Podcast Summary
Founders of Digital Health Companies Share Their Origin Stories: Identifying a problem, creating a solution, and adapting to the market are crucial in digital health.
The digital health market has seen significant growth over the last decade, with companies like Omada Health, Ginger, and the first venture of Chris's starting around 2010. These founders, Sean Duffy of Omada Health, Karan Singh of Ginger, and Chris, introduced themselves and shared their origin stories. They began by identifying a problem in healthcare and creating innovative solutions. Sean's company, Omada Health, aimed to bring interventions to people with prediabetes and has primarily focused on selling to self-insured employers. Karan Singh's company, Ginger, identified the need for measuring mental health metrics and started by selling to large provider systems. Chris's first venture focused on behavior change and later moved into corporate wellness. All three companies have remained consistent in their missions but have adapted to the market and added new services over time. This conversation highlights the importance of identifying a problem, creating a solution, and adapting to the market in the digital health space.
Evolution of Financing Landscape for Health Tech Startups: Around 2011, there was a surge in seed funding for digital health companies, but the landscape was divided into tech and healthcare camps, and founders had to navigate between pitches to each.
The financing landscape for startups in the health tech industry has significantly evolved over the years. Around 2011, there was a surge in seed funding for digital health companies, driven by the excitement around digitization and consumerization of healthcare. However, the financing scene was quite different a decade ago. There were fewer companies being funded, and the expertise of investors mattered more. Founders like Chris assumed that VC funding was the only viable option to make a big impact, but the landscape was divided into tech and healthcare camps. It was a time when founders had to navigate between pitches to tech and healthcare firms, each with contrasting perspectives on their business.
Navigating the divide between tech and healthcare investors: Securing funding from investors who understand digital health's unique challenges is crucial for founders.
Building a digital health company in the early 2010s required navigating the divide between tech and healthcare investors, each with different priorities. Tech investors focused on the mission or vision, while healthcare investors focused on financials. This made fundraising challenging, as there were few crossover funds with both health care and tech partners. The sales cycles in healthcare were also long and capital-intensive, requiring significant investment in people and implementation. Despite some progress in recent years, building a capital-light digital health company remains a challenge. It's important for founders to secure funding from investors who already believe in their thesis and understand the unique challenges of the industry.
Navigating the Challenges of Starting a Healthcare Company: Starting a healthcare company requires substantial capital, regulatory expertise, and a solid go-to-market strategy. Venture debt and equity financing each have their merits, and customer acquisition remains a significant challenge. Despite advancements, the healthcare sector remains capital-intensive and complex.
Starting a healthcare company comes with significant challenges and requires a substantial amount of capital due to the complex nature of the industry and its risk-averse buying market. Seed rounds were once around 800k, with a large portion spent on FDA consultants to navigate the opaque regulatory landscape. However, recent success stories have opened up more capital availability for companies on the path to market. Regarding equity financing versus venture debt, both have their merits, but venture debt can serve as a helpful tool during tough economic times. Customer acquisition was also a significant challenge, with long sales cycles and the need for multiple shots on goal to find product-market fit. The market was still in its infancy when the speakers started their companies, requiring them to do things that weren't anticipated, such as investing more in marketing and sales to reach customers. Despite the advancements in infrastructure and playbooks, the healthcare sector remains capital-intensive, and there are still no shortcuts when it comes to product development, go-to-market strategies, and regulatory compliance.
Overcoming early customer challenges in digital health: Present as established entities, secure top-tier investments, act as evangelists, dedicate resources to user acquisition and enrollment
Securing early customers in the digital health industry can be a significant challenge due to the novelty and uncertainty surrounding new technologies. The founder of Propeller Health shared a story about their early encounter with Health Net, where the customer expressed concerns about the company's longevity and lacked confidence in partnering with a small startup. To overcome this hurdle, it's essential for digital health companies to present themselves as established entities from day one, focusing on their backing from top-tier investors and a clear mission. In the early days, companies often act as evangelists, educating potential customers about their solutions and how they can fit into existing systems. A crucial mistake to avoid is not dedicating enough resources to user acquisition and enrollment, which can lead to many companies failing. Instead, companies should invest in these areas to ensure successful implementation and customer satisfaction.
Understanding stakeholders' unique circadian rhythms: Recognizing stakeholders' distinct timelines for decision-making is crucial for effective marketing and sales efforts in healthcare. Aligning incentives at every level is essential for creating meaningful change in a fee-for-service medicine system.
Incentives play a crucial role in driving change in healthcare systems. The speaker learned that optimizing the care provider stack was not enough to make a significant impact in a fee-for-service medicine system. He also discovered that various stakeholders in healthcare have unique circadian rhythms, and understanding their timelines for decision-making is essential for effective marketing and sales efforts. The speaker wishes he had recognized these insights earlier in Armada's journey. Ultimately, he emphasizes the importance of aligning incentives at every level to create meaningful change in healthcare.
Progress and Challenges in Digital Health: The digital health industry has made progress but faces ongoing challenges. Key problems have been identified, and improvements have been made, but implementation and success have taken longer than anticipated. Focus on the right areas and emerging technologies keep the industry optimistic for the future.
The digital health industry, despite facing similar challenges as a decade ago, has made progress and continues to be optimistic about the future. The industry has identified key problems and has seen improvements in various areas, but the implementation and success have taken longer than anticipated. The focus on the right areas of the market and the emergence of new technologies keep the industry optimistic for the next wave. However, it's important to remember that digital health is a modality, and the landscape may look different in the future. The industry will continue to evolve, and it's essential to adapt to new challenges and opportunities. The discussion also highlighted the importance of understanding the various dimensions and stakeholders involved, including employers, payers, and consumers, and the need to accommodate their cycles and needs. Overall, the industry has come a long way, but there is still much work to be done.
Digital health industry shifts: Capital, acceptance, and comfort: The digital health industry is transitioning towards a hybrid model of care delivery, driven by investor confidence, payer contracts, and consumer acceptance of virtual care.
The digital health industry is experiencing significant shifts due to increased investor comfort with crossroads companies, the maturation of payers contracting with digital first providers, and consumers becoming more comfortable with virtual care modalities. These changes are driven by the availability of capital, the growing acceptance of digital health as part of the healthcare system, and the increasing comfort of healthcare providers in delivering care remotely. The proof points in the market, such as successful companies scaling and demonstrating clinical and financial benefits, further solidify these shifts. Overall, the industry is moving towards a hybrid model of care delivery, where digital and in-person healthcare services coexist. This trend is expected to continue, as the flow of money and customer spend in the industry continues to grow.
The digital health industry is witnessing a convergence of digital, healthcare, and technology expertise: The digital health industry is transforming with a new generation of talent possessing expertise in both tech and healthcare, making it an attractive sector for professionals and investors.
The digital health industry is experiencing a significant shift in talent pool, with an increasing number of professionals possessing a unique blend of digital, health care, and technology expertise. This trend, which was barely noticeable in the past, is now resulting in a new generation of founders, ICs, and other professionals who have a deep understanding of both tech and healthcare. This convergence of talent is transforming the industry, enabling companies to find experienced individuals who have already tackled similar challenges. The religious debate of having either tech or healthcare expertise is becoming obsolete, as more and more individuals are gaining proficiency in both areas. This change is not only beneficial for companies but also for the industry as a whole, as it attracts a larger and more diverse pool of talent, making digital health a more viable and attractive sector for professionals and investors alike.
Employer benefits in digital health: A larger market than anticipated: Companies focusing on employer benefits in digital health can achieve significant growth, but navigating the complex US healthcare payer landscape and understanding network effects between different business lines is crucial for long-term success.
The employer benefits channel in the digital health space has proven to be larger than initially anticipated, and companies focusing on this segment can achieve significant growth. However, expanding into other lines of business and understanding network effects between them is crucial for long-term success. The US healthcare system's complex payer landscape, including self-insured employers, fully insured plans, government programs, and more, presents both challenges and opportunities for entrepreneurs. The ongoing innovation in the digital health space adds to the complexity, making it essential for companies to navigate various payer intersections effectively. Ultimately, the enormous size and potential for improvement in the US healthcare economy make it an attractive market for building large businesses.
Navigating healthcare system complexities: Understanding payer dynamics, regional market nuances, and provider networks are crucial for digital health companies to succeed in the complex healthcare system.
While there are opportunities for new companies to sell into virtual providers and the digital health ecosystem, there are also deeply ingrained challenges in the healthcare system that won't be solved by technology alone. These challenges include payer dynamics, regional go-to-market dynamics, and provider networks, among others. Entrepreneurs can reverse engineer these complex systems to streamline processes and better understand how the pieces fit together, but it may require more staffing and resources than anticipated. The healthcare system's complexity and the slow pace of change create a unique challenge for digital companies looking to scale, but also offer opportunities to poke at constraints and figure out how to work within them. Ultimately, there is optimism that a better healthcare system can be built on top of the existing one, but it will require a deep understanding of the system's complexities and a willingness to navigate its inherent challenges.
Navigating the Digital Health Landscape Today: Identify your unique value proposition, leverage partnerships, understand payment processes, and seek advice from peers to succeed in digital health entrepreneurship.
Starting a digital health company today comes with unique advantages compared to a decade ago. The data layer is becoming easier to navigate with the help of HIEs and other services, leveling the playing field for those delivering clinical services. Another game changer is recognizing what to own versus what to partner or buy. With an abundance of tools and services available, it's essential to identify the secret sauce of the company and offload anything that can be. Additionally, understanding the entire payment process from start to finish is crucial to avoid potential issues. Lastly, seeking advice from forums and communities can provide valuable insights and help navigate the complexities of digital health entrepreneurship. If I could travel back in time, I would tell my past self to go all in, as the long game is still worth it, despite the fun and pain that comes with it.
Starting a business in digital health: A journey of perseverance and collaboration: Despite early challenges, digital health entrepreneurship is worth the effort due to advancements and collaboration between entrepreneurs and health systems. Persistence and innovation are key.
Starting a business in the digital health industry today is much easier than it was a decade ago. The early days of digital health were marked by heavy snow and long walks, with limited capital and fewer resources available. However, the journey has been worth it, as there have been incredible advancements in the industry. It's important for entrepreneurs to be patient and persistent, and not be discouraged by rejection. The health system side also plays a crucial role in supporting these entrepreneurs, working through safeguarding mechanisms such as IT, compliance, and data security. Rich Roth from CommonSpirit Health shared his perspective, emphasizing the importance of collaboration between health systems and entrepreneurs. Tom Wujec, an early digital health entrepreneur, encouraged current entrepreneurs to keep pushing forward, despite the challenges. Overall, the conversation highlighted the importance of perseverance, collaboration, and innovation in the digital health industry.
Navigating data security and legal challenges in healthcare: While early hurdles included convincing stakeholders to understand the cloud, evaluation criteria have evolved, and startups may lead in defining consumer data privacy standards.
While the process of navigating data security and legal challenges with healthcare systems has become more streamlined over the years, there is still much work to be done, particularly in regards to consumer data privacy and usage. Early on, convincing stakeholders to understand the cloud and its implications was a significant hurdle. However, as the industry has progressed, evaluation criteria have become more appropriate for modern solutions. Moving forward, startups may play a key role in defining and implementing standards for consumer data privacy and usage. A notable challenge has been convincing stakeholders to trust the handling of sensitive data, such as the tracking of medication usage in pharmaceutical companies. Despite these challenges, experience and precedent have made the process less daunting each time.
Aligning incentives between pharma and digital health companies: Misaligned incentives between pharma and digital health companies continue to hinder progress in integrating technology into pharma's business model, with mental health care identified as a significant opportunity for improvement.
While the landscape of working with biopharma has evolved in some ways over the past 15 years, with more opportunities to engage the digital health community, the fundamental challenge of aligning incentives between pharma and digital health companies remains. Pharma continues to be a sales and distribution powerhouse, and the integration of technology into their business model has not yet been fully realized. The conversations between these industries have remained similar, with mental health care being identified as a significant opportunity for improvement due to the poor efficacy rates of current medications and the need for better segmentation and targeted therapeutic agents. Despite some progress, such as Amada's deal with Abbott, meaningful traction has yet to be seen. Overall, the speakers expressed a cautious optimism for the future, but emphasized the importance of addressing the misaligned incentives in order to drive meaningful progress.
Leveraging Digital Technologies in Healthcare: Digital technologies offer opportunities to enhance treatment effectiveness, improve patient experiences, and connect patients through companion programs and direct-to-consumer prescription pathways. Entrepreneurs can build successful companies in healthcare, and the long-term focus and growth potential make it an attractive industry for investors.
There's a significant opportunity to leverage digital technologies in healthcare to enhance the effectiveness of treatments and improve patient experiences. This includes the development of digital companion programs for medications, which can connect patients with each other and provide personalized dosage and health goal insights. Furthermore, direct-to-consumer prescription medication pathways, like those offered by companies such as Roman and Omada, are expected to become more common. As for entrepreneurs, building a company for the second or third time can be rewarding, but it requires a deep passion for the work. In healthcare, the long-term focus and potential for growth make it an attractive industry for young investors, despite potential challenges such as regulations and crises. Additionally, the shift towards treating patients as the subjects of their care, rather than objects, is a desirable goal for many in the traditional healthcare system.
Understanding patient needs and goals in digital health: Treating patients as valuable users in digital health leads to effective interactions and the development of thoughtful solutions. Progress has been made in recent years, but there's still room to harness patient-generated data and solutions for meaningful change.
Treating patients as valuable users and understanding their needs and goals is crucial in the digital health industry. This perspective leads to more effective and rewarding interactions, as well as the development of thoughtful and systematized solutions. Despite some early challenges, such as the reversal of the problem-solution dynamic, the industry has made significant progress in recent years, with a focus on solving real problems and generating better results for users. The pandemic has accelerated the testing and adoption of digital health solutions, showcasing the potential for a more humanized and goal-oriented healthcare experience. However, there is still room for improvement in harnessing the power of patient-generated data and solutions to drive meaningful change in healthcare.
Leveraging Contextual Data for Effective Healthcare Solutions: Companies collect and utilize contextual data to improve care quality, reduce costs, and personalize interventions in the digital health landscape. Seeking guidance from experienced peers and staying informed about industry trends can help founders navigate this complex space.
Contextual data, beyond traditional medical information, plays a significant role in healthcare decisions and care delivery. Companies are beginning to collect and utilize this data to improve care quality, reduce costs, and personalize interventions. The integration of digital health into the broader healthcare system and the accessibility of data are expected to lead to more effective and efficient healthcare solutions in the future. For founders and entrepreneurs in the healthcare industry, building a network of experienced peers and seeking guidance from those ahead in the journey can be valuable. The digital health landscape is complex, but the current time offers unique opportunities for innovation and growth.
Following the Money in Healthcare: Understanding the financial aspects of healthcare and creating value for payers is crucial for business success. Identify payers and cater to their needs to progress.
Following the money is crucial for building a successful business in healthcare. This counterintuitive advice emphasizes the importance of understanding the financial aspects of healthcare and creating value for those who are paying for the services. Amazon's Renee Fraser and Tom Spann echoed this sentiment, expressing the need to identify the payers and cater to their needs for progress. This insightful conversation, which brought together professionals from various backgrounds, concluded with a reminder of the importance of staying connected and continuing the dialogue, as the group looks forward to their next meeting.
