How to start a medical device company: your path to launch

Starting a medical device company is a rewarding venture, one that combines healthcare innovation with sharp business acumen. The growing demand for mobile health solutions makes it a lucrative field, though this accessibility does not mean success comes easy.

This guide will take you through the practical steps of validating your concept, securing funding, and navigating regulatory requirements to help you launch a successful medical device company in the U.S.

Step 1: Validate your device concept and plan your business

To validate your idea, conduct targeted interviews with at least 10-15 clinicians in your target specialty. You should also gather feedback from patient advocacy groups. This direct input reveals real-world needs and workflow challenges your device must solve, which is more valuable than broad surveys.

With this feedback, you can analyze competitors. Search the FDA's 510(k) Premarket Notification database to find similar devices. Also, review the MAUDE database for adverse event reports on those products. This shows you what works and what fails in the market.

Understand your startup costs

Initial costs can range from $50,000 to over $150,000 before you approach manufacturing. A detailed budget is necessary. Allocate funds for prototyping ($15,000-$50,000), legal incorporation ($2,000-$7,000), and a Quality Management System ($5,000+ annually).

Many founders underestimate regulatory expenses. The standard FDA 510(k) submission fee alone is nearly $20,000 for 2024. Careful budget allocation for these regulatory steps is a key part of a strong start, as miscalculations here can cause significant delays.

Here are 3 immediate steps to take:

• Interview at least ten clinicians about your proposed device.
• Search the FDA 510(k) database for five comparable devices.
• Create a preliminary budget with line items for prototyping and FDA fees.

Step 2: Establish your legal structure and obtain licenses

Choose your business structure

You might want to consider a C-Corporation over an LLC from the start. Most venture capital firms require a C-Corp structure before they will invest. While LLCs offer simpler tax filing, converting later can cost thousands in legal fees and delay funding rounds, a frequent misstep for new founders.

A C-Corp structure costs about $500 to $2,000 to set up with legal assistance. After incorporating, you must get an Employer Identification Number (EIN) from the IRS. This is free and can be done online in just a few minutes.

Secure federal and state licenses

With your business entity formed, focus on regulatory compliance. The primary federal body is the Food and Drug Administration (FDA). You must complete an FDA Establishment Registration after your first device gets clearance. The annual registration fee for fiscal year 2024 is $7,653.

State requirements vary significantly. California, for example, requires a Medical Device Manufacturing License from its Department of Public Health. This permit costs over $1,000 and can take 90-120 days to process. You will also need a general business license from your city or county.

Here are 3 immediate steps to take:

• Consult a lawyer to decide on a C-Corporation or LLC structure.
• Apply for a free Employer Identification Number (EIN) on the IRS website.
• Research your specific state and local medical device licensing requirements.

Step 3: Secure insurance and manage risk

Your device's risk classification heavily influences insurance costs. A Class III device will have much higher premiums than a Class I device. Product Liability insurance is your main shield, covering claims from patient injury. Expect to need at least $1 million in coverage to start.

Annual premiums for this policy alone can range from $5,000 to over $25,000. In addition, you will need General Liability for operational risks and Professional Liability (E&O) for claims of negligence. These policies often add another $2,000 to $5,000 annually.

If you hire employees, Workers' Compensation is mandatory and its cost depends on your state and payroll size. This brings us to finding the right partner. A common mistake is to use a general insurance agent who lacks industry knowledge.

You should work with a broker specializing in life sciences. They understand unique risks like product recalls or data breaches from connected devices. Consider getting quotes from providers like Medmarc, Chubb, or The Hartford, as they are familiar with the medical device space.

Here are 3 immediate steps to take:

• Request quotes for a $1 million product liability policy.
• Contact two insurance brokers who specialize in the life sciences industry.
• List the top three risks specific to your device for discussion with a broker.

Step 4: Secure your location and equipment

Look for a space between 1,000-2,000 square feet zoned for light industrial or commercial use. This gives you room for a small lab, office, and storage. Some founders sign a lease too early, so you might want to consult a lab design specialist before you commit to a space.

When you negotiate your lease, ask about a Tenant Improvement (TI) allowance. This can help offset the cost of building a cleanroom or specialized lab space. Landlords may contribute funds for a multi-year lease, which can free up capital for other needs.

Select your core equipment

Your device dictates your equipment needs. For early-stage development, a professional-grade 3D printer for rapid prototyping is a valuable asset, with costs from $5,000 to $20,000. You will also need assembly workbenches and basic electronic testing gear like oscilloscopes and multimeters.

If your device requires sterile assembly, a small modular cleanroom is a necessity. These can start around $15,000 for a basic setup. For components, suppliers like Protolabs are good for low-volume custom parts, while Digi-Key works well for electronic components without large minimum orders.

Here are 3 immediate steps to take:

• Research local light industrial zoning requirements for your top three location choices.
• Request quotes for a professional-grade 3D printer from two different suppliers.
• Price out a modular cleanroom that meets your device's classification needs.

Step 5: Set up payment processing

For large orders to hospitals, Net 30 or Net 60 payment terms are standard. You send an invoice, and they pay via check or bank transfer. This process can be slow, so plan your cash flow to cover the gap while you wait.

You might also sell consumables or make smaller sales directly to private clinics. For these situations, you need a way to take immediate payment. Many founders overlook this and miss out on early revenue opportunities.

This brings us to mobile payment solutions. While many providers charge upwards of 2.9% plus a per-transaction fee, better options exist. For medical device companies that need to accept payments on-site or on-the-go, JIM offers a streamlined solution.

With JIM, you accept debit, credit, and digital wallets directly through your smartphone. At just 1.99% per transaction with no hidden costs or extra hardware, it is particularly useful for selling starter kits to independent practitioners.

The process is simple:

• Get Started: Download the JIM app for iOS.
• Make a Sale: Type the sales amount, hit sell, and have your customer tap their card or device on your phone.
• Access Funds: Your money is available right on your JIM card as soon as the sale is done, with no wait for bank transfers.

Here are 3 immediate steps to take:

• Decide on your standard payment terms for large institutional clients.
• Compare JIM's 1.99% rate against two other payment solutions.
• Download the JIM app to explore its interface and features.

Step 6: Secure funding and manage your finances

Explore your funding options

Venture capital firms that focus on life sciences are a primary target. However, many founders secure their first funds from angel investors. Look for groups like MedTech Angels or local angel networks with a healthcare portfolio. They often invest $25,000 to $100,000 for early-stage concepts.

You might also consider government programs. The Small Business Administration's 7(a) loan can provide up to $5 million, though startups usually qualify for smaller amounts. Also, look into the NIH's SBIR and STTR grant programs. These offer non-dilutive funding, with Phase I awards often reaching $250,000.

Plan your financial runway

A frequent misstep is to underestimate working capital. You should budget for at least six months of operating expenses without any revenue. For a small team, this can mean having $150,000 to $300,000 in the bank just to cover salaries, rent, and regulatory fees.

This financial cushion allows you to navigate unexpected delays in product development or FDA review without the immediate pressure to raise more money. A detailed financial forecast is not just for investors; it is your roadmap for survival during the critical first year of operations.

Here are 3 immediate steps to take:

• Research two venture capital firms and two angel investor groups specializing in medical devices.
• Review the eligibility requirements for the NIH's SBIR grant program.
• Create a six-month operating budget to determine your working capital needs.

Step 7: Hire your team and set up operations

Build your core technical team

Your first hires should be a Biomedical Engineer and a Regulatory Affairs/Quality Assurance (RA/QA) specialist. A Biomedical Engineer will handle design and prototyping, with salaries typically between $80,000 and $120,000. Many startups hire an RA/QA consultant instead of a full-time employee to save money.

These consultants charge $150-$300 per hour. A frequent misstep is for founders to manage FDA compliance themselves. This often leads to submission errors and costly delays. An experienced consultant is a wise investment for navigating the complex regulatory landscape from the start.

Establish your operational systems

With your team in place, you need a Quality Management System (QMS). This is not optional. The FDA requires it to track design, manufacturing, and documentation. You can use software like Greenlight Guru or MasterControl, which are built specifically for medical device companies.

As for team size, a lean team of 5-10 people can often support the business through its first $1 million in revenue. This depends on your device's complexity and manufacturing model. Focus on roles that directly contribute to product development and regulatory clearance first.

Here are 3 immediate steps to take:

• Draft job descriptions for a Biomedical Engineer and a part-time RA/QA consultant.
• Request demos from two QMS software providers, such as Greenlight Guru or MasterControl.
• Outline your initial operational workflow from component sourcing to final assembly.

Step 8: Market your device and acquire customers

Focus on targeted outreach

Your marketing should target clinicians and hospital administrators directly. Forget broad social media ads. Instead, use LinkedIn to connect with decision-makers and share clinical data. Content like white papers or case studies builds credibility far more effectively than a simple advertisement.

You should also attend specialty-specific trade shows. A booth at a major conference can cost $10,000 to $30,000 but provides direct access to your target audience. Many founders make the mistake of only marketing online, but in-person relationships drive medical device sales.

Track your marketing performance

The sales cycle is long, often 6 to 18 months. Your Customer Acquisition Cost (CAC) will reflect this, potentially ranging from $5,000 to $15,000 per hospital account. A successful campaign might involve a webinar series with a respected physician, which can generate qualified leads at a lower cost.

You will need a Customer Relationship Management (CRM) system to track every interaction. A simple CRM is enough to start. This helps you manage long-term follow-ups and measure which marketing channels actually lead to sales conversations, rather than just website clicks.

Here are 3 immediate steps to take:

• Identify three key medical conferences in your specialty for the next year.
• Outline a white paper based on your initial clinician feedback or trial data.
• Set up a simple CRM to start tracking interactions with potential customers.

Step 9: Develop your pricing strategy

Choose your pricing model

Cost-plus pricing is the most direct method. You calculate your Cost of Goods Sold (COGS) and add a markup, typically 50-70%. If your device costs $100 to produce, your price would be $150-$170. It is simple but might not capture the full value of your innovation.

For a more advanced approach, consider value-based pricing. This model links your price to the economic benefit your device provides, such as shorter hospital stays. It requires strong clinical data but can justify gross margins above 80%.

You could also use a razor-and-blades model. Here, you sell the main hardware at a low margin, perhaps 20%, and generate profit from recurring sales of high-margin disposable components. This works well for systems that require consumables.

Finalize your price

Many founders stumble by looking only at competitors' public list prices, which are rarely what hospitals pay. Instead, you should research actual transaction prices through Group Purchasing Organization (GPO) contract databases or by analyzing reimbursement data from the CMS website.

Remember to account for the distribution channel. Distributors often add a 20-40% markup. If you sell to a distributor for $1,000, the final hospital price could be $1,400. Your strategy must accommodate this to remain competitive.

Here are 3 immediate steps to take:

• Calculate your Cost of Goods Sold (COGS) per unit.
• Research reimbursement codes for two similar devices on the CMS website.
• Determine the typical distributor markup for your device category.

Step 10: Implement quality control and scale operations

Establish your quality standards

Your quality system must comply with ISO 13485 and the FDA's 21 CFR Part 820 regulations. These are not just documents. They are frameworks to ensure every device you produce is safe and effective. A common mistake is to treat this as paperwork instead of an active system.

You should track specific metrics to measure quality. Aim for a complaint rate below 0.5% and a non-conformance rate under 2% in your first year. Another good target is to close over 90% of Corrective and Preventive Actions (CAPAs) within 60 days.

Plan your growth

With a quality system in place, you can plan for expansion. A good benchmark for hiring a full-time quality manager is when you start developing a second product or your sales reach $1 million. Until then, a consultant often provides enough support.

When production volume approaches 1,000 units per month, it is time to evaluate contract manufacturing organizations (CMOs). This move allows your team to focus on research and sales. Delaying this decision can stretch your internal resources too thin and slow down growth.

Here are 3 immediate steps to take:

• Draft a basic quality manual outline based on the ISO 13485 standard.
• Define three key quality metrics, like complaint rate, to track for your device.
• Research two potential contract manufacturing organizations for future scaling.

The journey to build a medical device company is long. Your focus on patient outcomes will be your true north, guiding every choice from design to market. The road has its challenges, but a clear plan makes all the difference. You are ready to start.

As you get operations underway, simple solutions can help manage costs. For payments, JIM turns your smartphone into a card reader, letting you accept sales for a flat 1.99% fee with no extra hardware. Download JIM to handle transactions easily.