Growth Hacking in Healthcare: Meet the Startup Making Waves with a $50M Series B!

0:00Ben Murray: Greetings everyone. I'm excited to welcome Albert Katz, co-founder and CEO of Flagler Health. Albert, welcome to the show. Thank you. Thank you. Thank you for having me. Yeah. Great to have you here. Let's kick things off. Tell us a little bit about your background. So I studied in undergrad, computer science, finance, and legal. My first job was around the age of 19. I was a product manager at a small tech company. They essentially created like this 360 degree camera. Sago boom, then bust. Wanted a bit more stability. So then got into the world of economic consulting, found that to be extraordinarily boring.

0:40And then somehow got contacted by a headhunter when I was 23 to get a low level director of finance role at a Musco skeletal practice. Long story short, it was very small, single digit revenue. And we grew it to high double digits during the half years. I got promoted to CFO and then eventually CFO, CRO, double title, and got to handle everything from the call center to hiring, firing, books, low-level accounting, all the way up to accruing on debt and selling off to private equity, or essentially getting to the LOI and then leaving. But anyway, after that, I went to get my MBA at Wharton and then decided to partner up with my two buddies and create this technology that I knew something like mine needed to essentially infiltration outcome, increase revenue, decrease costs.

1:39Ben Murray: Yeah, I love that. And I saw your CFO background, which is great. And I'm guessing with that background and just getting into the operations of that business, was that kind of the genesis for creating Flagler Health? Yeah. Yeah, 100%. So there's a couple of basic principles, right? Every software solution on the market just promises you that it'll work, specifically in health tech. And you have to usually pay for some installment fee. And then it's a very tedious process and you have to learn this platform. We just basically decided, hey, this is going to be free. and we will only charge you for the additional revenue we help make and any other metrics that we agree upon.

2:25So really the three things we focus on, and this was important for the CFO, the COO, and the doctor, is one, is it making me more money? Two, is it improving the lives of my patients? And then three, is it helping automate parts of my practice so I don't have to do anything? And if you can create a product that does all three, it's much easier to go out to potential customers and sell that product, right? Because you are greatly reducing the risk of adoption.

2:55Ben Murray: Yeah, interesting. And we'll talk about pricing in a second. Sounds like a little bit of outcome pricing there. But so let's, yeah, let's formally tell us, give us the 30-second pitch of Flagler. So what products and services does it offer? The 30-second pitch. To customers, it's essentially your EMR needs significant advancement. We are a full suite of services, a vertical software solution for your practice to automate the most tedious tasks without having you lift a finger. That's like the 30 second pitch. If you were going to tell me what is it that you're building, I would give you a completely different story.

3:34Ben Murray: And then there's a certain, so tell us about your ideal customer profile. So you have a certain specialty or maybe practice that you're after with the software. So we've specialized in the beginning within musculoskeletal and musculoskeletal is like this massive specialty, right? Which involves like orthopedics, pain management, physical therapy, neurosurgery, rheumatology, essentially just anything that has to do with bones and ligaments, right? The majority of the population, or even let's just be more specific, the US population suffers from some type of musculoskeletal disease,$400 billion to spend.

4:11And right now what we essentially do is we go into a practice and we can go into pricing later, but all in all, we take a percentage of the revenue that they make so long as we hit specific metrics. Okay.

4:24Ben Murray: Interesting. Yeah. Going to be interesting diving into that. And then, so are you then going after group practices in these specialties then? Yeah. So they're typically the ICP is typically practices that are at least four to five providers, oddly up to hundreds. Right. And now we've started stretching outside of Muscle Scalpel to more PCP. So primary care. Okay. Okay. So broadening the scope there. Interesting. So four to five, say providers up to say hundreds of providers. And then what year did you found the company? 2023. 2023. Okay. Okay, so about three years in, and is this, I assume, as far as geography goes, U.S.

5:08Ben Murray: focus currently, or is it beyond that? Yeah, only U.S. Yep. Only U.S. The U.S. healthcare system is a bit wacky, so you really got to focus on it. Yeah, country to country, a little bit different. Yeah, really interesting. And so when you're going after these group practices, small to large, physicians and providers are pretty busy working with patients. So who are you trying to reach to make that pitch then? Interesting. It changes depending on the size of the practice. Or once you have these large MSOs or any practice that let's say makes over 20 to 25 million in top line, you're typically pitching to a CEO, COO or CFO, right?

5:48Ben Murray: Okay. When you have these smaller practices, so let's say the smallest one we have is I think seven or eight million top line. Those are typically owned by a physician and that physician will oftentimes only come in for the last round and the first rounds are handled by the office manager. Right. Gotcha. Yeah. Okay. The office manager in some way for those smaller practices is the CEO. Yeah. Yeah. Yeah. Running the back office. The whole thing. The whole thing. Yeah. Interesting. Interesting. Let's talk about your capital journey so far. It looks like you raised a series B, but how much capital have you raised today?

6:2663 million.

6:27Ben Murray: Okay. 63 million. Looks like that last raise series B for 50 million then? Yeah, correct. Yeah. Okay. Yeah. Massive jump. Yeah. That's a big jump. 50 million is a lot. So I'm curious going from series, we see with series a, you have some traction. Now it's about investing more, maybe scaling up sales and marketing, investing more in the product. What was that trigger that said we're ready for a series B or we're ready for more capital?

6:57I guess two figures, right? It was two things. One, the product was proven. It worked and customers liked it and they didn't turn it off. Right. And then two, the amount of inbound we got was multiples higher than we'd ever received before to the point where we needed to increase our team to make sure that we would not only satisfy those contracts, but also continue that momentum by spending money on marketing and sales. So up until, I would say really January, February, we didn't really have a sales team. And which is a bit absurd for a company that even in their series A, right? And now we're going through such a vicious sales cycle in the most positive way.

7:51that I'm so happy that we raised more than we thought we ever needed. We thought we only needed, let's say$30 million, right? So raising more helped.

8:02Ben Murray: Okay. And it sounds like if you didn't get this capital, what was breaking? It sounds like the sales of the marketing machine just couldn't handle that volume that you needed. Is that where you deployed capital first? No, essentially, one of the main things that we have been investing money on our account managers and essentially what it is, these white glove and giving a white glove service to our customers, right? We're holding their hands and we're going to make sure that we always respond within an hour. Once you start to expand your customer base, for example, are the amount of contracts we signed in the past, let's say four months was two X more than all the customers we've had in history.

8:48So really hard to take care of. And it's really going to stretch our existing account managers thin, right? So to hire those additional ones, and then also make sure that we're spending more money on compute and also the, the amount of work and capital we put into these businesses in the beginning, in which we're often not paid back on for four or five months, really pushes us to need additional capital.

9:15Ben Murray: Okay. And interesting. And you mentioned sales cycle blow or sales cycle earlier. And I'm sure a small group practice versus a group practice that has CEO and the leadership structure is different. But what kind of sales cycles do you look at here? How long? Yeah, typically anywhere between. We've seen something close as quick as one week, but the typical sales cycle is about three months. and there have been ones where it took us a year and a half to close on an account. Yeah. It's extremely unpredictable. Yeah. It's painful. And one quick thing here, you mentioned kind of, all right, leads coming in, account managers stressed out or just too busy.

9:52Ben Murray: But of course, then you land the deal. Now we've got to get the group practice up and running. Do you charge? Is there an onboarding phase and configuration? Are you shaking your head no? So is it easy for these guys to get up and running? Up and running, very easy. Okay. We have a streamlined onboarding process and the main holdup is almost always the customer. Okay. It's never us. Yeah. Yeah. Okay. That's good. Okay. So no services bottleneck on your side with onboarding and getting them up and running. So mostly still as you, yeah, coming back to the customer. Yeah. You just have to make sure that onboarding, we can onboard all of our contracts, right?

10:29Like we're onboarding our contracts. The problem is you have to make sure that you continue delivering this white glove service. Right. And you just need to make sure that you hire enough people to do that.

10:40Ben Murray: And then, so White Glove, so your account managers, are they acting as, say, a traditional sales rep plus, say, a customer success manager? So that's funny. They are basically customer success. Okay. But we call them account managers. And that's more of the perception within, it's more of the industry. The perception within health clinics in particular, they want to feel like there's something close to an office manager that they're getting for free. So we call them account managers, even though in the industry, account managers is a completely separate thing, right? So it's a job title that helps upsell additional service lines.

11:20Ben Murray: Yeah, usually, you know, the expansion side of it. Yeah, interesting. And then staying in that theme, account managers or maybe customer success managers, tell us a little bit about your go-to-market motion. Is this traditional cold calling? Like, how are you reaching these, either the back office manager or the CEO or CFO of these group practices? So I think without giving away too much of the secret sauce that really helped us scale, I think that the best advice I could give to anyone is create a product that benefits a third party. So here's an example. We have this product that can identify which patients need which treatments.

12:02And we use this product to go to durable medical equipment companies and say, introduce us to your accounts and they will make more money because we help identify more DAs for patients that need. And then they use their sales team to sell, right? So essentially really leveraging channel partnerships is what will help you grow exceedingly quite fast. Trying to go door to door is good, but typically it's not the best. It's not going to divide you from the pack. And oftentimes I was in a practice, unless you provided me some really great food, I was not going to welcome you in. Yeah, that helped.

12:51Ben Murray: Yeah. Interesting. So yeah. So the channel partner distribution. Yeah. Okay. And so let's carve out a little time here for pricing because this sounds really interesting in pricing gone all over the place with hybrid or usage or subscription and outcome based, or maybe it's out, it looks like outcome, but really it's rate times volume. So you mentioned something about taking a cut of revenue. So what are the basic pricing mechanisms of how you charge? So there are multiple tools or service lines that we offer, right? And Flagler in general, you can subscribe to the whole thing, or it could be modular.

13:27And so each one has a different type of pricing. For example, if we're doing revenue cycle management, we're going to charge you a percentage of revenue, right? If we are doing prior authorization, we charge you a fixed yearly fee that is totally dependent on us hitting the KPIs that we advertise to you. So it's still outcome-based, right? But it's predictable pricing. It's not usage-based. Then we have, let's say AI call center. Our AI call center, we really only charge if we're able to complete the requested call. So if a patient comes in to be scheduled and we route that call over to your existing call center, we're not going to charge you for that, right?

14:12And this goes on for every piece of this call something. And lastly, the other one we have is care management and EFAX. If we, the same role that we have for a call center applies to those as well as we need to complete what we set out to do and you need to be able to benefit from that. And if you can't, then you don't try to drink it. It's never going to be, you're never going to have to pay us a single dollar without realizing some value.

14:42Ben Murray: And earlier, you mentioned working capital and I could see the concept here where you're doing a lot of work, get these customers successful, but maybe there's not revenue in the beginning or there's a slow ramp up. Do you have situations where you're three or four months in and there's no revenue? Is that common, uncommon? No, it's never happened. No, it's never happened. The one thing that we do like to do though is we want to prove ourselves in the first three months before we hit our, before we send out an invoice. it makes it much more comforting for our existing customers. And when you sit down with, say, the office manager or the CFO of these practices, like how long of a conversation is it to explain pricing?

15:22Ben Murray: Is this five minutes and they get it? Or does it take a little time just to get them comfortable with it? It's five minutes. It's very quick. Yeah. Most of the time, I think we have five products. They'll sign up for two or three. And then I just give a breakdown of each one. And it's somewhere in line with the other health tech companies. The only difference is we just tell them, we're not pricing you on a thousand, for example, minutes. We'll just price you on successful actions. Yeah. Okay. All right. Yeah. Interesting. And then do they ever get concerned with, say, unlimited? It sounds like you said, you mentioned scales.

16:00Ben Murray: As their revenue grows, your revenue is going to grow. So any, any questions around surprise billing or billing that then is 5X what it was last month? Oh, it depends on the growth, but there's, we've never had anyone surprised by a bill. What we actually did about a year and a half ago, my VP of finance actually thought of this idea. Yeah. Is within we got off of Stripe and we essentially made our own type of bill sheet. And within that bill sheet, the top line explains or shows exactly how much money they made using Flagler. Right. So they can really compare and understand why Flagler is charging what it's charging.

16:43That really helped. Yeah.

16:45Ben Murray: Yeah. Yeah. Trans. Yeah. The transparency helps. And then one thing before we talk about metric that you're focused on, thinking back to that Series B, that's a big$13 million raised and then$50 million in another round. Thinking back on that, any lessons learned or things you wish you had known going into that round? I'm guessing the diligence was pretty good when you're raising the$50 million. A lot of questions coming your way.

17:14Things I wish I knew.

17:16Ben Murray: Yeah. Are any surprises or something that was painful? It wasn't surprising to be so much just because I knocked them out. I knocked out a lot of my lessons in the seed and series a, but if I was to give anyone lessons, there's things that you can read up about like paratorites, but I think most of that is silly. There's three things that you should focus on. One is get really good legal counsel, not someone who's a fancy lawyer, but someone like, oh, I use a Wilson since I'm seeing. They've done this a million times. This is all they do. Those are the people you should hire, right? Especially if you're trying to start a startup and you're going through funding.

17:54The second thing is definitely make sure that the investor you're taking on knows your space well enough. Oftentimes people will take some VC because they have some procedures nine over the fact that this investor really knows it's a boring market. Because for example, with us, we have a longer sales cycle, right? Our investor was one of the lead investors in Hinge, which is another MSK company that just went public. So it makes it a lot easier for us, right? And that investment in particular is much more understanding of the type of business that we're in. And I would say lastly, really understand what each round wants from you.

18:34So if you think about it, each round, you're trying to eliminate some different type of risk. Like during the seed round, they're really only investing in the team and then maybe your idea is somewhat. Right. And in the series A, you basically, so the team is somewhat, hopefully semi-de-risked. And then in the series A, you're trying to, when you're trying to raise the series A, you're trying to say, okay, this idea has legs. and we're this team, we're de-risking that factor and we're able to recruit good people. Then after the series A, when you're trying to raise the B, you're trying to prove cashflow stability.

19:12Your customers are staying on. Product market fit is not even an argument. And then when you go into your, when you're raising that B, a lot of the conversation is no longer dream big, what are you doing? It's more, let's open up that Excel spreadsheet. And what is this line item on the column, on on road d or road for whatever so i think the understanding the maturity of your company as it's jumping to the next stage and knowing exactly what investors are looking for and the returns they're expecting will make you much more successful in fundraising yeah no that appreciate

19:49Ben Murray: that insight a couple things that come up there yeah that founder investor fit they really know your space rather than just we know tech yeah and then what success when you raise that round And success to you may mean something different than success to the investors. So, yeah. 100%. Some investors want a 3X in two, three years. Some investors want nothing less than a 10 or 100X. And you have to make sure that your goals align with theirs. Yeah, that goal line is huge. Yeah, that's a big lesson. Yeah, huge. And so, Albert, at this stage of your business, three years in, 63 million raised, some nice investors on the cap table.

20:25Ben Murray: So is there a number or metric, operational or customer metric that you're really focused on that really gives you health or helps you guide the business? Yeah, that's three. One is patient outcome improvement, which we've on average helped improve patient outcomes by 87 % in sleep, mood, pain, or mobility. Two is revenue generation, additional revenue generation. So on average, we help increase the average revenue generated per provider by$108 ,000 a year. And the last one is optimization. So essentially how much time have we saved them? And right now on average, we save four days for administrators.

21:13And those three, I think are the most fundamentally important ones. And for me in particular, when I was, sorry, I need to interrupt. And for me, when I was running the practice, those are the ones that I always focused on. And every product that I would ever adopt had to fulfill one of those three criteria.

21:30Ben Murray: Love it. Yeah. Yeah. That background and how you wanted to run the operations and then how you want the software to help those operations. Love that. Heber, appreciate the time. A few more just stats and figures before we wrap up today. Do you have a headquarters location? New York. New York. Yeah. A lot happened in New York as far as tech. And then what's your current tape size? It's about close to 50 of core. Yeah. Okay. Core, we count engine ops. Okay. Okay. So about 50, uh, we're not including sales and all that stuff. Okay. Yeah. And then we're in September, 2026. What's top of mind for you to kind of wrap out this year with Q4.

22:08Ben Murray: What are the big goals to complete the rest of the year? Just top of mind stuff. Right now we have it humming. The goal was just to keep customers really happy. And in the next year, we start our PCK expansion. Okay. All right. So keep customers happy and then go into those other specialties. Yeah. Keep them in love. Yeah, that's great. Love this. I love the story and the insight of the fundraising and the metrics that you're monitoring at this stage of the business. One last question, Albert. If people listening would like to learn more about Flagler Health, where should we send them online? Please go to flaglerhealth.io.

22:46All right.

22:46Ben Murray: Perfect. We'll put that in the show notes so people can learn more. Appreciate your journey and learning about what's happening up through the series B and hopefully we can catch up in about a year and see what's happening then. Thank you, Ben. Really appreciate it. Thanks Albert.