Servicing IT: ServiceNow CEO Fred Luddy (Part 7)

SM: Are there even any companies out there that have technologies worth acquiring that are in what you term the ERP for the IT market?

FL: Some, but not too many. Companies such as Hewlett-Packard and Computer Associates made done dozens and dozens of acquisitions. They would approach the ERP for the IT field with five or six acquisitions, none of which are integrated with each other. If you have an ERP system that wants to be a continuum of work and is not integrated into other [systems], then you do not have a solution to a problem. You have a bunch of point solutions that do not necessarily work well together.

In the area of application portfolio management, most of the small companies that were successful in that area have already been acquired. Mercury Interactive acquired a bunch and was subsequently acquired by Hewlett-Packard, or they were ultimately acquired by Computer Associates. We really believe that taking an approach more like SAP’s or PeopleSoft’s approach, which means building the software organically so it is cohesive, is a much better approach for our customer base.

SM: How many people do you have now?

FL: We have 135 employees.

SM: That is impressive. Earning $45 million a year with 135 employees is a very profitable structure.

FL: Thank you.

SM: Do you intend to run this business and grow it organically? Do you have any sort of exit strategy?

FL: We have never had an exit strategy. John Moores is an initial backer of our company and a founder of VMC. He said that if you have happy customers, continue to innovate, and make a reasonable profit, then there is no need for an exit strategy because everything will take care of itself. We have adopted his philosophy. We did not build the company to be sold or flipped. We may entertain going into the public markets if they look favorable to a company like ours, but when I started the company I had no desire to sell it to anyone. I built it so that we could build a large company through which, in the long run, we could make a difference.

SM: The moment you take venture capital financing you have to exit. Exiting to the public markets may be a good option, but the financial structure of taking VC funding means you have no choice but to exit. That may even be required not too far in the future.

FL: That is true. One of the things beneficial about our venture financing is that it was at the front end of a 10-year fund. They do not have to show a return for another six years. You are absolutely right. If we do have to have an exit strategy, then it will be as an IPO.

SM: Then your exit strategy, in a nutshell, will be an IPO.

FL: That is fair.

SM: I enjoyed listening to your story, and I wish you the very best. Thank you for your time.

This segment is part 7 in the series : Servicing IT: ServiceNow CEO Fred Luddy
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