10 Reasons Why Digital Health Start-Ups Go Bust

The Medical Futurist | March 14, 2019

While the digital health market is expanding rapidly, ninety percent of start-ups will probably die within two to five years from their inception. That’s an awfully high number, so we looked around what could possibly go wrong with digital health start-ups to avoid the undeserving fate of falling into the abyss.

Being an entrepreneur is tough – especially in healthcare

As currently there’s an app for everything, you thought you make one that estimates the time needed to deliver food – so anyone could order pad thai from the closest place possible. Every single entrepreneur knows that a good idea is as a tiny part in the success of the company as one single brick in the Great Wall of China. Funding, product development, a viable business model with an appropriate marketing strategy, finding and keeping the right people, being able to scale and personally grow up to the tasks and challenges. Now, that pizza delivery estimate app doesn’t sound that good, does it?

Imagine the same hurdles and “spice it up” with healthcare: many stakeholders, countless regulations and the inner logic of the industry. It’s tough. No wonder that in spite of the growing market – investment in digital health startups hit a new high in 2018totaling $8.1 billion across 368 deals – ninety percent of start-ups in the medical market will die or be ‘acqui-hired’ within 2 to 5 years from inception. The latter means the acquisition of a failing start-up for its talent pool, and it’s a burgeoning trend in Silicon Valley. Keeping all this disappointing data in mind, we looked around what are the reasons for digital health start-ups going to dust.

1) Forgetting patients and diversity

Although the goal of most healthcare products and services is the improvement of patient outcomes, the most painfully common mistake a digital health company can do is forgetting patients. Yet, having a leadership team that is a mix of healthcare, technology, consumer and designimproves the odds of success. Without understanding patients’ preferences and needs, it is impossible to create valuable solutions. Moreover, they should be included in the entire process – from the idea to solve a specific problem through design, product development, launch, and follow-up.

One more thing: we are not speaking about “the hypothetical patient” here, but actual people. For example, most period tracking apps have been most certainly developed by men and not appropriately tested by women. It was also embarrassing that originally even Apple Health appeared without a period tracker on the market – and added it an entire year later.

2) Not taking into account care providers

Healthcare is a tricky business. In many cases, start-ups create a service or product for better patient experience, but they actually sell it to care providers: doctors, hospitals, pharmacies, paramedical staff, pharmaceutical companies, insurance companies, etc. And even if they don’t directly come in contact with all the different stakeholders, they might feel their presence.

Even such a giant tech company as Amazon had to take a different path than it planned when it came to pharma. Jeff Bezos’ company decided to give itself a head start in the pharmacy business by purchasing PillPack, a mail-order pharmacy company for 1 billion dollars in June 2018. The reason for the purchase was actually that Amazon had to abandon its original plans of selling pharmaceutical drugs through its Amazon Business marketplace, although it would have been the obvious choice. Why? Partly because it has not been able to convince big hospitals to change their traditional purchasing process, which typically involves a high number of middlemen and loyal relationships.

3) Difficulties in creating clinical value

Hundreds of medical apps, products, and services appeared on the market in the last couple of years, but in many cases, the clinical significance can be questioned. Problems vary from not being able to effectively measure, validate or interpret a given medical data to dealing with clinically less meaningful data or information that is not relevant in care settings.

For example, many diabetes management apps have some tools to log blood glucose levels and other vital signs, but very few have all five essential diabetes management functions – for medication, blood glucose level, physical activity, diet, and weight. That was the finding of a study conducted by researchers from the Lee Kong Chian School of Medicine at Nanyang Technological University (NTU).

4) No scientific validation

The “break things and move fast” attitude can lead to the lack of appropriate scientific evidence for a solution. If start-uppers cannot wait enough to scientifically back up their product or service – marketing their product without enough scientific evidence or conducting clinical trials on small sample sizes, short duration of the study and other internal biases– they should not even consider starting their business in the first place – or they end up as Elizabeth Holmes and Theranos.

Everyone knows the story. The most successful female entrepreneur in medicine, the youngest inventor in healthcare and her promise: one drop of blood – and the patient will know more about their illnesses than in their whole life before. Theranos promised to also dramatically cut costs, to be flexible, easily portable and above all – reliable. Unfortunately, most claims proved to be false, and there’s not even evidence that the technology ever worked.

5) Overclaiming what technologies can do

Our favorite saying is: if a technology sounds too good to be true, that it probably is. Then extreme caution and clear evidence are required before spreading the word about it since giving false hope is dangerous. It’s morally wrong to make patients believe that their state gets better if purchasing a product or service when in reality the company knows it doesn’t. Such enterprises should face the consequences when their deception comes to light and should go down.

We could mention Theranos again, but unfortunately, there are other examples as well. For example, Google finally had to admit that it cannot build the contact lens that will measure glucose levels from tears. The tech giant submitted the patent to the US Patent & Trademark Office in 2014 that described a digital, multi-sensor contact lens that can also detect blinking, with benefits like turning the page of an e-book with a “blink of an eye” and measuring blood glucose from tears. They shut down the project four years later. In one of their official statements, they noted that scientists have long looked into how certain body fluids can help track glucose levels easier, but tears are hard to collect. That’s right, as people with diabetes aren’t pre-programmed crying machines, it turned out that tears can never really be an option.

6) Forgetting to go where users are

The real breakthrough of digital health is that it’s making patients the point of care. Trackers, wearables, health sensors – or even postcards to pee on. Health innovators believe that those solutions are doomed, which don’t bring actionable value and analytics directly to patients – and also doctors for that matter. As care moves from treatment to prevention, care will happen more and more outside of the traditional four walls of a hospital or GP’s office. Those who fail to bring their product to patient’s homes, directly to the doctor’s office or to both of their online devices, will not be successful in the long run.

However, technology moves much faster than medicine and healthcare. Thus, sometimes reaching users where they are means to literally go back in time. For example, a couple of weeks (!!!!!) ago, Google exhibited a new health service at the HIMSS health conference in Orlando hat involves faxing medical information to Google Drive, the company’s cloud storage service. The company had to acknowledge that healthcare is still in the “stone age” and if they want to reach patients and providers, they need to adapt their offerings to the realities.

7) The solution is not cost-effective enough

A miscalculated profit margin, a too high or too low price tag and a generally misplaced pricing strategy could mean the end of a promising digital health start-up.

Just look at Driver. The venture wanted to connect cancer patients with treatments and clinical trials, but it had to shut down due to a lack of money. Though it had a network of more than 30 of the world’s largest cancer hospitals and the financial backing of Hong Kong billionaire Li Ka Shing’s Horizon Ventures, its direct-to-consumer model didn’t pay off. According to co-founder and CEO William Polkinghorn, the price played a “definite role” in the low customer numbers.

8) Forgetting the ways of implementation

Does your innovation integrate well into the schedules, the workflows and generally into the everyday lives of your target audience? It doesn’t matter that you claim to have a user-friendly solution if you forget that it isn’t compatible with the medical facility’s IT system; if it puts extra administrative burden on the staff or if it requires the patient or the doctor to go an extra mile, say in further educating themselves in digital matters – you are doomed.

In October 2017, a study appeared detailing how a program to have patients at a federally qualified health center using an mHealth app to manage their hypertension or diabetes failed miserably. One of the main reasons was that the app didn’t fit the nurses’ workflow, forcing them and the primary care provider to move from the EHR on one screen to the app on another, which created an extra burden. Another reason came from patients: some couldn’t deal with the challenge to use the digital tool, others didn’t understand what it was for and tried to request medication through it, while others kept using paper logs – and told researchers the app „has become one more thing to do…”

9) Forgetting healthcare is a slow beast

Healthcare is not the place to „break things and move fast.” It has many stakeholders and interests with even more regulations and guidelines to follow. Moreover, actors in healthcare are reluctant to change, and thus adoption could be really slow. That could be a real pain point for start-ups, which cannot wait out years while sitting back and relaxing.

For example, Lantern, a San Francisco-based mental health startup, didn’t take the pace of healthcare into consideration. Its app allowed users to complete a self-evaluation assessment and provided daily exercises, which helped people restructure negative thoughts. According to MedCitiyNews a post on Lantern’s site previously read: “After some trial and error in the direct to consumer and employer spaces, we ultimately pursued a strategy of alignment with traditional healthcare insurance companies. Healthcare moves very slowly, and we made the mistake of misjudging the time it would take to achieve sustainable revenue through this approach.”

10) Being way too early or way too late

If you are the 12th sleep tracker against sleep apnea on the market, if your wearable only measures step count, pulse and heart rate as every single other gadget does or if you offer a medication management service – you are too late. A start-up has to find a niche in the healthcare market and be a real solution to an existing problem that was not solved already.

Another similar problem with the timing is if a company is too early. Zeo, raised more than $30 million from investors to develop a headband that tracked users’ sleep patterns and an accompanying app to serve as their personal “sleep coach.” However, they quietly went out of business already in 2013.

Original Article