Choosing an E-commerce Platform

So you have decided that you want to sell a product online. What next?

Building an Online Presence: First of all, get an understanding of the challenges and risks ahead of you. Get a clear vision of what it means to engage in e-commerce before you jump into the task of setting up a new website. In the decision to establish a site, keep in mind that this is a business. You are not creating a blog or a personal expression. Your goal is to make money selling products online. So put aside the need to create a lovely website or to provide pithy information.; those components are only relevant in as far as they help you sell products.

Storing the Product for Delivery: How will you manage the product after assembly? Your product must be available in sufficient quantity that users can receive it quickly. And you must have a means by which it can be stored and is still ready to be shipped promptly. How are you going to do that?

Gathering Customer Attention: Next comes the challenge of customers finding you and your marketing of the product to gather attention and enthusiasm. How will you stand out among the thousands of e-commerce websites already out there? Is your product so unique that it will engender a high-profit margin? Is it a commodity which will succeed based mostly on price? Also, consider if you want to offer special pricing to entice users to purchase your product such as a sale in July or a discount for first customers. Thus, how much control do you want to have over the marketing aspect of your product?

After the Sale: Once a customer has decided to buy your product you need to be informed of their purchase and engage a rapid and consistent system of shipping that product out to the customer reliably and efficiently. In a global market, users could be anywhere and potentially speak any language. You need to decide how far and wide you're going to ship and what methods you were going to use to ship the products.

When the Sale Sours: Unfortunately, the story does not always end there. Many times the product is seen as defective on the part of the customer, or there are shipping errors. These mistakes can lead to negative impressions of your product which harm sales in the future. How will you handle a request for returns and refund? Do you have a window upon which you will accept returns and outside of which you will reject them? Payments too can become problematic. The buyer can refuse the credit card payment. Depending on the credit cards you accept, you may have little or no recourse but to refund customers.

Happy Customers: Once you have established a relationship with a client, you may want to engage them in a system of longer-term retention to enable repeat sales or sales of similar products. You need to decide how integrated that system will be and time intensive for you to maintain. Similarly, will you somehow reward purchases and enable users to receive a discount for additional products? How will you get them to write a review or expressing interest in your products?

Choosing an E-commerce Platform: There are essentially three choices for an e-commerce platform.

1. First, you can go it alone. That means you control the servers, the domains, the security certificates, and the payment system such as PayPal. 
2. The second option would be to engage one of the many shopping platforms such Shopify. Shopify competes in a complicated Market. There are other shopping platforms which you would want to consider such as Bigcommerce Magento yo Kart and Big Cartel.
3. The last option is the gorilla in the room, and that is Amazon. For the novice to e-commerce, Amazon has an incredibly complete help system with video and audio which explain components of the process step by step. 

Going it Alone: The above issues make it clear that creating your e-commerce website from scratch is unlikely to be a good choice and likely to be a source of risk and headaches. Few sellers choose this route anymore, and you should probably discard it.

e-commerce Platforms besides Amazon: Shopify is an example of a very easy e-commerce platform to engage. It will address most of your needs. But it doesn't necessarily have all the features you are looking for

Although the e-commerce platforms are popular, anyone who has purchased on Amazon understands its market power and influence. Unless there is a compelling reason to choose an e-commerce platform, Amazon should be your first choice to introduce your product to the market and engender sales. If sales disappoint or you feel that better returns could be obtained, then you can certainly engage a marketing platform to supplement Amazon or potentially to replace it. But as you start to investigate the value of e-commerce for your product Amazon and it's support for your growing operation, Amazon is a powerful and easy place to start.

Amazon
Amazon constrains your site to the Amazon interface and approach. If you feel that a unique selling strategy is important or essential to your product's sales, then the look and feel of the Amazon experience may not work for your product. On Amazon, you will find many unique and different products. Those companies have likely assumed that the marketing power and sales potential of Amazon outweigh possible benefits of a custom-designed website regarding sales or the expense of effort required.

Amazon comes in two flavors to the seller one in which you continue to manage warehousing and fulfillment and mainly use their structure for marketing, customer acquisition, and customer relationship management. Amazon brings s together many of the pieces involved in e-commerce and has established standards at a higher level than large shopping platforms.

Amazon FBA
Amazon is interested in your forming an even closer relationship by engaging in their fulfillment by Amazon (FBA) program. FBA removes almost all of the challenges of e-commerce in exchange for your paying Amazon for this service. FBA is provided in two sections, one for the individual and one for the business depending on the number of sales. If the number of sales is beyond 40 items per month, then the business strategy is the optimal choice.

Why Amazon FBA
Amazon FBA offers a solution to almost all e-commerce questions and concerns. It handles warehousing, fast shipping, returns, payment systems, and product reviews. It also has tools to get an overview of your product, assess sales, and identify areas where you can improve the performance of your sales operation. You essentially lose control and gain freedom.

Amazon's goal is to get you to utilize Amazon FBA to sell your product, and they have developed a system that will accomplish this aim. Further Amazon is always endeavoring to expand its market and better serve its customers. As seen by Amazon's next day delivery and same day delivery, they will continue to push the boundaries of e-commerce and to delight customers by addressing their desire for a clean, seamless, and quick purchasing experience. So keep in mind that this is a field of rapid change. For your product will you gain from such rapid change or be harmed by an inability to keep up with the field of e-commerce? FBA is a bet that Amazon will stay on top of e-commerce. That assumption hasn't been proven wrong yet.

That's All Folks. Selling a Life Science Venture

It's never too early to start to plan for selling the company. In fact, before you start you need to visualize how this venture will end. After all, this is the outcome your angels and Venture capitalists are waiting for. And they will have strong opinions about when you should sell.

When that time comes, you may be delighted that your company will be sold. However, you should consider the ramifications to your career. You may have invested most of your career in obtaining expertise in a single life science area. After you sell what rights will you have to participate in this field? Will you continue to be able to expand your knowledge? Will you be able to utilize your expertise? These are essential components of any sales agreement, and it is important that you are comfortable with the outcome.

Regarding the actual sale of the company typically there are multiple options for obtaining value from the company post funding cycles; however, for life science company there are typically very few options. Almost certainly you will seek a strategic sale to a pharmaceutical company. The capitalization requirements and complexity of marketing a novel pharmaceutical or device most rule out an IPO. And without that expertise obtaining revenue to entice a walking harvest (ongoing payment based on sales) or partial sale are unlikely. Nor is a financial sale to non-life science company likely.

Further, few purchasers can obtain the full value of your vision, and the potential buyers will be short. On the other hand, large life science corporations are counting on companies such as yours to identify new opportunities, so if the trials go well, you have a valuable product to sell. Of course, there is a chance that trials go poorly and the value of company plummets. Be prepared for the reality that the end result of your venture is Chapter 7, full dissolution of all assets. Not a pretty outcome but highlight likely in a life science venture.

To prepare for eventually selling your company, your goal is to find angels and more importantly venture capitalists with expertise in this domain since no doubt skills required to sell a company are far outside your skill set. Look to investors to obtain expertise and negotiate a favorable sale of the company. Regarding the value obtained keep in mind that timing, a sale is not an exact science. You are going to feel like you either waited too long to sell or have sold too early. You are not seeking the perfect solution but of solution which meets your financial and developmental needs and goals. Good luck with your planning and good luck with your future venture.

The Startup Process: Sourcing - Evaluating - Valuing - Structuring - Negotiating - Supporting - Harvesting

Reference: David Amis-Howard Stevenson (2001). Winning angels: the seven fundamentals of early-stage investing. Pearson Education.

Getting Support for Your Life Science Startup

As a life scientist-entrepreneur, you are well aware of the value of mentors. In the process of education and early training, a life scientist engages with the number of mentors who provide support from the emotional to coaching to specific skills development.

In the life of the company, there are similarly multiple areas that require ongoing support. For example:

• determining a valuation of the enterprise,
• developing a marketing strategy,
• determining when to seek out guidance and from experts such as accountants and lawyers.

At crucial points in career development, scientists receive key input. One framework when evaluating the need for entrepreneurial support is to consider the concept of a value event. In scientific training, one can imagine such an event would be an advisor who recommended classes to take as an undergraduate or a Ph.D. program or MD program which would meet professional and personal needs. In career development of the life scientist, a large number of individuals have guided the life scientist regarding scientific research at various key points. In fact, the decision to pursue an entrepreneurial path is such an event.

The concept of a value event applies equally well to the life scientist embarking on a business career. In business, there are similar milestones including:

• determination of a need for additional funding and the amount of funding to request,
• the timing of various funding rounds and the type of investor to seek, 
• reassessment of team members and the need to alter or enhance the team to meet business goals. 

Life scientists additionally have value events related to the production of a pharmaceutical or device. These are clearly marked through various stages of clinical trials. The success or failure at these stages will dramatically affect the potential value of the startup venture. It is essential that the investor also understands the implications of such value events. A medical product with negative impact or no demonstrated value cannot ethically be sold. Investors must realize that one cannot market such products even if it is in high demand.

In the life sciences because of the need for vast capital and marketing expertise, a startup venture will rarely succeed as an independent body. Identify individuals who can assist with the most important event to investors, the sale of the company when the proper time comes. No doubt, the investors will be very interested in participating at this point; however, the entrepreneur must look out for both personal and business interest since the sale of the company may require ongoing effort as an employee or removal from the enterprise altogether. These are dramatic changes that will impact the scientific career of the life scientist-entrepreneur. Picking up a new biomedical path is not the same of as creating a new piece of software.

The Startup Process: Sourcing - Evaluating - Valuing - Structuring - Negotiating - Supporting - Harvesting

Reference: David Amis-Howard Stevenson (2001). Winning angels: the seven fundamentals of early-stage investing. Pearson Education.

Negotiation of Startup Funding

For the budding life science entrepreneur, you want to establish an agreement with the investor that works in the long term. Negotiation of an agreement cannot be avoided, but need not be onerous. As discussed earlier in Structuring An Early Round Investment, there are several different structure strategies which can be deployed. The actual structure depends on the results of the negotiation. Similarly, Valuing Your Life Science Startup is a component of the negotiation.

Negotiation is not uniquely different for the life scientist in a business framework versus in any other aspect of life. Components to consider include:

Power differential. Who has the power?

• Are you desperate for money and can't proceed without the investor? 
• Are you unable to run the company without input from the investor? 
• Are you hoping that the investor will help you establish a qualified board? 
• Or recommend key team members. 

Alternatively, is everything in place and your project is so compelling that you need little from the investor some cash?

Personality.

• Are you an introvert who does not enjoy playing games with other people and who repels from any aspect of manipulation. In this case, be upfront and tell the investor that the deal is the deal and you're not interested in wasting a lot of time going back and forth. Highlight to the investor that this deal is not capricious but has been well thought-out, and it is fair in your mind and is a win-win solution for both parties.
• If you are more extroverted and enjoy the experience of working with a car salesman to purchase the car at the lowest price, then you have an entirely different strategy. In a sense, you find the negotiation to be the fun part and will feel cheated if you don't get the best deal. Understand that if your investor is also of a similar bent, this will be a long protracted experience which potentially both of you will enjoy. It could also turn really nasty. If the investor is more introverted, you may have just lost that investor as a partner.

We all want to win. With the exception of the above car salesman analogy, almost every negotiation is best done with the assumption that both parties win. Funding a startup is not a zero-sum game.
You need adequate monetary support, guidance, autonomy, and motivation in the form of company ownership to successfully launch your business. Your investor needs a certain return on investment, risk profile, and a sense that your startup will add value according to their belief system. In your negotiation, make it clear that you want the investor and you to both win.  A good investor will understand a win-win scenario. An investor who disagrees should be told to look elsewhere.

Be aware of triangles. Negotiation is almost impossible if it involves more than two people. With every additional person, you increase the number of pairs of negotiation several fold. With three people there are three times as many negotiation requirements. That includes the entrepreneur negotiating with two investors, and the two investors negotiating between themselves. This makes the process substantially more complicated and should be avoided at all costs. You can easily calculate the danger of having four members in the negotiation. Get the investors to agree to have a lead and accept their terms. And only negotiate with the lead. If a non-lead won't buy into that, dump them before you waste a lot of time.

Final advice. Negotiation is not something new to you. You have been negotiating for things your entire life and have strategies that work and strategies that do not work. As opposed to the earlier topics, this is familiar territory. Do not change how you negotiate at this critical moment of your life. Choose a strategy that works for you, has a high comfort level and typically achieves the outcomes you want. If you hate buying from car salespeople, now is not the time to decide you want to become a high-pressure negotiator.

The Startup Process: Sourcing - Evaluating - Valuing - Structuring - Negotiating - Supporting - Harvesting

Reference: David Amis-Howard Stevenson (2001). Winning angels: the seven fundamentals of early-stage investing. Pearson Education.

Seeing is Not Believing

Gaming holds great promise. It produces autonomy, empowerment, social connectedness, intrinsic motivation, challenge, flow, feedback, achievement, and more. The best games take over reality and immerse the player in an exciting and challenging world. And the best tool to engage the gamer in an immersive experience is headset-based virtual reality (VR). In virtual reality, one can be anywhere, and one can alter all the elements. So why hasn't VR taken off?

One aspect of gaming is rarely discussed: watching vs. playing. Why is it important to be in the game vs. following along? Do you have to be in the game to see its value? This issue is especially interesting for me since I am not a gamer and have never really been all that fond of playing games.

A user can see the value of a VR to the player in an instant. But that doesn't seem to translate to enthusiasm for VR in general. How do we convince folks to purchase a VR game if they have never used VR? I've tried using stories and 2D images and lengthy verbal explanations and failed every time. I did my best to create the dream, but it still wasn't good enough. Perhaps some rare folks can imagine a VR experience, but most cannot. In most cases, only those who have used Oculus/Vive/Playstation VR can understand the immersive value of VR. But it doesn't take long.

So to help people see the value of VR game based education we need them to do more than watch. We need to get them to experience VR, vs. being on the outside. We need an experience that puts them inside to the exclusion of everything else. Once there, folks will demand that this is how they give and get training from here on out.

What does this mean for applying VR to medical education? Medical school could deploy a gaming framework. Until faculty of medicine and educators in the classroom experience VR, a VR solution is unlikely to gain wide acceptance. But once stakeholders "get inside the game," VR for training purposes will expand rapidly. Game developers like me who want to create games for medical education need to be ready for that fateful day. And hopefully this holiday season will be the holiday when everyone receives a VR setup.

Structuring An Early Round Investment

The actual structure created for a life science startup will not be substantially different from any other startup investment. Thus the following information is not specifically customized to the needs of the life scientist-entrepreneur.

Structuring an early stage investment can be seen from two perspectives. The first perspective focuses on the complexity of the structure. In general, this requires a simple yet understandable agreement and an agreement which is based on trust and mutual respect of both parties. The Simplicity of the agreement is important because in most cases funding from the angel will not be the last funding. For both the founder and the investor it is important that the structure created at the outset is acceptable to venture capitalist in later rounds without significant modification.

The secondary component is the actual agreement terms. Structure includes more than ownership stake however since that component is often the most important the most contentious is it make sense to address it first.

The primary decision is between offering the investor of common shares and various rights that would likely accompany the common shares versus some type of preferred shares as well as the many possible rights that would be conferred alongside preferred shares.

Arguments for either can be made but basically, common shares will not confer many of the special rights available to preferred shares yet will be simpler arrange. For a small stake in a company common shares made be the easiest and most logical path to follow. The potential upside can be added through additional rights to invest in additional rounds as well as to sell when anyone else sells shares.

Preferred shares may provide additional rights related to board selection, obtaining dividends, obtaining internal information, making decisions regarding liquidation, or conversion or redemption of shares.

The final type of investment would be a convertible note which is more attractive currently. This avoids actual negotiation on the price and sets the share offering tied to a future event. The note is likely to be convertible into preferred stock and discounted to the rate of the actual sale of preferred stock as compensation for the additional risk that the angel endured. The advantage is that neither party must agree on a valuation at this time. At a later time, the financials will be more clear and the VC will likely be more skilled at valuation. The convertible note provides an incentive to gather additional funds via venture capital had a later time, and because of changes in the discount rate, the incentive is to obtain those funds earlier rather than later. Thus if additional funding is not expected this is not a logical path to follow.

The note includes the possibility that the investor would be repaid if additional funding is not received. However, in such a case it's more likely that the company is not viable and all the funds would have been lost. If additional funds are not received then the angel has likely taken on a large risk and received a fairly meager rate of return on the note. Again in such a situation a not is the optimal structure.

Additional important parts of the structure beyond the capital structure discussed above would be the expected involvement of the investor regarding participation in the board, or acting an advisor. The structure should also include the expected time that the entrepreneur will be involved as well as the salary and expected time the entrepreneur will stay with the company. Finally reporting as with any contract is essential and should offer financial information for the company as on a monthly and quarterly basis as well as significant expenses.

The entrepreneur should consider that a request for preferred shares will require a more complicated legal agreement to clarify the details and the investor rights. This also increases the time for the negotiation as well as the legal costs involved. However to avoid confusion and disagreements later it's logical to invest wisely regarding time and energy and ensure that the agreement is both sound and clear to both parties.

The Startup Process: Sourcing - Evaluating - Valuing - Structuring - Negotiating - Supporting - Harvesting

Reference: David Amis-Howard Stevenson (2001). Winning angels: the seven fundamentals of early-stage investing. Pearson Education.

Valuing Your Life Science Startup

Angels investing in your life science startup will want figures for the value of the startup at the beginning as well as at a future time to calculate their expected return. Angels obviously do not expect that all investments will succeed. Thus they will want to know that your future value represents a significant multiple of the present value or a high internal rate of return.

In comparison to other startups, a life science product will likely require approval by multiple regulatory bodies Complicated and expensive empirical clinical studies will be required to achieve a minimal value product worthy of acquisition. The value will be measured not on regarding clinical benefits or diagnostic utility, but also cost-savings.

A life science startup likely has some previous work upon with to demonstrate clinical or diagnostic utility. The high failure rate due to regulatory approval and the need for successful clinical trials will hinder enthusiasm for the startup.

Calculating the future value, of course, is partially a guess. The business plan will provide proforma estimates of future sales, reasonable expenses, and potential earnings based on the product, market size, market penetration and competitive price. Your business plan's financials; however, are not the sole guide to valuation. The figures should provide some guidance, but investors understand that these numbers are not something upon which they can rely. In the life sciences (and elsewhere) a discounted cash flow valuation is recommended (Jarju-Jeanty, 2014). A discussion of the process is outlined in that paper.

Potentially, such figures have little to do with the value placed on your life science startup. The initial valuation may be the starting point. Of course, the initial valuation is inexact; for an early start up because there likely is no product or even a minimal value product upon which to judge value.

For this reason, some investors apply a dollar value to assets and ideas. For example, they may see an energetic, thoughtful, and motivated entrepreneur as providing $1M worth of value. A sound idea for a value proposition, a high-quality management team, and a well-qualified board may also be worth a million dollars. Having a prototype or potential drug will add value. However, this again would be based on conjecture as at this time the prototype or compound does not have a specific or guaranteed revenue generation capability. Together all of these elements will be a means by which an angel investor will determine the value of a company. This strategy is referred to as the Berkus method. A more complicated but similar approach includes more variables alongside weights and percent contribution but the effect is the same, rubric based on existing data rather than figures (Kauffman, 2007, p16). There are even online tools for a quick and easy estimate.

There are other strategies to value a company at its outset. Some will have a ceiling which they will not go beyond such as $5M. Others will assume that founders and management have two-thirds of the value and the investor is contributing 1/3.

Others will value the firm at the beginning based on what they expect the future value will be and then adjust that value for their expected multiplier. An investor seeking a multiplier of ten times the money they put in the startup will be interested in investing in a million dollars if they believe that the value of their investment three years later would be worth ten million dollars.

Other investors seek an internal rate of return. For example, if they expect to gain a 30% return each year and the investment is over three years they will expect that the initial investment will grow 30% each year and will yield the value that they perceive the company will have at a future time, say three years. Thus if they assume the company will be worth $10M they calculate that the current value must be $4.5M to achieve an IRR of 30% over a three year period.

References:

1. Hogue Joseph. Investing in the Next Big Thing: How to Invest in Startups and Equity Crowdfunding like an Angel Investor. January 28, 2017.
2. Harju-Jeanty Robert. Venture capital valuation of small life science companies. Spring 2014.
3. Amis David, Stevenson Howard. Winning Angels: The 7 Fundamentals of Early Stage Investing. Vol 1 edition. London: FT Press. March 15, 2001.
4. Rossiter Matthew S, Kramer Barry J, April 11 Michael J Patrick •, 2013. Life Science Financing Survey 2012. 
5. Styhre Alexander. Valuing and Investing in Life Science Companies. In: Financing Life Science Innovation. Vol Palgrave Macmillan UK; 2015:107-136. doi:10.1057/9781137392480_5.
6. Allen Kathleen R. Launching New Ventures: An Entrepreneurial Approach. Vol 7 edition. Boston, MA: South-Western College Pub. January 16, 2015.
7. Ewing Marion Kauffman Foundation. Valuing Pre-revenue Companies. In: Kauffman eVenturing : The Entrepreneur’s Trusted Guide to High Growth. Vol Kauffman eVenturing. ; 2007.
8. Stevenson David Amis-Howard (2001). Winning angels: the seven fundamentals of early-stage investing. Pearson Education.

The Startup Process: Sourcing - Evaluating - Valuing - Structuring - Negotiating - Supporting - Harvesting