Advice Line

Many entrepreneurs find it hard to take advice on board, but Jon Holmes, founder and CEO of Michelson Diagnostics, can't stop listening. 'It's almost built into the way I want to do business,' he says. 'Unless you're open to advice, you'll switch off investors and you'll miss an opportunity to make your business as credible as possible. Every conversation you have with anyone in your chosen market sector is something you can learn from and apply to your own business.'

For Michelson that sector is the healthcare industry, where it's developing an OCT imaging instrument for instant cancer diagnosis. It's not an easy market to operate in - securing the funds to get a prototype to market is a big challenge in its own right - and the Michelson team came onto the scene amid some drama, having seen the parent company of their former operation go into administration just weeks before. Today, however, the four month-old company is close to securing the seed investment necessary to put its technology through its first set of clinical trials.

'Unless you're open to advice, you'll switch off investors and you'll miss an opportunity to make your business as credible as possible.'

The technology - an 'optical biopsy' - has a number of applications, but Michelson is positioning it as a replacement for offline analysis of tissue samples in cancer. In particular, it's focusing on lung cancer, where the poor detection of tumour borders during surgery leads to a high recurrence rate, and cervical cancer, where 70 million healthy women every year are put through surgical biopsy because of an abnormal smear test.

Competition winner

Michelson's story begins in October 2005 when, as part of Chislehurst-based instrumentation and engineering company Sira Technology, Holmes won a 'Dragons' Den' style competition sponsored by the Department of Trade & Industry, Grant Thornton and NESTA. Holmes and his team, which at the time were planning to spin out of Sira, were put through a course of investment readiness training under the Enterprise Accelerator programme, culminating in the presentation of its business plan to a judging panel. They won £10,000 in cash and financial advice valued at £15,000. 'That got things going,' says Holmes, although he concedes today's business plan looks significantly different to that early prototype.

But then disaster struck. For reasons entirely unrelated to what is now the Michelson operation, Sira Technology was put into administration by its directors. Holmes and four application development colleagues subsequently set up Michelson Diagnostics with their own cash in March 2006 and bought the intellectual property for the diagnostics technology from the administrators.

By May 2006, they had their technology and a new consulting arm, MDL Innovations. But they still had a problem - they needed significant investment to take the technology from what was essentially intellectual property, a prototype and lab tests, through to something that was saleable in the hospital environment. Part of the problem was that Michelson wanted to build a prototype and test it in a hospital environment - but investors tend to ask for clinical results as a proof point for their investment. The company was successful in winning an LDA grant to support the product development, but it needed to get enlightened investment partners on board to provide matching funds.

A change in direction

It was at this point that the company became involved with g2i and went through its investment readiness programme. 'It was very useful because it filled in a lot of the blanks,' says Holmes. 'It was a different format to the Enterprise Accelerator Programme, which was a series of one-to-one sessions where most of the focus was on sales and marketing and the business model. The format of g2i, with other companies attending, provided us with instant feedback from other participants, and we could see what others were doing and learn from them.'

For a man committed to hearing other opinions, the advice from g2i was always going to be welcomed. 'We gained useful advice on valuations and on presentations. It was shorter and more intensive and as a result we made a number of changes to our business plan and our pitch. With the earlier course we had enough to be credible; subsequently we have gone on to refine it further.'

The key changes have centred on the company's valuation, and on adapting the business model to place greater emphasis on gaining early revenue. 'That's not necessarily the way we were looking at it,' Holmes concedes. 'We were looking at the clinical trials as key, and trying to get short-term revenue could be seen as a distraction from that goal. But we came to the realisation that we could make initial sales and not compromise our long-term goals, so we changed the way we went about things.'

One of the areas targeted for initial sales is the research market, where the technology's viability for research applications can be proven at a much earlier stage - perhaps in under a year - compared to the series of clinical trials required for full testing. Consultancy arm MDL Innovations has also made £35,000 in its first three months of trading, so revenue is starting to come in.

Challenges ahead

Holmes is now squaring up to the new kinds of challenges that lie ahead. While Michelson has already had assistance from health sector organisations such as Medlink West Midlands, Holmes recognises that in the future it will need more sales expertise, and that at some stage it will look to partner with an established medical products firm. In addition, it needs to focus on specific uses of the technology platform. It plans to avoid the ophthalmic arena, for example, where the technology has already been proven, and also intends to steer clear of arterial disease. 'There are a large variety of applications,' says Holmes, 'and finding the right market entry point is a key part of our strategy.'

As for investment partners, Holmes is already looking to the next round of funding, where it needs £500,000 for in vivotesting. 'That's why we need somebody who is prepared to look for a long-term return as an investor. We are not an internet TV company. But that is medicine for you. At the end of the day people will pay to get well and the potential market is very large.'

Jon Holmes was talking to David Longworth of Webster Buchanan Research

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