Derek Hennecke - Kincell Bio - Part 3

Starting an Operations Role in Egypt | The Importance of Teamwork | Moving into Biologics & Overseeing GMP Operations | Buying a Business & Founding Xcelience

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Show Notes

Part 3 of 4. 

My guest for this week’s episode is Derek Hennecke, a veteran biotech entrepreneur and board member with over 30 years of experience in the CDMO industry, whose mission is to support the biotech revolution and create value for patients, customers, and investors.

In addition to his Board work, Derek previously held leadership positions at DSM and was the Founder and CEO of Xcelience, which he eventually sold to Capsugel Lonza in 2016. Xcelience was a Florida-based CDMO specializing in preformulation, micronization, analytical services, formulation development, cGMP manufacturing, and more. His extensive pharma and cell therapy expertise makes for an insightful conversation that founders can learn from.

Join us this week and hear about:

  • Derek’s transition from commercial roles to Operations, managing a challenging site in Egypt, and the teamwork that turned it around
  • His move to a Biologics site in Montreal and the hurdles he faced there overseeing GMP Operations
  • The start of his entrepreneurial journey: buying a portion of a business and founding Xcelience.

Please enjoy my conversation with Derek Hennecke.

As a podcast listener, you can redeem exclusive discounts with a growing list of biotech vendors and get $500 off your first equipment lease by using promo code “TBSP” on https://www.excedr.com/rewards.

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About the Guest

Derek Hennecke
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Derek Hennecke
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Derek Hennecke is a veteran biotech entrepreneur and board member with over 30 years of experience in the CDMO industry. His mission is to support the biotech revolution and create value for patients, customers, and investors.

In addition to his Board work, Derek previously held leadership positions at DSM and was the Founder and CEO of Xcelience, which he eventually sold to Capsugel Lonza in 2016. Xcelience was a Florida-based CDMO that specialized in preformulation, micronization, analytical services, formulation development, cGMP manufacturing, and more.

Transcript

A hand holding a question mark

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Intro/Outro - 00:00:01

Welcome to the Biotech Startups Podcast by Excedr. Join us as we speak with first-time founders, serial entrepreneurs, and experienced investors about the challenges and triumphs of running a biotech startup from pre-seed to IPO with your host, Jon Chee. In our last episode, we spoke with Derek Hennecke about the early challenges and financial hurdles he faced after moving to Europe for his MBA and his first role in business development. We also touched on his transition to managing, learning the ropes of leadership, and his joint venture experience in Mexico. Lastly, we discussed the intricacies of managing a matrix organization and his experience as a product manager. If you missed it, be sure to go back and give part two a listen. In part three, we talk with Derek about his transition from commercial roles to full operations, managing a challenging site in Egypt, and the teamwork that turned it all around. We'll also touch on his move to a biologic site in Montreal and the significant hurdles he faced there. Lastly, we'll discuss the entrepreneurial journey of buying out a business and founding Xcelience. 

Jon - 00:01:22:

And so now you expanded LATAM. And you mentioned being in India as well. When did you know it was time to leave this role and move on to your next?

Derek - 00:01:34:

Well, it was hard economically to move as being the king as an expat to going back to headquarters financially. But the main thing was I wanted to really move full on into operations. I'd done commercial, done R&D, business development, sales, product development, product management. But the pure line of operations was a hard thing to break into. It's usually very siloed. You do this or you do finance or you do operations. And to switch over into another field is pretty hard. But I caught the attention of the Chief Operations Officer and said, I'd really like to work in your organization. And he said, why would you want to do that? Because I want to try that out. You can't say I want to try it out either

Jon - 00:02:24:

Yeah, yeah, yeah. I need more than that from you.

Derek - 00:02:26:

You know, roll the dice.

Jon - 00:02:28:

I need more.

Derek - 00:02:29:

Yeah, yeah. So that's not a – you can't say that either. But he was willing to take a chance. And luckily, there was an operation in Egypt that they were wanting to shut down. Egypt was not in the strategy of the network to – you know, you had Mexico, China, India, India, Delft, Spain. Those were in the strategy to continue. Egypt was not. So I think he said, well, why don't you go to Egypt? You can't do any harm. We're going to shut it down. And I also, at the time, I know this in hindsight, I didn't know it at foresight, but it was when DSM was going to buy Gist Brocades. And they were very, very different cultures. And sometimes it's good to be in with change. But I think that I wouldn't have known how the winds were blowing and how, you know, how things would work out. So it was a good time for me to be, outside of the the tropical storm that was happening with that merger.

Jon - 00:03:28:

Globetrotting. Okay. So now you guys are moving to Egypt. Can you talk a little bit about what was that move like for you? Hopefully you didn't lose your luggage.

Derek - 00:03:38:

But it's funny when you moved, I don't know if it's the case now, when you move to Egypt, everything you bring into the country, you have to take out. So every TV or phone, they take the serial number down. And even if it breaks while you're living there, you have to make sure that you register it when you're leaving. Otherwise, it looks like you're importing electronic goods. Yeah. We didn't lose anything, but we also made, we did not lose anything 

Jon - 00:04:02:

Yeah. Yeah. This time with like serial numbers, like tracking it all the way. 

Derek - 00:04:08:

We had a great time. Also in the Netherlands, we had another child. We had one child in Mexico. We had our second child on the return visit to the Netherlands. So now we're bringing two children to live with us in Egypt. But we had a wonderful time. 7,000 years of history. Every weekend going to another pyramid or another, you know, another settlement to explore the country culturally and personally. I really enjoyed it. When I arrived, I met with the management team and told them they knew that we were kind of on the cutting block, that we might not have a future. And yet they pulled it together. And Hassan El-Sayed, but especially Ahmed Fouad, the head of R&D and head of production, and myself and the finance guy that came with me, the four of us, we kind of pulled it together. And the site stayed in operation for many years until maybe six, seven years ago, I think, they finally did cut it. But it got another lease for over 10 years. And Ahmed Fouad is doing very well in the network. He's now himself an expat. He moved to Mexico and then India or China, and now he's in India.

Jon - 00:05:23:

Wow. And can you talk a little bit about that experience? It's almost, it sounds like you were brought in and you had to turn around the franchise.

Derek - 00:05:31:

Yeah.

Jon - 00:05:32:

What was your experience doing that? 

Derek - 00:05:35:

I think it was about teamwork and pulling people together and brainstorming ways we could improve the performance, the safety, the quality, and the cost structure. We had those three main things. If you didn't have the safety, you could also be shut down. If you didn't have the quality, of course you would be shut down. And if you couldn't be viably financially, you also had challenges. Again, with stakeholders, I now had a product manager. You may remember that matrix.

Jon - 00:06:03:

Yeah, yeah. 

Derek - 00:06:04:

It was this level. And the product manager, Marcel Velterop, he was managing the matrix. And he was the one I was negotiating with to say, well, how about if we make this quality? And he said, well, if you made this quality, I'd find these customers for you. And so he took a risk and a chance on us. And then my direct boss, Roelof Mulder, was a dyed-in-the-blue, long-time operations guy. And he didn't understand why this guy came from both sides of operations into his organization. He really supported me. And, again, stakeholders, trying your best, enthusiasm, the team coming to bring the team together. One innovation was Achmed Fouad. He saw one of the reasons we were losing money was the release of isopropanol in distillation. Distillation was we were losing too much. So he went back and cracked open the textbooks and was trying to understand how we could improve the performance of the distillation columns. And that was one factor that got us to profitability. 

Jon - 00:07:09:

That's incredible. And my, my father, my father's an engineer, but he, he still talks about sometimes when he like gets to like this, like unique problem, he'll still crack open the textbooks. I'm like, you're still, I'm like, you're still doing this. I think these are like books that like ancient grad school books that he had. He's like, I still use them. They're great. He's like, you're not taking these away from me. So I love hearing that. And I know this, this, this site in Egypt also got pretty sizable. Correct me if I'm wrong, you scaled it up to like, you know, over like 200 people. Can you talk a little bit about that? 

Derek - 00:07:45:

Yeah, it was, it was mostly due to the, being able to export again, Mexico, of course, we'd cover the, the, the Egyptian market. And then improving the quality to be able to have outside export markets. We finally got access to, to Europe. So, so that helped. But But I think that the main thing was concentrating on those three things rather than the expansion. The expansion would have happened. The growth will happen if you figure what the main drivers are to your business. And I don't think I ever focused on the growth, but rather what is important. Is the customers. Providing a good product, having good safety for my employees. I'm more proud about the safety for the employees that we did. Absolutely. At the time, hepatitis C was a rampant disease in the population. And so we brought in systems to help them with that. Talking to the families of the employees and saying, look, we want you to send your husband home or your wife home, but mostly husband, home safely. That was new for them 

Jon - 00:08:55: 

And I love that what you said about, you know, about growth. It's the growth will come if you're focusing on. The team and the customer. And growing for growth's sake is not necessarily what you're trying, you should be optimizing for. Because at the end of the day. You know, it's kind of like the success will follow regardless of what the growth vector is. And so that, and I love hearing that, like, just like focusing on the team, making sure that they are. Health taken care of and their wellbeing is super critically important. And so after, you know, you've spent some time in Egypt, I believe you, you ended up. Moving back to Canada. 

Derek - 00:09:38:

Right.

Jon - 00:09:39:

When you became a site director. Can you talk a little bit about that? 

Derek - 00:09:43:

Yeah, so again, now it had two or three big successes. And the big next one was to move back to the Netherlands and manage the largest site, the Delft site. And that would have been a big change. It was a large population, a large site. Very much of a governance job rather than a P&L responsibility because you're You've got the local community around you. So I wasn't sure I wanted to go in that direction. I like the, you know, the block and tackle, the business part of it. But mostly, while I could speak pretty well Dutch, there you've got to know the slang. If you hear something in a corner of your ear, you've got to know. If you only hear one out of every 10 words, you better know what's going on. So I very much felt uncomfortable about that. And it would be at such a point in the company that I'd be staying there for the rest of my life more in the Netherlands. And I wanted to move back to North America at that point. So they found me a good job in Montreal to manage a biologic site. And I thought, great, I've got two, I've got three things. I get back to North America, Montreal, which is a fantastic city. I don't know. Have you been there, Jon? 

Jon - 00:11:00:

Yes, I love it.

Derek - 00:11:03:

So much fun. So it's such a beautiful city and I loved it. And then into biologics. So going back to molecular biology.

Jon - 00:11:10:

Cool.

Derek - 00:11:12:

This is a winner. It didn't quite turn out that way.

Jon - 00:11:18:

Yeah, yeah. Um. Talk a little bit about that, if you can. Like, you know, going in, you know, it checks all the boxes. And then I guess, how did it not check the boxes for you when you ultimately were there? 

Derek - 00:11:33 

You know, that's something that you live long enough, you're going to have some failures. And this was definitely a failure. The site was subject to a lot of contaminations. It was not built properly. It had gone through two site directors before me. But I didn't have the skills or the ability to turn it around. And after I left it, one more site director who failed, and then they shut the place down. That's when I decided I had to leave the company because it didn't work out. And that's what happens.

Jon - 00:12:03:

Yeah, and I think, and I love the kind of the candidness and, you know, about that. It's just like, it doesn't, it's not always up and to the right. You know, and sometimes you, you know, at least you can feel like your previous performance will be indicative of your future performance. Dumb Dogs is just not that. It's not in the cards. And I mean, it must have been painful. And it's not, you know, after, because it sounds like, you know, these previous sites were just like, like just humming after, you know, you getting there. And this one's like, oh. 

Derek - 00:12:37:

Yeah, it is. And I think that I'm glad to have done it. I'm glad to have gone through it. It's one of the cliches that you want to hire somebody who's had failures. I think that was good because then you know. You'd rather that they have a failure on somebody else's payroll.

Jon - 00:12:52:

Yeah. 

Derek - 00:12:54:

Because if somebody reaches far enough, they are going to have a setback. And that's what happened. But we took on the wrong projects. We took on the wrong customers. It was a shared responsibility. Absolutely, in a big company, no one person takes all the decisions and takes all the responsibility. But it was not easy leaving. I had a chance to go back to the Netherlands with my tail between my legs. Pretty much I said, no, I'm not going to spend the next 10 years rehabilitating my reputation. I'll find a new home over here. And I'm so glad I did. That's how things turned out. Other lessons I think is really... Really say no if you believe, that something's not going to work, I said no, but maybe I didn't say, know hard enough, like, no, or I quit. Um, I should have done that because in the end it's going to happen anyway, you're going to be leaving anyway. So leave under your own terms, but, but that's what I learned. 

Jon - 00:13:56:

And that is something that took a long time for me to, to get that muscle is to be able to like emphatically say no. Um, in the very beginning, early days, you just want to say yes, like all the time. You just want to say yes. And- 

Derek - 00:14:11:

You're not a quitter, right?

Jon - 00:14:13:

Yeah, exactly. Yeah. No way. And sometimes it is the right move to say no, like it, and that's totally okay. And I think something else that stood out to me about that experience from what I'm hearing and it resonates with me and again, not to poopoo on movies too much, but it's like, it's hard to teach those kinds of lessons, if not impossible without just getting your hands dirty and feeling that pain firsthand. And I kind of like my saying, internally, it's like, I can tell you how hot fire is, but you don't actually know how hot fire is until you touch it for yourself. Like on paper, it's very hot. And they're like, yeah, yeah, yeah, Jon, whatever. And I'm like, I promise you it's hot. But you only truly learn when you build up that scar tissue. Because one of the experiences for me. Was one of our early clients was basically a part of Quest. And stakes were very, very high. Before that, we had customers that were a little bit here, a little bit there, a little bit here, a little bit there. And here, we're running patient specimen, like weekly all the time. So like a lot of clinicians are relying on this. And, we outfit the lab. And like the next week, everything breaks.

Derek - 00:15:33:

Oh no, why? How?

Jon - 00:15:35:

Yeah. So we basically realized, so it was a robotic system. And here's the part that was very hard for us to navigate because. From our perspective, there's various stakeholders. There's the folks in the lab using the instrumentation. And then we also have to work closely with the makers of the equipment. Just somewhere there might've been a miscommunication. Don't know who and not we don't need to point fingers but just like uh perhaps the the way the robotics were set up, or perhaps the use of a type of pipette channel might've not been the right type of pipette channel. And it just wasn't working. And they weren't able to properly validate it due to all these kind of issues with the robotics. And so. That was a lesson. Stakeholder management that I now know I'm super hypersensitive to. That's why I kind of really stood out to me what you mentioned about communication, making sure that at all times there are no mis or at least as best as possible, there are no miscommunications, such that we because in the moment, there was a lot of finger pointing. And if I could redo it, we could have like prevented all of that. If we were like, let's just get in a room and like, you know, get this ironed out, try to do more preventive measures here. And also the other aspect too, is exactly what you said with a small company at that time, you know, we were very small. You know, I think, you know, sub 10 people, it was the first time having to have like, where the buck stops with me. And like, I was getting calls from like, like management up at-

Derek - 00:17:21:

Manager request.

Jon - 00:17:22:

Yeah. And I was like, okay, like this, now I need to like bring my A game here and make sure, and we, you know, this was a long, it was over a decade ago, but still carry with me to this day, like the importance of like getting ahead of it with communication, making sure there's like stakeholder alignment, the communication channels are clear. And also what it means to have that exactly, you said like this white glove service, not feeling like you are working with this nameless, you know, organization where, when things really get rough, we're all in hands on trying to make it right. So there are these formative moments that hurt like hell and sleepless, sleepless nights, because when you're small, like you have customer concentration.

Derek - 00:18:08:

Right.

Jon - 00:18:09:

Yeah. Yeah. Yeah. You're like, Ooh, if this doesn't work out, this could be make or break. So, you know, the school of hard knocks, these are just some like, you know, lessons I carry with me to this day. 

Derek - 00:18:21:

What's interesting about Montreal, though, there was no way we could have done more communication. It was incredible. I thought, well, it's just communication. The lesson is sometimes even with communication, bad stuff happens.

Jon - 00:18:33:

Yeah, that too.

Derek - 00:18:35:

In the last six months, we had somebody from the Netherlands was seconded into my management team at a high level whose only job was to make PowerPoint slides.

Jon - 00:18:44:

Oh, no

Derek - 00:18:45:

Only job. So I don't know how we could have done more communication. So, he was with me. And, okay, well, here's the deck I made. Here's the explanation. Here's the plans. And he was earning like $120,000 a year. So high level. That was back in 2004, 2003 dollars. So sometimes even with communication and it just. It's hard. And that's life. We didn't know COVID was going to happen, or maybe we didn't know the recession of 2010 was going to happen. In hindsight, we could have done things to avoid those maybe. But, we don't see them coming.

Jon - 00:19:24:

Yeah, absolutely. And I think that is a perfect asterisk that I definitely want to highlight here. Even with excellent communication, I don't know the counterfactual, but it's everything could have still broke. But you would hope that you would increase the likelihood of success. But sometimes it's not in the cards. Like it doesn't work out. So, after, you know, you're like, okay, I need to move on. This is not the right environment for me. I'm not going back to headquarters for 10 years. Did he know what was next?

Derek - 00:19:58:

No, I didn't. I took three months off and did a lot of skiing, cross-country skiing. Looked at the health. Now I had a new third baby in Montreal, so I spent time with her and the family. And hen local management of MDS Pharma had heard of what I was doing and obviously saw that there was still potential in me to make me the vice president of all of the GMP operations of that company. And so, within about three months, I had a job offer and we were moving again. This is funny. They said, you're going to manage Montreal, a site in Montreal, a site in Tampa, and a site in Seattle, both of Washington. I said, that's great. I get to go to Tampa a few times. That's kind of fun. They said, no, you're going to be posted there because that's where we want you to be located. I came home and told the family, especially my two older daughters. They said, Daddy's got a job at Disney World.

Jon - 00:20:57:

Yeah, there we go. The perfect sale. It's like, oh yeah, this is going to be perfect.

Derek - 00:21:07:

So that's over.

Jon - 00:21:08:

Yeah, yeah, yeah. And so you're now you're now in Florida. And can you talk a little bit about the opportunity at MDS and the work that you did there and the responsibilities that, you know, you kind of were tasked with?

Derek - 00:21:23:

Yeah, so there were three different business units. One was a QC testing laboratory in Montreal that did CMC testing of raw materials and finished products. But the business model was only for Quebec. So they had low labor costs, but also extremely low pricing. And it was very unprofitable. The operation in Tampa was to do formulation development of phase one materials for oral solid dosage form clinical trials. And then the operation in Bothell, Washington was a biosafety testing, mycoplasma operation, cell banking, pretty small. So all three units were GMP. And underneath the umbrella of a strategy of being a follow the molecule CRO all the way through. And the strategy, of course, sounds good on paper, but nobody's asking for that. Nobody's asking that you do the material production, the clinical trials, logistics. And the data management. I think PPD is trying to do it now with PPD. But in general, you have different decision making units. So the strategy was poor. And then MDS also had a poor execution. They bought all these operations, which were all over the world, and they weren't connected. So the interaction between the business units wasn't flowing either. Within one year of arriving, my boss comes to me and said, we're going to sell your three units. Because, I'm only three, you know, one year into the job, I think, well, I'm a GMP guy. Meaning good manufacturing practice for your listeners. That doesn't have a role in a CRO. So I'm probably also out of a job. And then, I come home to tell my wife that, too. But in that year, we were starting to turn things around. We didn't have responsibility for sales. So my boss was pure operations and I was pure operations. And then in a matrix structure, we had sales. So this is an example where the matrix was not performing because there was no sales coming. They were more interested in, in sales of large clinical trials rather than small clinical materials, so wasn't getting any sales, and so my boss, Robert Béland, he was working at the stage of trying to bring it more to a business unit structure where I would have sales. And then a couple of months just before we were sold, we were able to bring sales into our unit. So that helped, that started to help.

Jon - 00:23:58:

Interesting. And it sounds like was, were matrix organizations, was that like the, like the go-to org structure?

Derek - 00:24:08:

In big companies, it is. It is, yeah. It's sort of the case in, I won't name the big companies, but in all the big companies, it is more of a matrix structure. To allow a level of entrepreneurship and decision making of some level at a lower scale with people who know the market. But it leads to these difficulties to make strategic decisions. Because so many stakeholders have to be involved.

Jon - 00:24:38:

Interesting. And so a year in, you're brought with this news. How did you proceed from there?

Derek - 00:24:47:

Yeah, it was certainly sad because... You know, you're just brand new into a new country with no network and at a pretty high level now. So how are you going to find a new job? Basically, you have no experience. I'm just, maybe I had that failure in Montreal, so that could probably carry along with me. So I went back to my wife and also to an entrepreneur group here in Tampa. And I said, this happened. If you guys know of a job, I'd love to have a job. And they all said, well, why don't we buy? One or all three of the units? Why don't you buy one or all three of the units? And I said, really? Like, how am I going to do that?

Jon - 00:25:29:

Yeah, yeah. It's like, oh, that's simple. Yeah, like we can just do that. Like, what do you mean? What do you mean?

Derek - 00:25:37:

And they said, don't worry about that. First, decide if you want to be an entrepreneur. That's the first thing. Understand and think about it. And then if that's the motivation you do. You know, then cross the next door, just take it step by step, because you can't be, you know, we can only hold one idea in our head at a time. And And if you try to have two or three ideas in the head at the same time, they start to conflict with each other. They start to merge. So we had a long conversation. And, again, it was, again, my wife, but also our head of sales. He also, Randall Guthrie, he had just recently been moved into my unit. And he said, well, why don't we buy it? So I had his support. And this entrepreneurial group said, you know, you probably do it. And, we came up with ideas. We went through a sales process to sell the three units. And we found a couple of buyers for the Tampa unit, one buyer for the Seattle unit. Because they're three different business units, they wouldn't be one buyer. They'd buy all three. It'd be three separate ones. The final best price in for the Tampa operation was such that I said, well, I think I have ways to be able to make that work. I can do what's called a sale in the SPAC. I can use the operating capital from the customers to buy it. And then a little bit of seller finance. So a whole bunch of combinations and my own money, but I didn't have much to be able to pull it together.

Jon - 00:27:09:

Yeah, I'm really interested in that aspect. Very interested. The first thing that comes to mind is like. Was there kind of like on like kind of startup entrepreneurship bug kind of live like lingering under the surface for you? Or was this like at this point where it's just like. Raise your hand. Let's do it. Like, just like, and how did that conversation go with your wife?

Derek - 00:27:33:

Well, my wife came from an entrepreneurial family as well, so she was pretty supportive of it. We had had a small company in the Netherlands that she ran, making websites for companies and presentations, actually. Back then, it was hard to make a presentation. So you'd actually hire people to make presentations. And so she ran that, and we had experience with using QuickBooks and that. So that got the bug in us to say this would work. And we had confidence. We knew that we were turning the place around. And this is another factor of big companies. Once they've made a decision, there's no going back on it, even though it would be better for them to wait a year. To wait till we have good results, which they even knew was going to come. But MDS had an activist investor who said, we're out. We don't, you know, just get rid of these things. They're a distraction. So I knew I was going to get a good deal. I knew that we would be able to go to the customers and say, you don't want us to fail. You want us to be successful. So work with us, things like that. So it wasn't as risky as, say, moving to a new country, I think.

Jon - 00:28:40:

Yeah, that's really interesting, too. And this is a... Form of company building that you know a lot of our listeners perhaps are kind of fall more into like the kind of like venture, you know, have an idea, get venture money, and they kind of go that route. But I love hearing these stories of a kind of a different way of company building and entrepreneurship, where it's perhaps a group within a larger organization, and, you know, the larger company or the top co. Makes a decision for whatever reason, right or wrong, maybe a for-seller or there's something in the market or the tides have changed or something, management has changed and the strategy has changed and presents an opportunity for someone like yourself to be like, we can make this work. We can make this work. And so can you just talk a little bit about, sound like you got the green light, you got the thumbs up from sales team, your family, the investors. One, what were the early days like? What was your just ground zero? What was it like?

Derek - 00:29:47:

Yeah, we didn't have many investors. The only one we had was the head of sales and then the realtor who, instead of taking a commission, he helped me find a landlord to do the sale and lease back. So he was really good. At the beginning, it was very scary. Of course, you didn't know what legal would be. You didn't know what marketing would be or any unknown costs. The asset purchase agreement that I signed with the company was very limited in the rights and warranties that I would have as a buyer for the company. And that was why they sold it to me, too, because they said, well, if we sell it to the guy who's running it, he will not be able to come back and sue us because he's been running it. He knows all the stuff. He'll have no rights in court to sue. So that was a factor that led in my favor as well. But that meant that, there could be something I didn't know. I'd only been running it for a year. At the beginning, it was very scary. We built up a lot of cash just to be ready. We ended up having a better couple of years than we expected, but we were still waiting for the other shoe to fall and that something would come up that we didn't expect. What are taxes? We also went to the customers. And this is another factor of big companies. They have a separate group doing collections. John, you know what your collections are and what your AR is every single week. You know what your AP is every week because you've got to make payroll. The big companies don't do that. We had outstanding payables up to two years where customers have not. Yeah. And so I called the customers and said, do you know you have this? And they said, maybe they did, maybe they didn't. And I said, well, you don't want me to go bankrupt because your trial is then going to fail, so I'd like you to pay it. And so I got a lot of the working capital that way too, where the customer started rolling that money in that was due to me. Now, when you buy a company, you buy those receivables. They are receivables, but because they were overdue for so long, they were worth nothing, according to the negotiation that we had. So that also helped me to find money that was lying in the walls, as they say in the Netherlands. There's money there, you just got to pull it out.

Jon - 00:32:13:

I love that this is kind of like the thing where it's just like rolling up your sleeves. And we talk about it. It's like, just. Unconventional ways to finance a business. Like again, and I don't mean to be overly prescriptive, like you know, being in San Francisco, the Bay Area, it's a very venture oriented, way of financing your business. And for us at Excedr, we're a form of credit and we're an odd duckling.

Derek - 00:32:46:

We're super weird.

Jon - 00:32:47:

Yeah, it's super weird. Like every time we talk to, you know, a company that is comes from that venture mold, they're like. What the heck? But in my head, I'm like, Reddit is one of the oldest businesses known to humans. It's been around. But I love this too, where it's like scrapping it together with when the big company had just basically written off all the receivables. You're like, no, no, no, no, no, no. There's actually something here. And it just, all it took was. Picking up the phone. I might be oversimplifying the collection process.

Derek - 00:33:24:

It's pretty simple. Yeah.

Jon - 00:33:26:

That's really fascinating.

Derek - 00:33:30:

The customer wasn't trying to cheat you. They want you to be successful. It's a partnership. It's not transactional. It's not like you're buying a car once from a lot. In your business too, you're going to do a lease and then you're going to do more with the same company, especially Quest, for example. They want you to be successful. And when they realize what the situation is. I think it was as simple as you say, Jon.

Jon - 00:34:01:

That's very cool. And something like the saying I mentioned internally, it's just that with this kind of business where you're relying on cash flows and from customers. Your customers are your investors, they have a vested interest in making sure that your company thrives so they can thrive. So you're on the same boat. I think that's a, you know, when you find that alignment, it is beautiful. Like, and, and you can really start to because you guys are all in the same boat you can start moving in bigger and faster ways um as long as you're finding you're not selling you know lack of lesser product. As long as they're succeeding, you're succeeding. Now, you've managed to pull together the capital, you got sale lease back from the real estate folks. On the pronunciation, is it Xcelience?

Derek - 00:34:57:

It's very well, thank you.

Jon - 00:34:58:

Yeah, of course. For Excedr, it's the X sound. Sometimes we get Excedr, I'm like, it's close, close. And sometimes the early days when we were making our website, we are doing analysis of names. And the first thing that come up with Excedrin. And I was like, oh, no. Did we pick the wrong domain and name? This is going to be bad. We can't beat Excedrin. So talk a little bit about now that you've secured the financing, it sounds like you've got your core unit, the mission and focus, and really about the early days behind your company.

Derek - 00:35:44:

Yeah, it was great. We had a differentiating technology that we had bought from Capsugel called Xcelodose. And people think it has similarity with the name. We were lucky that it did. But it wasn't the original reason why we called our company Xcelience. But it helped us. It's because Xcelodose, Capsugel was selling the machines and we would buy a machine. We were the first one to buy a machine as a service provider and then provide the service on the machine. And machines were expensive. So we benefited from being able to get all that work. Instead of buying a machine that could use the service, which is a recurring model. A couple of our current companies do that now. Xcelience does that where it has an investment from Harold Hoflinger and makes very good encapsulation machines. But sometimes the customer cannot afford it or it takes a long time to put one in place. And then we provide the service. So it is a very good viable business model that maybe one of your listeners can do. If they see a piece of equipment, they can buy it and then provide the service on it. I can imagine it happens nicely in the Bay Area too.

Jon - 00:36:57:

Yep, absolutely. And I think especially with the... After the 2020s, 2021 kind of like. Time, which is like helicopter money. And now it's all about like, efficiency, like how can we do this efficiently? And I think you were talking about it too, you know, in a previous role where each kind of phase or stage of growth, you're finding specialists help.

Derek - 00:37:23:

Yeah. Yeah.

Jon - 00:37:25:

And that's like a way to make sure that you are, you know. Perhaps it's not the wisest thing to do to just build all this capacity in-house. Like some things, maybe some things, maybe, you know, but yeah, but sometimes it's definitely worth it to, to find experts out there who have the instrumentation and expertise to do X for you on a kind of more kind of a fractional basis.

Outro - 00:37:52:

That's all for this episode of the Biotech Startups Podcast. We hope you enjoyed our conversation with Derek Hennecke. Tune into part four of our conversation to learn more about his journey. If you enjoyed this episode, please subscribe, leave us a review and share it with your friends. Thanks for listening. And we look forward to having you join us again on the Biotech Startups podcast for part four of Derek's story. The Biotech Startups Podcast is produced by Excedr. Don't want to miss an episode? Search for the Biotech Startups Podcast wherever you get your podcasts and click subscribe. Excedr provides research labs with equipment leases on founder-friendly terms to support paths to exceptional outcomes. To learn more, visit our website, www.excedr.com. On behalf of the team here at Excedr, thanks for listening. The Biotech Startups Podcast provides general insights into the life science sector through the experiences of its guests. The use of information on this podcast or materials linked from the podcast is at the user's own risk. The views expressed by the participants are their own and are not the views of Excedr or sponsors. No reference to any product, service or company in the podcast is an endorsement by Excedr or its guests.