Critical Commercial Success Factors

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4.2.1 Commitment from the Top

The development of a new biopesticide is a lengthy and costly challenge. Ultimately, sales need to generate a reasonable profit so that a sustained business is possible. The whole project costs many millions of Euros, and takes on average 5-8 years to come to a break-even point, and even more years to reach a sales volume that provides the desired profit. This business field requires understanding, motivation, patience, and perseverance in order to become successful. Management needs to be aware of this from the outset. "Quick profit making" is not a standard feature in this business. Many investors have experienced this and have withdrawn from this business (Gelernter 2005). It is imperative that the long and winding road to success be understood and accepted, and that the vision and commitment be present in the company top in order to achieve success.

4.2.2 The Business Plan and Allocation of Financial Resources

An accurate business plan with realistic profit projections is a prerequisite for the project. The calculation of the potential revenues from 6 to 10 years in the future is a difficult task and must be done conservatively. Minimum to maximum sales need to be projected accurately and carefully, and extensive knowledge of the market is critical. Furthermore, it is imperative to establish as accurately as possible the resources that the development of the business or the product will require; not only the costs of initiating, but also the costs of staying in business. It is important to realize that it will take a considerable amount of time before there is any return on investment. This means that sufficient resources need to be available to cover all costs until sales can eventually pay back these costs and generate profit. A common mistake of many failed businesses has been to underestimate the necessary time and resources. Product development and registration costs are obvious expenses and most companies realize this. The requirements and costs involved for market adoption and reaching sales volume are often underestimated or even neglected, and many companies have failed in this phase in the past (CPL 2006c). Business plans should allow for a low penetration percentage of the market, particularly in the first years. The financial support must be guaranteed during the product developmental period and the initial sales period.

4.2.3 Qualified Management and Personnel

A good scientist is not necessarily an able entrepreneur. If the company is a spin-off from a research organization, the emphasis should be given to management skills. If a large company is new to the field of biopesticides, the management does not always understand this type of business. The management should fit with the type and size of the company or invest sufficient time to understand the field of biopesticides. In new businesses, poor management is often cited as the principal reason for failure. The owners of a new small company frequently lack relevant business and management expertise in areas such as finance, purchasing, selling, production, and the management of employees. All these aspects are crucial to the survival and success of the business. The development of a biopesticide requires a multi-disciplinary team with sufficient knowledge and expertise in the areas of research, production, registration and marketing. Ideally, a company will have all these experts in-house for a well-planned and time-efficient developmental project. The lack of careful, methodical planning could be expensive and jeopardize the project.

4.2.4 Knowledge of the Market

In-depth knowledge of the pest and the potential market is elementary and seems so obvious. But many companies have overestimated the potential share of the market and as a consequence failed dramatically. Pest damage figures cannot be transferred directly to market potential, a grower is willing to spend about one-third of the damage for control measures (CPL 2006a). Poor understanding and insufficient knowledge about the pest problems, customers, cropping systems, current practises, prices, competition, and the requirements to promote a new product will lead to errors and slow penetration in the market. Generally, biopesticides need to be implemented as part of an IPM system and this can be complex. Time and money for the study of the correct positioning of the product and the education of the users is often neglected in business plans. Many companies have had an unrealistic expectation of the true market potential and their ability to sell the product. Biopesticide markets are generally niche markets. Annual sales may range from a few hundred thousand Euros to a few million Euros (Ravensberg and Elad 2001; Gelernter 2005). Unrealistic sales expectations caused many companies to abandon biopesticides. Experience with biopesticides tells us that adoption in the market is a slow process; biopesticides are received with some scepticism and have to prove themselves. The increase in sales does not come overnight, but takes considerable efforts and time.

4.2.5 Insight into the Competition

Biopesticides have to conquer their position in the market and justify their place. Chemical pesticides are still the main competition due to price and efficacy, and also because of grower's routine, and ease of use. Users must be convinced that a new product achieves similar results as their usual practises. It is essential to understand the competition well and to develop ways to position the biopesticide as a replacement or as an alternative product. This needs demonstrations, education, and comparative trials. Because of competition, the market share may be small initially and only increase with efforts over time. Be conservative in market share assumptions, I would say, around a few percent. This may increase, but the market will have to be divided between many products. Initially, the focus should be on the development of suitable and accessible markets with few competitive products.

4.2.6 Other Business Factors

When a company does everything right and the product is a good product, does this guarantee a sustainable business? Obviously, Bt's are successful products that are well accepted by users and are the most sold biopesticides. Still, large companies have stopped their activity with Bt and sold that activity. Examples from the past are Sandoz, Novartis, Novo Nordisk, and Abbott. From the outside, these companies appeared to be successfully producing and marketing these products. Corporate decisions, however, led to the abandonment of the biopesticide field completely. VC companies are under pressure to generate revenues within a short timeline which may lead to leaving the business even if the product has potential. A company's objectives, whatever they are, may have a decisive impact on their perception of success. Many external factors continuously influence the company and its activities in the market with biopesticides. This is an ever-changing environment to which the company must adapt and be flexible in order to maintain success with biopesticides. This requires advanced entrepreneurial skills and expertise, and a close view of the market.

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