We have seen many companies in the life science space attempt a commercial launch like a ski jumper who forgot to bring along his or her skis. Sure, the boots were fine to get to the top of the mountain, but they are not what’s needed for the vertiginous flight ahead, much less a smooth landing. There are a number of commercial questions that often don’t get asked until way too late in the game. They can have major impact on product design, commercial execution, and ultimate success if thoughtfully considered ahead of the game.
How do you get customers to want it?
As a note to readers, we debated putting this first point in, but having witnessed companies behave as if it wasn’t on their to-do list, we decided to go ahead and state the obvious...
Assuming a killer product launch article and Twitter storm will drive in the business? Think again. It takes a fair bit of planning and work to effectively drive the bulk customers to the point of readiness to purchase. This means time and money spent before the revenues start rolling in. Many a company gets lulled into the Field of Dreams approach - “if we build it, they will come” - due to a few eager collaborators/early adopters, only to find they can’t hit their revenue targets beyond those first, easy sales. So be sure you have a focused marketing plan and budget well in advance of product launch, segmenting your customers and how to reach them, so customers are ready to buy when you have something to sell.
How are you going to sell your product?
Would you rather purchase anti-fungal cream from an eager salesperson or just pick out what you need at the drugstore? Do you want to buy a car sight-unseen, or is a test drive important? Will selling your product require a personal touch to close the deal? Can it be sold online, over the phone, through a catalog, via a distributor, in a store? How you plan to sell your product can influence how you design it. And if you need to build your own salesforce, it will take time, effort, and money to build the right organization. Even in this super-connected world, it may still require a personal touch if you’re selling high-complexity capital equipment, so carefully weigh the pros and cons of different strategies, so you understand the financial and broader strategic impact of your choice. Then make sure you budget the time and money to successfully execute.
What’s the right price?
What is the nature of price elasticity in the market you serve? Is your primary goal ubiquity or a near-term, profitable business? If you are an early stage company, what is your plan for future fundraising? These questions (and many others) have major impact on your needs for sales volume, revenues, and gross margin. And these requirements have direct implications for both pricing and the COGS (cost of goods sold) your product can support.
We are all familiar with the ubiquity play, in other words, get as many users as possible and don’t worry about making money until later (think of the early days of your favorite social media company). Ubiquity is easier when your cost per incremental user is vanishingly low, but it still can be a valid strategy where markets are “winner-take-all,” your company has deep pockets, and a path towards profitability. But if you are selling something that is costly to produce, chances are you will have gross margin requirements from the start.
You also want to make sure customers value your product (“you get what you pay for”), and that you understand the barriers and opportunities you create with either heavily discounted or ultra-premium pricing. Does a higher price mean that more levels in the organization have to sign off on the purchase? Do customers require a funding cycle before they can buy? How will the competition respond to your pricing?
Having a pricing strategy from the start will help guide your development strategy to meet the COGS requirements as your business evolves, will shape the way you interact with customers, and yet often doesn’t receive the early consideration it deserves.
How are you going to support your customers?
If you couldn’t start your new car, and the dealer told you to read the manual, would you be happy? If you purchased a new armoire, and it came with 200 parts but no instructions, would you be a satisfied customer? Does your product work right out of the package? Is some kind of special installation required? Do you need an expert to set it up and train new users? Which parts of support and training could be self-service? Designing for supportability will have major impact on the scale and costs of providing customer support, not to mention customer satisfaction. Sometimes simple things that provide unconscious cues on how to use the system (like making components easy to pick up in only the right orientation) can dramatically increase customer success and lower support costs. So make sure you perform a detailed study of how different customers will install and use your product, find ways to delight your customers and make your life easier -- they are often one and the same -- and plan your support strategy.
What is the customer purchase cycle?
How long will it take customers to buy your product? Who influences the decision? If you start to understand this, you can prepare for the time and work needed to close sales, and address concerns of the influencers in advance. Are there facilities requirements that could delay a purchase? Do you need to demonstrate a particular ROI to get buy-in from finance? Is a granting cycle required to get the necessary funds? Identifying these questions well in advance can streamline the purchase process down the road, and provide you a realistic sense of revenue ramp.
What will your competitors do?
You know that your product concept is better than anything on the market today, but how will your competitors react once you launch? If they have deep pockets and a strong sales channel, they might be able to hold off a newcomer in the marketplace until they launch their next-gen product. If you build a thoughtful product roadmap, you’ll know what it will take to accelerate things in the pipeline if need be, and can share aspects of the roadmap if you really need to. There is risk in telling the world about your plans, but sharing your future vision with certain key customers may be just what is needed to fend off an aggressive competitor. Vendors with deep pockets may also use price or discounts (to the extent allowable) to starve out any newcomers, so be prepared to sell your customers on the superiority of your product, your long-term vision, and the near-term total costs of using something less evolved.
Do you plan to sell into regulated markets?
This question has both strategic and tactical implications. Are you willing to put in the extra time, money, and effort to reach a regulated market out of the gate? Will the market be ready to adopt your product if it hasn’t graduated from the research market proving grounds? If it is a diagnostic test, should you launch as an LDT, or are you planning an approved IVD? And who is going to pay for your product or service -- a health plan, hospital system, patient, doctor’s office? Are you funded to get through clinical utility and health economics studies to drive adoption and reach favorable reimbursement decisions? Make certain you understand the regulatory and reimbursement landscape before you plan your development and revenue cycles.
What evidence will be compelling to your customers?
Selling to scientists, clinicians, or other data driven decision makers? Having the right set of compelling, peer-reviewed publications can be critical to give them the confidence and justification to purchase. Yet we’ve seen many companies wait until after a product is launched to start working on the key publications that will be critical to convince skeptics and drive adoption. So plan in advance to generate the data needed, and make sure your most compelling arguments are backed up by your publications.
What is your exit/capitalization strategy?
If you’re a small company, are you trying to grow organically, without investment? Are you just trying to make enough revenues to survive to the next round of funding? Are you planning an IPO? Are you aiming to reach break-even (or even profitability)? Is your primary goal to prove the product has legs and then make a quick exit, or are you growing this company until death do you part? In addition to the obvious commercial considerations, these questions can greatly influence how you design and build your product, not to mention your overall commercial strategy and organizational structure. For example, if you anticipate an acquisition by a partner with manufacturing expertise, then you may be able to pick and choose the manufacturing challenges you need to address today. If you’re in it for the long haul and don’t expect help from a partner or acquirer, then developing the capability to manufacture at scale may one of the most important skills you need to build (and budget for). But whatever the case, thinking about this in advance will let you make intelligent resource allocations and design decisions.
Too often we have witnessed brilliant scientists, engineers, and clinicians focus their passions on bringing great technologies to the world, only to be blindsided by the realities of entering a commercial market. But with some early attention to commercial strategy, those technologies can have the best chance to become revolutionary products.