Fred Dinger, now that you’ve sold your third start-up company in ten years, what do you plan to do? Disney World? Bahamas?
None of the above. In fact, Fred’s going to Austin, Texas. Which prompts the question, if that was first prize, what was second?
Fred Dinger, the former CEO of ENTrigue Surgical, Inc., C2M Medical, Inc. and OsteoBiologics, Inc. is going to go to work for Austin, Texas-based ArthroCare Corporation.
Aside from his formal title, Dinger’s job will be to make sure ENTrigue’s shareholders get paid on those milestone payments he just negotiated.
Three companies in ten years. And more than $150 million in payments to shareholders. Not bad for a 52-year-old executive who cut his teeth working for Jim Treace and Barry Bays at firms like Xomed, Linvatec and Concept.
ArthroCare Corporation Buys ENTrigue Medical for $45 million++
On July 1, ArthroCare announced that it had COMPLETED the purchase of ENTrigue Surgical for $45 million plus milestone payments which are based on ENTrigue’s future sales. Specifically ArthroCare has committed to paying ENTrigue’s shareholders a multiple of each year’s annual sales growth at the following rate:
- First three years: 0.6x the increase in sales
- Year four: 1.1x the sales increase
- Year Five: 1.25x the sales increase
In many ways, this acquisition is reminiscent of Arthrocare’s Opus purchase in 2004. Opus Medical was a minimally invasive surgery (MIS) technology which made repairs of the rotator cuff, the muscles and tendons surrounding the shoulder faster and easier than traditional surgery. Since becoming part of ArthroCare, Opus has become a hugely successful product category in sports medicine.
Similarly ENTrigue’s MIS systems makes ENT (ears, nose and throat) repair faster and easier than traditional surgery. The specific indication for ENTrigue’s systems is sinusitis. More than 30 million people in the U.S. suffer from sinusitis and, say the experts, of which approximately 500, 000 are treated surgically each year.
ENTrigue MIS systems are pretty comprehensive and include implants, disposables and instruments for endoscopic sinus surgery including innovative balloon dilation. ENTrigue’s lines fit well with ArthroCare’s ENT products and complement ArthroCare Coblation and Rapid Rhino product lines currently being used by ENT surgeons worldwide.
Common Threads
There are two common threads to Fred Dinger’s three start-up companies (OsteoBiologics, C2M and ENTrigue)—a core team that knows what to do and a reliable capital source. “Yes, the team makes all the difference” said Fred when we asked him what the secret was for launching three companies and selling three companies in ten years. “Our team members know what they are doing AND what each other are doing. And we work in dog years. We do in two months what a big company does in one year.”
The Vertical Group is the other common thread. Vertical has invested and been on the board at Xomed, OsteoBiologics, C2M and, now, ENTrigue.
The Vertical Group
The Vertical Group is a Summit, New Jersey-based venture capital firm that takes a rather unconventional approach to investing. For starters, Vertical is entirely comfortable with longer term investments. Ten years is no sweat.
But, as Dinger describes them, the partners at Vertical think appropriately for each company. They adjust depending on the company, technology and market opportunity. And they are very capital efficient. In the case of Dinger’s companies, Vertical didn’t spend a lot of capital building sales forces. Instead, Vertical’s focus was on funding quality sales—possibly smaller sales, but better sales. Sticky sales. Vertical had no problem going smaller and slower in order to make sure the product stuck in the market before going national.
For more than 30 years, The Vertical Group’s principals have been hands-on investors whether as founders, early stage investors, major shareholders, or executives. Their track record is legendary.
Here’s just a few of Vertical’s hits: American Medical Systems, Cardiovascular Imaging Systems, Cardio Thoracic Systems, EP Technologies, Intermedics, Kyphon Corporation, OEC Medical, SciMed Life Systems, Support Systems International, Ventana Medical Systems, Wright Medical Group, and Xomed Surgical Products.
The reason the founders and partners call the firm “Vertical” is because they don’t limit themselves to one sector of the medical device company continuum. They will invest up or down the spectrum of companies. In their portfolio are early and late venture stage companies; private operating companies, buy-outs or corporate spin-offs and even public companies of all sizes.
Richard Emmitt is the partner working with Fred Dinger at ENTrigue Surgical. Dick’s been at play in the medical device field for more than 30 years. He was originally an investment analyst with Cyrus J. Lawrence and F. Eberstadt and, today, is considered one of the leading experts on the health care industry by Institutional Investor magazine. He currently serves on the Boards of Directors of American Medical Systems, Inc., BioSet, ENTrigue Surgical, ev3 Inc, Galil Medical, Incumed, Tepha and Tornier. He previously served on the Boards of Directors of OsteoBiologics Inc., SciMed Life Systems, Xomed Surgical Products and Wright Medical Group.
How Dinger Does It
In many ways, the Dinger style is also the Jim Treace, Barry Bays and John Treace style—albeit with Fred’s unique way of implementing and adapting.
While we don’t know when Jim Treace and Barry Bays will write their books, John Treace wrote “Nuts and Bolts of Sales Management: How to Build a High-Velocity Sales Organization” a couple of years back and we reviewed in early 2012.
One of the best sales tips I’ve ever read was in John’s book. Here it is:
Lou Holtz, famed college and NFL football coach wrote in his book Wins, Losses and Lessons that there are three questions that people mentally ask about you. These are the questions customers must answer about each sales person or company before they buy:
“Can I trust you?”
“Do you care about me?”
“Are you committed to excellence?”
Those three questions frame up Treace’s chapter on sales tips. For example, when you’re a new rep in a new territory the customer has no frame of reference with which to judge you. And you’re under pressure to rapidly establish a relationship with a busy, potentially antagonistic physician. It’s a rough assignment. What do you do? Treace delivers with solid tips.
And, like all great coaches, Treace starts with the basics. Stuff your mother told you.
- Make a good impression. Look sharp and speak intelligently and succinctly. For good or ill, people make snap judgments so those first impressions are not only critical but entirely under your control. Don’t waste it.
- Take notes. With good notes every sales rep won’t forget a promise, a direction or critical piece of information and in, effect, make good on the promises of excellence and trust.
- Show you care by remembering the little stuff. Study after study of customer buying habits show that four sales rep attributes rank higher than product price or quality—they are knowledge, helpfulness, speed and loyalty to the customer (“Do you care about me?”).
Dinger, who learned a lot from his tenure at Xomed, Linvatec and by working with Bays and the Treace brothers, has added a few of his own elements to success. When asked, the first thing that Dinger talks about is finding ways to create value—not simply sales. What is building value? For Dinger it means working the kinks out of a product line before launching it. Instead of “Ready, Fire, Aim, ” Dinger spends a fair amount of time aiming, and testing and getting “the kinks worked out.”
That’s pretty much it. Get the kinks worked out. This means to figure out the indication, get the design right, get the reimbursement figured out and make it sticky. Sticky means that the product generates customer loyalty and re-orders. Once he has a sticky product with no kinks, then Dinger looks for a company—like Smith & Nephew or Tornier or ArthroCare—that has the sales and distribution to roll the product out nationally if not also internationally.
Oh yes, and then there is his posse. The people who have followed Dinger from OsteoBiologics to C2M to ENTrigue. Certain people keep showing up with Dinger at each of his companies. Two of those are Gabriele (Gabi) Niederauer, Ph.D. who has been VP of R&D and Regulatory, and Joey Oliver who has been CFO (& COO) at all three of Dinger’s startup companies. Another is Jeff Wrana, a senior level orthopedics engineer who has been driving designs at OsteoBiologics, C2M and now ENTrigue.
What’s Next?
ArthroCare. For maybe the next five years. Of course, Dinger is a rare talent. And once that start-up bug bites, it’s hard to give it up. Finally, big company life is not like start-up life—time, for example, gets measured in human years, not dog years.
