We recently provided guidelines for selecting a platform and developing a Minimal Viable Product to take your digital health innovation beyond the prototype stage and create meaningful iterations. Once a Minimum Viable Product has been developed, numerous commercialization pathways are available, such as licensing an innovation to an existing company. But for many innovators, the best path may involve forming a startup company.
Benefits of a digital health startup
A startup is a business entity created for the purpose of commercializing a technology. For example, Neuromotion and Circulation are among the more than 25 startups developed to solve pain points at Boston Children’s Hospital. The nuances of launching a startup will vary based on the technology, intellectual property interests and other factors.
The benefits of pursuing a startup include:
- Flexibility: Startups have the flexibility to rapidly adapt and respond in new markets. This provides innovators with the opportunity to customize products and shape commercial strategies.
- Speed to market: Digital tools can be rapidly developed and scaled within a startup environment. Startups can typically bring products to market faster than can larger healthcare organizations.
- Risk calculus: Larger companies can be very risk-averse to forming startups. In contrast, a venture investor is more likely to take a calculated risk to remain at the forefront of digital health innovation.
- Revenue: With a shorter time to market, flexibility and venture interest, a startup is more likely to have a line of sight to revenue. That’s especially true when commercializing a single digital health technology. A product or service roadmap demonstrating a plan of work to capture more value is vital.
Building blocks of digital health startups
We recently used the business model to understand the factors driving an innovation’s commercial viability. The same factors are vital to launching and growing a startup — and will influence product development, operations and exit strategies. The following are fundamental to revenue-generating startups:
- Business plan: The business plan is a clear, market-based strategy for scaling a technology, generating revenue and addressing regulatory hurdles. The business plan will provide a scope of work necessary to successfully bring your innovation to market.
- Company formation: Your startup’s legal status and structure can take many forms, including a sole proprietorship, a partnership, a corporation or a limited liability company. Don’t hesitate to reach out to experts for guidance on company formation. Well-founded guidance will serve you well.
- Fundraising: Every startup requires capital to operate. Startups can fund their growth from a variety of sources, including grants, venture or angel funding, revenue and debt funding. There is no correct approach to funding. Focus on earning the right funding for your startup at the right time.
- Team: A critical ingredient of any startup is the team. While the technical and academic aspects of your innovation are hugely important, don’t underestimate the value of bringing together the right people. Thinking through who will serve on the executive team, and which roles to fill early on, will shape your startup’s future and ongoing success.
- Product development: Startups provide a highly flexible environment for innovators to shape a digital technology. Focusing on product development — adapting and changing your technology to customer demands and market trends — will keep you competitive.
- Operations and growth: Innovators should strive to create a startup with lean processes. Lean processes support financial sustainability, critical for startups operating without recurring revenue. The also enable rapid growth of the business.
- Exit strategy: An exit strategy — planning for the time when you are no longer involved — is critical in planning for the long-term growth of your startup, taking into account market factors, partners and competitors.
Startup exit strategies
Some startups become self-sustaining small businesses. However, a venture-backed startup is also expected to make large returns for investors, and will require a different exit strategy, such as:
- An IPO: The public sale of a startup’s stock is a strong indicator of rapid expansion. When a startup makes an Initial Public Offering (IPO), the venture investors and founders are able to “cash in” their investments.
- Acquisition: A larger company may purchase your startup, taking control of its technology and/or assets. Investors and founders are paid out during the sale of the startup.
This concludes our Innovator’s Roadmap series. Think you’re ready to build a business model, design and produce a prototype, pursue the Minimum Viable Product strategy and build a startup? Download the complete Innovator’s Roadmap — or (if you work at Boston Children’s Hospital) apply to the Accelerator Grant Program. Successful applicants receive extensive technical and commercial support, including:
- funding of up to $25,000, with the potential for milestone-dependent follow-on funding
- access to expertise in developing digital health applications and tools
- software development resources: web/mobile apps, clinical processes, patient engagement, personal health tools, care coordination, administrative tools, EMR-based tools, big data, clinical decision support, FHIR
- a dedicated team supporting project management, business strategy, pilot design and product development.
Go to the complete six-part Innovator’s Roadmap series.