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From Idea to Market: Ep 8 - Built to Run · AHF Podcast

0:21
Joseph M. Schwab: Hello and welcome to the AHF Podcast.
0:24
Joseph M. Schwab: I'm your host, Joe Schwab.
0:27
Joseph M. Schwab: From Idea to Market is a series about how medical innovation actually happens, not as a straight line from inspiration to impact, but as a sequence of thresholds that only some ideas survive.
0:40
Joseph M. Schwab: If you're just joining us, I highly recommend pausing.
0:44
Joseph M. Schwab: And going back to the beginning of this series, each episode builds on the one before it, and what we're about to discuss only makes sense with that full context behind you.
0:57
Joseph M. Schwab: In episode seven, we followed what happens after regulatory clearance when an approved product enters the real world and has to earn its place in a room that's already full.
1:09
Joseph M. Schwab: We learned that approval is permission.
1:12
Joseph M. Schwab: Adoption is performance, and the distance between these two things is where most of the human work of innovation happens.
1:22
Joseph M. Schwab: This episode begins somewhere different.
1:26
Joseph M. Schwab: It begins after something has momentum.
1:30
Joseph M. Schwab: The product is in use, and the surgeons are the ones using it.
1:34
Joseph M. Schwab: The early data is strong and the demand is starting to build.
1:40
Joseph M. Schwab: That's when a new kind of pressure arrives.
1:42
Joseph M. Schwab: Not clinical, not regulatory.
1:45
Joseph M. Schwab: Operational because demand, once it arrives, doesn't wait.
1:51
Joseph M. Schwab: And if the company can't deliver the product consistently and at volume to every institution that needs it, the window that took years to open can close faster than anyone expected.
2:20
Joseph M. Schwab: In this episode, you're gonna hear from people who faced that pressure from the inside, founders who had to confront the gap between a device that worked and a device that could be built the same way every time.
2:33
Joseph M. Schwab: Innovators who discovered that the hardest part of scale is not moving fast, it's staying consistent, and leaders who learn that the system around the product matters just as much as the product itself.
2:49
Joseph M. Schwab: Rather than introducing them one by one, we want you to hear them first in their own words
2:56
Jared Foran: I'm Jared Foran.
2:57
Jared Foran: I'm an orthopedic surgeon in Denver, Colorado.
3:00
Jared Foran: I'm a hip and knee arthroplasty specialist.
3:03
Jared Foran: I'm the Chief Scientific Officer of Forcast Orthopedics, and I'm one of the co-founders.
3:08
Leo Whiteside: Oh, I'm Leo Whiteside.
3:10
Leo Whiteside: I'm an orthopedic surgeon.
3:11
Leo Whiteside: Just, uh, retired last January.
3:14
Leo Whiteside: Uh, engaged in hip and knee replacement, uh, sort of subspecializing and.
3:20
Leo Whiteside: Uh, infected arthroplasty.
3:22
Marie-Isabelle Batthyány: My name is Marie-Isabelle Batthyány I'm an board certified anesthesiologist specializing in orthopedic anesthesia and I'm also the founder and CEO of XRSynergies.
3:35
Charles Lawrie: I'm Dr.
3:35
Charles Lawrie: Charles Lawrie.
3:36
Charles Lawrie: I'm the co-founder and chief medical officer of FIOS Health.
3:40
Charles Lawrie: I'm also a high volume, anterior approach hip replacement and robotic knee surgeon in Miami, Florida, and, uh, current president of the Anterior Hip Foundation.
3:49
Charlie DeCook: My name is Charlie DeCook.
3:50
Charlie DeCook: I'm the president of Total Joint Specialists, a 17 surgeon group here in Atlanta, Georgia.
3:56
Emily Ast: Hi, I am Emily Ast.
3:57
Emily Ast: I am an attorney and my own law firm Ast Physician Contracts.
4:02
Emily Ast: I focus on contract review and negotiation for physicians, typically employment contracts and industry consulting agreements, as well as related shareholder agreements, ambulatory surgery center operating agreements, and those sorts of corporate documents.
4:17
Simon Mifsud: Hello, my name is Simon Mifsud and I'm a co-founder and the CEO of Garland Surgical Limited based in the UK.
4:24
Simon Mifsud: And we're developing a novel hip replacement system called the Malta Hip.
4:29
Joseph M. Schwab: Together.
4:30
Joseph M. Schwab: Their stories help us understand what it actually takes to move from a prototype.
4:34
Joseph M. Schwab: To a product and why that transition demands a completely different discipline than anything that came before it.
4:42
Joseph M. Schwab: In this episode, we looked for answers to three questions that define this stage first.
4:48
Joseph M. Schwab: What breaks when something must be built repeatedly, not just once.
4:54
Joseph M. Schwab: Second, how do quality and cost and scalability compete with one another under real production pressure?
5:03
Joseph M. Schwab: And third, which problems only emerge at volume.
5:08
Joseph M. Schwab: This is the shift from one-off engineering to a repeatable system, from heroic effort to predictable operation from it worked this time to it works every time.
5:24
Joseph M. Schwab: This is chapter eight, from prototype to product.
5:35
Joseph M. Schwab: in manufacturing.
5:36
Joseph M. Schwab: There's a moment that engineers refer to as design freeze.
5:41
Joseph M. Schwab: It's the point at which the iteration stops and the building begins.
5:46
Joseph M. Schwab: From that moment forward, the device is locked.
5:50
Joseph M. Schwab: The only variable left is whether the process that produces it is reliable enough to deliver the same result to the same standard every single time.
6:01
Joseph M. Schwab: For a small team working on early builds, that standard is very manageable.
6:05
Joseph M. Schwab: Every unit gets attention.
6:07
Joseph M. Schwab: Problems get caught by hand.
6:09
Joseph M. Schwab: The people closest to the design are also the people watching every unit.
6:15
Joseph M. Schwab: Come off the line, but what happens when the team is no longer in the room for every build?
6:22
Joseph M. Schwab: When the volume grows beyond what any small group can personally oversee, that's where the transition from prototype to product actually lives.
6:32
Joseph M. Schwab: And it's harder than most people who have not been through it.
6:36
Joseph M. Schwab: Expect.
6:38
Joseph M. Schwab: So let's start with the first question.
6:40
Joseph M. Schwab: What breaks when something must be built repeatedly, not just once.
6:50
Joseph M. Schwab: There's an important distinction in medical device manufacturing between making something and making it reliably.
6:57
Joseph M. Schwab: A prototype proves the concept.
6:59
Joseph M. Schwab: It demonstrates that the idea functions, but a prototype can be hand tuned.
7:04
Joseph M. Schwab: It can be adjusted after the fact the people building it understand.
7:09
Joseph M. Schwab: Every single dimension, every tolerance, every material choice, because they were there when those decisions were made.
7:18
Joseph M. Schwab: A production system can't rely on that kind of institutional memory.
7:22
Joseph M. Schwab: It has to produce the same result, whether it's unit number one or unit number 5,000.
7:28
Joseph M. Schwab: And to do that, every step in the manufacturing process has to be documented and validated and controlled before it reaches a patient.
7:38
Joseph M. Schwab: This is what ISO 1 3, 4 8 5 requires.
7:42
Joseph M. Schwab: ISO 1, 3, 4, 8, 5 is the international quality management standard specific to medical devices.
7:49
Joseph M. Schwab: It governs how a company designs develops, produces, and delivers a medical device across its entire life cycle.
7:58
Joseph M. Schwab: Its central demand is not just that your device works.
8:02
Joseph M. Schwab: It demands that you prove with documented objective evidence that your process produces the same result under the same controlled conditions every time.
8:13
Joseph M. Schwab: The FDA formally aligned its quality system regulation with ISO 1 3 4, 8 5 in early 2024, making it the shared global baseline for what a serious medical device manufacturer must demonstrate.
8:29
Joseph M. Schwab: And what that standard requires is a shift in how a team thinks about what the product actually is during the design phase.
8:37
Joseph M. Schwab: The product is the device.
8:40
Joseph M. Schwab: In a production system, the product is the process, the validated, controlled, traceable process that puts the device in a surgeon's hands.
8:52
Joseph M. Schwab: When that process is built alongside the device from the beginning, the transition to scale is manageable when it's treated as something to figure out after the device is done.
9:05
Joseph M. Schwab: The gap between what was built and what can be reliably built tends to be far wider than anyone anticipated.
9:14
Joseph M. Schwab: Simon Mifsud made a decision early in the development of the Malta hip that most founders don't make until they're forced to.
9:23
Joseph M. Schwab: Before the device was anywhere close to final, he brought in the manufacturing partners who would eventually build it at scale.
9:31
Simon Mifsud: we also have, the ability to, to manufacture ourselves.
9:36
Simon Mifsud: All of the prototypes that we've manufactured, we took the decision early on because of that very reason that we'd work with, uh, large orthopedic OEM manufacturing groups.
9:47
Simon Mifsud: So all of our critical suppliers, all of our manufacturers are, um, capable of making this device on our behalf.
9:53
Simon Mifsud: And because they've been involved in the, in the development, let's say, and producing the prototypes.
9:59
Simon Mifsud: Um, they are fully aware of what's required.
10:02
Simon Mifsud: They have already, um, started to work with us, uh, to work out how we can scale this device and produce it in, in large numbers.
10:10
Simon Mifsud: So we've got, uh, we've got a couple of options open to us.
10:14
Joseph M. Schwab: What Simon describes is a strategy that closes one of the most expensive gaps in medical device.
10:19
Joseph M. Schwab: Scale up the gap between who built the prototype and who will build the product.
10:25
Joseph M. Schwab: When manufacturing partners are involved in development, they understand the tolerances and the materials and the design intent.
10:33
Joseph M. Schwab: When they're handed a finished design and asked to produce it at volume, they're building to a document without the context that gives that document meaning, and that gap shows up in variation, in unexpected failure modes, in process steps that worked at small scale.
10:53
Joseph M. Schwab: Don't hold at large scale research on design for manufacturability or DFM consistently shows that decisions made during early product development account for roughly 70% of manufacturing costs, the choices made about geometry and materials and assembly sequence and tolerancing at the design stage.
11:17
Joseph M. Schwab: Determine not just what the device costs to build, but whether it can be built consistently at all.
11:25
Joseph M. Schwab: Revisiting those decisions after the design is frozen is possible, but it triggers a cascade of revalidation and regulatory documentation and supply chain renegotiation that is always more expensive than getting it right the first time.
11:43
Joseph M. Schwab: And yet most teams discover this the hard way because the pressure at the prototype stage is to prove that the device works, not to prove it can be made.
11:55
Joseph M. Schwab: These are different problems and the second one is much more expensive.
12:01
Joseph M. Schwab: Marie-Isabelle Batthyány has lived through the full arc of taking a novel technology from first concept to commercial product, and her description of what that process actually demands has a clarity that no development guide quite captures,
12:17
Marie-Isabelle Batthyány: it takes three times longer than you think It costs three times as much, and you have to change your product at least three times all over again.
12:29
Marie-Isabelle Batthyány: In fast paced tech, you have to be constantly on the forefront of development.
12:35
Marie-Isabelle Batthyány: You have to redo so many things.
12:37
Joseph M. Schwab: three times longer.
12:39
Joseph M. Schwab: Three times more expensive, three iterations of the product itself.
12:44
Joseph M. Schwab: These aren't the numbers of a company that failed.
12:48
Joseph M. Schwab: They're the lived experience of a company that succeeded and they reflect something that the data on med tech development consistently confirms.
12:57
Joseph M. Schwab: Timeline and cost estimates made at the design stage are routinely underestimated by factors of two to three, sometimes more.
13:08
Joseph M. Schwab: Part of that gap is optimism, which is a well-documented feature of founder psychology.
13:15
Joseph M. Schwab: Most of it is structural.
13:17
Joseph M. Schwab: The work that remains after a product is validated, process validation, supplier qualification, design verification at production tolerances, sterilization validation, shelf life studies, and the documentation trail required by regulators is simply larger than the device development work that preceded it.
13:38
Joseph M. Schwab: It doesn't feel that way from the inside because it lacks the narrative momentum of invention, but it is real and it is necessary.
13:49
Joseph M. Schwab: So here's our first answer.
13:51
Joseph M. Schwab: What breaks when something must be built repeatedly is the assumption that the hard work is already done.
13:59
Joseph M. Schwab: In a production system, the device is not the product.
14:02
Joseph M. Schwab: The process is the validated, documented, controlled process that delivers the same outcome for every patient.
14:10
Joseph M. Schwab: Teams that build that process alongside the device are positioned to scale.
14:16
Joseph M. Schwab: Teams that treat it as a separate problem tend to find that the gap between a production equivalent design.
14:23
Joseph M. Schwab: And product is wider and more expensive and more time consuming than anything they had faced getting to clearance.
14:33
Joseph M. Schwab: Once a team accepts that the process is the product, a very practical tension emerges because building a quality system is expensive.
14:43
Joseph M. Schwab: Qualifying suppliers take time, process validation, consumes resources that could otherwise be funding clinical work or sales, and none of it directly advances the mission.
14:55
Joseph M. Schwab: That started the whole journey.
14:58
Joseph M. Schwab: But in a medical device, cutting corners in quality is not just a business risk, it's a patient safety risk.
15:07
Joseph M. Schwab: And the cost of quality failure at scale in recalls and regulatory action in reputational damage consistently dwarfs the cost of building the system correctly from the beginning.
15:21
Joseph M. Schwab: So the company is navigating a set of forces.
15:24
Joseph M. Schwab: That don't naturally resolve.
15:27
Joseph M. Schwab: Quality requires rigor.
15:29
Joseph M. Schwab: Investors want speed.
15:31
Joseph M. Schwab: Procurement wants lower cost, and the market wants a product that works the same way every time.
15:39
Joseph M. Schwab: How those forces get balanced determines not just whether the company survives this stage, but whether it deserves to.
15:49
Joseph M. Schwab: And that brings us to question two.
15:51
Joseph M. Schwab: How do quality, cost, and scalability compete with one another under real production pressure?
16:03
Joseph M. Schwab: We've already mentioned the concept designed for manufacturability.
16:07
Joseph M. Schwab: The idea is straightforward.
16:09
Joseph M. Schwab: The way a product is designed determines how difficult, how expensive, and how reliably it can be manufactured.
16:16
Joseph M. Schwab: A device that is elegant in a lab can be nearly impossible to build consistently in a production environment if it's tolerances are too tight or it's assembly sequence too complex, or its materials too difficult to source reliably at volume.
16:34
Joseph M. Schwab: Most med tech teams don't encounter this tension during the first production equivalent builds because the engineering team is still the one doing the work.
16:43
Joseph M. Schwab: They hand tune each unit.
16:46
Joseph M. Schwab: They work around the hard steps, and because they understand the physics of the device so deeply, it performs beautifully.
16:55
Joseph M. Schwab: Then the volume increases and the hand tuning disappears, and suddenly the device that worked perfectly at.
17:03
Joseph M. Schwab: 10 units is producing variation at a thousand.
17:08
Joseph M. Schwab: This is where quality, cost, and scalability begin to compete in earnest and in medical devices.
17:16
Joseph M. Schwab: The stakes of that competition are asymmetric.
17:20
Joseph M. Schwab: You can tolerate slower speed, you can tolerate higher cost within limits, but you can't tolerate variable quality.
17:28
Joseph M. Schwab: Because variable quality in a device that a surgeon implants or a patient depends on is a potential patient safety issue and a patient safety issue at scale becomes a recall and a recall in med tech can end a company.
17:46
Joseph M. Schwab: Charlie DeCook has built and sold multiple hardware, med tech companies, and his description of what the cost dimension and the competition actually feels like is one of the most direct accounts you'll hear from someone who has been through it more than once.
18:01
Charlie DeCook: Physical is harder.
18:03
Charlie DeCook: So we've sold multiple companies that are physical products.
18:07
Charlie DeCook: They're hardware, they're difficult to do.
18:10
Charlie DeCook: They're expensive to make.
18:13
Charlie DeCook: It is a much harder company to form around a hardware than it is a software.
18:18
Charlie DeCook: It costs, it's lots of capital to do it, and software is just so much easier to do.
18:24
Joseph M. Schwab: That comparison to software is worth sitting with a software platform once built can scale with near zero marginal cost.
18:33
Joseph M. Schwab: Adding a new user doesn't require manufacturing a new unit, uh, qualifying a new supplier, batch, or revalidating a sterilization process.
18:43
Joseph M. Schwab: Hardware does.
18:44
Joseph M. Schwab: Every unit shipped carries with it the full weight of the manufacturing system behind it, the supplier relationships, the quality controls, the process validation, the documentation requirements, and unlike software, you can't push a patch to fix a defect that is already shipped.
19:03
Joseph M. Schwab: That difference in the economics of scale is one of the reasons why venture capital has increasingly favored digital health and AI enabled platforms over traditional hardware devices.
19:15
Joseph M. Schwab: It's one of the reasons why hardware med tech companies face a more complex and capital intensive path to commercial viability.
19:25
Joseph M. Schwab: Manufacturing setup a alone can account for 15 to 25% of total development cost on top of everything already spent getting to clearance.
19:35
Joseph M. Schwab: The teams that navigate this successfully don't try to optimize quality, cost, and speed all at once.
19:42
Joseph M. Schwab: They accept that quality is the constraint.
19:45
Joseph M. Schwab: They build the cost structure and the production timeline within that constraint.
19:50
Joseph M. Schwab: And often the most sustainable solution is not the most technically sophisticated one.
19:56
Joseph M. Schwab: It's the simplest one that delivers the required clinical performance reliably.
20:01
Joseph M. Schwab: Jared Foran learned this lesson at the earliest stage of developing his antibiotic delivery system.
20:08
Joseph M. Schwab: The first concept worked, the engineering was sound, and then reality introduced a constraint.
20:14
Joseph M. Schwab: That had nothing to do with the device itself.
20:17
Jared Foran: You might have an idea that works, but is it practical?
20:21
Jared Foran: Is it practical economically?
20:23
Jared Foran: Is it practical for supply chain?
20:24
Jared Foran: For instance, the problem with the, hollowed out polyethylene spacer that would elute, you can imagine if you're gonna make that work, you need to have a bunch of those polys on the shelf at every hospital waiting for the patient to come.
20:36
Jared Foran: And frankly, there's no, the economics there just don't work.
20:39
Joseph M. Schwab: The device functioned the supply chain didn't.
20:44
Joseph M. Schwab: A system that requires hospitals to stock dozens of size combinations across every facility for a patient population that arrives unpredictably isn't a product.
20:54
Joseph M. Schwab: It's an inventory management problem that no hospital administrator is going to accept.
21:01
Joseph M. Schwab: This is a form of quality, cost and scalability conflict that doesn't show up in the engineering.
21:07
Joseph M. Schwab: It shows up in the logistics and the only way to see it is to think through.
21:13
Joseph M. Schwab: What actually means to deliver the device to every institution that needs it, not just the first 10 sites where the team is personally managing every detail.
21:25
Joseph M. Schwab: The solution more often than not is simplicity, not in the engineering of the device, but in the operational footprint.
21:33
Joseph M. Schwab: It requires from the system around it, fewer sizes, fewer decisions at the point of care, fewer opportunities for error.
21:43
Joseph M. Schwab: The product that disappears into a kit that is ready to use and complete is not a compromised product.
21:51
Joseph M. Schwab: It's an engineered one.
21:53
Joseph M. Schwab: Leo Whiteside spent decades developing clinical solutions and taking them through the full arc of a adoption and the framework he describes for what makes a surgical technology scalable is built around exactly that idea.
22:07
Leo Whiteside: Having a kit that works is the key to success here.
22:12
Leo Whiteside: Well, we got the intellectual backing, we got the literature behind us.
22:16
Leo Whiteside: But you gotta have something that is a kit that works.
22:20
Leo Whiteside: The surgeon ties the last knot on it, and it's done as far as he's concerned.
22:25
Leo Whiteside: That's where I've always had success in the past is when you get the surgeon walking outta the operating room feeling like, well, finished with this.
22:33
Leo Whiteside: Now, now we go.
22:34
Joseph M. Schwab: The surgeon ties the last knot and walks out.
22:38
Joseph M. Schwab: That is the design specification.
22:40
Joseph M. Schwab: That is the cost structure, and that is the scalability strategy expressed in a single image.
22:48
Joseph M. Schwab: When the kit contains everything the surgeon needs in a complete, ready to use package, the supply chain problem simplifies.
22:56
Joseph M. Schwab: Fewer components to manage fewer decisions for the hospital.
23:00
Joseph M. Schwab: Fewer steps between the product, leaving the manufacturer and reaching the patient.
23:06
Joseph M. Schwab: And when the surgeon's responsibility ends at a defined moment, everything that follows flows to the appropriate part of the care team without creating chaos in the operating room.
23:18
Joseph M. Schwab: Quality, cost, and scalability.
23:21
Joseph M. Schwab: Are not always in opposition when the design is right, they reinforce each other, but getting the design right requires asking the operational questions from the very beginning, not after the first version has already shipped.
23:37
Joseph M. Schwab: Here's the second answer.
23:39
Joseph M. Schwab: Quality, cost and scalability compete.
23:42
Joseph M. Schwab: Most destructively when they're treated as separate problems to address in order.
23:48
Joseph M. Schwab: The companies that navigate this stage don't sacrifice quality to cut cost or accelerate timeline.
23:55
Joseph M. Schwab: They treat quality as the fixed constraint and engineer the cost structure and the production system within that constraint.
24:05
Joseph M. Schwab: They design for the supply chain as deliberately as they design for the anatomy.
24:10
Joseph M. Schwab: Because a product that can't reach patients reliably isn't a product.
24:14
Joseph M. Schwab: It's an unfinished idea.
24:18
Joseph M. Schwab: There's a particular kind of problem that doesn't exist at 10 units.
24:23
Joseph M. Schwab: It doesn't always exist at a hundred.
24:26
Joseph M. Schwab: It emerges when the volume grows large enough that the variation that was always there, but.
24:33
Joseph M. Schwab: Invisible starts to show up in the data.
24:36
Joseph M. Schwab: When the edge cases that never occurred in a small production run start occurring regularly when the training that was delivered in person by the founding team has been handed off so many times that it no longer matches what the product was designed for.
24:54
Joseph M. Schwab: At small scale, a founding team compensates for fragility with attention.
24:59
Joseph M. Schwab: They are close enough to every part of the operation that problems get caught before they become patterns.
25:07
Joseph M. Schwab: Scale removes that proximity and what was invisible becomes visible.
25:15
Joseph M. Schwab: Which brings us to question three, which problems only emerge at volume.
25:26
Joseph M. Schwab: There's a manufacturing concept called tolerance.
25:29
Joseph M. Schwab: Stacking.
25:31
Joseph M. Schwab: Every component in a device is built to a specification within an acceptable range of variation on either side.
25:38
Joseph M. Schwab: A single component within that range performs exactly as expected, but when multiple components each individually within specification are assembled together, their individual variations can combine in ways that.
25:54
Joseph M. Schwab: Push the finished device outside its intended performance envelope.
26:00
Joseph M. Schwab: Each part was fine.
26:01
Joseph M. Schwab: Together they're not at low volume.
26:05
Joseph M. Schwab: The statistical probability of encountering those combinations is small.
26:09
Joseph M. Schwab: The samples are too few for the pattern to emerge, but at production volume, with thousands of units moving through the process, the full distribution of component variation starts to express itself.
26:23
Joseph M. Schwab: The combinations that produce problems which never appeared during development or early commercial production start appearing regularly enough to see this is one version of a broader principle.
26:38
Joseph M. Schwab: Problems that are rare at small scale become predictable at large scale.
26:45
Joseph M. Schwab: The quality system that ISO 1 3 4 8 5 requires exists precisely to build the infrastructure to detect them when they surface and trace them back to their source and correct them before they reach more patients.
27:01
Joseph M. Schwab: But there's another category of volume production that is less technical and equally consequential.
27:08
Joseph M. Schwab: It's the problem of founder proximity.
27:12
Joseph M. Schwab: In the early days of a company, the founder is often the quality system.
27:18
Joseph M. Schwab: They're in every important conversation.
27:20
Joseph M. Schwab: They know the intent behind every decision.
27:23
Joseph M. Schwab: When a surgeon uses the product in a way that was not anticipated, the founder hears about it and adjusts.
27:29
Joseph M. Schwab: When a training gap emerges, the founder fills it personally.
27:34
Joseph M. Schwab: The product works in part because the person who built it is watching over it.
27:40
Joseph M. Schwab: Scale removes that option and a product that depended on the founder's proximity to function consistently is not yet ready for scale.
27:51
Joseph M. Schwab: It's still a prototype regardless of what the clearance letter says.
27:56
Joseph M. Schwab: Charles Lawrie has been building FIOS health through exactly this transition, and what he describes is the specific discipline required to expand without letting founder proximity become a liability.
28:10
Charles Lawrie: We've been fortunate to have some excellent early partners, kind of at our test lab for product market fit.
28:16
Charles Lawrie: Since I'm the one driving a lot of the product development, it's easy for me to try to take the company in a certain direction that maybe isn't the right direction for other providers, um, having those different voices on board early, um, has been very important.
28:30
Charles Lawrie: And also really titrating how quickly we want to scale.
28:33
Charles Lawrie: Trialing it with a few customers, making sure we get it right before we go out.
28:38
Joseph M. Schwab: That phrase, titrating how quickly we wanna scale.
28:42
Joseph M. Schwab: The operational vocabulary of a founder who understands the risk.
28:47
Joseph M. Schwab: Because scaling too fast doesn't just create operational strain.
28:52
Joseph M. Schwab: It locks in the wrong version of the product.
28:55
Joseph M. Schwab: When the founder is the primary driver of product decisions, the product naturally reflects the founder's clinical context.
29:02
Joseph M. Schwab: For Charles, that means a hip surgeon's intuitions about what patients need.
29:08
Joseph M. Schwab: Those intuitions may be exactly right for his patient population.
29:14
Joseph M. Schwab: They may not generalize to a knee surgeon's patients, or a spine surgeon's, or any of the other providers who need to find the product valuable enough to adopt.
29:25
Joseph M. Schwab: Early partners who are different from the founder are not just good for market feedback.
29:31
Joseph M. Schwab: They are a structural test of whether the product can exist independently of the person who invented it.
29:38
Joseph M. Schwab: A product that works for 10 sites because the founding team is personally managing all 10, has not yet been proven to scale.
29:46
Joseph M. Schwab: It has been proven to survive close attention, but those are different things.
29:52
Joseph M. Schwab: Then there's a third category of a volume problem.
29:56
Joseph M. Schwab: One that lives not in the device or in the quality system, but in the legal and commercial architecture around the product, specifically in how intellectual property is handled.
30:09
Joseph M. Schwab: As the product evolves, the portfolio grows, and the team that built the first generation is not always the team building.
30:17
Joseph M. Schwab: The second.
30:19
Joseph M. Schwab: Emily Ast, has navigated these situations from the legal side, and what she describes is a pattern that surfaces almost exclusively at scale when a successful first generation product creates a natural and commercially obvious path to a second generation version, and the agreements that governed the first generation turn out not to address the second.
30:44
Emily Ast: What happens in the future if the same underlying intellectual property is used in a different but related product?
30:52
Emily Ast: you know, and I have seen it happen where related revised versions of products are released later.
31:00
Emily Ast: The same people are not always included in those design or development projects.
31:04
Emily Ast: The best way to handle this typically is to have a clause in the contract that says, if this is a variation with substantially similar, um, intellectual property, that that same person, you know, who was under that first agreement, will be included in the design or development of a related, you know, variation of the same product as long as that person is still an active consultant for the company.
31:28
Joseph M. Schwab: The absence of that clause is almost never intentional.
31:32
Joseph M. Schwab: At the time the first agreement is signed.
31:34
Joseph M. Schwab: Everyone is focused on getting the first product across the line.
31:39
Joseph M. Schwab: Second generation is hypothetical.
31:42
Joseph M. Schwab: At best.
31:43
Joseph M. Schwab: The relationships are good.
31:45
Joseph M. Schwab: The intent to do right by everyone feels like enough, but intent isn't a contract.
31:52
Joseph M. Schwab: And by the time that second generation arrives, the commercial stakes are higher, and the team may have changed.
32:00
Joseph M. Schwab: And the goodwill that made informal agreements feel sufficient has often been tested by the pressures of growth.
32:08
Joseph M. Schwab: Emily also identified a timing dimension that operates across geographies and that can reshape the economics of a development relationship in ways no one anticipated when the first deal was signed.
32:22
Emily Ast: If the product is sold worldwide, that's the first commercial sale anywhere often.
32:28
Emily Ast: But the timeline for the FDA to approve a product in the United States is a little different than the regulatory authorities in Europe or in Asia or in Australia, which sometimes take a little longer.
32:41
Emily Ast: And so if the royalty stream is seven years from first commercial sale, but it's not actually released in Europe or Asia or Australia or you know, somewhere else for several more years, additional years after that first sale in the US that's missing out.
32:58
Emily Ast: You know, the developer is missing out on several years of compensation for that idea.
33:04
Joseph M. Schwab: Global commercial launches aren't simultaneous.
33:08
Joseph M. Schwab: A device that clears in the United States may take two or three additional years to receive CE marking in Europe longer in some other markets, if a royalty agreement is structured around the date of first commercial sale anywhere, the developer's compensation in subsequent markets may be compressed or lost entirely at the volume and geography of a mature commercial launch.
33:32
Joseph M. Schwab: Those gaps represent real money.
33:35
Joseph M. Schwab: They represent agreements that felt fair at the time, but functioned differently than anyone expected once the product reached scale.
33:47
Joseph M. Schwab: None of these problems tolerance.
33:49
Joseph M. Schwab: Stacking founder proximity, IP timing are clearly visible when the company is small and the team is close.
33:57
Joseph M. Schwab: They are volume problems in the truest sense, they exist because scale creates the distance, the complexity, and the time for them to develop.
34:09
Joseph M. Schwab: So here's our third answer.
34:11
Joseph M. Schwab: The problems that only emerge at volume are the ones that small teams compensate for with attention at scale, the quality system has to catch variation before it reaches patients.
34:24
Joseph M. Schwab: Because no one is watching every unit.
34:27
Joseph M. Schwab: The product has to work for providers who are not like the founder, because the founder is no longer managing every relationship, and the agreements that govern intellectual property have to account for a future that no one fully anticipates because the future has a way of looking very different from the room where the first deal was signed.
34:50
Joseph M. Schwab: At volume, operational maturity is the proof not of the device of the company.
35:02
Joseph M. Schwab: So let's step back and review what we've learned across the three questions we explore today.
35:08
Joseph M. Schwab: A single idea kept surfacing at every stage of scale.
35:12
Joseph M. Schwab: The challenge isn't the technology, it's the system around it.
35:17
Joseph M. Schwab: In the first question, we learned that what breaks when something must be built repeatedly is not usually the device itself.
35:25
Joseph M. Schwab: It's the assumption that the hard work is done in a production system.
35:29
Joseph M. Schwab: The process is the product, the validated, controlled, traceable process that delivers the same result for every patient.
35:38
Joseph M. Schwab: The teams that design that process alongside the device are the ones positioned to actually reach patients at scale.
35:46
Joseph M. Schwab: In the second question, we learned that quality, cost and scalability are not problems to be optimized in any order.
35:54
Joseph M. Schwab: Quality sets the floor and the other two have to be solved within it.
36:00
Joseph M. Schwab: The most scalable medical devices are not the most technically ambitious ones.
36:05
Joseph M. Schwab: They're the ones whose design makes them practical and reproducible and operationally simple for the system that has to deliver them.
36:14
Joseph M. Schwab: And in the third question, we learned that the problems at volume aren't surprises.
36:20
Joseph M. Schwab: They're predictable.
36:22
Joseph M. Schwab: Variation compounds, founder proximity disappears.
36:27
Joseph M. Schwab: Agreements that felt complete turn out to be incomplete.
36:32
Joseph M. Schwab: The companies that survive them are the ones that built systems, not just intentions to detect and address these things before they become crises.
36:43
Joseph M. Schwab: And if there's one thing to carry forward from this episode, it's this.
36:48
Joseph M. Schwab: The transition from your early production equivalent build to a commercial reproducible product isn't a milestone, it's a discipline.
36:59
Joseph M. Schwab: The daily unglamorous work of building systems reliable enough that the product performs consistently without anyone in the room who built it.
37:11
Joseph M. Schwab: That is what it means for a company to be ready and when a company is ready, and I mean truly ready with quality systems in place, supply chain controlled, and the product shipping consistently across real world sites, a different kind of scrutiny arrives.
37:37
Joseph M. Schwab: Investors, strategics and potential acquirers have been watching.
37:44
Joseph M. Schwab: And once a product works in the real world and can be built at scale, the next question they ask isn't about the device.
37:55
Joseph M. Schwab: It's about the company.
37:58
Joseph M. Schwab: Can it run?
37:59
Joseph M. Schwab: Can it grow?
38:01
Joseph M. Schwab: Can it be trusted with serious capital or a major partnership or an acquisition?
38:07
Joseph M. Schwab: In our next episode, we step into that conversation, the pitch room, the diligence process, and the way sophisticated buyers interrogate whether what they're looking at is a product or a company.
38:25
Joseph M. Schwab: Because in the end, they're not just buying what you built, they're buying whether you can keep building it.