Sramana: When you signed your first $25,000 contract for that first 90 days of service, how many patients did that cover?
Stan Nowak: Our model was about 50 cents per target. That would have allowed that client to reach out to 50,000 patients at that time.
Sramana: That is a good business model that I presume generated a lot of cash into the system. Did that work out?
Stan Nowak: It did generate cash for the system. Healthcare is not as fast at technology adoption as some other markets, but it did allow us to get out there and sell. It allowed us to learn a lot about the market and the power of this service to our client.
Sramana: Before you accepted your first round of venture funding, how many deals similar to this $25,000 deal did you sell?
Stan Nowak: We sold three or four.
Sramana: Was that enough to validate the model and give you a good understanding of your future business?
Stan Nowak: Absolutely. It let us known how big the addressable market was and what the value proposition was. We knew we could use this family of technologies against a series of problems that the insurance industry was having.
Sramana: What did you pin the total available market as, and what was your TAM model?
Stan Nowak: We approached the market a number of different ways. We pegged the total market at $9 billion. That was not the addressable market, but that was the communications market in health insurance and pharmacy benefit management.
Sramana: We don’t pay attention to the top-down numbers that much. What was the bottom up TAM model?
Stan Nowak: What we looked at was what we were displacing in the market. We were displacing humans in call centers. At that time they had tens of thousands of people in call centers. We also reduced the amount of outbound mail that companies were sending. Companies were sending hundreds of millions of letters every year to their members. This was really about consumer communications and in that consumer communications space the market was broken down by department, business unit and application. We took the applications that we had supported as well as the ones that we felt we would support in the future. We were able to quantify volumes by payer and we were able to model the market within a customer per million lives managed.
Sramana: I would have guess that you would have looked for the number of pharmacy benefits managers you were going to sell systems to, at what average price.
Stan Nowak: If you could model it by member then you knew there were a handful of pharmacy benefit managers in the country. There were a much greater number of health insurance companies in the United States. That was the easy part of the model.
The harder part of the model was identifying the communication applications within healthcare that we were reporting and modeling out value times volume. Our product road map included other types of applications than the one we had our initial contracts with. Today we have done hundreds of different applications. The problem statement is motivating human health decision behaviors. That is a very wide market.