He pointed to health care, where regulations make collecting and analyzing data very difficult, even if that data is analyzed anonymously. “Right now we don’t data-mine health care data. If we did we’d probably save 100,000 lives next year,” he said.

Saving those lives would be a big benefit. But there’s no doubt that it would also come at a loss of privacy that some might consider too great.

It’s not just a matter of knowing the latest treatments, but deciding if they’re worth it for an individual patient. Consider: Of 13 cancer treatments approved by the Food and Drug Administration last year, only one was proven to extend survival by more than a median of six months, the report said. The drugs all cost more than $5,900 for each month of treatment.

R.I.P. Tim

Last Thursday we lost a good friend in Tim Mahoney, who passed away after battling pancreatic cancer for the past year.  His service is today in Lafayette, LA.  He’ll be missed greatly by all of us, and prayers go out to Melinda and the whole family.  His lovely obituary can be read here.  Will miss you man.

(Cancer) Patients today walk in the office and they have no idea that the therapy being chosen is usually the one that offers the greatest return to the oncologist. Today in that interaction there is information that isn’t being shared.

I have no problem with the oncologist saying we’re picking this regimen because it’s also the most cost-effective. But we have to emphasize the other point time and time and time again: The treatment has the same result as the alternatives. We are not jeopardizing your outcome, but where we have multiple alternatives we are taking the one that is most cost-effective.

If there are multiple options available, in my mind the patient would be indifferent to which one is offered unless there was a substantial difference in side effects or results. Faced with several regimens that are basically the same, I’m going to look to my physician for what’s the right thing to do.

(Oncologists have to be) “really good internists because you are giving people chemotherapy that may cause side effects and you have to assess their medical condition, whether they can get their drugs, have a toxicity, and do all those things. You also have to be an oncologist and understand the drugs and write the orders. You have to be a molecular biologist now because of all the pathways and you have to read about these things and really understand them so that you know you are ordering the relevant test so that you give the right drug and not the wrong one. You have to be an informatics expert because everyone is going into electronic medical records and using pathways. You have to be a social scientist and an economist now since society has now made you responsible for the cost of care of delivery. You have to be an end-of-life specialist. You have to be a pre-certification expert and, by the way, you have to meet all of the quality standards that everyone is promoting—there are about 50 of them now. You have to take time to talk to the patient and be nice to them. And by the way, don’t make a single mistake.… And do this in 15 minutes. And do it 30 or 40 times a day.” He asked, “How can any human being do that?” Yet, this is what is being asked of physicians and he is concerned that we are continuing to add to their responsibilities.

Tax advice for startup employees?

We’ve had a few questions come up in the last couple of weeks at Flatiron Health from employees on what the best practices are from a tax perspective on the RSU’s or option grants they receive from our company.  A lot of this stuff can be highly confusing.  There are ISO’s vs. NQSO’s (each with different tax implications), 83(b)’s, options with vesting schedules, RSU’s with repurchase rights, all the while trying to set things up correctly from a tax perspective (i.e., get long-term gains treatment wherever possible as opposed to ordinary income to minimize their tax bill).

Long story short, startups in my opinion, especially in the early stage when you can actually take advantage of certain strategies due to low shares prices, should have some sort of tax advice resource available to their employees.  It’s not smart for the founders or someone employed by the company to give tax advice, as that’s a whole liability on its own, and it’s also probably not realistic to expect the employee to have a family accountant who is an expert in startup options/equity and their tax implications (and optimal strategies).  I know I didn’t when I got started in startups.

For example - it seems pretty obvious (and I’m no accountant) that employees at super early stage companies when their stock is worth pennies should “early exercise" their options and get RSU’s with repurchase rights, which starts the long-term gains clock (but only if you file an 83(b)).  I wish I knew that was an option.  If so, I would have recommended it to folks at Invite who came on early and received option grants.

I don’t know the right solution yet.  But it would be great for startups to have some sort of centralized but third-party resource to point their employees to when it comes to best practices related to the stock or option grants we give them.  It doesn’t feel like something the general counsel should do, or the PEO/HR company (ex. Trinet, Ambrose, etc.) should do, or even the CFO/accountant of the company, so I’m not sure what the best strategy is.  

Any ideas?

The startup essentials

Updated June 26, 2014

  • Mail/calendar - Google Apps.  Has worked wonders for us.  At Flatiron, we pretty much all use web-based mail, and it doesn’t get better than Gmail.  Also great support for things like email groups.
     
  • Scheduled emails and reply alerts - Boomerang for gmail.  Super useful tool.  Primary use is to alert me if I don’t receive a response to an email I send within X days or weeks. 
     
  • Instant messaging - Gtalk.  Super easy when you use Google Apps
     
  • Video conferencing - primarily Skype, but also Google Hangouts is pretty good for this.
     
  • Common drive / file sharing - Google Drive.  Honestly, we’d use Dropbox if we could, but almost everyone uses Dropbox for their personal accounts and it’s not great for running two different accounts.  And we had a lot of sync and software issues with Box.  Drive has been fine, and it’s convenient given we used Drive already for shared spreadsheets, docs, etc.
     
  • Screen sharing with clients - join.me.  Have tried a few of them, join.me is the easiest and lightest-weight.  Doesn’t require any installs for viewers, very quick to join a meeting.  
     
  • Payroll and benefits administration - Ambrose.  The “PEO” bucket, many players here.  Ambrose seems like a good fit for small startups as they have good support via dedicated account managers for setting up new employees, answering HR questions, etc… Probably will outgrow around 20-25 employees.
     
  • Task management - Asana.  We’ve tried them all.  Asana is growing on us and has been the longest to stick.  A few folks use Evernote for longer-form note taking and such, but company tasks all make it to Asana. 
     
  • Sales CRM - we actually use Asana for this today by creating a project for each client, but at Invite and soon we’ll use Salesforce or Sugar.
     
  • Recruiting / applicant tracking - Greenhouse. Extremely good. Great for many people doing interviews, multiple job openings, recruiters, etc… We tried Trello and such, but doesn’t work great for interview feedback, schedules, and notes.
     
  • Internal communication platform - Slack - 100x better than Yammer and has reduced emails across the organization.
     
  • E-signing docs - Signnow.  So easy to use and free.
     
  • Accounting software - Quickbooks Pro (desktop version).  I tried other systems and also the Quickbooks online version, but none of them were complete other than QB Pro.  Before you’re an enormous company, there’s pretty much no other option in my opinion, and it’s not that hard to use and does a decent job of automatically connecting to your banks and credit cards to pull transactions.
     
  • Banking - we use Silicon Valley Bank.  Pretty decent monthly service fee (around $200), but lots of support.  They saved our ass a few times at Invite Media and have flexibility because they’re small and focused on technology companies.
     
  • Credit cards - AMEX Plum.  No brainer here.  Pay within 10 days of your bill and get a 1.5% discount credited back (used to be 2%).  We put just about everything on a credit card.
     
  • Travel booking - Kayak for flights and rental cars.  Hotel Tonight when in a city they support.  Priceline as a backup.
     
  • Phone system - Google Voice.  We’re still small so we can get away with this.
     
  • Food for office - SeamlessWeb for ad hoc, Zerocater for catering now that we’re a bit larger.  In NYC, Seamless is how you order delivery food and works great. 
     
  • Business cards - Moo.com.  Awesome service and not that expensive.

  • Note taking - Evernote for most people’s private notes, including mine. Haven’t nailed sharing of notes here, so for a lot of joint meetings we’ll use Google Docs and create a notes doc that we can all add our notes to and collaborate.  Asana otherwise.

Those are the things we use at Flatiron and we consider our essentials.  If you’re curious of anything other system we use that I left out, please ask.

In healthcare, government regulation can breed startup opportunity

Like most entrepreneurs, when I hear the words “government regulation” attached to a startup idea, my first reaction is negative.  Traditionally, customers buy products and services that either generate new revenue or reduce existing costs.  But in healthcare, they also buy products and services that help them meet certain government regulations.  In healthcare, government regulation can breed opportunity. 

For many sectors of healthcare, the government requires providers and/or payers to do something they may not normally do.  For each of these requirements, the stakeholder will need a solution in order to meet that requirement.  Here are a few examples in healthcare (just to name a few):

  • The Office of the National Coordinator (ONC) requiring provider’s to have various levels of EMR implementation (with incentives and penalties depending on your status)
  • The ONC requirement for providers to share medical records with an health information exchange (HIE)
  • Joint Commission requirements for providers to know population statistics, track patient safety metrics, etc…
  • Medicare and other payer requirements to maintain certain re-admission rates as a provider (which requires structured data and software to know where you stand and track cases)
  • Cardiovascular (and other disease) programs must report various conditions and procedures to national registries

Many businesses have been created (or accelerated) that offer solutions to meet the above requirements.  Generally speaking, the best solution over time is from a company that makes that solution their core competency (as opposed to each hospital building their own solution, for instance).

So, if you’re looking for a startup opportunity to tackle in healthcare, it may be worth your time to research the (many) government regulations that are out there.

Can the healthcare industry afford a cure for cancer?

It’s hard to think about.  The healthcare industry would be rocked if a cure for cancer was produced, and probably couldn’t afford it.  Cancer is a huge problem for our country and world, but it’s also a huge business.  From what I’ve read, it can be one of the more profitable specialities of many providers.  Estimates put it at $150B in direct expenditures treating/managing cancer in the US, with an additional $100B in related costs.  

Imagine if a “vaccine” for cancer was discovered tomorrow (albiet unthinkable right now).  There are thousands of hospitals that make big money off of treating cancer, and many more private practices.  Cancer patients create revenue for providers at nearly all levels, from labs to imaging to surgery to chemotherapy (pharmacy) to radiation therapy to post-operative care, etc…  There are thousands of oncologists in this country.  40% of R&D from big pharma is dedicated to cancer.   Perhaps they could re-allocate resources towards other specialities, but there are countless billion-dollar tertiary care facilities focused exclusively on cancer throughout the country.  

While we all want cancer to be cured, one has to think, with cancer being such a big business, how bad do the big providers also want it cured?  I’m not talking about the brilliant and talented physicians and researchers tirelessly working for their patients and institutions towards a cure, but the business operations at a higher-level. 

If anyone has any anecdotes / history lessons on how our healthcare system has reacted to a major disease being cured (ex. Polio?), I’d love to hear it.

Healthcare vs. online advertising

I was talking to a few folks today looking to get into healthcare, and a good analogy for a big trend happening in healthcare occurred to me.  In short, healthcare providers are being forced to take on more and more risk for the quality of the care they provide, and that closely mirrors what happened in online advertising with advertisers vs. publishers.

Just like in advertising, in healthcare there is a spectrum of risk shifting.  The poster child is the so called accountable care organization (ACO), whereby the provider’s fee reimbursement is tied to certain performance and quality metrics.  Another example is bulk payment, where the hospital is given a flat price for a population, say a group of CHF patients, and based on data the payer expects each to cost $5,000 to care for, and that’s the amount the provider gets regardless of services done.  Any dollar below that level that the provider spends to get that person up to the agreed-upon metrics they are allowed to keep, any dollar over the provider eats.   So then, things like double ordering MRI’s and hospital re-admission rates become really important, as it’s pure financial loss.

So, back to advertising.  If you look ad ad-tech, over the last 15 years there has also been a shift of risk from publishers to advertisers.  When an advertiser pays a publisher on a CPM basis (forgetting the countless middlemen in between), the advertiser is essentially taking on all of the risk for that campaign.  If no conversions are generated from the media, the publisher still made their money and the advertiser had a negative ROI.  Of course advertisers started wanting to shift risk to the publisher, saying things like “I want to pay you Mr. Publisher only when you generate a sale for me.”  Then, companies like Ad.com and others popped up (not the publishers themselves of course, as very few of them are large enough individually to gain attention from a busy ad buyer) who allowed advertisers to pay out on CPA and thus pay for media only when that media generates a sale for them.  That created a full risk shift to the publisher, which made them accountable for the performance of the media and in theory aligned the industry.

The similarities are quite similar to healthcare.  Industries in free markets will in theory evolve towards alignment, unless outside forces like government keep them from doing so.  Healthcare right now is unaligned, whereby the payers / insurance companies (in the analogy, the advertisers) are paying their providers (the publishers) in their network for every service the provider does, and nobody wins.  Every time the hospital does a heart surgery, they get to charge the insurance company for doing so, just like how a publisher in advertising gets to charge the advertiser a CPM for the impressions they just served for them.  In this new world, if the heart patient comes back into the hospital two days later because that last operation didn’t get the job done and symptoms were missed or mis-treated, the hospital gets dinked and loses money, much like how a publisher on a CPA basis eats inventory they serve that doesn’t generate a conversion for the campaign.   Oh, and the patient was a victim of the cycle.

Personally, I think the much-talked about risk shifting happening in healthcare right now couldn’t be more opportune.  Financial alignment is the only way to curb our healthcare spending in my very naive opinion, as it very much still is a business.  Of course it’s still very early in this process and very few providers in the grand scheme of things are actually on the hook right now for the quality of their care from a reimbursement perspective, but change is coming and it can’t come fast enough.

Steward is also positioning itself to take advantage of a shift by insurers toward paying health care providers based on patient outcomes rather than the individual services they provide. More than 80 percent of Steward’s patients are currently under so-called global budgets, where Stew­ard receives a fixed amount of money per patient to provide care. Under these contracts, Steward makes more money the more efficient it is in caring for patients. Wherever possible, company officials say, they are shifting treatment to lower-cost settings, such as a doctor’s office or a patient’s home.

Recruiting tip: look at acquired companies and follow-up in two years

Recruiting engineers is hard.  It’s one of those things that you also just have to get done if you’re a technology startup.  Some of the best engineers in the world who think dynamically and work hard to make something happen work at startups.  If you’re a startup, those are the kind of people you want (as opposed to 9 to 5’ers at large companies).  

A good way to find these folks is to get organized and start tracking startups or companies that get acquired, track the date of those events, and then set your self reminders to talk with those folks around the two and three year anniversary of those deals.

In general, it’s good practice to meet engineers at startups that get acquired pretty much the day after so as to get a jump start and build a relationship, but realistically if the acquirer is smart the best engineers will be incentivized to stick around for 2 or 3 years.  Many will leave sooner, few will stay forever.  The same goes for potential candidates in other areas such as sales.  I’ve noticed scrappy contingency recruiters do this in the past informally, whereby they’ll say things like “I think folks at company X are probably ready to leave, so we’ll focus on them.” 

How many co-founders is right? And other related topics.

A couple students starting a company recently asked me if they had too many co-founders and if their equity arrangement made sense.  When you’re in college, it’s not too uncommon to have a semi-large group of friends working together on the same project which sometimes leads to a formal company starting.  It could be 2-5, and I saw one recently where there were 6 classmates all coding and designing a new mobile app concept together.  When we were starting Invite, there were four of us there at the beginning.

The interesting step to figure out, and take seriously, is how you setup the co-founding group both in terms of number of co-founders, titles and equity allocations.  My friend Chris Dixon wrote a good post related to this, and I’m sure there are many other posts on the topic.  It’s something you need to take seriously, as it sets the trajectory of the company for better or worse.  It’s all too common for startups to blow up before they’ve left the launchpad due to disagreements and poor arrangements among the initial team.  Here are some “best practices” if they can be called such in my opinion related to the founding team:

  • First off, do what it takes to get things started.  If you absolutely need your semi-large group of friends working together to get something off the ground even if it means impending confusion, then by all means do it.  I’m never a fan of stopping something before it starts and am a huge supporter of things just getting done and figuring things out later.  That doesn’t mean you can’t be thoughtful and look ahead to how you’ll need to structure things if something clicks though.
  • Second, co-founders are great.  I am a huge skeptic of single-founder companies.  I probably wouldn’t invest in one.  I truly believe it’s a great thing to have a partner (or two) in the trenches together, second guessing each other, etc…  I’m personally most enthusiastic about a two primary co-founder structure, with potentially 1-2 other secondary co-founders.  It’s fine if they all have the co-founder title, but in terms of equity the 2 primary co-founders should own a significant portion and any secondary co-founders own a minority share.  Startups work as dictatorships for a reason, and group-think and consensus decision making is for big companies.  I’m never a fan of seeing three or more equal partners, for reasons explained later.
  • Every founder’s shares should be subject to vesting.  Your founding shares should vest.  Whether you do this day 1 or as part of your first funding round is up to you, but I think it should happen.  I think it’s bullshit for an entrepreneur to claim “oh well I started the company, my shares should never be able to be taken away”.  Sure, maybe some portion of them can be vested day one thanks to your effort and time spent, but in no world do I see it being fair to the company and it’s shareholders for a founder to not be subject to vesting, especially if you own a significant portion.  It also helps with recruiting employees if you’re able to tell them you’re vesting on the same terms as they are.
  • Minimize “dead equity” in the future.  Equity is precious, and in general one of the goals of a company CEO is to maximize the % of shares that are still actively at work for the company.  In other words, the higher % of shares that are held (or are vesting) by an active employee building value the better.  Conversely, someone owning a significant stake in the company who is no longer working on building value is “dead equity” (dead wood if you will).  There’s no doubt a portion of the company that ultimately will be held by people who are no longer active, or you may have given out equity in exchange for short-term services to conserve cash.  But in my experience, one of the most significant sources of dead equity is a co-founder initially getting a big chunk of equity, wasn’t vesting, and then before you know it the co-founder didn’t work out.  Investors love to see active co-founders and critical employees owning as much equity as possible (the more the better).
  • Engage advisors.  In my experience and observation, as a company matures, no more than two co-founders will ultimately be super critical to the business, and many times it can be none.  This is important to accept as you go about planning your equity arrangements.  If you have three co-founders and you split things 1/3rd all the way around, it’s likely that 1 or 2 of those holders will ultimately not be with the company after 3-5 years (thus creating dead equity).  Sometimes this is unavoidable, other times it’s not.  So how do you plan for that?  Get outside help to verify that what people are bringing to the table and if the equal arrangement makes sense.  Utilize advisors to help identify the strengths and weaknesses of the team.  If there’s a clear person in the group who will grow into the CEO spot or fill it from day 1,  and one person who is wavering on wanting to be an entrepreneur longer-term or who’s skills won’t scale with the company, better to know that (or think about it at least) early on. 
  • Have the conversation early.  Sometimes it’s worth it to have those serious conversations early to figure things out.  Trust me, I wish I had done that in some previous companies before things got rolling.  Sitting down as a team and figuring these things out early is important to ensure things don’t blow up.  Call it a preventative measure or management debt or whatever you want, it will pay dividends in the future by taking care of it early.
Lastly, I wish there was (or if there is, I want it) data around co-founding groups and eventual outcomes.  If you know of anything like that, please let me know.  My gut tells me two primary co-founder teams have a high percentage of success, at least when I look at all the startups who have crossed the line into profitable companies or successful acquisitions.