Trey Knight, president of Lotus Technology, attributes the company’s continued success to a reputation for offering quality products.

 Trey Knight

The hardy band of small, independent hearing-aid manufacturers that keeps losing members due to either acquisitions from above or collapse from within is about to wave good-bye to yet another of its cadre—but this time owing to the happy circumstance of dramatic, hard-won growth.

“We’ll still be independent, it’s just that we’ll no longer be small,” promises Trey Knight, president of Lotus Technology Inc, reflecting on the continually improving fortunes of the Mooresville, NC, company. “We’re in the beginning stages of the transition from being a regionally focused hearing aid producer to a nationally recognized leader in the hearing aid industry.”

As evidence, Knight, an owner of the company, points to secure toeholds that Lotus Technology has already established in markets far beyond North Carolina, including Oklahoma, Arizona, California, and Hawaii. There also are smatterings of Lotus customers in most of the other states of the union (plus a handful of foreign lands), and they represent a vanguard of sizable bases to come, he conveys.

“We’re successful at attracting customers because of the excellent quality of our products,” says Knight, even as he acknowledges that the growth of Lotus Technology is the result of other factors as well, such as having gained an enviable reputation for helping audiologists and dispensers be more successful in their own businesses. “The mission of our company is not to try to see how big a manufacturing company we can become or how many people we can employ; among other things, it’s to become as big an asset as possible to our core customers in maximizing their opportunities for growth.”

Speed Demon
As Knight portrays it, a big source of woe for many audiologists and dispensers is the unhappiness their customers experience over the time it takes to receive a completed custom hearing aid. “The seemingly endless wait between fitting and then receiving the device creates an opportunity for the end user to develop buyer’s remorse,” Knight says. “After a day or two, he or she starts thinking, ‘Gee, I really spent too much money with this purchase and I’m not sure I even want the device now.’ If, on the other hand, we can give the retailer or audiologist a fulfilled order within, say, one visit, then, obviously, there’s going to be very little need for that end user to have second thoughts.”

Sometimes, remorse takes the form not of doubtfulness about the wisdom of the purchase but of actual disappointment with the product. “I know patients who have bought a high-end digital hearing device from other manufacturers, wore it for a few days, and then threw it in the dresser drawer, never to again put it back on,” Knight says. “The reasons they give run the gamut—it did not work at a meeting, could not use a phone with it, and so forth. But the common thread is the device didn’t measure up to expectations and didn’t allow the user to enjoy the quality of life they desired. Those are complaints audiologists and dispensers rarely, if ever, hear with our devices. What it really comes down to is establishing enough rapport with the patient to know for sure what will lead to a fully satisfied experience.”

In response to the concerns about how much time it can take for fittings, Lotus adopted an operations strategy that allows the company to fill orders at breathtaking speed.

“We’ve been able to compete effectively against the giants of the industry by being able to very quickly deliver product into the hands of our customers,” Knight says. “Where the major companies typically have a 2-week turnaround, ours is usually no more than 48 hours after receipt of an order. In many cases, we’re able to turn around an order the very same day.”

Lotus can do this because its plant structure allows for the facile shifting of manpower from one production function to another as necessary. Consequently, the company can bring to bear the greatest number of hands where they are needed most at any given stage of production. Workflow bottlenecks are thus avoided, as is the need to process orders through conventional queues. Helpful too is the extensive use of computerization, which has been responsible for fostering greater efficiency in the procurement, staging and use of production-related resources, Knight reports.

Leveraged R&D
Lotus—which employs 50—recently moved its administrative offices and manufacturing plant into a newly constructed 20,000-square-foot facility. The handsome, two-toned, brick-faced building with its distinctive arched entryway includes warehousing space and a distribution center. A portion of the facility houses the company’s product research-and-development department, staffed by engineers and audiologists—10 in all—whose talents are augmented by those of more than 200 others at outside R&D firms under contract to Lotus Technology.

“This outsourced approach has been a very good way for us to leverage our R&D capabilities,” Knight says. “We started doing this in response to marketplace drivers emerging as a result of actions taken by competitors and of changes in customer demographics. We’ve been doing this for approximately the last year and a half. The R&D team we’ve assembled is charged with envisioning and turning into reality the next generation of hearing aid products, products that will stand apart as marvels of superminiaturization—durable, versatile, and easy to use.”

An interesting side note, the R&D effort at Lotus also includes arrangements with several local primary and secondary schools whereby preproduction versions of next-generation devices are offered to hearing-impaired children for beta testing, the idea being that an innovation will be judged ready for market if it can work as promised and withstand the punishment a kid can dish out.

Knight explains that Lotus Technology’s hearing aids—which include models in BTE, CIC, ITC, and ITE styles—are designed and developed around largely non-proprietary, off-the-shelf components. That means most of the R&D activity centers on software used in conjunction with the wide-dynamic-range digital signal processors (DSPs) favored by the company for high-end applications. “We have a preference for adaptive algorithm-based amplification in part because it’s a technology that permits production of a hearing aid with the ability to limit the level of incoming sound and the ability to deliver a more natural sound throughout the end user’s entire listening range, without getting too loud or too quiet,” says Knight, clarifying that the amplifiers themselves hail predominantly from the family of top-of-the-line adaptive technology-based DSPs, which he says carry the advantages of lower distortion, zero feedback, and longer battery life.

Targeting Go-Go Seniors
Having sensed where the market is headed, Lotus Technology not long ago began putting greater emphasis on BTE products.

“Our unique prefit BTE designs are intended to give dispensers the ability to offer options beyond a traditional custom earmold-making process,” Knight says. “The benefit of that is it sets up a situation whereby the dispenser can create a stocking program around a device that’s customizable. That means an end user can walk into the dispenser’s location and leave an hour later fully equipped with a tested and programmed hearing aid because, in most instances, the hearing loss can be remedied with an open fitting. Gone will be the need for two or three return visits for tweaking a custom earmold built at the manufacturer. Instead the dispenser will have the capability to program and fit on-site during the visit.”

Lotus Technology’s newest entry in the high-end BTE category is a digital-signal, dual-processor device. “One chip performs the hearing-aid function, correcting for hearing loss of up to 70 db,” Knight says. “The second chip handles direct input from external accessories, such as an iPod player or a cell phone.”

Called Isis and 2 years in development, the product represents a first in its combining of multiple functions within a single device. “Isis is a product that a majority of people—especially those with mild to medium hearing loss—will welcome because of the way it will allow them to enjoy the quality of life they were accustomed to before their hearing loss occurred,” Knight says. “Importantly, the open fit of Isis eliminates occlusion—that plugged-up feeling end users dislike.”

Knight expects active-lifestylers will also appreciate the water resistance of Isis. “In initial testing, we found that the device can be completely submerged for up to 25 minutes before the battery is affected,” he says. “So, it’s a device that people can use in their favorite sports since it’s not likely to be harmed by exposure to sweat or moisture.”

BTE devices such as Isis, which began reaching the market in December 2005, moves Lotus Technology in a somewhat different direction from the path trod by the company in the beginning. But BTE is where the demand is, and so Lotus Technology will be there to meet it, Knight says . Moreover, a presence in the BTE segment should let Lotus Technology help its customers move more potential end users out of the resister column and into the column of actual consumers. “With the open-fitting BTE, we can make a device that looks more like accessorized jewelry so that people who wear it can feel that the product is something of a fashion statement rather than a source of stigmatization,” Knight says. “We think these are products that can help our audiologist and dispenser customers do a better job attracting some of the 25 million Americans with hearing problems who are reluctant to wear a hearing aid, be it because of the stigma associated with hearing aids in general or because of past disappointment with the technologic capabilities of less sophisticated earlier devices. We feel that, if we can inspire people to view hearing aids differently, to view them in a positive way, then we will have made a major contribution to the success of our customers.”

Cash Infusion
Lotus Technology was founded in 1999 by hearing-aid industry veteran Dean Vang. Earlier, Vang worked for a production laboratory in Minnesota, having helped its founder grow that business until, after a decade of upward momentum, the company was snapped up by an industry leader. Although Vang was instrumental in transforming the company from small potatoes into an attractive acquisition prospect, he did not share in the financial windfall of the buyout. That disappointment prompted Vang to strike off on his own with high hopes of making lightning strike twice—this time for himself and those standing with him. Toward that end, Vang spent a year researching locations that might offer the most hospitable environment for the venture he had in mind. He eventually settled on North Carolina, concluding that it possessed the ideal mix of manufacturing support and customer demographics to make a go of his dream, Lotus Technology.

When Lotus Technology debuted, it was purely a maker of high-end custom hearing aids. It has since evolved into a provider of what Knight terms “hearing solutions,” as evidenced by the company’s increasingly popular lines of noise protection devices and music monitors.

Many audiologists and dispensers who become customers first learn of Lotus Technology from advertising or via contact with the company’s direct-call sales representatives. Others hear of the company by word of mouth. In the months ahead, it will be interesting to see which mechanism ends up playing the more influential role, since the company recently initiated a major marketing campaign that includes hard-to-miss two-page display-ad spreads in important magazines.

That outreach effort is bankrolled to some extent with capital raised by Knight in 2005 from Salem Capital Partners, a private equity fund with offices in Winston-Salem, NC, and Atlanta. While Knight declines to disclose the dollar amount of the procured funds, he freely shares that the money will “allow us to step onto the national stage with investments in marketing, advertising, public relations, and support group participation.When we were entirely self-funded, we were greatly limited in the options we could take; we could only afford marketing outreach to the degree that we were able to sell products. Now, we no longer have that constraint.”

Stay Nimble
Knight looks for Lotus 5 years hence to register annual sales in the range of $30 million to $50 million (a small but growing portion of those revenues will come from international business, led by global penetration of Isis and other forthcoming BTE products in Australia and parts of Europe and Asia, he predicts).

To abet its ambitions, the company plans to replicate its Mooresville operations strategy in key locales across the United States. The idea is to set up a “micro-factory” in each of those regions. Lotus Technology’s headquarters is itself a micro-factory—a slimmed-down, hierarchically flat, direct-ship production plant that manufactures goods for a designated territory and no other (save for special circumstances). “It’s essentially the same model they use at Dell Computers—and you can see what it’s done for them,” Knight enthuses.

Lotus Technology also will significantly expand a secondary business it started about 2 years ago called Hear Direct, a brick-and-mortar retail store that sells hearing aids direct to consumers. However, the growth potential for Hear Direct is limited: The venture is meant to operate only in localities not served by audiologists and dispensers who are customers of Lotus Technologies, Knight indicates.

But no matter how big Lotus Technology becomes, the name of the game will be to retain the best characteristics of a small independent—chiefly, the ability to operate in a nimble fashion. “We’ll have to stay light on our feet,” Knight says, “if we want to retain the strong customer-focused attributes that made us successful in the first place. We will, because nimbleness is going to be crucial to our continued ability to be competitive, to keep driving innovation, to not let up on the effort to purge costs from the system and, above all, to provide our customers the fastest possible response when they place an order with us or put in a call for service support.”

Rich Smith is a contributing writer for Hearing Products Report.