Considering the 4 P’s of Healthcare To Cement the Success of Your Start-Up

December 2012
Authors: Stephen Kraus
Related Companies: Liazon
Related Strategies: Healthcare

Last month, I wrote a blog about one of my favorite trends in healthcare: consumerization. I’m a fan of consumerism in healthcare because I believe it will fundamentally transform our system to everyone’s benefit.  But despite my optimism, in that same blog, I cautioned consumer-driven healthcare entrepreneurs to carefully consider how well they interact with the broad range of stakeholders in the healthcare industry to increase their chance of success.  This week I’m going to expand on that idea. 

To start, the health care ecosystem is extremely complex and filled with many different stakeholder groups including payers, providers, patients, regulators, and the government.  The list of “interest groups” goes on and on: 

No matter how great your product or service, the success of your business rests on whether or not you have thought about how your business interacts with these stakeholders.    

At Bessemer Venture Partners, there is nothing we love more than meeting with consumer-driven entrepreneurs eager to innovate in healthcare.   However, in considering an investment in a healthcare service or HCIT, our healthcare team spends a lot of time thinking about how the company’s product or service will impact the interest groups outlined above.   We specifically focus on the “4 P’s” of healthcare – patients, payors, physicians, and provider institutions (think: hospitals and health systems) asking questions like:  
 
How will this product or service benefit or hinder these constituencies?   
Does it improve the quality of the work that they do? (in this case: patient care) 
Does it increase their financial ROI and (even better!) their take-home pay?
Does it improve their workflow or decrease time spent on task?
Is the product or service relatively easy for them to implement, adopt, and interface with?
Does it improve their quality of life?
 
We ask these questions because we have found that companies that address the concerns of each constituent group as they build their business plans are more successful than those who try to tackle them later or don’t think about them at all.  In fact, analysis we have conducted shows that healthcare companies which successfully address the interest of the “4P’s” provided better returns for their entrepreneurs and investors.   I’ve summarized the study methodology and findings below:

The “4 P” Devotee Club: Examples of Companies With The Right Approach

In an effort to make this analysis more tangible, I thought I would speak to two companies who not only have high net benefit scores but have also experienced high growth (after all, the two are closely correlated!):

Liazon – As the leading private benefits exchange company, Liazon is a great example of the rise of consumer-driven healthcare.  Think of Liazon as the Amazon.com for healthcare benefits; it helps consumer shop for the insurance products that are right for them.  Given its heavy consumer focus, Liazon had to build an online storefront with back-end support functions on par with those of top consumer-facing web companies.  But, because they are in healthcare, the Liazon team is very focused on how their offering is perceived by insurance companies, employers, and brokers –traditional stakeholders involved in the payment and distribution of insurance products and services.       

Earlier this year, BVP led an investment in Liazon because (1) we believe in the long-term opportunity of the private exchange space and (2) because we love how thoughtfully the founders (Ashok Subramanian and Alan Cohen) designed, built, and positioned the Liazon offering—carefully considering not only the perspective of the end consumer, but other constituents as well.  
 

LifeImage – On the face of it, LifeImage’s cloud-based medical image sharing software seems so focused on radiologists that it would be a long shot for a high “4 P” score.   But LifeImage founder and CEO, Hamid Tabatabaie, is a seasoned entrepreneur who understands the healthcare ecosystem. He brilliantly designed a world-class product that serves the interest of many different healthcare stakeholders. By doing this, the LifeImage team expanded what could have been a niche point-to-point radiologist-only solution into a much larger opportunity.  Although it requires more time and money to build a product suited to the needs of multiple constituencies, as Hamid and his team did in medical imaging, it is the only way to create and benefit from true network-effects. 

By this point, you are probably thinking:  OK, now give me an example of a company with a low “4 P” score.   Trust me when I say that we see far more companies with high net detriment (or low net benefit) scores each day than companies on par with Liazon and LifeImage.   Take, for example, the standard consumer-focused, “game-ifed” mobile healthcare app everyone seems to be building these days.  Typically, these products are created by an entrepreneur who has given little thought to how a doctor or an insurance company will use or interact with them.   Companies like this might be successful —BVP has been known to be on the wrong side of a bet!—but because of BVP’s approach to opportunities in the space, these companies probably won’t get a second meeting with our healthcare team.

Of course there are exceptions.  While we are big fans of the “4 P’s” framework, we aren’t always rigid in its application.   Some companies’ business models might run counter to the interests of one of the “P’s” . . . it happens.  In these cases, the best entrepreneurs will still think deeply about the interests of this “P” they are violating.  They will do everything they can to make the offended “P” a friend.   That said, if you find your offering violates the interests of several “Ps”, then it’s probably time to step back and take a hard look at your business. As our recent study illustrates:  in the complex and intertwined ecosystem of healthcare, it pays—literally!—to play well with others.