Pivot or Stay on Course?

Body

Editor's Note: Cambia Grove honors our role as a platform for the innovation community to amplify their perspectives on topics applicable to the larger health care ecosystem. This guest post from Will Canestaro, Managing Director, Washington Research Foundation, and Anahita Nakhjiri, Associate on the Strategic Investment team at Echo Health Ventures, unpacks the considerations entrepreneurs must navigate during the pandemic. For fuller reference, please visit a market trends Lunch & Learn conversation between Will and Anahita in January, 2020

The views expressed in this article are solely those of the author and do not necessarily reflect the opinions or positions of Cambia, Cambia Grove, or any other entity or organization. 

The necessary shutdowns to prevent the spread of COVID-19 have caused previously unimaginable damage to the economy. Up to 40 million people have lost their job. Over 100,000 small businesses have permanently closed. All of this can be seen in the overall picture of the economy with GDP shrinking at a rate of 9.5% last quarter.

And yet despite these grim high-level measures, investments in many areas of health care such as biotech or virtual health have grown.  If you lived in a bubble and were unaware of the global pandemic, you’d think things were going quite well if you only looked at this sector. So if you’re running a small business the signals can be hard to interpret. Do you stay the course and continue with the same business model that you had before the pandemic? Or do you pivot in response to the new world that we find ourselves in and change your fundamental business plan?

Let’s discuss some of the factors that you should consider first.

Time Horizon

Will Canestaro: Every company has a planned trajectory when it starts. If you’re a biotech, that trajectory may be towards regulatory approval and can take up to 10 years. Adjusting that business model is like trying to adjust the course for a rocket post-launch. You can tweak but it won’t fundamentally change course. If you’re offering a service to improve workflow in an office that trajectory may be towards scaling to more customers and reaching profitability and your company can be nimbler.

Blog
First and foremost, you need to determine the defining objectives of your business and their time scale.

You can then work backwards from there.

Anahita Nakhjiri: If you’re a digital health startup, the signals are clearer for how to adjust course relative to these market dynamics. With COVID-19 accelerating some trends like virtual health by years, the pace of change and adoption is indicative of a turning point in the market and its maturity. Startups able to react in real time with discipline, order and structure, whether by experimenting more vigorously and broadly to discover what works or by streamlining operations to aggressively advance that formula for success, will be rewarded with the capital and resources to scale. 

In this environment, shorter-term execution is key, and the stakes are high for those stuck in the ‘figuring it out’ stage.

Full Pivot or Add-On

Will Canestaro: The next thing that I would consider is whether the change that you’re evaluating is a full and permanent course correction or whether it is an add-on. Are you considering offering a completely different product and service than the one you started the company around? Doing a hard turn like that requires time and can’t be done lightly. Alternatively, if you’re offering an additional product or service in response to market conditions without reinventing the core business it may not be that different from standard listening to your customers.

Anahita Nakhjiri: Whether considering a full pivot or add-on, the primary goal should be to position yourself relative to where the market is or where the market is going. Different businesses are finding themselves affected differently by COVID-19, a dynamic ringing especially true for digital health. Evaluating which of your strategies - product, sales, marketing, financial, leadership or otherwise - have been most disrupted (or most benefited) by the market shifts is critical for informing focus and depth of pivoting efforts. Equally important is the messaging of this strategy to [current and prospective] investors.

Funds are well-attuned to the uncertainties and more willing to back the right ideas and right innovators who prove to be the most adaptable to change and can withstand such events.

A Moving Bullseye

Will Canestaro: When you first started your business, you were aiming for a certain target market. There have been seismic shifts to the economy. Is your target still there? Will it be there after the shutdown? 

Anahita Nakhjiri: Through the COVID-19 lens, further consider how value chains and supply chains are being reconstructed and, in many cases, simplified. Is the basis for competition changing in your target market? Is your customer base doubling down on ROI, shifting focus away from the amenities (or innovative bells and whistles) and back on pragmatic solutions that can guarantee quick value creation and workflow efficiency? While these considerations are meant to be industry-agnostic, they are certainly representative of the calls to action for health care startups and those running in adjacent circles. 

Value Based Care

Will Canestaro: 

Now more than ever it is important to consider value-based pricing of your company’s solution.

Although the term value has been used and arguably even overused, put simply it is framing the price of a new intervention in terms of the impact on patient outcomes or health care system efficiency. This requires the extra step of generating the evidence to make this case for downstream impact. Thinking about the case for value early in your company’s lifecycle especially when resources are limited will separate you from your competitors.

Anahita Nakhjiri: Health care startups with business models (services, software and/or IT) fundamentally rooted in value-based care workflows and contracting strategies require a more critical examination. Yes, COVID-19 has disrupted traditional health care utilization patterns and has further uncovered some of the obvious shortcomings of fee-for-service payment models. However, managing the crisis will require intensive resource focus (from health systems and providers especially) whereby value-based care activities take a temporary back seat to meeting the deepest patient needs with whatever resources available. In the end it's still the total cost of care that matters and that is still the core winning strategy; but what we’re seeing now is a renewed pressure on regulators, payers and insurers to expand access, slash cost-sharing and remove the roadblocks to allow for reimbursement and coverage flexibility. These are the objectives jumping to the head of the must-have line. 

To read more about the paying for health trend, visit the recaps of Cambia Grove’s spring 2020 series of programing on the topic. 

 

About the Authors

Dr. Will Canestaro is focused on investments in biotechnology and engineering, as well as supporting Washington Research Foundation’s grant-making activities. His portfolio includes companies across sectors. Currently, he manages WRF’s investments in life science and engineering focused companies. His professional background includes health economic and outcomes consulting for organizations including the National Pharmaceutical Council, Genentech and AstraZeneca. He has extensive experience with comparative effectiveness research and program development through roles with Generation Health and Correlagen in the Boston area. Dr. Canestaro earned his doctorate from the University of Washington’s School of Pharmacy Pharmaceutical Outcomes Research and Policy Program. He received an M.Sc. in medical anthropology from Oxford University and an A.B. in medical sociology from Dartmouth College.


 
Anahita Nakhjiri is an Associate on the Strategic Investment team at Echo Health Ventures, responsible for transaction execution and portfolio management.
Prior to joining Echo Health Ventures in 2019, Anahita served as a Senior Associate at McKesson Ventures in San Francisco. She co-led the team's portfolio development efforts and assisted in sourcing and performing due diligence on new digital health investment opportunities. Previously, Anahita was a consultant with The Advisory Board Company, advising health system executives on clinical workflow improvement and implementation of performance technologies.