AI-assisted healthcare technology company Apixio has shifted from pursuing margin improvement to pursuing revenue growth because of the qualities of its customer base, CFO Sachin Patel said this week in a CFO Thought Leader podcast.
The company markets its software, which analyzes data to create healthcare population risk profiles, among other things, to healthcare plans and provider groups, a large but finite universe of potential customers.
When it honed its product-market fit in 2015, the cloud-based SaaS company pursued a strategy of margin optimization on each subscriber, but that changed when the executive team realized it made more sense to reduce margin upfront in exchange for the chance to offer additional solutions to companies once they become subscribers.
"We were able to understand, from a valuation perspective, that moving from x to 1.1x margin might not be as important to us as having higher revenue growth," said Patel, who joined the company in 2017 after building out the finance team at radiation company Vantage Oncology.
"Let's take the additional dollars we have and give a little here, invest a little there, and make sure we're driving that top line growth," he said. "Because, ultimately, there's a finite universe of health plans and provider groups after which the sales team can go. But once you're in there, the opportunity to sell more is really where the sizzle is."
To get customers on board, his team helps provide computational support for what offerings look like and at what price.
The finance team needed to partner closely with the sales team to help them optimize pricing and close strategic accounts, Patel added. "Especially the ones where we knew, [as] a customer of a certain size, eventually there was going to be growth in the future."
One way his team helps the sales team close accounts is, on the operational side, structuring third-party support to help customers use their software "if they don't have enough folks internally to manage the workflow," he said.
Patel's first job out of college was as an engineer for Cisco, and then IBM, before returning to school for his MBA to move into investment banking with Citibank.
"I was a mediocre engineer," he said, but the transition to finance was nevertheless a straight one.
"There's that common wiring between engineering and finance," he said. "The numbers draw you in."
He intended to stay in investment banking only long enough to get experience and then move to the operational side of finance. At Vantage, he helped set up the FP&A function, became the controller, and then helped structure the team's exit.
One of his first tasks at Apixio was to build a team around the company's controller, the only finance person the company had at the time.
"We were already at a meaningful level of revenue, break-even on cash flow, but we knew we had a tremendous amount of revenue growth ahead of us," he said.
Building the finance function included developing an FP&A capability that gave the executive team a set of metrics by which it understood and managed the business and reported out data to investors and the board.
Apixio was founded in 2009 and today is covering its cash outlays with revenue. It's had four capital raises, led by Bain Capital Ventures. The latest, a series D, was a few years ago.
"We reinvest all of our dollars into R&D efforts," he said. "It's nice to be part of a business where you can control your own destiny."
To help keep costs down, he works with his team and engineers to optimize the company's use of cloud resources, which, as a SaaS company, is among its biggest expenses.
Apixio uses AWS, he said, which it manages by "writing custom scripts, things like that. Those are eventually fed with information from the finance side."
Shifting the company to remote work when the pandemic hit wasn’t disruptive because of the company’s cloud foundation and a structure in which its engineers already did much of their work from home, he said.
The data that feeds the company's software is generated by doctor and hospital visits, which have dropped as people stay home.
"When you don't have patient visits, some of the data we use to feed into our platform gets impacted," he said. "So, we're working with [our health plan and provider group customers] to come up with creative solutions to make sure we can help them capture the information and also achieve their goals using our software."