Aug 1, 2012
How to build a successful start-up
You have a lab book stuffed full of great results and a copy of Richard Branson’s latest bestseller on being an entrepreneur, but what else does it take to turn your research into a flourishing start-up? Thanks to an abundance of applications, nanotechnology is a fertile launch pad for future companies, but success also depends on winning funding, building a fantastic team, forming a strong patent portfolio and bringing a great product to a receptive market.
To help you navigate this journey, leading nanotechnology insiders with expertise in medical devices, flexible photovoltaics, particle detection and high-resolution imaging are here to share their hard-won wisdom in a step-by-step guide to making a business out of your breakthrough.
Before your start-up can get off the ground, you will need to put together a business plan. This may feel like an exercise in creating paperwork, but it is actually a very beneficial process. “The innovation has to stack up as a business plan,” says Martin Kemp, theme manager for engineering applications at the UK’s Nanotechnology Knowledge Transfer Network (NanoKTN), which provides a link between the UK science base and industry. “I’ve seen worldbeating technologies go to the wall because the commercial side was not properly sorted out.” Oversights include failing to identify a clear route to market or not analysing how the product will impact on the supply chain.
There is no reason why a tenacious scientist with an entrepreneurial spirit cannot be a successful CEO.
Fortunately, many universities have enterprise departments that can help their spin-outs put a business plan together. These departments will look at the technology to see if it is patentable, and part of this process involves carrying out due diligence, which forms the skeleton of a business plan.
And even if your institution does not have such a service, Kemp says that start-ups can work with templates found on the Internet. “It might sound a bit banal to take a template used for selling washing-up bowls and apply it to a nanoparticle,” he says, “but you need to answer those simple, commercial questions.” Indeed, Kemp believes that one of the toughest of these is to gauge how long it will take to bring a product to market. “If it’s a paradigm shift technology, don’t expect it to be making a profit within three years. You have to look at seven-plus years,” he says.
Once the business plan is finalized, the next step is funding. Kemp urges fledgling firms to draw on funding from every possible source, including universities, governments, science and engineering councils, regional agencies and bodies such as the European Commission. “Lots of nanotech companies have survived on grants through crucial years,” says Kemp. “£20 000 can keep a researcher going for a year.”
After this funding has been used to establish the feasibility of the venture, more cash is needed to put a team in place. At this stage, it is better for a start-up to seek funding from business angels than venture capitalists and banks: angels are more flexible, they are more likely to agree lower rates of return, and they are used to lending sums of hundreds of thousands up to a few million dollars – typical levels of investment sought by nanotech start-ups.
To net these larger investments, investors want to see the first order for the product. But the catch-22 is that potential customers do not want to place an order until they see a “proper” product, a request that the start-up can only fulfil when it has received further funding. To free themselves from this vicious circle, start-ups in the UK can tap into funds from bodies such as the Technology Strategy Board to develop a fully-fledged product, and they can link up with more potential customers through the NanoKTN.
As the start-up takes shape, it needs a chief executive officer (CEO) to take charge on a day-to-day basis to bring in further funding and formulate a long-term vision. That job requires skills that are very different to those needed by a researcher, so firms often recruit someone with a wealth of commercial experience. However, Kemp believes that there is no reason why a tenacious scientist with an entrepreneurial spirit cannot be a successful CEO. “Traditionally, you think you need someone with 20 years of experience running a company,” he says. “But why not the postdoc who is very bright, who can learn business skills?”
A new home
In the early stages, university spin-offs tend to rent space in the department, but it is often not long before they outgrow this. Leasing offices nearby is the logical move because the start-up can still maintain close ties with its founding research group, while benefitting from more space.
“When we were setting up, we looked at lots of different places,” says Jonathan Halls, chief technology officer of Solar Press, a London based start-up that is developing turnkey manufacturing systems for producing lowcost photovoltaic modules. “We found that the best approach for getting started really quickly was to move into an incubator. We moved in January 2010, and by March we were doing productive research.” That move has allowed Solar Press to access flexible lease terms, benefit from a shared manned reception area that gives the company a professional look and draw on centralized utilities, including a range of gases for running processes.
As the start-up grows and requires more staff, the challenge is to build up a great team of people with complementary skills. Some hires can come from the founding research group; but if too many are brought in from this route, it can create a culture that is too academic, rather than entrepreneurial. What is needed is a fine blend, formed by recruiting talented people with a broad range of industrial experiences.
Moreover, if staff are to shine in such an environment, they must be enthusiastic, passionate and flexible. “Early on, when roles are less defined, people must be willing to do everything,” explains Halls.
Protecting your ideas
Putting together a great team, a tremendous product for a receptive market and a stimulating working environment is no guarantee of success, however. Your start-up must also have a strong patent portfolio that will prevent rivals from stealing its technology. But that does not mean that it is a good idea to patent every aspect of the company’s technology. “The average patent, over the course of its lifetime, costs £30 000–£50 000, so for a small company with limited cash, you have to really be judicious in deciding [what to patent],” says David Sarphie, CEO of Bio Nano Consulting. He adds that patents can have downsides: “A patent gives you protection for a period of time, but you have to publish the details. Coca-Cola never patented its recipe, because it didn’t want other people to know what it is.”
A big strategic decision facing every startup is when to move out of stealth mode. Showing customers a prototype product can hold the key to winning early sales, with feedback helping to refine the design. However, if a start-up has a revolutionary, disruptive technology, it makes sense to develop this as fully as possible in secret. “Obviously, once you let the world know about something, the big companies can put a lot of money in quickly and catch up,” explains Sarphie. “So you have to make sure you have strong patents to prevent that.”
Developing a product and its manufacturing processes requires substantial investment, which tends to come from a series of funding rounds. According to Sarphie, it is imperative that the investment matches the requirements to hit a particular milestone. “If you need £2m to get to market and you raise £10m, some people might say: ‘Oh, that’s great’. But in fact you have paid a heavy price, because at the early stage you have given away a substantial chunk of your business.”
Indeed, having piles of cash is not always a recipe for success. This is evident in the evolution of Nanosight, a UK developer of optical tools for measuring nanoparticles, which started off with modest funding and constructed its first prototype from a hobby camera, a low-cost lens and an imaging cell built by a friend of the founders.
“The necessity to use cheap and readily available components really sped things up,” claims Nanosight’s CEO, Jeremy Warren. In fact, a small budget can be an advantage by keeping engineers focused on the core technology. In the case of Nanosight, it meant the firm launched a more competitively priced tool, which could be built from readily available, low-cost components.
To win initial sales, start-ups should visit potential customers. One option is trade shows, but Warren explains that it is tricky to know which shows to attend: “I have a professional marketing background and I would love to think that we had sat down and worked out where there was a market opportunity, and designed products to hit that market right in the centre,” he says. But he believes this is nigh on impossible and the best way forward is to get the product in front of as many people as possible.
During this process, some industry sectors will start to show strong interest in the start-up’s product, with customers placing orders. By focusing on these markets, sales climb and the next challenge for the company is to streamline its manufacturing process to increase margins.
“The key thing is not to do it yourself,” says Warren. “The last thing you want to do when you are an entrepreneur in a science area is to make the stuff – it’s not your problem. You want someone to bolt on to your organization that has got all the manufacturing facilities and expertise.”
That is a view shared by Sang-il Park, chairman and CEO of atomic force microscope (AFM) specialist Park Systems, which finds, trains and certifies each of its suppliers. “It’s the time and resource investment one has to make to construct an efficient, flexible outsourcing line,” he says. Park’s company builds its AFMs using a “common modular platform”, which simplifies production and servicing.
Growing the business
Joining forces with flexible companies with manufacturing expertise paves the way for the fabrication of high quality, competitively priced products. To increase revenues, the start-up must put in place a dedicated sales team, a rugged production process and methods to manage its inventory.
If you get this far, you have got a great chance of becoming profitable. At that point the founders will claim that they all played key roles in this success by building a strong patent portfolio, putting together a great team of people and bringing a really highquality product to receptive markets. But will they admit that there has almost certainly been another factor in the mix, one over which they have had no control? Luck.
About the author
Richard Stevenson is a freelance science and technology writer based in Chepstow, Wales.