Streamlining Hospitals: Omnicell CEO Randy Lipps (Part 3)

SM: You identified broken processes during your free consulting work. Was that the genesis of your company?

RL: It was. I went to a friend who was a venture capitalist and told him I had an idea of how to automate the deficient manual processes. I brought a video tape of what another company, Pyxis, had done for drugs and explained that I wanted to do something very similar for supplies. He told me he had been an investor in the company I had pulled out the video on. Pyxis had just gone through its IPO and was a huge success.

Managing supplies was worse than managing drugs. Pharmacists manage drugs and they were very careful about their process, yet the process was still broken. When it came to supplies, nobody was all that careful about it.

SM: Nobody else in the industry was doing that?

RL: Nobody else was even thinking about it. The only thing people had tried was to take standardized industry applications and try to make them work in healthcare.

SM: I am assuming that standard industry approaches did not match medical workflows?

RL: It did not have the mentality of the nurses. I quickly found that the daily users of the products were the key. We brought in 10 nurses to do a survey and focus groups. After the third of fourth nurse I could predict what they were going to say; “I don’t ever want to run out”, “I don’t want a hassle”, and “I want it easy to find”. That was it.

From that I knew we needed an intuitive product. I quickly discovered that you can come up with a lot of cool ideas that people are afraid of or do not like. We tried putting laser beams on shelves to detect what nurses were grabbing from shelves. Nurses were very skeptical about that solution.

SM: Who was designing the product as you were going through the process?

RL: Primarily just me. I had an engineering student from Stanford who was a co-founder with me.

SM: What was your initial product vision?

RL: We created a kiosk that allowed people to quickly get access. They just touched under the shelf when they took one item out. It was easy for nurses to understand how the process worked. Nurses knew that if they just touched under the shelf a replacement would be ordered automatically, that there would be no paperwork, and that because it was in a kiosk the doors could be locked to keep others out.

SM: Only the nurses had the key to get in?

RL: Yes, that was a huge key for us. One of the reasons nurses had private stashes was because interns would grab supplies while they were out on vacations. We built a prototype in my garage and built it there. I collected $100,000 from family and friends, including the venture capitalist friend who was not doing it as a venture deal.

With $84,000 we built a running prototype which included the server. I had three grad student engineers because they were affordable. I got some industrial art designs done, and that helped as well. After a while I realized it took too much time to make prototypes before the concept was understood. I then went to Sequoia Hospital and showed them my prototype. I would then ask them to try it out, and if they liked it they could buy it.

Sutter Hill Ventures was the first company to invest. This was the firm my friend was associated with, and they were impressed that we put a working prototype in a hospital for $100,000. Of course it was not really ready to manufacture, and we did not spend the money on anything else. It was proof of concept which got us $1 million in our first round of investing.

This segment is part 3 in the series : Streamlining Hospitals: Omnicell CEO Randy Lipps
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