Sramana: How big is your SaaS business from a revenue perspective, and how does that compare to your clinical side?
Rod Brown: A little north of $2 million dollars a year in recurring revenue. Last year the other side of the business did about $4.5 million dollars.
Sramana: Do you anticipate buying more behavioral health companies?
Rod Brown: I don’t think so. We will probably focus more on the software side. We will do more than just the electronic health record software. In this industry, there is a great deal of fraud. We are getting ready to launch a tool that will help reduce fraud significantly. We will be more focused on bringing technologies out to help the industry deal with fraud.
Sramana: Why is the SaaS only at $2 million after all this time?
Rod Brown: It has not scaled for a couple of reasons. First, the churn rate is a bit too high. The cause of churn is clients going out of business. We’ve also had some clients leave us and go with competitors. The churn rate was high as it has ever been in 2011.
The second reason the SaaS side has not scaled is because the clinical side of our business was distracting from the SaaS side. That is something we have had to address.
Sramana: Why did you do that? If I were advising you, I would have told you to stay a million miles away from a clinical business because it is so different than a SaaS business.
Rod Brown: From a financial standpoint, it was a pretty good opportunity. If you manage it right, you have margins north of 25%. We also thought there would be some synergies. We had a guinea pig for our software. We had an agency that functions exactly like our clients. We could be more proactive in identifying the challenges the agencies face.
Sramana: The best way to do that is to create a customer advisory board where you can get a window into that environment without having to buy a business.
Rod Brown: I agree and you are absolutely right. We do have a customer advisory board now. At that time, that is why we made the decisions we did. I don’t think it turned out like we had hoped.
Sramana: Possibly, the right thing to do at this point is to sell the three clinics and focus on the SaaS business. What does it take to do that? The second aspect of this question is what does it take to check the churn and put this business on a higher growth path?
Rod Brown: I think the answer is simple. We have to either sell the other side of the house or have a separate management team to run that side of the house. Selling is not out of question. When it comes to the software, we have the model. It comes down to us refocusing on a growth plan for that side of the business.