Startups

5 healthcare startup pitches that got it wrong (and why)

Steve Barsh - Web Casual Headshot - September 2014Every startup is built on a number of assumptions and undoubtedly some of them will be incorrect. At Dreamit, I’m always stressing the importance of accurately identifying those assumptions and de-risking them as early in the process as possible.

A simple example I like to use involves the e-commerce shoe company Zappos. One of the key assumptions Zappos was built on is the idea that people are willing to buy shoes online. From our 2015 perspective that sounds glaringly obvious but in 1999 that wasn’t the case. The founders tested the market early on and determined there was a demand for the service. It would’ve been a waste of energy and resources to develop the idea if that base assumption had turned out to be wrong.

Too often I see startups pursuing an idea without understanding their most critical assumptions about the market, their competition or the impact of the problem they’re attempting to solve. Entrepreneurs need to be willing to accept advice and react accordingly. This can be particularly challenging among MedTech startups where so many of the participants are accomplished leaders in their field. Intelligent, successful individuals need to be willing to take missteps, recognize them as such, and pivot as necessary.

Below are five examples of startup mistakes I’ve witnessed and why they got it wrong.

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1. Understand the real market that represents actual users.

THE PITCH: A phone-based app for gynecologists

“Do you believe there are over 55 million PAP smears conducted every year?” is a promising start to a pitch. Fifty-five million patients routinely receiving a procedure that’s covered by insurance. At $5 per use of the app, the total addressable market  should be $275 million a year. So this app could be used on all of those patients? I asked. Well no, only on patients whose PAP smears come back with abnormal results, which happens about 6% of the time. Just like that the market had shrunk to 3.5 million patients and $17.5 million dollars. However, upon further investigation it turned out only half of those patients needed the follow-up procedure the app was meant to replace,  and only about a million actually scheduled them. In no time the potential market had shrunk from $275 million to about $5 million, and a marketplace of that size is not appealing to venture capitalists regardless of the technology’s capabilities.

2. Understand your target customer. Remember that the person who pays for your solution is not always the person who benefits.

THE PITCH: A device for a cosmetic correction applied to infants

As the physician detailed how he would bring his product to market, it was clear he was an expert in his field.  He thought a great deal about how to better address a common cosmetic defect in infants and was well on his way to a market-ready prototype.  But then we started to talk about how the device would be delivered – via busy pediatricians’ offices – and it became clear that he had not taken the time to speak with this critical part of the delivery chain. The physician was convinced that there was a demand for this device and that pediatricians would buy the devices and then be willing to offer a service  to parents at a cost of $2000, as it was not covered by insurance.  In this model the physicians would be acting in effect as the sales force.  A few quick discussions revealed an overwhelming opposition to doing so.

3. Know the problem so that you can solve it. Is the pain point you are trying to solve painful enough to demand a change?

THE PITCH: A phone-based app for monitoring a patient’s’ skin condition

This startup had been developing their app for quite some time but had yet to speak with the marketplace. They were convinced there was a need for the app and didn’t want to speak with customers until they had built a working model. I pressed the issue and we eventually spoke with a few doctors. What we learned was sobering: most patients with the condition addressed either self-medicated or saw a specialist on their own. When asked how many times they might use the app the answer was once or twice a week. At a price of about $1 dollar per session the market was hardly worth pursuing.

4. Know the extent of your competitive set.

THE PITCH: A device for detecting an emergency issue in children

One doctor wanted to address an emergency issue for children that is often difficult to detect.  The symptoms that accompany it can be un-alarming, such as a mild fever. This high-sensitivity detector would detect the issue without having to X-ray the child. However, because of the vagueness of the symptoms every person would need to be scanned as part of their regular checkup. This would be a major change to the accustomed workflow.

This startup was months into building a rudimentary prototype before they spoke with doctors. One of the first physicians we spoke with said they never encountered this issue in over 20 years of practice. Other doctors had similar claims.  Also they said if they were really concerned they would just send the person for an X-ray. This meant that the existing competition, the X-ray, was something readily available and already covered by insurance.

5. Distinguish yourself and your product.

THE PITCH: 3D Imagery Software for Orthopedic Surgeons

The software would be used by surgeons to plan and practice their surgeries in advance. This would certainly make for a useful tool, so why hasn’t anyone come up with it yet? The problem is they have. With a bit of searching it was easy to find similar products already on the market. Even with the unique pricing strategy this startup had in mind, their product was not differentiated enough from the competition.

Mistakes like these are common in the startup and venture capital world; therefore it’s important that we question our working assumptions and adapt as necessary. The ability to identify incorrect assumptions allows the entrepreneur to benefit from and move on from those mistakes.

Photo: Flickr user Parker Knight

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