We met countless investors and brilliant entrepreneurs who prefer to stay far away from healthcare because of this. We can empathise with that, but we also believe that the journey has been truly worthwhile, both for ourselves and our patients. So, we wanted to share some of our key learnings in this piece, hoping that it helps other founders and investors navigate these uneasy waters with more comfort and hopefully also encourages others to take the plunge.
The good news first: once you traversed this daunting terrain successfully and managed to thrive in a regulated market, you have naturally earned a defensive moat against prospective competitors that other markets do not afford: At Wellster, we adopted key strategies that empowered our rise and doubled our turnover to more than 25 million euros from 2021 to 2022.
Here’s what we think you should know before you start.
1. Prioritise Compliance
Founders of startups in highly regulated markets often find compliance a substantial challenge that is best left for later. A common refrain sung by first-time entrepreneurs in our industry is “We’re too early for all that regulatory stuff, the resulting overhead will just slow us down if not outright kill us.”
To us, it was clear from day 0 that regulatory compliance is neither negotiable nor something that you can easily retrofit. Investing time, resources, and energy into creating a robust compliance infrastructure from the start has paid off multiple times. This isn’t just about meeting legal requirements, it’s also a vehicle that helps to build trust in the community, which is important for getting partners as much as to entice customers. To us, the medical community is a key group of stakeholders that we had to convince - and a strong commitment to patient safety is essential to make that happen.
Plus, at least in Europe, regulations usually don’t tend to get less complicated over time. Because we were early, we benefited from achieving compliance under MDD (medical device directive) before the much disliked MDR (medical device regulation) came into force. So until today, we benefit from a ‘grace period’ in which we can still operate under the old rules, which saves us a lot of costs and protects our agility. Had we started late, we would have missed that boat.
Also, we’ve seen entrepreneurs deciding later-on to retrofit a quality management system that meets all regulatory requirements and it is a complete nightmare — it’s so painful that you can expect some employees to quit their job. Things are so much easier if you set the right foundations from the beginning and then let your quality management system grow organically.
2. Don’t bet on regulatory changes as your sole business model
Sven once got a call from a large French skincare manufacturer: “We’re wondering if we should go into the DiGA game, too” — DiGAs are medical apps that can get prescribed by doctors and reimbursed by insurers, a relatively new and rather unsuccessful invention by the German lawmakers. Sven warned them against it, not least because they were not at all a healthcare player.
We keep seeing managers who are effectively betting the lives of their companies on changing environments that promise to open up lucrative opportunities: wider accessibility of cannabis, legalisation of telemedicine, large scale modernisation of hospitals, and so on.
Betting that bold statements by politicians will translate into regulatory changes that will let your new business idea blossom is dangerous because it is an arena that you do not control and it is hard to predict which stakeholders in the system will find clever ways to complicate any new law when it hits reality.
It’s smart to keep an eye on regulatory changes, but make sure that your business model already works within the current regulatory environment. Treat possible regulatory changes in your businesses’ favour as potential upside only.
Especially in a market with a long history of strict regulations like Germany, we have seen first hand that liberalisation can not just be a painful and very slow process, but you can even expect the occasional reactionary backlashes that suffocate a new law in its infancy.
For more than a decade now, Germany tried to introduce a digital prescription format in Germany. They recently announced a soft launch that then got postponed again and some larger online pharmacies built their entire business plan on this, only months away from bankruptcy due to constant delays.
Another example is the DiGA-model mentioned earlier, where we are now seeing a couple of our fellow digital health entrepreneurs running into insolvency because the insurance companies decided to retrospectively half the price that the companies charged, effectively asking them to return millions in earnings that were already reinvested. Imagine a private client going to a seller saying “Sorry, I’m just going to take back a couple of million that I just unilaterally decided I overpaid.”
3. Build a Network of Industry Experts
Since in 2019, we were an early mover in a strictly regulated health tech sector, we saw importance in building relationships with industry experts. Having privileged partnerships with industry leaders and being a trusted player in the eyes of gatekeepers in the market can serve as a “moat” against competition. Given that in heavily regulated and complex markets, there is a certain level of understanding that can only be acquired through experience. That’s why you need access to experts for privileged and earlier insights.
However, these experts really come just for the money, they have a lot to lose, especially their hard-earned reputation. Hence, trustworthiness is key. The founders of Wellster therefor decided to establish an advisory board, which included Sven and a growing number of highly renowned physicians, including Prof. Christian Wülfing, who was on the Board of the German Urology Society.
When you work on innovations, you naturally have to push boundaries and will reach areas where current regulation is embryonic or maladapted to emerging technological realities. There is a temptation, fueled by the charm of speed and agility, to become somewhat reckless in these areas, to move fast and break things. This attitude doesn’t go down well in high risk industries like healthcare.
So, even in spaces where you could outpace your other work streams, make sure that you focus on thriving within the confines dictated by patient safety and to understand current best practices before you attempt to change them. Everybody loves to think outside the box, but before you can break out of it you need to understand it.
That’s exactly where your trusted industry insiders can help you understand what boundaries are meaningful and which ones are sensible to disrupt.
4. Self-Regulate
Quite quickly, we realised just how important this is and began to grow a formal advisory board with more experts and a clear mandate to greenlight or block new product ideas. In fact, we voluntarily began to self-regulate through a Medical Board. The idea was primarily that this would help us to ‘get things right’ but frankly, it also massively increased our market acceptance.
The board's composition, from its structure and mandate to the selection of its members, is usually tailored according to the business model, jurisdiction, and key products of the startup, so we can’t give generalisable recommendations, but a few common elements are universally beneficial, such as board members with a strong industry standing to enhance credibility and trust in the market.
A well-composed advisory board contributes in numerous ways. The members, with their extensive professional networks and experiences, can assist in building strategic partnerships and offer fresh perspectives on business operations and challenges. They provide real-time insights into the ever-evolving ecosystem, including emerging themes, regulatory changes, market trends, technological and scientific advances. Furthermore, they contribute significantly to product development, human resources, compliance processes, risk reporting, and post-market surveillance, ensuring the clinical robustness of products and services.
However, to maximise the potential of a medical advisory board, transparency and a space for honest feedback is paramount. The board's role should not be limited to providing applause but include offering critical insights to strengthen the business model. Also, it's important to ensure that the advisory board size is manageable, with the right balance of members willing to substantially contribute time and effort. Finally, the powers vested in the advisory board should be carefully decided, considering potential risks and legal implications of the startup's offerings. When carefully planned and utilised, the advisory board serves not just as a symbol of credibility but as an integral resource that can significantly benefit startups in their journey.
5. Identify the "Right to Win"
To make Wellster a success, we took lessons from other industries’ playbooks, like ecommerce, for example. However, it becomes evident really fast that you can’t just transplant models from other, less regulated arenas into a regulated one. You have to understand the detailed mechanics of your industry and its regulation in order to tailor your model for sustained success.
So in our case, it’s much easier to be a partner of ‘care providers’ than to be a ‘care provider’ yourself. So instead of trying to become the heavily regulated provider yourself and face heavy logistical and legal challenges, you can also try to carve out your niche as a strategic partner to providers.
It’s a small detail, but it affects every aspect of your business, including what wordings you can use in your marketing copy. Done right, it can make all the difference between having a struggling start-up and a scalable business.
6. Plan for Legal Overheads
So here comes a tough insight from our journey: You need to anticipate many unforeseeable legal expenses and get prepared for them early on. You might not be aware of them today, but there are large, established players, ever poised to curb the growth of emergent competitors via legal means.
What worked for us was to set aside a solid five-figure (!) monthly (!!) budget as a bulwark against unexpected legal challenges which you will need for expert opinions, legal proceedings, etc. By the way, it’s not enough to get insurance because you won’t just get attacked directly as a company, but people will challenge your business model itself. Therefore, ample budgeting for legal expenses becomes a strategic tool in the long-term sustainability and defence of your operations within the regulated framework.
In times of tranquillity on the legal front, it’s tempting to reduce legal safeguards over time. The nature of these legal controversies is that they are not forecastable, but rather they arrive unbidden and unexpectedly. Therefore, maintaining a robust legal budget is an act of prudent foresight, a protective measure that can be the difference between withstanding a sudden legal storm or being capsized by it. And even with a strong war chest, the amount of distraction and emotional stress will certainly take its toll on you and your business — because your opponents will make sure that things get personal.
7. Invest Early in Evidence
As you become successful, established competitors will invariably scrutinise and question the integrity of your innovative approach which likely diverges from the status quo and creates not just winners but also losers. To counter such confrontations, we strategically armed ourselves early on with robust scientific data derived from meticulous studies that we published in highly esteemed international journals. When critics emerged, questioning the validity of our care delivery model, we were already fortified with the weight of peer-reviewed evidence that favourably supported our approach, leaving naysayers armed only with unsubstantiated opinions. The strength of any claim or approach is ultimately determined by its ability to withstand rigorous scientific scrutiny, and those that pass this test are far more likely to revolutionise best practices.
For example,we published proprietary data in the International Journal of Sexual Medicine, which involved an analysis of 11,456 male patients who received prescriptions via Wellster. The peer-reviewed study concluded that we could improve patient access to the medical system. The majority of these patients resided in rural areas, where access to healthcare services can be particularly challenging, and sought prescriptions outside of typical office hours. Inconvenience, shame, and perceived lack of discretion were cited as the main reasons for seeking treatment via us, confirming that our model addresses critical gaps in traditional care delivery systems. We published similar research in other fields, e.g. in dermatology.
When critics accused us of undermining the established healthcare system, our published data enabled us to demonstrate the advantage of asynchronous telemedicine. It showed that we were not only complementing the existing system but were also providing a solution to areas where it was deficient. While those challenging us lacked supporting data for their claims, we had not just words but an internationally recognized publication to back us up.
In Conclusion
Compliance, far from being an obstacle, should be treated as a bedrock for establishing credibility and trust, both indispensable in nurturing key relationships with stakeholders. Compliance is not a destination but a continuous journey, and staying ahead of the curve is pivotal. Proactive anticipation of changing regulations, coupled with the willingness to invest in infrastructure that ensures ongoing compliance, can yield long-term dividends.
For entrepreneurs willing to delve into the intricate, regulated markets, the journey is certainly demanding, but the rewards are well worth the effort. With a strategic mindset, perseverance, and a willingness to embrace the complexity of the regulatory landscape, one can not only survive but thrive, just as Wellster Healthtech did. This story is not just a tale of overcoming challenges, but a testament to the transformative power of innovative entrepreneurship in regulated markets. Remember, the journey is not about avoiding the labyrinth but learning how to navigate it. As we at Wellster have proven, those who dare to enter the labyrinth may well emerge as leaders in their field. Be bold, take the plunge, and turn the complex societal problems of today into the innovative solutions of tomorrow.
Nico Hribernik is co-founder and CEO of Wellster Healthtech. Dr Sven Jungmann is co-founder and CEO of Halitus and sits on the Board of Advisors at Wellster.
