Commercializing is Viability

Going through the process is it. Scale hopefully follows later.

When I’ve been discussing strategy with founders in the chemicals and polymeric materials space, I think that sometimes the vision of what the world could be (needed for raising money), can get in the way of commercializing a business. This vision is often described as a world that needs less crude oil (or none), produces less emissions, and “trash” is viewed as a starting material for a circular economy. When I hear this vision from founders it sounds like a veritable utopia. Thinking that you can create a company that will meaningfully deliver on your vision starting from 0 revenue and no existing products in less than 10 years is naivety at best and fraudulent at its worst.

Let’s use Tesla as an example and let us say you are the Elon Musk (pre-Twitter acquisition) of chemicals. Telsa was founded in 2003 and the Model 3 was delivered in 2017—14 years until a “mass market” car could be launched. If we compare the “affordable” Model 3 against all of the cars that are currently available, I argue that the Model 3 is still a specialty product. If you want the cheapest “new” car to get you from point A to point B, then you might as well just get a Mitsubishi Mirage (about 53% cheaper than the Model 3).

If you are a start-up trying to launch a sustainable chemical like Farnesene that’s going to replace isoprene or butadiene, even if you have a product and Kuraray has one (also experienced at selling value add specialty chemicals), it’s akin to launching a Model 3 and selling to people trying to buy a $1500 Ford Focus with 190k miles on Craiglist.

Part of the issue around start-ups in chemicals (not pharma) is that we are often constrained by the technology and what you don’t know that you don’t know (which is why you should read this newsletter).

Making Stuff in a Lab is not Commercialization.

Invention, innovation, discovery, research, or whatever word you want to use to describe making Cool Stuff(TM) is not the same as commercialization. Making cool stuff is fucking around. Trying to sell that cool stuff you made is finding out.

Making new stuff and inventing new technologies in a lab is pivotal to any sort of innovation engine that will be placed into a commercialization vehicle—also known as a company. Research happens in a lab because the Federal Government decided that they would give some academics money to pursue fundamental research into particular areas meaningful for the future. The White House, for example in 2022, put out a very ambitious plan for biobased materials and biomanufacturing. The bet here (and it always has been) is that pursuing fundamental and applied research into these areas like biomanufacturing will create:

1. A trained workforce in a difficult technology

2. The conditions needed for breakthrough technologies

3. Breakthrough technologies being commercialized into companies

This bet as somewhat paid off in that over the last 20 years because we have had companies founded because of points 1, 2, and 3. We just haven’t had a lot of Variants succeed (outside of pharma), but we just need one Variant to discover their glorious purpose.

The issue I think is often that founders, investors, and early hires to start-ups have never commercialized a new chemical—ever. It looks a little bit like this (order of occurrence is debatable) and assumes you have a truckload of money:

1. Create your Cool Stuff (includes verifying it’s real and it’s cool)

2. Get a safety data sheet

3. Is there a CAS#? (if not, get one)

4. Did someone patent this yet?

   1. If not, you might want to patent it or develop a process for maintaining confidential information

   2. Wait, is a CAS# a public disclosure of your invention (definitely talk to a patent attorney on the order of these things, this isn’t legal advice)

5. Send your Cool Stuff to customers to see if they like it

6. Customers tell you that your stuff sucks

   1. Decide if you need to go back to step 1 or if that particular customer is dumb and cannot realize your awesome vision

7. Your customers tell you that they lost the stuff that took you WEEKS TO MAKE FOR THEM IN A LAB, and can you send some more for next week?

8. You re-send the stuff and the customers say, “this is definitely cool stuff.”

9. Your customers ask you how much its costs and when can they buy 5 truckloads a week

10. You panic and start trying to accurately cost everything and think:

    1. I should have done this after step 1

11. You realize that your cool stuff

    1. isn’t worth what the market will pay and it’s back to step 1 or

    2. is wildly profitable if [insert big unknown thing here] is possible.

12. File a pre-manufacturing notice (PMN) with the EPA

    1. you need customer use information for this stuff in order to determine exposure risks, see steps 6-9

13. Waiting for the EPA to respond (it can take 1-2 years)

14. While waiting for the EPA you either find a place to manufacture your cool stuff or you decide to build a manufacturing facility. If you are building get ready for the fund-raising world tour and saying something like, “it’s time to build” because Marc Andreessen said it once in a blog post and you are hoping to do some sort of inception/subliminal messaging that giving you millions of dollars is a good idea because you are echoing Marc Andreessen (probably only works if the person likes Marc Andreessen)

15. Manufacture your stuff and find out it costs a bit more than you anticipated

    1. How were you supposed to know that XYZ raw material was tied to the ammonia prices, which are determined by natural gas prices and that there would be a natural gas crisis in Europe?

    2. You didn’t know Russia was going to invade Ukraine.

    3. Realize you also need to develop a quality system, become ISO 9001 compliant, and hope your stuff doesn’t mess up your customer’s stuff or their customer’s stuff.

16. Deliver stuff to customer and realize that you need 50 more customers buying similar volumes for your manufacturing site to become profitable.

17. Repeat steps 5-9 to get to step 16, skip steps 10-15,

18. Remove costs by being efficient and hiring someone with a black belt Six Sigma

    1. Follow that link on Six Sigma instead of Googling or ChatGPTing

19. Contemplate if there is a SaaS solution for all your problems

    1. Answer is yes. But now you have clunky SaaS problems.

20. Ask yourself why you are doing this and not getting paid 5x more money to engineer an algorithm to get people to buy stuff they don’t need like Chad who lived a floor below you freshman year of undergrad and now works for Meta.

    1. Then realize you need to delete Facebook and Instagram because it’s making you depressed because Chad, who used to open beer bottles with his teeth, is on a sailing yacht off the coast of Croatia with your crush from junior year.

OK, that’s like the highest-level version that I felt was representative of the process, but there are all sorts of different flavors. Are you selling a value-added specialty thing or are you trying to do commodity stuff and you are competing against manufacturing sites located in countries where there are no environmental protections. Just doing steps 1-17 on a small scale without a lot of CAPEX, if you can find a place to contract manufacture for you, is essentially an MBA in chemicals. Doing it again and again puts a team in a top tier operational world that is hard to find and if it’s in a new technology it might be worth just as much, if not more, than your patents.

Going through the commercialization process, even if it’s for $30,000 of annual revenue, means it’s going to be easier when it’s for $100,000 annual revenue and easier when it’s $1,000,000. Better to fail on small targets and then be smooth on the big ones. If you need a phrase borrowed from the military then use, “slow is smooth and smooth is fast.”

What this means tactically

I somehow went from biomanufacturing to military aphorism above. Podcasts are dangerous. I might also be overcaffeinated and under slept.

Finding small little revenue opportunities sounds difficult. It means you are probably cold calling people with a very small team. You don’t know which way is up. You don’t know if anything is right or wrong. You’ve never done this before. You are pretty sure you got something cool. You might end up in some questionable situations.

For example, my thesis adviser once had an opportunity to trial some of his lab’s biosurfactants (sophorolipids) in the fracking world (back in 2010 when fracking was wildly profitable). There was a literal well (oil well) of money being offered to him if the biosurfactants from the lab could make fracking a little less horrible environmentally. He ultimately decided to not pursue the applications in fracking. If you do have some money and want to invest in fundamental research into sophorolipids I can make an introduction. Fracking is still done today, much differently than 2010, and it appears that the world has decided to pursue rhamnolipids.

I can’t be your moral guide, but I think for an early-stage company looking to get early commercial traction it’s going to be beneficial to have gone through any sort of commercialization process early and ideally more than once. I think it’s more difficult than any sort of technical accomplishment (I wrote about differences here). Additionally, to be successful you essentially need three different elements to be in sync with your company which I wrote about here.

Finally, if you can’t get any sort of little commercialization trials early you might as well try and hire someone (full time or as a consultant) who has experience with the process somewhere else and was successful. I think your best bets will often resemble someone who is/was deeply technical that is now a product/project manager.

Remember, when we invented polyethylene (1933) we didn’t get the “single use” bag until 1965. First large volume applications of polyethylene were insulating cables like the ones that got laid across the bottom of the Atlantic so the Allies could call each other on the telephone.

Go find the next “cable insulation” market.

Tony