Executive Interview Series on Growth
Investing in Innovation, Sales & Marketing to Drive Growth
Continuing our series of executive interviews on growth, Andreas Knaack talks with Larry Culp, the former president and CEO of Danaher Corporation. During Larry's 14-year tenure as president, Danaher grew nearly five-fold in sales ($20B) and market capitalization ($50B).
In this discussion, Larry talks about how Danaher was able to achieve such impressive growth with him at the helm – even through the dot-com bubble burst in 2000 and the global financial crisis of 2008.
Among other things, Larry explains the importance of being bold and ambitious when setting goals and expectations, truly focusing on what customers need, having the talent equation properly calibrated, and being exceptionally good at innovation, sales and marketing.
Andreas: Good afternoon, Larry, and thank you for joining me.
Larry: My pleasure. Good to be with you.
Andreas: Great to have you, Larry. Larry, it’s been about twenty months since you’ve handed over the leadership baton of Danaher to Tom Joyce, and I can imagine that a lot of people in and outside of Danaher would be interested in hearing what are you’re doing these days.
Larry: Sure. It changes month to month, but at a high level, I’d say that I’m spending a good bit of time with family and friends and on some personal activities like fishing. I’m headed off for a week to Costa Rica next week to go chase some blue marlin.
I’m also spending a good bit of time in higher education where I have a faculty appointment at the Harvard Business School; I’m chairing the board at my alma mater, Washington College; and I joined the board at Wake Forest University, where my two sons attend.
I’m also spending some time in what you might think of as advisory work. I’m formally on the board at T. Rowe Price, the big asset manager in Baltimore, but also helping a number of different CEOs here and there, where I can be helpful relative to the challenges and opportunities in their businesses.
Andreas: Fantastic. Well, I can imagine that you keep busy, and I certainly wasn’t anticipating that you’d be idle after your time at Danaher. Reflecting on when you first became Danaher’s CEO, how did you approach the topic of growth? I assume it was an expectation that was put in front of you. What priorities did you set for the business, and how did you derive those priorities?
Larry: Well, I think if you go back to that time period, I’m not sure that growth per se was our highest priority. We were in transition; given the early focus of the Danaher Business System was really on cost and productivity. I was fortunate in that having come up through both Veeder-Root and Fluke, I saw a good bit of our best practices, with respect to both organic growth and inorganic growth. So I think for me coming in, it was really about making sure that the team understood that we wanted to continue to focus and put more energy on organic growth, and not lose sight of what we were doing from a cost, let alone quality and delivery perspective. We wanted to not only do that better strategically, but also make sure we had the tools and processes in place to be better operationally.
We tried to reframe our strategic discussions to answer those two simple but powerful questions: what game are we playing, and how do we win.
We tried to reframe our strategic discussions to answer those two simple but powerful questions: what game are we playing, and how do we win; and then with those organic growth opportunities in sight, flesh out the Danaher Business System toolbox so that we could build on what we had been doing at Veeder, at Fluke, and elsewhere, to share those best practices and be better across the organization.
I would also say from an M&A perspective we were putting growth as a higher priority. So you saw us evolve over time, such that we were buying higher growth businesses and we were buying in to higher growth markets, as well.
Andreas: Yes. So that was the outset, then, of the Danaher growth tools as we know them today. Is that right?
Andreas: Looking back at your time as Danaher CEO for those fourteen years, what were the key learnings for you when you think about growth, and what things that didn’t work did you learn most from? I think we all often learn from things that don’t work.
Larry: Well, I think about what I’ve learned about growth not strictly being a function of my time as CEO, but really my twenty-five years with the company. And in many respects, I think what I learned is really more a function of appreciating the power of common sense, as opposed to particular insights unique and special to Danaher, or being a CEO.
At Veeder and at Fluke and throughout my time at Danaher, when we were truly and exceptionally focused on customers—what customers needed, whether they could articulate it or not—we tended to do very well.
When we were bold and ambitious about expectations—either in terms of innovation or just going out and grabbing market share—we tended to do well from a growth perspective.
I think when we were bold and ambitious about expectations—either in terms of innovation or just going out and grabbing market share—we tended to do well from a growth perspective.
I think we obliterated some of the conventional wisdom that said that if you’re tight on cost, if you’re a disciplined organization, you can’t be a good grower. I think what we realized—as our friend Jim Collins reminds us with his expression “The Genius of the And”—we could be disciplined in certain areas of the business that would enable us to invest (to be a little looser, if you will) in R&D, or in sales and marketing, to go for growth.
When we didn’t have the talent equation properly calibrated, we didn’t perform in the way we would like. But when we had the right team in place, put the tools in their hands, we tended to do pretty well.
And I would say in terms of what didn’t work, or the lesson that we learned the hard way, is that the Danaher Business System is indeed a powerful and differentiated set of tools and processes, but it’s never a substitute for talent. And I think time and again when we didn’t have the talent equation properly calibrated, we didn’t perform in the way we would like. But when we had the right team in place, put the tools in their hands, we tended to do pretty well.
So those are the things that stand out for me as I reflect on my time with the company.
Andreas: And that, then, goes back to the Danaher value, the best team wins, right?
Larry: That’s why it’s our first core value.
Andreas: Exactly. So, in those twenty-five years of your career, or in your tenure as CEO, were there any key milestones that caused you to change your tack or approach to growth, maybe the global financial crisis or any key events that made a big difference to your approach?
Larry: Well, I think if you look over my tenure as CEO, our business, and I think virtually every other business, has really been dealing with two major trends which I suspect are going to be with us for quite some time: the digital wave and globalization as we know it. And we’ve talked often about the opportunities and the challenges that both of those trends present to us.
No business is likely to do well over the medium-term, let alone the long-term, without being exceptionally good at innovation, sales and marketing.
At a minimum, I think they combine to suggest that no business is likely to do well over the medium-term, let alone the long-term, without being exceptionally good at innovation, sales and marketing. So, while that was something that we were trying to improve over time as the portfolio demanded that we do so—because, again, we were entering those higher growth markets with those higher growth businesses—I think everywhere in the organization the digital wave and globalization were coming ashore that made it an absolute imperative. And in a simple way, that’s really the way I think about it.
In terms of the crises, remember I was very lucky as CEO. I got to be CEO both when the dot-com bubble burst and then in the global financial crisis. And I think what we learned, or what we were reminded of, is that when you have situations like that, where people are anxious, nervous, markets are weak, it is a wonderful opportunity to go grab share, to acquire, because so many people either don’t have the operating latitude, or perhaps even the intestinal fortitude, to play offense in those environments. We had a mindset that said this is perhaps the best time to play offense and really position ourselves with customers and within markets as a market leader.
Andreas: Then it’s also a good time to invest organically at exactly that time, right?
Larry: Exactly. It’s so natural for people to hunker down—and you’ll recall [Danaher] did that as well—but we could be disciplined. We could hunker down in certain parts of the business in order to play a lot of offense in the labs, with customers, and with our sales and service teams.
Andreas: So, when we look now out into the next three to five years, what do you think the most critical growth challenges will be? Is it continuing on the same route of digital and globalization?
Larry: Well, I think they are going to be with us for quite some time. I do think if there’s a third leg to that stool, if you will, it is this low-growth macro and the threat of deflation that, yet again, underscores the importance of innovation and smart go-to-market capabilities. The rewards on an absolute basis may not be as great, but winning is relative, and a share point here or there over a couple of years, I think it’s going to make a world of difference for most companies and most markets.
Andreas: So, with your wealth of experience, what are the one or two pieces of advice you would give executives on the way they think about growth?
It was really only when I was truly comfortable with that top job that I understood just how impactful it can be to set the bar high, and define a vision to set goals that are aggressive and ambitious.
Larry: Well, I think certainly for senior executives, one of the things we talk a lot about at Harvard Business School is the power of expectations. This was something that I think I understood as an operating company president at Danaher, and I thought I understood in my early years as CEO; but I think it was really only when I was truly comfortable with that top job that I understood just how impactful it can be to set the bar high, and define a vision to set goals that are aggressive and ambitious. Now, not that we always hit those goals, but I think we were always better for having stretched ourselves, as opposed to doing what might have been more comfortable or less disruptive in negotiating a more reasonable goal. And I think over time, if you look at the great companies—whether those are the so-called “unicorns” out in Silicon Valley today, or even companies elsewhere in less publicized markets—there’s a frequent common denominator in terms of outperformance and outsized expectation setting.
I’d say the other thing that is important which ties into that, is if you really want to have an organization geared toward winning, goals are great, but you really have to have a robust capability of looking back to determine whether or not in hindsight those goals were properly set, and whether you’ve won or lost.
So many organizations, and we’ve certainly seen this in the companies that we’ve acquired, rely heavily on budgeting—and there’s nothing wrong with budgeting—but if setting a goal twelve months out and hitting it in isolation is the way you’re operating, you really have no idea, or you might have a limited idea, of whether or not, in the market, you’re doing as well as you should. So we set a budget to grow three and we grow three, but the market grew four. Probably didn’t do very well, but we made our budget and we might be celebrating that. Similarly, if we set a target of four, we deliver three, but the market grew two, we might think we lost when in fact we probably did pretty well.
Regardless of what the budget told us, we really looked outside to make sure in real time and/or in hindsight we were winning.
Now it’s very hard to do—and I don’t want to suggest to anybody that we had this perfectly in hand—but we were always honest with ourselves. Regardless of what the budget told us, we really looked outside to make sure in real time and/or in hindsight we were winning. I think in turn that helped us have conversations about what we can improve, threats, opportunities, what was working. It enabled us to just build momentum over time and it built the Danaher that we have today.
Andreas: And setting those high expectations also makes a difference in your ability to see what’s possible, as opposed to the budgeting process where we may never find out what might have been possible, right?
Larry: That’s exactly right. We can go back and talk about this tool or that tool, the importance of innovation, or how you balance resource allocation between innovation, sales, marketing and service—but leaders really need to frame conversations. And a wonderful way to frame conversations is through expectation setting. Within an aggressive expectation environment, you can then have that non-political conversation about how do we actually perform at that level.
If targets are negotiated, if folks want to be comfortable and safe, if, perhaps, failures are dealt with in a harsh way rather than with some of our problem-solving approaches, then I think you end up with a culture, and over time, an organizational-wide skill set, that probably doesn’t lend itself to outperform in your market.
If leaders can get in in a substantive way, and understand the challenges, understand the opportunities, and work to help the teams and the businesses, then I think you’ve got a better-than-even chance. But if targets are negotiated, if folks want to be comfortable and safe, if, perhaps, failures are dealt with in a harsh way rather than with some of our problem-solving approaches, then I think you end up with a culture, and over time, an organizational-wide skill set, that probably doesn’t lend itself to outperform in your market.
Andreas: That’s an excellent answer, Larry. So I have one final question. This may sound a bit funny, but I always liked that you’ve been good at sharing with us what you’re currently reading or what you’ve recently read. Are there any books that you’re reading or have read recently that you would recommend to us?
Larry: I’m in the process of re-reading Ron Chernow’s biography of Alexander Hamilton, the first Secretary of the Treasury in the United States. You may know, the hottest show on Broadway right now is Hamilton, a musical based on this book. I’ve been up to New York and have seen it several times. I’ve thoroughly enjoyed it. So I’m going back and reading the source document.
I’m also most of the way through a book called Work Rules! which is written by the head of HR at Google, Laszlo Bock, who we’ve met. I’m trying to understand a little bit more about how Google manages talent—we talked about how important talent is earlier. A number of us were out there about a year and a half ago, but I didn’t learn as much about what they were doing and doing differently [as in the book]. It’s certainly a different environment, but so far a lot of their principles seem to be similar to ours at Danaher.
So, those are the two books I currently have on the nightstand.
Andreas: Fantastic. Thanks very much, Larry. It’s been really great to talk to you today. I think your students at Harvard Business School will be truly envied for the opportunity to learn from somebody with your insight and track record and experience. Thank you so much for joining us today. It’s been a true privilege to talk to you and to hear your view on growth.
Larry: My pleasure, Andreas. I hope some of these comments are helpful to you and the audience.
Andreas: Very much so, I’m absolutely convinced. Thanks so much. Have a great day, Larry.
Larry: Thank you.