Diogo Valente Polónia N12 Technologies: Building an Organization and Building a Business

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OGE Case 1 Reading Notes/ Answers - 10/03/2022

N12 Technologies: Building an Organization and Building a Business

Reading Notes & Case Answers

Diogo Valente Polónia

Q1 - Major stages and challenges of N12 scale-up process

Main stages:

1. Founding and initial development

Patented technology in MIT licensed to N12 in 2010; Investor based funding; Low
investment lab which required hands-on approach to build the reactor

2. Market Entry

To overcome skepticism in Market Entry, N12 leveraged data from themselves and MIT to
provide actual evidence of NanoStitch's benefits, focusing on scientists and technical
professionals as targets. In addition, they concentrated on four markets based on their time
to market.

N12 also had to change strategy from “Pay As You Go” to “Build It and They Will Come”. To
fund its growth, N12 firstly aimed to have 5-6 end users as partners in joint development
agreements. However, due to a lack of trust from partners, N12 began to build capacity
before selling. They needed to close two capital raising from individual investors to keep the
company afloat.

Push (intermediaries) and pull (end users) strategies were developed by N12.

3. Improving and sacling technology (from Gen I Reactors to Gen IV Reactors),

accompanied by an increase in workforce

4. Business Development (in different costumer segments)

Main Challenges:

1. Founding and initial development

There was no defined strategy or timeframe in place, and there was a problem with
repeatable manufacturing performance. Tight budget and missteps in production.

5. Market Entry

Extreme skepticism, despite the fact that CNTs had been on the market for two decades,
because benefits in strength and fatigue resistance did not materialize, and performance
sometimes even worsened.
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OGE Case 1 Reading Notes/ Answers - 10/03/2022

Besides, partners were no willing to fund before testing which caused a big trap for N12: the
company needed funding to build VACNTs for test materials but to get funding they needed
the test materials.

6. Improving and scaling technology

“One of the biggest challenges we have”, explained Flavin, “is matching our technical
capabilities to demand. If we build our capabilities too soon, we run the risk of burning
money. If we build too slowly, we will lose credibility in the marketplace. Either could be
death for a startup”

Effectively transitioning from 4 to 27 employees:

This transformation began with a horizontal expansion, followed by a vertical expansion,

resulting in an increase in hierarchical levels. This resulted in improved task division, a
stronger requirement for reporting, regular meetings (daily or weekly), and medium/long-term
planning of what was to be accomplished (strategies followed by the company). Because the
organization grew larger, older employees had less understanding of what was going on
inside the company, making absolute knowledge impossible. The ability to communicate was
crucial. They needed to give employees more responsibility and trust. They also developed
bonus programs and social gatherings where employees could discuss about their jobs.
Each employee's background was carefully chosen during the hiring process in order for
them to be compatible with their coworkers and the company's goals.

Q2 - N12’s approach to building organization vs business

Building an Organization

Berkson, who was an early investor and board member, was named CEO, and Flavin was
named COO. In terms of abilities, personality, and temperament, they are dissimilar but
complementary. The key was to find someone they could entirely rely on. They were more
interested in using previous data to figure things out than undertaking new trials to discover
the roots of the problem because of the challenge with repeatable manufacturing
performance. They adopt a yearly business plan, track the plan quarterly, create monthly
work plans, and have daily and weekly meetings to address the lack of organization. David is
a hands-on, technically minded individual. He's also an autodidact, meaning he's mostly
self-taught. Williams is more concerned with the scientific side of things.

From four to seven people, horizontal expansion began. It didn't create any new hierarchies.
However, the first hierarchy emerged as the company grew vertically from 7 to 16 personnel.
There was also a formal division of tasks between Williams and Degtiarov, resulting in more
reports and obligations. It is their responsibility to assist the team. The loss of closeness
between the initial team members resulted from the organizational structure shift. To make
up for the loss, Gouldstone, Williams, Jarosz, Degtiarov, and Deresh started meeting for
breakfast every two weeks. They used the time to hold open and honest working chats.
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OGE Case 1 Reading Notes/ Answers - 10/03/2022

At the same time, business development was ramping up. Early on, there was a need to
build an engaging story and nail the product positioning. They needed the public to
understand that N12 was not a carbon nanotube R&D facility. Their goal was to create a
product that could be used on a large basis.

Building a Business

N12 chose to focus on four important markets: consumer, automotive, wind energy, and
aerospace, in order of projected time to market. They also switched from a "Pay-as-you-go"
model to "Build it and they will come," i.e., N12 had planned to fund its growth by forming
joint development agreements with five or six end users (JDAs). Partners, on the other hand,
insisted on seeing "proof of concept" before signing JDAs. The company was stuck in a bind:
it couldn't produce enough VACNTs to meet demand for test materials, yet it couldn't expand
its capacity without spending more money. N12 would build capacity ahead of demand,
anticipating future sales.

The business development team at N12 chose to create demand using two contrasting
approaches: a "pull strategy" and a "push strategy." N12 intended to gradually increase its
sales volumes by changing from test materials to specialized consumer and automotive
parts to high volume, mass-market components and products. NanoStitch's adoption would
ultimately come down to cost against performance. End users would need to experience
significant benefits on one of several dimensions, such as reduced weight, added strength,
or durability, to justify the price premium of adding NanoStitch to composites.

The corporation used a two-tier pricing strategy. Depending on the consumer niche, it would
charge varying prices. NanoStitch would be profitable by 2018, according to the business, if
it was sold solely to the high-end consumer category.

Q3 - People’s roles, responsibilities and relationships

Berkson and Flavin

Berkson, who was an early investor and board member, was named CEO, and Flavin was
named COO. Berkson and Flavin brought to the organization a varied range of abilities.
Despite having comparable backgrounds (both were engineers, Harvard Business School
grads, and ex-McKinsey consultants), their personalities and temperaments were vastly
different. It's a story about how diversity may be beneficial. We know how to navigate a
collaboration, therefore it works. Flavin enthusiastically accepted the COO position at N12,
where he could focus on his passion for operations, product development, and new product
and process rollouts without being burdened by the pressures of raising capital and other
CEO duties he didn't enjoy. Berkson would raise the next round of funding and concentrate
on business development, finance, and human resources, while Trip would concentrate on
operations.

Williams and Degtiarov

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OGE Case 1 Reading Notes/ Answers - 10/03/2022

Degtiarov is a hands-on, technically minded individual. He's also an autodidact, which

means he's self-taught. Over the weekend, he would teach himself computational fluid
dynamics. Williams is more concerned with the scientific side of things, with processes and
analysis. It was only logical for them to divide their tasks. Williams has focused on the
science, considering what is happening inside the reactor, whereas Degtiarov has
concentrated on the engineering and construction of the reactor.

Jarosz and Gouldstone

Chris Gouldstone was an applications engineer with two degrees from MIT, and Paul Jarosz
was a PhD chemist and materials scientist. "My immediate goal at N12 was to find a material
on which to grow our VACNTs that was flexible and inexpensive enough to use in a
continuous process," Jarosz explained. He had previously worked at a competing nanotech
company, and one of his reasons for coming to N12 was to have the challenge and freedom
to innovate.

On the other hand, Gouldstone was brought in as a composites expert (at first on a part-time
basis and then full time in February 2014). His task was to construct a composite lab for N12
to use in order to make composites with and without NanoStitch, test them, and then ship
them to customers for further testing.

Essentially, as a result of vertical expansion, they ciesed to be “hands-on” workers and

started to delegate and manage, and they spent the majority of their time communicating.

Q4 - N12’s evaluation
Because of the greater number of personnel, N12 should have a more ordered structure at
various hierarchical levels. However, due to the necessity for caution in staff selection and
interpersonal relations, human resource management will be a difficulty. One of the potential
is technical advancement, as any advancement in this regard could result in increased sales
or profit. Aside from the expansion in the number of people, as the firm grows, the volume of
data grows as well, necessitating the finest possible information management.

Basically, the key should be to scale not only production, but the company's capabilities. This
can be achieved by creating excellence in business practices, adequate to a mature
company, but focusiing on trust and ownership for example:

● Cross-team and Inner-team performance reviews;

● Increase information organization structure (using online collaboration tools);
● Further devolpment of Agile project management methods;
● Increased corporate discipline through goal-setting in the company and departments;
● Excellence in process documentation and decision-making reasons;
● Increased ownership (decreased control) of each employee (no decison-making,
financing our purchase approvals for example).
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OGE Case 1 Reading Notes/ Answers - 10/03/2022

Ultimately, social interactions must be reinforced, always encouraging information sharing in

both formal (transparency meetings) and informal settings (coffee breaks), so every
employee is able to make individual decisions knowing what’s happening in the company
overall. Higher digitalization is also required. In addition, the organization may consider
hiring a professional knowledge manager to help with documentation discipline.