Justin Magnuson - CEO, Alliance Family of Companies

Justin Magnuson is the Chief Executive Officer of Alliance Family of Companies, the largest provider of of in-home video EEG testing in the world. They test for epilepsy and utilize a system that does it outside of hospitals, where typically, it’s done in an electroencephalography monitoring unit, an EMU.

The Alliance family of Companies separates themselves by focusing on in-home monitoring. They would monitor the patient in their everyday environment, the same as if the patient was to do the test at the hospital. They found that if you’re testing for epilepsy and someone’s sitting in a sterile room for three-to-five days staring at a wall, they’re not typically going to have a seizure; there are no triggers. When a patient’s in the home walking around, acting in their normal environment, you’re typically going to pick up more reliable information. Doctors quickly saw this and saw that better data was provided, in good quality, and the company grew exponentially. Currently, they operate in 39 states and over 50 markets throughout the United States. The company has doubled every single year, and as of this writing have been voted on the INC 5000 list for the fourth time in a row.

Justin learned about the industry working for a company called Pacific Pulmonary Services, a durable medical equipment company selling CPAP machines. He understood how the sleep market worked, which allowed him to go into sleep diagnostics. Upon graduation from Southern Methodist University, he wanted to start his own business, and that’s what got him into sleep diagnostics. He couldn’t become a hardware provider because of high cost of inventory, but he could provide the diagnostic testing.

Justin is an avid skier, hiker and traveller. After the loss of some good friends to cancer, Justin volunteers and donates to cancer research. After the success in the healthcare field, he feels that it’s important to give back.

How did you get started in this business?

I got into the business in 2010, starting out in sleep diagnostics, and started a small company called Sleep Source, that has sleep labs in and around Texas. Early on we were hit with reimbursement cuts because insurance carriers required sleep testing to be done in the home. At the time, we did not do home sleep testing, and when we looked into it, the technology hadn’t grown to a place where it would be profitable doing home sleep testing. The equipment was just too expensive, and the reimbursement was too low.

With a pool of technicians and an office staff, I wondered about the future, because we were effectively out-of-business for sleep testing unless we moved to home testing. I couldn’t figure out a model to make it work financially, so I started looking at different technologies. My business partner, Mitchell Jacobs, who is a chief development officer, came to me with a number of solutions to expand the business into different areas. One of the options was neuro diagnostics, formerly it had been done only in a hospital, and no one had done it in the home. One of the main reasons for it not being done in the home is technology hadn’t grown to a place where it could be done. Meaning, internet speeds were too slow, the recordings weren’t good enough. The testing would come out poor because you send a patient home with a recording on their head, an EG set-up on their head and after 24 hours a lead would come off, or the cameras would not be facing the patient, they’d be out of focus. At the time, everyone experienced a hurdle when it came to getting the data back, it was a slow process. We saw that with the addition of high-bandwidth internet speeds and cloud based solutions there was an opportunity to create the business model (for quick turnaround times on analysis) and scale our efforts. We found a small company in Iceland that was doing a cloud-based software solution, and found a piece of hardware that talked to that software solution. It was from then things really started to ramp up.

How do you make money, how do you profit?

We have a three-tier system. We market to physicians to utilize our service. The patient then has to select our company, since ultimately the patient and their insurer will be paying for the service. You have to get buy-in from three different people, the doctor, the patient, and the insurance company. We make money off the service, and we also recently purchased the software company out of Iceland, so we now own the software company as well as provide the service. We make money off software as service, and we also make money for providing the service to patients and physicians and hospitals throughout the United States.

How long did it take for you to become profitable?

Sleep diagnostics was profitable very, very quickly because I saved enough money to buy the equipment. The main cost as a service company was the technicians, the people cost. I was able to float the business until we were profitable, which was within six months. Once we started neuro diagnostics, we were profitable within a year.  We reinvested our money, and I didn’t take a salary for almost a year when I started the sleep business. All the profit that we made was reinvested in the company, and we kept in because we had been hearing that home sleep testing was going to come on the market. We were holding money if we needed to get home sleep testing, we could buy that equipment. If we couldn’t, we would hold money to be able to invest it in new ventures. That’s what we did, and that’s why we were able to fund neuro diagnostics.

When you were first starting out, was there ever a time you doubted it would work? If so, how did you handle that?

There’s always doubt. At the time when I started my sleep testing company in 2010, I think I was 29 when I set-up my first business license. Being young, I had a decent sized ego, so I thought I could make it work. When it really strikes home is when you start hiring people. When you’re just worried about yourself, well, if I lose everything, go back to just being a sales rep, I can sell stuff, I can make money, fine. When you start hiring people, you start to realize these people’s lives depend on you. They have kids, they have families. If you don’t do right by them and your business model is not sound, they’re out of a job; they have to look for a job. If their kids don’t eat, they can’t pay their bills; it falls on your shoulders. Yes, there were huge doubts. I just bared down and focused, did a lot of the work myself, so we didn’t have to hire a bunch of people. I learned how to do billing, did some scheduling. I hired as few employees as I could and did most of the work myself until I knew that it was going to be profitable. Once we got that first check from insurance companies, which took 60 days, I thought okay, this could work. Now I can start hiring people.

How did you get your first customer?

I leveraged all the customers I had from when I was in my sales position at Pacific Pulmonary. I received a lot of referrals from physicians that sent patients to me to provide the end treatment, the CPAP machines. Most of the time it was long process for the Doctors to select a sleep lab, because they knew me and what we were doing, they felt comfortable sending patients our way. Our goal was  to make sure the patient gets taken care of, they get proper treatment and in the end, gets a CPAP machine. I made it my job to go out and find a sleep lab that was accredited, that did a good job and was timely in seeing the patients. I learned a lot about the business by finding out who wasn’t doing it right. I would look at their sleep labs and think, does the patient feel safe here, is it a good set-up? Do they do good service? Is it a reasonable turnaround time? I started realizing what the market needed and looked at what the current providers were doing right and weren’t doing right when I made my business model.

What is one marketing strategy, besides referrals, that you’re using that works really well for generating new business?

We’ve been focusing on associating ourselves with relevant medical societies. The American Epilepsy Society, they’re the ones that manage the technician pool, push out epilepsy testing and drug treatments and what companies do the best testing. We’ve started marketing to them to get our name out there, ABRET is the society that does the training of the technicians. We’ve started marketing through them so that whenever the technicians are done with training, we can hire them straight out of school.

What is one of the toughest decisions you’ve had to make in the last few months?

I feel like decisions are tough every day.

What do you think makes you successful?

This is an easy question for me! I go out and find people that are better than me at every role in the company, and I give them power and authority. My COO, my CFO, my VP of sales are all better than me at what they do, significantly better. I let them handle their department. I look at myself as a ship captain, all I’m doing is steering the ship, I let everybody else deal with everything else, and let them know they have the power and the autonomy to get it done.

What has been your most satisfying moment in business?

We go out for the Inc 500 every year, and we’ve been on the Inc 5000 list four years in a row. Every year we get that approval letter, it sends a wave of joy through me, because to be on that list, the fastest growing companies in America four years in a row is something that very few companies in the world have done. It’s just very satisfying. It just came in, I just got my Inc 500 magazine, and I was just really excited about that. Every year we just really celebrate that.

What does the future hold for your business? What are you most excited about?

We’re going heavy in artificial intelligence and software as a service business model. We realize that being a service provider or a hardware provider, eventually reimbursements are going to be cut. We’re trying to focus more on technology, software, and how we can market that technology to hospitals, and take the business side out of it, how we can solve problems. What we’re looking at from an artificial intelligence perspective, we’re trying to look at ways we can diagnose patients with different neurological disorders, that have not been previously diagnosable.

Take, for instance, ADD-ADHD. Right now, it’s being diagnosed with a paper tool. A doctor will ask a series of questions and depending on how you answer will determine if you have ADD-ADHD or not. We’re now working on software that will involve the use of a EEG to definitively tell whether or not a patient has ADD-ADHD by the way the EEG reads the electrical activity in the brain. This is something that excites us because the technology we’ve created is not specific to ADD-ADHD. This will give physicians and medical professional better tools to determine what the average looks like and compare it to patients with abnormal results.  We can more reliably look at that data and diagnose with great confidence. It’s not just ADD; you could use it for depression, early stage dementia.

Let’s look at dementia, once you have signs of dementia, it’s too late, it’s a progressive disease. If I can tell you five years before you show your first sign that you’re starting to show signs of dementia, you can start taking treatments that currently exists  to extend the onset of symptoms. Imagine if pharmaceutical companies knew this patient is going to have dementia five or 10 years from now. Let’s test this drug out and see if it stops dementia in its tracks and see if it prolongs the disease stage. It’s exciting, we’re working on a lot of really cool things, and it makes me feel excellent about it. It’s not about the money, we can provide solutions to big problems in our society.

What business books have inspired you?

There’s one I’m reading right now, it’s fantastic, it is by Chris Voss, and it’s called Never Split the Difference. It’s a great book, it’s about negotiating, but it is about life. It’s about how to handle people, manage situations. The cover looks like it’s about negotiation, but it’s not. It’s about how to deal with employees, customers, family members. It’s been a big help in my life.

What is a recent purchase you have made that’s helped with your business?

The most recent would be the Icelandic software company. It has allowed us to grow into the market. One of the coolest things for me, my competitors, everybody I used to look at as a competitor is now a customer. They do better. I do better. It doesn’t hurt me if they become more successful than me because they’re buying their software from us. It’s just a great feeling, and it unites the industry. It’s a fragmented industry right now, and to create software solutions for your competitors now customers, it allows you to talk to your customers about what is working, what isn’t working. We use the software in a certain way, is there a different way that you use it that we can improve the software and improve our model and give you a better solution? Buying the software company has been a fantastic help to the business.

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