Failure to Launch: How to Avoid the 5 Common Mistakes That Cause Digital Health Ventures to Crash and Burn

The digital health market in the first quarter of 2017 enjoyed continued momentum, with 71 deals totaling over $1B (which by some accounts, is actually a conservative estimate).[1]  But don’t let the steady deal flow fool you – it’s extremely challenging to successfully launch a digital health venture and even tougher to sustain it over the long-term.

Many first-time founders and even serial entrepreneurs new to digital health expect to employ a lot of the tactics they learned in business school or had success with in other industries.  They craft well-meaning plans to develop a minimum viable product (MVP) and launch some pilots, and anticipate that the customers and deal flow will follow.  And sometimes it does.  But more often than not these founders encounter unexpected delays and hiccups due to the complex and highly regulated nature of healthcare.

Here are the top five mistakes I’ve seen digital health founders make that can lead to their early demise:

  1. Confusing personal experience with a broader market need: Healthcare is deeply personal and many founders decide to enter this space because they or a loved one has had an unsatisfactory encounter with the healthcare system. While that passion and personal experience can be an attribute, it can also blind founders from seeing other viewpoints and trick them into believing they have the best and/or only solution that solves that problem.  Just because you have experienced something first-hand, does not mean that your problem is going to translate into a broader market need.
  2. Failing to clearly differentiate and communicate where your solution fits in the larger ecosystem:  Today’s digital health ecosystem is much different than it was 5-10 years ago, when barriers to entry were higher, categories for products and services were more defined and only bigger companies could afford to launch a new solution.  As a result, there are literally thousands of companies vying for customer revenue dollars and it can be hard for a smaller start-up to distinguish itself from competitors. If you fail to differentiate your solution and rise above the noise in the market, you will have a tough time getting anyone’s attention.
  3.  Inadequately identifying a paying customer:  It’s also hard to get customers to pay for a digital health solution. In healthcare, consumers rarely believe they should have to pay for a product or service.  It can also be really tough to convince insurance companies that they should pay. So founders are caught between a rock and a hard place. Because the categories in digital health can be blurry at best and it’s hard to define a paying customer, it can be hard to generate awareness and adoption for your solution.
  4.  Underestimating the length of the sales cycle:  Typically deals in healthcare take about 6-18 months due to the complexity of the ecosystem and the sheer number of stakeholders.  It’s unlikely that you’re going to be that “special” company that lines up pilots, partners and customers much faster.
  5.  Oversimplifying the complexities of the regulatory and scientific validation processes:  This one is more common for entrepreneurs who don’t have a healthcare background and may not be aware of how much regulations and clinical validation can slow down your product roadmap and market launch.  There are few shortcuts here to speed things along, although if you’re new to healthcare, a good advisor who can guide you always helps. 

Most of these mistakes can be avoided or mitigated if founders would just slow down in the beginning, which ultimately allows them to move faster later on.

Many founders are so eager to develop their MVP or solution and go to market that they gloss over a lot of the upfront work that sets the foundation for their business.  By taking the time at the beginning to focus on their business model, founders will likely uncover many of these challenges and can possibly mitigate them before they destroy what they are trying to build.

Some entrepreneurs may shudder at the idea of spending precious time that could be used on product development to develop their business model.  But I’m not talking about a 50-page business plan that sits on the shelf and collects dust.  Rather, I’m talking about the foundational components for your entire business, including who your customer is; the problems you’re solving for them; your product/market fit; revenue model; and key activities, resources, partners and costs.  In fact, these components should really be driving the product development; you are doing yourself a disservice if you skip over them or only give them cursory consideration.

But let me caution you – this upfront work to define your business model is not fast or easy. 

It requires you to go into the market and actually talk with prospective customers and, more importantly, listen with an open mind to the problems that are most important to them.  These insights will help drive you towards a solution that solves their problems, rather than designing a solution and then trying to find a customer with a problem to sell it to.

You also need to have a deep and realistic understanding of where your offering falls in relation to other offerings in the market.  In most cases, there are going to be products and services that are similar (or even perceived to be the same as yours) on the market.  You need to take the time to understand what solutions already exist, as well as what may have failed before you, and position your solution differently to rise above the noise in the crowded market. 

This deep understanding of your customer and their problems, coupled with your intimate knowledge of your product/market fit, will help you develop a differentiated value proposition so you don’t get lost amongst a sea of “me too” products and services.

It’s also critical to map out the key activities and resources needed to deliver your value proposition.  This is where you need to go deep and dive into any regulatory requirements (i.e., HIPAA, FDA clearance, reimbursement policies, etc.) along with whether your solution requires clinical trials, which can be a lengthy process.  These dependencies need to be built into your activities, resources and costs. 

Once you have a good sense of who you are serving and how, you can also develop a revenue model, taking care to identify who is actually going to pay for your solution.

I’ve only really begun to scratch the surface about how to avoid these 5 common pitfalls of digital health entrepreneurs.  In reality, it’s even more nuanced than what I have described and it can also bring up a lot of emotions for founders, causing them to question their assumptions and even their confidence in their solution.  Like I said, this isn’t easy.

 

 

[1] Rock Health, “Q1 2017: Business as usual for digital health.”