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In the module, we will review:
- Why costing is important at the commercialization stage.
- Why you need a plan to manage your commercialization stage costing
- Generally accepted good practices
Commercialization options will have a significant impact on your costing. They range from selling the technology you are in the process of developing outright to bringing the product to market. Before moving ahead with a particular product development project, it is important to review all the commercialization options available. The following options explore a few alternatives.
Selling Technology Outright/Assigning to a 3rd Party Company: One of the least resource intensive approaches to commercializing your innovation is to sell it outright. Typically, this would entail a lump sum payment for the innovation and all rights associated with it. This alternative has the advantage of providing you with an immediate cash flow. In addition, the risks associated with investments of time and money are reduced. Selling outright will also allow you to pursue other research or technology opportunities. On the down side, you will no longer have a say in the innovation’s future development, nor will you be able to reap the significant benefits of a successful technology.
Licensing Technology to Another Firm: The licensing agreement is a common approach to commercializing technologies for smaller firms. It is worth noting that large firms are also using licensing agreements to generate revenue from technologies outside their core lines of business. This mechanism will allow you to retain some rights over the technology and continue to develop the technology concepts without having to make significant investments in the commercialization efforts. Licensing agreements typically generate royalty payments based on revenues generated by the sale of the technology or product. An entrepreneur/developer may negotiate an exclusive license where only one company has the rights to exploit the technology or allow several firms to utilize the know-how to manufacture and sell the product.
Finding a Partner: Another way to commercialize a technology is to approach a larger firm to partner on the research, development, and commercialization of the technology. Larger firms may be motivated to work with you if your technology fills a gap in their product line. This has the advantage of identifying a clear receptor market for the technology before expenditures on its development are undertaken. Striking an arrangement with a large firm will also allow you to tap into larger pools of capital, established distribution channels, marketing and management expertise.
A second reason why a large company may be interested in striking an alliance is if your technology can provide a lower-cost solution to a production problem the company faces. Often times partnerships will be arranged where the entrepreneur/developer provides an exclusive license to a jointly owned company (NEWCO). In return, he may be entitled to some combination of fees, royalties and equity in the NEWCO.
New Start-up: A final alternative for technology commercialization is that of the new business start-up. The entrepreneur seeking to bring an invention to market may decide to exploit the idea personally. In this instance, a new company is incorporated and the intellectual property is assigned to the company. The success of the venture is dependent upon the entrepreneur to develop, market and launch the product, organize and staff the business and generate the required financing. A single entrepreneur is unlikely to possess all the skills necessary for the critical functions outlined above.