Scaling a healthcare business to $100 million or beyond takes time and a solid understanding of the industry, with healthcare companies taking longer than traditional software businesses to reach this milestone.
Gross margins play a crucial role in the success of a healthcare business, with top performers in tech-enabled services reaching gross margins of 65% or higher.
Deep dives
Scaling a Healthcare Business to $100 Million
Scaling a healthcare business to $100 million or beyond takes time, patience, and a solid understanding of the industry. According to the benchmarks report by Bessemer Venture Partners, it takes healthcare companies three to four years longer than traditional cloud software businesses to reach $100 million in revenue. This is because the healthcare system requires more time and nuance due to its impact on people's lives and health. Scaling a healthcare business requires a repeatable and scalable model, focusing on gross profit rather than just revenue. Tech-enabled services businesses in healthcare have the advantage of a larger addressable market, enabling them to scale efficiently with higher growth rates. However, it is important to balance growth with efficiency and make the right investments that unlock revenue over time. Capital intensity is higher in tech-enabled services, but once scale is achieved, healthcare businesses can become more capital efficient and unlock next-level growth.
Margins, Efficiency, and Customer Retention are Key
Gross margins play a crucial role in the success of a healthcare business. Early-stage companies typically have lower gross margins, but as they scale, there is a significant improvement. Top performers in tech-enabled services can reach gross margins of 65% or higher. However, it's important to note that as companies expand their services and take on more risks, gross margins may temporarily decrease. Regarding efficiency, managing cash and planning milestones are essential. Healthcare businesses need to focus on nurturing customer relationships as retention is crucial. Net dollar retention is an important metric to track as it reflects the ability to expand relationships with existing clients. Health tech businesses generally have higher net dollar retention compared to enterprise SaaS businesses. Sales and marketing investments, along with efficient capital usage, are key to scaling a healthcare business.
The Unique Challenges of Healthcare Innovation
Innovating in healthcare presents unique challenges due to the complex nature of the industry and the impact on people's lives. It requires patience, as achieving scale and innovation in the healthcare system takes time. Healthcare staff and tech-enabled services businesses take longer to reach $10 million and $100 million in revenue compared to traditional cloud software businesses. The long sales cycles and regulatory requirements in healthcare contribute to these extended timelines. Investing in healthcare requires understanding the value provided to customers, whether they are payers, providers, or patients. Demonstrating clinical and financial ROI is crucial for nurturing customer relationships and securing long-term success.
Data, Market Dynamics, and Long-Term Thinking
Data plays a critical role in scaling a healthcare business. Capturing and analyzing data can help prove outcomes, demonstrate return on investment, and unlock opportunities for growth. Understanding the nuances of revenue and unit economics is essential for tech-enabled services businesses in healthcare. It is important to identify the customer and focus on efficiency, profitability, and sustainable growth. Market dynamics change over time, and founders must adapt to remain competitive. Scaling a healthcare business may require significant capital investment initially, but as the business matures, the ability to drive profitability and efficient growth improves. Long-term thinking, managing cash, and planning milestones are key factors for success in the healthcare industry.
On our episode today we are getting down into the details, deep the weeds, in order to understand what it takes to scale a healthcare business to $100M.
For that wisdom we turned to Sofia Guerra, an investor at Bessemer Venture Partners. We recently had her on our Health Transformer University Masterclass series to share top takeaways from a recent benchmarks report published by her firm. She distilled their very detailed work into five key takeaways and then hung around to answer questions from our audience of StartUp Health founders.
In this session, which was hosted by Jamey Edwards, Chief Platform Officer here at StartUp Health, Sofia gets into all the critical operational, financial, and clinical performance metrics that health tech companies need to care about if they’re going to thrive and scale.
For the purpose of this podcast, we’ll drop right into the middle of the conversation between Jamey and Sofia, focusing on her advice for founders.
Enjoy!
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