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Here’s why most healthcare tech startups fail

Jun 30

6 min read

Starting a new business in any field is demanding, but the healthcare industry is known for being particularly difficult to navigate. Many health tech startups never make it, due in large part to the medical field’s strict regulations and the need for industry expertise. This article discusses why most healthcare startups fail and looks at industry-specific factors that can get in the way of their success. Additionally, we look at strategies to help you avoid the common pitfalls of building a healthcare business.

Why do many healthcare startups fail?

A very high proportion –  about 98% – of med tech startups fail within two years. Success in this industry is rare, so it’s important to understand the causes of failure in order to beat the odds and build a profitable health tech product.

There is rarely a single reason for a digital health startup’s collapse, but there are common factors that often combine to create poor outcomes. Although startups have a low success rate in all industries, the med tech industry is characterized by numerous features and roadblocks specific to this field. Since knowing the most common mistakes is the first step to avoiding them, we present you with the most frequent missteps that cause healthcare tech startups to fail.

No market need

Healthcare startups often fail due to insufficient market demand. Many businesses shortchange market research, failing to analyze their rivals’ offerings or verify the demand for their product. Thus, saving money or being rushed to launch the product often leads to failure. To avoid this pitfall, put in the time and effort to a) compile evidence that there is a clear need for your product, and b) ensure the niche you hope to fill is not already saturated with similar products.

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Run out of funding

Running out of capital and financial support before achieving regulatory milestones is common in the health tech space – and evidence for your product’s efficacy is critical to attracting customers and further investment. To avoid this pitfall, health tech startups need to anticipate the costs associated with working with designing, developing, and testing products within the healthcare space, anticipating likely costs like timeline setbacks, regulatory delays, user recruiting challenges. etc.

Lack of industry experience

Due to a lack of industry experience, healthcare startups often focus on sleek technology over trying to understand and meet the consumer's needs. A lack of medical or healthcare experience can also result in not understanding and planning for the appropriate legal and regulatory environments. A CEO and team without deep knowledge and expertise about their market are highly unlikely to succeed in building a thriving health tech business.

Wrong market strategy

Digital health startups can easily fail by targeting the wrong audiences and stakeholders. For example, some startups make the mistake of promoting their product to consumers directly, failing to realize that it’s the healthcare professionals who actually own the sales and marketing channels to their audience.

There are many more ways in which flawed marketing strategies can result in business failure. For example, not having an end-to-end evidence-generation plan means that healthcare companies only focus on amassing data to reach the next milestone. This can result in significant delays and, ultimately, the failure of their startup.

Failure to accurately communicate the product’s value proposition can also lead to defeat. In the healthcare industry, it is not enough to market a new product as “faster, more efficient, and cost-effective”. A successful value proposition requires data and a deep understanding of how the new product provides more value than those already on the market.

What are the challenges specific to healthcare startups?

Healthcare startups face some of the same challenges as new businesses in other industries, such as limited funding, intense competition, misjudging market need, and implementing the wrong marketing strategy. However, there are several additional reasons why a healthcare startup might fail.

Fundraising and procurement take longer

When looking to make digital products for healthcare, expect the fundraising and procurement processes to take much longer than in other sectors. Be sure to effectively manage your funds from the start, and expect a long road ahead.

Need for a configurable product

​​Different healthcare organizations have different needs. Knowing the exact requirements is essential in order to configurable the product to the nuanced specifications of your target market.


The health and wellness space is rife with short-lived crazes and questionable “breakthroughs”, so knowing how to spot rising stars with sufficient growth potential is key. A successful health tech startup must cut through the noise, sift through misinformation, and disregard flash-in-the-pan fads by pursuing opportunities in emerging areas grounded in solid scientific evidence, using a sustainable approach to business growth.

Strict regulations

The healthcare industry is full of rules and regulations that resist rapid change. To succeed, new entrants need to invest the time and effort to gain a thorough understanding of applicable standards and laws, in order to avoid having your product sidelined by compliance issues.

Two surgeons in scrubs talking while referring to info on open laptop.

Lack of business skills

Healthcare professionals often start their own businesses when they see a market gap. However, deep knowledge of a specialty or care model does not necessarily translate into the ability to build a successful business around it. When industry professionals fail to acquire or hire the business strategy skills needed to execute their ideas, strong digital health innovation ideas can, and do, fail.

Failure to show evidence of efficacy

A focus on developing a robust clinical evidence base and strategy is one of the cornerstones of a successful healthcare business. Demonstrating clinical and economic value is essential to attract investor attention.

Inability to scale

One critical consideration for a health tech startup is how to build a product in such a way that it can bring the MVP to market quickly, and then build upon that early iteration later on with minimal disruption. Ensuring in advance that the product can fulfill its function with many users and expanded functions will save crucial time, money, and energy down the line.

Top tips for avoiding these traps

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Know the rules

Regulatory compliance is not an option in healthcare, and with so much to comply with, it’s important to follow the book from the start. The sooner you understand and apply them in the planning stages, the more likely you will avoid running into legal and regulatory issues. Solving a problem when it has already happened will result in severe delays and, potentially, failure. Planning and knowing all the rules will help your business get through legal obstacles.

Plan for the long haul

Patience is essential in health tech. Healthcare has a long sales cycle, since meeting regulatory requirements can take years (in addition to all the other work entailed in launching a startup). Results rarely come quickly in this industry, so entrants should calibrate their financial plans and expectations accordingly.

Connect with experts

Networking is crucial in the healthcare industry. The best way to become versed in the sector’s intricacies is to collaborate with and learn from those who are already immersed in it. Gaining knowledge directly from industry experts will help you and your business grow.

Start with a solid business plan

Set your idea up for success from the start with a thorough, well researched business plan. Putting your plans down in writing will help you stay on track, anticipate challenges, and set tangible goals and timelines. If done well, it can also help you attract funding, whether from private investors or government grants.

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Partner with an industry and technology leader

Partnering with an industry and technology leader can help you lower the risks associated with navigating the healthcare industry significantly.

Digital product agencies specialize in making big ideas come to life by simultaneously providing business knowledge and technology expertise.

Key takeaways

The healthcare industry is undergoing a massive transformation, with new businesses sprouting up and burning out in every corner of the sector. Although many founders start with excellent ideas, most of their businesses ultimately fail due to an insufficient understanding of the particular roadblocks of the healthcare industry.

Success in this volatile field requires medical industry expertise – either earned through experience or hired. Regulatory understanding and compliance are also table stakes for startups looking to break into this area.

The best ideas fail without proper execution, so a solid business plan and marketing strategy are also crucial to a health tech startup’s success. Hiring a digital product agency specializing in health and wellness tech solutions can help your startup develop a solid business plan and marketing strategy while also providing guidance in navigating this highly regulated and competitive industry.

Finally, networking and collaboration are vital to helping your business get traction and build momentum, as learning from others in the industry is a great way to tap into the most up-to-date sources of knowledge and experience.


Mike Biglan

Founder and CEO Mike Biglan has led the creation of transformative digital products adopted by millions of users–including digital therapeutics, AI-powered RPM platforms, an X-Prize-winning adult literacy intervention, and more. Mike also led the creation of Marco Polo, an acclaimed consumer-facing video messaging/streaming app with tens of millions of downloads.

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