I recently coined the phrase “Zombie Ortho Companies” and wrote about a particular Zombie Spine company called, Spineway. Spineway is a good example and easy to highlight because they are publicly traded.
But wait.
The bigger picture is that the orthopedics industry has become littered with Zombie companies ever since the financial markets flipped and became “risk off” in May of 2022. Ten yeas ago, Zombie Orthos were rare because they could always get more funding, buy time and figure out a successful outcome. But the world is different now.
Today there are easily 50 additional Zombie Orthos in existence but I do not want to call them out. You know who they are.
So let’s look deeper. What is the criteria of a Zombie Ortho Company?
1/ Financially Drained:
- Perpetual Debt: The company generates just enough cash flow to cover its operating expenses and service the interest on its debt, but never enough to pay down the principal amount. It’s stuck in a cycle of refinancing to survive.
- Unprofitable: Revenue doesn’t cover all costs, leading to consistent losses. This makes them unattractive to traditional investors seeking returns.
2/ Investment Roadblock:
- Blacklisted by Capital Markets: Venture Capital (VC) firms and debt providers won’t touch them. Their poor financial health and lack of growth prospects make them risky investments.
- No Exit Strategy: There’s no clear path for the company to become profitable or attractive for an acquisition. An Initial Public Offering (IPO) or buyout seems like a distant dream.
3/ Stagnant and Inefficient:
- Limited Growth: With no extra capital for innovation or expansion, the company remains stagnant. They struggle to compete with more efficient players in the market.
- Resource Drain: Zombie companies tie up resources like credit lines and talent that could be better utilized by healthier businesses. This can hinder overall economic growth.
How to avoid becoming a Zombie Company.
Below are some actionable steps to avoid that fate:
- Focus on Profitability: Ensure your business model generates enough revenue to cover all expenses and leave room for debt repayment and future investment.
- Prioritize Debt Management: Develop a plan to reduce your debt burden. Negotiate with lenders, explore refinancing options, and prioritize paying down principal alongside interest.
- Cultivate Growth Strategies: Invest in innovation and strategic expansion plans. Staying ahead of the curve and adapting to market changes is crucial.
- Maintain Financial Transparency: Open communication with investors and lenders builds trust and allows for early intervention if financial difficulties arise.
- Seek Professional Help: Don’t be afraid to bring in business consultants or financial advisors to help identify and address potential problems before they become critical.
- Consider Alternative Funding: If traditional capital markets are closed off, explore alternative funding sources like angel investors, grants, or strategic partnerships.
- Exit Strategy Planning: Even if an exit isn’t imminent, have a plan for the future. This could involve an IPO, acquisition, or even a strategic shutdown if necessary.
By being proactive and taking preventative measures, you can increase your chances of staying healthy and avoiding the pitfalls of becoming a Zombie Company.