Article
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06.09.2022

Studios and Healthcare: The “Why” for Founders

Steven Coen

By partnering with a venture studio, health-tech founders can turn the nearly-unconquerable “chicken or the egg” problem faced by health-tech startups into a “chicken and the egg” opportunity. Seem too good to be true? I’ll explain further, but, in short – it all comes down to correctly aligning incentives.

First, some background: currently, I’m a Program Manager for High Alpha Innovation and the CEO and founder of a health-tech startup, SaRA Health (Techstars ‘18). I’ve lived this "chicken or the egg" problem, and my experience is very much the norm and not the exception. In this article, I’ll explain why I believe that the Healthcare Venture Studio model will drive innovation within healthcare quicker and more efficiently than the current venture model.

There are three primary problems in the healthcare status quo that the studio model solves for in bringing technology to market:

  1. Current service providers are not incentivized to truly solve problems, instead prioritizing quick fixes that have quick and concrete ROI for their customers (how many consulting firms do you know that sell one project then happily walk away?)
  2. Many health-tech startups are built from the patient perspective and lack the connection to why a health system or payer would adopt their solution (full disclosure: I am guilty of this one myself)
  3. There’s a disconnect between the executive level and clinicians on the floor, resulting in solutions that can be difficult to translate to all the stakeholders needed to make a decision

Let’s break down each problem:

  1. Current service providers are not incentivized to truly solve problems, instead prioritizing Band-aids that have quick and concrete ROI for their customers

While there are absolutely projects and initiatives that consultants take on that provide value to the patient-facing staff, it’s largely been the exception not the rule. I’ve heard things like:

  • Leadership wants more patient satisfaction data? “Add a button to the EMR!”
  • Nurse shortage? “Let’s run time studies to see how we can change the way these nurses deliver care to “optimize the workforce!”

Combine a narrowly scoped project (for good reason, given the typical complexity of healthcare) with consulting firms perpetually needing to sell the next project and you create a misaligned incentive structure. Think about it: if a consulting firm solves one problem, it usually either creates or highlights another problem and that is GOOD for business. So, while these firms can be helpful in creating strategy, augmenting workforces, and providing an outside perspective, the incentives are not there to truly solve patient-facing problems in perpetuity.

  1. Many health-tech startups are built from the patient perspective and lack the connection to why a health system or payer would adopt their solution

This is a pretty simple one. Entrepreneurs are good at solving problems that they experience either first- or second-hand. Yet, there are only 9.8 million healthcare workers out of 330 million total Americans. Founders who do not have healthcare experience are going to face an uphill battle running a company while simultaneously improving the healthcare system as a whole. Roy Doumani, a late mentor of mine, quipped that as a first-time founder, I “would cost him a million dollars more [in funding]” compared to an experienced founder. Healthcare is immensely complex. Without having lived inside it, you face immense roadblocks that disincentivize (there’s that word again) even the brightest entrepreneurs from taking the plunge.

  1. There’s a disconnect between the executive level and clinicians on the floor, resulting in solutions that can be difficult to translate to all the stakeholders needed to make a decision

There is a prevailing sentiment that when selling into health systems or payors, founders should expect an 18 month sales window. It makes sense: you have to show the patient-facing staff using the product that at a minimum it doesn’t make their lives worse. On top of that, you have to show the executive team how your solution will improve the hospital’s top and/or bottom line. 

What if the business case is squishy? “We improve provider satisfaction” unfortunately is not enough in today’s world.  This means that a health-tech solution has to solve for both the clinician and the ROI at the starting point OR have an “in” with a health system to find someone to take a chance. Dr. Eric Bricker (Chief Medical Officer at AHealthcareZ) does a great job showing why it is so important to have a well-networked executive to scale a health-tech startup. If that is what it takes to be successful, we can expect these long sales cycles to continue in perpetuity. Again, this reality disincentivizes founders to start health-tech companies, especially first-time or underrepresented founders who are worried about raising the funds necessary to survive long sales cycles.

Now onto the bright side! In the venture studio model that we apply at High Alpha Innovation, the advantaged startups that we create are: 

  1. Highly incentivized to solve the problem, not just apply a Band-aid
  2. Purpose-built to solve that same problem from the patient’s, the staff’s, and system executive’s points of view
  3. Founders take control after the “0 to 1” step, and are set up to succeed from day one

In industries where the incentives are paramount and extremely complex, the venture studio model thrives – and in my opinion, there is no better example of this than healthcare. What do you think? What would you add?

Shameless plug: I’m hiring for a CEO and CTO for two funded startups. Interested in talking more? If you have thoughts or would like to discuss if you could be a fit as a founder of a health-tech venture studio company, send me an email at steven@highalphainno.com.

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