This article is the fourteenth chapter of The Entrepreneur's Journey, a collection of stories about startup companies and the entrepreneurs who built them. To continue reading about key startup themes and lessons learned, check out the entire series here in The Seraf Compass, or purchase the book on Amazon in paperback or Kindle format.
When most people think of bad timing in business, they imagine a company that scrambled to jump on an opportunity but showed up with too little, too late. It happens all too often. People can be slow to act on a dawning opportunity and others will beat them to the punch.
A far more heartbreaking example of bad timing occurs when a company shows up way too early for an opportunity and dies waiting for the market to come together. Confer Software was an especially painful example of this dynamic. Their product was built to streamline the delivery of healthcare and was superior to competitors in so many ways. Their vision of how the healthcare market should work was prescient. But they badly misread the state of the market. Customers were just not ready to embrace Confer’s solution. The result was a spectacular failure of timing. How could this happen to very smart and talented business people? With the benefit of hindsight, it is not hard to understand the trap they fell into.
Consider the state of the healthcare market in the late 1990s, and, still today in many parts of the system. One day you visit your primary care physician. During the visit, she prescribes certain lab tests, an x-ray, a visit to a specialist, and a follow-up visit with her. This involves four or more paper orders handed to you by the receptionist in order to initiate follow up, make the calls, wait for insurer authorizations, and then schedule the visits.
Wouldn’t you prefer if all of these orders could be facilitated automatically by the time you were ready to leave the physician’s office? You would walk away from the visit with a care plan, including insurance approvals and all needed appointments made electronically. And, when you showed up for those appointments, you would not need to fill out the same information form each and every time you visit. You know that form... the one asking you to provide your name, address, phone number, insurance, medications, and history of allergies even though you have been working with the same care providers for years and none of your data has changed. Even today, it is hard to believe we still have to fill out these paper forms repeatedly.
In the US, we spend over a trillion dollars per year on healthcare. That enormous sum of money accounts for 17% of our annual GDP. With such a huge percentage of our spending focused on one industry, one would hope we’d operate it as efficiently as possible. Healthcare is still one of our least efficient industries. Our healthcare system wastes many billions of dollars on unnecessary care, redundant tests, excess administrative effort, and medical errors. This is a problem that’s been around for a long time. And it turns out to be fiendishly difficult to solve.
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Enter Confer Software. Confer’s mission was to clean up the healthcare record keeping mess and completely revolutionize the patient experience into a patient-centric, smooth-flowing, continuous care chain. The vision was bold. Without question, Confer had the potential to make a significant impact on a hospital’s ability to deliver cost-effective, high quality care. And it was not just theoretical. Confer’s hypothesis was successfully demonstrated by its early customers. Despite all of its enormous potential, the broader healthcare market was not ready for what Confer had to offer.
In November 1994, two very smart entrepreneurs, Ken Macrae and Ann Ting, founded Confer Software. Initial financing for the company came from Mayfield Fund, an established and respected Silicon Valley venture capital firm with deep roots in the healthcare industry. The company spent its early days at Mayfield’s Sand Hill Road offices, where two of its partners, Bill Unger and Russell Hirsch, were founding members of Confer’s board. When asked why Mayfield chose to back Confer, Bill Unger said, “There were many reasons. For one, the Confer software platform automated the delivery of care, no small thing. It facilitated the electronic delivery of orders across the hospital, saving providers and patients lots of time and money. It was the first software platform designed to accelerate the move to more patient-centric healthcare, while sharing important data for analysis and decision making throughout the hospital. All of this resulted in improved quality of care.”
At the time of Confer’s initial financing, there was significant change afoot in the healthcare market. As is typically the case in healthcare, change was coming slowly but steadily. During the late 1990s and into the early 2000s, healthcare focused on the transition from paper records to the electronic medical record (EMR). The need was obvious. Storing and maintaining patients' paper medical records required a massive amount of costly office space. Besides being an eyesore, it made for inefficient and expensive patient and practice management.
Transitioning to an EMR made sense. It was the common repository and source of patient information. But the transition was a challenge for clinicians and administrators on many levels. Most in the industry thought of the EMR as being just what the world needed. However, it was but one piece of a complex puzzle. For all intents and purposes, the EMR is a digital warehouse for data. Instead of paper, patient information is entered and stored in this digital warehouse. And, the EMR shares data between healthcare professionals throughout the hospital. It sounds fairly straightforward, but its challenges were many.
Installing an EMR in a hospital requires a massive investment of both time and money. Furthermore, it requires years to implement and install, redesigning institutional workflow, followed by a significant investment in training the doctors and nurses who use the system on a daily basis. Because the potential number of variables involved in a typical patient’s care are almost limitless, the software must be extremely flexible and feature laden if it is to be relied on to cover every possible scenario. That means it is almost predestined to be very complex for the user. And the facts bear that out. Once it’s up and running, there is typically a high level of user dissatisfaction, sometimes up to 40% of users.
Even though the transition to an EMR is a painful, time consuming, and costly process, there is a compelling need for these systems. That need was subsequently reinforced some years later by the US government when system adoption was mandated to the greater market. In order to accelerate the transition, the US government even provided financial incentives to drive adoption.
It was easy for entrepreneurs to view such a market situation as a big potential opportunity. What wasn’t easy was for these entrepreneurs to deliver the right product at the right time. Confer launched its initial product during this period of accelerating growth for EMR systems.
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When they founded Confer, Ken Macrae and Ann Ting created a compelling vision for the future of the healthcare ecosystem. The “care chain” is the name for this ecosystem. The care chain links all of the components of a healthcare transaction including provider organizations, patients, individual physicians, payors, etc. in a coordinated web of care delivery. Ken wanted to build a product to address all of the components in the care chain. The Confer platform allowed users to take data stored in an EMR, and with this data, they would automate the steps required to deliver a smooth healthcare experience for the patient. That big vision was something which an EMR could not do.
The Confer platform was designed for where the market would someday need to go. Mei Yan Leung, a highly experienced healthcare executive, was Confer’s first marketing leader. She said, “The company developed a totally new category of product for healthcare. The product was very disruptive. Confer was trying to help hospitals change the care chain. Our product opened a path to the future.”
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So, what was the market’s reaction to the Confer platform when it was released to the greater market? Philip Bradley joined Confer as Vice President of Sales in 1998. He had a ringside seat to the challenges faced by the company as they introduced a new approach to running the hospital care chain. Phil said, “I came to Confer with my eyes open. Joining the company was an easy decision. The product was a game changer. It could improve the archaic way things are done in the care setting.” Ever the optimist, Phil knew Confer’s market wasn’t ready. And, while time consuming and costly, Confer had to educate the market all by itself on the benefits of its platform. Phil said, “If I believe in the product, and I did, I will stick with it and figure a way to get the job done.”
In the early days, Confer’s sales team introduced the product to a limited set of target prospects. When reaching out to them, Phil said, “Not one prospect thought the product concept was crazy. While not a ringing endorsement, I viewed their feedback as being a positive indicator. However, there were other more measured comments such as, ‘it is so futuristic.’ And others looked at the Confer platform as ‘competing for dollars against other priorities.’”
Having already spent tens if not hundreds of millions of dollars on licensing, implementing and training for an EMR, hospitals were reluctant to spend money on an additional enterprise system. The biggest, earliest and most established EMR companies used their market dominance to make it very difficult for disruptive new technologies like Confer’s to gain market traction. And, it was all the more challenging because Confer’s sales reps didn’t sell their platform as a traditional EMR. Where the basic EMR category was a need-to-have product, hospitals viewed Confer’s more sophisticated platform as a nice-to-have product. They couldn’t justify the added cost or required changes to the internal processes used to manage their care chain.
Even with all of those headwinds, the Confer sales team had some success building a paying customer base, which included notable institutions such as UCSF Stanford Health Care, Caremark, and Blue Cross Blue Shield of New Hampshire, among others. That small customer base, however, wasn’t adequate to sustain the business and allow for extensive market education.
For the Confer board and management team, limited success selling their product contributed to a period of self assessment. As we know, entrepreneurs love their inventions. They look upon them almost as a child and won’t tolerate those around them calling their child ugly. Such was the case at Confer. The product specification came from co-founder, Ken Macrae. Ken’s objective was to design a system that would redefine the market and put the competition to shame. But after tremendous effort trying to sell this vision, one conclusion became too obvious to ignore. The Confer platform was a generation or two removed from the state-of-the-market at the time.
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There are times when you have to make a major leap forward to be successful. True product visionaries are willing to risk it all to create new, valuable products and services. Steve Jobs did it with the personal computer and again with the smartphone. Jeff Bezos did it with Amazon’s comprehensive vision of the potential of eCommerce.
But, sometimes, customers aren’t ready to leap too far into the future. They might be afraid of major change to the way they do their job. Or, perhaps they worry the new product won’t deliver on its futuristic claims. Or, they don’t share the same priorities around what needs to change and when. Whatever the reason, many visionary companies fail because their products are outside their target customer’s comfort zone.
While Ken may have achieved his objective of creating a new platform for the healthcare industry, the market had the final say. It was very clear, hospitals were looking for a more basic tool. In Mei Yan Leung’s words, “Category creating products, by definition, take a lot more time to gain traction. You need significant funding and patience to educate the market in order to build a community of evangelists, early adopters and eventually a receptive market.”
Ann Ting, Confer’s co-founder and Chief Technology Officer said, “In retrospect, the Confer product was a superb technology. Confer participated in a competitive sale to the Palo Alto Medical Foundation, a large integrated delivery system in California. They were in the market for a patient medical records system. At the end of the evaluation, it came down to two vendors, Confer and Epic Systems. At that time, Epic was the EMR market leader and a firm who had been around for many years. Confer had only been around for two years. At the end of the process, the Foundation said Confer was functionally head and shoulders above Epic. However, the conservative hospital IT administrators did not dare take such a big risk on a young company and instead chose Epic.”
At the end of the day, Mayfield Fund, a staunch supporter of Confer, believed it would need to raise significant new capital to buy the time required to succeed. Bill Unger said, “We needed to find hospital administrators that wanted to be better at delivering care. All our due diligence indicated the practitioners wanted this. Our failure was understanding the economics of the healthcare IT marketplace.” Confer misread the institutional power structure at hospitals. The power base did not reside in the hands of the doctors and nurses Confer focused on. Instead, it resided with IT and administration. In the end, the decision on what software platform to purchase was made by the hospital’s administrators. To Confer’s great disappointment, these administrators were not ready to move the state-of-the-art forward.
While seeing the promise of the Confer technology, the broader venture community read the same tea leaves. Despite outreach from Mayfield, no one would step up with adequate new capital to help keep the company afloat. Out of necessity, the Board chose to sell the business to another software company in June 2001 at a price well below what they hoped for.
Had Confer been able to survive long enough, it’s possible the market could have caught up with the company’s vision. Today we see some small signs of this kind of continuous care chain management starting to emerge in some larger, more sophisticated practices around the country. Dr. Ting continues to receive further affirmation of Confer’s ultimate importance and value. When recently doing a patent search, she came across multiple filings citing Confer’s intellectual property portfolio as prior art from organizations looking to build process and resource management applications to meet the evolving needs of payers and providers.
For Confer as an ongoing entity, it was not to be. Confer had an accurate vision of where the market needed to go, and it had the right product to get it there. But the company was ahead of its time. Confer was a textbook case of bad market timing on the early side. The product they brought to market was superior to the competition in virtually every way. However, the elements of the opportunity, particularly a more practitioner- and patient-focused view of care delivery, simply were not in place. Confer may have been in the right place, but they were there at the wrong time.
Interested in reading more stories about key startup themes and lessons learned? View the entire collection here in The Seraf Compass or purchase the book on Amazon in paperback or Kindle format.
