A Product Market Fit Show | Startup Podcast for Founders
00:00:00 · AJ Loiacono, Pablo Srugo
[00:00:00] S0: A Fortune 500 company called us directly. Said, I saw this post that you made, and they said, I want to do business with you. And I was like, whoa. It was this moment where we suddenly had a name brand customer asking us directly, could we use it? I say this all the time. D players see a problem and say nothing. C players see something and be like, hey, there's a problem. And they report it to a supervisor or manager. The B players are like, hey, I saw this problem. You could do A or B to solve for this. The A players see something and fix it, and I never knew it even was a problem. If you've never done your own business, I think a lot of people that I speak with get caught in this trap of they get super excited about the things that kind of glamorize your business, like the website design and the we should have pizza Fridays. You need to strip all of that out. You have to treat your startup like this is the only money you're ever gonna see in your life. That's product market fit. Product market fit. I called it the product market fit question. Product market fit. Product market fit. Product market fit. Product market fit. [00:01:13] S1: I mean the name of the show is product market fit. Do you think the product market fit show has product market fit? Because if you do, then there's something you just have to do. You have to take up your phone. You have to leave the show five stars. It lets us reach more founders and it lets us get better guests. Thank you. [00:01:31] S0: AJ, welcome to the show, man. Thank you for having me, Pablo.
00:01:31 · AJ Loiacono, Pablo Srugo
[00:01:31] S0: AJ, welcome to the show, man. Thank you for having me, Pablo. [00:01:34] S1: Excited to have you here. You just came off a pretty big fundraise last year, $400 million at over a $3 billion valuation. And you've been at this since 2017. So it's been a good ride. Seems like things are going generally well in the right direction. We're gonna, you know, focus as we do on product market fit show, not so much on the second half or whatever, the later part of that journey, but the beginning, which at the end of the day, that's what you got to get right to get everything else. So let's start at the beginning. I mean, we're gonna talk about exactly what you do and we're gonna go through your story. But before we do any of that, tell me about the product market fit moment for you. When was it that you started to feel like you really had that market pull?
00:02:10 · AJ Loiacono
[00:02:10] S0: Yeah, when we talk about the early days, the gritty moments, uh we're selling to small plants. I always want to make this clear when I'm in healthcare. And so when you're you're in healthcare, I often say there are no shortcuts because even if your brother or sister was the CEO of a large Fortune 500 company and they have 100,000 employees, and you say, Hey, I could service your company, someone in compliance or legal, someone is going to put a check in balance and say, Can you give me a reference of another company that's 100,000 lives, someone who's our stature, someone who's our scale. And if you can't, you're right back to the beginning. And what that means is you're selling to 500 life cases, 800 life cases, and you're trying to leverage those thousand life cases to get to two, to four, to you know, eight, sixteen, et cetera. But the whole part of it that I go back to is when we're grinding through this for the first two years, and that may seem like an eternity until you think, like, hey, did we actually nail this and find product market fit? But for us, it was a Fortune 500 company called us directly. Said, I saw this post that you made, and some of the things that you are talking about were experiencing directly. And the whole part of our business was to be transparent, to provide fixed, clear prices on healthcare services, particularly in prescription benefits. And they said, I want to, I want to do business with you. And I was like, whoa, like for the first time, a jumbo customer is coming to us and asking for this service. Like normally you're fighting, you know, back to hand-to-hand combat to get to the attention, let alone a chance in the door, and forget about converting them. So for us, it was two years in and it was this moment where we suddenly had a name brand customer asking us directly, could we use it? Aaron Powell, how big were you at the time, like revenue-wise? Aaron Powell About 10, 12 million ARR at that point.
00:04:21 · Pablo Srugo, AJ Loiacono
[00:04:21] S1: Most founders of 10 million ARR feel like they're well beyond product market fit. Funny enough, I know some of those and some of those aren't, but they probably feel it. But you you didn't for some reason. [00:04:30] S0: Aaron Powell Well, I I think it's because we were trying to compete with three Fortune 15 companies. So healthcare is highly consolidated. CVS, Cigna, and United Healthcare, three publicly traded companies, all of which are, I'm going to say Fortune 8, Fortune 10, Fortune 14, respectively in that range. And so when you're battling with Titans, yeah, 10 million ARR is okay, but it's nowhere near the scale to one, compete with them directly, but two, attract back what I was saying before. How do you attract larger customers to start to ramp and scale? So healthcare, yeah. $10 million sounds like a huge amount of money from someone. This is my third business. So yeah, 10 million ARR is huge. In healthcare, you're nothing. [00:05:23] S1: Aaron Powell Tell me, this is good get time to segue into that. Like what exactly is Judi Health? What do you guys do? And even I know the name has changed. I don't know if what you do has changed, but curious what it was at the beginning as well.
00:05:33 · AJ Loiacono
[00:05:33] S0: So Judi Health is a health benefit manager. So anyone who works for a company and you have a benefit plan, somebody's administrating your benefits. So that's medical pharmacy and the longer tail of dental vision and ancillary benefits. But the point of it is your insurance or your benefit provider is the person that manages your account. And so this is what Judi Health provides. We started in pharmacy benefits, and the name of the company in the early days was Capital Rx. Talk about gritty. People often say, Oh, like, what was the name Capital Rx? What did it represent? I'm like, nothing. The domain name was available. Nobody had any trademark rights on Capital Rx, so it was clean. And more importantly, I wanted it because it sounded common. And people are like, what? Because in healthcare, you want to feel like you've been around forever. Right. Yeah, you don't want to have like new in your name. Yeah, it's not a high-risk area. Yeah. Yeah. You know, feel like Capital Rx, it sounds like consolidated or continental. They've been around forever. You know, like, all right, I guess we'll give them a shout, we'll give them a try. But we started as Capital Rx, and the concept was let's process these benefits, but unlike our competitors, let's not make money on drugs bed. And people are like, well, what do you mean by that? If you go back into a time machine with me into the 80s and 90s, benefits were managed by entities that didn't make money on drugs bed. They charged a flat administrative fee. So it was very sassy. But also in that moment, the entire industry realizes if I become what's called vertically integrated, I'm not just the administrator, I own the pharmacy. I own the rebate aggregation. I'll own these other assets so I could get paid multiple times on the same transaction. So not only am I making money as the administrator, I'm making money possibly on the fulfillment side of the pharmacy, but I'm also making money on what we call like GPO and rebate. And so if you could stack this, you make more money. I felt this was a horrible conflict of interest. The conflict of interest is think about it, if you're asking someone to manage your benefit plan, and the more expensive the medication, the more money they make. That doesn't sound like a recipe for good outcomes for either the patient population or the plan's cost.
00:08:17 · AJ Loiacono, Pablo Srugo
And that's exactly what was happening. Costs in the United States were exploding. I say this, I've been around the block. I've been in healthcare for 26 years. And if we went back to 2000, the year 2000, the total drug spend in the United States was like $110 billion. We fast forward to today, it's a trillion. [00:08:39] S1: It's wild that that became standard. I mean, that's like the real estate agent who only shows you the houses that they're also, you know, representing the other side of. It's like, okay, show me one of those, but you know, big, big like disclaimer, right? Because it's not clearly the conflict is is front and center.