7 Reasons to Never Start a Health Tech Company. And One Big Reason Why You Should!

Digital Health is hot. Investments in digital health companies are pacing to break the 2020 record (Also: Virta Health which I co-founded recently closed its Series E). There are deals, mega-deals, mergers and SPACs. All this funding is driving growing interest in the still nascent world of health tech.

Entrepreneurs considering this space are definitely asking lots of questions. At the recent Rock Health CEO summit, I was asked my views on the ups and downs of building a healthcare technology company. These questions resurfaced all the past pains (PTSD?) and reasons why entrepreneurs may want to reconsider before starting the journey of building a health tech company — especially one with a Business-to-Business-to-Consumer (B2B2C) go-to-market model.

Welcome to U.S. health care — we are so GLAD you’re here!

Are you thinking of starting a health tech company? In an attempt to save you a decade of hardship, here are 7 reasons to reconsider.

1. Need to raise $100M+ in capital: You don’t necessarily have to do this, but it is difficult to succeed without a substantial pile of capital. In contrast, I was a co-founder of Trulia, which we took public on NYSE in 2012 after raising only $33 Million of equity capital from founding to IPO in about 8 years. At Virta Health, we have raised more than 10X of that ($330M+) of equity capital in our first five or so years. While most of the money is still in the bank, it seems about right. Even if you’re not starting a new biotech/pharma company, the reason it takes so much money is (i) you likely want to (or should) run a multi-year clinical trial before earning any revenue, (ii) the healthcare B2B sales cycles are counted in years, not in months, before you have any customers, and (iii) at least initially you are unlikely to get paid much up-front, which isn’t that different from many SaaS type of businesses. So, get ready for some fun fundraising to get to scale!
2. Long B2B sales cycles: As mentioned above, the health care sales cycles can be long. While you might get lucky in under six months with your first “pilot” customer, typically selling to self-insured employers can take 6 to 24 months, 1 to 3 years with health plans and don’t even ask about government timelines. Try matching those to a venture-funded company that is expected to deliver results weekly or monthly and typically have 12–18 month cycles between fundraising events. It is possible to accelerate these timelines, but it is unlikely in the beginning. This also means that if you’re wrong with your approach or Go-To-Market (GTM) strategy, it can waste you a year or three. Once you get to scale, of course, then it can and will be ton of fun. Buckle up for the ride!
3. Conflicting ecosystem incentives: Everybody in health care wants to improve care outcomes and lower costs, right? No. Get ready for a maze of incentives between health plans, employers, PBMs, their consultants, fee-for-service providers, value-based providers and the government. It is safe to assume that if you’re making money, somebody else is making less of it. And that somebody else is likely a large incumbent who does not want you to succeed. You have to find your allies and force yourself into the spiderweb, but it won’t be easy. Again, once you establish your own strings in the web, you’re in the game. Just don’t get eaten by the spider in the early days.
4. Mixing oil and water: We’ve built a true full-stack company in health care at Virta Health, because it is the only way we can do what we wanted to do (provider-led treatment to reverse type 2 diabetes) and this approach gives us many super powers (e.g. tap into the deep health care spend and potential savings, affect patient care flows and own all the longitudinal patient data with our own patients). However, bringing together a team of software engineers, designers, data scientists, medical doctors, scientists, caregivers and all other necessary functions is not trivial. For one, “fast-paced” might be daily changes for one group of people, while for others it is one change a year. Same goes for risk-tolerance, willingness to change and countless other things. Molding these various backgrounds together and becoming focused on the single mission (or “One Team, One Big Dream” as we say at Virta) is a fun puzzle and also the most rewarding aspect of building a new kind of company in health care. Build up patience and empathy as you start!
5. Time and clinical trials: Time is relative, but sadly nobody has figured out how to accelerate it on earth or go back in time. We just finished collecting our 5 year longitudinal data for our type 2 diabetes reversal prospective clinical trial. That’s a long time and no matter how hard we worked, there wasn’t a way to accelerate it — we just had to wait for 5 years. Five! Similarly, it is impossible to “iterate” a clinical trial once it’s started. New creative ideas are too late by the time the study design is locked down and the first patient enrolled in the trial. So think long and hard about what you are going to get married to, for a year, five or ten when starting a prospective clinical trial. Once you have the longitudinal data, however, you have something nobody else can replicate in a quarter.
6. Meritocracy vs. relationships: In my personal experience, despite fantastic regulatory oversight and focus on science, the U.S. healthcare is not a pure meritocracy — far from it. Relationships, trust and all other “soft” things matter. The best data or product doesn’t always win. We’ve been fortunate to have an amazing group of advisors, board members, and investors with deep health care expertise and relationships to lean on, without which we wouldn’t have made even half the progress we have to date. This can be frustrating to those who are used to being able to fast-track in a purely meritocratic environment. Get ready for a different game and build your teams accordingly.
7. One country, a thousand pockets: While we spend nearly $4 Trillion in health care costs in the U.S., there is no $4 Trillion budget to squeeze into. Instead, there are 50 states, thousands of employers, hundreds of health plans, various insurance business lines from medicare to medicaid to commercial to ASO. There are also fee-for-service providers, value-based providers and a myriad number of middlemen in each value chain. Don’t forget the different regulations by state, of course. Whatever you offer to your customers, commercialization gets complex very quickly, even if you fight against that with a laser focus. Get ready for a complex web of relationships and ignoring the growth company wisdom of 100% focus on every aspect of the business.

Had I known all of these things — I might call them unnecessary obstacles between a clear pain point (T2D) and its painkiller (Reverse T2D) — in 2014, I’m not sure I would have started Virta Health despite the importance of our mission to people living with T2D, to taxpayers, and the society as a whole. But now that we’ve overcome these obstacles, I feel incredibly lucky (and our team’s collective perseverance and grit helps — thank you!) that we got here and feel compelled to share my lessons with the next wave of health tech entrepreneurs looking to change the world for the better.

And what’s the single most important reason why you should start a health tech company? There are many reasons to go ahead: easy things are usually not worth your time anyway and solving hard problems is fun. But most importantly , the opportunity to save and improve lives can be the most meaningful thing an entrepreneur can do in a lifetime. And that is worth every piece of sweat and hardship along the way.

Let’s do it!