Early last year, I was given an opportunity to broker the Series C funding of a medical devices company. It was the largest deal I’ve ever worked on and even though the deal fell through in the 11th hour, it provided for an amazing learning experience and I’ve spent much time replaying the situation in my head. One of the more interesting thoughts that I’ve had in recent days relates to the trouble that this MedDev company had with evangelizing their product to investors, end users, the media, and the industry.
Throughout my career I’ve run into countless companies with this problem, particularly in the life sciences field. If you think about it, it makes sense. A very small percentage of the population understands the science behind these innovations – and in full disclosure, I sure as heck don’t. A typical profile of one of these companies often consists of:
1) An FDA approved product (if required)
2) A network of a dozen or so doctors who have experience with the product and can attest to its effectiveness.
3) Major problems attaining market penetration in the healthcare industry, with both hospitals, and/or partnerships with existing industry participants. i.e. no distribution network.
Let me be clear here – in my mind, the problem with this scenario is that viable medical technologies are not getting to end users because current industry participants have a vested interest in ensuring they never get to market. And in the healthcare industry, when the big guys throw their weight around, it works. As the American public is learning, it’s a top down industry, and what’s best for the patient isn’t always what’s practiced. So how have successful companies in other top-down industries broken the mold?
I believe the answer is through carefully engineered and executed grassroot campaigns. I know it sounds crazy, but think about it for a moment. If you’ve been following the political dialog on this matter, you probably agree with me that increasing transparency and empowering consumers to make decisions about their own healthcare will have to be a high priority for any healthcare company that wants to survive over the next decade. The perfect battle strategy to fight a top-down system is to empower consumers.
This is why I’m amazed when many of the CEOs of these companies tell me that they’re holding out for the perfect “strategic partner.” I can relate to how they feel – you’ve pretty much struck gold if you can partner with a company that has the distribution network. But so few companies are successful at this. What seems scary to me is how many viable medical innovations probably die not because they are unsafe or ineffective, but because this strategic distribution partner is never found. Almost just as scary is hearing how many of these CEOs think that these industry heavyweight potential strategic partners write the rules about who wins and who loses. HOGWASH! Let us never forget that consumers write the rules and that there is a lot of money to be made in empowering them!
If I could build a time machine and go back in time, I would have spent my efforts with this company on finding investors to help me buy out the company (after careful due diligence, of course). They had a great product that saved lives, but management was too conservative, they had too much buy-in to the industry norms, and they had serious issues with how they handled constructive feedback from investors.
My go to market, customer empowing plan would have gone something like this:
1) Use the proceeds of the $15m Series C Funding to build 10 machines (@ a cost of $50k/ea = $500k), maintain and service them for a year ($5k/ea = $50k + no marginal cost of operation), onboard three doctors with token salary and reasonable stock option incentives ($500k/yr), lease 5,000 sq ft Class-A facility ($175k/yr), malpractice insurance ($400k/yr), hire 6 nurses ($400k/yr), hire admin staff ($100k/yr) = ~$2.2 million for the first year. This is peanuts compared to what some of these companies are spending on their failing business development efforts.
2) Give procedure (early cancer diagnostics) away for FREE to consumers – target people without insurance, in exchange for them telling everyone they know about us.
3) Engrave the David v. Goliath story in the minds of every person you come in contact with. Get the media on your side – spin the story. Everyone loves an underdog, everyone loves not dying of cancer, and everyone will love being the one to tell their friends, family, and co-workers about it.
4) As your customer base grows and word spreads, expand. After a year, continue to offer the service free to those who can’t afford it, charge $150/ per screening to the rest (this was their suggested price to end users through the traditional distribution network). You’ll still be the robin hood to the little guy, and you will have proven your value to those paying the token amount of $150.
What’s really exciting to me about this is that the burn rate is less than what the company was currently spending trying for traditional distribution deals – even in that first year when you’re giving the screenings away for free! And, ironically, I would almost guarantee that this would yield that coveted distribution deal with one of those industry heavyweights who wouldn’t even meet with you before. Most of the industry heavyweights would salivate over the type of goodwill that would be created with this strategy (and I’m pretty sure you’d get a better deal with them than before, when you had no customer adoption!)
My hope is that someone out there will take this approach – consumers deserve it, and the healthcare giants certainly deserve it!
And if you think this strategy would work for your company, and funding is an issue, I’d love to hear your company’s story!