Can Y Combinator companies hack medtech?
Those of us who went through the Biodesign fellowship in recent years have heard many times how ridiculous it is to start a medical device company out of the program in the current environment. When my teammate, Shreya Mehta, and I told people that we were planning to do just that with an implantable device that was going to require clinical trials, a non-trivial FDA process, and third-party reimbursement, people looked at us like we were certifiably insane. So when we first went out looking for funding for Zenflow in late 2014, we knew we were going to have to bring our A-game and cast a broad net. Having witnessed a mass exodus of investors from early-stage medtech to the seemingly greener pastures of Healthcare IT and Consumer Software, we began compiling a long list of non-traditional investors, accelerators, and grant opportunities. As I had spent some time in the software world beforehand, I was familiar with Y Combinator (YC), the accelerator that started accelerators, and the place where startup unicorns – or even decacorns like Dropbox – were supposedly born. But why would this shrine to hackers that fully embraces Marc Andreesen’s “Software is eating the world” philosophy want anything to do with a company that has a purely mechanical product and comes from an industry that is not eating the world, but rather being eaten by it? Our hopes were not high to say the least. But sure enough, right there on YC’s Requests For Startups page was a beacon of hope: “Medical devices also seem like fertile ground for startups.” So you’re telling me there’s a chance!
To make a long story short, we ended up getting in and soon found ourselves at the first YC dinner along with Lully, another 2013-14 Biodesign startup founded by former fellows Varun Boriah and Andy Rink. The other hundred or so companies in the Winter 2015 YC batch ran the gamut from a company making 3D printed rocket engines to an Airbnb equivalent for construction equipment to a team of six college friends working on a blood pressure app that pivoted to an SMS-based “Uber for everything” service that became the hottest story in the Valley for a few weeks. There were even a few other medical device and biotech startups there, most of us not quite sure what to expect.
Build things and talk to users
It’s not hard to draw parallels between the needs-first approach of Biodesign and YC’s mantra, “Make something people want.” Both programs emphasize the importance of striving to understand the needs and mindset of the user and designing a product that meets those needs. Applied to the Biodesign process, this might translate to iterating prototyping and testing cycles as quickly as possible and spending a lot of time in the ORs and clinics talking to patients and clinicians. Above almost all else, YC emphasized speed. Companies are expected to report progress every two weeks during the accelerator, even if you’re a building a nuclear fusion reactor that won’t see the light of day for over a decade (as one YC alum company actually is). We found that thinking in term of days or weeks rather than the typical medical device timeframes of months or years helped us keep moving forward at an aggressive pace. “Although it may seem like much of the advice is geared towards companies with products that are able to quickly pivot and rapidly grow (like software), almost all of the advice we heard directly applied to our company’s goals and metrics,” said Derek Herrera, Founder & CEO of Spinal Singularity (YC Winter 2016), a company that designs medical devices that improve the quality of life for people with Spinal Cord Injury. “We established our performance indicator as time to market and we were able to directly align this with our timeline and goals during the batch. The YC model works for any company that wants to grow and rapidly scale and one of the biggest takeaways for us was a complete and relentless focus on growth.”
We were constantly advised during YC to “Build things and talk to users” at the expense of virtually all other activities. This is to say that in the early stage of a startup, the most important priorities should be to build product and confirm that you’re building the right product. Most other activities at this stage are distractions, but founders often fail to recognize them as such. YC partner Aaron Harris’s blog post “Things that aren’t progress” lists press mentions, awards, meeting famous people, and building headcount as achievements that don’t actually represent real progress for a startup. Even fundraising, he says, is not progress in itself, but rather a tool to accomplish your real goals. Fundraising was often portrayed as a necessary evil that companies should look to get done as efficiently as possible.
Incidentally, Harris posted a similar article called “Things that aren’t work“. Considering that writing blog posts about running startups is #1 on that list, I’m hoping he never reads this.
Be optimistic, within reason
Perhaps the most striking difference I noticed from the medtech industry was the prevailing sense of optimism and abundance at YC. Pitching ambitious projections to a medical device investor in today’s market often leads to an admonition to temper expectations. Conventional wisdom in the industry says that the timelines are long, the costs are high, and there’s little you can do about it. In the YC universe, on the other hand, everyone seemed to be playing to win and swinging for the fences. Whereas our projections for Zenflow were sometimes deemed overly optimistic by medical device VCs, we had several YC partners urge us to be even more aggressive and to think bigger and faster.
“YC was instrumental in helping us think about building a medical device company like a fast-moving startup, and not make excuses for moving slowly just because the medical device industry has traditionally moved slowly,” said Koji Intlekofer, Co-Founder & CTO of Shift Labs (YC Winter 2015), a company aiming to transform what people think is possible when it comes to healthcare devices and create simple, affordable devices for fast-growing global markets. As the medical device industry is filled with people who are used to a slower pace and may be put off by a more aggressive approach, this often means that surrounding oneself with those who can keep up is essential. “The YC network has also been incredibly valuable,” Intlekofer continued. “It’s connected us with other people who believe fast is possible, that just because things are hard doesn’t mean you don’t do them, and who genuinely want to make a difference in the world.”
Despite the optimism, there remains some fear of the unknown among investors not familiar with the unique challenges facing medtech companies. To many, “FDA” is a three-letter abbreviation that’s every bit as scary as “PMA” (meaning Premarket Approval, an often long and expensive FDA process for Class III medical devices) is to medical device investors. While some are fine with a quick 510(k) pathway, or even willing to consider companies with more difficult pathways if the story is sufficiently compelling, many others bolt for the door at the mere mention of the Agency’s involvement. “When fundraising, some of the advice that applies to software companies doesn’t apply for medical device companies,” said Maryam Ziaei, Co-Founder & CEO of iSono Health (YC Winter 2016), a company that is building an affordable at-home ultrasound device for breast health monitoring. “After demo day, we spent some time talking to traditional tech investors and realized that they were scared of the FDA. When many of them think of the FDA, their mindset is based on the FDA process and clinical trials that pharmaceutical companies have to go through, which is very different for a medical device company, especially a non-significant risk device like ours.” However, many companies have found out the hard way that while ignoring FDA requirements can make fundraising simpler, it can lead to a very rude awakening later on when reality sets in, as it did for 23andMe.
Ziaei also cited YC’s advice to “Build things that don’t scale” as something that was surprisingly relevant to medical device companies. Things that don’t scale can take the form of expending energy to acquire early users manually, pursuing a separate indication to collect data or test hypotheses, or going to great lengths to make early users exceedingly happy. These seemingly inefficient activities can often counterintuitively kickstart growth or produce key insights to inspire new product or business strategies.
During the accelerator program, companies around us were constantly announcing big milestones they had achieved. But the YC partners warned against letting excitement about early success devolve into arrogance. Building a company often gets harder as you go, they said, and you can’t always assume that hockey stick growth will continue indefinitely or that investors will always be jumping at the chance to throw money in for your next round. Keeping humble and confident with a low burn rate can help companies push through the hard times that will inevitably come. This advice rings even more true in medtech, where funding is notoriously tight, and where every clinical trial or regulatory submission carries some risk of a major setback.
Different ways of thinking
A striking difference between the YC culture and that of the medical device industry lies in the attitude of each towards information sharing. YC itself lays its secrets out in the open, available to anyone who takes the time to read Founder Paul Graham’s essays or President Sam Altman’s Startup Playbook. YC also supports the open source movement and encourages companies not to be overly paranoid about competitors. In Altman’s words, “Competitors are a startup ghost story. First-time founders think they are what kill 99% of startups. But 99% of startups die from suicide, not murder.” In the eyes of the YC partners, the company that executes best will almost always emerge the winner, as stellar execution is rare. “There are at least a thousand times more people that have good ideas than people who are willing to do the kind of work it takes to turn a great idea into a great company,” says Altman. While the importance of intellectual property means that medtech companies should be careful not to wantonly disclose sensitive information that directly aids a competitor, one can’t help but think that we would all benefit if medtech companies shared information like software companies do. Why don’t we have a Stack Overflow analogue for quality systems, clinical trial design, and regulatory submissions? A little less paranoia and a little more open collaboration could certainly go a long way toward helping everyone in the space become more efficient and avoid reinventing the wheel as often as they currently do. In fact, the founders of Shift Labs recently announced a step in this direction, open sourcing their 510(k) documents on GitHub via a project called Startup FDA. They are hoping that other companies will follow suit.
A final point that the YC partners often highlighted was the importance of company culture and team building. These aspects of a startup are often overlooked in medtech, where hiring is often reduced to finding the right shaped peg for a given hole. The need for a person with specific expertise in nitinol, magnets, and hypotubes may trump the desire to bring on a stronger general “athlete” who complements the team culture. In contrast, the YC partners often stressed the importance of building the strongest, most motivated team possible. Outside of building things and talking to users, recruiting is one area where it is worthwhile for a founder or leader of a startup to invest a great deal of time. This work doesn’t stop when the company lands a good hire. Company culture and employee relationships require maintenance, and it’s essential to keep employees happy and make sure they internalize the company’s vision. “Building a company is somewhat like building a religion,” says Altman. “If people don’t connect what they’re doing day-to-day with a higher purpose they care about, they will not do a great job.”
A flash of inspiration or a flash in the pan?
So is it true that medical devices are “fertile ground for startups,” or is the doom and gloom in the industry warranted? Does YC know something that most medical device investors don’t, or is it the other way around? Will YC’s interest in the space be a flash in the pan, or will we someday see a Shift Labs, iSono Health, Spinal Singularity, or Zenflow next to Dropbox and Airbnb on the shortlist of YC’s big success stories? Nobody knows for sure. But the optimism of YC is contagious and comes through in almost any conversation I have with a member of the small but growing YC medical device crew. We all share a common belief that there are better and more efficient ways to bring medical devices to market, whether it’s through a sharper focus on making real progress, more open sharing of information, unconventional strategic decisions, or something else entirely. Given the industry’s recent struggles, a way to make the process of bringing medical technologies to market easier may be one of the most important clinical needs of all. Solving this need is going to require creative experimentation, relentlessness, and a reevaluation of all assumptions. Fortunately that’s exactly the type of challenge that hackers in the Y Combinator mold are excited to take on.
Nick Damiano (Stanford Biodesign fellow 2013-14) is Co-Founder & CEO of Zenflow (YC Winter 2015), a company that is developing a novel minimally invasive therapy for men suffering from symptoms of benign prostatic hyperplasia (BPH).
Photo courtesy of Pretty Instant (YC Winter 2015)