SaaS unicorns have been proliferating across nearly every industry, yet there have been very few, if any, SaaS unicorns in healthcare — despite it representing a massive 18.3% of the US economy.
How could this be? I've been pondering this topic lately. I think a major reason is Innovation Theater.
What is Innovation Theater?
It’s when companies and organizations are more interested in looking “innovative” than actually embracing innovation.
My theory is that industries that prioritize Innovation Theater benefit from a status quo where they have deeply misaligned incentives with their customers. This is often, but not always, closely tied to regulatory capture and soft forms of corruption.
Companies and organizations that play Innovation Theater are eager to take lots of meetings with startups. They might even be willing to do small pilots to appear like they are trying to be innovative. Frequently, they will have “innovation budgets” to dole out small contracts and other performative totems.
This is toxic to startups. At best, it’s a quagmire from which startups eventually realize they must escape. At worst, it’s lethal quicksand.
I will admit that the entire healthcare industry isn’t totally bereft of demand for innovation. For example, Big Pharma will invest in sales & marketing innovation - witness the massive success of Veeva. Biotech R&D is also receptive to innovation, as Benchling’s success demonstrates. These are exceptions. On other hand, it’s very, very difficult to find a SaaS startup that’s scaled successfully selling to to the massive healthcare markets such as hospitals or insurance.
I should also point out that healthcare isn’t the only industry like this. Large ad agencies are notorious for wanting to show off fancy tech tools to their clients without actually wanting to change the status quo.
What should SaaS founders do?
There are lots of sources of tactical advice on navigating the often-lethal, 12-24 month sales cycles that are typical for startups selling into healthcare. Perhaps a few SaaS startups can survive this.
In general, I would avoid engaging with customer prospects who show signs of performing Innovation Theater. I think the most potent mitigation strategy is to take a completely different approach to finding customers:
If you want to know what industries are most encumbered by Innovation Theater, look at the industries least friendly to bottom-up adoption.
The good news is that these dynamics could could change. There are a few promising early-stage SaaS startups that target edges of the healthcare industry that have a shot at winning based on innovation. Perhaps these pioneers can help open up the industry to progress. I hope so!