[Baby Gap} to buy gift certificates. He called the store and they told him they could not sell gift certificates over the phone and he would have to come to the store. Back then, gift certificates were not like the gift cards of today. They were large pieces of paper that resembled the checks people held up after winning golf tournaments. He went to the store and when he was done, he had spent two hours waiting for his gift certificates to be printed, signed and recorded. He then had to mail the gift certificates and went off to the post office. By the time he was done, he had spent three hours to send a simple piece of paper to someone. When he called, he said to me “why isn’t there a 1-800-FLOWERS for gift certificates? You could order and send whatever gift certificates you wanted?.”

I got of the phone and opened the Lexis Nexus application on my desktop. Back then, that is how lawyers got information. I searched for “gift certificates” and two thing came up – popular retailers (e.g., Barnes and Noble) and “corporate incentives.”

I had never heard of incentives. I was curious so I started poking around. When I looked at the incentive industry, I saw an industry ripe for a new player. There were companies spending billions on rewards, incentives and loyalty programs. The industry had existed for over fifty years, going back to the old S&H Greenstamps that our parents knew. Other than the large credit card and travel reward programs, most of this was run by regional marketing firms that did these programs on a one off basis. There was little technology, data, analytics and no investment capital. I also noticed something else – in these programs, the reward was never cash or gift certificates. If you remember, the only credit card company that had a cash reward program in the 1990s was Discover, and that was an outlier. Seemed strange.

This and the gift certificate world kept going around in my head. About a week later, I was going on a date with a pharmaceutical sales representative and went to her apartment to pick her up. While I was waiting, I was flipping through a catalog on her coffee table that had pages of travel packages and merchandise. I asked her what it was and she said it was her incentive catalog – the reward options she got to pick if she hit her numbers. I asked “why would they go to all the trouble of picking all these travel and merchandise items? Why wouldn’t they let you get cash or gift certificates and pick what you want?” She didn’t know.

Then I figured it out. The business model for incentive companies for the last fifty years was to make money on the “reward.” The existing players in the market who ran the large loyalty programs made their money on the rewards. They would buy a television in China for $100 and sell it to Pfizer for $400 to reward a pharmaceutical sales representative for hitting their sales target. They even used to publish surveys that said that merchandise rewards drove better performance than cash or cash equivalents like gift cards. When I read those studies, I always thought that was bullshit. The reason they published those studies is that they made all their margin on merchandise and there was no margin to be made in cash or gift certificates. If these companies did offer cash or gift certificates, many consumers would pick those rewards and it would decimate their business.

What an opportunity? Large, fragmented, inefficient market. Spending on incentives tied business goals. A built-in competitive barrier from the largest players. Perfect for a new player.

We started IncentOne. The model was to create technology that would allow companies to administer all of their reward programs in one place and to administer every type of reward, including cash and gift cards. Our value story was not to make money on the reward, but rather to provide them with a solution that would allow them to administer their reward programs and optimize their use in driving business results. We would also be the first company to have a network of gift certificates as a reward option.

That was the beginning. My brother and I would meet at the end of my day at my law firm – which was usually around 10 p.m. – and in the wee hours of the night we built our business plan and financial models. In [January 1998] I left my law firm and we set up the company on October 15, 1998. In the beginning, I worked out of my brother’s real estate office. In addition to the other basic business activities, I spent about two hundred days on a plane to convince the national retailers of the world (e.g., Target) to offer their gift certificates in our program. The rest is history.

Throughout the book, I share many of the stories of IncentOne so I won’t bore you here. Except one – about our first employee, Randy.

Randy and I went to Bucknell together. We were in the same class, Management 101, in which business majors are given the opportunity to run a business. In this class, you learn business organizational behavior at the same time you run a business. You elect officers, come up a with a business concept, make a pitch for a loan and the university gives you money. Your grade is based on profit. Most of the businesses from this class over the years were T-shirts or hot dogs at fraternity parties. We came up with “Bison Ices”. Bucknell’s nickname is the Bison and the business was portable Italian Ices all over campus.  

I was elected CEO and Randy was elected Director of Operations. A few engineers rigged bicycles to be able to drive around freezers that could hold three vats of Italian Ices. We were everywhere. On a moment’s notice, we could pedal our wears (literally) to a crowd. Sporting events. Club events. You name it. It was common for our drivers to call back to the home base and say “we’ve got an emergency. We are out of blueberry.” Our runners would pedal their asses off and deliver product to the various locations. Bison Ices was a huge success. From what I hear, it is still one of the most successful businesses from that class. Who knew it was a snapshot of our future. I still remember eating the last two inches of Italian Ices of all the near empty vats that came back each night. We went home every day with blue tongues. 

In early [1998] I was living in Hoboken, New Jersey and this idea of gift cards and an incentive business was swirling in my head. I was working out in a gym in Hoboken and noticed a guy wearing a Bucknell sweatshirt that looked familiar. I introduced myself and realized it was Randy. We started working out together and I told him about the incentive idea. He mentioned that he worked for a publishing company and they asked him to head their new division using this thing they called the Internet. I told him that I could not pay him anything but asked if he was interested in helping me flush this out and what role the Internet might play. He called me a few days later and said he’d love to. We would meet after work, go to the gym and then noodle and noodle and noodle.

It was a chance meeting, but after almost a year of noodling Randy became our first employee as our Director of Operations. Go figure – CEO and Director of Operations from Bison Ices to CEO and Director of Operations of IncentOne.

It was me and Randy. Over three years, we did everything that needed to be done to build the business. Randy’s nickname became “The Glue” because he was the one that kept it all together. Our solution resonated in the market. Customers liked letting their employees select the gift cards of their choice or cash as opposed to travel or merchandise. They also liked having a single technology platform to run it all. A bank that would run a separate reward program in each branch now had a single technology to run it all. We were making progress helping some of the nation’s largest companies run their reward programs. Our clients included Deloitte, Washington Mutual, Countrywide Financial, Safeway, British Airways, and General Motors.

Even though we were making progress, I wanted our solution, which was being used to run employee and sales incentive programs, to be something that was on the CEO’s desk. It was 2002 and I was looking for a different vertical market for our solution. Then it hit me. I was walking down the street in Manhattan and saw a billboard outside a Starbucks. It said “we pay for healthcare even if you work part time.” I had never thought about healthcare before. Everyone got their healthcare from their company. I knew nothing about healthcare. Some say I still don’t. I did some research and what I found blew me away. Every car that General Motors made had $2,000 in healthcare costs. Starbucks spent more on healthcare that coffee. Whoa!

I kept digging and found another statistic that sealed it for me – for every ten pregnant women who do not follow their pre-natal care, it costs our healthcare system $1 million. Wow! As I kept looking, all the research was the same. Americans don’t do the basic health things they are supposed to do and it costs the healthcare system billions. Even pregnant women, who you would think are as motivated as anyone, were not doing the right things. I thought “if you gave each of these women $1,000 to do what they should be doing, the system would save $990,000.” I may not be a healthcare guy, but I can add.

We were off to the races. From that day forward, we were focused on being the first company to use rewards for healthy behavior. We could not only help people get healthier and the system save money, we could change the world. Every time someone earned a reward, they would be getting healthier. We said “fixing the healthcare system, one activity at a time.”

We even approached American Express and told them that they could own healthcare. Imagine “American Express Rewards for mammograms.” Imagine if they had done that in 2004 – every single healthcare player – health plans, hospitals, employers, pharmaceutical companies, Medicare, Medicaid – would give away American Express points for healthy behavior. In Canada, because it is a smaller market, every company uses a single loyalty currency – Air Miles – for their loyalty programs. I told American Express that they already had the infrastructure we were about to build. They declined. They would have owned healthcare.

Makes sense right? Great idea. Great energy. Passionate belief. Huge market. I was well-equipped. Sure, in 2004, we were ahead of our time. In 2004, not only were rewards in healthcare non-existent, they were offensive. People in the health industry said they would never pay people to do the things they should be doing for their health. We would respond “but isn’t it just math?” We would ask “if such a small percentage of people are taking the right behaviors, how does that change without rewards? In every other industry if someone wants to get a consumer to do something, they use rewards. Would anyone switch bank accounts if they didn’t get their $200 reward? Would anyone use an airline or a hotel that didn’t have a reward program? We would remind them that healthcare was the only industry that was asking consumers to change their behavior without rewards.

It became clear we were inventing an industry. To sum it up, the head of benefits of a large waste management firm said to me in 2005, “it is offensive to me to pay my truck drivers to deal with their sleep apnea.” Years later he called me back and said “it is still offensive to me to pay my truck drivers to deal with their sleep apnea, but they keep crashing trucks into buildings so what does it matter what I think?”

Today, rewards for healthy behavior is everywhere in healthcare. In 2014, Forbes named five megatrends with the power to transform healthcare and two of the five were related to rewards. Eighty percent of employers use them in 2015 and will spend an average of $693 per employee. They are used by every health plan, Medicare, Medicaid and your local retailer. Walgreens has 110 million people enrolled in their Balance Rewards program. Every segment of healthcare is using rewards. A provision increasing the use of rewards for healthcare was even included in Obamacare. It was one of the few provisions in Obamacare that Democrats and Republicans agreed upon. It is a matter of time before every health plan will have a rewards program like your credit card, airline or hotel.