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Hey, it's Guy Raz here. You know, one of the hallmarks of economic crises like this one is that people actually start businesses slack betterment, even Airbnb. All companies we featured on this show were all founded during the last economic crisis.
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Cyrus ended up going door to door for doctors offices, actually showing them a PowerPoint page, and this is really a testament to Cyrus's sheer will and determination. He just went to random doctor's offices. Yes, is selling to doctors is one of the hardest things to do. Why? Well, first of all, the office managers are trained to protect the doctor from people walking and selling them stuff. So he got a lot of notice. He got a lot of no's.
And, you know, a few times it was even as crowded out by security. I really think one in a million could have pulled this off.
From NPR, it's how I built this show about innovators, entrepreneurs, idealists and stories behind the movements they built. I'm Guy Raz, and on today's show, how two friends pounded the pavement in New York City to convince doctors to sign on to their new booking service, ZocDoc, and how they grew that idea into a business valued at nearly two billion dollars. One of the most challenging problems for startups that offer to connect customers with service providers is what's known as the chicken and egg problem.
This is the problem companies like Airbnb and Lyft had to solve without home listings. In the case of Airbnb or drivers in the case of Lyft, you'd have no customers. But at the beginning, neither of these companies had any customers. So convincing people to list their homes or drivers to offer rides to strangers was not an easy thing to overcome. And Tony Shiu, the co-founder of Dawid Ash, who was on the show back in 2013, had the same problem when he started out.
He needed customers who wanted food delivered to their homes, and he needed lots of restaurants to participate. But you can't get restaurants without the customer demand and you can't get those customers without lots of restaurants. Same thing with Class Pass and Birchbox. You need both sides of the market to buy in. And back in 2007 in New York City, all of our cars had the quintessential chicken and egg problem. He and his co-founder, Cyrus Moushumi, were trying to launch ZocDoc.
It's an online service that takes a lot of the pain and frustration out of booking a doctor's appointment. You can go online, find the type of doctor you need, plug in your insurance, and then book an appointment through a system that's directly linked to that doctor's calendar. A super simple and smart idea, right? But back in 2007, Oliver and Cyrus had to convince doctors that this was a service worth paying for. But then why should they pay for it if there were no potential patients?
And meanwhile, Oliver and Cyrus had to show potential patients that this was a service with lots of great doctors to choose from. And all those chickens and all those eggs took a long time to bring together. And then after growing slowly and then quickly, Oliver faced his biggest growing pain. Of all the realization that he had to completely revamp the business model of ZocDoc if it was going to survive a decision that was so painful, it actually led to the breakup of his nearly 10 year partnership with Cyrus.
But let's start at the beginning. Oliver Karras was born and raised in Germany, mostly in rural parts of the country. His mother was German and his father was from Iran and came from a long line of doctors.
For me, it really starts in some ways with my dad and the time he grew up with, he had every reason to become a social activist. And and so he came to Germany from the Middle East when he was very young, around 20 and with no money in his pocket, no language skills. And, you know, he personally then worked a lot of odd jobs, but he eventually became a psychiatrist.
But what has really shaped me much more than being born in Berlin is, is this social activism that I that I saw him live in, that he really made our family mantra.
Like we we always talked about talent brings responsibility and sort of the need to use whatever talent we had to help those around us that we can and make a difference.
Hmm. Given that your father was Iranian and your mother was was sort of German and you even though you were born in Germany, did you feel did you feel as German as everybody else?
So, yeah, I I didn't have a second identity, we only spoke German at home, and yet, as you say, I was also not always fully accepted. So if I give you an example of my school, there were 12 foreign students and you could pick out two that didn't look like everyone else. And I was one of them. Right.
And even an enlightened country like Germany, that is noticeable. So I had what I call a visual accent where people would see me on the street and they would ask me how I learned to speak German so well. And, you know, but they also at school kept my name when reading outscores because they weren't sure how to pronounce my last name and I opportunities taken away and even that was physically threatened. So I think that really shaped me in many ways because I realized very early that in order to be as successful as everyone around me, I would have to be dramatically better and really work much, much harder than anyone else.
And so that really induced a very strong work ethic in me.
For the record, Oliver is somewhat downplaying his work ethic because just out of high school, he actually started his first successful company. It was the early clunky days of the Internet, and he designed a way to help people send emails more easily. And he wound up selling that business not for a ton of money, but enough to get him through medical school. But after practicing medicine for a couple of years, Oliver realized he couldn't stop thinking about that first business he'd started and how he wanted to start another.
So he quit his job in medicine and took a consulting job with McKinsey and eventually moved to New York. That was my my goal was actually to start another company that that's why I left health care. But I also realized at the time that I sold my first company far too cheaply and that I should learn more about business first. And at McKinsey, I got exposure to balance sheets and panels and and had a lot of very practical experience and what it means to manage a business.
And I think very fondly of my husband, McKinsey was one of my better decisions.
McKinsey going to McKinsey is a little bit like going to business school, has a lot of people at McKinsey have come from business schools in that, you know, many people go to business school thinking they will find a co-founder. Mm hmm. Did you were you actively looking around at your colleagues to think maybe I can do something with him or her?
You know, maybe that person?
Yeah, absolutely. And were you or are you just thinking about different business ideas all the time?
Well, it is actually very hard to find good ideas. And my definition of a good idea was that it needed to have a great mission. I wanted to make sure that we actually do something good and that we stay true to sort of talent brings responsibility. But I also wanted it to be a large market and to have a great moat around it. And also I wanted it to be based on a contrarian insight because I thought that all of the best companies have that at its core.
Wow. She wanted mission. You wanted a company that could kind of dominate its field by building a moat around it, but was also contrarian.
That's that's that's those are some interesting criteria.
And that's why I screamed for several years and rejected pretty much every idea that that I came across.
Huh. And meanwhile, while you're going through all that, I guess you meet this guy, Cyrus Moushumi, who's another McKinsey consultant, and just you just become friends, like he's just like somebody like and you guys start hanging out while we got put on a study together that required us to travel globally. And if you've ever done that, it meant for us. We were 16, 18 hour days together for three, four, five months on end.
And we really got to become great partners in that. And what we realized is that we had some very complementary skills. You know, Cyrus is one of the most charismatic and gregarious individuals you'd ever meet. He's very passionate. He could be more forceful, which sometimes was needed to be effective with clients. Yeah. And yeah, you've talked to me now for a little bit. As you can probably tell, I'm a more dispassionate and logical and more measured and more German.
More German in many ways. I also thought this was effective with clients. But and Cyrus is American, right? He's American. Yes. But that that closeness and how we work together, that really started a friendship. And we stayed close after the study. We caught up over lunch pretty regularly by. Different business ideas of one another and, you know, I think we connected because we had similar interests. Because, you know, on some levels we were equally passionate about what we were doing.
It was Iris's passion was more visible to others than mine.
But we had worked close enough together that we both accepted the others as an individual that we could learn a lot from was it was a clear pretty soon after you started hanging out Sirus that this was the guy because you were you were on the lookout for a partner.
Yeah, I think I think it was was absolutely an option. I know the reality is that we had both founded companies before McKinsey and we both knew that we wanted to do it again. And as I was, what was great about being very honest rather than just nice and and I value that a lot.
Yeah. All right. So so this guy Cyrus suprachiasmatic really smart. Clearly, the two of you started to work together. And what kind of business ideas are you coming up with?
Well, we kind of fell in love with the new idea that came about at one of these lunches where Cyrus told me about how he had recently ruptured his eardrum by flying with a cold. And then he found it very difficult to actually find a doctor. And he had asked people for recommendations and he had called down his insurance directory listing, starting with the A's. And some of these doctors weren't accepting new patients. So I'm no longer accepted his insurance.
One provider actually had passed away. And so he said, well, why does it take me four days to see a doctor when I'm in pain? Right. And why can't this be much easier? Yeah, and we both very quickly realized the potential of this idea from working at Project McKinsey. We knew that health systems were actually spending millions of dollars for marketing to grow their patient base because they had wasted inventory.
Right. They had something that I like to call hidden supply, which is these last minute cancellations known as reschedules that that go to waste. And then on the other hand, there were the patients who had a hard time accessing this.
You thought immediately clicked with these. My God, yes. Doctors appointments connect patients to doctors. Yeah.
Look, if you go through the four criteria that I had read, it's a great mission, right? We're making one of the most personal needs more accessible for four patients. We can help the patients to get in faster. We can help the doctors become more efficient. We can make the entire healthcare system more cost effective, keep people out of the emergency room, things like that. And it's a marketplace. So there is a there's a strong moat.
And clearly anything in health care is a large market. And I think the contrarian insight that we had was the fact that, you know, like most people thought, it's normal that people have to wait 24 days to see a doctor because there's a doctor shortage. And our insight was really that no doctors have last minute availability because of these last minute cancellations, no shows reschedules. And so I feel very good about this idea.
So so do you remember, like, how long between the time that you had that first conversation to the time where both of you said, let's start this business? Was it like months or weeks or days?
It was was was weeks. You know, we what we what we started doing is actually mucking up the site and how we imagined it back then in PowerPoint and just the the wire footage of our website wireframe. Exactly. We would when we'd go to Starbucks and we'll chat up strangers and say, hey, here's a five dollar gift card, give me your thoughts.
I'm sorry, I get to go back. You just go up to people and Starbucks and give them a gift card and say, can you give me your thoughts as a random person?
Yeah, absolutely. That that was sort of our market testing. They wouldn't they would be like, excuse me, this is a little weird in my space.
Oh, that that might also happen from time to time. But, you know, there's lots of people in Starbucks. This is a very I'm German of you. That's right. Because usually you would be sort of more tentative about doing that.
Well, you know, I think there was a lot less rejection of this than I think people are actually quite open. I sort of suggest you try this out. But The View, if you're unthreatening and look harmless, as we probably did, and then they'll be pretty open.
So you went up to Google and Starbucks and you'd say, hey, we're thinking about a company here. Can you just look at this PowerPoint? We'll give you a five dollar gift card. And what was in the PowerPoint? The. It was just what we thought this website would look like and we would ask them, is this a service that resonates with you? You know, would you use it? And and we got incredibly valuable feedback here and really set us in many ways on the right track.
So at what point did the two of you decide, let's quit McKinsey?
Let's let's pursue this probably a month or two after we initially discussed the idea. Did anybody say you were crazy for quitting? Oh, everyone everyone told us they were crazy.
And we got a lot of negative feedback on the idea, too. Right. People would say this is just won't work. You know, I would never pick my doctor on the Internet or I already have a doctor or, you know, doctors wouldn't accept patients that that are looking on the Internet.
There were all kinds of projections that people had when they were thinking about their own situation. But, you know, when when you talk to people in Starbucks, they actually thought about it much more positively. So we were encouraged enough to say, well, this is this is going to work as long as we get out of our circle. And if you don't ask McKinsey consultants and doctors, the response will be better.
All right. So you are in your 30s at this point, and presumably you were making pretty good cash at McKinsey because you were probably had no expenses. You were on the road all the time.
So, you know, when you quit, I'm assuming you had some money to launch the business and probably live off for a while.
Yeah. So I, I very deliberately had never raised my living standard to the money that they were paying me at McKinsey. And I had saved every dime so that I could, you know, be in a position where I can fund this and where I can afford not to take a salary for a couple of years.
Wow. So so like a couple hundred thousand you saved.
You know, maybe I'm too German to discuss personal finances, but I guess this is how I built this radio. You can tell everybody is know story. Yeah.
I had I had enough money to live off for for several years, but I also Siris and I both financed the company early on out of our own savings. So that clearly diminished, you know, how much money we had left over after that.
So now you both decide to quit and you have some technical expertise because you had done some coding. But this is next level stuff. Were you able to be the technology founder and Siris was going to be the facade of the business founder? Absolutely not.
As a whole I had coated, but at that point I had really not touched a computer for a long time. We knew we need to have a technical co-founder. And so Syrus knew a guy named Nick Gandu from the Time Together trilogy software. And this is another company that they were both worked at together.
There's a company that they both previously worked together, and Nick just brought a totally different perspective and really educated satyrs with me on a lot of things. And and he was really the one who understood that building a seamless experience for the consumer. And in many ways, Nick was sort of ZocDoc early genius.
Did you did you have the name ZocDoc from the beginning? Not not initially. We we went through several phases on what the right name could be for for a while we wanted to have a descriptive name. So we looked at physicians, dot com and doctors, dot com, and we actually tracked down the owners of one of these domains and they wanted several million dollars for the domain name and and we were funding the company ourselves. So there was a completely out of the question.
So then we just sat in a room and we brainstormed a list of 50 or 100 names and then started eliminating names until we arrived at ZocDoc. What does it mean? Well, it doesn't mean anything, which was the reality of it. We could there were zero search results, OK, there's no meaning behind OK, there's no meaning behind it.
And and, you know, in hindsight, that was precisely the right thing to do because it really was a blank slate for us to fill with with meaning and really build a brand around that were exactly zero search results for ZocDoc where we started it.
And it resonated. Right. Like once, you know that it takes more than three weeks from picking up the phone and dialing for doctors until you actually see someone you realize, oh, there's really not much else that we have to wait so long for to get. And this is more important than most of these other things where you already have fantastic access. Mosaad, if you imagine if air travel worked the way that health care works, there wouldn't be an Expedia, there wouldn't even be a Delta dot com.
There would be individual phone numbers for every plane. Imagine if that happened. You know, half the planes would. It would be a massive pain, and that was actually the state of health care before ZocDoc is amazing that that that nothing like this was out there in 2007.
Yeah, look, I think in many ways you couldn't have billed it much earlier. You know, in the early days when we went out there, we were the ones installing Internet and the doctors offices.
And we they they were many times just migrating from paper books to scheduling systems. We were sort of at the cusp of digitization for health care. We were just lucky in our timing to get this right and start offering the service when that also happened.
All right. So you decided to pursue ZocDoc, and it's the three of you, I'm assuming, really just at the beginning. And were you working out of of one of your apartments or did you guys rent space?
No, we worked out of our respective apartments many times. We came to market the nicest apartment, and we could bring a breakfast burrito and wake him up. And and, you know, the reality is that we originally had a pretty ambitious launch plan. Right. So we got together around July. We wanted to launch by December of 2007. But then something interesting happened where Nick sent an email suggesting to look at what was then called TechCrunch 40.
And, you know, TechCrunch is one of these is now a household name. But the draw for us back then was there was a fifty thousand dollar prize.
Now it's called TechCrunch Disrupt.
I think now it's called the TechCrunch Disrupt. And it's a it's a major it's like a startup competition. It's a startup competition.
And we were the first class of this year was much less known. We budgeted two hours to fill in the application and really we just it off. We didn't think about it anymore that there was in early July and early August, we heard that we had been accepted, but there was a complication. We'd have to be ready by September 18th or that was three months sooner than we had originally planned to launch. So you had to have a live website by September?
That is right. That is right. With doctors. With doctors. Right. So we actually debated for a few hours whether we should even try to go for that. But we ultimately said, yes, we can get the website working and we wanted to have enough doctors just to have a scroll bar. So it would look pathetic. Right. And so Nick and I called it night and day. And, you know, Nick really busted us, but he did the patient facing side of the website.
And and, you know, that was the the programming side. What was potentially even harder because we were trying to launch a marketplace was to actually get the initial supply on there. And remember, the website wasn't there yet. So Tirhas ended up going door to door for doctors offices, actually showing them a PowerPoint page. And this is really a testament to Sirius's sheer will and determination. If you think about what it means to really start a company early on, there's nothing to show, right?
You maybe have a PowerPoint, but there's no website, there's no patients, there's no other doctors, no social proof. Yeah. And it has to run on passion. And it was very clear that that is Cyrus's superpower.
He just went to random doctor's offices or he had like a list of doctors offices and he started kind of walking block by block.
While there was a lot of walking involved, we launched in Manhattan. So you can literally go down the street and you see the signs and you walk in.
And he was basically saying, look, it's a way to connect you to patients. How was how many, by the way? What was your objective? How many doctors did you need to sign up to have this website look?
OK, by September, somewhere between six and ten was our goal. OK, so just doable. It is.
It was extremely hard, really is selling to doctors is one of the hardest things to do.
Why? What were they saying?
Well, first of all, it is very, very hard to even speak to a doctor, right? They they are being shielded. Their time is very valuable. Their office managers are trained not to let anyone talk to them to protect the doctor from people walking and selling them stuff. Sure. Then secondly, they didn't want to give up control over their calendar, which we asked them to do. Right. We ask them to post times that a patient could look into it.
And it was just a far fetched idea for many of them. The patients would actually do this.
So he got a lot of notice. He got a lot of no's, but he'd go there and he just simply not leave until he got a chance to speak to the doctor. And, you know, a few times he was even escorted out by security. I really think one in a million could have pulled this off. I mean, was he going to particular kinds of doctors or was he generally focused on internists, general practitioners?
Oh, so we began with dentists because our thinking was that people go to dentist most often. And we wanted to make sure that we have an offering that is relevant for patients as often in their lives as possible.
I gotcha. So so eventually I'm assuming you do get, what, six to 10 or how many did you get by September of 2007? I think we launched with eight eight 08. In the meantime, you and Nick were doing the back end stuff, right? You were doing the coding and building a website. That's right. And as you were building it, how did it look? So the bits that Nick built looked awesome for the time, I think.
And it was quite impressive. We were very satisfied that we had a scroll bar, that we had a map that we had back then already, the insurance selector and a lot of features that just weren't to be found really anywhere else.
All right. So September 2007, you are ready to reveal this service at TechCrunch and all three of you present or did did Syrus kind of you see the spokesperson? So Cyrus and I presented Nick stayed behind in New York to make sure that the less the website was actually up and running. Well, this was in San Francisco that you went to. Yeah, we flew out to San Francisco. And so we will also talk in front of a nine hundred people.
A lot of them were journalists when the judges opened up with feedback, gay couples who we knew and and valued as an evangelist for for Apple. He came out of this that he didn't get it. He would never use this in front of everyone. Right. And his direct quote was something like, honestly, I would just never occurred to me to go to any time to pick a doctor that's really burned in my brain. And what was worse is that he seemed to be right.
You know, we didn't get a single booking that day. We were hoping that this PR would get us sort of our initial batch of users. Right.
Because there were other so many tech journalists there. So you you know, the publicity maybe would would would lead to bookings. And that was the hope. But it actually took three days before we got our first legitimate patient and and then the entire first month, we only got five bookings.
All right. So you come back from San Francisco and, you know, you had Guy Kawasaki say, I don't I would never use this service.
I'm sure he feels differently today. But maybe then he said that. But did so did you come back feeling like like dejected, like losers, or were you excited? Like, how did you feel coming back? Well, you know, I think we were obviously hoping that we would eventually get more bookings and, you know, in the beginning we probably refreshed the bookings report 100 times a day. But as we were thinking through this, we realized it was really a typical two sided marketplace challenge.
It's just a classic chicken and egg problem. You need the supply to get the demand and you need the demand to entice the supply. And for ZocDoc, it was even trickier. When you think about it, health care is hyper local and very complicated. So you have to match supply and demand on a zip code specialty level. And then we have thousands of insurances to take into account until we realized that our odds of actually finding a patient that wanted what we had on offer there, you know, quite low.
And so the best path forward was to methodically build up supply. So we just we just kept going. We put up a huge map of Manhattan on the wall and then actually put little flags on it of where the doctors were that we had on the website in which insurances they accepted. And we we we just we knew that perseverance is the name of the game. When we come back in just a moment, how Oliver and Cyrus begin to drum up interest in ZocDoc and how they even started raising money after they figure out how to dress differently.
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Hey, welcome back to how I built this from NPR. I'm Guy Raz. So it's 2007 and Oliver Syrus and Nick are basically powering through with ZocDoc going door to door, trying to convince doctors it's a valuable service. And the thing about doctors is, even though they're really smart and capable and we depend on them a lot of their offices, especially back in 2007, we're sort of technologically in the Stone Age. It was incredibly complicated to think the doctors calendars with ours because none of the software was actually made to think we're even in the places where we had things up and running.
We would frequently get feedback that, well, the appointment didn't happen because the doctor wasn't available. And we really couldn't figure out why this was the case, because when we did screen chairs with the office and we looked at their calendar and and our calendar, it was identical. Right. And we couldn't figure out why that's happening. So I ultimately decided to sit next to the office manager. I went there and got to know him and his family photos of his dog.
I fixed the printer. I thought him better strategies to play Minesweeper. I still couldn't figure it out until one day the doctor would come out and she'd say, Hey, David, I'm out next Friday.
And then what does David do? Does he go to the counter and block out next Friday, or does he take a Post-it note, write on a doctor out next Friday and sticks this to his monitor? Right in the real world, this post-it note, of course, happen. And but once you know that math is your friend and you can start figuring this out, and that's one example, there were literally a thousand point one percent solutions that we had to figure out to make this work.
Wow. That just sounds I'm getting exhausted just hearing about that, because this is like even just like pre Google calendars, right? Yeah. Yeah.
That was those early days. And what we were extremely focused were around, were making sure the experience was fantastic. And if something went wrong, we would fix it. Right. So I was our customer service. I personally would call the doctor in and confirm the appointment was all set. And if it wasn't, I personally contact the patient to let them know and then I would offer them an Amazon gift card alongside with an apology. There was actually one case where I didn't catch a patient on time and and they were already in the subway to the doctor.
And so I raised them to the doctor's office and picked up a bouquet of flowers on the way there and met them in person to apologize. And that was really a turning point where I said, well, the service has to work and we need to be have this patient's first attitude in terms of how it works, completely engrained in the company.
All right. So you clearly need to kind of grow this. Were you offering this service to doctors for free at the time?
Initially, we offered it for free, but we eventually started charging fifty dollars per month.
But say I'm a doctor. You come into my office and you say, hey, if you pay me, I can bring you more customers. I would be skeptical.
I would have said to you, who's I mean, who even knows about you? You're going to you're asking me to pay you money for Phantom, you know, bookings for maybe no customers. I mean, did some of the doctors say that to you?
Many. This is you summarize our sales challenge, right? It was very hard because even if you wanted to, we couldn't easily share how many patients their competitor down the road got. Like that was something that was confidential.
Yeah. All right. So you are you got this chicken and egg problem. You got enough enough people signing up and you get skeptical doctors. But you know that this service could really benefit the doctors, but you also need them to pay for it because otherwise you have a business. Meantime, at a certain point, I'm assuming you guys start to think we better go out and look for money if we're going to really make this. Work, yeah, yeah, that that happens in the spring of 2008, we decided we should raise Ceruzzi and we we make the rounds, we get in front of a number of the big name.
Only in New York are deals to go to Sandhill Road in Palo Alto, Sandhill Road that we had and how Road initially weren't very successful at all. We got polite nose out and really no feedback until someone took us aside and told us, you know what, the idea seems good, but your consultants and the perspective of the consultants can't get anything done. And what we realized is that even though we had both founded companies before, you know, our McKinsey pedigree and our khakis and button down shirts, they were really hurting us.
And so we were wearing khakis and button down shirts. It sounds crazy, but they pleated pants or were they at least not pleated, please? Yeah, they know they were not pleated, but but we we after hearing that feedback, we very quickly just went to the next gap and bought jeans and t shirts and from then on the convos with the express but a lot better.
So you went from McKinsey consultant look to sort of the tech casual uniform of jeans and t shirts that. That's exactly right. And we introduced ourselves not as MBAs and McKinsey consultants, but we introduced ourselves, as, you know, previous entrepreneurs that are starting their next company.
But was I mean, was anyone buiding was or were they were there people who were like, yeah, there's a great idea I'm in.
So I mean, interestingly enough, we had raised some money from friends and colleagues and many of those they invested in US business plan unsign just based on the fact that we were giving up our careers at McKinsey to pursue ZocDoc. So that felt really great. And as we started changing how we appeared and how we introduced ourselves to venture capitalists, you know, we started to get offers. And so in August of 2008, we ended up raising five million from Khosla Ventures Business Expeditions, Marc Benioff, wow.
Marc Benioff, Jeff Bezos and Vinod Khosla as other funds are in, which sounds like a lot before you want to do.
It's actually kind of limited because you still, it seems to me in 2008, even though you have five million dollars, a lot of money, you still have this problem, which is you've got to get customers and then to get customers, you need lots of doctors with lots of options. But to get doctors, you need lots of customers booking through the site. So how do you do that precisely?
These five dollars million earmarked for making New York work? Right. Make our first market work.
But immediately after raising the money, the financial crisis hit. Right.
And you may remember there was this rest in peace memo that went around about startups, right? Yes. About startups never being able to raise money, rest in good times. Yeah. So we got the strong advice to make the money stretch and we probably learned a lot during this time. This was really our first go around making hard choices. And we're going to be frugal and not to do things we can't afford. And we we learned to not let money replace critical thinking and creativity, but we continue to grind away at New York.
And at some point we felt, well, if you want to get to the next level, we have to prove that ZocDoc isn't just a New York City phenomenon. Right. We had to prove that it would work in a second city, but at that point, we didn't have the money to do this anymore.
And by the way, you're still your approach was still the same. It was door to door. That's right. Door to door. And how are you building awareness about the about the fact that ZocDoc existed with customers, with potential customers?
So we it was very, very difficult to get someone to the website. Yeah. But when they did, they loved it because it was such a step change. Yeah. From how health care used to work for them. Right. They they used to have to pick up the phone and wait on hold and then plays scheduling Tetris with the office manager. Can you do Wednesday morning or how about Thursday at know about Friday afternoon. And now they could do the same thing in a minute and have a complete overview about the availability.
Patients loved it and they told their friends that we started to get word of mouth going. And so we. All New York really ticking up and we felt like, OK, this is going to work in New York at a minimum, right. But we also realized that it took us a fair bit of time and money to get it going in New York. And we couldn't with the money we had left from the five million, easily expand into a new city.
At the same time, raising money was going to be difficult because the next generation of investors wanted to see that it works in other cities as well. So we were a little bit in this catch 22. We ended up applying to this force boost your business competition for Forbes has this competition.
I don't know if they sold you where they they give away money. Right.
To they were promising a hundred thousand dollar prize.
And at this time we won.
And, you know, what they did is they gave us one of these large Publishers Clearinghouse checks and very useful actually.
We use that to cover a hole in one. In our own conference room, though, there was a hole in the wall and we covered it with that check.
At this point, you are you are working out of an office, not not an apartment at this point.
We were working out of a shared office space three. We work. Yeah, we work.
So they had given us as publisher clearinghouse XYZ check, but they failed to give us the small check for three months and we were getting really nervous whether we would still get it.
But but ultimately we got that 100000 dollars. And that's what we used to launch in our second market in D.C., in Washington, D.C..
And what did it require you guys to move down there?
Or were you did you hire because I'm assuming you had to eat a lot of your early capital was going into sales like business development is hiring sales reps, is that right?
That's right. We had a couple of sales reps at the time. And first, a very first employee ever was a sales rep is still with the company today. And he was great. He figured out how to really charm his way to the doctor. So there were no more security guards escorting anyone out.
When did you I'm assuming that even in 2009, 2010 and beyond, you were not yet profitable?
Far from it. Yeah, far from it. Right. Because it's a capital intensive business. Yes.
We obviously invested heavily in customer service. We wanted patients to have a great experience and we had quite sizable engineering team because there was actually a major engineering effort.
So what started to happen? When did you start to kind of see a real turning point?
Yeah, so we we we had launched New York successfully with years of hard work. We've gotten it off the ground, is transported that to DC and had worked well in DC. And now we said, well, why are we not in more cities? And so we actually we raised a Series B with Founders Fund and we use this to expand off the east coast of Cisco than Chicago. And we just got better and better at it. So we we then ended up raising a serious T in 2011 from Goldman and DC.
And we primarily use this to grow our sales team and tied up more and more doctors. And from 2011 till 2013, we launched roughly 30 new cities.
I read that by by 2014 you would cover like forty percent of markets in the U.S., which is huge. I mean. That's right. I mean, that's a huge number of cities. And in that year, your valuation of ZocDoc went went past a billion dollars. And that's that's pretty remarkable. I mean, you were kind of on this, like, really rapid trajectory and you had a pretty straightforward model, right? I mean, you were charging doctors a flat fee every year and then they could take all the bookings they wanted.
And I think that by that point, like by 2014, it was not cheap. It was expensive. You'd you'd really raise the price.
It was like three thousand dollars a year, right? Something like that.
Well, yes, we charge doctors three thousand dollars a year. And and there was a flat fee, no matter how many bookings ZocDoc actually facilitated for them.
And and the reality was for some doctors that got a lot of bookings. There was a great deal. Yeah, but but there were also doctors that got a lot fewer bookings. And for them, that fixed cost was actually too expensive and some of them were starting to leave the service. And so we got into a situation that required us to invest a lot, to stay where we are and then invest even more to continually grow our overall provider base.
Which means we had to build out a massive sales team to always sign up more doctors, right.
And, you know, at some point during this time, our Nick actually ran an analysis that showed that it would take us several years, if ever, for us to make our money back on on many of the doctors we signed up because you would have to sign up X number of hundreds of thousands of doctors paying that amount every year to make your money back, to make sort of our the cost of the sales team back.
Wow. And know this was clear. That is what make us dependent on external capital for our very long time. And now it's a clearly there are many companies that have taken sort of a grow fast at all costs approach, and they've held onto this for an extended period of time. But, you know, it clearly puts ZocDoc into a dependency to investors and their mindsets. Yeah. So meantime, you know, from what I understand, there's disagreements, I mean, there are, you know, the leadership team, including Cyrus, he he's I think he's he's sort of his position is the flat fee model is actually the best way to go.
Is that a fair assessment of of his position?
Yeah, I think that I think that's right. Right. I mean, there were two fundamentally divergent ways how the business could go forward. Right. One way was to continue to work on optimizing the unit economics of our subscription model. And the other way was to think about how to make a more transformative leap and then find a new, more profitable and more sustainable model and out there.
Look, I can certainly understand the reluctance in taking this leap. Very few companies really changed their underlying business model once they have a certain scale and then lived to tell about it. Right. We know the names of the companies that have done this, like Netflix went from DVDs to streaming Adobe in a cloud from box software to the cloud. But there's there's not a lot of companies that do that.
And, you know, ZocDoc needed to make a choice which which direction they wanted to go in. And I should say, Oliver, that that I mean, this became intensely personal for you because you and Cyrus really disagreed on on on the direction that the company should take. And then he stepped out. He he left the company. And you moved into the role of CEO. That's right. And I want to ask you about this. I mean, you know, one of the beauties and the flaws of this show is its simplicity.
And we talked to one person or sometimes two. It's a single narrative. And so we don't have Cyrus with us to tell us what happened. But I want to ask you about this time, because, I mean, this was your co-founder. This was your partner. This is your friend. And he was leaving the company. How did you feel at that time?
Look, I all I can say, this was a very hard and very emotional period for everyone involved. Yeah. And, you know, it was certainly a departure, but it was also true that given these two divergent choices, you couldn't not both of us could be useful to ZocDoc.
And I have to imagine that for for a period of time, it was sort of the end of your friendship.
Oh, look, I mean, we were very close. We we had you know, we're not only friends. We had worked for eight years, Billing's doctor together 14 hours a day. And we probably talked more to each other than to anyone else in our lives. But, you know, Cyrus and I are still in touch from time to time. And I think he's doing on from the sideline.
He's still presumably an owner of the company.
Yeah, he's still a shareholder. But here's the thing.
I mean, we've we've told stories about breakups. We've had we've had episodes where there were married couples who split, who divorced, but continued the business EEO products. As Susan Griffin Black and her husband, Brad, they continued the business. Stacie's partnerships, they continue the business after the divorce, sold it for a quarter of a billion dollars. You guys were worth value to one point eight dollars billion. At this point was every party that just thought, you know, God, look at what we're doing and look, we're going.
And I mean, I did you and Cyrus ever sit down and say, you know, this thing is just this is growing and let's just this is figure this out.
I mean, I think the challenge is that it's not as if there was an analytical way to decide what the right path forward is. You know, as long as investors wanted to give us money, growing at all costs was a fine strategy. The question was just how dependent you wanted to be on the continued goodwill of investors.
It sounds like you were tired of going out, raising money you didn't wanna do anymore. Oh, not at all.
But I think you want to raise money from a position where you know what your alternative is. And and for us, you know, it wasn't clear that the business model would work in a way that that we could just flip a switch and be profitable.
Yeah. So that was a tough year for you. 2015, there was an article in business, I think Business Insider, and it was about the sales team at ZocDoc that year. And it was there were some allegations that, you know, members of the sales team were using Adderall, even cocaine. They were under immense pressure. They were working all the time. When you saw that article, and I'm not saying you were even aware of any of this, you may not even have been aware of it, but I have to think that that article really alarmed you and maybe even embarrassed you.
Yeah. I mean, look, there were a number of articles in 2014 15. I know they didn't absolutely get everything right. But but what I can say is that, you know, at the time, doctor had a very large sales team and were still scaling very quickly.
And, you know, maybe maybe it was too focused on hitting targets and not focused enough on creating a strong culture. I hear these stories from six years ago from from time to time and, you know, from from you know, from candidates and and really, every time this happens, it's like a gut punch, I'm sure, because we know we're a completely different company now. Yeah. On on so many levels.
But clearly, you saw that and knew that you had to change something. Well, yes, I look, I know there's a couple of things about this, right? We are a technology company, but we had set ourselves up too much about execution and celebrating wins and really too little about being adaptable and learning and and building the trust required to try things that, you know, at the risk of failure. And so one of the first things I did is to change our core values, to emphasize those behaviors.
One of our values is adaptable, not comfortable. Another one of those progress before perfection learns before masters. Right. And we only kept really one value constant. Tell patients first and personally that that there was more of the culture that I thought was right for ZocDoc to succeed on many dimensions.
So you take over the company, it's got high valuation, but you're still not making money. And you know that you've got to change the underlying business model. You're never going to make money. And from what I understand, this is sort of the beginning of what you have internally described as the second founding of the company. That is right. That is right. And that basically happens in in twenty eighteen. You you launch this new business model where instead of the three thousand dollars, your membership fee, basically you would charge doctors a lot less like, like 200 or 300 bucks.
But then every booking you would take a cut from that booking.
So some a travel agency, a little bit with only charge for a new patient booking. So the existing patients to a practice we we made free. But yes, there was the fundamental idea and, you know, it sounds like such an obvious thing to do, but but here was the problem with it and why why we thought it was incredibly risky to try this. Our best customers that had been on for a very long time, they got lots of bookings.
Right. And if we start charging them per bookings, their prices go up very significantly. So in some cases, 10 times more. And that seemed completely insane to us. And in particular because when we talk to other companies that were had gone through similar changes and even pricing experts, their number one advice was make sure whatever you do, never charge your best customers more. And for us would be precisely the opposite. And the thing that was counterbalancing this in our mind was, well, maybe we'd be able to bring on a lot more doctors because the barrier to entry is now much lower.
That was there was the back and forth in the team to figure out whether that's really the path we want to want to go.
So this is still a risky strategy because you're depending really on new bookings because the two hundred dollar annual fee is dramatically lower. And I have to imagine in year one you actually saw a drop in your revenue in the year one of this kind of second founding? Right. Well, it's from a risk profile worth than that. Right. The worry is that you lose all your best customers and with it all the bookings that they used to be getting. And so we needed to be ready for a very significant drop in bookings and revenue.
And the second, you know, sort of challenge was here that, you know, the beauty of this approach is that we got all this money up front. Right. And sure. And now to one where we're getting paid after the booking. We're with a 30 day payment period. So we had a huge working capital requirement to make that happen. So did you see a drop in revenue in 2018 when you roll this out? No, we did.
Because we actually didn't see the doctors leave the way that we had anticipated and in fact, you know, while we had very much worried that they would be upset and some of them certainly were upset, we were providing so much value to them that that one of them just said, you know what?
What took you so long? I knew I was getting a great deal all along. So that worked really well. And we had pilot in Georgia initially in April, twenty eighteen. And then that had worked. And so we would then roll out in Colorado a few weeks later that worked to and from there we went to Washington State and again very positive results. And after these three days I said, OK, great, we know this works, let's roll it out in our largest, most important market.
Let's go to New York. And that went terribly, horribly wrong.
Yeah. The doctors in New York not only were so pissed off, they actually a red mountain, a change that a petition and elected to end this practice or something. They were really mad. I mean, really, really mad. And I guess you guys responded. You said, all right, we won't we won't roll this out in New York for a while. Yeah.
You look in New York, we facilitate roughly one in five new patient doctor relationships in the entire city on ZocDoc. And so the economic impact for the providers in New York was much greater than for the providers in Georgia, Colorado or Washington. And so, yes, to give you one example, there's a dermatologist in Soho and he paid under the old subscription model. He had 10 doctors, so he paid thirty thousand dollars. And under the new pricing model, his cost was going to go up from thirty thousand dollars to roughly three hundred forty thousand dollars.
Wow. So what was your response to that?
I mean, it seems like a pretty reasonable concern. Yeah.
So look, after the conversation with the dermatologist, I actually put down the phone and I thought, you know what? He's right. And so. I paused and we regrouped and we did a couple of critical things during this time, like the first one is we just went on a listening tour. You know, we we talked to providers. We got their feedback and we just adjusted our transition plan to give providers a much longer grace period to decide, you know, whether they want to transition to the new model or not.
And then so then we relaunched New York six months later and it went dramatically better. So the strategy works and you see results from the strategy pretty quickly, like within a year?
Yeah, within a year, we had we finally had some incredible momentum that was really going better than we had expected in our wildest dreams. Our existing client churn went down to essentially zero. I mean, people still retire and and move jobs, but no one really left the service. And we were adding more and more providers because the barrier to entry was low. And so in 2019, we began growing profitably.
So it sounds like 2013 was really the banner year. 2013 was a was a fantastic year, and honestly, we had so much momentum coming into 2020 and it feel like, hey, we worked really hard for three years and it's profitable.
And now the sky was the limit until I tell Sam until March of twenty, twenty until March of 2020.
And that's that's really maybe the third founding of ZocDoc. Right.
Well, I want to ask you about March of 2020, because your business is based on people booking with doctors and going to the doctor. I have to imagine your revenues must have plummeted like every other industry. Like I mean, doctors offices are still in most of the country, slow or to a trickle of patients coming in. Absolutely. So when the lockdown started happening, we saw in person bookings declining anywhere between 50 to 90 percent by the end of March.
Yeah, surprised. And a lot of the advice I was getting was to sort of lay off people and make sure that we hunker down to weather the storm. But I saw an opportunity to build windmills. Right. So I thought, well, we need to be there for our patients. We should be expanding into telehealth. And I need every team member to help me do that. And so we really went all in and supporting video visits and our product engineering team began redesigning the entire marketplace to support virtual care.
And so we actually released the ZocDoc video service and we made this available to any physician, whether they are on ZocDoc or not, for free.
And by the way, had you, like, had a plan to do this, how long would it I mean, I'm imagining if you said in in February this year, hey, you know, I really want to focus on telehealth, would you have expected that by May it would have been ready to go?
Absolutely not. I think what has been really fantastic to see is how we really finished two years of roadmap in two months.
Wow. And it's great because it's just it gives us a window on what the next phase of ZocDoc will be. I'm really looking forward to that. In my mind, we're at the point where Amazon started from going selling only books to also adding seeds. We have just gone from doing it only in person to also doing telehealth. And I can't wait to see how this unfolds.
Hmm. It sounds like you might be reading between the lines here, but you really admire and respect your co-founders, particularly Cyrus, and the work that he did to to build this company. But I wonder if, um, do you think that you will.
I don't know, rekindle your friendship. I mean, is that something that is in the cards? Because a breakup is is emotionally is hard. I said really hard.
Yeah. Look, I do I think we'll work 14 hours together again. Maybe not, but, you know, I. I've gone through tougher break ups and reconciled in my past, and so I think we are we're in good shape and honestly, you know, we are meeting we're talking from time to time know we both have things to do and places to be. So we're not hanging out all the time. But but it's now also five years ago.
So we are very much focused on making our joint baby successful. When you think about your journey and all it's happened to you, how much do you think this has to do with with luck and how much do you think it has to do with the hard work you put in and in your your skills? Well, we took. I believe that there's really three ingredients to success in the order of importance, there are luck than talent, than hard work, and the only one that's completely under your control is how hard you work.
Right. And working harder gives you more shots on goal. It helps you stay on the top of what you your talent allows. And absolutely, we started at the right time, the right place. So what what I'm proud of and all of that journey is only that, you know, when we were wrong and when we had to revise and when we needed the grit to actually make it work, you know, we we lived up to that.
And that's really that's all that anyone can ask of themselves to do. That's Oliver Kori's, co-founder of ZocDoc. By the way, remember how they originally wanted to call it physicians', dotcom or doctors dotcom, but couldn't afford the million dollar price tag to buy the domain name ZocDoc? Dotcom wasn't only available the price they paid for that domain name six box. And thanks so much for listening to the show this week, you can subscribe wherever you get your podcasts.
You can also write to us at IBT at NPR, dawg, if you want to send a tweet, it's at how I built this or at Guy Raz. You can also follow me on Instagram. That's at Guy Raz. Our show was produced this week by Judd Anderson with music composed by REM Teneriffe. Louis, thanks also to Julia Carney, Candice Lim, Neva Grant and Jeff Rogers. I'm Guy Raz. And you've been listening to how I built this.
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