YouSaid · the spoken record

Robert Smith

lines on the record: 62
first: 2022-08-23
most recent: 2022-08-23
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Patrick, thank you. Thanks for inviting me and excited to see you continue to grow this platform. I think it's quite informative and helpful and frankly bring some unique insights to our wonderful world of investing.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“I had a really humbling mistake in the deal. I did 20 plus years ago that I resolved with the government two years ago. And the good news is it's behind us and behind Vista. And I'm just grateful for really the global beloved community of friends and family and colleagues who know me, believe in me, and continue to support our mission and what we're doing. So the kindest thing they've done is in some cases forgiven and in some cases really encourage me to keep going forward and know that power of forgiveness is so powerful and that power of love is so powerful in the world we live in and we just need to continue to pay that forward.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“They no longer are part of a group home. And so those homes don't get that $218 a month or whatever it might be to keep their bed. And so these kids often go to homeless shelters. And we do a program here where we build a facility in nice, beautiful place where members of our program can come during the holidays and celebrate the holidays with us and have a place to come and stay and be a part of a family environment that is supportive while you're entering college. Those are some of the things that speak to what my wife and I like to support for communities that we know are frankly deserving of equal opportunity to live great lives.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Just had a celebration of a program my wife and I initiated and started supported by the Fund Too Foundation, of course, but it's called the Family Fellowship we do through together we rise. And 65% of foster care students want to go to college, only 35% apply and only 3% graduate. And our program to date, we've got 49 out of 50 graduated and many have gone on to graduate schools from London School of Economics to various top five law schools, et cetera, and providing support and infrastructure. Some of that support is as simple as making sure that when they show up to college, their freshman year, someone's there, you and I talked about it to help them move in, hang up their clothes, and put the contact paper in there and just make sure they have someone there to make them feel part of the community, the new college community. And then during the holidays, one of the things that still challenges me is that they'll shut down all the dorms and waged out foster care students.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“And part of that, we also are doing, let's kind of. Think about how you then create these holistic solutions, these systemic solutions to these problems that we have in America that ultimately I think if we solve, we're just going to be a far better country and frankly a far more productive country that we can now compete more effectively internationally with digital capacity.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“I really believe in creating equal opportunity. And that, in my mind, is opportunity to capture educational opportunities and health equity and wealth creation and all those things to me require on-ramps. And one of the most important on-ramps is this digital divide on-ram. How do we now ensure, which is one of the Southern Communities Initiative that I'm leading with the folks at Dan Schuman over PayPal, and Rich, who's a chair of BCG, and okay, we can solve these problems. Let's bring corporate resources to solve those problems. I think I've been very focused, of course, also on the student debt crisis and providing through the Student Freedom Initiative a fund where students from HBCUs and MSIs can borrow money from this fund and they don't pay it back to the government. They actually pay it back to this fund that gets paid for to the next generation of students. And those are some of the things that I really think about enabling.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“It's all informed by being an African American male and simple. I mean, I grew up in this country and I witnessed all sorts of things from racial injustice to ways that we as a society need to empower and enable more people to participate in this capitalistic society. And to me, those things are racial equity and digital inclusion and educational opportunity. And that's what I think about it. You and I chat a little bit about this war for talent. And one of the things I learned, 82% of the historically black colleges and universities are actually in a broadband desert. How are you going to get people to participate in the digital economy if the schools and colleges they're in don't actually have broadband access? So that's one of the things that I say, okay, we got to go fix this. So that's one thing. And then you start thinking about how do you create opportunities for people.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Would look for someone again who takes a systemic approach to investing. There's one young man who I really, really like. I wouldn't know if I put all my capital today, but I just had him on a call with my Morehouse team, a guy named William Hurt. He's just very thoughtful, very deliberate. And I like his demeanor, his approach. But again, he's a public market investor. So when I put it all in public markets, probably not. Just if you force me to give a name of someone, that's someone who I really like.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, we're in enterprise software. I'm not investing in oil and gas one day and insurance accounting. We do one thing. So we're actually pretty good at it. And so the executives CSS software people who are part of a private equity platform or credit platform. I think that's what makes the difference as to why they like to work with us. And our people are good people and they're thoughtful and they're experienced. As a result of that, I think that carries the day with you're running a business and it's like, man, this is your baby. You raised this 8, 10, 12, 20 years old. Some people just want to sell to the highest price, but others want to see that all the stakeholders in that business ultimately are thought about as they convey the stewardship of that business to the next buyer being us.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“What it's like working for Vista. And guess what? Of the deals that were contested, almost 60% of them came our way, even though there were people who had higher bids. Think about that in this world. We're capital in some respects as fungible.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, and they're like, yeah, let me tell you how Vista accelerated my corporate maturity. Let me tell you how Vista accelerated the maturity of my management team. Let me tell you how Vista accelerated our growth rate or our operational profit or our entry into this market or our entry into this different geography. Let me tell you how they did that. When you cut through all that, I'm still amazed at this, but of the deals where there are other people involved, almost 60% of them, we got at a lower price than when someone else offered. We talk about lessons learned. When we have the time to talk about our value creation dynamic based on those statistics, more often than not, they come with us relative to what everyone else would pay for it. So that's something we have learned. We have to just make sure we take the time and the process and give them the opportunity to talk to the founders and the people that we work with and say, here, here's a list of call any of them, call 50 founders. See what they think.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“They are. I will tell you there's a couple interesting statistics around us that I find fascinating. You count deals, 71% of our deals just recently last few years, frankly, have been founder influence. And again, I told you this 90% of those founders are still involved in the companies. But another interesting statistic, over half of the deals that we did were nonprocessed deals, meaning we had access when no one in the market did. People came to us because they went to one of the other founders that we did deals with and said, okay, here's where I am. Who should I talk to? Founders kind of know each other in different clumps”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Control under our control being things that we know that we've done in the past, done before with an enterprise software company, but every now and then there's something that pops up that gets you out of blue and you're like, okay, now I got to deal with it.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Can we build by be a part of what are the ultimate winner in that space? Sometimes you don't have full access to it at that time, but that doesn't mean you shouldn't try to get some access to it at some point in time. Those to me are the biggest risks that we take. You see an emerging space. And, you know, the world of enterprise software, there's always these emerging spaces that occur that evolve and that blossom. You know, I always think about our space, you know, these markets, enterprise software still this kind of winner take most type of markets. Sometimes they're very attractive, very interesting, and you're not quite sure who's going to be the winner just yet. Sometimes it's a capital play that makes them a winner. Sometimes it can be the management team that makes them a winner. And sometimes it's a regulatory environment that might determine winners are losers. But we think about really focusing on underwriting to critical factors for success being under our”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“So, in some cases, it's how do you meld the two and come up with creative solutions, which I think some of the things we've done to do that. You got to be in tune with them. And you're not going to get it right every time because, you know, they have turnover and they want to change your allocations in different ways. But you've got to be in tune with and listen to your clients and listen to those LPs and see if you can deliver back to them unique solution sets that solve their problems. That's what they most appreciate.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“So LPs have their own dynamic. In some cases, it's their organization. In some cases, it's the amount of capital they have available, about a capital they have available that period of time, and what they've invested in the past, which limits or expands or opportunity to invest in the future. So what that really says is you have to remain informed and in communication with them to understand what their dynamics and needs are, while their dynamics and needs may have been one thing for years ago based on what they invested in then. They may have changed today. One of the things that we've done is worked with a number of clients who realized over time that they were underinvested in enterprise software. So we've come up with some unique solutions to keep them constantly invested in enterprise software through the various funds that we manage. The world of private equity, there's episodic fundraising. That's a cycle that you live in in the world of private equity, and it's a different cycle than what the LPs are in.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Infrastructures, which give us that ability to evaluate these things so it isn't just sitting on one person's desk and saying, okay, here's something we need to think about and we'll create a subcommittee of, in your words, not mine paranoid people to come up with a solution. And then they come back and present if it might be to the private equity management committee or it might be the co-heads, it might be to the risk committees or the talent management committee or the executive committee and say, here's the change that we now need to make and here's a recommendation that's been fully vetted and informed by stakeholders in the organization, sometimes outside the organization that we think are going to make us better and more effective at what we do. I love that about us.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Vista, we are highly capable people. We're insecure overachievers. We constantly think about how do we tune our system. So it isn't like one thing. Every day it is something we need to tune and make better. I love our bug fixing culture. As effective as we are on certain things, every time we are getting together and having to think, we're talking about that's great, but here's what we can do to fix it. We've built the right culture around that. So the paranoia, if you want to think about it, is about a little bit of everything in every area. It's like, okay, but it's not just the paranoia. It is a, well, what do we need to do to tune it to fix it? Is it a small fix or is it an organizational change? I think we revisit it early and often and frequently, which gives us the ability to react and gives us the ability to make changes. We now have some very stable committee infrastructures and effective committees.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“I benefit from being ADHD, so I don't remember mistakes for long. Our market continues to evolve. I think we did a really good job in a couple of areas early on in building up the organizational design and really being on top of things like cybersecurity, although you can never win in that. You just end up in ties all the time. I think we need to continue to invest in the building of our platform geographically. You know this, and some of the breeders and audience. There's now been a more rapid distribution of computing power through these superscalars. And while we've been effective, you know, we have a couple of non-US offices open, but I would look at that and say, should we have been more aggressive in that dynamic? You can't have too many regrets about what you did or didn't do in that regard. You got to lean forward and take the best decisions based on the information that you have at the time. That's kind of how I think about it.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Where do you invest in your centers of excellence capacity to expand the market opportunity for our businesses? Because we're seeing an accelerated demand for the products that our companies sell. So we have to have people to support that growth. The good news is we're seeing some alleviation because some of the consumer businesses, I think, this are getting hit disproportionately harder in this current environment of higher inflation and the Fed really looking to dampen those inflation dynamics. And so you're seeing a slow growth in the consumer space. So that's liberating more people in the U.S. That said, it's still not enough for the growth appetite of our enterprise businesses. So that's one area that I think could be of high debate.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“I think it is the whole idea of the war for talent. We have a whole set of tools and systems that enable us to bring what I call a unique way of developing talent and capabilities. We have these centers of excellence. The debate's going to be, well, where do you stand up the next one? Do you stand the next one up in Mexico, in Canada, in Australia, in the Middle East? Those are some of the areas that we would be talking about because they have real impact. If you talk about portfolio managers, they're saying, okay, I've got to hire 250 people in this portfolio company next 18 months. Where am I going to hire them? We've got some challenges in the US, as you know, just from a war for talent perspective, because we haven't enabled enough people in the U.S. to participate in this market, yet we don't have an immigration set of policies that should effectively fuel the growth. You want to talk about things to debate? That's one thing to do.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Setting greenhouse gas reduction targets, reducing those emissions, offsetting it. We now have the ability that 100% of our majority owned companies that are not in the process of being exit, of course, have signed our Vista Climate Pledge, which enables us to now create offsets, greenhouse gas offsets across all of our portfolio companies. Those are the things that if you're not attuned to moving where the market is moving, you'll never get this done across a broad portfolio like ours. This is one of the things that is important to us.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“To make sure that that constantly happens. If you're an organization that focuses on creating change for other organizations, i.e. portfolio companies, you darn well better have the DNA internally that you are accustomed to change as well. The innovation that we're doing in ESG, I think we are one of the first firms to sign up to things like the principle for responsible investing and net zero asset managers, but we are one of the few firms that actually now has the ability to measure.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Of those tracks is innovating on, in this case, robotic process automation, in some cases with cybersecurity analysis and determination or artificial intelligence. But you have to build systemic infrastructure where innovation can occur. Oh, and by the way, we will, in that environment do a set of hackathons with very senior people on product innovations. And we'll do that in India. And we'll do it in someplace in Europe. We'll do it also in the US a couple of times a year. Those are the sorts of activities you have to be intentional about that create that innovative dynamic. Now, if you have that in you're managing that externally, i.e. portfolio companies, internally you have to do the same sort of thing. So we have to think about how do we innovate in our capital structure? How do we innovate in our approach to delivering value creation, i.e. our VCG into the portfolio companies? And what are the methodologies?”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“So, again, it is, yeah, you know, with 50,000 customers or 100,000 customers, which some of our companies have, you have to build an infrastructure where that is not only emphasized, but it's rewarded and a priority. Let me give you an example. Our BCG, Vista Consulting Group, part of what they do is they bring together groups of our senior executives to part of what we call a BPS best practice sharing summit. I think this year we have 26 of them planned. And in those cases, we will bring together functional heads to not only teach, train, but also to build out, I'll call it innovative engagements with them. For instance, last one that I personally attended was one with our product and technology group. In that group, there was 421 senior product and technology people from 78 portfolio companies in one city for three days going through five tracks.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Economic outcomes by funds is one of the ways organizations I like to design the way that we compensate our team to get that sort of a behavioral pattern.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“And our talent, so that we're focused on building infrastructure around compensation related to ESG initiatives and our diversity, equity, and inclusion initiatives. And people don't just say the words and fill out a form. The action hits the entire ecosystems from our boards to our C-suite to our executive committee at Vista and private equity management committee to the way that people actually vest into their ownership of the firm. There's DE&I initiatives and ESG initiatives tied specifically to that. When you talk about endurance, you've got to have what I call stability. You've got to have courage. You've got to have tenacity. And you've got to have a team that is willing to invest in the development of others, not just people who report to them, but others in their peer set to inform them. So having that sort of a collegial environment and shared responsibilities and shared, in many cases.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, it is like all businesses, it's the people. I look at my investment team and VCG and our operating team and the longevity and what they've done and their capacity to learn. And we do a lot of what I call building from the draft and not the trade. We bring in people from various backgrounds and teach and train and develop them as opposed to, oh, let's go find some high flyer from another firm to now come be a part of what it is that we do. We think that that builds a culture of accountability. We think it builds a culture of excellence and high performance and one that ultimately in my mind leads to kind of long term economic benefit for the entire ecosystem of Vista. That's an important cultural element. And then from that, you can start to develop the things that we think are important in who we are, develop our leadership.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Time to really expand our buying dynamic of our business. Now, all that said, the last two years, we invested $18 billion and returned $18 billion. Invest, I think, was $18.8, almost $19 billion in return $18.2 in the last couple of years, right? So we continue to be very active in the buying and selling, but in the buying, we like to maintain discipline in buying evaluations that from our perspective make a tremendous amount of sense irrespective of where the cycle might suggest that you are. And that's because we'd like to truly create value and alpha in our businesses through changing some of the fundamental ways in which they approach their market and expand their opportunity set.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“There's a capital cycle in and around the investing environment that informs us on multiples. You and I just chatted a little bit about that. We had a massive amount of capital that flooded the global economic environment, frankly, since the great financial crisis, accelerated during COVID. Every central government on the planet said, I am not going to let my people suffer, even though they may not be able to go to work. And so they flooded more capital. And of course, you saw a massive increase in various equity markets and credit markets and liquidity and cash was available everywhere. So you have to be thoughtful about that as an investor. So for us, of course, like I said, when the markets were booming, guess what? That's the time we hadn't taken any company public at that point in time, 18 year history. So we took six companies public during that run, selling into those robust markets and not surprisingly when you see now a retrenching of a good”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Value creation motion and what are the things we want to focus on? Because that may inform you guess what? Here's a segment in the marketplace that we need to spend more time on or invest in or build a different set of solutions for or enhance, call it the go-to-market opportunity with that segment.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Picked another solution, or they went out of business. If they've gone out of business, is there some fundamental underlying element of that industry that you're serving that gives you some suggestion that this is not one that you want to necessarily invest in? Our teams, and I've just got a marvelous investment team, frankly, really think about that and unpack that and get very granular by geography, by segment, by customer, by customer size. And we really spend a lot of time on that to understand, are there some inherent issues with the industry or the product's position in that marketplace that should give us some pause or confidence on how mission critical business critical, not only the solution is, but that specific solution is with the company that we're evaluating or the company that we own. And then that informs us as to how we bring forward our”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Have a couple metrics. One is recurring revenues, and one is retention rate. And we look at net dollar retention rate as an important statistic or KPI that we measure. In many cases, I mean, our overall portfolio, which is whatever call the fifth largest enterprise offer company, if you just added all of it up together, over this last two years, it's 104% net retention rate. Think about that. That's pretty staggering in terms of, okay. showing that what we provide to our customers is of value. The thing you have to think about in an environment like this and in recessionary environment is, okay, where do you get that churn? We just walk through the mission critical nature of these businesses, the actual ROI of the products that we sell to our customer base and how important it is. So if you've got churn, you've got to look at it. Is it because the customer”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“And understanding that when the markets are being lofty, that's a good time to sell into them. Not surprisingly makes sense. And when the markets have come down where they are today, and if you look at our overall market, these growth adjusted revenue multiples back down towards 0.41 type of a level, which is just slightly above where we've been buying our companies over the last couple of years.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Rather than earnings for a fast growing software company, use revenue. So you do that and you divide it basically by that growth rate of that business. So it's kind of doubled over those two years. Our average was still over the last two years below that 0.43. Whereas the market went as high as 0.93, the market average went to 0.6162. These are people buying into these enterprise software businesses. We've always maintained a very disciplined approach to how we buy those businesses in the last couple of years. We've been buying them at half the price last two years of the overall market. The vast majority of those businesses we bought last couple years were private. We only did two take privates in that period of time. Whereas anytime there's a downturn, we took six before that and two before that, two before that in terms of public to private, that type of models, because those public markets were experiencing those lofty valuations. That's one way that we really think about it, really evaluate.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Do you think about a price revenue growth multiple? What's the price that you're paying something relative to the growth multiple of that business? So you've heard of peg ratios, price earnings ratio.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“It actually biases down over those two years that we did the prior five. We use a thing called the growth adjusted multiple, the first, call it half of the decade, the growth adjusted multiple on average in the overall market was like 0.43. The market in the last couple of years maxed out at twice that amount, 0.93.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“We kind of look at it in two buckets. There are the companies that are growing faster. And then there's what I call the companies that have met their addressable market and they're operating on a profitability metric. Take out the last six months. But the prior two years has been the most frothy from a valuation perspective that we've seen in the history of enterprise software, in the history of software period. We had took advantage of that and took six companies, public and sold into that market. Valuations are rough. Guess what? Let's sell into that market. And we actually, for one of the few, and actually one of our investors pointed that out that actually decelerated in the investing in that marketplace in terms of public market, not in the break of investing, but public market, which were really experiencing those lofty valuations. Interestingly enough, we actually maintain the same market.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Okay, if you got a bunch of people going around and doing some clerical work, let's say, and moving one set of data from one system to another day to day, I call it a swivel chair kind of an enterprise, pull out of one system, put it in another, versus put a robotic process automation system in. Guess what? ROI is massive. Could be simple as transaction reconciliation. How do you reconcile a purchase order versus what was shipped? And if that's done manually versus put an RPA system in it, guess what? You get massive, massive implications of ROI.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Not really. It's as simple as if I implement Pickett, a solution for payroll. Okay, if I'm implementing this old school, how many payroll clerks do I no longer need if I implement a payroll software system? Pretty easy to calculate. Here's how much it costs, all right, or waste, how much waste do I eliminate by implementing this software solution to measure some energy usage or something? It's math at the end of the day, and you've got to have some analytics around the math, but that's what we do. We do it for everyone in the companies. And so that gives you a sense for, okay, here's how valuable that software is to that industry. Media industry might, okay, if we give you this system to manage how your media spends or buys are done, how much more efficiently can you promote and or sell it? How fewer resources do you need to develop or to devote to that activity? Robotic process automation. So you asked me an earlier question about, okay, where are we in the inning?”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Customers, I think 800,000 plus enterprise, 1.4 million small and medium businesses. But we look for what is the value of this software that we're selling, the average ROI of the products that we sell to our average customer is 640% ROI. Now think about it. There's very little business investment that you can make that gives you that level of ROI. So a small to medium business actually typically hires more like 900% enterprise depending upon what it is in terms of the product. Again, the average is $640 may be a little lower. But what that says is your next incremental dollar has almost any business in any industry is best spent on buying more software.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“There are some industries where the participants, the software providers have relinquished or given up a lot of their intellectual property to their customers. You think about pharmaceuticals, those are sort of areas, for instance, where often the end user environment is so concentrated, they actually have the market power in how that software and that code advances. We look for more broadly distributed customer bases where you don't have high concentration risk in your customers. And we look for where there's actually still a high ROI return on investment of the products that you are selling to your customer base. I mean, this is just an internal statistic, but we measure every year what's the average return on investment for the products that we sell to our customers. Think about we have 80 plus software companies, 300 million users of our software over, I think it's now 2.2 million.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Base along at a much more rapid pace, which gives you the ability to deliver additional sets of product services and solutions to your existing customer base and for what we call newer customers that we want to capture. That's one of the big differences. But remember, that's all powered by a change in the underlying, I use the word substrate, but architecture of how computing power is accessed from on-premise to cloud.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Scale, operate them with more flexibility in terms of when you turn on and off what I call the profits picket in those businesses. Whereas early days, it was all on premise software. So a big part of the cost was the operating cost characterized by capital costs of buying equipment. And today it is truly operating cost because you just go to the superscalers out there, the AWSs, the Azures, the Oracles of the World and the Geos and India and other places say, okay, I need to buy computing capacity, not servers, but computing capacity at a specific rate. And of course, with our size and scale, we have the capacity to do it at different rates than others. What that enables our companies to do is, and what we look for is now innovate their product set faster and use various architectures like microservices, et cetera, to actually move the code.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“In the early days, I chuckle a little bit. There was no such thing as posted or cloud architecture type of an environment. There was, but we call it ASP. You had these big mainframes that you emulate into. And if you think about it's kind of the same now, but now it's a public cloud or a private cloud. That advancement in and of itself created massive opportunity for innovation to occur. That innovation manifested in a couple ways. One was the proliferation of cloud native software companies that didn't exist 15 years ago, eight years ago in some cases. We look for a lot of those businesses because if you architect them properly and you do them well, and I think we own now the largest number of these cloud native software companies based on our count, it gives you more freedom and flexibility to innovate faster, which means you can actually grow these companies faster.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Resources against managing their existing code base and not really realizing that they're losing ground every day because they actually haven't taken the right approach to eliminating technical debt. They just figure it's just a cost of doing business.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“That is often an oversight for almost every investor that I know of outside of this stuff that they don't really spend enough time on that. And if and when you do, this is when we take a pass on a company, it's often because they have too much technical debt relative to the pace of the market that they are in. We have a whole set of best practices around reducing and then ultimately eliminating technical debt. To me, that is one of the more liberating elements that one can do in managing these businesses. It's not something that you just naturally know how to do as an investor. A lot of investors think, oh, let me just buy a good company and hope the management team can figure it out. But you'd be surprised at how many management teams I know that we spend time with in due diligence evaluating businesses that actually don't really have a sense for the amount of technical debt that they currently have and never thought about. Yet they provide increasing levels.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Of the businesses, the enterprise software companies that have failed and gone bankrupt or had all sorts of financial challenges, it's because typically they have too much technical debt. Most people don't really understand what that is. They think about debt in terms of financial debt. But technical debt is compounding. And as you write code over a year or five years or 10 years or 20 years, often if you don't take the right product development approach to it, you create a tremendous amount of code that has some flaws. It has some bugs. It has some architectural idiosyncrasies that might work for eight customers or 200, but not for the other 5,000. And every time you make an upgrade in the code, you have to go back and make those adjustments so that your customers' products continue to work or their solutions, how they use and continue to work.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure, and I'll give you some of the things that are critically important to have and some of the things we really do call it in a differentiated way versus anyone else out there. So look, everybody knows the nature of enterprise software lends itself to what we call these mission critical, business critical type of businesses. And if you run them well, you'll have high retention rates with your customers. You'll be able to have businesses that have visible recurring revenue components to the business. Those are things that we look at, not surprisingly, and understanding the quality of all of those elements and what are the quality of the relationships and the quality of the product. Where are they in the stages of what I call product superiority and what are the elements of execution excellence that the company needs to emphasize or support? But on the other side, and this is when people get it wrong, they get it wrong here most of the time.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source
“To your customers. In some cases, it's implementing an AI solution to develop a new set of products to expand the market. So there is not one. We've got over 100 of these best practices. And when we're underwriting a business, we'll end up with, okay, here are the eight to ten that we really have to do right now. Here are the next 20 that it'd be great to do in the next couple of years. Here are the next 30 if we have this company long enough that we need to do after that. Because like all things, you know, as an engineer's mindset, There's just this thing you think about continuous improvement we all can continuously improve on what we do, but you have to have a system. That's why I keep talking about this engineered solution the way we are organized that has a systemic solution of feedback and feed forward mechanisms that are constantly activated as opposed to episodically used. So that's really how we think about it.”
2022-08-23 · Invest Like the Best · Robert Smith - Investing in Enterprise Software - [Invest Like the Best, EP.291] · IDENTIFIED FROM THE TRANSCRIPT · source