I’ve long ago lost count of the number of times entrepreneurs have told me they don’t want to look for outside capital and risk losing control. The whole school of lean startups reinforces that way of thinking. But, you may recall my previous writings on the “fat” startup, my own little one-room schoolhouse. Some ventures have been able to start leanly, avoid outside capital, and grow to great scale, due to the brilliance of their founders and with a little help of good timing. I applaud them. But, today I am seeing an armada of digital health startups competing for market share in a vast ocean of dollars swimming with predators, regulators, litigators, and other flotsam, and I question whether the skinny approach can result in a winning outcome.
Far fewer people have told me they regret taking outside money than those who have been quite positive about its advantages. I’ve never seen a bona fide venture capitalist or serious angel investor meddle in a startup until it got into trouble on its own. A strong investor team can often bring not only capital but an array of other resources, e.g. open doors to key customer prospects, needed next-level executives, and strategic partners. They can help you identify your peers and your competitors to keep you on a defensible path. You may be attending all the right trade gatherings and immersing yourself in your marketplace, but your investors will be looking one step ahead to what is their best next investment. While you have a business to run on a day-to-day basis and can easily get lost in the weeds, they have the luxury of focusing farther down the road in concert with their own peers and identifying trends that could make your venture or threats that could break it.
Having enough capital to create products and services that exhibit high levels of design, functionality and usability, have been developed by engineers with proven records in projects of great complexity, and have behind them enough subject matter expertise and user testing to back up your claims gives you the credibility to ask anyone for the order. You can sell to customers big enough to enable you actually to meet your hockey stick projections. You have the staying power to wait out the purchasing cycles, fend off your competition, and stride with a genuine air of confidence. No executive in your customer set gets fired for taking a chance on a well-polished and fully funded vendor, but none have much of an incentive to take a flyer on a proposition that is obviously not fully baked. Having capital on your team is just as important as having an engineering genius to show off.
Military history is replete with examples of force being deployed decisively in battle. It is also replete with biographies of generals who vastly overestimated their opponents as an excuse to delay attacking a vulnerable enemy. George B. McLellan, General-in-Chief of the Union Armies early in the Civil War, is synonymous with this manner of timid leadership. He was a meticulous planner but never a bold warfighter. He was removed after only 4 ½ months when the Battle of Antietam sealed President Lincoln’s concerns about his shortcomings. All this is to say that just because you have capital and its accompanying power, you can’t waste your time planning when you should be acting. Somebody somewhere is going to be moving rapidly and aggressively to claim the fruits that you intended to be yours.
All these general rules for startups are especially important in the digital health arena. Big hospitals may protect your health, they they’ll nearly kill you when you try to do business with them. The institution’s leadership is flooded with one new product idea after another, some of them from their own medical staff, and there are rules about rules, both internal procedures and external regulations from government agencies and from the carrot and stick rewards and penalties of payors like the leading insurance companies and Medicare. You will not have a friend sitting across the table from you in your first sales pitches. You will have lots of people who have been stung by EHR systems enough times to have a raging hatred of all things IT related. You’ll be trying to get beyond the lingering bad taste from the last new innovation they tried that didn’t deliver on its promises. You will quickly learn that your proposal is interesting only if it has a positive effect either directly on the bottom line or on some standard of care that is measured in a way that also has a straight link to getting paid – and which doesn’t require the doctors to do even more data entry and fall further behind in their already intense workloads. Patient benefit absent jumping all these hurdles is a very tough sell. Hospitals and doctors give top priority to getting their current production under control and don’t readily embrace anything that arms patients with more information and therefore more time consumption for the treating physicians and nurses.
This is not at all to say that our medical community is doing anything less than its best in dealing with our diseases and injuries. I have personally been the beneficiary of one miraculous save. But, it is to say that you will have to have both power and that bold warfighter mentality to capture their attention and their buying intent. You have to realize how much is preoccupying the minds of your audience when you take even a few minutes of their valuable time. And you, have to be willing to deploy whatever force you can muster to effect any change in that system. Eager patients asking for your product won’t do your work for you; they’ll naturally defer to the professionals who are healing them, but who are also expecting to get paid for anything new you might propose to inject into their workflow. Steel yourself for getting into discussions where it’s certainly hard to get a yes but almost harder to get a no. Everyone wants to keep their options open and see if any of their competitors are finding an edge in what you have. Competition among institutions is one area where you do have some leverage; you see how much advertising is being done and how many football games are being sponsored by your local hospitals. They will open their purses when you can make a difference for them in protecting or expanding their topline revenue while not harming their bottom-line or adding to their constant regulatory and procedural headaches.
In the long view I have to believe products like Apple’s Health Kit and the many other devices that enable you to better manage your own care or the care of a loved one will change the dynamics of this particular market sector for technology. You can be hopeful; you might find a way to take your idea direct to consumers and make a great business out of it. You might crack the code with a major hospital chain or insurance company. Or, you might be one of the tens of thousands of startups that die on the trenches of the field of battle if you fail to heed some of the advice in this essay.