The Journey to the Billion Dollar Exit with ServiceMax and Emergence Capital (Video + Transcript)

Hear how Dave Yarnold, CEO of ServiceMax, in partnership with Jason Green, General Partner and Founder at Emergence Capital, navigated the challenges that every CEO faces when building a billion dollar business.

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FULL TRANSCRIPT BELOW

Dave Yarnold–  CEO of ServiceMax

Jason Green – General Partner and Founder at Emergence Capital

Jason Green: Hi.

Dave Yarnold: Wow.

Jason Green: This is … I feel like I have my own talk show. This is awesome.

Dave Yarnold: This looks like one of your Emergence portfolio events, all these SaaS people here.

Jason Green: This is my crowd. Hi everybody. I’m Jason Green, founding partner of Emergence Capital. We were early into the SaaS space, and got very lucky and fortunate to back some incredible founders and entrepreneurs, Dave being one of them. Originally at Success Factors and then at ServiceMax. And we were also investors in Jason Lemkin’s company EchoSign, and I want to say how incredibly grateful I am to Jason for creating this community and being willing to share his wisdom with all of you. He’s really created just a diaspora of SaaS around the world, and it’s really fun to be part of that. So, Jason, thank you for everything you’ve done for SaaS entrepreneurs around the world.

Jason Green: I’m really honored to welcome you, Dave, to the stage. Dave is and was CEO of ServiceMax. He’s a really unique individual. Not only a wonderful human being, but pretty unique pedigree. This guy has been responsible not just once but twice for building a billion dollar plus SaaS company. He first was global head of sales at Success Factor, which he took from … I don’t know. Maybe $1 or $2 million in ARR to over $100 million in public company. And then we were lucky enough to recruit him to become CEO of ServiceMax, which at the time was a very small company, less than $1 million ARR. And grew that now from certain well north of $100 million plus in ARR. And we are celebrating this past week with a year anniversary of the sale to GE for $1 billion. So congratulations, Dave, on an amazing run.

Dave Yarnold: Thank you.

Jason Green: I’m sure everybody in the crowd wants to know, what is $1 billion feel like?

Dave Yarnold: Relief. No, it’s something … It’s interesting. It’s I guess the pot of gold at the end of the rainbow. But it was also indicative of what we were trying to build at ServiceMax, and I was telling you the story that even from the early, early days when I was schlepping back and forth from Santa Clara. When we were less than $1 million, well less than $1 million in ARR, my brother and I used to text back and forth while I was driving back in the days when I did that 1B. It was basically 1B that’s all we would text back and forth. And to me it’s like I’m going to do this, and for him it was you can do this. And so just visualizing your dream.

Dave Yarnold: It was the ultimate realization of building something significant that delivered a lot of goodness to all of our stakeholders, our employees, our investors, and our customers. Something that’s meaningful today and will be meaningful going forward, and that was something that we were trying to build.

Jason Green: Yeah. Well, we’re going to get into a little bit of the story of how you got there, but I do know Dave just got back from Hawaii and you’re probably drinking margaritas on the beach, and you deserve it. So that was awesome.

Jason Green: But it’s always easy in retrospect to kind of look at the success and assume … Because when you look back retrospectively, it looks pretty linear. But it was definitely not linear. In fact, to rewind the clock a little bit to the fall of 2008, the back drop of the financial crisis happening, those are when the discussions about joining ServiceMax started, and the company had five employees, about 20 customers, half a million in ARR. We had put in a term sheet to invest a couple million dollars, $5 million-ish, whatever, pre money valuations. So very early stage. But immediately knew that we wanted to bring on somebody like Dave.

Jason Green: So I think we started recruiting you literally before we even closed the deal.

Dave Yarnold: That’s true.

Jason Green: It’s really hard to reflect on this, but back in March of 2009 when you joined, the S&P was at 700. A 20 year low, and we’re closed at whatever, 2700 in the S&P. It was not a pretty time.

Dave Yarnold: It was literally falling apart at that time.

Jason Green: The world was falling apart.

Dave Yarnold: The banks were folding. It was crazy.

Jason Green: And here you were, you’re coming off the success of Success Factors. You’d made some money. You built a great company there. What on earth gave you the confidence to join this tiny little startup?

Dave Yarnold: As you mentioned, I had been a part of some great companies, and I had had some great mentors. I’d learned a lot. Going all the way back to the early days of Oracle where I was part of the initial applications team there. So I had acquired a bunch of viewpoints and skills that I wanted to apply and build something great. I wanted to recruit some of the folks that I had worked with who had helped make me successful, and with them, just build something that we could all be proud of.

Dave Yarnold: So I was hell bent to do that at that point in my career, and I came to you actually. We had worked together in your role as an early investor at Success Factors, and I told you I wanted to do this. And it was great to sit down with Jason and his team at Emergence. They had a tremendous portfolio of SaaS companies in various stages of maturation, and really kind of look at where might I be able to add value and focus on this dream that I had.

Jason Green: Yeah. So when we invested in the company, they had several founders, wonderful guys.

Dave Yarnold: Yep.

Jason Green: Two of whom basically made this transition with you, and ultimately where there really through the end, all the way through the acquisition. It’s one of the things I’m really proud of having seen you make that transition successfully with the founders. Can you talk a little bit about like what did you do to set the table there for that relationship to blossom like it did?

Dave Yarnold: Well, first off, I was very fortunate, the founders of ServiceMax, Hari, Athani, amazing, intelligent, driven. They knew the domain so well that I needed them. But I think when I think about our journey, a lot had to do with our core values, and my number one value in life is just respect. And so applying that to my relationship with Hari and Athani, and particular respecting what they had done, the risks that they had taken putting their houses up, mortgaging their houses, taking all the money that they had in prior businesses and believing in building a product. So I respected that. I made sure that throughout the history of the company they were the founders. I’m not a founder. I work with them from the early days, but I respected what they had done and the risks that they had taken. And then their knowledge and domain and their ability to connect the business issues to the solution and make that work for our customers. I had a lot of respect for that.

Dave Yarnold: I also engaged with them throughout the nine years that we were together. Every significant decision that we made, whether it was a strategic decision, a product decision, we worked on that together. So we had this little informal, strategic counsel that I never made a significant decision without soliciting their input and taking that input seriously. So I think it was just respecting and collaborating with fortunately some amazing people that were like brothers to this day.

Jason Green: They’re wonderful guys, and they’re off now probably starting their own companies. So you should feel very proud.

Dave Yarnold: And foundations and doing really cool stuff.

Jason Green: Great leaders develop people into great leaders. But they also attract other great leaders to the company. And I’ve actually rarely seen somebody attract the quality of the team you did as early in the history of the company. Talk to us a little bit about how you did that. How’d you attract these folks to come join you and was it the right decision to bring on that high powered group so early in the life of the company?

Dave Yarnold: Well, I will say that wherever you are in your career, apply the golden rule, respect the people around you. Don’t burn bridges. If you’re a good collaborator and a good person that down the road when you start to look for great people who can help you be successful, that’s going to play well for you. I was fortunate that I had done that, and as I was kind of pulling this dream together, there was a dream team that I had envisioned bringing together to do this. You can’t do it on your own. You got to have a great product, great founders, and then some great team mates who can do great things.

Dave Yarnold: So I had this vision of creating a great company, a great place to work, a great company culture, and then you have to have a mission. You have to have a market that you believe in and that you can get your collaborators to believe in as well. But it was …

Jason Green: Let’s talk about that a little bit because, no disrespect, but field service applications maybe not the thing everybody wakes up in the morning going, “I want to dedicate my career to field service.” How did you make that sexy and exciting?

Dave Yarnold: Every discussion started with, “Okay, Dave. Really respect you but what the hell is field service and why should I be fired up about that?” So I think a big part of a leader of any enterprise SaaS company, you need to understand who you serve and what that market is. So fortunately when I dug into it, enterprise field service market is massive. There’s probably more than 20 million potential end users around the world.

Jason Green: More field service users than salespeople from what I understand.

Dave Yarnold: In many countries, yes. Service is a big priority. It’s going to be the majority of revenue generated by most manufacturers over time. GE, which bought us, more than two thirds of their profits come out of service. You need to know that stuff, and be able to sell it initially to bring a team on board. So you have to know the market opportunity but you have to be able to talk about the type of company you want to build, the type of values that you’re going to build the company around, and ultimately those couple of things combine into a mission that you commit to and get everybody committed to.

Jason Green: Yeah. How did you make that real, the mission? Tell us about some of the techniques you used.

Dave Yarnold: Yeah. So it’s interesting for many SaaS businesses, we’re able to apply something we all call eating your own dog food, right? So you use your own software and you have a good sense of what could go wrong and where you need to fix the product. Well, our customers, they go out and fix things like oil rigs and power generation plants, things like that. There’s no way we as software folks are going to be able to eat our own dog food. But we really needed to embrace the domain. One of the core aspects of this company, I think one of the core things that any SaaS business should aspire to do is capture the hearts and minds of your core market.

Dave Yarnold: So how are we going to do that if we don’t really know what those folks do on a day to day basis? So we did a number of things. First off, I hired some folks out of the industry who had walked in the shoes of the folks that we serve, and they were passionate about that industry. They brought a level of knowledge, domain expertise to the company. The second thing I kind of …

Jason Green: From one of your customers too, right? I mean, one of your hires …

Dave Yarnold: Yeah. One of the people I hired who was a key hire was running the European service business for Pitney Bowes. He ran 1000 technician workforce, and he and I hit it off. We had a lot of things that we believed in in the service business, and I said, “You need to change in your life. You need to come work for us and be an evangelist for how we can improve organizations like yours,” which we had been doing for them.

Dave Yarnold: One of the other things that was really interesting is I really wanted to get a sense of who’s using our software, what do they go through on a day to day basis. So I started … When I would have meetings with my customers, I’d say, “Hey, can I go out with your guys? Can I go out and see what they do, what they’re fixing, what they deal with on a day to day basis?” And of course the customers like, “Yeah. That’d be great. Thanks for having an interest.” So I started going on what we all ride-a-longs. And it was amazing to see the business from the end user’s perspective, see what they were dealing with when they were using our software, which wasn’t always perfect. You just don’t know until you actually live the life with your customers.

Dave Yarnold: So I love this so much. I came back after a couple of ride-a-longs, and I said, “Everybody in the company is going on a ride-a-long.” So I had everybody going out …

Jason Green: Kind of like Jeff Bezos who makes everybody answer a customer support calls. I mean, it’s getting real with your customers.

Dave Yarnold: It was an unbelievable experience for the entire company, for all of our companies. We actually ended up with a form where they had to come … They had to learn things about the customer and share that with the entire company. We had a whole group set up internally to share, and lots of great stories.

Dave Yarnold: The last thing I’ll say, so I tried a bunch of wacky stuff. I don’t even know if I’ve shared this with you. But one here I came back … I’d always go to Hawaii for the holidays, and the team would be like, “Uh. He’s taking time off. This is going to be bad.” Because I’d always come back with crazy ideas.

Dave Yarnold: So one day I get back from Hawaii. It’s like January 2nd, and I said, “Okay. So we’re going to turn the entire company into a fantasy football league basically.”

Jason Green: No, you haven’t told me this one.

Dave Yarnold: Have I told you?

Jason Green: No, you have not.

Dave Yarnold: So basically the biggest challenge as you get bigger and bigger is to get people aligned around the things that matter, get everyone to focus on your customers, on your salespeople, and doing that cross functionally is hard. As you get bigger, everybody gets into their silos. So what we did was we had team captains, eight of them, from around the company across different functions, and then at our kickoff, we had an evening event where we actually had a draft. It was like the NFL draft. We had hats for all the teams.

Dave Yarnold: So we had salespeople. So the salespeople were all on different teams. They all got hats. The whole company then was allocated amongst these eight teams, and every month there were prizes, there were points mostly for closing sales, right? So we got everybody on that team focused on how are my sales folks doing, what can I do to help them close more business, but then it also gave us a lever to say, “Hey, this month we’re going to do penalty kicks, and we’re going to get points for getting sign ups for our customer conference,” or, “We need NPS feedback.” So it gave us a way to get everybody aligned around the things that mattered, and was a fun experiment.

Dave Yarnold: At the end of the year, the prize was a big prize. Somebody actually got a car. So there was actually something in it for the team that won.

Jason Green: Not a van. Huh?

Dave Yarnold: Not a van. Not a smart van. But yeah.

Jason Green: No.

Dave Yarnold: It was pretty interesting.

Jason Green: I mean, you can see Dave’s customer passion like just flows through him, and he’s excited in his passion about building the company as he is about building a product. And I think that’s important. And culture, it gets thrown around a lot as a term. How important is it do you think really and what did you do to actually make sure that your values were being inculcated into the company?

Dave Yarnold: I think it’s huge, especially when you go through the dips. It’s the fabric of the company that binds everybody together. So I’ll talk a little bit about culture. Everybody has their own perspective on what that culture should look like. I don’t think there’s any right or wrong one. But I think that adopting one and then being consistent about it over a period of time yields a lot of dividends. So I’ll tell you the story of how ours got started. I had a lot of ideas but it wasn’t necessarily going to put it on paper. But our first, I don’t know. First month or so in the office, one of our-I don’t know-eight employees there said, “Hey, you need to start communicating like a CEO. When are we going to have our first company meeting?” We were in an office about the size of this stage.

Jason Green: I remember it. Yeah.

Dave Yarnold: Yeah. Except it wasn’t as cool. And so, “All right. Company meeting. I’ll do that. I’ll put together a PowerPoint, talk about my kids and where I came from and what my aspirations were for the business.” But then I also put together a slide that said, “All right. How are we going to behave as a company? How are we going to interact with each other, with our customers, with our partners?” And I just threw a few things down that were important for me in life. I talked about respect. I also am a big competitor. I want to win and I wanted to explain what winning on a big scale, what that was going to mean, not only to the company, but to each of them individually being a part of that.

Dave Yarnold: So I had a list of seven or eight how I want us to behave, and I put that on a slide. I talked about it. “Hey, this is a little bit of me. This is how I want to operate.” And about a month later, it was time to have another company meeting, and had a whole bunch of other topics. I said, “Maybe I’ll throw that slide in again. Emphasize a few of those points.” I had that same slide, different fonts, a little prettier over time. I had that same slide in every presentation I gave at every company meeting for like eight years. And there were times when I said to my team, “Hey, this is feeling a little hooky to me because I try to keep it fresh and emphasize a few different points. But should I stop doing this?” And my team was, “No, no, no. You need to do more of this. This is what people believe in.”

Dave Yarnold: Look, we stood behind those values very early in our history. We had an engineer who was verbally abusive to other people, not being respectful. One of our best people, out.

Jason Green: I remember a sales executive.

Dave Yarnold: Sales executive who generated half our sales in one of the early years. Again, disrespectful, out. If you walk the talk on your culture, stand behind it, everybody knows what they should do and why they should do it, and it empowers the entire organization. Everybody feels good that we’re going to act consistently. We know what we believe in. We know how to behave. Everybody feels really, really good about that.

Dave Yarnold: And it doesn’t have to be my version of the slide. It has to be something that you stick to, that you’re consistent, that you stand behind, that everybody understands it and buys into it. It’s the core of a good culture.

Jason Green: So it’s always this kind of tension between performance and culture. You made some decisions obviously where the cultural fit wasn’t there to sacrifice some short term performance for long term success. There were a couple situations where things where individuals were topping out on the executive team. Tell us a little bit about how did you know when you needed to make a change and then how did you do that in a way that didn’t ripple out into the rest of the organization in a negative way?

Dave Yarnold: The honest answer is sometimes you can see it but a lot of times you don’t see it. And I think this is one of the biggest blind spots that you can have as a CEO is you’ve got this team …

Jason Green: What’s the tell?

Dave Yarnold: Yeah. So, look, the tell is when you’re struggling as an organization. You start to see where certain parts of the organization are falling behind, but you still can justify keeping your team in place. You can still kind of get yourself there. That’s why I think it’s really important to leverage some of the folks around you. So I had a couple of … First off, the board’s input, it’s painful at times to hear from your board like, “Hey, Dave. Maybe you need to think about a change here. We’re seeing it. We sit on a lot of boards. We see a lot of companies.” So having that feedback was important.

Jason Green: Had that mentoring group, 10X, right?

Dave Yarnold: Yeah. The second thing that I would mention is that I was part of … Jason actually introduced me to a gentleman named Mark Kilo who runs a methodology called 10X CEO, and his premise is that CEOs should focus on a few things at any point and time, and actually focus on a certain set of skills based on the size of the company, and that focusing on those things will result in inordinately positive results. And part of this was I was part of a group of eight CEOs that every quarter I would kind of walk through by business. This is not a social thing. This is very vigorous and I would bring my business and I’d talk about my team. And it’s amazing, when you sit with a group of folks, you can tell when somebody’s team is weak. It needs to be changed.

Dave Yarnold: So I got a lot of feedback from what was like a second board for me. I’d have a second meeting where I’d have to go through my business with a bunch of CEOs that I really respected who had come to know my business. That was a really valuable thing to have.

Jason Green: I love the perform group. Both methodology and structure of peers who have mutual trust and are willing to give you that feedback. It’s very, very powerful.

Jason Green: I want to shift a little bit to the GE relationships because every entrepreneur is out there building their business, you’re growing the business, you’re raising money, you’re doing the right things. Ultimately, if you get investors involved, you need to generate returns. We aim to try and take these companies public ideally and build really independent companies but this is clearly was a great outcome. Tell us about some of those key evolution steps of building the trust required for somebody to pay $1 billion for your company.

Dave Yarnold: So it started … I don’t know if you remember. You probably remember this. Really early on when we were still in Santa Clara, we got our first deal with GE. It was for …

Jason Green: It was $150-

Dave Yarnold: No, it was like $25,000.

Jason Green: Pilot.

Dave Yarnold: It was a little pilot. It took us a year to close. We’re really proud of that. I mean, GE is an icon of global business despite what it’s going through today. It’s just one of those great companies. Very focused on service. And it really felt like we could do something to help them with their business. That was a point of pride for me and for the company. I stayed really involved with that early implementation, got to know the local CIO, built a lot of relationships across the company, and I think the relationship that we established with them was that one, we were trying to do great things for their business, and two, we were just really transparent and flawed and human in our interaction with them. They believed they could trust us, and it was really interesting, over time our competitors tried to undermine us with some I’d say less than honest tactics.

Jason Green: Never happens, I’m sure.

Dave Yarnold: Right. Right. Little fudd here and there. And the fact that we were so honest and, again, not perfect but committed to doing the right things for them, we just built a great relationship. Now I never thought it would end up at a dinner where the CFO said, “Hey, how about if we help you grow this business. We do this together because we really understand service and we believe in the potential of this business.” But that wasn’t why I was so committed to it. It was a great company that was … It was the epitome of what we were building the product for, which was large scale enterprise field service with 40-50,000 field techs supporting things like oil rigs and MRI machines and wind turbines globally.

Jason Green: So they started out as a pilot customer, and then they were significant customer in a division, and then you rolled out to multiple divisions.

Dave Yarnold: 13 different divisions.

Jason Green: 13 different divisions of GE. Then they become an investor in the company.

Dave Yarnold: Yes.

Jason Green: Right? We raised a strategic round with them and PTC I think and others, right?

Dave Yarnold: Yes.

Jason Green: And then ultimately, and I do think like companies generally aren’t sold for $1 billion. They’re bought for $1 billion, and the reason they’re bought because they believe you’re going to fill a strategic need for their organization going forward. And I think you had those trusted relationships and you built that vision.

Dave Yarnold: And they were building a software business, and the fact that we had software that was geared around what they do to make a living, which is do large scale service contracts and deploy tens of thousands of field service techs, they’re going to build a software business around their core competency. This is it. So there was tremendous overlap in terms of how we saw the business and how they saw the world.

Jason Green: I know we’re running short on time. There’s so much to cover. Tell us a little bit about looking back now, the process of actually selling the business, now having been integrated for the last year. Any thoughts or words of wisdom for folks about reflections now, seeing one of the largest companies in the world and how they operate, and the challenges you faced as a startup entrepreneur?

Dave Yarnold: In terms of the integration process or the acquisition process?

Jason Green: I would say you set it up well for the acquisition. I think you put a lot of effort into making it successful post the acquisition as well, and I think that was a really intentional thing.

Dave Yarnold: So I’d say it’s easy to assume that your acquirer knows exactly what they’re going to do with you after the acquisition. And some of the acquirers, we’ve all heard Oracle has a process and Cisco has a well defined process. But a lot of companies don’t have an incredibly well defined process. And I think it’s easy to just be lambs to the slaughter and just let whatever happens happen. But the team, we had pride in what we had built, and we wanted to have influence over GE’s business. So we did in two stages. Going into the acquisition we said, “This is going to be our strategy around our product, around culture,” how we were going to maintain the goodness of what we had built but also be respectful of what we were being required into. And then also we had a really clear strategy on how we wanted to influence GE’s roadmap.

Dave Yarnold: So that was stage one was actually saying, “Hey, we’re going into this thing. We can either go in passively or we can go in with a point of view,” and we went in with a point of view. And it was well defined and we shared it with the company.

Dave Yarnold: I think once we got into the process, then what happens is you have these integration teams that come and they have their clipboards and their checklists and all this stuff. And you find yourself just allowing that to happen, and after about a month or so, I said, “This is going down the wrong path.” I went back to the CFO of GE and said, “Let me just reaffirm what is the number one objective here.” And it was growth. They wanted us to grow 45% year over year. I said, “If that’s the objective, then you need to let me do this and we will do that for you if that’s the number one objective. So we need to strip out a lot of this integration activity so that we can hit that number one objective.”

Dave Yarnold: So the bottom line is we got that accomplished. We had a great plan. We ended up growing 85% in our first year with GE, which I feel really good about.

Jason Green: Yeah. Despite a lot of the things going on at GE, this is one of the high points for sure.

Dave Yarnold: Absolutely.

Jason Green: I think, again, the way you’ve treated your acquisition partner here is the same way that you’ve treated everybody that I’ve seen, which is you treat them as you would want to be treated. I think that that reputation will build great businesses in the future.

Jason Green: As you look back and reflect on the Success Factors experience, I mean, I know you worked incredibly hard. It was taking that company public and then ServiceMax was a eight year plus journey.

Dave Yarnold: Right.

Jason Green: When you look back, inspirationally, was it worth it? Was it worth all that sacrifice? I mean, you carried a lot of burden and weight, and what is it that you look back on that made it worthwhile to do what you had to do to be successful?

Dave Yarnold: Oh, so much. I mean, there’s just so much pride in building something that everybody is proud of. I used to talk about the mall test with my employees. I used to say, “Look, if we run into each other in the mall, is your family going to like turn away and not want to see me or are they going to embrace me,” because this is one of the greatest experiences of their family members career and they feel really good about that. So creating that and some of the feedback that I’ve gotten over the last year, what this has meant to my employees families and lives and careers, I mean, it makes it so … It’s a rush. It’s unbelievable. And, again, it’s just being focused on building something that’s going to be great for your investors, your employees, and your customers. If you stick to that, it’s going to lead you down the right path.

Jason Green: I know you’ve always talked about how proud you are of your team and how much it was as much for them as it was for you. I can speak, I’ve been in the business for 20 plus years in the venture business, and we’ve had a lot of fortune at Emergence. I’ll tell you, this is one of the most special rides I’ve ever been on. I’m sorry it’s over, and I hope to find opportunities to work together going forward. But thank you for being here to share your wisdom and inspiration.

Dave Yarnold: Pleasure.

Jason Green: And the next ServiceMax out there, let me know at the end of this session. So thanks very much.

Dave Yarnold: We’ll do right by you. Be a good conversation to have.

 

Published on January 22, 2019

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