Cheap Thoughts

Investment is the healthcare space has been a hotly debated topic for some time now.  Most people agree that the opportunities are huge, but many VCs and CEO's disagree on the prospects of success.  The regulatory environment in healthcare is so convoluted it has scared more than a few investors away.  Even Google co-founder, Sergey Brin, has said that it is such a difficult space to work in he would prefer to spend him time and money elsewhere.  

What my experience at Employee Navigator is teaching me is that healthcare is undoubtedly one of the most difficult industries to innovate in (financial services would be up there too) but there are huge gains to be made by companies who are willing to put in the time necessary to have a real impact.  In our experience that literally means dragging every insurance carrier we speak with until they understand what we're doing.  We're going to keep explaining to them why we're right until they agree with us.  

The opportunities to make a quick buck in healthcare are few and far between, my hope is that the slow moving environment does not scare away outside capital.  

Protecting the consumer is quickly becoming one of the most frustrating statements I hear on a regular basis.  Uttered by various  regulatory bodies in response to new and innovative companies, it is a popular way for them to portray new companies like Airbnb, Uber or Zenefits and Tesla (as they relate to car dealers) as a threat to the general public as opposed to a threat to their way of life.  It is usually follow by something like, "We welcome innovation but only if it occurs within the existing legal framework everyone else operates within."  These bodies need to understand that that is not how innovation occurs and that if they truly cared about the consumer they would work with new players to help their industries progress and evolve.  To be against this type of innovation is actually to work against the consumer and their interest, because the technology would not exist if it was not being used/bought by people who previously had access to nothing of the sort.

If you're ever wondered how regulation affects innovation just look at the industries that have been the slowest to see any truly disruptive technologies take hold.  Healthcare and financial services stand out to me as two of the slowest moving industries in the US, and it is no surprise that they are also the most highly regulated (and two of the most important).  Progress is slow, changes are incremental, and its my hope that all of this will not dissuade entrepreneurs from attempting to change things.

In a recent interview Google co-founder Sergey Brin was quoted saying that healthcare is so heavily regulated it is not a place where he wants to spend his time.  How bad does it have to be when one of the smartest most innovative thinkers of our lifetime decides its not worth his time?  My firsthand experience dealing with insurance carriers further adds to just how slow and backwards the industry is.  They generally lack any cohesive technology strategy and still rely on processes and legacy systems that are decades old.  There is one insurance carrier who's primary backend technology system is referred to as "the 72," which references the year the system were put in place (yes that is 1972).  Larry Page was also quoted in the same interview as Brin saying, "Imagine you had the ability to search people's medical records in the U.S.. Any medical researcher can do it. Maybe they have the names removed. Maybe when the medical researcher searches your data, you get to see which researcher searched it and why. I imagine that would save 10,000 lives in the first year. Just that. That's almost impossible to do because of HIPPA. I do worry that we regulate ourselves out of some really great possibilities that are certainly on the data-mining end." 

Financial services is not much better, and the financial crisis of 2008 didn't make things any easier.  Regulations like Dodd Frank, Sarbanes–Oxley and the myriad of other  other laws passed over the years have made finance very unattractive for many entrepreneurs.  Not just because entry into these markets is costly and complex but because these regulations end up being used by incumbents as defensive tactics to maintain the status quo.  We are seeing progress though.  Crowdfunding and the recently passed JOBS Act (that allows private companies to start using public markets in their fundraising efforts) are showing a ton of potential.  Additionally, services like Wealthfront and Betterment are targeting another mainstay, financial advisors and their high management fees. Perhaps most encouragingly is Bitcoin, which has the potential to sidestep most of the existing roadblocks in a variety of capacities (which I won't get into here).     

It's my hope that the next generation of policymakers and bureaucrats will see how regulation has brought these and other industries to a relative standstill and will work to create policies that encourage innovation, not hinder it.  It is exactly because these two industries in particular are so important that we should be inviting innovation and experimentation.  The consequences of inaction is greater than the consequences of action!

If you could go back in time 25 years and tell people what the world will look like today, they would probably label you as insane.  All you would have to do is describe to them what they can access via their smartphones.  I guess you would actually have to describe to them what  smartphone is.

A smartphone gives us maps of almost every city and town on the globe, GPS, email, phones, cameras, radios, encyclopedias, the list could go on and on.  We live in a world where billions of people have access to a significant amount of human knowledge in their pockets.  And did I mention that it's almost all free?  Some people would say you're lying, others that the economics don't make sense.  How can businesses make money if they're providing access to all this stuff without charging for it?  How can all of this information be stored on a device the size of a deck of cards?  

To me, the exciting question is what do the next 25 years hold in store for us? We will one day describe to our children the types of occupations, difficulties and inconveniences we had to endure, only to be met with dumbfounded looks of confusion.  I believe that we haven't even scratched the surface of what technology an innovation will provide humanity.  In fact, I believe the innovations in the past 25 years will pale in comparison with what lies ahead.

Anybody who believes the best is behind us risks being left behind themselves.

Much like the current saga between American auto dealerships and Tesla, I believe that taxi companies throughout the United States are using arcane regulations as a defensive tactic to protect their interests against innovative competitors, namely companies like Uber and Lyft.  Unfortunately, the American consumer is left to deal with the negative consequences of such defensive mechanisms.  The taxi companies, concerned about their own well being, have put their self-interests ahead of their customers, which if history is any indication, will contribute to the continued erosion of their entrenched business model.  

The benefits of the Uber model to the consumer are clear.  Increased competition in the marketplace has led to a new level of innovation including higher quality and more diversified services as well as increased price competition, all of which have been absent in the cab industry for decades.  They eliminated the frustration of standing on street corners hoping an available cab drives by and have made the payment process frictionless, this at a time when many cities are just now beginning to require their drivers to accept credit cards.  Additionally, they have increased the supply of taxi’s in a given city, which has up to this point been very difficult and costly to do.  And while this type of creative destruction will force both the taxi and insurance industries to adapt in a number of ways I believe they will, because at the end of the day America is still a consumer driven society.

This is not to say that all of the issues surrounding the Uber model have been solved.  It is not just the cab companies that are being forced to adapt but the insurance industry as well, who have to determine how to insure this new class of driver.  Furthermore, we are likely to see continued regulation at the local level as city and state governments struggle with how to classify and regulate these new companies.   

For their part I personally have very little sympathy for the taxi industry.  The technology powering these new services has been around for years, but as a result of a lack of competition they were never forced to innovate in a meaningful way.  Sitting in a taxi in San Francisco, it almost appears that technology has added complexity to their business.  Look no further than the array of devices used by traditional taxi drivers on their dashboard, up to six by my count.  As smartphones have lead to a consolidation of devices for most, the taxi companies have seen a proliferation of the devices necessary to run their business.

How long should the consumer have to foot the bill for their inefficiencies?