Emerging Trends in Medical Device Sales

Scott Nelson: Hello, everyone. It’s Scott Nelson, and welcome to another edition of Medsider, home of the free personal medical device MBA, and for those of you who are listening for the first time, this is a show where I bring on interesting and dynamic medical device stakeholders, as I like to call them, so we can all learn a few things, hopefully be entertained along the way. And on today’s call, our guest is Dr. Richard Ruff, and I’ll refer to him as Richard to keep it a little bit more informal, but he does have his PhD. He is the cofounder of Sales Horizons, which is a sales training organization. So without further ado, welcome to the call, Richard. I appreciate you spending some time with us here today, and I look forward to a nice conversation.

Richard Ruff: Well, good morning, Scott, and thanks for the invitation.

Scott Nelson: So let’s first start out with some interesting tidbits about your background. I want to have the audience get a better feel for who you are and where you spent your career. But early on you spent quite a bit of time, and I think actually you co-wrote a few books with Neil Rackham of the SPIN Selling fame and Huthwaite organization. I think everyone that’s listening knows or if they haven’t read the book at least knows about SPIN Selling, very popular book. But let’s start there, because that’s certainly interesting to say the least.

Richard Ruff: Absolutely. Absolutely. Yeah, I’ve been in the sales training business for about 30 years and I spent the first 20 years at Huthwaite, you know, who was the creator of SPIN Selling. So Neil and I worked together sort of during the early years of Huthwaite. And then in the year 2000, my partner and I started a company called Sales Momentum, and there, Scott, the whole idea was to try to develop a whole new portfolio of products that were specifically geared for the B2B market, and that is, companies that were engaged in very large complex sales. And perhaps the most interesting thing that came out of that work in the last 10 years has been the insights that we’ve gained in the use of customized sales simulations. We have used that with a wide variety of clients in the healthcare market, you know, companies like Medtronic and Smith and Nephew and so forth, and the emergence of that technology as a way to deliver training we found to be incredibly powerful. That was probably the best insight that came out of that 10 years of work. Then, last year, as you mentioned [00:05:46] initially, we started a company called Sales Horizons, and there, Scott, the notion was a little different. What we were trying to do is to address the gap that we saw emerging between the amount of sales training that was needed by companies, which we saw growing, and quite frankly the amount of money available, which was decreasing. So what we did there was to try to work not so much on the design side of the business but on the business side of the business, you know, how could you have different kinds of business relationships with a client and use different kinds of pricing models that would enable you to deliver not only effective training but affordable training.

Scott Nelson: Okay.

Richard Ruff: So we’ve been working pretty hard in the last year in that aspect of the sales training world, and the good news with us is that my partner is also my wife, so we get not only to do work together, we get to sort of hang out. So that’s kind of one of the upsides.

Scott Nelson: Yeah. That’s very cool, and that’s one personal aspiration of mine as well, so that’s very interesting. But I want to definitely talk to you more about the customized sales simulations, and we may wait until a little bit later in the interview because I think that’s interesting.

Richard Ruff: Sure.

Scott Nelson: In my experience, at least in the medical device sales world, that’s always a—I think most people would understand the importance of sales simulations and customized role plays, etc., that kind of thing, but typically everyone realizes it’s important, but then there’s this gap between what’s actually delivered in terms of its value, and there’s always a gap. And yes, we understand it’s important, but yeah, it never really seems like it works very well. So I definitely want to come back and ask you about that.But let’s talk about Sales Horizons. That’s one of the things I know that you advertise and promote as your ability to bring effective sales training to the table but also at an affordable price. Is that just a different model then? Because I think that’s always an issue with sales—because I know there are quite a few sales trainers that will probably listen to this. They struggle with the ROI of sales training. And so is that somewhat [00:08:11] issue?

Richard Ruff: Well, yeah. I think it’s a big issue.

Scott Nelson: Mm-hmm.

Richard Ruff: I mean, if you look at the trends over the last [00:08:18] four years, and if you look at a large company, if they’re going to create a superior sales force, and I think more and more companies are recognizing that that is a must-do, then training is a big piece of the puzzle. And they have to do more than one training program. They have to do more than just train new hires. So that means you are talking about doing multiple programs and you simply can’t afford to do that using some of the traditional pricing models. Now, if you look, Scott, back in the past, the traditional pricing model for sales training vendors has been kind of a three-bracket model. There’s been a cost for customizing or designing the program and there’s been a cost for the instructor or for doing train the trainer, whichever model you use, and there was a per-head cost. But if you’re talking about very large companies, say, companies that have sales forces of 700 or 800 people, that per-head cost really mounts up because it’s year after year. That’s why we saw a couple of years ago companies really starting to push back. They don’t mind paying for the design because they understand the importance of customize. They don’t mind paying for instructors because they can see the guy up there in the front of the room doing a really great job. But this per-head thing, that’s kind of fuzzy.

Scott Nelson: Yeah.

Richard Ruff: And so, you know, I have to pay this huge chunk of money year after year for the same program. So I think a challenge for training vendors is to find a way to reduce that cost, and what we have gone to in Sales Horizons rather than using a per-head model is we’ve used a license to use. So, yeah, you have to pay for the customizing, yeah you have to pay for the trainers, but we’ll give you a license to print the product and you can therefore do away with the per-head. We’ll charge you an initial fee, but after that you have in perpetuity right to use it.

Scott Nelson: Gotcha.

Richard Ruff: And so it works particularly well, Scott, when you have very large companies with very large sales forces. If you only have a sales force of 50, then the two pricing models don’t really distinguish themselves. But if you have 800 sales reps, it’s tens and tens of thousands of dollars difference in cost, and companies simply are not going to spend the kind of money they used to when you have 800 or 900 people. They’re not going to spend the 2 million dollars.

Scott Nelson: Sure. Yup. And the change that you’re seeing on your end probably goes right in hand with the pricing pressures that medical device manufacturers are seeing as well. As they encounter more pricing pressures, then they have to kind of force that back to the pipeline if you will.

Richard Ruff: So that’s a direct analogy.

Scott Nelson: Yeah.

Richard Ruff: There’s no question about that.

Scott Nelson: Yeah. Very cool. So that’s obvious something that you do different at Sales Horizons, but let’s get into some of this. You mentioned that’s one trend that you’re seeing and you’ve since tweaked sort of your business model to fit that gap. What other trends are you seeing? Because we came into contact because of something that I noticed that you wrote in regard to [00:11:39] Hospital’s actually hiring medical device reps to actually do marketing and do sales for the actual hospital entity. And so I think that’s how we first were introduced to each other.

Richard Ruff: Yeah.

Scott Nelson: I thought that was really an interesting trend that you wrote about. So can you explain that in a little bit more detail?

Richard Ruff: Absolutely. We have tended over the years, or probably the last 10 years since we started Sales Momentum, to focus in the healthcare industry. We think it’s an interesting industry. We think it’s [00:12:14] dynamic. So we probably have done more client work in that industry than in any other, and there are some interesting trends there. And let me just kind of set the context of that a little bit.

Scott Nelson: Sure.

Richard Ruff: You know, I think that if you look at the two or three years, Scott, no matter what market you’re in, you know, companies have undergone change simply because of the economics of the time; however, you know, in some markets the changes have really been transformational, and I think the healthcare industry is a good case in point. You know, take hospitals. Hospitals in the last, oh, three to four years, have really changed their overall business model, you know, and they’ve changed what they buy from vendors, and they’ve changed how they buy, and they have certainly changed to the point that you made previously, how much they’re willing to pay for it.

Scott Nelson: Mm-hmm.

Richard Ruff: So the example that you mentioned about hospitals hiring sales reps is one of the reactions that hospitals have done as far as their business model, and let me just give you a few details about that. What the story there is is hospitals have actually hired sales reps to go out and talk to physicians so that they can get a higher number of referrals to that hospital.

Scott Nelson: Yup.

Richard Ruff: And they’ve made some pretty serious commitments here. So if you look at the large hospital change like Tenet and [00:13:56] HCA and so forth, they have 150 reps. Well, that’s a fair number of people. So what these account execs are doing are going out and calling on physicians and trying to persuade them to have a larger number of referrals going to the hospital that they represent.

Scott Nelson: Okay.

Richard Ruff: Now, there’s nothing new in the sense that hospitals have always tried to get more referrals, but what’s new is the strategy.

Scott Nelson: Mm-hmm.

Richard Ruff: And it’s only recently that they’ve hired sales reps, and there are some real dynamics behind that. If you go back in history, you know, your family physician, if you went to the hospital, will have time to visit you at the hospital. Well, that doesn’t happen anymore. No, doctors don’t go to the hospital so much because of their own economics.

Scott Nelson: Yup.

Richard Ruff: So the only doctors that are going to hospitals are [00:14:53] concierge kinds of doctors who are living in that very rarefied atmosphere.

Scott Nelson: Mm-hmm.

Richard Ruff: But the average physician is not going there so the hospital really doesn’t have an opportunity to have a two-way communication with doctors. So hiring reps to go out and represent them to get the referrals is a fundamental change in the way the hospital operates and is driven by economics.

Scott Nelson: Mm-hmm.

Richard Ruff: And it’s been pretty successful. Those reps, and a lot of them, you know, are pharmaceutical reps, medical device reps, a few of them come from clinical backgrounds, but the major chunk of them are coming from the medical device companies because those people are extremely well-trained and extremely knowledgeable about physicians in a hospital environment.

Scott Nelson: Yeah. That’s a fascinating trend, and I’ve got a couple of followup questions…

Richard Ruff: Yeah, you bet.

Scott Nelson: You know, at first glance I think everyone would think that’s really interesting, but if you kind of extrapolate out that phenomenon, most medical device reps are fairly well-paid…

Richard Ruff: Yeah.

Scott Nelson: And so you have this idea that the hospital has got to be willing to actually fork out a decent amount of money to bring over some of these reps. Then you’ve got the whole, do they have a quota? You know, how are their sales measured, that kind of thing. And then I think there’s an interesting phenomenon in your world, do you begin to develop sales training programs for hospitals then? Because when you mentioned that healthcare system, I can’t remember which one you mentioned, has almost a sales force of like 150 reps, that’s a lot. That’s a pretty big sales force, you know?

Richard Ruff: Right.

Scott Nelson: And so I guess there’s kind of three followup points, but maybe if you can just speak to a couple of those, that would be fascinating.

Richard Ruff: Well, I think those are interesting questions. Well, let’s take the one about the medical device reps. It clearly does represent, and I’ll turn it to career path for the medical device rep. Now, I think if you have a very senior medical device rep working for a major company, let’s say, that’s in the cardiac space, here she is going to be making sufficient money that to a hospital-environment-type rep may not be attractive.

Scott Nelson: Right.

Richard Ruff: Because they’re just pulling down so many dollars. On the other hand, if you’re a younger rep in the medical device space, working for a hospital for a number of years could be a great opportunity. So it’s a stepping stone. It’s a part of a career path.

Scott Nelson: Sure.

Richard Ruff: So you might start off, you know, working for a commodity medical company, work for a small medical device company, go to hospital, and then work for a major player.

Scott Nelson: Yeah.

Richard Ruff: So I think it does represent, because it’s a national phenomenon, you’re working with a major hospital change. So for the person in sales that’s interested in healthcare and specifically [00:18:05] medical device, it’s a different career path. So it’s clearly worth thinking about, because you get smart about the hospital.

Scott Nelson: Right.

Richard Ruff: You get smart about their finances. You make a lot of contacts, which no question you get to know the docs.

Scott Nelson: Yeah.

Richard Ruff: Well, that’s a good thing if you go to a major medical device company and somebody says, “Well, what’s in your experience?” That’s probably going to be impressive.

Scott Nelson: Alright. Yeah, no doubt. No doubt. And I’m not sure if you’re even able to answer this question, but speak to the idea of goals and quotas. Can a hospital then—I mean, how are they measuring or what kind of metrics are they measuring these reps with…

Richard Ruff: Well, the major metric, you know, they have the same sort of general compensation structures and they vary just like they do among companies, but you know, the basic notion is still the same. There is some base and there is some commission structure. But the metric is referrals. What’s the percent of increase in referrals?

Scott Nelson: Okay.

Richard Ruff: So some docs, for example maybe presently working with the hospital, but on the other hand their referral rate has increased, in other cases docs might not be giving any referrals to that hospital so they get a new doc starting to refer patients. So it’s all around how many referrals does that physician refer to that hospital?

Scott Nelson: So really, it probably in theory should be fairly easy to measure the effectiveness of that particular…

Richard Ruff: Absolutely.

Scott Nelson: Okay.

Richard Ruff: I think it’s very easy to measure.

Scott Nelson: Yeah.

Richard Ruff: And the question that you asked which I think is a really interesting one is around what’s the implication for sales training vendors?

Scott Nelson: Yeah. Yeah.

Richard Ruff: Because, you know, I don’t think most of us in the sales training space have spent a lot of time calling on hospitals to do sales training. So when you have a hospital change that you now have 150 kind of level reps, that’s a pretty good deal.

Scott Nelson: Right.

Richard Ruff: I mean, that’s a good piece of business. So my sense is, not only is this change an opportunity for medical device reps as far as career path, I think it’s also an opportunity for sales training companies.

Scott Nelson: Yup.

Richard Ruff: There is no question that, particularly if you’re a large sales training company and have people specializing in the healthcare space, if you’re not telling them to call on hospitals, you know, why not?

Scott Nelson: Yeah, no doubt. And especially considering that there’s probably going to be a tremendous need amongst most hospitals just because they’re so unfamiliar with traditional sales training. They probably definitely do not have any sort of in-house sales training department, and so…

Richard Ruff: Well, absolutely right.

Scott Nelson: Mm-hmm.

Richard Ruff: I mean, let’s face it. If you’re a major medical device company, you probably have some pretty smart people in your sales training department. You have trainers, you may have designers, you probably have a manager of sales training that’s experienced. On the other hand, if you go into hospital, I think you’re exactly right, Scott. They may have no experience. So the guy behind the sales training may be somebody in HR who is a general HR professional but has not specialized in sales training, so it’s a huge opportunity I think to do some innovative work.

Scott Nelson: Right. Right, no doubt. No doubt. Well, that’s certainly an interesting phenomenon, and I think I first saw that on one of your blog posts which for everyone listening, I highly encourage everyone to go to Richard’s website and check out their sales training connection blog. There’s a lot of great content. I think that’s where I first saw that anyway. And for those listening, it’s salestrainingconnection.com, is the website address for their blog.But in regard to other interesting trends that you’re seeing, let’s take a look at those in more detail because there’s certainly a lot of change going on within the medical device sector, three of those being—I mean, I guess two big ones, and they kind of go hand in hand, but two big ones that I personally experience on a daily basis is more and more are requiring larger physician practices. And so no longer do you have this physician that is the ultimate decision-maker. You have value analysis committees. There’s more financial impact regarding hospital switching from one product to another.And then there’s also this idea of the corresponding increased pricing pressure as well, and they really go hand in hand as I mentioned. But maybe you can even speak to some of the trends that you’re seeing, those being two of them.

Richard Ruff: Yeah. See, I think that’s a really big deal.

Scott Nelson: Mm-hmm.

Richard Ruff: I mean, if you are the VP of sales for a large medical device company, you have to be looking seriously at all those things that you’ve just rattled off because I think it’s pretty clear that you can’t have a sales team that’s going to prosper if they simply do a better job doing what they’re doing in the future.

Scott Nelson: Mm-hmm.

Richard Ruff: They really have to do something different because the hospitals are doing something different, and just to highlight that, if you look at it kind of at a macro level, there has been a general shift in hospitals over the last several years from talking about clinical value to talking about economic value…

Scott Nelson: Right.

Richard Ruff: …particularly true in the medical device sector. I mean, hospitals today, if you’re a rep, you have to for example be able to have an impactful conversation with a different kind of person. You have to be able to talk to a CFO. Now, the kind of conversation that the CFO has is a different kind of conversation than a manager of a cath lab would have. So they’re interested in costing. So there you are in the room with a CFO, you have to be able to sit down and develop narrative that you can get their attention, and their attention is all about costings.

Scott Nelson: Right.

Richard Ruff: They talk about economic value. Clinical value, yeah they get it, yeah they’ll say that’s important, but their primary focus is on the economic value that you’re going to bring to that hospital. Can you save them money?

Scott Nelson: Right.

Richard Ruff: That’s a different kind of conversation and one that I think that sales reps automatically just don’t pick up. You can’t just go to Sally and say, “Sally, I know you’ve been calling on docs. Now, I want you to call on CFOs and I want you to talk about the economics of the hospital and how our devices can really effectively help them drive their cost vision for the future.”

Scott Nelson: Yeah.

Richard Ruff: That’s a pretty hard conversation. That’s where sales training needs to help.

Scott Nelson: Sure.

Richard Ruff: So that’s a big shift. And I also think it’s a shift at the physician level because there’s no question that it’s not as if all future decisions in the medical device [00:25:45] are going to be purely economic. There is still going to be clinical value and you still have to talk to the physician about that. But even the physicians, when we’ve gone on sales calls, physicians now say, “Well, okay. I get it. I see how from a therapeutic perspective that’s a superior device. But help me to understand how I’m going to convince the value committee, does this make sense from a cost perspective?”So you have to have the skills as a sales representative when you’re talking to the physician now to be able to help them to help you sell that thing. So you have to rehearse them to have an economic discussion with maybe their CFO or maybe some value committee that’s going to be very, very engaged in making the decision around the devices.

Scott Nelson: Right.

Richard Ruff: Those are different kinds of conversations and I don’t think most people just automatically wake up on Monday morning being able to do them.

Scott Nelson: Right. Especially those that have been in the medical device world a long time, because that’s a major shift going from pitching a doctor at the scrub sink or in a case or something like that to having a high C-level suite sort of conversation with a CFO, for example, or even being able to effectively not only find your physician champion but coach them as to what they need to present to the value committee to get it in. That’s a whole other step that you need to make. You can’t just find your champion anymore. There’s definitely a certain amount of coaching that needs to happen with that champion physician in order to win over the value analysis committee because, you know, in my medical device career I’ve never been invited to a value analysis committee meeting myself.

Richard Ruff: Well, no.

Scott Nelson: You know, most sales reps are never going to be able to make that pitch themselves. They have to coach someone on how to do that.

Richard Ruff: Well, and if you extrapolate that, you know, the people who are medical device reps for the major medical device companies, they’re about as smart as you get in sales. I mean, the ones that we have worked with have been awesome.

Scott Nelson: Yeah.

Richard Ruff: So that’s a really smart crowd of people. So if you extrapolate that to some other arenas in healthcare, that’s not quite so elevated. Imagine the trouble that those reps would have in trying to make that shift.

Scott Nelson: Right.

Richard Ruff: I think it’s even more difficult because usually they’re not quite as experienced as a medical device rep, so the challenge for them I think is even greater.

Scott Nelson: Right. Right. And it’s so interesting that most of these, kind of the core concept here is the increased pricing pressure, the economic aspect of this, kind of what’s driving a lot of these different behaviors. And you even see it as major medical device companies change their value propositions and incorporate cost into their value proposition, you know, developing new therapies, patients first, that kind of thing, but then you also have this aspect of effective cost [laughs] for our customers, that kind of thing. It’s interesting to see, there’s no doubt.

Richard Ruff: Well, it’s a big deal, because I think it affects who you talk to. You’re going to be talking to people more in the [00:29:07] carpet area of the hospital than you did before.

Scott Nelson: Mm-hmm.

Richard Ruff: And you’re going to have to have the ability to have a different kind of discussion. It’s going to have to talk about cost savings. So when people say, “Well, I know this device has some therapeutic advantages, but help me to understand how this reduces the amount of time my docs have to spend in the operating theater.”

Scott Nelson: Okay. Yeah.

Richard Ruff: Now, can you answer that question rather than just talking about the features of the product? That requires a different body of knowledge and requires a different kind of narrative with the person you’re talking to.

Scott Nelson: Yup. No doubt. No doubt. And I wanted to address this, one of your other blog posts as well, because I think it’s really fascinating what I think was one of your best for 2011’s. I think that’s initially how I found it, but it was the six sales best practices for medical device reps or something along those lines. I’ll just lift them off because it kind of goes hand in hand with this, but understands and develops customer needs, understands the customer’s business, develops trust in the customer relationship, leverages resources, manages the long sales cycle, and manages the competitive threat.We could probably spend a whole interview on each of those best practices but the one that I think kind of speaks to what we’re talking about is the idea of understanding the customer’s business, and I think that’s probably one where most reps maybe miss out on. You know, they can develop some rapport, develop a relationship, go through kind of the feature benefit kind of aspect of the particular device, but they don’t maybe understand the customer’s business, and I think that’s probably a huge missing…

Richard Ruff: Well, yeah. Yeah, when we wrote that particular piece, we thought a lot about things and we talked to some of the people in the field and so forth. And I think that, just to put a point on that one, what we heard from a like sales manager was that their average reps understand...