Workshop 4: Turning your idea into a Product

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Workshop 4: Turning your idea into a Product

  1. 1. Commercial Development Programme Commercial Essentials Workshop 4 – Developing Your Idea Into a Product
  2. 2. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS Ross Golightly
  3. 3. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS <ul><li>Agenda </li></ul><ul><li>Recap on Commercialisation Project Management Cycle </li></ul><ul><li>Product Creation </li></ul><ul><li>Product Development and Prototyping in the Commercialisation Process </li></ul><ul><li>The Role of a Prototype in Raising Funding and Commercialisation </li></ul><ul><li>The Advantages of Strong Design and Product Development </li></ul><ul><li>The Components of a Product </li></ul><ul><li>Working with a Developer / Prototyping Provider </li></ul><ul><li>Case Study: Breeze Blockers </li></ul><ul><li>Product Testing </li></ul><ul><li>Concept Research </li></ul><ul><li>Financial Considerations </li></ul><ul><li>Prototyping and Licensing/Technology Transfer </li></ul><ul><li>Creating a Product: Considerations for Licensing </li></ul><ul><li>Sources of Funding </li></ul>
  4. 4. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS Commercialisation Project Management Cycle Risk Management Strategy IP Exploitation Concept Research Business Plan IP Protection Funding Package Product Dvpt Commercial- isation Working Capital Strategy Dvpt Market Research Company Set Up Idea Dvpt Revenue Generation
  5. 5. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS <ul><li>Product Creation </li></ul><ul><li>There are generally 4 stages that an early-stage company would go through in creating a product: </li></ul><ul><li>Development of the idea (product/service/technology) </li></ul><ul><li>Creation of a crude prototype (usually called a “mock-up” and created using DIY methods) </li></ul><ul><li>Creation of a pre-production prototype (using a third party rapid prototype provider) </li></ul><ul><li>Finished product/technology stage (the end-result that has been commercialised) </li></ul>
  6. 6. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS <ul><li>Product Development and Prototyping in the Commercialisation Process </li></ul><ul><li>After company formation, prototyping/product development is one of the first </li></ul><ul><li>activities you should undertake. </li></ul><ul><li>This should be done in tandem with any protection of IP so the filing reflects the </li></ul><ul><li>product concept being created. </li></ul><ul><li>Create a technical project plan (either separate to or as part of your business plan) </li></ul><ul><li>scoping out the interventions, providers and finance required to create your </li></ul><ul><li>product. </li></ul><ul><li>Don’t ever engage the market until the product is complete unless you have a very </li></ul><ul><li>stakeholder-dependent idea (such as a technology platform that harmonises with </li></ul><ul><li>another platform) and need market partners to be part of the process. </li></ul>
  7. 7. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS Where are you in the Process? Risk Management Strategy IP Exploitation Concept Research Business Plan IP Protection Funding Package Product Dvpt Commercial- isation Working Capital Strategy Dvpt Market Research Company Set Up Idea Dvpt Revenue Generation
  8. 8. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS <ul><li>The Role of a Prototype in Raising Funding and Commercialisation </li></ul><ul><li>Provides something tangible to show an investor, lender or funder </li></ul><ul><li>Provides something tangible to show a licensee or market partner </li></ul><ul><li>Makes the idea more investible (i.e. the product is more proven to a greater </li></ul><ul><li>degree) </li></ul><ul><li>Improves your credibility and professionalism in the eyes of a third party </li></ul><ul><li>A business with a mere idea (no matter how strong) is still largely unproven and </li></ul><ul><li>less investible (if at all) </li></ul>
  9. 9. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS What are the Advantages of Strong Design and Product Development? .....
  10. 10. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS Apple
  11. 11. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS “ Great Design Makes People Love Your Company” Business Week
  12. 12. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS “ Innovation and design allow Sony to maintain market premium pricing, providing more cash flow from its product portfolio. This cash flow can then be re-invested into more innovation” Financial Times
  13. 13. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS <ul><li>The Value of Strong Product Design </li></ul><ul><li>Design is not a cost – bad design is a cost </li></ul><ul><li>Strong design holds premium prices – even against like for like products/brands </li></ul><ul><li>Strong design makes your product more distinct and less likely to be easily </li></ul><ul><li>imitated/copied </li></ul><ul><li>Design can differentiate products that have the same functionality as another </li></ul><ul><li>Design is now a strategic driver in major corporations </li></ul>
  14. 14. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS <ul><li>The Components of a Product </li></ul><ul><li>Set your brief around: </li></ul><ul><li>Positioning Brief (Uniqueness, Innovation, Differentiation) </li></ul><ul><li>Technical Innovation Brief (Function, Features, Technical USP, Specification) </li></ul><ul><li>Product Design Brief (Aesthetics, Feel, Touch, Colour, Materials) </li></ul><ul><li>Brand Execution Brief (Visualisation and Verbalisation of your product offer) </li></ul>
  15. 15. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS <ul><li>Working with a Developer / Prototyping Provider </li></ul><ul><li>Always operate with Non Disclosure Agreements (NDA’s) </li></ul><ul><li>Thoroughly investigate issues around ownership of intellectual property arising </li></ul><ul><li>from the work together </li></ul><ul><li>They will also be able to project-manage your first-stage production run – often a </li></ul><ul><li>very time-intensive process </li></ul><ul><li>Seek advice from your patent attorney – ensure the outputs of the work reflect the </li></ul><ul><li>original filing for protection of the idea </li></ul><ul><li>Always work to a clear brief – a supplier is only ever as good as the instruction you </li></ul><ul><li>give </li></ul>
  16. 16. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS Case Study: Breeze Blockers Stage 1: Development of Idea: “ Develop, manufacture and supply a range of bicycle accessories designed to keep a cyclist warm during the cold autumn, winter, and early spring seasons”
  17. 17. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS Case Study: Breeze Blockers Stage 2: Mock Up Prototype Development
  18. 18. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS Case Study: Breeze Blockers Stage 3: Pre-Production Prototype (developer engaged)
  19. 19. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS Case Study: Breeze Blockers Stage 4: Product Range Roll Out and Full Brand Concepts
  20. 20. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS The Importance of Product Testing: Success Rate of New Product Ideas Development 5 10 15 20 25 30 35 40 45 50 55 60 Number of Surviving Ideas Cumulative time (percent) Screening Business analysis Development Testing Commercialisation One successful new product
  21. 21. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS The Problem with not doing Research Development
  22. 22. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS Product Testing: The Subjective Massacre Development I don’t like change: We should make the same products…forever! I don’t like Fred: So I don’t like his ideas! I’m the boss – therefore I’m right…
  23. 23. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS Product Testing: Scoring Attractiveness Development High Medium Low size of market large modest small regulatory compliance High requirement High Value Some requirement No requirement importance of innovation aesthetics = sales cost compromise functional only Component count Low Medium High Buyer decision process identifiable and simple or experienced complex & slow or some experience difficult to Define or no experience targeting customers Visible targets Attractiveness Worse Option Better Option Strategic Factors Operational Factors Some targets no visible targets
  24. 24. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS Product Testing: Opportunity Attractiveness Development High Medium Low size of market Attractiveness regulatory compliance Importance of innovation Opportunity 1 Opportunity 2 Opportunity 3 Opportunity 4
  25. 25. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS <ul><li>Concept Research </li></ul><ul><li>Used when you haven’t yet enough faith ‘to make it real’: </li></ul><ul><li>Concept research - though vital in development - not used to make decisions </li></ul><ul><li>Provides valuable insights – almost as useful as going out into the field </li></ul><ul><li>Defining customer requirement - pre prototype </li></ul><ul><li>Prioritising requirements/ preferences - planning/ design brief </li></ul><ul><li>Preliminary price points - market will bear/expected price range </li></ul><ul><li>Challenge user issues - functionality/ usability/ practicality </li></ul><ul><li>Positioning competitors products - Ranking on customer Criteria </li></ul><ul><li>Concept research is conducted with the prospective customers / market </li></ul><ul><li>influencers themselves </li></ul><ul><li>Face to face / Focus Groups are more forthcoming. </li></ul>
  26. 26. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS <ul><li>Product Research </li></ul><ul><li>No-one would sensibly go into production without product research – but people </li></ul><ul><li>still do. Or they research an idea in limited, artificial environments. </li></ul><ul><li>Thousands of ill-researched new products have failed to survive the test of the real </li></ul><ul><li>world. </li></ul><ul><li>Research should be professionally carried out by objective third parties with real </li></ul><ul><li>potential customers. It is essential but expensive. </li></ul><ul><li>A bold product claim must stand up to scrutiny from customers, the trade, suppliers </li></ul><ul><li>and the media. </li></ul><ul><li>Think – Commercial testing: with potential customers. </li></ul><ul><li>Think – Technical testing: stress testing, scenario testing, quality testing, live </li></ul><ul><li>environments etc. </li></ul>
  27. 27. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS <ul><li>Creating a Product / Prototype: Financial Considerations </li></ul><ul><li>U nit costs decrease as production runs increase </li></ul><ul><li>Initial tooling is a one-off cost and will represent a high investment </li></ul><ul><li>Consider all of your on-costs associated with the product – packaging, secondary </li></ul><ul><li>packaging, distribution etc. </li></ul><ul><li>  </li></ul>
  28. 28. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS Development Costs in the Product Development Cycle 80% of all future product costs determined by this stage Idea Concept design Detailed design & prototypes Production ramp up Actual spend Costs committed On-going production Total cost % 100 %
  29. 29. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS <ul><li>Prototyping and Licensing/Technology Transfer </li></ul><ul><li>Having a prototype that has been created by a clear R&D exercise increases your </li></ul><ul><li>negotiating position with a licensee or technology partner. </li></ul><ul><li>A well developed prototype provides a clear revenue opportunity “handed on a </li></ul><ul><li>plate” for a manufacturer to exploit – this de-risks the opportunity to the licensee </li></ul><ul><li>and increases your bargaining power. </li></ul><ul><li>Alternatively, an under-developed product at the idea stage, no matter how strong </li></ul><ul><li>the idea, represents risk to the licensee because they will have to invest in R&D to </li></ul><ul><li>get the idea/technology to production stage. This decreases your bargaining power </li></ul><ul><li>in royalty negotiating. </li></ul><ul><li>Always seek to develop your idea as far as humanly possible. Ultimately, aim to do </li></ul><ul><li>the work that the licensee’s R&D department would have done themselves. </li></ul>
  30. 30. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS <ul><li>Creating a Product: Considerations for Licensing </li></ul><ul><li>Consider things from the licensee’s perspective so that your product is </li></ul><ul><li>commercially viable to them: </li></ul><ul><li>Can it be manufactured cost effectively? </li></ul><ul><li>Will it hold a price that the market will bear and that will provide a suitable margin </li></ul><ul><li>for the licensee? </li></ul><ul><li>Can the parts/components be easily sourced (whilst still creating novel value)? </li></ul><ul><li>Is the right production technology available to produce the product competitively? </li></ul><ul><li>Can this production technology be easily sourced? </li></ul><ul><li>Always remember though: prototypes never represent a finished product – they </li></ul><ul><li>can be manufactured cheaper and are often de-engineered in the interests of </li></ul><ul><li>stretching margins further </li></ul>
  31. 31. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS <ul><li>Sources of Funding for Prototype Development, R&D and Product Design - Codeworks DEV Fund </li></ul><ul><li>Launching April 2010 but currently being trialled with small intake of businesses </li></ul><ul><li>Funding towards development of software prototype </li></ul><ul><li>Businesses must be classified as high-growth and have an ability to scale to revenues of £3m </li></ul><ul><li>within 3 years </li></ul><ul><li>Business must not have in-house technical capability to produce a software prototype (i.e. idea but </li></ul><ul><li>not know-how) and a well thought-through Business Plan to enter the fund </li></ul><ul><li>Entry to DEV fund is selective – intake is based on 15 businesses over the next 12 months </li></ul><ul><li>Initial market research to support prototype development is funded </li></ul><ul><li>Software development provided by supplier on Codeworks panel who the business selects via </li></ul><ul><li>quote process </li></ul><ul><li>Codeworks fund provides 2:1 match – i.e. 66% towards supplier costs with client providing 33% </li></ul>
  32. 32. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS <ul><li>Sources of Funding for Prototype Development, R&D and Product Design - Innovation Vouchers </li></ul><ul><li>Business Link grant towards any aspect of Innovation (e.g. product development, product </li></ul><ul><li>testing etc.) </li></ul><ul><li>Can only be accessed by trading businesses (although pre-orders can be classified as </li></ul><ul><li>trading) </li></ul><ul><li>Funding at 100% towards first £3,000 and 70% for a further £7,000 – fixed/guaranteed </li></ul><ul><li>A business can only access the Innovation Voucher once and with only one provider </li></ul><ul><li>Was formally only redeemable against public organisations but now redeemable against </li></ul><ul><li>private sector providers </li></ul><ul><li>Only redeemable against suppliers accredited to deliver Innovation Vouchers (i.e. always </li></ul><ul><li>check with provider) </li></ul><ul><li>Must show demonstrable economic and financial outputs to Business Link (i.e. high growth) </li></ul>
  33. 33. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS <ul><li>Sources of Funding for Prototype Development, R&D and Product Design - Business Link Solutions Funding </li></ul><ul><li>Prototype creation is not normally funded strictly speaking, although “design consultancy” and such </li></ul><ul><li>like can be </li></ul><ul><li>Pre-start funding covers up to 6 months pre-trading and 6 months into trading </li></ul><ul><li>Pre-start high-growth business (ability to achieve £500k in turnover within 3 years) receive up to </li></ul><ul><li>70% to a maximum of £45,000 </li></ul><ul><li>Non high-growth (i.e. lifestyle) receive up to 70% to a maximum of £8,000 </li></ul><ul><li>Existing trading businesses outside of “pre-start” stage receive up to 50% at an uncapped level </li></ul><ul><li>within state aid rules </li></ul><ul><li>Product development areas that could be funded include branding, concept creation, visualisation, </li></ul><ul><li>product design consultancy, feasibility studies, technical consultancy and such like. </li></ul><ul><li>Good private sector providers include Design Right Solutions, Redfox, Octo Design and Product </li></ul><ul><li>Group . </li></ul>
  34. 34. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS <ul><li>Sources of Funding for Prototype Development, R&D and Product Design – Design Network North </li></ul><ul><li>Public programme managed by RTC North to co-ordinate product design activities in the </li></ul><ul><li>North East </li></ul><ul><li>100% funding available to support design and development or innovative products </li></ul><ul><li>Funding awards are selective / meritocratic and not guaranteed – businesses must “pitch” to </li></ul><ul><li>a panel </li></ul><ul><li>Must be able to evidence high market potential and value of creating the product </li></ul><ul><li>“ Design Exemplar” awards given to products with major design value </li></ul><ul><li>This provides 100% funding towards engagement with a product development consultancy </li></ul><ul><li>Material costs and purchases also paid for </li></ul>
  35. 35. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS <ul><li>Sources of Funding for Prototype Development, R&D and Product Design – DTI Grant for R&D </li></ul><ul><li>Grant for businesses at the R&D stage (i.e. pre-prototype) needing funding for </li></ul><ul><li>investigative analysis </li></ul><ul><li>Must be a business operating in a high technology or science field with an element </li></ul><ul><li>of risk – i.e. unprovable technology </li></ul><ul><li>Can be for products and processes (but must be technologically innovative) </li></ul><ul><li>Selective intake – businesses must complete an in-depth application form setting </li></ul><ul><li>out R&D programme and selection process is based on level of innovation, </li></ul><ul><li>commercial potential, exploitation prospects, management team capabilities, </li></ul><ul><li>financial viability and financial case for the grant. </li></ul><ul><li>Micro Fund (45% grant at between £5k and £20k) for companies with less than 10 </li></ul><ul><li>staff and a turnover of £2m for a project of less than 12 months to develop a low- </li></ul><ul><li>cost prototype </li></ul>
  36. 36. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS <ul><li>Sources of Funding for Prototype Development, R&D and Product Design – DTI Grant for R&D </li></ul><ul><li>Research Fund (60% grant at between £20,000 and £100,000) for companies with </li></ul><ul><li>less than 50 staff and a turnover of £10m to investigate technical and commercial </li></ul><ul><li>feasibility of innovative new technologies, leading to an experimental model (not a </li></ul><ul><li>pre-production prototype). </li></ul><ul><li>Development Fund and Exceptional Fund also exist but for much larger </li></ul><ul><li>businesses. </li></ul><ul><li>Match to grant can be made from the business via attributable salaries, R&D </li></ul><ul><li>expenses or other finance sources that have been accessed for the same project </li></ul><ul><li>(e.g. POC). </li></ul>
  37. 37. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS <ul><li>Sources of Funding for Prototype Development, R&D and Product Design – Digital Factory </li></ul><ul><li>ERDF funded programme to provide prototype and product development support </li></ul><ul><li>Funded support at up to 50% with discretion to exceed this in some cases </li></ul><ul><li>No application process and relatively easy to access </li></ul>
  38. 38. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS <ul><li>Sources of Funding for Prototype Development, R&D and Product Design – Manufacturing Advisory Service (MAS) </li></ul><ul><li>Although not direct product creation, support is available on the manufacturing </li></ul><ul><li>issues around this </li></ul><ul><li>Initial diagnostic provided on a 100% funded basis </li></ul><ul><li>Can support on finding manufacturing sub-contract partners </li></ul><ul><li>Follow-on funding of up to 50% towards direct project interventions </li></ul>
  39. 39. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS <ul><li>Sources of Funding for Prototype Development, R&D and Product Design – Proof of Concept </li></ul><ul><li>Debt, equity or convertible loan fund managed by North Star – not a grant </li></ul><ul><li>For pre-revenue businesses at the concept development stage </li></ul><ul><li>Usually accessed for feasibility work and product development </li></ul><ul><li>Must have a well thought-out Business Plan to apply and be able to get to revenue </li></ul><ul><li>quickly </li></ul><ul><li>Investments made at flexible levels averaging c £90k per year </li></ul>
  40. 40. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS <ul><li>Sources of Funding for Prototype Development, R&D and Product Design – Technology Fund </li></ul><ul><li>Debt, equity or convertible loan fund managed by IP Group </li></ul><ul><li>Investment in early-stage technology development ranging from £50k to £1.25m </li></ul><ul><li>Businesses far from market and needing intensive R&D would probably transact </li></ul><ul><li>on an equity basis </li></ul>
  41. 41. NORTHUMBRIA COMMERCIAL ENTERPRISES INNOVATION CAMPUS Thanks for Listening ... Q&A Ross Golightly [email_address] Tel: 07984 379 558 / 0191 4604126 www.twitter.com/RossGolightly www.spheraconsulting.co.uk

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