No one does the vision thing better than Elon Musk. But he is even a visionary about vision. His grand visions inspire consumers and employees. But he also knows that visions need grounding in credibility. Overly grand ambitions generate skepticism and backlash. So Tesla has smartly scaled its vision over time, as its accomplishments have grown.
Medical device companies and auto manufacturers depend on a network of dealers or distributors, to market, sell and service manufacturers’ products around the world. It’s the accepted way of doing business, and it’s expensive. I’ve had great relationships with distributors, in the US and around the world. They perform an important set of services, but they are also expensive. Distributors can cost 25% of revenues (or more depending on local pricing). Compare that percentage to the percentage of revenues you spend on R&D.
So I’ve been pretty impressed that Tesla has gone dealer-free. They’ve up-ended the traditional model, and I think it’s time for medical device companies to rethink the role of the medical device distributor. If you’re a medical device distributor, it’s time you rethink your business model too.
To understand why Tesla went dealer-free, let’s look at the reasons auto manufacturers needed dealers in the first place, and what has changed.
In almost every business, customers weigh the downside of poor product reliability more than the upside of new product features. Consumer demand for reliability has driven automotive industry design improvements for the last few decades.
Achieving reliability for innovative products is pretty hard. Tesla has delayed new models to hit performance, cost and reliability objectives. My guess is that they have some pretty sophisticated product testing. Nevertheless, real world experience is never the same as bench testing, and even for Tesla the need for after-sales service is a fact-of-life.
Most vehicle manufacturers and medical equipment manufacturers manage after-sales service as a profit center. Tesla has taken a different approach to its real world reliability issues. Innovative medical equipment companies can learn a few things from Tesla’s approach.
In my last post, I mentioned Tesla’s brand identity – technology, performance, design. Tesla consumers pay up for the brand and its design. In brand strategy, I (and others) see a lot of parallels between Tesla and Apple. Both are status brands, and both use their brand identity to maintain premium pricing. Tesla has clearly been paying attention.
Take a look at Apple’s brand – design, performance, and reliability. People pay significantly more for Apple products than for similarly performing products from other companies. When the iPhone first appeared, its performance blew away other then-existing smartphones. Over time, it’s hard to say that Android phone performance hasn’t caught up with the iPhone. All the same apps. Great processing, camera and screen technologies. Sharp-looking industrial design. Most reviewers rate Google Now as better than Siri. Yet Apple is the smartphone company making the profits.
Apple leveraged their early technology lead to build their brand, and now the brand delivers the economic rents. Apple Music is a late entrant to the streaming music market, but its brand enabled it to quickly become a top player.
Now let’s look at Tesla and its electric vehicles. Nothing else on the road performs like Tesla’s current lineup, and Tesla can charge a premium for their products. Like Apple, Tesla’s product design, manufacturing quality and subsequent product reliability are outstanding. Tesla is using its early technology lead to build its brand identity for technology, performance, design and reliability. If/when competitor technologies eventually catch up to Tesla, Tesla will still be able to earn economic rents on their brand.
I’ve had a series of Tesla posts on my mind for a while, but finding the time to write them has been elusive until now. I’ll post them over the next few weeks.
Tesla is today’s “It Car” – the cool, sexy, electric performance vehicle of choice. Who wouldn’t want to take a Model S for a spin? While there is a lot to admire about Tesla’s vehicles, Tesla Motors has also been masterfully executing its business strategy. For those paying attention, Tesla’s business activities can teach important lessons about bringing innovative products to market. Medical device companies could learn a thing or two. Today I’d like to talk about segmentation strategy and building a brand.
I’ve been tracking first-time venture financing of medical device companies in New England since 2005. Whew!
Startups are where innovation really happens. It takes the dedicated focus of a startup to drive real change to our healthcare system. A first venture funding is a validation of technology, market and business model. A key metric of the health of our local medical device innovation economy is the rate of new startup funding.
I also track startups because I want to provide a list of funded startups to the local community – job seekers, venture investors, and service providers. Startups have a hard time finding the right connections in the community, and vice versa. Maybe I can make it a little easier.
I’ve counted nine venture-funded medtech startups in 2015, of which one is a restart, one has no medical device products (but may), and one is a Ukrainian company with a Boston-area office. Given the venture funding environment, 2015 was a respectable, thought not stellar, year for venture funded medical device startups in New England.