20VC The Largest Venture Backed D2C Consumer Exit; PillPack $0$300M Revenues in 5 Years & The Biggest Lessons Scaling the B2B Business to $300M in 2.5 Years with TJ Parker, CoFounder @ PillPack

In this episode of 20 VC, host Harry Stebbings interviews TJ Parker, co-founder and former CEO of PillPack, who recently joined Matrix Partners as a venture partner. Parker shares his journey from growing up in a family-owned pharmacy to revolutionizing the industry with PillPack, a company that he grew to over 1000 employees and sold to Amazon for $1 billion. He reflects on the challenges of navigating industry incumbents, the importance of customer-centric innovation, and his experience transitioning from startup to corporate life post-acquisition. Parker also discusses his belief in the future of healthcare as a shoppable experience and the role of equity in aligning team incentives. The conversation touches on the complexities of fundraising, acquisition negotiations, and the personal impact of such a significant entrepreneurial endeavor.

• TJ Parker grew up in a family-owned pharmacy and had diverse experiences within the pharmacy environment.
• He developed an interest in design, startups, and was involved in MIT's Hacking Medicine initiative.
• TJ's father had started a pharmacy business that pre-sorted medications for nursing homes, which inspired the idea for PillPack.
• The challenge for TJ was gaining the confidence to believe he could start a company and raise venture capital.

"So I grew up in and around pharmacy, and I'd worked a ton of different jobs at my dad's pharmacy, worked behind the counter, helped check people out, actually was delivering meds to people in their homes, and saw that experience."

This quote emphasizes TJ's deep-rooted exposure to the pharmacy industry from a young age, which later influenced his entrepreneurial journey.

"It was like, how do we combine my expertise in pharmacy with my interest in design with my interest in tech?"

TJ reflects on how his diverse interests and background came together to form the concept of PillPack.

• Understanding the customer problem is crucial for building the right solution.
• TJ's unique expertise in pharmacy, gained from hands-on experience, gave him a deep understanding of the customer's challenges.
• He acknowledges the importance of founder-market fit, especially in understanding customer problems.

"I think it's really important to understand the customer problem."

This quote highlights the significance of deeply understanding customer issues to ensure the development of an effective solution.

• TJ believes that being comfortable with uncertainty is essential for entrepreneurs.
• He admits that he is naturally comfortable in uncertain environments, which has been beneficial for his role as an entrepreneur.

"I am super naturally comfortable in an uncertain environment. It's kind of my happy place."

TJ expresses his personal comfort with uncertainty, which aligns with the entrepreneurial mindset required to navigate the startup landscape.

• As a young founder, TJ had no illusions about his expertise in various business functions, which allowed him to trust and empower his team.
• He emphasizes the importance of setting a clear vision and then getting out of the way to let the team execute.
• TJ also discusses the need to be decisive in hiring decisions and the ability to quickly change direction if a hire doesn't work out.

"The only technical training I had was pharmacy, which had very little relevance to most of the things that a founder is doing."

TJ acknowledges his limited technical training outside of pharmacy, which led him to rely on others for expertise in different areas of the business.

"I better be really good at changing my mind if I'm wrong."

This quote underscores the importance of adaptability and decisiveness in the hiring process and team management.

• TJ and his co-founder were aware of the customer needs but naive about the broader industry dynamics.
• He believes that naivety can be advantageous as it allows founders to pursue ideas without being hindered by the potential obstacles perceived by industry veterans.

"If I had been working in pharmacy for a decade as an adult, there's no way I would have started pill pack."

TJ suggests that his lack of deep industry experience as an adult was a blessing in disguise, allowing him to innovate without being constrained by industry norms.## Naivety in Business

• Understanding industry dynamics is less critical than understanding the customer.
• TJ Parker and his investors were naive about healthcare industry dynamics but focused on consumer tech.
• Naivety can be beneficial when it aligns with the company's focus and customer understanding.

"We took money from exclusively consumer tech investors. We weren't out pitching healthcare investors."

This quote indicates that TJ Parker strategically chose investors aligned with his consumer-focused approach rather than those with healthcare industry expertise, suggesting a deliberate use of naivety in certain areas to drive the business forward.

• Speed of execution is critical in venture-funded startups due to the limited time frame to achieve milestones.
• Rapid decision-making and autonomy within the team are key to increasing speed.
• Distinguishing between reversible and irreversible decisions is essential for effective leadership and execution.

"In this game, it's the only thing that matters? Right? It's like, how fast can you figure stuff out?"

TJ Parker emphasizes the significance of speed in the startup world, highlighting that quick learning and execution are fundamental to success, especially when working with venture capital timelines.

• PillPack's culture was built on assuming the best in people, contrasting with Amazon's "earn trust" principle.
• Trusting team members from the start can lead to a positive work environment and rapid decision-making.

"We built a culture that assumed the best that people showed up. We made bets on people, and then we assumed that they were going to execute, and we trusted them."

TJ Parker discusses the cultural principle at PillPack of assuming the best in people, which facilitated trust and autonomy, contributing to the company's operational efficiency.

• Critical, irreversible decisions should be made slowly and deliberately.
• Bifurcation of decision-making into fast, reversible decisions and slow, irreversible ones is crucial.
• Having a strong executive team to discuss and parse decisions is vital.

"If you can change your mind, just make those decisions as fast as humanly possible. [...] But if something that's irreversible, we're going to work this one out until you're so frustrated that you feel so confident that it's the right decision, that we'll know it's the right decision."

This quote captures TJ Parker's approach to decision-making, where speed is encouraged for low-consequence decisions, but high-consequence, irreversible decisions are made with careful deliberation.

• PillPack's strategy was to focus solely on the end customer's needs, ignoring other healthcare stakeholders.
• This customer-centric approach was key to the company's success and differentiated it from other healthcare businesses.

"We effectively put on blinders to everybody else. We said everything we're doing is to make this easier for the customer."

TJ Parker explains PillPack's strategy of prioritizing the end customer over other healthcare industry stakeholders, which was instrumental in building a successful service.

• Founders must find the right time to transition from scrappy, unscalable operations to more structured, scalable processes.
• Timing the introduction of experienced operational leaders is critical to a startup's growth.

"We probably waited nine months to a year longer than we should have to bring in a real operator."

TJ Parker reflects on a mistake in delaying the hiring of experienced operational leadership, highlighting the importance of timing in scaling a company's operations.

• Being selective about the executive team's composition can focus the company's direction.
• The team should be comprised of members who can drive product and growth, which are essential for a startup's success.

"A good rule of thumb is if you bring your head of HR and your head of legal and your head of finance and your head of OPS, and if you bring every one of the leaders on the team into that room, you should take the 3 hours you have and divide it by the number of humans in that room and assume each one of them gets that amount of time to talk."

TJ Parker advises on the importance of carefully choosing which roles are part of the executive team meetings, as this will determine the focus of discussions and ultimately the direction of the company.

• Functional organizations have leaders for each function (e.g., engineering, finance, operations).
• GM-led organizations have general managers with cross-functional teams under them.
• Startups should remain functional until it's absolutely necessary to switch to a GM-led structure.

"A GM focused.org is where you've got single threaded leaders that in theory own A-P-L and under that leader they have ahead of finance, ahead of ops, ahead of product, ahead of tech."

TJ Parker describes the difference between functional and GM-led organizational structures, advocating for startups to maintain a functional structure to avoid the complexities and inefficiencies of larger, GM-led companies.## Organizational Structure and Processes

• TJ Parker discusses the complexity of maintaining consistency across different teams within an organization.
• The need for meticulous leveling and compensation management across various teams to ensure fairness and competence.
• Highlighting the HR and overhead challenges in maintaining uniformity across multiple teams.

"If you have a GM focused.org, you now have to do all this work to make sure that all of your n two s are leveled at the same level."

This quote illustrates the effort required to maintain level parity and compensation equality across different teams within an organization, emphasizing the administrative burden it places on HR.

• Harry Stebbings points out the potential dysfunction in decision-making due to a hierarchy of CEOs.
• The conflict between the autonomy of General Managers (GMs) and the overriding power of higher executives.
• The resultant power chasm that can impair effective decision-making within an organization.

"I also feel like you're creating this kind of dysfunctional decision making because you have ceos on top of ceos."

Harry is expressing concern that having multiple layers of CEOs can lead to dysfunctional decision-making processes due to conflicts in authority and power dynamics.

• TJ Parker argues that having the best people, such as heads of product, engineering, and design, working on every product leads to superior outcomes.
• The importance of team composition in achieving high-quality products.

"Don't have your best people on every product, right? If you've got your head of product and your head of engine, your head of design working on every product, they're going to be better."

TJ is emphasizing the direct correlation between involving top talent in product development and the resultant quality of the products.

• TJ Parker reflects on the importance of equity as a cultural lever in startups.
• The contrast between pre-acquisition Pillpack's focus on equity versus post-acquisition emphasis on compensation and career progression.
• The team-oriented approach to success and failure in early-stage startups.

"Incentivizing your team as much as possible on equity ends up being like the biggest lever you have from a cultural standpoint."

TJ shares his insight that equity is a key cultural driver in startups, aligning team incentives with the company's success.

• TJ Parker's stance on the distinction between the startup world and big corporations.
• Startups are characterized by the high risk and reward nature, while big corporations offer more immediate financial compensation.
• The choice individuals must make between the two distinct cultures.

"Startups are about pulling something off that's incredibly difficult and everyone doing incredibly well if you pull it off. And that's not cash."

TJ is contrasting the high-risk, high-reward nature of startups with the stability and immediate cash compensation of larger companies.

• TJ Parker recounts the initial assumptions and challenges faced by Pillpack, including customer acquisition and reliance on Facebook ads.
• The unexpected suspension from Facebook ads and the subsequent struggle to regain advertising capabilities.
• The importance of accreditation and strategic investments for overcoming early obstacles.

"We got suspended from Facebook ads, and we're like, this is not good."

TJ is describing a significant early hiccup where Pillpack's primary customer acquisition channel was unexpectedly cut off, posing a serious threat to their growth.

• Pillpack's naïveté about the pharmacy industry dynamics and the resistance from incumbents.
• The aggressive public response to termination notices from pharmacy benefit managers (PBMs).
• The strategic moves and negotiations required to maintain service to customers and ensure the company's survival.

"We got termination notices from all of the major PBMs... We got very lucky. We got this guy, Jim Messina, who was Obama's deputy chief of staff, joined our board."

TJ shares how Pillpack faced existential threats from incumbent PBMs and the fortuitous support they received from a politically savvy board member to counteract these challenges.

• The difficulty of vertical integration in the pharmacy industry due to the established power of PBMs.
• The inability of startups to replicate the infrastructure and relationships PBMs have with employers and Medicare.

"It's not just payment processing. They're the equivalent of, you can think about a PBM or honestly a payer in general, as like the demand aggregator in healthcare, they own that demand."

TJ explains the insurmountable challenge of vertically integrating payment processing in the pharmacy industry due to the entrenched position of PBMs as demand aggregators.

• The high-stakes situation Pillpack faced with the potential loss of a significant portion of its revenue.
• The critical decisions and actions taken to navigate through termination notices and secure the company's future.
• The blend of strategic negotiation and public advocacy to protect customer access to Pillpack's service.

"We made the pretty aggressive decision to start a public war... we had not lost a single contract, and we had solidified ourselves publicly as a company that was going to exist in the space, like in perpetuity."

TJ recounts the bold strategy Pillpack employed to fight back against the termination notices and how it led to the company's stabilization and public recognition.

• TJ Parker's personal approach to high-pressure situations and strategic decision-making.
• The enjoyment and calmness he feels in the midst of intense business challenges.
• The importance of staying composed and making calculated decisions in crisis moments.

"Like, TJ, I have a personality that when things get really intense, like, I get calm, the opposite doesn't tend to happen."

TJ reflects on his personal demeanor during critical moments, indicating his ability to remain calm and focused under pressure, which contributed to Pillpack's successful navigation through industry challenges.## Decision Making Process and Acquisition

• TJ Parker recounts the period in early 2017 when his company had just finished overhauling their pharmacy software.
• The company shifted from off-the-shelf components to a completely rebuilt tech infrastructure.
• They explored offering their infrastructure to other startups and engaged with large retailers.
• A conversation with a large retailer quickly turned from commercial to acquisitive.

"We had just finished overhauling all the software that powered the pharmacy... And one of those large retailers went from a very commercial conversation to an acquisitive conversation, like, relatively quickly."

This quote explains the transition from a business partnership to a potential acquisition discussion, highlighting the pivotal moment when their technology overhaul caught the attention of a major retailer.

• TJ Parker explains that the shift from a commercial to an acquisitive conversation was made explicit when the retailer proposed to buy the company outright.

"Yeah, usually when they call and say, hey, could we just buy the company? It's pretty clear it moved from, like, a commercial thing to an acquisitive thing."

This quote indicates the clear and direct approach taken by the retailer, which signaled their interest in acquiring the company.

• The company was at a version of scale with a good sense of their economics and the capital intensity required for further growth.
• Parker and his team had an ambitious vision to fix the supply chain and make pharmacy a shoppable e-commerce experience.
• They concluded that the best way to achieve this was through a large retailer.

"It was doable. We could have definitely built an independent ending company, but it was going to be capital intensive... And we had gotten convinced that the best way to do that was to make pharmacy a shoppable ecommerce experience."

This quote captures the strategic considerations that led to the decision to sell, weighing the capital requirements against their vision for the industry.

• An initial retailer set the terms for acquisition, and while other potential buyers existed, the retailer was the lead contender.
• Amidst the acquisition process, the company faced a financial runway issue, which led to a rapid pivot back to fundraising.
• Parker had to reignite fundraising efforts while still navigating the potential acquisition.

"We got to terms that we were comfortable with... And so normally, that's when I would have raised around... And then within a few weeks of that going, we got to terms with a potential acquirer, and we assumed we were going to sell the company to that acquirer, and we shut down the fundraising process."

This quote details the strategic decision to shift focus from fundraising to pursuing an acquisition due to favorable terms being reached with a potential buyer.

• The negotiation process was described as a dance, focusing on company valuation and investor positions.
• Different potential buyers had varying deal structures, with most deals involving a mix of upfront payment and earn-outs.
• The period between the announcement and closure of the deal is stressful due to regulatory processes.

"It's a dance by the end... By the time it got to doing the deal with Amazon, ultimately it was a phone call that was like if you hit a billion, we're done. And they hit a billion and we were done."

This quote reveals the straightforward approach taken in the final negotiation with Amazon, setting a clear price point that concluded the deal.

• Parker reflects on the moment of sharing the acquisition news with the team as more significant than the financial gain.
• He expresses no regrets about selling, feeling proud of the legacy built at Amazon and the alignment with his vision for pharmacy.

"No, I really don't. That might be true. I'm not saying that's not possible, but when we set out to start POPAC, we just wanted to make pharmacy better... And so that's a legacy that I'm super proud of and really happy about."

This quote emphasizes Parker's satisfaction with the acquisition outcome, focusing on the fulfillment of his original vision rather than potential future valuations.

• Parker associates happiness with time rather than money, though he acknowledges that money provides extra time.
• He discusses his personal happiness in relation to family and lifestyle changes since starting the company.

"Time makes me really happy, and money provides you a lot of extra time. So I'm pretty happy."

This quote highlights the value Parker places on time as a key contributor to his happiness, with money serving as a means to secure that time.

• Parker mentions the purchase of a farm in Park City as a significant but practical investment.
• He addresses perceived negativity towards Amazon online, clarifying that his goal was always to launch a pharmacy service and that he is content with the outcome.

"I have an expensive days, but I'm not going to go through a laundry list of things I bought... And it's a practical but quite lavish purchase and one that I'm excited to build."

This quote reflects on a major personal purchase post-acquisition, indicating a balance between luxury and practicality in Parker's spending choices.

• Parker believes that healthcare will eventually be shopped like other sectors, and until then, it will remain problematic.
• He advises normal human interaction for effective board management.
• Parker has shifted his belief about people moving seamlessly between different types of companies and now advocates for aligning with one's personality.

"Be true that I think that customers are ultimately going to shop healthcare like they shop everything else. And that until that happens, healthcare is going to remain as fucked up as it is right now."

This quote conveys Parker's strong conviction that consumer behavior will be a driving force in transforming the healthcare industry.

• Parker credits Katie Ray and Zenchu as the most impactful angels in PillPack's journey.
• He hopes to continue being involved in building things that improve people's lives.

"I think you got to give it to the first person that ever bet on you, which for us is Katie, Ray and Zenchu."

This quote acknowledges the early supporters who believed in PillPack, emphasizing the importance of initial backing in a startup's success.

• Harry Stebbings thanks TJ Parker for his participation in the interview and expresses appreciation for Parker's candidness.

"Of course, it was my pleasure."

This quote is a polite conclusion to the interview, with Parker expressing his enjoyment of the conversation.