The challenges of being a Canadian Healthcare Technology Entrepreneur

I have been an entrepreneur for 36 years, primarily focusing on the healthcare market. I have built a successful consulting practice, Healthtech Consultants, and established an investment company that acts as an angel investor in start-ups utilizing technology, in both healthcare and the fintech markets.

In preparing this article, I asked a number of my entrepreneurial colleagues for their input on the challenges that they face.

Having a great idea, is the easy part, transforming that idea into a reality that is marketable is the hard part. Every entrepreneur, regardless of how successful they are, constantly has to juggle between planning for the long term and ensuring that the firm is not just profitable but has enough cash coming through the door in order to meet payroll. I certainly remember those early days while
building Healthtech waiting for the mailman to arrive and it was a good day when he/ she delivered a cheque!

Addressing the challenges that start- ups face is important to the Canadian economy, especially given that 40% of new jobs are created by these entrepreneurial ventures. Creating a new business is exciting, however the reality is that 85% percentage of start-ups fail.

Some of the challenges that entrepreneurs face are common across all types of businesses, while others however are specific to the healthcare market. Outlined below is a list of both types of challenges that healthcare technology entrepreneurs face when starting and building a business in Canada.

Entrepreneurs Have to Punch Above Their Weight
It is difficult for start-ups to establish credibility in the market. Canada has not established an entrepreneurial culture and despite significant government investment in innovation, procurement guidelines do not value Canadian content.

Many pilots using technology in healthcare have been funded. However, commercializing the product or service then becomes the challenge. Government contracts look for large scope solutions with comparable reference sites, essentially excluding start-ups. The only opportunities for start-ups to participate in these large procurements is through collaboration, partnership or acting as a subcontractor.

Competing with the big brands for smaller projects, entrepreneurs can be agile, very price competitive, with specialized resources. However, most small firms do not have the financial resources to manage projects with deferred revenue or projects that are “lost leaders”.

Sandy Penn Whitehouse, a Co-Founder of Tickit Health has articulated the problem succinctly.

“Addressing risk when David meets Goliath
Small companies are often nimble and innovative, and are focussed on providing cost effective and smart solutions to improve health systems. However the health systems with whom they are hoping to do business are motivated by risk aversion and challenged by change. The risk of doing business with a smaller company includes the investment in determining the company’s stability, governance and security. For small companies, the amount of work required for due diligence may be even greater than that of larger organizations, which reduces opportunities and is a drain on limited resources while slowing transactions in an arena with an already traditionally long sales cycles.”

Canada is a small market within a vast geographic space. As a result, travel and marketing costs are high relative to a start-up’s total budget. Because healthcare is a provincial/territorial responsibility there are many variations which require tailored regional solutions or certifications.

All of these issues make it difficult for start-ups to scale.

Financing
Every entrepreneur in establishing a business has to either finance the business internally by building working capital, through bank loans or quite often by raising capital through family, friends, angel investors, private equity investors, government grants, and/or venture capital groups. Juggling driving new business versus addressing financing issues is an on-going challenge for most entrepreneurs.

In Canada this is particularly challenging. There is very little early stage financing available. Most Venture Capital groups are focused on later stage with more private equity type investments. Most “angels” are tapped out with “flavour of the month” investments such as cannabis or crypto/blockchain.

Dr. Wendy Graham, CEO and Founder of Mihealth has found that “the investor money goes to gadgets…not to problem that need to be solved in healthcare”.

Access to Talent
The demand for tech talent outstrips the supply in Canada, Canadian wage rates are below U.S. technology sector rates. The Labour market in urban centres is very competitive, requiring significant capital to build a team.

Robert Yelavich, CEO of Bedford Medical Alert has highlighted the challenges of attracting top talent. Many start-ups have to rely on relationships and contacts to recruit staff.

Paula Hucko, President of Goldcare, has addressed the talent issues through offshore technology recruitment. “We now have a company and a growing number of employees in Karachi Pakistan and are able to get highly qualified employees for less than 1/3 the cost.”

Since Canada has lagged behind the U.S. in utilizing technology in delivering healthcare services, many of the specialized resources that Canadian healthcare organizations require today, have to be brought in from the U.S. at increased cost.

Innovation
Sandy Penn Whitehouse, a Co-Founder of Tickit has further stated, “In Canada, health regions, universities and hospitals have all joined the innovation bandwagon, with the creation of innovation departments or programs. There are now hundreds of these programs competing with each other and working independently. In addition, the government supports small R&D projects with IRAP and SRED. This would seem like great news for smaller companies wanting to break into the space and thrive. The challenge is the funds are often inadequate, the programs work independently from the established operational structure of healthcare organizations. The result is that while smaller companies may engage in pilots, but have little connection to scalable opportunities.”

Many of the healthcare organizations that have been supported through government funding have created systems that are in direct competition with private sector organizations, both large and small. I understand that some researchers and CIOs like to develop systems in –house rather than going to the market, in order to avoid procurement hassles. However, this approach is short sighted for both the healthcare organization, tax payers and the SME market in Canada.

Support for Start-ups
Glenn Lanteigne and Robin Fulkerson, CEO and COO of Tectonic Advisory Services emphasized the lack of government support for start-ups. Day one of a new business, entrepreneurs have to deal with legal, accounting, payroll, tax, human resources, etc. issues. Government and tax reporting is onerous, with no tax incentives for entrepreneurs to start or build a business. Finding “trusted “ resources to provide professional advice can be time consuming and expensive.

There are about 80 accelerators and incubators in Canada, all doing great work, but in silos. Basic information on what each of these organizations can provide to an entrepreneur in the healthcare technology market is lacking. Similarly, there is a lack of registries or lists of potential sources of funding – government programs/grants, angel investors, venture capital groups and investment banks.

The Fundamental Nature of Healthcare in Canada
Sabrina Hasham CEO of Chaycare has identified that revenue models in Canada for healthcare are mis-aligned. Patient centric innovations may benefit both patients and the healthcare system, but the challenge is who will pay for this? Marketing directly to patients is prohibitively expensive for start-ups. Most of the innovation centres based in hospitals focus on benefit to the local
organization, rather than the patient and the healthcare system as a whole.

One of the comments that Mike Checkley CEO of QHR provided, is that “access to health information is complicated (consent, data standards, governance, interoperability, privacy)”. Legislation, regulations and policies vary by province/territory. This complexity adds cost and challenges for entrepreneurs.

The policies of both the federal and particularly provincial governments can have a profound effect on start- ups and other high growth businesses. For example, the “pause” that the MOHLTC put on HIS acquisition and implementation a few years ago in Ontario, had a significant impact on many industry organizations, both large and small.

Potential solutions
So…lots of challenges! Outlined below are a few ideas that may address some of these challenges.

  • Government at all levels should require that procurement agencies value Canadian content (ownership, experience, resources, etc.) when acquiring goods or services.
  • Government funded organizations should be restricted in developing systems in house, if there is a commercially available product.
  • Develop registries specifically focused on healthcare of accelerators, incubators, angel investors, venture capital groups and investment bankers
  • Develop a registry of “trusted” sources of professional services for start-ups such as accountants, lawyers, tax advisors, etc.
  • Develop a registry of “credible” start-ups that comply with basic requirements in Canada (security, privacy, etc.) to facilitate large organizations finding potential specialty or innovative start-ups to partner with.
  • Hold focused networking events to connect healthcare technology start- ups with potential partners – research, large firms, investors, etc.
  • Provide some tax incentives to entrepreneurs.
  • Participate in ITAC Talent to potentially reduce staff costs and gain access to high caliber resources early in their careers
  • Create government supported venture capital programs specifically focused on start-ups utilizing technology in healthcare.
  • Implement the recommendation of the Naylor Panel and create a focused national Innovation Health

Agency.
There is a clear role for ITAC Health and other associations – advocate for changes in government policies to support entrepreneurs, invest in developing registries as a resource to members, connect small and large organizations to help both parties and provide ITAC Talent opportunities.

Despite all of the challenges associated with being an entrepreneur in Canada, starting your own business can allow you to pursue your own professional and personal objectives, while being incredibly rewarding as you try to “make a difference”!

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