Techne – A Midwestern Marvel

It’s Tuesday. Let’s talk GOAT.

If you’re a startup founder you are probably concerned with raising your next round, demonstrating traction, and positioning your company to be acquired. The way you measure and plan for those events is often based on metrics. There are a lot of metrics out there, but today I want to focus on only two: revenue and profitability.

Starting in the late 1980s Minneapolis-based Techne had a track record of profitability that would make Apple blush. From 1991 to 2012 Techne had net profit margins that averaged 26%.

That’s high. Really, really high.

I’m going to focus on the “golden years” from 1985 to 2012 when Thomas Oland was at the helm. (Techne is now called Bio-Techne and doing interesting things, but I’m not familiar with the recent history).

How did they do it and why is it relevant to start-ups today?

History

Techne was started as a shell company in 1981 by local venture capitalists George Kline and Peter Peterson. The shell was private, but had goals akin to a special-purpose acquisition company (a “SPAC”, which is back in vogue these days); went public in 1983, and acquired a firm called R&D Systems in 1985.

R&D Systems was the actual operating company that would come to define Techne, but the late 1970s and early 1980s had not gone well. R&D Systems offered products that precisely measured blood samples for laboratory tests, but was struggling from a lack of strategy and deeply in debt. Roger Lucas, one of their executives, reached out to an accountant named Thomas Oland to help right the ship. Eventually Oland became CEO and George Kline and Peter Peterson were impressed enough to acquire the company.

The cost? $1.9 million.

So What Did the Company Do?

In some ways Techne was the paramount example of selling shovels during a gold rush.

The 1980s and 1990s were the dawn of companies like Amgen that developed biologics – i.e. drugs that were created from biological, rather than chemical, sources.

One of Techne’s early insights was to develop the first commercially-available cytokines (short-lived proteins that serve as intercellular messengers) that were in very high demand by laboratories and biotechnology companies. Techne continued to devote resources to R&D over the years, developing new ways of producing their products without solely relying on vendors for human blood and tissues, among many other advances. The Company also acquired a number of companies which brought new products into the fold. Although Techne divided their business into two segments (biotechnology products and hematology calibrators and controls), the vast majority of revenues came from the biotechnology division.

Essentially Techne sold the shovels to help labs and biopharmaceutical companies develop a whole new field. Because they were suppliers of research products rather than drug developers the Company escaped many of the difficult regulatory and developmental barriers that plague pharmaceutical companies.

That Sweet Printing Press

The results were super-fantastic:

Techne’s strong leadership and continued ability to innovate enabled them to return world class results. For the annual reporting period that ended in June 2012 they also had a fortress-like balance sheet: $720 million in assets and $45 million in liabilities. This Company was thriving by any metric that a VC could deploy.

Sharp local public equity investors took notice starting in the 90s - Steven Crowley of Kopp Investment Advisors initiated coverage of Techne when it was valued under $100 million in 1995 and they owned 14.1% of the Company. (Kopp Investments shut down in 2019 when Lee Kopp retired after a storied 60 year career…not bad!)

This is How They Did It:

• Thomas Oland was a first-rate manager. A friend who knew him says that he was “absolutely brilliant.” He was also a hardworking guy – at one point he was Chairman, President, CEO, CFO, and Treasurer. (Sadly he passed away in 2013 shortly after leaving Techne).

• Techne developed a string of differentiated products that required unique insight to conceive. When they developed their first cytokine, transforming growth factor-beta (TGF-beta), it was sold at the equivalent of $9 billion an ounce. That probably led to some interesting unit economics...even if Techne never was a SaaS company.

• The Company focused on a sufficiently large market, and executed beyond all expectations. Techne never strayed from its strong technical origins and developed a slew of products in a specialty area. Could a startup today resist the temptation to use their expertise to compete in the drug development game? I think it would be tough.

Why Is This Relevant to Startups Today?

A strong business can generate awesome revenue and profitability, but showing strong sales does not necessarily indicate a great business. Revenue can be bought relatively easily so it pays to think carefully about the foundation of your business. The paths that a solidly conceived business, with truly differentiated products, can take are many. Techne's remarkable revenue and profitability speak to this fact. The startup that exists primarily on purchased revenues has far fewer options.

Sources:

-With a great deal of debt to: http://www.fundinguniverse.com/company-histories/techne-corporation-history/

-10-Ks from 1995-2012