How to Implement a New Strategy Without Disrupting Your Organization

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How to Implement a New Strategy Without Disrupting Your Organization

Throughout most of modern business history, corporations have attempted to unlock value by matching their structures to their strategies. As mass production took hold in the nineteenth century, for instance, companies generated enormous economies of scale by centralizing key functions like operations, sales, and finance. A few decades later, as firms diversified offerings and moved into new regions, a rival model emerged. Corporations such as General Motors and DuPont created business units structured around products and geographic markets. The smaller business units sacrificed some economies of scale but were more flexible and adaptable to local conditions.

These two business models—centralized by function versus relatively decentralized by product and region—proved durable for a long time, largely because the evolution of business organization was fairly incremental. Indeed, the product division structure remained the dominant model for 50 years or more. But as competition intensified in the last quarter of the twentieth century, problems with both models became apparent, and companies searched for new ways to organize themselves to unlock corporate value.

Many multinationals adopted a matrix arrangement in the belief that they could retain both the economies of scale of centralized functions and the flexibility of their product-line and geographic business units. But matrix organizations were difficult to coordinate. Managers operating at a matrix intersection had to juggle the dictates of two masters, which led to conflict and delay. The business process reengineering movement of the 1990s introduced another model, in which the corporation organized around its various processes instead of its traditional functional, product, and geographic boundaries. But multiple process-focused units still had problems coordinating and aligning their activities; a silo is a silo whether it is a business process, a function, or a product group. More recently, we’ve been hearing about “virtual” and “networked” organizations operating across traditional boundaries and the “Velcro organization,” a company capable of being pulled apart and reassembled in new ways to respond to changing opportunities.

The continual search for new organizational forms is driven by basic changes in the nature of competition and the economy. First, advantage today is derived less from the management of physical and financial assets and more from how well companies align such intangible assets as knowledge workers, R&D, and IT to the demands of their customers. Second, the opportunities and challenges that globalization affords are forcing companies to revisit many assumptions about the control and management of both their physical and their intangible assets. Today’s computer company, for example, can manufacture components in China, assemble them in Mexico, ship them to Europe, and service the purchasers from call centers in India. This dispersal creates demands for new structures to align internal and outsourced units around the world.

As companies have struggled with these issues, many have gotten caught up in expensive and frustrating cycles of organizational change. ABB is a classic case: The company went through one reorganization after another following its first experiment with the matrix form in the late 1980s. As Pankaj Ghemawat of Harvard Business School describes in his November 2003 HBR article, “The Forgotten Strategy,” this restructuring churn is expensive and often creates new organizational problems as bad as the ones they solve. It takes time for employees to adapt to new structures, and a great deal of tacit knowledge—precisely the kind that’s become most valuable—gets lost in the process, as disaffected employees leave. On top of that, companies get saddled with the vestiges of previous organizational decisions, such as obsolete local and regional headquarters and legacy IT infrastructures. Given the costs and difficulties involved in finding structural ways to unlock value, it’s fair to raise the question: Is structural change the right tool for the job?

We believe the answer is usually no. The lesson we’ve drawn from our work with hundreds of organizations on strategy maps and balanced scorecards is that companies do not need to find the perfect structure for their strategy. As we will demonstrate in the following pages, a far more effective approach is to choose an organizational structure that works without major conflicts and then design a customized strategic system to align that structure with the strategy.

We will see how two very different organizations—DuPont Engineering Polymers and the Royal Canadian Mounted Police—took their existing structures as given in the belief that tinkering and realigning authority, responsibility, and decision rights would not produce the magic needed to achieve corporate-level synergies. Instead, executives in these two organizations used the tools of the balanced scorecard strategy management system to guide the decentralized units in their search for local gain even as they identified ways for them to contribute to corporatewide objectives.

What Kind of System Do You Need?

A management system can be defined as the set of processes and practices used to align and control an organization. Management systems include the procedures for planning strategy and operations, for setting capital and operating budgets, for measuring and rewarding performance, and for reporting progress and conducting meetings. It is fair to say that, historically, most companies have relied entirely on financial systems—usually centered on the budget—for these various processes and practices. But relying on the budget as the primary management system caused short-term financial considerations to overwhelm longer-term strategic goals. In the 1980s and 1990s, many companies introduced total quality management as a new management system. But while TQM enabled firms to focus more effectively on process improvements, the ability to implement strategy across organizational units remained elusive. Companies’ management systems were still tactical and operational, not strategic.

by Robert S. Kaplan and David P. Norton

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Start Ups: The Complete Guide to Setting Goals

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English: Matriz de prioridades de tarefas adap...

English: Matriz de prioridades de tarefas adaptada da metodologia de Stephen Covey (Photo credit: Wikipedia)

Español: Peter F. Drucker, padre de la adminis...

Español: Peter F. Drucker, padre de la administración moderna. (Photo credit: Wikipedia)

The Bank of England in Threadneedle Street, Lo...

The Bank of England in Threadneedle Street, London. Deutsch: Sitz der Bank von England in der Londoner Threadneedle Street. (Photo credit: Wikipedia)

Book Cover

Book Cover (Photo credit: Wikipedia)

Step 1: Put it in writing. Reuters/Dylan Martinez

Welcome to the season of setting goals—a two-month period when businesses, families, and individuals explore aspirations for the year ahead.

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Stephen Covey’s perennial classic, 7 Habits of Highly Effective People offers the following wisdom on goals: Be proactive and begin with the end in mind. You’re more likely to attain your goals if you frame them in the right way and feel a strong commitment (pdf) to your objective.

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Here’s our guide to choosing the right goals—and accomplishing them:

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1.  Think big picture

Start by reading your company’s corporate strategy, suggests Annie Stevens, an executive coach and co-owner of leadership development firm ClearRock. She notes that there is “an important marriage between strategy and goal setting.” Instead of being wedded to the strategy, use it as a way to generate ideas and creative ambitions.

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Executive coach Joel Garfinkle starts by asking himself some questions: “What is most important for this year?” “Where do I want to put my energy and attention?”  He decides where to focus based on the financials of his business as well as his client’s satisfaction. He also considers, “What do I need to not be doing?”

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Garfinkle’s high-level review points out areas of focus that leads to specific goals. Some of his clients need to spend less time on email while others should get rid of unproductive people from their team.

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2.  Make goals SMART or HARD  

Most managers want goals that have a measurable impact and are tied to corporate strategy. Here are two ways to achieve that:

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SMART stands for “specific,” “measurable,” “achievable,” “relevant,” and “time-bound.” This acronym is borne out of the “management by objectives” philosophy popularized by management consultant Peter Drucker in the 1950s. In Attitude is Everything, Paul J. Meyer writes that the most effective goals (pdf) answer the six “W” questions: Who? What? When? Where? Why? and Which?, referring to requirements or constraints.

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HARD is an acronym devised by Mark Murphy for his 2010 book HARD Goals, means “heartfelt,” “animated,” “required,” and “difficult.” Animated refers to being “motivated by a vision, picture or movie that plays over and over in  your mind.” Researchers have found that setting a specific, difficult goal consistently leads to higher performance than a general “Do your best.”

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Both acronyms also carry the idea that your goals are clearly defined and connected to you.

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3.   Cultivate everyone’s goals

Most companies have several rungs of goal-setting: corporate goals, executive goals, senior management or department goals—and then there’s everyone else’s goals for the year.

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Sometimes employees’ goals are an afterthought, made to simply align with corporate mandates. This is a mistake since helping workers achieve success turns them into powerful allies. What’s more, happy workers are more productive and engaged.

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“We need to treat our employees and their goals like we’d treat the CEO’s goals,” said Murphy, who is founder and CEO of Leadership IQ, a management training company. “If we could have them (executives) treat their employees’ goals with the same respect they treat their own, we’d be blowing the doors off with what we could attain.”

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This requires conversations and thoughtful consideration—more than simply checking a box.

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Managers should demonstrate interest in their employees’ careers, and coach them so they increase their influence and achieve what they want, not just what the company wants, said David Miles, president of OI Partners – The Miles LeHane Companies. This will help retain talent, as well as motivate employees to achieve more.

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4.  Don’t underestimate yourself

Most business goals have numbers attached: a 25% increase in customers, hiring 30% more women, reducing shipping time to 12 hours or increasing individual productivity by 50%. Carefully consider these numbers—aim too low and you come off looking like you can’t meet expectations, said Stevens. A better approach: “Surprise on the upside. Gain a reputation as someone who consistently delivers more than is expected” and who stretches and aims high.

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People often shy away from higher numbers. Stevens sees it in her own business: Almost every year, leadership coaches set goals for how much revenue they will bring in and every year she asks them to push for more. So they go from a goal of $600,000 to say $800,000, and they always make it, Stevens said.

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“A lot of people underestimate how much they can get done in a long period of time,” said career coach Caroline Ceniza-Levine. Just make sure you create sub-goals or check-ins every month or once a quarter so that you’re able to make adjustments along the way.

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5.  Identify barriers to achievement

Some 60% of people (pdf) cannot pinpoint what’s holding them back from achieving their goals. Sometimes even a heartfelt goal will be difficult to achieve because your assumptions or behavior that stalls your progress. Two Harvard Graduate School of Education professors found that when we fail to achieve a goal, it’s often a self-defense mechanism.

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It’s important to identify who or what is likely to hold you back. Fear, disappointment, and distrust can prevent us from taking risks or making changes.And, fantasy, procrastination, and stress causes us to abandon a goal before ever getting started.

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6.  Reaffirm and reinforce goals

Publicly sharing a goal can increase your commitment to achieving it and make you more accountable. ”You have to write them down, on a website, tool, or app or a piece of paper,” said Garfinkle. Make your goals visible—post them on a bulletin board or share them with friends or a coworker to build a support system.

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This is especially important given that most people lose momentum within a month or two. ”Goal setting isn’t a one-shot deal,” said Murphy, the author ofHARD Goals. “It needs to be a continual process, testing our goals every couple of weeks.” Sometimes workers need help refocusing or re-energizing themselves. Or occasionally the landscape changes and goals need to be redrawn or replaced, Murphy said.

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Celebrate your successes and your team’s achievements in the form of praise and public recognition. Gifts and monetary rewards are good motivators too. “Acknowledge superior results” with financial incentives or intangible ones, writes author and sales coach Brian Tracy. He favors one-time bonuses for achieving specific projects. Other research shows that group rewards can be more effective than individual recognition.

How to Structure the Chaotic Start of Innovation

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How to Structure the Chaotic Start of Innovation

December 16, 2013

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The fuzzy front end of innovation is for many a struggle to master. A study of Booz & Company shows only a quarter of all companies are effective at the start of innovation. And Stage-Gate Guru Robert Cooper shows that of every seven new product/service projects, about four enter development, 1.5 are launched, and only one succeeds.

Quotes of managers in my Linkedin network confirm their struggle:

1. “A lot of people are still unaware of the need for innovation.”

2. “We cannot change our habits within the company.”

3. “We are not creative.”

4. “The board always stops new initiatives before they enter the market.”

5. “We fear failure because our past innovations were not successful.”

6. “Our short-term mindset rules.”

7. “There is no support for innovation among my colleagues.”

8. “We struggle to get inside the head of our customers.”

9. “Our innovation process is unorganized. It’s chaos.”

10. “Ideas are stopped because of budget cuts.”

In my Linkedin post “Five Essential Innovation Questions” I discussed five dilemmas in the ideation phase. I advised you to:

  • start ideation when there is a real business need;
  • use a team approach;
  • start with a concrete innovation assignment;
  • define clear criteria what is expected of new concepts;
  • use both creativity and structure in your approach.

But HOW do you do this in practice? I’d like to help you with a structured innovation methodology, which combines both creativity and business reality. The innovation methodology is called FORTH – an acronym found in the first letter of each of the 5 steps: Full Steam Ahead, Observe & Learn, Raise Ideas, Test Ideas and Homecoming. FORTH was developed in practice and is used successfully in Europe by more than 30 organizations in both B2B and B2C markets and in non-profit sectors. The method is part of my new book:The Innovation Expedition. The deliverables of this innovation expedition are innovative concepts, which fit the ‘in the box’ reality of your organization, otherwise nothing will happen. That’s why you will bring back new business in the form of mini new business cases.


Stage 1: Full steam ahead

A good preparation increases the chance of success. First you determine the purpose and direction for the ideation phase in an innovation assignment. And you determine the criteria the innovative concepts must comply to. The second important decision is to determine how your ideal ideation team looks like. The bigger the team, the greater the diversity and the greater the chance of wild, crazy, pattern breakthrough ideas. A special mission asks for special people. That’s why top managers are also part of the innovation team. When they are part of it; they will support the end results. At the FORTH kick-off workshop an enthusiastic multidisciplinary team is ready to go.

Stage 2: Observe and learn

There are no old roads to new solutions. That’s why it is essential to get fresh insights. That is the essence of stage two. Who is the potential customer and what motivates and frustrates him or her? That’s key. In this phase you get to know the customer and his or her behaviour. All team members will visit customers themselves. Besides customers, others serve as a source of inspiration for the innovation opportunities, identified in the kick-off. Ask yourself the question “If we want to innovate in this direction, from whom can we learn?” This way you look for the best practices and valuable experiences of other persons or organizations involved with these opportunities.

Team members share their insights and lessons learned in several ‘Observe and learn’ workshops in this phase. The exploration take place in six weeks. At the end, the ideation team gained relevant new customer insights and has explored interesting innovation opportunities.
Stage 3: Raise Ideas

This step is the creative pièce de résistance of FORTH. It consists of an intensive two-day ideation workshop of innovative concepts. The ideation is inspired by the discovery stage and team members normally cannot wait to share their ideas. This leads often to 750 ideas or even more. They are converged into 40 idea directions and twelve concrete concept statements. In a second session the concepts are taken a step further and are improved. External experts are invited to strengthen the team. Use cartoonists to visualize ideas and to take care of the first designs.

Stage 4: Test Ideas

How attractive are the new product or service concepts really? That’s a legitimate question. Therefore you reflect on the concepts immediately. The strength of the new concepts is checked among potential customers. This research, on a small scale, can be done quickly and simultaneously in several countries or continents, with ‘live’ customers or online. First reactions from potential customers often offer excellent handles for improvement. Another workshop takes place in which the team brainstorms how weak spots can be fixed. Having concepts tested in this early phase creates the advantage that you can use the ‘Voice of the Customer’ to gain internal acceptance for the concepts later on in the stage-gate process. At the end of this phase it is decided which concepts are worked out as mini new business case in the last phase.

Stage 5: Homecoming

In the final stage of FORTH you bring home the deliverables of the innovation expedition. It is not a bunch of yellow post-its or mood boards. Instead the innovative concepts are worked out as mini new business cases. These are business plans per concept elaborating on essential business elements as: the attractiveness of the new concepts to the target group, the sales and profit potential, how the concept fits in the business strategy and whether realising it is considered feasible. Presenting end results in this form creates a lot of appreciation in the boardroom. A business case is something top management will recognise and understand. The activities in this last stage cover around four weeks. At the end of this fifth – and final – stage the ideation team has completed its tasks. In practice it takes you around fifteen weeks after the kick-off to return with 3-5 mini new business cases.

User feedback on this structured ideation approach shows that the strength of a structured ideation approach like the FORTH innovation method is in 7 aspects:

1. Concrete new concepts in 15 weeks after the kick-off.
2. The innovation assignment gives you focus.
3. You discover customer insights yourselves.
4. Concepts are checked at the target group.
5. Teamwork creates internal support.
6. Faster implementation period.
7. It starts a culture of innovation.

With a structured ideation approach you can jumpstart innovation. You can download twenty checklists and innovation maps on the methodology for free. I wish you a lot of success on your own innovation expeditions.

 

The market for ideas vs. the market for products

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An Innovation Competence Process Coming From K...

An Innovation Competence Process Coming From Knowledge Management (Photo credit: Alex Osterwalder)

Innovation

Innovation (Photo credit: masondan)

A Pulvermacher chain link. The copper and zinc...

A Pulvermacher chain link. The copper and zinc wires are linked to adjacent chains through the hooks and eyes at the ends. (Photo credit: Wikipedia)

Bicycle chain

Bicycle chain (Photo credit: Wikipedia)

English: Cover of Against Intellectual Propert...

English: Cover of Against Intellectual Property by Stephan Kinsella (Photo credit: Wikipedia)

U.S. Patents granted, 1800–2004.

U.S. Patents granted, 1800–2004. (Photo credit: Wikipedia)

English: Porter's Value Chain

English: Porter’s Value Chain (Photo credit: Wikipedia)

Julayinbul Aboriginal Intellectual Property Co...

Julayinbul Aboriginal Intellectual Property Conference Logo (1993) (Photo credit: Wikipedia)

The market for ideas vs. the market for products

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Financial returns on an innovation may be earned through the “product market” or the “market for ideas.” The product market we are all familiar with – it describes the way in which we buy and sell physical products (medicines or diagnostic kits, for example) or services (laboratory tests or surgery).

The market for ideas, on the other hand, is a notional market in which innovations are sold or licensed before they are a final product (or service). In essence the innovation is still an idea, or intellectual property – it is a collection of intangibles. Choosing between these two options is a key element in commercialisation strategy. The innovator can try and take a product to market themselves (including manufacturing, marketing and distribution) or they can sell the idea to another firm – one with the appropriate infrastructure to launch the innovation.

In the first instance, the innovator will use or pioneer its own value chain, meaning the firm integrates internally or contracts for the value-added activities. (For more on value chains, read my last post.) In the second, the innovator will use an already-existent value chain. The majority of biotech firms commercialise their innovations in the market for ideas – after all, manufacturing, marketing and distribution all bring additional costs – but there are times when this may not be the best strategy.

How do we know which is best, and what are the drivers for this decision?

Intellectual property protection and access to complementary assets (regulatory knowledge, manufacturing ability, sales and distribution teams) both play a part. Strong intellectual property protection and a lack of in-house complementary assets usually means a company commercialises in the market for ideas – selling or licensing to a party with the skills and infrastructure to bring it to market. This is typical for small biotech firms.

However, when a firm does not have strong intellectual property protection, then it’s at risk of having a larger partner appropriate (steal) its ideas, or take a much greater share of the value than the smaller firm thinks is fair. In this case, that firm might be better off keeping its intellectual property protected as a trade secret, which means it takes the innovation to market itself. If resource constraints means self-commercialization is not possible, then a small firm will need to rely on the reputation of the larger company to not be taken advantage of. If this occurs, it’s best to use a trusted intermediary (such as a prominent venture capitalist or licensing lawyer) to act as a go between in negotiations that will not include full disclosure of the trade secrets until after deal completion.

A second situation is when there is no existing full value chain for a product, and the biotech start-up is forced to pioneer the development of new complementary assets. An example would be the xenotransplantation of alginate encapsulated neonatal porcine islet cells to produce insulin in the host. That’s what “Living Cell Technologies “:http://www.lctglobal.com/ (LCT), a New Zealand based biotech firm, is doing, and it has had to develop its own specialised manufacturing facilities. To bring the firm’s products to market it may eventually pioneer the development of specialised clinics that can handle the transplants in large numbers. LCT has no choice but to commercialise its technology in the product market.

Sometimes an evaluation of the risks and rewards of using an existing value chain vs. building one will show the latter to be more rewarding, though building one requires access to sufficient capital. Products targeted at high-paying and/or highly centralised or niche market opportunities may lead to the development of downstream infrastructure for manufacturing, sales and marketing and distribution, even though existing channels could be used (e.g. orphan drugs, products sold to specialists or hospitals).

Once a startup has made the decision to commercialise in the market for ideas, the next questions are “when” and “how” to plug into the value chain. Cooperation might occur via research partnerships, arms-length licensing agreements or cozy joint ventures among other alternatives. Further, a company might find help at many points along the value chain, from discovery to preclinical testing or clinical testing to marketing. Still, a bioentrepreneur might not know how to make these types of decisions, and I’ll explore that in future posts. First, though, we’ll look at typical business models in the biotech sector (that’s coming up next).

Consider Everything Short of a “Yes” a “No” ( Reblogged . Original by Gordon Daugherty)

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Yes Live at Columbia, SC (1974)

Yes Live at Columbia, SC (1974) (Photo credit: Hunter-Desportes)

Willamette University School of Education

Willamette University School of Education (Photo credit: Wikipedia)

English: Classical ideal feedback model. The f...

English: Classical ideal feedback model. The feedback is negative if B (Photo credit: Wikipedia)

Consider Everything Short of a “Yes” a “No”

I recently heard Dr. Robert Wiltbank from Willamette University use this analogy and loved it so much I had to share it with others.  Entrepreneurs are, by nature, very optimistic.  It’s one of their core survival skills.  But this often makes it hard for them to recognize signals of negative feedback.  This applies to things like the success of their product and progress towards the business plan targets.  But it also relates it to investor feedback while pursuing fundraising, customer feedback while pursuing a sale or vendor feedback while trying to secure a partnership.  Experienced sales professionals are trained to listen for negative feedback and use various techniques to assess the real viability of the opportunity.  But most co-founders aren’t experienced sales professionals and the techniques I’m referring to aren’t easily learned from a blog post or a book.

One way for a founder to compensate for their optimistic bias is to consider every response short of a “yes” to be a hard “no”.  For example:

  • “Maybe” = no
  • “Let me bring it up with my boss” = no
  • “Not now but perhaps in the near future” = no
  • “I love the idea but we’re just slammed right now” = no
  • “Let’s have a follow-up meeting to get into more details” = no

You get the idea.  Don’t necessarily give up on these opportunities but, more importantly, don’t change anything about your spending patterns, hiring plans or product direction based on these responses that you need to assume mean “no”.  Convert them to a legitimate “yes” and take any corresponding action that makes sense.  And remember that a single “yes” is only a single data point.  If it’s related to a strategic partnership with Google, that’s one thing but if it’s a commitment from a VAR to resell your product you probably want to string up a few more like that before concluding that you’ve got a channel-ready product on your hands.

Non-Dilutive Financing for Biotech Startups in Israel

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English: The Organic Business Guide – financing and teh Break-even piont (Photo credit: Wikipedia)

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English: A graph showing the total financing of the Philippines from 2001-2010 (Photo credit: Wikipedia)

English: A graph comparing the percentage of t...

English: A graph comparing the percentage of total financing the Philippines gets from external and domestic sources (Photo credit: Wikipedia)

English: Belongs to The Organic Business Guide.

English: Belongs to The Organic Business Guide. (Photo credit: Wikipedia)

Metro Rail Transit Corporation

Metro Rail Transit Corporation (Photo credit: Wikipedia)

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Finance and Commerce – New Applications Leverage The Popularity Of Social Networks – 02/16/09 (Photo credit: DavidErickson)

Startup financing cycle

Startup financing cycle (Photo credit: Wikipedia)

Finance

Finance (Photo credit: Tax Credits)

Non-Dilutive Financing for Biotech Startups

In a series of posts we introduced the Leverage Startup and how non-dilutive sources of capital can be used to accelerate the commercializationof academic biotech projects.  In this post we discuss the use and sources of non-dilutive financing in biotech startups.

We define non-dilutive funding as financing that does not require the sale of your company’s shares, and hence does not cause dilution of the existing shareholders.  The use of non-dilutive funds as a component of your financing strategy is important and has many benefits.  First, non-dilutive funds can provide critical cash to support your company’s development.  Second, because non-dilutive funds do not require the sale of the company’s voting equity, it allows founding teams and existing shareholders to retain company ownership and control.  Third, as many non-dilutive funding sources require approval from expert stakeholders with deep domain knowledge like funding agencies, important validation of the team and technology can be provided for future customers, partners, and equity investors.The following gives an overview of non-dilutive sources.

Government research grants. (for example: NIH).  Certain research focused government grants include companies as eligible awardees.  The National Institute of Health (NIH) is a good example, where companies can compete for R01 and R21 grants alongside traditional University applicants. These government research grants typically fund basic research or its commercial translation, with the required stage of development clearly outlined in the call for proposals. Such monies typically fund salary and consumables, but limit their contribution of overhead or other non-research activities.

Government industry grants (for example: SBIR, NRC IRAP).  With the aim of enabling the commercialization of cutting edge technologies, various governments have established industry specific grant programs.  These grants typically emphasize the commercialization of research and the application often requires a strong market argument for the future product.  These grants usually fund commercialization activities rather than basic research and sometimes can be partially used to support the filing of intellectual property, conducing a market analysis, and other business development actives.  Many of these funds require the company involved to provide matching funds in the form of in kind (i.e. additional salary support) or cash, and to demonstrate that the business will provide a conduit for commercialization.

Foundations (for example: Gates, CF, Ellison, Lou Gehrigs, X Prize).  Foundations are becoming an increasingly important driver of biotechnology innovation. Foundations are typically focused on improving the health of individuals inflicted with a specific disease, for example the Cystic Fibrosis Foundation, and are primarily funded by donors with a connection to the ailment.  To increase the research being conducted for the given indication as well as the effectiveness of that research, Foundations are taking a very pro-active approach to funding R&D.  For companies, this can represent a significant opportunity to obtain R&D funds to push forward a technology that can impact a given disease. In addition, Foundations also provide a conduit to clinical expertise as well as potential access to patients and stakeholders, giving a program a larger chance of translational success.  There are also new initiatives specifically focused on biotechnology entrepreneurship.  For instance, Breakout Labs, an initiative from the Thiel Foundation, has been set-up to bridge the gap between early-stage research and venture capital-ready technologies.

Industry partnerships.  Industry partnerships are the life blood for pre-revenue biotech firms. Typically, partnerships involve a transfer of technology from a small biotech to a large company in return for cash and/or co-development rights.  These partnerships can involve significant sums of upfront and downstream cash flows and often represent the first major validation of the technology by an established pharma or large biotechnology company. Although these funds usually do not involve an equity stake in the selling company, such transactions usually involve a license or option-to-license of the selling firms intellectual property.  It is important to keep such licenses non-exclusive or narrowly-exclusive such that the startup remains positioned for long term growth.

Venture Debt (for example: Silicon Valley Bank). Venture debt is a useful tool in Biotech financing.  For example, debt can be utilized to extend the runway of an existing financing round to allow the company reach critical proof-of-concept achievements prior to follow on investments.  A financing round is usually required before accessing Venture Debt, and the lenders are anticipating that the company will raise another financing round or other capital injection to receive their payback.  Lastly, as with all debt, there is insolvency risk associated with it and careful consideration is required before taking such funds.

Revenue (for example: contract research, early product release).  Building a company on the back of a successful revenue stream is an ideal financing approach, however this can be challenging for nascent ventures.  For biotech firms will little to no regulatory involvement (i.e. tools companies, certain medical devices, industrial applications, etc.), establishing customers to use and test early prototype products is feasible and recommended.  For firms with significantly more regulatory barriers (i.e. therapeutic, diagnostic, etc.) revenue can sometimes be generated through auxiliary products or services, for example contract research or consulting.  In these cases however, the founding team needs to be diligent to not be distracted from the ultimate product goal of the firm and needs to weight the value of these funds over the delays it will create in achieving overall long-term goals.

Although non-dilutive sources are a great way to finance an early stage biotech, it should be noted that they are not “free” and can have important implications and associated costs.  For instance, certain funding agencies require that the invested cash be returned if the company is acquired by a foreign company, that they receive a multiple of their investment upon commercial success, or that they have certain rights to the IP.  Additionally, non-dilutive funds are typically allocated to a given project, rather than to the company at large.  As such non-dilutive funds are more ridged to business pivots that require a change in a said project, and do not fund other business development and overhead of running your business. A combination of dilutive and non-dilutive financing is often the strongest mix for early biotech.