The Shocking Truth About Business Plans In Healthcare

By:  David Kashmer, MD MBA (@DavidKashmer)

 

Have you ever had to start some new service for your hospital, or even a whole new business?  There’s lots of planning and preparing, right?  At some point, whether you’ve been an innopreneur within your healthcare system or an entrepreneur starting your own business, you’ve probably been called on to write a business plan.  Those plans are often long, specific…and they just plain don’t work.  Now let me share with you the more modern tool to plan your startup:  the business model canvas.  Read on to find out why the business model canvas is a better alternative than the business plans of days gone by.

 

We Know Business Plans Don’t Work

 

Here’s a personal favorite quote from the world of startups, and it’s from that little-known philosopher Mike Tyson:  “Everyone has a plan until they get punched in the face.” That’s just how it is with starting up a new service for your hospital or a new business from scratch.  You think you know how it will look (or at least how you want it to look) and you make an elaborate plan (the business plan) that doesn’t survive first contact with the real world.  Let me say it again:  business plans are known to rarely survive first contact with the real world.  Isn’t there something better we can use?

 

A Better Tool To Plan Your Startup

 

Here's what a canvas looks like.
Here’s what a canvas looks like.

 

What’s better about the business model canvas?  First, it’s flexible.  It didn’t take an investment of a week of your life to write, and it makes it crystal clear exactly what (and how) your business will do what it does.  When an opportunity comes up, or it’s time to change how you do things, you’ll see how new avenues fit in much more easily.

 

Next, it’s brief.  It’s your business or new hospital service in one page.  It hits all the important parts, and makes what you do very easy to explain to others.

 

Third, it serves as a visual record of your business.  Many users of this technique recommend reviewing the canvas early in your startup and often.  When you have to make changes, you can review old canvases.  These serve as a history of where your business is and where it has been.  Much better than re-writing your business plan every time you may want to make a change or do a new projection.

 

Next, it’s collaborative.  The business model canvas is usually made by the startup team as a group.  It originated as, literally, a canvas with post-it notes to satisfy each element on the board.  Business model canvases reflect a much more decentralized attitude than the “I wrote this business plan at midnight here it is” that we’ve often seen before.  Nowadays, there are even ways to make a collaborative canvas online.  (The easel, paper, and post-it notes are going digital.) Visit canvanizer.com to create one for your next project.  (It’s free, except you do need to give an email address.)

 

Tools & Tips For The Canvas

 

We’ve previously discussed important elements of the business model canvas here.  Take a look if you have a moment.  For this discussion, let me share a few useful tips that I’ve found are good ideas to use in conjunction with the technique.

 

Cost load the canvas.  Make sure, when you calculate the monthly costs and startup costs, to exaggerate the costs involved when there is any doubt.  Don’t fall short and make sure the margin on what you’ll be doing looks ok.

 

Calculate the costs and revenues on a monthly basis.  Doing things on this scale seems to help make sure that cash flow through the startup will be ok.

 

Plan for the worst-case revenue.  One of the problems we have in applying the canvas to new services in healthcare is that the revenue side can be fairly difficult to assess.  Usually, I recommend taking the worst case reimbursement to run the model’s numbers the first time.  That means I’ll look to the worst payor in the payor-mix (exclude self pay) and choose the lowest reimbursement possible based on what the model is supposed to do.  Then, I’ll calculate the break even number of those events to see if the model’s costs are covered.  (For example, how many lap appendectomies would have to be done to cover the costs of this new general surgery service if the only payor was such-and-such third party payor?)

 

If the numbers look bleak or are borderline bleak, we’ll recalculate with the specific payor mix and volume we expect to confirm whether we really want to do this startup.

 

If you’re creating a new business as a stand alone entity, plan to fund with at least a 4-5 month “runway”.  If you’ve never heard of runway, healthcare colleagues, the runway is the amount of time you have until your business must take off and fly on its own without external support.  Cash burn rate is the speed at which your startup consumes / uses funds owing to its costs.  You should calculate how much funds are required to give your startup approximately a 4-5 month runway (as a rule of thumb) based on its monthly costs (cash burn rate) before it takes in any revenue.

 

Use The Canvas In Healthcare

 

If you’re in healthcare, you probably haven’t heard of the business model canvas.  Is it new?  Untried?  No.  The canvas has been used by many startups across many industries.  We just haven’t used it much in healthcare.  Like many more modern business tools, it’s new to us.

 

Why bother using this technique in healthcare?  It’s flexible, useful, and easier to achieve.  It’s more modern and reflects a collaborative view of startups.  Just as importantly, it recognizes that business plans often don’t survive the first punch in the face when they contact the real world.

 

Remember:  failing to plan is planning to fail.  How we plan matters, and the useful business model canvas helps us plan the right way for the future’s twists and turns.  Hope you find the business model canvas useful, and let’s take a moment to thank Alex Osterwalder for creating such a useful tool.

 

Agree, disagree, have some thoughts to share?  Let me know beneath.