I recommend trying something related to varying the chemical composition. If you are concerned purity is going to be an issue try and send one with 99.99% purity and send another with 95% purity. You might be almost certain the 99.99% pure sample will work and the 95% pure will not and then your customer tells you that both are just fine.

I was referring to a situation where you might only have a single chance with a customer to get “a hit.” Your potential customer will invest time and money to see if your product will work for them. Your hope as a potential supplier is that something you make sort of works. This ultimately leads to a courtship where you are sending multiple samples to your customers every month with a hope of getting something to work. You know you are progressing when you get requests for larger samples (hint: be ready to scale up quick). I glossed over this process at a high level, but I wanted to take some time and really get more nuanced on what this process means for the product team and how long it actually takes to get something worth “scaling up.”

The Courtship

The situation of sending samples is the absolute core of what it means to do specialty chemical product development. You are in a 1 to 1 conversation with another business entity. There are likely confidential disclosure agreements, be careful to know if they are 1 way or 2 way (lawyers, please chime in via the comments if you can have a pithy distillation of what that means). Are you protecting the customer’s confidential information? Can share yours? Or are you both protecting each others information? Think of this as a pre-courtship contract.

For a potential customer to take multiple samples from you and to try and find actual value means that they are investing into a potential relationship with you—the supplier. Your customers are typically looking for very specific applications for your samples and thinking about the following quesions:

1. Is there value here for an existing product?

   1. Can I lower my costs on an existing product so that I eke out some % additional margin?

   2. Can I gain performance to an existing product and charge more and capture additional margin?

2. Can this drop in and be a secondary or tertiary supplier for an existing product?

   1. If my primary supplier gets hit by a natural disaster and sends me a force majeure letter can I rely on this supplier (also is this supplier not located in the same area as my current supplier or using a different supply chain)?

      1. Can I play my suppliers off each other to get a better price (see 1(a) above).

3. Can I develop a new product with this thing and stay ahead of regulatory advances?

   1. Europe is planning to ban all tin catalysts OR has already banned dichloromethane, can I use this chemical to revamp my portfolio and be in compliance?

   2. I have to label that Formaldehyde is in all my stuff according to Prop 65 in California and this is annoying can this product help me formulate away formaldehyde?

   3. Can I formulate away PFAS from my durable water resistant coating?

4. Can I develop a category redefining product/process, patent it, and completely change [insert industry here]?

   1. Tie layers enabling multilaminate extrusion.

   2. Water reducers, slump management additives, and curing accelerators to create the category of concrete admixtures.

   3. Cumene process from benzene and propylene makes phenol and acetone affordable and enables bisphenol A, epoxy resins, and polycarbonates to become useful engineering polymers

There might be some more categories than the ones above, but you need to determine which motivation your customer has in mind and adapt to that expectation OR lead them towards the one you think they should be investigating. Mismatching on your expectations and the customer’s here can lead to disastrous downstream effects much like in dating when one person wants to get married, and the other is just looking for a good time.

Let’s think of some examples:

1. You are making poly(hydroxy alkanoates) PHAs, a compostable/marine degradable plastic that is biobased could replace typical petroleum plastics for food packaging such as bottles and containers. The value add that you see here is no more persistent microplastics and a plastic waste free Earth.

   1. A Coca-cola or Pepsi Frito Lay may look at your PHA samples and see slightly worse performance than traditional plastics at a similar or higher price point. It’s really difficult to get alignment on categories 1 and 2, which is the obvious commercial play, so you are hoping they go down categories 3 and 4. Worse, with category 3 you are completely reliant on governments providing the incentive to change and category 4 can take a long time (5+ years).

      1. Do you have time to get this to be profitable?

      2. Danimer Scientific entered into an agreement with Mars Wrigley in March 2021 for a 2 year deal and I’ve heard… not much of anything and it’s February 2025.

2. You are making new chemicals from fermentation technologies that are similar, but not exactly the same stuff that your potential customers are currently using.

   1. Any potential customer for a relatively quick sale is going to place you in categories 1 and 2. Can you work with existing products in the portfolio?

      1. Can you verify for your customers that they can get similar performance with your product prior to sending it to them?

      2. Be ready with a price that is close to expectations of your potential customer and know where you break even or are slightly profitable.

   2. If you are hoping for category 3, can you send examples of your stuff working in a formulation they might use that demonstrates removal of the “bad thing,” and replacement with your thing?

Knowing how and why a customer will use your product is just as important as being able to make your product in a lab or even at scale. If you just want to make cool stuff in a lab and do fundamental research, then academia might be the place for you. If you want to make money in this business, it’s difficult and nowhere near the profit margins of a software business. Your best bet is a 1-2 year process for pure replacement/drop in stuff and 5+ years for category defining products. Remember that even if your customer has great internal results they might still need to send their own samples to their own customers and see if that value proposition has carried through. This can take years.

Finally, when you customers give you feedback (it might take a few months), how can you adjust or fit their needs and how much are those adjustments going to cost you. If someone says, “it worked great, but it was little bit too viscous for us, can you make it a lower viscosity?” Can you even do that and still be profitable or is it as easy as “add some solvent” and you are good to go?

You won’t know till you send the samples.

Tony

PS: If you are successful, you might be able to look like these guys running a manufacturing trial at a customer’s site:

If you are starting to sample customers let me know in the comments if you are having problems or what your experience is like right now.

1. A lab that can become well equipped and know when to invest money in equipment and when to outsource.

2. A collaborative commercial side of the business who understands what it means to be in a lab.

3. A culture that can do the following:

   1. Take enormous risks via spending money on what might be considered “weird” or “crazy” or “out-there” ideas.

   2. Give these ideas time and space to develop.

   3. Be willing to shelve super promising or heavily invested areas.

   4. Be willing to go revisit projects and pick them back up with new people.

   5. Allow for seamless communication between technical, commercial, customers.

These three things to me are the keys to success to chemicals or businesses that are a bit downstream such as packaging, construction products, apparel, and the materials that enable everyday life.

The Lab

Safety

If you want to do “hard tech” or “deep tech” or something involving chemistry, biology, or both then you need a laboratory. This may resemble a commercial kitchen in a lot of ways in that it can be full of danger, experimentation, anger, colorful language, the potential to get stabbed, burned, and exposed to things that could be very harmful to your health. You need people who know how to operate in a lab. If you want an illustration of what it can look like then I refer you to this clip of The Bear from Season 1:

This might seem like a bit of an extreme example, but I’ve seen really bad shit happen in labs. Giant spills of really bad smelly chemicals. Calling a bomb squad in to remove an old bottle of picric acid or ethyl ether. Fires. Explosions. Death. If you’re in a business that is reliant on ideas coming out of a lab then just remember that people can die trying to get “new ideas” that “create shareholder value.” Viewing safety seriously and taking an appropriate amount of time for an experiment are basic things to get right. You don’t want to end up like Roman Roy’s exploding rocket launch because you were trying to speed up the timeline.

Investing in Ideas That Pay Dividend and Compound Growth

Usually, in any established business there are the “holy grail ideas” that if you can just “get this to work” then you are going to win a ton of new business, make a boatload of money for the company, and ensure success for years to come. Even if you can figure out the “holy grail” ideas that everyone wants in the lab you may need to spend a lot of time and money at the plant to actually implement the idea at scale. This might involve millions of dollars of capital expenditure (CAPEX) that could take years. Also, you still need to go through the customer qualification/approval process, and they need to be able to realize that value at a price that works for them.

That “holy grail” even when you can figure it out in the lab might take another 3 years to actually realize any revenues and maybe a few more after that to see big profits. Nothing is fast here. If you think the industry of chemicals and materials is kind of shitty then trust your instincts.

Laboratory research and implementation needs long-term thinking with respect to product development, projection of revenue, thoughtful assessment of costs and profits. A great idea that works in the lab, is patentable, and can be scaled up to pilot and commercial quantities might not be feasible from a profit perspective right now with current raw material or shipping prices. In three years? Maybe.

Just getting to that point of making the decision to shelve a project or scale it up and really try to sell it and launch it to the public is the real success. If you can decide to shelve or launch something based on the lab alone—then from an innovation and product perspective you are successful. The fact that it isn’t marketable or profitable at is the other side of the innovation equation and knowing when to “hold-em” and when to “fold-em” is really difficult.

If you can get 10 successful products where you can make a decision to launch/not launch based on early customer feedback and an excellent view into costing and manufacturing, then you are world class. You need just a few products to break through and grow. You also need enough time for them to grow. Do not expect software like growth here.

Where Sales and Research Meet: Marketing

Accessible Data

Your marketing team are like the headlights for your company as it drives down a dark country road with occasional flashes of bright light in your face. You can have the fastest car (e.g., the best scientists and engineers), but if you can’t see where you are going commercially then you will crash. Your marketing team is essential in finding new and existing markets for your products and providing constraints to the product team in the lab as they develop something new. A new material for Lego that is sustainable, has the right colors, has that satisfying “click,” but smells like a burnt campfire might not be a success. Yes, even how something smells can make or break a product launch.

Having accessible data that straddles both the R&D efforts as well as the marketing efforts are everything. Typically, this information is locked away in someone’s head or best-case scenario it’s locked away in a CRM like Salesforce. The technical people are probably not using Salesforce. Hopefully, your technical people are using something to track their data though and not random spreadsheets and paper lab notebooks. Knowing the efforts around a specific product development area from 6 months ago or 5 years ago and why you did or did not launch a product is a literal superpower for a company, start-up or established. I’ve personally gone through unorganized servers with just folders of files with random names to look for why a specific technical project never succeeded. I usually never found the reason.

If your technical team and sales & marketing teams are going to communicate, I hope they use software platforms that can collaborate. Having accessible technical data can allow you to build complex models that reduce your time in the lab. Pair that data with an excellent map of the markets you are trying to sell into (e.g., automotive coatings) that includes customers, preferred packaging, preferred specifications, spot prices, and any sort of “voice of the customer” data you can get, and you are going to be a world class organization. It sounds dumb and simple, but it’s surprising how often this stuff is not taken seriously.

In order to do this, you need marketing professionals who are 1) good at marketing 2) can talk to the technical team in technical language and 3) can communicate up to the executive team while potentially also managing projects. I don’t think you necessarily need MBAs or PhDs in these roles either.

Structuring Your Teams

The most common structure to any company’s internal product development team usually as the following:

1. Sales + Marketing reporting to CEO or CCO

2. Technical/R&D reporting to specific P&L leader who reports to the CEO or maybe the CTO.

3. Engineering / Manufacturing reporting to a CEO or COO

4. Regulatory Compliance/Product Stewardship reporting to a CEO/COO

5. Finance reporting to the CFO

I call out the potential executives above to highlight how you can have the multiple silo effect in part driven by the executives themselves. You could have 5 executives!

In the end, everyone just reports to the shareholders. Ideally, you would have a team across sales/marketing, technical, finance, regulatory (EPA), and manufacturing that will enable better communication. Your new product that could change the world might need $10 million in CAPEX and a 5-year time horizon to get built if permitting is perfect. It should be obvious that someone from the finance team can account for the product actually being profitable after all of that CAPEX and time to develop, but that isn’t necessarily the case. I’ve seen plenty of products get launched/maintained/sold where every sale costs the company money. Imagine working on something for 5 years and find out that it was never profitable.

We can’t get spent time back. Knowing as much as you can as early as you can and getting the right information to the right people is also a superpower. Accurate costing of your products is a superpower. Your innovation team needs people from all of these areas to be in constant contact. Usually, it’s the product manager who runs the team, but really it should be a technical project manager unless you want your product managers to burn out and quit (I’ve seen that happen too).

The sales, regulatory, and finance people have a lot of value to add during the innovation process. They need to be included early and often.

The Culture

If you have everything above, then you’ve got the right setting for establishing a high-performance culture. Your teams will know how to assess “a crazy idea” and really understand if it’s crazy or actually relatively risk free. If that crazy idea doesn’t pan out, then you’ve got a record of trying it and why it didn’t work. This “failure” can be your basis for the next success. Having all of the information easily accessible and documented, while a potential IP theft risk, also provides an easy way for cross-functional teams to communicate in their own languages. Chemists can have structures, sales teams can have customer needs/wants, marketing can have total addressable market, the regulatory team can have an opinion on when to file a pre-manufacturing notice or if one is even needed, and the finance person can know the actual gross margin before anything is launched and how many units to payoff your new piece of equipment.

Getting the culture of innovation is hard because it requires more than just technical excellence. Having a great technical team is good for publishing papers or doing basic research, but if you want to be a successful business that has innovative products you need the people that work within your company to actually talk to each other. Ideally, they actually like each other too.

If your finance team wants to cut the R&D budget to save 0.5% of revenue and temporarily boost profits and has no opinions on what types of products need to get developed, then you are probably working for shareholders who really value the private equity business model of managing a decaying business.

Get to a place with a culture of innovation and bail on the zombies.

Tony

That’s because most companies are already so lean that they cannot devote additional time to projects that might not pay off after a few months of work. This is one effect of Modern R&D Being Technical Service. Investment into big new products that might cost millions if they don’t work are often bets that feel too risky for chemical industry shareholders. The choice that the industry has broadly made over the last few decades has been one of trading risk for predictable free cash flow.

At a minimum this means that the industry at large is vulnerable to disruption, but only if you know why customers switch to new suppliers for their raw materials. Everything always goes back to price eventually and those prices can be real and measured in dollars or euros or they can be more existential such as carbon emissions.

If you are doing value added product development or working on innovating that next big thing, how do you go about selling into a market where everyone just wants stuff to be cheaper?

You Will Save Money

We can think about this from a few different directions and ultimately we end up saving money or cutting costs.

Cutting Costs With A New Alternative

Let’s start with the classic Nylon 6,6 use case where up all stocking and parachutes were made from high quality silk fibers derived from silk worms. If you’ve ever bought silk clothing you know how expensive that stuff can be, but the invention of Nylon allowed for this new synthetic alternative to supplant biobased silk fibers for not only parachutes and stockings, but helped unlock the “plastics age,'“ in which we are still existing.

The reason why Nylon worked is because it delivered enough strength to weight at a lower total cost than silk fiber. In a word—deflation. Sure, it’s also a story of synthetic polymer chemistry innovation delivering something new and very useful to the public at large, especially during WWII, but what about when there’s already a very useful polymer in existence?

Value Added = Lower Long Term Cost

Polymer chemists at DuPont eventually thought about, “well, if we can make Nylon from adipic acid and hexamethylene diamine, what about aromatic monomers?” This is how we got what is commercially known as Kevlar. Polymerization and processing of aromatic polyamides (shorthand name is Aramid) to yield brand name polymers like Kevlar and Nomex was non-trivial, but the value they presented was a bit like a superhero of thermoplastics. Aramids have higher heat resistance, are more durable, chemically resistant, and are more fire retardant than regular aliphatic nylons. Aramids are essentially Superman in a lot of ways.

Eventually Kevlar started to become synonymous with protective equipment and that brand security started in the 1970s. Here are two examples of cut resistant gloves from Uline:

1. Kevlar gloves are $11 per pair.

2. Dyneema gloves are $13 per pair

Dyneema is slightly more expensive than Kevlar, but that $2 is a promise of longevity and better performance over a longer period of time. The $2 dollars is worth it if your gloves last twice as long or longer. Dyneema is ultra high molecular weight polyethylene (thanks catalysis) and the really long polyethylene chains enable some of the properties that Kevlar has with much less raw material cost. Dyneema and Kevlar were both invented within a few years of each other. Dyneema didn’t become commercially available until the 1990s while Kevlar became a household name in protective clothing, but if Kevlar is Superman then it has a Kryptonite—water.

Polyamides and aramids derive a lot of their strength from abundant hydrogen bonding—specifically between the amide groups. Thus, one polymer chain in a polyamide strengthens its neighbor. Another molecule that is great at hydrogen bonding with itself, water, can infiltrate polyamides and disrupt the hydrogen bonding between the polymers by inserting itself and reducing that polymer-polymer interaction. This is why the majority of body armor comprised of Kevlar is actually encased in polyethylene too.

It took decades for Dyneema and Kevlar to become the brands that represent their respective synthetic polymers and for their uses to become widespread. Now, it’s hard to think of life without them.

Alternative Feedstock Products = Lower Costs

Right now, synthetic biology is having a moment as it did a couple of decades ago and I can’t tell if the bubble has deflated or if it’s just getting started. Either way, the product in this space will ultimately be the microbes and enzymes that can perform chemical reactions on non-petroleum feedstocks that in theory should cost less than petroleum.

This type of product development might be the riskiest. It’s about developing the tools to enable need feedstocks that are petroleum alternatives. Enzymes are nature’s catalysts so we can view their development similar to how we might think about catalysts to make Dyneema where we can make whole new types of polymers. We can also think of enzymes as catalysts that can perform similar chemical reactions to traditional organic chemistry, but at a fraction of the energy input. If you are a chemical company in Europe and you went through the national gas emergency then the concept of energy might not be available is likely still seared into your mind. Production of chemicals with minimal energy input sounds like a dream, but I think it’s becoming a reality now. It’s been decades in the making.

Microbial fermentation of chemicals from stuff like carbon dioxide, sugar, or plant oils might be the way forward, but it’s definitely a tricky proposition. Amyris, maybe the best success story we have right now is still facing some trouble getting to profitability. Their final pivot towards fine chemicals (e.g., personal care chemicals or sometimes pharma starting materials) was the right move as it allowed them to stop competing with companies like Neste and Shell. The biggest issue in my mind around microbial fermentation is that while costs to ferment the target molecule might be low getting it to an acceptable purity at a low enough cost (downstream processing) and producing it at scale is the challenge.

Downstream processing has been one major roadblock for poly(hydroxyalkanoates) or PHAs from getting to market. I wrote about Bioextrax’s process of using biology to assist the downstream processing of PHA microbes last year and they recently went public. I would be interested in hearing about any other start-ups out there using biological means to downstream process their target molecules as opposed to extractions with solvents (hey, we all need solvents sometimes).

I expect the space of microbial fermentation and enzyme catalysis to be a bit brutal in the coming years. We already saw the downfall of Zymergen and Ginkgo looks weak. I wrote about some of the challenges that these companies might have in entering the petrochemical space last week.

In the end the true value I want to see in this space is deflation of costs. If you can ferment X chemical at 20% less in total cost than it’s petroleum route and/or produce it from biomass with catalysis at 20% less than it’s incumbent process then you ultimately win. You get to take advantage of that pricing mismatch and generate bigger margins than everyone else until the rest of the market catches up (if they ever get there). Talk about shareholder value.

Conclusion

The way you know a product is going to be successful is to ultimately look at how deflationary it is to the end customer. This can either be done primarily in three ways:

1. Reducing real costs

2. Providing enough value with marginal markup that reduces long term costs

3. Coming up with a new thing that completely changes the paradigm

If you cannot speak to your product doing these things than you better hope you are solving a big regulatory challenge that will happen in the future and hope that regulatory change happens sooner than later.

Show me the money.

Tony

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If I knew I probably wouldn’t be writing this newsletter, but it’s a good question to ponder. I suspect that there are some ways that are ineffectual at capturing magic, at least in chemistry, and it's when there is a lack of constraint. When that person is asking you to invent that NEXT thing that no one else has and everyone will want/need. Hopefully, they are paying you market or above market rate here too, but how would you know? I digress. Anyways, when that person asks you to deliver this you need to ask this question:

What are the constraints?

If they are not ready to deliver on those constraints right then and there they are:

1. Unprepared

2. Have little to no understanding of how this process actually works

The worst thing they could say would be, “I don’t want to limit your creativity. Anything is on the table.”

This is bad for numerous reasons, but the primary one would be that there are too many options. When someone doesn’t have constraints it means they haven’t done their homework and without constraints there are no problems to solve. When someone doesn’t provide you with constraints it means they want you to come up with them and trying to create in a vast open white space is super difficult. Jack White waxes poetic about this for awhile in the documentary, “Under The Great White Northern Lights.”

Ideal Scenario(s) Of Constraint

Now, if you are in that same meeting and the person tells you this:

I’d like to create a snap curing thermosetting resin that is emission free, can be processed with vacuum assisted resin transfer molding at relatively high temperatures, finishes curing in under 10 minutes once fully molded, and only costs 30% more than the current best epoxy or polyurethane system. If this product isn’t possible to manufacture with current assets we can probably figure out how to build it since if successful this means we’ve completely revolutionized composite manufacturing. You have five years to get to market.

That level of constraint isn’t bad. I’ll list it out:

1. We know it’s a thermosetting resin that is emission free. Any addition polymerization could be possible as long as one monomer can react 3 times and the other a minimum of 2

2. We know temperature plays a role and the system cannot be too reactive

3. We understand who our potential customers might be—vacuum assisted resin transfer molding customers and likely other composite manufacturers.

4. We know that going outside of the internal manufacturing grid is possible, but it’s still going to be ideal to stay inside current capacities.

5. We have a constraint around price—30% markup against whatever the best benchmark is right now

   1. It could be too low or too high, but better to pick something. I once knew of a product that cost more than what it sold for (epic miscommunication failure) and it was difficult to sell!

6. With both manufacturing capacity understanding and/or going for tolling or investing in upgrading or building new capacity it becomes relatively easy to figure out

   1. Time to payback of any CAPEX at potential margins once a technical solution has been identified

   2. Theoretical maximum cost from a tolling/contract manufacturer

7. We have about 2-3 years of actual technical development time

   1. Maybe 1 year for finding a “hit” or something viable in the lab

   2. 1-2 years for customer trialing with your hit and understanding if it’s viable to manufacture and potentially tweaking in the lab to better fit customer needs

   3. 1-2 years for scale-up and big customer trials and validation by your customer (maybe pulling the trigger on investing in CAPEX here)

   4. 0-2 years for finalizing CAPEX investments, getting regulatory clearance, securing your raw material supply chain

With constraints in place we can probably guess as to what monomers might be commercially viable AND if we have to make our own monomers, catalysts, or bespoke processes we know what our theoretical maximum costs are upfront. There are very few options, lots of problems to overcome, and sometimes there are situations where you have two technical things that are in opposition that need to not be in opposition. This is the area where talking to your in-house patent lawyers and knowing the rules of how to deal with IP sensitive materials is important.

With constraints we also understand the timeline. Knowing that we have 5 years to commercialize we can back calculate everything else and you should quickly understand how feasible it is to deliver in time. Sure, you can stack some things in parallel, but spending a solid 8-16 hours with your cross-functional team in MS Project building a Gantt chart in the beginning is going to be a great use of time and you’ll always have a document to reference. Shit, hire someone to just spend all their time making sure things get done on time—it’s called project management.

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Constraints Let You Know What’s Possible

Sometimes a new MBA hire as a product manager or marketing manager might try and push some aggressive timeline to impress their boss and will come up with constraints that just are not possible. Guess what you get to tell this person.

Sorry, this isn’t possible. I can give you a detailed response as to why it isn’t and why you are wasting our time.

I don’t think we say this enough or perhaps we are too afraid. Life is too fucking short to waste years of our time on stuff we know will not work. If someone says, “well how do you know if you don’t try,” you can tell them they can get in the lab and figure it out and report back. An executive’s goal for a chemicals product team should be to find people who are:

1. Know the business and the markets

2. Admit they don’t know enough and ask for more information until they are #1

In summary, no constraints is bad because there are too many answers and indicates the person doesn’t necessarily know the business. Too aggressive of constraints (usually too short of a timeline) is bad because it indicates the person doesn’t know the business. Your best bet is to inform them of their error. If they get offended then just point them to this newsletter. Something in the middle is ideal and even then your chances of success are not guaranteed. It’s important keep trying.

Tony

If you are a product manager who deals with costing on a regular basis then you’ve likely run into the issue of “the cost of these materials in SAP are wrong.” Costing is so important to get right because it determines your pricing and the profitability of your company. Knowing the true cost is everything.

A good way to tell if you are in the specialty chemicals business versus commodity chemicals is knowing your pricing model. Commodities generally utilize a cost plus model, if it costs us $1.00 to make a pound of product then you might price it at $1.30 to capture a 30% mark up and a 23% gross margin [($1.30 - $1.00)/$1.30]. The sales and general administrative (SG&A) costs then get taken out after that sale is realized as well as R&D costs (tax deductible usually) and more. Maybe a net profit of 15% gets realized. If that $1.00 initial cost is wrong, then the 15% of net profit could be lower or even negative. Specialty chemicals can typically charge a flat 50% or higher margin on their products because the buyer is paying for either specialized performance or is prohibited due to patents on the technology. Cost plus pricing doesn’t really play in specialties and its why that business is so good and why others want to enter.

Over the last 12 months we have seen price inflation for numerous reasons such as higher crude oil prices, shipping prices, energy prices, demand and this has pushed costs up for everyone. In order to keep those increased costs from destroying margins companies have to raise prices. This is one driver of inflation, but some of the inputs to these higher prices are softening. Getting visibility into how and where cost increases are coming from can be difficult to pinpoint as can the solutions to reducing costs. This is because when it comes to costing it’s kind of like a game of hot potato.

You might be thinking, “it’s the responsibility of sales and/or marketing to know the costs and profit margins,” but the reality is more complex. True raw material pricing and costs actually are the responsibility of procurement teams who typically negotiate the pricing contracts or determine which index raw material pricing will be set against. If for instance your company buys actual boatloads of polyethylene your prices are going to be indexed to ethylene pricing. Who sets the index?

ICIS or IHS Markit (now part of S&P) are two examples of companies that set these indices and when they report the price of ethylene moving you either save money or have to spend more. Essentially, these two companies report pricing indexes on raw materials and have incredible sway when it comes to raw material costs. While the procurement team might know the high level details they are often not the ones actually buying the raw materials.

It’s actually the “buyers” at the manufacturing locations who know the full cost because they are the ones cutting the checks. If you are in sales and you are selling to factories you want to know who the buyers are in those plants. Actual changes in pricing need to be communicated from the buyers to the procurement team who then often need to communicate this to marketing who can communicate what the price increase/decrease should be to their sales team who then communicate that to the customer. To make things even more complex this pricing needs to somehow get accurately reflected to the finance team so that quarterly earnings are actually accurate. This whole convoluted scenario is just what happens for a product that is already commercialized and being sold. Things get worse when trying to develop something new.

In developing any new product, being able to accurately provide a cost is like trying to thread a needle on a roller coaster. In an ideal world your marketing team knows enough about your end market that they can back calculate the absolute highest cost possible to the technical team. Knowing the boundaries of what your costs have to be is critical and any project where someone says, “oh we don’t want to put boundaries on you” should be considered suspicious.

Boundaries are how people come up with creative solutions to problems. If the product can only cost “X” in order to yield “Y” sale price then figuring that out early and starting from there can help determine if a project is even worth starting. If the technical team says, “not possible at X, but maybe at X+Z to get Y” then that is a conversation worth having early and often. Any disconnect early on just gets worse the longer it goes on and is not a problem you want to have during the launch of a new product.

I’ve seen products with such bad costing information that the company actually lost money on every sale (this has happened more than once in more than one place). When it comes to how prices and costs get communicated I believe it is rare to find someone willing to meet with all of the internal and external functional groups and facilitate the cross-functional communication.

If you can accurately cost something then you can determine pricing and realize profits—a fundamental principle when operating a business. When supply chains tangle or energy prices sky rocket that superpower of being able to know where those increases originate and how to either a) pass those costs on or b) mitigate the impact can be the difference between ensuring everyone having a job in a year or getting a bonus.

Knowing exactly how much it costs to run a reactor for an extra hour or how much more energy it costs to operate at 200 versus 125 Celsius sets up really easy to define cost savings projects. Getting operations to be lean and in fighting shape is just the first step and essential to the trickiest: growing on new products while still maintaining current business.

More on that hopefully next month. If you’ve got an amusing costing story or are frustrated by the whole process let me know in the comments.

Tony

This last weekend I spent a lot of time thinking about product management and what makes a successful product manager in industries where chemicals and materials are the products. The product manager is arguably the most important position within a modern company. These people have their finger on the pulse of the market, communicate up to the executive team and across the organization, and guide the technical teams. It’s strange that one person should hold so much responsibility within a company, but it makes sense when you organize a company around the products that are sold.

Product managers are the chief executive officers of their products. They often coordinate and facilitate the collaboration of other product teams and often function as a project manager when that role is not formally filled. Product managers are often responsible for helping to set pricing and understand costing of products as well as technically competent enough to know the difficulty of what is being asked of the technical team. Product success and failure is often hung on the product managers.

When I think about the best product managers I’ve worked with they have always combined technical knowledge, project management, and the ability to win the trust of internal stakeholders and customers. I think the best product managers somehow see the whole picture through all of the different lenses of the functions within a company. They know the challenges that the other departments face and they can anticipate those challenges.

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I think the best way to get a product manager is to guide a scientist or engineer down this path of gradually taking on more and more responsibilities of marketing and talking with customers. As a scientist you might be doing a lot, such as developing the product, testing it, helping to scale it up, developing the new quality tests to be run, and taking it out to the customers to trial it. A scientist already sees the technical portion of the picture and just needs some training on how to see the commercial side. I think this is somewhat of the non-traditional route for a product manager to take, but in my experience it is the best.

Alternatively, the technical can be taught to a business school graduate and seems to be the traditional route that most companies would like to be followed. I’m not saying that this is wrong, but I believe it is more difficult to find a product manager willing to spend their time in chemicals when they could go anywhere else. How many Harvard or Stanford MBA graduates want to go into the chemical industry?

I think it’s easier to teach a scientist or engineer the business side than it is to teach a business person the science or engineering. Granted, you need to find a suitable person to do that, which isn’t always the easiest thing to do, but once you do then hold on to them for as long as possible.

Tony

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Hey, you made it to the end. This one was a bit shorter than normal. That’s how it goes I guess. This 2x a week publishing cadence is intense. I’m not sure how much longer I can keep it up, but doing shorter things like this feels right and sustainable. This sort of end note that I’m writing here is fun too. I can just kinda write down in the margin at the bottom of the page.

I recently finished watching The Bear, which takes place in a kitchen, and it reminded me of my experience of being in graduate school. This part in particular for me at least:

And I got the shit kicked outta me. And I separated herbs and I shucked oysters and clams and uni. And I cut myself, and I got garlic and onions and peppers in my fingernails and in my eyes, and my skin was dry and oily at the same time. I had calluses on my fingers from the knives, and my stomach was fսckеd, and it was... everything. And a couple years later, this funny thing happened which is like... for the first time in my life I-I started to find this, uh, this station for myself. And I was fast. I wasn't afraid. And it was clear, and I-I felt... I felt okay, you know. I knew which vegetables went together, proteins, temperature, sauces, all that shit. And when somebody new came into the restaurant to stage, I'd look at them like they were competition, like I'm gonna smoke this mοthеr fսckеr. I felt like I could speak through the food, like I could communicate through creativity.

And the more he wouldn't respond, and the more our relationship... kinda strained, the deeper into this I went and the better I got. And the more people I cut out, the quieter my life got. And the routine of the kitchen was so... consistent and exacting and busy and hard and alive, and I lost track of time and he died

I think it’s easy in graduate school to go deep in the lab. To lose yourself to the work and the quiet and the hum of the instruments in the background. Working early on Saturday because no one else is there. I definitely did it for awhile and I pulled out after a year. Just, don’t lose track of time in there and don’t work alone. It’s not safe.

This might be somewhat polarizing, but for the majority of chemical companies and related downstream companies R&D is a support function focused on maintaining cash flow and supporting sales to win new business. This may run counter to what many believe and I do believe that cutting edge, envelope pushing R&D exists at start-ups and some large chemical companies, but it’s never the full amount we might think when we look at a balance sheet.

The thing is R&D is a tax advantaged line item. Companies might target 3% of their revenue to go towards R&D and the story is that this money is being used to create growth. Some of that money does go to new product development, but the majority of it is just as a support function. Tax advantaged SG&A if you will.

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If you know any scientists at big companies or even small companies with mature products ask them what they spend a lot of their time on. I bet many of them might say something to the effect of:

Well, I usually start of my day by handling a bunch of emails, doing some meetings, maybe I’ll go in the lab to work on troubleshooting some problems from the field. I’m working on some lower cost raw materials substitutions right now and I’ve got a green belt project I need to finish on making XYZ product more efficient. I’ve also got this growth project, but it’s not the majority of my time.

This is because when it comes time to report financial results to shareholders they are primarily concerned with revenue, volume, and profitability. Why take a risk on growth that might never materialize when you can make a slightly better product that might get one more customer at a slightly better margin? To quote Pacino in Any Given Sunday:

This is a game of inches

Shaving a few percentage points of cost off a raw material can have big cost savings at scale. A new product that is just slightly better than the current product might command a bit more profitability, gain additional sales, or it costs just a bit less to manufacture. Instead of spending 100% of R&D on big world changing research companies have decided the majority of this money should be spent on keeping the business running. If you are a securities analyst think about how that R&D money is spent and why.

Back in the day chemicals and plastics were the growth game and the companies that produced them were the growth companies, but things matured in the 1970s. Tsung Xu captures this well via production capacity growth in “A New Materials Paradigm is overdue”:

The early 20th century saw a veritable Cambrian Explosion of materials. Synthetic polymer production doubled every 2.5 years (at 31% CAGR) between 1911 and 1950 from 45 tons to 1.5 million tons. As their usage grew, costs came down and quality improved in a flywheel effect that opened up even larger markets. Note that since 1950, production has slowed down almost every decade. The 1950s saw a CAGR of 18.2%, whereas in the 2010s, it was 4.4% off a base that is two orders of magnitudes higher.

The markets where synthetic polymers and specialty chemicals could play got saturated. The productivity gains that these materials and chemicals promised were realized. Race to the bottom on costs then begins and this is the beginning of entrenchment and being beholden to your manufacturing capacity.

The reason synthetic polymers took off so quickly was because they were fixing needs that people didn’t think was possible. Replacing silk with nylon was huge. Replacing natural rubber with synthetic rubber was huge. Replacing polyester with a slightly better polyester? Meh. Eventually, spending a bunch of money on R&D to come up with growth products wasn’t as sure of a bet as it once was and we started to see declines in corporate R&D. Maybe the biggest indication of this was DuPont closing their central research division per Alex Tullo in C&EN:

DuPont Central R&D is one of the world’s oldest and most venerable corporate research organizations and has often been compared to the former Bell Labs. DuPont plunged into centralized, fundamental R&D in the 1920s under the guidance of Research Director Charles M. A. Stine. Stine hired Wallace H. Carothers away from Harvard University in 1928. Carothers’s work at DuPont would lead to neoprene and nylon.

DuPont’s labs even spawned a Nobel Laureate. DuPont chemist Charles J. Pedersen shared the 1987 Nobel Prize in Chemistry with Donald J. Cram and Jean-Marie Lehn for work in synthesizing macrocyclic polyethers, also known as crown ethers.

The layoffs at DuPont, which is a completely different company now, would take place between Christmas and New Years of 2015 in an effort to save $700 million. Alex Tullo for C&EN reported the story:

DuPont was vilified by many in the chemistry community for the maneuver, which was seen as a capitulation to Wall Street’s lust for short-term profits and a triumph of the suits over the lab coats. DuPont, many said, was eating the seed corn that would lead to tomorrow’s breakthrough products.

“Kevlar, to my understanding, took 20 years to get from the red to the black,” says Andrew Feiring, a chemist who was with CR&D from 1974 to 2006. “Wall Street just isn’t going to stand for that sort of thing today.”

The demise of CR&D may have been abrupt, but an astute company watcher might have seen it coming. Over the past two decades, CR&D has been evolving away from the exploratory research for which it is best known and toward science that addresses perceived needs of businesses such as electronic materials and industrial biotechnology.

I want to reiterate that last line from Tullo’s reporting because it gets to the heart of where large chemical companies have been going. R&D is there to address the needs of the business. That’s it. Support the business.

The idea that some corporate scientists in a lab could spend years working on basic research is for the most part gone (at least here in the US). Projects are either going to be supporting the business by defending existing business, tweaking an existing product to get new business, or cutting costs to make current business just a little bit more profitable. If you want to become a good project/product manager I think going up through a corporate R&D function is a good idea. If you want to work on cutting edge science it’s going to be “in your free time.” I think some European companies such as BASF or Evonik are still set-up to do long term basic research mainly because of labor laws which make it difficult to get rid of people.

I suspect that our current technology companies may also be going through the beginnings of this change as their products mature. Perhaps companies that are wholly composed of doing business in “bits” will get displaced by new entrants while those who have a footprint in the “atoms” will be harder to replace. It’s why I think we will still be using iPhones in twenty years, but perhaps Facebook will become synonymous with Geocities in the same time frame. It’s easier to scale bits and it’s more difficult to scale and/or replace atoms unless there are huge productivity gains.

Value Pull Through

If you are working on innovative new products and materials you might hear the phrase “value pull through.” If you haven’t heard it yet you should use it in your next meeting. You’re gonna sound smart.

This concept revolves around coming up with a new product, something that is marginally better than what you have now, and then figuring out how to use this product in customer applications. This happens in the coatings world all the time. If you are a raw material supplier to someone like Behr or PPG and you have a new material that could go into exterior architectural paint then you need to formulate and do the application testing yourself. You need to show value in the customer’s application with a sample formulation that you made with performance results tested against a few standards (ASTM, DIN, ISO, etc.). MAYBE your potential customer will take a sample of your product and test it themselves and if they find value they might start a project.

Another way to do this is to do all of your own application testing and then show your customer’s customer your data. Your customer’s customer gets excited and then asks their supplier, “hey, I need a product with this stuff.” Remember when I wrote that R&D supports the business?

Doing what your customers want is supporting the business. Predicting what your customers want is the job of marketing. Coming up with some new thing because you can do it does’t matter. Knowing how you’re going to make it, who you are going to sell it to, and how much more money you can make is what is important. Your job is to keep your plant full and make sure the margins get better. Everything in corporate R&D is about keeping your plant full and improving margins.

Chances are that if you are in corporate R&D a small portion of your time is dedicated to actual growth projects and the rest of your time is spent on technical service projects. Of the two large corporate R&D places (I’ve also been in small family run chemical company) where I’ve worked the system that kept track of project work had the words “Technical Service” in the title. If you are in corporate R&D you are in business of technical service.

If you are at a start-up then 100% of your time is spent on products aimed at growth because your company has no revenue.

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Products Of The Future

When I think about synthetic polymers or modern materials I think about the inputs:

1. Crude Oil

2. Energy

Crude oil is how most of our synthetic polymers get made. Energy is what we used to distill, crack, and transform portions of crude oil into the synthetic polymers. Both of these inputs have variable costs, but the first is getting more scarce and the second is becoming more dangerous to produce through our traditional routes. This is why Dow is thinking about building a nuclear plant. Matt Blois for C&EN reported on the story and a key portion of it is here:

Dow and Shell are also testing electric cracking furnaces that could run on renewable power. Robert Kumpf, who focuses on the chemical industry as an executive at the consulting firm Deloitte, says such electric furnaces would operate 24 h a day, making it difficult to use intermittent energy sources like wind or solar. In contrast, nuclear power is available continuously.

Solar and wind with sufficient energy storage could also work, but I think we are still a few years away from having enough grid storage to meet this type of demand. It’s going to take some time for grid storage to be considered “good enough” to support business critical manufacturing capacity.

The other route in energy is to decrease the amount of energy that is needed. Catalysis (enzymatic, inorganic, and organometallic) will play a critical role in reducing total energy needed to transform chemicals and raw materials. I’ve written about this at length, but you can read about it here and here through the lens of start-ups.

Changing energy sources (away from natural gas or coal) and reducing overall needed energy is where we need to go and off-the-shelf solutions will get implemented first by large corporations. Start-ups will look to commercialize the riskier bets, but also stand to gain enormously from those gains if successful. If a start-up can produce XYZ monomer from crude oil with 50% less energy then there is an immediate cost savings that the company gets to capture as profit.

Another way to cost savings is to cut oil out from the supply chain. I’ve written about this concept here, but if the price of oil is $90/barrel and an equivalent volume of biomass is half the price or way lower the cost savings should start to become apparent. If the chemical/material from this cheaper raw material source is something that is currently made from crude oil then there is a big margin gain that is realized.

Synthetic biology might also hold promise here in utilizing both non-crude oil raw materials and low energy inputs. I’m betting that Danimer Scientific can commercialize PHAs into useful products, but operating in this space is tough because to bring that material to market Danimer needs to show tremendous value. If successful, Danimer will be utilizing both biomass and low energy inputs to displace something like polyethylene. If they can figure out the right path to profitability? 🚀

If you go into a room of investors and pitch your idea about how to save the world without telling them how you are going to make them a shitload of money it is not an investment you are pitching. It’s a charity. I think this is often what environmentalists get wrong (they are mostly half right). The best change engine we’ve figured out so far as a species is capitalism.

It’s tough for a large corporation to make risky bets under “R&D.” I suspect it has to do with financialization and a bunch of people with MBAs making Powerpoint decks and pivot tables in Excel. At best, true R&D is having about 70-80% of your chip stack in the pot on the flop in a game of no-limit hold-em' and you are still holding a pair of sixes with A, K, 7 showing on the table. To stay in the game you have to bet the last half of your remaining money.

Call and see the next card or fold and wait for a better hand?

Tony

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We are at our best when we work together. The Beatles are a great example of four different people coming together to make some amazing music. Making new chemical products is no different and often involves a cast of characters more diverse than you might find in a band. Even if you are the best chemist in the world with something that will change XYZ for the better, you cannot commercialize your ideas without a solid team behind and/or out front of you implementing your ideas or making them better.

When I interviewed Boudewijn Van Lent about getting to the top of the proverbial career ladder one of his two pieces of advice was to be a great team player: 

The final piece of advice was that being a team player is important. This might sound cliché, but if you are the person who makes every team better either through your ability to motivate, bring out the creativity of others, or that can enhance communication then this is very valuable. You can be the most talented chemist in the company, but if you can’t function in a team then it doesn’t really matter. Companies are like sports teams and the higher quality team [almost] always wins.

Doing and being a good researcher is different from being good at developing and commercializing products that make an impact on the world. The chemical industry is a mature industry and the majority of chemists out there will likely be doing a bit of everyone else’s job if they want to be effective. This is primarily due to chemical companies operating on a bare minimum of people. 

If you are going into the chemical industry as a chemist or something that is somewhat adjacent here are all the functions you need to help you do your job and why they are important.

Sourcing + Supply Chain

So, you want to make a new chemical product using interesting raw materials and you want to go after new customers and new markets with your innovation skills. Raw materials do not just magically appear though, especially at scale, and the sourcing team is often constantly looking for better prices on existing raw materials as well sourcing new raw materials and companies that could make what you need to develop that next great product. 

Sourcing teams are often not technical though so as the scientist or engineer doing the product development you often need to provide guidance to your sourcing team as well as sit in on meetings or calls with potential suppliers. Part of your day to day job might involve testing and approving new suppliers for existing raw materials and this is helping your sourcing team become successful in their job. 

There is a give and take with your sourcing team. You need to both support them and at times fill in for them with suppliers when they might be busy dealing with a force majeure crisis. If your company has $300-500 million in yearly revenue you might have 2-4 sourcing professionals supporting your entire business. These are your points of contact to your suppliers and contract manufacturers. 

The supply chain team is complementary to the sourcing team. They are forecasting the current demand for raw materials as well as finished goods. They might be doing the master scheduling for the network of manufacturing sites that produce your goods and getting the things you need ordered. On any sort of new product development project they are the ones ensuring that you not only have enough space for this new stuff, but that once it's commercial you are producing enough. 

Marketing + Sales

Before I started working as a professional chemist my concept of marketing was skewed towards thinking that marketers were a modern version of Don Draper. 

In reality your marketing team is often supporting and translating what your sales team is seeing with their customers to needs and wants of the market and how much the market might be willing to pay for your product. There are often two distinct roles in a marketing department, product manager and marketing manager and I believe we are headed towards mostly just having product managers. 

A good product manager will have their finger on the pulse of their market as well as understanding the next 3-6 months of obstacles headed their way and the next 3-5 years of what products need to get developed. They might be enlisting the help of advertising agencies to help market your products or technologies and they might be working with the sales team to set the prices and margins of the products that you develop. The more profitable you are the better off the whole company is and this is why they might get paid “the big bucks.”

The sales team might look completely different depending on where you are in the spectrum of chemical companies. If you are closer to oil and gas you might have a few account managers that manage the relationships with your big customers and distributors. If you are further downstream towards the end consumer of the product your sales team might be calling on that final distribution network such as Home Depot or Walmart. You think super glue sells itself?

Your marketing and sales team is often non-technical. Their skill set often revolves around being good at talking to people, building relationships, and selling. The product that you develop is often shaped by what your sales and marketing team tell you. They might propose that customers really need fire resistance without using phosphate ester fire retardants because people are afraid of bioaccumulation (also, perchlorinated biphenyls are bad too). They are the ones telling your executive team that if you can develop X product then they will bring in Y dollars. 

If your sales and marketing team is super lean you might be going to customers and asking them what they want. You might be figuring out how much your product costs to see if a 30-50% margin might be possible. You might be selling your potential customers on why they should try your new polymer or surfactant in their formulation and what sort of value they will be getting over your competitor.

Manufacturing + Engineering

So, you’ve got your product prototype developed. You know that it’s going to make Y dollars if you can produce it and your sales team has customers trialing samples. It’s likely time to scale up and this is when you need to rely on your manufacturing team and the capital project engineers that make your products a reality.

I’m using manufacturing here, but it’s really a broad term that might encompass process engineers, operators, scheduling, and quality control to name a few different functions. These are the people that keep your plants producing and when it comes time to take your product from the laboratory to the plant they are the ones that will be making it for you. As the product developer you will be working on the plant’s schedule for your first manufacturing trial and this might mean at 2 AM on a Saturday morning or 7 PM on a Tuesday night to see your first scale-up occur.

Manufacturing teams often want as much figured out as possible before they run the first manufacturing trial. They are often dealing with larger quantities than have ever been used before and the focus on safety should never be minimized. Just because something works at 100 milliliters in a lab doesn’t necessarily mean it’s going to work in a 55 gallon drum pilot reactor much less a 10,000 gallon reactor. This is why a good product development team will have at least one chemical engineer assisting the product development process to ensure it’s viable for your plants. 

If you don’t have a chemical engineer and you are just a regular chemist  you might be running the experiments 

Product Stewardship + Environmental Health And Safety + Legal

The product stewards are the people who get your safety data sheet together in the event you need to ship a new chemical. The EH&S people are there to try and limit the harm that can be done to you, that you can do to yourself, that you can do to others, and the environment throughout your daily job. The legal team, usually consisting of a few very busy in-house lawyers, paralegals, and maybe even a patent agent, are trying to make sure your confidential disclosure agreements are in place with suppliers and customers, that your intellectual property is protected and that you are not infringing on others, and that you are staying on the right side of the law. 

If this team is doing their job well it’s smooth sailing even in the event that your plant has an uncontrolled chemical release. If you want to protect your intellectual property, get a chemical registered with the EPA, or bring in a new chemical/raw material to your manufacturing location then you are going to need to rely heavily on this team.

In the event this team is lean you might need to pitch in by doing a lot of your own patent research and giving it all to an attorney to help come to a legal conclusion. Scientists and engineers should never be coming to their own legal conclusions. You may also be asking your suppliers for regulatory profiles on new raw materials that you are bringing into your plant.

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Why This Is Important

By no means is the list above exhaustive or complete. I’m sure there are functions that I’m missing, but these are the big functions that definitely have to be in place and they are often organized around these verticals into the specific executive leader. The EH&S and Product Steward teams might report up through the general counsel for the company. The Sales and Marketing teams will typically report up through a business unit manager to the CEO. The Operations and Engineering teams might report up through a plant manager while the engineering team might go directly to the Chief Operating Officer. 

When you start working for a chemical company or a chemical start-up these functions are your biggest collaborators outside of R&D. 

If you are building a start-up from an idea or result you had in the lab then these additional functions are what you will eventually need to commercialize your idea. 

Without these additional functions doing their jobs and working with each other and the R&D team then there is no company and the prototype or product idea will stay in the lab. All of the work that the R&D might have done for years or even a decade will just be lab work and it will have minimal impact, perhaps if the work is patented someone else will build on your work later if you can never make it to market. The potential that your idea or product could have out in the global marketplace is dependent completely on a special cast of characters that each play a unique role in product commercialization. 

This concept of teamwork is powerful and teams that trust each other tend to win in whatever endeavor they attempt. Most problems with chemical companies and their ability to create and launch new products will originate in getting these different functions to work well together. We might view that collaboration through process work streams, which are often broken, outdated, or just do not exist. 

In lieu of work streams or project managers it’s all dependent on people coming together on their own to get things done. If you want to make world class products then you need world class people working as a team.

Tony

Welcome back to another issue of this newsletter focused on product development. Today, I am tackling something a bit more esoteric or rather it feels esoteric to me. Also, I realized that within these emails I send out I write them as if I am writing to a singular person when I know the audience is diverse. There is a plurality of “you” out there and just know that I tend to think of you at two extremes: myself and my mom. My goal is to write something that I would enjoy and something that my mom might enjoy or at least come away with a better understanding of what I’m writing about.

This issue of the newsletter and the next 6 are sponsored by:

When you are working in product development it can be difficult to understand what you are really trying to do in all of the meetings that you will inevitably end up sitting through. Not all meetings are bad, but most are often bad because there is no clear product development philosophy or framework to operate within. Sometimes, as the chemist, scientist, or engineer you just want to get in the lab and start producing stuff. This might feel productive, but if you don’t know where you are going how can you arrive?

A strong leader can often lead a team through the product development process without any sort of framework on their vision alone. Start-ups that tend to come out of universities at first, I think, tend to operate on this basis of vision as they build out their minimum viable product. Once a company has brought a product to market we can think about how that company would fall into the 2x2 matrix below:

At best the 2x2 matrix is a tool in your tool belt. It is often used in established or mature companies to organize product development efforts. The “old” market tends to be where that company has a presence and is selling to their customers and “new” markets tend to be existing markets where that company has no presence. For instance if you are working at SC Johnson and you are making Zip Lock bags for sandwiches then you are making an old product for an old market. A new product within the Zip Lock bag space might be a better closure, a better bag material, or a bag designed to be re-used multiple times with the intent of selling that back into the “old” market. We can think of going from the bottom left of the 2x2 to the bottom right of the 2x2 as “incremental innovation.” If you are working in product development in the chemical industry there is a good chance that this is your job.

Taking an old product to a new market using our Zip Lock bag example might be as a way for outdoor enthusiasts looking to keep electronics dry during a white water rafting trip or to keep the smell of food inside of the bag in order to not attract bears when camping. A bag that is fit for purpose for these functions might have already existed within the SC Johnson product portfolio and it is really just about getting those products to the right distributors and thus to the right customers. Perhaps even under a specific brand name. There is little to no innovation or R&D investment needed.

In the top right of the 2x2 matrix we can think of this as developing a new product for a new market to the company. Let’s imagine SC Johnson doesn’t have a Zip Lock bag that would be fit for purpose for white water rafting or keeping smells inside the bag. They would then need to go figure out how to make a product fit for purpose for the “outdoor enthusiast” market. This would require scientists and engineers to translate the voice of the customer into an actual product (at least according to a design for six sigma approach). This quadrant is by far the hardest market to develop products. We can think of the results of the first 2x2 matrix in the next 2x2 matrix below:

The upper right quadrant is the highest risk area to operate and requires significant time compared to the other quadrants, but the reward might be worth it. It might take ten years to bring your product to market, but that investment and difficulty might also be a nice protective moat to defend against competitors. This quadrant is about hitting home runs. We can think of Origin Materials and their chloromethyl furfural platform chemical or Verdox with their carbon capture polymers as existing in this quadrant.

The bottom right/top left often means to gain new business or keep existing business it is a zero sum game where either you are the winner and someone else is the loser. This might be cannibalizing your own product with something better or risk getting displaced by a competitor or a substitute. We can think of Evonik’s investment into rhamnolipid biosurfactants as being in this quadrant even though it took them a long time to get there.

The top left of the matrix is as simple as trying to sell into new markets with the stuff you already have on the shelf. In this quadrant you might be a cheaper substitute or an easier to use solution. This might be a bit risky, but it is a quick way to short term sales growth. A great example of this was the transition in oriented strand board away from phenol-formaldehyde resins (PF) and towards polymethylene diisocyanate (pMDI) resins. Both of these products have been around for a very long time, but using pMDI over phenolics in engineered wood was relatively new about 10-15 years ago. Another good example would be Eastman using their specialty polyesters to displace polycarbonate water bottles. Granted, both of these examples have regulatory/consumer concerns driving the change such as formaldehyde emissions and bisphenol A, respectively.

The bottom left is where you don’t want to be as a product development professional because your job is to just maintain the business without any investment and any product that gets “developed” here is likely just cost cutting such as using a cheaper supplier or figuring out how to incorporate “waste” material that your procurement team found for pennies on the dollar. In the event the business needs to cut costs you might be one of those costs to get cut.

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What If Your Market Doesn’t Exist?

Using a 2x2 matrix is a useful tool for product development teams, but they are limited because they only allow us to look at two variables at once. One trap of looking at old markets versus new markets for a company is that we are still stuck within markets for products that currently exist. In the 2x2 matrix below I use this framework of existing versus non-existing markets for new and old products.

I think this framework is best used to determine if you should attempt to commercialize your own research. I think a great example in this space are the new food coating start-ups that are developing food protective coatings that are edible. Apeel and Mori are good examples of creating a completely new market that didn’t exist.

When we think of protective packaging for perishable foods we think about plastics with good barrier properties such as polyethylene or polyethylene terephthalate. Apeel and Mori thought of protective coatings for perishable food as something that is actually applied to the food instead of putting that food in a plastic box. Their coatings protect the food, is edible, and doesn’t change the flavor, look, or feel of the food they are protecting. The value proposition to the food distributors is that there is less risk on inventory spoilage and to the end customer it is a sustainability/less packaging/longer home shelf life value proposition. These start-ups created a whole new product category that didn’t exist before (I’m not counting wax coatings) and solved a pernicious problem.

This concept of creating markets is powerful. DuPont and ICI built themselves on making the first synthetic polymers and using those synthetic polymers to increase productivity of their customers. Polyethylene for instance helped displace paper bags and the synthetic bag market was born. The original intent though of a polyethylene bag was not a “single-use” application at least according to the inventor’s son in The Independent:

Plastic bags were invented to save the planet, according to the son of Swedish engineer Sten Gustaf Thulin who created them in 1959.

The bags were developed as an alternative to paper bags, which were considered bad for the environment because they resulted in forests being chopped down.

They were significantly stronger than paper bags, which meant – in theory – they could be used over and over again.

….

Raoul Thulin, son of Sten, told the BBC: “To my dad, the idea that people would simply throw these away would be bizarre.

“He always carried [a plastic bag] in his pocket folded up. You know what we’re all being encouraged to do today, which is to take your bags back to the shop, he was doing back in the Seventies and Eighties, just naturally, because, well, why wouldn’t you?”

Creating completely new markets for both new and existing products can unlock new levels of productivity and solve problems that people tend to just accept because, “that’s the way things are.” I think we tend to see this in software a lot. For instance, I’m writing this newsletter off of a $400 Chromebook without having to buy any software and I’m making a small amount of money via a platform called Stripe. When I was a kid that would have been “unbelievable.” Getting technologies down the cost curve from specialty to commodity often can create new markets as well such as personal computers.

In Conclusion

These 2x2 matrices can be used to help align resources within your company and help you figure out what you might need to be successful in developing a new product. If you are aiming at developing a new product for an old market there is likely certain performance and cost constraints you will have to stay within. If you are developing a new product for a non-existing market, figuring out how much to charge and if your product could be profitable is really difficult because you don’t know how much you can charge. People might pay you double what you think is possible or they might laugh at your “pen that writes in space” because they just use pencils.

If you are stuck in the old products and old markets quadrant my advice is to get out or learn how to surf.

What are you working on?

Tony

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Developing New Chemical Products

The Risk Adjusted Home Run

Swinging For The Fences

Standing On The Shoulders Of Giants

The Future Of Chemical Product Development

Fill Up Your Plants

Some Thoughts On Project Management

Push, Pull, Launch

Developing Products With Trust

Problems Should Hit You First

Why Launching A New Material Is Difficult

New Products for New Markets

I was talking to a former coworker one day (she has since moved out of product development) and we were discussing the topic of launching a new product. We both sort of came to the conclusion that there is a lot of luck involved in getting a new product out into the world successfully and the first few years are almost always rougher than anyone expected. The difficulty isn’t technical issue either.

Let me try and explain.

You Need Strong Demand, Good Technology, And Time

When I wrote Push, Pull, Launch it was really about the driving motivators behind why we develop new chemical products in the first place. There is either a new technology pushing into the market (i.e. compostable polymers, biosurfactants, etc) or there is a market demand that is pulling, such as demand for recycled polyethylene terephthalate. The best situation to be in is to have both a new technology push and a market pull. I’ll make up a scenario to illustrate the point. This is fictional:

Let’s say we’ve invented a completely new polymer that is biobased, can easily be dropped in to replace polyethylene with respect to thermomechanical properties, it can be composted in backyards, and it’s equivalent in cost to polyethylene. The only drawback is that from a water blocking standpoint perhaps our new polymer is maybe 20% less effective than polyethylene.

By all means, this new polymer should be an absolute hit, but I think if it was taken to market today it would still be at least a year or two before any significant sales were realized.

The market pull in this scenario is around a desire for sustainability from companies that produce goods that are often viewed as disposable. Think about the those air cushions that come in your Amazon package or a produce bag. If a company that made those could say, “biobased and compostable,” while not paying more than what they are now it would, in theory, be a homerun.

The technology push would be that this is a new to the world polymer that no one has yet (except in theory us). This new polymer would do well at trade shows, conferences, and the product people who design and make the stuff we use everyday would be intrigued enough to ask for samples.

Even after customers have their samples it might still take a year or more to realize significant sales. Sure, a few customers ordering small volumes initially might occur, but those big orders I think will take some time. Like this curve:

The issue we run into is that our customers need to develop a new product of their own with our new product. They need to test, formulate, scale-up, field trial, and get customer feedback on this new product. If there is new IP being developed it needs to be protected and if there is existing IP out there our customer needs to make sure they are free to practice. Depending on our customer’s application there might be a whole host of questions we’ve never entertained before such as UV stability, stability in immersed water, salt water stability, shrinkage at elevated temperatures, shelf life, and more. All of this testing takes time.

The best case scenario we have here is that our customers are begging for the material and we are the only provider of the material. Further, customers might think they know what they want and while our product might “tick all the boxes,” it might also not work in the customer’s process. Once a customer starts working with this new amazing material they might realize they want something a little bit different or ask for a slight tweak to fit their purpose.

Another good way to look at specialty versus commodities is that a specialty chemicals company would likely do the tweak while a commodity player would not.

Technical Advances Are Not Impactful In The Short Term

The big thing to keep in mind is that even with what many would consider to be a technological breakthrough there is still a long way to go when it comes to customers building viable products. This long product development cycle is part of the reason why Zymergen’s stock price tanked, which I wrote about at length, and it’s also why it takes so long for anything to happen in the chemical and materials space. When building out any sort of timeline for a new chemical or polymer product launch the customer trial stage should viewed as the black box and taken into consideration before profits will be gained. 

This is why it’s so important to have product and marketing managers that have a deep understanding of how chemical and polymeric products are developed throughout the whole supply chain. Ideally, these marketing professionals know the customers very well to and have strong visibility into their process. If you develop a new raw material that’s used in a formulation for polyurethanes it is going to take a few years for you to start realizing sales even if you provide value and are cost competitive. Further, there is no guarantee that your customers will be able to get the most out of your product either or that they will be able to process it.

This is the tricky part about being a marketing or product management professional in any chemical company. You need to be able to tell your senior leadership when revenue and profits will start to hit the company’s balance sheet. There are so many unknowns when it comes to a product launch and even with the tailwinds of market demand and new technology there is no guarantee of success or of adhering to your timelines.

A Message From My Sponsor

The team at Origin Materials is working to eliminate the need for fossil resources while capturing carbon in the process. Roughly half of global emissions are associated with the production of materials — a problem that no amount of solar panels or wind turbines can solve. By converting biomass into chemicals, Origin can tackle more than a few industries with a total addressable market of about 1 trillion dollars. Their first product is bio-based, carbon negative PET (polyethylene terephthalate).

Origin’s first plants are taking shape in Sarnia, Ontario, Canada and Geismar, Louisiana, USA. Once operational they’ll start fulfilling the $5.6 billion worth of signed offtake agreements and capacity reservations from companies like PepsiCo, Ford, Nestle Waters, Danone, Mitsubishi Gas Chemical, and Solvay.  They are looking to hire passionate chemical industry professionals who believe in doing something different. If you’re interested in working for or with Origin, head to their website. The top 3 types of positions right now are:

Chemical Process Operators

Research Scientists

Process Engineers

Drop It In

The risk around new products is why product teams often work on what we call “drop-in” replacements. The concept here is simple in that customers want to just literally replace a component in their formulation or process with your product and have everything run perfectly. If something isn’t a pure “drop-in” replacement then you need to get people like me involved to figure out if things will work or not. “Drop-ins” are nice because there is minimal risk and significant upside (usually via cost reduction).

We can actually see this example playing out right now in the biobased plastics space with Origin Materials and Avantium. Both companies are seeking to commercialize biobased routes to plastics that would go into a Coca-Cola bottle, but Avantium is trying to do it with a “new” plastic named polyethylene furanoate (PEF) while Origin Materials is trying to do it with polyethylene terephthalate (PET). I suspect PEF is not an exact drop-in replacement for PET and thus the whole value chain downstream of PEF needs to figure out how to use it and understand it’s stability.

Based on the current market situation for PET I suspect that Origin Materials will have an advantage over Avantium in that their customers already know how to process and make stuff out of PET. Avantium on the other hand has a polymer that hasn’t really seen a lot of real world use, but the structure is similar to PET. No one has spent decades using PEF as a food contact polymer and recently PEF’s stability under UV has been shown to be not as robust as PET. If I was going to bet on the two in a race I’d pick Origin.

Solugen is another good example with how they came to market with glucaric acid at a lower cost than the incumbent route, but were still able to turn a profit due to a deflationary cost route. Companies that use glucaric acid knew exactly what to do, how to formulate it, and the Solugen product was an easy drop in compared to some other chemical that did something similar, but just not quite as good.

Drop-ins are good in the short term, but chemical and material companies need to have short, medium, and long term strategies being executed in parallel. New products fall within the domain of medium and long term strategies and even with all the right conditions new products can fail.

Not every bet is going to be a winner.

Tony

Welcome back to the newsletter. To the ~45 new people here there is a loose structure I follow here and maybe check this out if you want to know why I’m writing. This is the portion of the newsletter focused on chemical product development and I typically pull from my own experience as an early career scientist. Things can get very technical, but I do try and zoom back out towards the end (no PhD required). If you ever want to chat reach out to me on Twitter @tpolymerist.

This issue of the newsletter is sponsored by:

Story From Graduate School

Tl:DR: I’m about to dive into a very technical story here around my own graduate work. I’m not sure how to tell it without it being technical, but I was in a time crunch to deliver biobased epoxy resins to a collaborator. I was trying to make something way more complex than I needed because I thought it was going to be better and I wasted months on this pathway. I realized there was an easier way and I took it. This became the foundation of my doctoral thesis. If this is enough for you then skip over to the don’t overthink it section.

For all you chemists in the audience:

When I was in graduate school I was working on biobased epoxy resins based on a levulinic acid derivative called diphenolic acid. The problem that my collaborator and I were running into was what were we going to do with the organic acid? We knew that we couldn’t just glycidylate immediately due to the reactivity differences of phenols and organic acids (strength of nucleophiles) and when we tried it our NMRs looked more like a forest than a pure compound. We also knew we couldn’t run columns to purify anything because our collaborators (polymer engineers) wanted a minimum of 80 grams. Imagine running enough columns to get 80 grams of product. Then doing it over and over again as your collaboration progressed.

We also wanted something thermally stable and robust. What’s the point of working on epoxy resins if you can’t claim some crazy high thermal stability or glass transition temperature numbers? Stephen and I tried for a few weeks to make this amidation work, but we didn’t really get anywhere and our collaborators were asking, “when are we going to get our epoxy resins?” One route we tried was transamidation from the diphenolate ester, (e.g. the alcohol is a better leaving group), and I figured, “why don’t I just make these esters into epoxy resins?” 

A few weeks later I had grams of epoxy resin, relatively pure yields via NMR, and best of all no columns. I was scaling up to liter sized flasks relatively quickly. We had a paper out to Biomacromolecules showing that thermal stability of a diphenolate ester was similar to its bisphenol-A counterpart and as the ester changes in structure so does the glass transition temperature and the viscosity of the resin. The whole concept of relating biobased epoxy resins to their structures became my doctoral thesis.  

I learned two key lessons here:

1. Don’t overthink your problem before it appears

2. Once your problem appears it might not even be that bad

The desire to make an amide of the diphenolic acid molecule first was based on the hypothesis that it would lead to higher thermal stability, a more robust crosslinked network consisting of both covalent and strong hydrogen bonding (just like nylon 6,6). This was a great hypothesis, but we had other doctoral students waiting on us to deliver our part of the grant and we were in year 2 of a 4 year grant. Our problem had become making this amide epoxy resin when it should have initially been just making a new to the world biobased epoxy resin. Right after we published our first paper I remember my adviser got an email asking us why we didn’t pursue the amide version. Someone else came along just recently and figured out how to do what Stephen and I couldn’t do years later.

Don’t Overthink It

Stephen and I spent a few months trying to make something that we didn’t necessarily need at the time. We were trying to solve a problem that really only existed in our minds. We were predicting results we didn’t have and then trying to solve the problem that those results represented. At the time there was little to know information on diphenolic acid based epoxy resins. No one had made epoxy resins from diphenolic esters, amides, or anything else. We were overthinking it. 

For me, going down the path of least resistance at the time was important because I was under a time crunch. I still published some great papers showing good fundamental science, and getting that first paper out led to a new collaboration and another cool paper. Plenty really. As graduate students I think we chase after what we think are big juicy papers that might get featured in Science or Nature. I remember having lunch with Stephen Cheng (former Dean at Akron’s School of Polymer Engineering and RPI alum) and I asked him if having just a few high impact papers was better than having a bunch of Biomacromolecules or Macromolecules papers. His response was something like this:

Are you crazy? Biomacromolecules and Macromolecules are the premier journals for chemists like us. You should be really proud to have one let alone many. Nature and Science papers often take years and huge teams of people working together. Publish good quality as often as you can. Don’t worry about impact factor.

One consistent thing I see is that smart people tend to overthink things. We see some chemical structures or a manufacturing process and we get asked to produce something new or cheaper or both and we come up with ideas. We then immediately see the problems of our ideas and we try and solve them without actually seeing if the problems we predicted come to fruition. If you do this you are then trying to solve for something that hasn’t even happened yet. If someone asks what you are doing you might sound like you came from the movie Minority Report—in a bad way.

Sure, if you know something will definitely be unsafe or cause something to be unsafe then don’t do it. My point here is that overthinking things can cause even more problems that we didn’t predict so instead of dealing with that original problem we predicted will happen we could also get trapped by new problems of our own creation that we never even anticipated in the first place. It’s quixotic.

A Word From My Sponsor

The team at Origin Materials is working to eliminate the need for fossil resources while capturing carbon in the process. Roughly half of global emissions are associated with the production of materials — a problem that no amount of solar panels or wind turbines can solve. By converting biomass into chemicals, Origin can tackle more than a few industries with a total addressable market of about 1 trillion dollars. Their first product is bio-based, carbon negative PET (polyethylene terephthalate).

Origin’s first plants are taking shape in Sarnia, Ontario, Canada and Geismar, Louisiana, USA. Once operational they’ll start fulfilling the $5.6 billion worth of signed offtake agreements and capacity reservations from companies like PepsiCo, Ford, Nestle Waters, Danone, Mitsubishi Gas Chemical, and Solvay.  They are looking to hire passionate chemical industry professionals who believe in doing something different. If you’re interested in working for or with Origin, head to their website. The top 3 types of positions right now are:

• Chemical Process Operators

• Research Scientists

• Process Engineers

Be An Experimentalist

If you are wise enough to not overthink your problems and the problem that you predicted does actually happen I view this as a good outcome. Your coworkers should be able to help you quantify the magnitude of the problem and might have advice on how to overcome it. Ideally, you’ve discussed your concerns with your coworkers and you’ve talked about at length before even doing any work. If it seems safe enough it might be worth doing just to experience it.

I’m not advocating that you try and see if something is nitroglycerin by hitting it with a hammer (true story from a professor of mine), but if you think some side reaction will occur and you view this as a problem just run the reaction and quantify it. You won’t know till you try and if you don’t try and you might just be stuck sitting at your desk thinking of reasons not to do something.

The problem might not even be that bad. Maybe everyone suffers from this particular problem you’ve encountered and everyone just deals with it. Is this a problem no one has encountered before and if you prove it’s existence would solving it lead to something patentable?

Further, once your problem is out in the open you can look at root cause issues. You can quantify this problem. If you are working on solving the problem that you are having you have something to communicate to your project manager about why things are taking longer than anticipated. 

Problems are only scary if you are not in the problem solving business.

Tony

Welcome back to a Tuesday post that is dedicated to product development in the chemical industry. I was planning on writing something else today, but this concept of trust hit me today while I was working and it wasn’t necessarily an epiphany moment, but perhaps a moment of clarity. 

This issue of the newsletter is sponsored by:

When I was early in my career post PhD I was working at a division of Hexion, now known as Bakelite Synthetics, and the first career development training we had centered around trust. The seminar was put on by the Franklin Covey foundation (company?) and at the time I thought, “wow, this is so corny.” We went through a bunch of exercises about gaining someone’s trust after losing it and I went through the motions with everyone else. But after the last six years it was probably the best corporate training session I’ve ever experienced.

When you develop a new product or redesign an existing one there are a lot of unknowns out there. Particularly right now, I suspect there are a lot of cross functional teams out there trying to figure out how to alleviate supply chain issues and reduce raw material costs. As always there is a timeline with milestones you need to achieve and that timeline feels like it’s never enough time.

In an ideal world speed in product development comes from teams with a high level of trust. A team with a high level of trust is able to voice concerns early, often, and without precise language. There is often minimal fear of offending someone and an idea or concern that sounds awful might lead to a solution and a patent. 

Functional groups that are significantly siloed or have difficulty communicating with each other often do not possess a high level of trust. Here is a classic example of how a conversation between and R&D person and a sales person goes: 

Sales: Hey R&D, how is that project for our customer going?

R&D: It’s been great. I think I’ve made a real breakthrough. I figured out that if you do X and then Y we get Z. We just need to figure out how to scale it up. Just don’t tell anyone yet.

Sales: Yeah, sure of course. This is great news.

2 weeks later

Sales: Hey, so I told my boss who told our customer about that breakthrough you had. They want samples like right now. Can you get kilogram samples for them in the next few weeks shipped?

R&D: I still haven’t figured out how to scale it up yet. I told you not to tell anyone.

Sales: I’m sorry, but this project now has a lot of visibility with senior management. This could be huge for us this year.

This exchange is clearly not real, but I’ve seen similar situations play out and it exemplifies a common theme I hear in R&D: “Don’t tell sales anything.” This attitude or culture is due to a lack of trust. Clearly the sales person broke their word and is in the wrong here. I’ve seen similar situations play out with other functions such as R&D telling the operations team prior to a production run that “this will work. It’s gonna be fine,” and then it’s anything but fine.

Talking across functions is more productive if we are being honest even if it’s painful to our egos. That person in sales might be behind on hitting their numbers for the year and needs a big win to stay employed. The R&D person might be getting pushed to deliver something to a customer on a tight deadline and hasn’t done all the needed work prior to trying to hand it off to operations. Discussing problems and concerns upfront is difficult because it comes from a place of vulnerability.

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Getting problems, risks, and concerns out in the open early and often is critical if you want to deliver on time and in full with your product. You get there through trusting your coworkers. When the whole team knows they are taking a chance on a particular path and it doesn’t work then the team wins and loses collectively. If the team fails then there is probably a back-up plan too.

You Know When You Don’t Have It

Without trust, organizations tend to devolve into political nightmares. When things don’t work finger pointing occurs and sometimes years of work just fizzle out. When things do work everyone wants to take credit with the executives. If you have a team member who feels they didn’t get credit there then it can feel like a betrayal. Victory isn’t victory unless the team wins together.

I often find when my projects are moving along just fast enough or faster than I expected it’s because people decided to trust me and I decided to trust them. It’s easy to talk about problems or issues when you trust your team members. It’s easier to move fast when information is shared amongst the team members.

In my example above the sales person should be communicating about why they need an update on project progress. It’s easier to communicate the results and the risks if it’s a project update as opposed to an ambush in the hallway. Typically, there should be a project manager focused on facilitating those conversations, but sometimes there are no project managers.

If you feel like you are drowning in mistrust I suggest you be the change you want to see in the world. Start attempting to have open honest conversations with your coworkers and let them know you are trusting them when you might not have originally. Maybe your projects will develop some operational speed and when your team succeeds its easy to get recognition.

Tony

1. Market Pull: The market wants the product or solution you are developing

2. Technology Push: You or your team see a problem in the market that exists and are developing a technology or product to solve it before anyone else

The first driver I think about is the market pulling a product into development. A company or business allows the market to decide what products they develop. This reactionary approach is typical of resource constrained companies. Market driven companies can utilize the demand they are hearing from their current or potential customers to forecast demand, understand the total addressable market, and get the voice of the customer to dictate how the product functions. 

This low risk approach might not require a lot of innovation, but it does require a lot of visibility into the current market. The product that might get developed to solve this problem that the market is clamoring for might already exist somewhere else in the form of a patent. It’s also likely that the manufacturing capacity to make the product being developed exists already either internally or at a contract manufacturer so the time to commercialize can often be achieved in under five years. 

The Technology Push is where a scientist or engineer has developed a technology that might solve a big problem that exists in the world and is non-obvious. This is an anticipatory approach and it’s where many start-ups exist. The best example that comes to mind right now in the polymer chemistry space are companies Apeel and Mori. Both companies are looking to use biobased polymers to create super thin coatings for food that reduce spoilage and both are utilizing “waste” biomass to make their coatings. 

For Apeel and Mori the existing problem within the market was food spoilage. As far as I know no one was clamoring for super thin water and gas barrier films to be applied to food to stop food spoilage. Both companies are working on technology driven solutions to pernicious problems that exist within the market. The risk is significant for both companies, but if they can profitably scale their businesses they will have a large market to expand into with very little competition.

Regulatory Forces

Both Technology and Market driving forces also have to contend with regulatory shifts from governments and international regulations. As policy shifts both from local and federal governments the chemical industry has to adapt and this could mean phasing out certain chemicals or changing the additives. These regulatory shifts can be slow, but can have real power in changing how the chemical industry does business and non-compliance could mean no business. 

Alignment

Sometimes I see alignment of both a technology push and a market pull, which may be facilitated by a regulatory change. These scenarios create an urgent need for a solution and the first solution to market has pricing power. The blowing agent switch from hexanes to hydrofluoro-olefins comes to mind for polyurethane foams as an example. Solstice and Opteon I think are great examples of a technology pushing into a new market due to a market pull created by a regulatory change.

What types of projects are you working on?

Tony

This issue and the next 3 of The Polymerist are sponsored by:

I’ve been doing a lot of project management lately and I’m not 100% sure if I want to do this more or less since I’ve started, but I view it as something that you have to do at some level. I think that project management is best described as a series of Russian nesting dolls where a large project is really just a series of smaller projects that are rolled up inside. In this analogy each nesting doll represents a new layer of the project with it’s own manager or responsible party.

The place where this analogy breaks down is that Russian nesting dolls are all painted to look alike, but in project management the high level project appearance is really a summation of the smaller projects it contains. How effective each smaller project is at communicating vertically up the chain determines the overall picture. In a sense project management is an exercise in communication which is where the tweet thread below came from:

In a perfect world, projects are developed collaboratively across functions based around a common goal. Ideally, projects are managed so that things run smoothly and on time and that is the project managers sole responsibility. When roadblocks arise the project manager coordinates the proper response to remove the roadblock and elevates the problem until it gets resolved. When successes are had within the team those successes are celebrated and the people integral to the success get the recognition they deserve.

In my experience this doesn’t happen. The reasons are numerous, but the project manager inevitably ends up having to act as a pinch hitter. The first time I ran a design of experiments was with a six sigma blackbelt who was the project manager and I learned some of the design for six sigma tools by doing. In my own brief time as a project manager I find myself assisting procurement and supply chain professionals in finding and securing new raw materials. So while a project manager’s job on paper is to manage the project they inevitably end up trying to make sure the project is done based on the timeline set by the senior leadership of the company.

Sometimes this can facilitate a crisis.

A Message From My Sponsor

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Reach out to Thomas Gungor at thomas.gungor@polyanalytik.com to get started!

Analyze My Polymers Now!

The first time I ever spent a long period of time on a lake was with people who had been going there for decades. They knew roughly where all the hidden rocks were in the areas we traveled by boat. This is important so you don’t sink the boat or ruin your propeller.

A good project manager should know where the rocks are and decides on if the team should run into them or avoid them. Running into a rock with the proverbial project boat means that the rock is a classic internal problem and hitting that rock gives visibility to a problem that may have been festering for years. If you are new to a company or new to project management and you have no idea where these sorts of internal dangers are I would suggest you start looking.

Project Management Traps To Avoid

Action Item Lists

It’s tempting to get the whole team together and figure out the status of the different actions of the week. This is a losing battle and in my opinion no one likes it. Remember that good project management is all about communication and going through a list of actions is not communication, it’s checking up on people.

Having been part of projects with project managers there is nothing more boring than going through a list of action items from a week ago and finding out if people were able to accomplish them or not. More often than not I would probably end up reading some newsletter I’m subscribed to or I’d be doing literally anything but listening. I used to see coworkers literally fall asleep back when in these meetings in person. I can’t imagine what it’s like when some people are remote.

Providing The Solution

If you are from a specific domain of expertise and you are in a true project management role then there should be a person of your own domain expertise that you are working with on the regular. It will be tempting to try and provide what you think of as the solution to this person or to the team and this can undermine the part of the team where you have similar expertise.

If this specific area needs your domain expertise and help then do it privately and in good faith of being supportive as opposed to directive. Only be a solutions provider after the team has exhausted their options. You might be in your role because of your capabilities, but a team is more powerful than just one person.

This issue and the next 5 of The Polymerist is sponsored by:

The business of making and selling chemicals either as commodities or specialties all come back to the concept of selling as much of your total theoretical production capacity as possible. Getting your manufacturing operations to capacity is also known as filling up your plants (plants = chemical plant = where you manufacture chemicals). There are two concepts of capacity: the first is reactor capacity and the second is staff capacity. 

What Is Capacity?

Stay in the chemical industry long enough and the conversation almost always comes back to are your plants at capacity?

Reactor capacity means that the vessels your organization uses to transform things into your product are being used to make as much product as possible. Reactor capacity is primarily governed by volume, yields, and cycle time. If you fill a 100 gallon reactor with 100 gallons of reactant and then you get 90 gallons of product this is a 90% yield on the reactor. If you expected to get 90 gallons then it’s 100% of your theoretical yield.

If your theoretical yields are low in that if you ran your reaction to perfection 100% of the time every time then your reactor capacity is not being utilized very well. As in the best yield you could get is 50 gallons from 100 gallons of reactant. Anything that takes away from your output is in theory bad for profitability.

If it takes 20 hours to do the reaction then you can do in theory 6 production runs in a week with 1 day reserved for upkeep and maintenance. The real world isn’t this simple, but this would be an example of having that reactor capacity filled. Get the reaction time from 20 hours to 10 hours and you have nearly doubled your total capacity.

A 100 gallon reactor is small—it’s a pilot reactor used to scale up reactions from the lab at best, but it typically requires the same amount of operators that a 10,000 gallon reactor would use provided everything is automated. This is where the concept of economies of scale kick in from a supply chain perspective, but also from a labor perspective. The labor costs are reduced by 100x at the 10,000 gallon size in labor costs per gallon. The problem with a reaction taking almost a day to run is that you need a minimum of two 12 hour shifts or three 8 hour shifts of operators to load, watch, and run the reaction and if you are running 6 days a week that is a lot of people working both day and night shifts. In case you didn’t know there is a labor shortage.

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Why A Full Plant Can Enable More Innovation

Often, manufacturing operations have to make decisions based on their staffing ability and the reactor availability, which is also known as the art of scheduling. The ideal situation to be in is to have enough staffing and reactor capacity to be able to run near 100% capacity for both. Being near 100% capacity is a position of strength that can enable bigger innovations.

If we think of big Innovation as taking on a lot of risk for your product team it is because the act of doing big innovation takes a lot of time. There is more risk on invested capital not yielding a return and this is especially a big risk if your plants are not full. Being at capacity means your sales teams aren’t chasing new customers and your product team isn’t trying to tweak products to win new business in their traditional end markets.

The short term best use of the product’s team time is cost reduction either in shortening reaction times or raw material cost reduction. I suspect most chemists out there are working on this right now to combat raw material inflation. Having lower costs either enables higher margins or selling more at a lower cost to get capacity.

The long term best use of a product team’s time is to work on bigger Innovation that will create new business that is more profitable than the current business. Ideally, this new product will create a new category or re-define an old category. On a long enough timeline a specialty product gets commoditized due to competitors copying you and pricing their product lower, designing around your patent, or waiting for your patent to expire and then copying you outright. Once a product is commoditized (not necessarily a commodity) then the market gets into a “race to the bottom” scenario. An example of this would be something like the antioxidant Irganox 1010 from BASF (formerly Ciba).

In a commoditized market your sales and marketing teams need to be very good at their jobs because there isn’t much technical differentiation. If you are working at a chemical company now and you are annoyed at having to do cost reduction projects or copying someone else’s product, my advice to you is to get your plants filled up. A full plant with healthy margins (20%+) means there is time to work on cool new ideas. Ideally, you are the ones to cannibalize your own sales with a new more profitable product than your competitor.

It might take a technical team 3-5 years to develop that next great product the company will rely on to return money to shareholders and keep your fellow coworkers employed. It might take another 2-3 years for the engineering team to build out the new capacity for it and then it might take another few years for a sales team to sell out the capacity. It’s even better if this new product can be run on the current plant infrastructure (i.e. no CAPEX) and this can lead to price increases on existing products or letting go of the lower margin products. 

All-in, this means 5-10 years to get that big innovative product off the ground and on the front page of trade magazines provided the company has a high performance cross-functional team capable of trusting and working together without a lot of churn. The technical group needs to trust that the sales and marketing group can sell the product once it's been developed. The sales and marketing group also needs to trust that the technical group can deliver on timelines and costs. Both groups need to trust their lawyers, regulatory compliance professionals, operations teams, and project managers to have a clear vision on the risks and communicate the value being created by the team.

Eventually, it all comes back to communication and having a plant at capacity.

Here is the quick guide:

1. Have enough good products that your manufacturing operations are at capacity

2. Use product team to develop better and category creating products at higher margins

3. Launch category creating or re-defining products to displace lower margin products

4. Repeat

Tony

The Polymerist is sponsored by:

Innovation is difficult to predict and is often unable to adhere to strict timelines. The reason for this is because you don’t know what you don’t know and any new product entering the market does need to have some amount of luck. These are significant risks to companies looking to be strict with how they spend the money of their shareholders.

Risks look like undefined timelines, undefined costs, and undefined returns on invested capital (ROIC). You go to any major chemical company and I’d say there is a 50/50 chance that a outsized portion of revenue is generated from about 20% of the products. If you ask the product team if they could make those products now, I’d give it another 50/50 chance that they would laugh and say “no way, it would be too expensive.”

It’s why established companies want to hit risk adjusted home runs. Established chemical companies typically play in a very specific niche, they have manufacturing locations with depreciated assets, and they have relationships with specific customers. Established chemical companies want to keep their current shareholders happy.  They know who the competitors are and everything is relatively predictable. The solutions to problems are often somewhat obvious.

• Need more market share? Hire more sales and marketing people. 

• Want to increase profitability? Cut costs out of your supply chain or figure out how to bring expensive external processes internally, vertically integrate.

• Want to enter a new market that is somewhat adjacent? Buy a company already doing it.

Newer companies who have no market share, or any profitability are looking to hit home runs on their first at-bat. They have no historical politics of what was tried versus not tried. The whole company is typically aligned on breaking into their target market with a new product that changes the rules of the game. They want to create a product that redefines the category, that kills the incumbent companies or enables a customer to do more with less.

In a sense I think big companies want to innovate with a little i while start-ups want to Innovate with a big I. The little i is mostly just incremental changes. If a product did XYZ now it does XYZ under different conditions or it’s a bit faster. Maybe it’s a bit cheaper to produce or there are less carbon emissions, but product XYZ in the future will be just a bit better than it is now. 

The innovation with a big I are the things that graduate students dream about. The crazy ideas like seaweed based packaging, mushroom foams, chemical recycling of plastics, backyard compostable plastics, and more. You probably read about them here and elsewhere. Sometimes these big ideas take decades to get a chance to hit scale. Sometimes they fail spectacularly before they can succeed.

A good example is the backyard degradable plastics options known as polyhydroxyalkanoates (PHAs) being produced by Danimer Scientific. I suspect that Danimer would not be here and as successful as they are now without Metabolix failing before them. Even now, I’m not 100% sure they will succeed, but I hope they do. If Danimer can succeed then I think they will help pave the way for the rest of the start-ups out there. 

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Danimer Scientific’s proposition after the succeed is that it represents a de-risking of their. This makes them a great acquisition target if they are willing to sell (I hope not), but the whole idea of de-risking means that their competition might get bought out by bigger companies looking to ride the wave of a new plastic that embodies sustainability. Once this happens I suspect PHAs could hit a massive scale, but I think it all comes down to Danimer Scientific succeeding or someone similar. 

My prediction for the next few years of product development is that if you want to do truly groundbreaking super risky work then you should probably be at a start-up. If you are successful and possess stock then the chances of getting acquired by a larger chemical company are quite high. Working at a start-up is extremely risky though (more on this next month) and often the ambitions of the investors might be unrealistic. Being at a large existing company you will do innovation, but it’s going to be smaller, more thoughtful, and less risky. If anything, you will know what good project management looks like and you will understand the language and structure behind what large companies want.

If you need stability then I think that the larger chemical companies will be a good place to find that stability. 

Agree or Disagree? Let me know in the comments or reply to this email.

Tony

This issue of the newsletter is presented by:

Starting to develop a new product is the hardest part of any project. To do it correctly you need to bring together all of the functions in your company to see the same vision, agree on the path to get there, and know which milestones to celebrate when you reach them as a team. You also need to agree on what that new product is going to be, how it’s going to function, where it’s going to be made, what are acceptable raw material costs, and what are acceptable capital expenditures. This is where the concept of design for six sigma or DfSS shines.

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The most powerful tool to have at the start of any project is information. What has been done prior to your efforts and what your competition is doing? When you know what exists, what’s protected through IP, and what didn’t work in the past you can avoid those areas. Fresh perspective might be able to connect some things that had been missed previously. Knowing what has happened before you enables you to not make the mistakes that are only obvious once they are known. 

Keeping a database and records of what people have done can be very difficult. Setting your product development processes up for capturing not only the R&D efforts, but efforts from the other functions such as marketing, sales, technical service, regulatory compliance, and manufacturing is even more complex. Often, this information lives in the minds of the senior members of the team. You can identify a senior member by them doing the New York Times crossword while drinking coffee or they might occasionally chime in with the helpful phrase:

I tried that 10 years ago and it didn’t work.

Some of this needed information sits on some sort of shared drive, sometimes called “The G Drive,” or a filing cabinet and unless you know the organizational system (if there is one) it feels like looking for a needle in a haystack. I once saw a system based on Lotus Notes early in my career and felt like it was miserable and outdated. I was such a fool because it was the best system I have ever seen since.

My suspicion is that large pharma companies have already mostly solved some of these issues with large chemical compound databases that can be mined with data scientists. I’m not sure when the industrial chemical companies and downstream customers will figure out digitization of their information, but it’s not due to a lack of available software. I suspect it’s due to a lack of capital willing to be invested into something where the value is not immediately obvious. This is dumb because often a big shareholder complain is:

Product development is too expensive and it takes too long

I don’t think anyone with any experience thinks a new chemical product would take any less than a year or two to make it to a commercial launch, so let’s say on average 2-5 years for a new product to be launched taking into account any potential regulatory timelines. Then perhaps an additional 1-2 years for qualification and validation of a customer so maybe 3-7 years till actual revenue, which will typically be small. Let’s add in 3-5 years for market acceptance and volume growth so now we are 6-12 years for an ROIC to be measured on an organic growth project. 

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Being able to document all of these product development efforts within a chemical company is really important and it could save perhaps 1-2 years in timeline if implemented correctly. So much of doing product development is with standardized rigor and when you lack good historical standardization or even a good framework to operate within then I think things will naturally take longer. You might be able to recognize this when someone with a PhD and years of experience asks you how to use a commonly used piece of equipment. These things get even worse when an employee leaves a company, especially when that employee has a lot of knowledge in their brain that isn’t written down in an easily accessed place by their coworkers.

If you lose too many members of a product development team to employee churn then you might have to start over. A team might lose some key members to new jobs. The reasons are almost always from the list below:

1. The new job have gives a significant compensation increase

2. The new job is closer to family or it is a better commute

3. More responsibilities in the new role

4. The future is uncertain here

In theory all of these things can be mitigated by senior leadership. Leadership should understand when certain employees need a significant pay increase (i.e. greater than inflation). How work flexibility or a hybrid model might make a long commute less awful. Distribute responsibilities more evenly and test if someone is ready for a leadership role. Present a crystal clear vision for the future that projects stability. Great scientists don’t always make great leaders. A good product development process that functions means that they don’t have to be.

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From my sponsor: If you are a leader of a product development team trying to build a new team then consider using a recruiter like Task Force Talent. You might not have the time to train a new person and bringing in a specialist that has significant domain expertise might be the best bet to fast track development on a new product. Reach out to them today. It’s free.

If it takes a year or more for someone to become a valued contributor then I suspect that there is something wrong. If an important contributor to a project leaves and it sends the product development team back to the beginning of the process then there is something significantly wrong. I think Dror Poleg highlighted something about the War on Talent versus the War for Talent in his newsletter worth quoting here:

Corporations are fighting two wars in parallel, the War on Talent and the War for Talent.  The key objective of War on Talent is to convert [unique] into [unique but interchangeable]— to turn unique talent into an interchangeable resource. The key objective of the War for Talent is to recruit individuals that cannot be easily replaced. The War on Talent is waged with technology that aggregates, monitors, and assigns workers. The War for Talent is waged with higher salaries and office perks.

A robust product development process means employees are slightly more interchangeable, but it doesn’t mean that there is an abundance of people that can replace someone if they leave. If you have a very senior person with a significant amount of domain expertise leave a company, how many people exist in the world that could actually replace them? Perhaps there are 100-200 people in the world with similar skill sets, but how many actually want to move to Columbus, Ohio to replace this person?

So why aren’t polymer scientists just making crazy money? It’s easy to understand why we might think R&D is less valued in the chemical industry. Most of the product categories are very mature.

1. Phenolic Resins - invented 1907

2. Poly(methyl methacrylate) - invented 1930s

3. Polyurethanes - invented 1930s

4. Low Density Polyethylene - invented 1933

5. Nylon 6,6 - invented 1938

6. Epoxy Resin - invented 1943

7. High Density Polyethylene and Polypropylene - invented 1951

8. Poly(ethylene terephthalate) - invented 1974

Sure, we do small iterations on these things or things related to these polymers, but it’s not like there is a huge need for synthetic polymer chemists. There are some new polymers being launched out there, but it’s not 1930-1980 right now where new polymers went to market every few years. Rather, the innovations right now come in the form of better formulation, removing cost through process improvements, and commoditizing what was once low volume high margin. Patents expire and this enables lower cost generics or me too products become widely available. These are all races to the bottom and deflationary actions.

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The chemical industry is constantly reinventing itself and we have shifted from giant vertically integrated syndicates to, “purer plays.” Documenting prior work into databases or searchable archives is common sense in the chemical industry. Just because we don’t publish papers doesn’t mean we shouldn’t be writing them for internal use. Patents can serve as useful markers for knowledge, but you shouldn’t base a company’s internal confidential intellectual property on patent submissions. 

Innovation is expensive and there are no guarantees that spending 3% of revenue on R&D (usually tax deductible too) will result in a home run new product. This is why established companies want a risk adjusted home run. Start-ups need to swing for the fences because they are seeking to disrupt the establishment. Something I often hear is:

Product X, which represents ABC% of this business unit’s revenue, couldn’t even be developed today. DEF and GHI would never let us spend the money on how long it took to get that commercialized, much less approve the capital expenditure. Trust me, I’ve been here for 30 years.

How easy is it to access the records of what the people were doing back when Product X was developed. Did they keep records? How do you record what you do now? 

If you can’t stand on the shoulders of the giants that came before you then it's no wonder you can’t see very far. Too bad all the low hanging fruit has been picked. Time to build a ladder.

Tony

If you liked this please check out some of my other writing on the topic of product development:

Swinging For The Fences

The Risk Adjusted Home Run

Developing New Chemical Products

Last time I wrote about product development in the polymers space I ended on the concept of graduate school being the best time to commercialize your own research. I wanted to expand on this concept.

Graduate school for most scientists and engineers is a time of extremes. There are undoubtedly not enough hours in a week to manage the expectations put upon you by your department, the granting agencies, and most of all yourself. For many, getting a PhD in any discipline is kind of a crazy endeavor, but in the physical sciences and engineering it's often a chance at a subsidized education that could unlock enormous earning potential. Just look at this graph from the American Chemical Society from 2019 on average salaries for chemists when adjusted for inflation. PhDs earn more than the other degrees. The “flat wages when accounting for inflation” is a real drag, but most professions are seeing this issue according to Pew Research back in 2018.

My point is that near the end of graduate school, most people want to make money and mentally recover. Usually, mental recovery in a post-doc is not a real thing. The idea of wanting a stable 40 hour per week job with benefits and a big enough salary to go out to lunch every day and buy Starbucks lattes without going broke is a Rich Life to most graduate students. A bunch of students just want to make more money, it’s what I wanted, and while others might want to become professors and not care about anything else (good luck).

My advice to the graduate students out there is that if they want to explore doing a start-up and they have a supportive thesis adviser and department then you should go for it. There are a few things you can do to attract investors’ capital.

Let’s say for example you’ve developed a polymer that will enable replacement of indium tin oxide coatings in smartphones because it’s got similar conductivity, it’s colorless, but your material is much cheaper to produce. If we revisit my thoughts on risk adjusted home runs then this might already check some of those boxes.

When you pitch this material to financiers they might think:

“Oh, making smartphones cheaper and having an investment in the only company that can make the material. How much do you need?”

The Importance of Patents

There are a few things you need to consider before “pitching.” The first would be a patent, which can take some time, but in a biblical sense this is your slingshot to the Goliath that is your existing competition. If you’ve already published this research, you’ve got a year (last I checked anyway) to file a patent in the United States.

If all you did when it comes to trying to start a company while graduate school was file a patent based on your research and you help write it with a lawyer then this is a good experience. Many current patent attorneys I know started off like this, realized they enjoyed the patent prosecution process, and went to a law firm to become a technical adviser and eventually to law school to become a lawyer.

The patent is part of the foundation from which your company can be built. It gives you the right to exclude others from practicing your invention for twenty years. Patents are only one piece of the puzzle though and don’t necessarily hold as much power as you might think.

Understanding The Market

Usually in chemicals there is a high switching cost when it comes to a new technology. To continue with the indium tin oxide example, most electronics manufacturers that use this material will be doing chemical vapor deposition and have probably invested significantly into being able to do this process at scale. Let’s say it's 10 million dollars for one manufacturing operation, which they have most likely capitalized the expense over a decade and it becomes an asset, which can be depreciated.

This high capital expense does one main thing in that it is a hurdle for new entrants to the market. Indium tin oxide is also very prevalent, everyone uses it when it comes to clear electronic conducting coatings, so there are in theory are multiple suppliers that can provide the raw materials, which keeps cost relatively low. Competition amongst suppliers is not only good, but having a secondary source of raw materials is important to keep from shutting down during occasions of supply chain disruption.

If your polymer can replace indium tin oxide and all you need to do is spin coat it onto the substrate with some solvent then this is super simple compared to chemical vapor deposition that requires a plasma source and vacuum. In theory your polymer could enable a few things:

1. Lower cost of entry to the market for electronics manufacturers

2. Potentially enable new surfaces to be coated with a clear conducting coating

3. Constraining supply of the new raw material in the form of pricing power and excluding others from practicing the invention (see patent part). Alternatively, licensing the patent out could enable additional suppliers to get to market while also providing revenue to the existing company.

As long as the costs of your new polymer and process are lower than what is done for indium tin oxide then you might have a winning technology in your back pocket.

Prototype It. Collaborate. Achieve a Minimum Viable Product. Scale.

So you’ve got your patent, you understand the market where your new polymer might play, so now is the time to prototype an actual product or a “systems level approach.” For this you might need some help from the chemical engineers and/or electrical engineers.

Go coat some glass with your new polymer via spin coating.

Find the best solvents, rotation speeds, and ideal thickness you need to achieve.

There might be some formulation work the needs to happen.

Figure out how much it would cost to make your polymer at scale and some regulatory questions:

1. Cost at 1 gallon

2. Cost at 55 gallons

3. Cost at 400 gallons (still pilot scale for many places)

4. Cost of the coating after spin coating to correct thickness (e.g. $/cm^2)

5. Do you need to file any sort of pre manufacturing notice with the EPA for any specialized monomers?

6. Does your polymer meet the polymer exemption rule under the Lautenberg Chemical Safety Act?

7. Don’t forget to factor in labor, energy inputs, and any sort of permitting for emissions due to solvent or condensation products.

Is the performance better or worse than indium tin oxide and what are the costs in comparison to the potential customer after manufacturing. Since it’s a new to the world polymer you might have to make your own monomers too. How much will everything cost and how much will you save when you scale? Optimize as much as you can while getting a prototype finished.

Pitch Decks and Talk To Some MBA Students

If everything is looking good at this point I’d suggest you go talk to some MBA students at the business school provided your university has one. Most MBA students are looking to go into investment banking or consulting at the big 3 (McKinsey, Bain, and Boston Consulting Group). They need a high salary job to cover their graduate school loans, but there might be a few who are looking to help build a company.

Get some help putting together a pitch deck and perhaps you find a viable co-founder for a company. Based on all your work you should know the rough costs of scaling up, the cost of your product, the cost of the incumbent technology, and how you might enter into the market of thin film conducting coatings. The business school students can help you understand how much profit you should be aiming for and how to speak to VCs.

If you do get a co-founder at this point make sure that founder is good at the stuff you hate doing. Get your school’s lawyers involved too to understand confidentiality, draw up some contracts, perhaps do some paperwork to start a company. Also, don’t forget to defend your PhD thesis and graduate.

Then, start trying to get some meetings with investors. There are a few VCs that read this newsletter.

I would be happy to help get the word out. Let’s talk.

Tony

Marketing/Sales Person:“So which one of these R&D projects can you guarantee will work?”

Chemist: “You don’t really understand how this process works do you.”

I wrote that many companies want a risk adjusted home run, but what does that really mean? In commercial language this indicates X dollars from Y investment within Z time. Typically the dollar value is high, the investment is minimal, and it happens not only in a defined amount of time, but an acceptable one to shareholders (i.e. 2 years or less). These are the guaranteed projects that “work” and are “on time,” but they often deliver incremental value with incremental advances in science. As scientists it can be hard to guarantee anything will work because things do not always work out the way you intend. Even if you can make it in a lab it doesn’t mean that the chemical engineers can scale it.

Uncertainty of even “low risk” projects can be difficult for established commercial enterprises to handle.

In the risk adjusted home run product innovation you can deliver on three categories to your customers and shareholders:

1. Productivity

2. Lower material costs

3. Higher performance

Productivity is how much output a customer can get from their process or manufacturing operation. A customer might use a polymer or a specialty chemical in their process that takes 10 hours to complete from start to finish. Perhaps they run two shifts in their plant at 12 hours per shift and they have enough orders to run 6 days a week. This customer is at what many would consider “capacity,” in that they cannot get anymore output from their operation without investing into additional capacity such as expanding operations. 

A new chemical company might come in and tell this customer, “I’ve got a product that will let you complete your process in 7 hours, but it will cost you 20% more than what you are paying now.” If the specialty polymer represents even 10% of the total cost of their product the customer is ecstatic because the new product increases productivity by 6 additional product cycles per week with a marginal increase in cost. Perhaps even lowers overall costs by reducing overtime of their labor. Productivity increases can also happen internally, which can reduce costs, increase margins, and expand capacity on existing products and this is why corporations love Six Sigma (in theory anyway).

Lower material costs for specialty or commodity polymers might involve putting a filler into the product. Specialty polymers are being made from commodity or commoditized starting materials so raw material costs typically fluctuate with oil prices. Thus, it can be difficult to find a lower priced supplier if costs need to be reduced. Instead of lowering prices the other options are to either move manufacturing operations to lower cost labor countries or to find a way to reduce waste or to put something cheaper into the polymer.

An example of low cost material might be in filling paints or polymers with things like talc, glass beads, or calcium carbonate. The technical objective typically in these projects is to not influence the final properties and lower the raw material costs to get 1-5% of margin. If your polymer costs $1 per pound to make and you introduce 5% filler which cuts costs by 3% and you sell ten million pounds of it a year then that's an easy $300k of margin for minimal work. Likely, the customer buying the product is never informed either of the small change to the product which is why no change to the final properties is important. 

Higher performance projects are the most exciting of the three types of “risk adjusted home run” projects. Higher performance products are also the riskiest and the most difficult to understand if it will be successful of the three I’ve listed. They are also the most fun because someone like me gets to try and create something that doesn’t exist in the world and the rush of seeing something new never gets old. These projects typically only get done if a large customer is asking for it and the demand and potential reward is worth the risk of investment.

An example might be a large customer of your company is a category leader in their space, but their competition is closing the gap in market share. This customer comes to you and tells you that they have tried everything within their power to maintain their position, but the last piece of the puzzle is on the polymer that you provide them. They want ABC from you, tell you they are willing to pay significantly more for performance, and they will buy a minimum of a million pounds a year (this is a good volume for a new specialty polymer). 

Sounds like a great opportunity right?

It definitely is, but there is a large amount of uncertainty that the commercial team doesn’t fully comprehend when the project starts. Achieving ABCmight be possible with 2+ years of work, but it might also take 2+ years to understand that it’s not possible. In a best case scenario it is possible, you file a patent, but then it requires a million dollars of investment into production facilities to make it, which could take years. 

How many years of production of this new product will it take to recoup that initial investment?

Perhaps it will require permitting a new chemical for the production site and installation of a storage tank, and a new motor for an agitator on a reactor?

Will this big customer wait 2-4 years for you to deliver on the product that only they want and no one else?

Is this big customer also asking your competition the same thing?

Is there going to be a weird IP situation where your customer patents products based off of your product and restricts you from selling it to their competition?

It’s hard to know the answer to these questions because the process of innovation has a lot of uncertainty. There is a lot less uncertainty in cutting costs to improve profitability or making things run more efficiently. Pushing the boundaries of what is possible is often too much risk and uncertainty for large companies. In a recession there is no money and in a roaring economy it’s all about returning money to shareholders.

If you want to develop something that could change how the world works in polymer chemistry or just chemistry in general my experience tells me that graduate school is the best time to make this happen. High risk is for venture capital and academics, but don’t take my word for it. 

Tony