A Product Market Fit Show | Startup Podcast for Founders
00:20:35 · AJ Loiacono, Pablo Srugo
[00:20:35] S0: Yeah, a different piece of the market, you know, is one to be fair, is we started with pharmacy benefits. So in the UnitedHealth States, pharmacy and medical are actually administrated separately for what we call large companies. So if you're self-insured in the UnitedHealth States, if you have a thousand covered lives, which is roughly you have 500 employees, you usually double it with the dependents and you have a thousand-person plan, you're self-insured. Why do you want to be self-insured? Because your premium costs would be lower versus fully insured. You could pay your own bills effectively. And what we did is we focused on the self-insured marketplace and we started with pharmacy. It was my background, plus, I felt as if we had, I think, a very unique business proposition back to the product market fit. And so that's where we started. We would we would later expand into what I call TPA services, third-party administrator on the medical side. So again, similar product on the administrative side to pharmacy, same concept, focus on self-insured. So I go back to, you know, our competitors are CVS, Cigna UnitedHealth. [00:21:50] S1: Taking back to maybe like whether it's the first customer or one of the first customers, I'm really curious as to what the value proposition was like back then, how you framed it, and how you got them. You know, to use your your product, unproven product, right? In something that you just said is so kind of uh not the sort of thing you tend to take risks with.
00:21:50 · Pablo Srugo, AJ Loiacono
[00:21:50] S1: Taking back to maybe like whether it's the first customer or one of the first customers, I'm really curious as to what the value proposition was like back then, how you framed it, and how you got them. You know, to use your your product, unproven product, right? In something that you just said is so kind of uh not the sort of thing you tend to take risks with. [00:22:07] S0: Oh well, it is people ask me all the time, like, hey, would you ever want to go back to the good old days? And you're like, never. They're like, why? And I go, Do you know how hard it is to sell healthcare? And this is your pitch. Think about it. They're like, customer asked me, how long have you been in business for? And I'm like, including this month. And they're like, Are you being funny? And you're like, no, I've been in business for three months now. Like, great. And they're like, um, tell me about your other customers. I'm like, including you? And they're like, you have no customers? And you're like, no, not really.
00:22:07 · AJ Loiacono, Pablo Srugo
[00:22:07] S0: Oh well, it is people ask me all the time, like, hey, would you ever want to go back to the good old days? And you're like, never. They're like, why? And I go, Do you know how hard it is to sell healthcare? And this is your pitch. Think about it. They're like, customer asked me, how long have you been in business for? And I'm like, including this month. And they're like, Are you being funny? And you're like, no, I've been in business for three months now. Like, great. And they're like, um, tell me about your other customers. I'm like, including you? And they're like, you have no customers? And you're like, no, not really. [00:22:42] S1: And everything you have early adopters, and I'm sure you have them here, but there isn't as as compelling of a reason to be first on this as the like the risks kind of outweigh the cost, I think, for a lot of people's minds. Because if you're first on, let's say, some AI-enabled outreach tool, it's like that's alpha. You know, you're gonna reach more, like, yeah, let's try it, let's go. Whereas with this, it's like worst case scenario is really bad, best case scenario, things work a little bit better, but yeah, I don't know. I don't know if I'm uh that's my assumption.
00:23:07 · AJ Loiacono
[00:23:07] S0: Well, that's what you're exactly right. Think about it, is most people are very conservative with benefits because they're like, I just want my people to have access to their care and have a reliable company. And you're trying to convince them that there's a problem that might be identified. Some of my customers were like, my costs are going up and I can't figure out why. So cost was the biggest driver, followed by service. They felt as if their members, as well as the plans experience, was substandard. You know, they felt like they were being discarded. And to be fair, larger companies really don't like the small market. You know, they'd rather focus on big customers, Fortune 500. And so when we started to talk to the small plans, we had to overcome this barrier, this wall of like, you have nothing to offer me because you have no experience. What we were able to do was to leverage the team's experience. Like, hey, I've been in this industry for 18 years. I'm gonna tell you all of my knowledge and I'm gonna tell you things you've never heard before. And I think it was that information, like, well, wait, wait, that makes sense. Like, and that's true. I'm able to prove that in the data set. And so we were able to make observations in the data that I think was incredibly valuable to the customers, enough to overcome. They're like, okay, you're telling me something I haven't heard. You're showing me where these costs are coming from, which no one has really been able to do with me. I'll take a chance. And I want to be fair. I go back to my earlier statement. These are 500, 1000 life cases that you're working with in your first year. It's in that second year, it was almost immediately, once you had references, you could sell to a 4,000 life case. You could sell to an 8,000 life case. And then I get the phone call of the large Fortune 500 company that says, hey, I've got 30,000 people here. I've heard some really good things. You're saying things no one has had the courage to say, and I agree. And we'd like to move in this direction.
00:25:20 · Pablo Srugo, AJ Loiacono
[00:25:20] S1: Do you remember the first customer you signed? Those probably smaller customers and how that happened? Yes. [00:25:24] S0: You know, I often say unions are very good early adopters when it comes to cost savings and service, because one, they want to make sure their membership is treated on a level like family. The second part is municipalities and public sector and unions, they have fixed budgets. You know, I often say if you work with a Fortune 500 plan, you know, if their cost goes up 5%, they just pay it. A union has to consider sustainability, you know, very precisely. How many union does how much is the union dues that we have, how much goes to benefits, working with actuaries, how long can we maintain the benefit at this rate? Do we have an ample amount of membership to survive? You know, corporate America doesn't necessarily have the same sensitivity to price that unions do for the reason I just described. And so unions became at the heart of our business the first couple of years. You know, those first two years, you know, I would say I bleed taft-heartly in the sense that I will forever be very thankful for unions. I also also will point out I am the son of a public school teacher who is a union member as well. And so I understand the importance that benefits play in the public sector and for unions because it is a critical part of their compensation package. Oftentimes, you know, unions in public sector have very good benefits.
00:26:59 · Pablo Srugo, AJ Loiacono
[00:26:59] S1: I'm really worried because listen, like you've been listening for like what, 10, 20, 30 minutes now? Clearly, you like it. And the thing is, the next episode is way better and you're gonna miss it. You're gonna miss it because you're not following the show. So take your phone out and hit that follow button. Were you able to promise and quantify like how much the cost? Like, was that the key value prop, right? It's like, hey, you're paying this much. A lot of it is like effectively price gouging. We're gonna bring your cost to this. Like, was that the simple version? [00:27:27] S0: You have to compete on price. You know, I always want to be fair about this. And so you have to be able to demonstrate that in both your offering. So normally there's like a third-party consultant that is hired to kind of be the person who's overseeing the process. They'll provide the data in which we submit a bid. And based upon the cost analysis, they'll say a combination of two things. One, your offering, and two, your contract. So you have to make sure, obviously, if you're the consultant, that the contract matches the offering. So someone can be like, hey, I repriced the claims and here's my offering. But if the contract has a hundred different holes in it that you don't have to support that pricing once the plan is live, it's not worth the paper it was written on. And so it's that combination, but you're always competing on price.