The New Split CPM Magic Quadrants from Gartner

This week Gartner research vice president John Van Decker and research director Chris Iervolino took the bold move of splitting the corporate performance management (CPM), also known as enterprise performance management (EPM), magic quadrant in two.

Instead of publishing a single magic quadrant (MQ) for all of CPM, they published two MQs, one for strategic CPM and one for financial CPM, which they define as follows:

  • Strategic Corporate Performance Management (SCPM) Solutions – this includes Corporate Planning and Modeling, Integrated Financial Planning, Strategy Management, Profitability Management, and Performance Reporting.
  • Financial Corporate Performance Management (FCPM) Solutions – this includes Financial Consolidation, Financial Reporting, Management Reporting/Costing/Forecasting, Reconciliations/Close Management, Intercompany Transactions, and Disclosure Management (including XBRL tagging)

You can download these new CPM magic quadrants here.

What do I think about this?

  • It’s bold.  It’s the first time to my recollection that an MQ has included product from different categories.  Put differently, normally MQs are full of substitute products — e.g., 15 different types of butter.  Here, we have butter next to olive oil on the same MQ.
  • It’s smart.  Their uber point is that while CPM solutions are now pretty varied, that you can pretty easily classify them into more tactical/financial uses and more strategic uses.  Highlighting this by splitting the MQs does customers a service because it reminds them to think both tactically and strategically.  That’s important — and often needed in many finance departments who are struggling simply to keep up with the ongoing tactical workload.
  • It’s potentially confusing.  You can find not just substitutes but complements on the same MQ.  For example, Host Analytics and our partner Blackline are both on the FCPM MQ.  That’s cool because we both serve core finance needs.  It’s potentially confusing because we do one thing and they do another.
  • We are stoked.  Among cloud pure-play EPM vendors, Host Analytics is the only supplier listed on both MQs.   We believe this supports our contention that we have the broadest pure-play cloud EPM product line in the business.  Only Host has both!
  • In a hype-filled world, I think Gartner does a great job of seeing through the hype-haze and focusing on customers and solutions.  They do a better job than most at not being over-influenced by Halo Effects, and I suspect that’s because they spend a lot of time talking to real customers about solving real problems.

For more, see the Future of Finance blog post on the new MQs or just go ahead and download them here.

Can the Media Please Stop Referring to Company Size by Valuation?

The following tweet is the umpteenth time I’ve seen the media size a company by valuation, not revenue, in the past few years:

mktcap

Call me old school, but I was taught to size companies by revenue, not market capitalization (aka, valuation).

Calling Palantir a $20B company suggests they are doing $20B in revenues, which is certainly not the case.  (They say they did $1B in 2015 and that’s bookings, not revenue.)  So we’re not talking a small difference here.  Depending on the hype factor surrounding a company, we might be talking 20x.

Domo is another company the media loves to size by its market cap.

domo

I’ve heard revenue estimates of $50M to $100M for Domo, so here again, we’re not talking about a small difference.  Maybe 20x.

When my friend Max Schireson stepped down from MongoDB to spend more time with his family, the media did it again (see the first line of text below the picture)

mongodb

I love Max.  I love MongoDB.  While I don’t know what their revenues were when he left (I’d guess $50M to $100M), they certainly were not a “billion-dollar database company.”  But, hey, the article got 4,000 shares.  Inflation-wise, I’m again guessing 10-20x.

So why does the media do this?  Why do they want to mislead readers by a factor of 20?

  • Because if makes the numbers bigger
  • And makes the headlines cooler
  • And increases drama

In the end, because it (metaphorically) sells more newspapers.  “Wow, some guy just quit as CEO of a billion-dollar company to actually spend more time with his family” just sounds a whole lot better than the same line with a comparatively paltry $50M instead.  Man Bites Dog beats Dog Bites Man every time.

But it’s wrong, and the media should stop doing it.  Why?

  • It’s misleading, and not just a little.  Up to 20x as the above examples demonstrate.
  • It’s not verifiable.  For private companies, you can’t really know or verify the valuation.  It’s not in any public filing.  (While private companies don’t disclose revenue either, it’s much more easily triangulated.)
  • Private company valuations are misleading because VCs buy preferred stock and employees/founders have common stock. So you take a preferred share price and multiply it by the total number of outstanding shares, both preferred and common.  (This ignores the fact that the common is definitionally worth less than the preferred and basically assumes an IPO scenario, which happens only for the fortunate few, where the preferred converts into common.)
  • In the past few years, companies are increasingly taking late-stage money that often comes with “structure” that makes it non-comparable in rights to both the regular preferred and the common.  So just compound the prior problem with a new class of essentially super-preferred stock.  The valuation gets even more misleading.
  • Finally, compound the prior problem with a hyped environment where everyone wants to be a unicorn so they might deliberately take unfavorable terms/structure in order get a higher valuation and hopefully cross into unicorn-dom.  The valuation gets even-more-misleading squared.  See the following Tweet as my favorite example of this phenom.  (OH means overheard.)

ego

When was the last time I saw the media consistently size companies by valuation instead of revenue?  1997 to 2001.  Bubble 1.0.

Maybe we’ll soon be talking about eyeballs again.  Or, if you like Stance, the company that has raised $116in VC and has “ignited a movement of art and self-expression,” in socks (yes, socks) then maybe we’ll be talking about feet.

# # #

(And while I’m not sure about the $116M, I do love the socks.)

 

Myths of the Headless Company

In the past year or so, two of our competitors have abruptly transitioned their CEOs and both have perpetuated a lot of mythology about what happens and/or will happen in such transitions.  As someone who’s run two startups as CEO for more than a combined ten years, been the “new guy” CEO twice after such transitions, sat on two startup boards as an independent director, and advised numerous startups, I thought I’d do a little myth-busting around some of the common things these companies say to employees and customers when these transitions happen.

“Everythings’s fine, there is no problem.”

If everything were fine, you would not have changed your CEO.  QED.

Houston, there is a problem.

“Uh, the actual problem is we’re doing too well, … so we need to change our the CEO for the next level of growth.”

This reminds me of the job interview response where you say your biggest weakness is perfectionism.

Look, while successful companies do periodically outgrow their executives, you can tell the difference between an organized scale-driven CEO swap out and something going wrong.  How?

Organized transitions are organized.  The CEO and the board agree that the company is scaling beyond the CEO’s abilities.  A search is started.  The new CEO is found.  The old CEO gracefully hands the reins over to the new CEO.  This can and does happen all the time in Silicon Valley because the problem is real and everyone — both the VCs and the outgoing CEO — are all big shareholders and want what’s best for the company, which is a smooth transition.

When a CEO is exited …

  • Abruptly, without notice, over a weekend, …
  • Without a replacement already identified
  • Without even a search firm hired
  • At an awkward time (e.g., a few days before the end of a quarter or a few weeks before the annual user conference)

You can be pretty sure that something went wrong.  What exactly went wrong you can never know.  But you can be sure of thing:  the conversation ended with either “I’m outta here” or “he’s (or she’s) outta here” depending on whether the person was “pushed’ or “jumped.”

“But we did need someone for the next level of growth.”

That’s quite possibly true and the board will undoubtedly use the transition as an attempt to find someone who’s done the next level of growth before.  But, don’t be confused, if the transition is abrupt and disorganized that’s not why the prior CEO was exited.  Something else is going on, and it typically falls into one of three areas:

  • Dispute with the board, including but not limited to disagreements about the executive team or company strategy.
  • Below-plan operating results.  Most CEOs are measured according to expectations set in fundraising and established in the operating plan.  At unicorns, I call this the curse of the megaround, because such rounds are often done on the back on unachievable expectations.
  • Improprieties — while hopefully rare — such as legal, accounting, or employment violations, can also result in abrupt transitions.

“Nothing’s going to change.”

This is a favorite myth perpetuated on customers.  Having been “the new guy” at both MarkLogic and Host Analytics, I can assure you that things did change and the precise reason I was hired was to change things.  I’ve seen dozens of CEO job specs and I’ve never a single one that said “we want to hire a new CEO but you are not supposed to change anything.”  Doesn’t happen.

But companies tell customers this — and maybe they convince themselves it’s true because they want to believe it — but it’s a myth.  You hire a new CEO precisely and exactly to change certain things.

When I joined MarkLogic I focused the company almost exclusively on media and government verticals.  When I joined Host, I focused us up-market (relative to Adaptive) and on core EPM (as opposed to BI).

Since most companies get in trouble due to lack of focus, one of the basic job descriptions of the new-person CEO is to identify the core areas on which to focus — and the ones to cut.  Particularly, as is the case at Anaplan where the board is on record saying that the burn rate is too high — that means cut things.  Will he or she cut the area or geography that most concerns customer X?  Nobody knows.

Nobody.  And that’s important.  The only person who knows will be the new CEO and he/she will only know after 30-90 days of assessment.  So if anyone tells you “they know” that nothing’s going to change, they are either lying or clueless.  Either way, they are flat wrong.  No one knows, by definition.

“But the founder says nothing’s going to change.”

Now that would be an interesting statement if the founder were CEO.  But, in these cases, the founder isn’t CEO and there is a reason for that — typically a lack of sufficient business experience.

So when the founder tells you “nothing is going to change” it’s simply the guy who lacks enough business experience to actually run the business telling you his/her opinion.

The reality is new CEOs are hired for a reason, they are hired to change things, that change typically involves a change in focus, and CEO changes are always risky.  Sometimes they work out great.  Sometimes the new person craters the company.  You can never know.

 

 

 

Host Analytics World 2016 EPM Keynote Address

We’re just finishing up a fantastic Host Analytics World 2016, with over 800 people gathered together in San Francisco to talk about enterprise performance management (EPM).   Here are a few pictures to give you a feel for the event.

Here’s 49ers football legend Steve Young delivering his keynote address:

IMG_3627

Here’s me delivering my keynote on EPM in fair weather and foul.

IMG_3614

Here’s an artsy shot of someone taking a picture during my keynote.

IMG_3615

And, of course, here are our mascots, Tick and Tie, stuffing bags for Project Night Night, the philanthropic activity we had at the conference cosponsored by Host Analytics and our amazing customer, Thrivent Financial.

tick and tie

The conference has been superb and I want to thank everyone — customers, prospective customers, analysts, journalists, pundits, and partners — for being a part of this great event.

I find it amazing that at such a great time to be in the cloud EPM market that we have competitors more focused on business intelligence (BI), predictive analytics, and functional performance management than on core EPM itself.  At Host Analytics, we know who we want to be:  the best vendor in cloud EPM, serving the fat middle 80% of the market.  More importantly, perhaps, we know who we don’t want to be:  we don’t want to be a visual analytics vendor, a social collaboration vendor, or a sales performance management vendor — hence our partnerships with Qlik, Socialcast, and Xactly.

We serve finance, we speak finance, and we’re proud of that.  Oh, and yes, our customers, finance leaders, care about the whole enterprise so we offer not only solutions to automate core finance processes but also tools to model the entire enterprise and align finance and operations.

You can hear about this and other topics by watching the 75 minute keynote speech and demo, embedded below.

 

Finally, please remember to save the date for Host Analytics World 2017 — May 16 through 19, 2017.

nashville

 

The Worst Interviewing Advice Ever

I remember years and years ago attending a training class for job candidates on how to improve their interviewing skills.  The crux of the course was this:

  • Most people are bad interviewers.
  • Since they don’t know what to ask, you need to tell them what they need to know regardless of what you’re asked.
  • What they need to know is the skills you possess, the duties you’ve performed, and the results you have accomplished.

I was reminded of this the other day when interviewing a very qualified candidate.

Me:  “Think about the best manager you’ve ever worked for, and get a picture of him/her in your head.  Do you have one?”

Candidate:  “Yes.”

Me:  “Now describe him or her.”

Candidate:  “I like managers who are supportive to me and tough but fair.”

Me:  “I’m sorry, perhaps you didn’t get the exercise.  Do you have a favorite boss?”

Candidate:  “Yes.”

Me:  “I don’t need to know his/her name, but do you have a specific person in mind?”

Candidate:  “Yes.”

Me:  “Now, describe them, perhaps by using a list of adjectives.”

Candidate:  “I like bosses who mentor me and teach me to do things better.”

Me (thinking):  Penalty, Evasion, 15 yards.  1st and 25.

I almost cut off the interview right there.  But I didn’t.  Despite a repeated pattern of not answering my questions, I voted no-hire but didn’t veto the candidate because he did seem qualified.  I discussed what happened with the hiring manager.

Me:  “I would not hire that person.  He is evasive and doesn’t answer questions.”

Hiring manager:  “Maybe he didn’t answer because he didn’t know the right answer.”

Me:  “There is no right answer, per se.  I’m not trying to make the candidate describe you; I’m trying to get them to describe their best boss ever so I can do a comparison of that style with my perception of yours.”

Hiring manager:  “I get it, but he obviously knows it’s a risky question so maybe he deliberately didn’t answer it.”

Me:  “OK, go to talk to him and find out what happened.”

In the end, the hiring manager was right.  The candidate didn’t want to give a clear answer to the question because he was worried it would backfire.  And the core of that old training class sprung immediately back to mind “don’t answer the question they asked, tell them what they need to know regardless of what they ask.”  Which, I believe, is the worst interview advice ever.

I ask questions.  I ask them on purpose.  I ask them for a reason.  If you stonewall my efforts to interview you I will vote no — and I will often throw an outright veto on top.

It’s amazing how often I have to say it:  answer the question.  Job interviews are no exception.  In fact, quite the opposite.

Don’t assume you’re smarter than the person interviewing you.  Don’t play games.  The purpose of my line of questioning was simple:  “I wanted to figure out if I thought you could work with your hiring manager.”  That’s a very important question — and one both sides should want to answer sooner not later.  Don’t assume I’m an idiot and want you to describe the hiring manager.  Assume I’m asking for a reason and even if you can’t figure outthe reason or the “right” answer, answer the question.

If you don’t you’ll be lucky to get the job.

Marketing is Too Important to be Left to the Marketing Department

It was HP co-founder, David Packard, of all people, who came up with one of my all-time favorite quotes on marketing, specifically that “marketing is too important to be left to the marketing department.”

This quote is often mentioned in the same breath as these famous Peter Drucker quotes:

  • “Because the purpose of business is to create a customer, the business enterprise has two – and only two – basic functions: marketing and innovation.”
  • “Marketing is not only much broader than selling, it is not a specialized activity at all.  It encompasses the entire business.  It is the whole business seen from the point of view of its final result, that is, from the customer’s point of view.”

I’ve always been a big believer in the last statement — that marketing is the whole business seen from the point of view of the customer — and that statement often guided me during my marketing career, including many years as a CMO.  Marketing isn’t just tactical — it’s also quite strategic — and the strategic part is why it’s too important to be left to the marketing department (alone).  The CEO can’t confuse delegation with abdication and move all strategy over the marketing department.

On the flip side, too many marketing departments “go tactical” and ignore their strategic obligations and opportunities.

If you burn a SaaS business down to two things, Drucker’s quote is pretty dead on:

  • We acquire customers
  • We deliver them a service

Marketing has both a strategic and tactical role in both.

  • Strategically, marketing can help define the target market, the buyer persona (i.e., the person who we are selling to), what problem we are solving for them, and why they might want to buy from us.  Marketing can also play an important role in definition of service, not just looking out for customers (as sales and product management tend to by default) but also by keeping an eye on competitors and market trends.
  • Tactically, over the past 20 years, marketing has been given more and more ownership for creating the sales pipeline.  (See Predictable Revenue or From Impossible to Inevitable.)  While CMOs of the past were largely strategic product marketers with some demandgen chops, CMOs of the future better be ambidextrous when it comes to skills and equally passionate about pipeline generation as they are about product positioning.

Great marketers strive for and hit a balance between tactical and strategic contribution.  Tactical is table stakes — if you can’t fill the pipeline, the salespeople will come for you with dogs and torches like the villagers in Frankenstein.

pitchforks

Sales preparing to give marketing feedback about insufficient pipeline coverage

But preventing that isn’t the point.  The point is to keep the villagers happy wile making a strategic contribution to building a great company.  Which is the part of marketing that’s too important to be left to the marketing department — but which is the part that marketing itself shouldn’t abdicate.

 

Introducing a New SaaS Metric: The Hype Factor

I said in yesterday’s post, entitled Too Much Money Makes You Stupid, that while I don’t have much of a beef with Domo, that I did want to observe in today’s fund-to-excess environment that any idea — including making a series of Alec Baldwin would-be viral videos — can sound like a good one.

While I credited Domo with creating a huge hype bubble through secrecy and mystery, big events, and raising tremendous amounts of money (yet again today) at unicorn valuations — I also questioned how much (as Gertrude Stein said of Oakland) “there there” Domo has when it comes to the company and its products.

Specifically, I began to wonder how to quantify the hype around a company.  Let’s say that, as organisms, SaaS companies convert venture capital into two things:  annual recurring revenue (ARR) and hype.  ARR has direct value as every year it turns into GAAP revenue.  Hype has value to the extent it creates halo effects that drive interest in the company that ultimately increase ARR. [1]

Hype Factor = Capital Raised / Annual Recurring Revenue

Now, unlike some bloggers, I don’t have any freshly minted MBAs doing my legwork, so I’m going to need to do some very back of the envelop analysis here.

  • Looking at some recent JMP research, I can see that the average SaaS company goes public at around $25M/quarter in revenue, a $100M annual run-rate, and which also suggests an ARR base of around $100M.
  • Looking at this post by Tomasz Tunguz, I can see that the average SaaS company has raised about $100M if you include everyone or $68M if you exclude companies that I don’t really consider enterprise software.

So, back of the envelope, this suggests that 1.5 (=100/68) is a typical capital-to-ARR ratio on the eve of an IPO.  Let’s look at some specific companies for more (all figures are approx as I’m eye-balling off charts in some cases and looking at S-1s in others) [2]:

  • NetSuite:  raised $125M, run-rate at IPO $92M  –> 1.3
  • Cornerstone:  raised $41M, run-rate $44M –> 1.0
  • Box:  raised $430M, run-rate $228M –> 1.8
  • Xactly:  raised $83M, run-rate $50M –> 1.7
  • Workday:  raised $200M, run-rate $168M –> 1.2

There are numerous limitations to this analysis.

  • I do not make any effort to take into account either how much VC was left over on the eve of the IPO or how much debt the company had raised.
  • Capital consumption per category may vary as a function of the category as a CFO friend of mine reminded me today.
  • Some companies don’t break out subscription and services revenue and the ARR run-rate calculations should only apply to subscription.

Since private companies raise capital and burn it down until an IPO, you should expect that the above values represent minima from a lifecycle perspective. (In theory, you’d arrive on IPO day broke, having raised no more cash than you needed to get there.)

So I’m going to rather subjectively assign some buckets based on this data and my own estimates about earlier stages.

  • A hype factor of 1-2 is target
  • A hype factor of 2-3 is good, particularly well before an IPO
  • A hype factor of 3-5 is not good, too much hype and too little ARR
  • A hype factor of 5+ suggests there is very little “there there” at all.

I know of at least one analytics company where I suspect the hype factor is around 10.   If I had to take a swag at Domo’s hype factor based on the comments in this interview:

  • Quote from the article:  “contracted revenue is $100M.”  Hopefully this means ARR and not TCV.
  • Capital raised:  $613M per Crunchbase, including today’s round.

This suggests Domo’s hype factor is 6.1 including today’s capital and 4.8 excluding it.  So if you’ve heard of Domo, think they are cool, are wowed by the speakers and rappers at Domopalooza, you should be.  As I like to say:  behind every marketing genius, there is usually a massive budget. [3]

Domo’s spending heavily, that’s for sure.  How efficient they are at converting that spending to ARR remains to be seen.  My instinct, and this rough math, says they are more efficient at generating hype than revenue. [4]

Time will tell.  Gosh, life was simpler (if less interesting) when companies went public at $30M.

# # #

Notes

[1] In a sense, I’m arguing that hype takes two forms:  good hype that drives ARR and wasted hype that simply makes the company, like the Kardashiansfamous for being famous.

[2] And having some trouble making the different data sources foot.  For example, the SFSF S-1 indicates $45M in convertible preferred stock, but the Tunguz post suggests $70M.  Where’s my freshly minted MBA to help?

[3] You can argue that the first step in marketing genius is committing to spend large amounts of money and I won’t debate you.  But I do think many people completely overlook the massive spend behind many marketing geniuses and, from a hype factor perspective, forget that the purpose of all that genius is not to impress TechCrunch and turn B2B brands into household words, but to win customers and drive ARR.

[4] Note that Domo says they have $200M in the bank unspent which, if true, both skews this analysis and prompts the question:  why raise more money at a flat valuation in smaller quantity when you don’t need it?  While my formula deliberately does not take cash or debt into account (because it’s hard enough to just triangulate on ARR at private companies), if you want to factor that claim into the math, I think you’d end up with a hype factor of 3-4.  (You can’t exclude all the cash because every startup keeps cash on hand to fund them through to their next round.)