Want to be a technology player for hearing care industry: Neeraj Dotel, CEO, Quadio Labs

NEW DELHI:The hearing aid industry hasn’t evolved over the last two decades despite moving from mechanical to digital devices. Besides, the promise of digital also hasn’t come out in the features, functionality and controls to the user feels Neeraj Dotel CEO, Quadio Labs Pvt Ltd. Backed by a group of angel investors, the company started in 2009 as Quadio Devices, manufacturing hearing aids in Pune and is gradually transitioning into becoming a technology company in this industry.

What was the motivation for launching a start-up for hearing aid devices?
It all started with the fact that hearing aid industry graduated from mechanical to digital devices. While it’s nice to say that the hearing aid is now digital, what did that really mean— can it be customised and personalised for different environments? The co-founders (Paresh Patel and Anurag Sharma) saw a huge market for applying technology to the hearing aid devices available in the market and that was the first reason for our foray into this industry. The second reason of course was that India probably has the lowest penetration of hearing aid devices as a percentage of people who need them. Going by the WHO statistics, there are 12 crore people with hearing impairment of some sort out of which 50% actually need intervention in the form of hearing aids. So you are looking at six crore people as against six lakh hearing aids being made available in the Indian market. That’s less than 1% penetration of hearing aids in the country.

Any specific reasons for such low penetration? Is it also a global phenomenon?
If you look at the advanced markets in the Europe, Scandinavian countries and UK, the market penetration there is between 35% and 40% while in the US it between 25% and 30%. So on one hand we can still argue that 35% is not really good and why does everyone who needs a hearing aid use them. So you kind of have to figure out what is preventing people from adopting these things. The problem is India has less than 2,000 audiologists serving 12 crore patients. So while you may get help in Tier I areas, it is impossible to find help in regions that are Tier II and below. Besides, hearing is one of the neglected senses and it not really life-threatening so very few people actually go out and seek assistance or intervention from audiologists thus making the profession non-lucrative. So the first issue is there aren’t enough professionals out there. The second issue is affordability of the solution because a decent quality of hearing aid will cost between Rs 30,000 and Rs 40,000. While the price is out of the reach for a common man, it’s still probably cheaper as compared to the US and Europe where the cost is around $2,000 per ear. The third problem, which is not specific to India but is global in nature, is adoption. You can have a really good hearing aid solution but very few people are going to walk around advertising the fact that they are hard of hearing. So there is a stigma factor involved with hearing aid devices that raise the entry barrier for people to take an intervention.

The stigma factor appears to be a bigger hurdle for your business.
It’s like 25 years ago if you went for an eye test, you would be really scared of failing it because then you will have to wear spectacles, which was stigmatising back then. However, that’s not the case anymore. People now realise that spectacles are cool and even people without power use them. We know why and how spectacles became more and more acceptable by the masses thanks to the sunglasses industry and various types of lenses that made it fashionable. Now with Google coming out with ‘Google Glass’ it is likely that everyone across the globe will be wearing glasses irrespective of whether they have power or not. So we think the hearing aid industry will go through that evolution too and we want to be a pioneering player in this area.

Are the hearing aids available in India largely imported or there are local products too?
It’s both. So there are a few local manufacturers and we are one. Among the bigger players are multinational companies like Siemens, Sonova, etc. Also, if you take a low-end hearing aid, chances are that you might damage your ear. Unfortunately, the supply chain is so complex that the consumer ends up paying 10-times the cost of manufacturing the hearing aid, which is really sad. So all this kind of prompted the company co-founders to offer a solution by using the latest technology and develop hearing aids that not only can help people hear well but can also be customised and personalised. Moreover, our hearing aids also offer the functionality of listening to television and telephone conversations etc. In fact, we were one of the pioneers in integrating Bluetooth as part of the hearing aid package six years ago.

How big is the manufacturing business? What kind of revenues are you doing?
The company’s focus has been to reach the technology to people who need them at the best possible price. If you go through the conventional channel the prices go out of the reach of the common user. So we are kind of figuring that out for now. As for the hearing aids business, we are selling 100-odd devices every month and this year we will do about Rs 3.5 crore without any dramatic changes in our business model. We are currently operating in markets like Gujarat, Maharashtra and Delhi and, have just started operations in Kolkata. For our manufacturing facility are currently practising just-in-time approach, taking in the forecast, applying some sciences to it based on the field and trials we are giving out. But we are a fairly agile operation and it’s not extremely capital intensive. Having said that, there’s always room for improvement in manufacturing. We have three of our own devices viz. ezyhear (Rs 10,000), Smart (Rs 15,000) and InstaHear QH220 (Rs 25,000). Besides, some of our clinics also sell third-party products.

The pricing aspect still appears to be a challenge. Is it?
Yes, it is. We are always looking at ways to reducing the cost and that comes down to volumes – the number of circuits we can import from Taiwan and so on. So if we can change our ordering units from 10,000 units to 100,000 units at a time, the prices will, of course, drop significantly.

What are you doing to improve the volumes?
We are addressing the access part of the problem by using advancement in the internet and mobile technology. So telemedicine obviously comes top of the mind and we have created a telemedicine infrastructure, tying up with people who are traditionally not into hearing care. So we are partnering anyone with high footfalls like private or government hospitals, NGOs, school, charitable organisations, eye-care institutes and home healthcare providers like Portea Medical, etc. and giving them the ability to open a virtual clinic at no investment. The investment in equipment is very minimal and is made by us in addition to services of an audiologist through a medical process off-shoring centre in Pune. This approach allows opening of a virtual or a pop-up hearing clinic anywhere in the country with very limited or no capital investment.

How many such clinics do you currently have? What are your expansion plans and how are you going about it?
There are 10 such clinics of which five are operated by us, and the rest by our partners who are doing controlled pilots. One is a large national hospital chain and other is one of the largest eye-care hospitals in India. The pilots will get over and memorandum of understanding (MoU) will be in place in a couple of weeks from now. There will be a one-year tenure to these MoUs and the commercials will be equal (50:50) revenue sharing agreement on the services part (professional consultation with the audiogram) between Quadio and the point of care. Our goal is to take this to 100 clinics in the next two years. In fact, once we prove the pilots, we will also be looking at expanding in the Asia Pacific region. And given the fact that it is telemedicine I see no reason why we won’t have a medical process off-shoring play wherein audiologists in India will conduct hearing tests for the rest of world.

You also launched a mobile application Q+ that acts as a hearing aid device. Wouldn’t it slow down the volumes of physical devices?
Our app is as good as a mid-range hearing aid. But there are challenges. We don’t see people wearing earphones and walking around 24×7. Having said that, there are cultural shifts happening thanks to companies like BOSE, Beats audio etc and people are walking wearing earphones all the time. But we still don’t know which way the trend is going. We didn’t launch the app to compete with the hearing aid industry. We think when you are making hearing aids in the 21st century, you are no longer bound by the legacy of last century, which is what most of the major manufacturers are doing. Everyone is still trying to protect their cash cow. We don’t have a cash cow and will have to create our own. We launched the app 20 days ago and have over 1,000 downloads without creating much of a buzz around it. We think the app is a great introduction to the paradigm shift because it completely lowers the entry barrier— you don’t have to go to a doctor, or take a test, or spend Rs 40,000 on a device. You can test in the privacy of your homes, figure out the pedigree of hearing loss, try the app and see if it works for you. We also think at some point in time people will take specialised devices.

What kind of revenues are you targeting from telemedicine and mobile app?
I wouldn’t want to quote any numbers because it’s very early days. Having said that telemedicine will be more remunerative compared to our traditional devices business. Adding to it will be unprecedented advertising revenues from the mobile application. We will also have a pro version of the app that will have additional functionality and no advertising so that’s going to be another revenue stream for the company. Talking about additional functionality with our devices, we should be launching in July a music player for people with hearing impairment. We have quite a few functionalities lined up and will launch them gradually and, I think people won’t mind paying for it.

What’s the way forward for Quadio? Will you be adding more products, revenue streams, introduce newer technologies?
The company is very serious about the future and we cleaned up in terms of defining who we are. Earlier we were a hearing aid manufacturer, then we became a hearing care/solutions provider opening clinics etc. Now we are very clear, we want to be a technology player for the hearing care industry. That’s the reason, just last week we also changed the name of the company from Quadio Devices to Quadio Labs to reflect on the research and development (R&D) and innovation. Our view is that if hearing aid has to become as common as spectacles then there is really one silver bullet answer i.e ‘hearables’. The sooner hearing aids transition to ‘hearables’ the faster the adoption will increase. While there are in-ear (fitting inside the ear canal and are invisible) devices but in India they cost Rs 2 lakh per ear and way beyond the reach of a common man. Right now we are only talking about hearing aids for hearing impaired. But our goal is to give people the ability to hear things the way they want to do it and this includes people like you and me who are not hearing impaired. That’s where the volumes will come in but there are also challenges, which is exciting, how we help everyone in India deal with noise which is a huge issue around us. In a hearing aid, there are algorithms for noise processing/reduction. Can we take those algorithms out of the hearing aids/app and put them in a consumer context and give people the ability to switch-off noise with a button. Companies like BOSE have cracked it but those devices cost Rs 25,000 each and a common person cannot afford them. If I can give somebody, something half as good at one-twentieth of that price, wouldn’t the market accept it? That’s our goal.

Is the business profitable at present? Are you planning to raise more funds?
We are on track for breakeven which should happen in about three months. We are in the process of raising Series A which will take care of our global expansion. I can’t give precise details on the kind of money we plan to raise. We think the idea is compelling, and hence, there is a lot of interest from the investor community. Besides, this whole industry is so fragmented. I think we have a winning horse with our business model.

What is the deployment plan and by when will you close the fund raise?
We will keep a major chunk for research and development (R&D) along with intellectual property (IP) rights. And the rest of the funds are for marketing and expansion. We expect Series A to close by August.

Will existing angels participate in this round or will it be a purely new set of investors coming on board?
In this round, we’re looking for a new set of investors. Existing investors have committed additional funding if the process takes longer or interested investors disagree on the valuation.

Will any of the existing angels exit in the new fund raising exercise?
No exits. Our existing investors are in this for long term play and believe in the market potential that Quadio is working to unlock.