Tom Ruginis CEO and founder HappiLabs
Setting Up Your Lab Does Not Need to Break the Bank
You’ve been funded. Now it’s time to start a company.
Biotech startups can expect to spend ~30% of their funding on capital equipment, supplies, and other operational expenses related to running a lab. It can take anywhere from 10 to 32 hours of company time to research, negotiate, and purchase a single instrument. And in the early months, you might spend two to four hours per day researching and buying small supplies such as pipette tips and vortex mixers.
Underestimating the time and cost associated with lab operations puts startups at serious risk of running out of money. Cushion your startup’s cash reserves by understanding and planning for these six hidden lab expenses.
1. Uninformed Purchasing
Settling for list price — the price the supplier lists in their catalog or on their website — means you could be paying on average an extra 15 to 30% for your equipment and consumables.
Certain items such as plastic consumables are chronically overpriced by as much as 80.3%. For example, the list price of a ~175 mL cell culture flask can vary from ~$30 to nearly $200, depending on the supplier. You’ll never know much money is wasted unless you research and shop around.
Buying expensive lab equipment should mirror the process of buying a car — shop around and negotiate. The process takes an upfront time investment, but a startup can save thousands of dollars with effective negotiating. Suppliers are always willing to drop prices (especially at the end of a quarter in order to meet sales goals).
Start the buying process one to two months before you will need the equipment. This will help you avoid spending large blocks of time on back and forth with suppliers and settling for a higher price.
Make it easier to deal with sales reps by preparing, in advance, your responses to the following items:
- Intended use
- Number of users
- Nice to haves
- Comfort level, i.e., is your lab proficient or will you need to have tech support on speed dial
Obtain quotes from at least two suppliers (this can take one to three weeks). Eliminate line items that you do not need (this is where the above list comes in handy). Then, get ready to negotiate. Here are some talking points and tips:
- Confirm the features you expect to receive. If you are unsure about anything in the quote, ask the sales rep.
- Read all of the fine print and ask questions about the offered service agreement and warranty. The length of the service contract may be more than your company needs. Consider whether a two-year warranty alone will suffice. If your company is afloat after two years, you can then buy the service contract or a new unit.
- Use all quotes as bargaining chips to get your price as low as possible.
2. Shipping and Taxes
It is easy to forget about shipping if your origins are in academia, which is tax-exempt and often the beneficiary of free shipping from many suppliers. In reality, a four-person lab can easily spend $1,400 per month on shipping and taxes. Luckily, taxes are easy to prepare for because they are generally a flat rate.
To lower shipping costs, follow these three simple steps. First, plan ahead to avoid overnighting items. Expedited shipping can cost an extra $50 to $100. Furthermore, waiting with bated breath for your item causes undue stress … and it might not even get there on time (see #3).
Second, deconstruct shipping costs by creating a simple graphical breakdown such as the one in Figure 1. These data will not only help you plan for the future, but also help you make the case for a discount: “I’ve already spent X amount of dollars with you this year, Company Y. Can you reduce shipping costs on this order?”
Third, do not underestimate the power of negotiation. Free shipping deals on orders over a certain amount are common. You might also be able to negotiate free shipping once you purchase a certain amount from a supplier over the course of a year.
3. Late-Arriving Orders
Has an experiment ever been delayed because a reagent or supply did not arrive when promised? In academia, it’s no big deal. But in the startup world every day that passes brings the company one day closer to running out of funds. Thus, late and incorrect orders could be the difference between receiving a paycheck and working for free.
Because you do not have a purchasing department to navigate for you, it’s important to obtain some background information on the item before placing the order.
Distributor or Manufacturer? — If ordering from a distributor (e.g., VWR), ask if the item is already in the warehouse or if it is shipping direct from the manufacturer (e.g., Corning). Estimates provided by distributors for direct from manufacturer items — referred to as a “drop ship” — are often misleading due to poor communication between the two parties. If you know the item is coming directly from the manufacturer, protect your time by calling them to confirm that the items are in stock and ready to ship.
Chronic Offenders — Keep a log of the item type and supplier for delayed items, as well as the length of the delay. This will help you know which suppliers to avoid and provide leverage for potentially negotiating item or shipping costs.
Accounting is another aspect of startup management for which scientists are typically ill prepared. However, because startups are on a budget, tracking expenses by the day and month is critical to estimating the company’s runway — the amount of time until the company runs out of money.
Set aside a few hours per week to reconcile invoices, organize receipts, and process expense reports. With consistent review, you will frequently notice mischarges and wasteful expenses you can easily eliminate.
An online management tool will make it easier to study your expense report (Profit and Loss), as well as calculate the average spend per month (burn rate). Be sure to factor in an additional 10 to 15% of your burn rate to account for unanticipated expenses such as broken equipment, preparation for lab inspections, or new data analysis software.
Suppliers woo the budget conscious by offering discounts. Unfortunately, that “discount” may not be as good of an offer as it seems. List prices can vary significantly for the same item across several suppliers (Figure 2).
No discount on a $500 item is a much better deal than a 20% discount on a $1000 item. Protect your budget by shopping around and negotiating (see #1).
6. Return Policies
There will come a time when you have to return an item, whether you typed in the wrong catalog number, changed a protocol, or ordered PBS 10x instead of 1x. The cost of a return can vary significantly. While some companies will only make you pay return shipping, others may also charge a restocking fee that is usually around 15% of the cost of the item. These charges are unavoidable and non-negotiable, so all the more reason to read and understand a return policy before you buy.
Make It Happen
It’s tough out there in the startup world. Founders, partners, and employees wear many hats, work long hours, and fight every day to keep the company going. By being aware of these hidden expenses and planning accordingly, you can focus on science, analyzing data, and presenting to investors.
Tom Ruginis ([email protected]) is the CEO and founder of HappiLabs, home of the Virtual Lab Manager.