Health 2.0

Lessons from the Carnage in HealthTech

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Recently ZocDoc had a huge funding round demonstrating the success that they are having. There’s a number of lessons learned from ZocDoc’s experience. Unfortunately, many haven’t demonstrated Zocdoc’s wisdom leading to a large number of healthtech failures. A recent study highlights this phenomena. After interviewing 110 digital health entrepreneurs, RockHealth recently released its study Rock Report: State of Digital Health demonstrating the disconnect between the startups getting funding and what many startups are pursuing. This disconnect is the last and most important reason healthtech companies have failed that are detailed below. The following are the top reasons why healthtech companies have failed or had to do major pivots in order to survive:

Lack of Specific Focus or Adoption point
It’s well documented that a lack of focus kills startups whether they are in healthcare or not but it is particularly prevalent in healthcare. The diversity of opportunities in healthcare is so great that it’s tempting to try to solve it all. These startups are ignoring the old saying about how to eat an elephant — one bite at a time. Too many startups are trying to swallow the elephant whole.
Expected consumers to pay
With the exception of weight loss programs, there aren’t many examples of consumers paying directly for health services. Over time, this is likely to change as more of the burden of healthcare costs gets shifted to consumers as was highlighted in a Healthcare Disruption series (see links below). However, I’d be very cautious about any business expecting to have consumers pay in the near-term.
Expected consumer to enter lots of information
While I believe there was a bigger reason why Google Health failed, expecting consumers to enter information is one of the big factors in why Personal Health Records (PHR) have failed to gain meaningful traction. Most PHRs rely on the individual entering information and few are willing to do that.
Required huge amounts of money
This tended to happen in bubble periods where there was a grand vision and frothy funding markets threw huge sums of money. Ultimately, they weren’t sustainable franchises.
Require multiple and intricate partnerships
A startup dependent on too many partnerships is likely to run into issues as those partnerships frequently involve established players. Unfortunately, the established players have a dramatically different sense of urgency. Many good ideas have died on the vine waiting for business development and legal departments at established players who didn’t share the startup’s sense of urgency.
Lacked Understanding of Reimbursement Dynamics
This is by far the number one reason why healthtech startups have failed. The findings from RockHealth’s study highlight an important dimension of this. On a positive note, 77% of VCs think healthcare IT investment dollars will increase in 2011. Already 35 digital health companies having received $2M+ in 2011. The important point is that 80% of those receiving funding are B2B (i.e., selling to either healthcare providers, businesses, etc.) yet the majority of digital health entrepreneurs surveyed think consumers will pay for their product or service. Despite this fact, most early stage digital health entrepreneurs are building B2C companies.
Before it’s too late, hopefully these companies will find a way for someone other than consumers to pay. This could be via an advertising model or by licensing the technology to organizations. In this case, the consumer is the product, not the customer. The customer is the organization.

 

 

Dave Chase is the CEO of Avado.com, a Patient Relationship Management company. Previously he was a management consultant for Accenture’s healthcare practice consulting to 25 hospitals and was the founder of Microsoft’s Health business. You can follow him on Twitter @chasedave.

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JasonAnthonyDan MunroMatthew HoltDave Chase Recent comment authors
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Jason
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Nice written article . The only thing is, what is the amount of funding you get when you are a healthtech business.

Anthony
Guest

Recently ZocDoc had a huge funding round demonstrating the success that they are having. There’s a number of lessons learned from ZocDoc’s experience. Unfortunately, many haven’t demonstrated Zocdoc’s wisdom leading to a large number of healthtech failures. A recent study highlights this phenomena. After interviewing 110 digital health entrepreneurs, RockHealth recently released its study Rock Report: State of Digital Health demonstrating the disconnect between the startups getting funding and what many startups are pursuing. This disconnect is the last and most important reason healthtech companies have failed that are detailed below. The following are the top reasons why healthtech companies… Read more »

Dan Munro
Guest

To Dave and Matthew – two points only: The difference between ZocDoc and almost every other startup (healthcare or otherwise) is this. It’s the first time that Jeff Bezos, Mark Benioff, Vinod Khosla – and more recently Ron Conway, DST Global and Founders Fund – have all come together collectively AND publicly around a single investment. That’s a very different investment profile – in which the only conceivable outcome is success – by matter of some degree. Dave’s math may be rough – but it’s reasonable, conservative and very compelling. The comparison’s to Open Table may be fair technically –… Read more »

Curly Harrison, MD
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Curly Harrison, MD

Most fail because the devices they are producing are meaningfully useless and meaningfully unusable.

The hype about prevention as the bender of the cost curve is exactly that.

These start-ups mostly produce me-too stuff.

If a start-up wanted to make a name for its product, get it tested and have it demonstrated to make a meaningful impact on cost or outcome_and_ get it approved by the FDA.

Matthew Holt
Guest

I actually think Dave is wrong in his impression here. Love ’em to death but the RockHealth crowd is the kids on the outside–the only slightly more seasoned Health 2.0 companies (of whmo Aavdo is one) know that they have to work with the system to get going. Even the ones focused on consumer end users (patients or doctors) like Sermo & American Well have been making alliances and getting customers in the old HC world since before day 1. And in fact the carnage in Health 2.0 has been very limited compared to (say) the consumer Web world of… Read more »

Dave Chase
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Matthew – I don’t think we’re in disagreement. My “carnage” comments aren’t speaking specifically to H2.0 companies. It goes back well b4 H2.0 started – i.e., going back over the last 15 years. Your sample is biased (in a good way) towards those who have learned from the mistakes of the past. I can assure you that many HealthIT companies that didn’t make your cut didn’t follow some of the “lessons” from ZocDoc and others and thus why many investors have been burned. The scorched earth is out there raising the bar for new entrants. That’s not a bad thing… Read more »

Jonathan H
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Jonathan H

Excellent. Agreed on all points except, in part, #4. Partnerships are inevitable. Even ZocDoc has to work with all the docs who are willing to put their data in the ZocDoc system for appointments. I would agree that you want to avoid “intricate” partnerships if possible, and yes, the big players have a different speed of decision-making and implementation. I wouldn’t say it is always because they lack a sense of urgency, but because they have layers of bureaucracy and large internal constituencies to mobilize.