Can Entrepreneurs Fix Healthcare?


NewCo Shift Forum

Meet two moonshot companies trying to make fundamental change

Honor and Forward are not your typical Valley startups — they’re both attempting to reinvent healthcare, and they’re both run by serial entrepreneurs who have absolutely no prior experience in health. At the NewCo Shift Forum earlier this year, Seth Sternberg (Honor) and Adrian Aoun (Forward) presented their companies and then sat down to discuss their shared goal of thinking care delivery across the United States. Below is their short conversation, with a text transcript edited for clarity.

Adrian Aoun: When you think of health care today, health care is fundamentally a labour based business, right? And so why does health care costs go up every year?

Easy, it’s because we just throw more and more humans at the problem, and that doesn’t seem very scalable. So what we want to do at Forward is we want to basically take as much of health care as possible from the labour cost curve to the technology cost curve, right.

So the first iPhone was 800 bucks, now everybody around the planet has smart phones. Why? Because technology follows that curve known as Moore’s law.

And so, things like our body scanner may seem expensive today, but just give it time. Those things are coming down every single day.

So all we’re trying to do is infuse as much technology as possible.

John Battelle: So you talk about the labour, you know, the cost of labour, and Seth, you want to do two things. One, you want to create jobs that people want to do, right? And if you’re going to scale all the way to Connecticut, you’re going to have to hire a lot of human beings at a decent wage. You’re also investing in them, they’re W2 employees, this is not a sharing, on-demand situation. You want these to be good jobs, that people, to have living wages. Right?

And of course, everything is about the doctor and the caregivers in your model. How are you guys thinking about that when, it seems like the narrative of Silicon Valley, is the robots are taking all the jobs?

Seth Sternberg: Yeah, so the level of inefficiency in our particular industry today is pretty shocking, and when you look at what the average agency charges a customer, they’re marking up the labour rate by 50 percent.

So, it’s so inefficient that there’s too much cost for the elderly, and not enough going to the care pros. What Honor’s initially doing is we’re charging the same rates that the existing industry charges, but we’re taking more of that 50% and we’re putting it to the care pros, both in the form of higher hourly rates, and also better benefits, and even equity.

So one part is how you pay, the other part is as you get more density, you can get the care pros to not have to drive 40 minutes to a home, but 30 minutes, 30 minutes, and then eventually get to the point where…

JB: Kind of like the Uber-like liquidity, that you’re looking at?

SS: Liquidity is really important, right, and this is why a fractured system, right, where no-one owns more than .1% of the market, is terrible for the care pros, right, because they have to drive all over the place and they’re going to the homes that they’re not appropriate for, because their agency got the call. Their agency has only thirty people, but none of those 30 people are really great for that customer.

And that actually puts the care pros in a bad spot. So, the more liquidity you have, the bigger your market and the more efficient you can be, and that if done right, creates a much better world for the care pros and you’re right, we are spinning up something called the Honor University, because right now, we interview the care pros, work something between five and ten percent, but then again how great a job we’re doing targeting, right, and finding the care pros.

That’s not enough, so creating something like our university that create jobs, right, like if the rest of tech, if some of tech, not all of it, but if some of tech is taking jobs away, I think this is actually an area where tech can help create more, better jobs.

JB: These are jobs are about human to human relationship, right?

SS: That’s right.

JB: Same with yours Adrian? We’re talking about people who have been through medical school, and, you know, have, I would assume, a lot of options, but the GP, sort of the family doctor, that’s been in decline in our society for some time now, so how does this change your model…

AA: So Seth’s business is in many ways entirely different than ours from this perspective, what we’re suffering from in, kind of as you see with doctors, is exactly what you’re referring to, which is, there’s not enough doctors, given the amount of people that need health care.

And then if you go beyond, kind of our myopic circle in the United States, and say actually let’s look internationally, the amount of under-served folks out there is pretty absurdly high.

So, we don’t think of it as we want to compress the amount of doctors, in fact it’s the total opposite. We just want a doctor to be able to touch more and more lives, by getting them out of the inefficiency.

So, a simple thing is, a doctor can’t follow you home today, right, they can’t kind of really keep an eye on all of your behaviors, they can’t tell you what you’re doing right, what you’re doing wrong, but sensors can, right, but even when you come into our location, think of it, and there’s a great study on this from a couple of years ago, that doctors today, spend about 40% to 50% of their time not seeing patients, but just kind of interacting with technology, right.

Putting together all the records so they can bill, etc. Well, if I can take that 50% of their time, and I can give it back to another set of patients, and say, now you can touch more lives, then it’s a win-win.

If I can make it so that that same doctor can watch over five hundred or a thousand people while they’re at home, while they’re out there exercising, that’s a win for everybody.

So, again, this is why over time as we create more efficiencies, all we’re doing is reducing costs and getting healthcare to more people.

JB: I’m curious. You guys both, you’re multiple entrepreneurs, you both have backgrounds at Google, you know, there are probably a lot of people saying “Oh here come the tech pro’s trying to reinvent an industry, stay out of our industry, you don’t understand it, this is never going to work.”

First of all, you run into that, and how do you answer?

SS: So, yes, definitely. You know, as an entrepreneur what you need to be good at is knowing what you are good at and knowing what you’re terrible at. And so, I had no background in healthcare, I had no background in labour. So the first senior person we hired was this woman Phaedra Ellis-Lamkins, who was the youngest CEO of an AFL-CIO area, and she did that for the first 13 years of her career.

So, we immediately went and got very senior people who understood labour, and then who understood health care and homecare, and we brought them in and we said, “Hey, with your knowledge, and our knowledge on how to use technology, how can we fuse these two things to make a better system?”

And what is interesting, is we ran into a problem where we kind of had the labour and care side of the house building one company and the tech side of the house building a different company, because they are really different ways of thinking. And so, then we said, ok, we’re going to take one of our founders, Sandy, my co-founder from my last company as well, and she became literally the bridge.

She was the tech person who was completely embedded with the care team and then stayed with them, went to every meeting and started to figure out, okay, how can our technology really help make these people better, more efficient to deliver better care.

AA: Yes, so we did something in many ways very similar. So, our company is about 12 months old, and 90 days into starting the company, we actually had a fully functioning doctors’ office. We still have it.

It’s in a warehouse, not far from here, and the reason we did it, is because we didn’t think we actually knew what we should build.

We thought that we could figure it out with doctors and with patients, and so every single one of our design teams, often times people come up to us and they say, “Wow, which one of your designers came up with that screen or came up with that body scanner?” And then I just point them to the doctor. And I say, “Actually, the doctors came up with it.” We kind of threw something at the wall and said, try using it, and they said, “Oh, I get what you’re trying to do. This is disastrous. Let’s rebuild it.”

And so, we reiterated inside of our kind of prototype doctors’ office. Every single day changing things, changing things. And nine months later this is kind of what you see today.

JB: Last question because we’re short on time, but as entrepreneurs who have done other kinds of companies, software-based companies, these are real world hard problems.

The funding mechanism, Silicon Valley for the most part, has optimized in the last five to ten years, I guess you can say on Instagram. Right. Let’s find a way to build an app, and you guys have apps, but build an app that when it tips, man, it goes boom, and we get the decacorn, right?

Are you worried about you know getting two…you guys are well funded for your first couple years, you’ve got that squared away, but what happens when you need the next couple hundred million dollars?

Is the valley ready to give that to you? Are you concerned about a funding desert?

SS: Yeah, so when I invest in companies, number one thing that I actually look for, is, does it have very substantial network effects? Because what’s happening with those consumer companies, which are just kind of all pixels, right, and not real life stuff, is as they get a little bit bigger and bigger, they hit a tipping point where their network effect kicks in, and then they get really big, really fast.

And so, Honor, very intentionally, is a company with a lot of network effect, because if we have ten times more care pros than the next company, we will always have the better care pro for your mother. And so, we have confidence that with scale, we’ll hit that same kind of tipping point that the traditional internet companies do, but this time applied into the real world.

And I think the other thing that Silicon Valley is looking for, is big outcomes. Right, and so when you’re a second-time entrepreneur like both of us, you know that if you’re going to do a real-world company, it’s got to be an existing market, right, that is massive, where if you really fix a fundamental core problem that people have, you’re looking at a multi-billion dollar, hundred billion dollars’ style outcome.

AA: Yeah, obviously I agree heavily with Seth, or we wouldn’t be friends, but I want to add another element here, which is people often get super caught up on the notion of, well, did you raise two million, did you raise thirty or fifty million?

When you look at the outcomes of many brick and mortar companies, they actually have extremely large, very similar size outcomes. You’re right that it often took more capital to get there in the beginning, but to some extent who cares?

If I show you a $10 billion company, do you care if it costs you $2 million or $15 million to get in in that first round? And there is a set of investors who we are both lucky to be backed by some of them, that absolutely see that those economics work, and are much more appreciative of the long-time frames that it takes to get there, but on a risk reward basis, I would actually argue that the outcomes are fantastic in many of these companies.

Leave a Reply