About GloBE

What is a Lean Biotech Startup?

by Douglas Crawford, GloBE co-director

“Lean” carries two distinct, but complementary meanings. First, Toyota revolutionized manufacturing by focusing on an endless quest to increase the efficiency of manufacturing. Nothing revolutionary, just a relentless pursuit of only doing what brings value to customers—everything else is waste. Read Wikipedia’s succinct description of Lean

At first blush this might not seem not seem all that profound. I remember my dad, an economist with Citibank, telling me in the ‘80s that this was a poor axis of competition. He maintained that improvements in manufacturing were too easy to emulate. And Toyota seemingly threw away the advantage manufacturing could offer by welcoming scholars, press and even competitors to tour their plants. Nonetheless Toyota used these evolutionary approaches to become the largest auto manufacturer in the world.

OK, you may say, when our company starts making a million doses a year, I’ll come back and make sure that our manufacturing practices adopt the best of the Toyota Manufacturing principles, but now I have a three person company, and I can assure you there is NO waste in our system, much less manufacturing. So what does all this have to do with me? Well if correctly applied, we think a lot. Now more than ever, you need to:

  • Identify your customers—a less obvious point than it may seem
  • Learn what is of value to them
  • Focus relentlessly on doing only what will bring value to customers
  • Measure your progress towards these goals
  • Iterate
  • Improve

These are not new principles, but too often startups think they are in every way original. They are going where no company has gone before. Nothing could be further from the truth. Startups are hard management challenges for whom only a small number of items are unique—hopefully only one. This one thing is your novel offering with its attend risks (technological, market, financing, etc.). Everything else is very much subject to lessons learned from both small and large companies. Brook Byers, Partner, Kleiner Perkins Caufield and Byers, said at a QB3 forum that the most important thing a startup can do is identify the “white hot risk” and ONLY work on that. Simple idea, eh? But it is unfortunately human nature that we do what is simple first, and we postpone as long as possible the experiment that could put our company out of business. Hey everyone, what are we going to do today? Should we order equipment or should we do the life and death experiment? OK, do you have the catalog?

The second key idea we are evoking with the Lean biotech startup is frugality. Capital efficiency. Or just plain being cheap. While it has always been critical to shepherd one’s resources, in recent years capital has gotten even harder to find. Venture capitalists have never been spendthrifts, but a decade of nil returns have jeopardized the model altogether. Many analysts predict up to a 50% reduction in the number of firms. And the survivors are often huge (e.g. NEA recently closed a $1 billion dollar fund). Managing large pots of capital put strong pressures on venture firms to make larger investments. The venture capital model simply cannot scale—a partner is finite. Thus if you are responsible for $50 million of capital that you have to invest over a four year period, then you have to commit nearly $10 million per company. This doesn’t leave a lot of time to make $100,000 investments. What is really limiting is time. A $5 million dollar PIPE (private investment in a public entity) requires very little management time, whereas that $100,000 investment is likely to be in a company with little operational experience. This company needs you to be a very active board member, pouring over data, helping recruit key employees, beating the bushes for other investors, etc. A partner can’t support a lot of these companies. Consequently, as firms have gotten larger, the interest in seed-stage investing has declined. It’s not dead, but it is not like the ‘90s. So if you are going to succeed today, in all likelihood you are going to have to go a long way before you can attract venture investors. You’ll need to do more with less. Once again this is a management problem, and not a new one.

These two ideas, focus your efforts on what brings value to customers and be capital efficient, are really complementary. Customers don’t really want you to have your retreat at the Hilton, they want you to spend as little money and time as possible because that way the product will get to them sooner and be cheaper. This week, we’ll explore a variety of challenges you will face in going from a cool idea to a successful company. At each step we’ll ask can we overcome this challenge in a way that maximizes customer value at the lowest possible cost and in the shortest possible time.