Changing of the Guard - Domo and Yext shake up management as founder CEOs depart

One aspect of the tech market that has always intrigued me is how and when founder CEOs cut the umbilical cord with their ‘children’, how that is managed without spooking investors and what impact it has on corporate strategy and direction.

When I first started in this game back in the 1990s a perpetual topic of scuttlebutt was who might one day succeed Larry Ellison as CEO of Oracle, for example, with a succession of pretenders to the throne having their 15 minutes of fame before passing through. In the event, Oracle has very successfully managed to evolve its top management structure with the pairing of Safra Catz and the late Mark Hurd as co-CEOs, while Ellison himself  transitioned to the role of CTO, but retained top level presence.

We’ve seen similar co-CEO arrangements play out at other companies - happily in some instances, such as Salesforce’s intpairing of founder Marc Benioff and co-CEO Keith Block initially and now Benioff and Bret Taylor - and less happily in some cases - that’s you we’re looking at, SAP! In other cases the baton has been passed from founders to a next generation with a clean break, such as at Microsoft and at Apple (second time around).

Just this month we’ve seen two examples of the founder CEO stepping away from his role. First it was Josh James, CEO of analytics firm Domo, replaced by the firm’s Chief Strategy Officer John Mellor.  He also stepped down from the company’s board. On the firm’s post quarterly results analyst call last week, James, something of a serial entrepreneur, said:

I want to say I could not be more proud of the entire Domo team. They turned this business from a vision I founded 11 years ago, to one that was next struggling to emerge and grow. But then finally now, it's become a very successful, sustainable business.

He added of Mellor:

The company is in great hands. It's John's boat to drive now and I'm thrilled to watch him Captain the ship. I obviously have an aligned and substantial interest in Domo doing well and I'll continue to be the biggest curator.

As to what directional shifts Domo might take under its new management regime, Mellor himself said:

It's actually a really exciting time for the business. This is an opportunity to leverage the breadth and the depth of the management team. This team that's here today, the team has delivered these results and we've got a passionate vision about how to continue to execute on those results…I think my style is really about simplicity and focus on execution, right? Are we going after the right big strategic targets which I think we've proven that we are really making progress there? Are we investing in the right systems to run the business as it scales? We're making decisions now that are need to be on the path of a $1 billion revenue business.

And then, of course, a big priority for me is employee experience. As we add more people, particularly due to the sales organization, how do we do that with consistency? How do we do that in a way that maintains culture and inclusivity and just build a high-performance team?

Some of those questions will doubtless get an airing next week as the firm stages its Domopalooza conference later this month.

Next at Yext 

Meanwhile yesterday saw another founder CEO departure in the shape of Howard Lerman of AI search platform Yext, who told analysts:

Today, it's time for me and Yext to take the next step in our journey. 

He’s handing over to Mike Walrath who’s was the firm’s Chairman of the Board. Also departing is Steve Cakebread, the firm’s long-standing CFO. News of the changes came as the company turned in disappointing Q4 numbers - a loss of $23.1 million on sales of $100.9 million, up from $92.2 million a year ago - which Wall Street turned on, sending the share price tumbling 20%.

For his part, Walrath admits that Yext has areas for improvement that he acknowledged as he pointed to changes of strategic approach ahead:

We were disappointed by our performance in fiscal year '22. While it has been a very challenging operating environment and COVID surges in Q2 and Q4 had particular impact, we can now see that our go-to-market was far too inefficient.

He added:

We have begun the work of streamlining our go-to-market with a unified customer and product approach. In recent years, we launched exciting new products, like Answers. These new products and the expansion of our market are exciting and healthy developments but we have seen fragmentation in our interactions with customers and our ability to deliver premium service and support. This impacts customer satisfaction and challenges our retention and upsell motions. In hindsight, it is clear we were too focused on building sales capacity and not focused enough on other functions that drive productivity, particularly sales enablement, training, client success and services.

We believe that the first step in delivering a better customer experience is unifying our customer-facing functions like marketing, sales, support and services with our product and engineering efforts…his approach should help ensure our new products and features are tied directly to customer needs and that our go-to-market motion matches the evolution of our products.

And the firm will be taking a different approach to investment going forward, it seems. Walrath said:

Historically, we have invested aggressively in anticipation of future growth. This works well when things go as planned but can also create inefficiency and contribute to organizational sprawl.

Going forward, we will continue to experiment but major investments will follow clear evidence that we are gaining traction. We are taking a more disciplined approach to all of our investments, paying close attention to productivity and customer base metrics to sooner understand what is working and where our dollars can be better deployed.

That’s a hefty ‘to do’ list - and one that might well still ‘scare the horses’ on Wall Street. Walrath concluded:

There's a lot of change. Fortunately, everybody who's around the table has been here. And so I think there's a really great lens on the business. There's a lot of work to do as well.

My take

Because I have been Chairman and I've had an opportunity to be very engaged over the last few months, I'm not coming into this conversation cold. 

Yext’s Walrath makes a good point, but there’s no doubt that investors have given the firm a serious beating and he and the reshuffled management team have a big job on their hands, with acquisition speculation accompanying them en route.

For Domo, James departure is sudden, but not out of character. As noted above, he’s a serial entrepreneur. Setting firms up and moving on might be seen as part and parcel of the job description. I will take particular interest in Domopalooza this year to see if more insight emerges on what comes next.