Six principles for medical entrepreneurs.
In 2014, a physician and her husband founded the startup Heal, to provide house-calls as an alternative to lengthy ED visits. By October 2016, Heal closed a second round of financing worth $27 million, having rapidly grown the house-call market on the West Coast. This is one of dozens of physician-founded startup companies that are disrupting the status quo and changing the healthcare landscape. You, too can be one of these pioneers, but know that founding a successful startup is both easier and harder than you think.
For a variety of reasons, many physicians decide to start a business. Some want to fulfill a long-held dream to create the perfect device, while others see a problem they think they can solve. Physicians see opportunities every day for new products, improved services, and other business solutions. The unfortunate reality is that while some startup businesses may succeed, statistically most will fail, for a wide variety of reasons. A common fallacy is that success as a physician guarantees success in business, and this misconception contributes to most physician-led business failures. So, if you have a great new idea, there are several things you should consider.
3 Ways to Start Your Business
Create a company — Launching a company de-novo is often the most time and capital intensive option, but the new start may give you maximum control operationally. However, if you take in outside money to launch the company, then you may have operational or strategic limitations from venture firms or angel investors that are backing you.
Introduce a new product to an existing company — If your expertise is narrow or you have a single product or service, then consider joining an existing company, where you can focus on creating the specific offering and not on building the infrastructure required to operate a company. You may give up some to most control of your product to the company you are working with, but this approach allows you to use existing R&D and sales infrastructure instead of having to develop them yourself.
Buy a company to run or repurpose — If an existing company does what you love, an option is buying and running it yourself. You can also apply your expertise to take the company in a new direction. This option is initially more expensive, but it allows you to immediately use sales channels, brand recognition, and R&D infrastructure, all of which otherwise require years to develop.
Assemble Your Team
This is one of the most important aspects of starting any business. Getting the right people working with you is as important as keeping the wrong ones from doing so. Your friends are often well intentioned and comfortable to spend time with, but each position on your team must be merit and capability based. Your best additions and long-term contributors will likely be outside your personal circle.
Equity vs. Pay
A ‘liquidity event’ is the dream of most entrepreneurs, which results in an IPO or a large buyout of your company. These are very rare, but the potential motivates many startups. Founders and initial employees will often work for little or no pay in lieu of options or stock awards. This can be a source of ‘sweat equity,’ but it often comes at a hidden cost, as founding members make differing contributions over time but have similar expectations for equity payouts. This strife can destroy all your hard work building your company. Using early revenue or invested capital to pay employees cash while giving targeted equity-based compensation awards may help you avoid future conflict.
Self-funding represents the most risk to you, but also yields the most control. Boot-strapping is where early revenue is used to support and sustain expenses while still allowing for incremental growth. This creates a slower growth and product development rate, but it reduces the need for outside investment to pay monthly expenses. Small business loans, retirement funds, or free cash are sources of self-funding.
Institutional Investment may come from venture capital funds or angel investors. Both will trade their cash for ownership positions in your company. Because you are a risky investment, they demand rather large stakes of your company (remember that risk=return in business, and investors demand more return for more risk). In broad strokes, funders look at over a dozen risk categories but product, market and team are areas they focus on. They will accept risk with one, but not two or three components.
The advantage for physician entrepreneurs is that these groups are termed “smart money” in that they have worked with dozens of successful startups, and will provide timely advice on how to avoid common pitfalls. Once on board, they want you to win as much as you do.
Listen to Your Customers
The market is flooded with solutions looking for a problem. Being focused and in touch with your customer is key to success. A common pitfall is the ”missionary sell” approach, where your product solves a problem that the customer doesn’t know they have yet. Apple pulled this off, but don’t overestimate your ability to change opinion. Customers are, in general, slow to change habits, and it is surprisingly hard to break into, let alone create, a new market.
Where you gather feedback is also important. Friends will be supportive and mostly give positive feedback, but they are not parting with their money. We rely on vital signs for patient care, so by extension, customer feedback and knowing your market intimately represent your business’s vital signs.
Your wonderful idea may not initially solve the market’s problems. However, if you listen, your customers will let you know when they want something different. Pay attention to these preference shifts, as they will forecast customers choosing an alternative over you. The product development process is more art than science, and expert advice is strongly recommended. Remember that pride has no place in your business, as it is their money you are trying to earn.
Accepting that business can be more complicated than patient care is the first step towards a successful physician-led endeavor. Customers ultimately decide how to spend their money, and their decision-making differs greatly from the limited healthcare choices we present daily. Having a strong and diverse team, a solid understanding of your market, your customer, and all things that contribute to production and delivery of your product may not guarantee success, but it creates a strong foundation on which to launch from.