Lessons Learned in Therapeutics

Posted on December 26, 2013 by steve blank

This post is part of our series on the National Science Foundation I-Corps Lean LaunchPad class in Life Science and Health Care at UCSF. Doctors, researchers and Principal Investigators in this class got out of the lab and hospital talked to 2,355 customers, tested 947 hypotheses and invalidated 423 of them. The class had 1,145 engagements with instructors and mentors. (We kept track of all this data by instrumenting the teams with LaunchPad Central software.)

We are redefining how translational medicine is practiced.

Traditional view of translational medicineWe’ve learned that translational medicine is not just about the science.

More on this in future blog posts.

Lean view of translational medicine

Vitruvian Therapeutics is one of the 26 teams in the class. The team members are:
  • Dr. Hobart Harris  Chief of  General Surgery, Vice-Chair of the Department of Surgery, and a Professor of Surgery at  UCSF.
  • Dr. David Young,  Professor of Plastic Surgery at UCSF. His area of expertise includes wound healing, microsurgery, and reconstruction after burns and trauma. 
  • Cindy Chang is a Enzymologist investigating novel enzymes involved in biofuel and chemical synthesis in microbes at LS9

Karl Handelsman was the therapeutics cohort instructor. Julie Cherrington CEO of Pathway Therapeutics was the team mentor.

Vitruvian Therapeutics is trying to solve the Incisional hernia problem. An incisional hernia happens in open abdominal surgery when the area of the wound doesnt heal properly and bulges outward. This requires a second operation to fix the hernia.Ventral Herniaincisional hernia

Hobart Harris’s insight was what was needed wasn’t one more new surgical technique or device to repair the hernias, but something to prevent the hernia from occurring in the first place. Vitruvian Therapeutics first product, MyoSeal, does just that. It promotes wound repair via biocompatible microparticles plus a fibrin tissue sealant. So far in 300 rats it’s been shown to prevent incisional hernias through enhanced wound healing.

Here’s their 2 minute video summary

If you can’t see the video above, click here.

Two weeks into the class and interviews with 14 of their potential customers (surgeons) reality intruded on their vision of how the world should work. We happened to catch that moment in class in this 90 second clip.

Watch  and find out how talking to just the first 14 customers in the Lean LaunchPad class saved Hobart Harris and the Vitruvian Therapeutics team years.

If you can’t see the clip above click here.

The Vitruvian Therapeutics Lessons Learned Presentation is a real-eyeopener. Given that this product could solve the incisional hernia problem, Hobart and his team naturally assumed that insurance companies would embrace this and their fellow surgeons viewed the problem as they did and would leap at using the product. Boy were they in for a surprise. After talking to 74 surgeons, insurance companies and partners appeared that no one – insurance companies or surgeons – owned the problem. Listen to their conclusions 8-weeks after the first video.

Watch the video and find out how they pivoted and what happened.

Don’t miss Karl Handelsman comments on their Investment Readiness Level at the end. Vitruvian is a good example of a great early stage therapeutics idea with animal data missing and many key components of the business model still needed to verify.

If you can’t see the video above click here

Look at their Lesson Learned slides below

If you can’t see the presentation above, click here

Market Type
During the class the Vitruvian Therapeutics class struggled with the classic question of visionaries: are we creating a New Market (one which doesn’t exist and has no customers)? In Vitruvian’s case preventive measures to stop incisional hernias before they happen.  Or should we position our product as one that’s Resegmenting an Existing Market? i.e. reducing leakage rates.  Or is there a way to get proof that the vision of the New Market is the correct path.

When Hobart Harris of Viturvian asked, “… what if you’re a visionary, and no one but you sees the right solution to a problem” we had a great in-class dialog. Karl Handelsman‘s comments at 3:15 and 4:16 and Allan May at 4:35 were incredibly valuable. See the video below for the dialog.

If you can’t see the video above, click here

Further Reading

Lessons Learned

  • Principal Investigators, scientists and engineers can’t figure out commercialization sitting in their labs
  • You can’t outsource commercialization to a proxy (consultants, market researchers, etc.)
  • Experiential Learning is integral to commercialization
  • You may be the smartest person in your lab, but your are not smarter than the collective intelligence of your potential customers, partners, payers and regulators

Listen to the blog post here [audio http://traffic.libsyn.com/albedrio/steveblank_hplewis_131226_FULL.mp3]

Download the podcast here

Filed under: Customer Development, Lean LaunchPad, Life Sciences (NIH), NIH (National Institutes of Health), Teaching | 1 Comment »

Moneyball and the Investment Readiness Level-video

Posted on December 21, 2013 by steve blank

Eric Ries was kind enough to invite me to speak at his Lean Startup Conference.

In the talk I reviewed the basic components of the Lean Startup and described how we teach it. I observed that now that we’ve built software to instrument and monitor the progress of new ventures (using LaunchPad Central), that we are entering the world of evidence-based entrepreneurship and the Investment Readiness Level.

This video is a companion to the blog post here. Read it for context.

If you can’t see the video above, click here

You can follow the talk along using the slides below

If you can’t see the slides above, click here

Additional videos here

Startup Tools here

Listen the blog post here [audio http://traffic.libsyn.com/albedrio/steveblank_clearshore_131221.mp3]

Download the podcast here

Filed under: Customer Development, Investment Readiness Level, Lean LaunchPad, Teaching, Venture Capital | 2 Comments »

Lessons Learned in Medical Devices

Posted on December 20, 2013 by steve blank

This post is part of our series on the National Science Foundation I-Corps Lean LaunchPad class in Life Science and Health Care at UCSF. Doctors, researchers and Principal Investigators in this class got out of the lab and hospital talked to 2,355 customers, tested 947 hypotheses and invalidated 423 of them.  The class had 1,145 engagements with instructors and mentors. (We kept track of all this data by instrumenting the teams with LaunchPad Central software.)

We are redefining how translational medicine is practiced. It’s Lean, it’s fast, it works and it’s unlike anything else ever done.

—–

Sometimes teams win when they fail.

Knox Medical Devices was building a Spacer which contained a remote monitoring device to allow for intervention for children with Asthma . (A Spacer is a tube between a container of Asthma medicine (in an inhaler) and a patient’s mouth.The tube turns the Asthma medicine into an aerosol.)Asthma

Knox’s spacer had sensors for basic spirometry measurements (the amount of air and how fast it’s inhaled and exhaled) to see how well the lung is working. It also had a Nitrous Oxide sensor to provide data on whether the lungs airways are inflamed, an inhaler attachment and a GPS tracking device.

Knox SpacerThe Spacer hardware was paired with data analysis software for tracking multiple facets of asthma patients.

The Knox team members are:

Allan May founder of Life Science Angels was the Medical Device cohort instructor. Alex DiNello CEO at Relievant Medsystems was their mentor.

The Knox team was a great mix of hands-on device engineers and business development. They used agile engineering perfectly to continually test variants of their Minimum Viable Product (MVP’s) in front of customers often and early to get immediate feedback.

Knox was relentless about understanding whether their device was a business or whether it was technology in search of a market. In 10 weeks they had face-to-face meetings with 117 customers, tested 33 hypotheses, invalidated 19 of them and 53 instructor and mentor interactions.

Here’s Knox Medical’s 2 minute video summary

If you can’t see the video above, click here

Knox was a great example of having a technology in search of a customer. The initial hypothesis of who would pay for the device – parents of children with asthma – was wrong and resulted in Knox’s first pivot in week 4. By week 6 they had discovered that; 1) Peak Flow Meters are not as heavily prescribed as they thought, 2) Insurance company reimbursement is necessary for anything upwards of $15, 3) Nitrous Oxide testing isn’t currently used to measure asthma conditions.

After the pivot they the found that the most likely users of their device would be low income Asthma patients who are treated at Asthma clinics funded by federal, state or county dollars. These clinics reduce hospitalization but Insurers weren’t paying to cover clinic costs nor would they cover the use of the Knox device. The irony was that those who most needed the Knox device were those who could least afford it and wouldn’t be able get it.

Watch their Lesson Learned presentation below. Listen to the comments from Allan May the Device instructor at the end.

If you can’t see the video above, click here

In the end Knox, like a lot of startups in Life Science and Health Care, discovered that they had a multi-sided market.  They realized late in the class the patients (and their families) were not their payers – their payers were the insurance companies (and the patients were the users.)  If they didn’t have a compelling value proposition for the insurers (cost savings, increased revenue, etc.) it didn’t matter how great the technology was or how much the patients would benefit.

The Knox Medical Device presentation slides are below. Don’t miss the evolution of their business model canvas in the appendix. It’s a film strip of the entrepreneurial process in action.

If you can’t see the slides above, click here

Knox is a great example of how the Lean LaunchPad allows teams to continually test hypotheses and fail fast and inexpensively. They learned a ton. And saved millions.

Lessons Learned

  • In medical devices, understanding reimbursement, regulation and IP is critical
  • Sometimes teams win when they fail
Download the podcast here

Filed under: Customer Development, Lean LaunchPad, Life Sciences (NIH), NIH (National Institutes of Health), Teaching | 1 Comment »

Lessons Learned in Digital Health

Posted on December 19, 2013 by steve blank

This post is part of our series on the National Science Foundation I-Corps Lean LaunchPad class in Life Science and Health Care at UCSF.

Our Lean LaunchPad for Life Science class talked to 2,355 customers, tested 947 hypotheses and invalidated 423 of them.  They had 1,145 engagements with instructors and mentors. (We kept track of all this data by instrumenting the teams with LaunchPad Central software.)

This post is one of a series of the “Lessons Learned” presentations and videos from our class.

Sometimes a startup results from a technical innovation. Or from a change in regulation, declining costs, changes in consumers needs or an insight about customer needs. Resultcare, one of the 26 teams in the class started when a resident in clinical medicine at UCSF watched her mother die of breast cancer and her husband get critically injured.

The team members are:

  • Dr. Mima Geere  Clinical Medicine at UCSF.
  • Dr. Arman Jahangiri HHMI medical fellow at UCSF, Department of Neurological Surgery
  • Dr. Brandi Castro in Neuroscience at UCSF
  • Mitchell Geere product design
  • Kristen Bova MBA, MHS
  • Nima Anari PhD in Data Science

Abhas Gupta was the Digital Health cohort instructor. Richard Caro was their mentor.

ResultCare is a mobile app that helps physicians take the guesswork out of medicine. It enables physicians to practice precision medicine while reducing costs.precision medicine

Here’s Resultcare’s 2 minute video summary

If you can’t see the video above, click here.

Watch their Lesson Learned presentation below. The first few minutes of the talk is quite personal and describes the experiences that motivated Dr. Geere to address this problem.

If you can’t see the video above, click here

The Resultcare presentation slides are below.

If you can’t see the presentation above, click here

Listen to the blog post here [audio http://traffic.libsyn.com/albedrio/steveblank_clearshore_131219.mp3]

Download the podcast here

Filed under: Customer Development, Lean LaunchPad, Life Sciences (NIH), NIH (National Institutes of Health), Technology | Leave a comment »

We’ve seen the Future of Translational Medicine and it’s Disruptive

Posted on December 17, 2013 by steve blank

A team of 110 researchers and clinicians, in therapeutics, diagnostics, devices and digital health in 25 teams at UCSF, has just shown us the future of translational medicine.  It’s Lean, it’s fast, it works and it’s unlike anything else ever done.

It’s going to get research from the lab to the bedside cheaper and faster.

Welcome to the Lean LaunchPad for Life Sciences and Healthcare (part of the National Science Foundation I-Corps).

This post is part of our series on the Lean Startup in Life Science and Health Care.

——–

Our class talked to 2,355 customers, tested 947 hypotheses and invalidated 423 of them.  They had 1,145 engagements with instructors and mentors. (We kept track of all this data by instrumenting the teams with LaunchPad Central software.)

In a packed auditorium in Genentech Hall at UCSF, the teams summarized what they learned after 10 weeks of getting out of the building. This was our version of Demo Day – we call it “Lessons Learned” Day. Each team make two presentations:

  • 2 minutes YouTube Video: General story of what they learned from the class
  • 8 minute Lessons Learned Presentation: Very specific story about what they learned in 10 weeks about their business model

In the next few posts I’m going to share a few of the final “Lessons Learned” presentations and videos and then summarize lessons learned from the teaching team.

Magnamosis
Magnamosis is a medical device company that has a new way to create a magnetic compression anastomosis (a surgical connection between two tubular structures like the bowel) with improved outcomes.

anastomosis

Team Members were: Michael Harrison (the father of fetal surgery), Michael Danty, Dillon Kwiat, Elisabeth Leeflang, Matt Clark.  Jay Watkins was the team mentor. Allan May and George Taylor were the medical device cohort instructors.

Their initial idea was that making an anastomosis that’s better, faster and cheaper will have surgeons fighting to the death to get a hold of their device.  magnamosisThey quickly found out that wasn’t the case.  Leak rates turned out to a bigger issue with surgeons and a much larger market.

Here’s their 2 minute video summary

If you can’t see the video above, click here.

Watch their Lessons Learned video below and see how a team of doctors learned about product/market fit, channels and pricing.

If you can’t see the video above, click here

Their slide deck is below. Don’t miss the evolution of their business model in the Appendix.

If you can’t see the presentation above, click here

The best summary of why Scientists, Engineers and Principal Investigators need to get out of the building was summarized by Dr. Harrison below. After working on his product for a decade listen to how 10 weeks of the Lean LaunchPad class radically changed his value proposition and business model.

If you can’t see the video above, click here.

For further reading:

Listen to the blog post here [audio http://traffic.libsyn.com/albedrio/steveblank_clearshore_131217.mp3]

Download the podcast here

Filed under: Customer Development, Lean LaunchPad, Life Sciences (NIH), NIH (National Institutes of Health), Teaching | 1 Comment »

When Customers Make You Smarter

Posted on December 2, 2013 by steve blank

We talk a lot about Customer Development, but there’s nothing like seeing it in action to understand its power. Here’s what happened when an extraordinary Digital Health team gained several critical insights about their business model. The first was reducing what they thought was a five-sided market to a simpler two-sided one.

But the big payoff came when their discussions with medical device customers revealed an entirely new way to think about pricing —potentially tripling their revenue.

——

We’re into week 9 of teaching a Lean LaunchPad class for Life Sciences and Health Care (therapeutics, diagnostics, devices and digital health) at UCSF teaching with a team of veteran venture capitalists. The class has talked to ~2,200 customers to date. (Our final – not to be missed – Lessons Learned presentations are coming up December 10th.)

Among the 28 startups in the Digital Health cohort is Tidepool. They began the class believing they were selling an open data and software platform for people with Type 1 Diabetes into a multi-sided market comprised of patients, providers, device makers, app builders and researchers.

tidepool website

The Tidepool team members are:

  • Aaron Neinstein MD  Assistant Professor of Clinical Medicine, Endocrinology and Assistant Director of Informatics at UCSF. He’s an expert in the intersection between technological innovations and system improvement in healthcare. His goal is to make health information easier to access and understand.
  • Howard Look, CEO of Tidepool, was VP of Software and User Experience at TiVo. He was also VP of Software at Pixar, developing Pixar’s film-making system, and at Amazon where he ran a cloud services project. At Linden Lab, delivered the open-sourced Second Life Viewer 2.0 project. His teenage daughter has Type 1 diabetes.
  • Brandon Arbiter was a VP at FreshDirect where he built the company’s data management and analytics practices. He was diagnosed at age 27 with Type 1 Diabetes. He developed a new generation diabetes app, “nutshell,” that gives patients the information they need to make the right decisions about their dosing strategies.
  • Kent Quirk was director of engineering at Playdom and director of engineering at Linden Labs.

A Five-sided Market
In Week 1 the Tidepool team diagramed its customer segment relationships like this:

Tidepool ecosystem

Using the business model canvas they started with their value proposition hypotheses, articulating the products and services they offered for each of the five customer segments. Then they summarized what they thought would be the gain creators and pain relievers for each of these segments.

Tide pool value prop week 1

Next, they then did the same for the Customer Segment portion of the canvas. They listed the Customer Jobs to be done and the Pains and Gains they believed their Value Proposition would solve for each of their five customer segments.

Tide pool cust week 1

It’s Much Simpler
Having a multisided market with five segments is a pretty complicated business model. In some industries such as medical devices its just a fact of life. But after talking to dozens of customers by week 3, Tidepool discovered that in fact they had a much simpler business model – it was a two-sided market.

tidepool simplification

They discovered that the only thing that mattered in the first year or two of their business was building the patient-device maker relationship. Everything else was secondary. This dramatically simplified their value proposition and customer segment canvas.

So they came up with a New Week 3 Value Proposition Canvas:

Tide pool value prop week 3

And that simplified their New Week 3 Customer Segment Canvas

Tide pool cust week 3

Cost-based Pricing versus Value-based Pricing
While simplifying their customer segments was a pretty big payoff for 3 weeks into the class, the best was yet to come.

As part of the revenue streams portion of the business model canvas, each team has to diagram the payment flows.

Tide pool market pricing

The Tidepool team originally believed they were going charge their device partners “market prices” for access to their platform. They estimated their Average Revenue per User (ARPU) would be about $36 per year.

Tide pool market pricing ARPU

But by week 6 they had spoken to over 70 patients and device makers. And what they found raised their average revenue per user from $36 to $90.

When talking to device makers they learned how the device makers get, keep and grow their customers.  And they discovered that:

  • device makers were spending $500-$800 in Customer Acquisition Cost (CAC) to acquire a customer
  • device makers own customers would stay their customers for 10 years (i.e. the Customer Life Time (CLT))
  • and the Life Time Value (LTV) of one customer over those 10 years to a device maker is $10,000

Tide pool market pricing device cac

These customer conversations led the Tidepool team to further refine their understanding of the device makers’ economics.  They found out that the device makers sales and marketing teams were both spending money to acquire customers.  ($500 per sales rep per device + $800 marketing discounts offered to competitors’ customers.)

Tide pool device economics

Once they understood their device customers’ economics, they realized they could help these device companies reduce their marketing spend by moving some of those dollars to Tidepool. And they realized that the use of the Tidepool software could reduce the device companies’ customer churn rate by at least 1%.

This meant that Tidepool could price their product based on the $1,800 they were going to save their medical device customers.  Read the previous sentence again. This is a really big idea.

Tide pool value pricing big idea

The Tidepool team went from cost-based pricing to value-based pricing. Raising their average revenue per user from $36 to $90.

Tide pool value pricing $90 ARPU

There is no possible way that any team, regardless of how smart they are could figure this out from inside their building.

If you want to understand how Customer Discovery works and what it can do in the hands of a smart team, watch the video below. The team ruthlessly dissects their learning and builds value-pricing from what they learned.

This short video is a classic in Customer Discovery.

If you can’t see the video click here.

Lessons Learned

  • Most startups begin by pricing their product based on cost or competition
  • Smart startups price their product based on value to the customer
  • You can’t guess how your product is valued by customers
  • Customer Development allows you to discover the economics needed for value pricing your product

Listen to the podcast here [audio http://traffic.libsyn.com/albedrio/steveblank_clearshore_131202.mp3]

Download the podcast here

Filed under: Customer Development, Customer Development Manifesto, Lean LaunchPad, Life Sciences (NIH), NIH (National Institutes of Health) | 8 Comments »

It’s Time to Play Moneyball: The Investment Readiness Level

Posted on November 25, 2013 by steve blank

Investors sitting through Incubator or Accelerator demo days have three metrics to judge fledgling startups – 1) great looking product demos, 2) compelling PowerPoint slides, and 3) a world-class team.

We think we can do better.

We now have the tools, technology and data to take incubators and accelerators to the next level. Teams can prove their competence and validate their ideas by showing investors evidence that there’s a repeatable and scalable business model. And we can offer investors metrics to play Moneyball – with the Investment Readiness Level.

Here’s how.

————–

We’ve spent the last 3 years building a methodology, classes, an accelerator and software tools and we’ve tested them on ~500 startups teams.

  • A Lean Startup methodology offers entrepreneurs a framework to focus on what’s important: Business Model Discovery. Teams use the Lean Startup toolkit: the Business Model Canvas + Customer Development process + Agile Engineering. These three tools allow startups to focus on the parts of an early stage venture that matter the most: the product, product/market fit, customer acquisition, revenue and cost model, channels and partners.

Lean moneyball

  • An Evidence-based Curriculum (currently taught in the Lean LaunchPad classes and NSF Innovation Corps accelerator). In it we emphasize that a) the data needed exists outside the building, b) teams use the scientific method of hypothesis testing c) teams keep a continual weekly cadence of:
    • Hypothesis – Here’s What We Thought
    • Experiments – Here’s What We Did
    • Data – Here’s What We Learned
    • Insights and Action – Here’s What We Are Going to Do Next

Evidence moneyball

  • LaunchPad Central software is used to track the business model canvas and customer discovery progress of each team. We can see each teams hypotheses, look at the experiments they’re running to test the hypotheses, see their customer interviews, analyze the data and watch as they iterate and pivot.

LPC

We focus on evidence and trajectory across the business model. Flashy demo days are great theater, but it’s not clear there’s a correlation between giving a great PowerPoint presentation and a two minute demo and building a successful business model. Rather than a product demo – we believe in a “Learning Demo”. We’ve found that “Lessons Learned” day showing what the teams learned along with the “metrics that matter” is a better fit than a Demo Day.

“Lessons Learned” day allows us to directly assess the ability of the team to learn, pivot and move forward. Based on the “lessons learned” we generate an Investment Readiness Level metric that we can use as part of our “go” or “no-go” decision for funding.

Some background.

NASA and the Technology Readiness Level (TRL)
In the 1970’s/80’s NASA needed a common way to describe the maturity and state of flight readiness of their technology projects.  They invented a 9-step description of how ready a technology project was.  They then mapped those 9-levels to a thermometer.NASA TRL

What’s important to note is that the TRL is imperfect. It’s subjective. It’s incomplete.  But it’s a major leap over what was being used before.  Before there was no common language to compare projects.

The TRL solved a huge problem – it was a simple and visual way to share a common understanding of technology status.  The U.S. Air Force, then the Army and then the entire U.S. Department of Defense along with the European Space Agency (ESA) all have adopted the TRL to manage their complex projects. As simple as it is, the TRL is used to manage funding and go/no decisions for complex programs worldwide.

We propose we can do the same for new ventures – provide a simple and visual way to share a common understanding of startup readiness status. We call this the Investment Readiness Level . 

The Investment Readiness Level (IRL)
The collective wisdom of venture investors (including angel investors, and venture capitalists) over the past decades has been mostly subjective. Investment decisions made on the basis of “awesome presentation”, “the demo blew us away”, or “great team” is used to measure startups. These are 20th century relics of the lack of data available from each team and the lack of comparative data across a cohort and portfolio.

Those days are over.

Hypotheses testing and data collection
We’ve instrumented our startups in our Lean LaunchPad classes and the NSF I-Corps incubator using LaunchPad Central to collect a continuous stream of data across all the teams.  Over 10 weeks each team gets out and talks to 100 customers. And they are testing hypotheses across all 9 boxes in the business model canvas.

We collect this data into a Leaderboard (shown in the figure below) giving the incubator/accelerator manager a single dashboard to see the collective progress of the cohort. Metrics visible at a glance are number of customer interviews in the current week as well as aggregate interviews, hypotheses to test, invalidated hypotheses, mentor and instructor engagements. This data gives a feel for the evidence and trajectory of the cohort as a whole and a top-level of view of each teams progress.

leaderboard moneyball

Next, we have each team update their Business Model Canvas weekly based on the 10+ customer interviews they’ve completed.

canvas updates moneyball

The canvas updates are driven by the 10+ customer interviews a week each team is doing. Teams document each and every customer interaction in a Discovery Narrative. These interactions provide feedback and validate or invalidate each hypothesis.

disovery 10 moneyball

Underlying the canvas is an Activity Map which shows the hypotheses tested and which have been validated or invalidated.

activty updates moneyball

All this data is rolled into a Scorecard, essentially a Kanban board which allows the teams to visualize the work to do, the work in progress and the work done for all nine business model canvas components.

scorecard update moneyball

Finally the software rolls all the data into an Investment Readiness Level score.

IRL

MoneyBall
At first glance this process seems ludicrous. Startup success is all about the team. Or the founder, or the product, or the market – no metrics can measure those intangibles.

Baseball used to believe that as well. Until 2002 – when the Oakland A’s’ baseball team took advantage of analytical metrics of player performance to field a team that competed successfully against much richer competitors.

Statistical analysis demonstrated that on-base percentage and slugging percentage were better indicators of offensive success, and the A’s became convinced that these qualities were cheaper to obtain on the open market than more historically valued qualities such as speed and contact. These observations often flew in the face of conventional baseball wisdom and the beliefs of many baseball scouts and executives.

By re-evaluating the strategies that produce wins on the field, the 2002 Oakland A’s spent $41 million in salary, and were competitive with the New York Yankees, who spent $125 million.

Our contention is that the Lean Startup + Evidence based Entrepreneurship + LaunchPad Central Software now allows incubators and accelerators to have a robust and consistent data set across teams. While it doesn’t eliminate great investor judgement, pattern recognitions skills and mentoring – it does provide them the option to play Moneyball.

if you can’t see the video above click here

Last September Andy Sack, Jerry Engel and I taught our first stealth class for incubator/accelerator managers who wanted to learn how to play Moneyball.

We’re offering one again this January here.

Lessons Learned

  • It’s not clear there’s a correlation between a great PowerPoint presentation and two minute demo and building a successful business
  • We now have the tools and technology to take incubators and accelerators to the next step
  • We focus on evidence and trajectory across the business model
  • The data gathered can generate an Investment Readiness Level score for each team
  • the Lean Startup + Evidence based Entrepreneurship + LaunchPad Central Software now allows incubators and accelerators to play Moneyball

Listen to the podcast here [audio http://traffic.libsyn.com/albedrio/steveblank_clearshore_131125.mp3]

Download the podcast here

Filed under: Customer Development, Customer Development Manifesto, Investment Readiness Level, Lean LaunchPad, Teaching | 17 Comments »

Lean LaunchPad for Life Sciences – Revenue Streams

Posted on November 18, 2013 by steve blank

We’re teaching a Lean LaunchPad class for Life Sciences and Health Care (therapeutics, diagnostics, devices and digital health) at UCSF with a team of veteran venture capitalists. The class has talked to 2,056 customers to date.

This post is an update of what we learned about life science revenue models.

Life Science/Health Care revenue streams differ by Category
For commercialization, the business model (Customers, Channel, Revenue Model, etc.) for therapeutics, diagnostics, devices, bioinformatics and digital health have very little in common.

This weeks topic was revenue streams – how much cash the company can generate from each customer segment. Revenue streams have two parts: the revenue strategy and the pricing tactics.

Figuring out revenue strategy starts by gaining a deep understanding of the target customer(s). Setting a revenue strategy starts with understanding the basics about the customer segments:

  • who’s the user, the recommender, buyer, and payer
  • How the target customer currently purchases goods and services and how much they currently pay for equivalent products
  • Their willingness to pay for value versus lowest cost?
  • How much budget they have for your type of product?

Revenue strategy asks questions like, “Should we offer cost-based or value-based pricing.  How about demand-based pricing? Freemium? Do we price based on hardware sales or do we offer hardware plus consumables (parts that need to be disposed or replaced regularly)? Do we sell a single software package or a subscription?  These strategy hypotheses are tested against the target customer segment(s).

Once you’ve established a revenue strategy the pricing tactics follow. Pricing is simply “how much can I charge for the product using the selected revenue strategy?”  Pricing may be as simple as setting a dollar value for hardware or software, or as complicated as setting a high price and skimming the market or setting a low price as a loss leader.

You can get a feel for how each of the cohorts address the Revenue Streams by looking at the Revenue lectures below – covering the therapeutics, diagnostics, devices and digital health cohorts.

At the end of the lectures you can see a “compare and contrast” video and a summary of the differences in distribution channels.

Diagnostics

Week 5 Todd Morrill Instructor 

If you can’t see the presentation above click here

Digital Health

Week 5 Abhas Gupta Instructor 

If you can’t see the presentation above click here

Devices

Week 5 Allan May Instructor 

If you can’t see the presentation above click here

Therapeutics

Week 5 Karl Handelsman Instructor 

If you can’t see the presentation above click here

Life Science and Health Care Differences in Revenue Streams
”
This weeks lecture and panel was on Revenue; how much cash the company can generate from each customer segment – and the strategy and tactics to do so. Therapeutics, diagnostics, devices and digital health use different Revenue Strategies and Pricing Tactics, in the video and the summary that follows the instructors compare and contrast how they differ.

If you can’t see the video above click here

Therapeutics (Starting at 0:30)

  • Therapeutics revenue is from drug companies not end users
  • 18 months to first revenue from a deal
  • Predicated on delivering quality data to a company
  • Deal can be front-end or back-end loaded
  • Quality of the data has to be extremely high for a deal

Diagnostics (Starting at 4:10)

  • Diagnostic revenue is from end users: a hospital or clinical lab
  • You need to figure out value of your product but…
  • Pricing is capped by your reimbursement (CPT) code limits
  • Reimbursement strategy is paramount, design to good codes avoid bad ones
  • Find a reimbursement code consultant
  • Don’t do cost-based pricing… go for value-based pricing

Medical Devices (Starting at 8:23)

  • There really is no such thing as a perfect First Generation Medical Device
    • So Medical Device companies often start with a Volkswagen product and then build to the Ferrari product
  • Revenue models are typically direct product sales
  • Don’t do cost-based pricing… go for value-based pricing, especially where your device lowers the treatment costs of the patient
  • In most cases, pricing is capped by your reimbursement (CPT) code limits
    • Or pricing can be capped by what competitors offer, unless you can demonstrate superior cost savings
    • In a new market there is no reimbursement code but if you show high cost-savings you can get a high reimbursement rate
  • A risk in device hardware is getting trapped in low-volume manufacturing with low margins and run out of cash

Digital Health (Starting at 10:35)

  • Digital Health revenue models are often subscription models to a company per month across a large number of users
    • Intermediation fees – where you broker a transaction – are another source of revenue (i.e. HealthTap)
    • Advertising is another digital health revenue model, but requires at least 10 million users to have a meaningful model, but can be lower if you have higher value uses like specialist physicians because  you can charge dollars not cents
  • Don’t do cost-based pricing… go for value-based pricing
    • Value-based pricing is based on the needs you’ve learned from the customer segment and the strength of your product/market fit
      • the sum of customer needs + product/market fit = the pricing you can achieve

Lessons Learned

  • Each of these Life Science domains has a unique revenue strategy and pricing tactic
  • In therapeutics revenue comes in lump milestone payments from drug companies based on quality data
  • Diagnostics revenue comes value pricing to hospital or clinical lab
    • capped by reimbursement (CPT) code limits
  • Device pricing starts by offering an initial value-priced base product and then following up with a fully featured product
    • capped by reimbursement (CPT) code limits
  • Digital health products use subscription value pricing. Alternatively may use advertising revenue model

Listen to the podcast here [audio http://traffic.libsyn.com/albedrio/steveblank_clearshore_131118.mp3]

Download the podcast here

Filed under: Customer Development, Life Sciences (NIH), NIH (National Institutes of Health), Teaching | Leave a comment »

Lean LaunchPad for Life Sciences – Distribution Channels

Posted on November 11, 2013 by steve blank

We’re teaching a Lean LaunchPad class for Life Sciences and Health Care (therapeutics, diagnostics, devices and digital health) at UCSF with a team of veteran venture capitalists. The class has talked to 1,780 customers to date.

This post is an update of what we learned about life science distribution channels.

Life Science/Health Care distribution channels differ by Category
It turns out that for commercialization, the business model (Customers, Channel, Revenue Model, etc.) for therapeutics, diagnostics, devices, bioinformatics and digital health have very little in common.

This weeks topic was distribution channels; how your product gets from your company to your potential customer segments. You can get a feel for how each of the cohorts address the channel by looking at the distribution channel lectures below – covering the therapeutics, diagnostics, devices and digital health cohorts.

At the end of the lectures you can see a “compare and contrast” video and a summary of the differences in distribution channels.

Diagnostics

Week 3 Todd Morrill Instructor 

If you can’t see the presentation above click here

Digital Health

Week 3 Abhas Gupta Instructor 

If you can’t see the presentation above click here

Devices

Week 3 Allan May Instructor 

If you can’t see the presentation above click here

Therapeutics

Week 3 Karl Handelsman Instructor 

If you can’t see the presentation above click here

Life Science and Health Care Differences in Distribution Channels
This weeks lecture and panel was on distribution channels; how your product gets from your company to your potential customer segments. Therapeutics, diagnostics, devices and digital health use different different channels, in the video and the summary that follows the instructors compare and contrast how they differ.

If you can’t see the video above click here

Medical Devices (Starting at 0:50)

  • Medical Device Distribution Channels in general are a sales team hired directly by the company.
    • A sales team typically includes a sales person and clinical applications specialists.
    •  The specialists help train and educate physician users. They assist with the sale and work with marketing to create demand.
  • Some device industries are controlled by distributors (indirect sales.)
    • Distributors tend to resell commodity products from multiple suppliers.
  • Channel Cost =  $350-400,000 per sales team. On average there’s 1 clinical applications specialist to 2 salespeople.  A lean rollout for a startup would be 4-5 sales people plus 2-3 clinical applications specialists at a cost of ~$2.5 million/year
    • Increasing the number of sales people much past 4-5 for a rollout does not proportionally increase revenue in most cases, because you are on the front end of early adopters and wrestling to overcome and reduce the sales learning curve
    • Travel and Entertainment is a big part of the sales budget since they are all flying weekly to cover accounts
  • 90-180 days for salespeople to become effective
  • Expect little or no revenue for 2- 3 quarters after they start
  • Major reason for failure = hiring sales and marketing staff too quickly
  • Generally an Educational Sale – Hire sales and clinical people first to help early adopters, such as Key Opinion Leaders (KOL’s), master the learning curve with your device so they can write and present papers to influence their peers 

Diagnostics (Starting at 5:16)

  • Diagnostic Channels = Direct sales in the US, with limited Distributor options
    • Many Distributors in Europe and in Asia
    • Sold to hospital laboratories, reference laboratories, or performed in CLIA labs
  • Channel Cost = $350,000+ per supported salesperson
  • Direct to consumer is a (rapidly) growing channel

Digital Health (Starting at 7:25)

  • Digital Health Channels = Direct Sales but you’re selling software to both end users and enterprises
  • Can use existing tech channels and new emerging channels such as Wellness platforms. (Audax Health, Humana Vitality, ShapeUp, Redbrick Health, Limeade)
  • Cloud-based Electronic Medical Records (EMR) are quickly becoming another distribution platform
  • App Stores, and Box are also channels for consumers and enterprise customers, respectively

Therapeutics (Starting at 10:17)

  • Therapeutics Channel = what you’re selling in the early stage is data and Intellectual Property to the pharmaceutical and biotech companies
  • Complicated Sales process – takes 18 months
  • Led by the CEO with a dedicated business development person and your science team
  • You need to define the data they need – this is influenced by how they view their pipeline, and how your technology can fill gaps in their pipeline
  • Pharmaceutical and biotech companies have therapeutics heads, technology scouts and business development people all searching for technology deals to fill their pipeline
  • This is a bound problem – there’s probably 80 people you need to know that make up your channel

Lessons Learned

  • Each of these Life Science domains has a unique distribution channel
  • In Devices innovative products require hiring direct sales people
    • but for commodity device products you may use a distributor
  • Diagnostics requires a direct sales force in the U.S.
    • Distributors in Europe and in Asia
  • In Digital Health direct sales is a possible channel, as are traditional software channels (App Stores, Box, etc.)
    • other DHealth channels such as Wellness Platforms, and cloud-based EMR’s are also emerging
  • In therapeutics it’s a direct sale of data and Intellectual property
    • led by the CEO with a dedicated business development person and your science team

Listen to the podcast here [audio http://traffic.libsyn.com/albedrio/steveblank_clearshore_131111.mp3]

Download the podcast here

Filed under: Customer Development, Lean LaunchPad, Life Sciences (NIH), NIH (National Institutes of Health), Teaching | 5 Comments »

A New Way to Look at Competitors

Posted on November 8, 2013 by steve blank

Every startup I see invariably puts up a competitive analysis slide that plots performance on a X/Y graph with their company in the top right.

Competitive XY

The slide is a holdover from when existing companies launched products into crowded markets. Most of the time this graph is inappropriate for startups or existing companies creating new markets.

Here’s what you need to do instead.

——-

The X/Y axis competitive analysis slide is a used by existing companies who plan to enter into an existing market.  In this case the basis of competition on the X/Y axes are metrics defined by the users in the existing market.

This slide typically shows some price/performance advantage.  And in the days of battles for existing markets that may have sufficed.

But today most startups are trying to ressegment existing markets or create new markets. How do you diagram that? What if the basis of competition in market creation is really the intersection of multiple existing markets?  Or what if the markets may not exist and you are creating one?

We need a different way to represent the competitive landscape when you are creating a business that never existed or taking share away from incumbents by resegmenting an existing market.

Here’s how.

The Petal Diagram
I’ve always thought of my startups as the center of the universe. So I would begin by putting my company in the center of the slide like this.

Slide1In this example the startup is creating a new category –  a lifelong learning network for entrepreneurs. To indicate where their customers for this new market would come from they drew the 5 adjacent market segments: corporate, higher education, startup ecosystem, institutions, and adult learning skills that they believed their future customers were in today. So to illustrate this they drew these adjacent markets as a cloud surrounding their company. (Unlike the traditional X/Y graph you can draw as many adjacent market segments as you’d like.)

Slide2Then they filled in the market spaces with the names of the companies that are representative players in each of the adjacent markets.companies updated

Then they annotated the private companies with the amount of private capital they had raised. This lets potential investors understand that other investors were interested in the space and thought it was important enough to invest. (And plays on the “no VC wants to miss a hot space” mindset.)

Slide4

Finally, you could show the current and projected market sizes of the adjacent markets which allows the startups to have a “how big can our new market be?” conversation with investors.  (If you wanted to get fancy, you could scale the size of the “petals” relative to market size.)

Slide5

The Petal Diagram drives your business model canvas
What the chart is saying is, “we think our customers will come from these markets.”  That’s handy if you’re using a Lean Startup methodology because the Petal Chart helps you identify your first potential customer segments on the business model canvas.add the canvasYou use this chart to articulate your first hypotheses of who are customers segments you’re targeting.  If your hypotheses about the potential customers turn out to be incorrect, and they aren’t interested in your product, then you go back to this competitive diagram and revise it.

Lessons Learned

  • X/Y competitive graphs are appropriate in an existing market
  • Mapping potential competitors in new or resegmented markets require a different view – the Petal diagram
  • The competitive diagram is how develop your first hypotheses about who your customers are

Update: I’ve heard from a few entrepreneurs who used the diagram had investors tell them “”it looks like you’re being surrounded, how can you compete in that market?”

Those investors have a bright future in banking rather than venture capital.

Seriously, I would run away fast from a potential investor who doesn’t or can’t understand that visualizing the data doesn’t increase or decrease the likelihood of success. It only provides a better way to visualize potential customer segments.
Download the podcast here

Filed under: Customer Development, Teaching, Venture Capital | 56 Comments »

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