YC Fireside: Surbhi Sarna + Adam Elsesser - CEO of Penumbra

Hi everybody, welcome! And Adam, thank you so much for being here today.

Yeah, thank you for having me. I, uh, I want to apologize in advance maybe there's a little noise in the background. My headphones didn't work and I'm at a medical conference, so hopefully you can all hear me okay.

Yeah, Adam, we can hear you just fine, and thank you so much for being here. Folks, um, that maybe haven't heard of Adam's background quite yet, uh, Adam started Penumbra and took the company from its founding state all the way to a market cap of 10 billion, and he did this as the founder CEO, which is so incredibly rare in our industry.

And, but in fact, this is your second company, right Adam? Did you, did you, did you always know that you were going to start companies?

No, in fact, it's the exact opposite. Um, I wasn't an ambition. Um, uh, in fact, I started my career. Um, I actually played in politics for a couple of years, um, realized I might be still too idealistic to do that. So, I went to law school, um, became a practicing lawyer for many years, did commercial real estate, um, in the Bay Area, became a partner in my firm. And it wasn't until the late 90s that, um, I was having dinner in New York with my best friend from college who was a neuro-interventionalist.

He had all these crazy ideas and, um, in a silly bit of fate I jokingly said let's start a company. I didn't mean it and we started a company and here we are.

So, so tell us about um that first company. So, you said it sort of jokingly. When did you know that this thing was going to be more serious and what did that, what did that first company work on?

Yeah, so what happens? We're at a dinner. Um, I had um been married before and I had just met um a woman on a blind date that I fell madly for um in the first date. Um, and Irani Pose, my co-founder, was my best friend from college, and I was telling about her. He lived in New York; we lived in the Bay Area. Um, and I wanted him to meet her. Um, so the point of the dinner we went to New York to have a long weekend and the point of the dinner was for him to meet Martha. By the way, I've been married to Martha ever since and still the love of my life.

Um, but uh, he gave me the sort of sign, the thumbs up sign very quickly in the dinner because she's amazing, um, and told me I better not screw it up. Um, and then I guess he felt, um, that he could then spend the rest of time talking about his stuff. Um, since he had to protect that box on his stuff, uh, my stuff. Um, so he started talking about ideas for neurovascular devices and this is back in 1998. And in 1998, there was really only one at that point cleared um medical device, the first detachable coil um that Target Therapeutics had done, and then Boston Scientific bought.

And so, it was very early. There were all kinds of needs and he was talking about aneurysms and stroke and all kinds of things that I didn't really know much about. Um, and it was interesting for a little bit but after about 15-20 minutes, I realized we would spend the next two hours talking about it.

So, because Martha was there, I couldn't just tell him to shut up; that would look rude. So, I suggested that we start a company. It's not that hard thinking that would stop him from talking about it, but then we'd be done with it.

Um, so I knew I had screwed up pretty badly the next day when he called me, um, while I was still in New York and insisted that we get together to sort of plan starting that company, which I was reluctant to do. But again, Martha's the nice one and suggested it was okay.

And we planned the company and started that company about a month or two later. That was called Smart Therapeutics, and the company made the first stent ever to go into the brain. Um, and we ended up selling that company to Boston Scientific a couple of years later.

And so how was that transition into entrepreneurship for you? Right? We have a lot of listeners who are perhaps doing something else and are thinking about becoming founders. What was it like to go from doing something completely different into the seat of a founder?

Yeah, well, you know, there was something I used to say as a lawyer, um, because, and I think it's really the advice that I would give anyone who is considering doing this, and that is, um, understand how you view the idea of uncertainty.

Um, I don't mean risk; risk is a quantifiable thing, you know, you can look at and say what are the odds that I'll do this or that, and you can quantify risk. But uncertainty is just uncertainty; you have, you really can't quantify it. And most people, me included, you know, were pre-wired not to like uncertainty. We kind of hope that, you know, we have a plan and then we want the world to sort of fold out, you know, in front of us according to the plan. That isn't very valuable. Like, that is like, that's a bad thing, so you have to like uncertainty.

Um, and um in that, that dynamic is tricky for a lot of people. So what I would advise everyone is to really look deep in your heart and say how not only can I tolerate uncertainty but do I like uncertainty, and if you do, then you know, you'll be pretty good at it. Because every single thing you do as an entrepreneur is uncertain.

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And that's the only constant is that whatever you're doing is. Um, and I want to come back to sort of how you found the early team and if you looked at uncertainty with how they handle things and if that was something you started being able to spot in interviews. You know, how do you know if someone is not just tolerant of uncertainty but sort of thrives in it, enjoys it? You know, if you're trying to look at that from afar, um, I think it really just comes down to the way they make decisions.

Um, you know, um, are they making decisions that look more like risk-adjusted decisions, you know, um, as opposed to the analysis that goes through their head around something? So for us, for it was always, you know, the simple things, you know, if we're making a product what is it going to do? Is it going, you know, when it's ready? Does it do what we think it's going to do? Were we right in those assumptions? All the things that, you know, sometimes you're taught to look at the market to deal with reimbursement to deal with, you know, you know, physicians who, you know, or whatever the customer base is. Don't worry about any of that, you know? Focus on the most important thing: does it do what you want it to do and is what you want to do valuable?

Um, and so when we started Penumbra, um, you know, we were going to go after a ischemic stroke, the idea of taking blood clot out of your brain with a catheter deep in the brain and sort of suck it up. At the time, no doctor wanted to do that. So our current customer base basically said we don't want to treat those. Like, it was not something that they were dying to do and looking forward to there was zero reimbursement for the procedure and there was nothing that was patentable.

Um, and so, you know, you could look at that and make the decision don't do that. That would be a risk-adjusted decision because of those risks we're not going to do it. But if you don't look at those things and say, yeah, but there are, you know, a lot of people, you know, probably in the US alone a couple hundred thousand, um, worldwide over a million plus who have what's called a large vessel stroke and that stroke could be devastating for them and we think there's a way to make them much, much better, then it's an easy, you know decision to go into because the rest of those things take care of themselves, and in our case with Penumbra, which is that comp, you know, the stroke company, all of those things took care of themselves.

We've got reimbursement; doctors want to do it. Um, we're finally now almost 20 years later, the technology has evolved and evolved and guess what? Our current iteration of these products have patents on them. So, it might take a while, you know, but you can get there. Um, for the things that you otherwise might have valued higher than the end result.

Yeah, Adam, what really um, strikes me about that is that when you talk to the potential customers, they just said that they didn't want to do this. So first, what were they doing at the time to treat this condition and how did you make yourself believe, make investors believe, make your early team believe that even though the customers were saying that they wouldn't want your solution, that it was something that was needed?

Right, yeah. So, that's a tricky, and I'm really glad you picked up on that particular point because you do have to listen to your customers but to a point. So why were they saying that? You know, what was motivating them? Neurointerventionals at the time treated aneurysms; they had busy practices. There weren't that many of them, so they were doing them all and that business, that those clinical cases did not require them to be on call.

So if all of a sudden they were going to start treating acute ischemic stroke, they had to be on call and that's a totally different lifestyle than they had signed up for when they went into neurointervention. So, the reason they didn't want to do it, again, they didn't say that, but you know that was probably pretty clear. No one said, "Oh, I don't want to treat those patients because I don't care." You know, everyone wants to help people if they could. So you have to look at the motivation, um, and in that case, um, it was pretty clear that we were on the right track, um, from a physician standpoint.

They just, you know, would have to be on call. Um, yeah, and you know, but obviously, you know, and on the reimbursement, it was again, uh something that we looked at and said, you know, reimbursement will take care of itself because we know that it costs the healthcare system 30 billion dollars or some absurd amount of money to treat patients who have, you know, after they've had a stroke every year. You know, the amount of care given to you people who don't die after a stroke but, you know, live impaired is huge.

And so, if you could take a significant percentage of those people and not have them have that cost that burden, there's going to be reimbursement. And lo and behold, long before we had any data, CMS granted reimbursement because they obviously were looking at the same numbers and trying to create a dynamic of innovation, which is pretty rare but we knew that was on our side.

Yeah, so you, the most physicians didn't want to change their lifestyle so drastically to then be on call, which completely makes sense. Did you have a few believers, like a few physicians that were sort of rallying around the idea and supporting it?

Yeah, yeah, there were. There's no question there were people, I and I certainly appreciate the clarification because there were definitely people who, you know, and a lot who wanted to see these patients helped. Um, you know, but it was, it was sort of a two-edged sword. You know, yes, we know we should be doing this, but, you know, oh now we have to be on call. You know, right? So it's a little bit, you know, it's understandable, it's understandable.

Yeah, you know, we didn't make judgments on that. Yeah, that's a big deal. Um, yeah, that's one of the things I touch upon in my book, without a doubt, which is actually being released tomorrow. Um, and thank you, thank you, is you know I was rejected so much, so many times by so many different people, you know, including customers, including investors. But you just need those core few people, right, who really believe in it to kind of push things forward.

So, with that being said, what was it like? Tell me a little bit about your investment and funding experience for the first company. Did you raise venture capital? Did you raise money from angels? And then what did you do the second time around?

Yeah, so, um, to be very fair, we did not ever in both companies raise formal venture capital money. Um, we were lucky enough; um, I was coming from a law practice where I knew a lot of people who had lots of means. Um, and Irani, my co-founder, had some other additional friends, but with just people we knew, we were able to fund, um, the first company. Obviously, we ended up selling that relatively quickly to Boston and raising money the same way for the second company was pretty straightforward.

So we never took any sort of institutional venture capital or or other forms of institutional money in until we actually, a little less than a year before we went public, we did, uh, what they call a crossover round, um, that Fidelity led, but that was in anticipation of going public.

Um, uh, which we can talk about why we did that, um, but we never had that kind of money. Now we were lucky, you know, that and not everyone has that level of people that they knew who would fund, you know, and invest in the business.

Adam, I love this part of your story because in our industry people are always saying you have to raise money from the cool kids, you know, the big venture funds to be successful, and you clearly did it without them. Do you ever feel like that held you back at all?

Oh God, no. In fact, it, I think it enabled us. Um, again, nothing wrong with the, you know, any form of money or whatever, uh, institution they're in. Um, that's not a judgment. It's just, um, the amount of time spent dealing with their views, you know, um, wasn't helpful for us, you know? And that's just unique to our story. Maybe it, it would resonate with others. You know, we were pretty disciplined, you know, we weren't, you know, if it wasn't working and we weren't going to be successful, you know, we would have understood that.

You know, in some sense, I think we were more committed because they were friends of ours. You know, like the last thing you want to do is fail in your business and then lose all your friends at the same time. Um, you know, so I think we were, you know, pretty driven to succeed, um, and continue to go because of the friendship.

Um, in the second company, it was a little bit different because we, the pathway, you know there wasn't make a product, get the FDA approval and we sold the company at that point. Um, the second company we knew that it would take a lot longer to deal with acute ischemic stroke. Um, that was just a much, much, you know, more significant pathway. So in fact, we told our investors, you know, you can invest but under one condition: you can call either of us as friends because we're friends, but you cannot call us as investors for 20 years. For 20 years!

Because the 20, and so, and that was just the deal. Like, you know, this is going to take a long time. You know, if it was easy it would have been done, it's not, it's really hard. The pathway is going to be not a straight line and therefore it, you know, invest why with your eyes wide open. And that's not something obviously that institutional investors would typically be interested in; it's not in their charters, and so on. Again, not their fault; it’s just the nature of their the sources of their money.

Um, and so for us it was really a critical component of the journey that we've been on in order to build this business. So because you knew it was going to take decades, I mean, you had just sold a company and then decided to do another one. What was there anything about either the acquisition or not, or just generally did you think that you were going to take this one public when you started it?

Yeah, think about that. Um, I didn't personally have any ambition of running a public company. I still don't, albeit I've been doing it a long time. Um, the goal wasn't that form of, you know, what our company was; the goal was to make these products. Um, we actually went public not for the reasons you typically think which was to, you know, get the ability to take money out of and put it in your pocket. The goal was, um, in 2014 we went public; in 2015, in 2014, a series of clinical trials were conducted and finished and published in New England Journal in stroke where it proved definitively that you should do this treatment across the board um, for anybody who has a large vessel stroke.

And it was this really watershed moment. But the problem was not with getting that clinical trial, those clinical trials rather; there were all these structural impediments. They, and they still are, in how to get those patients treated because the theory was they had to be treated by a neuro-trained physician. There weren't that many; they were in only certain hospitals. So the patients would have to be moved from where they show up to a different hospital, and with stroke, every minute counts; you know you're losing neurons all the time.

And so how do you do that? And what form is that going to take? All of that's governed by state, and in many cases local laws and ordinances. So the idea that that would automatically happen because, you know, there's an economic incentive, unfortunately, not to transfer the patients. Hospitals didn't get stroke patients get a lot of money for treating them after their stroke, so, you know, there was some built-in bias. Again, not anyone's fault, um, not, you know, is done for the right reasons, you know, to make sure those patients could be treated after their stroke, but it wasn't updated fast enough.

And so I was worried. Um, you know, we have some competitors, um, sorry the noise is getting louder. Um, and I really apologize for that. Um, yeah, we can hear you just fine. There was a lot of discussion about stroke patients, which was sort of the point.

But more importantly, um, you know, I wanna—the premise of the question, and maybe if I can be so bold as to say this, going public wasn't our goal. You know, so for us, the idea like we didn't dream about going public; we didn't dream about that moment. In fact, you know, we specifically, you know, said, and all the senior leadership who didn't end up coming to New York for that, they didn't have a big watch party for that morning when we, you know, became—they just went about their business and nothing changed because the goal was not to go public. The goal was not now look at us; nothing changed. It just meant our ownership structure slightly changed.

Um, but it didn't mean anything beyond that, um, and that was just sort of wealth not only understood but felt by people who worked at the company. So it, it wasn't the same as what I think some people think about as this is the end or this is sort of some grand moment; it was sort of irrelevant.

I mean, I will be very candid; you know, the day, you know, we rang the bell, we had a whole day of whatever; I went to bed, I was dead tired. Um, I woke up an hour later going, “Holy crap! What the hell did we just go public for? Now every single thing I've ever done is going to be, you know, in the spotlight.”

Um, so I definitely, you know, there are some pros and cons about it, but it turned out okay for us.

Incredible! Adam, it sounds like for you it starts and ends with the patients. You have to want to be doing it for the right reasons, you know, and we've all known, and certainly in the medical field, it's not different than other fields. If you're doing it for making money, you know, it doesn't mean you won't make money.

Um, it just—it’s a different journey and, and it requires different decision making. And, um, you know, again, not that I'm judging that; it's just not what we were about.

Okay fantastic. So Adam, let's turn it to the audience for some questions. We have some good ones here. Someone from LinkedIn asks how can someone train themselves to like uncertainty? Is this something you can train?

Um, I actually think it is, um, uh, but it requires, you know, a lot of sort of internal work and discipline, you know? We all want to know how the story ends, you know? We have a plan; we have this, you know, just even in our personal life, right? You know, if we're married, whatever, we want to know that we come home and home is there, you know, and it's all—and that.

So, so there is a natural desire to want certainty, and, and I'm not different than that, but what if you're ever going to do something that's never been done before? If you're doing things that have been done before, then there's going to be a certainty to it.

But if you are going to embark on doing something that's never been done in most new companies are like that, then you have to just really talk to yourself over and over again about the pleasure of not knowing how you get to the end and utterly being comfortable with failure. You know, what happens if it doesn't work? How embarrassed will I be? You know, will I be able to go back to my—in my case, my law firm? How embarrassed will I be if I go back to my partners and I say, “Do you mind if you take me back? You know I was an utter failure as a CEO.” You know, and be okay with that, like not have it paralyze you, you know?

And if you can do that and you can talk to yourself about those type of things, then you'll do fine with uncertainty. If those things are paralyzing, then yeah, it's probably not for you.

Yeah, I love the idea of just diving into what the worst case is and seeing if you can get comfortable with it. That's fantastic.

All right, jump into the next one. Did you worry about the timelines for any regulatory clearances? And how did you approach the capital needed to support those regulatory clearances?

Yeah, I mean, so the answer is do I worry about—I worry about everything. You know, worry is the nature of the thing. I'm utterly paranoid; I think about it, I obsess about it. I have plenty of sleepless nights. Anyone who tells you that's not true, you know, it's totally—and you have to be willing to do that.

Um, so were we in obsession about all the details? Are critical? Um, that's different than, you know, oh my God, you know, this is catastrophic. Um, again on the money part we were lucky; we raised money from sources that gave us a decent, and I had the capacity to raise a lot of money, um from just friends.

Um, that's not typical; I understand that. But that did give us—and we were also very cheap, um, incredibly cheap. Um, so we, you know, the first year we started commercializing our products we started the company in 2004, at the very end of 2004 and beginning of 2008 we were really starting to commercialize it, we—from 2008 on, we were profitable, um, you know even as a smaller company.

So we structured the company to, you know, spend as little as possible, you know? And that meant some, you know, unpleasant decisions sometimes, you know? We stayed at the cheapest hotels and, you know, flew coach everywhere we went, which is fine, you know? But I did that too and so, you know, you get some moral authority if I'm staying in a, you know, 69 dollar, you know, hotel or motel or whatever, you know, people aren't gonna then say, “Oh I want to stay at some fancy place.”

So, you know, we acted like a startup because we were using, you know, our friends’ money the right way.

Um, so I worry about it but we were also fortunate enough to get through that. Timeline's regulatory timelines, you know there's no rhyme or reason to them. Um, you know you do the work, you respond. My biggest advice there is to always be, you know, honest and open, um and, and get a good reputation.

You know they, you know it doesn't say this, but they have impressions of companies, you know. And so, obviously, and so get a reputation early as being incredibly honest, you know, and forthright and respond to their questions and, um, and then, you know that process becomes at least a little more manageable.

Yeah, yeah. And this idea of being cheap and how important it is, I remember taking red eyes to the motel that was closest to the airport before going the case the next morning, you know?

Yeah, and if you raise money from institutional, you know sources sometimes you feel like it's not yours. You know, when you raise it from friends, you know, there's a little bit more of a ownership maybe.

Um, and so I, I'm a big believer regardless of the source of your money of being cheap. Um, uh, and I think it sets the real culture um for the company; that's important, you know? So it's not about what I can get away with spending; it's, you know.

Um, we also, on the money side, real quick, we don't have departmental budgets; we have a company budget but we don't have departmental budgets. So we have none of the nonsense of, “Well, it's my department's budget and if I don't spend it, I lose it, so I'm going to waste it on stupid, oh stupid stuff.” Sorry.

Um, and, um, and that dynamic is really critical and that's a whole another conversation for another meeting but, um, how one thinks about money and budgets, um, it's pretty critical.

Absolutely, absolutely. Okay, now jumping to the sales end of things. How did you set up your sales channels or sales teams from first sales employee to getting the first few customers?

Yeah, so we were really lucky. You know, our first company we had made this pretty revolutionary product in the neurovascular field, um, and so we, and it was really small neurovascular was small then.

So by the time we were ready to commercialize with a number the second company, we knew that field really well. There weren't so many doctors and we also knew a lot of the salespeople, the sales leadership from Boston Scientific and the other company at the time. So we just took their best people.

Um, and, um, and you know there was a lot of sort of connection already and there was a lot of sense. So, we just built a really, really good sales force from within this relatively small group. And once you do that, you know, we were quite successful. Again, it wasn't like starting a salesforce from scratch and cardiology or something that had a much bigger and more daunting thing. We can do that now.

But at the time we were lucky enough, um, you know, how would I do that if I was in a much bigger field? Again, it would be trying to get, you know, really good experienced sales leaders, um, uh, who knew and know how to hire the kind of people, and there's a lot of different kinds of salespeople. So hiring the right kind, the kind that fits your culture and your style is really critical to success.

Great. Okay, so I love this next question. What traits as a leader, IQ, EQ, humility, work ethic, do you think your team got the most amount of inspiration and motivation from?

Oh, those are—I think they're all important. Um, I wouldn't know how to judge it. Um, work ethic obviously matters, you know. Um, humility matters. Um, probably the least important is IQ. I'm not that smart; I don't know what I'm talking about.

Um, and so, you know, um of the, of those four probably EQ, humility, and work ethic matter. Um, IQ is probably the least important. I mean, again, if you're wrong half the time, you can be wrong sixty percent of the time and still be successful as long as you're listening to the people who know more than you.

I agree! Indecisive matters. Um, you know, people—yeah, when you're in that job you have to be decisive, um, but you have to do it by getting the right answer from everyone around you.

Yeah, I would also rank IQ last in that list from that list. And then the other part of this question was how did you manage yourself in your early days? Sleep schedule, rest, work ethic-wise?

Yeah, um, you know, it's a challenge. Um, I won't tell you it, it wasn't or isn't. Um, I, I will tell you, you know, and I say this fairly often between I have four kids, um, wonderful. Um, my youngest is 18; she has special needs. Um, so beyond, you know, I tried to be a really good dad to my kids; I tried to be a really good husband to Martha.

Um, and I ran the company. I didn't do anything else, you know? I hear some young people talking about me time and they, they go this or they go golfing or they, and I'm not judging any of that. You can't, I couldn't do that.

Like I had nothing but the things I just said, so I showed up as a dad, I showed up as a husband, and I ran the company and everything else gave way to that, um, and that was the best I can handle. I couldn't have done more than that and maybe there were people who have more talent, but that was me.

Well, I, I also couldn't do anything else besides show up as a mom, show up as a wife, and show up as a founder, and that was it for me too. So I'm so sorry to everybody in the chat whose questions we didn't get to, but Adam, I do want to close with one more thing for you, which is for all of the founders on the phone or future founders as well. Some are kind of thinking about starting a company, some have raised a bit of money, maybe some are even more mature in their career. What advice do you have? What parting words to founders do you have?

Oh, there's so many things. If I'm going to summarize it into sort of one um short bit of advice, um, make sure you're starting the company for the right reasons and make sure that whenever stuff goes the wrong way, your decision making is pure. Um, don't get stuck making decisions that you will regret, you know, whether it's around product safety, around performance, don't do it; it will never turn out okay.

Do it for the right reasons and if you're in the healthcare field, you know it's about what your product does for patients. In another field, it's about what, you know, really matters, and if you start cutting corners and sort of like—you, it's, it's going to unwind and end up not working.

So, um, do it for the right reasons and, and money is not in my mind one of those reasons; it's a byproduct of doing something that matters.

Absolutely! I couldn't agree more. Adam, thank you so much for taking the time to share some of your incredible story with us and your words of wisdom. I really appreciate it.

Yeah, well thank you for having me and congratulations on your fantastic book. If anyone's listening has not bought it, please buy it; it's amazing. Um, and, uh, thanks for the great conversation. Appreciate it.

Thank you so much, Adam. Take care. Bye-bye.

Bye. Thank you.

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Thank you.

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