With more startup companies per capita than anywhere in the world, Israel is sometimes referred to as “the startup nation.” There are approximately 1,400 companies in the life sciences and health care (LSHC) sector alone,1 and 350 multi-national research and development (R&D) centers.2 While innovation is typically strongly encouraged in Israel, there is little domestic demand for LSHC solutions, which means these small firms often must be globally focused. The analogy here is, there are many hammers looking for a nail.
I recently met with our US health care leadership team when they visited Deloitte Israel’s Innovation Tech Terminal in Tel Aviv. During the meeting, some Israeli entrepreneurs – representing pharmacy, biotech, medical technology, and digital health – expressed frustration in their inability to collaborate with large institutions and corporations.
Some multi-national life sciences companies have partnered with or acquired innovative Israeli startups. But for every success story, there appear to be countless cases of innovative technology that won’t reach its potential due to rigid corporate policies, complex and lengthy procedures, or a lack of internal incentives. But as the health care sector moves closer to a model based on value, corporations should consider taking a closer look at startup companies to find out more about the solutions they might offer.
Corporate commitment to innovation varies
Israel is home to a staggering 270 acceleration programs for startup companies.3 Some of these programs are dedicated to the brain, digital health, biotech, and medical technology. Much has been written about the value of technology as health care transitions to a value-based model. Some new technologies have the potential to offer more value, better outcomes, and greater convenience – all for less cost, complexity, and time required by the patient and the provider. With the changing health care landscape, exponential advances in technology, and the explosion of accelerators, incubators, and corporate venture arms – it would seem that startups would have little problem raising capital, growing, and collaborating with corporate entities.
The level of commitment that corporations have toward startups can vary widely. Corporations can use several strategies to identify, cultivate, and support startups – with differing levels of involvement. Basically, the more integral external innovation is to the corporation’s strategy, the more successful the corporation typically will be at advancing innovation.
The Corporate Innovation Commitment Model (CICM) is an analytical tool that sorts companies into three tiers based on the level of commitment to innovation. It is, of course, only the beginning of a conversation. It is not a calculator.
The model uses three tiers to describe a corporation’s commitment to startups:
Tier-1: These companies are more likely to engage with mature startups that have already been validated by venture capital firms and key opinion leaders. Such validation can include acts or statements that signal the startup is doing something valuable in a credible fashion. The startup ecosystem is largely decentralized, which means different actors must rely on signals from other actors. For example, an expert in the field the startup is entering becomes an advisor to that company. Or, a startup wins a prize at a competition. These send signals that could help validate the startup. In the early stages of a startup’s lifecycle, much of the validation is informal. Moreover, an investment by a known venture capitalist (VC) can send a strong signal to other VCs and corporations that the startup is promising both technologically and in terms of its market prospects.
They loosely support startup acceleration programs, attend demos, and regularly meet with startups, but they typically don’t make investments to meaningfully engage with them. However, when the opportunity arises, such corporations are often more likely than others to partner with startups that they consider to be promising.
Tier-2: Some corporations have created their own innovation programs, which can include internal incubators and corporate venture capital groups, or participate in external incubators with other corporations or VCs. Such strategies usually include capital investment and represent a bigger corporate commitment compared to tier-1 corporations. For a startup company, an investment from a large corporation can be a foot in the door. These investment models often don’t go far enough to build a lasting relationship between the corporation and the startup. A lack of pipeline transparency between innovation teams and the broader business, or limited commitment to innovation from the corporation’s leaders could stifle the progress of this innovation. Much more can be done to accelerate innovation, improve integration with corporations and prevent some technologies from failing – particularly technologies that could save lives or reduce costs if they had sufficient funding or support.
Tier-3: These strategies include a host of experimental practices that are designed to modify traditional corporate structures to allow enhanced engagement with innovation. Such practices can target different pain points and increase a corporation’s commitment to working with startup companies. While practices can vary, they all increase commitment by dedicating resources and efforts to, and aligning leaders around, working with startup companies. For instance, a corporation might integrate innovation personnel, who are traditionally located in innovation departments, into existing departments, such as corporate development or R&D teams. Alternatively, a corporation might decide to hardwire open innovation into its annual plans. Another practice could focus on inserting an innovation component into performance evaluations for a company’s leaders. A company could also adopt an 80-20 strategy, where 20 percent of an employee’s time would be dedicated to engaging and mentoring startups.
Corporations should consider increasing their commitment to new technologies, and share some of the risk associated with bringing innovation to market. Many corporations rely on external innovation a source of growth, acquiring companies to fill product portfolios. Without active investment in early stage technologies, there might be fewer startups for corporations to shop from. Worse yet, many innovations will not make it to market, and patient care will not see the benefits of improved technology. Startups cannot do it on their own. Greater corporate engagement with startups could help to connect a tool shed of hammers to the many nails that can benefit from new innovations in the LSHC world.
1 Israel Advanced Technology Industries (IATI), Israel’s Life Sciences Industry Report 2017, p. 6-7; available at http://www.iati.co.il/files/files/2017%20IATI%20Israeli%20Life%20Sciences%20Industry.pdf; While the IATI report classifies startups as Life-Sciences, a breakdown shows that Healthcare startups are included as well.
2 IVC-Online Research Center, accessed on August 4th, 2017.
3 IVC-Online Research Center, accessed on August 4th, 2017.