Protecting the King

Ever since my partners and I started our first medical instrument business in 1980, the axiom of selling “razor blades instead of razors” has been repeated ad nauseum. I see it in print and I hear it almost every day. The metaphor has been around since the turn of the last century.  The medical device industry is very dependent on this principle of consumable vs. reusable products.  King Cash Gillette (his real name) is credited with exploiting this business model better than anyone of his time. He started selling razors and blades in 1903 and his iconic brand persists today. Gillette, now owned by Proctor & Gamble, is among the most well-known brands in history.

It’s true. The concept of creating a business where customers automatically purchase your product over and over again has been the foundation of many successful companies.  After all, you sell the customer once and (hopefully) they will purchase your product for life.

What is not well understood, however, is how these companies protect their businesses. After all, if you need razor blades every week, what’s there to stop a competitor from coming in and supplying this need, perhaps for less cost.  Patents are important but often a competitor will find an alternative way to compete.

With razor blades, it turned out that they are very hard to produce in mass commercial quantities.  They are made by the millions and every single one must meet tough quality standards while keeping cost down to a few pennies each.  There are only a few companies in the world that can actually manufacture them.

Gillette cracked this tough problem.  The company was lucky to have William Nickerson on board who developed a proprietary manufacturing process for the disposable razor blades. (follow the link to learn more).  Developing a process (and possibly patenting that process) can be an expensive and costly endeavor but this investment can prove to be more valuable than patenting the product itself.

Gillette became successful for numerous reasons, but it would not have happened if they did not have a proprietary process that made it difficult or even impossible for a competitor to easily enter their market.

R.

“The razor was looked upon as a joke by all my friends. A common greeting was, ‘Well, Gillette, how’s the razor?’ If I had been technically trained, I would have quit.”
King Gillette

Gilette’s Patent

Related articles

• Good Question: Why Are Razor Blades So Expensive? (minnesota.cbslocal.com)

Picking Winners from Losers – Part One

For over 30 years, my partners and I have had countless start-up companies coming to us for help.  After all, Orange County is a hotbed of medical device innovation and we had a reputation for working with early-stage companies that have dreams of a new blockbuster product.  As a product development shop, we had all the know-how to take these ideas for new medical devices and convert them into something producible and saleable.

We often joked among ourselves about the typical entrepreneur that built a shaky prototype and “just wants someone to manufacture it for him” (yes, they were always men).  “Oh, and by the way, while you are at it can you just take care of a few problems we are having”.  The truth is that there is little understanding among newly-minted entrepreneurs about the product development process (especially medical) and the roadmap leading to commercial success.  Their business plans rarely show enough funding to make a product manufacturable or enough to adequately market it.  Our questions about this usually evoke a “deer in the headlights” response or they try to brush the question off as a minor issue. (read: “If you build it, they will come“).

We turned down numerous opportunities because the entrepreneurs had unrealistic expectations.  Many more suffered from “sticker shock” when we showed them what the costs really were.  Others would hope that we would perform the needed work for free in exchange for an equity reward.  (Our long time policy was to never take an equity position with a startup).  Our business was to provide development and manufacturing services for a profit.  It was the client’s job to get rich from the opportunity.  We knew our job well and we hoped that the client knew theirs.

In the end, we still took risks that some clients would fare better than others.  We were not always right and we lost money on them.  Three decades have left me with a few rules I apply when trying to sort out new business opportunities.  I will list some of the important ones in Part Two.  Stay tuned…

RWH

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• Copy these 10 things one startup founder is doing right (business.financialpost.com)
• Entrepreneurs, investors come together with business in mind at DU (kdvr.com)
• Doctors make key contributions in developing medical devices (upi.com)
• Startup CEO = PR Pro (markevanstech.com)
• Physician entrepreneurs are key contributors to new medical devices (eurekalert.org)