Benaissance reaches profitability in under two yearsJanuary 6, 2011 by Danny Schreiber
John Jenkins and Mark Waterstraat of Benaissance. Photo by Danny Schreiber.
Update, January 31: See our short video interview with Benaissance vice president: “Mark Waterstraat of Benaissance: ‘Our revenue simply layers.’“
The Omaha-based insurance software administrator Benaissance didn’t start overnight. It started about 15 years ago when John Jenkins founded COBRA Outsourcing Company, the company that would lead Jenkins and Mark Waterstraat to found Benaissance.
In 1995, Jenkins built COBRA Outsourcing Company (COCO) as a third-party professional that outsourced COBRA compliance for businesses. It became the largest standalone COBRA administrator in the United States.*
COBRA, or Consolidated Omnibus Budget Reconciliation Act, is a federal law requiring employers to provide their departing employees and dependants of employees with the opportunities to stay on health insurance plans after leaving the company. The process involves an often-complicated system of mailing letters, billing and payments. Penalties are extensive for non-compliance with COBRA policies. Because of this, over 70 percent of employers outsource their compliance with COBRA to a third-party professional benefits administrator.
Jenkins owned COCO for 11 years and in that time, Jenkins learned a lot of the intricate details of working in that industry. As COCO continued to grow, Jenkins faced a problem. Most COBRA administrators in the country are usually built by one or two people and as they grow, more and more employees are added. The workload increased and what began as a controllable COBRA outsourcing business became a business stretched thin with more and more manpower.
Jenkins knew that simply increasing by the number of employees working for COCO wasn’t going to work as a long-term solution for a growing company. They had to invest in technology in order to scale and scale profitably.
“We could solve the problem by throwing bodies at it or by investing money in technologies to drive systems rather than people,” Jenkins said. “We’re trying to drive systems into our customers and replace the manpower they used to have.”
Everything was being done manually, including sending letters, faxes and processing payments. Up until the turn of the century, COBRA was using an older software to process COBRA insurance and that software was reaching its limit.
Examples of COBRA letters are a permanent fixture on the walls a Benaissance. The photo above only captures part of the row of pages. Photo by Danny Schreiber.
“In 2000, all of these scale things were going on and they kind of hit the end of the line with the software product they were on,” said Mark Waterstraat, vice president of Benaissance. “John (Jenkins) tried to work with the vendor and they weren’t interested in doing anything with the technology platform. John figured there must be something out there that was better. He bit the bullet, hired a team of software developers and began the process of writing his own software system to run his business, and they called it COBRA Point.”
Once COCO started using COBRA Point, there was an immediate switch from manual faxes, phone calls and processing to online. After creating this secure web portal, 40 percent of calls to the call center decreased while profitability increased dramatically.
In 2003, COBRA Outsourcing Company Development (COCO) became Benaissance, a software company that licensed COBRA Point to other administrators. In 2006, after selling COCO, Jenkins and Waterstraat started a new system to work as a COBRA administrator and began development on Benaissance.
“John knew intimately from first hand experience the very specific needs of specific types of businesses in a specific market vertical in this industry and knew we held the solutions to those needs,” Waterstraat said.
Part of the Benaissance development team, now at six senior-level .NET developers, with Jenkins (in doorway). From left to right: Vic Kodipelli (CTO), Preston Hehr, and Mike Heenan. In all, Benaissance has 18 full-time employees. Photo by Danny Schreiber.
The first year was spent on development. They realized that COBRA Point was the beginning of the success at COCO not the end. However, it wasn’t until they built the new web portals and enhanced the mailing and payment processes that they were an efficient business.
When their software went live in 2008, they were a fully integrated Software as a Service (SaaS) provider. With most of their companies today, they not only provide access to the SaaS-based system, but also all of their payments flow through Benaissance and they only deposit the timely payments.
(Left: Behind the closed door of the restricted area – which prohibits cell phones, cameras or recording devices – is Benaissance’s equipment and employees who process payments. On peak days, Benaissance will process over 4,000 individual payments with a total value of over $2 million. Photo by Danny Schreiber.)
“Today we don’t sell a SaaS based software system, we sell a business model just like the one we built ourselves,” Waterstraat said. “We understood a market, went through some trials and tribulations in the process and now have a profitable business here that is serving our customers by solving their big key pain points. We are able through economies of scale to do things at price points that none of us could have done on our own.”
During development, a strong emphasis was placed on marketing. Through trade shows, press releases and a daily “COBRA tip of the day” website that had 6,000 subscribers reading it, they were able to build a brand for Benaissance before they even had a product.
“Because we so clearly targeted a market with very profound and real pains and have the only solution that’s ever been invented to those pains and really, you have to be a company like us to be able to build what we’ve built,” Waterstraat said.
Another early benefit was an investment made by McCarthy Capital. On January 1, 2008, McCarthy bought 40 percent of Benaissance (making it a McCarthy portfolio company) in a 40-year fund. In addition to McCarthy’s minority ownership, there are five individuals a part of Benaissance’s management ownership group.
Waterstraat said McCarthy’s relationship with Benaissance is about helping them through all of the normal growth and maturing a company goes through. In addition to Jenkins, Patrick Duffy of McCarthy Group holds a seat on Benaissance’s board. Waterstraat said another of McCarthy’s team members, Ted Warin, has also provided great support to the company.
In April 2010, under two years since they launched, Benaissance saw their first cash flow positive month. They had growth even during the nationally struggling economy. Waterstraat said the company’s growth is expected to continue in the coming years.
Here’s a screenshot from Benaissance’s COBRA Point demo showing allocations of payments to insurance premiums (courtesy of Benaissance):