By Rob Starr Big4.com Content Manager
Although funding for digital health start-ups is increasing, a new Accenture report finds half of these new companies will falter within two years of launch. However, these “zombie” start-ups could be mined by larger firms for talent or innovative technologies. Drew Boston, co-author of Accenture’s Zombie start-up research, walked us through the findings and implications.
Why are so many of these healthcare IT startups failing in spite of the fact that funding for digital health start-ups is accelerating?
We are in a B2B and B2B2C environment, not yet B2C. Many young companies I’ve worked with struggle with finding areas where they can defensibly compete. In many cases, this means navigating matrixed organizations and beating out competing priorities. Even more, some come to realize an absence of market demand or that their value proposition doesn’t create buying or switching decisions. If a capability solves a pain point, shows attributable value and a strong, relative ROI, your business will find a place in this market.
What is it about the social, mobile, analytics, cloud and sensors (SMACS), technologies that is so important to these startups?
These technologies form the core, foundational capabilities of digital solutions today. Digital health solutions must have a value proposition that uniquely packages these capabilities into solutions that enables experiences and social interactions that are valued by consumers. We are seeing tremendous growth in the number and types of sensors and the data collected. Most important to the solution, however, is that contextually aware services derive from sensors, cloud and analytics.
How can these failing companies help larger healthier firms?
These start-ups can often help larger companies fuel innovation, bolster existing solutions and capture technical talent. In an industry where where innovation and competitive differentiation now go hand in hand, more companies value a more agile and iterative product development cycle. In some cases, capturing intellectual property and patents of start-ups can initiate and accelerate their R&D efforts or supplement their existing market offerings. Beyond product innovation, these start-ups can help companies rapidly expand their pool of technical talent with capabilities in emerging or high demand.
What are the major benefits to acquiring these failing startups?
Three prominent benefits are that these acquisitions could infuse top talent, fuel innovation and bolster existing solutions. In fact, we are currently in discussions with a number of c-suite executives, both from traditional and non-traditional health companies, looking to incorporate these start-ups into their aggressive corporate growth strategies. Many organizations are just starting to come to terms with the reality that digital is mission-critical – not optional – to competing in this new era.
What’s in the future?
We expect to see a deluge of alliances and merger and acquisitions (M&A) activity in the near to mid-term as the market continues evolving. This comes as many organizations are switching from a mindset of cost containment to growth initiatives.