Episode 43: Scaling a Digital Health Business With 2-time CEO Ohad Arazi of Clarius

It’s incredibly difficult to recognize and admit that the company needs a better fit for the leadership role, but sometimes it is necessary to take that step if the founder wants the company to grow further.

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In this episode you’ll discover:

  • What the difference is in working for a corporation versus a startup when it comes to innovation

  • How Ohad transitioned into the founder journey 

  • What the benefits are to using AI in diagnostics

  • What it means to be problem-oriented rather than solution-oriented 

Keep scrolling for a transcript of this episode.

Key Takeaways

  • People often have an inaccurate view of what it’s like to lead a small company if they’re coming from a big company. In a big company, the CEO is the coach, they’re on the sidelines guiding an army of people while in a small company, the CEO is a player-coach, someone who leads while also in the field. 

  • Successfully transitioning to becoming a founder and hiring a CEO takes a lot of humility, trust, and transparency. It’s incredibly difficult to recognize and admit that the company needs a better fit for the leadership role, but sometimes it is necessary to take that step if the founder wants the company to grow further. 

  • AI can be used as a tool to help doctors become more efficient in their diagnostics and practice by providing assistance with things that are measurable, quantifiable, routine, and mundane. However, it can’t be used as a replacement for medically-trained and experienced professionals. 

  • Be problem-oriented. Innovators tend to think of a solution first and then find somebody who could use that. You always have to be in tune with what problem you are solving. 

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“Medicine is a mix of art and science. An AI can really help with science, with things that are measurable and quantifiable. But you’re not going to lose the art, the art is the human in the loop that’s helping to make a better-informed decision or to do the really complex tasks that require not just routine pattern recognition, but a more experienced set of eyes. ”
— Ohad Arazi
 

Read the transcript:

Announcer (00:01):

You're listening to Decoding Healthcare Innovation with Carrie Nixon and Rebecca Gwilt, A podcast for novel and disruptive healthcare business leaders seeking to transform how we receive and experience healthcare.

Rebecca Gwilt (00:17):

All right, everyone, welcome back to Decoding Healthcare Innovation. I am so excited to have a chat today with Ohad Arazi. He's the CEO of Clarius. We'll tell you a little bit about his company in a second, but welcome, welcome.

Ohad Arazi (00:33):

Thank you, Rebecca. Such a pleasure and really love talking about healthcare innovation, so I'm very excited today.

Rebecca Gwilt (00:39):

Oh, well, good. That's, like, my whole bag here. So as I mentioned, I'll just tell you, though you know already, you are the CEO of Clarius, which has pioneered an AI-driven portable ultrasound, and your goal is to make medical imaging accessible everywhere. We were talking briefly before we hit record about our sort of mutual passion of expanding access to healthcare. And so we're going to talk a little bit about that, but I want to talk a little bit about what you're doing at Clarius. I want to start with you. So you're the helm of Clarius. Your company's wireless scanners integrate with smartphone devices. Your company operates all over the world, and you've got a tremendous amount of experience in the digital health industry. You were former CEO at Zebra Medical, Chief Strategy Officer at TELUS Health, which is the largest digital health company in Canada. You were with McKesson and Change. It's an incredibly varied career. I would love to know a little bit about your journey, why healthcare? Why healthcare innovation? How did this all begin?

Ohad Arazi (01:51):

Yeah, awesome. And it really has been a journey. I guess it's the same for everyone in many ways. It's not by kind of greater design. It's often kind of a series of inflection points that drive you in different places. I actually started my tech career in the military, so I was a product manager. I'm Israeli originally, so I was a product manager in the Israeli military in the Intelligence Corps, and I first started my tech career kind of from a company that spun out of the military. And we ultimately sold that in a 2005. And subsequent to that, I moved to Canada. My wife's a Vancouverite, so she dragged me here kicking and screaming. At first, I'd come from Tel Aviv, which is this mecca of just passion and ambition and energy. And then I arrived in Vancouver, which of course is beautiful, but at least in 2006 when I came, it felt very sleepy and I was always waiting for a tsunami and earthquake to happen so I could say to my wife, honey, we tried Vancouver, but that tsunami, we have to move back to Tel Aviv. We got to go back.

(02:53):

But fortunately, we gutted it out. And of course now I've been here for the last 16 years, I love it. And three kids ground you. But when I moved to Vancouver through complete serendipity, I ended up at a job interview for a director of product for McKesson's Medical Imaging Group. So McKesson, which is of course like Fortune 5, a huge healthcare company, and used to have a lot of software divisions as well, and one of them, the medical imaging group was headquartered in Vancouver because they had acquired a Vancouver based company back in 2002. And I really got sucked into it. I had an amazing 11 year journey at McKesson, really enjoyed it. And I think we had all the benefits of being part of a big corporation access to channel capital network.

(03:45):

But because we were in Canada and because we were such a successful business spitting off a lot of EBITDA, they left us alone. So we didn't have any of that yoke of Big Brother kind of dragging us down. So I felt we had all of the benefits of a big corporate without any of the downside. And then through the transition to change healthcare, McKesson ultimately sold all its software businesses to Change. And then I transitioned to TELUS and after 15 years of being a big corporate guy, which I never thought of myself as one, but I guess the numbers don't lie, I kind of felt like I got to roll up my sleeves and get back to the startup world. And I think I felt that I was so far removed from the product and from the customer. I was running a 1500 person organization at TELUS and just felt there's like eight layers between me and the actual end user or the product. And I joined Zebra Medical, which was an imaging AI company out of Israel, and took over for the founder there. And that company ultimately was sold in 2021, early part of the year. And then most recently just coming up to my one year anniversary at Clarius, which I'll tell you more about in a second, but just wanted to pause. Does that make sense in terms of my background?

Rebecca Gwilt (05:05):

Yeah, yeah. Well, I'm interested that you ended up in, you started and ended up in medical imaging. Has that been like, tell me about that. That's the thread that has gone through all of it. What is it about that that is so compelling for you?

Ohad Arazi (05:20):

Yeah, I love how it's so clinical that you're building products that are used by clinicians ultimately to see inside patient's bodies. It has such a profound impact. And actually one of the things that really brought me to Clarius is I think out of all of the medical imagery modalities, ultrasound is the most amazing because, and it's much cheaper than the most other medical imaging solutions. And therefore it's potential in terms of being accessible and available in a variety of care settings and countries is so profound. And I chatted about this before we went on air, healthcare attracts people that have a very strong personal why of why they came into this space. And that's been the case with me as well. And it's hugely motivating, and therefore you're in that environment and you just want to expand the reach of what your company and your product can do. And I think ultrasound medical imaging is such a great platform for leveraging technology to affect change in clinical care.

Rebecca Gwilt (06:26):

Yeah, absolutely. The other thing that strikes me about your story is that you've been on the founder and the founding CEO or the the founding team to the CEO that takes over from the founder to being inside of a very large company that has a division that's sort of like your own little startup. I love your sort of perspective on that. We talk to the audience of this show, it's a lot of startups, a lot of founding teams, and I, I'd just love to give a picture for them of what it looks like to switch roles like that either to move on from being the initial founder and hand over the reins or taking your company from internal from yourself and scaling it to a larger venture. I'd love your thoughts on it.

Ohad Arazi (07:20):

Yeah, I think there's a few vectors maybe that we can think about. One is kind of small company versus big company. And especially maybe as a founder of, often as you start to grow the company, you're thinking, okay, maybe I'll bring in some big corporate experience, either as a leader to take over as CEO or even to hire chief commercial officer. That's often something that you headhunt from big companies. And I've had really mixed results with that in terms of hiring, because often you'll attract talent from a big company that are saying, God, I would really love to work in an environment where we have more control. I'm not doing a lot of make work. A lot of meetings, it's more content driven. And then they come into a small company and they find out, wow, this isn't exactly for me because it's so lean.

(08:05):

And actually when you're in a big company, you're often the coach. You're kind of on the sideline guiding a big army of people doing this or that. And in any small company, you're a player coach, you often have to come onto the field and become the captain maybe on the field for a while. And so that's always kind of attention I'm sensitive to is it can be very attractive from the outside in when you're in a big company saying, oh, I know this domain so well, I just want to join a smaller company and kind of control my own destiny. And then you find out that it's maybe not quite as attractive as you thought it was because there's so little support. It's so lean and you have to be so sober about what that is. So I always try to be really upfront about what the small company experience is.

(08:50):

As amazing as it is, it has its differences and you have to really think is that a fit for you? And then maybe another vector you touched on is kind of the founder versus the CEO. And that's such an important transitional point in the lifespan I think of any organization. And I've also been a healthcare investor, and whenever I see a company that's been through that, I say, wow, okay, they, they've been through a lot because a lot of the scars you kind of have to go through on your own as a founder to have the recognition to maybe say, Hey, I've taken the company as far as I can, and maybe for the next stage, the next inflection point in the company's evolution, it's a better fit to have someone in the leadership role. And I think that's such a difficult thing to say and to recognize and maybe not a fit for everyone, but you built this thing, your energy, your passion, your ambition carried, the organization survived all of the impossible odds that you were up against when everyone was telling you it's never going to work, you're going to fail, GE or Philips or Siemens or whomever's already doing it, you're never going to win against them. And yet you did. You got it to a point where it's making sense now to hire someone from the outside. So you need a lot of trust and I think a lot of transparency and maybe also a lot of humility to make that transition very successful both ways.

Rebecca Gwilt (10:07):

So I think that's really amazing insight for founders who are trying to imagine what their journey is going to look like and really for giving context around how to think about the organization you're in and what you want that organization to be in the future. I am sure that if you set up a consultancy, you would have many, many clients asking you for the kinds of insights that you've sort of earned through your career. So now I want to get back to Clarius. So Clarius was founded in 2014. From my research, it appears it continues to scale with new products, partnerships, big overall growth. The company's been recognized a number of times for actually market leading growth. So I'd love to know just if you could just share it with all of us. What's your secret? How do you do it?

Ohad Arazi (10:54):

Yeah, so we're digital health company. We're based right here in Vancouver, Canada. And as you noted Rebecca, we're on a mission to make accurate, easy to use and affordable ultrasound tools available to all medical professionals across a variety of medical specialties. And really this applies equally to nurses in the developing world or to EMTs in an ambulance to family doctors providing rural medicine or surgeons performing safer, more accurate procedures. So we're really looking to expand the reach of how medical imaging can affect change in clinical care, especially at the bedside because this product that I'm holding in my hands, our viewers, our listeners can't see, but it's the size of an iPhone. It's fully wireless and it can fit in your pocket. And so this is a really exciting market for us because it's so underpenetrated. Part of what we do is replace compact or kind of legacy compact or cart based systems, but actually most of our growth is fueled by novice users that never had been trained on ultrasound and are now bringing it into their clinical practice for the first time.

(12:01):

And therefore, I'd say our secret to our growth is really that combination of best in class hardware—image quality, form factor, price point, wireless capabilities—coupled with software. Software actually, and the AI in many ways, is that secret ingredient that lowers the hurdle rate for novice users to be able to benefit from it. Because if you're a nurse, you're an EMT, you're a GP, maybe you haven't been trained on ultrasound, certainly not to the extent of an ultrasound tech or a radiologist or cardiologist, and therefore you're so reliant on AI to help you automate part of the acquisition and to help you get perfect image quality and make it really as easy to acquire ultrasound images as it is to snap a picture with your smartphone.

Rebecca Gwilt (12:50):

And so it's just the, the sheer uniqueness of this sort of very miniaturized ultrasound that has captured the attention of providers, the world over. What is, other than its size, what is unique about the product?

Ohad Arazi (13:11):

And so again, the innovation starts with a device the size of a smartphone, it costs under $3,500, and yet it's a fully fledged ultrasound system with a quality output that's really comparable to the cart based systems you may have seen at the hospital. You can appreciate how different this is than big old carts that get wheeled around with all their cables and knobs and buttons. And that's really the big advantage that is, it's really so powerful from a software perspective that you can help to automatically detect the anatomy or get real-time guidance on how to position the probe in order to acquire the optimal image. If you've ever seen an ultrasound image, it's actually quite difficult to acquire, right? Because it's typically used by sonographers, which are a two year technical degree that is solely focused on just acquiring the images that are then later interpreted by a radiologist or by a cardiologist. And with point of care ultrasound, it's moving from this offline process to being in hand of the clinician that's performing the procedure or making the point of care diagnostic. But to be successful, then you really have to make it much easier to use. And that's kind of that combination of the hardware and the software I think is what unlocks the value.

Rebecca Gwilt (14:24):

So this is what I wanted to get to because this is what I find fascinating, sort of the way that software is changing literally everything. I recently heard that in medical school, students are taught around 200 diseases, but they're actually like 10,000 or more diseases out there. And you just mentioned there are ultrasounds that can unlock information, but you have to go through special education about it. And then there's, there's these barriers that software can sort of fill. And I read in a recent Forbes article, you talked about AI as a tool that doctors can use to supplement and guide their evaluation and diagnosis, obviously bullish on AI. I'd like to hear a above and beyond what you're doing at Clarius and the ultrasound. What do you think that AI is going to unlock for us? What is an AI driven healthcare system going to help us do that we can't do now?

Ohad Arazi (15:27):

There's been so much hype and buzz around AI that I always feel compelled to try to level set a reasonable expectation of what it does. And I feel I've got some credibility in this because not only is AI such a big role of what we do at Clarius, but my prior company that we sold, Zebra Medical was an imaging AI company, one of the first pioneers, and we had the most FDA cleared solutions in the imaging AI space. At the time that I left at least we had eight FDA cleared products. And so I've kind of been through the hype cycle, but also having that hit reality to say, where can you actually drive an ROI and create measurable value? And so there's a very famous saying around kind of imaging AI, which I think is very telling: Imaging AI will not replace radiologists; radiologists that use AI will replace radiologists that don't.

(16:18):

And that I think is indicative of how I see AI playing generally in healthcare and just imaging is probably the first place that it's really being applied at scale because medical imaging is so much data that's digital that therefore you can apply pattern recognition or machine learning to it. But I think that it's more like the autopilot in a long transatlantic flight. It's not replacing the pilot. The pilot is still there doing takeoff and landing for the really complex tasks. But on the other hand, you wouldn't want the pilot to sit alone in the cockpit and fly for 12 hours because the more mundane routine tasks actually are better served by having them having a machine do it. And so that is, I think, principally the role that AI can serve at least today. I think over time it will continue to evolve, but to me, medicine is a mix of art and science.

(17:13):

It's not one or the other. And AI can really help with the science side. It can help with things that are measurable and quantifiable and maybe routine and more regular and high volume, but you're not going to lose the art. The art is the human in the loop that's helping to make a better informed decision or to do the really complex tasks that require not just routine pattern recognition, but more experience a different set of eyes. And so you noted that residents or fellows coming out of medical schools, they don't see the end of that. They see is much lower than what the AI will see. The AI is trained on perhaps millions of images, but on the other hand, they can better integrate and better synthesize multiple sources to make informed decisions that grow with experience. And so it's more like the cyborg, the combining the human and the machine together to create the superpower as opposed to AI replacing the human.

Rebecca Gwilt (18:13):

More as sort of augmentation, which I think even physicians could get humble enough to accept as something that can help them be better, given that there are limitations of what you can keep (unless you have a photographic memory, of course) in your brain. And that software can actually augment your capabilities, let you see additional possibilities. I'm going to, oh, I'm going to be keeping a close eye on AI integration into medical device products. It's one of the areas of interest that my colleagues and I are digging into, so very, very cool. All right. I'm going to ask you to zoom out one more time. I want to talk about the rollercoaster that has been the last two years, so many new solutions, so very much money, so much froth. And then this year's seeming slow down. I love your thoughts on whether you see the market right now as a challenge, as a challenge or an opportunity. Are you thinking differently about your business and business model now that economies around the world are changing and what do you think 2023 will look like? How it will be different?

Ohad Arazi (19:28):

Yeah, I mean, those are profound questions. I don't have a crystal ball to answer 2023, but maybe let's talk a little bit about what led us to this in the last two years. Because like you said, it's been very frothy and I think in 2020, 2021, as we were starting to emerge out of COVID, there were tremendous kind of tailwinds, especially in the investment realm, that were kind of driving up valuations and momentum within digital health. I think some of it was not that well established. And I think that there, I see two factors were kind of fear of missing out by investors that were really driving up valuations. And I think creating more energy behind companies that maybe didn't have as much scale or real substance behind them as they did. And I think another thing that's not often talked about was the talent wars?

(20:19):

Everybody was just like, there's this hiring frenzy of we got to get the best talents. Competition for AI and ML developers was insane, and that also provided justification for why do we need more money? And then as things started to slow down, the tap from investors started to slow down. A lot of companies looked in and said, do I really need actually all the talent that I've hired and how real is my scale and my progression? And so I think that at some level, this correction has been sobering and actually much needed because it was really lifting, it was lifting valuations that weren't supported by buying behavior yet because the ROI model actually wasn't there. And I think the industry was actually moving at a pace that wasn't sustainable relative to clinical adoption because clinical adoption takes time. It actually takes time to integrate this into workflow and really create value at the point of care or otherwise in healthcare.

Rebecca Gwilt (21:20):

Yeah, I think, did we

Ohad Arazi (21:20):

Did we overcorrect?

Rebecca Gwilt (21:22):

Yeah. Well, I was going to say, I think, and you'll know this because you've got a device that's FDA approved, but I think the other thing that we're probably going to see is more focus on evidence, on data, on actual, maybe not even ROI, certainly revenue, but does it work, right? And there was so much money raised from why wireframes and PowerPoint presentations that it may not have been elevating the solutions that actually worked. It might have been elevating things that were shiny and really interesting, but possibly not viable.

Ohad Arazi (22:06):

I agree. I think that if we look ahead, I think that that recalibration is helping because companies are thinking differently about their storytelling. They're thinking to your point about proof points that it works as opposed to a really good story. And now I think the investment community is demanding that. I think it will also drive companies to focus more on profitability and actually more on unit economics. I think that's one thing that's really been lacking, especially in the medical device space. I'd say as an investor, you can live with the fact that maybe OpEx is higher for a while because you're investing more to build out a new market, or maybe there's some R&D spend, but actually the core economics, like gross margin has to be there. You have to believe that ultimately this company will be profitable. And I look at a lot of med device companies, especially some of the ones that went earlier into SPACS, now valued less than the amount of cash they have on their balance sheet because the investors are looking at them and saying, wow, I will have to fund the path to profitability, which at a gross margin of maybe 40-50% is a very long journey, and therefore I have to price that out.

(23:12):

And so the positive things that I think that are coming out of this recalibration is that the price, the talent wars are over. And I think companies are more sober, more grounded about hiring. I think they're more focused to your point about evidence versus just kind of storytelling and building out hype. And I think that they're more aware of profitability, unit economics, and kind of building out sustainability in their businesses over time. And that's really been a guiding principle for how we've built our business. And I think that that's, companies that do that successfully will be able to command a premium, probably not at the same valuations that we saw in the space in digital health or med device or therapeutics in 2020, 2021. Maybe those will never come back or not for a while, but certainly I think they'll be able to get fair pricing and fair valuations.

Rebecca Gwilt (24:08):

Yeah. Well, and I think also ultimately, we're all in here to make patients healthier and live longer lives, happier lives and effective solutions in healthcare. If there's more of those in the next two years because of the pressure that's been put economically on these companies of the better. Okay. So thank you so much. I have loved discussing Clarius with you, your thoughts on the industry. I like to end these podcasts with one piece of advice that you would give to the healthcare innovators out there to help them supercharge their success this week.

Ohad Arazi (24:51):

Yeah. I always start with being problem oriented. I think that often when you're an innovator, you've got such drive and push in such a good understanding maybe of your space that you can allow yourself to be solution oriented. You say, I've got a thing and I'm going to go find someone that can use this thing, and I'm not ruling that out. But I think that you always have to be really in tune to ultimately what is the problem you're solving? And I'm always more interested in problems than solutions because I know that we've got a great team and will be able to source other people and other technologies to find the best solution, but it's actually really hard to uncover the truly meaningful, profound, juicy problems that are worth solving and that will really matter in the grander scheme of things, like to your point of making patients live longer, happier, and healthier lives. And so that's my one piece of advice to innovators is make sure you're really thinking about the world from the outside in and thinking about problems first and solution second.

Rebecca Gwilt (25:48):

I love that. I love that. And also, it's sort of in alignment with our move toward value-based reimbursement and value-based payment. Really focusing on what problem you're solving for the people that you're selling this to is amazing, amazing advice. All right. Where can people go to learn more about Clarius and about you, Ohad?

Ohad Arazi (26:08):

Yeah, we'd love to hear from you. We're at www.Clarius.com, C L A R I U S.com. We sell today to healthcare practitioners, not to patients, so we often get a lot of requests of like, I'm a pregnant mom. Can I use ultrasound to scan myself? We're not there yet. I think the FDA will get there with a patient as the intended user, but certainly we'd love to hear from clinicians of all walks of life and see if we can help them on their journey.

Rebecca Gwilt (26:40):

Amazing. All right. Well, we'll add that to the show notes. Thank you so much for your time today, Ohad, despite the technical difficulties, which hopefully the audience will not hear when we produce this, I wish you all of the best of luck at Clarius, and I hope you do stay in touch.

Ohad Arazi (26:55):

Right on. Thanks so much, Rebecca.

Announcer (27:00):

Thank you for listening to Decoding Healthcare Innovation. If you like the show, please subscribe, rate and review at Apple Podcast, Spotify, or wherever you get your podcasts. If you'd like to find out more about Carrie, Rebecca or Nixon Gwilt Law, go to NixonGwiltLaw.com or click the links in the show notes.



Digital Health, business expansion, Startups, |nnovationNixon Law GroupOhad Arazi, Clarius, startup, ai