Quintus Liu: Healthera, breaking down barriers between patients and pharmacies
Podcast transcription - 23rd march 2018
Peter Cowley: Welcome again to the Invested Investor. Today we have an interesting young entrepreneur called Quintus Liu, who I've known for two or three years. Quintus, welcome. Could you give me something about your background?
Quintus Liu: Well, I was born in China in 1993. I've always looked at my father, who was an entrepreneur. He built a business from the ground up, and he scaled it up. Obviously that was in manufacturing, which was the goldmine in China in 1990s. I moved to Canada when I was eight-years-old. Then I came to England for university for undergraduate in Cambridge.
Throughout university, I was looking at the various career paths and entrepreneurship obviously clicked with me. I founded a business with my friends straight out of university, well a few months before we graduated. Raised money, expanded our product line, developed a product. Now we're still at it.
Peter Cowley: We'll go through the journey because that's really interesting. While you were at university, A, what did you study and B, were you involved in any entrepreneurial societies there?
Quintus Liu: I was studying mechanical engineering degree in Cambridge, four year degree. I was involved with quite a few societies. That's actually how my journey started in entrepreneurship. I was initially a VP of Marketing at a society called QTech, Cambridge University Technology Enterprise Club. Then a US based venture capitalist named Michael Baum came into Cambridge to promote his program called Founder.org. What Founder.org does is it works with universities around the world, the top research universities, and funds startups right out of university by founders who are within one year of graduating from university.
I was recruited as a local university associate by Mr. Michael Baum who is worth hundreds of millions from his previous successful exits. I was very inspired by the American way of doing things, combining that with the British mentality of research and excellence and attention to details. I combined those aspects of what I learned from the Americans and the British, and we started this business after being inspired by Michael Baum.
Peter Cowley: Let's start with the business. How many co-founders did you have and what was their spate of skills?
Quintus Liu: Initially we had four co-founders. I was the one who was very savvy in business development and business strategy. We had an initial co-founder who was an expert. He brought the idea in through his understanding of biochemical and biomedical needs. We had two other co-founders, one who was specializing in marketing and design, user experience. The other in technology infrastructure, who is still leading the tech team today.
That team eventually grew from four co-founders down to three co-founders because one left. That happens. Now we're a team of nine or ten working full-time in Cambridge.
Peter Cowley: Can we just talk a little bit about why the co-founder left? The audience is interested in this. Commonly I will say if I'm lecturing that four co-founders becomes three. This is an example of that.
Quintus Liu: I didn't know it was a common thing. I think we have three co-founders there's natural equilibrium, because a table on three ... I'm being a little metaphysical. A table stands more stable on three than it does on four. With three you have a perfect match and you have a tiebreaker when opinions don't match up. With four, it tends to be a split among two and two. It's just more difficult to get along.
If you're looking at an early stage startup, for a team of three, I'm the CEO, so I'm holding the team together. I'm equally focused on product and the commercial side. One co-founder is purely on commercial. The other is purely on product. With four, you're always going to have a bit of a struggle of who's doing what. It's a little murky initially of who's actually doing what.
Peter Cowley: The actual departure of this co-founder, was that easy on both sides?
Quintus Liu: One of things when I look back that I'm very proud of is how we handled that professionally. The co-founder, we all knew that it wasn't really going to work successfully. We were able to make the departure as smooth as possible. He delivered some great ideas to the team before he left. It was handled very professionally.
Peter Cowley: Well done, well done. You're now three co-founders. Have you left university at this point or just left?
Quintus Liu: We have just left university. The timeline was we started the idea in February. We graduated in June, and we raised money from Cambridge Enterprise in November to truly kick off the business. It was a very bumpy ride, but it was also condensed in a very short period.
Peter Cowley: Cambridge Enterprise, can you describe that to the listeners?
Quintus Liu: Cambridge Enterprise is the commercialisation arm of Cambridge University. They spot and nurture and fund ideas coming straight from the university and try to make them real successful businesses. We were a special case because Cambridge Enterprise typically invests in high research oriented and IP heavy businesses whereas we are also scientifically focused in terms of solving a medical problem, but we're also focused on market and many of the typical startup elements of social media, sales, marketing and commercial software development.
Peter Cowley: What was the original idea? I think you pivoted slightly since then.
Quintus Liu: Yes. The original idea was solving the problem in medical compliance. We were designing a unique computer based algorithm to retrieve data from pharmacy IT systems and convert that into medicine taking schedules for patients. That was the initial idea.
Why we pivoted. We're much more commercially focused now on linking up pharmacies around the country into a gigantic network where patients can order their prescriptions effectively. The reasons we pivoted was because simply saying we needed a buyer for our solution, and working with our early partner pharmacies, they were nice enough to work with us and develop the adherent solution, but nobody was willing to pay out of their pockets so patients can simply take their pills in time. They want the patients to also order their pills on time and book more services from the pharmacies and generate themselves revenue, which made sense from a commercial perspective, so we thought we could either go down the path of research and raise money for research, hopefully sell the data to pharmaceuticals, or we could make some revenue early on. Better the business with organic cashflow and scaled network before anything else, so we went the route where we're building consumer software, and it went on from there.
Peter Cowley: The name of the company is Healthera
Quintus Liu: Healthera.
Peter Cowley: Health followed by E-R-A. Has that named changed as well or was that the name since day one?
Quintus Liu: The name from day one was Circuit Technology. It was a reference, sort of an obscure reference to an Egyptian god of health and sanctity. We gradually changed that because nobody knew what we were talking to.
Peter Cowley: Excellent. You had some funding. Is it in the public domain how much funding you had from Cambridge Enterprise to start with?
Quintus Liu: Yeah, Cambridge Enterprise plus family, friends and angels was £300,000. Later on we raised much more than that through government grants and development contracts since we built a relation with NHS, especially their award funding bodies. Commitment was in 2015, and a final sign off in mid-2016.
Peter Cowley: We're only talking 15 months since then. You started spending the money obviously on hiring. Can you tell me a bit about your hiring and potentially firing or churning?
Quintus Liu: I will have to say a lot about that because hiring and firing, if anybody asks me I'll always saying hiring and firing is the most difficult part. Building a team is the hardest part of building a business because once you have the idea in place, theoretically given that you can make great people come out of thin air, anything is doable with people, but it's not like that. Hiring is very difficult.
When you're a small business that nobody has heard about, you have very low credibility. It's very difficult to hire the best engineers like that. You have to really attract them with sometimes equity sometimes the dream, the vision, but also look through and sift through.
Even harder than that is once you hire someone who knows more than you on that specific field, how do you manage them? If you're absolutely going to go hands off, then you might get tricked and duped into thinking that they're doing something when they're not. The key thing is to both give them the flexibility to expand and to be creative as well as set strict expectations as a big corporation would so that they're working within your guidelines, but they're working to the best of their creativity within that guidelines.
Peter Cowley: None of the three of you, and you'd be about 23-years-old at that point, had managed people before.
Quintus Liu: No, we have barely been managed before, let alone manage people. Now, I think, we're becoming stricter with our rules, setting up guidelines and policies so that the policies can manage themselves. We're becoming quite good managers. We all have slightly different management styles, and we all directly manage some of our employees. Some of us are a bit more lenient and almost motherly in nature, while the others are tougher and no nonsense taken. All of us, we all care very much, very deeply about their employees and about their welfare.
Peter Cowley: Are the employees all based in one location or spread around the world?
Quintus Liu: We've had occasion where we had to have contractors and part time and short term employees from different places, but now the vast majority of the team, besides one sales person, is based in the office. That's how we feel it works best. We don't agree with the recent, if you could call it a trend, of working remotely and people promoting the concept of freedom. We think that having the team, especially engineering team, working next to each other is the best. It's the most productive way to track progress, to ensure accountability, and to ensure a strong team bond. We believe in strongly working in the same office.
Right now we have a still small office. We have nearly doubled the size now, but Cambridge is a great place to hire engineers and people to work together.
Peter Cowley: Excellent. You pivot to some extent because of doing some market research and in fact you're moving towards market. Before we move on to the market and how you found those people, we have, as you say, quite large government funding from both in the NHS and I think from Innovate UK. What were those projects for?
Quintus Liu: The NHS project is our product branded in a way that aligns with NHS interests, which is cutting down the incidence of accidents and emergency attendance. The government has a huge problem with it, especially in the winter months. People coming into A&E and research shows something like 10 or 20% of those attendances could be prevented if the patients were taking their medications properly. Naturally it became a fit for the government to fund a product that deals with medical compliance.
What they liked especially about our project was the fact that we didn't need government funding to actually run the project. The pharmacies are funding it. We're funding it through private market. They're essentially putting in some seed capital to make it grow.
The second project was by Innovate UK. How we won that funding was through working closely with a pharmacy software provider who is a leading provider in Europe for any sort of healthcare or pharmacy IT. The reason that was attractive is first of all it is one of the first ones that integrate a well-established healthcare system that you might think takes years and years to evolve. We're integrating that with a fast moving startup product. Bringing in the best of both worlds. That is one of the barriers that most startups have a lot of difficulty in overcoming in working with the establishment. They all want to build their own thing, and they're good at doing that. How do you make the data work? Not just the data, but how do you make the business model work within the established value chain? That is a difficulty that we were very fortunate to overcome with this partnership and with this grant.
Peter Cowley: Yeah, we'll talk about route to market in a minute. It's interesting you used the word 'capital' because it's actually non-diluted at capital, something that a lot startups should love because effectively you've got probably many hundreds of thousands of pounds without actually having any dilution to your ownership. This were grants and SPRI-
Quintus Liu: Contracts.
Peter Cowley: And contracts, yes. Exactly.
Quintus Liu: Yeah. What we like to say is that as a buffer to our equity base, so we can raise less money and do more. The people who do invest in us would own a bigger part of the company because they don't have to invest next to some huge VCs initially. It was very helpful definitely, yeah.
Peter Cowley: Okay. Of course, route to market and market fit are really, really important. You did this by working with pharmacies or working with the NHS, etc., to try to work out what was needed most from the original IP you generated?
Quintus Liu: Yeah, mostly pharmacies. I think for a young entrepreneur company out of university, without having worked in an industry for a few years, it's very difficult to find a real need besides finding someone to go to the pub with and those overdone and very tried ideas. The more we worked with our customer pharmacies the more we understand and dig deep into the industry, into the value chain to find out what's happening in the industry, what are the changes and how are they overcoming the challenges posed by these changes.
We find that there is several changes. One is Amazonisation of things.
Peter Cowley: That's a new word.
Quintus Liu: Amazonisation of things, which is posing a challenge. The other is drastic government cuts to their baseline, so they have to innovate. Going along with the wave of basically demand driven innovation, we want to be at the forefront of this innovation by taking them from where they are to where they could be with innovation. Without going around in circles, I think you have to let the customers tell you what the needs are. Simple as that. Before you dive into building made products, the greatest products, and we've made this mistake ourselves, find out if this is something they would actually want to use and pay for and not just your friends in industry that will say anything to make you happy, but the no nonsense pharmacy bosses who own 20 shops, would they pay for it? If they would, then probably it's got value.
Peter Cowley: You've done that by getting some of them using it already, and you'll start charging for it shortly, won't you?
Quintus Liu: Yes. We initially made friends with all the independent pharmacies in Cambridge. Naturally as you can imagine, their opinions became of less value because they knew us so well. What really kicked off the company was making our first full-time sales hire. As founders we all had a tendency to do sales, so we built our initial partnerships early on. To really scale up, we hired this sales lady with many many years of experience in sales. Working with her, we expanded our customer base to over 100 pharmacies. With a group of 100, you get tons of different voices, honest voice, because they don't know you so well. They have a high expectation on your product because they don't know that you're a startup out of university. They think you are a well-established company. When they dig deeper, it makes it interesting, not worse for them.
Peter Cowley: Then of course because working with this pharmacy software provide they gave you the route to the market to the pharmacies. Presumably this company introduced you to these pharmacies or some of them anyway.
Quintus Liu: Actually, the number is much less than we would have liked because working with a big company with a lot of departments and each department having its own private ventures, it was very difficult to get a lot of material benefits out of them. There was a partnership which added credibility to us pitching, but we still did all the pitching. We used various methods. We had much more luck getting referrals from a small union of pharmacies than with a large software company.
It's very important to have strategic partnerships early on in the business, but never count on them. You still have to do the nitty gritty. You still have to do the work. Even when the interests are aligned, nobody would have your interests at heart more than you do. The company itself, you still have to think about doing all those sales and marketing.
Peter Cowley: Something that many startup companies struggle with, particularly if they're disrupting a market, is pricing. Have you managed to work out yet what the value you're creating is and what proportion of that you can capture, i.e. the price you're charging?
Quintus Liu: Absolutely. What we find is these funded buyers, because we're promising a return on investment in terms of more customers and more prescriptions, it's very difficult to charge them a heavy up front before the benefits actually come in. We found a sweet spot for that, which was about 50 pounds a month or 300 to 500 pounds a year when they're buying it in bulk. This is an amount they're willing to invest as a ticket to this gateway to this new model. That's the initial price.
After that point, the model that works best for this industry and for what we're promising is a commission based on how many new patients we bring them and how much more volume in dispensing we give them. For our first four months, we increase the partner pharmacy's dispensing volume by about 15% next to their competitors losing 1 or 2% around the area. Naturally prescriptions are being drawn to these more competitive pharmacies. Charging a small amount on the additional value we generate, we can generate thousands of revenue per pharmacy, not just hundreds.
Peter Cowley: That model doesn't work in the longer term because it's in every single pharmacy, and they can't be stealing from each other. In the short to medium term that's fine.
Quintus Liu: In the short to medium term, absolutely.
Peter Cowley: You're also working other methods of monetization, aren't you?
Quintus Liu: Exactly. What we discovered was in terms of market gaps in the UK, there are prescription services that pharmacies do for patients, but there isn't something that's so valuable that patients are paying for it at the moment. We decided to invent a solution that is inspired by a similar solution in the States where patients are paying $20 a month for. This is something that is going to be released in the next coming months. By building something that people didn't pay for yet but will pay for, this opens up an entirely new dimension which adds value to the market instead of just channel value from other sources.
Peter Cowley: Can we talk about defensibility? Obviously this isn't patentable I'm sure. How defensible do you think this idea is? How far have you taken the company so far?
Quintus Liu: This idea is the type that gets more defensible the bigger the traction gets because the appearance of success itself is a big deterrent to new comers. When we first came in there were next the no competitors in this space. Now there's about one or two, but we're all working in different ways towards the same pool of prescriptions, so we don't really see them as competitors.
In terms of defensibility, our network with pharmacies is going to be a strong shield against any competitors because there are only so many the market can hold in companies that do exactly what we do. There's no direct competitor in this field yet. The next defensibility is the partnership and technology integrations. Once you work with these pharmacy integration providers and machine providers, then your next integration and the next one after will be very small marginal cost to you, whereas for new competitors they have to rebuild all the relationships and figure out technologies. For larger companies it becomes more feasible just to acquire or rent the whole thing. For smaller things, they will go for a different route and not challenge you in this market.
Peter Cowley: Thank you. Can we just talk about the advice you've had from shareholders, from advisors and from board members? I'm assuming your board has been consisted of more than just the three founders, has it?
Quintus Liu: Yeah, our board is five. Three founders, the investor/director from Cambridge and an industry executive that we brought in from the Netherlands, who works in pharmacy automation and has 20 years of experience in the field.
Peter Cowley: How did you find him or her from Holland?
Quintus Liu: Just through networking through LinkedIn. A tip for entrepreneurs. Keep networking. You never know who you're going to run into.
Peter Cowley: Did they join the board quite early on?
Quintus Liu: They joined the board before we even raised funding, just entirely out of interest. Now there's commercial synergy between our businesses, but initially it was just out of interest in what the market is doing out of the passion for helping young entrepreneurs.
Peter Cowley: Is it a he or she from Holland?
Quintus Liu: He.
Peter Cowley: Does he come over to board meetings from Holland?
Quintus Liu: Yeah, he flies in every month. That's a lot of dedication to the business.
Peter Cowley: Excellent. What do you think you've learned from him, and is it Tanya on the board.
Quintus Liu: Yeah, Tanya. What we learned from Tanya, who was a lead investor for the last round, adds a layer of accountability to the business because now you're accountable to a level above. The modern corporate structure, always shareholders on top, and then the directors and then the management. Now you have a level of shareholders who are not management that you have to be accountable to. You have to be accountable to their interests, so you have to spend money wisely and expand the business fast and do whatever it takes to benefit the guys who own the companies. That's the level of accountability which adds to how the founders are performing.
Peter Cowley: What about things like advice with hiring and firing and officers and all the other things that one needs to do?
Quintus Liu: They act almost as a chairperson. They act as a voice of sanity that are not so deeply involved in the daily firefighting and battles. They can take a level up and look at how things should be done from a greater perspective, comparing you against other portfolio companies and reminding you to always keep an eye out on competitors and threats and opportunities. They've all either intentionally or unintentionally given us advice or connections that would have a butterfly effect on the company's success.
Peter Cowley: That's a great analogy. Can you explain the butterfly effect?
Quintus Liu: Okay. One introduction leads to another introduction, which leads to a big strategic deal. That's the kind of butterfly effect nobody would expect that would happen initially, but it happened. For the Dutch board member, for example, he made an introduction to a pharmacy which had this brilliant idea. We met. We had this brilliant idea of building this online presence. One thing leads to another. It's like solving a puzzle as you go along. You never know what's going to happen next.
Peter Cowley: What about the rest of the shareholder base, which were mainly family and friends at this point, weren't they?
Quintus Liu: A small fund from the States, which was run by my high school classmates, so keep your friends close, and some family and friends and my father being an entrepreneur also invested in the business with strict standards as well for performance.
Peter Cowley: Yes, father son relationship there. Look after my money. Have they contributed at all, the shareholders to this? Probably not, because they're further away.
Quintus Liu: They are a big further away, but one of our shareholders comes to board meetings as an observer. Some of them ask for more updates than others. The ones that do ask for updates, they also help the company with staying accountable, which is so important. It's easy to be accountable to ourselves. Everybody has a tendency of tweaking the standards to what we're already doing.
Peter Cowley: To post-rationalise.
Quintus Liu: Post-rationalising. When you're rationalizing things and justifying things to stakeholders, you have to be a lot more logical.
Peter Cowley: At early stage it's quite common also for people to build up advisory boards. Have you done that?
Quintus Liu: We have advisors. One from the Institute of Public Health, who spent 20, 30 years in medical compliance research, who helped us bring up the idea and design a solution around the idea initially. We don't have a formal advisory board because there aren't enough advisors to form a board yet. As we go along we may think of doing that, a business advisory board.
Peter Cowley: Yes, I mean, I've got examples in my portfolio where they've done it effectively and ones where they struggle to do it. You're no different there. You're raising money at the moment. I know I saw you pitch quite recently. Can you tell me, solely about that raise, but what do you feel the journey will be like in the next year or two?
Quintus Liu: We feel like we're at a stage of rapid development and inflection. Our first model has been proven and tested with a pharmacy base, and now we're just about to bring more and more value, which takes capital to get there. We're also very hopeful because this models were proposed by our partners, and executing them is the simple and next step. How we feel about the business going forward, we'll be growing the business, the team significantly through the next half a year and raising a series A to scale up the marketing and sales front, potentially outside of the UK.
Peter Cowley: Yes, exactly. That was my next question. You've obviously got connections in Canada. You've got connections in China. What's the next market you want to approach?
Quintus Liu: The next market is more likely to be Europe. We already have some customers in Ireland I forgot to mention. With our board presence in continental Europe, Europe seems to be a logical next step. Compared to Canada and the States, prescriptions are mostly government paid for, so it does make continental Europe more similar to the UK than perhaps America or Canada. That's our next target, the European market.
Peter Cowley: America you very well may have a competitor of some form, I guess.
Quintus Liu: It would be difficult to consider America before at least a series B funding.
Peter Cowley: Yes. Longer term, where do you see this business going? Is it going to exit? Is it going to float? Is it going to be a big business that you'll own for many years?
Quintus Liu: This type of business is potentially one that can go many ways. Our ideal scenario is to build this to be big and float the business and return money to shareholders, but also keep running the business. We feel it has potentially to hack into a huge market that is worth many billions. The growth doesn't really have a limit at this stage. An earlier exit is also possible.
Peter Cowley: If there is something that keeps you awake at night worrying about it, what would that be at the moment? What's your main worry within the business?
Quintus Liu: Well, I don't sleep a lot, so-
Peter Cowley: So it doesn't keep you awake.
Quintus Liu: I think everything that's happening on a daily basis could be construed as quite worrying. To some extent as founders we've become desensitized to things keeping us awake at night. If good news happened, great, we'll have a beer and celebrate. If bad things happen, then pass it on. What can you do? We'll focus on what's happening next. In the literal sense, keeping me away, nothing much. In a figurative sense what's keeping me awake at night is-
Peter Cowley: Nothing. You can't think of anything, can you?
Quintus Liu: There has to be something. Yes. I'm really worried that my next shipment of monitors won't be coming in on time because we have new employees joining us.
Peter Cowley: If that's the worst thing you can worry about, well done, Quintus. It's been really great talking to you. I've learned a lot from you. It's been a couple of years since I first met you, and I really wish you extremely well in your journey. You're going to make a big difference in this industry. Thank you.
Quintus Liu: Thank you. I'm certainly hopeful. It's certainly great to be at the crib of professional angel investor. There's much more papers than I thought there would be.
Peter Cowley: Thanks for listening to another Invested Investor podcast. You can subscribe to all future podcasts via our website, InvestedInvestor.com or via a number of online podcast platforms. Be sure to follow us on Twitter, LinkedIn and Facebook to get the most up-to-date, interesting and insightful content.