Buy vs. Build in Healthcare: Focus On What Makes Your Beer Taste Better
If you’re working at a hyper-growth digital health solution, you’re probably discussing buy vs. build decisions on a daily basis.
Should we build our own EMR or should we go with a solution like Canvas Medical or Athena?
How hard can scheduling be? We don’t need INSERT_SOLUTION for that; we can do that ourselves
All the billing solutions are trash, let’s reinvent the billing wheel
Deciding if you want to buy a specific product or build it yourself is probably one of the most difficult decisions your company has to make. But how do you make that decision?
To give an answer to that question we need to go back to 2008. The year that Jeff Bezos gave a keynote at the Y Combinator startup school. In this keynote, he talked about European beer breweries of the 20th century. During that time electricity had just been invented and it was a massive boom for companies like beer breweries.
It probably doesn't surprise you, but the first breweries that adopted electricity had built their own power generators. They were making their own power and their own beer. And that worked fine for a few years, but this was obviously super capital intensive and it required a lot of operational labour to run those power generators.
But then the utility companies came along. And the next generation of breweries didn’t make their own power, they just rented it from a utility company. And then they crushed the 1st generation of breweries that built their own power generators. Because guess what, whoever makes your electricity has no impact on how your beer tastes. So making your own power doesn’t make your beer taste better than the competition. That’s why you need to focus on what you’re really good at and what differentiates you. Everything else is a distraction and can become a liability.
And so Jeff’s argument to all startups was: focus on what makes your beer taste better. Focus only on the attributes of your product that your customers are going to care about. Everything else (e.g infrastructure) you should outsource. The second point here is that being a utility company is an exceedingly great business (but that’s food for another blog).
So, how do we tie that back to healthcare?
In a recent webinar from Freshpaint Nimish Parikh (Redesign Health), Brendan Keeler (Zus Health), Molly McGrath (Allara Health), Harry Goldberg (Komodo Health) and Alex Cohen (Carbon Health) talked about this buy vs. build decision.
The first they mentioned is that it’s important to understand if you’re a tech company or not. Babylon is an example of a care provider that is also a tech company, Oscar with +Oscar is another. They probably need all the intellectual property. But if you’re a service-based company that is providing care to patients, there is no shame in saying “We are not building software as our core thing” and just buy technology that enables your services.
Once you know you’re a tech company or a service provider, the next question Molly thinks you need to ask yourself is: what is our core competency?
Let’s break this down:
Are it your unique care processes that are your core competency or is it the software tool that is running those care processes?
Is the data that you collect and tying it back to your care process your competency or is it the data infrastructure?
Is it the clinical consultation itself that is your core competency or is it the best-of-the-class scheduling tool that is used for that?
Okay; I confess. With those questions, it looks like you should buy everything and just deliver care. That’s obviously not the case. Imagine you’re a D2C mental health provider and your core competency is an amazing user experience. And now imagine you can only find scheduling tools with a UI of the ‘90s; then you can decide to build instead of buy.
But whenever you are going to decide to buy or build, you need to write out everything. Really everything. Not just “we need an EMR” or “we need analytics” but writing out every single feature you need. And you also need to prioritize this list with blockers, must-haves, and nice’s to haves. This will help you eliminate as much bias as possible. Because when you start writing down those features, you’ll realise how complicated things are.
Let’s say your product team wants to have a community where your patients can meet with each other, share experiences and where you can also share information with them. Well, you could build this community starting from scratch. But if you start writing out everything, you’ll notice quite quickly that it’s not as easy as it seems. You need things like permission, design, SSO, control of content, user management, payment system, etc… whereas there are companies that own this process end-to-end (and could save you a lot of frustration).
Apart from focusing on things that will make your beer taste better, it also depends on the stage you are at as a company. For companies going from 0 to 1 that have not reached product-market fit yet, it makes sense to buy everything instead of building. This is exactly what Allara did. They started with no-code solutions (no-code solutions in healthcare are, again, a blog post on its own). They got to see patients, delivered care and worked on their product-market fit without building anything. This is in contrast with later-stage companies that achieved product-market fit and are scaling fast; most of them begin to actually build some things they bought retroactively for either margin increase or because they want to build out a better user experience.
Another reason why companies decide to build instead of buy has to do with the credibility that you get from the market. We have to admit that the “Campaign builder” that Oscar designed is just freaking cool, and having technology like this makes you probably 10x sexier for investors. But this can become a pain in the a$$ if you take it too far. Acquiring tech talent is a challenge in health care (although there are a lot of web3 people that are probably searching for a new job) and the chances are there that you might be crushed by the competition if you want to balance both tech & care delivery. Especially if your competition is laser-focused on care delivery alone and is buying everything.
Nimish emphasized that you should ask yourself, "Where do I have an information advantage? Where do you have use cases where you actually end up knowing a lot more than the rest of the market?”. Imagine you’re a mental health startup doing group therapy, chances are high that you have an information advantage in building a group therapy EMR. You will know more about it than an Epic or Athena ever will. So if it’s a unique use case it might make sense to build it yourself. But if it’s not, you should highly consider buying it instead. Because the biggest cost there is actually the opportunity cost of what you would have been able to do with all those smart people if they didn’t have to build this thing instead - the thing that no other company could build and that you couldn’t buy anywhere - the thing that actually differentiates you.
That’s the key message here and the most important part to remember is the differentiator piece. You need to make sure that what you’re building is really core to what you are doing. It needs to be those things that will make your beer taste better. It needs to be moat, it needs to set you apart from the competition.
What’s important to remember is that there is no right answer to the buy vs build question because it varies so dramatically depending on how you see yourself as a company. It’s dependent on your business, strategy, team, money in the bank, strengths and much more. It’s not wrong that companies like Carbon Health, Cityblock or Cerebral are building their own EMR, while it’s also not wrong that other virtual-first care providers use Athena, Elation or Canvas Medical as an EMR system. You have successful stories in either case.
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The story of Jeff Bezos at Y Combinator came from the Acquired podcast, which I highly recommend.
Thank you to Ray from Freshpaint for organizing this insightful webinar. Go check them out if you’re looking for a HIPAA Compliant Analytics & Customer Data Platform.
Thank you, Brendan, Molly, Harry & Alex for all the knowledge shared. 99% of the credits for this article belong to them and 1% to Jeff Bezos.
Thank you Joe Mercado, Jan-Felix Schneider, Hamna Nazir and Maitreyee Joshi for the feedback.