For health care, lessons from a start-up success

Morris Panner’s life has many interesting parts to it. Graduating from Yale and then snagging a Harvard law degree. Hunting Colombian drug lords as a federal prosecutor. Making a killing in cloud computing, then saving his ailing son — all of which led to the business story I am about to tell.

This is really about a lesson in entrepreneurship. How to take a struggling company, pivot and place it on a footing where it can make money and do some good.

Panner, 50, knows something about cloud computing from his first start-up, OpenAir, which he and a Harvard classmate built, then sold to a company backed by Oracle chief Larry Ellison five years ago for $31 million.

“The sale really gave me credibility in the cloud space,” said Panner, who lives in Somerset, Md. “Most importantly, it launched a team that works well together and understands cloud-based software.”

While he was growing OpenAir, he was also caring for a son who was born with respiratory problems. That gave Panner a firsthand look at a persistent challenge in the health care space: trying to get medical images of a person’s body from one hospital or doctor to another.

Sounds simple, but nothing is in medicine.

One of the miracles of modern technology and X-rays is that you can now see inside a person and find if anything is wrong. Then maybe you can fix it. That works if you are staying in one hospital system. But if you try to send the images to a specialist in another city, or even another hospital or physician’s office, there are many barriers to completing the transfer — even if your life depends on it.

During the course of trying to get his son into the National Institutes of Health for a clinical trial in early 2004, Panner found it very difficult to get film of the child’s lungs from one medical facility to another. Even getting a second opinion from the Johns Hopkins Hospital was stressful.

“To get those [images] to the doctor to evaluate is really hard,” he said. “They are often very large files, and they are often in formats the institutions cannot read. It was extremely difficult to get necessary information for people to evaluate while maintaining privacy and security.”

He eventually was able to find good care for his son and place him in the clinical trial. David, 10, is now thriving.

But the imaging issue stayed with Panner. There must be a business there, he thought.

There was.

Through a start-up network that he cultivated from OpenAir, he heard about a company that was tackling the medical image issue. It had the sexy title of Dicom Grid.

“I was calling people I knew, saying I was looking for interesting ideas and a venture capitalist said, ‘We have a fascinating company and are trying to solve a pretty big problem.’ “

He met with Dicom owners and its investors from Canaan Partners venture-capital firm over dinner in Boston. At first, they were skeptical of him because he wasn’t a physician. He wasn’t even from the health care industry.

But they clicked.

Dicom, which has offices in Boston and Phoenix and was founded in 2005 by a group of neurosurgeons, was adrift. It had burned through more than $20 million in capital with few customers and limited prospects.

“They did something entrepreneurs do that is really bad,” said Panner. “It’s called ‘premature scaling.’ People anticipate, ‘Hey, I’m going to be Amazon.com and I have to put in all these procedures and practices.’ That can kill a business.”

The company had a pretty good product: a piece of software that makes it easy to move X-rays across hospital borders.

But instead of building the customer base, Dicom had poured millions into building computer storage in Phoenix, hiring staff and developing processes.

“They were building the iTunes of medical imaging. They wanted to have all medical images available all the time. That was a big, bold vision but wasn’t solving today’s problem. They were getting a lot of people interested in what they were doing, but they were not getting a lot of people to buy the applications.”

Panner compared it to making pizza.

“They were ready to make millions of pizzas before they knew what kind of pizzas people wanted.”

The company, in short, needed an overhaul.

In 2011, Panner went at it.

One of the first things Panner did was bring in his technology leadership team from OpenAir.

Next, he focused on customer service, which meant trying to find out what clients liked and didn’t like about the product. It wasn’t difficult to find users; there were fewer than 20 at the time. Now there are more than 50.

His next job was to find a head of marketing. He went outside the box and recruited a salesperson from the women’s fashion industry.

“We wanted someone to look at this in a sexy and compelling way,” he said. “Being an entrepreneur often means being a disrupter from outside the industry.”

As part of the disruption process, he downsized the staff dramatically. Head count went from around 40 to about half that.

He needed the trust and expertise of the founding physicians, so he courted them assiduously with repeated trips to Boston and Phoenix, updating them on his moves.

He raised more money to make the changes, investing $5 million more into the business.

The company nailed a big “get” when it partnered with the Mayo Clinic in Rochester, Minn., on an important pilot imaging project.

Dicom isn’t profitable yet, but Panner expects to be in the black in 2015. Revenue is in the millions and growing rapidly. Dicom’s service is by subscription, and prices can range from $25,000 or more per month for large hospital systems to considerably less for small clinics.

To help demystify the business and make it understandable for patients, the company relies heavily on unconventional marketing channels that are unusual for the medical industry.

Twitter, LinkedIn and other specialized social networks dominate the marketing budget. Dicom pushes the usual digital buttons, such as buying Google ad words and appearing on Facebook. It partnered early on with Doximity, an innovative digital company well known in the health space.

I suggested Panner change the name of the company to something that sounds more understandable and less like a pharmaceutical.

He said he would consider it, but first he had to hang up so he could pick up David from swim practice.