What’s up, everybody? This is Courtland Allen from IndieHackers.com and you’re listening to the Indie Hackers Podcast. On this show I talk to the founders behind profitable internet businesses and I try to get a sense of how they got to where they are today, how they make decisions both in their personal lives and at their companies, and how the rest of us can learn from their examples to go on to build our own successful internet businesses.
Now, this show is just one part of Indie Hackers. There’s also a website that you can find at IndieHackers.com, where there’s an entire community of founders and aspiring entrepreneurs helping each other get started and helping each other resolve the sort of day-to-day, practical challenges that you run into as a founder.
In addition, there are full transcripts of every podcast episode, including this one, at www.IndieHackers.com/podcast.
Today I’m talking to Katelyn Gleason, the founder and CEO of a company called Eligible. I think Katelyn is proof that passion and grit and tenacity are really the key ingredients to being a successful entrepreneur. Paul Graham, the creator of Y Combinator, has called Katelyn his role model and for good reason, I think. Katelyn has been successful at a great many things, from acting, to sales, and now as the founder of her company, which develops APIs for medical eligibility, claims, and payments.
So I’m super excited to have you here, Katelyn. Welcome to the show and thanks for joining.
I just spoke with Steli Efti, who was part of the same YC batch where I first met you a couple years ago – or I guess that was six years – excuse me, seven years ago now.
Al long time ago now. (Laughter.)
Yeah, tell me about it. But you know what? I never stopped hearing about you. I’ve continued to hear good things about you and about Eligible since you started the company right after YC.
Really? I thought I’m quiet.
You know what it is? It’s because we were Facebook friends, and so I see your posts there.
Okay, I’m not quiet on Facebook, yeah.
No, you definitely talked about what’s going on there.
I use that for marketing and for recruitment, so yeah.
Well, I think everything that I’ve seen and everything that you’ve been doing is awesome.
But I have to admit, I know very little. We’re going well out of my area of expertise. I know nothing about the health care space, I know nothing about insurance, I barely even go to the doctor, and so in this interview you’re going to have to do a lot of explaining.
So why don’t we start with you explaining to the audience what Eligible is and how it works?
Yeah, I always like to give the quick anecdote that a lot of people can relate to. So you know when you go and get some lab work done – or you say you never go to the doctor, so maybe you can’t relate to this. But essentially, most people, if they go and get a lab, they’ll kind of stop at the front desk after done with the lab, and the front desk will collect something like $20.
And then two months later, that same person winds up with this mystery bill for $100. And they kind of go, “Wait, why?” And the reason that’s happening more and more these days is because there’s this saturation going on in the health-insurance market with more and more plans carrying not only a copay but also now a deductible and a coinsurance.
So estimations for a patient’s liability upfront are typically wrong. So most people are kind of being told, “Oh, here, let me get your copay” and never that they’re going to get this random surprise bill. So Eligible targets that problem, and a multitude of other problems, but that’s the biggest problem. That’s our area of focus today.
We work with large health care institutions to solve that. So our health care institutions tell their patients at scheduling how much they’re going to owe upfront, they build our APIs into their software inside of their call centers or inside of their iPhone apps for a patient to schedule, and then they tell the patient, “Hey, you have a deductible that’s going to be $150 or $120.” And then the patient actually pays that. They pay what they owe for the service right after it’s done, not months later.
So yeah, they use APIs to do that, and that’s our area of focus. So I hope that brought some clarity to what we do.
That makes a lot of sense, and we’re going to dig into some of the details here, because I think they’ll certainly be important to understand how you were able to start this business.
Yeah, I’d love that actually, yeah.
I think most companies that are involved in sort of insurance and health care, I just assume that they’ve been around forever. I’m like, “Okay, well, this company got in because they were part of how this insurance industry got created or they’re part of how the health care industry got created.” But you created Eligible – when was it, 2012?
Yes, 2012. And actually, we incorporated in 2011, November 23rd, 2011. But 2012 is when we got into YC ourselves as Eligible, so that’s really when the company started churning.
Yeah. So I got ask you right off the bat: Breaking into an industry like this is hard. What do you think has been the hardest part of starting a company like Eligible?
My god, there’s so many hard parts. Do you want me to pick one?
Yeah, just pick a random hard one.
Oh, my god. Let me actually give you an intelligent answer, because there are so many hard parts. The biggest thing for us is the need from day one to have the infrastructure in place to be in tip-top shape from a compliance and privacy and security perspective. The vast majority of our investment over the past five years has been in automating every certification and compliance order that we could possibly get.
Our systems, our teams, our customers, everything top to bottom is ironclad when it comes to compliance, security, and privacy. And we truly have no other choice but to make that upfront investment. So the hardest part is, because of that, you just have to go slower than you would like to go. There really isn’t a “move fast and break things” here. You can’t break things. It’s health care.
So I was lucky enough to have come from drchrono’s, so I think that that experience definitely made it very clear to me that I had to start from scratch there. One of the very first things that Eligible did was we – I personally at my kitchen table started digging into the HIPAA compliance spec. It’s a 5010 spec and it’s a data spec. It’s an electric data interchange. It’s called X12 EDI. And that was one of the first things that I really learned. There’s an eligibility X12 EDI transaction, and it was the first thing I learned to really get into this.
So definitely, the hardest part is you have this enormous amount of kind of you got to pay this tax, this compliance, privacy, and security tax. And you don’t get to move on and pass go until you sort of pay that tax, so that’s definitely the hardest part.
Yeah. And hopefully, all of your competitors are paying the same tax that you have.
Oh, yeah, oh, yeah. And there’s a huge moat now because of it. So now we are definitely, because of the grit and the tenacity and the just sort obsession on probably my end, this OCD, that now we definitely benefit from that same tax. I would be silly not to admit that. We definitely benefit from it.
Moats, I love it. We’re going to about moats. We’re going to talk about all sorts of strategic stuff here. Before we get into it, let me just ask, to provide some context for listeners: How successful would you say Eligible is? How big is it, how many employees it is, how much revenue do you do?
Yeah, there’s only certain sort of factors that we share publicly, so I can tell you this. So the company is already processing on a monthly basis billions of dollars in health care expenditures that cross hands between patients, providers, and insurers, but something like close to 20 million transactions per month. So it’s really high volume.
That reaches – because some of our partners are large health care systems and other ones are large vendors that service hundreds of large health care systems. I think the last time we checked, we touched over 100,000 providers on a daily basis.
That’s quite a lot.
Yeah, the reach is really large at this point. Some of our customers are huge vendors that have actually – you would probably consider them incumbents that have been around for a very long time.
All right, so let’s get into this. First I want to know how you know all this stuff. No one comes out of the womb like, “All right, we’re going to help reduce deductibles and build APIs to help doctors and” --
Are you saying my theater degree didn’t make me qualified? What are you saying? (Laughter.)
Well, let’s start there. How do you go from being in theater to deciding that you want to start a company and that you want to start a company in the health care space?
So I kind of came up very, I guess, lower middle class. And I don’t say that to my family because they’ll get offended, but definitely middle class. My parents are incredible at love and affection and all that stuff. And I was really fortunate that way, and they always had thought I could sort of take over the world, so really fortunate that way. But I have a lot of grit in me built in since the time I’m 13. I literally started working when I was 13, and I just have wild pragmatic optimism. So I’m very practical, but I’m also wildly optimistic.
And I guess the original question was, “How did you learn all this?” Well, I fucking taught it to myself. (Laughter.) I don’t know what else to say. Literally, I talked to everyone I could possibly talk to. I read everything I could possibly read. I tested, I built, I took this job at drchrono. I did everything I had to do – the work, the grit, the real work. There’s nothing you can fake here. I did the real work to get here, so that’s how I learned.
I like your description of your childhood because it’s so similar to mine. So lower middle class, very loving, supportive, you-can-do-anything-you-want parents. And I think what’s funny about growing up that way, at least for me, is I kind of never realized that not everybody’s childhood was like that until I became an adult. And I was like, “Oh, some people had very unhappy or difficult or unsupportive childhoods, and I’m pretty lucky to have had what I had.” And I think it certainly gives you this degree of confidence that you can do things.
And there’s so many clichés about, “Okay, just believe in yourself and you can do it.”
No, no – yeah --
And really corny, but there’s a lot of truth there.
Yeah. My dad’s like Walt Disney. I’m not kidding. He is just like, “Make a wish.” And I think I just had to teach myself was, “Yeah, you make that wish, but you go work your ass off for that wish.” And I had some really key people in my life even during that age all the way up until now that are still in my life that – just friends and colleagues and stuff that really made me realize, “Oh, no, it’s great to make that wish and it’s important, but you’ve got to work for that wish too.”
Once those two things click together, that’s when it really happened for me.
So when was the first time that you decided that the work you wanted to do might involve being an entrepreneur?
Interesting, okay. So that really goes far back. So I was around 17 or 18 years old. And first of all, I started working at 13. I was something called a pastry girl (ph) at a restaurant. And then I came up through that restaurant and then I ended up sort of running the restaurant by the time I was 16 or 17, literally running it, and working full time. And then I actually got a job at retail and I worked there for another two or three years, and again, working full time. So I’ve been working full time, I think, since I’m 17, right around 16, 17, so 40 hours a week.
Can I ask why? Were you just trying to support yourself or was it just ambition?
I wanted that shirt, I had to go buy that shirt, and I wanted that (inaudible). You know what I mean? It was like, “You want to go do that, you want a car, you want to drive it, you want to put gas in it?” I paid everything; insurance, the monthly bill, whatever. So it was all about me wanting things, basically.
So yeah, that’s how I – and then when I got into business, it was because I was kind of – I felt like I was working a lot, but I knew I could make more money. That was literally what it was. I was like, “Okay.”
So I started investigating different paths. And my friend had a sales job. And she’s like, “Oh, it’s so great. I make this commission.” And I was like, “Wait, what’s commission?” And she’s like, “Oh, you actually get paid every sale you make.” I’m like, “Oh, I will own that. Where do I go, where do I go, where do I go?” And I’m dead serious. And I was just (inaudible).
So I’m going to school for acting, whatever. I was going to Stony Brook University. And I get this sales job, and I don’t even think the company is still in existence. It was a business-to-business directory. Now, this was 2003, so this was before LinkedIn, but they could have been LinkedIn. That’s what they were actually building. And looking back, I’m like, “That was pretty useful.” It wasn’t a great product, but it connected people. It totally could have been something really great.
And here I am; I just start selling. And I start engaging professionals and I start connecting them with other professionals I know, and it was so natural. I did not have to – all I had to do – they taught me a script, and I’m already going to acting school. And I’m like, “I know how to (inaudible) a script, I know how to do a pitch, and I know how to” – they would teach you objections and rebuttals.
And all of a sudden, by 20 I’m running that – I built a sales team for them and I’m running the sales team and there’s 40 of them. And I’m making them a lot of money and I’m going to school acting the whole time. So there was just this whole – I don’t know. It just became really natural to me.
The reason I left that company was because – and this actually shaped the rest of my life – was it pissed me off that they didn’t care about the product. I saw the opportunity. I saw what it was capable of, and they just wouldn’t fix the product. They wouldn’t improve the product. They were totally fine with it just sort of being what it was.
Yeah. So for me, I didn’t want to just sell and not be proud of what I was selling. I knew I could sell.
I think there’s something about being in sales too where you’re constantly dealing with customers’ objections and their complaints, where you become acutely aware of the problems in any product. And it must be infuriating when they’re not fixed because it makes your job harder.
So much harder, yes. And for me, I’m obsessed with empathy and I feel for people. So I was just feeling for these people. I’m like, “But it’s broken. We need to fix it (inaudible).” That sort of (inaudible).
So existential crisis. I was like, “I’m never doing business again. I don’t care.” My mom and dad were like, “You’re making more than daddy right now.” I’m like, “I don’t care. I don’t care about money. I’m an actor. I’m going to go waitress.” And I actually did. I didn’t care. I didn’t want to be in that corporate world. I felt like that was everything. Everyone was just a person who was going to sell and not build something great.
So besides some of the negative things about not caring about their product, were there any things that you learned, any skills that you picked up doing sales that have sort of carried forward to this day?
Definitely, yeah. I definitely know how to run sales. That’s what I do.
It sounds like any business that you become a part of, you end up running it.
From restaurant to sales to whatever.
Restaurant, retail, then sales, and then Eligible, yeah.
Why is that? How does that happen exactly?
I don’t know. It’s a very gregarious thing. It’s a very loving-life sort of thing. I’m just excited by challenges. I think I’m also fortunate. I like to work. I actually prefer to work. If I go on vacation, I’m still working. It’s just probably in a creative setting. I’m doing something creative. I don’t know why that is. I would attribute it to hard work. I don’t know, I don’t know.
Yeah, that’s fascinating.
That’s a really tough one. I don’t know. (Laughter.)
Well, maybe we’ll figure it out in the course of this conversation.
Okay, you tell me.
Or at the very least, we can just make something up.
You tell me.
All right. Well, let’s talk about how you eventually got into the health care space. You’ve mentioned drchrono. I know what drchrono is, but people listening have probably never heard of drchrono. How did you get involved with drchrono and what was it?
Okay. So where we left off was: Here I am, this artist. I’m like, “I’m going to just work at nighttime. I’m going to go to every library in New York City during the day and try and audition.” This was my premise.
And then all of a sudden, I got really sick of working in restaurants because they have a different lifestyle. I don’t drink, I don’t do drugs, I don’t smoke. I wake up at 5:00 a.m. and I start going at 5:00 a.m. It didn’t fit the restaurant lifestyle and it got me actually really depressed. And I was 22, 23. I can’t remember; something around there. And just going through that existential crisis of, “Oh, my god, I got to get out of here.”
And I started reading all really old, historic, what I call “romantic” – I’d find Benjamin Franklin books. All old (inaudible) sensual and romantic. I’m not even kidding. I love old history.
Did you just call Benjamin Franklin “romantic?”
Yes. I just --
I don’t know if anyone’s ever said that.
I know. It’s just very romantic to me. I don’t know what to say. It just became very romantic to me. And I read Ben Franklin and I just read about Virginia Woolf, and I even read Ayn Rand and I just read every – I don’t know. I just read every book. I just read everything, and I just became a voracious reader.
And I did that for a couple years and I kind of stuck with this. And then, eventually, I was looking for a sales job because I kind of gave up. I’m like, “Okay, I’ll go back to this because I need to make money. I got to pay the rent. So I’ll go back to the corporate world on one condition: I will sell if I can somehow impact the product, if I can somehow be involved in the product.”
So I went on Craigslist in New York City and found drchrono and I went to the first interview. And I walked into a co-working space. Now, I didn’t even know startups existed, so I had no idea what a – I thought the whole floor was Mike and Dan’s from drchrono. I was like, “Oh, cool. This is great. Wow.” And I didn’t – I left and I still thought that. I didn’t know.
But they explained to me, “We’re coming out with this new product.” (Inaudible) was a new product line. “We’re coming out with new product.” And it was super exciting and it was awesome. It was like, “Oh, my god. This is exactly what I’m looking for. I’ll help them with something they’re not good at.” They didn’t like to sell. “And I will” – they had invested a lot of their own money, they weren’t able to raise capital. This is 2010 in New York City, so it was a little different time. And it just seemed really perfect to me.
And when I tell you I dropped everything and I just became their apprentice, I guess. Is that the word? I just dropped everything. I literally just focused 90-hour weeks with them. I did everything I could to get that product live with them, to sell (inaudible) for them, so much so that when Mike and Dan got into YC, they brought me with them.
So there I was in health care. And then all of a sudden, I was in engineering and startup land and designed their iPad, their EMR iPad with their designer. I was very much engaged in the product lifecycle. So all of a sudden, it just landed right from the romantic Ben Franklin book. (Laughter.)
I remember seeing you and the drchrono founders in Y Combinator. I don’t think it ever even occurred to me that you weren’t a cofounder.
I think everyone thought that. I think I’m the only employee ever to go through YC.
Yeah. You just did the whole thing with them.
What did you get out of that process, if anything?
PG (ph) and Jessica were amazing with me. And I guess maybe I – I don’t know if I ruined that or – I don’t know. They never (inaudible). I’m not sure. But I was in it myself the next year and they (inaudible). So no, but I don’t know why that happened. It was the most life-changing experience of my life. I want to cry.
(Inaudible) here I was in New York, and obviously, I’m searching. Obviously, it’s existential. I’m searching. I want this world where people create their own reality, and I’m so willing to do the work to be a part of it, but I wanted it really bad. And all of a sudden, there it is. It’s so normal in YC, Mountain View to build your own company. It is so normal for me to live in a hallway, basically, with my computer and my laptop or whatever and be coding and learning how to code. That’s normal there.
And this totally changed my life. It totally changed my life. Everything about it changed my life. I remember the first time that PG was on office hours. He does walks, and we were on a walk. And it was me, Mike, Dan, and PG, and I’m in the back. I stayed back because it’s not my company, so I’m in the back. And all of a sudden, he started talking about revenue and I’m like, “Yeah, I’m growing it 10% week over week.” And he was like, “Who is this?” (Laughter.)
“Come to the front.”
“What? No, no, (inaudible).” He’s like, “She doesn’t fit. You guys don’t fit. What is the” – (laughter). “I don’t know. I’m trying to help.” But it was instant. I knew at that moment, I was like, “Oh, (inaudible). Okay, cool.”
What made you decide to start your own company rather than continue with drchrono?
Oh. First of all, I will say Mike made the best decision. He’s the CEO. And now I’m running my own company. The day I told Mike I was leaving, he walked me home to my apartment. We did actually all live together. We’re super close. We’re really good friends, all of us, super close, great people.
And he walked me home that night and he said to me – he was like, “Dude” – he’s like, “Wait until you have a child of your own.” And I was like, “Huh?” He’s like, “Just wait.” He’s like, “This is going to happen to you.” Because of course, as an employee of a startup, you know everything. You know how that CEO should be doing their job, you know how that product should be run, you know everything. Of course, I had CEO syndrome. I was thinking I knew everything. I knew nothing. And he called it. He’s like, “You have no idea how hard this is or how hard it’s been,” and he was right.
So why did I leave? Partially, because I’m just insatiable. I couldn’t ever be satisfied. I didn’t know that at the time. I thought I left because of them or they weren’t giving me the opportunity, but it was all me. I was ready to move on. I was ready to go start my own. So great for Mike for being like, “No, go start your own. You’re not going to run my company. Go start your own.” (Laughter.)
And really (inaudible) respect tremendously and have the upmost respect for.
So maybe that’s the answer to why you end up running every business that you join. You’re insatiable and you need more, more, more. And if you can’t run it, then you’re going to start your own.
And that’s great, and that’s why I can’t give up on Eligible ever. There were times – it’s been almost seven years. There have been really dark, dark, dark times over and over and over again. And I just can’t give up. (Inaudible.)
One other thing though. They did have an annoying thing. They wouldn’t make me the VP of sales because I didn’t go to Stanford or MIT.
And now I look back and I’m like, “Dudes, was it because I was a girl? You know what I mean? I don’t know. So anyway, so there’s two sides to every story. So 90% of me is like, “You know what? Good for them. They did the right thing.” And at the same time I’m like, “Dude, I worked really hard. I built all this out for you. All I wanted was” – it sounds stupid now, but all I wanted was that recognition or that credibility of, “Hey, she’s done this” and kind of have that in my wheelhouse of saying, “Hey, I did that.”
And in a lot of ways, that’s the most important thing. Once you’ve gotten your basic needs taken care of, having more money is great, obviously. But if nobody acknowledges you or recognizes you, then it feels pretty empty.
It’s the only thing for me. I don’t care about money. I didn’t grow up with anything, so to me I’m like, “Whatever. I can live. I don’t care,” yeah.
So let’s talk about ideas. A lot of people listening in are trying to start their first company, and one of the biggest hurdles that you need to get over early on at least is to decide what it is that you’re going to work on, to come up with an idea that at least sounds good in theory. How did you decide what you wanted to work on once you left drchrono?
So I was just talking to my boyfriend about this, so it’s really interesting. So I think I was very much lucky to have been poor or whatever, to not have any sort of fallback. I had no fallback whatsoever.
So I remember when I first left drchrono – and I just told you the story and I was just gung-ho and, “Okay, I’m going to start something.” And I definitely had a lot of different ideas. There was no question. I had a lot of different ideas. And I almost wanted to shy away from health care just because I’d just gotten out of it. And I’m like, “God, do I really want to pay that tax? Do I really want to go through all the privacy compliance and security that I know I’m going to need to? Do I have the wherewithal, the engineering, the expertise?” And then for whatever reason, I decided, “Okay, this is the right move.”
But I think timing was also part of it. I think that there was an inflection point where I only had $5,000 I the bank when I left drchrono, and I only had 25k in credit card line that I could use before I would have nothing. So I only had that. And by the way, I paid it off with no interest before the interest kicked in. I got investors by that time.
So from my perspective, the time crunch, the urgency is what made me. I don’t have a skill like you. I’m not an engineer by trade. Sure, I can build shit, but I can’t go and be hired as an engineer, so I have no fallback.
So I think that urgency of, “I must make something work right now, and I know that this is a huge market, and I know that I can sell this.” So there was that. And I think that’s why I ended up going that way.
What did the idea for Eligible look like at the beginning when you first created it, and how did the things you learned at drchrono and working in the health care industry inform you that this would be a good idea to work on?
So it was very clear to me – two things. First thing, trend in the industry was very clear to me. All of a sudden, this new saturation of deductible plans was coming up. That’s number one. It was happening. There was a shift. And what this means is that the insurance company is paying less and the patient is paying more.
But the second thing I realized is that there’s no technology for patients paying providers, none. Even drchrono, all these guys, they all focus on insurance paying providers.
So this shift in the industry, I knew, was going to really mess things up for people and they were going to need technology to solve that problem. That was crystal clear to me day one, crystal clear.
So you asked me kind of how did I see it, so what did I learn from drchrono, how did I --
Yeah. How were you aware of these trends? Was it just through doing sales and getting exposure to be able to talk directly to customers?
I think this is my only real – if I were to say I have a skill, I definitely have an ability to listen to users very closely, and then factor out 10 years from now what they’re going to need. And if you think about it, it’s seven years from now. So I definitely – and it’s just from listening and empathy, I think. I’m not sure.
But I was hearing, crystal clear to me, “Everything is moving to the patient.” And I was hearing, crystal clear to me, that there was nothing to support it, nothing. And if you talk to any provider, any billing system, any backend system, none of them were actually saying this. You want to know why? Because they didn’t understand it. They didn’t know.
It’s one of those things that it’s kind of like Stockholm syndrome. It’s so chaotic, there’s so much going on that people just kind of say, “It’s this hard. It’s got to be this way.” But I was able to kind of identity, “No, there’s a problem. We just need to fix it. We just need better technology on the patient-billing side and that will fix it.”
So that was clear to me. And originally, I think your question was, “Well, what did you originally plan out to build?” So in my perspective, the way that this kind of worked for me is that I wanted – I have had a passion to solve this for the consumer not in the way most people think. My passion is that, my premise is that people forego having medical treatment because they are worried about what they might owe.
So they will – right? So they will not go and get that preventative care. They won’t get that lab that will them if they have cancer. They won’t go get that colonoscopy if that will them that they have cancer because they’re worried that they’re going to get this random bill that they’re not prepared for. And anybody – it doesn’t matter if you know health care or not – that you state that to says, “Yep. I didn’t go and get this spot on my skin looked at” or “I didn’t go and get my diabetes pump.”
And my dad was actually foregoing getting his diabetes pump and getting skinner and skinner and skinner. I was like, “What’s the deal?” He’s like, “Well, what if it’s going to be really expensive?” I’m like, “Get your freaking pump.” It was like a $20 copay (inaudible).
But this is my premise. So I’ve always been very passionate about the advocacy route of, “No, I want to be able to get these tests. I want to know how much it’s going to cost.” I know everybody wants to know that, so that was clear to me.
So when I first started Eligible, it was, “Okay, maybe I’ll just go completely consumer. Maybe I will kind of try and build this system for the consumer to check their deductible, check their coinsurance, check their copays, and be able to just see that.” And that’s kind of where I started.
And I needed to work with providers and work with insurers to do that. So immediately, I kind of went and found – I literally went door to door. I found a provider in Mountain View who was willing to work with me, which was super useful. I told him the premise, I told him the story, I went and built a partnership with – kind of like Stripe did in the very beginning. I built a small partnership with an aggregator who kind of already had insurance connections.
And I was like, “Okay, I have insurance connections, I have this provider to work with.” I went and found one of my – cofounders back then. He’s no longer with us. I gave him stock, but he’s no longer with us. But I found him on Stack Overflow. I was asking everyone on Stack Overflow about EDI questions, insurance EDI questions, and API questions.
He was answering them all, so I was like, “Dude, we should do this. We can do this. I can get us into YC, I think, if we can just build something. I really, really think we can.” So he joined me and we did do that.
Eventually, that all came together and it ended up being an iPhone app. And when I got into YC, and with the provider’s permission – the provider I was working with in Mountain View – when I got into YC, we were checking with (inaudible) his benefits. And he had just gotten an MRI and he had just gotten a huge bill for because he had a high freaking deducible. This is 2012. No one knew what a deductible was.
So he has his bill and he’s like, “I just got a bill for this. We had this bad Blue Shield of California plan and I just got a bill for this. This is right.” And I was like, “I know.” And he did it right there in real time on the iPhone, right there.
In the middle of your interview?
In the middle of our – yeah, the interview. No, it actually wasn’t the interview. It was a precursor to the interview. It was --
Oh, okay, the pre-interview.
Yeah, yeah, yeah, exactly. The app told him exactly where he was at in his deductible.
Oh, okay, very cool. So I got to ask you all sorts of questions about the super-early phase, because I think that’s where a lot of businesses die who don’t get the point where they’ve got an app developed or where they’re able to get somebody to invest or they’ve got --
On their credit card, on their (inaudible), 100% on my credit card.
Yeah, so you’re funding this all on your own on your credit card. How much runway did you have?
Yeah, so I – it’s an estimate and I hope I’m not completely wrong here. But I left drchrono with 5k in the bank, and then it was about 25k in credit card line that I had. And it was because I had perfect credit and I’d been building it since I was a kid. So I could take out this credit and not pay any interest, and I had something like 10 months to pay it off before interest could kick in.
So that was my runway. That was my investment in myself, and it was bad. It was really, really dark times in a way because it was scary. If I failed, I would have been so screwed.
Yeah, for sure. Did you ever stop and think, “Maybe this is too risky for me. And I should just get a job and maybe build this business on the side”?
Yeah, I did that at drchrono. It didn’t work out. (Laughter.) No, I’m kidding. No, I really didn’t because I didn’t do anything on the side with drchrono. I was completely focused on them.
But it just doesn’t work. For me it was so extreme. So I had every family member – my fiancé at the time – we were together for 15 years, and he was like, “You’re insane.” He’s like, “This is insane. You are crazy. You’re walking away from drchrono. You just killed yourself for this company and they’re doing well and you’re finally making a salary.” Because, mind you, when I was at drchrono, I was a contract sales rep. I only (inaudible) on commission. So I finally had this salary and I’m leaving and he’s like, “You’re insane.”
And here I am in this Mountain View – I don’t know if you’ve ever been to Red Rock in Mountain View.
No, I never went.
You’ve been to YC and (inaudible) --
I missed out on a lot of stuff back then. I was pretty much heads down writing code the entire time.
Trust me, I get that, but that’s all I do. But every morning, I’d get my latte to code. Fuck that (inaudible). (Laughter.) No, I’m kidding.
But so here’s the deal. My apartment was next to Red Rock. And literally, every morning I would wake up and go get my latte and walk back to the apartment or walk to the Mountain View library and sit in the grass with my latte and my computer and build shit. That was it. That’s what I did. So people really thought I was crazy, so it was crazy for sure. And that was my runway, my (inaudible).
So I asked some people on the Indie Hackers forum to submit questions, and you got a lot of them. So I’m not going to be able to read all of them, but I will read a few.
Adith Victor asks: “Katelyn, as somebody who started off as a non-technical founder, how were you able to communicate your vision and your requirements for the product to the early developers that you worked with?”
I now have the proper words to articulate how I did this. So I didn’t in the past. So what I didn’t realize is that what I was focused on, and which is actually really good, is I always focus on user requirements and the goals. So what are the product goals? I refer to it: “What’s the x, what’s the x? Not the y, not the implementation approach, not how we’re going to go about doing it. What are we trying to do, the what, what’s the x?”
So I would always in detail focus on the x and give user stories. Now, I didn’t know at the time that they were called “user stories” or “user requirements” or “product goals.” I had no idea, but that’s what I would always focus on. And then if there were a question on the approach that we would take – and this came – I mean, when I tell you I know how this entire system works from our S3 logging to RabbitMQ to – there is nothing in our infrastructure that I don’t have some sort of understanding about. In the very beginning, I worked with my engineering teams to literally set up our VPN. So there is nothing I don’t know.
But it always began with the goal of the product. It always began with the goal of the user. And with that, building out very small delivery plans off of really clear implementation decisions that we’d made, that’s intuitively what we ended up doing. I just didn’t know that that’s what those things were called.
That’s awesome. I talk to a lot of people who have a background in marketing, a lot of people, obviously, who are developers and started companies. But I think coming from a sales background and also combining that with being a genuinely empathetic person is such an advantage, because then you automatically do the things that you need to do. You care about the user stories and you care about making sure that you’re actually solving a problem for them, and the implementation is secondary to that.
Yeah, yeah. You either love it or hate it. And a lot of my engineers have really just adored that about us, because they say it’s very different than most companies where it’s a big “why” discussion usually, it’s a big implementation discussion, and the x and the what and the user can sometimes really get lost.
So let’s talk about your first customer. How did you convince a provider to sign up, and what did you have at that point in time? And I realize I’m asking you to remember ancient history here, so --
No, it is a really long time ago. So one of the first ways that we really started getting customers – and they were paying us a few thousand dollars a month because we had already built something useful. Building this iPhone app with this aggregator made us realize to get rid of the aggregator. So we retired the iPhone app, so we retired that product, we retired the aggregator. We were like, “We’re building our own connections.” Like, “No, no, no.”
So that’s when we really started to be able to bring in customers. I think another thing that always shocks people is we got so many customers just from posting on Hacker News, I guess because we’re an API, so it was an integration. We had really simplified – building this iPhone app with this aggregator made us realize, “Screw this old format. We can build an API on top of it.”
And I know it’s going to sound so lame, but I remember when I had the idea because I was at the computer history museum in Mountain View. And there is a walkway over – I have no idea why I remember this, but I walked everywhere at that time. And I was walking home from it, and I just remember having this idea. The concept became really clear to me that, “Hey, we don’t have to buy this old infrastructure to parse this old format. An API can do this. Look at Twilio. They’re doing this.” What is, OFX (ph)? “We can do this. We can just have them send us parameters, and we can give them back JSON.”
And at that time, I didn’t even know what JSON was. I was like, “We’ll give them back a string of variables.” “What?” And I’m on Stack Overflow like, “Is this a good idea?” And everyone’s like, “Why don’t you use JSON?” And I was like, “JSON, JSON.” I know everybody’s going to be like, “She’s so lame,” but it’s actually what happened. It is what it is. Seven years ago; I don’t have to be embarrassed.
So for us, putting that together and putting the JSON together, that actually created super – that created value. That’s an invention in the health care industry that I never get credit for, by the way. But that’s an invention in the health care industry, so much that I’ve had incumbents that run IT teams for huge billion-dollar companies say, “You know what? Your YouTube videos from 2012 saved us like $10 million last year.” I’m like, “What?” Like, “Oh, yeah, we redid our whole infrastructure around the idea of having an API instead of this sterling commerce EDI parser.”
You should be charging for these YouTube videos.
I know. I’m like, “Oh, okay.” Yeah, so that in itself was enough of an innovation and it created enough value to generate cash flow. We weren’t profitable yet at that time, but it was enough to have early customers who were willing to pay us. It cut down our integration time instantly, so it was enough. And by that time, we had a solid, small team and we – yeah, it worked really well for us.
So you figured out a lot of things right in the early days, and I think that probably contributed to how fast and how quickly you were able grow.
This question comes from a member on the forum. Louis Nicholls asks, “What are some of the biggest mistakes that you made in the first few months in your company?” And to that I’ll add: If you could go back and sort of redo this early history, what would you change?
I don’t know if I would change anything from the early history, because when you’re early it’s only you that you’re hurting. I would change stuff from later history when I had a bunch of employees and I wasn’t fast enough to catch up to everything I had to learn. And because of that, I hurt people.
And that’s actually what hurts me the most, because I was trying to figure out now how to run this larger corporation. We’re a global corporation. We have people everywhere. I have designers in Europe, I have people in Canada, I have people in India, I have people in California, I have people everywhere.
It was really hard for me to keep up with that as fast. And I think the way that I dealt with it was sometimes by just being super excited and coming off really aggressive and scaring people. So that’s actually my – if someone ever asked me, “Where did you screw up or what do you feel bad about,” I feel really – I just wish I would have done all of this more gracefully.
Let’s talk about those changes because your company, I assume, like every company has changed and evolved and grown a lot as you’ve hired, brought on new people. And I’m sure the ways you’ve had to hire have changed and the ways that you’ve had to find customers have changed.
What are some of the biggest milestones between you first getting into YC and you actually having dozens of employees and then servicing dozens of customers?
The biggest thing for me, as I said, we are in a business where we are creating a category, and this category has never existed. And very few employees and investors have the patience and the wherewithal it takes to create a new category. It’s a lot of uncertainty and there are a lot of unknowns.
And when we walk into an institution and we have a potential ACV, which is your annual contract value, of a couple million dollars with that institution, the sales cycle becomes a bit – of really deconstructing their departments and their interworkings, and are we working with their IT team? Is that who’s going to be buying us, or is their finance team? It’s really unknown because you’re creating a category.
And while I was doing that, I had to also sort of be creating my own corporation. So there is just – that’s the biggest milestone, and it all kind of came together about two years ago in 2016 because we had grown the company 8.4x. We had brought it to profitability and we were profitable for a whole year, and then we raised significant capital.
So doing that, all of a sudden the stakes are so much higher. All of a sudden, you’re now not the underdog. You need to perform at this high-growth density. And you hire all these people at the same time, incredibly intelligent people, and then you’re fighting to keep up with that.
And ultimately, what happened for us in the first year, we had spent so much time on compliance and everything, we very much felt that we landed in the chasm. We very much felt for the year that there was some stagnation. We had grown so much and we were profitable. And that year when you first hire everyone, it’s, “Oh, my god. Is everything all right? What am I doing wrong?”
So that was the biggest inflection point in what would I definitely change there, is I just would have handled it more gracefully. I got us out of it, and now we’re all right. But I did it like a warrior where it’s like, “Chill out, chill out.” I got us out of it, but it was very aggressive.
Give me an example of some of this aggression.
Okay. (Laughter.) And it’s only because – okay, so here’s my philosophy, and I’ve now since changed it. My big thing is: If I understand concepts, I don’t need to know the words. So if you’ve ever heard Richard Feynman, he talks about this a lot like, “Who cares what that bird is called. I can tell you everything about that bird. If you know the name of the bird and you know nothing else, you know nothing about the bird.”
Whereas a lot of times, people who are sort of bullshitting are the exact opposite. They don’t know the concept, but they will just say the word --
-- and then pretend like that means they understand.
Yeah, because I know it on such a deep level, user requirements and these vision product goals. And it really screwed me up because I felt like I was surrounded by people who just knew the names, and somehow that made them be smarter than me. Maybe it’s an insecurity or something. I really struggled there. And the only way I can get through that is to kind of just fight through like, “What is it?”
And then finally, it came to me: “Oh, I got to know how to communicate with my team.” And ultimately, that’s my fault and something I wish I would have learned faster is this nomenclature that you guys all learn when you go to engineering school. I just knew it by learning it intuitively, instinctually, by doing it. And I didn’t have the vocab, and that was actually – when I fixed that, that’s when everything was fine. But to find the fixing, I kind of was just freaking out. Maybe it’s a (inaudible). I don’t know.
No, that’s fascinating. It’s really interesting because you said at one point you’re trying to figure out how to make your business work and how to explain to customers what you’re doing and solve the problems in the industry. But at the same time, your company is growing and so you have these dual challenges that you’re trying to juggle. And is it really possible to do both of those things perfectly? It’s challenging to even do one.
Yeah. I just wish I could have done it more gracefully.
Yeah. But I want to talk more about this category-creation thing because I think it’s a fascinating topic. Because I think a lot of people don’t really, especially first-time founders don’t talk about it. They don’t understand the difference between creating a category and entering an existing category.
No one talks about it.
What is the difference and how does that lead to sort of a different experience as an entrepreneur?
Yeah. So when you enter an existing category, your price is already set, so you really can’t go in there and start really taking a price and making it your own because it’s already been set. There’s a great a16z podcast where they’re like, “The price of Kleenex is the price of Kleenex. You can’t set that price. That category (inaudible).”
But when you walk in and you’re actually sort of building out, essentially, almost a new department at the institutions that you work with, and we work with very large institutions, now all of a sudden you’re capturing so much value for them, you’re de-risking so much of their revenue or you’re making them so much revenue that you can charge an order of magnitude more than your commodity counterparts.
So this sort of category creation and what we’ve been going through – there’s one example of an account we just went into pilot with for the next three months. And they formally were paying us maybe a few hundred dollars a month, and this pilot is priced at something like 26k a month. So just that one example – I just pulled a – pluck a random example out. And it’s not that their volume is changing, it’s just that we have expanded our value prop. So we’ve built more and more products and services to make what we do to them more and more valuable, so we increase their revenue, we decrease their cost. Now they can go from 15 full-time employees to two.
And it’s hard to overstate how important that is, because I don’t know if you’re familiar with patio11, but him and also Marc Andreessen always shouts from the rooftop that one of the best ways to make more money in your company is to raise your prices. And if you create a category and you’re able to basically set the price because you’re not really limited by competitors and you’re not limited by the status quo, then you can raise your prices through the roof and at the same time increase the value of your company by five or 10 or 20x without having to find that many more customers.
How much of this were you aware of before you started Eligible, and how much of this was stuff that you learned on the job as you were building your company?
So here’s the thing. I was new. I was determined to create a category. And your investors – its’ a very lonely road, because everyone will push you to sell to an existing market. Why? Because it’s simple, it is known, you know who you’re selling to. They’ll push you into a commodity business, a rat race. So it’s a very lonely road.
So again, it’s one of these instinctual things that I was – my work was leading us here. It was leading us to building our own category. Again, I didn’t have the freaking words. I didn’t have the words. So I’d like to say I knew exactly what I was freaking doing, but because I didn’t have the words, it was a little awkward.
And that’s why, actually, I’m becoming such a proactive person in talking about it, because I want other founders to not feel so lonely and to know that, “No, the goal at the end of this horrific path is worth it. The value you create – this is how revolutions get created, this is how you change the world, this is how” – in my opinion, by creating this new thing that didn’t exist before.
But it has been very difficult in the sense that I wasn’t able to name exactly that, “Okay, we’re entering this market, we know it’s huge, we’re literally going to be able to take this pot of gold and move it to that pot of gold by building this new category. And this exactly how we’re going to do it.” I kind of wish I was able to lay that out day one.
There’s so much on that that I want to respond to, and we only have another five or so minutes here. But one of the difficulties, I think, with creating your own category and one of the reasons why people direct you away from doing it is just that it’s hard to explain to people what you’re even selling and why it’s valuable if they’ve never had anything like that before.
How have you tackled this challenge and explained Eligible to your customers?
I love it, because in the a16z podcast they call it, “Calling the baby ‘ugly.’” You don’t want to call someone’s baby “ugly.” That’s literally what we have to do. We’re walking into an institution and telling them that the status quo that they’re used to cannot be anymore. So you really have to reset the playing field. You need to understand what they’re doing in their current state, and then essentially debug it with them so that they fully understand this new world and the new capacity that which they can do this.
So one really tangible example: So we use a lot of data science and we build a lot of machine-learning models off of historic data for these folks. And previously, what they were doing before us was they were keeping algorithms in spreadsheets and they were completely human-driven, but now we’re actually algorithmically driving those through data models, which constantly get updated verses them trying to sit there in a spreadsheet and look through their whatever (inaudible) models.
So that’s a great example. But you got to understand, the hundred people at this institution that currently right now sort through a spreadsheet are important to these people. So the institutions find these people very important. So to say, “No, you don’t need people doing this in spreadsheets anymore. We’re going to put this in data science models. We’re going to do this automatically,” it’s a really hard thing to do.
Let’s talk about moats for a second, since you brought this up earlier in our conversation. I think when you’re creating your own category and doing something new, you don’t necessarily have that many similar competitors at first. How long does that stay the case? Have competitors to Eligible popped up? And if so, how do you think about keeping your value proposition unique and differentiating yourself from others?
I think that the level of depth there is to our offering now – so as I was saying earlier, this expansion of a value prop, the level of depth is also another moat. So I think that folks would have to get through the initial moat. And they could say, “Oh, we do that.” But then anyone who sat down with them would know they don’t, because if they sat down with us and sat down with them, they’d know they don’t.
So they have to get through the first moat. Now the second moat we’ve built over the last two years is this business-intelligence moat, which would be another few years for them to get through. So I’m sure they’ll come up, but we just have a nice runway without them right now, the new ones.
Incumbents who pretend that – so they just slap on some website and it’s like, “I’m an incumbent. I already own the account. I’m the account owner. I’ve been with these people for 10 years. We go to dinner every month, whatever. Yeah, we’re going to do what Eligible does.” They’ve been saying that for five years, but they can’t even do what they do, these incumbents. We start to look at what they do and we’re like, “They’re not even doing their own job. They’re saying they’re going to end up doing ours. No.”
Right. Do customers believe them?
I think they believe them in the first three years. But by year four, it’s like, “We’re still needing this. It’s on the roadmap, right? It’s on your roadmap, right?” “Yeah, it’s on our roadmap. Q4.” No.
Yeah. So where’s all this going? Where is Eligible in 10 years? Where do you want to be?
(Claps.) No, it’s a hundred-billion company, bro.
So it’s going to be huge and you’re going to be there forever.
Forever and ever.
Why not? It’s a worthy cause. I really think that because it has such high impact. I was dead serious about that story about my dad. He really didn’t get the – it was a life-threatening product that he needed, this diabetes pump. He literally skinny. I kid with him. “Your next step is the grave. You are bones right now. You need this pump.” He gets the pump; he gained 20 pounds. And he was not doing that because he literally didn’t know what it was going to cost him every month, and that to me is a worthy cause.
That’s awesome. Well, Katelyn, I have enjoyed having you on the podcast. This has been great. I wish we had more time to talk, but maybe I can rope you into coming on the show next year, and we’ll talk about what’s new with Eligible.
In the meantime, can you tell listeners where they can go to find out more about what you’re up to?
Sure, I’m on Twitter. It’s @KatGleason and on LinkedIn.
All right. Thanks so much for coming on the show, Katelyn
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