
The Dentist Office Software Story - chiachun
http://avc.com/2014/07/the-dentist-office-software-story/
======
jacquesm
This story is fictional, I know the real one: the guy described really does
exist (and he probably exists in just about every country). He was a dentist
that taught himself how to program (domain expertise really counts for
something in almost every profession) and built the ultimate dentist software
(dogfooding it) in visual basic. He then marketed this software to his
colleagues and it spread like wildfire, capturing a very large portion of the
market in a surprisingly short time without spending a single cent in
marketing, because it was exactly what the dentists needed.

Because our dentist/programmer was a smart fellow (he'd have to be, given that
he's active in two different complex fields) he foresaw that selling the
software once was a nice proposition, but selling it repeatedly would be even
better.

Hence the annual 'maintenance fee', of about 1,000 euros per dentist using his
software. Do you know how many dentists there are in nl?

So, instead of going for venture capital this dentist-wannabe-programmer built
himself a money printing press that printed more money than he and his
extended family will ever be able to spend. At the end of every year the
maintenance payments roll in and he's laughing all the way to the bank. This
money machine has been printing since the early 90's and does not look like it
will stop printing any day soon. And no VC made a single cent on any of that.
He's so solidly entrenched that trying to attack his position is a losing
proposition.

I like the avc blog, but it would be nice if stories like this were grounded
in reality rather than fiction.

~~~
jessaustin
I've seen (and supported) some dental software, and you're missing a detail:
since your tooth-pulling coder is so solidly entrenched, no development beyond
OS updates and imaging interfaces ever takes place. Therefore everyone suffers
through mid-90s-era GUIs (and not the cutting edge from that time by any
means!) until the dentists are all replaced by robots.

~~~
GrinningFool
Here's the thing: for many so-called niche industries, the requirements change
about as infrequently. People aren't even considering the 90s-era GUI - they
have a tool that gets out of their way, they're familiar with it, and it gets
the job done quickly and well.

I've gone this route replacing a niche software product running on MS Access
with a newer, better, faster one. It met all the requirements. It fixed all
their pain points. It followed the latest usability guidelines. If this office
had adopted it and referred it over to other offices, I would have been as
well-off as the dentist described by GP.

It fell flat. They paid me for the product, said it was really great, but ...
none of their reps wanted to make the changeover. It was not that the learning
curve was too high - it was that _any_ learning curve was too high.

To clarify: anything different from what they were doing every day for the
past 10 years meant that they had to think about the software they were using
and not the job that they were doing. And that slowed them down - the fact
that it would have been a temporary slowdown was irrelevant.

I've seen the same thing played out in my eye dr's office. THey had an old
3270-based system that they used via emulator - and they could _fly_ with
that. They knew all the shotcuts, didn't even have to look at the csreen.

Over the period of a year and a half I watched them get a new system in. It
had all the same features and a ton more. And it slowed them down to a crawl.

They reverted back to their 3270 based system by the time a year had passed.

So you make an assumption that newer is better - but remember that's _your_
assumption, and it's not one that the targe audience (ultimately the end-
users, not just the people you're selling to higher up the chain) will
necessarily share.

~~~
atourgates
It's a generational thing as well.

My wife is just out of residency running her own medical practice. She went
with the latest-and-greatest electronic medical record system that's all
either web of iPad based, with all her records stored in the cloud and fully
integrated with similarly advanced billing software. It's pretty good, and
does most of what we need well. It's definitely head-and-shoulders above any
other software out there that's specific to her specialty.

Right now she's considering buying another practice, and during the pre-
purchase process the ~65 year old doc was talking about how fantastic their
medical record/billing software suite is. Does everything they could ever want
it to do, everyone in the office loves it, etc..

So, I ask for a demo, and he loads up a Filemaker database running off the
server in the back room. Looks like it was designed in 1996, offers zero web-
connectivity, and they're 100% happy with it.

That practice would never consider "upgrading" to the software we use. We'd
never consider the software they use. There's a generational gap in medicine
and dentistry, just like everything else. The more young docs come out of
medical school, the higher their expectations will be for things like GUI,
UX/UI and mobile connectivity.

~~~
GrinningFool
Depending on how you mean generational - if the implication is that younger
generations won't be susceptable to this, then I disagree. If instead you mean
that it's generational in terms of software generations and the systems we
first learn to use - with that, I definitely agree.

For your wife, in ten or twenty years that all-touch cloud-based system will
be as the Filemaker system is for the 65 year old doc, when the next
generation of latest and greatest comes around.

It's not about the abilities of the technology, IMO, but about people's
resistance to change for the sake of change. If what they have works well for
them, there is very little impetus to accept change, particularly when
technology is not their actual business.

~~~
eloisant
Except that with a cloud-based product, she won't have a choice. She'll wake
up a morning and the product will be different, she'll have to accept it.

Just like all the changes in gmail are not welcome by everyone, but you can't
just choose to stick with the 2004 version.

Or, maybe, she'll get an email saying "we're sorry but we'll shut down the
service, the company is closing". Or "we're glad to announce we're acquired by
our competitor, see how you account will be migrated."

~~~
thaumaturgy
YES! I think the generational aspect of it is more that the older
practitioners have been burned more by the new-fangled thing, and what's most
important to them is a system they can trust.

There is a finite number of times that a small business owner can say the
words, "I'm sorry, I can't schedule your appointment right now because our
system is down" before never saying that again becomes their number one
software-related concern.

------
7Figures2Commas
Reality-based revision:

Two young entrepreneurs graduate from college, and go to YC. They pitch PG on
a low cost version of Dentasoft, which will be built on a modern software
stock and include mobile apps for the dentist to remotely manage his office
from the golf course. PG likes the idea and they are accepted into YC. Their
company, Dent.io, gets their product in market quickly and prices it at $5,000
per year per office. _Dentists might have good reason to like this new
entrant, but the Dent.io founders have no relationships in the dental
profession and they don 't know how to sell to the more than 100,000 dentists
practicing in the United States today. Because of this, and because dentists
are reluctant to change the software that is used to manage their operations,
which would require staff retraining, Dent.io fails to make much of a dent in
the market._

------
habosa
Although there are some 'straw man' aspects to any story like this, I think
it's pretty clear that in today's startup economy the USV thesis about network
effects is pretty valid. That said, I think the more interesting question is
when we will evolve a good way of monetizing networks.

Advertising is OK for now, but clearly it doesn't work for all scenarios. For
instance, a dental application would be a terrible place for advertising as
people don't want ads anywhere near medical records.

I once went to a talk by USV and heard something along the lines of this: the
first big layer of the internet was the infrastructure layer. The best
companies to invest in were Cisco and those who were ahead in that field. Then
the infrastructure enabled the provider layer, and AOL and other providers
were the big ticket. Then came the application layer, when people like Google
started to build interesting applications over the internet. The newest layer
is the network layer, which has some overlap with the app layer but is where
players like Facebook and Twitter come in.

The question is: what's next? What layer will leverage the networks to useful
economic extent like all of those other layers have in the past? Whoever has
an answer for this will be very, very rich and famous.

~~~
curun1r
Monetizing a dental network would actually be surprisingly easy...you charge
dentists for new patient appointments. With the average lifetime patient value
being over $1k, charging $20-$50 per appointment will get a lot of traction
among dentists. Additionally, using the data in dental management systems to
help automate the operational aspects of a dentist's practice is something
that dentists are more than willing to pay for. Companies like Lighthouse 360,
Intuit (Demandforce) and SmileReminders all make a ton of money sending
email/postcard/text communications to patients on behalf of dental practices.
It's not uncommon for services like these to cost $100-$300 per month and be
worth every penny.

Where would the network come in? Well, it turns out that the software made by
the companies I mentioned is mostly applicable to any industry where patients
schedule appointments, so you can cross market between, say, a hair salon and
a dental practice to try to get patients of the dental practice to make
appointments to get their hair cut and vice versa. A company that integrated
with all the major management systems across industries could create a site
similar to Yelp! which would help customers find and select local small
businesses.

I do wish the original author had written about an area that he actually
understood. The dental practice management system market is among the worst to
try to disrupt. The entrenched players are terrible and yet there's so much
friction, that it's almost impossible to dislodge them. All the innovation is
happening from companies that build integrations to pull relevant data out of
those management systems to do the interesting stuff.

------
mootothemax
I can't shake the feeling that only one of the examples _needs_ VC investment
to function and succeed, and all of the others could be bootstrapped or take
minimal investment.

Investing in and promoting startups that can only exist with VC funds sounds
like a fair enough strategy for a VC.

I'm not convinced that the interests of founders and VC are always the same.

~~~
davemel37
To be fair, he is explaining the USV investing model. He is not saying that
this the only type of business to build...he is saying this is the type of
business we can comfortably invest in. VC investing isn't right for every
business and every business isn't right for VC's. That's just fine.

~~~
mootothemax
Oh, I totally agree with you; I just walked away with the impression that the
VC-funded option was the "most right" startup model.

As an explanation of _why_ they invest the way they do, it's very good.

------
kurtle
This article disappoints me because it seems to boil down to:

    
    
      BAD: making money by selling software
      GOOD: making money by selling ads
    

So how do you make money selling ads? By getting a bunch of users and
auctioning off their private information.

I wish more people in the position to fund software development would support
a model where your users are your customers and not just eyeballs to be sold
to the highest bidder.

~~~
fra
No, what you write down is just one implementation of the idea outlined in the
article. The general case is closer to:

BAD: counting on the intrisic quality of your software to keep competitors at
bay

GOOD: using switching costs / network effects as barriers to entry

~~~
judk
That's not GOOD, that's profitable EVIL.

~~~
dkokelley
Barriers to entry are what capitalism is all about. (Real world capitalism,
not the utopian capitalism from Econ 101.)

Patents, R&D, trade secrets, network effects, natural monopolies... all of
these are competitive advantages that capitalistic companies want to have.
It's the reason that "nobody else can provide what we do". Otherwise you're
just trading commodities and you won't realize economic profits.

Now I'm not ascribing any morality to this. You can call it evil if you like.
Just know that this definition makes 90% of businesses "evil".

~~~
gaius
Don't forget regulation. Complex regulation with a large compliance department
to dot the i's and cross the t's is a great way to keep new entrants out. Why
do you think there are so few new banks?

------
mrb
One of my previous dentists, who is also a computer enthusiast, told me he
switched his office from some proprietary software to
[http://www.opendental.com](http://www.opendental.com) and he is completely
ecstatic about it. He specifically said he likes the fact that Open Dental is
open source, so it gets a lot of the little details done right as it receives
contributions from the dentist community. He even demo'd some of the features
on his computer for me :)

So I do think that Fred's story is anchored in reality. This open source
disruption seems to be taking place.

------
swanson
I realize this is pretty naive of me, but I'll ask in the hopes of learning
something:

Why does a VC care about sustainability or the company getting disrupted?
Wouldn't they just want to grow fast and big enough to get a return and move
on?

~~~
dkokelley
In order to get a return, someone with lots of money (or many people with some
money) must believe that there is a future in the company. Yes, technically a
VC cares most about the point between initial investment and liquidity event,
but in a rational market (HA!) the liquidity event is most valuable when the
company has a solid foundation and growth path.

------
dkrich
Software products may be a commodity (although I'd argue this point to an
extent), but the companies that run them are not.

Price is one variable in the purchasing-decision process, but beyond some
point, it really falls down the priority list for large businesses. This is
why the phrase "Nobody ever got fired for hiring IBM" is so telling. Companies
like stability and are willing to pay a premium for it.

To that end, if you find that adjusting price alone allows you to steal
signficant market share, then you are competing for the least-desirable
customers (ie, those that can't afford the product).

Companies that are deciding between Cognos and Microstrategy will compare
prices, but there are many other factors that contribute to the final decision
as much or more than cost. If I come in and offer a BI tool built on my laptop
that I charge $10k a year for, I don't think I'd get the time of day from
their customer bases.

------
qeorge
Incidentally, if you're looking for a niche software opportunity, you could do
worse than appointment software for dentists. I spent a fair amount of time
speaking to dental practice managers about that specific product idea (I was
teaching myself to place cold calls, not really interested in it).

Almost all dental office managers I spoke to 1) used something called
Eaglesoft (www.eaglesoft.net) and 2) _hated_ it.

------
harshaw
I have to comment because my wife is a dentist and I have considered entering
the dental market a couple of times because the software is pretty terrible. I
think there is one founder (SikkaSoft??) who has a similar story.

A couple of interesting things about the Dental market:

1) Customers are resistant to change because they want to spend their time
focused on the dentistry not solving IT problems. One of the leading dental
software providers, Eaglesoft, has a really bad UI/UX. Each screen looks like
it was designed by a separate team of engineers and has never been updated. On
the other hand, dental staff get used to the quirks of the UI and it's not
clear that Eaglesoft could totally redo their product without a revolt from
customers. 2) A pure cloud based solution would be super awesome except that
you still need to integrate with a bunch of hardware, e.g: you need to tell
the digital x-ray to take a picture. On the other hand, the need to operate on
premise servers for dental offices is a giant ass-pain. Also the Dental market
is still windows based which really sucks. (have you tried administrating
windows servers? yuck) 3) Since this is a fairly mature market there is a
bunch of vertical integration. Patterson (which owns eaglesoft) wants you to
buy their kit which runs with their software, I think Schein is a distributor
for dentrix so they have their own stuff as well. 4) While no dentist likes
paying the maintenance fee for their software, it's really a non-issue when
you come to the P&L statement.

I think one possible way to disrupt this market is to do a mashup of Athena
health and dentrix/Eaglesoft. My understanding of Athena Health is they run
your back office so you don't need staff to do billing and deal with insurance
companies. I don't think there is someone who does this well in the Dental
space (but I could be wrong). At a certain office size you need a full time
staff member to run Billing. As long as the cut that you take is less than the
cost of employing a billing department, it's a win.

------
atmosx
I work in a pharmacy, the quality of the software we use is so low that it's
depressing. From the GUI to the non-existent automation, everything is
pathetic. You have to manually issue THE SAME data over and over again.

Not to mention that every-single software company keeps it's data in obscure
formats in order to avoid third parties accessing the data. It's like if the
2000-2010 changes that took place in the field didn't touch the Greek
pharmacy/medical software and most of them keep operating in the 90s closed
source principle.

There are some new SaaS about medical offices around. But they are so ugly
that it's scary... Small market I suppose.

~~~
eloisant
In these niche markets, to succeed you need to understanding the business
well. Having something that is technically good is secondary.

Sure, if you can nail both that's better, but the "domain expert with some
vague computing knowledge" beats the "technical expert with some vague domain
knowledge" any day.

Add to that the fact that tech people often want to work on sexy projects like
social/mobile/bigdata/api/whatever, it doesn't help bringing quality products
to these users.

~~~
atmosx
Every word of @eloisant's comment is (unfortunately?) true...

------
ripberge
So your software can get disrupted if you don't continually re-invent to it
keep up with the times.

Your social network or social app is actually way more fickle and less
defensible than he thinks. Think about precursors to Facebook like Friendster
and MySpace. Suddenly they became uncool and _poof_ they were gone.

If you look at teen's perceptions, Facebook.com is next up on this sad list of
has beens. That's why they're paying through the nose to diversify out of that
product. AVC has found no magic bullet with their strategy.

------
adamzerner
> So we asked ourselves, “what will provide defensibility” and the answer we
> came to was networks of users, transactions, or data inside the software.

I've always found investment philosophies like this to be too overgeneralized.
When I ask myself the question of what will provide defensibility, I can't
think of a good answer other than "it depends".

The question really is "how much does it depend?". I think it depends enough
such that it's best to just look at each company on a case-by-case basis.

~~~
vitd
I concur. It seems like it's missing loads of history. Remember when MySpace
was the juggernaut with a huge network of people? Then practically overnight
they became a joke. Same with Alta Vista, and a million other companies.

------
pbreit
This doesn't strike me as the best example. I don't really see the network
benefits of the final offering. And practice management software is
notoriously sticky.

------
afro88
This article actually highlighted that my development of a web app has gotten
sidetracked by the lure of VC investment and general tech startup mentality
which has thrown me way off course. I know my industry and should be
"dogfooding" it rather than trying to build something that's impressive in the
tech/startup space.

------
adamzerner
Telling a story before getting into theory is often better than explaining the
theory and following up with a story. This is a great example of that.

------
insky
I enjoyed listening to the author of Open Molar on Floss Weekly:

[https://www.openmolar.com/](https://www.openmolar.com/)

