Second Opinion published an absolute opus on why digital health startups starting out today should think twice before targeting employers, with a few notable exceptions included for the brave founders among us.
Self-funded employers have long been a fan-favorite of digital health startups. They’re often faster moving than payors, with not only their own large populations and healthcare budgets, but also an added incentive to pick up exciting new benefits to attract the best talent.
Why wouldn’t you target them? OMERS Ventures Principal Christina Farr and Big Health Co-Founder Peter Hames make the case that the tried-and-true playbook of signing a critical mass of employers before leveraging it to get into health plans doesn’t work like it used to.
- The competition is intense. A decade ago, you could count the number of solutions in any given space on your fingers, and benefits leaders had the bandwidth to interface with startups directly. Over $100B has since poured into digital health startups, and middlemen groups like EHIR have popped up to filter vendors before they reach employers. It’s hard to break out from all that noise (but not impossible).
- Vendors are now expected to share risk. The days of fixed “per employee, per month” contracts are behind us, and most vendors are now expected to bring some form of performance guarantee. Although this trend is great for vendors that can deliver, it isn’t ideal for new entrants that now need more overhead to track outcomes and have less visibility into forward business.
- Point solution fatigue. An abundance of point solutions has caused employers to narrow their focus toward platforms with broad offerings that focus on high cost, high prevalence problem areas. Again, not great for companies getting their start with a specialized offering. Potential exceptions include startups focusing on areas that receive a sudden boost in public attention, such as weight loss or menopause.
- The market now has mature incumbents. Even if you’re addressing a real need, the likelihood that an employer already has an established solution is far higher. That doesn’t mean you can’t compete, but the bar is definitely higher.
When should you target them? There’s a whole section dedicated to this question that’s worth checking out if you’re playing in this sandbox, but the overarching message is clear: “the solution itself – and the impact it delivers – need to be articulated as powerfully and simply as possible.”
The Takeaway
Employers have kickstarted plenty of success stories over the years, including names that are easy to look up to like Omada, Hinge Health, and Maven Clinic. Just because top tier articles are now getting published on why you shouldn’t target employers, doesn’t mean it isn’t still a good strategy. It’s just more important than ever to make sure you’re asking yourself the right questions before going down that path.
