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The voice of experience on entrepreneurship

AUTHOR: Deborah Tarrant   DATE: 08.12.05   ISSUE 3, 2005

It’s a never-ending story, as he likes to tell ResMed employees. “Success is a journey with no finish line – that’s the good news and the bad news.” Dr Farrell is now in the rare position of being able to view commercialisation both from academic and entrepreneurial perspectives.

"We need to build an innovative, creative, imaginative culture – and education is the way to do it." Dr Peter Farrell AM

Photo: David Smyth

Exposure to entrepreneurial trailblazers is a vital starting point. As a chemical engineer with just a few years industry experience in the United States and Canada, the originally Sydney-based Farrell first recognised the real potential generated by bringing together commercial enterprise and science and technology while completing his Masters in Chemical Engineering at Massachusetts Institute of Technology (MIT) in the 1960s.

There he came across not only entrepreneurial professors who were running their own businesses, and hiring their students while teaching but, when later employed to work in MIT’s bursar’s office as an industrial liaison officer, Farrell had a unique vantage point and access to great innovators through exposure to an impressive alumni and other US business leaders.

His entrepreneurial inspiration may have been sparked, although it would be years on, encompassing the career highs of a PhD from the University of Washington and founding UNSW’s Graduate School of Biomedical Engineering, before Dr Farrell who was heading research and development for Baxter Health Care would see his opportunity and effectively seize the moment.

It came in the mid-eighties after Professor Colin Sullivan of Sydney University had shown Dr Farrell a “Darth Vader-like mask” to treat obstructive sleep apnoea. Once it became apparent Baxter was not prepared to pursue the development of the device for sleep-disordered breathing, Farrell and cohorts bought the rights for A$1.25 million.

Timing is an important part of every entrepreneur’s story

Almost 20 years later ResMed, a global company has a major foothold in supplying devices for sleep-disordered breathing and a market capitalisation that’s reached almost $4 billion. The company’s potential has grown with strong links between cardiovascular disease and sleep disordered breathing now verified. Today Dr Farrell works between the ResMed’s dual bases in San Diego and Sydney. “We’ve got 2200 employees and we haven’t started yet,” he says.

The path to entrepreneurial and innovation success is far from smooth, Farrell attests. “You get a lot of knockers and you need a high tolerance for bad news.”

Focussing on real outcomes – “delivering something that adds value” – is the key, he insists, and that’s underpinned by the importance of understanding that “you can’t talk about innovation until someone writes a cheque”.

Dr Farrell who is providing the seed funding for Australia’s first Innovation, Commercialisation and Entrepreneurship initiative, a joint venture between AGSM and UNSW’s faculties of Engineering and Science, says he hopes to provide the catalyst for Australia to develop “a strong, viable entrepreneurial culture where innovation thrives”.

University campuses need a closer connection to what’s happening in the real world.

Illustration: Gregory Baldwin

The initiative, to form a cross-disciplinary centre promoting a new breed of entrepreneurs, aims to bridge the gap that currently exists between scientific invention and the business community. Part of this will involve greater exposure to entrepreneurial leaders in the field.

Dr Farrell is providing seed funding for Australia's first Innovation, Commercialisation and Entrepreneurship initiative, a joint venture between AGSM and UNSW's Faculties of Engineering and Science.

Innovation and entrepreneurship are vital for wealth creation, according to Dr Farrell, and wealth creation is a fundamental part of every growing society. He believes Australia needs a cultural wake-up call to promote entrepreneurial endeavour. “We need to build an innovative, creative, imaginative culture – and education is the way to do it,” he says. Through the Farrell Family Foundation he is a wide supporter of educational initiatives and has recently undertaken the US$3 million funding of a chair in sleep medicine at Harvard University.

While Australian academic institutions generate great science and technological advances, they would benefit from a loosening of regulations, Dr Farrell claims. As one who has seen the entrepreneurial environment from both sides, he believes university campuses need a closer connection to what’s happening in the real world and to be able to function within its enterprising parameters.

Innovation and entrepreneurship are vital for wealth creation, according to Dr Farrell, and wealth creation is a fundamental part of every growing society.

Australian universities would benefit from following the competitive lead of their US counterparts which operate as private institutions determining their own fees and salaries, says Dr Farrell who currently serves on boards at Harvard, MIT and the University of California San Diego.

Typically, Australia has been poor at the commercialisation of inventions because there has been too much focus on input, he says. “We need a system that is connected to the markets, so people can deliver things into the marketplace and make money.”

Similarly, relaxing the corporate governance regulations of Australian superannuation funds to allow greater exposure – “perhaps 2 percent more” – to higher-risk investments would add impetus to Australia’s entrepreneurial push, he believes.

Dr Farrell remains a firm believer that technology is "the turbo-charger of the future. It's the driving force."

From left: Professor Mark Wainwright AM, Dr Chris Roberts, Gary Zamel, Dr Peter Farrell AM and Rob McLean. Photo: David Smyth.

However, Dr Farrell is not an advocate for risk taking, which he says has been popularly – and erroneously – associated with entrepreneurs and their activities. “Entrepreneurs don’t bet on hunches, but on their analysis of situations and risk management. They are opportunity seekers who can see a little bit further over the horizon,” he says, adding that good business practice can be readily summed up in an acronym – EPIC – that stands for ethics, performance, innovation and communication.

Dr Farrell remains a firm believer that technology is “the turbo-charger of the future”. “It’s the driving force. If you go back through history, technology has always led the way, preceding science.” ResMed has invested heavily in technology R & D because, in the view of its founder, “there’s always a better way to do things.”

Teaching entrepreneurship and innovation involves “taking the blinkers off”, he says. Good entrepreneurs need business basics; to be strong communicators, and to have an understanding of marketing and how to read and leverage a balance sheet, confirms Dr Farrell.

The entrepreneur's template Beyond this, Dr Farrell has a template for prospective entrepreneurs to use as a basis for their decisions: 1. The size of the market. “Be an early mover in a field with huge potential,” he says. 2. Foster the right connections by working with world-class people. “Accessing great thinkers and knowledgeable people doesn’t necessarily mean putting them on the payroll,” Dr Farrell says. “Set up advisory boards and pay the people to attend business meetings.” 3. Understand technology. A complete understanding of the technology you’re working with, along with knowing the capabilities of competing technologies. Entrepreneurs need to do a rigorous evaluation of whether they have the right skill sets to develop the technology, or if they are able to build that skill set. 4. Realistic timing. “Accept the 4:2 rule from the outset. It’s going to take four times as long and it’s going to cost you twice as much money – or the other way around. You have to be working on something that’s going to happen in your lifetime.” Having a plan and identifying the endgame are vital. (The biotechnology sector, in particular, confronts challenges and demands realistic planning due to its ethical and regulatory issues, says Dr Farrell from the vantage point of San Diego which he describes as “an intellectual cauldron of powerhouse medical technology and biotechnology people” who are currently operating some 500 life sciences companies and have access to leading research institutes and academic facilities – but very few of these companies are running profitably, he notes. In establishing a biotech company, it’s important to know where you are going, Dr Farrell says. The result may not be running a standalone business, doing an IPO or opting for a trade sale. It may mean becoming the research arm of a pharmatechnology company. “All of these are valid as end points, but you need to determine that outcome at the start,” Dr Farrell emphasises.) 5. Finance. Being able to see the way for funds to be raised to finish the end game is also critical. “No entrepreneurial venture will get all the money upfront. It has to be able to show results. You have to tell people: here’s the plan, here’s where we expect to be in two to five years. Down the track you can point out how you met your objectives and ask people to invest,” advises Dr Farrell. “Investors don’t mind paying for something that looks as though it’s going to be real. You need an understanding of who is likely to give you the funds and what they need. Are you going to be able to take it into the marketplace with the team you have and get someone to write a cheque?” 6. The Alpha factor. “You’ve got to love it to stay the course because so many things can go wrong,” insists the voice of experience. Dr Farrell says this ‘Alpha factor’, the ability to get up every morning and think you’re glad you got into that business, is essential for an entrepreneur’s ongoing optimism. Few potential ventures will pass the checklist above, cautions Dr Farrell. Once this has been worked through a thorough financial analysis should follow, including present net value, expenditure and how long it will take to break even or become profitable. “When you’ve done a hard financial analysis, then you go for what’s going to pay the rent,” Dr Farrell concludes, adding a last advisory point about frugality. “Never throw money away – it’s very hard to make.”