Founders at healthcare start-ups must understand the ecosystem.

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Fleur_Engelberts_new_MD
Fleur Engelberts – Managing Director at HealthInc

I am a passionate entrepreneur and I used to work at Google on growth mindset and innovations. In 2018 I started working with corporate companies and start-ups at Innoleaps and Startupbootcamp. Since then, I have been training start-ups on business model design, innovation and coaching. As Managing Director at HealthInc, I would like to help passionate healthcare start-ups to be more successful. But how?

Make passionate healthcare start-ups more successful

Working with different start-ups in the healthcare sector – it is interesting to see how much passion many of the founders have. Don’t get me wrong, I have coached many start-ups outside the health sector and in many of them there are also very passionate founders. However, in healthcare, I have noticed that it is a very deep feeling of really wanting to make an impact on the basic need in people’s lives. They want to make ‘Health’ available to everyone.

Passionate and intrinsically motivated founders are the best, or not?

The intrinsic motivation, besides the passion, is what separates founders of healthcare start-ups from other founders, but perhaps also separates them from the investors. They tend not to want to talk about the financials, but rather about the technology behind their product or idea, or why their product should be used by everybody. In the first coaching conversations I have with health start-ups they often have not done a deep dive in the flow of money within the healthcare system. Not knowing the ecosystem can be a high risk for any start-up, but even more so in Health. The health system, with all its stakeholders, is a complex ecosystem in itself. Add the way the economics work in Healthcare and the picture suddenly becomes even more complex.

Why healthcare is complex and different

The flow of money is fundamentally different in the healthcare sector due to two reasons:

1) the payor and the user are often different people/companies

2) they have different metrics of success and/or incentives.

In some cases there is: a) a payor, b) someone that has to prescribe the product and c) someone else that has to use the product. That in itself is already a very complex system. Add the combination of public and private funding and you have a healthcare system (which by the way is different in every market/country)

Classic Business Model Canvas too simple for Healthcare

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Russell Benaroya already made a wonderful change to the classic Business Model Canvas by separating the customer (the one paying) and the consumer (the one using) to get more insights and make a deep dive into the different customer segments. Healthcare adds another level of complexity because it’s an ecosystem of interdependent stakeholders. Health is not just a  market, it is a social good and a basic human right in a very complex ecosystem.

Understanding the needs of the customer and the consumer therefore is not enough. It is essential to understand how all different stakeholders relate to each other and who benefits in which way at what moment.

(Stakeholders: central government, local government, primary care, hospital care, private care, long-term care, insurance companies, pharmacies, patient groups, etc)

What real life looks like for a healthcare start-up

Let’s go through a real example (from the Dutch market) to show the complexity in the ecosystem where the start-up has to find its way:

Start-up X has a solution to increase the time a person with dementia can stay at home rather than go to a nursing home. This is an amazing proposition: Better quality of life and lower costs.

These are some considerations that come into play:

A) In the Netherlands the government is expected to pay for everything related to healthcare, it is part of the social system. No incentive to spend private money out of pocket.

B) The local government is the payor when people still live at home and would have to pay for the solution. However with no clear financial compensation or benefit.

C) The insurance companies are in charge of reimbursing the home health care which will be prolonged. They receive a fixed fee, meaning a prolonged stay at home results in a negative net effect. The data from start-up X could also be used to admit people earlier to a nursing home which would result in a financial benefit, the wrong incentive.

D) The nursing home is paid for by the central government for the number of people living in the nursing home. Their profit is higher with a higher occupancy rate. Keeping people longer at home could lower their occupancy rate.

The system as a whole should see a reduction in cost. The stakeholders are not aligned nor incentivized to use the product of start-up X. Is there a viable, repeatable and scalable business model for start-up X? Or can start-up X only rely on the people/stakeholders who want to do good?

Introducing the Digital Health Business Model Canvas

Based on conversations with many start-ups and specialists in the field, I have introduced one new section to the Health Business Model Canvas to force everybody working in health start-ups to think about the financial mechanisms that enter into action when an innovation is introduced: The revenue flow in healthcare.

In this section, the start-up has to consider who benefits when and how. Is there a balance between who pays and who benefits? Or, is the innovation an improvement for the system as a whole, but not for the separate entities involved?

It is a great starting point to get a more in-depth understanding of the customer and the landscape the customer (and other stakeholders) are operating in. This is an essential step in defining a viable, repeatable and scalable business model in healthcare.

Do not let the system get in the way of passion

Healthcare start-ups founders are intrinsically motivated and passionate about ultimately improving the quality of life of patients. This renewed digital health business model canvas can help as an early check if the business will fly in the healthcare system.

Continuous improvement

Looking forward to your experiences, insights and suggestions. Let’s help these passionate founders be successful!

Would you like to see how the startups in our cohort look for their flow of money? You can ask them live Q&As at our Demo Day. Attend now!

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