B2B Is The Dominant Business Model For Digital Health Startups. Here’s Why

For startups used to attracting consumers using algorithms and attractive user interface design, the predominantly B2B world of healthcare can be hard for entrepreneurs to get their heads around.

The healthcare industry has idiosyncrasies that simply cannot be ignored. A Rock Health report has revealed that over 60 percent of digital health companies that start off as B2C, pivot to B2B. This shows that the consumer market is especially difficult to penetrate and that for healthtech startups it’s a B2B or a B2B2C world.

After that overload of numbers and letters, let’s have a look at why B2B is the dominant business model for digital health startups.

Regulation, Regulation, Regulation

One of the biggest issues is the complex regulatory landscape that many startups aren’t prepared for. Going too early to market without having taken into consideration the many stakeholders involved in the decision-making process and having to manage slow sales cycles, can be a hassle for companies used to building consumer apps focused on fast user adoption rates.

The good news is that companies that overcome the problem will have an advantage over their competitors because barriers to entry are so high.

Man Reads Business News To Learn Why B2B Is The Dominant Business Model For Digital Health Startups.
B2B is the only game in town for digital heallth startups – at least for now.

The customer isn’t used to paying for health

Being the source of revenue is unfamiliar for many consumer patients. There aren’t too many examples of consumers paying directly for health services, so they don’t always understand the value they’re receiving. In the NHS’s case, payments are made through taxation (or NI contributions), making it hard for patients to link payment with value for money.

Healthcare needs to have a low margin for error

Healthcare is a serious business. A high level of quality needs to be maintained along with a very low margin for error. For patients who aren’t  ready or used to taking charge of their health, it can be hard to know who to trust and intimidating to even try to understand complex treatment plans. Be it a national health system or a private provider, people are used to big institutions looking after them.

Keeping healthcare complex

It’s human nature to try to maintain the status quo. In healthcare, there are many stakeholders who have an interest in ensuring the system stays exactly as it is. This could be to justify high fees, to keep barriers to entry high, or simply a fear of change. At the moment, new, cutting-edge technology that can help patients live better lives, is usually recommended by physicians. However, in the long-term, patients will benefit from staying informed about modern services and payment methods, as taking control of their health will be the best way to get fast, affordable access to the treatment they need as the global population increases.

How startups can target the B2B market

  • Market analysis is a must – understand the Total Available Market (TAM) versus the Serviceable Available Market (SAM). Targeting low-hanging fruit first can be a good way to test the market.
  • Market segmentation is where it starts – each healthcare market has a unique industry structure and differing needs. For example, hospitals fall into the ‘providers’ market, but funding disparities mean that not all hospitals are viable targets.
  • Build a persona map – whether targeting payers, employers, providers or consumers, building a persona map and understanding the motivations of stakeholders is important to grasp the bigger picture. It could be that different markets are more similar than first realised, which will save time and money when the product goes to market.
  • Product/Market fit – allow end customers to test the product. Product/Market fit is very important when there are so many stakeholders involved. Addressing these problems from the start will help achieve success.
  • A dedicated delivery team – can seamlessly deliver the product to the relevant market segment and ensure smooth interactions with end customers.
  • Marketing messaging must be on point to successfully market new products, ensure that marketing messaging is written from the perspective of end-users.

The B2C market will grow

Despite all of the challenges that come with building a B2C healthtech brand, the long-term opportunity is enormous. In the last few years there’s been an increase of unhealthy lifestyles across the globe, meaning that the cost of healthcare will likely be shifted directly to the consumer patient in the future.

Online doctor and doctor-on-demand services are already being used by those who can afford to jump the queue. The problem is that paying a few hundred pounds or dollars to see a doctor still feels very alien to people. However, apps to help manage lifestyle conditions such as musculoskeletal conditions and quitting smoking  are on the rise and consumers seem happy to pay. So surely it will only be a matter of time before consumers start realising the benefits of fully taking control of their healthcare? When the time comes, there will be a shift from B2B and B2C  business models, and the opportunities that arise to disrupt the industry will be immense.

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