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Christina Hernandez Sherwood, eMed Editor, MedCity News


The term "access" can have a variety of definitions for life science and digital health entrepreneurs, depending on the phase of their company's development. Similarly, the ability for entrepreneurs to secure access - whether to potential buyers or to funding - varies depending on the type of access they're seeking and the stage of their company.

There are four general types of access for life science and digital health entrepreneurs:

  • Access to potential customers
  • Access to networks
  • Access to capital
  • Access to care settings

Access to potential customers

In healthcare, "customers" are typically not the patients who will use the drugs, devices and services early-stage companies are developing. Healthcare is a "B to B to C" cycle: insurance companies, hospitals and the federal government (which reimburses hospitals for the tools and services they provide) are your typical customer. But even that's not definitive. It's becoming even more challenging to define a customer. As more employers are transitioning their employees from group-based health insurance to individual-based health insurance, more individuals are now considered customers (who pay for the product/service) than simply consumers (who use the product/service), according to the Woof Street Journal from Bernard Health. Dr. Stephen Schimpff, author of The Future of Medicine, argued to the Medical Device and Diagnostic Industry that there are actually no clear customers in healthcare. With employer-based health insurance plans, individuals only pay a small portion of the bill, he said, contrasted with the retail industry where the paying customer is "always right."

At the beginning of your entrepreneurial experience - during the ideation and business model validation phases - you think you have a great idea for a service or product. But you can only validate the value of your idea and its commercial promise by talking to different customer groups. This type of access is relatively easy to acquire and only requires footwork and perseverance, coupled with a structured learning approach. It's best to speak with most of these potential customer groups, so as not to miss what could be a valuable segment:

  1. Patients
  2. Employers
  3. Payers
  4. Pharmaceutical companies
  5. Physicians
  6. Hospital networks
  7. Medical device companies
  8. Distributors
  9. Federal and state government
  10. Others

There are unique challenges to engage each of these customers. When it comes to physicians, for example, Intersect ENT's Lisa Earnhardt said entrepreneurs should involve physicians in their efforts early and often. These physicians should be able to advise entrepreneurs not just on product design, but on strategy and other efforts. They should be willing to go to the payer on behalf of the entrepreneur. It's important for entrepreneurs to have a mix of academic physicians and private practice physicians in their arsenal, Earnhardt said. Entrepreneurs can find these physician partners by attending meetings and seeking out key opinion leaders, Earnhardt said.

Meanwhile, when it comes to hospitals, access to care settings can be tricky because the health care sector is often much more conservative and risk averse than entrepreneurs would expect. For more information on that, see the section below on Access to Care Settings.

One way to keep track of the contacts you're accessing is by using the structured learning approach, which is simply a structured, step-by-step way to learn something. One example of a structured learning approach is Alex Osterwalder's Business Model Canvas. The Business Model Canvas helps entrepreneurs map the key elements of their business model - from key partnerships and activities to cost structure and revenue streams - in one image. Another example is Steve Blank's customer development approach, described in his book The Startup Owner's Manual. Steps include customer discover, customer validation, customer creation, and company building.

Access to networks

At the early- to mid-phase of developing a business, access to networks becomes crucial. The task might seem overwhelming at first. But the effort is worthwhile because the ability to connect with peers - including those a few steps ahead of you in the process - is priceless. Access to networks helps entrepreneurs avoid common mistakes, as well as have the support of a strong network when times are tough.

Now, more than any time in history, there is more access to networks for entrepreneurs than ever, said Unity Stoakes, co-founder of Startup Health. Entrepreneurs can connect with peers, investors, potential customers, stakeholders, and other players in the life science and digital health ecosystem. "There are a lot of interesting and freely accepting networks that have formed in the last two or three years," Stoakes said. "It's helping drive a lot of the early stage innovation in digital health and life sciences."

Startup Health, a structured community for innovators in the digital health ecosystem, is one such network. It's a free online network for anyone focused on health and wellness innovation that leverages technology, Stoakes said. What do entrepreneurs get out of the network? It's all about refining, testing, and building the business model of a startup. "Having access to these networks can speed up the cycles of customer development," he said. Connecting with the right decision makers can save time and potentially months of work for startups, Stoakes said. After using the network to identify key stakeholders, he said, the next challenge is to uncover insider intelligence into who the real players are in terms of investors and customers.

Examples of networks

Online networks

  1. StartUp Health: A community of more than 10,000 health and wellness innovators, including investors, healthcare professionals, and more than 2,000 entrepreneurs. Along with regular in-person gatherings, online resources include investor insights and a digital health job board.
  2. Answers BrightJourney: A question and answer website for entrepreneurs seeking to start or run a new business, Answers BrightJourney lets anyone ask a question - and anyone answer. The best answers are voted on and rise to the top of the page.
  3. MicroMentor: This online network connects entrepreneurs with one-on-one support and offers opportunities for experienced business professionals to give back as mentors.
  4. PartnerUp: Billed as a social network for small business, PartnerUp helps entrepreneurs find partners, promote their businesses, build relationships, and more.
  5. Score: This 50-year-old nonprofit is dedicated to helping small businesses launch, grow, and succeed. With members and chapters across the country, Score offers education and mentorship to entrepreneurs.
  6. eMed: An ecosystem for life science and digital health entrepreneurs, this Ewing Marion Kauffman Foundation website offers weekly advice from experienced startups, updates from Kauffman research, monthly white papers on issues ranging from funding to access, and event coverage.

It's essential that access to networks isn't just online, Stoakes said, but also happening live in the real world. The most vibrant ecosystems, he said, are shaped around places that have frequent and consistent networking events where innovators are spending in-person time together. "There's an emerging and very vibrant community of networking opportunities happening around the country and not just in hot spots like New York and Boston and San Francisco," Stoakes said. "There are so many opportunities for free or easily-accessible events. That's definitely one of the real transformations over the last couple of years -- how easy it is to find and attend high-quality events for free."

How can entrepreneurs get the most out of these events, which are often a whirlwind of activities and networking? Stoakes offers these tips:

  • Before the event: Do research on the attendees and schedule connections
  • During the event: Focus on building relationships, learning, and networking
  • After the event: Foster relationships by following up to build long-term connections

Entrepreneurs can find events on a variety of websites, including the Kauffman Foundation's eMed, MedCity News Events Central, Symplur Healthcare Conferences, Practice World, Startup Weekend, Rock Health, Paul Sonnier's Global List of Digital Health & Health Innovation Events, and more.

There are approximately 1,250 business incubators in the United States, including about 120 with some life science focus, according to the National Business Incubation Association (NBIA). In an earlier white paper on fundraising, eMed listed several leading life science accelerators.

Access to capital

By the mid-phase of your efforts, you've done a lot of legwork and have a good idea of the unmet need you're trying to fill and what you need to build. At this point, you'll need capital to validate some of your hypothesis before building your prototype.

But gaining access to capital, particularly during the current climate, can be difficult. Roughly two-thirds of life science capital and investors are gone, said Allan May, a board member of the Angel Capital Association and the Angel Resource Institute. Early-stage investments in medical devices and biotech are historic lows, he said. Part of the problem, May said, is that while life science entrepreneurs posses great science and engineering skills, they don't always have good business and financing plans, which are just as important. "We're a decade ahead science-wise versus business models and financial models," he said.

In medical technology and life sciences, early-stage financing is extremely weak, said Lisa Suennen of the Psilos Group. "There's a very high bar," she said. To cross that bar, Suennen said, entrepreneurs have to show they have a significant new innovation that is both clinically and economically valid (it can improve quality and reduce costs).

When it comes to digital health financing, she said, there's a huge bubble. There's a lot of capital available for early-stage companies, Suennen said, and there aren't many late-stage companies to speak of yet. The challenge for entrepreneurs: amounts are small and competition is fierce. "For everything you can show me that's cool, I can show you 20 just like it," she said. "You can't just have a gizmo. You've got to have a platform."

Below are some funding areas for entrepreneurs to consider with tips on how to gain access to each:

Family and friends

Family and friends are the most common sources of startup funding - and the only one for many non-technology companies. The dollar amounts may be small, but depending on how one values his relationships, the stakes can be high. These are the only investors you're likely to encounter who will be predisposed to saying yes, but you still owe them a clear and detailed presentation of the opportunity and risks.

When it comes to seeking funding from family and friends, access isn't a problem. But just because you can easily pick up the phone and pitch your uncle or college buddy, doesn't mean you should. The U.S. Small Business Administration recommends selecting someone with solid business skills who understands the benefits - and potential risks - of financing your startup, being realistic about the amount of money you need, and determining whether you want a loan or to offer a share in the business.

Government and Foundation Grants

Government grants are a growing source of seed funding for life science startups. As venture funds pulled back in the wake of the financial crisis, the number of federal small business technology grants increased each year between 2008 and 2010. The primary sources are Small Business Innovation Research (SBIR) and Small Business Technology Transfer (SBTT). Foundations are another potential source for seed grants, especially for companies whose technology targets a specific disease. Family foundations tend to work with early-stage companies and they are beginning to co-invest and invest in startups in ways they hadn't before.

If your business performs scientific research and development, it could qualify for an SBIR or SBTT research grant. The Small Business Administration provides an online grant search tool. As for foundations, trade shows are a good place to find and network with those offering seed grants.

Angel Investors

Angel investors are wealthy individuals who are often former entrepreneurs themselves. They've built successful companies and have money and advice to reinvest in promising new startups.

Cold calling prospective angel investors is not recommended. Introduction through credible referrals will improve the odds of success. Ask lawyers, colleagues and accountants for contacts. Follow local deals in the press and pay attention to who funded them. Network with companies that have recently received funding. A rule of thumb is that entrepreneurs should network for 6 to 18 months before pitching. Angels will evaluate companies based on management teams, the size of opportunity, and the product or service. Entrepreneurs want to evaluate angels and work with ones who can offer not only money, but also advice and connections. "These are two-way relationships," said Dr. Brad Weinberg, a partner at Blueprint Health. "It's not only about what you want, but about what other people want."

Venture Capital

Venture capitalists are professional investors who manage large, high-growth funds, often for institutional investors such as pension funds, endowments and corporations. They specialize in helping to build and sell companies, either through IPOs or acquisitions. Venture capitalists have shifted their focus in recent years toward later-stage companies. They generally don't want to invest unless they can put in at least $10 million. They look for companies that can produce rapid and high growth, and they're not particularly patient. They tend to expect returns of three to five times their investment within two to three years, or a return of 10 times their investment within three to seven years for early stage companies.

As with angels, introductions are key. Venture capitalists are easy to get in touch with, Weinberg said, but it's important that you have the company and value system they want. Focus on funds that have invested in life science companies. Venture capital isn't as geographically focused as angels tend to be, but location still matters. "You'll see that healthcare investing is pretty concentrated in a handful of states," says Anand Sanwal, CEO and co-founder at CB Insights, a New York research firm that tracks dealmaking. "You may want to position yourselves in a place where those investors are."

Crowd Funding

Rising in prominence with the 2012 passage of the federal JOBS Act, crowd funding lets entrepreneurs present their ideas to a large number of potential investors who can help startups reach their funding goals. The idea is for crowds to throw their support behind a particular project, driving consensus. Since a provision in the JOBS Act allows startups to raise up to $1 million through crowd funding, the technique is likely attractive to life science and medical tech companies.

Startups interested in crowd funding should seek out "medical interest networks" dedicated to a particular disease or condition, such as patient advocacy groups, foundations, and clinical societies, said Baiju Shah, former president of Cleveland nonprofit business development group BioEnterprise.

For more information on funding for entrepreneurs, read eMed's funding white paper.

Access to care settings

By now, you've built what you consider to be a great product or solution. The next struggle is to get your innovation into the hands of your customers. This is about the time many entrepreneurs realize the health care sector is much more conservative and risk averse than they were expecting.

Often, entrepreneurs have to deal with institutions that have unclear decision-making structures, Weinberg said. Once they figure that out, he said it's not a typically difficult access problem. From LinkedIn to the rest of the web's resources, Weinberg said, it's not too tough to get a proposal in front of someone. Most people go to the wrong person, he said, so it can be trial and error. A bigger problem is having a message that doesn't resonate, Weinberg said. Figure out what the decision maker cares about and that can increase your chance of getting the outcome you want: a sale.

One example of how entrepreneurs can gain access to a care setting is the effort of C3N. Physicians at Cincinnati Children's Hospital Medical Center have created a collaborative chronic care network that links entrepreneurs with doctors, patients, families, researchers, and other stakeholders. C3N was born in 2009 and has since grown to encompass 51 care sites, 450 physicians, 1,000 staff members, and 15,000 patients. About a dozen entrepreneur-developed interventions are being designed and piloted at C3N sites across the country.

Entrepreneurs come up with some of the innovative ideas that fuel learning at C3N, but they need the network to connect them with data, patients, physicians, and others. C3N entrepreneurs work with researchers, project staff members, faculty, and patients to prototype their interventions. Rolling out the product might start with a run-through of the analog version of the intervention with a single patient. Once they understand enough about the intervention and how it will be implemented, they'll pilot it. If the intervention is ready for implementation, C3N provide a distribution channel from the entrepreneurs to thousands of doctors and patients.

Similar efforts include Rock Health’s medical partnerships, including the Mayo Clinic and Harvard Medical School, and the new INFUSE Accelerator for digital health entrepreneurs debuting in Indianapolis this summer.

This arrangement is mutually beneficial, said the Kauffman Foundation's Dominique Pahud. Entrepreneurs get access to patients and providers who help them make their products and tools more useful. On the other hand, connections to entrepreneurs - and their innovations - provide physicians and care teams with access to the latest and greatest medical technologies. If entrepreneurs can't get access to hospitals, clinics, patients, and other stakeholders, their breakthroughs will go nowhere.

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