Isabella Schmitt, MBA, RAC, director of regulatory affairs, Proxima Clinical Research and principal, M1 MedTech advises how to navigate turbulent economic times.
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Economic headwinds
Economic instability is expected to continue throughout 2022 and 2023. Major impacts to the supply chain, caused by various factors, are increasing expenses across the board. Recurring costs for goods and services, such as electronics supplies and parts, plastics, composite materials, fuel for product delivery, utilities, office space, and supplies, are rising. Business taxes are expected to climb, and salary demands will continue to increase to keep up with inflation. During an inflationary period, such as this, maintaining profitability and keeping up with demand can be a challenge. The market will likely slow until global supply chains stabilise, and manufacturers get the materials and resources they need.
During inflation, companies focused on cost leadership strategies will likely struggle from increased expenses. On the other hand, companies that focus on differentiation will likely fare better because true differentiation results in more price inelasticity, meaning the demand for the product will remain regardless of pricing. Companies with truly novel and necessary products will weather the storm a bit better by pushing costs to buyers.
However, during a recession, investment in R&D, the very mechanism for creating innovation and differentiation, is often stifled by companies needing to maintain profits in a rough market and investors being more gun-shy as their dollar doesn’t go as far. One advantage medtech companies have had historically is the focus on revenues over profits, meaning shareholders are often accepting of companies re-investing in growth strategies to create more products to sell versus focusing intensely on the bottom-line. If this trend remains during this recession, investing in truly disruptive technologies would be beneficial for medtech investors and strategics alike, as they are more likely to invest in technologies with a moveable pricing scale.
Many analysts concur that medtech can weather the storm but is not completely immune to the recession. Companies can do a few things to stay ahead during challenging economic times, most of which they should be doing anyway.
- Establish a solid business plan. Companies with solid business plans understand their customer needs and can cut unnecessary costs, using their capital more efficiently. Adaptability is key in a market like this and can mean the difference in attracting new investors or having your reserves run dry.
- Know your numbers. Understanding spending initiatives and knowing your numbers is crucial to establishing credibility in a volatile market. Now, more than ever, keep your burn rate as low as possible while moving forward on milestones.
- Plan for supply chain problems. As supply wanes and capital costs increase, finding more than one supplier will be critical in building products for the market. Begin supplier qualifications that align with your QMS as soon as possible so that backup suppliers for your component parts can be engaged immediately. This will help avoid costly delays.
- Build strong relationships. Establish strong relationships with potential commercial partners and customers early so that you have solid footing with important stakeholders when competition gets fierce, or frustrations arise due to price increases and/or delays. While customers expect some increase in pricing, rusted brands and partners will become the preference.
- Invest in the right people. Hiring and firing are especially important during times of inflation. As salary costs increase, the investment in each team member increases; individuals who do not perform well or do not stay with the company long have an even poorer ROI. Re-hiring may prove challenging and result in salary increases to keep up with rising costs.
- Become techy. Lean on technology where you can to streamline processes and costs. This could mean using analytics to source problems, increasing utilisation, or even avoiding unnecessary travel.
- Brand yourself better. Look for opportunities to differentiate or tell your story in a way that highlights your product differentiation. Your claims must match what you were cleared or approved for by the FDA, so as you plan that market application, keep product differentiation in mind.
While economic instability feels unpleasant for everyone, it doesn’t have to mean the end of your company. There is a potential silver lining for outstanding companies. Companies with a solid business infrastructure, strong procedures, significant foresight, and stellar teams, will stand out. Times like these are Darwinian and companies with the fittest DNA will survive and ultimately thrive when they outlast their competitors.
