A profile of Optiva, the number one Inc. 500 company, and the unlikely product -- an electric toothbrush -- that brought it to the top of the 1997 list.
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Number one company
From Star Wars (technology) to star endorsement (Oprah): How a toothbrush made Optiva into the mouth that roared
It was supposed to be the home dental-care appliance of the future--not to mention the device on which he was contemplating staking his career and savings. But David Giuliani was having trouble imagining this thing in his bathroom: a taped handle and a single tuft of bristles, like a broken-off drill bit glued to a metal protuberance with electrodes leading to a TV-sized box. Turned on, it hummed, the tuft of bristles a ghostly blur. Nervously, he touched it to his gum line. It tickled. From that moment, Giuliani was in the sonic dental-bacteria-removal business.
In the 10 years since, some 2 million other people have become sold on sonic toothbrushes--appliances that use sound waves to vibrate teeth clean. Almost all of those devices have been supplied by Optiva, the company that Giuliani cofounded and agreed to head after trying out that prototype. Last year Optiva sold about 1 million Sonicare toothbrushes, achieving revenues of $72.7 million, up almost $24 million from 1995, capping a five-year growth rate of 31,507%. Or put it this way: Optiva is the fastest-growing private company in America.
At first glance, Optiva's spectacular ride may seem proof of the old chestnut about building a better mousetrap. But if anything, the company's story illustrates that depending on an innovative product can sometimes be the toughest route to success of all. In the five or so years it took the company to develop its product and then build a market for it, Optiva discovered there are 100 ways to bury a good idea.
More than once, technological dead ends, manufacturing errors, marketing gaffes, cash shortages, and competitors all brought the company to what could have been the brink. But thanks to Giuliani's focus on the basics, and the almost obsessive sense of mission he's transmitted to the rest of the company, Optiva managed to make its good idea stick.
First, a few fun facts about your mouth: When you use a conventional toothbrush, you remove at best about 50% of the bacteria that have set up shop on your teeth and gums. The other 50%, which cling to hidden nooks and crannies with the help of hairlike appendages, multiply frantically until they first form a gelatinous brown film (plaque) and then harden into a colony of microscopic barnacles (tartar) that can eventually make your gums peel away from your teeth (pain, expense, dentures).
Giuliani had learned some of this firsthand, thanks to a certain amount of dental neglect in his younger years. But here he was, in 1988, sitting at a table at a Burgermaster in Seattle, listening to David Engel, a professor of periodontics, explain it to him in vivid detail. OK, Giuliani conceded, so there was a big market for a better way to clean teeth at home. Wasn't that why Braun, Bausch & Lomb, and Teledyne had thrown themselves into the electric-toothbrush business? When the other person at the table, bioengineer Roy Martin, explained how sound waves could blast bacteria, Giuliani pricked up his ears.
Engel and Martin, both professors at the University of Washington, wanted to sound Giuliani out on the idea of starting a company to market a prototype sonic toothbrush they'd developed. A colleague of Martin's had come up with the idea while getting his teeth cleaned with a sound-wave-based device common in dental offices. Why not create a home version? Martin had enlisted Engel, and the two of them--bolstered by a $4,000 research grant from the university--designed and then patented a prototype.
A start-up wasn't their first choice; they'd hoped that a large personal-health-care company might bring their technology to market. But Procter & Gamble, Johnson & Johnson, Sunbeam, Squibb, and some 25 other companies passed, noting that the patent office was littered with the corpses of home sonic toothbrushes. Engel had reviewed all those other designs: not commercially feasible, he assured Giuliani. Their newly proposed device could really blast plaque.
Giuliani, then 42, had been on something of a search himself. A mostly soft-spoken engineer, he spent 12 years at Hewlett-Packard working his way up to section manager before abruptly leaving. "I was on an ocean liner, and I wanted to feel the wind and waves, try my hand at the tiller," he recalls. He took an executive post with a smaller medical-imaging firm and then jumped at the chance to head up a digital radiography business that was its subsidiary. That too proved unsatisfying. Giuliani wanted something purely entrepreneurial. So he quit and dreamed up a product on his own: a handheld ultrasound device that could measure bladder volume.
"I'd had surgery once and remembered a burly orderly standing over me with a catheter," he says. "I thought I could save other people that experience." He eventually parlayed that product into a 70-employee division of a company called International Biomedics; the division was eventually acquired by Abbott. He stayed on as an executive but was casting about for his next adventure.
Meanwhile, when Engel and Martin started spreading word that they were looking for a sharp businessperson with a grasp of high-tech medical equipment to build a company around their sonic prototype, Giuliani's name kept surfacing. Giuliani's encounter with the actual prototype back in the lab sealed the deal, and a company was formed. The University of Washington, to which Engel and Martin had assigned the patent rights under their standard employee agreement, granted the new company lifetime rights to the patent in exchange for partial ownership.
Giuliani kept his day job with Abbott but spent most of his free time for the next six months locked in his garage, where he tinkered with the prototype. The results were discouraging. The strip of metal and ceramic that held the lone clump of bristles kept breaking, and it required too much power to produce the needed vibrations. On the verge of giving up, Giuliani took a walk on the beach and watched as the waves washed over the sand, slowly eroding the beach.
It hit him that if it works for beaches, it should work in the mouth--sound waves traveling through fluid should erode plaque away. His enthusiasm reignited, he summoned his two cofounders for a meeting. Their technology was a failure, he reported. But the idea of a sonic toothbrush was still a great one; they just had to abandon the prototype and try a new approach. Reluctantly, Engel and Martin agreed.
Consulting with various engineers, Giuliani came up with a new design: a sort of tuning fork driven by a vibrating electromagnetic field would provide power to the brush head. To work out the details without blowing his shoestring budget, he leased specialized computer-aided design software for a couple of months, in order to design the basic components. He also decided to embed all the moving mechanical parts in the disposable toothbrush head so the far-more-costly handle could be sealed against water leakage--the greatest cause of electric-toothbrush failure.
Engel and Martin spent hours in the lab staring at the way the vibrating brush head churned up a mixture of toothpaste and saliva washing over artificial teeth. Sure enough, when the vibrations were tuned to 520 strokes per second (or middle C on the musical scale), the churned-up fluid would start to erode plaque--even when the brush itself wasn't making contact with the tooth. That meant the plaque-cleaning action could, in theory, be transmitted between teeth and under the gum line, where other toothbrushes fell short. This product could be hot. Now the group needed real money. Giuliani left Abbott and started hitting up every wealthy acquaintance he'd made during his years in high-tech circles. He amassed nearly $500,000 from some 25 different investors. None was a venture capitalist or professional angel; he didn't want to risk losing control of the company down the line.
It took more than a year from that point to perfect the toothbrush and come up with a manufacturable design. Calling its product Sonicare, Optiva set up its first assembly line in August 1992. Production couldn't have been more low-tech: a high school student hired for the summer cut the brush-head bristles with a tiny scissors. The company eventually started turning out about 20 units a day.
Now the question was: how to sell the thing? The good news was that there was a huge, untapped market. Three-quarters of all Americans get periodontal disease at some point, but only about 12% have electric toothbrushes. The bad news was that the then $125-million-a-year electric-toothbrush market was dominated by some very well-heeled and firmly established companies, including Braun, Bausch & Lomb, and Teledyne. Trying to muscle those companies aside by way of mass marketing would be a quixotic endeavor at best, given Optiva's limited resources. Plus, Optiva's product was costly to build and would have to sell for substantially more than the $50 to $70 other companies were getting for the Oral-B Plaque Remover, Interplak, and Water Pik, their respective devices.
Forget about mass marketing for the time being, urged Engel; let's go after dentists and get them to push our product. Engel was convinced that with the company's clinical data it could blow the market away. To head up marketing and sales, Optiva hired Eric Meyer, who'd helped Johnson & Johnson build the sales of a home blood-glucose meter to a billion dollars a year.
Armed with a study that showed use of the Sonicare toothbrush could lead to a significant reduction in harmful bacteria below the gum line, the Optiva crew headed off to Orlando to man a tiny booth at a dental convention. Unlike competitors, they didn't give the product away to dentists but charged them for it, though only a fraction of the $129 retail price. "I thought the dentist should feel invested in the product," says Giuliani. "Plus it gave us a little money." Sonicare was a modest hit at the show; the company sold roughly 70 units and received encouraging feedback.
Optiva started to advertise in dental journals and began to marshal a small sales force to call on dental practices. A poll showed that 98% of dentists who tried Sonicare would recommend it to their patients; some were even signing on to sell the units to patients. Optiva was on track.
Now that they were establishing some push and raking in a little cash, the company set out to whip up a little pull by trying its hand at consumer marketing. One of its first efforts was to buy insert ads in millions of credit-card-bill mailings, resulting in a grand total of 11 sales. The real lesson: Sonicare's edge can't be convincingly explained in a quickie ad. Instead the company tried infomercials and sponsorship of the Paul Harvey radio show, on which Harvey himself hawks sponsors' products at length. Both scored big for Optiva.
Then, in August 1993, Optiva got a return call from the Sharper Image: the upscale retailer liked Sonicare's high-tech angle enough to want to try the product out in the company's catalog, backed by an order for 4,000 units. Sonicare became one of the top-selling products of all time for the Sharper Image, leading to a second order a few months later for an additional 16,000 units. "We didn't know how we'd get an order that big on the truck because we didn't own a forklift or pallets," recalls John Tubbs, Optiva's vice-president of operations, who is in charge of running the company's manufacturing facilities. Then Oprah raved about the device on her TV talk show. Sonicare was achieving buzz.
All that confirmed the sense of mission the founders had felt early on. "This product had a destiny," Giuliani says. "Whenever we were faced with a decision, the question we'd always ask ourselves was, What would be in the product's best interest? We were stewards for Sonicare."
If there was a shadow hanging over Optiva, it was the fear that a competitor would develop a similar product and outmarket the company. Optiva had applied in early 1992 for a broad patent that sought to sew up the key functions of Sonicare technology--namely, the way the vibrating head churned up fluid into a plaque-eroding froth. But the patent hadn't been awarded as of the summer of 1994. That's when Teledyne introduced its SenSonic electric toothbrush, with similar bristle-vibration characteristics.
Six months later, Optiva received patent number 5,378,153 for a "high-performance acoustical cleaning apparatus for teeth." It immediately sued Teledyne for patent infringement, and Engel and others started putting in 18-hour days to prepare research that would support Optiva's case. "It was like preparing for a battle," says Engel.
It would be nearly two years before the suit was settled.
In the meantime, optiva wasn't going to stand still for however long it would take to resolve the lawsuit. Sales had begun triple-digit growth, and the company needed an infrastructure to support it.
Its immediate problem was manufacturing. The second Sharper Image order alone was for four times as many units as the first. Tubbs got to work transforming the manufacturing process. By redesigning some components, and by automating some of the assembly and farming some of it out, he eventually reduced the manufacturing cost by 60%. What's more, a series of rigorous quality checks he instituted hammered annual failure rates from 8% down to 0.5%.
The sales and marketing organization, meanwhile, expanded to play on Optiva's strength: the high regard it was winning among dentists. The company built an inside staff of customer-service representatives who phoned dentists to follow up on field sales calls. To keep its reputation as a clinically savvy company polished, Optiva poured 5% of its revenues back into research and development, not only setting up its own labs but also funding dental research at Harvard, Northwestern, Tufts, and elsewhere. Some 47 papers on Sonicare's effectiveness were published in dental journals, which bundled together would make a satisfying whump when dropped by a salesperson on a dentist's desk. "Our goal was always to get the dentists to try the Sonicare," says Giuliani. "If we got that, we'd win their recommendation."
On the retail front, Optiva added some 50 manufacturers' reps on pure commission to represent Sonicare to mass merchandisers like Wal-Mart, pharmacy chains like Walgreens, buying clubs like Price Costco, and specialty stores like Brookstone. By the end of 1995, about a third of the 160,000 dentists in the country were recommending Sonicare to their patients, and some 25,000 retail stores stocked the product.
Optiva had also started to pick up accolades for its employment practices. Among the benefits available to both full- and part-time employees: interest-free loans for home PC purchases, computer training classes, English-as-a-second-language classes, 24-hour personal-problem and nurse-consulting hot lines, and stock options after one year of employment. Those policies were cited by the White House when it invited Giuliani to join President Clinton and other business leaders for a breakfast meeting in May 1996.
To top off what seemed to be Optiva's extended run of success, the company settled its lawsuit with Teledyne Water Pik in September 1996. Teledyne agreed to acknowledge the patent's validity and pay Optiva an undisclosed sum plus royalties on future net sales of SenSonic units.
The next month, the sense of triumph ended abruptly. Eric Meyer received a phone call from John Tubbs. Tubbs gave Meyer the news: "We've got a problem with one of the units we shipped. I'd better come over and show you." Meyer waited, trying to keep his imagination from running wild. "I kept thinking to myself, 'Please let it be a brush head," he recalls. "Then John walked in holding a charger, and I thought, 'Oh God, no, not the part that can shock people."
A dentist had phoned complaining that his charging unit seemed poorly constructed. Fortunately, the customer-service rep who took the call instructed the dentist to send it right back to the company before trying to plug it in. Tubbs recognized the problem right away: the charger was missing the insulation that separated the wiring from the rest of the world. In the wet environment of a bathroom, such exposed wiring could deliver a fatal jolt of current to anyone unlucky enough to be standing nearby.
Within a day, Optiva was transformed from a manufacturer to a collector of sonic toothbrushes. All manufacturing operations were shut down, and employees pored over the 80,000 units in inventory. Five more defective chargers turned up. Just as Optiva was facing the Christmas season, the marketing department sent out 120,000 mailings announcing the complete recall of all units manufactured from the beginning of September to the end of October 1996; to spur the return rate, the company promised to make a donation to a feed-the-homeless organization for every unit sent in. The customer-service department hit the phones to alert dentists. After going through more than 100,000 returned units, at a total cost of nearly $3 million, only three more defective units were found.
Giuliani says he's never bothered to calculate exactly how much harm was done by the scare, nor how much goodwill might have been earned by the all-out response. "None of us was prepared to live with our product hurting or killing someone," he says. If anything, the entire experience seems to have added to his sense of Sonicare's manifest destiny.
Optiva has been riding high ever since. Having grabbed 33% of the $184-million electric-toothbrush market in the United States, the company has surpassed Interplak and trails only Braun, which holds 37% of the market. When it comes to electric toothbrushes sold directly from dental practices, Optiva holds 50% of the market, compared with number-two Braun, which has 25%. Last June, Giuliani was dragged to Washington, D.C., a second time, to receive the Small Business Administration's Small Business Person of the Year award.
Can the company turn up the heat on competitors even higher? "These companies aren't leaving us a lot of holes to exploit," says Meyer. A bigger opportunity may lie overseas, where electric toothbrushes are more accepted--they're in 25% of all households in Germany, for example, and a whopping 40% in Finland. Japan is a particularly attractive target, notes Meyer, because of a heavy concentration of dentists and an affinity for technology. Best of all, sonic toothbrushes are still fairly new to these markets.
As the number of Sonicare owners grows, more and more of Optiva's revenues will come from replacement brush heads, which last about six months and go for $15 apiece; Interplak actually derives more revenue from replacement heads than from toothbrushes.
But the company also wants to reduce its dependency on Sonicare. "We've gone four years without a viable competitor in sonic toothbrushes," says Meyer. "We know the clock is ticking." Giuliani insists that a handful of new products waiting in the wings will do the trick. "All products become obsolete," he says. "It's important for a company to be the supplier of its product's successor, not its victim." One product on the horizon, says Engel, is a device that monitors how long users of removable orthodontic appliances actually wear them--information that orthodontists can apparently use to better treat teenagers and other reluctant patients.
The suggestion that there isn't an established need for other types of home dental devices elicits a smile from Giuliani. He recounts how when he was at Hewlett-Packard, a group decided to abandon a project to develop an electronic tool for engineers, claiming that there wasn't an established need for any new engineering tools. Bill Hewlett overruled them, though, and the first handheld electronic calculator was born.