Every day, it seems, we hear about the launch of a new health startup. Whether founded by former health executives or by tech-savvy entrepreneurs, these pint-sized companies are driving massive innovation across the entire healthcare system. According to RockHealth, in the first quarter of 2017, there were 71 digital health deals totaling more than $1 billion.
From 3D -printed human heart tissue to treating pain using VR, these projects have the potential to let humans live longer, healthier lives. Yet for every startup that makes it big, there are plenty that fail.
Let’s take a look at some of the most common mistakes that lead these companies to extinction:
1. Poor understanding of the healthcare ecosystem
Health entrepreneurs might start with a great idea to help patients, but they soon realize that the person they want to address is not the one paying; large enterprises, insurance companies, and Medicare should be the audience.
They first need to learn how to navigate the complex ecosystem made of hospitals, pharmacies, doctors, manufacturers, and more. The fastest way to bridge the gap between concept and product delivery is by joining one of the growing science incubators created by heath giants thirsty for innovation. JLABS by Johnson & Johnson, for instance, connects promising startups with industry experts and venture capitalists across the U.S. and Canada. Resident companies get to maintain complete entrepreneurial freedom as they focus on scientific innovation.
2. A weak team
Many small health company teams follow a similar pattern: a tech person, a product expert plus a sales and marketing wiz. That is rarely the right constellation of staff to help the team make it to the finish line. The missing piece of the puzzle? A Key Opinion Leader (KOL). This is usually an established medical figure with deep healthcare experience who can support their clinical value claims. This person knows the ins and outs of the industry and acts as an advisor. No amount of customer research can replace their knowledge.
Successful health startups have top-notch doctors, researchers and other thought leaders on their advisory boards. Dr. Simon Stertzer, the first physician to perform a coronary balloon angioplasty in the United States, was instrumental for the growth of several interventional startups. He is currently chairman of the board for BioCardia, a biotechnology regenerative medicine company that develops innovative therapeutics for the treatment of cardiovascular disease.
3. Ignoring data and customers
Some heath startups are too eager to see their ideas come to life and spend too little time perfecting their product or understanding their end–users. Great companies think beyond single transactions to long-term relationships. They know everything about customer retention metrics and try to maximize customer lifetime value (CLV).
Data helps companies spot new behavior and identify trends. In fact, data analytics was identified as one hot area of interest for investors. Bay Area startup Gemini Health offers solutions for better electronic health and medication records. They’ve created an online ‘shopping’ tool that enables doctors to prescribe drugs tailored to a patient’s insurance plans. Before prescribing a medication, doctors can access a list of similar drugs and their out-of-pocket costs to see which one a patient can afford.
Other startups offering analytics solutions designed for pharmaceutical companies are also thriving.
4. They don’t have a go-to-market strategy
Tech startups often crash and burn before getting their products to the market. Tech-savvy entrepreneurs are rarely great at sales, so while many manage to get their first round of funding, they don’t sell enough, run out of cash, and end up in major debt.
Figuring out sales is no small feat. Those companies that fail tend to follow a flawed process: build, launch, get feedback from customers.
To accelerate revenue growth, experts advise identifying a dozen very specific customers and talking to them about their pain points before investing months or years in development. This approach to testing a hypothesis is called customer development and involves asking questions about everything from product features to pricing to distribution channels.
5. Poor business model
The ones that ultimately succeed steer away from a fee-for-service model and instead choose a fee-for-value business approach. Forbes reports that as many as 98 percent of startups funded by angel investors fail because of a poorly thought-out business marketing strategy.
The best way to solve this issue is by partnering with an industry leader who possesses the necessary business knowledge. One recent example? The alliance between pharma giant Roche and cancer tech startup Flatiron Health, which collects clinical data from cancer patients.
Startups will inevitably run into problems, but these tips can help them avoid some of the major health startup mistakes that send many small companies into bankruptcy.