Navigating the Mid to Late-Stage Challenges in Health Tech Startups
October 17, 2024
In my previous article, I laid the groundwork for a topic I’m deeply passionate about: the evolution of startups and growth stage companies, particularly in health tech, and the critical role of product management as companies grow. Over the past several years, my eyes have open wider and I see much more clearly. This combined with 25 years of experience in the industry, has given me a front-row seat to the common challenges these companies face as they scale.
From my exposure, one pattern has become clear, many health tech startups smash headfirst, regardless of size or point of operation into the same brick walls. I see so many companies doing the same thing but expecting different results, and we all know what that is the definition of. Although there are exceptions to every rule, my insights come from hands-on experience helping to overcome those obstacles and move smoothly to their objectives, by focusing on product management.
Before I continue, I'd like to make a few observations. The complexities surrounding startups and product management are vast, and it's impossible to cover every detail here. However, when reflecting on the key challenges, two primary areas stand out: scaling after initial market entry and scaling through mergers and acquisitions. This is where my focus will be on in this article.
The Early Conditioning of Startups: Built by Speed, Not for Sustainability
As discussed previously, startups are conditioned from the beginning to focus on getting their concept to market as quickly as possible. This is largely driven by the pressures of investor expectations and industry norms. Early-stage investors look for certain elements, such as a working MVP, early traction, and a compelling vision, to validate their reason for investing. As startups move through funding rounds, the expectations from investors evolve and become more demanding. The focus shifts towards growth, revenue, and the elusive return on investment (ROI).
At its core, money is what matters most on this journey, there’s no sugar-coating it. No matter how we talk about the positive impacts of our solution or the emotional narratives behind our products, the primary driver is financial return. Startups that succeed often do so because they navigate this environment with precision, leveraging timing, messaging, positioning to stand out and (honestly) a little bit of luck.
Scaling Without Losing Focus: The Product Management Imperative
Startups go through various stages during the early days of commercialization, all of which ideally lead to the need for scaling. As growth accelerates, it often requires additional funding, internal adjustments, and scaling across the company’s operations to support market expansion effectively. Typically, this growth is concentrated in a few key areas: sales, marketing, implementation, service, and development. However, many startups mistakenly believe that scaling primarily involves expanding the development and data science teams while focusing on commercialization. The assumption is that growth depends on rapidly adding new features and functionality, rather than refining and maturing the original product (the MVP) and the heart and core of product delivery, the product development life cycle (PDLC).
At this stage, startups often lose focus on advancing their Minimum Viable Product (MVP) towards maturity, driven by pressures from revenue expectations and investor demands. The emphasis shifts from building a strong, stable foundational product to constantly adding more features and functionality. However, the proper evolution should prioritize maturing the MVP while incorporating innovative features based on market needs rather than individual customer demands or internal leadership preferences.
One critical area often overlooked during this phase is product management. Frequently, startups assign product management roles to individuals with technical or clinical backgrounds who have deep domain knowledge but lack formal product management experience. Often this roles are promoted from within. These product managers, while valuable in their expertise, often don’t possess the specialized skills needed to lead a product through its full lifecycle.
Product management is a strategic art that requires more than just knowledge of the product. It involves mastering the Product Development Life Cycle (PDLC) and its sub-cycles, managing inputs, setting expectations, and creating data-driven roadmaps. Successful product managers are experienced in balancing the many cross-functional elements of product management, understanding that the product lifecycle is a continuous process, not something that ends when a product is launched and the most important aspect of all, the ability to say NO.
While technical and clinical expertise in product management is undoubtedly valuable, it must be complemented by a strong foundation in product management principles. Without this balance, startups face significant challenges as they scale, such as:
Getting stuck in the dreaded “iteration hamster wheel”
Constructing releases with more bug and technical debt task than innovations and enhancements
Losing customer perception as an innovative company
Letting the tech stack become outdated and inflexible
Building features that serve only a small group of users
Realizing that you are a prisoner to your handful or less biggest customers
Increasing deployment costs and challenges
Falling behind competitors in the market
Struggling to define and execute a clear product roadmap
Failing to communicate roadmaps with customers
Seeing the product vision and strategy become unattainable
Entertaining mergers or acquisitions as a growth solution
Seeing your product evolution not align with the business objectives
Supporting to many versions in the marketplace, unenforceable EOL policies
And the list goes on…
As emphasized in previous discussions, the product sits at the core of a startup’s (company’s) operations. If it’s not built properly and does not set the standard for operational processes, expectations, and vision throughout the company, it won’t truly be at the heart of the company’s culture. This will inevitably lead to long-term challenges as the company attempts to grow and scale.
The Merger and Acquisition Trap: More Complexity, Less Synergy
For those who have been involved in mergers and acquisitions, the reality often diverges from the idealistic vision of creating synergies and economies of scale. Merging companies means merging cultures, technologies, and operational practices, each with its own strengths and flaws. No matter how rigorous the due diligence process, acquiring a company is often like buying a house with hidden issues. You may have an exciting new addition to your portfolio, but the structural and operational challenges often outweigh the immediate benefits.
The truth is many of the companies being acquired, themselves are dealing with operational inefficiencies and cultural mismatches. This makes the integration process even more complex. In turn, the primary focus becomes short-term investor demands and setting immediate revenue targets, rather than working on important foundational issues which could pave roads to success in the future.
The Common Denominator: Culture and Product Misalignment
Whether a company undergoes an acquisition or not, it comes with short-term investor demands and setting immediate revenue targets, rather than working on important issues which could pave roads to success in the future. The pressure to rapidly bring products to market and obtain funds often creates a culture which favors short term gain over long term sustainability. This leads to a product strategy driven by a small set of advisors, focusing more on making a few key customers happy than addressing the broader market needs.
As time goes on, releases become more about maintenance than innovation. Customer satisfaction starts to decline, market perception shifts, and the company’s reputation as an industry leader fades. This isn’t because the product wasn’t good enough initially, but because the company failed to build the right internal processes and cultural mindset to support sustained growth and continuous improvement, leading up to the growth phase.
Thinking Long-Term: Building a Company with an IPO Focus
Startups have many potential exit strategies, but does focusing on specific exits affect long-term success? I believe it does. Prioritizing quick wins and a fast exit drives the “move fast, crash into walls” mentality—rushing products to market and acquiring customers at the expense of operational cohesion. This short-term focus detracts from building a sustainable, scalable business.
Focusing on an IPO, particularly in a market like the U.S., ensures your company is scalable, adaptable, and in demand. It also means the product has the attention of the executive team, allowing for quick adaptation to industry changes and new technologies. In my view, having a single exit strategy focus, like an IPO, actually creates more opportunities for exits.
For founders executing towards an IPO, the key is to keep the long-term vision front and center, even while executing on short-term objectives. Maintaining the original passion behind the product and staying focused on delivering value to clinicians and patients is a mixture for success. This doesn’t mean that your vision won’t evolve, but the fundamentals of why the company exists and what it aims to achieve should remain steadfast.
A company geared towards an IPO must be efficient, effective, and structured for sustainable growth. Processes should be defined, continuously improved, and aligned with the overarching goal of bringing innovative products to market. By making the IPO your end game, you create a culture of accountability, cross-functional collaboration, and constant pursuit of excellence. This approach not only prepares the company for public scrutiny but ensures that the journey to IPO is as strong as the goal itself. At the core of this goal is the product.
Conclusion: Focus on the Product to Drive Long-Term Success
When a company’s leadership aligns around a common goal, like what a company driving towards an IPO looks like, it forces a cultural shift that prioritizes the product as the heartbeat of the organization. Product management becomes the foundation upon which every other department builds, ensuring that the company’s innovation pipeline remains robust, customer satisfaction is high, and the internal machinery works cohesively towards the shared objective.
In the next article of this series, we’ll dive deeper into why product management is the cornerstone of growth and how a strong product management organization can set your company up for long-term success.
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Jim Conyers