# Presentation: 418872

## Starting and Growing your Biomedical Business 

**Jenny C. Servo, Ph.D.**
**February 27, 2007**

## Different perspectives
What is unique about biomedical businesses
Challenges that all businesses face
Selecting a strategy for growth that works for you

- Different perspectives
- What is unique about biomedical businesses
- Challenges that all businesses face
- Selecting a strategy for growth that works for you

**Notes:**
The way I will address this is to first talk about differences in perspective on this topic and clarify the perspective that I will take. Then, I will talk about what are some unique challenges of biomedical businesses and what challenges do all businesses face. Finally, I will talk about how to select a strategy for growth.

## Different Perspectives

- Opportunity

**Notes:**
In discussing this topic I have chosen to focus on the perspective of the scientist or entrepreneur who starts  a company  and who  is responsible for its growth. This perspective is very different than that of a potential investor who looks at an opportunity in terms of its potential for generating a return on investment. The founders perspective is very different than that of an investor.

Companies start in different ways - out of necessity, out of frustration, out of the promise of a new opportunity or a new discovery. The founder typically has great capacity  for work. Numerous studies have shown that entrepreneurs often need less sleep than most, which is beneficial given the amount of work that lays before them. Founders are driven and provide an inordinate amount of time to their work and their vision. They invest sweat equity - which is euphemism for investing time at no pay. Many times other family members - whether a spouse, a sibling, a parent, or a child will also commit their time and energy to the company. Often times the involvement of a family is essential to the success of the start-up , although an investor would see this as a liability. Only a limited number of people will invest their time on speculation. Many SBIR firms start in this fashion. The first couple of years of a start-up are often tenuous, with the founders rarely drawing a regular salary., at least not from this source. If the founder is an MD, income would come from private practice. If the founder is an academician, their regular pay would come from their day job.  

## View the SBIR project as a research project and does not focus on developing a company
Issue - No infrastructure, no growth

- View the SBIR project as a research project and does not focus on developing a company
- Issue - No infrastructure, no growth

**Notes:**
Sometimes company growth is slow in coming. Increasingly I am certain that part of the reason for this with companies that spin out of universities or that are started by MDs, is that they focus strictly on the research and neglect to think about growing a company. If you approach all funded work in this fashion, you will never develop an infrastructure, you will never successfully grow a business. A business has to be viewed as a separate organism that needs to be nourished so that it can grow and evolve an infrastructure, so that it can mature. The life blood for this entity is not only financial resources, but also the care and dedication provided by its founder.

## Complexity of subject matter
Confuse public policy/service with market need 
Clinical trials
FDA approval
Voracious appetite for money

- Complexity of subject matter
- Confuse public policy/service with market need
- Clinical trials
- FDA approval
- Voracious appetite for money

## Intellectual property protection
Sizing emerging markets
Sophistication required in understanding alternative forms of financing
Ability to stay focused
Ability of founder and organization to continually re-define itself. 

- Intellectual property protection
- Sizing emerging markets
- Sophistication required in understanding alternative forms of financing
- Ability to stay focused
- Ability of founder and organization to continually re-define itself.

## Selecting a Strategy for Growth

## What is Commercialization?

- “The process of developing markets and producing and delivering products or services for sale (whether by the originating party or by others)..... commercialization includes both government and non-government markets.”
*National Science Foundation SBIR Solicitation*

**Notes:**
• “The process of developing markets and producing and delivering products or services for sale (whether by the originating party or by others). As used here, commercialization includes both government and non-government markets.”
    - National Science Foundation SBIR Solicitation

                  A.  Commercialization

                  B.  Consultant

                  C.  Development

                  D.  Cooperative Research and Development

                  E.  Effective Date

                  F.  Expiration Date

                  G.  Equivalent Proposals

                  H.  Grant Support/Performance Period

                  I.   Permanent Equipment

                  J.   Place of Performance

                  K.  Principal Investigator

                  L.  Overlapping Proposals

                  M.  Research Institution

                  N.  Research Institution Investigator

                  O.  Research or Research and Development (R/R&D)

                  P.  Small Business Concern (SBC)

                  Q.  Socially and Economically Disadvantaged Small Business

                  R.  Socially and Economically Disadvantaged Individual

                  S.  Subaward (a.k.a. contract or subcontract)

                  T.  Technical Data

                  U.  Third Party Investor

                  V. Women-Owned Small Business 

                  A. Commercialization. The process of developing markets and producing and delivering products or
                  services for sale (whether by the originating party or by others). As used here, commercialization includes
                  both government and non-government markets. 

## What is a commercialization strategy?

- Not defined in solicitations......but alluded to
- “....your company’s strategy for converting your proposed SBIR research into a product or non-R&D service with widespread commercial use -- including private sector and/or military markets.”
*DoD SBIR solicitation*

## Commercialization Strategy

- The series of financing options that a company entertains to move its technology from concept to the marketplace

| Milestone | How Funded? |
| --- | --- |
| Concept development | Phase I SBIR |
| Business case analysis | G&A |
| Prototype development | Phase II SBIR |
| Intellectual property protection | Retained earnings |
| Beta testing | Corporate partner |
| U/L approval | Retained earnings |
| Test market introduction | Equity investment |
| Marketing | ??? |
| Scale-up of Production | ??? |

## Roadmap to Financing Options

- Sweat equity

- Science for Hire

- Debt

- Equity

- Profit

- Founders

- On Spec

- Corporations

- Federal

- Family, friends

- Personal credit
- banks

- Fed,State loans

**Referral network**
- Accountants
- Attorneys
- Successful entrepreneurs, etc

- Business angels

**Licensing**
**Partnerships**
**IP sale**

- Venture Capital

- Investment banker

- Corporations

## All require a Return on Investment!

- MILESTONE

- SOURCE OF $

- ROI?

- Beta Testing

**Corporate**** ****partner**

- U/L Approval

**Retained earnings**

- Test marketing

**Venture capital &**
**Corporate partner**

**All must benefit financially, commensurate with risk and their expectations**

## Strategy selection process

- Iterative ..... build and test
- Articulate at the outset and
- Revisit
- as you collect additional market data
- as you develop the business case
- during negotiations with partner/investor

## Factors which effect your commercialization strategy

- Mission
- Vision
- Business philosophy
- Your current situation
- Customer requirements of supplier
- Window of opportunity
- Competitors

## Mission

- Business functions
- Products and technologies
- Markets served
- Sustainable competitive advantage

## Sample Mission Statement

- “Soarrell Medical Systems develops, produces, markets, and supports proprietary, patient-oriented software, biometric smart cards and readers which interface with computerized patient record (CPR) systems. We offer outstanding customer support and share the financial risk with medical practitioners. We are dedicated to making it easier for physicians in private practice to spend more time providing quality care.”

## Elements of Vision

- 5-years out
- _Financial goals_ - revenue goals, profit margin goals
- _Market goals_ - customers served, market niche, geographic region, market share
- _Products and services_
- _Image_- How will you be perceived by customers, competitors, employees, community

## Typology of Visions

**Typology of Visions**

## Business Philosophy

- I don’t want to give to control
- I want to try it all
- I want to enjoy myself
- I don’t care who gets rich

## Current situation

- Financial health
- Sustainable competitive advantage
- Stage of product/technology development
- Management
- Market readiness
- Risk: technology,market, management

## Competitors

- Positioning to
- Take advantage of a window of opportunity
- Broaden a customer base
- Expand services

## Customer requirements of suppliers

- Financial stability
- Platform interface issues
- Quality - GMP, ISO, CE certified
- Continuous improvements
- Quantities and delivery schedules
- Customer support

## Sample strategy - Licensing

- _Vision_: Life-style company
- _Philosophy:_ Do what I enjoy
- _Financing methods_

| Start-up | Sweat equity |
| --- | --- |
| Concept development | SBIR |
| Intellectual property | Retained earnings |
| Application development | Licensee |
| Production | Licensee |

- Milestone			Funding Method

## Strategy - Strategic alliance

- _Vision_: Foundation company (R&D and manufacturing)
- _Philosophy:_ Conservative
- _Financing methods_

| Start-up | Sweat equity |
| --- | --- |
| Concept development | SBIR |
| Intellectual property | Retained earnings |
| Prototype development | SBIR |
| Production scale up | Equity investor, converted to debt |
| Marketing/sales | Strategic alliance |

## Strategy - Equity Investment in Parent Company

- _Vision:_ High potential venture
- _Philosophy:_ Rich is good
- _Financing options_

| Concept development | Sweat equity |
| --- | --- |
| Prototype development | Science for hire |
| Production introduction | Private placement |
| Market penetration | Debt financing from equity investors |

## Sample Strategy - IPO

- _Vision:_ High potential venture
- _Philosophy: _I want to try it all
- _Financing options_

| Concept development | Federal funding |
| --- | --- |
| Prototype development | Seed financing from angels |
| Market test | Retained earnings |
| Market introduction | Equity - Fortune 500 company |
| Scale-up | Second round financing from VC |
| New facility | Private placement |
| Expansion | Line of credit, profits |
| Market penetration | IPO |

## Combination of strategies

- Parent company

- Spin-off

*High potential *
*venture*

*Life-style firm*

## Financing Options as a Function ofApplication & Resources Required

- $ REQUIRED

**A lot**

**A little**

**Few**

**Many**

- Spin-off
- Joint venture
- Equity investment

- Joint R&D
- Licensing
- Strategic alliance
- Equity investment

- Bootstrap
- Angel investment
- Debt financing

- Partnerships
- Licensing
- Angel investment

- APPLICATIONS

## Share your Vision

- Communicate
- Redefine your role and that of others
- Focus on infrastructure
- Embrace the new

**Notes:**
You  must have a method of sharing your vision; sharing your corporate history, and integrating new employees into the fabric of what you are doing now and how it relates to the future you are building. Regular company meetings is one way of doing this with the goal of showing your team the relationship between what they are doing and where you are going.

A personal challenge  for founders is to embrace new employees, to integrate them into the plans for the future and do all that you can to avoid a them-us culture.

Expect that there will be growing pains, that there will be conflicts, that you will make mistakes in hiring, that you will need to let some people go

## Delegate
Soul searching
Re-definition

- Delegate
- Soul searching
- Re-definition

**Notes:**
The challenges of expanding staff are significant
	 As you grow the company and add staff , many worries seem to dissipate - you no longer fret about providing for so many - you don’t have time to worry, you just do it. 

As your company has grown your organizational structure  may not have evolved. You may have too many direct reports and feel that every employee is a weight that pulls on you.  Even though its obvious that the answer lies in delegation and reorganization - this is not readily done. The path that is taken in resolving this issue - has to start with soul searching

At the core of any growing enterprise are a handful of people who give themselves over completely to making the company a success.If you are growing the company well - that core will  expand over time, you will have very little turn over, and key employees will internalize the vision of the firm. Instead of being your company, it will become their company

Although the core of dedicated people will grow, the founder is still the one that provides the time, energy, and direction that no one else will  or can do.  You’re still the leader of the band. Therefore, in redesigning or remaking a firm to deal with the issue of growth - that core group or key individual must ask themselves what makes them happy. 

Would the founder be happy just managing? The answer, usually is  no. Will the founder be happy only if they are doing R&D? What about doing R&D part time? Will they be happier retiring? Will they need to bring in another manager? Where is the balance and what are the implications?

The senior people in an entrepreneurial firm have shared experiences; have established relationships with customers; and  with one another; although they may not truly appreciate what it makes the company work, they have a lot of corporate history to draw upon. How do you clone that expertise? How do you develop the trust and confidence in someone new? 

In many advanced technology firms, the learning curve is steep and it may take at least  a year to train a new person. During that time you lean heavily on your senior people and the exhaustion continues to mount, for you and for them.

You try to screen well; you try to train as best you can; you look for initiative; you look for those who seem to share your vision and who treat customers in the same way.

Bit by bit you delegate, dropping away those aspects of your role that you have decided to relinquish . You lop off parts of what you used to do and have it become part of  another person’s job - perhaps program management, perhaps proposal writing, perhaps paying the bills, perhaps certain types of R&D. You stand on the sidelines and watch . If they drop the ball - you catch it. You catch it, because its your baby and you care.