The Dentist Office Software Story

This story is fictional, I know the real one: the guy described really does exist (and he probably exists in just about every country). He was a dentist that taught himself how to program (domain expertise really counts for something in almost every profession) and built the ultimate dentist software (dogfooding it) in visual basic. He then marketed this software to his colleagues and it spread like wildfire, capturing a very large portion of the market in a surprisingly short time without spending a single cent in marketing, because it was exactly what the dentists needed.<p>Because our dentist&#x2F;programmer was a smart fellow (he&#x27;d have to be, given that he&#x27;s active in two different complex fields) he foresaw that selling the software once was a nice proposition, but selling it repeatedly would be even better.<p>Hence the annual &#x27;maintenance fee&#x27;, of about 1,000 euros per dentist using his software. Do you know how many dentists there are in nl?<p>So, instead of going for venture capital this dentist-wannabe-programmer built himself a money printing press that printed more money than he and his extended family will ever be able to spend. At the end of every year the maintenance payments roll in and he&#x27;s laughing all the way to the bank. This money machine has been printing since the early 90&#x27;s and does not look like it will stop printing any day soon. And no VC made a single cent on any of that. He&#x27;s so solidly entrenched that trying to attack his position is a losing proposition.<p>I like the avc blog, but it would be nice if stories like this were grounded in reality rather than fiction.

Reality-based revision:<p>Two young entrepreneurs graduate from college, and go to YC. They pitch PG on a low cost version of Dentasoft, which will be built on a modern software stock and include mobile apps for the dentist to remotely manage his office from the golf course. PG likes the idea and they are accepted into YC. Their company, Dent.io, gets their product in market quickly and prices it at $5,000 per year per office. <i>Dentists might have good reason to like this new entrant, but the Dent.io founders have no relationships in the dental profession and they don&#x27;t know how to sell to the more than 100,000 dentists practicing in the United States today. Because of this, and because dentists are reluctant to change the software that is used to manage their operations, which would require staff retraining, Dent.io fails to make much of a dent in the market.</i>

Although there are some &#x27;straw man&#x27; aspects to any story like this, I think it&#x27;s pretty clear that in today&#x27;s startup economy the USV thesis about network effects is pretty valid. That said, I think the more interesting question is when we will evolve a good way of monetizing networks.<p>Advertising is OK for now, but clearly it doesn&#x27;t work for all scenarios. For instance, a dental application would be a terrible place for advertising as people don&#x27;t want ads anywhere near medical records.<p>I once went to a talk by USV and heard something along the lines of this: the first big layer of the internet was the infrastructure layer. The best companies to invest in were Cisco and those who were ahead in that field. Then the infrastructure enabled the provider layer, and AOL and other providers were the big ticket. Then came the application layer, when people like Google started to build interesting applications over the internet. The newest layer is the network layer, which has some overlap with the app layer but is where players like Facebook and Twitter come in.<p>The question is: what&#x27;s next? What layer will leverage the networks to useful economic extent like all of those other layers have in the past? Whoever has an answer for this will be very, very rich and famous.

I can&#x27;t shake the feeling that only one of the examples <i>needs</i> VC investment to function and succeed, and all of the others could be bootstrapped or take minimal investment.<p>Investing in and promoting startups that can only exist with VC funds sounds like a fair enough strategy for a VC.<p>I&#x27;m not convinced that the interests of founders and VC are always the same.

This article disappoints me because it seems to boil down to:<p><pre><code> BAD: making money by selling software GOOD: making money by selling ads </code></pre> So how do you make money selling ads? By getting a bunch of users and auctioning off their private information.<p>I wish more people in the position to fund software development would support a model where your users are your customers and not just eyeballs to be sold to the highest bidder.

One of my previous dentists, who is also a computer enthusiast, told me he switched his office from some proprietary software to <a href="http://www.opendental.com" rel="nofollow">http:&#x2F;&#x2F;www.opendental.com</a> and he is completely ecstatic about it. He specifically said he likes the fact that Open Dental is open source, so it gets a lot of the little details done right as it receives contributions from the dentist community. He even demo&#x27;d some of the features on his computer for me :)<p>So I do think that Fred&#x27;s story is anchored in reality. This open source disruption seems to be taking place.

I realize this is pretty naive of me, but I&#x27;ll ask in the hopes of learning something:<p>Why does a VC care about sustainability or the company getting disrupted? Wouldn&#x27;t they just want to grow fast and big enough to get a return and move on?

Software products may be a commodity (although I&#x27;d argue this point to an extent), but the companies that run them are not.<p>Price is one variable in the purchasing-decision process, but beyond some point, it really falls down the priority list for large businesses. This is why the phrase &quot;Nobody ever got fired for hiring IBM&quot; is so telling. Companies like stability and are willing to pay a premium for it.<p>To that end, if you find that adjusting price alone allows you to steal signficant market share, then you are competing for the least-desirable customers (ie, those that can&#x27;t afford the product).<p>Companies that are deciding between Cognos and Microstrategy will compare prices, but there are many other factors that contribute to the final decision as much or more than cost. If I come in and offer a BI tool built on my laptop that I charge $10k a year for, I don&#x27;t think I&#x27;d get the time of day from their customer bases.

Incidentally, if you&#x27;re looking for a niche software opportunity, you could do worse than appointment software for dentists. I spent a fair amount of time speaking to dental practice managers about that specific product idea (I was teaching myself to place cold calls, not really interested in it).<p>Almost all dental office managers I spoke to 1) used something called Eaglesoft (www.eaglesoft.net) and 2) <i>hated</i> it.

I have to comment because my wife is a dentist and I have considered entering the dental market a couple of times because the software is pretty terrible. I think there is one founder (SikkaSoft??) who has a similar story.<p>A couple of interesting things about the Dental market:<p>1) Customers are resistant to change because they want to spend their time focused on the dentistry not solving IT problems. One of the leading dental software providers, Eaglesoft, has a really bad UI&#x2F;UX. Each screen looks like it was designed by a separate team of engineers and has never been updated. On the other hand, dental staff get used to the quirks of the UI and it&#x27;s not clear that Eaglesoft could totally redo their product without a revolt from customers. 2) A pure cloud based solution would be super awesome except that you still need to integrate with a bunch of hardware, e.g: you need to tell the digital x-ray to take a picture. On the other hand, the need to operate on premise servers for dental offices is a giant ass-pain. Also the Dental market is still windows based which really sucks. (have you tried administrating windows servers? yuck) 3) Since this is a fairly mature market there is a bunch of vertical integration. Patterson (which owns eaglesoft) wants you to buy their kit which runs with their software, I think Schein is a distributor for dentrix so they have their own stuff as well. 4) While no dentist likes paying the maintenance fee for their software, it&#x27;s really a non-issue when you come to the P&amp;L statement.<p>I think one possible way to disrupt this market is to do a mashup of Athena health and dentrix&#x2F;Eaglesoft. My understanding of Athena Health is they run your back office so you don&#x27;t need staff to do billing and deal with insurance companies. I don&#x27;t think there is someone who does this well in the Dental space (but I could be wrong). At a certain office size you need a full time staff member to run Billing. As long as the cut that you take is less than the cost of employing a billing department, it&#x27;s a win.

I work in a pharmacy, the quality of the software we use is so low that it&#x27;s depressing. From the GUI to the non-existent automation, everything is pathetic. You have to manually issue THE SAME data over and over again.<p>Not to mention that every-single software company keeps it&#x27;s data in obscure formats in order to avoid third parties accessing the data. It&#x27;s like if the 2000-2010 changes that took place in the field didn&#x27;t touch the Greek pharmacy&#x2F;medical software and most of them keep operating in the 90s closed source principle.<p>There are some new SaaS about medical offices around. But they are so ugly that it&#x27;s scary... Small market I suppose.

So your software can get disrupted if you don&#x27;t continually re-invent to it keep up with the times.<p>Your social network or social app is actually way more fickle and less defensible than he thinks. Think about precursors to Facebook like Friendster and MySpace. Suddenly they became uncool and <i>poof</i> they were gone.<p>If you look at teen&#x27;s perceptions, Facebook.com is next up on this sad list of has beens. That&#x27;s why they&#x27;re paying through the nose to diversify out of that product. AVC has found no magic bullet with their strategy.

&gt; So we asked ourselves, “what will provide defensibility” and the answer we came to was networks of users, transactions, or data inside the software.<p>I&#x27;ve always found investment philosophies like this to be too overgeneralized. When I ask myself the question of what will provide defensibility, I can&#x27;t think of a good answer other than &quot;it depends&quot;.<p>The question really is &quot;how much does it depend?&quot;. I think it depends enough such that it&#x27;s best to just look at each company on a case-by-case basis.

This doesn&#x27;t strike me as the best example. I don&#x27;t really see the network benefits of the final offering. And practice management software is notoriously sticky.

This article actually highlighted that my development of a web app has gotten sidetracked by the lure of VC investment and general tech startup mentality which has thrown me way off course. I know my industry and should be &quot;dogfooding&quot; it rather than trying to build something that&#x27;s impressive in the tech&#x2F;startup space.

Telling a story before getting into theory is often better than explaining the theory and following up with a story. This is a great example of that.

I enjoyed listening to the author of Open Molar on Floss Weekly:<p><a href="https://www.openmolar.com/" rel="nofollow">https:&#x2F;&#x2F;www.openmolar.com&#x2F;</a>