B2B model rules in digital health
- B2B business models prevail in the digital health space, a new Rock Health report shows. A whopping 85% of digital health startups identified as enterprise-focused — 53% as business to business and 32% as business to business to consumer.
- While roughly a third (34%) of startups began as B2C, 61% of those switched to B2B or B2B2C. Just 14% currently market directly to consumers.
- Of companies that conducted pilots, 70% converted to paying customers. That’s not bad considering that 39% of startups sought out customers for a pilot before they had a viable product ready for testing.
Rock Health surveyed 85 digital health founders to see what accounts for early success. Of those, 46% said they conducted extensive or "a lot of" research on prospective customers before approaching them about their product.
Asked how long it took to get from a verbal agreement to an active user in a pilot, 69% of respondents said six months or less, while 20% said seven months to one year. The length of time varies depending on the product and customer segment, Rock Health notes.
Communication with potential customers is also key, the report shows. [We succeed by] being really focused on communicating our progress and [if something goes wrong] what the resolution is,” Dan Wilson, CEO of Moxe, told Rock Health. “We ran two calls a week every week, even when there were only small items to discuss. And that has gone a long way towards building a strong foundation.”
Digital health has so far bucked the regulatory jitters as congressional efforts to repeal and replace the Affordable Care Act wax and wane. During the first half of 2017, Rock Health reported a record-breaking 188 deals valued at $3.5 billion. A StartUp Health analysis counted 300 digital health deals totaling $6.5 billion. The two groups track digital health a bit differently.
Fueling some of that funding are large health systems looking to diversify their revenue streams. During 2016, for example, University of Pittsburgh Medical Center, via UPMC Enterprises, was part of a $17 million investment in mental health startup Lantern Health and another $35 million in clinical decision support company medCPU, among other venture investments.
UPMC looks for “the perfect imperfect” when it comes to supporting startups — situations where the health system can add value to an entrepreneur’s proposed solution, Rasu Shrestha, chief innovation officer at UPMC, told Healthcare Dive last year.
Those sorts of partnerships are good for digital health startups, too, as they face the challenge of scaling up in a provider market. According to a 2016 American Medical Association survey, 85% of physicians said digital tools are beneficial to patient care, yet adoption has lagged behind enthusiasm.
To gain credibility and broad adoption, companies need to know the clinical guidelines affecting their product and publish solid outcomes, says Sean Duffy, co-founder and CEO of Omada Health. “You have to figure out what exactly you’re shooting for so that you’re hitting it,” he told Healthcare Dive in July. “There are really no shortcuts around that.”