The executives at data integration company Talend took a calculated risk when the pandemic struck.
Although they made operating expense and other cuts to help build a cash hedge against uncertainty, the company's executive team made two key decisions. One was to keep all employees on board. The other was to stick to their growth investment plan.
"We kept our foot on the gas," CFO Adam Meister told CFO Dive this week.
The company's investors embraced the plan, but the team had to walk them through it carefully.
"It required some frank conversations," said Meister, who joined Talend in 2018 after working alongside the company as an investment banker. "We set the expectation we possibly needed to burn more [cash]. They appreciated why these things were important in the long term even if there was a little short-term pain."
Ultimately the company was able to fund operations for the year out of free cash flow, but their engagement with investors was important from a strategic standpoint, Meister said. The company wanted to signal it wouldn't let the uncertainty change its course.
"The most important decision we made was to not recoil too much and to be thoughtful about the scenarios in front of us and not cut into what would [fuel] our growth, our opportunities, beyond the pandemic base," he said.
New leadership team
Pursuing growth was a vote of confidence in the company's CEO, Christal Bemont, who had only been with the company six weeks at that point. She had come from Concur, the big SAP expense management software company, and had brought with her two other officers key to her growth plans: a chief customer officer and a chief revenue officer.
It fell to Meister, as one of the veteran executives of the company, to help onboard the new CEO; it was her first time in the top role after coming up through the sales ranks.
"[We] had a good collaboration, and she's grown into [the CEO] role," he said. "But we had to have candid conversations with the board around the high trajectory leaders we had coming in but who were still new to the roles."
Meister credits Bemont with repositioning the company's data governance and integration offerings as something that goes beyond IT to a business-outcomes solution.
"If we're not controlling the conversation with our prospects and getting the business outcomes they're trying to drive, [rather than] simply responding to technical needs, we're missing a huge opportunity to demonstrate our value proposition," he said.
Cosmetics giant Estee Lauder's use of the software is a good example, Meister said. The company is using Talend's software to solve the kind of data fragmentation that's common when sales organizations use multiple applications to engage with prospects and customers.
"Data flexibility is key to [understanding] how they target products to demographics," he said. "It becomes a really hairy problem if you're talking about three, four or half a dozen sales and marketing applications and you want to ensure it's the same person across system a, b, and c."
These types of integration initiatives are paramount to every business now, he said, and will become especially important as the pandemic eases and companies begin considering accelerated marketing efforts.
"As businesses start to open up, you just get a flood of outbound," he said. "The overload of those customer messages is going to raise the bar for how targeting works and so the more you can connect prior purchases, demographic information, and online behaviors, the more critical it is to create a one-to-one conversation with the customer."
Talend's in a good position to capitalize as the pandemic eases, Meister believes. The company completed a capital raise about six months before the pandemic hit, which not only gave it the means to power through with its growth plan, but ensures it can leverage opportunities as old customers come back and spend money again as the pandemic eases.
"I wish I could say I had that foresight [to raise capital then], but the timing just looked really good," he said. "If you have an opportunity, and there's a desire, don’t miss an open window. If we had waited three months, it would have been a much more difficult scenario."
"Everyone's trying to target their old customers to come back and spend money again," he said.
Key to growth is the company's pivot, since Meister came on board, from exclusively on-premise offerings to a mix of on-premise and cloud solutions.
About 40% of the company's revenue is cloud-based now, from $19 million at the end of 2018 to almost $109 million.
"We've had just a phenomenal ramp in this cloud product," he said.
This move to cloud is behind the decision to bring Bemont and her team into the company.
"We needed [the new leadership team] to drive execution to scale," he said, citing the team's experience at Concur, a multi-billion-dollar software as a service (SaaS) company. "In hindsight, the timing couldn't have been better. Their leadership helped us weather the pandemic."
Also a growth key is the increasing importance of the company's self-serve, or product-led, business, in which customers start using the product, or product upgrade, without having to engage with a salesperson first.
To help them boost this capacity, the company, in late 2018, acquired Stitch, an onboarding management business.
The flipside to bringing customers on quickly and easily is the potential for a higher churn rate, but that doesn't have to be seen as a negative as long as customer acquisition costs are low.
"A high-velocity business is going to have a high degree of turnover, but if you design the economics in the right way, so you're not spending too much to get or keep them, it can still be a profitable business," he said. "So, it required us to think a little differently and expand our horizons around how we manage product promotion. But it's been a successful feature and helped us massively with growth that we think is going to be valuable."
Meister said he had to walk the board through a new way of thinking about how the company's economics work, since many of the new customers would be of shorter duration and on monthly billing cycles instead of less volatile annual contracts.
"You don't have smooth upfront cash, so there becomes a disconnect between your … backlog and what actually lands in the balance sheet," he said. "So, we have to walk people through that and expect that, as long as [these] numbers are growing, we can see we're winning good, sticky business…. Not all of that was coming through the balance sheet right away, so that was an important discussion for us to walk investors through."
The cloud portion of Talend's business uses a fully ratable revenue recognition approach, common to SaaS businesses. It's treatment of its on-premise business is necessarily different, Meister said, but it also looks like a recurring model on the company's financials because of the income it gets over time from each license from upgrades and maintenance.
"When we do a premise deal, we take about 15% of it upfront," he said, and the rest comes from the periodic updates and upgrades.
"A ton of work went into the support of that model and getting our auditors comfortable with it, ultimately getting the Securities and Exchange Commission comfortable with it, helping them understand what the perceived value for customers is between that initial deliverable and the ongoing relationship we may have," he said.
Annual recurring revenue (ARR) is a key metric that cuts across both cloud and on-premise revenue and gives the leadership team and board a unified picture of company health, Meister said.
"That was hugely helpful for me in helping people understand the nuances of that revenue recognition," he added. "It gives people a real-time view of what's the current annualized contract value under management."