Happy 20th Anniversary Tony, Marc and John – Part II

Twenty years ago, three brothers started a firm that would transform and elevate the business and practice of treating musculoskeletal disorders. On the occasion of their 20th anniversary, we profile Tony, Marc and John—three extraordinary visionaries, entrepreneurs, leaders, investors, managers, partners, friends and mentors.

Each brother has his own strength and personality.

As Tony described the differences to OTW, “John is a very detailed operator. Marc is a creative genius. And I am just a good salesman.”

“Somehow these three personalities work together in a very successful way, the way they did on the first day of our formation and it still occurs today.” explained Tony.

Indeed. No project gets a VB green light unless all three of the brothers are on board.

“Forming VB is a very interesting story. Marc, John and I were working for Stifel Nicolaus, the regional brokerage firm. Marc and I were in research and John was in sales. We had developed the idea of creating a spine arthroplasty business. We took this idea to Stifel Nicolaus and said the spine market is going to change dramatically. We have to invest in spine arthroplasty and total disc replacement as a direction because fusion isn’t going to be the only solution.”

“One day, we said, just like what happened in hips, knees and shoulder is going to happen in spine and the market is going to move to arthroplasty as a solution. And Stifel’s CEO said, ‘Tony, you’re an analyst, go back and do your analyst work. We are not a firm that’s in the venture capital business.’”

I said, “’I understand your view and I understand your leadership in the firm, so now it’s time for us go our different ways.’ Marc, John and I bought out the Stifel Nicolaus office that we had set up three years before in Manhattan at 505 Park on the 14th floor where we still are today, 20 years later.”

When VB was formed in August 1999, it was just Marc, John, Tony a receptionist/office assistant, Huyen Nguyen, a research analyst, Olga Kapitskaya—and that was it.

Today VB is a family office holding company of the three, still young brothers, an office assistant, administrative assistants, a couple of analysts, an accounting group, a CFO and chief legal officer. Twenty years later the company is still at 505 Park Avenue and is still small with just 12 people. Their portfolio of companies, however, employs more than 300 people who get up every day and go to work on groundbreaking orthopedic technologies.

To get the full sense of the VB impact, here is a historical review and then, for the first time, the description of the VB recipe for success and its essential elements.

The VB’s Unparalled History in Orthopaedics

With more than 11 market share leading orthopedic products to their credit, the VBs have driven more than their fair share of orthopedic evolution. Here are four examples of their outsized influence on this industry.

How have the VB’s so consistently spotted such major opportunities as these and then used that knowledge to build first mover advantages which, in turn, grew into market leading, if not defining, products and companies?

In their own words, it’s by driving orthopedic care from the removal (amputation) era, to repair (fixation), to replace (motion preservation) and, ultimately, to regenerate.

At each stage, the VB’s have brought innovative solutions to the orthopedic, spine and neuro surgeon.

Learning From Failure

During their Wall Street tenure and over the next 20 years evaluating, investing in and operating orthopedic businesses, the brothers have had their share of success, failure and everything in between. From those experiences has emerged a complex, multi-layered process for evaluating, investing and building businesses.

Here, in summary form, are some of the seminal moments that came to form the VB system.

The VB system begins with a business building foundation—aka: the VB 4 Main Philosophies.

Those philosophies describe how to build a sustainable business. But not a transformational business. That requires the VB secret sauce—four main ingredients and approximately 39 subordinate tasks.

VBs 4 Main Philosophies

• Build the Business

Four steps: 1) Find and understand a big, unsolved orthopedic clinical problem, 2) Find the surgeon or specialist who found the answer, 3) Invest or buy that solution and 4) Use clinical evidence to establish an unbreakable barrier with Level 1 clinical data and then use that data to dominate a sustainable market share position.

“We did that with the coflex technology. Stenosis was a very large, unsolved problem in the adult population with back pain. We found a French surgeon who’d identified a way to solve stenotic back pain without fusion. We bought his invention. In the U.S. we put that product, named coflex, into Paradigm Spine. Coflex eventually achieved a number one market share position in the global spinal stenosis market.”

• Maximize Success

Five requirements: 1) Laser focus, 2) Be the most knowledgeable. 3) Commercialize surgeons-centric innovation, 4) Establish global relationships with that innovation and 5) Leverage scope, depth and breadth of expertise.

“No one in 2004 was focusing on the hand surgeon or the foot and ankle surgeon, as a principal physician solution provider. So, we decided to dedicate an entire franchise to provide solutions for the small bone surgeon and to be the most knowledgeable. We decided to only develop products invented by surgeons. Commercializing surgeon-centric products.”

• One Block at a Time

Five building blocks: 1) Use surgeon and industry relationships to identify needs and underlying trends, 2) Select products, 3) With a laser focus, cutting edge technologies and a solid support system, create the product platform, 4) Develop management, supplier relationships, logistics and research expertise and, finally, 5) With gold standard quality control, goal monitoring, professional services and consistent improvements, go to market.

• Implementation

Implementation, where the rubber meets the road, is particularly complex. But the VBs have taken what many consider to be an art and articulated the seven essential elements for successful implementation.

These are the hard-won lessons, turned into philosophies that underlie the VB approach to building businesses.

The Four Ingredients of the VB Recipe

What the VBs do is a bit like 5-dimensional chess. The pieces are on the board and in their respective places, but now comes the style and pattern of play—some of it intuitive, some programmatic but always with a healthy helping of pragmatism. Here then, mixing metaphors as we go, are the four basic ingredients of the VB recipe.

• Vision: It took a Michelangelo to look at a raw block of marble and see his great masterpiece, David. When the VBs look at an entrepreneur, they are looking for someone who has both Michelangelo’s vision but also the grit and ability to chisel away, step by step, and transform a raw company into a masterpiece. Flexible, nimble, and pragmatic thinking are character trait requirements of entrepreneurial leaders who become VB business leaders.
• What, Why and How: A lot of people focus on IP (intellectual property). The VBs are equally focused on RP—regulatory property. Over the years, the VBs have developed a scoring system which helps them to clearly define the what, the why and the how. The system quantifies technological feasibility, sales channel strength, entrepreneurial thinking—short-term/long-term, clinical applications and technological strength.
• The Value Proposition: Using their proprietary scoring system, the VBs rate each opportunity according to its competitive strengths, market size, applicable indications, number of patients and management experience. Can this technology and company become a market leader? Can it transform a corner of orthopedics? Answering those questions in a disciplined and quantitative way, helps the brothers understand the value proposition.
• The Qualitative Assessment: For the VBs, this is all about setting gold standards so that the first mover advantage is not squandered. Here the brothers focus on the relative strength of their first mover advantages; the magnitude impact of their technology; the six elements of sustaining leadership; the attractiveness of exit opportunities; and finally, valuation and related transaction structures.

The Future

In many ways, for Tony, Marc and John, past is truly prologue. What they have built and what they own is the foundation for the next 20 years.

Following the 4-R’s, the next great VB accomplishment, we’d expect, would be in regenerative medicine. The one technology arena that, above all others, will require a VB-style of commitment, savvy and, of course, grit.