Wellspace/SickSpace: Reflections on a Pioneering Integrative Clinic Gone Down for the Count
Written by John Weeks
Wellspace/SickSpace: Reflections on a Pioneering Integrative Clinic Gone Down for the Count
Summary: Wellspace, the
pioneering, 10,000 square foot integrative center in Cambridge,
Massachusetts, has gone belly up. Founder Mort
Rosenthal, one of the more intriguing entrepreneurs in the field, tested a business model and concluded that his goal of a national
roll-out of similar clinics was not possible. He sold the firm. To all accounts, the
Harvard pedigreed individuals who held the reins in the organization's death throes were a
different breed. Within short months of a January 24, 2007 press release which waxed eloquently about Wellspace's future, they shut its doors. A trail of emails from disgruntled parties reached the Integrator,
seeking information about how to get paid back on broken promises and
bad debt. Here is a short review of an immensely instructive, if
unsuccessful, venture. i conclude with a comparison with Massage Envy, which appears to have broken the code for a successful, national, complementary healthcare services business.
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"We have come to a tipping point in the history of Wellspace."
This sentence in an electronic notice to the employees and investors of Cambridge, Massachusetts-based Wellspace was dripping with irony. Frankly, I am not sure that the irony was not intended by the high profile, venture
capital spending buddies who were responsible for the email sent in early July 2007.
The message was sent by Daniel Braz and Paul Clemente, the two leaders of Wellspace in its most recent and apparently final incarnation. Clemente, while at Harvard Business School, had reportedly helped research a case study, authored by consumer-health maven Regina Herzlinger, PhD, which presented Wellspace as a model of consumer-driven healthcare. Wellspace was taught as just the kind of disruptive
innovation that would take US health care to its tipping point
into a new era of consumer-driven health.[NOTE: Herzlinger wrote to the Integrator subsequent to the publication of this article to state that Clemente was not involved and in fact that the case study was ”an object lesson in business models gone awry.” The Integrator correction is available here. Herzlinger subsequently shared with the Integrator, via an email note on November 12, 2008, that "Clemente was never a student or employee of the Harvard Business School."]
The tipping, in the case of the July 2007 employee memo, was down the tube. Within a month of that email, the Integrator began
to receive a steady flow of queries from former employers, vendors,
investors and purchasers of Wellspace gift cards. Why? Google searches
under Wellspace, by aggrieved individuals, found an Integrator piece from March 2007 that had forecast the end.
Yet the Wellspace venture, founded by Mort Rosenthal,
began honorably. It just couldn't turn the margin its venture capital
backers forecast. Wellspace, for which I served briefly for Rosenthal on an advisory
board, merits notice on its exit - plus a look at how the model compares with the apparently successful Massage Envymodel.
_______________________________
Entrepreneur Mort Rosenthal
Wellspace was founded by software success story Mort Rosenthal. Rosenthal's plan
was to prove a business model for an integrative center then roll it
out nationwide as a "branded" clinic.
A handful of other venture-based initiatives were born in the same era,
with a similar business plan. The most visible and highly capitalized
was American WholeHealth.
Each venture group saw "alternative medicine" as a young, chaotic
industry, but with robust consumer interest, reeking of opportunity.
Rosenthal was among those who saw parallels with the early years in the
software industry, where he'd made his first significant money.
The business logic made some sense. What "alternative medicine"
needed, so the argument went, was rationality. The ability of the market to grow was hindered
by alternative medicine's informal and, well, funky aspects.
The logic had a certain attraction. What "alternative medicine"
needed, so the argument went, was rationality. The ability of the market to grow was hindered
by alternative medicine's informal and, well, funky aspects.
Consumers, in this view, were put off by provider shingles hung out in
second doorways of old homes, or other locations that didn't feel right
to the average Joe or Sue. Consumers would be drawn by facilities and
businesses built and organized to dependable standard of quality.
Consumers who were maybe curious about trying alternatives would gain
confidence if alternative medicine was presented with a familiar corporate look.
In this vision, marketing would combine natural health care's word-of-mouth foundation with professionally-purchased marketing. Bingo, the new brand would sweep the country. Or at least the nation's
metropolitan areas. In short, a nationwide chain of integrative or
natural health practitioner-in-the-boxes. The Original Wellspace Model
Rosenthal's model was complementary and alternative healthcare
practitioner-based, rather than medical doctor-oriented. The 20+
treatment room, 10,000 square foot clinic was handsomely appointed,
featuring natural woods, and an entrance atrium. The clinic offered
mostly massage therapy
and bodywork. There was some acupuncture and one naturopathic doctor.
No
medical doctors were on site. Given that naturopathic doctors have no license to practice in Massachusetts, the center offered no general
medicine of any kind. Payment was through cash.
The national roll-out was on the
hook if the anchor site could not generate the revenues anticipated.
Rosenthal hired top local practitioners who had strong reputations,
seeking to roll their clientèle into the new site. This was part of the
Wellspace strategy to quickly push volume and revenues. These revenues would fuel the expansion.
Rosenthal learned within months that the happiest projections of client
growth which had supported outside investment in Wellspace were not
going to materialize as anticipated. The national roll-out was on the
hook if the anchor site could not generate the revenues anticipated.
A skilled businessman, Rosenthal responded quickly. He worked to bring
the anchor site to break-even by battening
down the hatches, cutting costs where ever he could. He tried out new
clinical programs. Practitioners were put on split fee arrangements.
With such vigilance, Rosenthal discovered that he could bring the
center to
operational break-even on a month-to-month basis. But could revenues
could
pay for the facility, for start up, for corporate overhead and for the
expansion which was needed to satisfy the venture partners?
Product Type: Case (Field). HBS Number: 9-303-017.
Geographic Setting: Cambridge, MA
Industry
Setting: Health care industry
Gross Revenues: $10 million revenues
Event Year Start: 2002 Event Year End: 2002.
Subjects: Business models; Entrepreneurial
management; Health care; Health organizations management; Innovation; Venture
capital
Academic Discipline: General management.
Product Description: How should WellSpace, a venture
capital-backed purveyor of alternative health services, expand? Although it
was nearing breakeven in its first location, the right business model
remained unclear.
Rosenthal 's Lesson in CAM Economics: No Remainder for Expansion In the late spring of 2002, Rosenthal honored a commitment to make a presentation he had committed to making to
attendees of the Integrative Medicine Industry Leadership Summit. Rosenthal
appeared despite having already decided that his days with the
Wellspace venture were, effectively, over.
Rosenthal arrived with a short lesson on the economics of corporatized natural
healthcare. He first shared that Wellspace was at, or near, operational
break-even. There was money to pay
people to provide the services and cover basic overhead. As a
healthcare operation, Wellspace was functional, economically.
Rosenthal's simple act of
arithmetic showed that while he was employing CAM practitioners and many clients were being served, he saw no way to please his venture capital partners.
Then, using an easel, Rosenthal set up a vertical column of numbers.
Few of us had witnessed such elementary education since lessons on additional and subtraction in grade school. Rosenthal wrote down what Wellspace believed the
market allowed the company to charge for a massage. He then subtracted
the amount paid to the therapists - just under 50%. He subtracted
operational overhead. The dollars began to zero out. Then he indicated the need to eventually cover some start-up
costs. And where was the excess to fund the roll-out? It was evident
that the 20-%-30% margin desired by venture capitalists was nowhere to
be found. In short, Rosenthal showed that he, while he was employing CAM practitioners and many clients were being served, he saw no way to please
himself or his venture partners.
I've passed this simple lesson on a score of times since to individuals or organizations which needed to have their visions of integration grounded by a lesson in subtraction. A hospital CFO in a not-for-profit environment can be as tough to please as a venture capitalist. The CFO
will quickly recognize the chasm between what a massage therapist can
generate in X square feet and what a high cost procedure performed in the same space
might produce.
Interestingly, the experience parallels
that
with the better-funded American WholeHealth (AWH), which had an
MD-centric model.
When AWH pulled the plug, many of the individual clinics were reportedly in the
black or near to running profitably. They were going concerns as
healthcare delivery organizations. However, the venture backers saw no
way to dig out of their hole. The clinics were shut, or sold back to
their prior operators.
The Braz and Clemente Era: little learning from Harvard, or Rosenthal ...
My first awareness of what Braz and Clemente believed they could
accomplish was from a press release from Wellspace published January 24, 2007 ("Wellspace Reports Explosive Demand for Integrative Medicine.") It appeared
to me to be misleading in its optimism. True, the new owners had instituted
some changes in Rosenthal's model. They had purchased an existing
medical practice, creating a more "integrative" potential.
Braz and
Clemente showed no sign that either Harvard Business School or
Rosenthal's school of hard knocks had rubbed off on them.
Yet a language of naive optimism about a burgeoning
consumer interest in complementary and alternative medicine, all too familiar in 1996, still dominated. To read the announcement, a tipping point for alternative medicine seemed to be at hand. Braz and
Clemente showed no sign that either Harvard Business School or
Rosenthal's school of hard knocks had rubbed off on them. On Valentine's Day, 2007, I published a short article entitled Integrative
Medicine Clinic Report: Wellspace Pokes Up Its Venture Capital Head in Odd, Retro Announcement.I concluded this way:
"Take a look at the release and see what you think. One thing will be clear: thewriter of the release forgets the Rosenthal era by referring to the Clemente-Braz team
as Wellspace's founders. One hopes that they haven't also forgotten the
lessons hard won in the Rosenthal era. As an esteemed student of
history once said, yes, history repeats itself - the first time a tragedy, the second a farce."*
In early August, emails from former Wellspace employees, vendors and clients began to arrive at the Integrator in-box. Their search for answers had led to some Googling, and my February 2007 article. Here is a typical
note, this from a former clinician, just before the doors were shut:
"I
thought this might be of interest to you. Most of the team leads have
quit, except two, and one of those is on his way out. The whole
place is collapsing. The other day, since they are still in trailers at
Fresh Pond Mall (since September 2005), Wayside management came and
towed one
of trailers away due to payment owed in the area of $27,000. Salaries
have been cut, and some paychecks have bounced. I happened to get
forwarded this email that was only sent to board members. I get
confused by some of the rhetoric, but I think it means the end
is nigh."
And another, from a group of Harvard graduates:
"Would you kindly fill me in, even briefly,
on what went on and the status -- bankruptcy filing -- or other and
when. There are a number of us (all Harvard grads ironically) who go
way back with the original Wellspace, mourned the sale, and are out
cash because they would not refund our Wellspace 'gift' cards and
forced us to defer for future services. If
bankruptcy, we'd like to get in line or, if other, file a small claims court
petition. Any
insight as to the actual status would be most appreciated. Any ideas on how to find either Clemente or Braz?
A third, from a client:
"It appears
that Wellspace has gone out of business. As a very long term client I am
most distressed as I was sold a $369 gift card in May which I had yet to
use. Do you know how I would get in touch with Clemente or Braz to get my
money back? Any help is most appreciated."
Wellspace was shut down, and its website. The pioneering firm appears to be down for the count.
Coda: Comparing the Wellspace and Massage Envy Models
The recent, apparent success of the Massage Envy
business model - with reportedly 707 franchises currently "awarded"
according to the firm's website - suggests that a successful national
roll-out of branded businesses featuring massage is possible. (See related Integrator article here.)
The model, developed by Massage Envy founder John Leonesio,differs from Rosenthal's Wellspace model in a number of substantial ways.
_____________________________
Wellspace and Massage Envy: A Comparison of Two Models for National Roll-outs
Wellspace
Massage Envy
Therapy types
Massage, acupuncture,
limited naturopathy, Yoga,
groups
Former spa-entrepreneur Leonesio appears to have done
what Rosenthal sought to do. He appears to have broken the code for a national business based on services of licensed
practitioners of natural health care. A part of the success, however, may be attributed to
the changing times. Leonesio notes that his impetus in developing
Massage Envy was a realization that, to the consumer, massage is
migrating from being a luxury to being a necessity. Rosenthal, on the other hand, entered
the market with Wellspace at a time when massage was still migrating from it's association
with airport strip parlors into legitimate healthcare practice.
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