Companies fail. It happens, a lot. But entrepreneurs, founders, CEOs — they don’t often like to talk about it. While the big-company failures that leave hundreds jobless make headlines, startups and smaller companies that fail more often than not quietly disappear without a trace. Which is too bad, because each failed venture is a potential learning opportunity, according to Kerem Durdag, CEO of Biovation, a high-tech manufacturer in Boothbay.
Biovation, despite promise, is one such failed venture, Durdag admits. In an interview with Maine Startups Insider, he shares his lessons from the company’s failure.
Biovation was founded in 2009 with plans to develop anti-microbial non-woven fiber products for medical, food packaging and other applications. It was actually a spinoff from Rynel Inc., a Wiscasset medical-products manufacturer that has since been acquired by Molnlycke.
Up until last year, the news about Biovation was promising. It had secured nearly $1 million to develop a boot-drying product for the U.S. Marines. Just last year it had hired a new COO and a new VP of sales. It had a number of other products in the pipeline. The company was getting ready to ramp up production…
But then it didn’t. Instead, the company has since laid off the majority of its dozen or so employees and its assets are currently for sale, according to Durdag.
I asked Kerem if he was willing to speak openly about Biovation’s situation, about how a company with such promise could stumble and fall, and why entrepreneurs should be willing to talk openly about failure. He kindly agreed.
We conducted this interview via email. It’s long, but informative. I chose not to cut Kerem’s words because I think my target audience will benefit from reading what he has to say. I’ve also allowed Kerem to intersperse his answers with links to everything from his favorite poets to music videos on YouTube. Enjoy.
Maine Startups Insider: Tell me what the last year has been like at Biovation. I know there’ve been some ups and downs, and some promising opportunities that didn’t pan out. Have you analyzed everything that happened enough to know what went wrong and how you ended up in the position you’re currently in?
Kerem Durdag: It is fair to say that the last year was really tough; really tough. To have something you have devoted 16-18 hours a day for six years not result in a successful execution point creates its own dynamic of disappointment. It affects you psychically, it guts you open. You feel you have let down the investors who believed in you, the team that gave it everything it had, the early-adopter customers that spent time and energy testing and validating the product, the thought-leaders and partners that teamed up with you to make sure we were doing things that had value and market need… I let them down. It was/is my responsibility.
To some large measure, when it comes to start-ups and et. al, I have my built-in credo of STUPPID (Scalability, Timeline, Urgency, Price, Performance, Interface, Decision Drivers… I know… we are all acronym beings…) and in the case of Biovation even though we engaged in all the right ways, I couldn’t hit the ball out of the park (or an in-field triple or even a double…everyone has their own definition). We had the early-adopter customers, had several products where we were torquing into the market, had a bunch in the pipeline that was validated by the market but needed to get through regulatory approvals, were pulling in revenue … hell… we were getting calls from customer who had now acknowledged us as one of the key providers of solutions to the marketplace and had orders in the future timeframe that would have buried us with capacity and yet, I couldn’t get out of the chasm where we were self-sustainable and growth was continuous.
What were the specific influences that determined Biovation’s direction and ultimate failure?
Several things contributed to our situation:
- Timing: I mistimed the entry points in the marketplace; it can be argued that we were too early in some areas so the demand stream is not necessarily commensurate with the purchasing decisions made by customers (they needed the products, but other priorities by them took precedence that became simply more urgent and important). And in the places where I did time it right, things not under our control came into play (partners putting their gaze on other interests and shifting decision points; the product we had needing more iteration). So things got pushed out; everyone’s timelines became different from ours.
- Global macro trends: The falling oil prices affected us because the market was looking at pricing equivalency from us, which was impossible to achieve (our raw material pricing for the biopolymer is always steady but the value proposition suffers when an alternative can be 3× cheaper albeit with significant less value). Also, one of our very large partners, with whom we had been with for three years, with a massive footprint in the industry, had exposure to the Chinese market (and currency exchange rates) which when it started to dip, affected their decision-making process leading to withdrawal from an ongoing multi-year involvement with us. I neglected the importance and impact of global trends on my day-to-day business.
- Risk mitigation: I should have risk mitigated more. We were diversified in our markets but I should have been more rigorous in methodically identifying where the risks were on a monthly basis. That way we would have exited the markets we did eventually earlier. We would have killed a product we spent time on, earlier.
- Managing expectations: I am usually really good at this, and this is one occasion where I should have been better. When the rough bumps were coming along at regular intervals, I should have seen evidence of this eventuality earlier and managed my expectations and those of the investors (whom I love and respect and we had a great working relationship) even better. We got to a point where we all were getting tired and I should have paced things better.
- Manufacturing optimization: Even though I come from a very heavy operations background, I underestimated the length of time it took us to become not only optimized but also the ceiling on how cost-effective we could be. Getting to those assessment levels earlier would have probably resulted in some different decisions, especially when came to cash flow.
What would you have done differently if you knew everything that you know now?
I certainly would have (and will in the next adventure I undertake) paid more attention to the factors I outlined that contributed to Biovation’s current situation. So, if I had a lens to look backwards, I would do couple of things differently in addition to implementing the learning from the above:
- Move even faster. I take pride in being very forward leaning and running hard. We did things very quickly for sure when it came to customer engagement and product building, but we did spend time on the front end of the business cycle (when we first started up) on getting organized. Some personnel moves I miscalculated; I would make those really tough decisions much earlier.
- Call “fish or cut bait” earlier. There were a couple of customer engagements that lasted longer than I wanted it… I should have been brave to cut the cord earlier. This would have preserved some more cash.
- Be more sensitive to the vagaries of regulatory approval. In our case, being bumped around review committees in the FDA approval process (through no fault of our own) ended up burning a significant amount of time and money that delayed our market entry. Which in turn then did not allow us the bandwidth to gear/scale up on sales and marketing adequately enough.
In an earlier email you mentioned that Maine’s ecosystem needs to know that sometimes business endeavors end in failure, and that’s okay. Do you think there’s a stigma about failure in Maine’s business community? If so, why do you think that’s counterproductive?
I am not sure if there is an explicit stigma, but there is an implicit one that takes place in conversations in our ecosystem. Not by fellow entrepreneurs or even the investors, but by the community at large. Perhaps the idea of risk taking is still culturally alien to us, the idea of not having a job for 25 years in one place is massively uncomfortable for a large demographic subset of our population. No matter how you parse it, the velocity of business today necessitates the need of failure… Maine to some large extent is only recently facing this velocity. For a very long time, things in Maine have been stable and now the old world order is crashing around our ears as a new one is being built, so there is a cultural identity crises… which results in looking at failure differently. So the change will happen. At least by the time the next generation comes along. If it does not, we are somewhat screwed.
We are going to be screwed if we don’t see failure in a positive light because failure is not an abyss, not a stain, not an embarrassment. The mechanics of the 21st century is to be biased towards action based on the torrent of data at hand as best as possible; with all the right things in place there is always a risk of failure. The key is to extract the learning from such event. To allow ourselves the opportunity of realizing our limits and seeking information. And to take risks on whatever spectrum that we feel comfortable with… and with any risk, comes the possibility of failure. It is my strongest belief that as a state we have to culturally get comfortable with the idea of risk, if we are to be economically viable and have multiplier points for our kids. And hence we have to see the value of failure. We just have to.
You’re a new Entrepreneur in Residence at the Maine Technology Institute. Why is being a mentor to other entrepreneurs important to you?
For me there are professional and moral imperatives. Professionally, it is absolutely essential for me to engage with my peers and colleagues and the eco-system at large to share perspectives, lend expertise, learn, connect the dots for stakeholders and have the requisite availability to commiserate and understand. On the moral front, it is a human responsibility to assist, to provide a shoulder to lean on and to be present for the other. Blame it on the Benedictine DNA that is embedded into my helix, or the fact that I was born and raised on the poems of Nazim Hikmet, Faiz Ahmed Faiz and have a tattoo of carpe diem on me.
The essential truth is that there is a need out there, and I have to be part of the solution.
If you’re able to impart one universal piece of advice to the entrepreneurs you work with, what would it be?
One… one… I am a Turkish-Pakistani-American hybrid mutt raised on verbosity, song and dance… so one is tough. Tough! But here goes… find out the “why” in what you are doing. Why. Why do you want to devote every ounce of your being to this glorious quest? Find the answer to the why. The “how”, the “what” and all the rest will follow in some unfathomable and in some predictable fashion.
What’s next for your own entrepreneurial adventure?
I am in the seeking mode currently; quietly, carefully, deliberately. Seeking for the orbit around the sun; the cause to devote a professional life to. Talking with close friends and colleagues. Having meetings. Searching. The elemental criteria for me is to be part of a world class team, one that is a group of really decent human beings, experts at what they do and how they strategically think about executing that expertise. The second part is to bring to bear (however defined; start-up, mid-cap, turnaround, etc.) a product that has to have human impact (in whatever market), however defined. It has to passionately matter to me. It has to get me out of bed before dawn. It has to be something that has value and can scale. It has be something that I enjoy the people I work with, can be proud of our community, our world and the next generation. That is the only way I can justify the trust placed in me by partners, investors, customers. I know what I am really good at and I also know where I can/need to be better. Efforts and search like this take time. I have been blessed to have succeeded with exits (and failed), fortunate enough to be an investor and have folks who trust me with the investment they make in me. The Maine opportunity basin trough is not necessarily very deep (I do contend there is a sub-strata that is humbly hidden and needs to rise to the surface… sort of an enormously sequestered opportunity) but there are rich veins. So hopefully there will be an intersection.