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Ease of Entry

There is a commonly held notion that there are four basic factors that are necessary for a successful business start-up venture: a profitable business idea, a thorough business plan, necessary and adequate capital, and a qualified entrepreneur.

Having the passion of the idea is not enough to take you to business success. Knowing if you are qualified to take on the trials and tribulations of business ownership, especially if you are not from a business background, takes a step into Entrepreneurial Education 101: Where do you stand with regard to being able to sustain a viable business enterprise?

The following is a listing of key characteristics from the Pennsylvania Entrepreneur’s Guide for 2009 of successful business owners. See where you rank in terms of the traits you already possess and those that you may want to improve upon.

  1. Problem solving: Can explore innovative ways to respond to. opportunities.
  2. Goal oriented: Can envision a desired outcome, as well as plan and implement the activities required to achieve it.
  3. Self-confidence: Believes in own ideas and abilities, and conveys. those beliefs to others.
  4. Risk taking: Can abandon status quo, explore options, and pur-sue opportunities.
  5. Decision making: Ability to make prudent choices even in a stressful environment.
  6. Persistence: Can tenaciously pursue goals regardless of the energy and commitment required.
  7. Communication: Can speak, listen, and write effectively.
  8. Interpersonal relationships: Can understand the wants and needs of others, as well as inspire them.
  9. Leadership: Can direct others effectively and empower their performance.

The guide followed this list by saying:

As an entrepreneur you must possess not only the personal traits for success, you must also possess some degree of expertise in each of the managerial skills required for business survival and growth. Although you can hire skilled employees, engage qualified consultants, and develop a corporate advisory board, ultimately, it is you who must determine the strengths and weaknesses of your business, diagnose problems and seek out the expertise of others. You must learn to wear each of the managerial ″hats,″ sometimes all at one time. Entrepreneurial tasks include the supervision and even performance of financial management, personnel management, marketing management and production management. If you have not developed the experience necessary to learn the basic skills of each of these areas, begin now to build them as a mandatory foundation for your business.

Great advice and one that would have saved countless dot-com companies who started with a genius idea and few, if any, business skills. Many successful owners rode the wave of money and success in the beginning but lost it all when things tightened and they found that they did not have the business skills to sustain growth and survival This is an important lesson to many scientists looking to capitalize on their ideas in nanotechnology. As quoted earlier, you can hire what you don’t know, but you have to be articulate and savvy enough in business to be able to discern a good idea from a bad, a wise investment from one that is going to take you down, and be able to read people enough to not be taken. Learn from your advisors, take classes, protect your brainchild from those who would capitalize on your ignorance and inexperience.

Creating a viable nanotechnology business, designed to make a profit, is the key objective in the planning and setup of the business. How the business is structured requires careful analysis of the number of owners and how to protect them via corporate structuring. Planning the dissolution of the business without tax encumbrances is as important as setting up the business.

Author Tim Berry created a business planning manual entitled Hurdle: The Book on Business Planning. In this book Berry wrote of a man who had spent 15 years trying to make his manufacturing business work and grew older and went further in debt from lack of planning. He quotes the man as saying, ″If I can tell you only one thing, it is that you should never leave yourself without an exit If you have no exit then you can never get out Businesses sometimes fail, and you need to be able to walk away. I wasn’t able to do that.″

Berry cautions budding entrepreneurs that you should know what monies you need and understand that the money is at risk, cautioning not to bet money you can’t afford to lose. This he notes is why the ″U. S. government securities laws discourage getting business investments from people who aren’t wealthy, sophisticated investors They don’t fully understand how much risk there is Please, as you start your business, make sure you understand how easily money invested in a business can be lost″.

Berry’s advice is not to deter entrepreneurs, but to plan more effectively to prevent future heartaches and stress in business start-ups Berry has his MBA from Stanford, is the president and founder of Palo Alto Software, and is founder of bplans com, a software company that helps start-up businesses with professional all-in-one business start-up kits While the software may not be specifically designed for a nanotechnology business, it can offer insights into what goes into creating a business plan, garnering funds, etc , of most general new businesses.

Creating the plan is key in developing the business proposals for investors, partners, or angels who will help to bring the idea to commercial fruition Without a plan on who your customers are and their needs, a genius idea may only be beneficial to a limited audience and not a good commercial venture Working through the business plan will help the owner to look at all facets of the business It demands the time and due diligence to understand every detail of how to commercialize the nanotechnology idea. Years ago, when starting my first business, I was privileged to have a small business counselor tell me, ″If more people did a business plan, there would be a lot less new businesses, but there would be more that were successful″.

That being said, creating the plan for nanotechnology requires the core group or scientist that wants to take it to investors to detail the information so that the investors can grasp the concept and add their own business savvy to commercialize it. Many first-time entrepreneurs or those who are not schooled in business keep their plan for the business in their head and wing it each step of the way. This becomes problematic when multiple people enter the picture if the vision is not articulated properly This also allows for little all-around growth of the idea that can come from a business plan that allows for finance, marketing, management, and other business skills to be involved The skills and genius needed to create the nanotechnology idea require a different thought process than those needed to create a business empire This was painfully apparent in the dot-com bust, when the genius ideas died because of the lack of business structure to sustain the development, growth, and dissolution.

The business plan helps to understand your part in the business Many times when an entrepreneur think of setting up a business he is enamored of the idea of being his own boss, playing golf at will, or the idea of being independent and not having someone breathing down his neck all the time (his current boss) Entrepreneurs envision themselves as a much more understanding boss And yet, anyone who has owned a business understands that when you own a company or business, you have many bosses, i e , the customer, the bank, fixed costs, employees wanting their check on payday, the mortgage company wanting the payment so you can stay open As for being independent, we go back to Berry, who says, ″Owning a business doesn’t make you independent—making money makes you independent. As long as you need money, you can’t be independent″.

Key Questions

In creating the business plan, understand its multiple uses. Do you want to use it for internal planning to articulate your vision? Do you want to use it for banks? Do you want to use it to secure a venture capitalist or angels? Do you want it for the structure it will give your company? All of these questions merit planning, as each will indicate the detail needed. Banks and financial institutions often want more detail on personal net worth and the business’s financial position; some want monthly projections, some want to look at collateral Personal investors, on the other hand, want you to provide proof such as market data, management track successes, competitors and your competitive advantage, financial projections, etc Again, the key in writing the business plan is knowing the audience Some of the questions a business will have to ask itself for the plan are:

  1. What are you going to call the business? Do you know how to research availability, register, and protect your name?
  2. Do you know the patenting laws and how to patent and copyright or trademark your product?
  3. Do you know how to go about getting any licensing and permits you need?
  4. Do you know how to obtain your tax ID from the Internal Revenue Service?
  5. Do you know the financial basics of running a company? If not, do you have someone on staff to protect your interests?
  6. What is the mission of the company?
  7. What is the company history?
  8. What are the key product features? 9
  9. What is your target market?
  10. What is your competitive advantage? Why would a customer choose you?
  11. What is your basic marketing strategy?
  12. Do you know your market? How many potential customers do you see?
  13. Have you done a market analysis to see the opportunities?
  14. Do you have inventory?
  15. How do you manage inventory?
  16. What about sales and sales people?
  17. Do you have a sales and expense forecast? 18 Do you sell business to business or retail?
  18. Do you sell on credit or do you have accounts receivable?
  19. How is your cash flow?
  20. Are you on an accrual basis or cash basis for tax purposes?
  21. Do you have an accountant or CPA?
  22. Do you have an attorney?
  23. Do you have insurance professionals for workers' comp, etc ?
  24. Who are your advisors?
  25. Who is your banker?
  26. What are your start-up costs? Are they realistic?
  27. What are you including in your start-up costs—office equipment, signs, building expenses, websites, product development, packaging, setting up retail, or supply chain?
  28. Do you plan on bootstrapping (starting without initial start-up capital)? Do you know the risks?
  29. What are your patenting costs?
  30. Can you find the technical people you need for your company?
  31. How do you plan to implement this?
  32. Are you writing your plan in stages or all at once—from history to financials, profit and loss, expense forecasts, etc.?

The following is an outline of a potential business plan:

THE BUSINESS PLAN

I Title Page

All contact and ownership information is included on the title page Some entrepreneurs like to add a very brief business description, slogan, or mission statement.

  1. Business name, address, telephone, e-mail, and website
  2. Name of owner(s).

II Table of Contents

Include a list of all sections of the business plan and the appropriate page numbers Graphs, diagrams and other visual representations should also be identified. Items included as exhibits at the end of the plan (example: owner resume) should be clearly identified so that the reader can reference them while reviewing the plan.

III Mission Statement

The mission statement should describe why your company exists in the market place Some companies use this statement as a foundation for management decision-making and publicly display it on promotional literature and in the place of business. Many entrepreneurs find it useful to make the mission statement brief and general enough to allow potential growth of product lines and services Consider the difference between describing yourself as a company in the ″automobile″ business, and a company in the ″transportation business.″ The mission statement is usually not changed for five years or more and so it is important for it to adequately portray your firm’s identity and philosophy.

  1. Description of company purpose
  2. Identification of those served

IV Executive Summary.

An overview of the content of your business plan allows managers, strategic partners, investors, or lending agencies to quickly grasp your concept and business direction, so that as they read the pages that follow, they have a clear idea of your intentions Because the plan encompasses so many activities, the reader could fail to extract the owner’s view of the most important information. You will find many uses for this summary as you move forward to promote your company, network in the business community, and work with vendors of business products and services.

  1. Brief description of the company history
  2. Purpose of the plan
  3. Goals of the business
  4. Description of the products and services
  5. Customers
  6. Management team experience
  7. Amount required from lender*
  8. Other sources of funds/collateral*
  9. i. Method of repayment*

V Target Market/Customer Base

An error in the determination of your target market(s) will not only adversely affect all other sections of your business plan, it will most certainly increase your advertising and promotion expense. For some businesses it is the difference between success and failure. In this section of the plan describe the most likely customers for your product or service. Who are they? Where are they? When and why will they buy from you? To be thorough you must also describe the target market between you and the end user of your offerings. For example, if you are a manufacturer, you may need a retailer or distributor. Without the retailer or distributor purchasing your product, the end user will never have the opportunity to purchase. You may need promotional literature such as product and price sheets for this ″middle″ market and you may even need sales assistance. Overlooking this market could result in underestimated expense.

* Items marked with an asterisk are added to the business plans being used to secure financing.

Often your entire market of purchasers can be divided into segments, or groups of purchasers with common needs Segmenting your market allows you to define and describe buyers' needs and habits as completely as possible. Accurate information about the size of your market and expected market share helps you predict potential income.

  1. Characteristics of the target market:

    — Demographic profile (age, income, sex, education)

    — Business customer (industry, size, purchaser)

    — Geographic parameters

  2. Size of the market/expected market share
  3. Market segmentation
  4. Customer buying habits (seasonality, quantity, average expenditure)

VI Marketing Plan

The marketing plan describes all activities involved in selling It sets annual sales goals and examines the competitors' products and services and how your offerings are unique Marketing is not simply advertising and promotion activities Although these communication elements are extremely important, they are ineffective if you have not chosen products and services wanted and needed by your potential customers The marketing plan should include a complete description of all offerings. Names, colors, assortments and other details are important to customer choice If you have multiple products for multiple target markets, this is the section where those distinctions must be made.

If you are tempted to dismiss competition, ask yourself how your potential customer currently solves the same problem your. offerings are intended to solve What are the customers' choices when spending their financial resources? It can be helpful to develop a matrix that lists all your major competitors, their products and services, prices, methods of promotion, and location By incorporating your own marketing information on the matrix, you can identify your firm’s strengths and weaknesses. Your marketing section includes customer service policies. Small businesses often have an opportunity to compete with larger firms by offering flexible, courteous, customer-centered services.

The pricing of your product must consider competition and customer expectations, but it must also consider all expenses It is not uncommon for early-stage businesses to: (1) believe they can sell at the lowest price; (2) misunderstand the importance establishing price policies at levels other than the end user level; and (3) overlook the relationship between pricing and other elements of marketing.

The location element of business planning once focused on a physical business site, customer access to that site, and transportation (logistics) related to the site With advancements in technology, both start-up and existing businesses must examine whether the location for interface with customers is a physical location, cyberspace, or both A website can be used to simply promote a business and its offerings, or it can be the actual market place where sales are consummated Website development, performance, delivery systems, and payment activities are now a necessary part of the marketing plan.

Few businesses exist without advertising expense. The choices of strategy and media are many, but the choice to eliminate advertising says the entrepreneur cannot afford to communicate with customers A lack of communication is directly related to a lack of customer spending and a lack of customer spending critically impairs the business’s survival Since advertising and other elements of promotion are legitimate business expenses, they must be incorporated in the price of the products and services

a Sales goals

b Description of all products and services

c Direct and indirect competition

d Pricing objectives/methods

— Wholesale and retail

— Discounts and special allowances

— Seasonality in pricing

— Credit terms.

e Location

— Where products/services will be sold

— Website

— Analysis of advantages/disadvantages

— Plant/store atmosphere

— Transportation

f Promotion activities

— Advertising

— Public relations

— Publicity

— Trade or business shows

— E-Commerce

g Packaging

h Customer service policies

i Sales training, management, and methods

j Growth strategies

VII Production and Operations Plan

A lack of production and operations planning causes entrepreneurs to underestimate start-up, maintenance, and growth expenses. The decisions in this section of the plan consider the ″physical″ health of the business. If the business is started at home, the entrepreneur should set criteria such as income, number of employees, or product expansion that will necessitate moving to a business site. Decisions made in this section affect the extent of company indebtedness, as well as the collateral of the business when it seeks out loans or investments.

a. Facility

— Lease or purchase

— Size and floor plan

— Zoning, local regulations, taxes

— Renovation/expansion plans

b. Equipment

—Machines/tools owned/needed

— Lease or purchase

— Maintenance procedures and costs

— Vehicles

— Telecommunications and data

c. Production process and costs

d. Suppliers/credit terms

e. Transportation and shipping access and equipment

f. Scheduling for completion of research and development

VIII Insurance

By definition, entrepreneurs are risk takers. They launch a new enterprise in a competitive environment with less than adequate capital and work more hours in the day than their corporate employee counterparts. Once the decision has been made to become an entrepreneur, risk management becomes a part of the job description. As a firm grows, the wise entrepreneur develops a risk management program with advice from an attorney, accountant, and insurance agent. Young firms are vulnerable and protection comes from evaluating and prioritizing risks and insuring against them You can start by making a list of the perils your business faces. Identify which are most catastrophic, such as loss of life, damage to property, employee or customer injury resulting from a faulty piece of equipment or product Take action to protect your business against these catastrophes first. Risks differ related to your industry and specific offerings, and gaps in coverage can occur as the business grows Your risk management program should be evaluated annually.

  1. Product liability
  2. Personal/business liability
  3. Business interruption
  4. Vehicle
  5. Disability.
  6. Workers’ compensation.
  7. Unemployment.
  8. Fire
  9. Theft

IX Management and Human Resources Plan

The people in any business are an important and expensive resource Before developing this section of the plan, the entrepreneur must identify how the business will grow and what skills will be needed for that growth If additional locations are planned, new managers will need to be hired or trained If growth comes from development of new products, researchers and engineers may be needed If growth will result from selling intensively to a small number of clients who buy on multiple occasions, employees that are capable of developing good relationships and delivering excellent customer service are needed The obvious expense of human resources is salary and benefits. Less obvious is the cost of recruitment, selection, and training when turnover occurs This section requires knowledge of state and federal regulations governing employer and employee relationships

a. Key managers

— responsibilities.

— training.

— reporting procedures

b. Personnel.

— number of full- and part-time employees

— special skills/education required/continuing education

— job descriptions and evaluation methods

— benefits.

— wages, commissions, bonus plans

— use of subcontracted personnel

— policie.

c. Organizational chart

d. Lists of stock holders and board members

e. Amount of authorized stock and issued stock

f. Professional assistance (attorney, accountant, banker, insurance representative, etc)

X. Financial Plan

Books and software packages can be purchased with formatted worksheets to produce the documents you need for your financial plan. The numbers used for each expense should be as accurate as possible based on current research Identify any fluctuations that can be predicted such as increases in raw materials, lease or utilities in year two or three of your business Estimate the month and year when additional employees will be hired and what they will be paid A break-even analysis helps you understand at what point the business becomes profitable and allows you to set goals realistically. Without a financial plan you will find it nearly impossible to interest lenders or investors in helping you start and grow, because you have no facts to back up your enthusiasm and commitment to your venture.

  1. Start-up costs (all one-time expenses such as equipment,. deposits, fees, etc)
  2. Monthly expenses (ongoing expenses for lease, insurance,. utilities, etc)
  3. Sources and uses of funds*.
  4. Balance sheets (opening day and projected three years)
  5. Projected cash flow (monthly first year, quarterly year two and three).
  6. Profit and loss forecast or statement (annual for three years)
  7. Break-even analysis.
  8. Existing business (historical statements for three years*)
  9. Personal financial statement of owner(s)*
  10. Assumptions used in preparation of financial projections

XI Attached Exhibits

  1. Managers’ resumes
  2. Advertisements, news articles and other promotional documents
  3. Contracts, leases, and filing documents (Fictitious Name, Employer Identification Number, Articles of Incorporation)
  4. Letters of support
  5. Pictures of the product or service
  6. Marketing research
  7. Patents, trademarks, copyrights, license agreements
  8. Income tax returns (three years)*
  9. Invoices or estimates for facility or equipment purchases*

Pennsylvania Entrepreneur’s Guide 2009, http://www.fcadc.com/incentives/pdf/Entrepreneur_Guide.pdf.

* Items marked with an asterisk are added to the business plans being used to secure financing.

This chapter will feature the structure of setting up the business, creating the business strategy, as well as deciding on the structure and partnering required to build a sustainable commercial scientific entity.

Deciding on the structure, whether a sole proprietorship, a partnership, or corporation, will require owners to decide how much time they want to contribute or their participation and at what level. It also requires a look at the initial costs, how they are going to finance the business, and what the tax implications and credits will be with each structure. For example:

Sole proprietorship: In this type of structure, the individual owner owns all assets and is recipient of all income, but he or she is also totally responsible for all liabilities and losses and creditors can go after his or her personal assets. Sole proprietorship requires a simple business name registration. This type of ownership does not create a separate legal entity or trade name If you are not using your own name, you can register the company under a ictitious business name or DBA (doing business As). In the United States, it is dependent on the state you register in, and you can normally set this up through the county government with a small registration fee and the required newspaper advertisement posting for less than $100. Taxes go through your personal taxes, and the business income is normally shown on the Schedule C of the tax return.

Partnership: In this type of structure, all personal assets are at risk, as well as being responsible for both the partner’s and employee’s actions. A partnership requires a partnership agreement, deciding the terms, financial contribution, and outlining the contribution of each partner. It requires a simple partnership name registration. In the United States a uniform partnership act sets specific partnership agreements as the legal core of the partnership; thus the details can vary broadly, such as general and limited partnerships that define different levels of risk. Liquidation or termination of the partnership needs to be spelled out with buy and sell arrangements for the partners to be defined. Partnership also looks at the citizenship and residency requirements. Since the terrorist attacks of 9/11, a number of labs have become unavailable to those who do not hold citizenship, thereby limiting the partnering of foreign nationals to be fully involved.

Limited liability company (LLC): A corporation must have four characteristics: limited liability, continuity of life, free transferability of ownership interest, and centralized management. A LLC is structured similar to an S-corp with a combination of limitation on legal liability and the favorable tax treatment for profits and transferabil-ity of ownership interest.

Corporation: This is a government structure that is set up for the benefit of the shareholders to protect the assets that are invested in the company A corporation is a separate legal entity that can own assets and incur liability The structure provides that the liability is limited to the money and assets invested in the company as opposed to the personal liability in the structures mentioned above (Figure 3.1).

Using a standard C or the small business S corporation defines the liability structure of the corporation The C-corp is structured to provide the best shielding from personal liability and the best nontax benefits to the owners. As a separate legitimate entity from the owners that pays its own taxes, this is the best for those companies wanting to raise major investment capital and going public. The business S-corp is often used for smaller ownership groups or family companies The main difference with the S-corp is that the profits and losses go straight to the corporate owners without being taxed first, allowing the owners to take profits first before paying the corporation’s separate tax on the profits, allowing the profits to be only taxed once, but twice for the C-corp The C-corp is often chosen because of the personal liability shielding and the goals for growth Corporations can switch from C to S and back, but the IRS has strict rules for this.

image

FIGURE 3.1

Corporation. A corporation is a separate legal entity that can own assets and incur liability. The structure provides that the liability is limited to the money and assets invested in the company as opposed to the personal liability.

In choosing the structure, the following questions must be addressed:

  1. What is the tax year end?
  2. Who signs checks, notes, loans, and contracts and what are the sign-ing limits?
  3. How are meetings held?
  4. Voting issues—on the occasion that there is a voting tie, who gets the casting vote?
  5. Changes in the business—how is the decision making structured?
  6. Contracts—who decides if business enters into contracts, partner-ships, or joint ventures?
  7. How are shares valued in the event of a buy-out?
  8. When can a shareholder be forced to sell or buy shares?
  9. How will profits be split?
  10. How are dividends declared?

Strategy

Answering a few key questions is critical in knowing where you are going with your product. First-mover advantages and ease of entry into your target market are key in setting the bar in nanocompetition. Mapping out your business strategy will define the commercialization of your product.

image

FIGURE 3.2

This model shows profitability and profit growth decisions for businesses during the growth and development phases.

Strategy is defined as the actions that management takes to attain the goals of the firm. Defining those goals is most often done by the presiding board of directors the company chooses. The goals are set with the profitability or the rate of return the company will make on the invested capital and the profit growth or increase of the net profits over a period of time. A 10 to 20% yearly growth is an attractive choice for many companies. The advent of nanotech-nology is creating new horizons in growth.

Nanogate, our case study for this chapter, is a leading international nan-otechnology enabler located in Göttelborn, Germany. The company began in 1999 and has been regarded as a trailblazer in the nanotechnology field. Nanogate enables the programming and integration of additional properties—such as nonstick, antibacterial, anticorrosive, and ultra-low friction— into materials and surfaces. The company increased group sales by 38.6% to EUR 5.67 million in the first half of 2010 (previous year: EUR 4.09 million).

Understanding the potential for profit growth with a nanotechnology enabler or nanoproduct will require some research on the part of the business owner as to the product and industry he or she is developing This industry knowledge will give the corporate governing bodies the criteria for setting the profitability and profit growth standards for their shareholders (Figure 3.2).

Early Mover Advantage

Becoming the first significant company to enter into the market offers what is called first-mover advantage (FMA). First-mover advantage for a company is the advantage that it has gained by being the first in the market segment, often allowing it to control the resources that subsequent followers may not be able to match. First movers, while taking the chance with the risks, frequently are rewarded with large profit margins and often move to a monopoly-like status. In nanotechnology, many of the first movers secured multiple patenting around their discoveries that can somewhat limit direction of growth or define partnering. Patenting will be discussed in depth later in this text.

Strategy to acquire this position of a first mover requires doing the due diligence and testing to see that the rewards outweigh the underlying risks; this is critical in the development and marketing of the product, as often a second-mover advantage company can capitalize on the initial surge of interest and resources if the first mover is not able to capitalize on the advantage. If the first mover cannot capitalize, it opens the door for other companies to compete more effectively than the first user, or earlier entrants. Thus the strategy of setting up the company is key to becoming a first mover and controlling the resources.

Setting strategy requires looking at the big picture to understand the value chain of the company People often see the companies as a value chain that is composed of distinct value creation activities such as production, marketing materials management, R&D, and human resources. The production of the nanoproducts passes through all activities of the chain in the order set up by the company, allowing each activity to add expertise to the value of the product. Using the value chain of activities gives the products more added value than the sum of added values of all activities.

Identifying the areas and activities where the company adds value for the customers focuses on the customer-oriented activities, whether they be health needs, computer needs, transportation and gas needs, etc The product is only as good as the need it fills for the customer.

In setting up the criteria for profitability and profit growth, the company needs to look at its target market to determine the value creation The value creation is the difference between the V or price that the company can charge for the nanoproduct within the current competitive pressures and C or cost of producing the product The value is measured by the difference between what a company can charge for the product within the current competitive environment and the costs that are incurred producing the product.

As far as it’s about strengths and weaknesses, this model will help organizations identify those areas where they are adding value to the customer (strength areas) and those areas where they need attention to add values because value chain is all about how you do something extra for your customers that your competitors can’t or don’t.

When cutting costs or lowering the price isn’t an option to increase profits, companies focus on increasing the attraction of the product to create the differentiation strategy. By making the product more efficient, visually or sensory appealing, or easier to use, they can differentiate their product from the competitor’s and gain market share.

image

FIGURE 3.3

A tangency portfolio asks how much you would be prepared to lose in a worst-case scenario without bailing out of the market. The tangency portfolio shows the optimal combination of risks assets that maximize at each level of risk.

After defining the costs and differentiation, the company needs to pick a point on the ″efficiency frontier″ where there is adequate demand for the product, and set the price, configuring the internal operations to support the decision. The customer has to see added value over the competitor before it will pay more for the product (Figure 3.3).

Configuring the internal operations to support the strategy begins with the company operations being viewed as a value chain A value chain is composed of a series of distinct value creation activities that include production, marketing, materials management, R&D, human resources, information systems, and the company infrastructure.

These activities fall under two categories: (1) primary activities that include creating the product, marketing and delivering it to buyers, and providing support, and (2) follow-up sales and customer service to the customers.

The primary activities include R&D, production, marketing and sales, and customer service.

Support activities are the underpinnings for the primary activities, allowing them to occur They include information systems to manage inventory and track sales, logistics, and human resources The support activities are the informational systems that manage and track the products and sales, logistics, and the human resources that cover all areas that keep your new business running.

As companies progress in the development of the product, they often find that it is more efficient and effective to expand their market in both production aspects and sales. In today’s world, a finished product is often comprised through the efforts of going where the technology and labor are the most reasonable. By dispersing the value creation activities to the areas where they can be performed most effectively and efficiently, the company not only saves money, but picks up the intellectual capacity and cultural work secrets of various locations that will help its product strengthen in production Utilizing the experience of the various locations, and the experience of the core team, can help the company to expand and realize greater cost economies by leveraging the skills of the foreign operations and transferring them within the company.

Because of the potential to manipulate the elements of the periodic chart, nanotechnology has the potential, through such areas as nanofabrication, to machine at an atomic scale and create new materials and systems The materials that we were once familiar with will react much differently at the nanoscale By leveraging the knowledge with the core competencies and skills, companies stand to learn more and develop higher-end products.

Choosing to become involved in a global strategic alliance offers several methods of expanding to the foreign markets that include licensing, franchising to host country firms, exporting, establishing joint ventures, or if the climate, workforce, knowledge, and political support are right, to set up a wholly owned subsidiary in a host market. Growth frequently entails acquiring established enterprises to give you the product differentiation and control in the market.

Global strategic alliances look at favorable markets as those that are politically stable, have free market systems, relatively low inflation rates, and low private sector debts.

The rapid evolution in the field of nanotechnology will also demand that the strategic analysis and planning be done on a more frequent basis than is done for normal companies. Moore’s law states that technology will double in speed every 18 months and prices will fall. Just as the technology is moving that fast, the need for education of nanotechnology workers will increase as well, making the global option more of a reality to find necessary employees Studies show that nanotechnology employee estimates will be approximately 2 million around the world by 2015. The breakdown of workers needed is: United States, 0.8-0.9 million; Japan, 0.5-0.6 million; Europe, 0.3-0.4 million; Asia Pacific, 0.2 million; other regions, 0.1 million.

This surge in nanoproducts has the potential to create 5 million additional nano-related jobs in the global market by 2015 that could pull us from the current economic struggles, yet increase additional educational and training pressures to prepare the workforce.

The ease of doing business index averages the country’s percentile rankings on 9 different aspects of the business environment:

  1. Starting a business
  2. Dealing with construction permits
  3. Registering property
  4. Getting credit
  5. Protecting investors
  6. Paying taxes.
  7. Trading across borders
  8. Enforcing contracts
  9. Closing a business

The ease of doing business index ranks economies on their ease of doing business on a scale of 1 to 183. A high ranking on the index means the regulatory environment is more conducive to the starting and operation of a local firm. This index averages the country’s percentile rankings on 9 topics, made up of a variety of indicators, giving equal weight to each topic. The rankings for all economies are benchmarked to June 2010.

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Analyzing the company resources and capabilities is reflected in a VRIO framework The resource-based view focuses on (V) value, (R) rarity, (I) imi-tability, and (O) organizational aspects of the resources and capabilities of the company. Looking at a company from the VRIO perspective offers a competitive advantage.

Value: Only value-added resources can lead to competitive advantage, while non-value-adding capabilities can lead to a disadvantage An example of this is a case study of IBM IBM found itself being phased out in the early 1990s because its historical expertise in hardware was no longer competitive The company had begun in 1930 making tabulating machines In 1960 it became known for its mainframe computers, and in 1980 the PC Seeing the competition writing on the wall, and with the ideas of a new CEO, IBM entered the more lucrative field of software and services, adding new value-adding capabilities It sold its PC division in 2004 to Lenovo in China.

Nanotechnology companies need to constantly be looking at the value-adding capabilities of their products in this competitive science with many overlapping patents With the amount of capital invested in the technology to bring it to the commercialization stage, it is key to keep an eye on the value for a return on investment Just as IBM was the leader for many years, it would have had a slow death in the field of hardware competition.

Rarity: Knowing how rare the valuable resources and capabilities are to stay competitive. Having a valuable, but common resource and capability will give a company competitive rarity but not the advantage in the market There are various marketing strategies, and a company has to look at the big picture in regards to return on investment (ROI). Saturating the market with a nanoproduct will undermine the novelty value or rarity, whereas marketing it as a valuable and rare product will give it the potential to have a modicum of at least a temporary competitive advantage. ″If everyone has it, you can’t make money on it.″ If it is no longer rare, it provides no advantage.

Taking IBM again as an example, the company earns $1 billion a year from its IP portfolio. Microsoft now files over 3,000 patents a year, as opposed to 5 filed in 1990. Both companies are making big money on the rarity factor Nanotechnology companies need to closely monitor their intellectual property and continue to file patents as they grow, adding additional revenue and the rarity factor to their companies.

Imitability: Although intellectual property is covered in the patenting, copyright, and trademarking, products and licensing can still be violated Blatant patent infringement is illegal, but reverse engineering, or inventing around the patent by changing a few things, is legal. Thus the valuable and rare resources and capabilities can be a source of competitive advantage only if they are hard to imitate by the competitors. Nanotechnology is going to be a boom industry, money flowing like water, if we look at it by the billions of dollars that governments are investing in it. The race for riches will include those competitors interested in imitating the ideas for their own profits.

Tangible resources can be recreated through reverse engineering, while intangible capabilities such as the tacit knowledge, managerial talents, and motivation cannot. Looking at a competing firm’s successful performance can make it difficult to imitate because of the casual ambiguity, or the means of putting one’s finger on the actual cause of success in a company. A company needs a secret recipe, so to speak, of unique practices it has developed and used to make it or its production unique. Nanotechnology companies of the future will need to find their unique competitive advantage, or what makes their company special. Only valuable, rare, and hard-to-imitate resources can lead to sustained competitive advantage.

Organizational: We all need systems in place to make our lives run easier, and managing a business is no different Nanotechnology companies will have to look at their organizational structures to develop and leverage the full potential of its resources and capabilities. Have you ever watched the credits at the end of a truly great movie, astounded at the number and quality of people, jobs, songs, and resources it took to make a stellar picture? This is an example of what is called complementary assets—the combination of resources, individual assets, organizational attributes, smiles, laughter, hard work, dedication, attention to detail, and clarity of vision in a social complexity, or the interdependent ways that the firm is typically organized.

TABLE 3.1

Ease of Doing Business: Top 10 and Bottom 10 Countries

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These organizationally embedded capabilities that make up the uniqueness of the firm are what is hard for rivals or competitors to imitate. The uniqueness of the social capital that makes up the company often gives it its source of competitive advantage. Thus creating the team is critical for the success of the venture and what often gives it the sustainable competitive advantage.

The VRIO framework, if revisited regularly, can give the company a longstanding competitive advantage in the marketplace and value to investors.

CASE STUDY: FIRST MOVER ADVANTAGE

PRESS RELEASE

Nanogate formally closes deal for takeover of Eurogard B.V.

Takeover strengthens market position and opens up further growth potential—transaction successfully concluded Göttelborn, Germany, 8 June 2011. Nanogate AG (ISIN DE000A0JKHC9), the leading international integrated systems provider for nanosurfaces, has successfully closed the deal to take over the Dutch company Eurogard B V Nanogate and Eurogard aim above all to achieve growth together by expanding international business further, developing new applications and acquiring new customers Nanogate expects to increase Group sales in the 2011 financial year to more than EUR 30 million and record an EBITDA margin of at least 10%.

Eurogard specializes in enhancing surfaces on two-dimensional components and is the global market leader in the lucrative specialist sector of coating transparent plastics. In the 2010 financial year, the company’s sales were in the high single-digit millions and its EBITDA yield was in double figures. Eurogard is free from debt and generates a positive free cash flow. Its operating business is concentrated on the buildings/interiors, aviation, and automotive/mechanical engineering sectors Eurogard coatings can be used on aircraft windows, utility vehicles, building elements and ski goggles, for example Nanogate expects the new company to be fully integrated in the third quarter of 2011.

Ralf Zastrau, CEO of Nanogate AG, commented: ″Nanogate’s equity holdings in Eurogard B.V. and GfO AG put the company in an excellent strategic position. We offer a unique and complete technology portfolio with a broad range of applications In addition to this, Nanogate covers the entire value chain like no other company—from materials expertise to process integration, right through to mass production. In operational and strategic terms, Nanogate is well positioned to grow faster than the market for surface coatings. Our aim is to significantly expand our market share″.

Nanogate on Twitter: http://twitter.com/nanogate_ag

If you have any queries, please contact:

Christian Dose (financial press and investors)

Cortent Kommunikation AG

Tel. +49 (0)69 5770 300-0

[email protected].

Liane Stieler-Joachim

Nanogate AG.

Tel. +49 (0)6825 9591 220

[email protected]

Nanogate AG

Zum Schacht 3

66287 Göttelborn, Germany

www.nanogate.com

NANOGATE AG:

Nanogate is the leading international integrated systems provider for nanosurfaces, concentrating primarily on enhancing high-performance surfaces. The firm, which is based in Göttelborn (Saarland), enables the programming and integration of additional properties—such as nonstick, antibacterial, anti-corrosive and ultra-low friction—into materials and surfaces As an enabler, Nanogate gains a competitive edge for its customers by means of product refinement using chemical nano-technology Nanogate covers a wide range of industries, functions and substrates The company thus provides a decisive interface for the commercial use of chemical nanotechnology and bridges the gap between the suppliers of raw materials and industrial conversion into products In doing so, Nanogate concentrates as an enabler on one of the most attractive segments in the industry. Nanogate has a unique combination of extensive materials expertise paired with comprehensive, first-class process and production know-how As a systems provider, Nanogate covers the entire value chain, from the purchase of raw materials, to the synthesis and formulation of the material systems, right through to the enhancement and production of the finished surfaces. Nanogate focuses primarily on plastic and metal coatings for all surface types (two- and three-dimensional components).

The Nanogate Group currently has approximately 250 employees in all and since commencing operations in 1999 has been a trailblazer in nanotechnology. The company has first-class customer references (e.g., Audi, BMW, Bosch-Siemens Haushaltsger—te, Junkers, —rcher, Hörmann Group, Opel and REWE International AG) and many years' experience of different industries and applications Several hundred projects have already gone into mass production. Nanogate has also entered into strategic cooperations with international companies such as the GEA Group and Dow Corning Nanogate consists of Nanogate Industrial Solutions GmbH, Eurogard B.V., FNP GmbH for products in the sport/leisure sector, majority stakes in Holmenkol AG and GfO Gesellschaft für Oberflächentechnik AG, and an equity holding in sarastro GmbH.

DISCLAIMER:

This publication constitutes neither an offer to sell nor an invitation to buy securities. The shares in Nanogate AG (the ″Shares″) may not be offered or sold in the United States or to or for the account or benefit of ″U. S. persons″ (as such term is defined in Regulation S under the U. S. Securities Act of 1933, as amended (the ″Securities Act″)). No offer or sale of transferable securities is being made to the public outside Germany.

____________________

Nanogate generates record sales in HI 2010 and anticipates positive consolidated net income for H2 2010.

Göttelborn, Germany | Posted on September 30th, 2010

ABSTRACT:

Back on a growth path: sales rise by 38.6%, earnings up—Forecast for 2010: increase in sales to at least EUR 16 million, positive consolidated net income anticipated in second half—Outlook for 2011: sales set to reach upwards of EUR 25 million, company expected to return to full profitability—EBIT margin of 15% targeted for medium term—Majority stake in GfO to contribute towards growth.

Göttelborn, Germany, 30 September 2010. Nanogate (ISIN DE000A0 JKHC9), a leading international nanotechnology enabler, returned to growth in the first half of 2010. The company’s sales reached a new high in the first six months of the year. Earnings also improved alongside the sharp rise in sales, despite one of the Group’s subsidiaries incurring considerable one-off expenses. In August Nanogate arranged a majority investment in GfO Gesellschaft für Oberflächentechnik mbH. With this move the company became one of the leading European system providers for high-performance industrial surfaces Nanogate expects to post record sales of at least EUR 16 million for the full year 2010. Considerable profit growth will significantly boost the year-on-year result, leading the company to expect positive consolidated net income in the second half. In the 2011 financial year Nanogate intends to exceed EUR 25 million in sales and return to full profitability. In the medium term the Group is striving for an EBIT margin of 15%.

Ralf Zastrau, CEO of Nanogate AG, said: ″Nanogate has successfully returned to a growth path Operationally and strategically, we will attain a new dimension in 2010. Our new GfO equity holding will prove profitable before the year is out. Our extensive investments will also pay off this year Nanogate will experience faster growth in sales and earnings in the medium term. For 2011 and 2012 we anticipate a clear increase with ambitious targets when the success from our growth strategy takes full effect.″

Group sales up almost 40%

Nanogate increased Group sales by 38.6% to EUR 5.67 million in the first half of 2010 (previous year: EUR 4.09 million). The share of international business rose to 43.6% of total sales (previous year: 40.9 %). The overall performance increased by 23.1% to EUR 7.03 million (previous year: EUR 5 71 million) Earnings improved as expected in the first half of 2010. Consolidated EBIT came to EUR -1.7 million (previous year: EUR -2.0 million). This figure was diminished by one-off, non-recurring expenses for realignment and restructuring at the portfolio company Holmenkol One-off, non-recurring expenses came to over EUR 0 6 million Adjusted for these factors, consolidated EBIT accordingly came in at around EUR -1 0 million Consolidated net income totaled EUR -1.15 million (previous year: EUR -1.25 million); adjusted for non-recurring expenses the figure was EUR -0.8 million.

Cash flow from operations amounted to EUR -1.15 million (previous year: EUR -1 16 million) but was also severely impacted by the one-off expenses resulting from the realignment and restructuring at Holmenkol. Strong sales and earnings growth should result in positive operating cash flow in the second half of the year. Cash flow from investing activities came to EUR -1 6 million (previous year: EUR -2 0 million) Investment activity will continue to be reduced in the second half of the year according to plan, excluding the GfO investment.

Significant growth anticipated in the second half

In the financial year 2010 Nanogate will improve sales and earnings considerably. The innovation offensive launched in 2009 and the ongoing opening up of markets will contribute to the record sales expected Furthermore, the company is anticipating a boost to growth from the majority stake in GfO. GfO’s business is currently growing as planned and the company’s order book is well filled. On current estimates Nanogate will report record sales of at least EUR 16 million in the financial year 2010 (previous year: EUR 10.7 million).

Consolidated net income for Nanogate will also improve sharply over the course of the year—in comparison with both the first half of 2010 and the 2009 financial year. Nanogate is therefore anticipating a profit for the second half of the year and positive operating cash flow. However, the profit for the second half of the year will be unable to fully compensate for all the one-off expenses incurred in the first six months.

EBIT margin to reach 15% in the medium term

In the medium term Nanogate is reckoning with faster growth The majority stake in GfO alone should increase the pace of growth by 10%. Additional sales and earnings are expected from the investment from the first quarter of 2011 onwards. In 2011 and 2012 sales should increase considerably, both organically and as a result of the GfO acquisition, with next year likely to exceed the EUR 25 million mark Nanogate aims to return to profitability at Group level as early as 2011. In the medium term the Group is striving for a consolidated EBIT margin of at least 15% Additional external growth is also part of Nanogate’s expansion strategy.

Innovation-driven competitive advantage:

Using this guiding motto, Nanogate AG launched a comprehensive innovation offensive in 2009 in order to open up new growth prospects for its clients To achieve this, Nanogate increased its investments and funding significantly—in particular in the 2009 financial year—and has since then presented a multitude of innovations Since going public in 2006 the company has already invested several million Euros in developing new technology platforms and has transformed these into marketable products Nanogate has successfully illustrated its expertise in more than 180 cases, using innovations to provide its clients with a competitive advantage.

Copyright © Nanogate AG.

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