When Secular Tailwinds Blow with Hurricane Force — Nick Tzitzon, Chief Strategy Officer ServiceNow
The Industrialist’s Dilemma — February 11, 2021
As we reached the halfway part of this year’s course, we were fortunate to have Nick Tzitzon of ServiceNow as our guest. With a background as an executive at SAP and extensive experience in a variety of government roles, Tzitzon brought a unique perspective as we explored why ServiceNow is having such an amazing run. With revenues of $4.5 billion, and a market capitalization of over $115 billion, the company has been on a tear for the last several years. While we knew that the performance of the company has been impressive, we asked the students if this was a company mostly benefitting from an overheated stock market as are several other organizations. But as the conversation unfolded, the forces driving the company’s success came clearly into focus.
Right Product, Right Place, Right Time
As our session began, we asked the students to explain the market forces driving ServiceNow’s growth. As was noted in our conversation, almost every medium and large company on the planet is increasingly digitizing their workflows and is being forced to connect their legacy IT systems with the newest collaboration and communications tools. Whether a company is running IBM, SAP or HP systems “as their IT plumbing,” each organization’s employees are increasingly using products such as Microsoft Teams, Slack, Salesforce, Zoom, and the next generation of enterprise tools to run their business and to communicate with customers.
One student highlighted that before she came to Stanford her company was working with one of ServiceNow’s competitors, and as she said, “ServiceNow’s product was just better — easier to use, faster, and it met customer needs more easily.” The ability to deliver custom built applications as no-code/low-code solutions has enabled ServiceNow to solve a problem that almost every company on the planet is facing: How to quickly take advantage of new IT technologies while still running much of the operations of their businesses on legacy systems. ServiceNow currently has the market’s best solution which can act as the glue between these two dimensions of a company’s IT architecture.
As was highlighted in our discussion, the pandemic has only increased this need as remote work has forced companies to quickly deploy and use the latest communication and collaboration tools. The continued development and acceleration of cloud technologies, and the associated pull for these capabilities as workforces are dispersed around the world, is a precedence of tailwinds that has created the perfect storm working in ServiceNow’s favor. This may, in fact, be the strongest example of secular tailwinds we have seen in our six years of studying The Industrialist’s Dilemma.
As the CEO of SAP, Bill McDermott led his previous company for 17 years. Over that period SAP’s market capitalization nearly quadrupled, and revenues grew from under $10 billion to over $30 billion. Under McDermott’s leadership the company cemented its place as Europe’s premier software company.
When McDermott joined ServiceNow at the end of 2019, he brought with him some key colleagues and a knowledge of how to scale an enterprise software business in how to sell large contracts to behemoth organizations. As Tzitzon highlighted, McDermott brought insights and understanding of the 90%+ companies that are not “sexy Silicon Valley software organizations” but that need to upgrade their IT solutions as quickly as possible given the state of the world.
As one student asserted, she believes that ServiceNow could become “the next AWS” as almost every substantive company in the world needs ServiceNow’s product. ServiceNow has the best technological solution, and the leadership team running the organization has previously sold software to many of the company’s customers. Whereas the company’s prior CEO, John Donahoe, did an outstanding job of growing and scaling ServiceNow in his 2.5 years running the company, we were left with the impression that McDermott and the current leadership team might be ideally suited for the next phase of the company’s lifecycle.
Cheaper/Easier Grows the Market
Tomasz Tunguz of Redpoint Ventures has written that SaaS software, when done well, highlights the Clay Christensen theory that in disruptive markets often times the biggest competitor to a disruption is non-consumption. The idea behind non-consumption is that often there is no viable competitive solution for a particular product or service when a new alternative is upending a market.
One of the things that stood out in Tzitzon’s session was that only are the solutions delivered by ServiceNow are necessary and needed, but also the existing suppliers of IT infrastructure software, and even companies offering the latest collaboration and communication tools, are not offering an alternative to the ServiceNow set of products. By creating great software that works as easily and seamlessly as the newest tools on the market, and by allowing this software to connect to the existing digital plumbing that runs most global organizations, ServiceNow is growing the market as it sells its solutions to legacy organizations the world over. The digital challenges faced by companies on every continent are creating almost exponential demand for ServiceNow’s solutions.
Structural societal and technological changes, combined with an ideally built leadership team, and a growing market with few competitive solutions, may be one of the greatest set of gale-force tailwinds we have witnessed so far in our course.