The Problem with Healthcare Innovation is Scale—and How Some Early-Stage Companies Are Tackling It

The Scale Challenge: Scaling is hard, but as healthcare stakeholders grow larger, early stage companies face an increasingly uphill battle to 1) capture the attention of customers or strategic partners, 2) establish the financial metrics that show a viable growth model, and 3) meet investors expectations. If a company doesn’t hit key milestones quickly, it risks getting stuck in “no man’s land”—too big for early-stage investors, not mature enough for growth investors, and not profitable enough to stand on its own.

The traditional playbook is to build the business gradually, stay laser-focused on the core business metrics, and trust that success will attract the next round of funding. Rad AI is a great recent example of this approach done right. But unfortunately, this is more the exception than the rule these days. The reality is healthcare companies “need a long enough runway to iterate, find product-market fit, and ultimately secure sustainable revenue”. But they’re often not given it due to the core built in challenges of healthcare—which Halle Tecco, MPH, MBA highlights well.

A New Approach—Vertical Roll-Up Strategies: One emerging model to address the scale problem is the vertical roll-up—or what Rock Health calls “weaving tapestries.” A strategy long deployed by private equity, it’s now being adopted by venture-backed companies. Tidemark recently did an excellent job summarizing its potential and pitfalls. And while the jury is still out, I lean towards Michael Tan's perspective that roll-up strategies will work, particularly in healthcare given the sheer volume of point solutions and ongoing consolidation in the industry. An excellent example of a company currently excelling at this model is Fabric —a digital health company that has acquired four companies in the past 18 months. 迈达普 is another.

High Risk, High Reward: Of course, this strategy does not come without risks. Just look at Olive.ai. In less than a year, they acquired four companies, and while their roll-up approach wasn’t the sole cause of their downfall, it certainly didn’t help. The reality is that it’s often easier to buy a company than it is to integrate it.

Private equity firms have mastered this model, typically targeting profitable companies with stable revenue and established infrastructure. They have experienced leaders with M&A backgrounds who know how to manage the complexities of integration. But early stage companies are still building their own infrastructure, systems, processes, and culture—building the plane as they fly it. Add on a roll-up strategy, and suddenly they’re building an even bigger plane mid-flight, while trying to keep it airborne. If you’ve lived it, you know the level of change that occurs when a company grows from 50 to 100 employees, then to 200, then to 500. Now, imagine that level of change happening overnight with an acquisition. Early-stage companies must recognize and be ready to navigate these challenges.

Company Building vs. Company Integrating: Early stage companies are filled with company builders—not company integrators. These are two distinct ways of thinking, and leaders need to make a conscious shift in their mindset (at least temporarily) to succeed.

How to Manage the Shift: Having navigated this personally as a leader and consultant, I’ve seen firsthand how challenging this shift can be. Our culture and processes were built around speed and innovation, yet integrating a new entity required us to slow down, communicate more, and reassess priorities. Some key learnings were:

• Laser Focus on Goals & KPIs: We leaned even more heavily into revolving all our company work processes and communications around our goal management system (for us it was OKRs). This was our anchor for setting expectations, aligning cross-company efforts, and quickly identifying risks.

• Clear Decision Processes: Establish, communicate, and hold people accountable to a defined decision process. We adapted the framework outlined in Radical Candor? , ensuring alignment on the decision-making process, authority, and post-decision communication and tracking.

• Obsessive Budget Management: Make it harder to spend money (at least in the short term). We tightened our budgeting and cash flow management, increasing leadership and functional review frequency and establishing a stricter spend approval process.

• Realistic Expectation Setting: It’s critical that the CEO leads the charge, setting the stage for what’s ahead, the risks, and the rewards. I call it the “training wheels” period—we’re learning to ride a bigger, more complex bike, and rebalancing everything along the way.

Like Diving into a Cold Pool: A vertical roll-up strategy is like jumping headfirst into a cold pool. There’s an immediate shock, sensory overload, and instinct to get out. But if you’re prepared, you know to tread water and let your body acclimate. Integrating a new company is no different. The unknown is: How well will you be able to swim?