Navigating through the entrepreneurial hurdles
The innovation ecosystem in India is buzzing like never before. The opportunities that exist today across different domains have the potential to scale promising innovations globally in no time. However, in spite of a huge demand in many segments, innovators and startups struggle to cross the so called ‘Valley of Death’ to bring their solutions to market, or to scale and sustain once there. This ineludible scenario runs across domains for many startups. The ones we see prominently in the market today are the ones who have traversed this treacherous obstacle successfully, sadly, a majority of the startups don’t. Therefore, here we touch upon a few factors to consider for entrepreneurs, especially those working in the domain of healthcare for emerging economies, like India.
· The odd man out: Talk to any founding team of a promising startup and they will talk passionately at length about the technology, it’s impact and the sheer splendor of their work! However, when it gets down to business, very few would display a matching acumen or inclination towards market understanding and strategy. The truth is that they don’t need to! This is the work that should be best done by a Business strategist who has expertise in the field. Many bootstrapped startups try to do this by themselves and become the cause for their own pitfall! It is essential to have a non-scientific or non-technical member in the core-team whose prime responsibility is to scout market opportunities and to raise funds and investments. This person will also be the one with an ear to the ground and can come back with real feedback from ground zero-the users and investors. This dispassionate view-point emerging from knowing the pulse of the market will be critical for the business success of the team.
· Staging your entry: The startup ecosystem in India has seen an upswing due to grants, seed capital and early-stage awards available through various public and private sector initiatives in India. Bio-innovation hubs and clusters offer the much-needed mentoring, incubation and manufacturing support while giving a healthy mix of market and investment exposure. India is thus a good springboard to test ideas and build and validate prototypes. For startups in the healthcare sector it is also a good place to undertake preclinical studies to test their drug candidates and diagnostic solutions to accrue initial evidence which will make them attractive to international funders and investors for scale-up and clinical studies. This is important to consider since in India many startups face a funding crunch for scaling-up and that’s where they struggle and often wear-off. On the other hand, early stage funding outside of India maybe daunting for domestic startups. It is imperative to carefully stage each move to leverage, balance and plug-into different ecosystems to one’s advantage. It is important to have a big picture view of how the startup would traverse from early stage evidence building to mid to late stage scale-up and fundraising in domestic and international markets, and then plan accordingly from the very beginning.
· Sizing the Market: Many risk-averse early entrepreneurs do not scope their solutions beyond domestic borders and commit a common mistake of putting all their eggs in one basket! They start with a myopic view of introducing their products in the Indian markets first, and thereafter of charting international territories. While this linear incremental approach may seem safe, it seldom appeals to investors. Although the Indian market has the advantage of volumes, selling in certain sectors might be tough due to immense competition, leaving small entrepreneurs fighting for a miniscule share of a small slice of the pie! Innovative pricing strategies could set the entrepreneur apart however balancing it with low volumes might be a huge challenge. In these cases, Investor won’t see a sufficient return on investment (ROI) against the risk they would be taking in funding a startup. They would thus steer clear of making any financial commitments. Instead, if the entrepreneurs simultaneously consider other emerging economies, like Africa, South Asia and Latin America which have a good demand for their product and integrates it with the scale-up and pricing strategies, it would make more commercial sense. It is thus imperative for startups to eye these emerging economies as potential markets they would be venturing into, sooner rather than later.
· Pairing partnerships: Growing outside the confines of their lab into a lucrative business is paramount for startups at each stage of their entrepreneurial journey. The role of partnerships in helping achieve this cannot be emphasized enough. Identifying experts and partners in domains that would enable the solutions to be taken to the last mile needs to be mapped by the startups ahead of time. From prototype testing and pre-clinical trials to market deployments in domestic and international markets, partnership could be one of the defining factors for the success and sustenance of a solution. Tapping into partner networks and opportunities to introduce promising solutions in different markets for different customers in a time sensitive manner is an important competitive edge that startups need to leverage. From the view of fund-raising this approach makes sense too since the investors and funders would view the pairing of a startup with a credible partner as de-risking of their investment.
· Building Adjacencies along the way: A very restrained and linear view of what the solution-in-development should address further restricts the commercial scope and the market opportunities. For instance, a hospital-centric solution will require consideration of the profitability in a very niche market, availability of auxiliary infrastructure, line of institutional approvals, differential pricing strategies, demand & usage, logistics exigencies, and scalability potential, among others. To avoid being trapped in a certain market type where they are dependent on different factors to even bring their product to the user, the innovators need to simultaneously explore seemingly unrelated parallel markets that might find use for their product and are easier to venture into. There is no escape from building solutions that serve different markets and users, unless the product is extremely domain focused, like in therapeutics.
Developing a broad range application for the product, like in platform technologies, immediately opens different market opportunities rather than confining to a niche market.
Diagnostic companies and data-centric innovations are exploring these adjacencies to the hilt, as has been demonstrated in the current pandemic. Positioning solutions that have cross-applicability and agility of use across sample types could make a solution look attractive to implementation bodies, and hence the investors.
· Navigating the finance quagmire: When exploring different geographies and user-segments to expand the scope of the solution, a startup needs to be aware that there will be different financial models at work. A finance model that worked elsewhere need not necessarily work in other markets too. For example, the public sector is a big market for startups and innovators working in public health interventions, however expansion here might be limited by multi-stage delays in deployments and approvals, while providing low profit margins. Clearly, this alone will not be adequate to keeps the lights on for any startup. Private sector exposure can provide the cashflow that the startup needs to sustain. There have been umpteen examples of startups and organizations who have balanced their pricing and revenue models between public and private sectors to remain profitable. Another aspect to consider is the Amortization model that work on lowering the book value of a loan over a period of time could enable more small enterprises in reaching the market and in sustaining long-term. In countries like the US, Japan and in Europe, Impact Bonds, specifically the Social Impact Bonds (SIB), are being successfully implemented in the public sector for positive social outcomes whilst dividing the performance risk of a service between partners. These pull mechanisms are important for startups working in sectors that are addressing healthcare challenges in low- & middle-income countries (LMICs). Startups need to be aware of these financing models to explore these with their potential partners and investors.
A hawk-eye view on the lab-to-market journey, a periodic assessment of business models and market strategies, and the agility to pivot are core requisites for startups to successfully navigate the valley of death.
Note: The article is part of the author’s Bi-monthly column ‘Start up Take Offs’ in Invention Intelligence, a publication of the National Research and Development Corporation (NRDC), an enterprise of DSIR, Ministry of Science & Technology, Government of India. The article was published in the January-February 2022 issue of the magazine.
