Covering Your Customer’s Assets
by Michael Matesic
Risk tolerance is assumed to be a required trait of every entrepreneur. With 5-year survival estimates hovering between 10 and 30 percent for startups, it’s easy to think those jumping into the deep end of the risk-reward pool are thrill seekers by nature. But it may be the case that entrepreneurs are just as averse to risk as the average “nine-to-fiver” -- they just have an overwhelming confidence in their ability to identify, plan for, and manage it.
Still, there’s an added dimension to risk management when a technology startup is pushing a disruptive, innovative product into the market. Not only does the entrepreneur need to address his own new business risks, but he also has to consider the risks his customer may be assuming as an early adopter of new technology. The same technology that promises to revolutionize the way a company does business can also be responsible for its demise if it fails to deliver.
While it’s common for startups to offer warranties that refund the purchase price of a product if it breaks or doesn’t perform as promised, warranties do not enable an early adopter to recoup the loss of revenue or reputation caused by a failed product.
According to Kevin Hughes, account executive at full-service commercial insurance broker, Tucker, Johnston & Smelzer, Inc, “Warranties are a business decision to keep damages in house and simply refund the cost of the product if the customer is dissatisfied. They don’t address the financial loss a customer faces if the product fails to perform.” Continues Hughes, “When financial loss due to production down time, lost assets, poor performance, etc., is at stake, professional liability insurance, also known as Error and Omisssions insurance, is what’s needed to protect both the startup and their customer.”
ClearCount Medical Solutions offered a “Never Event Warranty” (N.E.W.) when they launched their SmartSponge and SmartWand-DTX systems. Together, the RFID-based technologies count sponges used in surgical procedures and detect any sponges not retrieved when the procedure is complete, ensuring retained sponge incidents are a “Never Event” for surgical teams.
According to CEO, David Palmer, “The warranty served as a differentiator for us. The confidence we have in our product allowed us to offer this performance guarantee. It covered not just product replacement, but up to $100k to cover additional expenses incurred should our system not perform as promised when used correctly.”
It’s too early to tell the exact impact the original guarantee has had on sales, but the feedback from customers was so positive that Palmer upped the ante by partnering with an insurance broker and insurance carrier to offer a much more robust warranty backed by an insurance policy. The new “N.E.W.” increases coverage up to $2 million and extends it to a broader array of Never Event costs. And by rolling it into an insurance policy, ClearCount has reduced their financial risk should a claim ever be made against them.
Palmer says his sales staff proactively uses the insurance-backed warranty as a sales tool, and their customers see the warranty as a high value feature the competition doesn’t offer: assurance that the risk-reward gamble is a safe-enough bet when it comes to being early adopters of this promising new technology.
Start Me Up appears monthly in the print edition of TEQ Magazine.