Avoiding Pitfalls Out of the Gate
How Emerging Medical Device Manufacturers Choose the Right Outsourcing Partner
Jonathan Tillman, Millstone Medical Outsourcing
Emerging medical device companies face particular challenges. While the opportunities in such a vast and expanding market are abundant, fledgling medical device manufacturers can be plagued with difficulties that might be avoided. A strategically selected outsourcing partner that offers a comprehensive solution—rather than a piecemeal approach—often can mean the difference between success and relative obscurity. In a nutshell, a comprehensive solution is more efficient and cost effective for emerging companies, while the piecemeal route costs time and money. The following article explores the challenges emerging companies encounter and how the right outsourcing partner can help growing companies overcome these obstacles for a greater chance at success.
Facing Challenges on Multiple Fronts
For both emerging companies and more established medical device OEMs, the birth of a new device follows the same path—conception, development, certification and marketing. The more established manufacturers, though, have the advantages of size, reputation and resources. Emerging medical device makers face not only the challenges that come with introducing a new product to the healthcare market, but also all the challenges associated with building a business from the ground up:
• As is the case with many new businesses, emerging companies have limited resources. Funding is finite, and spending for personnel, equipment and facilities is restricted to conserve cash. Emerging companies also have fewer product lines to support growing operations. Until the company has a winner, a fine line must be drawn between expanding the business and containing costs.
• Startup companies are under tremendous pressure to get to market as fast as possible. As valuations for medical device manufacturers continue to rise, creating a product that will result in clamoring by doctors and patients alike is the ultimate goal. But there are multiple pressures—the race against time and competing companies, as well as the high expectations of the market and investors. Emerging medical device manufacturers are under great scrutiny by a variety of interested parties from day one.
• Emerging companies have to make the right decisions right from the beginning. They are under the gun to spend wisely, hire deliberately and choose partners strategically. An established OEM can rebound from a misstep because it enjoys relative financial stability and a broader base of support with investors and customers. For a new medical device manufacturer with everything on the line, all it takes is one big blunder to destroy a reputation and a lifetime to build it back up. The emerging company’s clean slate becomes a double-edged sword: every decision can enhance or tarnish its reputation.
Many established medical device manufacturers know the benefits of partnering with an outsourcing partner, but emerging companies often gain the most from successful outsourcing relationships. Services provided by outsourcing companies run the gamut from research and development to machining to packaging and distribution. Choosing an outsourcing partner that offers valuable expertise, addresses critical needs and produces results can give an emerging medical device company the advantage over competitors.
Five Common Pitfalls: Easy to Make, Tough to Undo
Emerging medical device companies can fall victim to a number of pitfalls, some of which are common to startup companies in general and some of which are specific to manufacturers in the medical device industry. These blunders are easy to make but incredibly difficult to remedy. The underlying cause of most of these early mistakes is a lack of strategic vision that comes with the whirlwind of the startup. The five most common ailments that afflict emerging medical device manufacturers can be averted by partnering with an outsource service provider that offers strategic alternatives:
• Cash burn—Emerging companies never have money to burn. Yet, the management teams of many emerging medical device companies are so anxious to grow right from the start that they quickly run through their initial funding. Instead of operating “lean and mean” until they establish a strong customer base and before product is moving out the door, they purchase expensive equipment, lease more space than they need and hire personnel for future functions. Investments in costly equipment, facilities and people can leave emerging companies without the resources they need to develop and manufacture enough product to support business growth.
• Infrastructure bloat—The end game for most emerging medical device manufacturers is a mutually beneficial arrangement with a resource-hungry OEM that comes in the form of a merger or acquisition. The most appealing merger or acquisition candidates demonstrate a mastery of device development and production. They do not come with unnecessary capital expenses. While buying equipment, leasing space and hiring employees can be an exciting part of the new company experience, these actions can also lead to infrastructure bloat, which makes emerging companies less agile and less attractive to investors.
• Blurred vision—Ask any entrepreneur; it’s easy to get sidetracked by tangential issues and lose sight of the big picture. For emerging medical device makers, the future lies in the development of the next product that transforms a surgical procedure or saves a life, not in determining operating procedures or compiling documentation. Successful companies focus on their core competencies and hire partners to handle the rest. Developing the next needed device should be the driving force and should not be subject to distraction.
• Sluggish speed—Speed to market is everything to an emerging company. It means satisfying customers, investors and the waiting public. Beyond minimizing product development time, an emerging company can enhance progress to market by streamlining inspection, packaging, cleaning, quality compliance and distribution. Outsource service providers with appropriate equipment, systems and personnel can create great efficiencies for processes outside of the emerging company’s core competency.
• Cutting corners—Great rewards follow great risks, and few industries offer as much risk as the medical device industry. Emerging medical device companies, under significant pressure to produce, may be tempted to cut corners, but almost nothing can have more devastating results. In comparison with research and development, areas such as sterilized packaging protocols, validation procedures, inventory management systems and quality control processes can seem like the mundane aspects of the business. With a carefully selected outsourcing partner, emerging companies can ensure the quality of their end product and focus on activities that generate revenue without getting themselves into trouble.
How to Select the Right Outsourcing Partner
The OEMs managing rapid enterprise growth long have understood that there are two ways to answer the problem of a missing resource: develop the resource in-house or contract with a reliable outsourcing partner. Developing an in-house function, though, comes at the expense of time and money, and a number of OEMs have found that outsourcing is a more effective solution if the right outsourcing partner is selected. Emerging medical device makers, with growth rates sometimes as high as 100% per year, have even more at risk in choosing a partner than their more established counterparts.
It goes without saying that, for an outsourcing partner to assist the growth of an emerging company, there must be a good fit in terms of service and price. Beyond the basics, an emerging device manufacturer needs a partner that truly helps advance the company’s ability to produce great product. If an outsourcing relationship diverts the emerging company’s focus from core functions because the outsource service provider is disorganized or itself a new operation, then the emerging company stands to lose more than it might gain. Choosing the right outsourcing partner requires generous amounts of inquiry and investigation.
• In addition to experience, outsourcing partners should offer access to established systems. While every management team likes to believe that its company, processes and products are unique, emerging companies can benefit from the experience an outsourcing partner has with the processes and products of other customers. Tapping into expertise and existing systems will save time and money, dramatically increasing speed to market.
• Just as emerging companies are under a microscope with their clients, emerging device makers should closely review their potential outsourcing partners. An emerging device company should consider an outsourcing partner to be an extension of itself, rather than a separate entity. Emerging companies should thoroughly inspect the outsourcing company’s facility, processes and quality record. In addition, the emerging company should look for evidence of stability, demonstrated ability to perform critical processes over time and wealth of resources.
• Flexibility is key. Part of the startup experience is exploration, which demands a certain threshold for false starts. Outsourcing partners should be adept at working with emerging companies and be nimble enough to change direction or revisit processes. The ability to redesign, quickly adapt or add new services as needed also is an important asset in an outsource service provider.
• A comprehensive approach is far better than a piecemeal solution. Emerging medical device manufacturers should seek outsourcing partners that offer a range of services broad enough to accommodate future needs. The ability to contract with one, or just a few, outsourcing partners for a variety of services decreases headaches associated with managing multiple relationships. Moreover, if the post-manufacturing process becomes too complicated, the opportunities associated with using one comprehensive service provider are lost.
• Partners should have the ability to expand or contract to meet the medical device maker’s needs. Outsourcing companies with a ready workforce that quickly can be deployed to run at full capacity and then be redirected once a bulk run is done will save an emerging manufacturer time and money. Moreover, an established partner with a strong customer base will be willing and able to kick into gear, even if a particular project is smaller than expected.
• An outsourcing partner with a stellar reputation for quality will bolster the reputation of an emerging company. Building a network—from investors to suppliers to outsourcing partners—is how an emerging company develops an infrastructure that creates a solid foundation and positions the company for the next step in its evolution. Other key vendors in the manufacturing chain, familiar with the chosen outsourcing partner, will be more responsive if the outsourcing company is respected and known for high quality work.
In the end, whether an emerging medical device manufacturer is destined for a merger, an acquisition or to make its own way in the industry, the company must have a plan that incorporates vision, strategy and efficient execution. The absence of one of these critical components most likely will result in either a slow demise or a blazing failure. With limited resources on a variety of fronts, an emerging device maker must focus on its core competency while simultaneously constructing an infrastructure platform that is able to sustain the business as it grows.
One effective solution for emerging companies is to partner with an outsource service provider. This relationship can help the new company and its management team to overcome the challenges inherent in building a medical device business and to avoid the pitfalls to which many new industry entrants succumb. The most successful partnerships, though, require a high level of trust, because a medical device outsource service provider is much more than just a vendor. A medical device outsourcing company can be a strategic partner that enables the emerging company to far exceed the limitations created by its lack of resources. A strategic alliance between an emerging company and an outsource service provider might very well produce the next great medical innovation. Established OEMs also are recognizing the value of outsourcing. Why shouldn’t emerging companies give them a run for their money?