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With over a billion
customer interactions in 2005, most people that have interacted with a customer service
department, either on the Internet or via phone, have used RightNow Technologies’ CRM
solutions
Technology
Enterprise Software
(RNOW-NASDAQ)
RightNow Technologies Inc.
40 Enterprise Boulevard
Bozeman, MT 59718-9300
Phone: 406-522-4200
Greg Gianforte
Chairman, President, CEO
and Founder
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
March 9, 2006
BIO:
Greg Gianforte, CEO, President, Chairman and Founder
Greg Gianforte has led RightNow from its founding in 1997 to 32 consecutive quarters of
revenue growth, 15 consecutive quarters of cash-flow positive performance and a successful
IPO. His market vision, leadership, entrepreneurial philosophy and commitment to ethical
business practices has enabled RightNow to consistently grow—during a period when
many other software companies have stumbled—and to achieve remarkable levels of
customer loyalty and satisfaction.
Ernst & Young awarded Greg the Pacific Northwest 2003 Entrepreneur of the Year for the
software category. A panel of independent judges evaluated the excellence and
extraordinary success of outstanding entrepreneurs in such areas as innovation, financial
performance and personal commitment to their businesses and communities.
Greg founded Brightwork, a pioneering developer of
network management applications, in 1986. With 75 employees and software installed on more
than 150,000 Novell systems nationwide, Greg sold the company to McAfee Associates in
1994. He was retained by McAfee to run its North American sales operation, which he grew
from $25 million in revenues to more than $60 million in under a year. During Greg's
tenure, McAfee was selected by Fortune Magazine—based primarily on its
Internet selling approach—as one of the "10 Coolest Companies in America."
Greg is also the author of Bootstrapping Your
Business: Start And Grow a Successful Company With Almost No Money.
Greg holds a BE in electrical engineering and an MS
in computer science from Stevens Institute of Technology.
Company Profile:
RightNow (NASDAQ: RNOW) provides organizations with industry-leading on demand CRM
solutions to build customer-focused businesses. RightNow's acclaimed technology,
comprehensive services and commitment to customer success deliver high returns on
investment for its customers. More than 1,400 organizations worldwide use RightNow
solutions including British Airways, British Telecom, Cisco Systems, Continental Tire
North America, John Deere, Nikon and the Social Security Administration. Founded in 1997,
RightNow is headquartered in Bozeman, Montana, with additional offices in North America,
Europe and Asia.
RightNow is a registered trademark of RightNow
Technologies, Inc. NASDAQ is a registered trademark of the NASDAQ Stock Market.
CEOCFO: Mr. Gianforte,
please tell us how RightNow Technologies has developed and where you are today?
Mr. Gianforte: “We began in the late 90’s; with the
premise that the internet was changing the way companies interacted with their customers.
We pioneered in an area called E-service, which is the ability for companies to interact
more effectively with their customers and in a little less than two years, we have now
handled over a billion customer interactions on behalf of our clients. That was our
initial fore and then we realized that all companies were really struggling with the
increasingly competitive market place that exists and looking for ways to differentiate
themselves. It was a general consensus that quality of service was the only sustainable
strategy that a company could pursue. Competing on price didn’t work because there
was no way to make money and continually innovating was difficult as well, because
competitors copy your ideas. There was a problem because even though people recognized
that quality of service was the way to win, they couldn’t just throw money at the
problem, because they didn’t have money. It was really a quality/cost conundrum, and
that’s the problem that we solved.”
CEOCFO: On a day to day basis, what is it that you bring to a
customer that will enhance their sales and make a difference in their customer relations
operation?
Mr. Gianforte: “The reason that we exist as a business
is to help our clients better serve their customers, however they serve them, whether that
is in a post sales environment, if it is in a marketing context with customer
communications or in a presales environment where we are actually identifying
opportunities and fulfilling them. For example, we work with many clients like Medicare
(U.S. Dept. of Health & Human Services), The Black & Decker Corporation (NYSE:
BDK), travel companies and financial services companies. We are typically the capability
that is on their website to handle all customer inquiries, both presales and post sales.
We are the software that is in the contact center on the agents desktop that gives them
reference tools to be more responsive to clients and answer their inquiries. We are also
the software that the marketing department uses to do outbound communications such as
newsletters and up-sell and cross-sell; as well as on the desktop of a sales agent. This
is generally characterized as CRM software, which is customer relationship management,
except that where as previously CRM has focused on internal process improvement, which is
making a customer service rep more efficient or a sales rep more efficient; our focus has
always been external in terms of helping companies improve the interactions that they have
with their customers. This drives a higher ROI (return on investment), increased customer
loyalty and ultimately more revenues for our customers.”
CEOCFO: Where will customers see the ROI?
Mr. Gianforte: “We are able to deliver very tangible ROI
and our ROI comes in one of three areas; the first is cost reduction. It is generally the
case that a client can implement our multi-channel service capabilities and eliminate
somewhere between 50 and 70% of incoming customer inquiries and 10 to 30% of the incoming
telephone calls, while improving quality of service. The second area that we help in is in
improving revenue and here we help companies really make knowledge about their customers
actionable and allow customers to target outbound communications for up-sell and
cross-sell in a very personalized way that maximizes the return that the companies get
from them.”
CEOCFO: Do you sell to smaller companies as well as larger
enterprises?
Mr. Gianforte: “It is a mix! Last year (2005), 40% of
our business was with companies with greater than a billion dollars in revenue, about 45%
was with middle market companies and then 15% was with public agencies, such as the Army
Corps of Engineers, the Department of Homeland Security, the Social Security
Administration and the EPA (Environmental Protection Agency).”
CEOCFO: Whom do you find it harder to get the point across
to, the larger or smaller companies?
Mr. Gianforte: “Their needs are common. Any organization
that has customers is doing everything that they can to provide higher quality service and
reduce the cost of delivering that service. I would say that the only thing that is a
little different is that in government or public sector environments, there is less of a
profit motive and more of a public service orientation. Therefore, it is less about cost
reduction and more about doing more with the available budget.”
CEOCFO: Do you work with governments all over the world and
tell us about your presence in the U.S. government offices?
Mr. Gianforte: “Yes, we work with governments all over
the world; we have about 40 clients in the U.K., both at the central government level as
well as the borough council level. We work with many states in the U.S. such as the New
York State Department of Tax, the MTA (Metropolitan Transit Authority) and the Department
of Revenue in Colorado. However, most of our government business in the U.S. is at the
federal level, where we have well over 100 agencies. Therefore, we have a significant
presence there. Understand, we handle over a billion customer interactions in the last
year and a half or so and that is everybody in the U.S., 4 times. I would venture to say
that most people that have spent any time on the internet have used our solutions. Our
clients include people like Orbitz (a wholly owned subsidiary of Cendant Corporation
– NYSE: CD), Travelocity (a wholly owned subsidiary of Sabre Holdings – NYSE:
TSG), Expedia (NASDAQ: EXPE) in Europe and 15 Airlines such as U.S. Airways (LCC: NYSE).
If you ever use a digital camera, companies like Minolta (Konica Minolta Holdings, Inc.),
Sony Corporation (NYSE: SNE), Cannon Inc. and Polaroid Corporation (Polaroid Holding
Company – OTC: POHC) are all customers of ours; The Procter & Gamble Company
(NYSE: PG) is also a client. This is very broad based and we’ve been very fortunate
in that we’ve been able to save our clients as much money as we have, while improving
their quality of service and they’ve honored us with their business.”
CEOCFO: For the end user purchaser, I don’t think they
realize how much things would cost without CRM.
Mr. Gianforte: “I think that there is an interesting
point here, because a lot of people have had a very bad experience with CRM. In fact, in
many large company environments, CRM is a four-letter word. The reality is that we have
really changed the entire approach. I have talked quite a bit about the value proposition
we have for customers, but the other thing that is very interesting about our business is
that we are leading a revolution in the way companies consume software. If you go back 20
years ago, there was a transformation going on then too and at that time, we had what they
call ‘Green Screen Application’, these were Main Frame Application software and
a new thing came along called Client Server. Client Server provided a much better user
interface, but it took much longer to deploy and it cost a lot more to deploy. Yet, none
of the companies that had traditionally provided Green Screen Application software, were
able to successfully make the transition to Client Server and those companies by-and-large
are shells of their former self or out of business. These client server companies are
people like Siebel Systems Inc., Oracle Corporation (NASDAQ: ORCL) and SAP.
We are now at the threshold of another transformation in the industry from Client Server
Architecture to what is being called, ‘OnDemand’. This is hosted delivery
software as a service and these were all names relating to the same phenomenon. The value
proposition of Client Server was better user interface, but it cost a lot more and takes a
lot longer to deploy. The value proposition of OnDemand software is that it goes in 5
times faster, cost 80% less to own and the result is more reliable; further, it delivers a
better business result. Therefore, we are on a very slippery slope and it is interesting
that IDC (International Data Corporation) has stated that this OnDemand software market is
growing in excess of 40% per year. We’ve been very fortunate as a company, in that we
had 32 consecutive Quarters of revenue growth. In large part, because of the value
proposition that we provide and in addition, because of this OnDemand delivery model, we
are one of the leaders in the marketplace having in 2005, surpassed $100 million in
bookings for the first time. We believe that this is really the future of the software
industry and in 5 to 7 years, the vast majority of corporations will be consuming
Enterprise Application Software on this OnDemand model, so that there will be a changing
of the guard. The Oracles and SAPs of the world will then fade into the woodwork, just
like the old Green Screen Application companies faded into the woodwork and dried up and
blew away. Therefore, it is an exciting time and we are thrilled to be part of it.”
CEOCFO: What is your primary delivery method?
Mr. Gianforte: “Our primary delivery method is on a
hosted basis and in fact, if a client comes to us and says, ‘we would like your help
in lowering cost and improving quality of service’; we will offer them the software
either on a hosted basis or for on premise deployment. It is the customer’s choice,
but interestingly, we charge the same price for both, whether we run it on our hardware
and manage the whole thing for you or if you run it on site. We can do that because it
costs us less to host the application than it does to provide Tech Support, to a company
that chooses to run it on their own hardware. Therefore, even though we don’t charge
for hosting, our profit margin is higher if we host it for you. It is all counter
intuitive, but that’s what makes this new software as service or OnDemand model, so
compelling for customers; giving benefit 5 times faster and eliminating 80% of the
ownership costs. This is where the industry is going.”
CEOCFO: Why is RightNow a better choice for CRM software than
the competition?
Mr. Gianforte: “We had a customer recently that ripped
out a 1,600 seat Siebel deployment and at the launch, they said to us, ‘RightNow
Technologies has done more for us in 45 days than Siebel did in two and a half years.
Hence, speed of deployment is one thing, and the second thing is that traditional CRM has
been sort of a boil the ocean exercise, where you are trying to solve a big problem all at
once. Figuratively speaking, the reality is that when a business has a headache, you don’t
really want brain surgery; you want an aspirin. What we’ve done is that we’ve
modularized CRM, essentially into aspirins and pain killers, so that you only have to take
what you need. We have over a 90% annual customer retention rate, because we tend to start
small, deliver success and then earn the right to come back and do the next piece of
business. This is a totally different approach than the boil the ocean, burn the bridges,
take the money and run approach that we’ve seen in the software industry
historically.”
CEOCFO: How do you reach your customers?
Mr. Gianforte: “We finished the year with 110 people
worldwide that sell for us, so we are primarily a direct selling organization; although
about 10% of our business goes through partners.”
CEOCFO: Do you have the customer support worldwide for
customers to feel comfortable in choosing RightNow?
Mr. Gianforte: “We have a customer success methodology
that includes having people out on site. Unlike traditional software companies where they
tend to show up in a Greyhound bus and set up tents in the parking lot, we tend to fly in
and spend a couple of weeks, get some early success and come back when the customer needs
us. So there is a lot of hand holding involved.”
CEOCFO: Could you tell us about your revenue model?
Mr. Gianforte: “We know about 80% of our revenue on day
one of each Quarter, because it is predominately a recurring, annuity based revenue
stream, although we provide our customers some flexibility in how they order from us. Our
most common license is a 2 year term agreement, where they pay upfront for the 2 year
period and then they have to renew it; so that is an annuity based stream. Some customers
choose to purchase perpetual licenses and then pay a recurring maintenance, but those are
the primary types of licenses. It is really about what the customer wants to do.”
CEOCFO: Are you still spending a lot of money on R&D?
Mr. Gianforte: “The software industry is one where you
are continually innovating and investing, so we will spend more this year than we ever
have spent before. We are also continuing to hire the best and the brightest that we can
find, because ultimately, the value that we can create for our customers is based on the
depth and breath of the solutions that we can deliver.”
CEOCFO: What do you feel that you need to do to grow your
business over the next year?
Mr. Gianforte: “Our revenue brakes into 3 primary
categories; about one third of our revenue is renewals of existing contracts, so we stay
really close to our existing customers to make sure that they are happy and getting the
value that they expect out of a license. We’ve got 19 product in our offering and
unfortunately, not all of our customers are using all of our products yet. Therefore about
one third of our business is what we call additional penetration, which is additional
product sold to existing customers and then the final third of our sales comes from
business that we do with brand new customers. We are happy to bring them into the fold,
but that is a big effort. Therefore, we have to maintain the high standards of customer
satisfaction that we’ve been able to deliver, as well as go out and pursue those
opportunities that exist in the marketplace.”
CEOCFO: Could you tell us about the financial position of the
company?
Mr. Gianforte: “We’ve had 32 consecutive quarters
of revenue growth and we’ve just announced last week our 2005 financial results. Our
revenue and bookings both grew more than 40% and that is year over year. We acquired about
300 new customers, we have no debt on the balance sheet, we are cash flow positive, we are
profitable, and so it is a solid business that is growing very rapidly.”
CEOCFO: In closing, please address investors and tell us why
they should be interested in RightNow Technologies?
Mr. Gianforte: “I think that the reason to be interested
is that there is very few places to find growth in technology today. We have grown the
business 40% year-over-year last year and during our earnings call we said that we were
going to grow between 40 and 50% again in 2006. The overarching theme is that there is a
changing of the guard going on in enterprise software, from these obsolete, out dated,
expensive and failed on premise Client Server deployments, to this new, less expensive and
much easier to deploy OnDemand delivery model. Further, we are leading the charge in that
regard, so to the extent that people want to be a part of the future of the software
industry, there aren’t a lot of places to look.”
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