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Lesson 6: Get your suppliers to finance you

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September 26, 2006 14:26 IST

Genicon: Founded by Gary Haberland with $1,000

A medical device firm wouldn't seem to be the kind of company you could start for almost nothing. "It normally takes millions of dollars before you can get to something tangible," says Gary Haberland, who founded Genicon, a Winter Park, Florida, company that makes and sells surgical tools for laparoscopy, in 1998.

The biggest issue, of course, was figuring out how to manufacture the devices. One day, walking past booth after booth of small vendors at a trade show, Haberland had an epiphany.

"If I were in their shoes, I'd have to be frustrated that multibillion-dollar medical device corporations hammer them all the time on pricing," he says. Why not offer the vendors "a shot at the endgame" in the form of equity in his start-up?

Haberland tracked down the home addresses of the owners of 50 potential suppliers, from manufacturers to sterilization specialists. He sent them a letter and in some cases his business plan by FedEx (total cost: $500).

Twenty responded and 14 agreed to meet with him. Haberland eventually issued about 15 percent of Genicon's stock to five suppliers who put more than $1 million into the firm. He also negotiated discounts and extended payment terms in exchange for exclusive manufacturing rights for 18 months. "They wanted it to be forever," he says, "but as my company grew, its needs could exceed their capacity." Indeed, they have. Sales in 2005 hit $10 million.

Capital Infusion

Gary Haberland used equity to build interest in his tools among surgeons. Twenty M.D.'s now own 35 percent of Genicon.

Product Design

Haberland paid all of $150 to a design student to do the CAD design of a laparoscopic tool. Today, the kid, now 24, is an R&D exec at the company.

D.I.Y. Compliance

The Food and Drug Administration's small manufacturers' branch provided Haberland with two milk crates of documents that explained the arcane rules for federal compliance. He also researched patent law on his own.

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Stephanie Clifford,