Why Healthcare Start-Ups Need Help from Big Businesses

July 31, 2017

In the healthcare technology world, people are waiting, impatiently for the next Steve Jobs to step up and re-structure the entire landscape. Everybody should probably wait for something else: there will only ever be one Steve Jobs, and the world that produced Jobs has changed as well.
 
Apple was well-established by the time the internet came into being. Its products had fit nicely with the needs generated by the burgeoning World Wide Web. But now, the internet-driven information age is upon us in full force, and innovators play very different roles than they did in the 80s. Start-up geniuses like Jobs (and his partner Steve Wozniak) are still out there, but the roles they played in the technology industry disappeared. It’s unlikely that new start-ups will emerge and grow into industry giants. Giants like Google, IBM and GE have learned to co-opt the start-up model, in many new and innovative ways.
 
The healthcare industry presents particularly high obstacles for start-ups. Measurement of success is largely driven by data —from databases that are generally only accessible to larger organizations. The trust factor is also critical: patients and providers are much more likely to place their trust in a well-known, established company. Finally, there is the challenge of regulation. Healthcare is one of the most highly regulated industries, where the cost and complexity of compliance are not as easily borne by start-ups.

Economies of scale

Partnership is the remedy for many of the disadvantages that start-ups face. Whereas start-ups own the advantage of speed and agility in getting products to customers, they suffer from a distinct disadvantage with respect to their larger competitors: too few customers and users. These feisty little companies have great ideas, but lack economies of scale.
 
AliveCor, maker of a smartphone-based EKG machine, has figured out one way to handle the economies of scale problem. They have partnered with the Mayo Clinic to gain access to the healthcare giant’s huge patient population. AliveCor scored $30 million in the deal. They also gained a fair bit of Mayo’s industry credibility, to say nothing of Mayo’s distribution network and branding. Mayo, for its part, gained the rights to a portable EKG system that may have solved the problem of how to perform health monitoring in populations such as the elderly in their homes.

The internal start-up model

 

Big companies are smart enough to know that their corporate culture is not conducive to the type of business model that drive start-ups: e.g., nimbleness, ability to fail (on a small-scale) and start over again. Working on the “if you can’t beat ‘em, join ‘em” principle, giant companies are now opening up their own internal start-up divisions. General Electric, for example, created FastWorks in 2012. The object of FastWorks was to allow small subdivisions of GE to create “minimum viable products” (MVP) that could be tested with actual clients early in the process, as start-ups do. This allows GE to cull winning products quickly and with less risk. 

Idea incubators

 

GE Healthcare adopts a slightly different version of the MVP concept. They partner with academic innovators at institutions such as Johns Hopkins and the University of California, San Francisco (UCSF). This is an example of big businesses leveraging university-based innovations. Long considered incubators of ideas, institutions of higher learning have been skittish about faculty making money from their own ideas. In recent years, realizing the potential financial benefits, universities have embraced the concept of industry-academic partnerships.

Spin-offs

 

Healthcare technology winners aren’t born in college dorm rooms as they were when Michael Dell launched his empire. Today, healthcare tech start-ups are spawned fully-grown from the heads of already established tech giants.

 
For example, one of Google’s many pet projects, Google Life Sciences, was re-branded as Verily, an “idea incubator” that is currently involved with a number of partnerships with pharmaceutical firms.

Rub-offs

Speed and agility are contagious, and big companies know it. Older firms find themselves entrenched in business as usual and are generally allergic to change. Some of these have hoped the acquisition of start-ups might infuse the company as a whole with a renewed drive for innovation. Major health plan providers could benefit enormously from outsourcing functions to energetic start-ups. Now, more than ever in the world of healthcare, where resistance to change has been a persistent problem, the infusion of start-up energy can be just what the doctor ordered.

 

Tags: Health Insurance, Healthcare, medical devices, technology

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