This week I attended the Department of Defense’s Advanced Technology Applications for Combat Casualty Care (ATACCC) conference in St. Petersburg, Florida. I attended the conference on the invitation of a friend, and was curious to see how medical devices differed between civilian and military uses. I can say now that prior to the conference I didn’t appreciate the differences in the types of casualties experienced between combat and civilian environments. I assumed that human physiology was physiology and that gunshot wounds were gunshot wounds. The reality is that the prolific use of explosives in this war creates a disproportionate number of horrific burns and lost limbs compared to what we see stateside. Treating these injuries is exacerbated by the fact that sophisticated medical care isn’t immediately available on the front lines. Whereas the role of civilian EMTs is to stabilize a patient and then get the patient to a hospital, much more is required to treat wounded soldiers in combat because the transports back to medical care are so much longer.
That said, I also went to the conference with a deep bias against the military as a customer, particularly for medical device startups. My bias isn’t based in any dislike of the military or its mission, I have enormous respect for our men in uniform who protect our country and its freedoms. Rather, my bias is purely business-related. A critical variable in startups is time-to-market, and getting a sale out of the military bureaucracy is anathema to that. The sales cycle is highly politicized, long, and expensive. Lots of companies, however, make a business out of selling to government, so I was curious about the nature of the beast.
The obvious reason for pursuing the military as a customer is their deep pockets, and that was the response most startups gave me when I asked them about the military as a customer. Through SBIR grants, the military will fund your R&D budget and won’t take any equity or IP in return. That could be a pretty compelling argument to a cash-strapped startup, but it ignores the downsides of doing business with a single, powerful customer.
Why startups should avoid the military
I’ve already mentioned the painful sales cycle. Let’s take a look at a number of other reasons startups should avoid the military as a customer.
First, the military often doesn’t know what it wants, and provides conflicting opinions as a result. Dissent has its place when formulating a strategy, but eventually they have to reach some consensus on needs. Startups don’t have the resources to continually modify their designs in order to meet ever-shifting requirements.
This inability to make extensive design changes leads to a second drawback: making a product to sell to the military often requires compliance with expensive design/quality/organizational specifications that provide little value in the civilian market. They want to buy COTS (commercial-off-the-shelf) products, but the reality is that their unique requirements necessitate specialization.
One example of this dilemma is the incompatibility of the so-called “razor and blades” model with combat. It’s a common business model for medical device companies to pair a low-margin capital expense with a high margin disposable component. But this creates logistical problems. Disposable parts take up space. They are a mass that needs to be transported by air, by truck, and often on a soldier’s back. So it’s not uncommon that the design of a profit maximizing disposable is in conflict with a size-minimizing requirement.
Finally, I think a lot of companies that obtain SBIR funding quickly become enveloped in the grant funding cycle and become “R&D zombies.” The goal ceases to be commercialization and becomes obtaining the next round of funding. It’s not uncommon to see startups at ATACCC that have designed multiple iterations of their product, or have multiple product lines, yet haven’t sold a single unit.
Conclusion
So I attended ATACCC with a strong preconceived bias, and the event did nothing but strengthen my opinion that medical device startups should avoid seeking the military as a primary customer. The long sales cycle, shifting requirements, and seductive SBIR funding are poison to an early stage enterprise. Besides, as deep as the DoD’s pockets may be, the potential addressable civilian market for a medical device should be bigger anyway. If it’s not, then the company probably doesn’t have much of a chance anyway.
That said, my conclusion is unsatisfying. Finding new ways to preserve the lives of the men defending our country is a noble cause. The sobering images of burned men and lost limbs I saw at ATACCC brought that message home. There needs to be a better way of spurring innovation in combat casualty care.
