A great business plan is good; a flexible one is better 

Feature October 3, 2007

Experiencing the market at ground level is quite different than it appears from the lofty outlook most entrepreneurs premise their business plans on. Taking those differences into account and being able to change course quickly are fundamental to any startup’s success. Rich Lunak, whose career included the presidency of McKesson Automated Healthcare at an early age, learned a lot about keeping nimble. Today, as CEO of Innovation Works, he shares that insight with a new generation of entrepreneurs.

By Peter Longini, Managing Editor

Like all good startups, Automated Healthcare – now McKesson Automation – began with a thoughtful business plan in 1987. It was premised on a straightforward concept: taking the robotics that was then becoming common in manufacturing and applying it to pharmacy – another very repetitive activity that also required a high level of accuracy. After all, a series of powerful forces in health care had been falling into place that virtually cried out for the benefits of automation. They included the need for improving quality, reducing costs, managing patient information, and controlling medication use more tightly. It was a great idea and the timing seemed right. But, according to Rich Lunak – currently CEO of Innovation Works and who, while still in his early twenties, joined Automated Healthcare as its third employee and quickly rose to become its president – there is a world of difference between the academic view of a market opportunity and the way it actually works on the ground. As a result, the business plan needed to twist and turn in a number of important respects as the company began to grow. “What you learn is that a team’s ability to course correct, to adjust as they go, and to learn based on feedback from the marketplace and the challenges they’re experiencing – is necessary to becoming successful,” he reflected.

Dr. Scribble

Take the case of dealing with physicians, where the prescription process begins. “I can tell you that research shows that fifty percent of all medication errors happen in the physician order entry phase,” Lunak pointed out. “Day in and day out, patients suffer from medication errors because someone can’t read a physician’s handwriting or the physician may not have considered all of the appropriate criteria when prescribing a medication such as drug-drug interactions, minimum-maximum dosing, the appropriate frequency or dosage form – all of the factors involving correct medication therapy. You might think that step would be automated because a computer could clearly help a physician understand the 12,000-plus drug interaction combinations and assess the patient’s clinical pathway and understand the minimum and maximum dosing criteria for patients given their demographic information and weight and vitals and so forth. Right?”

Not exactly. “The truth is that physician order entry systems are used in less than five percent of hospitals. And part of it is the fact that today’s manual systems are not only convenient but also engrained in the clinical workflow for the physician. It’s very easy for a physician to scribble down a prescription and hand it to a nurse,” he said. “But a pharmacist or pharmacy technician might misread it and substitute it with a lookalike-soundalike drug or even mistake the dosage. So rather than it being 1.0 milligrams, maybe he thinks it’s 10 milligrams and makes a dosage error.

“The problem is that when you talk to the physician and say ‘I’ve got a software package that’s going to prevent these errors and here’s how it works: You’re going to need to login and select a generic drug and then select the dosage and then select the frequency of how many times a day and whether it’s going to be an oral medication or an I.V., etcetera.’ Suddenly that physician, who used to take two seconds to scribble something down on a piece of paper and hand it off to someone, is flipping through ten different screens,” Lunak said. “You’re just slowing down his work and creating a lot of barriers to adoption. And oh, by the way, that physician may not think he makes any errors in the first place.”

The other stakeholders

But recognizing issues in the clinical workflow was only the beginning. “The user-buyer might be the pharmacist and pharmacy director,” Lunak pointed out. “This is a very expensive piece of capital equipment being sold into a hospital pharmacy. It is a department that isn’t accustomed to making large capital equipment purchases. Now we’re coming in and trying to sell them a multi-million dollar piece of robotics equipment.” Of course there are also the nurses who administer the medications, and the hospital CIO who has to approve the interfaces between our automated information system and the hospital’s. And then there’s the facilities director who needs to renovate the pharmacy in order to install the robot.” It’s a very complicated sales process with multiple people influencing the outcome.

“Really understanding the entire environment you’re operating in and what drives it, and what the value propositions are going to be, and how you sell through objections, are all very critical,” Lunak noted. “What seemed like a very good academic exercise – developing a company to build software that automates the medication use process, might sound to someone outside the industry like a no-brainer. But the realities of the world and how these products operate in it are vastly different from the academic endeavor.”

“I could have a great product that delivers real value. But when the customer has a Cerner information system and I’ve never interfaced my product to Cerner before, that’s a big barrier,” he said. “Some customers might say ‘I need a suite of custom reports,’ or ‘I need 24-hour service,’ or ‘are you going to be able to guarantee me six-hour response time in Madison, Wisconsin if this thing breaks down?’ So all of these aspects became critical when we looked at them from a customer perspective.

“It’s really important to understand the customer’s workflow and operations. If you’re going to make a real improvement, you need to do more than just mimic or automate the existing processes,” he said. “Automating something like the medication use process in a hospital has many different stakeholders – physicians, nurses, pharmacists, pharmacy technicians, etcetera. It’s a very complex system. You have to think about how your solution can interact with all those other constituents because if you don’t, they can become significant barriers to adoption.”

Growing smarter

Over time, as Automated Healthcare became better grounded in the day-to-day operations of its customers, it began to alter its approach to the market. “There were a lot of things we changed along the way or tried to improve upon,” he said. They eventually grew to include the entire company as well as its solution set. “We initially saw ourselves as a single product company, but we ended up growing into multiple, integrated product lines that automated various steps of the medication use process. We became a company that was all about quality improvement, return on investment, improved information for hospital managers, and tangible results for our customers. So the vision of the company evolved and grew and ended up being much bigger in the end then the way it started out.”

Its business model also morphed. “We initially assumed we would only sell products to hospitals. As the business evolved, however, we needed to offer operating leases and even outsource certain labor components of the pharmacy in order to access a broader set of the market,” he said. “Over time, we got a lot smarter and learned how to attack different sectors of the market. So when some people needed services and wanted us to operate their product, we added that to the portfolio. We had operating leases, and purchasing options, and all sorts of different product line extensions, and we supported different kinds of operating scenarios for end users. We certainly didn’t have all those things from Day One.”

“People sometimes minimize those functional areas they’re less familiar with, and certainly an ingredient to our success was putting together a strong team in all the different facets of our business, whether it was sales, or marketing, or manufacturing, or engineering, or finance. Entrepreneurs need to be passionate and relentless in their pursuit of success. But they also need to keep their egos in check and not assume they know everything,” he reflected. “Try to learn from mentors and coaches and your customers. And don’t be afraid to make course corrections as you go. Very few businesses have an eloquently written business plan right out of the gate that you can execute like a blueprint and, voila, you’ve got a successful company. You need to be a student along the way.”  

About the Author:

Peter Longini is the Managing Editor for Inside Product Strategy™. He can be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .