If there were no Microsoft, would there be a Nintex? Until recently, probably not. But a big part of CFO Eric Johnson’s role at the latter company is to guide its quest for new revenue sources.
Eric Johnson, CFO, Nintex
Privately held Nintex is a developer of software enabling the design and management of workflow processes like approvals, field data capture, and employee onboarding. A large organization can have thousands of processes than can be automated; Nintex’s largest deployment is at a shipping company that’s used its products to automate about 12,500 processes, according to Johnson.
The software is distributed and serviced through a network of approximately 1,500 Nintex partners — value-added resellers, hosting partners, original equipment manufacturers that incorporate Nintex products into their own products, training providers, and others. The partners are scattered across more than 90 countries around the globe. The company currently has about 6,000 customer organizations.
A vast majority of them use Nintex software in conjunction with hugely popular Microsoft offerings: the SharePoint content management and collaboration system; Office 365, which incorporates the cloud-based versions of SharePoint as well as Microsoft Office applications, including SharePoint. The company plans to roll out a next-generation technology next spring that will leverage Azure, Microsoft’s cloud-based computing platform and infrastructure for building and managing applications and computer services.
But the company, which started operations in 2006, is set on branching out. Its most significant foray in that direction was launched in July of this year, when it completed its acquisition of Drawloop, a document creation and management application for Salesforce.com.
Johnson, 38, who joined Nintex in early 2014, recently spoke with CFO about the company’s evolving business and his role there. An edited transcript of the discussion follows.
How great is Nintex’s dependence on continuing its relationship with Microsoft?
Actually, there is a strong co-dependence between us. We leverage Microsoft infrastructure, and in fact most of our technology is written in Microsoft’s .NET framework. So we’re certainly dependent on their technology. The co-dependency is because Microsoft has very intentionally chosen not to offer the type of process-automation technology that we do. So they need us to make their customers happy.
How significant is the Drawloop acquisition?
There were two drivers behind that. First, we wanted the add-on document-generation functionality. For many automated processes, the end output is a document, like a sales quote or a business review. Second, we wanted to be in the Salesforce.com ecosystem, meaning the Salesforce platform, providers of technology solutions [for users], services providers who do consulting work related to the technologies in the ecosystem, and users in the ecosystem.
Microsoft’s SharePoint ecosystem is very large, with more than 90,000 organizations globally that leverage the platform. Our 1,500 partners that we sell through and that provide services for our customers are a subset of partners in the Microsoft ecosystem.
And when you look at cloud ecosystems in the world, Microsoft, with Office 365 and Azure, and Salesforce are the two biggest and fastest-growing. So Drawloop was a very strategic acquisition — a very visible signal to the external world that we’re increasing our addressable market and entering new ecosystems. In the near future, we will be offering the Nintex workflow platform capabilities as an upsell to the existing Drawloop customer base of more than 1,200 organizations.
How do you define your “addressable market”?
With our cloud-based platform, we can bring the Nintex workflow platform to the entire market of organizations with at least 200 employees, which Dun & Bradstreet estimates to be 200,000 organizations globally.
How would you characterize the maturity of Nintex, as it nears 10 years of age?
I would say we are a healthy growth technology company. In 2007, our revenue was less than $2 million. Now, over the trailing 12 months, we’re about a $70 million revenue company. Our revenue growth rate over the past five years has been consistently more than 30%. And we do it very profitably. Our operating margin has consistently been north of 25%. So we’re way past being a cash-burning startup.
In the software industry, where most companies require significant venture capital to fund operations, Nintex is an anomaly. We have never had to use outside capital to fund operations.
What are the biggest risk factors the company is facing?
One comes from trying to run a growth business while sustaining profitability. We have a lot more things we could do than [would be feasible] with the level of investment we’re willing to make. So that’s the No. 1 challenge: Deciding what things we’re going to do, and do them well, and being OK with the tough decisions on what we’re not going to do.
No. 2 is the external risk. That is, we started out very tied to the SharePoint ecosystem, but now that we’re moving more broadly, we’re going to see, and we are seeing, more changes in our competitors. There are a lot of companies that see the potential of automation in the enterprise and are going at it a lot of different ways. Long term, to get to where we want to be, we certainly face competitive pressure.
A third one is that more than half of our revenue comes internationally. With so much movement in currencies, particularly the weakness of the euro versus the U.S. dollar, we’re experiencing currency pressure that is probably more common for companies with greater scale. Given the way we built our business, we are more geographically diverse than most companies our size.
Going back to the first of those risk areas, can you give an example of deciding to allocate capital in one area versus another?
We have some ideas for some incremental add-on capabilities that we think will be good decisions over time. But in the near term the right decision for our customers is to invest more heavily in our Office 365 capabilities, because we see a lot of market demand. So we’ve had to go a bit slower on developing some of those modules. I think it’s the right choice. We will have those modules, just not as soon [as we’d like].
As the CFO, where is your primary focus these days?
I spend a lot of time on our growth priorities. Fundamentally, over time there are three things we’re trying to do. One, as I said, is adding incremental functionality and capabilities that we can charge for. Recent examples include the introduction of enterprise editions of Nintex Mobile and Nintex Forms, as well as the document-generation capabilities via our acquisition and integration of Drawloop. I have consistently championed the funding necessary to create these add-ons, because upselling is a wise growth strategy.
Second, we’ve been changing our pricing methodology. I took the lead on that with our senior vice president of global sales. Historically, Nintex’s offerings have been priced on a perpetual-license basis measured by servers. But as more customers select our cloud offerings, more of them desire a single agreement on a subscription basis.
Combining extensive external research with partners, customers, and industry analysts with our own internal modeling, we started rolling out our new pricing approach in July 2015. The new model is subscription-based and consumption-oriented. Initial results have been quite good and suggest that the pricing aligns better with value delivery, which is maintaining our ability to rapidly land new customers while increasing their lifetime value to us.
The third priority is expanding our addressable markets, such as with the recent acquisition that took us into the Salesforce.com ecosystem. Another big investment priority for us has been funding our next-generation, cloud-based workflow platform, which leverages Microsoft Azure and will allow customers to solve simple to sophisticated process-automation challenges across any technology environment.
At 38, you’re fairly young for a CFO of a fast-growing company that’s also profitable. How did you come to be in this position?
After getting my finance degree I worked as an accountant for [about two] years at a company called Sequent Computer Systems that got bought by IBM. Then I went to work at a projector company, InFocus. That was pivotal, because the CFO there ended up leaving and took me with him to a company called Merant. It was a turnaround; in about two and a half years we sold off some parts, did some restructuring, and tripled the value.
The big opportunity came when Serena Software bought Merant and some of the more senior people in front of me left the business. In a year I went from managing two people to managing 30 and was promoted to director of accounting and finance at 27. That was also the year Sarbanes-Oxley compliance began. I led that effort and wound up being employee of the year at a company that had about 600 to 700 employees at that point.
Three years later I moved out of finance and became Serena’s vice president of sales operations. I spent a bunch of time in the field, meeting prospects, happy customers, and angry ones. It was a great opportunity for the four years I did that to be very operational and learn a lot about the sales side of a company.
Then I moved to Jive Software as vice president of finance and sales operations. It was eight months before we went public, and my role was to build up an operational finance team and get the metrics and models in shape so we could have discussions with investment bankers and analysts. In the two and a half years I was there, the company went from $50 million to $150 million.
How does your sales experience inform what you do today as a CFO?
The biggest thing it does for me is that I have much better respect and appreciation for how [revenue is] made to be. I understand the mind of not only our customers and partners, but also our sales reps and leaders. I can be in a meeting where we’re talking about a strategy and be able to say, that’s a nice idea but it’s not going to work.
Sometimes folks in my position, because they’ve never been in the field, think a lot of things seem to make sense that don’t in the real world. I can make decisions from a point of experience that a typical CFO may not have.
