It's time to Take Care of Business, Health and biotech startups!

I like Elvis. I particularly like his motto of “Taking Care of Business”. After 2023, I believe that clinical innovation is no longer the main key to unlocking a startup’s full potential. It’s the starting point, for sure, but it’s not the be-all and end-all. I mean look at all the health platforms in different countries. One succeeds and others fail. Why? Because they need to Take Care of Business.

I believe that the key differentiator is in one or more of the following and clinical innovation should sit in one of these:

• Operating model
• Reimbursement
• Customer acquisition
• Delivery / Adoption

An operating model is essentially how a business goes about creating and delivering its product. Or in business speak; how value is created and delivered to customers. How a business runs is paramount; innovation in efficiency or increasing value can be some of the ways a startup can differentiate itself. Reducing costs and improving products or services are the bedrock of a good business.

An example of this is the use of AI in the discovery of therapeutic candidate molecules. By using novel techniques, companies can identify molecules that are potentially good candidates for a drug at a fraction of the time and cost of traditional wet lab techniques (operating efficiency). It also turns out that the AI model can predict models that are more likely to succeed in further studies (value adding). Cheaper, faster, and better through AI innovation.

In my experience, the easiest gains in operating model come from efficiencies, although the highest impacts are with creating greater value. Efficiency is largely internal and uniquely suited to the deployment of technology, such as the use of AI in the above example. Creating greater value usually requires more external engagement with customers or stakeholders. This can be accelerated by the appointment of industry advisors or researchers who can quickly understand the customer needs. One method I’ve found to be very powerful is ‘working backwards from the customer’ (well, I am from Amazon after all). This starts by defining the desired outcome and working backwards to discover what is necessary to achieve that. From there, it would be clearer if the return on development investment would be palatable. Reimbursement- aka getting paid. Most of healthcare runs on reimbursement and if you can switch out from the traditional models of say, capitation (ugh) to say, a value-based subscription model, that’s a step closer to success.?

Imagine this, instead of a traditional fixed capitation model for the management of hypertension (high blood pressure) at $240 a year, one moves to a subscription model for remote monitoring and follow-up and medication delivery at $20 a month but at $25 a month if the company manage to lower the Bp to a certain level, then the potential upside is $60 (12 months x $5) or 25% better margin. (of course, the solution better be able to deliver on that Bp lowering effect- hey, that’s the innovation!).

If you are talking of private or out-of-pocket costs, some form of subsidy will be a mega-force multiplier; traditionally, patients have been reluctant to pay for novel healthcare products even with good results. The uncertainty plus the potential for surprise out-of-pocket expenses from out-of-network solutions makes for a powerful disincentive.

The key to differentiating in the reimbursement space lies with Sun Tzu’s wisdom “If you know the enemy and know yourself, you need not fear the result of a hundred battles.” And believe me, reimbursement can feel like a battle. Any startup should be conversant with the traditional and alternative reimbursement models. Don’t worry I got you covered on this- here is my bit on the basics of reimbursements and alternative models.

Customer acquisition- obviously how much it costs you to get paying customers will determine your growth and survival. Spending $400 per customer who nets you $50 profit a year means it would take 8 years for you to break even on that customer. Assuming that s/he stays with you, and you can turn a profit after your running costs. I don’t know about you but I don’t fancy that.

The most common solutions to this are:?

• novel acquisition channel (hey! Let’s try Instagram!);
• eliminate the middleman (usually through a direct-to-customer offering, hullo Ozempic);
• through a partner (b2b2c- insurance, health provider, companies);
• reduce attrition (they come and they stay- stickiness, great experience, etc); and finally,
• massive viral media coverage (a la chatGPT) although it would be wildly optimistic to rely on this motion.?

It’s hard to imagine clinical innovation here, so don’t. This is the realm of partnerships, user experience, and hard-fought gains. Best is to work the ecosystem connections and spend what you can on design.

Delivery/adoption- oh hey, I know this is part of the operating model but it’s so important I thought I would air it again here. A wonderfully innovative product, with the best UX, validated, with ironclad contracts is worthless if you simply cannot deliver it, or get it used. If the end user doesn’t touch it, it’s lost.?

Latency too long? App gets deleted. Not enough clinical stakeholder buy-in? No deployment in the operating theatre. This is where the rubber meets the road- remember, amateurs talk strategy, the pros talk logistics. Gotta Take Care of Business.

IRL examples

Cautionary tale: Babylon Health a $610M VC backed and 2021 $4.2B SPAC merger delivered a >$300M operating loss and uncertainty over it’s product (operating model, customer acquisition, adoption). It also went into an undifferentiated reimbursement model- capitation (reimbursement).

Celebratory tale: Lucence’s LiquidHALLMARK? is a blood test for cancer. It’s 94.5-100% concordant to tissue-based tests. That means it’s not as invasive, less painful, and has less risk of infection (operating efficiency and value add!). It is also Medicare reimbursable to patients (reimbursement!). Lucence also accepts all insurance plans and does NOT bill for any difference between the bill amount and the insurance plan’s allowed amount (reimbursement!).

Wrap-up time. So actually succeeding as a startup isn’t fundamentally different from succeeding as in any other business. But, we can’t all be good at everything, and being wonderful at developing innovative tech doesn’t mean you can ignore Taking Care of Business. That means operating efficiency, delivering high value to customers, being paid (well) for it and delivering on the claims.

Happy building everyone, Terence.

-Follow & connect for more healthcare/life sciences and startup insights-

Disclaimer- Views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author's employer, organization, committee or other group or individual.