Strategic Planning: The Linchpin of Biotech Start-Up Success
“Good fortune is what happens when opportunity meets with planning.” – Thomas Edison
Start-ups are often born of high-risk, high reward scenarios, leading to a fast-paced, competitive, and growth-oriented movement. Even the mere thought of launching a start-up can awaken the productivity-driven, investment-savvy center of an entrepreneurial brain. But, even as the anticipation takes hold and ideas begin coming together, it’s important for your start-up’s beginnings to root from solid strategic planning efforts.
Based on an October release by the SBA Office of Advocacy, start-ups make up about 13% of new business establishments opened each year. In conjunction with the Bureau of Labor and the US Census Bureau, the Office of Advocacy data, as averaged from 1994 to 2018, shows that nearly 68% of new employer establishments survive their first two years in business, roughly 49% survive their first five, and only about 34% survive their first ten. I haven’t included this information to be discouraging in the least. Quite the contrary. I want to use it to highlight what makes strategic planning particularly important for start-ups, so you can avoid the headwinds and common pitfalls.
Why is strategic planning important for start-ups?
Obtaining initial capital and continued investment, as well as managing costs, market volatility, and shareholder differences are all challenges start-ups face. Misconceptions about the market for a product or service and the competitors you may encounter also come into play. And all of these challenges have been magnified by the COVID-19 crisis and the state of the economy.
Every industry has its own considerations; for example, integrating varying macro scenarios into the strategic planning process is critical for biotech start-ups. As it is part of the medical sector, biotech has not been hit as hard as some in terms of stock prices. But, just as it is for everyone else, the search across the equity market has been bleak, capital is constrained, and the cost of financing is on the rise. As a biotech start-up, you will begin operating at a loss, so you will rely on data collection and progress to set market value. Without the funding to maintain these operations, such as clinical trials and experiments, and without the tools to strengthen your investment portfolio, your start-up may fall victim to its own capital market dependency.
With strategic planning on your side, however, you can define your purpose and your goals, leverage opportunities, get to know your targeted market and your competition, and mitigate risks, such as cash and resource shortages, knowledge gaps, an evolving market, and technology constraints. So, what comes first? Start by assembling a strategic planning team.
How do I assemble the optimal strategic planning team?
The role of a strategic planning team has many facets. From the beginning, your team’s task should be to establish your start-up’s identity: your goals, your mission, and your values. The role of the team is also ongoing. Once your identity is in place, it’s time to apply what you know to your strategic planning efforts, implement and execute policies and processes, and follow up by monitoring your progress.
Your team will, of course, include stakeholders, but I encourage clients to make sure all business areas are properly represented. Think of this as a cross-functional team, in which every member brings a needed perspective to the table. Depending on your internal framework, consider that the perspective from finance, technology, project management, marketing, sales, and customer service may all need to be represented, as they can each contribute insight based on their area of expertise.
Generally, start-ups outsource administration, HR, marketing, and accounting and legal advisory services. Your outsourced team members may work with you on a SWOT analysis to jump-start your initial planning. Based on key internal metrics, SWOT looks at strengths and weaknesses. And, based on external research and market data, it also reveals opportunities and threats. What’s a key ingredient for doing just that? Financial projections. That’s one of the areas where I can help.
Incorporating Financial & Tax Planning
Based on your chosen products, services, market, and competition, how much capital will you need? And, more importantly, from who or where will it come? Are you going to be able to meet your goals within the timeline you’ve plotted? All of these questions can be answered through financial planning. I often assist clients with estimating net income and gross margins and, because frequent access to current, relevant data is key in your first few years, I can provide pro forma cash flow and expense projections, and an updated balance sheet.
Before a strategic plan is in place, start-ups may consider taxes to be an area for potential weakness; however, it’s my job to show you taxes can also be an area of hidden opportunity. A critical part of strategic planning, for example, is entity type selection. Based on an analysis of your situation, I can help your start-up choose the most advantageous entity type, whether it’s upon initial setup or a potential change down the road, in terms of maximizing deductions and minimizing tax liability.
In your first year, targeting tax planning will also be needed as you choose your accounting methods, incur start-up costs, and begin cost capitalization and amortization. And tax law is anything but static, so part of my commitment to my clients is to monitor new and changing laws to ensure they remain in compliance and are aware of new opportunities.
Start-ups meeting the qualified small business threshold and the general creation and improvement standards of the R&D Tax Credit may now apply the credit against federal payroll taxes on a quarterly basis. While this applies to qualifying businesses of any kind, this can be an absolute game-changer for businesses and start-ups in biotech. And it’s equally important to understand state-level credits. Biotech is huge for Massachusetts, and, accordingly, the Commonwealth offers a number of tax benefits, including their own R&D credit.
Contact Abbott & Company
Don’t let the statistics get in your way. Effective strategic planning can be your start-up’s greatest asset across the years and in prevailing against the odds. No matter what stage of planning you’re in, I want to help you leverage new opportunities, mitigate risk, and meet your goals. Contact me today to get started.
by Mellinda Abbott
As a CPA and small business owner with experience in corporate America, Mellinda Abbott is a distinguished, invaluable personal and business tax advisor. She understands the everyday issues, compliance matters, best practices, and operational concerns of her clients. Mellinda prides herself on fostering personal client relationships while providing year-round, customized services to her clients designed to maximize savings, limit tax exposure, and, most importantly, to help her clients attain their financial goals.