CEBI Executive Briefing

April 23-24, 2009

Itasca, Illinois

Douglas W. Lyon, CPA

Where Were We? (Two Years Ago)

Where Were We? (Two Years Ago)

First to Market

Market Leader – 28%

Virtually no competition

Prices so low, who could afford to compete?

What Happened in 2006 – 2007?

What Happened?

Contrary to popular thinking…the IRS is a

“good guy”!!

What Happened in 2006 – 2007?

IRS announced Form 990 Schedule H

Michigan Hospital Association (MHA) indicated intention to compete “head-on” with us

- Historically, Michigan hospitals only

- Historically, survey process only (minimal hospital-level software)

Digression:

One of my Professional Regrets MHA and Lyon worked together in the late 90’s

- We had the software

- They had specific data aggregation needs

- We collaborated

- Their Senior VP was a supporter

Missed Obvious MHA indicators over 6 year period

- I should have “read the tea leaves”, but didn’t

What Opportunities Did We See?

What Opportunities?

Both a significant opportunity and a scary threat (a double-edged sword)

Opportunity was enormous… a federal agency mandating an annual report on Community Benefit

- Remaining not-for-profit hospitals should be ours for the taking (we thought)

- Lyon Software had a wonderful reputation and our

CBISA had a “Gold Standard” feeling among

hospitals

What Opportunities?

Threat was significant as well… a highly-regarded, state hospital association would be a formidable competitor (tremendously more capitalized than Lyon Software)

And the bad news kept coming… another competitor was emerging

- A large healthcare consulting firm in Maine (but not a software developer)

And, RUMORS have been flying ever since about others, one of which we’ve been able to verify

Digression:

I Liked the “Life Style” Business Model

We had never advertised

Our prices were low (in retrospect, a good thing)

Word-of-mouth was primary source of new business

Warm relationships with two National Associations:

- Catholic Health Association (CHA)- VHA, Inc.- Each having over 1,000 hospital

members, mostly non-overlapping

Digression:

I Liked the “Life Style” Business Model

Figured my blue-chip, satisfied customer list of 1,200 hospitals would fund my eventual retirement

Wasn’t in for a fight … didn’t see one coming

The Hospital Market

The Entire Market – 4,500 NFP Hospitals

The Hospital Market

CBISA Clients:

• Full Paying 1,300 28.9%

• Free in ’08 400

CBISA Subtotal 1,700 37.7%

Prospects 2,800 62.3%

Total NFP Hospital Market

4,500

How Big Was the Opportunity?

How Big Was the “Opportunity”?

A hefty chunk of 2,800 remaining hospitals would have to do something by end of 2009

One 3rd (about 1,000) of the remaining hospitals would be worth over $2,000,000 a year in revenue to us

- It wouldn’t have to be Lyon Software

- It wouldn’t even have to be software

So it was worth spending some money

So What Did We Do?

So What Did We Do?

Market research

Identified new “buyers” in hospitals (CFOs)

Identified new messages:

- “Still the One” (for existing clients)

- “Do you have the systems in place?” (for prospects)

So What Did We Do?

Evaluated our competition

- Way more capitalized than us

- No software companies (as yet)

- Minimal market penetration

- We beat MHA head-to-head in our first 3 health system battles (and one was Henry Ford Health System, in MHA’s backyard)

Did I mention their software was identical to CBISA… screens, screen prompts, reports, etc.? – what a coincidence

So What Did We Do?

We did several real “marketing” things:

• Placed an ad in Healthcare CFOs periodical (called HFM)

- 8 months @ $4,200/month

• Snail-mailed (very expensive) descriptive, color

informational packets (with a specially-made

envelope stamped in red “Important Information on IRS 990H”) to 2,800 CFOs (every hospital we didn’t have)

Digression:

Meanwhile, Went After a New Market

Identified a new market for our software that would not require massive programming surgery – Higher Education

Hired a Higher Ed expert and one-half of a 2nd salesperson for Higher Ed

Developed the product – launched it in February ’09

- Identified 1,100 “community-engaged” colleges and universities as best prospects and mailed promotional packets to Presidents/CEOs of these institutions

So What Did We Do?

Back to Hospitals

Hired a hospital community benefit expert to help sell; hired a 2nd half-time salesperson; reassigned existing staff duties to sell

Conducted educational workshops in 12 cities on new IRS requirements

- 310 attended

So What Did We Do?

Changed our software to incorporate every requirement of Schedule H

- 8 to 10 new or seriously revised screens

- 15 new reports

- Expanded role/access for Finance types

So What Did We Do?

MHA introduced “loss leader” pricing – sweet, one year deals for $900 (our software was $4,000 at the time)

I paid them an evening visit

For my full time staff… established a Christmas Bonus program, focusing on 2009 sales

Revised our pricing – first time in 15 years it went down - $2,000 (from $4,000)

Ongoing Plans

Ongoing Plans

CBISA and 990H educational webinars

More “face time” at conferences

Teaming up with additional states’ hospital associations (except, of course, Michigan)

- Speaking on Community Benefit and 990H at annual membership meetings (6 since November)

(Thinking about) hosting “virtual open houses”

Have We Been Successful?

Have We Been Successful?

Won’t know full effect for a year or more

Preliminary sales are up

18 state Associations are “on board” – compared to none 14 months ago

Competitors haven’t seemed to achieve “traction” (our fingers are crossed)

Lessons Learned

Lessons Learned

Don’t pre-announce a fabulous Christmas Bonus plan for Christmas 2009 (in late November 2008)

Stay close to your strategic partners and clients

- MHA should never have happened

Pricing strategy is so critical

“Short-term” sales help needs to be managed

Recognize some things are out of your control… and let them go