Business Encounters: Life Scientist

Strategic Partnerships in an Ecosystem Model (Part 4 of 5)

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A collection of strategic partnerships is an excellent addition to a company and indeed essential. A standard partnership model focuses on elements of customer need directly related to your product and finding partners that enhance product benefits and address those needs. Partnerships serve to further the impression that one’s product provides benefit and successfully addresses the need you are targeting.

Example Product-Focused Strategic Partnerships
Chapter 14 of It’s a Jungle in There discusses the value of the strategic partnerships. Schussler provides an example of a “jungle” retail experience that is enhanced by partnering with company skilled in a process by which the customer (children and their parents) “produce” the product they buy – in that case, a plush dinosaur.

Collaboration with a non-profit such as with fundraising 5K and similar event can also be a valuable strategic partnership. For a health-related product, such as one focused on providing dietary advice, an active experience offers access to an energetic audience seeking a healthful lifestyle.

Need fulfillment often requires strategic partnerships. Even the behemoth Amazon has a dependency on others to fulfill a need. Until Amazon has its own delivery service for 100% of its products, it must engage shipping companies to bring the product purchased to the customer, or return it if it isn’t acceptable. The financial success of the shipping companies (UPS, FedEx, USPS, etc.) is essential to Amazon’s success.

However, this is an inadequate way of seeing the customer need. Customers have more complicated needs outside of the requirements your product addresses. Thus, your product only fulfills a small proportion of the consumer’s needs.

Meeting the Broader Needs of the Customer
In fact, the need associated with your product is a subset of related demands to accomplish a customer’s larger goal. An alternative strategy requires a broader investigation of one’s product as a component of a more extensive customer experience.

For example, you need to keep your home clean. This makes the logic of Amazon’s Prime Pantry, and it’s push for users to have scheduled and automatic deliveries, more clear. All those items in the Prime Pantry are solving the more substantial need to keep your home clean by making sure you list everything you might need and Amazon provides it; potentially without you asking for it. The Amazon approach to meeting broader needs is to expand and consume other companies related to that need. As an example, Amazon created AWS (its own cloud-based IT system) and is developing its private distribution network with individual drivers and airplanes. They also recently purchased Whole Foods after buying a slew of other online providers.

Amazon’s strategy isn’t always possible. As an example, you don’t “need” a video from Netflix. You need entertainment for a few hours on Saturday night. A chain of elements, including an Internet service provider and a seller of a TV, are essential to your being able to watch a movie. Netflix must consider those aspects if it is going to succeed, and it cannot incorporate those elements into its product. So, for Netflix, involving other organizations is critical.

A strategy must then identify an entire chain of needs and efforts/purchases that the customer deploys to accomplish the greater need. And then form relationships as a part of a broader ecosystem of customers and providers, including values outside of one’s immediate product value. For the company, the main difference, as compared to strategic partnerships, is that the overall goal is to ensure that the chain of needs is met.

The Ecosystem Also Affects Your Success

Companies are used to battling competitors who aim to steal their market by offering more value or a lower cost or both. But, in a broader chain, your competitive disadvantage may not be due to your competitor. If, in the case of Netflix, the need to “find a movie I want to see” may be determined by some other participant in the ecosystem. There is a chance that the customer identifies a movie that isn’t available on Netflix, but is available at a nearby Redbox. The ecosystem has just redirected the “get a movie” need away from Netflix. Netflix lost a customer to Redbox because of someone’s else’s search engine. This lost sale potential explains why a recommendation engine is vital to Netflix; it ensures that the movie the customer decides to watch is determined by Netflix, not by someone else in the ecosystem.

The success of the company thus depends on:

  • awareness of the complete customer experience including broader needs related to the specific product needs
  • the ability of the provider elements to meet the overall requirement of the customers
  • your utility to satisfy a particular component need versus someone else in the ecosystem
  • attention to the broader ecosystem, so you reinforce the value of their product to meet a specific requirement in the chain

 Final Thought: Who to Engage?

An ecosystem model also provides guidance regarding the need for and extent of strategic partners. The chain of providers must have enough alliances to meet the overall demand, yet partnerships outside of that greater need are potentially unnecessary and a distraction. With each coalition, you may be enhancing profitability, but you may also be providing a competitor with the information they need to undermine your product. The strategy of identifying the broader need helps you optimize strategic partnerships to achieve the highest benefit regarding cost reduction and improved pricing.

Further Reading

Photo Credit: Twisted link chain.jpg. Author KDS444. 20 June 2012. This file is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported license.

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We are a dedicated team of developers and researchers with the mission to improve the health of individuals through novel technology including games, virtual reality, and role-playing simulations. We welcome input from the full range of stakeholders to create a customer experience with the broadest applicability to improving health outcomes.

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Angel Funding: Valuing (Part 3 of 7)

Angels investing in your life science startup will want figures for the value of the startup at the beginning, as well as at a future time to calculate their expected return. Angels obviously do not expect that all investments will succeed. Thus, they will want to know that your future value represents a significant multiple of the present value or a high internal rate of return.

In comparison to other startups, a life science product will likely require approval by multiple regulatory bodies. Complicated and expensive empirical clinical studies will be required to achieve a minimal value product worthy of acquisition. The value will be measured not on regarding clinical benefits or diagnostic utility, but also cost-savings.

A life science startup likely has some previous work with which to demonstrate clinical or diagnostic utility. The high failure rate due to regulatory approval and the need for successful clinical trials will hinder enthusiasm for the startup.

Calculating the future value, of course, is partially a guess. The business plan will provide proformance estimates of future sales, reasonable expenses, and potential earnings based on the product, market size, market penetration, and competitive price. Your business plan’s financials, however, are not the sole guide to valuation. The figures should provide some guidance, but investors understand that these numbers are not something upon which they can rely. In the life sciences (and elsewhere), a discounted cash flow valuation is recommended.

Potentially, such figures have little to do with the value placed on your life science startup. The initial valuation may be the starting point. Of course, the initial valuation is inexact for an early start up because there likely is no product or even a minimal value product upon which to judge value.

For this reason, some investors apply a dollar value to assets and ideas. For example, they may see an energetic, thoughtful, and motivated entrepreneur as providing $1M worth of value. A sound idea for a value proposition, a high-quality management team, and a well-qualified board may also be worth a million dollars. Having a prototype or potential drug will add value. However, this again would be based on conjecture as at this time the prototype or compound does not have a specific or guaranteed revenue generation capability. Together all of these elements will be a means by which an angel investor will determine the value of a company. This strategy is referred to as the Berkus Method. A more complicated but similar approach includes more variables alongside weights and percent contribution but the effect is the same: the rubric is based on existing data rather than figures. There are even online tools for a quick and easy estimate.

There are other strategies to value a company at its outset. Some will have a ceiling which they will not go beyond such as $5M. Others will assume that founders and management have two-thirds of the value and the investor is contributing one third. And others will value the firm at the beginning based on what they expect the future value will be and then adjust that value for their expected multiplier. An investor seeking a multiplier of ten times the money they put in the startup will be interested in investing a million dollars if they believe that the value of their investment three years later would be worth ten million dollars.

Other investors seek an internal rate of return. For example, if they expect to gain a 30% return each year and the investment is over three years they will expect that the initial investment will grow 30% each year and will yield the value that they perceive the company will have at a future time, say three years. Thus if they assume the company will be worth $10M they calculate that the current value must be $4.5M to achieve an IRR of 30% over a three year period.

Further Reading:

  • Hogue Joseph. Investing in the Next Big Thing: How to Invest in Startups and Equity Crowdfunding like an Angel Investor. January 28, 2017.
  • Harju-Jeanty Robert. Venture capital valuation of small life science companies. Spring 2014.
  • Amis David, Stevenson Howard. Winning Angels: The 7 Fundamentals of Early Stage Investing. Vol 1 edition. London: FT Press. March 15, 2001.
  • Rossiter Matthew S, Kramer Barry J, April 11 Michael J Patrick •, 2013. Life Science Financing Survey 2012.
  • Styhre Alexander. Valuing and Investing in Life Science Companies. In: Financing Life Science Innovation. Vol Palgrave Macmillan UK; 2015:107-136. doi:10.1057/9781137392480_5.
  • Allen Kathleen R. Launching New Ventures: An Entrepreneurial Approach. Vol 7 edition. Boston, MA: South-Western College Pub. January 16, 2015.
  • Ewing Marion Kauffman Foundation. Valuing Pre-revenue Companies. In: Kauffman eVenturing : The Entrepreneur’s Trusted Guide to High Growth. Vol Kauffman eVenturing. ; 2007.

Newsprint Ads Related to Health (Part 3 of 5)

Newspapers hold advertising potential for certain healthcare segments. Here are some examples of newsprint ads that have focused on health in the past few years.

The NY State Nurses Association ad highlights the health support features of Medicaid to a target market of the elderly. The apparent value proposition is that if changes to Medicaid are resisted these benefits will remain; if not they will go away. It engages the user via a small healthy child and teddy bear and text-based pleas to support the needs of children, the elderly, and the disabled. The ad’s call to action is probably related to voting or contacting a politician since both are done frequently by the elderly or to check out a website and is expected to yield the benefit of no change to health services for the respondent. The ad appears to target the elderly because almost all Medicaid funds primarily help the elderly with home care and nursing home costs. The objective was neither measurable nor attainable. Highlighting the value of children, the poor, and the disabled adds emotional appeal but these are not large voting blocks. This ignores the more clear value of Medicaid to the elderly: Medicaid supports them when they become ill or infirm.

Generation Solutions’ newspaper ad highlights the ability of the home health care service to help the elderly with improving “gait speed” to a target market of professional caregivers and primary care providers. The apparent value proposition is that the services will confer a lower risk of mortality to the patients of the market by addressing gait limitations. It engages the user via a frail looking elderly woman (whose life will not end prematurely) and non-emotional data/results related to a study. The ad’s call to action is to contact the agency and is expected to yield the benefit to the respondent that a patient’s gait speed is improved. The objective was measurable in terms of increased calls although not especially attainable unless this ad was in a newspaper only seen by health care providers (which is possible). It would be more effective as an ad targeting family caregivers which had less data and said “talk to your loved one’s physician about gait – it could help her recover and avoid a repeat fall.”

The Carolina Select Home Care newspaper ad highlights the quality of their agency to a target market of the elderly with physical conditions, as well as certified nurse assistants. The apparent value proposition is that the elderly will receive high-quality care and that nurse’s assistants will work in a better facility. It engages the user via a picture of a healthy and smiling older person with the assumption that their service achieves such an outcome. The ad’s call to action is to call a phone number and is expected to yield the benefit of learning about an environment that is good for the elderly person or a nice place to work. The objective was measurable by following call rates after placement of the ad and quite attainable. The one limitation is the ad has two targets. It seems more logical to run two different ads with a more clear focus and see which one is more effective.

Renew Home Healthcare’s newspaper ad highlights the comfort and zero cost of their agency to a target market of the elderly with a physical condition. The apparent value proposition is the elderly person will receive more comfort and achieve higher independence if they use Renew Home Healthcare’s services. It engages the user via a picture of a tidy home and friendly young home health care worker, further supporting an emotion of calm and ease. The ad’s call to action is to call a phone number and is expected to yield the benefit of learning about an environment that will promote their healthy return to independence.The objective was measurable by following call rates after placement of the ad and quite attainable. The ad has a simple message and focuses on the fact that making a choice will not incur costs.

The Overactive Bladder research study newspaper ad highlights the problems of an overactive bladder and implies that by participating in the study the elderly person enrolled will potentially gain access to a medication that might help. The apparent value proposition is potential relief from the effects of an overactive bladder (incontinence). It engages the user via a woman who looks troubled and a smiling man. The ad’s call to action is to call a phone number and is expected to yield no cost for treatment and possible compensation. The objective was easily measurable by phone call records and probably attainable. Since there is a chance the person gets a placebo, it would be helpful to highlight how participation could help others by learning something new. Also, some compensation would likely be received by all participants. If so, that benefit should be more clearly advertised.

Picture Credit: Flickr user Jon S

Building Social and Financial Capital

Dexter Robinson‘s blog post Building Social and Financial Capital persuasively argues that the world is changing and that a founder dedicated to the old school method of face-to-face communication doesn’t necessary have an advantage. And the founder better get on board with the changing nature of engagement if they hope to reach a younger audience. Moreover, the argument offers hope for younger individuals that they may indeed have found a way to level the playing field, or perhaps tilt in their favor.

Social media, or more broadly media that enable long distance communication through platforms across a large breadth of users, upends the old school model. It will likely replace it completely. Social media and Internet-based social connections are great for capitalism in that it provides a more efficient means of communication and for the best ideas to get support.

As an example, in the past Angels were people you had to meet through accountants and lawyers and who were difficult to connect with. They, of course, came with biases and would only connect with certain people. Now, they are more likely to be collected into online angel syndicates that will respond to online pitches. No handshakes. No introductions. And fewer biases. The only people who lose are people for whom the old system worked well for them. Folks high on the extroversion scale will continue to have an advantage, however the power won’t be so absolute.

The challenge with social media is that without focus it can become an enormous distraction. However, with focus, it can form the social capital necessary to launch a business. Robinson’s insight into how one could use social media to build a connection is a fantastic example. If you doubt the value of social media to make connections then perhaps you should ask him to perform a similar analysis of your situation.

Similarly, equity crowdfunding offers great potential for entrepreneurs to acquire the capital they need to launch their enterprise. As with the angel syndicates discussed above, collections of people whom one accesses via the Internet are likely to value ideas more based on their merit than on the presentation skills of the entrepreneur in a one-to-one framework. Those one-to-one skills will still be required. However, currently, those one-to-one presentation skills are predominate in importance and a lack of those skills can cut off the entrepreneur from funding even when the idea has great potential.

There is continued value in rewards crowdfunding as seen with Kickstarter and Indiegogo and many smaller examples. There won’t be enormous wealth to be obtained. However, there is enough capital and input and guidance for the entrepreneur to establish an idea, test the waters, and build a customer-focused enterprise from the beginning. In essence, reward crowdfunding has all one needs to get the ball rolling.

Further Reading

Photo Credit: Pixabay. CC0 Creative Commons. Free for commercial use. No attribution required

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