5 Creative Ways to Add Value to (and Grow) Your Company
Starting a business is one thing, but strategically growing it is another beast entirely.
As a leader, you have built your company to what it is today, an incredible feat in the competitive life sciences sector.
But there comes a time when your company is poised for growth and it’s time to take that next step, except…
…what should that next step be?
Growth can be achieved in numerous ways. Some decide that growing organically is the right strategy (where the company naturally goes on to launch new products or enter other markets, and so on). Others choose faster, more deliberate moves like mergers or acquisitions.
Those are the obvious ones, but other strategies tend to get overlooked, such as licensing deals and strategic partnerships.
Below are 5 main strategies to add value to your organization and achieve the next level of growth. (Jump to the end if you need guidance on this now.)
Partnerships
What it is: In the business sense, partnerships refer to a formal agreement made between parties to operate and share in growth (profits) of an organization or entity.
The specific legalities vary by country, but generally a partnership is a way of structuring a business that is mutually beneficial to the partners involved.
Partnership example:
In the life sciences, one of the most common partnerships is a co-development partnership where two companies come together to advance science. One party may bring money whereas the other may have the scientific knowledge. It’s an efficient way to leverage what everyone is good at.
Pros:
Simpler to set up than corporations (no need to file with government)
Goals can vary and be decided on between parties
Profits usually shared equally or as outlined in writing
Possible tax benefits
Cons:
Parties not aligned
Poor communication or management
Competing objectives and end states
2. Licensing
What it is: Licensing is a market entry strategy where one company allows another to use its intellectual property (such as a product, process, technology, etc.).
This is most common when a company wants to gain market share with less risk and expense than if they did it themselves. In return, the licensor earns a small percentage of sales.
Licensing examples:
Regional licenses are a strategy used quite often in the life sciences industry. The cost to develop drugs is high. As a product is advancing through clinical trials, companies may seek to license their asset to a territory that they are not familiar with from a regulatory perspective. Not only does this allow for a cash injection to support development for their target region, it may allow for additional insight into product development.
Pros:
Gain market share
Increase sales volumes
Less risk
Lower cost
Benefit from international company’s market experience
Cons:
Challenging to create mutually beneficial agreement
Lower profit potential
Some risk of licensee becoming competitor using the IP
3. Mergers
What it is: A merger is the voluntary combining of two organizations into a single new company.
The most common reasons for a merger are to add value to the new entity by accessing markets of each, bringing together similar products/services, reducing redundancies and operational costs, boost revenue, and increase profitability.
Companies can be doing the same business activities or in an unrelated area.
Merger examples:
A recent example of this is two companies in different territories (North America and Europe) with complementary products merging together. The benefit was that the companies were able to benefit from their respective networks and add additional products for distribution with minimal cost.
Pros:
Voluntary
Generally a merger of equal size, scale, etc.
Revenue and profit growth
Value creation
Cons:
Challenge combining differing corporate and team cultures
Miscommunications and management issues
Misalignment of objectives
Redundancies likely, reducing employee morale
4. Acquisitions
What it is: Acquisitions are the active purchasing (takeover) of one company by another to increase value.
Typically the smaller company is absorbed into the new one operationally, brand-wise, and legally; once complete, it ceases to exist and is part of the larger organization.
Acquisition examples:
There are many examples of successful acquisitions. One in particular is a large contract development and manufacturing organization acquiring new sites to expand their service and geographic offerings. In addition to all of the necessary due diligence, the most successful acquisitions have a quick changeover when it comes to integration to the new brand and support for transition to new operating practices.
Pros:
Gain market share
Increase synergy
Expand products/services
Access to new markets
Reduce operational costs
Revenue and profit growth
Value creation
Cons:
Large amounts of cash required
Negative/hostile connotation
Lawsuits possible
5. New Markets
What it is: Entering new markets can mean expanding into other geographical regions or target markets (or both).
Once identified, the new market(s) generally should be distinct, reachable, growing, and with a large enough market size to justify the cost to reach it through marketing.
Market research and knowledge of the regulatory differences is critically important in pursuing a market entry strategy. The more you can glean from the data, the better equipped you will be to make an informed decision.
New market entry examples:
Distribution agreements or setting up your own company structure are definitely consideration points when expanding to new geographies. Companies that already operate in a particular territory are aware of the nuances from an operating and regulatory point of view and can save lots of time and money when entering a new market - setting up a distribution agreement which lends itself to the benefits of both parties.
Setting up a new company can allow for full ownership, ultimately more cash flow - but also more challenges if you are not fully versed on the requirements of the country.
Pros:
Overcome growth plateaus with existing markets
Increase market share
Gain a competitive advantage
Reach new customers
Revenue and profit growth
Value creation
Cons:
Cost to reach new markets via marketing, sales, operations, and regulatory
So which growth strategy is right for your business?
Using the pros and cons above, you can gain some clarity to begin the process.
You should have a solid advisory team or board of directors around you to help advise and shape the future of your organization.
Working with an experienced business development team is also worthwhile. Experienced professionals with a successful track record in your industry will help identify opportunities you might not have considered (or been aware of).
After all, it’s one thing to know which route you wish to go, but another to actually find deals and partnerships and licensing pathways and acquisition targets.
The decisions you make don’t need to be a permanent solution. Stay agile and flexible should the market change or any unforeseen conditions come to light.
That way you can avoid being left in the dust as your competitors and the industry evolve.
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Sosna + Co is a boutique, outsourced business development partner for the life sciences. From M&A advisory and licensing deals with Fortune 500 companies to uncovering the potential of savvy, new start-ups, the principle is simple: we work meticulously to uncover new opportunities that grow your business. Contact us today to learn more.