Andrew “Flip” Filipowski is legend in the US tech space, who has been building, starting and selling software companies for more than 30 years.
He’s best known in the US for his big success and his big failure. As founder of Platinum Technology he made hundreds of millions when he sold the business to Computer Associates (CA) in 1999 for $3.5 billion. But he was also caught up in the dotcom crash as the founder of investment house Devine, which collapsed with $1 billion of shareholder funds.
Today Filipowski’s main investment is SilkRoad, a software-as-a-service company specialising in human capital management solutions. Late last year it raised $US40 million from investors including Intel.
He talks to SmartCompany about how the cloud has changed the software game forever, why a tech bubble is not necessarily a bad thing, and why entrepreneurs should never stop creating new businesses.
We might start with why you are in Australia and a little bit about Silk Road?
The reason I’m in Australia today is this year we opened up our Melbourne office, so I am visiting with not only our current clients but also with some of our prospective clients as well.
And can you talk a bit about what Silk Road does?
It’s a software-as-a-service (Saas) human capital management solution.
First and foremost it’s delivered by subscriptions, so it’s very akin to the most recent delivery mechanisms favoured by customers that of SaaS. We provide a suite of six products. We have a product called OpenHire, and it provides for a host of capabilities to recruit folks appropriate for the culture and the activity an organisation would like.
We also have a second component called RedCarpet, which is primarily used by our customers to onboard new employees as well as to support life events for the employees while they are engaged with the organisation. It could be such things as providing them with an appropriate maternity leave or transfer or relocation. The third product is called WingSpan where we do performance management compensation and succession planning.
We also have a learning management system called GreenLight and a product called Eprise that primarily excels at social networking and things like building and delivering corporate intranet as well as a recruiting website for companies. And the last but certainly not least product is the HeartBeat product, which does a great job of workforce management. It’s a kind of a new generation, new style of solution that incorporates the traditional full kind of employee management that most of the ancient systems like Peoplesoft and SAP handle but adds to it very sophisticated handling of part-time employees, contract employees, contingent workforces, global workforces and partner workforces.
We have been in Australia for two years working out of our Sydney office and we have now added a second. I am also on this visit travelling over to Auckland where we have this year opened up a substantial operation and have a very nice comfortable group of customers there that I’m visiting and hopefully quite a few prospects too.
The SaaS market in Australia is still in its early stages. Do you have a sense of where we are compared to other parts of the world in terms of acceptance of SaaS?
I think about the same place as most of the other major markets. I think well ahead of perhaps the Japanese in terms of acceptance, I think that about the same place where North America and Europe would be. In fact, I think because full employment returned to this neck of the woods earlier than it did to some of those more stagnant economies I think there’s been a resurgence of interest in SaaS solutions that certainly span CRM, which has led the way in the SaaS area.
There are numerous instances that Salesforce.com for example can brag on its client and install base and these days the only thing that outpaces CRM for buying intentions even here in Australia is human capital management. Both continue to be hot in purchase intent areas and there are many, many fast growing economies around the globe, in particularly paying attention to human capital management. I would say that in the economies of China, India, Brazil, Eastern Europe, Turkey in particular there’s quite a bit of interest coming and emanating out of those parts.
I am myself somewhat surprised how current the topic is in places like China and in India, where one might with a western perspective think that labour pools were a bit more disposable. And yet it appears that a phenomenon where the engineers and scientists and very skilled labour is being pursued aggressively by multinationals on their home turf has made a significant segment of their population subject to scarcity. Getting and retaining employees in the highest skill sectors has become as bigger challenge in those emerging economies, maybe more so than it has in the traditional global leaders like the US and Japan and others.
As a veteran of the software industry, what’s some of the big differences developing and selling SaaS as opposed to licensed software products as back in the 1980s and 1990s?
Well I would say the good news is you only have to develop one version of the software. You are no longer challenged with the various kinds of alternatives that you had to present to the buyer community. That, is you don’t have to have an Oracle version and a Sybase version and an Informex version and a DB2 version or a Unix version. You don’t have to have all the variations, nor do you have to maintain a number of historical versions that are still in play in your customer sites. So you can concentrate on a very stable, very elaborate, very configurable offering and save the money that is there.
On the negative side of the ledger you have to spend an enormous amount of that money plus more on sales and marketing, because the accumulation of revenue from subscriptions trickles in as opposed to floods in, so the idea is that you have to stay in the growth mode longer. You have to concentrate more on the land grab of additional customers for sustained periods of time, retaining them so that they become profitable. Whereas in licensed software you typically get a very large chunk of cash upfront when you finished promising and you don’t have to deliver quite as much.
Are barriers to entry lower as well?
No not really, actually they’re higher. Very few software companies can afford to become SaaS companies. You need an enormous amount of capital that is consumed in the incubation stage before you get the relatively enormous cashflow that results from the big wave accumulating out somewhere in the distant future. But many, many, many software companies are challenged in terms of being able to survive long enough to get to that point, because it takes a huge amount of capital to fund the incubation period. I would also point out that it is gracious of the markets to accept public SaaS on the basis of their revenue growth and to appreciate that rather than expectations of any earnings. So if you get to the point where you can successfully offer your securities publicly and raise capital in addition to private capital you have a very good chance of success. But getting to there is a much rougher, tougher, longer, more arduous process than it was in the past.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
