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30 min reading time
A lot of really salient points about growing your medical device company, from the 10x Medical Device Conference panel “How We Grew Exponentially.”
Our speakers included Tom McCall, Chief Marketing Officer, ICU Medical; Jim Buck, President & CEO, Mardil Medical; Steve Ogilvie, VP of Corporate Development, NuVasive; Michael Dale, President & CEO, Helical Solutions. MedCity News’ Chris Seper moderated the session.
A full transcript accompanies the video.
Steve Ogilvie: At some point we were getting big enough that, for us, distribution in medical devices, technology is great but distribution is equally if not more important in many instances.
We needed much more focus for distribution and so we went exclusive, meaning that whether it was a direct or a distributor, all they’d sold was our product and that was it.
And that transitioned, if we think about all the money that’s been put into the company, that’s probably the most expensive thing that our company has ever done because it’s a very costly transition.
But it’s what really took us from a couple of hundred million (dollars) to where we are today because, at least in our space, the distribution network focus is so key. So it was a very painful process but a big hit to our growth.
Michael Dale: If I were to look back over my career which I’ve been blessed with having the opportunity to participate in some very unique market development opportunities, unique solutions.
And if I look at the periods where we enjoy what you would characterize as exponential growth, in almost every case, it would be related to a good match between a proper understanding in what your fundamental market opportunity really is.
What your value proposition actually is and the necessary policies and programs that take best advantage of that, because they’re inextricably linked in how well you allocate those human capital resources towards the actual value proposition that you have.
It’s really what determines whether or not you have growth or whether or not you struggle. And by definition if you understand also your market opportunity well and you have good process and good programs in place, it will become a reinforcer and a barometer to basically guide you as to when you begin to struggle again, what kind of course correction is actually required.
And so I think the fundamentals are what’s behind virtually every experience that I’ve enjoyed in my career and that is the effort upfront to truly understand and characterize fundamentally what kind of value do you provide to the market.
And how is that distinguished from what might exist today whether it be current standard of care of whether it be a very broad well-established, mature marketplace where you’re trying to find your place in order to bring value to that.
Chris Seper: Thank you, those are all very insightful. I think I want to touch on just basically because of the last panel, the idea of working with strategics and distribution and, Tom, you mentioned the talks with Abbott.
I think a lot of people would be interested in what’s it like to try and win that negotiation and then what’s it like to basically diversify yourself almost, and I wonder how do you handle with your existing partnership with Abbott.
That’s a situation I think a lot of people would love to be in and would love a roadmap.
Tom McCall: It’s challenging. Abbott is now Hospira and there was a time about five years ago where that relationship accounted for about 70 percent of ICU Medical’s revenue. And as a public company, that’s a lot of risk to take on.
The ability to coexist in the marketplace with a very, very important customer can be challenging at times. It’s a matter of putting up really sound guardrails and guides for the way that you’re going to interact.
What is going to be an account that we can go after? What’s going to be an account we can’t go after?
But we really made the decision that in order to continue to grow and to fuel additional acquisitions and additional markets, we needed to take the business that we had with Hospira, which is basically infusion-therapy products.
We make everything that goes from the pump to the patient when it comes to IV therapy and that’s part of a system that Hospira sells.
And we went out and identified the fact that we need to take those same products to market because they’re not going to go after every account that’s out there or every opportunity that’s out there.
So in terms of building our business from a direct standpoint, it involves sitting down and having some really frank discussions with our partner Hospira to understand the ways in which we could approach the market without causing the kind of conflict that was going to drive negative results on their side and negative results on our side.
So one of the things that we focused on what having a fundamental approach. Fundamentals are important. We needed to make sure that we were structured internally to go direct.
We had to build a national accounts presence. We had to build the infrastructure from a sales standpoint and a training standpoint to get a direct sales force who hadn’t really been to market focused on the right things to do.
There’s a lot of talk about athletics at ICU Medical because out of the direct sales reps that we have, the 120 or so that we have in the US, probably 30 of them are ex-pro-athletes.
Our Head of Sales played for the Toronto Maple Leafs. So there are a lot of looks at how you approach business from an athletic standpoint.
My son he was a high school All-American Lacrosse player, he now plays the lacrosse at the Air Force Academy and I’ve seen him do amazing things on the field. But he wouldn’t do any of that if he couldn’t catch and throw and pick up a ground ball.
So we really went back to the basics and looked at how to structure our company so that we had the right story in place. We were very product-focused in the past. Our brand didn’t mean anything.
So we went through a brand development initiative to understand who we were and why that would be meaningful to a customer. And how to explain that value proposition at all the various levels within our hospital organization that we need to deal with.
As folks were talking earlier, the days of having a great technology walking in and finding a clinician to be a champion for it, are over. You’ve got value analysis committees; you’ve got clinical analysis committees. And you have to have a story for each one of those folks.
So we spent a lot of time and a lot of effort refining what our value proposition was to each person in that chain that was going to have a say over how our products were going to be – or whether – our products were going to be brought into a particular hospital.
We had to focus on things other than cost. We had some products that were considerably more expensive than the competition. We had to show how those products, although they would be more expensive to purchase, would lead to better outcomes, lower costs and other benefits besides just a cost benefit.
Focusing on the fundamentals, getting the sales organization in place, getting the tools in place that they needed in order to be able to go out and compete, we had to look like a big company. I mean we’re at a size, as most of you know, that’s very unusual in the med device business.
You’ve got small focused one-or-two technology companies and you’ve got what I like to call the faceless global corporations and we’re in the middle there. So we have to be as nimble as the small companies and being able to go in and sell the technology. But we have to appear to be much bigger than we actually are.
So that’s where the emphasis on brand development, refining the brand, communicating the brand value, being everywhere that our customers are going to be when they’re looking for solutions in our space, focusing on solutions and not products.
All that took a great deal of effort to pull together but it’s really paid off. We’ve been able to decrease our dependence on Hospira to now around 40 percent of our revenue rather than 70 (percent).
We’ve been able to, in the last three years we added 35 million (dollars) to the top line. But I think more importantly for us as we try to build value for the organization, we can go back and draw almost a straight line from the time we developed our brand and began communicating consistently to a $400 million increase in market capital over three years.
We can directly tie that back to the efforts that we made to communicate consistently who we were, what we had to offer, and why you should care about it.
Chris Seper: The panel have insights on wanting to add anything to that?
Michael, he started talking about the things that drove value for him and those fundamentals and he listed some of those fundamentals. When you talked about fundamentals, were there other portions or parts that contributed to that basic kind of creation of fundamentals that decide what your value is?
Michael Dale: Certainly. Basically I would just build upon what was described and what was really described was understanding, again, fundamentally how do you distinguish yourself from the currently offerings that exist.
These are always the same questions and the most expensive one, since we’re talking about growth, we really talk about active sales and marketing: Bringing your product or your service to the marketplace.
And you’ll spend more money more quickly there than almost anything else you’ll ever do during the history of your business, to include all of your R&D and your clinical development process.
And how well you do that, particularly in your early stages, in a large part will determine whether you company has a future.
And ironically, if I were to be very candid, if I were to say in situations where I’ve been involved as either a board member or directly as an audit effort, evaluating the situation for an individual business where its prospects might be.
Often times where people lose energy and they don’t apply the kind of diligence that they did during the early development process of their product or their service is that in terms of understanding their market opportunity. Being truly truly honest about what fundamental value you have.
Now presuming you have value, okay, the fact that you’re in the marketplace at all particularly in this day and age means that you must be doing something right. Still requires you to understand in literal terms, where is the greatest opportunity for you to add value in an expeditious and efficient manner.
And so in general today I think a lot of device companies, let’s talk about device that’s where most of my experience comes from, one of the common notions comes about is that you work so hard for so many years to get your products approved and then it’s time to commercialize.
And the immediate presumption amongst many is that we’re going to go straight to the United States. And I think that’s a very important question to first of all begin to ask as part of your market analysis, is that really where your greatest opportunity might be?
Again, if you want to overgeneralize, United States is the largest and richest medical device marketplace in the world. It’s also the most staunchly defended marketplace in the world.
So every dollar of revenue you generate is usually a very costly process. And if you have a fundamentally unique value proposition doesn’t mean that you don’t have an opportunity in the domestic marketplace.
But maybe the greatest opportunity for you to rapidly establish your brand and distinguish yourself is in marketplaces where these markets organically are still developing.
Because brands are still fresh, there’s opportunity to establish yourself on equal stature with that of the large players. Why? Because everybody is new in these particular marketplaces.
So again, it doesn’t fit to every example but it goes to the heart of the question of understanding where might you truly add value? Because ultimately when you go forward it’s about allocating those resources, your most expensive resources, your most expensive spend to creating a customer and keeping that customer once you do that.
Jim Buck: I’d like to follow on something Mike said about the importance of identifying the right product for your customer. Early on, we made the decision to do a deep dive study on identifying a beachhead product for our platform approach.
We were kind of taking a shotgun approach, more of a shotgun approach before this. And you can imagine this environment going to your board and saying, “Hey, I want to spend hmm it’s going to be about $120,000 to do a market opportunity assessment to determine exactly the minute focus – what is the perfect patient for our product and product configuration will give us a beachhead that can be built upon.”
You know, you’ve got to crawl before you walk, walk before you run.
I came from largely a corporate development M&A background and I explained to the board how many times I had seen great ideas come through the door and presented (to whether I was at St. Jude or J&J), wiry-haired scientists with great ideas that you’d say, “That technology, that could work.”
And then they get to the market and they’d say, “Yeah, if we just get one percent of this 20 billion patients then look how big a business we’ll have.” And there was no understanding of how to penetrate, identify the patient, and penetrate a market. And that miss really discounted their credibility in terms of whether we consider investing or acquiring.
And the fact that we at a fairly early stage really understood how to articulate who that patient was, exactly what the procedure was we were going to pursue and what the trial end points, understanding the adoption barriers.
Understanding that and being able to articulate that to savvy investors was a kind of brick-through-the-window communication vehicle that really helped us and continues to help us today.
Chris Seper: And did that drive you to go overseas or certain markets? I mean, you went overseas of a lot of your first products.
Jim Buck: Yes, but we kind of customized our approach overseas to, we didn’t change our strategy based on going overseas, we kind of just adapted the OUS (outside the United States) strategy to this perfect patient and beachhead product opportunity.
Chris Seper: What do you think that study told you? There are certain assumptions that you get are reinforced through research and study, certain assumptions that you make and hypotheses.
And there’s other things that are amazingly enlightening that lead to the winning assumptions, what were some of those moments of enlightenment that you would never have gotten otherwise about your market?
Jim Buck: Yeah, so this it’s pretty idiosyncratic what we were doing but I think the biggest was the, just how to establish a beachhead, how tight a focus we would need to draw on a particular patient. A patient that we felt highly confident that we could show a very strong efficacy signal in.
And that the adoption barriers upon an approval, the adoption barriers are going to be lowest. Mike’s point about how staunchly defended markets are in the US and even Western Europe is spot-on.
So we knew we weren’t going to be able to compete against the whole spectrum of implantable devices for functional mitral regurgitation a condition related to heart failure.
But for this tiny population, specific population we knew we felt we’d go in and dominate and from there you grow. That was the most important take-away.
Chris Seper: There’s a lot of evolutions in companies. We’ve talked about product focus but there’s also corporate focus, there’s governance focus, there’s team focus.
As your companies grew, how did you have to adjust your management teams? Did some people who were great for you with the 10 million (dollars) mark not great the 100 million (dollars) or the 200 million (dollars) mark.
I love your advice on that because people have teammates that join them and colleagues strictly at the early stage but then there’s a lot of tough conversations that have to go on to find the right people.
Have any of you gone through that process and can you share some of that with us?
Steve Ogilvie: I’ll jump in. Our company is a little unique in that we’ve actually had the same management pre-revenue till where we are now. And that’s what was mentioned, a lot of medical devices don’t kind of make it to that several hundred millions (dollars) zone. They usually get taken out.
And I think the reason it’s worked is that there’s the right variety. At some point you’re developing a technology and then as was articulated very well, the sales and marketing spend usually dwarfs what you spent on the R&D in order to gain some market share, especially in the US.
Our CEO is a sales and marketing guy and so it was a good flow from the people he has under him to develop the technology but then kind of go into his leadership to take it to market.
And I think the same… our technology is fundamentally disruptive but a little hard to adopt. He had to learn it. And so he was able to come in with a sales and marketing focus and say, “Well, let’s just not do it the same way everyone else does with distribution.”
We did some things, we built a cadaver lab in our office, which no one in our space had ever done. It was a big use of capital but it was one of those sales and marketing ideas that was disruptive and really created sort of a branded name for us.
So speaking of the evolution, we shifted these dollars and focus from R&D to a unique marketing strategy that now we have multiple cadaver labs throughout the US that are in our offices.
So you can kind of see that the right people were in place to switch the company’s focus into these different areas. But honestly that’s kind of unique. Usually you kind of hit the wall with the scientist and then you need to bring the sales and marketing in.
And that’s a good evolution. The hard part is recognizing it and making a change.
Chris Seper: Are there others who have had turnover or have had to switch out people as management teams just a necessity as your company has grown.
Michael Dale: I think that probably everybody faces, the question is, is this something that you can time or you can plan for?
And the answer is I’m not sure. Usually presents itself, in my experience, is part of good process. Planning you’ll hear me continue to beat on this, if you have processes that are really built around trying to determine whether or not you’re fulfilling your individual vision measures by virtue of your operating plan for that year and your strategic plan in general.
And you have a transparent process by which you’re constantly benchmarking and evaluating how are we doing? What’s working well? When we’re successful is it for the reasons we thought we were going to be successful? Because that’s as important as understanding when you struggle why do you struggle?
Those types of elements will quickly elucidate individuals who despite their very best intentions may no longer have the ability to contribute to the organization’s needs. And there’s no nice way or easy way to deal with it other than making the decisions in the interest of the business.
And the only way you can do that and get out of the emotional context and get out of the hearsay or our day-to-day frustration situation, is to be able to have a process that allows you to make that decision based upon the facts as they present.
Chris Seper: Joe Hage has stood up, which is my time for the public service announcement that again we’re taking questions throughout this event. So if you have questions now or at any time please raise your hand. Joe will come in and we can tap into the knowledge of this organization.
Joe, you have a question?
Joe Hage: I do. At some point I’m sure you’ve been in a situation where you were absolutely convinced about a strategic imperative, you put together a case, you went to the board and they just could not be convinced.
Could you talk to us about perhaps one of those times, how did you pivot, where did you go from there?
Jim Buck: I was shown the door.
Joe Hage: Any other options?
Steve Ogilvie: I would just say that, you know, don’t take no for an answer. If it’s the right thing you’ve got to figure out it out and maybe you presented it wrong or there’s another way to look at it or the board’s perspective.
But I don’t, no just isn’t never the answer.
Michael Dale: I like it. Not so much with the board maybe just from a different aspect. If you’re one of the individuals in your company as a leader whatever where you’re the recognized expert, and maybe you really are.
Maybe this is your world, you know this. I would still strongly encourage you to try to get into the habit of finding some way to benchmark yourself.
Like sometimes you can be so knowledgeable and in total command of a particular area that you’re completely missing the next wave. And I’ve had that experience personally in my career where there’s areas where people would suggest that, “Well, Mike, you know that area.” And I can also tell you I completely missed one of the waves that was coming by.
We did well; the question was how much better could we have done? And why, is if you’re one of those individuals you might have a personality that’s so strong that you don’t allow others in the room to basically challenge you in a proper way.
So again, come back to process and the planning environment that allows for decisions to be made on facts as opposed to just previous history. That’s another thing I would strongly encourage folks to adopt and figure out how to do that.
If you don’t have that skill in-house go outside, find someone who has those kind of skills and let them help you.
Tom McCall: Getting independent advice and counsel is really important, especially if the technology development process maybe is taking quite a while and the people that have been helping you through that process are really close to the product or the technology that you’re going to bring to market and everybody believes in their heart that it’s going to work.
And I’ve had experience where we have gotten what we thought was independent counsel, independent advice and we brought the technology to market and the market yawned.
And we were convinced that this was a no-brainer technology to bring to market, that everybody would want it, that it answers all the needs, it’s a non-invasive way of doing something that used to require invasive procedures and everybody loves that so there’s going to be a market for it.
And when we brought it to market they said, “You know what, the invasive and intermittent ways that we’re currently doing this they work fine and I’m really not interested.”
We should have seen that coming. We should have had the insight from some folks that would give us the ability to make a decision, to change the value proposition, to change the way we brought the product to market.
It eventually became successful but the point was how much more successful could it have been if it was brought to market at the right way with the right advice?
Michael Dale: Maybe one big question for the group that I would encourage you to really think about in the new world that we now live in is, should sales and marketing even be a part of your business plan?
And I say that provocatively but also based upon a lot of evidence is that the world that I enjoyed and a lot of us on this table, that’s gone.
And in general first of all, no matter how exciting your idea might be, there are very few investors – institutional, venture or otherwise – who are looking forward to funding a business whose aspiration is to take it from idea to commercialization.
There’s just no stomach and when you really honestly look at it, the time to return on that capital makes no sense. 10 to 12 years and 125 million (dollars) which is kind of the going average these days for an exit in devices really begs the question, is there a better way we can do this?
Second thing is, let’s say you have an absolutely distinctive value proposition. Let’s just take that at face value that’s great. Sales and marketing is a huge success for the individual rep, it’s just getting into the hospital nowadays.
Before you ever even had that opportunity to have a discussion with a physician, it’s a laborious logistical effort just to be even allowed just to even set foot on the premises.
So it’s a completely different world. So your time-to-revenue is complicated by things that any of us might be speaking to any kind of commercial experience over the last 10 years is frankly irrelevant.
And so to that end from the planning standpoint is you still need to focus on all the fundamentals we’ve been talking about. I mean growth is ultimately about taking advantage of a valid market opportunity, a valid value proposition.
But the question is, what’s the most efficient way to do that? And I think that’s probably the elephant in the room for all of us today is before we get commercializing our products or seeking an exit is based upon what structure that might take place.
Because building sales and marketing organizations from scratch today is not a very catchy fishing adventure for most early stage propositions.
Chris Seper: Actually that’s, we welcome more questions on that. I’d welcome some more feedback because I was just about; marketing is fascinating for me at an early stage.
You could start marketing not for product but for exit. Spending marketing dollars towards investors or acquirers. Or I wonder how things have changed simply if you’re marketing in the new order of patient engagement and other requirements that are being reimbursed now?
And you’re right, there are now many organizations that will happily sell you on they will outsource and do your sales today.
I wonder if any of you are following on Michael’s point, if you have a reaction to what he said or how you’ve tried to take new approaches in marketing in this new environment?
Steve Ogilvie: So my primary function is M&A at our company. And the change in the last four years has been so dramatic to this point.
The companies that thought were getting these massive exits now those are going to be based on multiples of earnings and that’s real money not hopeful projections.
And so it’s a harsh reality but the ones who’ve kind of come to terms with it and just said, “You know what, we’re going to do what we know how to do and we’re going to get the exit we can get.”
They’ve been able to get a good return in a good timeframe and it is what it is it’s a new environment. It’s not what it was, it’s not as lucrative but they’ve been able to do it.
And the ones who’ve said, “No, we’re going to take over the world,” a lot of them have gone under.
And I think a lot of it is because they dumped money into sales and marketing into a market that’s really tough right now and that wasn’t the right use for them.
In my little world of orthopedics and spine, I feel like a lot of people have suffered because they didn’t play to their strength of their technology and they got fighting against a lot of big balance sheets who can do a lot of sales and marketing, and that’s just fundamentally not what they’re about.
Michael Dale: No, it’s not all gloom and doom because there’s still opportunity because the organizations did have an infrastructure in place.
They still need to feed their beast. Their beast needs to grow and everybody knows that all innovation does not come from within.
It’s a big world out there and the smarter organizations, they embrace that. Now, the good thing is in the past you couldn’t sell a product or a service to a strategic unless you had $25 million of revenue growing at 30 percent and every single regulatory burden in the world was checked off.
Well, no one even expects it anymore.
But they are still focused on is their fundamental value proposition and how does that fit. So the world’s adjusted for the large potential acquirer as well as it has for the entrepreneur but who does what I think is the big question going forward. Who is best suited and at what point do you contemplate such an exchange?
Jim Buck: You know, as a pre-revenue CEO, I could say that we’ve talked to other colleagues and everyone kind of does the same wink wink, “Oh yeah, we’re building a company for the long haul and we’re building the company to be a standalone.”
But everybody is just trying to get to a point to converge milestones and get an exit. But you have to play the party line. You have to focus on building a good business, making sound decisions.
And the marketing spend for us, I can tell you, all our marketing spend is on building up to a crescendo of activities to where when the phone rings to the key opinion leaders in cardiac surgery around the world they’re going to say, “Oh yeah, Mardil Medical I know. That’s an interesting technology. That’s exciting technology.”
And the investigators will say, “Yeah, we have a patient that’s really been helped by this technology.” That’s where our marketing spend is.
Under my tenure there were we to generate revenue based on this marketing spend? Maybe, maybe not. But that’s not what’s important. What’s important right now is that crescendo. So it’s always a balancing act.
Tom McCall: Yeah, and we’re kind of, like I said, in a little bit of a unique position. Not only are we $320 million which is a difficult place to be, we have to grow through acquisition. We have $200 million in the bank and no debt. And we’re actively looking for acquisitions that make sense in the space that we are.
And in order to really evaluate some of these technologies, we get a lot of early stage technology companies coming to us and frankly we’re not interested.
We’re looking for the crescendo; we’re looking for somebody who has done a lot of the due diligence to understand what that value proposition is for the product or technology and taken the next step and really understood how that value proposition fits with what we’re doing.
Taken the time to understand us as an organization and taken the time to understand how our technologies are fitting in the marketplace and where theirs maybe an adjunct or a good fit for us.
Steve Ogilvie: I’ve got to jump back in. It’s interesting how we’re talking about growth and I almost feel like we’re talking about structured milestone deals now because we’re shifting the sales and marketing like the true commercialization to a strategic.
And I’ll say we’ve done a few of those and they’ve worked really well and it’s different than it was done five years ago but you share a bit of risk but both sides benefit if it does well and if you can align your incentives right there’s no harm in growing through a strategic. You can get your exit all the same.
Michael Dale: Maybe just one story I’ll share with you, one of the most interesting presentations I’ve heard in several years about what’s the world look like and how do you plan in terms of your privatization effort and evidence gathering and so on.
It was a speech given by the COO of Kaiser and I forget the woman’s name. But very plain speaker got right to the point and kind of laid it out.
And what she shared with us CEOs were in the audience that day was, I won’t say it was revelatory but it was the first time I’d ever heard Kaiser spell it out and actually show it in slides. And that is how they make their decision.
And they had a simple XY axis and on end was their level of clinical evidence to support your value proposition. And mind you that presumed you even have a value proposition that they care about. That’s a very important starting question.
And then the second one was the relative cost of that care on an episodic basis and over time. Generally speaking they look at a 12-month window. And what they offered up was that, you know what, we don’t mind spending more on episodic basis for new technology but it’s not an endless bottomless pit by which just simply a superior clinical value will therefore be accepted. It needed to show the opportunity to pay for itself on 12 months.
But coming back to the clinical evidence. The days of conceptual selling and just talking in generality is why you always hear the exceptional story. The rule of thumb basically is don’t even show up unless you can support your value proposition with clinical evidence.
And you’re going to see more and more structures along the line of integrated pay and providers the Kaiser model because that’s simply how the money is going to require that you control cost while providing clinical value in the future is those kind of integrated structures. So you see more of that not less of that.
And in fairness, why shouldn’t we be expected to demonstrate and show clinical value in support of our value propositions. But it goes back again to that element of, if you’re going to go to marketplaces like going to war and you can be very brave but just like trench warfare in World War I they went over the top and they might have had individually-speaking fantastic athletic and planning skills as a salesman. But if the strategy is flawed you’re still going to fail.
And when you look at the big picture, your investments, your preparation for battle, so to speak, is really going to be focused on all the fundamentals that have always been there but ever more important is you don’t have any time for catch-up. And it’s going to be what is it you’re trying to solve in terms of the problem and what kind of evidence can you develop to support that effort?
Because whether you do it on your own in the marketplace or whether or not someone else wants to buy you, that’s going to be same question. They’re going to want to need to see that evidence so it comes back to the basics from most vantage points.
Chris Seper: There’s a question over here. We’ve got lots of questions. Good.
Rob Packard: Hi, the title of this was How to Grow Exponentially, but I remember sitting on the 40th floor in New York watching an investor present a slide that I told them, “Don’t present that slide, you’ll lose all credibility.” And I bet you know exactly what shape that graph looked like. (Chuckles)
So my experience is it’s not normally a hockey stick. Even though we’re in Minneapolis and we love hockey, it’s not a hockey stick.
So in your experience with the $300 million companies, is it a hockey stick for those kind of companies or is it more linear?
You add a sales person you add incremental growth. You add a sales person you add incremental growth. You have an established business model it works, it’s scalable.
Which model is real?
Steve Ogilvie: I’ll chime in. I look some of the classic, I think it’s Boston Consulting Group Adoption Curves and the early adopters and the different characteristics of those people. And our technologies getting in sort of the fat part of the curve and growth slows down because they don’t want to adopt as quick.
But if you look at, I mean you can look at my company we’re public. When you look at our growth if you pick a spot it looks just like a hockey stick, you pick another spot it doesn’t at all.
But it depends who is adopting your technology because right on the get-go, there’s going to be some, as they say in my world, some surgeons who just try everything and they’ll get excited about it and they’ll tell their friends and it was 10, 20, 30 all soon you have 50 users.
And it looks just like a hockey stick. And then to get to that next adoption group well, they’re not so fast and they need more clinical evidence and they need more training and it slows down. And it’s not a commentary on your technology; it’s really a commentary on the nature of people who adopt something new.
So I don’t find that neither encouraging or discouraging I just think it takes work. I do think it’s unrealistic to put up a slide a hockey stick that just keeps going and going and going because that’s not how it works. But you may have a phase like that, but you have to remember that that phase may end and then you’re going to start working with different people who are going to have a different pattern to adopt your technology.
Chris Seper: We had other questions. Then, Joe, one up here.
Rick Gerace: Thank you for being here and sharing your experience. My name is Rick Gerace, I’m with MedSolutions LLC and I’ve got a question that it’s kind of broad but I’d appreciate any guidance. We’re in a kind of an interesting position. We have a product that could go retail with it or medical market. We’ve been doing the medical market.
But based on everything I just heard about the sales and the marketing and the challenges of all that, I just wondered if you have advice of going different directions with it?
Michael Dale: This is so simplistic to say this but the faster you can get to the customer is usually the better.
Now, the devil is in the details, but there’s a lot of people that I speak to who are trying to reevaluate their world and really understand from a capital efficiency standpoint is now the time in the new world that we live in for their individual service? Should we go direct to customers.
If that’s truly an avenue legally and otherwise that’s available, it’s certainly worth an evaluation.
Chris Seper: Question right here.
George Lovecchio: Yeah, I would like to know what role did distribution play in your growth and what challenges did you see there?
Steve Ogilvie: For us it is huge.
I talked a little initially about going exclusive and that was one of the big ones it’s because you can go get your product in somebody’s hands but they’ve got 20 other things.
And focus is just so important when you’re in a highly competitive marketplace and for us it was a new technology that required a training component. So you really had to get attention. You had to pull people out of their practice have a dedactive session, have a cadaver session.
You needed a rep earning a commission who was really motivated to do it and if they could earn a commission on some other product that took a little less effort; I think we all know what they’re going to do.
And so that was big and now as we grow international we’re having the same issue because we have distributors and they’re stocking distributors. And as we pick off markets, we really want to be direct because we’re facing the same issues and the focus and the motivation of the individuals is important as anything else for us.
Jim Buck: I was just going to say back in my Closure Medical and J&J experience, we made a decision early on to form marketing partnerships from Closure Medical to Johnson & Johnson for the topical skin sealant with a couple of other companies for other fields of use.
And that was really important because that got us close to our marketing partners.
It kept us focused. We realized kind of like the symbiotic nature of where we were adding value versus the distribution channel and the army to the customer was owned by somebody else. And we could focus on our R&D and development.
And that’s ultimately what led to our M&A because we could focus on generating the internal product versus the topical product.
And being close as we were to our marketing partners, one of them jumped out and cut a check when we expanded our portfolio products.
Michael Dale: One of the ways you can help yourself answer the question of “What’s the right distribution model for me?” and clearly cost us one of those when it goes into it.
But the real question is do you know what you want done in front of your customer? And do you know who your customers are?
And if you can truly answer both of those, then the next question is what process is required to have in place to understand whether or not you’re doing what you intend to do?
And can you control that can you provide the feedback mechanisms so that you can adapt and course correct if necessary?
And if you can figure out those things really think them through as best as you can because you’re not going to go be perfect before you go to market but you’re going to be based upon your best judgment and your best assumptions you put together.
Then it begs the question whether it’s distributor or it’s direct. All it boils down is can you control that outcome? Can you control that process of selling?
And if you can, then both options are possible. If you can’t, then that begs a further discovery process is, what can you put in place?
So for example, sometimes despite your best marketing efforts and the fact that you may know exactly what the process is that’s required in terms of best practices to develop your marketplace.
But you can’t afford it. What are you options?
I’ve had many experiences in my career where we just literally had a policy where we treated our distributor, and I think it should be the case anyway, exactly like you would your direct personnel. And that meant everything from certification, the training programs that were involved, all the materials. Despite the incremental cost it was still less expensive than trying to do it yourself.
And by doing that you basically made them part of your family; you developed a level of camaraderie and commitment to the vision that you couldn’t otherwise. It allowed you to see as part of that process whether or not the distributor was truly as committed to you as you were to them. So that allowed to better control that but yet still manage your economics.
There are ways to skin the cat differently but it really boils down to the first questions that matter is, do you even know what you want to do?
Or are you “have a hope strategy” where you say, “Well, I’ve got some distributors they’re going to work it out for me.
I’m not trying to be flippant but it is amazing how often that’s the process. That’s actually the plan when it comes time to go to market. Just hope someone else figures it out for you.
Tom McCall: Yeah, the relationship with distribution if you’re going to go through distribution, you’re making a commitment to that relationship with the distributor. And his or her success is directly tied to your support.
At Welch Allyn, we had a really broad portfolio of products some that were very easy for distributor reps to demo and to sell and some that frankly were outside their ability to really get in front of the customer and make the right presentation.
So we developed these kinds of relationships where we would identify the product categories that we felt required a hands-on approach and worked with the distributors to get those leads to us and have the distributor rep bring us into that equation with the clinician, make the sale on behalf of the distribution partner and walk away happy.
Because it was all about building that relationship. You bring us in, we’re going to help you close this sale, we’re going to make you look good. We’re going to walk away. You’re going to look better in the eyes of the physician and we’re going to help make that sale for you to the extent that they wouldn’t have been able to otherwise.
But it really is a commitment in time, and a long-term commitment from a relationship standpoint for it to be successful.
Chris Seper: We’re down below the five-minute mark so if anybody else has any questions please this is your opportunity to ask these folks about ways to growth.
Joe Hage, you have a question.
Joe Hage: I do. I’d like to direct it to Tom because I characterize it as a marketing question. As I shared, I have the opportunity to interact with lots of folks asking questions of the group. And often times I’ll see, I’ll do a little bit of research about someone and it’s not clear to me what their value proposition is.
I’m going to take a different tact of this question. Can you say something positive and hopeful for companies who really in essence have a “Me-Too” product who are looking for, “Hey, I need more distribution,” or, “Hey, I need more something-to-be-successful,” and they’re trying to break in and in essence they don’t have a unique selling proposition.
Can you say something encouraging or is it just, you know?
Tom McCall: Well obviously it depends on the market and it depends on the competition but if you don’t have something with a compelling differentiative value proposition, you really want to ask yourself why?
And I hate to, that’s not to be negative, but if there’s no need in the marketplace that you can really clearly define… And I try to get really simplistic when it comes to marketing a medical device. I ask two questions, what is it going to allow the clinician to do that they can’t do now that they want to do? Or what’s it going to let them avoid doing that they really don’t want to do in the first place?
And if you can start with those kinds of clear questions about your product, then it may end up being that there’s some very small niche difference that you can find for your product that’s going to give it the ability to compete. But you really have to get down to kind of a granular level on what that value proposition is and if it’s not strong look for some product development ways to strengthen it I guess.
Joe Hage: Let me add, what about price?
So at what point in your experience, panel, would it be, “Hey, I found something that can compete against your product for….” What percent less will distributors and customers say, “Okay, for that percent less, maybe it’s worth looking at?” And at what point is it like, “Well, for five percent, hey, I’m happy.”
Steve Ogilvie: I would say hopefully in your pipeline you have some innovation because that strategy isn’t going to drive you too far. We’ve commoditized many of our own products because we have very fast innovation cycles. So we end up with inventory and products that we want to sell on price and there’s a market and you can find it.
And sometimes it’s in this country, sometimes it isn’t. It’s not a bad business model; I don’t have an exact number it’s going to vary from five percent a lot more but it’s a way to go. I just wouldn’t want that to be my only trick.
Chris Seper: And something, there’s been a lot of talk about sales and marketing here, how much of the fundamentals have you been judging how to sell your product? How much has that changed? I think about rise in GPOs, hospitals, acquiring private practices. There was a talk earlier about, “You’ve got to get to that doc.”
So many of those docs now work for somebody much bigger and might pull the decision. For people who are looking to sell their product and move exponentially, how does the algorithm change in trying to figure out who do you sell to and how do you sell it?
Michael Dale: Great question.
I don’t think anyone is an expert on this because it’s all fast-evolving as we speak but the most important question from those that you might have the greatest respect for right now is really asking that, again basic question, “Okay, going forward, who is my customer?”
Because the device world as we all know has been physician-centric and even when we had cost-benefit analysis and things that we thought that were really valuable, and they really were valuable. The truth of the matter was no one cared.
It was really, did the physician want that product or not? And they, at the end of the day, were the determinants of whether or not you had a seat at the table.
That is changing.
It has already changed for some business segments and it is changing for all business segments going forward. And if you do look at some of the interesting hospital surveys that have been published of late, it’s very clear that, for all of us, our customers today are no longer just the specialist, just the physician who might prescribe that product, but the institution as a whole. The COO or other parts of the hospital when it really talks about managing the cost of care more broadly.
And it doesn’t mean that you’re excused from quality and you’re excused from innovation, it’s just that now you’re also expected to give that innovation genuine added value from a clinical standpoint but you’re also supposed to do that on an economic basis.
So our customers, if you will, have expanded and will continue to.
Jim Buck: I’d say there is a little caveat to what Mike said is that I think that if you product has a lot of cool points, the early adopters are always going to be interested and you can get adoption. But ultimately, if you want to expand to the greater population that all our modeling is based on, then you’ve got to be, I think you have to be a solution to healthcare cost problem versus being a source.
And if you don’t have a clear distinction in answering that fundamental question, you’re going to have a really tough goal at expanding exponentially.
Tom McCall: Yeah, I think directly from a sales perspective the way that we’ve seen a change, I mean you have to have to a top-down and a bottom-up approach.
You can’t not go to the physician but you also have to be playing at the corporate level.
We had a CEO of a major IDN come and speak at our sales meeting and talk about the way to get into the IDNs and the way to get your product placed.
And she was adamant, “Do not try to find a physician to push the adoption of this product. We have a process, the process is in place and the process has a number of players involved. And if you try to go in through a clinician and get the product used on a small scale I’m going to have to back you out and run you through that process anyway.”
So you have to have the feet on the street who are there working with the clinician but you also have to have people who are working on the corporate level to identify what that value proposition is from a financial standpoint, clinical outcome standpoint.
Do I help you reduce infections? Do I help you with your readmission problems? How are you helping me deliver a better experience for patients?
Those are very important things to have in place at the same time you’re going to the clinician.
Chris Seper: I’m happy to announce that this panel has been extended. You can ask all of your questions, during lunch.
But really, give applause to these four people. They really gave great answers and a real roadmap today.
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