- ServiceNow CEO John Donahoe, who once led eBay, said he was hired in 2017 to turn the cloud giant into a company doing $10 billion-plus in revenue.
- Donahoe said that even though he did not have enterprise experience, he had a track record of leading companies to hyperscale growth stages.
- ServiceNow, which went public in 2012 and is now valued at some $50 billion, is now one of the leading cloud software companies, going head to head with other software-as-a-service pioneers Salesforce and Workday.
- The company’s stock is on something of a bull run: Shares of ServiceNow are up over 50% from the beginning of 2019.
- Visit Business Insider’s homepage for more stories.
When they first met to discuss ServiceNow, John Donahoe — best known for his seven-year stint leading auction site eBay — said Frank Slootman, the executive he would soon replace as the cloud software giant’s CEO, explained why the change was necessary.
Slootman, he said, described how enterprise startups evolve, from a founder-led firm gunning for its first $100 million to a rapidly-scaling $1 billion company heading for an IPO. ServiceNow had started from the simple idea of automating simple IT tasks, like requesting a new computer, but grew into a larger work automation platform.
It was time, Slootman told Donahoe, for another leader to step in to take ServiceNow to the next level as a company doing $5 billion to $10 billion in revenue.
“That’s what my sweet spot is, the next stage of growth,” Donahoe told Business Insider.
Donahoe said it was Slootman who helped him see how he could fit into the ServiceNow story by explaining the 4 phases of an enterprise software company, he said.
“Phase 1 is zero to a billion dollars in revenue” when “you’re trying to find that lighting in a bottle where you hit a product market fit,” Donahoe said. “Phase 2 is from $100 million to a billion, where you’ve got a market fit and you have to scale it while that window is open…Phase 3 is from a billion to $5 billion, and phase 4, from $5 billion to $10 billion.”
Donahoe has edged toward that sweet spot, nearly doubling ServiceNow’s annual revenue to $2.6 billion in just two years, even as the company faces stiffer competition, especially from rivals led by Salesforce and Workday. And there’s the question of whether he has what it takes to lead an enterprise cloud company given the fact that his background is in leading consumer companies like eBay — not enterprise companies like ServiceNow.
Still, it appears that under Donahoe, ServiceNow has won the support of Wall Street: The stock is up some 50% since 2019 began, and just about threefold since Donahoe’s first day on the job.
From eBay to ServiceNow
Donahoe is still more well-known for leading eBay, taking the reins from Meg Whitman in 2008. He stepped down seven years later when PayPal was spun off from the company. Donahoe took time off to travel, meditate and watch Van Morrison concerts.
In a way, he was an offbeat choice to lead ServiceNow, the enterprise cloud pioneer which went public in 2012.
“Donahoe’s challenge is that he’s not an enterprise guy and is faking it until he makes it,” analyst Ray Wang of Constellation Research told Business Insider. “The good news is the technology will take them past $10 billion, but after that he’s gotta figure it out.”
Other analysts offer more upbeat views.
“I think while he doesn’t have an IT background, he understands the disruptive force that software-as-a-service is having on traditional software and how the cloud can be used to transform IT functions,” IDC President Crawford Del Prete told Business Insider. “This is where in my opinion ServiceNow really shines.”
A May 2019 Gartner report said ServiceNow under Donahoe has become responsive to customers’ needs, noting how some had “complained about overly aggressive, even arrogant, field sales personnel, focused primarily on transactions.”
Donahoe, the Gartner report said, helped change ServiceNow’s emphasis from transactions to relationships. “Based on feedback from Gartner clients, it appears that Donahoe and the executive team have been largely successful in making this shift,” the report said.
Donahoe gets the thumbs up from the man he replaced. Slootman, now CEO of Snowflake, the hot $3.9 billion cloud data warehousing startup, said Donahoe has been “a good steward of the assets and the organization.”
“You gotta give him a whole of credit for that,” he told Business Insider. “A lot of CEOs screw up businesses. John did not. … It’s like when a new chef comes into your restaurant where you already have a very good menu. But, no, [he says] he’s going to change it because he’s the chef and, ‘God damn, it I’m going to have my own menu here.’ That’s what happens with CEOs as well. They want to do their own thing and the next thing you know, they mess up companies. John didn’t do that.”
Michael Dortch, principal analyst of DorthOnIT.com, who worked briefly at ServiceNow before Donahoe took over, said the company’s results show that the company is succeeding under Donahoe.
“Last I checked, ServiceNow is still winning,” he told Business Insider.
Hyperscale growth stage
Under Slootman’s framework, the last two phases of a company like this comprise the “hyperscale” growth stage when the company rolls out more products and expands to new markets, including globally. And that’s where Slootman told him Donahoe’s strengths from his stint at eBay, and his time as president and CEO of Bain, could come into play.
Slootman, Donahoe said, “had the self-awareness to say, ‘You know what, I’m not the right guy for the next stage.’ That’s why he recruited me. That’s why he voluntarily did a succession.” And Slootman, he said, “handed off this wonderfully positioned business.”
Slootman echoed that point, saying he left a company “loaded with products and the systemes and the organization” it needed to move forward. “All he had to was sort of add water,” he quipped. But Slootman said he knew that, for its next phase, ServiceNow needed a leader with Donahoe’s experience.
“John is a big company guy,” he said. And Donahoe’s consumer background with a great deal experience with mobile was also key to why Slootman recruited him, he said.
“I wanted ServiceNow to have much more of a consumer-style software company in terms of the types of experiences it delivered,” Slootman said. ServiceNow under his leadership tended to be more “task-oriented” in its user interface. “We were a a little industrial … sort of a kind word here,” he quipped. “John had a high degree of affinity with that issue.”
ServiceNow’s strength was evident the month Donahoe took over, when the company reported first quarter revenue of $417 million, a 36% year-over-year gain, in April 2017 when Donahoe took over.
There were challenges when he took charge.”I don’t have experience with enterprise,” Donahoe said, as he acknowledged the important roles of his ServiceNow lieutenants, especially CJ Desai, his chief product officer, and David Schnier, ServiceNow’s president of global customer relations.
Donahoe also had to learn a new language, “since enterprise uses a set of complicated language that most people outside of enterprise don’t understand.”
One example is “orchestration,” enterprise-speak for coordinating the roll out of a product or initiative. “It was my first week here,” he said, and he found himself asking, “What are all these words?”
“I’m still learning ‘enterprise,” he said. “And I have all the humility in the world to learn.”
He’s also humble enough to recognize the strengths of the CEOs at the helm of ServiceNow’s key rivals in the cloud software arena, Marc Benioff of Salesforce and Aneel Bushri of Workday.
“Aneel is a brilliant founder and product person,” Donahoe said. “I’ll never be a brilliant product person. Marc is the godfather of the SaaS (software-as-a-service) industry, a brilliant and visionary entrepreneur. I’ll never be that either.”
“I’m not a founder,” Donahoe said. “I’m not a Phase 1 or 2 person. I’m pretty good at Phase 3 and Phase 4.”
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