The Guys Who Trade Your Blood For Profit

Erin Carlyle 6/27/2012

Ben Bowman’s Minneapolis office, in a renovated brick warehouse, is steps from the Mississippi River. But his mind is on a different circulatory system: blood. As usual, he’s thinking about waste—1.3 million pints spoil, he claims, and get tossed every year in the U.S.—and about archaic distribution. “Can the market really be this inefficient?” Bowman asks, his voice rising a bit. “I spent at least six months calling people saying, ‘Tell me why the market’s like this.’ And the answer we got was, ‘This is the way it’s always been.’”

He’s talking about a supply chain that hasn’t changed in seven decades—a system hisGeneral Bloodis trying mightily to disrupt. Instead of relying on collection from local donors, then selling to hospitals within driving distance, why not buy cheaply from centers in America’s vast midsection and distribute overnight to hospitals on either coast, underpricing rivals like the Red Cross?

But it’s not so easy to disrupt a $4.5-billion-a-year business, even a sclerotic one. For one thing, the tide of supply and demand changes as dramatically as Old Muddy. For another, it’s tough to dislodge old ways of doing things—especially in a market where the biggest player, the American Red Cross, controls 44% of the blood supply and has the ability to distribute nationally, depending on the needs of particular areas.

Using one person’s blood to heal another is an idea that’s been around for centuries. But the first network of collection centers originated in 1930, after Moscow surgeon Sergei Yudin resuscitated a young man who’d slashed his wrists by injecting him with 420cc of blood from a cadaver. It wasn’t until World War II that the staggering demand for blood gave rise to a network of regional U.S. distributors, which is still in place today. The system leads to all kinds of imbalances. A pint of blood might cost a hospital $210 in Wisconsin but $265 in New Jersey.

Bowman, 33, can offer pints at an average price of $229. He’s contracted with donation centers along the Interstate 35 corridor—from Laredo, Tex. to Duluth, Minn.—to ship blood by FedEx to hospitals that have agreements with General Blood. Bowman and 30-year-old cofounder David Mitchell guarantee delivery of the mix of types (O+, AB and B–) that hospitals prefer for local populations; blood types vary somewhat by ethnicity (see graphic).

His experience in supply-chain management taught Bowman to squeeze more efficiency out of blood distribution. Before getting his M.B.A. from the University of Minnesota he worked at his parents’ company, Magnum Machining, which finishes high-precision parts for John Deere and Emerson Electric. He opened a maquinaria near Deere’s factory in Torreón, Mexico. Mitchell, a pal from business school, was an investment advisor for Wells Fargo.

The two had little trouble raising a total $52,000 (some of it their own) in the spring of 2010 or another $675,000 in a series A round with Minnesota investors last July. Certification from the feds, to buy and sell blood that meets FDA standards, proved a snap. All they needed was to open up the tubes and let the blood start flowing, right?

“Selling into hospitals is like storming a castle,” says Mitchell. “They’re not built to buy efficiently. There’s so many different stakeholders in each decision that nobody owns a project.” The first hurdle is the risk-averse hospital lab director. Most have never heard of General Blood, and few are impressed with its blood-broker certification.

Even if you get past the lab guard at the gate, you still need an audience with the CFO or whoever is in charge of ordering. Mitchell and Bowman showed up at one hospital in Boston last year expecting to sign a contract only to be grilled by ten or more doctors and administrators—who had no intention of doing any business with General Blood.

The company has snagged only two sales contracts: with a two-hospital system in Charleston, W. Va. and a single institution in Oakland, Calif. Not yet profitable, General Blood last year grossed 18% on revenue of $500,000. By this time in 2013, thanks in part to approval to sell blood in New York and New Jersey, Bowman expects positive cash flow.
There are lingering challenges—a constantly shifting market chief among them. For years hospitals and blood centers operated on the assumption of blood shortages, leading to periodic cancelations of elective surgeries. The recession caused a plunge in such procedures and a surplus in supply. Critics say this gave General Blood an opening: soaking up the excess and distributing pints where they were needed. But when the economy eventually turns and more people have those operations, there will be less need for a middleman.

“We’re projecting that as the boomers get into their 70s, you’re going to see a lot more hip replacements, knee replacements,” says Jim MacPherson, CEO of America’s Blood Centers, a network and trade organization. “We project, over the next five to six years, that blood demand will start increasing again and could increase rather dramatically. At that point there’s no more surplus, [and] General Blood probably goes away.”

Nothing makes Bowman’s and Mitchell’s you-know-what boil faster. They’re quick to point out the American Red Cross’ leaky record on service. Since 2003 the FDA has fined it $46 million for not meeting blood safety laws, including mismanaging certain blood products and violating best manufacturing practices.

Bowman and Mitchell also note the waste in the current system. Government data suggest that 5% to 14% of donated pints are discarded every year. Some spoil in shipping—red blood cells have a shelf life of 42 days, platelets 5 days—some are wasted at hospitals.

They’re also banking on an ambitious plan to offer the first online blood exchange. Collection centers and hospitals could meet to strike a deal on the types and quantities of pints. The open market would determine prices for more desirable blood like O– (which is compatible with all blood types), compared with AB+, which can be transfused only with people of that blood type.

“How much should an O– unit with 18 days left on it cost?” Mitchell asks. “Nobody knows! We know.”

Article Questions

  1. What is General Blood’s business plan?
  2. Explain how the concept of supply and demand would relate to blood?
  3. What issues does General Blood have with selling to hospitals?
  4. How did the recession impact the blood business?
  5. What complaints does General Blood have against the American Red Corss?
  6. Define “archaic” and “maquinaria”
  7. Based on this article what is your opinion of General Blood? Write a paragraph (4—5 sentences) Use at least two pieces of evidence in your response.