Empowered Entrepreneurs

Back when Pfizer agreed to buy Pharmacia in 2002, Mike Schlosser found out that he would lose his job as head of the preclinical safety evaluation group at Pharmacia’s Chicago R&D site. Up to that point in his career, he had worked for seven different companies, having made job changes driven mostly by mergers and acquisitions.

Faced with his next career move, he wasn’t eager to go back to yet another big pharma job. As a manager, he had just finished the brutal task of laying off 100 people. “And it wasn’t easy to see something that you helped build be torn apart,” Schlosser says. Although he was offered a couple of jobs on the East Coast, “big pharma was just not something I wanted to go back to at that time,” he says.

Instead, he saw the change as an opportunity to do something he had always wanted to do—start a company. So in 2003, he founded Skokie, Ill.-based Midwest BioResearch, a contract research organization (CRO) focused on small- and large-molecule bioanalysis, genetic toxicology testing, and consulting.

Although many people dream about starting a business at some point in their lifetimes, those laid off from industrial jobs may have an added impetus to turn the dream into reality. The unemployed have less to risk with no lucrative job in hand and, in poor economic times, few positions for which to apply. Also, they often benefit from severance packages or other perks that support them as they make the difficult transition from employee to business owner.

That was, in fact, the case for Schlosser, who received a sizable severance package and was also able to get first rights to buy some “state-of-the-art equipment out of Pharmacia’s Chicago site for just 10 to 20 cents on the dollar,” he says.

Schlosser also had the advantage of being able to bring on board topnotch scientists who had also lost their jobs when Pfizer shut down Pharmacia’s local operations. Those resources helped launch Midwest BioResearch, which quickly blossomed into an acquisition target; WIL Research Laboratories, a nonclinical safety evaluation CRO, purchased the firm in February 2009.

It helped that Schlosser had management, as well as laboratory, experience. Having worked for several different companies, Schlosser had witnessed “different ways to do projects and different management styles,” he says. “I was able to understand what works and what doesn’t work. I knew it would be possible to start a business; it was just a matter of pulling all the resources together to make it happen.”

Taking stock of a wealth of talented people who had been laid off also prompted Brent Schludecker to start Midwest Compliance Laboratories (MC Labs) in late 2008. Along with many others, he lost his job at Pfizer when it shut down its Exubera inhaled-insulin operation in Terre Haute, Ind., in February 2008. Surrounded by many unemployed people with rich drug industry experience, “I knew this would be a great time to launch a service-type company,” he says. “I knew I had to strike while the iron was hot.”

That wasn’t his first move, however. After losing his job at Pfizer, Schludecker accepted a job as a project manager at Baxter Pharmaceutical Solutions in Bloomington, Ind. “Almost as soon as I started working there, I knew the position probably wasn’t going to be a very good fit for me,” says Schludecker, who has a master’s degree in analytical chemistry. “It wasn’t exactly what I was looking for.” He had already had his fill of corporate jobs, having been with Eli Lilly & Co. for 10 years before his job was eliminated, leading him to his five-year stint at Pfizer. During his two-and-a-half-hour round-trip commute to Baxter each day, “I had plenty of time to think about what I really wanted to do,” he says.

Schludecker began meeting with four other former Pfizer colleagues to share his idea of starting a company to do contract analytical and microbiological quality-control laboratory testing for companies in the pharmaceutical and food manufacturing industries. The five of them signed on as founders, each with 20-plus years of experience working in quality-control labs. That expertise served as the cornerstone of a business plan that Schludecker put together with the help of the Terre Haute Economic Development Corp. and the Center for Business Support & Economic Innovation at Indiana State University.

Drawing from her work experiences at four different semiconductor firms, Karen Reinhardt felt equipped to start a business after being laid off from Novellus Systems in 2005. That same year, she founded San Jose, Calif.-based Cameo Consulting, now a six-employee contract engineering company. Cameo started out providing technical support and marketing services to start-up semiconductor equipment and processing firms, but now, responding to growing market needs, it focuses on turnkey silicon wafer solar lines.

Working in business development roles with previous employers, “I’d seen so many companies trying to license or sell their technology, but most of them would come in totally unprepared,” says Reinhardt, who has a master’s degree in inorganic chemistry. “I felt so sorry for them because they had invested their life savings in a company that didn’t have a chance. The owners did not do their homework on the value or the timing of when new technology or materials should be installed,” she says. “I knew I could do better with all of that.”

Unlike Reinhardt, Eugene Miller was unsure about his ability to start a business, but he was able to use his experience in chemical manufacturing to do just that in 1981. Miller had been working for Textilana in Hawthorne, Calif., when Henkel acquired it and began cutting employees, he says. “I left just before they could can me,” he says. About that time, he met up with Bill Frost, “a financial genius and great salesman” who had a small business refining reclaimed hydraulic fluids and was looking for someone with Miller’s expertise to help him expand into manufacturing, Miller says. Together, they took a risk and started surfactants producer Chemron in Paso Robles, Calif.

Then a 48-year-old Ph.D. chemist, Miller didn’t see any other options that wouldn’t involve moving his family of eight to another part of the country. “We were in the midst of a recession, and there were not that many jobs anywhere,” he says. “The choice to start a business was almost an easy one, because what else was I going to do?”

Although making the decision to found a business was reasonably straightforward for Miller, the process of starting and running it was not, he says. In fact, the entrepreneurs interviewed by C&EN all say they faced many start-up challenges, including finding ways to fund their new ventures.

When Schlosser started out, he was able to infuse some capital into Midwest BioResearch by cashing in “a good part of the Pfizer stock” he received as part of his severance package. In addition, the company’s six partners took out a low-interest, small-business loan granted by the Illinois Small Business Development Center through Chicago-based Harris Bank. Schlosser put up his house as collateral on the loan. “We all risked quite a bit,” he says. “Early on, we experienced some uncomfortable times that kept me wondering if we had done the right thing.”

Not surprisingly, some aspiring entrepreneurs prefer to avoid friends-and-family financing and find investors to back them instead. That was the case with Jack Baldwin, who in 1993 at age 58 had accepted an early retirement package from Merck & Co., which was in the midst of a downsizing effort. Networking with venture capital sources, he and Merck colleague Jack Chabala secured funding from San Diego-based venture capital firm Avalon Ventures to start combinatorial chemistry firm Pharmacopeia in Princeton, N.J. Like Baldwin and Chabala, the Avalon team recognized the potential of combinatorial chemistry and high-throughput screening for accelerating the drug discovery process.

Baldwin has since founded several other companies, mostly funded by venture capital sources. However, he acknowledges that raising capital today is more difficult than it has been for many years.

The level of funding raised by venture capital firms in 2009 was the lowest in a decade, “requiring these firms to be more selective in their investment decisions,” according to Glen Giovannetti, the global biotechnology leader of consulting firm Ernst & Young’s life sciences practice.

Noting that “the era of easy money is over,” Giovannetti encourages aspiring business owners to broaden their search for funding beyond just venture capital to include nontraditional sources such as government grants and disease foundations that don’t reduce their stake in the company.

Regardless of how their businesses were financed, many new business owners report that they made very little, if any, money as their companies got off the ground. For example, MC Labs didn’t turn a profit for almost a year. One of the consequences was that Schludecker and his family had to live leaner and make sacrifices such as cutting back on vacations and purchases, he says.

The same was true for many of the six partners at Midwest BioResearch. Early on, they lived off their severance packages and bonuses, Schlosser says. Likewise, as Baldwin launched Pharmacopeia, he relied heavily on the early retirement package he received from Merck, which “kept the risks of starting a business to a minimum,” he says. “I had retirement benefits and continued medical coverage” that was set up to last until age 65.

Securing health insurance can be a major stumbling block for new companies as owners struggle to cover themselves and their employees. Like many new firms, Midwest BioResearch simply could not afford to provide health care coverage for its employees initially. When the company finally could provide coverage, “it ate up a huge hunk of our profit, but we knew we needed it to attract top talent,” Schlosser says. Now that the company is part of WIL Research Laboratories, the company’s employees enjoy a full benefits package that includes generous health care coverage, he says.

Taking care of employees while keeping a business afloat is often more challenging than first-time entrepreneurs expect it will be. Midwest BioResearch had all the usual “start-up problems,” Schlosser says. “As a service organization, we were the new kid on the block. Despite our experience and our impressive lab and equipment, it was difficult to be recognized as a viable CRO early on.” The company was able to overcome that hurdle by networking with the many contacts who knew the partners’ reputation in the industry and by hiring marketing firm Chempetitive Group to create sales brochures, articles, and “a slick and informative website,” he says.

“The pressure to be successful and not fail made us work extremely hard during those early years,” Schlosser says. “We put in a lot of sweat equity before we saw sustained profitability.”

At the outset, long hours and hard work were also the norm at MC Labs. The company’s five founding employees began their new jobs by cleaning, painting, installing plumbing, and building office and laboratory space in the vacant building that the company had been leasing, Schludecker says. “It was hard work, but we knew it was all going to pay dividends down the road.”

Baldwin, too, says he was constantly busy the first year that Pharmacopeia was in business. When starting out, “you’re the scientist, the salesman, the maintenance guy, and you close up at night. You’re doing everything there is to do,” he says. “You work long hours, you travel much more, but it is exciting and very fulfilling.”

Cameo Consulting’s Reinhardt, who has focused her business in the U.S., South Korea, and Spain, acknowledges that she has had to sacrifice family time to keep her business running. Like many business owners, she must put in “lots of unpaid time to draw up contracts, participate in negotiations, or talk with customers who are checking you out,” she says.

Even in the midst of today’s less-than-favorable economic climate, well-prepared, determined scientists can still find opportunities to start businesses. After finding the right niche, “you have to be willing to lay it all out on the line and make it work,” Chemron’s Miller advises. Looking back, he says, starting Chemron was “quite an adventure. I took a big chance, but it paid off.”

By the time Miller and his partner sold Chemron to Lubrizol in 2002, they had 150 employees and plants with annual sales totaling between $55 million and $60 million. At that time, they distributed $2 million to employees, which marked his “proudest moment,” he says. Today, he enjoys being in a financial position to help his children; pay for his 10 grandchildren to attend college; and support his alma mater, Tulane University, and a local community college, Cuesta College in San Luis Obispo, Calif. “Working for another company, I never would have been able to do all of that,” he says.

Schlosser, too, has reaped rewards after taking the gamble of starting Midwest BioResearch. After the company was acquired, he and the other five partners were able to take equity out of the company and roll equity into WIL Research, which allowed them to eliminate the risk associated with business loans and recoup much of what they might have earned if they had stayed in a big drug company.

Despite the pitfalls of starting a business, Schlosser encourages the many scientists who have been laid off recently to consider paths other than trying to return to big pharma. He believes there are opportunities for scientists to start businesses in the health care field, which he believes will continue to grow.

Schludecker shares a similar sentiment. “We can no longer depend on large companies to support us throughout our careers,” he says. “Going through school, we were told to get good grades so we could land a job with a good company and make the best possible salary. I’m not sure we can tell our kids that anymore, because we don’t know if a particular job or company will even exist in six months.

“We’ve all got to think outside the box more,” Schludecker says. “Like our ancestors before us, we have to get off the boat and chase our dreams.” Having done that, he isn’t looking back. In his role as a president and founder of MC Labs, “I’m having the most fun I have ever had during my career.”