This market is very lucrative. The size of the market is large, few barriers, large incentives, a market that is set to grow, multiple brands, the presence of smaller brands and manufacturers duking it out with larger names, no industry standards as yet…. Why didn’t this work, you ask?Because the market is large, there are multiple brands, small and large manufacturers are duking it out, there are no industry standards, there is resistance to change and other factors.
Because we were adjacent to and serving the consumer market (Commercial consumers of LED PAR38 lamps), a large part of our customer interaction was with facilities managers and other consumer gatekeepers like architects and distributors. Most of our customers were very aware of advances in the LED lamp space. They kept up to date with brands, prices and incentives for these products. Many indicated awareness that LED lamps need better thermal management and expressed interest in adopting this technology across multiple properties. Most of our interviewed customers had experimented with LED lamps and were very pleased with the performance of these lamps. Advantages included reduced energy consumption and cost, reduced maintenance and inventory cost and the longevity of the lamp. However, they communicated that they were unable to use these lamps on a wide-scale because of the price of these lamps. At current prices, $40 -50, these lamps could not be adopted across commercial properties. Commercial Customers indicated that the desired price range lay in the $15 – 20 bracket. They were willing to wait for up to 5 years for the price to fall prior to wide scale usage of these lamps. Other disadvantages included the directional nature of the beam (requiring more lamps for illuminations), the weight of the lamp and the chance of theft.Commercial customers were aware of NYSERDA and NYPA incentives and do utilize those grants to purchase LED lamps. Many utilize these incentives to buy lamps that were used in properties that were aiming to achieve and maintain LEED certifications. Customers were also highly influenced by gatekeepers. The range was diverse and ranged from contractors, architects and distributors to trade publications in their professional field. The influence of each of these gatekeepers was dependent on the type of commercial customer and the nature of the occupation of each interviewee. Many indicated that they were not very likely to consider changing brands of lamps.
SCRIPTArka Thermal Solutions would work in the LED light space. But instead of producing LED lamps, ATS would produce the thermal component – our core technology. Arka would design and produce thermal management components that would then be fitted into LED lamps. We had moved one step upstream; joining, what was earlier, our supplier side to become a component manufacturer for LED lamps. This would allow us to:Focus on our core competencyNot have to enter a market that was complex and supplier drivenReduce initial capital investmentHave shorter lead timesExplore greater scope in product linesReduce the number of customers, but increase our rapport with them. OEMs said “we are very interested….”
This market was ideal for a startup with Arka’s genetics. But the business plan had to iterate again. Why?Arkafaced certain inherent barriers. The first questions was the flow of design and product. Would we manufacture the product? Manufacture and brand it as Arka? Or outsource manufacturing and brand it Arka? Not brand at all, but court a LED manufacturer, pitch a solution and then work with partner suppliers? Which was the most viable for Arka, why would a partner supplier choose to work with us? And why would a customer choose to work with a partner supplier at all? And so, how could we protect our design? How would we enforce design non-disclosure and protect our core assets?These questions were hard to answer. Each model that it’s advantages and disadvantages. Arka is a very young startup and loss of a vital asset like it’s heat pipe IP would be a devastating setback. We had to come up with a business model that, at this point, would best reflect and capitalize on the core competencies of the founding members.
This slide represents pass/fail parameters that we outlined in October 2011 when we disclosed and created our initial business model. As of December 2011, these pass/fail parameters have been put to use. The Value Proposition, outlined in green, indicates that our value proposition (while modified) is the vital component around which our business model has pivoted twice. At the core of Arka remains the novel heat pipe technology that can offer significant gains in thermal transfer while reducing the energy consumption and improving efficiency of the product. At this point of time, Arka seeks to capitalize on this novel heat pipe technology as an asset that serves to differentiate Arka from other heat pipe manufacturer and designers. The parameters highlighted in blue are those that were modified. These parameters did not fail due to the lack of positive feedback, but because of other considerations in the first two iterations. Long lead times and Break Even Point Goal, the lack of expertise in manufacturing, the presence of gatekeepers and strong customer attitudes are a few of the reasons while these parameters caused iterations in the first two models. Feedback while positive in these areas, did not translate to a strong defensible business model. The parameters outlined in red are those that were true. For example, with our proposed customer segments in the first business model, this parameter was validated because customers indicated that switching to LED lamps was not a high priority at this point of time, and they were willing to wait for prices to fall before adopting the technology. We also faced challenges with the execution of the project. The long lead times and lack of expertise in manufacturing were some of the challenges.
So, as we went through iterations of our business plan…Our market – the number of customers – kept shrinking….But as you can see – the scope of our product, the applications of our technology and competencies – started increasing….
How has your method of instruction changed? In class and in the lab? Problem solving and student guidance?How will it make you change the curriculum? New additions within your class (besides large scale changes in course structure and otherwise?
1. Total CustomersContacted: 86 RIT NSF ICORPS Dec 14 2011 1
2. Initial Business ConceptGlobal lighting industry - $100B LED lighting - $6B, CAGR>40% Enhanced cooling allows LED Replacement • Higher lumen output Lamps • Higher light quality ~500 million sockets • Better reliability * $15/lamp = ~$750M RIT NSF ICORPS Dec 14 2011 2
3. Principal Investigator Mentor Dr. Satish Kandlikar Dr. Suresh Sunderrajan Gleason Professor President, NNCrystal Corp. Mech. Engg., RIT Entrepreneurial co-Lead Entrepreneurial co-Lead Ankit Kalani Kirthana KripashMS Engineering (Candidate) RIT MBA (Candidate), RIT Kandlikar and RIT Team – NSF I-Corps
4. Kandlikar and RIT Team – NSF I-Corps
5. Customers Channels Key Partners “We are willing to wait 5 to 7 years for the price to fall “If you bring us a before we adopt modular thermal this technology on system that provides a wide scale. ” better cooling at lower cost, we would definitely want to explore this technology. Kandlikar and RIT Team – NSF I-Corps
6. Other Components Arka provides replacement lamps Arka Lights•LED array, Lampcomponents Luminaire •LED luminaires Manufacturers and Fixtures Distributor Contractor Project/Owner
7. Customers Distribution and Supply : The customer is • We lack inunwilling to buy the product Lamp/Luminaire productionat current prices : The final consumer • OEMs were interested inis highly dependent on incorporating our enhancedGatekeepers (suppliers) for thermal module in theirguidance in product choice product We had to pivot! Kandlikar and RIT Team – NSF I-Corps
8. Arka Lights Arka provides Thermal Modules OEMs •LED luminaires and Fixtures Other DistributorComponents Contractor •Institutions, Project/Owner Home Owners, Distributors
9. Customers Environment Key Partners We would like to enter into a partnership toHeat Exchanger develop heat Manufacturer pipe based products.
10. • Our competencies lay primarily in the heat pipe industry• The most encouragement came from a heat exchanger manufacturer who is looking to expand his product line.• Our Business Model iterated; we will now focus on heat pipe based solutions in diverse applications. Kandlikar and RIT Team – NSF I-Corps
11. Commercial PAR 38 Arka Prototype 52 °C (max) 37 °C (max)• Arka prototype runs 15 C cooler, allowing more LED placement per lamp• Prototype delivers 100 % more lumens for the same form factor• ~30% lower cost/unit for similar lumen output• The weight of Par38 is 65 percent lower, and the manufacturing cost is $4.50 (current module costs about $2.20) RIT NSF ICORPS Dec 14 2011 12
13. • Negotiations with Heat Exchanger Manufacturer (HEM) ongoing.• Arka provides::IP, heat transfer expertise, design• HEM provides: Manufacturing, distribution and sales channels• Arka will be proactive in exploring other market opportunities. – Additional revenue/cost models will be explored using the methodology of this class Kandlikar and RIT Team – NSF I-Corps
14. • The Process: – Iterations occur organically when you respond to market and consumer needs. – Explore unconventional opportunities, be OPEN, and be aware that potential partners may be sitting next to you in a plane. I probably met my future prototyping partner on my way to Stanford.• The Market: – Understand your customers, channels and partners – It’s about money – customer’s, partner’s and yours – respect that without forgetting your core values. Kandlikar and RIT Team – NSF I-Corps
15. • Most Valuable Game Changers – Your Students! – Recognize the innovative potential of your student – Guide them to pursue commercialization: from their mom’s gardening business to successful technological products – Motivate your students – Be ENABLERS. You can shine on your own, but you can “nucleate” many more stars.• Most Valuable Assets – Your Ideas and Your Drive – Dream of Possibilities – And then make them HAPPEN – you will know how by simply GETTING STARTED Kandlikar and RIT Team – NSF I-Corps
16. JointVenture Firm
17. – Show innovativeness– Integration of Student education on commercialization– Hope to get NSF implementation grant for RIT curriculum– Hope to be NSF face on commercialization initiative– Create a start-up and be successful (really start a heat pipe company)
18. • What I hoped to learn. – To be involved in a grant based project from start to finish – Understanding the needs and requirement of product development ( from research lab to an actual product)• What I learnt. – What entrepreneurship really means – How to talk and listen to ‘actual’ customers – Understanding requirements for a start-up not just product development – Presentation improvement skills – Planning and working to meet deadlines – Being flexible and responsive to feedback
19. • What I hoped to learn: – How to understand and facilitate the technology commercialization process – How to work with technical teams – Student and University based technology commercialization and resources – If academic training in entrepreneurship translates in the real world.• What I learnt: – Working with a idea at the nascent stage while incorporating customer feedback allows room for easier growth and modification – Concepts and Theories do not convert easily to product features. Prototyping from paper to product takes time, effort and an ability to improvise.