When I start talking about hybrid, I don’t want you to be thinking of those funny looking cars that we all hate because as we are stuck behind a long row of brake lights, they are cruising along in the HOV lanes getting 50mpg while doing it. I am talking about a hybrid sales force. In the world of Orthopedics, we have all seen how relationship driven everything is. Just because you find a distributor that is successful in New York, doesn’t guarantee you any success in Portland (Maine or Oregon). Each market has its own strengths and weaknesses. Likewise, each sales representative has his or her own strengths and weaknesses. To attempt to fit your products into a one size fits all organizational structure seems to be somewhat lacking.
Before I go too much further, let me give the big qualifier: Money! Money is the great limiter to all things except the government and a direct model is expensive. We have seen companies recently raise $60+ million just for the commercialization phase to support a direct model. Most companies can’t achieve such a feat. The obvious advantages of an independent model are that you pay only for success and you can control your cost of sales to a certain percentage (usually 25-35% for the distributor, plus some administrative costs and marketing, etc.). That makes it much easier to understand how much you are spending to sell the product.
If you find them, a good distributor will give you the opportunity to realize sales growth based on deep relationships that they have already cultivated.
Distributor vs. Direct
Ok, so with the money part of this equation out of the way, I have a question to ask. What if you don’t find them? What if you have cycled through 3-4 different distributors in a particular territory and none of them have been able to really make anything happen on your behalf? At what point does the turnover hurt you to the point you can’t recover? Is it an indicator that your product can’t survive in that market? I don’t think so. I think it means you haven’t found the right sales partner. At this point, you have to consider if you have been shopping in the wrong aisle all along.
So consider this, what if the rep that has the best relationships, most talent and highest upside doesn’t want to be a distributor? I talk to people all the time about their career and its always interesting to me to understand someone’s motives. In my 10 years of experience here’s one thing I’ve learned. Your appetite to take a risk doesn’t always indicate your ability to succeed. Said in another way, just because someone doesn’t feel comfortable without a safety net while attempting to start and run their own company doesn’t mean that they aren’t the best sales person in that area.
Now, I am not a believer in being 100% direct or 100% distributor. My perspective is that we serve an industry unlike any other in Medical Devices. Anymore, one territory may still offer the surgeon the ability to work with whom they want and with what they want. Another territory will deal with capitated pricing or a hospital that limits vendors.
So Which One?
Is a distributor the best bet for you if you have to deal with prolonged hospital approvals? My experience says no. Why would someone that only gets paid when they are in the OR invest time and energy to convert a doctor to your product if there is no clear benefit to them? The hospital approval process can take 6 months or more. Would you risk your current mainstream business and income for 6 months just to earn a few more points? I don’t think so.
On the flip side, is a direct rep the best option for you if you have a relationship with a good distributor that has performed well for you in the past? What about if your product fills a gap in another companies’ portfolio? If that’s the case, a distributor seems like the best fit because they can work on hospital approval while maintaining their current, primary lines and not put their business at risk.
It all comes down to an assessment. You have to take a realistic look at your company’s value proposition as well as the past success (or lack thereof) in that particular market. Maybe paying someone a base salary to have 100% of their time and attention will give them the ability to work through those laborious hospital committee meetings and yield a much bigger share of the market. Here are the 3 things you really must consider before making a decision:
- Is the market relationship driven or price driven?
- Do you know a good distributor in that market and/or have you already experienced turnover?
- Does your company have the right Value Proposition to attract a good distributor?
Bringing it Home
The main reason why I am writing this article is because I have been asked by hundreds of people what I’m seeing in the market these days. Here it is, I’m seeing companies committed to an approach that may not be in their best interest. I see, to some degree, stubbornness in doing it the way we have done it for the previous 20 years in our career.
My recommendation is that you break out of the mold. Be different and hire the most talented person you can in a specific territory based on the unique circumstances of both the territory and the person. If that is executed effectively, I think you will find the way to break through the ceiling you are currently be experiencing.
– Josh Sandberg
Originally Published 08/05/2014