Understanding Healthtech - a new delivery model, at scale (part 3)

In part 1 (here) of this series, we began with a brief overview of the healthtech segment by introducing five main forces affecting and guiding the healthtech space. The idea is that these are five core themes to look out for when trying to identify healthtech solutions and companies that have a good chance at actually making it and why that would be so:

1. A new delivery model for healthcare
2. Building for medicine at scale - for the individual
3. Smart impact with data & intelligence
4. A new breed of leaders
5. B2B & SaaS at the core of the business model

In part 2 (here), I briefly introduced the first two of these forces: "A new delivery model for healthcare" and "Building for medicine at scale - for the individual". We discussed the fundamental shifts to how healthcare is being offered to the patient based on a digital-first mindset and how this creates new demands on all involved stakeholders. Today, I wanted to take a closer look at the last three forces: "Smart impact with data & intelligence", "A new breed of leaders" and "B2B & SaaS at the core of the business model" respectively.

And as always, these are all my personal opinions and I am staying very humble to the fact that I only know what I know. And as such, I am very much looking forward to receiving your comments and input. Enjoy!

Smart impact with data & intelligence

Moving from physical to digital is not enough. The shift from manual to automated is potentially even more important. Healthcare is historically based on a doctor-to-patient model with arguably huge benefits for mankind during the last 100 years, not the least in terms of improved medical results. However, such a model has built-in productivity and efficiency issues and lacks the ability to scale. Legacy healthcare IT focuses on profession-to-system software inside the healthcare system (mainly doctor-to-EHR/LIS/RIS/PACS), but with very limited and sometimes negative efficiency gains. Similarly, legacy medtech has also mainly developed intra-hospital products where the data stays inside the system and with limited intelligence applied to the hardware. As healthcare is moving out of hospitals towards ambulatory settings and further into the homes of patients, tech needs to move with and enable this shift. We believe truly valuable healthtech products open up two new crucial ways of interaction with the potential to create a huge impact on the efficiency and quality of the healthcare being delivered:

a) patient-to-system interaction - from simple task-shifting when e.g. a patient books her own appointments to more complex use cases such as self-diagnostics, remote patient monitoring or triaging or

b) system-to-system interaction where powerful AI algorithms help making sense of the abundance of healthcare data being generated across diagnostics, therapy and healthcare logistics. Both of these implies a major shift from manual to automated processes.

A new breed of leaders

Even if similar changes have occurred across most industries, healthcare is arguably an extremely complex beast. Founders and leadership teams need to have a deep understanding of clinical reality. Without it product-market fit, sales, adoption and later true impact will not happen. Developing and designing such products that also adhere to all relevant regulations is tough and usually demands other types of competencies than are usually found among incumbents. This opens up a huge opportunity for new entrants and investments. However, this is not enough. The next generation of healthcare leaders dealing especially with tech & software, will also make sure to piggyback on what can be learned from other industries already much further advanced on the digitalization journey. This means healthtech companies should be looking for multidisciplinary teams with both deep domain expertise and an almost childish curiosity to quickly learn from others.?

B2B & SaaS at the core of the business model

The patient-centric shift that we describe above should not be confused with how we believe successful products powering modern healthcare will be sold. Healthcare will continue to be primarily a business-to-business industry. Since big data, intelligence and always-on products live in the cloud, the business model we are looking for is primarily that of a SaaS company with a recurring revenue model and a relatively low share of professional services. Having said that, the role of enabling tech adoption and to some extent perhaps even change management through professional services, is still going to be especially important in healthcare. Finding the balance between staying true to being a product company and making a real impact at scale, is often one of the hardest aspects of finding a well-functioning and efficient business model for healthtech companies. It is important to also recognize the role of companies offering more holistic tech-enabled services. Such a business model will by default look different than a pure SaaS model. In reality, it is not uncommon to see healthtech companies employing a mixed hybrid business model, especially in the early days when product-market fit has not yet been fully understood. Even so, choosing your primary business model going forward - and as a result also rejecting revenue today - will continue to be essential in building an attractive company.

Now what?

With the first three parts in this series I wanted to introduce some of the main themes I look at when trying to understand the healthtech landscape better and in evaluating companies. I thought I would continue sharing a few deep-dives and some hard won learnings in upcoming articles. Stay tuned and stay curious!