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Start-up Healthcare Company Overcomes Risks and Captures Success in Outsourced R&D

Innovation is the lifeblood of entrepreneurial companies such as Inherited Health™, an online resource for information about health risks, but it’s also imperative that such companies deliver new products to the market in a short time frame and at the lowest cost. Those were the business challenges – along with having only a handful of part-time IT staff in house – that drove Inherited Health to outsource its R&D to Core Objects (since acquired by Symphony Services), an offshore service provider.

“We had three choices: interview and hire a team in house that could build what we needed, outsource it in the United States, or outsource it offshore. It was too difficult for us to find the right resources, vet those resources, and have the ability to swap resources with the right skills in and out of the project as needed. And that resource flexibility was too expensive in the United States. So that was a strong case for exploring offshore. When we compared it on a cost basis, it was really a no-brainer – the offshore solution was half the cost of a U.S. solution,” says Lee Essner, CEO.

Although it’s common for companies of all sizes to outsource R&D or product engineering, success is not guaranteed. There is always the risk of expanded time line and costs. There are also intellectual property risks, communication risks if the product development team is offshore, and these days there’s a significant likelihood of a merger or acquisition occurring in the midst of an R&D initiative.

Inherited Health overcame all these issues and also structured its outsourcing relationship to ensure collaboration and a partnering approach. Essner shares his company’s experience and insights into successful R&D outsourcing.

Choosing a service provider

“A partnering approach is absolutely vital in R&D. But there are so many service providers out there, and finding a true partner is a challenge,” states Essner.

Inherited Health started out as AccessDNA, a basic online genetic health screening process to help consumers identify their risks of inherited diseases. In January 2010, after talking with consumers to learn more about their needs and what they were interested in knowing about their family health, the company rebranded as Inherited Health and shifted its focus to improving its product and services in three aspects:

  • Expanding the intake process of collecting information about clients’ family health
  • Expanding the output to provide more disease risk assessment and follow-on information about the risks
  • Adding a viral functionality to easily enable people to collaborate with their family to find out who had diseases in order to build a more comprehensive family health history.

The company outsourced the building of those three functionalities into its system to Core Objects. Essner had known the CEO of Core Objects from the LA software start-up community and liked his aggressive approach. When the provider’s CEO met with the Inherited Health team, they were impressed at how well he understood their business and their concerns, which convinced them that the provider would take a partnering and flexible approach.

And the provider demonstrated that approach right away. Inherited Health’s system was built on .Net. “We had to decide whether to throw away our system, build on it, or go for open source,” says Essner. The service provider did an assessment and decided to build on our existing system because it was the most cost-effective route for Inherited Health. “It would have been easy for them to throw it out and start from scratch. I applaud them for not doing that,” says Essner.

“Any project will have its hiccup moments,” says Essner. That’s when the partnering, or lack of it, really becomes evident. Inherited Health’s product development had a very quick time frame for launch, so the company requested that no resources be allocated to the project that were not the most capable among the provider’s resources. But the quality of work produced by one of the resources was poor and resulted in the need to redo a piece.

“They pulled in three to five extra resources to fix this problem, and they stopped billing us,” recalls Essner. “They took accountability. Only partners do that, not vendors.”

“So we had fears when our partner got acquired nine months later,” he adds. But Symphony Services walked them through the acquisition and also kept the same people on the team who had been doing the work before the acquisition. “Even though we are an extremely small client for them, Symphony showed us they would be our partner and made it clear that they wanted to work with us.”

The provider’s healthcare domain expertise was also a decision factor. Wayne Irwin, Executive Vice President and General Manager of Embedded & Telecom at Symphony Services, comments that companies have shifted away from basic outsourced development activities and now look for providers that have specific industry knowledge. For instance, in healthcare, the provider needs to understand the regulations and necessary certifications and how to integrate payment systems.

The provider also needs to understand specific use of technology expertise within an industry. “As an example, our customers not only want to know if we have the appropriate number of engineers who have wireless LAN expertise but also if those wireless LAN experts have expertise in the healthcare domain,” says Irwin.

Collaboration and flexibility

Irwin explains that Symphony Services, an outsourced product development company providing end-to-end services through the product development life cycle, always prefers to take a collaborative approach to product development. “Inherited Health came to us with ideas on where they wanted to go with enhancing their product, but they didn’t have a roadmap of how they were going to get there. We collaborated with them on how to develop it.”

He says that most of Symphony’s clients expect collaborative activity and some push back from the provider on some ideas, as there are a lot of different ways to do something. Essner states there were “definitely moments where Symphony had suggestions of better ways to skin the cat to make things faster and more efficient.” Pop-ups on the Web site, for instance, allow consumers to tag a family member that has a disease and then add relevant data. But the way Inherited Health originally specified the project, the pop-ups were too slow and didn’t allow the healthcare company to do all that it wanted to do with the data. Symphony suggested modifications, and now the system works faster and smoothly.

“They are also good at suggesting ways to do things with an eye to scalability for future changes,” says Essner. The original idea was to collect hereditary disease information on two generations in a family, but Symphony suggested a way to scale up to three generations.

Now that the Web site is in beta and the project is in the optimization phase, the two companies are collaborating on iterations resulting from user feedback and collaborating on finding the right market fit for the Inherited Health product and services.

Irwin says ensuring collaboration begins with an open mindset in both companies. The customer needs to be open to the provider’s guidance along the way based on its expertise. The provider needs to listen with an open mind to the customer’s needs so it won’t be too stubborn in pushing back or insisting on a certain way to accomplish the goals.

Smaller companies are more flexible and open-minded in the design stages, he explains. Larger companies usually have an internal strategic group that has already thought through the design stages before outsourcing it and just needs a provider to work the specs to develop and implement the product.

Symphony also conducts user experience testing and planning, but clients can’t realize the real benefits of this process if they aren’t open-minded. “We’ve had clients that debate user survey results, analysis, and research results. But they need to be open-minded around the information the data provides.” Cost constraints and concerns about the user testing results that could trigger the need for more work cause some clients to be inflexible in this area, thus hindering the collaboration. In these cases Irwin points out the need for the provider to be flexible and adopt the business model of just working purely around the statement of work and specifications, yet continuing to reaffirm the direction, asking “Are you sure this is what you want?”

Communication and control

A major aspect of facilitating a collaborative environment was two critical strategies Inherited Health put in place at the outset to avoid communication risks.

“I felt the biggest risk in offshoring R&D was the lack of proximity to the team and intermittent communication. That obviously could cause us to be in a situation where the offshore resources go down a path for 24 hours that not’s necessarily the right path,” says Essner.

The “number-one ground rule” he put in place was that the offshore team should never make any assumptions. If they didn’t know something or if an issue could go one way or the other, they were to ask Inherited Health.

“We set it up so that whenever they had suggestions or issues, they wouldn’t make assumptions and had to engage in conversation with us, making it very collaborative. So when there was a question, they would have an answer based on what we wanted and not what they thought we wanted,” says Essner.

Good specifications and use cases were also important factors.

The second strategy critical to success was having a local presence from the offshore team to facilitate communication. Essner admits the lack of a local presence from the offshore team “would not take a lot away” or impact success because they had a strong relationship with the senior offshore person. “But having a strong technical guy here locally to facilitate communication gave us a level of comfort.”

“In smaller companies, entrepreneurial companies, the dollars are coming directly out of their pocket,” explains Irwin. “So the loss of control through outsourcing feels a little dicey to them and they’d rather have somebody on site.”

Providing a local presence has cost implications, but it’s part of Symphony Services’ flexible business model, which includes fixed-price projects rather than time-and-materials pricing. He points out that not having an onshore presence would increase the provider’s margins but might not instill confidence in the client and thus would not help build a long-term partnering relationship.

Symphony’s flexible business model includes options for outcome certainty. “We’ll take risks up front with our clients and guarantee certain aspects of the speed of the project, quality of the project, or a certain reduction in the number of iterations as well as other aspects,” says Irwin.

Guaranteeing outcome certainty helps give confidence to companies fearing loss of control. “We put our money on the line and take discounts if we don’t deliver the quality. We try to give peace of mind to our clients that the quality of their project is as important to us as it is to them,” states Irwin.

Intellectual property risks

A lawyer by training, Essner was especially aware of the intellectual property risks associated with offshore development activities. Inherited Health made sure there was only one-way access into its code repository. After each iteration, the provider deposited it into the repository so that Inherited Health always had the latest copy and version control.

More importantly, he made sure the contract includes terms that give Inherited Health full ownership of the code upon payment of undisputed amounts. He explains there often is a conflict where an outsourced development firm does not let the client have product ownership until all the bills are paid.

“That means at the end of the project you could end up with a dispute over the last $4,000 in a $100,000 project and all of a sudden you own nothing,” Essner says. “So it’s important to make sure a contract states you own everything as long as you’ve paid undisputed amounts.”

What’s the best aspect of this relationship? Beyond providing the expertise, flexibility, and lower costs, Irwin says it’s the collaborative activities. “Collaboration allowed Inherited Health to get its next-generation or 2.0 platform out to the market in a timely fashion. The win for them is that they are able to achieve their vision. The wins for us are a satisfied client and increasing our domain expertise in this area. It’s definitely a win-win relationship.”


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