Building Materials Challenge Case Study
The Situation
Sto’s perspective
Sto is a $1b mid-cap building materials player looking to tap into growth markets in next-generation building materials.
As with many mid-cap and small-cap companies, Sto dedicates the majority of its internal resources towards delivering for its fast-growing customer base. Advanced R&D is always important for long-term success, but it can be challenging to redirect investment from ongoing operations.
Sto worked with ProblemSpace to launch Open Innovation challenges in four key areas: fire-resistant materials, tunable wall separation layers, resilient architectural coatings, and next-generation insulation materials.
Sto was well aware of the existing state of the art materials and sought an order of magnitude improvement.
Entrepreneur’s perspective
Frank Yang is a serial entrepreneur who most recently raised nearly $500M in VC and strategic funding for a US solar panel manufacturer. Leveraging his expertise in advanced materials, building technologies, and energy, Frank launched a new venture (Liatris Inc.) in insulation, a large and profitable sector with limited innovation.
As with many bleeding-edge technologies being sold into conservative end-markets such as construction, Frank needed to clearly and quickly verify customer interest and product-market fit in order to close seed funding from potential investors.
Through ProblemSpace, Frank sought a corporate partner that addressed his need for both a) initial seed funding and b) product/technology validation to demonstrate adequate customer interest for larger scale investment. This partnership could mitigate the severe risk of slow market adoption, a key failure mode for many manufacturing startups.
ProblemSpace Approach
ProblemSpace (an ADL Ventures company) worked with Sto to design requirements for an open innovation challenge. Sto sought an order-of-magnitude improvement on state of the art materials, and the new venture community delivered.
Through a highly collaborative effort, ProblemSpace and Sto developed and promoted a compelling challenge. An iterative process led to the establishment of parameters that were aspirational but achievable.
Over 400 startups applied to address Sto’s Building Materials Challenge powered by ProblemSpace.
On one end of the spectrum, applicants included individuals with an interesting thesis for solving the challenge, but no product. On the other end of the spectrum were those that had already demonstrated results through early prototypes. Applicants across these stages were of interest to Sto. Early stage concepts were considered for fellowships to further explore the ideas, and later stage prototypes were evaluated either for direct investment or for contingent purchase orders.
ProblemSpace tapped into a vein of entrepreneurship through its unique position at the center of various “worlds,” including industry, academia, government, and investment.
The ProblemSpace team evaluated all >400 proposals, ensuring robust IP protection for the applicants (see our intellectual property protection policy). With ongoing engagement and consultation with Sto, ProblemSpace managed the process of identifying the ventures that most effectively met Sto’s criteria. Frank Yang’s team made it into the short list for fireproof thermal insulation.
ProblemSpace shepherded Frank and the other finalists through the challenge process culminating in final presentations to Sto in Atlanta.
Results of the Building Materials Challenge
Following the final presentations and review with Sto’s Board of Directors, Liatris Inc. was selected as one of three winners of the Building Materials Challenge.
For Frank Yang and Liatris, the Building Materials Challenge through ProblemSpace provided a clear path towards full-scale commercialization. The forthcoming investment from Sto allowed Frank and his co-founder to add experienced technical personnel to the venture and pay for initial design/product development while leveraging Sto’s market knowledge and technical resources (analysis, testing, etc.).
More valuable still, Sto will bring Liatris’s product to market as an OEM customer, substantially reducing the need for initial sales & marketing expense and providing the company a longer time window to raise growth capital. As Frank Yang describes it, “The ProblemSpace process has resulted in a direct market interface for us and has enabled more meaningful conversations with co-investors.”
Tyson Kindstrom, VP of Marketing at Sto, was also pleased with the outcome. “The initial round of this challenge yielded great response well beyond our expectations,” said Kindstrom. “The framework ADL provided to create a wide prospect funnel then quickly navigate toward final selections was essential in streamlining the process for Sto’s management. All three winning projects can benefit our core business as well as open up new growth areas. Without ProblemSpace we would have been unsure of the differentiation and fit, and hard-pressed to execute.”
