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4 Reasons Why Health-tech Startups Struggle to Scale Founders find it difficult to scientifically and medically prove that their products have a benefit

By Dr Nayan Kalnad

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They are full of energy and ideas. And yet many founders are unable to gain a foothold in the healthcare system. What is the reason for this? The market is very demanding. If founders want to integrate their innovations into the healthcare market, they have to scientifically and medically prove that their products have a benefit. Especially for young companies, this represents a large and time-consuming effort. And what founders usually don't have is time before they run out of capital.

Time is Money—and Vice-Versa

Let's start with the most crucial of all challenges that an early-stage company faces—cash and time. The goal is to get additional capital with product-market fit, and young companies need maximum flexibility to be able to move quickly to find it. Unfortunately, investors see the healthcare space as complex and having high risk, which is true. And the processes within the healthcare sector are complex and often inhibit rapid uptake.

Founders must prepare themselves for the fact that some time may pass until their idea is capitalized. They should therefore plan for this circumstance and not run out of capital too early. Many incubators can help start-ups, for example, with contacts and know-how and usually also a little bit of capital.

The Founders are Not Healthcare Specialists

Health-tech solutions have to be sold provider by provider, or payer by payer. This requires experience and understanding of purchase process and contacts, which start-ups often lack. Even if they have the understanding, they lack the field personnel to execute the sales strategy.

Is a medical background necessary to become a successful digital health entrepreneur? Not necessarily. Instead, founders can establish a clinical advisory board. These experts can advise founders comprehensively and be there to respond quickly to questions. Such a committee not only creates an intensive transfer of knowledge, but also increases confidence in the product, and thus the reputation of the start-up. Patients can therefore rely on the fact that the application also offers a benefit from a medical point of view.

They Want to do it All by Themselves

Start-ups in the healthcare sector are often completely dependent on partnerships or deals with larger healthcare organizations in order to grow. These partnerships often start with a pilot project. Unfortunately, the dynamics between established healthcare institutions and small start-ups for pilots are not necessarily set-up for rapid innovation.

Compared to other sectors, healthcare innovations generally go through a clinical trial and multiple rounds of testing before they are actually introduced to the market. This evidence-led approach takes time, but the marketed product will be safe and effective. A key requirement for this approach is that the product needs to be stable. However, it is difficult for digital healthcare products to take this path as digital technology is constantly changing and generating evidence where the product changes every few months is near impossible. And this is exactly where partnerships come in. Having an experienced partner can be the key differentiator between success and failure because they can help the start-up generate real-world evidence.

If start-ups fail to establish the right partnerships and try to develop the product all by themselves, they are not bound to fail.

They do not involve patients in the development process

Patients are now active protagonists who, as informed stakeholders, have a higher influence on the healthcare system. For this reason, B2C start-ups in particular can only be successful if they offer patients genuine added value. However, many start-ups still fail to understand the patient's behavior.

Digital health start-ups should therefore be looking closely at consumers. The application can collect data on an individual's behavior, this data can be used to efficiently generate insight and inform the development of the product.

Dr Nayan Kalnad

CEO, Avegen

Dr Nayan Kalnad is a clinician by training and has worked in digital health since 2008. As Chief Executive Officer, he has taken Avegen from a services company to a digital product-led company with 40 employees and customers in multiple countries. Nayan has worked at Johnson & Johnson and Pfizer and has an MBA from London Business School.
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