In many industries, startups may disrupt incumbents to drive innovation and capture market share. But healthcare may be an exception. VCs invested $25.9 billion globally in this sector last year, with many startups on the receiving end of that funding still struggling to prove product market fit today. Startups creating novel healthcare technologies have an incredible opportunity to positively impact patients and outcomes, but given the intricacies and challenges involved, for many the most productive path forward doesn’t necessarily include disruption or going it alone. To deliver real value in today’s highly fragmented market, healthtech startups stand to significantly benefit by working with incumbents.
Establishing trust and value across dozens of conflicting stakeholders isn’t easy
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One of the biggest reasons healthtech startups can benefit by working with incumbents is due to the unique nature of the industry. In addition to being a highly regulated and complexly financed domain, the healthcare sector is comprised of many different stakeholders, and each of those stakeholders has their own requirements and priorities. Occasionally these priorities align, but more often they’re at odds with one another.
Take hospitals, for example. While serving their underlying mission to drive quality patient care at lower costs, given the current climate they’re also focused on driving revenue and channeling patients toward high-value procedures. Payers, on the other hand, aim to manage costs across a broader, transient population, while patients want the best care possible. To successfully capture market share, healthtech startups targeting these audiences need to provide rigorous and dependable outcomes that measurably benefit all participants.
Alternatively, consider a startup selling a digital infrastructure solution. In other industries, they might have to cater only to the motivations of a VP of engineering or chief security officer. In healthcare, however, that startup will likely need to cater to those roles within a healthcare organization, plus the organization’s budget administrators, their clinician champions (i.e. physicians, nurses and any other relevant administrators), regulators and potentially all of the different stakeholders across any pharmaceutical, insurance, provider and device manufacturer organizations that the healthcare organization depends on. Attempting to align the incentives of so many different stakeholders concurrently – while also establishing the measurable benefits of a new, unproven solution – is a superpower. So, there’s significant potential opportunity to be had leaning on established players that have deep expertise of these complex ecosystems, have demonstrated value and earned the trust of the customer. By leveraging the existing experience and value of incumbents, healthtech startups can potentially lower the threshold to end-customer engagement, gain credibility, and translate that credibility into greater distribution opportunities, expedited pathways to commercial success and differentiated value through joint offerings with incumbent partners.
Delivering high-value solutions allows startups to scale alongside incumbents
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The old business school adage rings particularly true in healthcare: Customers don’t want to buy a drill; they want to buy a hole. Last year was an exceptionally difficult year for hospitals and health systems in the U.S., with more than half operating in the red. For the acutely resource-constrained healthcare industry, solutions that immediately produce value are vital – and there must also be a route to meaningful scale. To begin building the most mutually beneficial relationships with incumbents, healthtech startups should first ask themselves, “Does our product deliver high value, measurable ROI and stakeholder alignment for a specific set of customers? And, are we doing this via a business model or touchpoint that’s ultimately scalable to allow for broader use cases?”
From there, healthtech startups can work to scale along with the broader ecosystem of incumbents — be it the well-entrenched suppliers and device manufacturers already serving hospitals and operating rooms (e.g., Intuitive, McKesson or Stryker) or the hyper-scalers building out their digital footprints (e.g., AWS, Microsoft, Google, Nvidia) — by aiming to create value for the same end-customers. Take Viz.ai, for example, a later-stage healthtech startup that delivers a win-win for clinical teams and the commercial sales teams of incumbent medtech organizations. The synergy of their AI-powered disease detection and workflow optimization solution can incentivize established medtech players to facilitate commercial introductions for Viz.ai, which obviously benefits the startup but also opens new revenue streams and potential new business for the medtech incumbents.
Optellum is an example of an earlier stage healthtech startup that’s partnered with incumbents such as GE Healthcare and Johnson & Johnson to deliver a mutualistic value proposition for the same end-customers, thereby unlocking flexibility in their business model and more effectively capturing market share alongside their partners. Their B2B superpower is designing lung cancer decision support software that benefits four different end-customers concurrently – patients, by identifying diseases earlier, they can help lead better outcomes, which is also a benefit for payers whose total cost of care is lowered; and providers – early diagnosis leads to an an increase in volume of high-value procedures and follow-ups, driving revenue for those hospitals motivated by fee-for-service models. [Editor’s Note: Optellum is a portfolio company of the author’s employer, Intuitive Ventures]
Others successfully pursuing partner-driven approaches include Canary Medical and Zimmer Biomet or endoscopy computer vision AI companies that increasingly work closely with endoscopy manufacturers to reach scale more efficiently. Canary Medical, a medical data company, has partnered with large orthopedics company Zimmer Biomet for the de novo classification and commercialization of the Persona IQ, that combines with orthopedics industry leader Zimmer Biomet’s Persona knee implant with Canary’s implantable tibia extension sensor technology, billed as the world’s first knee implant.
Partnering can help solve consequential problems and accelerate impact
It takes time to build productive relationships and understand the intricacies of large corporations, so healthtech startups should think about how to best partner with incumbents very early on in their journey. Programs like NVIDIA Inception and Microsoft’s HealthTech Startup Program can serve as excellent resources for early-stage healthtech startups looking to leverage the reach and expertise of incumbents to scale new solutions.
Ultimately, the most impactful healthtech startups can solve consequential problems by leveraging the scale, credibility and resources of incumbents in their market. Rather than focusing solely on disruption, these startups concentrate on proving demonstrable ROI, clinical value, dollars saved, better outcomes and improved healthcare economics. Today’s environment puts enormous pressure on startups and health systems to do more with less, so partnering with experienced, established players can empower healthtech startups to bring their novel solutions to market faster and more efficiently unlock value for stakeholders that stand to benefit tremendously from their innovation.
Photo: alphaspirit, Getty Images
Oliver Keown is managing director and head of Intuitive Ventures. He joined Intuitive Ventures in 2019 and leads the fund’s investment efforts with a focus on identifying future leaders of minimally invasive care, including early-stage start-ups across digital, medical device, therapeutic and diagnostic domains.
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