David vs Goliath, Part I: Why Epic will likely win the Hospital SaaS space

Introduction

Don’t you hate it when investors ask, “What happens if [insert your favorite large trillion dollar company] decides to do what your startup does?”

This question, along with “What’s your exit strategy?”, is among the most difficult—and frankly, annoying—ones for any entrepreneur to hear.

Most of the time though, there’s no right or wrong answer. In fact, we wager that most investors don’t know the answer either!

Regardless, it’s still useful to take the question at face value and understand where potential concerns may lie. Especially in this era of AI, where this transformative technology is just as accessible to incumbents as it is to startups, it behooves entrepreneurs and investors to tread carefully before committing time and money to competing with large competitors.

Take Epic, the EHR juggernaut for example. At their recent annual meeting, they announced at least 100 different projects involving AI. When a giant like Epic enters the space with this kind of momentum, it’s not just about whether they can do what you do—it’s about how they can potentially do it better, faster, and at a larger scale.

No matter if you’re an investor or founder, if you want to avoid a potential bloodbath in spaces where large incumbents like Epics are present, it’s wise to think about why incumbents have an advantage, and where they are most likely to succeed in the AI era.

[We promise we aren’t sponsored by Epic!]

Data and Competitive Moat

Data is seen as a critical differentiator in AI. Consider Epic’s Cosmos research database, which encompasses 270 million patient records from over 13 billion encounters, representing patients in all 50 states.

It’s hard to imagine any startup having proprietary access to so much data. Just consider the huge leg up Epic has across these various projects that you might have heard a startup tackling, and how they might state their competitive edge in one sentence, startup-style:

• Auto-Adverse Drug Reaction Tagging: Epic can identify potential drug reactions more accurately due to its vast, diverse dataset, reducing patient risk at scale.

• Patient-Friendly Report Summary: Epic’s extensive data allows it to tailor medical report summaries that are both accurate and easily understandable for patients across different demographics.

• Hospital Billing Coding Assistant: Leveraging comprehensive billing data, Epic's AI can streamline coding processes, reducing errors and speeding up reimbursement for healthcare providers.

• Best Care Choices for My Patient: With access to millions of patient records, Epic’s AI can suggest the most effective care plans based on a broad spectrum of real-world outcomes.

Look at all the different startups working on similar projects. As an investor, are you more likely to believe Epic’s claim to success, or a startup’s goal (whether intentional or not) of beating Epic at their own game?

Distribution Edge is No Longer Exclusive to Startups

Epic is the market leader in Electronic Health Records (EHR) with ~40% (and growing!) of hospitals using Epic, and large healthcare systems trust Epic for its reliability and massive scale. As we’ve noted elsewhere, “nobody ever got fired for buying Epic”

But what about the small and medium hospitals or individual clinics that normally found Epic to be too cumbersome and expensive?

Historically, startups have avoided direct competition with large incumbents by targeting SMBs, offering more accessible and flexible solutions. This strategy allowed them to grow without directly confronting larger players who were focused on enterprise clients. For example, Salesforce and Shopify became leaders in their industries by initially focusing on SMBs before expanding to larger enterprises.

With the widespread adoption of SaaS and cloud-based tools over the last 10-20 years, large incumbents like Epic now have the same distribution capabilities that once gave startups an edge. This means that Epic can now effectively penetrate the SMB market, leveraging their established brand and resources, making it harder for startups to compete.

Epic’s "Garden Plot" initiative exemplifies how incumbents are now using these tools to enter the SMB market, offering smaller practices an opportunity to align with a proven, scalable solution. This shift means that startups must innovate not just in product but also in go-to-market strategies to stay competitive.

Not only that, we expect with consolidation and rollups happening across healthcare, small and medium provider groups will be even more motivated to adopt Epic EHR to avoid any IT integration issues that can delay an acquisition down the road.

Conclusion:

Combining the data moat and distribution edge, it’s likely we’ll witness an adoption curve for Epic’s AI initiatives similar to what we saw with Microsoft’s dominance over Slack. When a company like Epic, with its vast resources and established market presence, commits to AI, it has the ability to outpace smaller competitors quickly.

However, this doesn’t mean the race is over for hospital SaaS startups. Entrepreneurs in this space need to take a hard look at what sets Epic apart—whether it’s their extensive data access, their ability to scale, or their deep integration with existing healthcare systems. The challenge, then, is to identify where your startup can carve out a niche that Epic either overlooks or can’t easily replicate.

Whether it’s by offering hyper-specialized solutions, innovating on user experience, or creating technology that operates in areas where Epic doesn’t currently focus, there’s still room to maneuver. The key is to understand the strengths and limitations of both your company and Epic, and to strategize accordingly.

In the end, success may not come from directly competing with Epic, but rather from finding ways to complement or differentiate from their offerings in meaningful ways, which we’ll explore in the next article.

What is a startup to do in a David vs Goliath situation? Tune in next week as we explore ways companies can still create success in a space overrun by large incumbent.

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