06 January 2023

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Top 10 reasons why dental software startup companies fail

Travis Rodgers

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As I crossed the finish line and cut through the ribbon and fell to the ground with exhaustion, my dad’s words rang through my head, “Travis, luck is what happens when preparation meets opportunity."

Over the past 20 years of working with over 750 dental software startup companies, I have seen hundreds of them fail and the one thing that differentiates those that are successful and those that fail is planning the course and developing a winning strategy prior to starting their race.

At 10 years old, I decided to enter the Turkey Trot race. This was the first competition of my life, and I was competing against my neighborhood bully, Jimmy. It was November 23, 1983, and Los Gatos was in the heart of Silicon Valley with a lot of competitive families. I wasn’t much of an athlete but on this day my dad and I got there early, and we walked and planned the course down to the point on the course when I would sprint to the finish line. I was prepared.

When the race started, I quickly fell to the end of the pack but as the race went on, I continued to surge towards the front. The course was not well marked but I had a plan, and I knew where to turn. 

With a quarter of the race to go I was in third place behind Jimmy and my friend Johnny. At the quarter mile mark there were two directions to go, and I saw Jimmy and Johnny take the wrong turn in the wrong direction, but I stuck to the plan my dad and I had set out. As I cut through the winning ribbon, I gasped for air and collapsed. My dad ran over and picked me up and held me above his head. 

I had won the race not because of my talent but because I had planned better than my competitors. Many dental software startups I’ve seen fail had superior talent and products, but they lacked a solid plan.

In this article I am going to share my research of 100 failed companies and outline the top 10 reasons why dental software companies fail and give you some tips on how to avoid them. 

1. No Market Need - Dentists come to me almost daily with ideas for software products and most of the time I tell them not to do it. The #1 reason is that their target market is not large enough. That doesn’t mean they shouldn’t do it to solve their own problem but building a commercially viable product is a much larger undertaking than a one-off custom project.
   
   Tackling problems that are interesting to solve rather than those that serve a market need was cited as the number one reason for failure in 42% of cases I studied. As a patient communicator wrote, “I realized, essentially, that we had no customers because no one was really interested in the model we were pitching. Doctors want more patients, not an efficient office.”
   
   Startups fail when they are not solving a large enough problem with a scalable solution. They can have great technology, a great reputation, great expertise, great advisors and great investors but if they don’t have technology or a business model that solves a large enough pain point in a scalable way they will surely fail.
   
   I regularly coach entrepreneurs on how to follow the “Customer Discovery Process” and I suggest they interview 50 to 150 potential users to make sure their product hypothesis is more than just what they think is a big enough problem but is in fact something that solves a big market need.
   
   
2. Ran Out of Cash - Investors are more likely to back companies that have followed a solid product research process to determine market fit.  Money and time are finite and need to be allocated judiciously. The question of how you should spend your money was a frequent conundrum and reason for failure cited by failed startups, around 29%. As the former team at Ajeva Dental Financing revealed, running out of cash was what eventually killed their company. Make sure you are following a solid budget and don’t spend time and money on anything that doesn’t have a measurable ROI.
   
   
3. Not the Right Team - Dr. Jeremy Krell, who runs the Revere Partners oral health venture fund, said that according to data, “people problems, from backgrounds that don’t mesh well with the startup’s goal, to founder disputes, to a marked lack of the industry relationships needed to scale” is the leading reason most dental startups fail.
   
   Failed startup teams I’ve worked with often lament that they wished that their dentist founder CEO had more business startup experience. They often said, “We should have brought on additional co-founders, who would have been compensated primarily with equity versus cash, but we didn’t.”
   
   I have a template for equity compensation for dental startups to use as a starting point. Early on, several of my products failed because I didn’t have a technical or clinical co-founder to round out my team. Industry and business experience are rarely found in the same person.
   
   
4. Get Outcompeted - The old idea of “build it and they will come” has proven to be incorrect over and over. We saw this 10 years ago in the patient reminder space and we are seeing it again in the dental AI category.
   
   Despite the platitudes that startups shouldn’t pay attention to the competition, the reality is that once an idea gets hot or gets market validation, there may be many entrants in a space. Obsessing over the competition is not healthy, ignoring them was also a recipe for failure of many of the startup failures.
   
   In 2011, I was the first to build online scheduling for dental practices. Shortly after, LocalMed developed what at the time was an inferior product, but they had the funding to grow a larger sales and marketing team and they forged ahead and outcompeted me and eventually sold to Dental Intel for a nice exit.
   
   Weave is an example of a company who had a product that wasn’t as good as many competitors, but they raised significant funding and grew a large sales team and for many years they dominated the dental practice phone category. Don’t forget the purpose of running a business is to make money and without money you can’t innovate. 
   
   
5. Pricing & Cost Issues - Pricing is a dark art when it comes to startup success. More and more dental software companies are including analytics and ROI tracking in their products to demonstrate the value of their offering. Most dentists will tell you they are trying to eliminate costly subscriptions so creative value-based pricing models are beginning to replace the older monthly subscription pricing models.
   
   Several failed startups I interviewed said that they underpriced their product and in fact the “low perceived value” of their product caused their demise. Several also mentioned that the high integration costs passed through by the practice management systems was the root cause of their downfall.
   
   Dr. Jeremy Krell of Revere also said that high prices and rising inflation will become more of a factor in the upcoming years. While dentistry may have proven itself to be recession resistant, Krell warned that this may not apply in the same way to impact and aftermath of inflation.
   
   
6. Poor Product - Bad things happen when you ignore a target user’s wants and needs, whether done consciously or accidentally. Bad things also happen when you only listen to one customer's feedback which was the downfall of my original RecordLinc product, the first doctor to doctor referral product in the industry. With no competitors, we had nothing to compare to. We proceeded to build it around the feedback from one periodontist in Long Island. We ended up overbuilding it and made it too complex.
   
   The lesson learned from that incident is to build products that solve one big problem at a time and make sure they are integrated and easy to use. This experience gave me a deep understanding that the most important part of building a product is to get the product to market as quickly as possible and with the minimum viable features. Next, you then cautiously add more features as needed based on feedback from customers and advisors.
   
   
7. Needs or Lacks a Business Model - Failed founders agree that a solid business model and plan is important but sticking to a single channel or failing to find ways to make money at scale is also a root cause of many failed startups.
   
   As my dad said in my opening story, “Luck is what happens when preparation meets opportunity."
   
   Make sure you have a plan, and that you constantly revisit and adjust the plan. For most innovative entrepreneurs I coach, I suggest implementing the “Entrepreneur Operating System” outlined by Gino Wickman in the book “Traction.”
   
   
8. Poor Marketing - Knowing your target audience and knowing how to get their attention and convert them to leads and ultimately customers is one of the most important skills of a successful business.
   
   Dentists and practices are bombarded daily by marketing and sales teams. Getting through the gatekeeping is difficult.
   
   Dental legends Jim and Naomi Rhode grew SmartPractice to be one of the largest suppliers in the industry by implementing their “three pillar” approach of speaking at conferences, putting on small seminars and selling great products.
   
   Be strategic with your marketing. Become not only a product expert but also a content and industry expert and you will dominate your category. Get on stage and spread the word in a strategic way that builds trust.
   
   
9. Ignore Customers - Ignoring users is a tried-and-true way to fail. Tunnel vision and not gathering user feedback are fatal flaws for most startups. Many failed startups I spoke with said, “We spent way too much time building it for ourselves and not getting feedback from prospects.” It’s easy to get tunnel vision.
   
   I recommend not taking more than two or three months from the initial start to get the product in the hands of prospects that are truly objective. Another founder said, “We didn’t spend enough time talking with customers and were rolling out features that I thought were great, but we didn’t gather enough input from clients. We didn’t realize it until it was too late. It’s easy to get tricked into thinking your thing is cool. You must pay attention to your customers and adapt to their needs." 
   
   
10. Product Mistimed - If you release your product too early, users may write it off as not good enough and getting them back may be difficult if their first impression of you was negative. And if you release your product too late, you may have missed your window of opportunity in the market. Set proper expectations with customers and get them involved with the product roadmap early. There is a large group of dentists who would love to be a part of building the products they use.
    
    Jinesh Patel, founder of Uptime Health, has grown his product to be a category leader. Patel said, “Products being mistimed is a big factor for dental startups. When everyone is consumed with labor shortages and there is a general reluctance to move into the 21st century for many of these orgs, you will find it hard to introduce new technology without having something super special. Even with great tech or products, the market might not be ready for you. However, as the younger generations begin to take over and the PE funds begin to provide structure and are willing to spend on efficiency, we will see the market timing element go away. But right now, many new companies may be on the cusp of being too early for the market unless they can financially weather the length of time it may take to see a significant change in the mindset of buyers or market conditions.”

As we begin 2023, more and more dental software startups will enter the market as low code, no code and API hosting companies expand. If you have always dreamed of starting a dental software company, there is no better time than now to do it. 

Make sure you have great advisors, a well-rounded team, create a plan, raise more funding than you think you will need and put your own personal interests and ego aside. Make sure you have done enough research with enough people to help you build the right product. 

Best of luck and I will see you on stage.

Find Rodgers on LinkedIn or subscribe to his Dental Venture Capital newsletter.