The Orthopedic Distributor Dilemma

Written By: Josh Sandberg

Why Finding Good Orthopedic and Spine Distributors Seems Impossible!

In a previous article, I wrote an Open Letter to Distributors to share the frustrations manufacturers experience with their distributor partners. In this posting, I wanted to address another big issue manufacturers experience with regard to their sales force. The single biggest issue I hear from Orthopedic and Spine companies is that they need to expand and /or improve their sales force. “If we could just find more good distributors, our growth would be double” they say. So if the problem has been identified, how do you solve it?

One of the biggest challenges small to mid-sized companies encounter is that their line competes directly with another company already in the distributors bag. There is a growing number of companies that are attempting to demand exclusive relationships with their distributors, but that number will always pale in comparison to the hundreds of companies that must compete for attention. You have to fully understand the issues you are up against and realize that there are no one-size fits all solutions to any of these challenges. The orthopedic and spine industry is still very fragmented across the country and even if you are able to find the solution in one market, you must approach each subsequent market completely on its own.

Understanding What You Are Up Against

Companies often think they can entice distributors through a variety of tools. I have seen companies offer equity to hedge against the distributors risk of building a business only to lose the line as a result of an acquisition (think Zimmer Biomet). The major issue you will find is that, although a nice to have, most distributors discount the likelihood that those shares will ever amount to something more than wallpaper.

Higher commission is also something that makes sense until you dig deeper. With the way hospital approvals work these days, a distributor has to consider how much business will become “at-risk” during the transition and then, how long it will take to rebuild. In that scenario, the risk may not be worth a few extra points.

Each company that is aggressively competing for attention from a distributor must find what they offer outside of the basics. I will make a few recommendations of how to differentiate from the other companies a little later in this article, but first, I’ll go over thoughts of how you can influence distributors to choose you.

How To Influence a Distributor

Option 1 – Manipulate

In the book Start With Why by Simon Sinek, he talks about influencing human behavior. The first way he describes is manipulation. This is how most companies attempt to woo distributors. More points, pricing discounts, incentives or guarantees. What you need to know about influencing through manipulation is that it is temporary or transactional. You will only be able to influence that person until the next company ups the game. This is exactly why we see companies offering distributors 40-50% commission. If you think about that, its insane to have to offer 50% of the sale to the distributor. They provide exceptional value, no doubt, but they don’t bear the responsibility of development, inventory, logisitics, customer support, corporate infrastructure, clinical, regulatory, marketing, training or liability.

That being said, it is where we are today because new companies were trying everything they could to manipulate behavior to see the top line revenue growth their shareholders wanted to see. As we know with taxes, what may have had every intention of being temporary rarely goes away. Said another way, a luxury once experienced becomes a necessity.

Manipulations are losing their effectiveness because of how difficult hospital approvals are to obtain these days. The distributor is bound to lose business, if even only temporarily, due to this elongated process. Of course they will do it when its doctor driven, but they will rarely do it simply for a few more points. If you do happen to find a distributor that is willing to take that risk, you would be well advised to closely manage that relationship to ensure you are not simply getting shelved.

Option 2 – Inspire

The second way to influence behavior is through inspiration. Inspiration garners loyalty. How do you inspire a distributor or their surgeon? There are several different ways:

There are a couple of smaller stage companies that inspire through philanthropy:

• Spinal Elements donates all profits from the sale of HERO Allograft to St. Jude Children’s Hospital and Make-A-Wish. To date, they have donated over $600,000 in the past 3 years.
• OrthoPediatrics is a leading supporter of several key foundations such as: Pediatric Orthopedic Society, European Paediatric Orthopedic Society, International Pediatric Orthopaedic Symposium, and American Academy for Cerebral Palsy and Developmental Medicine.

We are lucky to work in an industry that can change peoples lives. A patient that experiences debilitating pain can be precluded from simple tasks that we take for granted. I have a close friend that was experiencing significant pain in his back at the age of 32. He was no longer able to lift his adorable little girls. This pain was prevalent for several months and after a minor (non-fusion) procedure with a spine surgeon, his youth was restored. There are countless stories like this one and it is important to remember that this is a business that’s primary function is to help people. Surgeons love working with companies that see the greater good and go the extra mile to participate in changing lives.

There are also many surgeons that will participate in organizations like Doctors Without Borders, to take their skills to help people in third world countries around the world. To help support these endeavors, some companies donate a considerable amount of products to be used in these procedures. Supporting causes like these will create loyalty and commitment between you, your surgeon customer and the distributor that represents you.

Another way I have seen distributors be inspired by a company is through opportunity. In my work of recruiting, I have often run across talented Sales Directors or AVP’s that are burnt out of the life on the road. Many got their start as a distributor’s rep and joined the corporate ranks as their career evolved. However, now they have young kids or maybe they just want to build a business for themselves rather than for the Venture Capitalist or Private Equity firms. As they decide to pursue starting a distributorship, they will find that the hardest thing to do is to get that first product line. Companies are often reluctant to be the first company represented. You can’t take a shot at every opportunity like this, however, if you take a calculated risk on the right person, you may have just found your next high performing distributor.

Inspiration will garner commitment and loyalty. You have to find your “Value Proposition”. What makes you better than your competition? Most engineers and technical founders of companies think their product is what differentiates them from the herd. My practical experience is that the buyer at the hospital doesn’t care. If your product reduces pain and is cost efficient, you have an opportunity. The specific design and incremental improvement may sell the doctor, but not the hospital staff. You have to find what makes you different, tell your story and inspire all of your customers to want to work with your team.

What Else Can Help Differentiate You?

As you well know, I only speak about hospital approvals because they are what keeps most companies and sales people up at night. One recommendation I routinely offer is for companies to ensure they have a highly talented National Accounts person on staff. This person is trained for negotiation and can come alongside the distributor to help obtain the best possible pricing and exposure of your products. Distributors will quickly lose interest in helping bring your product through the process unless it is doctor driven. Having a skilled hospital negotiator on your team will pay for itself many times over and will be a differentiating factor the distributor will definitely appreciate.

Other important issues that you want to have worked out in order to gain the attention of these distributors are inventory / set levels, gaps in your product portfolio, high quality customer service and a reasonable, mutually beneficial contract. If you would like to talk about your value proposition, please feel free to reach out to me and we can do a quick assessment of how you compare to your competition.

Now, How Do You Find Good Distributors?

The first place you obviously want to start is your personal network. A skilled and experienced Area Sales Manager/Director/VP will have many contacts that they can leverage to help develop your sales channel. Those networks typically run dry quicker than you might expect, so here are a few additional options you can use.

You can use Linked-In but there are limitations. First the distributor must be connected to you either directly or they must be connected to a first connection of yours. Another frustrating limitation is that you are dependent on the distributor adding their information. Distributors often don’t put much detailed information about themselves online, so you have to spend a lot of time to dig in to find qualified leads. Even if they have, you have to send them an email asking for a way to contact them and hope they respond. This can be fruitful, but it will cost you valuable time.

Within the Linked-In system, there are many groups for Orthopedic and Spine Distributors. I have seen daily notifications from Area Sales Directors throughout the country looking for “a distributor to carry innovative line”. I am always curious so I’ll look at the comments of those that have responded and the quality of the prospects that are interested mostly qualify as a waste of time.

Another option is by using OrthoSpineDistributors.com. This is a site that was developed based on several years of hard work and many hours on the phone with Orthopedic and Spine distributors throughout the United States. Their information is provided for you and you will quickly be able to see:

• Distributorship Name
• Location
• Active Email Address
• Verified Phone Number(s)
• Manufacturers Represented
• Territory

You can quickly map a territory and find several options in your areas of need. OrthoSpineDistributors.com offers you quick and easy access to over 2,100 verified orthopedic distributors and distributor reps. This is a subscription service that will pay off big time if you use it right. If you are interested in a demo, contact Paige Maier (paige@orthospineco.com).

ORIGINAL POSTING ON LINKED-IN