Over the last decade, the amount of funding that’s poured into the healthcare technology industry has been nothing short of astounding — so why are so many healthcare startups still failing, even with VC-backed funding? Let’s start by taking a look at the numbers.
Venture Capitalist funding into digital health
Throughout 2011 to 2017, over $23B of VC capital was invested in the digital healthcare market. During this time, the market itself seemed to mature from its infancy stage to more of an established market. 2011 and 2012 only accounted for 5% and 7% of that total, respectively, with 2017 numbers being big enough to make history. That year alone saw venture funding into the industry of nearly $6B with over $100M in mega-deals.
We all remember the headlines of 2018 from Amazon in particular. First, announcing their collaboration with Berkshire Hathaway and JP Morgan to build technology solutions that would give their staff and their dependents affordable healthcare options that were genuinely top-quality and easy to access. Later that same year came the announcement of the HIPAA-eligible machine learning service Amazon Comprehend Medical that promised to help healthcare providers improve their workflow in countless, seriously impactful ways.
Continuing the movement of embracing AI, VR, and machine learning, the fourth quarter of 2018 saw investments of $517M into the AI health tech space alone. The first quarter of 2019 saw a slight increase in that number but the second quarter experienced a huge jump, with $864M invested into health tech AI.
On the surface, this all appears to be a good news story for the health tech startup space — unfortunately, funding doesn’t always equal success. Money is continuing to pour into this developing and maturing market, but there are larger forces at play here that health tech startups need to be aware of and plan for.
Why are funded health technology companies still failing?
I wish there was one easy-to-explain answer to this question, but there are many variables and layers to this systemic issue.
Here are just a few of the big ones:
- Most institutional innovation policies are built around financial gain and ownership rather than helping the innovator (and the solution) become successful
- Many of these policies have been modeled after the successful pharmacare policies when the reality is that biotech and MedTech are vastly different industries that require different approaches
- Investing in the healthcare space continues to be complicated and incredibly risky, so startups are experiencing hurdles from every angle
- Pilots, deals, and partnerships with large healthcare organizations are often viewed as the only option to get off the ground, but these programs can often be what sets the groundwork for financial failure
- Long sales cycles will often outlast a startup’s cash flow, making it impossible to withstand going it alone
On top of the crippling bureaucracy, there’s more.
When you think about the most commonly used and adopted business models, and then try to apply those to the health tech industry, it just doesn’t work. Whether you’re following lean or agile, for example, you’re most likely building that MVP, getting feedback, and building out useful applications and improvements. When it comes to healthcare, that opportunity simply doesn’t exist.
Unlike the general technology industry, the health tech industry doesn’t have the luxury of using patients and staff as guinea pigs to actively seek out better ways to do things or ways of improving customer service.
So how can we achieve any level of change when the odds are overwhelmingly stacked against us?
What this industry needs, first and foremost, is a system for administrators and innovators to come together and develop a standardized process that will efficiently foster innovation. But while we’re all waiting for that happen, there is one major thing that health tech startups can do to set themselves apart.
Taking a needs-based approach to innovation
If there is one piece of advice I can give you, it’s this — if you want a real shot at survival in the health tech space, your very first action needs to be identifying what existing problems healthcare organizations are actively trying to find solutions for. There’s more to it than that, but this is where you need to start.
Don’t tackle the health tech industry as you would the general technology space because it’s not going to work. An opportunity will exist if an organization has established they have a problem and finding a solution to that problem has been named a top priority. You’re not going to convince people they have a problem worth solving with your technology but if you can demonstrate you’ve got the solution to their most pressing problem, you might just land that meeting.
Perseverance comes from purpose
Once you’ve identified established problems, you’ve identified where real opportunities exist. But don’t stop there — because going after a problem you don’t genuinely care about won’t be enough to get you through the hard times ahead. Entrepreneurship isn’t easy, so you want to make sure you’re going after something you truly believe in.
When you marry your passion for change and making a difference in people’s lives to an identified problem in healthcare, you’ve got a real shot at having an impact in the healthcare industry.
The biggest takeaways
Even with adequate funding and great teams of people, healthcare technology startups are not only struggling but failing more often than not. The biggest takeaways I want you to get from this article are that the successful health tech startups I see today are two things: needs-based and purpose-driven.