What they may not know how to do is manage.
Wikipedia defines management as the act of getting people together to accomplish desired goals – something senior scientists often do as they assemble research teams. However, it goes on to say that management comprises planning, organizing, resourcing, leading or directing, and controlling an organization or effort for the purpose of accomplishing a goal. Most academics won’t have that rigorous a background, as it will neither have been expected of them nor trained into them in the way it likely would if they were from a commercial organization.
So biotechs are usually founded by experts in technology not management. Unlike, for example, software start-ups, these experts will likely be in mid or even later life. Having had a distinguished career in experimentation, they will be leaders in their field and used to being in authority. Deference to the interests of partners and investors, so necessary to getting a start-up off the ground, doesn’t come naturally.
I have found that company founders often tend to think management and business are common sense and so discount the role of training and experience in what to them are ‘soft’ skills. It isn’t clear exactly how much being a good manager is innate versus how much it can be trained into someone. However, either way, many inventors come up short but often don’t recognize that fact.
A further dimension that often goes unrecognized is how much of a business sense biotech founders possess. Being able to profitably provide and market goods and/or services on an ongoing basis is quite a way beyond running a successful discovery programme. Operational skills in a commercial setting can be learnt but good business instincts are not so obviously trainable for those who don’t have the drive for power and profit. Organizational development theorists have shown that the kind of mind that deals well with the intellectual challenges of productive research often isn’t up for the changing complexities of an ongoing business, its social nuances and the requirement for emotional intelligence to complement traditional IQ.
Capitalised Research and the Opportunity for Profit: The advent of both seed capital and of technology transfer professionals within a university setting has serviced a demand for company creation that has sometimes exceeded the supply of ideas that could really be considered a business opportunity. Corporations were created and funded around intellectual property and research programmes that, in hindsight, may have been best left un-capitalised as they proved to have no clear route to a profitable business model.
All too often partners in the start-up process – inventors, investors and university business development professionals seem to have either not defined, or lost sight of, the elements of a good business idea. While it is currently fashionable to attribute the failure of so many Canadian biotech companies to sustain a credible business presence to under-resourcing and poor management, I believe that an often unrecognized contributor is the fact that they did not possess a clear path into business beyond a fascinating research proposition that looked like it might benefit society.
The Importance of Stakeholder Management: Those who may have a stake in the success of a biotech business may extend beyond the usual suspects.
Most of us would agree that the staff and shareholders are very important, and that the founding scientist and their initial investors have pride of place. If the business has sales revenues, relationships with customers will be front and centre. Not so obvious are others who have contributed resources but who do not have an active role in affairs. Very many biotechs benefit from grants and other types of funding provided by government agencies and foundations. Since they are normally out of mind, their potential to intervene negatively if their reporting requirements are not satisfied goes unrecognized in the daily grind of staying afloat.
In companies where smaller shareholders are not actively engaged in the business (a feature of all publicly-traded firms) it is unwise to ignore their need for information and that of the securities authorities, even though such reporting can be burdensome and seem time-wasting. It’s the price of liquidity.
A good board of directors, preferably one that includes some true independents, will ensure that both the demands of stock market regulators and the importance of keeping all shareholders in the loop are recognized as a key element of prudent stakeholder management.
There may be strategic partners in a contractual relationship with the company such as licensees who are or will be marketing the product that is the focus of company research. They like to have their importance recognized and to be made aware of the ebb and flow of your company’s fortunes. There are important ongoing suppliers of products, services and counsel to the firm whose goodwill is key and who should be kept in the loop even when your relationship with them is in an inactive phase. They all too often aren’t given regular attention, with their invoices languishing unpaid so that when you need their forbearance, they’ve no incentive.
The goodwill and understanding of both the overall the community in which a firm operates and its employees live, and its politicians, civic leaders and key civil servants, may go under-estimated. This can be especially true for businesses like biotech whose customer base isn’t local. These stakeholders can be both supportive and obstructive in many small and not-so-small ways. It is desirable to have business goals known and understood in the region where one operates, or policies could be implemented that have a negative impact on attracting staff, the firm’s tax situation or funding opportunities.
Nearly every company has other companies operating on similar principles and with similar interests. Often trade organizations exist to foster the sense of community and the industry interests of like-minded businesses. These frequently are involved in lobbying government and others whose behaviours can impact the industry. For biotechnology many such organizations have sprung up over the years, sometimes with government support to help it understand our rapidly evolving and multivariate field. The time and cost taken to engage with such trade groups is a wise investment, if for no other reason than to help ensure positions are not taken on industry issues that mightn’t be in your company’s best interests. Better reasons to join are the chance to learn from the experience of others and becoming aware of business partnering opportunities.
The Process of Getting Funded and Managing Cash: Scientist founders with enough research success to attract investor attention are generally above average in landing good grants to support that work. These ‘granterpreneurs’ have useful expertise in writing up research in an appealing framework. However the knowledge required to satisfy funders with a social mission may not equate to that needed to appeal to funders who expect to make a more immediately bankable return on their investment! To be a successful scientific entrepreneur is a rarer feat than being good at getting grant proposals accepted.
Success in funding and success in the marketplace do have one key common feature though – the best invention doesn’t always come out ahead. Biotech, as most everything in life, is subject to fashions. Genomics was going to speed up drug discovery, then it didn’t seem to, so stock prices fell and investor interest evaporated. Treating Boomer stroke was the thing, and then Alzheimer’s and memory looked a better play. Bioethanol based on grain and corn was going to save the rural farm, then it was taking food out of mouths. Watching out for changes in social and political priorities is just as much an imperative for biotechs as it is for consumer product or food companies.
Many biotech products directly impact human health. For those that do this can be a blessing in that there is not the public disquiet around biopharmaceuticals or vaccines that exists for say genetically modified crops. However some of the more creative research methods such as using foetal stem cells engender ethical opposition. Bioethics is an important discipline that can on occasion work to the detriment of key research programmes.
Money of course always comes with strings. The large cash requirement for much biotech research and the frequent absence of a positive bottom line precludes conventional bank debt in many cases, and so mandates higher risk capital from equity investors. This class of investor tends to make an engaged, even intrusive boss, with high expectations for a return on their money and firm opinions about how things should be done. While stock exchange listing creates an onerous reporting and investor relations requirement, it does diffuse the owner base when the markets are favourable to biotechs.
Biotechs are founded on scientific results that have often been the life’s work of the founders. Yet their duty to shareholders requires them to make money. The abandonment of the intellectual property and the exploration or licensing of different options may often be needed for the company to succeed. Indeed most biotechs with positive sales revenues are not exploiting the exact technology that their company was based on!
However a shift away from the Sacred Cow is a hard pill to swallow for most founders, many executives, and even boards, and their collective unwillingness to contemplate it is another cause of company failure.
When all is said and done though, timing is everything. Good deals due to close just after 9/11 or 10/08’s Wall Street woes became toast overnight. Some monetary droughts can be seen coming; these could not. Being lucky cannot be over-rated!
In times of cash scarcity, a talented company management looks at creative options such as leveraging existing assets in new ways. One that is coming back into fashion is the way things were done before venture capital was available for biotech. Back then finding commercial R&D contract work, and using the proceeds to further one’s own inventor research goals as the cash and time available allows, was often the only way to keep going. Another strategy is to barter capabilities and resources with other firms, so that the daily drain on the dwindling cash reserve is reduced. If key staff can be kept on through lean times, recovery is much faster. In any event, Management must pace its spending to the resources available but always be on the look out for creative ways to conserve or raise more cash, because a good research idea rarely keeps its value without exploitation.
Yet what venture capitalists call ‘lifestyle’ CEOs are focused on maintaining the perquisites and salary of better days. Sadly they have been more common than one might credit, to the detriment of success in Canada’s biotechnology industry.
In Summary: A company leadership with a well-crafted process keeps steady but stays flexible in its business goals, knows how to manage, knows and stays in touch with its key stakeholders, chooses its fellow travellers thoughtfully, values all its resources including good Board Directors and especially its cash, recognizes its risks and which are manageable and which not, and embraces serendipity if and as soon as it happens!