I first got to know SuccessFactors as a competitor while I worked at SAP, probably around 2004-5. SAP’s leadership at the time largely ignored how early SaaS vendors like Salesforce and SuccessFactors were making inroads into even large enterprise customers. SAP’s lack of focus on HCM was a major reason why I ended up moving to Gartner in 2008.
Jim Holincheck and I covered them closely at Gartner and Jason, my partner at Acadian Ventures today, covered them for Yankee group. They grew very rapidly, and made several acquisitions (Plateau, Infohrm and several others), and in turn we had a ring side seat for their acquisition by SAP in 2012.
I left Gartner in early 2013 and I joined SuccessFactors, initially to shape and scale up the Employee Central product. I ended up co-leading the product management organization. I left in 2018. (I learnt a lot about scaling product, and post-merger integration, but that’s not the focus here).
A little while ago I had dinner with several former SuccessFactors sales people in Boston. All of them have since moved on to great careers elsewhere, at Coupa, Cresta, Qualtrics, Workday, Unit4 and others.
While it was fun reminiscing, seeing that gang together reminded me of one of the reasons why Lars Dalgaard was able to build SuccessFactors into a really big business, while almost all the other employee performance management vendors of an earlier or similar vintage remained relatively small.
How: Business model, bold vision, and the best salesforce money could buy.
Lars and Bruce Felt, his CFO, understood SaaS finance and venture funding, and were able to run at a large loss, while the SaaS flywheel got going. Most of the competition was basically bootstrapped. While it seems obvious today, the economics of SaaS scaling weren’t common wisdom then. A deck Lars presented at Stanford is worth a look, as is the fire-walled case study. The 2008 Q2 earnings call is also fascinating.
He also genuinely believed that the products transform how work’s done. While the competition were largely talking to HR, for HR’s benefit, Lars had a significantly bigger, bolder vision. He was a master at communicating his convictions.
Lars and his team did a couple of things to drive the SuccessFactors brand and postioning. In the mid 2000s the most famous business leader in the world was the former GE CEO, Jack Welsh. Lars managed to get Jack as spokesperson for SuccessFactors. The world’s most hard-hitting, high performing CEO was talking about employee performance management. By linking SuccessFactors to Welch, Lars changed the game (someone analyse this body language). This made SuccessFactors the Cognitive Referent. Everything else in the space was compared to SuccessFactors.
Rather than just talk about employee performance management as a process or set of features, he made it about linking business strategy to employees. This turned it from a pitch to HR middle management, into a pitch that HR could use to the board. SuccessFactors got McKinsey and others positioning performance management as a key component of C level strategy. This was remarkably smart marketing. For more on this, have a read of Stacey Epstein’s article.
But if you create a C level pitch, you need a C level salesforce to sell it.
It is no good creating a great vision and good product if you don’t have the right distribution mechanism (h/t Dave Kellogg). Selling to enterprise at the time was really all about the the scale and quality of the field organisation. To close Walmart and others, you need sales people comfortable and capable of bashing down doors and managing a complex sale.
He built one of the best enterprise sales forces. He did this by making SuccessFactors a magnet for great sales people. Part of this was sheer force of personality. He built a culture and reward model that enabled him to hire the most potent sales people. Those that performed well made wheelbarrows of money. Those that didn’t were out the door.
What can founders learn from this?
Lars was certainly mercurial, and I’m not suggesting that one can simply duplicate what he did then, today, but there are several clear take aways.
Create a mission that your customers and employees get behind. Paint a compelling vision of a future state, and drive everyone toward that. Define clearly why you are different.
Organization culture is really important. Be deliberate about what you want that to be. SuccessFactors and Workday had/have different cultures, but the leaders in both companies spent a lot of effort on the “small” cultural artefacts that reinforce norms and behaviours.
You won’t win big deals by talking function and features.
Once you have product-market fit, build and train the best sales and marketing machine in your sector. Over index on this.
Keep a determined focus on over-delivering on what your ideal customer needs.
There might be a part 2 or part 3, and, I may or may not explore product strategy, riffing on Dave Kellogg’s 3+1. There are heap of engineering and product innovations and challenges that I should probably talk about too.
That period from 2000-ish to the acquisition by SAP in 2012 offers so many great lessons!
As agency partner for Successfactors and then SAP Successfactors during that era, I can second your observations, Thomas. In particular the sales-led culture and the all-star quality of their sales leadership, marketing too.
Lars and his teams kept the peddle down before, during, and after the Great Financial Crisis while category competitors like Taleo pulled back on sales and marketing. Comparing the exits of the two offers an important lesson about sticking to your strategy when you're in the midst of a land-grab for marketshare. Taleo started acting like a profit-focused company too soon — at least that's one interpretation.
I hope you continue this series. Great stuff!