6 min read

Hey Tech, It’s Time To Build. In Healthcare.

by Daisy Wolf and Vijay Pande from a16z

In the past few months, the founders of Instacart, Spotify, and Coinbase have all started new healthcare companies. This may seem odd to some–why are these seasoned tech founders jumping into tech-driven healthcare?

In 2013, Marc Andreessen observed that the biggest, most successful companies have all done something that seemed completely “crazy” at the time of creation. The examples from the last two decades are clear. Sleeping in a stranger’s home? Airbnb. Getting in a stranger’s car? Lyft. Putting a personal computer in everyone’s home, and then in everyone’s pocket, and then on everyone’s wrist? Apple.

But what sounds crazy in 2023? Certainly not another meal delivery service, recruiting tool, or dating app. More broadly, we all agree that mobile, internet, the cloud, and SaaS are consensus and mainstream.

Here’s what sounds crazy in 2023: Trying to fix the United States’ gigantic mess of a healthcare system.

The U.S.’s largest industry–one fifth of the American economy–is unspeakably broken. The United States severely lags behind other developed nations in terms of health outcomes and cost. Hundreds of thousands of people die each year because of avoidable human errors.

Modern technology has little penetration in healthcare. The industry still largely relies on paper and fax machines for communication.

The most impactful companies are built at the frontier, and healthcare is the next frontier. It’s time to put our tech skills to work. The mother of all markets is ripe for disruption.

The most impactful companies are built at the frontier, and healthcare is the next frontier. It’s time to put our tech skills to work. The mother of all markets is ripe for disruption.

“But….healthcare is hard.”

We hear you. Healthcare IS hard. It’s intimidating. It’s regulated. It’s complex. And that’s why it’s so exciting.

Let us address those three concerns head on.

First, healthcare is undoubtedly intimidating. But we’ve learned it, and so can you.

The overwhelming nature of healthcare largely can be attributed to the size of the market. It’s unfathomably large–$4 trillion in the US alone–and made up of countless submarkets.

But of course, the massive scale of the market is a good thing. The United States healthcare market is five times the size of the global advertising market in which the majority of the major tech companies operate. The American healthcare market could support dozens of FAANG (Facebook, Amazon, Apple, Netflix, Google)-scale companies, but today only one exists (UnitedHealth Group).

Second, we turn to the concern that healthcare is a highly regulated industry. This is indeed true, but many of the most iconic companies of our time–Lyft, Airbnb–have been built in complex, regulated markets. Furthermore, those that were built in unregulated markets–Google, Meta, Amazon–have all come to face intense regulatory scrutiny and pressure eventually. Regulation seems to be either an input to or a result of all great companies.

Like Lyft and Airbnb, healthcare faces national and state/local regulation. There is a federal system, with each state having its own medical board and insurance regulation. While this certainly is a source of opportunity, it also provides excellent grounds for experimentation, allowing a company to test different approaches in different geographies.

And the positive flip side of the government’s regulation is the government’s dollars. The federal and state governments spend over a trillion dollars on healthcare each year through programs like Medicare and Medicaid. This provides healthcare companies with very large, entrenched customers who never go away. Anyone who works in politics will tell you Medicare is untouchable for cost-cutting–seniors (the most reliable voters!) would revolt.

Third, and finally, we agree that healthcare is complex. But so are most markets–whether it’s the hotel industry, taxi industry, or the digital advertising industry. What makes healthcare feel even more complex is its scale, which we’ve established is a good thing. There are a wide variety of entities in healthcare (providers, payors, pharma, etc) which contribute to its complexity, but this is to be expected in any industry of this scale. Plus, complexity has benefits like defensibility–simple markets and solutions have way more competitors and copycats and lend themselves to commoditization.

Why you should come to healthcare.

The above concerns can be summarized as “healthcare is scary.” We believe scary is where the opportunity lies. So here’s why you should bring your tech skills to healthcare.

To start, healthcare needs tech. While the PhDs developing novel cancer drugs and diagnostics are incredibly important, they are just a tiny part of this market. Even if we cure all cancer, Americans’ lifespan would just increase by three years. Instead, some of the biggest problems in healthcare are going to be solved by technology. Healthcare at its core is (1) a data, operations, and logistics problem, and (2) a consumer experience and engagement problem. Both are areas where the tech world excels.

When it comes to data, operations, and logistics, the current state of healthcare leaves endless opportunity for improvement. $765 billion is wasted annually, with the main driver being human administrative overhead. There still isn’t true data interoperability–one person’s important medical records lay across dozens of different doctor’s offices and health systems with little hope of being pieced together. Most promising drugs will never go through clinical trials and become accessible to patients because we still haven’t figured out how to recruit trial participants and run studies in a cost-effective manner. None of these problems require an MD or a PhD to solve, and each is a multibillion dollar opportunity.

When it comes to consumer engagement, we’ve written before about how poor consumer engagement, caused by poor consumer experience, is one of the biggest problems in healthcare. Most poor health outcomes and deaths are caused by diseases that we know how to prevent or cure. What’s needed in these scenarios is not more science. In addition to cultural change and policy change, what’s needed is people who can build better experiences to engage patients in their health–whether it’s eating healthier, exercising, going to the doctor, or taking their medication. No one is better suited to solve these problems than the technologists who have excelled at consumer engagement in tech.

Moreover, healthcare provides the best opportunity out there to use the hottest tools in tech–especially AI–to displace huge incumbents. As we’ve written about recently, deploying AI in traditional tech software businesses presents a number of challenges, namely that AI has lower gross margins than SaaS due to heavy cloud infrastructure usage and ongoing human support.

In healthcare, this situation is the opposite. Most of the healthcare industry is services, which have low gross margins. In healthcare, AI stands to dramatically improve the previously unpleasant economics, making building in the industry far more compelling. Furthermore, human-driven services tend to scale linearly with each incremental human added, but AI-driven services can scale exponentially.

And while margins are nice, mission is nicer. When you think about the limited number of days you have on this planet and the insane number of hours you’ll pour into building a startup, wouldn’t it be great if you were working on something that really mattered? You don’t have to be a doctor or cancer researcher to save lives. A company detecting medical errors or helping people afford medical care might save countless lives.

Even if this isn’t a motivator for you personally, the mission orientation of healthcare will help you attract better talent that you’d get in other industries. Eighty percent of college graduates say that it is very or extremely important to derive a sense of purpose from their work. Millennials prioritize purpose in their lives even more than older generations, and they look to work more than other sources to find it.

Working to improve healthcare is an obvious way to find purpose in one’s work–basically every American can relate on a personal level to how broken the American healthcare system is. Who hasn’t been asked to fill out endless pages of paper medical forms for the fifty-seventh time, received a large and unexpected medical bill, or lost a loved one to preventable or treatable disease?

In addition, the mission orientation of healthcare can likely help your talent perform better. Gallup reports “there is a strong correlation between employees’ purpose and engagement and organizations bottom line.” McKinsey finds that “people who live their purpose at work are more productive than people who don’t. They are also healthier, more resilient, and more likely to stay at the company.”

Finally, we think your tech mindset can be a huge asset in leading a healthcare company. Of course, tech founders building in healthcare must learn healthcare on a deep level, and we recommend surrounding yourself with healthcare veterans to do so (this is especially true in the ideation phase). But the advantages of coming from tech are clear. Tech moves faster than healthcare. The tech world produces visionaries who don’t accept that the ways things work today will be the way things work in the future. Your fresh eyes are exactly what healthcare needs.

Trying to fix healthcare in 2023 sounds crazy and is certainly non-consensus. But in what other industry could you build the biggest company in the world?

April 20, 2023