Medtech Talk
Medtech Talk
Episode: 197 - Fireside Chat: How Michael Mahoney Built a Culture of Disciplined Innovation at Boston Scientific
Live from Medtech MVP, Michael Mahoney, chairman and CEO of Boston Scientific Corp, sits down with Medtech Talk podcast host Justin Klein. They discuss Mahoney’s communications strategies to align expectations and convey intentions to shareholders, how to delegate and streamline decision making, and advice on doing better as a partner. Mahoney also shares which second order considerations (such as manufacturing) are important to keep in mind, as well as whether he’s a “war time” or “peace time” CEO and what challenges the industry needs to address today to create a better tomorrow.
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Welcome to this special edition of the Medtech Talk podcast. In today's episode we'll hear a fireside chat from the recent Medtech MVP event. Our host, Justin Klein, speaks with Michael Mahoney, chairman and CEO at Boston Scientific, on executive insights on leadership and success. Let's listen in.
Justin Klein:Good to see everybody here and Mike, thank you. This is great. This is kind of a bucket list item for me.
Michael Mahoney:You have a small bucket. If I'm in your bucket list, you got to get out more. Well, there's probably a. I just want a good fantasy quarterback.
Justin Klein:There's probably a hundred questions that I could ask, ask you, I think we've got about 30 minutes, so we'll focus on the hard ones. I had requested some tissues up here for you, some tissues. Yeah, if this gets hard, you need a break, just let me know, but we'll dive right in. So I would would say among your peers, you have done this will be serious.
Justin Klein:This is serious yeah we're going right to it. So I think you have done among the best jobs at communicating your intent to shareholders and aligning their expectations with your goals of being very disciplined in terms of operating the business, focusing on bottom line profitability and growth, but also being willing to make investments in the business, or even acquisitions that may be dilutive short to medium term to your EPS, in the ultimate goal of driving great top line organic growth. And you've earned the right to keep doing that, and I think a lot of your peers have found themselves between a rock and a hard place at times and figuring out how to navigate the trade-off associated with those things. You jumped into the business at a time when there was a lot of work to do Is this for the same question.
Justin Klein:Yeah, this is all the lead in and I'm just going to step down and let you go. My ADD you know. Yeah, how did you figure out how to message that, the dilution and gross stuff? Yeah, exactly, and position that not only with your board but your shareholders and then execute on that in a way that's allowed you to really, I think, stand out among your peers, hi everyone.
Michael Mahoney:I'm old. Maybe that's why I've gotten better at it over time, but I think early on we didn't, as the very exaggerated intro which is great by her but exaggerated on me laid out when I first joined the company wasn't doing so well and so we didn't have any much credibility with Wall Street and portfolio managers wouldn't meet with me, Activists wouldn't even meet with me because things were a little rough. But anyway, essentially that's just earned over time. And so we consistently under-promised, even when expectations were really low, and over-delivered a little bit. So we consistently delivered on our commitments, which eventually, over time, investors gained confidence in us and they began to trust us and we spent time with them and so forth. And then, as our company got stronger and we had a bit more of a balance sheet and we could borrow some money and do transactions in our venture portfolio, that augmented our organic R&D innovation, which was a whole separate topic. That augmented our organic R&D innovation, which was a whole separate topic.
Michael Mahoney:But, truth be told, we've never done a deal and taken our EPS guidance down, nor have we never improved operating. The only year we didn't improve operating income margin was during COVID. Every year since then, every year before that and after that we've improved operating margin either 25 bps or 50 bps per year. And no matter what deal we've done, we've actually never taken our EPS guide down. And when you take your EPS guide down and you take your OI margin targets down, you're asking the shareholders to kind of pay the price more. So we've had a philosophy thus far that even if we do a and our most dilutive deals are early stage companies that you may have to bring on 50 or 60 million of OPEX a year, unplanned for for many years.
Michael Mahoney:Um, so that comes down to, uh, just choice-making and choice-making the business. And as the companies get larger, there's people always say, oh, there's, we've, we've rung out all the blood in the rock or whatever the phrase may be. There's always just decisions you can make either to reduce G&A, cut S-G&A, stop this program, because the company you're buying has a potential bigger impact. And if we're not going to do this, internal program, let's spin it out to a third party, so it still lives. Internal program let's spin it out to a third party, so it still lives.
Michael Mahoney:So most of the reason we haven't had dilution on deals and EPS degradation is we've made other choices because that venture company we bought could be so strategic that it's more important than other choices we have. And companies that I think drive down their EPS targets or forget their margin improvement because of a deal, I don't think they're making some of the choices that they could make. So investors like the fact that we're able to buy companies and tuck them into the company and not get off our course, Because then if you do that, then you're more unpredictable to the investors and they're not sure what's next. And we've proven to them over time that we're going to stay the course with our growth targets and our margin improvement despite what we elect. And we've proven to them over time that we're going to stay the course with our growth targets and our margin improvement despite what we elect, Because we elect to bring the company in. We don't have to, so we should elect to do something different to offset it.
Justin Klein:Okay, that's really interesting. I think you've done a great job Is that interesting at all.
Justin Klein:I don't think it was very interesting. Yeah, no, I mean I think you've done a lot. Obviously, in great end markets You've moved the business into some longer-term growth opportunities but continue to sort of layer in new technologies that enable innovation. Some of these have taken a real investment, like Watchmen, right, I mean that was a long build, a big lift. Others, Fair Pulse, took early vision. I think you actually maybe personally led that investment for Boston and worked with the company, you know, to help position it for what's been a very successful acquisition. But it's not just those two, right. How do you think about where you're at today, Because you're hitting on all cylinders, and how do you keep this going in this environment? There's some specific strategies you're thinking about, or you know what's next.
Michael Mahoney:Yeah, well, the key is, I think, to know that you're not hitting on all cylinders ever, and that's really the key Cause. I think once people in teams sports team or your team or small team once you think you're hitting on all cylinders, it's time for a new leader to come in for the business or division or whatever it is. Whether you want to run quality within division, you run facility, whatever it is. So I think part of it we call it the winning spirit is we love our employees and we celebrate very briefly, but it's constantly what can we be better at? And we have divisions in Boston that aren't doing as well as they should be and regions that aren't doing as well. So I think it's important to we focus a lot on those great wins and they're doing terrific for us. But we have this mindset that you just it's easy to say, but you just want to look for opportunities everywhere all the time and be kind of relentless that way and in a nice way, in a professional way, but really, and I think when, if you have that amongst the leadership team, then that permeates across the company and so you have a great culture. But it's not looking at what we did last week. It's what are we doing today, in the next five years, 10 years? So how we do it.
Michael Mahoney:To me and I've said this a couple different places for me, the job's not super hard. I think the startups that the person who just presented here I run a startup which I did a long time ago is a really hard job. Art my job, I boil it. I focus the most on our, our talent, our, our depth of succession, the culture of the company and innovation and what portfolio choice. I spend the bulk of my time in that area and I spend less time because we have amazing people that run global supply chain operations supply chain quality it so I spend less time because we have amazing people that run global supply chain operations supply chain quality IT so I spend less of my time there. So I spend more of my time on the offense and we're constantly thinking about how we make the quarter in the year.
Michael Mahoney:But how do we make Boston Scientific great seven years from now? And we really think a lot about that and we invest a lot. We have a lot of dilution right now and we could be far more EPS stronger or have higher margins if we weren't investing in things now that won't impact until 2029, 2030. So we have a lot of money tied up there. So our job as leaders is to make the company special for the next five, three, five, seven years, not just the second quarter of 25. So we really think about our portfolio that way and looking ahead of what our, as you get bigger and bigger, we'll be likely over 20 billion this year and hopefully be 30 billion in a few years. As you get bigger, you need more shots on goal, you need to take some bigger chances and you have to have the fuel to do that. My worst fear is becoming a really big company. That's average grower. That's my biggest fear.
Justin Klein:Yeah, as you've grown and I've talked to some members of your senior team about this interview opportunity, one of the things that several of them highlighted to me is your decision-making process the biggest fear is my daughter getting married.
Michael Mahoney:Sorry, I was thinking about it. That's my second biggest fear. I like her boyfriend, but it's not. I was reflecting. Is that my biggest fear or no?
Justin Klein:Second biggest fear she's interviewed you here Doing good Well, this decision-making process and how you've enabled a company and a team that's growing, that's large, to still be nimble and efficient. Can you talk a little bit about that? How you guys process information, how you either delegate decision-making or streamline decision-making in a way that does allow you to make that a competitive advantage.
Michael Mahoney:Yeah, I think one thing I tell our team and they hate this, and I mentioned Peter Arduini is a good friend of mine. I went to the GE Healthcare Leadership Meeting the other day because he's a good friend and I said, hey, boston Scientific's a bureaucratic company and so are you GE. And that didn't land really well with the audience. And the reason I said that is because I do think it's a competitive advantage that our culture and our speed and so forth, but it's not as good as you think it is. As the leader of the company, you like to think it's really really good and maybe it's a little bit better than some others, but it's not as good as it could be. And so the reason I bring this up, I always tell our team if we're not fighting bureaucracy every day, it just creeps in the bigger your company gets. If you're not intentionally looking to reduce meetings, change things that you used to do, change up your cycle, have fewer steering committee meetings, it just gets bigger and slower and slower. And we may be slightly faster than some of our peers, maybe, but we're not as fast as the VC companies, we're not as fast as our Chinese competitors. So there's more we can do. So part of it to me is again this mindset of if you think you're quick and agile, you're not. You have to constantly, especially as companies growing like we are, really we call it kill a stupid rule. What stupid rule did you kill? This month, okay, and just things like that all the time, yeah. But anyway, on the more positive side, I do think we we talk about leaders and managers a lot in the company and companies have both, but we try to put leaders in jobs less than managers, and I think it's a mindset.
Michael Mahoney:Leaders tend to want to make decisions. They want the decision. They empower their teams, they trust their teams, they allow their teams to take a little bit of risk. They're supportive when it doesn't go well. Managers tend to want to have more steering committee meetings. They want to have a thicker appendix on the package. They want to detail out every who, what, when. They want to review org charts a lot. So we try to find a mindset of people who are comfortable making decisions, who want to make decisions and move more quickly. So we try to embed that philosophy across the company as best we can, knowing that's not perfect, and then we do.
Michael Mahoney:When it comes to M&A and venture investing we have, I think, probably a quicker process than maybe some competitors do, because I'm very involved in that and I know that as companies get bigger and the person who was presenting her company for urinary incontinence which was really interesting when that idea gets presented to somebody in our urology division and it has to go up through many people in finance and legal and whole bit, nine times out of 10, the deal's dead before you even hear about it because conservatism plays in.
Michael Mahoney:And so we try to have a faster process to look at venture investments and M&A and our teams get involved with it quickly before too much bureaucracy comes in, and we actually occasionally review the deals that the team never presented to us to make sure that they're taking the appropriate risk and looking at it, and we encourage them to do so. So I think and there's other companies I've been at in the past, I won't name names but it just took like six months to get to a decision point and by then you kind of missed it. So I realized that as companies get bigger, there's a lot of things that get in the way of smart risk-taking and we try to hire leaders more than managers and try to reduce the time it takes for some good idea, because there's a lot of roadblocks to shoot that idea down before it gets to the right level. So we try to minimize those steps.
Justin Klein:Lots of reasons to say no. Take some courage to say yes, and I think probably especially true in a bigger company. Your teams, that's great. I appreciate your commitment to being involved.
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Justin Klein:With that experience you've had in investing in venture-backed companies and acquiring and integrating them, any observations about what's made for a more successful experience at any of those stages and I'm sort of trying to pull it Advice or things that we as investors or entrepreneurs could do to be a better partner to you, either during the early phase or?
Michael Mahoney:Well, we love it. We have a very large like 50 companies in our venture portfolio Love it. We have a very large, like 50 companies in our venture portfolio. We have a team small team at corporate that helps organize it. But then we have people in every division who are looking for companies like that was just presented, and those folks are very more clinically oriented and they know what that division wants or might need in the future or some disruptive thing. And then we have this process that's fairly nimble, I think, to review it and say yes or no, and we only invest in VC companies that we would like to buy and knowing that many of them unfortunately don't work out. But we only do it if we have intention to buy it. We don't do it if we own whatever 19% of it. But we want to make a nice, you know, a nice, have a nice exit and someone else buys it. That's like failure for us, because we only do it because it means strategic sense for us. Yeah, so that's how we think about it. I, first of all, I respect very much all the VC companies who are trying new things, and the VC companies that we bought have been the biggest growth drivers of Boston Scientific. So one other little thing we do, unrelated to your question, is a lot of times in a company the internal R&D teams don't really like the venture stuff, oftentimes because it's the candy and the cool stuff that they want to do, and so what we've done over the years is whether to spin out within so we might have a product inside that just doesn't have the right strategic priority or funding, and we'll spin it out and then we'll maybe buy it back later if it works out. We have some good examples of that. But sometimes fundamentally in a team and maybe just somebody aware of the R&D teams don't love it when they read, hey, you bought this company, this company, this company Like, well, what about our stuff all the time. So over time what we've proven to our R&D teams is when we buy a great venture company, that's early stage and we're going to augment that with the VC team, that talent and our R&D team is going to be working on this for the next gen and the next gen and the next gen. So it becomes a part of their R&D capabilities. So now the teams are actually pushing us more internally.
Michael Mahoney:But some companies they may think of it as almost like a competition. I can do this myself, so that's not maybe that's helpful, but it's true, at least at companies I've been at For the VC companies I don't know One is we like to work with a CEO who is transparent, who doesn't oversell, who you can trust. And not everything is green. We call it the watermelon. What's green? The circle, you know. Red, yellow, green. I'm colored by him, but it's green on the outside and red on the inside.
Michael Mahoney:So we like CEOs to say hey, this is really going well and this is not going as well, and if we're a part of the investment, maybe we can help them in some way, appropriately or about it. Oftentimes you'll talk to a CEO and like they had the best FIM ever in human history. They had the best animal lab ever. It's like come on, whenever you do that, there's going to be learnings from it. Like what is your what's, what's not good with the product? So we really like CEOs who are balanced and transparent and you can trust them.
Michael Mahoney:And then we like CEOs who have awesome development teams. That's the key. Yeah, your development team is critical. And then obviously it typically has to go to clinical trial and have great clinical outcomes. We also like some of the VC opportunities we have, like you mentioned two of them, ferropulse and Watchman that have turned out to be massive markets, and when there's a massive market, we're more willing and potentially disruptive, we're more willing to buy it early, really early, and take on that big dilution. But if it's a product, that's a nice product, but it's not a huge market, then we're not as willing to do that. We want that one to be more mature because the market opportunity is just not as big, and so part of it, I think, as the CEO, is being practical about how big the market opportunity really is and, based on that, what stage does it have to get to for a strategic to actually want to buy it, to be practical about it. I don't know if that's helpful or not.
Justin Klein:It is. I mean, I think most of us probably invest our time and attention into generating clinical evidence that validates an innovation and ideally positions it for commercial success, right, right, and if we're going to a commercial stage, we're driving evidence of adoption and proof points and you know the market opportunity itself. Are there some other things that you found to be actually quite valuable that maybe are sort of second order considerations, like manufacturing or quality systems or things that I think your team diligence as well?
Michael Mahoney:Yeah, the first thing you hit is the biggest one. Yeah, Once the product's in a clinical phase is how robust is their clinical study? Or is the clinical study designed just to get approval? Yeah, Like how robust is their clinical study? Or is the clinical study designed just to get approval? Like, how robust is it?
Michael Mahoney:Like Ferropulse, which we were angel investor in, which has been amazing for us, they did 30-day MRI follow-up on the first 100 patients, which is very unique, to see if there was any cerebral events and by seeing that in 50 patients we actually had a call option to buy it after the trial was fully enrolled, which was like 400 patients, and we bought it after 50 patients, even though the whole trial even though we could have waited, but we saw this first 50 patients the fact that they were doing MRI monitoring on it, which wasn't called for, gave us so much trust in those first 50 patients that we didn't want to wait for the next 300 because we want to ramp up manufacturing.
Michael Mahoney:So we actually bought it earlier than we two years earlier than we needed to. So I would say the robustness of the trial beyond just get to get it FDA approved, because the robustness of the trial also turned into the healthcare economics and great it's approved. We bought a number of companies. Allaire, I think, was a Minnesota company, maybe Great device to treat asthma, FDA approved could never get commercial coverage and so anything we can do in that trial to help with commercial coverage depending on what business it is is a really big deal Because the commercial coverage and reimbursement has almost become a higher hurdle for us when we analyze companies than the FDA approval.
Justin Klein:Yeah, yeah, I agree, it's really a long pull in the tent. Yeah, can we talk a little bit about, as a personal interest, the information that you rely on to lead to set a vision for the company. What are the things that you try to make sure you're seeing every day in terms of news or sources of information?
Michael Mahoney:I don't watch CNN or Fox because they both like make me depressed, so I don't watch either of those. I would say if you watch one, you should watch the other one, then watch the other one, then you'll turn them both off. But for me, I read the Wall Street Journal every morning and I read the Boston Globe sports section every morning and I read the Iowa Hawkeye recruiting football section for five seconds because they usually don't get many good recruits so it's usually not that long read. So that's what I do. That, um, but I I love I think part is being a leader. You have to love what you do. Yeah, and I really love, uh, it's in a weird way. I love my family and my wife, but I love Boston scientific, I love what we do for patients and I love the competition.
Michael Mahoney:And because of that, um, I do read a lot of stuff. I read a lot about our competitors, I read a lot about emerging trends. I read a lot about emerging trends. I read a lot about and I also visit. I spend a lot of time I don't spend as much time in the office as maybe you might think and I'm with our team a lot, I'm with customers a lot, I'm at advisory boards and I find that I don't learn much new in the office and I always learn more when I'm out with our customers, r&d engineers, our manufacturing plants, because people are very transparent on what we can do to make the company better.
Justin Klein:You've talked in the past, too, about figuring out how to learn from your team at all levels of the organization.
Michael Mahoney:Yeah, Say a little more about that. Well, I'm pretty sure I had the worst GPA on our team, so not a high bar that I brought to the table. I think it's just about just being. It's a team sport and I think people enjoy it when their leader is trustworthy and they're open to new ideas and they're open to pushback and they're open to disagreement and that's all basic stuff that you hear everywhere. But I've worked at companies where the leader used to be that way. Then they got better or bigger and then they weren't, and you couldn't give them bad news and you couldn't disagree Certainly couldn't disagree in public. It was just safer not to.
Michael Mahoney:So I think it's important to create a environment whether it's a small company or big company where your employees trust you and they can bring you the good and the bad and they can disagree with you. When I first joined Boston, it was not that at all. It was one person running the meeting and 10 people listening on the executive committee, then everybody getting the hell out of there because they were safe, and that's the worst environment you want. You really want to bring out your best of your people and you can only do that if you're kind of a bit more humble as a leader and knowing that they have great ideas and they probably know that business a bit more than you do anyway, but you can offer fresh perspectives.
Michael Mahoney:But I think it just creates, and we also do that across our teams. You know our divisions think about their division 80% of the time. They think about Boston Scientific, maybe 20. But there's really good collaboration across them in R&D and ideas and so forth, because they want to win it together. But I think that culture is a really big deal, because once we've all had bosses where you just don't want, to it's all green, yeah, and then you want to get transferred to another division yeah.
Michael Mahoney:The other thing I mentioned a lot to our employees is that people talk about the culture boss in scientific. I think most CEOs think their culture is better than it is. I think most CEOs think their bureaucracy is less than it is. I always tell our employees that the job satisfaction of a team is their immediate boss. It's not what I say in Marlboro or Joe Fitzgerald or Harvard, minnesota, it's their manager. And so if you run a quality team of four people, their job satisfaction is mostly tied. Whether they stay or go, it's mostly tied to their boss, and you'll have great bosses and shitty companies. Employees will stay and you have bad bosses and great companies. Employees leave.
Michael Mahoney:So it's so much of it is on our teams, cause they'll say, oh, the culture of this that? No, the culture is in your, wherever you are with your team, cause that's the micro culture of every company and that's where the leaders have to be, and so they can't blame it on the culture or whatever of some company. It's their team. They really can. You can completely change the destiny of your team with the right attitude. That's great.
Justin Klein:Another concept we've kind of read about or hear about in leadership is this idea that there might be wartime CEOs and peacetime CEOs and, depending on the environment, somebody's style or philosophy may be better for the moment. I'm curious if you see yourself as either one of those, a wartime CEO or peacetime CEO. And, as a side, are we in med tech in a wartime environment right now or a peacetime environment?
Michael Mahoney:I don't know. War is pretty dramatic. We have a lot of that going on in the world, for sure. But I don't know, I think it's. When I hear peacetime, my body likes the word peace, but my body goes ugh. That means like you're not doing much, you're not changing things. So I had initial bad reaction to that. War is a kind of aggressive word, so I just think it's the mindset of I don't think the industry. I think the industry is as strong now as it's ever been.
Michael Mahoney:Overall for MedTech, the innovation opportunity is as strong as they've ever been. It's only narrowed by our imagination. The regulatory environment in the US is pretty good with FDA, despite some of the cuts that have been made. We talked to some of their comments on to modify their regulatory practices. They kind of went from one end to the other. So I think they're going to move back more to the middle. So I don't think it's a negative time at all for MedTech. All the AI capabilities, all the new innovation, pulse field relation on college there's all kinds of innovation. That's not a shortage of that. So I think it's a good time in MedTech and I think it's always.
Michael Mahoney:There's always just choppy water. Yeah, I think there's always just choppy water, and you just have to whoever can navigate it the best with a winning spirit and with your teams. We can't treat it like the US. We have to be quicker and more agile and experiment more. In China, it's just the way it is, and do we all want China to have the same rules for local companies as multinationals? Yes, but it's a bit different, and so we have to figure out how to play differently there. So I think it's always kind of choppy, but that's the opportunity to distinguish yourself personally and the company versus the peers, and I think I lean more towards I don't mind choppy, because or, if it's not choppy, make it choppy, because that's when you drive change, and I think when companies just get stagnant and content, that's my biggest thing Then then you become a three or 4% grower. Yeah.
Justin Klein:Okay, last last questions, kind of, hopefully, advice for all of us collectively. When you think about MedTech and our ecosystem, and whether it's challenges where you're seeing today or maybe you're coming on the horizon, what's the thing that we should all be focused on addressing today or as soon as possible, so that 10 years from now we're in a better place, versus kind of set that aside and focus on what's a little bit easier right now, whether it's like the climate change of med tech or something. What would you encourage us collectively to be mindful of and really make sure we're attending to?
Michael Mahoney:Well, we talked about reimbursement. I think that's one. I think when you think of your clinical studies, depending on what product category you're in, the reimbursement's a big deal. So we talked about that before the other one. There's all these clinical unmet needs and there's no shortage of that, and there's so many VC opportunities and companies to look at.
Michael Mahoney:But one thing that we continue to see more and more is these and this is not new news, so it's not breakthrough news here these hospitals are challenged. There's, despite, like in our EP business, despite these procedures being half the time, the wait list is still 90 days, 100 days, and you go to Europe it's six months, and some of the products that we're creating and our peers are creating are even more complex procedures that are amazing for patients, but they might be two hours in the cath lab now, and so I just think that the demographics that we have, the stress that hospitals are under, I guess the word is productivity. Is this always the clinical unmet need? But you have to bring a productivity story to your hospital. Besides the clinical efficacy. You have to bring a productivity story to the hospital administrator, and the hospital administrators love it when it actually makes money for the hospital.
Michael Mahoney:If you have a productivity story and it's on the good guy's side for a hospital, then you've got a winner. If it's okay economics for the hospital, but it's a three-hour procedure, it's like good God they're cramming up the cath lab for the next. You can't do it. So I think, and more and more stuff will go to the ASC for sure, I think. But I think we try to look at productivity more now than we used to Before. It was always clinical efficacy, safety, meet the end points, ease of use. But I think this productivity story because of the pressures on hospitals and the demand for patients isn't going to go away. I think that's important yeah great.
Justin Klein:All right, I'm out of questions Not really, but this has been great. Thank you so much. Thanks for having me, justin. Yeah, please join me in thanking Mike.