The dangers of committing to a big partnership
Friday, February 17, 2012/
Striking a deal with another company to commercialise your product sounds like an ideal arrangement, but if that company changes hands, suddenly your future can look very different.
Putting your fate into the hands of another firm is an all-too-familiar scenario for John Kelly, but he managed to bounce back and learn from it.
Kelly is the sole trader of health technology company Atomo Diagnostics, which is in the process of producing the world’s first fully integrated rapid blood test device, MicroRapid.
Atomo is a joint venture with local product development firm IDE. So while Kelly is the only Atomo staff member, there’s a handful of people working on the MicroRapid project.
MicroRapid is a handheld device, making it easy for medical practitioners to use in a clinical environment or for individuals to conduct their own blood tests at home.
Currently, blood tests that use similar formats require the use of procedural kits containing multiple items and requiring complex handling.
MicroRapid was recently awarded a government grant just shy of $250,000.
This, in addition to the $390,000 Atomo has raised from private investors, will enable the delivery of the finished product to at least four international companies.
“We’ve got 1,000 products being built this month. We expect to be going to market with the launch product this year,” Kelly says.
“Our intention is to launch our product and generate revenue by the end of the year. We expect to be cashflow positive by the end of next year.”
“As we move forward and cashflow becomes more abundant, we certainly aim to grow the business – maybe [hiring] 10 people over a two to five-year period.”
That’s not to say Atomo hasn’t experienced its share of mishaps.
Atomo initially partnered with another company that would provide financial backing, but the partnership went pear-shaped pretty quickly.
“[It was a situation of] the tail wagging the dog a little bit. They started to take direction of the development,” Kelly says.
“After six months, they were bought by a private equity firm, which wanted them to focus on short-term revenue. We became a bit of an afterthought.”
“As a result, that technology as a standalone product no longer made sense without their support. We needed to change to get a product that could get to market quick.”
“I phoned the guys up [at IDE] and said, ‘We need to put Plan B into place’… Plan B is a more marketable product.”
“As a start-up, we had to adapt pretty quickly. We had the flexibility as a small company to change quickly, but after six months in the commercialisation phase, it was not great.”
What did Kelly learn as a result of this experience? A deal isn’t a deal until it’s done.
“Don’t rely on a partner who’s keen to do a deal but it’s not guaranteed,” he says.
“We were of the opinion that the company was well established and big, but even big companies change direction overnight.”
“You can’t assume a deal will get done just because both partners want it to get done. Things change and businesses need to be able to adapt to that.”
“It was a good lesson for Atomo and hopefully in other ventures I can take that lesson and avoid putting all my eggs in one basket too early.”