K.White book

Innovation for Business: a 21st Century Development Model for Russia

Part XI

Russia is innately a very creative society. But the key fundamental gap right now is to take innovative ideas and move them into commercial markets.

A long but righteous road

With any typical project you start with an invention.

Then you start promoting this invention in international publications.

Then you have to work on the proof of the concept: is it really marketable?

Then you should identify investors to help you make a prototype.

Once you’ve made the prototype, you have to start testing and validation in US markets, European markets, Russian markets, Asian markets to verify that your products are going to be accepted by regulatory agencies in the different countries.

Then you should apply for patterns.

Then you have to start market studies.

Then you have to begin to look for more money to expand because you want to go from unit production to serial production when you will need an experienced management team.

Then you need to develop your macro-business plan to begin to look for credits from banks and serious PE for expansion strategies.

Once you have that, you need product development; you will need to begin working on marketing, promotion, branding, market positioning, and adjusting how the product looks to make it improve constantly so that it stays ahead of competitors’ or copycats’.

Terra cognita: learn and adapt

So, there’s a whole range of steps from waking up in the middle of the night saying, “I have an idea that’s going to change the world!” all the way to having a manufacturing plant supplying the produced product through a distribution system to buyers around the world.

And every step has been already taken by someone else.

Other companies have already gone through this process of commercialization. It’s not as if you were starting a process no one knows of; you can find other companies to examine how they have done it.

How was the iPod introduced? How was Apple Computers developed? How was it that Nokia overcame Motorola?

You can look at case studies of company after company of how they rose and fell; how they developed themselves, restructured themselves and expanded themselves.

If you’re developing a pharma product, investigate the pharma market. Who are the leaders in the world? What are consumer preferences? What are the trends?

And then you can begin to develop your own strategy for your innovation.

They did it

One good case study is Imalux Corporation developed in Nizhny Novgorod nearly 15 years ago.

This company developed its technology here by innovative scientists; it was then commercialized into the American market. The first financing it got was from Russia’s Bortnik Fund, a $100k loan back in 1996.

Then the company got an additional $30k from the Nizhny Novgorod Incubator Center for Technology Companies and then again, in 2000, another $151k from Edison Biotech Center.

Then they went on to get additional testing at the CCF. Then they hired a CEO.

They got additional grant financing from CRDF in 2001 for $230k. Then they got a grant for $542k in 2002 to continue to develop the commercialization of the product in the United States.

It then got in 2004 FTA approval, and in 2005 they raised $20m to expand this product in the US market.

This is a great success story. The capitalization of the company rose at every new stage. The investors continued to back the company and prepare it for each new stage. This was a normal commercialization strategy.

Unfortunately, in Russia there historically have been very few sources of capital for early stage and seed companies. We in Marchmont feel that this situation is starting to change.

Through programs backed by the Russian Venture Company and Rusnano there are new funds coming out, including the Venture Partner program developed by the RVC. These programs are designed to lower the risks for private angel investors to enter the market.

In a nutshell…

Most importantly, when you think of an innovation project, you need to bear in mind that it is a long-term process. That’s why you have to be motivated to work on it day and night over the next five, ten, fifteen, maybe even twenty years.

See how long it has taken Yandex to get where it is now. It received its first seed capital by an American in 1989. Today it is a large global company ready to compete head to head against Google in the global search markets.

If you’re involved in innovation, it’s unlikely that conquering markets is going to happen overnight.

Russia is innately a very creative society. But the key fundamental gap right now is to take innovative ideas and move them into commercial markets.

You need to be able to convince investors what projects are going to win the market and what projects aren’t. To the degree that you can convince them your new technology is going to be revolutionary or even disruptive you can attract a higher valuation for your intellectual capital.

I encourage you to go forward. If you believe in yourselves, you’ll be successful.

8 Nov '10

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