The State of Healthcare Innovation in Minnesota with Kyle Rolfing

Kurt talks with Kyle Rolfing, serial healthcare entrepreneur and supporter of the Minnesota health-tech ecosystem. They discuss the history of healthcare innovation in Minnesota, how the industry looks now and what entrepreneurs are hoping for the future. Listen to the insightful conversation between the two founders, both with long ties to the region.

Transcript

Kurt

Great. Well, Kyle, thanks for joining us here at the Carrot Shtick this afternoon. It’s good to see you again.

Kyle

Absolutely. Thanks for having me.

Kurt

I appreciate that. And I, you know, wonder if maybe you would just share a little bit of your background with our listeners and kind of your history with innovation in Minnesota particularly and then, maybe use that as a springboard to talk about what we’re doing in the state.

Kyle

Sure. So, well, professional background, I’ve been in healthcare, embarrassingly, now over 30 years. I’m an old man. And the first decade was with larger companies like Aetna for the bulk of that. And then Hewitt Associates now Aon Hewitt. And then, over two decades ago, I took the plunge and co-founded [my] first healthcare startup and have done a couple others since then. So, it’s really been two decades of founding and leading healthcare startups, all of which have been here in the Twin Cities market and continued to be focused on that in this area.

Kurt

And what’s that like, innovating in Minnesota, particularly? How is that unique or different from elsewhere in the country?

Kyle

Well, what I like to say is it’s cold in Minnesota, but it is a hotbed of healthcare talent. So I think in many respects, it’s a competitive advantage to be based here, found companies here, be able to attract talent from organizations like United Health Group, Mayo, Medtronic, depending on, kind of, what type of innovation, healthcare innovation you’re bringing to the market. We have all different aspects, which I think is super important, not only because those organizations are great companies, as you all know, and develop really talented people, but healthcare is super complex, has its own intricacies of language, of how things work, and to have people that you can tap into that are talented and understand all of that is super important to try to then bring innovation to the market.

Kurt

Yeah, so talented people seem like a really key component that if without the people, we there’s no way we can be innovative. What else do you need to be successful?

Kyle

Well, of course, as you well know, in any entrepreneur knows, capital comes into play. And I think in this market, that’s harder than maybe other markets where you tend to see bigger financial institutions having invested locally in their communities, whether it be Boston, or Silicon Valley, or New York City, or we could go on, on and on some of the newer innovation hubs that are taking place around the country. And unfortunately, we haven’t seen that influx of capital in this market, even given the talent that we have to leverage here.

Kurt

So that makes it harder to create a business here without that access to capital. What, you know, what does that mean, in the long run of creating a bigger ecosystem of innovation here in Minnesota?

Kyle

Yeah, it’s actually a pretty scary proposition. Back in the 70s, Minnesota was known as kind of a computing capital of the world, actually. Honeywell Cray, IBM had big locations here in Minnesota. And it was kind of the epicenter for all that. And now, when you talk about technology and technology innovation, Minnesota doesn’t even pop up on the map. And I would argue, if we’re not careful, the same thing could happen in healthcare. It’s something where, when you do have innovation, and you do have industries and companies that come about in an environment like Minnesota, where Medtronic was a startup at one point, United Healthcare was a startup or even Mayo was a startup at one point, have become very large, innovative companies. But if we don’t continue to look at what is needed for that ecosystem to continue to churn out innovative successful companies, healthcare could go the way technology went in Minnesota. I hope we never see that day happen.

Kurt

Yeah, no. I think you’re spot on and that, and we’ve got some real assets here in those other companies in the people talent. In fact, I’ve heard you describe it, I think is the Silicon Valley of healthcare here in Minnesota, or at least aspirationally. How do we get there from where we are today? How do we capitalize on those assets?

Kyle

Yeah, I would say, Kurt, it’s definitely aspirationally. I say we should be the Silicon Valley of healthcare. And I think the main ingredient and the hardest one to achieve we have, which is what we talked about the talent and people that are steeped in healthcare and understand it, talented individuals that brought to bear on innovation or healthcare can do so many great things. But we do need to get the capital in place. If you think about Silicon Valley, you think about wealth creation that happened in that community was really around startups, and you could name off so many that have happened in that community and created great wealth. Well, that wealth that happens, those people then look to invest in things they know, which are other startups and innovation and so they have a robust angel investment community that really gets these startups to a level whereby they have momentum, they have the first product iteration, they may have customers. And they’re very fundable then by venture capital, which also happens to reside near that community and access to both of that. Here, if you think about where wealth has come from, it’s really come from those big companies that I mentioned that, although were startups at one point, they were it was decades ago. And people are still getting very wealthy working for these big organizations, but not from doing startups. And so, when they look to where are they going to invest, they don’t necessarily know that startup environment community, what it means to be a successful entrepreneur starting something from scratch, so we don’t have the flow of investment. Now we have some really cool companies on the horizon that are starting to see success that I hope will be the start of some wealth flow that happens into the healthcare entrepreneurial community, that then gets fed back into feeding more and more innovation through those types of companies in the future. But that’s an ingredient that’s missing right now.

Kurt

Yeah, that’s an interesting point. Because I think when I look at Carrot and my history, we intentionally went down a path of bootstrapping, without outside capital, for I think those reasons, that it was, was easier for us to do that than it was to try and find outside backers. And so, when other entrepreneurs ask, Well, how do you get started, I always say, well, find a customer, right? Find somebody who can fund that. But I think that the same conservatism that you describe in the investing community also exists in the larger corporate entities here where it’s always been easier for me at least to sell an idea or an innovative concept outside of Minnesota and then bring it back then it has been to sell it to one of the big Fortune 500 companies here. Is that the same sort of thing? Do you see that elsewhere?

Kyle

Well, first of all, I would validate what you’re saying, Kurt, and talking to other entrepreneurs, particularly healthcare entrepreneurs in this community, that theme has been there. And as a matter of fact, I’m part of Medical Alley organization, which is not only a geography medical alley here, but it is an association of all types of healthcare organizations, large organizations I mentioned before as well startups like yourself, as you well know, across the board. And we started looking into this as an issue, starting from the entrepreneurial mindset, like, why can’t we introduce innovation through local health systems, local health plans, the organizations like Medtronic, Mayo, United, it seems like just a petri dish would be there and there would be an embracing of that type of innovation. So, we talked to those organizations and asked them the question why. And the response was, when they’re seeing stuff come to them, from the entrepreneurial community, whether it be here or from other markets coming to the Minnesota market, what they’re seeing are things that are 100% baked and a lot of passion from the entrepreneur and buy this and their comment coming back was I wish they would come to me earlier. So that instead of meeting 50% or 75% of the need I have, we could have influenced, hitting the target, a bullseye of 100% of that need, and being that customer. I think what you said, Kurt is really wise, finding that customer and really building the solution with them to be applied in the broader market can be a really good solution for that. And Medical Alley’s trying to take that input that we got from both entrepreneurs and these larger companies and come up with solutions that will make those connections earlier. Help from a funding standpoint, because you have a customer, and revenue, but also have a partner in bringing new solutions to the market.

Kurt

Yeah, that you’re right, that early collaboration with an anchor customer, for us, was invaluable to have somebody to try it out on in the real world and see, you know, is it working, is it not working, but at the same time, we had to have real revenue from that customer to be able to survive. And so, if there’s a way to kind of combine those two, and have it be less baked as an idea and still iterate towards the right outcome, the challenge, I think, is just getting people to take a risk on something that’s less well-proven. You know, for me, at least, taking something that’s half-baked to Medtronic, you know, I tend to get a well, this doesn’t solve our problem, because you’re not done yet. Come back when you’re ready. You know, and so I’m a big fan of what Medical Alley has done, they’ve been really invaluable to Carrot over the years in connecting us with, you know, resourcing from a staffing perspective. And just as they’ve reached out from the larger companies trying to create a home for the entrepreneurs, that’s been really helpful. But I wonder if there’s almost education that we need to do with these larger entities to understand that taking a risk is not necessarily a bad thing.

Kyle

Absolutely. And they are starting to listen on it. It’s been interesting talking about why there’s a need for doing this. If you look, that the example I gave on the computing epicenter of the world here and completely gone, that resonates with a lot of the folks here, they remember that time. The other thing that people remember is when there was a ton of M&A activity in the device world. And Medtronic has taken a huge leadership on that. And the environment is such today where that’s starting to not be nearly as robust, that M&A, both in the device world but also in other areas of healthcare. And so, these large companies are looking around and they don’t see the M&A opportunities for them, which is a big part of how they grow and ingest innovation, knowing they can’t always churn that out themselves. And so, Kurt, they are starting to listen, they know they need to make some changes, they need to come to the table. And I think Medical Alley is a great entity to kind of bring both sides to the table. And it is a win-win. Particularly as you look downstream and M&A that happens, you know, years and decades from now, because we put the right building pieces in place today.

Kurt

So, what’s your vision around this ecosystem? How do you create that sort of virtuous cycle where there’s more investment and more companies and more M&A and more — it benefits everyone?

Kyle

Yeah, well, you know, the very best that you could hope for would be like a Silicon Valley where we have a bunch of really big liquidity events, right, for healthcare entrepreneurs and they reinvest in the community. That can take a long time, that won’t necessarily happen. And if we just sit and hope for that, the timing might not work out and it might not actually come about. So, what we spend time doing with Medical Alley, with a number of founders, with some of these large companies, is looking at the dynamics that are in place. We have this talent, how do we really get it to get put it to use in terms of innovation, the challenge of the investment, and the approach that’s been there for literally decades, I’m sure you’ve heard this, got a great idea, understand that dimension, if I could just get access to capital, then we can move this forward. And what people have been working on in this community and others is, oh, how do we attract more capital to this community and entrepreneurs? And then we’ll solve it. Well, we haven’t solved it by hoping that we could. And so, we kind of reverse-engineered it and said, well, what do folks use capital for, and when you think of entrepreneurs, and what they use capital for, it’s for people, it’s for other people, it’s for services. It’s for things like legal, finance help, marketing, it’s also for connections, and first customer and what it takes to land that and build. And so that’s typically what angel dollars are used for. And we have a concept that we’re bringing to the market and talking to these large companies and asking them to invest in a nonprofit enterprise. Not for equity from these founders of healthcare organizations like your own, Kurt, but rather think of it as community investment, to have a robust innovation ecosystem in healthcare for all sorts of reasons, short and long term, and to contribute dollars towards that. And they would commit to collaboration with these organizations, as early customers, and taking a risk, as you mentioned, and those dollars would be used to subsidize services in the areas I mentioned, like legal, finance, marketing, etc. And what that does, is it makes the requirement for capital much less, and maybe zero, at least for a period of time to get that first customer. And think of the number of additional innovations, innovative companies we’d see planted to start growing, not all of them will be successful. But they’ll get to a different level whereby they can more easily, then, attract the series A and beyond capital they need. The dynamics that we’re facing today, we’re seeing a lot of that innovation never get planted. And if it does, it doesn’t have the care and feeding to kind of get it to a level where it can raise capital and move things forward. So that’s kind of the vision, we’re just having conversations with large organizations. And it’s resonating and there’s excitement around it, we’re confident we’re going to see movement on this, if not later this year, early next year.

Kurt

I have to say, I love the fact that it’s a not-for-profit idea. As an entrepreneur, you know, this is sort of the fourth time I’ve gone through this process, the number of people with their hands out asking for equity or asking for big checks. And I think, you know, we day one with no revenue, we were writing these checks for $50,000 to legal firms to just create the company, like there has to be a better way to do this. I don’t have — I can’t keep paying all these people. So, I love the not-for-profit idea around that.

Kyle

Well, it also connects more to, this is really about investing in the community and creating that Silicon Valley of healthcare. And think of all the benefits that happen in the community and for the companies that are in this community as a result. So that enables them to use foundation money to actually make these types of investments into the community and start and really supercharge that ecosystem.

Kurt

That’s great. Yes, it’s back to the, we all do better when we all do better, that sort of thing. Right? Is there, along those lines, is there a racial or ethnic diversity goal there? Can we help address some of those disparities?

Kyle

Yeah, it’s part of the charter, there’s actually in there to make sure that we are investing in the underrepresented demographics that you talk about. And that’s super important in healthcare, not just because it’s the right thing to do, no matter what industry we’re talking about. But the implications of how do we make sure that we’re serving, you know, all aspects of society. And we need all of that representation as we think through those, as we bring innovation to the market. And so, Medical Alley has actually made that part of the charter of this group as we move forward.

Kurt

Oh, that’s great. That’s a great way to look at it. I’m excited to see what comes next from that, and, you know, sort of who are the next great entrepreneurs that come out of that process.

Kyle

Yeah, it will be great to see.

Kurt

Well, appreciate your sharing some of this with us, Kyle, I look forward to learning more about the process as it goes forward. Any last thoughts that you want to share with our listeners?

Kyle

You know, I would say, first of all, I appreciate the opportunity to just come and speak with you. And Kurt, thank you for your involvement and leaning in. As you know, Kurt’s part of an organization, we call the Founders Club, which is now over 30 healthcare early-stage startups, all in this market, in the Minnesota market, kind of reinforcing. And Kurt, if you remember, we started that almost five years ago now. And less than 10 people at a time, and now over 30. But I mentioned that, because that started just with the idea of, we should get together and figure out how we help one another out, and this is a journey and it’s not easy to find and lead any types of companies, but particularly healthcare companies, and you’ve seen the benefit from and you’ve contributed to the benefit of others in that community, Kurt, and I would just ask your listeners to do the same. We don’t need to wait for the next idea, the cool incubator accelerator, then how do we take Minnesota and turn it into the Silicon Valley of healthcare, we can all contribute by leaning in and helping this community that’s bringing healthcare innovation to the market, which not only benefits Minnesota but the entire world. So, thank you for all you do and whatever the listeners can do now and in the future.

Kurt

Thanks, Kyle. Appreciate that. I have to say, Founders Club has been a godsend to me, personally. I think back to the early 90s when I started my first entrepreneurial venture, and people said, you’re going to be a what? Does that mean you’re unemployed? Like what? What’s an entrepreneur and why would you do that? And not having others to rely on who’ve been there before, at times, I think Founders Club is kind of like a group therapy session with other CEOs where I can say, Oh, my gosh, I’m having this problem with my staff or my suppliers or my customers. And these are people who’ve been there and they can laugh at it and share and that’s been just so much fun to have a community of people like me, you know, like you, and that’s fun. So, thanks for helping to organize that.

Kyle

Absolutely. Thanks for being part of it.

Kurt

All right. Thanks.

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