Commercializing Emerging Science Joe Cross and Don Freed of Nanophase

Bringing an emerging science to market is a daunting task. The end users of the technology are skeptical of the efficacy of the approach and unsure as to how to use the science. Selling to broad markets presents another barrier. The target market is a horizontal cutting across several distinct verticals each requiring its own value proposition. And, as Mr. Cross has stated, “There are some businesses you can start in a garage, nanoparticles isn’t one of them.” Couple these three hurdles while being a small company with limited resources selling to multinational corporations and fortune 500 companies, and how do you create a successful go-to-market strategy?

Nanophase

Nanophase is addressing each of these issues. Located in Romeoville, IL, Nanophase produces nanoparticles for the cosmetic, semiconductor, and coatings industry. In last few years, their revenue has demonstrated remarkable growth, from $4 million in 2001 to an excess of over $6 million in 2002. Their headcount is steady at 51 employees and is heavy with PhD scientist. Nanophase has been in operation for 12 years and is a publicly listed firm trading under the symbol of NANX on the NASDAQ.

In the recent years, Nanophase has been improving its operational ability. Nanophase uses Physical Vapor Synthesis to produce nanoparticles, a process that involves nano arc synthesis, plasma technology, and computational fluid dynamics. In the past year, they have improved their output per reactor by 300%, reduced their cost per material by 70%, and have shipped 300,000 kg of material in the last year. Nanophase runs 3 shifts per day with one operator per four reactors. As an ISO 9001 manufacturer, they have been able to 5 sigma process control. Combined, these operational improvements have enabled Nanophase to achieve a major milestone in their corporate development, positive gross margins. Going forward, Nanophase is focusing on technology accumulation on top of their current 21 patents and propriety technology, and revenue growth.

From an interview with Nanophase executives Joe Cross, CEO, and Dr. Don Freed, VP of Business Development, and background research, we are able to understand how this small firm with limited resources has been able to bring their products to market while competing with industry giants.

Value Proposition

Many pundits claim that nanotechnology will be the next industrial revolution. Currently though, nanotechnology is still an emerging science and not yet an emerging technology. Merrill Lynch has segmented the nanotech industry into five markets: Instrumentation/Tools, Electronic/Telecommunication, Biological, Materials, and Futuristic. Of these five markets, Nanophase is a materials company. Their principal customers are manufacturers.

As Mr. Cross stated, “People don’t rush to new technology. You must demonstrably show value of the technology.” As such, the business development team and application scientist of Nanophase focus on finding unmet needs within their client base. In doing so, they are meeting a criteria stated by Mr. Cross of “…find a pull market, don’t push a rope.”

The materials Nanophase makes is used in several different industries. For example, Nanophase produces zinc oxide (ZnO) spherical particles with diameters of 20 nm, 40 nm, and 60 nm. At the 20 nm range, the ZnO is used in producing electronics for chemical mechanical polishing of silicon wafers by firms such as TSMC. At the 60 nm range, ZnO is an ingredient in cosmetics as a UV protectant by firms such as Oil of Olay.

A key differentiator between Nanophase and its competitors is a solution approach to the market. For instance, many of Nanophase’s competitors will provide a customer with a powder of nanoparticles. Unfortunately, manufacturers do not know how to use a powder of nanoparticles and would prefer a liquid solution to match their manufacturing processes. To fulfill this customer demand, Nanophase provides nanoparticles in liquid solutions of organic and ph adjusted aqueous solvents.

Going to Market

While the technology is attractive and Nanophase’s approach to meeting manufacturer’s demands is customer driven, Nanophase still has to manage the difficulty of meeting several different industries’ demands with limited resources. Mr. Cross himself stated that a small company cannot afford to set-up the large sales and distribution operation to meet the needs of all the personal care product manufacturers. In the semiconductor market, there are already major distributors in the chemical mechanical polishing industry. Yet there are other industries that require far fewer resources.

It might be tempting to suggest that Nanophase should set up an independent representative sales channel. However Mr. Freed and Mr. Cross both agreed that they lack the necessary skills to properly interact with the customer and explain the technology. Perhaps as the industry evolves this will become a viable channel, but not at this early stage of development.

Nanophase’s solution to servicing the wide variety of manufacturers is a multi-channel approach to servicing clients. Distribution licensing agreements keep the markets separate to prevent unnecessary competition and encourage their distribution partners in helping Nanophase go-to-market.

For the personal care market, Nanophase has partnered with BASF to conduct the sales and distribution. BASF, besides making cassette tapes, is a major chemicals manufacturer with many relationships with the cosmetic industry. In selling nanoparticle solutions to the cosmetic industry, Nanophase and BASF conduct joint selling to understand the manufacturers’ requirements and communicate the value proposition, and then BASF handles the ongoing sales and distribution requirements of the customer.

In the semiconductor market, Nanophase has separately partnered with Rodel, a subsidiary of Rohm and Hass. Rodel has a dominating market share of the chemical mechanical polishing industry and Nanophase accepted that it would be easier to be a supplier through Rodel rather than attempt to compete head-on with them.

Yet for other markets, Nanophase has chosen to sell direct to the manufacturers. The key decision point is whether there are many manufacturers within that vertical, as with the cosmetic industry, or just a few major players. For instance, in the vinyl flooring industry, Nanophase provides an ingredient to a protective coating that prolongs the life of vinyl tiles by a factor of four. There are only a few major vinyl flooring tile manufacturers, and as such Nanophase can afford to go direct.

While this may appear to be a complicated sales and distribution approach for a $6 million dollar firm, each sales channel represents the most efficient and effective means to service a particular vertical. It required flexibility and creativity on behalf of Nanophase, yet its results are demonstrated by the rapid growth in their revenue.

Also Appearing in

The May Report, TECH BUSINESS BRIEFS, Oct. 3, 2002

vCapital, Oct. 2002