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30 lessons learned in 30 years of Orthopedics

Most game-changing ideas in orthopedics were too early for market acceptance. Spinal cages were conceived around the late 1970’s. Robot orthopedic surgery was conceived in the 1980’s. Many early artificial discs were designed that never reached the market. Telemedicine was all the buzz in the 1990’s.

Yes, this is still possible, even more so today in orthopedics. You can create a monopoly by creating a new category or new procedure. You will be the only solution in your new category. Customers will seek out and find you. Sales/Marketing will have a tail wind. Distribution partners will beg to carry your product. You will dictate pricing (there are no comparables). You will have the leverage in all negotiations. Life is good.

A few monopoly examples for you — Kyphon (kyphoplasty), MAKO (MAKOplasty), SpineTech (first cage), Ellipse Technologies (remote control implants), Active Implants (total meniscus), Trice Medical (dynamic joint diagnosis), Active Protective (smart airbag prevents hip FX), and OrthoSpace (biodegradable balloon protects cuff tears). These guys literally have ZERO competition.

On the pain side of the market, there are commodity markets. Today there are around 250 spine startups. Every single week, a spine startup will die or get acquired, then next week a new spine startup one will be born. The majority of these 250 spine companies are selling “me too” spine devices — pedicle screws, cages, plates, etc.

The message here is to avoid commodity markets like “spine” as they have many built-in challenges — pricing competition, thin margins, high cost of sales, 10 sales reps calling on the same spine surgeon selling roughly the same products. There is too much noise to get attention in the marketplace. You don’t want to play in a competitive market. It’s like running one of 250 restaurants in your neighborhood.

In the early years, most effort should be spent on getting the product right. At least 80% of your company should be working directly on the product. There will be time later for regulatory, IP, Quality, sales and distribution, marketing, surgeon training, reimbursement, sales, etc. If you really nail the product, it will be easier to market, sell, distribute, price, and teach.

Don’t start a company around a single product unless it is a groundbreaking new category (see #3 above).

You can launch a single product first, but you MUST have a second and third in the pipeline within the next 12/18 months. If you have to, swallow your pride and partner with another small company and combine your products.

We all remember these promising ortho companies that started with a single promising product then did not followup soon enough new products — Vertebron, Archus Orthopedics, Amedica, Disc Dynamics, Spinal Restoration, SpineWave, Distalock, FXDevices, Suspension Orthopaedic Solutions, TranS1 and Baxano.

Speed is your advantage you have when you are small (you have very few advantages over the big orthos). Make decisions in minutes, hours or a maybe days in special circumstances. Don’t over-analyze. You don’t need more information. You probably cannot get more information that is helpful anyway. Most decisions can be made with little information. Even if the wrong decision is made, most decisions can be reversed. The speed of the decision is more valuable than the time spent deliberating.

There is no magic formula to building an orthopedic company. There is no single formula to do it. Everybody does it differently. Listen to everyone who has ideas, but make up your own mind. The most successful ortho companies find value in unexpected places by focusing on clinical problems.

Tie employee incentives to key company milestones, company growth, and increased company valuation.

Personal story: The Board at Ellipse Technologies created incentives that drove enterprise value. 100% of the employees received stock options and 100% of the employees were paid cash bonuses for hitting key company milestones (eg: a regulatory clearance, a first-in-man surgery, a completion of a key product design, completion of a clinical trial enrollment, hitting a new sales goal, etc). Bonus milestones were designed to move the company’s valuation needle. Many were crazy stretch goals, some were sane goals, but in the end the company achieved 80–90% of the goals. It worked. Whatever goals were written on that sheet of paper (taped to every employees wall), you knew that the employees would move heaven and earth to accomplish them. Everything else took a back seat.

I cannot say enough about focus. Young orthopedic companies that win have a common culture — they focus like crazy on one, two or threes things. Young companies that lose, try to do everything at once.

Personal story: At Ellipse, we had a laser-like focus on key milestones that drove valuation. The focus was technology first, everything else later. Get the product right before investing in the other areas. Don’t worry about regulatory, IP, Quality, sales and distribution, marketing, surgeon training, reimbursement, sales, etc. Just focus on getting the Gen 1 product working ASAP. This intense focus helped to avoid distraction pitfalls that other startups encounter — hiring the big roles early, continual fund raising, silly press releases, fancy office environments, in-house manufacturing to lower COGS, fancy websites, regularly scheduled meetings, etc.

Paul Graham, from Y Combinator, says it best… “Though the immediate cause of death in a startup tends to be running out of money, the underlying cause is usually lack of focus.”

In orthopedics there are generally two major risks with any new product.

Take one of these risks off of the table ASAP. If the technology is easy to develop, then eliminate the market risk. If the market acceptance is a given, then eliminate the technology risk.

Perfectionism kills companies. Don’t let ‘BEST’ become your holy grail. BETTER is good enough. Ortho startups that become obsessed with perfection always fail to execute the business within the time frame and within the cash on hand. Get your first product in clinical use somewhere, then improve and iterate your first product. There will always be Gen 2, Gen 3 and so on.

Sheryl Sandberg famously said, “Done is better than perfect.” Know when “good” is “good enough” by asking yourself, “What is the marginal benefit of spending more time on this task or project?” If the answer is very little, stop where you are and be done with it.”

A famous Sports Med surgeon told me that in the early days of arthroscopy the shavers were so prone to failure that every instrument tray contained a “magnet on a stick” to fish the broken shaver pieces out of the joint at the end of the case. Take home message: The arthroscopy pioneers (Dyonics, Concept Medical, Arthrex) didn’t wait to market the BEST product.

Leaders must over-communicate the desired result and get buy-in from the Board to the admin. In the words of Stephen Covey, “Start with the end in mind”. These leaders are more likely to reach the desired outcome.

Personal story: Ellipse Technologies was well aligned. The Ellipse investors, the Board, and the executive management team had the same goals for the company. This set us up for great execution and a smooth exit. It’s much easier to reach a successful exit when all of the stakeholders are rowing the same direction. I have seen mis-aligned startups with internal conflict that sabotaged an otherwise successful outcome. Make sure that the stakeholders are in the same boat, rowing the same direction. Know your exit strategy from day 1.

Don’t take a position that favors one group over another. Almost every company will say they “do the right thing”. But for whom? Some companies increase prices to benefit shareholders at the expense of customers. Some companies cut commissions to benefit the budget at the expense of sales people. Any action taken should not hurt or sacrifice one group over another. This takes discipline that pays off in the long term.

Personal story: This axiom was a guiding principle for Barry Bays and the Wright Medical team during our turnaround in 2000. All of Wrights’s employees could recite this axiom. It’s easy to take shortcuts for short-term gain (like the previous administration at Wright). Don’t do it.

It may be counter-intuitive but speed comes from experimentation. In order to use speed as an offensive tactic, you have to create a culture of experimentation, a culture of mini-trials, every day and every week.

Personal story: Ellipse simply outran its competition. Every time the competition checked in on Ellipse, we had extended the lead. It’s hard to exaggerate how fast we moved at Ellipse. More work in a month than most other companies in three months. Employees called it “dog Ellipse years”. There was speed in decisions, product design, product testing, implementing systems, regulatory approvals, hiring, project shifting, regulatory filings, clinical studies, org changes, office moves, etc. I remember how surgeons and Board members were always amazed at the speed of innovation at Ellipse, even though we felt as if we were slow based on internal expectations.

Be aware of your competition, but don’t change your business direction because of the competition. Focus 100% on your customers and employees and outrun the competition. You may not realize it at first, but you can probably outrun the competition, even with less resources.

Create a culture of “Customer first”. Companies that think about the customer every day, win. Companies that get caught up in internal day-to-day dramas, lose.

But be careful, When developing products, it is really important to define “customer”. Evaluate your early product concepts with typical surgeon users. DO NOT TRUST your Surgeon Design Consultants to give you a real evaluation. Design surgeons do not represent the average user and they already have a built-in bias. They will misrepresent the average customer and you will develop the wrong product.

Spend time with your typical customers, to get honest evaluations.

A pivot is a shift in the business strategy to test a new approach regarding a startup’s business model or product… after receiving direct or indirect feedback, and it’s one of the fundamental concepts of lean startup methodology.

Some examples in orthopedics: Ellipse Technologies pivoted from remote control bariatrics to remote control orthopedics. Wright Medical pivoted from total joint to extremities/biologics. Amedica pivoted from total hips to spine.

Personal story: Ellipse Technologies was founded as a spin-off of MiCardia. MiCardia was developing shape memory Nitinol technology for non-invasively and minimally-invasively adjusting annuloplasty rings in the heart. In 2005, the goal for Ellipse Technologies was to develop shape memory implants to allow the non-invasive adjustment of both endoscopically implanted and laparoscopic/surgically implanted devices for the treatment of GERD and for gastric restriction for obesity control. From 2005–2007, four Ellipse employees developed this technology.

In 2007, Mike Henson called a timeout because he didn’t like the changing bariatrics market — primarily, emerging competition and a probable PMA regulatory pathway. He left behind a sole employee, Blair Walker, to research new potential clinical applications that could benefit from non-invasive adjustment with spinning magnet technology. Blair proposed EOS and limb lengthening, and Mike “Pivot” Henson re-assembled the four person team in January 2008. Exactly 23 months later, the first spine device was implanted. Brilliant pivot.

All early stage orthopedic companies have dark periods in the first few years that will take the team to the edge of the the cliff. It usually takes longer than planned to get the first product to market. The most common issues are poor business execution, under-funding, over-funding, faulty regulatory assumptions, wrong leadership at the wrong time, high COGS, market timing, competition, etc. Most orthopedic startups almost die before the are successful. Danek almost folded twice before dominating spine with 60% of the world spine market.

Your founding team is the most important thing. DO NOT build a team with your friends who think like you do. Build a team with complimentary skills, trust, and healthy confrontation. Team trumps everything. VCs say that they bet on the team first, and the technology second. A strong founding team can weather big issues and survive. And there will be HUGE challenges. It’s all about having the right first leaders on board.

If you want your young company to excel, you must hire entrepreneurial people.

Hire new employees based on their attitude and mind-set, not on their experience. Entrepreneurial hiring is more challenging than hiring on resume. These people may not fit the job description. They may have had multiple jobs in their careers. Their past may be checkered with wins and losses. Their previous companies/projects/ventures may have failed. They may even look funny, sound funny and not fit exactly into your culture.

To find the entrepreneur, ask:

Leaders should hire skills that are totally complementary to themselves. This is VERY hard to do for most leaders. First, leaders have to admit their weaknesses. Then they have to actively seek out people who don’t think like they do. Best to use an experienced recruiter for these key hires.

People are everything in a young ortho company. smart hiring processes will bring the right people in during these formative years.

Personal story: I came to embrace the Ellipse Technologies approach to smart hiring — 1) trial periods, 2) x-industry, and 3) player/coach types.

There is a lot of turnover with successful companies in the formative years. This is good. Firing is necessary. Hiring is guessing, but firing is knowing. Get rid of team members who are slowing down others with poor skills or have a bad attitude with great skills. You don’t have time to take on a project to rehabilitate someone.

Fire humanly and with empathy, because the surviving employees will be watching how the fired person is treated forever.

Great companies grow as a result of putting people first.

Think of the company leader as the trunk of the tree — the one who holds and supports everyone in the organization to grow and keep the vision alive. The support trickles up into the branches — she supports her managers who in turn are in service and support to the employees. It’s a shift from a management perspective of what can I get from you, to what do you need from me?

Personal story: At Wright during the crazy growth years, Barry Bays would meet with each team every two weeks. After a short presentation, Barry would ask, “What do you need to go faster?” Often the answer was an additional person, more budget, or just a decision. Barry always made it happen. Very empowering.

Leaders dictate the culture of the company. If leadership is transparent, everyone is transparent. If leadership is secretive, everyone is secretive. And so on. If leadership is accountable, everyone in accountable.

Everyone is watching the CEO and Executive staff whether you know it or not. Then employees will value the same things that the leaders value.

Some people say “Cash is king”. Wrong.

“Cash flow is king”. Never, ever, let your outgoing cash exceed your incoming cash. People confuse cash flow with profitability. To clarify, here are the definitions.

So, Cash flow is the difference between inflows (actual incoming cash) and outflows (actual outgoing cash). This must be positive every month forever.

Leaders should share ownership with the team. The team will make the company succeed or help the company fail. Employees with equity will work differently, they will take the extra effort, some will kill for you. An incentivized team will get more work done faster and with less wasted motion.

You don’t have to go crazy with equity, just spread it around. If you give your VP of Sales 100,000 shares and then give the admin a few hundred shares and watch the magic happen.

When raising money, your goal is to hook the investor in the first meeting. Bring very few slides. Tell them a story with these 6 points. If done well, they might actually ask you back.

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