The Lean LaunchPad Lecture 5: Customer Relationships

1. Steve Blank Jon Feiber Jon Burke http://i245.stanford.edu/ The Lean LaunchPadLecture 5: Customer Relationships

2. Source: http://giffconstable.com/

3. value proposition key activities customer relationships key partners customer segments cost structure revenue streams key resources channels 2 images by JAM

4. CUSTOMER RELATIONSHIPS what relationships are you establishing with each segment? personal? automated? acquisitive? Retentive??

5. WeCall Customer Relationships Demand Creation • Get, Keep and Grow • How will customers hear about your product? • How much will it cost to acquire a customer using these strategies? • How does market type impact my demand creation strategy?

6. Customer Relationship Definition Get Keep Grow

7. Get Customers

8. Who needs to hear about you? End User Suppliers Influencer / Recommender Channels Economic Buyer Government Decision Maker Partners

9. Demand Creation Getting Free Users Demand Creation • Search Engine Optimization (SEO) • Blogging / Sharable content • Social Media / Gaming Mechanics • Communities • Proven viral coefficient >1

10. Demand Creation Paying For Users Demand Creation • Public Relations • Demand Capture • SEM • “Free” products (e.g. widgets) • Biz Dev • Affiliate Marketing • Market Education • Webinars • Email marketing • Trade Shows • Analyst Reports • Direct Sales • TV / Radio

11. Get Customers Funnel - Physical “Get Customers” Funnel Interest Awareness Consideration Purchase

12. PayingCustomers $ Demand Creation Feeds the Sales Funnel Demand Creation Acquisition

13. Keep Customers

14. Keep Customers Funnel - Physical Earned and Paid Media Loyalty Programs Get Customers product updates Awareness Keep Customers Consideration Purchase Interest Customer check-in calls Customer satisfaction survey

15. Grow Customers

16. Grow Customers Funnel - Physical Earned and Paid Media Grow Customers Get Customers product updates Loyalty Programs Un-Bundling Awareness Keep Customers Up-Sell Cross-sell Referrals Consideration Purchase Interest Customer check-in calls customer satisfaction survey

17. Get Customers

18. Get Customers Funnel – Web/Mobile “Get Customers” Funnel Acquire Activate Viral Loop

19. Demand Creation Feeds the Sales Funnel Earned and Paid Media PR “Get Customers” Funnel Viral Mktg SEO SEM/PPC Acquire Activate Blogs/Website Affiliate Mktg Advertising Tradeshows Viral Loop

20. Keep Customers

21. Keep Customers Funnel - Web/Mobile Earned and Paid Media “Get Customers” Product updates Affiliate Programs Keep Customers Activate Acquire Contests, events Blogs, RSS, emails Loyalty Programs Viral Loop

22. Grow Customers

23. Grow Customers Funnel - Web/Mobile Earned and Paid Media Grow Customers product updates Affiliate Programs Keep Customers Acquire Activate Referrals Up-Sell Cross-sell Next-Sell Contests, events Blogs, RSS, emails LoyaltyPrograms Viral Loop

24. How many come through the first step? • How much does that cost? • What is the conversion between each level? • How much in revenues can you get out of each acquired customer?

25. Demand Creation by Market Type Existing • Educate the market about what’s changed • Drive demand into channel Resegmented • Educate the market • Identify/drive early adopters into your sales channels New • Copy a business Clone • Create, drive demand into your sales channel

26. Market Type How does market type influence demand creation? Market Type determines: • Rate of customer adoption • Sales and Marketing strategies • Cash requirements

27. Get a working web site and analytics up and running Track where your visitors are coming from (marketing campaign, search engine, etc.) and how their behavior differs What were your hypotheses about your web site results? Actually engage in “search engine marketing” (SEM) Spend $20 as a team to test customer acquisition cost. Ask your users to take action, such as signing up for a newsletter. Use Google Analytics to measure the success of your campaigning. Change messaging on site during the block to get costs lower, team that gets the lowest delta costs wins. If you assume virality show viral propagation of your product and the improvement of your viral coefficient over several experiments What is your assumed customer lifetime value? Are there any proxy companies that would suggest that this is a reasonable number? Team Deliverable by Next Week - Web

28. For non-web teams: Get prototype demo working. Build demand creation budget and forecast. What is your customer acquisition cost? Did anything change about Value Proposition or Customers/Users? What is your customer lifetime value? Channel incentives – does your product or proposition extend or replace existing revenue for the channel? What is the “cost” of your channel, and it’s efficiency vs. your selling price? Everyone: Update you blog/wiki/journal What kind of initial feedback did you receive from your users? What are the entry barriers? Present and explain your marketing campaign. What worked best and why? Team Deliverable by Next Week

29. Examples

30. Christian Gutierrez (EL), Ellis Meng (PI), Carol Christopher (IM), Tuan Hoang (FE) implantable drug infusion pumps with remote physician control for chronic pain patients at home “the right dose at the right time and place”

31. Chronic Pain v4 FS Team Trade shows Training Faster relief Patients KOLs Formulary Acceptance Clinical data Efficient patient management and Dosing flexibility FDA Foundations Clinicians Support CMS (Medicare) Advocacy Groups Access to high-value therapies and pharmacoeconomics OEMs Institutions IP Hospitals Wireless Developers Proprietary knowledge pharmacoeconomics Pain clinics Payors/ICA Electronic health record providers Human Resources Unit sales Product Dev Costs Manufacturing Costs Support Services Marketing Costs FDA/Clinical Trials Bundled kits Electronic records

32. Getting out Clinicians Institutions/patients Regulatory Entrepreneurs/ Industry • Dr. Stan Louie, Drug Formulation Expert (USC Pharmacy) • Dr. Giovanni Cucchiaro, Anesthesiologist (CHLA) • Dr. Diana Hull, Physician (Group Health in Washington state, formerly at Kaiser California) • Thomas Hsu, Insurance Specialist (Network Medical Management; a California ICA) • Two chronic pain patients • Pump user and creator of support forum • User of oral narcotics and patches • Dr. Frances Richmond (Director Regulatory Science Program, USC) • Richard Hull (formerly at company selling Lapband)

33. Product flow/Channel Patients Electronic Health Records Fluid Synchrony Partners/ OEMS Electronic Records Support Services Bundled Kits Pump + Controller Pain Clinic (Anesthesiologists Neurosurgeons) Hospitals (Anesthesiologists Neurosurgeons) .

34. Channels (Direct) Hospitals Pain Clinics • Direct to institutions • Some formularies involved in purchase decisions • Some doctors make purchase decision directly • Device company/Doctor relationship is key • Heavily influenced by : • Clinical study results • Regulatory approval • Reimbursement

35. Patient Care Flow (Now) Trial period/ Home setting Surgery/Rx/ reprogramming Scheduled follow-up Fluid Synchrony Partners/ OEMS Support Services Bundled Kits Pump + Controller Pain Clinic (Anesthesiologists Neurosurgeons) Patient Discharged Hospitals (Anesthesiologists Neurosurgeons) Weeks/months Key factors: Reimbursement , state regulations

36. Patient Care Flow (Proposed) Trial period/ Home setting Surgery/Rx/ reprogramming Electronic Health Records Scheduled follow-up Fluid Synchrony Partners/ OEMS Electronic Records Support Services Bundled Kits Pump + Controller Pain Clinic (Anesthesiologists Neurosurgeons) Patient Discharged Hospitals (Anesthesiologists Neurosurgeons) Actionable feedback to doctors/institutions . E-prescription / closing loop Weeks/months Key factors: Reimbursement , state regulations Days

37. Regulatory considerations • PMA approval with grouping of FDA approved drugs. • Clinical trials results used to obtain CMS (Medicare) approval • 510K restricts technology to predicate devices • Can be more difficult to market against incumbents • European CE mark is easier to attain (safety and performance only)

38. Take-aways • Channel is direct in this existing market • Channel for e-health is more complex and evolving • State-to-state regulations can impact incentives • Can pose problems as electronic records systems vary across the country Next Steps • Understand costs associated with reaching doctors/institutions directly • Understand structure of e-health channel • Develop regulatory pathway (timelines and cost profile)

39. Chronic Pain v4 FS Team Trade shows Training Faster relief Patients KOLs Formulary Acceptance Clinical data Efficient patient management and Dosing flexibility Foundations FDA Clinicians Support Advocacy Groups Access to high-value therapies and pharmacoeconomics OEMs Institutions IP Hospitals Wireless Developers Proprietary knowledge pharmacoeconomics Pain clinics Payors Electronic health record providers Human Resources Unit sales Product Dev Costs Manufacturing Costs Support Services Marketing Costs FDA/Clinical Trials Bundled kits Electronic records

40. “insero” = to plant ”gen” = gene Lucas Arzola (EL) Karen McDonald (PI) Vasilis Voudouris (Mentor) Manufacturing platform for rapid, cost-effective, and scalable production of therapeutics in tobacco

41. What We Know We have a novel technology platform with numerous market opportunities Our working hypothesis – that we can scale up and commercialize our platform for production of life-saving therapeutics Jon Feiber – “Since you are a platform technology, it makes sense to engage in ‘market discovery’ and ‘customer discovery’ at the same time during the next weeks” Challenging this hypothesis by speaking with as many experts and customers as we can This week: explored decision making and distribution channels in the case of a pandemic

42. The Business Model Canvas Target Product – seasonal & pandemic flu vaccines • Tobacco Suppliers • Gene Synthesis Companies • CMOs • - Purification • Fill & Finish • - Packaging • QA/QC • CROs • Clinical Trials • FDA R&D Manufacturing Regulatory Approval Licensing Marketing Speed Cost-Effectiveness Robustness Scalability Safety Ease of Customization U.S. Supply Long-Term Contracts with Government and Vaccine Manufacturers • U.S. Government • CDC • HHS BARDA • DOD DARPA • Foreign Governments • NGOs • Vaccine Manufacturers • Established and Emerging Biotech IP – Patents, Trade Secret Manufacturing Facility Distribution through Government and Pharma Companies Capital Investments Manufacturing Costs Licensing Costs Marketing Contract Manufacturing Fully Integrated Manufacturing (Sales) Licensing (Royalties)

43. Getting Out of the Lab! • (2) Entrepreneurs and angel investors from Sacramento Cast a broad net by talking to many different experts and customers: (1) Executives from large companies

44. Getting Out of the Lab! • (3) Experts in the commercialization of biotech platform technologies (4) Experts in vaccine manufacturing

45. Channels and Distribution • Conversation with Dr. Ann Arvin – Key Opinion Leader on vaccines In the case of a pandemic: • Vaccine manufacturers have to be producing vaccines for seasonal flu – regulatory approval, QA, and validation need to be in place • When a pandemic occurs, the government (BARDA) negotiates a manufacturing contract with vaccine companies – number of doses, formulation, price, and time are agreed upon • CDC provides the elucidated strain to the manufacturer • FDA considers the pandemic flu vaccine to be a variation of the seasonal flu vaccine – new regulatory approval is not necessary • Vaccine manufacturers work with the new strain to ramp up production as quickly as they can – takes 4-6 months • Sterility and quality testing is performed for the produced vaccines – some tests are done in-house and some are done by outside laboratories • Vaccine is released

46. Channels and Distribution Getting the vaccines to the patients • Vaccine manufacturers have contracts with wholesalers (i.e. McKesson Corp.) to distribute the vaccines – distribution is not a cost for the manufacturers, they hand over the product • In the case of a pandemic, vaccines are also distributed through local contracts with the state health departments • Theydistribute the vaccines to hospitals and clinics, where they can be administered to the patients

47. Organizational Strategy Conversation with Greg McParland – Former CEO of biotech platform company: the virtual biotechnology company model “Starting out and for as long as you can, you should be a virtual company. You can have contracts to outsource the downstream part of the process (purification, fill and finish, packaging, etc.) ” “Keep your core technology and focus on using your manufacturing platform for protein production”. Common practice in biotechnology – almost every company has contracts with CROs, CMOs, marketing and distribution arrangements, etc. More flexibility – move quickly from failed avenues of research to more promising projects Startups partner with big pharma companies to complete clinical trials and take product to market “If you build it, they will come” – but only build the essential core that lets you control your technology platform

48. More Feedback Conversation with Dr. Ann Arvin – Key Opinion Leader on vaccines • Pain point: Reliability issues with traditional egg platform - willingness to move away to a different manufacturing platform • Pain point: Current platforms are not fast enough, cannot have an impact in case of a pandemic - sense of urgency in finding a manufacturing platform that can produce vaccines faster and at a large scale • Given this landscape, we still believe our technology can solve a significant problem in the vaccine market • Conversation with Dr. Misa Sugui & Dr. Floro Cataniag – MedImmune • Pain point: attenuated virus platform is harder to work with, safety measures are more stringent – would prefer recombinant subunit vaccines • Wish: a faster process for vaccine production (our technology can help with this) • Wish: a faster process for clinical trials and for approval of new drugs (this we can’t do anything about) • MedImmune is a possible partner - always looking for new vaccine production technologies and new products to incorporate in their pipeline

49. More Feedback • Conversation with Fernando Garcia – Amyris • Biotech platform technology company • First target product: drug for malaria, partnered with Sanofi to commercialize • Change in strategy: they have transitioned into making biofuels • Why have they made this transition? We will follow up with one of the founders of the company to find out

50. Next Steps We believe we have a good feel for our value proposition We need to better understand how we can sell to customers and how to establish these relationships, how partners’ decisions are made – meeting with Sanofi Head of External R&D Keep searching for a business model that will allow us to commercialize our technology – looking for meetings with companies that distribute/sell flu vaccine antigens for research and diagnostic use, trying to determine market size We need to talk to many more experts and customers…