How quote-to-cash play Apttus won Mark Zuckerberg as a backer

Profile picture for user pwainewright By Phil Wainewright May 20, 2014
Summary:
Apttus CEO talks about using Chatter to bind data in Excel and Word to Salesforce, startup funding, and what he learned at ASP pioneer Corio

Kirk Krappe, CEO Apttus
Kirk Krappe, Apttus

"Mark Zuckerberg is very interested in the intersection of social media with business," says Kirk Krappe, co-founder and CEO of quote-to-cash provider Apttus.

That, he tells me, is a big part of why Iconiq Capital, the secretive private equity fund that invests on behalf of Facebook's CEO and its COO Sheryl Sandberg along with other Silicon Valley illuminati, co-led a $37 million stake in the vendor last September. Other investors were K1 Capital and salesforce.com, whose platform Apttus runs on.

The technology that sealed Iconiq's interest was X-Author, which Apttus developed to embed Salesforce.com functionality into Microsoft Office applications such as Word, Excel and Outlook. X-Author uses a social feed such as Chatter or Jive to attach Salesforce logic to Office documents, and even down to individual cells in Excel or fields in Word.

For example, when a salesperson goes below their discount threshold when preparing a quotation, X-Author can initiate an approval process using Chatter. It won't allow the discount to go out until approved by a Salesforce user with the required authority. That approval process can be completed in background without the salesperson having to leave the document.

Adding Salesforce workflow to Office

The value of X-Author for enterprises is that it allows them to add workflow controls into Office-based processes. Rather than persuading a sales team to adopt a new application, with all the change management overhead that implies, the organization simply adds the controls into the existing routines. Krappe explains:

"There are six sigma companies where the salespeople are using spreadsheets to quote. You're going to move five thousand salespeople to a new application? Why not stay in that spreadsheet? That is a big deal."

The X-Author technology, which is protected by fourteen patents, works especially well with Salesforce's social feed because of Chatter's ability to pass structured data into and out of the Salesforce application. Krappe says it's also arousing interest from professional services providers because the X-Author technology makes it possible to use Excel as a platform for building Salesforce applications.

Like most of the Apttus suite of applications, X-Author came about as a response to customer requests for functionality, says Krappe. The company's first application was for contract management, built on the Salesforce platform. Other functionality soon followed, as Krappe explains:

"Quote-to-cash turns out to cover a huge footprint. The way the company evolved, these Salesforce customers would ask us, 'Can you create a deal manager? Can you create a configurator?'."

Going native on Salesforce

Restless Salesforce natives form new gangWithin the fast-expanding universe of enterprise cloud application vendors, there's a unique band wh…Apr 28 2014diginomica.com

Krappe says that the concept of building the company's applications on the Salesforce platform had occurred to him long before the vendor formally launched the idea that has since spawned a large ecosystem.

"Eighteen months before Force.com existed, I had this notion that if we could go to Salesforce and put it on their architecture and have them deliver it, we'd save ourselves a whole lot of trouble."

This was done without any concept of selling to existing Salesforce users, recalls Krappe:

"The thought was to take that infrastructure investment, that scalability, off the table. There was no idea to say, 'Wouldn't this be interesting to Salesforce customers?' Our first 10 customers were not Salesforce customers."

Then Apttus won Salesforce user Symantec as a customer and the model clicked. But the relationship has worked to both vendors' advantage, as Krappe explains:

"We brought Alcatel Lucent to Salesforce.com. We got in and sold our application and that jarred the door a little bit. That little door jarring was just enough for them to get in there."

From bootstrap to VC darling

Until last September, the startup bootstrapped its growth, relying on revenues and credit cards to pay its way (at its worst, Krappe's Amex balance dipped to a $71k debt).

"This model of building on a platform that would give us an advantage worked. We made enough money to pay everyone in the company.

"We've been profitable every quarter the company's existed until Q4 last year."

That Q4 loss was intentional and linked to the decision to accept some capital, which the company had previously always declined, despite many serious offers.

"We said we don't need to raise capital. We never took it. We were adamant not to raise money. But then we said, if we got some astonishing valuation and could take a few percent, should we? And that's what we did."

Having examined the pre-IPO finances of a number of leading SaaS businesses, Krappe and his colleagues realized that all had deliberately chosen to run at a loss in order to fuel their growth. That sparked Apttus to make a significant investment in additional sales and development staff during 2013, when the headcount almost tripled from around 100 people at the start of the year.

"We made a decision we would just max it out. We grew the company hard ... Our burn rate changed. Through that process, we realized if we're going to execute that footprint fully, there are acquisitions we can do, partnerships we can pursue."

That led in turn led to the decision to accept funding:

"It gave us gunpowder. We haven't touched it and probably won't. If you look at our investors, we could have had anyone we wanted."

A lesson from cloud history

From client-server to cloud: SaaS evolutionThere are many definitions of software as a service (SaaS). In previous posts in this series I've du…Jan 10 2014diginomica.com

On meeting this week, Krappe and I realized that our paths had crossed around 15 years ago, when I had been tracking the emerging application service provider (ASP) industry at ASPnews.com. He was CMO at Corio, the Silicon Valley poster child for the industry, which delivered hosted Peoplesoft, Siebel and Oracle applications on subscription contracts.

Krappe said that his experience at Corio had been instrumental in the decision to build Apttus on the Salesforce platform. He had come to realize what a burden it had been on Corio to build the entire infrastructure. I asked him if there was a moment when he had realized the Corio model couldn't work.

"The defining moment was a visit to a $50 billion company. The CIO said:

'What you're asking me to do is not even a rounding error on my IT budget. I know all the technology complexity, I have all the skills in-house, why on earth would I give that to you? I know the applications are not designed for this and I have all these people to deal with it.'

"That was when I realized that the bigger companies were all actually doing the ASP model internally. There was no value-add, economically."

What, then, is different about this generation of cloud applications compared to what Corio was doing, I asked.

"Multi-tenancy is the big one. Instead of building, say, four separate buildings, I now have one building and rent part of it. Then over the years, Salesforce has pushed the boundaries of that.

"What fundamentally changed it was multi-tenancy."

That difference is one that most CIOs now appreciate, he added:

"In the last few years, the degree of awareness of SaaS and what the real model is and how it works has definitely evolved. Two out of three companies we speak to, their pattern of acquisition is cloud first."

Disclosure: Salesforce.com is a diginomica premier partner.