Eren Bali Explains How He Founded Two $2B+ Companies

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All right, guys, what's up? This is Justin Kan. You're listening to The Quest. And today my guest is Eren Bali, who's the co-founder of Carbon Health. Which is a vertically integrated tech-enabled healthcare provider. He started in 2015, I think, which has today raised over $500 million and most recently valued at $3.3 billion. It's a lot. And previously, Aaron was the co-founder and chairman of Udemy, which is an online learning platform with over 50 million students learning from over 50,000 instructors and over 150,000 courses in 65 different languages. Just IPO'd last month, right? Congratulations.

Yes, exactly. I can't believe this day happened.

That's amazing. You've had an incredible run. I feel like anybody can start a unicorn company if they work hard enough, but once you start 2, that's when you know it's not luck. It's fated. Yeah.

I don't know. I still feel like I got lucky twice, but there's definitely learnings from the first time that you can really incorporate in the second company. I think The thing that's fun about your second company is that it's typically more authentic because you don't, you know, like what you are doing and you have more of like more opinions about how you want to do things. So, uh, it's been a fun, fun journey.

Oh man, I want to dive into that. I'll put a flag to dive into that later, but let's like start with just how you got there. Like, where did you grow up? Because you had like a non-traditional background for a Silicon Valley entrepreneur, right?

I definitely did. So I grew up in southeast part of Turkey in a kind of city called Malatya. I was born in a small village and it was right after the 1980 coup in Turkey, military coup. So that area was, we were under a lot of very strict like sanctions and definitely not the easiest place to grow up. And my parents are teachers and they're very idealistic. So they moved back to our village because There were literally no teachers in that whole surrounding area because all the teachers which were sent to work there and save the doctors, they would actually quit their jobs to avoid working in that area in that time frame. So she was the only teacher rotating between 5 different grades. So all the kids from different villages would come to our village.

Wow.

So my mom would just go teach first graders, second graders, third graders, and rotate between back to first graders. And she would maintain the school. And she would try to convince more people to send their kids to school. So it was a job which is like far beyond just like what you would consider as like being a teacher job. I grew up there, but I think one of the things I'm always inspired from is in that area where the opportunities are so limited, there are all those people, just not just me, like I think sometimes overly index on what I did from there to here, but a lot of people went ahead and became very successful in their lives. Like, I mean, my sisters became doc physicians and civil engineers. A lot of other people actually went to school did really well despite the really kind of limited resources because I think despite like a lot of economic challenges were there, but there was a lot of focus, emphasis in just improving your life through like learning and education. So I had this like long-term thinking that a lot of people are missing the opportunities, but they have the drive within themselves if they like, and those people like when they see it, even in the school where the teacher's only talking to you 20% of the time. So like imagine that type of school, even despite that being the reality, all those kids would like really walk 10 miles every day and not miss a single day of school.

Yeah. How did your mom instill that sense of desire and love of education in you and the other kids in the school?

Yeah, so I think she grew up at a time where people would straight up not send girls to school beyond the legally required like 5 years. So she had to run away from home and go to a boarding school to become a teacher. Eventually, after my grandfather accepted that she was going to go to school, so she had to really fight for it. Before her, there was nobody who had ever gone to college in my family, right? So, but she had personal drive herself. The area also was economically very challenged. Like the only income of that region was just apricot farming. There's no industry. There's really no other jobs you can take. And the money you can make from like agriculture was just going downhill very fast. For people, like there were no other options than just getting educated and taking a, like a job as a teacher or a nurse or a doctor. So they were, they were really the only option. So everybody had to get educated as the only option they have.

Gotcha. And you were like an early adopter of the internet, right? Your parents kind of brought you the internet early.

Yeah. So my personal story is like, I grew up in the village and I, sometimes people like kind of place me as a millennial, which here is defined as somebody who has grown up with internet. In my case, like I remember the first time we had television, like in our region. I remember the first time we had kind of telephones for the first time. I remember the first time we had like clean water in the houses. So I did not grow up with internet necessarily. in my kind of early childhood, but I was very interested in chess, uh, in kind of when I was younger. And then later I was really interested in mathematics, but there was really not much to do with those interests. And my older sister was going to college like in a year or so at that time. So as a family, we would actually, my parents were teachers, but my father had 8 younger siblings. His parents died very early. So outside the normal jobs, over summers, we would just go work in a farm altogether as a family. So we'd just go become like temporary, like labor workforce for somebody else who has maybe like large farms. So that was our summer job. So we just go there, work there as a family, and that would just bring some incremental additional income to supplement their teachers' salaries. And one of those years, I think, just surprisingly, they made more money than expected. So the produce from Africa was higher than anticipated. So they had, I would say, disposable income for the first time in their lives. And we just decided to buy a computer with the additional income they had that year. Computers back in Turkey at that time was super expensive. I remember it's used, like a 4-year-old used computer, like they go for $800. And the internet was like a couple hundred, like $100 per month. And their salaries as a teacher was maybe $200 or $300. So just a, it was essentially a really big spending, but they bought the computer mostly for like a small older sister and maybe me. And I just started finding all those like websites where they were posted, posting international math Olympiad questions. I found some IRC channels, like, so I started self-teaching myself. kind of more competitive level mathematics from online resources. And that really became my ticket to kind of do like what I'm doing right now is like I ended up winning gold medal in Turkey's National Math Olympiads, which was like really surprised because nobody from the kind of southeastern part of Turkey had really like been in the national team. And then later on I won a silver medal in International Math Olympiads. So But all those things were somewhat surprising because like I wasn't in one of the best schools, which was training everybody for like this more competitive mathematics. But to me, like the key thing here is no matter how much I work, this would be just not possible pre-internet. So I barely met internet at the time where at least like I could catch up a little bit, right? I could study myself. I could just find problems to work on and I could, there were even people. who are just answering my questions on IRC channels, right? So I think internet will never make the world equal, but it's definitely an amazing, extraordinary opportunity for people to catch up. Because the moment you see that, and if you did not have opportunities before, you just hold on to that so tightly that you're gonna get a lot more value from internet if you're actually in less resourced parts of the world.

It seems like it, that having access to the internet, like really changed your trajectory, changed your life in a pretty substantial way.

Exactly. I think it changed, like for me, getting into international math Olympiads is like, was big source of confidence. Also just gave me opportunities to like meet a lot of people and became like a part of my resume. I actually had the opportunity to come study in maybe United States, but even with all the grants, it'll be fairly expensive. So I kind of didn't want to take the chance that it is going to be very expensive. So I still studied computer science and mathematics in Turkey, but later on it just allowed me to like meet other very smart folks and it really was like a big critical milestone for my life, big critical milestone for my life.

And then how did you decide you wanted to start a company?

So when I first started college, I wasn't anticipating to be an entrepreneur. I actually like barely had any idea what this tech entrepreneur concept is. I was normally expected to study mathematics and become a math professor. That was the expected route for somebody who competed in international math Olympiads. But first year in the college, I was spending almost all my time in the college campus because I did not have any kind of personal computer that year. So I was just using the university labs computers. So just like work until morning in university labs and like listen to music there. It was also like, essentially we were practically using those personal computers. And when we had to go for an internship during summer, we wouldn't be able to listen to music because you had to now use company computers. So I had this idea to build a browser-based music player so that you can listen to music anywhere.

Yeah.

And that was 2001. So I used Flash 4, uh, if you kind of remember it.

Yeah.

So to build a Winamp clone in Flash in 2001, and we put some piracy videos, like songs to a computer club server. And all of a sudden we had like playlists and music, like playing ability, like in any computer we have internet access at that gym. So that was actually like very fun. And honestly, I think that was the mode where I realized I like building things. more than the more academic work. But I actually still, like, in 2001, had no idea that these things are startups and they can become big businesses. I thought even like when I first heard about Google, I thought it was somebody's like personal project. I thought it was somebody's website. It was, oh, a nice, like neat website. Didn't realize it was a company. I think in 2005 is when I realized like YouTube and Blogger, like And companies like that were like just creating platforms for other creators to create interesting things. So I had the idea to build an education platform where anybody could, could teach online. And initially it was a live education kind of focused platform, but the idea to take what YouTube and Blogger did and apply to education was very intriguing in 2000, I would say like '06 in Turkey.

It's a little bit informed by your own experience, it seemed like, learning so much online.

Exactly. I think like there's a very simple vision I had was that people would just learn everything online in the future. So, and if you just assume learning primarily happens online, then it does make sense to build a platform where more teachers can teach different skills. And that vision is not crazy anymore. So if somebody told you that they learned how to play Harmonica. So your first assumption would be that they learned it online, right? You wouldn't assume they, like, they bought a book or they went and took a class. You would assume it was an online learning. So it was as simple as if everybody's gonna learn everything online the way, same way I did it, we need better platforms to make that kind of, to make that work. Initially, I thought the platforms would be live platforms, but so we started a company in Turkey as a live education platform. That didn't work. It was too early. We were working ridiculous hours because we did, we had no funding, right? So we, the way we were funding our small startup is at nights I would start from 7 PM to 5 AM, work for a Silicon Valley startup with my co-founder, uh, like the whole night. And then we like just sleep in the office for a couple hours, wake up and our team members would come in and then we just would work with them to build Udemy. Uh, so the, the original Udemy, not the, the predecessor of Udemy, not the Udemy as a legal company, but so we had like 2 full-time jobs, one at night to kind of pay the bills and one during the day to build the company. So definitely really tough times because we were working super hard and also not, and we launched a product, but it was clear that it was not gonna work. So it was a, we burned a lot of brain cells and energy, just like really got exhausted. But the moment we launched, we realized like live education was not the right idea. And it was like wrong time, wrong place, wrong idea. So, so we just, we had to migrate to United States. Like that was, that was in 2007.

That's a big move. So how did you decide to go to Silicon Valley?

So as I kind of mentioned, the way I was, we were funding the company was we were at nights, like working for Silicon Valley companies, like in And luckily the Silicon Valley salaries were kind of good enough to fund the entire startup, uh, kind of in Turkey. When we realized like the original predecessor of Udemy in Turkey was, was not gonna become successful, I just essentially migrated to the United States and worked full-time at the, at the company, which I, I was working at NiceWork. So what really practically happened is I came to the United States, worked through the day for the company, and a couple years later at nights, I just like took Udemy back on. So Uh, so there was the first take at Udemy, which failed. I mean, we failed for a long time. It was like 2, 3 years of failures, right? So it was gonna be attempted multiple times and just kind of gave up. And in 2010, we decided to give it another shot. So that's when I kind of also met, uh, one of my, my, our third co-founder, Gagan Bhiyani, was in Silicon Valley. So he and I met with my co-founder, Oktay, and we kind of teamed up together again to give it another shot to do. Same idea, but we did it differently. So instead of live education, we kind of decided to do it more of an on-demand education platform. And also the times had changed. So I think like the, the time we lost helped because we were way too early in 2007, but we changed the product, changed the model a little bit, and we gave it another shot in 2010.

Amazing. And this time, I guess the time in the market was right and more people were online, like video was Kind of much more established at the time as like an online medium. And so how did you know it was working in this iteration?

Yeah. So I think I knew it was going to work in early 2011 because in 2010, we started the company. We really, by the way, like for a long time failed at raising money. So we tried to go raise money, got maybe like 30, 40 investors to all say this is a stupid idea. And nobody's gonna like spend their own money and own time on learning a skill unless there's a diploma attached to it. That was a very dominant kind of opinion. Even the smartest investors thought this way. So we went back, we launched the site without any funding, tried to raise money again, failed again. And I think we actually were about to give up like maybe 4 times. I think we had given up 3 times and took the project back on at that point. And We just decided it was not, just not gonna work. So we said, okay, like, I was gonna probably look for a new job. We were gonna go back to being engineers. So we were just getting really close to also just permanently giving up. Uh, I think just there was this one day where both Kideboa, who had met us for the 3rd time at that point, so like he had looked at us twice that he liked what we were doing and the product, but he just still wasn't sure about the business, he just, I think, said, you know what, like every time you guys come back, you come maybe so much more. I assume that you will eventually find an idea which makes sense. So he said yes, like to kind of first investment. And then the same day, I think Ross Radin independently said, you know what, like screw it, let's just do it. Let's, like, I want to be your first angel investor. So they both became the first angel investors, like almost like hours apart from each other. Then we were able to raise a full, like, $1 million round. And after the round, we were able to work full-time on it because my visa relied on my daytime job. So I couldn't, I wasn't able to go full-time. So that was the time where we were able to go full-time. And I would say 3, 4 months after that, we launched our first paid course, which was not even a real course. So nobody would teach on Udemy because like we had no students, like why would anybody spend time? Teaching on Udemy, and also students wouldn't come to Udemy because there were no courses. So we were definitely in this like really tough chicken and egg problem phase. So Gagan came up with this brilliant idea, which was we organized a conference called How to Raise Money, and we just gave every instructor, every speaker, a specific topic to talk about. So we sold tickets in a newsletter called Startup Digest that Chris McCann was kind of running. And they promoted the conference and then we videotaped the conference and converted into our first actual course. It was like a 6-lecture course called Raising Money for Startups. And we put it on the newsletter and I think we sold 30 copies of it at $30 each. So we made $900 for the, from that first course. And I would say like at that moment I was like really sure this was gonna work because people were spending their own time and own money taking a course and almost nobody asked for a refund. And we just told people that like, we were just so shy about this. We said like, look, if you don't like the course, we will give you a refund. Nobody asked for a refund. And a lot of people said this was the best $30 they ever spent because we were getting really tactical about raising money. So. You could find a lot of videos or conference about raising money and maybe pitching and things like that, but they were all kind of high-level, feel-good kind of talks from successful people. So versus what we put up online was very, very tactical. Here is the type of cold email you can send. Here's how you build the pitch deck. Here are the legal terms for you to learn before you're talking to investors so that you don't look like you know nothing. So we kind of realized this is really extremely tactical aspect of like videos for A concept was actually interesting and wasn't really around, like available. So I would say like the first course actually selling 30 copies just made me very, very confident that there was something there.

So that was, that was that seed. And then how did you, I mean, a class of 30 students is not really enough to attract other instructors, right? So like, how did you get the ball rolling on the marketplace and solve that chicken and egg problem?

Yeah. So there were a lot of independent things. I mean, as you're a founder, you'll probably appreciate this type of stuff more because you're also then consumer. Uh, companies, right? So we had a couple other tactics, but I think what really eventually worked well is we did these conferences, I think 3 times. Each of them became a course. We sold some. So now the new set of partners we had, which was Startup Digest, was making enough money that they were like, okay, promoting these new courses we are kind of, we were putting out. Next thing we did is we convinced 2 instructors. One of them had a workshop for iOS development, another has a Python Kind of book coming. So we said, if you produce video course, video content, we'll just go promote your courses like everywhere. We'll become your outsourced marketing department. So they just produced a course and put it on Udemy. So nobody was coming to Udemy to take courses at that time, but we just went ahead and went to a bunch of newsletters, daily deal sites, whatever channel we can find to promote the course. And we did some rev share with the distribution sites like newsletters. So even if it was very modest, like those courses made a couple thousand dollars, so it was kind of worth the effort they put up. And the nice thing about the revenue here was it was evergreen, right? Once you put up the course, you don't have a lot of like incremental resource that you have to invest. So eventually we had maybe 30 or 40 distribution partners. Amazon Local was a big partner. They're like Daily Deal sites were kind of very big. Epsom, if you might remember. was a big partner for us.

Yeah.

So really selling courses through those third-party channels. But then we were just kind of also finding people to teach online courses. And one day I think we came to a place where the people who had taken course on Udemy were large enough that if you had another course, just promoting it to existing Udemy users was bringing enough revenue. So that was like a big, like, kind of milestone because now we just didn't rely on third-party resources like the actual Udemy students taking new courses that we published was a reasonable distribution channel. So we turned from an outsourced marketing agency for online courses and a tool to consume those courses to an actual destination where we had users who were like buying new courses. So just really like hitting chicken and egg. It was really all about making sure the instructors were successful with their course launches. And we do, we did like whatever is needed. To make those courses successful, but existing students eventually accumulated to be large enough to become a distribution by itself.

That reminds me a lot of Twitch actually, where, you know, we just focused on the— you guys focused on the instructors, we were focused on the streamers, and it's like anything and everything possible to make the streamer successful and feel happy about working with us. Like we just tried to figure out how to do. Yeah. In the beginning it was a lot of like hand-to-hand combat. guerrilla marketing tactics to like help them get them happy or get them users or whatever.

Yeah. No, honestly, I would say like, we were definitely obsessive looking at Justin.tv, Twitch, all those other consumer market web companies. I mean, this is a small world, so we're looking at like what everybody else is doing. And I think what we had learned, like probably you guys learned the same thing, is initially it was all about doing these unscalable things to make this one person successful, right? Because you make one person successful, You can make a second, third, fourth, eventually, like if 30 people are successful, like that just becomes like a trend. And I think the, I think interesting thing I didn't have to realize back then is the scalable distribution channels only worked when we had scale. When we did not have scale, the things that worked were like things which didn't scale, which were like us talking to a person about it and just doing conferences or really kind of just one-off ways to make them, make them work.

After you got the ball rolling and it's working, were there any other difficult moments or kind of critical inflection points?

So I would say once the ball was rolling, we started like growing 20% month over month for maybe the first 4 years. So it was a really nice like marketplace growth. And I mean, in retrospect, it sounds easy, but I would say like the 2 things which was really hard is one, we had started the company with so much like Like we put like everything we have into the company and we were barely raising $1 million at a relatively fairly low valuation. I think it was like $2 million pre-money valuation. Like, like those were not the times where you get a $20 million like seed round valuation, right? So, like we were just really kind of trying to just push the ball uphill to make it work. And I think at Stanford, 2 university professors like started 2 AI machine learning courses and put it to make them online. And one of those folks became like Udacity and the other one became Coursera. And they completely stole the thunder. Just like, like we had started a lot earlier than them, but they just came up and like, I think the first rounds they were getting, like they were raising $10 to $20 million. So they raised maybe 5, 10 times more money than we were able to do after so much like work. And with very, very high profiles, there were maybe like 5, 10 articles about them in Wall Street Journal and New York Times every week. So It definitely felt like we were doing something that just was like the kind of peanuts, really small business that was not as important. And they really like hit on what really matters, which is like replacing and disrupting higher education. So even though we were just objectively growing month over month nicely, but still revenues were like modest. And what those guys like, the profile they had was just really kind of putting us in the shadow quite a bit. And I would say that one of the hardest things we did was just like staying focused and kind of saying, you know what, yes, like they might be— we're older ages, but what we are doing actually is relevant to more people. So my like explanation to the team was—

Yeah.

Look, in Silicon Valley, there are a lot of people who want to learn machine learning from a Stanford professor.

Right.

But if you go any direction more than half an hour, the rest of the population wants to learn some Excel skills so that they can take their first white-collar job. They want to learn how to build a website so they can maybe make websites for the kind of local businesses around them and get a lifestyle job, right? So like we kind of said, like this more practical lifelong skills actually are relevant to much more people. And honestly, I wasn't even 100% sure that was the case. So in retrospective, like I can say I was right. But like, it wasn't obvious that what you were doing was not stupid. Yeah. So that's like the second part is, was actually about when I had to step down from my kind of CEO job and became a board member instead of Udemy. So that was maybe the second kind of major, major challenge. And at that point, like we had failed so many times, honestly, like failing it, raising money and everything was almost something we were so used to. So, but emotionally hard times were one, like not being sure whether what we are doing is actually important in the grand scheme of things. And also just like kind of parting your own company is always difficult.

Well, so I'd love to talk about both of those. The first reminds me actually of our own story a lot in that, you know, we felt oftentimes with Justin.tv that we were like outshined by other Silicon Valley competitors, you know, like that had raised a lot more money or, you know, there's one called Ustream. They had raised more money. They were more high profile. They had like Jack Dorsey as an advisor and So we were often worried about like, what is our competition doing? And I think whenever we were worried about what their competition was doing and paying too much attention to them, we like didn't build a product that was like very good actually. And when we focused on some segment of customers, you know, in this case, gaming companies, you know, we're going to start gaming streamers and like really just dug into what they wanted. And everyone was like, this is stupid. It's a small market. It's not going to be a thing. But we just had like a little bit of internal Confidence or, well, it wasn't, it was kind of like you said, we like weren't even that confident about it. We were just like, well, this is what we have, like our only shot. So like, we're gonna focus on this. That's, that's really what worked. Right. And so I, I think that's, that was an interesting contrast, right? To like watching what everybody else is doing.

Yeah. Honestly, like people underappreciate how hard it is sometimes to reduce the distraction from like what everybody else is doing. Because it always feels like in Silicon Valley, there are these other companies which are really crushing it. And what you are doing is just like not worth even working on, right? So like when Udemy was started before even, I would say Coursera and Udacity came out, came in, like daily deal sites were doing so well financially. It just felt like every other idea was stupid.

Yeah.

So I think some, like, for example, today, like people look at the crypto world and like some of the fintech world and like, Kind of feels so lofty. I mean, look, 2 years ago scooters were like all the hype and it felt like they were the only good idea that you can ever imagine. It feels like that's where all the interesting things are and everything else like is kind of unimportant. So I think it's actually really, really hard to just almost sometimes get away from what is the trendy thing these days in the world of tech.

Yeah.

And really instead focusing on what is it the customers actually want and need. that we can build, deliver on. So this is like emotionally especially a lot harder than I think it might sound. I mean, I remember like the Ustream and all the other competitors and there were other types of companies which were growing very fast, but you're like acknowledging that like gamers are your customers and they love your platform. And I mean, I was watching people stream Dota like on Twitch back then, right? So maybe it was not picking something which is not sexy, but actually is very interesting and people enjoy it. So Uh, it is not easy, especially when there's like really hyped topics in Silicon Valley.

Yeah, absolutely. And so why did you end up stepping down from the company or like leaving the CEO job?

Yeah, I think there were really 2 things. So one is I was very focused on product and technology, like engineering in the company, which was like my comfort zone and maybe growth was the other thing. Uh, but I actually was talking to another kind of podcast, Dare You, this morning. Like, I just didn't feel like I was doing an A+ CEO job. I felt like eventually I was too focused on product and tech and in a way that, where the company's success wasn't just reliant on product, it was also reliant on marketing, customer acquisition, and content, and managing investors, customer support. So I was like too narrowly focusing and I had delegated too much. Uh, and actually one of the maybe neat content I can give you that I had mentioned is like, there was one of those executives who I really trusted in the company. I asked him, I said like, do you think the company would benefit from another CEO? Like, who's just gonna care more broadly about the company's priorities, right? And I thought he was just gonna say no, like, I think you're doing an extraordinary job. And he, but he said like, he said, look, we have been growing very fast and I think you're, you're like very talented, like about product and everything. But he said like, I could see like somebody who's experienced in these XYZ fields would be actually useful for the company. So I, this is something I had never mentioned before, like in any other kind of interview, but I trust he liked me quite a bit. And the fact that he thought maybe, maybe we could actually benefit from another CEO, like that actually, I took it very serious. I said, you know, that, that confirmed my almost fears that I wasn't being the best CEO I could be.

Yeah.

So, and I, I had that feeling. And then I think simultaneously, like, I was also kind of really intimidated with like honestly interacting with investors. I'll be like, again, this is another thing I'm going to be admitting today. So look, you're an immigrant, you have a heavy accent, you sometimes miss the NFL, like miss the kind of football game they are talking about. Like there's definitely this like outsider feeling where you don't feel like you're belonging there. Right. And actually, it's interesting. Some of these investors are like, they were not doing anything wrong or bad. Like, I mean, I, now I've known them for like 15 years, like they're very friendly people, but like. Yeah. I was intimidated with like this whole investor board interaction concept. I was just like not feeling as comfortable. And because I was feeling somewhat intimidated from this, like this world, this business, the finance world, which I didn't even know the terminology that well. Right. So, and again, like the language also definitely reduces your self-confidence time to time. So like between those, I think because I was nervous around the whole investor board, like world, I was I was somewhat delegating that too much, as in like I was trying to have somebody else, like some, our chief operating officer run the like board meetings and everything. So eventually I think the board like decided that it was gonna be better for me to become more focused on the product side because I think their perspective was I was really focused on just product anyway. So they thought it might be better for me to be the, become the chief product officer. And then maybe we either hire a third-party CEO or maybe bring our CEO, chief operating officer to be the CEO. So they just made the, honestly, pretty reasonable judgment call that that might be better. But despite that was the case, and honestly, I knew it was a reasonable call to make because I fired people before, like, and they were not even firing me. They were just asking me to become chief product officer, which they thought was more in line with what I was kind of wanting to do. But I still, for some reason, just hearing the words, like, really made me emotional regardless. There's this thing where like sometimes, you know, like you could do things better, but see, like somebody else acknowledging it also kind of is different. So despite the fact that I thought maybe like the company could benefit from like a little better CEO, like I, I, I still didn't like take that feedback too well in the first like couple months. But then I think I just, I got over it and I just like maybe see like 3 or 4 months, I got over it and I became actually even more involved with the board. I became even closer with the board members and investors, and I thought it was maybe an opportunity for me to like start again. And this time become like a better CEO, like the kind of A+ CEO, like more balanced person. So it became an opportunity for me to just try it again a second time. But the action of leaving the company that you put almost all your like 20s was, was not easy.

Yeah. So how long did you last at the company after you kind of gave up the CEO role?

So I was there for another maybe 6 months or so, just kind of helped with transition and everything. But I'd made it very clear that I didn't want to do like a double-headed company model. So I was relatively, uh, like I was mostly like a resource for people to come to and debate ideas rather than being active. But also I think I would say like I was somewhat still like emotional for like for maybe 6 months or so. And I didn't really take a long break. I just jumped into Carbon pretty much immediately after that, but it was, it was a nice time to slow down a little bit, like go to a couple of vacations and really just kind of understand what is it that I want with my life.

And so how did you, tell me how you like came up with the idea for Carbon and you talked a little bit about like things you wanted to do differently the second time. Tell me about that.

Sure. I'll just start with the order. The order is like, I first started with how I want to do things differently. So. I wrote 4 lines in my Evernote back in that day. I titled videos. And again, at that moment, I don't know what even field I'm going to work on. Like, I don't even know whether I'm going to be doing healthcare or finance, or I don't know. I had a lot of crazy ideas. I put up 4 videos though. Number 1 was, assume karma exists. Because I had this heuristic that to start the most successful companies, You have to sometimes give up on trying to calculate every move. So I thought the way to start like a ridiculously successful company is sometimes just doing what you think is right consistently, and then believing that eventually if you do the right thing consistently, it will come back to you as a business. Like I thought there was actually real karma in business. People observe what you're doing. appreciate your genuine effort. So assume karma exists was like really kind of central value I wanted to have in the new company. And I had some others like respecting the craft, really kind of appreciating that, like hiring people who genuinely care. But I wanted to do something where we could win by doing what we think is the right thing for a long time. So in my mind, healthcare was always one of those things where just like education is the type of thing That everybody needs, and the access to healthcare is extremely unevenly distributed. I thought if I bring together a really dedicated group of people from technology, like physicians, product, they could actually provide a healthcare experience which is significantly better than what we have today. And I also believe that they could do this without increasing the cost. Essentially, I thought Let's just assume whatever healthcare costs for an average American today, let's assume that's the cost and you cannot increase it, but you want to provide by far the best healthcare experience that can be provided. That idea was kind of vague in the beginning and it like, in iterations, it became more obvious. Initially, I was thinking of trying to do this as a marketplace type of business, trying to steal from the Udemy playbook. And I realized like the whole like marketplace fundamentals that didn't really match with it. what we needed there in that specific domain. Then we decided to become like a software company and really build the software and partner with existing practices. So that did work a little bit, but wasn't as good as we thought. But eventually, maybe after 2, 3 years of iterations, we came up with this idea to really own every single aspect of patient experience and provider experience, and which meant we, we really became extremely vertically integrated. So we built the entire software platform from the ground up. We own all the clinics, we designed them, we employ all the clinicians. We are really big on the company culture and the values in the company. So essentially owning software, hardware, operations together eventually became the idea. Even though actually, like in retrospective, that's what I kind of wanted to do emotionally, but it felt like a very tough thing to do if you have no experience in healthcare. So I had to just like slowly convince myself that it was the right idea. So That's why we went through all those iterations. But the idea was originally called like, what would the world's largest hospital look like? That was really kind of a one-liner idea with not a lot of like fill in the blanks. And yeah, so we, again, iterations and actual business model and operations and everything, but it was really kind of the simple idea of like, can you make it so that there is a healthcare experience which is extremely differentiated, very modern, That an average retail employee, average teacher can afford to access in the United States.

Gotcha. And so that was a, that was your path through multiple iterations. And then eventually you created this as like a new provider, basically.

Yep, exactly.

And now you like were the primary care provider.

Exactly. Eventually we became a primary care provider. So we now have primary care, urgent care, virtual care services. We are adding now mental health. We are doing more and more in rheumatoid. But really, I think the services are really just like the frontline healthcare services, the type of services that you would just go to first before you go to a hospital. But the real— and the model is make everything as affordable as humanly possible, which means we cannot charge a subscription fee. And the reimbursement rates we take from insurance companies are very reasonable. And the reason it's important is because these days, majority of the population have high deductible insurance plans. So if you actually have high reimbursement rates, like some of the maybe hospitals or some more kind of a premium segment providers at this point, like it'll be most of the cost is reflected directly to the, to the individual patient. Right. So because now, yeah, these days, like deductibles are the first line of payment. So being affordable is very critical. So we just really said like, this is the cost. We are not gonna increase that cost, but what is the best healthcare you can provide? I think that perspective got us into vertical integration because we realized the only way to create this, the level of patient experience we wanted with the cost structure we wanted to charge, the only way to make that possible was us really owning everything extremely tightly.

Yeah, that's a super difficult startup or like company to start, right? I mean, I tried to make a vertically integrated services company and You know, you had companies like Catera and there's like a long list of dead bodies and people have tried to, like, how do you think you've done things well or like stay focused with such a large white space area?

Yeah, to be honest, like this was an order of magnitude harder than Udemy. I would say like, that's, that is definitely true because you have this super complex service industry called healthcare, like far more complicated than transportation or food delivery or like Really honestly, any other service industry you can imagine. And even from day one, if you were to be a healthcare provider, you need a physical location, you need to be able to prescribe medicine, you need to be able to do labs, medical images, referrals. Insurance reimbursement is very complicated. So there's like all those malpractice and all those clinician management. So the regulatory stuff. So it is the type of the business which has a lot of upfront work you have to do well before you are seeing any success. So in our case, I would say like, despite coming out of Udemy's success, the first 3 years of the, 3, 4 years of the company was really brutal. I mean, now I can say this because we raised half a billion dollars and we are doing really well, but we actually completely ran out of money twice. Like, I saw zero in the bank account twice because we raised a seed round easily. Seed round is mostly people who have made money from Udemy. They would just, obviously, they would like, fund the next company I started. One of those board members at Udemy just like became like Series A investor, became a board member. Series C and A was kind of easy from just like track record, but everybody hated this idea of us owning physical locations. And they hated it so passionately. A lot of investors I talked to, they would say, Eren, like when you were coming to pitch us here, we were actually ready to give you a term sheet, right? Because they, Like you started a very successful multi-billion dollar company. You're just like, of course you're going to fund your next company. But owning this clinic is such a bad idea. Like we just cannot do it. It's just like the fact that we have physical locations, they hate that. The fact that it does fee-for-service, like actually going through insurance, they hate that. The fact that it does primary care, which is considered a zero margin business, they hate that. So it's really like almost everything people hated about healthcare investment, just like coming together and I embraced that. But the reality is the combination of all these things like primary care, physical locations paid by insurance and not premium, just like mass market. These 4 things, the community, the intersection of those 4 things is still 90% of all healthcare. Like everything else is peanuts, really small markets here and there. So convincing investors was really, really hard. Like I think the 4 rounds you raised, A, B, like we only had one term sheet in each round. And this is the part I think you can, you totally like talking about the emotional part of it. I actually felt a lot more stressed because when you're a first-time entrepreneur, your default assumption is that you're going to fail. Like you don't take it very emotional that people do not invest in you, right?

So, Yeah.

But being a person who started a successful company, Coming back to investors and just getting nos one after each other, like in every step having just one investor like remaining. And luckily we always like amazing one investor. So like it actually worked out pretty well. And also like the other thing that worked out well is like we got this one investor who truly believed in the company as it is. Like they actually did not want to change the company. They just like being believers and they were actually like, it was a good idea to like get money from people who believed in it. But it was actually emotionally really hard to just like getting rejected despite having all this track record. So, um, uh, I would say like it was interesting, a lot of the company also that they, that they just, they kind of believed that I was going to figure it out somehow, almost like asymmetric amount of emotional load on myself. I was taking it a lot like harder in the second time.

Yeah, I can see how it would be a lot more personal. It's like you have this track record, you should be able to raise money easily and then like having this struggle with it is that can be tough if you feel like rejection.

Exactly. I think a lot of people don't recognize, like, when you have one company which is successful, the second company is actually like, are more stressful. Actually, I have other friends who are like, who attempted second companies and I would say like, they look a lot more like burnt out and stressed the second time.

I think that's probably how I looked. Well, I don't know. I was very stressed the first time too. So I don't know if it was any better, uh, or any worse, but it wasn't any better, I don't think. So tell me about you guys' COVID response, because kind of from the outside, it looked like things may have really accelerated for Carbon Health during COVID And, and I know you guys had a big role in like testing and vaccinations for the, for the state of California.

Yep. I think this COVID journey has been super interesting because it wasn't obvious that it would help our growth because 2019, we had finally made the core fundamentals work in the business. And we took, I think Brookfield became a big investor and we finally like felt like things were working. I think like 2015 to '19, it was really like uphill, kind of like struggling. And '19, like the unit economics started working, clinics were profitable, and we had some people who believed in the model as it is. And we came to 2020 and just finally ready to just scale the company, maybe 20, 25 clinics. And just, it was going to be our first like high quarter year after like long kind of periods of like optimizing unit economics technology. Because one thing that I did different that kind of very unusual at Carbon Health is we did not scale the company until we hit all the key unit economics and software and provider experience, like goals we wanted. Like we, we intentionally kept it slow until we felt like it was ready to scale. So January came and we were watching the COVID developments in Wuhan, China. And actually, some of our team members were very kind of nervous about this. So we have a pre-appointment scheduling questionnaire type of system, which asks questions like the doctor would be asking. So we added 2 questions to that system about whether people had traveled to Wuhan before. We launched that. 2 days later, I got a call from my chief operating officer saying 2 people had come from Wuhan, China to California. It came to our clinics with respiratory symptoms. So it just became clear to us that the thing that like, at that point, like in January, like people assumed this was a China problem. So this is a couple months, like, but we just identified there's no way this is not, this is actual content. This has got to be in the community, like already. I think a lot of people don't realize how big Wuhan, China is. Like Wuhan is a pretty big state, right? So a lot of people like travel from there to United States pretty regularly.

Yeah.

And so we made this meeting to discuss what is it that we would want to do if COVID becomes a huge pandemic. And at that time, honestly, like I wasn't sure we were going to be able to survive because our clinics are right in the front lines of this. And we did not know the actual clinical impact of COVID And at that time, around, especially around February, 10% of the people who died in Italy were healthcare workers. Right. So I certainly did not want my like employees to like have a lot of casualties, right? So this is like the situation where at one point, like one part of me was saying, we just should just like shut down clinics, call it off. We just cannot be in the front lines of it. And we should just really kind of protect like our, our role workforce from COVID as like the number one priority. But our clinical teams came and said, They just want to lean into the pandemic. It was not like me. Honestly, a lot of people kind of give me credit for being in the front lines of the pandemic very early on. The reality is like, I was prepared to just say, let's just like protect you guys. And like, it is what it is. Like we might be likely cannot survive, but they said, you know, like this is a pandemic and we are healthcare workers. This is like our job. We just cannot lean back at the time where the country needs us the most. So they just made the judgment call to lean into the pandemic. I wasn't like, again, like prepared to just ask them to do it. And we just said, you know what, okay, if they're leaning in, the entire company's gonna focus on responding to this pandemic. And we assumed we were not gonna make it because when the pandemic first broke out on maybe March in, in United States, we lost 80% of our patient volume overnight. Overnight, like such old clinics.

Yeah.

We're now like losing a ton of money. People didn't want to go outside. Virtual care was growing, but it wasn't enough to kind of cut down the costs in the clinic side. So we made this meeting and I drafted 12 really, really crazy out-there ideas. Yes. We said like, these are the craziest ideas I can think of for us to respond to the pandemic. And over the next 15 months, I think we actually implemented almost every single idea there in that original list. I had this idea to have like trailers going from town to town and offering testing solutions. And the idea was like in the future they would actually also help with vaccinations when vaccines are kind of ready. We did that. We launched the first mobile trailers. We went to towns where we were seeing 25% positivity rate in like mid last year. Just these were like all this meat manufacturing and agricultural town in the middle of California. So they really appreciated us like being there, right there for them. We launched the first at-home testing kits. We launched the largest dataset for all the clinical datasets which researchers could use. We launched a database of all testing locations that actually a lot of other kind of resources used. So there were, there were really like 12 different initiatives we deployed and we launched them at a really kind of not seen before type of pace. I mean, people were so surprised to see like how fast we were just like deploying sizable projects when companies like CVS and Walgreens, which were in the government's committee to like respond to the pandemic, they were like so slow with their efforts versus we were just launching things, getting scale. And actually, I think that what really made Carbon Health the Carbon Health we kind of people like today is we showed the value of a small but extremely driven and competent healthcare provider. So because we were good at operations, we had the technology and people were realizing like that meant like we could launch a service very quickly and at a really high quality kind of service level. But this was COVID-related care or something else. Like I think a lot of the people who just became super fans of Carbon, they just acknowledged that replace COVID with any other form of healthcare, We want the same thing. We want somebody to be able to be dynamic and respond to the changing needs of the customers, use technologies, operations. So all this kind of things actually develop on top of each other. And maybe one of the kind of probably big turning points for us was in January 2021. This time the, now the vaccines were around for 3 months, but the vaccine rollout, you might remember, was going horrible. Like the government-run operations were barely—

Yeah.

consuming like total vaccine supplies they had because they've completely underestimated how hard the last mile would be for vaccine distribution. And I, I, I look, I remember this very pretty clearly because the oversimplification was CVS and Walgreens have thousands of locations around the country, so we'll just give the vaccines to them and they're gonna administer the vaccines to the entire population. So the moment I realized this was the plan, I was pretty sure that was gonna fail. It takes 2, 3 minutes to administer a vaccine, but you have to monitor them for 30 minutes if they're high risk, or at least 15 minutes. So the bottleneck for vaccine distribution, I kind of acknowledged, was going to be the physical space to monitor them. So existing clinics or pharmacies were not the right fit for large-scale vaccine administration. So I said like, we should just go rent stadiums and go build this real large physical areas where we can administer vaccines to 400 or 500 people, at least a couple thousand people per day so that we can more efficiently monitor them rather than putting them into like one room each. So I had this kind of thought. So, and we prepared a little bit, we just made a quick demo for a vaccine distribution tool that we would actually do if we were asked to. At that point, like nobody had asked us to deliver vaccines.

Yeah.

The government was, had more than enough vaccines, but we just kind of sketched out the model saying, this is how it should be working. And Los Angeles was doing particularly poorly. I think it was like one of the worst cities in terms of the city that was vaccinated then. And the state system had kind of was crashing all the time, was very kind of unusable. It was designed for desktops, but there were a lot of reasons, but like it was not working well. So we showed what we had designed to City of Los Angeles, the mayor's office and the LA Fire Department and like a nonprofit, like which was helping them. And they just like said, and honestly, to their credit, like they said, how fast can we deploy this? We are just gonna rip off the entire state system.

Yeah.

And 36 hours from that initial discussion, we just launched our vaccine scheduling portal and all the traffic came to our side. And then that we were like scheduling 20,000 appointments per hour. So it was, they just Shifted everything to our website to schedule. And then I think maybe 7 days after that conversation, we launched Dodger Stadium with the help of LA Fire Department and Co-Response nonprofit and the mayor's office. So we were now like helping run the largest mass vaccination site in the country in Dodger Stadium. So it was really like, I guess like a 9, 10 days of like going from zero to like viable product. It wasn't going from zero. We were like using our existing kind of systems, like infrastructure that we had built for our normal clinics, but we just changed it enough to be viable for a mass vaccination site. So we went live in 9 days and iterated like crazy. Like it was such an intense time where like I and all of our exec team and a lot of our teams, we just went to LA. Most of the team was working from the Dodger Stadium. And I, I like, it's unbelievable that we made that work in such a short amount of time. It was just showing like the kind of video dedication. And we just thought that like, there was no other alternative. We just had to make it work.

Yeah, that's incredible. And you did it all. I mean, there was no like contract or anything, right? You just did it like as a public service.

Yeah, I think we did it. And like the CEO of Los Angeles told us that yes, they were going to support that.

So what's the impact of COVID been on your main business?

So it has been positive for us in the sense that We have done really high-scale vaccination, COVID testing, travel clearance is another kind of area. And I think as the therapeutics are coming into play, we are just deploying this very fast. So I would say it really helped us first get a lot of patients to experience Cover for the first time. And once they come to our clinics and even get a basic COVID test, like their reaction is like, why is rest of my healthcare not the same, right? So why can't I do this for like everything else I'm doing? So, and a lot of those patients just become Carbon Health patients. So it has been a great customer acquisition tool. So it just really allowed people to see us for the first time. It's also helped us really kind of build the brand around just making an impact when we have the opportunity to do so. So between the branding and customer acquisition, it has really kind of helped Accelerated our growth. So we have grown, I think we were the 2nd fastest growing private company based on Inc. 5000 list. So, and some of it was not COVID, like we were just opening clinics, like there, those clinics were in construction already for like a long time before COVID started. But I would say it really helped us because when we were growing very aggressively with opening more locations, COVID allowed us to fill those locations with patients so we'd not lose a ton of money. So. It just made the cost of expanding a lot less burdensome on the company.

Wow. That's an incredible journey. So now that you've been operating your second company for, I guess, like 6 years, right? Are there any lessons from your second company that you know now that you wish you had known kind of when you started?

I would say the most important one is that There are a lot of different ways to be successful. I think what really matters is whether the style that you are running the company matches your personality. Look, I think if you're a cutthroat, hypercompetitive person, you just need to set company around that style. If you have a different way you want to do things. So for example, I had realized what I enjoy doing is just really be like intuition oriented. I like hiring smart people and trusting them. And I do not, for example, enjoy being data-driven. I look at data, I'm a mathematician, I just understand how to look at the data, but I always assume data is incomplete. So my personal style is really just hire people, trusting them, betting on them, investing on them, and then can really trust your judgment quite a bit. So I believe intuition is very critical. And then I just designed a company around it. And I think this model is not gonna work for everybody because like, I genuinely have that feeling. I genuinely trust people's instincts. But there are other people who like being extremely data-driven, who want to like measure everything and run the entire company with numbers. I think if that's the reality, like you have to start a company around that style. So I think like the founder style has to really match how we structure the company, the products, honestly, even what you do has to somewhat match. your intent. Like, there's no way I could start an ad tech company. Like, advertising is numbers-driven business, just doesn't work well with me. Even though I understand numbers, I don't like living by numbers, right? But healthcare, like—

Yeah.

What I like about healthcare is at the end of the day, like, you do the right thing, people observe what you're doing and they understand that you have good genuine intentions and they actually reward you for that. Like, the, there were all these moments where We got so much value from COVID-related work we did, which we had never calculated. Like, as an example, like, Google shut down our application on Android Store, which was like a huge problem. We have a very big Android kind of customer base, and they just were very unresponsive to our kind of desires to review like the cases because they were like saying that you are doing something out of COVID-19. And at that point they were saying only like CDC and like some healthcare organizations can have any content around COVID-19. And the way we were kind of enabled again is a former Google executive who was following what we were doing on Twitter was a super fan. Like he wrote a letter to the executive in charge of Android and like very quickly got us reopened, right?

Yeah.

So this is not something we always think about, but like sometimes when you do the right thing and people actually observe it, like you, They just really want to help your company. Like people wanted us to be successful because they kind of appreciated how we were tackling COVID response. And that actually just like really a series of events that I had never thought about happened, which made the company far more successful than like it would normally be without COVID, right? I would say essentially turned into like really big difficult times to just really shining when our country needs us. And that really kind of unlocked a big thing. So it's really like, I would say like, this is not for everybody. You just need a lot of like belief. You almost need to religiously believe that if you do the right thing, it's just gonna work out eventually.

I love that.

That is not for everybody. I think that's like my number one is like, your style has to match your company. If you're extremely customer experience focused, your business has to be type of business which succeeds with customer experience.

I love that message. You gotta do what matches your own personal style.

Yeah.

Amazing. Uh, that's a great place to end it. I've taken up a lot of your time. Really thankful that you were able to come on the, on the podcast and share your story. Thanks for, thanks for doing it.

Thank you very much, Justin. I get, I've been following what you are doing for a long time, so it was kind of finally, uh, it was fun to kind of catch up with the, with the podcast as the excuse.

Yes. Yeah.

Thank you.

All right guys, that was the conversation. I hope you all enjoyed it. If you like this episode, drop us a rating and comment on iTunes, and you can check out all my other content at justinkhan.com. I will see you all next week.