Which health robots will survive?

Which ones?

Okay a very brief post for all today - I was recently asked to give a sweepstake list with Vegas style odds on which companies will and won’t make it to the future for surgical robots.

Intuitive.... dead cert....but....

After a few minutes of consideration I decided not to do that; as it would be unfair to name any companies - and honestly, I’m here to rise the tide and get all boats to float. It really is my mission. I think ranking would be unfair as it is only a snapshot in time. And things change quickly.

However, I still wanted to come at this with a helpful thinking process based on what I teach on my courses for medtech startups - to try and help companies, founders, possible employees and investors to navigate some of the key success “Survival” factors for health robots.

Plus give a sneaky peak into my mind on how I mentally rank companies.

When I’m assessing either as an investment - recommend to colleagues - deciding who I can help (and who I can't) and ultimately trying to predict the future, I use these as a part of my algorithm.

Let me give a 12 point checklist:

How big is the market


Generally - robotics in health is very expensive. With a mixture of complexity to make it work right, and difficulty to get through regulatory - it’s one of the hardest “systems” in medtech to assemble and get on the market. And then of course sell and install at colossal costs. 
So that means it is going to take a lot of cash, and often time, to bring a complex device like this to market. Based on the outlay, the return better be worth it. If not, the maths just will never add up for the company. 
Independent of "will you be able to get enough revenue and profit" - the first simple question “Is this market big enough and real enough to support a damned robot?” 
The smaller the total market (TAM) - the less chance that this will ever be a successful venture. You need to be able to get in hundreds of millions of revenues by about year 10 to make any of this maths work. So my first question I ask is - “how big is the potential market for this type of robot?”


How crowded is the market


Double edged sword right there. If it’s a big market - everyone will rush to it. If it’s a shitty little market no one will bother. In my head a single robot trying to do all the heavy lifting alone - is a probable red flag. But, conversely, an over saturated market with some big heavy hitters in — well that too is most likely to be a graveyard for a lot of those upcomimng companies. It’s a Goldilocks story. You need the market interesting enough - but not saturated (Laparoscopy soft tissue robots & Spine is now pretty saturated.) Where as say open Microsurgery - there are just three or four players, dentistry there or four etc etc
 is less saturated. So I'm looking for enough interest by companies but not by any means saturated.

How strong is the competition in the market (installed base)


If you have a mega beast like Intuitive that has 90% plus market share and utter dominance… your chances of displacing them is low. “But Steve there’s a lot of un-tapped market…”
Yes - but why are you better placed to go after it than the market leader? Unless you are competitive with the big player - have something so “wow” - then it will be hard to fight against massive sales forces, marketing spend, installed base and reach of such giants. Not impossible - but just a lot harder. And if that combines with a lot of companies in that space, then expect the long term result to be a few big players surviving - and few highly differentiated players hanging in - the rest will fade into oblivion. 


How differentiated is the company


So, saying that. If you are highly differentiated you can find a sweet spot in that market and find your place. But I mean highly differentiated. Because if the lead player has a class leading device, massive advantage in installed base… why are people going to take a risk on you? They need a strong motivation - so your system needs to give them something that the incumbent can’t. Now that can be feature sets, procedural advantages, navigation, or a host of compelling things. Compelling advantages, simplicity or even - yes dare I say - a price advantage. But when I look across all the robotics sectors - bronchial, softy tissue, spine , joint etc. I look at the offering - look at the relative cost of ownership (not ticket price) and say “Is there enough differentiation here to get enough of the market to come across to make a sustainable business.”
 If it's just a poor copy with a marginal sub 20% cost of ownership differential. Nahhhhh.

How much of a clone is the company


If there is a market leader - Ion, da Vinci, Mako, MMI - whatever it be. Being a clone is a double edged sword. The one thing it brings is familiarity. If you can drive a da Vinci Xi - you can drive most of the clones with very little delta training. That makes “switching” between systems a lot easier. But it also makes the decision harder - “Why have a Rolex copy when I can have a Rolex?” well... some have said. It all will come down to how good of a clone is it? Does it bring something new? (Telesurgery)… what is the cost of ownership delta. 
I’m not talking here about pioneers wanting to be first to do cases or publish. I’m looking at 3 years post launch - is the clone good enough, adds enough, to become a sensible alternative and a sustainable business. Sometimes it can simply be down to - “Is it available in region.”
But my final thoughts on clones - only 1 or 2 can actually make it.
 Theres onlky enough room in any market for the best copies.

Their feature sets vs the industry bar


Don’t bring a knife to a gunfight! If you are in space with a clear industry leader - and they have a fully loaded system of features. You better get as close to matching them as possible as fast as possible. It’s not always because of the “need” to use those features / access to procedures / etc. But often that becomes the tick box on a tender or request for quote. The less boxes you can tick - the less chance of winning contracts. 
But also - if someone is thinking of switching, they will look at value comparisons. Same cost of ownership - it better have close to the exact same feature sets - even if no one uses them. Less expensive - what are the users willing to give up at what price point? But don’t be deluded - that will get you some sites but not every site. For a sustainable business ask this question “Why has the market leader developed all those features? For fun and to burn money?”
 Or is it defensive - or enough of the KOLs are asking for them. Ignore feature sets at your peril.

Their reliability and service burden


Anyone can make a prototype… etc etc but serial production on a 98.9% reliable product is tough. Not only does it influence customer thinking, perception, and overall experience. But it hits your bottom line. Systems like spine systems have a much lower stress burden on the robotic arms - they just don’t wiggle as much. They don’t have consoles - but do have other points of failure. 
It doesn’t matter - the bar is often set by the leader in a crowded market place - match the bar or suffer the consequences. Once inferior - always inferior. Trust is hard won in robotics.
 But with soft shoe shuffling and fancy footwork you can do a bit of a wizard of Oz for awhile and the customer can be shielded from those reliability issues. But that will suck your cash and willingness to live faster than you can imagine. If the reliability and service bar is already high - match the bar. If you are setting the bar... set it high as can be. Health is not a place for “have a go.” 
Get your system to as close to 100% reliable as possible’s as fast as possible. If I hear of “failure rates” complaints, customer dissatisfaction - it is the sign of a short lived or eventually small business.

Their Go to Market model


Often left late and thought of near the end of the entire process; and often done reactively not proactively. So I look at a companies GTM and I know where they will struggle. Is it a capital upfront robot model, a lease, a PPC (pay per click)? Is it a razor razor balde? Does it have special implants? Does it have pay for data? Pay for software SaaS?
 Direct - Distribution - blended. Who’s servicing the system and why? Who’s training and why? 
Is it a primary or secondary market push? 
I look at all the factors and internally assess if that is going to work - work well or not - and if that model can ever really generate the profit needed for survival. It’s a complex assessment - but a big indicator of which companies can and will survive. It’s blend of complexity of the system / procedure - and speed of market access combined with margins along the way. Big company vs startup etc etc. Big companies (if done right) will have the channel and can leverage that channel. But only if the channel is a real fit.

Does it need to change payment systems or fit into existing


Unless you are a Goliath of a company - getting coding and coverage changes will kill you. I look to see if that robot will fit into a current payment structure - (easily or just about). Will it add more costs to the procedure than the customer can stand? Does it require clever budget shift? Is it self pay (aesthetics / dental). 
If a robot can fit into current payment protocols and be at least break even - it can be a success. If it means a sudden cost penalty at one part of the patient pathway to gain in another…. The shifting of money from one pockt to another... that just gets tougher. If it requires a brand new type of reimbursement (think endolumenal GI Surgery) that’s another ball of wax. Big companies can do this. Smaller companies will struggle. 
I look at the ease of entry against reimbursement / payments as a future indicator of survival. The bigger the barrier the quicker the failure.

How much money has the company got access to 


How much is in the bank? How much dry powder is around the table? 
Now you might think I’m talking about small startups here. Nope. This equally applied to big strategics. Cash for projects is never unlimited. There are boundaries and limits on everything. And at some point the maths no longer adds up. No mater if you are big or small. 
Big - the project can be shut down or divested. Small you normally auger into the ground. 
So I assess both big and small companies by thinking about balance sheet. How much they have from last rounds, how much sunk capital, who are the backers, how much extra cash they have available.
This is an expensive game - very very expensive game. Ability to bankroll a robot and keep dumping money in past the tipping point is critical. For me it is maybe one of the most important survival factors. 
And that does not count just for startups - even strategics are not a bottomless pit. Be you a Microport or a JNJ - the money needs to be there and come from somewhere. Senior leaders and board members will all have a red line at some point. (Unit cost profitability - focus on it.)

Can you make profit early on per system as a company


Based off this. And understanding how much of a money pit this will be vs appetite to keep funding (big or small) will have one key metric in the middle. Unit profitability. Can you make a profit on each system? And how soon after installation? How you redeploy and reinvest that profit in the company is another matter and more about how fast you want to reinvest to grow. But unless you can get each unit to profit - and in a reasonable time - this is a huge indicator of “survival health” - grow is for show - - ultimately it’s profit that will determine long term healthy survival.
 An endless push out of “vanity” metric installs will never be a good business. - So if you don’t have unit economics that drives profit per install - the bigger you go - the broker you get. 


Do they have a bang on management team


Last but defiantly not least - maybe even up in the top three is the horsepower driving the business. Be that big strategic or early start up. When I look at a robotics company I’m looking for competence and scar tissue. I’m looking how much that C-suite and board has reach into the pockets of the investors. I’m looking for experience in complex capital systems with razor - razorblades economics know how. And do they have sector competency? 
At the end of the day - that ability to pivot - dance - shift - and ultimately execute will decide if the company makes it or doesn’t. The company are the people and the people are the success factor.

To be clear... this not my exclusive list. But it is part of the algorithm I use to guess (and it is just a guess) which horse will make it around the course - and which horse will be in the top 3 for each type of robotic race. Not perfect - but at least gives some sense to the method of ranking.

I do have my named list. It’s locked with a password on my computer. It names each of the companies in each pf the segments and gives a ranking of who will and who will not make it. And of those that make it - the degree of success they will have (the ranking). I do update the list as things change and people change. And I’m constantly trying to rank them out so I can try and predict some future for this market.

Overall, I personally think the future of the “Health robotics” market is bright. It is “the way”. But I’d ask you to use this algorithm above against any companies you are looking at and see how they rank up vs the competition.

Just thoughts and musings of the author for education purposes only.