Bob Bond, Director of Pathway Software, talks with Health Investor about the challenges of developing an early-stage business in the Healthcare sector.

‘Frosty conditions and a background of dramatic reform can’t keep the entrepreneurial spirit down in the healthcare sector, finds Nikki Allen.

Despite a backdrop of economic gloom and a drastic shake-up to the UK’s health service, there is evidence of some sort of renaissance in the health space at the moment. The sector’s giants may have had some formidable struggles over the past two years, but they could do worse than look closely at the other end of the market, where a number of fledgling firms are showing admirable entrepreneurial zeal.

But just who are these companies that are making a name for themselves and how are they doing it – and what impact could they have on the wider sector? The young healthcare firms seeing rapid growth in the market appear to fall broadly into four categories: care home providers; technology manufacturers; staffing companies and marketers.

One of the care homes that has seen impressive growth since its founding five-years-ago is Scottish firm Balhousie Care Group. The company is now the largest privately owned group of nursing homes inScotland, and operates 20 homes with a 50:50 mix between self-funded and socially-funded residents.

According to Tony Banks, founder, managing director and the organisation’s sole shareholder, he chose the ideal time to launch into this sector: “The main driver [for our success] is demographics: people living longer and a wealthier population. A certain percentage of the population will always require long-term residential care,” he explains.

“Also, we have a number of opportunities because care home stock needs updating – it is now old and tired and over 15-years-old,” Banks explains. “Large corporate players are fairly inactive in the new development model compared to three or four years ago, land prices and build costs are down and there is little market pressure to increase prices.

“All this means that budgetary constraints on government are forcing the NHS and local authorities to look at more cost effective options of provision,” he adds.

Bob Bond, director of newly-founded technology firm Pathway Software, agrees that there has never been a more compelling time to enter the health market – particularly, he argues, when it comes to providing technology to the NHS. Bond, who established his company in April 2009, explains that it was set up due to a mixture of “circumstances, macro factors and due diligence”.

“My partner and I had a feeling that the public sector would be something of a ‘safe haven’ during troubled times and we got a sense that local procurement would soon be back on the agenda,” he explains.

“The clincher was when we met with the trust that had co-developed the software that we subsequently invested in, Therapy Manager. They enthusiastically confirmed that the software had completely transformed service provision within the therapy department and saved more than £3.5 million over three years. The combination of these factors convinced us that this was a viable business opportunity.”

“However,” Bond goes on, “in our experience, this isn’t always matched by a corporate appetite to invest in technology and follow through on the organisational change that needs to be undertaken to generate the returns that technology is capable of delivering.”

To overcome this worry, the firm is taking a longer term view: “We believe that the current investment blockage will subside as trusts realise that battening down the hatches will not deliver the efficiencies that are required. This is certainly a lucrative sector in the medium to long term.”

Meanwhile, the marketing of healthcare products and devices is beginning to carve a niche in the sector for the first time, at least if the success of HighTech Health is anything to go by. Mat Taylor, international sales manager at the firm, believes healthcare marketing is in a “great position despite all of the gloom and doom about the economy”.

“We operate in the home healthcare market and more and more people are seeking devices to help alleviate various conditions,” he says. “People often struggle on with various conditions due to the difficulty in accessing health services, or the cost of alternative therapies.”

One of the most notable sub-sectors for speedy growth, though, is recruitment. This boom in health sector recruitment is doubtless down to the fact that during a time of uncertainty in the NHS, taking on a locum for a day or a few weeks is safer for hospitals, financially and legally, than hiring a new member of staff. And if HR has been managed poorly within hospitals, there is a clear gap in the market for expert recruiters to fill.

Robert Stiff, founder and managing director of staffing firm Team24 – the winner of a host of entrepreneurial and start-up awards – explains that it’s “likely that healthcare recruitment will remain buoyant over the next few years as statistically there are more nurses retiring or leaving the NHS than those who are currently in training… and the proposed sale of NHS Professionals to the private sector will, in my view, create a vacuum that will need to be filled by commercial agencies”.

With all this potential success for new starters in healthcare, do the experts reckon a host of new entrants can follow? Interestingly, the answer is a resounding no.

“I think we may see less and less young start up healthcare companies coming into this space in 2011 due to the ever increasing barriers to entry, such as regulatory concerns,” explains Mat Taylor. “Also, a lot of innovation is being stifled by underfunding of universities’ research departments and the high costs associated with product development.”

Tony Banks agrees: “The barriers to entry are significant for new players with no experience and with no track record. The heavy regulation and lack of capital are two of the main obstacles, plus things like no track record, changing market place and customer expectations and demands.”

The technology sector, too, could be a tricky sector for start-ups in 2011, argues Bond. “Inevitably there will be new entrants where clever technology can be repurposed in healthcare but in terms of IT ‘pure plays’ I suspect these will be limited.

“Entrepreneurs will be disinclined to target the public sector in general due to fears about budgets and meanwhile, private equity firms will be mitigating their exposure to the public sector and limiting the amount of development capital available to start-up and early-stage businesses,” he explains.

Even the darling of the start-ups – staffing – may not prove an easy target. “The high standards of compliance demanded by the NHS is making it incredibly difficult to clear nurses on to agencies books,” says Team24’s Robert Stiff, exasperation. “Furthermore, the level of investment required for start-ups will limit the number of companies looking to move into healthcare,” he adds. “However, I do anticipate that the sector will show growth in numbers with the introduction of new ‘boutique’ agencies working within defined sectors of the healthcare industry.”

Perhaps there’s hope yet for some new kids on the block.’

Original Source Health Investor

About Pathway Software

Pathway Software (www.pathwaysoftware.com) specialises in the design and development of Electronic Patient Record (EPR) systems for Allied Health professionals.

Its flagship product, Therapy Manager, is specifically designed for Therapy Services to provide decision makers with the ability to track and manage clinical activity and analyse cost of care by patient, episode or service. The system also demonstrably reduces administration time and the costs of managing Therapy Services.