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To Learn a New Market, Start by Building Your Product — Tactics From a Twitter PM Turned Healthcare Founder

Color co-founder and CEO Othman Laraki built a billion-dollar company in an industry he had zero professional experience in. Here, he shares four product-building tactics that helped him learn the healthcare industry.

Watch for these failure modes of building as an outsider

Building in a new industry demands balancing both first principles thinking and acknowledgment that you’re probably not the first person to tackle this problem. “When you enter a new space, it's important to be willing to question the status quo, but also have a lot of humility,” says Laraki.

Clinging to initial assumptions.

Don’t let your early wins — like fundraising or recruiting a stellar early hire — give you false confidence about your assumptions in this new industry. Hold them loosely as you learn the nuances of how this space operates. “If you’re able to raise funding and hire an early team, that means you’re somewhat convincing,” says Laraki. “Your team and investors will demand a plausible plan for how you’re going to pull off something great.”

Many "good" plans fail. You need to be willing and able to assess and adjust.

Color went through a number of adjustments, which was only possible because Laraki didn’t whiteknuckle what he believed to be correct. “It took many years and pivots to hone in on what worked. At every step, some people might feel that change is a failure, but in my experience, that’s often the wrong reflex,” he says.

The company’s first product was an affordable, direct-to-consumer genetic test. But growth was inhibited by several factors: CAC was too high, LTV was too low and the incentive structure was fractured. Customers wanted the best testing option, but it wasn’t integrated into clinical workflows or reimbursed by insurance.

The team pivoted to selling medical-grade tests to physicians. Doctors loved the product, but billing through insurance introduced a new kind of friction. “Even though we were cheaper, we were still spending hundreds of dollars just to collect,” says Laraki. “It cost us more than any margin we could make, so we needed to figure out a more efficient way to be able to access users and customers.”

That prompted another shift to offering the tests as a benefit through employer health plans — an idea Laraki had when a Stripe founder used the test and asked to roll it out to his employees. While the enterprise business model was effective, it was still too narrow. “Big companies don’t want to be in the business of buying individual tests. At that level, if you’re someone managing a population, you’re thinking more holistically,” he says.

Thinking you’re the smartest person in the room.

“Oftentimes, myself included, people assume the reason something hasn't been solved is that everyone before them has been stupid, and they’re the first smart person to show up,” says Laraki.

So be humble throughout this process. You should assume that the field you’re entering is filled with incredibly smart, diligent people. “You're going to be naive at the beginning, and that naivete is excused if you show up with humility. It's very heavily punished if you show up with arrogance,” says Laraki.

Falling for false positives.

With the early ammunition of fundraising, it’s easy to lean on a warm network for product leads. But Laraki says to be careful not to mistake influence for traction. Startups can score customers this way without doing the legwork of cracking the go-to-market code in their industry.

“Are people really buying the product because it wins on the incentive side, or did you win out of influence?” says Laraki. “I see a lot of companies get a few early wins that came from either luck of influence and assume they have product-market fit. That happened to us, too. We got some early wins because of influence and realized it wouldn’t generalize or scale up.”

Don’t mistake false positives for product-market fit.

Start by untangling the flow of money and decision-making

Charlie Munger famously said, “Show me the incentive and I'll show you the outcome.” Most technical folks underestimate the “why” behind the status quo, assuming incompetence is at play — and not deeply rational decisions made under constraints.

Laraki thought more like an anthropologist than a technologist by learning the decisions and sequence to complete a transaction in the healthcare industry. He says the best way to do this is by setting up exploratory conversations with industry leaders you might sell to, like a claims adjuster in insurance or a procurement manager in construction, for example.

“One of the mistakes I see founders make is not talking to people enough,” says Laraki. “I meet a lot of healthcare companies where you can tell, even though they’ve been in the industry for a while, they’re still naive about the marketplace. They don’t understand their buyers in a deep way.”

Finding these people is a numbers game. On a daily basis, Laraki recommends poring over news stories, LinkedIn posts, research papers — any industry chatter you can find. And when you notice people doing interesting work that’s relevant to your problem, reach out to them thoughtfully and try to have a conversation.

One of your main goals in these conversations is to map out how a transaction would move through all the “pots of money and incentives,” as Laraki puts it. For example, he looked at:

An enterprise market is like a mosaic — from afar it looks like one cohesive image, but step closer, and you’ll see a constellation of smaller pictures. Laraki says that most founders get caught up on the buyer and assume there’s just one. “As consumers, we think about one buyer and one seller,” he says.

The most impactful learning will come from going into excruciating detail of how a purchase actually happens. “Who influences, who decides, who sets the price, who sets the terms, how the transaction actually occurs and how you get paid — this is what you have to untangle,” he says.

By unpacking these factors, Laraki learned that the reality of the healthcare industry was far more complex than what most people see on the surface. “The thing that makes healthcare difficult is that the beneficiary of your services are regular consumer humans. The economic buyer is either the health plan or a self-insured plan by big employers or the government. And then there’s the clinician,” he says.

Assemble a roster of experts — on your advisory board and your team — to help shape your product

It’s never too early to find creative ways to recruit experts, either as advisors, partners or teammates. A quality over quantity approach led Laraki to reach out to unsexy experts. “We found that ‘celebrity’ experts weren’t the best or most missionary. The most famous people get solicited constantly, so they might have less time for you,” he says.

To increase the success rate of cold outreach, Laraki found it helpful to lean into the company’s mission and his own personal connection with the problem he was solving.

“The best way to draw boundaries around an MVP is with your buyers so they can provide a sense of what they would be comfortable with as a baseline.”

Study the incumbents to find your wedge (and strategy)

You’ve already identified your product differentiators when it comes to tracing a transaction. Now it’s time to see how those stack against existing players in the market by talking to more industry players about the products they currently use.

Color’s initial wedge was pricing. Incumbents were charging north of $4,000 for genetic testing, and Laraki’s and Gil’s original thesis was that they could unlock a bigger market by charging dramatically less.

But new technology alone isn’t a viable business model. You’ll have to unpack why your approach hasn’t worked in the past for existing incumbents. Laraki says he made the mistake of assuming standard supply-and-demand laws applied to the buyers they were originally after: insurers and doctors.

This meant that even if Color offered a low price, insurers still wanted to keep restrictions on whole categories to contain costs. “We realized we were in a catch-22, where insurers introduced tons of friction to stop expensive tests from being used too frequently. Because of that expectation and friction, test vendors needed to spend a lot of money just to get paid. That, in turn, caused the cost of sales and collections to be a far bigger driver of high prices than the underlying cost of testing,” he says.