Even if they started out with a consumer-facing product, digital health startups increasingly find themselves selling to health systems, payers and pharmaceutical companies.
That business-to-business model is rife with its own pitfalls that require greater patience, a more acute understanding of the industry’s needs and a willingness to engage in pilot projects, even before a product is off the ground.
Those are some of the key takeaways from a report released by Rock Health on Monday that includes insights drawn from a survey of digital health startups as well as established industry representatives like Blue Shield of California, Sutter Health and Takeda.
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Eight-five percent of digital health startups said they are engaged in some form of B2B business models, including a combination of B2B and consumer-facing models. Although 34% of startups began selling to consumers, more than 60% of those companies said they switched to a B2B model.
34% of #digitalhealth startups began as B2C. 61% of those companies ultimately pivoted to B2B or B2B2C. https://t.co/ggiQERypZd pic.twitter.com/iDgMh4vCx7
— Rock Health (@Rock_Health) August 28, 2017
Many of those same companies relied on pilots to engage with hospitals, payers and drug makers, with 70% indicating they converted a pilot into a sale. The downfall: the pace of pilot projects varies from less than three months to more than a year.
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But the businesses purchasing those products also expressed a desire to find a product that will either solve their pain points quickly or form a partnership with a company that is still putting together the final pieces of a digital solution. Industry experts have said startups need to utilize physician input to tailor their products to the end user, and tailoring new solutions appears to be a sticking point for some.
“Startups get gung-ho about a payer partner, yet they’re pitching to so many other organizations instead of focusing on a few and hitting it out of the park,” Laika Kayani, Director of Health Innovation Product Strategy at Blue Shield of California told Rock Health. “Startups can better focus on deeper engagements with potential partners than spreading themselves thin.”
Healthcare providers and payers have shown a distinct interest in joining forces with digital health companies through incubators and venture capital divisions. Earlier this month, Hackensack Meridian Health sunk $25 million into an incubator created in the image of the reality TV show “Shark Tank.”
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For entrepreneurs, there is still plenty of frustration with entering a regulated industry that can be slow to embrace new technology. Aaron Martin, Providence Health’s chief digital officer, recently told CNBC that startups often encounter a “pit of despair when people realize that this stuff is really hard and complicated.”
Those regulatory complications could ease with the FDA’s new approach to digital health that includes a precertification pilot program scheduled to launch in September.