A Shifting Basis of Competition

Software is eating the world. As a result, the basis of competition in almost every industry is changing. The venture capital (VC) industry in particular is undergoing substantial changes:

1) The JOBS act is making it easier for VCs to raise funds and for the common folk to invest in and take an equity stake in early stage companies. There will be more capital than ever to invest in early stage businesses. VCs are feeling competitive pressures from all sides.

2) Returns are concentrating among the top VC firms. The best VCs are attracting the top entrepreneurs, and vice versa.

As a result of these changes, VCs are working harder than ever to source deals. Per Tomasz Tungz, a partner at RedPoint Ventures, in order to compete, VCs must:

1) Create information asymmetries

2) Convince entrepreneurs that they’re the right partner

3) Deploy technologies that can help their portfolio companies in meaningful ways

Hospitals and health systems are remarkably similar to VCs. They employ swaths of highly specialized, highly trained people who make big important decisions that dramatically affect people’s lives. They offer what many consider to be a commodity (cash / health care services) in highly illiquid, opaque markets, with dramatic variances in price.

Hospitals and health systems could learn a thing or two from VCs:

1) Create information asymmetries. This doesn’t mean providers need to hide even more from patients (providers already do plenty of that without even trying). This means providers need to figure out how to employ analytics to make more intelligent decisions. With impending reimbursement changes in an ACO world, most analytics being deployed today are focused on identifying behaviors and processes that result in less-than-ideal, expensive outcomes. But there are a tremendous number of other data sets to explore: referring patients to clinical trials, public service campaigns that encourage patients to avoid getting sick (particularly during cold/flu seasons), and understanding the tremendous amounts of quantified self data that patients are collecting. The amount of health data to be understood is spectacularly large; the best care providers will be those that can make sense of it

2) Convince patients that they’re the right provider. The most common hospital marketing campaigns are those that say something along the lines of "Top 100 Wired / Best hospitals" or "come try this fancy new procedure." These campaigns and characterizations are superficial and highlight their complete lack of creativity, short-term, and myopic thinking. People buy stuff from people that they like. People respond to direct communication and being treated like real people, not boxes in a machine. Since everyone interacts with their local healthcare system, hospitals’ best marketing is word of mouth, and thus the best marketing strategies will be tied to improving the patient experience: transparency, communication, education, and outcomes. Marketing strategies in healthcare should be internally focused, not externally focused.

3) Deploy technologies that can help patients in meaningful ways. Obviously, hospitals have been doing this for decades, but as patients get increasingly involved in their own healthcare, the definition of "meaningful" improvements should incorporate the patients themselves. By extension, these meaningful technologies should also encourage medical practitioners to help patients make better decisions, not just treat them. Give a man a fish and he eats for a day; teach a man to fish and he eats for a lifetime. In light of #2 above, these technologies should foster a better patient experience, unlike the current cog-in-a-machine experience.

As software continues to eat the world, healthcare will oxymoronically evolve to be more people centric, not technology centric. We’ll rely on technology more than ever before, but only so that we can spend less time worrying about technology and more time delivering compelling services in our service economy.

PS: coincidentally, Fred Wilson from Union Square Ventures and James Kwak from The Baseline Scenario recently wrote analogies using the VC industry.

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Kyle Samani is a healthcare technology entrepreneur who is passionate about healthcare and technology startups.

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