The 3 pillars for building a successful healthcare business
I’ve previously written about the crisis of rapidly rising drug discovery costs and the need for data driven innovation, the growing…
I’ve previously written about the crisis of rapidly rising drug discovery costs and the need for data driven innovation, the growing opportunity in senior care, as well as what it may take to drive innovation in healthcare. The COVID-19 crisis has made it clearer than ever that improving the delivery of healthcare services is an urgent national priority. Some progress has come practically overnight — for example, the dramatic shift to telehealth and other digital-native solutions — in response to efforts to curb in-person interactions. According to a May McKinsey survey, 46 percent of consumers are using video medical visits to replace canceled visits, up from 11 percent in 2019. The Centers for Medicare & Medicaid Services (CMS) has even agreed — at least for now — to reimburse virtual visits at the same rate as in-person visits while coronavirus emergency measures remain in effect. These data points demonstrate a potentially monumental shift in preferences, behaviors, and revenue opportunities.
Healthcare has always been a huge market with a lot of potential. US healthcare spend is 17.9 percent of GDP and growing, meaning that for every $5 spent in the US, almost $1 is on healthcare; in 2018, spend reached a whopping $3.6 trillion. And yet for all this money being poured in, outcomes are poorer than in other comparable nations, and across numerous dimensions, consumer satisfaction is low. That means there is still significant untapped opportunity in part because its complexity and importance serve as barriers to new entrants. It’s a huge industry that is very complex and difficult to navigate — in other words, full of challenges and opportunities. History has told us that this is not an industry where companies can move fast and break things; there’s simply too much at stake. At Redpoint, we’ve spent a lot of time looking at healthcare, and in that time I have developed a strong POV for what it takes to be successful in the space. In my experience, it requires all three legs of the stool for success in healthcare: a great team, the right initial wedge, and an effective GTM strategy — here’s why.
1. A team that understands the complexities and nuances of the industry
At Redpoint, we back people, and we spend a lot of time considering founder-market fit. This is perhaps most relevant in healthcare, a complex industry where large incumbents cast a long shadow. A strong team can make the difference in being able to navigate the challenges that emerge from the regulatory environment and the industry’s multi-faceted stakeholder dynamics between payers, providers, and patients who often have overlapping but different needs and priorities. We’ve had the privilege of meeting with incredibly talented founders, who tend to be a mix of industry veterans, high-caliber scientists, and others who are passionate about improving access and care. It’s also worth acknowledging that, for better and worse, healthcare tends to be an “insider” industry. While these dynamics can sometimes fail to create change — traditional healthcare organizations and providers are often structurally unable to adapt rapidly and also unwilling to do so — we can’t understate the value of experience to ensure buy-in, credibility, safety, and success.
For example, when we invested in Bright Health, the integrated insurance startup that started by offering individual market plans in Colorado, we knew it was an entrenched space badly in need of innovation and with the potential to make a huge impact. A big part of our ultimate investment was our belief that the team — led by founder Bob Sheehy, the former CEO of UnitedHealthcare, Kyle Rolfing, the former CEO of UnitedHealth-acquired Definity Health; and Tom Valdivia, another Definity Health veteran — could accomplish something special.
2. An initial wedge into the market that is broad enough for people to care about the problem — but narrow enough that a resource-constrained startup can meaningfully address it
It can be tempting for even the most realistic entrepreneurs to want to tackle some of the biggest, most entrenched challenges first — which typically requires getting all stakeholders on board from the get-go. But time and again, I’ve seen teams that were theoretically well suited to address these problems fall short simply because they bit off more than they could chew — or compete against. Even the best-funded early-stage startups will be resource-constrained. Entrenched players are not. This means that if a startup goes too broad too early, they cannot make enough of a difference against entrenched party dynamics. The flip side of this is that the chosen market also can’t be too narrow: Too niche, and there won’t be enough adoption to sustain a meaningful business. This is obviously a fine balance: Stakeholders need to be willing to engage with a specialized solution in the chosen vertical, due to its importance or depth, and it also needs to be tailored enough that a startup’s budget can still develop a best-in-class solution. Our investment in hims is a great example of this. From the beginning, hims was tightly focused on its segment of men’s wellness, with a key insight around delivery, cost, and discretion. Its customer-centric, lower-cost approach that circumvents many payor dynamics is well positioned to be more broadly applied across the telehealth spectrum.
3. An effective GTM strategy
As with any business, it’s not enough to have a great team, great product / technology, or great insight. I have seen a lot of companies build products that would have improved outcomes or reduce costs that ultimately failed because the GTM strategy was wrong or deprioritized. For example, I’ve seen businesses that are full of potential fall into traps by pursuing the wrong stakeholder, missing on pricing and packaging, and more. I encourage entrepreneurs to focus on this early, as much of the table stakes as the solution itself. While certain industries are able to deprioritize marketing and sales in the early days (open-source startups come to mind), this isn’t the case in healthcare. The aforementioned complexities mean that the thing that separates winners apart is a unique GTM insight, because if a product can’t get adoption, it won’t solve the problem. That’s why I’ve been so enthusiastic about some of the GTM innovation we’ve seen in healthcare — such as circumventing traditional payers by going direct to consumer or focusing on cash models, or by pursuing an outcome-driven strategy through employer benefits.
Tend, an oral wellness brand starting with dental services, whose Series A investment we led and on whose board I sit, is a great example of this. It’s got a phenomenal, experienced team, led by Doug Hudson, the founding CEO of SmileDirectClub and a 4x healthcare founder. But their GTM strategy is also key: It became a vertically integrated brand that focused on the patient and provider experience (which was suboptimal before) as opposed to developing software that would have payers and providers to get on board, too. I think there will continue to be opportunities in taking a verticalized approach in healthcare, and the dental category is just one example.
Granted, there’s plenty more that teams innovating in healthcare will need to get right. But I am more bullish than ever that the speed of change — and opportunities for success — will accelerate in part because COVID has broken down a lot of barriers or resistance and forced the industry as a whole to break out of the “business as usual” mindset. And many of these changes seem here to stay: For example, 76 percent of patients surveyed by McKinsey said they would want to use telehealth going forward, and McKinsey estimates $250B, or 20% of all outpatient spending, could be virtualized — which is just one (massive) piece of the industry. Though our approach to healthcare delivery is in crisis — despite spending more, our outcomes are worse than other high-income countries — there are significant opportunities. I hope to see more teams getting into the space with the above as a partial guide to success.
If you’re building a disruptive company in healthcare and my perspective above resonates, I would love to hear from you.
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