A Product Market Fit Show | Startup Podcast for Founders
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.
00:27:27 · AJ Loiacono, Pablo Srugo
[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. [00:28:20] S1: Aaron Powell And fundamentally, your your model at the beginning was you just charge, like you go back to square one. Like you're just gonna say this is the cost per participant, and you don't make money on each of the kind of the drugs, right?
00:28:32 · AJ Loiacono
[00:28:32] S0: So this is the hard part as well, is my competitors are saying their services are free. And you're gonna be like, wait, what? And be like, because their money they're taking is out of the drug spend, they don't charge a flat administrative fee. So in the column where it says admin fee in the analysis, you know, we'll have something that says, hey, we're gonna charge you $150,000 to manage this plan. And my competitors will have a zero. Let me tell you, it's hard to compete with a zero if people are just glossing through a presentation, but the net cost was working out in our favor. And I try and point this out, which is we could never compete early on on what I call gross purchasing power. And so if my competitors could get a drug, let's just say for $100, because we were smaller, maybe we paid $110 for that drug through our arrangement. So people would be like, well, you would lose. But there's two lines in any business there's obviously your gross revenue and there's your net. So we had to beat them in operating efficiency. So if you read my business plan at the start, it was we need to operate 70% more efficient than three Fortune 15 companies. Now, their purchasing power was higher, but if we operated that at that efficiency, we could beat them head to head. And we could do something no one had ever done before, which is scale that model and start taking Fortune 500 business away from them. And that's exactly what we did.
00:30:10 · Pablo Srugo
[00:30:10] S1: That lowers your net cost. But then the other side of that, if I'm understanding it correctly, is you also charge everybody the same rate for the drug to begin with. So you're kind of fixing your margin.