There are many companies that are competing to be the “operating system” for small businesses. The theory is that with the advent of the cloud in the digital age, small businesses can leverage a suite of services from a technology vendor to manage all aspects of their work – from payments to record-keeping to marketing to customer communications. Among those competing for this vision are PayPal/eBay, Square and Groupon, with each struggling to pull together pieces of the equation and, importantly, reach the small business in a cost-efficient manner at scale.
One company in Watertown, Massachusetts has been executing on this vision for over a decade with a winning approach for one vertical slice of the small business market: physicians. Although this is not typically how athenahealth is described, it is one way to describe what they are doing that mainstream members of the technology community might understand. I have found it pretty amazing that so few people in the tech community know their story or understand the scale and scope of what they have achieved. That is why I’ve chosen athenahealth for the third in my series on scaling (following Akamai and TripAdvisor).
Founding Story: A Pivot
Athenahealth version 1.0 was a complete failure. The company was originally founded in 1997 by Jonathan Bush (1st cousin of George W.) and Todd Park, a pair of Booz Allen consultants, as a physician practice management company for obstetrics.
Venture capitalists like to use the word “traction.” It sounds all glamorous, like an ad showing a Range Rover toughing it out up some impossible incline. But when I hear a company talk about ‘early traction’ in its pitch, I’m always leery of the “First and Worst” effect.
My first customer at my first company was a grandfatherly CIO at a big hospital. Of course I wanted to please him, and was enthusiastic about doing so. But I was also very focused on taking over the world with our software. I told him, “We’ll change anything you want about the product, as long as it’ll be good for all our future [gazillion] customers.”
Of course, The Grandfather wanted lots of one-off customizations that would really only be good for him. I told him that all the time we spent doing custom work for him was going to make us less profitable, and less likely to be able to sell the product to other people. And to survive long enough to do any improvements to the product at all, we needed to be profitable. He seemed to think that made sense, and begrudgingly agreed.
In the end this arrangement was a win for both of us. Our product was a home run for his hospital. We got an evangelical reference customer, and his hospital helped make our product better. The precedent we’d set with The Grandfather gave us the courage to refuse other customers who wanted one-off changes. Sure, we could have done this for one or two hospitals, but by the time we got to hospital 300, it would have been a mess.