Finding Opportunities in Healthcare Inefficiencies — Julia Cheek, CEO and Founder Everlywell
The Industrialist’s Dilemma — February 27, 2020
After spending the last three weeks exploring the challenges and growth of companies based in Asia, South America and the Middle East, we came back to study a disruptor based in Austin, Texas. Julia Cheek is the CEO of Everlywell, a growing company that is upending a healthcare market segment by selling direct-to-consumer diagnostic tests in the areas of general wellness, men and women’s health, energy and weight, as well as sexual transmitted infections. Cheek began the company after experiencing her own frustration with the American medical system, and has built a fast-growing organization that is taking advantage of new distribution methods for healthcare and by exploiting inefficiencies in the existing system, while also leveraging physical assets to help her growing group.
Waste Makes Opportunity
Some of our most insightful discussions often start with asking the class a simple question. In this case, we began our analysis of Everlywell by inquiring of the students, “What is Everlywell’s business?” After a few quick suggestions of “health testing” and “wellness,” the students quickly jumped into naming potential opportunities for the company: health services for consumers, retail health product sales, monetizing health data, etc. The students readily understood that the anchor products being sold by Everlywell today are not the only interesting long-term opportunities that are available to Cheek and her team.
But perhaps more interesting was when Cheek highlighted what made this opportunity available at this moment: with a lack of transparency in pricing for many healthcare tests, and ridiculous incentives for healthcare companies to charge high prices to insurance companies for largely commoditized health tests, Everlywell is able to take advantage of a system that overcharges consumers for health tests even when they are covered by insurance. Cheek shared that while some of the company’s tests can cost consumers over $100 (versus over $500 when consumers use insurance), these tests are often much less expensive than what insurance companies bill healthcare providers for what are largely commodities. Additionally, as high-deductible insurance plans proliferate in the United States, consumers are often economically advantaged to use Everlywell’s tests versus using their insurance, and consumers also receive the added benefits of price transparency and convenience. In addition, by Everlywell’s not running their own labs to do the tests, the company does not have a capital intensive infrastructure to support an existing business — Everlywell can simply charge for the test itself, and give better service to end-customers. The inefficiencies of the current US healthcare system have created a wedge for Everlywell to serve customers better by supporting them directly and largely circumventing a large part of the existing healthcare system.
Distribution Is the Product (Today)
When a company’s initial product is largely a commodity (or mostly an undifferentiated product such as some of the tests currently being offered by Everlywell), and a new entrant gains traction at an accelerated rate, it is worth understanding why this is happening. Cheek made another comment in class that caught our attention: When her company has an unhappy customer, almost always the cause of the friction is the speed and turn-around time of the results of the tests. The home use of the tests (which involves self-administered blood draws) and the results of the tests, are hardly ever points of contention with Everlywell’s customers if a problem arises.
The benefit of Everlywell’s solution is the speed and efficiency with which they can serve their customers by delivering physical products that can also be sold and administered by other parties. In this instance, operational efficiencies and execution (often via direct digital communications) are the key attributes that end users value. By taking advantage of not having an infrastructure of physical locations to support, Everlywell is able to use a combined digital and physical distribution to offer better service — and in the process is developing direct relationships with consumers on a variety of healthcare topics. And while Cheek was repeatedly clear that the company does not sell customer health data, she does understand that there might be opportunities to continue to provide convenience and help to Everlywell’s customers in the future — even if those services are not on the company’s roadmaps today.
Leverage the Physical — It’s not Going Away
Conventional wisdom is that retail is a horrible business and that eCommerce, and Amazon and Alibaba in particular, are destroying physical retail locations around the world. But after five years of teaching this course, it is has become excruciatingly clear that such a narrative is both too simple and often inaccurate. The current successes of companies like Best Buy, Target, Home Depot and Majid Al Futtaim show how some companies that run retail establishments are both surviving and also thriving while selling goods in physical locations.
Cheek made another interesting point — her company’s distribution agreements with organizations like Target, Kroger and CVS helped bring volume to her organization much more quickly and cost effectively than they might have achieved otherwise. What we found interesting was how Everlywell has been able to use a physical distribution medium that was not previously leveraged for the home health tests that her company offers. Once again, we saw how a disruptor blended digital and physical to offer a more convenient and superior customer experience, but did so in a way that the incumbent test providers would never have been able to, or have been unable to do efficiently, due to their existing business models and constraints of running their own physical locations.
Again, a pre-conceived notion that physical is doomed, or that retail provides increasingly declining advantages, was turned on its head in this instance by a disruptor in the healthcare arena who is leveraging large-scale physical retail chains combined with digital operating efficiencies to meet customer needs better than could be done in the past or by incumbents.
Once again, we see the advantage of leveraging physical where possible — it isn’t going away.
