Welcome to the Healthcare CEO podcast. Join us as Daniel Fernandez, healthcare leader and patient experience advocate, leads dynamic one-on-one discussions with healthcare executives, consultants, and other industry experts. Listen in as they share actionable insights and unique perspectives in the day in the life of a healthcare CEO.
*The following has been adapted from our interview with Paul Herchman, which can be found here.
Meet Paul Herchman
Paul Herchman is Chairman of the Board at MD Partners. He’s also a founder of Thermi, CEO, consultant, investor, author, and mentor. He got his start in healthcare in the early ‘80s, selling new technology to OB-GYNs. In 1989, he put together the first venture to bring technologies to physicians. He learned it was all about listening to what the market was after, identifying a void, and filling it.
Daniel Fernandez (DF): You were running one of the fastest-growing companies in the US, Medical Alliance. Tell us about it.
Paul Herchman (PH): Yes. That was the first healthcare venture providing new technology to physicians. There was a very quick development of new technologies and physicians were unsure about how to use them, and whether they were better or more effective, so they were slow in adapting to new technologies. We helped them by making them available for them to do procedures. At the time, procedures had to be transferred from a hospital to a surgery center, and we looked for ways to do it vice versa — performing procedures in doctors’ offices.
DF: In 1996, you made the company public?
PH: Yes. We were able to grow quickly and be profitable. From an IPO perspective, we fit what the market was looking for, led by top-tier investment bankers.
DF: In 2000, you sold it. In 2008, you dealt with the financial crisis, right?
PH: Right. For me, I’d had great success in developing med spas. At that time, plastic surgeons and dermatologists were providing most of the aesthetic procedures, and we saw an opportunity for non-plastic surgeons and dermatologists (as well as for plastic surgeons and dermatologists) to provide aesthetic procedures in their office. We brought in the technologies and sold them to physicians and helped them in opening new businesses.
DF: And then in 2012-ish, you founded Thermi? And you built that company up and sold it for roughly $82,000,000. Is that correct?
PH: That’s the neighborhood, yes.
DF: What would you say were your biggest takeaways from that process?
PH: The things that I learned were an accumulation of successes and failures up to that point. When we started Thermi, I’d actually just come off the biggest loss of my career. I had been successful in taking companies public and I built a successful company; but unfortunately, we were unable to get liquidity and I was at odds with the partner, and then 2008 hit, and the whole economic downturn affected us and we ended up losing everything. So when we started in 2012, we didn’t have a lot of resources to go forward, and we were looking at raising private equity or venture capital — which was just an idea — which at that point was impossible to do, primarily from terms of valuation of early-stage start-ups. So we tried to raise capital from people in the marketplace who would help us be successful. Plastic surgeons, dermatologists… They were going to be our customers and they understood the value of the technology that we were introducing. So we thought that rather than capitalize the company from more traditional participants, we decided to do so from those who could be our customers. And it ended up being really one of the best things that we did — because of their involvement, the commitment, enthusiasm, and being a part of what we were creating.
Planning an Exit Strategy
DF: You have helped practices with their exit strategies. Can you tell us a little bit about that?
PH: Right. So as a result of Thermi and building a robust company, and having a successful liquidity event — and I’ve been in the industry now between 30 and 35 years. Some of the people are about my age, and they ask how did you do that? What about me? What can I do? I’m building my practice, and I don’t want to just retire one day and walk away from what I built. I would like someone to come in, buy my building, figure out what I need to do so that I can benefit from my patient base and reputation. That’s what got us interested in working with physicians and MD partners.
DF: What are some common mistakes you’ve seen that are somewhat consistent across physicians who are looking for an exit strategy but don’t have a plan in place?
PH: That is the biggest mistake I see in all businesses. If you know you want a liquidity event, it doesn’t happen by accident. You develop it, knowing your objectives. Prepare your business so that you could find someone who wants to buy the assets. Start putting it together so that you can potentially have something that someone would buy from you.
New Opportunities Due to COVID-19
DF: We predict that in the wake of COVID-19 there will be a period of growth through acquisitions. Do you agree?
PH: I do agree. From my perspective, what I see is that there are a lot of technologies that are introduced to the marketplace. A lot of technologies that won’t have the best intellectual property, but are still able to compete in the marketplace — especially if they’re innovative, have patent protection, and have FDA approval. And for innovative companies that already have sales and marketing — who are already at the trade shows and have all the infrastructure you’d need, they’ve got to really look at the cost of getting into the market. It’s very, very expensive to even be there. Week in and week out where you need to be at the podium, at trade shows with your reps, out to dinner, etc. It’s gonna make more sense now — more than ever — for companies to latch on to someone quicker.
The Challenges Posed by 2020
DF: The next thing I want to talk about is 2020. It’s been a challenging year, to say the least. Many of the CEOs we’ve talked to have had many challenges. Are there some challenges you’ve seen that have been consistent with the people you’ve been working with, and what are some ways they’ve overcome them?
PH: I do see some challenges, and they’re working on overcoming those challenges. There’s so much in flux in our country, and in our families, and in our industries. For instance, related to the things I was primarily involved in — aesthetic elective procedures — a lot of those have come to a stop. A lot of times there’s no access to get the procedures at a surgery center. Everything is in turmoil. So you have physicians who would want to go forward with buying new technologies to offer better solutions for patients, but they’re frozen right now. When are they coming back? Do we really know when those patients are coming back? We don’t really know. But we capitalize on the changes that are occurring. The COO of Medical Alliance always says: “It’s your job to make chicken salad out of chicken shit.”
We have change and turmoil, but it’s an executive’s job to turn that around and find a solution that will allow them to pivot or and bring opportunities to their organization.
DF: I agree. My father always says that in every economy — up or down — there’s always opportunity. You just have to be able to see those opportunities. I’ve also heard from other CEOs that they feel like this has compressed their implementation timeline. Whereas in the past, they had a five-year plan, now they have a rollover plan of five months instead. And a lot of it has to do with technology.
PH: Right. For instance, something that relates to the things that we’re doing, after being in this industry for a long time and having the pleasure of working with C-level executives, where it really happens is with your sales team — interacting with the customer. I’ve had the pleasure of working with so many great salespeople. Most of them are out in the marketplace right now, struggling to try to sell new aesthetic technologies to physicians who are in neutral right now, but they have to feed their families and keep going.
We’ve been introducing and putting a whole team together for infection control. We’ve been able to bring in UV lights that you roll in and park in an operating room or in a waiting room, or wherever, and in 20 minutes it’ll kill all the COVID. We’re also bringing in some misting technologies that will kill COVID on surfaces. We’ve gone from looking at the cosmetic procedures to safety — which is really the new luxury right now. So we’re pivoting with people for these sales, so that physicians can let their patients know that they can come back. We’ve taken cutting-edge technology that’s as safe as it could possibly be. We’re just searching for some way to take advantage and to bring in something that’s more interesting and more needed at this moment.
DF: You’ve been working with startups for most of your career. Are there any that excite you about the future? I know you work with one that works with holographic imaging.
PH: I’m more of an executive on the innovation side rather than the operation side. I’m working with a breast implant company that has great FDA approval on a unique breast implant that there’s nothing like in the marketplace. I’m on the board and do consulting with them. It’s a product that ultimately will be a preferred product by women. Holographic imaging is a new way to tell as tory to someone who’s considering a cosmetic procedure. They’ll be able to see in a 3D image what they’ll look like. It’s certainly a way of the future. We have lasers with a robotic arm that destructs fat. I think they’re going to do really well also. And Orgenics, which is introducing a new grafting technology for hair transplant and growth technologies for males and females.
A Time for Introspection and Reevaluations
DF: What has 2020 taught you? I’ve asked everybody this and it’s been interesting to hear what some of our guests have said.
PH: I think 2020 is about hanging on and re-evaluating what is going to be important in 2021. It’s about reevaluating our lives personally and figuring out what’s really important for us personally; the importance of family. I think there’s going to be some real winners in companies, and losers — through no fault of their own. This country is nothing like it was in January. So many areas have changed that create fear and doubt.
DF: What advice would you give to a CEO who is listening to this podcast right now, who may be struggling with making decisions or pivoting, or feeling the burden of having to pivot or make changes quickly, but they’re not sure how to go about it.
PH: I would say you probably need to err towards being bold. You probably have a chance to look at this now for three or four months. Many companies are dealing with PPP relief and employees have been on the payroll and now they’re reaching a point — is it better or worse? There are decisions that have to be made to make sure that the company will survive and go forward. Hopefully, you’ve got good counsel and good people around you who don’t necessarily agree with you and have skills and experiences different from your own so that you can have discussions among yourselves because you’ll need to make decisions to move forward.
DF: Where can listeners connect with you online?
PH: We have MD Partners. You can look at the website, TheMDPartners.com. It tells a little bit about what we’re trying to do. We’re working with physicians who want to develop a strategy and a plan to find an exit. They can certainly look for us. I’ve had a great interest in mentoring CEOs, and I’m happy to have those conversations with people who are interested as well.
One of the most important things I’ve walked away with is realizing how much goes into a successful business and a successful exit strategy. As a guy who has been successful before — and going through a period of time when things didn’t really work and struggling to make things happen — with Thermi, when we got involved with the company, what I noticed in this venture is that when things happen out of our control, rather than wrecking the company, they changed the course to go in a better direction.
There’s also a Bible verse that makes me think of what’s going on. Ecclesiastes 9:11:
“I have seen something else under the sun: The race is not to the swift or the battle to the strong, nor does food come to the wise or wealth to the brilliant or favor to the learned; but time and chance happen to them all.”
Executives, you gotta be the best, you gotta do your best. But look at what’s happening right now with the economy. It’s all around us. You have to realize that it’s not all you. When you are successful, recognize that you’ve had some help.
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