Written by Vaibhav Agrawal and Dev Khare
At Lightspeed, we are fortunate to partner with Innovaccer, a leading player in healthcare software, and look forward to working closely as it marches towards a grand vision. The company has just completed a Series B financing of $35 million capital in its Series B from M12, Westbridge, and Lightspeed. The additional investment was led by M12 (formerly known as Microsoft Ventures)?, we welcome them to the investor group!
Innovaccer is a Silicon Valley based software-as-a-service company started in 2014. It provides infrastructure and applications that help hospitals, other types of physician groups, accountable care organizations (ACOs) and insurance companies manage population health. Lightspeed first met Innovaccer in 2014 and invested in the Series A round.
Over the past several years, SaaS companies have been going from horizontal use-cases such as human capital management (HCM) and customer relationship management (CRM) to now invading vertical use-cases in industries like manufacturing and healthcare.
Building high ACV vertical SaaS companies involves a slightly different playbook. We are sharing key observations, using Innovaccer as an example:
Pick a Large Vertical
Founders need to be extra cautious in targeting vertical markets? – examples include healthcare, manufacturing, and transportation?, and these are usually to be found in the US. A common investor issue with some vertical plays is that the market caps out and companies have a hard time getting to impact value. In the case of Innovaccer, the US healthcare IT market is a massive $61B market going to $149B by 2025. In the case of Innovaccer, once the vertical was picked, founders moved close to customers, spending a lot of time with healthcare providers, payers, and technology companies in the US.
Look for Shifts, Forcing Functions or Change
Verticals which are remarkably static find it hard to absorb new technologies, and this friction to adoption impedes startup growth. ‘What tailwind in this market will me help my company’ is an important question for founders to answer up front. In Innovaccer’s case, President Obama’s Patient Protection and Affordable Care Act (aka Obamacare) of 2010 set off a massive change in the US healthcare industry: simply put, hospitals were nudged to go from charging for individual services and procedures (called fee-for-service) to charging for health outcomes (called value-based-care). This required, for the first time, hospitals and providers to manage patient and population health, and engage and track patients even outside the hospital. Hospitals set up ACOs to manage this transition?, yet they did not have any software or tools to operate in this brave new world!
Stick to One Vertical. And Get a Lighthouse Customer
It is sometimes enticing for young startups to serve customers outside the core vertical, because they also have similar problems. That’s a trap. Each additional vertical takes you down a rabbit hole of different requirements that can spread you so thin that you don’t solve the whole problem for any vertical. Innovaccer’s founders (positively) surprised us with their ability to be quick and decisive. Once the product market fit in healthcare was clear, they did not hesitate to let go of non-healthcare customers, even when it came at the cost of revenue. Next, they got a lighthouse customer who started making high quality referrals to peers in the industry.
Engage Industry Insiders
For vertical SaaS companies, we think it is important that companies speak in the language of the prospects and also provide low-risk solutions easily explainable by industry insiders. Insiders can also help bring the much-needed voice of the customer and industry nuance into product. At Innovaccer, the founders have shown an unusual ability to attract top talent, including star healthcare advisors such as Dr David Nash (Founding Dean of Jefferson College of Population Health), Dr Paul Grundy (‘Godfather’ of the patient-centered medical home) and Dr Glenn Steele (Former President and CEO of Geisinger). We have seen very successful examples of insiders opening doors to large accounts using previous relationships.
Especially when it comes to the go-to-market team, try and hire sales and marketing veterans from that industry. They have decades-old relationships and know who to sell to. There are also industry-specfic events that are quite useful for generating leads. In the case of Innovaccer and healthcare, it is the JP Morgan Healthcare Conference and HIMSS.
Map Your Technology to Business Problems
One can’t just show up with whiz-bang technology (e.g. AI/ML, blockchain) and assume prospects will license software. Customers need real and clear connections between your product and the business metrics they care about.
At Innovaccer, the company 1) mapped its strong integration technology to the need for ACOs to have a holistic view of patient’s data (Innovaccer’s data lake), 2) then manipulating and applying this data to business problems like managing claims and contracts and 3) finally building patient-facing and physician-facing applications for improved, coordinated clinical care.
Beat Incumbents at Implementation
With their configurability and rapid implementation, vertical SaaS companies can run rings around incumbents that 1) outsource implementation services and 2) require large systems integration contracts that take months and years to implement. At Innovaccer, the rapid time to integration (6 months vs 18–24 months average from others) results in customers seeing tangible value well ahead of any competitors.
Manage the Change
Large verticals are often mired in inertia and need help with adapting to new software. Think of putting together a change management team, perhaps under the customer success organization, that may need to be on-site during the roll-out, training employees on how to use the software as well as getting key stakeholders at the customer to put their weight behind the roll-out.
Land and Expand
Turns out many of these verticals have very old software incumbents that have not innovated much. As the new SaaS company starts engaging and peeling back the layers and layers of problems, several new requirements surface. We saw Innovaccer starting new accounts upwards of $100,000 ACV going all the way north of $1 million for large providers. Customers saw strong RoI and kept asking for more functionality! Innovaccer went from offering a data lake to care coordination and contract management to finally workflows and patient engagement.
We are excited for all the exciting vertical SaaS companies that founders are about to dream up! If you’re building one, we’d love to hear from you at http://submit.lsip.com
Disclaimer: Original article, its content, and copyrights are owned by the original author Mr. Vaibhav