The digital health industry is a frontier – wild and uncharted. The number of digital health startups is large and growing. There are thousands of digital health startups on AngelList alone – and that’s just the tip of the iceberg. A quick scan of Apple Store shows 136,000 consumer health apps are available for download. According to Rock Health‘s Year in Review, funding for digital health has surpassed $4 billion in 2015. The industry is bloated, booming, and gaining momentum.
What does this all mean exactly?
Well, first of all, this expansion can’t last – the landscape will shift, the markets will right themselves and possibly contract. Venture capital funding in the digital health space already appears to be plateauing compared to the significant rise from 2013-2014. While the number of deals more than doubled from 2011-2013, the number of deals from 2014-2015 saw only a 2% increase. Compared to 2014, 2015 average deal-size saw only a marginal increase from $14.7M to $14.8M.
While the number of deals is stabilizing, the size of the top deals is getting bigger. The six largest deals of 2015, highlighted by Nanthealth’s $200M in new funding, accounted for three-quarters of a billion dollars and almost 16% of all funding. This trend of decreasing number of deals coupled with increasing deal-size reflects a maturing industry. Many venture capitalists and angel investors saw promise in the space in 2013 and their investments sparked a mercurial rise in funding. Since then, investors have grown timid and enthusiasm has died down, mostly due to startup complications in gaining traction and market share.
The playing-field is level, and now is the time for companies to separate themselves from the pack. Many digital health startups were founded as recently as 5 years ago and are still searching for an identity. Within this large and complex health industry ecosystem, startups need to find their niche. When a startup specializes in a unique area of the industry, success often follows. The Top Digital Health Startups have reeled in well over $2.5 billion in funding collectively because they have adopted unique approaches to marketing themselves.
Jawbone advertises products that will help you “lose weight,” “love your heart,” “sleep better,” and “be social.” Proteus Digital Health stresses the importance of personalized care and offers glowing testimonials from relatable users. Privia Health offers its customers access to unique doctor-led wellness teams comprised of dietitians, fitness trainers, wellness coaches, and nurse care managers.
Successful companies like these build great products, generate buzz, convey confidence, and connect with their customers. While the crystal ball is never totally clear, we can learn from trends and what’s worked to develop a startup survival guide to winning healthcare in the future. The best digital health companies exhibit four striking similarities.
The present-day plateau in the digital health environment will be a proving-ground for startups. Knowing that the digital health industry will undergo major shifts in funding, companies must position themselves for success in the changing landscape. There are tangible, concrete steps for companies to take that will expedite separation from the rest of the pack. Companies that strike a balance between the 4 key elements (outlined below) will populate the digital health frontier in 2020.
Innovative Approach – The first step to success is confirming the product provides exceptional value, the second is displaying that value for the customer. Ultimately, the goal is to create value, and this can be done by either producing a “gain-creator,” allowing customers to do something they previously could not, or producing a “pain reliever,” a product that alleviates a nuisance experienced by the customer. An example of a gain-creator could be a mobile application that enhances one’s sleep quality, weight-loss, or happiness. On the other hand, a pain-reliever could be a technology that assuages the hassles of completing lengthy medical forms. Successful companies must offer products that are highly beneficial, affordable, time-effective, and convenient.
In the words of Steve Jobs, “A lot of times, people don’t know what they want until you show it to them.” Many startups have brilliant, ground-breaking ideas at their core, but they fail to gain traction because they fail to relate to potential customers and show how special they are – the trick is communication.
Speaking the Same Language – In order to sell products and services, digital health companies must speak the language of their everyday customers. I’ve come across countless instances of startups using overly-scientific/medical jargon to describe themselves or their products – it’s not impressive, just really confusing.
Startup #1: “Our platform includes an intuitive mobile app for employees and an online dashboard for employers allowing for effective tracking and management of your wellness programs.”
Me: So…it’s an app? Why would I download this?
Startup #2: “Our goal is to create products that unobtrusively observe life. We hope you join us on this adventure.”
Me: I have no idea what this is or what you’re selling me…
Startup #3: “Delivers an approachable technology-based solution that improves the human interactions at the center of patient care and activates patients toward improving their health at every encounter.”
Me: I don’t understand…Eh.
To better use language as a tool to truly communicate with customers, consider a strong, clear, concise message:
“Hi we’re Oscar. Smart, simple health insurance.” – Oscar Health
The goal is to convey what the product is and why you should want it – plain and simple. Customers respond to messages they resonate with, ones that affect them personally. Especially in the health industry, where the knowledge gap between professionals and customers is so stark, finding ways to deliver a relatable, understandable message is crucial.
Transparency, Convenience, Value – Recently, companies like Uber and Venmo have disrupted their respective markets because they are transparent, convenient, and valuable. Everyone needs to travel – Uber has transformed the hassle of calling a taxi or renting a car into the convenience of simply pressing a button. Similarly, Venmo slashes the time of texting or calling a friend for money by offering instant messages accompanied by monetary requests. While Uber and Venmo may seem risky and even dangerous in their transparency, their popularity shows that consumers value convenience and efficiency highly. Digital health will follow this trend leading up to and beyond 2020, and companies that maximize convenience and transparency will become highly valuable. Finding the right doctor used to be a laborious process of online searching and asking through word-of-mouth, but now companies like ZocDoc make finding a provider a speedy online process. At the end of the day, patients care about speed, quality, and cost. Companies that maximize those areas of operation will reap the benefits.
Network & Retention – Let’s say all goes well: you create an awesome product, fill a niche and deliver value …Now what? To make the leap from 150 to 1 million customers, companies must incorporate a social factor and create network effects. Essentially, a product’s value increases as more customers join the network, especially if the customers’ joining provides value to other customers and creates a positive feedback loop.
Not only does a network effect allow a company to gain new customers, it also enhances a company’s ability to retain customers. Facebook is a great illustration – since “everybody” has a Facebook account, those who don’t have an account get roped into making one. I cannot leave Facebook, even if I wanted to, because it functions as an integral communication, organization, and social tool in my daily life.
Healthcare startups must create network effects that offer users a functional advantage. A standalone solution won’t be as successful as a health monitoring platform that allows one to connect seamlessly with social media or sync to iCloud or Google+. For companies focusing on analytics and big data, gaining more experimental points (customers) increases the power and accuracy of biometric statistics. Fitbit offers online competitions to promote fitness, engage users, and draw in more customers. Networks can help companies retain customers by increasing its product’s functionality in their lives. On a higher level, networks allow companies to retain customers through daily updates and communication that promote new services that will improve lives.
Companies of all types are realizing that creating a network effect is necessary to grow and scale a business. It is neither efficient nor practical for hundreds of companies to hover around the 1000-10,000 customer mark. In 2020 the number of relevant companies will likely contract to about a dozen or less that cater to millions of customers and cover the same market.
It’s time for startups to be disruptive and stand out in the crowd! The frenzy of exploration is over, now it’s time to navigate the digital health frontier. Companies that remain confident in their innovative platforms, resonate with their customers, adopt transparency and convenience, and develop networks will come out on top. Today can be considered a transition and turning point for the digital health industry – it’s a time that can seem intimidating and exhilarating all at once. But most of all, this time is overwhelmingly exciting because, at any moment, incredible products and services will hit the market and change people’s lives for the better.