I wanted to highlight this latest post by Gaussling on starting a chemical business. (Here‘s an earlier one). In today’s environment, I’m sure that this has crossed many people’s minds, and this series has a lot of wisdom to offer on how to do it (and how not to). Not everything that looks like it should make money will do so:
The other big negative to selling proprietary reagents or processes is negotiating the terms and pricing. From the customers perspective, adopting your composition or process means that smack in the middle of their process train they have to manage a licensed technology with extra paper work and auditing. This is a big problem with catalysts. Many of the newer catalysts you see in the Aldrich or Strem catalogs are proprietary and must be used under a license agreement. Nothing stirs the creative juices like the desire to avoid paying royalities by finding white space in a patent or inventing a new process.
Having been involved in such license negotiations, I can say that you need to have a lawyer looking over your shoulder while you consider the terms and conditions. These agreements often entail upfront fees and a sliding scale of pricing based on usage. Some IP owners want a piece of your gross product sales resulting from the use of their technology. An annual audits may be expected as well. It’s like having raccoons in your picnic basket.
Indeed. I can tell you from my own experience, on the other side of the table, that few things will make your potential clients want to see your back more than asking for a percentage of the eventual profits. Fee-for-service is a lot easier to handle, but is of course less profitable.
And even then, pricing is tricky. Sometimes there’s not much space in between “Who do these people think they are?” and “They’re so cheap that there much be something wrong”. My advice to anyone starting such a business is to be open to all sorts of different arrangements, to at least get your foot into as many doors as possible. Your potential clients will probably be a pretty variable bunch, and you’ll need to be able to vary right along with them.