From the December 2016 issue of HealthCare Business News magazine
Pillar two: Technology platform
Regardless of whether a health care company is providing software or services, the technology backbone is of critical importance to outside investors. If it is a software platform, is it truly a multi-tenant platform or is it a single-tenant model with a separate instance for each client? Is it a recurring subscription fee model, or an upfront license fee model? Unfortunately, many young companies woo their clients by agreeing to build custom code and custom deliverables. This can be great early on when companies need money to grow, but it can have a devastating impact on long-term scalability of the platform.
Unfortunately, this will significantly lower the value of the company in the long run, since each client has a different instance of the source code that requires individual updates for each customer. This is going to really hamstring the company down the road when it’s looking to scale up to 100, 500 or 1,000 clients.
Technology documentation is extremely important when health care software companies are looking to raise capital or sell. This includes: a comprehensive list of all source code and third-party components with copies of each license agreement; signed invention assignment agreements and NDAs with all former and current employees; and supporting commentary/documentation inside the code base. Additionally, it is important for companies to maintain a comprehensive product road map that is continually updated with a timeline for new product enhancements/developments.
If the company is providing services, the technology backbone is just as important — regardless of whether it is owned or licensed. Finally, it is the data and analytics that companies are able to extract that is becoming more important to competitive differentiation. Companies must be able to demonstrate high-quality service levels, return on investment and benchmark hard numbers against the competition. The winners in the health care 2.0 ecosystem are those who can truly analyze data and benchmark it across the enterprise.
Pillar three: Industry dynamics
The third major pillar driving business valuation is accurate positioning around health care industry headwinds. Most importantly, why should an investor invest in your space versus another sector. You’d be surprised how often CEOs are unable to articulate the size of their industry and specifically the size of their addressable market. It is essential to know, and be able to explain, exactly which market your solution addresses, how big it is and who the other players are. Key to value maximization in this sense is being able to affirm how a company is poised for success relative to its own positioning. Being the first mover in a sector can be good, but over time an initially hot subsector can become crowded with other players.
