Before explorers discovered Mount Everest, what was the tallest mountain on earth? Well, it was still Mount Everest — we just didn't know it yet.
Before startups, what were new companies called?
"Today's largest corporations were all startups at one point — they were small, young, nimble companies operating under conditions of uncertainty," says Erin Trimble, manager of business development with athenahealth's More Disruption Please team, adding that even GE and Ford were once startups.
Though not by the same name, the idea of startups has long persisted. However, the global digital revolution has created a surge of such companies. Healthcare in particular has seen growth in this sector. According to PricewaterhouseCoopers, more than 90 new healthcare companies have been created since the PPACA was signed into law.
Parallel to the startup boom, though, lie questions of the future of such companies. The lifecycle of a startup is erratic, and there are significant risks, especially when considering how the majority of startups fail. A recent report from Accenture found half of digital health startups are projected to fail within two years of their launch.
Startups are figuring out how to get a foot in the hospital door at the same time CIOs have certain parameters for the types of startups with which they want to work. Some are toeing the line between exiting startup territory and entering the big leagues.
The odds seem to be stacked against startups, yet they persist. Here's how.
Startups defined
In the colloquial sense, startups evoke visions of young people, generally millennials, working in a nontraditional office on some sort of technological endeavor.
This may be characteristic of some startups. But John Flavin, executive director of Chicago Innovation Exchange at the University of Chicago, says there are three key elements that categorize a company as a startup: a product or service concept, a founder and a source of capital. With those foundational characteristics, any new organization is technically a startup.
In modern lexicon, what differentiates startups from nonstartups are cultural values. Ms. Trimble says most leaders and employees at startups share a certain mentality: They move fast, take risks, and create an environment where it's okay to make mistakes and readjust. This stands in stark contrast to legacy companies. "The stereotypical 'big company' mentality involves excessive meetings, painful processes, and multiple decision-makers for every issue that comes up — combined with inherent risk avoidance," she says.
But this definition isn't binary. athenahealth went public in 2007, 10 years after it was founded. Going public is one way companies often graduate out of the "startup" category. athenahealth had the most successful IPO of the year, selling 6.3 million shares to raise $113 million. Currently, more than 67,000 providers from all 50 states and Washington, D.C., use athenahealth's network, including providers from Cleveland-based University Hospitals, Boston-based Beth Israel Deaconess HealthCare and Children's Hospital of Los Angeles Medical Group. For all intents and purposes, this is a well-established organization.
However, athenahealth retains the hearts and guts of its 1997 self.
"athena[health] can feel a lot like a startup on the inside. Despite having over 4,000 employees, we operate with a very entrepreneurial mentality. We move quickly, and we have a 'launch-and-learn' philosophy that is atypical of mature company," Ms. Trimble says. "That said, we're a large, public company. No one would qualify us as a startup. But it can feel like a startup."
The boom in healthcare startups and talent
The digital revolution has laid a fertile foundation for new startups as technology trends toward software. "You can build software a hell of a lot faster [than hardware] and you can iterate on it even faster," Ms. Trimble says. "And, you can do it with one guy and a laptop."
It has become easier to create a minimum viable product in the software-centered, Internet-enabled world, she says. Logistical challenges are down and opportunities are up.
What's more, the younger workforce is drawn to the startup mentality. According to the U.S. Chamber Foundation, a nonprofit affiliate of the U.S. Chamber of Commerce, millennials launched nearly 160,000 startups each month in 2011, and 29 percent of entrepreneurs that year were between 20 and 34 years old.
Mr. Flavin says the 2008 market meltdown changed how the next generation's leaders view their destinies. "Entrepreneurship … connotes empowerment and the ability to, even in times of great recession, take matters into one's own hands, be innovative and continue to persevere to make one's way in the world," he says.
To illustrate, the focus of students in University of Chicago's prestigious Booth School of Business has shifted from the traditional finance and economics concentrations. At a school historically known as a powerhouse for investment bankers, the No. 1 concentration of MBA students is now entrepreneurship. "That tells you something about where people want to be associated," Mr. Flavin says.
Healthcare's hurdles
Combine zealous talent with low barriers to entry, and you have a recipe for a booming startup scene in the healthcare marketplace. The digitization of healthcare only supports this transition and creates a niche to be filled, which millennials are quickly doing.
The union of startups and healthcare, though, can seem like an unlikely pair. The modus operandi of each is opposite of the other. While startups are characterized by their touch-and-go, stare-risk-in-the-face approach, healthcare is risk-averse with the No. 1 focus on patient safety and clinical quality.
"Try to run a health system while you're transforming it. It's almost antithetical," says Joel Vengco, vice president and CIO of Springfield, Mass.-based Baystate Health and founder of TechSpring.
It is this clash of cultures that propelled Mr. Vengco to create TechSpring, an independent innovation center affiliated with Baystate. The center provides a forum where startups and entrepreneurs can fail, develop solutions and be agile — all without affecting patients. "In all respects, it's trying to break that tradition of healthcare so it can progress and transform healthcare the way that it should through the use of technology," Mr. Vengco says.
The startup sales pitch
Once a startup's product is ready to go to market, getting a foot in the hospital door is challenging. "The fact no one knows your brand or who you are does not help. You're knocking at the door of these providers and praying that they'll answer," Ms. Trimble says.
Once they make it inside a hospital, startups and providers must integrate the product (assuming it is software) with the rest of the information systems. "Providers are already dealing with so many systems, and they don't want to open up another tab or app for your niche use," Ms. Trimble says. "It's important to understand not only the value a solution is bringing to the provider, but also how it can plug into the multitude of existing systems those providers are already using."
At the same time, the newness of startups and their products may give them more leniency in the eyes of providers, according to Ms. Trimble. Startups can offer pilots, either for free or paid, to providers. These trial runs let the company work closely with the customer to incorporate their feedback and work out any kinks. "As a startup, you have flexibility — to pivot, to make mistakes and to iterate. No one expects the pilot to be perfect, and the learnings can be invaluable" she says.
What do CIOs look for?
Startups' relatively high failure rate can cause hesitation for a CIO taking the leap to partnering with the organization.
When looking for startups to work with, Mr. Vengco tends to seek mid- to late-stage organizations, a sustainable vision from the founder and some capitalization from the startup itself. He says founders' experiences offer some insight into how successful a startup might be, and being further along in the startup lifecycle means less risk. Additionally, a startup with some level of capital is desirable because partnering with such companies does cost providers to hire a project manager and interface data, for example.
"As a CIO who's looking to actually utilize this technology in the health system, you want to understand the viability and survivability of the startup," he says.
When is a startup no longer a startup?
While all companies may begin as startups, it's less clear whether they remain as such.
Financial performance can serve as a benchmark to determine if an organization is a startup. If the company performs well, goes public, lands a decent number of clients, how uncertain is the environment in which it operates?
But even companies valued at $1 billion are still deemed startups. These so-called "unicorn" startups are the companies with humble origins that made it big. Companies like Facebook, Twitter and Uber were all startups at one point and became unicorns. As of press time, there are 138 startups worth a total $501 billion across all sectors that have achieved unicorn status, according to CB Insights.
The reverse is true, too. Companies that have been around for 20 or 30 years wouldn't be classified as a startup simply because their finances are below a certain benchmark typically reserved for legacy companies, Mr. Flavin says.
This question of when a startup is no longer a startup returns to the definition of such, which, like Ms. Trimble mentioned, takes financial performance into consideration but hinges heavily on culture. "Ultimately, a company is no longer a startup when [it has] both the mindset as well as the financial and operational ability to function at scale," she says. "With that mindset comes a focus on the long term."
For startups, the long-term strategy may not be to remain independent.
In fact, Mr. Vengco says it is often in the company's best interest to have an exit strategy from the get go. "There's an overabundance of many of these [startup] ideas," he says. "Those that are going to succeed are going to have the right partnerships, right pilot sites and expert organizations associated with them, and obviously the right exit strategy."
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