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Market Risk – The elephant in the room

The SearchLite has now completed over 80 Market Discovery Challenges over the past 3 years.  Our startup and new venture clients have included a wide variety of organizations, entrepreneurs and topics.  What they all have in common is a need to assess the commercial viability of a new technology or solution.  Furthermore, they need to assess it quickly before they run out of time and resources.  The objective is to quickly identify if there is a need to iterate deeper or execute a bigger pivot regarding either the target customer segment or the solution.  Of course there is always the possibility that there is no product-market fit and that “the baby is ugly”.  With respect to their technology or solution, our clients hire The SearchLite to find out:

  • Who cares?
  • Why do they care?
  • How much do they care?

Market Risk – The elephant in the roomelephant-in-the-room

Studies have all shown that market risk is by far the biggest risk facing any new venture, whether it is being driven by an entrepreneurial startup team or from within an existing company. Market risk is believed to be the cause of over 80% of new startup failures. Technical risk, team risk and financial risk make up the remaining smaller share of risk.

To address market risk, The SearchLite’s Market Discovery Process integrates popular tools from key thought leaders in the lean startup movement.  These tools include the Customer Development Process from Steve Blank as well as Business Model Generation and Value Proposition Design from Alex Osterwalder.  Both are good tools individually and are even better at addressing market risk when used together.

The Business Model/Value Proposition Canvas identifies the nine most important building blocks of any new business venture. The Customer Development Process provides the methodology by which to create and validate key hypothesis across the nine building blocks.  In essence, the two tools provide a framework for applying the scientific method to validating key hypothesis, just as any researcher would do on their bench to prove out their new science.  The Oxford Dictionaries define the scientific method as “a method or procedure that has characterized natural science since the 17th century, consisting in systematic observation, measurement, and experiment, and the formulation, testing, and modification of hypotheses”

Addressing Fear, Uncertainty and Doubt (FUD)

One of the most common issues we have seen over three years when working with inventors, especially university researchers, is they are not able to make the mental connection and apply the same scientific approach to market risk as they would do to address technical or scientific risk, even when confronted with the evidence that market risk is the bigger risk to address.  A common challenge is that they have not developed their key “product-market fit” hypothesis.  At best, they often only have a handful of questions in mind.  Because the researcher has not been able to properly frame hypothesis in the form of decisions, there is a general cloud of what I would call “FUD” or “fear, uncertainty and doubt” hanging over the researcher/inventor and their commercialization coaches (e.g., tech transfer mentors). It is important to recognize and acknowledge the FUD, but then quickly adopt a strategy to address it.

One of The SearchLite’s early challenges on most projects is to help our startup client re-frame their ad-hoc questions in the form of structured decisions, each with the appropriate criteria and alternatives.  We find that this approach is less intimidating and more effective than forcing the client to create narrow hypothesis.  It is often too difficult to express narrow hypothesis at the beginning of Customer Discovery if the science is early stage and/or has broad market application.  

Taking a lesson from Systems Thinking

A basic tenant of systems thinking is to identify and understand the relationship between multiple decisions as well as the alternatives and criteria associated with each decision.  Failure modes in business, or even life in general, are thought to all fall within one of three buckets.  Startups and new ventures are not immune to these failure modes and, in fact, are likely more susceptible to them.

Decisions overlooked 

decisions-overlooked

Decisions poorly made

startup Decisions poorly made

Decisions poorly implemented

decisions-poorly-made

The Biggest Decision – Product-Market Fit

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Steve Blank’s Customer Development Process provides a good example of systems thinking.  The SearchLite often finds that startups and new ventures often believe that they are one to two stages ahead of where they really are with respect to the Customer Development Process.

  • They have begun building their company with creating customers.
  • They have begun customer creation without validating who their customer is.
  • They have begun validating their customer without discovering alternative customer segments to consider.

Getting these decisions properly framed and sequenced is a critical success factor to addressing market risk.  The struggle of knowing where you are in the Customer Development Process as a startup or new venture comes from not understanding how to (1) identify and frame the decisions; (2) identify the associated alternatives and criteria to properly make each decision and (3) properly sequence the decisions to address.  Thus, relative to systems thinking, many startups are often making all three errors simultaneously.  No wonder that there 80% of startup and new venture failures result from addressing market risk … “it is not easy”!

How to know when to move forward?

In the case of the Customer Development Process, startups may not understand the thresholds by which they pass from one stage to the next.  Thus, they mistakenly believe that they are further along that they really are.

  • Problem-Solution Fit – You move from Customer Discovery to Customer Validation when you have evidence that customers care about certain jobs, pains, & gains AND you have designed a value proposition that addresses those jobs, pains, & gains.
  • Product-Market Fit – You move from Customer Validation to Customer Creation when have evidence that your products and services, pain relievers, and gain creators are actually creating customer value and getting traction in the market.
  • Business Model Fit – You move from Customer Creation to Company Building when have evidence that your value proposition can be embedded in a profitable and scalable business model.

Startup Example – Med Device Solution

Now we will use a startup example to demonstrate the integration of the Customer Development Process, Business Model/Value Proposition Canvas within a  Systems Thinking Framework.

Decision Framework (Business Model Canvas):

business-model-canvas

  1. Product-Market Fit – For whom are we creating value? Who are our most important customers? What value do we deliver to the customer? Which one of our customer’s problems are we helping to solve?  What bundles of products & services are we offering to each Customer Segment?
  2. Channels – Through which Channels do our Customer Segments, want to be reached? How are we reaching them now? How are our Channels integrated? Which ones work best? Which ones are most cost-efficient? How are we integrating them with customer routines?
  3. Customer Relationships – What type of relationship does each of our Customer Segments expect us to establish and maintain with them? Which ones have we established? How costly are they? How are they integrated with the rest of our business model?
  4. Revenue Streams – For what value are our customers really willing to pay? For what do they currently pay? How are they currently paying? How would they prefer to pay? How much does each Revenue Stream contribute to overall revenues?
  5. Key Activities – What Key Activities do our Value Propositions require? Our Distribution Channels? Customer Relationships? Revenue Streams?
  6. Key Resources – What Key Resources do our Value Propositions require? Our Distribution Channels? Customer Relationships? Revenue Streams?
  7. Key Partnerships – Who are our Key Partners? Who are our key suppliers? Which Key Resources are we acquiring from partners? Which Key Activities do partners perform?
  8. Cost Structure – What are the most important costs inherent in our business model? Which Key Resources are most expensive? Which Key Activities are most expensive?

Decision #1 – “Product-Market Fit” – Customer segment alternatives

Current favorites:

  • Large private practices
  • Medical device manufacturers
  • EHR software vendors

Worth considering:

  • Large regional healthcare systems
  • Small private practices

Considered, but rejected:

  • VA health system
  • Small regional health systems

Decision #1 – “Product-Market Fit” – Decision criteria

Critical:

  • Clinical workflow integration
  • Insurance reimbursement
  • HIPPA compliance

Very Important:

  • Legal liability
  • Patient data usage
  • Automated notifications

Important:

  • Intellectual property protection

We have now demonstrated an approach using existing “off the shelf” tools that, when applied properly, will help prevent the most common failure modes when addressing market risk for startups and new ventures.  The SearchLite uses systems engineering software to capture the proper decisions, their alternatives and criteria.  Capturing generalized patterns from past projects allows The SearchLite to identify value proposition and business model starting points quickly, thereby accelerating our Market Discovery Challenges for each new client.

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FOOTNOTE:  Osterwalder, Alexander; Pigneur, Yves; Bernarda, Gregory; Smith, Alan (2015-01-23). Value Proposition Design: How to Create Products and Services Customers Want (Strategyzer) (Kindle Location 756). Wiley. Kindle Edition.

A Bio-based Field Trip to Michigan State University

 

We all fill up our tanks with gas on a regular basis and we see 87, 89, and 93, but have you ever noticed that many gas stations provide E-85 fuel,which is supplemented with biomass-derived ethanol; You might have also missed that even plastic bags, paint, printer ink and seat components in our cars are now also made of bio-based chemicals. However, what are bio-based products?

Bio-based products are made of non-food, non-feed agricultural products, which harness the solar energy and photosynthesis for industrial materials, consumer products and fuel energy. The importance of bio-based products in the U.S. and the global economy is expected to increase tremendously over time.

The SearchLite is collaborating with Omni Tech International on a this exiciting  to assist companies at different stages to understand the current trends and needs of bio-based materials. Although this is not an easy task, we luckily are surrounded by many  successful researchers and entrepreneurs at universities close by. Lee Walko from Omni Tech and Scott Phillips, MJ Zhang and Hui Yang from The SearchLIte decided to meet with Professor Ramani Narayan, who is a distinguished professor in the Department of Chemical & BioChemical Engineering in Michigan State University.

Professor Narayan’s  work covers an array of topic areas including: biodegradable plastics, engineering and design of natural-synthetic polymer composite system, and biofiber reinforced thermoplastic composites, to name a few. Professor Narayan is also  a successful entrepreneur. He has developed poly(lactic acid) materials technology and conducted engineering scale-up studies for Cargill Inc..  The technology is currently being commercialized by NatureWorks LLC. Beyond these technologies, he has also developed and commercialized other technologies, such as biofoam sheets for cushion packaging and biodegradable and recycling friendly starch based nanoparticle adhesives. In addition to his entrepreneurial accomplishments, Professor Narayan is also involved with setting up a biorefinery business with Zeeland and a Michigan agribusiness company to produce bio-based and value-added products. His students, Sayli Bote, Hugh MacDowell and Preetam Giri, walked us through their most up-to-date posters and introduced the new research findings to us.

Preetam Giri is presenting his poster.

Preetam Giri is presenting his poster with Saly Bote and Hugh MacDowell. From left to right: Hui Yang, Preetam Giri, Sayli Bote, Professor Ramani Narayan, Lee Walko, Scott Phillips, Hugh MacDowell.

Professor Narayan is also excited to open a class soon and invite The SearchLite to give a few lectures. Both of us are enthusiastic about sharing our knowledge on technology transfer and entrepreneurship to the local community, such as the professors and students at Michigan State University.

Katy Luchini Colbry, the Director of Graduate Initiatives, participated in the meeting also. Katy is working with MJ to coordinate a student workshop on campus in the near future.
Professor Narayan’s lab is located in the Michigan Biotechnology Institute, which helps organizations quickly and cost-effectively test out technologies and decide which ones to commercialize on a bigger scale. After meeting with Professor Narayan, we met with Chad Pastor, who not only gave an excellent presentation about the scopes and research areas of MBI, but also a very enlightening tour of the facility. During our tour, we noticed the elegant and cost-effective design of the facility and the streamlined process.

Chad Pastor showed Scott and Lee the MBI Plant.

Chad Pastor showed Scott and Lee the MBI Plant.

 

We got to really see and feel the famous AFEX (ammonia fiber expansion) pretreatment process and its products. After the tour, we walked out of the MBI research facility feeling amazed and intrigued by the technology and development. In addition, there is a great chance of collaboration between The SearchLite, Omni Tech, and MBI in the future.

(Edited by Christy Song and MJ Zhang)

What is a Lead Catalyst? TSL Welcomes 2 Lead Catalysts to the Team

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By: Christy Song

Edited By: Scott Phillips

Every Market Discovery Challenge involves a lead catalyst, Innovators-in-Residence, clients, and industry experts. Although each player is crucial and necessary to every project, the lead catalyst can be seen as the nucleus that guides the entire cell and keeps it functioning in the proper ways to survive. With this being said, you might be wondering Ok, so they’re important, but what do they do?

After expanding our leadership team with two more lead catalysts:  Samaya Krishnan and Qi Zhang, we realized that their fresh insights and first hand experiences might be a better way to walk you through the life of a Lead Catalyst. After all who better to explain what they do, why they do it, and what they’ve learned, than catalysts themselves?

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Transitioning Out of Academia? Here’s Visha’s Story…

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Visha Krishnan transitioned from academia to The SearchLite (TSL) several years ago and now has transitioned again into the world of intellectual patent (IP) licensing!

From her involvement at The SearchLite, Visha gained varied experiences in startups and consulting and, for the next stage of her career, she wanted to pursue negotiation and licensing. TSL focused more on consulting,market validation and customer discovery research, while her new position focuses on commercialization (technology transfer). She compares her role to being a broker of technology. “We just make things happen. We help people find the right customer company,” Visha said. This new position allows for Visha to take every single skill obtained throughout her academic and professional career to date and provide a whole round experience. Rather than sitting behind the scenes and working from the bench, she is able to help get the science out into the market. Visha recommends this field for any Innovator in Residence or any academic that loves science, loves to learn new things, and desires to be involved in new areas of translating research. “Every single skill that I have picked up at TSL, I will be using it in this job and any job in the future, Visha stated. Her skills obtained included market assessment, business involvement, people management, working with startups, and strategizing. With her dynamic experience, Visha was able to apply those concepts to her new position of approaching potential licensees and finding people to interview for potential licensees.

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Transitioning out of Academia is scary, but you’re not alone!

Transitioning out of Academia is scary, but you’re not alone!

change mich state recruiting

Visha Krishnan, former Market Discovery Director of The SearchLite, recently attended a career event for Doctoral and Postdoctoral scholars interested in exploring careers outside of academia at Michigan State University. She participated as one of the panelists for the Innovation/IP portion of the Expanded Careers Conference, along with, Cindy Bott (Partner at Honigman Miller Schwartz and Cohn LLP and Tom Herlache, Technology Manager at MSU Technologies). The event featured a portion where the guest panelists individually explained how they arrived at their current job position and they shared with the scholars what it is that they are currently doing.

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Michigan Bio-Industry Growth Summit

michbioLeaders from the bio-industry, academia, and policy realms recently met in Lansing to discuss how to best unleash Michigan’s biosciences R&D and manufacturing potential to stimulate economic growth.  The Michigan Bio-Industry Growth Summit was hosted by MichBio.

Stephen Rapundalo, PhD, President and CEO of MichBio reviewed the details of a forward-looking strategy for building a strong, statewide biosciences cluster and what’s needed across key sectors and specialty market areas to leverage the state’s strengths and opportunities – as well as best practices – to enhance competitiveness and develop Michigan into a preeminent biosciences leader!  The event was co-sponsored by Doug Rothwell, President and CEO of Business Leaders for Michigan and Jeffrey Mason, Executive Director, University Research Corridor.

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Roger Newton, Executive Chairman and CSO, Esperion Therapeutics kicked off the day be moderating a session with Mark Leahey, CEO, Medical Device Mfrs. Assc. (MDMA) and Liz Powell, Principal, G2G Consulting.   The group discussed key findings from a recent report entitled “Bioscience Economic Development in the States.”  The report compared state level legislative and job creation best practices.

I was quite impressed with the quality of the event.  Stephen Rapundalo and his co-organizers had clearly done a magnificent job in terms of preparation.  The topics were very relevant and the speakers were all very accomplished and thought leaders on their subjects.  Networking before and after the event was particularly valuable.  I am already looking forward to attending next year.

Scott Phillips

 

Engineers, get out of the building!

Are you an academic in transition? Would you like to try an experience that may broaden your career?

The SearchLite recently shared some of our projects with graduate students at Michigan State University’s School of Engineering. Several of our Innovators-in-Residence are from MSU, so we wanted to share our knowledge from our Market Discovery Challenges with fellow Spartans and hoped to expand our community at MSU.

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Customer Discovery Scoreboard: Survey 0; FieldTrip 1

sThere are many tools that can be used within the realm of Customer Discovery Research for early-phase startups, including interviews, phone engagements, surveys, field trips, etc..   It is beneficial to have all of these tools in your Customer Discovery Toolkit and know when to use which tool based upon the circumstances. Our experience with Giggso is a perfect example of how a variation of tools may be more effective than using just one approach.

Giggso has become one of the most well-known projects in the history of The SearchLite.  For the past 3 months, we have been talking about this project in all of our weekly project update meetings, and when we weren’t talking about it, we were thinking about it. Giggso is one of the longest and toughest Market Discovery Challenges yet it happened to be my first project!

If you define success as the ratio of outcome over goal, I can’t say Giggso is a successful project. However, from an experience gaining perspective, people grow faster in the process of tackling tough problems rather than being handed easy solutions. I grew tremendously because of Giggso.

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NIH BEST Career Panel Discussion at MSU

bestThe SearchLite recently hosted a NIH BEST career panel discussion at Michigan State University.   The panel discussion about career transition was held at the offices of MSU Technologies on Thursday, December 17th.  The panel featured three speakers and focused on career opportunities in Life Sciences for PhD Candidates and Post Docs.  Students from the MSU BEST Program and Wayne State University BEST Program participated in the career panel.  BEST stands for Broadening Experiences in Scientific Training.  The National Institute of Health (NIH) has selected and funded 17 research sites in the US to participate in the BEST Program.

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How to Ask Valuable Customer Questions

How to Ask Valuable Customer Questions

interview pic customer

Did you know much of what The SearchLite does is based off of Alex Osterwalder and Steve Blanks foundational models for lean startups? We follow their lead because quite simply it works! As our main goal is to help inventors and entrepreneurs commercialize their inventions and startup solutions we focus on Customer Discovery and Market Validation. Since customer discovery is the very first step, developing useful customer interview questions is one of the first things we must think about and learn how to do effectively. In a blog titled “A Quick Guide To Asking Good Customer Questions,” published by Kavi Guppta for Strategyzer, Guppta presents 8 fundamental rules to keep in mind while conducting customer interviews including:

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