‘It’s rarely the innovation or technology and usually because the CEO has underestimated the effort it takes to get people to adopt something new, even with great innovation.’
One TEAM Partners’ CEO, Carlo Odicino, shares his opinion on why 90% of life sciences start-ups fail.
Carlo has spent his career working with and for early-stage life sciences companies, observing this phenomenon again and again, in and beyond the life sciences space. He’s here today to share his insights, including how to spot the very first sign that a start-up could fail, how to choose a different destiny, and what skills CEOs specifically should be developing to get their organization to market.
Carlo, can you briefly summarize the start-up phenomenon you’ve witnessed over your career?
Life sciences start-ups don’t fail because of their innovation. They fail because, for better or worse, the market tends not to be as impressed with the innovation as the people who are innovating it. Particularly in the life sciences space, which is battling complexities like insurance reimbursement, and (in the US specifically) heightened malpractice risk for physicians as it relates to new treatments.
It’s not negative; it’s just what happens.
So what it comes down to is this: failure happens because start-ups think their rise to success will be more linear and fast-paced than it ends up being.
They raise money based on an expected (often punchy) trajectory; they build infrastructure for it, and then they run out of money when they don’t meet it. This, in turn, makes raising more money difficult because the original expectations and promises weren’t met.
Can you share an example, something you’ve witnessed in your career that backs up your view?
Yes. Let’s call them ‘Company X.’ They had the first-ever drug of its kind approved by any regulatory body. It was highly innovative, and they were the first. Yet, to this day, they’re still struggling. Why? They massively overestimated what they were going to bring in in their first full year post-approval. To give you a rough idea of the numbers we’re talking about here, they estimated 350 million in revenue but ‘only’ made about 225 million.
Well…for a novel drug coming out of the gate, 225 million would normally be considered a major success. A success by any measure, except when it’s compared to a 350 million projection.
This overestimation created a negative cycle of doubt inside and outside of Company X.
It also created a significant cost drag since they’d set themselves up to be bigger than they ended up being. This is something they’re still trying to catch up with to this day.
What should Company X have done?
Their problem started with forecasting; they should have had more doubt in their capabilities. That probably sounds crazy to the leader of a start-up. Start-ups tend to run on ‘entrepreneurial spirit,’ the ‘can do’ attitude. The perception is, ‘If I have doubt, what am I even doing here?’. That’s a misconception. Two things can be true at the same time: great, breakthrough innovation and a slower uptake than expected.
So, Company X should have applied a healthy dose of skepticism to their forecast. They should have asked, ‘What changes if we only hit 10 instead of 100 like we’re forecasting? What do we need in place to ensure that, if that happens, we’ll survive it? And if that doesn’t happen, that we can scale quickly?’
This takes discipline. It takes discipline to scale pragmatically.
What are the early warning signs a start-up is headed for problems?
The first sign is missed milestones. If you’re not hitting your milestones, even very early ones, it’s a sign your forecast is wrong. And that’s ok – all early forecasts (ones that are built from research rather than real company data) are wildly inaccurate.
We build them because they allow us to make well-thought-out – not necessarily accurate – but well-thought-out decisions on how to start building a company.
As soon as you have real data (e.g., a missed milestone), adjust your forecast. Then restrategize based on your new reality. And don’t forget to ask again, ‘What if we missed our new target by 10x, or even by 100x?’
What advice would you give the CEO of an early-stage life sciences company?
Try as much as possible to underpromise and over-deliver.
Also, see the success of your innovation in the market through. Don’t start tinkering before you’ve let your success mature. Remember: success in the market isn’t approval. It’s seeing it grow within the market.
… And the CEO of a life sciences start-up that’s not hitting its milestones?
The first step is to look at your hiring plan. They’re usually set up based on the type of expertise the company is going to need. If you’re not hitting your milestones, pause your hiring plan. Focus the organization instead on getting recent new hires up to speed as soon as possible, and exploring how to ‘rent’ the expertise you’re missing.
Typically (and this is going to sound very self-serving, but it also happens to be true) a consultancy with the expertise you need will have more (and often a wider breadth of) experience in your particular industry. They’ll be able to spot opportunities or potential issues quicker, and they’ll have a more neutral view of what’s important and what’s not.
Remember: if you’re overzealous in hiring and have to lay off, that creates a negative perception of the organization and increases turnover. On the other hand, if you temper the hiring but still ask your people to deliver at the same level, you’ll create burnout which also increases turnover. So prioritization is also key.
And lastly, what skills should CEOs be developing to get their organization to market?
People up top have so much impact on the rest of an organization – even a minor wobble can ripple out and cause massive waves. So, my advice (because I’ve seen too many CEOs get in their own way, despite their best intentions) would be to find a trusted advisor who can join meetings and provide feedback on your behavior and communication. Optimizing your behavior is really worth the investment.
Then, show your work. I understand why CEOs feel the need to present as a beacon of perfection and positivity, but sharing concerns, work-in-progress, and (ultimately) being vulnerable will:
- Bring humanness to your leadership.
- Champion process and learning.
- Encourage others to share ideas/issues early.
A frustration I often hear from CEOs is, ‘Why didn’t they share this with me sooner?’ and I always say, ‘Well, how often do you share things early with them? What example have you set?’ Your people will follow your lead on this behavior.
Lastly, practice humility. There are a lot of charismatic CEOs out there; they can get anyone to be energetic about anything. But that only lasts so long. This charisma can be as much a curse as it is a blessing. Yes, it’s useful for securing buy-in, but if it’s misguidedly prioritized, it can end up sending energy down a route that the organization isn’t ready for. Or that’s wrong.
So CEOs need to have the humility to know that their ideas aren’t always the right thing to be working on, at least right now. Remember: you hired people for the skills you don’t have. Let them use them.
Carlo and his team work with CEOs of early-stage life sciences companies, ones at the very beginning of their journey as well as those that are facing the phenomenon described in this article.
From disciplined prioritization to using doubt to set up for success to building out leadership’s personal skills, we help to build the organization into an unstoppable force.
If you’d like to learn more about what One TEAM Partners can do for your life sciences start-up, get in touch and we’ll set up a brief discovery call.