MOVE FORWARD is a series running over the coming weeks on Business Insider Australia, outlining the approaches of successful leaders to taking a business strategy on paper and making it a commercial reality. The first in the series is Health.com.au, which aims to reinvent health insurance in Australia and won 2013 Startup of the Year in the Telstra Small Business Awards.
When former REA executive Andy Sheats decided to set up Australia’s first new health insurer in almost 40 years, he did so with a view to listing on the stock exchange by 2015.
Sheats began working on Health.com.au in 2011 and raised its first round of capital that June. A 2015 float, he said, would help fund future growth as well as giving investors “a reason to feel good about their decision”.
Health.com.au has raised $35 million from investors to date and now manages a total of 21,500 health insurance policies covering up to 46,000 Australians, which translates to annual revenues of $56 million.
Sheats described it as a “grown up start-up”, differentiated by having clear goals as well as the flexibility to adapt them with new information.
“The business plan we have today is probably 30 to 40 degrees off where we were initially,” he said. “The biggest thing is not making plans so far in advance that you can’t change … as you get more experience, you learn and adjust.”
Here’s what has happened, and key lessons so far:
Health.com.au is registered on ASIC.
Sheats envisioned it as a “generic health insurance company with a three-letter acronym” that competed predominantly on price.
First capital raising round.
“We didn’t have much success with generic high-tech investors, [but] we did speak to a lot of people who were investors in NIB and iSelect,” Sheats recalled.
“We went to people who had either worked in the industry, or had made successful investments in the industry. As we got going, they were the ones who nodded.”
The business comprised a core team of 5 executives, each with “20 years or more” of health insurance industry experience, and 3 online specialists who had joined with Sheats from REA.
After months of brainstorming, the team decided to pivot to a highly differentiated, online-only brand that targeted younger, more tech-savvy customers. Sheats said investors were supportive of the move.
“If you pivot out of failure, that’s one thing, but if you’re pivoting to a better opportunity, it’s really different,” he said. “It just became clear as we were working – partly because we came from an online background – that we should be differentiated by the best online experience.”
Health.com.au hired its first two customer support personnel, bolstering its headcount to a total of 10. At the time, it had no customers – it was still six months away from launching a product.
“Our idea was to hire people to help us develop processes that we would use in the call centre, so we could build the call centre around them,” Sheats said.
Health.com.au took on four more customer support staff for a total headcount of 14 and launched to the public.
Despite his pre-launch IPO target, Sheats advocated “deferring all your decisions to the last responsible moment”.
The company picked a scalable, subscription-based policy management system early on but put off getting locked into a customer relationship management system for some time, relying on post-it notes for its first few customers.
In its first three months, Health.com.au signed on about 4,000 customers for a revenue run rate of $8 million as of 1 July.
The business outsourced its online marketing activity to a specialist firm after initially attempting to handle marketing internally. Staff from the marketing agency now work out of Health.com.au’s Melbourne office three days a week.
“We have one person 100 per cent tasked to marketing. She now reports to the agency,” Sheats said. “We tried to do it ourselves, and decided it wasn’t going to be successful – we needed more than one person to do it.”
Sheats said the underlying insurance business was profitable within 9 months but all profits went back into the business to fund growth.
Health.com.au reported revenues of $26 million – more than three times what it reported the year prior albeit over about four times as much time.
The business grew to 30 staff, including 20 in the customer services team, and launched an auto insurance company, Insurancebox.com.au, in partnership with QBE.
Sheats is targeting a similar growth rate as with Health.com.au, expecting it to reach similar customer numbers within years.
With about 21,500 health insurance policies covering 46,000 Australians today, Sheats is forecasting Health.com.au to reach $60 million to $70 million in revenue by the end of this financial year.
“I feel that with the business we’ve got today, we’ve got a really good engine,” he said. “There’s a number of things we can do over the next couple of years to rev it up, and we’ll have this growth rate or above it for the foreseeable future.”
Sheats said Health.com.au used the Agile methodology and reviewed its objectives and performance every two weeks, with bigger, half-day disgussions every quarter.
While a 2011 Startup Genome report pinned 70 per cent of start-up failures on “premature scaling”, where a business tries to grow faster than demand for the product allows, Sheats argued that said the biggest challenge facing entrepreneurs was more about generating demand than the mechanics of scaling.
“Really, your goal is ‘as much as we can, and we’ll go as hard as we can towards it’,” he said. “The biggest problem is selling enough stuff that you need to scale. The rest is common sense.”
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