As a medtech entrepreneur, it’s often fun and tempting to focus on your neat technology, how many people you’ll help one day and the development process. But somewhere along the way, you have to figure out how you’re going to sell your product. Usually, long before you get there.
Medtech, although part of the life sciences sector, in many ways is much more like tech. While you need to get your medical device through clinical trials, regulatory approval, and reimbursement strategy, unlike development for a biotech, it doesn’t stop there. In medtech, your strategy needs to include your go to market plan. How will you sell your device?
Why does this matter? Well, again unlike biotech, when medtech acquisitions occur, it’s usually post approval (CE and often FDA), and once early sales are established. Sales don’t have to be so large that a buyer can peg a valuation based on multiples (e.g. price to sales, EV/EBITDA). But you DO need to demonstrate commercial validation, and early uptake amongst end users.
Last week, I chaired a panel on medtech financing, at the BIA Medtech Seminar in London. One of the VCs present, from Imperial Innovations, said when reviewing opportunities she looks for a well-thought out sales strategy early in the process. Other panel members backed this up – the founding entrepreneur behind Ranier Technology, and a life sciences banker from Fraser Finance.
My question: how does an entrepreneurial medtech build or plan for a sales strategy that could still be several years away from realization? Well, the panel agreed that no two businesses are the same. A sales strategy that may work for one company or type of technology may not be right for another.
The other highlighted point was that team members need to be flexible. It’s not enough to say the company’s DNA is development. This has to change. Either individuals evolve from development into commercial roles, or you change the key players as the company progresses. Within the 45 minute time constraints of the panel (and a whole range of other fascinating discussion), guidance had to be fairly general – “it’s as much art as science.”
This got me thinking – what are the routes to commercialize your medtech company, and what can companies do early in their existence to ensure they select the optimal path. Here are some thoughts I came up with (based on ongoing discussions with VCs, entrepreneurs, corporates, and my own reading):
- Broadly speaking, the approaches could include: Launch and build sales yourself; or license your technology. If you choose to launch and sell, routes could be to sell directly with your own sales team; work with a distributor; or hire an outsourced sales group. Most likely it will be a combination of these.
- Keep all your options open for as long as you can. While a certain approach may be popular in one business cycle, this can change due to factors completely outside your control as an entrepreneur.
- While licensing is possible, within medtech this is more likely to occur pre-sales either if you have a revolutionary, paradigm-shifting technology that everyone HAS to have, or you license early, offload future development costs, and risk giving away an awful lot of value to your partner (but it can still work well if your investors are super patient, and/ or the eventual pie is very big).
This means you likely have to launch and build sales as a company. Here are the options:
Build sales directly, with own sales force: for a small entrepreneurial company, it may actually be quite hard to achieve this. It partly depends on how well-funded you are, and thus how viable it is to build up an own sales force.
If you have limited funding (say angel, or small VC) issues may include recruitment, paying for and training of the sales team. Also, having a sales team that have the relevant contacts and relationships established within buyers can be vital. You don’t want to lose time building up those access points.
But at the same time, as a small company, you need to make sure your product is well-promoted, given sufficient priority, time and energy to put the case across, and close follow-up to ensure buyer satisfaction and feedback potential for future enhancements.
If you’re somewhat better funded (say with a few $millions from VC) then you have greater bandwidth to build such a sales force and allow the time lag needed to penetrate your market. But don’t just rely on dollars – in either scenario you’ll still need creative hearts and minds to win against the big players.
Using distributors? This can get around some of the challenges mentioned above. The sales channels are already established, relationships are in place with buyers, reimbursement is understood, and in theory once you flick the “on” switch, you can hit the ground running. Or so you hope.
While there are many excellent distributors out there, the incentives around a relationship can create its own challenges. Your product may be part of a catalogue of products with many other suppliers. How much love can such a distributor really give to your product line? The sales person has to hit numbers; if it’s not your product he or she will go with the one that sells and where there’s less work to do. It’s human nature.
The other potential issue is margins. Particularly if it’s a larger distributor with a line of its own products. It’s possible that on own products, the distributors margin may even be as high as 30 or 40%. While on yours it could be as low as 10%. If you were the sales person, where would you focus your effort?
Distributors can work very well. In particular, the attributes you may want to search for include: local market presence and knowledge (especially across cultures and languages); a small, focused, entrepreneurial team where your product actually makes up a meaningful portion of potential overall sales; a niche focus including your product area; and meaningful incentives for hitting targets (ambitious but achievable).
Perhaps one way to go is to hire local sales expertise for your local market, and work with distributors in other geographies? This is of course an oversimplification, but it does hint to benefits of using a blended strategy combining direct sales and local, targeted distributors.
Outsourced sales force? This is a bit like working with a distributor. The main difference is you’re just hiring the sales force, not necessarily an entity with re-labelled or other supplier products fitting a certain theme. While in theory the idea is that you can run a much cheaper sales force this way, from speaking to entrepreneurs who’ve investigated this route, the cost savings are minimal. What you’re really buying are sales force recruitment, relationships into your market, and a service that can be scaled up or down according to need.
In summary then, you DO need to think about your go to market strategy early in your medtech business, continuously refine this, and have a team and investors that adapt to what works best. And as with most things in life, there’s little black and white, so blending approaches can be effective.
Finally, as a key part of your go to market strategy, you’ll also want to consider early and targeted working with Key Opinion Leaders (KOLs) – clinical and academic specialists that are deeply involved in your therapeutic target area. As an area which is parallel to sales strategy and inter-connected, this will be considered in a follow-up post.
This post is by Raman Minhas.