Andreesen Horowitz, also called a16z, is a very successful Silicon Valley venture capital firm that backs new technology companies. They invest in seed to late-stage companies across a broad range of consumer and enterprise technologies.  I found one of their recent podcasts about product market sales fit quite fascinating because of its parallels with the challenges faced by young and growing Life Sciences companies.  Jyoti Bansal, founding CEO of AppDynamics, describes the principles that he applied whist building his company.  AppDynamics was founded in 2008, generated revenues of $144MM by 2015, and was subsequently acquired for $3.7B in 2017.

Before we dive in, it is important to address why Bansal’s experience at AppDynamics is relevant to Life Sciences companies.  Firstly, I would make the case that software, like Life Sciences technologies and outsourcing, represent potentially disruptive alternatives to a status quo.  Secondly, a good idea isn’t enough to make a successful company, and commercialization of disruptive approaches faces the same fundamental challenge.  Thirdly, the challenges of commercialization can be overcome by following simple principles of differentiation, sales, and overall efficient company management.

Product market and sales fit

Bansal describes how he established his market fit in two phases.  During phase 1 the target market was determined; he initially approached things broadly, and narrowed his scope as intelligence was gathered.  A useful way to think about a target market is to ask the question “where is the most pain?”; furthermore, it is generally easier to address a new customer problem than it is to provide a new solution to an already established one. In the case of the latter, Bansal suggests that the new approach may need to be ten times better than the status quo. 

Phase II of establishing market fit was more involved.  Bansal describes how early customer feedback was used to define product features, the buying process, pricing, customer segmentation, and sales team composition.

Product features

Let’s think of “Product” to represent what our Life Science company may sell; a product, reagent, or service, for example.  Bansal used early customer feedback to confirm that the target market choice was correct, and to address product fitness, including:

• What was likely to be bought?

• To what extent did original designs need to be changed for early adoption and wider sales?

• What features were core versus what could be economically customized?

• How did he compare to competitive products?

• What could he learn about next-generation or new products?

Buying process

I particularly like this piece because I have found it very useful when trying to help establish sales success and set company expectations.  Bansal covers this well:

• What is the best way to communicate value – “How do you make the business case to your boss to buy this?”

• Who is the buyer?

• Whose budget will the payment come from?

• Who else is involved in making the decision to buy?

• What is the approval process?

• How long is the approval process likely to take?

Pricing

Determining a selling price should be a high priority during the early learning process.  If your good idea and your hard work is useful to a customer, that value should be reflected in its selling price.  Bansal covers the following:

• What is the value of the product to the customer?

• How much better is it than traditional or competitive approaches?

• Price higher initially, you can always discount – start by charging more than you think it’s worth

• Keep focused during customer interactions - express customer ROI to justify premium pricing

• The customer needs to believe that the price is fair

• The sales representative must be able to describe pricing easily and quickly

• The sales price must be easily measurable – customer needs to see the price of what they are buying and how price changes with project scope

• Be predictable without surprises

Customer segmentation

Customer segmentation is a fancy term we use to make useful generalizations about sub-sets of all the customers we might talk to.  For example, if you are a Pharmaceutical Services organization you might think about small innovators, mid-sized innovators, and large traditional pharmaceutical innovators.  Each may have general attributes that make them more or less valuable as customers as you move from a learning sales approach to a full-blown, highly scalable sales team.

Bansal touches upon the challenges and opportunities larger organizations may present, such as:

• Different budgets may apply depending on the customer structure

• Different departments may be involved as buyers or gate-keepers

• Potential for large institutional sales

  • Start bottom-up with individual buyers

  • Follow on with a top-down proposal for a corporate-wide arrangement

Sales team composition

The correct composition and size of the sales team is, in my opinion, very important.  Unfortunately, life sciences companies often do not do this well and often get it wrong. 

Bansal does not describe his sales team as such, but he does discuss the roles involved at different stages of sales maturity (learning to scalable).  For example, he describes that most of the early customer discussions of product features and buying process are carried out by the company founder, CEO, evangelical sales reps, technical SWAT teams, and engineers accompanied by sales reps. The point here is that early sales are best conducted by highly knowledgeable individuals capable of describing the product, working with internal scientists and engineers to re-design and improve the product, and understand the type of sales interaction that is ultimately likely to scale well.

Bansall also cautions against the use of what he describes as a mature sales team to sell a new product.He is referring to a sales team that is proficient in selling a well-understood, mature product.He describes how asking such a team to sell a new product caused them to struggle, become dispirited, and finally just didn’t want to do it.He also explained that a new product can fail because it isn’t sold properly.

My thoughts

Product market and sales fit is so fundamentally important to differentiating a Life Science service that it should be approached deliberately, with a clear and measurable objective.  Applying Bansal’s Phase I to a new service launch (primary or follow-on) makes a lot of sense, whereas entering a new territory and post-acquisition communication of new services would benefit from some time in Phase II.

Integrating customer-requests and determining core versus customized product features are necessary in order to scale a company efficiently.  Layering in competitor intelligence is also likely to result in strong product features and better effective communication.

I really like how Bansal approached the buying process by asking his customers how they made their internal case.  Such valuable insight can inform efforts to expand customer adoption, and create communications collateral for routine use.  Understanding the buying process may also help to ensure that you are prepared for what is likely to transpire and to budget accordingly.

A good early-stage sales representative will be very comfortable with the challenges of exploring and setting a fair selling price.  A sales representative who is used to selling a more traditional or mature service is less likely to be comfortable with price-setting, and may even, under pressure, argue to lower prices in-line with competitors in order to sell more.  Pricing a new and clearly more valuable service at the low selling price of a traditional or inferior competitor is a mistake that may be difficult to reverse.

Sadly “build it and they will come” rarely holds true for new and growing Life Science companies.  Equally disappointing is that simply hiring sales reps who have only sold well-understood status quo technologies and services won’t help.  A solution lies in understanding that selling is not as simple as telling people what you already have, and hoping they’ll buy enough of that to meet your budget.  Successful selling is generally a two step-process: initially learning from valuable early customers, followed by scaling a well-understood market-fit.  This principle applies to start-ups, new product and service launches, new territory expansion, and post-acquisition communication of new services. 

The principles described need to be applied carefully to the circumstances of your individual company.  The deep customer intelligence you gain will enable you to differentiate your product, create effective communication, and construct a customer-centric organization.  Doing all of this early (company, product, geography or post-acquisition) gives you a better chance at getting things right the first time or, as we say, efficiently.

I have previously written more broadly on effective Life Science commercialization here, on the need for Life Science companies to refresh their sales teams here and the importance of personal values and successful company growth here

Mike Butler, Ph.D.
Founder and CEO, Unit Life Sciences.