Investor: Health startups, forget about employers

By: Chris Gullo | Jan 13, 2012        

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SkipFleshmanSkip Fleshman, a Managing Partner at Asset Management Ventures, shared a few tips for those mobile health startups looking to become more that just “one-trick pony” developers of successful apps. In order to capitalize on their real potential and become a long-term, viable business, Fleshman has a few lessons learned to share based on his firm’s investments in a number of health startups, including, perhaps most notably, HealthTap and Proteus Biomedical.

Fleshman acknowledges that there has been explosive growth in mHealth over the past year, but cautions that many startups are targeting niche audiences. His most controversial piece of advice? Startups should forget about self-insured employers offering their wares to employees and find a different business model.

“This is a sector that venture capitalists, health care providers, insurance companies and physicians should be paying much more attention to,” Fleshman writes over at Xconomy. “Entrepreneurs already are.”

For more advice, check out our article on seven tips for health startups looking to raise venture capital, which includes comments that a panel of investors made at last year’s mHealth Summit.

Read on for a few highlights from Fleshman’s article:

Provide actionable advice to the user: Large amounts of data collected from apps and connected devices is worthless if the user can’t do anything with the information: Fleshman: “What’s important for these products is that they lead to an actual lifestyle change, improve a person’s health, or lower healthcare costs.” Fleshman points to Withings as an example of a company that has been successful here.

Create a unique application that’s not easily copied. There are countless apps in the AppStore for diet, weight loss, and exercise that offer very similar functionality. Standing out with unique features, both to consumers and in a legal sense, is crucial. Fleshman: “By and large, if you are not developing something that is inherently or legally difficult to copy, you’ve lost some value.”

Forget about employers. Employee wellness programs may look appealing to startups, but Fleshman cautions against this route. Fleshman: “Many startup founders still believe that large corporations can be a great customer or channel for health and wellness products. The idea is that this will help keep employees healthy and reduce absenteeism and insurance premiums. Well, I still haven’t heard which specific organization at IBM, United Airlines, or P&G has budget to buy this stuff and I find it hard to believe the ROI will be quantifiable.” Instead, Fleshman advises that companies should focus on working directly with payors and providers. Fleshman: “If you want to build a real company, then solve a real medical problem and start, from day one, with a plan that works alongside the payers, providers, and physicians.”

Read the rest of Fleshman’s must-read column over at Xconomy, here.