As we squeezed by the overloaded log truck on the small road, my buddy said, "That wood's gotta be worth a lot."  He couldn't have been further from the truth.   Those 4000 board-feet* of red oak will fetch about $2000 delivered to the sawmill.  This similar assumption happens when people are developing new products and feel smug in their ownership of a patent or two. 

 

If you trace the journey of a log from its stump to a piece of fine furniture, you will see a similar process to developing products from concept to profits.  You start with some raw materials and a good idea, add lots of effort and capital, a little luck, and out the other end comes something that customers pay handsomely to acquire. 

• On the stump -  A log on the stump (aka a tree) is worth about $50 to $100 per MBF.*  This is like you and your colleague having an idea over a cold drink.  It is a good starting point, but is not really worth much yet.  It is a long way between this tree (concept) and a nice coffee table (products).  If you look at biotherapeutics, over 80% of the cost to develop them is dealing with formulations, clinical trials, regulatory issues, and production engineering. 

• Saw logs at the mill -  Here the tree has been cut, skidded, sawn to length, and delivered to the mill on the truck.  The value is about $500 per MBF, and this increase in value pays the labor, overhead, costs of trees and profit for the logger.  At this point you have your innovations patented and the value of your enterprise has increased, albeit not much.  If you look at typical royalty rates for patent licenses they are often in the 3-5% range.

• Rough cut boards -  Now the wood is starting to be in a useful form, with a commensurate increase in value to around $2 per BF.  Your product has progressed to the proof of concept stage, and your concept now works quite well.  It is indeed able to do what you had dreamed about months or years earlier.

• Dry, planed and cut lumber -  This wood is ready to be turned into useful things.  At Home Depot this will set you back about $6 per BF for a red oak board.  Your business is now gaining in value as you have a prototype to demonstrate to customers, and they like what they see.

• Finished furniture -  This is where the greatest transformation in value happens.  From less than $100 in lumber you can create an $800 table.  Your product has passed all its tests and is now in the market.  Don't forget, though, that you will still need to get people excited about your new offering so they open their wallets.

So whether you are crafting a fine coffee table or developing the next MRSA diagnostic, you will build value as you progress down the development path.  There are few shortcuts, and it takes time and lots of work.  But eventually you will transform your raw logs into valuable products and an invaluable business.

 

 

* board foot or BF is a standard measure of wood volume equal to a square foot of wood, 1 inch thick [a foot of board], or 144 cubic inches. MBF is 1000 board feet