3 Lessons Learned from the Founder of a Digital Health Zombie
I’ve worked in and around tech for close to ten years. I’ve been a developer, project manager, product manager, designer, and a sales guy. I’ve worn many hats.
My desire to start a digital health company was born out of my families personal experience caring for my grandmother as she aged with Alzheimers and Dementia. I saw a system that was inefficient, outdated, slow, dangerous, and insert your favorite adjective to describe what is eating up close to 18% of our GDP as a nation. I had to do something about it.
Our experience as a family coordinating in-home and long-term care for my grandmother opened my eyes to how disconnected and fragmented healthcare services were outside of the hospital. Unlike the hospitals and health systems, who for better or worse were mandated to adopt technology to improve care, post-acute care providers still rely heavily on manual paper-driven processes to ensure a high quality of care and transparency during care delivery.
As someone who has worked for years digitizing processes and implementing technology to make humans more efficient, I saw this as a perfect area to apply technology to solve some of these manual problems. I did have previous healthcare experience, but not directly on the provider side. I partnered with a technical co-founder who had extensive experience building applications for providers in a major university health system.
If you are interested, you can read more about our product here.
From the start, I made a conscious decision to bootstrap the company. Taking this approach gave me a different set of experiences and lessons than a founder who went out and raised capital.
At the time, I was convinced that proving product-market fit through lean methodologies, getting traction, and then raising capital was the right approach toward building something viable. Given our circumstances, this was also the best approach to get an idea off the ground without taking on too much risk.
As a bootstrapped company, we didn’t have the resources or time to spend pursuing relationships with larger hospitals or systems. I also believed that if we were truly going to nail a problem, we had to work with providers who would be able to give us feedback quickly. We focused on non-medical and medical in-home care initially. Our customers were individual owner-operators, small franchises, home health agencies, and local hospitals.
How Far Did We Make It?
Overall, we spent about 9 months working nights and weekends on the project. We didn’t generate any revenue, nor did we officially launch. We were able to identify at least 10 customers who were willing to pilot with us. We were very grateful for their belief in us. We walked away somewhere along the journey toward product-market fit.
I saw the writing on the wall and had enough information to know that there are better avenues to get an idea off the ground in the healthcare industry. I wouldn’t have come to this realization without the hard lessons that can only come through experience. So whether you are a startup founder, a product manager, a developer, or someone passionate about making a difference in healthcare, I hope that what I share below can be of use to you along your journey.
Lesson 1: It takes more than the typical startup playbook to define your problem and achieve product-market fit in healthcare.
I’ve sat through my fair share of healthcare conferences, pitch events, and demo days over the last few years. I’d go to these events mostly for their networking opportunities (I would also get a good rate if I registered my “startup”). At these events, I’d listen to the same bleak stats, problems, and potential solutions from similar entrepreneurs.
After going to a few of these conferences, it didn’t take me too long to realize that everyone reads the same stuff, quotes from the same sources, and uses the same words to describe his or her solution.
I’d walk away from these events with the same two questions:
- Everyone seems to know the problems, but why is it taking so long to solve them?
- And why do so many companies who try, fail along the way?
A startup is nothing more than a series of bets aimed at solving a problem or an unmet need. You start with a hypothesis and test that hypothesis over time to create something that your customer can’t live without. One of the tried and true methods for a startup to prove or disprove a hypothesis quickly and cheaply is the lean startup method.
For a consumer technology startup, this methodology is fairly straightforward — find a need, build an MVP, and iterate until your product meets the expectations of your customer. You win by “failing early and often” and by “moving fast and breaking things.”
However, healthcare is unlike any other industry.
I heard Jim McKelvey, co-founder of Square, illustrate this point a few years ago. Paraphrasing he said, “Typically you need three things for success in a startup — A good idea, a good team, and sufficient funding. But, in fintech and healthcare, you need a fourth, permission.”
A need for permission makes it very difficult for healthcare entrepreneurs to follow the typical startup model to build successful, long-lasting businesses. As a digital health entrepreneur, you can’t necessarily “move fast and break things” if you have to keep asking for permission and you surely can’t “fail early and often” if you are dealing with people’s lives.
Risk is deeply rooted in healthcare. If you are a provider dealing with patient lives, you do what works, even if it is inefficient. To change what you do or how you do it requires extensive evidence that has been gathered over time. Healthcare is risk-averse for a reason, but an environment that is resistant to change creates a challenge for any entrepreneur trying to get the right feedback quickly.
As a young startup going through the process of defining our problem and solution, we made some critical missteps by assuming what has worked in other industries or the tech sector would work in healthcare.
Simply put, we did not grasp the complexity of the environment we were working in.
If you are working on a digital health startup and following the typical startup playbook, you have to recognize that at best product feedback may be delayed or at worst that feedback is skewed because you are not operating in a true market. The delay in information or misinformation can blind you to reality as you define your problem, validate your assumptions, and develop your solution.
Here is the deal about innovating in healthcare. If you are not building something that will end up forcing policymakers to reconsider or change legislation, then you have to learn to play by the current set of rules. These rules, which again are created for a good reason — patient security, privacy, and health — limit the flow of information, create perverse incentives, and blind many to the underlying problems in healthcare.
We ended up putting a pause on Cord Health because we underestimated the problem and what it would take to solve it. We assumed that we could follow the same tried and true startup methods that have worked countless times in other industries and find similar success in healthcare. Instead of focusing on workflow, adoption, and outcomes we got wrapped up in trying to become too many things to too many people.
A few takeaways for dealing with permission and defining your problem:
- Educate yourself on the latest healthcare policy. For a great list of resources check out Geoffrey Clapp’s old but good piece on healthcare startups and policy.
- Find someone who has extensive experience navigating the winds of change from the inside (payer or provider) and bring them on your team, even if it is in a consultative role.
- Understand that if you are caught up on the latest trends and policy changes, your customer may not be (In fact, your customer may not even care. They most likely have other pressing needs that you should pay more attention to).
- Focus on workflow, adoption, and outcomes. Don’t get caught up in trying to match your product or solution to some predefined marketing speak category.
Lesson 2: Know the difference between what your customer would love to use and what they would pay for.
For a digital health startup, the answer to “Who is your customer?” isn’t so straightforward. If you are building technology in healthcare, you’ll most likely have multiple customer types.
During the first wave of digital health, many startups (including ours) sold directly to patients. Today, this is very hard to do. The market is flooded with sub-par products and patients are more concerned about privacy than ever before.
This is why 61% of digital health startups that start B2C end up pivoting to B2B and selling to payers, providers, and employers.
Yes, healthcare is becoming more and more consumer-friendly every year, but healthcare is not a consumer market. There is a difference. The former deals with expectations, the latter deals with choice (Jordan L. Shlain MD has a great post on this topic).
In our case, nearly all of the families and patients that we spoke to loved our app, but they believed that the provider should offer our solution as a part of its services. So we pivoted and rethought how we were going to bring our value proposition to the patient and the family by selling our product directly to the provider.
Today, most digital health entrepreneurs have figured out that there are really only three tried and tested ways to get their product in the hands of patients without selling directly at them.*
- Have it prescribed or recommended by the provider
- Have it promoted by an insurance company
- Have it attached to an employee benefits program
The irony of making the pivot from B2C to B2B is that it isn’t any easier of a sell and you run into the same issues of adoption and retention that you faced while selling directly to the patient.
We made this pivot and struggled to find enough bold providers who were willing to pay for a pilot and could give us the scale to get off the ground. We observed several other startups face similar challenges moving from B2C to B2B.
Ultimately, we became obsessed with building a product based on what we thought needed to be fixed in healthcare, not what the industry needed or was willing to pay for.
Halle Tecco cautions entrepreneurs who fall into this similar trap with her post, A Caution for Would-be Digital Health Entrepreneurs.
“Too few entrepreneurs have grasped the distinction between a product that a physician would love to use and a product that is so critical to the business that a hospital is willing to pay for it.” — Halle Tecco
Successful digital health startups are the ones that have created strong value propositions that align the interests of those who are buying and those who are using the product (especially if the user is the patient).
Patients care about results, experience, quality, and trust.
Providers, payers, and employers want you to show them how you are going to save or make them money.
Unfortunately for us, our value proposition wasn’t strong enough to convince enough providers that they couldn’t live without us.
A few takeaways for finding your customer:
- Clearly define the value proposition for all of your customer types and get it in front of them immediately. This takes time and hustle, but it’s in this work where you will be able to figure out if you have something or not.
- Follow the money. Understand the incentives behind who is using your product vs. who is paying for it.
- Make sure you plan to demonstrate the outcomes of your product. Not just benefits, but the actual outcomes. How are you moving the needle for your customer?
- If a customer isn’t willing to pay for a pilot or invest their time, move on.
- Find customers who “get it” and are willing to give you feedback and want to see you improve. You’ll know these customers when they are the ones following up with you on your progress.
Lesson 3: You aren’t in the business of selling technology, you are in the business of selling a new future.
Once we identified our customers, we graduated to the next challenge — how do we get a pilot and get paid?
As a startup building out its MVP, we determined that piloting our software would give us the feedback and credibility needed to gain traction in the space. I mentioned earlier, our target customers were small to midsize home care and home health providers. We intended to focus on a niche market and work with forward-thinking companies and new entrants. I believed that this strategy would allow us to avoid long sales cycles and get off the ground quickly. I also thought the fastest way to sell into a larger franchise or a system was to work with the emerging companies that scare them.
Working with the long-tail of healthcare providers had its obstacles, but I would say that a majority of the challenges we faced weren’t unique to our customer type or size. In the healthcare industry, whether you are working with a large system or a small independently owned provider, you still face the same customer obstacles of limited time, a lack of resources, little money and a low appetite for risk.
With Cord Health, we were able to work with amazing people who genuinely believed in what we were trying to do and supported us along the way, but they were the exception rather than the norm. If I classified our customers into three types it would be as follows:
- The forward-thinking customer that wanted to be a part of and drive change in the industry. This customer was ready to pilot and invest in our success both financially and with their time.
- The customer that recognized a need for change, but wasn’t going to lead the pack. This customer would give feedback, but they were hesitant to pilot and weren’t ready to invest financially in our success through a pilot.
- The customer who was at risk because they were so far behind the times that they would do anything to catch up. This customer was distracted and grasping onto anything that would help them survive. Working with this customer was a coin flip. Some were ready to move, while others were indecisive.
Our challenge, along with many other digital health startups, was that a majority (close to 90%) of customers or potential customers fell into the second bucket. These customers didn’t want to be the first to move or the last to move, they embraced the status quo. Unfortunately, they’ve also been burned by technology companies who have over-promised and underdelivered in the past. Technology isn’t viewed as positively in healthcare as compared to other industries.
So how do you overcome the status quo in an industry that is hesitant to adopt new technology?
For one, you don’t do what we did and force the benefits of your technology on your customers.
Selling customers a new flashy piece of technology that will allow them to “become more efficient” or “generate more revenue” does not work anymore.
We knew the bar for healthcare technology was high, but we underestimated what our customers needed to implement and support our technology (and we didn’t make it beyond pilot). As a bootstrapped startup, we weren’t properly equipped to support our customers as they navigated the change our product would bring into their organization. We were selling technology to drive systematic change that neither we nor our customer was able to undertake.
As a digital health entrepreneur, you must realize that you can’t come into this industry, build great technology, and sell it with great customer success and change management tactics. In the healthcare industry, you have to recognize that you aren’t just in the business of selling technology, you are also in the business of selling a new future.
A few takeaways for working with your customers and selling your product:
- Don’t be afraid to partner early on. If I had to do it over again, I’d rather be the vendor to one large company than chase the long tail.
- If you are building an MVP, seek out customers that can provide scale, resources, and support.
- If you are pre-MVP, explore options to co-develop your idea with either other existing startups or large customers.
- If you are piloting, ensure both parties are aligned to the goals and expectations for the pilot. Pilot users should already be your customer, or you should have a plan to obtain them as customers after a successful pilot.
If you are a tech entrepreneur that is new to healthcare, stay humble and learn. The healthcare industry isn’t waiting for you to liberate it from the shackles of its outdated technology. Remember, healthcare is the only industry in which technology is used as an excuse for its rising costs. Healthcare needs individuals who are willing to take the time to become a student of the game before stepping on the court.
If you have been in the game for a while don’t get caught up by the hype of new technology and try to fit solutions to problems. Work with entrepreneurs to help them better understand the rules of the game so that they can better understand the real problems that need to be solved.
Remember, it is a privilege to work in this industry and to do work that can affect people’s lives. Don’t take it for granted. The thing about sickness is that it doesn’t discriminate. We are all human and we will all need healthcare at some point in our lives. We don’t have time to waste building a system that doesn’t work for everyone.