Why Healthcare is Hard: Death By Pilots, Part 1 of 3
“We signed a pilot!” Like many people in early stage healthcare startups, I recall saying those four words with excitement while trying to launch a new innovative product. In just a year or two, those same four words would become forbidden on our commercial team as we sought to scale. “Pilot” eventually became known simply as the unspoken “P word.”
Pilots aren’t all bad. Signing your first contract with a reputable health system or payer IS a huge victory to celebrate, right? Like many great things in life, the answer is, “It depends….” We will dive deeper into why “Pilots” became known to my team as the “P word.”
In a series of shorter posts we will attempt to answer the following three questions about pilots:
- Why & when should I consider doing a pilot?
- How should I structure a pilot agreement?
- How do I move towards scale to prevent “pilot-itis?”
Let’s get started….
Part 1: Why & When Should I Consider Doing A Pilot?
When reviewing newer, unproven technology that looks promising, large healthcare enterprises (e.g., health systems, payers, etc.) often want the ability to test out the technology to see if it delivers on its promise before (ideally) trying to implement system-wide. These large organizations have a lot more to lose if the project goes poorly than the startups who are trying to sell them their innovative wares. Before making a large commitment, doesn’t it seem reasonable that they would ask the startup to allow them to try their service to validate its ability to deliver on its promise?
Absolutely, it sounds like a reasonable ask. Unfortunately, starting with a pilot has become the default request for many healthcare enterprises as the standard way they ask to do business with any startup or early stage technology company, even those that have gotten some market validation from their peers. Before saying, “yes,” to doing a pilot, it is important to consider what stage your company is in and what you hope to get out of the project.
When To Consider a Pilot
Most successful health tech and digital health companies have done pilots early on in their lifecycle. If your startup signed $100,000+ contracts from the beginning — congratulations, you can stop reading this right now and go take a swim in your money bin.
When you are an unknown company, with a silly name, starting from zero (customers, validation, etc.), a pilot often makes sense assuming that you are “pre-revenue” with little/no customers.
Your biggest priority is showing the world that your product or service delivers on its touted outcomes. Chris Hogg from Propeller Health wrote a great article for TechCrunch, “Digital health is growing fast — but at what cost?” discussing this very topic that is well worth the read.
Validation from a trusted name (e.g., Mayo, Intermountain, Cleveland Clinic, United Healthcare) of your product’s efficacy is just as important as (if not more important than) revenue. Without that evidence, you will have a much tougher time signing customers and generating any revenue in the future.
Ideally, you want your first customer to have credibility, flexibility and vocal-ability. You want someone who is:
- seen as a trusted industry expert,
- understanding and willing to work with you to make your product better &
- who will also be willing to shout your name from the mountain tops.
You may even be willing to offer a significant discount to land your ideal customer reference account through a pilot, but you should avoid giving everything away for free. We’ll talk more later about why having some customer skin in the game is important.
When To STOP Considering Pilots
Once your company has achieved product validation from two or three reputable customers and is moving to build a repeatable business model, pilots can inhibit the hockey stick growth you (and your investors) aspire to reach. You want to avoid falling ill with “pilot-itis,” an unforgiving disease that plagues many startups in their efforts to scale their businesses, a topic which we will cover in more detail in a subsequent post.
What Does This All Mean?
Pilots are a great tool for a new company or product to learn and validate their outcomes. If you are pre-revenue and need can sign a reputable reference site, that will provide constructive feedback to make your product better and that is willing to sing your praises, a pilot can serve as a great launching pad.
Key Questions To Ask Yourself:
- Do we have reputable customers who are willing to serve as references?
- Have we validated our claims in a real world setting?
If the answer is “No” to the questions above, then a pilot may make sense for you.
If you answered, “Yes,” it is time to shift your focus towards validating your business model (will customers pay what you are asking) and scaling your growth engine.
Even with the ideal customer as your pilot partner, how you structure the pilot is very important. In our next post (How Should I Structure A Pilot Agreement?), we will dive into how to (and how not to) structure your pilot agreement to avoid landmines and set yourself up for success.
Lastly, we will discuss a strategy for approaching pilots once you move beyond your startup’s validation phase, as the pilot projects can drain your already limited resources and inhibit growth, leading to the dreaded disease, “pilot-itis.”
