9 in 10 Digital Health Start-ups Fail. Here's how You can Avoid being One of Them

Identifying a significant problem for which you can deliver a positive, measurable, scalable solution is the first step towards ensuring the success of your health start-up
9 in 10 Digital Health Start-ups Fail. Here's how You can Avoid being One of Them
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Co-Founder and CEO, Wellthy Therapeutics
6 min read
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Over the last 12 years, I’ve gone from being a second-generation healthcare entrepreneur to an early-stage venture capitalist to a digital health entrepreneur. I’ve had hundreds of conversations with start-ups that are today defunct or ‘acqui-hired’, even after raising seed/angel/venture capital. These experiences don’t make me an expert on success but do give me a perspective on mistakes that can lead to a start-up failure.

Many entrepreneurs have entered the digital healthcare space because they saw an opportunity to use digital innovation and solve an existing problem.  They have built and scaled solutions such as e-pharmacies, lab aggregation, personal health management, practice management, population health management, electronic medical records, teleconsultation platforms, appointment bookings, coupon websites, healthcare non-banking financial companies (NBFCs), medical devices, patient monitoring, digital therapeutics, wellness and hospital aggregation portals and genetic testing and so on. Ninety percent of these start-ups will die or be ‘acqui-hired’ within 2 to 5 years from inception. In my opinion, most of the time start-ups have a good understanding of technology, problem-solving and the ‘hustle’ - but they don’t quite understand healthcare, or at least, understand it well enough to succeed. I've attempted to build a list of lessons I've learnt which can help you improve the odds of staying out of the start-up graveyard.

Team Composition: Are You a Tech Team doing Healthcare Or a Healthcare Team doing Tech?

Take a closer look at your team. Having a leadership team that is a mix of healthcare, technology, consumer and design improves the odds of success. Access to industry veterans (and when needed, key opinion leader doctors) to mentor the business is vital to reduce costly mistakes. Supercharge that with shareholders (VCs and angel investors included) who understand healthcare, technology and most importantly the problem you are trying to solve, to ensure fewer nudges in the wrong direction. As you scale your company, make sure you have solid reasons for tech rock stars and healthcare veterans to join you; you need both to succeed.

Innovations and Disruptions: Are they Really Necessary?

Ever wondered why there is no unicorn Airbnb- or Uber-like start-up in healthcare? This remains a conversation starter with founders and VCs alike. The reason is: too many tech entrepreneurs feel the need to ‘disrupt healthcare’ instead of focussing on solving a problem.  

If you are serious about starting something in healthcare, accept the fact that healthcare is slow to adopt. It’s even slower to innovate. I’d go so far as to say the healthcare industry sometimes appears to work against innovation – because of the amount of regulation and number of stakeholders involved.

Bottom line: don’t disrupt, solve a problem! Don’t innovate just for the sake of innovation but innovate for better patient outcomes. Don’t just copy, evolve.

Go-To-Market: Are you Ignoring the Stakeholders that Matter?

The gatekeepers and stakeholders in healthcare matter. Your product or service must solve their problems as well, to give them a reason to buy-in or recommend your solution. The doctor, the clinic/hospital system, the pharmacy, the paramedical staff, the pharmaceutical company, the medical device company, the insurer and in some cases, the government – all of them matter at some level. Understand who the decision makers are for wide-scale adoption of your solution and respect their priorities.

Be clever in your go-to-market strategy. For example, can doctors suggest your solution to their patients or should you go directly to the customers? Be thoughtful in your solution design – work to solve the needs of the healthcare stakeholders that are relevant to you, which may result in a combination of engagement, risk management, efficacy or efficiency. Be creative in your business modelling – the payer and the end customer do not always need to be the same in healthcare; in fact, in most cases they are different. Be transparent without compromising IP – healthcare needs to know what’s happening under the hood of the engine. Be trustworthy – it is a fundamental requirement for building a long-lasting, successful healthcare company.

Success Metrics: Are you Working Towards the Right Ones?

Downloads, daily active users (DAU), monthly active users (MAU), % upsell – all these are relevant numbers for any digital healthcare company, but they are not always enough to build a successful healthcare business.

There is a quadruple aim to achieve in healthcare: Enhancing patient experience and outcomes, improving population health, reducing costs and improving healthcare stakeholder value. It is rare to see companies that are runaway successes without having made an impact on all four aspects, in some form. I’m troubled to see that most start-ups don’t acknowledge this from day zero, let alone impact all of them.

So, make sure you obtain evidence of how your product helps to solve a problem and then replicate this at a population level. Reduce costs, enhance the experience and align your goals with that of the healthcare stakeholders. For example, if you are looking to help patients manage diabetes with an app, it's not enough to build a good-looking, tech-solid product; you need to show evidence of outcomes and value-add.  And be held accountable for it. You need to convince stakeholders why they should use it or recommend it to patients. Play by the rules of healthcare and innovate from within.

Revenue Models: Are you Looking at the Right Avenues?

The tombstones of healthcare start-ups are laden with epigraphs of long gestation cycles and customer-willingness-to -pay problems. Make sure your go-to-market strategy is creative enough to involve stakeholders in healthcare that are the eventual payers. Patients may be the end customer of healthcare but aren’t always the payers. The doctor may be the end user of healthcare IT services but isn’t always the payer. Word of advice: Follow the money.

The 5 Ps

To sum up, it all comes down to the 5Ps: the Problem, the Physician, the Patients, the Payer and your Profit.

You need to identify a significant problem for which you can deliver a positive, measurable, scalable solution; then, pick the right people with the right skills to be part of your core team. Keep patients at the core of your value proposition and involve the physician in a relevant capacity; Identify the payer(s) for your solution. Ensure your business model is both scalable and eventually profitable. Don’t build a digital health company just to get funded. Build it to solve real pain points and build it to last.

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