Center for Management of Emerging Companies

Supplier Assessment Techniques

It is now commonplace for manufacturers relying on outside suppliers for parts and components to require all suppliers to regularly complete a comprehensive assessment questionnaire and go through other due diligence procedures.  This report discusses some of the techniques that manufacturers are using to review the quality controls and compliance procedures used by their key suppliers.

Special Policies for Vendor/Distributorship Arrangements

When negotiating the terms and conditions of a vendor/distributorship arrangement, the parties should carefully consider the form and content of special policies and procedures covering key aspects of the relationship.  This report describes some of the areas covered by those policies including warranty services, product returns, electronic data exchange and indemnification.

Product Development Strategies for Technology-Based Firms

Technology-based firms (i.e., emerging companies) struggle with finding the best product development strategy.  In this report I discuss several different alternatives including dominant sector, product group specialist, market specialist and technology specialist.

Generation of New Product Concepts

In this week's report I discuss some ideas for generating new product concepts.

Trade Secrets Aspects of Unsolicited Ideas for New Products

Companies must ponder potential liability under trade secret law when consider submissions of unpatented ideas or inventions from outsiders interested in having the company commercialize the idea or invention by bringing new products to market.  While it would seem that a company would welcome innovations from outsiders, there are real risks involved in accepting such disclosures that often drive companies to refuse to accept unsolicited ideas.  For example, if the company has already developed the idea or invention on its own (or something reasonably close to it) and later seeks to make use of its own independently developed idea, which it is generally allowed to do without being subject to liability to another that has similarly come up with the idea on their own, another party who has disclosed the idea to the company may claim that his or her idea has been misappropriated by the company even though the company had learned nothing from the outside party’s idea.  Companies are also exposing themselves to great risk by accepting unsolicited ideas from outsiders since employees may inadvertently disclose the ideas and thus create liability for the company based on failure to protect the trade secrets of others.  This may occur due to lack of effective security procedures within the company or when a company employee discusses the idea with prospective marketing partners who have not been required to sign a non-disclosure agreement with the company before disclosures are made.

Rather than operate under a policy of not accepting outside submissions of inventions or ideas companies may elect to do so on the condition that the submitting party executed and deliver a “reverse confidentiality” agreement.  Such an agreement includes an express waiver of any duty of the company to maintain the confidentiality of the submission and the acknowledgement and agreement of the inventor that he or she will rely solely on patent law for protection of the submission.  Inventors should carefully consider the practical effect of entering into such an agreement given the costs associated with filing and prosecuting a patent application and such an arrangement may simply be unworkable in situations where the inventor believes that it may be necessary to rely on trade secret protection for all or a significant portion of the invention or idea.

The content in this post has been adapted from material that will appear in Technology Management and Transactions (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

Tips for Successful Joint Product Development with Customers

In my last post I began discussing the advantages and disadvantages that should be considered by manufacturers when they contemplate a joint development arrangement with one of their customers.  Assuming some sort of joint development project with a customer makes sense here are some simple suggestions for making sure that the project has the greatest likelihood of success:

1. The manufacturer should be prepared, and eager, to open up its day-to-day operational activities to the customer and provide the customer with an opportunity to carefully scrutinize and evaluate the way in which the manufacturer approaches each key issue in the development process.  For example, the manufacturer should show the customer each of the steps that are taken in order to ensure an adequate level of quality control during the manufacturing process in order to build trust with the customer and provide the customer with a chance to suggest improvements.
2. Both parties should come up with ways to assist the manufacturer in gaining a better understanding of the challenges that the customer faces when attempting to market and sell its finished products, including the products that are being jointly developed.  Representatives of the manufacturer might accompany the customer on visits to end users of the customer’s products.  In fact, this sort of due diligence is best done well before the specific goals and objectives of the joint development project have been established since the knowledge gained might lead to unexpected and highly innovative ideas about what might be done by the manufacturer.
3. The level of integration and collaboration between the parties (i.e., just how “joint” the development process will be) must be aligned with the risk, complexity and expense of the chosen project.  Challenging joint development projects that are focused on developing new products and technology, as opposed to creating features that amount to relatively minor enhancements and improvements to something that has already been conceived, must be supported by frequent interaction and communication with customer representatives including ongoing feedback that ensures that the manufacturer remains on the right track and that the customer will be satisfied with its investment.
4. A real serious attempt should be made to develop two-way communication between the manufacturer and the customer that encourages and facilities the continuous exchange of ideas between the parties even when there is no current project underway.  For example, if the manufacturer learns of an idea that it thinks might interest the customer the manufacturer should share the thoughts with the customer even if the communication has not been solicited.  While the customer may not be interested in the specific idea it may lead to something different that eventually becomes a solid concept for formal joint development planning.
5. Intellectual property rights that will be used in and/or created by the joint development project should be identified in advance and clear rules should be established for allocation ownership and usage rights for such intellectual property.  The manufacturer should be mindful of the risks associated with sharing its proprietary technologies that serve as the foundation for its core competencies.
6. Each side of the relationship—manufacturer and customer—should actively build and maintain a team of dedicated and enthusiastic scientists, engineers and marketers that remain committed to joint development activities for as long as the parties are willing and able to formally collaborate.  Many joint development agreements include an undertaking to establish a new project review committee with representatives from both sides that will be periodically to vet and approve new development projects and discuss the overall progress of the relationship.  Whenever a project is underway both parties should be required to appoint project managers, engineers and other skilled professionals who will be allowed to invest the necessary time and effort outside of their other responsibilities to ensure that the project is successful.  The team members from each side should regularly visit with their colleagues at the other party.  For example, representatives from the manufacturer should visit the customer to learn more about how products under development will be used and/or marketed by the customer.  In turn, customer representatives should go to the manufacturer’s facilities to conduct tests on new products while they are a “work-in-progress” so that the manufacturer can receive timely and thorough feedback on product quality and performance.

The content in this post has been adapted from material that will appear in Joint Ventures and Strategic Alliances (2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

Working with Customers on Joint Development Projects

Manufacturers engaged in intense competition with other firms for customer business are well advised to look for ways to become true development partners with their prospects as opposed to simply being just one of several potential vendors.  Rather than approaching customers with a standardized sales pitch to buy generic products and services manufacturers should seriously consider opening with a serious and sincere proposal to collaborate directly with the customer to create new products and services that are unique and specifically suited to that customer’s requirements and sales and marketing objectives.  If there is interest the parties can move forward with a joint research and product development project that involves the contribution of ideas, feedback and financial and technical resources from the customer to support the manufacturer’s efforts to create new products and technologies in which both parties will have an ownership interest of some sort at the end of the initial collaboration. 

Working with customers on joint development projects can be advantageous for several reasons.  First, assuming that the customer is willing to contribute toward some of the costs of developing new products and technologies a manufacturer can use these types of relationships to maintain and even enhance core competencies in the research and development function without diverting budgeted funds from other functions or attempting to obtain new capital that might dilute ownership stakes and management control.  Second, the manufacturer will be given a valuable opportunity to learn about how the customer operates and the way in which customer views its relationships with vendors and the needs of its own customers.  This type of information has value beyond the specific customer relationship since it provides the manufacturer with greater insight into the overall business environment in which it is operating.  Third, while the manufacturer’s main challenge is demonstrating its expertise in product development to the customer the relationship should also be a platform for the manufacturer to showcase its skills in other operational areas such as logistics and marketing with an eye toward the possibility of an expanded alliance at some point in the future.  Finally, if the customer is willing and required to invest significant time and other resources in the development phase there is likely to be a much higher level of commitment from the customer to make the finished product commercially successful and this will hopefully translate into a stronger long-term revenue stream for the manufacturer.

There are, however, corresponding risks and disadvantages that also need to be considered by manufacturers before joining forces with a customer.  For example, smaller manufacturers need to safeguard their core technology and bargain for reasonable rights to use and exploit intellectual property that is created during the joint development relationship.  If care is not taken in this area a larger customer will simply appropriate whatever technical know-how is available from the manufacturer and let the relationship lapse.  The manufacturer should also be sure that the customer is able and willing to fulfill commitments made by the customer to support the development work.  If promised funding does not appear or the customer withdraws personnel and other resources during the project the chances of success diminish and the burden on the manufacturer will suddenly increase.  Another challenge for the manufacturer is making sure that its functional resources, including personnel and equipment, are strong enough to withstand the scrutiny that will come from attempting to work closely with a customer and give the customer open access to the day-to-day operational activities.  If the customer uncovers weaknesses in important areas, such as quality control, it may abandon the project and remove the manufacturer from its vendor list even for generic items.

In my next post I’ll try and provide some simple suggestions for increasing the chances of successfully completing joint development projects with customers.

The content in this post has been adapted from material that will appear in Joint Ventures and Strategic Alliances (2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

Marketing and Product Development for Emerging Companies

The marketing group within an emerging company plays a crucial role in the development process for the company’s initial products.  Unlike established firms, emerging companies have no existing product line or track record and thus have no room for error as they develop their products and look to introduce and sell them to customers that have no familiarity with the company or any brand reputation upon which to base their purchasing decision.  It is therefore essential for emerging companies to seek and obtain feedback from prospective customers as soon as possible to make sure that there requirements are recognized and integrated into the product development process at an early stage.  The marketing group should take responsibility for identifying and qualifying potential lead customers that can be part of the feedback process.   Qualification is an important point since listening to the wrong customers at this point can send the development process off in the wrong direction and lead to an emphasis on features that are ultimately perceived as having little value by most of the parties in the target market.

The marketing group serves a valuable purpose in keeping an emerging company focused on identifying and vigorously pursuing carefully defined product niches in order to gain a foothold that can ensure early survival and provide the company with the freedom to eventually expand into newer and larger markets using the core competencies developed during the launch phase.  Emerging companies lack the financial and technical resources, as well as the time, to satisfy all of the needs of all of its potential customers and the key to success is to concentrate on one segment of the market at a time.  From a marketing perspective this means getting to know customers in that segment intimately and discovering the product specifications that meet their needs and which can be readily and efficiently distinguished from competitors.  Differentiation is essential since a small company that simply offers essentially the same product as entrenched incumbents cannot hope to compete on price or reputation.  Of course, differentiation alone is not sufficient unless it touches on a feature that is valued by the customer.

Finally, the marketing group should use the information that it collects from prospective customers to develop strategies and tactics for distributing and supporting the company’s products, both areas that are often dominated by opinions from the sales group.  While obtaining feedback from the marketplace on product features the marketing group should also survey customers to determine their preferences with respect to the procurement process and their expectations regarding service and support once the decision has been made to purchase and use the specific product.  Without having appropriate channels and support system in place even the most innovative product will prove to be a hard sell and may lead to erosion or complete loss of any advantage the emerging company might have had by being the first to market with new technology and/or features.

The content in this post has been adapted from material that will appear in Business Transactions Solutions (2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

Feasibility Studies for New Product Ideas

Once someone comes up with what they think is a great idea for a new product, service or business they often immediately sit down and try and write up a business plan that can be used to obtain funding or other resources.  While a business plan is absolutely essential in establishing the direction for any new venture it should not be written unless and until some sort of feasibility study has been conducted on the idea and the business that would need to be built to execute and support it.  A feasibility study is not simply a test of a product prototype and should instead be thought of a rigorous and objective assessment of several key issues—is it technologically feasible to create, efficiently manufacture and distribute the proposed product in volumes that will be sufficient to capture the projected market share; what is the size of the potential market for the product; what competitive challenges will confront the business; does the inventor (as well as other members of the founder group) have the skills and experience to create and manage the organizational structure necessary for operation of the business; and what is the projected financial performance of the business?

The answers to some of the questions listed above can be found by researching available data and information on industries, markets and average profit and expense percentages.  However, in order for the feasibility study for a new idea to be useful and effective there must be tough and honest feedback from potential customers and other business partners.  The entrepreneur (or new product manager in a larger company) should create a short description of the product or business concept, no longer than a single page, and circulate it to persons that have knowledge of the applicable technologies and markets.  Prospective customers can provide their opinion on whether they would be interested in buying the product or service described in the concept and, if so, how much they would be willing to pay and how much of the product or service they would be willing to purchase over a specified period.  Potential manufacturers should provide feedback on the costs associated with the actual design and manufacture of the product.  In order to expedite the process of obtaining feedback one or more focus groups can be put together quickly by advertising on online services such as Craigslist.  Software packages are also available to assist in navigating the process of completing a feasibility study.