Over the past three decades, acquisitions have shifted from acquiring for scale to acquiring for capabilities – often to accelerate digital transformation efforts. Prophet’s M&A team has noticed an unfortunate pattern of these new “acquisitions-for-capabilities” failing. This topic is often studied from the acquirer side, normally around the deal structure and integration management office (IMO).  However, less is understood from the side of the acquiree side, particularly the younger, smaller startups that are quickly picked up by large multi-billion-dollar enterprises.

I sat down with three leading CEOs in the startup space – Taylor McPartland of ScaleHealth, Lakshmi Shenoy of Embarc Collective and Jamey Edwards of Cloudbreak Health – to better understand both sides of a startup acquisition deal.

Based on our discussion, here are some of the more pervasive mistakes in acquiring a healthcare startup:

Mistake #1:  Thinking the startup views the acquisition as the finish line

As Jamey puts it, “Most people don’t realize that entrepreneurs view an exit as one chapter ending, and another beginning. But, it’s still the same book.”

Many founders want to see their vision continue to flourish and grow.  There is a misperception that founders are in it for a big payday, but that’s not always the case.  Particularly in healthcare, where most startups are mission-driven,  the acquisition is the beginning of something newer and better for the founder.

Lakshmi added, “Even if you’re not working 24/7 after the acquisition, as a founder, you’re thinking about your startup 24/7.  Founders need to consider whether they want to part ways and let someone else be the custodian of their vision.”  This is equally important for the acquiring enterprise to understand these intentions as well (beyond the contracted incentives).

Mistake #2:  Not being clear on the “why”

“You have a 50/50 chance in creating value from an acquisition,” Jamey explains.  “So, the ‘why’ is really important.”

The “why” often gets lost in the contentious negotiating phase, where each side is more focused on the price of the transaction, and little attention is paid toward life afterward.  As Taylor puts it, “One of the first pitfalls is that a lot of hope is put on the acquisition, and one way to mitigate that is to have a clear understanding of the purpose of the transaction.  Is it for the talent?  The culture?  Technology?  Market access?  Either way, the mission and intention of the acquisition need to be kept front-and-center.”

Mistake #3:  Letting process get in the way of problem-solving

Most multi-billion-dollar healthcare enterprises are not digitally native.  As a result, their heritage stems from scaling research (pharma), services (health systems) or engineering (med-devices). Hence their DNA is process and mastering and repeating that process.

“Most people don’t realize that entrepreneurs view an exit as one chapter ending, and another beginning. But, it’s still the same book.”

– Jamie Bradley Edwards

Process is often a good thing, but if not viewed with open eyes, it can accidentally become limiting. The intricacies of enterprise decision-making can be very foreign to a startup. As Jamey explains, “There’s a lot of enterprises that have been very successful being focused on the process.  If you go from getting decisions made in a week and it now takes a month, that is going to be very frustrating for development teams that are used to working in agile.”

Lakshmi highlights that process -in the worst cases – can push away great talent.  “You might have the right tech.  You might have the right people.  But the messiness occurs within the process.  If you are impeding the team’s ability to solve problems – which is what founders of startups do – that is a very fast way to demotivate them.”

Mistake #4:  Assuming the acquisition deal is understood throughout the entire organization

It’s important to recognize that a founder is often negotiating with the enterprise’s deal team.  Those individuals will often not be the people (s)he interacts with daily after the transaction.  More importantly, you’ll have dozens of people that need to gel and work together who are not part of the deal conversations at all.

As Lakshmi puts it, “You must think of the team members who are not in the room when promises are being made, as many did not necessarily join that startup to be part of a giant organization. It can challenge the many motivations as to why they do their job.”

Taylor added, “It can be hard to quantify what culture means but it really is the through-line that made the company attractive to begin with. If you’re not hyperconscious of the new culture you’ve created, you run the risk of alienating team members before you ever realize the value you hoped for.”

Mistake #5:  Letting perfect be the enemy of good

It’s important to know that larger enterprises have different risk tolerances than smaller ones.  According to Jamey, “Large organizations have existing cash cows that they want to protect that.”  And that risk-averse culture often weaves its way into excessive processes.  This in-turn begins to work against the agility of the acquired startup, and that agility is often the desired trait that the acquiring company wants to adopt.

He continues, “Founders start by doing a bunch of missionary selling with scrappy individual reach-outs, and over time that begins to morph into more tech, Salesforce CRM, SEO, etc…  And we’ve learned, as a startup, that perfect is the enemy of good.  Get something out there and continued to learn via continuous improvement.”

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In today’s environment, patients are increasingly becoming “e-consumers” and that is a good thing. Despite its name, e-consumer is not a technical term. The concept of the “e-patient,” was coined in the 1990s by the late Tom Ferguson, M.D., an American physician who advocated for increasing the role of the patient in managing their own healthcare. E-patients, he says, are empowered, engaged, equipped and enabled. While the concept of the e-patient is limited to direct interactions with healthcare organizations, we have expanded and evolved it into the e-consumer. Read more here.

If healthcare organizations are to serve the e-consumer and engage, empower, equip and enable them, they too will need to make a shift by putting the consumer at the center of all they do.

Challenges of Consumer-Centric Healthcare

1. Expanding from patient-first to consumer-first thinking.
2. Being consumer-first even when it conflicts with being physician-first.

Neither is an easy task, and both demand a change in both organization and culture for most healthcare organizations.

Our colleague Tony Fross writes about the “mind, body and soul” of digital transformation, but this model is also relevant for the consumer-centric healthcare transformation (digital or otherwise). In this Prophet model, an organization first determines what it wants its DNA to be – its purpose, its brand proposition and/or its strategic plan to win. Next, it goes to work on the “mind” (its talent, capabilities, and skills), the “body” (governance, process and tools) and the “soul” (its values, behaviors and rituals).

In interviews with over 70 healthcare executives for the book “Making the Healthcare Shift: The Transformation to Consumer-Centricity,” we found changing the organizations’ mind, body and soul to be burning issues, particularly among the CEOs that we spoke with.

Based on our findings, to be a consumer-centric healthcare organization, you must take the following steps:

1. Inspire the Team

Healthcare organizations may have a vision of where they want to go, but they need internal support to get there. “We didn’t develop a consumer- and patient-centric strategy for the sake of hanging it up on the wall,” says Kevin Brown, President and CEO of Piedmont Healthcare. “The patient is at the center of all that we do. We’re living and breathing it. It is how we manage, run meetings, prioritize initiatives, approve capital, hire talent.” Consumer-centric healthcare transformation must be activated at the ground level, and healthcare organizations can successfully inspire their employees in several ways; for example, demonstrate leadership role modeling, codify cultural expectations, co-create cultural expectations and make it personal.

Leadership Teams Need to Model Consumer-Centric Behaviors

Inspiring employees to embrace consumer-centricity requires vocal leaders, who demonstrate their commitment through actions. It is important to have leaders who are on board with pursuing consumer-centricity, as their behaviors set a precedent for the broader organization.

Articulate Cultural Expectations

Much like an organization’s definition of consumer-centricity, a consumer-obsessed culture is most impactful when outlined in a tangible manner and built into the organization’s processes. By articulating the culture through behavioral expectations, organizations can help employees understand what consumer-centricity means to them and what it looks like when carried out on a day-to-day basis.

“The patient is at the center of all that we do. We’re living and breathing it. It is how we manage, run meetings, prioritize initiatives, approve capital, hire talent.”

Tap Employees for New Definitions

In addition to articulating what consumer-centricity means, employees must derive personal meaning from it. That is particularly important, as employees are often the ones who interact with consumers and care for patients. Leadership can help employees find personal meaning through co-creation. After a merger, Indiana University Health (IUH) needed to integrate acquired and legacy cultures. The organization took the time to understand the needs, wants, and aspirations, both personally and professionally, of their employees to co-create a promise that was common to both its employees and members of the communities in which they lived. “Not everyone got the old promise, particularly our professional staff. With [the new one], everyone gets it. Can we show that we’re reinforcing this promise with actions and decisions? We have to do it for every patient, every interaction. That’s the next big step we’re working through,” says CEO Dennis Murphy.

Make Consumer-Centric Healthcare Personal

There is no question that healthcare is personal. Whether undergoing treatment or taking care of a sick loved one, we all experience healthcare at a deeply individual level. Sometimes, organizations can make consumer-centricity more powerful when leaders emphasize the personal aspect. That requires leaders to find their own source of inspiration so they can constantly remind the organization who they are serving each day, why their work matters and why the experience should be among the best in any category.

2. Enable Successful Employers

The executives we interviewed described many ways to enable their employees, including creating new working environments, reimagining traditional business functions and putting purpose over process.

Create Environments That Reinforce the Culture You Want

As healthcare evolves, the demands of employees at healthcare organizations need to evolve as well – and in some cases, change altogether. To solve that challenge, leaders are spending time with companies like Google to understand and replicate some aspects of the culture that those organizations have created to enable both digitally-minded and healthcare-minded people to thrive. If it takes bean bags and dartboards and modifying the dress code, so be it.

Remake Functions and Functional Expectations

In an effort to better address consumers’ questions at their first touchpoint, Florida Blue revamped its customer-service function. By investing in systems that aggregate data across formerly disparate platforms, employees were now empowered with the right tools and information to answer questions, as well as offer solutions and value outside of the immediate issue at hand. The tools don’t just enable employees to do their job; instead, they enable employees to do their job in service of the consumer, which ensures both internal and external impact.

Demand Focus on Purpose Over Process

As healthcare organizations shift their mindset, they may find that their current processes are not conducive to consumer-centricity. Great processes, whether operational or strategic, should be informed by asking how the organization can deliver the best outcome for consumers. Starting with this question leads to clarity of purpose for building a consumer-centered organization. This purpose-first, process-second philosophy better enables employees to deliver on a consumer-centric strategy instead of being inhibited by legacy processes and protocols. Healthcare organizations can empower employees to drive consumer-centricity by ensuring process doesn’t get in the way of progress (or purpose).

3. Incentivize the Team

Once employees have embraced consumer-centricity and have the tools to deliver it, they still may require an extra push to act. For some, cultural transformation requires an enormous shift in their day-to-day lives. Organizations can help by incentivizing their employees and teams personally, professionally and financially.

Establish Metrics That Drive Change

Mobilizing around consumer-centricity requires top-to-bottom alignment on common goals. Organizations need to establish clear metrics that reinforce consumer-centricity to the overall business strategy. If organizations value and reward only non-consumer metrics like revenue or operating efficiency, then progress on those metrics is all that will be delivered. Having consumer metrics, even ones as simple as satisfaction, is critical to showing and driving a true commitment to consumer-centricity. It changes employees’ motivations and behaviors, which are both critical components of culture.

Leaders are rethinking what they measure, moving from measures tied to satisfaction (e.g., Hospital Consumer Assessment of Healthcare Providers and System, NHS Patient Satisfaction Surveys) to measures tied to loyalty (e.g., Net Promoter Score or NPS). Relationship-oriented metrics help paint a fuller picture of the experience and will compel functions across the organization to establish ways of working that address the experience holistically.

Link New Strategies to People’s Pay

Putting compensation and promotions on the line is a sure-fire way to change behavior. However, incentives alone are not enough to drive results. Instilling lasting cultural change requires that employees have a clear understanding of specific performance objectives, behaviors and actions needed to drive improvements tied to consumer-centricity.

To set a foundation for its cultural transformation, Anthem looked at its key metrics and realized that, while consumer-centric measures were in place, the organization lacked clarity around creating real change. Executive leadership endorsed NPS as its key metric and tied it to executive compensation, resulting in a focus on relationship building with consumers. “Once it affected everyone’s bonus, the demand to meet with and discuss the metric took off,” says Doug Cottings, Staff Vice President, Market Strategy & Insights at Anthem.

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