Why Does Direct-to-Consumer Healthcare Fail so Often?

Arivale becomes the latest direct to consumer healthcare company to shut its doors.  The Seattle-based startup leveraged biomarker and genomics testing to guide personalized health coaching.

Let’s look at the facts:

  • The company was in the hot genomics space
  • Arivale had a great team including a genetics pioneer Leory Hood
  • They had sufficient access to capital having raised $50 million from Maveron, Polaris Partners and ARCH Venture Partners

So why did Arivale fail? There are five key factors that contributed to the outcome.

1 – The business needed to create a “must have” rather than a “nice to have” product or service. Oscar is a successful direct to consumer health insurance model because the company innovated on the deliver of a must-have product. The Arivale product failed in part because it was a nice-to-have service.

2 –  A second component of a successful direct to consumer model is providing a clear clinical outcome that is valued by the consumer. Cosmetic surgery, laser eye surgery, and tooth whitening are examples of services purchased by consumers with discernible clinical outcomes.  The $25.3 billion cosmetic surgery market is proof that consumers will directly pay for healthcare services not covered by insurance. Arivale had an unclear link to a discernible clinical outcome.

3 – The third element of a successful business model is a product or service that generates a financial return on investment for the consumer. Toothbrushes and pedometers are examples where consumers invest in a health product that create a financial return.

Beam Dental insurance provides a 15% discount in monthly dental premiums if the consumer uses their Bluetooth connected toothbrush to monitor their brushing habits. Health insurance plans also offer discounts to those consumers that average 10K steps per day. Arivale focused on better health, but without an immediate financial advantage to doing so.

4 – The fourth component of a successful direct consumer model is to allow for industry to offset the cost of the product for the consumer. Healthgrades is an example of a company where the consumer can access physician ratings at no cost because the platform is largely funded by provider organizations. Arivale pivoted very late in its business life cycle to industry support.

5 – The fifth strategy is to leverage an advertising-based model to offset the cost of a consumer product or service. WebMD is the most-trafficked healthcare website in the country and the cost of its platform is offset primarily by advertising fees. Arivale did not have an advertising component.

At AngelMD, we test direct to consumer startups to see if they follow one of these five proven paths toward monetization. Those that don’t are almost always doomed to failure.

Arivale is not the first company to fail in their direct to health consumer model. They have good company including Microsoft and Google. But while Microsoft and Google have nearly limitless funds to throw at passion projects, individual startups have to make the most of the money that they have raised.

Before you start (or invest in) a hot, new, direct-to-consumer healthcare company, walk through the five paths. See if any of them are in place, or if they could be implemented without changing the core offering. Gather feedback from potential users, and see if you’re pointed in the right direction. A company’s true north may look much different than the direction in which it is headed.

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Turning the Flywheel

Like the late Peter Drucker, I find anything written by Jim Collins compelling. He is a keen observer of human behavior through the lens of companies. One of his more poignant insights was that of the Flywheel concept. He first articulated this concept in his bestseller “Good to Great” and has now expanded on it in a short form book (monograph) appropriately entitled “Turning the Flywheel.”

As Collins writes:

“Once you fully grasp how to create flywheel momentum in your particular circumstance, and apply that understanding with creativity and discipline, you get the power of strategic compounding. Each turn builds upon previous work as you make a series of good decisions, supremely well executed, that compound one upon the other. This is how you build greatness.”

The concept is powerful as a framework for understanding why some businesses build momentum while others idle or die. As an investor I particularly love anything that leverages the concept of compounding.

Collins shares the story of how Amazon embraced and honed their flywheel and went on to become a juggernaut. The flywheel behind Vanguard also presents a solid reference.

But flywheels aren’t easy. If they were, every company would get them right. Rather, they require rigorous thought, experimentation and iteration. If there are five key elements of the flywheel and only three of the five are operating efficiently, then the flywheel doesn’t work.

Each of the core elements has to contribute to the momentum,

I suspect there are a lot of flywheels in training out there that need some consideration and polish, but with effort could transform a mediocre business into a force. Part of that consideration and polish is implementing a core system like OKRs that can help a company keep itself guided toward its true north.

This post is being written as a book recommendation for both startups and investors. Every business owner needs to be considering whether or not there is an opportunity to build a flywheel effect into their business. Similarly, every student of business, otherwise known as an investor, should have a clear grasp of this concept in order to determine if an investment candidate has a flywheel embedded into their business model. 

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A Guide to Implementing OKRs

This is the second part in our series on OKRs. To read the first part, click here.

OKRs are a proven tool for managing organizational performance as chronicled in John Doerr’s book “Measure What Matters.” Over the past few years, I have been able to exercise this management platform as a business leader, investor, and consultant at seven different companies. Each company has been a bit different in its implementation of the tool. All were able to dramatically improve their business performance. One of the best ways to embed OKRs in the fabric of the organization is to make them the foundation of your planning. You should address the OKRs at annual planning and during monthly business reviews.

One of the first challenges that companies face is the planning horizon associated with OKRs. In general, I would suggest that the objectives are annual, and the key results are a mix of monthly and quarterly measures. The CEO plays a key role in establishing the objectives for the organization while each functional area owns the key results.

The CEO should distribute the objectives a couple of weeks in advance of the annual planning meeting. Each functional area should then develop their key results, aligned to the corporate objectives. The sequence of the review of OKRs should follow “digital production line” of the organization. They should start at product creation, carry over into commercialization, play a key role in execution, and also embedded in the business support functions of the organization . The management team should use this process to ensure that the inputs and outputs of each function align to the greater objectives for the organization.

The OKR system should be a foundational part of the monthly business review. Each functional area should recap their performance based upon their function’s OKRs. This streamlines the monthly business review while focusing the management team on improving performance across the organization. The sequence of your review should follow the “digital production line” much like the annual planning process. An OKR dashboard should label those key results in green that are on track and those not achieved in red. Yellow is not allowed. If a team must mark a key result as red, then that team or individual should develop a corrective action plan. The corrective action plan should include the following sections:

  • Problem statement
  • Reflection on prior activities
  • Root cause analysis
  • Recommendations
  • Action plan

If you follow this planning discipline, it will be relatively easy to embed the OKR system in the fabric of your company. At AngelMD, we encourage our startups to leverage this powerful management tool. The best ingredient to a great idea is great execution.

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Check out Your New AngelMD Startup Dashboard

We’re always looking for ways to improve your AngelMD experience. Today we’re letting you know about some improvements that we’ve made to your Startup Dashboard.

It all starts with the design. We’ve given your Dashboard a makeover that focuses on making your life easier. You’ll now see a larger version of your logo on the left side of the page. If you want to edit your company information or your settings, you can do so by clicking on the three dots to the right of your logo. You can still access your settings from the top right, but we wanted to make it easier for you to keep your profile up to date.

The right side of your Dashboard now includes a snapshot of your visitors from week to week. Now you’re able to see the results of your work on AngelMD at a glance. Not getting the eyeballs that you want? Make sure you are posting status updates and sharing information through your profile.

Speaking of posting startup news, it’s now easier than ever. The new interface in the middle of your screen gives you quick access to share a message. If you make a mistake, don’t worry, this isn’t Twitter. You can easily edit a post by hovering over its top right corner and clicking the three dots to bring up the Edit or Delete options. Your new Activity Analytics will let you know, at a glance, who has been watching what you’re sharing.

If you’re curious about who will be seeing those updates, that’s now easier to track as well. You can now see all of your company’s connections across the AngelMD network. Investors, Advisors, and Followers are all available from the box on the right side of your Dashboard, with the option to quickly follow someone back if you so choose.

To finish out this round of updates, we’ve also given you a whole new set of controls for promoting and tracking your funding rounds. We know that raising money is time-consuming, so we wanted to make AngelMD the easiest way for you to meet your goals. You can add funding rounds, and then track them directly from the sidebar so you can the information you need when you need it.

We love getting your feedback, and we look forward to hearing what you think about these new Dashboard updates. Have something on your mind? Drop us an email and let us know.

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Announcing the ACC19 Innovation Challenge Finalists

AngelMD is joining forces with the American College of Cardiology to bring you the ACC19 Innovation Challenge, as part of the ACC.19 Annual Scientific Sessions in New Orleans, Louisiana. This year, the focus is on Artificial Intelligence and Digitally-Enabled Medical Devices. We will be doing a deep dive into each of the winning companies, to be published in ACC’s Cardiology magazine.

On top of being featured in Cardiology, each winner will also receive the following:

  • A $5,000 credit toward a structured investment syndicate through AngelMD
  • A commemorative plaque presented by the ACC
  • Complimentary turnkey kiosk space at the ACC.20 Future Hub
  • Complimentary exhibit space at the ACC.20 Expo

Artificial intelligence (and relatedly, machine learning) is a hotbed topic for healthcare right now. With major medical names entering the ring, as well as companies like Apple and Amazon, AI is primed to be the topic to watch in the years to come. Here are the finalists for the ACC.19 Innovation Challenge:

Likewise, digitally-enabled medical devices are seeing some of the highest levels of investment activity. We’ve finally moved well-beyond smart watches and into a world where conditions such as hemodialysis and sudden cardiac arrest can be more closely monitored and treated through medical devices. These are the finalists from the Digitally-Enabled Medical Device category.

Join us for the ACC.19 Innovation Challenge, March 17th and 18th at the ACC’s 68th annual expo. Can’t make it to the expo? Be sure to follow AngelMD on Facebook where we will be announcing the winners as the event happens.

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