How K2M is growing from startup to leader in complex spine surgery technology

By Christianna McCausland

Photography by Mitro Hood

Eric Major loves a story with a happy ending. And he should. His livelihood depends on it. As president and CEO of K2M, the Leesburg, VA-based medical device company focused on innovative products for spinal surgery, he’s built his business on the outcomes of happy patients.

Eric Major loves a story with a happy ending. And he should. His livelihood depends on it. As president and CEO of K2M, the Leesburg, VA-based medical device company focused on innovative products for spinal surgery, he’s built his business on the outcomes of happy patients.

It’s not a portion of the company mission he takes lightly. He’s reminded of these patients every day; a life-size portrait of children in Ghana with severe spinal deformities fills an entire wall in the office (shown below). The patients receive treatment through FOCOS (The Foundation of Orthopedics and Complex Spine), a nonprofit K2M supports with donations of money and equipment. Then there’s the staff member, plagued by the life-long symptoms of scoliosis, who finally had a successful spine surgery using K2M products she helped engineer.

“I love to hear a life-changing success story,” he says. “That’s the beauty of what we do. We have a huge impact on people’s lives around the world.”

ENGINEERING A STRONG BACKBONE

Though K2M’s interface is with surgeons, not patients, it is the person on the operating table who is always top of mind. Major likes to keep his hand in this side of the business whenever possible.

He was in Ghana recently with his wife and two teenage daughters to follow some of the spinal work being done there through FOCOS. But don’t mistake him for a big softie.

Major is extremely driven, with a high-energy intensity. And at just 46 years old, he’s set an ambitious goal for K2M to become the leader in complex spine procedures, taking on entrenched competitors like Medtronic and Johnson & Johnson. In 2014, K2M went public and reported revenue of $186.7 million, up 18.5 percent year-over-year on an as-reported basis.

TRUE CALLING

After a stint in the defense contracting world, Major moved into pharmaceutical and med-tech sales early in his career. He entered the spine industry through sales in 1994. In the late 90s, he started his own company, American Osteomedix, which grew rapidly and was acquired by Interpore Cross International in 2001 for $8 million in cash and approximately 2.4 million shares of Interpore Cross common stock, as reported in an Interpore Cross press release about the deal.

Major left the company in 2002 and started brewing up a new idea to create a business focused on some of the most difficult spinal cases. He founded K2M in 2004 with John P. Kostuik, MD, a former chief of spine surgery at Johns Hopkins School of Medicine and a founding member of the North American Spine Society. Kostuik, who is now retired from spine surgery, still serves as K2M’s chief medical officer and sits on K2M’s board.

“We felt there was an opportunity in the most difficult spinal pathologies,” Major says. “There’s a very high barrier to entry because the needs to provide the surgeon with unique differentiated technologies are significant, but we felt we had expertise in that area.”

K2M’s market share is in product innovation for the complex spine, a niche of the surgical world broken down into deformity, trauma and tumor. These are patients requiring surgical care for some of the most challenging pathologies, such as severe scoliosis (deformity), a broken back after a car accident (trauma) or a cancerous tumor that somehow impacts spinal function. It was an area where Major saw a need for innovation, particularly for products that decrease the invasiveness of spinal surgery.

“We felt all along that there really was an opportunity for innovation in the space to really provide the surgeons better technology and techniques to better treat that patient population,” he says.

AGGRESSIVE INNOVATORS

K2M’s Leesburg office has a showroom where surgeons can touch and feel the company products, and a lab where they can perform surgeries on cadavers. While some of the lab activities are for training purposes, there are white boards in the lab itself where surgeons can share ideas on ways to improve upon the product experience. K2M is always looking for new ideas, always asking surgeons, salespeople and thought leaders in the industry for ways to make products better, more efficient, less invasive.

“We take great pride in being viewed by the surgeon community as a company that is focused on innovation,” Major says.

To stand apart of such major competitors as Medtronic, it is incumbent upon K2M to give surgeons products that are discernably different, and to be highly responsive to the customer need. “I remind the team all the time that if we’re as good as our competition, are we really giving our customers a reason to consider an alternative?” Major says. “We have to provide true innovation and differentiation.”

The company’s flagship product is called MESA, a complete system for spinal correction. MESA is distinguished by its low-torque technology (requiring less force to put the products into place) and use of low-profile screws. In traditional spinal surgery, the screws holding the correction in place stand above the spine itself; K2M’s low-profile innovation keeps the screw flush with the rod used to align the spine. All products are designed to be implemented using smaller and smaller incisions.

In addition to MESA, K2M has 59 other products in circulation. With an aggressive plan for product creation, K2M expects to deliver five to eight new products or line extensions to market a year.

“We’re very good, in house, at organically delivering new technology,” says Major. “I believe our methodology for the development of new products is unique in the space.”

Of the company’s approximately 460 employees, there are over 40 biomechanical engineers and designers and 17 product managers. Engineers are split into advance development and commercialization groups. The advance development engineers get the 3-D printers, the white boards and license to think outside the box. The commercialization group takes the successful ideas through the quality process, FDA approvals and, ultimately, to the end-user. The funnel of ideas is obviously larger at the development end, with more ideas being explored than actually make it to product development. But only by giving the engineers freedom to explore ideas can innovation rise to the top.

To create the efficiency needed to meet the ambitious timeline of multiple annual product launches, Major explains that the staff is organized into siloes or product teams. This team structure keeps each product team focused on taking its technology from schematic to commercialization, rather than asking one team to spread its resources across the launch of five to eight new products. This structure also preserves some of the company’s entrepreneurial aspects that aided its success, notably its ability to be small, nimble and quick. Even as the company grows, the smaller product teams can be extremely responsive.

“Our product development teams are like small companies within the company,” Major says. “We treat the product manager as the CEO of the project. Their job is to live and know that product from beginning to end, and that allows the engineers to be the chief technical officers focused on the design of the product.”

THE IPO EFFECT

Certainly one of the reasons K2M can push products to market so aggressively is a new influx of cash from its recent IPO.

Private equity partner Welsh, Carson, Anderson & Stowe acquired a controlling interest in K2M in 2010 and brought capital to build out the portfolio and global distribution. Major says K2M had always run itself akin to a public company, but didn’t want to rush into the public market until it perceived the environment was in the right place.

“We were watching the market closely for quite a while,” says Greg Cole, K2M’s CFO. Finally, “the market environment was such that new offerings were becoming more robust in the marketplace and we just jumped on the opportunity to get ourselves out to the marketplace.”

The IPO took place in May 2014, netting proceeds of $147 million, including the greenshoe offering. Major says going through the IPO was a lot like going through a surgery — you want a doctor who has done the procedure before and has plenty of success. He assembled a legal and financial team with experience in public offerings. He also learned that not all bankers are created equal.

“There are a lot of bankers who will fight to get a deal when they hear there’s an IPO, but I have learned that there’s a dramatic difference between bankers,” he says, explaining that plenty of people are simply looking to collect a fee. “Everything comes back to having the right people on the team … You want to work with people who understand your company and are going to work collaboratively.”

K2M already is present in 29 countries outside the U.S. and has offices in the U.K., Germany, Austria, Italy, Ireland and Switzerland. Lane Major, K2M’s chief strategy officer and Eric’s younger brother, says the company spends a lot of time on due diligence before leaping into a new geographic area. To aid in successful expansion, K2M uses in-country partners that have the on-the-ground contacts and knowledge to help build out these overseas markets.

“The way the industry is set up is very global in nature,” Lane Major says, noting that membership is international in scope at the key spine-surgery organizations where K2M networks. “We look to enter new markets where the business models make sense. Fortunately, we have a lot of good partners and a lot of good business and sales leadership around the world to help us vet those opportunities.”

As its international expansion strategy unfolds, K2M is also growing at home, moving to new headquarters just down the street from its existing office. After a negotiation between the states of Maryland and Virginia, Loudoun County offered K2M an incentive package of funds and fee waivers to make sure the company’s $28 million expansion stayed in Leesburg, as reported in the Loudoun Times.

It’s space the company desperately needs. Currently, the indoor basketball court — a nice perk for employees at HQ — is filled with stock items.

Everything, even the decision to build out a new office, comes back to innovation. While the original office was fine for a startup, Eric Major explains that it’s too small to create a community of engaged engineers. He anticipates that the new facility will be the one to see K2M into a $400 million to $500 million company.

Cole says the company had turned down strategic offers in the past in favor of going into the public marketplace. While the cash was important, it wasn’t the only thing K2M was after with the IPO. The K2M team talks a lot about how the public offering “lifted the veil” from their private enterprise. The transparency and street credit that comes with being publicly held has brought in new business from hospitals.

“People think you go public for access to capital, but there’s a lot more to it than that,” Cole says. “You become a much more credible company as a public company, and I think that’s really helped us compete much more fairly because people know we’re adhering to laws and regulations as a public company.”

LESS INVASIVE LEADERSHIP

Like all startups that achieve success, K2M will have its share of growing pains and tribulations keeping its entrepreneurial energy balanced with the bureaucracy that’s simply a part of getting bigger. Eric Major says it will come down to staying true to K2M’s core competency and remaining focused on the goal of being a leader in complex spine, minimally invasive surgery and degenerative spine. While it will be a challenge, Lane Major says that maintaining K2M’s corporate culture will be important as the company continues to grow.

“When we are courting a new customer or high-profile surgeon, we do everything we can to get them here and in the front door, and the reason is you can’t really hide behind the people, you either have the culture or you don’t,” Lane Major says. “We see it time and again when people walk through these doors — they feel that culture and it resonates.”

Eric Major definitely sees himself as the keeper of the culture and communication as king. He holds regular town hall meetings in the office, but also hosts a webcast so non-Leesburg employees can join. It’s a chance to get everyone together and to reinvigorate the staff around the corporate mission. He always reminds his people that everything they do somehow touches a patient’s life.

Major is also a hands-on leader. He makes it a point to be accessible to employees, and volunteers with them at Habitat for Humanity and other charities. Cole says that Eric Major likes to lead from the front lines, meeting with customers and staff and never asking anyone to do something he doesn’t do.

“You can send a bunch of emails from your desk or stand up at a podium, but when you’re out in the field and leading from within, it’s a very different way to lead,” Cole says. He describes Eric Major as warm, knowledgeable and focused. “You’re not going to find many people more driven than Eric to meet the goals of the company.”

Eric Major admits he has a reputation for visiting from cube to cube and customer to customer.

“I believe in management by walking around. I believe that as the CEO, you have to stay engaged,” he says. “You can’t do it by email and texting and phone. You have to be there in front of people.”

In February, K2M closed a secondary offering that has provided cash flow earmarked for strategic opportunities around more rapid expansion of distribution and inventory. But even as the company scales up, its core will remain focused on innovation and creating valuable products for surgeons.

It is a strategy that will lead to life-changing outcomes for patients and the company. CEO

Christianna McCausland is a freelance writer based in Reisterstown, MD. Contact us at editorial@smartceo.com.

Disclaimer: This article includes certain forward-looking information based on current estimates and forecasts. Actual results could differ materially.

WRESTLING THE COMPETITION

When it comes to innovation, the world is full of ideas. The tough part is execution and pushing an idea forward over obstacles. K2M president and CEO Eric Major says he sees time and again entrepreneurs and innovators who change direction very quickly when they hit a wall rather than trying to push harder to get the product over the goal line (or to get the next round of funding, or the next approval).

Lane Major, chief strategy officer of K2M, attributes his brother’s persistence to his earliest years, when Eric began wrestling, a highly individual competitive sport. “In high school, he wasn’t necessarily the best, but he was incredibly successful and he was never pinned in his high school career,” Lane recalls. “He had a bull-dog mentality, and through persistence and a willingness to win, he came out on top.”