Companies resist change for many reasons: corporate culture, inter-departmental differences, vested interests, and many more. Yet one of the most common resistances to change, be it in marketing, product development, operations, or other areas, is one of the least justifiable: sunk costs. The reasoning that one’s company has already spent so many resources pursuing a particular endeavor is no more than an excuse with flawed reasoning and should be dismissed.
Ignoring sunk costs in decision making is a very broadly understood business principle however is often poorly implemented. This is often due to perception that changing direction would amount to the failure of the department, team or individual who is in charge of the current effort. Understandably, no one wants to be viewed as having failed.
So what can life science tools companies do to help ensure that we actually let sunk costs be bygones? First, we must ensure that all quantitative analyses used in decision making are unbiased and have ROI or other metrics calculated from the present day rather than any time in the past. In other words, we can only consider the costs and opportunities from the present day forward when we determine the opportunity costs of any particular option. That’s the simple part, however.
The more complicated part deals with defining failure. We also need to make clear how we define failure on any particular endeavor, as well as be cautious of how we disincentivize failure, to help ensure we create a culture that is appreciative of change rather than wary of it. An overly competitive corporate culture can contribute to such a resistance to change as well. All individuals and departments must work together to ensure that they progress effectively towards their common goals. This is admittedly a simplification, as such issues have been the focus of entire books, but it is still something that business leaders must be aware of.
When there is resistance to change within an organization, leaders need to determine the reason why such resistance exists in order to determine the validity of the resistance from a business standpoint.
Brian Millar of Sense Worldwide wrote an interesting article for Fast Company Design arguing that talking a lot about branding isn’t actually helping companies. It got a lot of criticism, so he then wrote a follow up. One of the key points was that brand value is imaginary – it’s only in the mind of the consumer, will be unique to every consumer, and will be based on a culmination of all of the actions of a company, so why try to manipulate it? Millar argues that we should not focus on branding and shouldn’t discuss our brands but rather take that effort and give it back to all the other efforts of the company.
In short, I disagree.
In our Marketing of Life Science Tools and Services group on LinkedIn, we recently discussed an article in the Harvard Business Review on “The End of Solution Sales.” While this is an excellent article and I suggest reading it, we’ll focus on one key finding: that “[…] customers completed, on average, nearly 60% of a typical purchasing decision — researching solutions, ranking options, setting requirements, benchmarking pricing, and so on — before even having a conversation with a supplier.” This is just the beginning, but it does highlight something of key importance for marketing that is not discussed in the article.
If 60% of the purchasing decision is concluded before interaction with sales, marketing needs take responsibility (and claim the opportunity) for satisfying customers’ self-driven quests for information.
As the default behavior of B2B consumers is changing to include more self-fulfilled quests for information, life science marketers must make the necessary information to drive their target audience’s purchasing decisions available. The ability to predict the information that will be necessary, as well as the downstream ability to shape content to the audience’s measured behavior, is of increasingly critical importance. Marketing campaigns need to be able to respond dynamically to collected data on prospect behavior if the appropriate content is to be delivered at the appropriate time. A content roadmap becomes an even more critical component of generating demand. These factors collectively drive the importance of performing market research / marketing research, developing a clear marketing strategy, and planning a content-driven campaign.
If B2B purchasing decisions are 60% made by the time a conversation w/ supplier occurs, this places more of a responsibility on life science marketers to shape opinion before that first conversation. More planning is required, however such planning will have an increasingly positive effect on marketing ROI. Furthermore, we can conclude that marketing campaigns driven primarily by awareness-generation efforts will continue to decrease in effectiveness.
Efficient life science sales operations require that opportunities are handed from marketing to sales at the correct point in the buying cycle. When there is a lack of proper marketing support, leads often get handed over to sales too early, creating situations where sales effort is wasted, leading to operational inefficiencies in sales. The symptoms caused by underdeveloped leads are usually three-fold:
- Sales conversion is low because of poor lead quality which is ultimately due to underdeveloped leads. This situation often leads to sales and marketing pointing fingers at each other.
- The sales cycle is prolonged, requiring more overall effort from sales and, therefore, increased costs
- Leads will go cold at a high rate
The opposite effect, where sales effort is insufficient or too much is left to marketing, is also possible. Recent research suggests that it may actually be common and also cause decreased conversion and wasted sales effort. Regardless, the method for diagnosis is similar.
If you are creating a lot of leads but not closing a lot of opportunities then you may be under-nurturing (or over-nurturing) your leads. Compare your marketing contact points to your content roadmap (you may need to design a content roadmap if you do not already have one). A content roadmap based on strategy and market research should provide a complete picture of the information requirements of your target audience. Like a blueprint for a house, the content roadmap will provide a framework for creating leads and, subsequently, nurturing your leads into qualified opportunities. Overlay that framework onto your current marketing campaign and ask: Are you delivering all of the necessary content? Is sales delivering content that marketing should deliver (or vice versa)? At this stage, the difference between what you are doing and what you should be doing should be clear.
At BioBM, we interact with a lot of start-ups. Most often these start-ups consist of a team of scientists and / or engineers, sometimes with little to no start-up experience on the team. Marketing experience is often lacking entirely. Because of this, we run into the same problem over and over – young, ambitious companies who, knowingly or not, wager their success by putting action before strategy.
Having a great product or service is the #1 factor in a young company’s success. You’ll never catch me saying otherwise. However, a great product alone isn’t sufficient to be successful. By rushing to market without thinking strategically about anything other than product development and prior to having strategy-backed plans in place for marketing, sales / distribution, support, and a multitude of other factors is, plain and simple, a bad idea. You are very unlikely to hit your target if you’re shooting blind, regardless of how big your gun is.
Furthermore, there is often an assumption among scientists that their experience in the field makes them sufficiently knowledgeable about the needs of the marketplace that little to no outside information is necessary. While experience being a member of a market certainly conveys some knowledge about the broader marketplace, and if you were to ask one person to explain a market in great detail it would naturally be someone within that market, it should never be assumed that this knowledge is sufficiently accurate. Start-ups should never rely solely on their own opinions and views for the same reason that you would never want to do a market research study with only a small handful of individuals. Opinions and perceptions vary. Just like anyone else, scientists are perfectly capable of being biased by their own opinions. As the saying goes, the plural of anecdote is not data.
Companies would be far better served by doing their homework. The time and resources required to properly strategize and plan should be incorporated into the estimates of start-up costs (not to mention the costs of initial marketing campaigns, which are again frequently underestimated or overlooked by individuals with little or no functional expertise in marketing) and resourced appropriately. The product(s) may be the heart of your company, but a heart alone doesn’t sustain life. If you want to ensure that you’ll be successful, make sure you have all the other pieces in place before you rush to market.
Many life science tools manufacturers, especially smaller companies, have a tendency to push a lot of marketing responsibility on to their distributors. In most such cases, the manufacturer often retains some broad marketing responsibilities which are usually focused on branding or awareness (for example, advertising in scientific journals or websites) and leaves their distributors responsible for most or all aspects of lead generation and nurturing. Allow me to take a very clear stance: this is a massive mistake – one that costs life science tools companies and their distributors incredible amounts of lost potential product demand (and, in turn, revenue).
Your distributors strong point is not marketing your products. It’s selling your products. It doesn’t matter who your distributors are – they are salesmen first and marketers second. There is a very good reason for this.
Creating and distributing individual marketing communications is relatively cheap. Developing a highly effective content-oriented marketing strategy, framing the campaign architecture, then building and deploying such a campaign is a very laborious process that can require a very significant time commitment by highly skilled marketers. A distributor, with maybe dozens or hundreds of product lines, can not realistically be expected to take on that burden. Additionally, distributors’ internal competencies often strongly favor sales to marketing, and many smaller distributors lack sufficient in-house marketing skill to perform deep analyses on products (and, perhaps, markets) that are novel to them. As distribution contracts may be tenuous and temporary, distributors are rightfully hesitant to devote such resources to marketing.
Life science tools manufacturers would be far better served by creating holistic marketing strategies that map out how to take prospective customers through lead generation to the point of sale, defining what will be performed by themselves and what will be handed off to the distributor (if any). If the distributors will be responsible for any aspects of marketing, there should be a high degree of collaboration to ensure that the marketing efforts are synergistic and build a single, coherent campaign rather than a set of discreet, loosely-related components. In other words, it is acceptable for your distributors to execute parts of your marketing campaign, and indeed they may have marketing resources which can help manufacturers generate demand beyond what the manufacturers could generate on their own, but they should not be left to design the campaigns or key marketing messages.
While salesmen are certainly capable of generating leads, marketing is a much more efficient and effective tool for this purpose. Because life science tools manufacturers often leave lead generation to their distributors, who are heavily sales-oriented and almost always have a very limited incentive to invest heavily in marketing for any single product line, a lot of potential demand is never realized and both manufacturers and distributors suffer from sub-par sales.
In mid-April, we discussed how despite the presence large amounts of negativity in the life science tools market, things actually appeared to be getting better. To follow that up, we conducted a brief 6-question survey last month to determine if people within the sector felt similarly and try to gauge if companies were preparing for better times or worse times ahead.
The survey was open from May 1st through May 31st. 22 respondents completed the survey. One respondent’s set of responses was removed from the survey due to not responding in the affirmative to the qualifying question which asked respondents if they worked within the life science tools and services market. Based on IP, 14 respondents were from North America, 6 were from Europe, and one was from Asia.
The questions (aside from the qualifying question) and responses are below:
1) Complete the following statement: “Thus far in 2012, my company’s sales have _____.”
2) Complete the following statement: “Compared to the last quarter of 2011, I feel _______ about the life science tools market”
3) Compared to the first half of 2012, how much does your company intend to spend on the following functions in the second half of 2012?
4) Which of the following is presently true about your company?
Additionally, two respondents left comments at the end of the survey. One noted “The market seems stable at the moment. We are mildly optimistic about the future.” The other stated “There are significant cuts in the research budgets.” The latter statement allows for some confusion as to whether “research budgets” referred to mean the academic research budgets or the budgets for internal R&D, although use of the plural leads us to believe the respondent most likely meant academic research budgets.
We find these results very interesting. While year-to-date performance in the respondents’ companies tends towards under-performance, perceptions compared to the previous year are roughly flat but companies are hiring and will be spending more. This could be due to any of multiple factors. For example, companies could be re-hiring and increasing budgets as a rebound from previous, overly conservative budget cuts. In other words, companies may have planned for a situation that was worse than the present, and therefore even though the present situation may not be good, hiring and increased spending have become necessary. Another common macroeconomic cause for increased hiring is decreasing workforce productivity. Additionally, some companies may increase spending in response to increases in spending at competitors in order to “keep up with the competition.” This discrepancy could also simply be a flaw in the survey, or perhaps a real difference in perception between the overall attitudes of life science tools companies and individual employees. There are many possible explanations, and we simply do not have enough data to evaluate all of the possible causes. All are free to draw their own conclusions.
Regardless, while the responses about company performance and the perception of the overall life science tools market are tepid, we are encouraged by the trend towards hiring and increased spending, and hope that companies rightfully see a reason to continue to invest in future growth.
We see it again and again, and it’s often the fault of investors. A promising technology, a talented team, and what would otherwise be a great young company fail. A life science tool doesn’t become the blockbuster it was pitched as, and because the company was created with the vision of huge sales numbers that never materialized, it goes under. Often it doesn’t go under until multiple additional rounds of financing are pumped into the fledgling company. The company never goes into the black because everyone bet too big, and everyone loses.
You don’t have to have a blockbuster product to be a successful life science tools company. Realism is every bit as important as ambition. If you bet big then you often grow too fast, take on too many liabilities, and end up with a structure that relies on a great deal of success to support. If you can employ lean operations and build success a little at a time, however, your life science tools company will have far more staying power.
We know that not every company or technology is amenable to slow growth. Some take massive resources just to develop and therefore necessitate a bigger payout. However, every company can, in some way, become leaner. In doing so, you can greatly reduce your business and financial risk.
The specific ways that companies can / should lean their operations is heavily dependent on each company’s needs and situations, but we’ve provided a few ideas just to get your creative energies flowing:
• Outsource! (administrative duties, financial / billing, warehousing, manufacturing, etc)
• Leverage a contract (commission-based) sales force, or only sell through distributors
• Release beta units into the market with fewer features to test both the market and your technology prior to full product launch
• Virtual operations
With leaner operations, young life science companies can reduce the threshold to becoming sustainable and successful. Planning on rapid growth or huge sales feels good, and sounds good to investors, but often leads to unnecessary risk taking.