www.cti-entrepreneurship.ch

PRODUCT to MARKET

how to develop a successful product

CTI Entrepreneurship

Modul 2

Version 1.0

14. Oktober 2015

www.cti-entrepreneurship.ch

Dr Pierre Comtepeter.comte@gmail.comDr. ès sciences

Harvard Business School AMP

Engineer in Microtechnology

CEO Sigma Professional Sàrl

President of Cascination AG, Koring AG

Coach of CTI Startup

CTI Entrepreneurship Trainer

Lecturer at EPFL and IMD Business school

Jury membre of Venture Kick

Trainers

Prof Dr Kim Olivier Tokarskikim.tokarski@bfh.chDr. Rer. oec

Leiter Institut Unternehmensentwicklung

am Fachbereich Wirtschaft der Berner

Fachhochschule

Professor für Entrepreneurship

Berater im Kontext junger Unternehmen

Gastprofessor im MBA-Studiengang

Unternehmensführung und Innovation

der Wirtschaftsuniversität Bukarest

www.cti-entrepreneurship.chLearning objectives

2. Master the key steps to develop a product/service

1. Understand the «conditions for business success»

3. Evaluate if your product idea is attractive

Deliverables

- First market potential evaluation and attractivity

- First value proposition

- First roadmap for product development

3

www.cti-entrepreneurship.chCourse content

4

Part 1. The market opportunity

Part 2. The value proposition

Part 3. Key steps to develop the product

Part 4. Product and business options

www.cti-entrepreneurship.chWhat is a good business idea ?

Source Pierre Comte

5

www.cti-entrepreneurship.chAbout innovation ?

Source Pierre Comte

6

Examples: Dell, Nespresso, Google, Facebook, Starbucks

www.cti-entrepreneurship.ch

My company Customers

Market

Gross margin=

Revenues - cost

value

creation for the

company

Manufacturing

cost

Revenues

GENERATE AN APPROPRIATE

MARGIN

CREATE UNIQUE VALUES FOR

CUSTOMERS

Product/Service

Significant value

creation for the

customer

SUCCESS +

Conditions for business success

+ MULTIPLY = SELL TO MANY CUSTOMERS

TO BECOME FINANCIALLY SUSTAINABLE

Competitors

Source Pierre Comte

www.cti-entrepreneurship.chPART 1. THE MARKET OPPORTUNITY

Source Pierre Comte8

Customers = people/organisations making the decision to buy your product

Adressable Market Geographic segment

Demographic segment

Behavioral/specialists

segment

Adressable market = customer population likely to buy your product

The Total Adressable Market (TAM)

TAM = Yearly sales per customer X Number of potential customers

www.cti-entrepreneurship.chExample: adressable market for Limmex AG

9

Demographics of the United Statessource : https://en.wikipedia.org/wiki/Demographics_of_the_United_States

Source Pierre Comte

Total population

USA: 308’745’538

Example: Case Limmex AGBase Market

Demographic

share

Behavioral/specialist

shareHypothesis 2,4% 5%

Yearly sales per customer (in CHF) 500

Number of potential customers in Switzerland - -

Number of potential customers in Europe - -

Number of potential customers in USA 308 745 538 7 409 893 370 495

Total number of customers 308 745 538 7 409 893 370 495

Value of the adressable market (in MCHF) 185

Limmex Emergency watch

www.cti-entrepreneurship.chEXERCISE 1a. How big is your adressable market ?

The total adressable market (TAM)

TAM = Yearly sales per customer X Number of potential customers

Source Pierre Comte

10

see Excel tool

www.cti-entrepreneurship.chEXERCISE 1b: Do you have an attractive market ?

1. TAM market big enough (>20 M) and growing (10 to >50%)

2. A market where recurrent sales (same customers buying again) are possible

(ex.: printer ink cartridge, Nespresso coffee capsules, hip joints, etc)

3. Market of existing customers (ex.: android mobile phone)

4. Attractive pricing and high gross margins (>70%) possible (ex.: medical device)

Source Pierre Comte

11

• For small markets, it may be difficult to convince investors.

• Big markets may be occupied by very large companies where doing

business may be difficult and you may not have sufficient resources

to compete

see Excel tool

www.cti-entrepreneurship.chPART 2. THE VALUE PROPOSITION

12

Offer customers:

- Values satisfying customer’s need or solving a customer problem

- Values that are strong and unique (radically different than the competition)

- Values that are simple to understand for the customer

Ideally : a product allowing the customer to do

something he was not able to do before

www.cti-entrepreneurship.ch

Nespressohas changed theEspresso business

model !

Source Pierre Comte

13

www.cti-entrepreneurship.ch

8

Values 7

6

5

4

3

2 Ease of use

1 Taste

-1

-2 Coffee price

Sacrifices/ -3

pain -4

-5

-6

Nescafé

Taste selection

Ease of use

Fresh coffee

Taste

Machine price

Coffee price

Service pain

Espresso

Nespresso values

Brand identification

Ease of use

Very high level

of taste selection

Machine price

Coffee price

Service pain

Nespresso

Source Pierre Comte

14

www.cti-entrepreneurship.ch

8

Values 7

6

5

4

3

2

1

-1

-2

Sacrifices/ -3

pain -4

-5

-6

-7

-8

Competition My product• Design

• Product features

• Unmet customers needs

• Customer can do something he

was not able to do before

• Time saving

• Simplicity

• Mobility

• Quality

• Emotional features

• Guarantee

• etc

• Price

• Cost of change

• Cost to use

• Additional costs to maintain

• Availability of maintenance

• Safety

• Lack of performance

CUSTOMERS TEND TO OVER-EMPHASIZE SACRIFICES !

Product

killers

Benchmark your product values

Source Pierre Comte

15

www.cti-entrepreneurship.ch

Example: Laptop computer market

Product Price

User

experience Capability Speed Hard disk Display Connectivity

Battery

autonomy

Laptop 1 350 62% 100% 50% 50% 60% 70% 40%

Laptop 2 800 70% 100% 60% 50% 80% 80% 50%

Laptop 3 1400 75% 100% 80% 50% 80% 80% 60%

Laptop 4 1800 90% 100% 90% 70% 100% 100% 80%

Laptop 5 2300 100% 100% 100% 100% 100% 100% 100%

iphone 800 42% 40% 50% 10% 20% 30% 100%

ipad 1000 58% 70% 70% 20% 60% 30% 100%

User Experience

0%

20%

40%

60%

80%

100%

120%

0 500 1000 1500 2000 2500

Rela

tiv

e u

ser

exp

eri

en

ce (

%)

Price (CHF)

Price-User experience curve

Série1

How to price your product

Source Pierre Comte

16

The price-value curve helps

you understand how the

market works and to price

your product

www.cti-entrepreneurship.ch

Make money, margin

&

be sustainable

Where is the money ?

Unique product but

no customer for it

Are you sure you

want to start a

business ?

You will compete

on price

Value for the customer

How

different

from the

competition

Unique

(no competitor)

Not

unique

Valuable (there is a proven

customer need)

Not valuable

Source Pierre Comte

www.cti-entrepreneurship.chTesting the values with customers

Source Pierre Comte

Do :

Test several times the values with various customers (iterate)

Understand the «pains/sacrifices» your product creates for the customers

Lower or eliminate the sacrifices

Be the first to scale up

Do not:

Try to make the perfect product

Be afraid to polarize customers

Waste time to try to beat the competition

18

www.cti-entrepreneurship.chEXERCISE 2: What is your value proposition

see Excel tool

Source Pierre Comte

19

Values for the customers Unique Valuable

yes/no 1=low, 5=high

1.

2.

3.

4.

5.

Sacrifices for the customers Sacrifice level

1 low, 5 high

1.

2.

3.

4.

5.

Key questions yes/no

Are you solving a key problem of your customers ?

Are the values radically different than those from the competition ?

Do you have a low number of values but strong and of high quality ?

Is it very different than the competition ?

Are the pains/sacrifices for customers low ?

www.cti-entrepreneurship.chPART 3. KEY STEPS TO DEVELOP THE PRODUCT

Innovative

design

CheckCustomer

needs &

FTO

Define

customer

Barriers to

business

Partnering

IDEATION

PRODUCT

MARKET &

BUSINESS

Design

MVP1

min. viable

PRODUCT 1

Test MVP1

with

customers

Patent filing

Freedom to

operate

Pricing and

% Gross

margin

Product

options

Make or

Buy

Market

attractivity

Tech. &

business risk

analysis

Business

model

feasibility

Design &

Manufacture

Prototype

Business

track

options

Test

customer

values 1

Design

MVP2

Test

customer

values 2

Test MVP2

with

customers

min. viable

PRODUCT 2PRODUCT 3 PRODUCT 4

First

Product

Verify

customer

type

Verify

customer

type

Early gross

margin

assessment

ITERATE

ITERATE

MARKET 1

Test

prototype

Source Pierre Comte

20

MVP: minimum viable product

FTO: Freedom to operate

www.cti-entrepreneurship.chKey issues for a startup to develop a product

Source Pierre Comte

21

1.Develop the product & business concept together

2.Verify early on the key product & business assumptions.

Can you identify product killers ?

3. Test and learn with customers as early as possible.

4. Focus on product values that correspond to a customer problem or

need

5. Adapt the product & business concept and re-test with different

customers

www.cti-entrepreneurship.chMinimum viable product (MVP)

Minimum viable product = minimum set of

features/values that you can test with customers

- Picture

- Sketch/drawing

- Web site

- Early model/prototype

- Demonstrator

- etc

Source Pierre Comte

22

www.cti-entrepreneurship.chEXERCISE 3: What would be your minimum viable product (MVP)

Minimum viable product 1 ?

Minimum viable product 2 ?

Source Pierre Comte

23

www.cti-entrepreneurship.chVerify the Freedom to operate & file for patent

Freedom to operate (FTO)

- verification that no patent exists with

claims covering your product/technology

- verification that the industrialization of your

invention is not falling under the claims of

an existing patent

For a first FTO check

European patent office

http://www.epo.org/searching/free/espacenet.html

United States patent office

http://patft.uspto.gov/

1. Conduct an assisted (FTO) search at the Swiss

Federal Institute of Intellectual property in

Bern.

https://www.ige.ch/en.htm

(Free of charge if you are under CTI Startup

coaching)

http://www.google.com/advanced_patent_search

http://www.freepatentsonline.com/

In case of conflict

- check the time and geographic validity of the

conflicting patents

- evaluate possibilities to go around the

conflicting patents

- check if you can find prior art in the literature

to invalidate the patent

- negotiate an exclusive license with the patent

owner

2. Document your search and prepare a report.

This report will be requested by investors

Source Pierre Comte

24

www.cti-entrepreneurship.chThe CE mark for the EU market

A regulated product must

carry the CE mark to be

sold in Europe

Source Pierre Comte

25

Examples of regulated products

Toys Electrical products Low voltage product

www.cti-entrepreneurship.chHow to satisfy regulations for your markets

The CE marking indicates a product’s compliance with EU legislation and so enables the free movement of products

within the European market.Search for applicable EU directives

Source Pierre Comte

26

www.cti-entrepreneurship.ch

Search for EU Community standards

http://ec.europa.eu/enterprise/policies/european-standards/harmonised-standards/

Search for EU Community directives

http://ec.europa.eu/enterprise/policies/single-market-

goods/cemarking/professionals/manufacturers/directives/index_en.htm

Is your product regulated ?

Source Pierre Comte

27

www.cti-entrepreneurship.chGet your product tested

Testing your product for compliance with EU regulations

Montena S.A. http://www.montena.ch/system/home/

Electrosuisse AGhttps://www.electrosuisse.ch/en.html

TÜVhttp://www.tuv.com/fr/france/home.jsp

Source Pierre Comte

28

www.cti-entrepreneurship.ch

Sales 10

Cost of Goods Sold 3

Gross margin 7

% of sales 70%

Research & Development 1

Sales & marketing 3

General & administration 2

Profit 1

% of sales 10%

Know the

typical operating data

of your industry

- Typical gross margins

- Level of R&D spending

Build a product with sufficient Gross margin

Profit & Loss statement

Source Pierre Comte

29

www.cti-entrepreneurship.chBenchmark your product/service Gross margin

Company database from SEC (USA) http://www.sec.gov/edgar/searchedgar/companysearch.html

Annual reports from companies Become a shareholder, buy a share

Data available from the web http://research.financial-projections.com/IndustryStats-GrossMargin

http://csimarket.com/Industry/industry_Profitability_Ratios.php?ind=902

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html

Industry reference data

Typical Gross

Margin as % of

Sales

Computer software & services 90-95%

Pharmaceutical 80-90%

Medical device 70-80%

Semiconductors 50-60%

Source Pierre Comte

30

How to access data

www.cti-entrepreneurship.chEXERCISE 4: Should I create a company ?

Source Pierre Comte31

www.cti-entrepreneurship.ch

COMPANY Customers

Customers 1

Customers 2

Sales &

Distribution

channels

Market’s segments

Business

partner Customers

Out-licensing

partner Customers

Partner’s segments

R&D under option

agreement

Partner with

option

agreement

Customers

OEM

PART 4. PRODUCT and BUSINESS OPTIONS

Source Pierre Comte 32

www.cti-entrepreneurship.chHow many customers do you need to be sustainable ?

10 000 000

1 000 000

100 000

10 000

1 000

100

10

1

10 100 1 000 10 000 100 000 1 000 000 10 000 000 100 000 000

Yearly sales per customer

Number of customers

CHF 100 Mio sales

CHF 1 Mio sales

CHF 10 Mio sales

Attractive markets Direct sales

Complex marketsserved by partners/distributors

Source Pierre Comte 33

Attractive: markets that you can serve directly without distributors

www.cti-entrepreneurship.chCase Navix

34

www.cti-entrepreneurship.ch

Sonar 1

for

recreational

divers

Technology

Product

Customers

Sonar 2

for

professional

divers

Sonar 3

technology

module for

ROVrobots underwater

Sonar 4

technology

out-licensing

for dive

computers

Distributors Military org. ROV industryDive computer

industry

B2B B2B B2BB2C

many customers a few customers a few customers one customer

agreement

Application

Case Navix

Number of

customers

Source Pierre Comte

35

www.cti-entrepreneurship.ch

Use the Attractivity-Risk matrix to select the best business

Case Navix

Market Market Market Gross Competitive Profit in Commercial Technical

Product

Optionssize share growth margin differentiation 5 years Risk risk

%

Recreational

Sonar 1

Professional

Sonar 2

ROV

Sonar 3

Out Licence

Sonar 4

Attractivity Risk+ Positive score

++ very positive

Source Pierre Comte

www.cti-entrepreneurship.ch

Market Market Market Gross Competitive Profit in Commercial Technical

Product

Optionssize share growth margin differentiation 5 years Risk risk

%

Recreational Distributors/

Sonar 1 Competition

ProfessionalMilitary

standards

Sonar 2 Quality

ROVTime to

market/Lack of skills

Sonar 3 Competition

Out Licence +++Risk of the

partner

Risk of the

partner

Sonar 4

20 mio 20% NA 70% ++ 45%

90 mio 10% 7% 33% + 19%

>10% from

partner

90 mio

from

partner

20% 79%

56 mio 10% 15% 84% + 49%

Attractivity RiskPositive

score

Evaluation of case Navix

Source Pierre Comte

Selection rules:

1. Select the product with best attractivity and lowest risks

2. Select a second product line and develop it to secure the company

www.cti-entrepreneurship.chThe product roadmap

Example (data do not correspond to reality)

Product roadmapProduct : Test instrument for hospital with custom kit

1 2 3 4 5 6 7 8 9 10 11 12 13 14

IdeationCreate design

Work in laboratory

Define customer

First list of product values

Estimate price & cost from internet data

Min. viable product 1Create demo on PC screen

Test with 3 customers

Min. viable product 2Modify design on PC screen

Establish new values

Improve demo for customer

Test with 3 other customers

PrototypeManufacture first real size prototype

Run first laboratory test

Test prototype with 3 new customers

First Freedom to operate search

Prepare patent claims

Contact a patent lawyer

Month

Source Pierre Comte

38

www.cti-entrepreneurship.chEXERCISE 5: Product development roadmap

see Excel tool

Source Pierre Comte

39

EXERCISE 5. Our product roadmap

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Ideation

Min. viable product 1

Min. viable product 2

Prototype

Market

Month

www.cti-entrepreneurship.chTake away messages

Product and business development are closely linked, they need to

be considered in a close loop with customer in center

Simple product is better, start small and improve later

Developing a technology is not equal to developing a product

Developing a product does not ensure you to develop a business

Look early on at the various routes to the market

40

www.cti-entrepreneurship.chLearning objectives

2. Master the key steps to develop a product/service

1. Understand the «conditions for business success»

3. Evaluate if your product idea is attractive

Deliverables

- First market potential evaluation and attractivity

- First value proposition

- First roadmap for product development

41

www.cti-entrepreneurship.ch

42

www.cti-entrepreneurship.chBackup slides

43

www.cti-entrepreneurship.chPatent and cost

A patent

- protects the technical solution of an idea, not just an idea

- is published

- protects only in the countries where you have applied for

the patent

- is not an authorization to market a product

- does not guaranty the success of the product

- is valid for 20 years and as long as the patent fees are

paid

Conditions to get a patent- the invention must be new in the world

- the technical solution is not evident for a specialist

- the technical solution can be exploited industrially

Ref: http://timreview.ca/article/501

For a US patent

Source Pierre Comte

44

www.cti-entrepreneurship.chPatent as a strategic corporate asset

Aspect Value

Offensive

• generate patent license revenues

• increase market reach

• support technology licensing

• establish monopoly

• litigation and enforcement

• protect market share

Defensive

• deter others from copying

• discourage potential infringers

• improve balance of patent power

• forestall third-party lawsuits

Strategic

• acquire venture capital

• improve chances of securing other investment

• improve negotiating position

• Improve value at exit

• licensing/cross-licensing of third-party technology

• license for other business value

• improve quality of liquidity

• assist in initial public offering or other exit event, such as

merger or acquisition

Leadership

• enhance product/quality image

• underscore innovation culture

• demonstrate technology leadership

• establish technology ownership

Why a patent is important

Case

startup

Ref: http://timreview.ca/article/501

Source Pierre Comte

45

www.cti-entrepreneurship.chExample of business strategy

Example (data do not correspond to reality)

Product : Test instrument for hospital with custom kit

Business strategy Status / Strategy Next steps

Price / Cost / Gross marginSelling price system (CHF) 30000 one system per hospital compare with competition

Selling price consumables (CHF) 1000 150 cons/year=favorable recurrent sales

Cost to manufacture (CHF) 12000 estimated confirm with offers

Gross Margin (CHF) 18000

% Gross Margin 60% not extraordinary for medtech improve the gross margin

Manufacturing will be done by outsourcing search for 3 manufacturers

Technology other technology not needed

Customers and market Hospitals with radiology department

Number of customers Europe 5000 not growing

Number of early adopters Europe 650 13% of the number of clinical centers identify early adopters

Market size of early adopters (MCHF) 20 Good market size of base system

Market size of recurrent sales (MCHF) 13 Good market size for recurrent sales

Business model start sales first in Switzerland

We will sell directly in Switzerland first visits to customers

We will sell through distributors in Europe country/distributors priority

We can reach CHF 1 M in Switzerland favorable

We need to develop opinion leaders in select opinion leaders

various countries

Barriers to business in Europe CE marking requested, med device class II contact notified body

clinical trial may be rquired check with notified body

cost of prod. dev. and clinical trials do first proof of concept

Source Pierre Comte

46

www.cti-entrepreneurship.chHow innovative is your product ?

Transformational

disruptive

Substantial

Incremental

Creates a new market or business and/or

fundamentally changes the industry structure.

Can change the life of many people.

Introduces a new generation of

products/processes. Changes the balance of

power among competitors by altering market

demand. Potential to become new standards.

Degree of innovation

Improves existing products/processes/services,

often as a result of continuous efforts.

Classes of innovation

Source Pierre Comte

47

www.cti-entrepreneurship.chTime to market & alliances

Transformational

disruptive

Substantial

Incremental

Creates a new market or business and/or

fundamentally changes the industry structure.

Can change the life of many people.

Introduces a new generation of

products/processes. Changes the balance of

power among competitors by altering market

demand. Potential to become new standards.

Degree of innovation

Improves existing products/processes/services,

often as a result of continuous efforts.

Classes of innovation

Technology and business may take many years to develop

Capital and time intensive. Difficult to convince startup

investors. Case for an alliance.

Business may be developed quickly

May be difficult to protect by patent

Check freedom to operate and

competition activity. Risk to

compete on price

Attractive product when

sold to existing

customers. Potential for

uniqueness and good ip

protection.

Source Pierre Comte

48

www.cti-entrepreneurship.chExamples of innovations

Incremental Improved features A step up

Flat screens

Iphone 6

Colour photography

Substantial Standard-setting Evolutionary

Android

Nespresso

Swatch

Transformationaldisruptive technologies

Changing the way we

liveRevolutionary

Facebook

World wide web

Mobile phone

Personal computer

Degree of change ProductInnovation type Concerned with

49

www.cti-entrepreneurship.chEvolving customer demand

Technical

featuresDesign

Tangible

values

Intangible

values

Fonctions

Performance

Efficacy

Longevity

Options

Standardization

Elegance

Fun

Emotion

Intelligent

Simplicity

Ease of use

Time saving

Quality

Training

Mobility

Economics

Services

Warranty

Delivery

Availability

Perceived quality

Image

Brand

Reputation

Recommendations

Brand

Sacrifices

Price

Cost of change

Cost to use

Cost to maintain

Limited performance

Too complicated

Source Pierre Comte

Evolving

customers

needs

Customers

Product adoption cycle

50