In the business world, most people will claim to appreciate the value of competition. Everybody understands how competition causes prices to trend downwards . And everybody has a basic grasp on the argument that monopoly domination of a market is ultimately stifling to innovation.  But despite this understanding of the merits of competition, people still try to get as close to monopoly as they are allowed. 

There are two sides to any business- the sell side and the buy side. The sell side hates competition and the buy side loves it. The sell side wants to eliminate competition and grab as much market share as it can.  The buy side wants to promote competition to drive down the cost of raw materials and services.  All businesses have this sort of left brain, right brain relationship with competition.

The sales folk know all too well the blinding power of competition.  I remember many meetings where I have made heartfelt and sincere presentations to reassure a customer that our company is there for them , but regrettably the product we had been supplying for years was going to suffer a minor price increase.  My Swiss Army knife of sales tools was wide open and all of the tools had gouge marks on them. The customer seemed pursuaded.  But this was the calm before the storm. 

At first, and with a hurt look on his face and an alligator tear running down his cheek, he’ll exclaim that it has come to his attention that there are two other vendors with substantially better pricing. Then, stiffening up noticeably, he’ll go on to say that apparently they had been paying far too much for far too long.  Some procurement people will even accuse you of making them look bad in front of their management. Others will just shrug and sit there staring at you silently, waiting for you to hack up a price concession.

This is the point where the skilled sales person gives a performance worthy of Lawrence Olivier. You regain your composure and put on the most cheerful face you can.  Here is where your collection of euphamisms comes in handy.  My personal favorite- “Well, we’ll have to go back and sharpen our pencils and see what we can do.  We’ll be in touch soon”.  Did you get that? Sharpen our pencils?  The really smooth purchasing people will use it first- “We think you need to sharpen your pencils on this pricing…”.

When a purchasing person says this to you, it is actually a gift. It is a graceful way of saying that you need to stop being stupid and requote a fair price. It is a gift because they haven’t disqualified you just yet. It is a last chance.  Some purchasing people are very haughty and take high prices personally. When you ship a quote to them that was out of line, they won’t even bother to reply or try to negotiate.  Like a fly, they just hop over to the next hot dung pile.

Starting a chemical business seems so reasonable.  Get some space, build or buy a hood, get the basic stuff- glassware, a rotovap, a vacuum pump, some chemicals, and start to work.  We chemists are able to do the lab stuff.  Basic transformations, separations, purifications, etc.  We exist to do these things.  But transmuting matter is the easy part.

There are many other things to do beyond mere synthesis when you have a company. You have to manage a physical facility. Deal with the state health department to get a haz waste permit so someone will come get your waste.  Bring in the fire department to inspect the place, review your emergency plans and MSDS collection so they can arrive informed of what to expect in an emergency.  You need to find an insurance carrier to provide some basic insurance coverage for the site.  

Cash flow is life itself. You need to have cash in reserve to pay for raw materials well in advance of shipping your product out the door.  It’s called working capital.  Figure on carrying the cost of raw materials for several months before you actually get paid for your product.  Once you do get the product shipped, the payment terms clock begins. Most companies offer 30 days net.  This is called commercial credit and do not expect to get it easily from your suppliers.  Of course, your customer will expect 60 days net. 

To get commercial credit, you’ll have to get a Dunn & Bradstreet number. Then you’ll have to fill out applications and hope that you can get approximately decent terms. Chemical companies have a certain amount of due diligence to do when starting a new account. They will allow a modest credit initially (eg., $1000 for 30 days net) to protect their financial position. But they also have some responsibility to the safety of the public in regard to where they send hazardous shipments to.  Their nightmare is to send hazardous materials to some 14 year old puke in Cleveland who found a tattered copy of “The Anarchists Cookbook” in his Grandpa’s attic and decided that he wants to make a nitro ester to impress his friends. To avoid this, some locations may be barred for shipment of hazardous materials.  So make sure that your site is zoned properly.

Collecting payment from a customer can go smoothly or very poorly. Customers who do not manange their working capital very well may strapped for cash until they get paid for their product. Accountants in the receivables department refer to their “aging schedule” to keep track of how late various accounts are.  Getting timely payment can be a problem. Some companies will offer terms like a 1 or 2 % discount for payment in 10 days.

One of the most important hires you bring on is the receivables person.  It is best to hire the most savage accounting troll you can find for this position.  Their job is to watch the accounts aging and to call and threaten bodily harm to the slackers who are behind on their payments.  A long list of past due accounts can bring you down like a lead balloon. Take no prisoners. This is life and death.

For a startup, following a synthesis procedure is straightforward.  However, if you need an NMR spectrum, you are going to have to be clever.  You can pay through the nose to have a commercial lab get you one. But if you have to follow a purification by NMR, it can get to be problematic fast. This is where your grad school experience can let you down. By that I mean, an over-reliance on NMR. For a lean & mean startup, you can’t rely on expensive spectroscopic methods to get you to an endpoint. That is, unless you’re flush with money.

Which brings up a philosophical point.  Many people start a business on the assumption that they need venture capitalists to rain money on them to do the startup. If you can possibly avoid it, do so.  If you have to get venture capital, then consider bringing on a professional business manager to deal with it. Venture capitalists are not merely smart, they are cagey.  They exact a large toll on the shares of ownership of a startup they fund.  You can find yourself as the founder being a minority shareholder.  These people serve a valuable purpose in the startup world. But remember, there is a price to be paid for using their money.

When you squint into the jewel encrusted window of fabulous industry, you might naively conclude that the only truly powerful people in business are the show horses- the CEO’s, Presidents, and VP’s.  To be sure, these annointed ones do wield considerable power. They strut around like roosters, crowing the latest buzzwords with their Wharton MBA’s on their sleeves like the gold stripes on a Boeing 777 captain. They are, after all, “upper management”.  

You see, power in industry is the ability to allocate resources, that is, throw money at projects run by your stable of lackeys and courtiers.  However, there is a class of functionaries that you might mistakenly dismiss as mere scribblers or spreadsheet monkeys.  They quietly control a force so unspeakably powerful that they can make or break businesses, careers, or at least cause an unsightly crease in your trousers.  These dark lords of business are the keepers of the mighty industrial purse. The cashiers dispensing the elusive coin.

No, I do not mean those bovines of the cube farm, the accountants. I refer to (with utmost respect since one may be watching) Purchasing Managers. Purchasing managers, or supply chain managers, are the kingpins that award business contracts to that unworthy class of rabble called the “Vendor”. And what a loathsome bunch we are, always gnawing and clamoring nervously on our haunches across the moat for more scraps of fat. 

Just getting in to see a purchasing manager can be tricky. Forget about just popping in. Most businesses that buy specialty fine chemicals also have the réceptionniste sauvage who has -78 C acetone for blood.  Their role in life is to filter out the sales flotsam who may happen by.

You walk up to the reception desk in your dark suit with white shirt and blue and red tie and ask to see Mr. Smith.  In the world of sales men, fragrances are strictly for dandies from the European continent. Leave your airport duty-free store cologne in your suitcase where it belongs. 

The receptionist signs you in and phones the contact.  You stand there in waiting while Mr. Smith walks across the “campus” to meet you. He arrives and there is the exchange of pleasantries as security cards slap against sensors and you walk into a cubicle galleria. 

Mr. Smith leads you to a small sterile conference room with OfficeMax chairs where the clenched buttocks of countless other sales reps have plopped down before.  Bored looking people file in and business cards are exchanged with faint interest.  The door closes followed by what might be the faint slapping sound of sphincters slamming shut. The curtains open and you’re on center stage. It’s show time.

In the previous post I poured on the platitudes regarding working for a large company. Today I write about the other end of the spectrum- The startup company.

I encounter startup companies frequently in my work. Since I am not in the pharma business or fabulous biotech, my exposure to startups is limited to specialty and fine chemical feedstocks or reagents.

When you start a chemical company, it is assumed that you want to make lots of money. It turns out that you must have considerable cash flow just to pay the expenses of being in business, so you must be focused on cash flow. Chemical companies can have fairly high overhead costs, partly due to expensive staff (chemists and business managers) and partly due to the unique and expensive requirements of the physical plant.

Starting a chemical company is not a task for the timid.  You have lots of strikes against you from the very start. You see, a company is like a big angry animal. It has to be fed constantly with generous inputs of cash. Cash is King. Remember that. It’s all about the elusive spondulix. Investors can either give their money to Warren Buffett or to you.

I have seen many startups devolve into smoldering, groaning trainwrecks. Fortunes are lost, litigations burn like the fires of Mordor, and careers are lost or at least seriously stunted. Certainly no one starts a company with the intent of crashing it. So, how does it happen?

Usually, they run out of cash. There are many reasons that people use to justify the startup of a company. What they all have in common is the unwavering certainty that people will throw money at what they hope to offer. And if they have a patent- Lordy.  Nothing is meaner than an inventor in the thoes of patent sickness trying desperately to revive a dead one-act pony.

Many people start up a company with a one-act pony.  That is to say, a patented technology based on a highly specialized material or a process.  There are several ways to put a one-act pony or technology to work.  You can license out the technology. You can make certain compositions for sale. Or, you can make the pony do it’s one trick. 

If the pony’s one trick is good but not spectacular, selling licenses may be difficult. It is expensive and risky to upgrade technologies. There has to be a clear advantage and fairly rapid return on investment for the licensee.

If the materials made by the technology are “Me Too” products that are adequate but not exciting, you’re in for tough sledding. Especially if they’re commodities.  Companies in the polymer business know this. It is fantastically hard to get a new polymer to catch on in the market. Even giant companies have a hard go of it with exceptional products. The polymers market isn’t expanding very fast, so if you want market share, you have to take it based on price. Then it is a race to the bottom of the lake.

I was once roadkill along the trail of tears called PLA- Polylactic Acid.  It’s a great polymer for numerous applications. But low MW and the tendency to turn amber were problems that eventally caused us to flame out like a North Korean missile.

I’ve seen a lot of one-act pony startups fail because the pony died.  A startup may fail because show stoppers appeared that couldn’t be fixed, or the demand didn’t pan out. 

If you’re going to start a company, it is desirable to get cash flow going as soon as possible.  Use a plow horse to get some cash flow while you’re training the new pony.  Let existing products pay for the development of new technologies.  Learn how to make or formulate niche products that no one else is interested in. Plow the money back into product development and get into advanced technologies that way. Minimally, you’ll get to retain more of the ownership.

Another reason to build a business this way is to try to stay away from venture capitalists. But that is for another day.

I write to lament the state of chemical nomenclature today.  There are several forces in the nomenclature world- Chemical Abstracts, Beilstein, and IUPAC.  Near as I can tell, with the globalization of CASRN’s, CAS nomenclature is the predominant nomenclature in the world.  At least the world open to English language.  I have no idea of how the nomenclature works in texts written in Mongolian, Tagalog, or Ubangie. Are there translations or transliterations- I don’t know or care much, truthfully.

I can say that the introduction of new chemical entities into commerce presents the issue of what to call a thing.  A name that has 80 characters, including greek letters like mu or kappa, strings of digits delimited by layers of commas, brackets, dashes, and parentheses, poses certain practical problems with business data systems and catalogs.  It also poses problems for the many non-chemical people who have to deal with it on a daily basis.  It becomes hard for people to understand what the hell they are referring to. In fact, it actually intimidates non-chemists to the point of locking up. They become convinced that the slightest error will lead them down the merry path of ruin.

One of my duties is to define nomenclature for products at my day job. We dutifully collect the 9CI names for the TSCA nightmare, and then we decide what we’re going to call it on a commercial basis.  I’m finding myself using the IUPAC nomenclature module of ChemDraw more and more.  The nomenclature coming out of it seems more human friendly.

I once contacted CAS in Colombus and spoke to a helpful and sincere person who explained that CAS doesn’t offer a handbook that would explain how CAS does its nomenclature.  I haven’t researched this too deeply, but I have not yet found a CAS publication that defines the taxonomy that CAS uses.  Of course, CAS will happily charge you for an official name assignment. I guess for a $26 charge I could look it up in SciFinder.

Whining about nomenclature is like complaining about the weather. CAS has to do something with all of the species cited in the literature.  I just regret the high cost associated with using CAS services. 

All of this feeds into my nagging feeling that ACS and it’s lovechild, Chemical Abstracts Service, has gotten a bit unwieldy and maybe even too big for its britches.  With the publishing and the registry database business, it has grown to be the major force in the sales and distribution of chemical knowledge. It is an economic engine.  Maybe even monopolistic.  Oops, there is that word.

I don’t know what other people out there think but I have this nagging grievance with Platinum Group Metals- PGMs. They’re too expensive.  I receive a weekly newsletter from BASF Catalysts listing prices of the various precious metals.  Some of them have taken an astounding uptick in price in the last year.

As of last friday, ruthenium was at $375 per troy oz.  Rhodium continues to be in the stratosphere at $4925.  Platinum is down a bit at $1159. Pt prices are greatly affected by demand in Asia for Pt jewelry, according to the newsletter. Osmium and iridium have been at $400 per troy oz for quite a long time. Gold was at $650.50 and even silver was a lustrous $14.07 per troy oz. Palladium is at $328.

Don’t get me wrong. PGM catalysts are fantastic in almost every way.  I’m not so cold hearted that tears don’t well up at the sight of an X-ray of some resplendent Rhodium complex proudly thrusting its phosphines about. My god it is beautiful.  How could I be against PGMs?  My post-doc was doing rhodium chemistry.

It’s just that they’ve gotten so darned EXPENSIVE. Price out some rhodium (II) acetate sometime, but try to be sitting down.  The price volatility is not the fault of companies like BASF or Matthey. There is just a deficiency in supply. These metals are traded in the world market place.  BASF and Matthey are venerable and upstanding companies.  I have no beef with them.

But, here is what we need.  We industrial folk need to try harder to implement transformations catalyzed by the other metals- Ti, Zr, Fe, Co, Ni, Cu, or zeolites, etc.  Part of the problem is familiarity. All of the important textbooks on organometallic chemistry, advanced synthesis, etc., cover the mechanisms of catalytic transformations, but they highlight the PGM mechanisms. That’s not a bad thing, but we all get out of grad school with “palladium on the brain”. 

Yes, of course, there are some things that will probably always be done with PGMs. But what about the beautiful coupling chemistry using Grignards by Furstner, Kambe, or Knochel? 

Take a walk on the wild side. Try something different.