Is Healthcare Immune to Blitzscaling?
By Ben Alsdurf
In Blitzscaling, authors Reid Hoffman and Chris Yeh describe a new model for startups to achieve scale whereby speed and growth are prioritized over all else. In fact, companies should first aggressively pursue inefficient business models that will allow them to entrench themselves in a particularly valuable market, they contend.
It’s an interesting thesis that describes a model which has propelled companies like Uber and Amazon to stratospheric valuations. But the reality in digital health is more complicated — and the names of highly visible new entrants that have successfully scaled to ubiquity noticeably absent.
Ironically, one of the most well-known health technology companies to achieve something close to blitzscaling was the blood testing startup Theranos, whose founder Elizabeth Holmes was ultimately indicted on charges of fraud. Not exactly a model of scaling for success.
It’s true that companies like Zocdoc (over 6 million monthly users)and 23andMe (more than 5 million tests sold) have built substantial businesses, but their numbers still pale in comparison to the scale seen in the Blitzscaling examples. Both of these businesses have been in existence for over 10 years and are continually redefining their market and business models have yet to realize the dominance seen in other arenas.
So is healthcare immune to blitzscaling?
Maybe not immune but definitely resistant. For one, the healthcare industry encompasses a vast array of businesses. Some of the most successful emerging healthcare technology companies like CoverMyMeds — a backend prior authorization SaaS tool that was acquired by McKesson for $1.1 billion in 2017 — have built impressive technologies at scale that are rarely (if ever) seen by your average patient. The complex web of middlemen and B2B services in healthcare are simply not subject to the same rapid user cycles in other consumer arenas and thus not the types of industries that benefit from the network effects that can propel blitzscaling scaleups.
The most challenging dynamic is that the prioritization of speed needed to blitzscale can be at direct odds with the obligation to safeguard patients
Another reason for resistance to blitzscaling in health is the entrenchment of incumbents in opaque markets. In the U.S., end consumers of healthcare and even care providers are often unsure of the cost of services, thus enabling incumbents to entrench themselves without price transparency and sign contracts with health systems in spite of poor user experience.
The electronic health records industry, for instance, has been plagued by poor UX/UI and a frustrating mismatch between software and healthcare workflows. Furthermore, the ability for multiple systems to communicate with one another has inhibited meaningful integration between different providers and technologies. A survey of physicians by Deloitte found that frustrations with interoperability and a desire for workflow improvement were nearly unchanged in the last two years. In another study of the top EHRs only one system had a slightly positive Net Promoter Score (the likelihood a user would be to recommend the product), reflecting a dismal user experience across the board. It may be that a highly scalable new entrant could take the EHR market by surprise, but the more likely threat will come from one of the dominant technology players expanding horizontally into healthcare.
Perhaps the most challenging dynamic is that the prioritization of speed (over efficiency) needed to blitzscale can be at direct odds with the obligation to safeguard patients, particularly in businesses that directly provide services. When you are building the plane after jumping off the cliff while igniting a set of jet engines on the way down (Hoffman’s analogy), the risk is real of getting something wrong that will adversely affect client health.
The history of 23andMe offers an example of how blitzscaling and regulatory bodies can come to tension. In 2013, 23andMe received an FDA warning letter ordering the company to immediately discontinue marketing its genetic testing services because of its claim that the test was “a ‘first step in prevention’ that enables users to ‘take steps toward mitigating serious diseases.” Simply put, for those providing data and insight on peoples’ risk of developing or mitigating disease the bar is set very high and 23andMe wasn’t meeting that standard. Ultimately, the company continued to offer a more novelty-oriented ancestry service while investing in the requisite studies needed to receive authorization for an inherited cancer risk test. But the example serves as a cautionary tale.
Scaled innovation in this sector always seems a bit late to the party
As Theranos’ Holmes said in her conversation with Hoffman about blitzscaling: “We are in a very regulated space, so this means you have to build a very different type of company because the stakes are so high and the decision-making is so long term compared to normal tech companies.” Though her words were little more than window dressing as she pursued a dangerous effort to scale without accurately representing the veracity of Theranos’ tests, they belie the challenge for healthcare. Similarly, the guerilla tactics that have plagued Uber’s image in the last 18 months and forced a CEO switch also have helped propel the company to a dominant market position. But such business practices would be cold comfort to patients were they engaged in by their doctors.
While the potential for blitzscaling in health is better now than ever, scaled innovation in this sector always seems a bit late to the party. Nonetheless, signs exist that digital health is poised to deliver some highly scaled organizations. In the past year $14.6bn of venture funding was raised for digital health, by some estimates outpacing traditional biopharma investments. Further, with the proliferation of medical data, physicians increasingly will need to rely on machine judgment to verify test results and consider appropriate therapies.
Finally, based on their interactions with other technology sectors, consumers are demanding improved experiences in health. Regulatory authorities like the FDA have taken note, rolling out a streamlined Digital Health Software Pre- certification Program.
With wearables such as the Apple Watch producing medical-grade information, the “empowered patient” is fast becoming the new normal. In an age of instant gratification, patients now expect the insights from the data they carry to inform and even direct the medical care they receive. So beware those who ignore the empowered patient. She — they may decide they can get from Siri or Alexa all the medical attention they need.
Ben Alsdurf is a Consultant at TLGG Consulting US.
