Medtronic, Inc. (A): The Garage Era

Useful in courses on entrepreneurship, this case describes the founding and start-up years (1949–62) of Medtronic, Inc., one of the world's leading medical-technology companies, specializing in implantable and interventional therapies. Focusing on one of the company's cofounders, Earl Bakken, the case examines entrepreneurial thinking and principles—“effectual reasoning.” See also "What Makes Entrepreneurs Entrepreneurial?" (UVA-ENT-0065). Excerpt UVA-ENT-0101 MEDTRONIC, INC. (A): THE GARAGE ERA In April 1949, Earl Bakken, a 25-year-old graduate student at the University of Minnesota, and his brother-in-law, Palmer Hermundslie, formed a partnership to service electric medical equipment. They set up shop in a garage and called their company Medtronic. After a decade in business, Medtronic, Inc., had become a full-fledged medical-equipment manufacturer and a pioneer in implantable medical therapy. The external cardiac pacemaker that Bakken developed in 1957 was used not only by such prestigious American institutions as the Mayo Clinic in Rochester, Minnesota, and the National Institutes of Health in Bethesda, Maryland, but also by many outstanding medical facilities around the world. In the spring of 1961, when the few dozen Medtronic employees moved to a new 15,000-square-foot facility in Minneapolis, Minnesota, Medtronic's “garage era” was officially over. But despite the hard-earned successes, all was not well at Medtronic. The small, undercapitalized, relatively inexperienced start-up had to face the rapid, expensive growth that followed the development of the external pacemaker and its implantable successor. While sales climbed from $ 180,000 to more than $ 500,000 between 1960 and 1962, Medtronic's losses rose like a tidal wave—from $ 16,000 to $ 144,000. The company was spending heavily on research and development, new facilities, expanded staff, and other business necessities, and its sales had not kept up. In an attempt to stay afloat, Medtronic was piling on debt, and it was getting dangerously close to insolvency. . . .