You’ve come a long way baby.  Major TURNAROUND

In the 12 years I have been in this industry, I have seen many things, but one of the feats I envy the most, and frankly do not see often enough, is a total turnaround of a firm. This is the story of a turnaround that went from a firm at the point of extremely low customer satisfaction, unprofitable, and old custom licensed solutions to that of a firm that I think could be a market leader in a very short period of time. This fall I have seen two of these opportunities; the first, as mentioned in a past Blog, with AIM/Hire.com/Peopleclick/ Authoria– now called Peoplefluent for their brilliant design and mobile applications that was released at HR Tech and then more recently with the people at SumTotal Systems.

In the mid 2000’s, SumTotal was one of the leaders in the Learning Management System “space”. It was doing around $100 million in sales, had never made money although it had raised hundreds of millions, purchased many of their competitors to gain market share, customer satisfaction was low, and its outlook was dim. Although they made an investment into the Performance Management “space” with a great vendor called MindSolve, they never really figured out how to sell or integrate anything other than learning. Even with learning they struggled to maintain various systems. It was a developer’s nightmare or maybe a dream as they kept hiring developers to fix their problems. They probably peaked with about 900 staff and over 600 developers just focusing on developing learning products. Then SuccessFactors/Plateau, Cornerstone OnDemand , Silkroad Technology etc started eating away at their client base. Revenues dropped, customer satisfaction dropped, and effectively their entire client base was in play. Employees were down to just over 300 and they were still struggling to break even. So Private Equity (Vista a very established Software Private Equity firm) comes in and buys them for a song, basically $130 million or 1.3 times revenue. When you have firms like SuccessFactors, Taleo and many others still trading at 3-8 times their revenue, it was a great deal as long as they could fix the revenue and the many technology issues.

In the fall of 2009, we met the new Vista appointed CEO who was full of enthusiasm about what she was going to do to turn the company around. After a 30 minute briefing, we left wondering if she was really working at SumTotal … what she was saying was clearly not reflective of what we heard from the client base. I immediately bet Dave Whitmarsh on an over under saying she would not last 6 months. I won when she departed the organization within 60 days. So not being overly impressed with what Vista had done, we basically wrote them off. We also noted that Vista had acquired Accero (the old cyborg platform that was in major need of facelift) and were running this separately as well. Clear indication that they did not get integrated HCM and where the market was going. Of course, it was easy to dismiss them as a market player as they weren’t really talking to any analyst and media anyway. In early 2011, we started to hear rumbling of a turnaround. Then the quick acquisition of 4 pretty significant players occurred: Softscape People Management, Accero (put under SumTotal Management), CyberShift (Time and attendance, scheduling and workforce management), and GeoLearning (mid market government LMS) and thought … hell they can’t even integrate 2 LMS systems. They are in way over their heads on this. SO when I questioned Christopher Faust about this he of course told me what every marketing person would tell me: “yes it is all integrated but of course being skeptical media people who have covered this space far too long and seen more disappointment than success in mergers and acquisition integration.” We were extremely skeptical. SO Christopher did something so brilliant but so simple it made me realize that this story had indeed changed and yes these guys knew what they were doing. A quick call with Hardeep Gulati , quickly verified that yes several of the systems were fully integrated IN Data , User interface as well as Database design and the recent wwwwww.cybershift.com acquisition was in progress… Stop by the booth at HR Tech in a few weeks and I will show you. So I did and was extremely surprised. In fact I was astonished. (I guess I’m getting used to people telling me that this was done, but later finding out it’s on the road map and in progress which in some cases can be several years) so when I got invited to the Analyst meeting I thought great maybe I will learn more about their road map and how they are doing with this rapid integration.

Well, after a day of briefing which was far more technical than most we receive, I was absolutely ecstatic to see what they call a MDM (Mass Data Mart). Think of it more as a technology layer that provides open API, Data Integration and UI for any product that sits in-between all these systems and lets them excel at what they do best, but through a single data layer User experience. It’s absolutely brilliant, and in fact I joked that they could indeed sell this to several clients and even competitors who frankly just can’t get this type of work done.

SO what has changed at SumTotal Systems beside a broader footprint in product offerings? In fact, they are one vendor that now has the most comprehensive fully integrated solution but are still lacking on mobile and social (on the road map). See product offerings:


Other significant changes:
1.       New Management – Keeping many of the key players from some of their acquisitions predominantly in the development and sales arena, they have increased head count hiring almost 250 people this year alone to now just under 1,000 full time people. They have brought in additional seasoned software executives using the Vista PlayBooks on how to build a software firm with huge success and, in fact, writing the playbook and learning how to fly-fish along the way.
2.       They are razor focused on customer satisfaction, increasing the bar for 85% customer satisfaction 7 quarters ago to 98% now. Where as 450 clients would be looking to leave a year ago, now client retention is growing and product cross sell is also working with about 200 clients potentially leaving. They have implemented Net Promoter Scores and are taking any score below a 9 as very serious and needs attention.
3.       Lots of new client wins locally as well as globally have boosted employee morale.
4.       Cost conscious and running a long-term sustainable firm. With many VC funded firms, we see massive waste in spending, reaction of HQ to high cost of living centers, wasteful expenditures in marketing, and bringing in high profile Thought Leaders at highly expensive costs that traditionally don’t offer a ROI. In the SumTotal Systems case, this is the exact opposite. The majority of the executives on site took red eyes home so they could get to work the next day and prepare for the board meeting the next week. They relocated the corporate HQ from Silicon Valley to Gainesville, Florida so they could have access to better labor at more reasonable rates without the competition for other Silicon Valley employers. They talk about profitability like it is essential to building a sustainable model and investing back in the product and people.

As a result of all these changes, they have experienced 128% year over year growth in an industry that is averaging just about 10% with 190% growth in EBITDA which has 3,500 clients and 43 million end users and 50% of the F500 on their platform including brand names such as WalMart, Exxon, Microsoft, Costco, Target, Lowe’s, and American Express.

In addition, John Borgerding, their current CEO, seems to have surrounded himself with brilliant, hard working people who love this industry. He is also a very humble and honest gentleman, and one cannot help but like him and appreciate the effort he and his team have put forth in the last 18 months.

Thanks for the update ... keep up the great work.