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The major pitfall for digital health startups

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While 2015 was a solid year for digital health, with $4.5 billion in total venture funding, healthcare startups also made headlines for other reasons when reports emerged that much-hyped companies like blood-testing startup Theranos and brain-training app Lumosity were unable to prove the accuracy and effectiveness of their products.

Like Beth Seidenberg from KPCB states, digital health startups are increasingly seen as a vehicle to help reduce costs, increase revenues and cut red tape for consumers, healthcare practitioners or service providers. With the laser focus on KPIs and growth, digital health startups often overlook an important factor: Trust.

However, in light of recent events in this space — now more than ever — digital health entrepreneurs need to remind themselves of the importance of building and maintaining trust with key stakeholders in order to sustain their businesses.

The importance of trust

Although developing a reputation of trust and credibility is critical for startups across industries, it’s particularly important in the realm of digital health. Not only are people more sensitive when it comes to issues of health and well-being, healthcare practitioners are very careful about who they work with because of the complex and highly regulated nature of this sector.

Having talked to many entrepreneurs working in this area, it seems that the most common problems they face often come down to obtaining funding and deciding on a business model. Both are in one way or another intertwined with the issue of trust.

The digital health market is still fairly nascent, which means many investors are just getting to know this fast-growing space and may not yet be so inclined to open their pockets. Part of the entrepreneur’s task is to prove they have deep knowledge of the market, present evidence that their product/technology is effective or demonstrate how they’re capturing value through metrics.

How can digital health entrepreneurs prove their product/service is credible and trustworthy?

Besides raising capital, the question of whether to go B2C or B2B is a hot topic. I don’t believe it has to be an either/or decision; rather, these models can be combined in an overarching strategy. Having seen more than 2,300 digital health startups and sat through meetings with portfolio companies, I’ve noticed that B2B models usually take a bigger chunk of the revenue stream. And the foundation of B2B deals usually comes down to two things: retention and trust.

High B2C retention rates are a sign that a startup is capturing value in some way, while trust is needed to show potential partners that your company is reliable and worth working with. If trust is not the backbone of a business relationship, these types of deals are much more difficult to close.

Another important thing to remember is that each transaction or interaction can either strengthen or undermine the trust that stakeholders have in a startup, and once it’s lost — like in a scandal related to inaccurate claims or questionable motives — it’s difficult to recover.

Building credibility

So how can digital health entrepreneurs prove their product/service is credible and trustworthy?

A good starting point of building trust with stakeholders is by acquiring FDA approval or product certifications. For mySugr (a Vienna-based startup aiming to change how people perceive diabetes therapy), meeting FDA/EU standards was a top priority from the very beginning. The company wanted to make it very clear to stakeholders that it was offering a medical product solving a real therapy problem, as opposed to a wellness gadget.

It takes time to build a startup brand with a reputation of trust.

Since its launch in 2013, mySugr’s diabetes Logbook app has been registered as a medical device with the FDA. Michael Forisch, Quality Management Director at mySugr, told me that gaining approval essentially comes down to describing how the startup plans to work — which includes everything from processes involved in hiring new employees to managing patient risks — in a specific language used by organizations such as the FDA. Overall, he said the time required for FDA approval depends on the complexity of a product, but startups should expect at least 6-8 months in the EU and 9-12 months in the U.S.

Because mySugr partners with pharmaceuticals and diagnostic companies, among others, Forisch says it’s been critical having this stamp of approval because fulfilling regulatory requirements is typically a prerequisite for integrating their product with these companies.

Joerg Land, CEO of digital health startup Sonormed, said receiving CE certification for their app that aims to treat tinnitus, called Tinnitracks (now reimbursed by Techniker Krankenkasse, a large insurance company based in Germany), proved to be an important step in building trust with patients, physicians and partners alike.

Despite a process that took more than 18 months and involved working with authorities and lawyers, Mikko Kiiskilä — CEO of Finnish telemedicine startup MeeDoc — shared a similar sentiment, and said it’s crucial to show concrete evidence of quality when working in such a conservative industry like healthcare. Today their service is reimbursed by the Finnish government and insurance companies in multiple countries.

Another way to support your claims is through clinical validation. Unfortunately, like getting approvals/certifications, the process can be time-consuming. German e-health tech startup Emperra worked alongside a health insurer on a study to provide evidence of the medical benefits of its digital diabetes patient-care solution.

Although the clinical study took around two years to complete, Emperra CEO Dr. Christian Krey said validating its medical product proved to be an important factor in gaining reimbursement from insurance companies and when negotiating partnerships — all parties wanted to see the results of the study before entering into a contract.

Similarly, German brain-training startup NeuroNation conducted a study with two German universities that proved the application could increase the working memory capacity of its users. Although the study lasted around 18 months, NeuroNation co-founder Jakob Futorjanski said that having the validation was a huge milestone in gaining the trust of their users, and eventually led to higher-quality cooperation (insurance companies, clinics, etc.) and higher retention rates.

Ultimately, digital health entrepreneurs should remember that it takes time to build a startup brand with a reputation of trust — and constant care to maintain it. And yet, it’s a crucial part to the success and sustainability of a startup aiming to challenge the status quo in health care.

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