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Disrupt SF 2019
October 3, 2019, San Francisco, CA, USA
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Getting to IPO with Aaron Levie and Jennifer Tejada
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  • Description
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About the talk

PagerDuty CEO Jennifer Tejada led the company to a successful IPO earlier this year. She’ll join Box CEO Aaron Levie to talk about how these two companies charted their path to an IPO, the pros and cons of doing so, and life after ringing the bell on Wall Street.

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00:11 Introduction

00:53 A tale of 2 stories on the IPO side

02:08 IPO is the beginning - not the end

04:18 PagerDuty story

05:40 How to make the company ready for the IPO?

10:15 A line between a tech company and a company that uses tech

12:58 Longterm game in SaaS market

15:46 Benefits of participating in the public markets

19:25 Disrupting and replacing technology

20:34 Being optimistic as a CEO

22:40 Building resilience and culture

About speakers

Aaron Levie
CEO at Box
Jennifer Tejada
CEO & Chairperson at PagerDuty

Jennifer Tejada is the CEO and Chairperson of PagerDuty (NYSE: PD), a leading platform for real-time operations. She is a veteran software industry executive and business leader with over 25 years of experience, spanning mass consumer products to disruptive cloud and software solutions. She has a successful track record in product innovation, optimizing operations and scaling public and private enterprise technology companies. She led PagerDuty through a strong IPO in April 2019. Prior to her role at PagerDuty, Jennifer was the CEO of Keynote Systems where she led the company to strong profitable growth before its acquisition by Dynatrace in 2015. Before Keynote, Jennifer was Executive Vice President and Chief Strategy Officer at the enterprise software company Mincom leading its global strategy up to its acquisition in late 2011 by ABB. She has also held senior positions at Procter & Gamble and i2 Technologies (acquired by JDA Software). Jennifer currently serves as a board member of The Estée Lauder Companies Inc. (NYSE: EL) and Puppet, Inc. Jennifer holds a B.S. from the University of Michigan.

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Following a movie star obviously now it's time for so that's totally nobody's leaving so we can find this will be fine because we'll talk with IPOs in 2019 is going to be this great year for IPOs. I'll be really exciting. We'll talk to Uber and Lyft and they're all doing everything will be awesome. What happened this year? Why you looking me companies that were previously valued on a pure Revenue multiple in the private Market that ultimately didn't translate into Revenue multiples in the public market

and then you've got companies like pagerduty Zoom black and others where we're actually you're seeing you. No pretty pretty durable business models that that translate very well in the public market is soft for businesses have two very different type of IPOs stories and public market stories from that that same point. She didn't play Rise of the last year for what is the most recent IPO should probably talk about this, but I think we I think we have too much of

a fixation on a sort of the IPO moment and versus just building durable business models. How do I end up translating evaluations like the devaluation that you get at an IPO is due to a variety of factors. They don't have what did the bankers price things at? What we're going to see this is why direct listings is obviously a pretty big topic. So I would add more look at it is sustainable Trends on Twitter. How are these businesses being valued, and how are they performing you can be a little bit of an echo chamber and you talk about

exits all the time. The IPO is an entrance, right? It is is part of the beginning of a long journey for a durable company Do you want to build a legacy around and so it is a moment. It is part of it's the start of you really sharing a narrative backed by financial data to help people understand your current business the potential for your business the market that you're in ETC and I think we tend to talk about it. Like it's it's the be-all end-all and I think it's really important to think about like why why The public markets. What are your what are your motivations in your

reasons for going public and in our case a big part of the reason we went public was to extend our brand platform pagerduty is a technical technical company is a platform for real-time unplanned work. That's well understood by the developer and devops Community but less well understood by your traditional generalist Financial investors or even retail investors and so for us it was about getting the story of pagerduty to every Enterprise every business every modern worker on the planet and helping them understand how we could change the way they work how we could help them improve the

fact that most of the work that happens to you during a day now is unplanned it spontaneous something breaks down because of all the complex technology sitting behind it and yet you've got a consumer that will give you one minute to get it right and being able to sort of take a very technical product and distill that narrative down into something that the financial Community could understand was a really important part of our journey, but it all It was a story that was actually easier to tell what the numbers when we were private and we weren't sharing that information

people would say like a little pagerduty, you know what to do. And so when we actually came out and shared our business model which to Aaron's point and Enterprise SAS business model is very different than a consumer app business model and we shouldn't try and compare the gross margin between the two because it's a very just entirely different business model to work from the Patriots do the story has gotten a lot more complicated over the years to from being the notification platform to being the this really complex real time operating system for the

product that used machine signals from soccer environments to detect and understand issues that were taking place instead of waiting for a person to feel the pain and raise a ticket or call customer support. Really Consolidated that detection and identification. We then have built on top of that platform of intelligently routing the most important insights to the right people in an organization. So you don't have the situation where customers can't use your product or

service can't download their playlist or you know where their coffee and yet is going to take it for hours just to even figure out who they should have on the call registration of real time work. And yes, there's a lot of complexity that sits behind that in terms of managing distributed architectures and data coming at you from thousands hundreds of thousands of resources, people are distributed teams and don't know who's who in an organization who has what expertise but at the end of the day what you're trying to do is close the gap between the customer experience it for the

customer experience you want to deliver and the the technology outcomes that you need to make it happen every time all the time. Talk about getting to that point the way I can get to tell that story on the road. So for example, right you came in with about three years before the I know what you have to do to get the company ready to get to that point and the Roadshow but getting a company ready for the public market is all about really understanding your business understanding the predictability of your business where the strengths are where

the weaknesses are and I think we spend a lot of time as Executives with our boards as private company think about like, okay. Do I have 606 down have I am I Saku compliant will I get through the audit to have 2 years of audited financials, but we really should be talking about his do I have the right leadership team for the next 3 to 5 years haven't really thought through how the competitive landscape is going to evolve. Do I have the right people in the right places. What is my strategic Workforce plan look like have I prioritize the right opportunity? The can't do everything and

experimentation in the public market can be a little challenging. It's so getting ready is about it's about the leadership is about team Readiness. It's about do you really understand? And can you can you see the leading indicators and your business is Ezra and none of those things are easy and yet but we tend to talk about his is the story right? And so I think you have to do all those things inside the company work that you're doing to test whether or not you're ready and I I said to our company all the way through up to the day we launched we can pull the pin on this at any point in

time. If we don't if we don't feel like we're ready and I think we shouldn't bemoan people who make that decision because it's probably ultimately the best decision for the business and I don't think there should be a ton of Shame and going. Hey, I took taking another look new information is available to me now. We're not going to do this. We're going to stay private we're going to do the things that we need to do. We got somebody here who spend a little bit of time. Initially, so so we we we we did a filing and

and it turned out that our view of our losses was different than the rest of the markets do our losses. And anytime you have at a symmetry where where your cash burn is is may be more impactful than you thought to what investors were thinking that becomes a challenge and then we got really hit by a public market correction where SAS multiple drop by like 30% overnight. So possibly said that you know what we're to go to get a business in too much better State sure way

better better Financial picture and driveway more on a cash flow front, but it it's it it can be totally challenging inside organization. We were we ended up pausing our filing and stayed up effectively Than Pride of it another 10 months longer than we expected so we can get the business model in order in and to Jen's point. I think that It's the right time to go public as when you have the predictability the operational regular the team to be able to go and drive a public business. I think we'll be seen in some recent case studies examples where where you know the masked by the

private Market story companies are not operating with the level of of McGregor or efficiency or economics that the public market, you know would be able to go and I'll even make sense of and and we're seeing how that plays out. So I didn't get the license branch. Menorah founder is is the numbers are not going to lie and you have to make sure that the business model the fundamentals of model are the strongest possible ending. This is why you never been introduced as red retweeted or were written about you know, that the Fred Wilson in pieces weekend Bill Gurley Road in has written a lot on

this subject Ben Thompson around in a sort of what is a software company and what is not a software company and I think that the the license thing to decide what is a software company and more interesting to think about what is Harper business. Allegiant Point, what are the gross margins of that business model? And the only reason why you care about gross margin is because that eventually translate into operating margin and cash flow. And so how how what is the durability and leveraging these businesses? And how should we be valuing them in and they think about them and I think that we

should have probably said as every company is going to be a tech company then every company should be valued like a tech company, but that's not actually accurate every company might be attacking they become buddy for the valuations that you that you describe to them might be it might end up being different depending on the underlined Bismol and both companies to be fantastic. We have to run them differently and have to think about operating them in a very different way. Where would you draw the line between the tech company and just a company that uses Tech? I think we probably

spent too much time thinking about drawing line in the semantics of it. I think it ultimately if you can use technology as an enabler for your customer experience in for stickiness in for differentiation the product experiencing frankly, you're a technical company, but after that we should probably move on from from the idea that that means something about your company that is different and And then just focus on literally than what are the fundamentals of the business model. Do you have a subscription Revenue stream? Is that subscription Revenue stream one? That is a high gross.

Margin. What is the what is the stickiness of the customer base that you know, what what are your attention? You actually have a moat that is that software is actually applying an end to an increasing and these are the things that that really started to find whether your business model is a little bit more on the software Continuum or more and entered of the movie traditional business fantastic businesses, but you run it differently good value differently the castle Hazard are generated in different ways. And it's more that you just have to know which type of business you're in the run

it in in the appropriate manner. I think we work as a great example of a sort of thinking that the attack would mask the underlying economics of the business model and it doesn't it just practice for a customer experience doesn't change your business. Yeah. I think I think there's a sensibility I get asked a lot by see you as they're thinking about getting ready to go public and lose your playbook. How did you do this? And I think instead of thinking about what's the Playbook you need to be in the Be honest about what is your business look like and what are the key leading indicators of

your business? You want the market to understand and how do you describe your business? So that the market has I think an objective understanding of what the the upside and the risk is and I think that's one of the challenges of the IPO Roadshow is you're selling and at the same time you're setting expectations, right? And you want to make sure that the market understand what where you think the business can go and gets excited about it, but that they don't over rotate in their expectations because dealing with really high expectations creates a lot of Downstream difficulty and I think we saw

that you know, this year from an IPO standpoint is here. If you have seen the first half of the year, we saw really heavy numbers and really high expectations the back half of the year has been very different. I think a lot of that's been driven by externalities the political environment the China tariff Wars that you know, the challenges everyday that have created volatility in the market as we think about what does it mean to be in the longest? In a bull run in the history of mankind, right? And so that's the other thing I would say to to Executive. You have to be mentally

ready for the externalities that you cannot control and they people yet people will expect you to be able to explain them to just build with us last week. I think that you have news on Monday. I remember writing about it and you stock went down 9% that same day and totally and I think the only way you can start to survive in an environment like this is you play the long game like I'm going to be here in five years and Ten Years. I'm building a business that I think is going to change the way people work alongside of errands business and black and others and I think the way I think about it

is I know for myself and I try and explain this to my employees that we could be having the best day at work and the worst day on the stock market and likewise we could be having the worst day at work and get a huge uptick in the stock market. The two things are not correlative particularly in a real-time basis and the Box Markets, so there's not a ton of human empathy floating around in it either and so you have to try and focus on the business stay focused on the long game, but make sure that you're managing the rigor in the operations of the near-term business. I think the

pieces we can but I think the thing that it's it's all theoretical until you go public but but you know as a private company you more or less control arm to do a high degree your valuation because you get to choose when you take funding and that's what your valuation terms are at and you can choose not to take funding and does not change evaluation. Exactly. It's a very company friendly market in terms of the narrative and being able to ensure that but you know, you have the three from plays it in NY tonight in again, you know, we

have many private companies that have perfected the art of I'm driving at the moment or public company within within 30 seconds of of pressing the button that launches the market which by the way doesn't actually wants to Market they have backup plans in case you you press the button the top or late, but but to press to buy one and then I was informed that like, even if I fell off the podium it was so good. They were still going to watch the market. And so I felt like I'd lost control of the world economy then I hope we're on our IPO David

time, but I would say that the the moment you go public within seconds other people control your violation every single day at every single transaction. And so and so they're going to They're going to be driving what your employees are at the market thinks of his evaluation unit for a variety of factors that have nothing to do with me what you're doing internally it but in many cases are driven by the things you do internally and those two converged the great thing about the public market and I'm actually a really big fan of of of the market is reality and how your value do do

eventually at maybe over weeks or months or quarter converge and at times that they there is a differential and you're working to make sure that differential is limited is possible we serve in a more than half of the Fortune 100 and the third of the fortune 1000 Fortune 500. So I always get the business is going to be around for a long time that's compliant etcetera. And so going through the ideal process is a part of demonstrating or metal and that you can be

a long-term partner with those customers. So I think that's important. Play I Feel process can be fun to I mean, it's quite a rallying cry. So we did have fun. But for us the real challenge was telling a very technical story to a very non-technical audience and still being able to refine the value proposition to help people understand that and financial the financial analyst investors their pattern matters, right they sort of like uber for this or the box for that or the you know, that this

for that and we would have to say like No And so I think the challenges when you're creating a category, there's that much more onus on you to really help them understand. What are the problems are solved in who were the people you're solving those problems were how big is that market and how why are you uniquely positioned to serve that market and I think it's still we're still on a journey of learning. I think the the financial community in the industry still underestimates the Brittany Force ass and how early these markets are like the market the pagerduty is in, you know digital

operations management real-time work. It's a very nascent Market. There's a long Runway there but no one ever heard of it. So it's unfamiliar. So you have to actually convince people of the market that category your product you your leadership and if you like a challenge then that's fine. If you want it handed to you on a plate probably not too much agree with that but it's still very early when you look at companies like pagerduty or Zoom or slack or whatnot is is a lot of times we have thought about disruption as okay. I'm taking a current market making it

more efficient faster cheaper or better in a way that the incumbent can't do what we often underestimate is when you do those things how much bigger is that market not to xr4? Xr5 xr-10x, sometimes even a hundred X and end was actually been holding back the market size is the inefficiency of the prior model and So if you think about something like pagerduty where you know only a very small set of large Enterprises in the world, you know had their operations fully tuned in a fully automated with all the Riddler. It's alright navigational right machine learning around around what's going on

and who would be the companies that could afford millions and millions of dollars of enterprise software projects inside their data centers. And now you move to World War I need developer on the planet can use that exact same technology. We're not talking about 10 Exchange that market size but maybe a hundred or a thousand exchange and Inn at Market Heights OH. So I think we're insane leader Liam when we look at the just even the numbers of customers that all of us collectively work with we're in the earliest of innings in terms of what the cloud is going to be able to do in terms of the

the business is globally the businesses of all sizes more of the end user adoption. It's going to still happen to these organizations. I think the the the the business models that we're now seeing as the sort of nextera of Enterprise technology worth more Bottoms Up more self service. Where your audience's is measured in the tens or hundreds of millions of people as opposed to thousands or tens of thousands. It's going to completely need to continue to change the landscape of box as well. We also so we've been doing this for 14 years so many cents like we

got our start in the very very very first wave of cloud and and we were able to ride the first wave of cloud and mobile but when I look at at our own data, and when I look at the customer base, I just as an example for us will do a little over six hundred ninety million in Revenue this year and the total Market the total spend on technology that we think we can disrupt or replace is somewhere around kind of 40 to 50 billion dollars. So we're actually still very very small relative to the size of the market. And most of that market is going to be moving to the cloud over the coming to three

five years. So so even though it for me in the gray hair to prove it like we've been doing this a long time and we feel like we made a lot of traction we know that were actually still in the very earliest stages and when we go to businesses, Globally, and the amount of analog business processes on premises systems Legacy ways of working that still exist in those organizations that are going to all still move to the cloud. We're in like the single digit percentage points of the of the journey at our stage. You think it's true for

us investors. You have to be super awesome to be in either of our jobs and family for the Investor's Etc. And you know, there's there's this huge desire from the external Community for something new every time you open your mouth something fresh something new something bigger something better and you hammer away at the same fundamentals because most adults can learn something unless they hear 327 times over and over again. Anyway, I think you're fighting this tension of remaining cancer. Instant stain your course getting

people to adopt your narrative and align with your thinking and yet they want something new and fresh and smart and funny if you're an optimist and us and the selling person the chief Storyteller. You also want to give those to give the people what they want and you can always do that. It's treacherous to do that. I think it a lot of optimism with a high degree of of rigor and scrutinizing the business because you can't make sure yet make sure that the gap between your optimism and reality is is as limited as possible and as narrow as possible and but you have to be

optimistic in our jobs because of the market they were going after what we have to go create into the activist point for us. It comes with the territory of being a public company. We're going to lots of different ambassadors are going to lock the different views on the business. We actually agree with most of the views that we hear about as as as sort of the the the views of driving or operating profit driving more gross and sew in Very few times everywhere. We've been misaligned with with public ambassadors there when they have different views of time frames around when they

want to see certain results for execution, but in general public Vespers have a pretty good understanding of all, these are side of the business models on Unser the cloud and fast and in our case specifically there's different views around at the speed at which we want to get to the different trophic levels in many cases. We do share those views resilience as well. And you get your team ready for being resilient. You you get your employees ready for being resilient and staying focused on what about in front of them as opposed to what people say this week or last week or the next week

because I can be very distracting right and weird. It really tight Talent market and I find myself remaining RT voice about how unique the opportunity has that were in that were in the DM probably top 5 to 10% of South companies of all time that the chances of them finding a career. Similar somewhere else or you no less than the chance of being struck by lightning twice and yet there's also slip it Dying by sleeping in the shower. That was another load.

Right? And so you also have to be constantly reminding your team of the mission you're on the fact that your values have not changed. The going public doesn't change that that it's the start not the end. And if you look back over time sticky Lillian Sasson Cloud companies, they have all created far more value post-ipo than they did free IPO and yet our employees tend to think that the IPO is the exit like after the IPO. It's all done. I got to go find another new

hot sexy startup. Are deeply about our culture. It is it is a priority for our entire leadership team and the board having a diverse inclusive community giving back. I mean, we took the 1% pledge two years ago. We are committed 1% of our Equity 1% of product and 1% of employees time to non-for-profit that is going to fund when we come out of our lock up in the coming coming days. Actually. It's been a fun in a nearly 20 million maybe a little more than 20 million dollars of of opportunity for

the community around us and it's at these kinds of things that fulfill the mission of the employees that you're working with the purpose and I think the struggle that we all share in many many folks in this room is when you're building a a company that starts private and and again it it's going well and it's and it's growing and maybe you don't have employees that have been through difficult. Because you're past that point in our first three or four years of the company where the hardest grueling yours ever and it and there were hundreds of times. We could have gone out of Enter your

people that come in and maybe didn't experience that and you're the only experience of the rocket ship in the private market and then the reality sets that okay. Now we have to continue a run this business of the healthy public company and it's really important on that ride up that that you get people in for the right reason you get them for the culture you get them for the mission and the valuations and the this furtive in a private Market stories is as you know, hopefully you're able to attract that away as much as possible from why people are joining the company what the mission is

that you're doing and why people are going to get along for the ride class on the rocket ship it's going to be uncomfortable. It's going to be bumpy my feel like going to throw up every now and then but it could be fun. It's going to be interesting to learn a ton. But yeah, which would you rather have nobody threw up on stage?

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Aaron Levie
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