By: Michael Esquivel
Bob Kocher M.D. of Venrock has three words of advice for aspiring digital health entrepreneurs and investors: “Think Big Enough.” His point is that healthcare in America is so expensive and so inefficient that if you can’t create something that saves a lot of money and/or dramatically improves outcomes, then you should reconsider whether it’s worth pursuing.
He shared this advice at a program this past summer for doctors and other health professionals interested in becoming strategic angel investors that Fenwick hosted in partnership with Rock Health. He outlined five key questions he believes every digital health company should be prepared to answer when looking for investment capital.
- Is the unmet need big enough? There are so many significant problems in our healthcare system that new companies should be looking to create what Bob calls “shockingly large benefits,” and not incremental improvements.
- Can you deliver meaningful return on investment (ROI) within a year? Bob noted that there is over $750 billion of inefficiency in our healthcare system every year, so entrepreneurs should focus on ideas and technologies that can capture some of that and not add additional cost.
- Whose money are you saving? The downside to eliminating inefficiencies in the existing system is that there are incumbent organizations currently profiting because of those inefficiencies. It is safe to assume that the incumbents will respond strongly to any disruptive technology that threatens their business model(s). Assess how hard the incumbent players are willing to fight. As Bob put it, “know what incumbents could do to stop you. After all there is a reason why the idea has not happened yet.”
- What are the network effects? Each new user should make the digital health startup smarter about the next user while helping to create barriers to entry that will limit potential new competitors. Entrepreneurs should be realistic about how many users they will need to establish that network effect.
- How are you going to reach the market? Despite the high profile of some large players, the healthcare market is dominated by small and medium-sized institutions. Understanding the digital health startups go-to-market strategy, as well as its likelihood of success, is critical. No one wants to spend $100 million building a sales force for a product with a $100 price point.