What Matters Most? Inventing a Product, Making It or Selling It?

by Darwin on November 3, 2010

I spent years in Biotech manufacturing.  We were making pretty complex products for a range of diseases and for those unfamiliar with what goes in to making a regulated biological, the challenges are numerous (hence, why biologics are terribly expensive).  See, a biological process doesn’t always do what you think it should, unlike a chemical process (common pharmaceutical tablets and capsules are much easier to control).  Sometimes the host cell doesn’t grow the way you want, sometimes you have a leak in one of hundreds of process system valves and sometimes you introduce an organism you didn’t mean to (contamination), requiring discard of the entire batch.  The regulatory oversight is quite burdensome and the hours are terrible.  Given how complex the process was and how prone to variation it was, we used to say “The Process IS the Product”.

A Slap In the Face

Well, when we’d have a new product launch, what was often ironic is we’d have spent years running experimental batches, then Validation batches, then building launch volumes and we wouldn’t even get invited to a launch party.  It was quite comical actually.  Marketing would throw these lavish parties, patting themselves on the back for launching a product with no competition where they hadn’t sold a single unit yet.  We thought “What the hell are they celebrating? They haven’t done a thing!”.  Similarly, the research folks would always have crazy work perks, like dressing like they were going to the beach, great hours, attending “intellectual” conferences and such.  There definitely used to be some envy from the grunts toiling away on Saturday nights at 2AM making the donuts.

Which Matters Most – Research, Production or Marketing?

This situation inevitably led to the conversations around whether our role in the company really even mattered.

  • Research – Without researchers developing a new product, there’d be nothing to manufacture and sell later, right?
  • Production – Without a reliable source of supply, the company can’t sell a product.  Once a supply interruption occurs, customers will often switch to a competing drug/biologic and never come back due to the way prescription renewals work.
  • Marketing – Without revenues, there’s no need to make anything.  As volumes increase, the economies of scale drive down the per-unit cost to manufacture.  It’s a huge momentum build for margins once the product starts reaching peak sales.

In my estimation, they ALL matter since without one you don’t have a successful product line.  In the past, the conventional wisdom was that manufacturing could be easily outsourced.  However, now we’re seeing ALL functions outsourced, right?  We in-license many new entities because we aren’t discovering them ourselves at the pace we used to.  We also outsource lower value research activities.  Pharms and Biotechs are now outsourcing their sales forces!  There are now thousands of contract sales reps in those doctor’s offices rather than full-time company employees.  Also, many marketing campaigns are sourced out to marketing agencies instead of conjuring up the next TV commercial in-house.

I think the difference is what type of business model the company employs and how they value each function.  Some companies may have a different focus.  For instance, perhaps a Generic manufacturer doesn’t put as much emphasis on research or marketing and focuses on manufacturing to drive high volumes and keep margins reasonable since they’re in such a price-competitive market.  Meanwhile, fledgling biotechs with no marketed drugs may be solely focused on researching new entities and licensing them out for royalties and don’t have much of a manufacturing base.

But this is just the viewpoint from my industry.  This same question could easily apply to Apple or to GM.

What Are Your Thoughts?
Where Are You in the Chain?
Is Your Division Valued?

{ 2 comments… read them below or add one }

First Gen American November 4, 2010 at 2:52 pm

I think if I had to force rank those 3 items, the answer would vary depending on how capital intensive the business was and how unique the product was.

If you are making a “me-too” knock off, then cost is key and you need to have the best manufacturing processes so that your operating cost is lower than the competition.

If it’s a service with low overhead then I think the invention (or how you will differentiate yourself) is the most important.

If the product is requires a lot of capital, I’d say sales would be the most important function, because in many cases, if you’re launching something that will cost $200MM to build you better have customers already lined up before you even break ground.


Financial Samurai November 7, 2010 at 4:11 pm

I think one can’t exist without the other. The LAST MILE could be the most important, b/c you could have the most important invention on earth, and if one can’t sell or make a consumer consume it, that it doesn’t matter.


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