Physicians become entrepreneurs for one of two reasons. They believe that they know a better way to do something for patients. Or, they want to have a positive impact on a larger group of patients beyond the individuals in their care. For me it was both. I saw an opportunity to improve care through better population health management, and I wanted to apply that innovation to the greatest number of patients possible. So I made the transition from physician to entrepreneur and then to executive.
Seizing a Market Need — With a Little Help
We had a lot of ups and downs over the first few years of launching MedVentive, and we overcame many challenges as we grew the company. With the Affordable Care Act and value-based reimbursement shifting the clinical and financial risk for patient care from payers to providers, the market for our services was really heating up. But our ability to take advantage of that growing market was limited. We didn’t have the sales and marketing resources to grow our client base fast enough, and we didn’t have the resources to continue to develop our products and services at the pace that was being demanded of us by the payers and providers.
So the question became whether to raise more capital and remain independent or find a partner that had the resources we needed to allow us to continue to execute on our vision. We decided that we had a better chance of executing on our vision by being acquired by a good partner that had the resources, capital and established sales channels that we needed.
Sizing Up Potential Suitors
At the time, we had a number of suitors, and we used several criteria to determine who among them was the right fit for MedVentive. Obviously, price was one thing, but it wasn’t the main driver. We were looking for a shared vision. We were looking for a cultural fit. We were looking for a partner that valued both our people and our solution, not just a partner that wanted the code. We were looking at the people we’d be working with.
Using those criteria, the right partnership became clear pretty quickly. The next step was selling the partnership to our constituents. Typically, three constituents need to be on board with a sale to a larger organization.
The first is the equity investors. For them, it’s really just about return on investment. Is it better for them to cash out now, or should they risk more capital for a potential future higher return if they stay the course? The second is the management team. For them, it’s a combination of money and the opportunity to continue to execute on the mission of the company. And the third is the rank and file. For them, it’s about getting more resources to get the job done and about job security.
If the deal is right, all three sets of constituents should be supportive. If not, then maybe the transaction under consideration isn’t the right one for that small company.
Measuring success after the acquisition really comes down to personal elements for the entrepreneur and business elements for the legacy startup company.
As for the personal elements, an entrepreneur is trading in a great deal of autonomy for working in a multilayered management hierarchy. Can he or she be effective and not frustrated in a new structure that may not be as nimble and flexible as the one that existed in the small company?
Another personal element is accountability. At a small company, the founder is accountable for the big picture success of the whole company, and he or she may not have to meet specific objectives. At a large company, the former founder is accountable in very specific ways that a traditional entrepreneur may not be used to or experienced with. Does he or she have the personality to be accountable in a big system?
Yet another personal element is whether the entrepreneur will continue to be challenged at the large company. Does the new environment allow the entrepreneur to grow personally and professionally? To have a real impact? Or, will that new environment stifle his or her entrepreneurial spirit?
As for business elements, it’s really all about whether the newly combined organization is growing the startup as originally envisioned.
One last piece of advice I have for a startup is this: After you’re acquired by a larger organization, don’t just wait for the planned benefits to happen. You made the move to secure resources to take advantage of a rapidly evolving market for your products or services. If you wait and don’t push your partner company to act, you’ll lose the market opportunity that prompted you to innovate in the first place. Any potential partner should share the same level of excitement and commitment that you have.
Editor’s Note: Dr. Jonathan Niloff was a practicing gynecologic oncologist and on the faculty of Harvard Medical School when he founded MedVentive in 2005. MedVentive developed population health and risk management tools for providers and payers. After seven years of growing MedVentive into a recognized leader in the field of population health management, he sold it to McKesson in 2012. In this piece, Dr. Niloff relays his lessons learned for other small companies that partner with or are acquired by larger companies seeking innovative products or services to remain competitive and relevant in their respective markets.