Episode 23

The Unique Challenges of Healthcare Founders

with Mike McSherry

March 1, 2022

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Mike McSherry
Founder and CEO, Xealth

Mike is a successful serial entrepreneur, having started and sold several large mobile and internet companies over the past 20 years.

McSherry currently serves as CEO of Xealth, a digital prescribing and analytics platform integrated into healthcare electronic medical records (EMRs). He and his team incubated Xealth at Providence St. Joseph Health while he was an Entrepreneur in Residence.

Prior to Xealth, McSherry was CEO of Swype, an innovative touchscreen keyboard installed on over 1 billion smartphones and tablets, which he sold to Nuance for over $100 million in 2011. McSherry was also co-founder and ran product for Boost Mobile both in the US and Australia. In the US, Boost is now Sprint’s prepaid service with several billion in annual revenues. Prior to co-founding Boost, he co-founded Zivo, which was the largest web development company in Australia and New Zealand with over 300 employees. McSherry moved to Australia with Microsoft, where he ran the MSN portal and e-commerce activities. He also held several product roles within Microsoft in the US.

Mike is an active angel investor, board member, mentor to startup companies and non-profits. He lives in Seattle with his wife, 2 boys, dog, and active travel and adventure pursuits. He’s lived in 4 countries, visited over 40 and went to William & Mary college in VA.


You've got all these great, great technologies that are on the cutting edge, that we still use fax machines, we still make phone calls, we still go down to the lowest common denominator.



[00:00:28] Aaron Martin: Hi and welcome. I am Aaron Martin. I’m the Chief Digital Officer and also run ventures and digital and marketing at Providence, which is a large health system in the west coast. And I’m also an advisory council member for Day Zero. And so I’m super privileged to kind of welcome Mike McSherry, who’s the CEO of Xealth. And welcome Mike, thanks so much for doing this. And looking forward to the conversation.

[00:00:54] Mike McSherry: Thanks.

[00:00:54] Aaron Martin: So you and I met, seems like 20 years ago, but I think it was like what, five or six years ago? Or do you even remember?

[00:01:02] Mike McSherry: Yeah.

[00:01:03] Aaron Martin: Yeah.

[00:01:03] Mike McSherry: In that timeframe. You brought me into Providence.

[00:01:06] Aaron Martin: Yeah. So do you want to just kind of tell this story about I guess, what would be great is kind of your journey pre-healthcare, and then into health care, and what got you interested in it?

[00:01:15] Mike McSherry: I’ve been a long time startup entrepreneur, 25 years. I’ve co-founded six startups in that time period, mostly in mobile and technology. Some have gone on to become billion dollar companies. I co-founded Boost Mobile in Australia and the US. I co-founded a company called Swype, a touchscreen keyboard that was put on several billion Android phones before we sold it and now it’s on every iPhone and Android phone in the world. And I also did a startup that raised $400 million and went bankrupt. And I can tell that story as well. After having sold Swype, I was looking what to do next and I wanted to do something a little more meaningful, and I joined the board of a local hospital system in Seattle that merged with Providence. And through that I got interested in healthcare and maybe wanting to use some of my technology chops towards solving some healthcare problems. So when I met you at that time period, I was looking for the next idea of a company to start and thus Xealth was born through a lot of meanderings as you know. delve into it a little bit later.

[00:02:16] Aaron Martin: Yeah. I remember that day that I was introduced to you by, I guess the CEO of Pac Med. And he’s like, you gotta meet this guy, Mike McSherry. He comes from out of technology, definitely kind of shares your background. And at that time, it was a little bit of, kind of, I guess, the blind leading the naked. I was, I think probably, maybe 18 months into my job or something like that, coming out of Amazon into Providence. Can you talk a little bit about what those early days were like? I mean, what was your first reaction to working within, a health system and those types of things?

[00:02:54] Mike McSherry: Well, I had been on the board of Pac Med for a couple of years. And at a board, you see big picture financials, PNLs and revenues, losses, and things like that. And as you and I got to talking, like, oh, you should think about doing the healthcare startup idea. And I’m like, boards look at big picture things. Startups solve day-to-day problems. I don’t know what the day-to-day problems are. I’m not that close to healthcare. And that’s when you invited me to come in to be an entrepreneur in residence. But it wasn’t just me. It was my executive team from Swype, so four of us. We were a ready-made product team and we were a great mobile team. We had just built an app that had been put on billions of phones. And so, kind of tackle any technology problem. So you stuck us on healthcare to think of challenges. But quickly, some of the normal technology business plan ideas, can’t play in healthcare. And a couple of examples I use are incentives. Oh no, that’s illegal. That’s inducement. You can’t just use, hey, I’ll give you a coupon if you come into this appointment on time. Another example was variable pricing. Airlines use it. Hotels use it. It’s normal commercial operations. Why don’t you have variable pricing for prime appointment slots for a senior doctor? Like, ooh, that hits a health inequality. So, we found ourselves bumping up against moral, ethical and financial guardrails that don’t exist in normal technology, commercial kind of startup ideas. And we had to understand some of those parameters. And then there was also a legal regulatory framework against, that, so as we went through an exploration process of the startup idea in healthcare, you have a different set of boundaries than what I’d been preconditioned to in 25 years of commercial software and mobile technology development.

[00:04:48] Aaron Martin: What were those early conversations, given that you were new to healthcare, like? How did you get through the awkwardness of…like, I certainly felt it when I first got back into healthcare, even though I had been in healthcare prior and kind of studied it, et cetera. It’s like going to a different country with a different currency, certainly with a different language, where you’ve got physicians and clinicians, et cetera, who are all incredibly bright. And I remember them kind of looking at me like, why don’t you get this? This is so basic. How did you navigate this early conversations and keep up the enthusiasm?

[00:05:28] Mike McSherry: Yeah. Well, it’s interesting you say that. Let’s face it. Doctors, when we were kids growing up and going onto college and post-college, they were the smartest kids in the room. Theywere the ones that got the best grades, the best scores, most studious. Boom. They were on a rocket ship to success in their medical careers. And I don’t know about you, but I was a little bit part of a trailer in that regard. But, so then when you come to the healthcare system, they’re still incredibly bright and polymath. Like not only did they have a med degree, but they also have a law degree or they also write software code on the side and like, oh my God, these people are so accomplished and smart. But yet they operate in this dysfunctional healthcare system and it’s like, how did they create this Gordian knot to untangle against the structure? So, in our exploration process, part of my reason for wanting to get in healthcare is I try to live a healthy life and I think that health equals wealth in terms of, as you get older and you have your health, that that creates our lifestyle and capabilities, and I wanted to be able to try and make that easier for other people to try and follow in the footsteps. So I had a big focus on preventative type offerings. The world of health care doesn’t, and the US economic incentives around healthcare, doesn’t really lend itself towards prevention. It’s more healthcare than preventative care. And that’s costly and expensive, but there’s just not a lot of reimbursement structures around doing prevention and maintenance of health in this country, or at least not five years ago when we were like tackling it a little bit more ambitiously. So that was my first lesson, was we’d literally cycled through 20 different ideas around health prevention, healthy living, healthy lifestyles. Probably a little more appropriate now in a world of COVID and more remote and different kind of payer landscape structures that have cropped up in that timeframe. But as we got on this exploration process, prevention was not top of mind at a reimbursement economic incentive level. And I think the next consideration around finding the right idea is know your audience. Who were you selling to? Because healthcare, yes, it’s almost 20% of the US GDP. It’s huge. It’s massive. And as a startup entrepreneur, TAM, total addressable market, and you can go to the top-down number. If I get 1% of Americans and 1% of the world… but it quickly, quickly subdivides and segments into, like, who’s paying for that? Is it the insurance companies? Is it the employers? Is it the hospital system? Is the pharmaceutical companies? And, you quickly start segmenting into, the world of healthcare is not a trillion dollar industry, it’s a thousand billion dollar industries, and knowing your audience on that front. Quite honestly, in any startup, this is my sixth startup I’ve co-founded. It’s a combination of ignorance and hubris. I’m smart enough to, like, crack this nut. And I don’t know what the problems are, but I’m smart enough to crack this nut. And you’d never tackle the problem unless you had that arrogance, or intelligence, or thought you were the smartest guy in the room, try that. And I’m bringing that muscle memory to healthcare. But you need to persevere. And I say that because we were talking to doctors, like, oh, we were the entrepreneur in residence, this bright, shiny object. They’re going to solve healthcare problems. And we’d say, hey, let’s learn about oncology. So we’d try to set up a meeting with the chief of oncology at Providence. Next thing you know, we’re in a room with 10 oncologists. And these people bill their time at a thousand dollars an hour. So I am literally going through 10,000 hours on a thought exploration. Tell us about cancer. What problems do you have in cancer? And then quickly realized, like, I am wasting so much time and energy. I don’t have the technical knowledge, the domain knowledge, the clinical knowledge to try and solve this. Unless one of these people want to join me in a startup adventure, I can’t solve problems in this domain. So we ended up tackling more software oriented, patient engagement solutions, which fits back to my broader software, and mobile, and engagement technology career experience.

[00:09:53] Aaron Martin: How do you think about, like, how much is it important toyou for it to be your idea? Because I’ve talked to different entrepreneurs and they have different kinds of views about that. Do you need to have passion about it? Does it need to be something that you guys feel like you guys surfaced or just tell me a little bit about that?

[00:10:10] Mike McSherry: I think it depends for different individuals and the domain knowledge. Again, some doctors have to solve that oncology problem and they have a different way of doing it and their current job or institution won’t let them do it the way that they want to do it. So they bring that domain knowledge and that passion to bring that to bear. I’m probably more of what you call a generalist. Of the six different startups that I’ve co-founded, the first five, I was not the one with the idea. I was part of the three person team that founded it. I joined someone that had the idea and I thought that I recognized the idea had the value and I could scale that idea. So that’s probably my greatest sweet spot for myself is recognizing a good idea and taking it to scale at an early stage generalist kind of proposition.

[00:11:04] Aaron Martin: So that’s interesting because, now that I think about your experience with Swype, you had a co-founder, if I’m not mistaken, who was a scientist. Their original kind of use case was more to help. It was one of these things where it was a very narrow use case that turned out to be very broad. And you guys kind of expanded. Can you talk a little bit about that? I think that’s a fascinating story.

[00:11:25] Mike McSherry: Yeah. And all credit to Cliff Kushler. He’s the one who came up with the idea. He got a Ph.D. In augmentative communication and spent a 20 plus year career building hearing aids and braille touch type. He wanted to help people with disabilities communicate with. As the original flip phones came out, instead of triple tapping on a key, you could single tap and it would auto-predict the words. And he invented that technology and sold it for $400 mil. So he was a wealthy guy from solving a problem for people with disabilities that had mainstream mobile use. And while he was in semi-retirement, someone said, hey, people in wheelchairs that only have eye movement or maybe head movement, but no finger or motor control, they have a difficult time entering text. Think Stephen Hawking in a wheelchair blowing on a switch or keeping your eyes directed on the letter, A, on some onscreen keyboard for two seconds. Andsomeone said, what if you just did a continuous eye trace? So he had literally worked on that idea for a couple of years. A keyboard that’s only 50% accurate is useless. Until you start getting 97% accurate, there’s no way you can take it to market. So he had been tinkering on that and I met him very early on. He was about ready to start showing it to people. And I had a strong mobile background. And so he was like, you should start this company and join me. And this was pre iPhone. So, tablets, there was no market for it. So, next thing you know, the iPhone came out and the whole world of touchscreen input became a necessity in right place, right time. But, historically, Alexander Graham Bell invented the telephone to help his deaf wife communicate. So, the whole litany of inventions for people with disabilities that lead to mainstream applications. I came from Swype having helped develop the technology. It broke Guinness World Records for the fastest hand free texting of paralyzed people. And I would go to all the assistive technology conferences. And so I sort of got immersed in that. And that is sort of what brings me a little bit into wanting to solve healthcare problems at a greater capacity and thus my journey into Providence and Xealth.

[00:13:37] Aaron Martin: Well, let’s talk a little bit about Xealth. How did you come up with the idea? What inspired it? Tell us about that kind of iterative process, if you will.

[00:13:46] Mike McSherry: Yeah, back to that free range EIR, we’d literally cycled through 70 different ideas. We’d meet with you once a month, hey, so we’re thinking about this. We’re thinking about this. We’re thinking about this. And you’d sort of guide us or direct us, like, illegal, immoral, won’t work, nobody would pay for. And we started tinkering around with the mobile application side of patient portals and we built a better patient portal, if you will. But I didn’t want to be a mobile app developer. And then we said, well, there are so many of these digital tools that doctors or hospital systems want their patients to do. Read this, watch this, download this, use this to manage your diabetes or behavioral health or xyz. And so we thought that putting these third-party tools into this patient portal would lead to greater adoption and usage. And then continuing to work backwards from there, there was no easy way for a doctor to recommend or click a button or prescribe or refer the patients to the right tools and the recommendation algorithms, as to what tool is appropriate for what patient against what clinical condition or disease state. And so then, we built some tool for the doctors to prescribe it. But then since everything’s digital, we round tripped and said, well, geez, I can track if the patient read it, watched it, is using it, what their device or app data’s saying, and bring that back to the doctors to show. So it was a very iterative process that led to, like, wow, I’ve got this platform capability that now can let a doctor or nurse recommend a patient do something digitally, and then track whether they did it or didn’t do it, and then use that aggregate data for better recommendation logic to prescribe things. And ultimately we thought that that would become a big platform level play. It was an unmet need in the world of healthcare, and the rise of digital and digital health was only going to continue to increase in the world of healthcare and hospital system adoption and patient engagement. So we launched that four years ago, spinning it out of Providence. And then with COVID hitting, it just further exacerbated and accelerated the rise of digital health. So, again, back to Swype, we built that pre-iPhone and then the iPhone came out and that was sorta like this golden moment where every single phone in the world needed it. And now I think COVID kind of accelerated the world of digital health and remote patient monitoring against Apple device usage and remotely monitoring patient activity.

[00:16:19] Aaron Martin: What was the thing that surprised you the most in the first year or two about healthcare that you weren’t expecting, that was just kind of the biggest surprise relative to your other experiences?

[00:16:32] Mike McSherry: If No, I go back to doctors or hospital systems, they’re the smartest people in the room. Collectively, they can’t make a decision.

[00:16:47] Aaron Martin: I don’t know what you’re talking about. I’ve never seen that before. No, I’m kidding.

[00:16:53] Mike McSherry: I’ve never sat in front of as many smart people in rooms and environments before where they all head nod, yes, no brainer, yes, we need to do it. And yet it still doesn’t happen for 6, 9, 12 months for any number of reasons. And you don’t really see that in the world of mobile. Every single phone manufacturer has to ship a new device every single year. And that new device has to have a dozen new features on it to sell it and market it. And they’re just on this absolute fast track and deadlines of shipping, shipping, shipping with new tools and technology, whereas healthcare is like, we can get to that next year. We can get to that next year. We can get to that next year. And that, legacy debt of pushing things downstream have led to where healthcare, education, and government are the three biggest laggards in technology adoption in the world, or at least in the US. And it’s crazy. You’ve got these MRI machines that can identify down to that atomic level of bone density structure. You’ve got magic pills that can solve diseases. You’ve got all these great, great technologies that are on the cutting edge, yet we still use fax machines. We still make phone calls. We still go down to the lowest common denominator

[00:18:11] Aaron Martin: Oh you forgot pagers, pagers. We still use pagers.

[00:18:14] Mike McSherry: Yes, it’s just ridiculous. And some of that is bureaucracy. Some of that is reimbursement structures. Some of that is reticence to adopt new technology. I think people hide too far behind privacy and patient engagement and equity and yes, yes, we need to worry about. But because 99% of people might do something digitally, but 1% can’t, well, let’s go down to the lowest common denominator and do it the old school way just to make sure that a hundred percent can. And no other industry in the country operates on that level.

[00:18:52] Aaron Martin: I’ve been in a health system now for eight years in January. And my observations are a couple of things. One is, they’re not health systems. They’re collections of actually, in some cases, pretty small, sometimes very large, complicated businesses. So it’s not a thing. It’s many, many different things kind of pulled together in a very tenuous way sometimes. And the second thing is, is they’ve been very federated forever. And so all the technology decisions were kind of distributed. I think there’s a lot of stuff that has nothing to do with technology,to your point Mike, that make it problematic in addition to the frustrating infrastructure and the complexity of the technology, et cetera. And a lot of the technology is really old.

[00:19:36] Mike McSherry: And I delved into the rabbit hole of frustrations in healthcare, but I jumped in to make a change and we were incubated inside Providence, and we spun out, and now we’re working with over 20 of the biggest hospital systems in county. And, we see the regional diversity of these systems, and some of them have different, slightly different business models. Some of them accept more insurance risk and therefore they have more preventative kind of interest than others that are still stuck in the fee for service business mentality. So our solution needs to scale and meet the different needs of the different hospital systems across the country. And, as we work with these different systems, and we’ve launched dozens of different use cases meeting different patient needs, you really get down to the atomic level of patient care and you hear really heartwarming stories about individuals and clinicians and making a difference. And that’s why I jumped into healthcare. So I like to see that what we built is scaleing to meet a far broader need across the entire US industry.

[00:20:41] Aaron Martin: Yeah. What was really impressive to me too, is, after about, I would say, about six months into the organization, the four of you could kind of, you had the healthcare conversation down. You’d learned the language. If you’re talking to a potential founder who wants to start a company in healthcare iIT or healthcare technology or healthcare services, and they’re not familiar, let’s say, they came out of industry like you did, what’s some of the advice you would give them?

[00:21:08] Mike McSherry: Well,a lot of it depends on what their domain expertise is coming into it. If they worked at a hospital system, maybe they have a unique insight to something that could be done better. If they worked at an insurance company, maybe they could do something better. If they’re a college grad and they have no industry experience, and they want to do something in healthcare at a startup level, I would really challenge them to try and build a software that maybe they sell to hospital systems or they sell to insurance companies because long sales cycles are very difficult and requires credibility, and network connections, and reference points, et cetera. So know your audience and know what you bring to the table on your unique differentiation. But there’s this whole world of, direct to consumer, and apps in the app store and, building these viral solutions around healthcare and healthcare metrics and gamification of healthcare, and video games that are involved in healthcare. I mean, the halo, with beat saber is like game development is now in a health and wellness category. And so, just know what you’re bringing and your unique differentiation, and what is going to help you at the distribution level. Healthcare, everything is distribution. Who are you selling to? What’s the velocity of that sale? And, in a direct to consumer world, it’s a little more of, it’s marketing, and the actual app itself, or the game itself, or the price line, or the network effects, or whatever. But if you’re going into corporate sales, i.e. employers, payers, hospital systems, bring that credibility backing behind you because, if you’re just attacking it fresh, you just think, oh, I’m going to solve health care and come at it with a green novice background, good luck to you. I’m not sure you could go far. I was lucky. I was smart enough to partner with Providence. And then my first investors were all hospital systems. And now, I literally have one VC and 20 strategic investors. I didn’t have credibility in healthcare. How was I going to gain credibility in healthcare? I literally have the biggest hospital systems in the country, the biggest pharmaceutical player in the world, Novartis, the biggest electronic medical record company, Cerner, the biggest medical device company, Phillips. I literally have the biggest names in healthcare backing what we’re doing and that gives me credibility that I did not have at a career level coming into Xealth.

[00:23:34] Aaron Martin: And it also provides you with a ton of learning. Like in our board meetings, I can tell you that you ask incredibly good questions and challenge some of our team, the Cerner team, and whoever else. And you’re able to get access to that knowledge as well. Xealth has been incredibly successful. Like you said, your last round that you just landed, led by a health system, syndicated with several, how many other health systems kind of participated?

[00:23:58] Mike McSherry: 15 hospital systems.

[00:24:00] Aaron Martin: There you go. There you go. I mean, I think that’s a huge endorsement of your platform. Where are you taking Xealth next? What’s the next, step for it?

[00:24:10] Mike McSherry: Well, just like the Swype keyboard was put on every iPhone and Android in the world, I want this technology to be in every single doctor’s prescribing interface in the country. I’ll start with the US first. I’ve always done global in my life. I would love to see this broadened to international, but the US market is big enough and there’s enough problems to solve here in the US. And so that’s where we are there. So, continue to expand landing, the number of hospital systems is priority number one. The number of different digital tools that we’ve embedded to let doctors prescribe, and we’ve done 50 some different tools: article vendors, video vendors, content vendors, apps for maternity care, diabetes, behavioral, health, surgical prep, PT, OT, recovery, joint limb sort of rehabilitation, devices around diabetes, tracking sleep apnea, tracking RPM platforms around cardio monitors. And then just, I love this category, and this goes back to the prevention and we’ll see how far it scales, but we’ve prescribed transportation rides to patients to get them to appointments. We have done meal delivery services for post-op recovery. We’ve been conversations around at risk pregnant moms, giving them healthy, fresh foods for better nutrition. So, when I say we can prescribe digital X, that X doesn’t have to be digital to digitally facilitate care. So, prescribing a ride prescribing meal delivery, prescribing e-com products for maternity care. These are all facilitated with our platform. And I would love to see that bridge a little bit more into the social determinant of health and patient populations in the country. It’s sort of why I jumped in healthcare, is I wanted to try and solve a big problem.

[00:26:04] Aaron Martin: That’s awesome. Well, hey Mike, thanks so much for taking the time to speak with me. I know you’re incredibly busy. We just got out of a board meeting yesterday. I know for a fact you’re incredibly busy, so thank you so much for the time. And, again, it’s just always so fun to talk to you, and you’ve got such a huge depth of experience, and we’re super fortunate that you’re applying it to healthcare. So thank you so much.

[00:26:25] Mike McSherry: No, thank you. And you gave me the start, the opportunity, to try something in healthcare. So, a huge kudos and thanks to you and Providence for taking a flyer on the team that didn’t have a background in healthcare on the hope, prayer, bet that we would do something meaningful and healthcare, and hopefully we’re proving you right.

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