Schafer: Zipnosis had a great idea, wrong customer

The Minneapolis start-up company Zipnosis, now six years old, at first struggled when it brought an online diagnostic service to market at a time when there wasn't really a market.

But there sure is one now.

On a recent morning, co-founder and CEO Jon Pearce explained that UCLA Health in Los Angeles was going live with the service that day. It's the latest health care system to select Zipnosis as its technology provider for what's called "virtual health care."

"That's all been inbound," he said of recent customers, and the sales challenge now appears to be finding the time to properly respond to inquiries. With a staff of just 11, Zipnosis is looking to add six people right now to help, although carving out time to interview candidates is another challenge.

But with the market now taking off, Zipnosis at last has the money to pay a growing staff. The Fargo venture capital firm Arthur Ventures invested an undisclosed amount in November. At the end of the year Fairview Health Services, Zipnosis' local health system partner, also made a significant investment.

The recent experience of Zipnosis seems to offer another object lesson to entrepreneurs on the value of persistence. Zipnosis may have been too early with its product — and perhaps at first went after the wrong customer — but its insights into how consumers will want to get their health care weren't wrong.

The first, and biggest, insight was that consumers would come to trust a diagnosis of a common medical condition like a sinus infection without having been examined by a doctor.

What it's doing is pretty much what the urgent care staff does when a patient comes in. There is obviously a lot that a health care worker can learn by directly examining a person, but if you think about it, much of what the medical staff does during an office visit is ask about symptoms. "How long have you been running a fever?"

Pearce said effortless convenience was critical, too. He imagines helping a busy mom, seated in a minivan and waiting for a child's soccer practice to end.

She has symptoms of an illness that she suspects needs treatment. She also has five minutes, a valid credit card and a smartphone.

"We really started out as MinuteClinic for the iPhone," Pearce said, referring to the walk-up clinic in a store now operating as part of the pharmacy company CVS Health. "Our business model was all about making money on $25 transactions."

Going after consumers proved to be slow going, though. Building consumer awareness is difficult on a start-up's marketing budget. Zipnosis also needed to fill out the network of health care providers to read a "Zip" diagnosis and decide what to do about it.

Health care executives have been trying to decide how to play in a segment of the market called on-demand health care. As it sounds, it's when people want medical care pretty much the moment it occurs to them they might be sick enough to need it.

Young people, in particular, just aren't willing to wait for the next available appointment. They are also far less likely than older people to have an established relationship with a particular doctor.

As a result, urgent care has been a growth segment of health care services. Retail care offered in places like CVS has been growing even faster than urgent care, and what's being called virtual care is expected to grow faster still.

For big medical systems with a network of traditional clinics and maybe a big hospital as the flagship, how to best deliver on-demand health care isn't an easy strategic question to answer.

The health care system of the University of Alabama at Birmingham, known as UAB Medicine, is just such a provider. Pearce said its leaders decided they couldn't buy or build urgent care facilities fast enough. And they certainly didn't want to see their patients going to the likes of CVS and Walgreens.

Partnering with health systems "is when Zipnosis really started to take off," said James Burgum, co-founder and managing partner of Arthur Ventures, Zipnosis' new investor. "You get trusted health care brands that are delivering the care. That's really when we got excited about what they are doing."

There are a lot of companies, including some funded by far bigger venture firms than Arthur Ventures, that have jumped into the emerging field of telemedicine. These companies generally connect a patient with a health care provider online, such as with a video call.

But Burgum said he couldn't find another company besides Zipnosis with its approach. In its model the patient works with Zipnosis, and then the doctor does. They aren't online together. The doctor can give the Zip file about two minutes, all that's needed, between in-clinic patient appointments.

For health care providers, Zipnosis can be a solution that's fast and accurate, and yet doesn't really disrupt the way the work now gets done in the clinics.

Pearce clearly thinks of Zipnosis as part of the health care field, not the producer of a clever app. What Zipnosis is doing is enabling convenient, evidence-based medicine, he said, perhaps fundamentally changing the way primary care gets delivered.