Global CIO: SuccessFactors Is The Future Of Business SoftwareGlobal CIO: SuccessFactors Is The Future Of Business Software

helping companies animate their strategies through the deeply informed and focused actions of every employee in the organization. As the company describes its products on its website: "Centered around Business Alignment and People Performance, our solutions are designed to be easy for anyone to use but powerful enough to uncover critical insights that help drive never before seen business results."

Here's how Dalgaard summarized it in our phone conversation: "Business Execution has been an absolute breakthrough in this market because there's not a company or a person in the world who doesn't need the insights our stuff can deliver: schools, airports, global corporations, bankruptcy courts—yeah, especially bankruptcy courts," he said with a laugh.

"So when we ask, 'Are you interested in increasing your project completion by 57%?', there's not a CEO in the world—unless he's brain-dead—who won't say, 'I need you to tell me what you're talking about. I need to know how I can get more of the essential stuff done quickly. I need to know how I can communicate our strategy faster and more effectively.' "

Adding to that set of insights, SuccessFactors is acquiring a boutique business-analytics firm from Australia called Inform that doesn't fit any mold: its products are purchased almost exclusively by companies with 100,000 or more employees, but it has no sales force to speak of—its sales have all come over the internet. And Dalgaard thinks Inform's unique and powerful analytical tools will be a great match for SuccessFactors' customers as well as an ideal new offering for SuccessFactors' sales team.

Describing Inform as "the McKinsey" of the workforce-management industry, Dalgaard told financial analysts in the recent earnings call that the acquisition will bring "tremendous proprietary expertise and over 28 years of work which has produced academic research, published papers, and deep content in cloud technologies, strategic workforce planning, strategic reporting, workforce analytics, workforce reporting, over 2,000 key performance metrics, and—this is important—they have a library built up of key benchmarking concepts for over 20 industries."

Inform's big-company customer list—including Starbucks, Target, Nike, MetLife, Aetna, The McGraw-Hill Companies, Blue Cross Blue Shield, Fidelity, Time Warner, and Comcast—provides an ideal complement to SuccessFactors' customer base, which includes its blockbuster Siemens deal for 420,000 seats, Nestle, Toyota, Deutsche Bank and Allianz, Goldman, General Motors, Bechtel, British Petroleum, Gulfstream, and many more.

"Coca-Cola's executives have told us that SuccessFactors has become a core part of their global operating framework," Dalgaard said in our phone conversation, describing how his forward-looking software is distinguishing itself for the vital but primarily transactional ERP applications from the big traditional companies.

"We're gaining a lot of ground with some of the world's largest retailers because they've been telling us, 'We're just not going to keep buying the old way—it's not working for us.' "

The passion for customers, the innovative product set, the acquisition, and the cloud-based model have combined to deliver some impressive financial results for SuccessFactors. To get the full flavor of not just the numbers but the company's unique bookings and billings revenue model, I encourage you to review the SeekingAlpha.com transcript of the company's fourth-quarter earnings call, which offers a wealth of detail from Dalgaard and CFO Bruce Felt.

Also, late last year the company completed a follow-on offering in just three days by raising $215 million. And here are two financial highlights in Dalgaard's words from that transcript:

--"In the worst economy, SuccessFactors had our best year. SuccessFactors grew revenue 37% to $153 million and grew our user count by 35% for the year. Billings accelerated throughout 2009. Billings grew 17% from Q1 to Q2. They almost doubled and grew 28% from Q2 to a very strong Q3, and from Q3 to Q4 SuccessFactors grew billings 26% sequentially."

--"We've cracked the business model of reputable successful customers that renew at over 100% in dollars, but that revenue annuity costs only 22% of sales to deliver. This will continue to give us even greater cash flow in the future and allow us to continue to invest in growth like none of our competitors because so much is available for operating expense. The recurring revenue stream is becoming significant. We now have $150 million worth of recurring revenue base from our customers, which had 68% contribution margin, and now is equivalent to $100 million worth of annual cash flow to our business every single year—a $100 million cash annuity."

Unlocking the formula for turning an industry upside-down isn't so hard, Dalgaard says—it's just a matter of keeping the priorities straight and never wavering from your mission. And it's precisely that formula and those priorities that are generating the nightmares for lots of other software companies.

"You need passionate people, and we have that," Dalgaard said. "You need a fantastic business model, and we have that. But most of all—and this is what most companies just can't get—is that the customer must win. Every one of them. All the time.

"The customer must win."

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