David Thrower – Insound Medical

According to InMedica, the consumer medical device market continues to enjoy exceptional growth. With cumulative annual growth rate (CAGR) of 10%, it is well on track to reach $10 billion by the end of 2013. Despite this growth trajectory, however, many believe that consumer medical devices lag far beyond many other consumer products in terms of design and usability. In a recent and thought provoking comparison of insulin pumps and ipods, Amy Tenderich explores the question: Wouldn’t it be nice if medical devices were designed like consumer electronics?

Some patients, especially those with serious hearing disabilities, depend on medical devices up to 24 hours a day. That said, if you look at the overwhelming majority of hearing aids on the market, you’d be tempted to believe that good function and good design are mutually exclusive. Although the hearing aid market is over 50 years old, it is only 10% penetrated in the United States (i.e., only 1 in 10 patients that would benefit significantly from a hearing device purchase one). Most of these patients complain about the conspicuous nature of hearing aids as well and the fact that few models fit active lifestyles. In a market such as this, shouldn’t design and creativity play a role in the development process? As it turns out, David Thrower and his staff at Insound Medical believe they should. And apparently so do others (the company was acquired in January for an up-front payment of $75 million with earn-outs in the expected range $175 -275 million).

A few weeks ago, eight biodesign alums shared a meal with David to hear a story of disruptive innovation. Some of the key takeaways include:

• Use Design Thinking…to overcome barriers to growth in a stagnant market place.  The Insound leadership recognized that consumers were dissatisfied with existing hearing aid options, and desired a hassle-free, invisible solution. Therefore, Insound infused these insights into their R&D efforts. The result is Lyric, a completely inconspicuous hearing device employing proprietary battery technology that offers tremendously high fidelity. The device can be worn up to 3 months at a time, and is compatible with active lifestyles (removal is not required for bathing, swimming, etc).
• Early Commercial Success is Key. Insound was very selective with its first customers:  focusing only on audiologists who ‘got it’ and would commit to certain terms. In the early days, they actually ‘fired’ some customers. David believes many young companies settle for any customers they can get, and often lose focus trying to be everything to everyone (i.e., trying to satisfy differing needs of multiple, distinct customer segments).
• Distribution Channel is Often King…when is comes to consumer medical devices. David realized very early on that the key to product adoption in the hearing aid space was owning the distribution channels. For this reason Insound rolled out commercialization along a strategic geographical plan, employing focused direct to consumer advertising. As mentioned above, Lyric was only made available to audiologists whose practices fit a specific profile.
• Early Hires are Key….when it comes to your sales force. Instead of hiring salespeople with hearing aid industry experience, David brought onboard individuals with a track record of selling disruptive technology into a stagnant market. Much of initial Insound salesforce was populated by ex-employees from Invisalign. These individuals were much better positioned than hearing industry salespeople to communicate the Insound value proposition.
• Build (the Company) to Last… don’t build to sell. Given the paucity of acquisitions in the hearing aid space, none of the firms bidding for Insound were willing to “make a big bet” to acquire the company (e.g., pay a large up-front cash payment). Thus, Insound was forced to structure the transaction with a modest cash payment and significant earn-out milestone payments. Since the company had been built to last, David welcomed this deal structure, and remains confident in his ability to grow the business and successfully hit the milestones.

Many thanks to the alumni in attendance that evening, but mostly to David Thrower, for his insight, candor, and inspiration!