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The Visionary Leadership of Judy Faulkner
How the Self-Made Billionaire Built Epic into a Healthcare Software Powerhouse
Justin Gordon
May 07, 2023
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Judy Faulkner
Judy Faulkner keeps a low profile online.
There aren’t many interviews with her.
She’s not active on social media.
And yet, she is the second richest self-made woman in America, and her company, Epic, creates the software used by hospitals to store the medical records of 78% of patients in the U.S.
All without raising venture capital or private equity.
All from Epic’s headquarters in Verona, Wisconsin, a city of less than 15,000 people.
I grew up in Wisconsin and hadn’t heard of Judy until this year.
Once I did, I absolutely had to write about her.
Let’s get to it.
Early Days
Judy grew up in New Jersey and, like many of the founders I’ve featured in this newsletter, her parents had a big impact on her future career.
Her father was a pharmacist and her mother was the director of Oregon Physicians for Social Responsibility.
And, from a young age, ever since her math teacher in seventh grade put riddles on the blackboard, she’s liked math.
So much so that she majored in math at Dickinson College in Carlisle, Pennsylvania.
After receiving her bachelor’s degree, she would go on to get a master’s degree in computer science from the University of Wisconsin-Madison.
But getting a computer science degree wasn’t always her plan.
Prior to starting her doctorate in 1965, she actually was looking to get another math degree but was convinced to join the computer science program instead.
At the time, this program was just getting started.
While in Madison, she was able to meet two people who would be instrumental in the early stages of her career.
First, was her professor, Warner Slack. He taught one of the earliest courses on computers in medicine.
Second, was John Greist, who at the time was the chief resident in medicine at the University of Wisconsin, and who Judy met through Warner.
After graduating, Judy worked for a physicians group at the University of Wisconsin on a database to track patient information. She wrote the code for the database using a computer language called MUMPS. This would be the genesis for the company she would reluctantly start.
Starting Epic
It’s 1979, the database Judy started working on a few years earlier is well-received by customers and it spreads by word of mouth.
Colleagues of Judy’s have been encouraging her to start a company for years and finally, she gives in, starting a company called Human Services Computing, which would eventually be renamed Epic Systems and later shortened to Epic.
Now, I’m no math wiz like Judy, but I can run the numbers and tell you that she was 35 years old when she started what would become Epic Systems.
This goes against the narrative we often hear of successful founders being in their early 20s. I just want to highlight that point and also put one more idea in your mind, the idea of patience, of playing the long game.
More on that soon.
So, Judy starts her company, at the time raising a few thousand dollars from friends and family, valuing the company at $70,000, and Judy chose to never go on to raise venture capital or private equity, though she certainly had the opportunity to do so.
She started Epic with John Greist, who I mentioned earlier, and a few collaborators, working from a basement in Madison when they could.
While other people were contributing, it was clearly Judy’s company, she was running the show, and she wrote all the original code on a computer the size of a refrigerator.
Very early on, there were only 1 ½ employees as Judy describes:
I was the CEO and I was half-time (Although I worked a lot more than that), and I had a morning assistant and an afternoon assistant.
The company grew slowly each year, and, in 1983, after a disagreement on the company’s direction with Greist, he steps down from Epic’s board.
Here was why:
Part of my difficulty with her was me saying, ‘Gosh, why don’t we get some venture capital and we can build it faster?’ And she said, ‘No, we’re not going to do that. Because we’ll lose control.’ And certainly that’s been her policy. And she has lived it out and proven it. I was wrong. She was right.
This brings to mind the classic “rich vs. king” idea from Founder’s Dilemmas:
Judy wanted control and, by playing the long game, she’d end up being the exception, getting control and becoming fabulously wealthy along the way.
But a lot of work went into that.
Steady Growth
Early on, Judy got contracts mostly with state and local governments as well as the UW psychology department, spreading by word of mouth.
What their software was doing back then was mostly data analysis.
By 1983, their software expands to include scheduling patients, and the company is renamed Epic Systems Corp.
At this time, 4 years in, there are nine employees at Epic.
Two years later, in 1985, they reach the $1 million revenue mark.
Year after year, Judy keeps improving the software, expanding Epic’s capabilities, and growing their customer base.
In 1989 they land the Harvard Community Health Plan, winning the account over much larger vendors.
By 1990, more than a decade after starting Epic, the company was doing $1.7 million in revenue and had 29 employees.
And the 1990s were an important period in their growth.
In the early 90s, they focused on large physician practices, and by the late 90s they expanded into hospitals, where there was more competition, but also more opportunity for growth.
This proved a smart move.
They did $50 million in sales in 2000 and were in position for their biggest win to date in 2003.
Kaiser Permanente
After doing $50 million in sales in 2000, they’d more than triple that number by 2003, doing $162 million in sales and landing their biggest customer - Kaiser Permanente.
Here’s how it went down.
Kaiser Permanente, the nation's largest non-governmental healthcare provider, was preparing to do massive digitization of its hospitals, replacing its old IBM system.
The cost?
A staggering $4 billion.
The potential revenue for whoever won the contract?
$400 million.
Epic was on the shortlist to win the deal, along with Cerner, their competitor which did 3x the revenue of Epic.
But Epic stood out in the process:
A team of doctors, nurses and information technology specialists fanned out across the country to visit doctors and hospitals that used Epic and Cerner. Only one small Epic hospital in Waco, Texas was on the itinerary. Cerner minders selected who the Kaiser team could talk to, while Epic didn’t interfere. When the team tried to break away from the scripted presentation, Mattison and his colleagues heard less than flattering comments about Cerner--Mattison calls them “suits”, while customers praised Epic. “For me that was major, to be free to talk,” says Mattison. “They treated you like a colleague, not a customer,” says Jack Cochran, who heads the Permanente Federation, which represents Kaiser’s physicians. “They don’t sell you.”
And why else did they win?
Safety and reliability:
[Epic] brought that safety factor that if you chose them, they were actually going to deliver on implementation and they were going to do it on time. That’s huge.
But, because of the size of the deal, how impactful it would be for Epic, and Epic’s inexperience with a project of this size, Kaiser’s chief information officer at the time, Clifford Dodd, asked Epic to give up equity to Kaiser.
Judy’s answer was simple:
No.
She wouldn’t even consider negotiating, knowing that she never wanted to take on outside investors.
Such a bold move and I love it!
Know what you want and stick to it.
With the Kaiser Permanente deal in hand, Judy and Epic would continue to grow year after year.
An important piece of that growth?
Their headquarters itself in Verona, Wisconsin.
The Value of the Epic Campus
Epic is a tech company.
Most of the big tech companies are located on the coasts.
Epic is located in a small town in Wisconsin.
How do they compete for talent?
Their campus is an important piece of it.
It’s located on 1,100 acres in Verona, just outside of Madison, with 28 office buildings.
But these aren’t just any buildings.
The Epic campus has repeatedly been described as a sort of adult Disney World.
There is an Alice in Wonderland-themed building, a Wizard of Oz-themed building, a Harry Potter-themed building, and on and on.
Each building is 3 or fewer stories high, encouraging employees to take the stairs and interact with colleagues.
Teams are put together to encourage a sense of community, not being more than a few hundred people each.
At Epic’s annual customer meeting, Judy dresses up in different costumes, infusing a bit of fun into their business.
All of this contributes to Epic’s ability to recruit, an important aspect of growing the company given that ¾ of their employees come from out of the state of Wisconsin.
It also helps them innovate and be creative, as Judy mentions:
How do we expect people to develop software that’s going to be beautiful for our users if we keep people in a boring, sterile environment?
What also helps Epic innovate?
Requiring developers to go on about five immersion trips, visiting different departments and thinking of how they could make the lives of doctors and patients better through software.
And, because of that innovation over the years, Judy has positioned Epic to be selective about who they work with.
Selecting Customers
By 2012, Epic had about 260 customers and they turn down business from small hospitals, focusing their resources on larger organizations.
It’s easy to see why, given that the value of the larger hospital systems is in the hundreds of millions of dollars.
But they wouldn’t be able to do this without first establishing themselves as the best in the industry.
It’s also important to remember that they’ve done this over decades of creating software for customers and building relationships along the way.
This has allowed Epic to spend very little on marketing and sales as well, something Judy was told wouldn’t work well anyways:
When I was going around at the University of Wisconsin Health System, and working side by side with the doctors they would say to me, and I remember their words, it was, “Judy, when you start a company, don’t advertise because we don’t believe it.”
And, much like Sara Blakely and Spanx, Epic still doesn’t spend much on sales and advertising.
In fact, in an interview Judy did in late 2020, she mentioned that they only had 7 salespeople worldwide.
And that’s for a company that did $3.3 billion in revenue in 2020!
Because they’re the best, customers come to them.
Epic, who works with the best clients in healthcare, is essentially viewed as a status symbol in the industry.
In that regard, they remind me a lot of Apple.
Their closed system also reflects Apple’s, and here’s why they have kept it that way:
Let’s talk about safety. Cars are not a mishmash of pieces from different manufacturers. For the safety of the passengers, the manufacturer has figured out that you can’t put random components together because if you do, you won’t produce a safe vehicle. It’s the same situation in our industry. Healthcare organizations don’t ask us to interface to every type of module because they understand that it could cause safety problems.
But, even as Epic has succeeded tremendously, Judy still lives modestly, as mentioned in a 2016 article after she signed the giving pledge:
Faulkner declined a request to talk about her pledge. But in her letter, she said she never had any personal desire to live lavishly. She is among the billionaires who are indifferent to the lifestyle that great wealth can buy. There is no apartment in New York or Paris. There is no ranch in Aspen. There are no private or even corporate jets.
She drives a 5-year old Audi wagon and has had two cars in the past 15 years. And she and her husband, Gordon, a pediatrician, have lived in the same house in a Madison subdivision for almost three decades.
And I think this modest living comes from Judy’s relentless focus on one thing:
Creating a company that makes people’s lives better.
Through more recent innovations, they’re doing just that.
Cosmos
Epic has created a number of impactful products over the years, but there is one, in particular, I want to highlight: Cosmos.
Cosmos, launched in 2019, is described on its website as, “A universe of data that drives evidence-based research and individualized patient care.“
Here’s how it started:
Cosmos came about because we saw we had all that data and we want to take the information and utilize it to help make the right decision and help do research given that wealth of data is there.
Why is Cosmos a big deal?
Here’s a bit more from their website to explain it:
The Cosmos data set is unlike any other used in health research today. Cosmos combines billions of clinical data points in a way that forms a high quality, representative, and integrated data set that can be used to change the health and lives of people everywhere.
Today, Cosmos has more than 184 million patient records in its database, making it the largest integrated database of clinical information in the U.S.
It’s the data source for a number of studies as well and the potential benefits of it in the future are huge:
What Cosmos is going to be able to do, and we're writing in the code for that now, is not only study Cosmos for EHRN…but to have the physician with the patient next to him or her be able to get from Cosmos — we call it best care for your patient — what others similar to that patient have done and what works best. And then they'll be able to have evidence-based medicine for such a much greater [percentage] of the patients that they are seeing. I think that's going to be a real breakthrough.
Considering right now there’s only about 10 percent evidence-based medicine, this is going to be incredibly impactful in the future.
Epic Today
More than 305 million patients have an electronic record with Epic today.
They’ve never made any acquisitions.
And they do around $4 billion in revenue per year.
They grew by gaining a handful of customers each year early on and repeatedly putting themselves in a position to serve the best hospital systems in the U.S. and, more recently, around the globe.
Judy, who is repeatedly described as brilliant and the driving force for Epic, is 79 years old, has no plan to retire, and is never going public:
She has not named a successor, and none of her three children works at Epic. Faulkner has secured Epic’s future only insofar as the company will never be taken public.
She has split her stock into voting shares that can’t be sold and have gone into a trust controlled by family members and employees. Her nonvoting shares are being left to a foundation she established with her husband called Roots & Wings, which funds her interests in child brain development and criminal justice reform (she signed the Giving Pledge in 2015).
“I enjoy what I do and I’d like to do it as long as I am effective and can bring value in the job,” she says. She worries about what happens to people when they retire, having read that the average person dies two years after leaving the workforce. “They seem to lose that edge that says, ‘Why am I waking up in the morning? What is my day going to be?’ I wake up and think, ‘How do I get everything done in my day?’”
Judy’s Wisdom
In each edition of the Just Go Grind newsletter, I like to include a few more quotes at the end from my research into the founder who is featured, sharing their wisdom.
On making important decisions:
Many decisions I make by jumping 25 to 50 years ahead, figuring out what will Epic want at that time, and then come back and make the decision that later on they will have said that was a good decision.
And an example of that is when we were first building the campus I was asked, “Do you want parking to be underground or above ground?” Now above ground is about $800, $400 a spot for a car. Underground was like $14,000, $18,000 for a spot for a car. Tough decision it seems like because it’s so expensive, but I jumped 50 years ahead and I thought everybody is going to be very happy if it’s underground, because this is Wisconsin, it’s cold, you have to scrape your car… so I came back to today and the answer was easy because of going forward. The hard part was it was expensive, but it was the right answer, so I said underground.
On not going public:
We’re private, that allows us to avoid the tyranny of the quarter. It allows us to focus on R&D.
On how Epic became successful:
I think one of the most important things in terms of the company being successful is the concept of ownership.
And that is whatever you’re working on, own it. So if your job is something within a scheduling system to develop, you need to own that, care for it, and that’s important.
Another thing I think is really important is we try to really have our staff understand how important what they’re doing is. And we try to expose them to healthcare and the tremendous trust that our customers put in us when they choose us as their system.
And so, it is their own jobs on the line, it is the health of their patients, it’s the success of their organization and that’s turned over to our staff who have to live up to it. And I think that helping the staff understand how critically important why we do what we do is, is huge.
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