Recently, Earth Class Mail was named CIO Applications Solution Provider of the Year for 2019. We’re very excited to share the news with customers and prospects on our blog. To read the article, please visit CIO Applications.
***Coverage of this announcement has been covered by CIO Applications.
In our last post we learned that people will potentially pay to file their health care claim forms online, enough to support a business at least. Wahoo!
Now we build everything, right? Absolutely not. Hold your horses, buckaroo, and put that hammer down.
The data told us that a good number of people want this problem solved, and will pay enough to make it worthwhile for us. Now we need to make sure a real product can be built to support this business.
In other words, I want to know: Is our core idea technically possible?
WARNING – PLEASE don’t skip validating if a product and service can actually be built to solve the core problem. I made this mistake a few times in the past, and wasted months and years of time and money as a result.
ClaimSender.com requires a few things to work, some business related, some technical
Business items to confirm:
We need to make sure that insurance companies will accept our claim forms when we fax them in.
Since we’ll be storing health information, we need to make sure our hosting is compliant and affordable.
Our app will fax in claim forms, and that process needs to be HIPAA compliant and affordable.
Technical items to confirm:
The main value proposition of the product is speed and convenience, so we need to collect information from user, and write it onto an existing claim form – then deliver it as a complete PDF.
We will also need to collect a digital signature from the end user, then write it onto an existing claim form PDF.
Let’s walk through these issues one by one, and answer them with the least amount of time and cost.
Issue: Will insurance companies accept faxed in claim forms with a digitally-created signature?
So I called up my healthcare company and asked if I could fax my claim form in. They said yes, and gave me their fax number.
With that in hand, I headed over to HelloFax.com. I uploaded the claim form PDF, filled in the claim info, and signed electronically.
I faxed the form in and held my breath. Ok, I didn’t hold my breath, because claims can take 7 days to make it through the insurance companies’ claims department.
A few days after faxing my claim in I logged into my email and saw a “New claim processed” email from my insurance company. Boom! Success. Total cost? $0. Time spent? 20 minutes.
To make sure the digital signature would count as a legal signature, I pinged Earth Class Mail’s Chairman, Jonathan Siegel. He founded RightSignature, an electronic signature company, so he knows the space well. He gave a big thumbs up.
If you don’t know any experts in the space, UpCounsel.com can serve as a good resource. VALIDATE.
On to the next issue…
Issue: Do cost effective HIPAA web hosting solutions exist?
Storing people’s health information requires the utmost security and care. This requires ClaimSender be HIPAA compliant. I won’t bore you with the details of HIPAA compliance.
In general it means you follow a bunch of strict guideliness on storing and transmitting health information.
A few hours of web searching turned up a few options, including HealthCareBlocks.com, which isn’t too expensive. That works, on to the next issue.
Issue: Can we find a HIPAA compliant fax API?
ClaimSender will fax in healthcare claim forms. Healthcare claim forms contain a lot of of sensitive personal information. We need to make sure our fax provider sends this information securely.
A few more hours of web searching revealed a few candidates, including Phaxio.com. After some back and forth with their excellent support crew, they confirmed their service can pass HIPAA muster when set up correctly.
Their pricing pleases too, so consider this answer a “yes”.
Issue: Can we collect information from users, and write it onto an existing claim form PDF?
I wrote code in a former life, and still fancy myself a developer. A “pretend” coder if you will. Real developers won’t call my code pretty, but I can code enough to test a concept.
To answer this question, I wrote a simple ruby script (I love rails) to see if I could write fields onto a PDF. I tried a few different ruby gems, and landed on the prawn and combine_pdf gem.
I kept the script as simple as possible, just coding enough to confirm I could place text onto an existing PDF. After an hour or so, my script gave me the “yes” I hoped for.
Before we move on, notice what I didn’t do…. I skipped creating a new rails project. I left data design for a later day. I bypassed everything except validating my core question.
My natural tendency is to start building the end app at this stage. After years of learning the hard way, I finally learned to focus on just answering the core question.
Issue: Can we collect a digital signature from the end user and write it onto an existing claim form PDF?
This question proved beyond my meager coding skills. To answer it, I created a small project on Upwork. Upwork runs a freelancer marketplace, and provides a great tool for one off tasks.
They have a ton of developers, which made getting this question answered quick and cheap (< $50).
Do research before posting your project so you can specify as much detail as possible. For our project, I made sure I captured our key requirements before posting the job on upwork:
I knew the solution should use prawn and/or combine_pdf for the PDF manipulation.
A little research led me to this github project to accept the end user’s signature – https://github.com/szimek/signature_pad.
Using what I learned above, I wrote a specific job description with as much detail as possible.
I prefer to post my small projects as a set fee, instead of hourly. That gives me confidence on how much I will pay.
After posting our project, I read the reviews and explored the work history of any applicants.
I can’t stress this enough – READ THE REVIEWS.
If someone doesn’t have reviews yet, proceed with caution. I like working with individual developers instead of companies. I find I pay less and get stuff done faster.
I often ask applicants to write a tiny bit of code using the language & tools asked for in the job to make sure they know what they’re doing.
This also shows you how responsive they are, and how they communicate. Make this something tiny, so you don’t waste their time. I posted my project, chose a freelancer a day later, and within a few hours he delivered validation that things would work.
Boom! That makes us five for five on our questions.
Now what? How can we find out if people will really buy this? Great question. Let’s dive into that with our next post.
Simply put, a demand test is an experiment you run to see if there is anyone in the market for your product or service.
It can take many shapes, but for our purposes we focused on setting up a simple lead funnel by buying ads on Google AdWords and pointing those users to a landing page with a lead form.
This type of test is great because:
You can simply buy exposure to users likely to be interested in your product, very inexpensively. That means you don’t need to organically build an audience and you don’t need to have a product, just a pitch.
You can use the landing pages to funnel users through the various value points of your product, from a high-level pitch down to pricing. That means you can gain insights into what exactly is drawing people in or turning them away.
Most importantly, it’s really easy to setup. A focus group or even a basic functioning product are way more expensive and time consuming.
Step 3 – Did Any Customers Show Up?
Congratulations! If you’ve made it this far, you ran some ads to a landing page. Now let’s dig in to the results.
To refresh your memory, we want to answer a few simple questions to better understand if our business idea will be a success:
Question: How many potential customers exist looking for a solution to this problem?
Answer: Ad impressions
Question: How well does your business solve the problem for potential customers?
Answer: Ad click-through-rate (CTR)
Question: How many potential customers can you get to your front door?
Answer: Ad clicks
Question: How many potential customers are interested in pricing for your product?
Answer: Landing page CTR
Question: How many potential customers indicated they would pay you money?
Answer: Pricing button clicks
Question: How many potential customers are ready to buy now?
Answer: Email leads collected
Question: Can your business be profitable? How profitable?
Answer: The metrics from your demand test will help build an initial forecast
Let’s dive into our data to see what it tells us.
The very first question is probably the most important, how many potential customers exist looking for an answer to this problem?
In our test this data is easily accessible, and there’s good news for the future of ClaimSender. Google AdWords shows that there are thousands of daily searches related to healthcare claim forms.
We dig in a bit more and find that our $50/day budget produced 48 clicks/day, with an average CPC of $1.08 (this data is for one day, but it’s representative of the other days in our test).
Our limited keyword test produced a solid number of impressions. A bunch more search volume likely exists for a few reasons:
We set our daily budget at $50, and hit that somewhat early in the day.
Adwords budget alerts told us we could double our budget to get double the clicks at the same cost per click.
We can expand our keyword set to include other health care companies and more niche terms.
This is good news. It means we have plenty of room to grow through paid acquisition.
A quick trip to Google Trends tells us there’s perhaps at least double the volume if we include other healthcare companies besides United and Aetna.
Adding Cigna alone would produce a lot more volume, and a bevy of others exist – Humana, Centene, HealthNet, WellCare, Molina, Magellan, etc.
So the answer to our question is: “enough to keep learning”. No red flags on this step, let’s keep moving.
How well does your business solve the problem for potential customers?
I’ve seen click through rates from 0.01% up to 8% for AdWords campaigns. Our ads clocked in at a robust ~2.9%, a great result for a first attempt.
Hitting nearly 3% on our initial go shows that our ads appealed to people searching for a remedy to their health care claim filing pain.
We struck a nerve!
You can always improve on your first attempt, so the answer here is two strong thumbs up.
How many potential customers can you get to your front door?
Don’t sugarcoat this number. Is it enough to support a business if we convert a reasonable percentage of tire-kickers into customers?
Our ads delivered ~50 clicks per day.
However, our budget and keyword set constrained us. If we cranked our budget up and expanded our keyword set to include other healthcare companies, we could likely make that 50 turn into 150-200 per day.
Pencil in a conversion rate of 0.5% – 2% (some rule of thumb averages, your mileage may vary) and you have your likely customers per day.
If we get 200 interested people to the site, and convert a handful to paying customers, will that be enough to build a business? Perhaps, but let’s cover that in the spreadsheet section. Stay tuned.
How many potential customers showed interest in seeing how much your service cost?
Here’s what they saw after clicking an ad and landing at http://try.claimsender.com/
26.67% clicked the “Get Started” button, one-in-four is not bad at all.
How many potential customers indicated they would pay you money?
As the saying goes, “the proof is in the pudding” and it’s pudding time. We’ll measure this by looking at two things:
Unique users clicking on one of the sign up buttons
The specific sign up button they clicked
These actions tell us the person showed interest in signing up, but you can’t count your money yet. The best thing to do here is to apply a reasonable conversion percentage to calculate signups.
More importantly, looking at which pricing plans people clicked on tells you a bit about what they would pay.
Using the data from Unbounce, we can see that 24% of people that hit the pricing page clicked one of our pricing buttons. Nice!
Diving into Google Analytics to look at the events reveals which pricing tiers prospects clicked on. Most clicked on our free plan (some free will convert to paid when they hit usage limits), a few clicked on the $29/mo option, and one clicked on the $9/mo plan.
The clicks on the paid plans are encouraging. The data lacks enough volume to be valid, but even this amount of data is enough to show that we have something worth further investigation.
How many potential customers are ready to buy now?
These prospects display the strongest interest in your product. Three of the nine people who clicked on the pricing buttons left their contact info for us. Not bad at all.
Even better, it gives you a list of prospects to email so you can rack up some easy signups when you launch.
One thing did surprise me – two of the leads were from 10-25 person healthcare companies. Perhaps there’s a business-to-business product here?
Can your business be profitable? How profitable?
Time to break out the spreadsheets. I’ve created a simplistic one here for you to look at. Our example is a software-as-a-service (SaaS) based business that charges people a recurring fee per month.
For this type of business, we want to model the following numbers:
What we plan to spend on ads
How many customers we can acquire for that cost
How much each customer pays us per month
How many customers leave us each month
The resulting numbers give you the money you’ll be left with to pay for everything else. Those things include every other cost of running the business – per unit costs (if any), all provider costs (hosting, email, rent, software, support tools, etc.), taxes, compensation . . . you get the idea.
By playing with the assumptions in the spreadsheet, we get a sense of how profitable the business can be, and what it takes to make it so.
If we use monthly ad spend of $1,500, a CPC of $1, 1% conversion, an average of $12 per month per customer, and 3% churn, we break even in month 10 and generate a positive $337 in month 12.
If we use monthly ad spend of $6,000, a CPC of $1, 1.5% conversion, and 2% churn, we break even in month 5 and generate a positive $7,563 in month 12.
Results vary DRAMATICALLY with changes to each of those numbers. It’s impossible to know what they will be at this point, but we can use this template to get a sense of what’s possible, and what it will take to make that happen.
Let’s Drop Everything and Build Our Site! Right Now!
No Larry, hold your horses. It’s not time to build yet. Stay strong, and FIGHT THE URGE TO BUILD, BUILD, BUILD. Let me repeat myself, DO NOT BUILD ANYTHING YET.
Let’s dig into the data to deduce our most intelligent next step
Here’s what we learned:
We can buy plenty of clicks at a reasonable cost.
A lot more keywords, forms, categories (dental, vision, pharmacy) and providers exist than we tested.
The strong CTR on the homepage and pricing buttons show demand lurks, ready to turn into signups.
That’s a solid foundation to build on. Let’s make an action item to research how much more search volume exists, and note that optimization can improve our conversion rates significantly over time with testing.
Our financial model gives us a sense of how big this can be. On the low end it appears to deliver a few thousand dollars a month after many months of ramping up.
A more generous interpretation of AdWords demand and conversion rates gives us a nice solo lifestyle business.
Getting leads from small healthcare companies surprised me. Perhaps these types of companies need a solution? Mark down another research item.
This data told us that a good number of people want this problem solved, and will pay enough to make it worthwhile for us to solve.
To paraphrase my good friend and investor in Earth Class Mail, Jonathan Siegel, “the best investments have little risk and high return”.
If we channel our inner Jonathan, what questions do we need to ask to reduce the risk and build confidence in a profitable business?
I want to know:
Is our core idea technically possible?
Is our core idea legally possible?
Will people really buy this? For real? For really real?
How can I get those questions answered most simply?
That’s it for today, but stay tuned for our next post where we dive into the questions above.
Everyone out there has a big idea. If you count yourself as an entrepreneur, chances are you have an idea for a startup.
The problem is that few ideas are actually any good. Even with a great idea the reality is that it won’t necessarily translate into a great business. But, you can save yourself from a lot of heartache and wasted effort.
That’s why you need to validate
Validation is when you actually put the pressure test on your idea, to see if anyone even wants what you’re offering in the first place. Too many would-be entrepreneurs make the mistake of keeping themselves in a bubble and fall out of touch with the real world.
The goal of validation is to find the true fans of your product. A true fan is someone who would put down money for your product even if they don’t have it yet. You should get at least a hundred of them to validate further investment in your idea.
When it comes to validation, it’s important to remember these rules:
The goal is to find 100 true fans.
Always listen more than you talk.
Keep in mind that great ideas don’t always translate into great products.
Talk to your customer
Here’s a quick little exercise to get started. Quickly write down at least five people you know who would use your product. That’s five people who would fall over themselves in order to do business with you. Then talk to them.
If you can’t think of at least five people, then maybe that’s all the validation your idea needs.
Don’t stop at this step! It’s a good first step, but for the most part you’ll probably get a load of people telling you that they could see themselves using your product.
The first mistake entrepreneurs often make is they rely solely on their friends and family for feedback on their idea. This is exactly the reason you need to expand your validation beyond friends and family.
You need to ask people who are complete strangers. In fact, you need people to tell you that your idea sucks. You need to find a way to actually get in front of your target customer and start asking them what they think.
For that you need to clearly define, in writing, who you believe your target customer is and get in contact with some of them (this could end up being totally wrong, but you need to start somewhere).
That means actually go to the places where they’re hanging out, online or offline. Come armed with questions, ask them to fill out a survey, or maybe even convince a couple to be beta testers for you. Develop a 15 second pitch for your idea, that’s all the attention you’ll get from people you don’t know.
It doesn’t really matter how you approach this, as long as you’re actually listening to them and taking what they have to say seriously.
One of the best ways to validate your idea is to start selling it, even if you don’t have a product to sell. It’s never too early to start selling.
A smoke test is super easy to do and is often used by some of the best in the business before they even start building their products.
Make it so that the landing page actually has a strong call to action like, “Sign up now” or “Get a free consultation” that people can actually click on. This will become very important data for you later.
Now that you’ve set the bait it’s time to start casting the line out.
Remember to go after your target customer here, so don’t just do a social media blast linking back to your page and hope for the best. Actually find out where your potential users hang out and seed it out there.
Come up with a real pitch, sell the value of your idea and incentivize people to visit your page. Early-bird discounts are a great incentive, so is exclusivity.
Some common messaging examples: “Sign up today and get 50% Off”, and “Join our waitlist and be part of the beta test”.
This whole process shouldn’t take you more than a few hours of work, PPC campaign excluded, and a couple days of patience. After a few days, it’s time to check and see if you got any nibbles.
Remember the goal is to find 100 true fans. How many people visited your page? How many people actually clicked through on your call to action?
Developed by the tech-heads at Google, the Usability Cafe method is a very effective and cheap way for you to validate your idea. The best part is that you don’t even need any special tools to implement it.
Even though this is a method primarily designed for apps and developers, you can easily use this for other types of products and ideas as well.
Although, unlike the smoke test method above, you will need a functioning version of your product. Remember to go as lean as possible, no need for any bells and whistles yet.
It can even be a bunch of static landing pages with links, laid out how you imagine the app working, for example.
The Usability Cafe is based upon the principle that up to 85% of your core usability problems can be found just by observing five people using your product.
The method is simple: Just find a popular cafe nearby and ask the first five people you see to test your product for you.
All you really need is a couple hours of time, a simple (i.e. MVP) version of your product, and some rewards for your beta testers. Remember, all you’re asking them for is ten minutes of their time, nothing more, nothing less.
Give them five minutes to play with your product and ask them to talk out loud about their experience, any problems they’re encountering, and to be as honest as possible.
After that’s done, just spend another five minutes getting a bit more in-depth about the app and their thoughts. When all’s said and done, treating them to a muffin or a coffee for their time can be a great reward.
The entire point of the Usability Cafe method is to take yourself out of your own bubble. Sometimes what’s obvious to you isn’t obvious to someone else.
Getting out there and speaking to people can not only help you develop a better product, but open your eyes as to what’s possible with your idea.
Too many entrepreneurs out there make the fatal mistake of jumping without looking. While it’s important to have confidence as an entrepreneur, it’s also important to have the common sense to pack a parachute too.
By using these validation methods, you’ll be able to take your ideas out of your head and into the real world. See what works and what doesn’t, and make sure to double down on whatever it is that works best.
Again, remember these simple rules:
Find 100 true early adopters that would buy your product.
Collect feedback from people you don’t know, lots of it, and take it seriously.
Understand that great ideas aren’t guaranteed to turn into great businesses.
If everything goes right and you have yourself a validated idea, take that bold step forward. But always make sure to keep on iterating, pull yourself out of your bubble whenever possible, and always be listening.