“In medical devices, either you have a recurring revenue model where you sell a device but make money off consumables and keep your cost of customer acquisition low.
Or you sell high-end models where the revenue realization is right up front. The problem with devices like baby warmers or ECG machines is that there really is no recurring revenue,” says Sidhant Jena, co-founder, and CEO of Jana Care, a nine-year-old company which makes point-of-care medical devices.
Spreading the business all over the world
Effectively, the medtech business for multinationals in India is not so much about, ‘can you make it low cost?’ but rather about, ‘can your business model complement it?’
It’s difficult to sell to rural India because of how medtech distribution works. Companies typically have a mix of distributors, who buy inventory and sell at a profit, and direct sales partners, who sell for a commission. When doctors need a device, they’d ring up, say, the direct GE sales guy who will facilitate the sale and earn a commission from the company.
Siemens Healthineers uses both networks as well as a direct sales team today to sell beyond tier 2 cities. It has 120 distributors and sales partners. At present, greater than 65% of Siemens Healthineers’ revenue is now coming from sales to tier 2, 3 and 4 cities, up from less than 40% five years ago, Yagnik said.
But this model has challenges. Direct Sales reps who do well in the districts tend to get hired away to plum positions at metros. That leaves a constant talent gap in the countryside.
Analyzing the potential sales
And distributors tend not to proactively chase leads because their geography is limited, and so are their potential sales. There just aren’t that many nursing homes in a place like, say, Hubli, Karnataka—population 944,000; 13 hospitals recognized by the Government of Karnataka compared to Bengaluru’s 108—to sell to.
In 2013, Philips tried a slightly different model. It hired an outsourcing agency to place direct sales reps across tier-2 towns. They ended the attempt after two years.
“These products are complex in nature, so there has to be a certain amount of education that needs to happen from the sales rep who is trying to sell,” Menon of SKP Consulting said. “If you try to outsource it to a third party, then you can imagine the results are not very encouraging.”
GE, for two years, incubated an internal unit that’d sell directly to tier 2, 3 and 4 cities. While the main GE sales team served state capitals and areas within a 100-kilometer radius of it, the unit served everywhere else. However, the unit was not as successful as the MNC wanted, Ganeshprasad said.
It was operating in roughly 200 districts in the country and at a distance of 700 kilometers to the nearest customers. The affordable products the company had developed were still not reaching the far corners of India.
Starting as a start-up
In 2015, GE decided to spin off GenWorks as an independent start-up. Terri Bresenham, the former CEO, approached Ganeshprasad and asked him to helm the company.
Ganeshprasad was a GE star. He ran one of the company’s most successful portfolios, after all. In his cabin at GenWorks, Ganeshprasad has 11 GE awards on proud display.
“Running [the ultrasound] modalities gave me a view to small hospitals, nursing homes, large hospitals, diagnostic centers where care is provided,” he said. “I had that access for over 23 years.”
GenWorks was announced on 15 Jan 2015 at the radiology conference. It received 60 employees from GE, 110 employees from 40 distributors and a potential Rs 200-crore ($28 million) business. It also got an advance commission for the first quarter. Ganeshprasad and two colleagues invested Rs 3 crore ($424,565) of capital into it.
The business model was initially simple: GenWorks would act as the direct sales partner, keeping reps on its payroll. It would primarily sell GE products for a commission. To a lesser extent, it would buy inventory and sell for profit.