Last week, Geoff Clapp opened up about some of the factors that led to the shut down of Better, despite having a successful exit with a previous business Health Hero Network. Moving beyond the Tech Tonics podcast, Clapp, who advises healthcare entrepreneurs, talked about some of the broader issues that have undermined digital health startups in the past and will lead to more shut downs in the future.
He noted that startups tend to fail because they can’t secure funding, either because the product is not good enough, they can’t get paying customers, or they lose focus.
One big problem is that the target markets for most healthcare startups are so different. Payers, self-insured employers, providers, government and direct to consumer, each need targeted solutions. Entrepreneurs who think they can adequately address all of them are setting themselves up for a fall.
“You run the risk that people won’t use your product because they don’t think it’s for them,” Clapp said. That can be a challenge even within one market segment.
The direct-to-consumer market is particularly tough to penetrate because people are not accustomed to paying out-of-pocket for healthcare services beyond what’s required for co-pays for doctor appointments, medication, etc. Clapp points out that healthcare startups with a d2c business model have had some success in the areas of fertility and early diagnosis of cancer, but he doesn’t view it as wide-reaching.
“We need a few more years to have predictable buying behavior,” said Clapp.
He added that another risk for entrepreneurs is viewing investment as validation. It may look good, but it’s not the same thing as validation of a product or business model, which comes from customers using your product.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
One weakness Clapp identified in some entrepreneurs is that they are too interested in being flexible, either for investors, partners or others. He said being able to say no is a skillset for startups to maintain their focus, otherwise they open themselves up to failure.
As an antidote to seeking to be all things to all customers, Clapp noted that having well-defined goals for a product or service that can solve a pain point can make a huge difference.
“There are a lot of pockets in healthcare where there are opportunities to do one thing incredibly well, but most people don’t have the patience and discipline to do it,” Clapp said. One of the companies that has succeeded is CoverMyMeds, a Columbus, Ohio-based business, which automated the cumbersome task of using call centers to get prior authorization requests to health insurance plans for pharmaceutical purchases.
Looking beyond reasons for failure, the huge amount of investor money in digital health is hard to ignore, but most of the attention has been on growth metrics. Clapp looks forward to moving beyond that.
“At some point we need to move past funding reports into effectiveness, growth (lives touched), financial impact, and more interesting numbers. In today’s market — and I’d argue, in all markets — raising money will be the easiest part.”
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