Innovate by Focusing on Demand

By: Anna Caraveli

How a physicians' network drove growth with disciplined demand-oriented thinking. (Titled "A Business Model With Something for Everyone" in the print edition.)

In creating Sermo, the largest physicians' network in the United States, founder and CEO Daniel Palestrant, MD, did not look for perfect products and benefits. Instead, he looked for solutions. "What is the most priceless resource for any physician?" he wanted to know. Without a doubt, it was other physicians.

While making the rounds as a hospital physician a decade ago, Palestrant realized "that some of the most valuable conversations—those that often yielded early insights into new discoveries—took place in spontaneous gatherings among physicians around the water cooler." This experience was the inspiration for Sermo and became the heart of its membership model: a technology platform to allow members to talk, get or offer advice on difficult cases, ask questions, and exchange opinions or concerns. Founded in 2005 as a privately held company, Sermo has grown to 120,000 physician members in 68 specialties in all 50 states.

Sermo's growth has been driven by a culture of innovation and entrepreneurial product and business development. This demand-oriented thinking propelled Sermo to the next level of growth: corporate membership. Sermo looked to the economics of its members' relationships with various entities throughout the medical industry to identify new categories of members: health-insurance companies, financial-service firms, government agencies, and pharmaceutical, medical equipment, and technology companies.

Sermo's innovation, however, was not in merely adding new types of members but in crafting a unique online network through which participants could get more value from relationships within their value chain than they could in the real world. Instead of paying millions in research and development, for example, corporate members now paid subscription fees to learn about their market by listening to physicians' conversations. Physicians, on the other hand, had a chance to influence the next generation of drugs, equipment, or policy; share the companies' proprietary data; and earn extra income by participating in company-sponsored focus groups. Sermo calls this equitable value exchange and generation "information arbitrage."

The challenge for Palestrant was to enable companies to derive real value from Sermo's network without jeopardizing the trust physicians had in it. To this end, Palestrant says, "we tried to make the value exchange as equitable as possible for all member groups." It seems to have worked. Currently, Sermo serves a growing portfolio of more than 300 corporate members while retaining and continuously increasing its physician membership base.

Sermo's network model is dynamic and self-sustaining. Analysts constantly monitor and study physicians' conversations to extract key information. Account managers translate insights into service bundles, customized to the needs of member companies. Managers habitually track the outcomes of Sermo's services in member companies and assemble portfolios of best practices. Such learning processes allow Sermo to assume consulting roles with clients who pay for premium levels of service.

Associations that survived the recent economic crises and are on a growth trajectory today share Sermo's principles of success. Most notably, they

  • focused on developing capabilities and nurturing a culture for responding to demand rather than products, services, or structures.
  • shifted to a customer-oriented mindset trained on crafting solutions rather than pushing products.
  • broadened their definition of "member" to include the larger value chain.
  • employed entrepreneurial approaches to new product development and growth, rapidly recognizing and seizing new opportunities.

While products are easily duplicated and their lifecycles are getting shorter, an organization's capacity to identify and craft unique solutions for the right problems has no expiration date. Sermo is proof, and associations would do well to take a similar approach.

Anna Caraveli is managing partner of Connection Strategists in Alexandria, Virginia. Blog:; Email: [email protected]

Anna Caraveli

Anna Caraveli, managing partner of The Demand Networks, LLC, of Alexandria, Virginia, is author of The Demand Perspective: Leading from the Outside In.