After a few weeks of blogging about some newsworthy items in the Medtech world, let’s resume the Startup Success Series. Earlier posts from this series include the need to listen to your Key Opinion Leaders and how to translate an unmet need into a transformational value proposition.
Today we’ll address the most frightening and damaging situation which Medtech startups experience: running out of money before key business milestones are achieved. This is considered to be the #1 cause of startup failures.
Why does this repeatedly happen? There are numerous reasons and only one good solution - let’s dig in!
Reason #1
The entrepreneur and his/her team underestimated the cost and time to achieve key development, regulatory and clinical milestones. Remember this saying: “Build your best milestone achievement estimates and then double the cost and time it will take to achieve them.”
Also keep in mind that in the world of true innovation, you are doing things that have never been done before. The published literature and in-house know-how are often inadequate when building your assumptions grid.
Reason #2
The entrepreneur and his/her team did not anticipate for potential challenges, roadblocks and challenges along the way to pursuing key business milestones - and prepare contingency plans and money to more effectively and quickly deal with them along the way. Never assume a problem free development process!
Reason #3
Young entrepreneurs and their teams mistakenly think that asking for less investment money up front will make the startup more attractive to investors. This is true perhaps for the lessor experienced investors, but not for knowledgeable Medtech investors who have gone through the process several times and who have learned about the risks associated with Medtech startups.
Whenever I see ambitious startup business plans with modest financial strategies, red flags are raised and I advise accordingly.
This has been my experience with the various startups I have led – notice they all involve one key word: rework. Translation: more money!
CryoCath: One-year delay and rework of the platform technology due to power limitation issues that surfaced unexpectedly in the first human clinical trials.
Resonant: One-year rework of the Alpha platform and redirection of the targeted indication from prostate to breast cancer.
CardioInsight: Rework the product design, including algorithms, when the targeted indication needed to be reworked from congestive heart failure to non-invasive atrial fibrillation mapping.
SoundBite: V&V testing for regulatory approvals in Canada and the EU had to be reworked to satisfy increasingly rigorous standard and testing requirements.
The common solution? In all four cases, unexpected challenges were met with preparedness, focused resolution, and a sufficient margin of safety and support from the financing strategies preceding them!