As originally asked by Giovanni Lauricella.

Todd Staples, MBA
Account Representative, GYN at Medtronic
Fabrizio-

You are on to something with your indication that the channel sales models are changing. The need for strategic profiling using a strict criteria set to screen potential products and partners is half the battle for a distributor. Forecasting accurately as you say is tough especially when there are so many variables, so using best guesses that factor in room for the unknown are essential too.

The truth is the indirect channel is just as uncertain for the manufacturers. As indicated by Giovanni’s question, there is a lot of uncertainty around best practices, and certainly a lot of horror stories around failures. Seems like everyone has a bad story or two to tell, along with some successes.

Fabrizio Gatti
Vice President, Allmed Medical Care
I think it is a matter of strategic view, product market prices positioning evaluation (whether it is a commodity & me-too type of business or specialty product), etc. Where the end user prices are low as well as margins, the typical distributor or dealer based business model has a quite short or no life at all, in addition to be very opportunistic for the dealer himself. However the “start from scratch” own sales organization could make sense definitively in the domestic market, providing that there are available resources, the return of the investment is forecastable in a given time, and that the sales ramp-up follows the business plan, whose accuracy is pivotal. Generally speaking the use of a “pessimistic” criteria ( half the volumes in twice the time of the original business plan) provide a good base of calculation and preserves from bad surprises. An export net-work might be based on distribution partnerships & JV approach for key markets and long term views.
In any case the “receipt” of the ideal organization must be personalized per definition, as the variables are many and different case per case.

SONIA ZHAO
General Manager at Medical Workshop Co.,Ltd.
Hiring internal sales team is more costing than having distributors, but less risky. In details, hiring internal sales team, you should consider how many hospitals you want to cover and decide how many sales representatives to hire. Generally , hiring one employee will cost at least 50,000dollars per year not including the sales fees such as traveling or others. To have distribution channels, you do not need to input anything but just time to maintain the channels. Distribution is also quicker to get money back and make more input into the sales. H ow ever, choosing the right distributor is tricky and would cost a lot of time.

Todd Staples, MBA
Account Representative, GYN at Medtronic
Great input Tom. It never ceases to amaze me how much more effective distributors can be when they have direct FIELD sales management from the manufacturer working regularly in the field to establish sales process, lead qualification techniques, and follow up patterns on qualified opportunities with reps. On the phone or on email distributors and independents always repeat the line “I am an independent contractor” but when you spend time with them in the field, it is hard not to connect with people and the shift in behavior is tangible. Managing and mentoring a sales force direct or indirect from the warmth and safety of an office is not a good plan whichever direction you take.

Tom Schaber
Sales management pro who will audit, hire, train and motivate sales organizations.
The feedback from everyone is truly right on the money. I will share one example that incorporates some of the advice. In 1982 I worked for a company that brought the 2nd angioplasty catheter into the market. The product languished for several years. One of the reasons (not necessarily the main one) was that distributors sold the product, not direct reps. At the time this sale was technical in nature-you had to talk to Cardiologists using their terms. Distributors failed at that. (Perhaps better distributors would have done better.) When the company brought on 5 direct salespeople sales grew and grew fast. From less than a million dollars in sales to 100 million in five years. Other factors? The company had the right product at the right time sold by the right people. That mix is critical.

If I were staring this question in the face I would use a blended sales organization-both distributors and ‘some’ direct people either in sales or sales management.

Lisa Mathews
Test Engineer/ Process Improvement Specialist at DSCI/ Viatech
How complicated is your medical device? Is there a ready market? How does this device help your typical client? Does a distributor or sales rep have to grow a market? I would also get feedback from peers on these so you have a more objective viewpoint. As a Sales Rep at trade shows, I saw great products languish in distributors’ catalogs because those sales took longer, or needed a custom approach. Agreed that “your own” Sales Reps add to overhead, but you can train them to know your product inside and out. Whether you go the distributor or sales rep route, you want to make it as easy as possible to make a sale. If you go the distributor route, go with them to large trade shows – you can see their technique and be on the spot technical resource.

Todd Staples, MBA
Account Representative, GYN at Medtronic
I agree with Max that distributor selection is an art in itself, but I would go another step further and say sales channel selection is really a huge decision in itself. It always amazes me how many med device companies get the the end of the commercialization process and then decide to go directly to doctors with their product without serious consideration of how that will happen. As others have stated, there are many different channels (OEM, DTC, DME, Distributors, independent rep groups, and others) In some cases working the trade show circuit alone can be a strategy that fills your pipeline. Strategic partners, private label, and custom kit makers are also valid options. Your product, the market, and differentiating factors will determine which strategies will be best for your situation.

Whatever you do, DON’T take a wild stab in the dark and just do what everyone else is doing because it seems like a good idea. Distributors are not always the best idea. Even when they are a good fit selecting a distributor is in fact a job interview. Just because you are looking doesn’t mean you take any and all interested parties, it takes a methodical selection process to get to an interview and only if it is a good match and everyone comes to agreeable terms do you move forward. Too many companies out there today put feelers out on sites like this and are immediately thrilled to find that hundreds of distributors want to carry their product….wow I guess we are going to save a lot of money by not having to hire sales people! Be careful, nothing is as simple as it seems.

Many companies use recruiters and HR specialists to find people…..it might not be a bad idea to consider a similar approach to finding distributors.

Max Lyon
Experienced Medtech Executive, Entrepreneur & Consultant
Generally, if you’re a U.S. startup you can’t afford direct sales reps in the EU so distributors are the most practical answer. The secret is to find motivated, qualified distributors that really want your product, think they can sell it and are committed to it. Distributor selection is an art in itself. If you can get minimum volume commitments on the front end, or at least a decent stocking order, thats a good sign of their commitment. Don’t pick one distributor to serve all of Europe unless its a good size medical device company but rather pick a distributor for each country and one who specializes just in that country. You will have to provide direct technical and possibly sales support in any case so will need some direct resource on the ground in EU. Start with just the main countries Germany, France, UK, Italy where the bulk of the sales will be and don’t try to cover all countries at once, you’ll spread yourself too thin. Try for a graduated commission structure where the more they sell the higher the commission, will be a good incentive for them to push sales – remember they have other product they’re selling that will compete with yours for their sales mans’ attention and time.

Tilman Pott
International Sales Manager at Buffalo Filter LLC
Giovanni, each country is different and even within certain regions of a country, you will require to find different market approaches. It also depends on you goals, your targeted market, your product specifics and the reimbursement scheme in that marketplace.
If time is on my side and reimbursement is clear, go with distributors.
If there is an abrasive investor breathing down my neck demanding immediate sales, I would ask for more funding to hire direct sales reps.Talking about cost effectiveness, a distributor costs you 35-40 % of your margin, regardless of the number of items sold. A direct sales rep in central Europe costs you between 80 – 120 K Euro, including social, benefits, work comp, company car and training. According to the good old 80-20 rule, this individual would have to generate at least sales revenues of at least 800 K Euro just to break even (calculation over the thumb=.
This does not answer your question, but it is food for thoughts.

Andrew Caudell
Director Of Business Development at THOR Photomedicine Ltd
Isn’t the question more about the exit strategy determining the favoured sales channel – and then structuring that sales channel accordingly?