Not every journey reaches its intended destination or takes the expected path en route to success.
This is as true for commercialising scientific innovations as it is for any other business; flexibility and an open mind are critical when plotting a course using an unfinished map. For UK Innovation & Science Seed Fund (UKI2S), our deep tech investing activities take place at such an early stage that there is often no map at all! Company founders need to be ready to take advantage of new opportunities for their business, whilst still balancing the need to focus on a small number of beachhead markets since resources and management bandwidth are often limited. We’ve spoken to a couple of our portfolio companies to get their perspective on how to successfully change direction.
Be agile and ready to adapt
For deep tech companies with multiple applications and capabilities, the challenge is to keep the business agile and able to adapt, while being careful not to take on too much. Investors are more likely to respond positively to a meaningful milestone in one direction rather than progress on multiple fronts which lack tangible outcomes such as successful POC, customer trials, or sales. Selecting your focus is a natural part of range-finding on early opportunities; the best companies start by working in areas where the product has a clear value proposition if the necessary performance hurdle can be met. As the prototypes are developed and tested, it may be necessary to look for opportunities in other markets or other markets may evolve in such a way that a new opportunity opens up for your product. In the current climate, in particular, there is an added need for flexibility in early-stage business due to the pressure on cash and the need to demonstrate market traction before the money runs out.
Later on, if you’ve invested significantly in one area and you move away from it, this agile response to new opportunities can look more like a pivot. Changing the direction of a business can mean taking a risk, but one that could pay dividends if made in an informed manner. Companies facing the decision of whether to shift focus or not, or those going through the process of pivoting, require advice, connections, experience and industry knowledge to make a successful transition and they need to be nimble. As a seed investor with extensive experience and expertise of investing in science-based companies, UKI2S has seen this play out many times and is well placed to help its portfolio companies going through such a process. Here are some thoughts from two of our companies which have been through this:
We asked Dan Wood, CEO of Keit Spectrometers, about his experience of making decisions on where to focus and how to change that focus if necessary. Dan explained that “we have certainly morphed our market strategy, if not actually pivoted. When I look at our fundraising documents from four years ago it was all about pharmaceuticals, which is now somewhere down our list of priorities. I would say that the key considerations for any business considering a significant change of direction are as follows:
- It’s more important to address a market that will move fast and clearly has an urgent need, than a market that may be potentially bigger but slower to adopt your product or service.
- Make sure you’re not basing your decision to go in a new direction on one or two conversations – take the time to collect various views and get opinions on those views.
- Do you bring something genuinely novel to the new market? People will only buy a new and unproven product if it is significantly better than what they can buy from established players.
- Make sure to think through what the full product offering needs to be to get a sale. It’s no use doing one piece of development if the customers are going to say “great, now you’ve done that, here are the other things you need to do before we can buy”.
- The tricky thing is to keep the balance between focusing on the current goal while remaining open to potentially more lucrative opportunities in a different direction.”
Cobalt Light Systems
Our second example is Raman spectroscopy innovator Cobalt Light Systems. Cobalt was another company in the UKI2S portfolio until it was sold to Agilent in 2017. We spoke to Darren Andrews, former Director of Analytical Products at Cobalt, who explained how Cobalt pivoted several times to allow it to capitalise on different market opportunities and to achieve a balanced, sustainable and attractive business.
“Our products can measure chemical composition through unopened containers and, when we started the company, our principal development was for quantitative analysis of pharmaceutical drug products. We also tested the waters in other markets with one-off development contracts. Our first pivot came via a different pharma need from a customer that wanted to do something that couldn’t yet be done – identify raw materials through unopened packages such as brown paper sacks. The market potential was not completely clear, but we were able to re-purpose a one-off development into this market and, pretty quickly, we became the #2 product globally.
We recognised that pharma was going to be a steady growth proposition and, almost by chance, came across a very different opportunity – a new regulation that would require all EU airports to scan liquids >100ml for threat materials. We needed to develop a dedicated and tested instrument against a strict compliance deadline. This required a significant financial investment as well as a pivot into a totally new regulated market. It was high risk because of the resources, time and investment involved, but we believed we could offer the best solution, so we took the chance and won out at almost all the major European hubs.
As a young company, pivoting is easier to do than as a large corporation. While the funds had to be raised to allow us to do it, we were small enough to retain that agility and our success transformed the business, underpinning developments into another area, and pivoting one more time into the hazmat and military security markets.
These applications were not clear when we started out and each brought its own challenges, payoffs, growth rates and risks. My advice is that, as a small company, you should move quickly if you see an opportunity and learn as much as you can by interviewing key opinion leaders. However, it’s important to avoid confirmation bias – don’t shy away from challenging any feedback you get, positive or negative. And take any feedback in the round – not everyone you speak to will be clever enough to see how brilliant your idea is!”
Capitalising on the opportunity
There is a crucial difference between shifting focus because the current venture is not working and seeing an opportunity and expanding your focus to capitalise on it. Remember:
- The shift must be made for the right reason, and if it is, success can follow
- Be prepared to change some elements of the team
- There can be a challenge with early-stage businesses which are often funded in tranches against milestones: if you pivot at the time you need to raise new funds, how do you justify the change in direction?
- The expansion in focus can not only be a success in itself, but it can also provide the necessary gross margin to support the initial market
Crucial to a company’s ability to be agile or to pivot is to get your investors to buy-in. Gather as much evidence as possible, do your market research and have a clear message to take to your pitch. Most of all, make the most of new opportunities if they stack up.