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Wellspace/SickSpace: Reflections on a Pioneering Integrative Clinic Gone Down for the Count PDF Print E-mail
Written by John Weeks   
Tuesday, 27 November 2007

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 Envy model.
_______________________________


Wellspace, integrative medicine clinic
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?


____________________________

Summary Information from the WellSpace Case Study
at Harvard Business School


  • WellSpace Treatment Centers for Complementary and Alternative Medicine.
  • Author(s): Herzlinger, Regina E.; HuangPu, Jun; Lin, Bing.
  • Publication Date: 07/23/2002 Revision Date: 08/14/2006.
  • 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.

From HBS case study noted here.
_________________________

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: the writer 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
   Massage
Practitioner
experience
  Target established
practices
  Target new graduates
Fees to massage
therapists
  >$35 treatment est   roughly $20 per
treatment
Facilites    High-end, costly    Quality, no frills 
Marketing     Word of mouth,
advertising
  Membership;
word-of-mouth;
corporate programs;
advertising
Expansion
strategy
   Based on revenues
from initial clinics
  Franchise model 
         

______________________________________

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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Last Updated ( Wednesday, 12 November 2008 )
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