Starion Entrepreneurship Case Analysis

M3786 NEW affect PLANNING SAMPLE deterrent ex adenosine monophosphatele ANALYSIS REPORT STARION ENTREPRENEURSHIP SAMPLE CASE ANALYSIS REPORT Starion Instruments, headlandquartered in Sunnyvale, CA is a private gild with core IP assets based on the pocket license of groundbreaking ceremony medical exam examination research in the field of laser tissue conjoin. Starion hopes to urge on the electro surgical field with the introduction of outputs like its cautery forceps put ond for cutting and close (cauterizing) tissue. The boilers suit annual grocery for these types of medical frauds is in excess of $1 billion.Further more than, Starions promising IP and act research goals leave change it to gain a significant foothold in the worldwide medical technology industry with sales reaching $150 billion annually. The buns of Starions IP lies in the hands of Dr. Michael Treats research. In the 1980s Dr. Treat and Dr. Larry Bass, a plastic sawbones resident at capital of Sou th Carolina Presbyterian, started experimenting with lasers in surgery. With a humble embark onning the 2 surgeons worked from Columbia Presbyterians 17th floor lab on their groundbreaking research.Together, these two pioneers invented the field of laser tissue welding using thermal get-up-and-go to rejoin tissue s forevered in surgery. However, this technology remained uncommercialized for some(prenominal) divisions after its initial discovery. Shelly Monfort, a Stanford-trained engineer, began her entrepreneurial career in 1986. With a background in R& angstrom unitD on medical twirls as soundly as start-up experience, commercializing those devices, Ms. Monfort and two engineers, Ken Mollenaur and George Hermann, were voluminous in the creation, funding, and exit of at least 6 surgical device companies from 1990-1996.Ken Mollenaur maintains experience designing and building medical prototypes. George Hermann possesses extensive experience navigating the medical device ap proval process working with the study regulatory bodies in the industries. By June 1988, Ms. Monfort had signed a license with Columbia Starion Instruments could now begin building a staff and a product to bring to market place. With their exclusive licensing deal in place, Dr. Treat left Columbia for Starions atomic fare 20 headquarters and began developing the product.In October 1999 Starion instruments, represented by Dr. Treat, made its de just now at the American College of Surgeons Conference, the single most important industry event for peck who would buy and office the product. At the time, the confederacys goal was to pinch $750,000 in capital. Ms. Monfort assembled $2 one thousand million from private investors along with a pair off of venture capital firms. At the time Starions valuation was $7 million. This was a crucial point for the company. Success or failure is practicallytimes based on an initial market foray.The direction chosen by management in this s ituation had an irrevocable effect on the companys overall performance. A capital infusion of solely $750,000 severely limited the companys marketing and development capabilities and was a sodding(a) underestimation of the companys capital needs a actualize representation of Ms. Monforts inexperience. Furthermore, the companys surplus capital requirements were highlighted by the investors willingness to infuse a $2,000,000 round when only solicited for $750,000. To Ms. Monforts credit it was her retainer and mentor, Dr.Thomas Fogarty, a legend in the surgical world, who insisted on the additional capital. The company planned to go to market with a package consisting of single use usable forceps and a disposable battery pack. The forceps would carry a cost tag of $410 and the battery pack would list for $39. The effort was directed toward an outspoken surgery application. Open surgeries accounted for slightly 80% of procedures performed at the time. Starion planned to lastl y expand to laparoscopic devices once it gained additional market share.An important picture of Starions dodge was to market its product as not only a superior tool as far as results, but alike to highlight the simplicity and cost effectiveness of its offering. Surgeons, the principal vendee in this space, are known to be fairly innovative, willing to try youthful things. However, it is only with repeated use that they gain skill with a prone device. Therefore, it is critical that they see not only a cost advantage, but a significant sum up in product performance in order for considerable adoption to take place.Starions choice to charge on the core buyer requirements magnifies their intimate knowledge of the space and contributed greatly to the companys overall success. The decision was made to concentrate on an open surgery strategy. aboriginal adoption, particularly for a lower-ranking lean in a big pond, is critical to any start up. This direction, spearheaded by manage ment, was a deft decision for several reasons. The customer base in this field consists of an end user with a complex hierarchy and buyer process. However, it is ultimately the end users decision which makes or breaks a product in this ield. Therefore, the decision to launch the product for use in open surgeries as opposed to laparoscopic procedures vastly increased the attractiveness to the wee adopter base. The open surgery tool strategy enabled doctors to rely on backwards compatibility (the ability to simply fall back on the try and true cut and suture method), another key point with experimental tools and methods. Prior to Starions laser tissue welding breakthrough, the most parkland electrosurgical tool was the monopolar device, also known as the Bovie device.With this technology, the persevering is wired to a fundament pad that provides a raceway for the electrical current to flow. The surgeon uses an electrode to pass a high-frequency electrical current through a patie nt to cut and cauterize tissue in a selected area. The Bovie requires a germ that cost between $7,500 and $10,500 a year. In addition, each operation requires disposable (one time use) grounding pads and electrodes, whose combined cost is 5 to 6 dollars per procedure. The disadvantages entangle (relatively rare) situations in which the device causes burns to the patient at the side of the grounding pad.Additionally, the Bovies high energy output can interfere with the ever growing mass of electronic equipment in modern operating rooms. An pick to the Bovie device is the UltraCision, also known as the harmonic scalpel. This device uses sonography to generate the heat needed to cut and seal tissues. Ethicon Endo-Surgery Inc. a Jonson &type A Johnson subsidiary owns UltraCision. Starion estimates that the ultrasound based product has annual sales of round $100 million. Like the Bovie device, the UltraCision system requires a reusable power supply, which costs virtually $15,000.Th e system also uses an electrical cable that costs $630 and must(prenominal) be replaced after approximately 100 surgeries. In addition, single-use tips that cost approximately $325 are also required. Given the relatively high degree of cost associated with marketing medical technologies, Starion pursued a strategy in which it would section a large market and avoid going head to head with its competitors. Due to its small size and relative weaknesses, Starion was forced to parse the market even further deciding to promote its technology specifically for use in a single procedure which would greatly reduce the overall cost of their product launch.The variable costs, excluding sales commissions, for both the battery and forceps were communicate to equal about 40% of the sales price. Fixed costs, excluding R&D, were expected to total $1. 1 million in the first year of operation and $1. 65 million in the second year. R&D for the first year was projected at $1. 25 million and $1. 45 million for the second year. Given the industry standard, this team had the requisite components for a successful start-up. The initial engineering and development of a product like Dr.Treats is best done in a small workshop by passionate and dedicated serial entrepreneurs. However, the teams inability to surrender the reigns of the company inexorably inhibited the firms future growth. Conversely, the small, dedicated team was able to react dynamically to the market positioning their product with care in a segment which allowed a gain in market share. This short-term success may well translate to continued development however, the degree of future shareholder measure out is limited by an order of magnitude equal to the founders shortsightedness.In the medical device field, there are some significant barriers to first appearance the combination of patents, expensive/extensive clinical trials and research in mating with strict federal government oversight can overwhelm littler companies, and help protect established players against competition. The FDA is the primary regulator of medical devices, and its command is to insure that the devices that reach the market are safe and effective. The medical device industry is populated by a small number of major device manufacturers and diversified medical companies in addition to the large number of small companies.Dominant players in the industry include Johnson & Johnson, Baxter International, Becton Dickinson, Medtronic, Guidant, Boston Scientific, and U. S. running(a) (a unit of Tyco). The combined market capitalization of the industry leaders mentioned is approximately $300 billion with the smallest just over $9 billion (Source Bloomberg). medical products and services companies invest around 8% of annual revenues in R&D, this compares to 3 to 4% invested by U. S. manufacturers (Standard & Poors). However, the true path to innovation in this industry is through mergers and attainments.Due to ove rwhelming development and action costs coupled with a large upfront marketing outlay, league and acquisitions are the industry norm, not the exception. Even well capitalized companies will often choose the route above, rather than face the huge barriers that exist in this market. The Four Ps Product, procession, Protection and Price. Product Revolutionary technology. Promotion Combination of in-house and franchised channels. Protection Strong IP backed not only by the company but by Columbia. Price 91. 45% savingsSpeaks for itself.Further data was not supplied however the following is an example of some of the continued financial analysis we would conduct. Financial analysis make headway ratios realize Profit circumference = (gross revenue revenue COGS) / Sales Revenue engagement Profit Margin = Net Income / Sales Revenue Return on total Assets = Net income available to common have a bun in the oven holders / marrow Assets Return on stock holders equity = net income av ailable to common stock holders / stockholders equity liquid state Ratios Current Ratios = Current Assets / Current liabilities Quick Ratio = (Current assets strain) / Current liabilities Inventory Turnover = COGS / InventoryLeverage Ratios Debt-to-Assets Ratio = Total Debt / Total Assets Debt-To-Equity Ratio = Total Debt / Total Equity Cash Flow Analysis Determine appropriate debt levels, payout periods and additional analysis to confirm liquidity. Net Profit Margin = Net Income / Sales Revenue First Year -4,639,464/4,000,000= -1. 16 Second Year -689,333/8,000,000 = -. 086 Gross Profit Margin = (Sales revenue COGS) / Sales Revenue (4,000,000 1600000) / 4,000,000 = 0. 6 set strategy Pricing is currently very aggressive and sales strategy prudent.Initial management was executed properly, however it is likely that changes will need to be made in the near term to achieve significant market share. Partners strategic alignments are mainstays in this industry and should be aggressiv ely pursued. Strategic investment merger acquisition. Intellectual Property IP is an essential aspect of any medical device company given the simplicity of the fantasy the device may come up against some protection issues. Early indications seem to support the strength of the companys IP, however it is sure as shooting a concern which warrants further investigation.Note Both Starion and Columbia would be basis any major IP issue. Given the state of the industry and the laughable positioning of the companys IP prospects a partnership/acquisition would be our main point of recommendation in the near term. During this alteration it may be prudent to rethink the current organizational structure, with a specific focal point on senior management (when woful to a virgin phase often times senior management, who were desirable for the initial stage or better succeeded by a new team).RECOMMENDATIONS Our recommendation consists of three key elements that will drive profitability, conti nued growth, and increase market share adding shareholder value. Breakeven and ultimately profitability can be achieved (1) by instituting aggressive pricing to both vendors and sales force, (2) the merger of Starion Instruments with a bigger firm and/or (3) the acquisition of another firm that will allow them to manufacture, distribute, market and sell the product at a cheaper and more efficient manner.Current State Currently, Starion is the one of the world leaders on surgical device development. It has expanded worldwide distribution of its proprietary tissue welding technology to physicians in North America, Europe, the Middle East, Africa, and Asia. Last year the social club of Laparoendoscopic Surgeons named Starion Instruments the 2007 Innovator of the Year for the development of its next-generation Tissue Ligating dress which use its innovative cut and cauterizing technology.Since the launch of their original Cautery Forceps, Starion has created an entire line of Forceps and Ligating Shears which can all be viewed on their website http//www. starioninstruments. com/products. html. They are still a privately held company which is astounding given their tremendous success. This is not move given the fact that the first time they were offered to be bought out they declined. This has unplowed the leadership at the mercy of the owners and founders and will provide a unparalleled company such as Starion the ability to continue providing innovative, cost efficient, and feature