Surviving the lengthy sales cycles of healthcare sector is no small feat, even for the most enterprising – and innovative – of startups. There aren’t many operations that, even with venture capital backing, can eventually find their stride into profitability.
But what if healthcare companies took a page from the playbook of the world’s most successful software startups through capital and operational efficiencies, large prospective markets and trusting innovative founders? That’s the approach that a New York and Pennsylvania-based firm called Activate Partners, the first institutional investors in public digital health companies Tabula Rasa and Medidata, is taking to help lead the next wave of healthcare innovation.
What is a way the healthcare world could benefit from the “startup” mentality?
There’s a concept in the world of startups which we call “Ramen noodle profitable.” These are startups that make just enough to pay the founders’ (limited) living expenses. It makes no sense to scale up costs and build a team until you really think you’ve found something you can scale, especially in healthcare where sales cycles are incredibly long. A lot of healthcare companies burn a lot of cash before finding a core value proposition that resonates with their customers or only realize their value proposition doesn’t resonate after raising a Series B. In the end, it’s about getting to that Ramen noodle profitability until it’s time to scale up rapidly.
How does your business determine whether a company in the healthcare space has a chance to succeed?
We’re looking for companies that, for some reason, get out of the normal sales processes that the sector has. Maybe they only sell to dentists and optometrists who own their own businesses and can make quick decisions, or they’re engaging a client that the rest of the market hasn’t looked at, or they are attacking a truly top of mind concern for their customer. It doesn’t happen often but there are a lot of companies being founded and there’s a host of these outliers. In the end, you’re selling to humans and if someone needs your product they’ll find a way to purchase it at the same pace, or close, to the pace people purchase at in sectors other than healthcare.
What’s one way to determine if a company is really innovating within a space?
Your customers will tell you if you’re truly innovative. They’ll make it known by buying your product and taking meetings based on incomplete sales copy. We have the benefit of looking at thousands of companies per year and a few meet this criteria. Many of the other companies think they are innovative but are either in spaces that don’t actually require disruption or are unaware of a bunch of adjacent businesses that are crowding them out of the customer’s mindset.
Is there a way entrepreneurs might arrive at that conclusion themselves? How can they ensure their technology is disruptive before getting to their clients?
They should ask the “Why now?” question. If something you’re making is truly needed, then why is it being created today? Maybe it’s because the customer has just been unearthed or because the tech behind it didn’t exist. Uber is one example of that. It had to happen after a specific point in time when mobile phones with location sensors were ubiquitous.
What are some of the areas your firm is looking at closely?
There’s a lot going on in digital therapeutics. The question is how do you get those companies paid for? They don’t have an innovative monetization strategy, which is key. Another space is substance abuse. You’re seeing innovative tech approaching problems that have become societal. We’re also looking for companies in behavioral health as well as software that enables biosimilar adoption by pharma companies. We’re also looking for software and technology-enabled services that can capitalize on the operational inefficiency of today’s hospitals and health systems by providing a new “site of care”. We look across healthcare broadly so can look at companies selling into payers, providers, pharma, and consumers. Given healthcare costs today, there’s so much potential for innovation and we just need great entrepreneurs to go and tackle these problems.
From a patient’s side, how do you see the healthcare experience shifting over time?
I would hope that when you go to the doctor, the check-in process is simpler. You can book an appointment online today but it only touches a small percentage of the population. What if you came in with a QR code or check-in via an iPad? What if you didn’t have to wait in a waiting room 30 minutes every time you want to see a physician? What if a physician did not have to spend as much time documenting and could focus on patient interaction? The doctor would spend a lot of time looking at your face and probably catch more problems. The process should be simpler and more enjoyable. On the other side, patients should have more clarity about what they’re paying.
Costs need to start going down and we need to do a better job of connecting prices and societal impact to healthcare decisions. I’d love to see a future where healthcare is not 20 percent of GDP and all the participants in healthcare become more efficient. If someone has a vision for that and a model to get paid to do it, I’d love to chat.
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