3 Strategies for Successfully Scaling a Femtech Startup in the U.S. As international femtech companies scale, many seek to enter the North American market. These 3 strategies can help women's health innovators successfully expand to the U.S.
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The female health technology (femtech) industry is experiencing unprecedented international growth. Comprising more than 1,800 companies across ten subsectors, the femtech market is anticipated to be worth more than $97 billion by 2030. While North America is the undisputed leader in femtech innovation (47.8% of femtech companies are located in this region), women's health technology is beginning to see sustained growth and investment in Europe and Asia. Overseas femtech founders are eager to test their products in the North American market to expand their consumer and investor bases.
As these international startups become increasingly poised for advancement, they may experience unanticipated barriers to U.S. market entry. This article presents three strategies for founders to scale their femtech companies in the U.S.
Strategy #1: Develop a U.S. expansion plan at least 6 to 8 months before scaling
U.S. healthcare is heavily regulated in ways that likely feel foreign to international companies. Depending on the aspect of healthcare involved, the industry may be governed by either — or both — the federal or state governments. Numerous laws exist — e.g., fraud and abuse laws, privacy rules, fee-splitting prohibitions, and consumer protection requirements — that impede healthcare business structures that may be permissible outside the U.S.
Given the complexity of the U.S. healthcare system, it is important for femtech companies to thoughtfully develop an expansion plan at least 6 to 8 months before entering the U.S. market. This lead time is essential to (1) work with business advisors and attorneys to understand the applicable U.S. laws, (2) implement business changes to ensure compliance with those laws and (3) file and obtain regulatory approvals (if necessary). Founders should be prepared to substantially rework their business models, if needed, to sell their products and services in the U.S.
For example, scaling a menopause telehealth platform to the U.S. may require the founders to establish a unique corporate structure known as the MSO-friendly PC model. This model is frequently required in U.S. telehealth because many states prohibit the corporate practice of medicine (CPOM) — meaning that venture capitalists and non-clinicians cannot own or invest in clinical practices. To work around this prohibition, founders need a multi-entity structure that separates medical care from administrative, technical and non-clinical functions. This dual structure must be carefully crafted to avoid claims of fraudulent incorporation and sham clinical practices.
Depending on the jurisdiction(s) where the femtech company will operate, corporate registration alone can take months. Full creation of a two state MSO-friendly PC model can take up to 4 months, with fifty-state expansions often taking 6 to 8 months. Similarly, if a femtech device requires approval by the Food and Drug Administration, that process can take anywhere from one week to eight months, depending on the type of approval required. Accordingly, femtech founders should consider expansion options early and create an expansion plan incorporating maximum flexibility.
Strategy #2: Scale small initially to test market fit
While it can be tempting for femtech founders to want to immediately scale to all fifty states, a slower, more deliberate expansion will often prove beneficial. With a phased expansion, femtech companies may be able to enter the U.S. market faster while minimizing regulatory compliance costs. Developing an initial compliance framework incorporating regulations and restrictions from all fifty states can be daunting and expensive.
Further, unless the femtech startup has already demonstrated strong U.S. consumer interest in the product or service, the company risks consumer rejection if the market fit is not established correctly. By focusing initially on a few key jurisdictions, femtech startups can not only prove market fit before committing additional funds to the expansion. Still, they can also garner interest from U.S. investors who may be willing to support future expansion efforts financially.
Additionally, phased scaling can result in more rapid entry into the U.S. market. In the MSO-friendly PC example, a femtech company may elect to begin operations in a state that does not prohibit CPOM. This strategy allows faster entry into the U.S. market, as the company would not initially need to establish a complex corporate structure. Assuming a positive consumer response, the company could build the MSO-friendly PC model while continuing to provide services and generating income from existing U.S. operations. Thus, starting small and understanding the legal landscape in applicable states can help companies achieve their expansion goals faster and cheaper.
Strategy #3: Use privacy as a differentiator
Following the overturn of Roe v. Wade, the privacy of women's health data in the U.S. has taken center stage. Consumers are more attuned to how health technology companies are using, disclosing and selling their data. However, data privacy in the U.S. is extremely piecemeal and contains significant coverage gaps. For instance, many women's health applications — e.g., period-tracking apps, fertility and ovulation tracking apps and pregnancy symptom trackers — are not covered by the Health Insurance Portability and Accountability Act's Privacy Rule. This leaves many consumers at the mercy of health technology companies with respect to how their health data will be safeguarded and disclosed.
Femtech companies scaling to the U.S. from countries with more stringent privacy protections — e.g., the European Union's General Data Protection Regulation — possess an advantage that can be used when advertising products and services in the U.S. These startups should articulate their privacy-preserving features, technology and practices to consumers. This dedication to privacy — particularly without having to establish a data privacy framework from scratch — can produce a meaningful market advantage at a low cost and help attract customers.
Opportunities abound in the U.S. for femtech companies looking to grow and scale in North America. Sustained growth, however, must be well-planned, intentional and slow and may require founders to alter their business models. Femtech companies should determine their value-add propositions and competitive differentiators as they expand into new markets and clearly articulate their advantages to ensure success.