Why Flossbar/Medbar Failed & What We Learned Along the Way.

by Eva Allan

Ninety-nine percent of start-ups fail silently, withering away and dying with a quiet whimper. Not Flossbar. Flossbar is an exciting story of growth, success, innovation, characters, risks, drama, sorrow, lessons, surprises, missteps, minefields, champions, and friends. During its five-year run, Flossbar served over 300,000 patients, expanded to 20 states, raised $10M, and created jobs for hundreds of clinicians. Then, we hit a brick wall.

The Flossbar story is worthy to be the next dynamic and educational Netflix business drama — so why did the business fail?

Here is the short of it:

1. Our north star was bright.
2. We had a great idea, a passionate team, and early success.
3. We ran into some painful people-issues, but we learned and rebounded.
4. When the pandemic crushed our core business, we temporarily pivoted to Covid Testing — and skyrocketed.
5. As the pandemic waned, we began diversifying our product and technology.
6. It turned out that having been out-of-network for Covid Testing was a major risk.
7. Neither self-funding, nor cost-cutting, nor fundraising, nor a divesture could save it.

I am extremely thankful for the investors, employees, and advisors who gave it a chance and partnered with us to create this significant social impact on healthcare and the dental industry. For the rest of my life, wherever my career journey takes me, I will find a way to return the favor to those who supported me.

Throughout this process, I have become a much more mature, cautious, confident, focused, and self-aware leader.

My core learnings sum up to the following truisms:

1. Run a deliberate, focused, and independent company.
2. Let no one come between you, your shareholders and your board.
3. Your people are your biggest asset, but also your biggest liability.
4. Drill down into every number or have someone independent do it for you.
5. Set the professional standards for external parties.
6. Six-Sigma style management starts with the revenue generating departments.
7. How you seem to others and how you think you seem could be vastly different.

Some of the main lessons I learned are in this post, and others you can read here ‘75 Non-Cliché Lessons I Learned as an Entrepreneur’

And now for the story itself.

Our north star was bright.

It all started with a mission to solve an overlooked problem. The U.S. oral health crisis is referred to as a “silent pandemic.” Over 46% of U.S adults have gum disease, which studies show doubles their risk of heart disease, stroke, diabetes, and other degenerative health issues. Our gums did not evolve to be constantly surrounded by sugar and acid, so prevention is a necessary uphill battle. Despite ample oral hygiene advice, people avoid the dentist due to three main reasons: fear, time, and price.

I was inspired by this problem for two reasons:

1. It was a little-known and impactful scientific fact. I never learned about dental disease as a pre-med, nor was it ever mentioned at my family dinner table of doctors and nurses. Solving a huge health issue lurking in the shadows energized me.

2. I found my dental experiences to date to be inconvenient. I wanted the same level of consumer ease I experienced in other millennial and tech-forward services.

Our mission was to remove these barriers to care by creating a seamless digital-to-physical experience, making preventative dental care convenient, affordable, and fun.

To achieve this mission, I left my hedge fund career path and my Wharton MBA to be an entrepreneur at age 26.

We had a great idea, a passionate team, and early success.

Our implementation was as follows:

Since most Americans spend their days at work, we partnered with employers to bring dental services to the workplace and embed them into their company culture. We leveraged the gig economy by working with hygienists across the U.S. to provide pop-up preventative care under the supervision of dentists (in a virtual setting when permitted by state law). Dentists would then continue treatment at the pop-ups or route patients with advanced dental needs to nearby dental offices. This unbundled approach was less capital intensive, more approachable for patients, and, as a B2B service, had significantly lower patient marketing spend.

Within two years, we raised a Seed Round and a Series A, served several Fortune 500 companies, and achieved a Net Promoter Score of 95/100. We were on national news and numerous business shows, and became one of the best-known mobile dentistry companies in the U.S.

Flossbar Series A Pitch Deck HERE

We ran into some painful people-issues, but we learned and rebounded.

When compared with the Ivory Tower and even often raucous Wall Street, the start-up industry is the Wild Wild West. While I grew up in Brooklyn, my professional and educational experiences at places like Harvard, Wharton and Bridgewater had me expect a certain level of ethics and reflectiveness in those I interacted with. I was not versed in sorting through the signs of bad apples; I only saw the good in others and I viewed warning signs as an opportunity for coaching rather than a mismatch in values or incentivizes. Thankfully, my dedicated colleagues and advisors stood by my side and either coached me through it or flat-out fixed things.

Many of our greatest challenges early on were people-related. I gloss over names and extra details as no one enjoys by having fresh, unprovoked battles years later. I mention these situations as they are core to my learnings and why there was a crater in our growth chart.

One situation was especially treacherous. An investor, aided by a consulting firm run by one of our advisors on the side, required us to acquire a larger, less innovative competitor in exchange for capital at a high valuation. I took the bait of ‘inorganic growth,’ thinking it was creative, and did not fully consider how bad the worst-case scenario could be.

Nothing less than a spectacular mess unfolded. Shortly after the deal was done, the books turned out to be inaccurate, our cultures clashed, clients were confused, a hostile takeover attempt ensued, employees took sides, and we landed in a nasty lawsuit.

Mounting a hostile takeover defense strategy every day is all encompassing — devouring time and money while acting as a significant distraction from the core business. It’s bunker-style warfare.

Through months of hard work, thousands of pages of evidence, and the sheer fortitude of a team, we mounted a healthy defense and used gold old-fashioned relationship repair to swing votes. The courts dismissed all charges with prejudice, we took back control, the company’s founder left the country, albeit absconding with a hefty loan, never repaid. In sum, this debacle cost us most of the money we raised in attorney’s fees and the opportunity to truly scale and expand our operations while keeping a financial reserve.

While we aimed for significantly higher growth, we still doubled the size and scale of our clinical operations through this time. Once it was all over, we all breathed a sigh of relief grew faster. New opportunities arose when many major insurance carrier partners were courting us to serve their national clients. We also began negotiating a new orthodontic program with a national partner which could double our margins.

Life was good and the future was bright.

When the pandemic crushed our core business, we temporarily pivoted to Covid-19 testing — and skyrocketed.

When the Covid-19 pandemic hit, preventative dentistry, our bread and butter, was shut down for nearly a year. Rather than see the pandemic as the end, we saw it as a fresh challenge and an opportunity to create impact.

After a hard six-week span burning the midnight oil, we leveraged our existing client relationships, tech infrastructure, legal team, personnel, and core competencies to pivot into launching Medbar, a subsidiary. This was a pop-up preventative medicine company, and we launched our first product line providing Covid-19 testing for employers at their workplace and for patients at their local pharmacies. We obtained a CLIA laboratory license, developed strategic supplier relationships, built a network of physicians, and retrained our clinical teams from dental operations to swabbing nasal cavities.

We helped clients when they needed it most. I was most proud of the work we did in the food services industry. When national papers discussed potential shortages as key manufacturers shutdown factories due to outbreaks, Medbar was able to step in and set up robust testing programs to enable clients to keep their employees safe, their factories open, and the nation fed. Through our corporate contracts, pharmacy partnerships, and government drive-throughs, we tested hundreds of thousands of Americans.

By connecting the dots on client needs and trends, we designed a highly innovative product: an app combined with a virtually-manned Covid testing kiosk, which enabled employees to self-test under virtual supervision and allow employers to seamlessly comply with OSHA reporting and proctoring requirements. It kept employees safe without the high labor costs required of in-person testing programs. When we began the initiative of creating this system, we had no one with hardware expertise on the team, so we made the first prototype out of cardboard from the dollar store and a glue gun — rapid prototyping at its finest. We ran the 3D renderings by some clients, and they loved the idea, so we hired engineers and built the next versions in a proper workshop in the Brooklyn Navy Yard, launching in the fall of 2021.

Our end-to-end offering, the Covid 360 Program, was the most robust and affordable pandemic management solution for employers on the market.

As the pandemic waned, we diversified our product and technology.

We were under no illusion that Covid would last forever. The Covid business line was a temporary (and necessary) strategy allowing business continuity during the pandemic. It had the added benefit of generating new clients for post-pandemic services, since we delivered for clients at a time when others could not. By mid-2021, we were already diversifying our solution portfolio and gearing up for the re-opening of our dental offering.

For many of our clients, Covid was their first foray into providing medical services at the workplace. Most had no formal wellness programs and worried about employee healthcare regularly, from the perspective of cost, retention and culture. They knew us as a company that created unique solutions quickly and executed them well, so they asked for more.

Just like for Covid testing, our core infrastructure flexed beyond a single vertical and we began facilitating physical exams, blood draws, vision screenings, hearing screening, and drug testing. We did this by designing some very promising software systems to combine multiple FDA-approved medtech devices into a single appointment. For example, our ‘dental and vision in a single appointment’ service (enabling dental hygienists with teleoptometry devices) became our second-best seller after Covid testing. Our newfound experience in hardware helped us innovate around clinical labor shortages and compete at a lower cost without sacrificing clinical integrity.

We were poised to become the most comprehensive, tech-enabled corporate wellness program available and change the face of employee engagement in preventative health. We had a unique product set, growing margins, and high client demand.

Our one-time Covid revenue windfall was the funding source we needed to double down on this new direction for our company.

It turned out that having been out-of-network for Covid testing was a major risk.

Unsurprisingly, the trouble began with American politics.

In a 6–3 decision issued January 13, 2022, the United States Supreme Court ruled against OSHA’s requirements for COVID-19 vaccination/testing by large employers. We had in excess of $30M in contingent contracts riding on their decision and the outcome negatively impacted our business instantly. Since corporations were no longer required to provide for Covid testing, most did not. Simultaneously, rising rates of vaccination and the reduction in testing required for travel directly reduced demand for Covid-19 testing at our pharmacy partners.

While this news came sooner than expected, we had a high number of accounts receivable assets which would soon turn into cash and we had already been diversifying our offerings.

However, it turned out that having been out-of-network for Covid testing was a major risk and, to compound that, we had chosen the wrong medical billing vendor. The majority of the cash flow we needed for growth and vendor payments became tied up in insurance claims.

At the onset of the pandemic and continuing to this day, most health insurers did not allow newly created laboratories to enter their networks, forcing these labs to remain out-of-network.

Operating out-of-network means that you have no specific contract with the health plan. You can still bill the insurance carrier for the patient’s services, but they will pay you an ambiguous value they find reasonable — sometimes your full fee, sometimes a percentage of it — and it will take a little longer. There are over 900 health insurance companies in the U.S., all with different rules and various sub-plans to consider. For any underpayments or claim denials, part of your responsibility as an out-of-network provider is to follow up with patients for amounts due, as failing to do so is considered insurance billing fraud under the False Claims Act, pandemic or no pandemic.

Unable to get in-network and guarantee a steady cash-flow from insurance billing, as well as shield patients from receiving bills, we turned to the CARES Act for guidance. The CARES Act provisions had specific out-of-network coverage requirements for insurance carriers for both Covid tests and Covid-related medical services. So, we justifiably relied on these provisions, and we also made sure to pad what we thought would be a couple edge cases by having the right financial consent language, blatantly and in large print.

However, the CARES Act did not hold insurance companies accountable to making the process simple, especially not for the complexity of a nationwide mobile laboratory that was out-of-network (multi-state, multi-provider, multi-facility, multi-method). Insurance companies were suffering from a huge influx of claims that were hurting their profits, so it made sense for them to also guard their payouts in every way possible — and they did.

Like those of many out-of-network providers, our claims, and those of our physician partners were materially underpaid, disregarded, or denied. Checks were sent to patients, checks were sent to providers, or were sent to one of 300+ corporate client locations versus our headquarters mailing address. Claims were denied based on asymptomatic testing or frequency (often with other providers of which we were unaware). Claims were underpaid as compared to statutory requirements. The list of insurance company abuses of out-of-network providers is well known and we suffered from all of them. The edge case became the norm.

CityMD had been in the same situation as us, in terms of insurance payment timelines, but, as a larger company, it was able to weather the storm. Most companies which ended up succeeding in the collection of revenue were already in-network, or partnered with a lab already in-network and just ran mobile operations, or had the funds to fight or negotiate exceptions, or only allowed cash-paying patients, or only performed government contracts, or had a traditional model of a single location or two and a single doctor. One can argue that Medbar should have simply partnered with an in-network lab versus creating a new one, but hindsight is always 20/20.

Like almost all health-tech companies, we used outsourced medical billing operations. We chose a large and reputable medical billing vendor recommended by our then CTO, based on their client book and compatibility with our current and future tech stack. However, over time, it became apparent that the company had significantly underperformed. The issues included missing timely-filing windows, remittances sent to old addresses and not followed up on appropriately, non-responsiveness to carrier or client inquiries that slowed or stopped the pace of collections, and material errors in appeals of denied claims.

This called into question our entire financial dashboard and plan. The finance team’s primary focus became ‘figure out what’s real.’ Our first major write-downs were based on issues that were not caused by the insurance carrier, but rather the vendor. The inability to collect large parts of our AR impacted our pharmacy partners, many of which were small businesses, as they could not get paid until we collected.

Due to myriad conflicting governmental guidelines, including constant repetitions that Covid testing was free, when we finally relented and began to bill patients, we encountered that our patient population was, naturally, highly resistant to being billed the balance. We did not have the funds to fight it all and we sorely needed the revenue to help pay our creditors.

Seeing people who were less insurance-literate and thought their tests were free discover they owed hundreds of dollars broke my heart. The best we could do at that point was implement a financial hardship policy based on Medicare guidelines for those with demonstrable financial hardship.

At the end of the day, those who we tried to help were also hurt by the insurance debacle, as was the brand. Compounding the issue, our medical billing vendor sent an erroneous letter to patients, which didn’t include certain payments made by patients, had the wrong payment values, and a non-working phone number to call. This caused numerous 1-star reviews to tank our Google reputation, the final nail in the public relations coffin.

The irony in all of this is that I started a company to ensure a seamless patient experience, financial and otherwise, and then we became part of the problem. I was devastated and the team was embarrassed.

The damage was done, and vendors for Covid tests, staffing services, and other items were chomping at the bit for payment.

Neither self-funding, nor cost-cutting, nor fundraising, nor a divesture could save it.

Behind the scenes, our sales pipelines for contracts with mid-2022 start dates were actually quite healthy. Based on this growing evidence of our business model’s viability post-Covid, I began fundraising to fill our working capital gap. I saw hope despite our current inability to fund our working capital needs, so, like many founders before me, I put in my own funds to save company payroll and went into personal debt in an effort to keep the ship afloat.

See Medbar’s Post-Covid Pitch Deck: HERE

I had over a hundred VC and debt fund conversations. We had an unlikely investment profile, given our accounts receivable issue. Investors also wanted to see us start and run more non-Covid accounts, not just sign them. If only we could survive the time gap.

I laid off 80% of my staff, cut all contracts with long payment lead times, and shrank our footprint in an effort to manage cash flow, but to no avail. Our dream of pivoting out of the pandemic to be one of the best tech-enabled mobile health companies was no longer feasible.

So, I tried another idea. What do big companies do when one part of their business is weighing down another? A divestiture.

Divestitures are extremely rare for start-ups, but the logic made sense. Our company had a product portfolio that was a blend of services and technology. The services were mature, albeit encumbered, but the technology was nascent and had high potential. We could spin-out the technology into a new entity and raise a seed round for it or we could start a new entity to buy-out some of the intellectual property at fair market value, helping creditors. Either way, the tech program would live, and the shareholders would have some upside versus no upside. The new company, which we named Marble, would have the benefit of no debt, albeit the downside of having no revenue directly attributed to it.

I talked to two to three hundred VCs to try and raise money for this new venture, but no go. The Ukrainian war had started, and markets became significantly more conservative. The new entity had no revenue yet and needed capital to complete its product. Investors were excited by the concept and we had substantial follow-on interest, but, ultimately, we were unable to find a lead for the round.

Marble Seed Round Deck Here: HERE

The end.

In December 2022, we filed for reorganization and began selling our assets.

The healthcare system is broken and there is still so much work to do to overhaul its patient experience, provider experience, technology, financial structure, incentives, products, and capabilities. It will take a lifetime of hard work and smart solutions for me and for others.

Few have as much fire in their bellies as a first-time founder whose business did not achieve its full potential. I look forward to making an ever larger (and more financially successful) impact in the next chapter for those I love and respect.

Eva Allan