Government regulations can be a costly pain point for businesses, especially in highly regulated industries such as healthcare and financial services. But they can be a real boon to entrepreneurs. The first step of the moneymaker-to-moonshot business model is solving a problem for larger companies – and new regulations fall completely into that category.
In 2013, then-President Obama signed the Drug Quality and Security Act (DQSA) into law. The legislation required drug companies to provide the means to “track and trace” most prescription drugs from every source of ingredients to the patient – right down to the bottle. At the time, few companies were equipped to handle this level of detail in the supply chain. In fact, many still relied heavily on paper documentation and processes.
But Evren Ozkaya, the newest entrepreneur in our video series– knew exactly how to do it. Just prior to DQSA’s arrival, he led a track-and-trace program for pharmaceutical giant Sandoz. So in 2014, Evren took the law into his own hands and launched Supply Chain Wizard, a consultancy that helps companies comply with the new regulations. Consulting is one of those great “ramps” for entrepreneurs. As a consultant, you can start small, even as a sole proprietor, and market yourself as an expert in a field that is in high demand. Evren had extensive experience in supply chain management after completing his Ph.D. in the field from Georgia Tech before taking a position in McKinsey’s supply chain management practice.
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A major advantage of consulting is that it opens doors for a large number of companies, even for entire industries. And every successful consulting engagement – where you prove your value to clients with a positive return on investment (ROI) – raises your profile and increases demand for your service. That’s how Evren spent the next five years building Supply Chain Wizard into a $6 million money maker with 51 employees and offices around the world, holding the Inc. two years in a row. 5000 list of America’s fastest growing companies appeared.
But there was a hitch. The legislation that provided the bulk of the company’s revenues had a 2023 deadline, and by 2019 most pharmaceutical companies were well on their way to meeting it. That year, Evren attended Birthing of Giants Fellowship Week at MIT with a nagging question in his head: What was the company’s next step?
While he didn’t have a complete answer to that question, he did have an idea of what it would look like. During the phenomenal growth of Supply Chain Wizard, the company has invested in software to make its processes more efficient and replicable. One solution focused on strategic planning. Another example was a portal to integrate hundreds of a company’s suppliers into the new tracking system. The company became so good at building software that customers often asked them to create custom solutions, and in 2019, software sales accounted for 20% of its revenue.
But Supply Chain Wizard’s investment in software development was a bull’s eye. Some products were only useful during consulting assignments. Others were one-offs for specific customers with little universal appeal. If the company could produce a digital solution that appeals to a broad market, it could quickly and easily scale to meet demand using a software-as-a-service (SaaS) model. (SaaS refers to applications that any number of users, from any number of different clients, can access through a web browser or mobile app.) Because SaaS applications live in the cloud, serving a million users doesn’t cost much more than a thousand servings. . It’s essentially economies of scale over steroids, and it can push profit margins through the roof.
“There is limited time, limited capacity, limited budget, limited people – how can you maximize your value with these limitations? That’s where the initial thinking about how we could scale the software faster became a topic.”
When I met Evren at MIT that week, he knew his company’s future lay in software, but he wasn’t sure which solution to invest in.
“The fellowship program gave me the opportunity to think about all the different aspects of the company and consider their potential,” Evren told me recently. “There is limited time, limited capacity, limited budget, limited people – how can you maximize your value with these limitations? That’s where the initial thinking about how we could scale the software faster became a topic.”
Using the Launch Pad
The answer came quickly enough: a customer had requested a “digital factory” solution that automates certain manufacturing processes to improve visibility and performance quickly and cost-effectively by leveraging technology such as artificial intelligence (AI), machine learning ( ML), and Internet of Things (IoT). Digital factory solutions can address a huge total available market (TAM) well beyond the pharmaceutical industry. At the same time, the deep relationships and trust Supply Chain Wizard had built among pharma companies gave it the springboard it needed to push giant, well-funded competitors like IBM, Siemens, and Cisco to the side.
Supply Chain Wizard was able to begin this transition without sacrificing much of its equity to venture capitalists. When the company sought outside investment, the valuation was that of a technology company, not a consulting firm. Here’s what that means: The company’s valuation was a multiple of sales, not earnings, so much higher than it would have been even a few years earlier. In addition, a high valuation means that investors have to accept a smaller percentage of the equity, leaving control of the company firmly in the hands of Evren.
In other words, Evren followed the moneymaker’s path to success. He built a money-making company that could fund investments in technology solutions from corporate income. That technology solved problems that larger companies had to solve. He then turned that technology into a self-contained, highly scalable product that transformed his company into a moonshot with a huge valuation to match.
Drop Mike. Game is over. Except that Evren isn’t the kind of guy to rest on his laurels, or even define success solely by financial gain. For him, the real value is in making a positive impact: making sure prescription drugs are safe and that life-saving drugs can reach a larger population at a lower cost.
And you? Do you have expertise that you can market as a consultant? Can you discover unmet needs of your customer base that you can meet with technology? Do you have a moonshot in you?