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Growing concern
The world is suffused with entrepreneurial spirit. It is blessed with inventors and risk-takers willing to start up new businesses and build their own success. There is always someone, somewhere, starting a new business and so there is a good chance it could be a business in the life sciences sector. There is a problem, however. Research globally shows that for every five start-ups launched, four will fail. They never reach commercial viability, let alone business maturity. Failure rates in the life-sciences sector are much higher than in any other field. What is the reason for this?
This question has exercised some of the world's finest business minds for several years, with the result that there is now broad agreement on some of the reasons. Yet, still there is not common agreement on what to do about them.
First, entrepreneurial spirt is no more than a starting point for building a successful business. It is a necessary, but not a sufficient, condition. The business also has to have a good idea, with the potential to morph into a commercial product, a plan and investors to get it from A to B to C and so on. Furthermore, it needs people with expertise to take the product to market and turn a profit. Of all these ingredients, this last one is the most important. Money and facilities merely make things possible; people make things happen.
Most start-ups fail because they lack one or more of these ingredients, or because there is a better competing product. Sometimes it is the idea itself that is faulty. Sometimes it is the founders who are at fault. Sometimes the problem lies with investors. Sometimes the problem is lack of expertise. Sometimes it's all of these.
These difficulties are manifestations of "founders' syndrome" – a phenomenon now well documented. Founders' syndrome is the name for a condition in which the goals and behaviours of the founder(s) of a start-up are not in step with those of the investors or the organisation. If you type the words into Google, you will get a list of over 700,000 responses.
When the idea is the problem, it's usually because nobody thought it through properly, or somebody else got there first, or the market has moved on.
When the founders are at fault, it can be for a variety of reasons. Perhaps they underestimated the difficulties of obtaining venture capital. Perhaps they overestimated their own skills in managing commercial development, or maybe they failed to put in place the structures and systems needed to carry their original idea from concept to product. Sometimes, they fail to anticipate the technical or financial problems that cause timelines to shift – and then fail to apply stringent project management.
When the problem lies with investors, it is usually because of their expectations or their relationships with the founders. Investors often expect a founder to be the chief executive officer (CEO) as well and to act as an all-rounder. This is unreasonable and may be an abuse of good technical expertise. With a two- to three-year horizon for their investment, the investors focus on the strategic side of the financial and marketing concept of the business. Typically, however, the founder(s) will focus on the technical and development aspects of the product. These are what drew them to start the business initially.
So, in many cases, the objectives of the investors are not congruent with those of the founders. Investors may even seek "weak" CEOs in order to run the company, through the chairman, in their own interests. Investors have also been known to "lure" a technical expert with an interesting technology into the CEO role, in order to gain access to that technology.
This all means that would-be founders face a series of elephant traps in their quest to start and grow a new business. They don't have the finance and the expertise deployed by large multi-nationals to avoid such traps. Neither can they afford the cost of bringing it in – certainly not on a permanent basis. As a result they try to do everything themselves.
But help is now at hand – and it's affordable because it can be turned on and off as and when required. During the last few years, the concept of interim management has grown in popularity. There currently exists, worldwide, a pool of highly skilled and experienced talent available to do specific project work for specific periods. A refinement, in the form of "escalator management", has developed, at least in the life sciences sector, to support start-ups as well as projects in growing companies.
Meeting the need
If founders' syndrome is the problem, escalator management is the answer. It is a new approach to talent management that helps companies meet their changing needs for talent during the growth phase, particularly in a start-up from the period of, say, university spinout to final licensed product or initial public offering, when such requirements change rapidly.
To demonstrate how founders' syndrome works, consider this example. Envisage a company that started out in the early 2000s with four founders, a novel idea, and little else. These four people formed the company to develop the invention of their scientists. They had some of the expertise needed to bring the product to market, but recognised that there was a lot missing from their armoury; regulatory, clinical, financial, commercial, marketing and delivery, to name a few. Fortunately, they had the wisdom to recognise what they didn't know. They realised what they would need to turn their scientific invention into a commercial success.
They made a few major decisions at the outset that would prove critical. The first was to create a credible plan to secure funding from venture capitalists; they would hire the expertise necessary to achieve that. The next was a decision not to hire anyone permanently unless and until they were needed permanently. Instead, anyone involved in the enterprise would be employed as they were needed. Hiring people in this way is not easy. They had to avoid frightening off the talent that they would need. So their third major decision was to offer everyone a share in the proceeds of success, whenever it came.
Their first hire was a CEO – an interim one with the skill to both steer them to stage A funding and the know-how to select a skilled (interim) chief financial officer (CFO) to manage this phase. Both appointments were successful: the two interims worked with a consortium of venture capitalists and obtained funding of $30m. The venture capitalists wanted something in exchange for their funding: places on the Board.
The next phase of development required different expertise. A new CEO came on board, followed by a new CFO. Their goal was to obtain further funding to pay for new kinds of expertise.
The new kinds of expertise included a head of manufacturing and a head of regulatory affairs, both on fixed-term contracts and with support teams on similar contracts. Their job was to scale up for mass production and ensure that the product would pass all the regulatory requirements. A little later, the company brought in a chief commercial officer (CCO) to work on asset development and marketing – again fixed-term. The CCO's job was mainly to assess whether the company should manufacture and market the product itself, or sell it to a company that was already geared up for such activity.
At the same time, the original founders reduced their roles so as not to impede their latest experts. That led to the need for a new chief scientific officer and a new chief medical officer – again on fixed-term contracts.
These senior people needed their own teams of experts to get results for them, so a succession of people came and went as needs arose and were met. Some came on fixed-term contracts, some on rolling contracts and some on a weekly, or even daily, basis. The administrator was kept so busy with staffing issues it became necessary to hire a head of human resources – again for a fixed term. The team revolved as the business evolved.
Finally the company produced a viable commercial product that secured regulatory approval. In the final stages of development, it decided to look for exit opportunities and started talks with some major companies. The story ended a few years later with its sale to a major pharma company for a large, but undisclosed, amount.
The founders each made a lot of money, and so did the venture capitalists. The people who had helped along the way got a share too and some were employed by the new owners. Importantly, patients were able to access the products earlier.
If you need to build a product or a business, escalator management is one of the best – and most cost-effective – ways to go.
The Author
Nick Stephens is chief executive officer at RSA
To comment on this article, email pme@pmlive.com
