August 2011

The Break-Up. 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 any similarities?

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 why. >> 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
The Break-Up
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.

IMDA Announcement


If you've seen one IDN. . .

Repertoire magazine featured the IMDA Annual Conference in its August issue. The article, "If you've seen one IDN...," can be viewed at http://www.repertoiremag.com/
Article.asp?Id=3771
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Now take a look at your relationships with your manufacturers -- and potential manufacturer partners. See any similarities?

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.

The courtship

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.

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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.

Go to http://www.imda.org/2011Conference.htm 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.

The prenup

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 termination.

  • 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 they are."

  • 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 business."

  • 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 problems.

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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 working....'"

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 solve]."

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 success.

"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 equitable."

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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Staff

Katie Keel: Executive Director
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 Administrator
(703) 652-1309

 

 

 



 

 

 

 

2011-2012 Directors

President
Anthony Marmo, Martab Medical (201) 512-1100, ext 225

President-Elect
Hal Freehling, Jr., O.E. Meyer Company (419) 609-1633

Secretary/Treasurer
Don Reiter, SRC Medical (818) 717-8807 x19

Chairman of the Board
Dave Campbell, PhD, Vital/Med Systems Corporation
(303) 660-0888

Directors-at-Large
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

Past-President
Kevin Trout, Grandview Medical Resources, Inc.
(412) 914-0950

Manufacturer Representative to Board
Tim Beevers, Beevers Manufacturing & Supply
(503) 472-9055

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