Sal Gentile was born in the Bronx, New York. He learned about business from a very young age. His parents operated a small business, a fish market that had been passed down for three generations. He went through the conventional education system, got a degree, and started working for major corporations. Later on, he found his place in the healthcare sector, providing valuable insurance to consumers after the passage of the Affordable Care Act (ACA). His venture Friday Health Plans has raised funding from top-tier investors like Vestar Capital Partners, Leadenhall Capital Partners, Peloton Equity, and The Colorado Impact Fund.

In this episode you will learn:

• How to be a successful intrapreneur
  
• Leveraging your advantages for success
  
• The importance of persistence in success
  
• Reason to get a perform a trademark search
  
• Sal’s advise to those starting out as an entrepreneur
  

Alejandro Cremades · EP 395 Sal Gentile On Raising $220 Million To Offer Affordable Health Plans To Small Businesses

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About Sal Gentile:

Sal founded Melody Health Insurance to transform the market for health insurance.

With over 30 years of experience in high-growth, innovative companies, Sal brings deep experience in operational leadership, market strategy, and business development.

Prior to founding Melody, Sal was CEO of HealthX, a software company that built online portals and tools for the health insurance industry.

From 2004 to 2013, Sal led markets at TriZetto Corporation, the leading provider of enterprise software and services for the health insurance industry.

Here he became an expert at using technology to drive efficiency and automation in health insurance.

Sal led a number of sales, marketing, and business development functions at high-growth technology firms.

Sal is a graduate of Pace University where he majored in math and computer science.

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Read the Full Transcription of the Interview:

Alejandro: Hello everyone, and welcome to the DealMakers show. I’m super excited about the story that we have today to tell. We have a really exciting founder. He’s going to be sharing with us his journey and his career, and we’re going to be learning a lot about name changes, fundraising, seed rounds that are bumpy, and you name it. So without further ado, let’s welcome our guest today. Sal Gentile, welcome to the show.

Sal Gentile: Thanks for having me. I’m glad to be here, Alejandro.

Alejandro: Sal, you were born and raised in the Bronx, New York City. Now you’re in a different place in Denver but New York City, the Bronx. Tell us about life growing up.

Sal Gentile: My family owned a fish market for three generations in the Bronx, so I grew up to a small family-owned business. I learned a lot about dealing with consumers at that point. I have an older brother and a younger sister. We were very competitive, so it allowed me to play a lot of sports and challenge myself in a lot of ways that way. I went to Cardinal Spellman High School, which, as it turns out, happens to be where one of our current investors went to high school, so it’s a bit of a small world in the world of fundraising at Vestar, so I was happy to make that reconnection. The Bronx was a great place to grow up for us. I could walk to grammar school. I had a big ball field to play in. I had Long Island Sound to jump in whenever I wanted to, so I’m happy for the experience.

Alejandro: Very nice. Why, out of all things that you could have done, why computer science?

Sal Gentile: It turns out I was really good at math and not so good at anything else academically. I learned this because I was recruited to play football at the Merchant Marine Academy over in Kingspoint, but you had to get 1,000 points on the SAT, which was no problem, but at least 500 in each segment. I got plenty of math points and not nearly enough verbal English points, so when I was looking for a college to go to after that fell through, I decided I was going to study either engineering or computer sciences. When I ended up at Pace University in West Chester County, engineering wasn’t one of the offerings, and computer science was. It seemed like a hot idea at the time and one that I thought I could excel in.

Alejandro: Very cool, and it was a pivotal moment going to Pace because there, you met your wife during this time, and then you guys moved to Long Island. But one thing that was interesting there is that you decided to apply your learnings into the world of healthcare. Tell us about this.

Sal Gentile: When I was in college, I was fortunate that I was ahead on credits, so I got an internship at IBM, and I learned a very specific skill. It was the early days of email, and it was a mainframe-based email system. It turns out that Memorial Sloan Kettering Cancer Center had deployed that product, one of the few in the world to do so, and they needed someone who knew that technology. I ended up in healthcare, not out of any great passion because I needed a job, and I had a skill, and it aligned with something that they needed. So it was just fortuitous that where I was in my college career allowed me the internship that trained me on a skill that got me the first job. Then, from there, I learned the provider side of the healthcare business for the next few years.

Alejandro: Very cool. In this case, IBM was a really big one. There you were responsible for New York hospitals and so forth. But after this, you were recruited out, so why did you decide it was time to leave out of IBM?

Sal Gentile: It’s an interesting thing. I was having a great career at IBM. I was there at the right place at the right time, and I did really well. When I met with my mentor, and she asked what I saw for my future, I said, “I want to be the CEO of IBM.” She said, “Well, that’s not going to happen.” I was like, “How could you say that? I’m a young man and doing really well.” She said, “You just don’t have the right credentials or the right background.” She was probably right, but it was not a message I wanted to hear in my late 20s as I was doing so well. I was being recruited by an entrepreneur who had decided to start a software company. It was a good time in our life for me to do that. My wife’s career was going really well. So it was the right time to take a risk. I had entrepreneurial juices from my family’s background growing up, and it seemed like the right time.

Alejandro: With this company, which was Middleware, you were able, as well, to see the company going public. How early did you join that business?

Sal Gentile: I was the eighth employee and the first person not writing code. I joined early in 1995, and the IPO was just shy of three years later.

Alejandro: So you experienced the whole dot-com bubble.

Sal Gentile: Oh, yes.

Alejandro: What did you learn out of those days?

Sal Gentile: The founder of that company is a guy named Rick Adam. I think the greatest thing I learned was the will to achieve. There was no obstacle too big that couldn’t be overcome if you just thought it through and had the will to work through it. We had competition. We had fits and starts with software. We had plenty of competitors. There was always a reason to fail, and we always pushed on through. That was probably the greatest lesson I learned at that time was that there was always a way forward if you just had the will to do so.

Alejandro: In this case, the founder of the company actually called you again. Tell us about this call.

Sal Gentile: The technology guys that worked with Rick that were the brains behind the underlying infrastructure started a new company to advance the technology and take it forward. They were floundering a little in the marketplace and needed somebody who understood the technology to sell it. I joined them in the early 2000s and helped them create a market for the next generation of the software. As a result of that, we were able to find a buyer, the TriZetto Corporation, which is how I got introduced to the health plans.

Alejandro: Very nice. In this company, TriZetto, it was another nice outcome, another acquisition. Tell us what the business model was. What were you doing there, because here you were, another early employee?

Sal Gentile: Yeah. We were a highly-integrated software and service model that was prepared to outsource all of the middle and back-office operations of the health insurance company. We would do that for the very largest health plans in the country and take over pieces of their business or have our software utilized for segments of their business down to a full outsourcing of a smaller single state, oftentimes, single line of business health plan. That was the business. When I was introduced, I had some experience with large company sales, and so I was given responsibility for most of the large health plans in the country that we hadn’t quite cracked the code on yet, and I had some success there and worked my way through to ultimately being president of the health plan markets.

Alejandro: And what an outcome: $2.7 billion of an acquisition, so not bad at all. How early—what number employee were you there?

Sal Gentile: I was much later there. My business partner, Dave Pinkert, was there near the beginning. The company had gone public in the late ‘90s. I joined in 2004. We were actually taken private somewhere around 2008, and that’s where I was able to take advantage of the transaction, and then I was a more senior executive and was able to participate in the exit.

Alejandro: At TriZetto, the biggest thing that it gave you was you had the opportunity of meeting your cofounder, David. What was that process of brainstorming and then realizing, “I think we’ve got a very interesting idea. Let’s do it together.”

Sal Gentile: What I learned when I left IBM and joined the startup software company is that connecting yourself to the right people is often the most important thing. While I was maybe two weeks into my TriZetto career—I didn’t even know what the company did. I was much more a provider guy than a payer guy, and I was learning the business. I got us a meeting with Cigna, with the senior executive staff at Cigna. They were having a strategic planning meeting. There was a product manager, David Pinkert, my business partner, and he owned this product that helped the network side of the payer space to automate their back office. I get the meeting scheduled. He joins me at the meeting. I give a one-slide overview and then sit down next to the then CIO of Cigna Storrer. Dave takes over for the next hour and tells them all about his background, and what the software does, and how it works. I’ll never forget. Scott elbowed me, and he says, “You’re very lucky to have that guy on your team.” The long and short of it is, we ended up doing a very significant transaction, north of $30 million. It put me on the map; it put us on the map as a team. We wound up replicating that transaction some 30 times after that over the next ten years working together and had a great deal of success. What I learned was I could get us a meeting, and Dave knew how the business worked, and together we were a formidable team. We’ve stayed closely connected ever since.

Alejandro: Tell us about the opportunity of what it is now. We’ll talk about Friday Health Plans because it went through several name changes, but tell us about that moment where you and David look at each other in the eyes and said, “This is it.”

Sal Gentile: Yeah. He had left TriZetto around 2012 or 2013. We had been staying in close contact. I had left a strategic planning meeting and said to him, “The market is really shifting here. The ACA has passed its law of the land. We have been putting more individuals on our software platforms than we have group-based products.” There really wasn’t any group-based software in the market, so we started discussing, “Should we go start a company that changes the infrastructure for the individual consumer?” Because that’s where we saw the growth in the marketplace. Then we reminded ourselves how hard it was to sell software and services to health plans and thought, is it a crazy idea to start a health plan? Based on some of the ideas that we had about the power of price in an immature consumer market, could we build a better price with our backgrounds in the software and infrastructure side of the business with loss ratios being fixed in the ACA space? Could we build a better company by building a more efficient operating model? And we thought, “If we can’t, who can? So we kept trying to talk ourselves out of it, and with every interaction, we kept convincing ourselves more and more that this was the right thing to do, so we started selling these health ventures. Then we hired a marketing person who said, “That’s a terrible idea.” Then we became Canopy Health Insurance because we thought, “At least we’re trying to cover the individuals.” Then we were sued by a small women’s clinic.” And we’re like, “That’s not going to work.” Then we created Melody Health Insurance. Dave is a musician, and we thought, “We can make some marketing alignment with that. Then we were sued by another company who was using that name. We’re like, “All right; time’s up. We need a new brand that supports what we’re trying to accomplish: easy, friendly, a new day in healthcare, and that we could get the rights to in all 50 states. So we put the lawyers to work, and then we got the Friday Health Plans brand. We’re happy that’s behind us, and we are now Friday Health Plans.

Alejandro: How many name changes all-in-all?

Sal Gentile: Four.

Alejandro: Wow.

Sal Gentile: We went in search of capital as Sal & Dave’s Health Ventures, then Melody, then Canopy, and then finally, Friday.

Alejandro: Well, Friday is definitely uplifting, and without a doubt, all of us are always looking for Friday to celebrate to be with the family. With Friday, what ended up being the business model? How do you guys make money, Sal?

Sal Gentile: The beauty of the Affordable Care Act is it creates these public exchanges where we can talk directly to the consumer. Our business model is rather straightforward. Back in 2013, the pre-ACA, there was Romney Care, what Massachusetts calls the Massachusetts Connector. It was the first opportunity for consumers to buy an exchange-based individual health insurance product. That year, one of our TriZetto customers, Neighborhood Health Plan, had a small price advantage over the best brands in the industry, Blue Cross of Massachusetts, Harvard Pilgrim, Touch Health Plan, the best brands in the industry, and Neighborhood Health Plan won a material market share with a small price advantage. It guided us to say, “If we could get there, we could win membership. Then we knew enough to know the unit economics matter in setting price when you’re underwriting a health plan. So we went about talking to the provider community in saying, “Look, do you need an ACA partner? This is who we are. This is what we’re going to do.” To our surprise, we found willing participants who were willing to give us reasonably aggressive pricing to allow us to reach our underwriting targets. The rest for us was just maniacal about our unit economics, so we only invest in things on our administrative side that add value to the consumer. We have a very robust but low-cost platform to operate our business. It allows us to get to profitability at a much smaller scale than any of the health plans we had interacted with or some of the more recent startups. So it puts us in a unique position to return that profitability back to price competitiveness. That’s our operating model, which is price wins. It won’t win forever, so you’ve got to build a really good brand around customer service and ultimately make money and return that money to ongoing price competitiveness in the marketplace. We call it the Virtuous Cycle of Health Plan. That’s how we operate our business every year.

Alejandro: In this case, how much capital have you guys raised to date for the company?

Sal Gentile: We just completed a round. It brings our total equity to about $130 million of equity and about $90 million of debt.

Alejandro: Wow. Sal, that’s a lot of zeros. Good stuff, and I know that it was not an easy journey because, during the seed round, you guys experienced a little bit of a hiccup. So what happened there?

Sal Gentile: We thought that would be the easy part, two guys coming out of the industry with this solid business plan. It didn’t go quite as smoothly as we wanted. It’s kind of a funny story. We ended up in front of a group of investors over the course of a week. One of the executives in residence that was evaluating our business plan turned out to be Bob Sheehy. Those three private equity investors and Bob founded Bright Healthcare. We knew we were on the right path because we were pitching these investors, and they were clearly interested in the market and thought enough of the concept to fund Bright Health. And we can’t blame them. Bob’s got a tremendous resume. He really knows the business. They’ve done a great job over at Bright. It gave us confidence that even though we failed in our attempt in that swing that we knew we were onto something between what Oscar was doing and what Bright was doing. We felt like if we just stuck to it, we would find partners. What’s interesting, though, is we wound up getting into business without an institutional investor. Dave and I put our TriZeeto money to work. We found a couple of angel investors who we’re grateful to have, and with that capital, we thought we would get a license in the state of Nevada. It turns out that they wanted a lot more capital than the statutory requirements suggest. But sometimes, when one door closes, another one opens. Two weeks later, our reinsurance broker said, “I know it didn’t go well in Nevada this year, but there’s a health plan in Colorado that’s under some distress. Would you be interested? They had about 8,000 individual consumers on their exchange, so we looked at that and said, “There are some really great people down here. It aligns with our operating thesis on low cost, high value, and it gives us a base of membership”. So we worked it out with the commissioner of insurance and with their board, and we acquired that health plan. We operated it through ’16 and closed on it in ’17, and that’s how we got into business.

Alejandro: That’s amazing, and the rest is history. Sal, to get a good understanding or an idea on the scope and the size of Friday, what can you share with us, like the number of employees or anything else?

Sal Gentile: Yeah. We’re at just about 400 employees now. It’s hard to put a finger on it because we’re growing like a weed. I welcome every single employee to the business every week. We get about 10 or 12 new employees every Monday starting with the company. I think if we haven’t just gone over 400, but we’re just about to. About 300 of those are in the state of Colorado, and we probably have another 100 distributed out in the states where we’re either currently providing service or building a network to provide service in the near future.

Alejandro: With those numbers, the fact that you’re welcoming them personally when they come to the office on Monday for the very first time tells a lot about how you are thinking about culture. So how do you really think about culture, and what is the culture of Friday if you had to describe it to us?

Sal Gentile: It’s very simple as it relates to our employees. Satisfied employees, satisfied customers. If you’re familiar with Built to Last by Jim Collins, that’s a book that has influenced me greatly over my years of managing people. We run our company under the Built to Last model in everything we do. Our very first employee was our Chief People Officer, and it says a lot about how we went about this. We treat people really well. We let them not only thrive in their career within the company, but we also let them contribute externally in the community. I find that that’s a really important thing for businesses as you’re scaling, so people can be proud of their employer when they’re in the community that they’re serving. The great news about Friday Health Plans is we’re serving that community. We’re selling an ACA health plan, oftentimes, to subsidize individuals who need help, so we’re already in a market providing this great public good. But then to have our employees go a step further and really take care of our customers and the people in the community around them is engrained in our entire culture. It drives everything we do.

Alejandro: You were alluding to the market. Where do you think the market is going as a whole for you guys?

Sal Gentile: If I’m right, in a generation or so from now, we will see the end of group health insurance as we know it, and the individual market will be here to stay. So if you look at the progression, employers used to offer this wonderful benefit, and it was no charge to the consumer, the employee. Then over time, we started adding deductibles, asking employees to pay for some of the insurance, premiums, copays, and then we introduced high-deductible plans, and we’ve put more and more of a burden on the employee to make it work for the employer. Then we saw Medicare Advantage come along, and a subsidized consumer could go to a marketplace and buy their own health insurance. We’re like, “Okay. That’s a market, and it works.” Then we had the ACA pass for those people below the age of Medicare, and the same outcome, which was a subsidized consumer could go to a marketplace and pick among the choices with the help of a broker often and make that work. We’re like, “Those two things are good.” We now have legislation that’s fairly bipartisan that now allows a group, an employer, to offer a defined contribution to their employees and let them go buy individual health insurance subsidized by their employer. We think that’s the right role for the employer. They can be a subsidy. They shouldn’t be a decision-maker. There are more than enough choices out there. If you look at the current CMS map today, you’re going to see every county in the United States has at least two options now for individual health insurance, and the major metro areas and their close suburbs have four or more, and oftentimes, five-plus choices of carriers and hundreds of plan types. It’s just a better option for consumers, and I think we are aggressively head down that path. Now that there’s plenty of choices, plenty of subsidy dollars available from the government, it seems like a very stable ACA marketplace. It seems like too good an idea for the market to not adopt it.

Alejandro: What you guys are doing is remarkable because not only are you dealing with the uncertainty of building a startup or building something from nothing, but then, also, you are navigating the regulatory landscape because it’s a heavily-regulated space. How do you go about that?

Sal Gentile: I have a great team of people who do that, and that’s exactly right. When we go to market, it’s a year and a half to two years of building a network. We’ll call that the very tip of the spear. And right behind it is the entire process of filing for a license, working with the local regulators, getting approval, working with the federal government to become a qualified health plan in that market, and then working with the regulators, whether it’s on capital planning for our business or market conduct and all of the other activities. Then when asked, we work with those regulators very closely along with all the other health plans in that community to try and advance the goal of more choices and better outcomes for the constituents in those states. So it’s a very symbiotic relationship, and it’s very heavily regulated, but it works really well in the case of the ACA.

Alejandro: In your case, I find your trajectory very interesting because once you left IMB, you were joining those companies, not the entrepreneurial way, but more the intrapreneurial way where you were joining without that much risk, but still with risk. Was it always the plan to eventually become an entrepreneur and do it on your own, or did it just happen with Friday?

Sal Gentile: It was always aspirational. I’m a fairly conservative person. I have three children. My wife was in a position to stay home and raise them, starting with when the third was born in the early 2000s. So I always took measured risks. Leaving IMB to join a startup software company was a measured risk based on the success of that business. It afforded us the opportunity to take some more risks and land ultimately at TriZeeto put me in a position to succeed again. By that point, I was in a position to take the kind of risk that Friday required.

Alejandro: Got it. In that sense, as we’re looking back, imagine that I’m able to put you into a time machine, and I’m able to bring you back in time to that moment where you were talking to your partner, David, and thinking about what would this company be and what would you guys do to bring it to life? If you had that opportunity to speak with the two of your younger selves and give them one piece of advice before launching the business, what would that be and why, given what you know now?

Sal Gentile: Bootstrapping a health plan is a terrible idea, and you need to raise more capital sooner. Maybe by the grace of God, we find ourselves here and a whole lot of hard work by a bunch of really great people that we learned from along the way. But it’s not for the faint of heart, and I wouldn’t do it that way again. I would have found more capital partners before we launched.

Alejandro: To that point, just to expand a little bit more, how has your perception around fundraising changed because I’m sure that you were bootstrapping there either because you didn’t want to deal with more partners or because you wanted to keep the equity. But how has your perception changed?

Sal Gentile: Frankly, it was neither of those two. I am always attuned to dilution for the team’s sake, but the reality was, we just couldn’t find an institutional partner. You’ve got to think about it. The headwinds going into 2016, you had Donald Trump running for president wanting to effectively eliminate the ACA, and that was the market we were trying to run into. The guys who had a thesis around that had already invested in Bright and Oscar, and they were quickly pivoting away to Medicare Advantage and others seeing their own businesses possibly being at risk. No one was making money in the ACA. The co-ops were all going under as massive failures. So we picked the wrong time to raise institutional capital. Yet, we were still with a significant amount of conviction. So we thought we could do it ourselves. We thought we could get a single-state license with the capital we did acquire that turned out, as you know, to be a flawed assumption and forced us, thankfully, into business by buying a company, which turned out to be a great company and brought us tremendous assets, including our COO and a bunch of great team players that have gotten us to where we are.

Alejandro: Amazing. Sal, for the people that are listening and watching, what is the best way for them to reach out and say hi?

Sal Gentile: sal.gentile@fridayhealthplans.com. I’m happy to interact. Come visit our website FridayHealthPlans.com. We’d love to hear from you.

Alejandro: Amazing. Sal, thank you so much for being on the DealMakers show today.

Sal Gentile: You bet. Thank you for having me, Alejandro. You have a great show.

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