Having put in place the plan for how to take your great healthcare technology so that it is becoming a great healthcare business, what do you do next to grow the business?
By this stage, you will likely have started to penetrate a few key target markets, you will have support from some influential KOLs and there will be regular, albeit low, revenue. So now, all you need to do is grow, right? Surely, that’s just a question of bringing in more salespeople?
In this brief article, Alexander Stanke and Bernhard Gilbey look at some of the things you could usefully focus on to successfully scale-up the business. This is what we call ‘good growth’. Your growth needs to be sustainable and profitable and that’s a much more nuanced balance than just growing revenues!
It is now time to lift your line of sight to a new horizon. For example, are you planning a medium-term exit or are you building the business for the long-term? It is probably also time to begin preparing for your next funding round. Against that background how would you answer the following questions:
- How do you demonstrate that the business can grow profitably, with improving cash flows?
- What is the plan to gain market relevance?
- How will your infrastructure cope with significantly greater numbers of customers?
- What milestones do you need to hit to raise your next round of funding, and is your expenditure aligned to achieving those milestones?
We suggest that there are five building blocks you should look to put in place to achieve good growth:
- Professionalising the initial business model and your go-to-market approach.
- Implementing a reliable operational infrastructure.
- Ensuring you have a robust cash management plan.
- Expanding into additional markets, targeting new opportunities or possibly new commercial models.
- Evolving your strategy – strategy 2.0.
1. Professionalising the initial business model and your go-to-market approach
Scaling up your sales means making your initial commercial processes standardised, more efficient and ideally, digitally automated.
People do have different views, but we recommend that commercial excellence should be combined with the use of business analytics from the outset. This is true even when it seems a bit too sophisticated and cumbersome for your current sales team. Ideally, you should include tools such as customer segmentation and targeting, sales funnel management and win/loss analytics. Without the right analytics you will likely be reliant on instinct and affirmation bias, which are dangerous navigation tools for growing a serious business. You should aim for data-driven sales decision making. Certainly, you should be as pragmatic as you can be in its implementation, but we recommend that you start early. Why? Clearly, you will need this as you grow and the earlier you start, the easier it is to implement technologically but, even more so, culturally.
Develop your commercial team, as individuals and as a team, and always be ambitious regarding your required profile and personality when hiring, notwithstanding the inevitable urgent need and time pressure to grow sales. You are building a world class company. The people who represent your metaphoric shop window need to mirror your company’s purpose and value proposition. Hire the best, even if they are more expensive and it means fewer people initially. We all know that you only get one chance to make a good first impression and if you are not leading with an A-team, it can be very costly to get back in front of a key opportunity. As an aside, we also recommend adapting your incentive plans over time to reflect the changing needs of the business (for example, as the business matures, look to reward profitable growth over simply increased revenue).
Invest in your customer service activities. Not only can you not afford to lose your existing customers, you should be looking to grow revenue from them. We recommend putting in place closed feedback loops and making sure you follow up with users after sales. There are few things more annoying than being asked what can be done better and then seeing nothing change in response to your feedback!
Invest in your marketing communications to build a strong brand; be visible and be seen to be unique. While this is not an article about marketing strategy (that would be several pages long on its own) we suggest that you blend ad-hoc messaging with regular communication. Focus on story-telling that articulates clinical success and health economic progress with business success, all the while ensuring that all of your communication is delivered with a strong emotional connection to the patients’ needs and improved health outcomes. It is worth bearing in mind that visibility in the market also means visibility to your competitors. You’re no longer in stealth mode and you should expect your competitors to start to take action to sure up their own businesses. Be prepared and communicate pro-actively.
Constantly changing your business model can destroy a good business but does the business model need to evolve? You might want to think about piloting new revenue streams (e.g. SAAS, risk sharing models) which can be retained if successful or further adapted if needed. You should also pay close attention to managing your pricing to ensure price stability while gaining further unit growth.
2. Develop your operational infrastructure
Developing your operational infrastructure may not be the most exhilarating part of growing your businesses but it will always be mighty important in delivering sustainable growth. Just like your sales team, you should look to recruit world class operational expertise. There are numerous examples where operational failures have led to product recalls, which can be debilitating for any size of company, but particularly so for a small company just beginning to grow revenue. It is crucial to make sure that your operational infrastructure is fit for purpose. Here are just a few things to keep an eye on.
It’s good to continually refine the internal workflow to meet expected demand: It’s a bit obvious, but you need to ensure that you can get the product “out of the door” when it has been ordered. As you scale-up, you should keep looking to optimise your logistics, in part so you can look for cost reductions as you grow.
Linked to ensuring that you can get your product out of the door and depending on the nature of your product, it is worth investing time in securing supply chain certainty. Remember what happened in 2020 when global supply chains stopped? It won’t necessarily take a global pandemic or a shipping accident in the Suez Canal to halt your supply chain. Personal experience has taught that a local wildfire can have much the same impact. You should develop and establish your second sources as strategic and operational alternates before you need them. As you scale, you will have more patients dependent on your technology and they can’t afford for your supply chain to let them down!
It is unrealistic to expect that every user of your product or service will be 100% satisfied, which means that you need the least painful process for returns and customer queries. Your customer experience should always be one of your highest priorities. Ideally it should be measured, with a properly designed and implemented assessment of your Net Promotor Score.
Patient safety will always be paramount in the healthcare world. It is why there are so many regulations that need to be complied with on an ongoing basis. Growing sales can test your continued compliance with regulatory requirements but don’t be tempted to cut corners. It won’t take you very long to work out how much value you will destroy if, for example, you fail a regulatory audit and have to pause your sales while you correct the errors. With that in mind, you will always want to have your regulatory team’s back when they come under pressure from your sales team to “be pragmatic” about compliance. We would recommend having a strong QMS in place covering not just what goes out of the door, but what comes back in from unhappy customers. Your QMS is there not just because it is a requirement but also because it is a structured way to improve your products and services.
You are a technology company, right? That means you will continually be looking to improve your technology. That’s great but you will also need systems in place for managing product upgrades, whether that’s retiring earlier versions finding suitable times and methods for implementing software updates without denying your patients access to the technology and possibly managing your inventory to minimise wastage.
Personal experience also leads us to mention two things that we would recommend that you keep a watchful eye on as you grow the business:
- ensure that your software and systems have been geared for higher user numbers and the inevitable increase in the amount of healthcare data you have to handle, and
- invest whatever it takes to properly secure your systems against cyberattack. With success will come greater profile. With greater profile will come an increased likelihood that someone will look to launch a cyberattack and hold your business to ransom. This is not a topic where you want to find yourself closing the stable door after the horse has bolted
As you meet potential new customers, it is so tempting to want to tweak your technology so that it operates just how that new customer wants it to. After all it’s a new customer, right? We would recommend that you steer clear of too much customisation. Not only will it create too many variants, but you are also creating a problem with having to separately maintain and update lots of slightly different versions of your product. How much manpower will that take as opposed to managing your complexity intelligently (i.e. drive towards a toolbox approach and think beyond a “one customer” deal) while you scale up.
3. Managing the cash!
There can be a lot of cost involved in scaling up. Managing your scale up, whether that’s growing your sales team, ensuring that you have a suitable operational set up, managing supply chains, continuing compliance with regulations or ensuring that you have a stable and safe software infrastructure to cope with growing patents numbers and data all costs money.
With all of these costs, great care is needed to make sure that the cash is being very carefully managed. How is this growth being financed? A not uncommon problem is growing sales too quickly such that there is insufficient cash to finance everything else that needs to keep up with the increased customer base. This is known as overtrading. A few thoughts on how to avoid this problem include:
Ensuring you get paid. This actually has several limbs. Have you checked the creditworthiness of your customers? This may not seem like it should be a problem in healthcare but, particularly if you do business directly with patients it can be an issue. However much you want to help patients, if they can’t pay and you are a young business, supplying “free” products will squeeze your already tight cash resources even further.
The other limb is ensuring that you have good credit control, making sure you know who owes what and that they get chased-up to pay on time. As a small business, this can be challenging, not least if you are waiting to be paid by one of the state funded healthcare providers like the NHS or CMS. You don’t have much bargaining power but equally, you can’t afford (quite literally) to let this credit build up.
You will very likely be encouraged by potential new customers or providers to carry out a pilot study with them before moving to a commercial basis and scaling up. The challenge for you is to work out which ones are really worthwhile, and how many pilots you can afford to undertake. As is so often the case, the road to success is littered with the opportunities you declined as much as the ones that you accepted. Choosing which pilots you can afford and how many, will likely involve you turning down some of the opportunities that come your way.
On the other side of the ledger, what can you do to slow down the money going out of the door? There’s always a tension between smaller supply orders (which equals higher unit cost) versus larger orders (which equals lower unit costs but results in a bigger impact on your cash operating cycle). This is one of the more difficult balancing acts for a small company. One thing we’d recommend is a very open and honest dialogue between your sales team and your inventory managers and finance teams. You might find yourself arbitrating the inevitable exuberance of your sales teams with the likely caution of your buyers and finance teams. Another small thing to take account of as you negotiate your supply terms, is to look for the maximum credit terms you can. You should then use whatever good terms you can negotiate to help you manage your cash flow. Of course, as you become more successful and therefore a bigger and more important customer for your suppliers, you can look for ever better credit terms to help you finance your growth.
4. New markets, new opportunities
As we said earlier, you are trying to build a world class business or, as a minimum, the foundation of a world class business. That means that you will need to look at new markets beyond the ones you have initially been successful in. As you look for those new markets, how can you use the learning from the initial market launches to adjust and improve the approach going forward? There are bound to be things that worked and things that didn’t at the outset. It’s worth taking a bit of time to capture what worked and what didn’t as you look at taking on new markets, for example in the processes you use to launch your product in new markets.
In the same way that you looked at ensuring you were focused on the right market based on objective criteria to determine where to target your early efforts, you should look at carefully defining your market entry plan for new territories. It will be helpful to stay focused on market attractiveness but always with an open mind to opportunistic possibilities that land on your desk. These will need careful thought and, possibly some adjustment to other things that you are doing but you can’t plan for everything – just look at those companies that had to switch direction to make the most of the pandemic.
As a final thought on new markets, it is often worth taking some time to identify and work with partners in adjacent spaces. For example, does your technology open-up opportunities to work with third parties in remote patient monitoring or with pharma companies if, for example, your technology may facilitate greater efficacy or supporting their drug trials because using your technology gives them better line of sight on the real-time impact of their therapeutics? You have the benefit of being small and that should offer greater agility in reacting to new opportunities. Having said that, you will need to be careful not to get distracted by every new shiny toy that comes your way! Your investors will quickly become very frustrated if you can’t hold a steady course, which means saying “no” to some of the opportunities that come your way.
5. Evolving you Strategy – Strategy 2.0
You already know that you can’t stand still with your technology. Competitors, both old and new, will look to introduce new technology that seeks to trump yours. Not only is this true of your technology it will also be true for your strategy. As they say in the military, no strategy ever survives contact with the enemy.
With that in mind, you should adjust and further develop your product and solutions portfolio based on market learnings and dynamics, all the while building on your core technology and your developed core competences. This is almost certainly the foundation of your differentiated proposition. However, you might need to think about whether you should stop doing something after the initial phase. There are many businesses that have started down a path to revenue and profit only to find that there’s actually a better option and adjusted accordingly. For example, should you stay as technology provider for a medical diagnostic or adapt to become a service business and cover more of the clinical value chain. A really good example of a company that had to rethink its business model is to look at the original Google revenue model and how that changed to what it is today.
As raising money for young medtech companies is almost a full-time job, don’t forget to update your strategic story and pitch deck. This will help you maintain a dialogue with potential strategic partners and keep you ready to discuss your plans with new investors you come across on your journey.
Scaling-up to achieve good growth
At its core, scaling-up in a way that achieves good growth means putting in place today the building blocks that will enable you to operate at scale. As you grow, you will have less and less time to react to issues and problems and to make individual decisions for each situation that arises.
The adjustment to your growth phase means developing your skills from being a technology developer, engineer or scientist to becoming more commercially minded, focusing on increasing revenue, generating profit and delivering increasing value for your business.
We have suggested five of those building blocks which, together, will help you achieve good growth and build substantial value for your great technology.