In a highly competitive market, medtech companies cannot afford to be limited to an OEM role: they need to be fully-fledged healthcare businesses. Richard Grafton offers some insights to help medtech companies become more entrepreneurial.
The good news for would-be medtech entrepreneurs is that research and innovation sit at the heart of most entrepreneurial businesses – and these two ingredients are in plentiful supply within the medtech sector. But how do you take good ideas, turn them into new products and services and successfully bring them to market? How do you go from being a small business centred on R&D to being an entrepreneurial powerhouse?
Start with strategy
At the risk of sounding like a textbook, the starting point is your strategy and objectives. If you don’t, at the outset, define a clear picture of your company’s future and the key objectives required to get there, you’ll find it impossible to lead the business towards that.
Your strategy can be looked at in terms of five steps:
• Create a picture of the future – your vision and ambition.
• Be clear about where you are starting from – your current business capabilities and the competitive environment.
• Use this backdrop to develop your objectives.
• Filter these objectives from a financial and operational perspective and, most importantly, check they truly take you towards your vision and ambition.
• Prioritise them and turn them into practical workstreams for implementation.
On a personal level, be clear about why you want to be more entrepreneurial and develop your business. Apart from the obvious financial objectives, most successful business leaders have deep-rooted reasons for taking the entrepreneurial route, and they stay in tune with these. Even the most laid-back entrepreneurs rely on their vision of the future to motivate them and cope with the tough times that inevitably come along.
Putting it into practice
Now for the practicalities. If you’ve used your objectives to define your workstreams, you’ve probably ended up with more questions than answers at this stage. Typically, workstreams can be clustered into the following four areas:
1. Marketing and sales
Before getting into the operational detail, it’s crucial you are 100% clear about your proposition. Don’t just home in on the amazing features your product or service might have: really focus on the benefits to the customers you are targeting, and make sure these benefits will resonate. For instance, NHS Chief Executive David Nicholson has stated that “better quality and innovation will be the main driver of efficiency savings”. So medtech innovators, whether they are producing devices, components, materials or services, must demonstrate the value of their innovations in terms of healthcare efficiency and reduced patient pathway costs.
Developing your proposition involves looking at every part of your business from the customer’s perspective. You need to get to know the customer better than anyone else does: who they are, what they need, how they buy or commission it. And you need to be prepared to change and adapt, as this landscape is always changing. For instance, the decentralisation of NHS commissioning and the National Programme for IT has forced many medtech businesses to realign their marketing and sales processes – a challenge, but also a way to open up new opportunities.
Understanding your customers and routes to market also helps you define the sales team structure and the kind of sales people you need. When targeting overseas territories, it may be preferable to build relationships with distributors. That has the advantage of giving you a foothold in multiple markets at a lower cost – however, the downside is that your product will be one of many they are distributing, so their commitment and product knowledge will be limited.
If you’re going to run your own sales team, remember that as you grow your sales people will need a broader set of skills: they are as likely to be sitting in front of commissioners and finance people as selling directly to end users. In many cases, the traditional representative role no longer works: it is now much more about building long-term customer relationships through strategic account management. Some of the recent tenders we have been involved in with clients have focused much more on developing partnerships with customers than on product sales.
2. Operations and finance
One of the biggest challenges of growing an entrepreneurial business is recognising that your old structures and procedures probably won’t work for your bigger organisation. Even practical issues such as premises and IT infrastructure need careful consideration to make sure you have the capability to deal with more business.
It’s not just operational growth that can be a headache: the financial issues around managing a dynamic and growing business are not always straightforward. More sales must surely mean more profit, right? Possibly – but it may also mean you end up with crippling liquidity problems, as many businesses on a profitable path run out of cash before they realise it. So you must have the financial planning and control systems in place to let you see what’s going on well in advance.
In short, you need to really understand the numbers – and make sure your accountant is able to support your expanding business. The accountant who works well with a small enterprise usually has very different skills and experience from the one you will need as you move to the bigger league. Be prepared to change – and don’t be sentimental about it.
If you need to raise finance, do that in good time. The flow of finance into the medtech sector has remained strong: according to Ernst & Young’s latest Pulse study, capital raised by US and European medtech companies in 2009 totalled US$13.1b, a 45% increase from the previous year, and the first half of 2010 saw this trend continue. However, it always takes longer than you think to raise finance, and the strain of negotiating the deal can be a real distraction from managing the business.
3. Human Resources
Having defined your objectives, ask yourself what the gaps in your team are and how can you fill them. Do you have the right people? Be honest, as without them you’re on the back foot from the start. It’s no secret that recruiting and retaining the right people is a big challenge, so you must consider why people would want to work for you and, more to the point, why they would stay. Remember that as your business moves into the bigger league, your culture will change: a small OEM has a very different culture from one that has grown and has brands and big expansion plans. You won’t necessarily be able to carry all of the old team with you, so be prepared for that.
There are also leadership issues to consider. The drive for new opportunities can sometimes mean a loss of focus on the core business, so you need more systems in place to ensure that the things you used to ‘keep an eye on’ are still being delivered well. You need a team you can trust and processes that are robust. Accept that you won’t be able to manage everything any more: you will have to lead and delegate.
4. Legal issues
Legal issues are a bigger consideration for entrepreneurs in the medtech sector than in almost any other. After all, intellectual property (IP) is a fundamental output of the medtech industry. The valuation and success of a company can often depend on the defensibility of its concepts, technologies, processes and finished medical devices. So you have to be prepared to devote some attention to protecting IP through:
• filing new patents
• examining the patents of your rivals
• navigating the IP regulatory system
• watching for IP issues raised when entering new international markets
• conducting IP due diligence when acquiring a competitor and its product line
• defending IP when employees leave to start their own firms
• protecting against industrial espionage from competitors.
No successful growing medtech business can avoid dealing with IP. That means not just having a good IP law firm in place, but having someone within the company who can take ownership of this issue.
Your entrepreneurial success will also depend on understanding how changes in the regulatory environment impact on your business. For instance, China, Brazil and India are currently the leading new markets being targeted by many medtech companies, but export potential to these markets may be dampened as more stringent regulations come in. The US may be a more conventional target market, but many believe the ‘device tax’ threatened under US healthcare reform will disproportionally affect smaller, pre-profitable companies.
What an entrepreneur needs
• A positive attitude
• An ability to think on their feet
• Clear and objective decision-making
• An appetite for action
• An ability to learn from trial and error – and to move on!
There are various definitions of being entrepreneurial, but we like to think of it as undertaking an enterprise while accepting the risks and responsibility for the outcome. I hope this article’s insights will help you to minimise the risks and improve the outcomes as you build your medtech business.
Richard Grafton is a partner at Andrum Consulting, a management consultancy that specialises in supporting entrepreneurial businesses. Andrum has worked with major medtech companies such as Siemens Healthcare and Bayer Healthcare, as well as many smaller businesses, helping them to address issues such as changing strategic direction, getting closer to customers, raising finance and improving efficiency.