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Techno-Economics, Technology Transfer and Commercialization WorkshopPart 1: How to Determine the Commercial
Potential of InventionsApril 25, 2018
Thanks To…
In 2017, the UofC was awarded $75 million through The Canada First Research Excellence Fund (CFREF) with the intent of accelerating research toward the commercialization of energy technologies that reduce carbon emissions
Part of the CFREF funding was allocated to Training and Development in entrepreneurship with the hope that this would help researchers commercialize their technologies
The UofC partnered with Innovate Calgary to offer these workshops CREATE ME2 also has a training mandate and is pleased to offer
these workshops in coordination with CFREF and Innovate Calgary
About Peter Zyla
UofC Alumni and Haskayne MBA (2001) Leadership Table (operations and strategy): UltraVision, Forzani’s,
Divestco, Forbes, etc. Instructor: Mount Royal, UofC, Devry Stint as an entrepreneur Innovation and Entrepreneurship Strategist: Innovate Calgary, EOS,
etc.
About Innovate Calgary
Innovate Calgary is the innovation transfer and business incubator centre for the University of Calgary. As part of the Office of the Vice-President (Research) portfolio, we work closely with the Research Service Office to help bridge the gap between discovery and innovation. From ideation to commercialization, Innovate Calgary has successfully supported the innovation-driven research community for 35 years.
Workshop Objectives For participants to gain a good understanding of the Value Proposition Design concept. For participants to gain a solid understanding of the Business Model Canvas (vs. traditional
business plans). For participants to gain an understanding of the economic and regulatory environment of the
energy industry. To arm participants with tools to assess the commercial viability of their invention.
Bottom Line: Does your innovation have commercial potential?
Are you sure?
1.0 Introduction
Analyzing Your Invention: A Model
Define the problem your innovation is
solving
Validate the problem through customer
discovery
Pinpoint the segments you are
attempting to serve
Observe and record your
customer profile
Design your value proposition
Determine the fitbetween your value proposition and the
customer profile
Design your business model
Validate your business model
Valu
e Pr
opos
ition
D
esig
nBu
sine
ss M
odel
Ca
nvas
GO NO GO
• The concept of stage-gate is critical in your journey.• Like your own scientific research, business validation is about
stating a hypothesis and verifying this.• You would not spend considerable time in your lab on research
that does not hold up to scientific inquiry so why would you continue pursuing an invention if it holds no commercial promise?
2.0 Define the Problem
Define the problem your innovation is
solving
Validate the problem through customer
discovery
Pinpoint the segments you are
attempting to serve
Observe and record your
customer profile
Design your value proposition
Determine the fitbetween your value proposition and the
customer profile
Design your business model
Validate your business model
Define the Problem
Define The Problem The very first step for you is identify what problem you are
attempting to solve with your innovation The key is to focus on problems that customers have No solution will succeed unless it solves a real problem that enough
people have and are willing to pay for People (including companies) buy products or services to solve their
problems, rather than for specific features
Customers don’t buy PRODUCTS
Customers buy solutions to PROBLEMS
Define The Problem
Product Solution
Navigating a computer screen
Easier skiing
Simple, easy access to get somewhere
Case Study: Pipeline Leak Detection UofC engineering research team Began to research a nano-technology that could detect the
presence of hydrocarbons in 2011-12 Encouraging early research which led to IP protection and
Innovate Calgary engagement (2012) Early problem identified: existing methods for detecting oil
pipeline leaks are ineffective Research continued and a startup was formed in 2014 to begin
testing assumptions and hypotheses…
What is a Startup? A startup is not a company (nor even a small version of a large
company) A startup is a temporary organization in search of a scalable,
repeatable, profitable business model Think “pre-company” The start-up process tests your business hypotheses During the startup process you will decide to either advance, pivot or
fail fast
Fail fast is a philosophy that values extensive testing and incremental development to determine whether an idea has value. An important goal of the philosophy is to cut losses when testing reveals something isn’t working and quickly try something else, a concept known as pivoting.
3.0 Customer Discovery
Define the problem your innovation is
solving
Validate the problem through customer
discovery
Pinpoint the segments you are
attempting to serve
Observe and record your
customer profile
Design your value proposition
Determine the fitbetween your value proposition and the
customer profile
Design your business model
Validate your business model
Validate the Problem
What is Customer Discovery? Remember, you have a list of hypotheses about your idea or innovation…
— We are building product X, which will do Y & Z— Our product does Y & Z better than product A from our competition— Customers want Y and Z— Customers will buy product X and we will make loads of money
Your goal is to turn theories into facts through customer discovery (much like you do in the lab with experimentation)
You are attempting to validate the problem which has three aspects:1. It exists: people have it and have talked about it2. It is not being solved, or it is being solved poorly or ineffectively3. A reachable and sizable market has this problem
If you cannot validate your problem you need to fail fast or pivot!
Customer Discovery Defined
Customer Discovery is talking to potential customers (at least five) to…
— see if they have a problem you think they have— find out how they describe the problem, what words they use— find out what they’re using right now to solve the problem (identify
competitors)— find out if they’re willing to pay money to solve their problem— find out what their biggest problems are— find out what their ideal solution looks like
Case Study: Pipeline Leak Detection Assumptions
— We are building product X (spray-on nanoparticle leak detection sensors for pipelines), which will do Y (detect the presence of hydrocarbons on pipelines) & Z (real-time notification of a pipeline leak)
— Our product does Y & Z better than product A (ie. On-site monitoring or pressure/flow monitoring) from our competition
— Customers want Y and Z— Customers will buy product X and we will make
loads of money
Asssumed a few things...— Pipelined operators want real-time, accurate,
pipeline leak detection across their entire pipeline— Pipeline failures is a big concern to operators— Could perhaps create a ”push” market from
regulators
Case Study: Pipeline Leak Detection Early validation…
1. It exists: people have it and have have talked about it— Yes, the oil and gas industry has difficulty in detecting pipeline leaks with existing
technologies in a timely manner2. It is not being solved, or it is being solved poorly or ineffectively
— It is sorta solved but not very effectively (most detections are visual by the company onsite employees and contractors)
3. A reachable and sizable market has this problem— Seems to be (In Canada, between 2011-15, an annual average of 138 pipeline
incidents occurred; In the US, significant pipeline incidents average 300 annually over the past 30 years)
Therefore, we can validate this problem and move forward – no need to pivot or kill at this stage
4.0 Value Proposition Design
Define the problem your innovation is
solving
Validate the problem through customer
discovery
Pinpoint the segments you are
attempting to serve
Observe and record your
customer profile
Design your value proposition
Determine the fitbetween your value proposition and the
customer profile
Design your business model
Validate your business model
Segments, Customer Profile, Value Proposition
Overview Once you have identified the problem you are attempting to solve and
validated the problem, the next step in customer discovery is to determine if there is fit between your solution and the customers’ needs/wants
A very valuable tool to use is the Value Proposition Canvas
Developed by Strategyzer in the book Value Proposition Design and written by Alex Osterwalder and his team (with over 5 million customers using the models now)
Introducing the Value Proposition Canvas The Value Proposition Canvas is a tool entrepreneurs use when deciding what solution
(called a Value Proposition) they are offering It consists of two pieces: the left side is called the Value Map and the right side is called
the Customer Profile
Gain Creators
Pain Relievers
Products & Services
Value Map
The set of customer characteristics that you assume, observe and verify in the market.
The set of value proposition benefits that you design to
attract customers.
Customer Profile
Gains
Pains
Customer Jobs
Segments The first step in creating a customer profile is breaking your potential customers
into segments A segment is a group of your customers that have similar problems and
characteristics that you are creating value for• You must answer these questions:
• For whom are we creating value?• Who are our most important customers?• What are the customer profiles?• Are there other customer segments we could be reaching?• What kinds of customers are you serving?• What are their problems?
• These segments become your “Target Markets”
Segmentation Variables
Typical B2B Segmentation Variables
Demographic
(Industry, Company Size, Location)
Operating Variables
(Technology, User Status, Customer Capabilities)
Purchasing Approach
(Purchasing Function, Buyer-Seller Relationships, Purchasing Policies, Purchasing Criteria)
Situational Factors
(Urgency of Order, Product Application, Size of Order)
Buyer’s Personal Characteristics
(Character, Approach, Loyalty, Risk Attitude)
Typical B2C Segmentation Variables
Demographic(Age, Gender, Race, Ethnicity, Income, Education, Occupation, Family
Size, Family Life Cycle, Religion, Social Class)
Geographic (Region, Urban/Suburban/Rural, Region Size, Market Density, Climate,
Terrain)
Psychographic
(Personality Attributes, Motives, Lifestyles)
Behavioral
(Usage, End Use, Benefit Expectations, Brand Loyalty, Price Sensitivity)
Customer Segments
Customer Profile Once you’ve established the
segments, then you need to work on the customer profile for each segment
Remember, this is observed
Customer Profile
Gains
Pains
Customer Jobs
The things, whether expected or
unexpected, that benefit customers or
make their jobs easier.
The things that hinder your customers from
doing their jobs or make their jobs harder.
The things your customers do on a
regular basis, whether in their actual jobs, in social
situations or in their personal lives.
Case Study: Pipeline Leak DetectionCustomer Segment: Oil
Pipeline Operators in Canada: VP Pipeline Operations &
Integrity no false alarms – very accurate
easy to use systems
ensure positive public perceptionlow cost operations
low cost to install
easy to install
rapid detection
good range of operating conditions
durable
false alarms = pipeline downtime
complicated systems
systems costly to operate
not reliable –breaking down
systems expensive to install
not clear on extent of spill
spill gets out of control
deal with leaks quickly
detected by the company, not the public
maximize pipeline uptime
keep operating costs low
minimize regulatory interference
Customer Jobs
Gains
Pains
negative public perception
Customer Profile
The Value Map Once you have identified your customer’s
problems (jobs, pains and gains), it’s time to identify your solution – your Value Proposition
A value proposition is all of the benefits customers can expect from your solution and is displayed using the value map
Value is what customers will pay for, tell their friends about and will keep paying for in the future
This is different from the customer profile as you have control over them
While you don’t decide what problems your customers have, you can decide which of those problems to solve and how
Remember, this is designed
Gain Creators
Pain Relievers
Products & Services
Value Map
How your products or services create specific
customer gains.
How your products or services solve specific pains that customers
face.
All of the products and services your company
offers to customers.
Case Study: Pipeline Leak Detection
spray on nanoparticle hydrocarbon sensors
independent power source
communication device
leak detection notification system
no false alarms
direct detection (not a proxy)
speedy notification of leaks
reversible
accurategood range of operating conditions
good adhesion
positive public perception
regulatory “hands off”
entire pipeline covered
Gain Creators
Products & Services
Pain Relievers
detects hydrocarbon directly
linked to existing monitoring systems
Value Map
5.0 Finding Fit
Define the problem your innovation is
solving
Validate the problem through customer
discovery
Pinpoint the segments you are
attempting to serve
Observe and record your
customer profile
Design your value proposition
Determine the fitbetween your value proposition and the
customer profile
Design your business model
Validate your business model
Determine Fit
Finding Fit Fit occurs when the two sides of the Value Proposition Canvas line up This happens when your value proposition (your solution) is addressing the jobs, pains
or gains (the problems) of your customer segment Striving for fit is the essence of value proposition design
FIT!
“Your customers are the judge, jury and executioner of your value proposition. They will be merciless if you don’t find fit!”
-Alex Osterwalder, Value Proposition Design
Value Map Customer Profile
Types of Fit
You have evidence you are creating value for your customers
You are gaining customers in your chosen customer segment (traction)
You are working to test the assumptions you made about your solution
You are turning a startup into a company
Problem-Solution Fit(On Paper)
You have chosen a customer segment to target
You have evidence that your customers have certain jobs, pains and gains
You have designed a solution that addresses those jobs, pains and gains
The fit between your customer’s problem and your solution exists on paper, but is still unproven in the real world
You are turning an idea into a startup You have evidence that your solution is
solving your customers’ problems
You have evidence that your solution can fit into a profitable and scalable business model
You are generating a profit Your startup has become a
company
Business Model Fit(In the Bank)
Product-Market Fit(In the Market)
Case Study: Pipeline Leak DetectionCheck marks signify that products and services relieve pains or create gains and directly address one of the customers’ jobs, pains or gains.
X’s show which jobs, pains and gains the value proposition does not address.
easy to install
low cost to install
systems expensive to installspill gets out of
control
false alarms = pipeline downtime
rapid detection
no false alarms – very accurate
negative public perception
not clear on extent of spill
easy to use systems
complicated systems
not reliable –breaking down
durable detected by the company, not the public
ensure positive public perception
maximize pipeline uptime
deal with leaks quickly
minimize regulatory interference
positive public perception
regulatory “hands off”
speedy notification of leaks
accurate
leak detection notification system
entire pipeline covered
communication device
independent power source
no false alarms
direct detection (not a proxy)
Gain Creators
Products & Services
Pain Relievers
detects hydrocarbon directly
good range of operating conditions
Customer Jobs
Gains
Pains
good range of operating conditions
low cost operations
keep operating costs low
linked to existing monitoring systems
spray on nanoparticle hydrocarbon sensors
good adhesion
reversible systems costly to operate
?’s show what are still unclear in terms of our offering.
Customer Profile Ranking Factors should be ranked according to how your customers actually think and feel – not
just your guess or how you think or feel
Job ImportanceRank jobs according to their importance to customers.
IMPORTANT
NOT IMPORTANT
Pain SeverityRank pains according to how extreme they are in the customers’ eyes.
Gain RelevanceRank gains according to how essential they are in the customers eyes.
EXTREME
MODERATE
ESSENTIAL
NOT ESSENTIAL
Value Proposition Ranking Factors should be ranked according to how your customers actually think and feel – not
just your guess or how you think or feel
SolutionsRank solutions according to their importance to customers.
IMPORTANT
NOT IMPORTANT
Pain RelieversRank pain relievers according to how essential they are in the customers’ eyes.
Gain CreatorsRank gains according to how essential they are in the customers’ eyes.
EXTREME
MODERATE
ESSENTIAL
NOT ESSENTIAL
Case Study: Pipeline Leak Detection
Customer JobsGainsPainsGain Creators Products & ServicesPain Relievers
low cost to install
easy to installgood range of operating conditions
easy to use systems
maximize pipeline uptime
minimize regulatory interference
accurate
no false alarms
speedy notification of leaks
direct detection (not a proxy)
positive public perception
detects hydrocarbon directly
regulatory “hands off”
leak detection notification system
communication device
independent power source
entire pipeline covered
false alarms = pipeline downtime
spill gets out of control
not clear on extent of spill
negative public perception
no false alarms – very accurate
rapid detection
deal with leaks quickly
detected by the company, not the public
linked to existing monitoring systems
low cost operations
durable
good range of operating conditions
good adhesion
reversible
spray on nanoparticle hydrocarbon sensors
systems costly to operate
keep operating costs low
ensure positive public perception
systems expensive to install
complicated systems
not reliable –breaking down
Case Study: Pipeline Leak Detection: Fit?
X You have evidence you are creating value for your customers
X You are gaining customers in your chosen customer segment (traction)
You are working to test the assumptions you made about your solution
You are turning a startup into a company
Problem-Solution Fit(On Paper)
You have chosen a customer segment to target
You have evidence that your customers have certain jobs, pains and gains
X You have designed a solution that addresses those jobs, pains and gains
The fit between your customer’s problem and your solution exists on paper, but is still unproven in the real world
You are turning an idea into a startupX You have evidence that your solution is
solving your customers’ problems
X You have evidence that your solution can fit into a profitable and scalable business model
X You are generating a profit Your startup has become a
company
Business Model Fit(In the Bank)
Product-Market Fit(In the Market)
Case Study: Pipeline Leak Detection The startup realized a problem-solution fit could not be found for the
original design (coated pipeline) Why? Perhaps the biggest challenge was the cost to install across and
entire pipeline, questions surrounding the durability of the coating once installed and unknown costs to operate
Two options existed: kill the project or pivot…
Case Study: Pipeline Leak Detection The startup pivoted and developed the Subsense LDS Product…
— Developed in collaboration with an industry partner— Leak detection and monitoring system for existing or new pipelines— Suitable for high consequence areas: water crossings or urban areas— Market ready by Q1-2018— Validated at 3rd party facility— Fabricated field ready prototype at KICS/SAIT facility
GO NO GO
If you cannot find fit between what you are offering (value proposition) and what the customer wants (solution to a problem),
you must determine if this is a go or no go.
Remember these key concepts: kill, pivot or proceed.
6.0 Business Models
Business Plan vs Business Model
Business Plan Used by traditional businesses Static Based on untested hypotheses Once written, very difficult to change Intended to be used as a finished
plan, despite feedback from customers
Usually text document that spans several pages
Might be required by investors, grantors and others
Business Model Used by startups Dynamic Provides tested hypotheses Designed to be changed with each
test Intended to be used with customer
discovery Visual document using the Business
Model Canvas Leads to startup success if used
properly
What’s a Business Model (and why you need one)?
Remember, your goal is to create value for your customer Once we’ve established the “fit” between your offering and
the customer’s pains, gains and jobs, its time to search of a business model
A business model describes how we will deliver value to our customer
7.0 The Business Model Canvas
Define the problem your innovation is
solving
Validate the problem through customer
discovery
Pinpoint the segments you are
attempting to serve
Observe and record your
customer profile
Design your value proposition
Determine the fitbetween your value proposition and the
customer profile
Design your business model
Validate your business model
Define Your Business Model
The Business Model Canvas
The Business Model Canvas is a visual tool used by startups to map out the way they intend to make money (deliver value)
The Canvas consists of 9 parts and how they interact with each other (the model)
In order to create a profitable business , you need to think about and plan each part of the Canvas, not just your solution
Video
1. Customer SegmentsCustomer Segments
Who you’re selling to
• The Customer Segment Building Block defines the different groups of people or organizations an enterprise aims to reach and serve
• Segments have common needs, common behaviours or other attributes
• Can target one or more customer segments
Remember?
Case Study: Pipeline Leak DetectionCustomer Segments
Who you’re selling to
• You may remember that we identified the primary customer segment as the VP Pipeline Operations & Integrity
• Broadly speaking, the target segment is Canadian pipeline operating companies
• Earlier in this workshop, we also identified their jobs, pains, and gains (their problems) – pipeline downtime and costs emerged as critical pains/gains
Canadian pipeline companies
VP Pipeline Operations
2. Value Proposition• Remember, the Value Proposition
Block describes the bundle of products and services that create value for a specific Customer Segment
• The Value Proposition is the reason why customers turn to one company over another
• It solves a customer problem or satisfies a customer need
• It is an aggregation, or bundle, of benefits that a company offers customers
Value Proposition
What you’re selling
• You must answer these questions:
• What value do we deliver to the customer?
• Which one of our customers’ problems are we helping to solve?
• What bundles or products and services are we offering to each segment?
• Which customer needs are we satisfying?
Case Study: Pipeline Leak Detection
• Earlier, we clearly mapped out our value proposition but needed to pivot
• Developed the LDS Model (Subsense)
• Resolved issues of costs and durability
Value Proposition
What you’re selling
Low install cost
Low operating cost
Reliable & durable
Accurate
Turnkey hydrocarbon leak detection system
3. Channels
Channels
How you reach customers
• The Channels Building Block describes how a company communicates with and reaches its Customer Segments to deliver a Value Proposition
• Communication, distribution and sales channels compromise a company’s interface with customers
• Channels are customer touch points that play an important role in the customer experience
• You must answer these questions:• Which channels reach our customer segment?• How do other companies reach them?• Which ones work best?• How do your customers want to be reached?
AwarenessHow do we raise awareness about our company’s products/services?
EvaluationHow do we help customers evaluate our organization’s Value Proposition?
PurchaseHow do we allow customers to
purchase specific products/services?
DeliveryHow do we deliver a Value Proposition to customers?
After SalesHow do we provide post-purchase
customer support?
3. Channels
Case Study: Pipeline Leak Detection
Channels
How you reach customers
• Since this is a B2B play, mass marketing does not work
• Instead, the company must rely on personal and professional networks to reach our intended segment (VP Pipeline Operations)
• This can be very difficult if you do not know the industry
Personal networks
Professional affiliationsDirect B2B
Sales force
4. Customer RelationshipsCustomer Relationships
How to get/keep customers
• The Customer Relationships Building Block describes the types of relationships a company establishes with specific Customer Segments
• Relationships can range from personal to automated• Customer relationships may be driven by
motivations such as customer acquisition, customer retention and/or upselling
• You must answer these questions:• How do we get, keep, and grow customers?• Which customer relationships do we have?• How costly are they?• What relationship do you want between your business and
your customers?• Will it be personal, automated, acquisitive, retentive?
Case Study: Pipeline Leak DetectionCustomer Relationships
How to get/keep customers
• The company’s relationship with their segment is very personal
• Can be costly to maintain• Frame it as “we are in this together” - a
partnership• Key is building trust through time and proof of
concept
Personal contact/touch
In this together
Relationship-based
Make them look good
5. Revenue Streams
Revenue Streams
How you make money
• The Revenue Streams Building Block represents the cash a company generates from each Customer Segment
• If customers are the heart, revenue streams are the arteries
• Revenue streams can vary widely from usage fees to subscription, to one-time, to many others
• The key is finding out what your target segment is willing to pay for and how
• You must answer these questions:
• For what value are our customers really willing to pay?
• For what do they currently pay?• What is the revenue model and
the pricing tactics?
5. Revenue Streams
Case Study: Pipeline Leak Detection
Revenue Streams
How you make money
• For the LDS, the company has a few options for revenue streams
• Proposing a mix of transactional (purchase the unit outright) + on-going (maintenance)
• Exploring possible lease (rent) options (like rig matts)
Purchase LDS unit
Installation
Maintenance
The CanvasValue Proposition
What you’re selling
Channels
How you reach customers
Customer Relationships
How to get/keep customers
Customer Segments
Who you’re selling to
Revenue Streams
How you make money
6. Key Resources
Key Resources
Who makes the solution and how
• The Key Resources Building Block describes the most important asset required to make a business model work
• Different resources are required dependent upon the business
• Most resources can be grouped into one of the following: physical, intellectual, financial and human
• You must answer these questions:• What key resources do our value propositions require?• Our distribution channels?• Customer relationships?• Revenue streams?
6. Key Resources
Case Study: Pipeline Leak Detection
Key Resources
Who makes the solution and how
• Key resources earlier on are:• Sales People• Design & Engineering People
Offshore manufacturing?
Sales force
Management teamField installers / maintainers
IT
7. Key ActivitiesKey Activities
What you have to do to get the solution to
the customer
• The Key Activities Building Block describes the most important things a company must do to make its business model work
• Key activities are dependent on the type of business model
• You must answer these key questions:• What key activities do our value propositions require?• Our distribution channels?• Customer relationships?• Revenue streams?
7. Key Activities
Online Platform
Distribution
Suppliers
Case Study: Pipeline Leak DetectionKey Activities
What you have to do to get the solution to
the customer
• Similar to the Key Resources, the LDS Company needs to focus on the key activities of: manufacturing, installation/maintenance, sales and perhaps R&D
Manufacturing units
Installing & servicing units
Continued R&D
Sales
Support (like IT)
8. Key PartnersKey Partners
Who helps you make or sell your solution
• The Key Partners Building Block describes the network of suppliers and partners that make the business model work
• Companies create alliances to optimize their business model and economy of scale, reduce risk and uncertainty, or acquire resources
• You must answer these key questions:• Who are our key partners?• Who are our key suppliers?• Which key resources are we acquiring from our
partners?• Which key activities do our partners perform?
Strategic alliances between non-competitors
Coopetition: strategic partnerships between
competitors
Joint Ventures to develop new businesses
Buyer-supplier relationships to assure
reliable supplies
Case Study: Pipeline Leak DetectionKey Partners
Who helps you make or sell your solution
• A few options exist for the LDS company for partnerships
• First, joining pipeline associations (CEPA in Canada) can help sales efforts
• Second, the company may joint venture with existing LDS companies to add to their offering
• Third, the company may seek agreements with pipelines service companies to gain access to their clientele
Pipeline associations
Other LDS companies?
Pipeline service companies
9. Cost Structure
Cost Structure
The money the company needs to spend to do business
• The Cost Structure Building Block describes all costs incurred to operate a business model
• Costs should appear once you’ve defined resources, activities and partnerships• Two extremes: cost-driven vs. value-driven• You must answer these key questions:
• What are the most important costs tied to our business model?• Which key resources are most expensive?• Which key activities are most expensive?
Case Study: Pipeline Leak Detection
Cost Structure
The money the company needs to spend to do business
• The company faces three main cost areas:• Manufacturing the units• Sales and marketing costs to reach customers• Field labour costs for installation and maintenance
Manufacturing costs
Field labour costsSales & marketing costs
The CanvasValue Proposition
What you’re selling
Channels
How you reach customers
Customer Relationships
How to get/keep customers
Customer Segments
Who you’re selling to
Revenue Streams
How you make money
Key Resources
Who makes the solution and how
Key Activities
What you have to do to get the solution to
the customer
Key Partners
Who helps you make or sell your solution
Cost Structure
The money the company needs to spend to do business
8.0 Validation
Define the problem your innovation is
solving
Validate the problem through customer
discovery
Pinpoint the segments you are
attempting to serve
Observe and record your
customer profile
Design your value proposition
Determine the fitbetween your value proposition and the
customer profile
Design your business model
Validate your business model
Validate the Business Model
Startup
You’ve worked through your business model but now what? It’s time to test your model (validate your assumptions) Remember that you form an entity called a “startup” A startup is a temporary organization in search of a scalable,
repeatable, profitable business model It’s all about talking to customers to verify your assumptions
Key Analysis #1
You have designed a solution to a problem for a specific segment (or segments) and have validated that through customer discovery
Customer Segments
Value Proposition
Canadian pipeline companies
VP Pipeline OperationsLow install cost
Low operating cost
Reliable & durable
Accurate
Turnkey hydrocarbon leak detection system
YES
Maximize pipeline uptime
Keep operating costs low
Low cost & easy to install
Key Analysis #2
You understand how to reach your customers and can actually achieve this at a reasonable cost
Customer Segments
Value Proposition
Channels
Personal networks
Professional affiliationsDirect B2B
Sales force
Probably
Key Analysis #3
You understand what type of relationship your customer segments want and can actually build that relationship
Customer Segments
Value Proposition
Customer Relationships
Probably
Personal contact/touch
In this together
Relationship-based
Make them look good
Key Analysis #4
You’ve figured out what your customer segments are willing to pay for and how they will pay
Customer Segments
Value Proposition
Revenue Streams
Probably
Purchase LDS unit
Installation
Maintenance
Key Analysis #5
You’ve determined what key resources are required to deliver your value proposition and can you access those resources
Value Proposition
Key Resources
Offshore manufacturing?
Sales force
Management teamField installers / maintainers
Yes
IT
Key Analysis #6
You understand what key activities are needed to deliver your value proposition and feel comfortable executing these activities
Value Proposition
Key Activities
Yes
Manufacturing units
Installing & servicing units
Continued R&D
Sales
Support (like IT)
Key Analysis #7
You’ve determined the key partners required to deliver your value proposition and feel that agreements could be reached
Value Proposition
Key Partners
Maybe
Pipeline associations
Other LDS companies?
Pipeline service companies
Key Analysis #8
You know precisely what it will cost to deliver your value proposition and have shown a profit is possible
Value Proposition
Cost StructureMaybe
Manufacturing costs
Field labour costsSales & marketing costs
Validation
If you have answered ”yes” to all (or at least most) of these, you’ve validated your business model (you have located a scalable, repeatable, profitable business model
If not, you may need to pivot (iterate ) or fail fast The next step is continue work on your MVP and move toward
company creation
Case Study: Pipeline Leak Detection
Have they found a scalable, repeatable, profitable business model?
— Yes, the value proposition is compelling for the Segment— We need further customer discovery on…
Channels (reaching our customer) Whether they can actually build customer relationships Whether they can form the necessary partnerships Most importantly, whether the financial model is viable
Further customer discovery is required to verify
GO NO GO
Case Study: Pipeline Leak DetectionCustomer Segments
Who you’re selling to
Canadian pipeline companies
VP Pipeline Operations
Value Proposition
What you’re selling
Low install cost
Low operating cost
Reliable & durable
Accurate
Turnkey hydrocarbon leak detection system
Channels
How you reach customers
Personal networks
Professional affiliationsDirect B2B
Sales force
Customer Relationships
How to get/keep customers
Personal contact/touchIn this together
Relationship-based
Make them look good
Revenue Streams
How you make moneyPurchase LDS unit
Installation
Maintenance
Key Resources
Who makes the solution and howOffshore manufacturing?
Sales force
Management teamField installers / maintainers
Key Activities
What you have to do to get the solution to
the customer
Manufacturing units
Installing & servicing units
Continued R&D
Sales
Key Partners
Who helps you make or sell your solution
Pipeline associations
Other LDS companies?
Cost Structure
The money the company needs to spend to do businessManufacturing costs
Field labour costsSales & marketing costs
Support (like IT)
IT
For Fun: Apple iPod / iTunes Business Model (circa 2001)
Customer Segments
Mass market
Value Proposition
Seamless music experience
Channels
Apple stores
Apple.com (iTunes)
Retail stores
Customer Relationships
Love apple
Switching costs
Revenue Streams
Hardware (iPod)
iTunes store (music)
Key Resources
iTunes software & content
iPod Hardware
Key Activities
Hardware design
Marketing
People
Key Partners
Record companies
Cost StructurePeople
Marketing & salesManufacturing
Closing
Summary
Define the problem your innovation is
solving
Validate the problem through customer
discovery
Pinpoint the segments you are
attempting to serve
Observe and record your
customer profile
Design your value proposition
Determine the fitbetween your value proposition and the
customer profile
Design your business model
Validate your business model
Valu
e Pr
opos
ition
D
esig
nBu
sine
ss M
odel
Ca
nvas
Next Steps
Get the Strategyzer Books Download the Business Model Canvas and Value Proposition Design
(https://strategyzer.com/canvas/business-model-canvas) and (https://strategyzer.com/canvas/value-proposition-canvas)
Test your idea(s) or innovation(s) using the models Use the Innovate Calgary Team to help you Please see the resource list at the beginning of this workshop Attend the next workshop on Prototyping and Starting a Company Understand that it’s ok to fail fast or pivot
Did We Achieve Our Objectives? For participants to gain a good understanding of the Value Proposition Design
concept. For participants to gain a solid understanding of the Business Model Canvas (vs.
traditional business plans). For participants to gain an understanding of the economic and regulatory
environment of the energy industry. To arm participants with tools to assess the commercial viability of their invention.
Bottom Line: Does your innovation have commercial potential?
Are you sure?
Peter Zyla587 582 3713
Please don’t forget to register for the next CREATE ME2 Workshop on May 9th!
Techno-Economics, Technology Transfer and Commercialization Workshop
Part 2: Economics & Regulatory Environment of The Energy Industry
April 25, 2018
Outline
Introduction
Electricity Grid Energy Storage Applications
Market and Regulatory Barriers
Alberta’s Market
Electricity Grid
Generation
Ancillary Services
Transmission
Renewable Energy
DistributionResidential Consumers
Commercial & Industrial Consumers
Storage Applications
Supply shortagesPower station outagesVariable demandEnergy ArbitrageFrequency regulationVoltage support
Transmission CongestionTransmission Deferral
Extreme VariabilityOver-supply of RE
Constrained Distribution
Distributed Storage
Question:
Despite all the benefits, why energy storage technologies are not vastly used in real world?
1. Technology Barriers
2. Regulatory Barriers
Structure of Regulated Industry
Generation & Ancillary Services
Transmission Distribution
One Company:Compensated through cos-of-service
rate-based
Restructured Market
Transmission DistributionGeneration & Ancillary Services
1. Wholesale Market2. Compensated throughthe market mechanism
market-based
1. Regulated2. Compensated throughcost-of-service
rate-based
1. Regulated2. Compensated throughcost-of-service
rate-based
Market and Regulatory Barriers
Regulatory Barriers
Transmission & Distribution:
— No Market Incentives
— Designed such that their services do not mix with the market-based services:
1. To ensure price signals are not distorted.2. To guarantee no party is active in both sides of the market.
Nevada Hydro
Western Grid Oncor
Nevada Hydro
Proposed a 600 MW pumped-storage to relieve transmission congestion in San Diego.
Requested its investment costs to be rate-based.
Proposed a mechanism for storage to be operated by California ISO.
FERC initially allowed the payments to the project to be rate-based.
Cal-ISO opposed the mechanism as it would threaten ISO's independence.
After 10 years, no action has been made yet!
Western Grid
Proposed a battery storage to provide transmission services in California.
Requested to be rate-based.
FERC ruled in favor of the proposal.
Cal-ISO evaluated the project not economical!
Oncor
As a regulated T&D utility offered storage to the benefit of Texas market.
Generation companies and industrial loads opposed the idea of regulated utilities
owning assets with potential energy transactions with the competitive market.
Oncor not even officially filed the project!
Regulatory Barriers
Generation & Supply Adequacy:
— Policies and market rules for storage are not clearly defined.
E.g. Should storage assets be treated as a generator or load?
— However, the regulatory uncertainty is starting to clear.— New rules expand the scope of storage participation:
FERC Order No. 841 (Feb. 2018)
FERC Order No. 755 (Oct. 2011)
FERC Order 841
On February 15, FERC approved a rule designed to “remove barriers to the
participation of electric storage resources” in the wholesale energy markets.
Each of RTOs and ISOs have 9 months to come up with a plan for revising its tariff to
“establish participation model for electric storage resources”.
FERC Order 841
The participation model:1. Storage system must be eligible to provide all capacity, energy and ancillary
services that it is technically capable of providing.
2. The model must account for the physical and operational characteristics of
electric storage resources.
3. The model must set a minimum size requirement that does not exceed 100
kilowatts.
4. Storage system must buy and sell electricity at locational marginal price.
FERC Order 755
To ensure that storage technologies offering frequency regulation services to the
grid would receive compensation.
FERC order raised the private benefit from provision of such services for storage
systems.
The policy increased the likelihood of adding a new storage facility by 28% in US.
Alberta’s Market
Market Rules in Alberta
Currently, it is not clear for storage facilities how to participate in the energy or ancillary services market.
Current legislation does not support a storage unit which provides energy or ancillary services to also be part of the rate regulated transmission system.
Market Rules in Alberta
It is possible for a storage asset to operate exclusively as a transmission facility to address certain specific reliability circumstances.
Owner of a storage facility would be charged twice:1. for location-based cost of losses when discharging.2. reasonable costs of the transmission system as applicable to load when
charging.
