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RockStep Solutions improves efficiency by 70% according to one client. This is why the startup is getting word of mouth traffic from clients running in vivo drug trials. Founders Chuck Donnelly and Julie Morrison tell their story and share valuable wisdom about this intersection of software and the life sciences.
Click here to read full episode transcript.
Highlights include:
Sal Daher Introduces Chuck Donnelly and Julie Morrison, the Founders of RockStep Solutions
RockStep Provides a SaaS Solution for a Sector of the Drug Discovery Space That Is Poorly Served by Existing Vendors
“The problem that we're solving is data chaos in drug discovery.”
“…we have one of our customers that's projecting a 70% efficiency gain.”
“We bring value to the pharmaceutical companies by speeding up that pipeline, reducing the number of errors that happen.”
“While I was at Jackson Lab… We recognized that there was this gap, if you will, that we just talked about. The NIH actually funded us.”
“One full day of my work week was designed to take all my data out of paper and put it into Excel even.”
"But they don't actually have any money." I said, "I'm not sure it matters at this point because I'm so passionate about the problem they're solving."
“I can tell you that these equity-only deals work very rarely…”
On co-founders: “You have to be aligned on your personal values because this is a marriage. In very many ways it's similar.”
“There's no question, your family is part of this company. You will not have a work-life balance.”
“Ultimately, if we don't get the pricing right, we're not going to succeed. You have to get your pricing right.”
“…they're just academic customers paying, I think our cheapest is $50 a user. Right now, in industry we're getting $1,800 per user. That's how different our pricing has scaled up.”
“We spent about a year and a half, two years, perfecting the product that we have out in our biopharmas today.”
“After a year and a half of doing that, we ended up with a product that is totally, uniquely positioned in the market…”
“…if she had gone in thinking that she already knew it and she just was trying to validate it, she would be coming in with her own biases, almost telling the people, "This is how it should be done."”
“If you have a toxic person or persons in the company, that goes through the entire company. You cannot; it will kill your company.”
“…a hire that almost tore the company apart, to be honest. It was a salesperson forced on us by an investment firm.”
“...we can teach anyone anything for the most part…But you can't really change someone's culture or their personality, their willingness to dig in.”
“First thing is that it takes a lot longer to raise capital than you might think. The other thing is that you're going to probably need more money than you think.”
Deep Wisdom on Grants: “All told we got three grants, total of 1.85 million… from the NIH. That was all great non-dilutive funding and life is good. But I would caution anybody who wants to continue living off of grants, don't do it.”
“We could have written another grant, but it's not going to be a market-driven product anymore, it's going to be a grant-driven product.”
“The market still needs to stop using paper and spreadsheets.”
“…it's hard. I spend a lot of my time raising money.”
“…our sweet spot really is the small, mid, to large biotech and global pharmaceutical companies.”
“…it feels good when you start seeing people coming to you on word of mouth.”
“…there are fires burning every day. It's overwhelming. The big mistake you can make is just trying to put every fire out because you're not going to make any progress.”
“…don't do it unless you're ready. This is the hardest thing you will ever do.”
“…manage burnout. Burnout is very real.”
“I would say another really important tip is you can't do this alone.”
Transcript of “SaaS for Pre-Clinical Trials
GUESTS: Co-founders Chuck DonNelly AND JULIE MORRISON
Sal Daher Introduces Chuck Donnelly and Julie Morrison, the Founders of RockStep Solutions
Sal Daher: Welcome to Angel Invest Boston, conversations with Boston's most interesting founders and angels. Today I am privileged to have two really special founders from Maine, Chuck Donnelly and Julie Morrison. Welcome.
Chuck Donnelly: Hey, it's great to be here Sal, thank you.
Julie Morrison: Yeah, thank you, Sal.
Sal Daher: Excellent. Now, Maine has a very fond place in my heart for startups because I've invested in two Maine startups and they're both winners.
Chuck Donnelly: All right.
Sal Daher: I'm two out of two in Maine. I love it. I love it. I love it. Shout out to my friends at Maine Angels. Great guys. Would you care to tell me what it is that RockStep Solutions does and what problem it's solving?
RockStep Provides a SaaS Solution for a Sector of the Drug Discovery Space That Is Poorly Served by Existing Vendors
Chuck Donnelly: Absolutely. Yeah. We are a SaaS solution, SaaS software, for the biomedical research drug discovery space. Drug discovery, just to put it in context, is a 10 to 15-year process, cost about two to $3 billion to get a single drug through the pipeline. The pipeline starts out with about 10,000 molecules typically. I mean, there's all kinds of variations to this. But at some point, those molecules, as they're testing them and going through all kinds of chemistry testing to see whether they bind to their targets, et cetera, they get to this point where they need to test in research animals. There's usually about 50 of those 10,000, somewhere between 250 of those 10,000 molecules that need to get tested in animals. That's the process where we get involved and it's called in vivo drug discovery.
Fortunately for us, it's also called the final frontier for informatics solutions in this space because nobody to date has been able to really provide an end-to-end solution that really solves the problem the way we have. That was our sweet spot if you will. We recognized this, we worked with the National Institutes of Health, recognized that this was a problem that still needed to be solved with modern technologies. We come in with a SaaS solution that's in the Azure cloud that provides across the spectrum of users in that space. You have everybody from the scientists, to the study directors, to the lab technicians, to the animal caretakers, people that are processing samples all across that space. The veterinarians need one solution to actually work in so that they can communicate and really manage this space effectively.
“The problem that we're solving is data chaos in drug discovery.”
The problem that we're solving is data chaos in drug discovery. There's just enormous amounts of data. The value that we bring is, you can just imagine if you're just always struggling with data, data analysts, data wranglers, they spend about, the data scientists, 80% of their time wrangling data. This is just a well-known problem. We try to get that down to a very small percent so they can go to one place, log in, get their data. All of the operations and all of the data are in that one place. Now I'll turn it over to Julie to talk a bit more about what exactly the application does, to really put it in context. What's happening in the lab?
Julie Morrison: Sure. Thanks Chuck. Our application is called Climb. As Chuck said, Climb is a browser-based software in the Azure cloud. This works from everything from the time the animal enters the facility, whether that's through receiving them from an order from your CRO or from breeding in-house. It tracks all of the animal data and metadata through its entire life cycle: adverse event, health reporting, genotyping all the way to randomization and enrollment on the study. From there, the study designs can be put together in a very easy template package and reused over and over. The animals are enrolled onto that study design and then ultimately can be scheduled. There's a fantastic scheduling tool and calendar. Then the technicians, the research assistants or bench scientists will come in and actually execute the plan right in Climb as well. It really covers everything from animal inception into the facility all the way through the ex vivo collection.
“…we have one of our customers that's projecting a 70% efficiency gain.”
Chuck Donnelly: Yeah. To take that context into an actual use case really, we have one of our customers that's projecting a 70% efficiency gain. That means if you think about it there are 250 or so compounds that need to go through this pipeline. Out of that, really, one or two are going to go into a human clinical trial. If you can speed up that process, if you can make that more efficient and get more compounds through that lab with the same lab footprint, you're actually speeding the time to market for those few that are going to make it into the clinical trials. Every day in the market for a drug is a million dollars of market opportunity, plus it's enormously competitive as we all know. Everybody's right now trying to get their first vaccine into market in the COVID time. It's highly competitive.
“We bring value to the pharmaceutical companies by speeding up that pipeline, reducing the number of errors that happen.”
We bring value to the pharmaceutical companies by speeding up that pipeline, reducing the number of errors that happen. Early missteps at this phase can get into clinical trials and can be not only deadly, but also very expensive. You want to fail fast with the wrong drugs, get the right drugs moving forward faster, and get to market faster.
Sal Daher: Okay. Tell me a little bit about the backgrounds of each one of you. What qualifies you to be doing this impossible thing that's never been done before. I understand that the division of labor here is that Chuck is a software person and Julie is a life science person.
Julie Morrison: Correct.
Sal Daher: Please, tell us about your background.
Chuck Donnelly: I'll give it a start. My background's varied. I actually was at the Jackson Laboratory. I was director of computational sciences there. Jackson Laboratory is known for in vivo research. They basically are a world-class laboratory. They have a facility in Connecticut, one in Bar Harbor, Maine, one in California, as well as China. It's a really enormous organization at this point, global organization. I was director of computational sciences there and I was funded by the National Institutes of Health to solve a lot of these problems, both in the informatics space where you're actually trying to improve operations and data, as well as some of the analytical problems around sequence analysis alignment, computational genomics, things like that.
“While I was at Jackson Lab… We recognized that there was this gap, if you will, that we just talked about. The NIH actually funded us.”
I had built this group up to about 20. It started out as just me at Jackson Lab in, I think, 1998. Did that for about 15 or 17 years or so before leaving to start RockStep. While I was at Jackson Lab, I was funded by the National Institutes of Health. We recognized that there was this gap, if you will, that we just talked about. The NIH actually funded us. We won some awards. It wasn't easy, they were innovation awards. But they funded us to about $1.85 million to get this company started. That's all grant funding. We were vetted by NIH. I like to toot my own horn, so I'm going to do that here.
Sal Daher: Chuck is very modest-
Chuck Donnelly: Absolutely. Julie knows that as well. But NIH actually ranked myself and our team as being outstanding, which is the highest ranking that they give when they award a grant funding.
Sal Daher: Excellent, Julie.
Julie Morrison: Great. My background is in microbiology and I worked for several years in microbial assay development, both for pathogens, water pathogens, and even spatial microbes. Chuck and I had an interesting NASA connection there. I got to a point where I did not want it to be me and 20 incubators humming in a room anymore, and I was ready to leave the bench. I went out, took some time to have a family. But also during that time, really embedded myself with some colleagues in the entrepreneurial community and was always playing around with the next idea or the next business and where I would go. That's, unable to really sit still too long. Through a mutual friend, someone told me about the problem that Chuck was trying to solve with his grant. It really stunned me that a decade after I left the bench, people were still collecting data the same way. The way that this had happened for me was everything was on paper, in a lab notebook. Every Friday was dedicated to transcribing this into Excel. I was just stunned that this is still, a decade later, the way that-
Sal Daher: I'm shaking my head. This is podcast language. I'm shaking my head. I mean, this is good. I'm thinking of my older daughter who's a physician. She just spends so much time with that neolithic electronic health record that's just a piece of legacy ware. It's just ridiculous human beings doing stuff that machines should be doing. Things should be designed around humans, not human beings twisting themselves around machines.
“One full day of my work week was designed to take all my data out of paper and put it into Excel even.”
Julie Morrison: Exactly. One full day of my work week was designed to take all my data out of paper and put it into Excel even. It wasn't even a big leap here.
Sal Daher: Another [inaudible 00:10:00]. I know you're in the Azure cloud. I hope they don't kick you out. Those providers of C-R-A-P ware. Please continue.
"But they don't actually have any money." I said, "I'm not sure it matters at this point because I'm so passionate about the problem they're solving."
Julie Morrison: Yeah, of course. I met someone who said, "I have this company I think you'd be interested," he told me and they said, "But they don't actually have any money." I said, "I'm not sure it matters at this point because I'm so passionate about the problem they're solving." Chuck and I met and really the rest is history. To be perfectly honest, I came in on pure equity. I joke it was kind of similar to what we do with pharmaceutical companies. It was my pilot of the company and the company's pilot of me.
Sal Daher: Unpaid pilot.
Julie Morrison: Unpaid pilot. The hope, the dream.
“I can tell you that these equity-only deals work very rarely…”
Sal Daher: Julie and Chuck, I can tell you that these equity-only deals work very rarely and you two are just an unbelievable team for that. That speaks to passion, to really dedication, to belief in the mission. Because I have seen so many situations where equity only three months later, it's like, "Give me money, give me money," and then they just jump for the money. This is an excellent occasion. Excellent, so is there anything else you want to say on that Julie?
Julie Morrison: No. I really think the rest is history. We came in on equity and eventually, obviously, transferred over as another grant came in. Ultimately came in just to help with some of the business development and started seeing that the product was not yet ready for the market as the current team thought so, and got my head down in the product, very quickly became a co-founder. That's the beginning of the story.
Sal Daher: Well, I heard about you guys at Walnut Ventures. I saw you guys pitch and I became very interested because I can see that this is a massive problem. I'm investing really in two areas, software eating the world, this is what this is, and biotech eating the world. This is, I like software eating the world in the life sciences. I mean, I prefer biotech eating the world because of patents and protection and all that stuff. But you guys are creating a platform so I like this. Then it turned out that one of the cleverest people that I know, you know who I'm talking about. I don't know that he wants his name mentioned. Mensa level IQ, the kind of guy who learned Hindi because it was the only course he could fit in when he was in the MD-PhD at Yale program. He had a couple of hours a week and he picked up Hindi along the way.
He's a very big believer in RockStep and he's an investor. He's invested recently, I understand, again. He spoke very highly of the team and also of... he said, "For me, it's pattern recognition. I've seen this kind of situation before, capable people, dedicated, people who work together well addressing a really important problem with very little competition anywhere." That to me sounded very appealing as well so I'm very interested. Now, you guys were organized enough to come up with some topics that you thought might be good to address. Let's do some quick takes on, first, choosing co-founders. Who wants to take that?
Chuck Donnelly: I'll give it a start because I was in the company first. Really, when you're looking for a co-founder you're looking for somebody that can bring some credibility to your company, somebody who's got some experience. But I think that some of the most important things to look for is somebody you can work with every day. I have to say, you want cognitive diversity. You want somebody that thinks differently. I wanted somebody who was very, very different from me. As we know, Julie is very different from me in so many ways. I mean, different generations-
Sal Daher: Sure is.
Chuck Donnelly: Yeah. Different generations, different genders, different backgrounds, just everything. But we hit it off really quickly. I like to say, I'm always looking for somebody who disagrees with me every day, but we know how to get through those disagreements... it's not in a bad way. It's somebody who's always challenging me-
Sal Daher: Constructive tension. Yes.
Chuck Donnelly: Exactly. Yeah.
Sal Daher: [inaudible 00:14:16]. Yes.
On co-founders: “You have to be aligned on your personal values because this is a marriage. In very many ways it's similar.”
Chuck Donnelly: Yeah. But also you have to be really careful. You have to be aligned on your personal values because this is a marriage. In very many ways it's similar. We go through this day in and day out through really, really stressful times and we have to be able to work through those things. We have to have, our business goals have to be aligned where the company's going. It's not a lifestyle business. We're trying to grow something, we're trying to change the world. All of those things, aligned on product vision and the trust, and we have to like each other.
Sal Daher: Yeah, that's really essential. You guys are pointing to the most well-supported in research result in the study of entrepreneurship and that is more founders better. Even three or four founders together. Going from one founder to two founders is a huge improvement, increases the chances of success and they point out to complementarity of personalities, of skills and consonance of values, very important. It's the same thing in a marriage. I mean, in a marriage you want someone who's, they're complimentary in personality and skills and approach to things, but with similar values. They're both looking for the same thing. That's really essential.
I'm so glad to hear this reinforcement because there's such a temptation among young founders, especially the most brilliant. The more brilliant you are the more this temptation occurs, to think that you know it all. You are so much the person that needs a co-founder. The more brilliant and the more you think you can do it all yourself, the more you need a co-founder. You got to go out and find one. What has the impact of founding a company been on your families?
“There's no question, your family is part of this company. You will not have a work-life balance.”
Julie Morrison: Yeah. I can start with that one. There's no question, your family is part of this company. You will not have a work-life balance. I read a book recently and the author was saying that you will have balance at work and you will have balance at home, but until this is done, they will never be balanced at the same time. I felt-
Sal Daher: [inaudible 00:16:27] entirely. Yes.
Julie Morrison: That was so profound for me because you start worrying about either or getting the attention. I think that is, my children were seven and 10 when I came into the company. They're now 12 and 15, and they've been a part of this from day one. They know when I have big meetings, they tell me good luck in the mornings. They are just as personally invested in this as I am, and as my husband is. He also has a full-time career and travels a lot and we have to communicate incredibly well to make it work for our family. But ultimately they're our biggest supporters. Chuck and I joke that his wife and my husband should start a startup spouse support group.
Sal Daher: Oh yes.
Julie Morrison: They would [crosstalk 00:17:09]-
Sal Daher: I've actually had the idea of doing a podcast exclusively talking to the spouses of founders.
Julie Morrison: Yes, yes.
Sal Daher: Maybe a rotating thing. Just having the spouse’s take. It is such a demanding thing. This is a little bit of [inaudible 00:17:27]. She's going to have a [inaudible 00:17:28]. My wife's niece moved to Boston and she met this guy who was a founder of a biotech startup. I said, "Where did you meet him?" "Oh, in a pottery class." A pottery class. A founder who has time to be taking a course in pottery, very interesting. Turns out the guy's father was the founder. The kid was a dilettante. It became quite evident very quickly, because I immediately said, "Oh, how does he have time to go and do pottery when he's starting a biotech company?" But anyway, so you guys started out with grants and you've been coming in through the academic network because that's where you started. Tell me a little bit about how that has affected how your product is positioned, how it's priced, how it's portrayed, how it's packaged.
“Ultimately, if we don't get the pricing right, we're not going to succeed. You have to get your pricing right.”
Chuck Donnelly: I'll give it a start here. Julie and I, we work on pricing and market positioning. That's what we work on every day. Just thinking about, you mentioned price. Ultimately, if we don't get the pricing right we're not going to succeed. You have to get your pricing right.
Sal Daher: I am nodding intensely. I am intensely nodding. Yes.
Chuck Donnelly: That is the difference between success and failure for a company. That's really key to focus on that, pricing and packaging, but also positioning your products. I'm going to just talk a little bit about the pricing part of this and then Julie can talk about the positioning because the way Julie and I work together really is, I'm the CEO and Julie's the President. I focus more on the strategic and the pricing part. Julie's more on the operations and the product positioning in the market and in charge of the product. That's how we work together so well is we've really divided up our responsibilities. However, we work together on all of this every day as well.
But just looking at the pricing, first off you got to decide, what's the price that's going to make sense? Your cost of customer acquisition or your customer acquisition cost can't be so high. You divide that into your lifetime value of your product at any customer, it's got to be at least greater than three. The minimum is three. We had to figure out, can we sell this for a price that'll justify the cost of acquisition?
Sal Daher: You mean you have to make the cost of bringing in a client. You got to pay it back at least within three years.
Chuck Donnelly: Exactly. Right.
Sal Daher: Otherwise, it doesn't make sense because people eventually, who knows? After three years in the startup, terra incognita. Who knows?
“…they're just academic customers paying, I think our cheapest is $50 a user. Right now, in industry we're getting $1,800 per user. That's how different our pricing has scaled up.”
Chuck Donnelly: Exactly. Your LTV divided by your CAC (cost of acquiring customer) has got to be greater than three, LTV being lifetime value. But this was real. This has been a sort of a transition as well. We started out in the academic market because that's what I knew. Jackson lab was a nonprofit like academia. I connections all over academia. Fortunately, a lot of those connections move into the industry, so we still leverage those connections in industry now as well because they're the people that are getting their PhDs and then going on to the pharmaceutical industry. But initially the pricing is, you just want to sell it to anybody. You need to get the product in somebody's hands. You need to validate that this is a problem that you're trying to solve. We did that in academia. We still have some customers out there paying almost nothing for it, but they're just academic customers paying, I think our cheapest is $50 a user. Right now in industry we're getting $1,800 per user. That's how different our pricing has scaled up.
But we needed to get in the hands on somebody. We needed to get people to use it. We needed to get the feedback. We positioned it in academia pretty well early on based on all those contacts we had. But then when we went into industry, we realized that industry had the problem but they actually had a different sort of use case, more high throughput, et cetera. I'm going to do a shout out to Julie here because as a co-founder her major contribution here, it was really brilliant. She had to figure out how do we position this in industry? And it was an enormous effort. She's going to undersell her effort right now, she always does.
Sal Daher: She has a coy smile on her face, which is typical.
Chuck Donnelly: She's blushing right now.
Sal Daher: People from Maine are not flashy. Okay. Tell us that story, Julie.
Julie Morrison: Sure. I was brought in to sell this product. I get out into the market, I'm going to conferences, I'm talking to people, and I pretty quickly realized this product, particularly on the workflow engine, was not going to work from any type of drug discovery study. It works great for bespoke experiments, but it did not work for routine bleed every hour, bleed every day, dose twice a day, that kind of drug discovery study. We started, I did a significant amount of user research and then we partnered with three different institutions across three different industries. One being a large public biotech, one was a global tier one pharmaceutical company, and then a large academic lab of a Nobel Laureate who's been a long-time partner and friend of RockStep, but they're also doing drug discovery. We partnered with these groups and did an immense amount of user research early on and prototypes.
“We spent about a year and a half, two years, perfecting the product that we have out in our biopharmas today.”
We spent about a year and a half, two years, perfecting the product that we have out in our biopharmas today.
Chuck Donnelly: Yeah. That effort is huge. I told you Julie would undersell it. She had to go out, go into labs, go into the animal rooms, work with the users, get in their shoes, understand what they're doing, map out their problems, create prototypes, go back to them and say, "Does this work for you?" "No, it doesn't." Go back to the tech team and say, "This is what we need to do." It was a massive effort. It's not like something that you could just say, "Here's the steps you do." You have to have the right personality for it. Because you're going in there and you're interrupting these people. Most of them, they don't actually want to deal with you for the most part. You have to have the right personality, you're building relationships.
“After a year and a half of doing that, we ended up with a product that is totally, uniquely positioned in the market…”
After a year and a half of doing that, we ended up with a product that is totally, uniquely positioned in the market, extremely well positioned in the market. To Julie's testament, it's a testament to the work she did and our entire team which actually built it. I don't want to say it was just Julie or me running, but with Julie's leadership is what really made that happen.
Sal Daher: Yes, building product requires remarkable persistence, attention to detail, and willingness to go back over it and over it and over it and interact with people again and again. I mean, it has to be somebody who's very high in conscientiousness, but is also open, has a certain degree of openness to listen to what the problem is. Because if somebody is just inside their own head trying to figure it all out there, it's not going to happen. It's a very hard thing. It's a very, very hard thing. Really, I noticed the details because I use a SaaS platform for my apartment buildings. I just love the way, the attention that Julie has put into the stuff that's in the pull-down menus, how they work. It speaks of very great detail orientation and a tremendous amount of patience. That for me is an excellent indication that it's not just a flashy front end. I mean, there's actually, the back end is solid.
“…if she had gone in thinking that she already knew it and she just was trying to validate it, she would be coming in with her own biases, almost telling the people, "This is how it should be done."”
Chuck Donnelly: Yeah. I also want to just point this out. One of the things with Julie. Julie had a lot of experience in research labs, but she didn't actually have the experience in drug discovery. That actually was a better fit for having her do this because if she had gone in thinking that she already knew it and she just was trying to validate it, she would be coming in with her own biases, almost telling the people, "This is how it should be done." Instead what she did is, because she really needed to learn, she listened. We just published this paper with Novartis in Drug Discovery World, it was published October 1st, about this process that they went through because it was groundbreaking if you will. I want to give a shout out to the... you don't always need to be, in fact, it can help to not be the expert because the people you're talking to are the experts, they have the problem you want to solve. You just have to have the patience, the smarts, and the ability to work with a technical team. Very different when you talk to the developers.
Sal Daher: Yeah, yeah. That is true. Do you want to talk about company culture?
Chuck Donnelly: Yeah. Since I'm already talking, I'll just start on that but Julie will... yeah.
Julie Morrison: We are laughing for a reason.
“If you have a toxic person or persons in the company, that goes through the entire company. You cannot; it will kill your company.”
Chuck Donnelly: Yeah. We learned the hard way. We actually had some bad cultural experiences. If you have a toxic person or persons in the company, that goes through the entire company. You cannot; it will kill your company. We had that problem early on and it was a critical person that was performing a critical role for us. I don't want to go into too much detail there, but it was toxic. Julie and I were out in San Francisco on a business trip and we met with somebody who said, "Look it, you guys got a problem here. You can't go forward with this person and you can't go forward without this person." She said, "You got to go forward without this person." We made that hard decision. Julie, do you want to just go forward with how we're building company culture now and the importance of it to us?
“…a hire that almost tore the company apart, to be honest. It was a salesperson forced on us by an investment firm.”
Julie Morrison: Yeah, absolutely. Now we actually build this immediately into our hiring process. When we interview, Chuck and I personally interview as well. Early on, we had a ranking system, an algorithm for our hirers. We had ranked culture fit as important but not nearly as important as skill or biopharmaceutical industry experience. We realized early on after a hire that almost tore the company apart, to be honest. It was a salesperson forced on us by an investment firm. Our gut immediately told us this person was not the right fit and it almost took the company down, it was so bad. We really realized after that, that culture had to be one of our... we can teach anyone anything for the most part, if they have a baseline and a willingness to learn, and they have that startup mentality. But you can't really change someone's culture or their personality, their willingness to dig in. We now actually rank that as one of the highest things we look for in interviews. That's why Chuck and I still both meet with each hire and I think we will for the foreseeable future.
“..we can teach anyone anything for the most part…But you can't really change someone's culture or their personality, their willingness to dig in.”
Sal Daher: Great. Great. Have you run across Joe Caruso?
Chuck Donnelly: I know of him. I don't know that I've met him personally.
Sal Daher: Well, he's been on the podcast a couple of times. He's a very wise angel investor, just a tremendous advocate for companies and big supporter. Joe has a saying, "You hire people for what they know and you fire them for who they are." It's like, you hire somebody because you need the skill and then you discover...
Chuck Donnelly: Yeah, yeah, and that's what we went through. It really, as Julie mentioned, almost tore us apart.
Sal Daher: This is very important, realizing there is a problem and cutting it early. I've seen this in companies that I'm involved with. It's very heartrending for the founders because they are so invested in the company. At the same time, they're experiencing this pain but then they say, "Oh my gosh, we need this person," and so forth.
Chuck Donnelly: Right.
Julie Morrison: Yup, absolutely.
Sal Daher: Let's think a little bit about business partnerships. You guys have two types of business partnerships, you have the academic business partnerships, and then you have the enterprise partnerships. What have you learned there?
Chuck Donnelly: You have to have business partners for one thing. I'll just put that out there. That is absolutely [inaudible 00:30:16]. You're not going to-
Sal Daher: [French] Ça va sans dire, as you would say.
RockStep Solutions’s Four Types of Partners
Chuck Donnelly: Exactly. Actually, our first business partnership was with University of California, San Francisco, a Nobel Laureate's lab out there, and Julie took the lead on that. I'll let her talk a little bit on that, but that was hugely important to us. They've been paying investment relationship since the beginning. I think of partnerships in four different ways, one is the development partner, that's the way I would consider the UCSF. They've actually paid to help us develop the product. Then there's market positioning partners. We have one right now that we're working with and they... we haven't announced this yet, it's still fairly new, but we're actually connecting our product with another product that's in this space, but at a different place in the drug discovery pipeline, and they're already in the market. They already have a lot of customers.
By connecting these two helps them, it's a win-win, and it puts us in the market. We are already working now on our second customer, I mean big global customers, relationships based on that partnership. That helps them, helps us, because their customers want this connection as well. Then there's the investor partner. I look at every investor that we work with, especially when we talk about getting investors that are venture capital investors that are going to have lots of connections for us and be able to help us with hiring and with some business structures, et cetera. The investor partners, and then there's the channel partners, which are just going to help you sell your product. We actually have really done... we've got our first channel partnership. Julie just did a webinar with them, scientist.com. Was that this week, Julie? God, the time just flies.
Julie Morrison: Just three days ago.
Chuck Donnelly: The idea is that they're just going to help us sell the product. There's a revenue share agreement that you put together. Julie, you want to just jump in on some of the partnerships, and the development partnership actually with Novartis as well, building the product.
Julie Morrison: Yeah. I come from the position where I really consider our customers partners and I've been told time and again, "Well, that's not a sustainable business idea." But I really feel like obviously some we're partnered with more closely, we work with more closely. But if you are really a truly user-centered design shop, then you are always listening to your customers. You're always listening to them. I just feel like that's a two-way partnership where we're helping each other.
Sal Daher: That's for the end of SaaS businesses that is addressing million user markets or 50 million user markets. You can't have that attitude in the [inaudible 00:33:08] like that. You have to go and figure out a persona and all that stuff. You guys are going to have hundreds, maybe thousands, of users eventually. You need to really, really, really, in order to build a moat around your business, you need to make sure that you create a lot of value for those users so that once they implement your solution, they never want to leave you. I think that that is the correct approach. I think there's a lot of people, they don’t distinguish about… this is not software eating the world for 50 million users. This is software eating in the life sciences where a few hundred, a few thousand users will be paying... if they're paying $1,800, that can generate a pretty substantial. That's 1800 per?
Chuck Donnelly: Per user per year.
Sal Daher: Per year. Okay.
Chuck Donnelly: That's in the industry. We have a different pricing structure for academia non-profits.
Why You Should Join Sal Daher’s Investment Syndicate List
Sal Daher: Okay. I would like to next talk to you about funding, but first I'm just going to put in a plug for my investment syndicate. Investment syndicate is a list of people who sign up who are so-called accredited investors, meaning people who are wealthy enough or earn enough that they can invest in private investments. The reason I have a syndicate list is if there's a company that I'm really, really excited about, I will invest in the company and then I will invite people who are on my syndicate list to come in and join me in writing checks to those companies. The nice thing about belonging to my syndicate list is that if you want to write a smaller check and all that stuff, I might set up an LLC. Or you might just go into the company directly without paying anything.
That's happened quite a bit in some of the companies I'm involved with, companies I really believe. Because at the end of the day I'm not in it to make money. I'm in it to really support the companies that I'm invested in that are going to make a lot of money for me. Believe me. I mean, I want to make money, but the syndicate is really a way of supporting the companies. Some of it will make money for me as well, but it's mostly to bulk up the investments that I already have in the startups.
Go to angelinvestboston.com and go to the syndicates area and sign up. While you're there, subscribe to the podcast. You're going to learn tons in this because I'm always talking to people who know way more than I do. I've been around, I've lived, I learn a few things myself. We're having always informed conversations.
Let's talk about funding. What have you learned about funding?
“First thing is that it takes a lot longer to raise capital than you might think. The other thing is that you're going to probably need more money than you think.”
Chuck Donnelly: First thing is that it takes a lot longer to raise capital than you might think. The other thing is that you're going to probably need more money than you think. They're the two-
Sal Daher: Sal is giving two thumbs up… both correct points. Yes.
Deep Wisdom on Grants: “All told we got three grants, total of 1.85 million… from the NIH. That was all great non-dilutive funding and life is good. But I would caution anybody who wants to continue living off of grants, don't do it.”
Chuck Donnelly: If I look at the structure of our funding, we actually, I don't want to say we're lucky, we actually put a lot of work into this, but we got grant funding from the NIH. That was not an easy effort. I wrote the first grant and it took about a year from the time I wrote it to the time I got the award. It was a small award. It was an award to do a prototype basically, and got the prototype going. Then the second grant also took a little over a year to get, and that was 1.5 million, the second grant. We had this grant funding. All told we got three grants, total of 1.85 million, I think, from the NIH. That was all great non-dilutive funding and life is good. But I would caution anybody who wants to continue living off of grants, don't do it.
“We could have written another grant, but it's not going to be a market-driven product anymore, it's going to be a grant-driven product.”
We could have written another grant, but it's not going to be a market-driven product anymore, it's going to be a grant-driven product. It takes you in a direction that you don't necessarily want to go. A lot of our grant funding, Julie and I were just talking about this this morning, we were funded to build some really cool stuff and we built it and it's there, but actually we're a little ahead of the market with some of that stuff. Some of that stuff like IOT and machine learning and stuff is actually not what the market needs right now. That stuff's built in, it's ready to go-
“The market still needs to stop using paper and spreadsheets.”
Julie Morrison: The market still needs to stop using paper and spreadsheets. We can't do machine learning, AI on spreadsheets.
Chuck Donnelly: Right. Exactly. Their problem was bigger than machine learning was, they just weren't ready for it yet. Anyway-
Sal Daher: Well, how can you have machine learning if you don't have your data in usable form?
Chuck Donnelly: Exactly.
Sal Daher: Yeah. I want highlight the point: the downside of grants and that is grants are very good to get you started to do basic science, very basic stuff. But when you're having a product that needs to have product market fit, grants are not going to be helpful. They're going to be driving you in directions that are just not usable, not useful. That is a really excellent point. It's the first time that point has come up in the podcast in the entire 100 and some episodes. I think this is really important. This is a valuable nugget which will get highlighted.
Chuck Donnelly: Yeah, it was very tempting because NIH actually had... we had spoken to NIH about some other problems that we could get grant funding for potentially, you don't necessarily get it. But we decided we wanted to listen to the market because that's what we're trying to do. We're trying to build a market-driven company.
The other piece in terms of funding for us is, do you go straight to trying to raise through a priced equity round or a convertible note? There's a whole bunch of layers of funding there. The very first thing we did when we had some thin ice between grants was friends and family. Conversation with my wife about how much money we were going to put in and we did that.
“…it's hard. I spend a lot of my time raising money.”
Then we went out with a convertible note in order to continue to build the product. Because as Julie mentioned earlier, we had a little bit of a surprise when we had built the product for academia and we needed to get into industry. There was a longer stretch of time than we had anticipated to build. We use convertible note to do that and then our next funding round will be a price round. That's where we are with funding and it's hard. I spend a lot of my time raising money.
Sal Daher: Where are you right now? Give me a sense of the traction that you have and where you expect to be a year from now.
Chuck Donnelly: In terms of market traction?
Sal Daher: Yes.
Chuck Donnelly: Yup. Hey Julie, why don't you jump in here because I have to give you credit for pretty much selling it to everybody in the market, that's Julie's job.
“…our sweet spot really is the small, mid, to large biotech and global pharmaceutical companies.”
Julie Morrison: We have about, gosh, they are actually coming in faster now, which is great, than I can keep track of. But I would say in the fortyish range of customers, and that varies from small to large academia, to contract research organizations or CROs. Then our sweet spot really is the small, mid, to large biotech and global pharmaceutical companies.
Chuck Donnelly: In five years from now, I'm not going to be shy here, we're going to conquer the world. I really want to say that our goal is to really dominate this industry. It's open right now. The space is open for us to get in. We're well positioned and we know... this is really one of the interesting things, when do you know that you've positioned your product well? It's when your customers are finding you. It's just starting to really happen right now. The phone is ringing without us doing much marketing, if you will and it's word of mouth.
Sal Daher: Excellent, excellent.
“…it feels good when you start seeing people coming to you on word of mouth.”
Julie Morrison: Yeah, I'll just add on to that. We have a beachhead strategy. There's many large biopharma markets, but really Cambridge and San Francisco. Our beachhead strategy was to start in each of those and gain traction and grow out. We're really seeing that takeoff in this last year. People that lunch together or commute together, they're telling each other about them. They all have these suites such as The Cove in South San Francisco that everyone works out of. We're actually seeing that beachhead market strategy takeoff and that's really, really satisfying. After a few years of startup and really struggling. It's really, like Chuck said, it feels good when you start seeing people coming to you on word of mouth.
Sal Daher: Okay, excellent. Let's talk about the size of your market, the potential size here. What are the revenues that you're projecting in five years?
Chuck Donnelly: Yeah. When I look at the market overall, the way we've calculated this out is we did a top down and bottom up, really looking at the market from all directions. Top down is like, how big is the market? About $20 billion a year is invested into this in vivo space in the US and Europe. Then another $1 billion a year is invested in tools like ours and solving this problem. We know that there's enough money out there being pushed into just this small part of the market. Now, we also have a lot of adjacent markets and we're actually looking at some of the regulated markets as well right now, we have some strategies to get in there. In the bottom up approach, you're looking at, well, who's out there. How many companies are out there? What are their names? Where are they? How many do you have to get each year to build up to a certain revenue goal?
We expect to hit about $80 million in five years of revenue. Now, I can't remember the GAAP [generally accepted accounting principles] rules, subtract 10. There's always when you recognize that revenue. If our CFO was here, he's always correcting me about, "Well, that's..." [inaudible 00:43:10] the actual GAAP when you can recognize it. But anyway, you got the idea. It's a fairly big, aggressive ramp. As we do that, we've built out our product roadmap to support that. Right now we have a minimum deployment size of $50,000, 20 users and then $1,800 a user on top of that. We've built this out and we're starting to sell that, but we also know that we want to expand our wallet with each deal. You want to be able to be upselling every year and get a 10 to 20% lift in a lot of these companies.
We have that built into our plan and our product roadmap is divided into three areas. One is wallet expansion, so that's just making the product more valuable. The other is market expansion, so we have some other sort of adjacent markets that we can go into which will actually potentially increase that revenue. As well as then, you have to have a roadmap that's just keeping your product relevant. It might expand the wallet, but you also, we're in a high-tech market. We have to stay state-of-the-art. We have to be doing things that are just keeping us ahead of whoever's in the mirror trying to chase us. Hopefully that answers your question about the market size and how we're approaching it. Again, it's that beachhead market strategy to get in is what we're focused on now.
Sal Daher: Julie, Chuck, how do you guys decide what fires to put out and what fires to let slow burn?
Chuck Donnelly: Why don't you go Julie? A lot of firefighters.
Julie Morrison: There's a lot of fires always burning. I think anything that focuses on our KPIs, if it has to do with revenue, if it has to do with the product, if there's a critical bug or a customer's upset, everything's getting dropped to address that. If it's something that impacts the revenue or the ARR, that's going to get addressed. Everything else you can prioritize and triage. At the end of the day, and this really gets into Chuck's domain, is keeping the business legal and keeping us solvent. You may be super busy, but if the insurance forms come and say you have two days to fill these out, well, you have to fill the insurance forms out.
“…there are fires burning every day. It's overwhelming. The big mistake you can make is just trying to put every fire out because you're not going to make any progress.”
Chuck Donnelly: Yeah. Just, there are fires burning every day. It's overwhelming. The big mistake you can make is just trying to put every fire out because you're not going to make any progress. As Julie said, focus on the KPIs. Revenue is king. I mean, that's how we value our company. Product, you got to have that product. It's got to be state-of-the-art. We've had some bugs that we've had to deal with, some product performance things and stuff. That's where we focus because that's the fire. But the fact that the office didn't get cleaned this week, or, I'll share with you, my file cabinet of papers. Now, we don't have many papers. Everything's electronic now, but still I got papers. My file cabinet looks like... it never rises to the priority for me to go through the file cabinet and put those papers in order. It's just not important enough. Anyway, there's fires burning all the time. People having challenges whatever they are, and you just got to let them go.
Sal Daher: I understand. The Zoom that we're doing concurrently, I was giving them a glimpse of my inbox. It's easily about a foot thick of papers. This summer I had my niece come in and the inbox of the buildings. She just completely dematerialized it, scanned it all. But my personal stuff it's still building up. Very good. Now, let's think about closing up the interview.
Do you have any suggestions, any tips for new entrepreneurs given the experience? I mean, to people who know how to take notes and how to learn from experience, what tips would you provide to new entrepreneurs?
“…don't do it unless you're ready. This is the hardest thing you will ever do.”
Chuck Donnelly: I would have to say first off; I don't know how to say this without sounding [inaudible 00:47:14], don't do it unless you're ready. This is the hardest thing you will ever do. It is hard. You got to be persistent, can't be stupid. It is really, really hard. Don't do it unless you're ready to see it through. Tip one from Chuck. Julie?
“…manage burnout. Burnout is very real.”
Julie Morrison: Tip two, I would say manage burnout. Burnout is very real. Chuck I have both been right there to the edge. We have gotten to a point now where we force each other to schedule a vacation each year, even if it's only for a week or less. We put it on the calendar because if you say you'll take it you'll never take it. Something will always come up. There'll always be a customer that needs you or something that happens. We've both been right to the brink of burnout and really had to force one or the other to just take some time offline. We are really careful about managing it with our team, but not as well managing it as co-founders. Again, because all the fires
Sal Daher: That reminds me of my days at Citibank. Citibank had a policy that every single bank officer had to be away from the bank for two weeks. Part of it is just fraud detection. It's very hard to keep a fraud going if you're out of the office for two weeks. You're not there to paper stuff over and things like that. The other thing is just getting perspective and refreshing yourself. It was a requirement you had to be away for two weeks every year.
Julie Morrison: Such a great point, Sal, because I find when I do force myself to take time or to go to the lake or in the woods, some of the best problems are solved there. They're not solved with me in Zoom meetings every day, they are solved mowing the lawn, or swimming, or kayaking, just being out not being online.
Sal Daher: Okay.
“I would say another really important tip is you can't do this alone.”
Chuck Donnelly: Yup. I would say another really important tip is you can't do this alone. If you think-
Sal Daher: I love that tip!
Chuck Donnelly: You can't, you have to have a co-founder and you have to have a co-founder, as I mentioned earlier, who disagrees with you every day. Julie, you annoy the heck out of me every single day. Thank you very much. But no, that you can work through, but somebody that is different from you. But you have to have a co-founder and you got to trust. I mean, so, the thing that works for me with our relationship is I trust Julie 100%. I don't have to worry. There's that trust there. She's a co-founder. I know that she's thinking about the company, she knows that I'm thinking about the company. Get a co-founder, you have to have one.
Julie Morrison: Yup, and I'll piggyback on that. Everything sounds amazing. Chuck and I work so well together and we do, but we've also had some really difficult times. But because we had mutual trust and respect for each other and the good of the company at stake, we were able to continue to work through those difficult times and, I think, come stronger on the other end. You need someone that you... like Chuck said, this is a startup marriage. You're not going to divorce just at the first sign of trouble. Someone that you can really stick it out with when times are hard.
Sal Daher: Well said, Julie Morrison and Chuck Donnelly very grateful to you, the two founders of RockStep Solutions, providing a SaaS solution for the problem of keeping track of data in the drug discovery when you're doing in vivo trials. Really an amazing team so thank you both.
Chuck Donnelly: Thanks Sal, it's really a pleasure to be here. We appreciate the invitation.
Julie Morrison: Absolutely. Thank you so much, Sal.
Sal Daher: Awesome. I hope you've enjoyed this podcast. This is Angel Invest Boston. I'm Sal Daher.
I'm glad you were able to join us. Our engineer is Raul Rosa. Our theme was composed by John McKusick. Our graphic design is by Katharine Woodman-Maynard. Our host is coached by Grace Daher.