The Four Key Elements to Scaling Health IT Startups

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March 5, 2019

In the United States, we spend roughly double the dollars that other high-income nations do on healthcare, yet we have the lowest life expectancy and highest infant mortality rate. Something needs to be done, and the answer may lie at the intersection of engineering and biology.Consider this: due to considerable government funding (to the tune of USD$ 20 billion over the past 10 years) of wide-scale implementation of electronic medical health records, there is a huge amount of digital health data available. Combine that with the big data revolution and advances in genomics (think CRISPR and single-cell sequencing, for example) and the result is the ability to use biology as a technology to solve a whole slew of problems, ultimately leading to a cycle of supply and demand that continues to drive down costs and yield new products quickly.The engineering biology innovation loop is hitting critical mass, and we are (finally) on the verge of improving the way healthcare is delivered. The drivers behind this revolution in healthcare are exactly the type of companies that the prolific Silicon Valley venture capital firm Mayfield is passionate about investing in.“They can achieve what most entrepreneurs only dream about,” says Mayfield partner Ursheet Parikh. “Creating a successful company while changing people's lives for the better.” But to make the dream a reality, there are four unique challenges companies in the health IT space need to overcome simultaneously: solve a hard technical problem, delight the user, demonstrate business model sustainability, and scale revenue.

Engineering biology startups Mayfield

Engineering biology startups, unlike classic biotech startups, aren’t on a quest to develop new drugs. Instead they develop products using already proven science, leading to unique scaling challenges such as solving hard technological problems, delighting the user, and demonstrating business model sustainability. Image credit Mayfield.

Solving a hard technical problem

It is not enough to simply prove your science. Many startups in the health IT space will be building products off of science they didn’t even have to prove in their own labs -- and even if they did, the real challenge, according to Parikh, is solving the hard technical problem to build a product that actually works. Mammoth Biosciences -- whose Series A round was recently led by Mayfield -- is a great example of a company that has done this. They have figured out how to use CRISPR for cheap-yet-accurate diagnostic tests -- and they have an exclusive license on the technology, which they are also developing into an open, accessible CRISPR search platform. The challenge now, says Parikh, “is turning this great invention into a great company.”

Mammoth Biosciences

The Mammoth Biosciences’ co-founders hope to use CRISPR to revolutionize diagnostic medicine. From left: Chief Discovery Officer Lucas Harrington, CEO Trevor Martin, CTO Ashley Tehranchi, Chair of Scientific Board Jennifer Doudna, Chief Research Office Janice Chen.

Delighting the user

Part of that means creating market demand. A particularly tough challenge for startups in the health IT space is creating products that delight the user. “The user to use your product on a daily basis,” says Parikh. “Your product should make the user a superhero, a jedi -- it should make them powerful.” Companies should continue to be forward thinking in this, too. Startups on a successful path will continually think about how they can deliver twice the delight to their customers tomorrow without twice the price.

Demonstrating business model sustainability

Business model sustainability is critical to any startup’s success -- and is often the factor that is ignored in the early days. The number one mistake Parikh sees startups make is that “they take their seed money and focus all of the seed money in just proving out the product, and not enough on proving out the business model.”A successful business model will have considered at what point the technology being developed should become a product and hit the market, what type of user it will service, and any underlying assumptions that must be met to build a business around it -- and, importantly, it will create a new category in which the startup can claim a disproportionate amount of the value and eventually become the “face” of the category. Parikh likens the process to becoming a grassroots movement:“If you ... create a new category, you almost have to start a movement, a new way of doing things. You have to attract ecosystem partners, you have to get the best people to join your cause, you have to get the lighthouse customers and the investors -- and so you really end up having to be a grassroots movement creator of sorts.”

Engineering Biology

Scaling revenue

Referencing Mammoth and other Mayfield portfolio companies, Parikh emphasizes the importance of scaling revenue to a startup’s success as a company. “The science is proven and they have working products,” but their fate, he says, “will be decided by their ability to scale and solve the sorts of marketing and sales cycle challenges that all businesses selling to enterprises face.” According to Parikh, you have to be a really good business entrepreneur who can understand complex sales cycles if you hope to scale your revenues and build a business -- if you hope to actually get paid for your innovation.This can often be lost in the focus on delighting a user, so Parikh reminds company founders and CEOs in the health IT space that even though their product might make a user happy, in many cases they won’t be the ones actually paying for it. These companies must simultaneously offer a transformative proposition for their users while delivering clear value to the organization that pays for the solution -- which requires an intimate understanding of the sales cycles those organizations face.Once startups have successfully met all of these challenges, their next goal may be one that is typical of many companies: get acquired. But with healthcare spending reaching nearly 20% of U.S. GDP, Parikh suggests that realizing your mission as an independent public company instead may be worth considering. “This is the base of one of the biggest entrepreneurial opportunities of all time, because you have a whole new class of building blocks available that can address trillions of dollars of market,” he says. “That's what I'm super excited about.”And that’s what we all should be excited about. With more startups seeking to reverse the downward trend in healthcare efficiency by providing synthetic biology-based solutions, we may soon live in a world where we spend less and experience greater health than ever before.

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