Leadership Matters, A Lot
A World-class Team Goes Big with Robotic Surgery
The surgical robotics vision
Way back when, in 1994, Fred Moll, MD, visited the Stanford Research Institute (SRI), an independent research institute in Menlo Park, California. He met with engineers contracted by the Department of Defense to prototype robotics technology that enabled users to treat wounded soldiers remotely. Inspired, Moll believed these precision robotics could be the future of surgery. He wanted to apply SRI’s technology to civilian surgical applications.
Moll believed robotics was a natural extension of minimally invasive surgery, but could his company, Origin Medsystems, recently acquired by Eli Lilly, afford to assume the risk and cost of a robotics R&D project? It would require focus, unique skills, and a long development process, as building a surgical robot is complex and demands substantial capital. Furthermore, no surgeons dreamed about using surgical robots instead of scalpels. It was “not a thing.”
Origin decided the technology would be better served in a separately financed spinout that would license the technology from SRI. Moll left Origin Medsystems to become CEO of Intuitive Surgical, and he had a clear growth strategy in mind. His ambitious goals inspired potential employees to join his strong and passionate, yet also inexperienced, team. As a successful serial entrepreneur, he also understood his own limitations.
“My value-add,” he said, “is pattern recognition focused on products.” He knew professional investors needed more than a product visionary in a founding team; they needed a mix of skills. In addition to Moll’s deep market and product understanding, the company needed engineering, operations, manufacturing, finance, regulatory, and marketing leadership.
Fred Moll builds a team
Moll searched for a technical leader to colaunch the company and raise money. He sought the help of healthcare investor, Mayfield Fund. Two visionary physicians Russell Hirsch, a Mayfield partner, and John Freund, an advisor, supported his efforts to find a world-class technical lead. Freund, who became a cofounder, introduced Moll to Rob Younge, an accomplished engineering and operations leader and a proven medtech entrepreneur. Younge joined Intuitive as the third cofounder.
Moll then had to raise capital. Intuitive’s application of disruptive, complex robotics technology would demand lots of capital. Market research showed that industries requiring precise, repeatable functionality used robotics technologies. Surgical robotics could make sense and potentially offer clinical benefits over traditional surgery. The market could be huge. However, disruptive change does not come easily in healthcare.
Moll said, “One surgeon expressed abject horror at the idea of robotics. He asked if I was out of my mind.”
The Mayfield Fund’s imprimatur attracted key, new team members. Those team members, and the technology, which might redefine the practice of surgery provoked, more investor interest. Intuitive raised $5.5 million, led by Mayfield Fund and others.
The founder demotes himself — willingly
Cash in hand, the team set out to build the world’s first surgical robot — Da Vinci. They developed a detailed operating plan, hired key engineers, including Dave Rosa, and built a working prototype to demonstrate the technology in an animal lab. Rosa said, “I had tremendous respect for Rob Younge, and Fred’s vision blew me away. I had to be part of it.”
With a working prototype, Moll and team felt the company could move past the deeply technical phase, but they faced a big decision. They needed to find a world-class CEO. In changing leaders at this stage, Moll made the decision earlier than most founder-CEOs. He said, “If you’re creative, you’re usually not structured. I know I’m more on the creative end of the spectrum. We would need more structure.”
Moll’s self-awareness and the team’s willingness to find the right leader were credits to the founders; the traits proved vital to Intuitive’s success. After a rigorous process, three quality candidates met the position specs, and after rigorous screening, Intuitive hired Lonnie Smith as CEO. Mayfield’s Russell Hirsch said, “We looked for a mature, experienced executive who could mentor and lead a young team to achieve its ambitious goals. We saw that in Lonnie. We also saw an intellect that fit in with the smart Intuitive team.”
Smith joined Intuitive from Hillenbrand Industries, a diversified midwestern manufacturing company, where he had held positions of increasing responsibility, the last as senior EVP and board member. He did not, however, have experience at a venture-financed startup. On that point, Rosa said, “Startup experience didn’t matter. Lonnie was all about content and substance. Company size was unimportant. Our mission and vision excited him.”
Why was Smith interested in Intuitive?
“At the time I was interviewing for the position,” he said, “I was in discussions to join one of two successful, big companies. During a call with my daughter, she asked where I was in my decision, and I described my options. She said, ‘Dad, why don’t you do something that will make a difference?’ She clearly reset my decision criteria and priorities. I believed Intuitive could make a lasting difference. I took a 70 percent pay cut and moved to California; from a company with ten thousand employees to one with twelve.”
References confirmed Smith was a mature, credible, skilled, and smart operating leader. Rosa called him a great athlete. “He seemed to do everything well and had a ton of experience doing it.”
The team was confident Smith could lead the company as it transitioned from R&D to an operating business. Smith planned to bring only enough structure to Intuitive’s fast-paced environment to get the job done while allowing enough looseness to maintain passion and excitement. With deep understanding of capital equipment companies, he set standards for effective capital deployment, inventory management, design processes, supply chains, margins, and culture.
Seasoned CEO creates the culture
Smith focused on Intuitive’s culture; he understood the importance of shared values, goals, and practices. He knew precious few companies defined their culture and thus allowed a default culture to develop. He defined what he called the Intuitive way of doing things and incorporated it into Founding Principles and a Statement of Purpose. The inclusivity of his team in the process imbued him with ever-more credibility.
He said, “During my career, I had the opportunity to observe many leadership styles and company cultures. I saw Intuitive as an opportunity to try and incorporate the best of what I had learned.”
The CEO builds product-market fit
Smith also had business discipline. He challenged management to think about and help define Intuitive’s business model early. Russell Hirsch said, “Lonnie was a business visionary. He challenged the board and management to help refine Fred’s vision from a brilliant technical idea to a legitimate business opportunity.” The company had initially set its sights on its robots performing minimally invasive coronary artery bypass surgery. That meant the machine would need to accommodate a beating heart.
Smith said, “We had hired a consulting firm to help us track a beating heart so we could design the robot to move with the heart while performing beating-heart surgery. I was raising a second round of financing to keep us from running out of money. We were nowhere near a viable design of our basic surgical robot, and we were about to complicate the task by adding the ability of the entire machine to track a beating heart. I had to shut it down.”
Smith felt the complexity of pursuing this type of surgery would dramatically increase costs and time to market. The risks far outweighed the benefits; Intuitive needed to complete the design of the basic surgical robot. Further, he knew he could not build a high growth company that sold only costly capital equipment. He needed to build a surgical-procedure-based business focused on usage and adoption. Rosa said, “Lonnie focused on metrics that measured usage of the platform by procedure.”
Eventually, Smith noted one clinical procedure showed a positive usage trend. “Prostatectomies showed consistent growth.” Smith plotted usage on an adoption curve. “We had traction in urology, and we would grow procedure by procedure.” Robotic prostatectomy could be a large market for Intuitive. After showing clinical efficacy, training surgeons, and educating patients and doctors, adoption accelerated.
One urologist said, “After purchasing our first robot, urology booked it for days at a time. Soon, we could only book it for a few hours at a time. We needed a second robot to meet patient demand.”
The company grew via specific procedural adoption, like prostatectomy, across other surgical specialties. With adoption, sales cycles shortened, and revenue increased. Hospitals competed with one another. An early buyer marketed the robot in the community to generate consumer awareness. Patients began asking about robotic surgery. If one institution had a robot, competitors had to buy a robot too.
The company also developed a line of ‘resposable’ surgical instruments―reusable devices designed to have a finite effective life. This required hospitals to replace the instruments repeatedly for the life of the robot and became Intuitive’s razor-and-blade model, generating excellent margins.
The CEO establishes a culture of accountability, leanness
Smith simultaneously tackled operations. He challenged lean teams to manage lengthy timelines and complex design processes. He pushed teams to design early-generation products with the minimum features necessary, no more. Once, the company was on its third iteration of a design; everyone had ideas on improvements. Smith asked the youngest engineer in the room, Dave Rosa, for his input. Rosa said, “I think it’s good enough, and we have more important things to do.”
Moll recalled that meeting. “You have to see through stages of new product development and ask what’s most important. Saying that is one thing. Lonnie made it happen.”
Smith recounted, “We did as Dave suggested and moved on.”
Rosa added, “Smith forced teams to problem solve not by throwing resources at them but by holding them accountable.”
One of the eight founding principles Smith et al. had established was that small teams win: “We believe in small, agile teams of outstanding staff that deliver results.” A second principle was: “Believe the beliefs, Deliver the results.” Rosa said, “Accountability was a really, really big deal at Intuitive. Lonnie hired great people, held them to a high standard, and made changes when needed.”
In another example, Smith addressed the issue of an engineer leading a system redesign. He said, “[The engineer] was skilled at creating Gantt charts but a weak technical leader. I told his manager he needed to be replaced. The manager asked why, and I said because the engineer tried to lead the team over the hill twice. I doubted they would follow him a third time. Who should replace him? I suggested Gary Guthart as our best leader.” Fast forward — Gary eventually became CEO of Intuitive. Smith had a great eye for talent.
The CEO adds pervasive discipline
Smith instituted processes to ensure innovation and product development stayed ahead of the market. He introduced future generations of products to maintain their market-leading position. Another founding principle reflected this drive to innovate: “Innovation is essential to our success.” Smith brought discipline to the organization’s IP strategy and constantly enhanced the portfolio such that plaques of issued patents covered an entire wall. IP strategy was critical to company culture.
Moll said, “A sophisticated and aggressive IP policy was in our DNA.”
Smith also taught discipline and focus on margins and manufacturability, pushing engineers to integrate those considerations into their thinking. Da Vinci is a million-dollar piece of capital equipment with 3,000 parts. The operating challenge of achieving positive margins at scale was real. Leadership met those challenges with 75 percent gross margins and solidified the company’s industry leading position.
The CEO has a softer side, too
Smith had a soft side, too. Rosa said, “Lonnie constantly walked the building, speaking with team members, asking about families, often by name. He was a teacher and a prolific reader and used several books to inform his business acumen.” A favorite was Barbarians to Bureaucrats: Corporate Life Cycle Strategies. According to Rosa, “It really informed one of Smith’s core beliefs. Larger companies drift toward bloat with more money being spent on non-core activities. Smith pledged it would not happen at Intuitive.”
Smith has been described as humble, honest, empowering, a great teacher, and consummate professional. He set high standards, held people accountable, and established a high-performance culture that generated sustainable and consistent results. Having worked with many CEOs, Mayfield’s Russell Hirsch recognized Smith as one of very few executives who could lead Intuitive’s complex technology and business challenge to success. He said, “Lonnie lived in the details of every functional silo. In the end, he could bring the disparate parts together to maximize value.”
Rosa added, “Lonnie struck a perfect balance between care, humility, and relentless accountability.”
Intuitive Surgical went public in 2000. Today, it posts annual revenues of $6 billion and a $102 billion market cap. It dominates in the medical robotics market and has sold over 7,000 robotic platforms, used to perform many millions of procedures. Lonnie Smith retired, and Fred Moll left to found several successful robotics companies.
Moll rightly predicted, “Robotics will become the future of surgery.” Intuitive is a model for entrepreneurs and investors alike, epitomizing the principle that success is about great leadership, team, and culture.
(Note: I originally wrote a chapter about Intuitive for The Entrepreneur’s Journey, a book coauthored with angel investors Hambleton Lord and Christopher Mirabile. I adapted the chapter for this article. You can read the original in The Entrepreneur’s Journey.)
Joe Mandato is a former leader of several high-growth technology companies and currently an investor, board director, university lecturer, and author.
