San Francisco Science: Jerry Sanders wants to form a new venture, San Francisco Science (SFS), in the hopes of recreating his entrepreneurial success with X-Cardia, a medical device company. Given his talents as a businessman and the supporting expertise of his colleagues, Schmulewitz and McHenry, he is likely to succeed. I think it makes sense to invest in San Francisco Science, and not just because of the people running it.
The fundamental problem this venture addresses is a real one: People with substantive expertise in the medical devices field fail to succeed in marketing their innovations because they do not have the business acumen required. San Francisco Science attempts to bridge this gap by being the network broker who connects the right people and resources to generate a successful business venture. “Networks deliver three unique advantages: private information, access to diverse skill sets, and power. ”[1] Private information is crucial in making judgments. At SFS, Sanders is the key to such information.
A network broker is a very important person; he is well connected with the other entities involved in the market. Jerry Sanders was the network broker in the case of SFS. Many medical device companies did not survive in the market exactly because they did not have a successful network broker helping them make needed contacts to keep their business going. Jerry Sanders, however, was clever enough to acquire the needed contacts and information to make the venture successful. He was central to the team’s potential success. Jerry Sanders was already president and Chief Executive Officer of a successful medical devise firm, X-Cardia Corporation.
His dynamic personality, ability to connect with people and find out what they needed to hear, and huge network of contacts were terrific assets to SFS. Success of the firm depends on how innovative and pragmatic approach of the founders. Sanders, co-founder of SFS, knew how to effectively bridge the communication gap between scientists and businesspeople and hence, successfully derive necessary capital for the inception of the company. His value came from his immense ability to understand the dire needs of investors and how to correctly comply with them.
The aptness of delivering what investors want before they could ask gave him a huge plus. He was a strong link between every stratum of the industry. But, Sanders loved to work on multiple things at a time. He had a hard time dedicating himself to one thing at any given time and this “built to flip” [2] mindset could work for or against the SFS venture. “Built to flip” refers to the idea of translating ideas into money. In today’s time, especially in San Francisco, where all the budding entrepreneurs flourish, there exists a trend of making money from ideas as soon as possible.
Gone are the days when entrepreneurs had a vision of making a company with a full range of in-house products; a one-stop shop for customers which in turn provided a stable economy. For example, Wal-Mart, whose annual revenue exceeds $130 billion annually, provides just about anything a person needs, at a low cost – a built-to-last company [3]. Most start-ups nowadays, however, just want to get a company to the point where it can be sold for the maximum price, regardless of its potential longevity. Sanders, with his short attention span, is a prime example of this kind of thinking.
SFS may, therefore, not be a company with a long future. Luckily there are other human assets to keep it going. In addition to Sanders, Ascher Shmulewitz, co-founder of X-Cardia Corporation and its scientific backbone, devised a unique technique for measuring cardiac output. He was an indispensible asset to the company. His value came from his ability to see potential (sometimes in a long-existing technique or product) before anyone could even think about it. For example, the idea of measuring cardiac output non-invasively was really obvious to him, but no one had even thought of it.
Shmulewitz and Sanders were quite a team as “Sanders handled the business and negotiation side of deals [and] Shmulewitz concentrated on the science. ”[4] At SFS, Shmulewitz is likely to be a driving force in coming up with practical applications for the innovations the firm is trying to market. His indispensible nature as an ideas man might prove as a threat to the company, however, if he ever decided to leave. Sanders and Shmulewitz provided SFS with two parts of a three-part recipe: Business acumen and scientific know-how. Marguerite M.
McHenry, Executive Vice President of X-Cardia Corporation, was the free gate pass for the company into the medical device industry. She was well-connected in the market and carried good credibility as well. “McHenry facilitated data collection, Shmulewitz analyzed it looked for trends, and re-engineered the product. ”[5] Sanders was the network broker between the firm and financiers, and McHenry was the broker between the firm and the industry. San Francisco Science has a strong team, which improves its odds of succeeding, but it also has its share of pitfalls.
For instance, before he became a successful entrepreneur, Sanders lost half a million dollars with his first startup [6]. If he failed once he could fail again with SFS. Even if SFS does not immediately fail, Sanders might lose interest in the company due to his short attention span. In addition, if Shmulewitz decides to leave the venture then SFS would certainly fail. Without his scientific excellence, Sanders and McHenry can’t run the company. The medical device industry has also changed in landscape. It boomed in the 1970s and early 1980s (the industry growth rate was approximately 15% then, but decreased to 7% by 1996) [7].
This sharp decline likely reflects the scarcity of buyers in the long run. In short, there are both positives and negatives in the SFS venture, but risk is part and parcel of any new startup. I would invest in San Francisco Science at the end of the day. It is founded on great idea, so has the potential to succeed. Each member of the founding team is the best in their field, which increases the odds of success. There are some weaknesses, but none of them are fatal in the short term. I would happily invest in SFS for the short term and expect to see high returns for my effort.
Like Sanders, however, I would have to sell my stake once my profit was made, because ultimately, the company may not outlast the departure of its founders.
References: [1] “How to Build Your Network”, Brian Uzzi and Shannon Dunlap, p. 2 [2] “Built to flip”, Jim Collins, February 29, 2000 [3] “Built to flip”, Jim Collins, February 29, 2000 [4] X-Cardia, “Jerry Sanders”, January 20, 1998, p. 110 [5] X-Cardia, “Jerry Sanders”, January 20, 1998, p. 111 [6] “Jerry Snaders”, January 20, 1998, p. 103 [7] Appendix A Overview of the Medical Device Industry, “Jerry Sanders”, January 20, 1998, p. 120
