Necessity is the Mother of Invention – An Entrepreneur’s Journey From Curing One Patient at a Time to Healing an Entire Healthcare System
How does someone with a Ph.D. in medicine and dentistry from the University of Freiburg find themselves halfway around the world selling their venture to Groupon, only to ultimately land in New York City to found a successful patient payment and engagement platform for hospitals and health systems? In part one of this German Accelerator Coffee Session, Florian Otto, Co-Founder & CEO of Cedar, talked to Christian Busch, Program CEO of German Accelerator New York, about his desire to help more than “just” one patient at a time, and the challenge of convincing clients in an old-fashioned and risk-averse industry to adopt his technology.
Florian Otto, Co-Founder & CEO of Cedar (©️Cedar)
Florian, you studied to be a Physician in Germany and shortly after ended up founding and selling your first business in Brazil? Can you tell us more about that?
Sure, happy to. I’m originally from Bremen, but moved to Freiburg to study medicine and dentistry. I received my Ph.D. in medicine and dentistry and was on track to become a maxillofacial surgeon. After I graduated, I joined McKinsey’s healthcare practice, where I worked for a few years, first in Munich and later I transferred to Brazil. In 2010, I started my own company in Sao Paulo, called ClubeUrbano, a daily deals company with a similar business model to that of Groupon. Groupon then actually ended up buying ClubeUrbano and after the acquisition, I became the CEO of Groupon Brazil.
That’s quite a journey! What made you decide to not practice maxillofacial surgery, join McKinsey, and then move to New York?
To be a great maxillofacial surgeon, you have to do the same procedure over and over again. It’s very repetitive manual work. If you want to perform exciting and challenging surgeries, you have to work for a hospital, which didn’t appeal to me. Opening my own practice wasn’t an option either, as it means that you’re mostly removing wisdom teeth. By performing these monotonous procedures, you can only help so many people at any given time. In general, as a doctor, you can only treat one patient at a time – you only have two hands. To me, it was clear that I wanted to help millions of people all at once. I realized that I needed to go into the technology side of healthcare as it allows scalability. Being able to scale has more impact.
My decision to join McKinsey allowed me to learn everything I needed to cover the business basics, for which I’m very grateful. After transferring to Brazil, I wanted to apply what I had learned at McKinsey and dove deeper into entrepreneurship. That’s when I founded ClubeUrbano, which, as mentioned before, was acquired by Groupon. Groupon had a pretty straightforward business model, which helped me learn as an executive.
I then got to know one of Zocdoc’s Co-Founders through a mutual friend. I was interested in Zocdoc as it brought the various aspects of my background together – healthcare and technology so I ended up joining the company and became the VP of sales. I have always been and probably always will be passionate about healthcare. I will probably stay with it for the rest of my life.
Can you expand upon your impression of the entrepreneurial journey or landscape of the countries you’ve been active in, Brazil and the U.S.? How do they compare?
Just as a disclaimer: I’m comparing Brazil from 2008 – 2012 to the U.S. from 2013 – the present. While the U.S. hasn’t changed drastically, Brazil definitely has. So just make sure you take that with a grain of salt.
When I arrived in Brazil in 2008, there were very few expatriates traveling or working there. After the 2008 financial crisis, there was a technology boom during which Brazil became of interest, and many people decided to move there. It was fantastic to see what was happening. It’s a vast country with a massive market that is still 20 years behind a lot of other developed countries on the technology side. However, doing business in Brazil is difficult because the legal framework doesn’t exist, and issuing stock or getting an investment from outside the country is not easy. There were many situations where you needed to make decisions that were harming your business in order to ensure that you still complied with the law.
Meanwhile, the culture of bribery in business was prolific, which is shocking. You often have a competitive disadvantage from playing by the rules. The startup and entrepreneurial scene was very basic at the time, and digitalization didn’t really happen yet. So most of the companies being launched were more copycats of other companies already existing. But don’t get me wrong, I’m a huge fan of Brazil, and it holds a special place in my heart. Things are evolving and we’ve seen fantastic companies coming out of Brazil, such as Gympass, Hurb, and Movile. In addition, many of my friends started amazing companies there.
The U.S. is different. Rather than copying another company that’s already solving a problem, entrepreneurs here are looking to figure out a problem that hasn’t been solved before. That’s not always the case, of course, but it does feel a lot more problem-oriented in the U.S. It’s a different mindset here – people constantly want to come up with the next best solution to an issue.
After being a physician, starting your own company, and working for Zocdoc, you founded a new company: Cedar, a healthcare financial engagement platform. What made you decide to go out on your own? And why did you choose to focus on the U.S. market?
The answers to those two questions are actually related. For personal reasons, I decided to stay in New York City – I was living there at the time, and my wife had a job in New York. I started Cedar because I recognized a problem: a complicated healthcare system with flawed patient billing experiences. The approach to solve this issue can’t really be applied elsewhere. The German healthcare system is very different, so the business model for the U.S. market wouldn’t translate to the German market. Cedar’s business model might also make sense in other countries, but that’s something for the future. For now, this is 100% a U.S. problem, and it’s a big problem.
Many companies have had at least one or multiple pivots by the time they get to scale. How was it for Cedar? Are you still true to your first version or how often has the model changed already?
It’s actually shocking that we never really had that ‘fail-fast or pivot’ moment. Our initial hypothesis and why we wanted to start the company was the fact that interaction between the patient and healthcare systems was stuck in the 80s. The digital revolution never reached the healthcare landscape. It’s incredibly unpleasant for patients to interact with the healthcare system for billing inquiries.
The initial idea to start the company was also based upon personal experience, as my wife had a terrible billing experience at a hospital. She swiped her credit card at the hospital and later received a stack of paper in the mail with unfamiliar codes. Then, she got another invoice from a lab. Her invoice ultimately landed in collections because she didn’t pay a bill from the imaging center – a statement she never received because they sent it to her old address. So it was just messy at all touchpoints.
Long story short, based on this experience, we recognized that financial problems are probably the worst and decided to tackle that first. It’s not like you sleep under a cedar tree, a cone falls on your head, and you wake up and know what your business is. You have to look at the market and do your research. You have to find out why the problem exists in the first place and why it hasn’t been solved before. Ask yourself, why am I the best person to solve this? A good indication of whether or not you should embark on starting a company is if you become increasingly excited the more research you do. And that was the case for me with Cedar. It took probably five months of research and gathering potential customer feedback before we decided to go with it. So yes, today’s version of Cedar is still the initial idea. Of course, there were other ideas and considerations along the way; however, ever since we decided to build the company, our vision has stayed the same.
Why do you think there is such a big problem with hospital billing in the U.S.? Why is it so difficult for patients to interact with healthcare systems?
Healthcare billing is extremely inefficient, confusing, and outdated as it’s based on a coding system that dates back to the 70s and 80s. The companies that developed these systems were not consumer companies. There is a big difference between designing for consumers versus designing for enterprises. For example, the common use of CPT (Current Procedural Terminology) Codes might make sense for the billing process, but they make no sense to the consumer. And I’m not blaming the insurance providers – they’re not IT companies. It doesn’t make sense for them to invest millions of dollars to try and rebuild those solutions, and as a result, lot of healthcare providers are left alone with their inferior IT solutions.
Let’s dive a little deeper. Your clients are the hospitals, you integrate the insurance companies’ billing, and you’re also directly facing the end consumer. How do you address all the different constituents?
We cater to the enterprise market with large hospitals and physician groups. Officially, we are a B2B2C company. We are between all mentioned constituents, but we don’t interact with the insurance companies that much. Cedar really is a white label solution that connects patients with healthcare systems. We empower these healthcare systems to communicate with patients, starting with the billing process and building other things on top of it.
So from a hospital perspective, what’s in it for them? What do you pitch to them?
The first sweet spot to focus on is patient satisfaction. A poor patient experience is not only frustrating for the patient but also for the healthcare system. No business enjoys receiving bad reviews or people not coming back because of a negative experience. Good medical treatment and convenient services are the expected customer experience these days. Another important selling point is that hospitals lose a lot of money when patients don’t pay their bills because they’re either confused or don’t have the money to pay them all at once. By making the billing process more accessible and transparent for the patients, they are more likely to pay. The third thing we pitch is that our company saves time and headaches. On average, collecting payment from a patient takes between 70-90 days. There’s a very long cycle to collect when using a paper statement. Last but not least, there’s the cost-saving factor as the cost to collect goes down due to the administrative burden being lifted.
The space you’re in is a vast market and old-fashioned in many ways. How did you get your first customers? And how long did that take?
It’s one of the biggest challenges, of course, especially in the large enterprise market. And I think that’s what scares a lot of entrepreneurs away from the enterprise market. You first need to develop a little bit of product, and then you need to start selling to get a reference. And you’re totally right, hospitals, overall, are very risk-averse. As a medical institution, you don’t really want to take risks. I was a physician, and you’re always trained not to take any chances but instead follow the proven pathway.
It takes some time to get people that take a leap of faith. First, you need to clearly articulate your vision and where you want to go with your product. Second, you need to find leaders in the field that agree with your mission. Instead of being afraid to break something, we’re looking for people who realize that something is already broken and that the more significant risk is doing nothing. Those are our first clients. In the end, they’re not necessarily buying a product because a similar product didn’t exist previously. They’re buying it because they trust you as a founder, have faith in your skills, and align with your vision.
Those are great insights – Thank you so much, Florian!
Stay tuned for part two of our German Accelerator Coffee Session with Florian Otto to learn about his guiding leadership principles, how the investor relationship is a two-way street, and how COVID-19 can be a driver of innovation.
About Florian Otto:
An accomplished entrepreneur and former physician, Florian now drives growth and sets overall direction across all facets of Cedar’s operations as CEO. Prior to founding Cedar, Florian was VP of Sales at Zocdoc, where he drove the commercial adoption of the platform. Florian also founded a daily deal company in Brazil (ClubeUrbano) that was eventually acquired by Groupon. After the acquisition, he became Chief Executive Officer of Groupon Brazil, growing the company to one of Groupon’s top three international markets. Florian began his business career as a strategy consultant at McKinsey & Company within their healthcare practice. Florian originally is from Bremen and holds an M.D., D.D.S., and Ph.D. from the University of Freiburg, Germany.