It’s been a year since Sherpaa went from VC-funded to Independent: aka how to be a sustainable digital health company

Exactly one year ago, I got an email from Josh Guttman, Sherpaa’s Softbank investor entitled “today is going to be a hard day.” That day, he fired all of my employees and doctors, including myself. By far, that was one of the hardest days of my life looking at every one of our employees in the eyes and apologizing to them. The board appointed Josh interim CEO and his job was to attempt to fire sell Sherpaa or wind down the company, our decent monthly revenue be damned. To be fair, a VC-funded company’s monthly burn doesn’t appear sustainable without a fundamentally different financial strategy. Many months later, Fast Company wrote a story about us entitled How Sherpaa Survived Venture Capital’s Unrealistic Expectations. To most VCs, if you’re not well on your way to unicorn status, it’s just a waste of their time (money, not so much, they can always write it off and get tax benefits since losses are assumed and written into the VC model).

Given our monthly revenue, I was extremely confident we could continue to operate the same Sherpaa service our patients love, albeit with a different structure and employee headcount. But Josh was looking to salvage as much as he could for his own benefit, as VCs do. Continuing operations wasn’t an option for him. The problem was…he fired all of our doctors. But if our practice collapsed and had no doctors, Sherpaa would have no value. So he needed to figure out a way to not be legally responsible for payroll while also forcing them to continue to work. That being said, it’s illegal in every state to professionally abandon patients. State laws say that patients must be given either a 30 or 60 day notice that a practice is shutting down, depending on the state. And we were/are operating in most every state in America. In order to protect Josh’s personal legal liability and responsibility toward covering employee wages, he fired all of our doctors. This is the equivalent of an investor coming in at midnight and chain-locking a hospital’s doors without warning because the money ran out.

Our doctors, after being fired, continued to care for Sherpaa’s patients out of the goodness of their hearts and because they had a professional, legal obligation to our patients. I was also becoming acutely aware that Sherpaa could continue to operate the same service, with a different structure and financial strategy, given our revenue. It took almost 4 weeks to convince Josh that his attempt to fire sell Sherpaa was unsuccessful with a daily reminder from me that firing our doctors and forcing them to continue to practice (due to state laws) was unethical and illegal. But he wanted to cover his personal liability and also extract as much value as possible to recoup some of his investment.

During the fire sale process, Josh reached out to Tom Lee, the founder and CEO of One Medical, to gauge his interest in purchasing Sherpaa. Tom did express an interest in two important things- hiring our doctors (they are always looking to hire new doctors) and gaining access to our client list (they are always looking for new corporate clients to pay them).

Josh obliged this information, under “FrienDA” and sent our primary competitor, One Medical, our entire client list along with how much each client was paying Sherpaa.

Now that Tom at One Medical had all the information that was valuable to him, he did not offer to acquire Sherpaa. Finally, after 4 weeks of daily pressure from me asking for Josh’s resignation as CEO and the entire board’s resignation, they all resigned making me CEO once again and the sole member of Sherpaa’s board. Remember, our incredible doctors had been working this entire time with the full knowledge that they might not get paid for their time because I/we didn’t know what would happen with Sherpaa. Once Josh and the board resigned, I immediately re-hired all of our doctors and those employees that were necessary to sustain Sherpaa’s continued operations. We restructured the company and designed the financial strategy that would leverage our monthly revenue to pay all of our doctors and employees. It wasn’t that hard. Our corporate clients paid us every month to take care of their employees. We paid our doctors, employees, and our operating costs (malpractice, tech, etc).

Note one thing: Josh did not bother reaching back out to Tom to tell him that Sherpaa was continuing on as an independent company.

Everything seemed to be going ok, until we started getting emails from some of our biggest clients saying “we heard you are shutting down…is everything ok?” We were wracking our brains trying to figure out how they could have heard this given that none of this VC/fire sale nonsense was made public. And then we started getting word that a few of our largest clients were canceling and, when pressed why, were switching to One Medical “because their costs were lower than Sherpaa and we heard you were shutting down.” And that’s when I began reaching out to our clients asking if they’d been contacted by One Medical’s corporate sales team. In fact, almost all of them had. Over the past few months, they’d gotten emails and calls from One Medical’s sales team stating three things:

  • Sherpaa’s enterprise offering was shutting down
  • Accurately stating how much they were paying Sherpaa
  • Offering One Medical at a slightly lower cost

When a client hears one of their vendors is shutting down, of course they look elsewhere. And when a new vendor is offering a “similar” service at a lower cost, it makes for an easy switch. No matter that One Medical’s fees went toward waiving the monthly membership for their employees (shifting the costs of care to their employees), while Sherpaa’s monthly fees purchased actual care for their employees making healthcare free for them.

Needless to say, the revenue we spent 5 years building was significantly affected (to the tune of 40%) by One Medical’s unethical and illegal acting upon receiving Sherpaa’s proprietary information. And, as an independent, now non-VC funded company, legally going up against a company that’s raised $180M, we couldn’t afford to fight this. I did meet up with Tom face to face to let him know we were aware of their actions and strongly and politely asked him to stop any further efforts to poach our clients. Also, it came as no surprise to me that One Medical is desperately trying to satisfy their investors with a new CEO given that they’re in their 11th year of operating after taking in $180M of VC money to build 60 primary care practices when primary care practices can be bought for ~$600k each. It seems they’re in a pickle and they’d stop at nothing, including disparaging Sherpaa and acting on proprietary information to poach clients, to increase their revenue.

And, at a loss for how to counteract their efforts, I wrote an explainer about how Sherpaa differs from One Medical. After that, we could only do everything we could to mitigate further hits to our revenue while also doing everything we can to increase new revenue.

To that end, we’ve signed up a few new fascinating corporate clients and launched Sherpaa directly to individuals so now anyone in America can sign up for the most convenient, most cost-effective way to get medical care. It’s essentially a medical practice open up to all of America that’s not constricted by neighborhood. This service has been growing nicely, albeit more like a doctor’s practice rather than Snapchat. The good news is we’ve been operating for over a year now without any outside investment. It’s not been easy as there’s not a lot of financial wiggle room every month. But we exist and our company is growing because individuals see value in Sherpaa and want to purchase our services out of their own wallets. That means the world to me, and to our doctors. And that’s the kind of health company we’re building. When you no longer have VCs breathing down your throat, you can grow your company safely and sustainably on your own time and terms. Also, when you get enough individuals paying you, your revenue becomes extremely predictable. There’s a predictable amount of churn as people try out a new medical service with a new kind of business model. Luckily for us, churn over the last 10 months has been ~15%. When 85% of people try Sherpaa, they value it so much they continually pay anywhere from $25 to $100 per month for our care. This time has also given us the lifetime value of a customer giving us enough information to understand how much we can spend on marketing per new patient. Now that we have this data, all we need to do is step on the marketing gas and be patient as Sherpaa grows over time. The honest challenge we have is the lack of monthly financial wiggle room we have to potentially spend on marketing to acquire new patients. So I’ve had to get creative with getting the word out. And that is not easy, especially as tech press seemingly exclusively obsesses over press releases announcing new funding rounds (hey tech press…aren’t the everyday details of an operating independent company in a notoriously impossible industry interesting enough to devote long form articles to?).

I’m also personally asking for your support. If you want to see an innovative, sustainable digital health company continue to exist in the world, please join Sherpaa today or when you need medical care in the future. Or if you’re a member of One Medical and their actions rub you the wrong way, as they should, please join Sherpaa. Or maybe you’re in charge of your company’s healthcare spend and you want to support Sherpaa instead of One Medical, please learn more about how we tackle costs vs. One Medical’s traditional primary care. Because once you try us, you can’t go back to the ancient way of getting healthcare.

Show your support

Clapping shows how much you appreciated Jay Parkinson’s story.