Tips for start-ups and early growth companies from a hugely successful serial entrepreneur
I recently had the pleasure of chatting with Kevin Smith, a fellow Swansea native and fascinating business leader. Having been involved in the founding of six successful healthcare technology and wellbeing companies since the turn of the millennium, Kevin has learnt more than most about the keys to making start-up and young companies thrive. It’s always refreshing to see someone who lists his key strength as “common sense”!
After a lovely reminisce about our experiences growing up in the same part of the world, I asked Kevin more about his background and his journey to success before we moved on to his take on the current state of MedTech and life science start-ups and early growth businesses.
Sue Rees: Kevin, I know that your background isn’t typical for a founder in this sector?
Kevin Smith: I’m very much not an academic! I left school at 15 and I have failed a lot more exams than I’ve passed. I knuckled down a bit after that, though, and managed to get myself an HND in Mechanical Engineering. But other than that, I don’t have a clinical or medical technical background at all.
SR: Did you ever think not having a long list of qualifications would hold you back from being successful?
KS: Only for the first 20 years or so after leaving school! But you know my confidence grew with every bad boss that I worked for because it turned out that I had a knack for seeing things that were obviously wrong in the way people were running a business or running a team. I wondered why they couldn’t, particularly when it was so clear to me. The more I asked questions that were answered with a degree of unease and discomfort, the more I realised that I seemed to have a talent for asking the right questions thanks to that knack.
It took me a long time before I felt ready to go it alone. In the end, it was a mixture of being fed up with my rather ordinary and uninteresting career and a chance opportunity that came at the right time. But it took me until I was 36 to build enough self-confidence to bite the bullet and set up my own company.
SR: So in your MedTech businesses, you’re not bringing the science to the table – what is it that you’re doing that has made all these businesses successful?
KS: You’re right. I don’t have that academic background, so I’m actually constantly learning the science side of the businesses I’m involved with. But what I do bring is a laser-focused market approach – the area that academic entrepreneurs typically don’t.
I’m all about asking questions like what is the market, and where is it. Can you reach it? Are we always developing what the market needs? That means I’m often quite misaligned with the people that I work with when we first get together because, to be honest, initially I’m really not that interested in your tech of your innovation!
I know that’s probably quite a shock to some of your readers, but tech and science and innovation only become interesting to me when I know someone will buy it. My opening question is usually “Who are we selling this to?”. If they can tell me that, then I’m going to be interested in putting in the effort to get my non-technical brain to try and understand it in more depth.
SR: It’s really interesting that you say that you’re often “misaligned” with your co-founders at first. I’m a great believer in building a team that works for the business, and not building a team that reflects the kind of people the founder thinks they’ll get on with! What’s your experience of working with academic entrepreneurs and others in these sectors?
KS: Look, I think founders are often either over-focused on their tech and science, or they’re over-focused on fundraising. Strategy and “big picture” thinking don’t necessarily fall comfortably into those environments. If you are always head-down looking at your lab reports or your presentation decks you’re not head up looking at the market – that’s where you need people to help you.
For academic spinouts, in particular, it’s often a very alien world they find themselves arriving in – blinking into the harsh daylight of “Start-up Land”. As founder and CEO, you must learn very quickly to let go of your trust and give it to people coming into the business and let them do their job.
But that’s where the next challenge is. Many founders don’t know who they need or why, and then when they do bring people into the business they don’t know how to manage them to get the best from their new team. You’ve got to be really careful about the mindset of the people you bring into your business – cultural fit is hugely important. I’ve known founders who’ve thought that bringing in “big company” people is what they need to get them up and running quickly, but that can end up in a bit of a train wreck if the cultures aren’t aligned.
SR: Your businesses have all been involved with bringing innovative products or services to market. What kind of new technologies or science particularly interest you?
KS: You know, I’m really not interested in innovation for innovation’s sake. I’m not really excited by the fact that you’ve developed the world’s first of something. For me, it’s all about developing products that people will want to buy now because they solve a problem or meet a need and make a difference to people’s lives. If it doesn’t meet those criteria, then it’s a non-starter for me. For some more academically focused people, I think my line of questioning might seem quite combative and challenging, especially as I’m a blunt Welshman!
But I often find that academic-based spinouts don’t tend to understand who the competition really is. One example was a neuroscientist I met who had developed a device to reduce stress using micro-pulse technology. I asked him what the competition was for his invention? He told me there was none, no one has made a device like this. He couldn’t see that his competition was actually all the existing ways people currently deal with stress and anxiety – going for a walk, listening to music, having a whisky, taking drugs (prescription and recreational) and so forth. That’s what he would be competing with. This radically shifted his view on how he would develop the final product – and more importantly, how it could be sold.
Every time I have these kinds of conversations with academic founders it really does challenge them and gets them thinking about how they are going to sell their innovation into the market, not just how they are going to manufacture it.
I think it’s because their brains are too big – you need someone like me on board who’s much less clever to be able to pull right back up and look at the bigger picture. So, to answer your question, it’s any innovation that I can see has a market, and if my strengths in that area complement the scientific and technical strengths of the founder then that’s going to interest me.
SR: We are in a time of great change at the moment for everyone, of course, but what are the key concerns that are keeping business owners up at night – or should be keeping them up?
KS: I think the biggest problem for a lot of young companies right now is the apparent lack of finance. Raising money for an early-stage company is always hard and it always takes a huge effort. So it’s tempting to look at one of the many people who’ll consult for you at a high cost, offer to write your business plans, or introduce you to investors. To be frank, the majority of them aren’t very good and, in my opinion, not worth the money.
The real issue is that everything in today’s business world moves at great speed. If you’re spinning out a company or you’re developing a product for the market, the longer you take to do any of those things, the less of the market you’ll have – because the whole market is moving at speed, too. The only problem is that the one key part of building and growing a business – raising finance – hasn’t sped up to match the dynamic pace in the rest of the world of business.
This is what creates problems for many start-ups. You may have spent 12 months raising your first round of investment. During that 12 months, you’ve got very little money and you spend all your time writing business plans and financial forecasts to support your quest for funding. So your product hasn’t really developed in that time. Then when you manage to secure funding, you’ve got 3 or 4 months to get back to developing your product before you realise it’s time to start working on your series B round. So it’s really easy to find yourself riding on this merry-go-round of what seems like perpetual fundraising. And the more time you’re riding it, the less time you spend on the actual business.
So this is going to be a perennial challenge to getting innovation out to the marketplace until somebody comes up with a model that accelerates financing in a way that adds value to young companies without taking excessive risk. You know, we have a high dependency on grants in some sectors, and that troubles me. Grants are great, but it can be too easy to find yourself going for grant after grant. And if you find yourself becoming grant dependent then I’m sorry, but you don’t have a business.
Complacency is another issue that I think you should be worrying about. Anyone who truly believes they fully understand the market they are in is setting themselves up for trouble. I would hope that the good entrepreneurs are being kept awake at night asking themselves if they really understand what their customers want, where they are, how they reach them, how they influence them. Always be worried that you don’t know your market well enough.
Of course, we’ve also got the new challenge of working virtually because of the pandemic. If you’ve got a software company then you’re unlikely to be heavily impacted by that, but if you’re a manufacturing company or are lab-based then that’s rather a different story.
But pandemic-related issues aside, there’s not been any change to the two major things you need to get right to make a business work – getting the right finance and getting the right people. With those in place, the rest should take care of itself.
SR: So with those worries in mind, what do you think investors are looking for when they are taking their portfolio decisions at the moment?
KS: Well it obviously depends on the investor type, but in my area of MedTech and med software they are currently looking to put their money into something that’s quite disruptive and can have a significant impact on a large population of potential users.
They are mainly looking for solutions that are either near-to-market or in the market already. Interest in the “R” in “R&D” has pretty much fallen away for these guys – they are looking at late-stage development or early delivery at the moment. There’s very little appetite in MedTech and med software to get in at the very early development stages.
But I have noticed that the pandemic has had an interesting effect here because in many ways it has increased the appetite for investment in the health space – particularly for platform technologies. Anything that other businesses can plug into to get things done better or quicker is very sought-after by investors at the moment. The recurring revenue stream model of software services or platforms is something that investors love. However, you must have evidence that you can get it into the market. If you can show you’re already onboarding customers that will excite them.
They are also looking for businesses to have the right team behind them – that’s a really important part of the equation that some fall foul of. Make sure you have the right people in place with the right set of skills and a complementary set of strengths and weaknesses. Build a great culture.
SR: Are there any mistakes that you see companies in the sector making that could be affecting their ability to attract investment?
KS: Don’t overvalue your IP. First-mover advantage and the right business model is often worth much more to an investor.
For example, one company I founded – TrackCel – had started to position itself as the only full-service solution for managing complex supply chains in the cell and gene therapy market. We had a large US investment house express serious interest in buying us, and so when they came over from California to spend a week with us in Cardiff we made sure that we had all of our patent applications lovingly arranged over the boardroom table. They didn’t so much as glance at them once.
When we encouraged them to look they said “We’re not interested in your IP, we’re interested in the fact that you’re 2 years ahead of anyone else in this space”. That wasn’t the last time I heard that sentiment expressed by investors, either – so much so that we let much of the IP slide in the end because, it turns out, nobody who matters cared.
But look, that’s not going to be the right strategy for every business. For example, I’m a shareholder in a company that has developed heart pump technology. They won’t be selling products, they’ll be bought out as soon as the technology passes through clinical trials, and so for them, the IP is pretty damn important. But then they have been developing it for the best part of 12 years, so there’s a difference there.
But for a lot of other businesses, the IP alone isn’t going to make anyone open their chequebook or add any zeros to your valuation, so keep that in mind. Many investors today, particularly high net worth investors, are much more focused on looking for something that’s about to hit the market, has significant revenue growth potential, high margin, and will let them take a good profit in 3 to 5 years.
SR: The traditional networking model has had to change during the pandemic. What do you think about the value of networking and has the lack of face-to-face events had an impact on the start–up community?
KS: If I’m honest, I hate it, Sue! I’m a terrible networker. I’m naturally quite a shy person, so the idea of 100 strangers in a room scares me to death, so I don’t get involved in any business or networking clubs. I tried it a few times, but whenever I got invited to a dinner I always seemed to end up next to someone who’s trying to sell me something. I value good service and loyalty, so I tend to stick with the same professionals and business support people if they’ve done well, and I’m as loyal to them as they are to me. So for things like legal and accounting advice and support, well I’ve worked with the same people for many years and so I’m not in the market for the services that are often being touted at traditional networking events.
Look, my view is that if you can commit to helping a company without being outrageously expensive upfront you are going to get listened to – because not many people do that! If I’m sat next to someone who has interesting things to say and interesting ideas about supporting business and doesn’t try to sell themselves then I’m much more likely to give them a call the next day. I don’t think I’m alone in that.
I think you can build a name for yourself without needing to get involved in any of the “politics” that sometimes occur in these business networking clubs, but if you do feel that it would be useful to join then my advice would be not to use it as a chance to hit everyone there with your sales pitch. That’s what the rest do, so mark your difference right from the off.
Having said all that, I do think that there’s a bit of duty for those of us who’ve been on this journey to help others who are starting or are just a little bit down the track. So finding a different kind of forum where you can share your successes and failures and your hard-won insights with other like-minded people is something that’s much more attractive to me.
Those of us who have trodden the start-up path have all been in those dark corners at times. We’ve all had sleepless nights after something knocks you over like a phone call to say the investors just pulled out, and now you’re worried about feeding the families of the few people you have managed to employ.
I think people need to be told that things like that are almost inevitable in business, but that you do have the capacity and belief to fight out of it – and not only survive but thrive. Those messages and experiences are hugely important. No one told me about it when I started out – when it happened to me I thought “why is this bad stuff happening? I’m my own boss now, it’s all supposed to be great now I’m not working for the man”. But, you know, it’s part of being in business. And I’m more proud of how I got out of those situations than anything else I’ve achieved. I learnt more about myself through the negatives than the positives.
So if you can find a networking forum or anywhere experienced people get to speak to new entrepreneurs about their business journeys and about the lows as well as the highs, then grab the opportunity. It will help to equip you for the journey you’ve just started much better than any traditional networking event.
Sue Rees is an expert C-Suite executive search specialist with over 25 years of experience in Pharma, Biotech, Lifesciences etc.