Interview with Robert Youngjohns, CEO, Callidus Software

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Interview with Robert Youngjohns, CEO, Callidus Software

The news as of the first coffee this morning, and the music is Dwight Yoakam's "This Drinkin' Will Kill Me:"

Today we have an interview with Sales Performance Management vendor Callidus Software's CEO, Robert Youngjohns:

FC: What does Callidus Software do?

RY: We help companies identify and optimize the ROI on their incentive spend, the second biggest line item on a company's P&L sheet. Companies, no matter the industry, spend millions, and in some cases billions of dollars every year paying incentives and compensations to their sales force.

Surprisingly, most companies don't track these vast amounts of dollars and many have absolutely no idea where the money goes and what it actually accomplishes in terms of how sales performance impacts the bottom line of their business.

In the late 90's, Callidus also established the precursor to SPM, the Enterprise Incentive Management market.

FC: Uh, what's Enterprise Incentive Management?

RY: The modeling, administration, and reporting of all forms of non-fixed (e.g., salary) or variable pay.

FC: Okay, so how would you define Sales Performance Management?

RY: Sales performance management is the broader umbrella product set over EIM and can be closely aligned with corporate performance management systems to ensure consistency between corporate financial plans and more detailed sales planning and administration activities. It's an integrated framework that enables organizations to plan and model sales strategies and ensure timely execution of sales initiatives.

It adds science to the sales process, which has traditionally been driven by the art of relationship building.

FC: How do companies currently track and manage compensation spend?

RY: Many companies today are still using cumbersome and disparate spreadsheets. For global enterprises, the amount of money invested in payments to the sales force, as well as to distributors and other third-party resellers is staggering -- as I mentioned earlier, it's the second largest line item on the corporate P&L, often 40 percent. The real dollar investment of some of our customers is in the billions.

Yet many enterprises still manage it in a way they would never dream of managing their supply chain or their R&D investments, where they would want to measure the impact of their investment and see direct ROI.

On top of this, look at the host of compensation scandals in 2006. The culprit, according to The Wall Street Journal, was "the poor design and administration of the sales commission plan." Effectively, companies had paid out as much as double commissions on the same sale after acquiring companies, leading to the huge overage and big company losses. Stock price, revenue and image all took a major hit.

FC: So why do companies ignore SPM tools and products?

RY: Corporations often choose not to invest heavily in their compensation system because it doesn't fit neatly into the typical IT budget: CRM, SCM, ERP, etc. Instead, compensation dollars are thrown into a black box represented by inadequate spreadsheets and home grown compensation systems. The result is a huge blind spot that can ultimately threaten revenue, stock price, shareholder value. It can also literally cripple a company's overall corporate and business performance.

FC: Can you tell me about some of your customers?

RY: Callidus products are used by more than 1.7 million salespeople, brokers and channel representatives worldwide. Our customers include six of the ten largest U.S. banks -- Bank of America, Wells Fargo, Wachovia, Washington Mutual, US Bank, National City -- and others like HSBC. We have three of the five largest U.S. telcos, four of the top five U.S. health insurers and five of the ten largest U.S. insurance carriers for life, health and P&C.

FC: Sounds good. How's business overall?

RY: Business is very good. Q3 was our fourth consecutive quarter with year-over-year revenue growth of 40 percent or more. In addition, we achieved a record level of on-demand bookings and with 23,000 subscribers are now the clear leader in SPM for both, on-premise or on-demand applications. We've also just made our flagship TrueComp product available on the AppExchange.

FC: What is the real market opportunity here?

RY: The market opportunity for SPM is enormous. According to a June 2007 report by independent market research firm Evalueserve, the market is expected to grow to over $1 billion by 2010. The firm also expects the market for global third-party EIM products to continue to grow by about 30 percent, compared to 10 percent growth expected for CRM and HCM.

Our market has grown by over 400 percent, and in about one year from just three to now over 12 companies.

FC: I'm guessing most of your business still comes from America?

RY: Sure. Due to differences in the sales culture, the U.S. is considered the biggest market for third-party EIM products, while the European market comes in second place, and the Asia-Pacific region is just beginning to realize the significance of SPM. But any company that has a sales force should know about SPM, regardless of whether they are in Omaha, Oslo or Osaka.

FC: We usually focus on CRM around here, so how's SPM different from CRM?

RY: CRM is based on a lot of guesswork and estimates, while SPM is based on facts and hard data. CRM does an excellent job using technology to capture opinions and data estimates, whereas SPM is a market devoted to a scientific and analytic approach to sales productivity based on real and accurate calculations of data.

FC: What's your personal vision behind SPM?

RY: I've participated and observed "sales organizations" from many different positions over the years. My first sales job, selling IBM products to tire manufacturers in the industrial Midlands of England, showed me that absent a strong management team, or the influence of corporate culture, the only thing that drove the behavior of sales people was the commission check.

Over time, I refined my vision to optimize the selling process so that it can be better aligned with a company's overall business objectives. My work at Sun as head of global sales taught me how to run a large global sales team and what elements are critical to continually growing revenue and building greater efficiencies.

In order to get more commission checks, it was ingrained in us to become sales heroes. Go into any airport bookstore, and you'll see a myriad of books on how to become better sales soldiers: "calling-in higher," working the deal or closing them faster. The frontline, so to speak, is most often about the "art" of sales.

FC: Do you offer your products on-demand?

RY: Callidus offers both on-premise and on-demand products. Despite the hype around on-demand, many customers don't want a 100 percent on-demand product. The reality is, on-demand and on-premise both offer great business benefits for companies; and our strategy of "going hybrid" is working as customers and software vendors are coming to us asking for a customized product built for their specific business needs.

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