Built on dreams Featured

8:00pm EDT June 25, 2007

When Peter Farrell and a team of investors bought the rights to manufacture a medical device designed to solve snoring-related issues, he knew he was going to need a strong entrepreneurial culture in order to succeed.

Farrell helped develop the device while serving as vice president of research and development at Baxter Healthcare, so he understood the product very well. The challenge was that no one else really understood it or the problem it was supposed to solve.

The early estimates projected that 2 percent of adults might suffer from the condition that would be relieved by the device. But when Farrell launched ResMed Inc., sleep-disordered breathing remained largely unidentified as a medical problem by patients, and recognition of the disorder was nonexistent within the tough-to-convince physician community.

In classic marketing terms, Farrell, who serves as the company’s chairman and CEO, had to create the need for the product before he could meet the need through sales of the device.

The only way to do that was by establishing an entrepreneurial culture where everyone understood the product, so that the entire organization could help Farrell solve problems. It also required the establishment of a multifaceted strategic marketing plan that would continually build support and media exposure for the company.

Creating the culture

To help inspire the culture he desired, Farrell and his five founding partners distributed stock options to the staff, from the top of the organization to the bottom, including the employees out on the shop floor. Giving everyone on the team a stake in the outcome established trust and helped the firm attract and retain talent while the company was struggling to develop a market for its product.

“In the early days, trust was the glue that held everything together,” says Farrell. “I was very careful not to overpromise, and I wanted to make certain that people were looked after.

“The culture helped us retain people, and it actually helped us get investors because they knew we would need that type of culture to succeed, and it generated excitement.”

In addition to giving employees ownership in the company, Farrell maintains an open-door policy despite the firm’s growth. He says that hearing messages directly from the staff fosters a non-political environment where everyone feels free to speak up, and in the long run, he’s convinced that, as a CEO, having an open door is a profit-making posture.

“I’d rather get 10 e-mails on the same issue than not to hear about it at all,” says Farrell.

He says that his philosophy has contributed to the firm’s success by serving as the catalyst for directional changes within the organization.

For example, Farrell says that in the early days, the firm was developing a sleep diagnostic system intended for use in sleep labs. One day, a delegation of employees appeared at his office door and announced that after several years of investment, the plan had failed and needed to be scrapped.

“I was continuing to stay with the idea, and the physicians virtually ignored it,” says Farrell. “We must have wasted three to four years developing it, but the employees convinced me that we needed to go in a different direction, and it was the right call. As the CEO, you need to have an open-door policy because you want to find out where the next problem is coming from so you can focus on continuous improvement, and you have to be flexible and listen to your employees.

“I think my experience working for a large company like Baxter really shaped my thinking. In the early days, in particular, we really strove to keep things simple because bureaucracy is a cancer. We really needed to be fleet-footed and focus on outcomes.”

In order for the firm to succeed, it would need to continue to develop new medical devices as well as marketing strategies. Farrell says that he has maintained a lean organizational structure to keep new ideas surfacing and moving quickly through the pipeline.

Hiring for entrepreneurial spirit

Since its beginning with a staff of six, ResMed has grown to more than 3,000 employees worldwide. Sourcing and hiring large numbers of employees who demonstrate both a strong entrepreneurial spirit and the ability to thrive in the corporate culture have resulted from a hiring process that Farrell describes as both an art and a science.

“I like to hire opportunity-seekers who will also get things done in a timely fashion,” says Farrell. “We use the interviewing process, references and checklists to assess for traits like intelligence. I also like people who have a strong sense of urgency and will just go ahead and do something and ask for forgiveness rather than permission, because it’s essential to making progress.”

He says that he prefers apolitical employees for the firm’s candid culture, and he frequently asks candidates if they have ever said that they believed in something when, in fact, they really didn’t, as a barometer of their political nature.

“I also think that checking references and getting copies of transcripts are very important because I won’t hire a candidate who has lied on their resume,” says Farrell. “You can’t fix broken ethics.”

While hiring movers and shakers has been critical to the firm’s success, Farrell is the first to admit that hiring isn’t easy, and he doesn’t always succeed. However, he strongly values education and leads by example because he possesses a doctorate degree. Once he has the employees on board, he supports their development by advocating a continuous learning culture.

Through development of an internal university called The Learning Center, Farrell educates ResMed employees on everything from sleep-disordered breathing to leadership skills and how to work effectively in teams. The goal is that people grow along with the business, and employees feel valued and want to stay with the organization.

Entrepreneurial marketing

The other major challenge Farrell faced was to educate the health care market about the problem his product solved.

“The medical community works in silos, and traditional medicine stops when the lights go out, so no one understood the problem,” says Farrell.

ResMed initially funded medical research studies because Farrell says that he needed data to win the battle against ignorance and to convince the medical community of the disorder’s existence. The research studies found that sleep-disordered breathing was much more prevalent than Farrell had originally forecasted, affecting as much as 20 percent of the adult population.

Additional research studies showed links to other diseases, as well, but progress was slow. After several years of trying to convince doctors of the medical need for the product, Farrell finally achieved a breakthrough with cardiologists. Cardiologists were not initially projected to be the early adopters, but Farrell says that he learned from his experiences to be flexible and that start-up ventures are marathons, not sprints. So he took the initial endorsement from the cardiologists; then he focused on gaining the support of other physician groups.

Farrell compiled his first physician success stories and the results of the medical research studies, and he took the message out on the road. Because peer endorsement is important when marketing to professionals, ResMed uses thought leaders, who are recognized medical experts in their fields, who speak at medical conferences and symposiums, and convey the medical findings from the firm’s research studies.

His vision is effective marketing through education, and his goal is to educate everyone who will listen.

“We invite the physicians to seminars to educate them on the results of the research studies, and we even go out and educate our distributors’ sales forces because they have to have credibility and knowledge when they meet with physicians face-to-face,” says Farrell.

He also developed a public relations program built on unique alliances. Farrell approached a competitor with the idea of co-funding PR campaigns designed to build worldwide awareness of sleep-disordered breathing and its associated impact on other illnesses and conditions. The program raised device sales for both firms.

“This is not Coke and Pepsi,” says Farrell. “There’s a giant under-served market out there, and we needed to get the word out. There’s no industry association, so we had to make our own.

“Initially, it was also very difficult to get the attention of the medical community, so we tried something different. We launched an education and awareness campaign aimed at the patients. The idea is that by educating the patients, they will bring up the topic with their doctors. Our goal is to have something in the media every day which announces the results of one of our studies and helps to educate patients.”

His marketing campaign has solved the problem of demand as evidenced by 48 quarters of successive growth for ResMed, and his open-door policy keeps the news coming in, even when it’s not good.

“You can have a lot of success by getting into a monster market early,” says Farrell. “You are going to run into challenges and roadblocks along the way, but I get up in the morning and I’m glad I’m in the business. Of course, I also think that I’ve been successful because I have a high tolerance for bad news.”

But for the most part, the news has been good.

The company posted $607 million in net revenue in 2006, and its innovative culture has fueled approximately 1,300 patents granted or pending and 565 design registrations granted or pending worldwide as of December 2006.

“Now that we are successful, many people ask me why Baxter wasn’t interested in developing the product and the marketplace for themselves,” says Farrell. “If you’ve ever worked for a big company, that’s a really dumb question. Once a company gets big, (the executives) are so busy thinking about next quarter and maintaining their existing business that an idea like this would just die on its own backside there.”

HOW TO REACH: ResMed Inc., www.resmed.com