I live in the world of early-stage Orthopedic companies. I worked inside Orthopedic startups and today I provide recruiting for many of the most promising startups.
I respect startup leaders. They put it all on the line. Building a startup is hard work and the odds are against them. Statistically, most Ortho startups do not reach a successful outcome – an exit, an IPO or a profitable longterm business.
I have seen 7 specific reasons why startups burn out.
#1 Lack of Execution– The team fails to execute the business within the time frame and within the cash on hand. The team must knock off key milestones at a fast-enough rate to drive valuation.
#2 Faulty Regulatory assumptions – The regulatory pathway assumptions at the start of the company take a turn for the worse. Regulatory = time + money, and you need a lot of both to get through it. Usually this is a class II that turns into a class III or turns into the need for years of clinical data. The average cash needed to complete a class III PM/IDE is about $100M and 10 years.
#3 Wrong Management at the wrong stage – As a startup moves from concept, to working prototypes, to verification testing, to regulatory filings, to early commercialization, different leadership is needed to execute. Two extreme examples are a sales leader in an early stage phase or a founder during the commercialization phase.
#4 Mis-Alignment – Often overlooked. If management, employees, the board and the investor have different ideas of the perfect outcome for the business, then the business will fail. One group may want to grow the business for 10 years, one group may want to sell early at a low valuation, while the other group may want to time the IPO market.
#5 Under-funded – If a startup doesn’t have enough cash the reach the next milestone to increase valuation, then its doomed. A startup can be equally doomed if it is constantly raising money, and therefore making only short-term plans. This is called “kicking the can down the road”. It should be note that underfunding can also be a symptom of another illnesses, such as poor management.
#6 Over-funded – Funny that too much money can kill a company, but there are many examples. Read… Too much money.
#7 Just bad timing – Sometimes everything is perfect except the market is not ready for the technology. Spinal cages were conceived around the late 1970’s. Robot orthopedic surgery was conceived in the 1980’s. Early artificial disc were designed that never reached the market. Telemedicine was the buzz in the 1990’s. Startups must have the right technology in the right year for favorable regulatory clearances, venture funding interest and clinical market acceptance.