Scaling Healthcare Businesses: A Strategic Ramp-Up

On February 10, 2025, HSI hosted the second seminar in its Scaling Healthcare series. This time, co-chairs Rebecca L. Schechter, (Sloan MBA, Formerly at Nuance/Microsoft, Healthcare executive and CEO) and Eric Berger, (Sloan MBA, Partner, Bain & Company) focused on ramping up from the start-up growth phase, which was the topic of their first seminar.

The panel of experts sharing their expertise on ramping up were:

• Gaye Bok, Partner, Artificial Intelligence and Digital Innovation Fund, Mass General Brigham
• Nell Buhlman, Chief Administrative Officer & Head of Strategy, PGForsta
• Kara Murphy, Partner, Bain & Company
• Jason Slocum, Managing Director, Sustainable Investing, Goldman Sachs Asset Management

Healthcare startups face a complex journey when scaling from initial traction to building a sustainable business. During this seminar, the speakers highlighted key challenges and strategies for navigating this "ramp-up" phase, and offered insights into building a scalable healthcare business amid market complexities.

The "Ramp Up" Challenge
Many healthcare companies struggle to achieve true scalability. Less than 1% of healthcare-related companies founded in the past two decades have reached "scale insurgency," meaning they have revenue of more than $10B and cash from ops over $1B. The challenge lies in maintaining a founder's mentality while achieving the benefits of size, scale, and proprietary assets. Companies often get stuck in bureaucracy or fail to transition from an emerging startup to a sustainable business.

Importance of Strategy and Focus
A well-defined strategy is the foundation for scaling. It's essential to define what the company does, who it serves, and why its approach is superior. Staying true to this strategy is critical. A disciplined go-to-market approach aligned with the overall strategy is crucial, requiring focus and the ability to decline certain opportunities to strengthen core offerings. It is important to have focus and do a few things really well.

Understanding the Healthcare Buyer Landscape
Navigating the healthcare buying process is complex. Each health system may define ROI differently, requiring an understanding of the buying chain and stakeholder needs. Stakeholders include clinicians, CFOs, and digital organizations within the buyer organization, and decisions are often made by committee, necessitating education across multiple functional executives. Tight budgets mean vendors compete for limited discretionary spending and scarce digital expertise needed for integration, which can delay implementation and impact cash flow. Preference has also shifted toward buying from existing incumbents/vendors such as Epic and Microsoft, making it harder for newcomers to penetrate the market.

Differentiation and the "Moat"
Differentiation is crucial in a crowded market. Startups need to identify their "moat," such as proprietary data assets, algorithms, or the ability to use data effectively. For AI-enabled businesses, a "proprietary moat" is critical, considering how easily others can replicate technology.

The Role of Partnerships
Partnerships can be a strategic option for emerging companies. A larger organization may use partnerships as a "try before you buy" approach, leveraging smaller companies' unique technologies. Partnerships can offer a speed to market advantage, especially in rapidly evolving spaces. Forming partnerships with established players such as Epic or Microsoft can boost market share. However, startups need to be aware of potential trade-offs.

Achieving Cash Flow and Sustainable Growth
A credible path to cash flow break-even is essential. Companies should make data-driven decisions and avoid spending excessively to acquire customers that don't generate long-term value.

The Provider vs. Insurer vs. Pharma Landscape
Selling to providers, insurers, and/or pharma companies requires understanding the nuances of each segment. While providers may perceive a narrowing winner circle, the pharma landscape may be more open due to more fragmented decision-making. Pharma is often more comfortable than providers buying point solutions that can improve clinical trial timelines or costs.

Characteristics of Successful Leaders
Successful leaders can articulate a compelling value proposition and possess a deep understanding of the addressable market and a realistic view of investment needs. Focus, data-driven decision-making, and a great board of advisors are essential. Operational experience is also valuable.

Career Advice
Panelists offered career advice for those aspiring to work in healthcare innovation. Gaining an operating role early in one's career can help to understand the industry's complexities. Experience in different parts of the healthcare value chain can provide a comprehensive view. Being a "hand raiser" can create diverse experiences and build a strong reputation.

Scaling a healthcare business requires a multifaceted approach. By emphasizing strategy, understanding the buyer landscape, differentiating the business, forming strategic partnerships, achieving positive cash flow, and learning from experienced leaders, healthcare startups can increase their chances of building sustainable and scalable businesses.