How to build your own Axon Instruments

Australian Biotechnology News journalist Ruth Beran asked Axon Instruments founder Alan Finkel if he had any advice for Australian companies with an eye on the world stage. Here is his reply.

The first thing is to be realistic about what you've got. This is an international problem -- the biggest challenge to commercialising is to actually have a product that has a market.

The most important thing is that the investors and founders don't even bother to found their company if they don't have a realistic potential of generating revenue in a short-time period. For a drug, a short time period might be three years. For a technology, a tool, an instrument, or something like that, I think a company should be seeing revenue come in at about 12 months. But if it's miles down the line, there's probably a good reason why it's miles down the line: because it's not realistic.

So I think the most important thing is to actually have revenue and profit as your primary reason to found. Which sounds ludicrously obvious, [but] there are too many companies that are founded when people believe in the technology, or because they believe the market will eventuate, or they believe that people might invest in the company because they believe the scientific founder is a genius, which he or she might be. But none of those translate directly into revenue and profit, and they're crucially important. It makes a huge difference to morale, to further investment, to partnering. The heady days of 1999-2000 just don't exist any more.

Don't be shy

The second thing is not to be shy of being Australian. I would say that having worked with employees closely both in the US and in Australia, I feel that the calibre of Australian employees and work ethics are just as good as in America. Not better, not worse.

I've had the pleasure of working in Silicon Valley. But I've enjoyed every bit as much working with the engineers in a smaller group in Melbourne. They're very capable people with a good work ethic.

Australian companies shouldn't feel like they've got to pretend to be an American company. They should set up an American office because it makes sense from a marketing point of view, not because they're trying to pretend to be an American company. And you see some Australian companies spending their small amounts of reserves buying small European or American subsidiaries, and every time you see that it's the kiss of death. If it's cheap enough for them to pick up with Australian stock or Australian cash, in a volatile market like biotech, there's a good chance there's a problem with [the company].

Key things are having a real product vision and a clear revenue-profit motive for that idea, and a hard work ethic and pride in what you're doing. That means that there's no proper reason not to establish manufacturing and R&D in Australia and work from Australia and just have service and manufacturing organisations in other countries.

There's no doubt it's hard to sell on the American market. But any company originating in any country in the world have the same problem. Molecular Devices, which I work for now, is a large company. They set up their own service/sales organisations in Japan, in China, Korea because it is necessary. They don't pretend to be a Japanese company in Japan.

I think the rules are not that much different. It's true we have a smaller market here, [but] it's certainly big enough to get a start in. If you can't get a start in the Australian market, I can't see how you're going to get a start in a bigger market just because it's bigger. People naively think that if it's bigger it's easier. Obviously it's not going to be as simple as that. If it's bigger there's more likely to be competition dividing up that market. So I just don't understand why people feel the need to run away from the Australian market.

Protect yourself

It is also important to have commercially useful patents. Every company in the world has a plethora of commercially irrelevant patents. A lot of Australian companies get caught up in costs, in time consumption, of trying to get worldwide patents. That's the ideal outcome, but it's slow and expensive. I think that you're better served just targeting a US patent and say a UK patent.

If you've a product on the international market, if you can protect two of your biggest [markets], you have the capability to block competitors.

It depends on what your goal is. If you're just trying to sell the licence then it's different, you need worldwide patents. If you're tyring to sell the product and kick competitors out of the field, you don't need to blanket the whole world. Those sorts of efforts become very distracting and expensive.

Tight rein

One of the problems that I see that Australian start-ups face is that venture capitalists keep a very tight reign on them. That makes sense. But in some cases it's a bit of a drip feed model -- the company has to meet a milestone every few months in order to get the next tranche of money. That means it's very difficult for the start-up's management to plan ahead and move flexibly because everything is working through a dictated schedule. Life's not as easy as that.

I know why the VC companies do it, but I feel that their targets for investing in companies carefully, across management, should be a bit more generous. Ideally, [they should be] more generous in the amount they give and have a little more trust in how that money is used. I think this drip-feeding model slows down progress. It probably reduces risk but I think it negatively impacts the upside.

I think the Australian government has a similar problem. If you look at the grants that they give, they are either for trivially small amounts of money or where they're more substantial, they're always matching dollars -- where they might give one, for every two put in by the company.

Again, you can understand the logic of that, but it doesn't help the poverty-stricken, brilliant entrepreneur who could be the basis of your next super-successful company. In America, I think they do a better job on that. In America they have a granting system called SBIR -- the Small Business Innovation Research grant scheme -- which has a couple of very powerful aspects to it. Firstly, the company or the person going for the grant has to put in a pretty comprehensive application. Then it is judged by a peer review panel. That's important. It's not judged by bureaucrats, it's judged by experts in the field. And then the money that's given is not a huge amount, but it's not trivial. In the first phase it's about US$0.75 million, and it's not required that there be any matching funds.

So somebody who's fresh out of university, fresh out of high school, who has a brilliant idea, and can document that, and prove to a panel of experts that it's a brilliant idea, will get their $0.75 million and no one's going to check them on a monthly level. And if they don't achieve anything -- bad luck. That's the nature of the experiment.

Another secret for start-up success is that the founders are absolutely committed. Success is 99 per cent perspiration and 1 per cent inspiration. It's true. If you're going to start up a company you've got to be prepared to work your butt off.