In this episode, Mike Murphy, Managing Partner of Sunstone Management Advisors, discusses if you are making the strategic financial decisions that will stimulate growth.
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Learn how to listen to The Hospital Finance Podcast® on your mobile device.Highlights of this episode include:
- Most effective and transformative strategies to revitalize and invigorate growth
- The components needed to prepare for your healthcare business to change
- The role C-level executives have in affecting change
- Steps involved to bring a healthcare business to a billion-dollar reality
- Key elements in running a successful business in the healthcare sector
Kelly Wisness: Hi, this is Kelly Wisness. Welcome back to the award-winning Hospital Finance Podcast. We’re pleased to welcome Mike Murphy. Mike is the managing partner of Sunstone Management Advisors. He is a distinguished growth leader with over 30 years as a C-level executive, specializing in healthcare and insurance. As CEO, COO, and CRO, he excels in transforming businesses, revitalizing growth, and crafting innovative strategies. Mike’s achievements include propelling a new insurance division from a cold start to $435M in revenues and $22M in EBITDA in four years, now exceeding $1B. Noteworthy is his 18% revenue and 40% EBITDA growth within the first year of merging three healthcare entities. With hands-on experience, he led successful product launches, notably UnitedHealthcare’s inaugural National Dental Product Portfolio. Mike’s expertise spans M&A due diligence, post-merger integration, and turnaround strategies, consistently improving earnings and gross profit. His leadership, strategic acumen, and deep industry knowledge make him a transformative force in high-performance teams and change management. In this episode, we’re discussing, Are You Making the Strategic Financial Decisions That Will Stimulate Growth? Welcome, and thank you for joining us, Mike.
Mike Murphy: Great to be here. Thanks for having me.
Kelly: Well, great. Well, let’s go ahead and jump in. So, what are the most effective and transformative strategies to revitalize and invigorate growth?
Mike: Yeah. So, I start with the idea really about informatics and understanding where your business is going and how it’s going, particularly in the hospital and provider side. I spent some time on the provider side of the business, and one of the things that I was surprised to see was the lack of insight that a lot of providers have into their own business in terms of what are the sources of revenue, what are the sources of profitability? I mean, growth for growth’s sake is not a particularly effective strategy, but understanding where your market is, where you sit, what your share is, but as important as to what services and products in your portfolio produce the best margins and earnings. There’s an old adage, which is a great one, is that, “Nothing kills a bad product faster good marketing.” So having lots of clever marketing programs without the insights in terms of your service portfolio, what you’re really good at, what the competition is good at, again, this kind of balanced scorecard metrics– really spend a lot of time on marketing is not a particularly good use of time. So, the first thing I would say is have real strong command and control of your finances, and particularly the underlying kind of price mix volume analysis and contribution of the various margin of the various services that you’re offering.
Kelly: Thank you for sharing those strategies with us. So, in order to grow your healthcare business, you have to be able to change. What are the components needed to prepare for this change?
Mike: Wow, that is a great question. And I would tell you that throughout my career, I would say that the single most vexing issue that business folks face is around the element of change, when to change, when not to change. So, if you back up a second, folks that are doing things that are innovative and entrepreneurial or trying something new, there’s a sort of mindset resiliency that goes into that like, “I can bend the rubber tree plant,” because the whole world is telling you it’s never going to work. Henry Ford, the horseless carriage, just never going to work. He said if he listened to his customers, he would design better buggy whips. So, there’s that mindset that goes into that strength and belief and courage. But when the market starts talking to you, when do you start to go down the road of change? A little exercise that I would encourage everybody to follow is one I went through myself and happened to be with a provider group. There was a raging debate around the company in terms of not what our goals were. Everybody understood what the goals were. But the question is, “How much change do we need to get from where we are now to where we need to be?” In this particular case, we wanted to be a billion-dollar business in five years. It was a combination of that’s both revenue and kind of market cap. We were a publicly traded company. And in order to get there, we need 15% compounded growth every single year over five years to make that math work. And as a company, we never did anywhere close to 5. It was kind of a, “So how are we going to go from 5 to 15?”
And so the executive team was split. So, we basically did this little exercise on a scale of 1 to 10. 1, we can fall asleep in our chair and we’re going to get there. 10, we have to blow it up and start over again. How much change do we need to get from where we are now to what our goals were? And the room was split. So, it was like the 2s, 3s, and the 8s, 9s. Now, ultimately, what happened was that the company really needed 8-, 9-level change, but we started at 2, 3, and you can always turn up. So, the moral of the story there is that when confronting change, it’s a good idea, everybody’s kind of getting on the same page, and even if you’re an 8, 9 change, you have the benefit of time, you can start at 2 to 3 and turn it up. If you are a 8, 9 change, and you don’t have the benefit of time, then obviously, if you start really slow and incremental, you could ultimately fail. So the first thing is get a consensus around what the big picture objectives are. If there is a split in the leadership team or in the organization with regards to how much change do we need to go to get there, if you have the benefit of time, you can start low and move high to get consistent kind of buy-in. But communicating around change is difficult. And the last thing I would say is not everybody’s going to get there, right? If you have an organization that has been doing the same thing over and over again, because that’s the way we’ve always done it, and there’s that change-resistant, yet desperate times call for desperate measures, and you need that 8, 9 change, some of the 2 to 3s are just not going to be able to get there, and you have to make some painful decisions along the way.
So, the bottom line is start with a clear objective of where you want to go. Have a discussion with the rest of leadership in terms of how much change is required to get there. And again, some of the numbers I talk about– if you actually put tasks in like, “This is what 2-change look like. Oh, we’re going to tweak the comp program,” as opposed to, “We’re going to hire a whole new sales team,” that sort of thing. And get those kinds of things memorialized and try to take the angst out of the amount of change that you’re going to go through and embark on that journey. And then constantly check yourself. Go back on how are we doing against our objectives? Is 2- to 3-level change working? Do we need to turn up to 5? Do we need to turn up to 8? Whatever that is. Again, this all assumes you have the benefit of time. Sometimes the house is on fire and having a garden hose isn’t sufficient. You’ve got to call the fire department. But in terms from a leadership and communication perspective, I find that kind of laying these things out in bite-sized chunks with tasks that people can understand, I think helps an organization gets through the cultural and emotional shock of change.
Kelly: Yes, change is difficult for most people, that is for sure. That’s great advice. Thank you. So, what role in a healthcare organization do C-level executives have in affecting change, which leads to growth?
Mike: So, it starts with a spiritual leader, right? It’s not just the prompting and the metrics and all that. It’s living, embodying, and breathing the objective of growth, but also promoting and fomenting a culture built around constantly checking itself and challenging itself. There are two quotes that I use that are my faves. One is from Vince Lombardi, where he says, “Perfection is a goal that can never be attained. But if we pursue it with all our might and all our capability, along the way we will find excellence.” And the second quote that I really enjoy is from Winston Churchill during the Blitz where he said, “Sometimes doing one’s best isn’t sufficient. Sometimes you must do what is required.” So, I always took those things to heart and always knew that the single biggest thing that the C-suite needs to do is set the tone and build the culture.
And if you’re building a culture around task pressure, not relationship pressure, that is to say that it’s open covenants openly arrived at, we can have fierce and wonderful debates about tasks without necessarily bleeding into kind of relationship or relationship pressure. If you have that kind of an organization that is in relentless pursuit of perfection, knowing that they’re imperfect and okay with it, and have that mindset of, “I’m not going to limit myself in terms of what I think I can do. I’m going to do what I need to do.” If you’ve created that culture or that kind of environment, and you have a good kind of business strategy– the story I tell is when I started working, my father said to me– he gave me three pieces of advice. He said the first one was to out-earn your pay. So, in equal partnership, you give 51%. And the great Bill Russell had a great line. He used it. His father said, “I don’t care if you’re a ditch digger. You be the greatest ditch digger in the world. You’re more valuable to the job than the job is to you, and that way, you can tell your boss to go to hell,” which was his variation of the theme. The second thing is that you don’t spend other people’s money. Don’t get caught up in the politics. And the third thing is make sure your boss knows who you are and what you’re doing. And if you’re at the right organization, you’re doing something that matters, and you’re doing it well, everything else works itself out. So those kinds of cultures built around those simple premises with leaders that live and breathe this, are the ones who are going to be successful.
And the last thing I would say is a thing that I– I quote Ayn Rand on Check Your Premise, and this is a way to get at it, kind of the growth strategy. A, I have a great company, and we do magical things and do great things for our customers. B, I have a market that’s thriving and driving and people want our business. C, I have a very successful, growing, profitable business. And if A plus B doesn’t equal C, you need to go back and check your premise because one of the two things at the top of your funnel are off. So, summarizing, it is create a culture that is built around task pressure and surround yourself with people that have an invaluable kind of will to win and turn them loose and then make sure that you’re the embodiment and example of that kind of culture and communication. And then check your premise against your business goals and constantly question whether you’re on the right track or not. I mean, if you do those things and you have the right strategy and you have the right execution, you will develop a thriving, growing, exciting company.
Kelly: Yeah, that makes a lot of sense, Mike. And I loved all those quotes. Those were fantastic.
Mike: Thanks.
Kelly: So what steps are involved in bringing your concept of a healthcare business to a billion-dollar reality?
Mike: Well, it’s back to my A plus B equals C, right? So, it started off with– this was right after the Affordable Care Act. The owner of the company, an entrepreneur in his own right – great Horatio Alger’s story – came here. Orthodox Jewish baby, born during the Holocaust, escaped the Hungarian Revolution, came here with nothing more than a shirt on his back, and became the 80th richest man in the country. And he was my boss. And I jokingly said, “Every day was an interview,” and it was. But he had a vision that the Affordable Care Act was going to create an opportunity for alternative solutions and products in the marketplace. And so, the healthcare and health insurance space, obviously it’s dominated by the giants, the BUCA, as we’re aware of, but there was going to be a niche out there. And we started as an insurance company, but we also did a lot on the distribution side. So, our strategy was really built around offering alternative supplemental ancillary to consumers, to agents, to try to create a store-like environment where agents and consumers could come in and purchase their, say, Affordable Care Act major medical coverage, but also could purchase products and coverages that would backfill some of the large deductible plans.
And so, we had a sound strategy, we had an emerging market, and then we were relentlessly built on execution. I was surrounded by outstanding people that had those ideas that we described. And we took off. I mean, I think when I started it, we were five employees, and there was no task too small, dirt under the fingernails. We did 3,000 product filings or whatever. We did some acquisition, no doubt, but it was really just fundamental. Right market, right people on the inside, relentless focus on execution, bias towards action. Don’t say, “Tomorrow,” it was, “Today.” And we took advantage of it. And that business is over a billion dollars today. It’s one of my prouder achievements. I go back and look at it.
Kelly: Wow, sounds like exciting times then, Mike.
Mike: It was. It was. It was a little nerve-wracking. I mean, we had to navigate the regulatory world and we were building something from scratch. And again, I went in the first day. I went in and I said, “Okay, here’s the team I need.” And they looked at me and they said, “No. [laughter] No.” “Are you getting people on the team?” “No.” So, I had to do it on my own, but they allowed me to get some itinerant help. But I just rolled my sleeves up and there were a lot of things that I had to do as the head, basically the CEO of the division. I was directly managing 3,000 product filings with some outside help. But it was the journey, it was the excitement. We were building something. Whenever you’re on that journey, again, you don’t feel like you’re working. Even though you’re 78 hours a week, and it was ups and downs and all that. It’s just so exciting, and I wouldn’t have traded it for a minute.
Kelly: Yeah, sounds like just the experience of a lifetime, really.
Mike: No doubt.
Kelly: Yeah. So, what is the key element to success in running a business in the healthcare sector? I think you have a lot of experience with that.
Mike: Yeah. So, I start with a couple of things. One is – I do believe this – business is a team sport, and I don’t soft soap or under-club the importance of the C-suite. But in the same token, 90%, I think, of what a leader does revolves around having the right people, and the remaining 10% is create the environment for them to win. The minute I made– at some point in my career, I had a little bit of the gift of gab, and so, “Oh, you could be a salesperson, make a jillion dollars.” I said, “You know what? I really enjoy coaching. I really enjoy getting results for others. And so, I think I’m going to go that route.” And that has always been my passion is to work with others and build teams. And a couple of things is, again, I’m a history major, so I kind of sprinkle in these little things and kind of operating philosophy. And again, first off, if I could find people that have that Vince Lombardi mindset chasing perfection, where I don’t have to point out that things are wrong, they take it to heart. And my number one role is to be in there and buck them up, is to say, “Don’t worry about it, Jane or Joe, it’s okay. You’re great.” “Oh, I didn’t get–” “I understand. Here’s a lifesaver. Get back in there and don’t be afraid.” And the same thing, folks that don’t limit themselves with that kind of, “Well, it’s not my job,” or, “It doesn’t fit my responsibility.”
So, surrounding yourself with those kinds of folks is the magic. And I’ve seen magic. I mean, there have been things in my career where people say, “Oh, this can’t be done.” And it got done. And it was less because what I was doing and more because I had a great team. Now, don’t get me wrong, I created the environment and fomented the environment for them to be successful. I remember one young lady, as our relationship was ending, she said, “You made me.” And I go, “I did not. You were always you. I just was smart enough to figure out a way to put you in the right position and let you take off and let you go.” So, I think above all else, that’s the single most important thing is surrounding yourself with the right people. And in the culture, you create an environment that’s built on task pressure, not relation pressure, so. And the other thing I talk about is open covenants openly arrived at, back to my little history major thing, which is communicate openly. I tell people, “Don’t rehearse your speech. Speak your mind. Don’t be down the hall worrying about politics. And I’m going to be more interested in the content of what you’re saying than how you’re saying it because we have that trust.” And then the second thing is divine right of kings. I don’t believe in the divine right of kings. Now, having said all that, it is not a democracy, right? You have to have a leader. You have to take responsibility. You pick the spots where you’re going to pull rank and not. You hopefully don’t have to, but when you do, you just step in and say, “I’m sorry, this has gone on long enough. I need to step in.” And the last little thing I use is, “Damn the torpedoes, full speed ahead.” Have a bias towards action. Have an organization built on getting stuff done. And again, if you’ve done a good job on your strategy, you’ve done a good job in understanding your market, and you’re executing, and you’re focused on your management, no matter how difficult it is, magic will occur, and it’s certainly fun to watch.
So that’s kind of the philosophy I’ve operated in from an early age and had some great teachers along the way. And the successes I’ve had in my career where I’ve executed these turnarounds or done this magic has all had those elements attached to it, and it’s been very consistent for me.
Kelly: Wow, thank you for all that great advice and those great tips. Mike, we just thank you so much for joining us today and for sharing your insights on, Are You Making the Strategic Financial Decisions That Will Stimulate Growth? Again, really appreciate you being here.
Mike: My pleasure.
Kelly: And if a listener wants to learn more or contact you to discuss this topic further, how best can they do that?
Mike: Sure, they can reach us at sunstonemanagementadvisors.com. A lot of alphabets there. It’s all one word. Backslash, hospital finance. So love to hear from you. And we’re happy to engage. And I do a fair amount of work during the week where it’s not a commercial relationship. I don’t have my tin cup out. I just love talking to folks and building contacts and relationships, even if it’s only for future reference. So, reach out to contact us, and I’m happy to talk to you.
Kelly: Wonderful. Thank you for sharing that. And thank you all for joining us for this episode of the Hospital Finance Podcast. Until next time…
[music] This concludes today’s episode of the Hospital Finance Podcast. For show notes and additional resources to help you protect and enhance revenue at your hospital, visit besler.com/podcasts. The Hospital Finance Podcast is a production of BESLER | SMART ABOUT REVENUE, TENACIOUS ABOUT RESULTS.
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