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Bootstrapping Fast Growth: Q&A with Cognitive Medical’s Doug Burke

Xconomy San Diego — 

Last week, Inc. magazine released its 34th annual list of America’s fastest-growing private companies, which highlights 5,000 businesses of all kinds.

The top-ranked business in the San Diego area, which ranks among the magazine’s list of “fastest-growing metro areas” (with 96 companies that qualified, based on their increased revenue growth from 2011 to 2014), sells commercial transportation insurance. The San Diego ranking also features fast-growing retailers, real estate firms, construction companies, and other mainstream businesses.

Among San Diego’s innovation-focused startups, though, Cognitive Medical Systems stands out as a healthtech startup that has managed to increase its revenue by 3,499 percent (from 2011 through 2014) without taking any venture capital or outside funding.

Cognitive was founded in 2010 to develop custom software for federal and commercial healthcare entities. In 2011, Cognitive had 4 employees and generated $143,800 in revenue. By 2014, Cognitive had 60 employees—about 40 are in San Diego—over $5.1 million in revenue, and more than $9 million worth of booked business.

According to president Doug Burke, “We must, as a society, do a better job of educating consumers of healthcare earlier on in life. We will all face very difficult healthcare decisions in our lives.”

At Cognitive, Burke says, “We dream of products and services which can help the clinical care staff and the patients/families make better decisions about healthcare. This spans the range from clinical decision support (real-time information delivered at the point of care, which is both contextually relevant to the care setting but also to the entire digitized healthcare history of the patient) to patient education.”

To explain how Cognitive has accomplished its strong revenue growth while carrying out its vision for improving healthcare decision-making, Burke agreed to answer a few questions from Xconomy by email. His answers have been condensed somewhat, and edited for clarity.

Xconomy: How has Cognitive funded its operations to date?

Doug Burke: The four founders bootstrapped the company with our own cash.  We’ve funded everything else out of cash flow from projects that we do in healthcare IT with the federal government (Department of Defense, Veterans Administration, and Health and Human Services).

X: Doesn’t bootstrapping usually constrain a startup’s ability to grow?

DB: It certainly can.  Of course that depends upon how much money you put in initially and what you’re trying to accomplish as a company.

We’re strong believers that we’re better managers of the money we put in, versus “other people’s money.” Also, we fundamentally want to retain control of the business. We know how to run this business and don’t want outsiders trying to influence our plans. In health IT, we can build and deliver products and services in an appropriate cadence to match market demand, the funding we provide or generate from cash flow.  That’s not always true in other industries or markets.

X: How has Cognitive managed to grow as much as it has? What are the contributing factors?

DB: Focus, determination, vision, hard work, and the right incentives for our employees.  All of our employees have stock options, and are thus potential owners of the company. We feel this makes them better managers as well (of their time, work product, etc.).  So far, we have picked fast-growing markets (healthcare IT, clinical informatics, clinical decision support). Finally, we’ve also been lucky.

X: How far has Cognitive gotten with its cloud strategy?

DB: Quite far. We use Amazon Web Services for most everything we do, assuming we have a choice. With government projects, sometimes we do not have a choice. We either build and deploy in the public cloud or the “GovCloud” (if we are working for the government).  It works really well and we’re very happy with this delivery model.  At the last company that I ran, we had to build a large data center to deploy our software products/solutions.  This model has been a much more efficient use of capital and labor.

X: Have you completed development of the enterprise class clinical decision support platform?

DB: No, not yet.  We’ve got substantial portions of the platform built, and most projects that we do for the government add to that project in some way. Sometimes it’s in the form of software components; sometimes it’s open industry standards that we develop on behalf of the government; and sometimes, it’s the experience we get in building a solution to a difficult problem in healthcare IT.

X: Can you give an example of how Cognitive is addressing some of the critical challenges in healthcare, such as medical errors or helping physicians keep up with the explosion of knowledge and medical literature?

DB: In terms of commercial products, we’ve delivered one product in partnership with the Neonatal ICU (NICU) at the University of North Carolina, Chapel Hill. It allows the nurses and clinical care staff in the NICU to capture clinical-quality data via a mobile application that sits on an iPad or Android device at the point of care.

One example of the type of data it’s capturing is … Next Page »

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