Michael Raymer • June 11, 2019

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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