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Published in U.S. 1 Newspaper on May 17, 2000. All rights reserved.
Songbird: Now Hear This
Most Americans feel that any disability — poor
eyesight, obesity, acne, crooked teeth — can and should be corrected.
But if you tell someone he is hard of hearing and should get that
corrected, he resists. For hearing aids, the average lag time between
diagnosis and purchase is a whopping seven years.
Why? Sometimes wearing a hearing aid carries a certain stigma. It’s
like going from regular glasses to bifocals. It means you’re "old."
Sometimes the barrier is financial. Hearing aids cost $1,000 for plain
vanilla models and up to $4,000 for the high tech versions. If your
hearing bothers you "only a little," if you can get along
by turning the TV volume "a little higher" and asking people
to speak "a little louder," why spend that money?
At the urging of a venture capitalist, Sarnoff Corporation dipped
into its bag of technology tricks to come up with a new concept for
hearing aids: Make them cheaper by making them disposable, like throw-away
contact lenses. Sarnoff’s 12th spin-off, Songbird Medical Corporation,
has been incubating on a hush hush basis for 2 1/2 years, but when
it hopped out of the nest this spring it sent the audiology world
a-twitter. Scheduled to be on supplier shelves this fall, Songbird
must vie with Siemens, the largest hearing aid manufacturer in the
world, to capture the baby boomer market. At a cost of $39 the Songbird
Disposable Hearing Aid fits 80 to 85 percent of adult ears, lasts
40 days, and provides an economical and convenient way for a new user
to enter the hearing-aid market. Sarnoff thought it up, developed
the product, sought financing from venture capital firms and Johnson
& Johnson, hired contact lens veteran Fred Fritz as CEO, and moved
the company out to Cedar Brook Drive, where it now has 60 employees
plus a 10-person sales team. Sarnoff owns 20 percent of the company.
"It’s been thrilling, very fast paced, with very high highs and
significant lows," says CEO Fritz.
Songbird’s formidable competitor is Piscataway-based Siemens Hearing
Instruments. Its director of audiology, Thomas Powers, points out
that Songbird’s "is one size fits all and it is older analog technology.
We have stayed in the custom market," says Powers, "and are
pushing [digital] technology a lot farther."
Fritz contends that Songbird and Siemens will have different markets.
The hearing aid industry is notorious, he says, for having failed
to penetrate the market; less than half of those with severe hearing
loss have bought an aid. For those with mild to moderate loss —
and the much vaunted baby boomer generation now falls into this category
— the untapped market is even bigger. "We think Songbird will
attract a lot of people into the hearing correction market," says
Fritz. "While the vast majority we hope will stick with us, we
could have an uplifting effect on the market."
"There is some trepidation about Songbird capturing a large part
of the market but a number of people have come to the belief that
it can expand the market. There are 27 million hearing impaired people
and fewer than 7 million own or use hearing instruments," says
Karl Strom, editor of the monthly trade magazine Hearing Review in
"We haven’t done a very good job of getting to the untapped market,
people with a mild hearing loss. We could sell into their comfort
zone. They don’t want something on a permanent basis. This group can
be reached by advertising," says Wayne Staab, an audiologist in
Phoenix, Arizona, who helped develop Songbird.
Part of the selling challenge is that people who have hearing loss
sometimes forget what "clear" is like. But in one market research
group focusing on the challenges of hearing impairment, one woman
said that what she really missed is "being able to hear a song
Songbird Medical began when a venture capitalist came
to John Aceti, Sarnoff’s director of health care product development
and husband of fitness trainer Gloria Aceti. He grew up in Jersey
City, where his father was a bricklayer, and he studied mechanical
engineering at Stevens Institute of Technology, Class of 1977, and
has an MBA from Rider. Aceti discovered that the scuttlebutt among
seniors is that hearing aids don’t fit well, don’t work well, are
irritating, and require many visits to adjust.
Those descriptions may no longer fit the latest models, but the hearing
aids on the market do require a high initial cost. Patients with hearing
loss in both ears are told to buy two aids for safety reasons. (If
only one ear hears well you might look in the wrong direction when
a car honks.)
Five years ago a North Jersey company, Telebrands, imported hearing
aids from China and sold more than 400,000 units through Sam’s Clubs
for $29.95 in six months. But the company failed to file for appropriate
approvals from the FDA, and had made some claims that prompted lawsuits
and withdrawal of the product.
"It was a crummy product," says Aceti, "but it showed
a huge pent-up demand." It also showed that many people don’t
want to pay a lot of money for an expensive device that might get
lost. Telebrand’s success resulted in copy cats that traditional manufacturers
consider ripoff devices and that sell for up to $300 apiece through
Aceti was convinced that he could achieve economies of scale and get
quality as well. "Six companies told me I could never make it
and never sell it," he says. "I was certain I could make this
thing. I gave a group of engineers at Sarnoff the challenge."
He ran the business from Sarnoff for six months until Fritz signed
on. "We had a wonderful first meeting," says Aceti. "Fred
asked me what was the issue in producing this. I said I didn’t know
how to sell it. He said, `If you know how to make it, I know how to
In two years, says Aceti, "we have accomplished everything we
set out to do. Fred has hired one of the most outstanding management
teams I have ever seen." Tom Squeglia was vice president of sales
for disposable contact lens at Vistakon. Mike Tardugno was head of
operations for Bausch & Lomb, which went head to head against Johnson
& Johnson in contact lenses. David Preves is a world-recognized leader
in hearing-aid design. "When we hired David, the industry started
to buzz," says Aceti.
Most conventional hearing aids are shipped out unprogrammed for the
audiologist to program with a screw driver or the computer to match
a patient’s hearing loss. In contrast, the Songbird product is based
on the disposable contact lens model: the amplification and frequency
response characteristics come preprogrammed. The audiologist can dispense
your prescription on the spot.
The price of Songbird, at just under $1 a day, is about the same as
the basic $1,000 hearing aid says Fritz, if you include repair costs,
but the sound quality is comparable to the best $3,000-plus products.
The traditional product lasts five years, and audiologists get to
keep 50 to 66 percent of the price as gross profit. The Songbird product
will produce a reasonable margin, says Fritz, though over a longer
period of time. "The reason they would be interested is to attract
the non-users," says Fritz.
The device has a built-in battery, so no battery door is needed. That
opens up space for a microphone seven times bigger than usual. Because
the device does not need to last five years, the tip does not need
to be durable and hard. Songbird uses a very, very soft mushroom-shaped
tip that is quite comfortable. Manufacturing techniques are high speed
Songbird hid itself quietly until this spring (except for quarterly
reports generating publicity on the venture capital funds it was receiving),
and Fritz says that thanks to this two-year head start, he is not
worried about look-alike competition. His intellectual property patent
portfolio is, he says, "very robust," and he has exclusive
arrangements with his suppliers. The integrated circuit, and the electronic
assembly are classified secrets, but the microphones and speakers
are made by Star Micronics in Japan. Energizer is designing and producing
a custom battery.
The final assembly takes place at Cedar Brook Drive, and United Parcel
Service is handling the outbound logistics. Songbird’s accountant
is Robert Esposito of KPMG on Lenox Drive, and New York-based MPMC
(Mockler Preston Bergo) is the ad agency in charge of a $16 million
annual advertising and promotion budget. Duane Mason at Boston-based
Prism Venture Partners is the lead financial investor. Investment
bankers have yet to be named.
In all categories in last fall’s field trials Songbird beat the $3,000
hearing aids. At the American Academy of Audiology meeting in March,
6,000 people said the untapped market is the number one issue. "We
totally stole the show," says Fritz. Nevertheless, some audiologists
are refusing to handle this product. One (a consultant for a competitor)
was quoted as saying, "anybody that gets involved with this ought
to have psychoanalysis."
There is also concern, magazine editor Strom says, about disreputable
audiologists using bait and switch tactics. "Songbird is trying
to be very careful about that," he says.
Fred Fritz seems perfect for this job: he is both an engineer and
a marketing veteran for disposal contact lenses. He grew up in northwest
Chicago, where his father was a self-employed auto mechanic and his
mother a secretary. He majored in engineering at the University of
Illinois, Class of 1972 (and went back to his roots in this job, where
he has produced a half-dozen patents). He worked for Schwinn bicycle
company and as a dormitory food service supervisor, which gave him
the work experience to be admitted to Harvard’s MBA program immediately
after graduation. He majored in marketing, joined Quaker Oats, then
went to Schering Plough’s contact lens division. He launched the "turn
your brown eyes blue" disposable contact lens product, ran the
$300 million over-the-counter drug business, and ran the $500 million
Dr. Scholl’s division. He made the jump from mega company to start-up
when he was 47 years old, having been recommended by "a fellow
who knew somebody who knew me." He and his wife Helen have daughters
ages six and nine.
Comparing small companies to big companies, Fritz says his current
situation is "a lot more dramatic and different." To deal
with disappointments in small companies, he says, "you watch for
things that could kill the company. You are striving for survival
and to get to market launch." Danger signs could be significant
technical challenges or setting up supplier partnerships. A start-up
company has to ask large and not so large companies to develop a component.
"They had to believe in what we could achieve."
Sales could be another bugaboo, but Songbird has its own selling organization,
and the vice president of sales and marketing spent two years meeting
the audiology community; his team has two managers and 10 sales reps.
Now Sarnoff engineers need another project. Aceti’s immediate superior,
Satyam Cherukuri, Sarnoff’s managing director of science and systems,
says his engineers are working to take the Songbird device from analog
to digital, and then to make miniature devices, probably using wireless
technology, for other health care settings.
Picture this: your elderly mother wears a miniature sensor that "talks"
to a box by her telephone. You or her caregiver can call in to monitor
her vital signs. Has she gotten out of bed, and how long has she been
up? Most monitoring devices now are bulky and require wires. Like
the hearing aid, they are rejected by potential users.
Says Aceti: "We are feeling really good about what we have done.
And I believe that Sarnoff’s ability to miniaturize electronics will
play a key role in solving the problem of healthcare for older Americans."
Cranbury 08512. Fred Fritz, CEO. 609-409-4500; fax, 609-409-4510.
High technology companies can get incentives to locate in New Jersey cities and downtowns under the New Jersey Cyberdistricts Program, which
offers grants to municipalities and qualified not-for-profit developers to create and market "Cyberdistricts."
"Our cities were built by industry," says Governor Christie Whitman. "The goal of this program is to help them retool for the 21st
century’s most important industry: information technology."
Whitman set aside $2 million for Cyberdistricts this year. Of that amount, $1.5 million is reserved for urban municipalities eligible for
assistance from the New Jersey Redevelopment Authority.
There is no maximum grant amount. Applicants are encouraged to partner with telecommunications companies, Internet service providers,
business associations, commercial and industrial real estate owners, colleges and universities, and community development corporations.
Get a copy of the RFP from the NJRA at 609-292-3739 or by writing to Leslie Anderson at the NJRA, Box 790, Trenton 08625.
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