Parametrix – Minimal Viable Product in Hindsight
The Hunt for Product-Market Fit
Company
Parametrix
Founded
2019
Ori Cohen, Yonatan Hatzor, Neta Rozy, and Tamir Carmel are a solid team. Their gravitational pull as co- founders came from the advantages brought by their diverse skill sets. Ori describes their relationship as founders as similar to that of a relay team: one person fully leverages his or her own skills, which provides a kickstart for the skills of someone else on the team, while each co-founder’s shortcomings are covered by another one’s strengths.
They took a diligent and logical approach when it came to finding the right industry and business idea to tackle, quickly dismissing industries where innovation already abounded. One of the things that drew their attention to the insurance industry was a lecture by Shai Wininger,41 President and COO of Lemonade and a regular lecturer in the program. They were inspired by his characterization of the traditional nature of the insurance industry. Over the previous six years, Lemonade had managed to disrupt the insurance industry and pave the way for smaller startups to create products and solutions that can automate existing insurance processes.
Before Lemonade, ideas from startups in this space tended to fall on deaf ears. “It took time for insurance companies to open their eyes and ears to innovation and dedicate sufficient budgets to working with startups. We knew it was the best timing in terms of the industry’s willingness to accept innovative ideas,” said Ori.
They knew insurance was a dense service that people bought out of fear, or only because they had to. They were convinced that there had to be opportunities to shake things up and improve old systems, but the question was where to start?
They researched the industry from top to bottom and learned about its numerous sectors, which cover just about everything from cybersecurity to engagement rings. Realizing that there are so many avenues they could take, they started by deciding on a high-level direction – did they want to evolve outdated practices in an existing insurance sector, or did they want to create a completely new product? Sticking to their drive for innovation and their thirst to create new technology, they went with the latter.
1. Choose a huge market that will allow you to grow your business vertically and horizontally (insurance is one of the largest markets in the world and one of the most traditional)
2. Base your decisions on lots of research and data
3. Create businesses in an evolving market that match investor interest
4. Find a critical gap in the market
5. Create a technology-based solution due to the founders’ technological backgrounds
6. Iterate and throw ideas away quickly (the good old saying of “don’t fall in love with the product”)
7. Provide tough love and continuous feedback to the team, who are seen as family
8. Always be professional with customers, partners, and team members
9. Ensure that all employees believe in the company, and believe they are creating a great company
10. Always strive to work with the best people
After extensive research, the team decided to build a solution focused on downtime insurance, which targeted technology-dependent companies. And so Parametrix Insurance was born.
From the moment they started, they made a strategic decision to stick with the insurance industry. They told themselves that if they needed to pivot, they would only do so within that industry. That way, they could stay focused and build on the knowledge they had already gained in the field.
So the team hit the ground running, acquiring as much insurance knowledge as they could get their hands on. “We made sure to become experts as fast as possible, so we read every report out there and spoke with everyone we could,” said Ori.
They quickly understood that in order to become experts, they needed someone with a strong insurance background who spoke the “insurance language” and could help validate their product idea. With their experience coming mainly from technological industries, they needed someone from inside the insurance space to join the core team. After much research, they began looking for an experienced actuary who specialized in statistics, analysis, modeling, and risk quantification.
Through the new connections they had created in the insurance industry, they found Daniel Benjamin, an experienced Actuary and Data Scientist who had spent over 20 years working for AIG in various countries, from France to the United Kingdom to Israel. With his help, they were able to start creating what they could for an MVP.
Parametrix’s MVP was nothing like the MVPs most other companies create when validating a business idea. They were entering a heavily regulated market with a catch-22 of sorts: it’s illegal to sell insurance without a license, but in order to get a license, they would need to create the insurance product. Their way around this was to go straight to the customers in order to validate whether or not technology businesses would buy insurance to cover downtime periods. They designed focus groups, conducted hundreds of interviews and building relationships with stakeholders who collectively helped them shape Parametrix’s insurance policies and technology platform.
The insurance space is not for the faint of heart. The very nature of how insurance is bought and sold to customers is filled with complexities and layers. In order to reach their target audience, Parametrix would need to work with reinsurance companies, insurance companies, and insurance brokerages. The founders spoke with a large number of partners all over the world in order to create a new solution that answered an unmet need in the market.
Downtime is a digital catastrophe. There are many technological solutions to mitigate the risk of downtime, but there isn’t a good solution that completely transfers the downtime risk. They created a product that fully protects companies with mission- critical activities on the cloud, whether they are a small business or a giant corporation.
You legally cannot sell insurance without licensing and approval by regulatory bodies, so an unauthorized MVP was out of the question. At the end of the day, the policy is triggered by downtime events, which means that millions of dollars could be transferred from an insurance company to a customer. This is very difficult to get approved by regulators.
Needless to say, the team was successful in getting the required licenses, and the product was launched. Tech-dependent businesses today rely heavily on third-party IT services in order to operate. This can be anything from cloud-based services to payment processors. Users that are on a technology platform for an e-commerce site when a third-party service is down won’t ponder which backend service is to blame. They simply leave the site unhappy, and look for another business that can actually provide the product or service they were looking for in the first place.
Downtime not only causes a surge in user churn, but it also hurts employee productivity, and perhaps most of all, it leads to large revenue losses and compensation claims. The more mission critical the downtime is to the business, the more money is lost and the harder it is to restore the business’s reputation.
In a survey of more than 500 C-level executives at small and medium-sized businesses (SMBs), 25 percent said that the per-hour cost of downtime for their business was between $20,000 to $40,000 dollars. Now imagine what that number is like for larger companies. Before Parametrix, there wasn’t an insurance policy that covered this risk. In fact, Ori said that such coverage is specifically excluded in most insurance policies. “And even if it’s there, it's heavily restricted with a lot of fine print. If your cloud goes down for 12 hours, you'll never get compensated for the money it took you to recover. But for companies, the continuity of the business is what's important to them,” said Ori.
In order to validate the idea of creating a new insurance product, they needed to get backing from insurance companies, and to create never-before- seen intricate models. That's where Yonatan and Neta’s technology background really came in handy. Together, they gathered a lot of data, enough to provide Daniel with the basis required for an initial pricing model in order to see if they could build a viable business. Then, they took those numbers and spoke to different experts and potential customers, until they finally arrived at policy terms and prices they felt confident they could go to market with and succeed.
Today, Paramterix is selling policies, has paying customers around the world, and has partnered with the top Insurers and Reinsurers in Europe, the U.S., and Asia. The company raised its Series A,42 and has a fast-growing team of more than 35 people. One of the company’s top values is to build a diverse company split evenly between men and women, and with people from a variety of personal and professional backgrounds.
By now, Parametrix has validated its assumptions about market demand through conversations with customers, brokers, and distribution partners who quickly realized the value their product brings. One of the brokers told Ori that they’ve had customers claim money from downtime events that their existing policies didn’t cover.
This is the very gap that Parametrix is working on filling. “It's very exciting for us to really sell the product because we didn't have a way to do so before. Now, we're focused on perfecting the sales cycle and expanding with new distribution partners,” said Ori.
They’ve learned a lot in the last year since launch. For one, they understood that the needs from businesses have not been fully met yet, so they have already iterated on the design of their policy. These iterations are an integral part of the Parametrix team’s learning curve as they continue to solidify their product in the market and expand to new territories. But such changes don’t seem to bother the founders much. It will take a little more than policy iterations to derail this group from the excitement of launching their product. “Every customer is super exciting, every downtime is super exciting. We're a very dynamic and diverse team and everyone brings so much to the table that can help the product grow,” said Ori.
So here they are: the Parametrix team, after two years of research, product building, and sales, is finally on the forefront of the insurance industry, defining a new category in which they are the market and thought leader. They have validated their business case, and with momentum on their side, they’re on the fast track to achieving their next milestone of rapidly growing their customer base.
1. What is the importance of a company code or set of beliefs/values? Which one of Parametrix’s values do you think is most unique and why?
2. What was the purpose of Parametrix’s strategic decision to stick with insurance despite a possible need to pivot? Do you agree or disagree with this approach and why?
3. What was the challenge with Parametrix’s ability to build an MVP? What was the company’s workaround? In what other industries might this also be the case, and are there any other strategies that can be taken?
4. What specific insurance market gap did Parametrix discover? Why do you think it had not already been solved?
5. Did the founders bring Daniel Benjamin in too early or late? Did they need him in the first place?
