The Interaction Between Startups and Corporations in Digital Health
The Interaction Between Startups and Corporations in Digital Health
How can a rabbit dance with an elephant?
The Interaction Between Startups and Corporations in Digital Health
Digital health is at the intersection of technology and healthcare, offering immense opportunities for innovation, yet many times innovating means making incumbents change the way they operate. As startups disrupt traditional models and corporate giants seek to seize the opportunity new technologies possess, the interaction between the two is crucial. This interplay can lead to powerful collaborations that create value on both ends, but also presents challenges, particularly in balancing the entrepreneurial agility of startups with the (sometime) bureaucratic structures of larger corporations.
In different phrasing, this dance between two very distinct creatures is one of the cornerstones of the tech world. Usually new companies will need to crack how to sell into large organizations and the latter would need to play along to keep up in the race (namely – not being Kodak).
Understanding this dynamic is key for both but perhaps even more so for startups as their survival and success in the health tech space usually depends on it. The following sections will explore key considerations for startups looking to engage with industry giants such as:
Defining the Ideal Customer Profile (ICP)
The role of pilot projects (or perhaps when to avoid them)
Cultural challenges and how to overcome them
Strategies to build strong relationships
The importance of driving competition between potential buyers
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This post is based on an event we recently had on this topic as part of our quarterly sessions for entrepreneurs – Digital Health Dougri (means “being extremely candid”).
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Defining Your Ideal Customer Profile (ICP)
There are many three letter acronyms in the tech world. Ideal Customer Profile (ICP) is by far one of the most important ones. It helps narrow down the target market (‘Beach head’) and ensures that the limited resources early-stage companies have are deployed effectively.
Startups must consider several factors when defining their ICP:
Whose pain you’re targeting: Start by assessing the market demand. Does your product address a pain point or unmet need? How many organizations share this problem (with a much more granular way than ‘provider’ or health plans’ - type, budget size, structure, etc.) ? Is it the same budget owner in these different organizations? Also, an ICP should reflect not just the size of the market but also the urgency of the problem being solved.
Industry Maturity: Is the healthcare provider, insurer, or other player ready to adopt innovative solutions to address this problem? Many corporations, especially in healthcare, can be resistant to change and there are different reasons for this resistance (beyond the general conservatism of the health industry). Targeting those open to or already in a state of transformation can help avoid or at least reduce friction.
Buyer Persona: Healthcare is complex, with different decision-makers across departments. Is your ICP a small, agile clinic or a large, multi-layered hospital network? Defining who the decision-makers are within those organizations—whether it’s the IT department, medical staff, or the procurement team—is crucial. Furthermore, there are different buyers – the budget owner (the one that can sign your check) and the problem owner (the one that need to solve the problem) are the main ones. If you are lucky it is the same person, but many times it isn’t.
Startups that take the time to crystalize their ICP—factoring in specific market challenges, the decision-making process, and potential buyer personas—are in a better position to create a repeatable sales motion.
Is a Pilot the Right Step for Your Startup?
After you have identified your ICP comes the next step of getting in – i.e. start selling your goods. Pilot projects are often seen as a gateway for startups to engage with large corporations, but they aren't always the right move, enter – ‘death by a pilot’. Pilots are a double-edged sword: they can demonstrate value and build credibility, but they can also drain resources without guaranteed returns.
Understand Your Why: There are different reasons and potential outcomes for pilots. Crystallizing the goal is an important exercise before embarking on this journey. Is it to have a lighthouse logo that will drive others (customers, investors, employees) to work with the company? Is it about potential expansion? Is it about creating objective evidence for the value (ROI) of the product? Each one of these should lead to a different structure and interaction.
KPIs: A pilot should be approached if there’s a clear understanding of how success will be measured – i.e. improvement in certain clinical and business parameters. Too often, startups rush into pilots with vague goals and thus after these are concluded it is hard to leverage them into wider collaborations. Try to ask whether the pilot will offer meaningful insights and what outcomes could pave the way for long-term engagement.
Resource Commitment: Pilots demand time, money, and personnel. On both ends. Even a free (unpaid) pilot requires time and attention (IT as an example) from the larger organization as well. If a pilot is lengthy or resource-intensive, consider whether your startup is financially and operationally equipped to see it through without jeopardizing your broader strategy.
Cultural Differences Between Startups and Corporations
One of the challenges startups face when working with corporations is managing cultural differences. Not only there is a difference in pace—startups often move rapidly, while corporations are slower and more methodical—but there’s also a difference in risk tolerance. Startups thrive on innovation and quick iterations, while corporations are more cautious, valuing stability and compliance with strict regulatory guidelines.
Startup Agility vs. Corporate Structure: The structural gap can be stark. Startups need to adapt to long decision cycles and sometimes rigid procurement processes in corporate settings. Understanding these differences and managing expectations early can prevent frustration on both sides.
National Cultural Differences: Global health tech deals also involve navigating national cultural differences. For instance, a startup based in Silicon Valley might be more aggressive in its approach, whereas a European healthcare organization may favor a more methodical and relationship-driven process. Understanding and adapting to these nuances (for example, by recruiting talent that worked with these organizations before) is essential for building strong, lasting partnerships.
Should Industry Giants Be Your Primary Focus?
Many digital health startups dream of landing the Mayo Clinic or Kaiser Permanente of the world, but this shouldn’t always be the top priority. This also has a direct link to understanding the ICP. Usually these ‘Ivy league’ orgs are very unique in their structure and capabilities and thus a product that solves a problem for them won’t necessarily be suitable for others. Additionally, large corporations can be slow-moving and laden with layers of bureaucracy, making decision-making painfully slow. On the other hand, they offer access to massive markets and credibility that smaller organizations can't provide and sometimes these might make the effort worth it.
Consider balancing your approach:
Mass Market vs. Ivy League: Startups must decide whether to pursue elite, prestigious buyers or a broader mass market. Selling to elite institutions may bolster credibility, but smaller, more agile players can provide faster traction and feedback. Sometimes, the power of having an early adopter from the mass market can lead to quicker iterations and product improvements than scoring a pilot with _____ (fill in with your favorite AMC).
Focus on Speed: While larger corporations offer prestige, smaller players can move faster and often serve as a stepping stone to larger deals. They’re more likely to experiment with new technologies and require less rigorous approval processes.
Building Strong Relationships with Potential Buyers
One of the keys to successful startup-corporate interactions in digital health is the ability to build strong relationships early on.
Creating Trust Early: Whether through pilots or initial pitches, building trust is critical. Investors and buyers in the healthcare space are conservative, and decisions are often made based on relationships. Usually, the decision maker is taking a risk (“no IT manager was fired for buying IBM/Epic”) and therefore startups should aim to establish credibility by demonstrating technical reliability, understanding the challenges their buyer persona needs to solve in order to start working with them, and maintain clear communication. In other words – make people feel they should take this risk.
Reduce The Complexity For Your Buyer to Work With You: IT integration is a great example and usually a very painful point. How can you make it less painful? Perhaps offering a lighter version that doesn’t require integration with the EMR? Or working with a third party that is already integrated? Or building a better UX that shortens onboarding time?
Long-term Nurturing: Relationships with potential buyers can take months, or even years, to materialize. Planting seeds can lead to surprising outcomes after a long time so constantly work on expending your network and being top of mind of relevant buyers. Continually providing value, whether through updates on product advancements, case studies, or thought leadership, can help keep potential buyers engaged and interested over time.
Identifying and Working with a Champion
In corporate sales, finding a champion within your target customer can be a game-changer. This person advocates for your solution internally, helping navigate the bureaucracy and aligning key decision-makers.
Identifying the Champion: A champion should not only be enthusiastic about your product but also have enough influence within the organization to push for its adoption. They should understand the corporate landscape and help you overcome internal barriers.
Supporting the Champion: Once identified, nurture this relationship. Equip your champion with the materials and support they need to sell your solution internally. Keep them informed of progress, successes, and industry developments that could strengthen their case.
The Power of Competition and FOMO
Last but certainly not least, creating competition among buyers and leveraging Fear of Missing Out (FOMO) is very powerful when done right. Humen beings are competitive by nature but corporates (and CEOs) are usually taking it to the extreme. Startups can often play this to their advantage by demonstrating exclusivity, scarcity, or by showing that competitors are already onboard.
Creating FOMO: Highlighting early traction, partnerships with other well-known players, or even scarcity can help build urgency. Industry giants don’t want to be left behind, especially if they see competitors embracing innovation. When a company sees others adopting cutting-edge solutions, they may feel pressured to move quickly or risk being left behind.
Strategic Introductions: Sometimes, a well-timed introduction to another potential buyer or a reference to a rival can accelerate decision-making. Startups should be strategic about when and how they drop such hints, ensuring it’s done tactfully.
Companies Are Bought, Not Sold: There is a lot more that can be discussed on the M&A side of startup-corporate interactions, but just to complete the point re FOMO, knowing a competitor might possess a new game changer capability can lead to a surprising acquisition offer.
Conclusion
The interaction between startups and corporate giants in the digital health space is complex, requiring careful planning, relationship-building, and strategic navigation. Startups must be clear on their ICP, make informed decisions about pilots, and strike a balance between pursuing industry giants and more agile partners. Building trust early, creating competition among buyers, and respecting cultural differences can significantly enhance the chances of success.
And above all, this is about people. Nurturing relationships and working closely with internal champions are instrumental for making meaningful inroads into the digital health space.
Good luck hunting!
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