The Next Chapter

This morning we announced that Vector Capital has closed the acquisition of Host Analytics.  As part of that transaction I have stepped down from my position of CEO at Host Analytics.  To borrow a line from The Lone Ranger, “my work is done here.”  I’ll consult a bit to help with the transition and will remain a friend of and investor in the company.

A Word of Thanks
Before talking about what’s next, let me again thank the folks who made it possible for us to quintuple Host during my tenure all while cutting customer acquisition costs in half, driving a significant increase in dollar retention rates, and making a dramatic increase in net promoter score (NPS).  Thanks to:

• Our employees, who drove major productivity improvements in virtually all areas and were always committed to our core values of customer success, trust, and teamwork.

• Our customers, who placed their faith in us, who entrusted us with their overall success and the secure handling of their enormously important data and who, in many cases, helped us develop the business through references and testimonials.

• Our partners, who worked alongside us to develop the market and make customers successful – and often the most challenging ones at that.

• Our board of directors, who consistently worked positively and constructively with the team, regardless of whether we were sailing in fair or foul weather.

We Laid the Groundwork for a Bright Future
When Vector’s very talented PR guy did his edits on the closing press release, he decided to conclude it with the following quote:

Mr. Kellogg added, “Host Analytics is a terrific company and it has been an honor lead this dynamic organization.  I firmly believe the company’s best days are ahead.”

When I first read it I thought, “what an odd thing for a departing CEO to say!”  But before jumping to change it, I thought for a bit.  In reality, I do believe it’s true.  Why do Host’s best days lie ahead?  Two reasons.

First, we did an enormous amount of groundwork during my tenure at Host.  The biggest slug of that was on product and specifically on non-functional requirements.  As a fan of Greek mythology, the technical debt I inherited felt like the fifth labor of Hercules, cleaning the Augean stables.  But, like Hercules, we got it done, and in so doing shored up the internals of a functionally excellent product and transformed our Hyderabad operation into a world-class product development center.  The rest of the groundwork was in areas like focusing the organization on the right metrics, building an amazing demand generation machine, creating our Customers for Life organization, running a world-class analyst relations program, creating a culture based on learning and development, and building a team of strong players, all curious about and focused on solving problems for customers.

Second, the market has moved in Host’s direction.  Since I have an affinity for numbers, I’ll explain the market with one single number:  three.  Anaplan’s average sales price is three times Host’s.  Host’s is three times Adaptive’s.  Despite considerable vendor marketing, posturing, positioning, haze, and confusion to the contrary, there are three clear segments in today’s EPM market.

• Anaplan is expensive, up-market, and focused primarily on operational planning.
• Adaptive is cheap, down-market, and focused primarily on financial planning.
• Host is reasonably priced, mid-market, focused primarily on financial planning, with some operational modeling capabilities.

Host serves the vast middle where people don’t want (1) to pay $250K/year in subscription and build a $500K/year center of excellence to support the system or (2) to pay $25K/year only to be nickeled and dimed on downstream services and end up with a tool they outgrow in a few years.

Now, some people don’t like mid-layer strategies and would argue that Host risks getting caught in a squeeze between the other two competitors.  That never bothered me – I can name a dozen other successful SaaS vendors who grew off a mid-market base, including within the finance department where NetSuite created a hugely successful business that eventually sold for $9.3B.

But all that’s about the past.  What’s making things even better going forward?  Two things.

• Host has significantly improved access to capital under Vector, including the ability to better fund both organic and inorganic growth. Funding?  Check.

• If Workday is to succeed with its goals in acquiring Adaptive, all rhetoric notwithstanding, Adaptive will have to become a vendor able to deliver high-end, financial-focused EPM for Workday customers.  I believe Workday will succeed at that.  But you can’t be all things to all people; or, to paraphrase SNL, you can’t be a dessert topping and a floor wax.  Similarly, Adaptive can’t be what it will become and what it once was at the same time – the gap is too wide.  As Adaptive undergoes its Workday transformation, the market will switch from three to two layers, leaving both a fertile opening for Host in mid-market and a dramatically reduced risk of any squeeze play.  Relatively uncontested market space?  Check.

Don’t underestimate these developments.  Both these changes are huge.  I have a lot of respect for Vector in seeing them.  They say that Michelangelo could see the statue within the block of marble and unleash it.  I think Vector has clearly seen the potential within Host and will unleash it in the years to come.

What’s Next?
I don’t have any specific plans at this time.  I’m happily working on two fantastic boards already – data catalog pioneer Alation and next-generation content services platform Nuxeo.   I’ll finally have time to write literally scores of blog posts currently stalled on my to-do list.  Over the next few quarters I expect to meet a lot of interesting people, do some consulting, do some angel investing, and perhaps join another board or two.  I’ll surely do another CEO gig at some point.  But I’m not in a rush.

So, if you want to have a coffee at Coupa, a beer at the Old Pro, or – dare I date myself – breakfast at Buck’s, let me know.