Optum is probably the largest software company that you’ve never heard of. It does over $100 billion a year in revenue, but is part of United Healthcare Group. United is one of the six largest companies in the United States and the largest health insurance company in the US.
On this week’s episode of Agile Giants, I’m joined by Paul Nielsen from Optum. Paul has had a storied career as an entrepreneur and now has brought that mindset to Optum and United Healthcare. He’s really a change agent internally and helping the company rediscover their entrepreneurial vision.
We’ve worked together on a number of projects (including the Optum Startup Studio we chat about on the episode). While I knew a lot about Paul and his role, it was a fun conversation about enabling change and driving innovation.
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Sean Ammirati (00:08): Welcome to Agile Giants, lessons from corporate innovators. I’m Sean Ammirati, your host, co-founder and director of the Carnegie Mellon Corporate Startup Lab and partner at the early stage venture capital fund Birchmere Ventures. Each week, I’m going to talk to guests who are experts at creating startups inside large corporations. I believe fundamentally a startup within a company is the same as one inside the proverbial garage, a group of entrepreneurs trying to make the world a better place using new ideas and inventions. However, I also believe some of the techniques and processes are just inherently different. This podcast is going to explore the similarities and differences.
Sean Ammirati (00:49): On this week’s episode of Agile Giants, I’m joined by Paul Nielsen from Optum. Optum is probably the largest software company that you’ve never heard of. It does over 100 billion dollars a year in revenue but is part of United Healthcare Group, one of the six largest companies in the United States and the largest health insurance company in the US. Optum is a really interesting company because they both serve United and then serve many other insurers. I think you could also say Optum is the world’s largest corporate startup to the extent that this serving their internal customer and then serving external customers is one way to look at corporate startups.
Sean Ammirati (01:34): Paul’s an entrepreneur who’s had a storied career as an entrepreneur and now has brought that internal to Optum and United Healthcare as a change agent in really helping the company rediscover their entrepreneurial vision. I’ve gotten to know him working on a number of projects including a project we collaborated on together at the Corporate Startup Lab, the Optum Startup Studio, that we talked a little bit about this week.
Sean Ammirati (01:58): I will say that this episode was really recorded across two different sessions. We started recording it back at my office in Carnegie Mellon a little over a month ago. Then, when the COVID crisis happened, kept waiting to be able to sit down face to face to finish it and ultimately made the decision to just go ahead and finish the recording over the internet using a tool called SquadCast. Therefore, if you notice the audio change midway through that’s why. I think it’s pretty clear in both sets of recordings, but it will be noticeable the recording changes a little bit midstream. I thought the conversation was so valuable it was worth bringing this to you still. Hope you enjoy this week’s conversation with Paul Nielsen from Optum.
Sean Ammirati (2:45): So just walk through your entrepreneurial background before you got to Optum.
Paul Nielsen (02:50): Great question. I started right out of college with a startup out of Manchester-by-the-Sea, Massachusetts. The founder had founded a company called InterBase. It was a relational database in the early ’90s, probably late ’80s, and that was really the beginning of a 25 year journey in the startup community so that, like many startups, had a great start but ran into a financial wall and we just couldn’t get past that.
Paul Nielsen (03:19): From there though, that brought me into a company called SeaChange International. We bootstrapped ourselves there. We were in the audio video, cable TV space. We were digitizing ads, the time ads were played from VCRs, commercial based VCRs. That was a phenomenal experience. We were founded July 1993 and we went public November 1996. Pretty unheard of. In fact-
Sean Ammirati (03:43): Bootstrapped the whole way through?
Paul Nielsen (03:44): Bootstrapped the whole way through.
Sean Ammirati (03:45): Wow.
Paul Nielsen (03:45): We never had any outside investment. We bought our laptops, we bought our desks, our chairs used from Digital Equipment Corporation, which most people don’t even remember who they were. They were the largest computer company at the time. Then, we went from one domestic product, ad insertion, the end goal was video on demand. That’s what you see in everybody’s home today, which people take for granted. That was us who launched that for the first time.
Paul Nielsen (04:12): From there, I went to a few other startups, couple were acquired for technology. It was a loss from an investment perspective. A couple just ran into the wall, again out of money, and everybody moved on to the next opportunity.
Sean Ammirati (04:26): Sure, which is kind of a normal entrepreneur’s background. Some work out great. Some are more challenging. That’s how these things work.
Paul Nielsen (04:33): Exactly. A lot of times, there’s no real individual fault. It wasn’t a bad decision. It’s just that in two years, things change a lot in the market. In a couple of cases, it was just timing. We had a great idea. By the time we got to the point with an MVP, something else came out that was more off the shelf based available now at a lower cost and that’s what happens.
Sean Ammirati (05:01): Yeah. Okay. You have this kind of classic 25 year entrepreneurial journey and then you go to Optum, which is part of United Healthcare Group. Maybe talk a little bit about the hats that you wear within Optum and United Health.
Paul Nielsen (05:15): That was quite a transformation. I was brought in actually for that reason that Optum, when I joined in 2016, they were already on a journey to transform their culture, their engineering practices, their product practices as well. When I originally came on board, because of my background, Optum Technology was a traditional IT organization, groups of engineers that would build point solutions for businesses as they came along. They’d just build that one point solution, done, move on to the next project. They’re very project based.
Paul Nielsen (05:49): The enterprise realized that, and a lot of big companies realized at this point, you can’t operate like that. You need to think about reusability, you need to think about product centered approach with a roadmap. Right? As opposed to, again, all these point solutions which, by the way, in large companies get recreated 100 or more times. Not very efficient use of your talent or the time and money. When I came on board initially, I had, what was called, the Common Cloud Capabilities Platform.
Paul Nielsen (06:22): Essentially that was one of the first cloud based solutions that Optum created. It was Optum ID, which was the identity management platform. All our partners and providers use Optum ID to log into our systems. Secure Messaging, which just as it sounds, it’s our SMS capabilities, our email capabilities and other communications that are secure that meet HIPAA standards and certifications and all of those things. Then, Federated Data Storage, which was a secure place for providers or members when they email in maybe their ID or some PII or PHI, piece of information, it’s secured. It’s stored in a very secure environment. That was the first platform I had. My charter was to actually make it. It was built as a point solution, build it, create a roadmap around it, create the right teams around it and apply modern practice to it.
Paul Nielsen (07:21): It was also largely underwater from an operating perspective. We had to, in a lot of cases, rearchitect some of the solutions to bring in more modern components to a technology as opposed to some more of the legacy. There were some where you needed elastic database, there was a relation database in place, things like that. Right? Again, not uncommon and no fault to anybody. It was just – enterprise tech. Then, from there, I moved into a role, we created something called the Advanced Technology Collaborative. That’s a group of distinguished engineers, highly knowledgeable, very focused in particular domains like machine learning, deep learning, AI, NLP, IoT, genomics, etc. This group was meant to be a shared resource across all of the businesses, all of the enterprise itself, and to be able to look at those emerging or advanced technologies and recommend to the businesses how they can best use that in their particular line of business and their applications to modernize and automate their products to be more competitive. Quite frankly, we’re seeing now competition from nontraditional healthcare providers or technology companies, Google, Amazon. You didn’t think of them as a healthcare company or healthcare technology company, but they are, right?
Sean Ammirati (08:48): That’s right.
Paul Nielsen (08:48): They have huge scale. Then, there was 1.6 billion dollars, I think, put into venture capital in the healthcare startup space last year. That’s significant. There’s a wave of disruption coming. For us to stay ahead of that, we needed to make these changes so that’s what this group is intended to do.
Sean Ammirati (09:12): Just for context for people, I think most people probably know United Healthcare, they may or may not know who Optum is within that, so maybe just the quick summary on that.
Paul Nielsen (09:23): That’s a really great observation because I had the same, I never heard of Optum or Optum Technology or Optum. Period. You think about United Healthcare, everybody thinks it’s an insurer. It’s a payer. That’s just one of a suite of technology or companies that UHG, UnitedHealth Group, has in its portfolio. Optum Tech, we have 500 or more applications in the market. Customers like Highmark use it, not just United Healthcare, UPMC and other providers. Optum, we’ve acquired MedExpress, Southwestern Urgent Care, DaVita Group. We’re getting into the actual care delivery. Optum Tech, as a whole, just crossed 100 billion in revenue for the… Which is I had no idea that this …
Sean Ammirati (10:17): Right. I mean 100 billion in technology revenue, just for people’s perspective, would make it one of the largest technology companies in the world. Salesforce is about a third that size, I believe, for perspective. It is, I’m pretty confident, the largest technology company that you haven’t heard of if you haven’t heard about them before.
Paul Nielsen (10:40): It’s a well kept secret. I know our earnings are reported as UHG. You have to go down and go through the filing to pull it out, but we do report Optum earnings. It’s crossed the 50% mark or I think it’s expected to cross the 50% mark at the end of 2020. That’s the forecast that’s given to Wall Street.
Sean Ammirati (11:00): Optum will be 50% of the whole group’s revenue.
Paul Nielsen (11:03): Or more.
Sean Ammirati (11:04): Or more. Wow.
Paul Nielsen (11:05): Yeah.
Sean Ammirati (11:05): Interesting, interesting.
Paul Nielsen (11:06): The group, I think, did 220 billion in 2019. That means instead of the 100 billion we just crossed, we’re going to exceed that by 120 billion or 130 billion. Something like that. You’d have to go back to the earnings.
Sean Ammirati (11:20): Sure. It’s fine. It’s fine. It does give people, I mean all of those are big numbers, it gives people a sense of the scale of the technology that you’re talking about. Then, you’re doing, to be clear, kind of advanced technology and innovation is your role within this enterprise.
Paul Nielsen (11:38): Yeah. With that, it’s also… So I have three pillars really. One from the cultural transformation, I created the United Healthcare Group Academy of Technology. That’s a society for our most highly recognized engineers. It’s really honoring them for their contributions not only to the company, but to their particular domain and what they do outside the company. Then, I launched the Optum College of Artificial Intelligence. That’s again to convert our workforce, enable them with the skills to be practicing AI engineers. Right?
Paul Nielsen (12:12): Then, I have my strategic partnerships pillar, which includes the partnerships we have here at Carnegie Mellon University where we have collaborative research programs in place. We sponsor capstones, we partner with the Carnegie Mellon Startup Lab and partnerships with Intel and Google. They certainly have a lot of capabilities that can help us scale. Also, the Optum Startup Studio, which we partnered with Optum Startup Lab, in creating an incubator essentially for early stage companies.
Sean Ammirati (12:45): Paul, let’s actually focus in a little bit on the Optum Startup Studio because I think it’s an interesting model. Obviously for full disclosure for everybody, I do run the Corporate Startup Lab. This is a program that I’m part of, but I do think this is a great model. Paul, maybe talk a little bit about the goals of the Optum Startup Studio and kind of how the project works.
Paul Nielsen (13:02): Sure. The Optum Startup Studio we just launched recently in the last couple of months. The intent of that is to be able to seek out young entrepreneurs, both here on campus and in the community as well outside Pittsburgh, it’s not limited, but these young companies have unique either services or products for specific areas of healthcare that we recognize that’s a priority to our businesses in terms of the digitization and modernization effort that we have. We partner with your startup lab. One of the challenges in healthcare is to get into healthcare if you’re a small company.
Paul Nielsen (13:44): Innovation, as I think most people recognize, really happens outside the big companies in these small entrepreneurial environments where they don’t have the encumbrances that big companies have, simply because they’re large and they have governance and structures that you have to have when you get big. Creating this environment out here, this startup studio where we can incubate young companies, we can bring our deep domain knowledge. UHG is in every part of the healthcare ecosystem from processing claims all the way to care delivery, the clinic environment and including fintech. We have the Optum Bank and OptumRx, so we’re literally in the-
Sean Ammirati (14:28): Which is like pharmacy, right?
Paul Nielsen (14:29): Yeah. We’re in the whole system. We can bring the relevant SME, subject matter experts, the domain knowledge, the data, and that’s one of the hardest things to get here. The data is so highly governed, both from a federal level and a state level, in terms of ensuring privacy of the PHI, the personal health information, and your PII. That’s very, very hard to get. Right? Most companies we’re looking at use data for their products. Whether they’re based on machine learning, deep learning or combination thereof, natural language processing, that all revolves around data.
Paul Nielsen (15:07): We’re looking for either automating our back office claims adjudication, we’re looking for giving physicians better information by mining existing data, whether it’s specifically a patient or a group, so they can have that information to make better decisions on how to treat somebody, right? Those are the assets we bring to these teams. Then, with the Corporate Startup Lab here at CMU, you help them perfect their business model. Then when we get to the MVP, we can give them an environment to do a pilot, a real pilot.
Sean Ammirati (15:45): Just to sort of add a little bit to this, there’s a bunch of different places that you can go start a company today, right? It’s, to me, magical. These software accelerators here in Pittsburgh, we have AlphaLab and AlphaLab Gear, but I mean there’s literally thousands of accelerators around the country. Some of them are even partnering with companies. I know United Healthcare has partnered with Techstars, which I think is great, but this is a little bit different model, right?
Sean Ammirati (16:10): We’re talking about your group really being almost paired up with the startups to give them the expertise, the wisdom that you can only have from having the visibility that United has across the entire kind of healthcare ecosystem, data, and then, to your point that you just finished with, also when they’re ready, the right customer introductions for that pilot engagement. If I’m an entrepreneur today thinking about starting a healthcare company, a healthcare technology company, this becomes a really compelling accelerant relative to all the different accelerators out there.
Paul Nielsen (16:50): I’m a mentor at Alphalab. I come from a startup environment and I understand how they all work. The unique thing here is we’re actually trying to accelerate the accelerator.
Sean Ammirati (16:58): That’s right.
Paul Nielsen (16:59): Right?
Sean Ammirati (17:00): That’s a good line.
Paul Nielsen (17:01): By bringing in all these experts and data that we have and then, at the end, like you just said, we have partnerships with venture capital, both local and the large ones like Intel Capital, that they’ve agreed to come and look at this company. We have our own venture capital groups, we have three of them. We have Optum Ventures, which they’re not early stage, they’re more late A round or B round. We have UHC Ventures, which is they’re very focused on more of the provider payer space. Then, we have UHG Ventures, which actually grow service companies. They’re actually there for six, seven years. Right?
Sean Ammirati (17:43): Interesting.
Paul Nielsen (17:44): This is a feeder and we look at this as if we like this company, we’re going to bring it into Optum Tech. Optum Tech can then take it and incubate it, support it for another year or two, get it to grow, get it into one of our lines of businesses for a true market trial where they generate revenue. They become really a vendor. Then, if they grow from that point, we can decide, “Hey, this is perfect for the ventures. It can become a funnel into the Optum Ventures.” Or we could say, “Hey, we want to acquire you right here.” Right? There’s several avenues.
Sean Ammirati (18:16): It’s at kind of arms length, but there’s lots of options here which is great.
Paul Nielsen (18:19): Exactly.
Sean Ammirati (18:20): Yeah. I want to go back to something you said earlier about the the cultural change part of your role. Stepping up a level, how do you think about strategic fit of innovation ideas within Optum?
Paul Nielsen (18:32): We have tremendous talent within our workforce, right? This is part of the bigger program, we just talked about the Optum Startup Studio, I’m building a shark tank in the company for these brilliant people we already have on our payroll to be able to have opportunity to take their idea, bring it into… Really make a company out of it by giving them the support internally to innovate. If it’s adopted, it becomes a company within the Startup Studio. We’ll continue that evolution. Then, again, they could find themselves building a company that ultimately becomes part of the bigger enterprise.
Sean Ammirati (19:15): Sure. I mean in the language you talked about a lot on Agile Giants, there’s both sort of inside out innovation here and outside in, right? You’ve got these internal startups that can grow and blossom as a full kind of startup within the larger enterprise. Then, you’ve got outside in, these startups that you can partner with new companies and bring the expertise and resources of Optum to bear.
Paul Nielsen (19:36): Exactly.
Sean Ammirati (19:39): All right, excellent Paul. Next question is how do you think about your background as an entrepreneur helps you as a change agent inside Optum?
Paul Nielsen (19:46): That’s a great question, Sean. If I look at my background coming from small companies, startups from just [inaudible 00:19:55] all the way to a product into the market, when you’re a small company, you have very limited resources. You have to be very focused on where are you going to apply those resources? You have to be very conscious and actually do the research of what you’re building and make sure you have a target market, a target customer in mind, audience.
Paul Nielsen (20:17): With that being said, my experiences coming from an entrepreneurial startup into a large company and trying to transform them, I come in with the perspective is that there is definitely a time is of the essence, focus is of the essence. Big companies, a lot of times, you have a lot of comfort, there’s a lot of resources around you. There’s not the sense of urgency in getting something done, at least at an MVP level, and then get it out into the market to test its market fit.
Paul Nielsen (20:52): I bring in that experience and just that practice that I’ve learned over the last 25 years and I do without thinking into this new environment where I’m coming from it from that perspective and saying, “Hey guys. Let’s be very focused here. Let’s first find out that we have a market. Let’s do a test. Let’s get an MVP. Let’s get it out there into a pilot of some sort, so we can actually determine if, in fact, there’s a need for this. Then, if it doesn’t, let’s stop now and move on to the next project.”
Sean Ammirati (21:23): Yeah. You’re kind of unencumbered by the pace of large companies.
Paul Nielsen (21:28): Exactly.
Sean Ammirati (21:29): Yeah. Yeah. Sort of the other side of that coin, I’m curious sitting where you do now as an exec inside a large company, what do you think you didn’t appreciate as an entrepreneur that you do appreciate now?
Paul Nielsen (21:43): Exactly that freedom, that [inaudible 00:21:45] I think, at the time, I never even thought about that as being a benefit or just a thing. It was just part of our world at the time, so I definitely miss that. I appreciate it much more. I also appreciate the fact that all of us that were working together, and typically they’re small teams, you start out with two, three, four, five people, and then you grow based on the demand, based on need as opposed to sometimes you add a lot more resources in a big company than you really need. Yeah, I miss that. I also miss just that… I appreciate much more that everybody comes in with that same sense of urgency in a small company, in a startup.
Paul Nielsen (22:31): The other thing is everybody’s willing to do more than just a single thing. Right? You find that you all come together. You talk about what your plans are, what the next step is. Everybody wears multiple hats. That’s something that I also appreciate because it, quite honestly, makes everything more interesting. Right? Then, everybody goes off and executes, comes back. You definitely talk all the time, because you’re a smaller group, but you share your results.
Paul Nielsen (23:02): You make a quick decision on, okay, was that good? Was that bad? Let’s adjust and iterate again. Right? You keep moving doing that. I now appreciate that process much, much more than I ever did before. Not to say that large companies have to have governance, there has to be structure because you’re large. Typically, if you’re public, you have shareholders to keep in mind. There’s a lot of other things, regulatory requirements that are much more meaningful. They have to be adhered to. There is a purpose for all of that. Right?
Paul Nielsen (23:42): You do have to, if you want to innovate as a big company not just continue to get returns from the investments you already have and the product you already have in market, then you do need to carve out a group that can go off and be innovative in a startup environment, like a lean startup. Practice those lean skills and remove the encumbrances. Otherwise, you just can’t keep up with that external market.
Sean Ammirati (24:07): Yeah. Just I guess a related question to that, you did a lot of big strategic business development with the startups you were part of with some really large companies. You talked about earlier some of the stuff you had done in that space. I guess would you approach strategic BD any differently now having kind of been on the other side of the table? Any lessons learned from a business development or a strategic sales perspective?
Paul Nielsen (24:34): Yes. I think what I would do differently than I did in the past is trying to come in, break into a large enterprise and very mature market takes a long runway. You have to be prepared for that. What I also learned about being on the other side is that really you need to know who is the real competition? It’s not necessarily the other two or three or four startups that you are aware of. It’s the internal groups that see what you’re doing. You may even be working with them but, behind closed doors, they’re saying, “Well, we can reverse engineer this and we can build this.”
Paul Nielsen (25:14): They’re building a business case internally. While you’re selling and thinking you’re moving forward, they’re learning from you, taking that and building a business case that then they go into their internal management process and say, “Hey. We can do this and we can do it in nine months. We can do it. We can own it and have full control and all of that.” That’s what I found is the real competition.
Sean Ammirati (25:38): Yeah, and sort of an appreciation for that real competition probably changes the landscape a little bit too as an entrepreneur. Right?
Paul Nielsen (25:45): Yeah. I would be more, next time around, I would be more specific in the agreements I put upfront. I would very much define if we did X, Y, Z, then it automatically triggers a purchase. Right? Otherwise, I’ve learned you can go through for years of constant iterations on requirements and can you do this? Can you do that? When what was happening in the background is they’re building their own case or even product based on your guidance without you knowing it.
Sean Ammirati (26:23): Yeah, exactly. Last question, I’m curious, you’ve had a really interesting varied career coming out with a computer science degree and doing all of these different kind of interesting innovation roles, creating startups, creating startups inside big companies. For maybe people who are listening to this and thinking about what’s next for them and sort of their own career, try to follow after you, what type of career advice would you give to somebody today just starting their career?
Paul Nielsen (26:52): If they’re coming out in the technical field, clearly in today’s world, technology is a big part of the future even more so now with our current pandemic and COVID. Coming out of this, I think it’s creating a new opportunity for a lot of new local companies that will maybe bring back manufacturing, but not in the way we did before. Robotics have progressed to the extent that you can build a plant that will still require new hires, which any new hires in manufacturing in this space is new, right? We’ve moved it all offshore.
Paul Nielsen (27:29): Using your robotics or computer science skills, you can produce product here maybe not as inexpensive as you can if you offshored it, but not much more, a small premium. I think the market will find that they’ll feel more that that’s a more reliable source. I would say focus on these new opportunities that are emerging here to bring back manufacturing to products that we had offshored, but using technology like robotics and other automation AI to actually manufacture it. You’ll still have to hire people that will come in and have to manage those machines and instructions, and that’s a whole new job set.
Sean Ammirati (28:11): Yeah, that’s awesome. Yeah. You’re hearing more and more it’s time to start reevaluating some of these things, reimagining some of these things. I think it’s a great area of innovation and opportunity for our new technical graduates today for sure. Paul, I really appreciate you taking the time to wrap this up. We had some challenges along the way with the technology. I appreciate your patience on that, and thanks for sharing your wisdom with the Agile Giants’ audience today.
Paul Nielsen (28:36): It was my pleasure. Thank you for having me. I hope to be able to come back again.
Sean Ammirati (28:41): Absolutely. Thanks. I hope you enjoyed this episode of Agile Giants. If so, consider sharing it with a friend. If you think it’s worth five stars, which I hope you do, please go to iTunes and rate it so that others can find this content as well.