How to turn beta clients into ‘evangelist investors’
When Daniel Cane was pitching his specialty-specific electronic medical records company, Modernizing Medicine, to investors, he had no trouble getting in front of venture capitalists. But separating them from their money was another story. So Cane asked his beta customers to do due diligence calls with investors. They agreed, but said they wanted to invest in the business, as well. "Our beta customers started to write us big checks," Cane said. "Then they started to demand that the product was good enough for them to sign long-term contracts with us."
Within weeks, Modernizing Medicine had raised more than $3 million from beta clients-turned-customers, achieving several goals at once, Cane said. "By the end of it," he said, "we had 30-plus evangelist investors." Cane attributed this success to Modernizing Medicine's differentiated product, strong team, good ROI and a simple investment vehicle: the convertible note. "It's one that's so rarely used in early-stage investing," he said. "It really should be used more."
Here are more entrepreneurial insights from Cane:
Lose the middleman -- The concept in software development is that coders immerse themselves in a domain for a period of time, Cane said, and emerge with the wisdom to create products in that domain. "It simply doesn't work," he said, "especially in something as complex and nuanced as healthcare." At Modernizing Medicine, Cane said, it's physicians who do the coding. "We've eliminated the game 'telephone,' where the product doesn't look at all like the person said," he said. "You avoid that."
Share the load -- Cane has always had a co-founder -- or two. "Developing companies in this day and age is such a heavy burden," he said, "that if it's placed on one person's shoulders, it will bend them and possibly break them." Though it can be harder sometimes to have two people giving direction, Cane said, having more than one co-founder gives the company strength. "We are able to do so much more by having two of us who are passionate and driven and capable," he said.
Challenge prospective hires -- Interviews at Modernizing Medicine are highly engaged affairs, Cane said, which include in-office and take-home assignments. "The people in that process are as protective of the company as I am," he said. "That's because they went through the same thing when they were interviewing." After an applicant completes a coding assignment, for instance, the Modernizing Medicine team does a full code review to learn how the applicant came up with his answers. "It's like defending your Ph.D.," Cane said. "It's never about the solution. It's always about what they were thinking, the thought process." (Here's a blog post for more on the company's hiring process.)
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