Vet care for the 21st century with Modern Animal’s Steven Eidelman | Term Sheet

Key Concepts

• Trillion Dollar Startup: A hypothetical startup company valued at one trillion dollars.
• Unicorn: A startup company valued at one billion dollars.
• Kaiju Corn: A proposed term for a trillion-dollar startup, referencing giant, strange beasts like Godzilla.
• ChatGPT Atlas: OpenAI's web browser, aiming to integrate search and user experience.
• Modern Animal: A veterinary clinic network focused on modernizing pet care through technology and improved operational models.
• Veterinary Business Challenges: High debt for veterinarians, emotional toll of the profession, high suicide rates among vets, balancing cost of care with patient needs, and the lack of a human healthcare-like payer system.
• Private Equity in Veterinary Care: The increasing acquisition of veterinary practices by private equity firms, leading to price increases and operational pressures.
• Inflation in Veterinary Care: Veterinary care prices have risen approximately 60%, nearly double the general economic inflation.
• Labor Costs in Veterinary Care: Labor accounts for about 50% of revenue in veterinary practices, with rising wages for veterinary professionals.
• AI in Veterinary Care: The application of artificial intelligence to streamline administrative tasks, summarize medical records, transcribe notes, and potentially aid in diagnostics and clinical decisions.
• De Novo Clinic Development: Building new veterinary clinics from the ground up, as opposed to acquiring existing ones.
• Retail Business Model Inspiration: Applying principles from retail businesses (e.g., real estate, local leadership, brand building) to the expansion of veterinary clinics.
• Densification and Organic Growth: Focusing on expanding within existing markets with established brand awareness and customer referrals.
• Consumer Affordability of Pet Care: Growing concerns about whether consumers can afford to own pets due to rising costs.
• Advanced Veterinary Treatments: The availability of sophisticated medical options (cancer treatments, surgeries, drugs) contributing to higher care costs.

Trillion Dollar Startups and Naming Conventions

The podcast begins by exploring the possibility of a "trillion dollar startup." While the term "unicorn" refers to billion-dollar startups, the host notes that many venture capitalists believe a trillion-dollar valuation is achievable. OpenAI is cited as being halfway there, valued at $500 billion. The discussion then shifts to potential new terms for such companies, with suggestions including "Giga corn," "Terra cap," "Triceratops," and "Dragon." The host's preferred term is "Kaiju corn," drawing a parallel to the Japanese term for giant monsters like Godzilla. It's acknowledged that a company of this magnitude might be better described as its "own economy" rather than a startup.

OpenAI's ChatGPT Atlas and Web Browsers

The conversation touches upon OpenAI's release of its web browser, ChatGPT Atlas. The significance of a web browser for a search-oriented company like OpenAI is highlighted, drawing a comparison to Google Chrome. Owning a web browser allows a company to control the search experience for consumers. While reviews for Atlas are mixed to positive, it has also raised concerns about privacy and data collection.

The Veterinary Business: Challenges and Modern Animal's Approach

The main segment of the podcast features an interview with Steven Idleman, founder and CEO of Modern Animal, a veterinary clinic network. Idleman is presented as someone adept at connecting his business to broader economic trends, including inflation, labor dynamics, healthcare pricing, and evolving consumer behavior regarding pets.

The Complexities of the Veterinary Profession

• Passion-Driven Work: Idleman emphasizes that veterinary work is driven by immense passion for animals, requiring significant dedication, including four years of veterinary school and substantial debt.
• Emotional and Logistical Challenges: The profession faces high suicide rates, partly due to the emotional toll and the inherent uncertainty of diagnosing and treating non-verbal patients. Veterinarians must balance life-saving care with difficult conversations about cost and customer satisfaction.
• Cost of Care vs. Affordability: Unlike human healthcare, veterinary care lacks a payer system (e.g., Medicare, employer-based insurance). Pet owners, even with pet insurance, bear the full cost of care, leading to sticker shock and the perception of being "ripped off." This is compounded by the fact that veterinary care is often equivalent to human medical care but at a fraction of the cost.
• Veterinary Professionals' Burden: Veterinarians and technicians grapple with recommending care that owners may not afford, which can be heartbreaking.

Impact of Private Equity

• Historical Trend: Private equity involvement in veterinary practices began in the late 1980s and early 1990s, escalating in the 2000s and 2010s, particularly during the period of low interest rates.
• Post-COVID Reckoning: The influx of private equity capital, driven by secular trends like increased pet ownership (especially during COVID-19), led to a surge in acquisitions. As the pandemic subsided, many of these practices struggled to create better work environments or customer experiences, leading to increased prices and squeezed margins.
• Consumer Backlash: This has resulted in consumer complaints and a questioning of pet affordability.
• Inflationary Pressures: While private equity is an easy scapegoat, Idleman points out that inflation is a significant factor. Labor costs, which constitute about 50% of revenue, have risen substantially, benefiting underpaid veterinary professionals. The cost of diagnostics and supplies has also increased.

Modern Animal's Business Model and Evolution

• Mission: Modern Animal's mission is to "build the future of veterinary care" by integrating technology intentionally to optimize animal care.
• Focus on Workflow and Efficiency: The company aims to make it easier for veterinarians and technicians to deliver care and for pet owners to understand it. This involves optimizing workflows, eliminating time-consuming administrative tasks, and allowing veterinary professionals to focus on practicing medicine.
• Embracing AI: Idleman views AI as an inevitable force in the industry. Modern Animal's approach to AI focuses on tasks that are currently inefficient and require human effort, such as summarizing medical records, transcribing notes, and generating discharge instructions.
• Care Team Collaboration: A key aspect of Modern Animal's strategy is involving their care teams as partners in developing and piloting new features. This "change management culture" ensures that technology is implemented safely and effectively.
• Learning from Retail: Modern Animal has drawn inspiration from retail businesses for its de novo clinic development strategy. This includes lessons in real estate selection, clinic build-out, cost management, local leadership development, and market expansion. Companies like Starbucks, Sweetgreen, and One Medical are cited as examples.
• Pacing and Resourcing: The company has learned the importance of controlled growth, focusing on densification within existing markets (like Los Angeles) where brand awareness and organic growth are stronger, rather than rapid, broad expansion. This approach leads to a faster and more efficient return on capital.

Pets as Indicators of Consumer Health

Idleman believes that the veterinary category, often considered recession-proof, is actually sensitive to economic downturns. He observes that a generation facing challenges with career prospects, housing affordability, and general cost of living is now questioning their ability to afford pets. This is particularly evident in lower-income areas, where organizations like Emancipet serve a tremendous need for affordable care.

The Future of Veterinary Care

• Information and Advanced Care: The increasing availability of information and advanced veterinary treatments (cancer therapies, complex surgeries) contributes to higher costs. Consumers are more inclined to pursue these options for their pets, driven by greater transparency and psychological inclination.
• AI's Potential: AI is expected to accelerate drug discovery, lower costs through increased efficiency, and allow veterinary teams to spend more time with patients. While prices may not decrease, AI could help stabilize the rate of cost increases, even with higher wages for veterinary staff.
• Tension Between Technology and Consumer Desire: The future of veterinary care will likely involve a tension between technological advancements driving efficiency and cost reduction, and the consumer's increased desire for and visibility into advanced care options. This tension is expected to play out across all healthcare disciplines.

The podcast concludes with a lighthearted moment, asking about the host's dog, Layla, eating chocolate, and then a reflection on the importance of Modern Animal's work in addressing tangible, personal needs within the healthcare and consumer sectors.