For a company to thrive for the long haul, it needs a sustainable competitive advantage. Without one, it risks seeing its business destroyed by a competitor who figures out how to deliver the same product or service better, faster, or cheaper.
For large companies, those advantages are usually tied to their size. Wal-Mart (NYSE: WMT) can extract serious price concessions from its suppliers because it buys in massive quantities. Likewise, Pfizer (NYSE: PFE) can afford the incredible overhead, R&D, and approval costs associated with creating new pharmaceuticals. Small companies simply can't come up with enough money to compete effectively on those grounds.
So why try?
But the giant companies that focus on leveraging their scale have a weakness: They can easily miss a wide swath of the market. Anything short of a blockbuster hardly moves Pfizer's revenue needle, and products that don't appeal to virtually everyone won't make sense for Wal-Mart to buy in bulk.
That effectively puts blinders on large businesses. Those blinders give small businesses an opening they can use to profit from opportunities the giants leave behind.
Build a better mousetrap
Take, for instance, ICU Medical (Nasdaq: ICUI). Its market cap pales in comparison to large medical device companies such as Boston Scientific (NYSE: BSX) or Medtronic (NYSE: MDT). I had an opportunity to speak with its founder and CEO, Dr. George Lopez. His story was the perfect example of how a small company can stake a claim successfully amid competition from giants.
Lopez founded ICU Medical on the Click Lock, a device that improved the safety of connecting intravenous (IV) lines. He had once lost a patient when the IV inadvertently disconnected, and he knew there was a market for the product. But when he offered his patent on the device to medical instruments companies, their blinders were on so tightly he couldn't give his patent away.
Find a need and fill it
Lopez founded his company with financial backing from doctors and other health-care providers. You know -- the very people who knew the benefits of a more secure way to connect IVs.
That lesson has stuck with ICU Medical throughout its 24-year history. The company still specializes in filling critical niches that its larger competition ignores. For instance, it's now the world leader in custom IV sets -- prepackaged combinations of components and products tailored to the needs of clinics, doctors, or for illnesses.
Giant manufacturers often shy away from "customization" -- they don't get scale that way. Yet clearly the demand existed for a way medical practitioners could save the time, effort, and costs of reconfiguring off-the-shelf products and components to meet their needs. ICU Medical filled that gap, and also determined how to customize IV sets rapidly and inexpensively to make them price-competitive with OTS products.
The next great adventure
Lopez is turning his company's sights on making custom and safety devices for oncologists and oncology patients. Cancer drugs are very toxic, and practitioners put their own health at risk when they handle and administer the compounds. Additionally, cancer treatment varies by the types and stages of the disease, the patient's condition, and the physician's preferences.
That makes cancer a natural field for improvements in both safety and customization -- and for ICU Medical. Its newest products include Genie, which helps health-care providers get cancer medicine out of the bottle safely, and Spiros, which helps them transport that medicine to patients efficiently.
Of course, Lopez hopes that the medication will be delivered to patients through custom IV sets from ICU Medical. That would give his company a critical trifecta in the large and growing field of cancer treatment.
The perils of being small
As promising as the future and its innovations are, ICU Medical's small size does put it at a disadvantage when it comes to putting its products into the hands of its customers. According to Lopez, two companies, Hospira (NYSE: HSP) and Baxter (NYSE: BAX), each control around 40% of the hospital distribution business.
When those distributors focus on their own products, small manufacturers like ICU Medical can find it difficult to promote theirs to potential customers. Lopez blames such a shift in distributor focus for ICU Medical's relatively weak results in its most recent quarter.
Thanks to increased regulatory focus on practitioner safety and his company's leadership position in that field, Lopez believes such supply chain blips can be overcome quickly. If he's right, and if his new corporate push into oncology is successful, ICU Medical may not have to worry about staying small much longer.
