In this CXO Talk interview, Alan Trefler, CEO of enterprise vendor, Pegasystems, discusses digital business and the relationship between IT and business functions. This episode presents lessons on innovation and working with enterprise startups as a part of corporate technology and business strategy. (Below is a transcript of the broadcast.)
Build for Change - The Industrial Revolution of Software
Presented by: Alan Trefler Founder and Chief Executive Officer of Pegasystems
Michael: (00:01) You’re watching episode number 104 of CXO-Talk and today we’re going to be talking about enterprise software and empowered -- I was going to say computers, but I meant consumers and digital transformation. I’m Michael Krigsman and my co-host is Vala Afshar. Hey Vala, how are you?
Vala: (00:24) Michael I’m doing great how are you?
Michael: (00:28) Excellent. Vala, we’re here today with Alan trifler, who is the CEO of Pegasystems.
Vala: (00:35) I’m super excited to learn from Alan. Alan, thank you very much for joining our show. Could you tell us a little about your background and also a little bit about the company Pegasystems.
Alan: (00:45) Sure, well my background is actually a traditional computer science going back a long ways. I started as an English major, but in my freshman year I realized I wasn’t going to make a living from that. I’ve worked in a variety of capacities since then, and when the genesis of Pega came when I as working as a systems integrator, trying to help large companies and really trying to figure out how to improve service and get better effectiveness out of the whole business in IT dialog.
(01:18) And as I was looking at that problem in the 80’s I thought to myself, boy, these computers are getting really fast. Why are we still sort of doing the programming and suffering the service dislocations like they might have done in the 70’s.
(01:34) And from that came this idea and inspiration that it should be possible to enable organizations to do a better job of engaging with their clients, by making it possible in business and in IT to be able to interact differently. To be able to allow the business people to really drive the show much much more.
(01:54) And that really was the synthesis of the idea that ultimately led to Pegasystems and to where we are now.
Michael: (02:01) And so this was something that you were thinking about 30 years ago which is kind of amazing because of the issue of the relationship between business and IT and connection with the customer is as contemporary as any issue in enterprise software today.
Alan: (02:16) Well that said, it might have been a little advanced, and now it’s so mainstream, yet you see so few organizations being able to do a really good job of connecting with their clients across the entire lifecycle, or doing a good job of having business and IT work effectively together.
(02:37) And by changing the fundamental way that business and IT work together, we think you can bring a culture of responsiveness and customer engagement, changing the very way the company works.
Vala: (02:46) So Pegasystems is known globally as a BPM platform, and yet you’re focusing the company towards customer relationship management and other strategic applications. We have an audience that include venture capitalist, tech analysts, CXO’s but we also have folks that are trying to learn about business and enterprise software. Can you talk in simple terms about BPM.
Alan: (03:16) Yeah, I can try, but let me tell you that before the pretty acronym BPM was used, the ugly TLA acronym was in use. And before that, the space originally was sort of described by another ugly world, workflow.
(03:32) People thought all they needed to do was to manage the workflow of customer in the business and inside the business. We always thought that that was really horrible, because you don’t really want to flow the work around. You want to do it.
(03:46) We never got the word ‘do’ to stick, and likewise, when we’re in the BPM space, we really see what we do is much more than just managing business processes, but this is about bringing together processes, case management, analytics, customer interaction, and self-service by creating a model of how the institution wants to deal with its customers. How it wants responsiveness to work, and from that model our system rights the code.
(04:16) Now, the right way to position this is customer in, which is why we wholeheartedly embrace the concept of customer relationship management as being actually the most effective description of the ultimate value we think we are bringing to the organisation.
Michael: (04:34) So you’ve been shifting the company a way from BPM or is that not quite right and you’re really building upon BPM in order to emphasize that interaction with the customer, is that correct as I understand it?
Alan: (04:49) So I think that having core elements of BPM technology, and by the way if you look at both Gartner and Forrester, you’ll see that we are rated staggeringly highly in terms of really leading the BPM space. But we think if you are going to serve the customer and go beyond the old school CRM to what it needs to evolve to, you really need to bring together a whole host of customer orientated concepts, that build upon concepts like BPM but also bring in predictive and adaptive analytics.
(05:26) Also, bring in case management to manage the customer across channels from front to back, and bring in self-service and dynamic responsiveness to the whole user experience that means you don’t have to write custom systems for your mobile phones and for your websites, but you are able to have one brain across the mobile.
(05:44)We think that the customer moniker, the customer orientated description is the right umbrella and we are in a unique position with the technology that really unifies all these elements and makes it much much easier for organizations to respond to clients.
Vala: (06:00) Where do you see your primary role of the CEO of Pega in terms of shepherding this transformation and creating real compelling value to your customers.
Alan: (06:13) Well, as the CEO I know we were about a $600 million company last year with over 3,000 staff. So we’ve now got the massive muscle to do meaningful things. The core element to my role is to make sure that the team is working together to set the right strategy, that we are pointed in the right direction. We are thinking a couple of years ahead at all times, not just worrying about what happens this year and next, and that we are really focused – not just on where the puck is, as they say in hockey, but to where it’s going to go. So that strategic element I think is critical.
(06:46) But ultimately, you know at any scale let alone our scale, having a highly capable and committed team that really wants to do a good job for our clients is I think central to the sort of talent management aspects of the job.
(07:01) And I think that the keeper of the culture is the other thing CEOs need to worry about, and our culture here is very much one where it’s open to challenging our assumptions, and making sure that people feel comfortable questioning any decisions. My decision, up to the point to where we decide where its final, at which point we’ve all got to hustle together and make sure that it happens.
(07:22) So I think those are the key elements and I think it’s strategy, it’s team and it’s culture that are not just for me but I think any good CEO. That’s what they worry about.
Michael: (07:32) Alan, how is this changed. Obviously the company has grown over the course of 30 years, but you’ve founded the company and so the role has had to be adapted along with the company. So how has the role changed over time?
Alan: (07:49) Well the role changes at predictable stages in the growth of the company. When you’re the first three and then eight folks operating in a walk up near near Cambridge, Mass., your prime goal is survival. I mean it’s just can we really put together a vision that is both expansive but practical so somebody will actually buy it. We bootstrapped the company, which I think made the early times a bit tougher, but now it means that we weren’t forced to sell out or chopped into bits like a lot of the VC companies are.
(08:26) So, I would describe the early days as a lot of direct heavy lifting. Today, I’m responsible for remarkably little directly in terms of what comes out of the doors. It’s really the team who is thinking about it, and my job today is to have moved very much from doing lots of stuff myself. Although quite frankly, it’s been many decades since anybody has let me write a line of computer code for any clients, and they don’t have to worry, I was kicked out of that business a long time ago.
(08:57) Now is about making sure that we are challenging the right assumptions and that we are digging in to the right problems and the right opportunities.
(09:06) So, to do that involves dealing with clients, which I love to do. It involves doing deep dives in architecture. It involves making sure that I am keeping current with the technology and that we are actually challenging the right assumptions of what we have done historically and also making sure that we are building an engine that is capable of servicing what is now a large client base that does some pretty amazing things for world-class brands, like American Express who we are privileged to work with, and United Health, the largest healthcare provider of the U.S. We deal with organizations that depend on us and we need to make sure that we are both visionary and substantive to how we deliver.
Vala: (09:51) We had in one of our previous shows, John Haggle who is the co-chair of the Deloitte think tank and he talked about the delicious paradox of a digital business disruption, and you know studies that talk about original companies on the SMP fortune 500, average age used to be 75 in the 60s, and today it’s approaching 10 years. And every two weeks a company falls off the SMP 500 and a new one joins. So, as you sit there a CEO of a great and fantastic and successful company, what are some of the challenges that you think about in terms of you not managing what Hagle referred to as delicious paradox where companies can grow and companies can die depending on how quickly they adapt.
Alan: (10:40) Well, you know I see that paradox with sort of two sides to it. On one hand, it’s a wonderful opportunity for us because if you think about what we’re trying to do, we are trying to help meaningful companies engage with their clients and today that’s all about [diligence], and there is so much confusion, so many mistakes being made in the way that companies are doing it.
(11:07) We see a lot of opportunity to be able to try to be thought leaders in this space and show firms about the things to avoid and the things to do.
(11:16) The other side of the page though has more to do with Pega, and how despite the fact that we have got a great customer list, and we are thrilled with how our products are rated and how they perform. We need to be ferocious of avoiding complacency.
(11:30) There are lots and lots of changes out there that we need to make sure we are responding to. Some of them are technology changes, some of them are go to market changes, and all of them can be as dangerous to us as disruption is to the folks in fortune 500.
Michael: (11:48) So you’re talking about strategy and thinking through the components of the market and so forth. And you are a very serious and you’ve been a very successful chess player. As a matter of fact, last year at your conference, I understand you played 20 simultaneous games and you only lost one, and that was also to another chess master.
Alan: (12:21) It is true, that is the first time that we did it, but it was a big hit. And at our next conference, which is June 7- 9 in Orlando, we’re going to do another one of those 20 seat simill’s as well. It was actually a lot of fun and I think a lot of the spectators enjoyed it, because we had live play-by-play, such as calling of the positions to make it live and to make it interesting to the observers. So yeah, I’m going to do that again, but to your question basically how did I get from chess to computers?
Michael: (12:58) Well, I’m really interested in the link between chess and strategic thinking in business.
Alan: (13:03) Yeah, I think it can be dangerous sometimes to sort of draw too much on games like chess, although I understand that one of you on the phone here with me today is a backgammon master.
(13:19) But I do think there is a lot of connection between at least how I think about strategy and how I think about chess. When I think about the thought process that a strong player goes to, it really seems to fall into three phases.
(13:32) The first phase, is pattern recognition. I know very quickly if there is this position or some elements of this position that feel like something I’ve seen. Can that sort of guide me to where I want to do my deeper exploration.
(13:48) The second step is the more detailed analysis, if I go here and they go there and I go here and they go there, what’s going to occur? And that’s the reason pattern recognition is so important, it lets you focus on your analysis and lets you go deeper into the places that make the most sense.
(14:03) And then finally, one of the things that I do before I make a move is just sort of try to sit back and say okay, what the hell have I missed? What disaster is out here that’s lurking, was there something in my assumptions about the patterns or the calculations that might have eluded me. You know, is there some mate in there that has nothing to do with my strategy, that may come and rip the guts out of my position if I’m not paying attention.
(14:31) And I think maybe being able to put together those three phases, a chess master or a chess player is to be effective in how you make decisions and also prevent against risks and uncertainties. I think that is very much how I think about business. You want to be strategic, you want to see the patterns and you want to be open to new patterns. You want to use that to focus your analysis … What are the things that I might have done last time that are influencing me and may no longer be appropriate.
(15:04) And it’s that sort of check step that I think is really critical in both business and chess.
Vala: (15:10) Alan, you wrote a book about customer engagement called, Built for change, which discussed the relationship between customers and companies can you summarize what you called the coming of the customer apocalypse.
Alan: (15:27) Well, you’ve heard of the zombie apocalypse you know and that’s something that obviously makes for good TV. This is the customer apocalypse. So the customers are going to sort of rise up, not like zombies, but like pretty antagonistic allegiance that are going to actually be able to either make companies highly successful or obliterate them.
(15:54) And in the book I talk about the sort of Gen D. Everyone talks about the Gen C connective generation, millennial’s and all of this we’ve heard many times before. There is a really interesting dynamic that we are saying in which there is this gen D that has grown up on all of that, but they’re just in love with like their Apple fan boards or they love cosmetics from them, or they want to devour companies.
(16:20) They sort of chew them up and actively kill them you know, these are folks who are not happy and just tell a couple of friends. They go tweeting and using social media and other mechanisms to really actively injure firms.
(16:34) What is interesting is that I read the other day that there is now this Duff Sucks domain name, where companies are actually having to pay $2,500 per site to buy a Duff Sucks name to prevent people from basically saying it’s got XYZ.sucks, that strikes me as a very gen D sort of thing. That somebody would actually buy a domain name, and actively go out to deep promote a firm.
(17:09) It’s this sort of added pressure, coupled with the fact that if you can get these folks to stick with you, they can also be very very passionate in about how they promote a firm, that has raised the stakes I believe for the leading brands of the world.
Michael: We have a question from Twitter, from Mandy Bishop, who is asking based on your comments, it seems like senior executives need to be data scientists any thought about the role of, data scientist and data science in being a senior executive these days.
Alan: (17:42) Well I think that exec’s definitely need to appreciate the role of data, but I think that a lot of this is less data science and more about the ability to execute. I see lots of companies that actually kind of know that they have to make a change. The change is fundamental and I’ll give you an example, a customer that goes to their website and calls their contact center, gets a horrifically different set of offers and different experience. I don’t need to be a data scientist to know that a client needs to be treated well in every channel that they want to be engaging.
(18:19) So I think you note the way – and I talk about this in my book – I think about it is there’s really three things. There’s data, and data’s important, but in the human metaphor data is like memory. It’s about what’s happened.
(18:34) The second element, which builds on that data is insight, its judgement, it’s intent. It enables you to take the context provided by the data and form good decisions. That’s where the data scientist would come in, but the third part is even more important.
(19:49) It’s being able to execute, it’s being able to sort of bring the process to the fore, so the process starts with the client, quick fulfilment, and work seamlessly across channels. You know in the human metaphor that’s muscle. Just having sort of smart brains but not being able to execute, is no better than just being muscle and having no brains.
(19:13) At least then you can try stuff to see what works and what doesn’t work. I think even more than data science, which is part of our product line and is important, is the ability to have that build for change muscle, so you can use your insights to try something. To try to champion challenge your analysis, being able to try different things with different populations, and have it execute across your entire business. That’s what you need, frankly at least as much as the brains.
Vala: (19:41) So this natural shift of expectations in this digital connected economy, what are some of the implications that you see as you guide and mentor and service your customers in terms of brand and the ability to sell.
Alan: (20:02) Well I think that one of the things that we see is actually a pretty sad, and frankly perhaps understandable mistake that certain customers are making that now some of them are realizing that they’re making. And, to explain that mistake let me go back a decade or a little more and talk about what happened when everybody decided that they needed to be on the Web.
(20:28) Well some companies thought, the Internet is going to be important, so we need to make it the works as part of our operation, and most companies actually set up separate organizations divisions, or groups to go and bring them to the Web. Now unsurprisingly those groups became incredibly disconnected from the rest of the business, and that’s what led to these dislocations that Gen D’ers are finding unacceptable when something is offered online but not on the contact centre, or I want to be able to use it on my mobile device, and suddenly it’s different there.
(21:07) That’s some of the stuff that really upsets people, which by the way leads to the mistake what’s happening now. This whole idea of going mobile first which you hear a lot of people talking about, well you know that might make sense if you are Uber and all you are basically doing, or most of what you are doing is the mobile device.
(21:25) But if you are a business of pretty much any size, that operates across multiple channels you know going mobile first runs the strong risk of building into that mobile channel logic, rules, processes that are then going to intrinsically either diverge from the rest of your business or put enormous cost pressures on your business as you go and have to do re-implement in multiple places.
(21:48)Our vision of what the future of customer service, CRM, and process is that you really need a brain in your organization that can reach out into each of these channels, the mobile channel and the multiple sizes of multiple channels -- phone, iPad, on the Web, pushing into the Internet site in the contact centre, in the physical branch location if one exists. And that brain needs to be able to create a model for your business that doesn’t get mired in some quick fix, single channel solution.
(22:21)And so, we see a lot of companies now understanding that, they’ve had their flotation with trying to whip together some mobile apps, they are seeing their satisfaction scores are improving in the way that they want it, and they are actually I think beginning, just beginning to see this the way that’s going to empower them in the future.
Michael: (22:40) So Alan, let’s dig into this for a moment. It seems that the general issue that you’re raising here is the ability for companies to develop equal skill and capability across all of the different channels, through which they interact with their customer, whether it’s mobile, Web, or whatever else. Right, so isn’t that the underlying issue is how to develop the skills and capabilities to interact with customers across all of these channels equally, with equal strength?
Alan: (23:17) So I think understanding how important that is, is a key part of getting this journey correctly. But there is another really insidious problem of that -- separating out the ones who are failing and the ones who succeed. And that has to do with, all right they only want to do something, but how do we figure out exactly what to do and who should do it?
(23:42) And, the solution to that is to get business and IT to work together in a completely different way. I started Pega when I was working at some of the allegedly largest state-of-the-art financial institutions on Wall Street. I was appalled by the way that they wrote software. They would have the business people write these big requirement documents. They would pass them over to us and we would do functional and technical decomposition. Then, at the end of it we’d sort of type cryptic words into text files and compile them.
(24:16) Now, the irony is 30 years later, computers are massively more powerful than we ever could have imagined, we’ve made some changes, we don’t call them specs anymore. We call them user stories. But the whole process, by which business defines what they want and then gets it done in software, which is so critical in running businesses these days is staggeringly and agonizingly manual.
(24:42) If you think about any other industry, think about manufacturing. The advent of computer aided design made it possible for me today to go and perhaps build a wireframe document that describes a cup or describes this camera, or describes anything that might exist in the real world, allow it to be passed off to somebody else to tweak it. The program will make sure the physics are respected. Make sure that you’re not going to create something that’s going to break when it just comes out of the mold.
(25:15) And today, with 3-D printing I can go from concept to specialization, to actual fulfilment seamlessly. It’s all connected. How does that compare to the way that technical systems both work?
(25:28) Those computer systems the mobile device, in the front office, anyplace in the organization on the Web, those are all written in garbage code, that has nothing to do [with and] is unconnected to the business requirements.
(25:42) So I think Mike, if you really want to put it together, it’s kind of the conjunction of these two things. It’s understanding that you need to have seamless service experiences that go across channels, and at the same time to gain agility you need to change the very way that business and IT work together so it’s not all about translating things into the gobbledygook of the machine. That the dialogue about what’s getting built can happen at a higher level of metaphors than programming languages in machines and random specs in documents.
(26:21) Does that make sense, there’s two things I think that might have to come together.
Michael: (26:25) Yes I think, so what are the implications then, what are the down in the ground practical implications for enterprise buyers. Enterprise buyers of software such as yours or other enterprise companies, in other words, the brands.
Alan: (26:42) I think it’s interesting. I think the first implication of all of this massive change is it’s like the hitchhikers guide to the universe, it’s don’t panic.
(26:54) What we are seeing in lots of enterprises is what I would describe as almost panic reactions to stuff speeding up but them not knowing how to deal with it. And some of that you see with what I would sort of describe as flight to inadequate solutions of the cloud.
(27:13) Now don’t get me wrong, we run on the cloud. The cloud is incredibly important in having changed how people think about both cost structures and purchasing approaches to software and I think it’s tremendous.
(27:24) However, what you’re seeing are customers really falling into the sort of traps that are ultimately not going to let them put together a coherent experience. Now, this isn’t true for systems that for example, help things like internal administration and other bits that aren’t fundamental to the strategies of the business. But, if you are dealing with things that are strategic to the business, just being able to get a quick fix in the cloud, isn’t going to get you all the way there. So I think what customers need to do is step back and ask themselves, how am I going to make sure that what I’m going to do to try and improve service is going to work across all my channels?
(28:01) And if that doesn’t happen, how am I going to make it so it will scale up to be able to deal with the actual complexities of my business, so that I’m not just tracking stuff – remember that workflow that I talked about. Lots of these systems just flow things around and track them. I’m actually able to get the intelligence in.
(20:20)So the point of contact with the client is far at the stream as possible because it’s something that actually understands rules and processes, and the things that my business needs to control. And those are the types of things that I think that the implication of business buyers today in the enterprise is first, they need to take a breath and asked themselves of what’s going to really make them have strategic outcomes.
(28:45) The second big deal has to do with changing the business IT relationship, where it can’t be business just running off and buying stuff because they are frustrated with IT. It can’t be IT continuing to have the lists of you know, yes you can have this in 2021. It’s got to be the business needs to be able to take more sort of active roles, more empowered roles in being able to actually help construct the real software. And what that does, it actually puts the business and IT folks on the same page, and puts all the smart minds to work.
(29:22) So I think the business and IT relationship changing that has got to be a first principle to making this all work properly.
Vala: (29:29) So do you think companies were panicking when they hired chief digital officers a couple of years ago? On LinkedIn there was probably less than 100 and now we are approaching about 2,000 CEOs, and is it because – as you just mentioned (almost like Gartner, that I think refers to this by mobile IT) where you maintain operational excellence but you also could adapt to the line of business needs. All of this is kind of disruption around us with consumerization of IT, mobile, social, cloud, big data, Internet of Things how are we going to help IT and CIOs to meet the demand of their internal customers and then start with their paying in extra old customers.
Alan: (30:15) Well I think that’s central to what you’re talking about, whether companies actually think hire a chief digital officer and have the appropriate pedestal there and not have to worry about that and the rest of the business. That’s just crazy.
(30:34) Digital is going to sort of underlie the entire future of these businesses. It’s going to be absolutely central to how these businesses work. So you can hire a chief digital officer to sort of be the tip of the spear, to sort of help everybody understand where they are going. But if those business operations of the existing IT operations, is not completely committed to working together hand in hand on that digital agenda, then frankly those people are not going to be part of a successful business.
(31:05) Because, digital is like electricity. It’s kind of like you had to rewire the buildings and factories, and you couldn’t just have light in one room. It’s got to be throughout and it’s got to touch everything.
Michael: (31:21) Basically, hiring a chief digital officer without undertaking the broader transformation across the company, is the thing that you’re saying isn’t going to work.
Alan: (31:31) That’s correct, it’s going to be like, frankly I’m making up the analogies on the fly here. But it’s kind of like the days of mainframe computing. You had a computer in a big single room. Blocked out from the rest of the company stuff came in and out of a little window it was really important. I mean, look at Medbit. The computer sits right there in the middle of the floor.
(31:54) But, let’s face it, what really made it what made business at work today is this proliferation of digital power. That’s going to happen end to end in companies. And you know, the worst part of not having the business understand the technology better, is they don’t know what to ask for.
(32:14) You know, in my book I draw an analogy of what would it be like if you wanted to either build a house to make a massive addition, and you had never been to Home Depot. You just sort of had to imagine how the off the shelf parts work. You are going to have to imagine what would be easy and what would be hard, and you would end up asking for lots of things that were really complicated and expensive. That’s the way it works today.
(32:39) On the other hand, if you have walked through Home Depot you’ve seen things like French doors, and you’ve seen things like bay windows, you could have a really intelligent conversation with your architect, and they may push back and say no, you really don’t want that. But suddenly, you’re talking about things being sort of off-the-shelf in places where that’s adequate or actually even better.
(33:03) That’s what has to happen for organizations to get digital. The business people need to understand what’s possible, what’s easy, what’s expensive – what’s not. And like any other good business person that will influence in how they engage with the rest of the organization.
(33:21) If the chief digital officers out there are just sort of driving on their own responding to requests from the business, they will get smart requests unless digital has percolated through the company.
Vala (33:33) Sure, well Pegasystems, certainly over the last 30 years has evolved and changed significantly and it’s an incredible success, but can you identify and is the CEO where the company needs to evolve and change. Is it just you know being at the ground level and being engaged with your direct reports and un-direct reports, engaging with customers, you know how do you stay ahead of digital disruption?
Alan: (34:01) Well as Mike will appreciate, the first thing that you do is that you listen to this series.
Michael: (34:09) This is where it begins, thank you for that.
Alan: (34:14) I mean that’s central. Now, once you’ve done that then I think the most important thing…
Michael: (34:21) By the way the (unclear) is going up this week, so thank you for that.
Alan: (34:24) You’re welcome, but the reality is you have got to be open to input from all different sources. So you know, if the world is so wonderfully connected, it’s easier to see what competitors are doing, and what potential new entrants are doing. It’s easy to see what your clients are doing using a technology, if it’s like ours it’s something that becomes visible, and what their competitors are doing too, so you can get a real sense as to how your customers are going to fare as competitors as they always do change and evolve in what they do.
(34:57) So, I think you have to have a culture which is first activity, and then you need to explicitly go out there, seeking opportunities to try new stuff. You know, part of us tries to have a culture of innovation that is central to the company is we actually for example do a hacka-thoughts, and we will go and challenge our engineers and project management teams to come up with stuff that we may not normally fund. And then out of those we do lots of tremendous and excellent ideas.
(35:24) We try to work with academic communities. Now, we’re here at Cambridge, which is near MIT for example, which is right next door, that’s always a great place to get ideas. And just being receptive is important, because that’s where things start, and then challenging your assumptions. What if the things we are thinking turn out to be wrong? That’s part of what I was talking about in the chess example. That’s that third part where you say, oh my God what have I missed. You know, what patterns was I following when one of my presumptions was that I wasn’t going to get mated in three.
Michael: (35:58) You’ve made some acquisitions and on the subject of innovation, to what extent do you view acquisitions as an adjunct for innovation in addition to your own internal innovation efforts.
Alan: (36:16) Well I think being open to looking at companies and acquiring them, it means you’re going to be seeing lots of stuff. So I view that as being a very important part of our intellectual curiosity, and when we see things that make sense we buy them. So that in my mind is a pretty important part of knowing what else is going out there, meeting some of the right people to help you think fresh.
(36:46) And so that’s important for innovation, but unlike a lot of other companies that do acquisitions, when we acquire a firm they are sort of technology adjuncts, and really helping our technology do better in terms of sentiment analysis or mobility or predictive and adaptive analytics.
(37:06) When we do an acquisition, we are committed to building that technology into a unified platform with the rest of our architecture. One of the problems with a lot of acquisitions is people end up with all these sort of multiple lumps of stuff that get glued together in the PowerPoint’s, but it’s very very hard for customers and I sometimes refer to those as the Frankenstack.
(37:33) You have got offerings that are like Frankenstein, who was lots of dead people sewed together. So you have offerings like lots of dead software companies – by the way, we compete with a lot of those. But typically those really meet the cost and agility needs of the customers that are out there.
Vala: (37:53) We have a lot of start-up CEOs as our guests from Brian Halligan of Hubspot to Aaron Levi of Box, and then some smaller startups who are waiting to become billion-dollar companies. But what advice do you have for entrepreneurs and startup founders, if they were going to come and pitch to you, what do you look for or how should they prepare? Please guide some of our audience members who are running businesses today or looking to achieve the success that you and Pegasystems have achieved.
Alan: (38:32) Well I would welcome them to achieve much more success, to tell you the truth what I’ve done I’ve done by a longshot. We’re actually pretty excited and amp up our ground, so we become more meaningful to more customers.
(38:45) But in terms of lessons that might not be obvious, and I think an obvious lesson is be prepared for it to be harder than you think it’s going to be. You know, I think folks who come in and do pitches with all these crazy numbers in Excel which are driven by formulas is just silly. And if they are going to have numbers and projections you need to think about what are some of the things that can go wrong, and how you’re going to make sure that the business is going to be able to accommodate them. That shouldn’t scare you, but it should well, make you a little bit sober because it’s a difficult experience.
(39:23) You know, the other thing I’ll say in that is perhaps a bit of unusual advice, is I would say to be very cautious about putting academics on your board of directors. Yeah, which is interesting because we use them as consultants. We love them, but at the end of the day what I found is some, I wouldn’t say all, but some of the academics that I’ve had the opportunity to work have sometimes proven to be sort of an academic exercise in the boardroom. As opposed to really digging in and making a hard decision and not arguing things to death.
(40:04) So I’ll just say that in terms of it being something that I’ve learned along the way.
Michael: (40:09) Alan, talk to us about venture capital and starting a company with VC money investment vs. bootstrapping, which is what you do.
Alan: (40:21) Well I’ll tell you now I think there is a role for venture capital, but software is not a very capital intensive business. And the problem with venture capital, which is a very very serious problem, is that it typically puts a five or seven year sort of view on a business, at which point the venture fund typically either needs to sell to liquidate the company so it can pay the investors, or the company is ready to go public, which a lot of companies won’t be at that stage.
(40:52) So, I’m a fan of actually making sure that CEOs and companies have enough time to get it right. I mean look at Apple, you have the most successful company in the world arguably, and it took them a long time to get it right. I can remember the first time I held a nudent you know it took them a couple of slots to get it to this (unclear 41:17) generation.
(41:18) So, part of what I think is important is that this is going to be a significant part of your life, and I believe that for anybody who’s a founder in an early startup it’s going to be a pretty part of your life. Make sure the funding and the partnership with the people you work with is going to let you sustain your dream to a reasonable fruition level.
I see just too many folks who are forced to sell at a level that they consider premature, and inevitably in a year or two later they’ve left the companies at the bottom and are unhappy – they may be rich, but at one level their dream has not been fulfilled. Their customers in the B2B world, in the world that I sell to, are devastated by these acquisitions. Customers hate these companies being acquired, because they know what happens, they know that the innovation is going to leave, the maintenance levels are going to be jacked up. They’re going to lose all the benefits that made them want to work there.
(42:18) I think it’s actually beneficial to be able to show and live the level of passion that it takes to be either a startup, or a company that doesn’t take venture money or takes it from sources that don’t have that fuse on it.
Vala: (42:33) That’s terrific advice, and any final thoughts perhaps about cultural venture capital.
Alan: (42:38) Well you know I think the culture of venture capital it’s all about the Benjamin’s, right? And you can find ones who care about customers and products and if you’re going to work with one make sure that you’ve checked the references and that you’re getting one that will actually take pride in their work.
(43:02) I think that you know pride in your work is for me one of the fundamental values that separates great employees from average employees who do a job and separates great companies, from companies that are just going to punch somebody’s ticket. And ultimately I think making sure that you’ll be able to have pride in your work is something that I find that is powerful in terms of what motivates me.
(43:34) I think most really successful entrepreneurs will share that characteristic.
Michael: (43:40) You know, we’re just about out of time, so let me ask you one final question. Are you yourself investing in startups? Do you have relationships with startups and how does that work and what’s your thinking on that?
Alan: (43:54) I have on occasion, but not very much. You know the reality is that I am prettily heavily invested in Pegasystems from both a time and energy point of view. So the startups that I have invested in have mostly been charitable ones trying to do work to really give something back. We have a new charity that my wife actually just launched, which is an amazing idea around basically enabling people to donate clothes and have them go to a charity of their choosing, and getting a full tax deduction all automatically taken care of for them.
(44:34) So, really it’s more about trying to help organizations like the special Olympics, which we are working with etc. but any organization that will be able to raise money for charity. If folks are interested I would like to put a plug in for Union and Fifth. It’s a great new idea, and that’s the sort of place that I have been investing my time and money.
Vala: (44:50) That’s terrific
Michael: (44:50) That’s fantastic well Vala it’s unfortunately that time again. This conversation could go on for a long time.
Vala: (45:01) That was the fastest 46 minutes of my week and Alan, you dropped a lot of science on us. Thank you so much and an incredible thought leader and thank you very much for spending a Friday afternoon with us.
Alan: (45:14) Well Vala and Mike, all I can thank is that you not having learned in the past and gotten to this point by watching your show, hopefully being on it will just make it that much better.
Michael: (45:24) Yeah, you know CXO-Talk there you go. We have been talking with Alan Trefler, who is the CEO of Pegasystems, the company he bootstrapped 30 years ago. It’s a $600 million company now. I am Michael Krigsman this has been episode 104 of CXO-Talk. With my fabulous co-host Vala Afshar, and Vala, it is with a heavy heart and disappointment that I say goodbye to you… Until next week
Vala: (45:58) Thank you Michael, thank you Alan, thank you.
Alan: (46:01) Thank you all.
Michael: (46:02) Thank you everybody, thanks for watching and we will see you same time, same place next week. Bye bye.