(Things Did Not Get Any Easier After $1M ARR)
By Thompson Aderinkomi, Co-founder of Nice Healthcare
I will share hard numbers, actual decisions, and strategic reasoning with you so you can learn from what my cofounders and I did and see that it is OK to take risks where you don’t know for sure if something is going to work out. I will not discuss the unique operating decisions or industry dynamics because they are not important to embracing the spirit of our experience so that you may be encouraged to go boldly build your vision.
You will learn that there is no clear path to $4 MM in Annual Recovering Revenue (ARR), but that it is possible in a short period of time, with some luck, mixed with good execution and risk-taking. I will dispel the fairy tale narrative that abounds where starting and growing a company looks so glamorous. I will also once again show that debt is not always a bad thing.
As I described in detail here, our company Nice Healthcare reached $1 M in ARR in the 15 months leading up to January 2019 and we had only raised $350,000 from Indie.vc in May 2018. Our next goal was to get to $4 M in ARR as soon as possible. The strategic reasons for getting to this milestone were manyfold. Here were the top 3 reasons:
· Pay for planned investments into the company for technology and product enhancement
· Hire more people to take tasks away from the founders which would result in better customer experience and employee experience
· Paying the founders a good salary and giving other team members raises
I will now go through these 3 points one by one and describe the why, the what and the how.
First a Little Context
These details will help keep things in perspective without me sounding like I am trying to sell you on my company. Nice Healthcare is a tech enabled service in the health care industry. Highly scalable, but unlike pure tech, margins are in the 40% — 60% range vs the 70% + range. Our revenue is recurring on annual contracts that are paid quarterly. Our typical client is an employer with 500 or fewer employees.
Most of our staff are clinicians (not contractors), so the salaries are very high, and they do not work in the “back office”, they are strictly patient facing. By back office I mean sales, operations, customer support, finance, HR, etc. Also, we wanted to do all of this while remaining cashflow break-even because we had no plans to raise additional capital ever again.
This was an ideological stance — not a data driven or strategic stance — we had taken due to the negative experience we had with VCs in my previous company; I detail that here. I cannot emphasize enough how much we wanted to avoid raising additional capital.
Taking a Risk and Investing in the Company Before We Had the Money
Sometimes one must step out in faith to achieve their goals. My cofounders and I did this with the tech component of our business. From launch in October 2017 to January 2019 we had relied on third party applications combined with scripts I had written in Google Sheets and Zapier to run our tech enabled service startup. We always knew we would need to build our own technology to fully realize the value of what we were building.
The problem was we did not have money to hire developers, we did not have money to hire anyone for that matter except for clinicians. Still yet, with what was left of our $350,000 investment from Indie.vc we hired a local firm called Cloudburst to start building our technology platform in November 2018. If you are tracking the way too many dates I am throwing around, you may have noticed this is actually before we hit our first goal of $1 M in ARR!
We had to take the risk because we knew we could not continue running the business on our homegrown tech system. Cloudburst was very flexible in working within our budget and also hitting our go live date of January 21, 2019 for the base version of our platform. We believed strategically we needed to do this to ensure future growth for 2020 which was over a year away, but we could see the trajectory we were on and needed to plan ahead. But the pain was real, and we had to do some risky stuff to make it work. Every day looking at our checking account was like staring down the barrel of a loaded gun.
Cash was incredibly tight; the founders were still not making good salaries and we had not given any staff a raise in over a year. I had to check the bank account multiple times each day. To top it off, the founders were still working crazy hours because we had to do everything without a full team to work the “back office”.
The initial budget for the first few months of development with Cloudburst was $78,000 (this was a huge amount to us), money that we had to scrape to get. Genevieve, one of my cofounders, took out a personal loan in the amount of $35,000. I also got our Blue Vine line of credit increased from $20,000 to $75,000. That Blue Vine money is very expensive and very risky. We had not used it but once before, but now we needed it and used it regularly. I would sweat bullets each time I drew on it and would have to fight and be very creative to pay it back since the payments were weekly.
One really big and unplanned boost is that we signed our largest client to date in November 2018 and they paid the whole year in advance in exchange for a small discount, this provided $100,000 overnight! It did not stop there, at the last minute in December 2019 we were able to convince our distributor to pay us $200,000 up front for exclusive rights to distribute our service in our home state of Minnesota. We were so happy!
But it was tempered by the fact that we were quickly reaching the point where we absolutely needed to hire more back office team members. All this up-front cash was barely putting us at cash flow break-even and we would burn through it well before the end of 2019. But before 2019 ended we needed to invest at least $200,000 more in technology in addition to another $100,000 in service enhancements.
Taking a Risk and Hiring Before We Had the Money
My cofounders and I would have meetings every other month or so where we would go through the strategy and projections in detail, each session was 3–4 hours. (We are a fully remote company and the three founders live in three different cities hours apart) These sessions were painful. We shared everything with each other to make sure no one was about to go A-Wall due to the stress and pressure. While launching the base of our technology in January 2019 it was becoming obvious that we could not get much further without hiring about 5 key back office team members.
The bi-weekly cash flow model was and is to this day the law of the land in our business. The model was projecting that if we were lucky, we could make only one of the 5 needed hires. One was better than none, so we did it and hired our first non-clinical team member in May 2019.
Strategically, we had to do it to maintain a high level of service to our end users and our employees. Not being able to hire the remaining 4 that we knew we needed was a difficult pill to swallow while the three of us co-founders were not making good salaries and working insane hours, we knew our current path was not sustainable. It caused us at each meeting we had to talk about whether raising more money may be good for us despite our reservations.
These were delicate conversations but raising kept on coming up and we started seeing how it could really help the company maintain its growth rate. Still yet, we never really openly agreed that we should.
Thompson Aderinkomi’s story continues here (originally published on Medium)…
Nice Healthcare is an official Agility Innovation Parter.
That’s me pulling my workout partner. That’s what cash constraints felt like as the company grew, I thought it would get easier but instead it felt like someone strapped a harness around me and was holding me back.
Why am I holding that gigantic phone you ask? I was totally playing Eye of the Tiger.