Bernard Liautaud
Business Objects
Business Objects, a French enterprise software company, was founded in 1990 by Bernard Liautaud and acquired by SAP AG in 2007 for $6.8 billion. Bernard was the CEO and Chairman of Business Objects from 1990 until 2005, leading the company from zero to a multi billion dollar valuation. In 1994, Business Objects became the first French company to go public on NASDAQ.
Today, Bernard remains an SAP Board member and is a partner at Balderton Capital, the leading European venture capital firm with $1.9 billion assets under management. The firm has invested in some of Europe's most successful technology companies including, MySQL (acquired by Sun Microsystems for $1 billion), Icera (sold to Nvidia for $367m), Scansafe (sold to Cisco for $183m), bebo (acquired by AOL for $850m), Betfair (floated on the LSE in 2010) andYOOX Group (listed in Milan in 2009).
Pedro Santos: How did the Business Objects idea come about and how did you go from idea to actually implementing the company?
Bernard Liautaud: Well, it started when I was at Oracle in Paris, France, and I was in charge of product marketing. At the time, my friend Denis Payre was a regional sales manager for Oracle in France. In 1989, we met a developer named Jean Michel Cambot who had come up with an idea to create an interface which would facilitate the creation of queries on top of the Oracle database.
Jean Michel approached Oracle with the idea that Oracle could be a reseller for his product. At that time, the product was really something of a prototype and so we worked with Jean Michel on the idea and evolving the product. We showed it to a few customers, saw some interest, but there was a lot of work to be done and we spent about six months helping him.
When we reapproached Oracle suggesting that we build a business around this product, Oracle was not interested. Denis and I decided to leave the company, negotiated with Jean Michel to create a company around his idea, bought the intellectual property of the product from him and got started, just like that.
Santos: That was in 1990, right?
Liautaud: The first discussion happened in the 1989, and then we started the company really in the summer of 1990.
Santos: So, now you have a first product. How did you go from there to your first customer?
Liautaud: Our first customer was a company called Coface, a government insurance business. At the time, Oracle was encouraging Coface to buy their products but was on the verge of losing out to a competitor, Sybase. Oracle needed a differentiator and Denis and I approached them about offering our product that was only available on top of Oracle's systems as part of the package. In the end, Oracle—and we—won the deal, making Coface the first customer for Business Objects.
It was a great win for Buisness Objects and triggered a sales process allowing us to do about six or seven deals in the following few months. Our second win was France Telecom in August 1990; soon after we also won EDF.
Santos: From the beginning you got good traction. Can you describe a bit about the growth of the company? How it grew and a bit of the process from this first sale to 1994, and then why you actually decided to go public in NASDAQ, and not in France?
Liautaud: In terms of traction, we grew really quickly at the beginning. From the summer of 1990 to end of 1991, we made about $1.8 million of revenue and in 1992, we made $5 million. The third year we did $15 million, and then in 1994, we grew to $30 million.
Throughout this period, we also raised a total of $5 million of venture capital over three rounds. We received $1 million in 1991, followed by $2 million in 1992 and a final round of $2 million in 1993. Funding came from a mix of European and US VC funds as well as some American business angels. Investors included Innovacom (the venture capital arm of France Telecom), Partech International and Atlas Ventures.
In terms of our sales strategy, simplicity and focus were key. From the outset we simply targetted Oracle's customers and sold them an essential, great-value, easy-to-understand product.
The strategy paid off. By September 1991 we had eight or nine staff in France and had opened offices in the UK and the US. As sales grew in these new regions, we were able to continue expanding in Europe and Asia.
At the beginning of 1994 we realised: okay, we are growing at 100% and we are starting to get profitable. At that point, Goldman Sachs approached us and we were able to start thinking about going public.
In the early nineties, there was no European public market for a company like ours. European investors didn't invest in technology in the way their counterparts did in the US and we were seeing far fewer technology companies list on European exchanges. We decided the best place for us to go public would be NASDAQ and in September 1994, we became the first European software company to go public on the US market.
Santos: In this period of time, because you grew so fast and in such an amazing way, what were the key lessons that you think were really critical for this success?
Liautaud: I would say there were three factors in our early success. Firstly, we built a team of the best possible people to accomplish our mission. We hired the best salespeople who focused on business development and kept a very lean management. Secondly, we had a strong focus on selling, as opposed to relying heavily on marketing or advertising. And thirdly, we never tried to build super-complicated products.
Our success came from really understanding our customer needs and having a very efficient sales model to go after these customers.
Santos: But with such rapid growth, wasn't there the risk of new hires to disrupt the culture of selling?
Liautaud: Yes. There was indeed the risk, but we were very clear from the start about what we were building, the kind of values we worked by, and the kind of people we wanted to bring in. Our sales team, built on an Oracle-type infrastructure, was confident and operated with a high sense of integrity. Our R&D team was really focused on innovation and producing high-quality products.
There was a universal understanding that: yes, we had a grand mission, we had a grand vision, but it was only going to be possible if we executed our plans flawlessly.
Santos: When entering the US market, did you encounter any difficulty in selling being a European company? Or was it just business as usual?
Liautaud: Yes, there were some challenges. At the beginning, we didn't want to appear French at all and that's why we named ourselves Business Objects. Even to large French companies that were used to buying American software, we couldn't see particular positives to being a French company.
In addition, we experienced some internal issues initially between the French headquarters and the US subsidiary. Clearly some staff thought things were a bit 'upside down'. Usually you have a US head office and French offshoot, particularly in software. The French thought the US guys didn't understand the technology, the sales guys in the US thought that the French didn't understand the American market. Tackling this element of mutual distrust, we set up a lot of swapping programmes where we took some French staff and put them in the US for a few months and vice versa. People began to realise: there are good guys on either side and everyone's working as hard as one another. We generated a lot of mutual respect this way.
I also relocated with my family to the US for the first year, which was very important to help the two teams unite.
Santos: Business Objects started with one product, but it started expanding to other products, including Crystal Reports. Can you go through a bit of the process of the growth of those products?
Liautaud: When we went public in 1994, we had expanded the product line, and everything went really well from 1994 to 1995. But then, we had a “near-death” experience in 1996 and the early part of 1997. We had decided to expand our product line significantly by rewriting our entire code base and building new capabilities but it didn't work out very well and made our product line “buggy”. Our new products were restricted to only working on the newest version of Windows. Our customers didn't want to buy the old products but if they didn't have the newest Windows platform too, our new offerings wouldn't work on their systems.
We saw a massive disappointment in sales. We were still growing at forty percent, but the market was expecting one hundred percent. We started missing expectations on Wall Street and our stock price got hammered. Our salespeople didn't make their quotas and started to leave. Other employees were unhappy because their stock options were underwater and they started leaving.
It was chaos in 1996. We went from a billion dollar valuation in 1994, all the way down to $100 million.
Liautaud: We lost ninety percent of our value in a period of a few months and thought we were going to lose the company. I knew we had to make some critical decisions.
First of all, we needed to shift the centre of gravity of the company from France to the US. At that time, the company's management team was in Paris but I decided to move our senior executives, along with a new CFO, to California to be closer to our customers and the US financial community.
I also restructured the software development process, created a brand new internet-based business intelligence product and, over the next year and a half, we fixed the buggy product line which, in the end, was very attractive to customers.
We started to grow again and over two years, our market cap went from $100 million to almost $5 billion. 1997 to 1999 was an amazing time for the company as we expanded into more and more countries.
When the technology bubble burst, we emerged relatively unscathed because by then we were a large, stable, profitable company with thousands of customers. Our market cap dropped somewhat, but we were in good shape, and we felt that it was time to leapfrog our competition. We had been competing against Cognos for a very long time and it was head-to-head. One year they were number one, another year we were number one.
That's when we bought Crystal Reports when they were filing to go public. They had big expectations on their public offering. They were doing about $300 million of revenue, and we bought them for about a billion just before the IPO.
It was a bold move. We took almost forty percent of the company's market cap and some of the cash. However it was an extremely important and successful move for us too. After a year of rapid integration, Business Objects was profitable, was doing about $800 million of revenue, had doubled its cash flow, and its market cap had almost increased by around fifty percent.
Santos: Going back a bit to the near-death experience, can you go through a bit of your thought process as a founder, and your view on that? Because I can imagine that you, as a founder, were feeling this much more than most.
Liautaud: Yes, it was very difficult. Firstly my business partner, who had been with me since the beginning, decided to leave the company for his own reasons. There was also a problem in our earnings. Because of a bad deal in Germany, we had to restate earnings on Wall Street. At the end of 1996, I found myself on my own and everything seemed to be going wrong.
Personally, yes, it was a tough time and I was even questioning my ability to turn the situation around. Fortunately, I had great support from the board, which really believed I could take things in a different direction.
Eventually, I said, “We can get through this but we can't just do the same thing and hope it's going to get fixed.” And that's why I made these very significant decisions: we changed the team, moved management to the US, revamped the structure, reignited innovation, and focused on transforming and turning around the business.
Santos: So, it was a way of starting with a clean sheet, in a way.
Liautaud: Yes. But it was also about telling the people in the company, “Listen, yes, we are experiencing serious difficulty but we have a plan to get out of it.” I was convinced that this plan was going to succeed and I had to ask employees whether they believed that or not. “If you believe, come with me and be part of this journey. If you are not sure, it's better if you leave.” In the end people who really believed got on board and we had a fantastic ride in the following few years after.
From a personal standpoint, it was probably some of the hardest years in my career. But afterwards, the rewards were amazing because the company felt different. When you go through a turnaround, the people who get through it feel that they've done something so remarkable. It creates a lot of resilience.
Santos: I can imagine. So, you turned the company around and in '99 you went public in France.
Liautaud: Yes, we went public in France in 1999 to enhance our visibility and facilitate even further expansion in Europe. We could also increase our liquidity and enhance our market capitalization by being listed in Europe. In the five years since going public in the US, there had been a significant change in Europe. There were now European investors wanting to put money in technology. There were even some European tech analysts.
Santos: But this was more or less at the same time that the bubble burst. Did it affect the IPO in any way?
Liautaud: No, we managed to go through with the European flotation because our business was fairly untouched, relatively speaking. We continued to grow at thirty to forty percent a year, even through the downturn.
Through that downturn however, we changed how we positioned our offerings to suit our customers' changing the requirements. Everyone was in some sort of cost-cutting mode and with the business intelligence that Business Objects offered, customers could optimize their costs and see where the inefficiencies lay. So, we switched our value proposition from “make your business better, add visibility and increase revenue” to “make your business more efficient, see where you waste money and cut your costs.” That alteration enabled us to keep selling in a difficult economy.
Santos: So, from that period on, to the actual period that Business Objects was sold, can you walk us through a bit of that period?
Liautaud: We acquired Crystal in 2003, integrated the business in 2004, and reached a billion dollars in revenue in 2005. We continued to expand and bought a few small businesses. By 2007 we saw about $1.5 billion in revenue.
Business intelligence was becoming more and more important to the IT industry and a number of the industry's biggest companies realized that they needed to be in it.
Oracle decided to buy Hyperion in 2007. Actually Oracle had approached us before, but with price we didn't like. This acquisition triggered a wave of interest from the likes of IBM and SAP and in the summer of 2007, we had discussions with both. At the end of the summer, SAP made a great offer to us that we felt would be almost impossible to refuse and we announced the deal in October 2007.
Santos: And you left the company soon after, correct?
Liautaud: Actually, I helped the management of SAP integrate the two companies for about six months and then I joined the board of SAP. I've been involved for the past three years, but as a board member, not as an operator within the business.
Santos: Going back a few years to 2005, [when] John Schwartz joined as chief executive officer, which was your role until then.
Liautaud: Yes. Until then I was chairman and CEO, then John joined as CEO. I still worked in the company while I was executive chairman involved in business strategy.
Santos: Was it an easy transition, a natural transition? Or was it something that you felt had to be done so that you could focus more on the strategy part and not on the execution? What led to this decision?
Liautaud: I had started the business in 1990 and I had run it as a CEO for fifteen years. We had been public for about twelve of those years. It takes a certain toll on someone [laughs].
I felt we had reached a number of very important milestones. We were a billion dollars in revenue and the company was in great shape. We had succeeded in the integration of Crystal and we were number one in our sector. I always wanted to pass on the CEO baton at a moment when everything would be fine. And I still wanted to stay engaged with the company, but I didn't want to do the day-to-day anymore.
We searched for a CEO, and when John came on board to handle operations it worked out really well. I modelled my transition after the one Bill Gates did at Microsoft when he became chairman and CSO.
Santos: Was it very hard to find someone that you would consider to be fit for the job?
Liautaud: Yes, it's quite hard, certainly. And it's hard to make it work, of course. As a founder, I knew the business so well and it's not easy to have someone completely new come in. But I think we worked really well with one another. I tried to give him as much leeway as possible, and I think it was a successful combination. The business grew, from $1 billion to $1.5 billion in the following two years.
Santos: What is your opinion of starting a European venture vs. a US venture? Do you think that Europeans have to do as you did in becoming a global company and try not to seem like a UK, German, French company? Or do you think that's already no longer as necessary?
Liautaud: It depends on the market segment. I would say that the IT sector, and especially enterprise software, is extremely global but remains dominated by US companies. There are very, very few examples of European IT and software companies that have managed to go global. I believe, the only way to make that happen is to go global very, very quickly, as we did from the outset.
At Balderton Capital we have over sixty companies in our current portfolio. We are a European venture capital fund but are geographically agnostic about the companies we invest in. Some are based in the US, others often are Europe-based but have development teams and/or senior management state side.
Santos: So, looking back at the history and your personal seventeen year trip. What main lessons would you like to highlight to other entrepreneurs that want to follow the same route?
Liautaud: To me, an entrepreneur needs to have a strong vision for his business. He needs to set the magnetic north in a very clear way, for him and for the people in the business.
Ambition is very important and there needs to be a very clear execution model with it, which means knowing how you are financing the company. If you don't have the cash not the plan for resources, you can't grow the business at the right pace.
The other element, which is probably the most important for me as an entrepreneur, is the team. I said it earlier, but hiring the best people and creating a great team are the most important things that a CEO-entrepreneur-founder can do. There are very few founders that stay with their businesses beyond five years and quite often, in my opinion, it's because they didn't manage to surround themselves with the right team.
I think that's one of the things that I did that I am most proud of—having the ability to surround myself with people who have, in many ways, pushed me up through these eighteen years.
I always hire people who are much better than me in their field, and that kept me afloat [laughs] as long as I was able to manage them and orchestrate their work. This also enabled me to be the CEO for fifteen years and take a step back when I wanted to, as opposed to have the board ask me to.
So, a lesson from me is: don't hesitate to hire the best, don't be afraid. The team is the most important asset that you will have.