Lean Startup Lessons for Healthcare Businesses

Entrepreneurs with ideas for health-related businesses typically devise their business plans based on discoveries they made in medical laboratories, or problems they needed to solve in their own jobs (say in hospital administration). But are those ideas really strong enough to translate into viable businesses? A new program at the University of California at San Francisco's Entrepreneurship Center trains healthcare entrepreneurs--including drug developers, software makers, and medical device inventors--to test their ideas before they launch them into businesses.

The model, called Lean LaunchPad, is based on a method of starting new companies that has been largely championed by Steve Blank, a serial Silicon Valley entrepreneur who partnered with UCSF in 2013 to offer the program for students with ideas for health-related businesses. The basic tenet of the lean startup, which was initially applied mostly to technology companies, is for entrepreneurs to validate their business ideas by talking to potential customers before drawing up their business plans. UCSF's first class finished last December.

The 110 participants in the class, who were broken up into more than 25 teams, were required to talk to 10 potential customers each week for 10 weeks. "While you may be smart, you're not smarter than the collective intelligence of your potential customers," Blank says. "It's about the learning that takes place outside the building."

Getting out of the classroom was particularly useful for the three members of startup team at Mira Medicine, who participated in the inaugural Lean LaunchPad class. Their initial concept was to develop a mobile app for doctors who treat patients with multiple sclerosis. The technology would use historical data from other MS patients to help doctors predict which treatments would work best for which patients.

Mira's team talked to physicians, scientists, insurers and drug companies, and quickly realized they were targeting the wrong market. Building a similar tool for clinical researchers--those running trials of new therapies for MS or other neurological conditions--would be a better way to use the data that's available today, and it would provide a quicker route to market, they learned. "We changed the way we are structuring the model to grow," says Rafaelle Loren, co-founder of Mira. "The course helped us to determine what's realistic but still exciting."

Blank says he initially thought the lean startup model wouldn't work in healthcare, but then he realized the prototypical customer had changed to the point where entrepreneurs could indeed learn something by surveying their markets first. "I initially thought life sciences was all about curing cancer and that the customer was the patient," Blank says. "What's changed in the last five years is half the pipeline [of large companies] is coming from the outside, if not more. There are technology scouts going out and looking for startups." The end customers, therefore, are likely to be other healthcare companies, not consumers.

Over the 10 weeks of the class, entrepreneurs learned from a range of experts in healthcare, including venture capitalists and other business owners. At the end, rather than pitching their business plans to venture capitalists in a "demo day"--the standard model of startup incubators--the teams made "lessons learned" presentations, during which they explain how the customer feedback helped them shape their plans.

Among the other lessons learned in the Lean LaunchPad class for healthcare, Blank says, were: It's better to focus on one product and target market rather than trying to do everything right out of the gate. Understanding the regulatory requirements for getting your product to market is vital for validating your business and coming up with a capitalization plan. And if you need to pivot your business model do it early, before you waste millions of dollars on a bad idea.

Karl Handelsman, a venture investor who taught the therapeutics cohort of the Lean LaunchPad class, says those lessons learned are often much more valuable than the prototypical business plans that come across a VC's desk every day. "Before I invest in something, I'm going to talk to [industry] people anyhow," Handelsman says. "You can spend $20 million on incredible science and then find out it's only worth $1 million to the industry. You should know that before you spend the money."

Blank says he hopes to teach the Lean LaunchPad method for health startups at UCSF again, and then take it to large healthcare organizations such as the National Institutes of Health and the Mayo Clinic.

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