by Mike Travis
First, some good news. In 2009, executive hiring in medical devices held up better than almost all other industries.
Now for the bad news: In absolute terms it was still awful. At no point in my 15 years as an executive search consultant have I known more top people who have been out of work for so long.
What’s in store for 2010? Over the last year forecasts have been worthless, so I’ve been listening to people who run businesses. Based on what they’re saying, I expect modest improvement, but nothing dramatic. If 2009 was a hurricane, the forecast for 2010 is cloudy with a chance of rain, with possible clearing later in the year.
It’s a painful exercise, but here’s a quick review of why 2009 was so weak for executive hiring.
- Intense uncertainty. The economic freefall of the first half of the year paralyzed businesses. Unable to forecast, they froze all spending that increased overhead, including hiring. Many were forced to cut employees in a bid to keep profits up despite falling revenues. Although things appeared to bottom out later in the year, the environment remained challenging.
- Flat to falling revenues. Everyone had it tough. Capital equipment companies had the hardest time, but even manufacturers of reimbursed products, like joint replacements, felt pressure.
- Weak venture capital investment. Venture investment in the devices sector was dramatically lower – the latest PWCMoneytree survey showed devices investing down 31 percent in the third quarter of 2009, compared to the same period in 2008. Companies that were attempting to raise money faced the toughest environment in years, and start-ups that were lucky enough to have cash in the bank kept a tight lid on spending. Many start-ups disappeared as investors pulled the plug on the weakest members of their portfolios.
- Looming healthcare reform. As if the economic meltdown weren’t enough, the endless debate about healthcare reform added another layer of uncertainty.
As we begin a new year, things are better. The economy is no longer in freefall, and that’s brought back some predictability. Venture investment appears to be slowly improving. The saga of the healthcare bill should be over soon, and even though it won’t be good for the industry, at least companies and investors will know the new rules of the game.
But the improvement is only relative to 2009’s miserable conditions. Many of the same negative factors are still there, and they’ll hold back executive hiring for the foreseeable future:
- Continuing weak economy. The worst may be over, but the economy remains very weak and the future is uncertain. Companies will continue to keep a tight rein on spending and will remain reluctant to add big-ticket executive positions. Things won’t loosen up until we’ve experienced two or more quarters of growth.
- Permanently lower venture investment. Don’t expect an uptick in executive hiring from start-ups. The venture capital world is in the midst of a massive restructuring and some insiders believe half of the venture firms serving life sciences will be gone when the dust settles. That means fewer companies will be funded and investments will be smaller than in the past several years.
- Healthcare reform. There’s a high probability of layoffs if and when healthcare reform is finally passed and the reductions will certainly include executives. A bill is virtually guaranteed to pressure earnings and companies will be forced to cut to preserve profits.
The short term news isn’t great, but there are some good things happening that will be positives for the industry. In the long run, medical devices will remain a great place for executives to build a career:
- Fundamental market drivers remain strong. Recent events haven’t changed the strong demographic trends that will drive growth in the devices business for years to come.
- Return to start-up basics. Tighter money will force venture investors and entrepreneurs back to fundamentals. There will be smaller investments, smaller exits and a focus on the very best ideas. Purging the excesses of the days of easy money will be a good thing for the industry.
- Flowering of entrepreneurship. I know many executives who got tired of waiting for the job market to recover and started their own companies. As the old saying goes, necessity is the mother of invention, and they took charge of their own destinies. Some of their companies will succeed and become part of the industry’s resurgence.
One final observation is that device companies, along with companies in many other industries, are now running very lean after four or five quarters of cost-cutting. In many cases, staffing levels are too lean to be sustainable for the long term. When the economy does finally turn around, there could be a surge in hiring at all levels as companies rebuild their organizations.
Mike Travis has been an executive search consultant for 15 years. His accomplishments have been recognized by BusinessWeek, which selected him for its list of "The World’s Most Influential Headhunters." Mike’s practice focuses on recruiting general management, function heads and board members for medical device and biopharmaceutical companies. He can be can be reached at (978) 878-3232, ext. 112, or by email at email@example.com.