No one was happy when the cost of an Amazon Prime subscription increased from $79 to $100 six years ago, but it was a decision Amazon made to keep Prime one of its biggest growth engines. "That was me," Aarif Nakhooda, who was CFO of Worldwide Amazon Prime at the time, told CFO Dive. "That was my job."
Today, Nakhooda is CFO of Laboratory for Advanced Medicine (LAM), a startup racing to be one of the companies replacing expensive and invasive cancer screening procedures, such as colonoscopies, with a blood test that people can get during their annual checkup. LAM could go out with its first test as early as the fourth quarter of this year.
"The future is going to be a simple blood draw," Nakhooda said. "Whether or not LAM is the one that captures the overall market, I'm convinced my kids will never have to go in for a colonoscopy."
Migrating to the cloud
Operationally, the company is gearing up to go to market by hiring a CEO of its operations in China, which is its target market along with the United States. Financially, Nakhooda is transitioning the six-year-old company off QuickBooks to a cloud solution, NetSuite. He's also setting aside money to build out a system so he and his team can process the huge amounts of data that will be at the core of their repeat-business focus.
For Nakhooda, cancer testing should be approached the same way Amazon approaches its Prime business: as a recurring-customer business that uses a great customer experience as the basis for retaining — and cross-selling to — satisfied customers.
"The detection business in general is a repeat business," he said. "Doctors are going to say you need to get a colonoscopy once a year, so that's a frequency touch point that you have with the customer.
"When someone signs up for Prime, you have a predictable touch point on the customer in the future," he said, "so it's not about getting revenue as much as you can from a single sale; it's about developing a long-term relationship with that customer and looking at that customer’s lifetime value (LTV)."
Once LAM goes out with its colon-cancer screening, it aims to move into other areas, including breast and nasal cancers, and replacing ultrasounds, used to detect hepatitis, which is big in China.
"Eighty million people have hepatitis there," he said. "The standard of care is an ultrasound two times a year."
The company has three types of customers: the doctor who orders the test, the insurer who reimburses for it, and the regulator who approves it. The goal is to show them the company's blood test is more accurate than today's tests, less invasive, more convenient and less expensive.
"Our biggest advantage is the data we have," he said. "Because of our partnerships in China, we've got more samples and more data available than pretty much all of the other competitors. The other advantage is, the founder has been using methylation, which is a technology we’ve used for a lot longer than others in this space, so we have a bit of a head start."
For Nakhooda, organizing his data warehousing infrastructure and analytical tools isn't a nice-to-have; it’s a must-have, if the company is going to treat its detection business as a recurring-revenue model.
"It can be tricky," he said. "There's a fine line between correlation and causality. You have to be careful when you're spending money that you're predicting you're going to make. Looking at algorithms, predictive analysis, it's super powerful in terms of making financial decisions, but you have to make sure you're looking at it from a holistic perspective."
That means not just knowing about the testing, but about everything surrounding the tests. "Is it done as part of a checkup? Does the person go to a doctor and get a blood shot right there? Does the blood leave the hospital after that? How is that experience?" he asked.
Nakhooda brings a key background from his days at Amazon to the challenges he faces. When he was CFO of Worldwide Amazon Prime, he had to calculate a way to allocate investment into each Prime product — video, music, groceries, shipping services — based on how much each one contributed to the service’s success.
"How does each one of these benefits contribute independently to a customer sale?" he said. "If I invest in Prime video, what's that return? Is it going to drive 15% more engagement? Is it going to convert to the Prime program by 5% or 10% more? Is it because of the instant video program that they're converting more or is it because of the faster shipping program? Is it music?"
Nakhooda worked with Amazon's chief economist to come up with an algorithm that factors in the downstream impact (DSI) of each benefit and used that model for allocating investment in each Prime benefit.
"It was probably the hardest problem I had to solve," he said, "because there's a fixed pool of investment, and how you allocate that investment for the best return is an important decision."
He'll likely face similar problems as LAM moves into multiple types of cancer tests and starts generating income. But he believes he's put pieces in place to help him make the financing decisions the company will face.
"When you're running a startup, people tend to manage by cash," he said. "So, getting the entire company organized around having an annual budget, having a monthly business review, quarterly business review ... over the last six months we’ve become a lot better at it."