I look forward to Workday Ventures's analyst calls - ambitious startups have a way of knocking the crust off enterprise thinking, including my own.
But this time, my agenda had a serious edge. Startups are something of a leading indicator of economic sentiment. So what is Workday learning from its venture companies?
No surprise: an "overall slowdown on fundraising, impacting startups of every size and stage." And yes, an overall drop of 45% in exits from the private market. As I wrote in my weekly enterprise review, I welcome the increased scrutiny on tech startups, particularly "the half-baked 'gig economy' startup ideas for hyper-convenience that tried to save the pesky question of profitability for a rainy day."
Now, Workday does not invest in those types of startups. But they did note a "focus on profitability versus growth at any cost." And, M&A activity remains high:
Yes, the economy is currently unforgiving, but an enterprise startup that addresses a crucial area of need still has a real shot. We certainly saw that on display from the three featured portfolio companies:
- Wellthy - Co-Founder and CEO Lindsay Jurist-Rosner shared how Wellthy has gained traction by filling a crucial gap in health care support - personalized health care support for family care.
- Clari - Founder and CEO Andy Byrne explained why Clari is landing major enterprise clients with a focus on optimizing revenue - and preventing revenue leakage.
- Blink - Co-Founder and CEO Bob Nolan presented on how Blink's focus on providing frontline workers with a superior mobile app UI is making an enterprise difference.
Nolan's talk raised a burning question I've pursued in a retail context: does giving frontline workers superior mobile apps improve their job morale and customer service? Does it reduce the perpetual problem of employee attrition? Nolan told us the early answer is yes:
We just released a feature called "full-on intelligence" which is built around exactly that. And yes, we absolutely do see a correlation. What we're doing at the moment is a lot more work to build out additional features, so that we can start getting to causation. We're looking at what managers are doing. We're looking at what systems people are accessing; we're looking at the behaviors on the platform - to try and see if we can give some better insights on what people can take action from. But yes, we definitely see a strong correlation between people who are using our application and people who are hanging around for longer, or people who are more satisfied in their roles.
What is revenue leakage - and how do you stop it?
But my question was for Clari, sparked by Byrne's provocative LinkedIn post. As he wrote:
Many companies in downturns only have half a strategy. They over-focus on cost-cutting. A full strategy requires mastering cost AND revenue. One of the greatest parts of my job is spending time with CEOs, CROs and CFOs discussing revenue. Lately, it's been a bit more doom and gloom than normal.
They're all asking: "Andy, how do I protect my revenue and survive yet another economic downturn?"
The first thing I do is challenge them to not think about it as a matter of survival. It's about thriving. It turns out 9% of companies actually come out of downturns stronger. Further, the average company leaks 14.9% revenue. So in downturns protecting revenue is equally (if not more) important than cutting.
To thrive, you need to stop revenue leak and build rigor throughout the revenue process to achieve revenue precision and answer the most important question in business: Are you going to meet, beat, or miss on revenue? [Author's note: Byrne's post also includes an informative slide deck on the scope of this problem, and how Clari tackles it].
Which brings me to my question: does Byrne see a common pattern in revenue leakage? Are there a few top areas where companies can get a surefire result, or does it vary? Is it more important to set up better revenue governance, visibility, and collaboration? Byrne joked that "I don't know if you're going to like my answer - it's a little bit of both." He detailed some examples of revenue leak:
Think about revenue as a funnel. It's wide at the top and it gets narrower at the bottom. You've got hundreds of thousands of leads, or, I should say, targets to turn into leads, then turn into opportunities that then turn into closed revenue.
So leak examples are: targets that never get touched or assigned to the reps. That's just sitting out there. Another area of leak is: lead goes stale, opportunity lost to the competition. A deal that was committed to close slips, because the rep didn't realize, 'Hey, there was no budget for that.' These are great examples of revenue leak. Imagine trying to understand all that leak across thousands of reps and tens of thousands of deals every quarter.
Clari's goal? Help companies spot those leaks, and fast - while they are still actionable. Byrne continued:
In terms of patterns, we're seeing that at the end of the quarter, where deals are slipping in a fairly significant way, where it's hard for people to convert that last mile of those deals... And if people can get visibility into that faster, they can start to run plays, and/or a play might be more attractive commercials, right? A play might be, 'We'll give you the first three months for free,' to try to get those people to convert fast - and de-risk that inventory that's relatively risky.
So what is Byrne's advice for companies looking to make strides?
One specific thing that we're seeing is: make sure that the CRO and the CEO have a good understanding of the renewal base. This quarter that's up for renewal, we need to go and make sure that we have a heart-to-heart with the customer saying, 'Are you going to renew? Yes or no?'
If the customer loves you, they say, 'We love your product; the product is awesome.' If there's crickets, and they're not getting any information back, and the customer has gone dark, you know where you stand. So you get that signal fast. You're now [able] to get that potential risk and that leakage to the teams, and then you can start to indicate to the board, 'Hey, we're seeing some signal that suggests that things might not go well over the coming quarters.'
Patterns are useful. But Byrne says the real breakthrough is building a revenue governance framework:
What I find interesting is that you can govern and control all of this, so that you can be precise in understanding where you're going to land - not just on the quarter, but next quarter's pipeline we're going to create, net dollar retention and more, because revenue is a multi-dimensional rubric.
My take - product acronyms are limiting
With revenue streams getting more complex, from perpetual subscription to consumption models, now is the time to bear down. Cost-cutting and operational efficiency only takes you so far. Not surprisingly, my fellow analysts had questions about how Clari fits into a world with plenty of overlapping acronyms, such as CRM, ERP, and FPM.
Byrne, however, believes the urgency of the revenue leak problem demands a fresh approach. Without casting aspersions at these application areas, he views them as data repositories Clari's "intelligent" system pulls from. But Clari also pulls from unstructured data like Gmail and Office 365, where relationships and contracts are tracked.
As someone who believes customers are getting weary of excessive obsessions with product categories, I believe solutions like Clari aren't at a disadvantage just because they defy easy categorization. Solve a bottom line problem in a compelling way? You've got a real shot. In fairness, the other two Workday Ventures startups in this session are also worthy of a full writeup; I just followed my question where it led.
An interesting note to close on: according to its metrics, Workday Ventures is now a profit center inside of Workday (this happened as of last year, aided by four exits and one IPO). But in my view, the most persuasive aspect is how these portfolio companies round out the pre-integrated options available to Workday customers:
This graphic is a good way for Workday to hold itself to account as well. Hard to go wrong investing in companies that will make a material difference to your customers.