Physician Entrepreneurism and Venture Capital with Dr. John Shufeldt
Our guest today on The White Coat investor podcast is John Shufeldt. He is an emergency physician, but that’s not why we brought him on. Granted, I do like emergency physicians—they hold a special place in my heart for obvious reasons—but he is coming on the podcast today because he has a pretty remarkable career in entrepreneurship. Dr. Shufeldt talks to us about physicians being entrepreneurs and the life cycle of starting up a business. He walks through how to scale, mistakes he made over the years, raising money, selling your business, and so much more.
Dr. Shufeldt’s Upbringing and Education Experience
Before we get into the real reason we have you on here, I want people to get to know you a little bit better. Let’s start at the beginning. Tell us about your upbringing and what it taught you about money.
“I was raised in Chicago, somewhere in Chicago. I was adopted in an early age out of an orphanage. My parents were both World War II veterans and incredibly conservative in all things but particularly in how they spent money. We grew up very middle class, and I learned early, if you wanted to have extra money, you had to earn it. I got an allowance by doing work around the house, and I also shoveled snow, mowed lawns, made candles and sold them, all sorts of things. I definitely learned hard work pays off if you want to earn extra income.”
At some point, you decided that you weren’t going to sell candles and mow lawns anymore but that you were going to go to medical school. Tell us about your education and training and your medical career.
“I wanted to be a physician since I was about 5 years old. Despite the fact that I did very poorly in high school, I got into one college at Drake in the Midwest. They said it was the Harvard of the Midwest until they let me in. Then, it kind of slipped quite a bit obviously, but I found my footing in college. I was an RA and a hall director. I got some tuition support that way; I took out loans and got some tuition support that way, as well. Then I worked on an ambulance as an EMT while I was in college in Des Moines. Finally, I did well enough in school, took the MCAT, and got into Chicago Medical School. In kind of crazy circumstances, I got in Chicago Medical School. I went through that and loved it and started into an emergency medicine residency at Christ Hospital on the south side of Chicago.”
Then what did you do? What kind of jobs did you take after you got out?
“I stayed there and worked as an attending, and I also got a full time job at a hospital in Naperville called Edward Hospital. And then my wife is an internist. We moved to Phoenix; her family was out here, and I took a job as a medical director for kind of a small little regional hospital, halfway between Tucson and Phoenix. And I stayed there for 10 years as their ED medical director. I had ultimately gotten the contract for the emergency department, expanded into three other emergency departments, and then also started an urgent care in 1993 called NextCare. And NextCare grew to about 60 urgent cares, about $100 million in revenue over 17 years.”
Are you still practicing now?
“I am. I have a business called Tribal Health that we staff about 30 different facilities, all on indigenous lands across the country. I’ll go out and fly out to the different reservations if we have a staffing shortage or if someone is ill, and as you guys know with COVID, that’s happened a lot recently. I still practice at St. Joe’s, which is a big tertiary care center in Phoenix, where I was one of the co-founders of a group there. There, we have four hospitals. Well, two freestanding, two hospitals, and about 40 physicians. I’m their business manager, and I still practice there occasionally, as well.”
The Life Cycle of a Startup
You’ve walked the walk, you’ve talked the talk, but you’ve also done something very different, very unique with your career. Tell us about your non-medical career. You’ve already alluded to a few of the things you’ve done, but I want to hear about some of these entrepreneurial things you’ve done.
“I went back and counted. I think I’ve started 15 businesses, and I had I think 12 exits in three decades. It’s ranged from everything from hot dog stands to medicine. Growing up in Chicago, hot dog stands were a big part of my diet. I brought them to Phoenix, and it took me a while to realize that people didn’t need hot dogs when it was 120 degrees outside. But in the winter, they did well. I also had a business called Private Autopsy where we would do private autopsies. I hired a bunch of pathologists to go around, and if someone needed an autopsy or their loved one needed an autopsy, we would do that. I had a business called Slide Smart, where we had about 12,000 medical images. In pre-Google days if you were a medical student or a resident and you needed images of anything pathology-related—anatomic or microscopic—we probably had a slide for it. They could download the slide—this is in the early 90s—or we’d send them a 35 millimeter slide, and I sold that business.
The first real big one was NextCare. That was in 1993, starting the urgent care in the Phoenix area. That grew over 17 years and brought in private equity in 2008. That grew to about 60 centers, about $100 million in revenue. I left in September 2010, and then in October, I started a company called MeMD which was a virtual medicine company that we sold to Walmart a year ago. I’ve had a myriad of other businesses along the way also.”
That’s a lot of different businesses. Obviously, every one of them is unique, just like every child is unique. But try to give us the general trends here. Tell us about the life cycle of a startup business.
“The general trends of the businesses I started were like probably everybody who listens to your podcast. You’re in your business, you see something in healthcare. They thought, ‘I wonder why this is the way it is. Somebody must have thought of this already.’ Then, you realize that no one seems to have thought about it. No one’s really doing it at scale. Then I can’t help myself and think maybe I could do it at scale. That’s how the urgent care started. I was working in an emergency department in Chicago when I kind of got the first mindset. There were some spotty urgent cares around, but they weren’t really very prevalent in the late ’80s, early ’90s. Somebody came in and said their chief complaint was almost getting stung by a bee. I thought someone was jerking me around. I said, ‘Wait, you didn’t get stung?’ And he said, ‘No, I was almost stung.’ I used to work on a bee farm growing up. I hate bees. So I had some empathy for him, but then I realized he didn’t really get stung. I asked him why he was here since he didn’t actually get stung. He said, ‘But I almost got stung. What do I do if I get really stung?’ I said, ‘Well, maybe then you should come in.’ Anyway, I had this idea. There has to be a better place for people who are almost stung by a bee, and that was kind of the urgent care world for me. So, I started that thing.
I was over in Moscow and I wanted to start an expat clinic. One day, I went into McDonald’s, and the food was the exact same as it was in the US. Then I thought, ‘I wonder why no one’s franchised healthcare?’ So, I started franchising these urgent cares and franchised six of them between 1995 and 1996. Again, I saw this way to expand without a lot of capital, because I didn’t have a lot of capital. I later on went on to buy My Doctor Express, which was a real urgent care franchise, in about 2012 and sold that off after a couple years.
But to answer your question specifically, I’d see what I perceived as a need. Lack of images for people trying to do medical presentations, lack of availability of a pathologist if someone needed an autopsy on their loved one. Too many people were going to the emergency department for complaints that did not need that level of care. I trained on the south side of Chicago as a knife and gun club—that’s what I liked—but the almost-stung-by-a-bee guys, not so much. Then, telemedicine was the same. It just made sense to me, but I didn’t know anybody doing it in 2010, although I learned afterward that there were a few. Half the people I see in the urgent care don’t even actually need a physical exam to figure what’s wrong. I just need a decent history and to talk to them. I can probably come up with a pretty good idea of what’s going on, and most of that I can treat virtually. That was the start of that.”
The first thing is you identify a problem. You have a solution to the problem. What comes next?
“First off, you want to identify a problem that’s large, that happens frequently, and that everybody experiences. Then you need to think if you have a solution to the problem. Then, what I counsel people to do is come up with an MVP. Maybe that’s the first UR urgent care. Maybe it’s using your iPhone to do a FaceTime visit back in the early virtual medicine days. It’s coming up with a solution and then beta-testing that solution. For me, I describe myself as in a constant state of beta. I’m not quite there yet. I’m a work in progress, and that’s what most of these businesses are like. When you start, they always say, if you’re not embarrassed by your MVP, by your early product, you started too late. I would do things that would embarrass the crap out of myself in the sense that I’m probably starting this too early, it’s not really working, but I get a lot of feedback from people who would say ‘John, you’re an idiot,’ or ‘Wow, this is kind of a good idea, but it’s going to need a hell of a lot of work.’ That’s the next step.”
Tell us about that work step as you improve the product. You’re trying to sell it at the same time you’re trying to improve it. How do you balance that?
“It’s the constant iteration. The people that you get early are the early adopters, and you want them to be hyper-critical. You want feedback from them, so you have to go out and solicit the feedback. Sometimes, the feedback’s phenomenal, and you can’t believe you didn’t think of that yourself. Or sometimes the feedback is great but probably not appropriate for what I’m trying to do. Then, you really narrow your use case early on, like Jeff Bezos with Amazon. He started with books, a very narrow use case compared to what they do today. Then, you expand your use case as you tackle, as you solve one problem after another for whoever your user group is. You can expand it that way, but for most businesses and for the urgent cares, we were constantly iterating about services to offer, everything from services to offer to hours to EHR. We were very early in the EHR world and changed that probably daily for 3-4 years to make it as streamlined as possible.
I think physicians in general and really emergency medicine physicians in particular, we are all born entrepreneurs. Because if you think of what makes physicians, physicians, we all have resilience. We all have a degree of intelligence. We all understand work ethic. None of us are quitters because you’d never get through medical school and residency—or college for that matter—if you were. We all have the tools integral to start a business. Really thanks to you, a lot of us have had the moniker in the past of ‘Oh physicians are bad business people.’ That’s basically crap. I mean, God knows I’m sure we’ve all made bad business decisions like everybody else has. But I think out of every other group I can think of, physicians are born entrepreneurs because we’ve had to be.”
What about when you get into this part of the cycle where you realize, “I’m putting a lot of work into this, way more work than maybe I should considering the financial returns I’m seeing from it right now. There’s some promise down there. I think this may still take off, but I’m in this work-hard stage on it. And my time would be more valuable seeing patients or doing something else.” How do you determine whether you stick with it at that point or quit and do something else?
“It’s a great question. I had people say to me, ‘If you would just stop all this craziness and just see patients, you’d probably do a lot better in the end.’ Well, knock on wood, fortunately that did not turn out to be true. But what I realized early is that for most of us, most physicians, if we’re not working, we’re not making money. If we’re not seeing patients, we’re not making money. And I always thought, ‘How can I make money when I sleep?’ A better way to make money is when you’re not actually there doing anything. That for me was starting something that could scale, that brought in income above and beyond what I could do practicing medicine. I was fortunate, because I always was able to practice medicine. I’d gone back to school a number of times to try to learn things that were kind of on a pragmatic basis that I needed, but it was always basically doing both.
When you’re in this process, there are going to be times you’re going to think this is not as easy I thought it was going to be. But I learned if it was easy, somebody would’ve done it already or everybody would be doing it. You want it to be hard. There’s this great Sigmund Freud quote that says roughly, ‘Someday in retrospect, this year is a struggle, you’ll look back on it as the most beautiful.’ Repeatedly now, I have been in the midst of something. This is just dragging and I am killing myself here. But when I look back at it, one, three, or five years later, those are times I remember and laugh and long for and say, ‘God, that was a lot of fun. Man, it was tough, but we just crushed it in the end or it failed miserably.’ But because that failed miserably, I was able to pivot and do this other thing that didn’t fail. Without the fail, I would not be where I am today. And where I am today is pretty exciting.
I think if you approach it that way, no matter what happens, if you have this perspective of you’re in constant state of beta, you’ll come out on top because you’ll have learned something. You’ve had a lot of fun, and you may be able to apply it to something else in the future. For me also, it really has prevented burnout in medicine because I’ve always had other things to do. When I go back to the emergency department, I actually look forward to it. I’m now down to six, eight shifts a month, but I look forward to it because it’s different and I miss the patient interaction.”
More information here:
First Year Review of Our Medical Practice Start-Up
Scaling Your Business and Then Exiting
I can relate to that, for sure. All right. Let’s say you’ve now built one of whatever this is, it’s successful, urgent care, whatever it is. And now it’s time to scale. Tell us about the scaling phase for business.
“I’ll tell you the mistakes I made, as probably the best highlights. When in the urgent care stage, we were self-funded for 15 years. We brought in private equity and closed a deal on the Friday before the Monday that Lehman Brothers failed. It was $25 million in debt, $25 million in equity, and the whole time our investment banker was like, ‘Come, come on, come on.’ I was like, ‘We are going to get this done. Why are you rushing so much?’ He said, ‘I’ve always wanted to keep your foot on the gas.’ Fortunately, he was right, because we would not have closed the next week. Once Lehman Brothers failed, it was 2008 and everything imploded.
After you get your MVP done, for me, it was friends and family, my own money, triple mortgage the house, some friends and family money, and then just grew by cash flow. I’d open one. It would start cash flowing, and I’d start planning the second one. I open the second one, and it would start cash flowing. I’d plan the third and fourth, and I grew organically like that. Not the smartest way to scale. With MeMD, I didn’t take any private equity or venture capital. It was all friends and family. I think to do it, you want to hold off on venture capital as long as you possibly can, because you want to build as much value creation for yourself and the other people in your ecosphere before you bring venture capital. Now I’m saying that, and I started a venture capital company about eight months ago. So, now we’re out funding businesses. But I advise people as long as you can hold off and then when you really need to scale, bring in outside capital. But everybody’s money is green. Bringing capital can add more than money. Bringing capital can add expertise, it can open doors for you that has already been there, done that. Not just a check.”
At this point, we’ve found something successful. We’ve built it, we’ve scaled it. Now we’re starting to look at the exit stage. Tell us a little bit about that.
“Well, the theory is you’d always plan the exit at the beginning. Of course, I never did that. But I think it’s smart to do because a lot of your business structure that you set up initially will help you determine the exit. For example, do you set up as an LLC? Do you set up as a C Corp? Those are business and tax decisions, and you can change them. But if you set it up right at the get go, it’ll make life a lot easier. The exits options really include a couple things. One is to sell to a VC or PE, sell all of it or part of it. Or you can sell to a strategic, someone who’s in your same space who may want to knock you out as competition, or assume the assets that you have, or the intellectual property you have.
Then the final one is go public. There’s various ways to go public. I think specs have fallen pretty far out of favor right now. It’s kind of back to traditional IPO. But that process takes a solid year, if not longer. IPO is over a year, but when we were acquired by Walmart, it was about an eight-month process. We had the biggest company in the world buying nearly the smallest company in the world. The due diligence was excessive but fair and appropriate.”
Looking at that whole cycle from idea to exit, to you, what’s the best part and what’s the worst part of that cycle?
“In many respects, the worst part is the exit. For me, personally, I like creating things. I’m great at the startup phase. The operational phase, the day-to-day, grind-it-out phase, that’s not my strong suit. I’ve always tried to hire people who have a different skillset than I do and replace myself. I’ll take a board seat or I’ll be standing as an advisor, but after a period of time, I don’t want to be the CEO. I’m a startup guy. For example, in NextCare I was probably the CEO too long. With MeMD, I hired a CEO after about seven years and then was chairman of the board after that.
I guess the worst part personally is once its up and running, once you’re starting to scale it, it’s just the day to day grind of blocking and tackling, that’s not my strong suit. I think figuring out what your strong suit is and hiring around it is so important. We all make the mistake of, ‘Wow. You think like I do, you look like I do, you have the same training I do so therefore we should be partners in this.’ Wrong thing to do. You want to find people who have very different diversity in all aspects.”
Do Doctors Make Good Entrepreneurs?
You mentioned earlier that you think doctors are the perfect people to be entrepreneurs. Do you really think that all doctors are cut out to be entrepreneurs? Or if not, what percentage of doctors do you think could be successful in some entrepreneurial pursuit?
“I have met physicians from literally now every specialty who are entrepreneurs. Everything from psychiatry—where you think psychiatrists aren’t probably going to be the risk-taking entrepreneurs; oh, they are killing it—to neurosurgeons who probably have zero time to be entrepreneurs and they come up with a device or something and they’re crushing it. I think we all have it within us if we so choose. Now, the challenge, of course, is time and resources. Some specialties have very little time to do it, and maybe some have very little resources. In emergency medicine, we are fortunate, we have both, or we can have both.”
When you look at the percentage of these physician-led start-ups, what percentage of them do you think fail? Meaning they never make a significant profit justifying the entrepreneur’s time?
“I don’t know. The common rule I’ve heard is that 80% of all startups fail within five years. I’ve certainly had a couple that have failed in five years, but I’m not at the 80% range. I’ve had a couple of home runs, but a lot of them have just been a double. But again, I had a couple of failures that failed within two years. One was called Healthy Bid. Healthy Bid was a reverse auction for diagnostic procedures and outpatient surgery. It didn’t work. It was probably a little early, but it failed in 18 months.”
So, it does happen obviously.
“Oh, my gosh. Yeah. Well, it certainly happens to me a lot, but I would say 30% or 40% of them never really get off the ground or a lot of them get off the ground and just kind of putter along for a while. The person says, ‘Yeah, I can make a little money doing this, but I’ll probably make more money just practicing.’ But I do think with the right temperament and the proclivity for taking some risk, I think most physicians have the intellectual capacity and the resilience to be great entrepreneurs. Really, the resilience is what it takes.”
What can doctors and others do to reduce the likelihood of failure of their startup business?
“I think a couple of things. One is find people who think differently than you. Henry Ford has a famous quote of, ‘If two people are thinking the same way at the boardroom, one of them doesn’t need to be there.’ I think if you can find people who bring in different talents and have diversity, in your founders, that’s important. No. 2 is make sure you have enough capital. Whether, again, it’s your money, friends, or family, it doesn’t matter. I always like to start out when it’s just me until I prove it. But a lot of folks just run out of runway. Then by the time they’re out looking for money, their backs are literally against the wall. I’ve made those mistakes. Our house was triple mortgaged, and I made every startup mistake in the book. So, lack of funding is another one.
Then not vetting your idea among the population who are going to be the likely users. If you tell your friends, ‘Hey, I’ve got this great idea. What do you think?’ Most of your friends will say, ‘Yeah, that’s really cool.’ But if you say to a group, who your user group is, and say, ‘What can I do to make this better? Does this solve a problem? Is this problem pervasive? Is it costly? Is it recurrent?’ and the answer is, ‘Yeah, yeah, and yeah,’ OK, you may have something here. I think if you really vet it out early, build your MVP, don’t spend a ton of time or money on it, and then iterate as you go. If you look at Instagram, I think Instagram was a photo-sharing app before it really became Instagram or almost like a meetup app. Airbnb was only for events, and Uber was only for limousines. If you look at a lot of these companies where they are today was not how they started. You want to make sure you retain this ability to be nimble and react to the market and not just to what you think the market should be. Those are the four.”
I like that, costly, pervasive, and persistent. That’s a good rule of thumb for the problems you’re looking to solve, because those are the ones that a business can be successful by solving.
“I get a lot of business pitches that are great pitches and great ideas, but I just can’t figure out how they’d ever scale it. Or the market is dense with the same sort of people, dense with people trying to do the same thing. The ability to scale and really grow is critical. For me, the virtual medicine in 2010 was that wide open, that blue ocean of ‘Wow, this could really impact a lot of people.’ I started for behavioral health, because, you know as well, you see a ton of people in emergency with behavioral health issues, and there’s nowhere for them to go. Plus, there was a stigma around going anywhere. No one was ready for behavioral health virtually in 2010 so I pivoted to urgent care, which I had some knowledge about, and that got some traction. Then, we finally added behavioral health probably in about 2018. Which is the obvious use, because the physical exam matters so little in so many of those patients.”
More information here:
Entrepreneurship and Passive Income
When Is It Time to Sell?
I think a lot of people, especially people that are in a successful business, wonder about how are they going to know when it’s time to sell?
“It’s a great question. It’s hard to sell your baby because you’ve watched it grow up. You’ve been there for it. Many of us think, ‘If I’m out, this business is going to fail because it revolves around me.’ I was able to miss that logic train, because I’d always try to replace myself at some point in it. I’ve learned that it’s easier to sell a promise than a trailing 12. If you can find a way that you’re selling on the uptick and you’re not trying to time the market perfectly that you sell on the way up, that to me was always the perfect time. Now, you may not get the most money you could have gotten for it, but you’ll get out before the market crashes, before Lehman Brothers exits and doesn’t get bailed out. Selling as it’s climbing where you’re selling the story, as well as the trailing 12, was always what seemed to be the right time for me. And again, I probably sold too early in some respects, but I did not want to sell too late.”
Is there a growth percentage? When you’re growing at 80%, you shouldn’t sell, but when you’re only growing at 20%, you ought to consider it. Do you think there’s any rule of thumb that’s useful there?
“No, I think it depends on how big of an exit you’re looking for really. If you’re looking at going public and having these huge year-over-year and even month-over-month increases, it certainly helps tell the story. I never wanted to be a CEO of a publicly traded company. We really didn’t have a company that was going to go public. With MeMD, Walmart’s obviously publicly traded, but that’s as close as I wanted to come to the public markets.”
Raising Money and Venture Capital
Tell us a little bit about raising money. When you run out of your own capital and friends and family won’t give you anymore, a lot of people talk about A, B, C, and D rounds. Tell us about that process.
“For most entrepreneurs, you start off with what’s called a seed round or some even pre-seed. With a pre-seed round, you can go to angel networks, and there’s a number of online angel networks. There’s a number of them out there right now. That’s a great way to raise money. Venture capital is another way. My venture capital firm does seed in series A. It’s considered higher risk in a sense, because it’s not fully vetted, but it’s higher stakes. So the venture capitals look for higher return on investments. They’re looking for the proverbial unicorn, and they know they’re going to get about a 20% or 30% fail rate in the groups of companies they’re funding. Then, as this company starts cash flowing and being successful, now you need more money to scale. Now, the rounds become much bigger. The percent ownership goes down less because the company has more value. The risk is less because now the company has already been well vetted.”
You hear about angel investors, you hear about venture capital, and you hear about private equity. Do you think these sorts of investments are worthy investments for a typical investor? Why or why not? And if so, what percentage of a portfolio should it comprise?
“I think they should be part of your overall asset strategy. They fit in their own bucket, and the bucket is time specific. Late in your life, you probably want a much lower percentage. Earlier in your life, when you are in your 30s and 40s and you are willing to take more risk, absolutely. I would say 8%-14% is probably a reasonable bandwidth for private equity and VC. They’re generally lumped together. They have a longer-term horizon. Most funds run 10 years. You can get, depending on how it’s called, a European waterfall vs. an American waterfall when you get your money out. But if you’re with the right VC fund, you do have a decent chance for a great return on your investment—20%-30% IRR, internal rate of return on your investment. And you may get the proverbial unicorn. Peter Thiel famously put half a million dollars into Facebook. As I recall, it was about a $2 billion return on that money.”
I think he had it all in a Roth IRA, which worked out very well for him. Assuming somebody wants to add this to their portfolio, they want to invest in venture capital, what do you think is the best way to do it?
“Venture capital is often hard to get into. First off, you have to qualify on the net worth. You have to be an accredited investor. I think most of us probably can qualify for that just on our income potential and our assets. Then, it’s finding a venture capital fund which is constructed and invests in things that you have an interest in. One of my mantras was, ‘Never invest in something that I don’t really understand.’ When I didn’t understand it, I would try to go back to school and understand it. For physicians who know health tech, I purposely stuck in health tech because that’s what I have some background on.”
You mentioned that eight months ago, you started a physician VC fund. Why did you do that? What do you hope to accomplish there?
“Like I said, I’ve made every mistake in the startup book. I probably have something I can share with founders so they have less grey hair and less wrinkles than I do and make less mistakes. I really like working with entrepreneurs, imparting whatever wisdom I can impart. Again, so they don’t make the same mistakes. Doing it through health tech and things we know about makes a lot of sense to me. In many respects, it was a way to give back. And in many respects it was kind of the next step. Again, I’m in a constant state of beta. It was the next evolution for me to move from working on a single project to working with a number of great founders on multiple projects.”
When you’re looking for a founder to work with or you’re looking with a business to partner with, what are you looking for? You mentioned a seed round and series A. What are you really looking for when you’re out there combing through businesses?
“Have they done it before? What was the outcome? And in some respects, I don’t care if it was a huge success rate. I mean, it portents that they’ll be successful again, but if it was a failure, I’m OK with that. Because God knows, I made them. You learn as much from failures as you do from the successes. So that’s No. 1. No. 2, do they have resilience? Kind of the personal qualities. Then, is their business scalable? Then like we talked about, does it solve a need that’s repeatable, expensive to solve, and recurrent and is not going away? Do they really have a zero-to-one idea? This is from the book Zero to One. Is it something that’s never been done before and it’s going to dent in the universe or is it a one and done, is it another urgent care? God knows we’ve got enough of them. If someone comes up with something new, I’m very excited about it.”
What do you look for when you’re looking for investors?
“Probably patience and a willingness to help. For example, we’ve raised about $25 million-$100 million. We’ll have our first close here end of October. I love having investors who I can pick up the phone and say, ‘Hey, we’ve got this company we’re looking at. It’s dermatology-related that’s using AI to diagnose rashes.’ I’m just making this up. ‘What do you think about that? You’re a dermatologist. Can I send you the app and see what you think?’ Having physicians as limited partners is awesome because now we have this pool, for those who want to be in it, of literal experts who can say, ‘Yeah, no, it doesn’t make a lot of sense,’ or, ‘This is something I think we should invest in, if everything else makes sense.’”
You’ve been inspired by one of my favorite quotes that I refer to frequently when I’ve been hearing a lot of criticism of my business or me personally. It’s also a favorite of Jack Bogle’s. It comes from a Teddy Roosevelt speech given in Paris, as I recall, and is often referred to as The Man in the Arena. Let me read it here.
“It’s not the critic who counts, not the man who points out how the strong man stumbles or where the doer of deeds could have done them better. The credit belongs to the man who’s actually in the arena, whose face is marred by dust and sweat and blood, who strives violently, who errs, who comes short again and again, because there is no effort without error or in shortcoming, but who does actually strive to do the deeds. Who knows great enthusiasms, the great devotions, who spends himself in a worthy cause, who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails at least fails while daring greatly. So his place shall never be with those cold and timid souls who neither know victory nor defeat.”
What about that quote inspires you?
“Everything. You’ll be able to relate to this. A long time ago, I was in residency still. I took care of this guy, and he was dying and he knew he was dying. He was on hospice. It was literally his last day on earth. And he had this look on his face. I was watching him from across this ED and I looked at his face. I go, Man, that guy is going ‘if only.’ That’s the ‘if only’ look. If only I had . . . fill in the blank. I will be damned if I’m on my deathbed with that look on my face.
Then I saw this quote by Hunter Thompson about life is not to arrive at the grave with a well-preserved body but to slide sideways totally worn out yelling, ‘Holy, **** what a ride.’ It’s kind of the Teddy Roosevelt quote in a nutshell. Depending what you believe, we’re only going around once and I’m going to lay on my deathbed and go, ‘Holy, **** what a ride.’ I want to be the man in the arena. I don’t care if it’s with my own blood and sweat and dust. I don’t want to have the ‘if only’ look like I saw in that guy’s face. That was it for me.”
More information here:
Why Physicians Should Consider Angel Investing
Be the Man in the Arena
Now, our time is short, but what have we not talked about today that you think our audience of 30,000-40,000 high-income professionals ought to know?
“First off, thanks for all the work you’ve done. COVID has been difficult for all specialties. I applaud you for doing the great work you’ve done. No. 2 is, as a physician, we have the perfect opportunity to have multiple streams of income, which I know is what White Coat Investor is all about. You are way ahead of the game simply by listening to this podcast, because I see so many physicians now—I’m working with a couple who are in their 60s—who are like, ‘I can’t stop working. I don’t have enough for retirement.’
The fact that you have 30,000-40,000 people who know and are already thinking about this is super impressive. But my takehome point for them is, ‘Look, if I can do it, anybody can do it. You can certainly do it.’ Be the man in the arena, don’t lay on your deathbed saying ‘if only.’ Take a little risk, whether it’s your own personal startup or whether you’re investing in one of your colleagues’ startups, through an angel network, through a venture capital fund. But be the man in the arena, don’t have the ‘if only’ look on your face.”
Dr. John Shufeldt, it’s been great to have you on here. If people want to learn more about you or get more information about the fund you’ve started, where can they go to find that?
“Go to xcellerantventures.com or check me out on LinkedIn. Or they can frankly, just email me. It’s [email protected].”
I hope you enjoyed that interview as much as I did. It’s always fun to see docs out there doing it and killing it. John’s had a lot of successes. He’s had lots of failures. And I think that’s the story of entrepreneurship. Here at WCI, we throw a lot of things against the wall to see if they’ll stick. Some things do; some things don’t. Some turn out to be smashing successes. Some are reasonably successful, maybe worth the time we put into it. And lots of things we’ve done have been total failures. That’s just the way entrepreneurism goes.
Obviously, any sort of private investment—like a venture capital fund, a private equity fund, angel investments, even private real estate investments—all of those have a certain level of risk. Even if you qualify for them by virtue of your income, if you’re an accredited investor because you made $200,000 in the last couple of years, you need to make sure you’re truly an accredited investor before you invest in them. What I mean by that is that you’re able to lose your entire investment without it affecting you financially, No. 1. And No. 2, that you are capable of evaluating the investment without the assistance of another financial professional. If those aren’t true, you don’t belong in any sort of investment that requires you to be an accredited investor.
PearsonRavitz are disability and life insurance advisors founded by and for physicians. This White Coat Investor recommended agency grew out of one MD’s experience with a career-changing on-the-job injury. Today, PearsonRavitz serves the medical community in all 50 states. At PearsonRavitz, they help you as a doctor safeguard your most valuable asset—your income—so you can protect the most important people in your life—your family. PearsonRavitz makes human connections before they make quotes. Go to pearsonravitz.com to schedule your consultation with a PearsonRavitz advisor.
No Hype Real Estate Investing Course
WCI’s No Hype Real Estate Investing is the best real estate course on the planet and the best way to get started in this exciting (and profitable) asset class. Taught by Dr. Jim Dahle, with cameos from other experts, and packed with more than 200 lectures and more than 25 hours of content, the course finally gives potential investors a home where they can learn about all the different methods of real estate investing. In reality, you’d probably have to buy a half-dozen courses or more to get all of the information available in No Hype Real Estate Investing. If you’re interested in real estate investing, you can’t afford to miss this course! If you purchase this course before September 26, you get $400 off. This course will be $2,199 going forward, but if you get on board now, it will only be $1,799. As with all of our courses, we offer a no-questions, money-back guarantee if you change your mind.
PIMDCON22
PIMDCON22 is going on right now. It’s September 23-25. By the time you hear this, it’s probably too late for you to be coming in person, but you can still come virtually. The virtual last call is $597. You can buy that through the end of the conference on September 25. The link to buy that is whitecoatinvestor.com/pimdcon22.
Quote of the Day
Henry David Thoreau said,
“I know of no more encouraging fact than the unquestionable ability of man to elevate his life by conscious endeavor.”
Milestone to Millionaire
#84 — Primary Care Doc Gets Back to Broke
This doctor shows that you can be successful in primary care, even with a large loan burden. You can do it in a lot of different ways. All you have to do is become financially literate, have some kind of a plan, and have a reasonable amount of financial discipline and you will make progress. You will have the success that you want.
Sponsor: MLG Capital
Full Transcript
Intro:
This is the White Coat Investor podcast, where we help those who wear the white coat get a fair shake on Wall Street. We’ve been helping doctors and other high-income professionals stop doing dumb things with their money since 2011.
Dr. Jim Dahle:
This is White Coat Investor podcast number 281 – Entrepreneurism and venture capital with Dr. John Shufeldt.
Dr. Jim Dahle:
PearsonRavitz are disability and life insurance advisors founded by and for physicians. This White Coat Investor recommended agency grew out of one MD’s experience with a career-changing on-the-job injury.
Dr. Jim Dahle:
Today, PearsonRavitz serves the medical community in all 50 states. At PearsonRavitz, they help you as a doctor safeguard your most valuable asset, your income so you can protect the most important people in your life, your family. PearsonRavitz makes human connections before they make quotes. Go to pearsonravitz.com to schedule your consultation with a PearsonRavitz advisor.
Dr. Jim Dahle:
That’s a great example of a physician entrepreneurial company by the way. That was started by a physician and has grown into quite a company.
Dr. Jim Dahle:
Our quote of the day today comes from Henry David Thoreau, who said, “I know of no more encouraging fact than the unquestionable ability of man to elevate his life by conscious endeavor.” And I think that is the truth.
Dr. Jim Dahle:
All right, today, as this podcast drops, it is September 22nd. Don’t forget that our new real estate course, which is awesome, is on sale at $400 off, but only until September 26th at midnight. It’s $1,799. This is a course that’s four times as long as Fire Your Financial Advisor. We know it’s expensive, but it’s only two and a half times the price of Fire Your Financial Advisor.
Dr. Jim Dahle:
If you’ve been interested in real estate, whether that’s publicly traded REITs, whether that is private funds or syndications, whether that is long term rentals, short term rentals, fix and flip, whatever it might be that you are interested in real estate, this is the course for you. You will develop the vocabulary of real estate. You will develop a framework on which you can hang future information that you learn about real estate investing. And it will give you the background information you need to know to be competent while investing in this space.
Dr. Jim Dahle:
We call it No Hype Real Estate Investing. I’ve never been a big fan of hype or saleziness, sometimes even described as sleaziness in the real estate space. So, we’ve tried to put together a course that is “just the facts ma’am.” It just tells you how real estate works. And real estate is good enough as it is. It doesn’t need to be hyped up. The deal is good. And so, just give me the facts about it. I think it’s adequate to help you to be successful with whatever portion of your portfolio you decide to invest in real estate.
Dr. Jim Dahle:
You can check that out, whitecoatinvestor.com/nohype is where you can find all the information about that. Like all of our courses, there’s no risk to you. You can try it out. If you don’t like it, you start taking it and it’s only been a couple of days, you can ask for your money back, we’ll give 100% of your money back. There’s literally no risk to you.
Dr. Jim Dahle:
Now, this is an evergreen course. You can buy it today, start it next month, take it over a week, take it over three months, take it over a year, whatever you want. So it’s evergreen. It is going to be available to you after the 26th, but the discount will not be. It’s going to cost you $400 more. So it’s on sale. This is our launch sale because we just launched the course this month. It’s $1,799 but only if you buy it by the 26th.
Dr. Jim Dahle:
All right, we have an awesome guest on today. Let’s get Dr. John Shufeldt on the line.
Dr. Jim Dahle:
My guest today on the White Coat investor podcast is John Shufeldt. He is an emergency physician, but that’s not why I brought him on. Now granted I do like emergency physicians, they hold a special place in my heart for obvious reasons but he is coming on the podcast today because he has a pretty remarkable career in entrepreneurship. John, welcome to the White Coat Investor podcast.
Dr. John Shufeldt:
I’m really honored to be here. Thank you, Jim.
Dr. Jim Dahle:
Before we get into the real reason we have you on here, I want people to get to know you a little bit better. So let’s start at the beginning. Tell us about your upbringing and what it taught you about money.
Dr. John Shufeldt:
I was raised in Chicago, somewhere in Chicago. I was adopted in an early age out of an orphanage. And my parents were both World War II veterans and incredibly conservative in all things, but particularly in how they spent money. And so, we grew up very middle class and I learned early, if you wanted to have extra money, you had to earn it. I got an allowance by doing work around the house, and I also shoveled snow, mold lawns, made candles and sold them all sorts of things. The kids do growing up to earn a few extra dollars. So I definitely learned hard work pays off if you want to earn extra income.
Dr. Jim Dahle:
Awesome. So, at some point you decided that you weren’t going to sell candles and mold lawns anymore, you’re going to go to medical school. So tell us about your education and training and your medical career.
Dr. John Shufeldt:
I went to college always thinking I wanted to be a physician since I was about five years old. And despite the fact that I did very poorly in high school, I got into one college at Drake in the Midwest. They said it was a Harvard of the Midwest until they let me in. Then it kind of slipped quite a bit obviously, but I kind of found my footing in college. I was an RA and a hall director. So I got some tuition support that way, took out loans and got some tuition support that way as well. And then worked on an ambulance as an EMT while I was in college in Des Moines.
Dr. John Shufeldt:
Finally did well enough in school, took the MCAT and got into Chicago medical school. In kind of crazy circumstances, I got in Chicago medical school. And then I went through that and loved it and started into an emergency medicine residency at Christ hospital on the south side of Chicago.
Dr. Jim Dahle:
And then what did you do? What kind of jobs did you take after you got out?
Dr. John Shufeldt:
I stayed there and worked as an attending and I also got a full time job at a hospital in Naperville called Edward hospital. And then my wife is an internist, we moved to Phoenix, her family was out here and I took her job as a medical director for kind of a small little regional hospital, halfway between Tucson and Phoenix. And I stayed there for 10 years as their ED medical director. I had ultimately got the contract for the emergency department, expanded into three other emergency departments, and then also started an urgent care in 1993 called NextCare. And NextCare grew to about 60 urgent cares, about $100 million in revenue over 17 years.
Dr. Jim Dahle:
Are you still practicing now?
Dr. John Shufeldt:
I do. Yeah. I have a business called Tribal Health that we staff about 30 different facilities, all on indigenous lands across the country. And so, I’ll go out, I’ll fly out to the different reservations if we have a staffing shortage or if someone is ill and as you guys know with COVID, that’s happened a lot recently.
Dr. John Shufeldt:
And then I still practice at St. Joe’s, which is a big tertiary care center in Phoenix, where I was one of the co-founders of a group there. There we have four hospitals. Well, two freestanding, two hospitals, and about 40 physicians. I’m their business manager and I still practice there occasionally as well.
Dr. Jim Dahle:
So you’ve walked the walk, you’ve talked the talk, but you’ve also done something very different, very unique with your career. Tell us about your non-medical career. You’ve already alluded to a few of a few of the things you’ve done, but I want to hear about some of these entrepreneurial things you’ve done.
Dr. John Shufeldt:
I’ve went back and counted, I think I’ve started 15 businesses and had I think 12 exits in three decades. And so, it’s ranged from everything from hot dog stands. Growing up in Chicago, hot dog stands were a big part of my diet. And so, I brought them to Phoenix and took me a while to realize that people didn’t need hot dogs when it was 120 degrees outside, but in the winter they did well.
Dr. John Shufeldt:
I also had a business called Private Autopsy where we would do private autopsies. I hired a bunch of pathologists to go around and if someone needed an autopsy or their loved one needed an autopsy, we would do that.
Dr. John Shufeldt:
I had a business called Slide Smart, where we had about 12,000 medical images. This is pre-Google days. And if you were a medical student or a resident and you needed images of anything pathology related, anatomic or microscopic, we probably had a slide for it and they could download the slide. This is in the early 90s, or we’d send them a 35 millimeter slide and sold that business.
Dr. John Shufeldt:
And then the real big first one was NextCare. And that was in 1993, starting the urgent care in the Phoenix area, in a suburb outside of Phoenix, and then grew that over really 17 years, brought in private equity in 2008 and grew that to about 60 centers, about $100 million in revenue.
Dr. John Shufeldt:
I left in September of 2010 and then in October, I started a company called MeMD which was a virtual medicine company that we sold to Walmart a year ago. And then I’ve had a myriad of other businesses along the way also.
Dr. Jim Dahle:
That’s a lot of different businesses.
Dr. John Shufeldt:
Yeah.
Dr. Jim Dahle:
Obviously, every one of them is unique, just like every child is unique, but try to give us the general trends here. Tell us about the life cycle of a startup business.
Dr. John Shufeldt:
The general trends of the business I started were like probably everybody who listens to your podcast. You’re in the business, you see something in healthcare. They thought, “I wonder why this is the way it is. Somebody must have thought of this already.” And then you realize, “Well, God, no one seems to have thought about it. No one’s really doing it at scale.” And then I can’t help myself. And I go, “Well, maybe I could do it at scale.”
Dr. John Shufeldt:
And so that’s how the urgent care started. I was working in an emergency department in Chicago when I kind of got the first mindset. There were some spotted urgent cares around, but they weren’t really very prevalent in the late 80s, early 90s. And somebody came in and said their chief complaint was almost stung by a bee. And I thought someone was jerking me around. I go, “Wait, you didn’t get stung?” And he goes, “No, I was almost stung.” And I used to work on a bee farm growing up. So I hate those little bastards.
Dr. John Shufeldt:
And so, I had some empathy for him, but then I realized he didn’t really get stung. And I go, “Wait, why are you here? You didn’t actually get stung.” He goes, “But I almost got stung. What do I do if I get really stung?” I said, “Well, maybe then you should come in.” Anyway, I had this idea, there has to be a better place for people who are almost stung by a bee and that was kind of the urgent care world for me. So, I started that thing.
Dr. John Shufeldt:
And then I was over in Moscow and I wanted to start an expat clinic in Moscow, but I went into McDonald’s and the food was the exact same as it was in the US. Then I thought “I wonder why no one’s franchised healthcare?” So I started franchising these urgent cares and franchise six of them between 1995 and 1996.
Dr. John Shufeldt:
Again, I saw this way to expand without a lot of capital, because I didn’t have a lot of capital. And so, we started franchising urgent cares. I later on went on to buy My Doctor Express, which was a real urgent care franchise in about 2012 and sold that off after a couple years. That’s about 18 months actually.
Dr. John Shufeldt:
But to answer your question specifically, I’d see what I perceived as a need. Lack of images for people trying to do medical presentations, lack of availability of a pathologist, if someone needed an autopsy on their loved one. Too many people going to the emergency department for complaints that did not need that level of care. I trained on the south side of Chicago as a knife and gun club, that’s what I liked, but the almost stung by a bee guys not so much.
Dr. John Shufeldt:
And then telemedicine was the same. It just made sense to me that I didn’t know many people or anybody doing it in 2010. Although I learned afterwards that there were a few. Half the people I see in the urgent care are like, “Wait, I don’t even actually need to touch you to figure what’s wrong. I just need a decent history and to talk to you like this and I can probably come up with a pretty good idea of what’s going on with you. And most of that I can treat virtually.” And that was the start of that.
Dr. Jim Dahle:
So the first thing is you identify a problem. You have a solution to the problem. What comes next?
Dr. John Shufeldt:
First off, if you want to identify a problem that’s large, that happens frequently and that everybody experiences it. So that’s the first thing. Then you think, okay, well, maybe I have a solution to a problem. Then what I counsel people do now is come up with an MVP. Maybe that’s the first UR urgent care. Maybe it’s using your iPhone to do a FaceTime visit back in the early virtual medicine days.
Dr. John Shufeldt:
So, it’s coming up with a solution and then beta testing that solution. For me, I describe myself as in a constant state of beta. I’m not quite there yet. I’m a work in progress and that’s what most of these businesses are like. When you start, they always say, if you’re not embarrassed by your MVP, by your early product, you started too late.
Dr. John Shufeldt:
And so I would do things that would embarrass the crap out of myself in the sense that I’m probably starting this too early, it’s not really working, but I get a lot of feedback from people who would say “John, you’re an idiot” like we all know, or “Wow, this is kind of a good idea, but it’s going to need a hell of a lot of work.” And so, that’s the next step.
Dr. Jim Dahle:
Tell us about that work step as you improve the product. You’re trying to sell it at the same time you’re trying to improve it. How do you balance that?
Dr. John Shufeldt:
It’s the constant iteration. The people that you get early are the early adopters and you want them to be hyper critical. And so, you want feedback from them. So you have to go out and solicit the feedback. And sometimes the feedback’s phenomenal and you’re like, “I can’t believe I didn’t think of that. I’m embarrassed or well, that’s great feedback, but probably not appropriate for what I’m trying to do.”
Dr. John Shufeldt:
And then you really narrow your use case early on, like Jeff Bezos with Amazon, he started with books, a very narrow use case, compared to what they do today. Then you expand your use case as you tackle, as you solve one problem after another for whoever your user group is. And you can expand it that way, but for most businesses and for the urgent cares, we were constantly iterating about services to offer, everything from services to offer to hours to EHR. We were very early in the EHR world and changed that probably daily for three or four years to make it as streamlined as possible.
Dr. John Shufeldt:
But I think physicians in general and really emergency medicine physicians in particular, we are all born entrepreneurs. Because if you think of what makes physicians, physicians, we all have resilience. We all have a degree of intelligence. We all understand work ethic. None of us are quitters because you’d never get through medical school and residency in college for that matter if you were. So we all have the tools integral to start a business.
Dr. John Shufeldt:
And really thanks to you, a lot of us have had the moniker in the past of “Oh physicians are bad business people.” That’s basically crap. I mean, God knows I’m sure we’ve all made bad business decisions like everybody else has. But I think out of every other group I can think of, physicians are born entrepreneurs because we’ve had to be.
Dr. Jim Dahle:
Okay. So what about when you get into this part of the cycle where you realize “I’m putting a lot of work into this, way more work than maybe I should considering the financial returns I’m seeing from it right now. There’s some promise down there. I think this may still take off, but I’m in this work hard stage on it. And my time would be more valuable seeing patients or doing something else.” How do you determine whether you stick with it at that point or quit and do something else?
Dr. John Shufeldt:
It’s a great question. And I had people over there say to me “If you would just stop all this craziness and just see patients, you’d probably do a lot better in the end.” Well, knock on wood, fortunately that did not turn out to be true.
Dr. John Shufeldt:
But what I realized early is that for most of us, most physicians, if we’re not working, we’re not making money. If we’re not seeing patients, we’re not making money. And I always thought, “How can I make money when I sleep?” A better way to make money is when you’re not actually there doing anything.
Dr. John Shufeldt:
That for me was starting something that could scale that brought in income above and beyond what I could do practicing medicine. I was fortunate because I always was able to practice medicine. I’d gone back to school a number of times to try to learn things that were kind of on a pragmatic basis that I needed, but it was always basically doing both.
Dr. John Shufeldt:
And so, when you’re in this process, they’re going to be times you’re going to think this is not as easy I thought it was going to be. But I learned if it was easy, somebody would’ve done it already or everybody would be doing it. So you want it to be hard. There’s this great Sigmund Freud quote that someday in retrospect, this year is a struggle, you’ll look back on it as the most beautiful.
Dr. John Shufeldt:
And repeatedly now I have been in the midst of something. This just sucks. I mean, this is just dragging and I am killing myself here. But when I look back at it, 1, 3, 5 years later, those are times I remember and laugh and long for and say, “God, that was a lot of fun. Man, it was tough, but we just crushed it in the end or it failed miserably.” But because that failed miserably, I was able to pivot and do this other thing that had that not failed, I would not be where I am today. And where I am today is pretty exciting.
Dr. John Shufeldt:
And so, I think if you approach that way, like no matter what happens, if you have this perspective of you’re in constant state of beta, you’ll come out on top because you’ll have learned something, you’ve had a lot of fun and you may be able to apply it to something else in the future.
Dr. John Shufeldt:
And for me also, it really has prevented burnout in medicine because I’ve always had other things to do. And so, when I go back to the emergency department, I actually look forward to it. And I’m now down to six, eight shifts a month, but I look forward to it because it’s different. I miss the patient interaction.
Dr. Jim Dahle:
Yeah. I can relate to that for sure. All right. Let’s say you’ve now built one of whatever this is, it’s successful, urgent care, whatever it is. And now it’s time to scale. Tell us about the scaling phase for business.
Dr. John Shufeldt:
I’ll tell you the mistakes I made, as probably the best highlights. When the urgent care stage and when the urgent care days, we were self-funded for 15 years. We brought in private equity and close a deal on the Friday before the Monday the Lehman Brothers failed and it was $25 million in debt, $25 million in equity and the whole time our investment banker was like, “Come, come on, come on.” I was like “We are going to get this done. Why are you rushing so much?” And he goes “I’ve always wanted to keep your foot on the gas.” So fortunately he was right because we would not have closed the next week. Once Lehman Brothers failed, it was 2008 and everything imploded.
Dr. John Shufeldt:
After you get your MVP done, for me, it was friends and family, my own money, triple mortgage, the house, some friends and family money, and then just grew by cash flow. So I’d opened one, it would start cash flowing, I’d start planning the second one. I opened the second one, it would start cash flowing. I’d plan the third and fourth and I grew organically like that. Not the smartest way to scale.
Dr. John Shufeldt:
With MeMD I didn’t take any private equity or venture capital. It was all friends and family, the virtual medicine business. I think to do it, if you want to hold off on venture capital as long as you possibly can, because you want to build as much value creation for yourself and the other people in your ecosphere before you bring venture capital.
Dr. John Shufeldt:
Now I’m saying that, and I started the venture capital company about eight months ago. And so, now we’re out funding businesses. But I advise people as long as you can hold off and then when you really need to scale, bring in outside capital. But everybody’s money is green. So bringing capital can add more than money. Bringing capital can add expertise, it can open doors for you that has already been there, done that. Not just a check.
Dr. Jim Dahle:
Okay. At this point, we’ve found something successful. We’ve built it, we’ve scaled it. Now we’re starting to look at the exit stage. Tell us a little bit about that.
Dr. John Shufeldt:
Well, the theory is you’d always plan the exit at the beginning. Of course I never did that. But I think it’s smart to do because a lot of your business structure that you set up initially will help you determine the exit. And so, for example, do you set up as an LLC? Do you set up as a C Corp? Those are business and tax decisions, and you can change them. But if you set it up right to the get go, it’ll make life a lot easier.
Dr. John Shufeldt:
And the exits really are a couple. One is to sell to a VC or PE, sell all of it or part of it. Already sell to a strategic, someone who’s in your same space who may want to knock you out as competition, or assume the assets that you have, or the intellectual property you have.
Dr. John Shufeldt:
And then the final one is go public. And then there’s various ways to go public. I think specs have falling pretty far out of favor right now. And so, it’s kind of back to traditional IPO. But that process takes a solid year, if not longer. IPO is over a year, but when we were acquired by Walmart, it was about an eight month process. We had the biggest company in the world buying nearly the smallest company in the world. And so, the due diligence was excessive, but fair and appropriate.
Dr. Jim Dahle:
So, looking at that whole cycle from idea to exit, to you, what’s the best part and what’s the worst part of that cycle?
Dr. John Shufeldt:
In many respects, the worst part is the exit. For me, personally, I like creating things. I’m great at the startup phase. The operational phase, the day to day, grind it out phase, that’s not my strong suit. I’ve always tried to hire people who have a different skill set than I do and replace myself. And so, I’ll take a board seat or I’ll be standing as an advisor, but after a period of time, I don’t want to be the CEO. I’m a startup guy. And so, for example, in NextCare I was probably the CEO too long. With MeMD I hired a CEO after about seven years and then just was chairman of the board after that.
Dr. John Shufeldt:
I guess the worst part personally is once its up and running, once you’re starting to scale just the day to day grind of blocking and tackling, that’s not my strong suit. I think figuring out what your strong suit is, hiring around it, we all make the mistake of “Wow. You think like I do, you look like I do, you have the same training I do so therefore we should be partners in this.” Wrong thing to do. You want to find people who have very different diversity in all aspects helps.
Dr. Jim Dahle:
All right. You mentioned earlier that you think doctors are the perfect people to be entrepreneurs. Do you really think that that all doctors are cut out to be entrepreneurs? Or if not, what percentage of doctors do you think could be successful in some entrepreneurial pursuit?
Dr. John Shufeldt:
I have met physicians from literally now every specialty who are entrepreneurs. Everything from psychiatry because you are like, “Oh, psychiatrists, they’re probably not going to be the risk-taking entrepreneurs.” Oh, they are killing it. To neurosurgeons who probably have zero time to be entrepreneurs and they come up with a device or something and they’re crushing it.
Dr. John Shufeldt:
So I think we all have it within us if we so choose. Now, the challenge of course is time and resources. And so, some specialties have very little time to do it and maybe some have very little resources. In emergency medicine, we are fortunate, we have both, or we can have both.
Dr. Jim Dahle:
When you look at the percentage of these physician-led start-ups, what percentage of them do you think fail? Meaning they never make a significant profit justifying the entrepreneur’s time?
Dr. John Shufeldt:
I don’t know. The common rule I’ve heard is that 80% of all start-ups fail within five years. And I’ve certainly had a couple that have failed in five years, but I’m not at the 80% range. I’ve had a couple of home runs, but a lot of them have just been a double.
Dr. John Shufeldt:
But again, I had a couple of failures that failed within two years. One was called Healthy Bid. Healthy Bid was a reverse auction for diagnostic procedures and outpatient surgery. So I need my gallbladder out. It’s not emergent. And I got a high self-pay, high doctoral plan. Well, I want to get the best price and the best surgeon. So we set up a reverse auction where I put my records out there, surgeons and surgeon centers could look at and say, “You know what? We’ve got a space next Tuesday. If we can just cover our costs, it’s a win for us. You’ll pay 40% of what you would normally pay. Let’s do it.” It didn’t work. It was probably a little early, but it failed in 18 months.
Dr. Jim Dahle:
So it does happen obviously.
Dr. John Shufeldt:
Oh, my gosh. Yeah. Well, it certainly happens to me a lot, but I would say 30%, 40% of them never really get off the ground or a lot of them get off the ground and just kind of potter along for a while. And the person says, “Yeah, I can make a little money doing this, but I’ll probably make more money just practicing.”
Dr. John Shufeldt:
But I do think with the right temperament and the proclivity for taking some risk, I think most physicians have the intellectual capacity and the resilience to be great entrepreneurs. And that’s really, the resilience is what it takes.
Dr. Jim Dahle:
So what can doctors and others do to reduce the likelihood of failure of their start-up business?
Dr. John Shufeldt:
I think a couple of things. One is find people who think differently than you. Henry Ford has a famous quote of “If two people are thinking the same way at the boardroom, one of them doesn’t need to be there.” So I think if you can find people who bring in different talents and have diversity, in your founders, that’s one thing.
Dr. John Shufeldt:
Number two is make sure you have enough capital. And whether, again, it’s your money, friends or family, it doesn’t matter. I always like to start out when it’s just me until I prove it. But a lot of folks just run out of runway. And then by the time they’re out looking for money, their backs are literally against the wall. And I’ve made those mistakes. And our house was triple mortgaged and I made every start-up mistake in the book. So, lack of funding is another one.
Dr. John Shufeldt:
And then not vetting your idea amongst the population who are going to be the likely users. If you tell your friends, “Hey, I’ve got this great idea. What do you think?” Most of your friends will say, “Yeah, that’s really cool.” But if you say to a group, who your user group is, and say, “What can I do to make this better? Does this solve a problem? Is this problem pervasive? Is it costly? Is it recurrent?” And the answer is, “Yeah, yeah, and yeah.” Okay, you may have something here.
Dr. John Shufeldt:
And so, I think if you really vet it out early, build your MVP, don’t spend a ton of time or money on it, and then iterate as you go. If you look at Instagram, I think Instagram was a photo-sharing app before it really became Instagram or almost like a meetup app. And so, Airbnb was only for events and Uber was only for limousines. And so, if you look at a lot of these companies where they are today was not how they started. So you want to make sure you retain this ability to be nimble and react to the market and not just to what you think the market should be. So, those are the four.
Dr. Jim Dahle:
I like that, costly, pervasive, and persistent. That’s a good rule of thumb for the problems you’re looking for to solve, because those are the ones that a business can be successful by solving.
Dr. John Shufeldt:
Right. I get a lot of business pitches that are great pitches and great ideas, but I just can’t figure out how they’d ever scale it, or the market is dense with the same sort of people, dense with people trying to do the same thing.
Dr. John Shufeldt:
But the ability to scale to really grow. And that for me, the virtual medicine in 2010 was that wide open, that blue ocean of “Wow, this could really impact a lot of people.” And I started for behavioral health because you know as well, you see a ton of people in emergency with behavioral health issues, and there’s nowhere for them to go.
Dr. John Shufeldt:
And plus there was a stigma around going anywhere. No one was ready for behavioral health virtually in 2010 so I pivoted to urgent care, which I had some knowledge about, and that got some traction. And then we finally added behavioral health probably in about 2018.
Dr. Jim Dahle:
Yeah. Which is the obvious use. Because the physical exam matters so little in so many of those patients. All right. So I think a lot of people, especially people that are in a successful business wonder about how are they going to know when it’s time to sell?
Dr. John Shufeldt:
It’s a great question. It’s hard to sell your baby because you’ve watched it grow up. You’ve been there for it. And many of us think “If I’m out, this business is going to fail because it revolves around me.” I was able to miss that logic train, because I’d always try to replace myself at some point in it.
Dr. John Shufeldt:
So I’ve always learned that one, it’s easier to sell a promise than a trailing twelve. And so, if you can find a way that you’re selling on the uptick, you’re not trying to time the market perfectly that you sell on the way up, that to me was always the perfect time. Now, you may not get the most money you could have gotten for it, but you’ll get out before the market crashes, before the Lehman Brothers exits and doesn’t get bailed out.
Dr. John Shufeldt:
And so selling as it’s climbing where you’re selling the story, as well as the trailing twelve was always what seemed to be the right time for me. And again, I probably sold too early in some respects, but I did not want to sell too late.
Dr. Jim Dahle:
Is there a growth percentage? When you’re growing at 80%, you shouldn’t sell, but when you’re only growing at 20%, you ought to consider it. Do you think there’s any rule of thumb that’s useful there?
Dr. John Shufeldt:
No, I think it depends on how big of an exit you’re looking for really. If you’re looking at going public and having these huge year-over-year and even month-over-month increases, certainly helps tell the story. I never wanted to be a CEO of a publicly traded company. And we really didn’t have a company that was going to go public. MeMD, Walmart’s obviously publicly traded, but that’s as close as I wanted to come to the public markets.
Dr. Jim Dahle:
Tell us a little bit about raising money. When you run out of your own capital and friends and family won’t give you anymore. A lot of people talk about A, B, C, and D rounds. Tell us about that process.
Dr. John Shufeldt:
For most entrepreneurs, you start off with what’s called a seed round or some even pre-seed. And with a pre-seed round, you can go to angel networks and there’s a number of online angel networks. One’s called Angel Networks. But there’s a number of them out there right now. And that’s a great way to raise money.
Dr. John Shufeldt:
Venture capital is another way. And venture capital, my venture capital firm does seed in series A. So we do, it’s considered higher risk in the sense, because it’s not fully vetted, but it’s higher stakes. So the venture capitals look for higher return on investments, they’re looking for the proverbial unicorn and they know they’re going to get about a 20% or 30% fail rate in the groups of companies they’re funding.
Dr. John Shufeldt:
And then as this company starts cash flow and being successful, now you need more money to scale. Now, the rounds become much bigger. The percent ownership goes down less because the company has more value. And the risk is less because now the company is already been well vetted. Now, the risk isn’t zero. I mean, look at SoftBank investing in Uber. They took a bath on a number of things lately, and they’re generally late stage investor, or they were late stage investor.
Dr. Jim Dahle:
You hear about angel investors, you hear about venture capital and you hear about private equity. Do you think these sorts of investments are worthy investments for a typical investor? Why or why not? And if so, what percentage of a portfolio should it comprise?
Dr. John Shufeldt:
I think they should be part of your overall asset strategy. They fit in their own bucket and the bucket is time specific. So late in your life, probably a much lower percentage. Earlier in your life, when you are in your 30s and 40s and you are willing to take more risk, absolutely.
Dr. John Shufeldt:
I would say 8% to 14% is probably a reasonable bandwidth for private equity in VC. They’re generally lumped together. They have a longer-term horizon. Most funds run 10 years. You can get, depending on how it’s called, a European waterfall versus an American waterfall when you get your money out.
Dr. John Shufeldt:
But if you’re with the right VC fund, you do have a decent chance for a great return on your investment 20% to 30% IRR, internal rate of return on your investment. And you may get the proverbial unicorn. Peter Thiel famously put half a million dollars into Facebook. And as I recall, it was about a $2 billion return on that money.
Dr. Jim Dahle:
Yeah. I think he had it all in a Roth IRA, which worked out very well for him.
Dr. John Shufeldt:
Yeah.
Dr. Jim Dahle:
Yeah. Assuming somebody wants to add this to their portfolio, they want to invest in venture capital, what do you think is the best way to do it?
Dr. John Shufeldt:
Venture capital is often hard to get into. First off you have to qualify on the net worth. So you have to be an accredited investor. And I think most of us probably can qualify for that just on our income potential and our assets.
Dr. John Shufeldt:
And then it’s finding a venture capital fund who is constructed and invest in things that you have an interest in. So one of my mantras was “Never invest in something that I don’t really understand.” And so, when I didn’t understand it, I would try to go back to school and understand it. So for physicians who know health tech, I purposely stuck in health tech because that’s what I have some background on.
Dr. Jim Dahle:
So you’ve decided, you mentioned eight months ago that you started a physician VC fund. Why did you do that? What do you hope to accomplish there?
Dr. John Shufeldt:
Like I said, I’ve made every mistake in the start-up book. And so I probably have something I can share with founders. So they have less grey hair and less wrinkles than I do and make less mistakes. So really it was to work because I really like working with entrepreneurs, imparting whatever wisdom I can impart. Again, so they don’t make the same mistakes.
Dr. John Shufeldt:
I want to make Steve Jobs set at Denton Universe. So doing it through health tech, things we know about, makes a lot of sense to me. And so, in many respects, it was a way to give back. And in many respects it was kind of the next… Again, I’m in a constant state of beta. It was the next evolution for me to move from working on a single project, to working with a number of great founders on multiple projects.
Dr. Jim Dahle:
When you’re looking for a founder to work with, or you’re looking with a business to partner with, what are you looking for? You mentioned a seed round and series A. What are you really looking for when you’re out there combing through businesses?
Dr. John Shufeldt:
Have they done it before? What was the outcome? And in some respects, I don’t care if it was a huge success rate. I mean, it portents that they’ll be successful again, but if it was a failure, I’m okay with that. Because God knows, I made them. And you learn as much from failures than you do from the successes. So that’s number one.
Dr. John Shufeldt:
Number two, do they have resilience? Kind of the personal qualities. And then is their business scalable? Then like we talked about, does it solve a need that’s repeatable, expensive to solve, and recurrent and is not going away? Do they really have a zero-to-one idea? And this is from the book Zero to One. Is it something that’s never been done before and it’s going to dent in the universe or is it a one and done, is it another urgent care? Like God knows we’ve got enough of them. So that’s slightly too much. But if someone comes up with something new, I’m very excited about it.
Dr. Jim Dahle:
What do you look for when you’re looking for investors?
Dr. John Shufeldt:
Probably patience and a willingness to help. If we have, for example, we’ve raised about $25 million to $100 million. We’ll have our first close here end of October. I love having investors who I can pick up the phone and say, “Hey, we’ve got this company we’re looking at. It’s dermatology related that’s using AI to diagnose rashes.” I’m just making this up. “What do you think about that? You’re a dermatologist. Can I send you the app and see what you think?”
Dr. John Shufeldt:
Having physicians as LPs, limited partners is awesome because now we have this pool for those who want to be in it of literal experts who can say, “Yeah, no, it doesn’t make a lot of sense or, wow, that’s really bad. This is something I think we should invest in, if everything else makes sense.”
Dr. Jim Dahle:
You’ve been inspired by one of my favorite quotes that I refer to frequently when I’ve been hearing a lot of criticism of my business or me personally. It’s also a favorite of Jack Boggles. It comes from a Teddy Roosevelt speech given in Paris, as I recall, and often referred to as The Man in the Arena. Let me read it here.
Dr. Jim Dahle:
“It’s not the critic who counts, not the man who points out how the strong man stumbles or where the doer of deeds could have done them better. The credit belongs to the man who’s actually in the arena, whose face is marred by dust and sweat and blood, who strives violently, who airs, who comes short again and again, because there is no effort without error or in shortcoming, but who does actually strive to do the deeds. Who knows great enthusiasms, the great devotions, who spends himself in a worthy cause, who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails at least fails while daring greatly. So his place shall never be with those cold and timid souls who neither know victory nor defeat.”
Dr. Jim Dahle:
What about that quote inspires you?
Dr. John Shufeldt:
Everything. You’ll be able to relate to this. A long time ago, I was in residency still. I took care of this guy and he was dying and he knew he was dying. He was on hospice. It was literally his last day on earth. And he had this look on his face. I was watching him from across this ED and I looked at his face. I go, man, that guy is going “if only”. That’s the “if only” look. If only I had … Fill in the blank. I will be damned if I’m on my deathbed with that look on my face.
Dr. John Shufeldt:
So then I saw this quote by Hunter Thompson about life is not to arrive at the grave and with a well-preserved body, but the slide sideways totally worn out yelling, “Holy, **** what a ride.” I’m like, it’s kind of the Teddy Roosevelt quote in a nutshell. Depending what you believe, we’re only going around once and I’m going to lay on my deathbed and go, “Holy, **** what a ride.” I want to be the man in the arena. I don’t care if it’s with my own blood and sweat and dust. I don’t want to have the “if only” look like I saw in that guy’s face. That was it for me.
Dr. Jim Dahle:
Now, our time is short, but what have we not talked about today that you think our audience of 30,000 to 40,000 high-income professionals ought to know?
Dr. John Shufeldt:
First off, thanks for all the work you’ve done. COVID has been difficult for all specialties. So I applaud you for doing the great work you’ve done. Number two is, as a physician, we have the perfect opportunity to have multiple streams of income, which I know is what White Coat Investor is all about. Your way ahead of the game simply by listening to your podcast, because I see so many physicians now, I’m working with a couple who are in their 60s, who are like, “I can’t stop working. I don’t have enough for retirement.”
Dr. John Shufeldt:
The fact that you have 30,000 to 40,000 people who know and are already thinking about this is super impressive. But my take-home point for them is, “Look, if I can do it, anybody can do it. You can certainly do it.” And so, be the man in the arena, don’t lay on your deathbed saying “if only.” Take a little risk, whether it’s your own personal start-up or whether you’re investing in one of your colleague’s start-ups through an angel network, through a venture capital fund. But be the man in the arena, don’t have the “if only” look on your face.
Dr. Jim Dahle:
All right. John Shufeldt, it’s been great to have you on here. If people want to learn more about you or get more information about the fund you’ve started, where can they go to find that?
Dr. John Shufeldt:
xcellerantventures.com. So, it’s xcellerantventures.com. They can check me on LinkedIn. And they can, frankly, just email me. It’s [email protected]
Dr. Jim Dahle:
Awesome. Well, thanks for being on the show and for sharing your wisdom.
Dr. John Shufeldt:
Thank you. I appreciate it.
Dr. Jim Dahle:
All right. I hope you enjoyed that interview as much as I did. It’s always fun to see docs out there doing it and killing it. John’s had a lot of successes. He’s had lots of failures. And I think that’s the story of entrepreneurship.
Dr. Jim Dahle:
Here at WCI, we throw a lot of things against the wall to see if they’ll stick. Some things do, some things don’t. Some turn out to be smashing successes. Some are reasonably successful, maybe worth the time we put into it. And lots of things we’ve done have been total failures. And that’s just the way entrepreneurism goes.
Dr. Jim Dahle:
Obviously, any sort of private investment, like a venture capital fund, a private equity fund, angel investments, even private real estate investments, all of those have a certain level of risk. So even if you qualify for them by virtue of your income, if you’re an accredited investor because you made $200,000 in the last couple of years, you need to make sure you’re truly an accredited investor before you invest in them.
Dr. Jim Dahle:
And what I mean by that is that you’re able to lose your entire investment without it affecting you financially number one, and number two, that you were capable of evaluating the investment without the assistance of another financial professional. If those aren’t true, you don’t belong in any sort of investment that requires you to be an accredited investor.
Dr. Jim Dahle:
All right. This episode was sponsored by PearsonRavitz. They are disability and life insurance advisors founded by and for physicians. This White Coat Investor recommended agency grew out of one MD’s experience with a career-changing on-the-job injury.
Dr. Jim Dahle:
Today, PearsonRavitz serves the medical community in all 50 states. At PearsonRavitz, they help you as a doctor safeguard your most valuable asset, your income so you can protect the most important people in your life, your family. PearsonRavitz makes human connections before they make quotes. Go to www.pearsonravitz.com/wci today to schedule your consultation with a PearsonRavitz advisor.
Dr. Jim Dahle:
All right. Those of you who are also not aware, especially if you’re listening to this after it’s dropped PIMDCON22 is going on right now. It’s September 23rd through 25th. By the time you hear this, it’s probably too late for you to be coming in person, but you can still come virtually. The virtual last call is $597. You can buy that through the end of the conference on September 25th. The link to buy that is whitecoatinvestor.com/pimdcon22.
Dr. Jim Dahle:
This is the conference put on by Peter Kim. I’ll be speaking there as well, as well as all the big names in the physician real estate space. So if you’re interested in seeing that conference, check it out, whitecoatinvestor.com/pimdcon22.
Dr. Jim Dahle:
Thanks for those of you who’ve been telling your friends and family about the podcast. It really does help spread the word. It also helps if you leave five-star reviews. So I thank those who do that.
Dr. Jim Dahle:
Our most recent one came in from JMilli110, who said, “Life changing. I picked up Dr. Dahle’s “White Coat Investor” book in med school and devoured it as my first real intro to anything to do with personal finance. It sparked a joy for the hobby of investing in personal finance still running strong now a couple of years into practice. I’ve since read and Audibled several books and spent a good deal of time on his blog post reaching back to these routinely for every new financial task my family encounters.
Dr. Jim Dahle:
As a pediatrician, I find my colleagues tend to be even less financially interested than other groups of docs. What can I say, we didn’t go into it for the money. So I spent time teaching about personal finance and funneling more docs his way as a resident, chief resident and now with office partners.
Dr. Jim Dahle:
This podcast helps me get my “fix” when I’m getting ready or driving to work in the morning and I credit it for keeping the spark of teaching alive – handing out White Coat Investor books to students who come through our office. Anyways, thank you, Dr. Dahle.”
Dr. Jim Dahle:
What a kind review. Thank you for that. And thanks for the work you do as a pediatrician.
Dr. Jim Dahle:
The rest of you, keep your head up, shoulders back. You’ve got this and we can help. We’ll see you next time on the White Coat Investor podcast.
Disclaimer:
The hosts of the White Coat Investor podcast are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.
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