 Do these attributes match the market need?
 Will it sell?
Can you manufacture, distribute and market your product?
Are there any regulatory issues to overcome (e.g. FDA approval)?
Do you have freedom to operate from patents?
Do you have a sustainable competitive advantage?
 Is your technology protected through patents?
 How will your competitors respond?
Does this product fit in your existing product portfolio?
Assessing Your Capability
SWOT analysis is a strategic planning method used to assess
your capability to develop and deliver your product to the
market
It assesses the Strengths, Weaknesses, Opportunities and
Threats to a project or business
EXTERNAL ORIGIN
INTERNAL ORIGIN
HELPFUL
to achieve the objective
HARMFUL
to achieve the objective
Strengths
 What advantages does your company have?
 What do you do better than anyone else?
 What do people in your market see as your strengths?
Weaknesses
 What could be improved?
 What are people in the market likely to see as weaknesses?
Opportunities
 What interesting trends you are aware of?
 Useful opportunities can come from megatrends e.g. social patterns (population,
lifestyle changes etc.), markets, government policy, changes in technology etc.
Threats
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What obstacles do you face?
What is the competition doing?
Are the required specifications for products or services changing?
Could any of the weaknesses seriously threaten the business?
Summary – Capability
 You must understand the capability of your company to
develop and deliver your product to your market
 A SWOT analysis assesses the Strengths, Weaknesses,
Opportunities and Threats to a business or project
 These SWOTs are influenced by both internal and external
factors, some of which are helpful and some harmful to your
business
 What next….?? A SWOT analysis must lead to the
development of an ACTION plan or set of recommendations
to achieve your chosen goal
Project Management
Project management is the planning, organising and management of
resources to achieve a specific goal
Projects are usually constrained by time, funding (budget) and resources
Stage–Gate Model of Project Management
The project is divided into manageable stages separated by gates
A Stage
 Specific planned actions take place to achieve planned deliverables
 Analyse the deliverable, and propose an action plan for the next stage
A Gate
 This is a decision point
Go. Kill. Hold. Recycle.
 Assess the quality of deliverables – does the project make business sense?
Idea
Gate 1
Initial screen
Stage 1
Preliminary Investigation
Analyse the product, market & competition
Stage 2
Business Case
Product definition, market research, production costs, legal & regulatory etc.
Estimate time, personnel, financial resources  FEASIBILITY REVIEW
Stage 3
Development
Execute plans from stage 2 – make a prototype and develop a marketing
and sales plan
Stage 4
Testing & Validation
Validate the project  the product (field testing), manufacture, customers,
financial merit
Stage 5
Launch
Plan marketing, sales, distribution, pricing, estimate the initial demand
Gate 2
Second screen
KILL or
RECYCLE
KILL or
RECYCLE
Gate 3
Gate 4
Gate 5
££
Review of the project
Failure….?
Don’t be scared to exit or recycle a project if it doesn’t make business sense
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1968 – Dr. Spencer Silver, a 3M chemist was trying to develop a strong adhesive
glue – this project failed resulting in a low-tack, reusable adhesive
For five years, Dr. Silver promoted his invention within 3M
1974 – A 3M colleague, Art Fry, came up with the idea of using the adhesive to
anchor his bookmark into his hymnbook
Fry developed the idea within 3M
1977 – The "Press 'n Peel” note was launched – but it’s sales were disappointing
1980 – Following market-research, the “Post-It Note” was launched
1985 – sales topped $100 million per year
1989 – sales topped $1 billion per year
The yellow colour was chosen by accident; a lab next-door to the Post-It team had
scrap yellow paper which the team initially used!
Summary – Project Management
 Project management is the planning, organising and management of
resources to achieve a specific goal
 Projects are usually constrained by time, funding and resources
 A Stage–Gate Model divides the project into a series of manageable
action stages separated by decision gates
 Do not be scared to exit an idea/project or recycle it if the project no
longer makes business sense – it may save your company in the long run!
Financial Reward
Estimating your financial reward
is a balancing act…
Success!!
Money taken
vs
Outgoings over time
Market
Need
Your
Capability
Money taken = market need
 How many could we expect to sell?
 What would the customer pay?
Outgoings = capability costs
 How much will it cost to develop, protect,
manufacture, promote, distribute?
 Capital investment, operating and IP costs?
 How long will you have a competitive edge?
Reward
£
Cost, Price and Value
Cost
“How much it cost you to produce/manufacture”
Price
“How much you are selling the product for”
Value
“How much the customer is prepared to pay for it”
The value to each customer depends upon
their specific situation
You “the seller” have bought 10,000 barrels of crude oil
You have identified three potential “buyers” for the oil
 A commodity trader
 The owner of an oil refinery
 A Middle-Eastern Sheikh
Who will you sell your oil to?
The Seller
You, the “seller”, have bought 10,000 barrels of crude oil at a price of $90
per barrel
Q. What is the cost of the crude oil to you?
$900,000
Q. What would be an acceptable profit for the sale of 10,000 barrels?
$ 50,000 (~ 5% profit)
Q. At what price ($ per barrel) should you aim to sell the crude oil?
$95 per barrel
Buyer 1
The Commodity Trader
Situation
The trader wants to make a quick profit – he see the oil as a tradable asset
He does have expertise in oil so knows that the current value of oil is $100
per barrel, but is constantly rising allowing him to make a profit
Q. If he offers $100 per barrel how much will this cost him?
$1M
Q. If the seller accepts $100 per barrel what would his profit be?
$100,000
But the trader says that he can’t get the money until tomorrow…!
Take a deposit
Negotiate a percentage of his profits
Buyer 2
The Owner of an Oil Refinery
Situation
The oil refinery has the capability to refine the oil into more valuable
products with a final market value of $200 per barrel
Q. What is the total market value of the refined barrels of oil?
$2M
Of the refined products it costs the refinery:
$200,000
10% of the market value for the refining process
5% of the market value for marketing and distribution
$100,000
$200,000
10% of the market value in sales tax
Q. What are the total costs (inc. taxes) payable by the refinery?
$500,000
Q. If the oil was bought for $100 per barrel, how much profit will the
refinery make from the 10,000 barrels of crude oil?
$500,000
Buyer 3
The Sheikh
Situation
The Sheikh owns one of the largest oil reserves in the world – 10,000
barrels is insignificant to him
It costs him:
$5 per barrel to lift his oil from the ground
$5 per barrel to drill for new oil supplies
$10 per barrel in taxes
$10 per barrel in marketing, distribution and other costs
Q. What is the Sheikh’s breakeven cost per barrel of crude oil?
$30
Q. Will he buy your crude oil at a price which is acceptable to you?
No
Who would you sell to at this point…?
It is most likely that you would sell to the oil refinery at this point
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Gives you a profit of $100,000 which is greater than your target of $50,000
There is room for further negotiation to enhance this (i.e. cut into their profit)
They have the money to give you unlike the commodity trader
Before buying the oil, the owner of the oil refinery
insists upon testing the crude oil for quality….
These tests showed that what you thought was crude
oil was in fact refined aviation fuel
Buyer 2
The Owner of an Oil Refinery
Situation
The oil refinery sells refined aviation fuel at a price of $140 per barrel
It will still cost $20 per barrel for them to sell the fuel (marketing and tax)
Q. What is the total market value of the refined barrels of fuel?
$1.4M
Q. What are the total costs (inc. taxes) payable by the refinery?
$200,000
Q. If the fuel was bought for $100 per barrel, how much profit will the
refinery make from the 10,000 barrels of aviation fuel?
Cost $1M + $200,000
Value
$1.4M
Profit
$200,000
Buyer 1
The Commodity Trader
Situation
The trader does not have expertise in aviation fuel so he does not know the
current value of this product. He will not pay more than $100 per barrel
But he now has the money available
Q. If the trader offers $100 per barrel how much will this cost him?
$1M
Q. If you, the “seller” accept $100 per barrel what would your profit be?
$100,000
Q. The value of aviation fuel is in fact $140 per barrel – what would the
traders profit be if he sold at this price?
$400,000
Buyer 3
The Sheikh
Situation
While the Sheikh had no interest in your crude oil, he does however own
his own private jet. He buys aviation fuel at a price of $140 per barrel
To him 10,000 barrels has the value of $1.4M
Q. The Sheikh would happily pay $130 per barrel. What is the total
cost to him?
$1.3M
Q. How much money will this save the Sheikh?
$100,000
Q. What would your profit as the “seller” be on this sale?
$400,000
You would sell to the Sheikh
Summary – Cost, Price and Value
Many factors affect the cost, price and value of an item
Customers are buying the (perceived) benefits of the products
not the products themselves
Consider:
 The buyers criteria
 The sellers criteria
 The product criteria
Understanding of the buyer’s, seller’s & product’s criteria is key to
securing the best deal and maximising your financial return – this may
require considerable research
Managing Risk
Successful innovation is about managing risk
Risk is made up of commercial and technical unknowns
Commercial Unknown (Market Need)
 How well do we understand our market?
Technical Unknown (Your Capability)
 Are we sure we can develop, manufacture and distribute the product?
 How strong is the threat that our competitors will get there first?
 How well does it fit with our existing business activities?
 What additional resources will we need?
You need to balance the risk against the potential reward and your
commitment (time and £) – this involves investment
Risk, Reward & Investment…An Example
“When this building was built, a metal box containing cash was buried
under the grass outside….”
Q. Would you go and find the box?
A. No. There is high risk that you may not find the box and the reward
is unknown
What if I told you the box contained £500,000?
A. Yes you would look, but still there is a high risk that you may not
find the box
What if I gave you £200, how could you improve this situation?
A. Invest the £200 in a metal detector and a spade – this decreases
the risk giving you a better chance of finding the £500,000
Risk and Investment
The result of good risk management is that as we increase investment, the
risk decreases rapidly
Bad
Risk
Level
Good
Investment
Investment comes in many forms e.g. capital (£), your time and resources
How to Gain Investment
Who are typical investors?
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Founders of the company
Family members
Employers
Banks
Business Angels & Venture Capitalists
What do investors typically look for
 Strong management team
 Proposal with sustainable competitive advantage
 Intellectual property rights, patents and freedom-to-operate
 Growth markets
 An exit strategy
This will all have to be demonstrated in your business plan
Every Investor Has Different Needs
Banks
Regular interest repayments, trading business, personal guarantees
Venture Capitalists (VC)
Shareholder, board position or appoint a Director, will take a business from
A to B and want a exit strategy agreed at the start of the investment
It is important to understand your investor
A VC is looking to make a 10x return on their investment in 5 years
An exit strategy is very important as this is how they get their money back
Tailor your proposal to the investor you are targeting
Key Financial Reports
Profit/Loss Statement (shows past performance) – like a bank statement
Shows the performance of the business over a given time period
The Profit/Loss = Total Income – Total Expenditure
Balance Sheet (shows present position)
The balance sheet is a summary of the financial balances of a business
on a specific date, such as the end of the financial year. It typically
includes a list of the business assets, liabilities and ownership equity
Cash Flow Forecast (shows future liquidity)
Describes the short-term cash requirements of a business to ensure the
future availability of a suitable quantity of liquid cash
Liquid (available) cash = cash in the bank + short-term investments –
short-term debts (e.g. bills, payroll)
Why are these Important?
Investors will look at each of these financial reports to assess if a business is
a viable and ‘safe’ investment
These repots show:
 The past performance of the business (Profit/Loss Statement)
 The current financial position of the business (Balance Sheet)
 The ability of the business to stay afloat (Cash Flow Forecast)
Many businesses make a profit but fail because they run out of CASH to
pay running expenses (e.g. invoices, salaries and make purchases)
“CASH IS KING”
Without cash your business can’t operate
Summary – Finance & Reward
 Reward = Money taken vs Outgoings over time
 Is it worth it??
 Managing risk is critical to the success of your business
 Risk can be reduced to an acceptable level through investment
 Investors are different, but they look for similar things in your
business plan
 Accurate financial information is one of the keys to gaining
investment
Methods of Commercialisation
In-House Commercialisation
(Owning a house and living in it)
 Develop and sell a product through the inventors existing company
 Inventor must have access to the required capability and market
Advantages
 Retain full control and maximises the inventors reward
 Potential for Rapid development
Disadvantages
 Bear all risk, costs & effort
 Not the core business
Joint Venture – i.e. Find a Partner
(Sharing a house)
 Inventor has some capability and access to market
 Partners have the missing elements
Advantages
 Share of risk, costs & effort
Disadvantages
 Need to find appropriate partners
 Some loss of control
 Sharing of the reward
Licensing Your Product / IP to a 3rd Party
(Renting a house)
 Inventor has little capability or access to market
 License the intellectual property to another party
Advantages
 Licensee bears all the risk
 Minimal input from the inventor
 Cash immediately & on-going royalties
Disadvantages
 Need to find appropriate partners
 Loss of control
 Lower share of reward
Assignment of your IP
(Selling a house)
 Inventor has no capability or access to market
 Sell the intellectual property to another party
Advantages
 Cash immediately
 No risk
Disadvantages
 Loss of IP
 No further share of reward
Form Your Own Company
(Building your own house)
 Inventor assembles capability (acquisition or investment)
 Inventor has credibility, drive and commitment to succeed
 Reward must be high enough to warrant the effort, investment & risk
Advantages
 High reward for the inventor
 Retain control
Disadvantages
 High risk
 Huge investment of time and effort
Summary - Commercialisation
There are several methods of commercialising an idea:
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In-house development
Joint venture
License your IP
Assign your IP
Form your own company
It is key that you choose the method which…
MAKES YOU THE MOST MONEY!!
Now Back To Your Business Plan….
MARKET
NEED
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Title, legal notices, company details etc.
Executive Summary
The Proposition – description of the product/service/technology
Market Research – size, structure, drivers and competition
Market Validation – proof the customer will buy and at your price
Marketing Plan – how you will get your product to the customer
 Advertising, PR, promotion, sales, sales forecast
 Beating the competition, IP protection, patents
CAPABILITY 
REWARD
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Operational Plan – the nuts and bolts of your business
 Manufacturing, distribution, premises, personnel, management
team etc.
Exit Strategy – timescale, forecast etc.
Financial Plan – cash flow, P&L, balance sheet, investment needed
and when
Appendices – full CVs of management team, external reports etc.
Authors
Dr. Trevor Farren, Dr. Simon Mosey & Dr. William Drewe
Organisation
School of Chemistry, University of Nottingham, U.K.
Supported by: