Our Investment Research Analyst, Estelle Pfitzer, and her co-authors have published a valuable systematic review in the Journal of Medical Internet Research. Alongside Tobias Kowatsch, Laura Bitomsky, Marcia Nißen, and Christoph Kausch, Estelle highlights critical success factors for growth-stage digital health companies in an increasingly competitive and regulated landscape.
The digital health sector has exploded in recent years, offering promising solutions like electronic health records and telemedicine, which were further accelerated by the COVID-19 pandemic. Despite this growth, many digital health companies struggle to scale. High-profile failures like Pear Therapeutics and Proteus Digital Health, both of which filed for bankruptcy after early success, highlight the tough road ahead for these companies.
Our Investment Research Analyst Estelle, together with co-authors Tobias Kowatsch, Laura Bitomsky, Marcia Nißen, and Christoph Kausch, delved deep into this issue. Their recent study uncovers key factors that can make or break growth-stage digital health companies. These findings offer valuable guidance to entrepreneurs, investors, and industry stakeholders seeking to understand how to navigate this challenging sector.
What Makes Growth-Stage Digital Health Companies Succeed?
Through a thorough review of over 2,900 studies, Estelle and her team identified 52 success factors for growth-stage digital health companies. These factors were grouped into two categories: internal and external influences. By breaking down these factors, the team found common threads that contribute to success in the digital health space.
Internal Success Factors:
Several internal factors were consistently highlighted as crucial for success. Financial stability emerged as the most critical, with market demand and product relevance also playing a central role in aligning offerings with consumer needs. Additionally, having a capable, diverse team with the right leadership and skills was essential for supporting growth. These factors, alongside a focus on product innovation, customer-centric design, and operational efficiency, form the foundation for a company’s ability to scale successfully.
External Success Factors:
On the external side, digital health companies face unique challenges in navigating the highly regulated healthcare landscape, where compliance with regulations and obtaining necessary approvals are key. Success also hinges on adapting to the healthcare system, improving care outcomes, and ensuring affordability.
Investor support and the broader market environment are crucial, with companies focusing on customer feedback, regional behavior, and brand building to refine offerings and build loyalty. Collaborating with suppliers and larger partners strengthens the value chain and enhances product offerings.
In summary, successful companies effectively engage with stakeholders and align their strategies with regulatory, market, and healthcare system needs.
The Role of Industry-Specific Challenges
One of the standout findings of the research was that success factors vary widely across different segments within the digital health sector. For example, companies in Health System Operational Software placed a strong emphasis on affordability and system integration, while those in Digital Therapeutics focused more on securing regulatory approvals. These insights show that the path to success isn't the same for all DHT companies and highlights the importance of understanding the unique needs of each niche.
Implications for Investors and Entrepreneurs
For entrepreneurs, the research underscores the importance of not just having an innovative product, but also ensuring financial stability, regulatory alignment, and market fit. A company may have a great idea, but if it doesn’t meet market needs or navigate regulatory hurdles effectively, scaling becomes difficult.
For investors, the study provides a roadmap for evaluating the potential of DHT companies. Investors can use these insights to assess whether a company has the necessary factors in place — like regulatory preparedness, product-market alignment, and financial viability — that increase the likelihood of long-term success.
Looking Forward: A Bright Future for Digital Health?
This study fills an important gap in our understanding of the factors that drive success for growth-stage digital health companies. As digital health continues to evolve, these insights can help entrepreneurs build stronger businesses and enable investors to make more informed decisions.
By focusing on the right combination of internal and external success factors, stakeholders can help digital health companies navigate the complex regulatory environment and scale effectively. We hope this research sparks further exploration into the unique challenges of the digital health sector and supports the next wave of growth and advancement.
Click here to read the full review.
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