A Product Market Fit Show | Startup Podcast for Founders
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.
00:30:18 · AJ Loiacono
[00:30:18] S0: That's one of the beauties of the entire model. And something that happened, I'm gonna say, a little bit by of luck and a little bit of pressure, is the Department of Labor and legislative bodies started to look into the cost of drug spend in this country. And they started to have more scrutiny. They wanted more reporting, more oversight. And this was putting pressure on our competitors as well. And we were obviously rising at that same time and appearing as the only reasonable solution to these, you know, what I would say conflicts of interest and other problems in the traditional PBM pharmacy benefit model. And so that for us was the beginning of everything, which was once we started to scale, once we had that product market fit moment, and then we had this tailwind of what I would say the press, legislative rules coming out, I would say disclosures being required by the Department of Labor that governs self-insurance in the United States. And so for us, we were like right place, right time. When did those tailwinds like really start to take off? 2024. Okay. And that's kind of and you're like, that's that's later. So not to geek out on you, but in 2021, in the middle of what was the Consolidated Appropriations Act, which was, you know, like a stimulus bill on some level, was an amendment to ERISA, the Employee Retirement Investment Savings, you know, Act. And ERISA governs 401k and pension, but it also governs self-insurance. And it was amended by the Department of Labor at their request, and it made it into the CAA, the Consolidated Appropriations Act. And it basically required full disclosure on all compensation for healthcare. Now, it came out in December of 21. 22 was like a grace period. 23 people needed to start reporting this information. People being pharmacy benefit managers and administrators like ourselves had to start reporting this information. And what we realized is people were faking it. They either weren't doing it or they were providing example data. So instead of saying this is exactly how much money we made, and this was very easy for us because if you just charge a flat fee per claim, this is what we made.
00:32:50 · AJ Loiacono, Pablo Srugo
But my competitors had to suddenly contemplate am I going to disclose what I'm making on spread pricing, acquisition costs, 340B, rebates, performance management fees, you know, they like price protection, they have all these revenue streams. And to break it out by client would be almost impossible. And so that's when I think the consulting industry started to ask more questions. And so 2024, I often say, was this year in which transparency mattered. Like suddenly people were like, at a large scale, our potential customers were all asking the same question. Who's transparent? Who's ethical? Who's a good partner to work with? And that just accelerated us even more. [00:33:37] S1: So let's talk. I mean, there's two kind of tactical areas we want to go deep on. The first one is really around go to market. I mean, the first two years you got yourself a 10 billion ARR before you really had any inbound, which means presumably all of it was outbound. And you talked a lot about selling through testimonials. And you mentioned even before the idea of bootstrapping, the fact that a lot of these won't sign up with you unless you have reference customers. How did you go to market for the first two years? How did you get the first few million in revenue? What worked?
00:34:04 · AJ Loiacono
[00:34:04] S0: Well, first of all, super lean. I was just telling a story this morning where we had to put a press release out, I think, for next week. And normally that costs like $2,000. I used to lose my mind when someone would say we're going to do a press release for $2,000. I'd be like, don't pay. We'll do it. So we did zero marketing the first two years. Zero. And we wouldn't sponsor anything. We really wouldn't go to anything. We wouldn't do anything. We wouldn't spend on search or any type of sponsorship programs for conferences. We just wouldn't do it. And my thought was let's spend the money to make sure we operate at the highest level of service. And then our customers will become our brand managers. They will become our best brand ambassadors. They will be more than willing to tell other people what a great job we do. And that proved to be a very powerful hunch in healthcare. I always want to make that very clear. May not translate to other industries, but it certainly did for healthcare. For the point that I stated earlier, there's no shortcuts, and people are very cautious when they buy healthcare. And so it was incredibly powerful to just be like anyone can call someone up on the phone and say, hey, I'm going to sell you something and do a great job. But to actually have a customer that you know and respect say nice things about the company you're considering, that's game changing.
00:35:29 · Pablo Srugo
[00:35:29] S1: Tactically. So you had what you didn't do, which you didn't spend on marketing, and you try to double down on this customers of brand ambassadors. How do you do that tactically? Imagine I'm selling to health or I'm selling an enterprise. Like I want to follow this playbook. How do I do it?