Customers get "more measured" and Salesforce follows suit as company veteran Brian Millham steps up as COO

There was a new line-up on the post-earnings analyst call for Salesforce as the firm announced some strong numbers, but issued lower guidance as deals take longer to close in the current macro-economic climate.

Recent quarters have seen co-CEOs Marc Benioff and Bret Taylor joined by CFO Amy Weaver and Chief Revenue Officer Gavin Patterson center-stage. This time around, Patterson was absent, having moved to a new role as Chief Strategy Officer, and new Chief Operating Officer Brian Millham took his place.

We can’t, of course, refer to Millham as the ‘new boy’ - he was employee number 13 back in 1999 and has served in a number of roles across the years, notably as Chief Customer Success Officer in recent years. No official reason has been given for the timing of this reshuffle, but it was clear from comments made by Benioff that Millham has long been viewed as an ideal fit for heading up the sales function:

He's been a trusted part of our management team for over 20 years. And look, the last time he was the Head of Sales was only two years ago, when we went into the pandemic and went through the transition with [former co-CEO] Keith [Block]. You may remember, I put Brian in for, I think, one or two quarters to run global sales. [He] did a fantastic job. He didn't want to continue with it. So, we asked Gavin to step up from his role of, I think it was International Chairman or European Chairman, I can't remember, honestly.

He added that Millham’s experience would mean a smooth transition as he re-assumes responsibility for sales:

I asked Brian if he would come in and take this forward and he agreed. And I couldn't be more grateful for that. I know we have just a trusted hand. In terms of the transition period, I couldn't imagine anybody who will operate the organization so seamlessly and transparently and with ease. Everybody has such a good relationship already with Brian. And he already runs our forecast calls. He's already been a key part of our sales program. I don't expect any transition period at all, and I'm holding him to that actually.

For his part, Millham said that his time heading up the customer success division will feed into his new role:

I've been very close to this business for the past 2.5 years, working side-by-side with Gavin. I actually was operating in a COO role for him running this business. I think it's critical as we look at sort of the second half of this year and beyond, this notion of customer success and sales together will drive the outcomes that we're looking for and our customers are looking for. And so I'm thrilled with the results we've seen on the attrition side, thrilled with the results that the customers are getting from the investment they're making in our technology and just so excited to lead the sales.

The numbers

So what is the state of the Salesforce nation in terms of the business?  Yesterday’s Q2 numbers were strong, but the impact of the wider economic climate was on show. Total revenues were $7.72 billion, up 22% from $6.3 billion a year ago. Net income was $68 million, compared to $535 million this time last year. The company is now estimating full year revenues of between $30.9 billion and $31.0 billion.

Per cloud offering:

• Sales Cloud revenues were up 15% year-on-year to $1.7 billion.
• Service Cloud was up 14% to $1.8 billion.
• Platform & Other was up 53% to $1.5 billion.
• Marketing & Commerce was up 17% to $1.1 billion.
• Data was up 12% to $1.0 billion.

Per geography:

• Americas revenue was up 22% to $5.261 billion.
• EMEA was up 23% to $1.745 billion.
• APAC was up 17% to $714 million.

Against those numbers, the firm is taking a measured outlook on the rest of the year. Benioff explained:

We've all been through a number of these economic cycles and we've especially seen that over our last 23 years. And ones like this come around, we see customers becoming more measured in the way they buy. Sales cycles can get stretched. Deals are inspected by higher levels of management, and all of this, we began to start to see in July. Nearly everyone I've talked to is taking a more measured approach to their business. We expect these trends to continue in the near term and we reflected this in our guidance. 

The other big development financially is that Salesforce announced its first share repurchase program worth $10 billion. In Benioff’s words, it's a vote of self-confidence:

We always get questions about our M&A strategy and what company we're going to acquire next and what we're going to do next from an acquisition cycle…I'm excited to tell you we have found a great cloud company, growing revenue for 73 consecutive quarters through every economic cycle, it's got great cash flow, number one market share, an incredible brand, one of the most admired companies in the world, great values, fantastic community of 17 million trailblazers, fantastic commitment to its community, runs across 90 countries and that company is Salesforce.

Business as usual?

For his part, co-CEO Taylor was seen to emphasize that there is still a large degree of ‘business as usual’ in terms of customer priorities:

Digital transformation remains our customers' top priority and digital transformation starts and ends with the customer. Fundamentally, all of our customers are really investing into the secular trend of the digitization of their customer experience, their employee experience, and with our portfolio, we're at the top of that list. I think what you're seeing is an increased focus on, I say, three things. One is time to value. The other is ensuring that these projects drive cost savings in addition to customer satisfaction and top line growth. And then the third is reducing complexity and vendor consolidation.

Millham concurred, adding:

We are seeing some compression in some of the larger transactions in our enterprise business and it's not a surprise. I've lived through three of these cycles before, and you can see that maybe people take a more measured approach to their digital transformation, maybe starting with a smaller piece, but a land and expand strategy is something we've used for many, many years, see can grow as a strategy we've used.

And so, despite the fact that maybe some of these engagements are a bit smaller, we do see acceleration in these customers in quarters to come. So yes, there was compression out there in some of the business, but we are very confident that we can go execute against the opportunity in front of us in these large enterprise accounts going forward, with digital transformation being a top priority.

My take

Very excited to take this on with zero transition time.

Millham is undoubtedly a great choice as COO. He’s got Salesforce DNA and his time heading up the Customer Success team is going to serve the firm well as customers and prospects take more time over buying decisions. Relationships are everything. 

As for Patterson, he’s done a good job realigning the sales organization over the past couple of years and it will be interesting to see how he defines and executes on the role of Chief Strategy Officer.

As for the wider economic climate, the more cautious guidance may not be something that is traditionally associated with Salesforce and will probably spook some short termists on Wall Street, but it’s a pragmatic measure. Last word to Benioff:

When we get to this moment, I don't think it's a huge surprise that customers are more measured. Everybody is like wondering exactly where the economy is going and how things are moving forward. So, this is a point where people are taking a little bit of a breath and then they will reassess. And then when they get their confidence and kind of a full vision for the next stage of their company, they come in.

Next stop - Dreamforce.