I try my best not to be overtly political on this blog. The reality, however, is that the health care reform debate (and what eventually results from it) will have a major impact on several of our portfolio companies. In addition to the technology sector, we have a heavy focus on early and early growth stage health care services and medical device companies. All of these companies have dedicated teams working hard to build incredibly innovative products and services, many of which speak to the growing need to contain costs and provide better patient care at lower cost. And so, it’s hard for me to stay out of the debate.
I’m not going to go into the broad issues related to the health care reform. Should we have a government provided insurance option? Should we provide for limits on access to end of life care? These are important questions, no doubt, but they are ones that we elect government leaders to debate on our behalf and come up with solutions that make sense. And so how has the debate devolved into a shouting match between representatives of the hard left and the hard right? I would posit that this “teachable moment” is a grand case study on what can go wrong when leaders fail to lead. Unfortunately, this particular failure in leadership is playing out at a time when the stakes for so many Americans and American enterprises is so high.
My harsh critique (fair or unfair):
- It’s OK to set a stretch goal. It’s not OK to assume followers will know the right way to reach that goal. When JFK set what many consider to be the most audacious goal ever established by a US President, to get a man to the moon before the end of the 1960s, some laughed, some were inspired. But the administration took the goal very seriously – read the history books and you’ll find that the Kennedy administration took great care to bring in the right people to see that mission through. They went to Capitol Hill and got funding for a fledgling space program by building consensus, pitching the need to stay ahead of the Russians in the space race. They (and the subsequent Johnson administration) saw to it that the right caretakers of that objective were in place, that they had the adequate support, and that they knew the administration’s objective. With what many consider one of the great mandates for change in American history, President Obama had the opportunity to do the same with health care – he had a chance to bring in the important players and say clearly “here’s what I want to get done, now go make it happen”. He didn’t. He tried a classic style which has repeatedly failed so many leaders – throwing out the challenge, and believing that followers will find a way to make it all work. “I’m going to bed. When I get up, I am assuming all this will be done”. Wrong – go talk to any great leader and ask them if they’ve ever had any success doing things that way. Effective leaders set big goals, but they also get specific on the best ways to reach those goals.
- Quality is almost always better than quantity. When I was Student Government President at Georgia Tech, I got some great advice from a great friend – “you’ve got one year”, he said, “Do one or two things really well.” That might be the best advice I’ve ever received. My first day in office, I had that one thing – Tech needed an honor code, and if it killed me, by the time I left office, we were going to have one. Sure, other priorities suffered – student advocacy leading up to the 96 Olympics, parking issues on an urban campus, the need for a new student athletic center. But we put every ounce of energy behind something important, something we believed in, and it got done. Tech is better for it. I know, I know – SGA at Georgia Tech isn’t quite as important as the US Government. Just hang with me on this. President Obama decided early on that within his first year, he would pass the largest government stimulus bill in American history, cap and trade legislation, increased troop levels in Afghanistan, and oh, by the way, health care reform. I applaud his aggressiveness, his sincere belief that many of these issues needed to be addressed quickly. The problem is that the one issue that he knew would take the longest to resolve, health care, will most likely be the victim of his ambitious first year agenda. Many believe that the only thing he should have focused on this year is the economy – not sure if I can come up with a good argument against that. But for crying out loud – the idea that amidst the worst economic downturn since the Great Depression, he could tackle all of these issues adequately… well, it’s some combination of hubris and foolishness. Regardless, it’s a failure of leadership. It’s some young political consultant who doesn’t know how the world works saying, “Mr. President, you’ve got to make all this change at once. It’s the promise you made to the American people”. Wrong - a promise to change is not equal to a promise to change everything all at once.
- Most Americans want smart, rationale, centrist statesmen. For all the bombast of the extremes on each side of the aisle, the reality is that most Americans want Jack McCoy. You know, the Sam Waterston character from Law & Order. Somehow, he can always figure out how to reconcile the major political differences between a liberal ADA and the right wing agenda of DAs like Arthur Branch played by Republican Presidential candidate Fred Thompson. He’s our guy – hard on the issues that he should be hard on, soft on the issues he should be soft on. President Obama is smart enough to understand that political success is derived from finding that middle ground and grabbing it with both hands. President Clinton was a liberal, but could tolerate and embrace the Southern inspired conservatism that took over Congress in 1994. Monica Lewinsky notwithstanding, he was a successful President as a result. Ronald Reagan is seen by conservative historians as a Moses character, responsible for ensuring that America “saw the light”. The reality is that for all of the ascribed conservative labels, Reagan knew how politics works. You can bet your bottom dollar he shared many a glass of strong drink with his Irish brother, Tip O’Neill as they debated the issues of the day. The debate was rarely dirty and personal. It was pragmatic, respectful of the powers that ruled the day. Statesmen do that – they understand first, act second. President Obama has failed to do that. He still has a chance to be a great statesman, but it will require a sea change in his attitude toward real concerns on the other side. Do that, Mr. President, and you might be surprised how many smart Americans support your efforts and quell the loud voices from the extreme dissidents on both sides.
And so there it is… I’m sure I have completely peeved off those readers who believe Obama can do no wrong, and those who believe he can do no right. No matter – health care reform is needed and needed badly. We need statesmen in Washington willing to truly cooperate with one another to build a real plan, even if it means putting their political career at risk. President Obama still has an opportunity to inspire those around him to do just that, but time is running out…
Stay tuned…
{ 4 comments… read them below or add one }
Clint Hauser 08.13.09 at 3:27 pm
Thank you for that very well thought out post, Greg. I think it hit the nail on the head for a lot of this, getting to the core of things that have pushed it to the contentious issue we have now.
Greg Foster 08.14.09 at 7:21 am
Thanks, Clint. After I read back through the post, it sounded pretty negative. I hope folks understand the larger point - this is an important issue that, with the right leadership, can bring people together to get something done. President Obama has the smarts and the capacity for this kind of leadership. I think he believes that most of his leadership energy has to be focused on talking to the American people. Another big chunk of it needs to be focused on getting Congressional leaders to work together more effectively.
Mark Schultz 08.14.09 at 9:03 am
Good post. While I did not vote for him, I believed that he was a smart, articulate person who while lacking in real leadership experience, could surround himself with enough experience and grow into that role. I still think he can do that but I have been disappointed thus far. The one comment/criticism I would add to your points is that for someone who is so articulate and believes so much in the power of words, I think he is naive when it comes to the overall tone he sets with some of his more angry speeches. When people hear the President telling people to “stop talking and get out of the way” and things like that, it does not lead to more reasoned, rational debate.
Don Rottman 08.28.09 at 10:15 pm
While this is going to be a testament to the Obama approach to healthcare reform, I am going to attempt to bring this around to an application to venture capital/venture development.
Most people have the heard the story of the professor that takes a jar, puts big rocks in, asks the class if its full….proceeds to put in pebbles….asks the class if its full…..puts in sand….asks….then puts in water.
Though it sounds bold, Healthcare Reform in any form that is being proposed CAN’T work (without significantly screwing it up for everyone). Most of the things that are getting the attention are NOT the big rocks. They are focusing primarily on the small branches of the tree, not the roots, trunk, or main branches.
I make this analogy: You can build a 500hp muscle car, put a custom paint job on it, an Alpine stereo…..if that car has no wheels, it isn’t going anwhere…end of story. The wheels in this case are the physician providers. You can give access for care to these millions of people, but who is going to take care of them? The AMA reports a current shortage of 75,000 physicians. This is predicted to be as high as 200,000 by 2020….without any kind of healthcare reform. There were caps put on graduate medical education programs in 1996 that limit the number of physicians. Even if this were expanded significantly tomorrow, it takes 8 years to “farm” a doctor. Think we can just import more? Guess what, 1/3 of the current physician residents in the United States are foreign trained medical graduates. Given visas and such….not a tangible option. The only plausible way to fill the already apparent deficit of primary care physicians is to agressively expand the mid-level provider training programs (physician assistants and advanced nurse practitioners) which still have a “farming” time frame of several years. Thus, the “big rocks” being “who provides the care?” has no short term solution and none that have been publically heard of, though there must be some provision, there is no way to meet the demand in the next several years. What this means is a diminishment of the quality of healthcare experience and access to providers of 90% of the population for the sake of the 10% (a more realistic figure than the 15%).
Another X factor along those same lines: Physicians are pushed around and beat up financially like no other group in this equation. The government makes a cut in Medicare reimbursement and physician’s income goes down. Most physicians have already experienced cuts and are anticipating a 10-20% drop in their compensation in the next year or two. Their representation on capital hill sucks. They almost unanimously feel the AMA has rolled over. Not more than 30-35% of physicians belong to the AMA and most of those are primary care docs. Each specialty has its own “academy” they belong to. Many of those fight with each other on different clinical matters. Thus, their representation in regard to lobbying power is very fragmented as compared to the hospital, insurance, pharmaceutical, device companies. What’s the result? Physicans are tired of being beaten up. When you see the stock market get back over 10-11,000 you are going to see a mass retirement.
The deeper dynamics of this are a longer discussion about how much they make and such. The reality is that if any other group of people in the United States had their income so drastically affected, they would organize and strike. There is a way of going about decreasing physician compensation that would be more predictable and more fair. Also, their reimbursement goes down….all their other costs are continuing to increase.
Back to the big rocks. Tort reform and the necessity of physicians to practice defensive medicine is ridiculous. To cover themsleves from lawsuits, physician order many tests that they know aren’t necessary. Malpractice insurance is a phenomenal part of their cost structure. Tort reform is an absolute must. This alone could allow physician reimbursement to be lower, and they could retain their income.
Another big rock: administrative waste. There is no other industry as goofed as healthcare when it comes to charging 20 different customers the same thing, but expecting 20 different reimbursement amounts. Then each side of the equation has an administrative police squad trying to maximize and minimize for their benefit and the deficit of the other. There needs to be a different way that insurance companies compete and a greater congruence to the administrative and reimbursement dynamics. This would take massive costs out of the current system.
This is enough to make a point. To bring this to the venture capital/venture deveopment application. How on earth with the amount of scrutiny that funding sources do, the “due dilligence” that goes on, can 80%+ of these things fail? Am I wrong in this statistic?
I am going to jump out and risk offending most of the industry, but I’ve been cooking on this theory and will confess that it isn’t complete yet, but this is a blog and not a publishing house (though by the end of this it could become and arguable point). Most venture capital firms, investment bankers, bankers, etc. are finance guys/gals. This is the predominant background. What is the predominant personality typologies of this group of people? More introverted, very organized, not overly creative, very structured, more rigid, very compliance driven. There are “formulas” you are taught and follow. There are exceptions to all, and all will think they are the exception….just roll with it for now.
Secondarily, now many venture guys/gals, investment bankers, bankers, etc. have worked in other operational environments? Of what size?
What comes from this?
1. They all recognize that leadership teams are of incredible importance. How many executives in their experience have they interviewed….really interviewed? There is an art to this. A sub point to this that could have another full dissertation is the level of executives that statup and early stage organizations can afford to hire. Many times the company’s growth rate out paces the executive’s ability to personally/professionally grow and are passed by. This is virtually never caught and adjusted at the right time, but when it becomes too apparent too late.
2. Understanding sales organizations, sales cycles, buying sensitivities of the constituents. Again, more complex to dive into, but the better software system doesn’t mean someone is going to buy it. You have to understand much more than what is imperical, on paper information about the industry and the market that a venture is going to play in. I question how many really “get this”, but I have seen many deals from the sideline that should have never been funded based on this, but instead, just go sell what you have to someone else in the market and get what you can for it vs. trying to compete where you can’t.
3. The spotlighted, sexy space that so many are in, that people “know” that industry or market…..too crowded for meaningful differentiation. Wow, this is human nature 101. I recently read of a $3.5M funding of a company in a space that is fairly developed. There is nothing apparent about this company that stand out that it can ever become dominant in their space. There are much larger companies, a fairly developed market, and even though they may offer some information managment, there are others that are bigger and much further along with the same things. Even if they do it a bit better, it may be enough in some head-to-head competitive bid situations, but the market isn’t one that leaves one provider to jump to another unless the first is doing something drastically wrong. One of the industry leaders, publicly traded, had a 7.4% gross margin in 2007. There’s not enough extra meat on this bone. Analysis: Why? Unless it was a “safety” move, and they most likely won’t lose money, it is limitted in its ability to grow and in a very crowded “catch the wave” competitive space where price has become the sensitivity, translating into margin pressure. Again, with the amount of deal flow and things not getting funded, “why?”.
The point of this point…..I see that venture guys/gals, etc. group more interested in the “easy” thing of buying 2 karat diamonds that have been cut and just need some polishing vs. looking closer at the bigger diamonds that have just come out of the ground, are rough, and need a bit more investigation…..something less “sexy or spotlighted” but offer more potential value upside and even with less risk. However, too many things just get dismissed because they take a bit more investigation to understand a market or niche.
Everything you read points to venture capitalists by nature looking for home runs…..or even grand slams. I would contend that statisticaly, most would be pretty darn happy with a bases loaded ground rule double…..3 RBIs and cruising into 2nd base.
Summary/Conclusion….finally? Get the big rocks right FIRST. Be willing to question approach vs. activity level. If you are following an industry of 80% failure rate….can you articulate what you are really doing differently than the rest? I call it the “everyone is above average” phenomenon. By definition, 50% are below average. Yet, not a soul I know, if they were to be given a bell curve and asked where they fall, will put a mark below average: Can you articulate how/why you are better than at least 50% of everyone else?
I digressed….but I’m good at it. I hope I gave some information, perspective, and some food for pragmatic thought.
When did anything really revolutionary or exceptional follow the formula of others?