by Jim Evans

September 2013 – As a new CEO of an early stage startup, one of the chief questions I’m asking is “how do I get my solution to market?” A spin-off from a major medical center, we have a development laboratory and access to clinical resources. We also have a viable product that is getting improved by the day with real users generating quality feedback. What we lack is access to markets, and sometimes that feels like an insurmountable challenge.

In our case, our founder is a noted surgeon so he is a “pipeline in a box.” When he speaks or attends a conference, he generally comes back with a number of leads that represent ready opportunity. But, they can often be challenging geographically as we are reluctant to have early adopters 2,000 miles away. Or they can be challenging from a profile perspective, as a 30 hospital system isn’t an ideal early adopter for our solution.

As a result, we are challenged to match channel to buyer, considering 3 distinct but complementary channels:

• Direct- While we don’t think that we will achieve significant or rapid market penetration going hospital by hospital, we are intent on maintaining a direct channel for two primary reasons. First, every interaction with the market is valuable for us, and we believe we may learn more from an “intelligent no” than from a less discerning customer who adopts the solution. Second, we need the experience of caring for customers through the entire customer lifecycle to ensure the product meets needs. The customer experience and client delivery process starts with the first discussion with a potential client, not at contract signing. It is very important that we learn to match what the customer hears in the sales cycle with the actual client usage and upgrade cycle. Many solutions have failed because the sales pitch failed to convert into the value proposition offered by the actual solution.

• Consultant Business Partners- Since our solution is focused on information transformation to improve clinical processes, another option is to work with partners who provide consulting or process improvement services to hospitals. These organizations have historically provided periodic analyses to hospitals; however, they lack the ability to provide continuous follow up or to track, measure or monitor change without a perpetual engagement. Perpetual engagement is staff augmentation, and hospitals are not in a position to maintain significant consulting line items, even if the return on investment is positive. Our solution represents a way to smooth a consulting firm’s revenue while providing the infrastructure to support sustainable change for the hospital.

• Health IT Vendors- Hospital IT solutions have become comprehensive in scope, but there are still gaps in solutions that might be filled by a smaller solution. In some ways, this is the most natural channel to pursue. The data that might be presented in our solution may already be aggregated, the user experience is already established with a trusted IT partner, and an installed base is already in place that could represent a significant portion of the market. Hence, the route to growth is readily apparent. However, as attractive as an installed base may appear, market penetration is immediately constrained to that installed base. If it grows no further, the accessible market immediately shrinks. Further, distance from the customer can be most significant in this situation, especially if the prime IT solution vendor handles customer management and solution install. The feedback loop that is inherently valuable in the direct channel disappears. The most likely outcome is that the solution will be crafted to mesh most effectively with the partner’s suite, potentially constraining natural product extensions, further limiting the value of the venture.

One might think that the rapid consolidation of hospitals and hospital systems might be making the direct channel more feasible. In fact, it may merely be adding one more step to the sales channel as achieving endorsement at the system level (or by a GPO or by a hospital association) can require extensive effort, but may only grant a hunting license for all of the independent buying entities within the system. Many new companies have invested heavily in sales only to discover that the hospital market is practically impenetrable for a small solution provider and have eventually chosen other options for the long-term.

One other major consideration for channel strategy is what it means for potential growth strategies. By signing a deal with a substantial IT vendor, the universe of both future funding sources as well as potential acquisition partners is dramatically constrained. This is potentially positive if it represents the fastest path to revenue and profitability. Funding sources becomes less of a concern. However, a major channel partnership with one vendor could be the death knell for any similar partners to consider acquisition.

Managing a hybrid channel strategy represents significant challenges for any entity, but the dynamic of hospital merger, integration, reimbursement shifts and cost sensitivity requires a variety of approaches. It may mean that multiple distribution channels are appropriate; it may also be that even as potential buying entities shrink, meeting the needs of this market is actually becoming more, not less, complex. Effective delivery of value will require managing complexity but it is the most apparent route to growth.

About the Author

Jim Evans is the CEO of Socrates Analytics, a Cleveland-based healthcare analytics venture focused on helping hospitals optimize clinical processes, improve visibility into costs and prepare to take risk in the new healthcare environment. The solution is essential to hospitals for strategic management of their business model during this tumultuous era in healthcare. By providing an encounter-based view of an episode, attaching the associated costs and revenue, and measuring variability, Socrates is the first solution of its kind to provide true insight into accessible costs within the hospital and direct insight into the value of addressing clinical practice variance.

Prior to joining Socrates, Jim was instrumental in developing businesses in healthcare information technology for payer and provider markets with McKesson Health Solutions. Jim received a B.S. in Mechanical Engineering from The George Washington University and his M.B.A. from the Kellogg School of Management at Northwestern University.