www.cti-entrepreneurship.ch
PRODUCT to MARKET
how to develop a successful product
CTI Entrepreneurship
Modul 2
Version 1.0
14. Oktober 2015
www.cti-entrepreneurship.ch
Dr Pierre [email protected]. ès sciences
Harvard Business School AMP
Engineer in Microtechnology
CEO Sigma Professional Sàrl
President of Cascination AG, Koring AG
Coach of CTI Startup
CTI Entrepreneurship Trainer
Lecturer at EPFL and IMD Business school
Jury membre of Venture Kick
Trainers
Prof Dr Kim Olivier [email protected]. Rer. oec
Leiter Institut Unternehmensentwicklung
am Fachbereich Wirtschaft der Berner
Fachhochschule
Professor für Entrepreneurship
Berater im Kontext junger Unternehmen
Gastprofessor im MBA-Studiengang
Unternehmensführung und Innovation
der Wirtschaftsuniversität Bukarest
www.cti-entrepreneurship.chLearning objectives
2. Master the key steps to develop a product/service
1. Understand the «conditions for business success»
3. Evaluate if your product idea is attractive
Deliverables
- First market potential evaluation and attractivity
- First value proposition
- First roadmap for product development
3
www.cti-entrepreneurship.chCourse content
4
Part 1. The market opportunity
Part 2. The value proposition
Part 3. Key steps to develop the product
Part 4. Product and business options
www.cti-entrepreneurship.chWhat is a good business idea ?
Source Pierre Comte
5
www.cti-entrepreneurship.chAbout innovation ?
Source Pierre Comte
6
Examples: Dell, Nespresso, Google, Facebook, Starbucks
www.cti-entrepreneurship.ch
My company Customers
Market
Gross margin=
Revenues - cost
value
creation for the
company
Manufacturing
cost
Revenues
GENERATE AN APPROPRIATE
MARGIN
CREATE UNIQUE VALUES FOR
CUSTOMERS
Product/Service
Significant value
creation for the
customer
SUCCESS +
Conditions for business success
+ MULTIPLY = SELL TO MANY CUSTOMERS
TO BECOME FINANCIALLY SUSTAINABLE
Competitors
Source Pierre Comte
www.cti-entrepreneurship.chPART 1. THE MARKET OPPORTUNITY
Source Pierre Comte8
Customers = people/organisations making the decision to buy your product
Adressable Market Geographic segment
Demographic segment
Behavioral/specialists
segment
Adressable market = customer population likely to buy your product
The Total Adressable Market (TAM)
TAM = Yearly sales per customer X Number of potential customers
www.cti-entrepreneurship.chExample: adressable market for Limmex AG
9
Demographics of the United Statessource : https://en.wikipedia.org/wiki/Demographics_of_the_United_States
Source Pierre Comte
Total population
USA: 308’745’538
Example: Case Limmex AGBase Market
Demographic
share
Behavioral/specialist
shareHypothesis 2,4% 5%
Yearly sales per customer (in CHF) 500
Number of potential customers in Switzerland - -
Number of potential customers in Europe - -
Number of potential customers in USA 308 745 538 7 409 893 370 495
Total number of customers 308 745 538 7 409 893 370 495
Value of the adressable market (in MCHF) 185
Limmex Emergency watch
www.cti-entrepreneurship.chEXERCISE 1a. How big is your adressable market ?
The total adressable market (TAM)
TAM = Yearly sales per customer X Number of potential customers
Source Pierre Comte
10
see Excel tool
www.cti-entrepreneurship.chEXERCISE 1b: Do you have an attractive market ?
1. TAM market big enough (>20 M) and growing (10 to >50%)
2. A market where recurrent sales (same customers buying again) are possible
(ex.: printer ink cartridge, Nespresso coffee capsules, hip joints, etc)
3. Market of existing customers (ex.: android mobile phone)
4. Attractive pricing and high gross margins (>70%) possible (ex.: medical device)
Source Pierre Comte
11
• For small markets, it may be difficult to convince investors.
• Big markets may be occupied by very large companies where doing
business may be difficult and you may not have sufficient resources
to compete
see Excel tool
www.cti-entrepreneurship.chPART 2. THE VALUE PROPOSITION
12
Offer customers:
- Values satisfying customer’s need or solving a customer problem
- Values that are strong and unique (radically different than the competition)
- Values that are simple to understand for the customer
Ideally : a product allowing the customer to do
something he was not able to do before
www.cti-entrepreneurship.ch
Nespressohas changed theEspresso business
model !
Source Pierre Comte
13
www.cti-entrepreneurship.ch
8
Values 7
6
5
4
3
2 Ease of use
1 Taste
-1
-2 Coffee price
Sacrifices/ -3
pain -4
-5
-6
Nescafé
Taste selection
Ease of use
Fresh coffee
Taste
Machine price
Coffee price
Service pain
Espresso
Nespresso values
Brand identification
Ease of use
Very high level
of taste selection
Machine price
Coffee price
Service pain
Nespresso
Source Pierre Comte
14
www.cti-entrepreneurship.ch
8
Values 7
6
5
4
3
2
1
-1
-2
Sacrifices/ -3
pain -4
-5
-6
-7
-8
Competition My product• Design
• Product features
• Unmet customers needs
• Customer can do something he
was not able to do before
• Time saving
• Simplicity
• Mobility
• Quality
• Emotional features
• Guarantee
• etc
• Price
• Cost of change
• Cost to use
• Additional costs to maintain
• Availability of maintenance
• Safety
• Lack of performance
CUSTOMERS TEND TO OVER-EMPHASIZE SACRIFICES !
Product
killers
Benchmark your product values
Source Pierre Comte
15
www.cti-entrepreneurship.ch
Example: Laptop computer market
Product Price
User
experience Capability Speed Hard disk Display Connectivity
Battery
autonomy
Laptop 1 350 62% 100% 50% 50% 60% 70% 40%
Laptop 2 800 70% 100% 60% 50% 80% 80% 50%
Laptop 3 1400 75% 100% 80% 50% 80% 80% 60%
Laptop 4 1800 90% 100% 90% 70% 100% 100% 80%
Laptop 5 2300 100% 100% 100% 100% 100% 100% 100%
iphone 800 42% 40% 50% 10% 20% 30% 100%
ipad 1000 58% 70% 70% 20% 60% 30% 100%
User Experience
0%
20%
40%
60%
80%
100%
120%
0 500 1000 1500 2000 2500
Rela
tiv
e u
ser
exp
eri
en
ce (
%)
Price (CHF)
Price-User experience curve
Série1
How to price your product
Source Pierre Comte
16
The price-value curve helps
you understand how the
market works and to price
your product
www.cti-entrepreneurship.ch
Make money, margin
&
be sustainable
Where is the money ?
Unique product but
no customer for it
Are you sure you
want to start a
business ?
You will compete
on price
Value for the customer
How
different
from the
competition
Unique
(no competitor)
Not
unique
Valuable (there is a proven
customer need)
Not valuable
Source Pierre Comte
www.cti-entrepreneurship.chTesting the values with customers
Source Pierre Comte
Do :
Test several times the values with various customers (iterate)
Understand the «pains/sacrifices» your product creates for the customers
Lower or eliminate the sacrifices
Be the first to scale up
Do not:
Try to make the perfect product
Be afraid to polarize customers
Waste time to try to beat the competition
18
www.cti-entrepreneurship.chEXERCISE 2: What is your value proposition
see Excel tool
Source Pierre Comte
19
Values for the customers Unique Valuable
yes/no 1=low, 5=high
1.
2.
3.
4.
5.
Sacrifices for the customers Sacrifice level
1 low, 5 high
1.
2.
3.
4.
5.
Key questions yes/no
Are you solving a key problem of your customers ?
Are the values radically different than those from the competition ?
Do you have a low number of values but strong and of high quality ?
Is it very different than the competition ?
Are the pains/sacrifices for customers low ?
www.cti-entrepreneurship.chPART 3. KEY STEPS TO DEVELOP THE PRODUCT
Innovative
design
CheckCustomer
needs &
FTO
Define
customer
Barriers to
business
Partnering
IDEATION
PRODUCT
MARKET &
BUSINESS
Design
MVP1
min. viable
PRODUCT 1
Test MVP1
with
customers
Patent filing
Freedom to
operate
Pricing and
% Gross
margin
Product
options
Make or
Buy
Market
attractivity
Tech. &
business risk
analysis
Business
model
feasibility
Design &
Manufacture
Prototype
Business
track
options
Test
customer
values 1
Design
MVP2
Test
customer
values 2
Test MVP2
with
customers
min. viable
PRODUCT 2PRODUCT 3 PRODUCT 4
First
Product
Verify
customer
type
Verify
customer
type
Early gross
margin
assessment
ITERATE
ITERATE
MARKET 1
Test
prototype
Source Pierre Comte
20
MVP: minimum viable product
FTO: Freedom to operate
www.cti-entrepreneurship.chKey issues for a startup to develop a product
Source Pierre Comte
21
1.Develop the product & business concept together
2.Verify early on the key product & business assumptions.
Can you identify product killers ?
3. Test and learn with customers as early as possible.
4. Focus on product values that correspond to a customer problem or
need
5. Adapt the product & business concept and re-test with different
customers
www.cti-entrepreneurship.chMinimum viable product (MVP)
Minimum viable product = minimum set of
features/values that you can test with customers
- Picture
- Sketch/drawing
- Web site
- Early model/prototype
- Demonstrator
- etc
Source Pierre Comte
22
www.cti-entrepreneurship.chEXERCISE 3: What would be your minimum viable product (MVP)
Minimum viable product 1 ?
Minimum viable product 2 ?
Source Pierre Comte
23
www.cti-entrepreneurship.chVerify the Freedom to operate & file for patent
Freedom to operate (FTO)
- verification that no patent exists with
claims covering your product/technology
- verification that the industrialization of your
invention is not falling under the claims of
an existing patent
For a first FTO check
European patent office
http://www.epo.org/searching/free/espacenet.html
United States patent office
http://patft.uspto.gov/
1. Conduct an assisted (FTO) search at the Swiss
Federal Institute of Intellectual property in
Bern.
https://www.ige.ch/en.htm
(Free of charge if you are under CTI Startup
coaching)
http://www.google.com/advanced_patent_search
http://www.freepatentsonline.com/
In case of conflict
- check the time and geographic validity of the
conflicting patents
- evaluate possibilities to go around the
conflicting patents
- check if you can find prior art in the literature
to invalidate the patent
- negotiate an exclusive license with the patent
owner
2. Document your search and prepare a report.
This report will be requested by investors
Source Pierre Comte
24
www.cti-entrepreneurship.chThe CE mark for the EU market
A regulated product must
carry the CE mark to be
sold in Europe
Source Pierre Comte
25
Examples of regulated products
Toys Electrical products Low voltage product
www.cti-entrepreneurship.chHow to satisfy regulations for your markets
The CE marking indicates a product’s compliance with EU legislation and so enables the free movement of products
within the European market.Search for applicable EU directives
Source Pierre Comte
26
www.cti-entrepreneurship.ch
Search for EU Community standards
http://ec.europa.eu/enterprise/policies/european-standards/harmonised-standards/
Search for EU Community directives
http://ec.europa.eu/enterprise/policies/single-market-
goods/cemarking/professionals/manufacturers/directives/index_en.htm
Is your product regulated ?
Source Pierre Comte
27
www.cti-entrepreneurship.chGet your product tested
Testing your product for compliance with EU regulations
Montena S.A. http://www.montena.ch/system/home/
Electrosuisse AGhttps://www.electrosuisse.ch/en.html
TÜVhttp://www.tuv.com/fr/france/home.jsp
Source Pierre Comte
28
www.cti-entrepreneurship.ch
Sales 10
Cost of Goods Sold 3
Gross margin 7
% of sales 70%
Research & Development 1
Sales & marketing 3
General & administration 2
Profit 1
% of sales 10%
Know the
typical operating data
of your industry
- Typical gross margins
- Level of R&D spending
Build a product with sufficient Gross margin
Profit & Loss statement
Source Pierre Comte
29
www.cti-entrepreneurship.chBenchmark your product/service Gross margin
Company database from SEC (USA) http://www.sec.gov/edgar/searchedgar/companysearch.html
Annual reports from companies Become a shareholder, buy a share
Data available from the web http://research.financial-projections.com/IndustryStats-GrossMargin
http://csimarket.com/Industry/industry_Profitability_Ratios.php?ind=902
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html
Industry reference data
Typical Gross
Margin as % of
Sales
Computer software & services 90-95%
Pharmaceutical 80-90%
Medical device 70-80%
Semiconductors 50-60%
Source Pierre Comte
30
How to access data
www.cti-entrepreneurship.chEXERCISE 4: Should I create a company ?
Source Pierre Comte31
www.cti-entrepreneurship.ch
COMPANY Customers
Customers 1
Customers 2
Sales &
Distribution
channels
Market’s segments
Business
partner Customers
Out-licensing
partner Customers
Partner’s segments
R&D under option
agreement
Partner with
option
agreement
Customers
OEM
PART 4. PRODUCT and BUSINESS OPTIONS
Source Pierre Comte 32
www.cti-entrepreneurship.chHow many customers do you need to be sustainable ?
10 000 000
1 000 000
100 000
10 000
1 000
100
10
1
10 100 1 000 10 000 100 000 1 000 000 10 000 000 100 000 000
Yearly sales per customer
Number of customers
CHF 100 Mio sales
CHF 1 Mio sales
CHF 10 Mio sales
Attractive markets Direct sales
Complex marketsserved by partners/distributors
Source Pierre Comte 33
Attractive: markets that you can serve directly without distributors
www.cti-entrepreneurship.chCase Navix
34
www.cti-entrepreneurship.ch
Sonar 1
for
recreational
divers
Technology
Product
Customers
Sonar 2
for
professional
divers
Sonar 3
technology
module for
ROVrobots underwater
Sonar 4
technology
out-licensing
for dive
computers
Distributors Military org. ROV industryDive computer
industry
B2B B2B B2BB2C
many customers a few customers a few customers one customer
agreement
Application
Case Navix
Number of
customers
Source Pierre Comte
35
www.cti-entrepreneurship.ch
Use the Attractivity-Risk matrix to select the best business
Case Navix
Market Market Market Gross Competitive Profit in Commercial Technical
Product
Optionssize share growth margin differentiation 5 years Risk risk
%
Recreational
Sonar 1
Professional
Sonar 2
ROV
Sonar 3
Out Licence
Sonar 4
Attractivity Risk+ Positive score
++ very positive
Source Pierre Comte
www.cti-entrepreneurship.ch
Market Market Market Gross Competitive Profit in Commercial Technical
Product
Optionssize share growth margin differentiation 5 years Risk risk
%
Recreational Distributors/
Sonar 1 Competition
ProfessionalMilitary
standards
Sonar 2 Quality
ROVTime to
market/Lack of skills
Sonar 3 Competition
Out Licence +++Risk of the
partner
Risk of the
partner
Sonar 4
20 mio 20% NA 70% ++ 45%
90 mio 10% 7% 33% + 19%
>10% from
partner
90 mio
from
partner
20% 79%
56 mio 10% 15% 84% + 49%
Attractivity RiskPositive
score
Evaluation of case Navix
Source Pierre Comte
Selection rules:
1. Select the product with best attractivity and lowest risks
2. Select a second product line and develop it to secure the company
www.cti-entrepreneurship.chThe product roadmap
Example (data do not correspond to reality)
Product roadmapProduct : Test instrument for hospital with custom kit
1 2 3 4 5 6 7 8 9 10 11 12 13 14
IdeationCreate design
Work in laboratory
Define customer
First list of product values
Estimate price & cost from internet data
Min. viable product 1Create demo on PC screen
Test with 3 customers
Min. viable product 2Modify design on PC screen
Establish new values
Improve demo for customer
Test with 3 other customers
PrototypeManufacture first real size prototype
Run first laboratory test
Test prototype with 3 new customers
First Freedom to operate search
Prepare patent claims
Contact a patent lawyer
Month
Source Pierre Comte
38
www.cti-entrepreneurship.chEXERCISE 5: Product development roadmap
see Excel tool
Source Pierre Comte
39
EXERCISE 5. Our product roadmap
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Ideation
Min. viable product 1
Min. viable product 2
Prototype
Market
Month
www.cti-entrepreneurship.chTake away messages
Product and business development are closely linked, they need to
be considered in a close loop with customer in center
Simple product is better, start small and improve later
Developing a technology is not equal to developing a product
Developing a product does not ensure you to develop a business
Look early on at the various routes to the market
40
www.cti-entrepreneurship.chLearning objectives
2. Master the key steps to develop a product/service
1. Understand the «conditions for business success»
3. Evaluate if your product idea is attractive
Deliverables
- First market potential evaluation and attractivity
- First value proposition
- First roadmap for product development
41
www.cti-entrepreneurship.ch
42
www.cti-entrepreneurship.chBackup slides
43
www.cti-entrepreneurship.chPatent and cost
A patent
- protects the technical solution of an idea, not just an idea
- is published
- protects only in the countries where you have applied for
the patent
- is not an authorization to market a product
- does not guaranty the success of the product
- is valid for 20 years and as long as the patent fees are
paid
Conditions to get a patent- the invention must be new in the world
- the technical solution is not evident for a specialist
- the technical solution can be exploited industrially
Ref: http://timreview.ca/article/501
For a US patent
Source Pierre Comte
44
www.cti-entrepreneurship.chPatent as a strategic corporate asset
Aspect Value
Offensive
• generate patent license revenues
• increase market reach
• support technology licensing
• establish monopoly
• litigation and enforcement
• protect market share
Defensive
• deter others from copying
• discourage potential infringers
• improve balance of patent power
• forestall third-party lawsuits
Strategic
• acquire venture capital
• improve chances of securing other investment
• improve negotiating position
• Improve value at exit
• licensing/cross-licensing of third-party technology
• license for other business value
• improve quality of liquidity
• assist in initial public offering or other exit event, such as
merger or acquisition
Leadership
• enhance product/quality image
• underscore innovation culture
• demonstrate technology leadership
• establish technology ownership
Why a patent is important
Case
startup
Ref: http://timreview.ca/article/501
Source Pierre Comte
45
www.cti-entrepreneurship.chExample of business strategy
Example (data do not correspond to reality)
Product : Test instrument for hospital with custom kit
Business strategy Status / Strategy Next steps
Price / Cost / Gross marginSelling price system (CHF) 30000 one system per hospital compare with competition
Selling price consumables (CHF) 1000 150 cons/year=favorable recurrent sales
Cost to manufacture (CHF) 12000 estimated confirm with offers
Gross Margin (CHF) 18000
% Gross Margin 60% not extraordinary for medtech improve the gross margin
Manufacturing will be done by outsourcing search for 3 manufacturers
Technology other technology not needed
Customers and market Hospitals with radiology department
Number of customers Europe 5000 not growing
Number of early adopters Europe 650 13% of the number of clinical centers identify early adopters
Market size of early adopters (MCHF) 20 Good market size of base system
Market size of recurrent sales (MCHF) 13 Good market size for recurrent sales
Business model start sales first in Switzerland
We will sell directly in Switzerland first visits to customers
We will sell through distributors in Europe country/distributors priority
We can reach CHF 1 M in Switzerland favorable
We need to develop opinion leaders in select opinion leaders
various countries
Barriers to business in Europe CE marking requested, med device class II contact notified body
clinical trial may be rquired check with notified body
cost of prod. dev. and clinical trials do first proof of concept
Source Pierre Comte
46
www.cti-entrepreneurship.chHow innovative is your product ?
Transformational
disruptive
Substantial
Incremental
Creates a new market or business and/or
fundamentally changes the industry structure.
Can change the life of many people.
Introduces a new generation of
products/processes. Changes the balance of
power among competitors by altering market
demand. Potential to become new standards.
Degree of innovation
Improves existing products/processes/services,
often as a result of continuous efforts.
Classes of innovation
Source Pierre Comte
47
www.cti-entrepreneurship.chTime to market & alliances
Transformational
disruptive
Substantial
Incremental
Creates a new market or business and/or
fundamentally changes the industry structure.
Can change the life of many people.
Introduces a new generation of
products/processes. Changes the balance of
power among competitors by altering market
demand. Potential to become new standards.
Degree of innovation
Improves existing products/processes/services,
often as a result of continuous efforts.
Classes of innovation
Technology and business may take many years to develop
Capital and time intensive. Difficult to convince startup
investors. Case for an alliance.
Business may be developed quickly
May be difficult to protect by patent
Check freedom to operate and
competition activity. Risk to
compete on price
Attractive product when
sold to existing
customers. Potential for
uniqueness and good ip
protection.
Source Pierre Comte
48
www.cti-entrepreneurship.chExamples of innovations
Incremental Improved features A step up
Flat screens
Iphone 6
Colour photography
Substantial Standard-setting Evolutionary
Android
Nespresso
Swatch
Transformationaldisruptive technologies
Changing the way we
liveRevolutionary
World wide web
Mobile phone
Personal computer
Degree of change ProductInnovation type Concerned with
49
www.cti-entrepreneurship.chEvolving customer demand
Technical
featuresDesign
Tangible
values
Intangible
values
Fonctions
Performance
Efficacy
Longevity
Options
Standardization
Elegance
Fun
Emotion
Intelligent
Simplicity
Ease of use
Time saving
Quality
Training
Mobility
Economics
Services
Warranty
Delivery
Availability
Perceived quality
Image
Brand
Reputation
Recommendations
Brand
Sacrifices
Price
Cost of change
Cost to use
Cost to maintain
Limited performance
Too complicated
Source Pierre Comte
Evolving
customers
needs
Customers
Product adoption cycle
50