The Dentist Office Software Story
avc.com
avc.com
Because our dentist/programmer was a smart fellow (he'd have to be, given that he's active in two different complex fields) he foresaw that selling the software once was a nice proposition, but selling it repeatedly would be even better.
Hence the annual 'maintenance fee', of about 1,000 euros per dentist using his software. Do you know how many dentists there are in nl?
So, instead of going for venture capital this dentist-wannabe-programmer built himself a money printing press that printed more money than he and his extended family will ever be able to spend. At the end of every year the maintenance payments roll in and he's laughing all the way to the bank. This money machine has been printing since the early 90's and does not look like it will stop printing any day soon. And no VC made a single cent on any of that. He's so solidly entrenched that trying to attack his position is a losing proposition.
I like the avc blog, but it would be nice if stories like this were grounded in reality rather than fiction.
Quite possibly other dentists/programmers figured that they could sleep their way through all this but in that case they more than likely found themselves upstaged by a newcomer that did get with the times.
Perhaps that is the real lesson of DentalSoft and Dent.io and dental.com - disrupt yourself before someone else does.
I've gone this route replacing a niche software product running on MS Access with a newer, better, faster one. It met all the requirements. It fixed all their pain points. It followed the latest usability guidelines. If this office had adopted it and referred it over to other offices, I would have been as well-off as the dentist described by GP.
It fell flat. They paid me for the product, said it was really great, but ... none of their reps wanted to make the changeover. It was not that the learning curve was too high - it was that any learning curve was too high.
To clarify: anything different from what they were doing every day for the past 10 years meant that they had to think about the software they were using and not the job that they were doing. And that slowed them down - the fact that it would have been a temporary slowdown was irrelevant.
I've seen the same thing played out in my eye dr's office. THey had an old 3270-based system that they used via emulator - and they could fly with that. They knew all the shotcuts, didn't even have to look at the csreen.
Over the period of a year and a half I watched them get a new system in. It had all the same features and a ton more. And it slowed them down to a crawl.
They reverted back to their 3270 based system by the time a year had passed.
So you make an assumption that newer is better - but remember that's your assumption, and it's not one that the targe audience (ultimately the end-users, not just the people you're selling to higher up the chain) will necessarily share.
My wife is just out of residency running her own medical practice. She went with the latest-and-greatest electronic medical record system that's all either web of iPad based, with all her records stored in the cloud and fully integrated with similarly advanced billing software. It's pretty good, and does most of what we need well. It's definitely head-and-shoulders above any other software out there that's specific to her specialty.
Right now she's considering buying another practice, and during the pre-purchase process the ~65 year old doc was talking about how fantastic their medical record/billing software suite is. Does everything they could ever want it to do, everyone in the office loves it, etc..
So, I ask for a demo, and he loads up a Filemaker database running off the server in the back room. Looks like it was designed in 1996, offers zero web-connectivity, and they're 100% happy with it.
That practice would never consider "upgrading" to the software we use. We'd never consider the software they use. There's a generational gap in medicine and dentistry, just like everything else. The more young docs come out of medical school, the higher their expectations will be for things like GUI, UX/UI and mobile connectivity.
For your wife, in ten or twenty years that all-touch cloud-based system will be as the Filemaker system is for the 65 year old doc, when the next generation of latest and greatest comes around.
It's not about the abilities of the technology, IMO, but about people's resistance to change for the sake of change. If what they have works well for them, there is very little impetus to accept change, particularly when technology is not their actual business.
Just like all the changes in gmail are not welcome by everyone, but you can't just choose to stick with the 2004 version.
Or, maybe, she'll get an email saying "we're sorry but we'll shut down the service, the company is closing". Or "we're glad to announce we're acquired by our competitor, see how you account will be migrated."
There is a finite number of times that a small business owner can say the words, "I'm sorry, I can't schedule your appointment right now because our system is down" before never saying that again becomes their number one software-related concern.
I can tell you after working with hundreds of different businesses and individuals that the things that HN programmers think is important about software is very different from what the end users think is important, especially in retail and service industries.
I doubt they'll ever change it.
Instead of dogfooding it themselves, these dentists should hire professional software developers to build custom software and tell them what features to build based on their knowledge and experience. Then again, everyone is a critic.
Isn't that against the HN mantra that everyone should do the development themselves? Perhaps that is why you deleted that part?
I'm not familiar with any HN mantra that you're referring to.
The business case is quite clear. :)
Guy had 7 dentists in his family. Built a website for his dad's practice, started successfully selling it to other dentists.
It's just that life cannot be that simple otherwise I want to start a VC that just finds clever coders with middle aged domain experts and fires out dozens of winners and dozens more also-rans
Many business models these days are 'x' on the web, where 'x' really does not improve by being on the web and practice management is a prime example of that. If you don't believe that try to explain to a dentist why they need redundant internet access to keep their practice running in case they have internet problems when right now they can do so just fine without any access at all.
Web apps have lots of upside but they also come with a set of requirements that is not always practical or even desired.
On top of that you discount domain knowledge which I think is a very important part of any successful business in an area like the one you describe.
If customers expect to be able to book online (and as a user of services like ZocDoc, FreshDirect, Instacart, and Homejoy I do expect these things now), then providers who do (theoretically) provide these things will have an advantage of those who don't.
Not going to argue for or against the 'upside' part, as I do think that is debatable, at least in the short-term. A big part of this is avoiding 'downside' by not adapting, IMO.
You do have a market: new dentists. But old ones are just happily going to roll along with their gear until either they or the gear dies of old age. And then they or their heirs will sell the practice to a new dentist, who will have to wonder about re-keying all the old data into your shiny new software or to focus on what he's best at: dentistry.
Two young entrepreneurs graduate from college, and go to YC. They pitch PG on a low cost version of Dentasoft, which will be built on a modern software stock and include mobile apps for the dentist to remotely manage his office from the golf course. PG likes the idea and they are accepted into YC. Their company, Dent.io, gets their product in market quickly and prices it at $5,000 per year per office. Dentists might have good reason to like this new entrant, but the Dent.io founders have no relationships in the dental profession and they don't know how to sell to the more than 100,000 dentists practicing in the United States today. Because of this, and because dentists are reluctant to change the software that is used to manage their operations, which would require staff retraining, Dent.io fails to make much of a dent in the market.
Advertising is OK for now, but clearly it doesn't work for all scenarios. For instance, a dental application would be a terrible place for advertising as people don't want ads anywhere near medical records.
I once went to a talk by USV and heard something along the lines of this: the first big layer of the internet was the infrastructure layer. The best companies to invest in were Cisco and those who were ahead in that field. Then the infrastructure enabled the provider layer, and AOL and other providers were the big ticket. Then came the application layer, when people like Google started to build interesting applications over the internet. The newest layer is the network layer, which has some overlap with the app layer but is where players like Facebook and Twitter come in.
The question is: what's next? What layer will leverage the networks to useful economic extent like all of those other layers have in the past? Whoever has an answer for this will be very, very rich and famous.
http://avc.com/2014/01/bitcoin-getting-past-store-of-value-a...
Where would the network come in? Well, it turns out that the software made by the companies I mentioned is mostly applicable to any industry where patients schedule appointments, so you can cross market between, say, a hair salon and a dental practice to try to get patients of the dental practice to make appointments to get their hair cut and vice versa. A company that integrated with all the major management systems across industries could create a site similar to Yelp! which would help customers find and select local small businesses.
I do wish the original author had written about an area that he actually understood. The dental practice management system market is among the worst to try to disrupt. The entrenched players are terrible and yet there's so much friction, that it's almost impossible to dislodge them. All the innovation is happening from companies that build integrations to pull relevant data out of those management systems to do the interesting stuff.
Investing in and promoting startups that can only exist with VC funds sounds like a fair enough strategy for a VC.
I'm not convinced that the interests of founders and VC are always the same.
As an explanation of why they invest the way they do, it's very good.
BAD: making money by selling software
GOOD: making money by selling ads
I wish more people in the position to fund software development would support a model where your users are your customers and not just eyeballs to be sold to the highest bidder.
BAD: counting on the intrisic quality of your software to keep competitors at bay
GOOD: using switching costs / network effects as barriers to entry
Patents, R&D, trade secrets, network effects, natural monopolies... all of these are competitive advantages that capitalistic companies want to have. It's the reason that "nobody else can provide what we do". Otherwise you're just trading commodities and you won't realize economic profits.
Now I'm not ascribing any morality to this. You can call it evil if you like. Just know that this definition makes 90% of businesses "evil".
TL;DR put people first, your users are your defense. Monetization will fall into place if you have a network effect.
So I do think that Fred's story is anchored in reality. This open source disruption seems to be taking place.
Why does a VC care about sustainability or the company getting disrupted? Wouldn't they just want to grow fast and big enough to get a return and move on?
Why wouldn't the gambler leave the table after making a modest gain?
better to focus on building something of lasting value. then when you exit doesn't matter very much
Price is one variable in the purchasing-decision process, but beyond some point, it really falls down the priority list for large businesses. This is why the phrase "Nobody ever got fired for hiring IBM" is so telling. Companies like stability and are willing to pay a premium for it.
To that end, if you find that adjusting price alone allows you to steal signficant market share, then you are competing for the least-desirable customers (ie, those that can't afford the product).
Companies that are deciding between Cognos and Microstrategy will compare prices, but there are many other factors that contribute to the final decision as much or more than cost. If I come in and offer a BI tool built on my laptop that I charge $10k a year for, I don't think I'd get the time of day from their customer bases.
Almost all dental office managers I spoke to 1) used something called Eaglesoft (www.eaglesoft.net) and 2) hated it.
A couple of interesting things about the Dental market:
1) Customers are resistant to change because they want to spend their time focused on the dentistry not solving IT problems. One of the leading dental software providers, Eaglesoft, has a really bad UI/UX. Each screen looks like it was designed by a separate team of engineers and has never been updated. On the other hand, dental staff get used to the quirks of the UI and it's not clear that Eaglesoft could totally redo their product without a revolt from customers. 2) A pure cloud based solution would be super awesome except that you still need to integrate with a bunch of hardware, e.g: you need to tell the digital x-ray to take a picture. On the other hand, the need to operate on premise servers for dental offices is a giant ass-pain. Also the Dental market is still windows based which really sucks. (have you tried administrating windows servers? yuck) 3) Since this is a fairly mature market there is a bunch of vertical integration. Patterson (which owns eaglesoft) wants you to buy their kit which runs with their software, I think Schein is a distributor for dentrix so they have their own stuff as well. 4) While no dentist likes paying the maintenance fee for their software, it's really a non-issue when you come to the P&L statement.
I think one possible way to disrupt this market is to do a mashup of Athena health and dentrix/Eaglesoft. My understanding of Athena Health is they run your back office so you don't need staff to do billing and deal with insurance companies. I don't think there is someone who does this well in the Dental space (but I could be wrong). At a certain office size you need a full time staff member to run Billing. As long as the cut that you take is less than the cost of employing a billing department, it's a win.
Not to mention that every-single software company keeps it's data in obscure formats in order to avoid third parties accessing the data. It's like if the 2000-2010 changes that took place in the field didn't touch the Greek pharmacy/medical software and most of them keep operating in the 90s closed source principle.
There are some new SaaS about medical offices around. But they are so ugly that it's scary... Small market I suppose.
Sure, if you can nail both that's better, but the "domain expert with some vague computing knowledge" beats the "technical expert with some vague domain knowledge" any day.
Add to that the fact that tech people often want to work on sexy projects like social/mobile/bigdata/api/whatever, it doesn't help bringing quality products to these users.
Your social network or social app is actually way more fickle and less defensible than he thinks. Think about precursors to Facebook like Friendster and MySpace. Suddenly they became uncool and poof they were gone.
If you look at teen's perceptions, Facebook.com is next up on this sad list of has beens. That's why they're paying through the nose to diversify out of that product. AVC has found no magic bullet with their strategy.
I've always found investment philosophies like this to be too overgeneralized. When I ask myself the question of what will provide defensibility, I can't think of a good answer other than "it depends".
The question really is "how much does it depend?". I think it depends enough such that it's best to just look at each company on a case-by-case basis.