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Fork in the Road: Deciding if and when to let go
Thursday, October 19, 2000 By Bob Starzynski, Post-Gazette Staff Writer
This wasn't the first time Ramesh Mehta created a new technology and a company to support it. It was the third time.
But Mehta, 54, of Allison Park, still had to think long and hard about how to proceed. Should he continue to incubate and fund the product through his technology consulting business, American Hytech Corp.? Or should he seek outside capital from a prominent venture capital firm and spin the technology off to a stand-alone business?
He chose the latter. Hence Medebiz was created this year.
Mehta was no stranger to starting companies and creating products. After more than 10 years of growing companies -- including a stint as head of international marketing and operations for Digital Equipment Corp. in the early 1980s -- he founded American Hytech in 1987 to provide consulting services to the government and established companies.
While he has continued to lead that company, he has "dabbled" by creating three products and building businesses around those them.
The first was InstaPlan, a project planning software business that he started in 1988, built and sold to Symantec in 1990. The second was NetGuru, a tool that was used to design local area networks. That product was created in 1993 and was sold to NCR and Computer Associates in 1996.
"I became more and more ambitious," Mehta said. "I wanted to incubate things within American Hytech and spin them off."
Last year, the entrepreneurial bug struck again.
Mehta had been analyzing the Internet world for two years and saw opportunities in health care. He wasn't interested in providing a service directly to the consumer, since that market was becoming saturated and was beginning to lack the potential for profits.
He noted that the health-care supply chain -- where drug makers and medical supply and equipment companies sell to distributors, who sell to medical group purchasing organizations, who work directly with hospitals -- was a segment of the market that could benefit from the efficiencies of the Internet.
For a year, he built a product to serve that market under the auspices of American Hytech. Through his existing company, he could fund the development and continue to research the market.
That convenient setup could carry his new product only so far, though.
"There were two other companies in the same market [medibuy.com and Neoforma.com] that were backed by prominent venture capitalists," Mehta said. "They each had at least $40 million in [financing]. We were concerned, going up against two 800-pound gorillas."
Mehta decided that he had to spin Medebiz out of American Hytech and seek serious venture capital to stay competitive.
"With InstaPlan and NetGuru, the time to market was not as crucial," he said. "But this time, we need a lot more dollars and a lot more support."
In August, that money and support came in the form of a $5.5 million investment from Redleaf Group.
"By splitting out of American Hytech, Medebiz can have a dedicated focus and not be affected by the mission of AHC," Mehta said.
With the Redleaf money in hand, he found new office space for his company at the RIDC Industrial Park in O'Hara. He quickly built his management team and a staff of 15 employees.
Besides building the business, Medebiz has searched for a niche to differentiate Mehta's company from medibuy.com and Neoforma.com.
That niche has been found.
According to Mehta, Neoforma and medibuy want to take the middle-man distributors and medical group purchasing organizations out of the health-care supply chain so that the manufacturers can sell directly to the hospitals with an e-commerce exchange.
But Mehta doesn't believe that approach will work. "In the business world, relationships matter," he said, citing long-standing relationships between the distributors, purchasing organizations, manufacturers and hospitals.
So the product that Medebiz is developing will allow all the companies in the health-care supply chain to simplify their buying and selling without pinching out the middleman.
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