"And we know that God causes everything to work together for the good of those who love God and are called according to his purpose for them."
Most of you who read this know that I've had incredible learning experiences over the past several years, the kind of things that no tuition could ever buy. I could not be more grateful--I just do not know what it would be like.
I'm speaking this week to a group of interns at the Materials Science department at Clemson, and so I have an opportunity to talk about some of these things. The title of my talk is "Lessons Learned from Founding Two Advanced Materials Startups." This post and the next three will contain the substance of my talk.
Materials innovations in particular can have big changes in a product, or big changes in a process, or both. Innegra, for instance, was both. It was a highly innovative process that produced a highly differentiated product. One of the things I've learned is that this is perhaps the most difficult type of innovation to base a start up company on. Here are the four quadrants:
I'll treat each quadrant in a separate blog post, starting in the lower left and working counterclockwise around the circuit. In each, I'll give some examples, a personal success, a personal failure and also a list of features needed for a startup business to be successful. They all have their own challenges, timescales, resource demands and strategies that suit. Hopefully this will become clear over the next few weeks.
Low Product, Low Process
Examples
Most businesses fall into this category, though few will admit it, and they can still contain a high degree of innovation and even differentiation--just along another axis. Walmart, for example, delivers the same products as everyone else, and for the most part using similar processes (we walk in, select, and purchase through a checkout). At Milliken, there was a large army of extraordinarily talented Process Improvement Engineers who made incremental improvements in quality and cost. One improvement involved cutting the waste produced when two rolls of fabric were sewn together, and the improvement, while a 50% reduction, took it from like 12" per roll to 6" per roll. On a percentage basis, it was small, but so much of that fabric was made that the total dollar figure was phenomenal.
Personal Success
A project I worked on allowed a product to be made using less dyestuffs. The percentage cost savings was relatively small, and the product was indistinguishable, but the potential dollar savings was annually more money than I could hope to make in a lifetime. This sort of an innovation is best kept as a trade secret (and that's why there are no details here), and can only really work inside a big company. I have to be careful claiming success because I left before this was implemented and I have no idea if it ever was.
Personal Failure
In a previous post, I talked about an product that we had that would enable a customer to reduce the process variation as they ran thousands of different colors of yarn every month. While this could have been a cost savings to them, they would have invest tremendous effort respecifying their processes with no innovation evident to their customers. The ability for them to gain market share was low and their only gains was a slow payback based on incrementally reduced costs. The customer made a valid decision to focus their R&D on innovations that could help them with their customers. While this was a valid decision, a few years later they did go out of business because they could not compete with their competitors cost. This sort of an incremental improvement is easiest to commercialize within a single company or with a close partner, as then some degree of differentiation can be assured through confidentiality. With a supplier who wanted to blast it to the whole market, there was no incentive for the customer to undergo the significant process changes required to implement the technology, and they did not.
Startup Success Features
As a startup, these businesses are generally the easiest to start, and there are thousands of them that provide good lifestyles to various people. Often, the differentiation is based on geography, or on a component of service or quality. Think your haircutter, the local burger joint or bar, the lawn care service, or gas station. If you are going to deliver a product, the best way to start is as a distributorship--selling someone else's product at a relatively low margin markup, differentiating your company based on service, packaging, material handling, information services, knowledge of an industry, relationships, or something similar. There is not generally room for capital investment, because the payback will be too slow and the ability to have your business taken away from you too easy.
There is a lot packed in here. If you are thinking of starting a company, and there are ten other companies doing the same thing and you are using standard processes, you had better have another way of differentiating yourself. For most businesses, it is fine and people use either geography or quality or service as differentiators. For a materials business, most of these innovations belong in a large company, and so should be licensed at the first opportunity with low royalty, modest up front payments and no exclusivity. If you want to use it as the cornerstone of a materials business, then outsource manufacture this product and add others so your company can be a one-stop shop for your customers, set the whole thing up as a distributorship and be prepared to spend a lot of time on the road building your brand, because the real differentiator will likely be sales, quality, delivery, or information services.
It gets better from here--I'll try to have the next ones up soon.
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