Accenture: “Zombie” Digital Health Startups Won’t Die In Vain

Posted on August 24, 2015 I Written By

Anne Zieger is veteran healthcare consultant and analyst with 20 years of industry experience. Zieger formerly served as editor-in-chief of FierceHealthcare.com and her commentaries have appeared in dozens of international business publications, including Forbes, Business Week and Information Week. She has also contributed content to hundreds of healthcare and health IT organizations, including several Fortune 500 companies. Contact her at @ziegerhealth on Twitter or visit her site at Zieger Healthcare.

I don’t know about you, but I’ve been screaming for a while about how VCs are blowing their money on questionable digital health ventures. To my mind, their investment patterns suggest that the smart money really isn’t that smart. I admit that sorting out what works in digital health/mHealth/connected health is very challenging, but it’s far from impossible if you immerse yourself in the industry. And given how much difference carefully-thought out digital health tools can make, it’s exasperating to watch failing digital health startups burn through money.

That being said, maybe all of those dollars won’t be wasted. According to no less an eminence grise than Accenture, failing digital health ventures will feed the stronger ones and make their success more likely. A new report from Accenture predicts that these “zombie” startups — half of which will die within two years, it says — will provide talent and technology to their surviving rivals. (OK, I agree, the zombie image is a bit unsettling, isn’t it?)

To bring us their horror movie metaphor, Accenture analyzed the status of 900 healthcare IT startups, concluding that 51% were likely to collapse within 20 months.  The study looked at ventures cutting across social, mobile, analytics, cloud and sensors technologies, which include wearables, telehealth and remote monitoring.

While most researchers try to predict who the winners will be in a given market, Accenture had a few words to say about the zombie also-rans. And what they found was that the zombies have taken in enough cash to have done some useful things, collecting nearly $4 billion in funding between 2008 and 2013.

The investments are part of an ongoing funding trend. In fact, digital health dollars are likely to pour in over the next two years as well, with healthcare IT startups poised to take in $2.5 billion more over the next two years, Accenture estimates. Funding should focus on four segments, including engagement (25%), treatment (25%), diagnosis (21%) and infrastructure (29%), the study found.

So what use are the dying companies that will soon litter the digital health landscape? According to Accenture, more-successful firms can reap big benefits by acquiring the failing startups. For example, healthcare players can do “acqui-hiring” deals with struggling digital health startups to pick up a deep bench of qualified tech staffers. They can pick up unique technologies (the 900 firms analyzed, collectively, had 1,700 patents). And acquiring firms can harvest the startups’ technology to improve their products and services lineups.

Not only that — and this is Anne, not Accenture talking — acquiring healthcare firms get a wonderful infusion of entrepreneurial energy, regardless of whether the acquired firm was booking big bucks or not. And I speak from long experience. I’ve known the leaders of countless tech startups, and there’s very little difference between those who make a gazillion dollars and those whose ventures die. Generally speaking, anyone who makes a tech startup work for even a year or two is incredibly insightful, creative, and extremely dedicated, and they bring a kind of excitement to any company that hires them.

So, backed by the corporate wisdom of Accenture, I’ve come to praise zombies, not to bury them. While they may give their corporate lives, their visions won’t be wasted. With any luck, the next generation of digital health companies will appreciate the zombies’ hard work and initiative, even if they’re no longer with us.