"Continuously invest in your technology. In contrast to a physical product which you will regard as finished at a certain point, software is never finished. In fact it constantly evolves and morphs."
Hybris, now a major SAP brand, delivers enterprise-grade customer interaction solutions to manage multi-channel retail and B2B sales relationships. Today, this includes sales management, marketing, commerce and billing cloud solutions, but when Hybrid was founded back in 1997, neither ‘SaaS’, ‘Cloud’ nor ‘omnichannel’ were part of the technology lexicon.
Born in Germany but now resident in London, Schmidt spent almost two decades at Hybris. Today, he continues to invest in technology startups, mentoring smaller firms as they develop. Stefan joined in 2000 as a project manager; when Hybris was still in its infancy. He has remained with the company for no less than 18 years, with a strategic brief that changed dramatically as the business grew. By 2011, he had risen to VP, Product Strategy, and when Hybris was sold to SAP in 2013, he continued with the business to incubate ‘Hybris as a Service’ within SAP.
But the path to sale for Hybris was not straightforward. In the days of the first dotcom bubble, client server architecture was still the dominating software paradigm, which was by no means a good fit for the internet and a far cry from today’s cloud architecture that SaaS businesses take for granted.
In 2001, servicing an Austrian retail brand, Hybris realised it would have to shift to a three-tier software architecture which required a complete re-build of the existing software stack. Like many other tech businesses, Hybris was pushed hard for a globalisation strategy by its VC investors and within the space of a year had unsupportable offices in Japan and across Europe. By 2002, with the wrong tech and overstretched for scale, the business was being rebuilt from scratch.
In 2002, Hybris won a major B2B client in Germany (Hybris remains the leader there in B2B Commerce today), and the business found its feet. The product and sales teams aligned to deliver on its promises to enterprise clients. The company found the right balance between scale and service, ensuring that it could continue to develop the product rather than becoming outsourced developers to a few top clients. Feedback channels were opened to keep the product cutting-edge and connected with the needs of its client base. And crucially, Hybris developed the business models and resources to support a partner network of systems integrators who were incentivised and capable of implementing the product more effectively and allowing the company to focus on acquiring new clients; knowing partners would deliver the projects to the customer.
Lesson 1: Find early customers that share your vision, but don’t run for the hills when things go wrong.
We won a large project early on with an Austrian retailer – essentially a ‘multi-channel retail’ project in the days long before the term ‘multi-channel retail’ had ever been coined. Our customer’s ambition matched our vision for e-commerce but the project made us realise that our product was far from fit for purpose. The project forced us to address the flaws in our software, which ultimately allowed us to sell not only to retailers but a much broader market. The journey to get there, however, was painful for them and for us and I am eternally grateful for their patience and commitment to us.
We also learned the value of having people on the ground with our biggest, strategically important projects. Those consultants came back and communicated to the product teams what our customers were doing with the software, where they were struggling and how our partners were implementing the technology.
Your first customers have to buy into your vision not in your product. You’ll need them to be patient while you getting it right and ultimately delivering the competitive advantage they are hoping for.
Lesson 2: Investors are not all the same.
They have different appetites for risk and longevity. Our first effort at scale was abortive. The struggle with product-market fit and the failed attempt to go global meant Hybris had to start again from scratch – much to the horror of our early investor. We moved forward with the support of a new private investor who was much more focussed on the people within Hybris and the company’s longer term prospects, rather than on trying to make a quick profit in the short term.
Really think about investor fit. Get the right type of investor for your stage of business, someone who really understands your stage of growth and the challenges that come with it.
Lesson 3: Continuously invest in your technology.
In contrast to a physical product which you will regard as finished at a certain point, software is never finished. In fact it constantly evolves and morphs. The list of companies that ultimately vanished because they did not to continue invest into the software stack beyond maintenance is very long. We never assumed that what we were building would remain cutting edge. Innovation cycles in software development tools were and remain extremely short. Just look how quick the current cloud architecture has evolved in the span of less than five years. We knew that if we were to remain competitive, we would have to stay abreast with new technology which at a number of times meant a complete overhaul of our current architecture. It becomes very expensive to do that the more customers you have, but not doing it will ultimately make your software expire in a very near future. We actually refactored our platform four times over the course of 16 years.
Technology investment is never an instant revenue generator and often hard to justify internally. But you have to fight for it, because otherwise your product and sales will be very short lived.
Lesson 4: Sell tomorrow’s vision and today’s reality.
One thing we did very well was getting the balance right between our sales team and our technologists. The sales team understood how to get the customer to buy into our vision whilst also helping him to understand what is available today. Managing customer expectations was key in the sales process and how we created customers who stayed with us. Our founder always talked about managing the gap between vision and reality. You have to have a vision, but also to be realistic about where you are right now in that journey.
This is a really important part of the communication with sales and marketing: It’s important that they are selling the vision – but they need to be selling the product that is your reality right now otherwise you just create disappointment on both sides and ultimately you’re setting yourself up for failure. Our go-to-market team got this balance right.
In Part 2, Stefan talks about the power of people when it comes to the later stages of growth. In particular, he talks about how to create a successful partnership, harnessing analysts and the importance of having boots on the ground when expanding.
First published in The Art of Exiteering: In conversation with European tech founders.