Small Business Dealmakers Menu

Stephen J. McHale

An inside look at one of Cleveland’s top entrepreneurs and deepest thinkers

Stephen McHale

May 4, 2018

By: Mark Scott

Stephen J. McHale has made a lot of money in his career as an entrepreneur and a dealmaker. But it only takes a few moments of conversation with McHale to realize that he has much bigger goals in mind than padding his bank account.

“You need to start by thinking about what inspires you,” says the founder and lead investor of Explorys, a groundbreaking health care technology platform bought by IBM in 2015. “That’s the start of my dealmaking process.

“I’m inspired around an idea,” he continues. “The deals I’ve always aspired to do, I really try to focus on a win-win deal. Get on the same side of the table to understand peoples’ wants, needs and goals. Then let’s make sure we’re working on something that will collectively provide value on a broader basis to what we’re applying ourselves to — the two organizations that are cutting a deal.”

Explorys is perhaps the most well-known of McHale’s ventures and it has had a tremendous impact on those involved. The company was formed in partnership with the Cleveland Clinic to leverage electronic health records for the improvement of medicine.

The company’s network accelerates discovery of critical correlations, trends and outcomes across millions of patients, clinical records and diverse topologies. The IBM Explorys Platform has been adopted by dozens of major integrated health care systems, as well as more than 310 hospitals and 220,000 providers that collectively deliver billions of dollars in care annually.

But Explorys barely scratches the surface of what McHale has accomplished as an entrepreneur.

In this week’s Master Dealmakers feature, we talk to McHale about the evolution of Explorys, his altruistic approach to dealmaking and what he’s working on now.

The Explorys experience

It was a really big learning experience for me. As I’ve analyzed myself and done self-development work, I’ve learned that I’m very input-oriented. The experience of selling to a very large company and the environment, the culture being so different was extraordinary. It was really phenomenal to see how different the world is between a startup and a tech startup and the large organization culture. How do you blend the two and find a synergy that’s still ultimately fulfilling a mission and a purpose? I think we did pretty good with that.

If I could have done anything differently, we would have done better selecting complementary leadership. We didn’t have a great profile of our strengths. We do now. We didn’t work hard at complementing those strengths with other strengths. For example, my strengths are ideation, strategy and competition — things like that. We had three of us that were really great at that and we were very powerful. But we needed stronger operators and organizers, things like that, to kind of herd us. I would have invested heavier in a process of selecting leadership to complement myself and a few of our other key founders such that we would have been more balanced.

Purposeful dealmaking

You hear about leaders who are wedded to their vision and their strategy. But in the end, deals change. They pivot you. I think the leadership team needs to create an iterative strategy that says, ‘Hey we’re going to take shots on goal.’ There is an author I know who makes the analogy of deals as test bullets. When you’re cutting these deals, as long as you don’t get too far over your skis, if the bullet hits, you load the cannonball up and you drive your strategy. It’s fundamental.

As humans, we search for purpose. Why are we here? Some people get great opportunities. For me, the blessing of being able to tune into those opportunities is really something. It’s maybe a sense of obligation too. Taking it down a level, if your mind is open, what are you here to do? What matters? What comes to you? As things come to you through your journeys and experiences and learning data points, you just zero in on things and then they evolve. For me, it gets very esoteric, very spiritual.

With Explorys, did we really bend the curve? No. But we learned along the way from a dealmaking perspective that the perverse incentives that exist within health care were so powerful, the ability to cut deals was really hobbled. You’re going after peoples’ lifestyle. You have to look at the human element of behavior. It’s not just technology that will fix it. You get this brilliant idea that will improve health care dramatically. You better have the big forces in alignment around that. If they are perverse or misaligned, you have much more macro issues to deal with.

When something goes awry

With businesses, I’ve been fortunate that I haven’t had any fail. I’m not making that up, I just haven’t. I’ve been fortunate with that. I will tell you that I did have one with a culture clash that was so significant, I felt like it wasn’t the best outcome I would have hoped for. That business was corporate driven, and I found out after we had done the merger and sold the business that the leadership had a different vision than what they had articulated. I felt ultimately, it wasn’t the success I had hoped for. As an economic return to the shareholders, the stakeholders, everybody involved and all the employees — everybody won financially. I just don’t think it was as optimal as it could have been. Would we have made a different decision on making the deal? Probably, given the insight.

I had a friend who just pulled the plug on a startup. That judgment and discernment is so important as it relates to your quality of life and your impact on society and the world. He made a very good decision. It’s making that call to fail fast and then having the judgment and dealing with the immediate consequences to defer away from what would be the long-term consequences of pouring a lot more into it. It’s a lot about trusting your gut. It’s really hard. If it doesn’t feel right, I’m a sensing person. I’ve had those situations. It wasn’t at the level of pull the plug on the whole business, but I’ll give you an example. …

At Explorys, we had to do a major pivot and shut down a segment of our revenue stream because we were spread too thin. It’s not quite (that we were) powered out of the business, but it was a refocus and it was a very challenging decision to make. We made it and we had to do it to survive and thrive. Fortunately, it was the right move. But it was a lot of gut. This doesn’t feel like we can maintain the velocity required to obtain big impact, so we have to stop serving one segment, which was pharma. We had to shut down our pharmacy effort and focus just on health care providers and health systems.

The Final Word

I’ve launched a new project with some partners and co-founders called The Unify Project. Essentially what we’ve allowed ourselves to talk about is we’ve developed an operating system to optimize the economy. We believe we’re not really leveraging all of our assets in our economy to the fullest level. We’ve got a bit of a dysfunction going on related to dislocation and upward mobility, income equality and concentration of wealth. We believe there is a real issue there that an optimized economy can solve. That’s our project.

How to reach: The Unify Project, www.unifyproject.org

Related articles: Northeast Ohio’s 2017 Smart 50 Awards celebrate area’s top executives