By BRIAN KLEPPER and JEFFREY HOGAN
GoodRx’s planned initial public offering recently made the news, notable because the company, launched in 2011, has been profitable since 2016. Evidently, it’s become unfashionable for investors to demand proof of performance, so GoodRx’s results shone like a beacon. By contrast, most health care firms seeking funding convey bold aspirations and earnest promises. Investors throw in with them and hope for the best.
But few new entrants seem to do the necessary advanced due diligence to assess exactly where and how their product, service or innovation should be positioned in the health care ecosystem to derive maximum value. Ironically, COVID has intensified and highlighted the fragility of the health care ecosystem, as well as the greater disruption opportunities available to new entrants.
Health care has become irresistible to investors, the outgrowth of the industry’s dominant players’ spectacular financial performance. Over the past 45 quarters, for example, major health plan stock prices have grown 4-6 percent per quarter, 1.2-2.2 times the growth rates of DJI and S&P (See the table below). Investors hope to either 1) capitalize on the health care’s ongoing culture of overtreatment and egregious pricing, or 2) support and share in the savings associated with rightsizing care and cost.
The result has been a torrent of investment. Mercom Capital reports that, in the last decade, investors have poured $50 billion into some 5,000 digital health startups, each one no doubt guaranteeing wholesale health system disruption that never arrived.
There are a couple of messages here. In the main, few health care startups are constituted to thrive. And apparently, few investors critically evaluate a venture’s broader design elements to gauge its chances for success. Many startups have great ideas and some even operationally execute those ideas well, but gaining traction in the health care marketplace requires much more