An Entrepreneur's Mission to Revolutionize PBMs | A.J. Loiacono, Capital Rx

Transcript Disclaimer: This transcript is generated using speech-to-text technology and contains errors or inaccuracies.

Mike Koelzer, Host: [00:15:00] AJ, for those that haven't come across you online, introduce yourself and tell our listeners what we're gonna talk about today.

AJ Loiacono: I'm AJ Loiacono. I am the CEO of Capital Rx. We are a pharmacy benefit manager. That service. Self-insured payers like employer groups, unions, municipalities. We're also a P B A Pharmacy benefit administrator, where we sell our technology and services to sophisticated payers. These could be health systems, health plans, carriers that require a combination of processing and end services.

We've been in business for about six years, headquarters in New York City, and hard to believe a little over 540 ish employees at this point

 AJ Loiacono: Today. As we look back, the last time I spoke to you, it was two years ago. It's hard to believe. And I think during that time, when we originally were talking, it was, why does the industry [00:16:00] need a differentiated problem? What is wrong with legacy P B M models and legacy P B M services?

And I think now the pendulum has really swung quite a bit to the other side where suddenly you're looking at everyone questioning what A P B M is doing, what their value may be. You're seeing the F T C investigate PBMs, you're also looking at the Senate Finance Committee and legislation on P B M reform, even state legislators changing rules, be it, everything from West Virginia to Florida around spread pricing and fair reimbursement to pharmacies.

So quite a bit has changed in two years , 

Mike Koelzer, Host: aj, when I think of changing, I always think that part of the reason things have come to light is because of the internet, LinkedIn, and getting stories across on TikTok and podcasts and things like that. Do you think that's been part of it? That brought some of this to the [00:17:00] light, and if not that, why the timing now?

AJ Loiacono: I think yes, in a combination of some other things. So let's start with the first one. I think modern communication and the appropriate sized amount of communication. We like bite-sized media in the United States, and so I, I think it's, it makes it more accessible. I think there are some really. Brilliant people out there that are able to take complex ideas and simplify them very quickly to have people understand what is wrong or why there is a problem. I also think it makes it easier for someone to just let more people know if they have a bad experience or something doesn't make sense. There was a time you would have to literally put together a professional media production to make a video.

Now you have this tool in your pocket that not only will be a relatively good studio and editing form for you, but publish it for you and [00:18:00] communicate. I think the other thing is drug spending is catching up to this country. When I started in this industry, it's hard to believe.

23 years ago in 2000 drug spend, top line was roughly $120 billion industry, and today it's over 600. Billion dollars top line. And have we increased our population 500% over this time? No. How did we go from something that was, five, 6% of healthcare dollars to suddenly being 30-40 for some payers, 50% of their healthcare dollars?

So I think the urgency was created by suddenly there's this catastrophic event of cost that could be at a personal level for a patient or at a plan level for a small employer group. And this is pushing this conversation to the forefront. And then for what we just talked about, I think it's great that people can [00:19:00] make a TikTok and help people understand P B M or healthcare more efficiently.

Mike Koelzer, Host: The manufacturers are gonna say of course drug spend is more now because we've got better drugs and we're keeping people out of the hospitals. And of course it's also gonna be a higher percentage because look at all the people out of the hospital. . Is that a true statement or has that taken off way past that with drug spend?

AJ Loiacono: I'm gonna say something a little bit different here, which is I think pharma is part of a system that they didn't really create on their own. And what I talk about here is drug inflation. Branded products might inflate anywhere from five to 10%. This simple molecule brand and specialty drug might inflate anywhere from seven to 15% compounding each year.

And someone might be like they benefit from being pharma, they benefit [00:20:00] solely from drug inflation and price increases. And I say not since 2014. And someone would be like, wait, what's so special about 2014? And I call it the price curve to gross, to net curve inverts, where once upon a time, if I were to increase the price of a branded drug by a dollar, Yeah, it would be safe to say pharma would keep maybe 50 cents on the dollar and then over time, through the creation of formularies and pay-to-play economics and even exclusionary formularies.

And then you have consolidation in the industry, increased purchasing power by three or four large entities. You know what happens is suddenly that power flipped where pharma was in charge of the supply chain and the vertically integrated carriers took over and when that occurred, every time A P B M would ask Hey, I need [00:21:00] rebates or additional considerations.

That's the net coming off the list price. What happened was pharma ran out of room like, so in the old days, you need more money. I'd just increased the drug prices, but suddenly state legislation and federal legislation and the press started looking at these price increases and. They had to cap themselves like, I need to cool this down because I'm drawing too much attention.

And so now for every dollar increase that pharma might increase on a drug, the P B M and the vertically into carriers are pulling a dollar five, a dollar six pack. And this is gross to the net. So the list price, yes, is going up, but branded and specialty products are actually falling.

And they've been falling since 2014. And so this is very important to remember because outside of catastrophic risk, and this, catastrophic risk is something [00:22:00] uneventful. You have a high cost claim and enter your experience. When you look at or study a large population, there's really no catastrophic risk.

It's all occurring equally in your population on a large enough sample. And so the point here that I'm trying to make is that. If branded products are falling net and specialty is falling net since 2014, and generic drugs have been deflating since 2014, why is anyone's drug trend positive?

It's because the supply chain is opaque and overly complex and this allows for certain parties to take advantage. I said this publicly, so I might as well say it again. If people ask me to summarize healthcare in the United States, I unfortunately describe it as an arbitrage on patient ignorance.

Mike Koelzer, Host: For sure. 

AJ Loiacono: it's [00:23:00] overly opaque and because it's overly complex, the end patient is confused. What is the real price? You know what's really fascinating is if you were to put together a panel mic of subject matter experts and we were to play a game, what is the net price of this drug?

We wouldn't be very good at

1. It depends on what lens you're looking at, because gross to net is what I call asymmetric warfare. It's not okay, the manufacturer has a list price of a hundred dollars and the real price is more like 45 and it's just one big discount. No, some of that is price protection.

Some of that is a rebate. Some of that is just a good old fashioned discount or bulk rate or chargeback or whatever it may be. Clinical access fees. There's hundreds of different things that are pulling value. Some of this is couponing, some of this is patient assistance, but it's just pulling down gross to net for the manufacturer.

And so [00:24:00] it's a very complex discussion, but it never needed to be.

The Reason why this conversation has become so complex is because unfortunately, Administrators that's really what a P B M A pharmacy benefit manager let you know. Let's call 'em. What they are is they're doing hundreds of administrative tasks.

So let's just start with, you need something there. You can call it a P B M, you could call it an administrator. You need someone on behalf of the payer to manage eligibility and accumulator feeds instead of formulary, manage plan design and have a call center and reporting and print cards and letters and prior authorization and approvals and hundreds of tasks that are going on the backend.

So I always wanna point that out. And normally when you perform a task, you do it for some form of a fee,

Mike Koelzer, Host: Fee, right?

AJ Loiacono: but not tax on the service or the good.

And I think [00:25:00] that's where the industry started to go sideways, with kind of the entire P B M industry coming forth with a business model where, There are no administrative costs.

It's zero, but I'm gonna just take a little bit of the drug spend and that amount increased more and it became a runaway freight train, as we know, and I think this is what is creating a lot of the friction in the problem.

Mike Koelzer, Host: One of my staff is all excited because in Michigan, they're having these D I R rules coming into effect and so on, and I say to 'em don't get your hopes up. I said, here's what's happening. Here's what I hope will happen.

That things might get worse January 1st, but Through them forcing us to do DIRs at the point of sale and all this kind of stuff that it's going to cut down on the obfuscation that was built into [00:26:00] this on purpose. And maybe it might be easier then to talk to the Michigan House and the legislators in Washington and they might understand it more because instead of having, 12 layers of smoke and mirrors that got cut down to three kind of thing 

Is that gonna help or are they just going to, maybe it's simpler now? It's down to a few levels, but they're gonna make seven more levels below it.

AJ Loiacono: I think you know, to be fair, you say they, it's the people that rely upon this revenue now

And so these are typically publicly traded companies, and I often point out, yes, their fiduciary responsibility is to their shareholders. So when someone says, Hey, look, we're used to a 20% gross margin on pharmacy and report a four or 5% net to the street, we need to keep at a minimum that four to 5% net, now there might be some [00:27:00] margin compression.

So instead of starting at 20, I might start at 15, or whatever that number may be. But I need to become more efficient. I need to cut overhead, whatever it may be. But there's also the point that you're making, which is you're taking away 5%, but maybe I can find 5% somewhere else. And this goes back to my comment on asymmetric warfare.

It is not. Very easy to understand all the areas of revenue that are being harnessed, if you will in the model. So I think yes, regulation and oversight is necessary and helpful. You can't convince me otherwise of that because until the regulation becomes so heavy handed, it becomes inefficient.

But I haven't seen that yet. In fact, we really have had very little oversight and regulation in this industry. I often joke, [00:28:00] let's just take a self-insured business, who is the regulatory, arm or oversight, and it's technically the Department of Labor under erisa. I'd like to point out that I care.

K Sure. It's c m s, but it's not clear cut. And they certainly, to this day I want to make it clear, I'm very supportive of those organizations and agencies, but, due to resources, they just haven't been able to even lean in and start to understand. I think some of the benefits from the amendment to the Consolidated Appropriations Act end of 2021, which amended section four of a B two B on healthcare compensation and disclosures.

So if you're a self-insured plan, you're the fiduciary, the plan sponsor, you have to find out what everybody's making, the compensation on your plan. And in addition to that, you need to understand if that's fair or reasonable. It's not just, Hey, I did some reporting. [00:29:00] Be like, all right, someone's making seven, eight bucks a script on me.

Is that fair? And it's, I'm not talking about the administrator, I'm talking about something in between. And so I think to your earlier question though, it is helpful, if there's legislation or amendment or just better regulatory oversight. Sure, someone is always gonna try and find a way to make more money, but at least it's starting to contain some of that, unrestricted gain or revenue share that people could find, in the marketplace.

 I don't think there's going to be a magic solution that covers everybody's needs and, to your point, makes it very easy and transparent to understand. I think what is going to create and foster change more than anything else is competition. I

And I think that's where Capital Rx and our organization comes into play, where if you're able [00:30:00] to offer someone a better service model at a lower price point and real performance, people are going to take note and take your pick of any industry.

Better products come around. Challenges, legacy models, challenges, oversized margin a competitor may have been enjoying. I think this is what is healthy in any industry.

Mike Koelzer, Host: What's your take on the F T C investigation? Are you happy to see that? Is that a pain in the ass? What's your thought on that?

AJ Loiacono: I think it's. Overdue. I think it's helpful that someone is investigating or reviewing the model, whatever RB you wanna put in there. So I think it makes sense. I think decisions that were made in this century didn't necessarily [00:31:00] understand what was being built or what was the true result or impact of vertical integration.

And I, I would imagine part of this investigation has become perhaps a little bit less about the P B M and more about vertical integration. That is purely a guess. And I think this all goes back to. Is there a concern? Is there something anti-competitive occurring here? Is the American citizen or the American patient being injured by some of these organizations?

So I don't know what will come of it, but I think regardless it demonstrates the US government is taking an interest in, one of our, if not the most expensive industry in the $4 trillion we spend in the United States on healthcare in general. Yes, I definitely believe if the F T C or [00:32:00] D O J wants to look at telecommunications or look at automobile manufacturing, they certainly should be looking at the healthcare industry.

So look, I think it's natural. It's healthy. I think we'll see what happens. But right now we don't know much of anything. We just know it's an ongoing study.

Mike Koelzer, Host: aj, you brought it up. Competition. we know there's three oligopoly at the top and there's a handful of other companies in there. I gotta believe that there's a competitive spirit among the PBMs . Is that going as you thought? Do you want it to grow faster? 

AJ Loiacono: Yes, I think you have to be competitive to survive in any industry as an entrepreneur. It's very rare that you find yourself in a position where you can just coast Especially if you think about it. We compete in the P B M space with three Fortune [00:33:00] 15

companies. That's pretty rough competition. Most people say, Hey, I wanna start a business and I have a recycling business and I've gotta compete with Sal's Recycling down the road. And, you might get into it, but Sal's not a Fortune 15 company and he doesn't have those resources or contacts or brand awareness, and so for us, yes, it has certainly been a challenge every day. But we're a mission-driven company. Our mission changed the way drugs are priced and patients are serviced to create enduring social change. You know that has not changed since I founded the company.

And we remain dedicated as an organization to live up to that mission. I think some of the things that have changed over time for us is as we became more sophisticated with our technology and started to understand and recognize a lot of the inefficiency that may drive. suboptimal decisions, that's a [00:34:00] kind way of saying something that may be taking more money than it should.

I think the inefficiency sometimes creates this need. And so for us, we often say to create the infrastructure to give the country the healthcare it deserves because you and I can think of a brilliant idea of how to change something in healthcare, but a lot of people don't understand the electronic infrastructure we sit on for administrative workflows and data exchange is extraordinarily dated and inefficient and rigid.

And that creates something that becomes fragile. You don't like to change your code or you don't like to consider new entrants in your health ecosystem or exchange data efficiently because you don't know what is gonna happen to your system. i think yes, we are competitive.

You have to be. The definition of being an entrepreneur is you hunt and harvest your own food. No one's gonna come to your rescue 

[00:35:00] but you. And so you have to have this spirit. You have to have a desire, I don't wanna say to win. But a desire to endure, 'cause winning is a weird concept, what does winning mean?

'cause seriously, you can have two entrepreneurs in front of you, and one entrepreneur can say winning means, we're making more money. Winning means, we're killing it. winning for me means we have the best systems. Winning for me means we have the happiest patients.

Winning for me means we have the most loyal customers. Winning for me means we're creating meaningful change to truly move past a model that I think should have sunset a decade or so ago . 

And have people understand you should be having administrative services in a very efficient model in which you understand cost, you can walk into, let's just say a large store, and there are [00:36:00] millions of products for sale, millions of SKUs in a large store, or even an online shopping experience. And if you think about the active N D C elevens in the database at any one time, they're about 140,000 ish.

And if you look at the actual NDC elevens used by a large employer, it might be anywhere from 15 to 20,000. It's not millions of SKUs. And I bring this up because you can track and understand

price. You know this, it's not a mystery. And people will be like there's so many drugs. I'm like, stop right there .

We can find a price for anything. If you go to SpaceX's website, they'll tell you how much it costs to put a metric ton into space.

There's a price for almost everything that you can clearly see. One of the cornerstones of an efficient market is buyers and sellers freely communicating on price.

And 

we [00:37:00] don't have that at scale in the United States, and that's part of our mission. And these are the things that inspire me and our team every day to continue to move forward and make progress. And I think also to your other point is there's no timeline on this.

It's not like Hey, are we making the progress that we needed to? I think, look, we're right in line. Could I have done things faster? Impossible to tell, could I have done things more slowly? Certainly how 

I could always tell you I could do things at a slower pace that I'm a hundred percent sure of.

I might not be comfortable with it, but I certainly could but I think it's just really, could you do it faster? And I think my colleagues will tell you to say no way, 

Mike Koelzer, Host: sometimes you can do things too fast, make decisions too fast. Be Good, maybe to hold back and make that decision when the time's Right. because you get a better view. A bigger view of it.

AJ Loiacono: I agree. I think for [00:38:00] us it's been, a measured, thoughtful 

approach. 

You're evolving

too. I mean, if you were to read the Capital Rx business plan in early 2018, We have evolved quite a bit. Even when you and I, Mike spoke a couple years back, our organization has evolved.

When we started in this industry, we only processed commercial claims employer groups. And over these last two years, we've continued to build out our platform. Our platform is called Judy. Judy's the brain of our organization, but we made a significant investment to process government claims, Medicare, Medicaid, but not just process them.

We have a clean sheet of paper. And this gives us the opportunity to really think about how we do these processes more efficiently, more accurately? How do we improve star ratings? How do we ensure better patient engagement or

How do [00:39:00] we ensure more thoughtful reporting? How do we make sure our audit protocols are even to a higher standard than what is being asked of us today?

And there's 50 or so PBMs of all varying sizes that will service your employer plan. But there's only six of us that process government claims. A lot of times someone will be like, wait a second. Doesn't this, blues plan, process Medicare? And I'll be like it's one of the big three

behind it. And even carriers, you'd be like that's a pretty significant carrier. And they're publicly traded and they'd be like, they must process they're and be like, no. They rely upon the big three as well. And it's a very finite universe. What I try to make a point of, Mike, is we're really the only claim adjudication system that was written after 2006.

And why was Medicare expansion important? And so we really didn't [00:40:00] take a legacy system and try to shoehorn it into the regulations. We really had an opportunity to say, wait a second, let's write this correctly. Let's literally write the best Medicare platform out there. And that's exactly what we've done.

And so it's a great example of starting with one idea, servicing that market well in that segment, gaining experience and building to a much bigger experience and marketplace.

Mike Koelzer, Host: Aj, how has your day to day changed at the company in the last two years? Because when you're starting out, you've got the different hats, but often you're wearing those hats. And in the last couple years what leaders have you brought on for different parts of the organization and how has that been as far as you now have ahead of x and ahead of y and ahead of z kind of thing?

What are some of those positions that have come with the growth in the last couple [00:41:00] years and how's that been for you?

AJ Loiacono: You're spot on as always. You start out, we were three people and a plant, that's how capital RX started. Ryan, Joe, and myself, each kind of divided, the responsibilities of the organization and then you slowly attract people, to come work at your company that has three people in a plant.

Not very exciting, perhaps. but somehow you convince them and they join your organization and they're able to contribute in a particular role or an area. And early on, the people that you're attracting are more of what I would say they're really engaged with a specific set of responsibilities.

Okay, this person's gonna handle this segment, which is marketing communication. This person's gonna handle just selling, not even a specific type of selling. You're just doing anything that is related to sales. 

Y you're, it, you're [00:42:00] broadly inserting people into these roles.

You're in charge of operations. Be like what does that mean? That's everything from reporting to implementation. You're gonna learn it.

And I think that's kinda your phase one. Phase two is you start to, either one, have those initial people you hired emerge as leaders in your organization, which is phenomenal.

This is what you always want. If you look at my co-founders, Ryan and Joe, I've been working with them for two lifetimes. It feels like for me and I recognize them in their path and that they could contribute so much more. And you look at the people in your organization and so that's your first goal.

Hey, who are we promoting? And then they can backfill the people so you're creating more specific segmentation. Now operations are, Let's separate, implementation from clinical services and [00:43:00] reporting and network management and holy cow, there's this entire group that's called finance.

Hey, why don't we have someone who can come in and be in charge of that? And you start to divide up your tasks and you start to be able to hire leaders into your company as well. 'cause sometimes you just don't have a broad enough population. You don't have enough people to possibly fill those roles.

And so you look outside and some of them are people. You've had the privilege of working with people that you always thought very highly of and said, gosh, if we can get them in the organization, that would be wonderful. And this is what you start to do. And that's where you start to build out.

And so you have, we try to create a fairly flat infrastructure here, but you have your leadership team. You're gonna have your lieutenants that are gonna have what I call more specific roles underneath that person. And then, you have obviously managers and associates [00:44:00] that help ensure

Goals and services happen.

So I mean, I think there's no mystery, you know, I'm revealing here to any listener, but I think it's important to understand in the early going, you're absolutely right. You're wearing every hat possible in the organization. You're slowly dividing it up. But one of the things that I do want to reinforce is you're constantly looking at who are your next generation of leaders.

It's oftentimes like you're running any type of professional sports team. You have a farm system or some sort of farm league and you know you're working with these people and you're taking note of your high performers. I will say the pandemic made it a little bit harder. To recognize that talent virtually, I'm not saying impossible,

But it was very easy when you work day in and day out with people, also when you needed volunteers, in real time you would be shocked how many people would just be, we were in open office concept, but overhear a conversation, be like, I'll help [00:45:00] with that. I'll do that, I'll go to that. And you're like, oh, that's amazing. And, I think that's what you're looking for.

But I think that is really, the transition over the last five and a half years is going from three people to a plant to 500 plus people, what does that look like? You know exactly what we're describing. But the core of your organization many times is that same strand of d n a, that started with your first 2040 hires or so.

And those people really become me in many ways because now they're inspiring, they're people, they're finding their A players, and they're gonna continue helping us build out the org.

Mike Koelzer, Host: At what point in that hiring process, aj, did it stop affecting you personally? So let's say that it's just you and your two co-founders and you hire another person and, okay, now that's a. 33% Change, and then [00:46:00] let's say you hire another 10 people and it's like, all right, now you've done this and that obviously would change your day to day.

Now whether you hire your 495th or your 505th employee might not affect you as much. Where did it stop affecting you? I know you're a flat organization, but where did it stop making a difference for you as far as your day-to-day?

AJ Loiacono: Yeah I was gonna create a magical number, I would say around 150

employees. I I think, at that point, you are becoming what A C E O ultimately becomes many times, which is a fairly lonely position in the 

organization. you're trying to balance Hey, I am providing broad guidance and vision and oversight, and obviously board communication and governance.

But at the same time, you don't wanna lean in too hard into anyone's department. You want them to thrive and feel empowered and, [00:47:00] Basically look at the goals that have been outlined for the organization broadly as well as specifically for their department or departments. And I think that's what you're focusing on.

 Very much. I will say that you would be surprised though. You still have moments where some hire enters the organization and it does impact you and I think, part of this is we may be expanding services and now I need someone to oversee that group or that new product line.

And here's a new direct report, that I didn't have, six months ago. And so you still have moments in which someone is engaging with me directly and. Making a change to my day to day, have a new report. And I think also the other thing that you're always aware of in this process is what you can't see.

So [00:48:00] going back to when this organization started, we are very different in many ways, not just from an organizational standpoint, but the products and services that we're delivering to the market. So we started, with I think we had two engineers with Ryan, my, my co-founder and C T O and I think we're now over 140 engineers.

And, and so it's very different, there's an org structure just around front end, back end, DevOps, SecOps, all the different areas that you're looking at, just from the software side and. That did not exist, in the first couple 

years. So, Sometimes the organization is evolving.

And a lot of it has to do with, your goals and the services you're bringing to 

 When I say loneliness, it's a little bit different because it's loneliness from the role and the responsibility. And I always wanna make this clear. These are my observations. I never want someone to be like, [00:49:00] that's ridiculous.

This is how I look at my role, 

which is your between two worlds.

One is my board of directors and I do have a responsibility to them. The other one is my management team, and I have a responsibility to them. And then orbiting these two worlds is the company, my client base. And so when I say sometimes it's lonely, you have to remember that you reasonably represent the interests of both of these groups.

And as you get older, you learn that you need to balance it. There's compromise there's not one way you have to be willing to stick up for either side at different points, but, sometimes this makes you the person in the middle that's trying to 

create the arbitration. Everyone hates the arbitrary, you're just like, and so I think it gets lonely sometimes in that regard.

The bigger you [00:50:00] become, the more isolated you become. It's not to say I don't have wonderful colleagues, wonderful work relationships. I am definitely talking about just that you are never quite the same, as you used to be. And that's a reality. I'm sure there are other CEOs that would have similar experience.

I think there were some CEOs who were like, that's the wrong way to think about it. I am just simply sharing what goes through my head, which is it is lonely. And I think that is one of the biggest reasons is you do have a responsibility to everyone.

And in doing so, isolated.

Mike Koelzer, Host: As I think about stressors, Personally, my stress is now that I'm becoming an old fart, and more kids are out of the house, I think two things. One is My actions don't have as long of a ramification because I maybe have five years left when before it was [00:51:00] 30 years left in the profession.

And also, I just have less people gradually depending on me. What was your most stressful time in the business, starting up? Or was it now that you've got 500 employees or is it different day to day? If you look at the length of your career 

When do you feel like some of those tensions were the hardest for you personally?

AJ Loiacono: I think in general, the hardest times for me were always, when I had conviction on. A business point or a business plan, someone has set an objective for me that could be the board, that could be a peer in the organization, and I have conviction for it. And I am, minority view, I am not winning the argument and this is an interesting concept because a lot of being an entrepreneur, this is a horrible thing to say, is winning an argument.

[00:52:00] Now it's your job to articulate a thoughtful defense or a thoughtful case as to why this should be the course of action. And so my most stressful times have been when I've been the dissenting view be like, no one agrees with you in this room. Why should we believe you, aj? Why do we think this is the way to go?

And so that is where the most stress enters my life, because I have conviction, I have a vision, and I always wanna make this fair.

I can be wrong, but it doesn't take the stress away, especially if it is a large decision. Someone's charging you, Hey, how do we make this company even bigger and do this? And you're like based upon my experience and the data I've gathered, this is my plan. And the question is how are people gonna respond to it?

And your [00:53:00] conviction also doesn't end with a no. So Capital Rx, in many ways, was born from a no.

Where at one point in my career I had conviction. I felt that I was observing something in the marketplace that was happening a variety of data points that was leading me to this thesis that would become Capital Rx.

And I had conviction for it. But even though I perhaps didn't win my points or points at a prior date, it stayed with me. It never left me that conviction. And I think this characteristic or these characteristics are very important for an entrepreneur where you're saying, okay, I may have to step away, but we're doing this, or I may have to double down on this, but that is hands down, some of the most miserable lives 

in my

life. And 

there's no [00:54:00] escaping it. There isn't because you either become a zombie and just walk with the living dead and the model that you think is not going to pan out or you energize the organization and you have people see and embrace the vision and where we're headed and why this is so beneficial.

And, it does become easier with success. 

 I remember when I was a kid. In supply chain software. And I wrote a proposal to one of the regional managers, and the first thing he wrote back to me, he goes, do you always send business proposals to, you're the management team?

And I go, no, it's my first time. 

And he was just like, yeah, he is a trying guy. Like one day you'll get it. 

And 

20 years later it becomes a lot easier because now you have success or experience, or at least a track record that people would say, okay, he hasn't lost it. This seems like a sound [00:55:00] strategy. Let's lean in and listen. Let's give him or her the opportunity. And I think that's really important. I think there is a bright spot in all of this. Yes, it's stressful,

but when you realize it, that's what's been driving you, it gives you that tingles, that moment and you're like, this is why I endured that period.

It could last a year, 

could last two years. It's not oh, You lost the decision. It's a day or two. Some of these things took me a year or two to crawl out of,

and I say crawl because it's humbling. You're on your knees, you've been laid low

and I've always been taught it's easy to be a winner.

It's super easy. There are different types of winners. There's congratulatory winners and respectful winners, but winning is genuinely easy. You know what's hard? losing with dignity, losing with [00:56:00] honor, and losing. In the sense you didn't lose part of yourself in that experience, that you're holding it together.

 And this is any profession

Anybody has gone through this. I don't care. And I, put aside being an entrepreneur, we all have moments in our life. We are laid low. And it's what you do after that is gonna define you. And that's what I was taught. So this is a shout out to my mom and dad who both passed away during this journey of Capital Rx.

And I wish I spent more time with them, but they live with me every day. And these are the principles they taught me right, wrong, indifferent. These are the things that empower me to move forward at those dark points and find reason and logic and compassion and all the other things that go into being a good leader.

Mike Koelzer, Host: , I don't wanna put you in this position, but pretend there's a [00:57:00] company similar to yours, similar size, a different market, similar investors and things like that. And you talk about taking shots with maybe some wrong moves and so on.

Let's look at Blockbuster and so on.

AJ Loiacono: Yep.

Mike Koelzer, Host: Is your job ever precariously positioned as takeovers and kicking you out and all this kind of stuff.

AJ Loiacono: Oh yeah. No, I think, Mike, I always, let me be fair. This is how I was trained by a mentor. This is what I genuinely believe from my experience, and let me make this clear to any entrepreneur or business person out there, you are only as good. As for your last quarter, if anyone were to respond the opposite of what I said, I would find that a little bit suspect because if you're a high performer, you understand in two seconds you'll be [00:58:00] judged by your last three months. 

And 

if those don't go well, you'll be judged by the next three months. And if those don't go well, you may not have another quarter.

Mike Koelzer, Host: the company might, but you might not.

AJ Loiacono: Oh, absolutely. you might have mediocre stats or goals if we're gonna go to the business side, and that's all right. The business may continue, but the management, or in this case, your board may say, let's think about a different role for you.

Let's think about how you can contribute. Now, that's a question, let's take the great player. Do they wanna be the offensive line

coach? 

Okay. Maybe I will. I don't know. It depends on how much you love the team. It depends on your rapport with management or your board and other things.

And it also depends upon your journey. Was it a? Devastating quarter or quarters, and you just had a mental [00:59:00] or emotional toll. But I always wanna make this clear. Let's focus on the positive, perform. And these questions never

Mike Koelzer, Host: But even as the founder and CEO, You might find yourself in a precarious position. 

AJ Loiacono: anytime. 

That could happen a couple months into the business. Where someone just gets cold feet and the family that they're part of is saying, I don't want you to take the risk.

There's no paycheck coming in . there's so many things that can trigger that. Forget non-performance for a second. I think it's important to remember it's just life 

can work against you where. I don't have the conviction. I'm not continuing in this journey, and people catch it, it could be that someone becomes disenfranchised with the business model.

I don't agree. This wasn't what we agreed to. I'm out, I think it can happen any time if you have investors. It could certainly happen at any time. The moment you have investor money in the [01:00:00] organization, depending upon how much someone owns, again, they may have negotiated certain rights, they may not, it may just be based upon the equity, but it can put pressure, so it can come at any time.

It can happen within the first year of a 

business and that shadow will follow you forever. I don't care if you're a publicly traded company and c e o of a Fortune 50 company. 

Mike Koelzer, Host: In my situation, I own my business.

Nobody can kick me out except my wife who as a 50% absentee owner I suppose could work on kicking me out, besides that, my job is protected until someone's 51% owner.

So it's the investors as soon as the people get in there, they can boot you out.

AJ Loiacono: Exactly so investors can do it, or unless someone negotiated some sort of extraordinary Right. within your operating agreement. But, otherwise, it, I go back to the more human elements of someone just giving up, is [01:01:00] why is someone gonna just stop 

or, 

kick it in? There's, it's too much pressure 

Mike Koelzer, Host: quite often, before somebody would kick you out, you've already brought yourself down and you've already almost made up your mind, 

AJ Loiacono: I 

Mike Koelzer, Host: be here, kind of thing.

AJ Loiacono: It's never a surprise when it's gonna rain. It's, you step outta the house, there's some clouds. It's very rare, it's a beautiful sunny day and, thunderstorm just rolls through. But usually it's pretty quick. I'm talking a. Large weather front is moving in.

You just look and you just see that thing extending as far as the eyes can see. That's business, especially if you're doing your job. You're looking forward, you're looking backwards. You're looking at the current data. Your KPIs and metrics are telling you right away, should I bring an umbrella or heck, should I not even 

go outside the house today? and 

there's, there shouldn't be a surprise.

AJ Loiacono: I love what we do here. I love the company. I love that we're changing an industry. I [01:02:00] love that we're building the technology that will be the standard for the next 50 years. These are the things that inspire me and make me forget about those rainy days. And I think that's what you want.

That's what you're passionate about. And that is what's going to inspire you to continue to push, not just yourself but the organization. 

Mike Koelzer, Host: AJ talking about the drive and success and those kinds of things. We're not talking to a slouch here. You. Recently, I received an award for Entrepreneur of the Year. Ernst and Young, the New York District. 

AJ Loiacono: Yeah. 

Mike Koelzer, Host: That's pretty cool.

AJ Loiacono: First of all, thank you. I joke it took me 23 hard years to win it. And that, that's how long I've been an entrepreneur. I started in roughly 2000 and never looked back. And so I think for me it's an amazing milestone, but it is a reflection of a lot of scar tissue,[01:03:00] 

a lot of hard work, a lot of disappointment, a lot of moments of success, and more importantly, a lot of great people that put me here.

Yes. My parents certainly mentors, business associates, colleagues, my co-founders. You can't build a great company without great people. And I think it's important to remember that, yes, I may have been given this award, but it came from people believing in me and empowering me to achieve that award.

Let me be frank, I would find it very hard to believe someone has ever won that award, and they did not have an amazing team, amazing family behind them as well. Friends. There's so much support that is required to achieve at a certain level. And yeah I think the first thing I say is, thank you.

I joke it took 23 years, but I immediately follow with, couldn't be done without so many people in my life.[01:04:00] 

Mike Koelzer, Host: Aj, if I asked you what skills or what gifts you bring to the table for the entrepreneur award, you're gonna list three of 'em. Alright. Everybody's got their top three and they're all fairly similar.

What's that fourth quality that maybe other people don't have? What's that kind of hidden quality that maybe you or some entrepreneurs have?

Because we know what one, two, and three are gonna be? What's four and five and six that are maybe a little quirks that you have that have helped you push forward?

AJ Loiacono: I'm gonna start first with being a min macer and people are like, what is a min macer? This is actually a gaming term, so anyone plays video games. People will know the term MinMax, or this is someone who breaks the video game because they have figured out the precise combination of characteristics or points that they need to utilize or a tactic or even a broader strategy that will just break the game.

In [01:05:00] business, you have to think through how to be a axer. 'Cause think about it, you have a finite amount of resources. Your job is to think about what is gonna move the needle the most. And a lot of people are like that's easy, that's sales. Let's dig into that. What kind of sales, what is helping you sell?

So yes, selling or sales? Sure. Financial, but let's break it down. Let's look at it. There's a video game called Be An Entrepreneur. And sales makes the ride easier every time, but the next game is called How Do You Get

Sales? And so you have to think through that. And there's a hundred different ways you can go to market, with product differentiation to price points, to value, to messaging, to channels. And you have to think through where you're seeing the biggest [01:06:00] return. Where do you see things, wait a second, that has an outside in the moment you find it here.

And I'm gonna say the word again. You need the conviction to overload it.

You need the ability to push your chips in on this and be like no. I think this is it.

 And that's for anything that could be from development and our product roadmap to our broader strategy of our organization.

You're constantly thinking through, and this has always been a driving point for me, and I don't even say I'm the best at it. I've met people that could run circles around me from Midmaxing, but I respect them tremendously. And my point is, I've always been a MinMax singer. Like I, I get it and I apply it, which is more important than anything else.

Not just understanding the framework, but be willing to do something, to be willing to look at it and be willing to go where someone would not go in, be like, that's crazy, and be like, it's crazy to you [01:07:00] because you think it's safer to do these 10 

things. I think there's just one 

Or maybe two tops everything else. Get it out. It. And I've had colleagues that have worked for me and it's been a challenge. They've been like whoa, you don't want me to do this anymore? I go, there's no R o I on it.

But he's like, or she might be like, everybody in the industry does this.

I'd be like, I don't care 

Mike Koelzer, Host: So AJ now when business gets bigger and you're appearing in magazine articles and things like that, do you have to start talking about your 5:00 AM ice bath and all this stuff? 

AJ Loiacono: no. Now this is funny.

I was recently at a round table with a bunch of CEOs and it was like something out of a Netflix special. Like the first person starts, I start my day at five 30 and run for 10 miles. And, then the next person is like, I wake up at four 30 and I [01:08:00] practice juujitsu, and then I oid it through the Black Forest and a SEAL team extracts me.

And they just keep upping it and upping it. And they're like, what about You? And be like I wake up and walk the dogs.

And they're like, and then what happens? I come back in the house and I have a cup of coffee,

and they're like do you do this earlier? I, no I'm like a six 30 kind of person.

I wake up, 

I walked it down, I'm like, and by six 30 this person has already been awake like five hours, be, and I'm like, I can't even fathom. I'm like what time are you going to bed? Like these people are either insomniacs or lying or some combination or I'm looking or I'm just not.

They're equal. I wanna be fair. There's some amazing people out there, but I often feel like I am the king of mediocrity.

Mike Koelzer, Host: I like Bezos pre-test testosterone, Bezos, this is like three, four years ago. And [01:09:00] Someone asked him his morning routine, he said, I like to putter. He said, I get up and I just putter, walk here, get my coffee and read this article and do this or that. If someone proved to me that, like an ice bath, I'd say, oh, that's cool.

Enjoy it. I'm not doing it. But I don't think there's any proof for these weird things that people do. Some people say it's so terrible that they've conquered. They ate the frog early. no thanks.

AJ Loiacono: Myself and my journeys, I find that I am not that interesting of a person because even when I say I do something like, oh, I, I like to ski in the winter, people will be like, oh, where do you, hell ski? And I am like I don't. 

I go up a lift 

like, Most people in the country, tell me about your, you're out of bounds skiing or this, that and the other. And look, I love people that do these things, but they're looking for [01:10:00] something exciting. So that's why I started laughing when you asked the question a little bit, "No, I don't have anything unique.

I play basketball with my boys on occasion. A little pickle ball. I ski in the winter. I walk my dogs. Yes, I occasionally like to go out with friends and fish and do things like that. Like just

nothing where I am training to be Olympic grade at any of these things or put myself in peril. I just don't find the need.

Mike Koelzer, Host: I got a number of older brothers and one of my brothers and his friends. All these years they played basketball when they're getting older, 30 basketball, softball, all these guys are hobbling around with bad knees and getting replaced and replaced. And I gotta pace myself, I.

AJ Loiacono: No, I'm with ya. I think it's an overlooked art to [01:11:00] endure.

Mike Koelzer, Host: That's right. 

 AJ, what a pleasure. Talking again. Last time we talked, we got through the details of the business and now two years later, to me, you seem just as enthused as ever.

So whatever you're doing, I think it's because of that mission driven work you're doing and that shows. So keep doing what you're doing and we'll check in in two years.

AJ Loiacono: Oh, thank you so much for having me, Mike, and I look forward to what happens next. And, hopefully I'm still here. I feel like it's a

Mike Koelzer, Host: That's right.

AJ Loiacono: little bit of a shadow on parts of this call, but no, I'm excited as ever and again, I couldn't do it without my team, 

so I think I appreciate everyone at the organization.

Mike Koelzer, Host: Alright, aj, we'll keep in touch. Thanks again.

AJ Loiacono: Thank you.