Embrace Hearing: reduced price hearing aid venture records profit after four months

Grandmas don’t often come up when you’re talking about startups, but Embrace Hearing cofounders, Ross Porter and Sam Tanzer, got the inspiration for their reduced price online hearing aid venture from watching their grandmothers struggle with hearing aids.

“We both have grandmas who wear hearing aids,” said Porter, a Bay Area transplant who moved to the Rittenhouse area about a year ago. “It was very shocking to me the first time I listened to my grandma talk to me about her whole hassle going through it.”

Embrace Hearing, which is sort of like a 1-800-Contacts for hearing aids, launched in December. Now, about four months later, the company is profitable, Porter told Technically Philly.

The site offers three types of hearing aids at prices approximately an order of magnitude cheaper — they range from $299 to $699 — than the average hearing aid, which cost approximately $4,000 a pair, Porter told Technically Philly. And that’s not a one-time investment. Porter says the average lifespan of a pair of hearing aids is three to four years.

“The big thing in the market right now is the finding that less than a quarter of people with hearing loss who could benefit from hearing aids actually wear them and the number one reason always shown in studies is price,” said Porter. “Number two is stigma, number three is the hassle of going back and forth to the doctor.”

In addition, Porter says, the majority of insurance plans do not cover hearing aids. Medicare does not cover hearing aids either, Porter told Technically Philly.

The duo is able to undercut most hearing aid distributors on the market by partnering with a German manufacturer that Porter says is trying to enter the U.S. market. Porter says most domestic manufacturers enter into licensing agreements with the audiologists who traditionally sell hearing aids and these agreements allow audiologists to bundle the cost of the hearing aid with the cost of any potential fitting and testing services the audiologist provides.

Porter and Tanzer do not have such an agreement with the German company, whose name Porter would not disclose, because Embrace Hearing is purely a hearing aid market place. Embrace Hearing keeps its prices low by separating the sale of the hearing aids from the services, making the medical devices far more affordable.

“We’re very blunt about it’s not right for everyone,” said Porter, who explained that some hearing aid customers may still need a more personalized service. “It’s not right for the person who needs actual care and needs an actual person to tell them every single thing about the hearing aid.”

Updated Mar 20, 2012: Porter writes in to clarify “that customers can still easily see their audiologist for follow up tuning and adjustments, it just won’t be bundled into the initial purchase. Purchasing online from Embrace Hearing is a better option for customers who will not need as many of these follow up visits, and are paying extra for no reason.” He points to an additional explanation here.

Although Porter says the two are bootstrapping the company, they did receive a $1,000 grant from the Wharton Venture Initiation Program. Tanzer is a second year Wharton Business School student and the Embrace Hearing was accepted to the startup incubation program at the start of the 2011 school year, Porter told Technically Philly.

“The nice thing about this business is that it’s not really capital intensive,” says Porter. “We can order individual hearing aids as they come. We have a good partnership with our manufacturer.”

Tanzer and Porter, who have been friends since their undergraduate days at Stanford, decided to go into business together when Porter moved to Philadelphia. The two were on the hunt for an idea when they started considering the hearing aid business.

After conducting some market research, Porter says they learned that only one out of every seven people over the age of 50 suffering from hearing loss wear hearing aids, according to several studies he’s read in researching the business. The two set out to find out if they could provide hearing aids at a more affordable cost, but they also decided to launch a hearing aid blog, which presents the simplified results of hearing loss and hearing aid studies using graphics and plain English.

Porter says the two are hoping not only to reach people like their grandmothers, but also the community of digitally literate hearing loss sufferers avoiding hearing aids for one reason or another.

“It is stuff that hearing aid sufferers would definitely want to read,” said Porter. “There’s not a lot of places where people can get this information.”

So what do a couple of Bay Area guys think about launching their startup in Philadelphia?

Porter says, thanks to Wharton and the tight knit community here, he thinks the company has gotten far more support than it might have in Silicon Valley.

“There is a lot of communication through the VIP program where we get a lot of local entrepreneurs, angel investors, and venture capitalists that come and give talks,” said Porter. “It’s very direct communication with them and it’s probably something you wouldn’t really see in Silicon Valley because there are so many people out there with their ideas that they’re trying to get across.”

Being in Philly, Porter says, has given them a unique angle and helped them reach the Philadelphia hearing impaired market more easily. Not long after Embrace Hearing launched, the two were named to the Philadelphia Business Journal’s list of 30 entrepreneurs under 30.

Porter, 26, and Tanzer, 27, plan to stay in Philadelphia, at least for the near term, Porter says, though their ultimate goal is to scale Embrace Hearing to reach a national market.

“I think you will see a dual standard of care emerge,” said Porter. “There will be people who want to pay the premium to get the higher standard of care, but there will be the more affordable easier option out there for people who are more self-sufficient, more independent.”

Porter says he and Tanzer plan to continue to iterate on the business and the blog, improving customer service and building out their hearing loss community.

In the meantime, they must have some very proud grandmothers.