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SPIE Professional April 2013

Commercialization Basics

SPIE member David Krohn shares mistakes and successes in commercializing photonics technologies.
thumbnail image, David Krohn

On the day David Krohn became CEO of his first photonics company in 1979, his former boss at Exxon Research took him aside and gave him some advice.

“No matter how smart you are, you’re not smart enough,” the boss told him. “No matter how good you are, you are not good enough. Hire people that are better than you and smarter than you, and ride the wave.”

Krohn says he has learned that and much more about photonics entrepreneurship since co-founding EOTech, and that first lesson was perhaps the most important.

“I’ve learned over the years not to be threatened by people, to get out of their way,” Krohn says. “My job is to be at the front of the boat and to block all the things that come at them so they can do their job. That’s the lesson I’ve learned.

“I’ve made a lot of mistakes, but I’ve learned a lot more from mistakes than successes.”

In the interest of sparing other potential photonics entrepreneurs the pain of making the same mistakes he made in helping 115 companies commercialize photonics technologies over the last 34 years, Krohn has published a new book with SPIE Press, Commercialization Basics for the Photonics Industry.

The 178-page book covers fundraising strategies and government contracts, marketing and manufacturing basics, and the all-important recruitment process for anyone considering starting his/her own photonics business.

People most important

“A strong business team is the most important ingredient in the success of the business,” Krohn writes in the book.

The number one tip from a man who has written business plans for more than 60 startups and who was an angel investor for 11? “Money is the engine,” Krohn says. “Whatever you think you’re going to need, it will probably be a factor of four higher.”

Krohn also says that the biggest mistake most new businesses make – and it can be a fatal mistake– is to do a poor job of marketing or manufacturing the technology. Most inventors with a cool idea think that people will “rip the walls off the building to get at the better mousetrap,” Krohn says. But they may not fully understand the market dynamics or problems in manufacturing.

As an example, he cites the solar energy company Solyndra, which went bankrupt in 2011 after receiving millions in U.S. government loan guarantees. “Solyndra was positioned to fail from Day One,” Krohn says, because the expense of manufacturing its innovative solar rooftop system was twice the cost of what manufacturers, especially in China, were selling solar panels for on the market.

The author is managing partner of Light Wave Venture Consulting where he helps startups in the fields of fiber optics, sensors, lasers, telecommunications, and biophotonics recruit employees, raise money, and write business plans.

He was CEO of EOTec until that business was acquired by 3M in 1987. He later served as global new business director for photonics at 3M. He was also general manager of the 3M Specialty Optical Fiber business that included the Bragg Grating Technologies business acquired from UTC.

Krohn is an SPIE member and has an MS from Case Western Reserve University and a PhD from Lehigh University.

Top concepts in photonics commercialization

Krohn says that technology startups typically set aside 10%-20% of projected annual budgets for product development.

However, “In small startups, that number may be closer to 90%,” he says.

“It is essential to focus this development effort on selecting the right products to maximize market opportunities.”

Careful selection of development activities eliminates limited-potential products early in the commercialization process and provides for better utilization of available resources.

The takeaway concepts for successful commercialization of technology include:

  • Don’t live in a technology vacuum
  • Identify a problem or need first, then provide a technical solution, not the other way around
  • Understand the business side of technology (marketing, sales, and manufacturing)
  • Ensure that commercialization is a team effort
Government cash is good—but only if it solves multiple problems

One of Krohn’s top tips for photonics entrepreneurs is to ensure that there is a problem or need for a new technology or product.

“Technology in search of a problem is not focused,” Krohn says.

“I like opportunities that are more diversified,” Krohn says of his work with Light Wave Venture Consulting.

Entrepreneurs should strive for one technical platform that can serve multiple markets. He advises new entrepreneurs to pick an engineering problem “that can move to multiple development markets.”

Similarly, Krohn advises innovators to be careful about government funding, which has its benefits and drawbacks.

The main benefit of government grants is they are a significant source of needed cash. “But most people don’t realize that government funding has a long gestation period,” he says and are intended for “one-off” technologies that are focused on a specific government need.

“Make sure you are taking something that is supplementing your research,” he says, and fits in with an overall business case.

Read excerpts from Krohn’s book on commercializing photonics below, and see our February 2013 interview with him.

EXCERPTS from Commercialization Basics for the Photonics Industry

The goal of commercialization is to transform good technology into meaningful products that can fulfill customer needs while remaining cost effective. Specifically, can the technology be the basis for meeting a defined customer need? Can it be reproduced consistently, and can it be manufactured cost-effectively?

Most entrepreneurs have expertise in one or more of the critical areas of commercialization, but may lack key elements necessary for success. Commercialization Basics for the Photonics Industry serves as a roadmap for the commercialization process, helping identify and address roadblocks on the path to commercialization.

Assuming that the technology is sound, 75% of business failures are caused either by poor market understanding or the inability to manufacture quality products in a timely manner. Therefore, good reproducible technology is only one of several critical elements required for successful commercialization.

Marketing and manufacturing are additional elements that are not only required, but required early in the product-development cycle. Several other elements are important to the implementation process, including funding, sales, manufacturing engineering, and the team itself.

In many ways commercialization is like a political campaign: the engine is often the funding that drives the product toward a successful conclusion. Sometimes the market input will drive the technology. Often, as technology evolves, market input is needed early in the evolution process to adjust to market needs. Funding allows the technology to be developed, the market input to be generated, and the sales and manufacturing structure to be devised and implemented. Many companies start on a shoestring budget with little or no initial funding.

We hear of fantastic successes when these companies rise to great heights from very humble beginnings. However, the vast number of companies that fall by the wayside is often played down. The takeaway here is that thinking about commercialization very early during the process of product formation significantly increases the probability of successful market entry, where a key element of success is getting the proper funding. Having a comprehensive plan and an understanding and commitment to commercialization concepts significantly reduces the risk for the investor.

The business plan serves both as a vehicle to encourage investment and as a roadmap for how to direct and manage the company. The plan should clearly and concisely provide a view of the company’s mission, goals, as well as what makes it different and likely to succeed.

Krohn on the business team

A strong business team is the most important ingredient in the success of the business. A good team can win with limited resources. A weak team will likely lose with unlimited resources.

Commercialization is the responsibility of all key employees. Cross-functional teams are required to make a smooth transition from concept to product. Product development, marketing, manufacturing engineering, manufacturing, sales, as well as general management, all have to work in concert to move successfully from concept to market.

If the development group merely throws the prototype over the wall and the manufacturing team scrambles to productize something that fulfills a customer need, they will meet with a low probability of success.

It is very important to recognize that the structure of the team will need to change as the business moves through the various stages of growth.

Krohn on the funding stages and sources

Raising funds for the business will always be a challenge. Most entrepreneurs will tell you that whatever amount you project as your financial needs, in almost all cases, this amount is an understatement.

There are potentially several stages of funding needs and multiple sources, including angels, venture capital firms, business loans, government contracts, and strategic industrial investors.

In the startup phase, funding needs are limited. The anticipated needs are in the range of $50,000 to $750,000. The funds are used to show proof of concept through prototype production and alpha sites to get preliminary feedback on performance. At this stage, spending should be lean. Overfunding at this early stage can lead to wasting resources by running with a product before it is ready. It can also lead to valuation problems that can negatively impact future funding rounds.

In the development stage, the funding is usually around $500,000 to $3 million. In some instances it may approach $5 million. In this stage, the funds are needed for product development, pilot manufacturing, market development, beta-site testing, and product introduction.

Once products have been qualified and accepted, the company enters the expansion phase. The funding needs are typically $2 million or more, depending on the need for capital equipment and the ramp-rate for expansion.

The growth stage is signified by a steep ramp rate where all aspects of the company are growing, including manufacturing, manufacturing engineering, marketing and sales organization with an emphasis on customer support, and new and advanced product development. The funding level could be $5 million or more.

Not all successful companies experience all of the stages. Sometimes very promising companies or companies that are very strategic to another company may be acquired at an earlier stage.

This issue of SPIE Professional has a special focus on entrepreneurs who are transferring photonics technologies into commercial products and services.

See other articles in this issue about photonics entrepreneurship, including coverage of the 2013  SPIE Startup Challenge and the story of RefleXion Medical, a seed-stage medical technology company developing an innovative radiation therapy system.

DOI: 10.1117/2.4201304.10

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