Commercialising innovation and making the leap from invention to growth is every founder’s dream. But between ideation and commercialisation lies the valley of death: the period of negative cash flow start-ups must navigate successfully to begin reeling in customers and generating revenue. A staggering 90% of Australian start-ups fail. So, leaving the commercialisation journey to chance shouldn’t be your strategy for commercial success. To give your start-up a safer passage through the valley of death and onto product launch we’ve gathered some top tips from world-leading experts.
Financial strategies for commercialising innovation
Taking your idea off the drawing board and into the market is going to take money. And chances are, it’s going to take much more capital than you think. When you’re in the innovation game, it’s wise to expect the unexpected. So budget for those surprising extra expenses and that setback you just didn’t see coming. Scoping out the types of finance you can access at each stage of your start-up’s commercialisation journey is a great place to begin. In broad strokes, there are five funding stages. They are early-stage R&D, prototyping, Minimum Viable Product (MPV), accelerating commercialisation, product launch and early growth. And it’s during these different phases that your start-up can gain access to different types and quantities of capital.
Funding to fuel acceleration
Once you’ve stress-tested your invention, built your start-up and established your product/market fit, it’s time to begin accelerating your commercialisation. This is when you can attract Angel Investors, join business accelerators and access additional grant funding to fast-track your growth.
Angel Investors are high-net-worth individuals, who invest in early-stage businesses in their field of expertise or interest. A great source of early-stage capital, Angels tend to write cheques for between $10,000 and $500,000 to help move start-ups out of the pre-launch arena. While you’ll need to exchange 10-30% of your equity for Angel capital, they don’t take a controlling stake in your business. Plus they’re normally pretty patient and look for a 20-30% annual return on average over three to eight years. Check out our blog, Angel Investor vs Venture Capitalist: which is better? for more information about Business Angels.
Accelerator programs are for start-ups with a product/market fit, business model, founding team in place and the potential for strong, short-term growth. Accelerators run for short, fixed periods — often between three to six months. As well as in-kind resources, such as access to intense mentorship, business partners and investors such as Venture Capitalists, start-ups can receive $20,000 – $80,000 in funding from Accelerators to help them develop their products or expand their teams. In a nutshell, the Accelerator’s goal is to put promising start-ups in the box seat to attract venture capital so they can scale up and achieve exponential growth. If you’re looking for more information about Accelerator programs, then read our blog, Incubators vs accelerators: Which one is best for start-ups?
Grant funding in the form of the Federal Government’s Accelerating Commercialisation program provides start-ups with up to $1 million in matched funding to accelerate their commercialisation. It also provides access to expert advice and funding to help with a start-up’s go-to-market strategy for its innovation.
The Federal Government R&D Tax Incentive
The Federal Government’s R&D Tax Incentive refund (R&DTI) can return up to 43.5 cents to your business for every dollar you invest in R&D. It can be a great source of capital for your start-up for most, if not all, of your commercialisation journey. And if your business is eligible for the R&DTI refund, it’s eligible to apply for R&D financing to access this refund early. Once your aggregated annual turnover tips over $20 million, you’ll no longer be able to access the R&D refund. But you could receive the R&D tax offset instead. The offset amount depends on which rate of company tax your business pays, and how much you spend on R&D every year as a percentage of your total expenses.
Master the power of marketing
If you’ve been rigorous about finding the pain point your innovation solves and the customer segments it serves as part of your early research, you’ve already embraced marketing. So don’t stop there. Make sure your marketing research gives you an understanding of the correct price point for your product or service, the optimal distribution channels and where it sits in the wider marketplace, e.g. premium, mid-range or entry-level.
Now’s the time to circle back on what you’ve learned from the customer feedback during your prototyping and MPV stages. Granted, you’ve probably absorbed early-adopter feedback to reach your product/market fit. But did you gain insights into alternative ways your product or service could be consumed, or discover it could be used by different clients at a different point in the supply chain? If so, it’s wise to make decisions about this intel now. What you decide will shape how and when your business grows. And how quickly it adds to its product/service range and the markets it serves.
Know who your customers are and where they are. Invest in developing personas and the key messages and a channel strategy to deliver them. Remember, if no one has heard of your innovation, and why they need it, then no one will buy it. So make sure you have a rock-solid communications strategy, complete with promotional campaigns that are ready to go. It can be the difference between success and failure when you finally launch your new product or service. To learn more about communicating your innovation effectively read the Radium Capital blog: Why communicating innovation is crucial for your start-up.
Add to your team
Just as a caterpillar will undergo a stunning metamorphosis to become a butterfly, so will your start-up if you successfully commercialise your innovation. But if you don’t have the right amount and type of human resources at the right time, you risk getting stuck in the valley of death.
Every innovation business is different. But there are some basic principles you can follow to help your team grow your business, and vice-versa. In the early days of your start-up, agility is key. But even before you reach the product/market fit, you need to be adding team members who will help you execute your vision so you can focus on the strategic issues and your company culture.
Always hire the best people you can afford — preferably individuals who are better than you. Assembling a diversity of skills and experience among your staffers is crucial. Get people on your team who know how to introduce processes and how to scale them up. Look for candidates that have a mix of start-up or small business and large corporate experience. These are the people who can deliver the excellence your business needs on product quality and customer service while keeping their eye on the bottom line. And wherever possible, give opportunities to internal candidates to sustain your company culture, business know-how and team morale.
Launch and grow
Commercialisation aficionados Nottingham Spirk swear by having a soft launch before going all out with the official release of any novel product or service.
The beauty of a soft launch is that it lets you identify and iron out any issues in your supply chain, manufacturing, distribution or service process before you gear up manufacturing and sales. It’s a great way to test the end-to-end experience of your innovation. This minimises the financial and reputational risks any teething problems will have on your business. And it lets you and your team put yourselves in your customer’s shoes to see if you’re found wanting.
Run the official launch of your product or service like a military exercise. After you’ve applied the lessons learned from the soft launch, pick a date for the general release and stick to it. Make sure your start-up has the entirety of the launch process covered across the supply chain. From the product or service components to the fanfare of promotional campaigns that will give your launch top billing across paid, owned and earned media. Anticipate the demand the official launch of your innovation will generate and be ready to meet it.
Staying in control
The spectre of negative cash flow haunts the commercialisation journey of every start-up through the valley of death. But at most stages of the journey, R&D financing — a simple non-dilutionary loan that lets you access your upcoming R&D refund early — is usually an option.
So it’s a good idea to consider Radium Capital’s R&D financing product — the Radium Advance — when you’re commercialising your innovation. Radium Advances are a fast, flexible form of R&D financing that you can access multiple times throughout the year. There’s no limit on the amount you can borrow or the frequency of your loans. And as long you’re eligible to apply for the R&DTI refund, you can apply for a Radium Advance. So contact one of our friendly R&D finance experts today to find out more.
 Lessons at Startup (2021) Latest list of famous failed Australian Startups and Businesses 2019-20 [online] available at: https://www.lessonsatstartup.com/list-of-famous-failed-australian-startups-and-businesses/