LEGAL ISSUES

Alphabet Soup

A manufacturer tells what it took to move her product from invention to production and international distribution.
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Number one on the list of entrepreneurs' complaints is bureaucratic agencies and their red tape and regulations. Not so for this CEO

When I first started my business I had no idea that I would be facing a maze of regulatory commissions, agencies, and organizations that were originally designed to benefit small business or the general public but in essence have become the nightmare of the entrepreneur. The walls of that maze are constructed of small groups of capital letters, like IRS, FDA, and SBA (Internal Revenue Service, Food and Drug Administration, and Small Business Administration). Mention any of those dreaded alphabet-soup agencies to most entrepreneurs, and they break out in a rash. Perhaps I was lucky because I was so unlettered in business. Whatever the reason, as it turned out, it was only through the tutoring and assistance of those agencies that I was able to launch my company, which is now about a year and a half old.

At the age of 16 I started working after school as a designer in a small flower shop. My dream was always to own my own shop someday. Then in December 1982 while delivering flowers, I slipped on the ice and fractured my ankle in several places. I had no idea at the time how that accident would change my life. While I continued working at the flower shop and even became the assistant manager, my ankle deteriorated. By the late 1980s I had had surgery three times. Eventually the extended use of crutches caused nerve compression in my hands. In my efforts to avoid the crutches, I would sometimes hop on one leg or scoot around the house on the seat of my pants. One day I got the idea of putting my knee on a chair with wheels and propelling the chair with my standing leg. It was awkward, but it worked.

When my doctor told me that my ankle needed to be fused and I might be on crutches for three to six months, I was determined to find an alternative. After several months of fruitless searching, I decided to make my own scooter. My prototype was quite a sight: an office chair and a narrow bench, with a curtain rod for a handlebar.

While in the hospital I mentioned the scooter to my physical therapist, and she asked me to bring it in for her to evaluate. Next thing I knew, the therapist and an orthopedic surgeon recommended that I apply for a patent and put the scooter on the market. They said it could be used not only by patients with fractures but also by those with ruptured Achilles tendons, amputations, foot ulcers, and many other conditions.

My original plan was to make some improvements, patent the invention, sell the patent to a medical-equipment manufacturer, and open my flower shop with the proceeds. Simple enough. But it didn't work that way.

My first encounter with alphabet soup was the CDRH (Center for Devices and Radiological Health) of the FDA. I wanted a few patients at the local hospital to try out the scooters and evaluate them. After some checking I learned that the scooters were considered medical devices by the FDA and therefore fell under its rules. Because testing a medical device on humans is regulated, I had to check for restrictions on that level of testing. My encounter with the FDA was pretty painless. However, the hospital said I had to have liability insurance before it could do the testing.

I contacted several insurance agents. All of them gave me the same response: they needed to know my first and second years' projected gross income in order to establish a premium. Even after I explained that I had no intention of selling the scooters, they insisted that only by knowing the projected gross could they determine the premiums. I had run into a brick wall.

Luckily, around the corner was the WSU (Washington State University) Spokane SBDC (Small Business Development Center). I had read an article somewhere about the SBDC and thought it might be able to help me. If nothing else, maybe I would end up with some information about starting my flower shop. I will always remember the first meeting, in August 1992, with my SBDC counselor, Mary Alice Brown. After explaining my situation, I asked if she knew of any way I could obtain the insurance. She smiled, folded her hands on the desk, and said, "Give them what they want. Become a business, work up some rough projections, and let them take it from there." I took her advice and became a business, with no intention of really being "in the business." I also decided to sign up for a few SBDC classes -- to help with my future flower shop.

While recuperating from more ankle surgery, I attended classes and worked on improving my scooter's design. Somewhere in the process I came to understand that my ankle couldn't take the abuse I had been putting it through. (As a florist I was sometimes on my feet for up to 18 hours at a time.) I realized that I wasn't meant to own a flower shop -- and that the scooter business, which I had named StoneHeart Inc., was perfect for me.

Even though I was still employed full-time at the flower shop, I spent all my spare time working on my business plan and absorbing any information I could get my hands on. I was determined to go ahead with the scooter business but was still very cautious. My husband and I had put a good deal of our savings into the project, and we didn't really know if there was a market for the scooters. I felt as if I were standing in an airplane with one foot inside the plane and the other hanging out. At any time I was ready to bail out if a light came on to indicate that the plane wouldn't fly. I needed to do a feasibility study and once again turned to the SBDC. It told me about the IAC (Innovation Assessment Center) and SCORE (Service Corps of Retired Executives).

The IAC is one of the programs established by the WSU SBDC to help evaluate new products or business ideas at a minimal cost. After receiving my application, which included as much information as I could provide about my product, the IAC began an in-depth, 33-point study to evaluate its potential. It also enlisted medical-equipment specialists from the business community to assist with the evaluation.

While waiting for the results of the study I contacted SCORE. Although the counselor there was unable to assist me with the feasibility study, I left his office with an armload of information covering everything from financing a business to marketing.

When the IAC study was complete I was given a detailed report that included, among other things, market potential, patenting, and recommended changes. Mary Alice and I analyzed the report and determined that the scooters had a definite place in the market. The feasibility study was the determining factor to go forward with my plans to manufacture and market the Roller-Aid.

Before I could begin -- or even obtain financing -- I needed an FDA PMA (premarket approval). To obtain a PMA, a manufacturer must file a 501(k), which is a notification of intent to market a medical device. I was directed to the FDA DSMA (Division of Small Manufacturers Assistance) for help in filing the 510(k). The DSMA, which had been established to provide medical-device manufacturers with a working knowledge of requirements and compliance policies, sent me volumes of information, too much information. It was overwhelming! Thinking I was in way over my head, I called the assistance hot line. A representative walked me through the process and assured me that it was much easier than it appeared. The hard part was compiling all the information required to classify the scooter by establishing its equivalence to some other device on the market. The Roller-Aid was a new concept, and the closest devices we could find were a walker and a wheelchair. The DSMA representative suggested we do a comparison with both. With the help of Mary Alice I completed the application and after five months received my device classification.

While waiting for the PMA I completed my business plan and began to look for financing. I thought any banker would be impressed with my 44-page plan and that I would have no problem getting a start-up loan. But my banker wouldn't even look at the plan without an SBA guarantee. So the SBA became my next obstacle. Initially, people there were pretty discouraging. They told me that the SBA typically does not guarantee loans on inventions. However, somebody thought that going through the application process would be a good learning experience for me and referred me to the GSBDA (Greater Spokane Business Development Association) for help in packaging the loan application. About six weeks later I submitted the application along with a letter of recommendation from Mary Alice. At that point I was called in for a meeting with the SBA loan officer. After drilling me for about 20 minutes on my business plan and financials, she informed me that she would back the loan. That was in April 1993. I was really in business.

Now that StoneHeart is up and running, I have begun to think about exporting. Recently, the Washington State CTED (Department of Community, Trade, and Economic Development) was arranging meetings for a buyer from JETRO (Japan External Trade Organization). It had received information on StoneHeart from one of my alphabet-soup contacts. Subsequently, Roller-Aid was selected to be featured in a JETRO showcase in Tokyo. I was also selected by JETRO to participate in the Export to Japan Study Program, which is designed to inform and educate potential exporters to Japan about Japanese business practices and to support their efforts to export there. After making a few minor modifications on the Roller-Aid to better suit the Japanese market and climate, we will be ready for our first shipments.

Now, while recovering from yet more surgery on my ankle, I sit with my leg propped up on a Roller-Aid and reflect on my encounters. I have learned that many pieces of the system for entrepreneurs actually do work for us, not against us. That's what they were designed to do. Sometimes we all need to be reminded of that.

* * *

Heather E. Stone is the CEO of StoneHeart Inc., manufacturer of Roller-Aid leg-support scooters, in Cheney, Wash.

Last updated: Nov 1, 1994




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