A few weeks ago I came across Danaher, a healthcare and diagnostic giant I had heard of before (and maybe you have to) but did not know much about.

While studying its legacy and its products, I discovered a truly incredible story of compounding value for decades through multiple transformations and some inspiring principles from one of its founders, Mitchell Rales.

A brief story of Danaher

Everything began when the Rales brothers, Mitch and Steve acquired a tooling manufacturing company in 1981 for $6M (the company was doing $9M in revenue and $600k in profit - a great deal because the parent company was going bankrupt and they needed to sell). Despite their young age (Mitch was 25 and Steve was 30) they managed to borrow enough money to close the deal.

In 1983 they acquired a tyre supply company for $90M (borrowing most capital from GE and using some profits from the previous acquisition). In 1984, the two companies were merged into Danaher.

But what’s that to do with healthcare?

Danaher reinvented itself many times to become what it is today. After founding the company, the Rales brothers decided to take a step back from day-to-day operations and since that time, there have been 4 phases:

Phase 1: In 1990, George Sherman joined as CEO to professionalise the business and become a leader in the tooling industry.

Phase 2: In 2000 Larry Culp began the expansion into adjacent business opportunities, bringing the group from $3B to $14B in revenue. During this period Danaher started dipping its toes into healthcare and learning about the advantages of a resilient industry that can last through good and bad times.

Phase 3: In 2014, Thomas Joyce became CEO and started to remove complexity. After 10s of acquisitions across industries and continents, Danaher had become too complicated. In this phase, there were a lot of divestments (including the initial tooling companies) while going deep into healthcare and focusing on operating a diagnostic conglomerate.

Phase 4: In 2020, Rainer M. Blair joined as CEO to lead the group through a key growth phase during COVID-19 and is now rebuilding for what comes next.

Danaher’s strengths

Growing through acquisitions and organic resources is not easy and Danaher developed a system inspired by the Japanese Kaizen concept called the Danaher Business System (DBS).

Thanks to their approach, they brought together a unique set of industry leaders across 3 main categories:

• Biotechnology (biomanufacturing, lab filtration and assay development)

• Life Sciences (flow cytometry, lab automation, microscopy, genomics)

• Diagnostics (PoC systems, DNA testing, acute care and pathology)

This growth led to one of the most remarkable compounding stories of the last few decades. So far Danaher has generated a total return (CAGR) of 18.77% vs the benchmark (S&P 500) of 11.86%.

4 lessons from Mitch Rales

While researching Danaher, I listened to Mitch’s recent first long-form interview on the Art of Investing Podcast and here are some gold nuggets.

#1: Benchmarking before a big decision

Before founding Glenstone (a contemporary art museum in Maryland), Mitch and his wife Emily visited and spoke with 50+ museum owners globally, asking one key question:

Any time we start a new role, change to a new company or pivot our career, we often overlook doing extensive research to understand what we are really getting into.

We might speak with a few people (usually already in our network) and ask them a few questions but we never go the distance.

When facing a big decision, we should speak with at least 20 people and ask them what they would do differently. This will open up our eyes and inform our decisions in ways we would have never predicted.

#2: Going to Gemba

A concept in Kaizen is Going to Gemba, which means going where the action is.

Instead of hoping for something to happen while waiting where we are, getting amid the action is always the best choice: moving to the big city where the best talent is, joining a company working on something unique, following a charismatic person who is meant to do great things.

Even if things are not clear (they never are), going where the best people are is the secret to compounding, especially over years and decades.

#3: Pivoting a career

The Rales brothers stepped aside from operations and hired an experienced CEO when they realized they were not great at it, even if they were the founders.
Instead, they decided to focus on what they were great at, such as long-term vision, capital allocation and strategy, which was ultimately the right decision.

After spending a lot of time and effort in a specific direction, it’s very hard to take a step back and evaluate if that’s the right path for the long term.

Are we truly good at what we do or are we just getting by and following the path?

Maybe there is another direction where we could excel even more, but it takes courage to go after it.

#4: Doubling down on winners

Both in Danaher and his private investments, Mitch focuses on finding great projects/companies and investing in them at any stage. There are not many of these opportunities out there and a lot of investors get scared when prices are high or if the company has already achieved good results but great things always have more greatness ahead.

The same applies to us when we invest our time throughout our careers.

Once we find something great (a great company, a great leader, a promising field), it’s better to double down on it and fight the urge to chase a new opportunity (no matter how shiny it looks).

#5: The importance of moral

When Mitch became an owner of the Washington Commandos after decades of terrible results, a player told him how playing in their home stadium and seeing the away team having more fans was heartbreaking for their morale.

The same can happen at startups, especially because this aspect is very hard to quantify and almost always goes under the radar.

When things are not going great, working every day in a defeated environment where nobody believes in the mission anymore is extremely painful.

When things get hectic with deadlines coming up one after the other, it’s not easy to notice how much low morale matters. But it always does.

If you enjoyed this issue, share it with someone looking for mentors.

This week's top scientific reads

1. AlphaFold 3 from DeepMind (Google)

2. Med-Gemini: Multimodal AI Models (ArXiv)

3. CRISPR Editing to Treat Blindness (Harward Edu)

4. Regeneron's Gene Therapy Restores Hearing (Regeneron)

5. New Sensor for Better MRI Imaging (PRX Quantum)

Read the highlights of these articles here.

Latest European funding rounds in health & bio

• Commit Biologics raised €16M to develop therapeutics that activate the immune system to treat cancer and autoimmune diseases 🇩🇰

• Allegria Therapeutics raised €3.3M to develop treatments for allergy and mast cell-mediated inflammatory diseases 🇨🇭

• Nami Surgical raised €3.7M for its ultrasonic scalpel used in robotic-assisted surgeries 🇬🇧

• BioVersys raised €12.5M to develop antibacterial products against life-threatening infections caused by multi-drug resistant bacteria 🇨🇭

• Hexis closed a €1.9M pre-seed round for a nutrition app for athletes 🇬🇧

• Insempra raised €19.5M for sustainable food and beauty ingredients 🇩🇪

• Memo Therapeutics closed a €20.5M Series C round to develop antibodies to treat kidney transplant patients at risk of infection 🇨🇭

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