Wednesday, August 10, 2011

Entrepreneurship: Operations vs. innovation

Author: Arlen D Meyers, MD, MBA

I often hear people say that doctors are lousy businesspeople and that if they only were better entrepreneurs or had business training in medical school they would be able to run their practices more profitably and do a better job of "the business side of medicine." I take issue on both accounts.

First, I don't believe doctors are bad businesspeople, whatever "bad business" means. Are critics referring to how practitioners run a practice, how they run their nonclinical businesses or how they invest? In any of those instances, I don't see any evidence that doctors are any better or worse than the general business-person. Everyone makes bad investment and business decisions. Just ask those who gave money to Bernie Madoff. I think most physicians, given the shifting ground of healthcare rules and regulations, do an admirable job of keeping the wheels on and growing their practices. I hear from physician entrepreneurs every day who are creating innovative products and services, adding jobs and value to the marketplace.

In addition, there is a big difference between practice management and bioentrepreneurship. The goal of practice management is to run a medical practice such that it is efficient, effective, scalable, profitable and sustainable. Practice management is the operations side of the business, just like in any other industry. The goal of bioentrepreneurship, on the other hand, is to create value in the marketplace by exploiting biomedical products or service innovation. Practice management is part of bioentrepreneurship but is a means toward an end, not the end itself. Once an entity is created, it needs to run profitably to be sustainable and grow. Practice management is, by definition, a management exercise. Bioentrepreneurship is an innovation, creativity and leadership exercise. Each requires very different knowledge, skills and abilities. Few people, not only doctors, are equipped to do both. Moreover, giving doctors practice management education or all the MBA courses in the world won't necessarily result in more innovation. Entrepreneurship is but one element of innovation. And innovation is but one element of competitiveness, either locally or globally.

At the Society of Physician Entrepreneurs, our focus is on helping life-science practitioners create value and get their ideas to market, whether those ideas pertain to drugs, devices, diagnostics, healthcare IT products or new service platform ideas. Of course, independent medical practices are businesses, admittedly started and managed in most instances by small-business physician entrepreneurs. Some have grown, however, from a one-person operation to a nationwide chain. Examples include medical concierge companies, national telehealth and teleradiology enterprises, a chain of cosmetic surgery clinics, and multiple models of walk-in and intermediate-care facilities that have required sophisticated entrepreneurial skills to make them successful.

Steven Blank described four types of entrepreneurs:
1. Small Business Entrepreneurship. Today, the overwhelming number of entrepreneurs and startups in the U.S. are still small businesses. This applies certainly to most independent medical and dental practices in the US. Like other non-medical small businesses, they hire local employees or family. Their definition of success is to feed the family and make a profit, not to take over an industry or build a $100 million business. They are typically funded by retained earnings.
2. Scalable Startup Entrepreneurship. Unlike small businesses, scalable healthcare and biomedical startups attempt to commercialize drugs, devices, diagnostics, healthcare IT products and expanded service platforms. These entrepreneurs start a company knowing from day one that their vision could change the world. They attract investment from venture capitalists, angels, private-equity groups or other sources. They hire the best and the brightest from around the world. Their job is to search for a repeatable and scalable business model. When they find it, their focus on scale requires even more venture capital to fuel it.
3. Large Company Entrepreneurship. Large companies, such as multihospital healthcare systems, have finite life cycles. Most grow through sustaining innovation, offering new products that are variants around their core products. Changes in customer tastes, new technologies, legislation, new competitors, etc. can create pressure for more disruptive innovation—requiring large companies to create entirely new products sold to new customers in new markets. Existing companies do this by either acquiring innovative companies or attempting to build a disruptive product inside. Ironically, large company size and culture make disruptive innovation extremely difficult to execute.
4. Social Entrepreneurship. Social entrepreneurs are innovators who focus on creating products and services that solve social needs and problems such as eliminating smallpox or malaria or creating organizations or educational programs. But unlike scalable startups their goal is to make the world a better place, not to take market share or to create to wealth for the founders. They may be nonprofit, for-profit, or hybrid.
Using this model, most practitioners are small-business entrepreneurs. Some have a need to perfect their practice-management skills. Some physician entrepreneurs create new products, services and platforms and seek to scale the business for an eventual profitable exit. Some practitioners, such as those who work for large healthcare organizations, seek to improve processes or create new delivery models to drive growth. Finally, some doctors are social entrepreneurs, seeking new ways to solve social needs and problems.

In the end, it seems, all physicians have the potential to be entrepreneurs, developing an entrepreneurial mindset and creating value through innovation. Successful practice management, whether it pertains to operations, finance, marketing or information technology, optimizes the use of resources employed in the process.

About the author:

Arlen Meyers, MD, MBA , President and CEO of the Society of Physician Entrepreneurs, is Professor of Otolaryngology, Dentistry and Engineering at the University of Colorado Denver. He is the cofounder of four companies and is a consultant to several life science, IT and investment firms. Dr. Meyers is a former Harvard-Macy Fellow, a National Library of Medicine Fellow, a Fulbright Scholar and was names as one of the 50 most influential healthcare executives of 2011 by Modern Healthcare Magazine.

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