Salesforce Flirts with the “500”
Salesforce CEO, Marc Benioff
Two numbers to keep in mind: $4.8208 billion and $5.25 billion. The first number is the 2013 revenue reported by Nash-Finch. According to Wikipedia and Fortune magazine, the company is based in Edina, Minnesota, near Minneapolis. It is involved in “Food distribution to private companies, primarily independent supermarkets, and military commissaries; and the operation of retail stores,” according to its Wikipedia page. According to Fortune, the company was number 498 on its list of 500 largest American companies in 2012. In 2013, it ranked number 500.
The second number is the low end of the fiscal year 2015 guidance just offered up by Salesforce.com in a conference call with analysts and a press release from earlier this week. If you can do a little math and draw a straight line or two, this data would suggest that a year from now Salesforce will occupy at least the number 500 position in Fortune’s vaunted list. But keep in mind that there are other companies out there with similar stories.
So this is no time to estimate chicks by counting eggs in the incubator, if you know what I mean. But for armchair prognosticators, it strongly suggests that absent a major stumble, well, you know. One thing that bolsters the company’s chances even more than my simple assumptions is the amount of uncounted (but NOT unaccounted) cash on the books. According to the press release, the company has:
- Deferred Revenue of $2.52 Billion, up 35% Year-Over-Year
- Unbilled Deferred Revenue of Approximately $4.50 Billion, up 29% Year-Over-Year
These measures are a testament to the power of the subscription model and one reason I have been such a fan of it. Subscription revenues get recognized as they are billed or, if the revenue is deferred, each month when the bills go out, the customer’s balance is dinged (that’s a technical term). Deferred revenue refers to cash on the books and in the bank that will be dinged. Unbilled deferred revenue refers to cash under contract that has not been either billed or collected because it is accounted for in a future fiscal year. Think of it as ding-able in the future.
No matter how you slice it, Salesforce has a lot of momentum with most recent Quarterly Revenue of $1.15 Billion, up 37% Year-Over-Year, a forecast that is amazing, and lots of cash in the bank. These results and the forecast show what a good job the company has done in building a repeatable business and the power of the subscription model when done right. I don’t think there will be any escaping the speculation about the Fortune 500 this year, which might put a little pressure on everyone at One Market Street in San Francisco. But by now, they’re used to it.
The Incentive Compensation Process
The story of front office automation is shifting from data to process, but the idea is so new that you’d be hard pressed to identify a movement by that name. However, I am happy to coin a term and if you consider the developments of the last decade a clear picture emerges.
CRM and other front office solutions emerged as systems to manage data capture and retrieval. SFA managed the data collected about prospects, contacts, and deals; marketing managed aspects of lead development and marketing spend; and service systems juggled data about customer service needs. In all cases CRM systems served up data for human decision-makers to use in performing largely manual activities.
Then the Big Data revolution happened and its first effect was to document a need to simply handle all of the new data being churned up by social and other customer facing systems. But once data was corralled, data scientists began using analytics against the data to discover new information about business. This created a positive feedback loop in which growing databases provided information back to business practices and in the process improved them. Process automation soon followed.
Today big data and analytics have spawned the move from data management to process management throughout the front office. In some cases this movement has created whole new automated business processes and incentive compensation is a great example.
As a process, incentive compensation is not new, but its automation and the extent of its influence is. It had always been a time consuming manual process with limited applicability — business leaders may have known what to do but lacked the tools. At its greatest extension, the manual incentive compensation process applied to executives with employment contracts and to sales people with quotas. Human Resource departments handled executive incentive compensation while the finance group manually reconciled sales and commissions — a long and labor intensive effort.
As Chris Cabrera documents in his excellent book, Game the Plan — Every Sales Rep’s Dream, Every CFO’s Nightmare, automating the compensation process has spawned not only an automated incentive process, it has also introduced a new best practice.
In sales compensation it was always assumed that savvy sales people could game the compensation plan to their advantage. A wise saying in compensation management is that you get the results you incentivize and the caveat is that we sometimes inadvertently incentivize the wrong thing.
Gaming the plan is the inevitable result — in other words, without any formal process orientation by most companies, their sales people invented their own processes. Typically this means sales people preferentially peddling the products that are easiest to sell or that have the highest commissions or generally doing whatever is the easiest path to quota attainment and maximizing their commission plans. Too often though, reps’ ambitions do not square well with management’s needs, for example, to sell the new product which might be the future of the business but would require more sales effort.
That was typical in an era when compensation management meant capturing sales data in spreadsheets and manually checking for business rules compliance — accelerators, spiffs, contests and the like — and calculating compensation. However with automation of the core compensation process, companies have discovered they can move the discussion upstream from compensation after the fact to incentives before the fact.
With incentive process management vendors are now able to develop plans that more accurately reflect the goal attainment they intend paying commissions for. None of this incentive management precludes a sales person from attempting to game the new plan but it does change the rep’s calculations. By managing incentives better sales managers can set specific goals by product, revenue, and even profitability so that the path a sales person takes to quota is more inline with the company’s objectives.
Improving the incentive compensation process is also in line with other process advances now circulating. According to CSO Insights, and their twenty-year longitudinal study of the sales profession, the heart of sales attainment improvement is deploying better processes throughout the sales organization including in hiring, coaching, and managing sales teams. For instance, their studies have conclusively shown that businesses with formal sales processes, especially when backed up by automation (they call this dynamic sales processes) significantly outsell their competitors with random or informal sales processes.
In this light the incentive compensation management process is an important supporting business activity that feeds into overall sales improvement and there’s plenty of room for improvement. CSO Insights market study shows that only 57 percent of quota carrying sales people made or exceeded their targets last year. That means 43 percent failed to bring in the revenue that their companies were counting on.
It’s impossible to always get 100 percent of a goal but there’s plenty of room for improvement and incentive process management is a worthwhile investment for many companies trying to get to the next level of sales performance.
What else can you buy for $16 billion?
A billion dollars isn’t what it used to be but it’s still substantial. You might wonder, as I did, what else in the world might be worth $16 billion the sum Facebook will pay (unless it pays $19 billion) for WhatsApp. As it turns out there are lots of things and people in the $16 billion range. Here are some examples.
Len Blavatnik, a self-made man with diversified holdings is #44 in Forbes list of richest people in the world.
Michael Dell, founder of Dell Computer, is #25 in Forbes’ American list.
According to the UN, GDP rankings the Republic of Georgia has a GDP of $15,830 billion.
The 2014 winter Olympics cost Russia a reported $50 billion. But the 2018 event in Pyeonchang, South Korea has an infrastructure budget of only $7 billion, assuming a 100% overrun we’re in the neighborhood.
The latest US Aircraft carrier, the USS Gerald R. Ford, is the first in a new class of carriers also called the Ford class, aka the floating Fort Knox. It was christened last year and had a cost of $13 billion, not including things like planes and ammo. Ford-class carriers will begin replacing the 40 year-old Nimitz-class carriers and we can expect a $16 billion carrier any time now.
F-35 joint strike fighter jet. Projected cost of $391.2 billion for a fleet of 2,443. That’s a current projection of $160.13 million per. Seems light to me.
US federal budget, $2.9 trillion with a deficit of $901 billion, now that’s big.
Forget all that, I decided to do what’s fastest and easiest. I simply Googled $16 billion to see what would pop up. Naturally, WhatsApp and Facebook were everywhere, but if you get deep into the search pile interesting things begin to emerge. Here are headlines and links.
More Than $16 Billion in Taxpayer Money Wasted Annually on Animal Testing
http://www.peta.org/features/16-billion-taxpayer-money-wasted-annually-animal-testing/#ixzz2ttVjpunz
Bolivia Earns $16 Billion from Energy Industry Since Nationalization (in 2006)
http://www.laht.com/article.asp?ArticleId=767997&CategoryId=14919
FY 2013 – $16 billion to assist recovery from Hurricane Sandy. ($15.18 billion after sequester)
Exxon reports record profit of nearly $16 billion
July 26, 2012
http://money.cnn.com/2012/07/26/news/companies/exxon-profit/
American Psychological Association
The use of psychotropic drugs by adult Americans increased 22 percent from 2001 to 2010, with one in five adults now taking at least one psychotropic medication, according to industry data. In 2010, Americans spent more than $16 billion on antipsychotics, $11 billion on antidepressants and $7 billion for drugs to treat attention-deficit hyperactivity disorder (ADHD).
https://www.apa.org/monitor/2012/06/prescribing.aspx
Suntory buying spirits maker Beam in a $16 billion deal
http://www.wdrb.com/story/24431843/suntory-buying-spirits-maker-beam-in-a-16-billion-deal
A lot of bourbon
Unclaimed Money: $16 Billion in Unredeemed U.S. Treasury Bonds. Could Some Be Yours?
June 15, 2011
JP Morgan: $7 Billion in Fines, $16 Billion in Legal Costs
August 8th, 2013
http://www.ritholtz.com/blog/2013/08/jp-morgan-6-9-billion-in-fines-unknown-billions-in-legal-costs/
Ouch!
China announces $16 billion Beijing anti-pollution plan
Who are they kidding?
Cost of Excessive Drinking in Texas: $16 Billion
“In Texas, the yearly cost of binge drinking is estimated at $16 billion, which includes expenses related to health care, criminal justice and lost work.”
Shop til you drop: India’s e-shoppers spent $16 billion in 2013
http://www.techinasia.com/india-ecommerce-market-spending-16-billion-dollars-in-2013/
Let’s see that’s about $16 per. Think of the upside.
So there’s lots that $16 billion can buy. I don’t know why there’s such an uproar over a ten year-old software company buying a four year-old software company.
Back Office Perks Up
What’s going on in the back office?
That normally staid bastion of conventional computing is perking up taking on subscriptions and cloud computing like candy. It used to be that when you thought about back office and cloud in the same thought you also thought about NetSuite. Truthfully you still do, they’ve been at it a long time and have produced a solid and well articulated suite of back office ERP, finance, and accounting software (and more) that runs a lot of companies, especially the international variety that keep books in multiple languages and currencies.
But over the last ten days other companies have announced partnerships and solutions that both challenge NetSuite’s position and point to an important new era in computing.
The new era has been percolating through all of this century. Ever since Salesforce starting selling “no software,” cloud computing and subscriptions have been stealing a march on conventional, expensive, and bloated on premise software. Each year these solutions became more powerful and ubiquitous. First they supported other subscription companies, then all sorts of companies, and now, with the advent of the platform, cloud computing has come to the development suite and the back office.
The back office! Ten years ago the mantra was “Not with my data!” but something happened. Certifications sprouted and cloud became normal and safe and with Salesforce’s leadership, kind of cool. On the back office side, NetSuite carried a similar message to the point that today cloud and accounting are no longer words that, when spoken together, sufficient to punch your ticket to a long rest in a rubber room.
The last week has seen a breakout of sorts for subscriptions, cloud, accounting, ERP, and platform computing. Zuora and Intacct announced a widening partnership that will deliver Zuora’s subscription billing, payments, accounting, and financial management solutions to Intacct’s 7300+ cloud accounting customers. Be aware that cloud and subscription are not the same. Intacct has been successfully delivering cloud based accounting services and giving NetSuite its fair share of competition for many years.
The addition of subscription power from Zuora raises the bar to enable Intacct’s conventional customers with subscription aspirations to support what can best be called hybrid business models. At the same time, the announcement also shines a light on Salesforce’s platform strategy. Zuora is a native application on Force.com and Intacct has developed powerful integration with the platform in general and the joint announcement says they’ll double down on that integration. For Zuora it means 7300 new prospects, for Intacct it means a major capability upgrade without breaking a sweat. But we’re not done.
Also today, FinancialForce, a native accounting system on the Force.com platform just announced their entry into the ERP market with FinancialForce ERP. As a native application on the Force.com platform, FinancialForce has completed the circle of front to back office solutions that began with Salesforce. With all of the available solutions, a company of any size or complexity can now support all of its enterprise IT in the cloud and via subscriptions.
I think the biggest news in all this is what will happen to conventional IT in the years ahead. Pessimists say that IT will wither as significant chunks of functionality decamp for the cloud but I disagree. IT has always been a major component of a company’s secret sauce. If garden-variety accounting systems, even those that support subscriptions, can be off-loaded to the cloud that’s fine.
As more enterprise solutions head for the clouds and budget ratios turn from capital expenses to operational, we should see a renaissance of in-house application development which will, importantly, drive new business processes, especially in mobile apps that will help users do more and better business and do it faster. That’s where the secret sauce is and will remain for the foreseeable future. Time to embrace it.
These foundational changes come at an opportune time as prognosticators think about what it will mean to have 50 billion devices hanging off the Internet in 2020. Devices will increasingly be non-human consumers of goods and services (especially for restocking) and producers of data and information. Their transactions will take fractions of a second, be automatic, and require the attention of the infrastructure we are building now with cloud and subscriptions.
So the significance of these announcements together with things that have been coming out in the last year all point to an important milestone. Conventional applications managed data but the new stuff with platforms, front and back office integration, workflow, and social media all point to building and managing better business processes. I think we’re close to the end of a long wave of technology invention and at the beginning of an era of its consolidation and application.
Completeness, Relevance Are the New Black
Are we collecting enough data? It seems like a weird question given the glut of it at most companies and perhaps it is. Perhaps a better question is are we collecting the right data? We could get into a long philosophical discussion of just what the right data is, but that would only happen if we made the mistake of thinking all data is the same.
True all data ultimately gets represented as 0’s and 1’s in the database so at least at that level, all data is remarkably similar. But the comparison stops there. All protons are the same too but how many are associated in a nucleus (along with the companion neutrons) is the difference between lead and gold.
Of course the way through this dilemma is to first ask about the objective of the data collection. Most business leaders will tell you that data collection is a prerequisite of knowledge creation and that knowledge is the objective because employees make business decisions based on knowledge and not data or even information. This is especially true in marketing and sales.
Cultivating knowledge requires us to combine data with other data and information to ultimately result in the thing we need in business, actionable knowledge. To do that it’s necessary to capture a wide diversity of data that includes the stuff that comes from our social media outposts, CRM, and ERP systems. But too often we stop there only to discover it’s not enough.
Sufficiency comes from completeness and relevance and these ideas should be explained. Knowledge has a context. If you want to develop sales knowledge, for example, your goal should be in developing leads, which is another way of saying knowledge about who has a business problem to be solved and the authority and budget to cause a solution to be created. Some would also say that the person represented as a lead should also have cognition of the problem but the counter to this is, that’s what sales people do.
Relevance means understanding all the things related to completeness plus having a suitable solution. It does little good to know that someone has great credit and is approved for a car loan if you don’t sell cars.
So sales knowledge relates to all the data that we cultivate to knowledge plus completeness and relevance. But the data and information that get you all the way to knowledge comes from different sources which brings me to the point of my questions — are we collecting enough of the right data?
We collect a lot of our own data, of course, and we may supplement it from data providers both to cleanse our collections and to add both new data profiles and to flesh out existing profiles. That’s only part of the story, though. It’s like having a very specialized and up to date version of the phone book. Filtering can tell us about attitudes, needs, and other valuable things, but by itself, this data has missing pieces.
Getting all the way to knowledge requires different approaches than simply filtering the social stream or completing profiles. After all, buyers often don’t simply announce a desire to buy something. Instead they may do things like make pronouncements, issue press releases, or introduce reports. Third parties might also supply information that, when married to conventional data produce the knowledge that, under the circumstances, a person or business will need to act in a certain way. These are the things that ultimately drive completeness and relevance.
So, a good question to ask about the whole lead generation process in any company is this: How complete and relevant are the leads that marketing gives to sales? An even better question is, is that intentional?
Sales has a role to play in qualifying deals, especially when large sums or novel products and processes are involved. Frankly, marketing can only go so far in developing a lead. But too often we treat all “leads” alike as if they were protons or data. A company’s attitude toward the need for completeness finally drives the process of lead generation but gauging completeness is too often considered to be part of the sales process and here’s the rub.
Why spend relatively expensive sales rep time getting to completeness if there are better, faster, and cheaper ways to do this? You might never be able to get every lead to 100 percent completeness and making that attempt might cost your some business. Nonetheless, being conscious of completeness as a goal will alter some of your marketing process and possibly even cut down the number of leads marketing hands to sales. So what? Better qualified leads are more worthy of your sales people’s time and resources; so a reduction in quantity, as long as it is accompanied by better quality, would be a good thing.
As always, the devil is in the details — how do you get there? My suggestion is to capture more data or at least some different data. There are wonderful tools on the market that spider the Web looking for the reports, press releases, and news stories, and ferret out the information that provides the completeness we seek. At least some of this data and information might need to be scored and fed through an analytics engine so once again simply collecting this data won’t get you to Nirvana.
But we should all be aware that the bar is being raised for this next level of data collection, and we must understand the importance of completeness and relevance. It’s a competitive world and getting to completeness before your competition might be the new black.
