Mike Ettling is looking to create a new trifecta by following Springbok’s 2019 World Cup win and Liverpool’s 2020 championship with a Unit4 ERP mid-market sweep.
Mike Ettling has a storied career in HR software and services and is looking to create a new trifecta following Springbok’s 2019 World Cup win and Liverpool’s 2020 championship with a Unit4 ERP mid-market sweep. Mike founded two of his own businesses, nurtured eight start-ups in the HCM technology sector, and led SAP SuccessFactors as President for four years. He also served as CEO of NorthgateArinso (when he spoke with us 10 years ago), one of the original HR outsourcing firms, which is now part of Alight. Speaking at the SuccessFactors 2017 Influencer Summit, Mike stated “no one will be logging into HR Systems in five years’ time.” As we rocket through an unprecedented 2020 towards the noted five-year mark, it’s time to check in on faceless ERP and discover the draw to Unit4’s “sizzle” and its people-centric ERP paradigm.
Phil Fersht, CEO and Chief Analyst, HFS Research: Good afternoon, Mike. It’s great to get connected again, after so many years. You’ve been a big legend on the whole HR software and services market, but now you’ve gone, full ERP on us. Can you give the lowdown to our audience about how you got started? Had you always planned on being a tech CEO?
Mike Ettling, Chief Executive Officer of Unit4: Interestingly, I stumbled into tech in an intriguing way. I did COBOL and Fortran at school – I still have my Daniel McCracken textbooks on Fortran and COBOL – but then I went down the path of business studies, became a chartered accountant, CPA, in two countries. When I started my life at what was then Peat Marwick, or KPMG, I very quickly got into the tech side. We were setting up this African Futures Exchange, and we designed the clearing system for futures trading, and then I started my own business at university, and it was all predicated on building a cool piece of tech to do something which people were doing manually. In those days, we were building stuff on PC networks, using Realia COBOL, which people were traditionally doing, very expensively, on mainframe. And that’s how I stumbled into tech.
And then I ended up getting called by a big company in the US called Neodata, which was the granddad of the back office fulfilment industry at the time. They were keen to see what was being done in client server land. At this point, I was still in South Africa. I remember getting this call, and I asked, “How did you find us on the tip of Africa?” and they said, “We heard from the Microsoft user groups that someone in South Africa is building this stuff in SQL Server.”
And that’s how I ended up at EDS. I joined Neodata, and then EDS bought Neodata, so I look at EDS as my school of technology. A very good school in that regard. I think what EDS was brilliant at was service delivery and delivery execution. That ex-marine culture, which Ross had built into that business, translated into how they did service delivery and ran datacentres and operations in that company. So, I stayed in tech, initially on the services side with EDS and then with Synstar, which HP later bought. My work with Unisys morphed to BPO when I went to NGA.
“I had this view that SaaS was melting business processes, and I wanted to do the melting, not be the melted. That was my transition from big-ticket outsourcing into software and the cloud.”
As SaaS came along and cloud came along, it became very clear that BPO was going to go through a fundamental transformation. I remember when I took the SuccessFactors role, HR outsourcing was shrinking because all the SaaS solutions, be it Workday, or SuccessFactors or Oracle, could do this stuff with far less people, far easier. I had this view that SaaS was melting business processes, and I wanted to do the melting, not be the melted. That was my transition from big-ticket outsourcing into software and the cloud.
What was really interesting were the parallels. In those days, there was no textbook for running a cloud business like SuccessFactors, which was $750 million and heading to 1.4 billion. When you’re looking for skill and talent, a lot of people you find who have the talent in cloud, up and down the West Coast, are working in 50 million ARR companies, or 100 million ARR companies. Finding people who have true enterprise customer experience at scale was interesting. Eventually, I learned to focus on hiring for scale and teaching them cloud was way more effective than hiring for cloud and teaching them scale.
“Those who came out of outsourcing, who understood scale, 100% availability, and that type of environment were keen to get into something new. They were great hires. …We were very successful in scaling by bringing those kinds of skills into the cloud world, and not just taking from the West Coast pool who really didn’t have a lot of the scale experience.”
Outsourcing and cloud are opposite sides of the same coin. On-premise and cloud are different coins. Those who came out of outsourcing, who understood scale, 100% availability, and that type of environment, were keen to get into something new. They were great hires. They knew scale, they knew enterprise, and, if they were smart, they’d learn the cloud side of it very quickly. So, we were very successful in scaling by bringing those kinds of skills into the cloud world, and not just taking from the West Coast pool who really didn’t have a lot of the scale experience.
That’s my story. I never planned to be a tech CEO, but I was always passionate about technology, and fortuitously stumbled into it.
Phil: So how has the lockdown treated you, Mike? You are in Boca, right? Have you enjoyed it? Are there some good things or not-so-good things you’ll take away from your experience?
Mike: I’m an eternal optimist, and I think there are a lot of good things that have come out of this experience. I’ve lost 8 kilograms and got fit again, running ten miles. At the start I was saying to people, “Now’s the time not to get paranoid; now’s the time to take on more goals,” because you will have more time, and if you don’t spend that time on something productive, you’re just going to fret about all the noise and the crisis around us. Family reconnecting and spending more time together has been a big positive. Since I started my career, this is the longest stretch of time I’ve been at home without traveling, which has been great. I think there have been some super positive things.
After just a week, I stopped watching network TV. Whether it was the US, or BBC, or any of the channels, CNN or Fox, I just stopped watching it. And, I feel very strongly about the fact that the modern-day news media has let the world down, in terms of how they have covered COVID, and, in many cases, politicised it, sensationalised it, and made it very hard for people to get facts. My father was in the media industry, in the press world; he was what you call a newspaperman. I was always brought up with this mentality of the integrity of journalism, and getting to the facts, and getting to the truth. That’s what he stood for.
I turned to print media, and reading, and data, to try and inform myself and to sift through the noise. That’s been one of the negatives of this whole thing, for me. Too much sensationalism, too much politicising of every aspect of this when, in fact, this was a health crisis which needed to be dealt with factually, and in health terms, not politically with sensationalism.
I would even say there are positive things coming out of this for business. The notion that you couldn’t work remotely for example. We’ve accelerated that concept, many years, by what’s happened in the last few months, and I think good things will come out of that.
Phil: Yeah. Good. So you’ll reappear thinner than you were a couple of months ago. [Laughs].
Phil: Tell us a bit about Unit4 and your plans for the firm, and how do you think you’ll fare over the next year, as we try and weather this, not just economic storm, but geopolitical storm. This is the first time we’ve ever had to think about geopolitics when we make business decisions. Right? I’d love to hear a bit more about the firm and how you think you’re going to weather this.
“I was attracted to Unit4 by the strapline, “In business for people.” Having been in the HCM sector since 2009, it got me interested. …There’s really only a handful of us who have built ERP, where the core product has started with a people-centric business paradigm.”
Mike: I was attracted to Unit4 by the strapline, “In business for people.” Having been in the HCM sector since 2009, it got me interested. When you think about this industry, most people think of enterprise and you’ve got the big three, and then they think of midmarket and SME, and then the masses of others. If you now put another line and split that, and say, “we’ve got enterprise and SME/midmarket, but who is building ERP for people-based services businesses? Service-centric, versus who’s building ERP for product-based, manufacturing type businesses?” And now, suddenly, you put 80% of the pack to the manufacturing/product side, and there’s really only a handful of us who have built ERP, where the core product has started with a people-centric business paradigm.
There’s a big West Coast player who’s dominating the enterprise space, and then there’s us, dominating the midmarket space in terms of scale, and size, and reach. And then there’s a lot of single vertical-focused players. That really got me interested and excited about this opportunity, because I think Unit4 is a really interesting platform and positioned in a very unique way to go after and build a billion-dollar revenue-plus market leader, for midmarket, people-centric ERP in the industries we specialize in.
“If you look at the cloud offerings of the big players, I would say 75% are still single tenant hosted type cloud offerings, and there’s only about 25% which are true multi-tenant architected. We are one of those.”
The other thing which attracted me was Unit4’s cool technology. People really liked the product. But more than that I was excited about the strategy for moving the product to the cloud, taking it into the microservices architecture world, and making it multi-tenant. A lot of cloud products today are still single tenant hosted. If you look at the cloud offerings of the big players, I would say 75% are still single tenant hosted type cloud offerings, and there’s only about 25% which are true multi-tenant architected. We are one of those.
“The reaction I got from a lot of peers in the software industry was, ‘Unit who?’ It was a great steak with no sizzle, which was an attractive challenge.”
The reaction I got from a lot of peers in the software industry was, “Unit who?” It was a great steak with no sizzle, which was an attractive challenge. Not an easy one, but one I was eager to take on.
We had a really good Q1, and we’re tracking well in Q2. We are approaching that tipping point, in an on-premise to cloud transformation, where our cloud subscription revenues are going to be equal to our maintenance revenue. 70% of our revenues are recurring, in the business, between cloud and maintenance. We’re getting to a cloud scale which is interesting, and that builds resilience in the business. And the fact that it’s ERP helps. People aren’t going to rip out their ERP in a crisis – that has a double-sided impact on us, it’s good for retention, but makes it harder to find new customers, but overall, we’re weathering the storm well.
Unit4 was originally a Dutch company, so when this crisis started, there were a couple of key things in our approach to it. We agreed from the start we wanted to avoid layoffs. That created a focus in the management team to look at an offensive and defensive strategy. Using a Dutch term, we decided to build dykes to protect us against the wave. We didn’t know how big it would be but let’s build those protective dykes to avoid the water getting to the last dyke (layoffs). We took out tens of millions of cost, immediately, within the first two weeks of lockdown starting.
We also decided that no one in the team was going to get bogged down with scenario planning. We have a budget, and we’re going to go for the budget, and yes, it will be harder, but we’re going to go for the budget in terms of top-line and bookings. If you try to consider, “is this a hurricane? Is it a tsunami? Is it a small wave? Is it a big wave?” you end up picking one and talking yourself into that one. The whole approach was about getting on with delivering the budget. We’ll put all the dykes in place immediately, and if we achieve the budget, we’ll be tens of millions over our profit target. If we miss the budget, there’s a buffer and we’ll probably still make our profit for the year. That approach has enabled us to be more united, more resilient.
“I’ve been on a lot of CEO peer calls, …and what I’ve seen is a lot of people go straight to the defensive stuff, ‘We’re taking headcount down, we’re taking costs out, we’ve got these three scenarios.’ You psychologically talk yourself into the worst case. We’ve taken a very different approach, which has helped in fostering resilience so we can weather the storm.”
You make a really interesting point that this is a health crisis and an economic storm, that is creating a geopolitical storm. The worst one – for me personally – will be the geopolitical storm.
I think we’ll cope with the health crisis. We have, we’ve figured it out. In many countries, there were pockets, like New York that breached their capacity for ICU beds. But if you look at the rest of the US, for example, no other state breached capacity or got near capacity. Countries like Germany, Sweden, and most of the European countries other than pockets of northern Italy, didn’t breach capacity. So, we’ve coped with it quite well from that perspective.
The economic crisis is very different from 2007-08 where you had a financial industry fundamentally causing the crisis. I think you have what I call a consumer-driven economic crisis happening, and particularly for countries like the US, which is a consumer-driven spend economy. I can’t reconcile the stock market and 40 million people out of work in the US. think that consumer-driven dynamic will have to have some impact. But then, if things come back, you could see the W, you could see a W with a U. There are more signs of economic recovery than I expected, at this stage.
“I’m not an economist, but there are some really interesting challenges, definitely a subject for Freakonomics 2 to be written around this.”
The biggest one I’m most scared of is the geopolitical consequences, and how countries now start engaging. You see it already, Japan putting a billion dollars into the subsidies to de-risk and remove themselves from China supply chains. What happens if the balance of payments in China goes negative for the first time in decades? Who then buys the US debt? And you start looking at the bigger geopolitical impacts of this… I’m not an economist, but there are some really interesting challenges, definitely a subject for Freakonomics 2 to be written around this.
Phil: Looking back, we could’ve bailed ourselves out of any type of financial crisis by throwing money at it. This is the one thing that is going to set a whole different sequence of events happening. A lot of uncertainty.
Phil: And what’s interesting now is that you can get cash in this market. It’s not getting cash that’s the issue; it’s how you deploy that cash. So…
Mike: No, you can get cash so quickly. And, you know, you’ve got governments… the UK issued a government bond with negative interest recently. So, things are really topsy-turvy at the moment when you look at traditional economic metrics and all.
Phil: Do you think people are going to start buying software and services differently, as a result of this? Do you think people are really changing fast now, how customers are viewing their relationships, and how they want to pay for this stuff? How they want to consume it?
Mike: Yeah. I think a lot of things are going to be accelerated, and I think there will be change which we don’t yet foresee. Looking at what happened after every major recession in history, and you go back to the early ‘90s, there was a new tech boom, or tech trend, which escalated. In the early ‘90s, you then had client server. Then you had the 1999-2000 post-millennial recession, and you had mobile and the internet. Then you had 2007-08, and, post that, you had the cloud wave. We have yet to see the wave of tech shift post this recession.
“We have some views around faceless technology, faceless ERP; no one’s going to log into an ERP system, or a core HR system anymore.”
We know the future is faceless technology, faceless ERP. No one’s going to log into an ERP system, or a core HR system anymore. I look at my landing page paradigm. Three months ago, I’d spend most of my day in Outlook; now I spend most of my day in Teams. And when I look on my Teams, I’ve got a little button on the left which says, “U4 Wanda”, which is my Unit4 chatbot, which prompts me with a Teams message, saying I’ve got invoices to approve for example. That’s what I mean by faceless ERP. We’re not going to want to log in to these systems anymore, and we’re going to want to access them from wherever. As a midmarket ERP company, I am certainly not going to take on competing with Microsoft, and ServiceNow, and Google for the landing page ownership; but I can compete with owning the transactions, and the insights, and the data, and enabling people to work better. I think that’s where we’re going to see big change.
“Work-from-where-you’re-comfortable is the future of work. That will help with the myriad of health and safety rules and regulations, by country and personal preferences. It’s too complex to try and write the manual for returning to work.”
It’s clear working from home is here to stay. I think we’re moving to a work-from-where-you’re-comfortable policy and model. We’ll have offices where people can go to hang out, do meetings, and see clients. But if you’re comfortable working from home, work from home; if you’re comfortable coming into the office for a day a week, work from here; if you’re comfortable sitting on your boat and working, work from there. Work-from-where-you’re-comfortable is the future of work. That will help with the myriad of health and safety rules and regulations, by country and personal preferences. It’s too complex to try and write the manual for returning to work.
The rule of business will change. We’re already saying, from our board down, “We have six board meetings a year. Let’s do three this way, going forward, and we’ll do three in person. Out of ten leadership meetings a year, I’ll do five like this, five in person.” We won’t see a return to travel as it was before. In fact, for 2021, we’ve budgeted just 50% of our pre-COVID annual travel budget.
“The other acceleration we’re seeing is… Data residency has now suddenly gone down the ranking, almost to the bottom of the pile.”
The other acceleration we’re seeing is less of a focus on data residency in the cloud, particularly among many European public sector clients. Pre-COVID, data residency trumped GDPR EU compliance. But data residency has now suddenly gone down the ranking, almost to the bottom of the pile. We’re seeing a lot more dialogue around needing resilience, and needing to be in the cloud, irrespective of where the datacentre is in Europe for example.
Phil: Wow. That’s good. Very good. So one final question. How did you celebrate Liverpool winning the Premier League and as a big fan, was it hard not to be at Anfield to see it?
Mike: I watched it from home, the whole family are Reds fans. There was a lot of debate, and some sharp language from my sons about some teams in the Premier League, suggesting they shouldn’t award it at all this year. I’ve been a very patient Springbok and Liverpool supporter, and the Springboks paid off last year, and Liverpool paid off this year, so all in all, it’s been a great time for my sport.
Phil: Alright. There you go…. as a Spurs fan I just wasn’t this season to end. [Laughs]. Thanks for your time today Mike. I really enjoyed the conversation.