Lisa Suennen, Manatt, on what you must know as a healthcare investor

Lisa Suennen currently works at Manatt, where she runs the digital technology group, consults with the healthcare group, and runs Manatt Venture Fund. Lisa also writes a popular blog, Venture Valkyrie, and co-hosts a podcast called “TechTonics” with David Shaywitz. We were thrilled for the chance to sit down with such a pillar in the digital health ecosystem and had a fantastic time getting to know her. In this episode, we chat about some of Lisa’s pithy yet spot on publications (“3 Questions Every Investor Must Ask”, “13 Rules for Healthcare Entrepreneurs/Innovators”), her role in advancing women in healthcare, and how she got to where she is today.

We meet Lisa and get to know how her career started (Start–4:30)

• Introduction to Lisa and her many endeavors, including what she wanted to be when she grew up (spoiler alert: it had nothing to do with healthcare, a lot to do with curiosity/truth-seeking)
• How she got her career started: software companies, marketing, communications. Joined American Biodyne before startups were popular (e.g. no venture backing). The company built high quality, responsive, personalized approaches to treating behavioral health and substance abuse conditions.
• Today, we’d call this type of solution managed care because of how it was carved out for payers and employers. Ran sales, marketing, product, government. Was there from growth through $800million in revenue. Went public, got acquired, took private, sold. Did this for 9 years.

Lisa talks us through the “Three Essential Questions Every Investor Must Ask” (4:30 — 15:30)

Lisa featured these questions on her blog, Venture Valkyrie. Her full post on the topic can be found here.

Question 1: “Is this a product or a company?”

• The challenge with niche-y products solving problems that are important — but also small. Most purchasers on the clinical side don’t want to buy many products from many vendors. They would prefer to buy from a few, “regular” vendors, instead of one app for your pinky finger and a different app for your thumb figure (which is an illustrative example, but a sound one).
• These niche companies raise a lot of money and get bloated with overhead for what they actually can be. If they were capital efficient, then they would be great. Some of these products might differentiate, but they have to integrate, which means they have to change the workflow of the buyer. This is hard to do!
• Expertise is helpful, but entrepreneurs should decide if they would rather build something separately or go inside of a large organization to build that thing. Entrepreneurship can be romanticized. It can be really cool and fun, but it’s also really hard. Need to be realistic about the difficulties associated with selling your products.

Question 2: “Is this a charismatic person or is this a great leader?”

• Great leaders hire great people. They establish a real “espirit de corps” (Editor’s note: for the non-French speaking, you can think of this as “group spirit”). They listen well to their teams and to others, but they’re also decisive. Once people have made decisions they enforce that and make people stay on the move in a way that’s constructive. Great leaders recognize shortcomings and limitations, including when it’s right to change roles.
• What’s the best way to feel these things out? Get to know someone to assess this. Get out of the office. Take a walk. Get pizza. Also talk to people who have worked with this person before. Regarding reference calls: surprisingly, references don’t always check out! People don’t always check their own references, or they may not be self aware (this is a great clue). Also, when checking references, ask who you should call that isn’t on the list. This enables you to do your own research to supplement. Takeaway: go off the list!

Question 3: “Is this a good idea or a good investment?”

• There may not be a limit to how many companies a big healthcare entity can work with, but less is definitely more. It’s important to be aware of how big what you have can really get. For example, people fool themselves about total available market (TAM) numbers and how much of the market they can penetrate. For example, people will say they can take “1% of x market” — however, taking 1% of a large market can be really, really difficult, especially where competitors exist.
• It’s important to think about adoption timelines. Adoption is slow — companies succeeding in healthcare today have been around for 10–15 years, at least! From an investment perspective, with a time horizon, if you’re in the 7th year of a fund, you don’t want to first make an investment in something with a 10+ year time horizon (or “odyssey” as Lisa says). You have to evaluate this risk.
• Don’t get enamored with the technology. You have to think about distribution, reimbursement, who will pay for the thing, regardless of how cool the stuff is. There’s a lot of cool stuff… but not all of it can make it.

We discuss a few of “Lisa’s 13 Rules for Healthcare Entrepreneurs/Investors” (15:30–25:30)

Full summary of the rules can be found here.

Rule #3: “Patients are the point, don’t forget to include them in the design and testing”

• The people who get it right are the people who follow the lean startup approach of talking to 100 customers before building something. There are many ways to get to these people: focus groups, social media are just a few.
• However, you have to ask honest questions. Don’t create the answers by the order of questions or the content. You may ask questions you don’t like the answers to, but you have to let people talk. Let people try things out!
• She’s met a lot of companies who haven’t spoken to a single patient, or don’t understand how much or who will pay for the thing. When entrepreneurs haven’t taken this step, it’s usually a sign they won’t be successful.

Rule #6: “Consumers won’t pay for things they think insurance should cover”

• Lisa feels strongly that there are no major exceptions to this, in spite of the shift towards direct-to-consumer healthcare. Just because things are convenient doesn’t mean people will pay for it. For example, a doctor might send someone to an imaging facility at a health system. That health system could have a very expensive imaging program. There might be a cheaper alternative in their community, but because they trust their doctor, they won’t even look for a cheaper option. Doing this research could get someone a more convenient and less expensive option — but people don’t do it. Shopping in healthcare is still very new.
• She’s not convinced this will change over time, either. Companies who have been successful with direct-to-consumer are companies addressing things that 1. people are embarrassed about (erectile dysfunction) 2. are cosmetic (wrinkles, hair loss) or 3. represent an extreme (cancer, advanced rare diseases).
• We have accustomed ourselves in the United States to believing that insurance should pay for things, and there’s not a compelling case for why this should change. There is increased consumer awareness in healthcare, but we haven’t seen a ton of successful consumer pay solutions where there already was an insurance option (with the exception of the above examples, which still represent large market opportunities).

Rule #11: “If what it causes is worse than what it cures, you aren’t done yet”

• Sometimes entrepreneurs expect consumers/patients to go to extreme measures to use their product, by the definition of the user. For example, log on 20x/day, swallow a pill, use an app, etc. Some products literally hurt when you try them! You have to understand how your product impacts the user/patient. If the consumer experience is negative or too hard or too painful, then someone is just not going to pay for it.

We chat about Lisa’s work around better representation of women in healthcare and investing (25:30–29:30)

• Lisa talks about her work in representing women in healthcare. She didn’t always think of herself as a feminist until she realized she could go for weeks without seeing any women in her work life, which frustrated her. She started mentoring women, joining women’s organizations and realized while she was at the Aspen Institute that there was a marketplace opportunity between people who wanted advice/mentoring and people who could provide it. C-Sweetener, when she created, matched mentors and mentees. Lisa recently sold C-Sweetener to HLTH.
• The gender breakdown is an issue in both investing and healthcare more generally. ~85% of healthcare decisions are made by women, however most healthcare companies are run by men. Some don’t have any women near the executive level; only 13% of healthcare CEOs are women. This leads to a mismatch in products and services due to a lack of empathy, and this is only amplified given investors are almost all men. This biases against companies led by women trying to solve a key problem. Lisa points out of course that not all men are biased and not all women are great, but we definitely have room to improve.

On her current role, career advice, and what she does for fun (29:30–end)

• On her current role: Lisa transitioned to Manatt just over one year ago. She was trying to decide if she wanted to go into venture, operating, or consulting (she has experience in all three). At Manatt, has the chance to do all three: she runs the digital technology group, consults with the healthcare group, and runs Manatt Venture Fund.
• On career advice: If you want to go into venture, don’t go straight there. Work in operations at companies first — there is no substitute for this experience when you start thinking about investing in a company. When you invest in a company, you want to be prepared to advise them based on your experience.
• On whether you should join a startup or a big company: Know that these are two completely different opportunities. You have to know your level of risk tolerance, how much training you might want or expect. Some people thrive off of hitting the ground running, others thrive off of structured growth and organized teams with resources. You have to know what works best for you — most people do well in one or the other environment.
• On what she does outside of work: Spends time with her family, plays squash, writes, has a new puppy. Travels a lot for work, too — heading to Barcelona, Australia (hopefully). Went to Japan recently, and if you missed her post about Japanese toilets, you should read it ASAP (link here).