contrarians get the big rewards

I noticed funny behavior on the beach this summer.  All the seagulls chase the same food at the same time.  

When someone drops a potato chip on the beach, the seagulls viciously fight for it. One bird eventually gets the chip, then a few birds will chase the winning bird for miles hoping for a chip fumble. Meanwhile, there is an endless abundance of fish in the sea all around them.

This got me thinking. Many orthopedic companies act like the seagulls.  They are drawn towards the same technology or business models while ignoring an ocean of other undiscovered opportunities.

Remember the 2000’s after the Spine-Tech acquisition?  We need spine.

spine, spine, spine, spine, spine, spine, spine, spine, spine, spine, spine, spine, spine

This flock behavior is how we ended up with 236 spine startups. Not surprisingly, many of these startups failed (Applied Spine Technologies, Archus Orthopedics, Disc Dynamics, Hydrocision, Innovative Spinal Technologies, Spinal Restoration, Vertebron, etc.), while other more established companies (S+N and Exactech) dropped their spine businesses altogether.

And it never ends.  There is always a new chip on the sand.

Right now, the flock is fighting over robotics and 3D printing.  Zimmer just announced that they are jumping into robotics in a big way to chase Stryker, Medtronic and Smith and Nephew. On the 3D printing front, every ortho/spine company is trying to figure out how to get on the 3D-printed implant train. And by the way, there is no proof that robot-aided surgery or 3D-printed implants create better outcomes.

Why the funny seagull behavior?

Classic groupthink. Groupthink is a common bias in which companies conform to a prevailing view.  Orthopedics companies that fall into groupthink tend to stay in a “safe zone” that is determined by the industry leaders. The crowd is trying not to be wrong.  This is why all the products look the same at the tradeshows. Groupthink is dangerous because it limits imaginations, impedes unconventional thinking, and leads companies to stop the productive challenging of ideas that often lead to better thinking.

The better way, the contrarian view

Historically in orthopedics, those outside the flock, the contrarians, win and win big.  While the flock swarms in on the trends, the contrarians find the big new fish that nobody was looking for. If you’ve seen the film “The Big Short,” or read Peter Thiel’s Zero to One, you know what I mean. Contrarian thinking works.

I remember contrarian moves in orthopedics that seemed crazy at the time.  However, these contrarian innovators reshaped orthopedics forever.

  • Smith and Nephew brought the Ilizarov distraction osteogenesis technique from Russia before reshaping bones was thought even possible.

  • Sofamor Danek made a $50M licensing bet on growth factors before growing bone synthetically was possible.

  • EBI innovated with low-level electrical fields instead of relying on natural fracture healing.

  • Kyphon innovated with balloons to increase vertebral body height before it was in vogue.

  • Hand Innovations created and perfected volar plating for distal radial fractures when everyone else was focused on dorsal plating.

  • MAKO believed in robotics when everyone else was focused on better surgical instruments for precision.

  • Ellipse Technologies created movable implants by remote control when everyone was focused on stationary implants.

VCs already know the contrarian play. VCs will tell you that they win the BIG returns when they are right and everyone else is wrong. When a technology is a new trend, it’s just too late. VCs are looking elsewhere.

The opportunities are endless and the opportunities are only limited by imagination and technology and funding.   It takes real effort to find an opportunity and grow it.  Take Peter Thiel’s challenge, “What valuable company is nobody building?

Take-home Message

If you want to win big, think like a contrarian.

If you want to play it safe, chase the potato chip on the beach with the others.