What is Success?

I’ve had the topic of “success” on my mind quite a bit recently because of a number of conversations and have been developing a working definition of what success means to me.

Success = Mo’ Money? The spark for these thoughts was a conversation with fellow small business owners where someone asked who was the more successful of between myself and another person. The other person responded immediately that they were more successful. Internally, I thought they very well could be right. My friend has built a growing, profitable business from scratch with no external financing that now employs 100 people. These people are highly skilled employees who earn a good living with solid benefits.

Before I could say anything, someone asked why they believed they were more successful. Their answer was based solely on cash and didn’t account for business metrics, such as growth or profitability.

In drug development, achieving long term milestones, such as going public or getting acquired, generally marks financial success. The success of the drug being developed isn’t demonstrated until the drug is on the market after FDA approval, which takes many years and many millions of dollars. I’ve said at times that the drug development business model precludes traditional ideas like profitability. But seriously, most drug development companies, such as Quintessence, spend their majority of their existence as failures by traditional business metrics.

Success = FDA Approval? Another reason success is on my mind is that the company is approaching a pivotal time. We’ll finish our Phase I trial this year and will need to partner and/or fundraise. This transition has led to a question, generally from folks outside biotech, about how long it will take until we get FDA approval. That milestone is still at least years and many millions of dollars away and chances are very good that we won’t be the team that gets the drug there. My role here isn’t to take the drug to FDA approval but to generate sufficient support for the drug that another company, another shepherd, will.

Success = IPO? – Daphne Zohar (@daphnezohar) from PureTech Ventures recently tweeted about a 2008 Harvard Business school paper, Performance Persistence in Entrepreneurship.

The paper talks about the factors involved in the success of entrepreneurs. While we haven’t raised institutional money, the topic is still of interest so I wanted to read the paper. Almost immediately I got to a sticking point, which I have underlined in the excerpt below.

“In this paper, we address two basic questions: Is there performance persistence in entrepreneurship?  And, if so, why?  Our answer to the first question is yes: all else equal, a venture-capital-backed entrepreneur who succeeds in a venture (by our definition, starts a company that goes public) has a 30% chance of succeeding in his next venture. By contrast, first-time entrepreneurs have only an 18% chance of succeeding and entrepreneurs who previously failed have a 20% chance of succeeding.”

The definition stuck out because my sense has been (at least in biotech) that going public happens for a minority of companies and that for many of those an initial public offering is a way to access a wider pool of capital, not necessarily an exit for existing shareholders.

I tweeted that I was stuck on success as IPO and got some quick responses, including

• @drhamptn (Dave Hampton) “A disablingly narrow outcome measure: revenue is key”
• @rofrechette (Roger Frochette) “kinda limits the pool of potential study participants”
• @dbsable (David Sable) “agreed-way 2 narrow an outcome measure”

So how narrow of a sample are we talking about? The National Venture Capital Association (NVCA) has compiled the data on the exits of venture-backed companies and you can see that even in years with decent market conditions, merger and acquisition is a significantly more likely outcome than IPO.

**Includes all companies with at least one U.S. VC investor that trade on U.S. exchanges, regardless of domicile. 

Looking at the question of an IPO as a fundraising opportunity or an exit for shareholders, Bruce Booth from Atlas Ventures has blogged about the issue (underline added):

IPOs aren’t liquidity events in Biotech, they’re just financings and insiders typically do at least a third.  This insider participation isn’t the case some of the higher flying Tech IPOs, but venture investors still often hold their shares for a long time after the offering.  We held shares of Isilon for years after the IPO until its exit last fall via acquisition by EMC.  I don’t have the data to be quantitative on this, but the IRRs differences in the past decade would suggest time-to-liquidity can’t be much better for Tech.

After I got past the definition of success, I noticed that the study uses the term ‘entrepreneur’ to refer to the founders of the company. As I mentioned in the section above, the team that starts a company isn’t necessarily the same as the team that would take it “all the way” (a drug to FDA approval or in this case to IPO). In looking for some data on this point, I came across a small study from the Angel Resource Institute on 50 VC backed companies. At the time of IPO, a founder was CEO of only 49% of the VC-backed firms in the study (page 4).

Success = …. – Here is my working definition:

If we

• develop a cancer drug that is enticing enough to be advanced to FDA approval
• and convert that implicit value into a solid return for shareholders

then we will have succeeded for all of our stakeholders.

And that is what I’m off to work on now because I assure you it isn’t anywhere near as straightforward as it sounds.

*Addendum: A friend and mentor who has built lasting profitable businesses and provided return for shareholders gently reminded me that this post is a look at success through a very narrow lens. The reminder? A link to Bessie Stanley’s answer to the question What is Success. (A similar version is often credited to Emerson.)

He has achieved success who has lived well, laughed often, and loved much;
Who has enjoyed the trust of pure women, the respect of intelligent men and the love of little children;
Who has filled his niche and accomplished his task;
Who has never lacked appreciation of Earth’s beauty or failed to express it;
Who has left the world better than he found it, Whether an improved poppy, a perfect poem, or a rescued soul;
Who has always looked for the best in others and given them the best he had;
Whose life was an inspiration;
Whose memory a benediction.