Last week, Acquia announced a $50 million funding round for its open source web business including investment from Amazon.com. As Tom Erickson, CEO of Acquia spoke at Business of Software Conference 2013 on the topic of how to scale an international business successfully so this seems like a great time to share his insights.
- 7 companies, 7 million air miles. That’s a lot of experience in building successful international businesses to stuff into one head.
Video & Transcript below
Thomas Erickson, CEO, Acquia, unpacks his experience for the audience at BoS 2013 with some great examples of how it’s done in big software businesses. He explains the critical importance of understanding key elements of the business including the business model, the company culture and how that culture can scale are as important to the ultimate success of the company as it is to understand what kind of company you want to be before you set out. His key lessons?
- Scale at home first
- Hire to the job
- Get stories
- Be prepared for difference – shift your positioning, your business model, your pricing
- Immerse and inspect
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Tom Erickson: Hey guys. Good to be here. I always am very intimidated any time I get up in front of a group, because I try to think about I’m not worthy. That thing, you know, about, I have been in those chairs so often. I have been fortunate enough to end up in a few great companies that happened to grow really quickly, and I hope to share some of those experiences today with you. I hope to also not make you go to sleep.
At the same time, I just returned from Turkey, which is a seven-hour time change, and you may have to keep me awake, as well. So your help in that would be great, then some interactive, and hopefully I’ll have some time for questions at the end.
Open Source Business models.
I had a meeting with a good friend of mine just before I got here, and speaking about open-source business models, a gentleman named Marten Mickos… anybody know that name? Marten Mickos? Couple of you… Well, Marten Mickos had an open-source business model for a small product called MySQL. And Marten was the CEO of MySQL, and sold it to Sun for a billion dollars. So he definitely figured out open-source business models. And Marten happens to be finished. So scaling a company globally is something he did. Eighty percent of their employees at that company were remote. So, not only in his world, scaling the company globally wasn’t just about customers, which was going to be my focus today, and building a global software company. His was all about, how do you scale a company and have everybody work anywhere in the world?
And that’s a topic completely different, and one that’s exciting, as well. I saw yesterday that Darmesh Shah, a friend of ours, spoke about culture, and how important that was, and building a culture globally. Well, I’m going to kind of take the other angle and talk about how culture is the most important factor in scaling a company globally, and I’m just going to use some anecdotes of my experience as I go along. Hopefully it’s useful for you and you’ll find it interesting. If you just take away one thing from this, I’ll be pretty excited. I do have one assumption, and that is that all of you care about building a global company. Now, if you’re not, hopefully you’ll still get something out of the talk, but this is all about building a global company.
Global Business Background
So, just by a raise of hands, how many of you today manage a company that is doing business outside of North America? Most of… almost everybody. Well, maybe you guys should come and help me up here. The challenge is cultural challenges and go-to market challenges. And building global companies are more specific. But you could break it down, and some of the lessons I’ve talked about, in saying, OK, I’m here in Boston and I’m going to open up something in Seattle. And it could be in the same place, and you still have very similar problems. So, some of the problems are there. But I’m just going to give you a bit more background about me so you can put some context around my comments. And hopefully I’ll give some credibility while I brag about myself, so just bear with me for a little bit of time.
Seven is the number of companies where I have had multi-national responsibilities. I’ve had nine companies in total, all of them… five of them were start-ups, four of them were sold, the fifth one is the one I’m working on today, and the other companies are multi-nationals. People like Bahn, which is a Dutch company with 6000 employees, also Mercury Interactive, which is an Israeli-California company with about 2000 employees.
And 2000 is the operative number. 2000 is roughly what I’d guess to be the number of people that I’ve hired in my career that were direct reports to me. So when I talk about culture being important, and hiring, it is the fundamental first piece of the equation. So when I talk about my experiences here, its experience from hiring those 2000 people.
And this number, I was comparing with Marten when I came here. Air miles; it’s a British term for frequent flier miles. We have, I have, an estimated 7 million air miles under my belt. I have lifetime statuses with several airlines, because you get to a certain level. I was even invited to meet the board of directors at Qantas, when I was there, because I was so elite on Qantas, from, like, ten years of living in Australia.
And 90 is an important number for me, and probably the number I’m most proud about. And I’m going to show you another number I’m proud about. 90 is a compounded annual growth rate of Web Methods, a public company I joined to in 2000, where I ran the international business. And 90 was the compounded growth rate between 2000 and 2004. Now, how many of you remember what happened in 2000 and 2001? Right? The world imploded. Positive growth didn’t exist in software companies. In fact, we were the fastest growing software company, at Web Methods, in the United States between 1998 and 2003. We had flat growth. But the piece I was responsible for grew 90 percent year over year, and I say that because when thinking about building a global company, there’s lots of reasons why you might want to build a global company; one of the biggest reasons is it helps you insulate yourself from variations in economic conditions in different markets. And we were able to go into places like China, and address new markets in other places and steal market-share from other people at a time when the United States was going the opposite direction in terms of sales, and keep a very healthy company.
And this is the other number that I’m really proud of. Number one; I told you one of the number ones already: fastest growing software company in the United States between ’98 and 2003. It just happens to be, that according to Inc 500, which means you register for Inc 500, Acquia, my current company, was the fastest growing software company between 2008 and 2012 in the United States. So, that’s just to give you some background.
And now I’m going to tell you how old I am. This is my 33rd year of being in software. I actually started programming, which is what we used to call it, in 1974. I was one of those kids in high school that couldn’t figure out what I was going to do when I wasn’t playing football or golf; those are the sports I played, or hockey. And so they had this funny little terminal on this computer, and I started working with computers. So I actually started my computer career in 1980. And 14 years of those 33 I’ve lived outside the US, and the rest, obviously, based here.
Lessons learned in scaling a company
Scale at home first. So anyway, some lessons about scaling a company that I learned. Scale at home first. This is a really simple idea, quite frankly, but it’s, you know, whether home is Boston or Austin, wherever you might be based, its learning to be successful on a very narrow niche. One of the mistakes we made at Acquia, actually, was we decided that we were going to build something in that classic kind of waterfall way, and then people would come and buy the product. And in 2008 we started building the product, in January. In September-October we launched the product, and by December we had no revenue. Zero revenue. We did a very quick pivot of the company. We had to learn to scale, and that was really about scaling at home first. We had to get the story right, figure it out, and we started our growth story in 2009 after we made a significant pivot.
On a perspective of building a global company, it also means make sure that you’ve got all the kinks worked out in your armor before you try to stretch yourself, even perhaps across an international boundary. A very simple idea that a lot of companies get ahead of themselves… I’ve seen another company here in the Boston area, because they are venture capitalists, those almighty guys with all the wisdom said now is the time to scale the company, I want you to go out and hire eight enterprise sales guys. And they hadn’t figured out what they were going to do first… is they went out and hired the eight enterprise sales guys. They sold nothing. A few, I think about a year and a half later, the CEO got fired, the eight sales guys got laid off, and they had to redo the business model. And so as the entrepreneur, as a business software owner, I strongly recommend talking about scaling at home first; to figure it out before you definitely pile it all on. Now, you might be a Groupon or you might be somebody like that, you have tons of capital, in which case you’re probably not at this conference, but in that case some of these rules don’t apply.
But I definitely encourage you; you know, get it right and start simple. So if you aren’t that, starting simple is really something important.
I’m going to take an example of a company I joined in 1980. I spent twelve years. At that time it was called PSDI. Has anybody ever heard of PSDI? No… a couple of you, oh. It was… in Boston, it was quite a story.
1968; the company was founded in 1968. It went public in 1996. Do your math, 28 years in between.
Rather unusual in that perspective. I joined in 1980. It was 35 people, so it was still a small company. When the company decided in 1981 to go overseas, they sent me to Australia all by myself, and they sent another guy to Europe. He went to Europe, and they didn’t build a strategy in Europe, to say let’s put a foundation in the ground where we build some business in the UK, which is where they put the headquarters. Rather, they just kind of threw everything out, said, hey, anybody interested in our products? After four years, when they asked me to move from Australia to London, because their business in Australia was bigger than the European business; and if you didn’t do the math there, Australia is 18 million people and Europe is more than 300 million people. The businesses should be, in orders of magnitude, different. They had four customers after four years. One is in France, one in Italy, one in the Netherlands, and one in Finland, and zero in the UK, where the company was based.
So they didn’t keep a very simple business model and try to just say, alright, what can we do here, at home, and work it out.
Hire to the job. And I’m going to use another international example, but it also is true of hiring in startups in the US. And I can give you a great example here, too. I see very often people, when they expand, the first thing they want to do is especially say, we’re going to move to Europe, we’re going to hire someone who has been there and done that, who has been a general manager before. Let’s go get that guy, Tom Erickson, he’s run Europe before; he knows exactly what he is doing. Well, the last thing I want to do at this point in my career is be the first guy on the ground in Europe trying to sell systems. And if you try and get someone like me and convince me to take the job, and you might be able to convince me to do it, you’re not going to find that I’m actually going to do the hard yards that I’ve done before, or sneaking under the table and connecting the LAN wires together so they have internet access. You know, that is very, very important, but kind of below most senior guys’ desires to do it. So it’s really important, especially in startups, or in small companies, to find someone who is going to do the job that you want them to do. What I call the first on the ground type of salespeople.
And I’ve done this repeatedly, as my fifth startup, finding the guy who I know is probably not going to be my guy in three years’ time in a territory because he doesn’t want to go through the paperwork and the process and the legal, all the stuff that comes along as you start to grow. But he’s a little bit of a cowboy that can go into an organization and sell something, despite no brand name in that organization. And that’s the same thing when you’re hiring someone in Europe. So at Acquia, when we hired our first salesperson, we already had some tech people. We went out and I found someone who had technical knowledge and sales skills because I knew they were going to be out on the ground by themselves and they would have to go into accounts and they wanted to always have the resources there and they might have to ask, answer technical questions as well as sales questions. So, having a versatile person who I call first on the ground type of individual was very key. So we hired to the job.
That individual, one month ago, still in the company, but he was replaced by a guy who hasn’t done it before, now that we’re at something like 60 people in Europe. And this year we’ll do around 12 to 14 million dollars in business. We’re actually at the point where scaling the business is requiring someone else with a different skill set. That individual will stay in the company in a very important role. He’s got a lot of stock in the company, because he was early in. But we hired to the job rather than saying, just give me someone who’s done it before. And this is about scaling the business as well, as you grow the business quickly. And this is part of the thing I learned the best when I was down in Australia with Web Methods.
How many of you know Web Methods? It was a company in 2000, and in 2000 it had the most successful IPO of that year. The stock on the first day, if you know about stock price with an IPO, in I believe it was March. I wasn’t in the company yet. I was actually first employee in Asia Pacific. They were public before I joined. The stock was originally priced at twelve dollars. It ended up pricing at 35. So it went three ex on pricing; it went out at 35, closed on day one at 98, and eventually was worth 8 billion dollars at the peak of the bubble, which would have made it the top ten market capitalized systems in Australia, where the founder was from. And another friend of mine who was a banker pointed that out. He said, if you were on the Australian stock market right now, you’d be one of the top companies there. Eventually, of course, things come back to their norm, and the stock price plummeted, and I didn’t make any money off of that company, but I did sell a lot of software. And the way we sold a lot of software was starting up. And being the number one employee in Australia, I didn’t know anything about the software, I didn’t know anything about our customers. I lived in Australia. And you’re going to have a great speaker from Australia, a friend of mine, Scott from Atlassian, and he can tell you. Yeah, I think he lives in the states now. You’re a long way away. You’re not calling somebody up the same day to say, hey, I’ve got this prospect I’m going to see, what should I tell them? So we actually moved a young guy out of the inside sales team down to Australia so that we could do knowledge transfer around selling.
And I maintain to this day that that kind of experimenting of sending people and working that is extremely important. We do, at Acquia, for our sales people, US or international-based, we have a complete onboarding process that they go through, which is run by a guy who’s a technical director in the group, and just loves to teach people, and he also is a storyteller. And I’ll tell you, we’ll talk a little more about that in the future, but knowledge transfer, absolutely critical to getting productivity out of your folks whether they’re local or not.
The biggest mistake I’ve seen happen in my career, especially expanding globally, is this notion of we need to send someone… OK, we want to do this knowledge transfer, we are going to go , we want to send someone, and I hear this all the time, to Singapore, because I’m going to open up in Asia Pacific I’m going to base it in Singapore. There’s a lot of different disputes about what’s better, Singapore or Australia. I just say wherever that great person wants to live, that’s the place you ought to be. PeopleSoft, Seibel, Web Methods, we all ran Asia Pacific out of Australia. A lot of people run it out of Singapore. It doesn’t matter, in my opinion. It takes seven hours to fly everywhere, anywhere in Asia Pacific. Just to get from Singapore to Beijing, you might not know it, that’s a six-hour flight. It’s a nine-hour flight to get to Tokyo, so who cares where you live? You’re on the plane for a long time. But what I see happen and happen again is that, oh, we’ve got this great guy. And his names is John, and John’s not working out in the role he’s in right now, so let’s send him to Singapore.
Guess what? John didn’t work out in Singapore, either. And hey, you know, he knows everybody back at headquarters, and he’s good at communicating what’s going on because he is a friendly guy, and he’s a good guy. But I loved it when I was competing against Johns out there, because they weren’t great business people, and I knew I could go in and steal market-share.
And that’s exactly what happened to TIBCO, when I was competing with them at Web Methods they were the market share leader throughout Asia Pacific, and later in Europe when I took over that as well, and we just would go and eat their lunch on every deal. It didn’t hurt that I stole their best technical person in Asia Pacific. I figured he’s the guy I needed. But sending your best. So just to give you an idea, that inside sales guy that the US gave up to give to me, you think well, it’s an inside sales guy. His name is Rob Walsh; two years ago, Rob Walsh was the number one sales guy globally for SAP. This wasn’t just any normal inside sales guy, he was a phenomenal inside sales guy. We were very lucky to have him, we taught him a little bit about selling out in the field, but he just had natural talent. And he, that one individual, is probably the key for us getting to go from zero to 65 employees in one year in Asia Pacific with web methods.
And I will tell you a failure here, and that I made, as well, which is I also did the same recently when we expanded to Europe, and I let my team take my inside sales manager, who wasn’t quite working out, and they sent her to Europe. And I kept asking them, are you sure you want to do this? Yeah, yeah, yeah. Are you sure? Trying to be the good boss, and saying, yep, no problem, that’s what you guys want to do. And, unfortunately, things didn’t go so well, and we had to bring her back to the US and let her go, simply because we didn’t make the decision to send our best person out to that market. So when you’re scaling globally, whether it’s from here to California, from here to New York, or whatever, put your best people on the job because they have to work by themselves and work in a way that they don’t have the support around them.
And what kind of support are you asking these people to do? You have to give them the information to tell stories. And I’m sure you guys probably know about this, right? You know about telling stories, it’s kind of a common thing in sales, right? It’s the most important thing you can do. But I’ve created a hierarchy of what I believe is needed to tell a story. So I think of it in three different ways to go into a new market. The first is what I call business benefits are aligned. In other words, you’re telling a story to someone where their business problem is similar to someone else’s business problem in terms of what the business benefit is. Cost savings, productivity improvements, you know, revenue generation, whatever it might be. So, get stories. If you’re building a business in France and you’re telling the story from the United States, OK, you got to have some common things. But you have to have a story.
What you haven’t got, maybe, is a story when you’re talking to, you know, Renault in France, so you haven’t got a story with GM, or with Ford, in the US, but you’ve got a story that matches. What’s better than that, the next level in the hierarchy, is be able to tell that story from GM or Ford. So tell an industry story that matches. And what’s the best scenario? You’re telling Renault that Peugeot is doing the things that they want to do. And there’s a lot of jealousy. And that’s how scaling a business globally, in terms of telling stories, really works. This is how we managed to capture for Web Methods in France, which is an extremely difficult market, if you’ve ever tried to do business in France. Every single telecom carrier there. So what’s their equivalent of Vodaphone, which is called SFR, France telecom, which is Orange, and the other players, we owned them all, because we won one visiting one, and then we went and told stories at the others as we’re scaling the business, about what we were doing for the other player.
You know, it’s how Mackenzie built their business, quite frankly, saying, hey, we did this for your competitor, you ought to do that with us and we’ll tell you what we know, so to speak. Does this resonate at all? Telling a story [inaudible]?
Failure It’s really important that I mention that, case studies, the most important thing other than the people. This is of course what no one wants to do, but all of you will do it and fail somewhere. I can tell so many failure stories, whether that’s here, or there, or in the byway. So when I was living in Europe [inaudible] the European business, I started a business in France.
Back to that France story, about how difficult it is. And I hired a team, and I really believed in this team, and, a year later I had to fire, let’s see, nine out of the 12 people that I’d hired. And it was because the team had failed along many different lines, and I’m going to tell you a little bit about how they failed, but just understand and accept the fact and anticipate the fact you’re going to have failures along the way. Not everything is going to work out the way you want it to, even if you’re hiring the person you thought was great. So that story about hiring and winning all that telco business in France with Web Methods, I did that with a sales rep in France, and I really believed in this guy.
Consistency So, go to the next startup, I hire that sales guy in France, and say, go, you know, sell this new product. And guess what? Laurent didn’t quite adjust well enough. And unfortunately Laurent failed in that role as well. So even if it’s worked for you once, it may not work the second time. And you have to be ready, because failure is inevitable. So one of the big causes of failure is this. Now how many of you can relate to, our market is different. France is famous for this. The other place is Japan. You ever know SAP… everybody knows SAP, right? They had to make a 200 million dollar write-down in 2002, I think it was? 200 million dollars because of fraud in Japan. Are you… anybody know that? Anybody know that fact? And it has a lot to do with the cultural differences around salespeople in Japan not wanting to disappoint or to fail. That’s a cultural problem. However, my note to you here is you’re going to go into places and somebody will say, well, it’s different here. You should really raise an alarm bell if you’re going from New York to LA, and they’re saying, guess what, in the LA market it’s different, we have to sell differently. It’s like… that’s really bad. But it’s true; even in some of this international stuff, and when I made the mistake I made in France, they kept telling me, oh, it’s different here. You know French people, they want to buy something different, and… [audience laughs]
You laugh, I actually learned to speak French so I could figure out what different was. I did. I still speak it today. But… and I love France, don’t get me wrong. I love, love, love France. Anyway, the thing I learned was, you know, positioning the product, the value proposition around the product, that’s got to be consistent everywhere you go. You’ve got to keep that and really hammer it home. Now, there might be a timing difference. And this is a beauty, actually. There could be a timing difference. In other words, what you sold a year or two years ago in the United States might be very popular in the technology adoption of Europe at this point in time, because technology adoption timing varies around the globe in terms of what people are ready to do or ready to buy. May; I don’t say categorically it is.
So you have a chance to take products that are more mature in one market and sell it in another market, and that’s great. So that is different in a way, but the value proposition associated with that product two years ago should be very similar, or exactly the same, as it was before. So having made that mistake in France with a team that wanted to write up their own marketing materials, create their own value propositions, do their own thing, I refused to make that mistake when I opened up Japan with Web Methods, despite the insistence of the Japanese that they had to write their own value propositions. And I said no. I did not learn to speak fluent Japanese. So I didn’t manage to do that, but I did rely on a lot of friends saying, wait a minute, you have got to be, you know, really toeing the corporate line here. And I will honestly say that the success we had there as a result was that Japan grew to be ten percent of global revenue, which is really unusual. Asia Pacific and Japan together is twenty percent. A normal software company is half that, for a public company. That’s just the norms. So you can be extremely successful without varying, you know, some of your messaging, and how you take it to market. So my advice to you there is, keep a consistent global perspective as you scale your organization.
Business Models The thing you probably all know: how many times, if you’re not working, have you changed your business model, right? Oh, I need to change that salesperson, I need to do this and do that, we know they change. But even in the most successful companies, as you grow, they change. You don’t just change because you’re failing; you change sometimes because you’re succeeding. And I’ll give you an example why, when you open up a new market. Let’s take, again, Europe. You’re going to put a few people in Europe, unless, once again, you have a lot of money, and you’re going to have to have someone responsible for management across, you know, different parts of the business. You can’t afford to put in, in my opinion, most of you can’t, some of you might, a senior manager in the UK, a senior manager in France, a senior manager in the [inaudible] countries, a senior manager in DACH, which is Germany and the German-speaking countries, so you have to start out somewhere that says our first phase of our growth is going to be someone to manage those, with salespeople on the ground in those different places. And as you grow and get bigger you’re going to have a chance to hire more senior people.
So even in the most successful companies, your business models are going to change. And so, don’t plan today for what is going to be your ultimate end game plan for what you need this year, knowing that you probably are going to have to change it next year. We’re getting ready at Acquia to change our complete sales model, not because our business isn’t growing, we’re going to grow 50 percent again this year, we’ll be just short of 70 million dollars in revenue. We’re going to grow because we have a great opportunity to align ourselves vertically with about 350 clients in higher ed. Everybody from Stanford, to Harvard, to Appalachian Mountain State College. And what we want to do is get even deeper into those markets and align ourselves vertically. We have an opportunity for the first time to separate global accounts, like Johnson and Johnson, who has 3000 websites that they work with us on, or Pfizer, or Warner Music, or some clients there, versus our mid-market clients, people you never heard of like Dwell magazine, or MMIS, or The Wrap. How many of you know what The Wrap is? It’s a great celebrity website, go check it out. But it’s 30 people. They just happened to build it all on Drupal, and that’s how we scaled that company.
Go to market So go to market models. Change, plan appropriately. This is, once again, and this may be not, Mark, what you expected of me to speak about, you know, turning going global, but hopefully it’s useful, anyway. This is the most contentious point that you’ll have in building a global company. And I don’t always see everybody agree with it. Everybody knows who Seibel was? Seibel? Anybody not know who Seibel was, Seibel… Tom Seibel came out of Oracle, created the CRM company that Mark Benninghoff later decided to totally interrupt. Oracle bought them back, and Seibel believed in a functional business model. So I was friends with the head of Seibel Asia Pacific and friends with the head of Seibel in Europe, and marketing within those organizations reported back to corporate marketing, and finance reported back to corporate finance.
Command and control structures The general manager, for those reasons, basically was, you know, what I would call a cheerleader. And I just don’t believe that that works. I follow very strongly a model that I’ve seen work at IBM, work at Oracle themselves, work at SAP; where the GM, the guy who’s closest to the ground, is the biggest person that wields the biggest part of the strength and the power. It’s very contentious, a lot of people don’t agree with me, but I really believe strongly that you have to put in an organization as you scale your company or eventually your GM owns the responsibility.
And I’ll give you an example of where it was failing. When I went to Europe, and I told you the story about PSDI and Europe, me moving from Australia to Europe after four years and they had four clients in Europe across the board. I landed, and in the first week I was there, which was 1987, I started to ask people how it worked. And they said well, you know, if we want to make a trip to Paris to see a client we call the US. And this was before email. This was before faxes. They’d call the US and say, hey, I want to make a trip to France, is that OK? Or, hey, you know, we want to do this pricing arrangement with somebody can you approve this pricing arrangement? I called up my boss after one week, and I said, you know, I figured out that this is the way it works. I said, I’m not comfortable with that. I had been down in Australia making all of my own decisions, and I liked that. And I said, I’m not going to be comfortable calling you up and saying, is it going to be OK for me to give a discount to company X, Y, or Z? And fortunately, my boss said, thank you; we’ve been wanting that to happen. But that’s a really big thing; the company had failed because the GM that was there didn’t really feel comfortable, or wasn’t allowed.
I wasn’t quite sure what happened, but it was failing because he was making no decisions and not responding to the market conditions. And general managers are the closest people to the ground. If you are building out, please give your general manager that authority and that empowerment. This is an interesting point that people like to dispute. Trust is not an option. I also wanted to put a different one up here, which was don’t trust anybody. OK, alright, Tom is conflicted, I get that, I don’t, really, it’s a conundrum that doesn’t really explain a lot, but at some point in time it is about saying, alright, I’ve got the blindfold on, I’m living here in the States, you’re on the West Coast, or you’re in New York, or you’re in Europe, or wherever you might be, I’m going to let you run that business and I’m just going to hope that it goes well. It’s not an option, because you just kind of have to let it be, let them fail.
Marten was talking to me, Marten Mickos, I had mentioned, and he said something interesting, he’s doing an offsite in a couple weeks’ time, but he said, ‘I’m going to miss the first day, so I’m going to let my execs go ahead and do it.’ And I said, so how do you feel about that? You know, figuring out what they’re going to do. He said, ‘Well, I feel really good about it, because I do think it’s important for them to learn a little bit how to fail, and let them go.’ And I said, OK, fair enough. You know, the guy built the company, sold it for a billion dollars off of free software, that’s not too bad. And so trust for him was a fundamental part of what you do. So I think you have to start out with the notion that trust is important, and you’re going to have to allow people to do what they need to do, and maybe they will fail. So how do you mitigate the number of failures of the management of that? So this is how you do it, and as you scale it becomes more and more important. So back to PSDI, that wonderful, culturally rich company that no one ever left. The first company I was at, and eventually would become MRO Software. When they went public in 1996 they were called MRO Software; they sold for three quarters of a billion dollars to IBM in 2005. Along the way, even in 1980, they were funding a polo team for the founder of the company. So if any of you are Boston folks and you ever go to polo in Hamilton, you ever heard of Pony Express, a team that is still in existence… was funded by that nice little lifestyle company. So you can do a hell of a great job along the way.
One of the things PSDI did not have, when I arrived in Europe many years ago, was a budget. No budget. Anywhere. Which was one of the reasons why everybody called back to the states and said can I do this? And it seemed kind of odd. But I’ve seen a lot of companies, believe it or not, even today, I’ve still ran into… we have 650 partners at Acquia. Some number of them run without budgets. And quite frankly, you can’t scale a company that way. And maybe all of you know that. But more importantly from that is actually setting down regular numbers and agreeing to them. I believe in a philosophy of letting my team set their KPIs and their numbers. So I ask my execs, who ask their folks, to put the KPIs on paper. That way, as they roll up, these are numbers that the individuals themselves have established. So there’s no debate about that’s realistic or unrealistic. They’re the folks that put it down and out. If I think they’re soft-balling me I’ll challenge them and think about it. But metrics are imperative across the organization, and I run a very metrics-crazy company. But it’s the only way where you can measure and understand if you’re trusting someone. OK, are we getting to where we need to get to? And it’s surprising sometimes, where in this metrics-driven company at Acquia, all of a sudden in a meeting someone says, ‘Well, OK, we’re going to start this initiative.’ And they’re getting ready to go, and they walk out the door in the meeting and I say, wait a minute, guys. How are you going to know if you’re successful or not? And that’s the simple question that you can ask anybody on your team. What is the measure of success? How do we know if you’re going to succeed? Ask that question, it’s a simple one. And you want to make it binary, and say, well, if this happens… well, you know, is it 400 leads? Is it 700 leads? Is it 20 million dollars in revenue, or is it 2 million dollars in revenue? And you just get to an agreement. So think about that every time you sit and you’re working on a new initiative and you’re going to do something.
Establish clear KPIs What is the measure of success? And it works brilliantly to help people focus around numbers and managing by the numbers. That helps the trust component out. Immerse and inspect. So immerse is definitely a big thing around the culture, and building your sale. But immerse also means immerse yourself in the field, or immerse yourself wherever you may be. I don’t get to seven million miles in my career by, you know, just traveling to New York and back. You know, I get down to visit the clients in LA, I meet the clients in Vancouver, tomorrow I’m driving to Montreal, and going to visit a few folks up there, immerse yourself in the business. Immerse yourself in the culture of a place if it’s a new place, and try to understand it. This is a really difficult story for a lot of folks, but I have a great story. Back to Japan again, and Web Methods.
My boss, who is the global head of sales, was a very tried and true American, hadn’t traveled internationally, if at all. Certainly not very much. And I sent him, I brought him to Japan and he hated it the first time. He hated it so badly, he told me I’m never going back. I tried to give him the Japanese experience. Well, lo and behold, I had to work with them to get them back to Japan, and so I gave him a hybrid experience, because the deep immersion on the first go was just too much. By the time we finished working together four years later, in Japan, he was going to the Onsen, which are the hot bathhouses in the mountains, and loving that. And he was going to the sushi places, and he was doing everything very Japanese; it just took a little bit longer. But he started to believe, and as we got him immersed in Japanese culture, we got the resources we needed to build that business in Japan and do it, and he understood what the opportunity was, because he had been immersed.
Flip that forward; I left in April of 2004 to go back to the United States, and become CEO of a company here. A check company, by coincidence. And six months later, the Web Methods public results had to be restated because, remember that SAP story? Well in the six months since I left, the Japanese organization had falsified their sales numbers, as well, at Web Methods, because they had failed to make their numbers and they had started reporting directly into the US after I left, and there wasn’t enough inspection going on. So back to that trust thing. So, you absolutely, while you’re immersing yourself, you absolutely have to inspect the business on a regular basis and have lots of ability to understand really what’s going on. While you’re immersing yourself, while you’re in the field, inspect what’s going on. Are they hiring the right people? What are the customers saying? Are they talking favorably about it? Are they being successful? You know, inspect the organization and what’s going on. And finally, my last slide, this notion that I love to talk about is… I have been talking a lot about negative stories and difficult experiences that we’ve had, but celebrate positive surprises. Because while you’re going out and doing this hard work, there’s lots of fun things that come along. Whether it’s, you know, last night our team was having a dinner with one of our clients in New York and they said, well, we’ve got another million and a half dollars we want to spend this year, what can we do with you? You love that kind of conversation, don’t you? It’s like, you beg for that conversation, because… But that’s been built over really four years of very hard work, of adding a lot of value to get to a new point in the client relationship where all of a sudden, those things, the flywheel seems to become a lot easier. But there’s all kinds of positive surprises that can happen throughout an organization.
Positive surprises They come from hard work. A positive surprise I had in Australia when I was working there as, in 1982, as just learning. I was really a tech guy, not a sales guy, but I was kind of learning how to do it. And my agent, my representative, had gone and introduced me to this account, and we had worked on them and talked to them, and nothing was happening. I was kind of disappointed. So we stopped talking to them for about six months, and then we got a call. ‘Well, we’ve just been told by our boss that we have to make a move in this space and we need to do it by next month, and you’re the only guys we know, so can you come in and give us a bid?’ And all of a sudden, we went from no business to we ended up doing something like fifteen million dollars over five years on that account. So that was definitely a positive surprise. The most surprising thing for me was when I moved to Europe with PSTI, the one I talked about before. Our agent in Italy had started to sell things when the rest of anybody else couldn’t sell anything. We were doing 40 percent of our business in Europe in Italy.
Now, if you know anything about European, you know, variance, there’s something really wrong with that. They can’t even keep a government in place, much less, you know, buy a lot of enterprise software. But I celebrated with that agent, that distributor, and we did really well. And I really empowered him and gave him a lot of things. And then, of course, just to finish the story and make it a little bit humorous at the end, a couple of years later he was…had a tough fourth quarter and I said, Donito, I said, che cosa fai? It was not normal for him to have a bad quarter. He said, ‘Oh, you know, Tom,’ he said, ‘well, it turns out the truck with all the Christmas presents that were supposed to go to the clients got hijacked, and the Christmas presents never got there, and we didn’t get the orders. So… [audience laughs]
There’s all kinds of surprises you’re going to go through. And with that, I want to thank you for your time, and hopefully I have some time for questions, so… [audience applauds]
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Audience: I was going to ask that, you’re saying that your tradition… [inaudible]… and what do you make of the more modern business models like the… Scott Berkun yesterday was talking about WordPress and their non-hierarchal structure, and things like this. How do you interpret those new types of business models in relation to your more traditional type of organization?
Thomas Erickson: I’m very familiar with Automatic, which is a WordPress company, also an open source, they actually, I don’t think they have such an unusual business model itself, you know, they sell word software on WordPress dot com and they sell advertising, and they, you know, that’s how they make their money. They’re selling hosting on WordPress VIP, so there might be some organizational things I’m not familiar with, but if you think about, I mean, a lot of the things we do in our business model, as Acquia, our business, we make money off of platform as a service, similar to WordPress VIP, combined with the SAS products, so we are a SAS solutions company; the software is free. Drupal is completely free, never charged for it, it’s not a dual model, there isn’t this kind of thing. So our business model, I wouldn’t say is very traditional, except that in 1980, when I started with PSTI, we did, you know, have our softwares hosted in the cloud, and we did a monthly subscription for it. In 1980 it just happened to be that that cloud-based system that was in Seattle wasn’t run by Amazon, it was run by this other company called Boeing. And the subscription model was indeed ten thousand dollars a month for the software.
So I’m not convinced, I guess, that everything new isn’t old, again. And, you know, the confirmation for me is that one of the most successful companies out there, Box Software? I don’t know how many of you know Box Hopefully a lot of you. It’s worth looking at and seeing their business model. When they raised, around a couple years ago, they raised 50 million dollars, and they have a really, really energetic…he’s a great entertaining guy to speak. Much more entertaining than me, I’m an engineer and a geek from Wisconsin. But this guy, he’s very entertaining to see. They went out, they raised fifty million dollars. Why? Because they were going to hire an enterprise sales force. That’s very traditional for a company that was touting itself as you can download Box, you can install it and do this, but what they learned, which is the same message that we learned, is that when you start to sell deals of a hundred thousand dollars or more to enterprises, which is our target market, and Box is doing the same thing, you have to have field salespeople. You can’t, it’s just the way that enterprises buy. And our business, once we started hiring field salespeople, started going like this. You know, closing deals at Pfizer and Cisco, and you know… We run, just to give you some more credibility, we run the developer communities for Twitter, LinkedIn, EBay, Intel, Symantec, WorkDay… I mean, that’s all, those are all Drupal sites, and [inaudible]. But the only way we’re able to close that business is through very traditional field salespeople. So, we’d hoped to do it all inside sales, wasn’t going to happen. We’d hoped to do it through not having any field technical people, that’s not happening. You know, the people we compete against, Adobe, and Java, and Oracle, are out there. We have to compete in a way that enterprises want to buy. Now, that isn’t the case if you’re in the SMB market. So if you’re selling to small- and medium- sized businesses, which in Europe is called small- and medium- sized enterprises, you can do a completely inside sales download model. A company has done extremely well in this space is, why am I spacing out on it, went public two years ago, anyway, it’s a real popular model that can work, but it doesn’t work for enterprises, large enterprises. So I hope that answers your question. We can talk a lot about business models; I didn’t focus on that here, today, but… I mean, it’s really challenging. We are building a new business model at Acquia that investors, quite frankly, do not understand because it’s so different. You know, platform as a service wasn’t a business model three years ago. You know, and no one wanted to invest in it because they didn’t understand it.
Now today it is. Heroku sold for over two hundred million dollars on two million dollars of revenue, to SalesForce, and that was a big past outcome. And now, you know, past is popular, and that’s kind of where we started. So I could go on and on, but there might be some other questions. I want to give some other people…
Audience: You said it’s best to have a general manager who controls everything, rather than functional heads reporting up. What are your thoughts on the best way to manage different marketing assignments, and different marketing collateral, and shared resources in that case? And to ensure that they are coordinating, that their resources are being shared in the best way, or if the general manager doesn’t want his resources in his country doing stuff corporate marketing because he feels that he should be all focused on his market… how do you manage that kind of task?
Tom Erickson: That’s a fantastic question. And one, I was in Turkey with a group called WPP, which is the world’s largest marketing services holding company. They own ad agencies, they own digital agencies, PR, people like Young and Rubicam and Ogilvy, and we work on the digital side of things. This was just the digital group getting together. And we had an un-conference where people just got together, and that was one of the topics. And we sat there; we made it that specific thing. I have some really strong feelings about it. It’s a little bit of a touchy topic, and it’s not a complete control sort of thing, but some of these guys are adamant that corporate had to control all the communications that went out on a multination campaign, and the other folks came back and said, if you do that, unfortunately, completely, what happens is you’ll fail because you won’t adjust it for local nuances. I think local markets have to have enough amount, a certain amount of discretionary budget.
And I’ll give you an example. I talked about the hierarchy of telling stories. First one is find business value alignment, the second one is find industry alignment, the third one is find geographical alignment. And no one’s ever going to do a use case of using Acquia in Estonia, if the Estonian GM doesn’t do that themselves. That make sense to you? So you have to leave them with enough budget. But the smart GM is also going to realize they don’t have enough budget that they can go out and do everything on their own. They’re going to have to rely on corporate to reprint materials and do positioning. But that’s where this inspect comes in, immerse and inspect. The country folks have to, sorry, the corporate functional reports, which I still maintain kind of have a dotted line or an influence, have to be inspecting and say, wait a minute, you’re giving off a message, and the overall GM for the market, in my case I’ve been GM of Europe, GM of Asia Pac, Head of International, global sales… You have to have a belief that if they’re getting off the message and they’re starting to spend their money foolishly, you’re going to pull them back. So it’s, there isn’t a black and white, it’s very grey. But that’s how I do it, anyway. Does that help? Good.
Audience: Hi. You talked about scaling at home first. I was just wondering what are the kinds of things you’re looking for to recognize that you are actually ready, that you have scaled at home first, because there’s always things to be done to improve.
Thomas Erickson: Yeah, that’s also a very good question. And that’s true, there’s always stuff to be done. But when you get to a point of repeatability, where you start to feel comfortable and you think, phew, you know, when I’m getting my boots on in the morning I’m not just thinking about is this my left foot or my right foot, but they actually slip on and you can do it in the dark, kind of thing. And a business does get to that point, where you feel comfortable, especially if you’re the founder of the company, that you could leave it to your, you know, your VP of North American sales or, you know, or your district head of sales or something, that sales are going to come in, they’re going to happen, and that you don’t have to sit there and know everything about the road map anymore. When you get to that point, while there’s still problems and things to address, you’re definitely ready to push yourself. Generally, I’ve found that if you can even anticipate that moment in time, you can start making that other investment, because if you do it serially and you’re waiting for that moment to come, by the time it comes, you probably waited too long. So you actually have to kind of anticipate when that’s going to happen.
Start your investment ahead of time, because you got to find people, recruit people, move people, train people, transfer, and all that garbage, and then you want that to happen kind of in a fluid manner. And that’s hard to predict, but it is important to happen. But there is definitely, like, how do you know when you fall in love? Right? You know, I don’t know. I still don’t know, and I’m 54 years old. So I don’t know if there’s a right answer to that or not, some of it is how much cash we’ve got in the bank, what kind of risk are we prepared to take, some of it is, you know, I feel really good, I’m ready to go. And you’ll still make a mistake that’s the whole thing. You’ll still fail. So… but just do it fast. More questions?
Audience: Yeah, so in your opinion how much of the operations from your US scale do you have to really bring in country as a minimum to be successful? We’re testing international markets, things like the social media team, product development, engineering. Now, you’re a General Manager, do you need control of local resources to some extent or can we keep customer support and other things, and scale that in a central way?
Thomas Erickson: Yeah, I think that back office folks, including customer support and the like, don’t have to be in country to start out with. The important thing is your market-facing folks. Even marketing can be quite light in terms of what you do. So when we hired, when I’ve expanded into new markets, I always focus, we have this model right now for our team, so there are, I’m going to get this right, wrong, I’m sure, four or five people. So one’s a salesperson, one’s the tech person supporting them, ones a consultant so that they can implement things and work with partners to implement things. In our case, support because of language issues becomes a really important thing. It’s not true in every company; depends on your product, but in our case language support for some of these countries is really important. So those are the four people that we know every time we go into a market. So what’s particularly absent there are marketing people. Engineering people, those that are absent. So I think you can build those over time. I hope that answers that. Anything else? I’ve got probably time for one more?
Audience: I’m curious, you were talking about this; speak to sort of the trade-off in staffing between people with the local knowledge or local experience versus taking people, the culture, and the product and company experience and transplanting them.
Thomas Erickson: You really need a blend of the two. And I’ll give you an example of failure, where we failed to do that in one company. So when I took over Europe for Web Methods because it was failing, and they actually asked me to move back to the US to take over US sales because that was not going well, either. And I said no, I’d rather stay in Australia. If you have ever been there, you know why. And commute to London, which was where some of those million miles came in. And I arrived and inspected the team. We had a GM for Europe, at that time we had a VP of sales for Europe, which was one of the first roles I got rid of, moved that person in company, the company is too big to have a VP of sales for Europe. I have a VP of sales for Europe now, but I already know, that guy already knows at some point in time he’s not going to be the VP in sales for Europe because there is no VP, there is no Europe you need to sell across. But I landed in market and I went around and I also visited the country managers, which are the GMs for the local markets, and I got to the UK. And in the UK there was a person in charge who was from consulting background, in charge of the country management, consulting background, French, in the UK, and you’re going to hate me for this, any women in the crowd, but, a woman.
So any one of those things you probably could overcome in the UK, which is a very chauvinistic society, and sorry for those Brits who are here, but, you know, it is. I think women can sell much better in the US as a GM and I have, I’ve had a GM in 1987 in Europe, sorry, in the UK, so I, a female GM, so this isn’t about being a woman. But this is a person who didn’t have a sales background, and didn’t have local knowledge, who was French and never lived in the UK before. And then trying to go out at night with the guys in the city, which is the way it works in London if you’ve ever been there. It was just really awkward. So she wasn’t able to do that, and all of those three things weighed against her, and she was failing. So local knowledge is really important. She had a lot of knowledge about our business, though, because she’d been in the company. So we made the mistake of not having local knowledge. At the same time, being the person with local knowledge and not getting knowledge transfer, I can give you a lot of examples of failures there, too. You really need a blend of those. And please forgive me if any of you took offense to my comments about my GM in Europe, in the UK. I have great respect for her. She was just in the wrong role. I want her to run consulting for all of Europe. That would have been the right role for her. OK, thank you very much for your time. [audience applauds]