1. Global CIO By Bob Evans
InformationWeek
February 16, 2010
SuccessFactors Is The Future
Of Business Software
SuccessFactors’ compelling product strategy, customer-centric mission, and
dynamic CEO are turning the software business upside-down.
SuccessFactors’ annual revenue is only about 1/100th of SAP’s, it for companies willing to suborn their desires and instead meet the
has only about 700 employees, and it has only one CEO. needs of those customers. Here are three classic examples of high-
But SuccessFactors should be SAP’s worst nightmare. octane Dalgaardisms:
And SuccessFactors should also be (or is) disrupting the sweet --”The big software companies don’t have a clue because they
dreams of many other traditional enterprise software companies stopped listening to their customers a long time ago,” Dalgaard
because it has not only created a compelling new suite of products said in a recent phone conversation. “So for them, it’s like being
around the vital need for business execution but is also redefining, on the Titanic—when they finally do hear something, all they can
at a fundamental level, the buyer-seller relationship in the market. say is, ‘Hey—that felt like a bump.’ Or they’ll say, ‘Dude, look at
us, we’re going 180 miles per hour’—yeah, but they don’t know
I fully realize the scope of the claim I’m making about the impact they’re headed straight toward the Grand Canyon.”
SuccessFactors is having and will continue to have on this busi-
ness, and I realize that some of you might be asking yourselves, --”Our team really delivered a fantastic year in 2009 growing the
“Who in the heck is SuccessFactors?” But I’ll bet that number is a top line with less expense than the previous entire year. The team
lot smaller than it was six months ago, and that by mid-2010 there is cranking on 2010, we are fired up. The momentum is like a
will be very few business-technology executives who don’t know tsunami wave. Many companies gave up 2009, but like in sports
who the heck SuccessFactors is. SuccessFactors doesn’t build character it reveals it. SuccessFac-
tors’ people took market share in 2009. SuccessFactors added 520
Here are four of the primary reasons behind this audacious claim customers in 2009, bringing our total customer count to greater
I’m making: than 3,000. Today SuccessFactors has the most unique paying us-
1. SuccessFactors’ human-dynamo CEO has created an intensely ers in the business Cloud with more than 6 million users.” (From
customer-centric culture and a fresh new category called Business SuccessFactors’ earnings call with analysts earlier this month per
Execution for which most customers have a burning need. the transcript at SeekingAlpha.com.)
2. The company’s growing rapidly (37% in the nuclear winter --”When we were getting close to closing one of our biggest deals,
that was 2009) and creating a rabid customer base that includes we were sitting around a big table with their top execs, and I felt
many well-known global corporations (much more on them in a like Bruce Lee because it seemed like everybody was coming at
moment). me at the same time. They were asking me where I was born and
where I went to grade school and I said, ‘Guys, I’ll be happy to
3. It has no on-premises legacy—technical or financial—to deal answer any questions you want, but why does this matter?’ And
with, is 100% in the cloud, and has established a significant they said, ‘Lars, we’re considering entering a 20-year or 30-year
recurring-revenue stream. commitment with you and your company, and this relationship
4. SuccessFactors is reaffirming to customer-side CEOs and CIOs will have exposure to every single employee in the company. So
that the new wave of cloud-based enterprise-software companies that’s why we need to be sure we really know you.’ “
does business in a strikingly different way than do the traditional Fueling the fiery talk is a suite of products that started off as stra-
on-premises vendors. tegic HR-management tools but have recently made a big leap into
At the center of this creative destruction is founder and CEO Lars what Dalgaard calls Business Execution:
Dalgaard, who launched the company nine years ago and contin- helping companies animate their strategies through the deeply in-
ues to fuel it with a zeal and a freshness that is sorely lacking in an formed and focused actions of every employee in the organization.
industry that often seems demand more of its customers than it is As the company describes its products on its website: “Centered
itself willing to deliver. around Business Alignment and People Performance, our solutions
Dalgaard communicates in a way that is more than talk—it’s more are designed to be easy for anyone to use but powerful enough to
like he gushes emotion and ideas and metaphors, peppering his uncover critical insights that help drive never before seen business
comments with frequent allusions to passionate people, the prima- results.”
cy of the customer, and the boundless opportunity that exists today Here’s how Dalgaard summarized it in our phone conversation:
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2. By Bob Evans
InformationWeek
Global CIO February 16, 2010
SuccessFactors Is The Future Of Business Software
“Business Execution has been an absolute breakthrough in this Also, late last year the company completed a follow-on offering in
market because there’s not a company or a person in the world just three days by raising $215 million. And here are two financial
who doesn’t need the insights our stuff can deliver: schools, highlights in Dalgaard’s words from that transcript:
airports, global corporations, bankruptcy courts—yeah, especially
--”In the worst economy, SuccessFactors had our best year. Suc-
bankruptcy courts,” he said with a laugh.
cessFactors grew revenue 37% to $153 million and grew our user
“So when we ask, ‘Are you interested in increasing your project count by 35% for the year. Billings accelerated throughout 2009.
completion by 57%?’, there’s not a CEO in the world—unless he’s Billings grew 17% from Q1 to Q2. They almost doubled and grew
brain-dead—who won’t say, ‘I need you to tell me what you’re 28% from Q2 to a very strong Q3, and from Q3 to Q4 Success-
talking about. I need to know how I can get more of the essential Factors grew billings 26% sequentially.”
stuff done quickly. I need to know how I can communicate our
--”We’ve cracked the business model of reputable successful
strategy faster and more effectively.’ “
customers that renew at over 100% in dollars, but that revenue
Adding to that set of insights, SuccessFactors is acquiring a annuity costs only 22% of sales to deliver. This will continue
boutique business-analytics firm from Australia called Inform that to give us even greater cash flow in the future and allow us to
doesn’t fit any mold: its products are purchased almost exclusively continue to invest in growth like none of our competitors because
by companies with 100,000 or more employees, but it has no sales so much is available for operating expense. The recurring revenue
force to speak of—its sales have all come over the internet. And stream is becoming significant. We now have $150 million worth
Dalgaard thinks Inform’s unique and powerful analytical tools will of recurring revenue base from our customers, which had 68%
be a great match for SuccessFactors’ customers as well as an ideal contribution margin, and now is equivalent to $100 million worth
new offering for SuccessFactors’ sales team. of annual cash flow to our business every single year—a $100
Describing Inform as “the McKinsey” of the workforce-manage- million cash annuity.”
ment industry, Dalgaard told financial analysts in the recent earn- Unlocking the formula for turning an industry upside-down isn’t
ings call that the acquisition will bring “tremendous proprietary so hard, Dalgaard says—it’s just a matter of keeping the priorities
expertise and over 28 years of work which has produced academic straight and never wavering from your mission. And it’s precisely
research, published papers, and deep content in cloud technolo- that formula and those priorities that are generating the nightmares
gies, strategic workforce planning, strategic reporting, workforce for lots of other software companies.
analytics, workforce reporting, over 2,000 key performance met-
“You need passionate people, and we have that,” Dalgaard said.
rics, and—this is important—they have a library built up of key
“You need a fantastic business model, and we have that. But most
benchmarking concepts for over 20 industries.”
of all—and this is what most companies just can’t get—is that the
Inform’s big-company customer list—including Starbucks, Target, customer must win. Every one of them. All the time.
Nike, MetLife, Aetna, The McGraw-Hill Companies, Blue Cross
“The customer must win.”
Blue Shield, Fidelity, Time Warner, and Comcast—provides
an ideal complement to SuccessFactors’ customer base, which
includes its blockbuster Siemens deal for 420,000 seats, Nestle,
Toyota, Deutsche Bank and Allianz, Goldman, General Motors,
Bechtel, British Petroleum, Gulfstream, and many more.
“Coca-Cola’s executives have told us that SuccessFactors has
become a core part of their global operating framework,” Dalgaard
said in our phone conversation, describing how his forward-
looking software is distinguishing itself for the vital but primarily
transactional ERP applications from the big traditional companies.
“We’re gaining a lot of ground with some of the world’s largest
retailers because they’ve been telling us, ‘We’re just not going to
keep buying the old way—it’s not working for us.’ “
The passion for customers, the innovative product set, the acquisi-
tion, and the cloud-based model have combined to deliver some
impressive financial results for SuccessFactors. To get the full
flavor of not just the numbers but the company’s unique bookings
and billings revenue model, I encourage you to review the Seek-
ingAlpha.com transcript of the company’s fourth-quarter earnings
call, which offers a wealth of detail from Dalgaard and CFO Bruce
Felt.
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