The Salesforce FlyWheel - Essay Series
The Salesforce FlyWheel - Essay Series
Salesforce is a case study on how a culture of long-term thinking that puts customers first can compound over time to deliver outsize outcomes.
Note: This is a multi-part primer and commentary on Salesforce’s strategy, ecosystem, the dynamics of enterprise SaaS and PaaS markets, and how it has grown to become the most valuable enterprise software company in 20 years.
Here are the links to Part 2 (PaaS), Part 3 (Ecosystem), Part 4 (M&A Strategy), Part 5 (Customer Trust in B2B), Part 6 (Overcoming Invisible Asymptotes with a Customer-First Culture), Part 7 (Can Salesforce become a $1 Trillion Company), and Part 8 (The Untrodden Path from $20B to $100B). Also see Salesforce+Slack for a commentary on the implications of the Slack deal.
It is no small feat for a ~$20B run rate SaaS company to grow at 20+% while delivering operating margins of 20%. Over the last 20 years, Salesforce revenues have grown from $0 to $20B and the market cap from $0 to $220+B. The Salesforce economy is ~ 4-5x larger than Salesforce the company, and expected to create >4.2 million jobs from 2019-2024.
Salesforce reports revenue separately for each of the four major business/product lines.
Sales and Service Cloud are currently ~$5+B annual businesses each, while Marketing and Commerce Cloud is at a ~$2.8 B run rate. Platform and Other (that includes Tableau and Mulesoft) is the largest and fastest growing business line at a $6B annual run rate. [1]
I had discussed in this post the origins of Salesforce and how the idea was orthogonal to conventional wisdom in the early 2000s. Let us now take a deeper look at how and why the company has grown so fast and emerged as the most valued company in the enterprise software industry. Most interestingly, it has done so without compromising its values or reputation in the process. If anything, customers and partners have come to love Salesforce even more.
It is hard to miss the dark pattern over the decades where large and successful enterprise technology companies regress into one or more of these states: a) develop an arrogant culture, start solving for themselves than the customer (a la Oracle), b) become stodgy and bureaucratic (SAP), or c) grow complacent with the strategy and status quo, only to be disrupted by newer solutions with better technology and more customer-friendly business models (IBM).
Salesforce has been a notable exception. How has it managed to avoid (so far) the ills that have plagued most large enterprise software businesses?
In his book Trailblazers, Marc Benioff discusses how “values create value” and how Salesforce core values of trust, innovation, customer success, and equality have made the company stronger.
“A great product that your company builds can be like a mighty oak . It can provide everyone who planted it with a pleasing patch of shade to camp under for years . Values like trust may not make for dramatic earnings charts and they may never become the tallest trees . They are more like hundreds of small acorns you bury in the ground in the hope that they’ll become saplings . If I’ve learned anything over the years , it’s that if you nurture them , those saplings eventually grow up together . There’s not a single tree on earth that’s sturdier than a forest.”
And the extract below is a profound articulation of what matters in the long run.
I sincerely believe , however , that the real story of Salesforce’s success is best explained by the moments when trust prevailed over stubbornness or ego — the moments when transparency triumphed over fear of embarrassment , or even the potential loss of millions of dollars in revenue …. All of the business tactics we’ve deployed , every line of code we’ve written , and every marketing campaign we’ve dreamed up over the years are , in the end , ephemeral . Each one could be discarded and replaced at any moment as the world around us changes . It’s our culture’s ability to evolve with the pace of change , to live and breathe on its own , to be both familiar and dynamic , that really drives us forward.
But how do these values translate to the tangible and actionable stuff done every day? How does Salesforce make and operationalize strategy?
This series of essays is an attempt at describing what powers the Salesforce flywheel and the strategic choices that have turned out to make all the difference in the longer sweep of time.
I am not a Salesforce employee, but would consider myself very familiar with the company’s strategy, offerings and its ecosystem. Salesforce is by no means perfect. It has its own warts that many partners and customers have seen up close. But its values-driven culture and way of doing business are powerful moats and a refreshing change from how business was and is still done by many others in the industry.
At a fundamental level, I think of the Salesforce Flywheel as three engines operating in sync to drive growth.
Product Strategy and Innovation: Enhance the Customer 360 platform, create/deliver new cloud offerings, improve existing cloud offerings, and expand the ISV ecosystem through a judicious combination of M&A, R&D, and venture investments. The product portfolio at any point in time seeks to accomplish the twin goals of serving current markets better while also expanding into newer markets to expand TAM.
Customer Acquisition: Win (Land) net new customers in core and new markets based on strength of the brand, and proof of success of offerings.
Customer Success, Customer Expansion and Community: Expand value of existing customer relationships by a) helping customers measure and perceive value created in terms of their business metrics for the project, b) thereby increasing adoption and renewals, c) expanding to new users and use cases, and d) increasing multi-cloud penetration per customer. The thriving community of Salesforce administrators, developers, ambassadors, and power users (called Trailblazers) act as force-multipliers across varied facets of the flywheel.
Customer success is not an after-thought, but at the heart of this flywheel. At Salesforce’s current size, 70+% revenue is from existing customers and 90+% revenue comes from multi-cloud customers, so adoption, renewal, upgrades, and expansion are the very basis for growth.
In truth, this flywheel may look not that dissimilar for any other well-capitalized SaaS + PaaS company with a massive installed base. What brings this to life and makes it most effective in Salesforce’s context is the specific culture and strategy.
With that as the backdrop, let me take a deeper dive into the paths taken (and not taken) in a number of areas that have made a pivotal impact over the longer term, and also offer some prognostications on the future. I will publish these in multiple parts over the next few weeks.
1) Platform as a Service: Demystifying Salesforce PaaS in the context of the evolution and current state of cloud software, why it is a big deal, and how it has created a sustainable competitive advantage. Read post here.
2) Ecosystem & Venture Investments: The role of the ISV ecosystem in meeting customer needs, the ISV vantage point, and the outsize impact of corporate venture capital. Read post here.
3) M&A Playbook: History and impact of M&A deals at Salesforce, why over-paying for high growth companies that expand TAM is a surprisingly smart strategy in dynamic industries, and how the platform, ecosystem, and early equity investments mitigate risk and substantially increase the probability of successful integration. Read post here.
4) Customer Trust in B2B: How to define and articulate customer trust with more precision? How do you know if you have built a reservoir of customer trust or not? Read post here.
5) Customer Success Driven Growth: How Salesforce’s emphasis on customer success and community has translated into massive customer capital, imparting significant momentum to the flywheel, and helping it overcome invisible asymptotes.
6) Can Salesforce become a $1 Trillion Company?: A historical and forward-leaning view on enterprise software market size, and implications on growth
7) The Path Forward: How might the next few years unfold in terms of customer expectations, competition, adjacent addressable market opportunities, and what all this means for the Salesforce company and economy.
Footnotes:
[1] The Y/Y growth for Platform & Other without Tableau (which was not a part of Salesforce until Aug 2019) is 20+%.