Case Study: PatchRx Found Their Path To Product-Market Fit Was Paved With Good Customer Questions
Case Study: PatchRx Found Their Path To Product-Market Fit Was Paved With Good Customer Questions
The two cofounders optimized for asking the right questions persistently to their customers to find PMF.
Contact Gavin and Andrew at gavin@patchrx.io and andrew@patchrx.io.
Introduction:
One-liner: PatchRx improves patient health through smart technology.
Problem: Medication non-adherence results in over 125,000 deaths annually and over $500B in costs to the healthcare industry. But in healthcare, the two primary metrics to calculate adherence, MPR and PDC, don’t capture any data between the first fill and the next refill – our service provides the transparency needed to make meaningful health interventions to keep patients healthy.
Market: There are currently 90,000 pharmacies in the US that do about 6B scripts per year. We estimate a TAM of about $19B for just direct to pharmacy sales, with a SOM of $288M with just certain Texas pharmacies on select medications. This is just our direct-to-pharmacy market and doesn’t include the lucrative offers of streamlining our data back to pharmaceutical companies and health plans.
Solution: We’ve built a smart pill bottle device that attaches to any size pill bottle cap, tracks when users take medication, and streamline the data back to care providers in the healthcare industry. We simultaneously boost engagement and adherence and collect granular data on how and when patients take their medications in real-time, relaying this information back to clinicians and physicians through our web app or integrated APIs.
Team: Our founding team is built of engineers and computer scientists with personal connections and attachments to healthcare. Today, our team has expanded with developers and engineers with ex-Instagram, Facebook, IBM, and NASA backgrounds, and our board has over 180 years of healthcare experience.
Executive Summary:
Problem: The End User Of Your Solution Isn’t The Same As The Customer
Usually, the customer and the end user are one and the same from a startup’s point of view, but that’s not the case with PatchRx. Buchanan and Aertker had to figure out how to address pharmacists’ immediate needs to get their product in the hands of patients who are prescribed medicine.Market: Understanding The Different And Shared Incentives Of Your Customer And End User
Pharmacists and patients both want the same thing at the end of the day: the latter taking and completing their medication as scheduled. However, the former
faces upfront costs and liabilities that depend on how closely their patients adhere to their prescribed dosing schedule, which PatchRx had accounted for in their smart pill design.Solution: The More Personal You Are In Working With Your Customers, The Better Your Product Or Service Will Be For The End User
Buchanan and Aertker found the most success in getting their smart pill solution adopted by pharmacies by pursuing partnerships over profit. With their first set of pilot customers, they prioritized getting to know them at the most detailed and intimate level, thus allowing them to translate those latent insights into a value-adding product.Team: Build Around Structure And Communication
Buchanan and Aertker contrast in their personalities and leadership styles, but they both agree on building the foundation of PatchRx on structure and communication. By setting the standards for these two aspects, they are laying the groundwork for a robust, powerful culture to take hold and scale as they grow.Takeaway: Be Proactive In Asking More From Your Customer
The insights necessary to building PatchRx’s product were a consequence of the founders leaving no stone unturned when asking their customers. They had to be proactive in asking questions to retrieve critical information from their customer that would make or break their product’s adoption at scale.
Case Study: PatchRx
Problem: The End User Of Your Solution Isn’t The Same As The Customer
Tell me about a problem or set of problems that you’ve had to solve on your journey to product-market fit.
Our marketing strategy is necessarily bifurcated: we sell and deliver to pharmacies, but ultimately the product is primarily used by patients. Therefore, our primary goal in development was to design something that pharmacies would be willing to adopt and be incentivized to promote to their patients. From research and collaboration with hundreds of pharmacists, there were three clear necessary functions of our service:
Seamless integration: Pharmacists are busy enough, so a solution should not add more time to their workflow.
Universality: Pharmacists didn’t want any disruption to their current supply chain, i.e., they wanted a solution that works for any pill bottle they are currently using.
Affordability: Pharmacies operate at razor-thin margins and are only open to discussing a solution once the price was in the low single-digit dollar frame or brought additional revenue into their pharmacy.
Why were these problems so critical to solve? What was it like personally struggling to overcome these challenges to achieving PMF?
Smart adherence solutions exist, but we have seen so many solutions launch into the market with very little success. Anything short of a unique design among the many smart adherence solutions would likely result in a similar lack of traction. Solving the direct problems of pharmacy partners for ease of adoption and making the experience truly seamless for patients (something distinctly lacking in previous products) was our primary priority in our first six months of development.
It’s always an exciting challenge to solve something that has such enormous implications – particularly when it comes to patient health. Our vision was for a smart device that could fit onto the underside of any sized pill bottle cap and be extremely non-descript. We learned that around 75% of prescriptions filled nowadays are about 90-day quantity, which set our minimum threshold for battery life. And then, we surveyed the largest pill bottle retailers in the country to determine size constraints. From there, it was merely designing, testing, and assessing different methods of where to optimize.
Healthcare is an extraordinarily complex field, so one of our first steps was to map out the industry in a more digestible way. We designed a model that would follow a drug from clinical study to real-world application in a patient's hands. This allowed us to see each step and evaluate pain points along the way.
For example, consider an individual who suffers a heart attack and is diagnosed with heart failure. From the time he or she steps into the hospital, key decisions need to be made. Who is involved in his care? How is he treated? What is the incentive from those treating him to provide the best value? Then, once the diagnosis is made and the script is written, the next steps are: figuring out all the possibilities of handling their EHR (Electronic Health Record), who facilitates the transfer of that e-script and what type of pharmacy will receive that order, and once received by a pharmacy, how they fulfill that order and price it from manufacturer to PBM and health plan to the patient's hands.
For us, by having this comprehensive understanding of all the moving parts, we could reasonably assess why the system functions as it does and then begin to position solutions that make that experience better and work within the confines of acceptable practice. From there, we then applied one of our core philosophies: value at every level. We wanted to create something that extends value from the patient to their care circle. We also wanted to impact the bottom line of the firms involved in their care, and outer 3rd parties who can benefit from new insights gleaned – but this was only possible through an all-encompassing understanding of the industry.
Healthcare is an extraordinarily complex field, so one of our first steps was to map out the industry in a more digestible way. We designed a model that would follow a drug from clinical study to real-world application in a patient's hands.
Market: Understanding The Different And Shared Incentives Of Your Customer And End User
Let’s get deeper into the pain point or points you were trying to solve. Imagine I’m a customer thinking about using your product or service. How do you go about understanding my pain and creating a solution to address it?
Our market is bifurcated, so you have to address the customer (pharmacies) and their users (patients) to create a solution. Standard patient adherence hovers around 50% nationwide, which affects pharmacies in two primary ways:
Primary: The less adherent a patient is to taking medication on time, the fewer times they refill their medicine, and thus prescription revenue for the pharmacy is lost.
Secondary: The Centers for Medicare and Medicaid services have specific regulatory measures called the STARs rating system, which ranks health plans on the effectiveness of their care based on many factors. These ratings affect the bottom line of any health plan, and in recent years this cost burden has shifted into pharmacies via DIR fees. The STAR ratings are now used as a tool that allows plans to claw back money from pharmacies if patients are nonadherent, and these DIR fees had increased by 45,000% since their inception a decade ago. Thus, improving adherence directly affects the pharmacy’s revenue as it pertains to clawbacks on CMS-STARs rated medication.
Therefore, by adopting a solution that increases adherence and provides pharmacies the ability to intervene prior to lackluster adherence for patients, pharmacies should be able to boost their population’s health and increase prescription revenue while reducing DIR fees dramatically.
Assuming you’ve managed to address the pain points I face as a customer, what additional information did you discover in your journey to PMF that there’s a large market in need of a solution to the existing problem?
We learned that most independent pharmacies utilize few options for technology outside of their dispensary software, and the technology available to them is very “early 2000s” design – which reveals itself in low patient adoption.
We also learned that the way pharmacists are currently addressing non-adherence is through MTM (Medication Therapy Management), which almost always necessitates that the pharmacist calls a patient directly. There are popular MTM companies that provide platforms for pharmacists to provide adherence checks and get reimbursed for doing so. However, the way this works is by the pharmacist getting a prepopulated list every 21-30 days with an impossibly long list of patients that they have to call during that time. There are three main issues with doing this:
Pharmacists have no idea who on the list is actually being adherent or nonadherent. So they must investigate.
Once they have the patient on the phone, the patient may not tell the truth about their adherence or be able to recount how many pills they’ve taken and when.
After completing an adherence check, the pharmacist has no way of knowing if that intervention was successful and got the patient back on track.
Our web app (PatchHub) solves all three of these issues by providing a more targeted and practical approach, knowing which patients have missed a dose and when, and measuring the efficacy of those interventions. Our goal is to provide pharmacists with higher reimbursements due to higher effectiveness and a lower time commitment to MTM.
How did you narrow your scope of what portion of the market you wanted to tackle first? Who did you decide would be your first beachhead customers and why?
We went with the market portion where we were confident we could build lasting and fruitful early partnerships and were affected the most by non-adherence. That’s why we chose independent pharmacies as our beachhead. You can quickly speak with the owner, providing a shorter sales cycle and close-relationships to ensure we are getting the best feedback. Independent pharmacies also have to compete with big retailers and are continually looking for an edge – PatchRx gave them that edge. And this selection of the market is certainly not small either. Community pharmacies account for nearly half (40,000 of 88,000) of all pharmacy locations in the US and constitute 30% of the overall pharmacy market ($335bn).
Throughout our development, we have consistently and aggressively sought conversations with as many people in the space as we could, from pharmaceutical manufacturing to PCPs. Day in and day out, everyone has something they wish could be better. It has just been a matter of understanding those pain points and figuring out how our solution can alleviate some pain.
Day in and day out, everyone has something they wish could be better. It has just been a matter of understanding those pain points and figuring out how our solution can alleviate some pain.
Solution: The More Personal You Are In Working With Your Customers, The Better Your Product Or Service Will Be For The End User
How did you build your solution to maximize its relevance with the customer and ensure product-market fit? If you haven’t found PMF yet, what have you learned? What are the blockers for getting to PMF?
In our service’s early adoption and development, we highlighted several unique features of our service as primary value propositions that pertained to what we assumed pharmacies were looking for. And then, once we were engaged with a pharmacy, we would go through a series of different questions throughout the pilot to either validate our value propositions or understand new elements we had been missing. This process, iterated repeatedly, helped us determine exactly what the right fit was for our service and how we could start to expand.
What are some of the things you did that “didn’t scale” to shape your solution today?
For one, I traveled to a few of the locations where we were launching and stayed behind the counter to help support the pharmacy in rolling out. I saw how pharmacists and patients interacted with the product and got keen insights (from observation and from surveys we had prepared) on real-world usage.
What did you learn to best engage with your customers? How did you build a tight feedback loop with your customers to rapidly improve your solution to their problems?
We’ve realized that it goes a long way to be personally involved in your business as much as possible, particularly early on. In our early releases, I spoke face-to-face with many of our pilot studies patients, and just by listening to what they had to say, we gained better customers and loads more feedback. I’ve even provided my cell phone number to users to ask questions or send me additional notes on how to improve our service. And for long-distance users or pharmacies, I couldn’t make it to in-person. My number is included in the set-up guide we provided, so I’ve received issues and bugs from many of our independent pharmacy partners during our pilots. Just making the extra effort to listen to our partners and provide them multiple communication lines to one of us has made all the difference.
Walk me through how you landed your first few customers as you were building your product or service.
Our first partner was an independently owned pharmacy right across the street from where I went to high school. We contacted several independent pharmacies in the area, and their pharmacy fit the exact criteria we were looking for – innovative, ambitious, and with a clear interest in improving patient care. That pharmacy has since converted into a paying customer. It has provided crucial insights into how to improve our service but has taken a vested stake in our company.
We used that same criterion in selecting our next wave of 10 pilot studies. We often have found that the better relationship we can generate with a pharmacy over time will lead to better conversion rates and improved product and service offerings. The most significant step in landing these great, early partners has been speaking honestly and giving them a clear sense of our current shortcomings and the vision we have for where the product/company is going.
Our goal was to find 20 great pharmacy candidates who would consider our relationship more of a partnership rather than just a sale. Then it was up to us to roll out the service and work with that pharmacy to gather as much valuable insight and feedback as possible. Once we clearly understood the weak points of our solution and understood how it impacted operations at the pharmacy level, it gave us the direction in which to build. And as I mentioned before, creating a team of world-class builders and problem solvers was the primary goal when recruiting/hiring.
We’ve realized that it goes a long way to be personally involved in your business as much as possible, particularly early on. In our early releases, I spoke face-to-face with many of our pilot studies patients, and just by listening to what they had to say, we gained better customers and loads more feedback.
Team: Build Around Structure And Communication
If you have a cofounder, walk me through a time that you two had a conflict. What was it about? How did you handle the situation? What was the resolution, and how did it impact your working relationship with your cofounder?
While it may sound strange, Andrew and I rarely butt heads. When we do, we have a thorough conversation about the pros/cons, and by keeping our minds open, we generally come to a consensus on one decision or find a compromise. When we do dispute, it’s typically based on our dispositions. Andrew is shrewd and realistic with a keen sense of operational understanding. At the same time, I am much more optimistic and will stretch an idea to its limit with a vision set high, sometimes impossibly so. Combining our varied personalities bodes well for developing a continually adapting product to new requirements and innovating at high speeds.
What key qualities did you look for in key early hires to increase your chances of discovering product-market fit, and how did you prioritize what types of hires you needed to make first?
Our first goal was to create an ambitious group of builders, both developers, and engineers, who could adapt to new situations and create an incredibly robust service. Healthcare is not an easy industry to get into, so each hire has to have a bit of fire to solve tough problems and always look for new and better ways to do things. The next step was to fill out the team with advisors and mentors who could guide our hands in the complex world of pharmacy and healthcare.
If there was a potential employee of your startup reading this Case Study right now, how would you convince them that joining your team is the next best step in their career?
Our service is designed to help people be healthier, so we are always searching for people who believe that they can truly create a measurable impact on the world. And this industry in particular moves slowly. We think creatively, are always looking for ways to improve, and ensure that our work makes a real difference in people’s lives.
We’ve all learned a lot through this process – how to structure ourselves and our time, self-manage our to-dos, and manage a team around common goals and tasks. I was the RA of the Entrepreneurship hall. I was also a TA for a summer entrepreneurship accelerator, so I’ve seen many students attempt to turn an idea into a legitimate product and company. The number one reason they fail is a mixture of lack of structure and failure to communicate appropriately. So that’s where Andrew and I, and the rest of our team, have focused a lot of time – creating a structure and habit of communication that is burn-out resistant, being rigid enough to keep people accountable but flexible sufficient to allow for rest when needed. Essentially, we wanted to create an environment that feels like a real company, rather than, say, the glamourized Facebook house from the Social Network.
So that’s where Andrew and I, and the rest of our team, have focused a lot of time – creating a structure and habit of communication that is burn-out resistant, being rigid enough to keep people accountable but flexible sufficient to allow for rest when needed.
Takeaway: Be Proactive In Asking More From Your Customer
What are the key lessons you have learned so far from your journey to achieve product-market fit?
One of the biggest lessons has been to ask. I think we’ve spoken with over 500 pharmacists to date and they’ve all been rockstars. They provide so much that goes mostly unnoticed and underappreciated, and we’ve been humbled by everything they do. But more than that, they’ve given us the tools and insights into how to design a better product.
What’s the most challenging problem you’re facing now after solving the prior one(s)?
Having integrations with the big dispensary software companies is a crucial step to get accurate, wide-spread adoption. However, these are legacy companies that move slowly, and most haven’t changed the core tenets of their software in sometimes over a decade. We have multiple ways of working towards this and have a couple of workarounds until then.
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Ian Macalinao, Founder of Ube Labs: Ube Labs is building a better way to invest.
Max Greenwald, Founder of Warmly: Warmly gives you instant insights on people in Zoom.
Jacob Hurrell-Zitelman, Founder of Quick Sip Coffee: Quick Sip Coffee is the only bottled high-quality, specialty, and single-origin cold brew coffee company in San Antonio.
Click the Button Below For PatchRx’s Founder File!
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