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Business Skills for Chemical Scientists

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Title: Business Skills for Chemical Scientists


1
Business Skills for Chemical Scientists
2
The Basic Rules of Business
3
Every Business Starts with a Plan!
  • The business plan gives credibility to your
    proposal
  • A statement of business goals
  • The reasons these goals are attainable
  • The plan for reaching those goals over the next 3
    5 years
  • A business plan typically contains
  • Background information about the company
    management
  • Background information about the product/service
  • Analysis of the market and a marketing plan
  • Business strategy i.e. how you will implement the
    plan
  • A forecast of the financial profit and costs

4
Basic Business Plan Structure
  • Title, legal notices, company details etc.
  • Executive Summary
  • The Proposition description of the
    product/service/technology
  • Market Research size, structure, drivers and
    competition
  • Market Validation proof the customer will buy
    your product at your price
  • Marketing Plan how you will get your product to
    the customer
  • Advertising, PR, promotion, sales, sales forecast
  • Beating the competition, IP protection, patents
  • Operational Plan the nuts and bolts of your
    business
  • Manufacturing, distribution, premises, personnel,
    management team etc.
  • Exit Strategy timescale, forecast etc.
  • Financial Plan cash flow, PL, balance sheet,
    investment needed and when
  • Appendices full CVs of management team,
    external reports etc.
  • See hand out for an example

5
Communicating Your Plan
  • There are many methods of communicating your
    business plan
  • The Elevator Pitch
  • Pitching to investors (e.g. the Dragons Den
    pitch)
  • Written report (typically 20 40 pages)
  • Every business plan is different and must be
    tailored to its audience. Typical audiences
    include
  • Investors (e.g. banks, venture capitalists etc.)
  • Customers
  • Internal management

6
Learning Outcomes
  • This presentation aims to introduce some of the
    basic skills, concepts and understanding you need
    to develop your business plan
  • Many of these skills will form the basis of your
    groups Dragons Den Pitch at the end of this
    course
  • These skills include
  • Market awareness (i.e. market need)
  • Business strategy understanding your
    capabilities
  • Project management
  • Reward and risk management
  • Considerations for gaining investment
  • Methods of commercialising your idea

7
Market Need
  • We all have ideas, but how do we
  • Pick winners?
  • Maximise progress and financial return?
  • Minimise the risk of failure?

Success starts with understanding the needs of
your market
8
Market Need
  • Megatrends in society drive market need
  • Growing Aging Population
  • Energy Demand Climate Protection
  • Disease and Urbanisation
  • Mobility and Transport
  • Technology Changes.etc.
  • You can only sell things if people want to buy
    them
  • People (largely) dont want things, they want
    what those things do for them

9
Understanding Your Market
  • You need to understand
  • What is the problem that you are addressing?
  • What is your solution?
  • Who is your market (i.e. who benefits)?
  • Where is your market, what is its size and can
    you access it?
  • Is your market growing or declining?
  • How long can you stay in this market?
  • Who are your competitors in this market?
  • Are there significant regulatory costs
    requirements?
  • How much money can you expect to make?
  • It takes much research to get a good picture of
    your market

10
Prozac
  • Prozac is an anti-depressant drug
    developed by Eli Lilly in 1974.
  • It was submitted to the FDA in 1977 and approved
    in 1987.
  • It came off patent in 2001.
  • Q. What was the marketing position of Prozac in
    1987?
  • What is the problem is that Prozac addresses?
  • It improves the quality of peoples lives
  • Major depression, OCD, bulimia nervosa, panic
    disorder
  • What is Eli Lillys solution?
  • Make (through considerable RD) a new
    anti-depressant drug

11
  • Who is the market for Prozac (i.e. who benefits)?
  • Society the people with depression and other
    related disorders
  • Where is the market for Prozac? What is the
    market size?
  • People worldwide suffer from depression
  • 17 of Americans have major depression
  • Typically 8 12 of the population worldwide, or
    500 800 million people worldwide
  • Can the market be accessed?
  • Yes, but drug regulations will restrict access to
    different markets worldwide
  • Is the market growing or declining?
  • Prozac is the first and only treatment for
    depression on the market
  • The market will grow through better awareness and
    diagnosis of depression

12
  • How long can Eli Lilly stay in this market?
  • Eli Lilly can dominate this market until the
    patent expires in 2001
  • Who are Eli Lillys competitors in this market?
  • None in 1987 Eli Lilly had a patent stopping
    others making Prozac
  • Other, non-related anti-depressant drugs may be
    developed
  • Are there significant regulatory costs
    requirements?
  • Yes these costs are significant (RD, clinical
    trials, patents etc.)
  • These costs need to be recouped before profit is
    made
  • How much money can Eli Lilly expect to make?
  • Predicted to be no more than 70 million per year
    in 1987

13
Prozac Looking Back from Today
  • In its first year, Prozac took 350 million in
    sales
  • Between 1987 2001 Eli Lilly made 21 billion
    from Prozac sales
  • Prozac came off patent in 2001
  • Eli Lilly could not longer exclusively make
    Prozac
  • A range of generic drugs were released onto the
    market
  • This cost Eli Lilly 2.4 billion per year in
    sales
  • Prozac generics are still popular today
  • In 2010 there were 24.4 million prescriptions of
    Prozac generics
  • Still the 3rd most prescribed anti-depressant

14
Summary Market Need
  • You must understand the needs of your
    market/customer
  • This takes considerable market research
  • Key points.
  • You can only sell things if people want to buy
    them
  • People dont want things,
  • they want what those things do for them

15
Capability
Your capability to develop and deliver your
product to your market Business strategy to
achieve your goal and make money
16
Capability
  • Development of your concept
  • Do you have a proven technical concept with
    unique attributes?
  • Do these attributes match the market need?
  • Will it sell?
  • Can you manufacture, distribute and market your
    product?
  • Are there any regulatory issues to overcome (e.g.
    FDA approval)?
  • Do you have freedom to operate from patents?
  • Do you have a sustainable competitive advantage?
  • Is your technology protected through patents?
  • How will your competitors respond?
  • Does this product fit in your existing product
    portfolio?

17
Assessing Your Capability
  • SWOT analysis is a strategic planning method used
    to assess your capability to develop and deliver
    your product to the market
  • It assesses the Strengths, Weaknesses,
    Opportunities and Threats to a project or business

18
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19
  • Strengths
  • What advantages does your company have?
  • What do you do better than anyone else?
  • What do people in your market see as your
    strengths?
  • Weaknesses
  • What could be improved?
  • What are people in the market likely to see as
    weaknesses?
  • Opportunities
  • What interesting trends you are aware of?
  • Useful opportunities can come from megatrends
    e.g. social patterns (population,
  • lifestyle changes etc.), markets, government
    policy, changes in technology etc.
  • Threats
  • What obstacles do you face?
  • What is the competition doing?
  • Are the required specifications for products or
    services changing?
  • Could any of the weaknesses seriously threaten
    the business?

20
Summary Capability
  • You must understand the capability of your
    company to develop and deliver your product to
    your market
  • A SWOT analysis assesses the Strengths,
    Weaknesses, Opportunities and Threats to a
    business or project
  • These SWOTs are influenced by both internal and
    external factors, some of which are helpful and
    some harmful to your business
  • What next.?? A SWOT analysis must lead to the
    development of an ACTION plan or set of
    recommendations to achieve your chosen goal

21
Project Management
  • Project management is the planning, organising
    and management of resources to achieve a specific
    goal
  • Projects are usually constrained by time, funding
    (budget) and resources
  • StageGate Model of Project Management
  • The project is divided into manageable stages sepa
    rated by gates
  • A Stage
  • Specific planned actions take place to achieve
    planned deliverables
  • Analyse the deliverable, and propose an action
    plan for the next stage
  • A Gate
  • This is a decision point Go. Kill. Hold.
    Recycle.
  • Assess the quality of deliverables does the
    project make business sense?

22
Gate 1 Initial screen
Preliminary Investigation Analyse the product,
market competition
Stage 1
Gate 2 Second screen
Business Case Product definition, market
research, production costs, legal regulatory
etc. Estimate time, personnel, financial
resources ? FEASIBILITY REVIEW
Stage 2
KILL or RECYCLE
Gate 3
Development Execute plans from stage 2 make a
prototype and develop a marketing and sales plan
Stage 3
KILL or RECYCLE
Gate 4
Testing Validation Validate the project ? the
product (field testing), manufacture, customers,
financial merit
Stage 4
Gate 5
Launch Plan marketing, sales, distribution,
pricing, estimate the initial demand
Stage 5
Review of the project
23
Failure.?
  • Dont be scared to exit or recycle a project if
    it doesnt make business sense
  • 1968 Dr. Spencer Silver, a 3M chemist was
    trying to develop a strong adhesive glue this
    project failed resulting in a low-tack, reusable
    adhesive
  • For five years, Dr. Silver promoted his invention
    within 3M
  • 1974 A 3M colleague, Art Fry, came up with the
    idea of using the adhesive to anchor his bookmark
    into his hymnbook
  • Fry developed the idea within 3M
  • 1977 The "Press 'n Peel note was launched
    but its sales were disappointing
  • 1980 Following market-research, the Post-It
    Note was launched
  • 1985 sales topped 100 million per year
  • 1989 sales topped 1 billion per year
  • The yellow colour was chosen by accident a lab
    next-door to the Post-It team had scrap yellow
    paper which the team initially used!

24
Summary Project Management
  • Project management is the planning, organising
    and management of resources to achieve a specific
    goal
  • Projects are usually constrained by time, funding
    and resources
  • A StageGate Model divides the project into a
    series of manageable action stages separated by
    decision gates
  • Do not be scared to exit an idea/project or
    recycle it if the project no longer makes
    business sense it may save your company in the
    long run!

25
Financial Reward
  • Estimating your financial reward
  • is a balancing act
  • Money taken
  • vs
  • Outgoings over time
  • Money taken market need
  • How many could we expect to sell?
  • What would the customer pay?
  • Outgoings capability costs
  • How much will it cost to develop, protect,
    manufacture, promote, distribute?
  • Capital investment, operating and IP costs?
  • How long will you have a competitive edge?

26
Cost, Price and Value
  • Cost How much it cost you to produce/manufacture
  • Price How much you are selling the product for
  • Value How much the customer is prepared to pay
    for it
  • The value to each customer depends upon
  • their specific situation
  • You the seller have bought 10,000 barrels of
    crude oil
  • You have identified three potential buyers for
    the oil
  • A commodity trader
  • The owner of an oil refinery
  • A Middle-Eastern Sheikh
  • Who will you sell your oil to?

27
The Seller
  • You, the seller, have bought 10,000 barrels of
    crude oil at a price of 90 per barrel
  • Q. What is the cost of the crude oil to you?
  • 900,000
  • What would be an acceptable profit for the sale
    of 10,000 barrels?
  • 50,000 ( 5 profit)
  • At what price ( per barrel) should you aim to
    sell the crude oil?
  • 95 per barrel

28
Buyer 1 The Commodity Trader
  • Situation
  • The trader wants to make a quick profit he see
    the oil as a tradable asset
  • He does have expertise in oil so knows that the
    current value of oil is 100 per barrel, but is
    constantly rising allowing him to make a profit
  • If he offers 100 per barrel how much will this
    cost him?
  • 1M
  • Q. If the seller accepts 100 per barrel what
    would his profit be?
  • 100,000
  • But the trader says that he cant get the money
    until tomorrow!
  • Take a deposit
  • Negotiate a percentage of his profits

29
Buyer 2The Owner of an Oil Refinery
  • Situation
  • The oil refinery has the capability to refine the
    oil into more valuable products with a final
    market value of 200 per barrel
  • What is the total market value of the refined
    barrels of oil?
  • 2M
  • Of the refined products it costs the refinery
  • 10 of the market value for the refining
    process
  • 5 of the market value for marketing and
    distribution
  • 10 of the market value in sales tax
  • What are the total costs (inc. taxes) payable by
    the refinery?
  • 500,000
  • Q. If the oil was bought for 100 per barrel, how
    much profit will the refinery make from the
    10,000 barrels of crude oil?
  • 500,000

200,000
100,000
200,000
30
Buyer 3 The Sheikh
  • Situation
  • The Sheikh owns one of the largest oil reserves
    in the world 10,000 barrels is insignificant to
    him
  • It costs him
  • 5 per barrel to lift his oil from the ground
  • 5 per barrel to drill for new oil supplies
  • 10 per barrel in taxes
  • 10 per barrel in marketing, distribution and
    other costs
  • Q. What is the Sheikhs breakeven cost per barrel
    of crude oil?
  • 30
  • Will he buy your crude oil at a price which is
    acceptable to you?
  • No

31
Who would you sell to at this point?
  • It is most likely that you would sell to the oil
    refinery at this point
  • Gives you a profit of 100,000 which is greater
    than your target of 50,000
  • There is room for further negotiation to enhance
    this (i.e. cut into their profit)
  • They have the money to give you unlike the
    commodity trader
  • Before buying the oil, the owner of the oil
    refinery
  • insists upon testing the crude oil for quality.
  • These tests showed that what you thought was
    crude
  • oil was in fact refined aviation fuel

32
Buyer 2The Owner of an Oil Refinery
  • Situation
  • The oil refinery sells refined aviation fuel at a
    price of 140 per barrel
  • It will still cost 20 per barrel for them to
    sell the fuel (marketing and tax)
  • What is the total market value of the refined
    barrels of fuel?
  • 1.4M
  • What are the total costs (inc. taxes) payable by
    the refinery?
  • 200,000
  • Q. If the fuel was bought for 100 per barrel,
    how much profit will the refinery make from the
    10,000 barrels of aviation fuel?
  • Cost 1M 200,000
  • Value 1.4M
  • Profit 200,000

33
Buyer 1 The Commodity Trader
  • Situation
  • The trader does not have expertise in aviation
    fuel so he does not know the current value of
    this product. He will not pay more than 100 per
    barrel
  • But he now has the money available
  • Q. If the trader offers 100 per barrel how much
    will this cost him?
  • 1M
  • Q. If you, the seller accept 100 per barrel
    what would your profit be?
  • 100,000
  • The value of aviation fuel is in fact 140 per
    barrel what would the traders profit be if he
    sold at this price?
  • 400,000

34
Buyer 3 The Sheikh
  • Situation
  • While the Sheikh had no interest in your crude
    oil, he does however own his own private jet. He
    buys aviation fuel at a price of 140 per barrel
  • To him 10,000 barrels has the value of 1.4M
  • The Sheikh would happily pay 130 per barrel.
    What is the total cost to him?
  • 1.3M
  • How much money will this save the Sheikh?
  • 100,000
  • Q. What would your profit as the seller be on
    this sale?
  • 400,000
  • You would sell to the Sheikh

35
Summary Cost, Price and Value
  • Many factors affect the cost, price and value of
    an item
  • Customers are buying the (perceived) benefits of
    the products
  • not the products themselves
  • Consider
  • The buyers criteria
  • The sellers criteria
  • The product criteria
  • Understanding of the buyers, sellers
    products criteria is key to securing the best
    deal and maximising your financial return this
    may require considerable research

36
Managing Risk
  • Successful innovation is about managing risk
  • Risk is made up of commercial and technical
    unknowns
  • Commercial Unknown (Market Need)
  • How well do we understand our market?
  • Technical Unknown (Your Capability)
  • Are we sure we can develop, manufacture and
    distribute the product?
  • How strong is the threat that our competitors
    will get there first?
  • How well does it fit with our existing business
    activities?
  • What additional resources will we need?
  • You need to balance the risk against the
    potential reward and your commitment (time and )
    this involves investment

37
Risk, Reward InvestmentAn Example
  • When this building was built, a metal box
    containing cash was buried under the grass
    outside.
  • Q. Would you go and find the box?
  • No. There is high risk that you may not find
    the box and the reward is unknown
  • What if I told you the box contained 500,000?
  • Yes you would look, but still there is a high
    risk that you may not find the box
  • What if I gave you 200, how could you improve
    this situation?
  • Invest the 200 in a metal detector and a
    spade this decreases the risk giving you a
    better chance of finding the 500,000

38
Risk and Investment
  • The result of good risk management is that as we
    increase investment, the risk decreases rapidly
  • Investment comes in many forms e.g. capital (),
    your time and resources

39
How to Gain Investment
  • Who are typical investors?
  • Founders of the company
  • Family members
  • Employers
  • Banks
  • Business Angels Venture Capitalists
  • What do investors typically look for
  • Strong management team
  • Proposal with sustainable competitive advantage
  • Intellectual property rights, patents and
    freedom-to-operate
  • Growth markets
  • An exit strategy
  • This will all have to be demonstrated in your
    business plan

40
Every Investor Has Different Needs
  • Banks
  • Regular interest repayments, trading business,
    personal guarantees
  • Venture Capitalists (VC)
  • Shareholder, board position or appoint a
    Director, will take a business from A to B and
    want a exit strategy agreed at the start of the
    investment
  • It is important to understand your investor
  • A VC is looking to make a 10x return on their
    investment in 5 years
  • An exit strategy is very important as this is how
    they get their money back
  • Tailor your proposal to the investor you are
    targeting

41
Key Financial Reports
  • Profit/Loss Statement (shows past performance)
    like a bank statement
  • Shows the performance of the business over a
    given time period
  • The Profit/Loss Total Income Total
    Expenditure
  • Balance Sheet (shows present position)
  • The balance sheet is a summary of the financial
    balances of a business on a specific date, such
    as the end of the financial year. It typically
    includes a list of the business
    assets, liabilities and ownership equity
  • Cash Flow Forecast (shows future liquidity)
  • Describes the short-term cash requirements of a
    business to ensure the future availability of a
    suitable quantity of liquid cash
  • Liquid (available) cash cash in the bank
    short-term investments short-term debts (e.g.
    bills, payroll)

42
Why are these Important?
  • Investors will look at each of these financial
    reports to assess if a business is a viable and
    safe investment
  • These repots show
  • The past performance of the business (Profit/Loss
    Statement)
  • The current financial position of the business
    (Balance Sheet)
  • The ability of the business to stay afloat (Cash
    Flow Forecast)
  • Many businesses make a profit but fail because
    they run out of CASH to pay running expenses
    (e.g. invoices, salaries and make purchases)
  • CASH IS KING
  • Without cash your business cant operate

43
Summary Finance Reward
  • Reward Money taken vs Outgoings over time
  • Is it worth it??
  • Managing risk is critical to the success of your
    business
  • Risk can be reduced to an acceptable level
    through investment
  • Investors are different, but they look for
    similar things in your business plan
  • Accurate financial information is one of the keys
    to gaining investment

44
Methods of Commercialisation
  • In-House Commercialisation
  • (Owning a house and living in it)
  • Develop and sell a product through the inventors
    existing company
  • Inventor must have access to the required
    capability and market
  • Advantages
  • Retain full control and maximises the inventors
    reward
  • Potential for Rapid development
  • Disadvantages
  • Bear all risk, costs effort
  • Not the core business

45
  • Joint Venture i.e. Find a Partner
  • (Sharing a house)
  • Inventor has some capability and access to market
  • Partners have the missing elements
  • Advantages
  • Share of risk, costs effort
  • Disadvantages
  • Need to find appropriate partners
  • Some loss of control
  • Sharing of the reward

46
  • Licensing Your Product / IP to a 3rd Party
  • (Renting a house)
  • Inventor has little capability or access to
    market
  • License the intellectual property to another
    party
  • Advantages
  • Licensee bears all the risk
  • Minimal input from the inventor
  • Cash immediately on-going royalties
  • Disadvantages
  • Need to find appropriate partners
  • Loss of control
  • Lower share of reward

47
  • Assignment of your IP
  • (Selling a house)
  • Inventor has no capability or access to market
  • Sell the intellectual property to another party
  • Advantages
  • Cash immediately
  • No risk
  • Disadvantages
  • Loss of IP
  • No further share of reward

48
  • Form Your Own Company
  • (Building your own house)
  • Inventor assembles capability (acquisition or
    investment)
  • Inventor has credibility, drive and commitment to
    succeed
  • Reward must be high enough to warrant the effort,
    investment risk
  • Advantages
  • High reward for the inventor
  • Retain control
  • Disadvantages
  • High risk
  • Huge investment of time and effort

49
Summary - Commercialisation
  • There are several methods of commercialising an
    idea
  • In-house development
  • Joint venture
  • License your IP
  • Assign your IP
  • Form your own company
  • It is key that you choose the method which
  • MAKES YOU THE MOST MONEY!!

50
Now Back To Your Business Plan.
  • Title, legal notices, company details etc.
  • Executive Summary
  • The Proposition description of the
    product/service/technology
  • Market Research size, structure, drivers and
    competition
  • Market Validation proof the customer will buy
    and at your price
  • Marketing Plan how you will get your product to
    the customer
  • Advertising, PR, promotion, sales, sales forecast
  • Beating the competition, IP protection, patents
  • Operational Plan the nuts and bolts of your
    business
  • Manufacturing, distribution, premises, personnel,
    management team etc.
  • Exit Strategy timescale, forecast etc.
  • Financial Plan cash flow, PL, balance sheet,
    investment needed and when
  • Appendices full CVs of management team,
    external reports etc.

MARKET NEED
CAPABILITY
REWARD
51
Authors Dr. Trevor Farren, Dr. Simon Mosey Dr.
William Drewe
Organisation School of Chemistry, University of
Nottingham, U.K.
Supported by
52
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