Feature Article

Challenging economic times breed innovation: the 1970s saw the emergence of Microsoft and Apple, and an increasing number of European startups are defying the current slump. So while venture capital investment in early-stage startups was markedly low in 2011, this does not seem to have affected the number of entrepreneurs trying to make their mark. Experts predict that more than 470,000 new businesses will have been launched in the United Kingdom by the end of 2012 and Creditsafe, a business intelligence provider, suggests that the number of startups established in 2011 will be up 17% on 2010. To support this further, UK Chancellor of the Exchequer George Osborne has offered an array of tax breaks to encourage investors to plough money into early-stage companies, so perhaps now really is a time to expect to see startups flourish.

One sector benefiting from startup innovation is healthcare. As an example of this, robotic surgical procedures have been gaining tremendous support and acceptance, but the industry is still in its infancy. Available technology is becoming more sophisticated, overcoming the technical limitations of the past. Not only have startup companies taken advantage of this trend, they have helped to create it. Titan Medical Inc., a company focused on the commercialisation of robotic surgical technologies, is currently developing Amadeus Composer. This surgical system has a uniquely designed external robot and flexible instruments that allow surgeons to overcome the constraints of surgical procedures in small to medium spaces. Similarly, Photocure, a Norwegian startup pharmaceutical company, is using advances in LED technology to develop and test a nonsurgical, tissue-preserving therapeutic drug-device combination procedure to more effectively remove HPV infection and treat precursors of cervical cancer.

Specifically within Europe we have seen a number of other startups making innovation waves in the medical device industry. London-based DNA Electronics is a young, agile company whose Genalysis platform has been licensed by Ion Torrent and Roche 454 Life Sciences. DNA Electronics is developing its own point-of-care instrument allowing real-time, disposable tests for any target nucleic acid sequence.

Despite recent startup successes in the European healthcare sector, the current turbulent economy cannot be overlooked. In this challenging environment, startups face a host of obstacles, including navigating around increased regulation complexities and fewer funding opportunities. In order to overcome these hurdles, startup companies will need to prepare and plan their product development with precision. There are five key areas that startups must address.

1. The right business plan today vs the right business plan tomorrow
To succeed as a startup, no matter what your specialism, you need the right business model, pricing, positioning, product or service, and a lot of hard work to stand a chance of success. However, business plans, once developed, will need to be iterated time and again—what made sense six months ago may not make sense today. Startups need to have the ability to respond to changes in investor strategy and direction. The environment the business is operating in is subject to change; for example, an organisation that has silicone breast implants in the development pipeline would need to rethink its approvals strategy following the Poly Implant Prothèse scandal. Therefore, it is important that a startup’s product development approach is flexible enough to effectively respond to changes in direction at any point in the product development life cycle. At the very least, it would need to re-adjust its timeline to allow for internal or external approvals, over an issue that would not have been within the boundaries of consideration six months prior.

2. Securing initial funding
This is never an easy task, but it can be helped by ensuring that all the information that an investor is looking for is at hand to help them make this important decision. The startup should map out the technical and commercial milestones that must be met—essentially, measurable targets—for ongoing funding and for the business to grow. These could range from anything such as demonstrating prototypes in nine months at an exhibition in Shanghai to achieving clinical trials in 18 months. In addition, startups increasingly will need to think about how their product will be reimbursed, if applicable. This needs to be a consideration from the development of the concept of the device, because a product that is not reimbursable will not be used, regardless of its level of innovation. This is particularly important in the current economic environment, where venture capitalists and market leaders are trying to de-risk their investments by focusing on technologies that are perceived to have the simplest regulatory and reimbursement pathways.

3. Balanced resourcing
Many startups are located close to key university clusters such as Silicon Valley and the Cambridge biotech hub. This can be a great asset when it comes to sourcing top quality recruits, a vital part of the mix for a startup. When startups are hiring, it’s important that the passion and ethos of its employees align with the organisation. At an early stage of company growth, new employees might well share enthusiasm for work being “all day, every day.” This approach isn’t necessarily sustainable, though, and startups should recognise that employees can be valuable even if, to them, their job is “just a job.”

4. Development milestones
Many startups seek to create a technology that serves as a stepping stone to another product to encourage funding from investors and improve cash flow. The crucial point here is to maintain the strong focus on resources and investment necessary to successfully realise the single initial product whilst being acutely aware of the longer term market applications or possibilities.

5. Commercialisation
This last hurdle is the most difficult. Being “first to market” does not guarantee a market-leading product, and you must have a full understanding of the quality management, marketing and sales processes that will be required to actually get into the marketplace. Startups that can demonstrate a clear route to market past these hurdles will have more success.

No one said it would be easy
Startups continue to develop fantastic technologies, some of which will shake established industries to the very core. Startups must be aware of both the challenges the industry is imposing on their businesses and of its dependence on their innovation. The industry itself must also recognise the tough environment in which startups work and be inspired by what they accomplish: if it were easy, someone else would have done it by now!

Paul Wilkins
is Senior Consultant, Sagentia,
Harston Mill, Harston, Cambridge CB22 7GG, UK
tel.  +44 1223 875 200
email: pw@sagentia.com
www.sagentia.com