Capital Commentary
by Bradley M. Smith
Tuesday, October 11, 2016

Most executives in today’s HME marketplace are obsessed with trends. To some extent, competitive bidding ignited this infatuation, but it is also common among health care leaders in general. Whether trends in reimbursement or EBITDA acquisition multiples, operators are fascinated by trends and even seek to time significant events, such as taking their HME to market, so they are aligned with highest point of value. This perspective has led to great discouragement for many HME owners in the continuing aftermath of competitive bidding. Some operators believed that competitive bidding would disappear, and many of these same companies have left the market because they did not reposition themselves. Others took a different tack and decided that opportunities remained if they approached the market with a different proposition. In many of these cases, the companies have prospered and continue to grow today.

The Secret Sauce for Success

Based on a careful analysis of failed and thriving HMEs, the best answer is simple: it’s about talent, not trends. While capital structure, location, market segment and other factors contribute to success, it is the ability of a team to create a coherent strategy and implement a viable plan of action that is the foundation for solid performance in the turbulent HME market. Management and operational talent can mean many things, but some key aspects of talent in today’s HME world include the following:
  • Entrepreneurial spirit—One of the great qualities of active entrepreneurs is their willingness to experiment with new ways of delivering services and products with some expectation of failure. This is not ultimate failure, but the successive approximations and mistakes that are converted into improved operations with a strong foundation of real experience.
  • Healthy naiveté—When you approach a market with naiveté, you do not have long-conditioned assumptions that can get in your way and inhibit creativity. Some of the younger HME success stories include owners who simply reject old HME market logic and say, “Let’s take a new approach.” The other advantage these operators have is never knowing the golden age of HME when reimbursements were astronomical.
  • Quick implementation of learning—A differentiator for above-average HME companies is their ability and willingness to quickly implement new ideas that have resulted from their business experiences. They do not wait until there is a break in the action next year; they integrate as much as possible of the new approach now.
  • Agility—In her classic, “The Agility Advantage: How to Identify and Act on Opportunities in a Fast-Changing World,” Amanda Setilli identifies the three agility traits of successful business people, including “market agility” (full engagement with all customers and external partners to best understand their needs), “decision agility” (always anticipating change including negative events that can become opportunities) and “execution agility” (aligning your team and encouraging their market experimentation). This is key to what successful HME operators bring to the table in their organizations.
  • Technology-focused—Most of the winning HME companies have made a strong commitment to contemporary technology to streamline their operations, marketing and sales efforts. It shows online and in customer interactions, which increase their attractiveness to a diverse customer base from millennials to baby boomers to representatives of managed care organizations.
  • Disruptive product interest—Of the younger winning HME executives, their interest in disruptive product innovation (less expensive and more accessible than the competition) makes them well suited for developing new products in the HME space. This also shapes their marketing perspective with few rules about what is acceptable in the marketplace.
  • Thorough preparation—While my analysis may lead one to think that some of these HME leaders are rash and impulsive, quite the opposite is the case. They are very thoughtful, they carefully prepare for various market scenarios and they monitor results and recalibrate, as necessary. As entrepreneur and Dallas Mavericks owner Mark Cuban noted, “If you’re prepared and you know what it takes, it’s not a risk—you just have to figure out how to get there.”
  • Discipline—There was a time during which many HME companies were essentially cash cows that were consistently profitable with very modest planning and little effort required. No longer. Today’s thriving HME is typically very disciplined in all areas of the organization from top to bottom.
As the talk of an all-consuming death spiral trend has permeated the HME market, there is a counterforce of incredibly optimistic and entrepreneurial HME owners who see very much the opposite—abundant opportunities for growth and diversification, new markets for new products and increasing demand. This latter point is not lost on any of us, because the population of customers seeking both our old and new products is increasing. When we talk of trends, it is worthwhile to remember the words of the great film director Frank Capra, “I don’t follow trends, I start them.” That’s the motto of successful entrepreneurs; they don’t worry about following—they focus on leading.