He spent $0 on marketing for 2 years—then raised $400M at a $3.25B valuation. | with AJ Loiacono, Co-Founder & CEO of Judi Health

0:00A 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 you? 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. 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.

0:42They 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 going to see in your life.

1:24It lets us reach more founders and it lets us get better guests. Thank you. AJ, welcome to the show, man. Thank you for having me, Pablo. 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 going to focus as we do on Prime, Mark, 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 where you got to get right to get everything else.

1:58So let's start at the beginning. We're going to talk about exactly what you do, and we're going to 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? Yeah, when we talk about the early days, the gritty moments, we're selling to small plants. I always want to make this clear when I'm in health care. And so when 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 and 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?

2:49And 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 1 ,000 life cases to get to 2, to 4, to 8, 16, etc. 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.

3:34And the whole part of our business was to be transparent, to provide fixed, clear prices on health care 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 you?

4:16How big were you at the time, like revenue-wise? About 10, 12 million ARR at that point. 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 didn't for some reason. Well, I think it's because we were trying to compete with three Fortune 15 companies. So healthcare is highly consolidated. CVS, Cigna, and UnitedHealthcare, 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 to attract, back to what I was saying before, how do you attract larger customers to start to ramp and scale?

5:13So 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. Tell me, this is a good time to segue into that. Like, what exactly is Judy 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. So Judy Health is a health benefit manager. So anyone who works for a company and you have a benefit plan, And somebody's administrating your benefits. So that's medical, pharmacy, and the longer tale of dental, vision, and ancillary benefits.

5:50But the point of it is your insurance or your benefit provider is the person that manages your account. And so this is what Judy 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.

6:32Right. Yeah. You don't want to have like new in your name. It's not a high risk area. Yeah. Yeah. You know, like Capital Rx, it sounds like consolidated or continental. They've been around forever. You know, all right, I guess we'll give them 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 drug spend. 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 drug spend.

7:13They charged a flat administrative fee. So it was very sassy. Be like, hey, I'll charge you$2 a claim and I'll manage your pharmacy benefit. The 21st century arrives and the industry starts to become more consolidated. 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.

7:57And 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. 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.

8:36We fast forward to today, it's a trillion. 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 front and center. Well, that was exactly it. And so we started as this scrappy company, Capital Rx, and the concept was very simple. We charge a flat fee. Everyone gets the same price. Now, this is like, people are going to be like, wait, what do you mean by this?

9:07believe it or not, drug prices are all over the place. So if a traditional pharmacy benefit manager, someone we compete with, they'll have hundreds of different prices for the same drug, same day, same pharmacy for different customers. And this is what I observed over my career. So I came from pharmaceutical manufacturing. So think of it as kind of, if you come from the sell side on some level, like, hey, I'm a pharmaceutical manufacturer, and I manufacture this product. And then I move over to the buy side, which is the insurance, if you will, or the administrative side. You would think that these prices would be very tightly correlated.

9:50There wouldn't be a lot of variance. But what I discovered made no sense. So on the manufacturing side, we change price twice a year. You could set a clock to it, January and July. Talk about this all the time. And why you change prices like each year, they just go up sort of thing, or you change them for a specific? So the way that manufacturing works is you normally in the United States, you escalate the price. And the reason why the defense of the pharmaceutical industry is you have a short patent life before your patent expires. And you've put maybe billions of dollars of R &D, so you have a finite window before your product goes generic.

10:29So typically it's stepping up. Some of the inflation is natural. It's just general inflation of cost of goods, marketing, market access. But some of it is driven by the very system I'm describing because the people that are on what I call the buy side, the insurance, are increasing price because they're creating what I would say games around how people access medication. And these are called things like formularies. These are games around market access, and we could talk about that more. But really, the essence of it was I came from a world in which pricing was very static. You would know in January, there's a price increase of 5%, and there'll be another 5 % increase in July.

11:19But now I'm looking at prices on the insurance side, and you've got 600 prices in one quarter. I don't want to get too into the weeds, but just a simple example of why would they charge so many different prices to different customers? What's driving that? Well, this is what I realized is who loves opacity and variability? People that are seeking the highest level of profitability. And so if they were just plain administrators like we are, just charge a flat fee, you would be forcing these prices to become stable and very transparent to all of your customers. But they were doing the opposite. They were putting gag orders.

12:00They were making it impossible to get your claims data. They're creating confusion in the market. They're creating unnecessary opacity and complexity. It's like crazy segmentation, like hyper segmentation. Every customer is a different book, depending on your need, your budget, your whatever. I charge you what I can sort of thing. Well, that's exactly it. And, you know, I would say there's some science behind this. So most people, if you are accepting your prescription at the register, you're going to see pickup of like 96%. So think about it. If you're testing how people respond to higher and lower price, if the house knows, in this case, the insurance side, that 96 % of the time, you're just going to take whatever I give you.

12:48That's a pretty good number to work with. And so again, the variability was artificial. This was my big observation. And the other thing you come to in the gritty days, I can't be the only person that's making this observation. And the reality is other people are, but they're on the payroll of the model. So if someone's like, hey, I'm a consultant or a broker, and they get paid on products, you want to know who loves bad product? The person who's getting commission on the product. And so now you're not just up against three giants, you know, CVS, Cigna, United, but you're also up against all the people on the payroll of CVS, Cigna, United, and that is deep and wide.

13:37And so you become enemy number one because you're basically calling out the insurance industry for what it is. A highly opaque, what I would say, overly complex, profit-seeking entity. And you're also going after the people that represent the companies that you want to move over. And you're saying, I'm calling people out. And I always want to be fair with this statement. the smaller the employer group, usually the shadier the broker. And what I mean by this is they're going to be like, I'm going to get paid on everything and anything. The larger the client, you start to see, I would say, some professional behavior here and some more disclosures around compensation.

14:26But the point of it is we had to fight against everyone back to hand to hand combat, fix bayonets here. And because everybody in my mind was rotten. This is kind of like classic, you know, counter positioning. If you want to look at it that way, everybody's making money a certain way on a certain business model. You're going to go and deliver a similar product, maybe a better product, but in a completely different business model that, you know, is more aligned. But because of the setup, you know, sometimes you get lucky where it's kind of like the big guys just ignore you. Like, ah, yeah, let them do that.

14:56You know, the Netflix example being the obvious one, you know, let them rent DVDs, whatever. But in your case, probably not. I mean, how do you get started? Where do you go? Because I'm thinking to convince the buyers is probably not easy. To convince the VCs is probably not easy. I mean, you have a track record, so maybe that helps. But anyways, how do you get started on something like this? Yeah, you bootstrap is the honest one. And I want to be fair. Health technology was starting to become interesting, you know, 2016, 2017. So there was a market there, but pharmacy benefits was observed to be this impossible fortress to get through because it was dominated by three massive players and no one had really had commercial success kind of overturning them.

15:41And what I mean by that is there's certainly been other pharmacy benefit managers, but they replicated the model. They did the same exact thing as the leaders in the market segment, and they grew to a certain point, then they flatlined. No one had ever scaled and started to take money from what I would call the two most valuable categories are Fortune 500, because they're large and prestigious. The second being health plans, because they're even bigger than Fortune 500 customers. So if you could service a health plan on the benefit and technology side, that's a huge deal. But no one had been able to do it.

16:18So how do you get started? We bootstrapped. And when you bootstrap, you might have this vision of this powerful platform that's going to process claims and administrate patients and workflows, but you're going to start with a small build and you're going to license third-party software. You're not going to be thrilled with what you're given. You're going to have to rely upon third parties. You're going to have to license a network. You're going to have to work with other vendors, and you're not going to have a great product. But you have to be willing to make some concessions, stay true to your principles, and understand if we do this correctly and we're able to scrap our way through these first couple years, we'll start to build the platform we envision.

17:02We'll have the opportunity to contract directly with pharmacies and other providers. And that's exactly what we did. But it's bootstrapping. And then in our second year, we did our Series A. So we finally felt with kind of the product market fit moment of that end of the second year where we had this inbound call from a prestigious customer. We felt like we had something that we could show the growth, the model was working, and that if someone would give us the money, we could scale it to be the organization we are today. Did you raise like right out of the gate, like as soon as you had the idea?

17:39So as soon as I had the idea, because in healthcare, you're going to have real costs because you have to register in states as a benefit manager or TPA. You're going to carry costs of personnel. You're going to have service people, billing, finance people, et cetera. So you have real costs in your first year. So we raised$3.5 million, I think was the exact number. We closed in March of 2018. So I often say we were an operating company in healthcare, call it April. And what was like V1 of the product? One of the things I'm wondering is how much tech is there in this offering, in this product? Back then, not a lot.

18:22And I want to be fair, there was technology, but it wasn't ours. We were forced to license someone's claim processing platform. We were forced to license someone's prior authorization workflow tool, someone's formulary management tool set. We were outsourcing everything from reporting to printing solutions for cards. So early days, the only thing that was proprietary from a technology side was how we were doing what we would call underwriting. So we would bring in claims data, look at it, understand what we could do and how we could manage this account to a lower cost. But over time, it would become an incredibly technology-focused company in the sense that at the core of our company is Judy, you know, and why are we called Judy?

19:15Judy's short for adjudication, which is a fancy word for claim processing. And so adjudication, in order to do it, just to visualize it, is hundreds of administrative workflows, like eligibility, who's in and out of a plan. Plan design, like financial rule sets, what's your co-pay or co-insurance or out-of-pocket max. It's also clinical rule sets. Can I have this medication? Did I meet the criteria therapeutically for this category, et cetera? You know, it's everything from billing to reimbursement, call center, client management, data and analytics, compliance, hundreds of work streams that in my competitors, many of them doing this stuff manually.

19:58So they'll have different systems and they stitch it together. Our vision was, could we effectively create what I call a supply chain version of healthcare, like an ERP, enterprise platform for healthcare, where all of these work streams are operating in harmony next to each other, which will reduce costs. So, you know, today, you know, we probably have about 1600 employees of which 500 is product and engineering. And is Oscar Health, like are these kind of like health benefits platforms, are those comparables, are those competitors, or are they kind of approaching a different piece of the market, especially like at the beginning?

20:35Yeah, different piece of the market. You know, I just want to be fair is we started with pharmacy benefits. So in the United States, pharmacy and medical are actually administrated separately for what we call large companies. So if you're self-insured in the United States, if you have a thousand covered lives, which is roughly, you have 500 employees. You usually double it with the dependents. 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.

21:16It 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 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, United. 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 product, unproven product, right?

22:03And something that you said is so kind of not the sort of thing you tend to take risk with. 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 health care 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 In everything, you have early adopters, and I'm sure you have them here, but there isn't as compelling of a reason to be first on this as the risks kind of outweigh the cost, I think, for a lot of people's minds.

22:52Because if you're first on, let's say, some AI-enabled outreach tool, it's like that's alpha. You're going to 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 I don't know. That's my assumption. Well, that's 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.

23:29So 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 going to tell you all of my knowledge, and I'm going to tell you things you've never heard before.

24:15And 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, 1 ,000 life cases that you're working with in your first year. It's in that second year.

24:52It 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. Do you remember the first customer you signed, those probably smaller customers, and how that happened? Yes. 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.

25:38The second part is municipalities and public sector and unions, they have fixed budgets. I often say if you work with a Fortune 500 plan, if their cost goes up 5%, they just pay it. A union has to consider sustainability. You know, very precisely, how many union dues, 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 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 years.

26:29You 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 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 and public sector have very good benefits. 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 going to miss it.

27:09You're going to 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 costs, 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 going to bring your cost to this. Like was that the simple version? 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.

27:43They'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 100 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. And fundamentally, your model at the beginning was you just charge, like you go back to square one, like you're just going to say, this is the cost per participant, and you don't make money on each of the kind of the drugs, right?

28:32So this is the hard part as well, is my competitors are saying their services are free. And you're going to 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, we'll have something that says, hey, we're going to 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.

29:20And 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 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.

30:08And that's exactly what we did. That lowers your net cost. But then the other side of that, if I'm understanding correctly, is you also charge everybody the same rate for the drug to begin with. So you're kind of fixing your margin. That's one of the beauties of the entire model. And something that happened, I'm going to say, a little bit 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.

30:44And 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.

31:26When did those tailwinds like really start to take off?

31:332024. 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 like a stimulus bill on some level, was an amendment to ERISA, the Employee Retirement Investment Savings 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.

32:32And 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. 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, 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.

33:16And 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. 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 million ARR before you really had any inbound, which means presumably all of it was outbound. And you talked a lot about selling through testimonials.

33:51And you mentioned 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? 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. 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.

34:24And 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.

35:08There'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. 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 and brand ambassadors. How do you do that? Imagine I'm selling to health or I'm selling an enterprise. I want to follow this playbook.

35:41How do I do it? So I always go back to we had to look at what is a reflection of good service in our industry. Good service starts with your membership, because if your membership is unhappy, the plan sponsor, the employer, becomes unhappy very quickly because HR is going to be overwhelmed with, you know, tales of woe and frustration. And so the first thing we wanted to do is to make sure we had a world-class call center. People are going to be like, that sounds so old school. And I'm like, yeah, it is on some level. But what made us different is because we had no secrets. So think about this.

36:21Imagine you're a customer service representative at a traditional insurance company and someone goes, well, why was it this price? They can't answer that question because there's 600 different prices for that same drug. It's just what your price is. And they're like, why? Or like, or I paid X this month and next month it's Z, like what occurred? And it's very difficult for them to answer these questions. That was the first observation. So what were we doing and investing in is to make sure that one, when someone called 99 % of the time, someone who's calling for healthcare into a call center, they're not coming from a happy place.

37:05And so we must give them honesty. We must be able to answer every question, even if it's not what they want to hear. But then we have to provide a solution. I want first call resolution at like 97 % plus. And why is that? Because the worst thing in the world is you have a health care issue and you say, like, see if that works and call back. No. And so that meant staying on the line eight, nine, 10 minutes. So I threw average handle time out the window. I didn't cap anyone like, hey, you're judged on average handle time and you need to get off the phone in five minutes. I mean, it's like, I don't know if you remember the Zappos philosophy.

37:46It's like, stay on the phone as long as you want with the customer. And this was like in-house call center that you had? In-house, yeah. Domestic. You're like, whoa. But what I knew was if we were bringing noise to like nothing, and this is what customers were saying. They're like, I'm not hearing any complaints. In fact, people have actually gone out of their way to say this was a really good experience. That is going to set the tone with the customer. And then what you're going to do with the customer is you're going to do something that is not going to be price efficient, which is we would go on site to actually go over the review with the customer.

38:28So at a minimum, you have quarterly reports and you're in your review. And I was like, we're going to every single one of our customers. You go once a year or four times for each quarter? Well, you have four reviews. And my whole point was, if someone wanted us to go on site, we would. But most people are like, come in here once a year. Right, that's enough, yeah. That's enough. Well, enough of you. I don't want to see you, Derek. A lot of our customer concentration was mid-Atlantic, Northeast when we started. And I must have been in a rental car so much with my colleagues going out to Pennsylvania.

39:02to Maryland, to Delaware, Connecticut. It didn't matter. I'm like, we have to get in front of them. And as we expanded, you know, now I'm hopping on a flight. You know, we're in Ohio. It's funny. This is the thing about startups is like, you know, having done one, it's like on the outside, there's so much glamour around it, so much hype. And then it's like, it's actually you driving in a rental car in some like little town, you know, nobody around. And it's like three hours just for you to have a meeting where they're like, cool, thank you so much. and you're like, okay, that's my day. And it's terrible.

39:35I will be fair, the first couple times you get really pumped and excited. I have a customer and they want to talk to us and this is so exciting. But then by the time it's like your 78th, kind of one of these, you're just like, I think we could make the earlier flight if we hurry. Yeah, exactly. But no, it is not glamorous or sexy. But when you are engaging with the customer and I think this is important, this is, I think, really helpful advice is, you know, we have hundreds of customers and we service millions of lives here directly. And I'm still the client manager on two of our oldest accounts.

40:14And people are like, why would you as the CEO be an account manager? And I go, because I have a direct line to the feedback. What's working? What's not? What keeps them up at night? What could we do better? And I always want to say, like, yeah, is that in some sort of KPI report or, you know, someone giving me a presentation? I go, yes. But what keeps it, what I would say, honest and direct and raw is working with those customers. And I never gave up two of them still to this day. So that's how you have, this is like half the battle because you provide a great service. You're on top with your customers.

40:53Your customers should be happy. Are you actively turning that into testimonials or are you just doing it reactively where it's you're selling and they're like, hey, anybody else? And you're like, yeah, sure, call these guys. Or are you doing something a little bit more proactive to get them kind of as brand ambassadors talking about you on your behalf? Sure. So now we're a little bit more sophisticated. So we ask everyone to participate in our annual survey for customer support and service. And so the typically head of HR or the head of total rewards or benefits at an organization is doing this review session and filling in our rating.

41:32But one of the questions we ask is, can we use you as a reference? And that is extraordinarily important. And then we have another line that says, would you ever be interested in doing a conference with us? So we have an annual conference for our customers or a panel or, you know, a featured broadcast of some sort. And, you know, you'll get people that are a little bit shy. You'll get people that are like, I would like to do it, but my company is just, they're so difficult. You know, we're a Fortune 500 company. It's very difficult for me to get approval to say anything about anything. But you still get people that do.

42:13And so you are being proactive to find the people that are allowed and willing to do it. So let's shift gears. The other thing that I thought you were doing very well was on the hiring side. You said you had about 90 % retention for employees after four years, which is incredible because there's a lot of turnover in tech and all these kind of startups. The key you said was really hiring for mission. So I'm curious on just your hiring approach, especially the first 30, 40, 50 employees. How did you go about hiring them? What did you do that was different, that was unique? So the first 40 or so I was certainly involved with.

42:51And if it wasn't me hiring or recruiting that person directly, it was certainly me being involved with a panel of review. Like, hey, tell me why. These hires meant a lot. So we do a meet the new hires meeting every Monday here in our company. And I tell this story when I meet the new hires, because I normally see a new class every Monday of 20 or 30 new people. I mean, it's crazy. And when they come in, you know, I tell them the story once upon a time, we used to actually take you to dinner. We used to be like, hey, like it was such a huge moment that we hired someone this month. We'd be like, all right, like Linda, we're taking you to dinner.

43:33They'd be like, all right. But then over time, that didn't scale. And then we used to call everybody. Like I used to call every person, individual and be like, hey, welcome to the company. I want to introduce myself. That didn't scale well with calendars. So now we do it as a group and it's a meet and greet. They introduce themselves. They ask a question of me and it could be anything, personal, business, experience, et cetera. And, you know, the whole goal is for me to get to know them a little bit better and for them to get to know me better. But going back to your question is the piece that we kept finding over and over of people that were just our high performers, like our A players, were the people that believed in the mission, like wholeheartedly, like I want to change health care, I want to improve health care, and I think this is the way to do it.

44:20That made all the difference in the world. And I do want to say something is people ask me like, well, what do you mean by high performer? High performer in my world is, I say this all the time, D players see a problem and say nothing. Hopefully, most companies don't have any of those people. C players see something and be like, hey, hey, there's a problem. 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. Oh, okay. You're giving me some solutions. The A players see something and fix it, and I never knew it even was a problem.

44:58I'm stealing that from President Barack Obama, to be fair. I think that he has said that before. A players for him do that. And I couldn't agree more. Because when you're dealing with complex workflows and a human interaction, it's healthcare. You want people, obviously, that care about the mission, but they're willing to solve, like to go beyond, like, hey, something's always going to break or fail in the system, but I'm going to fix it. And I think those people, what they all have in common, believe in the mission. So, I mean, there's kind of two parts to that. I'm curious how you tested for either the A player side, people who are going to go and just fix things, and then the mission piece.

45:36The problem with interviews is they're fakeable, they're gameable, and especially something like mission. Hey, why do you want to work? Oh my God, health is so poor, what you guys are doing, I'm going to transform an industry. I mean, it'd be relatively easy for somebody to fake it, at least in terms of the words they say. How did you learn to test for that in a way that was at least relatively accurate to reality? Yeah, so in the early days, I will be fair, is we wouldn't bring up the question or ask about it. So we're trying to set someone up that is going to mention that they believe in the mission.

46:10The second thing that we almost always listen for is someone who relates to a bad experience in healthcare. That could be personal, that could be a family member. And I felt if those two things occurred, we had a high probability of this person's... But you wanted it to come out naturally. You're talking normal conversation, at some point they say something like that. Can't ask. Avoid it. They have to bring it up. And if they bring it up and the other and to this logic string is and they shared something personal, like I have witnessed how bad healthcare is. Let me tell you why. Odds are this is personal.

46:50They want to fix it. They don't want anyone to experience what they or their family or their loved one or dependent went through, then we have a winner most likely. Not always, but very, very high probability. And almost every single person, you know, that I go back to that are still with us, you know, from our first year, these are the people that absolutely demonstrated these characteristics. What about the other half of that equation? In other words, somebody who cares, who had a personal experience, they believe in the mission, but isn't an A player. Like, How do you tell those two apart? Somebody who's going to find problems and just fix them for you.

47:25So I want to say some of the A player characteristic is going to be trial by fire. I want to be fair. You put someone in a firefight and someone just goes into the bunker and curls up into a fetal position. Some people are like, I'm with you. How can I help you? There's the enemy. How do we win? And so I will be fair. I do not have a test for who is an A player in the interview process, but I will say there's a strong correlation going back to people that believe in, you know, I often say like if you're a brilliant person, you can do anything. Honestly, the world is yours for the taking. So if you have someone who's super talented, but they're talking about this personal experience and an appreciation for your mission and business model, we're going to go places.

48:19Yeah, and I just go back to that. There's a high correlation between adoption and being a zealot on the mission and just being an A player because every day they're going in the back of their mind, how do I prevent people from experiencing this horrible healthcare experience? I mean, one of the things is when somebody believes in the mission, or at least in the impact of what they're doing, they don't stop thinking about it, right? I always thought about how do you, especially now that remote is, you know, such a big thing, and even like the sort of work that people do is not mechanical. And yet it's too, I don't really believe that hours don't matter, but I don't believe hours matter.

49:03And my reconciliation of it all was, it's just mindshare. It's not so much like how, when do you sit in front of the computer? When do you get up? It's when you go home, when you're watching TV, when you're doing other things at some point, obviously you're not thinking. But how often are you just like, oh, that thing. And then you come back the next day and you actually improve from the day before, the weekend before, right? Because you're on it. And I mean, that just makes all the difference. No, I couldn't agree more. I think people that believe in a mission and it's personally impacted them some part about it is to your point.

49:35It's ever present. They're thinking about how can I fix it? How can I do better? And I see it. I see it, you know, not just in, you know, what I'll call the break fix category, but proactive on new product development, new feature sets. You know, again, going back to how do I make a patient's life better? What about in terms of finding these candidates? Did you any, like, how did you, those first 30, 40 hires, did you do anything interesting on the outbound side in terms of finding them in the first place? Yeah. So, all right, first 40 employees, I go to one degree of separation. Is it someone I worked with or someone very close to me that I respect worked with this person?

50:19So I'll give you a great example. I was looking for someone on the implementation side. So this is someone who knows how to set up a benefit plan, which is extraordinarily difficult. And I asked all around because I've been in healthcare for a while. I know people in different companies. I'm like, who's the best person in implementation you've ever worked with? And I kept getting the same name, this woman by the name of Karen Durker who still works with me here. And I'm like, what the heck is a Karen Durker? And I'm like, what are the odds three different people both said the same name? Crazy.

50:56And what's interesting is she was not very senior in her company. And I'm like, so this person gets their hands dirty, knows every aspect of implementation. And I have three people I respect very highly giving me this. And what's a really interesting story is, as she tells it, she wasn't going to go with us. She was just like, they're like small. Like, I don't know if they're going to be in business next year. And she tells a story that she was going to bed and she turned to her husband and her husband's like, I think you should do it. Like, I think this is going to be a great, you know, now she's the executive vice president in charge of all implementation at her company and probably commands a team of like, you know, a hundred people here.

51:42But my point is she came so highly recommended. I had to go with that. And for my first 40, I really try and lean into, did I work with them or somebody I respect? And that's an important qualifier because I have a lot of friends and they may be like, oh, Sal's great. And I'll be like, is Sal great or is Sal great to drink with? You know what I mean? We want to have a few margs, like Sal's our guy. But if we want to implement a plan, Karen's our person. But I think that's where I felt we created a stable foundation getting back to the execution and operation, which was going to be critical. Because if you're starting and we didn't have those testimonials, I don't think we would be talking right now.

52:34Last question. What would be a top piece of advice for you for an early stage founder that's still looking for product market fit? In the early days, all right, this is an opinion. If you've never done your own business, I think a lot of people that I speak with get caught in this trap. They get super excited about the things that kind of glamorize your business. Like, hey, the website design and what Pantone blue I used for the logo. And what is the shape of these things? What's the marketing around it? You know, we should have pizza Fridays. We should, you need to strip all of that out. And this sounds like pretty basic advice.

53:23And I'm like, you have to treat your startup like this is the only money you're ever going to see in your life. And that every single expense, including your time, because, and I say this, time is our most valuable asset. I can't buy it. I can't store it. Can't replace it. I didn't say this. Peter Drucker did. But I appreciate what that gentleman observed. And I've lived by it my entire life. And this is what I try and say. Do not waste your time on things that are cool. Don't waste your time on things that you think are fun. You need people that go back to believe the mission. And what's fun for them is, in my case, making health care better.

54:03And so that's what I want to spend all of our time, effort, and budget. There's no safety net. There's no Series B. There's no Series C. We need to spend this money as if it's the only oxygen left in the room. And that level of financial discipline and time discipline, I don't think people appreciate enough. Well, AJ, I'm grateful for your time, man. Thanks for jumping on the show. It's been great. No, thank you for having me. Listen, when you go to like a restaurant, you eat a nice, you know, meal, maybe a fancy one, maybe not. Do you leave a tip? I assume you probably leave a tip. You probably leave a tip 100 % of the time.

54:42Well, guess what? A review is just like a tip. And I know you haven't been leaving one. So just like the waiter that doesn't get a tip after hours of great service, I'm getting a little frustrated. So take your phone out and leave a review. It helps the show move up rankings. It helps us get better guests. It doesn't just help me. It helps way more founders. Thank you.