Transcript John Mulligan, October 16, 2006 Invention to Startup Seminar My Background  Trained as a geneticist • • • • BS in biology from MIT Ph.D.

John Mulligan, October 16, 2006
Invention to Startup Seminar
My Background
 Trained as a geneticist
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BS in biology from MIT
Ph.D. with Sharon Long at Stanford Biology Department
Post-Doc with Ron Davis in Stanford Biochemistry Dept.
Helped set up Human Genome Center at Stanford
 Director of Genomics at Darwin Molecular
• Applying genomics / genetics to drug discovery (1993-1999)
 Founded Blue Heron
• Scientific strength of Darwin Molecular
• Clear business goals
• Strong links between business and scientific planning
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GeneMaker® Gene Synthesis: Get the Gene You Want
1. Customer orders via
secure website
2. Blue Heron manufactures
and ships DNA
molecule(s)
3. About 2 to 4 weeks later,
customer receives exactly
the DNA they wanted
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No QC necessary: can
download sequence trace
data from their secure
website
Start experiment right away
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Blue Heron Biotechnology, Inc.
 Custom gene synthesis
• Fee-for-service
• No downstream ties
 Service business based on an assembly-line
production process
• Unique products for every customer
• Uniform assembly process
• Automated, scalable, database controlled
 Large potential market
• $300-$400 million spent on reagents for cloning
• Fully-loaded costs 3- to 5-fold larger ($1 to $2 B)
• Current gene synthesis market ~$25 million (~2% of
potential)
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Blue Heron Biotechnology, Inc.
 Established in 1999
• Started with a product idea and developed the technology for
this product
 Venture funding in 2000
 Commercial launch in 2001
 SBIR funding
• Phase I and II SBIRs, tightly focused on business needs
• Now use robots developed with first Phase II SBIR
 Projecting sustained profitability by mid-2007
 Plan to exit through acquisition
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Starting a Technology-Based Company
 Business Model
 Integration of scientific and business planning
 The role of professional managers (MBAs) in a
technical organization
 Financing strategies
 Rewards and costs
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Business Model
 How will the company make money?
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Who is the customer?
How will they buy your product?
What will it cost to make?
How will you get the information to customers?
How is this different from what is currently available?
 Realistic knowledge of the market helps
• A founder or advisor with direct experience (business
development, sales, marketing, etc.)
 Try to sell something as early as possible
• Reality check, experience, new ideas, MONEY
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Scientific and Business Planning
 Many companies, big and small, fail to integrate
business and scientific planning
 Science should address business needs
 Business goals and plans should correspond to
scientific realities
• Science is unpredictable, business planning is all about
predictions…
 Both need to be adjusted regularly to continue to
match
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Professional Managers
 Many reasons to choose professional managers
(~MBAs)
• May be needed to raise capital
• Tackle the vast number of details in starting an organization
 As a scientist starting a business you have two
choices
• Do a job you are untrained for and may not like
• Give the job to someone who may not understand the most
important issues the business will face
• Hiring a CEO who is not steeped in the technology can be
very risky while technology is the main issue
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Poor Management is at the Root of Many Failures
 Scientists may fail to understand how to
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Focus on the critical issues for the business
Manage a large, disparate group of people
Do business development successfully
Make money
 Managers may fail by
• Not understanding science and scientists
• Managing too much
- Focusing on GANT charts
- “Micro-managing”
• Hiring other professional managers
- “Death by vice presidents”
• Making decisions that are based on business needs rather
than technical reality
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Managing Your New Company
 Find a scientist to run the company when science
is the main issue
• Confident but not an egomaniac
• Understands science but willing to be wrong
• Industry experience a big plus
 Support with business skills early
• Controller very early, CFO as soon as you can afford one
• MBA business development, product development or sales
• But not so soon that they have nothing to do- they will start
managing whether or not it is needed…
 Replace CEO with professional manager when
appropriate
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Investment Financing
 Venture financing vs. “friends and family”
 Venture financing
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Required for many biotech businesses
Best chance of getting the technology in use
50% - 80% of your effort while pursuing financing
Will consume 20% to 30% of your effort on an ongoing basis
Don’t believe the “added value” stuff- it’s the money
 Money may get more “expensive” as the
company matures
• Fantasy, reality, (partial) success, SUCCESS
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Bootstrap Financing
 Many companies start this way
• Sustaining this model depends on getting revenue quickly
 Not feasible for some types of companies
• Blue Heron is based on a capital-intensive manufacturing
process
 Government grants and partnerships may expand
the range of companies that grow this way
• R&D funding
• Clinical trial support
• Contracts
 Many of the biggest returns to the founders have
been from bootstrapped companies
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Rewards and Costs
 Professional
 Financial
 Personal
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Professional Rewards and Costs
 Expanded scope for projects
• SIZE: Larger teams allow you to tackle problems of larger
size and complexity
• COMPLEXITY: Easier to form and manage multidisciplinary
teams
 Concrete impact of your ideas
• Often the value of basic research, while clear, is abstract
• Putting an effective new therapeutic or a new tool software
engineering on the market impacts peoples lives
 Learning experience
• Focus on completion
• Excel skills…
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Financial Rewards and Costs
 Potential for return implicit in any business
• Starting a company not the surest route to $$
• Many small bets may be better if financial returns are your
goal (e.g., consult for several companies)
• Conflict between maximizing financial return and
professional or personal goals
 Requires an investment, even if you are using
“other people’s money”
• Time
• Salary
• Attention
 Go in with clear (written?) limits on total
investment
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Personal Rewards and Costs
 Satisfaction in building a company where people
want to work
 Stress
• There is always more to do than you can finish
• If you fail the happy people mentioned above lose their jobs
• Payroll comes every 2 weeks
 Conflict with the home front
• Time: committed to a 45-50 hour week, still hard on family
• Emotional: worries and stress can spill over
• Statistical: up there with remodeling your house
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Summary
 Have a good business model before you start
• Test the model with experienced advisors
• Try to sell something- products, deals, pet care
 Find a scientist to run the company while science
is the main issue
• Provide strong business advisors and support early
• Be ready to switch when business issues are most important
 Choose the timing for venture financing carefully
• Best returns from boot-strapped companies
• Better chance of getting the technology out and getting some
return with venture capital
 Consider the rewards and costs
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