Peter Farrell, founder and chairman of the board of ResMed, a $1.5 billion revenue sleep-apnea device company, may be a lot of things, but he’s certainly not shy about expressing his opinions.
At a San Diego Employers Association presentation Thursday, Farrell shared his thoughts on leadership, management and the keys to growing a successful business, peppering them with comments on politics, physicians and climate change. (We’ll save the latter for another time.)
Farrell, who was recently inducted into the Connect Entrepreneur Hall of Fame, outlined five characteristics of a good leader that writer Paul Johnson noted from observing Margaret Thatcher. The first is moral courage, which Farrell said is important to consider in both the short and long term.
“As a leader, you’re not there to make friends -- you’re there to do a job,” he said at the presentation at the Admiral Baker Clubhouse. “And it’s moral courage for the long term. In other words, you have to sometimes do things which not everybody’s going to jump up and down for.”
Solid judgment, or common sense, is also vital. Farrell said no one will ever be able to access 100 percent of the data on whatever they’re dealing with, and will need to make decisions with what’s available.
Judgment can be enhanced by experience, exposure and education, he said.
The third key quality is a sense of priority, or being able to see which issues demand your attention, and which can be relegated to other staff or take a back seat.
Farrell said the Pareto Principle, which states that 80 percent of income comes from 20 percent of your business -- although in the case of ResMed (NYSE:RMD) he said it’s more like 90 percent of revenue comes from 10 percent of customers -- comes into play here, so knowing which customer’s problems must be dealt with first is important.
After tasks are prioritized, he said, a good leader possesses disposal of concentration and effort.
“Once you’ve decided the things you need to do and get right, you’ve got to stay the course,” Farrell said.
The fifth characteristic of a good leader is a sense of humor, which Farrell said is often overlooked, but very important.
Farrell also said Warren Bennis’ four elements of leadership resonate with him: passion, purpose, optimism and a focus on results.
In addition to these building blocks on the part of the leader, Farrell said, ResMed uses a set of six criteria to evaluate potential new business opportunities.
First is to conduct a market assessment to ensure that it is sufficiently large, but also accessible -- “If you can’t figure out a way to get in, it’s never going to happen,” he said.
Finding a large market is key, said Farrell quoting Andy Grove, former executive at Intel, because “Where you want to be is early into a monster area.”
After the assessment, the second issue is people. Farrell said you don’t have to necessarily hire world-class talent (though that would certainly be ideal), but you must be able to meet with industry leaders to pick their brains about what you’re considering doing.
The third criterion, finance, is not only an honest appraisal of the path to the financial resources needed, but assessing the risk versus return of the business opportunity.
Timing is also critical, and Farrell said this ties into the finances.
“I call it the 4-2 rule: You have a very robust business model, and yet it takes you four times as long and costs you twice as much money,” Farrell said. “Or you can flip it around -- four times as much money and twice as long. That timing issue is critical.”
A technology assessment is also crucial, which, according to Farrell, should include a look at the intellectual property situation, what you’re competition is working on, and what companies who are not direct competition but who have resources to also enter this space might have up their sleeves.
The final point, which Farrell calls the alpha factor, is a true love for the concept or product under consideration.
“Do you really love it? That’s the getting up in the morning when the excrement hit the fan and saying ‘Wow I’m so happy we’re in this, I love it!’”