Over 100 digital health CEOs joined us last month at the sixth annual Digital Health CEO Summit, co-hosted with Penn Wharton Entrepreneurship, BioQuest, and Match Point Partners. The Summit provided startup CEOs with a space for candid conversations about the challenges and triumphs of building a digital health company. They discussed what it means for digital health to be maturing as a sector, the challenge of simultaneously building products and testing new business models within an evolving industry, and what it takes to make this job sustainable—and enjoyable.
Jan Barker, Managing Director of Match Point Partners, LLC, noted, “US-based digital startups raised a record $5.8B in 2017 topping the $4.4B in 2016. Startups now must be ready to perform and transform into mature platforms that serve and bring value to patients, providers, and investors. In the remainder of 2018, we will see consolidation and failures—but the period should also allow the winners to gain market share and grow rapidly.”
Read on for advice about navigating these choppy waters shared by digital health CEOs from Omada Health, Helix, Virta Health, Wellist, Evidation, and more. Due to the candid nature of the conversations, some of the insights are presented anonymously.
It’s time to ditch the term “pilot.”
With too many startups having suffered the fate of “death by pilot,” others are shifting away from the traditional pilot model and becoming more savvy in structuring sustainable contracts with enterprise partners.
- Most CEOs advise against doing free enterprise pilots in favor of positioning the initial phase (which would generally be termed a pilot) as the first step of a longer roadmap. They’ve rebranded pilots as Phase I or Demonstration Projects. While they provide a contractual out for the enterprise, they implement with the goal of eventual scale—and provide clients with the option to scale sooner if implementation is going well.
- Aim to sign one contract that will take the project from the first phase to full enterprise deployment. CEOs noted this as critical to avoid (1) customers who have no intention to scale, and (2) the friction of renegotiating contracts. “If your customer is not willing to sign a full enterprise contract, they may be the wrong partner or you may be doing some things wrong. Look for the partners that will openly share data with you that helps you develop results and ROI stories. When you get the pieces together, the sales process moves much more quickly. The best partners are really rooting for your success and supporting you.” – Hilary Hatch, CEO, Vital Score
- Be prepared for the length and complexity of legal review. Many CEOs faced legal teams in health systems that were unfamiliar with licensing software. To avoid getting bogged down by bureaucracy, one CEO advised others to “figure out what you really want—such as data rights, data access, and price—and prioritize accordingly.”
- Don’t underestimate privacy and security certifications. CEOs recognized that while certification processes (e.g., HCISPP or CISSP) are time- and labor-intensive, they can become key differentiators later on and help accelerate the approval process with new enterprise partners.
How can startups and enterprise companies work together to structure sustainable business relationships? Request your invite to our Enterprise Insights Forum on 6/19 in SF to be part of the ongoing conversation.
B2B, D2C, or B2B2C? Digital health entrepreneurs navigate serving multiple stakeholders.
B2B business models continue to dominate in digital health, but the right path forward is rarely clear from the get-go. CEOs discussed when and why they made strategic shifts, and how they brought their investors along with them.
- Startup innovation occurs simultaneously on two dimensions—the product and the business model. Entrepreneurs discussed the challenge of constantly figuring out how to sell new things to people, and in new ways. This is particularly difficult in healthcare when reimbursement can be a moving target, and companies often pivot before landing on their primary business model. Of the startups we surveyed last year, 61% of those who started as direct-to-consumer changed to an enterprise-focused model, either B2B2C or B2B (or a hybrid approach).
- Don’t be afraid to say no. Entrepreneurs shared their stories about turning down major contracts when the contracts didn’t align with their mission or prevented them from serving existing customers. “It’s hard to design a great product that serves many purposes. If you try to do too much for everyone, you don’t do anything for anyone. To truly be effective, you need to put a stake in the ground, determine your truth north, and use that as a guide.” – Paris Wallace, CEO, Ovia Health
- B2C isn’t dead. Many CEOs discussed taking a combined D2C and B2B2C approach. One CEO emphasized her use of direct-to-consumer business as a marketing strategy to demonstrate traction when selling into enterprise prospects—it helps the sale when the enterprise’s employees and patients already recognize her brand.
- Whether you pivot or not, it’s important to constantly reinforce your strategy with your investors. “Investors have a lot going on, and they might think you are pivoting even when you are not. It’s critical to reinforce your direction constantly, even when you feel like a broken record for being so repetitive.” – Anne Weiler, CEO & Co-founder, Wellpepper
Evidence is the currency of digital health.
Investors and customers of innovation expect startups to rigorously demonstrate the efficacy of their digital health solutions. Evidence can be costly to collect and difficult to prove, but entrepreneurs are finding new approaches to gather and leverage data at different stages of their companies’ growth.
- First and foremost, understand your audience. Even within the same enterprise company, some stakeholders may value productivity data demonstrating economic ROI, while others will be laser-focused on clinical validation. And some will be heavily influenced by customer references—many CEOs noted that these can be even more important than ROI metrics.
- Find a specific use case and define simple performance metrics. Watch out for attribution issues, such as when a payer has multiple point solutions and different vendors are competing to claim the results.
- CEOs view evidence to be not only a critical component of the selling process, but also a sustainable point of differentiation. “Others can create software, so that is only part of our competitive position. We’ve made significant investments in research and publishing our work as a means of creating additional barriers to entry.” – Deborah Kilpatrick, CEO & Co-founder, Evidation Health
- CEOs agreed that how startups pursue validation now will set the standard for future companies. Entrepreneurs gave credit to companies like Arterys and Pear Therapeutics for raising the level of rigor by gaining FDA approval.
- Not all employees’ views of “validation” are equal. Validation to tech-focused employees might mean customer traction while validation to healthcare veterans is likely akin to FDA approval and/or being published in academic, peer-reviewed journals. Tensions can arise if some team members expect to move at the rapid pace of the former, but experience the slower pace of the latter. As such, it’s critically important to make clear to all staff why your company is pursuing a particular path to validation.
As startups grow up, create structure for transparency, feedback, and career growth to build culture.
A mythical (and easily parodied) aura surrounds startup culture. From ping pong tables to catered lunches, these are the presumed perks of a typical Silicon Valley startup. But do they really matter—or are they just distractions? CEOs shared their experiences on intentionally cultivating culture and growing the right team.
- “We don’t play house. The temptation with startups is to have a brick loft, free snacks and happy hours. It can feel like you’re playing startup before you even have any customers. We made it clear that we would have no perks early on. If you’re not here to focus on the product, this is not the right time for you to join the team.” – Noga Leviner, CEO & Co-founder, PicnicHealth
- People tend to be drawn to companies for the mission—and this is especially true in healthcare. One CEO spoke of his experience attracting talent to his startup, noting “equity and compensation don’t matter as much. What they want to see is movement—that what they are doing is propelling the mission forward.”
- Create structured opportunities for the tough conversations. “Give people permission to vent. We use a ‘happy, frustrated, worried’ exercise. In groups of five or six, we each put sticky notes up about things that fall into each of these three categories. Then we look for themes, and as a team address areas of greatest concern. This takes time, but you end up with high-performing teams that understand each other, work together towards resolving issues, and build trust for one another.” – Monisha Perkash, CEO & Co-founder, Lumo Bodytech
- Don’t be afraid to let go of those who aren’t bought into the mission. “As leaders, we’re often removed from the currents of the organization, but being slow to engage with employees who are misaligned with the company’s mission can be detrimental to the culture on the whole. If you have strong managers who are able to coach people to understand the benefit they can bring to the organization, then these folks will turn. I’ve seen it. When someone is not aligned, you need to move quickly.” – Robin Thurston, CEO, Helix
Avoiding burnout starts with the CEO.
Whether they’re first-time or serial entrepreneurs, no one denies how tough it is to build a company. With all the ups and downs startups face, CEOs exchanged advice for sustaining energy and motivation throughout this marathon.
- Model the behavior you want to see among your employees. “People will pay attention to how you treat yourself. I now make a point of showing that I am leaving work to go on my annual vacation. We can’t take care of people at their most vulnerable if we can’t take care of ourselves.” – Ashley Reid, CEO & Founder, Wellist
- Find ways to rejuvenate that fit in your typical week. One CEO mentioned, “the thought of taking a month-long vacation in Thailand might be appealing, but chances are you’ll never do it because it feels too hard to get away.” Instead of the dream getaway, one entrepreneur created a 36-hour digital sabbatical every weekend and another took quiet walks by herself as a mini silent retreat.
- Reframe how you think about challenges. “You’ll never solve the ‘last’ hard problem. The nature of founding a company is constantly solving really hard problems. It’s important to embrace that as the fun part, not the hard part.” – Sami Inkinen, CEO & Founder, Virta Health
- Make a concerted effort to separate your personal identity from your startup. “It’s natural and easy to marry one’s identity with one’s company. Success of the company feels great—but the hard times are devastating. Step back and think about what else is important for you.” – Christine Lemke, President & Co-founder, Evidation Health
A special thank you to our sponsors
Penn Wharton Entrepreneurship
Wharton was founded as the first collegiate business school in 1881 and has embraced a spirit of innovation, analytics, and entrepreneurship in business. The Wharton School maintains a long tradition of educating visionary business leaders in academia, business, government, and not-for-profit organizations. Wharton has expanded the scope of this vision to become the most comprehensive source of business knowledge in the world—with over 235 faculty members, 96,000 alumni, 5,000 students across 10 academic departments, 20 research centers, and more than 9,000 executive education participants annually.
BioQuest is a retained executive search firm focused exclusively on recruiting senior professionals in the healthcare innovation space. Their extensive network is the result of more than three decades of close collaboration with venture firms, corporate boards, and industry leaders. Working with both venture-backed, early-stage and established healthcare companies, BioQuest has earned a reputation for working broadly and deeply across the most dynamic markets in healthcare.
Match Point Partners
Match Point provides a unique blend of value-added investment banking, strategic, and operating services to healthcare and technology firms. Founded in 2009, with offices in New York City, San Francisco, and Washington D.C., their team of experienced entrepreneurs, bankers, and operators collaborates to develop and execute creative, innovative, and often out-of-the-box solutions to help their clients achieve superior value. Now in their 10th year, they have served over 100 clients in M&A, capital raising, operations, and strategy assignments.