Medsider: Learn from Medtech and Healthtech Founders and CEOs - How to Compete with Industry Goliaths: Interview with Butterfly Network CEO Joe DeVivo

Episode Date: May 15, 2024

In this episode of Medsider Radio, we sat down with medtech veteran Joe DeVivo, President and CEO of Butterfly Network. Butterfly iQ3 is the startup's latest chip-powered, hand-held ultrasound device with superior image quality and ultrafast scan times.  Joe is a proven executive with 35 years of business leadership experience, including 22 years in the medical device industry spanning small start-up companies to multi-billion-dollar organizations. He has acquired and fully integrated eight companies, engineered four business turnarounds, and delivered five company exits. In this interview, Joe shares insights on why a lean start in commercialization is better than a high-burn, high-risk approach, the difference between your company being sold and being purchased, and best practices for managing M&A transactions. Before we dive into the discussion, I wanted to mention a few things:First, if you’re into learning from medical device and health technology founders and CEOs, and want to know when new interviews are live, head over to Medsider.com and sign up for our free newsletter.Second, if you want to peek behind the curtain of the world's most successful startups, you should consider a Medsider premium membership. You’ll learn the strategies and tactics that founders and CEOs use to build and grow companies like Silk Road Medical, AliveCor, Shockwave Medical, and hundreds more!We recently introduced some fantastic additions exclusively for Medsider premium members, including playbooks, which are curated collections of our top Medsider interviews on key topics like capital fundraising and risk mitigation, and a curated investor database to help you discover your next medical device or health technology investor!In addition to the entire back catalog of Medsider interviews over the past decade, premium members also get a copy of every volume of Medsider Mentors at no additional cost, including the latest Medsider Mentors Volume V. If you’re interested, go to medsider.com/subscribe to learn more.Lastly, if you'd rather read than listen, here's a link to the full interview with Joe DeVivo.

Don't be in love with your technology. Be in love with your customer. So many MedTech entrepreneurs have an idea, and they try to shove that technology down the throat of the customer. And they don't listen to what the customer's feedback is. Whatever it takes for your technology to be adopted and whatever it takes for the customer to fully want to use your product you have to do. Welcome to Medsider,

where you can learn from the brightest founders and CEOs in medical devices and health technology. Join tens of thousands of ambitious doers as we unpack the insights, tactics, and secrets behind the most successful life science startups in the world. Now, here's your host, Scott Nelson. Hey, everyone, it's Scott. In this episode of MedSire, I sat down with Joe DeViebo, president and CEO of Butterfly. He's a proven executive with over 35 years of business leadership experience, including 22 years in the medical device space spanning small startup companies to multi-billion

dollar organizations. Joe's acquired and fully integrated eight companies, engineered four business turnarounds, and delivered five company exits. Here for the key things that we discussed in this conversation. First, don't be afraid to explore unconventional ideas if your product and the market conditions warrant it. For example, you may want to really lean into sales and distribution strategies tailored to your product strengths like building a broader ecosystem around your device.

Two, to outmaneuver incumbents adopt a lean, adaptable commercialization strategy based on the advantages of your product. As a startup, don't make the mistake of scaling your Salesforce prematurely with a focused, low-cost and initial launch. You can gather vital market feedback and refine your approach. Third, when it comes to M&A, you want your company to be purchased, not sold. Focus on building a strong, desirable business to attract buyers organically, befriend potential acquires, including competitors and foster trust over time. All right, before we jump into this episode, I wanted to let you know that the latest edition of MedSider Mentors is now live. We just published Volume 5, which summarizes the key learnings from the most popular Medsider interviews over the last several months with incredible entrepreneurs like Gabriel Jones, CEO of Proprio, Kirsten Carroll, CEO of Can Do Health, Dr. David Alpert, founder of AliveCorp,

Greg Bullington, CEO of Magnolia Medical, and other leaders of some of the hottest startups in our space. Look, it's tough to listen or read every interview that comes out, even the best ones. but there are so many valuable lessons you can pick up from the founders and CEOs that join our program. So that's why we decided to create Medsider Mentors. It's the easiest way for you to learn from the world's best medical device and health technology entrepreneurs in one central place. To check out the latest volume, head over to MedsiderRadio.com forward slash mentors. Premium members get free access to all past and future volumes. If you're not a premium member yet, you should definitely consider signing up.

In addition to every volume of Medsider mentors, you'll get full access to the entire, library of interviews dating back to 2010. You'll also be able to see all of our playbooks, which are handpicked collections of the most insightful interviews with the brightest founders and CEOs that join a program. Whether you're looking to master capital fundraising, navigate early stage development, tackle regulatory challenges, understand reimbursement or position your venture for a meaningful exit, MedSider Playbooks have you covered. And last, considering that fundraising can be one of the most daunting tasks for any startup, we created a meticulous database of investors right at your fingertips.

Explore a wealth of VC funds, private equity firms, angel groups, and more, all eager to invest in medical device and health technology startups. Access to this database is a premium member exclusive, so don't miss out. Learn more about MedSider Mentors and our premium memberships by visiting MedsiderRadio.com forward slash mentors. All right. Without further ado, let's jump into the interview. All right, Joe, welcome to MedSider Radio.

Appreciate you covering up time on a Friday afternoon. Thank you for having me. Yeah, really looking forward to the discussion. You've got an incredibly accomplished, you know, background in MedTech. And, you know, I recorded sort of a very short summary of that at the outside of this interview. But I always like to start here, you know, hear it kind of from your perspective without going, you know, too far into the weeds. Give us, give the audience a sense of kind of, you know, where you've been throughout your career kind of leading up to taking on the CEO role at Butterfly. Well, I've had the pleasure of starting my medical career, medical device.

his career with a company called U.S. Surgical, incredibly innovative company. You know, doctors would talk about where they formed their opinions, where they did their residency, where they had their mentorship, and then that kind of forms how they practice medicine in the future. Well, my first 10 years were a company called U.S. Surgical. And so, you know, in a way, that's where I kind of feel I did my residency because I have a tremendous amount of mentors there. It's a very innovative company that changed surgery around the world twice by bringing surgical stapling and into medical practice and then also commercializing laparoscopy. So I loved it. I was there 10 years. I've been into surgical robotics with computer motion and device oncology,

orthopedics, vascular. And then like the last seven to 10 years, are now in digital health. I was in telemedicine with a company that we sold in Touch Health to Teledoc and then now butterfly. And so it's been incredible experience, a wonderful journey. And it's kind of funny because each step of the way kind of built upon the next, bringing me to butterfly. So I've been very, very, very lucky.

Yeah. Yeah. you're being humble. You know, I'm looking at, you know, anyone can kind of look up your bio, but, you know, take one scan through your LinkedIn profile. And it's a pretty impressive track record, no doubt. And I think your point on like the past decade, right, seeing the kind of the acceleration of digital health probably is instrumental, right, and kind of what you're, what you're doing

now at leading, leading butterfly ahead. So excited to talk a little bit about that in more detail. But for those that aren't familiar with butterfly, I think you're, your latest kind of product there is the IQ3 system, I believe. Give us a sense for kind of like how it's how it's different maybe versus some other other maybe similar type of ultrasound systems. It's digital. It's the same thing like a digital camera. Back in 95, a digital camera was launched to replace film. Film was an analog way where you use light to project onto a film. and digital imaging as processing power improved, ultimately replaced film photography.

Butterfly is like that digital camera for ultrasound, where we have a semiconductor chip that's used to deliver the waveform, and it has one device that could be used for all the different applications. And so IQ3 is our third generation, and our image quality is so good. It's as good as any other handheld on the market. which we believe will allow butterfly and our semiconductors to replace a lot of analog ultrasound in the market. Got it. And for those that aren't familiar, I'm sure a lot of you listening are at least heard of butterfly, but it's butterfly network.com is the website.

We'll link to it in the full write-up on Medsider, but just as it sounds, butterflynetwork.com, it's a really nice site. You can learn a lot more about the technology there. But Joe, give us a, I mean, you're obviously commercializing IQ3 now, But give us a sense for kind of, you know, over the next 12 months, you know, what's ahead for the company. And then we'll, we'll kind of reverse that and kind of go back in time and kind of learn a little bit more about your career and kind of how that's unfolded and how that leads into the next next phases of butterfly. But give us a sense for kind of where you're at kind of over the next 12 months or so. So the market that we serve is called point of care ultrasound.

And point of care ultrasound is teaching caregivers, doctors, nurses, how to do ultrasound scans. when they engage the patient. Instead of ordering a scan, waiting hours or waiting days or months to get your image, these are little scanners that you can put in your pocket that a doctor can pull out just like a stethoscope. And as they would listen to your lungs to see if there's fluid in it, you can actually pull an ultrasound out and see if the lungs are wet. So it's the future of imaging and it's the future of care. Today, 60% of med students are trained on this type of device and ultrasound.

And so we're focusing on continuing to build the market. Butterfly is a benefit because you only need one device for all the different types of scans versus four for the analog. And our image quality is so good. We're going to be spending time now converting out a lot of hospitals and growing and teaching doctors and nurses how to use ultrasound. With that said, I think you touched on kind of like this idea of building the market, right? Tremendous opportunity ahead.

So let's kind of, you know, spend the next 20, 30 minutes kind of talking about some of those things. And really the first question kind of on the docket is really about some of the more recent accomplishments, right, that you've been able to achieve as it relates to building some of these partnerships, you know, significant partnerships, both here in the U.S. and internationally. And so maybe if you can kind of tell us a little bit about how some of those collaborations, came together and frame that up maybe for other device entrepreneurs that maybe are commercializing in the same kind of boat trying to build the market and are looking at trying to really scale up with some of these unique collaborations. Well, one of the things is fascinating if you're a student of the medical device industry, you know, it's an industry that is very relationship and very salesperson dependent.

You have a salesperson, a salesperson goes and trains, you need a contract into the hospital, you know, and then you sell to a doctor, you sell to a procurement, you sell to buying groups. Butterfly, when it entered the market actually create a relationship directly with the doctors. It advertised and said, hey, we have the ability to have a device that can help you in your practices, can help you in urgent care, can help you in ambulances. And interestingly, right before COVID, it, the company launched and launched his product online. So it didn't launch, you know, every company I've been a part of. When you launch your product, you have a sales force, and a sales force is the

way you grow your revenue. And based upon those sales calls and based upon trade shows, and very standard brick and mortar medical device way, those businesses are built. Butterfly built it based upon having a very consumer-oriented medical device, something that that, you know, such a high percentage of our sales are doctors going online, buying the product on their credit card and having it come into their practice. And so what that did is that ultimately allowed us to very quickly create relationships and a value proposition with doctors all around the world. We have now 18 different countries in 18 different languages where a doctor can go to a website and then purchase the ultrasound device.

for their practice. And that allowed us to build a large amount of scale. Now, the future of ultrasound is, you know, ultrasound itself is the hardest imaging modality of all imaging. When you look at a CT machine, you know, a CT machine looks like a table with a big donut and they, you know, they have you lie on the machine and the table then goes into this big magnet. And what it does, is it takes individual images of view in an automated way. So the technician is not having to artistically find something or manipulate something. They push you in, they hit a button, an automated protocol comes through, a series of images are taken. And then that file is sent over to an expert.

With ultrasound, you have to have the device where you contort it and you're like looking for that one image. kind of like a flashlight in a cave. You're in a dark cave and you can't see anything. And now you just have that one spot that you use. It's a very, very hard image to get. But it's a very inexpensive image to get. You know, obviously having a CT machine, a room, and then a million-dollar magnet and all these other things.

So ultimately, if you can make acquiring an image on ultrasound easier, then you're going to have more and more people do it. And then you can allow nurses and caregivers in rural areas who don't need to have that cost in infrastructure. A big catalyst to make ultrasound easier is AI. And there are hundreds of companies today that are using AI to help do either make it easier to acquire an image or easier to read an image.

And they use large data sets to be able to develop these models and these algorithms. Now, if I'm a software AI company, I have to make, I ultimately have to be a part of the acquisition of that image, meaning I have to have a probe. I have to have a piece of hardware. Butterfly is the best selling Ultrastown probe over the last five years. We've sold more than any other company. So we have the largest install base around the world.

So if you're an AI software developer and you want to now sell your software, wouldn't you want to sell it into the largest marketplace, into the largest environment? So we were developing our own AI, and we have several different algorithms that we have approved. But we said to ourselves, when we looked at our future investment, we can either continue to invest in each clinical use case to come up with our own unique AI tool, or what we can do is open up our environment to third parties to develop on our platform and then be able to then have access to our customers. And so for us, we can partner with all these other companies who are developing this tool, and we make it very easy for them to use our device to capture the image. And then we open up our customers to have access to these software applications.

It's not terribly original. It's very similar to an Apple App Store, where now you have this great little supercomputer device that you have in your pocket. And the more applications that come in, the more valuable it is to you. You can run, you can do all different types of things. And so ever since we created a software development kit, and ever since we opened up our environment to third-party developers, the response has been incredible. We have probably 50 or 60 right now active conversations, and we've already brought in, I believe we're up to 15. I have to see exactly, but I think we have 15 contracts now signed and partners coming in.

And the business model for Butterfly is they pay us for access to our software development kit. And then when they put, when they, when they launch the app for every app that's sold to our customers, we're able to get a percentage of that revenue. So for them, it's easy because they have an easy environment to sell. for us, we now have kind of a layering and scaling software revenue. And for our customers, the hardware that they purchased becomes more and more valuable because now hopefully every month, every two months, they're going to have a new application launching on their device.

Yeah, that's genius. The analogy you used the Apple ecosystem. I think most people that are listening are probably going to be like, yeah, I get that, right? Butterfly is the Apple, like you develop the hardware and are really good at it and let, you you know, other people kind of access and develop within your ecosystem. And I think what you're referring to is, I mean, is that the butterfly power, is it the butterfly garden? Is that kind of the butterfly garden?

Got it, got it. Okay. That's sort of the app store, if you will, then got it. Yeah. That's exactly right. Yeah, that's very cool. That's very cool. That allows, you know, peer play software companies that are actually, you know, very, very good at apps, right, to do what their best at, right, is software development, right? And then they can just simply plug into your distribution. Yeah, it's a business model that works once you've hit scale. And you've had a, you know, it's, you know, to launch, you know, an app store or a garden type of environment when you don't have a lot of customers, it's like no one's going to want

to come into it. But when we've, when we communicated in the press release that we are going to open up our marketplace and we're going to open it up our customer base, it was, I mean, it was actually, it was pretty incredible. I mean, I've been to this company now a little less than a year. And I didn't even realize how large and important a space this is and what Butterfly has been able to create. Yeah. I've got two kind of follow-up questions, but one is it relates to kind of using this sort of model, right, to really help build, build a much bigger market.

But the first question I want to kind of go back to is something that you referenced earlier. when Butterfly, you know, sort of initially launched, it was very much this kind of not direct to consumer play, for example, but it's more like direct to physician in a sense, right, online direct to physician. So like almost D2C, if you will, you need to see e-commerce for for for, for, uh, for, for, uh, for us obviously very different than traditional med tech, right? And you have a unique experience because you grew up in traditional med tech where that, that, that's a very atypical kind of kind of approach. Um, and even, even today is still, you know, widely considered pretty atypical. Do you, for, for, for those that are listening that have a

device that could, where it could work with this type of model. And they're debating, do I, do I go, do I take a butterfly type of approach or do I go kind of the traditional offline, build a huge Salesforce? What, what generally speaking, I mean, I know that's a bit of an ambiguous question, because it kind of depends, right, on the product. But for those that are, skeptical of going kind of direct to positions in that sort of capacity, like, what would you tell those people? Well, you know, I think the commercialization strategy is really important. And one of the things that I have seen with startup companies or earlier stage companies when they're ready to commercialize is I've seen sometimes they go too big.

They hire a nationwide sales force. They got 10, 20, 30 people. They're paying them two to 300 grand. They want to go get the biggest and best killers and go out. And at times, you know, it takes, it takes a while to refine your model. It takes a while. And sometimes, you know, when you go out and create this big sales force so fast, you burn a lot of money.

You expend a lot of resources. You know, typically, you know, people will, you know, in a C round will be the commercialization round when, you know, they've gotten their product that's approved, manufactured and scaled. And then they go for it. And whether it's going online and making it available first, you know, one of the companies that I worked with,

I was chairman of the board of a company called Surgy Quest that made a seal list trocar for laparoscopic surgery. They used air as the seal to maintain new hyperemium. And the smartest thing the CEO, Curtis of Arsend did, was he hired one salesperson, and they were out of Connecticut, and they put one salesperson in,

the New England area, mostly focusing on Connecticut. And they were trying to figure out how is a salesperson going to do. Let's have this salesperson go into a territory. All territory is how many hospitals, how many doctors, how many procedures, you know, and you kind of, and then let's see how successful this one person is. And then what was interesting was you can learn, okay, well, what are the objections that the doctors have? You can learn, you know, have you priced it right? Is there a training issue?

And so whether it's dipping your toe in the water and making your product available online and then doing some, you know, basic marketing, or whether it's you put one salesperson, two salesperson into a good market, is that you take a bit of a slower path into your cash deployment for your launch. And you make sure that all of a sudden, like when when that one salesperson really starts selling and getting to, okay, now they're doing a half million a year, now they're doing run rate of higher this and that. You say, okay, I have something now. I know I can train the rep. I know the territory can produce enough revenue to sustain them. And then you start multiplying it slowly across the United States.

But the biggest mistake I see people make is they just go, boom. and they go deploy, you know, all kinds of resources. Next, you know, they're burning a million dollars a month. They're not getting the revenue yet. And then they are worried about the runway of their cash. And I know that's probably not how you ask the question because your question really has to do with, you know, is e-commerce the right way?

E-commerce costs some money to set up, but it's nowhere near expensive as a direct sales force. And I think, you know, if I'm a medical device, entrepreneur today, I'm really trying to think out of the box on my, on my commercialization, because you can't play the game like the big companies play at day one. You know, and that's one of the fascinating things about butterfly. You know, we compete with GE. We compete with Phillips.

We compete with Siemens. We compete with Fuji. Big, big, big, big companies. They have contracts. They have relationships. They have all these barriers. But what's fascinating is when you sell directly to the doctor and into their practice, you start building a brand.

You start building awareness. I remember, you know, one day, one of the top five hospitals in the U.S. had actually called the company. It was very upset. And I said, well, what's the matter? I said, you know, we have all these butterflies in the hospital. And, you know, we don't buy butterfly. Butterfly is not our, whatever, it's not our sanctioned product.

You know, we're not, the images aren't going into our dot com. The records aren't going into the EMR. And we were like, oh, we're so sorry. I'm sorry. And so we ran a report, and there were 140 doctors associated with that health system that had purchased butterflies. And they were just bringing them in the hospital because it was just what they did. So we have a software, a very advanced software package that helps with proficiency management,

EMR data deployment, diCom, and actually even can help them pull ultrasound images from competitive products. And so we said, well, we have a solution for you. And they did purchase our software platform that then allowed butterflies to integrate data into their network and solve other problems. Today, we have over 600 probes in that health system. So, you know, it's like, you know, if you read Malcolm Gladwell's book, David in Goliath, right? You know, Goliath has their way, their big, you know, way of fighting their

battle. But when you're small and you're new, you have to find, you know, a way to be a little bit disruptive. And it's less to do with, you know, do you go D to C, do you use a distributor? Do you, you know, build a website or have a rep or do you partner with a third party? It's, it's, you know, you have to come up with a model that allows you to accentuate your unique benefits. And sometimes if you play the game differently, you're going to succeed versus having to always play Delia in Kalias game. Yeah. Yeah. That's such a great story. It reminds me of kind of some of the early stories of like Dropbox, right, the Cloud Story System where they almost went direct to sort of business person, right? And there's like this bottoms up kind of build up, right? Because people started using Dropbox.

And then the IT folks were like, what's going on? Like, this isn't an approved software. You know, we don't, we're not okay with this. But everyone was using it. And it sounds like that's kind of similar to like what you're seeing inside traditional health systems where it's like docs, techs, who have nurses, whatever. They're like, I'm going to use Butterfly because this is so much easier than like wheeling out my clunky GE system. You know, so that's a really good. That's a really cool story.

And I love your, I love your comment, though, where you started out that answer with was like, regardless of the channel, right, whether it's, it's, you know, direct position in an e-commerce sort of like fashion or whether it's like offline. The important point is start small. Like look for a product kind of or product channel fit, so to speak. And it reminds me of a conversation. I don't know if you know Bryce Clonts at all if you've crossed with him in your career. But he was the CEO of Newview surgical. I think before that he was like leadership roles at Cavendian.

I'm not sure if he spent any time at US surgical or not. I'd have to go back and look. But he mentioned something very similar, right? I mean, I think his wheelhouse probably is a little bit more commercial. And it was like, at Newview, we just, we wanted to start very, very narrow with our commercialization approach. So instead of going too wide, we just didn't really deep within one particular health system. And it allowed us to gauge and find those signals, look for, you know, the pushback, right, or the objections. And then they could use that same model in those learnings and then begin

to scale out. So I think it's a really, really, really smart, smart approach for sure. Hey there, it's Scott. And thanks for listening in so far. The rest of this conversation is available via our private podcast for MedSider Premium Members. If you're not a premium member yet, you should definitely consider signing up. You'll get full access to the entire library of interviews dating back to 2010. This includes conversations with experts like Renee Ryan, CEO of CalaHealth, Nadine Miarid CEO of CVRX, and so many others. As a premium member, you'll get to join live interviews with these incredible medical device

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