Back pain is big business.
Annually in the U.S., people miss nearly 93 million work-days because of back problems and spend $4 billion on spinal products. With so much need, it would seem that an emerging medical device company like NuVasive Inc., which develops products and techniques for minimally disruptive spinal surgery, could grab a foothold in the marketplace with ease. But when Alex Lukianov assumed the CEO role in 1999, the company was struggling against its larger, entrenched competitors. Armed only with his vision for building a swift company culture as a slingshot, Lukianov took on the challenge of slaying the industry Goliaths.
“To compete against Medtronic and (Johnson & Johnson), you have to take on an offensive posture,” Lukianov says. “And that offense has to have a clear mission and a purpose, because to be a dragon slayer, you have to attract like-minded personalities and expect outstanding results.”
Lukianov had an extensive background in the orthopedic industry, including a stint as division president for direct competitor Medtronic Sofamor Danek, before coming to NuVasive. He says he thought carefully about the depth of the challenge before committing to the assignment. For example, at a large company like Medtronic, Lukianov says he could always pick up the phone and secure resources to tackle a problem, at the much smaller and struggling NuVasive, there’d be no one on the other end of the line to help. And the new position would entail uprooting his family from New York and moving to the West Coast. Still the idea of building a major league company from the ground up was an opportunity he just couldn’t pass up.
Shortly after arriving, Lukianov may have had second thoughts about his decision, when the company was down to having only enough cash in the bank to cover two weeks of expenses. But Lukianov is an optimist, so he rolled up his sleeves, started raising money and began installing a new secret weapon a swift response corporate culture. Since that time, he’s led the company through an initial public offering in 2004, which earned him a promotion to chairman and CEO, and then on to record-setting revenue, including $154 million in 2007.
The need for speed
Lukianov’s passion for swift response was partly influenced by his previous work experience. It’s not that his prior companies were unresponsive to the needs of the marketplace, the culture just didn’t go far enough to create a true competitive advantage. In his first CEO role, Lukianov says he finally had the chance to create a more complete culture, and given the circumstances, speed was the best cure for the company’s problems.
Surgeons buy NuVasive’s products, and Lukianov says that instinctively, surgeons want everything yesterday, so building a culture that would appeal to them was vital. Also, the pace of innovation at larger, more bureaucratic organizations can be slow. Greater speed in the design, implementation and sales of new products would enable Lukianov to drive productivity and greater output with a smaller staff and capture market share quickly. The business case for speed was clear, but to implement a culture built on swift response, Lukianov says CEOs need to start by letting the staff know why speed is important.
“To create an environment predicated on high standards and excellence, you have to let everyone know why it’s important, so they become emotionally invested in the outcome,” Lukianov says. “Investing in a culture really isn’t important if the plan is to build up the company and then flip it, because in that case, management is really not all that concerned about what happens to the people. There’s an emotional investment that leaders make when they build a culture, and you can’t really make the investment unless you’re committed for the long haul.”
Although Lukianov has named his cultural initiative “Absolute Responsiveness,” and he uses the cheetah as the culture’s symbol, he’s gone beyond rhetoric and T-shirts by putting some teeth into his cultural vision. Lukianov refers to NuVasive employees as shareowners, and almost every employee has a stake in the outcome.
“I just can’t imagine attracting the kind of people you need to drive 50-percent-plus growth rates unless they have a stake in the outcome,” Lukianov says. “I don’t think the equity has to be a lot, but it can be very effective if it’s done systematically.”
He opened a distribution center in Memphis adjacent to FedEx, so surgeons are assured of receiving their product orders overnight his stated goal is to never miss a surgery. He also reviews dashboards each month that track the company’s responsiveness on all its deliverables, and he uses a balanced scorecard for measuring performance and holding people accountable to his high achievement standards.
Each dashboard measures the company’s progress in specific functional areas, from the 40 products currently under development and their anticipated release dates, to the degree of sales force penetration for each product the company sells in every market. So far Lukianov’s plan is working because the company has been granted 48 U.S. patents and has another 134 pending, most of them coming under his leadership, and revenue is growing more than 50 percent.
“We measure four key areas on the scorecard including financial results, adherence to internal processes, customer knowledge, and personal growth and development,” Lukianov says. “There’s a progress review, and every employee is graded each quarter, but what really makes our scorecard different is that it not only measures achievement of short-term financial goals but progress toward the company’s long-term objectives. We have a goal of reaching $500 million in revenue and to be GAAP profitable, and every person in the organization can tell you how we’re going to get there and what their part is in reaching the goal. In many organizations, senior management is well-versed on the long-term objectives, but it’s critical for everyone to understand their role.”
Customers are second
There aren’t many CEOs who could drive their company’s stock price to more than $40 a share when the bottom line isn’t yet in the black and investors are third on the chief executive’s priority list. But under the Lukianov philosophy of prioritization, things are just as they should be.
“I think everything I’ve been taught over the years about putting the needs of the customer first really isn’t the best way to do things,” Lukianov says. “We do not put the customer first at NuVasive. The first priority is your internal staff, your second priority should be the customers, and your third priority is your investors. If you take care of No. 1 and No. 2, No. 3 (the investor) gets everything they want.”
Lukianov’s group of No. 1 priorities has been growing. When annual revenue reached $60 million, Lukianov approached the board with the idea of moving away from the company’s contracted sales force and hiring an internal team. Lukianov says he believed he could achieve faster growth through dedicated sales representatives who were trained in the culture of Absolute Responsiveness, possessed greater knowledge of the company’s product line and unique surgical approach, and could serve as the face of the organization to the surgical community.
“Our product allows the surgeon to approach the spine from the side, not from the back or the front, so it’s less invasive for the patient,” Lukianov says. “We train surgeons on cadavers here in our operating rooms, but it takes in-depth knowledge to explain the technique to surgeons and convince them to attend the training. You need commitment and dedication to be successful, and I just didn’t see any way to sustain 50 percent growth rates when we couldn’t retain business because of the churn in the sales force.”
Despite laying out the business case for taking on the fixed expense, Lukianov says that it took him three months to convince the board and other members of senior management about the soundness of his plan, and while he eventually got the green light in June 2006 and has since hired more than 220 sales reps, with so much at stake, he spends a great deal of his time monitoring the team’s performance and ROI.
“I think before you go forward and ask for this kind of commitment and investment, the company has to have achieved a certain level of success, so it’s all about the timing of the request,” Lukianov says. “We had been through the IPO, the restart was well on its way, and we had just passed $60 million in revenue, so I thought this investment would take the company to the next level and beyond.”
In addition to holding reps accountable for their individual performance via scorecards, Lukianov holds quarterly webcasts where he reviews the entire sales team’s dashboard and its progress toward reaching the company’s revenue goals. He is also personally involved in the hiring process for each sales rep.
He insists that only A players will fit NuVasive’s culture of Absolute Responsiveness and reach his high productivity standards. He uses 10 criteria to evaluate prospective new hires but finds that the genuine A players think of themselves as lucky. Lukianov says he is a lucky man, and since he believes that success is perpetuated by like-minded individuals, being lucky is the litmus test for prospective sales representatives at NuVasive.
“I ask during the interview if the applicant considers themselves to be lucky,” Lukianov says. “Then I watch for their body language in response to the question. I think when a person feels lucky and has an attitude of gratitude they will fit in to the culture and be successful with our high standards.”
Building an in-house sales team has also enabled the company’s growth plan. Lukianov has been able to leverage the group’s marketing expertise and their expense through several acquisitions of new products and technology that were poised for market, only requiring the addition of a ready, willing and able marketing team. Two of the most recent acquisitions include the January 2007 acquisition of technology and assets from Radius Medical LLC, a privately owned company that makes bone graph strips, and in May 2008, NuVasive announced the intent to purchase the Osteocel Biologics business from Osiris Therapeutics Inc.
Sustain the culture
As a company grows, it can be a challenge to sustain the corporate culture, especially one that fosters speed and innovation. But Lukianov anticipated the problem, and installed a number of processes to assure that the culture endures beyond any growth pains.
“I work extensively with our management team to make certain the culture is perpetuated, especially for all the new employees who are joining what has become a much larger organization,” Lukianov says. “So we’ve developed a cultural immersion program for new employees. For starters, every single person we hire goes through a training program on our products, anatomy and surgical techniques, then they must pass a knowledge test as a condition of employment. We want every person in the organization to be a subject matter expert, understand how our products and techniques differ, and can interface with a surgeon.”
In keeping with Lukianov’s high-performance philosophy, and as an introduction to the company culture, employees must pass the exam with a score of 90 percent or better, if they fail to do so, they must retake the exam. The motivation for high achievers includes $500 for a perfect score and $250 for those who score 95 percent.
“It’s a very difficult test, and people are petrified to go through it, but it brings new people together and teaches them about the company and our values,” Lukianov says. “We also perpetuate the culture, continue the educational experience and have a little fun, by playing a game we call spinal jeopardy at meetings and by giving annual cheetah awards and spot awards like ‘cheetah in the wild,’ where we recognize an employee who goes above and beyond in exemplifying the culture. When you constantly reinforce the culture, it doesn’t just become the flavor of the month, and there’s no way the culture won’t endure through growth.”
HOW TO REACH: NuVasive Inc., www.nuvasive.com