Reza Zadno’s Secrets to Success
What’s the secret to success? Believe in yourself, work hard and build relationships…
At least that is what Reza Zadno thinks. A few weeks ago, eight Biodesign Alumni had the privilege and opportunity to sit down and have an intimate conversation with Reza, a successful medical device entrepreneur whose credentials include the founding of two successful medical device startups, PercuSurge (purchased by Medtronic) and Visiogen, a service management software which was acquired by Abbott for $400 million last year. Over dinner, Reza shared his story with us and recounted the lessons he learned along the way. Needless to say, we paid close attention. Below is a brief distillation of the lessons and advice Reza has for all of the aspiring entrepreneurs out there.
If you are a hungry but inexperienced entrepreneur, you may benefit from partnering with someone who can raise venture money and has demonstrated that they can run a company. In today’s environment, demonstrating this typically requires having a successful exit under your belt. When raising money, Reza has never written a conventional business plan. What he does do is build a quality team to support him and makes sure he is thoroughly prepared before asking anyone for money. “Before you go in to raise money” he explained, “you should know the answer to every question that is going to be asked.” This can be a lot of work, but as Reza says with a lighthearted, yet earnest tone: “everyone works on Saturdays. Sundays make the difference.”
“In a startup, you need to passionately believe!” Sometimes this requires taking a chance and following your instincts, even when others say your gut instincts are wrong. Case in point, with Visiogen, Reza made the decision early on that the accommodating lens they were developing needed to be packaged in a pre-loaded injector. Everyone, including experienced executives and engineers told him that it couldn’t be done. Most major players in the industry had already tried and failed. Reza pursued a pre-loaded injector anyways. He hired a rockstar engineer from outside the ophthalmics industry to build the injector. This insured that pre-conceived notions about technical difficulty wouldn’t cloud the developer’s mind. When they were successful, this pre-loaded injector was a key selling feature and helped Visiogen gain traction in the market.
In addition, do not underestimate the importance of intellectual property. “Patents are swords, not shields.” Reza’s patent strategy at Visiogen was to break up the device design into components and file patents on each critical component in addition to the entire device and method patents. The benefit to this strategy is that it creates multiple walls/swordsmen which can become very hard to go around. With such a patent strategy even if a competitor is able to go around to the other side, they will end up with a suboptimal solution.
Building a company
It is critical to start building relationships with physicians as soon as possible. It takes time for the surgeons to become familiar with your company, trust your technology and solution and use your product on their patients; this could be as long as 6 months. If you cannot reach the thought leaders it is sometimes faster to work with the younger up-and-comers. The key is to find the young intelligent docs who understand the pathophysiology but can also think outside of the box and who are also great surgeons. The established thought leaders may not have enough time to spend with you during the development phase, but you need to find them and work with them since they have a great perspective on what has been tried and what will be adopted. If you are lucky, you will be able to have a combination of the two groups.
Another huge piece is team building. Hiring employees is the most difficult and critical part of running a company. Reza starts this process well before money is in the bank. It is not uncommon for Reza to interview 30-40 applicants before committing to a hire. Once you find the right people you do whatever it takes to keep them. With Visiogen, Reza identified three key employees that lived in Southern California but he could not convince them to move up to the Bay Area. Since the employees would not come to the company, Reza decided to bring the company to them and moved the company to Irvine and commuted to Southern California for 9 years. “You have to make the right decision for the company and everything else will follow.” Reza mostly hires from established companies because employees from commercial companies know how to design a product that can be sold, not just a product that works. How do you know if a product is designed well? “A good product is one that is easy to make. A bad product is one where the engineers say “Oh my god, we need to build this!”” His strategy is to find talented individuals who feel constrained by corporate policy, are looking to focus on innovation and are not just trying to collecting stock options. When interviewing, he tells each of the potential hires “Don’t join a startup for the money.” It should be noted that firing is as equally important as hiring. “If you hire the wrong person, you will lose at least 8 months.”
Managing the company
A startup CEO needs to run his or her company like he is balancing a stool with three legs. The three legs are employees, investors and customers. A successful CEO can manage all three.
Employees are the strongest assets of a company. Reza feels that it is very important to create a culture of trust and openness and accountability. Every employee should be in the loop and know what is going on with the company. The team should participate in setting the goals and timelines. This is the only way that they can be held accountable. If employees do not know what is going on, they waste valuable time trying to figure it out. The exception to this is a potential acquisition. He believes that is just a distraction for employees and would slow down the progress and potentially shut the company down. “It is human nature, once the diligence starts people begin thinking about the dollars.” To emphasize this, he required potential acquirers perform site due diligence after hours and when the employees had left the building.
“The most important things when trying to raise money are a strong management team, preparation and most importantly a very complete and coherent story. If you have existing investors that are strong, supportive and completely aligned, fund raising becomes much easier “…the longest Visiogen was on the road was 56 days to raise money…””. It is critical to manage the expectations of the board members effectively and understand their questions. Clinical trial delays or design failures can cause anxiety, however you need to identify new solutions, update your budget and understand the consequences and take proper measures if necessary. Sometimes it is more effective to meet with your Board Members one-on-one before the meeting to understand their expectations. In addition, Reza spent a lot of time building relationships with potential future investors so that they get to know and trust him and the technology before they considered investing.
You need to listen to the customer. The customer is the main reason we all go to work every day. It is sometimes hard to delay project timelines in order to make an improvement in your product. You have to make those tough decisions. When the company is small it is easier to capture all the feedback. You need to implement procedures as soon as possible that enable you to actively seek and collect customer comments and feedback into the company. When you get ready to sell your product it is critical to have a thorough commercialization plan prior to the product launch. To do this, Reza made a key decision to hire an executive with a strong commercialization experience over ophthalmology experience.
Getting your company acquired
Reza does not think of an acquisition or an IPO as the end of the road but rather one step closer to producing a profitable product. Partnering with the right strategic can accelerate product introduction into the market due to an existing sales and marketing channel.
Regarding acquisition, Reza doesn’t believe in shopping a company. “You never sell a company, a company is acquired.” You should be busy creating value and advancing the product. However, just as with potential investors, it is important to start building the relationships with the strategics early on and give them enough time to develop an interest in the company.
You need to have access to financial advisors throughout the life of your start-up. In the beginning you can get help from your corporate attorneys, your board members, CFO or acting CFO. As the company matures you may need to interview various firms who provide this service or bankers for this purpose. You need to have a strong team before you begin an IPO or enter in an acquisition process. This includes the board, the employees and the management team, audit firm, IP attorneys, corporate attorneys, M&A attorneys and the bankers. “Never bluff during diligence or negotiations. You can lose credibility”
Sometimes you may have to change your bankers or attorneys to strengthen the team. These are tough decision but you have to make them. It is not any different than changes you make to the organization. Some bankers or attorneys may be stronger in an area but not in the field that you are looking for at a specific time.
It is important to note that Reza admitted that today’s environment is very different and one can not apply directly all the lessons and expect success. Nevertheless one rule remains the same. If the entrepreneur can passionately demonstrate that his/her product addresses a true need in a large market, team building and fund raising are still possible. Believing in yourself and building strong relationships are timeless habits of success, regardless of the environment, and should be practiced as such. The changing environment that we live in today can either be viewed as an obstacle or an opportunity. As aspiring Medtech innovators, we see it as the latter.