Why Xactly is a case study in software company growth

Growth is not an assured thing in software (or most other) companies. Many leaders and investors are delighted just to see modest or steady growth but significant growth, especially from an established vendor, is actually rare.

Currently, there are a number of old-school vendors hyping large SaaS-revenue gains and hoping we don’t realize that they’re simply converting old customers off of license/maintenance contracts to subscriptions. That’s not growth but simply a change in billing methods.

Real growth entails the prospecting, selling and closing of deals with net-new customers while also satisfying the service, quality, support and other demands of existing customers. To really grow, a firm must be both operationally excellent and also be brilliant in how it sells, motivates/incents its sales team, acquires leads, etc.

And, yes, you can also grow your share of wallet with existing customers. That takes a capability to grow one’s product line and/or increase one’s services’ complement. That can be tricky as not every new solution will be a winner and each solution can cost a pretty sum in R&D, marketing and other costs.

So, again, when I hear of a vendor that’s really growing, I want to know how and why.

Recently, I saw Xactly post some seriously strong numbers and decided to see what’s behind this. Xactly is a sales forecasting/sales compensation software vendor. Here’s a quick look at the growth and some notes re: a conversation with their CEO.

Background

I first encountered Xactly many years ago. I was frequently seeing the firm in the expo halls of many leading vendors’ user conferences and figured I need to get smarter on them. When their CEO, Chris Cabrera, wrote a book on the sales compensation space (Game the Plan) in 2013, I interviewed him about it at a Salesforce Dreamforce event.

At that time, Chief Sales Officers or Chief Revenue Officers were not getting the results they wanted with their numerous spreadsheet-driven (and imperfect) sales compensation ‘systems’.  Additionally, executives weren’t necessarily developing sales comp systems that motivated all manner of sales professionals with some aspects of a system actually de-motivating some of the best sales pros.

I got to check back with Cabrera just before the pandemic shut everything down. In those intervening years, Xactly had grown a lot, went public and then was taken back private by private equity firm Vista Equity Partners in 2017.

Recent growth

The market for solutions like Xactly’s is a newer software space than many other applications (e.g., like Finance, HR and MRP). For example, Payroll applications date back to the late 1950s. As a result of this segment’s newness, the market penetration for sales planning/commission/forecasting products has been rapidly growing. If Xactly didn’t grow materially, I’d be writing a very different story.

How much growth?

Fueling its growth in the pandemic (2021):

Xactly supported customers through considerable change, approaching its own inflection point as the Revenue Operations (RevOps) category shifted: the need for agile sales planning, data-driven forecasting, and plans to ease attrition reached a critical peak. Xactly’s evolution from SPM to the premier data-driven intelligent revenue platform redefined Revenue Operations as the only forecasting and RevOps solution with 17 years of proprietary sales performance data at the center.

In August 2021, the company recorded a huge revenue increase:

Xactly, the leader in revenue intelligence solutions continues to break records with 71 percent growth in H1.

In an even stronger follow-up, this February (2022), Xactly announced that it grew top line revenues 86% year over year. That kind of growth is not unusual for a startup software firm with low sales but Xactly’s not a startup or small. 86% growth is very impressive for a company of Xactly’s size.

Specifically, Xactly appears to have grown in six ways:

• New modules
• Accelerating its partner program
• Geographic expansion
• In-fill, add-on & other organic sales
• Strategic acquisitions of advanced technology
• Enhanced sales and marketing execution

Let’s look briefly at many of these categories.

New modules/technology

In the last few years, Xactly has released a number of new products and capabilities. Some of these included new advanced technologies. Here are some of these:

Xactly used advanced technology to release a new module in 2021: Xactly Forecasting:

Xactly Forecasting was launched in the first quarter after making an acquisition of a top artificial intelligence company, expanding Xactly beyond SPM (sales performance management) to set a new standard for data-driven decision making and delivering a first-of-its-kind, end-to-end platform for RevOps.

This product featured in Xactly’s growth. In 2021, Xactly stated:

The Xactly Forecasting product was also a key contributor to first-half revenues, as sales grew by 140 percent. The company anticipates continued acceleration in revenues from this solution based on strong customer outcomes.

Also in early 2021, the company announced:

The company introduced its Xactly Intelligent Revenue Platform, which aligns seller behavior with boardroom strategy to create a resilient, predictable and profitable business. To support adoption and shorten time to value for customers, the company also launched Xactly Transform, a service offering designed to accelerate digital transformation.

In August last year, Xactly announced its Xactly Framework. This technology permits better/faster integration of the different systems and processes that contain critical sales, commissions, forecasts and other key data. This permits an enhanced level of digitalization not previously found in many firms and it helps eliminate a lot of non-value-added activity such as:

• Rekeying of data
• Error identification and correction
• Chasing down missing or compromised data

This kind of solution is likely very attractive to larger firms with large numbers of sales professionals and/or an excess of spreadsheets in use to plan, track and calculate sales and commissions.  This framework uses workflow and advanced technologies to improve business results.

2021 also saw enhancements to Xactly Incent. A key addition was the use of big data and machine learning to help firms identify potential sales team flight risks. According to Xactly:

Xactly Incent not only offered a means to manage complex incentive compensation programs, but it also provided valuable data on sales teams to inform customers when their sales representatives might consider moving to another company.

In April 2022, Xactly announced a new Commission Earnings Forecasting solution. This application is intended to take the surprise out unexpected commission expenses. This tool uses advanced technology (i.e., AI) to better forecast a company’s commission expense exposure. One key reason for this solution’s existence is found in this statement from Xactly:

To plan accruals and future cash positions, finance teams have historically been forced to calculate expected commissions payments manually, using static data exported from disparate systems. Deals in the pipeline frequently move in and out of the forecast, making it hard to predict sales bookings and associated commissions. Without a direct connection between always-current pipeline data and actual commission plan structure, these manual calculations were outdated the moment they were complete.

These new products (and other Xactly innovations) positively impacted the company’s growth as new products can be sold to both existing and net-new customers. Customer acquisition costs of existing customers is virtually nil and that improves total profits and top-line revenues. These new products also increase average deal size and lifetime customer revenues. Sales professionals love having more products to sell, more commissions to earn and having a new reason to call on an existing customer.

Accelerating its partner program

Software companies can grow top line revenues via their own direct sales efforts and/or with help of third parties (e.g., system integrators, resellers, other application software firms, etc.). Small vendors often struggle to get third parties interested in their firm but Xactly is no small firm anymore.

With its Xcelerate program (announced in March this year), Xactly has partnerships with Salesforce, Oracle, Microsoft and other firms.  This program is global in nature. Xactly reported that strategic alliances “were involved in over 43% of new business wins in FY22”. Xcelerate will provide partners no-cost access to “product training, revenue share for sales opportunity referrals, assistance with marketing and co-selling” opportunities with Xactly.

A great partner program is a huge asset to a software vendor. Partner firms may have deep, long-standing relationships with prospective buyers that the vendor may not have (or budget to develop). Partner firms can be perceived as extensions of the vendor’s own sales force. Great partners can shorten deal closing times, reduce selling costs, significantly increase revenues without incurring all of the commensurate increases in sales costs, etc.

Some partners will be in the services space (e.g., integrators) while others could have complementary products. Either way, a great partnership can help grow the size of the opportunity pie for both parties.

And some partners can help a firm expand its geographic footprint. One vendor I cover gets over 93% of its revenues via its partner channel. A handful of their partners have delivered hundreds or thousands of new customers for them in parts of the world they likely would not have gotten to for at least another decade. Great partners expand a vendor’s reach across vertical, horizontal, geographic and other dimensions.

Geographic expansion

In August 2021, Xactly reported:

Xactly has quickly become a dominant player across Europe, achieving its biggest quarter in both regions. Highlights include:

• 183 percent year-on-year growth in Europe, validating the company’s rapid global expansion strategy;

• 76 percent increase in European headcount as the company continues to fuel growth;

• 130 percent of target attainment in Europe.

This year, the company reported:

Redefining the category led to global adoption with a regional expansion in the APAC region with the launch of Xactly Forecasting in Japan, while customers like MetaCompliance achieved forecasting accuracy of nearly 100 percent and greater revenue predictability since implementing Xactly Forecasting.

Obviously, more global markets to sell into means more revenue.

Use of their own technologies

Xactly also attributes the strength of their recent results to the use of their own solutions even calling out their Intelligent Revenue Platform as it helps “align seller behavior with business goals”:

We are crushing our numbers not only because of the stellar leadership of our CRO, Jamie Anderson, but because everyone involved in delivering revenue for the company is a user of our own products. From HR and Finance to Marketing and Sales, we’re aligning the behavior of our employees to our growth objectives -- and it’s obviously working,” said Chris Cabrera, Xactly Founder and CEO. “We are at an inflection point in our business, and building massive momentum for continued growth with the right talent, technology and culture.

It's a bit of a surprise when you see a vendor that doesn’t use its own products (aka not ‘eat their own dog food’). Those that do use their own solutions often spot and fix issues with these products faster than they would otherwise.

Recent CEO chat

The product update items above are public knowledge but I wanted to get more information. I spoke briefly with CEO Cabrera a few weeks ago. He and I previously spoke in 2019 about 1.5 years after Xactly had been acquired by Vista Equity Partners (2017 deal). Cabrera told me then that the acquisition was working well then. Vista has a playbook for its portfolio firms to follow and has used this successfully at many of them. That playbook is designed to help portfolio firms grow in an outsized manner without necessarily requiring lots of new capital. It helps the leadership make smart decisions around every aspect of a building a tech firm.

Now, in 2022, I once again asked about Vista and he was even more bullish. Since the acquisition in 2017, Xactly has acquired four firms and the firm has become very profitable. The company has long exceeded Rule of 40 requirements. The sales results alone suggest the deal has been quite accretive to Vista.

Cabrera also mentioned that during the last few years, the company:

• Brought in new leaders in a few key roles
• Has materially grown the number and magnitude of partners it works with
• Has changed the revenue balance to be 80% products vs. 20% services and expects the ratio to shift to 90/10 soon
• Will have its captive services personnel be very deep product experts that will supplement the services teams of its partners

He clearly sees how the company has evolved from a single application software firm to a solution provider whose products now embrace a number of advanced technologies (notably, machine learning, workflow, integration tech, etc.). Some of these apps use both Big Data and machine learning to deliver super-efficient, timely and integrated insights. Today, it’s a company that empowers decisions not just process transactions.

My take

I was really impressed with the numerous ways and dimensions that Xactly has pursued to fuel its growth. Recent growth was clearly NOT the result of management tweaking one lever to an extreme level. This growth was multi-faceted, intentional and considered. It was designed to achieve long-term value for shareholders and also be frugal in its consumption of capital. That’s just good business. 

I can’t really quibble about the recent growth that Xactly has experienced nor do I find the incorporation of advanced technologies to be in error either. As to the latter, I actually wished more vendors had working and commercially available tools that used big data as these are actually quite scarce.

The future of application software is not just in having a suite of transaction processing solutions. It rests in the ability of vendors to radically reconfigure processes and drive out all kinds of inefficiencies (hence process mining, workflow, exception handling, and robotic process automation will be key capabilities). It requires imaginative vendors to see what is possible when you marry 2,3 or 4 advanced technologies together to rethink what capabilities AND insights an application could provide. Businesses don’t just want more efficient processes, they want the software to also pick up on trends, preemptively suggest new courses of action, and provide some real competitive advantage. Any vendor can produce a solution that mimics another vendor’s but that only delivers competitive parity. Finding those solutions that really push the envelope is what is important.

Customers want vendors that are creating all-new kinds of apps not just putting cute decorations on tired, old code. Buyers also don’t want vendors that are long on promoting a platform or framework without having some amazing new apps built on it. Buyers want full-on solutions not a bunch of parts and tools.

All-in-all, the last few years, in spite of a pandemic, have been highly formative, and profitable ones for Xactly. Let’s see what the next couple of years produce…