June 7, 2019
Who says tech startups are just for the techies? Doctors, especially those who are business-savvy, make great tech founders, too — once they learn how to play the game.
According to research from last fall, venture capitalists are investing 70 percent more per round in healthcare startups than they did in 2017. The $28.8 billion in 2018 healthcare investments through November indicate that people want to live healthier lives through technology, and the companies that fulfill that need will reap serious rewards. That's a number that docs looking to build wealth might bat an eye at.
Not every healthcare startup strikes gold, of course. Mental health startup Lantern (formerly ThriveOn) acquired more than $20 million in funding before closing shop due to a lack of customers. CloudMine, a health information technology startup that should have been the best of both worlds, filed for bankruptcy in November. Oh, and we'll never forget the Enron-ish story of Theranos.
But with more and more of the healthcare world getting eaten up by tech, it might be worth getting into the game.
Lantern and CloudMine ran into troubles they could have foreseen. Claritas Genomics, a company that specialized in pediatric genetic testing, achieved a $60 million valuation before a tough market and misalignment between investors and founders forced the business to close.
Most businesses don’t even make it that far, but those struggles are not limited to healthcare startups. Any founder who doesn’t understand the venture capital (VC) landscape could make the same mistakes.
When outsiders join the startup world, they typically run into a few common pitfalls. Many raise too much money at rich valuations from their doctor friends, which ends up hindering them later in financing. Founders need to understand the fundraising journey or else they might waste limited resources on things that aren't necessary to reach their goal.
Some doctors become too married to a solution they've identified, leading them to forget the problem they set out to solve— a common issue in all startup circles. They can also suffer from a lack of experience in product development or sales, which can hinder growth.
Entrepreneurs with medical degrees will drive much of healthcare innovation over the next few years.
Despite these obstacles, though, doctors are uniquely qualified to be excellent healthcare tech founders and even operators. Entrepreneurs with medical degrees — not computer science degrees — will drive much of the healthcare innovation to come in the next few years.
While these medical practitioners might not immediately be familiar with the startup world, they bring invaluable knowledge of the complex healthcare system to the table. They know how money moves, how incentives work, and which regulations apply in which circumstances.
They also have relationships with institutions, which can help them find early customers. A deep understanding of medical problems provides them with invaluable starting points for making an impact with startups in this space.
That said, doctors cannot make the leap from caregivers to CEOs without business experience, and they need partners who know how to navigate the complex world of startup culture. By being surrounded with the right people, they can turn their ideas into realities.
Doctors looking to get involved in the meaningful (and lucrative) world of healthcare technology should take time to pursue their dreams — the right way. Here's how:
Start with the problem, not the solution or the product. Successful entrepreneurs tend to focus more on what people need than the best way to fulfill that need. Things change quickly in both healthcare and tech, which means no potential solution is safe from disruption. The most successful healthcare tech companies solve really big problems.
Have a plan, but don't over-plan. At our company, we use the Lean Canvas, which helps founders create blueprints for a business model in about 20 minutes. This forces you to think through your entire business model around the big problem you are solving and the assumptions you are making with the new business. Keep in mind that you will get lots of things wrong and that this document will evolve as you iterate on your business model.
Many doctors are better suited to product development or even roles like chief science officer or chief medical officer than positions in business operations. When that’s the case, find a smart person to handle the critical task of guiding the company forward. If you've got the business chops from running your own practice, grab the reins. Just remember that no company will last long with a founder who's too proud to see his or her own limitations.
In the pre-seed stage, most money comes from personal accounts or investments from friends. We call the "first money in" on most venture deals the "three F's" money: friends, family, and fools. These are often the only people who will bet on you at the start. This first funding round is more about selling the idea and getting people to believe in you making it happen. Don’t raise too much — only what the business needs to get started and to get you to the next stage, which we call a seed round. Raising too much too soon can lead to "down rounds" at the seed stage or taking too much dilution at a really low price.
With the company up and running, don’t assume everything will work out on its own. Make a point to learn the checkpoints between each fundraising gate, and then make the right efforts and capital allocations to move forward. This infographic provides more information for digital health startups.
Building a company for VC puts it on a different path than if you plan to grow it organically (what we call bootstrapping), but it gives you the ability to capture the market and create more value in a much shorter period of time.
Validate or invalidate your business model assumptions, learn, iterate, and repeat.
The world of tech moves quickly and takes no prisoners, which means you should collect knowledge first. To get you started, consider reading "The Lean Startup" by Eric Ries to learn how to turn an idea into a reality. Once you know more, make a plan, and then get products into the hands of customers as quickly as possible. Validate or invalidate your business model assumptions, learn, iterate, and repeat. Don't go build a product for two years, release it, and pray that mass markets accept it — that is a recipe for failure in tech.
Ultimately, if you're unsure about founding a healthcare startup, consider starting small by investing in the local scene. Join an angel investment group to help others pursue their dreams while grabbing a piece of the hot asset class. Not only will those dollars help make the world a better place, but when invested in the right company, they might also lead to a substantial payday. Who knows: The decision to invest might even open doors for you to take the leap and found a startup yourself.
*This article was originally on MedicalEconomics.com
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