Published August 22, 2011
Note: This blog post was co-authored with Justin Chakma, an undergraduate student at the University of Toronto.
Startups usually launch their products first in wealthy countries. Launching first in an emerging market is seen as a nonstarter because of commercial, regulatory, and political risks. This is starting to change: Pricewaterhousecoopers recently reported that faster approvals overseas are encouraging startups to enter the U.S. market last in some cases.
Consider Diagnostics for All, a Boston-area startup developing paper-based diagnostic tests the size of a postage stamp. Miniature wells patterned onto the paper contain chemicals that react with samples of blood, urine, saliva, or sweat, which causes the paper to display a reading with a change of color.
The technology is revolutionary because the paper tests can be manufactured for only a few cents and can deliver test results instantaneously. By contrast, existing diagnostic machines sold by multinationals cost over $20 per test and $30,000 for the test reader, require trained technicians, and take three hours to yield results. Even in wealthy countries, community hospitals and rural clinics can't afford them.
Despite the pressing market need in both the developed and the developing world, Diagnostics for All opted to develop products for the developing world first, specifically for liver damage caused by HIV/AIDS medication. This decision yielded two benefits:
Accelerated Proof of Concept. Because healthcare systems in emerging markets cannot afford large, centralized diagnostic devices, physician uptake is much more rapid, which accelerates scaled, demonstrated proof of concept. At the same time, an emerging-market launch keeps the product off the radar of multibillion-dollar incumbents, who would defend their turf fiercely.
Extreme User Prototyping. Diagnostics developed for emerging markets must be rugged, resistant to wear and tear, simple to operate, and temperature-resistant. The unwritten standard for medical device performance may actually be higher than FDA guidelines. Startups such as Diagnostics for All that tackle extreme user needs in emerging markets are more likely to come up with novel and unconventional approaches. In the process, the firm delays expensive and lengthy clinical trials in the U.S. until it has a better technological and market foothold.
Ironically, the fact that companies hesitate before developing for emerging markets creates a source of comparative advantage that startups can use to gain market share. Claro Dx developed a next-generation battery-powered reader the size of an iPhone to detect HIV, syphilis, and hepatitis, for example. Its older reader in U.S.-centered clinical trials for prostate cancer recurrence is the size of a desktop.
Startups can benefit from reverse innovation. Can readers think of other types of startups an emerging-market-first strategy might be applicable to?
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