CEBI Executive Briefing
April 23-24, 2009
Itasca, Illinois
Douglas W. Lyon, CPA
Where Were We? (Two Years Ago)
Where Were We? (Two Years Ago)
First to Market
Market Leader – 28%
Virtually no competition
Prices so low, who could afford to compete?
What Happened in 2006 – 2007?
What Happened?
Contrary to popular thinking…
the IRS is a
“good guy”!!
What Happened in 2006 – 2007?
 IRS announced Form 990 Schedule H
 Michigan Hospital Association (MHA) indicated
intention to compete “head-on” with us
- Historically, Michigan hospitals only
- Historically, survey process only (minimal
hospital-level software)
Digression:
One of my Professional Regrets
 MHA and Lyon worked together in the late 90’s
- We had the software
- They had specific data aggregation needs
- We collaborated
- Their Senior VP was a supporter
 Missed Obvious MHA indicators over 6 year period
- I should have “read the tea leaves”, but didn’t
What Opportunities Did We See?
What Opportunities?
Both a significant opportunity and a scary threat
(a double-edged sword)
Opportunity was enormous… a federal agency
mandating an annual report on Community
Benefit
- Remaining not-for-profit hospitals should be
ours for the taking (we thought)
- Lyon Software had a wonderful reputation and our
CBISA had a “Gold Standard” feeling among
hospitals
What Opportunities?
 Threat was significant as well… a highly-regarded,
state hospital association would be a formidable
competitor (tremendously more capitalized than
Lyon Software)
 And the bad news kept coming… another
competitor was emerging
- A large healthcare consulting firm in Maine (but
not a software developer)
 And, RUMORS have been flying ever since about
others, one of which we’ve been able to verify
Digression:
I Liked the “Life Style” Business Model
 We had never advertised
 Our prices were low (in retrospect, a good thing)
 Word-of-mouth was primary source of new business
 Warm relationships with two National Associations:
- Catholic Health Association (CHA)
- VHA, Inc.
- Each having over 1,000 hospital members,
mostly non-overlapping
Digression:
I Liked the “Life Style” Business Model
 Figured my blue-chip, satisfied customer list
of 1,200 hospitals would fund my eventual
retirement
 Wasn’t in for a fight … didn’t see one coming
The Hospital Market
The Hospital Market
The Entire Market – 4,500 NFP Hospitals
CBISA Clients:
• Full Paying
1,300
28.9%
• Free in ’08
400
CBISA Subtotal
1,700
37.7%
Prospects
2,800
62.3%
Total NFP Hospital
Market
4,500
How Big Was the Opportunity?
How Big Was the “Opportunity”?
 A hefty chunk of 2,800 remaining hospitals would
have to do something by end of 2009
 One 3rd (about 1,000) of the remaining hospitals
would be worth over $2,000,000 a year in
revenue to us
- It wouldn’t have to be Lyon Software
- It wouldn’t even have to be software
 So it was worth spending some money
So What Did We Do?
So What Did We Do?
 Market research
 Identified new “buyers” in hospitals (CFOs)
 Identified new messages:
- “Still the One” (for existing clients)
- “Do you have the systems in place?” (for
prospects)
So What Did We Do?
 Evaluated our competition
- Way more capitalized than us
- No software companies (as yet)
- Minimal market penetration
- We beat MHA head-to-head in our first 3 health
system battles (and one was Henry Ford Health
System, in MHA’s backyard)
 Did I mention their software was identical to CBISA…
screens, screen prompts, reports, etc.? – what a
coincidence
So What Did We Do?
 We did several real “marketing” things:
• Placed an ad in Healthcare CFOs periodical
(called HFM)
- 8 months @ $4,200/month
• Snail-mailed (very expensive) descriptive, color
informational packets (with a specially-made
envelope stamped in red “Important
Information on IRS 990H”) to 2,800 CFOs
(every hospital we didn’t have)
Digression:
Meanwhile, Went After a New Market
 Identified a new market for our software that would not
require massive programming surgery – Higher
Education
 Hired a Higher Ed expert and one-half of a 2nd
salesperson for Higher Ed
 Developed the product – launched it in February ’09
- Identified 1,100 “community-engaged” colleges
and universities as best prospects and mailed
promotional packets to Presidents/CEOs of these
institutions
So What Did We Do?
Back to Hospitals
 Hired a hospital community benefit expert to
help sell; hired a 2nd half-time salesperson;
reassigned existing staff duties to sell
 Conducted educational workshops in 12 cities
on new IRS requirements
- 310 attended
So What Did We Do?
 Changed our software to incorporate every
requirement of Schedule H
- 8 to 10 new or seriously revised screens
- 15 new reports
- Expanded role/access for Finance types
So What Did We Do?
 MHA introduced “loss leader” pricing – sweet,
one year deals for $900 (our software was
$4,000 at the time)
 I paid them an evening visit
 For my full time staff… established a Christmas
Bonus program, focusing on 2009 sales
 Revised our pricing – first time in 15 years it
went down - $2,000 (from $4,000)
Ongoing Plans
Ongoing Plans
CBISA and 990H educational webinars
More “face time” at conferences
Teaming up with additional states’ hospital associations
(except, of course, Michigan)
- Speaking on Community Benefit and 990H at
annual membership meetings (6 since November)
(Thinking about) hosting “virtual open houses”
Have We Been Successful?
Have We Been Successful?
 Won’t know full effect for a year or more
 Preliminary sales are up
18 state Associations are “on board” –
compared to none 14 months ago
 Competitors haven’t seemed to achieve
“traction” (our fingers are crossed)
Lessons Learned
Lessons Learned
 Don’t pre-announce a fabulous Christmas Bonus plan
for Christmas 2009 (in late November 2008)
 Stay close to your strategic partners and clients
- MHA should never have happened
 Pricing strategy is so critical
 “Short-term” sales help needs to be managed
 Recognize some things are out of your control… and
let them go