Don’t Tax the Medical Device Manufacturers to Pay for Health Care Reform

Health care reform is a great thing.  While the numbers of uninsured Americans are debatable – most say overinflated as a result of people that choose to “self-insure”, it is clear that there are too many people in this country that do not have access to basic and essential medical care.  In addition, the overwhelming number of uninsured people that show up in urgent need of medical care are shouldered by the increasing premiums of those that can and do pay for health care.  We need broader access to health care in this country and a better system of providing it.

That being said, it makes no sense to tax the medical device manufacturers to help in paying for broader health care.  This is an ill thought out solution that will have a disproportionate negative impact to the State of California and the global competitiveness of our nation’s medical device industry.

Max Bacchus (D-MT), the Chairman of the Senate Finance Committee, has suggested a $4B per year tax on medical device manufacturers. Since the majority of medical device companies are located in California, this tax will have a disproportionate impact on Californians.  Companies faced with this burdensome tax will be forced to reduce their expenditures on research and development, with an ultimate impact of reducing innovation, and a loss of jobs.  In addition, the job loss of medical device manufacturer’s R&D organizations will have a 2-3 fold trickle down effect on service  providers that support these R&D organizations.  Most notably, the R&D spending reductions will impact the national state of innovation in an industry where the US has held a global competitive advantage for a long time.

We’ve all seen the impact of the automobile industry, the steel industry, and the computer industry moving off shore.  We can not afford to allow this to happen to the medical device industry as well.  Expanded health care coverage is a great thing and I am totally supportive of President Obama’s goal to reform this system.  However, complex problems require thoughtful solutions, and the problems we face with our health care system will not be easily solved by taxing the innovators.

The Sum of the Parts

In business, in sports, in education, we always look for the synergies that make the proverbial “whole greater than the sum of the parts”.  You see it a lot in professional sports – the dysfunctional team full of superstars overthrown by a group of average -  but synchronized – teammates.  In business, we try to orchestrate teams of individuals that work well together and accomplish more than we expect – ahead of schedule and under budget.  In the University setting we are frequently amazed by researchers that stand on the shoulders of giants who have come before them to make incredible breakthroughs.

Synchronistic additive gains are also accomplished by individuals with portfolios of collective experiences.  Individual contributors can easily teach a task and managers can often coordinate the activities of multiple people – but leaders combine collective experiences, digest, and find new ways of accomplishing goals and objectives.  For 25 years I have been fortunate to have worked with truly exemplary individuals, and have learned from several visionary leaders.  I feel as though my collective professional experience is one of my greatest assets – and one of the things in my business life that I am most proud of.

I have been working with the team at OCTANe for four months, and, in all sincerity, I am becoming a better business person because the depth of my experience is increasing.  This is a result of people that I have met, and the corresponding exponential ability to draw not only from them, but also their networks.

Before OCTANe, I knew most of the big law firms in So Cal.  I understood their strengths and weaknesses, and maybe even knew a partner from one or two.  In the last four months I have met and worked with three or four partners and associates from each firm.  In so doing, I have a deeper understanding of their capabilities and their cultures, and my ability to deal with complex legal issues has increased dramatically.  Similarly, I was familiar with the Big 4 accounting firms and three or four smaller firms that were also very skilled.  In the last four months I’ve learned the respective foci of their consulting practices as well as met most of the local managing directors and general partners.  My knowledge of financial planning and analysis has not changed significantly, but  my ability to get things done has grown by leaps and bounds.

I’ve similarly met entrepreneurs that have taught me about digital advertising, manufacturers that have taught me about building quality products for oil exploration, and consultants that have shared their expertise in internet marketing, conducting clinical trials in Switzerland, and building hydrogen fuel cells to power next generation automobiles.  It’s unlikely that I will ever be able to personally do any of these things, but in four short months, my ability to get any of them done has increased significantly.

Prior to joining OCTANe, I vastly underestimated the true power of networking.  And in the last four months, I have gained a true appreciation for how meaningful a business network really is, how easily it can be cultivated, and how impactful it can be as a business leader.  My network has not grown as a result of my position, but rather as a result of my involvement with OCTANe – and, at the risk of sounding promotional, it is readily available to all OCTANe members.

OCTANe’s mission is to catalyze the development of innovation through networking and education.  All of our weekly events, as well as our LaunchPad accelerator, are designed with these objectives in mind.  Our goal is to exceed expectations for quality, professionalism, and support.  And we do this because we believe in what we do, that Orange County is a great place to live and work with the potential to be even better, and that two plus two can equal five.

Does “community” fuel innovation?

Ask a random person walking down the street in Boston who won last night’s Red Sox game and you will not only get the box score, but likely to get that David Ortiz went 3 for 4 with a single, a double and a game winning homer in the 10^th, or that Tim Wakefield is going to get a cortisone shot and will hopefully rejoin the starting rotation next week.  There is a tremendous feeling of community in Boston, and everyone that lives there is proud to be a member of the community.

Boston also has a vibrant high technology and medical device eco-system.  The combination of inventors, entrepreneurs, consultants, and investors all work collaboratively to help each other be successful.  Clearly, everyone is motivated by their self-interests, but also, they are prideful of the eco-system that they have developed and are committed to maintain its vibrancy.

Ecosystem development is what we are trying to accomplish in Orange County through OCTANe.  Our simplified mission is to help new companies get started, by networking through our Orange County ecosystem.

Through our programs and our LaunchPad process, we unite inventors, entrepreneurs, strategic advisors, and investors.  Our goal is to help the elements coalesce into critical mass, and fertilize the start of new technology entities.  In the process, all of the constituents share the benefits – inventors and entrepreneurs build new companies, advisors expand their clientele, and investors yield returns on their investments.

A critical requirement to make all of this work is community involvement, and the pride in accomplishment when all the processes come together.  With this the recognition that we will all succeed, or fail, together.  Our nation and our state are facing economic challenges, but previous economic recessions have been mitigated through technology explosions.

OCTANe is a focal point, a meeting place for all of the elements to come together – and working together, we can impact the speed of the economic recovery.  We need to assume the responsibility that goes with Orange County’s position as a national leader in the development of medical device and high technology products and services, and work collaboratively to ensure that our leadership position is earned, and maintained.

The Angels lead the American League West with a 6 game lead over the Rangers.  Center fielder Torii Hunter is having the best hitting season of his 12 year career, batting .315 with 19 homers.  Ervin Santana (6-2 on the road) is expected to take the mound tonight in Seattle.

The Right Time

Finding the perfect time to do anything is frequently a challenge.  I’m never quite sure when to buy a new cell phone.  I always want the latest and the greatest, but the early adopters always pay a premium.  Should you forgo the technological improvements in order to wait until your contract is due, or bite the bullet and pay full price for improved functionality?  It’s hard to undervalue improved productivity, but are these really features that make a difference?

The stock market is even more challenging.  The volatility in the recent months has made securities investing riskier and harder to swallow.  Countless people have watched portfolio values cut in half, when long proven technical wisdom suggests that securities values always increase in the long term.  It’s hard to self-justify that our economic downturn is just another bump in the road.  But obviously, there are some undervalued equities out there, and clear thinking opportunists will profit.

It’s the same with entrepreneurship.  There are always good reasons why this is not the right time to pursue a new opportunity or start your own venture.  At the same time, change always opens the door to new possibilities.  The wrong time for one person represents the sweet spot of golden opportunity for the next.

At OCTANe we try not to encourage people to take new risks, but rather, try to help those that are committed to finding new opportunities.  Unemployment rates and “under-employment” rates (referring to those that are working in situations that fail to utilize an employee’s full potential) are estimated at 15-20%.  At the same time, the pool of available technical talent is arguably at an all time high.  Investors are wary of unproven technologies and reluctant to fund companies that don’t have a clear pathway to exit or commercial success.  At the same time, there is a pool of un-invested capital sitting on the sidelines looking for the right opportunity.  Simultaneously, companies looking to maintain focus in their strategic directions are divesting valuable technologies at discount prices.  Universities, in the face of reduced public and private support, are still the epicenters of innovation, and are highly motivated to license new, inventive technologies.

So, while I am not sure if I should purchase the new iPhone 3GS, and while it’s hard to stomach the volatility of the S&P 500, I am convinced that innovation will be the catalyst of our nation’s economic recovery.  And while there are many good reasons not to start a new business in 2009, in many regards, the variables associated with success are highly supportive of entrepreneurship.

At OCTANe, we act as a networking hub to combine talented individuals, innovative technologies, and educated investors.  Our goal is to help new companies get started, assist young companies in achieving their desired success and profitability, encourage the creation of new jobs in Orange County, and ultimately aid in our economy’s return to stability, growth, and prosperity.  This is the right time for OCTANe.

The customer is a pain in the…

Interestingly, the downturn in the economy seems to be pressure- testing individual business owners’ commitment to customer service.  It’s all too easy to try and save money by neglecting the things that contribute to short term operating expenses, but some of these short term expenses are also the main drivers of long term profitability.

A few weeks ago I took my car to the local car wash for a detail- generally $50-$150, depending on the degree of auto pampering you’re looking for.  I’m a car guy, and I relish in keeping my cars auto showroom clean.  I recognize that I should really be cutting back on some of these luxury services, but I have a 50 mile commute to the office, and for those two hours a day, to and from OCTANe, my car is my office.  I want to feel good about my work environment, so I suck it up and pay for the quarterly detail.

So, when I went to pick up my car, much to my chagrin, I noticed that the rear tail light cover was missing.  After questioning the car concierge, he went back into the wash and emerged with my broken tail light cover – apparently an unsuspecting casualty of the automated wash.  Not one to get overly wound up with life’s little annoyances, I chalked it up to an accident, filled out a car wash claim report and went on my way.  I was told that the general manager would be in later that afternoon and he would give me a call.

When I failed to hear from the GM, I called the car wash and was informed that he had come and gone.  I missed him, and they failed to live up to their commitment to call me.  Never mind, I figured.  I called the local dealer and made an appointment to have my tail light repaired the next day.

The dealer was sympathetic and remarked that this happens a lot, and if I wanted to wait, he could fix it for me in under an hour.  I left the dealer happy that my car was back to it’s showroom condition, freshly detailed from the day before, and tail light proudly in tact.  I thought the minor accident was done with, figuring that I would bring the receipt by the car wash, and, with the exception of an hour or so of my time, the incident would be behind me and my car would be no worse for the wash.

The next day I dropped the receipt by the wash and, again, asked if the GM would give me a call to discuss.  I waited a couple of days, and still, no word from the wash boss.  I called on the third day, and, again, was informed that he wasn’t around and he would give me a call.

On the fourth day he returned my call – and seemed to be annoyed that I had been bugging him.  While he didn’t come out and say it, I felt he was thinking, “why can’t you just be patient and I will call you when I get a chance – I’m busy!”  When I did get the chance to bend his ear, I nonchalantly described the situation and that I had the tail light repaired at the dealer.

“Oh, you went to the dealer,” he remarked, “Those guys always jack up the bills.  How much did they charge you?”

“Two hundred and fifty bucks,” I responded.

“TWO HUNDRED AND FIFTY DOLLARS?” he returned, seemingly amazed at my stupidity for going to the car dealer that manufactures my car to get it repaired.

I explained that I just wanted it fixed and was anxious to get it back into road worthy condition.  “I could have had that fixed for a lot less,” he continued.  “I have a body shop that does these repairs for free, and I can just buy the part and have my own guy install it.  I pay the body shop guy in car wash credit and I only have to pay for the parts.”  I commented that if he was paying him in credit, he really wasn’t fixing it for free, but this didn’t seem to make sense to the manager.

I was amazed that he was making me feel like I took advantage of him when, after all, it was his car wash that broke my tail light.  I wasn’t looking for compensatory damages, just reimbursement for getting my vehicle back on the road.  He suggested that he compensate me in car wash credit, but I remarked that I would just like to be reimbursed for the money I had paid to the dealer and I would happily go on my way.  We debated back and forth for a while and, becoming increasingly frustrated, I asked him to think about it and to do what he thought was right, respecting the fact that I was his customer.

About two weeks later, I still hadn’t heard anything from the car wash and re-started my telephone campaign to again speak with the master of the buggy bath.  I made three phone calls on three successive days and still could not get the manager to call me back.  Finally I received a check in the mail with a terse letter explaining that he decided to reimburse me for the part and deducted the labor from the bill.  I got a check for about $150.

I was actually OK with the monetary compensation, but incredibly frustrated with the process.  If the manager had at least been respectful and diligent in returning my calls, or at least a bit conciliatory in suggesting the solution, I would have agreed and understood his position.  In contrast, it was nearly impossible to get him to return my calls, and he fought me the entire way.  I would have also been OK if he said, “I’m really busy and won’t be able to get back to you for a few days,” or “I’m really busy and I need my assistant to handle this.”  But rather, he failed to communicate and became annoyed with my persistence to get him on the phone.

I understand and appreciate the fact that car wash revenues are probably down, and they need to watch every operating expense in order to preserve their profitability.  It’s been two months, however, and I have not been back to the car wash since the tail light controversy.  We have three cars in our family and get each detailed about once a quarter.  By my calculations, 3 cars x 4 details a year x $100 = $1,200 per year in lost revenue.  I may have lost the battle, but am comforted by the fact that I had my vindication in the auto detailing war.  In addition to the personal satisfaction in telling my side of the story (I’ll be sure to add the manager to the OCTANe mailing list), my frustration with poor customer service illustrates an important point.  In these trying economic times, customer service is often sacrificed. It is crucial that we recognize our own vulnerability to the easiest fix or the least expensive path with our own business relationships.  Let’s agree to embrace our combined belief that it’s our relationships and our “above and beyond” customer service that is a critical factor in driving long term profitability and ultimately, the success of our businesses.

If you understand, you’re falling behind the curve

Last week I attended the OCTANe program on digital advertising, and aside from the frightening Orwellian aspects of the evolving internet, I was absolutely fascinated and overwhelmed by the information revolution and the new business models that it conceives.

OCTANe's Digital Advertising Program

One of the companies presenting was Brand Affinity Technologies (BAT) and their CEO, Ryan Steelberg was not only charismatic, but also thinking 3-5 years ahead of most of my contemporaries.  The second presenter was Mike Hodges from Freedom Communications, the parent company of the Orange County Register and 20-30 other newspapers.  By the end of his talk I felt like such a prisoner of antiquated technologies, I canceled my print subscription to the New York Times the next morning.

Charlie Black from Specific Media presented on how advertisements on the internet were becoming user specific.  I always thought that it was uncanny how the internet pop-ups seemed eerily targeted.  Now I understood my own stupidity and that this was on purpose.  I was so looking forward to Scott Christensen’s presentation from CBS Outdoor Advertising anticipating that I had to have a good general understanding of the business model for billboard advertising.  I was crushed when the conversation turned to using cameras to monitor the eyes of the people looking at the billboards, and changing the content based on viewing audience.  I started to think that if you understand everything that these guys are doing and selling, they’re slowing things down too much for you, and in the process you’re falling behind.

Living and working in a high technology sector requires the self confidence to surround yourself with people that know more than you do.  If you need to be the smartest guy in the room all the time, chances are the room’s intellectual evolution will be replaced with stagnation.  But rather, if you resign yourself to be one of the less gifted ones on a particular topic, to fill the room with bleeding edge technology experts, and have the comfort to ask when you don’t understand something, chances are that everyone will ultimately be a little smarter, and the room will emerge ahead of any single individual’s expertise.

Technologies are evolving exponentially.  The capabilities we have today were unfathomable 10 years ago.  It’s hard to say exactly what the future holds, but it is safe to assume the technological advancement in the coming ten years will eclipse that of the last fifty.  Many companies will be unable to keep pace with the meteoric changes in how things get done.  The most successful will be the ones with the self confidence to surround themselves with people that are more advanced than themselves and the courage to admit to their own ignorance thereby curing it.

Ben’s Lessons in Portfolio Management

Benjamin Netanyahu, after years of fierce reluctance to accept a Palestine state in the Middle East, for the first time accepted the idea of Palestine coexistence along side Israel.  There are questions concerning the motivation for his reversal, and the long list of caveats tied to his so called “vision of peace,” but clearly there is the recognition that diversity is ok.  In fact, an acceptance of diversity could lead to increased stabilization in what is undoubtedly the most volatile political arena in the entire world.

On the surface it seems that there is personal security in homogeneity, and risk in heterogeneity.  Surrounding yourself with people who act and think like you do is a low risk scenario.  Most likely they will agree with your suggestions, and support your ideas.  You will have similar communication styles, likes and dislikes.  You will feel comfortable with each other in being able to anticipate responses and foresee criticisms.

Ironically, this comfort breeds instability, and diversity actually drives the development of longer term foundations for continued growth.  One of the fundamentals of investing is portfolio diversification.  By diversifying a portfolio, you reduce the economic risk associated with a single security’s volatility.  If your portfolio is sufficiently diversified, when one stock loses value, another will gain, and the ultimate peaks and valleys will be minimized.

These same principles apply to start-up businesses.  When we interview candidates, it’s always easy to select the individuals that are most like ourselves.  They respond to questions the way we would respond, and consequently we think that they are polished and intelligent.  We tend to surround ourselves with people that think and act like we do.  They agree with our suggestions and support our ideas.  While it feels like we are creating a stable long term work environment, we are, in actuality, increasing the volatility and the risk associated with a myopic perspective.

It’s important to surround ourselves with people that think differently from us.  People that are comfortable challenging our ideas and that offer contrarian viewpoints will add the most value to our business teams.  Ultimately, this will reduce the risk in any organization, improve the quality of decision making – and therefore increase the long term stability of the management team and the organization.

Interestingly, most of our world’s problems can be traced back to a lack of appreciation for and an encouragement of diversity.  The willingness to accept, and embrace ideas and ideologies that are different from our own will improve the quality of our thoughts and reduce the volatility in our actions.  We need to recognize that solutions that are derived from diverse teams will have the benefit of multiple perspectives and ultimately make our world stronger.

I’m not sure if Mr. Netanyahu bears all of these things in mind, or if his acceptance of a Palestine state is sincere, but I applaud his efforts to evolve from his previous position and seek to accept diversity in the Middle East.  And I recognize that this is a step in the right direction from which we can all benefit.

A human-being? Or a human-doing?

Clearly we have seen better economic times.  Unemployment is at an all time high with the national average at roughly 10% – higher in California.   In May 300,000 jobs were lost – and this was an improvement over previous months where the norm was closer to 600,000.  Projected GNP changes for 2009 are, as Elvis Costello says, “less than zero!”

The federal government is spending at an unprecedented rate in an attempt to stimulate an economic recovery.  There is considerable debate about President Obama’s economic reform activities, and it is probably too early to tell if we are turning the tide or haphazardly spending, but few would argue that the government is sitting idly.  Presidential tenures are often characterized by their first hundred days, and President Obama’s first seven fortnights have been a flurry of activity.  So while it’s hard to say if he’s doing the right things, it would be difficult to criticize him for lack of effort – at least he’s “do-ing.”

This begs the question, are you a human “be-ing” or a human “do-ing?”  All too often we sit not so quietly on the sidelines lamenting about the decline of the economy, the fall of the S&P and our personal portfolios, the state deficit and our increasing taxes, and the loss of jobs.  At the same time, people are lining up to collect the increased benefits associated with the American Recovery and Reinvestment Act as if this were some sort of baptismal entitlement.  My question is, “If there is a problem in our economy, what are you doing about it?”

Over the past few weeks I have frequently been asked, why did you want to come and work as a part of the OCTANe team?  My response – I want to be a human “do-ing.”  OCTANe’s mission is fueling “innovation development” in Orange County.  We marry entrepreneurs, capital, and technology thereby accelerating entrepreneurship and company development for the technology and biomedical industries.  We work together to get more companies started, funded, and accelerated in OC and surrounding regions.  We teach entrepreneurs what to do and then how to do it.  In so doing, we create jobs, revenues, an increased tax base, and societal value.  These are the activities that will stimulate the economy and will support our nation’s financial recovery.

I can’t say for sure that what I contribute to OCTANe will have an appreciable impact to our nation’s recovery, although I am sure that the OCTANe community will keep these goals and activities at the forefront of their ambitions in supporting and driving innovation.  This is why I want to work at OCTANe.  It’s difficult to predict the timing or the ultimate end points of our acitivities, but there is no doubt that the OCTANe team is a group of “humans do-ing”, not merely “humans be-ing.”