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Technoeconomic Analysis for Biotech Startups: How to Adapt and Make Informed Decisions on Process Development and Growth Strategies

  • Writer: Gustavo Valente
    Gustavo Valente
  • Oct 10, 2023
  • 5 min read
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In the competitive world of startups and early-stage companies, every decision is crucial, early stage companies operate on tight budgets, limited resources and face intense competition. As such, making quick informed decisions about product development and growth strategies is vital for their survival and success. One powerful tool that startups can harness to their advantage is Technoeconomic Analysis (TEA).


Going Beyond Traditional Boundaries


Traditionally, Technoeconomic analysis (TEA) has been closely associated with large corporations, especially within industries such as food ingredients and specialty chemicals manufacturing. These well-established industries have historically relied on TEA as a powerful tool to scrutinize the economic feasibility of their products, fine-tune their production processes, and meticulously estimate the potential return on their investments. TEA has been instrumental in helping them make strategic decisions, allocate resources efficiently, and maintain a competitive edge in their respective markets.


In these well established industries, TEA serves as the compass guiding them through complicated financial landscapes, helping them navigate the complexities of large-scale production, volatile markets and enabling them to deliver high-quality products while keeping costs in check. For them, TEA is not just a practice; it's a culture—an integral part of their decision-making process that has contributed to their enduring success.


However, the power of TEA is not limited to corporate giants. In fact, startups can benefit as much from these practices and adapt TEA to suit their unique needs and circumstances. While the scale and scope of startups differ significantly from large corporations, the principles of TEA can be even more significant, in helping them succeed in the business world.


For startups, TEA can serve as a compass of a different kind— It helps them navigate the initial stages of product development, manage their limited resources, and chart a course toward sustainable growth. By harnessing the insights provided by TEA, startups can make informed decisions that have a profound impact on their trajectory.


The Role of TEA for Startups


Investor Confidence: 

For startups seeking investment, having a well-structured TEA can be a valuable asset and a game-changer. It provides potential investors with the confidence that the startup is making informed, data-driven decisions. This can significantly increase the likelihood of securing funding. A TEA is instrumental during fundraising and must be robust enough to pass the due diligence process performed by an expert third party.


Determine cost of production: 

Understanding the cost of production is paramount to sustainable growth and profitability. TEA provides a structured and analytical approach to allow startups to gain a clear and precise insight into what it takes to create their products or deliver their services. TEA goes beyond mere cost accounting, it dissects the intricacies of cost drivers within the unique context of biotechnology. It delves deep into every aspect of the production process, evaluating not just direct costs like materials and labor but also indirect costs such as overhead, utilities, and even depreciation of equipment. 

Within the specialized realm of biotechnology, marked by innovative research, development, and intricate manufacturing processes, TEA provides several critical advantages.


Pinpoint Cost Drivers: 

TEA identifies the key factors influencing production costs. Biotech startups can isolate which elements have the most significant impact, enabling them to focus their efforts on cost reduction where it matters most. TEA equips biotech startups with the precise ability to identify which elements have the most substantial influence on their production expenses.


Resource Allocation: 

One of the most significant challenges for startups is resource allocation. Funds, equipment, manpower, and time are all limited resources that need to be used wisely. TEA enables startups to identify where these resources should be allocated for the greatest impact. By evaluating the cost-effectiveness of different technologie and strategies, startups can make informed decisions about which projects to pursue and which to put on hold.


Scalability Assessment: 

TEA facilitates biotech startups in evaluating the scalability potential of their processes and scale up strategies. It offers insights into how production costs may evolve as they scale up depending on how and where they choose to scale up, enabling data-driven decisions on growth strategies, resource allocation, and capacity planning.


Risk Mitigation: 

Startups often operate in highly uncertain environments. TEA helps in identifying and quantifying risks associated with different strategies. This allows startups to develop risk mitigation plans and make contingency arrangements.These risks include cost overruns, market uncertainties, resource allocation challenges, financial difficulties, compliance issues, operational inefficiencies, supply chain vulnerabilities, competitive positioning, technology decisions, and scalability concerns.TEA empowers startups to proactively address these risks, enhancing their resilience and long-term prospects in a dynamic business environment. By doing so, they can minimize the potential negative impact of unforeseen events.

 

Adapting TEA for Startups: Practical Steps


Now that we understand the value of TEA for startups, let's explore how it can be adapted effectively:


1. Simplify and Focus: 

Startups should begin with a simple TEA process and focusing on key components that are most relevant to their business. Prioritizing cost analysis, market potential, and revenue projections can provide a solid foundation for future revisions.


2. Flexibility: 

Recognize that startups often face rapid changes in market conditions and customer preferences. Your TEA should be developed in a flexible way and be responsive to new data and market shifts. Regularly update your assumptions and models to reflect the evolving reality.


3. Data-Driven Decision-Making: 

Startups should gather as much data as possible to support their analysis. This includes market research, competitor analysis, and customer feedback. The more robust your data, the more accurate your TEA will be.


4. Scenario Analysis: 

Consider different scenarios and their potential impact on your business. What if you gain more customers than expected? What if you manufacture in another country? Toll manufacturing vs your own dedicated facilities? What if a key supplier raises prices? Scenario analysis helps you prepare for the unexpected.


5. Expert Guidance: 

Many startups may not have an in-house team dedicated to TEA or even if they already have an internally developed TEA, consider seeking external expertise. Consultants or advisors experienced in TEA can provide external validation and valuable insights and guidance tailored to your specific industry and business model.


6. Continuous Improvement: 

TEA is not a one-time task; it's an ongoing process. As your startup grows and evolves, revisit and update your analysis. Regularly assess the performance of your projects and strategies against your initial TEA assumptions.


Conclusion

In the fast-paced world of startups, making informed decisions is essential for survival and success. Technoeconomic analysis offers a powerful framework for startups and small businesses to navigate the complexities of resource allocation, risk management, and competition. By adapting TEA to their unique needs, startups can gain a competitive edge and confidently chart their path to growth and profitability.

As you embark on your journey as a startup entrepreneur, remember that TEA is not just a tool for large corporations. It's a valuable resource that can help you make data-driven decisions, attract investors, and ultimately achieve your business goals. Embrace the power of TEA, and you'll be well on your way to making smarter, more informed decisions that will drive the success of your startup.

 

If you found this article helpful and would like to connect and discuss further, please feel free to connect with me here on LinkedIn. I'm passionate about helping startups and entrepreneurs leverage technoeconomic analysis to achieve their goals. Let's connect, share insights, and grow together!

 

Gustavo Valente

Director, Sustech Innovation

+52 55 3405 0552


 
 
 

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