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Saul Marquez:
Hey everybody! Saul Marquez with the Outcomes Rocket Podcast. I want to welcome you back to another episode straight from the ViVE event show floor in sunny Nashville, Tennessee. Just incredible discussions, how people are transforming care and doing amazing things to make the patient experience better. I’m joined with Shawn Ellis today. He is the Managing Partner of Distributed Ventures. He co-founded and manages the fund as well as accelerates the fund’s portfolio companies’ revenue and growth in the initial stages of their life cycles. He serves as director on the boards of Vivante Health, Posterity Health, Wingspan, Relay Platform, and Axio. Such a pleasure to have you here today, Shawn. I’m super excited about talking to you.
Shawn Ellis:
My pleasure, Saul. Thanks for making time. It’s great to be here.
Saul Marquez:
Absolutely. So, Shawn, before we get started on the core of what Distributed Ventures does and how you guys are different. Talk to me a little bit about you. What is it that got you into healthcare?
Shawn Ellis:
Absolutely, well, it really starts with my childhood. So I was born in Rochester, Minnesota. And for anybody who’s deeply involved in healthcare, you know, that’s the shadow of the Mayo Clinic. So I had the benefit of growing up in a great healthcare community, being surrounded by friends and family members who were deeply involved in Mayo. And so I think that interested me from a very young age, and then as I got into my professional life, just gravitated toward healthcare and some early roles and head stuck with it. I also had the advantage of growing up in a household with a parent that was a business owner, a builder. So I think really it was the fusion of those two things that led me to healthcare venture in particular and helping folks build businesses and realize their visions.
Saul Marquez:
That’s fantastic, Shawn, really appreciate you sharing that. It’s sort of like the inescapable mixture of things that’s turned into what you do now.
Shawn Ellis:
It feels inevitable when you look back at it. That’s right, that’s right.
Saul Marquez:
That’s awesome. Well, look, we’re all a product of our environment and that’s why oftentimes they say our health is more dependent on our zip code than genetic code, many things are. So, Shawn, talk to us about Distributed Ventures, like what do you guys do and how do you add value to the healthcare ecosystem?
Shawn Ellis:
Absolutely. So I had the good fortune, I’ve been on both sides of the table in the healthcare investing sphere and the venture sphere. I was with another shop, Seven-Wire Ventures, for a period of time, had the good fortune to work with some healthcare greats there, then spent about four years in an operating seat building a company. And over the course of that journey, I really appreciated the value of strategic investors and what they can bring as you’re fighting the good fight in the early innings of healthcare companies. So I had the opportunity to team up with a large, diversified insurance brokerage business called NFP to create a differentiated form of venture, very focused on the early innings, but very sort of strategic and action-oriented. We always have a verb in terms of the way we work with portfolio companies, so that’s working shoulder to shoulder, helping them with their go-to-market strategies, refining pricing approaches, thinking about bundling solutions or services in a differentiated way. So we work really, really closely with those companies in the early innings, hence the namesake, Distributed Ventures. How can we help get these products and solutions out there and distributed in the market?
Saul Marquez:
That’s great, and thank you for sharing that. There’s a lot of entrepreneurs in healthcare that want to make a big difference and oftentimes after some time are confronted with some very harsh realities. Sales cycles are long, there’s behaviors that are stuck that people don’t want to change, and so oftentimes entrepreneurs will find themselves thinking and rethinking their business and things may not work out. So walk us through an example of how you’ve been able to help one of your portfolio companies make it through some tough times.
Shawn Ellis:
Yeah, absolutely. I think what’s particularly relevant for a lot of founders in this environment is, you know, we’re in an economic cycle that feels like the sands are shifting under our feet every day. Pricing models are not static, right? And so a lot of what we’re helping our portfolio companies figure out is, how can they have approaches that sort of share risk, that demonstrate a willingness to deliver value to the buyers, ultimately, the decision-makers in our context, that still benefits leaders in a majority of contexts for healthcare companies. So that may be utilization-based pricing, that may be fee-for-service-based pricing. As much as all of the VCs, the investors out there would love to have, you know, multi-year, really sticky revenue streams appreciating, it’s a tighter market today. It’s a more crowded market, and so breaking in requires that flexibility in the way you’re thinking about pricing and go-to-market, generally.
Saul Marquez:
Great example. There’s more than one way to do things. And if you could find a way to de-risk investments from the buyers, there’s an opportunity to get some traction and get some flow going.
Shawn Ellis:
Yeah, absolutely. It’s really about getting in the game, right? And I think that is the challenge for a lot of healthcare. It’s a long sales cycle, to your earlier comments also. How can we get them involved, demonstrating that value, and get users on their product? I think that’s the other challenge for a lot of founders as they’re addressing problems in this space. If it’s a 9 or a 12-month sales cycle and then you’re driving engagement to bring folks on and that’s a lot of gates that you have to run through. And so there are different strategies, different approaches that make sense depending on the problem you’re addressing. Some of the time, it makes sense to start with a direct-to-consumer approach, realizing you may have anemic membership or uptake initially, but you’ll get strong power users that are coming into your product and are really giving you a sense of how the individual or the member values your solution. And so that may make sense in some cases when you’re going to have a longer sales cycle, when you’re moving to the enterprise channel down the line.
Saul Marquez:
Thank you for that. And you know, that’s on the positioning and go-to-market strategy. How about on the leadership side and capability?
Shawn Ellis:
Yeah, you know, I think this is a market that I’m welcoming because you’re able to build businesses in a more measured way, in a more sober way. It feels a little bit less frenzied than 2018 to 2021 did, where if you’re a founder and you’re looking for funding, it may feel like more of a shotgun wedding than kind of a long-term opportunity to date and get to know one another. I think that also translates into the way people are building businesses. Because the market’s harder, you’re forced to build in a more disciplined way. And I think that makes for more durable companies over the long term, even though it may feel like a bit more of an uphill climb as you’re getting started up front.
Saul Marquez:
Yeah, I agree. And I think it is a good thing. That more disciplined approach that need to get your cash flow strong, that need to get your profitability in the right place. I mean, these things matter greatly. So when the good times come, you’ve got a great foundation.
Shawn Ellis:
That’s right. I think for founders, especially early innings, series seed, even series A, really focusing on your unit economics, you’re not likely to cash flow as a business entirely for a couple of years. But really understanding your unit economics in a fundamental sense, how is your business looking financially as you scale? That’s really important because I think the market’s less accepting of companies that are becoming less and less profitable as they’re scaling. And there was a period of time where that blitz-scaling approach made a lot more sense and the market was more accepting of that, but I think this is going to make for really strong companies 3 to 5 years out, right? It’s going to be really fun to see the vintage of companies evolve.
Saul Marquez:
Yeah, I agree, Shawn. I think it’s great. All right, let’s shift to people and process because a lot of times what entrepreneurs end up running into is getting the right people and they end up leaving a job and having another job, which is their business. So talk to us about scalability, you know, and process documentation.
Shawn Ellis:
Man, a lot we could do there. I think what’s really interesting, every startup, every set of founders, has a different philosophical approach. You’re dealing with folks that are incredibly self-aware, others that have been exceptional at everything they’ve done, right? And so I think at the very beginning, when you’re trying to get folks in key roles, it’s about thinking of what’s additive to the team, right? And to have an honest assessment of that, you’ve got to look in the mirror and know what you’re not good at or what you don’t like to do. And then to find someone to do that, it’s almost like finding the softest spot in your capability set and putting your finger on it and saying, I really need someone to do this because this isn’t what I love doing. But I also think, to your point on, kind of, process and documentation and scaling, especially in the enterprise channel, it’s a challenge when you’re early in the business, right? You’re going through things like accreditation processes, those things that are formalities, but interfacing with large enterprise clients, if you want to be taken seriously, that really does require professionalism in your approach, right? When you often have limited resources and a thin bench on your team. So it’s about documentation, and then once you have that documentation, you can assess what’s working well and what isn’t. But if you don’t kind of have that measure, it’s really hard to give your team or your organization an honest assessment and get better.
Saul Marquez:
Yeah, I totally agree with you, Shawn. And look, guys and gals, there’s an opportunity for you to think through your business in a way that helps you scale, that helps you differentiate and helps you position your products and your company in a way that makes you successful, and Shawn does that with his companies in a way that’s really meaningful and powerful. What advice would you give to the entrepreneurs out there that are looking to partner with a firm like yours for whether it’s capital or the strategic type of advice that you give to your firms?
Shawn Ellis:
I think the first thing that I would advise is, have a really good sense of what you’re looking for in that partnership because there are so many different flavors of capital that are out there in areas of expertise. In my case, I’ve built, I’ve operated in the sort of vertical and at the stage where I’m helping others. If that’s useful to a founder, great. For others, they’ve been there, they’ve done that, they may not want someone that’s offering that perspective. So really, take a look at the portfolio, the benefit of podcasts like this, or conversations, like there’s a library out there. You can do your research and get a sense of who’s a great partner for you and really target them, right? Because I think that’s where these relationships become so additive. It’s a ton of work as you’re out there in the grind, getting that support, that partnership is really essential. I think that’s a big bit of advice that I would give people. Not all capital is equal, and that doesn’t mean that there’s a universal hierarchy.
Saul Marquez:
Hey, that’s great, Shawn, and the message there, folks, is think about what you need, think about what your gaps are, and find that money. If it’s money you’re looking for.
Shawn Ellis:
Right.
Saul Marquez:
Yeah.
Shawn Ellis:
I think the other challenge for a lot of founders, and just because it’s hard, right, it is a grind. So when you’re getting feedback, that’s love from your investors, from folks on your advisory committees, from friends and family members, like whoever you’re turning to for support advocacy over this period. When you’re getting feedback that’s positive, that’s constructive, whatever form, do your best to sort of stay malleable and really listen to that, because getting that feedback is an indication of caring and someone really investing in you. And I think when you’re in that build and you may be hearing no a lot in a sales context or as you’re trying to recruit talent or those other things, you can become saturated. So do whatever you can, whether it’s working out, whether that’s like a mental wellness routine, do whatever you can to stay malleable and not saturated, so you can kind of hear those points of support and feedback.
Saul Marquez:
Outstanding advice, Shawn. Folks, hope you found this episode useful because I did. Hit rewind, Check out Shawn. We’ll leave notes to this podcast in the show notes, a link to get in touch with him through LinkedIn as well as his website. Shawn, thanks for being with us today.
Shawn Ellis:
This was really fun. Thank you, Saul. Appreciate you having me.
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