Techno-Economics, Technology Transfer and Commercialization Workshop - - PowerPoint PPT Presentation

Techno-Economics, Technology Transfer and Commercialization Workshop

Part 1: How to Determine the Commercial Potential of Inventions

April 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 fit between your value proposition and the customer profile Design your business model Validate your business model

Value Proposition Design Business Model Canvas

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 fit between 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

• f 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 fit between 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 it 2. It is not being solved, or it is being solved poorly or ineffectively 3. 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 manner

2. 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

• nsite 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

• ver 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 fit between 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,

• bserve 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 Detection

Customer Segment: Oil Pipeline Operators in Canada: VP Pipeline Operations & Integrity

no false alarms – very accurate easy to use systems ensure positive public perception low 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

• perate

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

• ffers 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 accurate good 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 fit between 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
• r 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 Detection

Check 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 install spill 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

• perate

?’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 Importance

Rank jobs according to their importance to customers.

IMPORTANT NOT IMPORTANT

Pain Severity

Rank pains according to how extreme they are in the customers’ eyes.

Gain Relevance

Rank 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

Solutions

Rank solutions according to their importance to customers.

IMPORTANT NOT IMPORTANT

Pain Relievers

Rank pain relievers according to how essential they are in the customers’ eyes.

Gain Creators

Rank gains according to how essential they are in the customers’ eyes.

EXTREME MODERATE ESSENTIAL NOT ESSENTIAL

Case Study: Pipeline Leak Detection

Customer Jobs Gains Pains Gain Creators Products & Services Pain Relievers

low cost to install easy to install good 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

• perate

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 startup X 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
• riginal 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 fit between 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 Segments

Customer 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
• ther attributes
• Can target one or more customer segments

Remember?

Case Study: Pipeline Leak Detection

Customer 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
• perating 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

• ver 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
• ur 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?

Awareness How do we raise awareness about

• ur company’s products/services?

Evaluation How do we help customers evaluate

• ur organization’s Value Proposition?

Purchase How do we allow customers to purchase specific products/services? Delivery How do we deliver a Value Proposition to customers? After Sales How 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 affiliations Direct B2B Sales force

• 4. Customer Relationships

Customer 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 Detection

Customer 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 Canvas

Value 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 team Field installers / maintainers IT

• 7. Key Activities

Key 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 Detection

Key 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 Partners

Key Partners Who helps you make

• r 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 Detection

Key Partners Who helps you make

• r 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 costs Sales & marketing costs

The Canvas

Value 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

• r 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 fit between 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 Operations Low 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 affiliations Direct 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 team Field 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 Structure

Maybe

Manufacturing costs Field labour costs Sales & 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 Detection

Customer 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 affiliations Direct B2B Sales force

Customer Relationships How to get/keep customers

Personal contact/touch In this together Relationship-based Make them look good

Revenue Streams How you make money

Purchase LDS unit Installation Maintenance

Key Resources Who makes the solution and how

Offshore manufacturing? Sales force Management team Field 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

• r sell your solution

Pipeline associations Other LDS companies?

Cost Structure The money the company needs to spend to do business

Manufacturing costs Field labour costs Sales & 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 Structure

People Marketing & sales Manufacturing

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 fit between your value proposition and the customer profile Design your business model Validate your business model

Value Proposition Design Business Model Canvas

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 Zyla

587 582 3713 pzyla@innovatecalgary.com 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 Distribution Residential Consumers Commercial & Industrial Consumers

Storage Applications

Supply shortages Power station outages Variable demand Energy Arbitrage Frequency regulation Voltage support Transmission Congestion Transmission Deferral Extreme Variability Over-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 Distribution Generation & Ancillary Services

• 1. Wholesale Market
• 2. Compensated through

the market mechanism market-based

• 1. Regulated
• 2. Compensated through

cost-of-service rate-based

• 1. Regulated
• 2. Compensated through

cost-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
• wning 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.

Thank You!

mokhtar.tabari@ucalgary.ca