Chairman's Letter (Q1 2018)

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Innovation is creating new solutions to current day problems. 

We constantly see business plans and talk with entrepreneurs about innovative ideas. 

Having started our first business over 30 years ago, we have seen trends come and go and have been part of many waves: from the "hardware" days of the first personal computers, to the "software" days of writing applications for those machines, to the first internet wave of the late 90's, to the "App" wave of the first smartphones, to the "cloud" wave of today.

Entrepreneurs often think that they are the only ones with the great idea...only to be shown that their solution is not that unique and that many others have solutions to the same problem that they see.

It's not about the idea, or recognizing a need, but about having a real solution that customers want to buy…a solution that makes the customer's pain go away.

If we see a business pitch deck, that starts out with a global description of an industry problem, we know that someone has written a very nice academic paper.

But if we see a business pitch deck, with a clear, bottom line business need and a very clear, understandable solution that can be easily described and sold…we know that there is a potential for success.  Even more, if the team with the solution has real world experience in the area of need, the chances for success of the new business increase substantially.

Population health coupled with big data, how novel is that? How many health care organizations have developed an internal system and think that every other health system will want that solution? Almost all…but if "XYZ" System has developed that solution, you can be assured that other Systems are either developing their own at the same time, or they have found a vendor to build one for them.

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So what do we think will be the next big wave? We look outside of health care to see what potential new business models or technologies exist that can address the real problems of:

  • Rapidly increasing costs of delivering care
  • Growing lack of adequate insurance coverage and payment
  • Worsening access to care issues
  • Increasing government regulatory oversight of care
  • Demanding consumer requirements for safety, reliability and yes…organic services

And the list could go on.

One thing clearly out there is the "Amazon" effect.  Five to ten years ago, strategically you could always cite Apple as the great innovator and the simple design that Steve Jobs engineered by bringing together pieces of technology into the ecosystem of "Apple". In the past few years, it is Jeff Bezos and the "Amazon" ecosystem that rules the day. The "Apple" utility continues to gush cash, but Amazon has rewritten the entire face of retailing and distribution.  Thriving malls, for a whole host of reasons, have become ghost towns, and when Amazon agreed to buy Whole Foods last year, the entire market capitalization of grocery stores took a nose dive. Kroger with over $120 Billion in sales, is worth $24 Billion, while Amazon with $150 Billion in sales (and less than $15 Billion in gross profit) is worth $474 Billion.  Their margins are the same, so why such a diversion in value? Amazon is the new thing and Kroger is the old thing.

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We of course think that the story is someplace in between. Amazon must think so as well, given that they are building/buying brick and mortar assets in key locations.

So how does this apply to health care? We know who the Kroger's are, the incumbent health care providers trapped in the "insurance paid" ecosystem.  We don't know who the Amazon is yet, whether it is one major Amazon or 100's or 1,000's of smaller Amazon's.

Or perhaps the 'Amazon' of health care may turn out to be…Amazon. If recent rumors are to be trusted, Amazon has thought seriously about entering the pharmacy market by selling drugs online at a discount, using their distribution and supply chain expertise.

Whatever the future holds, what we do know is that the industry cannot go on in its current configuration, or at some time in the future, our GDP spend on health care will go over 20% on its way to 25%...think of that, one in every five or one in every four dollars going into health care.  Not going to happen.

So as investors, innovators, and entrepreneurs, we are looking for that next wave of companies that solve real-world problems, access to care at an affordable price, at times that are convenient for people to use.  We are looking for real solutions that reduce the costs of care, or the waste that leads to excess costs.  Bottom line solutions that are clear to describe and easy to implement.

Give us a call, send us an e-mail, we would like to hear the stories and see how we can help.

Michael A. Sachs
Chairman