In an uncertain economy, companies look for any advantage they can get. These days, they are increasingly adopting corporate wellness programs as a way to keep their employees and their bottom line healthy and productive.
The strategy makes good sense given that, on average, employers can lower their health care costs by $3.27 for every dollar they spend on wellness programs, according to a 2010 Harvard University study published in “Health Affairs.”
Historically, the corporate wellness market was overlooked by venture-backed startups in favor of sexier, consumer-oriented fitness plays. But now that global think tank Rand Health has pegged the overall size of the U.S. workplace wellness market somewhere between $2.7 billion and $8.2 billion annually, venture capitalists and startups are giving it a much closer look.
Take, for example, Keas. At first, the highly touted startup founded by former Google Health chief Adam Bosworth thought the real action was in the consumer space. Originally, the company wanted to become an online health exchange where individuals could pick care plans tailored to their specific health goals.
It was a noble idea, but Keas soon discovered that consumers weren’t willing to pay for the service. Surprisingly, though, the startup kept getting inquiries from large corporations.
“It took people ringing our doorbell and asking us if they could use Keas in their companies for us to realize that this was a good market for us,” says Jeff Fagnan, a partner at Atlas Venture and an early investor in Keas.
Keas then did a quick pivot and made corporate wellness its primary target.
“It was never obvious that consumers were willing to pay for wellness, but employers are sure willing to pay for it,” Fagnan says. “Businesses care a lot about employee wellness in terms of retention levels and just having healthier, happier people.”
That translates to a more productive workforce, which in turn can lead to greatly reduced health care exposure costs.
Keas, which has raised about $17.5 million to date, is part of a new wave of next-generation corporate wellness systems that leverage social media and game mechanics to get employees excited and energized about their health. Customers, including the likes of Pfizer, The Cheesecake Factory and Lincoln Financial Group, pay about $10 to $15 per employee per month to use the system.
“It was never obvious that consumers were willing to pay for wellness, but employers are sure willing to pay for it. Businesses care a lot about employee wellness in terms of retention levels and just having healthier, happier people.”
Employees form into teams and earn points by making progress on their health goals and completing quests, such as eating better, working out more, or competing in a company-sponsored 5K walk/run. Participants can track both their personal and team progress, and unlock new challenges on their way to getting healthy. Winning teams are often rewarded with cash and prizes determined by their employers.
Unlike old-school corporate wellness programs that traditionally topped out at about 30% participation, Keas and other social-media inspired wellness programs like Limeade, RedBrick and ShapeUp say they are getting about 70% engagement, with participation rising even higher as word spreads throughout the company about the fun and addictive nature of the programs.
“It really is like Farmville meets Facebook, but with a wellness twist,” Fagnan says.
One interesting aspect of the corporate wellness space is that it is attracting an eclectic mix of entrepreneurs and investors, some from a health care background and others with a more traditional IT resume.
Steven J. Hamerslag, manager partner at TVC Capital, is not a health care specialist, but he says he knows a big opportunity when he sees one. That’s why he recently led a $5 million Series B investment in Limeade, one of the emerging companies in the corporate wellness space.
“We weren’t looking at the wellness space, per se,” he says. “Instead, we were looking for entrepreneurial leaders who have a unique way to get at large, fast-growing markets. What intrigued us about this market was its size.”
Hamerslag notes that almost every large employer either has or will have a wellness program. He says traditional programs have not been very effective. That’s why he sees great potential in the new wave of corporate offerings.
“The return on investment on these wellness programs, if there is high level of engagement, is very significant,” he says.
After conducting his due diligence on Limeade, Hamerslag discovered the company didn’t have happy customers—it had raving fans. At Jamba Juice, for instance, he spoke with one employee who previously weighed 300 pounds. Then the employee immersed himself into the Limeade game platform and became instantly addicted. He started taking the stairs everyday and modifying his diet just to earn more points. By the end of the year, he was down to 180 pounds.
“That really told us that Limeade was a powerful and effective platform that delivers real ROI,” says Hamerslag.
Lisa Suennen, co-founder and managing member of the Psilos Group is an active venture investor in the health care space, but she is a little more skeptical about the number of startups now targeting the corporate wellness space. She has seen a lot of startups rushing into the market because it seems like a great opportunity, but they are coming from outside health care. She believes that it will be very difficult for most of these companies to succeed without a deep understanding of the health care market.
“It’s a funny time because I’m seeing more and more of these digital health tools around weight management or fitness or smoking cessation, and they’re all trying wrap it around an iPhone and saying this is the new new thing. But that’s not enough,” she says
The real key is developing a program that really works and having the supporting data to show that it can actually lower health care costs for an organization.
“The fact that it’s on an iPhone is nice, but is has to show results for us to back it,” Suennen says. “Most of these startups have a tough time demonstrating that they actually produce cost savings.”
“I’m seeing more and more of these digital health tools around weight management or fitness or smoking cessation. … The fact that it’s on an iPhone is nice, but is has to show results for us to back it.”
Co-founder and Managing Member
Push Wellness, a two-year-old corporate wellness startup, understands that ROI data is the key to landing corporate customers and securing venture capital.
“It’s a very crowded market, with thousands of wellness providers, so data is the thing that’s going to set you apart,” says Push Wellness co-founder Charlie Zei.
His company is focused on improving health outcomes for corporate employees by offering them monthly cash incentives totaling about $600 per year.
“Most models are looking to drive participation, not progress” he says. “We feel it’s more effective to continually reward employees as they make incremental improvements toward their health goals, whether it’s getting their body mass index down or becoming a non-smoker.”
Another challenge for wellness startups is selling into the enterprise market. “It’s a very long sales cycle. You’ve got to know your health benefits stuff inside and out, and you really have to get it,” adds Suennen. “I’ve sold into this market before and it’s not for the faint of heart.”
Barbara Lubash, a managing director at Versant Ventures, agrees. But that didn’t stop her from investing in RedBrick Health, a next-generation corporate wellness platform that raised $15 million in its latest round two years ago. In fact, one of the things that sold her on RedBrick is that the founding team came from Definity Health, and deep expertise in the health care space and the corporate market.
“It takes a lot of time to develop relationships, so having experience in that market is a critical advantage” she says, referencing the many hoops startups have to jump through when selling into the corporate market. RedBrick has been able to successfully leverage those relationships and grow the business about 50% annually, Lubash says.
Another big selling point for her was that RedBrick, unlike many of the other corporate wellness tools on the market, isn’t a single point solution. She notes that enterprise customers hate buying one-off products. They would rather have a platform that can integrate a variety of wellness programs and tools, rather than just one niche offering.
“We think one of our long-term advantages is that we can be a platform for other compelling wellness apps that don’t have distribution into the enterprise,” Lubash says. “We are very open to integrating third-party apps such as Fitbit into our platform and providing the very best consumer experience.”
Perhaps the most attractive aspect of the corporate wellness market is the range of potential exit opportunities. Insurance companies like UnitedHealthcare and Aetna are already starting to sniff around because they see the upside of providing fully integrated programs for their corporate clients. Even large medical devices and pharmaceutical companies are possible acquirers because a wellness program can add value to what they already sell. Additionally, the large human capital management companies like ADP could prove to be a logical fit.
“You can make some healthy money in the corporate wellness market if you do it right,” Suennen says.
Tom Stein is a Palo Alto, Calif.-based contributor. He can be reached at email@example.com.