The 5 top challenges when building an industry redefining healthcare startup — and how to master them

TIm Bogdan
February 5, 2021

Do you have an idea that could change the world of health? First, you will need to navigate the complex healthcare landscape to create a successful medical device/app.

“I believe, if you zoom out into the future, and you look back, and you ask the question, ‘What was Apple’s greatest contribution to mankind?’ it will be about health,” Apple CEO, Tim Cook said in an earnings call in 2019.

By the end of the day, Apple’s shares had jumped 1.91 percent. Since then the American tech company has followed up on this promise by launching its health app in the UK and Canada and just recently, in December 2020, filed a patent to measure blood pressure with the Apple Watch.

What Tim Cook has his sights set on is a piece of the global healthcare market, which is expected to grow at a CAGR of 8.9% to nearly $11,908.9 billion by 2022, according to Business Wire. No surprise then that ambitious entrepreneurs from many different unrelated industries are sizing up the market; to see if their transferable skills can be applied to the fast developing health industry.

Having been through the arduous process of building a healthcare venture for the German market since mid-2019, we wanted to share with potential healthcare founders what we learned, how we overcame our top 5 challenges (see overview below), along with our top tips for budding digital health innovators. It’s important to note that every market is different in healthcare due to different systems and regulations and each country has a very different landscape.

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1. Understand the healthcare ecosystem

Difficulty rating 5/10

The healthcare market is complicated by the fact that there are many different stakeholders to deal with. With the case of the German healthcare market, in particular, we had to deal with three main stakeholder groups for our startup: Healthcare providers, insurers (payors), and patients (see picture below).

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Within this “triangle model” there are many different actors with different interests. From the start, a founder will need to get to grips with the roles, responsibilities, and relationships of different actors within the system. Just for starters, when you consider healthcare providers you have doctors (specialists vs generalists), physiologists, nurses, and out-patient vs in-patient to name just a few.

Our approach was to first talk to as many medical professionals as possible along our defined patient journey to get a feel for how things work (journey steps, involved parties, pain points, current solutions etc.).

After conducting 100+ interviews (with primary care physicians, physiotherapists, nurses, in-patient and out-patient specialists of different seniority levels and institutions etc.) we gained a good understanding of the moving parts in this ecosystem.

We then turned our attention to patients. Of course, no patient is the same, so we needed to go beyond segmentation via indication, demographics/epidemiology because service-users can’t simply be placed in a box. A patient with cardiovascular disease is not just patient X with cardiovascular disease, they have a socio-economic status and a personality type that makes them potentially very different from another patient with the same condition.

Indeed, in a recent publication in the Journal of the Royal Society of Medicine it was reported that “70% of health outcomes are determined by social factors that remain mostly unaddressed in healthcare systems predicated on the biomedical model.”

Furthermore, some patients will only listen to their doctor, and others avoid doctors like the plague. A person’s basic attitude towards health and medicine will impact every other behaviour they exhibit.

In addition, it is extremely important to note that health information/ data is very sensitive, particularly here in Germany (discussed later). This is compounded by the fact that many patients will be in pain when you speak to them, so you need to show empathy and understand their current state of mind. Trust is of the utmost importance when it comes to health. If they don’t trust you they won’t engage with you.

Just as with business networking there is no way around meeting patients in person. You will have a good chance to meet many of them at information events organised by clinics, hospitals and educational institutions. Same as with business networking, in COVID-19 times these events might also happen virtually on Facebook and other channels, so don’t forget to watch out for those, too.

Another “growth hack” we used was to organize information events by ourselves. We provided a mix of an education session held by our inhouse doctor followed by explorative interviews or product testing with our product team.

The third side of the triangle is the payor (insurance companies). The challenge here was to understand the payment and incentive mechanisms between provider and payor as well as the general interests of insurance companies.

For example, doctors need to stick to disease coding (ICD-10). The remuneration depends on the coding and will be negotiated yearly between statutory health insurance and the Association of Statutory Health Insurance Physicians. Consequently, the behaviour of healthcare providers is shaped by the incentive schemes that are often defined by the payors.

It is a complex system that by itself could fill at least an entire article. But understanding the incentive schemes is critical if you are planning on monetising your services through payors. In many ways, the system is counterintuitive, yet it shapes market behaviour and leads to unexpected disincentives. In our case, we were lucky to leverage our experience from former co-creations with insurance companies, as well as from the co-creation partner of our venture directly.

Our advice: Invest time in extensive interviews and events with patients, providers and insurance companies as it will help you to ensure you understand everything about the market and what potential interests you have to cover on your path to market.

2. Develop the product

Difficulty rating 6/10

Building an app requires a cross-disciplinary approach from UI/UX to data science and you will need a proven team or at least experienced freelancers. Like any product development process, iterations are essential in this case with a medical professional: until the device is bulletproof. We are lucky enough to have a team of qualified physicians at FoundersLane so we weren’t reliant on 3rd parties for this step.

Our advice: You need to understand not only the patient journey but also the journey of the provider. This will help you to see clearly where you can add value at each step, which will come in handy when communicating the USP to stakeholders later on.

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Photo by Bonnval Sebastien on Unsplash

As with all product development cycles, you will be faced with trade-offs when it comes to product desirability. For example, while healthcare providers might want as much health data from their patients as possible — for better decision making — the patient’s desirability, as a result, decreases, if you attempt to capture too much (sensitive) information.

In our case, we needed a lot of data from patients to provide more value to providers. Thus, what we did was we added incentives and the right value proposition for patients to get on board and share their private data from the start.

Our advice: Users need to see, firsthand, the value an app can have before they will participate. This can be achieved by understanding the pain points users have and serving them with a customer-centric offer. Extensive user research (i.e. through interviews) is a necessity at this stage.

In addition, you will be confronted with many technical product development questions in healthcare. As an example, when developing products and services for medics (e.g. in hospitals) you cannot ignore their current IT solutions. Once you factor in legacy IT infrastructure things start getting complicated. Most healthcare providers have their own hospital information system (HIS) and restrict access from the outside.

Our advice: Think carefully if you really need to connect to these systems, since upfront costs are high and the process can be never-ending (communication loops with the IT security department etc.). On the other hand, very few providers will want to run two systems (i.e. your solution and their legacy solution) at the same time from a usability perspective. Make sure to evaluate your options and take into account feasibility.

3. Navigate the regulatory labyrinth

Difficulty rating 8/10

Having previously touched on data protection and security, we will dive deeper into the next challenge: the regulatory labyrinth in healthcare. Note: We will focus only on a few points to give readers a general impression of the complexity of this challenge.

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Photo by Susan Yin on Unsplash

If you have already started researching medical devices including apps you will have come across the European MDD (Medical Device Directive) and MDR (Medical Device Regulation) as well as DIGA (Digital health application — not covered in this article but for those who are interested in entering the German Health market feel free to contact us).

Why does MDR matter for ehealth startups? In brief, every digital healthcare app with a medical purpose counts as a medical device and has to comply with this regulation. The first challenge is to understand which product class your product is in or will be in and then comply with the associated product class requirements. Next, you have to demonstrate clinical effectiveness; i.e show evidence that your solution improves care delivery. This leads to the challenge of collecting the right data to provide evidence for the medical effectiveness of your device. This is required to secure certification by the relevant authorities like BfArM in Germany.

Zooming into another regulatory challenge, data protection and data security regulations (DSGVO/GDPR) pose a significant hurdle for how to deal with data correctly. But for that reason also presents a key differentiator for operators that can master it. Health data is very sensitive, hence it necessitates care and attention through proper compliance documentation (e.g. DPIA) and security measures like encryption, pseudonymization or anonymization. Any leak or abuse could result in the closure of your business due to significant fines, reputational damage and loss of business partners.

It is important to note that no clinic will let you connect to their hospital information system (HIS) if you have not mastered the aforementioned challenges.

Our advice: Start from day one to get an overview of the regulatory challenges ahead and create a rough roadmap. We recommend planning certification processes early on (e.g. ISO 27001 and EN ISO 13485:2016).

As an example, our tech team started working on the backend for data security before we even knew what our product was going to look like exactly. Second, we invested a lot of time in educating the whole team in regulatory matters since it was a team effort. If you don’t think you can’t do it alone, you can always get help from experts who provide workshops on the topic. The margin for error is too small here to make an avoidable mistake. If you get it wrong: it’s game over in most cases.

There are too many startups with great ideas who failed at this pivotal step. We can’t emphasise enough how important this is.

4. Acquire medical knowledge

Difficulty rating 8/10

Acquiring medical knowledge gets one of our highest difficulty ratings because you can’t just read PubMed a few times and expect to have enough medical knowledge to create a medical device/app. In this case, the door is effectively closed for people from non-medical backgrounds.

There is a reason a medical degree takes 6+ years in Germany; there is no crash course that you can take.

When it comes to talking to medical professionals you need to talk the talk and use appropriate vocabulary and turn of phrase to avoid any misunderstanding and gain acceptance from the community.

Our advice: there is no question about it — you need medical professionals; ideally on your team, but as a second-best as advisors/partners.

As you go through the product development process you will have many questions that only an expert can answer and at some point, you will exhaust cold and warm leads that you can interview and ask for help. With a medic on your team, you can constantly challenge the status quo, as well as critically assess any feature from a medical perspective. Given the extent of iterations and testing during the product development stage, you cannot underestimate the value of having a qualified medical professional on your team.

Furthermore, this medical support is crucial for the aforementioned need to demonstrate clinical effectiveness. For demonstrating evidence you might need to run studies or similar — preferably in cooperation with medical experts who have some previous experience in this field.

5. Build a partner network

Difficulty rating: 9/10

Coming to the most challenging part from our point of view, we want to highlight that the success of your startup depends on getting the right partner(s) involved. Partnering does not only relate to pure medical subject matter expertise but also on other levels, like door openers for partner clinics or other institutions as well as partners for other topics like legal, that can constantly check and challenge the legal side of your product.

Building a sophisticated app that users like medical practitioners take seriously, requires a lot of exposure. By working closely with partners you can fast-track the general acceptance of your app/device.

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Photo by airfocus on Unsplash

Moreover, in a multi-sided market, you will need to build features for patients and providers (patient to doctor & doctor to doctor, even patient to patient — in the future). Thus, you will need access to each of these unique users to repeatedly test and iterate your product and value proposition.

With a strong network you can:

  • Review content for 100% accuracy/usefulness
  • Test out features and value proposition with limitless iterations
  • Run first pilots/experiments in a friendly environment
  • Benefit from referrals to your network

Our advice: Involve various experts and sparring partners. Start early and develop partnerships so later you might be referred to high ranking health practitioners, acting as a multiplier for your startup vision. For this, you will need a strong value proposition and persuasive leadership, as from our experience these people are extremely hard to reach and then need to be convinced to participate.

As for our medical network, the wide reach of our FoundersLane Health Vertical was very useful to get a head start especially at the beginning. This helped us to build a qualified network of healthcare practitioners early on to build a product that could prevail in a very complex and demanding market.

In a nutshell, relationships are key in healthcare and will decide the success or failure of your venture.

Key takeaways from our reflection

Inbrief, what do you need to do to create a successful medical app/device and launch a venture? There is no one answer to that question because it depends on your ambition, vision, the segment you are targeting etc. For this venture, we have a big vision and hence require a huge team of medics, product experts, data scientists and a large tech team.

You live and die by your team.

Fundamentally, project leads with healthcare experience will be key to building a network and convincing big players in clinics or insurance companies to participate and partner, as well as steer a complex combination of personalities within your team.

In sum, choosing healthcare for building a new startup is probably one of the most difficult fields to pick. However, once you have mastered those challenges you are on a good way to follow Tim Cook and Apple on their path to making impactful healthcare innovation.

The authors work in the health vertical at FoundersLane, a corporate venture builder focused on impact-oriented ventures that operate mostly in highly regulated industries.

Acknowledgement to our CMO at FoundersLane, Dr. med. Sven Jungmann who provided great guidance within this venture development process. He is a medical doctor with additional degrees in public health (LSHTM), public policy (Oxford), and health entrepreneurship (Cambridge). He brings extensive experience in the European healthcare ecosystem, advises well-funded digital health start-ups, and gives talks at healthcare conferences, the medical community, and policy researchers.

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