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Last month I wrote a tiny rant about health insurance here, and ironically, I heard about Carl Natenstedt the same week. Carl is CEO of Z5 Inventory, founded and headquartered in Austin, TX. Z5 Inventory went live with the first version of their healthcare inventory management application in 2014. Their mission supports the cost control and greater access to medical services; what’s not to like about that?
Mary Juetten: What problem are you solving?
Carl Natenstedt: Every year, US hospitals throw away $5 Billion in expired medical and surgical supplies. Z5 Inventory is on a mission to eliminate that waste through better inventory management. Other companies might have a nebulous purpose or mission statement; ours is entirely concrete. Our combination of proprietary analytics and support staff help hospitals move, sell, and donate the product they don’t use, then empower them to buy what they do use at prices lower than manufacturers and traditional vendors can offer.
And, along that journey, we’re helping make the price of healthcare more affordable for the masses and lowering the number of healthcare products that end up in landfills. If we can do some measurable good while we’re improving healthcare, even better.
Juetten: Who are your customers and how do you find them?
Natenstedt: We’re here to help any healthcare provider who buys and manages lots of medical supplies. There are over 5,000 hospitals in this country, and they buy over $200 Billion of medical supplies annually. That does not include every ambulatory surgical center or freestanding Emergency Room.
Using a combination of industry datasets and analytics, Z5 is able to identify the healthcare systems that need the most help. Once we know who to talk to, we can calculate just how much we can save them.
Another resource, outside the usual suspects like trade shows, online advertising, etc., is a network of allies who know the value of the product. That ranges from consulting firms to industry organizations to satisfied clients.
Because the hardest part of any startup is getting people to listen. If your offering is strong and fits the target market, or has a good “product-market fit”, you win business.
Juetten: How did past projects and/or experience help with this new project?
Natenstedt: I’ve had a particularly focused startup career. Twenty years ago, I was helping hospitals optimize their supply chains digitally. Ten years ago, I was using data to optimize hospitals’ contracts and buying. Now we’re leveraging data to eliminate hospitals’ supply waste. Each idea has built on the last one and led to the next one, uncovering another problem that no one had recognized before.
And, of course, part of finding new customers is prior connections from prior customers. When you schedule a meeting with someone you know, they think, “Hey, he fixed my last problem,” so there’s a lower hurdle to convince them of the value of this one.
Luckily, from several successive startups, I knew when you try to scale to the next level where sales are getting their own prospects without those existing contacts; that’s where it gets a lot harder. And my past experience helped me prepare for that, too.
Juetten: Who is on your team?
Natenstedt: Every startup requires a core set of founders and early investors who are aligned toward the same goal. Without their support, any entrepreneur will fail. You can’t do it all yourself, and you’ll burn yourself out if you try. Many good ideas go undeveloped or awry because of a misalignment of the original founders and investors.
I’ve also been very lucky with my leadership team. Some of them have been here for four or five years, which can be rare in a startup. But you need that dedication. Individuals who have critical skillsets and the ability to drive growth are crucial to a business to business (B2B) offering like ours that has a longer sales cycle and more complex offerings. It’s not the next flavored vodka; you need big thinkers who understand how it all works.
Juetten: Did you raise money?
Natenstedt: Yes. But we tried from the beginning to build a “capital-efficient” startup. Instead of raising lots of money and spending it everywhere and seeing what stuck, we designed ourselves to work in a narrower, more targeted way with less. Which is easier to do once you’ve done it a few times before.
Our initial founders and a small group of people we’d been in business with before, and founded other successful businesses with, got the startup going, and we’ve done two rounds of funding with angel or family funds types of investors who are closely aligned with the company and the management team.
Juetten: Startups are an adventure — what’s your favorite startup story?
Natenstedt: My very first time pitching a startup, I had a connection to a billionaire looking to start an incubator for small businesses, so I asked to have lunch. Over the course of the meal, he and I hashed out the business idea and gave it a name, which he wrote on a napkin along with a figure. $2 Million. I couldn’t believe it.
It’s a scene that would seem cliché if you saw it in a movie, but it actually happened to me. It was an incredibly risky move—for me even more than him—but it paid off.
That kind of exhilaration validates all the time and effort you’ve put into this risky idea. At Z5, we experienced it when we signed the biggest contract we’d ever signed with one of the biggest healthcare provider networks in the country. It was days before our Christmas break, and we all walked out of the office high-fiving each other on securing the best Christmas present any of us could’ve hoped for.
Juetten: How do you measure success; any stories to share?
Natenstedt: One way is to step back and ask yourself the questions: “Are our customers getting the value out of our solution that we thought?” and “Is that evident by them sticking around, even paying more for it over time?”
These are all true measurables of a more nebulous idea. Answers to those questions are more important than just the revenue and growth numbers. Those answers are the cause of those other success metrics.
When your competitors are sniffing around, worried about the way you’re doing business, you’re making it. When industry players ask how they can partner with you, you’re making it. When one of the biggest, most respected companies in the industry signs a multimillion-dollar agreement with you, you’re making it.
Juetten: Any tips to add for early-stage founders?
- Focus on big problems, big opportunities, and big markets. If you’re going to dedicate yourself to something, make it something with a substantial return on your investment.
- Be close to your customer. You can spend a lot of time and money building a solution, but you might miss the boat entirely because you weren’t listening to your customer and understanding their needs or their obstacles to success. Don’t lock yourself in the ivory tower; listen and learn.
- You don’t have to wait till your solution is perfect or 100% complete before you start selling or deploying or showing it to customers. The first version of the Z5 Inventory app was by no means perfect, but we had enough to start solving the customer’s problems, getting their feedback, and iterating. Founders who are mired in the technology and development get stuck. You have to get real-world experience and talk to people.
Juetten: And of course, any startup horror stories to share?
Natenstedt: When a major investor turns on a company, that’s when things go sideways. That’s a founder’s worst nightmare. As a founder, when you’re spending more of your time managing an investor instead of focusing on customers and employees, you’re in trouble. It can take all the fun out of the job and ultimately kill a company. I’ve seen it happen. It almost happened to me. When you look back on it, trying to make that one person happy and keep them from interfering with the business is days–even months–of wasted time and mental effort.
Juetten: What’s the long-term vision for your company?
Natenstedt: Ultimately we want to eliminate waste from the hospital supply chain. Take that $5 Billion down to $0. That’s the big-picture-pie-in-the-sky goal. To reach that goal, we’re constantly streamlining our analysis of healthcare inventory data and the process of moving medical supplies from a facility where they’re excess to one where they will be used. And we’re spreading the good word about what we’re doing. That there’s a better option than just throwing out those sutures, catheters, or end mechanicals.
Another piece to the puzzle that is our healthcare system. #onwards.
April 4, 2019 at 08:22AM
Forbes – Entrepreneurs