Starion Entrepreneurship Case Analysis

M3786 NEW VENTURE PLANNING audition CASE ANALYSIS REPORT STARION ENTREPRENEURSHIP consume CASE ANALYSIS REPORT Starion Instruments, headquartered in Sunnyvale, CA is a private community with load IP assets g trolling on the exclusive attest of groundbreaking medical checkup examination research in the field of optical maser create from raw stuff welding. Starion hopes to revolutionize the electro surgical field with the existence of harvest-homes like its cautery forceps economic consumptiond for sore and varnishing (cauterizing) meander. The boilersuit yearly trade place for these types of medical thingumajigs is in excess of $1 zillion.Furthermore, Starions promising IP and continue research goals forget enable it to extend to a fundamental foothold in the worldwide medical technology exertion with sales straining $150 billion annu aloney. The foundation of Starions IP lies in the hands of Dr. Michael Treats research. In the 1980s Dr. Treat and Dr. Larry Bass, a charge card surgeon resident at heavy(p) of South Carolina Presbyterian, started experimenting with lasers in mathematical process. With a humble extraction the two surgeons worked from Columbia Presbyterians seventeenth floor lab on their innovative research.Together, these two pioneers invented the field of laser tissue welding using thermal free energy to rejoin tissue severed in surgery. However, this technology remained uncommercialized for several long time later on its initial disc oin truth. Shelly Monfort, a Stanford-trained engineer, began her entrepreneurial cargoner in 1986. With a emphasise in R&D on medical devices as well(p) as start-up let, commercializing those devices, Ms. Monfort and two engineers, Ken Mollenaur and George Hermann, were involved in the creation, funding, and exit of at least 6 surgical device companies from 1990-1996.Ken Mollenaur maintains experience aim and expression medical prototypes. George Hermann possesses capacious experience navigating the medical device approval sue working with the study governory bodies in the industries. By June 1988, Ms. Monfort had signed a license with Columbia Starion Instruments could now begin building a staff and a ware to bring to market. With their exclusive licensing deal in place, Dr. Treat left Columbia for Starions California headquarters and began developing the growth.In October 1999 Starion instruments, delineate by Dr. Treat, made its de unless at the American College of Surgeons Conference, the single near meaning(a) industry event for people who would get and use the fruit. At the time, the comp eithers goal was to raise $750,000 in capital. Ms. Monfort assembled $2 jillion from private investors along with a pair of venture capital firms. At the time Starions valuation was $7 jillion. This was a crucial pull down for the comp each. supremacy or failure is a good deal footingd on an initial market foray.The counselor chosen by focussing in this situation had an irrevo stemma effect on the comp whatevers overall performance. A capital infusion of and $750,000 sternly express the fellowships merchandise and phylogeny capabilities and was a gross underreckoning of the companys capital necessarily a clear representation of Ms. Monforts inexperience. Furthermore, the companys additional capital requirements were graduate(prenominal)lighted by the investors volitionness to infuse a $2,000,000 round when only solicited for $750,000. To Ms. Monforts credit it was her cooperateer and mentor, Dr.Thomas Fogarty, a legend in the surgical world, who insisted on the additional capital. The company mean to go to market with a bringet boat consisting of single use liquid forceps and a disposable battery pack. The forceps would carry a price tag of $410 and the battery pack would list for $39. The effort was directed toward an unmannerly surgery application. Open surgeries accounted for around 80% of outgrowths performed at the time. Starion planned to eventually dilate to laparoscopic devices once it gained additional market share.An meaning(a) aspect of Starions strategy was to market its crossroad as non only a superior tool as far as results, only if in like manner to highlight the simplicity and monetary value forte of its offering. Surgeons, the principal buyer in this post, are cognize to be fairly innovative, go forthing to try unseasoned things. However, it is only with repeat use that they gain skill with a minded(p) device. Therefore, it is critical that they see not only a represent advantage, but a probative increase in product performance in value for considerable adoption to take place.Starions choice to focus on the core buyer requirements magnifies their intimate knowledge of the space and contributed greatly to the companys overall success. The decision was made to concentrate on an open surgery strategy. Early adoption, peculiarly for a petty fish in a big pond, is critical to any start up. This direction, spearheaded by management, was a dextrous decision for several reasons. The customer base in this field consists of an end drug user with a complex hierarchy and buyer process. However, it is ultimately the end users decision which makes or breaks a product in this ield. Therefore, the decision to launch the product for use in open surgeries as opposed to laparoscopic procedures vastly increased the attracter to the early adopter base. The open surgery tool strategy enabled doctors to rely on backwards compatibility (the ability to simply take place back on the tried and avowedly decamp and suture method), another severalise point with experimental tools and methods. Prior to Starions laser tissue welding break done, the most common electrosurgical tool was the monopolar device, also known as the Bovie device.With this technology, the patient is wired to a grounding pad that earmarks a way for the electrical current to flow. The surgeon uses an electrode to passing a high-frequency electrical current through a patient to cut and ignite tissue in a selected area. The Bovie requires a generator that hails between $7,500 and $10,500 a social class. In addition, each mental process requires disposable (one time use) grounding pads and electrodes, whose combined approach is 5 to 6 dollars per procedure. The disadvantages include (relatively rare) situations in which the device causes burns to the patient at the side of the grounding pad.Additionally, the Bovies high energy output can intervene with the ever growing mass of electronic equipment in modern operating rooms. An choice to the Bovie device is the UltraCision, also known as the harmonic scalpel. This device uses ultrasound to vex the heat needed to cut and seal tissues. Ethicon Endo-Surgery Inc. a Jonson & Johnson subsidiary owns UltraCision. Starion estimates that the ultrasound found product has annual sales of almost $100 million. Like the Bovie device, the UltraCision system requires a reusable power supply, which woos approximately $15,000.The system also uses an electrical cable that costs $630 and must be replaced after approximately 100 surgeries. In addition, single-use tips that cost approximately $325 are also required. attached the relatively high score of cost associated with selling medical technologies, Starion pursued a strategy in which it would division a large market and avoid going away head to head with its competitors. Due to its wasted size and relative weaknesses, Starion was forced to parse the market even further deciding to promote its technology specialisedally for use in a single procedure which would greatly reduce the overall cost of their product launch.The variable costs, excluding sales commissions, for two the battery and forceps were projected to oppose about 40% of the sales price. Fixed costs, excluding R&D, were expected to total $1. 1 million in the first year o f operation and $1. 65 million in the atomic number 42 year. R&D for the first year was projected at $1. 25 million and $1. 45 million for the second year. abandoned the industry standard, this team had the necessary components for a successful start-up. The initial engineering and development of a product like Dr.Treats is best done in a small workshop by fervid and dedicated serial entrepreneurs. However, the teams inability to surrender the reigns of the company inexorably inhibited the firms prospective growth. Conversely, the small, dedicated team was able to controvert dynamically to the market positioning their product with care in a segment which allowed a gain in market share. This short-term success whitethorn well translate to continued development however, the degree of future shareholder value is limited by an order of magnitude equal to the founders shortsightedness.In the medical device field, there are some significant barriers to entry the combination of patent s, expensive/extensive clinical trials and research in association with strict federal government reverting can overwhelm smaller companies, and help protect established players against competition. The FDA is the primary regulator of medical devices, and its mandate is to insure that the devices that reach the market are safe and effective. The medical device industry is populated by a small number of major device manufacturers and diversified medical companies in addition to the large number of small companies.Dominant players in the industry include Johnson & Johnson, Baxter International, Becton Dickinson, Medtronic, Guidant, capital of Massachusetts Scientific, and U. S. Surgical (a unit of Tyco). The combined market capitalization of the industry leaders mentioned is approximately $300 billion with the smallest just over $9 billion (Source Bloomberg). Medical products and serve companies invest around 8% of annual taxations in R&D, this compares to 3 to 4% invested by U. S . manufacturers (Standard & Poors). However, the true path to diversity in this industry is through conjugations and acquisitions.Due to overpower development and production costs twin with a large upfront marketing outlay, coalition and acquisitions are the industry norm, not the exception. Even well capitalized companies willing often choose the route above, rather than spirit the huge barriers that exist in this market. The intravenous feeding Ps intersection point, Promotion, security and Price. Product Revolutionary technology. Promotion Combination of in-house and franchised channels. Protection Strong IP backed not only by the company but by Columbia. Price 91. 45% nest eggSpeaks for itself.Further data was not supplied however the interest is an example of some of the continued monetary abridgment we would conduct. Financial analysis emolument ratios Gross realise leeway = (Sales gross COGS) / Sales receipts light up Profit Margin = Net Income / Sales Revenue Return on total Assets = Net income available to common investment firm holders / join Assets Return on stock holders fair play = net income available to common stock holders / stockholders equity Liquidity Ratios menstruation Ratios = menstruation Assets / Current liabilities Quick Ratio = (Current assets Inventory) / Current liabilities Inventory Turnover = COGS / InventoryLeverage Ratios Debt-to-Assets Ratio = descend Debt / entirety Assets Debt-To-Equity Ratio = Total Debt / Total Equity Cash Flow psychoanalysis Determine appropriate debt levels, payout periods and additional analysis to confirm liquidity. Net Profit Margin = Net Income / Sales Revenue starting line twelvemonth -4,639,464/4,000,000= -1. 16 Second Year -689,333/8,000,000 = -. 086 Gross Profit Margin = (Sales revenue COGS) / Sales Revenue (4,000,000 1600000) / 4,000,000 = 0. 6 price strategy Pricing is currently very assertive and sales strategy prudent.Initial management was executed properly , however it is likely that changes will need to be made in the near term to achieve significant market share. Partners strategic alignments are mainstays in this industry and should be aggressively pursued. Strategic investment merger acquisition. Intellectual keeping IP is an essential aspect of any medical device company given the simplicity of the concept the device may come up against some defense issues. Early indications seem to support the force of the companys IP, however it is certainly a concern which warrants further investigation.Note both(prenominal) Starion and Columbia would be behind any major IP issue. Given the severalize of the industry and the unique positioning of the companys IP prospects a partnership/acquisition would be our main point of recommendation in the near term. During this convert it may be prudent to think the current organizational structure, with a specific focal point on cured management (when moving to a tonic phase often times major (postnominal) management, who were suited for the initial stage or better succeeded by a new team).RECOMMENDATIONS Our recommendation consists of three key elements that will drive profitability, continued growth, and increase market share adding shareholder value. Breakeven and ultimately profitability can be achieved (1) by instituting aggressive pricing to both vendors and sales force, (2) the merger of Starion Instruments with a bigger firm and/or (3) the acquisition of another firm that will allow them to manufacture, distribute, market and sell the product at a cheaper and more cost-effective manner.Current State Currently, Starion is the one of the world leaders on surgical device development. It has expand worldwide distribution of its proprietary tissue welding technology to physicians in northmost America, Europe, the Middle East, Africa, and Asia. Last year the social club of Laparoendoscopic Surgeons named Starion Instruments the 2007 Innovator of the Year for the d evelopment of its next-generation create from raw material Ligating Shears which use its innovative cut and cauterizing technology.Since the launch of their original Cautery Forceps, Starion has created an entire line of Forceps and Ligating Shears which can all be viewed on their website http//www. starioninstruments. com/products. html. They are nevertheless a privately held company which is amazing given their tremendous success. This is not affect given the fact that the first time they were offered to be bought out they declined. This has kept the leaders at the mercy of the owners and founders and will provide a unique company such(prenominal) as Starion the ability to continue providing innovative, cost efficient, and quality