Why most medical device startups fail (and how to avoid following suit)

About 75% of medical device startups shut down before reaching profitability. The hardware usually works; the business model doesn’t. I wrote the “Hardware Bible: Build a Medical Device from Scratch” and run OVA Solutions, where we’ve worked on over 200 medical devices from concept to market. I’ve spent years working on devices that made it to market and devices that didn’t. The difference wasn’t the quality of engineering. Both groups had talented teams solving real technical problems. The difference was understanding what happens between a working prototype and a device that hospitals actually buy.

Who writes the check

Surgeons don’t buy devices — hospitals do — and this distinction matters more than most founders realize. When a surgeon says they love your device, that’s meaningful, but not sufficient. The purchase decision involves procurement, finance, biomedical engineering, IT security, risk management, and supply chain. Each group evaluates different aspects and each has veto power.

Finance cares about cost per procedure, and they calculate this differently than you might expect. Your device might cost $500 per use, but they’re adding training costs, maintenance contracts, consumables, storage space, and the staff time required to manage it. If your device needs $200 in disposables per use and requires 4 hours of staff training each month, the real cost is substantially higher than your list price.

Biomedical engineering evaluates maintenance requirements and compatibility with existing systems. Hospitals run hundreds of devices from dozens of manufacturers. If your device needs specialized service or requires them to stock unique spare parts, that’s a problem. If it doesn’t integrate with their existing equipment workflow, that’s a bigger problem.

Supply chain checks vendor reliability and ordering logistics. Hospitals typically work with group purchasing organizations (GPOs) that have established vendor relationships and negotiated contracts. Getting onto those preferred vendor lists takes time and often requires proving you can handle enterprise-level ordering, shipping, and support. A small startup without established distribution channels faces skepticism.

Missing any one of these stakeholders kills the deal, even when the clinical team enthusiastically supports your device. The surgeon who loves your product can’t override the IT security team that considers it a network risk.

What you’re replacing

Hospitals already have a solution for whatever problem you’re solving. It might not be elegant, and it might frustrate staff, but it works. People know how to use it, and it’s integrated into existing workflows. Switching costs real money. 

Staff need retraining, which means taking them off shifts or paying overtime. Workflows need adjustment, which means temporary slowdowns and potential errors during the transition period. Old equipment needs disposal, which often involves specialized medical waste handling. Integration with existing systems requires IT implementation work. These costs add up quickly.

A hospital might save $50 per procedure with your device. Sounds good. But if switching costs $100,000 upfront and they perform 1,500 procedures annually, the payback period exceeds a year. Many hospitals operate on tight margins and can’t afford that capital outlay, even if the long-term economics work.

The existing solution also carries institutional inertia. Staff are comfortable with current procedures. They’ve developed workarounds for its limitations. They trust it because they know its failure modes. Your device represents change, and change represents risk. Your device needs to be significantly better than the incumbent, not marginally better. The improvement needs to be obvious enough that it overcomes natural resistance to change.

Where your device fits in the care pathway

Medical care happens in sequences. Understanding the full sequence matters more than understanding your device in isolation. Before your device gets used, something else happened. A patient was admitted, assessed, and prepared. Samples were collected, if needed. Orders were entered into systems. Equipment was retrieved from storage. Staff gathered the necessary materials. Each of these steps takes time and involves different people.

After your device gets used, something else happens. Results need documentation. Data flows into EMR systems. The device needs cleaning or disposal. The patient moves to the next care stage. Billing codes get entered. All of these downstream activities connect to your device’s use.

A diagnostic device might deliver results in 5 minutes. But if sample collection takes 30 minutes and someone needs to manually enter results into three different systems afterward, your speed advantage diminishes. The total time from order to documented result might not improve much.

Integration points determine adoption more than device performance. A monitoring device that automatically sends data to the central nursing station gets used. A monitoring device that requires nurses to walk to the patient room to check readings doesn’t get used, even if it’s more accurate.

Staff workflows create constraints. Nurses work 12-hour shifts managing multiple patients with competing priorities. If your device adds steps to their routine or requires them to leave their unit, it creates friction. Physicians rotate between hospitals and need to use equipment at multiple sites. If your device has a unique interface that differs from competitors, it adds cognitive load. Biomedical engineering teams maintain hundreds of devices. If your device requires specialized training or tools for routine maintenance, it becomes a burden.

These are often the primary factors determining whether your device gets adopted or sits unused in a storage closet.

Production unit economics

Prototypes cost 5 to 20 times more than production units. Your CNC-machined prototype at $95 per unit needs to reach $8–$12 in production for the business model to work. This gap is where hardware companies most commonly miscalculate.

Injection molding makes high-volume production economical. But injection molding requires substantial upfront investment in tooling. For a typical medical device with three or four plastic components, aluminum tooling runs $8,000–$15,000 per mold and produces 1,000–2,000 units before wearing out. Steel tooling costs $45,000–$80,000 per mold but produces over 100,000 units. Most companies need steel tooling to reach target unit costs.

Minimum order quantities become relevant once you cut steel. Manufacturers typically require 2,500–5,000 units per production run. You’re committing to inventory before you have proven sales demand.

Design choices directly impact these costs in ways that aren’t obvious during early development. Undercuts in your part geometry require side actions in the mold, adding $8,000–$12,000 per side action. Sharp internal corners need EDM machining, adding another $3,000–$5,000 and two weeks to the schedule. Complex organic curves that look beautiful in CAD increase machining complexity and can add $5,000–$8,000 to tooling costs. Custom material formulations cost two to three times what standard medical-grade resins cost.

That elegant curve that makes your industrial design more appealing might add $10,000 to your tooling budget. The snap-fit design that’s slightly more satisfying to use might require side actions that add $12,000. These aren’t wrong choices if they serve a function, but they’re expensive choices. The question becomes whether that specific design element provides value worth its manufacturing cost.

The timing of design freeze matters. Once you commit to production tooling, you’re locked in. Discovering a design flaw after cutting steel means either accepting the flaw or paying substantial money and time to fix it. Each modification costs $5,000–$15,000 and adds three to four weeks to your timeline. Some teams end up spending $30,000–$40,000 on tool modifications because they kept refining details. 

The three biggest risks

Some risks kill projects quickly. Others kill slowly but just as reliably. Cash runway kills more companies than technical failure. 

A common pattern: Companies raise enough money to get FDA clearance, then run out trying to manufacture and sell. Between FDA clearance and first revenue, you need $450,000–$900,000 for production tooling, manufacturing validation, initial production runs, packaging setup, and working capital. Some teams underestimate this gap.

Your contract manufacturer wants payment upfront or net-30. Your hospital customers pay net-90 to net-120. You’re financing three to four months of receivables while paying for inventory. This timing gap drains cash faster than operating expenses.

Clinical validation represents another category of risk. About 40% to 50% of devices fail to demonstrate real-world effectiveness. Lab testing shows your device works under controlled conditions. Clinical use reveals different problems. Usability issues appear when tired nurses try to use your device during a 12-hour shift. Integration problems emerge when your device needs to connect with hospital systems that run outdated software. Workflow disruptions become apparent when you watch actual patient care.

These problems aren’t failures of engineering. They’re failures of understanding context. The device works as designed, but the design didn’t account for how healthcare actually operates.

Market timing creates a subtler risk. Hospital capital budgets get set annually, often 9–12 months before the fiscal year starts. If you receive FDA clearance in July but hospitals closed their capital budget submissions in March, you’re waiting until the following fiscal year for most potential customers to have budget available. That’s 9 months of cash burn with minimal revenue potential.

This timing risk is predictable but often ignored during fundraising. Investors hear “FDA clearance in Q2” and expect revenue in Q3. The reality is revenue starts 12–18 months after clearance.

Money required until 1,000 units sold

The path from concept to 1,000 units sold requires more capital than most founders initially calculate. Breaking it into phases helps.

Development through FDA clearance for a Class II device typically requires $1.5–$3 million. This covers design controls and documentation, verification and validation testing, biocompatibility testing at $50,000–$80,000, electrical safety and EMC testing at $30,000–$60,000, sterilization validation, if applicable, at $40,000–$100,000, and FDA submission including consultant fees at $30,000–$50,000. Manufacturing setup requires another $450,000–$900,000. 

Your first production run needs to be large enough to hit reasonable unit costs, which means ordering several thousand units before you have customers. Packaging design and setup, including regulatory-compliant labeling, adds costs that surprise first-time hardware founders.

Sales and marketing to reach 1,000 units sold typically requires $300,000–$600,000. You need sales representation, whether internal team members or external reps. Marketing materials need development. Trade shows and medical conferences are expensive but necessary for visibility. Clinical education programs help adoption but require resources to develop and deliver.

Working capital represents a often-overlooked requirement of $200,000–$400,000. 

The gap between paying for inventory and receiving customer payments creates a financing need that grows as sales increase. Counterintuitively, successful sales can create a cash crisis if you haven’t planned for working capital.

Total capital from concept to 1,000 units sold typically ranges from $2.5–$5 million. Most companies raise for development, achieve FDA clearance, then discover they need another $1–$1.5 million to actually manufacture and sell. This gap has killed numerous companies with good technology and regulatory approval.

If the FDA asks for more data

The FDA commonly requests additional information during review. This happens frequently enough that planning for it matters. Additional testing that the FDA didn’t initially require often becomes necessary during review. Testing under interference conditions, extreme temperatures, or mechanical stress might not be in your original test plan but gets requested during submission review. Budget an extra $75,000–$150,000 for these tests.

Consultant time to respond to questions adds costs. The back-and-forth with the FDA during review requires expertise in regulatory language and strategy. Trying to handle it internally without experience often makes things worse.

The extended timeline means continued burn rate. An additional three to six months of review time means three to six months of salary, rent, and operational costs without revenue.

Companies that perform minimal testing to save money usually pay more eventually. The FDA might accept your initial submission, then ask for environmental testing, durability testing, or clinical use data. You spend four to six months doing work you should’ve done before submission. The total cost and time exceeds what proper initial testing would’ve required.

Pre-submission meetings with the FDA help reduce this risk. These meetings are free and let you describe your device and testing plan before you invest in expensive studies. The FDA provides feedback on whether your approach will support clearance. Most companies skip this step because they believe they’re not ready. The meeting actually helps you get ready.

Your first 10 customers

Your first customers are specific institutions with particular characteristics. Early adopters typically have a clinical champion who deeply understands the problem your device solves. This person has probably tried to address the problem with existing solutions and found them inadequate. They’re willing to invest time to help you refine the product and troubleshoot implementation issues.

These hospitals often face pressure to improve specific metrics. High readmission rates, long procedure times, or excess costs create urgency for solutions. Your device addresses a measured problem, not a general desire for better technology. They usually have budget allocated for innovation or pilot programs. 

Many health systems maintain pools of capital specifically for testing new technologies. Getting access to these programs is easier than getting into standard capital budget cycles.

Early adopters are willing to work through implementation challenges. Your first installations won’t go smoothly. Equipment compatibility issues will arise. Staff will need extra training. Workflows will need adjustment. Early customers accept this friction because they’re motivated to solve the underlying problem. You need these customers identified before FDA clearance. 

Sales cycles at hospitals run 6 to 18 months from initial contact to first order. If you start sales conversations after receiving clearance, you’re burning cash for over a year before seeing revenue. Starting conversations earlier, even before clearance, lets you build relationships and understand requirements.

Reference customers matter more than research publications. Procurement committees want to talk to peers who use your device. They trust other hospital administrators more than they trust vendors or studies. One hospital using your device successfully and willing to take calls from potential customers carries more weight than 10 journal publications. Your first customers become sales tools for acquiring the next 50.

Design freeze points

Medical device development requires freezing certain design elements at specific milestones. Changes become exponentially more expensive after these points. Before cutting production tooling, you need to lock overall form factor and dimensions, plastic part geometry, mounting points and interfaces, and material selection. Once steel tooling is cut, changes to any of these elements will cost $5,000–$15,000 each and add weeks to your timeline. Some changes require scrapping the tool entirely and starting over.

Before starting clinical trials, lock core functionality, user interface design, clinical workflow integration, and performance specifications. Clinical data is specific to the device configuration tested. Significant changes after trials mean repeating studies or supplementing with additional data. The FDA expects the device they clear to match the device you tested.

Before FDA submission, lock all hardware specifications, software functionality, labeling and instructions for use, and manufacturing processes. Changes after submission require amendments that delay clearance by months. Major changes might require withdrawing the submission and starting over.

These freeze points create tension. Engineering teams see opportunities for improvement. Market feedback suggests features to add. The temptation to keep refining is strong. But each change past a freeze point cascades into costs and delays. A mechanical change after cutting tooling means new tools, validation testing to prove the change didn’t affect performance, potentially updated clinical data, and amended FDA submission. Budget 6 to 12 months and $200,000–$400,000 for major changes after freeze points. Most companies can’t afford that delay or expense.

The skill is knowing when to freeze. Too early and you lock in flaws. Too late and you blow your budget on modifications. The right point comes after you’ve tested with enough users to understand what actually matters but before you’ve committed to expensive manufacturing processes.

What actually kills companies

Cash flow kills more companies than FDA rejection. You receive clearance, then need $500,000 to manufacture inventory before you can sell anything. Sales take longer than projected because hospital procurement moves slowly. Hospitals pay on net-90 or net-120 terms, creating a working capital requirement you didn’t budget for. You run out of money with a working product and initial customers who want to buy.

Value proposition confusion kills most of the rest. The device works as designed but doesn’t solve a problem hospitals will pay to fix. Or it solves a problem but costs more to implement than it saves. The technology succeeds but the business fails because nobody understood what hospitals actually value.

The companies that make it to profitability don’t avoid mistakes. They make smaller mistakes earlier when fixing them is cheaper. They validate the value proposition before committing to expensive tooling. They raise money for manufacturing and scale, not just development. They identify and build relationships with early customers before FDA clearance. They freeze designs at the right points and resist the temptation to keep improving things that don’t matter.

The gap between working prototype and profitable business is substantially larger than most founders expect. Understanding that gap before you start building is the difference between the 25% who make it and the 75% who don’t.

The technology part is often the easy part. The business part is where things get complicated.

OVA Solutions: OVA Solutions builds medical devices that make it through FDA approval and actually reach patients. They’ve developed 200+ devices including surgical robots, orthopedic implants, and wearable monitors – many now in clinical trials or on the market. Recent projects include autonomous surgical camera system, portable ventilator, orthopedic implant, medical-grade skin patch with unique capabilities.

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