Sramana: We have found that if you fail to get a validated idea going with whatever resources you have, it is very difficult to raise additional money.
Stan Nowak: I could not agree more. It was not just the money. It was the investment of sweat equity. During that angel-funded period, my partner and I did not take home the same paycheck two months in a row. We were very much investing on a monthly basis personally, knowing we needed to validate the idea based on the first tranche of that idea.
Sramana: Most people will go 18 months with a significantly reduced salary.
Stan Nowak: We started in 2001, incorporated in 2002, and our first venture round was in 2003. There was a substantial period of going with less than market salaries for the entire team.
Sramana: What was the process of getting early feedback on your first idea and pivoting to the second business model? How did you bring together a minimal viable product and gain your first customers?
Stan Nowak: During that phase we had two decisions to make. One was to pursue the second business model, and the second decision was to abandon the first business model. They were separated by about six months. The decision to identify other opportunities that would become better was made within the first six months of the company doing business. We signed contracts, executed on those contracts, and determined that the outcome had real market potential. We saw the results of our first contract with our client and saw that they were substantially better than the alternative. They were quick and cost effective.
The early experience of helping people refill their prescriptions gave us ROI, a case study, and most important, confidence. At the same time, our original market was not showing any market traction that was giving us that same traction. I had recruited a cadre of people around the first business model, so making the decision to terminate that business took longer and it was harder. We were emotionally invested in that business.
Sramana: How did you determine the business model, contracts, pricing, and other aspects associated with your second business model?
Stan Nowak: We had designed the ability for non-technical resources to quickly build interactive dialogues using automated interactive voice. We had designed it for a 53-year-old woman, and it was a very intuitive system. That made our cost of bringing up a solution very low. We could have a non-technical resource build and launch programs, in scale, in hours versus weeks and days.
The model was a SaaS model and it was very fast. We had to de-risk the commercial model by providing a contract. We had a 90 day termination for convenience in every contract during our early years. We never had anyone terminate for convenience. In those early days, those 90-day pilots were costing companies $25,000.
Sramana: Who were the customers?
Stan Nowak: Pharmacy benefit managers. Today they are companies like CVS Caremark. These are companies that manage pharmacy benefits for health insurance companies.