Case Study: Building an Emerging Market Model
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Case Study: Building an Emerging Market Model

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Case Study: Building an Emerging Market Model Case Study: Building an Emerging Market Model Presentation Transcript

  • © 2012 BRUCE PHARR
  • “The kind of market-size forecasts that come out of even the most highly respected firms—the ones that get quoted in the press as showing the bright and promising future for some new technology or product—are, by necessity, rooted in multiple assumptions.” 1 – Geoffrey A. Moore, Crossing the Chasm BUILDING AN EMERGING MARKET MODEL | 2
  • INTRODUCTIONAn advantage of working in a well-established market is that detailed analyst reports—withmarket size, growth rate, competitive landscape, etc.—are readily available from highlyregarded firms. At the other end of the spectrum, new disruptive and discontinuousinnovations may present a “low-data situation” where, according to Geoffrey A. Moore,“informed intuition, rather than analytical reason, is the most trustworthy decision making tool.”2I’ve worked in both situations, but the majority of my corporate and consulting experience isin markets between the two extremes: A new market that is 1) a result of a new segmentemerging within a larger established market, 2) the convergence of two technologies to forma new category, or 3) a combination of these two situations.Examples include Micro-Fuel Cells (the convergence of portable power and fuel celltechnology), Transaction Anomaly Detection (user behavior monitoring emerging as asecurity software technology for online authentication), and a Laboratory InformationManagement System for Next-Generation DNA Sequencing (the application of datamanagement software for basic and applied genomics research). BUILDING AN EMERGING MARKET MODEL | 3
  • THE PURPOSE OF AN EMERGING MARKET MODELAn emerging market model can help you persuade key parties that your company is viable. Investors – Venture capitalists and other investors want to know where your company fits within their portfolios (is there potential synergy, but not competition, between your company and others), and they want some degree of confidence that there is growth potential sufficient to provide a desired return on their investment. Analysts – Inclusion in a report from a major analyst firm, such as Gartner, is the "Holy Grail" for many technology startups. However, if you dont fit one of the pre- existing categories, you have to convince the analyst firm to create a new technology category. At a minimum, that will require presentation of a credible market model that includes the market size, growth rate and competitive landscape. Employees – Many emerging-market companies begin with an entrepreneur’s idea; not a well-developed business plan. Early on, the entrepreneur can recruit like-minded employees. As the company grows, a market model can be helpful in recruiting more pragmatic employees who want to better understand the company’s risk-reward profile. And a market model can help show employees that business goals are realistic and achievable, and that the company is successfully progressing towards its goals. BUILDING AN EMERGING MARKET MODEL | 4
  • BUILDING AN EMERGING MARKET MODELThe most recent market model I’ve developed is for laboratory information managementsystem (LIMS) software to support next-generation sequencing (NGS) for basic and appliedgenomics research. The methodology is based on best practices and personal experience.The case study information is specific to the emerging market segment. I have used actualinformation where it is publicly available, and I’ve omitted or altered proprietary informationto preserve confidentiality.The market model was initially developed in late 2010 and early 2011, and was periodicallyupdated throughout 2011 and into early 2012. It was used for several purposes including: • Securing $2.5M in short-term debt financing, and raising $8M in equity funding. • Identifying the target market (core labs), and developing a go-to-market strategy. • Aligning all departments and employees across the company.The graphic on page 6 shows the framework for developing the market model. It startedwith a wide-angle view of the scientific software market and zoomed into the emerging NGSLIMS market model by analyzing market intelligence from the global LIMS market andglobal NGS instrument/laboratory market and combining it with proprietary knowledge. BUILDING AN EMERGING MARKET MODEL | 5
  • EMERGING MARKET MODEL DEVELOPMENT FRAMEWORK Scientific Software Market LIMS Market NGS Market Proprietary Knowledge NGS LIMS Market BUILDING AN EMERGING MARKET MODEL | 6
  • CASE STUDY | GENOMICS LIMS EMERGING MARKET BUILDING AN EMERGING MARKET MODEL | 7
  • GLOBAL SCIENTIFIC SOFTWARE MARKETThe global scientific software served available market (SAM) is about $2.2B with a15% CAGR. Bioinformatics is the largest segment with the fastest growth rate. 2#>8?"$@, Software 9/, SAM CAGR Segments <0=, Bioinformatics $1,099M 30% -/, LIMS $410M 4% 01:6, ;/, Cheminformatics $300M 0% LIOC $200M 0% 678"$%#&()"*+, !"#"$%#&()"*+, ELN $110M 20% 49/, -./, In-silico $90M -4% Modeling 0123, TOTAL $2,209M 15% 45/, Sources: Atrium Research, ELN Edition IV, 2009; Kalorama Information, Informatics in Drug Discovery: The Evolving Information Technology Market, 2005; ARC Advisory Group, Laboratory Information Management Systems, 2009; Business Insights, The Global Bioinformatics Market, 2009! BUILDING AN EMERGING MARKET MODEL | 8
  • GLOBAL LIMS MARKET – SIZEThe global LIMS market is over $400M, and growing at about 3.5% annually to over$450M by 2013. 04"$ 01"$ 00"$ 0%"$ !"#$%&# 0!"$ 0#"$ 0""$ %3"$ %2"$ !"#"$ !"##$ !"#!$ !"#%$ &()*$+,-.$./-$ 0#"$ 0!1$ 0%2$ 010$ Source: Global LIMS market size, ARC Advisory Group, Feb 2009 BUILDING AN EMERGING MARKET MODEL | 9
  • GLOBAL LIMS MARKET – APPLICATION SEGMENTATIONThe pie chart shows the global LIMS market by major application focus. Large molecule lifesciences (biology) applications are 6% of the total, or about $26M. &"# )"# *+,-./+01#23+041/1#5#6-1,/37# &("# 839/.:3;-3,+0# !!"# &"# </=-#>?/-3?-1# @-3-.+0#A:?B1# C0/3/?+0#D-1-+.?EF#G/+73:1,/?1# $%"# A:.-31/?1HC./;/3:0:74# Source: Worldwide Survey of LIMS Users, Strategic Directions International Inc., Feb 2009 BUILDING AN EMERGING MARKET MODEL | 10
  • AN EXPLOSION OF GENOMIC DATAIn 1990, The Human GenomeProject ignited a technologicalrace in gene sequencing. High-throughput sequencingtechnologies are driving datageneration and costimprovements at a rate evengreater than Moore’s Law.3!Ittook more than a decade andan estimated cost of $3 billion to publish the first draft of the human genome in 2000. Justover 10 years later, businesses are competing to sequence an individual’s entire genome in amatter of weeks for about $10,000.4!The 1000 Genomes Project, the first large project tocapitalize on next-generation sequencing technologies, deposited twice as much rawsequencing data into the GenBank archives in its first six months of operation as had beendeposited into GenBank in the 30 years since its inception.5 BUILDING AN EMERGING MARKET MODEL | 11
  • NEXT-GENERATION SEQUENCING MARKETThe incredible improvements in speed and cost are driving large-scale adoption of next-generation sequencing (NGS) instruments by genomics labs—from 200 in 2007 to anestimated 1,900 in 2010 and over 5,000 by 2013.6!Organizations are confronting the realitythat new sequencing instruments running at capacity can generate more information in asingle year than the total deposited in GenBank at the beginning of 2008.7 Number of NGS Instruments BUILDING AN EMERGING MARKET MODEL | 12
  • DATA MANAGEMENT IS A MAJOR HURDLE TO NGS ADOPTIONIn turn, industry analysis that once focused on the costs of sequencing genome data nowfocus on the challenges of managing it. Research by J.P. Morgan in May 2010 determinedthat 63% of NGS laboratory directors surveyed said that data storage, data management andinformatics are the biggest hurdles to expanding next-generation sequencing.8Biggest Hurdles % (#$ (#$Data management/informatics/storage 63%General cost 17% )*+,-./*$0+123-45-6$ &#$Sample prep/workflow 13% 376-$0+1$8+*/9/5:$ ;6/<+5-$=4,>?56:$0+1$DNA sample access 13% @+A76$B-47.-$3-45-6$ !"#$ B7<-64.-45$0+1$Funding 10% %&#$Quality and reproducibility 7%Regulatory/legal constraints 7%Capacity/access to more sequencers 7% BUILDING AN EMERGING MARKET MODEL | 13
  • DATA MANAGEMENT SOFTWARE IS A TOP PRIORITYResearch by William Blair & Company in January 2011 determined that software and datamanagement support is a top-three priority in selecting an NGS platform.9 BUILDING AN EMERGING MARKET MODEL | 14
  • NEXT-GENERATION GENOMICS LABS – LOCATIONAbout 73% of NGS labs are in North America, 18% in Europe and 9% in Asia-Pacific. Source: William Blair & Company, LLC, survey, January 2011 BUILDING AN EMERGING MARKET MODEL | 15
  • NEXT-GENERATION GENOMICS LABS – NUMBER OF INSTRUMENTSThere are about 1,200 global NGS labs with the following breakdown in the number ofinstruments per lab. Source: William Blair & Company, LLC, survey, January 2011 BUILDING AN EMERGING MARKET MODEL | 16
  • NEXT-GENERATION GENOMICS LABS – FUNCTION43% of NGS labs are individual (PI) academic labs and 41% are core labs. Source: William Blair & Company, LLC, survey, January 2011 BUILDING AN EMERGING MARKET MODEL | 17
  • NEXT-GENERATION GENOMICS CORES – LOCATIONAbout 66% of core labs are in North America, 20% in Europe and 12% in Asia-Pacific. Source: Genome Technology, survey, March 2010 BUILDING AN EMERGING MARKET MODEL | 18
  • NEXT-GENERATION GENOMICS CORE LABS – OWNERSHIP44% of core labs are academic, 38% are biopharma and 8% are government. Source: Genome Technology, survey, March 2010 BUILDING AN EMERGING MARKET MODEL | 19
  • NEXT-GENERATION GENOMICS CORE LABS – CLINICALAbout 11% of core labs are CLIA certified and 85% are not. Source: Genome Technology, survey, March 2010 BUILDING AN EMERGING MARKET MODEL | 20
  • PROPRIETARY KNOWLEDGEOne benefit of working in a small emerging market is that initial sales are often in the tensprogressing to the hundreds, and the number of competitors is relatively small. It is feasibleto obtain highly accurate and complete market-size and market-share information from yourown win-loss intelligence.Because there are relatively few competitors in the early stage of an emerging market, yourcompany is likely to be aware of and involved in almost all competitive purchase decisions.Therefore, it is possible to support a market-size and market-share model with specificaccount name and price paid data from your win-loss analysis.Because the emerging NGS LIMS market is being driven by the need to manage theexplosion of data from NGS instruments (page 13), the NGS LIMS adoption curve shouldresemble the NGS instrument adoption curve (page 12), adjusted for multiple instrumentpurchases by individual labs (page 16).The emerging market for NGS LIMS was constructed using adjusted actual market-size datafrom 2008 through 2010, and extrapolating that trend over the three-year period from2011 through 2013, in line with laboratory adoption of NGS instruments. BUILDING AN EMERGING MARKET MODEL | 21
  • NGS LIMS MARKET MODEL FORMULAThe formula for estimating the annual served available market (SAM) size for NGS LIMSfor the years 2011, 2012 and 2013 is: IB x ASPIB x 0.20 + NL x ASPNLWhere: IB = installed base of NGS LIMS from prior years ASPIB = average sales price of NGS LIMS installed base 0.20 = average annual cost of maintenance and support NL = projected number of labs purchasing NGS LIMS in the calendar year ASPNL = projected average sales price of NGS LIMS purchased in the calendar year BUILDING AN EMERGING MARKET MODEL | 22
  • NGS LIMS EMERGING MARKET MODEL – MARKET SIZEApplying actual data in $US for years 2008 through 2010 and estimated data using theformula on the previous page for years 2011 through 2013 produces the following market-size chart (the $US units have been removed for confidentiality). !""#$ !""%$ !"&"$ !"&&$ !"&!$ !"&$ BUILDING AN EMERGING MARKET MODEL | 23
  • NGS LIMS EMERGING MARKET MODEL – MARKET SHAREApplying actual data in $US for years 2008 through 2010 and estimated data assuming a5% annual increase in market share for years 2011 through 2013 produces the followingmarket-share (red) chart (the $US units have been removed for confidentiality). !""#$ !""%$ !"&"$ !"&&$ !"&!$ !"&$ BUILDING AN EMERGING MARKET MODEL | 24
  • NGS LIMS EMERGING MARKET MODEL – SMELL TESTAs the quote at the beginning of this case study indicates, even market-size forecasts fromhighly respected firms are rooted in multiple assumptions. Therefore, the test of yourmarket model is its consistency with known information and relevant market trends. Hereare some essential “smell tests” that the model must pass. sThe “S” Curve – The growth curve for a new market resembles a skewed as marketadoption progresses from a few high-priced sales during early adoption (base of the S),through accelerated mainstream market adoption (sharp ascending slope in the middle of theS), followed by a sharp decrease due to slowing sales and falling prices (leveling at the top ofthe S). Beware of the mythical parabolic curve (e.g., dotcom or housing booms), with anunderlying assumption that the growth rate will not decline and prices will not fall.Known Data and Trend Consistency – The pie chart on page 9 shows life sciences is 17%of the total LIMS market, and only 6% ($26M) is large molecule (biology). While NGSLIMS is the fastest growing segment of biology LIMS, in 2010 it was still less than the$26M total. And projected market size and growth is consistent with actual market-sizedata from 2008 through 2010 and the NGS instrument/lab (LIMS market driver) projectedgrowth rate from 2011 through 2013. BUILDING AN EMERGING MARKET MODEL | 25
  • NGS LIMS COMPETITIVE LANDSCAPEThe NGS LIMS landscape is composed of four competitive categories: Category A – Companies that develop LIMS software specifically for genomics laboratory research, with a software product offering supplemented by a custom services group. Category B – Companies that develop LIMS software specifically for genomics laboratory research exclusively through custom consulting. Category C – Companies that develop LIMS software for large multidiscipline (different biology-based and chemistry-based analytical labs) enterprise applications. These competitors are rarely encountered outside of large research institutions that want a single LIMS vendor to serve multiple labs across the entire enterprise. Category D – A custom LIMS developed as an application layer to an existing data- management software platform by laboratory personnel. This is most often encountered in academic labs where doctoral candidates and post-doctoral research assistants with some programming experience can be employed at very low cost. BUILDING AN EMERGING MARKET MODEL | 26
  • NGS LIMS COMPETITIVE LANDSCAPE – RELATIVE MARKET SHAREThe pie chart shows relative market share for the three commercial vendor categories.In-house development is excluded because cost cannot be accurately determined. However,about 30% to 40% of academic opportunities are lost to in-house development. 5% 10% A B C 85% BUILDING AN EMERGING MARKET MODEL | 27
  • NGS LIMS COMPETITIVE LANDSCAPE – RELATIVE CAPABILITIES The matrix shows the three categories of commercial software developers (in- house not shown), and their respective size (size of circle represents relative annual revenue) and capabilities relative to multi-purpose enterprise LIMS and NGS LIMS. BUILDING AN EMERGING MARKET MODEL | 28
  • NGS LIMS COMPETITIVE LANDSCAPE – RELATIVE THREAT While the large enterprise LIMS vendors (C) have significant capability, they have shown little interest in the NGS market, but this could change as market size increases. Custom NGS LIMS vendors (B) lack the capability to pose a significant threat. For now, the fight for market supremacy is among the dedicated NGS LIMS product vendors (A). BUILDING AN EMERGING MARKET MODEL | 29
  • CONCLUSIONThis case study describes the methodology used to develop the emerging market model. Allpublicly available data are displayed as they were in the actual market model. The market-size and market-share data have been omitted for confidentially, and the individualcompetitors have been grouped into categories, for the same reason (in the actual marketmodel, seven individual companies were profiled).As previously noted, the market model was initially developed in late 2010 and early 2011,and was instrumental in several activities and events, including: • Securing $2.5M in short-term debt financing in Q1 2011. • Raising $8M in equity funding in Q3 of 2011. • Identifying the primary market (core labs) and developing a go-to-market strategy. • Explaining the focus on the NGS market to the board and employees. • Aligning all departments and employees across the company with the NGS focus. • 15 articles and interviews in target media between February 2011 and January 2012. BUILDING AN EMERGING MARKET MODEL | 30
  • ABOUT THE AUTHORBruce Pharr lives in the San Francisco Bay Area with his wife andson. He umpires little league baseball games, hikes in the SantaCruz Mountains, eats good food, drinks good wine, reads, andindulges a passion for the arts.As a marketing executive, he has a track record of increasing enterprise value bydeveloping and executing successful product and marketing strategies, and bymanaging technological and organizational change. He developed the emergingmarket model described herein while serving as Vice President of Products andMarketing at GenoLogics Life Sciences Software.He has held lead marketing positions at several private and public corporations, andhe founded and led a technology marketing consulting firm, for over a decade,with clients ranging from startups to Fortune 500 corporations. BUILDING AN EMERGING MARKET MODEL | 31
  • ENDNOTES!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1 Geoffrey A. Moore, Crossing the Chasm: Marketing and Selling Disruptive Products to Mainstream Customers (Collins Business Essentials, 2006), 91.2 Ibid, 92.3 Stein, L. D. The case for cloud computing in genome informatics. Genome Biology 2010, 11, 207.4 Batley, J.; Edwards, D. Genome sequences data: Management, storage, and visualization. BioTechniques 2009, 46, 333-336.5 Stein, L. D. The case for cloud computing in genome informatics. Genome Biology 2010, 11, 207.6 Third Quarter 2010 Earnings Conference Call, Caliper Life Sciences, October 2010, 16.7 Holt, R. and Jones, S. The new paradigm of flow cell sequencing. Genome Research 2010, 18 (6).8 J.P Morgan Equity Research. Next Gen Sequencing Survey, May 2010, 11.9 William Blair & Company, LLC, Next-Generation Sequencing Survey, January 2011, Figure 24, 27. ! BUILDING AN EMERGING MARKET MODEL | 32