SugarCRM CEO – Q&A on Why Software Is So Hot, an IPO and Goldman Sachs


NEW YORK (TheStreet) — SugarCRM CEO Larry Augustin is a man who doesn’t lack confidence. As the software-as-a-service and customer relationship management industry explodes, he wants his 11-year old SugarCRM to take advantage of this — even if it means going up against industry titans. (CRM – Get Report) is probably the best known player in the space, having recently reported fiscal second-quarter results that beat Wall Street expectations. The San Francisco-based Salesforce, led by CEO Marc Benioff, also raised fiscal 2016 revenue guidance as it continues to win market share against competitors. Microsoft (MSFT – Get Report) , SAP (SAP – Get Report) , Oracle(ORCL – Get Report) and others compete in the space as well.

Despite the well-capitalized competitors who’ve been around for decades, Augustin isn’t going down without a fight for the $30 billion market.

Dressed in a sharp grey suit and possessing an easygoing nature, Augustin is confident his company, which will go public at some point (though the CEO isn’t saying when), will wind up owning the customer relationship management (CRM) space because of its ability to narrow its focus on one area.


Below is an interview with Augustin about the software space, going public, Goldman Sachs (GS – Get Report) and much more. (The interview from Aug. 20 has been edited for brevity and clarity.)

TheStreet: Explain what SugarCRM is for people who don’t know what the software-as-a-service business is.

Larry Augustin: Think about customers — every business has customers. If you’re in a business that when your employees talk to those customers, they have all the information they need to deliver a great and consistent experience, across your business, it helps. When someone moves from first having found your company to talking to someone in sales to maybe perhaps buying your product and service and you have to support that. Our product is the product that sits in front of all those people that are talking to the customer and helps them understand that person. It will get publicly available information — their Facebook page, their twitter page, their linkedin page, so you have this full profile of a person. That’s all the way through customer service and support. We do issue tracking, sales and opportunity management, we help businesses forecast. Think of us as being in the business that helps your employees understand the customer and get them through the whole lifecycle.

TS: How can customers access your products?

Augustin: We offer the product in a Web browser, on-demand. We also enable our larger customers to enable the product themselves, and have it run in their own data centers, which many of our largest customers do. Our largest customer is IBM, so all the sales people across IBM use our product to manage opportunities across IBM’s pipeline. We’re primarily focused on the enterprise market.

TS: Competition in the software-as-a-service space has been heavy over the past few years, particularly with companies like Microsoft and Salesforce. What’s it like competing for enterprise customers?

Augustin: Ours is a space that has been around for a while. In spite of that, it’s one where the number of users is small relative to the size of the market. We regularly compete with Salesforce, Microsoft’s Dynamics CRM, SAP CRM, Oracle Seibel and their similar products. It’s a very large market, most transactions are competitive among the top vendors in the space. It’s such a large market though — it’s the fastest growing market in enterprise market. Gartner says the CRM market is growing at a compounded 10% annual growth rate. It’s a $27 billion market this year and is expected to grow adding close to $3 billion a year in market. In the next two or three years, we’ll be the largest market in enterprise software.

TS: Given the fact that it’s so competitive, how hard is it to attract talented salespeople away from the competition?

Augustin: We’re doing very well today. The market for good salespeople is hot right now, particularly in the enterprise space. At the same time, none of our competitors really focus on CRM. For Oracle, it’s a very small part of a much bigger business. Seibel is an end-of-life product for them. You look at SAP, it’s a very small piece of what they do. Microsoft, very small piece. Salesforce, as a cloud company, started out doing CRM, but is adding all these other products horizontally. As a result, they focus less on the customer relationship management piece, which is where we focus. We’ve done a great job helping people build their careers around selling CRM. It’s one of the products salespeople use, so it’s one of the few chances a sales person can sell something they actually know and use, which is pretty rare in most industries. We’re getting a lot of sales people out of Oracle, Salesforce, SAP, those companies in particular. They want to do something that’s selling best of breed in the space and it’s not about selling the suite.

TS: Since the software-as-a-service business is expense heavy in the beginning acquiring customers and you generate revenue over the lifetime of a contract, what makes that business model attractive to an investor?

Augustin: For us, the way we structure our contracts, we get paid in advance for a year. Some contracts might be longer than a year, but we get paid per-seat, per-year in advance. That means we have very good cash flow. In 2013, we were cash flow positive. In 2014, we were slightly cash flow negative. It’s a business that can have very attractive cash flows. If you have very high retention rates in that subscription, and we have over 90% retention rates, that means if you have an average customer with you for 9 years, that’s a pretty good piece of business on which to invest and build the business. The model has really good cash flows and a long-term sustainable persistent business from subscription business. It supports the upfront investment nicely.

TS: Do you think you’ll be cash flow positive for 2015?

Augustin: I know we won’t for fiscal 2015. We’ve decided to take some of that cash we have, including our balance sheet and be more aggressive in investing. We’re going to use cash into this year and next year, and then we’ll probably come into cash flow break-even, but the market says the opportunity is there to do it. My personal view on raising capital is if the market presents the opportunity to raise capital, I’ll go ahead and do it and possibly do more. I don’t want to ever leave us in a position dependent on the ability to continuously raise capital. I’ve seen that play out in 1999 and 2000 and I don’t want to see that happen again.

TS: How much cash is on the balance sheet?

Augustin: We have over $50 million in cash on the balance sheet.

TS: Goldman Sachs is one of your investors. What’s the relationship been like with Goldman?

Augustin: It’s a very good relationship. They’ve been a solid investor for us, since they invested in 2013. We raised $40 million from them at the time. We have more cash now than when we raised money from them at the time. They’re very good at supporting their invested companies with a broad set of services, the ability to help you understand common spending patterns or access. They’ve been very supportive and I highly recommend them as an investor.

TS: Do you see an IPO happening in the next 12 to 18 months?

Augustin: We want to be a public company — that’s in our vision. I don’t want to commit to any timing on that. I’m a little cautious than I think some of the people out there. I’ve been a public company CEO before. I like the agility that being private gives you. Right now, the capital markets, if you need access to capital, the private markets are pretty good and some would say better than the public markets. The combination of those doesn’t encourage people to rush to IPO right now.


SOURCE: TheStreet