Mike Gregoire is formerly an executive director at EDS, EVP at PeopleSoft and currently Chairman and CEO of Taleo.
Since joining Taleo in 2005, Mike has taken the company public and steadily grown the revenues and customer base throughout the world through execution of internal development plus acquisitions of technology and related competitors.
Publicly traded, Taleo has defined and is the acknowledged market leading talent management solutions company empowering organizations large and small to better understand and engage their best talent for improved business performance.
Today more than 4,200 organizations use Taleo for talent acquisition, performance reviews, succession planning and compensation management, including 46 of the Fortune 100 and over 3,500 small and medium sized businesses across 200 countries.
Revenues for the trailing 12 months exceed $192 million making Taleo the world’s second largest Software-as-a-Service company in the market today.
This Q&A explores the go-to-market strategies that have evolved in this dynamic marketplace and how Mike has successfully navigated expansion in offering, market share, valuation and profitability.
Chris Roon: You’re meeting with CEOs almost every week. What’s your sense of the changes in store for the top executive in 2010?
Mike Gregoire: When I’m talking to most executives, the biggest problem on their mind is growth. The last two years have been very difficult for most CEOs. They’ve had to meet expectations by getting bottom line performance – focusing on the EPS line knowing that the top line was not going to be there. As they move into 2010 and the economy is starting to become more robust, they realize that they’re going to have to show top line growth.
Unfortunately, they’ve made a lot of cuts in their growth programs. In making these cuts, many CEOs are not prepared to show any top line guidance. That’s why I think you’re seeing a lot of acquisitions happening coming into 2010. This enables CEOs to use some of the cost savings you realize in synergies from an acquisition to fuel organic growth drivers.
I think this is going to put a lot of pressure on the HR department. As you’re looking for this growth, we know that people – not things – drive growth. And when you’re focusing on the people that are going to drive the growth, and they’re willing to move to another company, that puts an incredible amount of pressure on CEOs wondering where that organic growth is going to come from.
CR: How did Taleo adapt it’s go-to-market strategy and maintain growth during the last twelve months while the global markets went into such contraction?
MG: First of all, one of the things that’s really not well known unless you’re really in the business of human talent is how much volatility there is in the workforce. If I were to ask you, “What do you think the voluntary attrition rate was last year-the second worst year in the last one hundred years for economic performance?” You might think that people are hunkering down, hanging onto their jobs and estimate the figure at less than 5 percent.
Well, it’s 20 percent. Involuntary attrition is approximately another 20 percent. So in the course of a year, you have 40 percent of the people changing jobs. That volatility is incredibly difficult to manage, and there’s a lot of productivity lost in the fact that people switch jobs so much.
So Taleo has helped to solve that particular problem. We started solving that problem in 1999 and have continuously added more unique and innovative ways to solve that problem.
Two years ago, we added another solution to try to stop the problem from happening in the first place: performance management. We thought we were doing a fabulous job of helping identify people that you want in your company, but once hired, we think we could have done a much, much better job of helping them stay there. So we put a performance management application in place that really, really delves into: What are these employees working on? Why is it important? How do they feel about how they’re working on it? What’s the result? How can you measure it?
Now we offer a closed-loop system of going from getting a person into the company, managing performance and outputs, and then providing fair compensation. And we think customers that use Taleo on a closed-loop system will have a dramatic decrease in their attrition levels so that, over time, their attrition levels go down and their productivity goes up.
CR: How have you grown Taleo from $50 million to nearly $200 million over the last five years with separate product lines for small/medium business and large enterprise-yet both leverage the same positioning and messaging of the Taleo brand?
MG: It comes down to two things. First of all, identifying the problem you’re trying to solve, understanding it deeply, and then understanding that there’s multiple ways to solve that problem. For example, a customer like Intel or The Gap will want to solve that problem a lot differently than a small/mid-sized company would. We’ve been able to come up with two technology stacks that solve the same problem using the toolset and level of complexity that is appropriate for that particular customer. Too many times, technologists overwhelm their customers with the cost of implementing and running a technology that outweighs the potential benefits.
By picking the different horses for different courses and getting that in place right up front, we help customers maximize the value that they get out of their workforce without having to worry about the whole technology element.
In essence, that’s what software-as-a-service is all about: trying to extract all the complexity from the software so clients only use the application and reap the benefits of that application.
CR: Last year, Taleo acquired its largest competitor to expand its customer base. Soon you’re acquiring a compensation management company for the technology and its employee domain expertise. What insighs can you share with executives on integrating new customers versus the challenges of integrating new technology?
MG: Well, they are different problems. One is very mathematically based, which is a customer-based acquisition. You’re doing a mathematical calculation on what your costs of sales are compared to paying up front for those customers. And once you understand your cost structure – something at which most companies don’t do a very good job – you need to understand what it costs for us to get a customer. Then you can have a rational understanding of what would you be willing to pay for company and its customer base.
The next thing you have to do is you have to be willing to follow through with the premise that you want the customer base, not the technology. So you must have the fortitude and the ability to shut that technology down and move it on to your platform, especially in the software-as-a-service business. Supporting multiple platforms in the software service business is very, very difficult.
Now, with IP-oriented transactions, once again, I think it starts with the premise: What would it cost for me to go build this, or what would it cost me to go acquire the skill set, that human talent, that really understands this problem, and how long would it take for that talent to understand my environment and my technology architecture as opposed to buying it, getting those people that really do understand that subject matter expertise, and integrating it into an already-existing platform. So the advice I would always give – and I have to tell myself this all the time – is: Why are you doing this? And do you really understand why you’re doing it, and can you make the economics work without some crazy assumptions?
I think you need to be very specific and very deliberate. And this can’t be a decision made by one person; I think you need to include your entire management team because they’re the ones that have to do an incredible amount of work in any kind of acquisition. And I think you want to make sure your board is well aware of the strategic nature of any one of these types of transactions.
Most importantly, I think acquisitions are something that you need to get good at. You cannot evolve to be a company or significant size or stature without doing acquisitions. You’ve got to be able to have great organic growth, and you need to be able to complement that organic growth with inorganic growth if you really want to be a serious player in the technology environment.
CR: What did you learn after completing five of these acquisitions that you wish you had better appreciated when leading your first?
MG: The five acquisitions that I’ve done are on top of about a dozen that I’ve done previously in my life. And I can’t say that all the transactions that I’ve led have been perfect. As a matter of fact, I can think of several that were less than perfect.
One of the key things to remember is that once you buy a company, you don’t have a receipt that allows you to take it back. You own it. And you need to make sure that you take care of the people; you take care of the customers; you take care of the technology; and that you drive the economics. And one of the things that I think we do a really, really good job is have an economic signature of what it is we’re trying to get done and then managing that very, very discretely.
CR: What do your peers on your leadership team pay close attention to when they’re talking to their customer base and employees of acquired companies?
MG: I think you have to be straightforward. If you have bought a company where you are not going to be keeping certain sections of the companies, I think you need to be very upfront with those folks; you have to be very respectful with them, and you need to be accommodating to their personal situation. And I think when you are not transparent about that, I think everybody suffers. I think the very first thing you do is have a plan in place of what it is you are going to do once you own this particular asset, and then you need to work through each and every function and each and every group.
CR: The business applications software industry has seen tremendous consolidation into very large slow-growth corporations like Oracle and SAP. As CEO, what are the satisfactions of a small-growth company competing in that world? What are the strategy implications you can share with other executives in similar situations?
MG: Well, there’s a reason why there’s not a whole lot of $500 million software companies around. You either grow really fast and get up into the billion-dollar range and stand on your two feet, or a larger company buys you for your product or your growth or your customers.
Our best defense to being an autonomous company has been high growth. Everybody in the company is focused on growth. A large portion of the executive compensation is based on two things: customer satisfaction and growth. So when we wake up every day, it’s about taking care of customers and growing the company. To the extent that we’re successful doing that, we have a market that I think is ever expanding.
I feel very confident that we are going to continue to be a high growth company, and high growth companies have large multiples, and companies with large multiples make it difficult to acquire them because it’s hard to make them accretive, whether you’re a super-huge $10 billion company trying to make the acquisition or a relatively small company trying to make the acquisition. So the whole moral of the story here is you’ve got to be growing, and you’ve got to be growing fast.
CR: I know of your love for alpine winter sports. As a Canadian looking forward to the Winter Olympics this month in Vancouver, what surprises do you hope the world takes away after watching Canada host the world’s greatest athletic competition?
MG: I think the first thing is how gracious the whole city can be. Vancouver is an absolutely world-class beautiful city, cut in the backdrop of the Canadian Rockies. And if you get an opportunity to really see and experience the Western Canadian lifestyle and how gracious they can be, I think people will walk away with a great impression of Canada and a great impression of Vancouver.
Chris Roon is a partner at Marketing Arts.
Mike Gregoire is formerly an executive director at EDS, EVP at PeopleSoft and currently Chairman and CEO of Taleo.