Selling to Healthcare Organizations: A Survival Skill for Startups!

Hello again friends and colleagues,

The last decade has seen a surge in healthcare startups, driven by rapid advancements in technology such as artificial intelligence (AI), genomics, and wearables. The COVID-19 pandemic also turbocharged the need for innovation in the healthcare system, leading to a surge of venture capital funding for these startups.

However, with the Federal Reserve raising interest rates and the economy slowing down, this funding is drying up, and many startups will struggle to survive the next two years. To stay afloat, as opposed to the easy way of raising Series-x Round or bridge financing, they will have to do it the hard way of generating revenue and profits, which many startups usually struggle to do for reasons that I will discuss today.

The Challenges of Selling to Large Healthcare Organizations

For many healthcare startups, generating revenue and profits means selling their products and services to large healthcare organizations such as hospitals, physician groups, integrated delivery systems, and health insurers. However, selling to these organizations is not a straightforward process, especially for startups. Over the last 20 years, I've seen many healthcare startups (and some non-startups) squander great opportunities to sell their products and services to the organizations for which I worked.

The main reason for this failure was a total ignorance of the complex system of incentives and risks that exist in the healthcare industry. Healthcare is a highly regulated industry with many stakeholders and influencers to any decision both within and outside organizations. Everyone stakeholder has their own unique set of interests and priorities. Also, healthcare organizations have different business models, internal politics and power dynamics, and professional norms and cultures from nurses to physicians (which then subdivides to primary care, specialists, surgeons, hospital-based,...), making it challenging for startups to craft a pitch and carry it to contracting and implementation while navigate these complexities and landmines effectively.

After seeing multiple projects go down in flames, I realized that if I wanted to bring much-needed care delivery innovation to my organization, I would have to become a mentor for these startups in selling to my organization. I almost became their internal account executive, helping them navigate the different phases of the sales and implementation process. Over the year, this process was formalized into an Innovation Pipeline.

The Innovation Pipeline

Through years of trial and error, I developed a framework of structures and processes that created a standardized roadmap for both internal stakeholders and startups to successfully identify, select and implement healthcare innovations. This framework is what I call the innovation pipeline, and it consists of six stages:

1. Initial Pitch: In this stage, startups present their product or service showcasing its unique features and benefits. The goal of this stage is to generate interest and secure a follow-up meeting. The Internal Champion plays an important role in this stage by introducing the startup to organization and ensuring that they don’t step on any landmines that would destroy the opportunity for a more in depth evaluation. I’ve learned over the years that having a low-risk low-pressure forum for these initial presentations which regularly occur maximizes the opportunity for the organization to find promising innovation and minimizes the activation of the Organizational Change Immune System that attacks and kills any threat of change. I usually call those events Innovation Days and have 3-4 startups present using a standardized presentation outline.
2. In-Depth Evaluation: In this stage, the organization performs a detailed assessment of the product or service, evaluating its feasibility, cost-effectiveness, and compatibility with the organizations existing systems and processes. The Internal Champion plays a key role in this stage by working with the startup to prepare for the in-depth evaluation, providing insights and guidance on how to align the product or service to with organizational priorities and goals. Occasionally in this stage, significant changes to the startup contracting model, product or service design, implementation process, system integration, data exchange format, and other specification may be needed. Startups usually have an advantage over larger companies in this stage because they are more nimble and have fewer legacy constraints on the ability to change.
3. Proposal and Contracting: In this stage, the startup prepares a formal proposal and negotiates and finalizes the contract. The Internal Champion plays a critical role in this stage, helping the startup to develop a compelling proposal and negotiate mutually beneficial terms.
4. Piloting/Validation/Troubleshooting: In this stage, the startup and the organization work together to pilot the product or service in controlled subset of the eventual population, validate its effectiveness, and troubleshoot any issues that may arise during rollout or system integration. The Internal Champion plays an important role in this stage by serving as the facilitator between the startup and the different functional areas of the organization involved in the project, helping to resolve any issues and ensuring a successful pilot.
5. Scaling: In this stage, the startup and the organization work together to scale the product or service, expanding its use to the full intended scope or populations. The Internal Champion plays a vital role in this stage by working with the startup and internal stakeholders to develop and implement a scaling strategy that meets the needs of both parties.
6. Optimization: In this stage, the startup and the buyer work together to optimize the product or service, making improvements and refinements to ensure its long-term success. The Internal Champion plays a critical role in this stage, working with the startup to identify and address any issues, and make recommendations for further optimization. This stage culminate in the Internal Champion transitioning ownership of the project to the appropriate operational leader.

I have successfully implemented the Innovation Pipeline framework in two organizations so far, and used it in an advisory capacity with a few startup. Most of them I can't share, but below is an example that was made public. With number of startups funded over the past few years, the anticipated ongoing funding challenges, and the desperate need of the healthcare system for the healthcare innovations that are currently incubating in these startups, I believe there is a huge need to formalize the Internal Innovation Champion role.

I am now considering writing a book to share the details of starting an Innovation Pipeline and skill set of Innovation Champions. I'm looking for feedback on whether there is a perceived need for such a book. I'm also for example or experience of implementing startup-developed healthcare innovation in large organizations and if my experience of the difficulties is reflective of current environment. Specific examples without identifying information would also be very helpful. Please leave feedback in comments or by direct messaging on LinkedIn.

See you next week,

Sam