by Rishi Madhok, MD
Founder: Steve Cashman, Kevin Banion
Location: Dublin, OH
Total Equity Funding: 23.11 M in 4 Rounds
Most recently financed 11.56 M in Debt Financing
“Our mission is to increase access to high-quality, convenient and affordable healthcare services. We do this with the innovative application of technology to healthcare. Our telemedicine Care4 Station is the ultimate access point to better healthcare, using our powerful custom software platform to bring together patients and providers in convenient neighborhood locations. We have the tools to empower healthcare professionals, making healthcare smarter, simpler and more accessible for everyone.”
On Dec. 28, 2015, HealthSpot, which offers telemedicine kiosks and service, notified its partners, including RiteAid, the Cleveland Clinic and University Hospitals that it would cease operations in three days. The abrupt and unexplained shutdown left many shocked and confused, and without official word from the company, we along with other telemedicine leaders are left to speculate. HealthSpot had built a telehealth platform centered around kiosks to establish face-to-face consults, create a treatment plan with follow-up, maintain a readily-available medical record, and provide electronic prescription information as part of the patient medical record.
In 2013, in an email blast to attendees of the International Consumer Electronics show, HealthSpot CEO and Founder Steve Cashman claimed “We are making it possible to seamlessly deliver advanced healthcare through modern technology… We are not just hardware; we are not just software; we are a complete integrated network of traditional doctor care and cutting-edge telemedicine. We are healthcare reinvented.”
In four years, Healthspot had its technology platform, its retail partners, and 43.8 million in funding. So why did it fail?
Many tech start-ups are “pre-revenue.” This means they don’t make any money – instead they are focused on creating, testing, and validating their technology platform. Simultaneously, they are working on establishing partnerships, early clients and bookings, and continually fundraising, because without money, these companies wind up in the boneyard very quickly.
HealthSpot had worked with Kaiser, Cleveland Clinic, and the Mayo Clinic to test its kiosks and platform for 18 months. They then moved into pharmacies, announcing a partnership with RiteAid, and opened 25 kiosks in Northeast Ohio by July, 2015. Patient calls seemed to be coming in regularly and Cashman stated that HealthSpot had done nearly 5,000 consultations by May, 2015. But was it enough? While these numbers are impressive, what does it really mean and how does it compare to the costs and overhead of setting up and running these telehealth kiosks?
In an article for Medcity News, Jason Gorevic, CEO of Teladoc, pointed out that, “Consumer engagement is hard to do... this is where HealthSpot may have fallen down.” Kiosks suggest health care on demand, however HealthSpot required pre-arranged appointments and perhaps this contradiction in workflow was one of many comorbidities for HealthSpot. Despite the funding, platform, and healthcare partnerships, perhaps HealthSpot failed to drive enough patients to its service to make the venture viable. In three years the company reported 1.1 million in revenue, $500,000 in 2015. Others have noted that HealthSpot, in its final months, had been experimenting with different business models, again pointing to signs that the company could not make the numbers work.
But where was the money going? Companies like American Well have pointed out that their kiosks are one of the fastest-growing part of their business. This notion discredits theory that high overheads of setting up telehealth kiosks are an Achilles heel to companies such as Healthspot. However, Healthspot had nearly $3.5 million in inventory, which included 137 kiosks in storage, when they stopped services. Those 137 kiosks represent investment without growth.
When you are trying to stay alive, in the ICU and as a start-up, you want to account for your I’s (input) and O’s (output). Another questionable loss to the company was the $1.46 million paid out to 7 senior officers of Healthspot as wages in 2015. $500,000 of revenue in and $1,460,0000 out to just the executive team – Healthspot was bleeding out. Some might be quick to counter, if you want to create a world-class product, you need to recruit and retain top talent with the appropriate incentives. However, Healthspot’s leadership lacked any significant experience in telemedicine. At best their COO, Bruce Roberts, had a strong background in applying technology to delivery of care. Investing in talent is critically important, but for founders and senior executives of a start-up, the pay off in compensation comes as equity, and the long-term realization of its value, not as cash. That $1.46 million should have been allocated toward business development and securing a more immediate revenue stream.
And finally, there are questions for their investors. Investors are a source of guidance and control for start-ups. Money helps, but often more important are the introductions that come with it, from investors to partnerships. With money also comes strings, board seats, and the ability for investors to point start-ups in the direction they deem appropriate. Too much time was spent on anticipating the long term instead of focusing on immediate growth and revenue (again look to their large inventory of kiosks in storage).
Start small, prove your technology platform (which they did with academic partners) and your business model, then expand. In the end, HealthSpot succeeded in demonstrating the relevance of telemedicine and the technology, but ultimately failed to realize its short-term needs and risks, misallocated its resources, and thus the company fell before reaching its long-term vision.