When my company, Iodine, launched in 2013, we were part of an epidemic of startups seeking to change health care. There was great enthusiasm on the part of entrepreneurs and investors alike for bringing technology--particularly information technology--to health care, to unleash a wave of transformation that would improve hospitals, health insurers, and drug companies. Given the vast mess that is health care, it seemed that change required a revolution--from electronic medical records and prescriptions to robotic surgery.
The hope was that "digital health" would upend health care the way tech had so many other industries. After all, the United States spends some $3 trillion--17.5 percent of GDP--on health care, and the time seemed right for revolution. Soon, we were out fundraising, and there was plenty to be had: Digital health startups raised $4.4 billion of venture capital in 2014, double that of 2013, according to Rock Health. We were part of a tsunami of more than $17.8 billion raised from 2011 through 2016.
The return on that investment has been dismal at best. Disruption never happened, and I'm doubtful it ever will. Unlike so many other industries, health care has proved allergic to upstarts that would emerge, uncork a radically new model, and push the incumbents aside.
There are many reasons for this, but most boil down to "health care is different." It's highly regulated, which makes rapid transformation difficult. The incumbents are massive enterprises with multiple services, so challenging them is nearly impossible. It isn't a market-driven industry that responds to better, cheaper, faster. You can't price-shop. The government is the biggest customer. All the incentives are misaligned.
And all those outfits, like Iodine, that were going to shake things up? Well, the successful ones figured out a niche, a way to offer certain services to the incumbents, such as managing specific disease populations or making it easier to access doctors. Many promise to be robust businesses, and they could be great companies. But they are still just vendors to the giants. The revolution will not be brought to you by UnitedHealthcare.
You might ask whether entrepreneurship needs to be revolutionary; after all, many successful businesses spotted some niche and made it incrementally better. That's largely what's happening in health care. There's tremendous opportunity--and honor--in that position, even if there's no jackpot. That's another great thing about health care: It separates the people who are in it for the payout from those who want to solve something big. If you have hired well--we have, thank goodness--you've already made sure your team is pursuing a greater goal, not a unicorn cash-out.
Still, for someone who was part of a bigger dream, it's a bit disappointing. For the investors, it's a massive write-off. And Iodine? Well, we threaded the needle by finding both a niche where we could deliver something useful straight to consumers--a website offering better medical information than the WebMDs of the world--and, in GoodRx, a merger partner that has the right business model to help those consumers find the lowest prices for their medications.
But we are an exception. After all, as I've said, people can't price-shop when they need
surgery. The lesson I draw is pretty simple: It's all too easy to believe your company is part of something huge and inevitable, to believe that external forces will carry you to greatness. But it doesn't always happen that way. Whatever your startup is hoping to do, make sure it can actually do that by itself. After all, in most revolutions, it's the revolutionaries who die first.