Welcome to the November issue of this newsletter focused on product development within the chemical industry. This is where I am trying to speak directly to the polymer chemists, scientists, engineers and the financiers of the chemical industry that read this newsletter. I'm also writing to those who hope to come work in the industry. I hope that my thoughts on this stuff will be helpful.

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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

The Polymerist

The Future Of Chemical Product Development