Zocdoc’s Turnaround: From an Unsustainable Path to Profitable Growth
Our five-year journey included a CEO change, a business model transformation, and a global pandemic. Now, we are poised to lead the next era of digital healthcare.
Recently, Zocdoc’s former CEO filed a meritless lawsuit against several of our senior leaders regarding events that transpired half a decade ago. The company will address these claims through the appropriate legal channels.
It is also important that we set the record straight on the lawsuit’s misleading and inaccurate description of the company’s history and current performance.
Here are the facts about Zocdoc’s financial health and strong performance today.
Zocdoc is the rarest type of private technology companies. We are EBITDA profitable with accelerating growth, and a business that does real good for the world. While we do not disclose our financials given that we are a private company, here are some facts about the current state of our business:
We spent 2018 to 2019 transitioning our pricing model from a flat subscription fee to one that charges providers for each new patient booking that Zocdoc’s platform facilitates. The service remains free for patients. This was a fundamental change to our business model and a challenging transformation that very few late-stage companies attempt and even fewer successfully navigate.
Thanks to this change, we became EBITDA profitable in September 2019 and had our first EBITDA profitable quarter in Q4 2019 — a trend that continued until the onset of COVID-19. We quickly returned to profitability in July 2020 and continue to operate profitably today. We grew revenue by 36% year-over-year in the first two months of 2020, and we have returned to year-over-year growth despite COVID-19’s disruption. Looking ahead to 2021, the company is on track to accelerate our pre-pandemic growth trajectory. Because of this success, we are no longer dependent on outside capital to grow.
Like most other businesses, Zocdoc experienced COVID-19 as an unprecedented challenge. However, the leadership team viewed the pandemic as a call to action. In a company-wide email on March 4, 2020, Zocdoc’s founder and CEO Oliver Kharraz, M.D. wrote:
“This is one of the critical moments where we must live our commitment to our Patients First value … Continuing product development at Zocdoc as if this event was not happening is a failure to ourselves and our patients. We need to act with urgency to change our roadmap so we can get ahead of the needs of patients and the system.”
By late March 2020, as Americans began to stay home, our in-person bookings declined anywhere from 50 to 90 percent depending on the market. But unlike companies across various sectors, we did not retrench; we preserved the full strength of our workforce to rapidly expand into telehealth.
In April 2020, we launched video visits. This allowed patients to safely access care from home and helped providers keep their digital doors open for business. In May 2020, we launched Zocdoc Video Service: a free, HIPAA-compliant video solution that any provider can use to facilitate their telehealth visits — whether they are a paying Zocdoc customer or not.
Today, our in-person bookings have nearly fully recovered to pre-pandemic levels. In addition, virtually overnight, we have become one of the country’s largest telehealth platforms. More than 10,000 participating healthcare providers across 100 specialties offer nearly one million available video visit appointments on our platform, with more added each day. For perspective, Zocdoc’s telehealth provider network is on par with or larger than that of Amwell or Teladoc.
But Zocdoc was not always on this strong footing.
Five years ago, Zocdoc was heading down an unsustainable path.
In 2015, Zocdoc generated $71 million in annual revenue. However, we also burned through $43 million in cash that year. Despite this high burn rate, revenue had flat-lined, growing by just one percent month-over-month by October 2015.
Our subscription model began to show its limitations. The $3,000 annual flat fee that doctors paid to join Zocdoc, regardless of how many new bookings the platform facilitated, was a bargain for some but proved too expensive for far too many others. Healthcare providers left the platform almost as fast as the Sales team could sign up new ones.
A key strategic solution at the time was to hire more salespeople to sign up more providers in an effort to outpace provider churn. This proved unsuccessful because we lost salespeople faster than we hired them: By October 2015, on an annualized basis, the Sales team was on pace to hire 144 people and lose 232 people. At the same time, there were reports of issues with the company’s culture.
The business was losing money and dependent on fundraising, all while growth stagnated as the result of ineffective strategy and execution. Acting in response to feedback from the broader organization, the board removed Cyrus Massoumi as CEO in November 2015 at a regularly scheduled board meeting. The next day, the board appointed Oliver Kharraz as CEO, a decision that was also supported by the Executive team. These actions were taken to safeguard Zocdoc’s future and preserve shareholder value, and in full compliance with the company’s governance documents.
This marked the beginning of a new path forward for Zocdoc.
After five years of hard work, we have reinvented Zocdoc.
To improve our culture, we rebuilt our core values to shift our culture to one oriented around collaboration, learning, velocity, and innovation. To support this, we changed all of our original values except for “Patients First,” which remains our North Star today. In this year’s anonymous employee engagement survey, 89 percent of Zocdoc employees agreed with the statement “We uphold our mission to give power to the patient” and 92 percent said they have confidence in the CEO. Thanks to this culture change, we have reduced attrition by roughly 50 percent.
To right our business, we rejected the growth-at-all-costs mindset and began a multi-year journey toward profitability. In 2017, we decided to transition to a new, variable revenue model that now allows us to make deep and sustainable investments in Product, Technology, and Marketing to expand our offerings and grow our patient base. And we have a Sales team with a healthy culture that is 4x more productive than it was in 2015.
Most importantly, the new model has significantly lowered the financial barrier to entry for doctors, which expands choice and access to care for all patients. We have grown our healthcare provider network by 50 percent in the first states that transitioned to our new model, and other states are following a similar growth trajectory. Additionally, it has reduced provider churn by 50 percent as compared to 2015.
And in line with both our mission and our dedication to compliance, we spent sixteen months engaging with the Office of Inspector General (OIG) at Health and Human Services (HHS) to confirm that we could continue to serve federally funded beneficiaries under our new model. This means that today, we serve Medicare beneficiaries everywhere along with Medicaid beneficiaries in the vast majority of states in which we operate.
Today, Zocdoc’s business, culture, and mission is stronger and more resilient than ever.
We have faced the existential challenges of a CEO change, a business model transformation, and a global pandemic. We have not only survived, we have thrived. But our greatest strength is the trust that millions of patients place in Zocdoc to support their healthcare needs: from primary to specialty care, from mental health to dental health, and whether in-person or virtually.
In a healthcare system that offers patients long wait times, endless hold music, outdated directories, unreliable reviews, complex insurance plans, and concealed prices, Zocdoc will continue to shift the system to work for them.
The need for a patient-centric healthcare system has never been greater, and Zocdoc has never been in a better position to lead this transformation.