Medical Devices and the Cloud

Published on January 3, 2011 by Bob in Cloud Computing, EMR, Interoperability and Medical Devices.

The article Is Cloud the tomorrow of Medical Devices Industry? includes some of the challenges — regulatory, privacy, security etc. — faced by manufacturers trying to manage medical device data in the cloud. You can’t disagree with this statement:

The success of the vision of Smart Connected Health Grid is dependent on wide scale adoption of cloud computing in all areas of healthcare.

There’s no doubt that adoption of cloud-based technologies are starting to provide concrete market opportunities in the Healthcare space.

There are also two major market barriers that will have to addressed in order for the cloud’s full potential to be realized:

1. Who’s going to pay for it?

The Apple/Google/Facebook “created a marketplace around the end consumer” model will not work in the medical industry. Consumers do not manage their own healthcare, and certainly not their medical data.
Glucose monitoring is also not a good model. Strips and meters are reimbursed by Medicare and most private insurers.
The “Service Delivery Platform” may be a great idea, but unless you can prove its effectiveness at saving money in the overall healthcare delivery system it has only limited value.
Proving this effectiveness is difficult to do, and the bar is very high on the expected returns for preventative care. Maybe this is where the vertically integrated Accountable Care Organizations (ACO) could have an impact?
The end consumer (re: their willingness to spend money anyway) is not likely to be part of the revenue generation equation.

2. Interoperability.

You can’t overstate connected in “Connected Health Grid.” This is where the real value is.
Data collected from a medical device must be put into context with all of the available health data in order to properly access a patient’s current state.
This means you have to make the device data that resides in your cloud available to be consumed by others, e.g. payers, PHRs, hospital EMR systems, etc. Each of these interfaces is unique and costly. HIPAA is also key barrier here.
There are many technical issues surrounding medical device connectivity. I’ve written frequently about these interoperability topics in the past.

The potential is there, but IMO creating a value proposition that will result in a sustainable market based on a technology alone will probably not work. It’s the old “hammer looking for a nail” problem.

Medical device data combined with cloud-based technology will part of many effective healthcare solutions. Some of these may actually make money, someday.

6 things VCs look for in an investment

Alternative title: “6 questions to help validate your startup idea”

As a serial entrepreneur, I learned a lot of lessons from things that didn’t work. These lessons later on shaped my ideas on what would be needed to build a successful startup company. When I became a VC, I realized that these same lessons could be applied to helping evaluate the many businesses that I was getting to see. Whilst the following criteria are by no means a guarantee of success, or the only criteria that you should think about, I do believe they can be very helpful.

So in no particular order, here is a list of six questions that I learned to ask to validate my own startup ideas, that now shape what I look for in an investment. I hope this list will help you validate your idea:

1. An extraordinary entrepreneur with unique insight

Does the entrepreneur show the extraordinary drive, energy, passion, and commitment to take on the tough task of starting a company? And do they appear to have the ability to attract a first class team?
Does the idea that you are working on come from an area that you know extremely well and where you have an unique insight?
- An entrepreneur working in an area where they have no knowledge or special insight rarely works.

2. Market

For B2B startups:
- Is there extreme pain being felt by an individual or group?
- Is that individual or group in a position to spend money to solve that pain?
For B2C startups:
- Is there strong enough motivation for the consumer to really want to use your product/service?
Market size: are there enough people with this pain/motivation to build a large business?

3. Product

Does this product/service adequately address the need (without introducing new problems in the process of adoption)?

Is there long term sustainable differentiation and barriers to entry?
- The differentiation needs to be strong enough to beat any potential major competitors whose size, distribution, customer base, and credibility, would give them an immediate unfair advantage if they decided to compete, even with an inferior product.

4. Business Model

Can you build a viable business model around the solution?
- Specifically most startups fail because it costs more to sell their product than they are able to make from the sale. So a big part of a viable business model is determining a cost effective way to sell the product. The other part of it is figuring out a great way to monetize each customer.
- For more details on this topic, see Business Models, and Why Startups Fail.

5. Management Team

Do you have the beginnings of a great management team?
- It is well understood that a great management team plays a huge role in increasing the chances for success.
- A players attract other A players. B players attract C players. Therefore the starting team should ideally be all A players.

6. Capital Efficiency

Can the company be built in a capital efficient way?
- With lower exit valuations, the one reliable way to ensure both the entrepreneur and VC will end up with a good return is to build the business using a small amount of capital.

Further Thoughts

Two of the most common issues that I encounter when hearing pitches from entrepreneurs stem from the same entrepreneurial trait: entrepreneurs are often by nature very passionate about their particular product or technology. In itself this is a good thing, but unfortunately that passion is often blinds them to some important issues:

They don’t focus on how they are going to acquire customers in a cost effective way, as they believe that people will either beat a path to their door, or that their product will go viral as everyone will love it so much they will tell all their friends.
They fail to look at whether the need their product aims to solve is important enough to get the customer to overcome inertia and purchase it.

I hate to admit it, but I have made both mistakes myself. In my fourth company Watermark Software, we introduced a document imaging product that was so cool that we got half a page coverage in the Sunday New York Times, and great reviews in all the leading publications. Even your grandmother would have thought the product was cool. However cool did not translate into purchase orders, and it took us another 18 months and two versions later to finally get the product focused on vertical customers in banking and insurance that processed lots of paper before our sales finally took off. This was a painful lesson that I won’t forget.

My hope is that other parts of this web site will help address the question of how to cost effectively acquire customers (see Building a Sales and Marketing Machine), and also help to think through how to balance the cost of acquiring customers with the ability to monetize those customers (see Business Models, and Why Startups Fail). I would love to help you avoid making the mistakes I made in the past.

Filed under // Marketing Startup

Posted December 28, 2010

Why You Should Make Your Competitors Your Frenemies

Business Insider

Yesterday I wrote about how to talk to investors about your competitors. In short, acknowledge they exist, be transparent about strengths & weaknesses and use your differences to talk about how you want to position yourself in the market.

But more important than how you talk about them, how should you actually treat your competitors?

Conventional wisdom in most companies is that “the competition is the enemy” – it’s the rallying cry to dig deeper, get more features out the door, issue press releases citing differences and attack the competition’s weaknesses in sales presentations. I understand this instinct – it’s tribal, like rooting for sports teams. And there are actually some benefits to having something that galvanizes your team.

But many startups take this too far and I would actually encourage a dose of enemy & friend. You know, frenemies. A healthy respect for your competition will serve you well. Here’s some thoughts on how to manage the tricky frenemy relationships.

When Enemies are Good

1. Marketing Differentiation – Salesforce.com is one of the most effective marketing organizations in the world because Marc Benioff is a genius at marketing. He has been able to take complicated topics like cloud computing and boil them down into pithy messages like “the end of software” as depicted in the simple logo to the right. It emphasizes both cloud computing and salesforce.com’s differentiation – they’re not “software.”

Of course they’re software. It’s just delivered in a different way. But this simple logo of differentiation was what they used in the early days to symbolize their fight against Siebel. Siebel was something you installed: it was expensive, hard to implement, bloated, complex and hard to manage. Software. And after Siebel’s death the Salesforce rallying cry has extended to Oracle and Microsoft.

Software, software, software. Them vs. Us. And in a world where complex ideas are hard to mass markets to synthesize, the simplicity of the message, the differentiation & who is good vs. evil helps journalists, market analysts & customers.

2. No Enemies, No Market – The first instinct of a journalist when they hear your story is to reach for the “compare & contrast” story. No journalist wants to publish your press release or print what you tell them verbatim without saying, “while this new company is plotting a brave new world, but there are some storm clouds. Their competitors have already made some progress – here’s what they do and why it won’t be a one-horse race.” It’s almost a requirement of journalism – in part because that’s also what readers want. It’s why we all love the “horse race” stories of every election cycle despite people lamenting this and wanting journalists to just cover the issues.

The first instinct of a potential customer who is thinking about your product is to find out who else does what you do to be sure they’re not about to purchase a Betamax. In fact, most big enterprise buyers have procurement policies that require them to have considered a few competing products – in part to be sure there isn’t a cozy insider sales relationship driving the purchase.

And as I talked about in my “talking to VCs about your competition” post, the first instinct of a VC is no different. We don’t want to be the person who invested in your company only to find out later there was a much better team and/or product in the market. Or that we’ve invested in a company where there is no market demand.

We’re all basically trying to validate the same thing in looking for competition. We know that you’re done a great job in telling us why your product is really innovative and cool – now we’re just trying to convince ourselves whether there is a real market out there for it and if there is whether you’re going to win.

3. Galvanizing the Company – And of course one of the biggest benefits of enemies is galvanizing the company. We all know that the existence of startups is all about limited resources, huge time pressures and a constant struggle to time market adoption and investor financing.

So when you need your engineering team to dig deeper and crank out code despite working “yet another weekend” it helps to have the Evil Empire. If you’re sales & marketing teams are spending yet another few days away from home (or stuck in an airport on a February trip to Chicago) it helps to have somebody you’re trying to beat to make it all worth its while.

I’m not a sociologist but I’m certain that there’s a tribal instinct involved.

When Frenemies are Better

Yet keeping our competition as only enemies is a mistake.

In the early days at my first startup I purely demonized competitors. They were stupid, evil and about to suffer a crushing death. They never did. Instead, every time we launched new features they seemed to launch similar features 2 weeks later. They must have been working on them at the exact same time. Funny that. Turns out it’s how innovation tends to work – in parallel. When the market was booming we were all booming, when the market struggled we all struggled.

And when it struggled we all talked. We mostly talked because we thought industry consolidation was going to take place and we didn’t want to be the ones who were left out. As I’ve talked about before - early mergers are mostly dumb, but we didn’t know that back then. Most of us never merged but through the process I got to know the founding teams of all of my competitors and I realized – of course – that they were smart, well informed and decent people.

I also learned that we had way more in common with each other than I had thought. We had way more to gain from occasional discussions than to lose. In a startup market the biggest competition is inertia - not your enemy. In a startup market getting potential customers to take any action at all is the hardest thing you face.

We talked about why customers were slow to adopt (cloud computing was really early and most people had security concerns), we talked about how hard it was to raise money (2002/03), we talked about some of the tech challenges we were facing (AJAX didn’t exist yet, browsers were really bad) and, of course, we talked about other competition. These meetings were my best source of what our nascent market was REALLY up to (not the tech press version of it).

In the end, most importantly, we created a communication channel that was invaluable at times. We didn’t collude (e.g. talk about prices), we collaborated. I didn’t openly discuss meeting competitors broadly within my company. I didn’t want everybody worried or gossiping that there might be an imminent merger and internally it was fun to be able to demonize the competition just a little bit ;-)

Every now & then our competitors would talk trash about us at a customer meeting (we’d often get the feedback) or put out a press story that was trying to poke us in the eye. We’d fight back with the same. But in the end after meeting them I knew it was “just business.” They were pretty normal guys.

When the Enemy Mentality Harms You

And there’s a more destructive side to over-demonizing the competition: You start to believe your own internal hype. I often meet startup companies who come in vilifying their competition telling me stories about how bad they are at this or that. As a VC you often have met with some of these companies and realize they aren’t as bad as the company in front of you is saying (or thinking).

I always advise these overly aggressive companies the same thing:

don’t take your competitors for granted. they’re probably much better / stronger than you think
if your competitor is a big company, don’t be lulled into thinking they’re just “stupid” – they often have internal structural problems that keep them from effectively competing with you (even when they see the market clearly)
whenever you’re thinking “our competitor does a, b, c and ONLY WE do d, e, f” you’re often wrong. It’s usually one of two cases: 1) you didn’t realize that your competitor really does to d, e, f or 2) they’ve been working on d, e, f and just haven’t released it yet or announced it. But they showed us. Remember: innovation happens as a parallel process – you rarely will have anything that’s TRULY unique. Victory is often about better execution.
the best internal motivation for your company is to always be paranoid about your competition. I’m not saying to overly focus on them – I don’t believe that. I think you focus on your customers & market. But be paranoid about how good the competition is. Use this as a motivator to drive yourself harder.
and finally, it is unbecoming of you to belittle your competition in front of us or in front of customers. You look a far bigger person when you show a healthy (and not artificial) respect for them. It’s true that Marc Benioff gets away with “slagging off” the competition but very few get away with this. And even Marc only gets away with it because of his extreme success. In stead people still cringe, shake their heads, have a small chuckle and say to themselves, “that’s just Marc.”

In the end, keeping frenemies will serve you well.

This post originally appeared on Both Sides of the Table.

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