0
CVs and VCs

   Managing the People/Profit
           Equation
          Joanne E. Harack


          MaRS BioEntrepreneur...
Agenda
    Background to the biotech industry
!

    Personal challenges for founders
!

    Organizational development fr...
Creating Science Businesses
  A VC’s view:
!
“Take people, ideas and money and mix.”

  A CEO’s view:
!
“Biotechnology is ...
Evolution of Biotech (Life
Sciences) Industry
    Biotech companies have emerged via a
!
    combination of innovation and...
What’s Unique about the
Biotech Industry?
    Highly regulated
!

    Priority on science discovery
!

    Reliant on VC f...
What are Conventional Biotech
Companies Like?
    Small and mid size companies just
!

    focused on survival, not best O...
Typical Organization Dynamics
    Informal rather than structured career
!
    development
    Integration across discipli...
Catbert, Evil HR Director




          MaRS BioEntrepreneurship Series,
                  April 16, 2007             8
From Lab to Leadership
    The science of business/the business of
!

    science
        Science Business: Gary P. Pisano...
Personal Challenges for
Founder/Entrepreneurs
    Telling the story
!
        Convincing initial investors
    !

    Sell...
Serial Founders

                                         Telling the story
          Letting go




                     ...
Intellectual Property: An HR
Perspective
    Paradigm shifts:
!

        Academic “publish/disseminate” vs.
    !

       ...
Founder to CEO
    Raising and managing finances
!

    Recruiting and building a team
!

    Creating the corporate cultu...
Stages of Organizational
     Development



                                             Phase 3

                       ...
Phase 1 Organization
    Survival oriented
!

    Highly entrepreneurial
!

    Fast mover, adaptable and changeable
!

  ...
(Early) Phase 2 Organization
    Demonstrated successes
!

    Efficiency and effectiveness
!

    Systems, procedures ori...
(Late) Phase 2 Organization
    More meetings and task groups
!

    Occupied with enshrining and repeating
!

    known s...
Phase 3 Organization
    Close to customers and market
!

    Searching for innovative solutions
!

    Adaptable, changea...
HR Priorities at Each Stage
    Recruitment
!

    Rewards and Recognition
!

    Employee engagement
!




              ...
Questions to Answer
    What is the key HR driver in the
!

    business plan?
    How will we grow the company?
!

    Wh...
What is the key HR driver in
the business plan?
    In the heyday of dot.com companies, mass
!
    hiring was typical; tur...
How will we grow the
company?
    Two approaches:
!

        Hire the ideal management team and they “hire
    !

        ...
What will it take?
    If taking the “top team down” approach, the
!
    executives MUST be able to act as individual
    ...
Scientific Advisory Board
    Timing & leadership
!

    Charter: how do you want to use the SAB?
!

    Role: advisor to ...
Board of Directors
    Formal Charter and roles; fiduciary
!

    responsibility
    Investors play a major role (choose
!...
Clinical Advisory Board
    Focused on clinical outcomes – not the
!
    science per se; predominately M.D.s
    Must repo...
HR Functional Expertise: Hired
In or Outsourced?
    In general, dictated by:
!
        Existing expertise, previous exper...
HR Functional Expertise: Hired
In or Outsourced? (cont.)
    Most commonly outsourced (Phase 1
!

    organizations):
    ...
HR Functional Expertise: Hired
In or Outsourced? (cont.)
    Irrespective of whether the expertise resides
!
    within or...
Recruitment: Talent
Acquisition
    Recruiting/selection is both an “art” and a
!
    “science”
    “Would you date anybod...
Talent Acquisition: the
Paradox
    In annual surveys, 85% of executives
!

    across mature industries say that their
  ...
Talent Acquisition: Some
Challenges
    Candidates in general are harder to find,
!
    more selective and difficult to “l...
Recruiting Process
    Sourcing
!

    Evaluating
!

    Selling
!

    Closing
!




                 MaRS BioEntrepreneu...
Sourcing
    Goal: to reach and connect with highly
!
    qualified candidates who aren’t looking for a
    job.
        A...
Evaluating
    Understand the job/role
!

    Interview with a team; prepare ahead
!
    of time
    Use behavioral interv...
Selling
    The best talent are very discriminating
!
    seekers of information, and are hard to
    recruit
    Focus on...
Selling (cont.)
    Who we are: vision, mission and values
!

    Where we came from: the lore
!

    Where we are going: ...
Some Possible Value
Propositions
    High performance “winner” in our niche
!

    Big risk/big reward
!

    Therapeutic ...
Closing: The Offer Letter
    The simpler the better
!

        Executives
    !

        Others
    !

    Timing and tim...
Compensation philosophy and
structure
    There is no “best way” to structure total
!
    compensation
    The kind of org...
Compensation philosophy and
structure (cont.)
    Most early stage companies fail to think through a
!
    compensation ph...
Performance Management




        MaRS BioEntrepreneurship Series,
                April 16, 2007             42
Performance Management
    Goal Setting and Review Process
!
        Keep it REALLY simple – early stage companies change ...
Creating Engagement
    Turnover in biotech companies is high
!

    (>20%)
    Below the management team most
!

    vuln...
Creating Engagement (cont.)
quot; Components:
      Fit and belonging
  !

      Status and identity
  !

      Emotional ...
Creating Engagement (cont.)
    Treat people as partners – not
!
    “resources” to be managed
    Communicate, communicat...
Defining Organizational Culture
as the Company Grows
    How does the organization see itself,
!

    others, the world?
 ...
In Conclusion…
                           Employees: Build Individual
                                   Capability




  ...
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CVs and VCs: Managing the People/Profit Equation

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This is part of the MaRS BioEntrepreneurship series
http://www.marsdd.com/bioent/apr16

Speaker: Joanne Harack, Snelgrove Associates

* Founder entrepreneurs: from lab to leadership
* Organization development framework: from spin out to emerging company
* HR planning to match the business plan: short- and long-term needs
* Getting the basics right: payroll, taxes, and related auditable processes
* Intellectual property: from University to business
* Hiring versus outsourcing
* Recruitment/selection tools and techniques
* Compensation philosophy and structure
* Employment agreement basics
* Investors, Board and SAB
* Organizational culture

To download an audio file of this presentation, please go to :
http://www.marsdd.com/bioent/apr16

Published in: Economy & Finance, Technology
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Transcript of "CVs and VCs: Managing the People/Profit Equation"

  1. 1. CVs and VCs Managing the People/Profit Equation Joanne E. Harack MaRS BioEntrepreneurship Series, April 16, 2007 1
  2. 2. Agenda Background to the biotech industry ! Personal challenges for founders ! Organizational development framework ! Building organizational capability ! HR functional expertise ! Key processes ! Moving ahead ! MaRS BioEntrepreneurship Series, April 16, 2007 2
  3. 3. Creating Science Businesses A VC’s view: ! “Take people, ideas and money and mix.” A CEO’s view: ! “Biotechnology is about profit and passion.” An employee’s view: ! “These companies provide incredible learning opportunities – if you can take it.” MaRS BioEntrepreneurship Series, April 16, 2007 3
  4. 4. Evolution of Biotech (Life Sciences) Industry Biotech companies have emerged via a ! combination of innovation and entrepreneurship A university researcher and a venture ! capitalist formed Genentech in 1976 1980s and early 1990s – new IPOs followed ! Genentech model Late 1990s-now – consolidation and blurring ! of biotech/big pharma and search for new models MaRS BioEntrepreneurship Series, April 16, 2007 4
  5. 5. What’s Unique about the Biotech Industry? Highly regulated ! Priority on science discovery ! Reliant on VC financing ! High Value on IP/patents/science ! Many influencers: FDA, healthcare, ! reimbursement, patients/consumers Long /complex product to market cycle ! Continuity of thought over extended time ! MaRS BioEntrepreneurship Series, April 16, 2007 5
  6. 6. What are Conventional Biotech Companies Like? Small and mid size companies just ! focused on survival, not best OD practice – recruitment of leaders Accountability to investors/stockholders ! & need for measurements Philosophical dilemma of researchers ! –academic to business environment MaRS BioEntrepreneurship Series, April 16, 2007 6
  7. 7. Typical Organization Dynamics Informal rather than structured career ! development Integration across disciplines ! Teamwork ! “Can do” attitude: intellect + ! pragmatism Professional “HR” functional expertise ! lacking MaRS BioEntrepreneurship Series, April 16, 2007 7
  8. 8. Catbert, Evil HR Director MaRS BioEntrepreneurship Series, April 16, 2007 8
  9. 9. From Lab to Leadership The science of business/the business of ! science Science Business: Gary P. Pisano ! Businesses creating science are ! fundamentally more complex than those using science Unique personal and organizational ! challenges MaRS BioEntrepreneurship Series, April 16, 2007 9
  10. 10. Personal Challenges for Founder/Entrepreneurs Telling the story ! Convincing initial investors ! Selling the concept ! Commercial capability ! Recruiting the team ! Current and future capability ! Letting go ! At what point in the company’s growth ! does my role change? MaRS BioEntrepreneurship Series, April 16, 2007 10
  11. 11. Serial Founders Telling the story Letting go CYCLE OF CHALLENGE FOR SERIAL FOUNDERS Selling the Recruiting/building Concept the team MaRS BioEntrepreneurship Series, April 16, 2007 11
  12. 12. Intellectual Property: An HR Perspective Paradigm shifts: ! Academic “publish/disseminate” vs. ! corporate “keep secret/appropriate” Individual discovery vs. corporate asset ! Assignment of inventions to the company ! Very few academic scientists are willing/able to make the shift on a permanent basis MaRS BioEntrepreneurship Series, April 16, 2007 12
  13. 13. Founder to CEO Raising and managing finances ! Recruiting and building a team ! Creating the corporate culture ! Determining short, mid and long term ! goals Clearly communicating goals to the ! Board and employees MaRS BioEntrepreneurship Series, April 16, 2007 13
  14. 14. Stages of Organizational Development Phase 3 Phase 2 Success/ Late Complexity Transformation – or Death! Early Phase 1 Time/Effort MaRS BioEntrepreneurship Series, April 16, 2007 14
  15. 15. Phase 1 Organization Survival oriented ! Highly entrepreneurial ! Fast mover, adaptable and changeable ! Perpetually cash starved ! Risk taker ! MaRS BioEntrepreneurship Series, April 16, 2007 15
  16. 16. (Early) Phase 2 Organization Demonstrated successes ! Efficiency and effectiveness ! Systems, procedures oriented ! Management focused versus ! entrepreneurial MaRS BioEntrepreneurship Series, April 16, 2007 16
  17. 17. (Late) Phase 2 Organization More meetings and task groups ! Occupied with enshrining and repeating ! known success patterns Ignore or reject innovation outside of ! the “proven” success pattern MaRS BioEntrepreneurship Series, April 16, 2007 17
  18. 18. Phase 3 Organization Close to customers and market ! Searching for innovative solutions ! Adaptable, changeable, “reinventing” ! itself Quality focused internally and externally ! MaRS BioEntrepreneurship Series, April 16, 2007 18
  19. 19. HR Priorities at Each Stage Recruitment ! Rewards and Recognition ! Employee engagement ! MaRS BioEntrepreneurship Series, April 16, 2007 19
  20. 20. Questions to Answer What is the key HR driver in the ! business plan? How will we grow the company? ! What do we want to be known for? ! What will it take to succeed? ! MaRS BioEntrepreneurship Series, April 16, 2007 20
  21. 21. What is the key HR driver in the business plan? In the heyday of dot.com companies, mass ! hiring was typical; turnover was also high and rapid. This kind of hiring is not appropriate in a business driven by breakthrough science. Biotech business plans do not typically have ! “hire 40 scientists” as business milestones. If your key milestone is clinical, you need ! people who know how to get to the clinic. What specific events will trigger hiring for the ! company? MaRS BioEntrepreneurship Series, April 16, 2007 21
  22. 22. How will we grow the company? Two approaches: ! Hire the ideal management team and they “hire ! down” the rest: in very well capitalized companies the conventional wisdom is to hire the management team first, but you have to be prepared to “over hire” and fire later Hire key positions/individuals and fill in the rest ! later: less well funded companies fill out a partial scientific “swathe” to demonstrate success quickly MaRS BioEntrepreneurship Series, April 16, 2007 22
  23. 23. What will it take? If taking the “top team down” approach, the ! executives MUST be able to act as individual contributors (you do not want a senior team of “delegators”) If using the “key positions” approach, ! everyone in the company must be comfortable with ambiguity, role overlap Appropriate balance of opportunistic and ! planned hiring Compensation philosophy and structure ! should reflect the value proposition MaRS BioEntrepreneurship Series, April 16, 2007 23
  24. 24. Scientific Advisory Board Timing & leadership ! Charter: how do you want to use the SAB? ! Role: advisor to the development process; ! typically report to the head of development; do not play an operating role Value: facilitate academic collaborations; ! provide sanity check on the science Rewards: equity or honorarium ! MaRS BioEntrepreneurship Series, April 16, 2007 24
  25. 25. Board of Directors Formal Charter and roles; fiduciary ! responsibility Investors play a major role (choose ! them carefully!) Internal vs. external directors ! Governance: private vs. public ! MaRS BioEntrepreneurship Series, April 16, 2007 25
  26. 26. Clinical Advisory Board Focused on clinical outcomes – not the ! science per se; predominately M.D.s Must report to the CEO (or head of ! regulatory/clinical) usually with a formal relationship to the Board (ethical and liability oversight) Typically created at the pre-clinical discovery ! phase One or two members may serve as ! consultants/advisors to CEO or Board prior to formation of the CAB MaRS BioEntrepreneurship Series, April 16, 2007 26
  27. 27. HR Functional Expertise: Hired In or Outsourced? In general, dictated by: ! Existing expertise, previous experience and/or comfort level ! of CEO Volume (tasks, employees) ! Degree of difficulty ! Objectivity required/desired ! Discrete functional expertise often added at Phase 2 ! (or 30+ employees): HR functions that have been delegated to others are then integrated into the HR function If discrete HR function is present in the early stage, ! the incumbent performs additional roles MaRS BioEntrepreneurship Series, April 16, 2007 27
  28. 28. HR Functional Expertise: Hired In or Outsourced? (cont.) Most commonly outsourced (Phase 1 ! organizations): Payroll: ADP or Ceridian ! Recruiting of senior leadership, including ! Directors: Executive Recruiters, specialized search firms Employment contracts; ESOP; IP ! assignment documents: law firm MaRS BioEntrepreneurship Series, April 16, 2007 28
  29. 29. HR Functional Expertise: Hired In or Outsourced? (cont.) Irrespective of whether the expertise resides ! within or outside of the firm, internal accountability must be assigned “Outsourcing” does not mean delegating all ! responsibility or eliminating commitment of time Failure to manage outsourced functions in a ! coordinated manner from the beginning >rework, inconsistencies and unnecessary expense later! MaRS BioEntrepreneurship Series, April 16, 2007 29
  30. 30. Recruitment: Talent Acquisition Recruiting/selection is both an “art” and a ! “science” “Would you date anybody? Selection ! matters!” Piers Steel, University of Calgary People are the fundamental building block of ! business growth and competitive advantage no matter how you choose to build out the organization Logistics of the recruiting process require ! frequent “refreshing” as organizations develop MaRS BioEntrepreneurship Series, April 16, 2007 30
  31. 31. Talent Acquisition: the Paradox In annual surveys, 85% of executives ! across mature industries say that their companies do not have enough talent or are chronically short of talent; yet - CEOs report spending less than 10% of ! their time on talent acquisition and development. MaRS BioEntrepreneurship Series, April 16, 2007 31
  32. 32. Talent Acquisition: Some Challenges Candidates in general are harder to find, ! more selective and difficult to “land”; Recruitment of Directors has become more ! difficult (demographics, competition, personal liability); Demographic profiles and immigration are ! increasingly important; Global “war for talent;” ! Mistakes are costly. ! MaRS BioEntrepreneurship Series, April 16, 2007 32
  33. 33. Recruiting Process Sourcing ! Evaluating ! Selling ! Closing ! MaRS BioEntrepreneurship Series, April 16, 2007 33
  34. 34. Sourcing Goal: to reach and connect with highly ! qualified candidates who aren’t looking for a job. At the right sites. ! From the right people. ! In the right way. ! quot; Build your recruiting practices so that people seek out your organization. quot; Work with recruiters who understand your value proposition, will negotiate rates, and can represent you credibly MaRS BioEntrepreneurship Series, April 16, 2007 34
  35. 35. Evaluating Understand the job/role ! Interview with a team; prepare ahead ! of time Use behavioral interviewing ! Perform “due diligence” - references ! Collect feedback quickly ! For senior hires, consider formal ! assessment (e.g. ghSmart) MaRS BioEntrepreneurship Series, April 16, 2007 35
  36. 36. Selling The best talent are very discriminating ! seekers of information, and are hard to recruit Focus on the right motivators: (advantages, ! benefits, capabilities, challenges) Sell the candidate – not the company ! Ensure fit with your culture as well as the job ! MaRS BioEntrepreneurship Series, April 16, 2007 36
  37. 37. Selling (cont.) Who we are: vision, mission and values ! Where we came from: the lore ! Where we are going: the lure ! HOW THE CANDIDATE FITS OUR ! COMPELLING FUTURE MaRS BioEntrepreneurship Series, April 16, 2007 37
  38. 38. Some Possible Value Propositions High performance “winner” in our niche ! Big risk/big reward ! Therapeutic breakthrough that saves ! lives (idealist) “Lifestyles” ! MaRS BioEntrepreneurship Series, April 16, 2007 38
  39. 39. Closing: The Offer Letter The simpler the better ! Executives ! Others ! Timing and timeliness ! Formal orientation commences well ! before arrival Elicit feedback ! MaRS BioEntrepreneurship Series, April 16, 2007 39
  40. 40. Compensation philosophy and structure There is no “best way” to structure total ! compensation The kind of organization you are building will ! dictate the relative emphasis placed on: Base salary ! Bonuses ! Equity ! Benefits/intangibles ! quot; The market and how you relate to it will dictate salary benchmarking MaRS BioEntrepreneurship Series, April 16, 2007 40
  41. 41. Compensation philosophy and structure (cont.) Most early stage companies fail to think through a ! compensation philosophy Most early stage companies do not think through ! how to structure the ESOP – the investors/Board will be focused on the senior team and the overall cap structure. Without conscious, deliberate planning, the option ! pool allocated to employees can be depleted too quickly. Compensation issues typically surface with the third ! employee! It is worthwhile seeking external professional advice ! (consulting, surveys, industry associations.) MaRS BioEntrepreneurship Series, April 16, 2007 41
  42. 42. Performance Management MaRS BioEntrepreneurship Series, April 16, 2007 42
  43. 43. Performance Management Goal Setting and Review Process ! Keep it REALLY simple – early stage companies change too ! quickly to make investment in complicated systems either necessary or practical Keep the expectations clear – the goal is to align individual ! and corporate goal achievement, not a “scientific” measurement of each employee’s contribution Remember that it is really about two way communication ! and feedback – which should be ongoing, not an annual event It is not about money! Consider separating annual salary ! increase decisions from the review process MaRS BioEntrepreneurship Series, April 16, 2007 43
  44. 44. Creating Engagement Turnover in biotech companies is high ! (>20%) Below the management team most ! vulnerable; more problems of fit and culture Variations across organizational levels ! and functions MaRS BioEntrepreneurship Series, April 16, 2007 44
  45. 45. Creating Engagement (cont.) quot; Components: Fit and belonging ! Status and identity ! Emotional reward ! Economic interdependence ! Trust and reciprocity ! MaRS BioEntrepreneurship Series, April 16, 2007 45
  46. 46. Creating Engagement (cont.) Treat people as partners – not ! “resources” to be managed Communicate, communicate, ! communicate Clean and safe physical environment ! Opportunities for self expression ! Coaching, counseling and confronting ! conflict and non-performance MaRS BioEntrepreneurship Series, April 16, 2007 46
  47. 47. Defining Organizational Culture as the Company Grows How does the organization see itself, ! others, the world? What does “good” look like? ! What is an example of a “failure”? ! Quality of conversation ! Formality of feedback ! A diagnostic is helpful ! MaRS BioEntrepreneurship Series, April 16, 2007 47
  48. 48. In Conclusion… Employees: Build Individual Capability “HR” VCs: Build Wealth CEO: Build the Enterprise “HR”= human and organizational capability MaRS BioEntrepreneurship Series, April 16, 2007 48
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