T. Joseph Mattingly II, Juita-Elena (Wie) Yusuf, MBA, PhD, and Joseph L. Fink III, BSPharm, JD
Mr. Mattingly is a fourth-professional-year
student in the PharmD program
at the University of Kentucky, College
of Pharmacy, Lexington, and is dually
enrolled in the university's MBA program
at the College of Business and
Economics. Ms. Yusuf is assistant
professor in the Department of Urban
Studies and Public Administration at
Old Dominion University, College of
Business and Public Administration,
Norfolk, Virginia. Dr. Fink is professor
of pharmacy law and policy at
the University of Kentucky, College of
Pharmacy, Lexington.
A pharmacist in Philadelphia
launches a program to provide
pharmacy services to hospice
patients nationwide, leading to a buyout
of the firm by Omnicare in 2005
for $269 million. While on an educational
rotation, a student pharmacist
with a computer science background
identifies a way to greatly improve
the inventory reordering software of
a major pharmacy chain.
A New Jersey pharmacist sees an
unmet need for compounded medications
leading to the development of a
40,000-sq-ft compounding pharmacy
serving human and veterinary patients. A
student pharmacist approaches a professor
with an idea for an improved child-resistant
closure for prescription vials.
Do you have a similar entrepreneurial
idea that could be commercialized?
Many small businesses and start-up
companies begin with an idea of just
one person who thinks the idea can
be profitable. Many pharmacists see
opportunities for the improvement of
pharmacy systems or mechanisms that
could improve their current practice
setting or maybe an advancement that
could affect the way the entire profession
practices on a daily basis. The
question is not whether you have an
idea, but if you have an idea, how can
you turn it into a marketable product
or service? This article—along with
additional tools and advice featured
exclusively on the Pharmacy Times
Web site—is designed to
help those who would like to answer
that question.
Crystallizing Thinking: The
Business Plan
Table |
Elements of a Business Plan
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The typical contents of a business plan include the following:
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? Executive summary
? General company description
? Products or services of the firm
? Marketing plan
? Operational plan
? Management and organization plan
? Personal financial statement
? Start-up expenses and capitalization
? Financial plan
? Appendixes
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Adapted from the Service Corps of Retired Executives
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An early critical step in the commercialization
process is to think through and
put on paper a plan to get the invention
or innovation from the idea stage to the
marketplace. A primary value of the
business plan is that it forces a person
to crystallize his or her thoughts and
to be realistic in projections, providing
estimates that can be defended to others.
It also documents that the person is
serious about this effort because of the
time and thought that went into formulating
the plan. The business plan will
be critically evaluated by others—most
particularly potential investors—and it
needs a dynamic design, as it will probably
be modified numerous times as the
effort moves forward and grows. The
Table illustrates one method for a business
plan, as suggested by the Service
Corps of Retired Executives (SCORE).
Numerous resources are available on
the Internet to assist with preparing a
business plan, but often it will be beneficial
to meet with a guide or mentor
to assist with the preparation process.
Common sources of assistance include
your local small business development
center or retired business executives
who are willing to share their accumulated
expertise through a local office of
SCORE.
Intellectual Property
Many start-up firms do not have extensive
equipment or other physical assets;
their most important assets are intellectual property, not physical, tangible
property. Patents, copyrights, trademarks,
and trade secrets are collectively
known as intellectual property (IP). A
full discussion of the legal issues with
IP is beyond the scope of this article.
The best advice is to work with a local
IP attorney to protect these important
assets of the firm. Securing full and
appropriate protection of IP will be
a very important factor assessed by
potential investors in the enterprise.
It should be noted that if the inventor
teams with a faculty member at a local
university to work on the invention, this
may create an ownership interest for
the collaborator, as well as for his or her
institutional employer. Or, if you secure
funding for your innovations from organizations
or foundations, you should
review carefully the funding agreements
to ascertain whether the funder may
later assert some ownership interest.
At this point, some may be thinking,
"Why go to all the trouble of pursing
commercialization myself? Why not just
contact ?Big Company X' and sell them
my idea?" The answer to that lies in
the fact that such overtures are usually
rejected quickly by large firms. The reason
is that their in-house research and
development staff may already be working
on such an invention, and talking to
someone outside about it may leave the
firm open to a later allegation that Big
Company X stole the idea. As a result,
letters or other communications bearing
such suggestions are automatically
returned by large firms with no follow-up
or investigation.
Financing the Idea
Internet Resources
Selected Internet resources include the following:
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Once the idea has been fleshed out and
a business plan developed, it is time to
start thinking about acquiring sufficient
capital. The first place to look is any
personal assets available to go toward
the new project. This does not mean
moving all your retirement funds over
to the business account, but being passionate
about the idea should lead you
to assume some financial risk.
The next likely source for funding
is known in the field as the "3 Fs of
Financing"—friends, family, and fools.
In the early stages of a business, entrepreneurs
may need help from the people
around them—perhaps those who know
firsthand of the individual's unique abilities
and dedication to the project.
Although you can go to your local
bank to apply for a business loan,
bank lending officers are typically ill-equipped
to evaluate early-stage entrepreneurial
ventures and are more wary
about providing loans. Another potential
source is the US Small Business
Administration (www.sba.gov), which
offers a portfolio of different start-up
loans and has offices distributed across
the country.
An individual applying for a small business
loan should be able to answer—in
detail—important questions like: How
much capital do you need? Where is
the money going (eg, toward operating
expenses, prototype development,
testing and validation, advertising and
promotion, etc)? When will repayment
of the loan be expected?
When dealing with sources of potential
funding, it will be important to have
2 key components in your communication
plan for the undertaking. The first
is an "elevator pitch," a brief but enticing
description of a product or service
designed to be delivered in a short time
span equivalent to the time spent riding
an elevator. The second is a PowerPoint
presentation about the effort that runs
15 to 20 minutes in duration. This would
be used in forums where more time is
available to describe the plan.
Sources of Assistance and
Business Expertise
The budding entrepreneur has great
knowledge of the invention or innovation
but may have little firsthand
experience with launching a business
enterprise. Fortunately, a number of
sources of business assistance exist to
help, such as the local Small Business
Development Center of the SCORE
office. Other resources include technology-
based business incubators or local
universities or colleges that may provide
such consultation or assistance services.
These last entities also may be able
to assist with construction of prototypes
of the product being developed.
The Internet is a very useful tool for
obtaining information about pursuing
commercialization of an idea. It can be
used to find out whether someone has
already invented what you have in mind,
can assist with market assessment and
business planning, and can provide
insight about dealing with potential
investors (Box).
Conclusion
The thrill and excitement of launching
an effort to take an idea through
to commercial success may create an
impatient feeling that could cause you
to make decisions that create financial
problems later in the process. Having
a well-thought-out business plan can
be critical to the eventual success of
the task. Great financial rewards can
flow from such a project, but they are
associated with some degree of risk. It
is important to prepare thoroughly and
obtain sound legal advice and sufficient
consideration of how your involvement
in the initiative will end to protect yourself
and your assets, while positioning
the quest to succeed.
More Funding Sources to Start Your Business
The following resources also are available
to secure start-up funding:
State-Level Science and
Technology Grant Programs: For
ideas with an advanced science or
technology aspect, as opposed to an
improved business process. Examples
include the Kentucky Science and
Engineering Foundation Research and
Development Excellence Program and
the Indiana 21st Century Research and
Technology Fund. These programs appear
to be very supportive of innovations
in the health field.
Small Business Innovation
Research (SBIR) or Small Business
Technology Transfer (STTR): These
federal government grants assist with
funding early-stage innovations by
small businesses that meet the criteria,
such as significance, appropriate
conceptual framework, novel concepts,
scientific environment or evidence of
organizational support, and having an
appropriately trained investigator. A
number of federal agencies participate
in these programs, with each emphasizing
topics of interest and importance
to its mission. Each agency has its own
Web site to discuss its SBIR/STTR grant
program, but central sources of information
can be found at the Web sites
of Zyn Systems, www.zyn.com/sbir, as
well as the US SBA, www.sba.gov/sbir.
Bridge Funding: A number of states
have programs to financially support
development of grant applications for
these programs and to provide this
funding to assist with gap periods in
the flow of such funding. Some states
also have grant-matching programs for
these SBIR/STTR federal funds. These
programs have 2 advantages. First, they
offer grants, meaning that repayment
is not required as would be with a
loan. Second, the applications are peer
reviewed, so securing funding means
that someone knowledgeable in the
field thinks you are on to something
worth pursuing.
Angel Investors: A major funding
gap can come up between the initial
funding of a business initiative and getting
it to a point where venture capital
investors might view it as an attractive
investment. Fortunately, an affluent
group, known as angel investors,
may be able to meet this need. Angel
investors provide start-up capital for
companies in exchange for ownership
equity (ie, they become part owners
of the enterprise). Angels are typically
wealthy individuals who invest part
of their portfolio in young companies
in an attempt to find the next "garage-to-Wall-Street" business like Hewlett-Packard, Microsoft, or Amazon.com.
Starting with a contact at the local
small business development office can
be a good way to get plugged into these
resources. Frequently, such wealthy
individuals keep their identities and
investment interests confidential so that
they will not be swamped with individuals
seeking investment funding.
Often, these angel investors are
organized into angel investment clubs
to share the risk, as well as to draw
on the expertise of others who have
knowledge and experience in fields
other than their own. The Angel Capital
Association's (ACA's) Web site (www.angelcapitalassociation.org) provides
a directory of angel groups that are
members of or affiliated with ACA that
can serve as a good starting point for a
search for this type of funding.
Pre-Seed and Seed Funding: Another
designation of funding the innovator
will encounter is "pre-seed" and
"seed" funding. Pre-seed funding is
used to finance activities directed at
establishing that a new technology has
a certain level of commercial and technical
viability to attract investors. These
activities often include assessing the
market, developing a business plan,
and creating a working prototype of the
invention.
A common estimate of pre-seed funding
is between $5000 and $20,000. That
general category of funding is followed
by seed funding used to help a business
develop an idea, create the first
product, and market the product for the
first time, typically when the initiative
is around a year old, and the leader has
never before created a product or service
for commercial sale. (www.businessfinance.com/seed-funding.htm).
Venture Capitalist Groups: The
next major source of business funding
is venture capitalist groups. Like angel
investors, venture capitalists provide
capital to new companies in exchange
for a share in the business. They also
may provide professional advice and
take a more active role in some of the
company decision making in addition
to acquiring equity. They nearly always
will seek at least 1 seat on the firm's
board of directors to help monitor and
manage their investment.
Venture capitalist groups seek investments
that are too risky for standard
capital markets and loans, and because
of that, may yield very high rates of
return. The trade-off, however, is that
venture capital funding and influence
can greatly help to get a product to the
market faster. Additional information
about venture capital and sources of
venture capital can be found at the
National Venture Capital Association's
Web site, www.nvca.org.
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Key Terms and Acronyms in the Field of Commercialization
Accredited investor: An individual
whose net worth, alone or with a spouse,
exceeds $1 million or whose annual earnings
exceed $200,000 alone, or $300,000
with a spouse. Certain investments are
available only to accredited investors
who, because of the level of their assets,
are assumed to be more sophisticated
investors.
Business plan: A formal written document
outlining business goals and how
they will be met, along with brief information
about the leaders of the initiative
designed to communicate with potential
investors.
Elevator pitch: A brief description
of a product or service designed to be
delivered in a short time span equivalent
to the time spent riding an elevator.
Potential investors may evaluate this on
a first-pass basis to assess whether to
investigate the possible investment.
Incubator: A facility or program providing
access for young growing companies
to appropriate rental space with
flexible leases, shared basic business
services and equipment, technology
support services (management guidance,
technical assistance, or consulting),
and assistance in obtaining the
financing necessary for growth (www.nbia.org).
Pro forma financials: Calculated
financial projections compiled in order
to forecast the financial health of an
undertaking. Typically, these are forward
looking and may tend to include
an overdose of optimism by the leader
of the initiative.
Service Corps of Retired Executives
(SCORE): An organization offering
business advice for no or modest cost
from retirees who have "walked the
walk" (www.score.org).
Small Business Administration
(SBA): A federal agency directed at assisting
small enterprises (www.sba.gov).
Small Business Development Center
(SBDC): A network of offices with
experts in a variety of fields available
to meet with prospective entrepreneurs
and provide no-cost consulting and lowcost
training (www.sbdcnet.org; www.asbdc-us.org). (www.businessfinance.com/seed-funding.htm).
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Exit Strategies
Sometimes the budding entrepreneur
gets so focused on and swept up in
the process of getting the enterprise
launched that he or she loses sight of
the important other end of the process—formulating an acceptable avenue
for leaving the business once it
gets going. It may well be that certain
decisions made early in the life of the
undertaking will limit the alternatives
much later when the time comes to
withdraw from further involvement
with the enterprise.
The most common alternatives available
for getting out of a deal are as
follows:
- Sell out to other owners or to a
friend
- Be acquired by a larger company
- Have a public stock offering through
an initial public offering
- Liquidate the assets of the firm
- Create a "lifestyle company," whereby
you draw a substantial salary off the
company and keep it small by not reinvesting
in expansion
Exit strategies for gracefully departing
the enterprise are different from
growth strategies that also will need
attention. Those focus on plans and
efforts to create value for the firm
and the customer, either through new
products and services or new business
models for delivering those products
and services.
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