US Department of State STCU – Science and Technology Center in Ukraine Commercializing Intellectual Property Workshop September 27 – 28, 2005 Baku, Azerbaijan   What Does it Take to Succeed in Business?    Vic Korsun (or Victor Fedorovich) Consultant Coordinator, Science Centers Partners Program vickorsun@msn.com

Before I begin I would like to observe something… This talk was developed in a very American style for a Western audience. For this reason, if the very tone seems strange to you – that’s because it isn’t part of your culture. The message, however, is what your scientific counterparts – and competitors – in the US are hearing today.

What do you need to start a successful business? 4 Things: One, A Plan. Two, A Team. Three, Money. Four, Timing and Luck.  And, oh yes, maybe a 5th …Your Technology. It also takes PASSION. Your passion.

You have to keep trying until someone says… Just as in science… You need to do hundreds of experiments to find the critical piece of new information…  Yureka! It is the same in Business. You have to keep trying until someone says… YES!

In a Success-Oriented mind-set Everything that might be called A FAILURE, we call experience and learning. In the US, how many new businesses succeed?   One out of 10 succeed! What happens to the other 9? The managers of those 9 FAILED companies become the (experienced!) management teams for other start-ups!

Is my technology good for Licensing or Starting a Business?  If it is an Evolutionary improvement over an Existing Product then… The technology is usually better for Licensing. If it is a Revolutionary new product with a 100 times improvement then… it may be suitable for starting a company, if you determine the market is $10-$50-$100 million or more.

You will need a valuable tool which is called…   The 30 Second Elevator Pitch.  You can use the elevator pitch whenever anyone asks you:   How’s it going? How are you? or What’s happening with you. I haven’t seen you in a while. You need the Elevator Pitch on the tip of your tongue!

The 30 Second Elevator Pitch Write the answers out ahead of time & memorize them.    What is needed in the market? Who needs it & how many will they need? What is your unique technology advantage? How will you beat the competition? You want it to be so compelling that the person turns to you and says: “Tell me more”, and gives you his card to make an appointment.

You have many questions. What is the licensing deal that you make with a company that wants to license your patents? What is a Business Plan? What is marketing? Who is my competition? Why do I need international patents? What kind of people should I find to help me? What is Networking? Why don’t they just give me the money?

I want to focus today on the investor and you. Before involving an investor (or a partner) you MUST make decisions among yourselves, and they must be made in writing, signed, and be legally binding by the various organizations, institutions, departments, and scientists.   There cannot be ambiguity between the company and the institute. The investor risks are considerable, and your job is to minimize those risks.

What is a Business Plan? It’s a plan to make money! What parts of the Business Plan will the investor or partner look at most?  Executive Summary Management Team Financial Projections  The Executive Summary MUST tell the investor everything he needs to know about your business opportunity on one page.  The Executive Summary must show him how the company will generate profits and it must be believable. I strongly advise you to get a friend, consultant or business adviser to help you write it well. Remember, a savvy investor will reject 99% of the Business Plans he gets for many different reasons.

Business Plan Sections Executive Summary Company goals Products or services Market Analysis Market need, Competition, Main competitors, Marketing Strategy, Pricing strategy, Promotion strategy, Sales strategy Management team Five-year Financial Projections Assumptions, Breakeven analysis, Cash flow Exit Plan Very Important - The Business Plan must be well written, clear, coherent and in good English. Get help to write it.

An investor or business partner looks for ASSURANCES: The technology is protected by patents, The risks are manageable, He can trust you, You have a credible team, The technology is useful, It can be made into a product, Someone will buy the product if it is sold, They’ll buy it at your estimated price, There is a BIG market, The market timing is right, The economic-political timing is right, Your country and his will not become obstacles for him, Your business will be profitable for him and give him a VERY GOOD return on his investment. What does the investor or business partner need? Profit!!!

when your company sells Patents The investor or partner is not interested in your technology. He is interested in your PROTECTED technology, and what profits it will generate!   To protect the technology you must have Patents, as Jud has said earlier! The investor wants assurances that…  when your company sells $100 million of your product, the competition doesn’t sell the other $900 million.

Your Patent needs to be protected worldwide! In Europe. In the US. In Azerbaijan. In Georgia. In Canada, and so on. NO PATENT – NO SUCCESS!   And the best way is to do this is through the PCT – Patent Cooperation Treaty, as Jud has mentioned.

If you don’t do a PCT patent YOUR COMPETITION will be able to duplicate your patent in each of the countries that you are NOT registered in… and that loses money for your investor.   Without a PCT the large companies will not even talk to you! A savvy investor will take your patent to his own patent lawyer. The investor will pay him to read your patent, to tell him if the COMPETITION can get around your patent. Now, you decide whether you want a Ukrainian patent or a PCT patent…prepared by a patent lawyer.

The investor is a risk-taker. Risks The investor is a risk-taker. However, for him to invest in your project, your Business Plan must assure him that the risks he faces are manageable, and manageable by you. His major fear is that he will lose money if you do not succeed.   What are the risks? Market outlook and growth Profitability Management Economic stability Technology Political stability Ability to get his money and profits back to his own country.

Technology Risks The investor worries that the technology is   Early stage Only a prototype Not proven Not adequately tested Needs too much development Too costly to manufacture, and No one will buy it. Technology is Necessary… But it is NOT SUFFICIENT.

Management Who should be on your team? The investor (or partner) needs to be assured that your management team is up to doing the job. Who should be on your team?   President (The scientist-inventor cannot be the president) VP for Sales and Marketing … Make sure he can sell timber to the Siberians! Accountant …Honest and experienced. Each individual has different responsibilities. However, they ALL search for money!!!

Who else can help you? Lawyers, Marketing Consultants, Respected Businessmen Business writers, and Recognized technology experts.   …All the people you didn’t really think you needed. …It’s curious, but you just can’t do it all on your own! STCU can advise you on how to find them.

Most importantly, you or your partner need a MARKET! Marketing Most importantly, you or your partner need a MARKET!   The investor wants you to have a $100 million market. What is a market? A market describes who will buy the kind of product you will be selling. For example, market research could say the market for an X-Ray System is $1 billion. If the price of one unit is $100,000, that means that there are 10,000 potential buyers (hospitals) for that product per year. ($100 K x 10 K = $1 B)

Your market potential will be a portion of the total. If you or your business partner believe that you can achieve 10% of the market (in a few years), then your market share is $100 million. (10% of $1 B)   This means that you will be producing 1,000 units each year, which breaks down to about 84 units each month.   Whatever percentage of the total market you believe you can achieve, an investor wants your market share to be a minimum of $100 million.

What does a Marketing Plan need to show? Do you know what you are selling? Do you have a product? Do you know who will be buying it? Do you know how many people will buy it? Is the market growing, or is the market past its prime and is waning? How will you determine the price for your product? How will you respond to your market?   A good Marketing Plan may be the most difficult section of the Business Plan because from your perspective it is non-technical. I strongly advise you to get a marketing consultant or adviser to help you.

Good marketing research and analysis …will produce two key pieces of information that are critical for marketing: How many buyers there will be for your product, and What price they will be willing to pay.   This information will directly affect your financial projections and your ability to generate a profit for your company. Therefore, the information and analysis must be based on accurate, researched and analyzed information. The dollar amount you give for the total market has to be believable and realistic, supported by verifiable data and facts.

Competition A significant portion of the Marketing Plan is a serious discussion about the competition.   If you say that you have no competition because your technology is so revolutionary that there are no products in the marketplace that compete with it – you are wrong! The investor will not believe you, and he will know that you do not understand the market. Beware: there is more to competition than meets the eye. There is business competition and technology competition.

Business & Technology competition Business competition are companies that have “inferior” products compared to yours.   Technology competition – these are your friends and colleagues, both worldwide and next door, who are working in your scientific field and who may “surpass” you if you don’t keep up.

Competition comes in many forms Look for: Existing inferior legacy products that are too costly to change, Products that customers are used to, and will not change. Other technologies that meet the customer’s needs, YOU have to recognize what kind of competition is out there, who the companies are, and HOW YOUR COMPANY (NOT YOUR TECHNOLOGY) will beat them. Customers don’t always buy the best or the cheapest. Superior technology is not always better for the customer.

Losing money to the Competition If the competition takes away part of what you consider to be your market share then, in the business world, you are considered to be losing money to your competition.   …This is often difficult to grasp, because usually we do not believe we lost money that we never had. But in the business world it means that you are not doing as well as you said you would, and as a consequence your investor is losing the money he thought he would be earning – because you projected it. When you do not meet an expected projection there can be serious consequences for the Management Team.

Technology I know you will do a superb job here.   But the one thing that you may miss, which is very important to state about your technology is: What is your unique technology advantage, and How will your technology beat the competition.

Writing the Marketing Section Take the writing of the Marketing section of your Business Plan very seriously. I cannot over emphasize the importance of a good Marketing Plan.   The Marketing Plan is the engine of your company! It takes a market to create a company. Let me be perfectly clear: WITHOUT A MARKET, THE BUSINESS PLAN IS WORTHLESS!

Financial Projections The Financial Projections at the end of the Business Plan must show a detailed budget and revenue stream over 5 years.   The financial picture must be backed up with facts: How the money will be used, How you (or your partner) will produce product, How you (or your partner) will sell your product, How much revenue you (and your partner) will receive, What all the costs will be, and How much profit you will make.

Trust The ultimate goal of your Business Plan, and your choice of management team, is to convince the investor that he can TRUST you to make money for him.   You must speak with the investor HONESTLY! If you are not honest with him… he will never come back, and he will tell his friends never to go to you!    If you have not been honest with YOURSELF… your investor will know that. How will he know that? He just will.

Do not hide or be embarrassed. Persevere. Embarrassment I am sure that you are painfully aware that when a western investor visits your facilities and laboratories that the facility does not represent you well. There has been a decade’s worth of neglect and very little financial support!   An investor’s confidence can be shaken by seeing crumbling offices and buildings, and old outdated equipment that is not up to western standards. Do not hide or be embarrassed. Persevere. You must know what it is that YOU have to offer that will be more attractive to the investor than working in his own country.

Impediments for the Investor Look at the impediments the investor faces by trying to work with you: Travel Contractual system Language Financial system Facilities Politics Legal system   The investor knows that working in another country, especially a country that, until recently, did not recognize patent law and ownership of private companies and industry, is risky. He knows that he is assuming much more risk than he would in his own country.

Know what you are offering You must know what you are giving him that he cannot get somewhere else.   Is it a brilliant idea? Is it expertise or skills he cannot find in his own country? Is it a dedicated team? Is it determination that jumps out and is convincing? Is it more professional people at a cheaper price? Be honest with yourself and be forthright with what it is you are offering.

More realisms… Deviation from the stated plan sets off alarms for the investor. Financial discrepancies and corruption immediately ruin a relationship, for now and forever.   The investor will spread the word that you cannot be trusted. You will not be able to get funding in the future, and more seriously, this will create major funding hurdles for other scientists. BE PREPARED – YOU WILL HAVE TO TALK AND NEGOTIATE WITH MANY INVESTORS. You will hear a lot of “No’s.” This is NORMAL and does not mean that your technology or expertise is not good. It is part of the process for finding money. It can take 1 to 2 years to find the first investor or partner.

Value of your Contribution In determining the dollar value of your contribution, you and the investor will consider factors such as:   The stage of the technology development. How much investment has already been spent.  How big is the market and how fast is it growing. What are the risks? Technical risk Market risk Management risk, and Other risks.

Weighing your alternatives Let me just say: If the investor believes that the value is $1 million but you believe that the value is $20 million, there is very little likelihood that you will come to terms and have a deal.   Therefore, decide how much you want to succeed rather than making your point…that your technology is worth so much…and no less. Weigh the potential rewards of success versus not doing anything or putting a deal off to another year.

Remember… 100% of zero is zero. On the other hand, if your partnership or your company is really successful, its value will climb and your portion will also climb, so that the value of the success will far outweigh the importance of who owns what percentage of the company or partnership.   Decide what balance will make you HAPPY ENOUGH. You may feel slighted and used, you may feel that you are being treated unfairly in comparison with the investor. But stop and consider: is your feeling worth stopping the deal? The investor doesn’t mind if you make money. Therefore, you shouldn’t mind if he makes money.

Are the alternatives really better? Again… remember the better deal is the enemy of the good deal. Don’t wait for the BETTER DEAL!   While waiting for “better” to show up, “good enough” can disappear and the timing and the opportunity may be lost.

YOU MUST ADHERE TO THE TERMS Formal agreement The agreement between you and the investor or partner establishes the basis for the work you will do together.   Signing the agreement document is a major milestone. You will now have a formal and legal way of working with each other, and each of you has the protection that the agreement offers and spells out. YOU MUST ADHERE TO THE TERMS THAT YOU SIGNED!

How much money should I get? The amount will depend on: • Market conditions dictate value. • What other similar companies get. • Your Stage of Product Development. • Riskiness – markets and technology.   …and after you use that up you’ll need to find more, and you’ll be looking for new investors or partners. …I never said this would be easy.

Where do I find money? You cannot just say that investors and partners don’t exist here.   Try getting recommendations and advice from your collaborators on your ISTC or STCU projects. Attend networking meetings for entrepreneurs, venture fairs, and investor forums. Such networking events do occur here. For example, STCU throughout the year sponsors various meetings where western individuals and companies come and participate.

Talk with visitors USE YOUR ELEVATOR PITCH. At ANY meeting where you and other participants are asked to introduce yourselves, take the opportunity to   USE YOUR ELEVATOR PITCH. When you sit at the lunch or dinner table during conferences, sit next to a stranger, someone who doesn’t necessarily speak Ukrainian. Don’t sit next to a friend or colleague. …Does he or she have money? Not likely. You can find out though, if he KNOWS someone who could invest in your company. DO NOT ASK HIM OR HER FOR MONEY!

All of this is called NETWORKING. Be prepared to talk to them. You WILL NOT have a lot of time.   Your delegation from your institute has to talk to people at meetings, technical conferences, trade show and other gatherings. Throughout the year STCU sponsors groups of scientists from here to visit the US at meetings and trade show. Again, more opportunities for you to look for funding. Use your Elevator Pitch. If you visit a US university or a National Lab, ASK to meet with their TECH TRANSFER OFFICE in addition to meeting their scientists. DO NOT ASK THEM FOR MONEY. ASK THEM FOR REFERENCES. All of this is called NETWORKING.

Help each other At your institutes, if you have western visitors and you are asked to present your technical projects, begin your talk with the Elevator Pitch as your introductory slide. …Your non-technical visitors will love you for it.   By all means share and trade your lists of contacts with your colleagues. All of these approaches are excellent ways to NETWORK and HELP EACH OTHER. If one of you succeeds it will be that much easier for the next person.

Don’t count on someone else to do it. If your institute HAS a person who is supposed to do this FOR YOU, he or she needs ALL OF YOU INVOLVED IN FINDING INVESTORS AND MONEY!   …Remember what I said the role of each member of the management team REALLY was? Yes, that’s right, LOOK FOR MONEY. There is no way to escape this responsibility, so get used to it. Ultimately, it is YOUR responsibility, it’s your DESIRE, your PASSION, and your Technology.

SO: What does it take to succeed in business? You now know that technology alone is not sufficient.   It takes a Plan, a Team, and it takes… Money and PASSION! It takes you! You! . . . every inventive, creative and disciplined part of you.

Thank you for your time and attention! Questions? Thank you for your time and attention! Vic Korsun (Victor Fedorovich) Consultant Coordinator, Science Centers Partners Program vickorsun@msn.com

Do not translate Back-up slides

What Does it Take to Succeed in Business?   …All the things you were afraid to ask, all the questions …you didn’t know you should ask, and some of the answers …you never wanted to know… · My presentation will touch on many issues dealing with business start-ups.  ·     But the focus here is to encourage the development of a success-oriented mind set. ·     Time constraints allow me to concentrate mostly on the essentials of success and overcoming obstacles to success. Note: In my talk, whenever I say he it can also mean she.

Before I begin I would like you to do something… Please take out a piece of paper and write down the telephone number of your best friend.   I will get back to this later…

If you want your company to be successful, YOU must become a LEADER. You are your company’s leader and you must ACT as a leader.   Others will follow.

How many new businesses succeed in the US? One out of 10 succeed!   What happens to the other 9? The managers of those 9 FAILED companies become the management teams for other start-ups! In a Success-Oriented mind-set Everything that might be called A FAILURE, we call experience and learning.

Hit that Homerun! With the chance of success being 1 out of 10, it means that one successful company has to pay off big to make up for the other 9 losses. That ONE major success is called a HOMERUN (as in baseball). The investor looks for you to hit HOMERUNS!

YOU MUST ADHERE TO THE TERMS Formal agreement The agreement between you and the investor establishes the basis for the company and governance of the company.   Signing the agreement document is a major milestone. You will now have a formal and legal way of working with each other, and each of you has the protection that the agreement offers and spells out. YOU MUST ADHERE TO THE TERMS THAT YOU SIGNED!

How many new businesses succeed in the US? One out of 10 succeed!   What happens to the other 9? The managers of those 9 FAILED companies become the management teams for other start-ups! In a Success-Oriented mind-set Everything that might be called A FAILURE, we call experience and learning.

What is an Exit Strategy? Money What is an Exit Strategy?   It is the ways the investor earns a return, or profit, on his investment in the company, and then “exits” at some point in the future with his profits. Typically there are 3 ways for this to happen. 1. Your company becomes profitable in a few years. This is the way it happens for most companies, if they succeed. 2. The company gets sold to another company. This happens to some companies. 3. The company is so successful and has grown so much that the company decides to sell its shares to the public through an IPO. This happens to only a few start-up companies.

What is an IPO? …Initial Public Offering   That’s when your privately owned company sells shares of stock to the public on Wall Street. The company becomes part of the stock market and becomes a publicly traded company with their shares being sold worldwide. …But that’s a whole other story. Not today.

Determining Value During negotiations the “paper value” of the company will be determined between you and investor. This is a very important period of negotiation.   The “value” of your company becomes what others are willing to pay for it. To come to an agreement the investor has to agree with you as to the dollar value of your contribution to the new company. In assigning a dollar value to your contribution you have to be realistic and flexible. If you assign a dollar value that is too high vis-à-vis the dollar investment of the investor, it is unlikely that you will come to terms.

Division of Equity When you create the legal company, the founders divide up the ownership of the company:   The scientist gets a certain % of shares, The institute may get a % of shares, The founding investor will get a certain % of shares, A certain number of shares are given to the management team, and A certain number of shares are reserved for future distribution.

What are the sources of funding   Venture Capitalists (VC’s) You Angels Your family Banks Your friends Companies Your company through selling products It takes a LONG time to find money. 12 months, 24 months, easily, or even 36 months. …Remember those experiments? …Finding $$$ also takes a long time.

Who are Angels? An angel is an investor who wants to invest his money in start-up companies!   These are the people you need to find first. Angels are usually wealthy individuals who don’t belong to venture capital firms. Venture capitalist firms will usually fund companies who have received some amount of funding from elsewhere first.

Where do I look for money first? First, use your own. Then your family’s. Then your friends’ and colleagues’.   This is usually the case in the US and Europe. Your situation here may be different. However, you should at least be able to show an investor how much of your personal time, energy, and resources you have put in. Don’t overlook friends and colleagues. A few people putting money together jointly can generate initial capital for starting a company. Your friends would contribute because they BELIEVE in you.

Skin in the Game Remember those 40 hours per week. Forget that. The investor wants to see your commitment, that is, YOUR SKIN IN THE GAME – a term used in the US. This will convince him that you will work as hard as possible to hit that homerun.   He wants you to be MOTIVATED and he believes that your own “skin in the game” will motivate you the most. Remember those 40 hours per week. Forget that. 60 hours…80 hours… Whatever it takes!

Oh, I almost forgot! I had asked you at the beginning of my talk to write down a telephone number.   If you could take it out again please… Now that you know how to find $$$ for your company, you can begin your search by calling your best friend and practicing your Elevator Pitch on him or her. This will get you started…

Keep larger goals in mind It is necessary for you to keep the larger goals in mind. You should not believe that you are selling out to the capitalists. You have to get beyond your past. You MUST get into the business game.   I am NOT saying to you that the market-driven system is the best that there can be, but it is the system that exists today to play in. You must advance yourselves. You have to get past: Is someone going to cheat you? Remember, 100% of zero is zero. You want and need to get a piece of the pie, …and then grow the pie. Know and trust yourself. From this strong position you can learn to know and trust the investor.

Be Realistic! Figure out ahead of time what will be fair to you.   DO NOT say, a French scientist would get more. Remember you are not a French, English, American or Japanese scientist, and you have not been in the business game long enough yet. Success for you cannot be measured by the standards of a German scientist. Once the agreement is signed stop comparing. DO the best job that you can.

Monitor yourself Here’s a tool you can use to stay on target:   Keep a running list for 3 specific activities that you MUST do every day. Count the number of times you used the Elevator Pitch that day, and write it down. Count the number of new contacts you found that day, and write that down. Count the number of contacts you called or e-mailed that day, and write that number down. What you are doing in this process is called COLD CALLING.  All of this IS super difficult… But you have been asked to do super difficult things before, maybe even impossible things…

We believe that you can succeed in business. You can do it! There’s more to it than what I was able to say to you today, of course.   I couldn’t tell you EVERYTHING in just 20-30 minutes. Remember, we believe in you. We believe that you can succeed in business.