Executive Cases: Interviews with Senior Executives of Early-Stage Companies:
ViiCare – China
Prepared by Ning Jia and George Foster
Founded in 2006, Vision in Healthcare (ViiCare) is a privately-held technology company focused on the development of information technology solutions as well as medical virtual reality technology for hospitals. The core technology team is composed of technology and medical experts from Tsinghua University and top-tier hospitals in China. Built upon the earliest microwave thermal ablation platform in China, the company has gradually expanded its product and service offerings to a thermal tumour ablation solution, a picture archive and communication system (PACS), an electronic medical record system (EMR) and a hospital information service bus system (HSB), among others.
Headquartered in Beijing, ViiCare currently has two branch offices in Hunan and Zhejiang province, respectively. The company has received financial support from the “Development Fund of the Ministry of Industry and Information Technology of the People’s Republic of China” and the “Innovation Fund of the Ministry of Science and Technology of the People’s Republic of China”, and has received the ISO9001/13485 quality certificate.
Qiao Zheng is a venture capital investor in ViiCare and general partner of Foresight Capital, with more than 10 years of experience in management consulting and venture capital investment in China. Qiao Zheng holds a BS in Civil Engineering and an MBA from Shanghai Jiaotong University.
Q1: What was the source of the initial idea, and how did that idea evolve into a viable growing company? How did it change over time?
Q2: What were the major growth accelerators for your company in the early years of high growth?
Lin Sheng: “Since the beginning, ViiCare has been a R&D oriented start-up company. We have predominantly focused on the development of cutting-edge medical technologies and, as a result, we didn’t invest much into marketing and sales, and were a bit slow in building up a competent sales force. In addition, because it usually takes a long time to obtain a medical equipment certificate in China, we did not generate significant revenues in the first several years. Since 2009, the Ministry of Health has significantly increased investment in the area of healthcare information technology. Because many of our products, including the 3D medical image systems, hospital information systems and hospital information service bus systems (HSB) were comparable to foreign brands in terms of quality and technical specifications, we were able to land contracts with many large hospitals in China, which contributed significantly to our revenue growth.”
Qiao Zheng: “ViiCare didn’t experience significant growth in the first several years because of the strategic choice to focus on R&D. The company gained significant growth momentum after 2009 when top management decided to invest significant resources into marketing and sales.”
Q3: What role did key aspects of the entrepreneurial ecosystem surrounding your company play in the growth of your company?
Lin Sheng: “The healthcare industry in China has much room for growth. Most hospitals in China are owned or controlled by the government, including central and local health authorities, state-owned enterprises and the military. In 2009, the Ministry of Finance initiated long-term health reform to achieve the objective for “everyone to have access to essential healthcare services”. Significant investments were made to develop the healthcare system in China, creating substantial market opportunities for ViiCare.
“Based in Beijing, ViiCare has access to top-tier academic institutions, including Tsinghua University, Peking University and the Chinese Academy of Sciences. These institutions are able to provide us with a large pool of IT talent. In addition, because of our close affiliation with Tsinghua University, we are able to benefit from its brand and a wider range of resources.”
Qiao Zheng: “Most of China’s educational and medical resources are concentrated in Beijing; therefore ViiCare is able to receive a lot of support from the local community, especially in areas of human resource, R&D, mentors and advisers. Also, because most VC firms are either based in Beijing or at least have a branch office there, it is relatively easy to access external investors for fundraising purposes.”
Q4: What key aspects of the entrepreneurial ecosystem surrounding your company that were absent (or existed only in a weak form) created the greatest challenges for growing your company? Please describe and discuss how you met/were impacted by these gaps in the ecosystem and their resultant challenges.
Lin Sheng: “One key aspect of the entrepreneurial ecosystem surrounding ViiCare that existed only in a weak form was social respect and support for entrepreneurial companies. Compared to Western countries, the Chinese culture generally is less tolerant of failures. In China, when you fail, sometimes you ‘lose face’ in front of your friends and others.
“Another obstacle we faced was a lack of access to capital. The healthcare sector in China is subject to high entry barriers, high risks, strict government regulation and underinvestment by government in basic infrastructure. As a result, start-up companies in the healthcare sector generally have a longer lead time to revenues and lower growth rates compared to, say, Internet companies. Consequently, venture capital firms that aim for quick exits and high returns are generally not interested in healthcare ventures.”
Qiao Zheng: “The lack of enforcement of favourable government policy is another major challenge. Although the government has put forth many favourable policies in an effort to reform the healthcare industry, many of these policies have not been enacted. Another challenge is the rising cost of living in China, especially in top-tier cities such as Beijing and Shanghai. As a result, labour costs at ViiCare have gone up significantly over the last few years.”
Q5: Large companies can play an important role in the scaling up of early-stage companies with high growth aspirations. These roles can include being customers, suppliers, marketing partners, joint venture partners, and so on.
(a) Describe the key areas where interaction with larger companies helped promote your growth path.
Lin Sheng: “We have established partnerships with large companies in the areas of marketing and sales. These partners, including Accenture, Digital China and Enjoyor, have helped us land large hospital contracts. In addition, some of our clients are large hospitals, including Shanghai Xinhua hospital and General Hospital of the Armed Police Forces.”
(b) Describe the challenges and potential problems that larger companies may have played in limiting the growth path of your company.
Lin Sheng: “It is not easy to establish partnerships with large companies. They would typically require a lengthy and intensive due diligence process before signing the MOU with us. Also, they would require a proven track record to ensure that we are a reliable partner. Moreover, large companies typical possess greater bargaining power. We have come across situations where potential partners ask us to share the source code and other intellectual property with them for free.”
Qiao Zheng: “The decision process at large companies sometimes is too long, and we may have already missed the market opportunity when consensus is finally reached.”
Q6: Your current revenue growth to date had been predominantly focused on your own domestic market. What are the major reasons for this major revenue focus to date on domestic markets?
Lin Sheng: “The domestic market in and of itself is big enough. We thrive to secure a strong foothold in the Chinese market before tapping into foreign countries. Since we are now providing healthcare solutions to hospitals, we need to stay close to our clients in order to ensure the quality of post-sales services.”
Q7: What would you view as the greatest challenges in growing a sizable revenue presence in markets beyond your own domestic country or region? In deciding when and where to seek growth in international markets, what characteristics of a country’s ecosystem would be most important in attracting you to invest significant resources in that non-domestic country or region?
Lin Sheng: “There are two major challenges in rolling out globalization strategies. First, foreign customers are generally unfamiliar with Chinese medical brands. Lack of strong faith in our technological capability is another issue. Second, our product and service offerings require a high-touch marketing and sales approach, as well as a strong post-sale maintenance team. Putting together a local workforce for our company is difficult. I would say that market readiness and accessibility is the most important factor in deciding whether to tap into that foreign country.”
Qiao Zheng: “The top management team of ViiCare lacks people with overseas educational and/or work experience who are familiar with foreign institutions and business environments and can lead the company’s foreign marketing and sales initiatives.”
Q8: Building a company that aims to have sustainable high growth inevitably will have both high moments and dark (low) moments. Briefly describe one high moment and one dark (low) moment in your entrepreneurial journey.
Lin Sheng: “A high moment was when we received venture capital funding from Foresight Capital. The injection of external capital allowed us to significantly scale up our marketing and sales efforts. Foresight Capital also helped us land several major contracts.
“A low moment was when four members of the founding team decided to leave after the company had gone through several rough patches in the early days. The founding team was composed of six medical and technology experts from Tsinghua University and the General Hospital of the Chinese People’s Liberation Army. ViiCare went through multiple rounds of trials and errors in the early days. For example, the R&D team made several mistakes on the choice of technical pathway for the computer-aided surgical navigation systems. As a result, initial products failed to meet client requirements. Four members of the core team subsequently left the company and their departure had a significant adverse impact on employees’ faith in the company.”