TheBlood: Economies of scale or high scal­a­bility? #DHDL

In the latest episode of “Die Höhle der Löwen”, the founders Miriam, Isabell and Lukas receive a lot of praise for their product, but also as a team and their busi­ness convinces almost all of the lions. This should hardly come as a surprise to those who know the scene, as they are active in the booming women’s health market with their product.

The Blood makes it possible for women to collect their menstrual blood at home with the help of a prepared kit and send it directly to a labo­ra­tory for analysis. Here, various makers such as vita­mins are then eval­u­ated and trans­ferred to the asso­ci­ated app. Depending on the problem – PMS or period pain, for example – recom­men­da­tions are then made. In its tests so far, for example, the team has found that about 90% of women have vitamin defi­cien­cies, the compen­sa­tion of which can miti­gate the well-​known premen­strual syndrome – the days before periods that are as famous as they are prob­lem­atic.

Despite the often-​cited crisis in the start-​up world, such topics have been getting a lot of atten­tion in recent years, from media and investors alike. The expla­na­tion for this is as simple as it is shocking: the topic of women’s health has been prac­ti­cally slept through until now, even the phar­ma­ceu­tical compa­nies, which are always portrayed as so greedy, could not imagine that millions of women would shell out good money for the relief of their monthly suffering – despite exten­sive and costly market research and ever new fancy methods such as focus groups or lead customers. It would be amusing if it weren’t so sad, this testi­mony to a collec­tive failure.

But for such cases, we have start-​ups that have also tackled this field prop­erly in recent years. And investors who very soon under­stood that there was actu­ally some­thing to be gained here.

Like the lions, who are quick to prick up their ears, but this usually means that they also get to talk about the figures pretty quickly, and they make no excep­tion for The Blood.

Nils Glagau rings in the numbers – at least in the edited version – and asks about the sales price. So the viewers find out that there are prac­ti­cally two vari­ants: the one-​time variant with a single kit for 42 euros and the subscrip­tion variant, in which four kits within a year cost 150 euros.

Now, of course, the lions want to know how much of that money actu­ally “sticks” with the start-​up, i.e. how much money can be earned with such a kit. Unfor­tu­nately, the founders have to admit that the lab currently receives around 30 euros for the test costs, but they empha­sise that these will go down signif­i­cantly with more tests, so that the margin could then be around 60%. From this they conclude – subject to possible factual gaps in the average – that their busi­ness model has a “very high scal­a­bility”.

But what does that actu­ally mean, and can it be derived so directly from the one factor of a single declining cost type?

Normally, one speaks of a highly scal­able busi­ness model when it is easy to produce large quan­ti­ties quickly and, above all, when expo­nen­tially increasing sales entail costs that increase at most linearly. Simply put, if sales explode, costs do not explode with them, even though they natu­rally rise as well. An impor­tant factor here is usually the personnel costs: if, for example, I can produce and sell 1000 prod­ucts a month with a team of 20 people, I don’t need 200 people for 10,000 prod­ucts, but perhaps only 40. The turnover there­fore grows by a factor of 10, while my personnel input only grows by a factor of 2. With 100,000 prod­ucts, however, I might not even need 80 people, but even manage with 60. So this can only work if as few staff as possible are involved in direct produc­tion or sales.

But we don’t learn too much about that at The Blood. The founder is mainly inter­ested in the fact that the costs per labo­ra­tory test are falling, which means that an essen­tial compo­nent of the produc­tion costs is falling with larger quan­ti­ties and thus the margin is increasing consid­er­ably. This is called a scale effect, but it has little to do with a scal­able busi­ness model. After all, in this case, manual work – the eval­u­a­tion in the labo­ra­tory – is part of the indi­vidual product, which usually has a rather nega­tive effect on scal­a­bility. Because if the start-​up grows strongly, indi­vidual labo­ra­to­ries could quickly reach their limits, so you have to bring in more or set up some your­self. These struc­tures always take a little time, you can’t just press a button to double capac­i­ties, which is a classic hurdle in scaling – though not an insur­mount­able one. In addi­tion, it’s impor­tant to mention that the cost per lab eval­u­a­tion may go down, but it’s still substan­tial – that is, it’s a vari­able cost that’s always per unit.

However, since the market is prob­ably huge and the labo­ra­tory infra­struc­ture in Germany and neigh­bouring coun­tries is prob­ably not exactly bad either, investors would prob­ably assess the feasi­bility rather posi­tively, but would certainly have different opin­ions as to whether such a model really passes for “highly scal­able”.

But scal­able with good margins is suffi­cient in most cases – espe­cially with a suffi­ciently large market and effi­cient ways of acquiring customers, about which we unfor­tu­nately do not learn much.

But the topic alone and the capable founding team certainly deserve to prove its scal­a­bility on the market, and the commit­ment of the lions Nils Glagau and Carsten Maschmeyer shows that they prob­ably see it simi­larly. Even if the deal – appar­ently from the founders’ side – did not go through, we can be curious to see how many more such exciting start-​ups this market segment will produce in the future. Hope­fully they will scale as strongly as possible and finally help so many women who have been virtu­ally ignored by medi­cine and phar­ma­ceu­ti­cals for so many years.

Photo (above): TVNOW / Bernd-​Michael Maurer