SM: Did you negotiate the deal before writing the software? How did you know the insurance company would be willing to pay for your software?
BO: I wrote the software first because I had a lot of doctor friends and they had told me how terrible the situation was. It took forever for them to get paid. The government estimated that it cost $6 to $7 to process a claim on a piece of paper. I figured if I could send the claims in electronically, then I could save the insurance companies a lot of money and that they would be willing to pay for it.
SM: How did you finance your startup efforts?
BO: I used my own money to fund it. I cashed in my 401(k).
SM: How much money did you have to put in?
BO: I put in about $500,000 initially.
SM: After St. Joseph’s signed on as your customer, how many transactions did you process during those first six months?
BO: We processed a significant number because we had a backlog of claims. It was much bigger than the normal monthly volume. Right now we do 110,000 claims a month. At that time we were processing 180,000 claims a month. I worked with them for six months before I picked up my second customer, and two months after that I had my third customer. Today I have 4,400 insurance companies that are our customers.
SM: How long did it take you to break even?
BO: I broke even in June 2003. I have never taken a loan on the company other than from myself.
SM: You bootstrapped the entire company with zero external financing?
BO: I took nothing. I did every single bit of it myself. I have two office buildings, one in Vancouver and one in Irvine. When the landlord ran by Dunn and Bradstreet to check my credit, they found there was nothing there. They could not understand that, but I had never borrowed money.
SM: How did you get connected with you first few customers?
BO: I had a doctor friend in Irvine who was a St. Joseph’s doctor. I asked him to help me get connected with St. Joseph’s and he got me in there. I had to show them that I could get these claims into their systems in a way they could save money. I demonstrated processing 500 claims to their CAO, and those 500 claims went straight into their system. He told me that they had been processing 100 claims a day per person, and he had five people. I had done in five minutes what his team would do in an entire day. The ROI was massive. The first year they saved $4 million.
The problem was that in those organizations they have internal IT departments through Perot Systems. We had to be careful not to step on anyone’s toes. Their CAO took care of the internal politics to prevent Perot Systems from shutting down the concept. He arranged for another demonstration where he called in his board as well as the entire Perot Systems team. I showed them once again how to process 500 claims in five minutes. Their CAO looked at the board and said, “I have just laid off five people; we are going to sign a contract with Office Ally.”