How I Built This with Guy Raz - Zocdoc: Oliver Kharraz

Episode Date: August 17, 2020

In 2007, three friends set out to address a common frustration: the long waits and scheduling hassles of booking a doctor's appointment. But soon after launching their online scheduling platform Zocdoc, Oliver Kharraz, Cyrus Massoumi and Nick Ganju ran into a classic chicken-and-egg problem: they had to show potential patients that doctors were available for bookings, while frantically convincing reluctant doctors to sign up. The company solved this challenge and started to grow, but then faced an even bigger hurdle: an identity crisis over its business model, which caused a major rift between its partners. Now Zocdoc is going through another transformation: offering video appointments in the age of COVID-19. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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walking distance from so much of the city, made it feel less like a visit and more like we were actually living there. Plus, taking a trip is the perfect time to host your space on Airbnb. your place with all of its personal touches and its amazing location could make someone else's vacation even better. Your home might be worth more than you think. Find out how much at Airbnb.ca. Slash ended up going door to door for doctor's offices, actually showing them a PowerPoint page, and this is really a testament to Cyrus's sheer will and determination. He just went to random doctor's offices? Yes. Selling to doctors is one of the hardest things to do. Why? Well, first of all, their office managers are trained to protect the doctor from people walking and selling them stuff.

So he got a lot of nose. He got a lot of nose. And a few times, he was even escorted out by security. I really think one in a million could have pulled this off. From NPR, it's how I built this. A show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz, and on today's show, how two friends pounded the pavement in New York City to convince doctors to sign on to their new booking service Zoc Doc, and how they grew that idea into a business valued at nearly $2 billion. One of the most challenging problems for startups that offer to connect customers with service

providers is what's known as the chicken and egg problem. This is the problem. like Airbnb and Lyft had to solve. Without homelessness, in the case of Airbnb or drivers, in the case of Lyft, you'd have no customers. But at the beginning, neither of these companies had any customers. So convincing people to list their homes or drivers to offer rides to strangers was not an easy thing to overcome. And Tony Shue, the co-founder of DoorDash, who was on the show back in 2018 had the same problem when he started out. He needed customers who wanted food delivered to their homes, and he needed lots of restaurants to participate. But you can't get

restaurants without the customer demand, and you can't get those customers without lots of restaurants. Same thing with class pass and birch box. You need both sides of the market to buy in. And back in 2007, in New York City, Oliver Carras, had a lot of the market. had the quintessential chicken and egg problem. He and his co-founder, Cyrus Musumi, were trying to launch Zok Doc. It's an online service that takes a lot of the pain and frustration out of booking a doctor's appointment. You can go online, find the type of doctor you need,

plug in your insurance, and then book an appointment through a system that's directly linked to that doctor's calendar. A super simple and smart idea, right? But back in 2007, Oliver and Cyrus had to convince doctors that this was a service worth paying for. But then, why should they pay for it if there were no potential patients? And meanwhile, Oliver and Cyrus had to show potential patients that this was a service with lots of great doctors to choose from. And all those chickens and all those eggs took a long time to bring together. And then, after growing slowly and then quickly, Oliver faced his biggest growing pain of all.

The realization that he had to completely revamp the business model of Zachtach if it was going to survive. A decision that was so painful, it actually led to the breakup of his nearly 10-year partnership with Cyrus. But let's start at the beginning. Oliver Keras was born and raised in Germany, mostly in rural parts of the country. His mother was German and his father was from Iran and came from a long line of doctors. For me, it really starts in some ways with my dad. And the time he grew up, he had every reason to become a social activist.

And so he came to Germany from the Middle East when he was very young, around 20, and with no money in his pocket, no language skills. And, you know, he has personally then worked a lot of odd jobs, but he eventually became a psychiatrist. But what has really shaped me much more than being born in Berlin is this social activism that I saw him live and that he really made our family mantra. Like we always talked about talent brings responsibility and sort of the need to use whatever talent we had to help those. around us that we can and make a difference. Given that your father was Iranian and your mother was sort of German,

and even though you were born in Germany, did you feel as German as everybody else? So, yeah, I didn't have a second identity. We only spoke German at home, and yet, as you say, I was also not always fully accepted. So if I give you an example, in my school, there were 1,200 students, and you could pick out, too, that didn't look like everyone else. And I was one of them, right?

And even in an enlightened country like Germany, that is noticeable. So I had what I call a visual accent where people would see me on the street, and they would ask me how I learned to speak German so well. But they also, at school, it skipped my name when reading out scores because they weren't sure how to pronounce my last name. And opportunities taken away and even that was physically threatened. So I think that really shaped me in many ways because I realized very early that in order to be as successful as everyone around me, I would have to be dramatically better and really work much, much harder than anyone else.

And so that really induced a very strong worth ethic in me. For the record, Oliver is somewhat downplaying his work ethic because just out of high school, he actually started his first successful company. It was the early, clunky days of the Internet, and he designed a way to help people send emails more easily. And he wound up selling that business, not for a ton of money, but enough to get him through medical school. But after practicing medicine for a couple years,

Oliver realized he couldn't stop thinking about that first business he'd started and how he wanted to start another. So he quit his job in medicine and took a consulting job with McKinsey and eventually moved to New York. My goal was actually to start another company. That's why I left healthcare. But I'd also realized at the time that I sold my first company far too cheaply that I should learn more about business first.

And at McKinsey, I got exposure to balance sheets and P&Ls and had a lot of of very practical experience of what it means to manage a business. And I think very fondly of my time at McKinsey was one of my better decisions. McKinsey, going to McKinsey is a little bit like going to business school, although a lot of people at McKinsey have come from business schools in that, you know, many people go to business school thinking they will find a co-founder. Did you, were you actively looking around at your colleagues to think, maybe I can do something with him or her, you know, maybe that. person.

Absolutely. And were you just thinking about different business ideas all the time? Well, it is actually very hard to find good ideas. And my definition of a good idea was that it needed to have a great mission. I wanted to make sure that we actually do something good and that we stay true to sort of talent brings responsibility. But I also wanted it to be a large market and to have a great mode around it. And also I wanted it to be based.

on a contrarian insight, because I thought that all of the best companies have that at its core. Wow. So you wanted mission. You wanted a company that could kind of dominate its field by building a mode around it, but was also contrarian. Those are some interesting criteria. And that's why I screen for several years and rejected pretty much every idea that I came across. Huh. And meanwhile, while you're going through all that, I guess you meet this guy, Cyrus Masumi, who's another McKinsey consultant.

And you just become friends, like he's just like somebody you like and you guys start hanging out? Well, we got put on a study together that required us to travel globally. And if you've ever done that, it meant for us we were 16, 18-hour days together for three, four, five-month on end. And we really got to become great partners in that. And what we realized is that we had some very complementary skills. Cyrus is one of the most charismatic and gregarious individuals should ever meet. He's very passionate. He could be more forceful, which sometimes was needed to be effective with clients.

And you've talked to me now for a little bit, as you can probably tell, I'm more dispassionate and logical and more measured. You're more German. I'm more German in many ways, right? That also sometimes was effective with clients, right? And Cyrus is American, right? He's American, yes. But that closeness in how we work together

that really started a friendship and we stayed close after the study. We caught up over lunch pretty regularly to balance different business ideas of one another And, you know, I think we connected because we had similar interests because, you know, on some levels, we were equally passionate about what we were doing. You know, Cyrus's passion was more visible to others than mine. But we had worked close enough together that we both accepted the other as an individual that we could learn a lot from. Was it clear pretty soon after you started hanging out with Cyrus that this was the guy?

because you were on the lookout for a partner. Yeah, I think it was absolutely an option. I know the reality is that we had both founded companies before McKinsey, and we both knew that we wanted to do it again. And Cyrus was always great about being very honest rather than just nice. And I valued that a lot. Yeah. All right.

So this guy, Cyrus, super charismatic. really smart. Clearly, the two of you start to work together. And what kind of business ideas are you coming up with? Well, we kind of fell in love with this new idea that came about at one of these lunches where Cyrus told me about how he had recently ruptured his eardrum by flying with a cold. And then he found it very difficult to actually find a doctor. And he had asked people for recommendations. And he had called down his insurance direction. directory listing, starting with the A's, and some of these doctors weren't accepting new patients, some no longer accepted his insurance, one provider actually had passed away. And so he said, well, why does it take me four days to see a doctor when I'm in pain, right? And why can't this be much easier? And we both very quickly realized the potential of this idea. From working at

Projects at McKinsey, we knew that health systems for actually spending millions of dollars for marketing to grow their patient base because they had wasted inventory, right? They had something that I like to call hidden supply, which is these last minute cancellations, no-shows, rescheduleds that go to waste. And then on the other hand, there were the patients who had a hard time accessing this. You thought it immediately clicked with you. You thought, my God, yes. Doctors, appointments, connect patients to patients.

the doctors. Yeah, well, look, if you go through the four criteria that I had, right, it's a great mission, right? We're making one of the most personal needs, more accessible for patients. We can help the patients to get in faster. We can help the doctors become more efficient. We can make the entire healthcare system more cost-effective, keep people out of the emergency room, things like that. And it's a marketplace. So there's a strong mode and clearly anything in health care is a large market. And I think the contrarian insight that we had was the fact that, yeah, you know, like most people thought it's normal that people have to wait 24 days to see a doctor because

there's a doctor shortage. And our insight was really that, no, doctors have last minute availability because of these last minute cancellations, no shows, rescheduled. And so I felt very good about this idea. So do you remember how long between the time that you had that first conversation to the time where both of you said, let's start this business? Was it like months or weeks or days? I was weeks. You know, what we started doing is actually mocking up the site in how we imagined it back then in PowerPoint and just the image of a website.

Yeah, wireframe. Exactly. We would, when we'd go to Starbucks and we'll chat up strangers and say, hey, here's a $5 gift card. Give me your thoughts. Wait, sorry, I'm going to go back. You just go up to people in Starbucks and give them a gift card and say, can you give me your thoughts? Just a random person? Yeah, absolutely. That was sort of our market testing. They wouldn't, they would be like, excuse me, this is a little weird. You're in my space. Oh, that might also happen from time to time, but, you know, there's lots of people in Starbucks. This is very un-German of you, right? Because usually you would be sort of more tentative about doing that.

Well, you know, I think there was a lot less rejection in this than you might think. People are actually quite open. I'd sort of suggest you try this out. But if you're unthreatening and look harmless as we probably did, then they'll be pretty open. So you went up to people in Starbucks and you'd say, hey, we're thinking about a company here. can you just look at this PowerPoint, we'll give you a $5 gift card, and what was in the PowerPoint? The PowerPoint was just what we thought this website would look like, and we would ask them, is this a service that resonates with you?

Would you use it? And we got incredibly valuable feedback here and it really set us in many ways on the right track. Right. So at what point did the two of you decide, let's quit, McKinsey, let's pursue this? probably a month or two after we initially discussed the idea. Did anybody say you were crazy for quitting? Oh, everyone. Everyone told us we're crazy.

And we got a lot of negative feedback on the idea too, right? People would say this just won't work. You know, I would never pick my doctor on the internet or I already have a doctor or, you know, doctors wouldn't accept patients that are looking on the internet. there were all kinds of projections that people had when they were thinking about their own situation. But when you talk to people in Starbucks, they actually thought about it much more positively. So we were encouraged enough to say, well, this is going to work as long as we get out of our circle. And if you don't ask McKinsey consultants and doctors, the response will be better. All right. So you are in your 30s at this point.

And presumably you were making pretty good cash at McKinsey. because you had no expenses. You were on the road all the time. So, you know, when you quit, I'm assuming you had some money to launch the business and probably live off for a while. Yeah. So I very deliberately had never raised my living standard to the money that they were paying me at McKinsey. And I had saved every time so that I could, you know, be in a position where I can fund this and where I can afford not to take a salary for a couple of years. Wow. So like a couple hundred thousand you saved?

You know, maybe I'm too German to discuss personal finances. But yeah, I had... This is how I built this. I'm not radio. You're going to tell everybody's going to know the story. Yeah, I had enough money to live off for several years. But I also, Cyrus and I both financed the company early on out of our own savings. So that clearly diminished, you know, how much money we had left over after that.

So now, you both decide to quit. And you have some technical expertise because you had done some coding, but this is next level stuff. Were you able to be the technology founder and Cyrus was going to be the sort of the business founder? Absolutely not. So I had coded, but at that point I had really not touched a computer for a long time. We knew we need to have a technical co-founder. And so Cyrus knew a guy named Nick Gantoo from the time together trilogy software. This was another company that they both worked at together.

That's a company that they both previously worked at together. And Nick just brought a totally different perspective and really educated Cyrus with me on a lot of things. And he was really the one who understood building a seamless experience for the consumer. And in many ways, Nick was sort of Zoc Doc's early genius. Did you have the name Zockdog from the beginning? Not initially. We went through several phases on what the right name could be. For a while, we wanted to have a descriptive name.

So we looked at Physicians.com and Doctors.com. We actually tracked down the owners of one of these domains, and they wanted several million dollars for the domain name. And we were funding the company ourselves, so that was completely out of the question. So then we just sat in a room and we brainstormed, a list of 50 or 100 names and then started eliminating names until we arrived at Zock talk. What does it mean?

Well, it doesn't mean anything, which was the beauty of it. There were zero search results. Okay. There's no meaning behind Zok. There's no meaning behind it. And in hindsight, it was precisely the right thing to do because it really was a blank slate for us to fill with meaning and really build a brand around. there were exactly zero search results for Zoc Doc

where we started it. And it resonated, right? Once you know that it takes more than three weeks from picking up the phone and dialing for doctors until you actually see someone, you realize, oh, there's really not much else that we have to wait so long for to get. And this is more important than most of these other things

where you already have a fantastic access most. If you imagine if air travel worked the way that healthcare works, there wouldn't be an Expedia, there wouldn't even be a delta.com, there would be individual phone numbers for every plane. Imagine if that happened. Half the planes would fly empty. It would be a massive pain. And that was exactly the state of health care before SOGG.

It is amazing that nothing like this was out there in 2007. Yeah. Look, I think in many ways, you couldn't have built it much earlier. In the early days, when we went out there, we were the ones installing internet in the doctor's offices. They were many times just migrating from paper books to scheduling systems. We were sort of at the cusp of digitization for healthcare. We were just lucky in our timing to get that. this right and start offering the service when that also happened.

All right. So you decide to pursue ZuckDak, and it's the three of you, I'm assuming, really, just at the beginning. And were you working out of one of your apartments, or did you guys rent space? No, we worked out of our respective apartments. Many times we came to Niki at the nicest apartment and we could bring him a breakfast burrito and wake him up. And the reality is that we originally had a pretty ambitious launch plan, right? So we got together around July, we wanted to launch by December of 2007. But then something interesting happened

where Nick sent an email suggesting to look at what was then called TechCrunch 40. And, you know, TechCrunch is one of these, is now household name. But the draw for us back then was there was a $50,000 price. Now it's called TechCrunch Disrupt, I think. Now it's called TechCrunch Disrupt.

and it's a major. It's like a startup competition. It's a startup competition. And we were the first class of this. It was much less known. We budgeted two hours to fill in the application. And really, we just send it off. We didn't think about it anymore.

That was an early July. In early August, we heard that we had been accepted, but there was a complication. We'd have to be ready by September 18th. That was three months sooner than we had originally plan to launch. So you had to have a live website by September. That is right.

That is right. With doctors. With doctors, right? So we actually debated for a few hours whether we should even try to go for that. But we ultimately said, yes, we can get the website working. And we wanted to have enough doctors just to have a scroll bar. So it wouldn't look pathetic. Right.

And so Nick and I code it night and day. And, you know, Nick really busted his butt. He did the patient-facing side of the website. And that was the programming side. What was potentially even harder because we were trying to launch a marketplace was to actually get the initial supply on there. And remember, the website wasn't there yet. So Cyrus ended up going door to door for doctor's offices,

actually showing them a PowerPoint page. And this is really a testament to Cyrus's sheer will and determination. If you think about what it means to really, start a company early on, there's nothing to show, right? Maybe you have a PowerPoint, but there's no website, there's no patients, there's no other doctors, no social proof. And it has to run on passion. And I was very clear that that is Cyrus's superpower. He just went to random doctor's offices, or he had like a list of doctors' offices and he started kind of walking block by block. Well, there was a lot of walking involved. We launched in Manhattan, so you can literally go

down the street and you see the signs and you walk in. And he was basically saying, look, it's a way to connect you to patients. How was, how many, by the way, what was your objective? How many doctors did you need to sign up to have this website look okay by September? Somewhere between six and ten was our goal. Okay. So it's doable. It is.

It was extremely hard. Really? selling to doctors is one of the hardest things to do. Why? What were they saying? Well, first of all, it is very, very hard to even speak to a doctor, right? They are being shielded. Their time is very valuable. Their office managers are trained not to let anyone talk to them to protect the doctor from people walking and selling them stuff. Sure.

Then secondly, many didn't want to give up control over their calendar, which we asked them to do. We asked them to post times that a patient, could book into it. And it was just a far-fetched idea for many of them that patients would actually do this. So he got a lot of nose. He got a lot of nose. But he'd go there and he'd just simply not leave until he got a chance to speak to the doctor. And a few times, he was even escorted out by security. I really think one in a million could have pulled this off. I mean, was he going to particular kinds of doctors, or was he generally focused on internists, general practitioners?

Oh, so we began with dentists. Okay. Because our thinking was that people go to dentists most often, and we wanted to make sure that we have an offering that is relevant for patients as often in their lives as possible. I got you. So eventually, I'm assuming you do get, what, six to ten? Or how many did you get by September of 2007?

I think we launched with eight. In the meantime, you and Nick were doing the backend stuff, right? You were doing the coding and building the website. That's right. And as you were building it, how did it look? So the bits that Nick built looked awesome for the time, I think. And it was quite impressive. We were very satisfied that we had a scroll bar, that we had a map, that we had back then already the insurance selector.

and a lot of feature that just weren't to be found really anywhere else. All right, so September 2007, you are ready to reveal this service at TechCrunch. And did all three of you present? Or did Cyrus kind of, was he the spokesperson? So Cyrus and I presented Nick State behind in New York to make sure that the website was actually up and running. Oh, this was in San Francisco that you went to. Yeah, we flew out to San Francisco. And so we launched Doctaw in front of 8, 900 people.

A lot of them were journalists. When the judges opened up with feedback, Guy Kavasaki, who we knew and valued as an evangelist for Apple, he came out and just said he didn't get it. He would never use this in front of everyone, right? And his direct vote was something like, honestly, it would just never occur to me. to go to any side of pick a doctor. That's really burned in my brain. And what was worse is that he seemed to be right.

You know, we didn't get a single booking that day. We were hoping that this PR would get us our initial batch of users, right? Because, oh, there's so many tech journalists there. So, you know, the publicity maybe would lead to bookings. That was the hope. But it actually took three days before we got our first, legitimate patient and in this entire first month we only got five bookings.

Oof. All right. So you come back from San Francisco and, you know, you had Guy Kawasaki say, I would never use this service. I'm sure he feels differently today. But maybe then he said that. But did you come back feeling like dejected, like losers or were you excited? Like, how did you feel coming back?

Well, you know, I think we were obviously hoping that we would eventually get more bookings. And, you know, in the beginning we probably refreshed the bookings report 100 times a day. But as we were thinking through this, what we realized, it was really a typical two-sided marketplace challenge. It's just a classic chicken and egg problem. You need the supply to get the demand and you need the demand to entice the supply. and for Zoc Doc, it was even trickier, right? When you think about it, healthcare is hyper-local and very complicated,

so you have to match supply and demand on a zip code specialty level, and then we have thousands of insurances to take into account, and so we realized that our odds of actually finding a patient that wanted what we had on offer were, you know, quite low. And so the best path forward was to methodically, build up supply. So we just kept going.

We put up a huge map of Manhattan on the wall and then actually put little flags on it where the doctors were that we had on the website and which insurances they accepted. And we just, we knew that perseverance is the name of the game.

When we come back in just a moment, how Oliver and Cyrus begin to drum up interest in Zocdoc and how they even start to raise some money. After they figure out how to dress differently. Stay with us. I'm Guy Raz, and you're listening to How I Built This from NPR.

Hey, welcome back to How I Built This from NPR. I'm Guy Raz. So it's 2007, and Oliver, Cyrus, and Nick are basically powering through with Zock-Dococ, going door-to-door trying to convince doctors it's a valuable service. And the thing about doctors is even though they're really smart and capable and we depend on them, a lot of their offices, especially back in 2007, were sort of technologically in the Stone Age. It was incredibly complicated to sync the doctor's calendars with ours because none of the software was actually made to sync. Even in the places where we had sinks up and running, we would frequently get feedback that, well, the appointment didn't happen because the doctor wasn't ever.

available. And we really couldn't figure out why this was the case. Because when we did screenchairs with the office and we looked at their calendar and our calendar, it was identical, right? And we couldn't figure out why that's happening. So I ultimately decided to sit next to the office manager. I went there and got to know him and his family. He showed me photos of his dog. I fixed the printer. I taught him better strategies to play minesweeper. Still couldn't figure it out. Until one day the doctor would come out and she'd say, hey, David, I'm out next Friday. And then what does David do? Does he go into the calendar and block out next Friday?

Or does he take a posted note, writes on a doctor out next Friday, and sticks this to his monitor, right? In the real world, these posted notes, of course, happen. But once you know that, Math is your friend and you can start filtering this out. And that's one example. there were literally 1,000.1% solutions that we had to figure out to make this work. Wow. That just sounds, I'm getting exhausted just hearing about that. Because this is like pre-Google calendars, right? Yeah, yeah. There was early days.

And what we were extremely focused around were making sure the experience was fantastic. And if something went wrong, we'd fix it, right? So I was our customer service. I personally would call the doctor and confirm the appointment was all said. And if it wasn't, I'd personally contact the patient to let them know. And then I would offer them an Amazon gift card alongside with an apology. And there was actually one case where I didn't catch a patient in time. And they were already in the subway to the doctor.

And so I raised them to the doctor's office and picked up a bouquet of flowers on the way there and met them in person to apologize. And that was really a turning point where I said, well, this service has to work. And we need to have this patient's first attitude in terms of how it works, completely ingrained in the company. All right. So you clearly need to kind of grow this. Were you offering this service to doctors for free at the time? Initially, we offered it for free, but we eventually started charging $50 per month.

But say I'm a doctor. You come into my office and you say, hey, if you pay me, I can bring you more customers. I would be skeptical. I would have said to you, who's, I mean, who even knows about you? You're asking me to pay you money for phantom, you know, bookings for maybe no customers. I mean, did some of the doctors say that to you? Many. You summarize our sales challenge, right?

It was very hard because even if you wanted to, we couldn't. easily share how many patients their competitor down the road got. Like that was something that was confidential. Yeah. All right. So you got this chicken and egg problem because you got enough people signing up and you get skeptical doctors, but you know that this service could really benefit the doctors, but you also need them to pay for it because otherwise you know of a business.

Meantime, at a certain point, I'm assuming you guys start to think we better go out and look for money if we're going to really make this thing work. Yeah, yeah, that happened. So in the spring of 2008, we decided we should raise Series A. And we make the rounds. We get in front of a number of the big-name VCs. Only in New York, or do you also go to Sand Hill Road in Palo Alto? Sandhill Road.

Oh, okay. We hit Sandhill Road. Initially, we weren't very successful at all. We got polite nose, you know, and it really, really no feedback until someone took us aside and told us, you know what, the idea seems good, but you're consultants. And the perspective was that consultants can't get anything done. And what we realized is that even though we had both founded companies before, our McKinsey

pedigree and our khakis and button down shirts, they were really hurting us. And so we went... You were wearing khakis and buttonedown shirts? It sounds crazy. Were they pleaded pants or were they at least non-pleaded, please? Yeah, no, they were not pleaded. But after hearing that feedback, we very quickly just went to the next gap and bought jeans and t-shirts. And from then on, the convo's with the VCs went a lot better.

So you went from McKinsey Consultant Look to the sort of the tech casual uniform of jeans and T-shirts. That's exactly right. And we introduced ourselves not as MBAs and McKinsey consultants, but we introduced ourselves as previous entrepreneurs that are starting their next company. But was, I mean, was anyone biting? Were there people who were like, yeah, this is a great idea. I'm in? So, I mean, interestingly enough, we had raised some money from friends and colleagues.

And many of those, they invested in us business plan unseen, just based on the fact that we. were giving up our careers at McKinsey to pursue Zoc Doc. So that felt really great. And as we started changing how we appeared and how we introduced ourselves

to venture capitalists, we started to get offers. And so in August of 2008, we ended up raising 5 million from Kostla Ventures, Bezos, Expetitions, Mark Benioff. Wow. Mark Beniof, Jeff Bezos,

and Vinod Koslas, all their funds are in. which sounds like a lot, but for what you want to do, it's actually kind of limited because you still, it seems to me in 2008, even though you have $5 million, it's a lot of money, you still have this problem, which is you've got to get customers, and then to get customers, you need lots of doctors with lots of options, but to get doctors, you need lots of customers booking through the site. So how do you do that? Precisely. These $5 million were little earmarked for making New York work, right, make our first market work. But immediately, after raising the money, the financial crisis hit, right? And you may remember there was this rest in peace memo that went around. About startups, right, yes. About startups never being able to raise money, rest in peace, good times.

So we got the strong advice to make the money stretch. And we probably learned a lot during this time. This was really our first go-around making hard choices. And we're going to be frugal and not to do things we can't afford. And we learned to not let money replace critical thinking and creativity. But now we continued to grind away at New York. And at some point we felt, well, if you want to get to the next level, we have to prove that

Zocktok isn't just a New York city phenomenon, right? We had to prove that it would work in a second city. But at that point, we didn't have the money to do this anymore. And by the way, your approach was still the same.

It was door to door. That's right. Door to door. And how are you building awareness about the fact that Zachtok existed with customers, with potential customers? So we, it was very, very,

difficult to get someone to the website. But when they did, they loved it because it was such a step change from how healthcare used to work for them, right? They used to have to pick up the phone and wait on hold and then play scheduling Tetris with the office manager. Can you do Wednesday morning? You know how about Thursday at noon? No, about Friday afternoon.

And now they could do the same thing in a minute and have complete overview about the availability. patients loved it and they told their friends. So we started to get the word of mouth going. And so we saw New York really ticking up and we felt like, okay, this is going to work in New York at a minimum, right? But we also realized that it took us a fair bit of time and money to get it going in New York.

And we couldn't with the money we had left from the $5 million easily experienced. expand into a new city. At the same time, raising money was going to be difficult because the next generation of investors wanted to see that it works in other cities as well. So we were a little bit in this catch-22. We ended up applying to this force boost your business competition. Forbes has this competition. I don't know if they still do, where they give away money, right?

They were promising $100,000 price. and at this time we won. And you know what they did this? They gave us one of these large publisher clearinghouse size checks. And very useful, actually, we used it to cover a hole in one in our only conference room. There was a hole in the wall and we covered it with that check. At this point, you are working out of an office, not an apartment. At this point, we were working out of a shared office space.

Pre-wework, yeah. Pre-wework, yeah. Pre-wework. So they had given us this publisher clearinghouse size check, but they failed to give us the small check for three months. And we were getting really nervous whether we would still get it. But ultimately, we got that $100,000 and that's what we used to launch in our second market in D.C. In Washington, D.C. And did it require you guys to move down there, or did you hire?

Because I'm assuming you had to, a lot of your early capital was going into sales. Like business development is hiring sales reps. Is that right? That's right. We had a couple of sales reps at the time. In fact, a very first employee ever was a sales rep. He's still with the company today. And he was great.

He figured out how to really charm his way to the doctor. So there were no more security guards escorting anyone out. When did you, I'm assuming that even in 2009, 2010 and beyond, you were not yet profitable. Far from it. Yeah, far from it, right? Because it's a capital-intensive business. Yes. We obviously invested heavily in customer service.

We wanted patients to have a great experience. And we had a quite sizable engineering team because that was actually a major engineering effort. So what started to happen? When did you start to kind of see a real turning point? Yeah, so we had launched New York successfully with years of hard work. We've gotten it off the ground. We've transported that to D.C. It had worked well in D.C.

And now we said, well, why are we not in more cities? And so we actually raised a series B with Founders Fund. And we used this to expand off the East Coast into San Francisco. then Chicago, and we just got better and better at it. So we then ended up raising a C.G.S.C. in 2011 from Goldman and DST. And we primarily used this to grow our sales team and sign up more and more doctors. And from 2011 until 2013, we launched roughly 30 new cities. I read that by 2014. You would cover like 40% of markets in the U.S., which is huge.

I mean, that's a huge number of cities. And in that year, your valuation of ZocDak went past a billion dollars, I mean, that's pretty remarkable. I mean, you were kind of on this really rapid trajectory and you had a pretty straightforward model, right? I mean, you were charging doctors a flat fee every year and then they could take all the bookings they wanted. And I think that by that point, like by 2014, it was not cheap. it was expensive. You'd really raise the price. It was like $3,000 a year, right?

Something like that? Yes, we charged doctors $3,000 a year. And there was a flat fee, no matter how many bookings Dr. Talk actually facilitated for them. And the reality was for some doctors that got a lot of bookings, that was a great deal. Yeah. But there were also doctors that got a lot fewer bookings.

and for them that fixed cost was actually too expensive, and some of them were starting to leave the service. And so we got into a situation that required us to invest a lot, to stay where we are, and then invest even more to continually grow our overall provider base, which means we had to build out a massive sales team to always sign up more doctors. And at some point during this time,

Nick actually ran an analysis that showed that it would take us several years, if ever, for us to make our money back on many of the doctors we signed up. Because you would have to sign up X number of hundreds of thousands of doctors paying that amount every year to make your money back. To make sort of the cost of the sales team back. Wow. And this was clear that this would make us dependent on external capital for our very long time. And now, I'd say clearly there are many companies that have taken sort of a grow fast at all costs approach. And they held on to this forward extended period of time.

But, you know, it clearly puts Doctaw into a dependency to investors and their mindsets. Yeah. So meantime, you know, from what I understand, there's disagreements. I mean, there are, you know, the leaders. leadership team, including Cyrus, I think he's sort of his position is the flat fee model is actually the best way to go. Is that a fair assessment of his position? Yeah, I think that I think that's right, right? I mean, there were two fundamentally divergent ways how the business could go forward, right? One way was to continue to work on optimizing the unit economics of our

subscription model. And the other way was to think about how to make a more transformative leap and find a new, more profitable and more sustainable model. And look, I can certainly understand the reluctance in taking this leap. Very few companies really change their underlying business model once they have a certain scale and then live to tell about it. We know the names of the companies that have done this. Like Netflix went from DVDs to streaming, Adobe, you know, from box software to the cloud. But there's not a lot of companies that do that. And, you know, Zocco needed to make a choice which direction wanted to go.

And I should say, Oliver, that, I mean, this became intensely personal for you. because you and Cyrus really disagreed on the direction that the company should take. And then he stepped down. He left the company and you moved into the role of CEO. That's right. And I want to ask you about this. I mean, you know, one of the beauties and the flaws of this show is its simplicity. I mean, we talk to one person or sometimes too.

It's a single narrative. And so we don't have Cyrus with us to tell us what happened. But I want to ask you about this time because, I mean, this was your co-founder. This was your partner. This was your friend. And he was leaving the company. How did you feel at that time? Look, all I can say is was a very hard and very emotional period for everyone involved.

And it was certainly a departure. But it was also true that. given these two divergent choices, you couldn't, not both of us could be useful to Zocktog. And I have to imagine that for a period of time, it was sort of the end of your friendship. Oh, look, I mean, we were very close. We were not only friends. We had worked for eight years, building Zocktok together, 14 hours a day. And we probably talked more to each other than to anyone else in our lives. But, you know, Cyrus and I are still in touch from time to time. And I think he's cheering us on from the sideline.

He's still a presumably owner of the company. Yeah, he's still a shareholder. But here's the thing. I mean, we've told stories about breakups. We've had episodes where there were married couples who split, who divorced, but continued the business. EO products. Susan Griffin Black and her husband, Brad, they continued the business.

Stacey's Pita chips, they continue the business after they divorced, sold it for a quarter of a billion dollars. You guys were worth value to $1.8 billion at this point. Was there ever a party that just thought, you know, God, look at what we're doing and look at what we're going? And I mean, I don't know, did you and Cyrus ever sit down and say, you know, this thing is just growing and let's just figure this out? I mean, I think the challenge is that it's not as if there was an analytical way to do. decide what the right path forward is. As long as investors wanted to give us money, growing at all costs was a fine strategy. The question was just how dependent you wanted to be on the continued goodwill of investors.

Sounds like you were tired of going out and raising money. You didn't want to do that anymore. Not at all, but I think you want to raise money from a position where you know what your alternative is. And for us, it wasn't clear that the business model would work in a way that we could just flip a switch and be profitable. Yeah. So that was a tough year for you, 2015. There was an article in business, I think business insider.

And it was about the sales team at Zoc Doc that year. And it was some allegations that, you know, members of the sales team were using Adderall, even cocaine. They were under immense pressure. were working all the time. When you saw that article, and I'm not saying you were even aware of any of this, you may not even have been aware of it, but I have to think that that article really alarmed you and maybe even embarrassed you. Yeah, I mean, look, there were a number of articles in 2014-15.

They didn't absolutely get everything right, but what I certainly can say is that, you know, at that time, Zoctok had a very large sales team and we were scaling very quickly. And, you know, maybe it was too focused on, you know, hitting targets and not focused enough on creating a strong culture.

Yeah, I hear these stories from six years ago from time to time and, you know, from you now, from candidates. And really, every time this happens, it's like a gut punch. Yeah,

Because we know we're a completely different company now on so many levels. But clearly you saw that and knew that you had to change something. Well, yes. There's a couple of things about this, right? We are a technology company, but we had set ourselves up too much about execution and celebrating wins and really too little about being adaptable and learning and building the trust required to try. I think that had the risk of failure.

And so one of the first things I did is to change our core values, you know, to emphasize those behaviors. One of our values is adaptable, not comfortable. Another one is progress before perfection, learners before masters, right? And we only kept really one value constant, you know, patience first. And personally, that there was more of the culture that I thought was right for Zococ to succeed on many dimensions. So you take over the company. It's got a high valuation, but you're still not making money, and you know that you've got to change the underlying business model or you're never going to make money. And from what I understand, this is sort of the beginning of what you have internally described as the second founding of the company.

That is right. That is right. And that basically happens in 2018. You launch this new business model where instead of the $3,000 year membership fee, basically you would charge doctors a lot less. like 200 or 300 bucks, but then every booking, you would take a cut from that booking, so more like a travel agency? A little bit. We'd only charge for a new patient booking,

so the existing patients to a practice, we made free, but yes, that was the fundamental idea. And it sounds like such an obvious thing to do, but here was the problem with it and why we thought it was incredibly risky to try this. Our best customers that had been on for, a very long time, they got lots of bookings, right? And if we start charging them per bookings,

their prices go up very significantly. In some cases, 10 times more. And that seemed completely insane to us. And in particular, because when we talked to other companies that had gone through similar changes and even pricing experts, their number one advice was make sure whatever you do never charge your best customers more. And for us, it would be precisely the opposite. And the thing that was counterbalancing this in our mind was, well, maybe we'd be able to bring on a lot more doctors because the barrier to entry is now much lower. that was back and forth in the team to figure out whether that's really the path we want to want to go. So this is still a risky strategy because you're depending really on new bookings because the $200 annual fee is dramatically lower.

And I have to imagine in year one, you actually saw a drop in your revenue in the year one of this kind of second founding, right? Well, it's from a risk profile, worse than that, right? The worry is that you lose all your best customers. And with it, all the bookings that they used to be getting. And so we needed to be ready for a very significant drop in bookings and revenue. And the second, you know, sort of challenge was here that, you know, the beauty of the subscription model is that we got all this money up front, right? And now to one where we're getting paid after the booking with a 30-day payment period.

So we had a huge working capital requirement to make that happen. So did you see a drop in revenue in 2018 when you rolled this out? No, we didn't because we actually didn't see the doctors leave the way that we had anticipated. And in fact, while we had very much worried that, they would be upset. And some of them certainly were upset. We were providing so much value to them that one of them just said, you know, what took you so long?

I knew it was getting a great deal all along. So that worked really well. And we had piloted in Georgia initially in April 2018. And then that had worked. And so we then rolled out in Colorado a few weeks later. That worked too. And from there we went to Washington State. And again, very positive results.

And after these three states, I said, okay, great, we know this works. Let's roll it out in our largest, most important market. Let's go to New York. And that went terribly horribly wrong. Yeah. The doctors in New York not only were so pissed off. They actually, I read, mounted a change.org petition. I don't know what, to end this practice or something.

they were really mad. I mean, they were really, really mad. And I guess you guys responded. You said, all right, we won't roll this out in New York for a while. Yeah, you look, in New York, we facilitate roughly one in five new patient doctor relationships in the entire city on Zoc Doc. And so the economic impact for the providers in New York was much greater than for the providers in Georgia, Colorado, or Washington. So to give you one example, there's a dermatologist. in Soho, and he paid under the old subscription model, he had 10 doctors, so he paid $30,000.

And under the new pricing model, his cost was going to go up from $30,000 to roughly $340,000. Wow. So what was your response to that? I mean, it seems like a pretty reasonable concern. Yeah. So look, after the conversation with the dermatologist, I actually put down the phone and I thought, you know what? He's right.

And so I had pause and we regrouped. And we did a couple of critical things during this time. Like the first one is we just went on a listening tour. You know, we talked to providers, we got their feedback. And we just adjusted our transition plan to give providers a much longer grace period to decide, you know, whether they want to transition to the new model or not. And then so then we relaunched New York, successfully. month later, and it went dramatically better. So this strategy works, and you see results from the strategy pretty quickly, like within a

year. Yeah, within a year, we finally had some incredible momentum. It was really going better than we had expected in our wildest dreams. Our existing client churn went down to essentially zero. I mean, people still retire and move jobs, but no one really left the service. and we were adding more and more providers because the barrier to entry was low. And so in 2019, we began growing profitably. So it sounds like 2019 was really the banner year.

2019 was a fantastic year. And honestly, we had so much momentum coming into 2020. And it felt like, hey, we worked really hard for three years and it's profitable. and the sky was the limit until... Until, bam, until March of 2020. Until March of 2020. And that's really maybe the third founding of Zoc Talk. Right.

Well, I want to ask you about March of 2020 because your business is based on people booking with doctors and going to the doctor. I have to imagine your revenues must have plummeted like every other industry. Like, I mean, doctors' offices are still, in most of the country, slower or a trickle of patients coming in. Absolutely.

So when the lockdown started happening, we saw in-person bookings declining anywhere between 50 to 90 percent by the end of March. Yeah, I'm not surprised. And a lot of the advice I was getting was to sort of layoff people and make sure that we hunker down to weather the storm. Right. But I started. an opportunity to build windmills, right?

So I thought, well, we need to be there for our patients. We should be expanding into telehealth. And I need every team member to help me do that. And so we really went all in and supporting video visits. And our product and engineering team began redesigning the entire marketplace to support virtual care. And so we actually released. the Zoc Doc video service, and we made this available to any physician, whether they are on Zoc Doc or not, for free. And by the way, had you, like, had a plan to do this, how long would it, I mean, I'm imagining if you said in February this year, hey, you know, I really want to focus on telehealth, would you have expected that by May it would have been ready to go?

Absolutely not. I think what has been really fantastic to see is how we really finished two years of roadmap in two months. Wow. And it's great because it just gives us a window on what the next phase of Zoc Doc will be. I'm really looking forward to that. In my mind, we're at the point where Amazon started from going, selling only books to also adding CDs.

We have just gone from doing only in person to, also doing telehealth, and I can't wait to see how this unfolds. You know, it sounds like you, I might be reading between the lines here, but you really admire and respect your co-founders, particularly Cyrus and the work that he did to build this company. But I wonder if do you think that you will, I don't know, rekindle your friendship? I don't know. Is that something that is in the cards?

Because a breakup is emotionally hard. I mean, it's really hard. Yeah, look, I do I think we'll work 14 hours together again. Maybe not. But, you know, I have gone through tougher breakups. and reconciled in my past. And so I think we are in good shape. And honestly, we are meeting.

We're talking from time to time. We both have things to do and places to be. So we're not hanging out all the time. But it's now also five years ago. So we are very much focused on making our joint baby successful. When you think about your journey and all that's happened, how much do you think this has to do with luck? And how much do you think it has to do with the hard work you put in and your skills?

Well, look, I believe that there's really three ingredients to success. And in the order of importance, there are luck, then talent, then hard work. And the only one that's completely under your control is how hard you work, right? And working hard, it gives you more shots on goal. It helps you stay on the top of what your talent allows. And absolutely, we started at the right time, the right place. So what I'm proud of in all of that journey is only that, you know, when we were wrong and when we had to revise and when we needed the grit,

to actually make it work, you know, we lived up to that. And that's really all that anyone can ask of themselves to do. That's Oliver Karaz, co-founder of Zokdoc. By the way, remember how they originally wanted to call it Physicians.com or Doctors.com but couldn't afford the million dollar price tag to buy the domain name? Zocdoch.com wasn't only available the price they paid. for that domain name? Six bucks. And thanks so much for listening to the show this week.

You can subscribe wherever you get your podcasts. You can also write to us at hibt at npr.org. If you want to send a tweet, it's at How I Built This or at Guy Raz. You can also follow me on Instagram. That's at guy.orgia. Our show is produced this week by Jed Anderson with music composed by Rumtin Arablui. Thanks also to Julia Carney, Candice Lim, Neva Grant, and Jeff Rogers. I'm Guy Raz, and you've been listening to How I Built This.