This article is the twelfth chapter of The Entrepreneur's Journey, a collection of stories about startup companies and the entrepreneurs who built them. To continue reading about key startup themes and lessons learned, check out the entire series here in The Seraf Compass, or purchase the book on Amazon in paperback or Kindle format.
One of the toughest jobs in the business world is the CEO role in a startup company. It’s a rare breed of person who has the complex mix of skills to successfully launch and grow a major company. In their never ending search for potentially great companies, investors focus much of their attention on the character and capabilities of founding CEOs. And, two of the most important skills to look for in a CEO are tenacity and the ability to sell.
Tenacity is defined as the ability to persist even in the face of daunting challenges. Life in a startup is a series of highs and lows just like riding a roller coaster. It takes resilience to handle the extremes a CEO sees almost daily. You can’t let the good days go to your head or let the bad days get you down. A CEO’s tenacity allows her to continue the battle to succeed when others would give up.
And, it goes without saying, selling skills are crucial for a CEO to build a successful business. It’s an absolute necessity for a CEO to lead the charge and convince others to join the march. Whether talking to prospective customers, potential investors or future employees, the CEO must be able to sell.
Having known and worked with Gene Gregerson over the past 20 years, I knew he had those two key skills. In 2008, he approached me to help fund his third startup, a medical device company called Mobius Imaging. Gene had sketched out a rough plan to build from scratch a portable CT scanner that would change the way diagnostic imaging would be used in hospital operating rooms. My first reaction was that this is not going to be easy. As things turned out, to pull off this audacious goal, Gene would ultimately have to fight for survival far too many times. And, he had to use his selling skills to convince much larger companies to support the development of his industry-disrupting CT scanner.
Gene grew up in Salt Lake City, the son of a residential home developer. He said, “My father taught me the value of hard work at an early age. During my high school years, he had me help his home building business by hauling lumber and framing houses.”
When asked where his tenacity and competitive spirit came from, Gene points to two important periods in his life. “In high school, I became interested in bodybuilding. I had a great teacher help me set ambitious goals in the sport and achieve them. The first Mr. Olympia, Larry Scott, retired to Salt Lake City and opened a personal training business. I trained with Larry, and ultimately, his support was key in my journey to becoming the Utah High School State Champion for bodybuilding.”
The next stage in Gene’s life was as a mathematics major, first as an undergraduate at BYU Hawaii, and then as a graduate student at Tufts University in Medford, Massachusetts. “I was surprised with how competitive the math department was at BYU Hawaii,” said Gene. “The department was small, but the students were really smart. I thrived there as I loved the people, the location, and the studying. When I arrived at Tufts to get my graduate degree, I realized that I had to take it up another notch. At Tufts I was competing against some of the top math students in the country.” It was through lessons learned during these years of bodybuilding and math competition that Gene developed the tenacity and mental strength he would need to be a successful startup CEO.
So where did a young bodybuilding champion, math major from Utah learn how to sell? Extreme mathematical ability is often associated with introversion, and sales undoubtedly requires the skills of an extrovert. Gene’s path to developing his sales skills is unusual. Growing up in Utah, Gene was raised as a member of the Church of Jesus Christ of Latter-day Saints. As part of his commitment to the church, Gene served as a missionary in Brazil for two years.
“It was a very eye opening experience for me,” said Gene. “I grew up in a community in Utah that was not diverse, whereas Brazil was. It was the first time I witnessed extreme poverty and understood just how some people must struggle in life. I lived and worked in poor, dangerous areas. During my time as a missionary, I learned how to sell. As you can well imagine, it was not easy recruiting new members to my church in a country that is predominantly Catholic. One key lesson I learned during my time in Brazil is I can only sell what I truly believe in.”
Gene was introduced to the world of medical imaging while he was a graduate student at Tufts. He studied under Professor Todd Quinto, an expert in the field of tomography. Tomography is a mathematical technique that combines image slices into a three dimensional representation of a physical object. One of tomography’s most common uses is with medical imaging devices such as Computed Tomography (CT) scanners.
Gene worked closely with Professor Quinto on unsolved problems posed by Professor Allan Cormack, the Nobel Prize winner for his work on the mathematics of CT. Gene’s career never strayed far from the work he began as a graduate student. And today, Gene is one of a small number of people in the world with truly deep expertise in the field of medical imaging.
My first encounter with Gene was in the mid 1990s, a few years after he graduated from Tufts. We were both working for startup companies in Boston. My company, Advanced Visual Systems, built 3D visualization tools used by Gene’s company, Visualization Technology Inc. (VTI). VTI was developing an image-guided endoscopic sinus surgery platform. I was impressed with Gene’s technical skills, and hoped I would get an opportunity to work with him in the future.
Gene worked at VTI for five years. He said, “I was hired by the CEO, Maurice Ferre. Taking the job at VTI was one of the best career decisions I’ve made. Maurice was a terrific mentor. I learned so much from him which I still value and use today.”
VTI was ultimately acquired by General Electric, and Gene moved from a startup to a Fortune 500 company. Not surprising, it wasn’t a good fit for Gene. “While working at GE, I came up with an idea for a new medical imaging device that was a rotating C-Arm,” said Gene. “As the device rotated, it would collect multiple image slices. I developed a method to reconstruct 3D models from the slices. I thought it was a great idea, but GE wasn’t interested. They weren’t willing to fund my product concept.”
My second encounter with Gene was in 2003. At the time I had my hands full running an angel group in Boston called Launchpad. Gene approached me looking for funding for his next startup, Breakaway Imaging. Unfortunately, for a variety of not very good reasons, we didn’t invest. Breakaway had a quick exit for a medical device startup. Gene was able to launch, build and sell the company in about five years. Investors achieved an excellent return in a short period of time.
Gene’s journey with Breakaway Imaging wasn’t as easy as I make it sound. Gene recalls vivid memories of an intense, five year effort to launch and build the company. “I woke up one night at 1:00 AM and came up with the idea for Breakaway Imaging. I took out a home equity loan and convinced a colleague to join me at Breakaway. We tried to raise money from VCs but with no luck. Their general feedback to us was, ‘If your idea is so great how come GE hasn’t done it?’ I really resented the whole VC fund raising process.”
Just prior to starting Breakaway, Gene was introduced to Dr. Hansen Yuan, a Professor of Orthopaedic and Neurological Surgery at the State University of New York (SUNY) Upstate Medical University. Having little success raising capital for Breakaway, Gene contacted Dr. Yuan and asked if he would be interested in hearing about his latest idea.
Gene’s story of his meeting with Hansen is a classic. “We built a wooden mock-up of our product. We put it in a small U-Haul and drove 300 miles for a meeting with Hansen at SUNY in Syracuse, NY. At the end of our meeting, Hansen slid a check for $500,000 across the table. I love this guy. He has a great demeanor. He knew all the people in our industry. He was a great doctor and a great businessman. And, he helped us raise the financing we needed from his colleagues.”
With the necessary capital in hand, Gene began the development of the world’s first O-Arm Imaging System. The O-Arm was designed to give orthopedic surgeons detailed 3D views during surgical procedures. It was a medical imaging device with unique capabilities. Dr. Yuan and his colleagues believed the O-Arm would provide the break-through intraoperative visualization they needed to improve patient outcomes.
Breakaway received FDA approval for their product in June 2005. Almost two years later, the company was acquired by Medtronic. Gene and his investors did very well with the payout from Medtronic. But, it had been a long, hard road for Gene over the previous five years. He needed a break to catch his breath and get the rest of his life in order.
Entrepreneurs generally get restless when they sit idle. Gene Gregerson proved to be no exception. After about a year of recovery, Gene was ready to get at it again. He said, “I knew two things. First, there were a lot of limitations with the O-Arm device we created at Breakaway. Second, Medtronic’s success with the O-Arm was changing the medical imaging world. I had an idea for a new device that would provide surgeons with even higher quality diagnostic imaging than the O-Arm. And I was ready to launch another company.”
“With a rough outline for this new product in mind, I called Dr. Hansen Yuan and asked if he was interested. It didn’t take much to convince him to invest in the company, which I had named Mobius, and to join our board of directors. And, once again, Hansen made key introductions to additional investors.”
Gene’s timing for launching Mobius was both good and bad. In late 2008, the world’s economy was plunging into the deepest recession since the 1930s. Raising capital for a startup medical imaging company wasn’t going to be easy. But with Dr. Yuan on board as both a co-founder and a financial backer, Gene at least had a start.
When Gene contacted me in early 2009 to ask about an investment from Launchpad, I wasn’t going to make the same mistake I made with Breakaway Imaging. Gene presented a compelling case for the concept behind Mobius’s mobile CT Scanner. At that time he only had a PowerPoint presentation. However, his track record of success spoke for itself. He’s a “jockey” you would be crazy not to back. Despite the pre-prototype stage he was at, we put our trust and money behind Gene.
Building a new CT scanner from scratch is both challenging and expensive under the best of circumstances. What Gene was looking to do was almost an order of magnitude more difficult. His vision for the Airo Scanner was truly audacious. He wanted the device to have three novel features. First, it had to be portable so it could move from one operating room to another. This would save hospitals significant costs with the delivery of imagery. Second, the inner bore, where patients lay, had to be big enough to accomodate large patients and instrumentation during intraoperative imaging. And finally, the Airo needed to integrate with surgical navigation systems to provide real-time updates to the surgeon during an operation.
In order to pull off this challenging trifecta of leading-edge features, Gene had to overcome numerous technical challenges with limited financial and engineering resources. A well-funded company such as GE or Medtronic might take on such a challenge, but they would spend tens if not hundreds of millions of dollars over at least a decade of development to pull off such a difficult product development plan. Gene had neither the luxury of that funding nor the patience for that kind of extended timeline.
Against all odds, Gene was able to build the Airo from scratch in less than four years for less than $10 million of equity financing. This was an extraordinary accomplishment. When asked how he was able to do it, Gene said, “With Mobius, there were five key elements to our success. First, don’t invent what you don’t need to. Second, more money is not helpful. Third, the best time to start a company is during a bad economy. Fourth, look for sources of non-dilutive financing. And finally, hire a small, talented engineering team.”
Let’s take a closer look at each of those elements. In order to build the Airo, Gene needed electronic components that didn’t exist in 2009. The Airo’s design required parts such as x-ray tubes and batteries much smaller than those available at the time. Here’s where Gene’s amazing selling skills came into play.
“There is a company in almost any niche that does something very well. So, why not get that company to work with you. For example, I approached Varian to develop a custom x-ray tube for us. By selling my vision of Mobius and what Varian would gain by working with us, I was able to convince Varian to take a risk. We didn’t have to spend a penny on their development efforts. And, they ended up with a new x-ray tube that’s installed in hundreds of scanners around the world,” said Gene.
The second success element for Mobius relates to how the company was financed. Gene is a proponent of limiting the amount of capital you raise to launch a business. Gene reflects, “Taking more money is almost always a bad decision. In the middle of difficulty lies opportunity. When you don’t have money you stay focused. And, with too much money you have a propensity for waste.”
The third element is a bit difficult to control because it relies on when you launch your business. Gene said, “I believe the best time to start a company is during a bad economy. Talent is more widely available. And, companies desperate for new business were willing to do things for Mobius for free that they wouldn’t do in a strong economy.”
Element four relates to the overall plan for financing a hardware business. Hardware companies are expensive to run. Product development and manufacturing costs are high. And product inventory can eat up a ton of capital.
Gene knew all about these issues from his days at Breakaway. “I didn’t want to dilute our investors’ ownership in Mobius by taking on a lot of equity financing from VCs. I knew I had a valuable asset that I could use to leverage my financing. Distribution rights for the Airo would be worth a lot when we started shipping the product. I mustered all the sales skills I had and convinced Brainlab, a leading image-guided surgery company, to pay upfront for these distribution rights. Brainlab provided us with significant funding over several years. This helped with our cash flow and reduced our need for additional debt or equity financing,” said Gene.
The final element in the ultimate success of Mobius relates to the size of the engineering team. The Airo is a very complex product. A natural inclination would be to hire dozens of engineers to build it. Gene recalls how he took a different approach. “I decided I would take on the role of General Contractor for the product. Just like my father was the GC on the houses he built, I was the GC for the Airo. I built an internal team of ten highly talented engineers, and worked with a small number of outside companies such as Varian to build key components. I kept management overhead low and streamlined communications to get the job done in a timely fashion.”
With the successful release of the Airo in 2014, Mobius introduced a groundbreaking technology for image-guided surgery. As is typical in the healthcare industry, bigger companies quickly became interested in Mobius. In the Fall of 2019, Mobius was acquired by Stryker for $500 million. Gene, yet again, delivered a big payday for his investors, his employees and for his family.
Looking back on the ten year journey of Mobius, from original idea until the sale to Stryker, we can extract some important lessons for anyone thinking of launching a company selling sophisticated hardware products. A central element to the company’s success ties directly to the selling skills Gene developed as a young man on a mission in Brazil. His ability to convince companies like Varian and Brainlab to back an unknown startup provided him with the financing and technology he so needed. Furthermore, his ability to recruit some of the most talented engineers in Massachusetts ensured the product would be built.
Gene’s many years of experience at VTI and Breakaway served as a great learning environment to prepare him for what he needed to do to make Mobius a success. Building a hardware company is hard, but Gene had experience with the key elements that would make his path more straightforward. His journey with Mobius was never easy, but success never is.