Curbside Consult with Dr. Jayne 8/31/20

Over the last few years, I’ve done quite a bit of work with healthcare IT startups. There are hundreds of people out there who think they have the next big thing and jump headlong into the journey of trying to make it a reality. It’s a difficult road from having an idea to going live in production, and an even more challenging one taking a product from go-live to profitability. We’ve all seen the startup failures and even those that make it to the big time seem to struggle becoming profitable.

The biggest issue I’ve seen with some of the startups I’ve worked with is that they fail to determine how they’re going to govern themselves and their application. I’m a huge fan of governance, not only because good fences make good neighbors, but because being able to make decisions effectively also helps prevent wasted effort and rework when it turns out something was built that doesn’t make sense.

There are numerous governance questions that need to be addressed. First, there are issues about how the organization will be formed. Is it a partnership, a limited liability company, or something else? Does everyone have an equal share in the profits and liabilities? Is the company based somewhere with favorable laws? I was recently approached by a startup that had no corporate structure. While I’m comfortable contracting with individuals, I wasn’t comfortable having one partner hire me to fix what sounded like a problem with one of the other partners.

Next, there are issues around contracting and spending money. Who has signatory authority for contracts? Who has the ability to spend money? Can everyone spend money up to a certain threshold, but do expenditures above a certain point require a greater decision-making authority? What kinds of expenses qualify as business expenses? Do various functions have budgets and are expenditures regularly reviewed to ensure things are not getting out of hand? Are the appropriate checks and balances in place?

There are certainly more “business-y” things that have to be done when you’re contemplating a startup, but operational and product governance also needs to be in place if an effort is going to be successful. On the operational side, is there a mission and a vision for the company? Do the involved parties have a common understanding of what they are trying to build and sell? Or are there simmering disagreements about whether the effort is more technology-based or service-focused, or a bit of both? Who is the target audience, and does the group understand their needs? I’ve seen plenty of great ideas fall flat because no one involved in the visioning process understands the target audience, or even the target industry. Cue the music for all the big tech companies that thought they could “do healthcare” and exited after spending a lot of money and not accomplishing much.

There also needs to be some level of product governance figured out before the first line of code is even written. Who makes decisions on what the product is going to do? In a startup, people may wear multiple hats, but who owns the functions of product management, clinical oversight, development/dev ops, testing, marketing, and sales? If there are competing priorities, how will decisions be made? Who determines minimum viable product? Who will represent the voice of the customer? Who will keep up with regulations, if applicable? I once worked in a startup that had a brilliant development mind who didn’t play well with others. He’d stay up all night writing code, without running anything past the clinical advisors (and often without running it past others who were writing conflicting features). When his ideas were shot down, not only did we have to untangle the content from the application, but it took days and sometimes weeks to get him back to his happy place where he could be productive again.

Another sticking point I see people get in trouble with is the management of contractual requirements for customers or prospects. This goes back to the mission and vision part. If a client or prospect asks for a feature to be built as part of a contractual requirement, who makes the decision? Is it more important to land the customer, even if it means delaying other planned features or moving away from the product’s comfort zone? If a contractual requirement is agreed upon, does the agreement contain enough detail to make the feature a reality, or will there be room for the client to claim that it wasn’t properly delivered because the contract was vague? I see a lot of startups that try to be everything to everyone and move well outside their comfort zone and often into the danger zone because they lack governance.

One of the most important things that startups need to develop is the ability to say no. Sometimes a prospect just isn’t a good fit or has needs that are beyond where the company is in its development. It can be more important to walk away from a deal rather than saddle the team with an unwinnable situation, or unreasonable product demands. I recently worked with a group that had a truly cool offering that was just coming into its own when COVID hit. A large health system approached them about modifying it a little and trying to scale it up to fill a COVID-related need. Fortunately, the managing partners said no, because trying to get the health system live would have been a huge distraction from all their other priorities for the year. Although some argued that it was a missed opportunity, the reality is that saying no gave the company additional opportunities to be true to their core mission and their existing clients.

Seeing a cool idea become reality is incredibly exhilarating. It’s also exhausting, and I’ve seen it weigh heavily on individuals, their families, and their careers. Playing in that part of the industry isn’t for the faint of heart, although it’s a relatively great place if you’re an adrenaline junkie or if you enjoy staying awake at night sweating all kinds of things which might go wrong. It’s fun to wake up wondering what adventures each new day might bring, but it’s even more fun when you get to do it within the confines of a leadership team that’s done the legwork needed to increase the odds for success.

What’s your best (or worst) startup story? Leave a comment or email me.

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