This week’s roundtable was an interesting mix of entrepreneurs ranging from an IP licensing company to a snow removal system.
Dr. Marilyn Bruno started off by presenting Aequor, Inc., an early stage biotech company that removes biofilms by using proprietary chemical compounds extracted from marine microbes. Biofilms support the proliferation of bacteria. Marilyn wants to license her technology to various market segments that have applications in bacteria removal, and has identified markets from ships’ hulls to agriculture to contact lenses to teeth cleaning as possible application areas.
She expects that it would take the company about five years to really kick into royalty revenue gear, and meanwhile, is investigating funding options.
My take of IP Licensing businesses is that it takes a very long time for patents to be issued, and royalties to start kicking in. There are a number of IP licensing companies that I cover regularly on my blog: Tessera, Dolby, InterDigital, ARM, and to an extent Qualcomm, which also has a very large IP licensing business. Tessera, in fact, was a client of mine.
If you study the industry and the business model, you will see that it is rather difficult to finance the early stages of an IP licensing business, since traditional venture investors tend not to like the model. Thus, my advice to Marilyn, based on some of the conversations she has had with various industry players, is to try to convert at least a few of these customers into flat licensing fee customers as soon as possible, and not worry too much about trying to get royalties from them.
Based on Marilyn’s analysis, there is a diverse and large set of potential licensees for her technology. So, in the long run, she may be able to create lucrative royalty deals with some of them. But meanwhile, she needs to survive the short and medium term, and for that, my suggestion is to try to get customer funding via modest amounts of flat licensing fees that can keep things going.
My worry is that businesses that have long gestation periods tend to run out of cash. There are 600,000 companies that go out of business each year. I don’t want Marilyn to be one of those entrepreneurs who faces that predicament.
Innovation: Need Of The Hour
And while on this topic, I also want to talk about my new book, Innovation: Need Of The Hour, where I have addressed the issue of innovators having the tendency to come up with solutions and then look for problems, instead of the other way round. In general, my belief is that if you are planning to spend an extensive amount of your time, energy and resources developing an innovation, it is better that you do a serious due diligence on what the commercial path of that innovation is likely to take. My take: Efficient innovators solve problems, not come up with solutions looking for problems.
After Marilyn Bruno, Hari Prasad presented an automatic snow removal system that he has designed, but has not yet brought to market. In fact, he is still missing the control system of the invention, for which he said that he was looking for an engineer. I asked him if he knows how to design the control system, since it sounded relatively simple based on the schematic he presented. Well, great news – Hari does know how to design it. This eliminates the barrier to finishing this product.
Hari should just go ahead and design it, and finish the product. Then comes the question of manufacturing and go-to-market. I advised Hari to experiment with a service called Quirky. It is a crowdsourced product innovation platform that has caught my attention, and it would be interesting to see if Hari can use them to bring his snow removal system to market.
Mill Creek Systems
Up last was Warren Newhauser, founder of Mill Creek Systems, Inc., who is looking to productize an estimating solution for structural steel fabricators. Warren has been listening to my roundtables since the beginning of the year, and has thus developed a sound understanding of the EJ Methodology that we teach in the 1M/1M program. He has implemented the methodology and came to this session with a very good set of market research data. He has made 41 customer calls and shared with me his findings about the customer feedback.
We had a very good dialog about the Total Available Market (TAM) analysis, and also the possible ways of finding customers who are ready to buy. In the end, Warren went away with two action items. 1: Talk to some of the distributors of CAD software products like Autodesk and Solidworks and get their input on whether they would be able to sell his product. 2: Search engine optimize his website such that people looking for this sort of product would be able to find him. The search volume is low, true, with only about 66 queries in his domain. However, those 66 are highly qualified prospects, and could represent several tens of thousands of dollars in business.
I started doing my free Online Strategy Roundtables for entrepreneurs in the fall of 2008. These roundtables are the cornerstone programming of a global initiative that I have started called One Million by One Million (1M/1M). Its mission is to help a million entrepreneurs globally to reach $1 million in revenue and beyond, build $1 trillion in sustainable global GDP, and create 10 million jobs. In 1M/1M, I teach the EJ Methodology which is based on my Entrepreneur Journeys research, and emphasize bootstrapping, idea validation, and crisp positioning as some of the core principles of building strong fundamentals in early stage ventures. In addition, we are offering entrepreneurs access to investors and customers through our recently launched our 1M/1M Incubation Radar series. You can pitch to be featured on my blog following these instructions.
Sramana Mitra is a technology entrepreneur and strategy consultant in Silicon Valley. She has founded three companies, writes a business blog, Sramana Mitra on Strategy, and runs the 1M/1M initiative. She has a master’s degree in electrical engineering and computer science from the Massachusetts Institute of Technology. Her Entrepreneur Journeys book series, Entrepreneur Journeys, Bootstrapping: Weapon Of Mass Reconstruction, Positioning: How To Test, Validate, and Bring Your Idea To Market and her latest volume Innovation: Need Of The Hour, as well as Vision India 2020, are all available from Amazon.
Photo by Stefan Klabunde.