In this episode, we chat with Eric Kinariwala, the CEO and Founder of Capsule, a healthcare technology company that is forever changing the way we interact with pharmacies.  It was actually Eric’s terrible experience at a pharmacy one day that led to the idea behind Capsule.

And in just a few years since its founding in 2016, the company has made great strides towards becoming a pharmacy that works for everyone.  Eric has raised $270 million to date from notable backers including TCV, Thrive Capital and Glade Brook Capital Partners.

We cover a lot of ground in our conversation from Eric’s childhood observing his mother’s impact as an entrepreneur to his keen insights into the three waves of ecommerce.

(Hear the full conversation with Eric on iTunes or Listen Notes.)

RJ: Eric, thanks so much for taking the time to speak with us today and congratulations on the recent media and awards you’ve been winning.  To start, you have a really impressive investing background having worked at such notable firms as Bain Capital and Perry Capital earlier in your career.  What drew you to becoming an entrepreneur?

Eric: Thanks for having me, it’s super exciting to be able to tell the story to your audience.  I spent the early part of my career as an investor, I spent time at Bain Capital up in Boston and time at Perry Capital both in New York and London.  And the common thread through those experiences that I was investing in retail companies and healthcare companies and technology businesses, which didn’t make a lot of sense when I was 25.  And looking backwards now at the intersection of what Capsule is doing, that set of experiences makes perfect sense.  Our business today is the intersection of a technology platform, an engaging consumer brand and obviously the middle of the healthcare system through pharmacy.  And I think what I’ve learned was in hindsight around being an entrepreneur; I think some of that had always been sort of in my blood, my mom is an entrepreneur herself and she’s had her own business since I was a little kid.  And so I think part of that was just growing up and having seen my mom go through the ups and downs of owning her own business and then seeing the rewards of doing that but also how difficult it is.

But in hindsight I think the biggest thing for me has been this idea that I think to be really effective as an entrepreneur you have to jump off the ledge so to say to leave what could be a stable career and a stable path and a nice upward trajectory in whatever traditional job you have.  I think your head and your heart have to really align to be able to have the confidence and the conviction to be able to be an entrepreneur and to start your own business.  And so for me, for me the head part was really having spent time as an investor and really understanding the market dynamics of retailers, of consumer brands and of where technology was changing the way consumers were interacting with all categories of things.  And some of the big structural shifts in healthcare around value based care and understanding this industry and the market dynamics around it.  And that’s the head part – is this a good idea, can this make sense, can it be a sustainable business?

And then I think that has to be paired with the heart part which is, do I viscerally understand the pain point?  Do I viscerally understand the consumer?  Is this a problem that I can get up out of bed every day and be really excited about solving?  When things get really hard, when things are different than what I thought they would be, is there a seminal moment you can go back, that’s very personal to you that you can always ground yourself in to understand the problems you’ve solving.  And that can be your reserve of motivation and energy.  And so for me, the first part was my experience as an investor and investing behind these structural systems, healthcare and new structural shifts around ecommerce and the internet and mobile.

And the second was really I had this terrible experience with a drugstore in 2015 where everything you could think about going wrong went wrong.  And I ended up waiting in the line for an hour, I couldn’t actually find the pharmacy because it was in the basement and there were 60 people in the line ahead of me.  The pharmacy was out of stock, there’s this whole series of misadventures, and so I just sort of every time viscerally understand where the pharmacy can break down for the 70% of American adults who go to the pharmacy at least once a month.

And I think those two things crystallized for me in that very personal moment of having this terrible drugstore experience.  And the head part being understanding the size of the market, it’s the second largest category of retail in America, it’s $350 billion and it’s only 1.5% online and aggressively moving online, a unique experience for the consumer.  And generally the drugstore hasn’t changed in 50 or 100 years, in all aspects of our life people are demanding frictionless emotional engagement, mobile first experiences.  And then the heart part being me first experiencing this and then very quickly over time seeing my parents, seeing my friends’ parents and my friends and physicians really struggle with the way the pharmacy is set up today.

You touched on a lot of interesting points there and sometimes personal experiences early on in life help drive the actions you take later on.  But you had mentioned that your mother was an entrepreneur, and you got to see what she was doing, probably through the eyes of a young kid growing up.  We’d love to hear a little bit more about that because that’s something we’ve seen before where you get to witness what it’s like to build a business.  What was it that you really appreciated and honed in on and why you wanted to also undertake that kind of path?

One of the most inspiring things about being an entrepreneur is that your work, every day you get to feel the tangible impact you make on your customers or your constituents.  And your work directly impacts someone’s life, and having that fully tight feedback loop between the things you’re doing and the result and the outcomes you see.  Or the results and the outcomes you don’t see when you don’t do it right, is really rewarding; it can be stressful as well.

But I think there’s nothing more satisfying than being able to see a customer delighted through the service or the product or the actions you’ve taken.  And I think being able to be in control of doing that every single day and to bring something new in the world, whether that’s something really small about how you might help someone plan for their retirement which is one of the things that my mom as an entrepreneur did, or if it’s something on a bigger scale.  I think there’s something very, very rewarding about, so to say, living and dying by your own actions and having an accountability and responsibility for the things you do day in and day out.

Thinking again about your background as an investor, clearly you developed deep analytical skills.  When you were thinking about this problem it sounds like it was probably a combination of factors, you had your experience at that particular drugstore, plus you probably took a step back and said, “Wow, this is a massive market, this is the second biggest retail market.”  Was it a combination of those two or was it, at that point you were already starting to think through like which are the markets that could be disrupted and could be disrupted in a very significant way, where it could be a potentially winner take all?

I think the origin for me was really around this personal experience that catalyzed me to start … a first principle is just fundamentally asking why questions, , almost what a five year old would ask.  And these simple questions like what is a pharmacy?  How does it work?  Why are there so many?  Why does the same place sell blood pressure medication and floor cleaning supplies and cigarettes and how did this evolve and why did these things come together and why is there one on every street corner in America?  And you think of those foundational questions and that curiosity to unpack my own terrible experience is really the foundation of Capsule.  And I think it’s usually the foundation of every great business is the why doesn’t this exist or how could this be better or why hasn’t anybody done it this way.  I really do think both things have to be aligned.  I think it’s very, very difficult to persist over time with the ups and the downs of the entrepreneurial journey if the core of your business idea is based on screening for startup ideas.  I think it’s a really tough way to develop the conviction that is required when your first idea and your second idea and your third hypothesis don’t go exactly the way that you might have thought they would.

And when you’re thinking through…should I start such a business, maybe the average person would say, “Well, there’s these behemoths in the market, what if CVS or Rite Aid just decide to undertake this, bring in a small team of technologists and developers and have them build out this functionality.”  And then they can quickly move from brick and mortar to delivery and we’re probably starting to see that happen today.  Or an existing ecommerce company moves into pharmacy as a segment which is what we’re seeing with Amazon.  But at the time when you were thinking through “should I start this”, I guess there’s probably a little bit of gut that says, no, we can build this so that we’ll be very competitive against the incumbents in either the traditional or the ecommerce side.  Would love to hear your thought process at that point in time.

I think one of the things that I’ve kept in mind over the last five years is this pretty simple phrase which is win by winning.  When you’re in the early days of thinking about starting a company and having that life gut check, like is this something I want to spend the next 10 to 15 years of my life doing, is this a problem that I can get obsessed with?  Is this a consumer that I can get passionate about serving every single day?  There’s a million reasons to go with your idea and there’s a million reasons to say no.  And in some fundamental way there is only one reason to go forward which is just to go forward.  And I think about that every day, I think about this idea, there’s a lot of noise always in every market and every industry and for every company and for every leader.  And the only way to really win is just to win, and it sounds reductive, but in some ways we’ve found it to be really true as we’ve built the business over the last five years.  And so I think any good business venture that you have should attract competition because it means that you’ve hit on something that is valuable and attractive.

What we’re doing at Capsule is really completely different from what anybody else in the healthcare space or the pharmacy is doing.  Our mission has always been to build a pharmacy that works for everyone.  And what that means is to build a pharmacy that works for every stakeholder and healthcare, for every consumer, for every doctor, for every health insurance company, for every hospital and for every drug company.

And what we have learned and what I learned in the early days of doing the customer development work for the business was that I had repeat conversations with consumers, with physicians, with executives, and insurance companies and drug companies and hospitals.  And what they all echoed for me, in really some different forms, but ultimately the common thread was that the way the pharmacy is set up today isn’t working for me, and the people that I need to serve.  And so whether you’re a consumer and you’re faced with persistent out of stocks and lack of price transparency and the inability to get expert advice when and how you want it in a private way.  Whether you’re a doctor who along with your staff, you’re spending 20-25% of your time dealing with administrative issues with the pharmacy instead of spending what previous little time you already have engaging with your patients and helping them live better healthier lives.  Whether you’re an insurance company who’s responsible for the cost of paying for medications, but you don’t have a way to engage that consumer, understand the feedback loops around, if these drugs working, are these drugs not working, are people taking them?  How do I make it easier for people on an ongoing basis to manage their medication to keep them healthier and out of the hospital?  Whether you’re a drug company and you don’t have the ability to educate people about how your novel therapeutics work with any sort of meaningful channel.

All of those problems are in some way from the same thread which is that no one has figured out how to build a pharmacy that engages the consumer and to harness the natural consumer engagement that exists in the pharmacy.  And that is something fundamentally unique that Capsule has built from scratch, from the ground up.  And what’s led us to do that is three things.  One is that we’ve built a completely proprietary software stack, that powers our experience.  And that has been a really key differentiator in delivering what is the only true end-to-end modern mobile first ecommerce experience in pharmacy.  And nobody else has that where you can end-to-end transact and manage your medications from your phone.  And the third is that we’ve built a brand, and for us a brand is a proxy for trust, and healthcare is so high trust, and specifically the pharmacy, it’s something you put in your body and your kids’ body.  And so it has to be high trust and people have to be able to connect with it emotionally so that they’re able to accept your suggestions around how to navigate the complexity of the healthcare system.  And I think those things require a fundamentally different way of operating and building a business than has been done in the past.

We talk about there being three waves of ecommerce over the last 20 to 25 years.  The first wave with ecommerce was in the mid to late 90s, and that was sort of when Amazon emerged and then you had things like toys.com and even Wayfair and you basically had this incredible proliferation of things on the internet.  For the first time ever you could buy something from your home and it would come to you in seven days and you didn’t have to interact with a human.  And over the next 10 years we saw that get very, very saturated with a very long tail of websites where you could buy literally anything, lampshades.com and coffeemugs.com.  And as that happened you saw this second wave of ecommerce startups and companies come where they said, “Hey, let’s harness the power of the internet to connect directly with consumers to engage with our brand.”  So let’s still eliminates the need to engage with a human and that’s companies like Warby Parker and Casper and Away and Harry’s, which has done incredible jobs of building new big categories in stodgy old industries, , harnessing the power of the internet to build new brands.

When you look at what’s left now and what I like to call the third wave of commerce, there are three big categories left that haven’t really transitioned online; they’re financial services, real estate and healthcare.  And the thread through all three of those is that their complex interactions, they’re very high trust, high ticket interactions, they’re regulated.  And that fundamentally the human is a core part of the experience, and so you can’t use the internet to dis-intermediate the human, what you need is a new type of operating model, a new type of software technology that enables you to blend the best of what humans are great at and the best of what technology is great at.  And that’s the third wave of commerce, and Capsule is pioneering that in healthcare and really across all three of those categories.  And so I always like to say you want an algorithm to figure out if you have diabetes, but you want a human to tell you, and I think that is sort of how we’ve approached building Capsule.  And I think it’s fundamentally different from being able to, , if you’re an incumbent conventional pharmacy tacking on delivery, to your store base.  The problem we’re solving isn’t around delivery, it’s around the incredible friction that exists for every stakeholder, and engaging with the pharmacy and that’s not about delivery and adding that to stores.  That’s about rethinking the way and the platforms that powers the fundamental pharmacy experience.

You’ve clearly thought very deeply about the macro and the micro with regards to the ecommerce industry – the three waves for the macro and then for the micro, digging deep into the issues of the way the pharmacy runs today.  You must be hitting on some metrics and targets because your pace of raising capital in each of the last three years has been very impressive.  Can you share with us the things you pay attention to, those key indicators that give you, increasingly over time, both you and your investors conviction that you’re truly on the right path?

The key indicators we look at are pretty simple, there’s two or three of them.  And first is we look at the total number of people that are using Capsule, and we track how is our messaging, how is our product resonating in the market.  The second thing we look at is consumer engagement and we measure that through retention.  So do people love using Capsule, do they keep coming back month after month after month?  Then the third thing we look at is customer love, not only are people using it month after month but are they delighted to use it, are they raving about it, are they telling their friends, are they telling their doctors about it, are they becoming evangelists for something as boring as a pharmacy.  And I think the third thing is the thing that I’m most proud of about what we’ve built over the past five years.

When you go in and look at the reviews that people are leaving about the business, the way people are talking about something as prosaic as the pharmacy, it’s something really special.  And I think the combination of the consumer experience that we’ve built, the technology platform that we’ve built that powers that and the brand we’ve built is creating this emotional resonance with the consumers, striking a nerve.  And what we’ve done is we’ve put the power of controlling your healthcare and your pharmacy experience back in your hands.  So at a time when you’re vulnerable because you’re feeling ill, because you’re frustrated, because you’re busy, because there’s so much friction in getting and managing your medication, having somebody who’s got your back, who’s on your team, who’s looking out for you, has really resonated and struck a chord with the people who have used Capsule.

Many entrepreneurs could only dream of having the type of traction that you’re having.  And execution is everything once have the idea and the strategy behind it laid out.  Are there any tools or frameworks you use to help you execute day in, day out?

One of the frameworks that we use pretty consistently internally is around the idea that success comes from alignment.  And so over time we’ve really reinforced this idea that for fast and right execution to happen you need the organization to be aligned at all levels.  And it’s something that I learned through a professor at business school; he was a very successful entrepreneur through his career.  And it’s a pretty simple framework but everything starts at the top and everything starts at the values of the organization, and it ladders down from values to objectives to strategy, tactics and the metrics that you measure.  And all five of those things need to be in complete alignment so that folks have the context, the sheer cautiousness and the runway to be able to execute on their own and teams feel empowered and that everyone is reading, so to say, from the same sheet of music.

And I found that to be the number one challenge and the number one opportunity as we’ve scaled the business pretty aggressively over time.  It’s really making sure that there’s clarity around what are the values of the business, what are the things that we believe in, how do those translate into how we work?  What are accepted behaviors and what are not accepted behaviors?  What does good look like, what does not good look like?  And then how does that translate into what are the objectives, what is winning, what are we trying to do?  And then how does that ladder down into the strategy, what are the things we’re going to do to accomplish our objectives, what are we going to do to win?

And then there’s the tactics, okay, we know what winning is, and we know what good looks like and we know what the plans are, what are the specific initiatives that we’re executing on to execute on that strategy that’s going to help us win.  And then the last thing is the feedback loop around the metrics, what are the things that we’re tracking to know whether our initiatives are working or not.  I think when those things can ladder up in tight alignment, you can then execute very, very successfully.  So I think as a company and as a leadership team we’ve done a really, really powerful job of reinforcing alignment through all parts of our very diverse organization.

What do you think is the most valuable skill an entrepreneur could have?

I think it’s grit, grit and perseverance, when you’re starting out, everyone is going to tell you no, and I think over the lifecycle of starting and building a business the odds are…Mike Moore has this quote where starting a company is the hardest act in business.  And by all accounts, starting a business from scratch in virtually any industry should fail, you have no resources, you are surrounded by massive companies that are resource rich, that are incumbent rich, that are knowledge rich, that are relationship rich, that are market position rich.  And you have none of those advantages as a young company, and so I think understanding what the advantages you have are and those are primarily speed and grit, it’s the ability to move fast, it’s the ability to think about things from a different perspective and it’s the ability to continuously knock down the hurdles that come in your way and to just persist when it seems like you’re not going to be able to make that critical hire, or it seems like you’re not going to be able to raise that round of funding, when it seems like you’re not going to be able to convince that customer to close your first deal.  What gives you the motivation to fall down seven, stand up eight, and I think that’s the most powerful thing.

And last question, what do you hope to accomplish through Capsule?

Our mission is to build a pharmacy that works for everyone and the vision of the business is to give consumers the peace of mind that comes from having somebody looking after their health.  And so we are always very, very focused how we enable people to live their best lives, because we’re helping them do that by removing the friction, first in pharmacy and over time with other parts of healthcare.  And so I hope to build a pharmacy that connects all of the different stakeholders in healthcare and help consumers live healthier and better lives and remove the mental burden of the frustration that comes from engaging with the pharmacy day in, day out, month in, month out.

Well, Eric, that’s a good note to end on – understanding the vision of Capsule and the good that you’re doing within the healthcare industry.  Thanks so much for your time and congrats on all the success to date.

This was fun, thanks for having me, RJ.