Why Digital Health Startups Fail - Part 2: Myopic Marketing

This is part two of a three part series on Health Startups and why they fail, all inspired by a recent Sifted article on the desperate state of DTC health startups and scaleups. In part one 'The Tech Fetish' I wrote about how the obsession with tech rather than customers contributed to the failure of many health techs.

If you have to pay more to bring in a customer than that customer pays you, your business will lose money.

Unfortunately much of the history of tech startups revolves around the business thesis of 'just get the customers in then we will figure out how to make money'. This has been a massive contributor to the problems of health startups and scale-ups in particular. In my experience there are two main drivers of the myopia that health startups have when it comes to their marketing approaches.

Too Narrow a Focus

Firstly, they view customers (patients) through a very narrow window. I will write about this more in part three of this series, but essentially a lot of the health techs built their businesses around a focus on a very specific health issue and building a deep but slim (vertically integrated) customer journey around this. This translated into the marketing strategy whereby marketing activity focused primarily on performance marketing (running paid ads) across the traditional channels of Google Search and Meta (Facebook+Instagram) targeting the specific 'problem' area the business deals in.

Health techs built their businesses around a focus on a very specific health issue and building a deep but slim (vertically integrated) customer journey around this

Often the focus was on customers at the very late stages of the buyer's journey, where they have decided they need a specific solution. So for an erectile dysfunction health startup, this would be prioritising the focus on 'ED Pills' or 'erection pills' or 'erectile dysfunction pill brand name'.

There's nothing wrong with focus on the lowest hanging fruit, especially when you are starting or have a very limited budget, but as the health tech space matured, and competition has increased, customer acquisition costs across these ad platforms has increased significantly. Health techs that were launched and garnered their initial funding pre-pandemic on lower costs per acquisition, tied their entire business model to these platforms, and as costs increased they found themselves with nowhere to go to maintain scale while keeping costs under control.

Health techs that were launched and garnered their initial funding per-pandemic on lower costs per acquisition, tied their entire business model to these platforms, and as costs increased they found themselves nowhere to go to maintain scale while keeping costs under control.

But even though health startups are getting squeezed by these increasing costs, there's very few examples of these business creating effective marketing pathways for customers that are much earlier in their journey or looking at adjacent/connected health issues.

Almost every health area involves overlapping issues

Almost every health area involves overlapping issues, sticking with the erectile dysfunction example, we know it can be dramatically impacted by mental health, activity levels and lifestyle choices. So we need sophisticated and well developed marketing pathways/funnels that can attract users who are looking at related issues and help them understand the relevance of an erectile dysfunction treatment option.

A lot of business have gotten better at this, developing content that covers a lot of relevant topics, but this is often created with a strict focus on search engine optimisation. This is important of course, but doesn't go far enough in creating the type of onboarding paths for a range of potential customers at different stages of their journey.

To be clear, I respect the need to be focused and there's nothing fundamentally wrong with selling a very specific solution, but the challenge faced by health startups is that selling just these solution has been difficult to do profitably.

A strong aversion to risk taking

The second driver of myopic marketing isn't unique to health startups by any means, but a broader, and inevitable trend of viewing marketing as a purely analytical exercise. This partially explains the rise of Growth as a function, where businesses want the harder aspects of marketing without any of the 'fluffy' stuff.

By all means, I'm not arguing against have a data-centric view to marketing activities. I've focused much of my career around this and seen first hand the power of data-driven optimisation to transform marketing's effectiveness. Nor do I mean to undermine the importance of Growth as a function. But as the well established channels get more expensive, there needs to be a level of comfort with a more adventurous approach.

Even something as uncontroversial as a content marketing plan requires significant investment and a lot of patience to see the benefits of this investment. We often hear start-up leaders pay lip service to 'experimentation' and 'testing' but then marketing/growth teams are castigated for even the most minor failures.

This is reinforced by the sensible, well meaning approach of weekly/monthly marketing/growth stat reviews that make longer-return initiatives or unsuccessful experiments stand out even more.

I can appreciate that marketing budgets can be tighter for startups and even scaleups, but clearly allocating a fixed % of budgets for more radical experimentation, where failure is expected can help address some of this risk aversion. Although to achieve a truly unique marketing approach that would distinguish a business, the entire organisation would have to be bought into a pre experimental approach. Finance departments particular!

Conclusion - Marketing can't work miracles

As I mentioned at the start of this post, if it costs a business more to bring in a customer than they earn from that customer, then ultimately the business fails. Marketing can significantly influence the first part of that equation, but the second part of the equation- the core offering and its relevance and value to the target market will be the biggest driver of commercial success.