Lessons Learned in Digital Health

This post is part of our series on the National Science Foundation I-Corps Lean LaunchPad class in Life Science and Health Care at UCSF.

Our Lean LaunchPad for Life Science class talked to 2,355 customers, tested 947 hypotheses and invalidated 423 of them.  They had 1,145 engagements with instructors and mentors. (We kept track of all this data by instrumenting the teams with LaunchPad Central software.)

This post is one of a series of the “Lessons Learned” presentations and videos from our class.

Sometimes a startup results from a technical innovation. Or from a change in regulation, declining costs, changes in consumers needs or an insight about customer needs. Resultcare, one of the 26 teams in the class started when a resident in clinical medicine at UCSF watched her mother die of breast cancer and her husband get critically injured.

The team members are:

  • Dr. Mima Geere  Clinical Medicine at UCSF.
  • Dr. Arman Jahangiri HHMI medical fellow at UCSF, Department of Neurological Surgery
  • Dr. Brandi Castro in Neuroscience at UCSF
  • Mitchell Geere product design
  • Kristen Bova MBA, MHS
  • Nima Anari PhD in Data Science

Abhas Gupta was the Digital Health cohort instructor. Richard Caro was their mentor.

ResultCare is a mobile app that helps physicians take the guesswork out of medicine. It enables physicians to practice precision medicine while reducing costs.precision medicine

Here’s Resultcare’s 2 minute video summary

If you can’t see the video above, click here.

Watch their Lesson Learned presentation below. The first few minutes of the talk is quite personal and describes the experiences that motivated Dr. Geere to address this problem.

If you can’t see the video above, click here

The Resultcare presentation slides are below.

If you can’t see the presentation above, click here

Listen to the blog post here [audio http://traffic.libsyn.com/albedrio/steveblank_clearshore_131219.mp3]

Download the podcast here

We’ve seen the Future of Translational Medicine and it’s Disruptive

A team of 110 researchers and clinicians, in therapeutics, diagnostics, devices and digital health in 25 teams at UCSF, has just shown us the future of translational medicine.  It’s Lean, it’s fast, it works and it’s unlike anything else ever done.

It’s going to get research from the lab to the bedside cheaper and faster.

Welcome to the Lean LaunchPad for Life Sciences and Healthcare (part of the National Science Foundation I-Corps).

This post is part of our series on the Lean Startup in Life Science and Health Care.

——–

Our class talked to 2,355 customers, tested 947 hypotheses and invalidated 423 of them.  They had 1,145 engagements with instructors and mentors. (We kept track of all this data by instrumenting the teams with LaunchPad Central software.)

In a packed auditorium in Genentech Hall at UCSF, the teams summarized what they learned after 10 weeks of getting out of the building. This was our version of Demo Day – we call it “Lessons Learned” Day. Each team make two presentations:

  • 2 minutes YouTube Video: General story of what they learned from the class
  • 8 minute Lessons Learned Presentation: Very specific story about what they learned in 10 weeks about their business model

In the next few posts I’m going to share a few of the final “Lessons Learned” presentations and videos and then summarize lessons learned from the teaching team.

Magnamosis
Magnamosis is a medical device company that has a new way to create a magnetic compression anastomosis (a surgical connection between two tubular structures like the bowel) with improved outcomes.

anastomosis

Team Members were: Michael Harrison (the father of fetal surgery), Michael Danty, Dillon Kwiat, Elisabeth Leeflang, Matt Clark.  Jay Watkins was the team mentor. Allan May and George Taylor were the medical device cohort instructors.

Their initial idea was that making an anastomosis that’s better, faster and cheaper will have surgeons fighting to the death to get a hold of their device.  magnamosisThey quickly found out that wasn’t the case.  Leak rates turned out to a bigger issue with surgeons and a much larger market.

Here’s their 2 minute video summary

If you can’t see the video above, click here.

Watch their Lessons Learned video below and see how a team of doctors learned about product/market fit, channels and pricing.

If you can’t see the video above, click here

Their slide deck is below. Don’t miss the evolution of their business model in the Appendix.

If you can’t see the presentation above, click here

The best summary of why Scientists, Engineers and Principal Investigators need to get out of the building was summarized by Dr. Harrison below. After working on his product for a decade listen to how 10 weeks of the Lean LaunchPad class radically changed his value proposition and business model.

If you can’t see the video above, click here.

For further reading:

Listen to the blog post here [audio http://traffic.libsyn.com/albedrio/steveblank_clearshore_131217.mp3]

Download the podcast here

How Do You Want to Spend Your Next 4 Years of Your Life?

As our Lean LaunchPad for Life Sciences class winds down, a good number of the 26 teams are trying to figure out whether they should go forward to turn their class project into a business.

Given that we’ve been emphasizing Evidence-based entrepreneurship and the Investment Readiness Level, I guess I shouldn’t have been surprised when someone asked, “After we figure all this data out, should we pursue our idea based on the numbers?”

Ouch.

I pointed out that the “data” you gather in 10 weeks (talking to 100+ customers, partners, payers, etc.,) are not the first thing you should look at. There are three more important things you should worry about.

(see 0:30 in the video below)

turning point

——–

1. Do you want to spend the next 3 or 4 years of your life doing this?

(See 1:03 in the video below)

Now that you’ve gotten to know your potential channel and customers, regardless of how much money you’re going to make, will you enjoy working with these customers for the next 3 or 4 years?

One of the largest mistakes in my career was getting this wrong. I used to be in startups where I was dealing with engineers designing our microprocessors or selling supercomputers to research scientists solving really interesting technical problems. But in my next to last company, I got into the video game business.

My customers were 14-year old boys. (see 1:30 in the video)  I hated them. It was a lifelong lesson that taught me to never start a business where you hate your customers. It never goes well. You don’t want to talk to them. You don’t want to do Customer Development with them. You just want them to go away.  And in my case they did – they didn’t buy anything.

So you and your team need to feel comfortable being in this business with these customers.

2. Is this a scalable business?  And if not, are you Ok with something small?

(See 2:03 in the video below)

Is it a lifestyle business while you’re keeping your other job?  Is it a small business that hits $4 million in revenue in four years and $8 million in ten years?  Or is it something that can grow to a size that will result in an acquisition or some liquidity event?

You need to decide what your personal goal is and how it matches what you think this business can grow into.  And you and your cofounders need to have that discussion to make sure that all the co-founders’ interests are aligned – before you make any decision to start the company.  If one of you are happy making $500K/year and the other has visions of selling the company to Roche for a billion dollars, you have very different goals. Without clear alignment, one or both of you will be really unhappy later when you try to make decisions.

3. If I Didn’t Make Any Money After 4 Years, Did I Still Have A Great Time?

(See 4:36 in the video below)

If your company fails, would you still say you had one hell of a ride? Founders don’t do startups because they’re searching for a huge financial windfall. They do it because it’s the greatest invention they can imagine. Most of the time you will fail. So if you’re not going to have a great time with your team and learn and build something you are truly excited about – don’t do it.

If you can’t see the video above, click here

Lessons Learned

  • Do you want to spend the next 3 or 4 years of your life doing this business?
  • Is this a scalable business?  And if not, are you Ok with something small?
  • If you didn’t make any money after 4 years, did you have a great time?

Listen to the podcast here [audio http://traffic.libsyn.com/albedrio/steveblank_clearshore_131209.mp3]

Download the podcast here

When Customers Make You Smarter

We talk a lot about Customer Development, but there’s nothing like seeing it in action to understand its power. Here’s what happened when an extraordinary Digital Health team gained several critical insights about their business model. The first was reducing what they thought was a five-sided market to a simpler two-sided one.

But the big payoff came when their discussions with medical device customers revealed an entirely new way to think about pricing —potentially tripling their revenue.

——

We’re into week 9 of teaching a Lean LaunchPad class for Life Sciences and Health Care (therapeutics, diagnostics, devices and digital health) at UCSF teaching with a team of veteran venture capitalists. The class has talked to ~2,200 customers to date. (Our final – not to be missed – Lessons Learned presentations are coming up December 10th.)

Among the 28 startups in the Digital Health cohort is Tidepool. They began the class believing they were selling an open data and software platform for people with Type 1 Diabetes into a multi-sided market comprised of patients, providers, device makers, app builders and researchers.

tidepool website

The Tidepool team members are:

  • Aaron Neinstein MD  Assistant Professor of Clinical Medicine, Endocrinology and Assistant Director of Informatics at UCSF. He’s an expert in the intersection between technological innovations and system improvement in healthcare. His goal is to make health information easier to access and understand.
  • Howard Look, CEO of Tidepool, was VP of Software and User Experience at TiVo. He was also VP of Software at Pixar, developing Pixar’s film-making system, and at Amazon where he ran a cloud services project. At Linden Lab, delivered the open-sourced Second Life Viewer 2.0 project. His teenage daughter has Type 1 diabetes.
  • Brandon Arbiter was a VP at FreshDirect where he built the company’s data management and analytics practices. He was diagnosed at age 27 with Type 1 Diabetes. He developed a new generation diabetes app, “nutshell,” that gives patients the information they need to make the right decisions about their dosing strategies.
  • Kent Quirk was director of engineering at Playdom and director of engineering at Linden Labs.

A Five-sided Market
In Week 1 the Tidepool team diagramed its customer segment relationships like this:

Tidepool ecosystem

Using the business model canvas they started with their value proposition hypotheses, articulating the products and services they offered for each of the five customer segments. Then they summarized what they thought would be the gain creators and pain relievers for each of these segments.

Tide pool value prop week 1

Next, they then did the same for the Customer Segment portion of the canvas. They listed the Customer Jobs to be done and the Pains and Gains they believed their Value Proposition would solve for each of their five customer segments.

Tide pool cust week 1

It’s Much Simpler
Having a multisided market with five segments is a pretty complicated business model. In some industries such as medical devices its just a fact of life. But after talking to dozens of customers by week 3, Tidepool discovered that in fact they had a much simpler business model – it was a two-sided market.

tidepool simplification

They discovered that the only thing that mattered in the first year or two of their business was building the patient-device maker relationship. Everything else was secondary. This dramatically simplified their value proposition and customer segment canvas.

So they came up with a New Week 3 Value Proposition Canvas:

Tide pool value prop week 3

And that simplified their New Week 3 Customer Segment Canvas

Tide pool cust week 3

Cost-based Pricing versus Value-based Pricing
While simplifying their customer segments was a pretty big payoff for 3 weeks into the class, the best was yet to come.

As part of the revenue streams portion of the business model canvas, each team has to diagram the payment flows.

Tide pool market pricing

The Tidepool team originally believed they were going charge their device partners “market prices” for access to their platform. They estimated their Average Revenue per User (ARPU) would be about $36 per year.

Tide pool market pricing ARPU

But by week 6 they had spoken to over 70 patients and device makers. And what they found raised their average revenue per user from $36 to $90.

When talking to device makers they learned how the device makers get, keep and grow their customers.  And they discovered that:

  • device makers were spending $500-$800 in Customer Acquisition Cost (CAC) to acquire a customer
  • device makers own customers would stay their customers for 10 years (i.e. the Customer Life Time (CLT))
  • and the Life Time Value (LTV) of one customer over those 10 years to a device maker is $10,000

Tide pool market pricing device cac

These customer conversations led the Tidepool team to further refine their understanding of the device makers’ economics.  They found out that the device makers sales and marketing teams were both spending money to acquire customers.  ($500 per sales rep per device + $800 marketing discounts offered to competitors’ customers.)

Tide pool device economics

Once they understood their device customers’ economics, they realized they could help these device companies reduce their marketing spend by moving some of those dollars to Tidepool. And they realized that the use of the Tidepool software could reduce the device companies’ customer churn rate by at least 1%.

This meant that Tidepool could price their product based on the $1,800 they were going to save their medical device customers.  Read the previous sentence again. This is a really big idea.

Tide pool value pricing big idea

The Tidepool team went from cost-based pricing to value-based pricing. Raising their average revenue per user from $36 to $90.

Tide pool value pricing $90 ARPU

There is no possible way that any team, regardless of how smart they are could figure this out from inside their building.

If you want to understand how Customer Discovery works and what it can do in the hands of a smart team, watch the video below. The team ruthlessly dissects their learning and builds value-pricing from what they learned.

This short video is a classic in Customer Discovery.

If you can’t see the video click here.

Lessons Learned

  • Most startups begin by pricing their product based on cost or competition
  • Smart startups price their product based on value to the customer
  • You can’t guess how your product is valued by customers
  • Customer Development allows you to discover the economics needed for value pricing your product

Listen to the podcast here [audio http://traffic.libsyn.com/albedrio/steveblank_clearshore_131202.mp3]

Download the podcast here

Lean LaunchPad for Life Sciences – Revenue Streams

We’re teaching a Lean LaunchPad class for Life Sciences and Health Care (therapeutics, diagnostics, devices and digital health) at UCSF with a team of veteran venture capitalists. The class has talked to 2,056 customers to date.

This post is an update of what we learned about life science revenue models.

Life Science/Health Care revenue streams differ by Category
For commercialization, the business model (Customers, Channel, Revenue Model, etc.) for therapeutics, diagnostics, devices, bioinformatics and digital health have very little in common.

This weeks topic was revenue streams – how much cash the company can generate from each customer segment. Revenue streams have two parts: the revenue strategy and the pricing tactics.

Figuring out revenue strategy starts by gaining a deep understanding of the target customer(s). Setting a revenue strategy starts with understanding the basics about the customer segments:

  • who’s the user, the recommender, buyer, and payer
  • How the target customer currently purchases goods and services and how much they currently pay for equivalent products
  • Their willingness to pay for value versus lowest cost?
  • How much budget they have for your type of product?

Revenue strategy asks questions like, “Should we offer cost-based or value-based pricing.  How about demand-based pricing? Freemium? Do we price based on hardware sales or do we offer hardware plus consumables (parts that need to be disposed or replaced regularly)? Do we sell a single software package or a subscription?  These strategy hypotheses are tested against the target customer segment(s).

Once you’ve established a revenue strategy the pricing tactics follow. Pricing is simply “how much can I charge for the product using the selected revenue strategy?”  Pricing may be as simple as setting a dollar value for hardware or software, or as complicated as setting a high price and skimming the market or setting a low price as a loss leader.

You can get a feel for how each of the cohorts address the Revenue Streams by looking at the Revenue lectures below – covering the therapeutics, diagnostics, devices and digital health cohorts.

At the end of the lectures you can see a “compare and contrast” video and a summary of the differences in distribution channels.

Diagnostics

Week 5 Todd Morrill Instructor 

If you can’t see the presentation above click here

Digital Health

Week 5 Abhas Gupta Instructor 

If you can’t see the presentation above click here

Devices

Week 5 Allan May Instructor 

If you can’t see the presentation above click here

Therapeutics

Week 5 Karl Handelsman Instructor 

If you can’t see the presentation above click here

Life Science and Health Care Differences in Revenue Streams
”
This weeks lecture and panel was on Revenue; how much cash the company can generate from each customer segment – and the strategy and tactics to do so. Therapeutics, diagnostics, devices and digital health use different Revenue Strategies and Pricing Tactics, in the video and the summary that follows the instructors compare and contrast how they differ.

If you can’t see the video above click here

Therapeutics (Starting at 0:30)

  • Therapeutics revenue is from drug companies not end users
  • 18 months to first revenue from a deal
  • Predicated on delivering quality data to a company
  • Deal can be front-end or back-end loaded
  • Quality of the data has to be extremely high for a deal

Diagnostics (Starting at 4:10)

  • Diagnostic revenue is from end users: a hospital or clinical lab
  • You need to figure out value of your product but…
  • Pricing is capped by your reimbursement (CPT) code limits
  • Reimbursement strategy is paramount, design to good codes avoid bad ones
  • Find a reimbursement code consultant
  • Don’t do cost-based pricing… go for value-based pricing

Medical Devices (Starting at 8:23)

  • There really is no such thing as a perfect First Generation Medical Device
    • So Medical Device companies often start with a Volkswagen product and then build to the Ferrari product
  • Revenue models are typically direct product sales
  • Don’t do cost-based pricing… go for value-based pricing, especially where your device lowers the treatment costs of the patient
  • In most cases, pricing is capped by your reimbursement (CPT) code limits
    • Or pricing can be capped by what competitors offer, unless you can demonstrate superior cost savings
    • In a new market there is no reimbursement code but if you show high cost-savings you can get a high reimbursement rate
  • A risk in device hardware is getting trapped in low-volume manufacturing with low margins and run out of cash

Digital Health (Starting at 10:35)

  • Digital Health revenue models are often subscription models to a company per month across a large number of users
    • Intermediation fees – where you broker a transaction – are another source of revenue (i.e. HealthTap)
    • Advertising is another digital health revenue model, but requires at least 10 million users to have a meaningful model, but can be lower if you have higher value uses like specialist physicians because  you can charge dollars not cents
  • Don’t do cost-based pricing… go for value-based pricing
    • Value-based pricing is based on the needs you’ve learned from the customer segment and the strength of your product/market fit
      • the sum of customer needs + product/market fit = the pricing you can achieve

Lessons Learned

  • Each of these Life Science domains has a unique revenue strategy and pricing tactic
  • In therapeutics revenue comes in lump milestone payments from drug companies based on quality data
  • Diagnostics revenue comes value pricing to hospital or clinical lab
    • capped by reimbursement (CPT) code limits
  • Device pricing starts by offering an initial value-priced base product and then following up with a fully featured product
    • capped by reimbursement (CPT) code limits
  • Digital health products use subscription value pricing. Alternatively may use advertising revenue model

Listen to the podcast here [audio http://traffic.libsyn.com/albedrio/steveblank_clearshore_131118.mp3]

Download the podcast here

Well They “Should” be Our Customers

When scientists and engineers who’ve been working in the lab for years try to commercialize their technology they often get trapped by their own beliefs  – including who the customers are, what features are important, pricing etc.

 

——–

One the key tenets of the Lean LaunchPad class is that every week each team gets out of the building and talks to 10+ customers/partners to validate a new part of their business model.  Back in class they present their findings to their peers and teaching team in a 10 minute Lessons Learned presentation. One of the benefits of the class is that the teams get immediate unvarnished feedback on their strategy.

For researchers and clinicians who’ve been working on a project in the lab for years, getting out of the building and talking to customers at times creates cognitive dissonance.  While they’ve been in the lab they had a target customer in mind. However when they leave the building and start talking to these  supposed customers there’s almost always a surprise when the customer is not interested in the product.

Often when they consistently hear that their expected customers aren’t interested the first reaction is “the customers just don’t get it yet.”  Rather than testing a new customer segment they keep on calling on the same group – somehow thinking that “we just need to explain it better.”

Some times it takes a nudge from the teaching team to suggest that perhaps looking at another customer segment might be in order.

They Should be Our Customers
The Mira Medicine Team is trying to accelerate the path to the right treatment for each patient in complex Central Nervous System diseases. They spent years building their first tool MS Bioscreen, which was developed for the physicians at the UCSF Dept of Neurology. So they naturally believed that their first customers would be neurologists.

This was a very smart team who ran into the same problem almost every smart researcher attempting to commercialize science faces.  Here’s what happened.

If you can’t see the video click here.

Listen for:

0:35 “Our primary customer we built this app for was neurologists…

1:00 “(but neurologists have told us) your prototype is interesting… and probably some features are nice to haves…

2:26 “What’s special about neurology?  Doesn’t cardiology and oncology have problems like this?

3:00 “Is neurology a key component of what you’re trying to do?

3:15 “I’ve worked on this for two years…”

3:24 “You’ve already done too much prototyping work. You’re hung up on the prototype.”

3:29 “You have a square peg you’er trying to jam in a round hole…”

3:43 “Don’t be afraid to think laterally”

Postscript: 70 customers later they no longer talking to neurologists.

Lessons Learned

  • Don’t get trapped by your own beliefs
  • When reality outside the building doesn’t match your hypotheses – test alternate hypotheses
  • Most of the time your vision is just a hallucination

Listen to the podcast here [audio http://traffic.libsyn.com/albedrio/steveblank_clearshore_131113.mp3]

Download the podcast here

Lean LaunchPad for Life Sciences – Distribution Channels

We’re teaching a Lean LaunchPad class for Life Sciences and Health Care (therapeutics, diagnostics, devices and digital health) at UCSF with a team of veteran venture capitalists. The class has talked to 1,780 customers to date.

This post is an update of what we learned about life science distribution channels.

Life Science/Health Care distribution channels differ by Category
It turns out that for commercialization, the business model (Customers, Channel, Revenue Model, etc.) for therapeutics, diagnostics, devices, bioinformatics and digital health have very little in common.

This weeks topic was distribution channels; how your product gets from your company to your potential customer segments. You can get a feel for how each of the cohorts address the channel by looking at the distribution channel lectures below – covering the therapeutics, diagnostics, devices and digital health cohorts.

At the end of the lectures you can see a “compare and contrast” video and a summary of the differences in distribution channels.

Diagnostics

Week 3 Todd Morrill Instructor 

If you can’t see the presentation above click here

Digital Health

Week 3 Abhas Gupta Instructor 

If you can’t see the presentation above click here

Devices

Week 3 Allan May Instructor 

If you can’t see the presentation above click here

Therapeutics

Week 3 Karl Handelsman Instructor 

If you can’t see the presentation above click here

Life Science and Health Care Differences in Distribution Channels
This weeks lecture and panel was on distribution channels; how your product gets from your company to your potential customer segments. Therapeutics, diagnostics, devices and digital health use different different channels, in the video and the summary that follows the instructors compare and contrast how they differ.

If you can’t see the video above click here

Medical Devices (Starting at 0:50)

  • Medical Device Distribution Channels in general are a sales team hired directly by the company.
    • A sales team typically includes a sales person and clinical applications specialists.
    •  The specialists help train and educate physician users. They assist with the sale and work with marketing to create demand.
  • Some device industries are controlled by distributors (indirect sales.)
    • Distributors tend to resell commodity products from multiple suppliers.
  • Channel Cost =  $350-400,000 per sales team. On average there’s 1 clinical applications specialist to 2 salespeople.  A lean rollout for a startup would be 4-5 sales people plus 2-3 clinical applications specialists at a cost of ~$2.5 million/year
    • Increasing the number of sales people much past 4-5 for a rollout does not proportionally increase revenue in most cases, because you are on the front end of early adopters and wrestling to overcome and reduce the sales learning curve
    • Travel and Entertainment is a big part of the sales budget since they are all flying weekly to cover accounts
  • 90-180 days for salespeople to become effective
  • Expect little or no revenue for 2- 3 quarters after they start
  • Major reason for failure = hiring sales and marketing staff too quickly
  • Generally an Educational Sale – Hire sales and clinical people first to help early adopters, such as Key Opinion Leaders (KOL’s), master the learning curve with your device so they can write and present papers to influence their peers 

Diagnostics (Starting at 5:16)

  • Diagnostic Channels = Direct sales in the US, with limited Distributor options
    • Many Distributors in Europe and in Asia
    • Sold to hospital laboratories, reference laboratories, or performed in CLIA labs
  • Channel Cost = $350,000+ per supported salesperson
  • Direct to consumer is a (rapidly) growing channel

Digital Health (Starting at 7:25)

  • Digital Health Channels = Direct Sales but you’re selling software to both end users and enterprises
  • Can use existing tech channels and new emerging channels such as Wellness platforms. (Audax Health, Humana Vitality, ShapeUp, Redbrick Health, Limeade)
  • Cloud-based Electronic Medical Records (EMR) are quickly becoming another distribution platform
  • App Stores, and Box are also channels for consumers and enterprise customers, respectively

Therapeutics (Starting at 10:17)

  • Therapeutics Channel = what you’re selling in the early stage is data and Intellectual Property to the pharmaceutical and biotech companies
  • Complicated Sales process – takes 18 months
  • Led by the CEO with a dedicated business development person and your science team
  • You need to define the data they need – this is influenced by how they view their pipeline, and how your technology can fill gaps in their pipeline
  • Pharmaceutical and biotech companies have therapeutics heads, technology scouts and business development people all searching for technology deals to fill their pipeline
  • This is a bound problem – there’s probably 80 people you need to know that make up your channel

Lessons Learned

  • Each of these Life Science domains has a unique distribution channel
  • In Devices innovative products require hiring direct sales people
    • but for commodity device products you may use a distributor
  • Diagnostics requires a direct sales force in the U.S.
    • Distributors in Europe and in Asia
  • In Digital Health direct sales is a possible channel, as are traditional software channels (App Stores, Box, etc.)
    • other DHealth channels such as Wellness Platforms, and cloud-based EMR’s are also emerging
  • In therapeutics it’s a direct sale of data and Intellectual property
    • led by the CEO with a dedicated business development person and your science team

Listen to the podcast here [audio http://traffic.libsyn.com/albedrio/steveblank_clearshore_131111.mp3]

Download the podcast here

%d bloggers like this: