BACK TO BASICS: Conducting a Joint Software Development Effort

A Commentary for Health Care Technology Developers, Entrepreneurs, Provider, and Payer Organizations

Erin Nardone, MHA

I recently had an opportunity to intermediate discussions with a client who was seeking a technology partner to further develop and distribute its proprietary care management software application. As a relative newcomer to the world of business development, I was initially overwhelmed at the prospect of drafting and critiquing the terms of such an arrangement. But as I immersed myself in the process, I found that a mutually successful business venture requires little more than an approach based on logic and reason. The following is a personal reflection on this experience, and an attempt to share my lessons learned with health care technology developers, entrepreneurs, providers, and payers as they contemplate entering into a business partnership.

Deciding to Commercialize
The first decision to be made prior to finding a technology or business partner sounds simple -- should you attempt a commercial venture? Opportunity abounds in this quickly evolving marketplace, all the more reason to investigate carefully before entering into a joint development partnership. Assess the costs and benefits of commercialization to ensure it is worth your while. Beyond the potential financial incentives, you must consider implications of risking a joint venture in terms of your reputation, technical capabilities, and future technology expenditures.

In my recent experience, a non-profit health care organization operating under a fully capitated revenue structure had invested several years, not to mention several million dollars of cash and grant funding to develop a custom assessment tool for their unique patient population. They determined it would be too costly to continue developing their application internally and keep its core technology aligned with current standards. To do so would deviate significantly from their core business competency -- they are in the business of caring for patients, not developing technology. As such, the decision was made to begin searching for a technology partner who would enhance the flexibility and functionality of their existing system.

Develop Guiding Principles
You have invested valuable resources - time, human, and financial - into developing a custom software application, and have reached a moment of truth. It's time to begin seeking some return on your investment. Once you have made the decision to look for a technology or business partner, you must ask yourself what it is you wish to achieve from such a relationship. Perhaps the application is becoming too expensive to support and you want to limit your future expenditures on continuing development. Maybe you just want to recover your investment and sell your product as-is. Perhaps you have perceived a need for your application beyond its originally intended use, and require a vehicle to access other markets.

The engagement noted above exemplified the simplicity -- and importance -- of establishing and adhering to basic guiding principles before entering into negotiations with a potential business partner. Our client set forth the following four objectives:

• Decrease future expenditures on information technology
• Recover their incurred investment in the application
• Increase their IT capabilities
• Meet their responsibility to enhance "public good"

As we discussed the terms of their arrangement with the potential technology partner, we found ourselves constantly going back to these four principles and asking ourselves if they were being upheld. Whatever your reasons are for seeking a joint development relationship, document them; these principles will serve as the cornerstone for all future discussions with regard to your business deal.

Evaluate the Competitive Landscape
Before you initiate discussions of any kind with a potential technology partner, it is important to assess your position among your competitors. Familiarize yourself with the playing field by comparing the features and functions of your product with those of primary, secondary, and tertiary competitors. Some key questions to ask and answer include:

• What is your competitive advantage?
• How will you price your application?
• What are the unique capabilities of your application?
• What are the core technologies used to create and access your application?
• Will you provide any value-added services beyond the application itself?

There is no need to become an expert on each competitor's application -- just learn enough to let you know where you stand, and how your program can be modified to elevate your position in the mix.

Assess the Value of your Product
Another factor to consider when preparing to initiate discussions with a technology partner is the condition of the market(s) and market segment(s) that may potentially be buyers of your product. Become familiar with their revenue models, technology purchasing cycles and historical technology expenditures. What is your application worth to them? What are they willing to pay? Keep in mind that what works for your organization may not have commercial value in other markets. The bottom line is that your product must offer more than just incremental value over existing solutions to make an investment worthwhile.

Get to Know your Partner
Nothing good ever comes of rushing into a relationship of any kind - particularly a joint business venture! As you begin entertaining alternative technology and business partners, you must do your homework. It is particularly important to assess the corporate culture of potential partners, as well as their track record with deals similar to yours. Checking references and performing due diligence may reveal any disparities in the values they articulate versus those they execute. Make your intentions clear to potential partners so that there is no misunderstanding about your position as you enter into an agreement.

Assess your Risk Tolerance
All joint development efforts involve some degree of risk; it simply comes with the territory. It is always important to know what is on the line so your organizational and financial integrity remains intact. The key is knowing where to draw that line. Your perception of risk may be vastly different than that of your partner. While it is not necessary for these perceptions to be identical, it is essential for each party to acknowledge and appreciate the other's risk tolerance, and to mitigate your risks accordingly.

Don't Lose Sight of your Principles
When it finally gets down to negotiating the terms of a joint development agreement, it is easy to get lost in the details. As you find yourself consulting the calculator and engaging in a "give and take" dialogue, take a breath and run a quick reality check. Are your core principles, criteria, and objectives being upheld? Bring to mind the reasons why you are entering into this relationship at all, then apply those principles to the discussion at hand. If your principles are being compromised beyond your risk tolerance, it isn't worth the time, energy, or distraction from your core business to continue negotiating the particulars.

The lesson of this exercise for me personally was the important reminder that when in doubt, go back to the basics. Following this sensible approach to a joint development effort will not only result in a successful business venture; you will be confident in your decision and in your selection of a development partner.

 

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