Smartsheet’s platform helps companies of many different sizes set up, manage and automate a variety of business processes and workflows. The company’s software is often used in conjunction with Microsoft (MSFT) - Get Report and Google’s (GOOG) - Get Report document and spreadsheet apps, but it also integrates with dozens of other apps and cloud services.
Like some cloud software peers, Smartsheet has seen revenue growth slow a bit in recent months amid COVID-related pressures. But the company still reported 41% annual growth for its July quarter, aided by a 92% increase in the number of customers with an annual contract value (ACV) of $100,000 or more.
Smartsheet also recently closed a $155 million deal to buy Brandfolder, a provider of software used to manage digital content assets, while stating it plans to use Brandfolder’s software to better automate content management workflows.
I recently caught up again with Smartsheet CEO Mark Mader (previously interviewed in the fall of 2019). Here’s what Mader had to say on several topics of interest, slightly edited for clarity.
How COVID-19 -- and the related surge in remote work activity -- has been changing how Smartsheet’s platform is used by clients.
“I think we're exiting...what I would call phase one of COVID, where all businesses had to react to basically managing their demand, and then also react to the need to communicate...I called them the primitives...I think [people are] at a point of mastery now with the primitives, and [those] would be, ‘Can most of humanity do a video call? Can most of humanity exchange messages and not rely on interchanges in the offices?’ So people are pretty good at that now.
“I think we are starting now to see people believe that there's more predictability in what they're facing. And I think they are now starting to have conversations which go beyond, ‘Can we communicate securely?’ So we are seeing that. And I think the pressure that companies feel right now is, when they talk about transformation, they're not talking about it in the context of, ‘Hey, we want to do something over the next 6 to 12 to 18 months. They're like, what can we change now?’
“So I think the appetite for higher-velocity, more nimble pursuits is definitely present. And it's in stark contrast to sort of maybe the pressure they felt a year ago.”
How Smartsheet, which reported seeing month-to-month improvement in its demand environment during its early-September earnings call, currently sees business activity trending.
“People, I think, are appreciating the fact that there has been a greater degree of predictability in what they [can] expect. So most people are still working remotely. There's not a major news item that comes out day-to-day that's causing people to re-evaluate. They're pretty much believing that they're going to be in this remote setting for some time. So people are responding accordingly.
“The good thing is that they are having conversations with companies like ours, trying to explore what they can take on and when. I would say one of the things that has been useful is that with people spending less time traveling, there is actually more time in the day to engage.”
“I think, to counterweight that, people are also applying greater pressure as to forcing companies like Smartsheet and others to articulate the value they provide. So I don't believe a tech company today can ride on the back of, ‘It's better, it feels great, it makes our employees or customers just happier.’ I think people are looking now for you to quantify the impact you're going to have. And again, I think it's actually good for business. I think vendors should be forced to do that.”
Current demand headwinds within industries where businesses are facing major financial pressures right now.
“Clearly, if a company is in an impacted industry like events or hospitality, and they have a furlough, and [their] subscribers were using Smartsheet, yes, that would be impacted. I think we were fortunate [in terms of] being a highly diversified company. And we had just around 4% exposure to those industries with our revenue.
“So unfortunately, some of those customers in the minority percentage of our base did get impacted. And we're trying to be thoughtful on how we can support them. We think this is a phase. This is not a permanent impact for them. So in those cases, you need to exercise good judgment and see how you're going to help them.
“I would say in other cases -- pharmaceutical, health -- those are two that are sort of standout sectors for us, where companies are really having to lean in and there's a lot of funding happening, either from government entities or other places where there is...quite a bit of money flowing right now.
“I would say, though, the impact is less segment-based in terms of SMB versus large [enterprises], and more industry category based.”
The growing use of Smartsheet’s platform in tandem with Slack and Microsoft’s Teams collaboration platform.
“I think there's been a really big move, as has been well-documented, [towards] Microsoft Teams and Slack (WORK) - Get Report. So I would say, going back a couple years, those were more emerging [applications] and really present within certain functional groups. You saw a lot of resonance with engineering and product teams. I would say the notion of a threaded conversation with channels, millions and millions of more people are exposed to that today.
“So two years ago, three years ago, there was a lot of talk about ‘How does Smartsheet integrate with email?’ Today, those integration efforts are going into, ‘How do we beautifully serve the users of Teams? How do we interact with the users of Slack? And bring structure and planning and a reference point to the conversation?’ And so I would say that while a...minority percentage of our base is familiar with those, it is starting to get to a meaningful size. And that's a big, big change.
“I think...the user expectation has also changed, where more and more users now believe they can do something more than simply create a doc and send a message. So what has changed for us is, we had been sort of shouting from the pulpit, if you will, saying ‘Look what's possible, you can actually do some automation, you can actually do intake, you can actually move information in this way.’
“We're starting to see that early-mover group really demonstrate good success, and others are now curious about how to participate.”
The adoption of Smartsheet’s Accelerators -- pre-built solutions for specific workflows and business processes -- and other add-on “capabilities.” During the fall 2019 interview, Mader said Smartsheet had about 700 clients using one of its capabilities.
“The category that we speak to on earnings calls are capabilities, of which accelerators are one. And that is basically an advanced solution that we sell...in addition to our core subscription license. [The number of customers using a capability] has more than quadrupled....I think you mentioned 700...So that has more than quadrupled. So we're seeing thousands of customers now purchase those.
“And the customers that engage with those solutions typically have needs that go beyond what you would call simple task management and sort of basic team coordination. They're looking to do more programmatic management at scale.
“So instead of doing, for instance, the renovation of one facility for COVID, they may be managing the renovation of 200 facilities for COVID. And the needs are actually quite different between whether you're doing one and two or 200 things. For instance, when you're applying change, or modifications, to a single program, you're managing your project, quite straightforward. When you need to cascade that change over the course of 200 things simultaneously, it's actually a very different beast.
“So some of the offerings we have really address what we call functional scale. And our Control Center offering which powers many of our accelerators is one of those capabilities.
“[There’s] another one that we're seeing, as collaboration now is increasing across company lines So it's not just intra-company collaboration [anymore]. In this work-from-home setting, people are having to engage with their suppliers, their agencies, a variety of external sources. And one of the capabilities we sell allows people to, in a much more granular way, share to many providers who may not be allowed to see each other's information.
“So for instance, we have a list of 100 items on a sheet. We are not in a position to share that sheet to every one of our 80 suppliers. We can only let the supplier see what is assigned to them. We provide capabilities that are unique inmarket that allow people to do those types of flows.”
Competing against Microsoft Project, which was refreshed last fall, and other project-management software solutions.
“Project, we haven't seen much actually since it was relaunched with its new skin, if you will. They reformatted it and put it online. What we're finding is that while people have needs around managing projects, the definition of work goes beyond a task and your due date and 'assigned to' and an effort level. For instance, if someone is managing the inventory for a COVID test, it does not fit neatly into a start date, end date, effort and dependency.
"So you need to have structures, because people's needs are more diverse. They're choosing platforms very often that allow them to do in one aspect, a project, and in another aspect, something that looks nothing like a project. And I think that's where the flexibility of tools really comes in.
"And there are some people who do only perform project work day in and day out....I think that's a very small subset of the population. And those people may choose sort of single-use applications, [but] we're seeing a pretty big appetite down lines of business where [customers are] saying, ‘We want to have very good project and program capabilities. And then we also want to be able to track the different mechanisms that we have needs for.’ I think that was the original philosophy with our company. And we've stayed true to that."
The value proposition for Smartsheet’s recently-launched Bridge software, which helps companies automate complex business workflows, and how it’s positioned relative to third-party robotic process automation (RPA) software.
“I think one of the one of the big attributes of Bridge [is] really the degree to which you have to be an expert developer or coder to take advantage of it. What we try to do is we try to simplify the concepts and constructs that allow people to integrate with Smartsheet cross-system.
“We've been doing automation for some time. But it's been very heavily focused on what I call intra-Smartsheet automation. So you intake information, it meets some conditions, you take some action, whether it's asking for an approval or routing it somewhere, and that was all self-contained within Smartsheet. Then...we [introduced] connectors. We said people [need] to sync information one or two-way with Salesforce or JIRA. And those were great. It’s basically mapping information across systems, setting it and forgetting it.
“What Bridge does is allow someone to have far more granular controls over workflow orchestration. So for instance, it's not just a simple mapping. When this condition is met, I need to execute these two things. When it is not met, I need to do a different set of activities. And that's the type of granular control people are looking for. So while people have needs sometimes to achieve this, very often, they don't have the ability to go to a large integration platform and to start wiring things. So what we try to do is create the ability to go cross-system, but target a user base with sort of a technical proficiency, which is far different than some of the more significant integration platforms out there.
“I think RPA tools, there's some fantastic ones out there. UiPath, Automation Anywhere. Those are companies that we look to partner with in the future. And those are very often used for very significant, very lightly-changing workflows that someone is looking to invest a lot against and run for long periods of time.
“Platforms like Smartsheet are more targeted at things that are needing to be deployed more quickly, will probably require changes and modifications and tuning over time based on customer feedback, internally, what have you. The RPA providers are really large, consistently-executed workloads that have very little variability. And there's great ROI on those, they just typically don't map well to the needs of business functions at the edge.”
The verticals in which Smartsheet has seen the strongest interest for Brandfolder’s software, and whether the company is open to making other acquisitions that improve its ability to handle specific types of workflows.
“Absolutely. And [where] we see the most clear impact [with Brandfolder] in terms of industries is media and technology, both of which have a very high reliance on digital assets.
“I think one of the reasons we picked Brandfolder and we’re choosing to extend the strategy we initiated a couple years ago about serving for marketing ops beautifully, is that the marketing function exists in most businesses in most industries. So what we didn't want to do is...limit ourselves to just [federal], just health, just technology. There are needs in construction, there are needs in education, there are needs in client services like architecture. So it is broadly relevant.
“I think the exciting thing about Brandfolder is that while today it is principally utilized by marketers and creatives, we think this will be the backbone for managing multiple types of content. So for instance, someone managing construction design documents wouldn't think of themselves necessarily as a creative. They might be an architect or a builder. We look in the future to be able to cater to those different user populations
“But the importance of merging the concept of content with automation and collaboration, we think that's really the future of collaborative work management. We don't think it's just workflow and the ability to track information.”
How Smartsheet’s machine learning-powered workflow recommendations have improved, and how it plans to evolve the feature going forward.
“The recommendation focus that we had in the past year was principally targeted in helping people understand what was available to them. So rather than inspecting a data set and drawing an insight from it, we were about, if someone exhibits a certain pattern of behavior, let's help them understand how they could capitalize on automation and other benefits. We [had] to actually do it better.
“What's exciting now is that we're through that phase, we can now start to focus more on, ‘How do we recommend to them what is most important, or the things that they are probably needing to prioritize? That's a nice balance that we're now starting to encroach on.
“I think the piece that brandfolder brings to the table is they have a very powerful AI and ML aspect to it around how information is tagged [and] classified, saving people enormous amounts of time in terms of their data catalog. And when you think about how human effort is put into those things, how much human error cascades through the manual inspecting of images or documents, the flagging and tagging of them, we're gonna see customers really benefit from that this year.”
“Where are we headed in terms of recommendations going forward? I do think we are still heavy in the, ‘teach people what's possible’ [stage], and really take people along the journey a little bit more slowly...We'd rather mobilize and activate the median person as opposed to cater to the .001% of the population who has extremely sophisticated, complex, unique needs.
“I think...software companies usually overestimate how much the median business professional professional can actually consume. We're trying to be pretty thoughtful about not overwhelming people too soon with some of the power, because I think you can also leave people behind that way.”
Smartsheet’s expectations for international sales, which are currently about 20% of revenue.
“The long-term vision for the company is to achieve...equilibrium between stateside and our foreign markets. Today as you said [international is] about 20% [of revenue]. We have roughly 60 of our few hundred quota carrying reps in those regions today. Both the Southeast Asia and Australsia market and Europe are faring quite well right now.
“We are in a position Where we can actually work from the office in a hybrid mode already in Australia, which is fantastic. And we really see, especially with some of the privacy laws changing in Europe...on how U.S SaaS companies serve [European] citizens, we continue to invest in making sure that our infrastructure and our data policy conforms to those opportunities. I think the companies that serve that really well in the coming years are going to have a tremendous advantage [compared with] those who simply operate out of the US.”