Archive for the ‘Entrepreneurship’ Category

From 9 Billion to Zero?

Saturday, August 27th, 2016

We all know that the path to become an entrepreneur is a very difficult one. To build a company from the ground up, getting Investors on board, the Midia covering and all the fuzz around is like a rollercoaster. The most important part of becoming an entrepreneur is to create value, building a product and/or solution that could be applicable and used by society. Lately, we have seen a wave of hot startups, mainly in the digital and IT space, some of them with high valuations. Creating internet companies is relatively easy. All you need is a computer, IT infrastructure and a new idea and to build a new platform or a new app. In Biotechnology, the path to entrepreneurship is totally different. Biotechnology is defined as the manipulation (as through genetic engineering) of living organisms or their components to produce useful commercial products (as pest resistant crops, new bacterial strains, or novel pharmaceuticals) or simply the use of living cells, bacteria, etc., to make useful products (such as crops that insects are less likely to destroy or new kinds of medicine). Another area of biotechnology and life sciences that has grown is the diagnostics sector. The idea is to develop new tools and solutions to make disease diagnosis fast and easy. That is where the company Theranos got in. In this blog post, I will discuss how company valuation, especially in the biotech space is volatile. Elizabeth Holmes is a Stanford drop-out that created a new way of doing blood tests for various diseases using a “nano” tube so patients could avoid needles and all their hurdle. The company she created is Theranos and is an American privately held company doing health-technology and medical-laboratory-services which include disease diagnosis based in Palo Alto, California. Theranos also developed a blood-testing device named Edison, which is basically the hardware of the company product. The company claimed that the device uses a few drops of blood obtained via a finger-stick, rather than vials of blood obtained via traditional venipuncture, utilizing microfluidics technology. By the summer of the year 2014, its founders had raised over U$400 million dollars from several investors, valuing the company at U$9 billion. Interestingly, Elizabeth owned 50% of the company, making her a billionaire with a net worth of U$4.5 billlion dollars. The company operated for years in near-total secrecy, despite raising hundreds of millions of dollars. Holmes became a Silicon Valley celebrity, appearing in the Cover of several magazines, including Fortune, Forbes and she was a regular on the tech industry conference circuit. Her company, which claimed to perform dozens of lab tests on just a few drops of drawn blood, seemed poised to revolutionize healthcare and was talked about as a 2016 IPO candidate. Where is the big problem in all this history? How can a company claim that it has exclusive technology that will solve all the problems in diagnostic blood tests? The simple answer is that Theranos did not publish a single peer-reviewed article, it did not publish any Intellectual Property (Patents, for example) and never showed any results to the Scientific Community. It mainly worked in what we call Industrial Secrecy. Well, totally fine right? Not that easy. In the last 6 months the company lost value and credibility since the pressure to show results increased and they were not able to “deliver”. The negative midia coverage helped the company sink. Some articles were published, analyzing and comparing side-by-side Theranos’ technology with big diagnostic companies that are already well established in the market and their results were not good as expected. A company that on paper had a U$9 billion dollar valuation went down on spiral and now it is difficult to give it a “real” value. From billions to almost nothing in months. That is how it works when a company is created without true values and no transparency. What’s next for Elizabeth Holmes and Theranos? She lost the CEO position and the Investors are trying to “save” what is left. The company is being scrutinized now by the Scientific Community and by the Midia, the same one that placed her on a pedestal. Let’s wait and see what is going to happen but the outcome does not look pretty. Check this interesting Infographic/Cartoon on the company trajectory from Nine Billion Dollars to Zero.

The StartUp Ecosystem in Brazil

Thursday, January 21st, 2016

by Juliana Saldanha, Marketing Director & Vinicius Roman, Project Director

@Techmall S.A.

Before we delve into our discussion in this post, it is important to understand what is an ecosystem. In biology, ecosystem is defined as a biological community of interacting organisms and their physical environment. In our case, we will discuss the Brazilian ecosystem of startups as a complex system, composed of a set of actors (entrepreneurs, startups, universities, government, incubators, accelerators, etc.) with specific roles and motivations, which interact to develop innovation and high value-added businesses. According to the survey “Fostering the Startup and Innovation Ecosystem“, successful ecosystems must have five main ingredients to leverage the success of startups: (i) talent, through the development of human capital to build and maintain a working force able to build businesses and innovate; (ii) density, since by increasing the density of thinkers and talented entrepreneurs, it is possible to dramatically increase the potential for successful ventures; (iii) culture, highlighting entrepreneurs as role models, accepting failure as part of the process of learning and teaching entrepreneurial skills; (iv) capital, both for beginners and for those who need to scale, noting the fact that intelligent capital really makes a difference to the business and (v) a stable regulatory environment, predictable and supporting both the entrepreneurs and investors. In line with this context, the Organization for Economic Cooperation and Development (OECD) defines six categories that influence the performance of entrepreneurial ecosystems. Analyzing these six categories in relation to the Brazilian ecosystem, Arruda et al. (2015) come to interesting conclusions. First, the regulatory framework should ease the bureaucratic barriers to the development of new business, especially when we talk about startups, since the dynamism to speed up this type of business and the processes that sustain its rapid growth are critical success factors. In Brazil, however, the laws are very outdated and the bureaucratic barriers are alarming. Thus, companies that break the traditional patterns providing products or services with innovative business models require many efforts to prosper. A recent case is of the startup Shippify  who received a Post Office statement to terminate their activities. In addition, the labor market is extremely protective and rarely flexible and entrepreneurs face many difficulties to open their businesses, and the shutdown process is very laborious. With regard to market conditions, despite the adverse moment that the country is right now, we can still have a relatively optimistic view regarding the possibility of attracting new business and technology. Companies that develop innovations abroad have great interest in Brazil because of a determining factor: the size of the country’s market. In addition, the number of startups has grown significantly  (18.5% in just six months), showing that this movement tends to go against the crisis. In the case of access to finance, in Brazil there has been a gap between the initial capital, funded mostly by the government, and venture capital funds, which operate with greater emphasis in the later stages of business development. Despite the supply of capital in Brazil, there is still uncertainty among investors to invest in fledgling businesses with high risk. Moreover, considering the current level and the country’s interest rate, conservative investments gain strength against investing in startups. In this context, Silvio Meira  highlights that Brazil has created a startup industry without creating a venture capital one, resulting in a chaotic environment (for more information read the article at the Brazilian Newspaper “Folha de Sao Paulo“). Considering the category creation and diffusion of knowledge there has been an intense generation of knowledge, but with a shy application on the market. The science in Brazil still depending largely on public money (more than 45%) and researchers are, mostly at universities. Regarding entrepreneurship, the OECD highlights two elements: (i) the presence of focused education for entrepreneurship and (ii) migration able to bring skilled foreign labor into the country, sharing ideas and entrepreneurial skills. Considering the first element, it appears that education focused on entrepreneurship is rare in Brazilian educational institutions, which have a greater focus on training employees and not employers. As for the second element, there is a lack of attractiveness to welcome foreigners and possibly retain them in the country, limiting the flow of knowledge according to UNESCO Institute for Statistics. Regarding the entrepreneurial culture, there is still a fail-resistance and, consequently, an aversion to risk, a fact that limits access to private funding for startups. To make matters worse, the short-term results by pressure can shift the focus of companies and inhibit business with high potential, but they need a longer time to perform (for example, in the healthcare field). Thus, the entrepreneur’s figure arises guided by the need, while it should be guided by opportunity. These reflections lead us to believe that it is possible to build a stronger entrepreneurial ecosystem in Brazil, but many changes are needed and there are several challenges ahead. We are fighting for this to happen and we know there is no victory without sweat. We are Brazilians and never give up!

Innovation and the Western Business Model

Sunday, August 2nd, 2015

Adapted from a Post by Arthur Gogatz from the World Innovation Team

The Western Business Model (WBM) has been used for centuries. It describes the way the world traditionally does business. The foundation of the WBM is that business is war. Anything you buy helps someone and equally hurts someone else. If you buy products from Company A, it’s good for that company, for the owners and their employees and families, but it’s bad for all their competitors and for the employees and families of those competitor firms. A few years ago I visited the Wharton School of Business at the University of Pennsylvania in the USA. It was the first day of classes for their MBA Program and on the desk of each student was a book, which the school was giving them. It was the first one they were going to read. The title of the book was “The Art of War”, which is a book written centuries ago by Sun Tzu, a General in China. It’s about warfare strategies. Since business is war, the successful firm traditionally resembles the successful military unit in structure. One of the basic principles business takes from the military is: individual employees (including the managers) and individual customers are not important as individuals. Traditionally in warfare the individual soldier was not held to be important. Men were in fact called upon to sacrifice their lives for the preservation of the nation and usually the country with the largest army won the battle and the war. What was essential was to win the battle. Casualties were expected. In business, no individual employee is crucial to the firm’s success, not even the CEO. This is because in the army if an officer is killed, the battle continues and other soldiers step up and take command. Two classic examples in business are Steve Jobs of Apple and Howard Schultz of Starbucks. Schultz worked for Starbucks, when it was only a retailer of whole bean coffee. Schultz urged them to open coffee bars, which at that time didn’t exist. When the management of Starbucks declined, Schultz quit and opened his own chain of coffee bars, and named them “il giornale”. After success, he returned to purchase Starbucks, mainly because he recognized that “Starbucks” is one of the best names ever, (in English) for a company. Jobs started Apple and built it into a successful company. Eventually both Jobs and Schultz ran afoul of their boards of directors and were booted out of their own companies. Under the WBM no one individual is more important than the firm. In ironic twists both Jobs and Schultz later returned to take command at the same companies which dumped them. The military advises soldiers not to get too close to others in their unit, because you may have to watch them die. This is especially true for officers, who need to send men into battle. The WBM stresses not to be friends with your colleagues, because if they leave the firm, they’ll probably wind up at the competition. Yesterday that colleague was your friend, but tomorrow they could well become your enemy. Colleagues may get sick or even fired but the firm must go on. Rules, regulations, orders, obedience, uniforms, titles, chain of command. That’s the military but it’s also a firm. Flow charts, business attire, tell the boss what he wants to hear, office culture, titles, it’s much the same. Why is the direction of a firm always located on the top floor of a building? Does it help the managers to be up there? Are they able to see things more clearly by being physically above their lower ranking colleagues? With smartphones, laptops, tablets, and apps that let us teleconference and instantly communicate, the average businessperson today can work anywhere, including remotely at home. Why then do most firms still demand that employees use a sick day or a personal day if they are going to be away from the office? “If you’re not here, where I can see you, I assume you’re not working” is the prevailing way of thinking.  It might be tradition, but it’s also a lack of trust, and trust is the most important word in any relationship. Companies today continue to try to control everything within their reach, but when you teach people creativity the first and most important thing you do is try to get them to stop trying to control everything. The desire to control everything kills your creativity because it reduces the size of your world to a size you can cope with, (handle) and unfortunately that’s a very small, limited world. Unfortunately, the Western Business Model opposes Innovation. In order to make people in a firm more creative you’ve got to weaken the grip of the WBM. Any firm, which emphasizes control will never innovate. The only way to teach people to be highly creative, (regain the full and vibrant creativity they had as children) is by getting them to open up rather than by encouraging them to build defenses, by getting them to take risks rather than rejecting new things and people, and by getting them to stop trying to control everything and everyone. Systems, rules, procedures, business chic, titles, time clocks, all come from the Western Business Model which is based upon a progressively outdated military system.

A Tale of a Scientist turned into Entrepreneur

Thursday, May 14th, 2015

I once read that entrepreneurship is a combination of science and art. In some ways this is true. The main principle to be a Scientist is to create a hypothesis (or several) based on what is already described and somehow change the “status quo” and/or “invent” something new that will become a Thesis. In science, the final product, in general, is the scientific publication. In fact, that could become an Intellectual Property (IP) if the discovery has an application in the market (sometimes even not having a direct application, researchers patent specific methods and discoveries just to be “protected”; academia is highly competitive). Starting a company has some parallels to a Scientific Project: 1) you need lots of energy, creativity and knowledge; 2) Using this knowledge you need to ask questions; 3) You have to “create” something new that needs to be impactful (a new hypothesis, for example); 4) Based on the “creation” you need to test that hypothesis; 5) The hypothesis needs to be experimented (a new product in the market for example) and 6) a review of the data collected and a conclusion needs to be “drawn”. The same rules and principles could be applied in both science and to start a company (for more information check “The Scientific Method for Entrepreneurs: 6 Steps to Long-Term Success”). In some cases, you even need to pivot when the scientific project and your hypothesis proves to be wrong. Well, in some ways, this is my story – a scientist turned into entrepreneur. Not an easy task and I am still on it. I started my career with dreams of becoming famous and even winning a Nobel Prize (so naive at that time…). I did a Bachelor’s in Biology with a Major in Biochemistry, then a Ph.D. or Doctorate in Genetics (specifically in cancer epigenetics) and then moved to the United States to do a Post-Doctoral training (if you did not read my Intro in this Blog I am from Brazil and lived in the United States for 10 years). In summary, my academic professional life was: Bachelor’s Degree, check; Ph.D. in one of the best places in Brazil, check; Post-Doctoral training in Boston at Harvard University, check. After that, I’ve moved to Chicago and did a second Post-Doctoral training. That is when things started to change and the fairy tale became more like a nightmare. Unfortunately, when doing my second Post-Doctoral training at Northwester University the economic crisis hit the United States (around 2008-2009) and funds for research got slim. In parallel, to help cope with my deep frustration with the scientific system and how it became broken (for more information on how the scientific system is broken check my blog post “Science is Broken: How, Why and When?”), I co-founded a company and got involved in several company Incubators, Accelerators, Mentoring, etc, entering a new world that was totally different from the Academic System I was used to. What have I learned transitioning from academia to starting a company? I’ve learned that Innovation is the key connection between Science and Entrepreneurship, BUT this is applied differently in both fields. Why is that? Can we try to innovate academically and privately with similar outcomes? It depends. Academia expects that the ideas you generate and test with hypothesis to get public with scientific publications of articles (sometimes with patents) and startups (and the private sector in general) expect that the ideas that become “products” have legal protection before getting out to the public (companies are for profit in a world of capitalism). In my case, I continue to navigate both worlds since they have parallels. The bottom line is that it is possible to develop something impactful in Academia and transform that in a successful company. In doing that you can disrupt a market or create a new market. For example, Elizabeth Holmes, the founder of Theranos, envisioned a way to reinvent old-fashioned phlebotomy and, in the process, usher in an era of comprehensive superfast diagnosis and preventive medicine. That was a decade ago, when Holmes dropped out of Stanford University and founded Theranos with her tuition money (check the article about this history here “This Woman Invented a Way to Run 30 Lab Tests on Only One Drop of Blood”). Her company now is worth U$ 9 Billion Dollars and she innovated creating new and cheaper ways of doing blood tests. This is an example of success. I am still trying to find the key to success applying the academic knowledge into entrepreneurship. Maybe one day I will find my way. Who knows?