How CoverMe Bootstrapped to 36 Customers and a Projected $1.6M Revenue Year on a 22-Person Team (Interview with Founder and CEO Gregg Phillips)

Introduction and Company Overview

Nathan Latka

00:00Hey, folks. My guest today is Gregg Phillips. He's the Founder and CEO of CoverMe, a health tech SaaS company using AI to help people find payment sources for health care bills in a real time marketplace. He's bootstrapped and profitable. The team has doubled along with revenue each of the last four years. Gregg, you're ready to take us to the top?

Gregg Phillips

00:15>> I'm ready to go. Let's do it.

Origin Story: Healthcare Administration to Health Tech

Nathan Latka

00:17All right. What gave you the idea to do this? Did you have a health scare yourself and a bunch of medical bills or what happened?

Gregg Phillips

00:22>> I have. I actually started as a healthcare administrator. I ran parts of the Health and Human Services Commission in Texas. And one thing I realized was that government in particular is really, really bad at eligibility and enrollment and all of these things that are out there. And, and so once I got out and sort of escaped, I thought, well, I'm gonna try to make I'm gonna try to make a living in government. And then as this

Building the AI-Driven Payment Marketplace

Gregg Phillips

00:46>> group grew on and on and on, I realized, you know what? You can't scale this. I can't do it. And so as we started easing off into long term care and easing off into the hospitals, About that time I got sick, I had cancer, had all kinds of nonsense going on and fussing and fighting with the insurance companies about what they would pay and why they would pay something and why they wouldn't. Like, this is absolutely

01:08>> insane. I'm not a stupid person, but I can't figure this out. So we took some of the lessons we learned from enrollment. We took some of the lessons we learned from eligibility over the last thirty or forty years and really turned them into an AI driven solution that helps people find ways to pay for their health care in real time.

Payment Sources: Government, Hospital, and Commercial Finance

Nathan Latka

01:29What are some of those ways to pay for health care in real time?

Gregg Phillips

01:32>> Well, you've got a plethora of government programs ranging from Medicaid, Medicare, you've got workers'comp, you've got all kinds of government based programs. But there are also these days, you know, tons and tons of hospital based programs. So the hospitals need to have ways to get people to pay for their healthcare that can't. So they have financial assistance programs, they have charity programs, they have cash discount programs, They have all sorts of other programs. And then

02:00>> finally, the commercial finance markets have really stepped up to the plate in a pretty big way here, providing all sorts of low interest, no interest loans to help people pay for their hospital bills. And it's starting to make a difference, starting to make an impact. The hospitals need it because they need to keep their cash flow moving. Patients need it because people like me don't want to spend our life savings on our health care bills. And

02:27>> once that's, you know, once you sort of blend all that together, pop a little AI in on top of it and a whole lot of work and voila, you've got a real time solution.

First Revenue in 2016 and Early Growth

Nathan Latka

02:36So when did you guys get your first dollar revenue? What year?

Gregg Phillips

02:41>> 2016, our first dollar in this business.

Nathan Latka

02:462016. Wow. And how much revenue do that year? Do you remember?

Gregg Phillips

02:50>> Yeah. Like a 180,000. It was really, really spooky, spooky and scary. We we had come out of doing, I tell people at the time that I crashed and burned this business a couple times, one of the ways I did it was, was saying, I'm not going to do any more state based business ever again, I don't like working with state governments, I'm just not going to do it. Rather than sort of easing into that pronouncement, I

03:13>> just said, Okay, we're done. That's it. I'm cutting it off. And then we started looking around like, Okay, now what do we do? So we went into a very dev centric timeframe, really over the last five years where we've spent a lot of time really trying to own and understand the market, but also growing because we decided to bootstrap and push our own, you know, some of our own capital upfront.

Nathan Latka

03:36How much of your own money did you put in?

Gregg Phillips

03:38>> We put in about 800,000 total.

Nathan Latka

03:40How'd that feel? Was it scary?

Gregg Phillips

03:42>> It was a little scary, know, at times more scary than others. But as we began to realize just how significant the market was, and we sort of made a pivot from just being a very narrow niche to now where we actually provide a marketplace for our patients where they can go, or our hospitals, where they can take their patients into the marketplace and not only find them finance solutions, but we can find them drug discount programs.

04:10>> We can find them community programs that help and serve them and really help make the patient's health journey a little bit better.

Nathan Latka

04:17Gregg, who is we? You mentioned co founders. Is there a bunch of you guys?

Gregg Phillips

04:21>> There's two of us or the

Nathan Latka

04:22You three split it 33, 33, 33 or what?

Gregg Phillips

04:27>> No. I own a little bit more than a majority and my two co founders own the rest.

Nathan Latka

04:31Okay. And so where did you go? I mean, were you, like, super wealthy from a family or something? Where did you get $800,000 to put in the business?

Gregg Phillips

04:38>> Yeah, just over time. I'm kind of an old entrepreneur. So over time we had tried to do some different things. And I had built a couple of small sort of tech companies that were centered around automating different pieces and parts of healthcare and automating that back in the day, automated the training process. Back before learning management systems were cool, we did a literacy training program that we pushed worldwide, trained 250,000 people everywhere from from Kenya to

05:09>> The Ukraine to to the jungles in Thailand using the using satellite discs and buying transponder time. So

2021 Revenue and Sales Team Expansion

Nathan Latka

05:17Wow. Okay. So that makes sense. You use $800,000 to get the MVP, you do $1.60 or $180,000 your first year. How much revenue do you do this year, you think?

Gregg Phillips

05:25>> This year, we will finish the year at about $1.6 million. Our ARR will be a little bit heavier than that because we're really diving off into a, I guess, we sort of consider this game time. And so we're amping up our sales and marketing efforts. I have a new sales director, we have a new marketing director.

Team Size, Engineers, and Sales Structure

Nathan Latka

05:44How many people total are on the team?

Gregg Phillips

05:46>> 22.

Nathan Latka

05:47And how many folks are engineers?

Gregg Phillips

05:49>> Oh gosh, 13.

Nathan Latka

05:50And how many salespeople?

Gregg Phillips

05:52>> Three plus half of me and half of my co one of my co founders.

Nathan Latka

05:59How many of the three or four have a quota?

Gregg Phillips

06:03>> Two.

Nathan Latka

06:04Okay, do have a quota. What's their quota target?

Gregg Phillips

06:07>> Have just, this is newly established, so you're here and here first. So anybody that's complaining that you might publish this, you feel free to do it. What decided to do was, look, we think the market is significant here. And we've tested into this enough with our products to really understand that if somebody's really working this

06:29>> market, either in the hospital side or on the nursing home separate sides. The ability to sell a million dollars worth of the product is easy and doable. So we pay them a pretty good base, a decent base, we pay them $100,000 as a base, and then 10% on first year of the revenue, and then there's some residuals.

Nathan Latka

06:52That's great. And just to understand your growth rate, so if you're going to finish the year at 1.6 in terms of AR, like what was your monthly revenue just last month?

Gregg Phillips

06:59>> Oh, let's see, I can tell you, we just added three new customers, so we added $170,000 in revenue last month.

Nathan Latka

07:10In ARR?

Gregg Phillips

07:11>> In ARR, correct.

Nathan Latka

07:13Got it. So you added to about 22,500 of MRR, but what was total MRR last month?

Gregg Phillips

07:20>> One point or excuse me, one one, 100 and I think.

Nathan Latka

07:2631,000. And where was it exactly one year ago in the middle of COVID?

Gregg Phillips

07:30>> Oh, we struggled a little bit last year. We dipped all the way down when we were dragging around about a 100 a month.

Nathan Latka

07:36Okay.

Gregg Phillips

07:37>> And it was a tough time. I was sick and had cancer and, you know, everybody was struggling through things and selling into hospitals.

Battling Cancer and the Team Stepping Up

Nathan Latka

07:44You just had cancer. This was just last year.

Gregg Phillips

07:47>> Yeah, in fact, next Thursday, I go in to see if it's all gone. So- Oh, wow. See how it goes.

Nathan Latka

07:55Well, hope you're well and it's all better and you're super healthy now.

Gregg Phillips

07:59>> I'll you what, One of the greatest things of all, Nathan, that happened during all of this effort for me personally, I'd say, sort of chokes me up a little bit to think about it. As an entrepreneur, you sort of have this belief that, you know, I'm sort of important to my company. And if I'm not here, what's going to happen? It's amazing the way some of the leaders in this company stepped up, My co founders in

08:25>> particular, but also people really across the board from our automated testing teams to our chief architects really stepped up into or into fill some roles that were kind of leadership roles in a way that I had left, you know, as a void. I was working maybe halftime or so, but people really stepped up. And I think the most valuable lesson that I personally learned during all of this was, I do have a few ideas. And the

08:54>> company was in large part founded on a few of my ideas. But the future of CoverMe and the future of where this company ends up is really in the hands of some of these young, smart people that are developing the marketplace and developing all the products in the future. So it's been great.

Bootstrapped Journey and Line of Credit

Nathan Latka

09:14I love hearing that. That's wonderful. And you've done all this bootstrapped, right?

Gregg Phillips

09:17>> We did.

Nathan Latka

09:18Yeah. Any plans to raise or you're going stay bootstrapped?

Gregg Phillips

09:21>> Yeah. When we first set out, you know, actually sort of sought counsel from you, you probably don't even remember it, but when we first started dragging into this thing, you know, I was really focused on, I don't want to raise. I want to keep this equity for myself and for my co founders. And so we embarked on that. But we had this pact between us that from 0 to 1,000,000 in ARR, we would try to just

09:46>> keep blowing ourselves the money, generate as much cash as we can to keep the thing moving. Between one and two, one and two point five, we thought if we need to borrow, get some commercial debt or we need a line of credit or something like that to sort of even out the cash flow, we'll do that, which we did.

Nathan Latka

10:02How much did you raise in debt?

Gregg Phillips

10:04>> $1,125,000 total in a line of credit.

Nathan Latka

10:07Okay.

Gregg Phillips

10:08>> And I don't think there's any I don't think we have any of it out right now.

Nathan Latka

10:14I'll double check on that.

Gregg Phillips

10:16>> But anyway, our point was that once we got to that 2,000,000, 2,500,000 range, we felt like our margins were strong enough to support

10:26>> getting us there, but also that would put us in a good position and a good place to start to scale this thing. And that's where we find ourselves down. We're going to start looking at that raise in Q4.

Plans to Raise in Q4 2021

Nathan Latka

10:38How much is the right amount?

Gregg Phillips

10:40>> We're still fuzzing around about it. Know, to scale this thing and do it right, think we need 4 or 5,000,000.

Nathan Latka

10:47Yep. Yep. And what do you think the valuation could be?

Gregg Phillips

10:52>> Well, we're sitting down to talk about this here in about a month or so, but you know, I think we're probably realistically looking at maybe maybe one point, maybe 12,000,000.

11:07>> Pre No, you're good.

Nathan Latka

11:09No worries.

11:11Do you think if you raise 5,000,000 on a 12,000,000 pre something like that?

Gregg Phillips

11:15>> Yeah, something like that. We're still fuzzing around about it. One of the exciting things about where we are today is that bringing in these new salespeople and watching them perform quickly and out of the gate has really given us some confidence to start to make other investments and do other things we need to do.

Customer Count: 36 Hospitals and Nursing Homes

Nathan Latka

11:32How many customers

11:33are they managing now? How many customers total?

Gregg Phillips

11:36>> 36 total.

Nathan Latka

11:38Okay. And they're hospitals, right?

Gregg Phillips

11:40>> Hospitals and nursing homes. A little bit different. They're slightly different markets in part because of the way they're funded. So a nursing home might bring it, you know, might bring us 25,000 or so a year, a couple thousand a month for a home. But because very few operators only have one home, they might have two, three or four. We're just now getting into understanding that market a little bit better and maybe right sizing our pricing that

Pricing by Customer Segment and Market Opportunity

Gregg Phillips

12:12>> will allow us to bring in some additional nurse stems. So that's exciting to us and we're excited about it. We think we can get that revenue per contract, I'll call it as we call it up to probably the 50 or 60 range on the nursing home side. On the hospital side, it's a little bit different because we have several different products. Hospital size, depending on the size of the hospital ranges between 5,000 a month and maybe

12:36>> 12,500 a month. Have one that's a little bit bigger than that. But all in all, shakes out to around between the two of them together, hospitals are about, give or take a little bit, about 100,000 a year and nursing homes are about 25,000 a year. We think we're about 50% beneath the market on both of them. So we're going to start looking at some price increases. We've got some new value props that we're adding into marketplace. And we

13:03>> think our customers will easily be able to absorb it based on the ROI for our product offering.

Famous Five: Books, Mentors, and Personal Life

Nathan Latka

13:10Gregg, it's a hell of a story, man. We're rooting for you. Let's wrap up here with the Famous Five. Number one, favorite book.

Gregg Phillips

13:16>> Man, after I got sick, I started reading the Bible two years ago. Next week, I will have read the Bible for 732 days in a row. So something I get leadership

13:30>> ideas from, I get commitment ideas from, and all sorts of feel good components to that. So that's an easy one.

Nathan Latka

13:39Gregg, is there a Founder you're following or studying?

Gregg Phillips

13:42>> You know, Nathan, I don't want to blow your horn too much, man. And I guess people have probably done this. I haven't listened to all your podcasts, but you have been very important to us in our growth. We look to not only your Slack channels for ideas and some of your founders that you connect us with, but also reading your book and listening to your podcast. We have more good ideas from you than just about anybody

14:03>> else in the space.

Nathan Latka

14:04Oh, man. I appreciate that, Gregg. Thanks so much. I'll pass it on to my team. We have a great support system running the whole thing. I appreciate that. Number three, what's your favorite online tool for building CoverMe?

Gregg Phillips

14:14>> Oh, that's easy. There's a San Diego based startup called Rehinged. They are a spinout from a VC company out there, and these guys are absolutely killing it. They take data and they apply AI to it and push it into sort of an easy to use dashboard for marketing purposes. And in fact, I just invested some of my own money into that deal. Rehans is going to be a superstar in that space.

Nathan Latka

14:39Interesting. They have a very, very AI heavy site. So it does not surprise me, very interesting. What's your situation? Married single kids?

Gregg Phillips

14:49>> Man, that's complicated. I've got two great kids. I've got two amazing grandkids. I'm really good at my job, but not super great at relationships. You

Nathan Latka

14:57know, you and me both.

Gregg Phillips

14:59>> Get through life and it's all good.

Nathan Latka

15:01So not married, two kids. Is that right?

Gregg Phillips

15:04>> That's right.

Nathan Latka

15:04And how old are you, Gregg?

Gregg Phillips

15:06>> I am I'll be 61 next month.

Nathan Latka

15:0961 years young. I love that. And how much are you sleeping these days? How many hours?

Gregg Phillips

15:14>> Five or six hours.

Nathan Latka

15:15Okay. Pretty good. Alright. Take us home here. Someone you wish you knew when you were 20.

Gregg Phillips

15:20>> Man, I wish I wish I would have known that you don't have to work for other people, that you could do this yourself. If you just get in, be committed, stay going where you go, and keep your eyes on the prize, and always step toward the fire, you know, anybody could do this.

Nathan Latka

15:35Guys, we're thinking positive thoughts. Gregg is going to go into his doctor next week and get the all clear. He battled cancer hardcore last year and realized the problems associated with paying bills. It's a nightmare. He's a smart dude, but it's hard to figure out. That's why I built CoverMe. CoverMe is now growing very quick. They were doing $100,000 a month about a year ago, now doing $131,000 a month across 36 hospitals and nursing homes who

15:56pay them to help their patients figure out ways to pay more effectively using things like workers'comp, Medicare, cash discount programs, charities, things like that. They've done this bootstrapped, which we love on a team of 22 people. Gregg owns about 55% of the business. Gregg, thanks for taking us to the top.

Gregg Phillips

16:11>> Nathan, thanks for everything.

Nathan Latka

16:14One more thing before you go. We have a brand new show every Thursday at 1PM central. It's called Shark Tank for SaaS. We call it deal or bust. One founder comes on, three hungry buyers, they try and do a deal live, the founder shares back end dashboards, their expenses, their revenue, ARPU CAC, LTV, you name it, they share it and the buyers try and make a deal live. It is fun to watch every Thursday 1PM Central.

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