Building a Lean Biotech Startup
Starting up in biotech is not as difficult nor expensive as you might think.
Over the past two decades, the basic costs of biotechnology research have been cratering. There has never been a better time to launch a biotech startup to address the most pressing challenges of our time.
Of course, just starting up isn’t the end goal — it’s the first of many steps to success in your endeavor. It won’t be cheap, especially if your idea is in the clinical space . Still, you can vastly increase your chances of success by operating on a principle of lean, efficient iteration as you move toward the next milestone that you need to persuade investors to join and stay with your company.
No rules are universal, but here are five basic principles to keep in mind as you look to launch your startup biotech without breaking the bank:
1. Trust wisely
Whenever you start a business, the first thing that happens is that people start trying to sell you something. You’ll get emails from companies you’ve never heard of, promising that their service or product is the key to your success.
You will need to interact and build relationships with many people and businesses over the coming months and years — including suppliers, service providers, and possibly a tech transfer department or two. While it is crucial to develop good relationships with your key partners, always remember that the only person who has your business’ success as their #1 priority is you.
Do your homework on vendors, partners, and yes, even investors. Talk to people who have worked with them before (pro tip: failure to provide references is a red flag), compare their prices and promises to their competitors in the field. As an operating company, you will be working with many of your vendors and service providers over the long term – at least a year or more – so it is well worth the effort to find out as much as you can before signing a deal.
Beware of investment schemes. Unfortunately, some people will present themselves as helpful but are ultimately only interested in enriching themselves, even at your expense. Beware of anyone pushing easy money, unrealistic valuation of your business, “investment services,” or introductions to their “must-know” network. Real investors do their diligence on your company and industry segment as a critical function of their business. Anyone who asks for equity or money as payment to do their homework is likely a grifter. Always do your homework and ask for references before getting into a deal with someone you don’t already know.
2. Learn how much things actually cost
One of the biggest challenges for new biotechs is learning how much you really need to pay for equipment, supplies, and services. Equipment manufacturers and biochemical suppliers are notoriously guarded about even the “list price” for their products, let alone their margins and ability to absorb discounts. The one thing that you can be sure of is that their real cost is much lower than you think.
Learn to comparison shop. Get at least three quotes for any piece of equipment or machinery, even if you think that you already know exactly what you need. Don’t be afraid to haggle or ask for deeper discounts — some suppliers will even let you “try before you buy” or lease-to-own major equipment just to close a deal with a new customer.
Surprisingly, you can find a lot of basic lab equipment on Amazon for significantly less than scientific suppliers.
“If you can find it in a high school lab, then it will be cheaper on Amazon.”
You can also use a virtual lab manager like HappiLabs to source affordable, quality materials and equipment without the time investment of having to do it all yourself.
3. Only pay for what you need
This is a biggie. There are a million things that you can blow your startup budget on that won’t help one iota in your endeavor. Even if you feel like you have a generous cash pile from an Angel investor or VC, don’t be tempted to blow it on expensive offices, top-of-the-line new equipment and computers, or more staff than you necessarily need.
Unless you specifically need a specialized stand-alone facility to perform your work, find more affordable space in a coworking lab or incubator facility. Unless you really need the advanced functionality of a particular research instrument’s latest model, buy a cheaper, older model, or even a used one at a fraction of the price. For technical roles, be realistic about what you need research staff to do at the bench, and hire appropriately – each additional level of qualifications (AS, BS, PhD) will add at least $10 - $20k per year to the cost of that person to your business, so be careful to hire appropriately.
The same goes for services — at Lab Launch, we use Google Apps for most of our office back-end, Gusto for payroll, benefits admin, and issues like incorporation and compliance needs. Easy to use, pay-as-you-go service providers like these can help you stay lean while starting out. Full-service bundled HR and admin packages are great for businesses that need to scale significantly and rapidly. Still, as a startup, you should try to do everything yourself until you can’t.
4. Move quickly and efficiently
A startup business is not discovery research; time is literally money. You need to set firm timelines, milestones, and clear go/no-go [pivot] decision points when creating a research plan that will attract business investors.
If your founding team doesn’t already have the necessary expertise in an essential technique, then hire someone to do it. This could be an additional founder, an employee — or you can outsource it to an independent lab through online marketplaces such as Science Exchange or Scientist.com. In addition to saving you both time and money, having data generated by independent 3rd-party scientists goes over excellently with investors.
The same is true of preclinical drug trials. Planning and executing a full FDA-compliant preclinical study requires a lot of specific expertise that you will pay dearly for if you don’t already have. Suppliers such as Charles River double as contract research organizations (CROs) and have decades of experience with the FDA’s specific requirements for preclinical assays. Using a CRO who can perform the necessary studies at a set price and guaranteed timeline will allow you to demonstrate achievable milestones to investors and save you significant money without the overhead of in-house compliance expertise.
Don’t even think of running a clinical trial yourself if you don’t already have experience! Spend time networking and researching other people’s experiences to find a good partner CRO who will manage the trials for you.
5. Know your worth
As a new startup, it can be incredibly tempting to sign away chunks of your business in return for “free” services and advice. Be very careful with your equity — what might seem insignificant now can turn into a major headache down the road if your business’ ownership is split between too many competing interests.
There are essentially only two reasons ever to give anyone equity in your business:
In exchange for money
In exchange for work
As for (1), your challenge is what your company’s fair valuation is – don’t be afraid to push back on low-ball investor valuations. In the case of (2), it’s a determination of what really constitutes “work.” “Work,” for the lean biotech, means a significant contribution to the business’s development and growth. For the most part, this does not include non-specific business advice, rent, or networking assistance.
Startup accelerators are unique in that they provide both; they invest in your company and contribute value to your business, usually for around a 7–10% equity stake. Especially for those who are new to entrepreneurship, an accelerator can be a transformative experience, so it is worth looking into the various opportunities (IndieBio, Y Combinator) to see if their goals align with yours. Check out the accelerator’s curricula and testimonies from previous cohorts. Participating in a well-run venture accelerator program can add incredible value to your startup, but all programs are not equal. Some ill-defined “accelerators” offer little more than a couple of networking events in exchange for a significant chunk of your equity. Take the time to do some serious homework — if you find a good fit, it could launch your startup to heights you never imagined were possible!