MedHost – A Health Tech Startup’s Story from Inception to Acquisition

The other week I had the opportunity to attend a Chicago Health 2.0 Meetup group event, where I was able to listen and learn from Patty Rioux, who was one of the first few employees at MedHost, a healthcare IT startup that recently got acquired.

It was really interesting to hear how the founder originally came up with the idea for MedHost. Apparently, he regularly went to a TGI Friday’s restaurant and one day he noticed that the restaurant was operating much more smoothly, with less wait time and the hostesses/waitresses were all much more organized. He asked the owner what had changed and he discovered a new software the restaurant was using to track tables and guests as they were coming into the restaurant. The founder of MedHost was a physician and once he learned about this new software, he realized there was a real need for something similar in emergency departments because just like a busy restaurant, a busy ER has limited beds and no idea who or when someone will walk in. Similar to restaurants, emergency rooms make the most money by turning over more beds. That’s when he decided to launch MedHost, an emergency department information system platform.

Patty then went on to discuss five mistakes her startup had made and five things they did really well. All of her suggestions are great advice for any healthcare IT startup so I’ve summarized them below:

Five Mistakes:

1. Don’t underestimate your sales cycle. MedHost had thought the company’s sales cycle would be 6 months, when in reality it turned out to be more like 9-24 months for a lot of these healthcare facilities, since there are so many people involved in the process. Longer sales cycles can really impact your business and limit your growth projections, so be sure to have a conservative estimate in mind when starting out.
2. Don’t overestimate the IT systems within hospitals. Through MedHost, Patty realized that trying to install the software and making sure that it fit in with all the hospital systems was a nightmare. These days with cloud computing, a lot of the programs are easier to install and get started, but don’t expect all facilities to be completely electronic already.
3. She mentioned that as marketers, her startup wanted to look more established and bigger, so they spent a lot of money trying to market that image by printing fancy brochures that nobody ended up reading. Most customers buy from demos, not expensive marketing materials. Many companies within healthcare and other industries now accept that innovation comes from the startup community.
4.  She reflected on a couple of key hires they missed. For example, it’s pretty important to hire a sales clinician early on to sit in on pitches and help close deals with the salesperson.
5. Try not to focus on personal decisions that aren’t necessarily best for the company as a whole. The example she provided here was that her startup actually kept three offices open even though it was costly, but the company wanted to accommodate the preferences of the employees. Often the culture of startups is to take care of each other, but try not to do it at a significant cost to the whole company.

Five Strengths:

1. MedHost used a per patient pricing model, which avoided being lumped in as the hospitals capital expenditures. This allowed the software to be in the healthcare facilities operating budget as opposed to the capital budget since it was billed to the customer monthly. It also represented a great recurring revenue stream, which the VCs love.
2. They had a very well defined alpha and beta process where they moved from small healthcare systems to larger systems in order to test out the product in a manageable and effective way.
3. On marketing, they did a great job of focusing on a lot of the influencers instead of decision makers in order to use them to impact sales. So they focused on getting real close to the nurse managers instead of the CIO or CTO level people because at the end of the day the nurses and nurse managers would be using the program and would really fight to have it.  In fact, it turned out that ~80% of the company’s sales were driven by nurse managers. They also interacted with all of the trade organizations in their industry and took advantage of everything they had to offer to market their product.
4. The company stopped responding to RFP requests because they discovered that if they were not a part of the process before the RFP, then the kill rate for the company was huge and the RFPs were just so painful and time consuming to fill out. Everyone would need to look at the RFP and the applications were typically 150-180 page responses that were a huge drain on resources, when that time could have been much better spent focusing on other relationships.
5. The best learning experiences for marketers are to sit next to the customers that will actually be using your system and see the issues or changes they want implemented. Often, the most creative and effective improvements come from those experiences where you are sitting next to your customer showing them how to use your product and listening to their concerns. No matter what industry you are in or what type of sales person you have, make sure that they sit down with your customer to really understand their daily pains.