Dear Shareholders:
Since it has been several months since I last put out a shareholder
letter, I thought
that now was a good a time to update everyone on what has been going
on here at Somatic Systems, Inc. Much of what I am writing here is
in response to various emails and calls our company has received over the last
eight weeks.
Q. A shareholder
expressed dissatisfaction that we have been talking about investing
capital in promoting consumer awareness of Somatics; he asked “what
have they been doing for the past 14 years?”
A. The answer is
that evaluating us as a big company... we weren’t one: We
were a small clinic, working as the only institution developing this
gem of a pain care management technique for the future of health
care. Then, about 7 years ago, we began preparing to create the
ideal training school for Clinical Somatics™, which is not only the
best but the only way to be authentically and successfully
trained in this technique.
During that time, as
well as in the past year using a significant portion of the modest
funds we raised since going public, we also developed savvy and
comprehensive strategies and infrastructures for growing the business
of Somatics. For the four different product categories of Clinical Somatics...
- Clinical Sessions,
- Group Classes,
- Products, and
- Training Programs
...there are a lot of
pieces to build if the ultimate goal of all this is to be a Starbucks
and not a local rundown curbside coffee truck. This is so much less
expensive to build than a medical chain, but let that not make us
lose perspective and think that it free or easy. We are still
building an entire profession from scratch, in terms of it being a
worldwide or even national standard for consumers to use for pain
treatment and fitness. That isn’t just about having the best
mousetrap: You have to have a way to sell it. So the fact is,
relative to most industries, our development tasks list has been
tiny, but it has still been a lot of work. This work has built all
the passionately exciting and mundanely necessary components of our 3
different divisions (that sell Somatics’ 4 different products) —
Clinics, Products, and the Training Program.
There’s much more work
to be done, and that is the goal of fundraising: These next steps
take additional capital. This is not different than most Pink Sheets
companies — except that we require a lot less money, because our
overhead to grow is much smaller than for surgical pain care clinics,
medical facilities, and the like.
Topics such as our
overhead do beg clarification of the developmental stage of our
company. Our stage is very clear to us, but I donít know if it is
always clear is to outside shareholders. Questions in that vein
might include “why aren’t they doing more business?”; or, “if
their product is so great, why don’t they already have extensive cash
flow and assets to expand without raising capital?”
The answer is very
simple: We are not a Development stage company. In fact,
that is what I have asserted in the past is one our strengths ó
proprietary development stage efforts are what we already spent our
time and resources on in the first 14 years. Instead of our
challenge and financial need being Research and/or Development, it is
“Production”. If we don’t grow, it’s not because we don’t
have a great product or system, but rather because to grow we need to
produce our product — more clinicians and service outlets, more
products for consumer markets, more marketing of and resources to run
more and larger professional training classes.
The best way to think
about us (and I do apologize for repeating this ad nauseum) is that
we really do have the best “mousetrap” ever developed for chronic
pain, injuries, and musculoskeletal limitations. But that means
absolutely nothing (other than academic pride) — nothing from a
business standpoint — unless we can have a factory to produce the
mousetraps, a sales force to sell and take orders, a fulfillment
staff, a customer service process, and a careful management structure
to make sure we strike the right production and promotion balance to
keep a good economy of scale and good inventory control. The
greatest ideas have failed without clear plans. We are like a
restaurant with the best chef and a great “gimmick” for an
affluent market: Even a restaurant like that needs to put a lot of
resources behind promotion and operation and general presence and
branding in the consumer market.
Generally speaking,
Somatics needs to allocate money towards:
- marketing our
existing clinics,
- producing and
promoting some new easy, low-cost consumer products (such as a few
exercise videos, etc.),
- and more
aggressively promoting our training program — to existing markets,
but also aggressive outreach to important fields such as medicine,
physical therapy, gerontology, sports medicine, and others.
We have spent less than
$100,000 promoting Somatics, and yet we have still grown our training
by 50% each year, and continue to add customers of all kinds. The
work and our training programs are simply that good. We want to put
capital towards a national branding and public relations campaign,
including media placement and high-contact presentations and consumer
education events, broad promotional appearances and marketing
materials, and outreach to influential contacts higher up on the
chain (the gym owners, the coaches, the pain management clinic
managers, the massage and physical therapy school faculty and
directors).
Some examples of those
larger scale efforts in the works already, even without additional
funding, include...
- Television show to air in
48 local markets and on two national cable channels (WE tv and the
Travel Channel). The program is not an infomercial — it is
educational programming meant for general audiences as well as the
health industry — but it does provide promotion of our Somatics
system and “call to action” information for our company.
- Two books being
written now exclusively about Clinical Somatics, one by a published
author with an existing publishing relationship, and the other by
Somatic Systems ourselves. Both books are targeted at educating the
public about Clinical Somatics deeply enough to get a broad audience
thoroughly invested in it. This is a common outcome of many diet,
self-help, and fitness books in the current era. Some, such as the
South Beach Diet, have been explosively successful.
Our
Somatics books are much more likely to become a strong, definitive
topic (rather than a fad) because no other is no other pain-care
systemís outcomes are as good as Clinical Somatics, and because
Clinical Somatics has so many applications and applicable
demographics.
Unlike any previous publications on Clinical
Somatics, the books will have a marketing focus and a
call-to-action, with the goal of getting readers to practitioners,
clinics, classes, training programs, and Somatic Systems.
- Expanded web
services and promotional efforts over the years to come.
- Offering our
training in a new location, to serve a new geographical and
logistical market, with goals of increasing training enrollment
(serving some of the people who have not yet enrolled over the years
because they needed classes to be offered in a different location)
and distribution of practitioners in other regions and markets.
- The initial work
we have done with the Military and the VA.
- The current
Department of Education licensing effort for our Training Program,
combined with additional efforts to add accreditations and licenses,
which offer more and more financial aid options and connections to
bigger institutions and higher level trainee populations
(orthopedists, rehabilitation specialists, etc.).
Q. I recently
heard from a shareholder who said our plans were vague and that we
had no chance of making money.
A. To my
knowledge, this is not a shareholder who is privy to any of our
specific plans. We do have models and plans to grow all three of our
divisions — Clinics, Products, Training:
- Clinics:
Clinics cost less than $100k to open, and make about $200-400k
revenue on $150-320k in expenses — with only two fully
trained practitioners (and a small “non-skilled” support
staff). A four practitioner clinic makes $400-750 revenue on
$260-540k in expenses. A six practitioner clinic makes $600k to
$1.1million revenue on $380-750k in expenses.
- Products:
Clinic revenue figures described above do not include any
retail product sales that occur at Clinic locations. Sale of
40,000 low priced items ($19 to $40 retail price per unit) such as
exercise books or CDs or floor mats means an estimated $1 million
revenue. These items are an easy sell at Clinic locations and as a
result of national marketing in regions where no clinics exist ó
especially with a national television spot coming soon.
- Training:
A full-sized class for the Training Program (a target we have not
yet reached) makes approximately $200,000 in the first year. This
figure is for tuition alone; it does not include the revenue
increases in our other divisions (Clinics and Products) that
typically occur. The profit margin on this training revenue is
approximately 25%; in other words, expenses are about $150k — and
these expenses do not increase at all if tuition prices are raised.
This revenue and profit margin comes from a current
tuition of $5,000 per student for the first semester. This amount
is underpriced for it’s value, and could easily move up to $10,000,
given the right market conditions, word of mouth, and consumer
awareness. This could mean as much as $400k revenue for a Training
semester 1 (with no increase in expenses).
Keep in mind
that a Training semester 1 is composed of two modules lasting 9
contiguous days each, conducted approximately 3 months apart. This
means that a semester of training (and revenue) occupies only 18
days of the Training Programís class time.
With enough
demand, this set of two 9-day modules could be offered at the same
location (or multiple locations) all year round, for tremendous
revenue potential. And of course, each training class increases
both sales in other divisions and general consumer
awareness.
Remember that each training class continues for
two additional semesters (with each semester consisting of two
distinct 9-day modules). Tuition for each of the second and third
semesters is currently half that of the first semester. Attrition
has been very low (less than 20%), so in addition to the potential
of $200-400k per new class each year, revenue will also include an
additional $80k to $160k per 18 additional days of returning
training classes.
Please also note that, at the least, we
expect to either raise semester 1 tuition or increase semester 2
and 3 tuitions to a price closer to that of semester 1 tuition, as
demand grows. Our internal analysis of the content, value, and
student satisfaction of the 2nd and 3rd
semesters supports this plan. Thus, in any given year...
$200k
per new class + $80k per semester 2 class + $80k per semester 3
class
might become
$200k + $180 + $180k or similar.
Keep
in mind that the tremendous appeal and value of Clinical Somatics
as a professional skill (and Somatic Systems’ proven system of
teaching it) has been so powerful that enrollment, while still very
modest, has grown 50% each year (that is, with each new
training class) — with almost zero dollars in marketing.
Q. “What are the Companyís current priories for growth?”
A. In terms of
our specific priorities for growth, our current market analysis says
that we need to cooperatively build supply and demand simultaneously,
through aggressive marketing of our training program, followed by
strong promotion of our existing clinic locations. New clinics are
then staffed by training program graduates, and a new round of new
clinic promotions begins. Clinical services in turn are effective at
growing training interest, which in turn enables more clinics. When
we reach targets with training enrollment, we increase marketing of
trainings as we begin to fill more clinics and need more clinic
practitioners.
In the event of our
market really exploding quickly, our control of training as well as
clinics means we can intensively train staff to increase clinics and
capacity as needed. Additionally, retail products are an easy way to
serve a rapid expansion of demand. This expansion is also easily
served by group classes at our Clinics, as well as in fitness
centers, corporate settings, etc. (and the high-volume of group
classes returns much higher gross and net revenue per hour than
individual clinic sessions).
Simply stated, we are
positioned to grow whichever division(s) expanding markets hunger for
first. Given that the best laid plans of any company sometime take
slightly different turns than expected, we think this is a smart,
sustainable, and agile formula for success no matter what the future
holds, and for continuing to thrive and expand indefinitely.
Q. “What are your
action plans, with a long term view in mind?”
A. Here are
examples of concrete actions beyond the smaller ones that are in
process now, which support the national growth plans described above:
- National branding
and marketing/PR campaign for approximately $200,000 annually. The
details of this campaign can evolve as we do: We will first strive
to increase Training enrollment and stabilize Clinic traffic and
revenue, as well as fine-tune web-based offerings. As those profit
centers grow, we will focus on making each new Clinic opened not
just a successful revenue stream, but one more concentrated,
high-contact front in the national marketing campaign. Contracting
with a marketing firm in this fashion, on this scale, also enables
us to “;kill several birds with one stone”: That is, we
have a highly integrated, coordinated marketing engine, which is
promoting our work, products, and services for all revenue
divisions; and then this can also be shifted in focus to whatever
region we are opening a new clinic. Our standard annual operating
budget for each clinic allocates $40,000 per two practitioners for
marketing. This money will be much more effective when added to a
larger marketing effort running and building over the years and
across the country.
- Launch of a
national consumer magazine. This publication will be a manageable,
small size at first, until awareness and readership grows, driving
more subject matter and revenue to increase the magazine’s scale and
circulation.
- Release of a new
audio Somatic exercise self-help product coordinated with the airing
of our national television show.
- Addition of a
web-based self-help program, much like the South Beach Diet offers,
whose subscription services can be very lucrative.
- Increased
targeting of larger corporate clients, especially in high- return
areas such as around our New York City office.
- Increased outreach
to the military and VA hospitals.
- Treatment services
(injury repair and prevention as well as performance enhancement) to
various sports teams, both at the college and professional levels.
This will establish Somatics in areas with tremendous performance
and economic returns for the client — and for SMAS. Sports teams
are a notoriously difficulty to reach, as they are so barraged by
solicitations. However, getting involved with even one team will
demonstrate — in very concrete and high profile ways — the great
results our Clinical Somatics system has in performance settings.
One small example of our efficacy is reflected in the newspaper
articles written about an NYU track team runner benched for 2 years
by injury, who returned to the team only through Clinical Somatics
treatments; journalists reported that the athlete was performing
better after coming back than before the injury.
- Outreach to
medical institutions, whose attentions are also notoriously
challenging to attain. Funding will be put towards marketing and
outreach to practices, both in terms of getting information to a
wide population of doctors, and then also targeting individual
medical groups strategically to build a gradually snowballing
referral base nationally.
- Founding of an
independent non-profit research foundation, to raise funds and apply
the foundationís own resources to tracking and publishing pain
management and performance gain research data for Somatics
treatments.
I hope these answers
have been helpful to those of you who own shares of Somatics — as
well as those of you who donít, but are interested in learning more
about our Company and the healing benefits of Somatics. I always
welcome further questions, and will my best to provide extensive and
informative answers.
Sincerely,
Steven Aronstein,
Chief Executive Officer,
Somatic Systems, Inc. [OTC.PK: SMAS]
