Examining five ways to reduce the risk of entrepreneurial failure in American healthcare.
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At least 90% of startups fail. And in the healthcare strategy course I teach at Stanford’s Graduate School of Business, I caution students that the odds of failure in medicine are even greater.
Failures in health innovation rarely stem from flawed products. Almost always, they’re the result of mistakes founders make early in the journey, long before the first sale or clinical deployment.
Entrepreneurs drawn to the $5-trillion U.S. healthcare market often assume their success in other industries will carry over. But the system’s distinct structures, cultural norms and unwritten rules trip them up. The results catch them by surprise.
Here are five ways to reduce the risk of entrepreneurial failure:
1. Approach Healthcare Like A Novice, Not An Expert
When President Donald Trump met with governors in 2017 to discuss replacing the Affordable Care Act, he famously remarked, “Nobody knew that healthcare could be so complicated.”
His surprise wasn’t unique. Many outsiders assume the industry’s problems can be solved with the same tools and tactics that worked elsewhere. But medicine is personal and highly variable. What succeeds in a lab often fails in clinical practice. Here’s one example.
Five years ago, I received a dozen calls from CEOs who had paired voice recognition with traditional AI to auto-generate medical records from doctor-patient interactions. Each executive claimed their tool could save physicians two to three hours per day. None could understand why sales lagged.
They diagnosed the issue as a lack of clinician awareness and asked me to connect their sales teams with doctors. I told them the truth: If your tools actually saved physicians that much time, you wouldn’t need help selling. Your biggest problem would be managing the line out the door.
I urged them to start over: test the tools in real-world clinical settings, find the flaws and redesign. They all refused. None of the companies succeeded.
Ambient listening didn’t fulfill its promise until recently, with the arrival of generative AI. Unlike earlier tools, GenAI adapts to each physician’s style and produces summaries that require far fewer edits. As a result, doctors and hospitals are now eager to adopt it.
2. Start With A Problem, Not A Product
One of the most common causes of failure happens when entrepreneurs start by finding or developing a promising technology and then go searching for a medical use case. Sometimes it’s a device. Sometimes software. Sometimes a service.
But in healthcare, even technically impressive innovations fail to succeed unless they address a clinical need that doctors and hospitals place at the top of their priority list.
Dr. Tom Fogarty understood this instinctively. In the early 1960s, while still a surgical resident at the University of Oregon, he faced a dangerous but common challenge: how to remove clots from arteries without sending fragments downstream and obstructing blood flow to vital organs.
His solution was a thin catheter with an inflatable balloon at the tip. By threading it past the clot, inflating the balloon and pulling back, he could extract the blockage whole.
The design was simple, elegant and effective. And it illustrates the point: Only by starting with a critical clinical problem could Fogarty have invented a lifesaving device that surgeons and hospitals embraced immediately.
3. See The World Through A Doctor’s Eyes
No matter how innovative an idea or how much good it could do, doctors won’t embrace tools that slow them down, add to their workload or cut into their income.
A recent example is wearable health monitors. These slim, sleek devices measure vital signs in real time and can transmit hundreds of blood pressure, glucose or oxygen readings to a physician’s office. Entrepreneurs highlight their potential to help doctors better manage chronic diseases like diabetes, hypertension and asthma, promising major gains in clinical outcomes.
But that’s not how physicians view them. The thought of receiving dozens of readings every week from hundreds of patients feels overwhelming. Faced with that flood of data, they’d never get home to see their families.
Through doctors’ eyes, a better solution would go beyond measurement. It would analyze the data, flag the patients at greatest risk and recommend when treatment adjustments are needed.
And yet, consumer wearable makers like Apple view the opportunity through the eyes of lawyers, not physicians. That’s why the company has never released a device that lets patients evaluate or manage medical problems on their own.
Instead, its watches remain limited to data collection; useful for wellness, but with little clinical impact for people with a serious medical condition.
The results are negligible improvements in health and limited enthusiasm from physicians outside those funded by the company. Failing to view devices through the eyes of clinicians will make it impossible for Apple to fulfill Tim Cook’s 2022 promise that the company’s “greatest contribution to mankind” would be in health.
4. Follow The Money To The End
Healthcare leaders love to talk about value-based care: tying payments to patient outcomes rather than the volume of services. But in practice, more than 90% of care in the U.S. is still reimbursed fee-for-service.
As a result, hospitals rarely buy technologies that reduce costs. Instead, they invest in tools that attract patients, boost revenue and increase profits.
Take surgical robots. They cost millions to buy and operate, lengthen operations and don’t meaningfully reduce complications. In fact, a review of 39 independent studies found no improvements in outcomes or survival. Yet hospitals keep purchasing them.
Why? Because robots attract patients. They signal prestige, look great on billboards and help recruit surgeons.
With premiums projected to climb sharply next year and with generative AI gaining momentum, the opportunity to build cost-reducing tools may finally be real. But entrepreneurs should be clear-eyed: until incentives shift, most innovations that promise savings will struggle to gain traction.
5. Who Will Pay? Ask That First.
Frequently, entrepreneurs find that after a year or two of hard work, they’ve built a product or service that adds real value to medical practice. Everyone from insurers to doctors to hospital leaders agrees it will help patients. But when it’s time to close the deal, they find no one’s willing to sign the check. Each stakeholder believes someone else should foot the bill.
Imagine you’ve created a telemedicine program where nurses coach diabetic patients on managing blood sugar and healthy habits. Your clinical assessment shows it lowers the risk of heart disease, kidney failure and amputations. Your financial analysis shows a 3-to-1 return on investment.
But insurers won’t cover it. They say that’s the doctor’s job. Doctors won’t pay. They can’t bill for it. And patients? Most can’t afford it out of pocket.
This happens again and again with email consults, text-based follow-ups, even telehealth visits. They’re cheaper, more convenient and less time-consuming. But without clear financial responsibility, even the most useful technologies go underutilized.
In Healthcare, What Works Isn’t Always What Wins
Innovation in healthcare is hard, and not because medicine is complex. It’s hard because the system is irrational.
The people receiving care aren’t the ones paying for it. The people delivering care often don’t choose the tools they use or how they get paid. And prices rarely reflect the value delivered or received.
That’s why excellent products and services fail. And it’s why successful entrepreneurs approach healthcare differently. They don’t assume the system makes sense. They study it. They learn where the money flows, who holds influence and what problems clinicians are desperate to solve. Then, and only then, do they proceed.