The Bowery Capital team is kicking off a new blog series covering vertical SaaS. We are doing deep dives on various companies, interviewing founders and investors, and learning what it takes to build success in the vertical SaaS arena. This week, Jonathan Rat, Co-Founder and CEO of Archy, answers some of our questions.
Can you tell us about what you are building at Archy?
Archy is an all-in-one platform for dental practices - we handle scheduling, charting, treatment planning, imaging, billing, insurance claims, and revenue cycle management. We are the only platform in the dental space that can offer comprehensive practice management software, an automated patient engagement platform, as well as integrated employee management and payroll. Our big differentiator is we have put these solutions that previously existed all into one platform. If a new dental practice were to launch tomorrow, they can sign up with Archy and be pretty much done with building out their tech stack; we have removed the need for a dental office to sign up with 5 or 10 different applications just to get off the ground. Another differentiator is that we are cloud-based; 90% of the dental industry is still using on-prem servers to run their practice. This typically means they need to use an IT services company that can manage their server and their backups which is another added cost.
What inspired you to build vertical SaaS for the dental industry?
What inspired me to build software for the dental industry was my wife - she is a dentist and owns a dental practice here in San Jose. When she started out, she had to buy practice management software and hire an IT company to manage the server backups. After three months of being in business, we realized this company was not even maintaining the backups we were paying for. This experience made me want to find a different way forward. Another reason for launching Archy was seeing my wife’s practice up close and realizing how manual admin work could often lead to avoidable mistakes. These mistakes resulted from how many different tasks and software products the staff were juggling; I saw a way with Archy where we could simplify that and make processes more efficient and less error-prone. Before Archy, my wife’s practice had to juggle many different pieces of software which all needed to integrate with each other, but if something went wrong with one of them it would have cascading effects and the admin staff could end up spending half the day on customer support trying to figure out a fix.
The aftermath of COVID and the impact of not being able to physically access on-prem software was another catalyst for Archy. When COVID hit in 2020, many dental practices had to close for months and many office staff ended up leaving the industry due to the extended closures. Then, when practices were able to reopen, sometimes the staff was not physically back in the office and there were issues around accessing booking and scheduling platforms remotely. This only reinforced my belief in the need to build a cloud-native platform that offered an all-in-one solution which would be accessible anywhere.
What is the typical tech stack today for a dental office?
Today, most dental practices have a server somewhere in a closet in their office and then they have an outsourced IT management company which handles all IT operations. Unfortunately, in the dental world, there are a lot of sharks on the IT side and they charge a lot of money to these dentists who are not necessarily the most tech savvy buyers. Most of the dental industry still uses on-prem servers; when we pitch a dental practice on Archy, we like to highlight the savings they can generate by using our cloud-based solution because it means they do not have to deal with buying and maintaining server hardware. In addition to a server, a typical practice usually has some core practice management software, and, at a minimum, separate pieces of software for imaging and patient engagement. If they are more advanced, they may also have a patient-facing online booking platform and some kind of BI reporting tool for running basic analytics. Like most businesses, dental practices will also have an HR platform for managing employees and some kind of payroll solution. These are just the basics - some practices may have even more in the way of software - but that is the typical stack.
We have met many vertical SaaS founders who have some family connection to the industry they are building software for, and this enables them to use those family businesses as a testing ground. Given that your wife is a dentist with her own practice, how were you able to leverage that access to prototype the product and test it in a non-customer environment?
If I did not have that early access to a dental practice, we would not be where we are today. A modern dental practice management system needs to be able to integrate with the office’s imaging equipment and sensors and getting access to these machines in a non-practice setting is very difficult and expensive. Just being able to get our hands on it was a huge advantage. In the early days, we would go in on weekends or evenings when the practice was closed and we would be in there running tests. In addition to helping us access that key equipment, my wife was also willing to let us use her actual practice as a guinea pig. While we were developing Archy, we actually had her office “dual-app” for four months - staff would enter everything first into Archy and then into their existing software. This helped us understand how we stacked up against the competition. There are also complicated things like fee calculations for insurance that needed to be right on launch so we could test those things in her office before going live. These experiments helped us understand when our product was robust enough to start onboarding real-world customers. Without access to that practice, things would have been much harder - having access to a practice is a luxury but in this case, it is also something of a necessity.
There is a well-known “layer cake” playbook for scaling vertical SaaS - I would be curious what are some features Archy has recently rolled out and what is next on the roadmap?
It is really important for us to nail the feature set in order to convert practices to our platform. Earlier this year, we thought we were ready to scale up and really start winning market share. We encountered many dental practices that wanted to switch to Archy, but were reliant on having a patient engagement platform to communicate with their patients and offer online payment; we had the online payment features, but there were things we had not built yet and it was preventing us from really penetrating the market. We spent the first half of this year building all of those patient engagement features which are fully customizable and can handle things like online booking, automated text appointment reminders, marketing, etc. Now that we are caught up on features, this has really helped us grow and we are only getting started in terms of the functionality we can add. Starting in Q4 of this year, we are also focusing on layering in more automation and surfacing more insights to the practices we serve because we already have all the underlying data.
Who is the ideal customer for Archy today?
Our ideal customer right now is a dental practice which operates out of a single location. It does not really matter how many dentists work there, they could have 1 provider or 15. Multi-location practices are our next focus and should be launching soon. We have signed up a few preliminary multi-location customers for when that product is ready, but to date, we have focused on single-location practices. We wanted to get very good at that before we tackled the additional complexity of adding multi-location support to the product. It was just a matter of priorities.
How does Archy monetize today? Is it all based on subscription fees or have you turned on some other revenue streams?
The monthly SaaS fee we charge is currently the largest driver of revenue; our other primary source of revenue comes from the payment processing we do for the practice. How this revenue split shakes out depends on the volume of the practice. For instance, if it is a very high volume practice, sometimes the revenue contribution from payment processing can actually be greater than the SaaS fee. At lower volume locations, the SaaS fee is typically the main revenue driver.
Selling into dental practices sounds like it would be a challenging go-to-market; what is the typical sales cycle and what have been some of the best sales unlocks you have discovered so far?
In terms of the sales cycle, we have a few different channels right now. One channel is us literally calling these dental practices. When we do cold calling, one luxury in this industry is that a dental practice always has someone answering the phone. It is a business where it is pretty easy to get in touch with people and a phone call actually works better than an email. This level of access makes it easy for us to speak with customers on the admin side and helps us understand what they need out of the product.
The other big channel is dental conferences - we try to go to as many as possible and they really help with brand awareness. At the end of the day, dentists do not really spend time online looking for software so conferences are sometimes the first time they hear about us, and the advantage of a conference is they get to play with our product and see it up close. Another advantage is that we often hear from dental practices that they do not have a good internet connection so they are wary of shifting their practice to the cloud - at these conferences, we use a Wi-Fi hotspot and they can see how the software works quite well even on a slower connection. Conferences are great for getting in front of prospects but it is not an on-the-spot decision. Whether we meet the dentist or a member of their front office staff at the conference, there is usually a follow-up call with the rest of the team. Almost every practice we sell to is a little different, sometimes they are under staffing pressures and need the automation support; other times, they may think their software is terrible and want a change but do not even know what exists. Another channel that really works well is Facebook - that is a very interesting one because there are many dental groups on Facebook, and communities have helped us spread our brand and attract new customers.
How has Archy been able to use partners to expand the product suite? For example, I saw Archy uses Finix for payments, DoseSpot for prescriptions, etc. I was curious about the decision to leverage these partnerships rather than building in-house. How has that helped you accelerate things?
This is also a question I get often - when do you partner vs. when do you build something yourself. The way we look at it, DoesSpot is one of the leaders in e-prescription and they already have connections with almost all of the pharmacies in the US. If we were to try to replicate that ourselves, that is like building a separate business all on its own. So what we did is brought them in as partners for Archy. We disclose to our customers that the prescription management is powered by DoseSpot but they still appreciate that they do not have to log in to a separate piece of software and can run all of that from inside Archy’s platform. Another good example is payroll, we did not build a payroll company - these are big, complicated businesses on their own. Instead, we partnered with Gusto and we use their white-label API. This leads to real benefits in terms of efficiency for the practice, but there is no way we were going to build our own payroll company given all of the tax regulations and compliance.
So those are examples where we decided it is better to partner because it will allow us to move faster. But in other cases, like imaging for example, we decided to build that on our own. We could have partnered there too but there is so much more we can do if we build that ourselves. Reporting is another one - we have lots of platforms approaching us wanting to partner - but for us data is gold, and we already own the data, so we want to build that reporting functionality ourselves. There is always a tradeoff though with time to market and we are constantly trying to think medium and long term around partnerships. But there is no need for us to rebuild a payroll company or an e-prescription company - for those examples, it is easier to partner and let those platforms grow and help us grow at the same time.
What advice would you give to someone who wants to start an industry focused software business?
My advice is that you need to know the in’s and out’s of the market you are serving. If you asked me five years ago, I would have never thought I would be in this space. But being married to a dentist, I have been able to develop an understanding of the industry. Sometimes customers will ask how I know something, and it is because I have spent hours working in my wife’s practice and have shadowed her closely to get the dentist’s perspective. You really need to live and breathe the industry and many of our employees go and spend time at our customer practices just watching how they work. You need to deeply understand the sector you are selling to and your prospective customers.
If you were to build a vertical SaaS business in a different industry, which industry would you choose and why?
When we talk about the dental segment, it is one industry within the wider healthcare landscape. Dental technology is about 20 years behind general medicine and there are other segments in the healthcare landscape that are also lagging behind and present opportunities. Another sector that is ripe for disruption is education - it is not going away but it has changed greatly between the rise of remote learning and other technology shifts, and in many parts of the world, education is not where it is supposed to be. It has gotten very expensive and there is a shortage of teachers. I think education needs to evolve in the sense that the world is evolving. With the rise of AI, there are jobs that will disappear and jobs that will be created and education will need to address this as well. I do not have a specific product within education in my mind, but I think there is a lot to explore there and a lot that needs to be done to innovate.
If you liked “Vertical Visionaries: Jonathan Rat (Archy)” and want to read more content from the Bowery Capital Team, check out other relevant posts from the Bowery Capital Blog.