Digital Healthcare
Nov 28, 2022

Mind the Incentives—and Vesting Schedules—Advises Investor-Turned-Founder Michael Meng of Stellar Health

Michael Meng came into his startup journey first as an investor. From that vantage point, he saw how much was broken in the space and how carefully founders must approach solutions, but he knew his impact fell far short of what founders push through. 

He soon found an opportunity to go deeper. He and a business school friend started talking about an idea that would become Stellar Health, a value-based care payment model that reimburses and rewards providers for improving patient outcomes. 

“When I was in healthcare private equity, this was already a big topic,” he says. “I'd always looked at investing around the idea that healthcare is unsustainable. We really need to do more with less, especially in terms of the sustainability of our country. That’s how we started and that’s where we’re coming from.” 

Primary’s Sam Toole sat down with Michael to talk about the difficulties of taking on this challenge, his advice for other founders, and his learnings from a painful cofounder breakup. 

See a deeper dive on our new digital publication, First Edition.

How do all America’s healthcare challenges open up some exciting opportunities for entrepreneurs?  

It's definitely an area that needs as much innovation as it can get. I think as ideas for businesses go, there are ones that help the world marginally, but are easier to build. Whereas in healthcare it's harder, the prize is bigger, and the accomplishment is more important to the industry and to the society. So I think that there's a lot to go after. Value-based care is so vast, but there are many things you could do to help this exact equation of lowering costs, improving the quality and outcomes, and keeping people healthy. 

What would be your biggest piece of advice that you'd want to share with new founders?

A lot of this is a mindset of perseverance, and I think it really helps to start in a place of humility. 

As a founder coming from the investing side, I had to learn humility really quickly, because as an investor, we'd call someone up and that person wants to help you. When you start your company, no one wants to talk to you. I think you’ve got to just get used to that and be okay with it. And if you keep at it, you will eventually break through.

The other big one is to really think about your startup, company, or even your job, and whether you want to do it like an investment. I say this to a lot of people, even in picking jobs, you spend 60% of your waking hours at your job and certainly in the startup, maybe even more than that. It's a pretty big investment in that sense. So that's where perseverance comes in. I really evaluated Stellar like an investor might. What would intrigue me to jump in was, I truly believed this is a great idea. I really think I would invest in this, my own money.  

Is there also a degree of humility that needs to happen in tech people trying to take on the medical system? 

I don't know if I consider that so much as humility as expectations of what you think you can accomplish. In order to change healthcare, you kind of need to know how it works. If you don't fully appreciate that or understand it, you're going to oversimplify it and not make the changes.

Our team was three healthcare guys who have been in the industry for a while and one technical cofounder who knew nothing about healthcare. Even our technical cofounder figured out that he needs some people who really know healthcare in order to solve the problem in a way that really works.

What was a really pivotal moment for you in building momentum and/or finding your product market fit?

One of our biggest early breaks was selling United Healthcare in 2019. They gave us a shot, and we are so appreciative of that. I'd say a deeper one is when we went through a founder CEO transition early on and that kind of rocked us. 

Once we truly solved that, it actually led to a very different company. Not only because we got that big break, but we subsequently sold six more customers like that and have scaled quite a bit since then. I do think sometimes you'll say startups are a reflection of the CEO or the cofounders, and I think that's absolutely true. Our past CEO was a great guy, but his heart wasn't in what we were focused on at the time, so that attitude reflected everywhere. I think that is the true big inflection point.

Is there anything that you and your team did that you feel like helped keep that amicable and productive?

One, there's a reason why there are market standards on how things are constructed. We have 48 months of vesting and a 12 month cliff and sometimes it is easy as a founder to say “why bother,” right? This is a perfect example of why. By having a formulaic vesting schedule, it made the discussion around what it means to part ways that much easier. I think that that's a big one. I would encourage founders in general to follow the many best practices that lawyers and investors tell you to follow—they can really matter in the end and there is a lot of wisdom baked into them.

Anything else about just the way that you communicated with each other or things you did?

I think we really spent a lot of time empathizing. We totally understood where others were coming from and maybe some of the challenges they were facing in wanting to put their heart into this. We were still early enough to where we wanted and needed everyone pulling weight. Being pretty open and candid helps. It's easy to procrastinate if you don't want to have that hard conversation, but if you're willing to get direct, it will actually make things a lot smoother.

If you were a new founder thinking about a healthcare startup today, what would you be looking at?

Whatever you are trying to do or solve in healthcare, I would really, really strongly think a lot about the incentives at play in the entire situation. That is actually a really big piece of why healthcare is so screwed up, why it needs fixing. If you think a lot about that, it'll help you actually get to some efficacy or a solution that really moves the needle in whatever trend or area that you want to attack. 

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