61% of Digital Health Companies Pivot from B2C to B2B
B2B business models predominate digital health.
10 years ago, a wave of companies emerged, promising to revolutionize health by empowering individuals to monitor their diet, sleep, exercise, and other habits through digital means. However, funding for digital health considerably dwindled between 2022 and 2023, leading many companies to shift their focus from direct-to-consumer (DTC) models to business-to-business (B2B) approaches.
This transition has been notably adopted by industry titans like Calm, CostPlusDrugs, and GoodRx, even before 2022, who now prioritize employer and payer partnerships while continuing their direct-to-consumer efforts.
A common pitfall among digital health ventures is the application of a strategy cultivated in the tech sector to the healthcare domain, which operates under an entirely different set of dynamics. Unlike consumer tech startups that rapidly introduce a minimum viable product (MVP) and refine it based on consumer feedback, the lean startup approach is unsuitable for the intricate and highly regulated healthcare sector.
In healthcare, digital products must not only cater to individual consumers but also navigate a complex network of stakeholders, including healthcare providers, patients, regulators, and insurers. Success in this sector requires an understanding of its regulatory landscape, patient privacy concerns, and the intricacies of healthcare delivery.
Many tech founders initially focus on consumer-oriented products but later realize that healthcare providers and insurers are the primary decision-makers and target customers for their products.
Rock Health conducted research involving 85 digital health startup founders, affirming the prevailing rumors: B2B business models dominate the digital health sector.
Among the startups surveyed:
- 34% began life with a B2C business model.
- Of those who started as B2C companies, 61% changed their business model to either B2B2C (45%) or B2B (16%).
- Only 14% of companies surveyed currently operate under a B2C business model.
A Better Approach
In healthcare, the old way was to invent something, like a fitness tracker, and then figure out how to use it. But, a new, more effective approach is emerging: one that puts the emphasis on understanding healthcare challenges before creating solutions.
Here's how it works:
Spotting the Gaps: Instead of making gadgets and then trying to find a use for them, we start by spotting where healthcare is falling short. Maybe it's something like making sure people take their meds or improving how doctors and patients talk to each other.
Getting to Know the Problem: Once we know what's missing, we dive deep into understanding the issue. We look at what's already out there, talk to doctors, patients, and others involved, and really get why things aren't working as well as they could.
Setting the Must-Haves: We make a list of the key things our solution needs to do to effectively address the issue. Things like being accurate, not costing a fortune, and fitting into how things already work.
Crafting the Fix: With our list in hand, we create a solution from scratch that ticks all the boxes. We keep tweaking and improving until it's fully optimized.
This approach called “need-driven innovation” , makes sure our solutions actually fit the bill and make a real difference in people's lives.
Another Valuable Approach: B2C2B in Digital Health
B2C2B, commonly referred to as the bottom-up approach, has facilitated the entry of companies such as Slack, Zoom, Dropbox, and other software firms into the B2B market. Now, a similar trend is emerging in digital health, as a wave of startups initially market their products and services directly to consumers. Upon reaching a significant user base, they pivot towards engaging insurance companies, employers, and other organizations.
Why choose B2C2B?: While B2C2B can be more complex to execute, it gives startups the power to acquire and engage users directly without first contracting with the payor.
In a nutshell, the B2C2B motion is trying to control the growth through direct patient acquisition. You can build up your own funnels and channels to acquire patients, but then still get paid by the traditional system of payors and employers.
Applying successful tech strategies to healthcare isn't enough. In the era of rapidly growing digital health, the key to success lies in understanding the true needs, crafting innovative solutions that meet stakeholders' core requirements, and proving that the product delivers superior outcomes.
+ Health-Tech innovation is good
P.S. I used some of the following sources to obtain the data for this article:
(1) Rock Health (2) Fast Company (3) Stanford (4) a16z
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