A Playbook For Profitable Growth

Hi friends,

Companies are shaped by their market.

The fundamentals of a market define the strategies that work - and how customers and competitors respond. They’re the winds in which we sail.

To build a successful mental health business, you need to understand those fundamentals deeply - and be able to translate them into your strategy.

But that’s where I see a lot of players going wrong.

That might sound a little business school-y (which I hate), so let’s make it tangible.

What are the fundamental attributes of the mental health therapy market?

1. The product is labour

2. The product is commoditised

3. There are no network effects

These fundamentals create some important constraints on the growth and profitability of mental health businesses.

1. Gross Margins are Restricted: Because the product is a therapist’s time, there’s a hard floor on costs. And because it’s commoditised, there’s a hard ceiling on prices. That leaves little room to move - gross margins across the industry tend to land between 30% and 50%

2. There are no economies of scale: I’ve made this point before, but it’s worth repeating: unit costs don’t decline as you grow (see above re Therapists’ time). There are no economies of scale. Bigger companies don’t have better margins - in fact, margins often shrink. Talkspace’s dropped from over 50% in 2023 to 44.2% by Q4 2024.

Many mental health businesses struggle to turn a profit because they ignore the fundamental attributes of this market.

The root cause? We keep borrowing playbooks from other industries - especially consumer tech and SaaS - where the dynamics are completely different. Those markets have attributes like network effects, economies of scale, and high switching costs.

Applying those tactics in mental health is like eating soup with a fork. Or, to bring back the sailing metaphors that I seem to love in these reports… navigating with someone else’s map.

So what do we do?

Are we doomed to run unprofitable businesses, scraping out incremental growth each year? Are we destined to never live up to the valuations that we (and our investors) desire?

Hell no!

We can build businesses in this space that are both commercially viable and clinically impactful. I truly believe that.

But it’s going to take a different approach. One aligned to the fundamentals of this market - plus a few smart ideas borrowed from elsewhere.

In today’s THR Pro report, I share what this playbook looks like - and how mental health businesses can use it to grow faster and operate more profitably.

Let’s get into it…

This article is for THR Pro members only