City of Paris

I was in the audience last week when Brook Byers shared his 30-plus years of experience as a venture investor at the UCSF Center for BioEntrepreneurship (CBE). As his host and moderator, G. Steven Burrill, pointed out, it was a rare opportunity to hear Byers’ soft-spoken yet authoritative musings in a somewhat informal setting for two uninterrupted hours. The room was full of bright scientists and tomorrow’s entrepreneurs, eager to learn how innovation can be translated into commercial success. The conversation, which consisted largely of Byers’ remarks punctuated by Burrill’s gentle but persistent probes, covered two major areas: What are the hallmarks of a successful venture? And how does a venture investor separate the wheat from the chaff in making investment decisions? Along the way, Byers offered practical tips as well as glimpses into his philosophy and outlook on business.

Focus early money and attention on the white-hot risk. New ventures are built on innovations and by definition untested ideas and hypotheses. Byers suggested that the entrepreneurial team work on a thorough assessment of the risks and identify that white-hot risk—the one around which the business can fail— and focus early money and attention to address it. In drug development, for example, the white-hot risk is often wrapped around the biology. “Most people want to postpone the experiment,” he noted, but in fact this early focus on the white-hot risk equates with efficient use of capital. By concentrating early resources on the white-hot risk, a business can emerge in a much stronger position to secure the next (and more substantive) round. A corollary is that early failure translates into less costly lessons that can propel new ideas.

Spend more time on fieldwork than on the writing of the business plan. Byers emphasized the importance of talking to people—30 or so—and seeking their input, as part of the process for developing the business plan. In his view, entrepreneurs should spend more time on fieldwork than on writing, but this part of the process, which is often difficult and intimidating, is easy to overlook. Not surprisingly, he suggested tapping one’s network during this fieldwork phase and, importantly, writing notes after each conversation to make the best use of the input.

Be sure you have a solid knowledge of the adoption process. Byers noted that the rate of adoption is almost always underestimated. This in turn adversely affects the accuracy of the projected revenue ramp and creates the potential for companies to get carried away and build infrastructure and spend money too fast. He walked the audience through the process: the clinical trials, the submission of data to peer-reviewed journals, the time to publication, then the adoption by key opinion leaders and ultimately their recommendation to include a product in the clinical pathway. “There is just no way to front-run that,” said Byers. And don’t forget pricing and reimbursement. He reminded the audience that doctors are notoriously slow adopters, and understandably so, because they are making decisions that affect lives. Similarly, he urged the audience to think through the challenges to distribution and clearly understand the economic incentives needed for every point on the distribution chain.

One (good) product at a time. As the conversation turned to platform vs. products, Byers noted that it is challenging for a platform company to develop more than one vertical (product/market) at a time. The key, he said, is “to pursue products in an orderly sequence” and be very clear in the business plan about what the family of products will be. He pointed out that Myriad Genetics, with the famed BRCA1 and BRCA2 tests for genetic predisposition to cancer, has been a one-product company for a long time. The same goes for Genomic Health with Oncotype Dx, which by any definition is a success story in the world of molecular diagnostics. By the way, Byers noted that he “loves” molecular diagnostics.

Always leave a little on the table. The subject turned to today’s economic climate and the companies that are trying to raise the next round following an earlier, very favorable round two years ago (e.g., $20 million raised, $80 million post money). For many of these companies, the starting point today is, at best, a flat round, but more investors are opening the negotiation with “30 percent off” as Burrill pointed out. Byers counseled a more measured, judicious approach when it comes to valuation. He went on to suggest that valuation should not be the sole or key criterion in deciding on an investor. “Think about who you want to be in the foxhole with when times get tough.”

There are more great ideas than good teams. Byers listed the idea, the business, people and capital efficiency as key ingredients of a promising venture. He spoke of the great athlete—an exemplary CEO with a track record of prior successes—but felt that the great athlete is an exception. Instead, he looks for people who are smart, credible, thoughtful and flexible about letting venture investors help round out the team. The team has to be “authentic” but does not necessarily have to be complete during the early stages. Byers also emphasized the importance of the right mix, and conflict as “the only way to get objectivity.” As Burrill probed persistently about the role of culture, Byers spoke of culture as something that evolves, and cited Jeff Bezos’ ability to empower Amazon.com employees and get them to believe that they were going to change the world as a positive example of how culture drives a business.

It’s all about relationships. Looking at the eager faces in the room, Byers noted that scientists tend to pay attention to “things,” but urged them to remember that while ideas have a finite life, relationships endure. He suggested that they spend the time to cultivate relationships—those with mentors, coworkers, collaborators—and invest the effort to stay in touch.

A book you must read. Byers strongly recommended High Output Management by Andy Grove which, written in 1983, is still relevant today.

Building companies is ambiguous and messy. Byers offered these words of wisdom almost as soon as he sat down and this seems to be a good encapsulation of the process. This is where I believe scientists have an edge over businesspeople, because scientists are trained to deal with ambiguity and complex, interacting variables on a day-to-day basis. And they have to learn to accept and thrive on interdependency with their colleagues who may be competitors trying to beat them to the finish line.

I seem to be getting a lot of content about innovation these days. But those in marketing and especially sales are seldom in a position to wait for innovation to come down the development pipeline; indeed, we are often told to “sell what you have.” I went to my favorite Chinese business book, Why Southerners Succeed in Business, and found this gem of a story.

A large company, in the south of course, was looking for new salespeople. An ad drew hundreds of responses. The company gave the applicants an assignment: to sell hair combs to Buddhist monks who, by tradition, have shaven heads. The assignment frustrated and angered all but three applicants, who were given a supply of samples and ten days to complete the assignment.

Li, the first applicant who returned, told of being scolded and in fact thrown out by angry monks at a hilltop monastery. As the dejected Li hobbled down the hill, he saw a young monk lying in the sun, scratching his itchy scalp. Li immediately offered his comb to the young monk, who tried scratching his head with it, felt satisfied, and paid for the one comb.

The second applicant, Zhang, did better. As he walked toward the monastery, he noticed that the wind was blowing hard and the pilgrims who were heading toward the monastery to burn incense entered the temple looking a little disheveled, with their hair out of place. Zhang went up to the head of the monastery and suggested that poor grooming was a sign of disrespect to the deity. He then recommended that the monastery put a comb in front of every altar, so that pilgrims could brush their hair before lighting incense. Zhang proudly reported that he had sold ten combs.

To everyone’s astonishment, the third applicant, Wang, reported that he had sold his entire inventory of 500 samples and received an order for 10,000 combs from just one monastery in the area. It turned out that Wang had repackaged each comb he was given and, with a simple label, branded it the “Comb of Virtue.” He gave the monastery an initial batch of branded combs and instructed that the monks briefly brush the hair of each pilgrim after the worship session and then give the comb to the pilgrim. Word soon spread about the Comb of Virtue, and that it was available exclusively from this one monastery. Pilgrims began crowding the monastery, and revenue—in the form of incense purchased and donations—increased dramatically. The delighted monastery head placed the order for 10,000 combs.

Do you have a favorite “selling ice to Eskimos” story? Please share.

The economy and resulting downsizing have caused many marketers to reflect on their careers, and a number of my colleagues are thinking about giving up the corporate life to try consulting, either to bridge the gap until they find the right position or to explore a long-term option. Some of my friends ask, “Is this right for me?” Others ponder the risks and rewards of a consultant’s life.

Pay for performance on an accelerated review cycle. Many consultant assignments are relatively short-term—running for weeks and months rather than years—even though we may have a long-term relationship with clients. And as many consultants like to say, we are as good as the last assignment we completed. So, in our world, pay for performance is more accentuated, since there is usually room for renegotiating compensation with every new assignment. And there are always some performance indicators when the assignment is completed—the process and overall sense of whether or not objectives have been accomplished—even though longer-term impact is less evident. So, in many ways, consultants have the benefit of getting faster feedback about their work. And, certainly, the quality of the work impacts their income more quickly than for their corporate counterparts, who generally have to wait for annual reviews and bonuses.

A long-term view in a short-term world. While assignments are often relatively short-term, the consultant’s continued success and ability to generate work (and income) are heavily dependent on credibility and relationships, all of which take time to build. I am sometimes surprised by the “hit and run” mentality of some consultants whose fees are not commensurate with performance or who are not willing to go the extra mile when the situation warrants it—for example, when miscommunication or erroneous information causes inadvertent project overruns and budget is limited.

Overhead in surprising places. By and large, consultants are free from the many meetings and regular reports that are part of corporate life. That “free” time is more than absorbed in time consultants need to spend on building the client base and generating new business, particularly during the start-up phase. By the same token, new consultants realize, suddenly, that they are on their own as far as professional development is concerned. The training courses and industry meetings that used to be funded by corporate budgets now have to come out of our own pockets.

A better lifestyle?  Perhaps. I used to chuckle when people told me how they envied me for being able to set my own hours. In reality, I felt that I had to be accountable to my clients as well as my staff, in many ways. In time, though, I learned to manage time and figured out how to separate my work life from my home life. (In that regard I don’t think we are any different from our corporate counterparts.) In our new world of telecommunications and connectivity, I think the opportunities for lifestyle improvements are available to all of us.

Come on in. The water’s fine.

As the year draws to a close, and as news about fraud, bribery, excesses, misjudgments and lack of accountability flood the media, I couldn’t help but take note of the New York Times‘ detailed report on the Siemens bribery case and the Economist’s equally lively account, which includes how payments were authorized on removable sticky notes. What struck me was how ordinary, matter-of-fact and almost “innocent” Reinhard Siekaczek, the main implementer and holder of the $40 million to $50 million annual bribery budget from 2002 to 2006, appeared to be. I believe it when the New York Times article reported that Mr. Siekaczek apparently made no personal financial gain from the years of managing this budget. I wonder how many of these cases remain to be uncovered. I think about the choices that businesspeople have to make every day, in developing economies where bribery is often widely accepted practice and even here in the U.S. when lavish parties and corporate gifts can challenge our judgment. Most of all, I wonder about the local infrastructure and customs that make some of these aberrant practices difficult to circumvent. For example, the common but now diminishing practice of doctors taking cash tips (in red packets) from patients in China is driven at least in part by the inequitable compensation of Chinese doctors. (For a more detailed account of doctors in China please see my article.) And when does a tip to workers on the trade show floor in a convention hall become a bribe? I still remember the stacks of dollar bills that a trade show manager brought to Atlantic City every year to set up a gigantic exhibit booth for his employer, a Fortune 500 corporation. Needless to say, the exhibit booth he managed always received high-priority service from the exhibit hall labor, and he was always able to sneak away for a quick European vacation while the conference was in session.

All I know is, the next time I ride on Shanghai’s Maglev train, for which Siemens is a major contractor, I’ll probably think of Mr. Siekaczek.

During a visit to Beijing, I picked up a book entitled Why Southerners Succeed in Business. Being a southerner myself (I come from the province of Fujian, directly across the strait from Taiwan), I was intrigued. It turned out to be a great book, filled with everyday tips and great lessons about life. Following is one of my favorite stories. For context, note that the north-south divide in China is somewhere around Shanghai. In this story, Shanghai represents the south and Beijing represents the north.

Two peasants from the countryside decided to venture into the big cities to make a better living. One was heading to Shanghai; the other had a ticket to Beijing. In the waiting room at the train station, the two peasants overheard a conversation.

“The Shanghai people look for every opportunity to make money. Sometimes you even get charged a fee for asking a passerby for directions,” one man lamented.

“Well, Beijing people are very generous. If they see that you have no money, they will offer you food; sometimes they’ll even give you their old clothes,” said the other.

The peasant heading toward Shanghai thought to himself, “I think I’d be better off going to Beijing. That way, even if I don’t make any money, I won’t starve.”

The other peasant, who had planned to go to Beijing, reflected on the conversation and came to the opposite conclusion: “If people in Shanghai can make money just giving directions to strangers asking the way, think how many other ways there must be to make a living!”

At the ticket exchange booth, the two peasants met, exchanged tickets and got on the trains. The fellow who went to Beijing found everything exactly as he had imagined. During his first month in the city, he enjoyed himself, did nothing, but never went hungry. By just picking up loose change here and there, he even managed to send small amounts of money home.

The other peasant arrived in Shanghai and, sure enough, began making a living right away. He started by standing at the train station waiting to give people directions. He also learned to park himself in front of public toilets to collect a fee, and he earned extra money bringing people water to wash their faces. Eventually, he came up with a business idea. Noting how people in Shanghai loved indoor plants, he went to the countryside, collected ten bags of dirt, and brought it into the city to sell as “potting soil.” To his astonishment, the ten bags sold right away. That same day, he made six trips to net a fifty-dollar profit. Before too long, he opened a store. Soon he had an entire franchise of stores, employing hundreds of people, from Shanghai to Nanjing to Hangzhou, even north to Beijing.

Three years later, the peasant-turned-businessman was on a routine tour of his stores. As his train pulled into Beijing, a man came up to him and asked for his empty beer bottle. As the two men made eye contact, they immediately recognized each other and remembered the day they swapped train tickets back in their hometown in the countryside.

Do you have favorite stories about good businesspeople you’d like to share? Please post a comment.