Over the last few years, the four of us (a healthcare-focused venture capitalist, a clinical research manager, a pharma executive, and a doctor turned entrepreneur) have seen numerous first-time health technology startups that think they’re doing everything right — right up until they go bankrupt.

It’s easy to underestimate healthcare’s unique challenges. There are reasons why this industry is a digital laggard. Strict regulation, complex systems, and long times to market are just a few examples. So how can you beat the odds? No one expects you to have comprehensive answers to everything early on, but life will be easier if you have the following critical issues on your radar.

1. There is rarely only one type of customer to woo

Often, entrepreneurs focus first on getting things right for one customer group. The assumption is that this helps gain traction: If you nail it for one customer type, it will be compelling for adjacent ones. Startups are more likely to die of indigestion than starvation, so there is value in resisting the temptation to solve too many problems at once. Even platforms start by catering to one constituency before they attract the other side. There’s a problem with that in healthcare systems where the user is not the payor. A patient might love getting physiotherapy but it’s their health insurance company that makes the purchasing decision. A doctor might prefer a particular ultrasound machine, but ultimately, the hospital’s purchasing department makes the choice. While you work your way through Almquist’s Value Pyramid for user-buyers, be mindful that economic buyers care about saving money or time, or making money.

Typically, you need to convince three buyers: the user buyer, the technical buyer and the economic buyer. It helps to hypothesize and validate early-on who your core user is, who will pay you, and why. The common strategy of “we’ll give the app for free to patients until we have 50,000 users, then sell to pharma” is fairly naive. It’s true that patients often have a low willingness-to-pay while many institutions are interested in patient data. However, you can’t leave too many assumptions untested for very long (including users’ desire to share their data). Instead, seek to get answers from real customers on what you need to deliver to earn their willingness-to-pay.

2. In healthcare, ‘fail fast’ could mean ‘kill fast’

Avoiding harm ranks among healthcare’s highest goals. The generally accepted price of safety is sluggish innovation. It starts with user research: you’ll need management or even ethics committee approval to speak with hospital patients. You might have to adopt an ISO 13485 quality management system and get CE certified before launching a product onto the market. And it’s possible you will be required to conduct and publish rigorous research in support of your value propositions. There are no shortcuts here. Experienced investors and healthcare innovators know that blitzscaling is not something you can typically do in digital therapeutics. Instead, making safety a prerequisite should be central to your strategy, in line with the principles of Modern Agile.

3. Healthcare data is both a blessing and a curse

Healthcare is full of opportunities for ambitious entrepreneurs. The market is enormous, and there seems to be abundant data that can be used to improve the health of entire populations. But don’t be charmed too soon; complexity awaits. First, healthcare data is kept in various silos: EHR systems (ideally), paper documents (more likely), apps, insurance registries, the brains of patients, and other media. Since health data is considered particularly sensitive, it’s challenging to make diverse and heterogeneous data sources accessible and ensure transparency on how it is used to benefit the target user. Once you’ve solved that challenge, you’ll have much checking, cleaning, structuring, integrating, merging, and harmonizing to do. This process is frustrating and difficult to scale. And after all that, you still need to build a solution that provides superior insights, continuously and reliably. It will require a data-rich environment to thrive and learn iteratively. In all likelihood, this will require the support of all stakeholders, including patients. Solutions that strengthen the human experience of care, rather than trying to replace staff, will likely receive the strongest support.

4. It’s easier to validate a product-market-fit with a license to operate

Many newcomers overlook healthcare’s strict regulatory environment. That’s risky. If you think you don’t need to worry about regulation because you’re building software, not medical devices, then you’re mistaken. And arguing the point is likely to drive off any healthcare experts you hoped to work with.  The EU’s new Medical Device Regulation says: “Software intended to provide information which is used to make decisions with diagnosis or therapeutic purposes is classified as class IIa.”

There’s no ‘regulatory sandbox’ in healthcare as there is in fintech. If you deliver health benefits, you’ll likely need an ISO 13485 quality management system. It’s annoying to implement, but it’s incredibly hard (or even impossible) to retrofit, so better do it early. Once it’s integrated into existing workflows, like Jira ticketing, it quickly becomes second nature and can actually add value because it nudges you to be more mindful in your developments. However, you’ll need expert support to succeed. Include scientific literature into your desk research and focus heavily on user research and human factors. It helps to release a minimally viable version of your product early to reduce complexity and get market feedback. Then, add features into new product versions.

Healthcare’s regulations can frustrate developers who embrace rapid feature deployment because they suddenly have to document risk assessments for every piece of code.

5. Neither user centricity nor medical benefits will drive adoption

There are many startups with medically sensible solutions that fail to show a high number of users with strong engagement. If people don’t use it, you probably won’t unleash many benefits. Perhaps you thought too much about your solution and too little about the real problems of your users. By contrast, you’ll find entrepreneurs who conducted extensive user research to find a solution that is viable, desirable, and feasible. This works in eCommerce, but when you promise to create health benefits, it’s not enough to make intuitive sense, you need to provide evidence of effectiveness. Outcomes are hard to measure and causality is difficult to define, especially when your solution affects elements that are difficult to measure, like behavior, nutrition, emotion, or pain. Success in healthcare means integrating two different worlds: user-centric agile software development and evidence of outcomes.

6. Come prepared

Health care needs what design firm IDEO’s Tom Kelley calls cross-pollinators — people who mix together disparate ideas, people, and technologies from different disciplines. However, you will only succeed if you lean deep into the discomfort of making sense of healthcare’s complexity and strict regulations. Too many would-be entrepreneurs think healthcare is like e-commerce but with social impact. Statements like “Why can’t we just fire radiology technicians and tell regular emergency room nurses over Skype how to put a patient in the CT?” quickly (and fortunately) terminate conversations with the industry’s gatekeepers — the people you need to convince to support your endeavor. If these stakeholders realize you’re not yet educated in clinical realities, you’ll be shown the door quickly. But if you cultivate the humility to use your outsider knowledge merely as a fertile ground to learn from a new industry, the prize might be high — for you and for society.

Sven Jungmann is Vertical Lead, Health at FoundersLane in Berlin, Germany. He is also co-founder of career service and education finance firm Filentia.

Filentia and serves as a medical advisory board member at Direct Health Services. 

Carlo Schmid is an early stage investor at Cherry Ventures in Germany.

Ali Ciğer is Commercial Director, Pain at Pfizer, Germany.

Ole Dammann is Chief Digital Officer at clinical research company KFGN in Germany. He is also a mentor at Startupbootcamp and a lecturer at the Frankfurt School of Finance & Management.


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