Large orthopedic implant companies manufacture a range of devices including total joints, trauma, sports medicine, and extremities. These companies are considered full-line companies in that they offer the broadest range of products within its portfolio. These companies have been diligent in establishing barriers for small and startup companies to enter the market. These barriers include leveraging their full line product portfolios to secure national contracts and (single and/or dual source) individual hospital contracts.
Furthermore, the large orthopedic device companies also attempt to block small and start-up companies’ access to distributor channels. They achieve this by employing non-compete contracts with their distributors and 1099 contractors, which effectively restrict competitors from leveraging existing sales channels. This proves a very useful method with full product line companies, as it becomes difficult to identify a product that may not compete with a company’s extensive portfolio.
Previously, a small company could fly under the radar of large companies and secure distribution channels. However, this is extremely challenging in today’s market. Current non-compete contracts are of typically two years duration, which makes it very difficult for a distributor or distributor rep to jump ship and represent a competitive product.
All the above creates significant challenges to small and start-up companies hoping to achieve market penetration.
The Push-Thru Model
There are some approaches that may have worked effectively in the past, but are less effective in today’s market. The first is what I call the push-thru market model, where manufacturers sign-up as many distributors as they can under the assumption that if they throw a lot up against the wall, a large number will stick, resulting in revenue. The challenge is that these distributors may not have extensive account connections. Even if they do, they may be blocked by purchasing contracts. As time passes, monthly burn rates erode available capital. The manufacturer attempts to make a course correction by trading-out under-performing distributors with new ones. Ultimately, however, the result is the same.
Another negative of this tactic is the impact on cashflow due to such an inventory-intensive approach. Specifically, these manufacturers place lots of field inventory in the market prior to establishing a revenue track. Frequently companies blame failure as being a sales problem; however, it is a business strategy issue.
With all of this in mind, what can a small or start-up company do to successfully navigate these troubled waters? Well, success all starts at the company’s inception. The leaders must have a vision for their planned product that includes knowledge of the company’s primary target market.
The company must embed itself in the market, identifying key surgeon opinion leaders to help develop the products. This is a critical component, often lacking in many domestic as well as foreign-based start-ups. Companies employing surgeon champions in their target market have a much better success rate in addressing real identified surgeon problems rather than what they believe surgeon problems to be. This is key, as early company founders frequently believe their baby is the most beautiful baby in the world. This is a basic business development strategy.
The Demand-Pull Approach
Business development must precede commercialization. This approach greatly enhances success by establishing an early business base and foundation that can be leveraged during market expansion. It is important that this expansion be managed utilizing a controlled growth strategy. The market will dictate timing of full commercialization. I call this approach “Demand-Pull.”
The other benefit of this approach is that a manufacturer gets the attention of its distributors, as it is turning over a base of business with a revenue stream that will capture their attention and focus. Finally, this approach helps address one of the first questions a sales representative gets when selling a new product –namely, who is currently using this product?
One final point needs to be addressed. What skill level should a company look to hire during this business development stage? Should it be an experienced sales executive with extensive experience in building and managing a distribution network? Or should it be an individual with a full understanding of business development strategy and a strategic thinker? I recommend the latter, mainly because this person would typically have a solid understanding of sales, marketing, and business development strategies. This person will be positioned to build a solid business foundation in which further market expansion can best occur.
In conclusion, there is a clear pathway to success for small or start-up companies in the orthopedic devices space; however, it requires forward thinking, a clear understanding of market dynamics, and placing critical pieces in the right place at the right time. These pieces include key surgeon opinion leaders and business development expertise versed in strategy. Finally, I will close with a phrase that I hold close, “With Change Comes Opportunity.” There is always a solution to every problem.
About The Author
The GO Network developed a unique, P&L-friendly business model to help small companies and start-ups navigate today’s complex market.