After two AI-era darlings shed around a fifth of their staff within a day of each other the talent market for Australia’s health software sector just flipped. So did the EMR incumbent vs AI disruptor power base.
“I feel like the work I’ve been doing, working on AI tools, allows people to basically do our jobs for us. We’ve been digging our graves.”
That was one of the more than 1000 Canva staff shown the door this week, speaking to the Australian Financial Review.
A day later it was Heidi Health’s turn.
The Melbourne AI scribe company, which sealed unicorn status two months ago with a US$100 million (A$140 million) Series C and a further US$240 million debt funded growth facility, told staff on Thursday it would cut about 18% of its global workforce.
With a headcount of more than 600, that is likely more than 100 jobs.
The cuts came a day after two of Heidi’s three co-founders, chief technology officer Yu Liu and chief financial officer Waleed Mussa, announced they were leaving, as reported by Health Services Daily on Wednesday.
They also follow rumours a few weeks ago that rival Lyrebird Health had shed staff, which Lyrebird management has specifically denied.
So what is going on?
What Heidi says
In a note to staff, CEO and now sole remaining co-founder Dr Tom Kelly said Heidi was “growing rapidly” and now supports three million patient interactions a week but had “made difficult choices about where to focus our team and investment”.
Customer support will move closer to product, R&D will be pulled into a single roadmap, and Heidi’s new product businesses will get dedicated teams.
Dr Kelly was blunter with the AFR. Heidi had been “too optimistic” about how quickly big health systems would buy and had over-resourced enterprise roles waiting for hospital deals that were slow to land.
“We structured ourselves inefficiently in some places. Hindsight is 20/20, but it’s very hard to do this perfectly when you’re riding an exponential,” he told the newspaper.
The AFR reported the cuts would fall heavily on Heidi’s Melbourne R&D team and its large support and sales teams, with some roles moving offshore.
The pressure point for Heidi is almost certainly the US. The scribe market there has become fiercely competitive, and Epic, which runs the records of most large US hospitals, launched its own scribe in February.
Dr Kelly told the AFR that investors had pushed for a “more forecastable” business.
“We have to be careful about the investments we make because even if we triple revenue with Scribe, the next investor might not be there,” he said.
Is AI a moat at all?
A bigger question that has now floated to the surface is: is AI any sort of competitive advantage at all or is it speed, market and money?
If Epic can bolt a scribe onto the record system a hospital already runs, and the underlying models are rented from the same handful of AI giants, the advantage shifts away from clever technology and towards market position and money.
Canva is learning that the hard way. According to the AFR, Anthropic’s free Claude Design product has been taking Canva’s free users, the funnel for its paying ones.
Heidi has money. Its US rivals have incumbency and money. That is why its fight with Best Practice here matters so much: access to the record is an actual moat. Not only does Heidi not own one but so far the deals it wants to strike with the incumbent vendors offer very little upside if any to those vendors. It’s just, “hey, our functionality is really cool, your customers will love it”.
Ironically it is cool and most customers of incumbent medical software platforms would love the Heidi functionality, especially with a safe, secure and agreed upon deep integration to the patient record.
Related
The problem so far is that Heidi isn’t offering any sort of partnership deal that local vendors can either trust or see any meaningful revenues coming from.
One local PMS vendor told The Medical Republic that their partnership with Heidi to date in which access to the patient record was possible had resulted in negligible new revenues for them and very probably given Heidi a good look at the insides of their system so they could one day try to emulate it.
“What’s in that sort of deal for us?” said this vendor.
So far Heidi has not struck a deep integration deal with any of the major local GP and specialist PMS vendors or the major global hospital EMR vendors.
Until now Heidi seems to have taken the position that these vendors need them more than they need the vendors.
But this week may be the first signal that this relationship is changing too.
Heidi may have to start considering letting some incumbents in on the upside, even if they do it tactically to start with.
The founders
The official explanation for the founders’ exits is amicable. Dr Kelly told the AFR it had always been agreed Mussa would step away once Heidi hired specialists into the functions he covered, and that Liu wanted to build something from the ground up in robotics.
“The shape of a technical leader we need now is not what we needed at the beginning,” Kelly said. Both keep their equity.
But the timing invites questions. Few founders walk out of a newly minted unicorn the day before a major restructure, two months after a big raise.
Heidi’s investors include heavy hitters such as Blackbird, Point72, Headline and General Catalyst, and Dr Kelly told the AFR their feedback had “changed our perspective on where we will need to be at the end of next year”.
Whether the departures were entirely voluntary, or part of sharpening the company for a harder market, Heidi isn’t saying.
What it means for local health IT
For Australia’s health software sector, this week changed the talent market overnight, and per above, it might well change how Heidi sees its value proposition in the context of all the major EMR incumbents either refusing to do any deal for deep integrations to the patient record with them or partnering with other AI groups that do want to share the value of the upside of AI.
The latter seems to be the case of the deal between Lyrebird and Best Practice.
Would we see Heidi now consider doing something similar with one of the other local EMR incumbents?
As to the talent wars Heidi’s big VC money let it hire aggressively, and incumbent vendors say they have felt it.
“We have a stack of talent who end up at Heidi and they have made it harder to hire,” one told TMR.
“They pay more than we can … there are some over-inflated wages, but that’s probably just par for AI-first companies.”
Another was more pointed: “We lost several staff to Heidi … I wonder if they want their job back?”
A third was blunter still: “Obviously growth has stalled over there.”
Heidi, for its part, insists it is still growing rapidly.
Either way, the calculus has flipped.
Staff who remain at Heidi may be reassessing what they signed up for, which makes them poachable by steadier players such as Best Practice, Genie, MediRecords, Telstra Health, HotDoc, FRED IT, HealthEngine and so on. And staff at those incumbents will think harder before taking Heidi’s call.
“What’s happened to Heidi and Canva this week changes the game in Australia a lot,” another vendor said.
“People will be giving a lot more thought to the idea of joining one of the fast-growing AI start-ups … we are entering a new phase of this thing…although who knows exactly what this phase will bring.”
