As our health industry continues to grow, there’s one start-up looking to disrupt the industry with a new model set for huge success! Paul Jansz from C2 Capital sat down with Umbrella Health’s CEO & Founder Michael Cochrane over a coffee, and this is what we spoke about.
Firstly, Michael welcome, it’s great to have the opportunity to sit with you to work through this exciting new business model.
Q. Let’s talk about the medical disruptor model, why will Umbrella be disruption the current business model?
A. At Umbrella Health we are a purpose based organisation on a social mission. That mission is to put health back in the hands of customers. This is about reducing waiting, decoding jargon, connecting doctors to patients in a mix of face to face and online. To achieve this we have chosen to operate medical centres, and create health tech, that enables regular people to get the best from their health professional. We believe this approach will be quite disruptive for the outdated medical centre industry operators. Think of it as a personal Google Maps to make getting about the health system easier. This focus on service frees our doctors and nurses from apologising for being late and allows them to focus on delivering on what their customers need.
Q. Why is the current model is broken?
A. Too much time is spent focusing on the wrong things in our medical industry. Either it’s great owner operators who don’t have the time or training to run their practice like a service based business. Or it’s large corporates focusing on making profits. There have been some health corporates in the news recently regarding declining financial performance. It’s my view that these market signals are canaries in the coal mine for the industry. Each of these corporates have focused on building large clinics in outer suburban or regional areas that need large volumes of patients, or favourable government incentives, to be sustainable. Volumes that drive GP’s to see as many as patients as possible in an hour to meet plan – this is often referred to as 6 minute medicine. As anyone knows if you set the lowest price point and focus on quantity over quality it can lead to a race to the bottom (i.e. supermarket price wars). This often produces a focus on sweating budgets and squeezing overheads rather than listening to what the consumer needs and getting on with delivering it.
As a consumer, disruption is not something I am looking for from my doctors, health is about well educated, highly trained people delivering great diagnosis and remedies – we have a wonderful standard of care in Australia, Medicare and universal healthcare is amazing; I want to be very clear and draw the line between the clinical side of health (what happens in the consulting room with your doctor or nurse) and the service side of health. Umbrella is NOT looking for the clinical side to change. What I want from my medical centre as a patient is for them to be easier to deal with. There is no other industry where it is commonplace or even acceptable to keep people waiting half an hour for an appointment, I don’t believe we should accept this in healthcare either. This is what Umbrella has been created to do.
Q. How does Umbrella Health make money? How are businesses like this valued?
A. Medical Centres make money from patient fees, medicare rebates and incentives, and sub lease income from tenants (pathology, allied health). The average net margin for your traditional stand alone medical centre can be anywhere from 2-8%. Given our consolidated model, superior service proposition and experience in running consumer led businesses, we forecast a 12-15% net margin. We also believe our app will be sought after in the market and generate revenue through on selling to other businesses.
Businesses can be valued in various ways, and I am not an accountant however earnings to value multiples (EV) are a common way to value medical centres. Our research suggests an average EV multiple is 4.6x earnings for health groups. However ASX listed health stocks often exceed 10x (i.e. HLS). At the end of the day medical centres are good things, build good ones and they will make more than they cost. Consolidating them together under a group produces even better margins and valuations -it’s not building rockets.
I must stress that all of this is just a by-product that will happen because we focus on delivering on what consumers want, not on hitting a profit target.
Q. So, what’s the financial model… For example why open in Bentleigh East, Maribyrnong, and Camberwell, as your first 3 sites?
A. Hahaha Paul I’m try to segue to purpose and as a good accounting industry man you bring me back to revenues. My focus is on delivering value to consumers not excel workbooks– however clearly any business needs to ensure the model is financially sustainable, as such we have spent considerable time ensuring our model stacks up in spreadsheets. We have undertaken an intensive feasibility process (our first hire, Linus, is a data scientist) and selected these locations, out of hundreds of possibilities, because they all exceed specific criteria that maximise our chance of success. This criteria includes: Established market, good supply/demand ratio, active community and a demographic that needs and values premium healthcare, amongst other factors. Take Bentleigh East, an area become more densely populated, with good schools and an established community infrastructure that has become more affluent due to Melbourne’s property booms. It’s retail shops, cafés, hairdressers, bars and restaurants have become more modern to meet the needs of the new resident’s yet its medical centres are the same as they have always been. We are focusing on delivering primary care to the 15% of the population that currently values their time by attending private billing practices. Patients who reside in the above-mentioned suburbs, patients with high customer expectations, who are prepared to spend for their health.
Q. What’s on offer for investors?
A. Paul, you often mention Spotify, Netflix, Uber in your start up events. To me those three brands all represent value chain disruption – i.e. discovered what consumers were crying out for (but didn’t know it yet) and delivered it with a belief that by providing value, giving people what they need, they will grow. That growth results in superior valuations and returns for investors –they have all produced great returns for their early stage investors.
Umbrella Health offers investors a rare chance to get in on the ground floor – pre valuation – of a growth focused business in the safe industry of health. Our use of technology offers tech start up like returns. Combine our plan to securitise through investing in health real estate and a recipe of high return on investment and lower risk security is the result. We selected a convertible note over debt funding as the vehicle for early capital because of the ability to reward early investors for their commitment to make a difference in healthcare. Convertible notes enable a significant discount on the share price paid by latter stage investors at a Series A round who price the company. They also offer liquidity, just like a debt note, in having the option to convert the principal and interest to cash rather than shares. We believe this flexibility is in the best interests of investors who can grow with us.
Q. I know from my point of view, I have a GP, a pharmacist, physio, Chiro, and clinical pilates instructor with my failing body, all that do not know about me, and my health issues with my body, let’s chat about the The Connectivity? Is that important?
A. As I mentioned above, the individual parts of our healthcare system are world class. It’s the bits that connect them that need work..(a bit like your body by the sounds of things). Imagine being able to have access to a single platform where you as the customer can choose to give access to all of those doctors who are looking after your body. Take a video and send it to both your physio and pilates instructor of the exercise you just don’t seem to be able to do without them. Connect your chemist and GP together so they can be more proactive about the minimising the medicines you take. Make appointments with specialists that your GP refers you to inside our app, skipping the queue, without picking up the phone. Wouldn’t these things make you and your GP more connected and informed?
Q. Who is one of the main competitors in this space Healius? Where do you see that will be different with Umbrella Health is doing?
A. I understand Healius (HLS) listed at around $50m market cap, with 3 centres 20 years ago. Before the end of 2020 we will already have more centres than they did at time of listing. For a long time they have been a great business, and investment. Our view is, in this consumer led world of Uber Eats and Spotify, this model will lose relevance against our points of difference:
- Purpose – to enable customers to get the best from the health system – drives every decision we make;
- Business Model – focusing this purpose on private clinics in metropolitan areas – this enables longer consultations (4/hour vs 10/hour) where the GP gets a better understanding of who you are and what you need. What is $200 out of pocket a year to see a clinic like ours if that gives you time back and helps you make good decisions that keeps you out of hospital for longer? For the growing number of us with a chronic disease (obesity, diabetes, asthma, heart disease etc) this extra care means more than the monetary cost;
- Community led – each clinic is 100% local from the causes we support, to the services we offer, to the suppliers we use. For example our Bentleigh East clinic provides a scholarship to the neighbouring secondary school for a student entering science or medicine at university. The same clinic has a speciality in youth mental health. Not because it’s great marketing, it solves a shared problem that is relevant to the community it serves. The worlds business leaders are just becoming aware of how much more powerful, and profitable, this approach is. (Listen to the Anti CEO Playbook podcast by Hamdi Ulukaya (Chobani Founder) to learn more)
Q. Tell us about people leading Umbrella Health?
A. My co-founder and I Jackson Terrill lead Umbrella Health. I come from a people and process transformation background in banking, manufacturing and health insurance. Through my journey I developed an understanding of how to build environments that enable special people to do work that enabled customers to feel special. A few years ago people started calling this approach Lean Agile Systems Thinking (LAST) . Lean is about doing the right thing for your customer in as little steps as possible. Agile is having the ability to move first when the customer changes their idea of ‘right’. Systems Thinking is ensuring everyone knows what the purpose of the organisation to exist is, and how to apply this for the customer. Through this journey I came across two gifts that led to starting Umbrella Health. 1. Care coordination and 2. Jackson Terrill.
- 1. Health insurers introduced this concept of nurses who have one job – work with the insured person and their GP’s, surgeons, hospital etc to help insured people with illnesses navigate all the confusion of pills, invoices, rehab, hospital etc. They do this to reduce claims and readmissions to hospital – and it works. I came away wondering why does the health industry not do this for themselves…why do only the most ill, with health insurance, get the benefits of making health easier to navigate.
- 2. This is why when Jackson called me with any idea for a healthtech start up I immediately agreed to quit my amazing, secure, corporate job and start Umbrella Health. I met Jackson at GMHBA, he has a background in Lean Six Sigma and large scale technology projects in health insurance. As a millennial digital native he has an ability to connect consumer needs to businesses through technology (API’s, RPA, Machine Learning, AI). Jackson leads Umbrella’s technology roadmap.
Umbrella Health’s foundation board (Dalia Atwa, Cesar Aldea, and Fiona White) has been selected to add specific skills sets to our team. We have formed a contemporary, hungry board possessing skill sets in key areas such as operational excellence, health management, medical recruiting and health start ups.
Q. Finally, why will Umbrella Health be successful?
A. I could talk about right business model right time. The big opportunity to merge and acquire businesses in a large, fragmented, recession proof market. I could state the revenues of the big corporates are being challenged. Perhaps because they are a group that’s forgotten its customer. I could talk about these corporates vowing to improve technology and service standards but being too big to turn around in time. (Before a new entrant to the market like Umbrella leads the way and takes their customers). Is it that consumers demand more from every industry, and because healthcare is the most human of industries, consumer led experiences will drive more disruption to old models than in any other industry? I believe it is a little of all of these that will make Umbrella a good business.
What will make it truly successful? It’s that a growing number of investors want to use their wealth to improve the community around them. Umbrella Health are in a position to do exactly that as a direct result of our early stage investors believing it’s a problem worth solving. A problem at scale that goes beyond double digit returns. It’s the type of investment that our investors will drive by in 10-15 years and proudly tell anyone that will listen “I built that, remember what it was like before it changed the medical industry”… “It also paid for the holiday house remember darling”.