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Crucible Moments
LIVE: ServiceNow CEO Bill McDermott on Unlocking Elite Level Execution
00:32:20
At a recent closed event in Europe, Sequoia partner Pat Grady spoke with ServiceNow’s current CEO Bill McDermott, who took the reins in 2019.
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- [00:00]
Pat Grady
Hi, everyone. Today we're excited to bring you a bonus conversation. Earlier this season we heard the startup story of ServiceNow. From Fred Luddy setting out to reinvent IT workflows as a first time founder, to Frank Slootman joining a CEO to scale the business to an IPO. What's even more remarkable is that ServiceNow has only accelerated as a public company, growing over tenfold in the last decade. Sequoia partner pat Grady discovered ServiceNow when it was still a small startup in San Diego. At a recent closed event in Europe, pat spoke with ServiceNow's current CEO, Bill McDermott, who took the reins in 2019. Their conversation sheds light on ServiceNow's journey to becoming one of the world's largest software companies with over $10 billion in in annual revenue. Crucible Moments Season 2 will return next week. See you soon.
- [01:06]
Bill McDermott
Thank you, Bill, for being here.
- [01:07]
Thank you for having me, Pat.
- [01:08]
Matt mentioned some of these numbers, but I'm also going to start with a few numbers just to put things in context because yesterday there was a question to the audience which was how many of you are unicorns? And we think of unicorn as being a little bit of a false currency and we think of a better currency as, you know, revenue and free cash flow and stuff like that. And so ServiceNow in the last 12 months has generated about 10 billion of revenue, 9.96 billion and 3.1 billion of free cash flow. Revenue's still growing 24% a year. That's a 31% margin. So they're still clipping along at a 55 on the rule of 40. That 10 billion of revenue in the last 12 months, that's more than 2 billion more than the year before. And so they added two unicorns worth of revenue in the last 12 months and they generated three unicorns worth of free cash flow in the last 12 months, which is pretty spectacular. Matt mentioned the market cap. So it's 182 billion as of today. When Bill joined, it was somewhere around 50. And so that's 125 billion or so of gains. We get excited when you have billion dollar gain. Bill has $125 billion gain and it's not the first time he's done it, which is pretty amazing. When Bill joined SAP as CEO in 2010, the company had a market cap just shy of 40 billion. By the time he left 10 years later, it was north of 160. So not only was it a 4X, but it was another $125 billion gain. If you do it once, maybe it's luck. If you do it twice, probably not luck. And so anyway, it is truly a pleasure to have you here, Bill. Thank you for traveling to join us.
- [02:37]
Thank you for having me, Pat. I really appreciate it. Thank you very much for the kind words, too. Morning, everybody. Let's let it rip.
- [02:42]
So we're going to start with a. We're going to go back to young Bill McDermott in New York. I understand that when you were in high school, you had three different jobs so you could save up money to buy a deli and become a small business owner at the age of 16. Two questions for you.
- [02:58]
Sure.
- [02:58]
Number one, why do such a thing? Number two, is there anything you learned running that deli that still applies to being CEO of one of the most important software companies in the world?
- [03:09]
All right, answer to number one, I needed the money. And answer to number two, it's really interesting because I was competing with big conglomerates like Seven Eleven and big supermarkets. And I had my little deli after I bus tables, pumped gas, stock shelves and painted fences and every other thing that you could possibly imagine. But what I learned is you have to know your customer. And in that deli, I had a senior citizen complex about a block and a half from the store. My competition didn't deliver. We were the early door dash in the neighborhood, didn't know it then. We had blue collar workers like my dad who were flush rich on Friday night and dead broke by Sunday morning. And we gave them credit. Nobody else did. They always paid me back. But the big trick was getting the bigger market, which was the high school kids to walk a block and a half past 7:11 to my store. And what I did is I went down there one day and I saw these kids online outside the store, literally 50 at a time. And there was only four in the store. And I said, why are you all out here when there's a big store in there? And they said, well, they think we're going to take things. I said, don't worry about all that. Come down. In my store, I had built a video game room. This was the early days of video games where kids would pluck quarters in machines all day. And that was my honey that drew the bees. And I let him in 50 at a time. And to underscore the strategy, at the end of a long day, one of the young people said to me, bill, well, we want to have a good time, be treated well, and have good food and play video games. We come to your store and when we want to Steal stuff. We go to 7 11. So, you know, early on I realized that the greatest business asset that we all have is a loyal customer.
- [05:16]
Awesome. Awesome. All right, let's talk about ServiceNow. So our two main topics are ServiceNow, the company, and Bill McDermott, the CEO. So on ServiceNow, it might be the most beautiful business that the world has ever seen, particularly in enterprise software. Just real quick, for people who may not be familiar, what does ServiceNow do? And then the real question is, what makes it such a great business? What has ServiceNow done right?
- [05:42]
Well, first I give all the credit. I wanna really seriously tell you this. Sequoia discovered us all. Credit to Pat and Doug and this great firm that you represent. And thank you for having me. And I really do mean that. I appreciate being with all of you. We had great CEOs, the founder of the company, a guy named Fred Luddy. Like many of you great founders, he has a great heart. And you can never make up for a person that doesn't have a great heart. That's what keeps these companies going. It's not just about your mind, it's about your body, it's about your spirit, it's about your heart, it's about how much you love and care for people. And Fred would always be quick to tell me a story about Phyllis who was working at American Standard. And when he discovered her, she was repetitively doing order entry work. He came home, came up with a program in 24 hours, brought it back to her the next day, automated that task. Phyllis cried, Fred cried, and that was the beginning of everything. And then Frank Slootman did a great job. He was a fantastic CEO. And then John Donahoe came in and did a very nice job with the company, really focusing on the brand and a little bit more scale. And then I came in and I think the most important thing is the continuity of CEOs that loved the culture, that really loved Fred, loved what he did, loved the culture, believed very strongly in a people focused company. Otherwise I wouldn't be here. I pushed away a five year renewal from SAP to come here and you know, why did I do that? I hired ServiceNow to straighten out my mess at SAP because we went on a little shop things free and I picked up 40 billion in companies and you know, one system didn't integrate with another system and this release was in the cloud and that one was on premise and I couldn't get a single view. My consumer in ServiceNow gave me that. So that's how I was introduced to ServiceNow. SAP is one of our biggest customers. And then John Donahoe takes me golfing. Hounded me to go golfing with him. Hounded me. And we're out there with him and Andre Iguidala and a top guy at Morgan Stanley. And John said to me on the ninth hole, would you ever leave, sir? Would you ever leave SAP? And I said, john, why are you asking me that? I'm about to sign a five year renewal. He goes, I want to be your agent. Oh, okay. Everybody needs a good agent. So I give a speech that night on my book Winners dream. I was having a good time and all of a sudden the lead director, the chairman of Nomin Gov and the Comp Committee of ServiceNow swarmed me at this meeting and I realized this is a different kind of company. They want to win. So I thought about it, I put together a five finger pitch, I presented it to the board and I said, this is what I think from the outside in would create the defining enterprise software company, the 21st century. And if I come, that's what I'm there to do. And every single day we'll get thousands and thousands of people to go in one direction with one dream and one purpose. And that is to take it all. And so we've been building out the platform. And so how I describe it, I give you in layman's terms. I call it the AI platform for business transformation. Jensen Huang calls it the AI operating system for the enterprise. Either way, I'll take it. And what it is, it's a clean pane of glass that resides above 55 years of absolute chaos, a total mess. And think about people that go into an enterprise and go in and out of 17 different applications each and every day, tearing them apart. Their personal productivity, where 33% of their productivity gets eaten up just by the idiosity in enterprises. And so with warriors, we are the underdogs that are going to fix that. And we're going to put that on one platform with one architecture and one data model and one great ux. And now we just innovate constantly. We came up with Raptor db, which is the world's fastest database, Ingests more data, gives you better analytic capability. And it's a workflow data platform and it goes along the whole system. So your IT estate, your employee estate, your customer and your innovators can all coalesce on one platform. And yes, the AI agents are there, but we also will corral everyone else's AI agents. So we give you an enterprise that's under Control that can win, that can serve your customers and serve your employees and serve your shareholders. That's it.
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Awesome. Thank you for mentioning AI. I wanted to ask you about that.
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Sure.
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So, two questions, because you've been both early and aggressive on AI, which is terrific.
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Thank you.
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On the early side, did you have an aha moment? Like, when did you get religion on how important AI was going to be for your business and for your customers? And then kind of the second question, it's one thing to have the religion, it's another thing to actually operationalize it, particularly when you have this machine that has just been humming for years. So was there an aha moment, and how did you actually operationalize it?
- [11:00]
I think the number one moment for me was actually being in a cancer hospital in Germany and seeing patients, you know, with IVs and chemo in their arms and things like that, and working with real smart medical professionals who were using big data to get after the cancer dilemma. And I had conversations like that in Germany, conversations like that in Israel and other places. And it was clear to me that big data, ultimately, AI was going to be the key to helping people. And so our philosophy. Right. And that was when I was working with SAP, so that's some time ago, but it was clear that that was the future to me. And then when I came to ServiceNow, the first thing we did is we acquired a company called Element AI in Montreal, Canada. The founder was a touring award winner, like the Nobel Peace Prize for AI. This is what they tell me. And he had great scientists, great engineers, great researchers, and no go to market. It doesn't really help if you have a lot of great things, but you don't have a great go to market. You have a lot of great things. They're on the shelf. Hey, they look great, but they don't do anything. So we imposed our will in saying, if we put both things together, can we change the world? And they were like, yeah, we want to make our idea a world changer. So we recoded it onto the ServiceNow platform and five years ago started bringing a Pro plus version of our platform to the market. And it did very well. And now the way we look at AI is putting AI to work for people. So we'll integrate with all the LLMs that are out there, the big models, Llama, Gemini, all the things from Microsoft especially. We love Microsoft, actually, and all the small models, and bring your own models. They're all welcome on the ServiceNow platform. But what we do is domain specific. LLM multimodal domain specific. So everything that a worker does in the normal course of their work in the enterprise or inter enterprise will be automated with AI. Every workflow in every industry in every geography, for every Persona in every company in the world will be reinvented with AI. And we will bring workflow automation to the world. That's our core competency. And we really tried to stay true to that. And that's why to execute an organic strategy, this has been organic growth. You have to have elite level execution. So we're just driving that innovation, driving that reinvention, driving that adaptability to the new world every day. Awesome.
- [13:57]
Awesome. All right, let's talk a little bit about Bill McDermott, the CEO.
- [14:00]
Sure.
- [14:01]
So I. I remember when you joined ServiceNow, and I thought it was your first earnings call, but I checked the transcripts and I couldn't find this. So it might have just been an interview you did. There was an interview you did when you were about 90 days in, and in the interview you said, it's been 90 days. I've been on the road, I've been meeting with customers. I've met 784 customers in the last 90 days. And I heard that and I was like, there's no way that's right. And then a couple weeks later, I was in Boston. I had breakfast with Kevin Haverty. Kevin Haverty ran sales for ServiceNow at the time. I was like, kevin, Bill said that he met 784 customers in the last 90 days. Is there any chance? That's correct. And Kevin is like a meat and potatoes Boston guy. Right. Like, there's not an ounce of exaggeration in his body. And Kevin pauses and he's like, yeah, that's probably about right. And if you do the math that, that's 10 customers every single day, including the weekend. Right. And so I guess my question related to that is, why in the world would you do such a thing? What does it say about what it means to you to be the CEO of a company?
- [15:07]
Yeah, it's amazing. I did have some shortcuts, so we had some groups and things like that too. But the game plan was simple. I came in and the first thing we did is 100 day world tour. And so I got on the road and. And toured the world for 100 days and met every employee in the company and shook their hand in person. And I met every customer I could possibly meet and listened to what they had to say. I wasn't pitching anything. I was listening because I wanted to learn. I Wanted to understand really where we were so I could go back and then come up with the next idea for ServiceNow. And it was truly amazing because it was just before COVID Pat. And what was interesting is the next step after that hundred day tour. And incidentally, trust is the ultimate human currency. Okay? You don't build trust on a zoom screen. It's a good screen, but you don't build trust with it. You gotta meet people, you gotta love on people. I'm serious. Like, love on people, man. Cause in the end, like, this is no dress rehearsal. You know, you want them to remember you were there. So we really got into it. And then I go into the boardroom at ServiceNow with the management team to do Blue sky, thinking, I should have came here, by the way. But I'm in the room, and it was the first remnants of COVID People talking about COVID and things are happening and they're not good. And people were very distracted. I said, look, let's just toss out the script. Let's just Forget about the 100 day tour, because if we don't solve for Covid, we'll never be a great company. We'll never have a great brand. We'll be another also ran. We got to solve for Covid. And that day was the day we kicked it into high gear in a crisis. In seven days, we brought out our first solution for business continuity on the platform, where everybody could work from home and completely run their business, whether it was public or private sector, we could continue their operations for them. And then we did the whole idea of you got to make these COVID 19 vaccinations, you got to distribute them, and then you got to monitor them, and that's a workflow. So we got connected with all the top companies to be the workflow automation layer. Like example would be Scotland. They had 5 million people. We had them up and running in a couple days. The whole country was being vaccinated. And ServiceNow was the action layer behind that. The NBA. Adam Silva, my great friend, he had to bring in everybody into Orlando. Orlando was everything. That's where it was done. And the whole management team was sequestered in Orlando. We put them on service now, and they had safe operations and then returned to work and all the safety procedures. So these were very interesting things on a workflow automation level. But they were human. They mattered. Our whole attitude was what's going on outside the building, not what's going on inside the building.
- [18:20]
Yeah. Yep, yep. We have a lot of founders here who for the Most part are the CEOs of their companies. And I think for most founders, the journey from being a founder and really being hands on, on the product and doing a lot of things yourself to being a CEO and now the company is your product, as opposed to the product being your product. I guess my question is, for folks who are growing as CEOs, what does it mean to be a great CEO and what advice would you have for them?
- [18:51]
Everybody in here has to have a vision or they wouldn't be here in the first place. And you do need a clear and articulate vision. There's no replacement for vision. You can't downplay it. So you see things, but then you have to do things. And every leader owes their company a good strategy. Otherwise the people just work harder and they dig a deeper ditch to nowhere. So the strategy has to be rock solid. And that is really putting your vision into action after that is done. You know, I look at strategies when they're in binders, on shelves, or they're locked in somebody's computer. They're not a strategy. It's complicated. It's got to be so simple. You could put it on the back of a napkin and then the next thing is execution. The absolute true art form of all of this is elite level execution. Things are tough, it's hard. And you have to create a company that enjoys the pain and can take the pain and the suffering that goes with the push that it takes to do the kind of things that you talked about earlier. That is not going to come easy, but you have to find joy in the work. And every time it gets really gut wrenchingly tough. That's when I make it more fun. You gotta make it fun. Have a good time. Why are you so uptight? Relax. We got the world by the tail. Let's go. So I don't think we should be so tense all the time. You know, it's like, return to work. Whoa. Pounding desks, sending memos. I'll send the guys from Jersey to get you. If you don't come into the office, it's like, what's wrong with this? Just ask people, you know what they need. And by the way, you got to make these companies run better because one of the reasons they don't want to come to the office is because the office is such a bad place to be. How would you like to GO? Internet of 17 applications a day? How would you like to be stuck in a bullpen with somebody sticking you in front of a zoom screen when you could have done that at home. So it's not just about the people in the rank and file. It's about the leaders at the top role modeling it, making it a fun place to be, using the systems and the protocols and the ideas that make the office exciting. Start ringing bells again. We need to get back to the basics here. People forgot what it was to just have fun working.
- [21:38]
Yep, yep, yep. We're at time. Can we do a question from the audience?
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Sure.
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Do we have time for. Okay, we got one right over here. Perfect.
- [21:51]
Audience Member
Hi, Bill. So plus one on fun. So you're in a very unique position that you ran a German international company that was listed in Frankfurt, and now you're running an American company listed in the US A lot of entrepreneurs in the room, I think, thinking about the next steps and where they should go public. Any advice based on your very unique perspective on going public, whether you tell the European Community to actually go public in their respective European home markets versus the US and what have you seen being the pros and cons?
- [22:23]
Bill McDermott
Yeah. So look, the first thing I can say is who is the least likely guy to run a German company? But I just am me, because that's all I know how to do. And so with SAP, they had a tough time in the US as an example, because they were a German company and probably didn't understand the nuances of the US Market. And so you build trust in the company and you climb because you perform. Performance is the price of freedom. And then once you perform, everybody with bigger jobs and bigger business cards basically say, I actually need this because it makes me look good. So it's not a hard formula to figure out. I just want to give you that as a baseline. But when I went to Germany, I didn't try to turn into something different and pop out like Jack in a Box, a new Bill McDermott. The German version. It was just the same person. And I think that's really important because whether you're in Germany or you're in the US or anywhere else in the world, just be you. And that's probably the best thing you got going for you. What I learned in Germany is that I had to start every meeting with all the things that were wrong. It's like there's no credibility unless I tell everybody we're close to going out of business. And these are the top 10 things that are making us fall apart. Then I got their attention, and we could move on with the agenda. In the US if you start a meeting like that, they walk out the exit sign. They're waiting for the board to fire the guy. So it's just a cultural thing. But the biggest thing about a German company is the dual board structure between the employee representatives and the external directors. And I saw it both ways, by the way, when I was there. You know, one way of looking at it is serious decisions require an advocacy for the employee representatives who represent the employees of the company. Problem is, you gotta make sure those employee representatives represent the voice of all the employees, not just the employees in Germany. And that's the art form there. So it goes a little bit slower, it's a little bit more deliberate, and. And it's a little bit more complicated. And so therefore, you gotta take that into account based on what you're trying to create. But it worked very well for SAP. There's not too many companies that started in 1972 and are still relevant in 2024 in the tech industry, and they're pretty big in terms of going public in the US There were times where I thought to myself, we could unleash a whole new brand of SAP if it was in the US because you just have the freedom to do some different things. So I would be a big advocate of going public. First of all, I think it's great. I just love quarterly shareholder meetings, you know, I really do. I mean, it's so much fun, and that's why I work so hard to deliver the quarters, because they're a lot more fun when you deliver the quarters. But in any case, you know, I just love that whole process of, you know, being in front of the markets, being in front of the media, being in front of the company and using it, you know, no matter how the results go, as a learning experience to get better. Yeah. And don't believe the headlines when they're good and don't get too depressed when they're bad, because it's never quite as bad as they say it is, and it's never quite as good as they say it is. It's just all about what you're creating, what you're innovating, how your culture is performing. And if, like, everybody in the company really cares and is a part of that message and that process, you can really, really change the world. So I just love the public company world. Not a lot of, I don't know, a lot of people that do. So you got to survey others besides me, But I love it.
- [26:38]
All right, let's sneak in one more. Sure. All right. In the back. Oh, John. All right.
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John
Bill, can you hear me?
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Bill McDermott
I do, John.
- [26:47]
John
I think what would really be interesting for all of us is how you're able to balance time outside of the company and still run a very tight ship, because that's a continuous trade off business leaders need to do. And you do it marvelously well, John.
- [27:03]
Bill McDermott
I tell you, getting a compliment like that from you and the masterpiece that you've created. I deeply admire John and I deeply admire his amazing portfolio and then Xor and all the innovation and the young companies and the things he can do. I don't know how he does, honestly, but what I try to do is create.
- [27:22]
John
Hey, Bill, please.
- [27:23]
Bill McDermott
What is it?
- [27:24]
John
He said, let's keep expectations low.
- [27:27]
Bill McDermott
He's the best. But what I try to do is create scale and I try to build teams around me that are better than me. So if you look at our management team, I would only be humbled if I felt that every person on the management team and every function was so much better than me in that function that I'd be embarrassed if they challenged me. And then I know I'm doing something right. But I also have a little secret sauce. And I created this business model around how the Office of the CEO Works. I have the Chief of Staff of ServiceNow with me. I have my executive assistant with me, because while we're on the road, we're a machine. What's interesting about it is because I'm in different time zones and because the machine still operates at full tilt in these different time zones, I very often can catch opportunities in another time zone that I would have missed in my home time zone. What I've done is created this concept called the office of the CEO. And it's probably not too complicated to explain it, but young people that are brilliant, super talented, that are highly empowered, and that we cover each function and each leader on the team with a sub leader. So while we're moving around the global economy, which is what we should be doing, the machine doesn't skip a beat. In fact, we try to increase the clock speed. And a lot of it, John, is Automation. Using the ServiceNow platform, using the ServiceNow processes, and definitely using the ServiceNow culture for elite level execution. I'll tell you. And it's not perfect because I'll get a note or I'll get a message from perhaps one of you with something that I don't like. And I just hit it right away. You know.
- [29:26]
John
How much time you spend outside, like outside versus inside? What's the right balance in your view?
- [29:36]
Bill McDermott
Yeah, for me right now I would say it's probably 65% outside, 35% inside. And that's adding in board management meetings, all hands meetings, the earnings process and the various things that you have to do with that, and media and the other things. And other than that, I try to be on the move. And John, I learned so much on the move. Like just today I got hit with like something from one of my most important customers and I learned something and it's gonna make me better. It's gonna put a lot of people in pain for a little while, but we're gonna get better as a result of it. Thank you. And that's like, Just listen. You know, it's so funny. Like you ever get go to these meetings and you read the briefing documents. Really the briefing document process is an art form. And you know, I would love to just someday riff on this stuff with you, Pat. It's an art form because if you can set up a great briefing document process and superimpose the eyes of the CEOs of the world into that process and force the eyes of the CEOs of the external world to create the machinery inside to serve them and to be in service to them, it really improves the productivity of the company. So that was one of the first things I learned. I got these really ridiculous briefing documents when I first came in, all well intended, but like freshman level nonsense. And so the processes for scale are super important.
- [31:15]
Awesome, Bill, we better let you go. Thank you again for being here. And also, just so everybody knows, Bill has been incredibly generous with his time to the Sequoia founder community and has helped out a bunch of the people in this room. And so to the extent you are in the enterprise software business or any business, and you're starting to scale and you're thinking about what it means to be a CEO and where you can get better, Bill, you've just been a wonderful resource.
- [31:37]
Thank you, my friend. Thank you, Pat. Thank you, Roloff. Thank you, Sequoia. Thank you, Pat. Thank you, brother. Thanks, everybody. Thank you. Thank you.