Made at Mayo: How Lifting a Startup Ban at One of the Nation's Top Health Systems Ushered in a Wave of Innovation in Rochester

Dr. Darryl Barnes has been inventing things for as long as he can remember. As a full-time Mayo Clinic physician and part-time entrepreneur, Barnes has developed dozens of devices and worked on numerous side projects in his, admittedly limited, free time.

His most recent startup, a medical device company he co-founded in 2014, is distinctly different from anything else he has ever worked on. Because for the first time in his medical career, Barnes is in control of his own invention.

The Mayo Clinic has been regarded as a hub for cutting-edge medical research for most of its existence. But for years, the healthcare giant barred its doctors and researchers from participating in most types of entrepreneurship.

Mayo Clinic researchers and physicians could form a company and share in a portion of its royalties, but were not allowed to hold leadership positions, and therefore had little to no control over the businesses using their inventions. New medical therapies or devices created by physicians were licensed out by the Mayo, either as a new business or to existing companies.

That changed in 2013. The Mayo Clinic lifted the restriction and created employee entrepreneurship programs that gave Mayo Clinic doctors and researchers additional freedom with the products that they created.

“There was a feeling among leadership at the Mayo that we could tap the power of entrepreneurship here more than we were,” said Dr. Richard Ehman, former head of medical industry relations at the Mayo Clinic.

It's been five years since the Mayo changed its policies surrounding entrepreneurship. This seemingly small clinical culture shift has had measurable impacts not just on the clinic's 3,000 physicians, but on the Mayo Clinic's hometown of Rochester. By flipping on the city's entrepreneurial switch, the move single-handedly sprouted a startup ecosystem in Rochester, as med-tech startups, accelerators, co-working spaces and a venture capital ecosystem have flourished in the area over the last half decade.

"It was big for all of Southern Minnesota," said Gary Smith, president of Rochester Area Economic Development, Inc (RAEDI). "Entrepreneurship here has grown and evolved over the last several years. The Mayo's policy change played a big part in that."

Behind the Ban

For nearly three years, Barnes served as the associate medical director for Tenex Health, a medical-technology startup he co-founded that offers minimally-invasive procedures to relieve chronic tendon pain.

“You created this baby, then had to hand it over to someone else,” Barnes said. “You really had no control over the launch of the product, its marketing or how it was used. But the thought at the time was that it’s better to have a small piece of something rather than nothing at all.”

Mayo's physicians and business developers agree that the clinic's former entrepreneurship rules had been implemented for a good reason: to protect patients and physicians from a potential conflict of interest.

"This new generation of physicians is entrepreneurial by nature. To recruit them you need to support that"

Andrew Danielson is the vice chair of Mayo Clinic Ventures (MCV), the office in Mayo's Department of Business Development responsible for licensing Mayo-invented technologies and investing in startups.

"The most important thing for us has always been a trusting relationship between the Mayo and its patients," Danielson said. "We are very serious about that. When you bring a lot of money into that relationship, humans sometimes make bad decisions."

Often, physicians stand to financially benefit from the use of treatments they develop, and they may want to recommend their invention to their patients. An institution like the Mayo wouldn't want a potential financial conflict to cloud a physician's medical judgement. Early on, the clinic decided to reduce the incentives tied to entrepreneurship, hoping to eliminate a potential conflict of interest.

Danielson has been with MCV for more than 15 years, and believes that the Mayo has always been (and continues to be) more conservative in its thinking than other medical institutions like Stanford and MIT.

"And that's nothing but a good thing," he explained. "Patients that come here want experienced, evidence-based care."

Mayo has built a reputation for itself based on this measured, mindful approach to patient care. However, at times this has been in conflict with something else many associate Mayo Clinic with: medical innovation. As the clinic looked to attract new talent, many realized that entrepreneurship was becoming a higher priority for new physicians entering the field.

"This new generation of physicians in entrepreneurial by nature. To recruit them you need to support that," Danielson said.

The Catalysts

Dr. Richard Ehman has been a leader at the Mayo Clinic for decades. Known for his work in radiology, Ehman holds more than 50 patents and was part of a small group pushing for more entrepreneurship at Mayo. As the then medical industry relations chair on the clinic's board of trustees, Ehamn was asked to lead a small, informal task force to evaluate the Mayo's approach to entrepreneurship.

"The Mayo had so many innovations and things coming out of our work here that we wanted to get out to the world," Ehman said. "The question we wanted to answer was 'Why don't we see more startup companies disseminating these advances in Rochester?'"

Right away, Ehman thought he knew the answer. The Mayo's moratorium on entrepreneurship had, perhaps inadvertently, discouraged physicians and researchers from setting up these businesses. But he and the other members of his task force spent months traveling to other large medical institutions to study how they handled employee entrepreneurship. When Ehman delivered the group's report, he told the board about how the conflict of interest policy was impacting would-be entrepreneurs.

“For very good reasons, we had policies in place that had to deal with conflict of commitment for our staff,” Ehman said. “But in this modern world, that was not a good idea. It was restricting us from tapping the powerful force of entrepreneurship.”

So just how difficult is it to do away with a longstanding policy at the Mayo Clinic? In this case it was surprisingly easy, according to Ehman.

"One of the things we always felt we wanted to do was share with the rest of the world the advances we developed internally. That goal wasn't being met by this policy that we had in place," he said.

This is an idea held not just by Ehman, but many others throughout Rochester. The treatments and technologies developed within Mayo Clinic should be shared. Ideas that can be disseminated through new businesses should be. Mayo's leaders hoped that by encouraging entrepreneurship, it would impact Minnesota's economy and ignite a new startup scene in Southern Minnesota.

Early Adopters

Mayo officially changed its entrepreneurship policy in 2013. That spring, Mayo partnered with the City of Rochester and RAEDI to open the Mayo Clinic Business Accelerator, a program that housed emerging startups and offered office space to larger companies like Boston Scientific and venture capital firms like Versant Ventures.

A handful of the community's most eager entrepreneurs rushed to join the program. The facility quickly lined up more than 20 tenants. Ehman and Barnes were among this early cohort of startups.

Ehman became the president and CEO of Resoundant, a startup that licenses MRI technology from Mayo (developed in Ehman's lab). Founded in 2012, the business was one of the first four to move into the accelerator's space. All four of these original businesses were led by Mayo Clinic physicians.

"The policy change provided a whole new level of activity in terms of entrepreneurs starting businesses in Rochester"

Barnes launched a new startup, Sonex Health, with one of his colleagues in 2014. Similar to Tenex, Sonex offers a minimally-invasive treatment for common orthopedic problems like carpal tunnel. Sonex's tech aims to reduce the cost and recovery time of these procedures and take them from a surgery center to an office setting. Barnes said that the company has raised a seed round of $1.5 million and has performed its procedure on more than 200 patients.

"[The accelerator] is a great resource," he added. In addition to office space, the program connects entrepreneurs with mentorship, legal services and potential connections to capital.

While traditional accelerators often set a specific time period for their programs, the Mayo Clinic Business Accelerator does not. Med-tech startups can take years to develop because of the clinical trials and tests they must conduct before going to market. Sonex continues to operate out of the accelerator. Resoundant grew out of its space, and has since moved down the hall to a separate office.

Here are a few past and present tenants in Mayo's Business Accelerator:

RAEDI manages the space, which it originally leased from the city for one dollar. After the initial interest in the program, RAEDI decided to expand the space after a year. To date, 47 companies have participated in the accelerator, Smith told Minne Inno. There are currently about 20 tenants in the space, which is average for the program. Six companies have "graduated," meaning that they grew to a point where they could no longer conduct business in the accelerator and needed more room to grow. Smith added that the tenants have raised around $40 million and created 75 new jobs in the city.

"The policy change provided a whole new level of activity in terms of entrepreneurs starting businesses in Rochester," Smith said. "You feel it's continuing to grow and evolve, and will continue to do so over the next several years. And you have to give Mayo some credit for that."

Small equity funds are popping up to support startups created in the Rochester area. The Southeast Minnesota Capital Fund (SEMCF) launched in August 2017 with $775,000 and 25 investors, and has since grown to $1.4 million and 41 investors, according to the fund, which was created by RAEDI. Sonex was one of the SEMCF's first investments, along with Minneapolis-based Oculogica.

What's Changed at Mayo

Mayo Clinic has benefited from upping its startup game. In 2017, its venture arm generated record revenue, climbing to $66 million, up from $35 million the year before. Mayo was also an active venture capital investor last year, investing in companies like Evelo Biosciences, which aims to turn live bacteria into treatments for cancer and immune diseases.

"We want to strike a balance. How do we protect the relationship and trust with our patients while encouraging our physicians to be innovative?"

If one of Mayo's physicians or researchers develops a new technology, they have the option to hand it over to Mayo to license out to larger companies. The creator receives a royalty, which is always negotiated and slightly different depending on the business. If a physician chooses to form their own company, they must adhere to the following rules:

First, the inventor cannot consent patients, meaning they can't decide who participates in the trial. Second, they can't be the senior author on any publication about their invention, which Danielson said is "a big currency in our world." Essentially, physicians must either sacrifice some control over a company that utilizes their technology, or a key publication about it.

If a patient chooses to use a device developed by a Mayo entrepreneur, they must sign a consent form stating that they acknowledge that the clinic and its physicians stand to financially benefit from the device. The inventor also can't serve as a "glorified salesperson," Daniellson explained, which means they cannot convince others to use their invention. However, they are allowed to attend meetings and conferences to explain its development and trials and present data.

"We want to strike a balance," Danielson said. "How do we protect the relationship and trust with our patients while encouraging our physicians to be innovative?"

Some of Mayo's more seasoned entrepreneurs, like Ehman and Barnes, accepted the terms right away. For other physicians, the new bundle or rules was a difficult pill to swallow. If Mayo wanted to change how entrepreneurship was practiced in Rochester, it needed more than a policy change. It needed a culture shift.

"Historically, if you're at a party in Rochester and say that you have a startup, that's looked at as weird," Danielson explained. "But if you were at MIT and you didn't have a startup company, people would look at you and say 'Who are you and why don't you have one?'"

The first couple years of Mayo's entrepreneurship program were slow, but as people like Danielson worked to spread the message that entrepreneurship was not something to be frowned upon, more researchers and physicians began starting their own businesses. Within the last two years, Mayo Clinic Ventures has seen an uptick in interest, with an average of five to 10 physicians choosing to form a startup each year.

A Startup Ecosystem in Rochester

Before Jamie Sundsbak founded one of Rochester's first coworking spaces, he moved to the city with a startup of his own. Sundsbak arrived in Rochester a decade ago with with an idea for a new company, but was forced to abandon it after three months when he ran out of money.

"There just was no traction, and part of that was due to the rule Mayo had about conflict of interest," Sundsbak said.

A molecular biologist by trade, he got a job at Mayo as a lab technician. Sundsbak held this position for eight years, before becoming a senior project coordinator for the Mayo's Department of Surgeries. In this role, Sundsbak dealt with early-stage medical-device prototyping, and observed a strong demand from outside companies for the ideas and inventions coming out of Mayo.

"Rochester is a creative place – a place of ideas. That's where everything starts. If you don't have that it would be much harder to do what we're doing"

At this point, Mayo's entrepreneurship policy had been changed, but things were moving slowly. Mayo's conservative, corporate mindset was not a natural match with the startup world's rash "move-fast-and-break-things" mentality. The gradual pace of change surprised neither the those inside the massive corporate entity, nor those in the greater Rochester community.

"We realized that it would take some time for this to come together. You can't just have people starting companies. There needs to be a whole ecosystem to make that successful," Ehman said.

Just over a year ago, Sundsbak walked away from his job at Mayo to focus on building a coworking space that would support existing entrepreneurial activity in the city and jumpstart new companies. He started Collider Coworking, a hub for local and visiting entrepreneurs to work, learn and connect. Through Collider, Sundsbak hopes to facilitate "random collisions" that bring more ideas and opportunities to the Rochester startup community. The space is home to startups of all industries, not just medical.

"Before the rule change it was very hard to do anything here. We self-selected out our own entrepreneurs. They went elsewhere," Sundsbak said. "But once the rules were lifted, there were more possibilities. Things are changing now."

When Mayo changed its entrepreneurship policy, Rochester changed too. Startups emerged, capital trickled in and places like Collider and Mayo's business accelerator opened to support the city's new entrepreneurs.

Rochester has, like the rest of Minnesota, seen an increase in entrepreneurship over the last five years. But every startup ecosystem is unique, and requires different resources to grow. Rochester is a small town with a medical giant at its center. In many respects, the city has more brain power per capita than anywhere else in the state. Its greatest need is not ideas or inventions – it's entrepreneurs.

Several mentioned that recruiting tech talent to Rochester has been the fledgling startup scene's biggest challenge. It's difficult to attract entrepreneurs to Southern Minnesota when the Twin Cities, a more developed startup ecosystem, is less than two hours away.

"We have to work on building our talent base. It's a challenge here like it is anywhere else," Smith said. "Rochester is a creative place – a place of ideas. That's where everything starts. If you don't have that it would be much harder to do what we're doing."

Rochester gains new entrepreneurs each year through Mayo's efforts. Organizations like Collider and RAEDI also connect with the greater Rochester community to support emerging startups and those running them. Many hope that, maybe in another five years, Rochester's startup ecosystem will be attractive enough to draw entrepreneurs from larger tech hubs like Minneapolis.

"Rochester really is a small place. It's like a factory town, but the main product is medicine," Sundsbak said. "It's a place for people who feel like a small drop in a pond can come and have a huge impact."