This Article Discuss the Impacts of Channel on Selling a New Nanotechnology
Selling is the single most important part of an advanced materials start-up. Ironically, it is commonly the single largest skillset gap in advanced materials start-ups.
Sales are the life-blood of a company; without revenue, you have no company. But every nanotechnology-enabled companies I have seen started without a sales or business development expertise. Usually it is just a scientific core team with a little bit of development funding.
Eventually every company has to grow up and sell something. Most nanotechnology companies wait WAY too long before talking with customers about purchasing. This is a huge mistake because new materials companies need to develop a customer sales funnel as soon as possible since the nanotechnology sales cycle takes longer than software or consumer goods. This is in part because most nanotechnology-enabled technologies are a source material and not an end-product. There are a few exceptions with beauty products and construction goods, but most products are a B2B transaction where the material is used to make a critical component of an end good. This means you are selling into a channel. So, let’s talk about what it means to sell into a channel.
Working in a channel
Most new materials companies will be a Tier 2 or Tier 3 supplier. That means you are selling to someone that makes something to sell to someone else before it is turned into a part that is used in an end-product. Yep. This means that at best you are 2 to 3 steps removed from where the money is coming from. So, when you sell into a channel, you need to be fully aware of where you are in the production process, how important you are to the end-product, and who are the key decision makers. Each of these factors will play into how you sell, where you sell, and how long it will take you to sell.
Map the Supply Chain
Let’s start with setting context to your sales process. Knowing where you are in the production process guides who you need to work with in the channel. So, it helps to map out the supply chain for the target market you will be selling into. When doing this also note attributes and dynamics to the supply chain that can play into the sales and material supply system. Below is a generic example of the advanced composites supply chain.
As you can see, additive providers have options with who they can work with and sell to. This is good because it gives options and the rare opportunity to work directly with end-product makers. You can also see trade-offs in working with different groups. End-product makers have the most insight into the application and design, but are relatively low volume. Resin producers, on the other hand, provide orders of magnitude increases in volume production but have much lower influence into the decision. Intermediaries have a nice middle zone, but usually they have little decision making power in end-product fabrication. Understanding the flow and dynamics of your market is important to find opportunities, avoid pitfalls, and weigh trade-offs.
Are You Kind of a Big Deal?
In selling a new material you also should understand how important you are to the end-product. For example, Gore-Tex® was a massive discovery, made somewhat by mistake, that has grown into an impressive brand in healthcare, outdoor equipment, and clothing. Gore-Tex® material supply, however, is based only on a critical additive component in large-scale production of their breathable, water-resistant fabric. The additive, however, was so important that their supply contracts drive almost every component of the final product, including; branding, margin, operations, quality control, and design decisions for other sporting goods manufacturers.
Now, no one starts out as Gore-Tex, but knowing how important you are in the final product is an important part of developing a sales strategy. If you are truly disruptive, you can drive more decisions and gain more margin. In the case of Gore-Tex, they completely re-shape the market. Now, I know you think your product is a pretty awesome and you have visions of buying Gore-Tex as a prank while sailing on your yacht around the Cape Horn. But you should come back to reality and see what gaps you have in your technology. If you are not careful the things you down-play can sink you.
Few new materials discoveries are truly disruptive. But take some time to ask yourself the big questions about your technology. This isn’t meant to discourage you from starting your venture, but it will help you understand long-term power dynamics when working with other providers in the channel.
Know the Decision Makers
When you introduce something new to the supply chain, some players will win and some players will lose. Benefits and drawbacks can come in the form of money, waste, throughput, or usability. These changes ripple through the entire supply chain. It helps to map these out explicitly to see if there are potential barriers that could disturb market adoption. In the materials supply world, where contracts extend decades, relationships matter.
To continue the advanced composites example from above, an additive provider is positioning to be a supplier to large producers. As you know from the earlier diagram, the composite supply chain is extremely complicated. As such, there were a lot of people involved in making the decision to adopt a new technology. So, they spent time listing the advantages and disadvantages for each participant in the supply chain. The table below is a simplified version of that chart.
By mapping the supply chain, the company found that there are only positive or indifferent net effects on supply chain decision makers. This is a green light for moving forward. If the company had a high influence member of the supply chain that would be negatively impacted by the introduction of the product. They would need to either find ways of mitigating their influence or incentive them. One example of incentivizing a key decision maker is margin sharing with resin producers. Increases in raw material prices is a non-starter for most providers. But providing a margin bump can be a huge incentive for companies in a low-margin, commoditized market.
Another insight from mapping the composites supply chain is the number of people involved in deciding to adopt a new material. Working in a channel means working with others. Even if you do not have any decenters in the supply chain, the more people involved the longer the process takes. The depth of the supply chain can be as much an inhibitor to innovation as money. In the best case, most of the people will not see your new product and it seamlessly integrates into their existing process. In the worst-case, you require procedural changes, capital investment, and product redesign all at the same time. The fewer decision makers you have to work with the better.
Usually you do not have control over the supply structure you are entering. However, nanotechnology innovations usually can choose which market they target first. Understanding the supply chain provides context to the sales process and helps you navigate relationships in the new technology introduction phase.
That’s all for now, thanks for reading!
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