How much is “too much” when it comes to overpromising as a startup?
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Is it okay to overpromise?
Anyone who has worked at a startup will tell you that you’re frequently marketing way ahead of where you actually are. In many cases it’s because you need money or people to actually go build the thing. You’re painting a bit of a vision of where you want the company to be and the massive impact you expect your company to have to convince others to come along with you on the journey of pain, suffering, and wondering what exactly the engineers are even working on.
In a lot of ways this is diametrically opposite to the traditional healthcare system, which expects there to be testing and evidence before anything is deployed (despite the fact that lots of stuff in medicine today lacks evidence to back it up, but that’s an argument for a different time).
Because of these opposing expectations in building and deploying, you have very acute tensions that arise in healthcare startups.
- Sales vs. product - Sales reps sometimes tell a lot of things to a customer about capabilities, but can those claims be met?
- Projections vs. reality - Investors might be wondering what your projected sales are or you might pitch customers on potential savings/efficiencies gained over time. How much of the model is based on stretch assumptions?
- QA/Compliance vs. …everybody - How many checks need to be done before something gets deployed? What levels of risk are you taking as a company and are you comfortable with the assessment of vendors, processes, and people around different areas of risk?
- Timelines vs. my patience - Everything in healthcare takes 2-3x as long as you think and you need the patience of a bodhisattva to make it through. Crocs will go in and out of style before you see a full feedback loop from a project.
Those are just some of the examples, but you get the gist. If you’re new to a startup, there’s probably some surprises around what you present externally vs. what you know to be true internally. This can be particularly jarring for the people coming from traditional large healthcare companies.
So the question becomes, where does the line get drawn? There are areas where it’s clearly too far and illegal. Theranos falsifying lab tests, claims of uBiome fraudulently charging insurers for its microbiome tests, and Outcome Health allegedly inflating metrics/accounting fraud all come to mind.
The reason those have stepped over the line IMO is because they claimed something had actually occurred and the value provided back is correct. But making projections about something in advance and not living up to those projections is nuanced, especially in a high growth environment. When people claim every startup that stumbles or is overhyped is Theranos, it’s downplaying just how bad Theranos actually was (especially since Theranos directly harmed patients).
This discussion really unfolded after this article in Axios about Olive came out (it's behind a paywall). You should read the full thing, but the general gist is that:
- The company would quickly make assessments about how it would generate potential savings.
- The savings it actually made were much smaller than what actually happened plus things would break once actually deployed.
- There were some issues with how PHI was handled (deleted data, not using synthetic data for tests, etc.).
- Employees claim Olive would sell into a hospital and become very sticky because they were baked into workflows and/or hospital employees were replaced, so the hospitals had no choice but to keep them.
[I don’t know anything about the internal story at this company/any company mentioned in this post. I’m just highlighting this particular story since it’s the one that seems to have generated most of the discussion around this topic.]
This situation seems to have struck a chord with people, and raised the question about the speed of growth at startups and overselling. I’m curious what others think about this story and the general concept of using projections for sales or getting investment.
Here are my thoughts:
- #1 most important thing - were patients harmed by this? This should be the guiding principle when evaluating anything in healthcare. I got some DMs suggesting that hospitals serving at-risk communities were budgeting these projected savings in, which ends up downstream impacting patients. That’s a shitty situation and I hope that patient care was not impacted as a result. But I’m not sure all of the blame can be placed on the company for that.
- Overpromising is a spectrum. Saying you are definitely able to do something when you can’t is bad. Personally, I don’t think making projections about savings, product, etc. ahead of what you can actually deliver is a bad thing as long as you’re transparent about sharing your assumptions, model, path of execution to get there, etc. and can justify those decisions.
- It’s also the job of an investor and the procurement teams to figure out how believable your projections are and the underlying assumptions (hence why you should be transparent about how you go to your projections). If a customer doesn’t think the projections are realistic, they might want to consider asking the company to make financial guarantees or structure the contract in milestones. If projections are made in bad faith or are deliberately misleading, a company could get hit with a securities fraud violation so there are some legal checks and balances as well.
- I think continuously overselling eventually comes to bite you in the ass. There’s only so many times you can miss projections or increase the size of your vision before people start getting skeptical and you lose trust. The delta between the claims you market and what you deliver should decrease over time, not increase.
- If companies were not allowed to project or market ahead of where they were, it would be very tough for any new solutions to come to market. When you’re new, you don’t have a lot of data points to back up your claims so inevitably you’re “guessing” a bit on what you think you can deliver and more often than not it’ll be the optimistic scenario. If companies couldn’t do this, we’d be stuck with only established companies as available options (which is some of the issues today with how vendor RFPs are structured, there’s very little room for new companies without track records that need to rely on projections to sell).
- What is the benchmark being compared to here? Many existing consulting firms do a similar process for RPA assessments and deployment. Do those firms save costs to the degree to which they’re predicted? IMO if a company is being called out for something, it should also be compared against whatever the status quo is to understand whether the issues are specific to the company or more endemic of being in this part of the industry.
One worry with this story will make it more difficult for new startups to get picked as vendors by larger, more risk-averse healthcare institutions. I already see the number of old school healthcare people pointing at this story talking about “tech startup hubris”. But let’s be fair: established healthcare institutions enter into enforcement settlements frequently, and sometimes for huge amounts of money in overpayments.
I also think there’s a particular danger around making projections that are too far ahead for the purpose of raising and then needing to live up to those expectations, especially when companies are operating in gray areas. Schedule II substances are a great example, with companies like Cerebral now getting much more scrutiny for its online amphetamine dispensing and PracticeFusion in the past for their opioid kickback scheme.
In this case, projections actually beget results since companies have to hit those targets to continue their fundraising. It’s in these high growth areas with abuse potential that you need founders with high ethical standards, strong oversight/governance from the board, and potentially even third-party audits/surprise shoppers to keep things in check. Venture dollars aren’t definitively the reason for bad behavior, but can definitely exacerbate it. Some might even argue that venture as an asset class is incompatible with maintaining high quality clinical models alongside hyper growth expectations.
I’m interested if there are better ways to align incentives to provide some checks and balances to the over promising. For example, tying a portion of sales commissions to renewals/product usage so that things aren’t sold that can’t be delivered on.
I think all startups sell ahead of where they are, and understanding when that’s an issue + who’s responsible is important. I’m curious to hear from you all if you have stories or commentary about this conflict of projections vs. reality. When is it “regular startup shit” and when should it not be tolerated? Which parts of my assessment do you disagree with? All of these opinions are held pretty loosely.
Nikhil Krishnan aka. “underpromise AND underdeliver"
Other posts: outofpocket.health/posts
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