Basic Concepts in Device Development
Business Planning, Product Development and Fundraising: The Three Amigos of Your Device Start-Up
Stanton J. Rowe
Business planning, product development planning, and fundraising are core interrelated activities for your startup. If you over-promise and under-deliver, there is a steep price to pay. And yet, even with the most conservative planning, you might not anticipate every challenge or stumble along the treacherous path of startup development. So, how do we optimize a plan that is realistic, credible, and attractive to investors, and also is efficient in its timeline?
We must start with the strategy of development. Development strategy begs the question “What key questions should I answer first to prove the early feasibility and promise of the product that I have defined?” Surprisingly, not enough startup CEOs, boards, early investors, or R&D managers spend enough time here. I have met with dozens of companies who follow more of a prescription than a thoughtful customized process.
It always starts with an unmet need. Sure, it can be X product costs too much and I plan to make a cheaper alternative, but these considerations assume market processes are inflexible, and costs prevail over quality, reputation, or sales relationships. More often, it starts with improving upon a competitive design, or more rarely, improving upon a standard of care with a new therapy. To fund this new idea solving an important problem, you will need to document your idea in a business plan.
The Business Plan
The internet is full of examples and formats of business plans and these are very helpful if you have never written one before. I recommend that you spend a substantial amount of time on your executive summary, as this one-page document is what 90% of your readers will read to determine if there is any interest. This executive summary needs to be sharp, compelling, articulate and descriptive of the challenge at hand. The same care should be taken in developing a non-confidential slide deck, which is also used to screen companies quickly by venture capitalists (VCs) (1-7).
State the problem to be solved in terms that make the reader really understand that patients deserve better alternatives. Putting patients first is what we do best, and it keeps our focus on what really matters. Let this shine through your business plan. What is the standard of care and how does it fall short? How are patients underserved? How are patients referred? How are they diagnosed? What is the cost of a good outcome and a bad outcome? How are hospitals/payors impacted? What are their medicoeconomics?
Please recall that a reasonably good idea will be given to medical experts for their opinion. Your evidence and references need to be solid. A good business plan is: good business planning; expert medical review; medicoeconomics; forecasting; milestone planning; R&D planning; regulatory and clinical planning; launch planning; scale-up modeling; and strategy all baked into one easy-to-understand and readable 15-page document.
If this sounds daunting, it should. A great deal of thought and analysis must go into a good business plan and given that a VC reviews 100 to 200 of these a year, they will recognize a good effort versus a mediocre product. Your audience consists of VCs and other investors, analysts who will pour over the details of your plan if the VC is interested, and those providing expert medical opinion. You must write for all of these constituents.
After stating the problem clinically, qualitatively, and quantitatively, defining the market opportunity, and reviewing current standard of care, you must describe your solution and how it is designed to solve the problem stated. How is it going to be differentiated? How will it be tested? What is your preclinical plan and timeline? What data will you accumulate before First-in-Human (FIH) trials? In which patients will you focus your FIH trials? How will you evaluate results and over what period of time with what diagnostics?
After FIH trials, what will you do and where will you go for clinical validation? Will it be small randomized trials or straight to pivotal trials? How does this drive your regulatory strategy, launch strategy, reimbursement strategy, and training and education? How does this mesh with international versus domestic regulatory processes and plans (1)?
How will you manufacture? What elements are in-house versus outsourced manufacturing? Do you have unique materials of or processes that require additional work, testing or validation risks? What is your planned cost structure over time and volume? How will you mature your quality system?
What is your staffing plan? How do you assemble the necessary talent without breaking the bank? The efficiency of development is easy to spot in these assumptions. Sell the team! Remember that most VCs back a team before they back a technology; as technologies run into challenges, it is teams that solve these challenges and navigate the process to success (2).
What is your patent status, filing dates, issuances, and nearby IP that may affect freedom to practice? What is the patent landscape? Do you have licenses? If so, the royalties and milestones need to be reflected in your pro forma (3).
The answers to the questions above will dictate a financial requirements plan, which drives a funding plan. If you underestimate the requirements, bridging to your next financing can be costly, and undermines the credibility of the team. Better to build a credible plan that accommodates challenges and does not assume that everything goes perfectly the first time.
The revenue plan will be generated from a market analysis that partitions the served market, and assumes competition, adoption, regulation, and reimbursement. These plans are most certainly wrong, as no one can get all the future assumptions right, but they do need to be credible and defensible. VCs will challenge market and spending requirements frequently, as these are typically assumptions that drive future valuations and acquisition values.
I like to end my business plans with a list of risks. I think that listing the risks, and how you plan to navigate these risks shows that you are constantly thinking about them and are prepared to manage through them.
This is a living document that you will update several times as you learn more and refine your product, process, and plans.
Most products do not fail because they fail technically — they fail because we do not put enough effort into product definition, and therefore we fail to understand competition, standard of care, medicoeconomics, referral patterns, performance requirements, or decision-maker perspectives. These inputs are essential to optimize product development efficiency.
What most managers want in product development is predictability, and yet the further we stray from incremental development, the less predictable a product timeline, cost and resource requirements will be. This is especially true in larger corporations where there is a portfolio of opportunities to invest in R&D, and the closer, more predictable, less challenging project may be irresistible versus the ambitious, challenging, unpredictable course of disruptive, innovative products.
Whether you are developing an incremental product or an ambitious innovation, you need a plan. The plan needs to include human resources growing through the development phases, financial requirements, key equipment/testing requirements, animal studies, acute and chronic, biocompatibility and durability, human factors testing, and design for manufacturability. These are complex plans plotted in planning tools, such as Microsoft Project, and simplified for management review and approval.
The plans are further complicated by cross functional requirements of quality systems, quality engineering, marketing, finance, clinical and regulatory, all of which play key roles throughout the project. These players plus your core engineering team comprise the large complex organization required to take medical devices through feasibility, testing, early and pivotal clinical trials, pilot production to validated production (4).
The quality of the teams really matters. As many obstacles will arise, there is no substitute for capable, experienced, thoughtful, and dedicated team members. This is no place to save money as you think about the speed and efficiency of product development. Hiring the best people, and managing them well pays off (5).
Product definition, noted earlier, is a living definition, meaning it will change. A good project team is constantly arguing over the performance requirements, competition, requirements of the product, and refining them in real time with input from physicians, marketing, and competitive analysis.
Planning for your startup requires a comprehensive and thoughtful business plan that anticipates that every plan is wrong and will need some correction/adaptation to reach its goals. The compelling part of your business plan must be the market opportunity and the opportunity to impact patients, offering them better choices and providing improved quality or quantity of life. Making this plan come alive on paper for investors is a critical requirement to get funded. It requires a lot of foresight, knowledge, and input from many disciplines.
The product development that is enabled by the fundraising from your excellent business plan requires experience at the helm, and throughout the team to meet the challenges of feasibility, testing, clinical studies, regulatory and quality requirements, and manufacturability.
There is no substitute for an expert team that plays well together, and not only has the expertise and experience, but one that can address the many challenges that naturally present in the process of innovation.
- Kaplan AV, Baim DS, Smith JJ, et al. Medical device development: from prototype to regulatory approval. Circulation. 2004;109:3068-72.
- Carvajal D. Hire Smart from the Start: The Entrepreneur’s Guide to Finding, Catching, and Keeping the Best Talent for Your Company. New York, NY: AMACOM, 2018.
- Hoenen S, Kolympiris C, Schoenmakers W, Kalaitzandonakes N. The diminishing signaling value of patents between early rounds of venture capital financing. Research Policy. 2014;43:956-89.
- Medina LA, Okudan Kremer GE, Wysk RA. Supporting medical device development: a standard product design process model. J Engineering Design. 2013;24:83-119.
- Graham P. How to Start a Startup. Available at: http://paulgraham.com/start.html. Accessed March 11, 2020.
- Cheung T, NEA. s.n. Palo Alto, CA; 2019.
- Todorovic ZW, Frye M. Writing Executive Summaries: An Interdisciplinary Examination. In: 2009 United States Association for Small Business and Entrepreneurship (USASBE) Proceedings, Los Angeles, CA.