The Break-Up. The 2006 movie
Break-Up, starring Jennifer Aniston and Vince
Vaughn, made a couple of points. First, know the
person you're going to move in with; try to see past
the good looks or jokes. And second, nail down your
expectations of the other person, lest your
relationship deteriorate into an endless series of
petty, hurtful squabbles. Now take a look at your
relationships with your manufacturers -- and
potential manufacturer partners. See any
Inquiring minds want to know. Curiosity has a bad
name. After all, wasn't it curiosity that killed the
cat? And remember Curious George, the monkey whose
curiosity always leads him into one tight spot or
another? Only the Man in the Yellow Hat can get him
out of trouble. Doug Overturf isn't buying it. Learn
Join IMDA Now and Read More.
Bronx cheers for plan to scrap 510(k) process.
Manufacturers are critical of an Institute of
Medicine report that calls for the FDA to scrap its
510(k) clearance process for moderate-risk Class II
devices. And the FDA isn't too wild about it either.
Join IMDA Now and Read More.
IMDA Annual Conference
What does it take for manufacturers and
distributors to write a mutual success story,
and even survive a break-up?
SAN ANTONIO, TEXAS -- The 2006 movie The Break-Up,
starring Jennifer Aniston and Vince Vaughn, made a
couple of points. First, know the person you're going to
move in with; try to see past the good looks or jokes.
And second, nail down your expectations of the other
person, lest your relationship deteriorate into an
endless series of petty, hurtful squabbles.
Now take a look at your relationships with your
manufacturers -- and potential manufacturer partners. See
A panel of manufacturers and distributors looked at the
dos and don'ts of business relationships at the recent
IMDA annual conference in San Antonio earlier this
summer. And many of their observations could have been
from The Break-Up, or a marriage counselor's playbook.
Manufacturers look for a proven track record of sales, a
commitment to excellence, and financial stability, said
Jim Thomsen, executive vice president, Vidacare. "If you
have a true ability to sell, it doesn't matter what
market you're in."
Many manufacturers don't know how to work with specialty
distributors, said Thomsen. "Look at most of the
managers [among manufacturers]," he pointed out. "They
have experience managing their own people, who work for
them. They manage by the whip, not by good reason or
management skills. And the whip doesn't work with
[specialty distributors]." Distributors who find
themselves getting managed by the whip have a couple of
options: They can simply stop working with the
manufacturer, or they can be upfront and tell the
manufacturer that its approach isn't working. "You have
to manage them, as if they work for you," Thomsen told
the distributors. "But you have to do it with tact."
Distributors such as Martab Medical look at the
uniqueness of a technology before taking it on, said
Anthony Marmo. Distributors need to know the
manufacturer's value proposition, provided, of course,
the manufacturer can articulate it. "In that case, we
help them discover it during our due diligence." The
smart distributor also tries to gain an understanding of
who is providing financial backing for the manufacturer,
particularly if it's a start-up.
"Trust comes from understanding and knowing you can
believe the other person," said Thomsen. "You've got to
know as many people in that start-up business as
possible." Invariably, that organization -- as almost
any other -- will experience internal friction that might
not be apparent to the distributor. "That affects you
[the distributor] far more than you think or
understand," said Thomsen.
Mercury Medical -- both a manufacturer and a distributor
-- finds itself turning down companies because they are
undercapitalized, said George Howe. "When the
distributor gets a phone call [from a potential
manufacturer], that's the most important thing to
understand -- how well are they funded?" If you're not
comfortable with the answer, walk away.
Missed the Conference?
If you missed the Annual
Conference and Manufacturers Forum in
San Antonio, or if you simply want to
review what you saw there, you'll find
what you need on the IMDA Website.
for PowerPoint presentations from
several of our speakers. Go to the
"Members Only" portion of the IMDA
Website for a list of exhibitors and
sponsors at this year's Manufacturers
Forum and Conference.
Mercury usually asks for a minimum five-year contract
with manufacturers, said Howe. The reason is, the first
year or two are the "investment phase," in which Mercury
is building a market for the technology, but not making
a lot of money on it. The distributor needs to keep its
eyes on the manufacturer's outside investors, who
usually have their own ideas about exit strategies, he
added. "If they want out in too short a period of time,
you have to have the ability to walk," he said. The
important thing is to get the expectations on the table
before signing a contract. "We tell our manufacturers
there will be a prenup."
Distributors need to make it clear to potential
manufacturer partners that "I am your partner; for you
to succeed, I have to succeed," said IMDA legal counsel
Mitchell Kramer. Some start-ups inevitably will get
acquired by larger firms. That's why the distributor
should consider asking for stock options as part of the
prenup. At the very least, the distributor and
manufacturer should iron out what will happen should the
manufacturer get acquired during the contract period.
Will the distributor get bought out per an agreed-upon
formula? Will the acquiring company assume the contract?
Better to ask -- and answer -- these questions prior to
forming a relationship.
"I appreciate having a distributor partner who can come
to me and clearly lay out what it takes to be
successful, from their experience," said Tim Beevers,
Beevers Manufacturing & Supply Inc. "I like the idea
of having a clear understanding, proposal or path to the
future. If it's two years, then let's talk about what
that distributor will do during those two years."
In distribution, "expectations" usually translates to "quotas." Setting reasonable quotas is an essential part
of the prenup, according to the panel members.
"At Vidacare, I said, 'No quotas for Year One,'" said
Thomsen. To his distributors, he said, "We'll all bust
our buns and learn from each other, and if one territory
does far better than another, they'll get together with
the others and talk about it." Vidacare instituted a
distributor advisory panel to keep the lines of
communication open between manufacturer and
distributors. Vidacare also offered its distributors
stock options up front, and offered even more options
later. "If you set things up right at the beginning,
it's easier going forward," said Thomsen.
"The manufacturer/distributor relationship has to be a
win-win, or it shouldn't be at all, said Kramer. He
listed his "top six" elements of any contract:
Longevity. "The single most important element to the
contract is longevity," he said. If the contract says
it's a five-year deal, but it gives either party the
option to terminate in 30 days without cause, then it's
really a 30-day agreement. Contracts should deal with "true longevity," and should include the basis for
Territory. The contract should clearly list exclusions
-- if any -- from territory, including house accounts,
buying groups, etc.
Pocketbook issues, that is, margin or commissions,
must be spelled out.
Ancillary costs that might be thrown back to the
distributor. The contract should spell out things like,
Who's responsible for the cost of literature? Who's
responsible for shipping? "Many of these costs are
legitimate," said Kramer. "But you have to know what
Non-compete clauses. "Non-competes during the contract
period are fine," he said. "The problem is with
post-termination non-competes. We have had
almost weekly issues with this. They're
dangerous, and they can put you out of
Control issues. "How much control does the
manufacturer want over the nitty-gritty of your
operation?" asked Kramer. How much can you as a
distributor stand? "Manufacturers who want too much
control probably don't understand distribution."
The hard times
The most contentious issues are related to termination,
and the second most are related to commissions (in
commission deals), Kramer continued. But some of these
issues lose their bite if both parties treat each other
decently, he said. Just as doctors who treat their
patients well are less likely to get slapped with
malpractice suits, so too are manufacturers who treat
their distributors well less likely to run into
Conference photos on Facebook
What do Don Marcello, Duke Johns, Bill Schultz and Don Reiter have in common? They all won golf awards at the Annual Meeting, and their photos are on IMDA's Facebook page.
Go to www.imda.org and click on
"Facebook" to view these photos and more from the Annual Conference.
So manufacturers, don't burden your distributors with
unnecessary paperwork, advised Kramer. Don't send the
regional manager in to occupy two or three days of the
distributor's selling time. Simply put, don't
micromanage your distributors.
Distributors, play fair with your manufacturers, he
said. "The distributor has to have a commitment to do
the best they can for that manufacturer. If you don't,
then you have a moral and professional obligation to
turn that product back to the manufacturer and let
somebody who does have that commitment take it on."
Said Thomsen, "It all comes back to, 'How well do you
know each other, and how well do you communicate?'"
Manufacturers need the sales tracings they're asking
for, because the FDA says they must have them.
Manufacturers have to know where their business is, so
they can develop marketing plans, and find out what's
working and what's not.
"Where it gets sticky is if you're not performing,"
Thomsen told the distributors. "Everybody has an excuse.
I can't tell you how many people have told me that New
York is different, Los Angeles is different, Detroit is
different. If you're not making the numbers, own up to
it and ask, 'How can you, Mr. Manufacturer, help me do
this?'" You have to analyze what's going on and then get
the support you need, such as training.
Making it work
"I conduct my business on a simple principle," said
Beevers. "Say what you're going to do, then do what you
say you're going to do. I work really well with people
who respond in kind. If you can't do what you said you
can do, call up early and 'fess up. It's simple, but
it's the area where we've had the most difficulty."
Beevers tries to install "activity milestones" into his
agreements. "Say you have a two-year development time
frame," he says. "What are you doing in the first 90
days, the next 90 days? Having a rollout plan allows you
to evaluate how well that's working over time, and it
gives you an objective way to amicably say, 'This isn't
Beevers asks his distributors' to trust that when he
wants to talk to one of their clinical customers, it's
about a clinical issue, not sales. "One of the most
important things I get from distributors is market
surveillance activity," he said. "I need customer
feedback on existing products and problems that [we can
Distributors can get frustrated that the manufacturer is
slow to respond to suggestions or even pleas for product
changes, noted some panel members. Thomsen said he
understands the frustration, but he pointed out that
changing a product isn't easy. "It's not cheap, it's not
easy, and it takes forever [to develop products]." The
manufacturer can run into patent issues. And the cost of
retooling a product can jack up its price. All of these
things affect its market potential.
Happily ever after?
What do manufacturers want? Above all, Beevers wants his
distributor partners to be conduits between him and his
end-user customers, so that if a need or problem arises,
he is made aware of it quickly. He likes his
distributors to be prompt payers, and he likes to work
with them to come up with a clear plan for the coming
year. "What local conferences will the distributor
attend? What kind of inservicing do they need? When will
they bring on new salespeople? Be upfront about what you
need from me," he told the distributors.
"I have two rules," said Thomsen, "First, I don't give a
damn how many mistakes you make; I want you stretching
the envelope. Go ahead and make a million mistakes, just
make a million different ones. The second commandment
is, now that I've freed you up to screw up, you never
have a reason to lie to me." In that environment,
everybody works hard, learns from each other, and enjoys
"We begin with the end in mind," said Marmo, who
complimented Thomsen and Vidacare on that companty's
well-thought-out exit strategy. "Our guys are running to
the finish line," he said. "They will continue to do so
[if they believe the relationship] is fair and
Said Beevers, "The biggest protection I have against a
business partner behaving badly or being dishonest is to
do business with those who have a reputation for doing
business reputably. I want to know the distributor is
working. I'm really interested in relationships where
we're both contributing to make a mutual success story."
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Published by IMDA
5204 Fairmount Ave., Downers Grove, IL 60515
Phone: (630) 655-9280
(615 )859-2337 (866-463-2937)
Fax: (630) 493-0798
Katie Keel: Executive
Judy Keel: Executive Vice President
Patti Perillo: Senior Administrator
Mary Moran: Chief Financial Officer
Mark Thill, Editor &
Communications Director (224) 735-3297
Laura Thill, Associate Editor (224) 735-3296
Mitchell Kramer, Legal Counsel (800) 451-7466
George Ayd, Jr., Insurance
Anthony Marmo, Martab Medical
(201) 512-1100, ext 225
Hal Freehling, Jr., O.E. Meyer Company (419) 609-1633
Don Reiter, SRC Medical
(818) 717-8807 x19
Chairman of the Board
Dave Campbell, PhD, Vital/Med Systems Corporation
Tom Birmingham, Bay State Anesthesia, Inc. (978) 682-6321
George Howe, Mercury Medical (727) 573-4907
Bill Schultz, IPV Medical, LLC (760) 212-2769
Don Sizemore, D&D Medical, Inc. (615) 859-2337
Kevin Trout, Grandview Medical Resources, Inc.
Manufacturer Representative to Board
Tim Beevers, Beevers
Manufacturing & Supply
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