Starion Entrepreneurship Case Analysis

M3786 all overbold VENTURE PLANNING adjudicate CASE ANALYSIS REPORT STARION ENTREPRENEURSHIP SAMPLE CASE ANALYSIS REPORT Starion Instruments, headquartered in Sunnyvale, CA is a hush-hush fraternity with core IP assets based on the scoopful pass of groundbreaking medical examination exam research in the field of laser weave welding. Starion hopes to revolutionize the electrosurgical field with the introduction of products like its cautery forceps accustomd for lancinate and sealing (cauterizing) meander. The overall annual grocery store for these types of medical cunnings is in b be(a) of $1 one thousand million.Furthermore, Starions promising IP and keep research goals go extinct enable it to gain a fundamental foothold in the ecumenic medical technology persistence with sales reaching $150 billion annually. The foundation of Starions IP lies in the hands of Dr. Michael Treats research. In the 1980s Dr. Treat and Dr. Larry Bass, a plastic operating surgeon r esident physician at Columbia Presbyterian, started experimenting with lasers in surgery. With a humble bringning the both surgeons worked from Columbia Presbyterians 17th floor lab on their innovative research.Together, these two pioneers invented the field of laser tissue welding using thermic energy to rejoin tissue s forevered in surgery. However, this technology remained uncommercialized for several socio-economic classs after its sign discovery. Shelly Monfort, a Stanford-trained engineer, began her entrepreneurial locomote in 1986. With a background in R&D on medical devices as well as start-up experience, commercializing those devices, Ms. Monfort and two engineers, Ken Mollenaur and George Hermann, were gnarly 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 prolonged experience navigating the medical device approval proce ss working with the major 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 commercialize. With their exclusive licensing deal in place, Dr. Treat left Columbia for Starions atomic number 20 headquarters and began developing the product.In October 1999 Starion instruments, represented by Dr. Treat, made its de exclusively at the Ameri dissolve College of Surgeons Conference, the single most important industry razet for populate who would buy and wont the product. At the time, the friendships goal was to enroll $750,000 in capital. Ms. Monfort assembled $2 million from private investors along with a couple on of venture capital potents. At the time Starions valuation was $7 million. This was a crucial point for the go with. Success or failure is a lot based on an initial market foray.The direction chosen by precaution in this situation had an irr evocable effect on the companys overall performance. A capital infusion of only $750,000 seriously limited the companys selling and information capabilities and was a consummate(a) underestimation of the companys capital lacks a befool representation of Ms. Monforts inexperience. Furthermore, the companys additional capital requirements were highlighted by the investors exitingness to infuse a $2,000,000 round when only solicited for $750,000. To Ms. Monforts credit it was her young man 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 expendable forceps and a disposable battery pack. The forceps would carry a damage tag of $410 and the battery pack would list for $39. The effort was directed toward an propagate surgery application. Open surgeries accounted for tightly fittingwhat 80% of procedures performed at the time. Starion planned to in the end expand to laparoscopic devices once it gained additional market share.An important aspect of Starions strategy was to market its product as non only a superior tool as far as results, but alike to highlight the ease and make up effectiveness of its offering. Surgeons, the principal emptor in this space, are known to be fairly innovative, willing to try newborn things. However, it is only with repeated use that they gain skill with a give device. Therefore, it is critical that they see non only a be advantage, but a significant increase in product performance in inn for considerable adoption to take place.Starions choice to revolve about 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. Early adoption, particularly for a small 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 proto(prenominal) adopter base. The open surgery tool strategy enabled doctors to rely on backwards compatibility (the ability to simply fall back on the attempt and neat cut and suture method), another key point with data-based tools and methods. Prior to Starions laser tissue welding breakthrough, the most honey oil electrosurgical tool was the monopolar device, also known as the Bovie device.With this technology, the patient is wired to a foundation pad that provides a path for the electrical current to flow. The surgeon uses an electrode to pass a high-frequency electrical current throu gh a patient to cut and cauterize tissue in a selected area. The Bovie requires a root that costs between $7,500 and $10,500 a socio-economic class. 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 admit (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 substitute(a) 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 & Johnson infantryman owns UltraCision. Starion estimates that the ultrasound based product has annual sales of approximately $ blow million. Like the Bovie device, the UltraCision system requires a reusable power su pply, which costs approximately $15,000.The system also uses an electrical cable that costs $630 and must 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 segment a large market and avoid going head to head with its competitors. due(p) 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 projected to equate about 40% of the sales price. Fixed costs, excluding R&D, were expected to nub $1. 1 million in the first year of operation and $1. 65 million in the chip 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 group had the necessary components for a successful start-up. The initial engineering and maturement of a product like Dr.Treats is ruff done in a small workshop by fiery 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 manage in a segment which allowed a gain in market share. This short-term success may well translate to continued development besides, the degree of future shareholder value is limited by an order of magnitude equal to the founders shortsightedness.In the medical device field, at that place are some significant barriers to entry the combination of patents, expensive/extensive clinical trials and research in conjunction with strict federal government oversight c an overwhelm smaller companies, and help protect established players against competition. The FDA is the primary regulator of medical devices, and its mandate 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. Surgical (a unit of Tyco). The combined market capitalisation 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 jointures and acquisitions .Due to overwhelming development and production costs coupled with a large upfront marketing outlay, alliance 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 embody in this market. The Four Ps Product, Promotion, Protection and Price. Product subverter 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 cabbage ratios gross(a) Profit Margin = (Sales revenue COGS) / Sales Revenue last Profit Margin = Net Income / Sales Revenue Return on lend Assets = Net income available to common stock holders / centre Assets Return on stock holders candor = net income available to common stock holders / stockholders equity Liquidity Ratios rate of flow Ratios = Current Assets / Current liabilities Quick Ratio = (Current assets Inventory) / 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 suppress debt levels, payout periods and additional analysis to confirm liquidity. Net Profit Margin = Net Income / Sales Revenue First family -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 Pricing 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 precipitously pursued. Strategic investment merger acquisition. Intellectual Property IP is an necessity aspect of any medical device company given the simplicity of the concept the device may come up against some breastplate issues. Early indications seem to support the strength of the companys IP, however it is certainly a concern which warrants further investigation.Note Both Starion and Columbia would be behind any major IP issue. Given the state of the industry and the unique positioning of the companys IP prospects a partnership/acquisition would be our main point of recommendation in the near term. During this transition it may be prudent to rethink the current organizational structure, with a specific focal point on elderberry bush management (when moving to a new phase often times senior management, who were suited for the initial stage or better succeeded by a new team).RECOMMENDATIONS Our recommendation consists of three key elements that will drive profitability, continued growth, and increase marke t 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 Society of Laparoendoscopic Surgeons named Starion Instruments the 2007 Innovator of the Year for the development of its next-generation Tissue Ligating Shears which use its innovative cut and cauterizing technology.Since the launch of their original Cautery Forceps, Starion has created an entire discover of Forceps and Ligating Shears which can a ll be viewed on their website http//www. starioninstruments. com/products. html. They are simmer down a privately held company which is astounding given their tremendous success. This is not surprising given the fact that the first time they were offered to be bought out they declined. This has kept the leadership at the mercy of the owners and founders and will provide a unique company such as Starion the ability to continue providing innovative, cost efficient, and quality