(Even) More Disruption, Please !!

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There are two questions I hear all the time from digital health care entrepreneurs: 1) How can I gain initial market traction? 2) How do I grow my client base?

Health care is an incredibly tough market to sell into. Even if you have a highly-differentiated solution with proven value, the barriers to access and scalability are extremely high.

For entrepreneurs trying to break in, the problem is two-fold.  First, the majority of providers are focused on patient care – getting on their radar is difficult. Second, even if an entrepreneur does gain buy-in and proves value to a single provider or group, it’s difficult to build upon that success. 

Negotiate Strategic Partnerships

The first lesson to get ahead: Learn how to spot a valuable partnership and negotiate a good deal—whether with an accelerator, incubator, or VC.

There are 87 accelerators (and counting) dedicated to jumpstarting the most promising health care startups in the country, and each is as differentiated as the companies they nurture. These accelerators vary in how structured their programs are, as well as the threshold of capital they invest.  Timeframes differ, the amount of equity required varies, the level of mentorship fluctuates, and the quality of contacts/potential clients runs the gamut. Despite the differences, the objective is the same: to help propel entrepreneurs into health care.

Last year, athenahealth through its “More Disruption, Please (MDP)” program entered the accelerator market with a new ‘enterprise innovation’ model, making MDP not only a corporate investor, but an advisor, cheerleader, and customer conduit for a handful of emerging digital health companies. 

By tapping athenahealth’s open, cloud network of 64,000 health care providers, our accelerator portfolios can easily integrate onto our API-friendly platform and beta test a solution with real providers. As that solution matures (proves itself), there’s opportunity to rapidly scale it across the network – gaining access to all engaged clients via a single reusable connection. Those who join MDP partner with us because of this connectivity; inherent in our network is an attractive sales channel (direct access to providers and an opportunity to distribute to a captive base), a simplified integration process, and a tailored-to-fit program. 

In exchange for these benefits, we ask our portfolio companies for a few things in return. For starters, we encourage them to ‘play well with others,’ develop on other platforms, and to grow their list of strategic partnerships – we never ask for exclusivity. With that said, should one of our portfolio companies contemplate a strategic event – raise debt, raise a large round of equity, or receive an acquisition offer, we ask for ‘right of first notice’. This means as a stakeholder we simply want a seat at the table before these events occur, though disclosing the details (entity or terms) is entirely up to each company. As a public company, there are restrictions on how we can operate (e.g., we’re careful to avoid tripping thresholds of ownership), which also influences our bottom-line terms. In the end, our unconventional approach allows us to execute a program like none other. And to date, we’ve never had an issue, especially considering the value we offer (investment, access to customers, mentorship, etc.).

What digital health entrepreneurs and startups need to remember is that term sheets are merely a base line. As with any partnership, you must assess the net value of the agreement (do you get as much, more, or less than you put in?) and negotiate to find that “sweet spot” of comfort and common ground. We expect to negotiate and ink changes for every investment we make, and so should you. In the end, you have to feel good about the agreement you sign.  If you don’t, move on.

Here are a few more thoughts to keep in mind:

1. Partner for marketing & sales expertise

If you have a great solution but no way to market and sell it, you’re effectively dead in the water.  Find a partnership model that supports sales and marketing.

Not all partner models are built alike so it’s also critical to assess the potential partner’s: 1) level of commitment; 2) past success; 3) ability to nurture improvement and hold you accountable to deliver results; and 4) stability, i.e., will the partnership exist or matter a year from now?

2. Pilot and learn

You’re never too mature to pilot. It’s a chance to learn how a solution is being used, if it’s working, and how it can improve. Seize the opportunity to question your assumptions about your product or service and receive feedback. Companies that do this discover the unexpected, learn from it, and adapt accordingly, often changing pricing models, messaging, user interfaces, and sometimes even the direction as a result.

3. Show results (even if they are early)

How are you proving ROI (return on investment)? Providers are looking for results and outcomes before they take that leap of faith and adopt something new.  I often see high-potential companies fail because more time is spent tweaking the product than proving its value to the provider.  Remember measurable results matter.

4. Mobilize your champions

Make the few clients you have work for you.  Build an evangelical client base that will advocate on your behalf and act as a source of referrals. These will be providers that love what you do and want to see your company grow—and as you do, they benefit as well. A happy, healthy company that is thriving will continue to add new features and functionality making any solution/service that much better.

5. More venture money is not always better

Take smaller investments, and be economical and calculated about how you use them. More often than not, growing through strategic partnerships (see above) or seeking out a client that can anchor you with cash flow is better than taking on more venture money. A strategic partnership focused on mutually beneficial goals can often lead to more growth than an investment focused on financial returns and external factors. Asking tough questions early and often ensures you are getting value in addition to money.

I’m confident that in today’s innovation-rich health care space —despite the challenges—we will continue to see more collaboration, interoperability, and inevitably, more digital health startups breaking through to make a difference in the industry.

If you’re a digital health entrepreneur interested in improving health care through transparency and open connectivity, join the conversation at athenahealth.com/disruption. We want to hear from you.

Kyle Armbrester is acting chief product officer at athenahealth, a leading provider of cloud-based healthcare services and mobile applications for medical groups and health systems across the U.S.

3 replies »

  1. Truth is, as an early stage company it’s hard to evaluate the value of an incubator program, and I believe it will be unique to each company. We’ve heard many incubators which invest little or no capital make the same argument: it is worth giving 6 or 8% to the incubator in exchange for access to partners and expertise. It’s not easy to figure out if that’s true before actually going through the program.

    As a young health IT company, our two biggest challenges are, of course (as Kyle indicated), distribution and EHR integration. Intuitively it seems that Athena’s program has a lot more legitimacy behind promises to solve these challenges than incubators that aren’t part of EHR companies.

    With Athena, most important to me in evaluating mutual fit is Athena’s intention behind the program. Is it to generate ideas that Athena can leverage? Is it to develop partnerships? To stay on top of what’s going on in the startup world? To farm acquisitions? To save the world? None of them is bad, but some are a better fit for us. Getting down to a realistic understanding of these drivers can help us feel comfortable knowing what we’re getting into and whether it would be a mutually beneficial relationship.

    We’re considering bringing our team to Athena’s hackathon in Austin in a couple weeks (http://mdphackathon.com/)—could be an interesting way to explore the possibilities of the program!

  2. This article came up in part because athenahealth got accused by Chris Seper at Medcity news of giving shitty terms to startups in its incubator. What Kyle’s doing here is explaining that as a corporate investor with an incubator which acts as a pipeline to clients on athenahealth’s network, their situation is very different from a random accelerator that has funding and mentors. And of course companies in their MDP program need to realize that and negotiate appropriately. Of course Kyle went to negotiating school at Harvard so they need to bring their A game!

  3. Ok. Sounds great!

    Now for the fun part.

    What’s the worst idea you’ve been pitched?

    ‘Cmon – you know you want to tell us!!!!!!