3 Ways the Lean Startup Approach Is Revolutionizing Healthcare

Launching a startup has always been risky. In an atmosphere where startup failure is more common than startup success, the lean startup movement arose to allow startups to move forward more nimbly and with less risk. Now, lean startup concepts such as “fail forward,” “minimum viable product” and “pivoting” are being taught in B-schools and adapted by businesses everywhere.

But what about healthcare startups? Can the lean startup approach help them too? A methodology centered around experimentation and iterative development might seem to be a poor fit in more risk-averse fields like healthcare where patients’ lives hang in the balance between the need for new treatments and the intense testing and regulation needed.

Yet even in healthcare, an industry that simultaneously depends on innovation and is intensely focused on driving down risk, the lean startup movement is gaining ground. Here are 3 reasons more healthcare entrepreneurs are choosing the lean startup approach to drive their business.

1. Lean startups drive down costs.

Healthcare costs are big news, and have been driving a national debate for decades. Although costs have held relatively steady since 2010, prior to that they rose from 13 to more than 17 percent of GDP, according to economic data from World Bank. One of the biggest contributors to these rising costs is the cost of pharmaceuticals, which account for 12 percent of total healthcare spending in the United States.

That number may not seem so high, but it’s more than double the pharmaceutical spending seen in countries like Luxembourg, Sweden and Canada, where cost control measures limit the profits of pharmaceutical companies.

Profit margins in the world of Big Pharma are nothing to sneeze at either: Amgen, makers of arthritis medication Embrel and cancer medicines such as Neulasta, recently reported profit margins of more than 42 percent.

Yet, these costs are necessary, according to the industry trade group PhRMA, which says that high profit margins are necessary to cover R&D costs and to reimburse pharmaceutical companies for the costs of drugs that never make it to market.

In this environment, the lean startup approach allows smaller firms to focus on less profitable opportunities that might be overlooked by Big Pharma, yet are no less valuable to patients.

Punit Dhillon, CEO of San Diego-based biotechnology startup OncoSec, says, “For us, there’s a benefit to being small. We can focus on innovation that targets specific needs and speed up development processes to meet them,” says Dhillon. “We’re not hampered by excessive overhead or layers of decision-makers.”

2. Lean startups drive innovation.

With fewer layers of decision makers and a lower overall cost structure, lean healthcare startups are more able to follow the tenets of the lean approach, which include “fail fast, fail forward,” and to pivot when an idea doesn’t work.

This, in turn, drives innovation. “The ability to try different things is key if we’re going to innovate,” says Dhillon. “Patients need more effective treatments, so there’s a sense of urgency around getting assets into a clinical setting quickly. If we have an outcome where a treatment that’s effective in preclinical trials on mice doesn’t work on people, we need to know that and pivot quickly.”

Although the healthcare field is highly regulated, innovation and speed to market are still critical components of success.

3. Small seeds go a long way.

The lean startup approach originally got its start in the tech world, which is rife with small companies that were able to overtake much larger rivals and even transform entire industries. Some of the tech industry’s biggest titans got their start in a founder’s garage: think Amazon, Apple, Google and even Microsoft.

In much of tech, being a lean startup has always been viewed as a possible path to success. But in healthcare, with its high costs for navigating complex regulatory requirements, the bootstrap startup is a rarer breed.

Most healthcare startups require significant investment to get off the ground. Often, they begin as partnerships or spin-offs from a larger healthcare corporation. This arrangement has traditionally given healthcare startups the financial and other assets needed to overcome expensive R&D processes and the complex path to regulatory approval.

But it has also hampered innovation. Big Pharma is typically only interested in developing treatments for which there is a large market need, or going after “low hanging fruit.” With the lean startup approach, however, smaller companies are able focus on treatments for rare diseases that might be deemed unprofitable by Big Pharma.

Says Dhillon, “We’re not looking for a billion dollar opportunity. We can focus on smaller yet significant unmet medical needs that still make a huge difference for patients.”

Whereas in some other industries, small innovations and advancements are often eschewed for larger opportunities. But in the realm of healthcare startups, small steps forward are making significant long-term impacts.