Welcome to the eighth edition of QuEST, which
presents valuation and investment trends for SaaS companies during Q4 2016. QuEST utilizes data from
both private companies and publicly traded companies referred to as the “SaaS Index.” The SaaS Index
represents the weighted-average movement of the market capitalization for over 50 publicly traded
SaaS companies.
A
CONVERSATION WITH xMATTERS AND GOLUB CAPITAL
For
this edition, Golub Capital’s Peter Fair
interviewed Troy McAlpin, CEO of xMatters, a
communication software platform.
Peter: Hi Troy. Thanks so much for
joining us today. I’m looking forward to chatting about your experience at xMatters, and how you’re
thinking about growth, the ever-changing tech landscape, and all things SaaS. To start, tell us
about being a venture-backed technology business in 2017. Have you noticed any changes in consumer
buying trends and behaviors?
Troy: Hey Peter, thanks so much for having me. 2017 is starting out to be quite the year. Enterprises of all sizes are comfortable buying and consuming technology via multiple delivery methodologies: on-premise, hosted in a company-owned data center with containers, hosted in co-location facilities, hosted by a cloud provider, or consumed from a SaaS provider. Procurement departments, legal departments, end-users and executives are now accustomed to the variety of delivery channels; their discussions have evolved from trying to solve the mystery of how a service is provided, to what the service offers, its unique value, differentiation and fit. Options for how to solve any technical problem have increased, giving the buyer more power in making the right decision for their organization.
Peter: There has been volatility in
valuations in recent years; how has that impacted/affected your experience?
Troy: Valuation sentiment is as cyclical and volatile as any other indicator of a fickle market. From 2001 to 2009 to today, we have experienced both corrections and unabashed valuation enthusiasm.
We believe in a few core tenets around creating value, specifically delivering great customer service, differentiating ourselves from competition, creating meaningful, lasting customer relationships, focusing on 1,000 days out and providing a service customers need. This formula has insulated us through good and bad times. Valuations on the other hand are harder to control, with opinions changing with the wind. We maintain that excellent SaaS companies can be built with limited amounts of equity capital and supplemented with thoughtful amounts of growth debt.
Peter: That’s a
great approach. How are you thinking about new services, and increasing adoption and/or entry into
new markets?
Troy: You know, this is a very dynamic, exciting time in technology. A large new workforce who have entered the marketplace (“millennials”) expect their employer to have excellent business processes and applications to effectively do their jobs. Many of whom don’t know life without mobile phones, mobile apps and Instagram – this is their software application reference set so you can see why large organizations have to do a lot to help this workforce be effective in the workplace.
Ultimately, the technology field, as well as the process and pipeline of how products are developed, deployed, consumed and supported, is rapidly changing to meet the customer’s need for digital service. We believe that where there is change, there is opportunity.
Peter:
Absolutely. If you were talking to a group of medium and small software company CEOs, name two
things you’d say they should focus on.
Troy:
To start, a relentless focus on the customer’s problems today, tomorrow, and three years from now
is more important now than it was 10 years ago. In the past you could make a mistake, be slow to
respond and be just fine. Now, if you are not properly addressing today’s needs, and thoughtfully
building for the state of the technology industry three years from now, you will be a relic.
Customers often can’t articulate their pain that will occur in 1,000 days. It’s our job to help them
think through not just their current pain points, but also their future needs, and for us to stay
ahead of those needs.
The other area of focus is to remember that only a select few companies can run at unicorn-spend
levels. Investors and customers appreciate financial maturity as we run our cloud-based applications
and services. The last thing your customers want to hear is that you didn’t get your financing and
now there will be an impact to your service.
Peter: Definitely. Keeping with the theme of looking forward, where do you see xMatters in
10 years?
Troy: Our focus will be on assisting companies with
applications that communicate, learn and automate the resolution of events before there is a harmful
impact to their business. xMatters’s goal is to improve our abilities to ensure that our technology
infrastructure meets the needs of their digital business.
Peter: I think that’s a great note to end on. Thanks so much for your time today, and we’re
thrilled to see what xMatters does in the future.
