Value Talks Podcast Episode 4: The Fundamentals of Innovation

Hosted by Travis Tasset, the Value Talks podcast explores a range of topics that matter to people, including healthcare, leadership, and culture. In this episode, Travis and I discuss the fundamentals of innovation.


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Transcript of Episode 4

Welcome to another episode of Value Talks with your host Travis Tasset.

Travis Tasset: Welcome to episode four of Value Talks. This is your host Travis Tasset and I’m here today with Chairman of Nueterra Capital, Dan Tasset, to sit down and discuss innovation. So Dan, we talked the other day briefly about innovation and what it means and all aspects of it and I think you rattled off four or five different components that you felt were important to foster that environment. So, let’s just take a minute, if you’re okay, and talk through where innovation comes from in your mind and what fosters it, what initiates it, what prompts innovation in the first place, and then we can talk about maybe how we see this playing out in the healthcare space?

Dan Tasset: Well, I’m anxious to get to this subject, as you know, to get some of the baseline podcasts done, some of the background and purpose and a lot of those so we can get into what I really love, which is innovation. So I’m anxious to do this podcast. A lot of people, just, what are all the elements and what does innovation mean and all those things? I’ve never really had any formal training around innovation, you know, I’m a voracious reader, so, I read a lot about what other people have done successfully, other innovators have done successfully.

But, I can’t say that I’ve read a book per se, or attended a lecture per se, on innovation itself, or attended an innovation conference, which I know they’re all over the country.

Travis Tasset: It’s just something you have always done, though.

Dan Tasset: So, I’m just going to talk today about my own experiences with innovation, we’ve had some successes in innovation and I’m going to talk about the things that I think are a common theme throughout innovation, at least from my experience. Other people’s experience may be different but for me, these are going to be the elements that I think need to be in place. As we talked about this prior to today as I talked about what those elements are, I think you looked for some support from other innovators, whether it was Steve Jobs, or whoever it might be to see whether or not they had a similar mindset to what mine was around innovation and I think you are going to share some of those quotes with us today.

The Spark of Innovation

Travis Tasset: Yeah, absolutely. Starting with the first element, what is the first element that need to be in place in order for there to be a healthy environment that allows that impulse of innovation to even occur?

Dan Tasset: Well, you know, a lot of people think that innovation is about being creative and that’s really not true at all. You have to be able to think about things outside the box, if that’s the definition of creativity then okay, there is a creative element to it. But it starts with a problem, in my mind anyway, in other words, there’s a problem to solve, there’s something that needs to be fixed or needs to be improved, and when you start analyzing that problem or that situation then an innovative mind, or an innovator, or a group of innovative people being to coalesce around that problem and say, “How are we going to resolve this problem?”

And so, in my mind anyway, it starts with a problem to solve. That’s the beginning of innovation and sometimes, what’s interesting about is sometimes you think that this is the problem and then as you get through a process, the problem redefines itself and what was initially the problem at the beginning you’re kind of discovering isn’t really the problem at all, it’s really something else. But, it still leads to a problem to solve one way or another. In my mind, that’s the beginning of innovation.

Travis Tasset: And that’s really dating back to Plato in The Republic wrote that, “Necessity is the mother of invention,” and so, without that problem, without those constraints imposed upon us, we really don’t have the impulse to find the solution. I forget the other quote that there is, or who this quote is by, but, “The problem named is the problem solved.” So, in order to really define what the issue is, that’s usually where our creative impulses come from.

Dan Tasset: Yeah, and that’s what I was saying was sometimes you think you know what the problem is –

Travis Tasset: But it may shift and change.

Dan Tasset: – but ultimately when you name the problem and then you can start the innovation process. I think there’s another interesting element to it that you have to kind of look at the space that you’re talking about, and I’m sure we will talk more about it, that’s one of the most important is understanding that space, but as I said, I’m not really big on saying being creative is equivalent of being innovative, it’s not.

And similarly, being able to dream about a solution for a problem is not being innovative, either. Just being able to just sit here and think about the problem itself is not innovation, you actually have to execute and make things happen.

Limited Resources Support Innovation

Travis Tasset: So, once we identify that there’s a need, or the necessity or the need is driving us to find a solution, and we’ve identified that problem, what else needs to be in place?

Dan Tasset: I actually believe that if you have unlimited resources or too many resources it’s an impediment to innovation. A lot people when I’ve said that to them they think, “That doesn’t make any sense. We’d like a lot more money and a lot more people to help solve this problem,” and I think it’s the opposite. I think in order to be an innovator and really come up with an innovative solution to a problem, you need to have limited resources. I know it seems counter-intuitive, but my experience is that if you have too much resources then you won’t innovate.

You’ll look to purchase the solution that already exists in the marketplace, and I could give you example after example in the space that we’re in. So, if you lack resources, money, then you can’t purchase existing resources out there, you’ll create, you’ll dream about, and innovate solution to a problem that will end up being much more innovative than it would have been if you had had unlimited resources. So, I think the second element to innovation, solving problem, number one, number two is do it with limited resources.

Learn From Mistakes

Travis Tasset: Yeah. I mean, without that necessity we wouldn’t really have that creative impulse. Jeff Bezos has a quote, “One of the only ways to get out of a tight box is to invent your way out of it.” So, we really need to have those constraints in order to foster that. So how do you view, with those limited resources, with there being a need and the problem being identified, what are some of the other components that really foster innovation?

Dan Tasset: Well, when I hear certain companies or people say, “Failure is not an option,” I just laugh internally, saying, that if that is not an option then you’re not innovating. So, in my mind, you have to have a willingness to make mistakes. You have to have a willingness to fail. I’m not saying you necessarily have to fail, I’m not saying you necessarily have to make mistakes, although, there’s a lot of argument to be made and there’s a lot of great innovators in the world that would say– What’s the quote by Benjamin Franklin, do you remember what that is?

Travis Tasset: The 10,000 ways? Well, that’s an Edison quote.

Dan Tasset: Edison, I’m sorry.

Travis Tasset: “I found 10,000 ways not to make the lightbulb before I figured out how to make a lightbulb.”

Dan Tasset: So, essentially failed his way to success. But for me, you have to have a willingness to fail, otherwise you’re not innovating. So, again, I think there’s probably quotes by Jobs along this line, I’ve heard several, I don’t know if you can quote any of those or not, but I know one that I like is, “Sometimes, in order to innovate, you have to make mistakes.” I know Steve Jobs has said that specifically. I don’t know if I would go that far, but I know in my experience you have to be willing to fail. Otherwise you’re not innovating, period.

Travis Tasset I mean, when one is experimenting, and trying, and figuring out, and testing, I mean, with that there’s going to be some failures, some lessons learned. But hopefully they’re not big failures, but those failures, or how we make mistakes is actually how we learn and how we figure out.

Dan Tasset: I would want to add one more element to that. You have to be willing to fail, but what you want to do is you want to fail quickly.

Travis Tasset: Fail quickly and fail often.

Dan Tasset: Yeah, and then pivot, go to the different potential solution to the problem and start innovating around the pivot and keep moving forward.

“I’ve Got a Crazy Idea”

Travis Tasset: So, we identify the problem, there is a need, we have limited resources, and then number three, we fail quickly, and we fail often in order to make mistakes and learn. What else do you see that really drives innovation? You talked earlier about this need to kind of understand the space that you’re in.

Dan Tasset: Yes. Before understanding the space, I always kind of put that as number five, but I think the way I describe it is, you have to be willing to sit with a group of people, or you have to be willing to look yourself in the mirror and be okay with crazy ideas. In other words, there’s nothing that you would say in a room full of a group of an innovation team that somebody would look at and say, “Stupid idea.” So, you have to be willing to say, “I’ve got a crazy idea, how about this?”

I think if you look at any of the great innovations of our time, I‘ve got to believe that somebody on that team or outside of that team would have looked at that and said, “That’s absolutely crazy.” And I think that is the number one reason why it is so difficult to innovate inside of an existing organization, a mature organization. You can say every company has to have an R and D department because every product or service has a life cycle, and so, if you don’t have an R and D department and constantly reinventing yourself, then you’re going to be out of business one day because every product or service has a life cycle.

But it’s difficult to innovate inside a mature company. That is why oftentimes companies, including us, will fund innovation outside of our current organizational structure, or even outside our own city or state, to cause that innovation to occur because it’s so hard to introduce crazy ideas into an existing organization, because there’s always somebody there going to shoot it down and say, “Tried that, didn’t work. That’s too crazy. That’s way out there. Oh my gosh, they’re way out in left field.”

So, the fourth thing in my mind, the fourth element is, you’ve got to have a crazy idea, and you’ve got to run with it.

Travis Tasset: Why do you feel that there is that tension within a mature organization and the challenge of innovating within that? Is that just because of there’s the status quo, the way things are and there’s a natural tension with challenging the status quo?

Dan Tasset: Yeah, I mean, there’s a combination of a lot of things. As you develop an organization and the organization starts growing and it starts becoming an operating company and passes the early stage, then you start getting types of people in the organization, which you should, that –

Travis Tasset: More operators.

Dan Tasset: – more operators. They’re there, and their job is to prevent chaos and it’s to execute and perform on the operations of the business. So, you get more accountants, you get more CPAs, you get more attorneys, all that kind of stuff.

More people involved and just by the nature of the way they are put together, their instinctive talents, the way they were trained, educated, their experiences, all around stabilizing and improving operations. So, you get more and more of those people and it becomes easier and easier for your organization to criticize the people who have the crazy ideas and so, they get put down, they get squelched. So, the challenge as a leader of an organization is to try to keep a vibrant balance.

Keep the three legs of the stool. Keep your sales and business development team vibrant, keep your operations team, your production team vibrant, at the same time, keep your R and D department, your engineering department, if you will, keep it vibrant. Those three legs of the stool are really how a business functions and moves forward. But it is difficult to do the more mature an organization gets, that’s why, again, we ourselves have done a lot of innovation internal but we’ve done some external, and I will give you some examples of that before the podcast is over.

Travis Tasset: Well, you mentioned Jobs, and everybody knows Steve and what he has done in being innovative in the space. One of his quotes is, “The people who are crazy enough to think that they can change the world are the ones that do.”

Dan Tasset: There you are, the word ‘crazy’ is in there, the same word that I’m using. That’s a great quote, I’ve not heard that quote before.

Travis Tasset: It’s an affinity for the rebels that are willing to challenge the status quo and carve a new path. There’s a lot of challenge in that.

Understand Your Space

Dan Tasset: So, the last one is what you were alluding to a little earlier, Travis, which was, you really need to understand the space you’re in really well, every aspect of the space. In our case, we’re innovating inside of healthcare. Well, you need to understand we as an organization, or as a group of innovators, or an innovation team, or an R and D team, whatever, needs to understand the healthcare space really well, every aspect of it. The clinical models, the business models, the financial models, the legal aspects of it, the trends, every place that it’s going, you know, even the epidemiology detail associated with it.

So, as you understand the space really, really well, that’s the beginning point, because if you don’t, then it’s more and more difficult to be able to identify a solution, first of all even identify a problem if you don’t understand the space, identify a solution, come up with a crazy idea, restrict your resources so that you can actually innovate and then start headed down the path of making the change outside the organization or inside the organization.

So, just the space, everything about what we’re doing is what we try to understand, the healthcare space in its entirety and constantly being out on the front side of it.

A History of Firsts

Travis Tasset: Okay. Well, let us talk a little bit about the role that Nueterra Capital has played in helping bring innovation in particular to the healthcare space. We’ve done a lot of things that I don’t think we’ve always acknowledged and given ourselves credit for, but dating back 20 years ago, you really initiated a lot of the firsts in the healthcare space and let’s just talk through some of these within the Nueterra Capital family of companies.

Dan Tasset: Well, as you know, the culture of an organization really kind of takes on a lot of different elements but one of them that is takes on is certainly what the founder, the leader of the organization– I just love early stage companies, I love start-ups. It’s less interesting to me to take an existing company and grow it. It’s more interesting, it’s more challenging to be able to innovate from the ground up and do a start-up company. So, I get up in the morning and my day starts with problems to solve, whereas most people, I don’t think, would look at life like that.

They would look at life and say, “How can I take what’s there and make it better, maybe, and avoid a lot of change and disruption,” where I love change, I love disruption, and I like an organization to be rebellious against what we’re doing currently in the status quo. So, our whole Nueterra Capital has really got the returns for ourselves and for our investors because we are mostly investing in start-up and early stage companies, which means we’re not buying a multiple of EBITA, we’re investing in capital on R and D at par value and then, of course, as we grow the company we get a lot better return on capital.

You know, right now we’re in excess of 60 annualized IRR since inception, since the founding of the company, which has been over 20 years ago, for our money as well as our investors’ money. So, for us to have a lot of firsts, a lot of people would say that’s pretty unusual, but when you’re an early stage investor, or a start-up investor, an angel investor –

Travis Tasset: It’s what your business is.

Dan Tasset: – it’s probably not that unusual. So, we do have a lot of firsts and a lot of them fairly significant, some of them maybe not so significant, all too numerous to mention but I can mention a few.

Travis Tasset: Yeah, please, would you?

Dan Tasset: Well, one of the first things that we did early on in the company was to develop, over 20 years ago, the first network of minority surgical facilities. At the time, a concept of owning a majority, being a publicly traded company back in the early HCA, Columbia, Health South days, okay, fairly easy to do an IPO or publicly traded company and own a controlling interest and then move forward and you have control, you can make management decisions. But what we innovated was the first minority interest along with a long-term management contract.

Everybody said we couldn’t successfully operate with just management without having complete unilateral control over all the facilities. And so we’ve proven them wrong. The other thing that they said that if you’re able to successfully manage in a minority equity model and get the performance that you want in the facilities, both the clinical outcomes, patient satisfaction, as well as keep your bottom line of those respective facilities moving forward, that you wouldn’t be able to do it in an efficient manner with corporate overhead.

That the larger and larger you got, your margin would continue to deteriorate. I said, “I think you’re wrong,” and we innovated a management model, a decentralized centralized management model that several people, a lot of companies now have copied and replicated. But creating that centralized decentralized management model allowed us to constantly improve margins, not have margins deteriorate because we were able to keep our corporate overhead. So, that was probably the first innovation that we did.

Another one that I think, that has been significant is, we opened in March 15th, 1989, the first surgical hospital in the United States. The idea of a surgical hospital now has been, with physician ownership anyway, because of the Affordable Care Act, has made it illegal for physicians to own their own hospital, which, that’s a whole other discussion that we might do a podcast on at some time, how the government prevents, the state, local, federal government prevents innovation. In fact, let’s just make a commitment to do that. We could talk about that for hours.

But the first surgical hospital, there was a physician in California, Dr. Perot, who claimed to be the father of surgical hospitals, but we opened ours up prior to what he did, we just didn’t put a lot of publicity around it, and now, as you know, there’s hundreds of those across the United States, but that was a big first for us. Another first for us is we opened, we developed the first network of hyper-specialty ambulatory surgery centers and really coined the definition.

So, there are multi-specialty surgery centers, there are single-specialty surgery centers, but we developed the first hyper-specialty surgery center, which means specializing in only a procedure or two. So, in our case, that procedure number was two, it was total hip replacement, total knee replacement and we created the first hyper-specialty facility.

Travis Tasset: So, within the orthopedic service line, you’re taking just two procedures-?

Dan Tasset: Right, and I’m convinced that that’s the direction that the surgical space is going in the healthcare industry as we know, that that’s almost a $900 billion industry and I think the hyper-specialty is to surgery centers what surgery centers were to an in-patient hospital OR 25 years ago. So, I’m convinced that it’s becoming more and more specialized, and why shouldn’t it? Because you can improve the value delivered to the payor, to the employer, and ultimately to the patient because of your value proposition. You’re able to improve your clinical outcomes, you’re able to improve the patient satisfaction scores, you’re able to decrease your costs by specializing in just a procedure or two.

Travis Tasset: And replicating that again and again.

Dan Tasset: – and replicating that over and over. So, that was a first for us and we’re continuing to build out that network of hyper-specialty hip and knee facilities called MUVE, M-U-V-E, Another first for us was, along with this, was to, in order for us to take on risk at the total hip, total knee facilities, we created the first care suites, which is a care model extension that is not hospital in-patient and gives us the ability to keep those– Actually, we created the first of those, that was almost 15 years ago, and the industry wasn’t quite ready for it, so, we shelled it. At that time we called it a “Hospitel,” and the industry wasn’t quite ready for it, so we reintroduced it about four years ago and now it’s taking off, and so the idea of extended post-surgical care without being in a hospital bed, the care suites is a first for us.

A more recent first is we have just recently, and there will be a press release coming out on this shortly, the first prospective bundled payment warranty, 90-day avoidable complication warranty. So, we’re the first in the country to introduce that, we are currently doing that, and we’re anxious to see that proliferate not only across the country on total hip, total knee procedures, avoidable complication warranty, but on other procedures as well. So, pretty long list. We’re pretty proud of that innovation within our organization, within Nueterra Capital.

I could go on and on about other innovation that we’re investing in, technology, a lot of technology related investments, but those are just a few.

Travis Tasset: Well, I mean, there was a lot there and think scheduling some future conversations where we can talk about, you know, the big buzz words out right now are “bundles” and “what does it mean to have a bundle, a prospective bundle,” and just quickly, what are your thoughts on the importance of having a warranty with that bundle? Because that’s really something.

Dan Tasset: Yes, I mean, you’ve heard me talk over and over again, whether you’re reading blog posts or whether you’re reading or listening to or watching podcasts, I’ve talked over and over again about the transformation that healthcare is undergoing and the elements that are driving that transformation are payment reform and consumerism. Payment reform in the simplest way to describe it is a transfer or a shift of risk from the person or the company who’s paying for the surgical procedure, or medical condition, or episode of care or whatever it might be, transferring that risk from the person who’s paying for it to the person that’s providing it. That’s the way every other product or service is. The warranty that exists on an automobile is put there by the manufacturer, and so, payment reform is about the transfer of risk from the payor over to the provider of care, and in order to transfer that risk, the provider really needs to give a warranty to the payor and I think the right warranty period is a 90-day avoidable complications warranty in regard to surgery.

I think that warranty period will eventually extend to six months to a year, and beyond. So, in order for a provider, say, a surgeon or an ambulatory surgery center, or a hospital, or whatever, to be able to provide that warranty they’re going to need some sort of reinsurance in case of any sort of catastrophic event to be able to make sure it’s sustainable and they can continue to provide care, continue to provide that warranty. So that reinsurance warranty is, again, our first in the industry, we’re very proud of that and I think we’re going to see it really take off here over the next 12 months.

Travis Tasset: Well, thank you for sitting down with me today, that’s certainly a nice list of firsts, and hopefully many more firsts to come. In the next couple of episodes we can dive a little deeper into payment reform, consumerism, and talk about those a little more in detail. So, thank you for your time today.

Dan Tasset: You are welcome. Thank you, Travis.

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