In the past few months, the founders of Instacart, Spotify, and Coinbase have all launched new healthcare companies. This may seem odd to some: Why are these experienced tech founders getting into tech-driven healthcare?
In 2013, Marc Andreessen noted that the biggest, most successful companies have done all sorts of things that seemed totally “crazy” when they first started. Just look at the last 20 years for examples: Staying in a stranger’s house? Airbnb. Getting in a stranger’s car? Lyft. Putting a computer in everyone’s home, in everyone’s pocket, and on everyone’s wrist? Apple.
But what sounds crazy in 2023? It’s not food delivery services, recruiting tools, or dating apps. More broadly, we all agree that mobile, internet, cloud, and SaaS are the consensus and mainstream.
That’s the crazy story of 2023: trying to fix the gigantic mess that is the U.S. health care system.
America’s largest industry — one-fifth of our economy — has collapsed beyond words. The United States lags far behind other developed countries in health outcomes and costs. Hundreds of thousands of people die every year from preventable human error.
Modern technology has hardly made inroads in the medical field, which still relies heavily on paper and fax machines for communication.
The most impactful companies are born at the cutting edge, and healthcare is the next cutting edge. Now is the time to leverage your technology skills. The mother of all markets is ripe for disruptive change.
The most impactful companies are born at the cutting edge, and healthcare is the next cutting edge. Now is the time to leverage your technology skills. The mother of all markets is ripe for disruptive change.
“But … health care is hard.”
We hear you: Healthcare is hard. It’s scary. It’s regulated and it’s complicated. And that’s what makes it so exciting.
Let’s address these three concerns head on.
First, health care is definitely scary, but we’ve learned it, and so can you.
The overwhelming nature of healthcare is largely due to its market size, which is immense – $4 trillion in the United States alone – and made up of countless submarkets.
But of course, larger markets are good. The U.S. healthcare market is five times larger than the global advertising market, where most of the big tech companies operate. The U.S. healthcare market could support dozens of FAANG (Facebook, Amazon, Apple, Netflix, Google)-sized companies, but currently there is only one (UnitedHealth Group).
Second, consider the concern that healthcare is a highly regulated industry. While this is certainly true, many of the most iconic companies of our time were founded in complex, regulated markets, such as Lyft and Airbnb. Additionally, companies founded in unregulated markets eventually faced intense regulatory scrutiny and pressure, such as Google, Meta, and Amazon. Regulation seems to be either an input or an outcome for all great companies.
Like Lyft and Airbnb, healthcare faces national and state/local regulation. There is a federal system, and each state has its own medical board and insurance regulations. This is certainly a source of opportunity, but it also provides a great basis for experimentation, allowing companies to test different approaches in different regions.
And the upside to government regulation is government money. Federal and state governments spend over $1 trillion each year on health care through programs like Medicare and Medicaid. This gives health care companies very large, entrenched customers that they will never lose. Anyone in politics will tell you that Medicare is not subject to cost cutting. Seniors (the most reliable voters!) would revolt.
Third and last, we agree that healthcare is complex. But so are most markets: hotels, taxis, digital advertising, etc. What makes healthcare feel even more complex is its size. We have established that this is a good thing: healthcare has many different actors (providers, payers, pharmaceutical companies, etc.), which adds complexity, but this is to be expected in an industry of this size. Additionally, complexity has benefits, such as defensibility, because simple markets and solutions have far more competitors and imitators and are easier to commoditize.
Why come to Healthcare?
The above concerns can be summed up as follows: Healthcare is scary. We believe that in scary places lies opportunity. Here are some reasons why you should bring your tech skills to healthcare:
First, healthcare needs technology. PhDs developing new cancer drugs and diagnostics are critical but represent only a small portion of this market. Even if we cured all cancer, Americans would only live three years longer. Instead, some of the biggest problems in healthcare will be solved by technology. At the heart of healthcare are (1) data, operations, and logistics problems, and (2) consumer experience and engagement problems, both of which are areas where the technology world excels.
When it comes to data, operations, and logistics, there is endless room for improvement in healthcare today. $765 billion is wasted annually, primarily due to human administrative overhead. True data interoperability is still a reality. A person’s vital medical records are scattered across dozens of different clinics and health systems, with little hope of ever being brought together. Most promising drugs never make it through clinical trials to reach patients because we haven’t yet figured out how to recruit trial participants and conduct the studies in a cost-effective manner. None of these problems can be solved without an MD or PhD, yet each is a multi-billion dollar opportunity.
When it comes to consumer engagement, I’ve written before about how poor consumer engagement caused by poor consumer experiences is one of the biggest problems in healthcare. Most ill health and deaths are caused by diseases that we know how to prevent or treat. What we need in this climate isn’t more science; we need culture and policy change, as well as people who can build better experiences to get patients to care about their health, whether that be eating healthy, exercising, going to the doctor, or taking their medication. No one is better suited to solve these problems than technologists who excel at consumer engagement.
Moreover, healthcare offers a prime opportunity to leverage the latest tools in technology, particularly AI, to displace large incumbents. As I wrote recently, introducing AI into a traditional technology software business presents some challenges, including the fact that AI gross margins are lower than SaaS due to heavy use of cloud infrastructure and ongoing human support.
In healthcare, the situation is the opposite: most of the healthcare industry is a service, with low gross margins. In healthcare, AI dramatically improves previously unfavorable economics, making building in the industry much more attractive. Additionally, while human-driven services tend to scale linearly with each additional human being added, AI-driven services can scale exponentially.
Profit margins are great, but missions are even better. Given the limited number of days we have on this earth and the countless hours we spend building a startup, wouldn’t it be great if you were working on something that really matters? You don’t have to be a doctor or a cancer researcher to save a life. A company that detects medical errors or helps people get better access to healthcare could save countless lives.
Even if this isn’t a personal motivator for you, healthcare’s mission-driven approach helps it attract better talent than other industries can. 80% of college graduates say getting a sense of purpose from work is very or extremely important. Millennials value purpose in life more than older generations, and they’re turning to work over other avenues to find purpose.
Working to improve health care is an obvious way to find purpose in your work. Essentially, every American can personally relate to how broken the U.S. health care system is. Who hasn’t been asked to fill out pages of medical forms for the 57th time, received a huge unexpected medical bill, or lost a loved one to a preventable or treatable illness?
What’s more, healthcare’s mission orientation may also help improve talent performance. Gallup reports that “there is a strong correlation between employee purpose and engagement and an organization’s bottom line.” McKinsey concludes that “people who practice purpose at work are more productive than those who don’t. They’re also healthier, more resilient, and more likely to stay with their organizations.”
Finally, I believe your technology orientation will be a huge asset in leading a healthcare company. Of course, tech founders operating in healthcare need to study healthcare deeply. To do this, I recommend surrounding yourself with healthcare veterans (this is especially true during the ideation stage). But the advantage of coming from a tech background is clear: technology evolves faster than healthcare. The tech world produces visionaries who don’t accept the idea that the way things are done today will be the way things are done tomorrow. Your fresh perspective is exactly what healthcare needs.
Trying to improve healthcare in 2023 sounds like insanity, and there’s certainly no consensus, but in what other industry could you build the world’s biggest company?
