Why happier vets mean healthier pets, with Modern Animal CEO Steven Eidelman

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1:18The thing that you're looking for as an entrepreneur is the inevitability of demand for the product or service you're offering. And if you're pushing a rock uphill, you don't have it. Stephen Edelman is the CEO and co-founder of Modern Animal. It's a fascinating disruptor in the pet care industry. Stephen saw a noble profession in dire need of change, and he wanted to help. The veterinarian was really struggling. And the consumer or the pet owner, the customer, was being left behind as well. We're talking about animals, but it's the people who are suffering. And obviously, if they're suffering, the animal's probably not getting the care that they need, too.

1:59So it was the core veterinary care delivery system that was broken. I was starting to get really close to the problems in this industry, and I started to really deeply care about them. And once you see problems as an entrepreneur, it's really hard to turn away from them. Modern Animal now has about 600 employees and a rapidly expanding footprint of pet care clinics. This week, Stephen Eidelman reveals the lessons learned by scaling his revolutionary approach to veterinary care. You've got to have incredible talent at every position. It's like this huge push. There are fires burning when you're going home.

2:39Can you believe it? Such an idiot. and then you go back to, this is totally going to be amazing. There are so many easy ways. I have no idea what to do. Sorry, we made a mistake. But you have to time it right. Oops. Working as a three-bedroom apartment. Stuff that just seems absolutely nut balls. Ten years later, we're like, well, that's just how you do it. We haven't made it just how you do it.

3:04This is Masters of Scale. I'm Jeff Berman, your host. Stephen Eidelman's scale journey with modern animal is an inspiring entrepreneurial story. But Stephen didn't grow up with the rosiest picture of being your own boss. Stephen, welcome to Masters of Scale. Thanks, Jeff. Great to be here. As a first-generation American with parents from the former Soviet Union, Stephen watched his dad work incredibly long hours running a business. He saw every drop of his dad's sweat and the late nights toiling at the kitchen table along the way. So Stephen opted to start his career in a more traditional office environment, as a consultant at Bain.

3:50But a few years in, he started to wonder if he'd been wrong about the life of an entrepreneur. the hardest part about watching sort of you know the immigrant entrepreneur journey and trying to make sense of it as a you know first generation aspiring entrepreneur is what my father did was he fought for survival it wasn't a career choice for them it was hey this is about security and stability and having the best opportunities and taking advantage of them but for me that the entrepreneurial thing that i was experiencing you know with my father was really building something Like, what does it feel like to build something?

4:26And I was seeing that as an investor. And what I learned was, you know, I'm never going to take that leap if I just use my rational part of my brain, right? There's always going to be some reason why it's not a good enough idea why there's a risk. So this was around 2012. I'm about five years into my career and the itch is starting to get more like a severe, you know, burning sensation. Yeah. You might need to see a doctor for that. Yeah, yeah, yeah, probably. And Bain has the investing arm, Bain Capital, and then there's the consulting, and they aren't even arms, they're separate, separate companies.

4:58So I was at the consulting firm. At the time, I'm looking at businesses, you know, every day, dozens of businesses, right? So I don't really know anything about anything. I don't have a business that I'm deeply passionate about. I've been a generalist my whole career as a student and as a professional now. And so that is a difficult place to know that there's a problem you deeply want to solve, right? And so just desperately wanting to be an entrepreneur, well, that's not what my father did, right? That's not what most great entrepreneurs have done. So it's a tough place to actually pursue that dream from.

5:30But at some point I had to take the leap. And so it happened pretty organically, just my roommate at the time, who at this point become one of my closest friends. He was a colleague of mine from Bain. He also worked at an investing firm. We had a whiteboard, and this is like an episode out of Silicon Valley, right? whiteboard, ideas on the whiteboard. It just so happens that when we were at Bain together, there were a number of pet care companies that were clients. And my first case that I ever worked on was actually a pet care place. And so what I learned at that time was, you know, this is a much bigger industry than people realize.

6:01There's a lot of emotional connection to it. And what we were thinking about at the time was this industry is about to change dramatically with a younger pet owner coming in. Why is that? Millennials are different. So I think the way that Ben, my co-founder and I came to end up in this industry was we couldn't agree on anything else. And we both have been dog lovers our whole lives. And we grew up with dogs and there was just a much deeper connection to that relationship that we were both able to access as very sort of emotive people than anything else on that whiteboard. And so the investor actually that Ben worked for was a great entrepreneur himself.

6:41And he really encouraged us to pursue something that we were both excited about and to work together. He said, you need to work with something that you really trust and you'll go to war with. What was it about what was changing with millennials growing into pet ownership where you saw the opportunity and what became that first entrepreneurial dive for you? The thing that we were most interested in was the shift around specifically pet health and the tailwinds that were supporting sort of that shift where you think Think about generations ago, the dog used to live outside, right? More recently, the dog started to live inside.

7:15Even more recently, the dog is no longer just inside and in their dog bed, they're in your bed, right? So that has a lot of implications. What are you expecting of a service provider or a product that you're purchasing for your pet? How much are you willing to spend on your pet? And in parallel, what's been happening is medicine has just gotten better, right? I mean, the way animal health works is that it benefits from all innovation and improvement to human health. And so greater medicine is becoming available and people want access to that. And the willingness to spend on pets has increased.

7:49So the expectations of what's available in the market have changed. Now, in 2012, what we saw was mostly that it seemed as though the whole world was going to revolve around devices that captured information in our world. I'm wearing an Oura ring now, but back then it was Fitbit. And I was always interested in that category because I'm type 1 diabetic and I'm somewhat of a robot. I have an insulin pump. I have a continuous glucose monitor on my arm. And so for me, the idea of capturing this data to improve health was something I had been fascinated by for a long time. And essentially, we took those ideas of devices for health, pet care, the trends around pet health and smashed them together.

8:29And I am inferring that there was also an understanding that for people with disposable income, there is not a lot of price sensitivity when it comes to doing right by your pet. That's right. Okay. So what exactly was Whistle and how did you get it off the ground? So Whistle was the idea that we want to connect the pet owner with the veterinarian. And so what's the best way to do that? Because the veterinarian used to always be the most trusted resource if you're a pet owner. and this was around the time where we're starting to now google everything right and in parallel the veterinarian sort of losing that sway and that role of influence and so we thought hey let's capture this valuable data and you know we're dreaming big we're thinking we're going to put a device on an animal we're going to be able to tell everything that's going on with them right whether or not the technology existed at the time is a separate point but that was the vision we put a device on capture all this information and translate it for the veterinarian And so there's this connection between the veterinarian and the client, the pet owner, when they're at home.

9:30So it's a pet wearable where the vet can log on and see the vitals, see any key data point that they need to see to help diagnose what's happening with the pet. And so the most interesting thing of building that company, beyond sort of all the entrepreneurial journeys of raising capital, hiring, firing, pushing yourself as an entrepreneur to grow, the most interesting part about it was that dynamic that you just described, that's what invited us into the veterinary practice for the first time. and what we saw was that giving a veterinarian more data isn't helping their day-to-day which is already almost an impossible task to get through i mean if you just take a step back at the base level what is a veterinarian doing first of all a veterinarian goes to medical school for four years comes out with a load of debt right they have to study multiple species they're doing everything at a general practice veterinary practice right there's emergency hospitals and there's specialists but let's just talk about a general practice which is what modern animal does.

10:23At a small animal hospital, you're doing dog and cat. Maybe you're even doing exotics, but let's say we're just doing dog and cat. You're doing everything from wellness care, preventative care, vaccines, lab work, to urgent care. You're doing surgery, soft tissue surgery. You're doing dentistry. You're doing radiology. You're doing euthanasia. So you're going from one moment where you've got a family who's excited about their first appointment with their new puppy. And then the next, you've got, you know, a euthanasia appointment and you're doing that 15, 20, 25 times a day. You've got clients who they're not the actual patient, right?

10:59So you have this sort of interesting dynamic that is more akin to sort of, if you have a child and you go to a pediatrician where you're talking about this third party who is the recipient of the care, but you're kind of negotiating between these two other people, the practitioner and the, in our case, the client who cares so deeply about this being that can't communicate. And it can get antagonistic pretty quickly. And what you have is a population of people, veterinarians, who the only motivation to become a veterinarian is to care for animals. Like all of the rest of us may have all these ulterior motives.

11:33I have some deep-seated sort of thing from my childhood about becoming an entrepreneur and proving myself to my parents, probably. Veterinarians just love animals. They're like the most pure, noble people I've ever met. So you have this person, right, who is there purely to solve for the issues that that animal has. But now they have to negotiate cost. Veterinary care is expensive because you're paying full freight. Like we all forget for our own health care, somebody is usually paying part of the way. Whether it's Medicare and the government's paying for it. Your employer, you're paying your copay or your premiums.

12:09So with veterinary care, as medicine becomes more available, it's just getting more expensive. and inflation and costs get higher. So you have now a relationship between the pet owner and the veterinarian where they have to negotiate on all these things. What choices are we gonna make? Are we gonna do the full gamut? Are we gonna just see what's going on? Hey, maybe we can't even afford to do the diagnostic test to see what's going on. Let's just take our best guess at what's going on and keep the cost as low as possible. There's issues around, oh, Chewy is charging$5 less for the same drug. You're ripping me off, right?

12:39There's a lack of transparency. So the pet owner is experiencing a pretty suboptimal experience oftentimes, but the veterinarian is really struggling, especially today. A lot has changed. Super helpful framework. So when you come up with this idea, this wearable for the pets, and you've got your co-founder, you've got the whiteboard business plan, etc. Do you bootstrap it? Are you able to raise some seed capital? How do you actually start the company? So the idea was really born in partnership with one of these partners that my co-founder worked with who himself had built a great hardware company called Slingbox, Sling Media.

13:14And he loved the vision. And so in our mid-20s, aspiring entrepreneurs, he says, hey, I will fund this idea. Let's go for it. Really difficult to say no to that. Especially someone with a deep background in hardware. I mean, software connected hardware is that, right? I mean, that's an extraordinary advantage to have starting a company. Absolutely. Yeah. And so that was it. We went off to the races. Great. Fantastic. What happened? We spent about a year building the product. A lot of fun. Get to work with incredible industrial designers. As a young entrepreneur, it feels like everything is about building, right?

13:52So you get to flex these muscles you've never flexed before. And And about a year in, we launched the product. And as an investor, you know, I'm looking at the data, right? And it's obvious to me, I don't think people want this thing. So the wearable that we built at first was health tracking in theory, but really it was activity tracking, right? It was the same way Fitbit was meant to be a health monitor, but was really a step counter, right? And we learned pretty quickly that what people expected the device to do was not something we could do yet. which was what a broader array of features and specifically location tracking was something that people assumed i'm putting a device on my dog i wonder where they are so we ended up pivoting to that and we built a decent business around that but the vision around health was really important to us that was what got us excited and that's what excited the industry and so we got a lot of strategic interest and as we saw those paths diverging decided to solve the business because we thought that we would be able to fulfill that vision much more quickly being a part of a business that actually owned veterinary practices.

14:54And so you sold it to Mars, which I knew only as a candy company until I was prepping for our conversation and realized they're actually huge in pet as well. A lot of founders who had that experience would stay the minimum amount of time and then leave and go do the next thing. I think you stayed a little bit longer. I almost made it the whole time. Okay, so tell us about the journey at Mars once you sold the company to them. So Mars is an incredible business. It's one of the largest private businesses in America. it's still owned by the family, 100%. And the family cares deeply about animals.

15:27And that's how they got into it a hundred years ago. And when they bought the business, they had made the decision to really go into the veterinary space. They had already, we know the candy business, right? But they had already been the largest pet care company in the world for a long time. And they saw the opportunity in animal health much to the same way that we did. That the customer's changing and creating opportunities and that the environment to create something more interesting as an ecosystem was there. So the vision is very much aligned. And so we joined in 2016 and I was excited to sort of see, can we build the vision out here?

16:05So what we learned was, you know, the device is probably not the vessel. And for me, it got really clear that to solve the problems this industry had, not just the exciting opportunity of how, if you connect all these things, how might you create a better experience, but there's a lot of problems and I didn't, I wasn't aware of them. And as we got closer, it was really hard to turn away from them. And this is going back to sort of the whiteboard moment as a young entrepreneur who doesn't really know anything about anything. I was starting to get really close to the problems in this industry. And I started to really deeply care about them.

16:39And once you see problems as an entrepreneur, it's really hard to turn away from them. Yeah. So what did you see? The veterinarian was really struggling and the consumer or the pet owner, the customer was being left behind as well. And so interestingly, we're, we're talking about animals, but it's the people who are suffering. And obviously if they're suffering, the animal's probably not getting the care that they need to. So it was the core veterinary care delivery system that was broken. And what was happening more broadly in the industry was a huge wave of consolidation, specifically private equity firms who were buying up mom and pop vet clinics.

17:19Everything in the veterinary space is a little bit behind. And so that wave was a little bit behind as well, but exactly the same concept. And it basically was that people figured out veterinary care is a good business. It's a hundred percent cash pay and you have this sort of emotionally driven spend with a, especially a demographic that's changing and wants, cares more and wants to spend more. So it attracted a lot of, I would say, opportunistic capital and I would say opportunistic tourists who came in to extract value from the industry. Yeah. That's pretty kindly said. I'm inferring there opportunistic and tourist suggest may be exploitative and didn't really deeply know the category.

18:02And this is where I think that, you know, what I was seeing at Mars was a family who cared very deeply and had a really exciting vision, but a huge company. And so I tried internally to drive some of the change I saw, specifically my background being more in technology. I'm a techno optimist. There's a lot of downsides to technology as well, but I believe the technology can really drive change in positive ways. And so I wanted to bring technology into the industry, but it's tough to do it that large of a scale. And so I ultimately decided to go do it outside. But the private equity roll-ups and that model that were happening in parallel elsewhere, where you would have sort of shadow private equity firms buying up mom and pop clinics, the motto of one of the largest ones was join us, stay you, which was basically a nice way to say, we're not going to do anything once we buy you.

18:53And it was all under the guise of, we'll preserve your legacy. Dr. Jeff's, that clinic, we're going to leave your clinic as it is. You'll stick around. We're going to preserve your legacy. But what happens when you leave and retire after you've sold your practice? It all starts to fall apart a little bit. And they would congregate all of these different practices together and really do nothing more than try to optimize the economic model. And we're now really 30 years into when this wave started, but it really accelerated over the last decade or so. And a lot of the problems started to get amplified.

19:31Still ahead, how Steven turned a mission making vet jobs more humane into a rapidly scaling business.

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21:33Welcome back to Masters of Scale. You can find this conversation and more on our YouTube channel.

21:42I imagine you looked at a lot of different areas of opportunity. What became the idea that led to Modern Animal? About 2018 is when I started to see what was a pretty clear picture in my mind of what the future of veterinary care should look like. we're not going to go backwards into a world where every veterinary practice is owned by the veterinarian. And so if we could, I think that's probably a better future going backwards, but that's not how the world works. So if we're looking forward, well, what role does technology have? How might we actually achieve that relationship that I wanted to build with Whistle between the veterinarian and the pet owner?

22:20And so a lot of these pieces started coming together. And so the vision was, let's use technology. Let's build a brand that people can trust and let's build this thing from scratch to bring the pet owner and the veterinarian together to streamline the work in the practice so that this very difficult job a veterinarian can do with more ease more consistency the pet owner has more transparency more accessibility and how might we create an alternative future for this industry that is not purely a value extraction private equity roll-up game. It would require a long-term focus. It would require capital and it would require, I think, the wherewithal to sustain what is a difficult business.

23:03So what happened? So in 2018, I approached one of the Mars family members who had been a great supporter. I said, I can't do it here. I've really tried. And I really wanted to achieve it there. And I thought I'd go back to the whiteboard and do something totally different. And at this point, I've I've really fallen in love with the people in the industry. I've fallen in love with and quite obsessed with the problem. And I wanted to go do it. And so to their credit, they said, hey, we get it. So go for it. And did they want to fund you? Did they want to be a part of it? I felt it was important to not have that.

23:37Why is it? Relationship. I felt that we needed to not be encumbered by anyone with a preexisting point of view on the industry. And so one of my old Bain colleagues was now a very successful venture capitalist who I've goaded for advice. And I didn't expect him to want to fund it. He was a former SpaceX engineer. This is not exactly his cup of tea, but he saw the opportunity and believed in us and said, let's do it. Yeah. You want money? Ask for advice. What exactly was the opportunity? So at the most emotional level, I would say, is to bring humanity back to veterinary medicine. That human relationship, the animal is the beneficiary of the strength and the trust that that relationship is founded on.

24:24So what will enable that? For us, it was really controlling the environment that the doctor works in, providing 24-7 access to the pet owner, whether that be to the information, the pet's medical record, history, to telemedicine, to triage, to support, but then also making it much more sustainable for the veterinarian. If we go back to like, who is the person who becomes a veterinarian, right? Someone who deeply cares about the animal. And they're put into this environment where ironically, they have to deal with people who are more likely to yell at them than they are to their own doctor. They have to negotiate costs.