Leadership - Small Company Analysis

By Stephen Cervieri, Managing Director 

Leadership - Small Company Analysis

Before banking healthcare, I banked technology.  I have worked with and for some of the smartest and most innovative people in the world.

 

I’m not blowing smoke, but I am more impressed with healthcare innovation than I am with technology innovation.  Maybe it’s the stakes involved.  But the “wow” factor hits me every day when I talk with clients, prospects, KOLs, etc. about their progress and direction.

 

That being said, there are many parallels between the two sectors.  Therefore, an article that came to my attention the other day provides an interesting filter for our world.  Particularly with the number of readers leading their own companies.

 

A study by the Ewing Marion Kauffman Foundation and researchers at Duke and Harvard universities finds that  the perception of a technology company entrepreneur is young, scrappy and brilliant is wrong. 

 

Bill Gates in 1982, Steve Jobs in 1984, the Google Boys. 

 

Instead, most U.S.-born technology and engineering company founders are middle-aged, well-educated and hold degrees from a wide assortment of universities. Based on data pulled from U.S. engineering and tech companies founded between 1995 and 2005, the researchers found that twice as many U.S.-born tech entrepreneurs started ventures in their fifties than did in their early twenties. The median age of these entrepreneurs when they started their companies was 39.

 

Though the vast majority of successful tech businesses were started by Ivy League graduates, 92 percent of them graduated from non-Ivy-League schools with bachelor's degrees. Those with MBA degrees launched their companies more quickly than non-MBA holders.

 

"While education clearly is an advantage for tech founders in the United States, experience also is a key factor," Vivek Wadhwa, the study's lead researcher, said in a release. "That a large number of U.S.-born tech founders have worked in business for many years also is important in understanding the supply of tech entrepreneurs."

 

My observations during the past years led me to believe that the real demographic of the tech entrepreneur was what I see in healthcare.  Around 40 years of age is what I see. 

 

But if I saw tech entrepreneurs as being 25 and they are 40, and I see healthcare entrepreneurs as 40.  Does that mean the average healthcare entrepreneur is… hold on… damn excel spread sheet: 64?

 

The upcoming US election notwithstanding, i.e. welcome to price control, Healthios sees positive secular growth trends that will continue to drive near and long term growth.  Topping the list is increased demand from demographic factors.

 

During 2006, the medical-equipment-and-supplies market was worth approximately $89 billion, an increase of 4.2% over 2005.  An aging population that required increased medical care is a dominant growth driver.   Disposables, such as syringes, catheters and dressings, which account for around 40% of total revenue.  Ophthalmic, IV diagnostic equipment and supplies each contribute 11% to the market's total value.

 

According to U.S. Census Bureau projections, the percentage of people age 65 and older will increase from 12.4% in 2000 to an estimated 20.7% by 2050. According to these estimates, about 35 million Americans were over 65 in 2000, due to an influx of baby boomers and an anticipated increase in overall life expectancy.

 

It is expected that the population in this age group will increase to 54 million by 2020, and will be more than 86 million by 2050. Higher demand for medical services from boomers increases demand for many products, especially in angioplasty and other cardiac-related products, and co-morbidities such as orthopedics.

 

Several markets are large even measured against the overall healthcare market.  According to a study by the CDC, diabetes mellitus is considered to have reached epidemic proportions. It has been estimated that more than $130 billion is spent annually on account of diabetes treatment in the US. The American Diabetes Foundation put the number higher, at $174 billion for 2007.

 

The market for diabetes diagnosis, monitoring and treatment devices is set to augment considerably. The strength in medical-device pricing is supported by several factors, such as technological innovation, reimbursement rates, lack of competitive offerings and demographic changes.

 

It is ironic that while technological innovation drives medical devices to market, innovation also poses the biggest risk of products getting obsolete in today's competitive business environment. A remarkable feature of this industry is its high-price-for-low-volume nature (this is in contrast to the medical-supplies market – a relatively mature market characterized by low margins and high volumes. This segment consists of commodity products, such as needles, hospital garments, kits, gloves, syringes, disposable products and anesthesia products).

 

The surge in crude oil prices has led to an increase in the cost of oil-derived plastic resins required in producing parts and items of disposable medical equipment.  Our clients, in order to protect margins, tell us that they have been forced to either increase prices or to relocate their manufacturing units to more cost-efficient regions, such as Southeast Asia and Latin America.

 

Speaking of which, a second key growth driver is globalization.  The Economist has a fascinating article on the 180 degree turn that international markets have done for medical companies as populations enter the middle class.  Read Article.