Exactech Keeps People Mobile Around the Globe

Provides innovative solutions that benefit patients while making surgeons’ jobs easier.

Exactech, a global leader in joint replacements, started in Bill and Betty Petty’s spare bedroom but quickly moved into a 1,500-square-foot office, where Betty worked alone every day.

The phone rang only three or four times a day. “I always wore business clothes to work because it helped me answer the phone in a professional tone,” Betty says.

This story illustrates the vision that the Pettys and their partner, Gary Miller, had when they founded Exactech. “We intended to become a real business,” Betty says.

But the Exactech founders didn’t start out as business people. Bill was an orthopedic surgeon. Gary was a biomedical engineer, and Betty had taught high school and college English.

What the trio did have was a belief that they could provide a better approach to developing and marketing joint replacements.

“Gary would take our own knowledge, and knowing what the problems are that can be solved with a product, develop innovation that way,” Bill says. “Our basic philosophy—developing products that address issues that are out there—not only helps patients but is also a very strong business approach.”

The founders got an unexpected boost when the Pettys’ son, David, decided to join Exactech. He became the company’s first paid employee and remains as Exactech’s president.

Since its humble founding, Exactech has grown to approximately $200 million in annual sales. It employs 572 people worldwide, 360 of whom are in Gainesville.

Exactech has 10 international offices as well as distribution in more than 35 countries. One-third of its sales are outside the United States.

What was the state of joint replacement when you started?

Bill: In the early 1980s, total hip replacements had become fairly advanced. They came to this country in the early ’70s.

The procedures were pretty good, but they were mostly reserved for older people who you didn’t expect to have much of a life span. Total knee replacement was very early in its development. Things like shoulder replacements were used minimally.

Bill, how did you make the transition from academic to businessman?

When we moved to Gainesville and began working at the university, I wanted to have something I could read as a diversion. I started reading Forbes. I would read it cover to cover.

Most of what they wrote about was individual companies—their leadership, how they were successful or not successful, how they got in trouble or didn’t get in trouble and all those sorts of things.

I did that over many years and got a reasonable general education about how business worked. When I started looking into the orthopedic industry, I studied it and began to read very seriously about entrepreneurship.

Betty, when did you become involved?

When Bill first started having these wild ideas, he told me about them. I dug in and found out the FDA requirements to get the products registered, where the vendors were who made these things and what we needed to get the business going.

How did you get the initial capital?

Betty: Through a $400,000 personal bank note and prayer.

Bill: As we moved along, we signed on to a $3.7 million line of credit. It was pretty scary.

How did you develop the products and find customers?

When we started developing our ideas, we didn’t know how to go about designing a product and didn’t have any equipment. We worked with a group in Massachusetts that did a lot of the early computer design work.

Our first customers were only friends and family. In ’89 or ’90, we began to develop a sales force. Our first product was a hip product and then in the early ’90s, we developed a knee product. It was a gradual process.

How did you differentiate yourself from
your competitors?

Bill: We had two basic tenets, and they are still a very strong part of our culture.

First, we were dedicated to providing solutions to problems that we knew existed. Many years ago, we developed a shoulder product and obtained FDA clearance for it, but we decided not to market it because we didn’t think it brought anything new.

Our other core tenet was that we were not going to compete on price, but we wanted to do the best we could to provide good value, meaning price related to the quality, to the hospitals, surgeons and patients.

Overall we provide our products at a somewhat better price, but we really compete on the other side. We provide better solutions with very high quality, and we want to make the surgeon’s work as efficient as possible.

Although we make the parts that end up in the patient, we also have a very large investment in all of the surgical technology and instrumentation that makes sure that the product is implanted as effectively as it can be.

What’s novel about your knee replacement?

Bill:  In ’91 and ’92, we saw opportunities in knee replacement because there were a lot of significant issues regarding hidden complications and longevity. We made a business decision that we wanted to get involved.

I had a long-term friend, Dr. Albert Burstein, who is known as the top knee developer in the world.

At the time, he worked at the Hospital for Special Surgery in New York. I called him and told him that we wanted to start this project, but we had no expertise in that kind of design. I asked if he had some recommendations for engineers we could work with.

I said, “Frankly our first choice would be you.”

To my surprise and happiness, he said, “Well, I might be interested.”

We met a month later during the American Academy of Orthopaedic Surgeons meeting. We reached an agreement with the Hospital for Special Surgery, and we still have that agreement.

Working with Dr. Burstein, we produced a knee that has a geometry that has very little contact stress compared to others and therefore has a low likelihood of failure due to wear. We’ve added a lot of enhancements to the knee over the years, including improving the bending of the knee.

How did you go about building employees for the business?

Betty: It started out really small, just of the two of us. When our son, David, graduated from the University of Virginia, we were very surprised when he expressed an interest in joining the company.

He’s been here since 1988, and he started at the bottom, as we all did. We went to the clean room and packaged the product and brought it out to the sterilizer.

We drove to Atlanta in a rented vehicle just to get it sterilized. We all had multiple jobs.

David tells the story of after we had been in business a year or two, he was mopping the clean room floor and the phone rang. He talked to the caller, who was inquiring about making an investment and who eventually did invest. We all wore many different hats.

What was your main hat?

Betty: The people part, the human resources. Initially, I also did the marketing. I worked with the graphic designer to produce the first marketing literature.

To what degree do you hire local people?

Betty: In the early days we didn’t manufacture the products here, but we did need people to do packaging, and we hired local people and trained them in our process. Today, our employees come from all over the world, but many positions are still filled by our local work force.

Bill: As we moved into manufacturing in 1998, we trained most of our people. It’s a highly specialized type of manufacturing. We probably make 70 to 75 percent of our products in-house.

Do you train surgeons and nurses to use your products?

Betty: That’s very much a part of what makes our company so successful. We try to design the implants and instrumentation so they are very easy for the surgeon to use, but we still provide extensive training to ensure the best possible outcome.

Bill: We have a training center in Gainesville and also host medical education programs for surgeons all around the globe.

How do you approach marketing?

Betty: The main way we market is through education. We want surgeons and hospitals to be aware of our products and to at least have the knowledge to determine if these products might be better for their patients.

Our business is very technical. If you came in with an MBA with an emphasis in marketing but had no experience in orthopedics, it would still take you quite a few months to be able to do much of anything. We still invest quite a bit of training in each employee to ensure they can effectively contribute to our culture and our products.

We have a limited number of direct sales people. We work mostly through sales agencies. The sales agents are our customer, too, because we want them to keep our product at the top of their bag.

Why do you use sales agencies instead of hiring your own sales force?

Bill: This is the typical business model for our industry. Plus, it’s very expensive to develop a direct sales force, especially when you’re a young company.

If you look at all the research in this area, commission sales people are the most successful because if they don’t do anything, they don’t earn anything.

What qualities do you look for in employees?

Betty: We look for certain general things, like how well they appear to be in concert with our corporate values. Our hiring process goes pretty deeply into the applicant’s background and ability. A team is involved in each interview. Someone once told us that you have to be made of sturdy stuff to survive our interview process.

Bill: Our employees take very seriously what we do, knowing that these parts are going to be in people, hopefully for the rest of their lives.

How do you encourage employees to be involved in continuous improvement of the company?

Bill: It’s embedded in our culture. One of our values
is teamwork.

We don’t have a hierarchical culture. Pretty much everyone in this company is open to everybody else’s suggestions.

We also have a very formal quality system that facilitates our focus on continuous improvement.

What are some things that you thought would work out but didn’t?

Bill: We’ve worked hard on some products that were never able to meet our design objectives, in that we were not able to get to the product that would make a meaningful difference, so we abandoned them.

Do you have any products that are not permitted in the United States but are sold overseas?

Bill: Absolutely. One of our knee products that we have been selling very strongly overseas for the last four or five years is still two to two and a half years from being cleared in the U.S.

We have another product in development that we don’t know if we’ll ever sell [here] because the regulatory requirements are so expensive. You come to the end after you’ve spent $20 million.

We may just sell it in South America and Asia. If you have something that’s really innovative and different than anything the FDA has encountered before, it’s difficult. In some instances, they set up parameters that make it almost impossible. It’s frustrating. It hurts our business and business in general in the U.S.

On the other hand, if you do the right things, a standard total hip replacement, knee replacement or shoulder replacement can move through FDA approval pretty readily.

I believe that the European regulatory system is far superior to what we do here.

What are some product lines on the horizon?

Bill: We’ve begun the development of an ankle replacement, and we have a major initiative with a research institute in Taiwan for cartilage repair.

How do you rank in the industry in size?

Bill: We are the seventh-largest company in our business in the U.S. and compete against mega-companies like Johnson & Johnson.

What do you see 10 years down the road?

Bill: It goes back to our goal to be the world’s leading provider of bone and joint restoration products that improve patient outcomes.

We want to be the leader in innovations, not for innovation’s sake but to improve the patient’s quality of life. If we do that, we’ll be a lot bigger than we are now.

 

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