From Bootstrap to VC: Appature Doubles Size in a Year, Looks for Next Defining Moment in Health IT

What happens to a scrappy, profitable startup after it decides to take its first round of venture funding? Cynics might say the founders will give up too much control to venture capitalists, focus on growth while sacrificing profits, and try to make a splash in a bigger market before it’s ready.

Seattle-based Appature would say none of the above.

So far, at least, the healthcare marketing software company doesn’t seem too fat and happy with itself. On a recent visit to Appature’s offices in downtown Seattle, chief executive Kabir Shahani and chief technology officer Chris Hahn gave me the lowdown on how the company is working closely with its investors to grow responsibly. That includes adding some key new staff members (see below), and finding ways to attract new customers without spending huge amounts of cash.

What makes Appature unusual is that it was already a successful, bootstrapped company when it decided to pursue a dream of capturing a bigger market, which required taking venture capital. But that kind of experience is starting to become the norm in venture-backed software startups. Gone are the days of pre-revenue companies getting fat Series A checks, just because VCs want in on a fad. In Appature’s case, first came the profits, then the Series A check. And it has used the cash wisely. Appature has doubled in size over the past year, growing to about 20 employees. The company hit a rough patch in 2009, like most, but now appears to be back on track for major growth.

Here’s the quick back story. Shahani and Hahn founded Appature in early 2007. They had met previously at Seattle-based social networking startup Blue Dot. The basic idea behind Appature was to make marketing and customer relationship management more efficient in the healthcare industry through software. They quickly found paying customers and became profitable in their first year, while growing slowly. Then, last December, the company raised $3.5 million in first-round funding from Seattle-area investors Ignition Partners, Madrona Venture Group, and Founder’s Co-op.

Appature’s software helps companies in healthcare, pharmaceuticals, medical devices, and consumer health and wellness deliver targeted marketing campaigns, track marketing activity and performance, and learn about their customers via sophisticated business intelligence and analytics tools. As Shahani explained at an Xconomy event earlier this month, Appature can help healthcare companies reach doctors and other customers more directly and effectively through the Web, social media, e-mail, direct mail, trade shows, and other marketing channels. “It’s about building the right workflow around the doctor’s day,” Shahani said. “How do I streamline all that information that’s coming in? For big companies, how do you get the right message to [doctors and healthcare providers]?”

What he means is that many doctors are under pressure to see more patients per day, and spend less time with them, to get the kind of insurance reimbursement they need to run their offices. Then there’s the deluge of clinical data and medical publications that they need to keep up with. It’s all made doctors busier than ever, and has made it hard for healthcare sales reps to spend much time to get to know them and what their patients really need. So, healthcare companies need to be more strategic about physicians’ needs, and how to communicate the advantages of their products.

How is Appature doing on that front? “Since our funding, it’s been all about how to build our commercial strategy, and identifying the right [employees],” Shahani told me last week. “Everything is about scale for us, and brand awareness. What’s the repeatable model for sales and implementation?”

A big part of the Appature model, as he says, is people. In the past two months, the company has added three key new members of the management team. They are Mike Lamberson, director of marketing, an 11-year veteran of Johnson & Johnson (a big customer of Appature’s); Kent Corley, vice president of customer engagement, a 10-year vet of Accenture; and Todd Feinroth, an enterprise software sales expert recently tapped to lead the Appature sales team. Shahani credits his investors, particularly at Ignition and Madrona, for helping to recruit these top-level folks; he also gives props to Emily Schrock from Role Call, a Seattle-based social recruiting agency for startups.

It’s always interesting to hear people talk about why they joined a startup after working in a big company. Lamberson says, “The potential and unmet need [for a product like Appature’s] was just too big… The biggest eye-opener for me is that everyone knows what the goal is and what they’re driving…Here everyone knows what the scoreboard is, and how to win.” Corley adds, “Here they talk about the data, not ‘where’s my [bleeping] report?’” He also cites “the team, the energy to grow and build something really amazing” as positive factors.

But one issue in any growing startup is the role of the founders, and how their relationship evolves. Hahn, the engineering brains of the operation, says his role has been pretty steady. “I still write a lot of code,” he says. “CTOs need to stay connected to the technology.” What’s more, although he and Shahani acknowledge they don’t spend as much time together as they did in the early days, their communications have become much more efficient. “We can go through a bullet-point list of 100 items in an hour,” Hahn says.

To get a better feel for Appature’s narrative arc, I asked Shahani for a few defining moments in the company’s history. A couple of them stood out. One was when the company landed its first customer, in May 2007. “Someone was willing to pay us money for the product,” Shahani beams. And the second was a meeting that took place at a Ritz-Carlton hotel in Orlando, FL, in early 2008.

As Shahani explains, the meeting was between corporate giants Microsoft and Johnson & Johnson, with little Appature in the middle. (J&J had invited the startup to attend.) Microsoft’s Health Solutions Group was getting ready to roll out its HealthVault software platform for electronic medical records, and it wanted Johnson & Johnson to sign up as a launch partner. But the two sides were having trouble understanding each other’s jargon, Shahani says.

“It was like one was speaking Greek and the other was speaking Russian,” he says. “I had to interject and interpret.” Shahani explained to the roomful of executives that Microsoft wanted to create an ecosystem in health IT, and that it would make its money from companies creating applications on top of its platform. “The whole room went ‘ohhh…’” he says. And that’s when he realized Appature could really help bridge a gap between healthcare companies and their customers.

Indeed, the key to the company’s success so far seems to be its deep understanding of the marketing needs of the healthcare industry. “Everything bubbles up from customers,” Hahn says. “We provide visibility and then, upstream of that, the power of the marketer to make decisions on what works,” Shahani adds.

Appature makes money from licensing its software to companies on an annual basis. Shahani wouldn’t give any details about revenues, except to say, “This year we’re showing positive revenue growth over last year.” He says the company has doubled in size “responsibly” over the past year, and that “now we are hiring a little bit ahead of revenue, but not ahead of demand.”

It is precisely that demand that Appature is focusing on when it talks about achieving “scale.” It’s not a technology or software issue so much as executing on signing up new companies and deploying its products as fast as possible. Hahn says he and the rest of the team are working on “how to turn customers on faster, and making sure we can move fast on the customers.”

In the past few months, some R&D areas have been stripped away—like Chatterfly, a Twitter search engine that Appature developed and then shut down—while others have flourished. For example, Appature’s “sentiment analysis” software seems to have taken off, whereby companies can automatically track and understand positive and negative feelings about brands, products, and other industry topics from social media and Web content.

Asked to forecast the next year or two, Shahani made a number of transportation analogies involving boats, buses, and moving boulders. “We expect to see growth. There may be bumps and detours, but we will continue to get the right people on the bus,” he says.

Lastly, I asked what makes Appature’s culture unique and why it’s important. This is a company built by a couple of ambitious young guys, after all. (Shahani’s CEO hair belies the fact that he’s still in his mid-20s.) “We have a culture of celebrating the wins and having fun,” Shahani says. He adds that the company is “focused on professional and personal growth” and has an “environment of supporting each other.” He says Appature’s official company values are: customer obsession, get things done, challenge the status quo, operate with integrity, and deliver on the vision of “surprisingly simple.”

Asked to boil down the culture to one word, Shahani says, “Winning. In the context of the team.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and Editor of Xconomy Boston. E-mail him at gthuang [at] Follow @gthuang

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