Part III: Go Edupunk - Healthcare Incubators: Time to Burn or Become Steel

Blogger's Note: Today I'm skipping around a bit during our week-long look at healthcare incubators.

Before we look at when incubators in healthcare/startup health WON'T work, let's take a look at what's working from the business end of startup tech incubation.

Part of the problem with incubation in startup health is that startup tech has been playing this game for at least 2 decades.

As a result, they've got a cast of characters - expected players who will scoop in and pick off any smaller firms whose products and services they want to integrate.

Want the ultimate exit? Look for acquisition by Google, Microsoft, Yahoo, etc.

But it wasn't until earlier this year that Microsoft and Google's health interests pushed them into releasing PHRs. In health, we couldn't look to the big boys for adoption. But that's changing as we move towards consumer-centric care.

So who might we expect to see adopting healthtech incubators' grads? Of course the same cast of characters is now attending to our space, so you might go after Google, MS, Yahoo.

But what about other firms?

Of course you could look to big pharma if you've got biotech grit, or one of the DTC genomics firms like 23andme if you're working in genetics/medtech equipment or processing.

But what about hospitals? Are big brick and mortar healthcare factories looking at investment in startup health?

Sure, but probably not at the level of a total acquisition - they're much more likely to cough up cash for partnerships or to pay for leasing/subscription/installation/service/support fees.

Wait a hot second...That's AT LEAST 4 big potential markets for health startups (big tech, pharma, biotech/genomics, hospitals).

So why aren't we seeing more incubators birthed to take advantage of a group of buyers with big wallets in a space that's, as Unity Stoakes puts it in this Organized Wisdom interview with Esther Dyson, "under-focused on and under-funded?"

It's crucible time for consumer-centric healthcare tech; as a recent issue of SmartBrief Leadership e-newsletter put it, time to "burn or become steel."

The Health 2.0 movement is at a precarious turning point ("the terrible 2s") - we've got companies with some very interesting traction, large community strength numbers, and even a few with some revenues in the black (a very few).

But the cyclical boom/bust nature of tech movements, including startup tech in health, opens wide the doors of opportunity for investors and larger big money sector leaders to fund incubation.

For goodness sake - we're dealing with people's most precious asset (even above financial security) - if you don't have life and limb intact it'll be hard to enjoy the fruits of the post-bailout economy.

You'd think more companies and individuals would be flocking to the space to look at incubation and VC/mentoring networks. But it's still a pretty insular world.

If startup tech can be THIS creative - with an online artisan food marketplace I love, Foodzie, birthed in the 2008 TechStars incubator, blogging about a "Magic of Mole" cooking class (warning: 'gastroporn' alert - do not look at the Foodzie page while hungry!) at La Cocina, an incubator for food entrepreneurs - SO CAN STARTUP HEALTH.

Want to see more examples of startup tech incubatees? Here's a look at some of the firms in the Y Combinator stable.

If you want more startup tech ed, check out this short video interview with VC investor Brad Feld, who reminds us that incubators are NOT the same as angel investing. But angels are a series for another time...

ADDITION: Just to really get your bloomers in a bunch, here's an irreverent panel at CommunityNext moderated by Guy Kawasaki that blows business model and 'standard' VC value benchmarks right out of the water.

The point? We need more innovation in HIT, eHealth and mHealth, not less.

I'd like to see increasing design-consciousness among medical equipment manufacturers in particular - haven't they learned anything from Amy Tenderich's open letter to Steve Jobs and the Diabetes Mine Design Challenge?

Need examples of the kind of innovation I'm talking about, and how it might be specifically translated to healthcare incubator selection?

• Reserve a spot in an incubator for a medical equipment maker looking to integrate biomimicry.

• Recruit a company, or university team, looking at bringing a product to market related to accessibility and gaming.
  

• A no brainer? A startup team designing a fitness game for the Nintendo Wii or for wiihabilitation.

Startup health incubator. Steel health. Steal Health? Crucible? Hmmm. I like it.

I like it alot.

Any investors want to do a startup health incubator?

Tune in tomorrow for when incubators in health WON'T work, and a discussion of the elephants in the room, including IP.

Part II: Go Edupunk - When Incubators MIGHT Work in Healthcare

Today let's take a look at when incubators MIGHT work in healthcare.

Remember, an incubator is not the same thing as a collaborative, but a collaborative can act as an incubator, and vice versa.

But an idea or networking collaborative does not automatically qualify as an incubator, especially if you're not talking business model, output, and exit strategy.

As a result, throughout the series coverage on incubators, I'll also include some examples of healthcare collaboratives that are (or are close to) incubator status, or, for the goal of healthcare startups and new initiatives, achieving 'success.'

First, a common frame of reference...

Although it's dangerous to assume there's a 'typical' startup tech incubator, let's look at one fairly 'standard' successful group with features similar to many in the space.

Meet Curious Office. I discovered them reading TechCrunch (skim their enewsletter daily for tech ideas that may translate well in healthcare). They're a tech business incubator in Seattle with several productive exits for investors (acquisitions).

This is a tricky issue to cover - there's not a whole lot of data out there (that I've been able to find) comparing successful incubators in healthcare.

Perhaps some of the difficulty arises from the different way incubators tend to qualify success:

1. Startup tech? Acquisition baby.
2. Startup health? A product/service line innovation is born.


There's even less coverage connecting incubators in various health subsectors, including academic, government, foundation, association, and corporate/startup.

For instance, TechStars has a health/wellness company, Gyminee, in their most recent 'class,' but I don't think it would do them justice to label them a 'healthcare' incubator - they support all types of startup tech.

Also, focusing on the healthcare side for the last few years, I might have missed something (or several somethings) in the startup tech world that's cultivating health/ehealth/mhealth startups - if you know of additional resources, dear readers, please leave a comment.

As a result, we're going to need to employ some mental elasticity when we look for examples of what's working and what's not working.

A bit later this week we'll take a look at some specific examples, but for now, let's think about some overall guidelines for what works.

So, incubators in health might work IF:

1. Incubation in healthcare works IF you have a party like RWJF, in concert with the California Healthcare Foundation, who are willing to fork over substantial amounts of time and capital to develop goods that may or may not work.

• Obviously, everyone's hoping they work, because we do want to improve healthcare delivery.
  
• But incubators are about risk. They take a chance and make an investment - returns aren't guaranteed.
  
• This is why the partnership between CHF and RWJF for PHR development can be considered an incubator, but I wouldn't consider the CHF an incubator per se (again, it'd be selling their overall mission short).
  
• But incubators are also about reward. Selectivity in picking applicants to support, whether in startup tech or startup health, is a big part of hedging your bets for success.

2. Incubation in healthcare works IF and ONLY IF you're completely upfront (internally and externally) about IP and how monetary gains from possible sale of incubator-developed applications (goods, products, user data, etc) will be split.

• Do mentors sign an NDA?
  
• What's the process for protecting companies in 'stealth' mode (or does the incubator wait til firms are out of stealth?)
  
• Who wins when there's a successful exit?
• How many people and or companies get a cut? What's the stake? 5% ownership? etc.
  
• What does the revenue breakdown look like?
  
• Who's involved in the final business model decision (license tech? Sell it? Sell whole company/product?)
  
• And what is the goal? Is the goal to birth babies that will be adopted by larger papa PHR companies?
  
• If so, who banks the adoption fee?

3. Incubation in healthcare works IF and ONLY IF you're completely upfront about who's footing the bills (and how sponsorship or 'ownership' of incubator firms is reflected) and EXACTLY what's expected in return.

• Are there any fees involved for participating companies, or does the incubator give them seed money? If so how much? For what period? Is it a lump sum or an 'allowance'?
  
• What *exactly* is provided to incubator member organizations? Capital? Mentorship? Office space? Internet connection? Skype? A cell?
  
• Do they have to wear sponsor tees in media/press/speaking appearances?
  
• Does the incubator program have rights to *share* the experience of incubator members?
  
• Is this carte blanche access to finances, strategic plans, etc? Be specific. Be quantitative.

4. However, incubation in healthcare works IF and ONLY IF you are big-picture, thinking beyond just the specific expected output. You have to think about the overall market space, and where the firm/product will survive, thrive, or die in that ecosystem.

• So what if a collaborative develops a new PHA?
  
• It only matters if you can DO something big with it, which means integration into the current world. Which means coherence - are you thinking partnerships, collaborations from the get go? Is the incubator candidate thinking big picture?
  
• Got revenue? You better look at a way to monetize before you ever enter the incubator space, unless you're providing a completely open-source PUBLIC good from which you DO NOT expect to generate revenue (a charity case).
  
• What's the way incubator candidates plan to wrangle revenues? If a company is 'self-funded' and plans to be 'ad revenue based' but hasn't researched SEO or signed up for Adwords, run the other way in most cases - or at least exercise extreme caution.
  
• Be aware - there are more revenue drivers and business models present in the Health 2.0 space than many people are aware of, including licensing, ad revenues, DTC consumer fees a la IPhone apps, or 'freemium' models for online health tools...we hope to illuminate some of the variety at the upcoming Health 2.0 conference (I've been working with speakers on how to address the 'business model' question).
  
• New businesses are businesses in flux. Does the revenue sharing or ownership model (options, etc) for the incubator change if the incubatee's business model changes?
  
• At some point you're going to hit the wall, literally - when you intersect with the brick and mortar healthcare delivery world - are thoughts on expansion (incubator, incubatee) mutually compatible?
  

5. Incubation in healthcare works IF and ONLY IF you're working from a user-centric design platform that integrates consumer principles and is 'customer' directed.

• REMEMBER: There is no single monolithic 'customer' or user in health; sometimes the 'customer' is a person who is also a patient, sometimes they are a doc, sometimes they are a joint academic/research partnership looking for a way to cure breast cancer.
• This intersection, especially when it involves virtual/web-based healthtech and the real-world brick and mortar system, can get messy. We're not at the point where healthcare goods and services accessed online won't at some point have real-world relevance to daily life, and usually we're using online knowledge to augment, not completely replace, offline care. So you need users on your side.
• Which means surveying your potential users and integrating service-design principles from germination onwards.
• Whoever your user is? Yeah. You need one of them on your design team. On your Board of Black Swans. If you're designing a PHA for people living with diabetes, guess what - you'd better have a person living with diabetes advising you on UI, functionality, flow, etc.
• If you're a healthcare incubator supporting the development of patient-directed tech, or want to be - why not consider a patient testing panel? Like the judging panels on shows like American Idol - let them hash out how they feel about a service, and why they'd find it valuable, or not. Even the harshest criticism from a potential user can be more worthwhile than an entire room full of yes-men (and women).
  

Tune in tomorrow for a look at when incubators won't work in healthcare.

Part I: Go Edupunk - All Healthcare Incubators NOT Created Equal

Blogger's Note: This week Health Management Rx will feature a series of posts taking a closer look at incubators in the healthcare, eHealth, HIT, and Health 2.0 spaces.

"The love of things ancient doth argue stayedness, but levity and want of experience maketh apt unto innovations."

--Hooker.

It's been awhile since I did a glass-half-full post.

Reading the latest debate on 'Health 2.0' (Vijay Goel gives an analytical overview here, while Ted Eytan sums it up concisely here) and biting my lips over PHR offerings on the market (I'm not using ANY of them, and I'm prime e-patient territory) provides more than enough incentive to look at the glass and see half empty.

It seems like we keep circling around the central issue - which is not, in fact, the definition of Health 2.0, or whether or not it's cooked.

The central issue if we really want to change healthcare? How to encourage HIT and mHealth innovation from research to implementation. And where to find the bucks to build/run the wonderful world of next-gen applications.

Enter incubators - stage right.

Monetizing knowledge, capitalizing on the energy of design teams in a manner that permits open-source, open-platform development, and the nightmare business model and IP debates involved might influence one to take a night on the town, spending time/money on best pick of a bad B-grade movie rather than dreaming up ways to change healthcare.

But last week I attended RWJF Project HealthDesign incubator demo day. I watched watched as nine amazing teams, representing a cross-section of academia, entrepreneurship, and tech, presented PHAs (personal health applications) based on a common platform developed by the very talented Samuel Faus and his team of 4 at Sujansky & Associates.

Reread the graph above. Slowly. Operative words:

1. PHAs (not PHRs). Trend: Someone builds the common platform (ex. Twitter) and a myriad of companies and individuals build apps (or widgets, ex. Twhirl, Summize, not Twitter Search).

2. Common platform. Trend: Someone has to bite the bullet and develop a 'public good' or open source platform that encourages the growth of semantic interoperability for multiple apps. This means you don't OWN the apps that will populate your platform - if you've done it right they spring up like clusters of mushrooms, breaking through dirt in unexpected new places. However, even if you don't 'own' the apps, you might 'lease' them space on your platform. Check out the plethora of Health apps springing up for purchase by happy IPhone owners.

3. Team of 4. Trend: Microteams. It doesn't necessarily take massive multinational teams like the Wikipedians to develop real-world healthcare innovations. As we've found in the Nexthealth crew, a small, tight team buzzing around a central mission and bringing in innovators from all over the world can be extremely effective in designing and implementing solutions, especially if they move from thought to action lickety-split.

So why talk about incubators?

1. There's not much in the blogosphere (yet) connecting separate incubation shops, even though, as we'll see this week, there are several very interesting HIT/eHealth/Health 2.0 examples.

2. I have a particular soft spot for incubators.

This story might help explain why I'm so interested in geeky tech and VC news. And why I'm so keen, often without monetization (read: not being paid) to connect the two worlds (startup tech+startup health).

By the time I hit 20, my uncle Craig, role model, sometime boss, and successful entrepreneur a few times over, was an active angel investor in the DC area.

Several times he'd field me a firm's prospectus - this was nothing new. He'd been throwing these things at me since high school because he knew:

• I was a geek;
  
• I'd need the experience later (even though I was set on being a poet at the time), and;
  
• (God bless him) I might as well mess up big when he was the only one answering questions so I'd get used to falling flat on my face and bouncing right back up.

One of the prospectuses I told him I liked? Yeah. A little company called "Honest Tea." I don't think he bought in. Live and learn.

That gig later helped me get a summer internship (2000) with Cal Simmons and John May, the authors of "Every Business Needs an Angel."

At the time, Cal was operating a tech incubator called ASAP Ventures in northern VA, and I spent meeting time hanging out at the offices securing launch party sponsors and suggesting dumb themes like "the color blue" because it "smells like first place" (what can I say, I was 20, and yes, unfortunately I still have a fondness for cheesy themes).

Why does this matter?

I remember the smell of the place, the logoed tins of mints that were party swag announcing to visitors the current residents of the incubator. I remember hearing about successes (and failures) while touring the open office space where a few businesses camped.

And I remember thinking - so. Incubators. This is how it starts.

And often, incubators are instrumental in how it continues...

Business and nonprofit incubators can be remarkably successful - "87% of incubator graduates stay in business." (If you've got other stats, please consider editing this Wikipedia entry).

Look at some of my favorite examples OUTSIDE of healthcare tech: TechStars, the Knight News Challenge, etc.

Incubators can get things started in healthcare too. Project HealthDesign is doing a damn good job of showing us the way.

Tomorrow, using the RWJF Project HealthDesign demos, and our Nexthealth experience, as an example, we'll take a look at when incubation in healthcare works.

The rest of this week, look for more general info on incubators, when they DON'T work in healthcare, and why it should be a sector goal to see a Health startup or 3 at TechStars next year.