Value maximization in product development through holistic design

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Master of Science Thesis

KTH School of Industrial Engineering and Management Energy Technology EGI_2016-063 MSC EKV1156

Division of heat and power SE-100 44 STOCKHOLM

Value maximization in product

development through holistic design

Efraín Arturo Hernández Mora

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Master of Science Thesis EGI_2016-063 MSC EKV1156

Value maximization in product development through holistic design

Efraín Arturo Hernández Mora

Approved

August 9^th 2016

Examiner

Peter Hagström

Supervisor

Peter Hagström

Commissioner -

Contact person

Frederick Leßmann

Abstract

Entrepreneurship and startups are widely studied themes that have been the focus of plenty of literature in the last years. In this sense, different methodologies have been proposed in order to ensure a successful market entry for startups, being the lean startup concept considered as the most useful and promising.

Almost all of the studies on market entry for startups have been developed focusing on the business-to- consumer market, especially on the information and communication technologies.

An almost complete lack of studies covering product development and market entry was found in the conventional industrial business-to-business market. In order to solve such a problematic, this master thesis has found its motivation.

The present thesis introduces a literature review on methodologies used for product development and market entry for startups, i.e. using the concepts of lean startup, market analysis, minimum viable product, prototyping and business modelling. Afterwards, a methodology is proposed to increase market entry success’ possibilities for startups venturing in the conventional industrial business-to-business market.

Finally, the methodology is used in a case study involving a young German start-up.

By using the methodology proposed, an optimal product configuration with its corresponding draft design and business model was obtained. The methodology achieved to solve critical sub-systems’ bottle necks through iterative design, while at the same time delivering a business model that will be considered by the startup for its initial market entry strategy.

Finally, it can be concluded that the methodology proposed is a success, as by using it the process of product and business development had results that correctly fit into the reality of the business. An invitation is left open to finish the design process of the non-critical sub-systems, as well as to keep developing in the customer-feedback iterations for both the product and business development.

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Master of Science Thesis EGI_2016-063 MSC EKV1156

Value maximization in product development through holistic design

Efraín Arturo Hernández Mora

Approved

August 9^th 2016

Examiner

Peter Hagström

Supervisor

Peter Hagström

Commissioner -

Contact person

Frederick Leßmann

Sammanfattning

Entreprenörskap och startups är allmänt studerade teman som har varit i fokus i många publikationer under de senaste åren. Olika metoder har föreslagits för att säkerställa en framgångsrik marknad för nystartade företag. Lean startup anses vara det mest användbara och lovande konceptet. Nästan alla undersökningar visar att inträde på marknaden för startups har utvecklats med fokus på business-to-consumer marknaden, särskilt avseende informations- och kommunikationsteknik.

Det är en nästan total avsaknad av undersökningar som omfattar produktutveckling och marknadsinträde i den konventionella industriella B2B marknaden. För att studera den problematiken har detta examensarbete skapats.

Genom att använda den föreslagna metodiken erhölls en optimal produktkonfiguration med ett förslag till design- och affärsmodell. Den metod som uppnåtts löser viktiga delsystems flaskhalsar genom iterativ design, samtidigt som en affärsmodell skapas som kan betraktas som start för en ursprunglig marknadsstrategi.

Slutligen kan det konstateras att metoden som föreslås är en framgång. Genom att använda den processen för produkt- och affärsutveckling erhölls resultat som korrekt passar in i den reella verksamheten. Frågan kvarstår dock rörande designprocessen av de icke-kritiska delsystemen, samt huruvida kundresponsiterationer för både produkt-och affärsutveckling fortsättningsvis skall utvecklas.

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Acknowledgements

Firstly, I would like to thank my supervisor Frederick Leßmann for his constant support and guidance in the realization of this project. With him, I have learned more than the academic knowledge needed for the realization of this thesis, but also an incredible amount of valuable skills. Likewise, thank you for having faith in me and giving me the opportunity to develop this master thesis work at otego.

Secondly, a great thank to the rest of the otego team, André Gal, Matthias Hecht and Silas Aslan, for their help in diverse themes that were both related and non-related to the thesis.

Thank you also to the whole academic team behind the M.Sc. program SELECT. Their whole efforts have made the last two years of my life the most enriching and exciting ones, increasing not only my understanding on sustainability, but on the world in general. Special thanks to Peter Hagström for supervising my thesis, as well as Cesar Alberto Valderrama and Nele Stoffels for their constant support and friendship.

A big thank to my mother, Lilia del Carmen Mora Alcaraz, for always backing me up in all my projects and adventures. I know you have lost your sleep more than once worrying about me, and for that and your constant love and support, I thank you.

Finally, I would like to give my greatest thanks to my grandfather, electric engineer Leon Arturo Mora Catalan, as without the long-lasting knowledge and bases he gave me, I would have never got to where I am now. Thank you for shaping the person I am now.

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List of Figures

Figure 2.1 The Lean Startup Cycle [13] ... 4

Figure 2.2 Concept Development Process [19] ... 6

Figure 2.3 Task-Technology-Fit Approach [18] ... 6

Figure 2.4 Technology-Utilization-Model Methodology [21] ... 7

Figure 2.5 Directional and Incremental Prototyping ... 7

Figure 2.6 The a) Business Model Canvas [30] and b) Business Model Cube [31] ... 9

Figure 2.7 Types of Business Development Processes [27] ... 9

Figure 2.8 Porter's Value Chain Diagram ... 10

Figure 2.9 The Business Model Canvas Template [34] ... 12

Figure 2.10 Seebeck’s Instrument [39] ... 13

Figure 2.11 Material a) at Constant Temperature and b) at a Temperature Difference 14 Figure 2.12 Representation of a) a Thermocouple and b) a Thermoelectric Module ... 14

Figure 2.13 Thermoelectric Generators from: a) Marlow Industries [41] b) Micropelt [42] c) Everredtronics [43] ... 14

Figure 2.14 Typical Trade-Off Curve from Thermoelectric Materials [45] ... 15

Figure 2.15 Thermoelectric Generators ZT compared to Power Generation Efficiencies [45] ... 16

Figure 2.16 otego´s Outstanding Features [52] ... 17

Figure 2.17 a) WiTemp WSN Node [57] and b) PowerS trap EHS [58] ... 18

Figure 2.18 a) EH-Link [59] b) Customized Assets Tracking System and [60] c) Harvestor III [61] ... 19

Figure 2.19 Generic Wireless Sensor Network Node [62] ... 19

Figure 3.1 Market Analysis, Business Model and Minimum Viab le Product Prototyping related to the Lean Startup Cycle ... 20

Figure 3.2 Modified Technology -Utilization-Model Methodology [21] ... 21

Figure 3.3 Iterative Methodology Proposed for Minimum Viable Product Prototyping ... 22

Figure 3.4 Methodology Steps for Business Modelling ... 24

Figure 3.5 Market Value Chain ... 25

Figure 3.6 Activity System Perspective Methodology ... 26

Figure 4.1 otego’s First and Future Market Approaches ... 28

Figure 4.2 Infrared Scanning in Pipings taken from a) [71] and b) [72] ... 32

Figure 4.3 "Flexibility" Identified by Customers ... 33

Figure 4.4 a) Power Puck from Perpetua Power [73] and b) PMG from Perpetuum [74] ... 35

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Figure 4.5 Sensors Installed in a BASF Plant [52] ... 36

Figure 4.6 Ecovat a) Working Principle Diagram and b) Installation Process. ... 37

Figure 4.7 Wireless HART Temperature Transmitter Concept from P+F [76] ... 38

Figure 4.8 a) Costly Wireless Sensor Ea sy to Install [77], and b) Cheap Cabled Sensors Hard to Install ... 42

Figure 4.9 Graphical Representation of Final MTTF Punctuation per Hypothesis ... 45

Figure 4.10 MVPP Assumptions related to Questions and Hypothesis from MTTF .... 46

Figure 4.11 otego’s First Prototype ... 47

Figure 4.12 otego’s Market Value Chain ... 49

Figure 4.13 otego's Value Delivery Diagram Combined with Market Value Chain ... 50

Figure 4.14 Design Elements Diagram from the Activity Syste m Perspective ... 51

Figure 4.15 Design Themes Diagram from the Activity System Perspective ... 52

Figure 4.16 otego’s Business Model Canvas ... 54

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List of Tables

Table 2-1 Activity System Design Framework [33] ... 11

Table 2-2 Comparison of Materials used for Thermoelectric Generators ... 16

Table 4-1: Industry Sensing Applications and Corresponding Characteristics ... 28

Table 4-2 Evaluation Criteria used in the MTUM methodology. ... 30

Table 4-3 Punctuation Scale for the MTUM ... 30

Table 4-4 Hypothesis 1 evaluation for each product configuration ... 37

Table 4-9 Points Assigned per Hypothesis (H) and Final MTTF for each Product Configuration ... 45

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List of Acronyms Used

€ Euros

$ United States Dollars ASP Activity System Perspective B2B Business-to-Business B2C Business-to-Consumer

BM Business Model

BMC Business Model Canvas BMD Business Model Design

CAGR Compound Annual Growth Rate CAPEX Capital Expenditures

EHS Energy Harvesting System EHPD Energy Harvester Power Device FAQ Frequently Asked Questions

H Hypothesis

IoT Internet of Things LSC Lean Startup Cycle

MA Market Analysis

MTTF Modified Task-Technology-Fit MTUM Modified Technology-Utilization-

Model

MVC Market Value Chain MVP Minimum Viable Product MVPP Minimum Viable Product

Prototype

OPEX Operational Expenditures oTEG Organic Thermoelectric

Generator

R&D Research and Development

S Seebeck Effect

TEG Thermoelectric Generator TEM Thermoelectric Module

THC Thermocouple

TTF Task-Technology-Fit

TUM Technology-Utilization-Model USD United States Dollars

VC Value Chain

WSEH Wireless Sensor with Energy Harvester

WSN Wireless Sensor Network ZT Dimensionless Thermoelectric

Efficiency

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1 Introduction

In the last years, an increasing attention has been devoted to the entrepreneurship concept, i.e. to the startup scene. More and more authors talk about how, through certain methodologies, an entrepreneur can turn an idea into a successful startup in the market.

It has been found as common understanding in the literature that the most promising concept to create a successful startup is fast iterations. The use of the minimum viable product and the lean startup support the fast iteration methodology by creating learning loops. These learning loops must conclude in a real, although not optimal, product to be sold to the customer with the objective to learn from it the most important information a business can have: What do the customers want?

Through fast iterations, entrepreneurs are able to steer their product and/or service properties in order to fit the added value offered by the product with the added value wanted by the customers. This way, the customers will find the product attractive and the purchase will be guaranteed.

Nevertheless, it is also found in the literature that all of the methodologies proposed to do fast iterations focus in the business-to-consumer market, i.e. in the information and communication technologies and services. Such a market has the intrinsic properties of fast changes in trends, open and accustomed to changes customers, as well as wide and easy to develop communication channels for product awareness.

The previous qualities are not truth for the business-to-business market. The business-to-business market is characterized by a tendency to avoid changes and risks, as well as a distrust towards small competitors.

Market entry is even harder to reach when disruptive technologies are proposed, as they tend to be thought of going against the status quo, therefore affecting the big companies’ investments.

Adding to the previously stated, product development based in disruptive cutting-edge technologies has the disadvantage of often requiring a high capital demand and long development times, making the venturing in this kind of field even riskier for entrepreneurs.

Finding a lack of research in methodologies for market success of startups with disruptive technologies in the business-to-business area, as well as the need of this kind of startups to reinvigorate and refresh such a market, this master thesis finds its motivation.

1.1 Objective

The objective of the present thesis is to propose and study a methodology on how to achieve a successful market entry for startups based in disruptive technologies in the business-to-business market.

To propose a methodology the lean startup is taken as cornerstone, with the concepts of market analysis, minimum viable product prototyping and business modelling evolving around it. Such concept are widely known and accepted by the experts, and in this thesis are adapted and used as methodology steps inside the lean startup.

To test the methodology, the case of a young German spin-off called otego is studied. Organic thermoelectric generators are a novel concept in which no other market player has established activities until now, and otego’s objective is to venture in the industry 4.0 by integrating its generator in wireless sensor networks, making it a perfect case study qualifying for both the cutting-edge technology and the business- to-business startup characteristics.

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The outcome of this thesis is a methodology that other startups with disruptive technologies can follow in order to both accelerate and secure their first market entry steps inside the conventional industrial business- to-business market.

1.2 Work Structure

Following, chapter 2 introduces the necessary knowledge about the lean startup methodology. Inside it, a literature review of the concepts of market analysis, prototyping and business modelling is presented, while having a focus in their inclusion on the overall lean startup methodology. This chapter also presents the concept of organic thermoelectrics and the KIT spin-off that wants to focus in the commercialization of printed thermoelectric called otego, together with previous works done to integrate it in the market of wireless sensor networks. After the proper literature review has been presented, chapter 3 combines the concepts previously explained in order to derive a methodology suitable for startups that want to tackle the conventional industrial business-to-business market by commercializing cutting-edge technologies. Chapter 4 accounts for the results of using the methodology described in chapter 3 in the case of otego. Since the lean startup is intrinsically complex and iterative, only the results will be presented in chapter 4, while giving hints of important steering and iteration steps. Finally, chapter 5 concludes the work by giving a final report of the results obtained and their value for the objective presented in Chapter 1.

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2 Literature Review

Complexity and uncertainty are two concepts that perfectly describe not only the startup scene, but also any kind of entrepreneurship effort. Most of the literature regarding entrepreneurship and startups has made studies on startups with already achieved success, therefore showing survivor biases and studying the components that allowed the startups to succeed once they are already known. Nevertheless, real-life early- stage entrepreneurs have to deal with a big lack of information in their startups, not knowing which market factors will be decisive for their success.

The concept of lean startup is a cornerstone for this work in order to diminish the lack of information entrepreneurs have to deal with. This thesis work includes the concepts of market analysis (MA), business model (BM) and minimum viable product prototype (MVPP) inside the lean startup.

Market entry success in the startup scene is a widely studied theme. In this regard, business modelling is considered one of the main factors to determine the success of a company, being essential for every successful organization, whether it is a new venture or an established player [1]. Business modelling is therefore studied in section 2.1.3.

In order to produce a proper BM, the information it contains has to be close to reality, showing ongoing interactions between the company’s elements. Therefore, a proper BM calls for a methodology that allows it to get real world information about the market in which the startup is venturing on. MA is a crucial element to get to know the relations between the market players in the market. Concepts and elements on MA used in the thesis work are explained in section 2.1.1.

Minimum viable product (MVP) and prototyping are two different concepts that are closely related and can be easily mistaken, as both of them share the goal of diminishing complexity and uncertainty in entrepreneurship efforts. This thesis proposes the usage of MVPP that combines concepts from both the MVP and prototype in order to be used in the special case of developing a product for a business-to-business (B2B) high-tech startup. The literature review on MVP and prototypes are covered in section 2.1.2.

Finally, section 2.2 gives a short case introduction for thermoelectric generators (TEGs) and otego. The information from this section will be used as basis for the results developed in chapter 4.

2.1 Entrepreneurship, Startups and the Lean Startup

There is no universal definition for entrepreneurship. Entrepreneurship can mean different things to different people. For some, it might be Silicon Valley geniuses working on high tech solutions, while for others it could mean opening up a shop in a busy street of their city. Ultimately, entrepreneurship covers these and any other concept that encompasses the process of turning an idea into a profitable business, with high degrees of initiative and risks [2] [3].

An established company usually has a defined market in which it has been developing for a long time and where it has acquired the needed knowledge to become a main player. In this regard, even if a well- established company invests in innovation efforts to bring new ideas into life, it has the advantage of having an already given work force, access to financials, markets, technological and manufacturing resources, as well as tools like historical records and projections. The risk level of its entrepreneurship venturing is not as high and the problems to deal with are mainly the fixed structural thinking and decision making inherent to its established processes. In this regard, entrepreneurship inside established companies can be useful to restore its vitality by braking the fixed structural thinking and decision making it has adopted [4] [5] [6].

Startups, on the other hand, face much bigger problems. In the very beginning, they have no information, market place, customers, relationship with other market players nor proof of concept. All a startup usually has to begin with is an idea.

For Eric Fries a startup is “a human institution designed to create new products and services under conditions of extreme uncertainty” [7]. His definition is extremely accurate as it surpasses the traditional “a good idea is enough”

way of thinking and focuses on the managerial concept. An idea is of course needed, but what really matters

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for a startup to be successful is the product and services related to the idea, as the product and services are the components that create the value for the customer [7]. Unfortunately, products and services are also the ones with the highest uncertainty since they are the connections between the idea and the market.

The lean startup concept has been supported by many experts as one of the most useful concept for entrepreneurship and market success [8] [9] [10] [11]. As stated by Rasmussen and Tanev, “The lean startup approach is a way of reducing these [complexity and uncertainty] risks and enhancing the chances for success by validating the products and services in the market with customers before launching it [the startup products and services] in full scale. The main point is to develop a minimum viable product that can be tested by potential customers and then pivot the idea if necessary around these customer evaluations. This iterative process goes through a number of stages with the purpose of validating the customers’ problems, the suggested solution, and the final business model” [12].

In “The Lean Startup”, Fries proposes a methodology to encompass the overall efforts to be done by a startup during its creation process. The methodology can be summarized in the lean startup cycle (LSC), depicted in figure 2.1. In the figure, information is shown in green circles, while actions related to the information are shown in orange circles.

Figure 2.1 The Lean Startup Cycle [13]

The LSC focuses solely in validated learning, and its objective is to reduce as much as possible the uncertainties faced by a startup. Considering that the “Ideas” type of information that is on top of diagram is a startup’s initial foundation (which is often the case), the actions can be listed in the following order [7]:

1. Build: The “Idea” is the constitutive block of this action. The objective is to have the “Idea” coded in such a way that the customer can understand it. The coded idea that results from the “Build”

action called the “Code”.

2. Measure: Once the “Code” has been defined, the impact it has on the customer must be measured.

For it, the coded idea has to be presented to the customer and be tested in real-life conditions. The main objective of the “Measure” action is to obtain useful information about the “Idea” by testing the “Code”. The information that results from the customer interaction with the “Code” is regarded to as the “Data”.

3. Learn: Without this action, the “Build” and “Measure” actions would have been a waste of time.

Once the “Data” regarding the “Code” has been gathered, the entrepreneur must learn from it and transfer the learnings to the “Idea” he/she started with, in order to finish the cycle with a more refined and market-oriented “Idea”.

4. Iterate: The LSC does not include the “Iterate” action as part of the loop created by the three before mentioned actions, but refers to it as to minimizing the time inside the loop. Once the “Idea” has been enriched with the “Learn” activity, the LSC has to start again, until the “Idea” can be considered to have a business success once it is commercialized.

Time minimization through the loop does not mean that the actions should be developed in a rush and without planning. Even in the car industry where market factors are always changing, leading to a continuous call for innovation, ideas can take decades to become business implementations [14]. Time minimization also does not refer to a quicker decision-making and prototyping in order to get as much information as possible. Having an overload of information could be as bad as or even worse than having no information

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[7]. In the LSC, finding a right timing is the most important, and time minimization through the loop is a helpful tool to increase the chances to find a right timing.

Timing can be a very tricky factor to understand and measure inside the startup scene, with some entrepreneurs and scholars identifying it as the main factor that leads to startups success [15] [16]. Timing does not mean that the faster the startup goes to the market, the more successful it will be. There are many examples of business ideas that were ahead of their time like AskJeeves.com, Webvan and LoudCloud [17].

Timing means for a startup to find the right time to start commercializing its product [7].

Fries suggests a methodology to ensure good timing. He proposes that instead of looking for the right time for a given idea, a startup should look for the right idea configuration to be launched for a given time [7].

This seemingly small change in definition has major implications. It means that a business will follow a main idea, making small changes to it through minimized time in the LSC loop, until the proposed idea configuration fits the market at the specific given time.

Since Fries lacks on developing a methodology to follow the iterative concept, this thesis will use the MA, BM and MVPPconcepts inside the LSC in order to fill the methodology gaps. A literature review regarding each one of these concepts is presented in the following sections to be used as base for the methodology chapter.

2.1.1 Market Analysis

This section will cover MA as a tool to get to know the specific market and customers in which a startup should focus on. Before following, a distinction has to be made between tech-push and market-pull characterized business ideas.

Tech-push refers to ideas that are born after identifying a useful invention¹. Therefore, the invention pushes to find a market need to become an innovation². Market-pull, on the other hand, refers to ideas born after identifying a gap in the market that can be fulfilled. This market need pulls for an innovation that can solve it. More times than others, startups are founded in a mixture of these concepts, with a slight predominant tech-push or market-pull orientation [18].

As stated before, tech-push startups usually have no product to be commercialized. Since a startup creates goods and services for customers, an analysis is needed so the tech-push startup knows how its invention can be used by the market and therefore turn the invention into an innovation that customers are willing to pay for.

Figure 2.2 shows a common concept development process. Identifying the customer needs is the first chain to be attacked, therefore calling for a market analysis. If no market analysis is done and it is trusted that the invention will sell itself, the startup is falling for the fallacy that every good technical idea can be transformed into a commercial success [18].

In the figure, the planning chain is introduced as a step before the concept development chain. The planning chain will not be studied in this thesis, since it involves all the planning to initiate the concept development, e.g. finding that the invention could be useful, developing an idea around it, defining a team and a mission, etc.

1 and ² While invention is the creation of a product or introduction of a process for the first time, an innovation improves on or makes a significant contribution to something that has been already invented. Therefore, while any invention could potentially turn into an innovation, not all innovations come necessarily from an invention [84].

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Figure 2.2 Concept Development Process [19]

Metzger and Kraemer support the idea of doing a MA to select the best business model to be used by the company, therefore increasing its chances to turn into a market success [20]. They point out also that complexity and uncertainty are two factors inherent to the entrepreneurship process, and that in order to minimize risks an iterative process for the MA is the best option to gather information for the BM [20].

As a way to analyze a technology that is to be commercialized Hartelt, Wohlfeil and Terzidis present the Task-Technology-Fit (TTF) approach. The TTF approach states that a technology has to have good fit with the customer tasks it supports in order to have a positive impact on the market it is entering [18]. This approach is especially suitable for technology-push startups that want to get to know which kind of product configuration can turn its invention into an innovation [18]. The TTF approach can be seen in figure 2.3.

Figure 2.3 Task-Technology-Fit Approach [18]

By using the TTF, the MA defines the invention optimal characteristics and fits them with the customer needs, creating therefore an innovation. The TTF approach is based on the Technology-Utilization-Model (TUM) presented also in the work from Hartelt, Wohlfeil and Terzidis, which is further explained in the following lines.

The Technology-Utilization-Model

The TUM was proposed by Hartelt, Wohlfeil and Terzidis [21]. The TUM is a methodology to fulfill the TTF approach, as it is ideal to compare technologies and in such a way assess the likelihood of them to be utilized by the final customer.

TUM is a methodology that has showed good results in markets where the studied technology was a newer option compared to the status quo known by the customer. Such application is shown in an example in the paper from Hartelt, Wohlfeil and Terzidis [18], where the manual operation of a laboratory is compared to having intuitive robotic technologies, classical robotic technologies, or special-purpose automation technologies, all of them being economically and technologically feasible. The decisive factor is not which technology can be used to solve the task as all of them can be used, but which technology fits the task in a

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way that the biggest value is offered to the customer, making sure that the customer is encouraged to pay for it. The steps of the TUM can be seen in the following figure. In section 3.1, a methodology based in the TUM for MA will be proposed.

Figure 2.4 Technology-Utilization-Model Methodology [21]

2.1.2 Minimum Viable Product and Prototyping

Most of the literature fully supports the creation of prototypes in order to know whether the product concept is technically feasible and usable. Furthermore, with a prototype managerial forces can be more easily persuaded to support a project, seeing it as a real concept. The creation of physical prototypes is therefore of major importance in the development of inventions [14].

Directional prototyping serves as a guidance tool for evaluating the direction in which a team is heading, and can be used for an initial feasibility assessment of the project. Therefore, directional prototyping has to proof that the technology to be used in the product will work in its most basic way. Opposed to directional prototyping, incremental prototyping optimizes a design and further increases the understanding of it, without making considerable changes to the overall design. Incremental prototyping builds on what has been already proven by the directional prototyping, refining the idea [14]. Directional and incremental prototyping should be used in different stages of the project, as it is shown in an example case on figure 2.5, based on the automotive industry.

Figure 2.5 Directional and Incremental Prototyping used during a project in the automotive industry [14]

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In his book, “The Lean Startup”, Eric Fries states a major difference between a prototype and an MVP. A prototype, according to Fries, is built in order to answer the question “can this be built?” in a technical point of view. An MVP, on the other hand, tries to answer the question “should this be built?” testing not only technical but also fundamental business hypotheses [7].

MVP is a very useful concept, but in the literature reviewed most of the presented examples regarding MVP are from the business-to-consumer (B2C) market, i.e. focused in the information and communication technologies industry [7] [22] [23].

A clear explanation of how fast iterations are an intrinsic feature in the information and communication technology is the Moore’s law, stated by Gordon Moore in 1965. Moore’s law predicts that the number of transistors (and therefore the computational power) in a dense integrated circuit (microprocessor) grows exponentially while keeping low prices [24]. Moore’s law perfectly depicts the fast pace of change in the information and communication technologies infrastructure, which is in a constant pursuit of ever better and newer products. Fast iterations in the process of product and business development are not only recommended but a must in such a market.

According to Intel, if the automotive industry were to keep up with Moore’s law, cars would be speeding up to 300,000 miles per hour and getting 2,000,000 miles per gallon while costing only 0.04 USD [24].

Therefore, it can be concluded that both the MVP and prototyping methodologies for ideas in the conventional industrial B2B market have to be different from the ones used in the B2C software market.

Conventional industry, in this sense, refers to the industry with objective to produce chemicals, energy, food, manufacturing goods, etc.

The literature that covers the conventional industrial B2B market is scarce and focuses mostly in the case of either big established companies [14] or once again in the information and communication technologies [25].

Because of a lack of literature on MVP and prototyping related to startups that are to endeavor in the conventional industrial B2B market, a methodology will be proposed in section 3.2. Such a methodology will take into account the best characteristics of both MVP and prototyping, resulting on the MVPP methodology, which is characterized for being mostly directional.

2.1.3 Business Modelling

The literature proposes several ways in which a BM can be defined. Ovans compares a BM with art in the sense that, like art, even though a BM can be easily recognized by several, it is extremely hard to define it precisely [26].

For this thesis, a BM is defined as an overall description of the business logic, considering its key components and interactions that have as goal to offer a value proposition to the customer [27] [28]. In fewer words, a BM describes the rationale of how an organization creates, delivers and captures value [29].

Complexity and uncertainty have evolved as two of the main challenges entrepreneurs have to face nowadays, [28] and even though it should be very simple and concise, the complexity and uncertainties it has to cover makes it extremely difficult to define only one way in which the BM logic can be explained and presented to others. For this reason, in the last decade there has been a proliferation of business modelling tools like the “Business Model Canvas”, “Business Model Navigator”, and “Business Model Cube”, each of them proposing a way to visualize and connect the BM elements [28].

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a) b)

Figure 2.6 The a) Business Model Canvas [30] and b) Business Model Cube [31]

It is important to keep in mind that business modelling is not a magical concept capable of making any business jump into success. In order to work, a BM needs to be supported with facts that accurately represent the reality, otherwise the BM runs into danger of promising profits in some distant, ill-defined future, without having a proven added value for the customer [1].

Recent literature has concentrated in the importance of the BM innovation, where both technological and business knowledge are related in order to disrupt or sustain existing product/market strategies. The innovation in the BM should be agile, starting early and fast to bring benefits as early as possible.

Heikkilä and Bouwman support the use of business model agility in their study work by providing the example of four business development activities. The four examples can be found in figure 2.7. The study showed that the fourth process, which involved several iterations on the technology and BM through customer validation, was the most successful.

Finally, it can be concluded that all of the literature reviewed supports, directly or indirectly, the concept of having a business modelling approach that is iterative and takes into account the technological and market aspects of the startup. Following, the concepts of value chain, business model design (BMD) and business model canvas (BMC) are presented, as they will be used for the business modeling methodology in section 3.3.

Figure 2.7 Types of Business Development Processes [27]

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Most of the value chain (VC) literature has focused its attention in Porter’s VC. Porter’s VC analyzes and categorizes the activities done within an enterprise in order to offer a final value to the customer. It does not analyze the whole market, but the business itself. The University of Cambridge developed an easy to understand diagram for the Porter’s VC. Such a diagram can be seen in the following figure:

Figure 2.8 Porter's Value Chain Diagram from the University of Cambridge [32]

As it can be seen, Porter’s VC describes how each one of the primary activities inside a company are related in a chain. The activities are highly general so clearer vision of the whole business is achieved. Therefore, sub-activities can be found inside the five main activities proposed by Porter. Such a diagram will be used as basis for the methodology shown in section 3.3.

Business Model Design: An Activity System Perspective

The activity systems perspective (ASP) was proposed by Zott and Amit [33] as a conceptual kit that enables and facilitates the entrepreneurial process of designing a BM.

A BM is geared towards total value creation for all parties involved, and the higher the total value created, the more attractive it will be for all of the stakeholders. At the same time, a business should get bargaining power in order to appropriate more of the total value created [33]. The way a company acquire bargaining power depends mainly on the pricing strategy or revenue model, and is therefore excluded of this study.

Value creation and business modelling cannot be studied through rigid concepts, as a business is not only at a specific point in time and space. Just like an organism, a business moves and develops activities inside and within its environment. For a business to be successful, it should not only focus on survival activities, but also on added value ones.

Zott and Amit further develop in preferring the study of activities done by a business instead of rigid concepts categorizing the business divisions through their activity system perspective. Zott and Amit define a business model as depicting “the content, structure, and governance of transactions designed as to create value through the exploitation of business opportunities” [33]. Content, structure and governance are therefore the elements that define the main activities inside the business. The combination of these elements to create a higher value is referred to as design themes. A further explanation of both concepts can be found next:

 Design elements describe the activities that are performed in the value chain in the most basic way.

Design elements are used by the entrepreneur to get a grasp of how the business works, as well as the basic relations that exist between the company and other companies. Design elements can be defined as content, structure and governance elements. All of the elements should be oriented to support the business core of the company.

o Content: Contains all the activities that should be performed so the business core is achieved. There are many ways to define an activity, from very specific to very broad concepts. It is recommended to use broad activities to group smaller specific activities, as this allows a clearer vision of the ASP. For example, contacting customers can be a broad activity, no matter if the contact is done through phone calls, mailing or any other kind of smaller activity.

o Structure: Refers to how the activities listed as content are related between each other, and the way they have to be sequenced. By ensuring that all activities are linked through a structure, entrepreneurs can identify whether the activities are contributing to the business

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core. If this is not the case for an activity, it could also be that it is related through a theme, which will be explained later in this section. If an activity is not linked to any other, either by structure or by a theme, then it is an extra activity does not offer any value to the business, and should be eliminated.

o Governance: This point assigns each one of the elements inside the content to a responsible team, person, company, or any other that has to develop such an activity.

Likewise, content should include where such an activity is done by the responsible.

 Design themes detail the “system’s dominant value creation drivers” [33] by showing “configurations of design elements, or the degree to which they are orchestrated and connected by distinct themes” [33]. This means that the design themes’ objective is to describe how the business, through the design elements, is able to not only support the business core, but also offer an added value to the customers.

o Novelty: Refers to new activities (content), and/or new ways of linking activities (structure) and/or new ways to do the activities (governance).

o Lock-In: Lock-in is the power the business has to keep third parties attracted to it as participants in the whole VC. Although lock-in usually refers to customers, it can also be the case of that lock-ins are designed for other stakeholders, e.g. partners or suppliers.

o Complementarities: A complementary is created when two activities that usually should not be linked together through a structure design element are linked. A complementarity creates more added value for the stakeholders, even though such a connection may not contribute to the business core.

o Efficiency: This is the most conventional of all the themes. Its objective is to use less resources (e.g. suppliers, capital, elements, services, etc.) while having the same business performance, of preferably improving it.

The way design elements and design themes are sub-divided for their study is shown in Table 2-1. All of the information previously stated will be used to conclude a methodology to be used in this thesis, which is shown in section 3.3.

Table 2-1 Activity System Design Framework [33]

Design elements

Content What activities should be performed?

Structure How should they be linked and sequenced?

Governance Who should perform them, and where?

Design themes

Novelty Adopt innovative content, structure or governance Lock-In Build in elements to retain business model stakeholders Complementarities Bundle activities to generate more value

Efficiency Reorganize activities to reduce transaction costs Business Model Canvas

The BMC created by Alex Osterwalder is arguably the most comprehensive template on which to condense the hypotheses surrounding the business studied or “modeled”. The BMC can be used by entrepreneurs to see if they missed anything important inside the main identified structure blocks of the BMC, as well as to compare their model with the one from other competitors and/or partners [26].

The nine building blocks of the BMC

1. Value Propositions: Refers to the business core and added values that are offered either to the customer or to other stakeholders.

2. Customer Relationships: Describes the nature of the relationship that the business develops with its customers, whether it is personal face-to-face, personal through a channel, through automated answers, self-assistance through documentation, etc.

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3. Customer Segments: Customer segmentation is done in order to know the specific needs and individualities of customer groups, while at the same time defining them inside a group. This is useful for the business, as in this way it can offer a more personalized value proposition to each one of the identified groups it serves.

4. Channels: This building block describes the channels through which the each customer relationship takes place. The channels could be very varied and specific, such as mails, phone calls, fax, face-to- face contact, etc. or broader, like personal, impersonal, automated, etc.

5. Key Activities: Here, all the activities that the business realize must be listed, together with the ones done by third parties. The key activities could also be seen as the content design elements of the ASP presented before.

6. Key Partners: The most important and influential actors that support the business are listed in this building block. For its elaboration, the government elements identified in the ASP are especially useful, as almost any actor listed by the government that is not the business itself can be considered a key partner.

7. Key Resources: All of the most important resources that allow the business to do its operations are in this section. It could be anything, e.g. expertise, capital, specific pieces, personnel, etc. Concept like oil for equipment maintenance, scissors, paper, etc. must be avoided, as they do not contribute in the value proposition, but are used for daily minor activities.

8. Cost Structure: Everything that contributes to the loss of capital from the company must be added in this building block. It is especially useful to divide it into capital expenditure (CAPEX) and operational expenditures (OPEX).

9. Revenue Streams: Finally, the ways in which the business can get capital are listed in this section.

Nevertheless, these revenue streams should also be aligned with the business core and added value proposed, e.g. a restaurant should not list sales of old equipment as a revenue steam, as this will not be a constant revenue stream that helps the business to offer and added-value to the customer.

The way the blocks fit in the BMC is shown in Figure 2.9. The BMC will be also part of the methodology to be followed in this thesis, since it gives as result the most useful and widely accepted way to represent a BM.

Figure 2.9 The Business Model Canvas Template [34]

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2.2 Case Presentation

2.2.1 Thermoelectric Elements Background

A thermoelectric module (TEM) is a two-layered element that is able to produce either electric energy out of thermal energy (TEGs), or thermal energy out of electrical energy (Peltier elements) [35] [36] [37] [38].

Since otego’s focus is into the TEGs area, the case presentation will not cover Peltier elements. This is not to say that otego has completely disregarded the Peltier elements from their business plans in the future, but that at this moment (and for this master thesis work especially), otego’s only focus will be TEGs.

Thermoelectric Generators

In 1821, Thomas Seebeck found that a circuit made out of two dissimilar metals with junctions at different temperatures would deflect a compass magnet, which meant that an electric current passed through the circuit [39]. The instrument used by Seebeck can be seen in figure 2.10.

Figure 2.10 Seebeck’s Instrument [39]

This Seebeck effect goes as follows:

“A temperature difference between two points in a conductor or semiconductor results in a voltage difference between these two points.” [40]

The Seebeck effect is formulated in equation 2.1, stating that the difference of voltage (𝑑𝑉) created by a material divided by the difference of temperature (𝑑𝑇) the material is subjected to results in a number called Seebeck coefficient (𝑆), with a magnitude usually expressed in microvolts per kelvin (^𝜇𝑉_𝐾).

𝑆 =𝑑𝑉 𝑑𝑇 [𝜇𝑉

𝐾] Equation 2.1

With the help of figure 2.11, the Seebeck effect can be further understood. As it can be seen, the difference in voltage is related to the electrons inside the material aligning towards the hot end (which therefore charges negatively), and leaving open positions in the cold side (charging it positively), as compared to when there is no temperature difference.

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a)

b) Figure 2.11 Material a) at Constant Temperature and b) at a Temperature Difference

a) Random positions of electrons (red circles) inside the atoms (white circles)

b) Electrons oriented towards hot region (in red) leave open positions at the cold region (in blue)

In order to take advantage of the electrons flow a second different material must be included in the circuit, creating therefore a thermocouple (THC) [38]. The importance of the second material is seen with the help of equation 2.2.

𝑉_𝑇𝐻𝐶 = (𝑆_𝐴− 𝑆_𝐵)∆𝑇 Equation 2.2

On it, 𝑉𝑇𝐻𝐶 is the voltage difference between the THC sides, 𝑆𝐴− 𝑆_𝐵 is the difference of Seebeck coefficients between material A and B, and ∆𝑇 is the temperature difference between the THC sides. If the Seebeck coefficient is the same for both materials, 𝑆𝐴− 𝑆_𝐵 will be zero, leading to zero voltage potential. A typical THC construction can be seen in figure 2.12 a), with the voltage produced being in the order of microvolts. Therefore, to increase the voltage, it is common practice to interconnect several THCs.

Such an array is called TEM, and is presented in figure 2.12 b).

a)

b)

Figure 2.12 Representation of a) a Thermocouple and b) a Thermoelectric Module The yellow line in both figures depicts the electric current flow

The voltage difference created in a TEM is defined by equation 2.3, where 𝑛 is the number of THCs.

V_TEM = n ∙ V_THC Equation 2.3

Following, some commercial TEG designs are presented.

a) b) c)

Figure 2.13 Thermoelectric Generators from: a) Marlow Industries [41] b) Micropelt [42] c) Everredtronics [43]

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The environment and working conditions must be taken into account while designing TEGs, as they operate in cyclic temperature gradient that cause mechanical fatigue [36]. Materials have to be especially selected in order to produce TEGs, as they are also constrained by their price and availability.

Thermoelectric Generators Efficiency, Materials and Power Production

In 1911, the German scientist Edmund Altenkirch derived the thermoelectric efficiency, now simply known as 𝑍 (thermoelectric figure of merit). The thermoelectric figure of merit can be non-dimensionalyzed by multiplying it by the absolute temperature to which the element is being subjected giving as result the dimensionless figure of merit (𝑍𝑇). The larger the 𝑍𝑇 value, the better the thermoelectric material [44].

ZT = α²σT

⁄ K Equation 2.4

In equation 2.4, 𝛼 is the Seebeck coefficient, 𝜎 is the electrical conductivity, and 𝐾 is the thermal conductivity. TEGs need materials that are good electrical conductors to allow a higher electrons flow, and bad thermal conductors to keep both sides of the TEG at different temperatures.

Selecting thermal and electrical conductivity to improve 𝑍𝑇 is not easy, as they are closely dependent to each other as a function of several structural factors. In particular, 𝜎 and 𝐾 vary in a reciprocal manner, making any improvement in 𝑍𝑇 difficult. In addition, the electrical conductivity and the Seebeck coefficient are inversely related [44]. The before mentioned relations can be seen graphically in figure 2.14. Nowadays, global R&D tasks are focused in tackling and braking these relations through doped materials, therefore allowing a 𝑍𝑇 increase to new levels.

Figure 2.14 Typical Trade-Off Curve from Thermoelectric Materials [45]

electrical conductivity (𝜎), Seebeck coeffcient (S), and thermal conductivity (𝐾) The x axis representes the free-carrier concentration of the material

Thermoelectric materials can be categorized as organic and inorganic [44].

 Inorganic: The earliest application of the thermoelectric effect was in inorganic materials, i.e. in metals. Even though metals have very high electrical conductivity, they also exhibit a very high thermal conductivity. Inorganic semiconductors have partially solved this problem thanks to their variable resistances. The most widely used semiconductor for TEGs is 𝐵𝑖2𝑇𝑒₃ which is a doped alloy that exhibits a 𝑍𝑇 ≈ 1 at room temperature [44]. Nevertheless, TEGs made with 𝐵𝑖2𝑇𝑒₃ have severe disadvantages, namely their inflexible shape, sensitivity to shocks, toxicity and expensive manufacturing processes.

 Organic: Organic polymers are very attractive to be used for TEGs since they are light, flexible, poor thermal conductors, suitable for room temperature applications, and generally require relatively simple (and economic) manufacturing processes. Nevertheless, they are also characterized for their low electrical conductivity, 𝑍𝑇 and stability, which has hampered their use in thermoelectric applications [44]. otego’s activities focus in increasing the 𝑍𝑇 of organic materials and taking advantage of their capabilities in order to bring economically viable TEGs into the market.

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Some common materials for the production of TEGs can be seen in Table 2-2:

Table 2-2 Comparison of Materials used for Thermoelectric Generators Inorganic materials taken from [46], organic materials from [47] and [48]

Material Type Material cost ($/kg) ZT

Bi2Te3 Inorganic 110 0,74

SiGe Inorganic 679 0,22

InGaZnO Inorganic 511 0,07

PEDOT:PSS Organic 0,34 0,01-0,2

PEDOT:TOS Organic - 0,1-0,3

As it can be seen in figure 2.15, 𝑍𝑇 would need to be in the order of 15 to be competitive with the Brayton and Rankine cycle. Recent commercially viable 𝑍𝑇 values are achieved by using 𝐵𝑖2𝑇𝑒₃ and are in the order of 0.5 to 1, and efforts are being made in research and development (R&D) to achieve values higher than 2. These values make TEGs marketwise viable mostly in energy harvesting for low power applications. This conclusion was achieved by Leßmann and Becker in their previous research works regarding market opportunities for otego, and is a foundation pillar for the present master thesis.

Figure 2.15 Thermoelectric Generators 𝑍𝑇 compared to Power Generation Efficiencies [45]

Printed Thermoelectric Elements

Printed thermoelectrics is a new TEG production process that has not yet found a market application, with low amounts of R&D literature focusing in this production process being published in the last years.

In order to have a thick enough generator (which as seen in figure 2.12 is needed, otherwise no temperature difference would exist), most attempts have been focused in the use of 3D printers [49]. Nevertheless, their usage has not been effective.

A different printing methodology using 2D printers has been proposed in the last years with institutions like the Fraunhofer institute supporting its development [50]. Furthermore, 2D printing finds the use of organic thermoelectric materials especially useful due to their ability to be treated as fluid under certain circumstances.

2.2.2 otego

The most important application for TEGs has been in deep-space satellites and remote power generation for unmanned systems, mainly because the aerospace market is highly sensitive to the reliability of the power source and not so much to the price [45]. Inorganic TEGs have shown to be useful for this niche market, but their several disadvantages hinder their success in other applications with cases of enterprises going to

Value maximization in product development through holistic design

Value maximization in product

development through holistic design

Efraín Arturo Hernández Mora

Abstract

Sammanfattning

Acknowledgements

Table of Contents

List of Figures

List of Tables

List of Acronyms Used

1 Introduction

2 Literature Review