Building a Flexible and Scalable Management Team
Non-standard sources of executive talent can provide a breadth of experience without expensive overhead during the early days of your startup.
By Michael Schmanske with Michael Hufford, PhD
TAKEAWAY: Hiring the right team is a balance of priorities—staying flexible and low-cost is always a good way to de-risk your company for outside investors, but an ineffective team will destroy your company’s credibility.
The fact is, a lack of experienced leadership creates substantial vulnerabilities that can materially harm both initial organizational formation and subsequent growth. The effects may not be immediate, but instead comprise a gradual accrual of poor decisions or missed opportunities in resource allocation, timeline management and strategic development.
“The most important thing founders have to do is hire great people. If you don’t, you won’t be able to delegate, and if you can’t delegate, you can’t scale.”
~Paul Graham, Co-founder of Y Combinator
While established biotechnology epicenters—notably Boston, San Francisco and San Diego—flourish with mature innovation ecosystems, emerging biotechnology markets encounter a critical impediment: the limited availability of seasoned executive leadership teams. Regional shortages of experienced C-suite executives with demonstrated sector expertise significantly impairs strategic decision-making and also limits access to institutional capital.
However, you will still need to fill these roles regardless of the local talent market.
Business planning is complicated because there may be more than one or two ways to address strategic needs. Although with every complication, there are also opportunities for innovative solutions. Your company likely requires both full-time executives, and the types of networking, oversight and advisory support often filled by board members. Increasingly, founders must be aware of all their options to maximize the opportunities these complicated ecosystems can provide.
Temporary Team Members
Building a good team is critical but also expensive. Earlier we discussed some of the difficulties recruiting in a local market like Pittsburgh or other “Incubator Cities” as well as some frequently used alternatives. Opportunity, clever compensation schemes and equity participation are all viable means of funding a hiring plan, but there are other methods of accessing expertise. Two of them are particularly useful for early stage companies operating on a limited budget:
Rent to Own—Executive in Residence (EIR) Programs
Executive in Residence (EIR) programs employ seasoned industry professionals collaborating with academic institutions or business incubators to mentor and guide emerging entrepreneurs and startups. Some are retired executives seeking interesting projects for investment or intellectual stimulation. Others may be interested in joining the right company if it comes along.
Carpooling—Fractional Executive Teams
Pools of part-time or contract-based senior professionals can be a strategic asset for companies seeking top-tier expertise without the commitment of full-time hires. Like EIR programs, pooled teams are great options for early companies, particularly for standardized functions like accounting, legal or payroll and for limited or one-time special requirements.
Each of these programs provide novel solutions to the hiring vs. funding dilemma depending on your business plan; be sure to check regional availability.
Executive-in-Residence (EIR) Programs
University-affiliated innovation institutes, regional incubators and biotechnology accelerators are increasingly implementing Executive-in-Residence (EIR) programs, offering substantial strategic value for emerging enterprises seeking experienced leadership. These are typically structured programs which provide a spectrum of benefits that materially impact startups during critical formation and growth phases.
Oversimplifying: EIR programs are part-time pro-bono headhunters with access to seasoned biotechnology executives who have established track records in company formation and value creation. This executive leadership allows companies to benefit from experienced management without immediate commitment to full-time compensation structures. And they provide a number of knock-on benefits.
- Regional ecosystem, industry and institutions: EIR programs help scale operational infrastructure, establishing strategic planning networks and retaining local talent. Ideally this operational foundation extends to the creation of robust quality management systems across the region’s common resources essential for biotechnology enterprise development.
- Startups: The personal network effects generated through EIR programs offer access to extensive professional networks spanning multiple industry sectors. Top professionals and regional KOL’s share the same global networks as those in major hubs and also provide regional or specialized connections to service providers critical for organizational development.
There are additional side-benefits too:
- Timing and risk mitigation: The temporary engagement structure of the EIR model is both scalable and flexible enabling customization based on organizational requirements with a reduced financial burden during early development stages.
- Knowledge transfer: Many EIR programs include structured mentorship programs for founding teams and tutoring for internal management capabilities and executive development.
- Strategic positioning: Recognized EIR programs also engender enhanced credibility with institutional investors, improved positioning for strategic partnerships, and accelerated organizational development.
Executive in Residence programs create substantial synergies for regional educational and corporate organizations. By leveraging executive expertise across multiple portfolio companies they also maintain engagement by providing opportunities for local executives and regional talent that might otherwise drift away to larger markets.
Take advantage of their—and your—aligned interests. It can significantly enhance the probability of successful organizational development and value creation. As a founder you gain access to cheap, temporary(?) labor while simultaneously building internal capabilities for sustained growth and operational excellence.
Outsourcing: Shared Managerial Platforms and Service Providers
We have seen how collaborative approaches to management like EIR’s can provide interim solutions for early-stage founders facing resource constraints. For many executive services these solutions may be provided via private contracting as well. Sometimes this may present itself as a shared accountant or payroll system, other times possibly for specialty roles in grant writing or clinical trial validation. For example, legal services are one area which is almost entirely handled via a third-party service provider.
Before hiring a full-time executive, consider if the role would be handled more quickly, efficiently or cheaply by an outsourced or contracted consultant instead.
Like EIR’s, an important extra advantage to outsourcing that is often overlooked is instantly gaining access to a wide experience of “best-practices” and professional standards. Third-party operational platforms facilitate uniform processes across all participating clients, ensuring that best practices common to similar companies are consistently applied.
Both EIR’s and pooled executive platforms foster access to other forms of diverse expertise and accumulated wisdom. The biggest difference between them is primarily the way in which they are integrated into your organization.
EIRs are more integrated into the host organization, focusing on long-term strategic initiatives and venture creation; they are typically affiliated with larger institutions and are generally at least partially subsidized by them. Pooled executive platforms, instead, provide neutral, flexible, on-demand scalable expertise to address immediate operational needs across various startups.
Experts, Advisors and Influencers
Not every leadership role will be filled by paid employees. Many seasoned veterans of industry and academia are eager to lend their attention and influence to startups if they believe in the science, the team or the opportunity. This creates one of the few “free lunches” in all of corporate strategy.
Most retired or semi-retired experts are happy to provide advice or jump on a zoom call once a month on a topic relevant to their past career and of value to management. The cost may be financial such as a nominal equity award to sit on the board of directors or it may just be a note of thanks and an extra line on the LinkedIn CV to sit on an advisory panel.
Like executive roles, effective board governance in startup/midsize biotech companies requires a clear delineation of roles and responsibilities. This separation ensures that both scientific innovation and commercial strategy receive dedicated attention, promoting balanced organizational growth .
Professional Advisory Boards (SAB, MAB, etc…)
The Scientific Advisory Board (SAB) is chiefly concerned with the company’s research and development trajectory. Composed of experts in relevant scientific/medical fields, the SAB focuses on guiding the scientific agenda and validating the feasibility of research initiatives. It evaluates the technical aspects of projects to determine their viability and advises on pipeline prioritization based on scientific merit and potential impact. Additionally, the SAB identifies and fosters scientific/medical collaboration opportunities with academic institutions, research organizations and industry peers to enhance innovation.
In parallel, the Medical Advisory Board (MAB) is typically composed of MDs who are renowned specialty experts. Their involvement lends marquee name recognition to the therapeutic candidate, which is critical to recruiting high quality clinical sites for future clinical trials. The Chair of the MAB will often attend regulatory meetings to help validate both the unmet clinical need and the potential impact of the therapy.
Depending on the particular hurdles your company is expected to overcome, management might want many different types of advisory boards including clinical, hospital administration and insurance/medicare reimbursement.
At the end of the day, advisory board members are cheap—expand the number to the bandwidth you have available to manage the relationships effectively. Each board member is one more key opinion leader or networking contact point that cares about the outcome of your business. For early stage companies the active attention of industry experts is critical.
Representing Investor Interests
In contrast, the company Board of Directors (BD) oversees the broader corporate strategy and operational execution. Their responsibilities include setting long-term goals and ensuring they are effectively implemented—monitoring financial health through budgeting, fundraising and financial reporting, and identifying potential risks while implementing strategies to mitigate them. The board also provides business development guidance by steering efforts in market expansion, partnerships, mergers and acquisitions and eventual exits. The BD ensures that the business side of the organization is robust, focusing on profitability, market positioning and sustainable growth.
Unlike advisors, directors have a legal obligation and fiduciary responsibilities to their fellow shareholders. They vote on governance and strategic decisions and could become troublesome to handle if their interests do not align with management.
As a result, in the early days of a company board members should be key insiders or investors. In established companies, directors typically receive equity (or monetary) compensation to incentivize performance. For startups that would be unnecessarily dilutive. Therefore, restricting membership to existing stakeholders ensures alignment of interests.
By maintaining these separate boards, companies can leverage specialized expertise in both scientific and commercial domains, preventing conflicts of interest and allowing for more in-depth focus within each area. The SAB can delve into the complexities of scientific/medical research without the encumbrance of business considerations, while the company board of directors can make strategic business decisions without being bogged down by technical details.
This clear separation also aligns with best practices in corporate governance, ensuring investors know that both scientific excellence and business acumen are given equal priority.
“The defining characteristic of a good executive is the ability to take responsibility for outcomes, delegating that authority amongst their team and managing the results while overcoming adversity and taking advantage of opportunity.”
~Michael Hufford, PhD
The Bottom Line
Hiring the right team is both critical and complicated, but staying flexible and low-cost is always a good way to de-risk your company for outside investors. Similar to non-dilutive grants, inexpensive management teams provide comfort to investors that management is not squandering their investment.
- Hiring the right executives for your management team is important—hiring them at the right time and the right price is equally important for resource-restricted startups.
- Whenever possible use temporary, outsourced or free services such as those provided by local educational institutions, incubators and regional development organizations.
- Don’t ignore your board members—their greatest value are their networks, and the other professionals with whom they share your story are your most likely targets in the next funding round.
- Engaging a wide range of experienced professionals provides valuable perspective and access to industry standards with which investors are familiar.
Michael Schmanske is a 24-year Wall Street veteran with experience on trading desks and asset managers. He is the co-founder of Prognosis:Innovation as well as founder of MD.Capital.
Michael Hufford, PhD, is the Co-Founder and CEO of LyGenesis—a clinical-stage biotechnology company developing allogeneic cell therapies to enable organ regeneration. He has more than 20 years of experience obtaining FDA approvals and leading translational research, regulatory strategy and clinical development across biotech and pharma. Dr. Hufford’s philanthropic work includes co-founding Harm Reduction Therapeutics, a 501(c)(3) nonprofit pharmaceutical company that developed and commercialized RiVive®, a low-cost over-the-counter naloxone nasal spray to help prevent opioid overdose deaths.
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