Sandra Cochrane: Commercialization Strategies for Tech Startups

In our recent interviews with InNOVAcorp’s CEO Dan MacDonald, we briefly touched upon go-to-market strategies and business incubation programs. To continue with the theme, we reached out to technology and innovation connoisseur Sandra Cochrane to talk strategies and business incubation do’s-and-don’ts. She’s offered some fantastic insights investors and entrepreneurs alike won’t want to miss.

Cochrane is on the board of directors of both National Business Incubator Association (NBIA) and Michigan Business Incubator Association (MBIA). She’s also a technology business consultant at MI Small Business & Technology Development Center (MI-SBTDC). Prior to these positions, she was the COO and Acting CEO of the Southwest Michigan Innovation Center — a 68,600 square foot life science incubator in Kalamazoo, MI.

Cochrane presents at NBIA conferences and contributes regularly to various publications, including NBIA’s books and newsletters. Her active involvement with the incubation industry has garnered her 2 NBIA awards: the “2006 Incubator Innovation Award” and the “2008 Outstanding Incubator Graduate (Technology Company).” Currently, Cochrane works with pre-seed funds, angels groups, and venture capital firms to connect companies to capital, and advices new and existing incubator programs on anything from feasibility studies to facility design.

* Edited interview

VH: There are a lot fewer women than men in the innovation and technology field; how did you get involved? What’s your story?

SC: My background is education and my first career was as a high school English teacher. Somehow, though, I kept finding myself drawn to business. My father was president of an international computer corporation and our conversations usually turned to business.

Eventually, I decided to follow my passion and I went back to Michigan State University to earn my MBA — a weekend program, which I completed in 17 months while raising 2 pre-school children and starting a new full-time job. Luckily, I’m a very high-energy person and thrive on challenge so I found it exciting.

The new job was with Southwest Michigan First, a regional economic development agency. The project I was given to was to develop a life science business incubator called the Southwest Michigan Innovation Center. I knew nothing about life science or business incubation, but I’m a quick learner and I surrounded myself with very smart people who helped me make smart decisions and made me look good! I’m very proud of the Southwest Michigan Innovation Center and of winning the NBIA 2006 Incubator Innovation Award and the NBIA 2008 Outstanding Incubator Graduate (Technology Company).

VH: You help startups develop business plans and connect them to investors. Based on your experience, what’s the single most important section investors look for in a business plan? Why?

SC: I’d say that the most important aspect of the business plan is the market section. An investor wants to know that there’s a problem in the marketplace that’s causing some large group of potential customers a lot of pain. It’s the entrepreneur’s job to show the investor what the pain in the marketplace is, who has it, and if that market is growing. Once the investor sees the scope of the opportunity, he or she will be open to listening to the entrepreneur’s solution to that problem. A lot of things in a business plan can be changed and modified, but if the entrepreneur isn’t solving a real market problem, the likelihood of success will be extremely small.

VH: How do you define a pre-seed company? How much does a pre-seed tech company worth in general?

SC: I define a pre-seed company as one step past startup. Pre-seed companies are usually past proof of concept and moving into prototype design. In the case of pharma companies, pre-seed companies are usually still engaged in target identification.

As far as what a pre-seed tech company is worth, pre-seed valuations are notoriously difficult given the risk and uncertainty still on the table. Any company is only worth what someone is willing to pay for it. In the pre-seed stage, I recommend that companies use convertible notes, if possible, to avoid the matter of valuation until a later time when a seasoned VC comes into the picture.

VH: What are some of the commercialization strategies you’d recommend to hi-tech startups?

SC: Partnership on the front-end and outsourcing on the back-end. The most common commercialization strategy I see is collaboration with a larger, established company in the desired industry. Small companies are unlikely to ever develop the marketing and distribution strength of larger players, plus the larger players bring brand recognition and strong development processes, so startups are wise to partner with firms that can bring value to their projects. These collaborations are often achieved via informal alliances, formal joint ventures, or straight out acquisitions.

Another popular commercialization strategy is licensing. In this case, a company with a platform technology can license the technology for use in an industry that it doesn’t plan to enter. With this strategy, revenue is achieved and the company’s primary market is protected.

The other typical commercialization strategy is competitive entry into the market whereby the startup plans to develop a value chain from scratch. This strategy allows for huge upside growth and profit but is very risky and expensive to achieve. It takes a tremendous amount of money and management focus to simultaneously develop a portfolio of products to bring to market while creating production capability, distribution channels, marketing programs, and sales competence.

VH: So, how to choose the right commercialization strategy?

SC: I think that choosing the right commercialization strategy depends upon the –

• competitiveness of the target market
• number of large players that are already in that market
• amount of capital a company can realistically raise
• strength and experience of the management team

A competitive strategy whereby the company plans to go it alone to the end may be possible if –

• the target market is relatively small (or at least untapped)
• there isn’t much competition yet in the space
• the company has access to substantial amounts of capital
• the management team has “been there, done that”

However, if the target market is vast, the competition is fierce with several large players dominating the space, the access to capital is limited, and the management team is new, a cooperative strategy will probably yield better results, and thus better returns.

* VH: Special thanks to Greg George of GTI Advisors for recommending Sandra.

Join Venture Hype next week as Cochrane offers some superb advices on starting and running successful incubation programs.

Link:

• Sandra’s LinkedIn