Module 5 – Product Development

Table of Contents

1. Performance Objectives

2. Introduction

3. Commercialization Strategies

4. Online Resources

5. Training Checklist

Performance Objective:

The Business Counselor will:

• Demonstrate an understanding of the process a new product goes

through from idea to marketplace.

• The counselor will become familiar with “The Commercialization

Process Model” developed by Dr. H. Randall Goldsmith and the Mid-
Continent Technology Transfer Center.

• The Business Counselor should also become familiar with the

University of Wyoming’s Technology Transfer Process and the UW
Intellectual Property Policy.

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Suggested Prerequisites:
Module 1: Code of Professional Conduct
Module 2: Counseling Techniques
Module 4: Cross-Selling Services and Outside Agency Referral
Module 6: Government Regulations & Services
Module 7: Market Research and Planning
Module 8: Financial Statement Analysis
Module 9: Sources & Requirements for Funding
Module 10: Business Plan Development
Module 11: Starting a New Business

How You Will Be Trained:

1. Read Module 5 in its entirety.

2. Attend Training and Complete Commercialization Process Model Matrix
3. Attend Patent Depository Library Presentation. I don’t see this on the
agenda – is it implemented into anyone’s presentation?
4. Complete list of resource for inventors.

Introduction
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You’ve undoubtedly heard Ralph Waldo Emerson’s famous line, “Build a
better mousetrap, and the world will beat a path to your door.”
Unfortunately, when it comes to the reality of the business world, it just isn’t
true. It takes a lot more than a great idea- or even a great product-to be
successful at bringing a new idea into today’s marketplace. The purpose of
this module is to familiarize the business counselor with the various stages a
product must go through, some of the barriers inventors should be prepared
to face and overcome, and some of the resources available.

Dr. H. Randall Goldsmith and the Mid-Continent Technology Transfer Center

have developed a model that demonstrates in clear, understandable terms
the steps involved in the innovation/commercialization process. This model,
called the “Commercialization Process Model” will be the framework for our
discussions in this module.

Commercialization Strategies

There are two basic ways to commercialize a new product: either the client
licenses it to someone else to produce and/or sell or the client does the job
through his or her own venture. Most other options are variations of these
two possibilities. Both of these strategies have implications the client will
need to consider.

The Licensing Option

Licensing means to grant to another person or company the rights to an
intellectual property. This idea appeals to many inventors because the
amount of money as well as the amount of tasks, skills, and people required
seems considerably less than what it would take for the client to set up a
new business. There are some pros and cons to licensing the client should
consider.

The Cons to Licensing

• The inventor will lose control of the technology. Usually total

control, for a long time, and often forever.

• The inventor’s involvement is reduced. In most cases, the inventor

will have no further direct involvement at all. He or she may stay around
as a consultant to the licensee, but usually for a limited time.

• Finding the right licensee is tough. There are a lot of inventors trying
to sell ideas to a lot of companies-the competition is fierce and companies
are jaded, tough and like to call the shots. Persistence is called for
because the right company may make the inventor rich; but caution is
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 necessary, because the wrong company may bury the technology, or
butcher it.

• Protecting the inventor’s interest is crucial. Negotiating with

licensees is playing with the big boys. They have immense staff resources
such as lawyers, market analysts and production engineers. The inventor
needs to be familiar with the game and have a lawyer with experience in
such negotiations.

The Pros to Licensing

• Licensing multiplies the resources to develop the invention. If the

licensee is a dynamic firm, it can immediately put whole teams of
professionals to work developing, producing and marketing the product.
The licensee has the money and resources needed to do what needs to be
done.

• Licensees often see things the inventor doesn’t. Licensees often

see uses and markets for a product the inventor misses, making the
payoff bigger than the inventor ever imagined.

• The inventor may get some money up-front for the invention. This
may not be a huge sum, but it is probably just the beginning, with
royalties to follow.

• Licensing frees up the inventor to do something else. Many

inventors don’t want the hassles of a running company-they just want to
invent. This strategy frees them to do so.

Before a client considers licensing, he or she should be able to answer “yes”

to the following questions:

1. Does the client have a patent, copyright or other legal

protection? If not, the client probably won’t get far. No company will
risk investing in an unprotected innovation. Why should they pay the
client for something the client does not own?

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 2. Does the client have a working model or an engineering
prototype? If not, the client can’t prove the product will work. If the
client can’t prove the model will work, the licensee will have to do so,
which will cost them money and weaken the client’s bargaining
position.

3. Does the client have credible data about the size of the
market, including probable impact of selling price on quantity
demanded?

4. Does the client know what it will cost to produce at various

levels of output? Many inventors think licensing will enable them to
avoid answering questions 3 and 4; believing it’s the job of the
licensee.

If the inventor doesn’t know the answers, he or she won’t know what the
invention will be worth to the licensee. Even those clients who plan to license
their invention must go through the first eight stages of the
“Commercialization Process Model,” described later in this module.

The Venturing Option

Many inventors would rather do it themselves, rather than license their
product to another company. The client should consider the pros and cons to
this decision:

The Cons to Venturing

• It’s risky. Many new businesses fail. A new business built around a
new product runs a double risk, especially since the list of reasons for
new business failures reads like a catalog of many inventors’
weaknesses. These include inadequate financing; lack of management
skills in areas of personnel, accounting, delegating responsibility, etc.;
overestimating the market; and poor choices of location.

• Resources remain limited. The money a new venture company has

is limited to the money the inventor can raise. If he or she is not a
professional in this area, it will be a long and difficult road.

• The inventor will be spread thin. The number of tasks and skills
required to start and run a new venture multiplies, and multiplies and
multiplies, regardless of whether the inventor will be required to do it
all, or need to find some extremely trustworthy and competent
individuals who can help.

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 • The inventor probably won’t make much money for quite a
while. For the first stages of a new venture, it is more likely a
business will be taking money from the inventor, rather than giving it
in the form of salaries or profits. Your client should be prepared to wait
a long time (typically years) before expecting to earn a good income.

The Pros to Venturing

• Running a company can be exciting.

• In the long run, inventors can make a lot more money by

venturing than licensing. If the invention and the company turn out
to be a big success, the rewards could vastly exceed the royalties from
a licensing agreement.

• Even though the inventor owns the company, he or she may

not have to run it. Building a successful business involves hiring all
kinds of people and one of them could be a chief operating officer.
There are plenty of examples of inventors who retained a large or
controlling interest in their companies, but turned the business
management over to someone else.

If your client decides to go the venturing route, it is your job to help him
or her take all the steps necessary to do it successfully. The
“Commercialization Process Model” will act as a road map to help you do
just that.

The Commercialization Process Model

The Commercialization Process Model developed by Dr. Randall Goldsmith

and the Mid-Continent Technology Transfer Center defines the process of
bringing a product from the idea stage to a full-fledged manufacturing
company. The Model breaks the process down into three categories:
technical, marketing, and business. Each of these categories requires
attention and the inventor must proceed through the three phases of
concept, development and commercial in each of the categories. There are
significant steps and critical activities within each of the phases. The matrix
shown on the next page details how these categories, phases, stages and
steps must work together for the successful development of the product. The
following definitions will make the matrix more meaningful.

Definition of Categories:

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 • Technical Steps: The technical, engineering, and manufacturing
components of producing a product.

• Marketing Steps: The sales, advertising, and distribution components

needed to move the product from the manufacturer to the consumer.

• Business Steps: The coordination and control of management,

marketing, production, finance and legal activities required to sustain a
commercial venture.

Definition of Phases

• Concept Phase: The theory or idea of developing a product and a

business around it. The concept phase is the period validating the
technical, marketing and business assumptions concerning the
product’s commercial potential.

• Development Phase: The growth or maturing of a plan to

commercialize a product. The development phase is the period of
establishing the feasibility of producing and selling the product.

• Commercial Phase: The activity of producing a product for sale in the

marketplace.

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 The Commercialization Model

TECHNICAL MARKET BUSINESS

CONCEPT PHASE
INVESTIGATION TECHNICAL CONCEPT MARKET NEEDS VENTURE ASSESSMENT
ANALYSIS ASSESSMENT
DEVELOPMENT PHASE
FEASIBILITY TECHNICAL FEASIBILITY MARKET STUDY ECONOMIC FEASIBILITY
DEVELOPMENT ENGINEERING STRATEGIC MARKETING PLAN STRATEGIC BUSINESS PLAN
PROTOTYPE
INTRODUCTION PRE-PRODUCTION MARKET VALIDATION BUSINESS START-UP
PROTOTYPE
COMMERCIAL PHASE
GROWTH PRODUCTION SALES AND DISTRIBUTION BUSINESS GROWTH
MATURITY PRODUCTION SUPPORT MARKET DIVERSIFICATION BUSINESS MATURITY

Key Questions

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 TECHNICAL MARKET BUSINESS
CONCEPT PHASE
INVESTIGATION TECHNICAL CONCEPT MARKET NEEDS VENTURE ASSESSMENT
ANALYSIS ASSESSMENT
-New and unique? -Market need? -Profit?
-Valid?
DEVELOPMENT PHASE
FEASIBILITY TECHNICAL FEASIBILITY MARKET STUDY ECONOMIC FEASIBIILITY
-Producible? -Who? -Investment justification?
-How many?
-How much?
DEVELOPMENT ENGINEERING STRATEGIC MARKETING PLAN STRATEGIC BUSINESS PLAN
PROTOTYPE
-Commercially -Target market? -Business plan?
producible? -Venture-license?
-Business structure?
-Financing option?
INTRODUCTION PRE-PRODUCTION MARKET VALIDATION BUSINESS START-UP
PROTOTYPE
-Performance and -Market response? -Key personnel?
reliability?
COMMERCIAL PHASE
GROWTH PRODUCTION SALES AND DISTRIBUTION BUSINESS GROWTH
-Technical process -Target structure in place? -Gaining market share?
established? -Increasing profits?
MATURITY PRODUCTION SUPPORT MARKET DIVERSIFICATION BUSINESS MATURITY
-Maximizing product -Target market -Optimizing potential
value? diversification? profits?

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Activities

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 TECHNICAL MARKET BUSINESS
CONCEPT PHASE
INVESTIGATION TECHNICAL CONCEPT MARKET NEEDS VENTURE ASSESSMENT
ANALYSIS ASSESSMENT
-Define concept -Conduct market overview -Estimate profit potential
-Confirm critical -ID pricing structure -Conduct self, enterprise,
assumptions -ID market barriers and commercialization
-Survey state of the art -ID risks assessments
-ID critical barriers -ID distribution channels -Identify professional needs
-Evaluate applicability -ID trends & competitors -Identify capital needs
-Determine technology
DEVELOPMENT PHASE
FEASIBILITY TECHNICAL FEASIBILITY MARKET STUDY ECONOMIC FEASIBIILITY
-Develop working model Identify and quantify: -Formulate financial
-Test technical features -Market size assumptions
-Assess prelim -Customers -Develop pro forma
producibility -Volume -Identify seed capital
-Conduct mfg. -Prices -Form advisory team
assessment -Distribution
-Asses safety and -Competitors
environmental features
-Finalize designs
DEVELOPMENT ENGINEERING STRATEGIC MARKETING PLAN STRATEGIC BUSINESS PLAN
PROTOTYPE
-Develop prototype -Identify marketing team -Decide venture or license
-ID materials & processes -Define target market -Finalize intellect property
-Conduct tests -Select market channels -Identify mgt team
-Develop mfg methods -Field test -Select organization
structure
-Write business plan

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INTRODUCTION PRE-PRODUCTION MARKET VALIDATION BUSINESS START-UP
PROTOTYPE
-Develop production -Establish market -Establish business function
prototype relationships -Hire staff
-Determine production -Conduct limited sales -Executive contracts
process -Analyze sales -Secure 1st stage finance
-Select mfg. equipment -Survey customers
-Design a field support -Refine marketing plan
system
-Demo product features
COMMERCIAL PHASE
GROWTH PRODUCTION SALES AND DISTRIBUTION BUSINESS GROWTH
-Prepare commercial -Expand distribution -Monitor enterprise position
design -Analyze competitor -Hire and train personnel
-Establish quality control response -Execute contracts
-Construct facilities -Assess customer satisfaction -Arrange 2nd & 3rd stage
-Conduct full production -Assess distributor financing
-Finalize internal satisfaction -Institute vision, mission,
distribution system -Refine product features manufacturing policies
MATURITY PRODUCTION SUPPORT MARKET DIVERSIFICATION BUSINESS MATURITY
-Maximize production -Develop market retention -Establish SWOT process
-Establish aftermarket -Establish market scan -Invest profits
support-repairs-spares -Identify new markets -Monitor product life cycle
-Warranty service -Identify new products -Monitor business trends
-Implement training -Monitor mgt. technologies
program -Implement innovations

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Service Providers

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 TECHNICAL MARKET BUSINESS
CONCEPT PHASE
INVESTIGATION TECHNICAL CONCEPT MARKET NEEDS VENTURE ASSESSMENT
ANALYSIS ASSESSMENT
-Patent researchers -Market researchers -Business acquaintances
-Faculty, researchers -Trade associations -Entrepreneurs
-Engineers -Industry contacts -SBDCs, RTTCs
DEVELOPMENT PHASE
FEASIBILITY TECHNICAL FEASIBILITY MARKET STUDY ECONOMIC FEASIBIILITY
-Engineering firms -Marketing consultants -Business consultants
-Testing labs -Universities -Accounting firms
-Equipment vendors -Industry contacts -Intellectual property firms
DEVELOPMENT ENGINEERING STRATEGIC MARKETING PLAN STRATEGIC BUSINESS PLAN
PROTOTYPE
-Engineering firms -Marketing consultants -Business consultants
-Industrial design firms -Accounting firms -Financial advisors
-Engineering schools -Industrial design firms -Legal firms
INTRODUCTION PRE-PRODUCTION MARKET VALIDATION BUSINESS START-UP
PROTOTYPE
-Engineering firms -Marketing consultants -Business consultants
-Industrial design firms -Industry contacts -Financial, insurance
-Equipment vendors -Trade associations -Management advisors
COMMERCIAL PHASE
GROWTH PRODUCTION SALES AND DISTRIBUTION BUSINESS GROWTH
-Consulting firms -Marketing consultants -Financial advisors
-Equipment vendors -Sales representatives -Business consultants
-Manufacturing technology -Legal, insurance
centers

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MATURITY PRODUCTION SUPPORT MARKET DIVERSIFICATION BUSINESS MATURITY
-Consulting firms -Marketing consultants -Investment advisors
-Equipment vendors -Trade associations -Business consultants
-Manufacturing technology -Strategic planners
centers

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Funding

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 TECHNICAL MARKET BUSINESS
CONCEPT PHASE
INVESTIGATION TECHNICAL CONCEPT MARKET NEEDS VENTURE ASSESSMENT
ANALYSIS ASSESSMENT
Financing: pre-seed capital Average amount: $5,000 Source: Self,
Internal Corporate Funds
Time: 2-3 months

DEVELOPMENT PHASE
FEASIBILITY TECHNICAL FEASIBILITY MARKET STUDY ECONOMIC FEASIBIILITY
Financing: seed capital Range: $10,000 - $50,000 Source: Friends, acquaintances &
relatives, Internal Corporate
Funds
Time: 2-12 months

DEVELOPMENT ENGINEERING STRATEGIC MARKETING PLAN STRATEGIC BUSINESS PLAN

PROTOTYPE
Financing: R&D capital Average amount: Source: Angel investors,
Feasibility x 20 Internal Corporate Funds
Time: 3-12 months
INTRODUCTION PRE-PRODUCTION MARKET VALIDATION BUSINESS START-UP
PROTOTYPE
Financing: 1st stage start-up Average amount: Source: Institutional capital
Development x 20 Time: Steady state

COMMERCIAL PHASE
GROWTH PRODUCTION SALES AND DISTRIBUTION BUSINESS GROWTH
Financing: 2nd & 3rd stage Average amount: Source: Institutional capital, bank
Product Prep x 20 financing, stock sell
Time: 24-48 months
MATURITY PRODUCTION SUPPORT MARKET DIVERSIFICATION BUSINESS MATURITY
Financing: Mezzanine Average amount: Source: Institutional capital,
acquisition Multiple millions Internal Corporate Funds
Management/leverage Time: 6-36 Months
buyout

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HELPFUL WEBSITES

• www.uspto.gov (U.S. Patent and Trademark Office)

• www.uwyo.edu/rpc (Wyoming Research Product Center)
• www.uwyo.edu/sbir (Wyoming SBIR/STTR Initiative)
• will.state.wy.us/sis/ptdl/index.html (Wyoming State Patent and Trademark
Depository Library)
• www.patentcafe.com (Advanced Technology Patent Search, Patent Analytics
and Intellectual Property Management Solutions)
• www.uiausa.org/ (United Inventor’s Association)

Module 5 Training Checklist:

• Business Counselor __________

• Read Module 5 ______DATE

• Attend Module 5 Training Session ______DATE

• Patent Depository Presentation ______DATE

• Compile Resource List ______DATE

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