5 Challenges for Emerging Healthcare Tech and Tech-Enabled Services Companies

For young companies, navigating the healthcare industry and scaling their business presents a unique set of challenges.

Despite these challenges, we believe there are some large opportunities in the space. That’s why we’re excited about it at Capstreet, and why we’re always looking for healthcare companies to add to our portfolio.

The most common challenges we’ve seen in discussions with these companies:

• Demonstrating ROI. It’s difficult to demonstrate ROI to providers or payers. This challenge is especially tough for businesses still in the scaling phase. Providers and payers need case studies showing successful large-scale implementations to prove ROI. But proving ROI is a pronounced challenge because of the many variables involved. Definitions of “return” in healthcare differ from those in other industries because there’s a focus on both the quality and cost of care. This challenge is part of what lengthens and complicates the sales cycle.
• Hardening tech and processes. Given recent major security incidents, the healthcare community is extremely sensitive to security vulnerabilities in vendor products and processes. Companies need to invest in SOC2 compliance and certification (which isn’t cheap) and can expect detailed diligence evaluations from provider/payer IT organizations during the sales process
• Lengthy sales cycles. When selling to mid/large providers/payers, you can expect lengthy sales cycles. The sales process involves multiple trials and touchpoints with a raft of decision-makers, influencers, and committees. Even if you’re selling into small provider groups, the process can become lengthy as all the partners need to get on board to close the deal.
• Talent acquisition. The competition for talent is fierce. This pivotal issue is not unique to healthcare and technology, but it’s especially acute in this industry, particularly given the post-Covid talent drain.
• EHR domination. A few major EHR players like Cerner and Epic dominate the space, particularly in acute care settings. If you can’t integrate well with these systems, or add value around them, your chances of growing in the acute care sector are slim. These major players can be powerful influencers if they see you adding value to their solutions, but it’s a double-edged sword given the market’s consolidation.

Some of these challenges are inherent to the healthcare industry, and while we at Capstreet can’t eliminate them, we can help businesses navigate or mitigate them using specific strategies.

Our team at Capstreet has experience in helping healthcare technology and services businesses scale, by employing nuanced go-to-market and platform building approaches.

We’ve observed that many good products can scale to around $5 million in ARR on their own. However, to move beyond that stage, companies typically require the kind of strategic investment and experience that we offer. Scaling from $5 million to $50 million or beyond often necessitates a higher level of investment and specialized knowledge.

Our approach is two-fold: first, we scale the reach of the businesses by employing dedicated go-to-market and sales strategies to target a wider set of their addressable customer base.

Second, we expand their product and service offerings, providing a more integrated and compelling solution set to each customer. This dual approach allows us to help make these companies more versatile and better equipped to meet the complex demands of the healthcare industry.

Two of our portfolio companies serve as ideal examples.

symplr (a past portfolio company) was a relatively small business focused on credentialing vendors entering acute care facilities when we invested in it. In partnership with the management team, we transformed it into a healthcare operations platform serving hospitals in critical areas, like vendor and provider credentialing, payer enrollment, nurse scheduling, quality management, and more. This shift allowed for rapid scaling and considerable success.

Another example is Surgical Notes (a current portfolio company), specializing in Revenue Cycle Management (RCM) for ambulatory surgery centers. When we initially invested in Surgical Notes, their focus was largely on coding and transcription. However, we recognized the potential in their RCM segment, and through acquisitions, the company was able to grow that part of the business. Now, Surgical Notes RCM is a more encompassing solution that helps healthcare facilities holistically and more efficiently manage their revenue cycle.

Capstreet believes the healthcare industry’s complexity has hindered technology adoption, leaving the industry behind the innovation curve compared to others.

However, we think this also presents an opportunity for innovation and investment, aiming to tackle these structural challenges.

We have experience in such industries — where there’s a large, unmet need and the winning solutions have yet to be established.

Our go-to-market approach in this space allows us to assist businesses in capitalizing on these opportunities. When it comes to the complexity of engaging with the right decision-makers at healthcare organizations, our first step is to identify who those decision-makers are.

Many businesses may already know their direct decision-maker, but where we can assist is in identifying the influencers. Understanding how and when they exert influence and nurturing them at the right point in the process can help move a sale along, especially given the lengthy sales cycles in healthcare.

This is particularly true in acute care hospitals, where various roles like the Chief Nursing Officer, CFO, CEO, CIO, and even newer positions like Chief Data Officer have differing levels of influence at different stages.

So, to us at Capstreet, it’s all about understanding the landscape — knowing which departments, and the individuals within those departments, are most influential in the decision-making process regarding which technology solutions to explore, prioritize, and further invest in.

One key differentiator of ours is how we’ve constructed our value creation team.

We’ve assembled a distinct combination of high-caliber executives across functional areas who are also willing to roll up their sleeves and do the work alongside a portfolio company’s team.

The Capvalue^® team serves as resources for our portfolio companies while being fully integrated with the investment team. This model creates a strategic alignment in the approach we take to grow these businesses.

If this approach resonates with you, we’d love to chat. We can help you tackle the unique complexities of the healthcare industry — and work toward capitalizing on its inherent opportunities.