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The Big Exit Show: Dr. Gero Decker on selling Signavio to SAP

The Big Exit Show: Dr. Gero Decker on selling Signavio to SAP

We are in Berlin to talk to Dr. Gero Decker. Gero is one of the founders of Signavio, a specialist in business process automation with offices in 12 countries. The company was recently sold after 12 years to technology giant, SAP. This episode will reveal a true entrepreneur that scaled in a hyper competitive market, got customers like Siemens, Bosch, and Coca-Cola on board, and made an exit after being independent for so many years.

Key takeaway:

♥️  What carried us forward all throughout the years was the passion and the love for what we were doing. Right? No matter whether we have a successful year or not so successful year, we could always come back and say, we’re building it with good friends, with people we love to be around”.
🪄 Trick number one to keep your company culture in a rapid growing company is just be a good person. People follow the example of the founders. They follow the example of senior people in the company very naturally.
👩‍❤️‍👩 Personal connection is all it takes to win from big established providers.
🛑  So you always have to cheat your way in a little bit, and just count on believing that you can deliver certain things by coming completely empty-handed. This was simply not our style.

Tune in to learn about the tricks for a successful exit of your business from start and exit phase: the importance of benefitting from a crisis, beating big established players and how to bring your heart into an organisation.

Dr. Gero Decker: co-founder of Signafio, Johan van Mil, and Remy Gieling

In this podcast series Peak’s very own co-founder and managing partner Johan van Mil, and podcast host Remy Gieling talk to successful European tech entrepreneurs about the exit of their company. You can find the episode at your favorite podcast platform, linked below.

And, if you are really interested in listening to the big exit of specific founders – reach out to us so we can invite them for the next episode!

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You can find the transcribed version of the episode below:


Gero: So you always have to cheat your way in a little bit, and just count on believing that you can deliver certain things by coming completely empty-handed. This was simply not our style.

Remy: Starting a company, well, that’s easy. Selling your company, however, that’s a different story. In The Big Exit Show by Peak, we lift the curtain of secrecy of selling ambitious scale-ups by talking to successful founders who have been on this roller coaster. My name is Remy Gieling.

Johan: And I’m Johan van Mil.

Remy: And in this episode, we are in Berlin to talk to Dr. Gero Decker. Gero is one of the founders of Signavio, a specialist in business process automation with offices in 12 countries. The company was recently sold after 12 years to technology giant, SAP. We will talk to a true entrepreneur about scaling in a hyper competitive market, getting customers like Siemens, Bosch, and Coca-Cola on board, and making an exit after being independent [00:01:00] for so many years. Gero, thanks so much for having us.

Gero: It’s a pleasure to be here.

Remy: You also have your own podcast. What’s it like to be on the other side of the microphone this time?

Gero: It’s always a lot of fun to share your experience, and hopefully, inspire others.

Johan: Good to hear, good to hear. So Gero, what’s the heroic story behind Signavio?

Gero: It all started really for the love of technology. We never really wanted to build an empire or change the world. We had just worked on a cool, open-source project while we were at the university. And we loved the technology so much that we wanted to keep the project alive once we leave university. And we tried different avenues to fund that project, and guess what. We found the way of actually selling it to customers. So this is the company. Signavio’s starting really as a framework, as a container to make that commercial future of our open-source project happen.

Johan: And that’s a heroic story, right? And we all know as founders here on [00:02:00] the table, there’s also another story. So what is the real story on Signavio?

Gero: No, that is actually the real story but the interesting piece of our story is that we developed technology first, and only discovered the business problem that we were solving later because we were in love with web-based technology to make cloud software happen, but just for technical curiosity. But we only learned later that the problem that we were solving was that people, through that web-based technology, could collaborate at mass scale for the first time. So only over time, we really developed that narrative that carried us for a long time at Signavio to democratize business process management. But starting the company, that was actually not the goal.

Johan: Okay. So you did it completely the other way around, right? Now, it’s all about building your MVP, making assumptions going to the market, validated, improved it, but you built your technology, and then afterwards, went to the market, right?

Gero: Correct.

Johan: The exact [00:03:00] opposite direction.

Johan: And it proved to be right.

Gero: What carried us forward all throughout the years was the passion and the love for what we were doing. Right? No matter whether we have a successful year or not so successful year, we could always come back and say, “We’re building great technology. We’re building a really cool product that we love. And we’re building it with good friends, with people we love to be around. So let’s see how far it takes us.” And we were very lucky because we grew 60%, 70%, 80%, 90% every year. And every year, we ask ourselves, “When is this going to stop?” Right? Because you can’t grow forever. But right now, we’re growing at more than 100%. So–

Johan: Wow!

Gero: –even being much bigger now.

Remy: So 12 years ago, it doesn’t sound dead long ago but it probably was a whole different market back then. Can you paint a picture what it was like to be a tech entrepreneur in Berlin 12 years ago?

Gero: Yes. So it was 2009. So the world really came out of the financial crisis. Nobody was spending money on [00:04:00] anything. And it was kind of the nuclear winter of financing tech companies. The only things that were around here in Berlin were the Samwer Brothers and their e-commerce clone companies–

[laughter]

Gero: –where they took American–

Remy: The Rocket Internet.

Gero: The Rocket Internet. So that was the only thing that was around here; very few investors. The business angels we met, they would always ask us, “Gero, show me your app.” And I said, “We don’t have an app. It doesn’t make sense for our product.” And then the business angel would say, “But what do I show to my friends on the golf course?” Right? And I say, “If this is the criterion for you, then probably, we are the wrong investment.” So it was a very odd situation that you didn’t have role models here in Germany, companies, enterprise-software companies that had grown big. You only had those established players. Second, the funding environment was simply barely existing. Everybody would only do e-commerce and other consumer topics, but enterprise software is [00:05:00] not on the agenda. So we had this nice little club, the anonymous entrepreneurs, right? We would lock ourselves away for a weekend and tell us about all of our problems and suffering that we went through just to feel that we were not alone, but there were other–

Johan: It was actually a club. It was really where you’ll stop coming together?

Gero: Yes, yes.

Johan: Oh, wow. Who were part of the club?

Gero: Well, other founders who started at that time, who all had companies between five and let’s say, 30 employees strong. So really early-stage companies. And we rented houses somewhere in the countryside to tell us about our different problems. So that was really reassuring for us.

Johan: Yeah, because I can imagine, especially, those days, right? Because now, if you are an entrepreneur, you can listen to great podcasts like yourself but also of SaaStr and other, I think, very known sources. So you get a lot of inspiration from that. Where did you, at that time, get your main inspiration from, apart from these meetings with these friended entrepreneurs?

Gero: So in the beginning, it was really just reconfirmation that there are other [00:06:00] stupid or crazy people out there, who just do stuff. In terms of who can you learn from? There was not so much around here in Europe. That only changed in 2012 when so many people had told me, “Look, in Berlin, you can only start a pet project but if you want to build a real company, you have to go to California. You have to go to San Francisco Bay Area because this is where everything is happening.” And this is what I actually did in 2012. I booked a one-way plane ticket to launch Signavio US in Sunnyvale, California. And that was very inspiring for the first time because you had all of these great names there, these great companies, all seemingly in the same street.

And the questions they were asking were very different. So at that time, we were low one-digit million revenue strong. And we felt like this super small, tiny project, right? And in in the US, at that stage, people [00:07:00] would ask you, “What keeps you from making 100 million next year?” Right? The first five times that people told me that, I thought, “What a stupid question,” right? Because it’s so unrealistic. And it’s not even worth thinking about. The big difference was, looking at things from the end backwards, versus what I had seen here in Europe more this is where we are today, what is the incremental improvement, the incremental step forward that we could take?

Johan: Yeah. They say a lot as a saying that European investors look in their back mirror, right? And American investors look at the front mirror. I think that’s a big difference, right? What you’re explaining.

Gero: Well, with the investors, I don’t really know because we didn’t have much exposure at that time. So I felt- I think–

Johan: So it’s more culturally thing that, in general, people have it–?

Gero: With the entrepreneurs, exactly. Because we figured in 2009, 2010– we also met potential investors, but we felt it was such a big waste of time. [00:08:00] We felt that spending the same time with customers would yield a much bigger return for us, and a much more sustainable return for us helping to build a great product, helping us get forward, fund things sustainably rather than having a one-time cash injection [crosstalk 00:08:16].

Johan: Indeed.

Remy: So for our listeners who are not working in the giant companies who use SAP and use business process automation on a daily basis, can you tell them what the promise was of what you were building?

Gero: So the promise was that we would democratize process improvement. So what was there before is that you have three, four, five deemed experts in any given organization who are supposed to know how the business should best run. And then the hundreds and thousands, and tens of thousands of employees, they just need to follow like soldiers in a war. Right? If the general says, “Left!” then everybody goes left. But it can’t be further from the truth because business processes, how a [00:09:00] company functions, is much more delicate, much more complex, much more organic than just having, “Here’s a strategy, and please, everybody, follow.”

But it’s about bringing people on board, leveraging their ideas but also getting their buy-in for change to move a company into a different direction. I had seen that in many companies like, for example, telcos, switching from a broadband provider, suddenly, to a TV content provider, right? A massive shift of what the company actually does; what it needs to focus on, optimize, foresaw for the customer. And that’s not something where the CEO says, “Yesterday, we laid fiber in the ground. And tomorrow, we bring you soccer streaming to your TV.” Right? But it takes a lot more than that, and rallying a whole organization behind that type of change and what it means to the daily jobs of thousands of people.

Johan: It sounds, now, really logical, I think, in the time frame where we are now, but I think those years where you started it was [00:10:00] completely a different approach. How did you convince your first clients, the big enterprises to shift and to go for this model?

Gero: So first of all, we convinced ourselves that this is a good idea.

Johan: Start with that.

[laughter]

Gero: Because if you’re not convinced yourself, it’s very hard to transport that message to a customer.

Remy: Yeah.

Gero: But honestly, we didn’t know whether we were on the right track. Maybe there are three or four experts in a given organization who know everything best, and it’s the most efficient, the smartest, the best way to do that. So for us, it was a kind of a search, a big experimentation working with the early clients to test out our hypotheses. And we were very lucky that we found companies who were experimenting with the same thought, who had the same type of assumptions, and who we happened to make very successful with our software. And then we could go to the next customers and say, “Look at this company. Compare the day they signed on to our software versus now, their share price quadrupled, and their NPS [00:11:00] grew by 25 points, right? Do you want to have the same?” Then you have a much easier pitch and a much faster route into the next couple of customers.

Remy: Do you know your first big customer? Do you remember the first one you really–

Gero: Of course.

Remy: Well, which one was it? How did you convince them to work with you, guys?

Gero: So the first customer was a health insurance company. Actually, the largest health insurance company in Germany called, AOK, ah-oh-kah in German. And there was a big consolidation wave happening at the time in health insurance. So they were separated by state, but they were merging one after the other. Also big regulatory change but also big technology change in those companies. So everything happened at the same time. It was the perfect storm to revisit how they operated. And you threw 5,000 employees from this organization, plus 4,000 employees from that organization, plus 2,000 from here, and you all mix it around, and you need to create a new organization. So our promise to say, “Involve your people,” [00:12:00] right? “Get everybody on board, all hands on deck,” we build a great organization together, fit very nicely what they were trying to achieve, plus, that company, AOK, was known as probably one of the most risk-averse, the most conservative organizations you could ever imagine. So an organization as well-known, they have a brand recognition in Germany of 99%. Zero percent outside of Germany.

[laughter]

Gero: So for the international listeners, if you think I don’t even know them, it’s because they are only active in Germany and have no other ambitions. But having that as a proof point as your first customer where it works, and these mergers, these changes went into the history as the perfect example, the role model merger of how you want to do things. And if we are then the people who provided some of the philosophy behind that, and who provided the technology to enable all of that, that was a massive proof point for us.

Johan: And how did you convince that risk-averse health [00:13:00] insurance company then, especially, from the start.

Gero: It was just about personal connection. The people who were leading those initiatives, they just liked us as people. And they said, “Gero and his bunch of friends, they are just good people. They’re smart. They listen they seem to have good ideas. We trust that they can make this happen.” And they always, of course, had a backup plan. If it didn’t work out, they would still go with the others, big established providers, but they gave us the time, the six months, the nine months, the 12 months to prove ourselves. And they were right. We delivered.

Johan: But did you then have somebody who helped you to get your way in because, at that time, you just had your PhD from HPI? You worked with McKinsey briefly, I think, after that, that you had a way to get in, and had the right contact? So did you approach them just via LinkedIn, or email, or whatever? What’s–?

Gero: We knew them through previous projects. So at the university, we had done some [00:14:00] co-innovation, some co-creation type projects with them. This is how we knew them. This is how we had a personal connect to these people. And they then said, “Well, these great people, we had so much fun and success with in the past. We want to have more of them.”

Remy: So a tip to student entrepreneurs, start networking now, right? And delivering great products to build your network there.

Gero: I’m one of those persons who hates networking events.

[laughter]

Remy: They’re the worst.

Gero: I’ve always found that it’s the biggest waste of time because it’s such a spray and pray, right?

Remy: Yeah.

Gero: Who are you going to run into?

Remy: Yeah.

Gero: You run into 80 people, and probably, 75 will not matter, and they will not help you. And I’ve always found it super inefficient. It’s really about having those meaningful connections. Right? Is there a trick? Is there a recipe to get to that? I don’t know.

Remy: The German startup founders are quite well-known that they’re very thorough in building their first product before– or building a product [00:15:00] before they get out into the market. Well, other countries like to fake it till they make it, more or less. Do you think this is true? And did you bluff a bit in the beginning?

Gero: Well, you always have to bluff a little bit. We are engineers. We are four software engineers who started the company. So we always had love for technology. We always had love for the product. We didn’t want to embarrass ourselves for the things that we were building, but you need to take a leap of faith. You need to be courageous at times, right? So for example, our first customer, they called us on a Friday evening and said, “Well, I don’t know whether we talked about it but on Monday morning, we would like to train the first 30 people. Can you please send over the training material so that we can look at it and are in good shape for Monday morning?” Guess what, we didn’t have any training material. No training plan, nothing. Right?

So I said, “Sorry, I’m just on the road right now, no access to my laptop but I’ll send it to you over the course of the weekend so you can check it out.” So you have [00:16:00] 48 hours to figure out how you want to train people, and how you design a program for the first two hours, eight hours, three days. And we were working day and night for this entire weekend to produce the training class, the curriculum, for the stuff that we were doing. And then with– deprived of sleep, landing there on Monday morning to deliver that. Right? That’s the type of things. So you always have to cheat your way in a little bit, and just count on– believing that you can deliver certain things by coming completely empty-handed. This was simply not our style.

Johan: No. Hey, what kept you awake, those early years of Signavio?

Gero: I can’t really remember, to be honest. I’m a person who forgets pain and who has a–

[laughter]

Gero: I have a natural talent to focus on the future, and then–

Johan: But then you’re right as an entrepreneur also?

Gero: Yeah. Yeah.

Johan: All thanks to AOK.

[laughter]

Gero: Yeah, so–

Johan: They’re great healthcare.

Gero: I mean the beauty in why I still [00:17:00] do this, still to this point is that my role as a CEO, as a founder, has shifted every three to six months. So the stuff that you care about is vastly different. In the beginning, mostly, it was product. Right? “Can we deliver? Do we do the right thing? Do the users adopt it? Does it make sense?” Then over time, it’s more about go-to market, right? “Do we have the right messaging? Do we get the right inbound funnel setup? Do we have the right sales strategy? Do we have the right people on the team? How do we structure it? Where do we place our bets? How fast, how late do we go into things?” Right? And so on and so forth. And that was just the first three years. Right? And it changes and shifts every three to six months.

Johan: But in general, as a person, are you awake if something arises, or do you sleep well? How do you deal with circumstances, with changing and the challenges that you, every day, have as an entrepreneur?

Gero: I have a very good night’s sleep. I always have been able to switch off. And I [00:18:00] sleep eight, nine hours every night, unless I need to sit on planes and have red-eyed flights. These are the horrible weeks but no, and that has kept me alive through all of the years, right? Because if you don’t have those moments where you can recharge, and I, every day, have at least eight hours to recharge, that has kept me sane throughout.

[music]

Remy: Let’s move on to the growth phase of the company. You mentioned your first big client, AOK. When was the moment, maybe, after that that you noticed you started gaining traction with a whole range of different companies? So it wasn’t a one-trick pony?

Gero: Only when our competitors started to notice and told us so. So there was this gray party I look back to, or even in customer evening, there was a trade show called CeBIT in Hanover, in Germany at the time. [00:19:00] That was also in 2012. And we sneaked into the evening event of our fiercest competitor, Software AG. And I said, “If we can’t win against them in the marketplace, at least, we can drink them into bankruptcy.”

[laughter]

Gero: So I sat down by the bar, opposite of the bartender, and ordered the most expensive drinks, one after the other to consume it all up. And there was a person sitting next to me. And he seemed to be doing the same thing. So I thought, “Great guy–”

Johan: Perhaps, a competitor.

Remy: Another competitor.

Gero: “Great guy, let’s talk.” And we really had a good conversation; 50 minutes in, I said, “Sorry, I didn’t even introduce myself. My name is Gero. Who are you?” And that young gentleman responded, “I know exactly who you are.”

Johan: Wow.

Gero: And I said, “Oh, sorry, but who are you?” Right? “And how do you know us?” And it turned out it was the CTO of our competitor.

Johan: Oh, wow!

[laughter]

Gero: And so far, I guess, [00:20:00] yes, but this is how well we research things. Right? So these days, you tell people to have all of the context available. And we simply failed miserably at those types of things. We, just happy-go-lucky, went right into the customer engagements. Anyways, so this was obviously a wonderful opportunity to learn about ourselves. Right? And I asked, “So if you know us, what do you think about us?” And he said, “Ah, this and this account, this and this company.” I said, “Oh, yeah, they just started with us.” “And you know, that and that account…” I’d say, “Oh, yeah, we’re in conversations with them.” And then he named all of these companies and he said, “You’re stealing one exciting account after the other from us.” Right? “We really hate you.” But then he said something very interesting, and said, “But we figured that your customer base is exclusively in German-speaking countries. It’s [00:21:00] an important market for us as well, but if you just leave us the rest of the world, we’re just fine.

Johan: “We’ll be happy.”

[laughter]

Johan: What was your response?

Gero: So my internal reaction was, a note to myself, “What country should we go to next?” Because unless people tell you that type of thing, we didn’t have that thought. Well, we have to go somewhere else but the next morning, we sat down and this is when we made the decision to go to the US.

Johan: Took some Advils for the drinks, and then made a strategy to go international.

Gero: That was the hangover decision.

Johan: So tell us about the US, that’s your first four markets?

Gero: Correct.

Johan: How did you prepare yourself to go to the US, because it’s a big step as a founder also, but how did you prepare yourself?

Gero: So first of all, we had a couple of– a handful of customers in the United States. We had the Department of Defense as a customer, big logo where we had to go through source code screening and all kinds of hoops to be allowed as a [00:22:00] supplier.

Johan: And if you say– sorry to interrupt you, Gero, but if you say customer, because, of course, you launched your software, also open-source, right? So if you have users but if you say “customers,” they’re actually paying customers, right?

Gero: Yeah, I mean, paying customers. So it was a cloud service from day one.

Johan: Yeah.

Gero: And you could simply sign up for a trial online. And then you can swipe your credit card or fill an order form, and you can buy. And we had a couple of those customers where we didn’t have much involvement, where we couldn’t run fast enough. And they signed a small subscription with us, maybe €5,000, €10,000, €15,000 per year, and be a customer. And we had a couple of really cool names like Cisco, like the DOD, like the NASA Jet Propulsion Laboratory.

Johan: Wow, cool.

Gero: So a couple of cool logos, right?

Johan: Yeah.

Gero: That we were really proud of, where we hadn’t done much to really win them as a customer. Very small deals. So that was one. So we felt like we have a couple of cool logos and references the moment we move over. The second piece was, of course, [00:23:00] your personal situation, because it doesn’t work if you just go over for two months or three months. You need to be ready to change your life. So I had this conversation with my fiancée that I would go over first. She would come with me six months later. And then we stay for at least two, three, four years in the country, and then see how it goes. And only once it’s really running that we might be able to come back. Interesting what happened in week two when I was over because my fiancée called me, and she said, “I’m pregnant.”

[laughter]

Johan: Good timing.

Gero: That was good timing. That was a change in plans. And my reaction was, “Oh, this is wonderful. And we can even have the baby in the US. And then the baby gets the US citizenship right away, and all of that. Isn’t that fantastic?”

[laughter]

Gero: And she said, “No way. I give you a couple of weeks. And then you come back and take care of me. You come back to Berlin.” So this put a very swift end–

Johan: To [00:24:00] the US ERP–

[laughter]

Gero: Well, I created the subsidiary. I hired the first handful of colleagues over there, met a lot of partners and customers. And the goal was still to set up shop there, but then, to do it remotely. And since then, I came back to the US, at least, every month. So once a month, at least, 10, 11, 12 times a year, I would fly over to the United States until corona hit.

Johan: Okay.

Gero: Since then, I haven’t been able to–

[laughter]

Johan: No, you succeeded because it’s one learning that we have with founders, that if you want to really build your company there, then one of the founders should go there–

Gero: Correct.

Johan: –and then move there, and build the business from the ground up, right? But you proved to do it the other way, right?

Gero: Well, but it was a painful path.

Johan: Yeah.

Gero: We had a couple of customers early on, and that also shaped us as a business big time. Customers like Airbnb who told us that process is not just about efficiency but it’s mostly about optimizing customer experience, and [00:25:00] scale, which is if you look back at the recent product, additions and themes that we’ve released is all around that. And it turned out to be a shift in the market, but we discovered that in 2012 already with customers like Airbnb, or other customers like Goldman Sachs who were on the path to automation and re-thinking themselves as a technology company. Right? They were a bank before. Now, they are one of the biggest software companies you can imagine, one of the biggest digital companies you can imagine. And we were in the midst of that.

And this all started back then, 2012, 2013 as our early and initial customers in the US, but the rise was fast in the US, but then, it stagnated. And it was completely unpredictable. Numbers of opportunities in Germany and other countries, they went through the roof while in the US, it stayed kind of on the same level. So not until [00:26:00] when we received our first investment in 2015, we re-booted, we restarted our US endeavors completely in 2016. And only then, we could build a scalable operation with more predictable go-to market, and pipeline, and revenue, and all of that that were involved.

Johan: But what’s your take on that, because you raised funding after six years, right? Also logical in the market, so you’re fully bootstrapped and financed your own business with clients, which is a very good proof of the model. Looking back now, would you have done the same, or would you have accepted earlier funding, or would you do it later, perhaps, or what’s your view on it now?

Gero: Well, if there were the same quality of investors like we have them today with the same level of experience and help, I probably would have taken on money earlier but we didn’t have access to those, or they didn’t even exist, either one. So taking on a suboptimal VC, [00:27:00] I think wouldn’t have helped us. It would have forced us to burn money faster, and then still have no clue.

Johan: Yeah, indeed.

Gero: While the types of investors we have nowadays, and especially, in SaaS where we know how it works now, but we didn’t 10 years ago, this type of help that you can get through getting a VC on board is tremendously helpful and can speed up things big time.

Johan: Yeah. So it’s less important about the money but it’s more important about their experience also, and their relevance for your business in the face that you’re in, right?

Gero: Actually, from a financial perspective, getting investors on board actually made things worse. We were growing, as I said, always between 60% and 90% but at the same time, we had an EBIT margin of above 30%.

Johan: Yeah, you were profitable all the time.

Johan: Oh, wow.

Gero: We were profitable all the time. Otherwise, we wouldn’t have been able to finance ourselves.

Remy: Yeah.

Gero: It lasted one year after the first funding round to still be profitable, and then we were unprofitable, sometimes, like hell.

Remy: But still very– [00:28:00] pretty capital-efficient, right?

Gero: Correct.

Remy: I heard on a podcast, especially, for a SaaS company also entering the US.

Gero: Correct.

Remy: Yeah.

Gero: Correct. I mean it helped us understand what you spent your money on, and be very wise.

Remy: Sorry, why was it? Why was after taking on VC money, all of a sudden, you became unprofitable? Was it because they asked for a certain burn rate, or a certain expansion rate? What was the reason?

Gero: The biggest difference was that prior to the first funding round, we only had junior employees. We had two or three people out of 80 who had a job experience of more than three years outside of our company. Everybody else joined us right after university. So a lot of young people, motivated, dynamic, passionate, smart, all of that but no experience from outside. So the biggest shift was building a scalable and more experienced organization because we felt, for example, going to different markets, you can’t do it in a trial and error mode all the time but you need to have a blueprint, how you go to France, how you go to [00:29:00] the UK, how do you go to the Netherlands, and so on, and so forth.

And then it starts, you hire the first person and you say, “That’s ridiculous. You can’t pay half a million in salary to one single person.” And then your investors tell you, “Well, that’s what the market is,” and that was six years ago. But then you hire that person, and that person will tell you, “Well, but I need a management team that supports type of ambitions that we have.” So you have the next couple of people who are also crazy expensive, right? And they fly business class. And they go to nice hotels and everything. And then these people, they hire pros, right? And so it translates very, very fast that your cost base just explodes.

Remy: And what was it like for you as a founder? Was it logical for you, or did it also feel a bit unnatural because you started out so bootstrapped?

Gero: Well, from your own experience, it feels super unnatural.

Remy: Yeah.

Gero: But you also know that you have no clue. You don’t know it better. And this is the piece of getting [00:30:00] advice from the right people. You need to have trust in a select number of people. And if they tell you something, like in our case, for instance, the chairman that we got on board in 2016 was Léo Apotheker, the former CEO of SAP. It was very easy to trust him and his experience. And he would always point to so many things where he would say, “Gero, it might feel completely unnatural to you. It might feel weird. It might feel awkward. It might feel painful,” right? “but out of my experience with this, and this, and this, I can recommend doing that. But it’s your choice.

Remy: And if you have to put it in a lesson for other founders, would you say you would invest earlier in more experienced personnel? What would your lesson be if we talk about employees?

Gero: Well, following our own path, you want to have that product market fit while you’re still [00:31:00] super nimble, small, efficient, tight-knit because later, once you scale out, you have so many additional and different challenges. If you then have to fix your core product, that’s going to be very tough. Second piece is you want to have created a certain spirit culture core to the company that you can carry forward. And you’re not just any company, any organization because with the number of people that you hire, and especially, when you grow your organization fast, and especially, with very experienced people, things will change dramatically. If you don’t have a core that you can come back to, that you can identify with, it’s very easy that you have a company based– made out of mercenaries that might give you great performance for two years but it’s such a shaky construct that it will blow up the first time you hit the bump.

Johan: And how do you then, with these new senior people coming in and building a company for mainly people [00:32:00] out of university, how do you maintain the culture then, because that seems to be really hard? How did you do that?

Gero: Well, the trick number one is just be a good person. People follow the example of the founders. They follow the example of senior people in the company very naturally. So even without codifying anything, just reflecting back on that and with everything that you do, you’re a role model. So you better make an effort of doing the right thing. That is probably the single most important thing. Only later on, you need to be a lot more conscious about things. For example, when you start mass hiring; if you want to hire, let’s say, 100 people within six months, what do you actually tell them? What kind of company are they joining? What are they expected to grow into? Right?

Then you need to have things explicit because you want to select the right people, and you want to give a trajectory for these people, how they can fit in, and how they should’ve fit in but you can do that much later. Right? [00:33:00] But it’s you, the culture of the company. That’s you as the founder, it’s those people who drive the company forward in the early stages. And the question is, how much of that do you keep, or do you yourself become a different person? Right. Suddenly, you’re arrogant or whatever, the moment you have that, well, the culture will shift very naturally with you.

[music]

Johan: Gero, when was the first time you started to think yourself about the possibility of selling the company?

Gero: The moment SAP reached out to us. So we signed the agreement this year, in January. And SAP reached out in late October.

Remy: The first moment, also, you even considered in selling the company?

Gero: Well, I always rejected the thought before. Right? I might have thought about it but it was never an option on the table.

Remy: And what was the reason for you always to reject it at that time?

Gero: Because we always wanted to build an independent company and continue [00:34:00] our own destiny. So we had already launched last year the first IPO preparation projects where you do revenue forecasting, not just for the next quarter but for quarter plus two—accounting, governance, all kinds of things that you can start or that you should start preparing. A couple of quarters or years before IPO, we started doing that because we thought that in 2022, or latest, 2023, we would IPO the company in order to stay independent.

Remy: And how did they reach out to you?

Gero: One of my very good friends from university, he happens to be the chief technology officer of SAP. So he sits on the executive board.

Remy: It’s a very good university as we mentioned before.

Gero: Yeah, I mentioned before.

Remy: Yeah.

Johan: Yeah.

[laughter]

Gero: And so we did a lot of strategy for SAP over beers and barbecues already previously, but it never really occurred to me that we would become part of that organization in the future. So he reached out and [00:35:00] he said, “Gero, I know exactly that you don’t want to sell the company.” Right? “And it might sound very strange to you but we would like to start the dialogue of whether you become part of SAP.” And I told him, “Look, this is not what we want to do.” Right? And he said, “Gero, please, can we set up a workshop? I want to introduce you to a couple of really cool people here at SAP who care a lot about this topic. And we have some exciting ambitions ourselves in that area. Can we, please, talk?” And then I said, “Okay.” Right? “Because you’re my friend–

Johan: That’s why he called you.

Gero: –I can do you that favor but it might still be that we just bluntly say it’s not an option for us.”

Johan: Yeah.

Gero: And he said, “That’s fair. So let’s meet next week or as soon as you can make it.”

Remy: And how did that first meeting go?”

Gero: Well, so first of all, it was about us understanding what they had planned because what we always wanted to avoid is join a large organization, [00:36:00] and you’re product number 47. Right? And especially when you join as small as we were at the time, in a company that has tens of billions in revenue, if you do not at least have a billion in revenue, you’re just insignificant for that company. Right? And you will die a slow death of insignificance within that larger setting. And this was what we always wanted to avoid. So it was important for us to understand the strategic direction that they were going through, or going into. The reassuring thing was that SAP knew us very well. They had been a customer since 2014, one of our biggest customers.

And the gentlemen who had introduced our software at SAP to solve a lot of their on-prem to cloud shift but also to digest some of the big acquisitions that they did, and so on, and so forth, this is what our software was used for. This gentleman who was [00:37:00] head of process management in 2014 had become the sole CEO of SAP, Christian Klein. So there was connect, and understanding, and mutual respect on many different levels in the organization. So it didn’t feel awkward to have that conversation with SAP. It’d still feel awkward, in general, to leave the state of independence.

Johan: So at that time, you had a discussion with SAP, did you also consider other options at that moment?

Gero: It was funny because we had five different options on the table at the same time. We knew we wanted to raise some additional money but we didn’t know through which mechanism. We had Series D equity investing conversations. We had term sheets for loans on the table, unsecured, ridiculously low-interest rates, which was something that simply didn’t exist six or 12 months prior.

Johan: Indeed. Yeah.

Gero: Then we were in [00:38:00] discussions with the spec, something new that came up on the agenda, and where we started to receive inbound interest. And another strategic who also reached out to us one week prior to SAP, who said, “We would like to entertain a conversation.” So it was very fascinating that all of these things happened seemingly within a matter of weeks, but it also felt great because we could really make up our minds what is the path forward. So it was not a lack of choices that we had but it wasn’t an abundance of choices, and really being able to make the best choice for our product, for our topic, for our employees, for us as founders, to paint the best possible future.

Johan: So at that time, you had different options, right? Debt, equity, and other strategic, et cetera. You had, indeed, SAP reaching out to you. What did you do at that time, also as a founder to hire an investment banker to help you? Did you ask for your chairman, the previous SAP board member? What did you do as a founder at that moment?

[00:39:00]

Gero: So we didn’t hire an advisor. My CFO, he loved transactions. This is what he lived for. Right? When I had told him about the Series E fundraise he said, “Gero, finally a transaction again.

[laughter]

Gero: I love transactions.”

Remy: It was a good time of his life.

Johan: Yeah.

Gero: So in his very short period of time with us, he stayed for two and a half years in total, we had a Series E financing plus the acquisition by SAP. So that was heaven or paradise.

Johan: Yeah.

Gero: So he loved that but no, the first people I reached out to were my investors, Apax, were the lead investors at that time. Léo Apotheker had actually left already as a chairman, so we had a new chairman who came through the Apax investment as well. Great gentleman. But the investors were the first ones to discuss with. They had only come on board 15 months [00:40:00] prior, but we already had such a great relationship with them; very intimate, we had worked together very closely. They understood us, our space, the organization, everything. So they were the perfect experience partners, plus, of course, my co-founders; plus, of course, our C-level team. So this was about the eight, nine people involved in that very early discussion.

Johan: Yeah. And did you then–? Because I can imagine with the two strategics you’re talking to, and there’s opportunity in the market, did you also reach out to other parties at that moment, or did you just go for the parties you– the options you had on the table at that moment?

Gero: Well, we very loosely tested the waters because we had two, three other– if we were to go down the path of a strategic acquisition, there were two, three other obvious candidates, who were also in the mix in the game. But because we didn’t have that warm relationship where we already had a dialogue of some sort around partnerships, [00:41:00] or whatever going on, we couldn’t warm it up fast enough. So that was pretty much a dead end. And we felt that they might submit a term sheet but it’s not really a thought-through kind of joint future thing but it’s only about, “Here’s commercials one versus commercials two.”

And it became obvious very clearly that if we wanted to go for a strategic acquisition, SAP would be the only one we would actually seriously consider. And that also was an important argument to think about that seriously because we knew that if this acquisition wouldn’t happen, they would have to make other strategic choices, do alternative acquisitions, or do heavy in-house investments into a specific area. So the door with SAP would have been shut for at least two, three, four, five years. And we know that the match will never be better with any other [00:42:00] company. So either you do it now or you do it never.

Remy: So when you start these talks, it’s always a bit of a dance, right? You go into strategic conversations, and you point out the vision. And at one point, it’s also time to talk numbers.

Gero: Correct.

Remy: So who did the first offer or ballpark figure? And what was it like because these were enormous amounts of money, of course?

Gero: Yes. So I gave them a hint. I told them, “Look, we are under no pressure to make this happen. The last investment round was just 15 months ago.” Right? “So the valuation we will talk about might have nothing to do with fundamentals, but it might simply serve the purpose for the last investor to make their X times the investment. That might be the only determining factor for the purchase price. Do you accept that?” And of course, everybody nods because they don’t want to shut down conversations prematurely.

[laughter]

Gero: And then I even floated [00:43:00] a number and said, “If you go anywhere near this or below this, we don’t even need to start talking, okay?” So I set kind of an absolute boundary to say, “I will not even talk to my investors if we get anywhere near the territory because I know they will just shut the door in front of me and tell me I’m crazy.

Johan: And when was it in time that you put this ballpark figure on the table?

Gero: That was in the first conversation.

Johan: First conversation with a CTO reaching out to you, et cetera?

Gero: Correct.

Johan: Yeah. Okay.

Gero: We said, “Let’s not waste time. We all like each other and we trust each other. Let’s not pursue something that we know we will not be able to make work.” So I floated that number. For some reason, that number got lost because the first offer that SAP eventually made was below that. And I called them like three minutes after I got the first offer.

[laughter]

Gero: I said, “Didn’t you listen?” Right? “I told you something.” Right? “I feel bad even receiving this from you,” [00:44:00] right? “because I feel like you haven’t heard me.”

Remy: Yeah. “I’m not mad. I’m disappointed.”

[laughter]

Gero: “I will delete this right away to the move-on phase.” “I will completely ignore this now.”

[laughter]

Johan: You can have a second chance, let’s ignore this one.

Gero: So yeah, but just to talk a little bit about the magnitude that we’re talking here, so between– let’s say, the highest bid or ask, and the lowest and the highest, was a factor of three.

Johan: Wow.

Remy: Wow.

Gero: Okay? So when SAP floated a number, and then they said, “Okay, but now, we’re entering a discussion here, what’s your counter-proposal?”

Johan: Yeah.

Gero: We just returned three times the number.

Johan: Yeah. So it was really insulting also for you, right? This offer they made first?

Gero: It was not insulting.

Johan: No?

Gero: It was big money.

Johan: Yeah.

Gero: Okay?

Remy: Yeah.

Gero: But on the other side… but it was–

Remy: Just as a personal question for you, what’s it like to ask for these kinds [00:45:00] of valuation? Because it kind of feels like monopoly money at one point, doesn’t it?

Gero: The money doesn’t matter because if you look at it, at least, for us as founders, it really doesn’t matter because the amounts are so ridiculously high that it doesn’t make any difference to you. Right? So I always said, “If the amount of money I need in order not to have to work anymore in my life is €5 million.” Okay? “Then from money making money, this will be sufficient to have a decent life until the very end of my life. I will never be forced to work anymore.” And then you talk about numbers that are much higher; much, much higher, right? And so it doesn’t really matter. It’s more of a high score. Right? It’s a high score in the sense of, “Okay. So you will make a transaction like this once. Where do you want to land?” Right?

It’s like you qualify the year for [00:46:00] the Olympics once, you better win a medal. Right? It’s the same type of thing. You will be a great athlete no matter what but you want to win that medal. Right? So that’s the high score notion to it. But of course, the money matters big time to the investors. Right? Because they need to return something to their fund. And if it’s not high enough, they will simply not buy into this. So that’s why for the following commercial discussion with SAP from our end, the complete conversation was deliberately led by our investors. And I gladly handed it to them, also good-cop-bad-cop type of distribution of work. But honestly, I couldn’t have cared less but for the investors, it was hugely important what they would be able to return.

Johan: And that was after the first offer they made to you that you handed over to the investors?

Gero: Yeah. So the offers always came to me.

Johan: Yeah.

Gero: Right? But I dispatched it always right away.

Johan: Indeed.

Gero: And the money conversations were always done by the investors, not by myself.

[00:47:00]

Johan: Why did you choose to do that?

Gero: What do you mean? To hand over the responsibility to them? Because we didn’t care. We wanted, on the one hand, a great outlook for the joint future under the SAP umbrella, so we cared a lot about many other things. Would they guarantee that all employees would retain their jobs? What would be the position within the company? What is the strategic narrative and positioning within that? What’s the outlook? These were the things we work with.

Johan: Yeah.

Remy: Was it important for you to keep the brand alive? Was it one of the–?

Gero: Also this is something that you can only control so much.

Remy: Yeah.

Gero: Because for these types of companies, you have a big-brand architecture that you don’t have much control over. Right? For example, SAP acquired Hybris, and killed the brand. SAP acquired SuccessFactors, and they still have the brand. Will they have the SuccessFactors brand forever? Who knows? Right? The [00:48:00] brand architecture might change over time. So Hybris brand got killed. And they were bigger than we were at the point of acquisition. Can you really realistically claim and demand that your brand stays? You can’t. Right? And you never know whether it’s even the wisest choice.

Remy: Can you take us to the day of signing? What was it like for you?

Gero: It was a corona lockdown day in Munich.

[laughter]

Gero: I felt free as a bird because at the time, you could only go to hotels if you had a business reason to do so. And–

Remy: You had a reason.

Johan: Yeah, you had a reason. Yeah.

[laughter]

Gero: And restaurants and bars were all closed except for the restaurants and bars in hotels serving the hotel guests. So the night prior to the signing, we sat in this beautiful bar on top of Munich. It was 30 centimeters of fresh snow that night.

Remy: Hmm.

Johan: Wow.

[00:49:00]

Gero: So the whole city was covered in white. We were seemingly the only people around having the whole bar for ourselves, very cozy, sitting next to the fireplace, looking out on snowy Munich, and enjoying something that we hadn’t enjoyed for three or four months because it was locked down; to have great food, and have great drinks in a great hotel. So that was the night prior to signing.

[laughter]

Johan: Hey, how did you feel at that time, especially before you closed the deal, because it’s selling your baby, right? I think you– yeah.

Gero: The decisions have been made before that. Right? So as I said, we started end of October. And then it took six weeks to go through business diligence and commercial negotiation to get to the LOI, it was called the term sheet, which laid out all of the commercial details of the deal. So that term sheet was signed [00:50:00] beginning of December. So that was the much bigger moment, honestly, because you had to make the choice, do you commit to that deal or not? Right?

Johan: Yeah.

Gero: And I still remember sitting there on my DocuSign with shaky fingers because that was the much bigger choice to make. Do we have a deal on the table? And do we have an outlook at SAP that we all look forward to or not? And then the next six weeks, we’re really just executing it out. So none of the commercials changed but it was about all of the legal stuff. So the lawyers were busy as hell. We had hundreds and hundreds of people involved in the transaction. It was crazy.

Remy: And SAP is, of course, a publicly-traded company. I think these deals can’t be disclosed before it’s publicly announced. How did you keep it a secret with so many people working on it?

Gero: Well, we couldn’t. And the news broke three days prior to [00:51:00] signature. And you could read it on Bloomberg that the deal was about to happen.

Remy: What do you think?

Gero: Well, that was horrible because inside of our companies, probably, only 15 people knew about it, and suddenly, you have it out in the news, and everybody wants to know what is going on. Right? And you can’t confirm nor deny.

Remy: So how did you find out it was out in the open? Did your phone blow up?

Gero: Because Bloomberg called us. They need to have two verifications before they can break the story. So they have an anonymous source, or whatever source they have, plus they need to have two sources to confirm. And my phone rang like crazy because all kinds of people told me that the journalists had reached out to them to get a confirmation for the deal. Right? Many people like former M&A advisors, law firms who were not related– who were not involved in the deal, who all played nice in saying, “We don’t know about any deal, but then [00:52:00] they would call me and say, “The journalists are calling me like crazy because they feel that there’s a deal up in the air. I just wanted to let you know.” So we tried to keep everything quiet and convince everybody who was close to the matter not to say anything because we were still hoping that Bloomberg wouldn’t break it, but then they–

Remy: They found two sources, and–?

Gero: Well, obviously, they found two people who were happy to confirm that this was going on.

Remy: Did you hunt them down?

Gero: Well, we don’t know. We don’t know who it was but that was obviously big news, and especially, for our own team, right? Because this creates a lot of uncertainty. We had all of this great communication plan laid out that, “Here’s the signature, here’s the all-hands call, here’s the material, here’s the Q&A document, here’s everything laid out.” Right? We had it all very well-prepared, and for that day, but if it comes a couple of days early, suddenly, you’re in a mess and you need to bridge that time.

Remy: Yeah. [00:53:00] And you cannot communicate it the way that you wanted to communicate, right?

Gero: Yeah. All you can say is, “Look, we would never do anything that harms the company,” or “that is bad for our team,” or–

Remy: Was there one point you thought that maybe it could hurt you even, because there was this big known fact that at one point, Beats was selling to Apple, and Dr. Dre, one of the founders, made a video while drunk saying that he was going to be a billionaire because of his company. And in the Netflix documentary, his co-founder Jimmy Iovine was like, “Oh, god, this is going to hurt their deal tremendously.”

Gero: No, everybody was so committed to getting the deal done. And it was close enough to the signature that it didn’t harm things. It put SAP also in a bad spot because they’re a publicly-traded company, and there are certain regulations, and so, about what they can communicate, what they cannot communicate to the stock market, and so on. So no, that didn’t hurt. The thing that made us worry about the deal happened, actually, [00:54:00] much earlier because SAP had a massive stock dip by 20% in November right in the middle when we had the commercial discussions. Right? If you have a company losing 20% of their market cap, we were deeply worried that SAP would pull out of things immediately but they didn’t. They said, “It’s most likely going to be a temporary dip. Fundamentals look great. We don’t change course.”

Johan: Wow, what a story.

[laughter]

Remy: Tremendous story, really. Should make a documentary. One more question, what did you buy for yourself as a present?

Gero: Did I buy anything? Well, I opened– I love whiskey, Scotch whiskey. And one of the bottles that I paid a lot of money for, I actually brought to signing, and we opened it and finished it that night. So that was probably the first piece of craziness, but no, I’m not that type of person who goes out and needs to have material things to prove that you did something.

[00:55:00]

Johan: And last question for me, how’s your role now as a CEO? What did change after the acquisition of SAP?

Gero: So the organizational setup is, we formed a new line of business within SAP. So next to S/4, and SuccessFactors, and so on, we have our own little line of business called Business Process Intelligence. We merged with a couple of teams that were already there at SAP. Now, we got an additional 100-150 colleagues on board. And we grew massively ever since. And I’m one of the two co-leads, co-heads of that unit. My dear colleague and ‘Siamese twin’ is Rouven. He’s at SAP for 17 years, knows it all, super great guy, access to everything, knows exactly what buttons to push, what fight to fight, and what a consensus to reach. So we’re attack team, a great setup to thrive [00:56:00] within the new setting at SAP. I always tell people, and it’s the truth, that we now have more freedom than before.

Before, for example, you would always have these discussions of, “Why should we invest into 10, or 15, or 20 more engineers to build up the product?” Then you say, “Well, but three years, four years down the line, we really need to have taken a different step.” And then you have this discussion of, “What time frame are we actually optimizing for?” Right? “Are we optimizing for the next 12 months or for the next five years?” Right? Those types of questions you have with investors, which are great and important. At SAP, timeline means you always work for the long run. Right? So the question is, “How do you get to that half a billion, billion in revenue as fast as possible? And what are the types of choices and investments we need to do today on that journey?” So when we joined SAP in March, we had around 150 people in engineering. [00:57:00] Now, we have 400–

Johan: Wow.

Gero: –which shows the level of investment and importance SAP gives to building great products. And this is something that we probably wouldn’t have seen with even the most positive and optimistic investors.

[music]

Remy: Well, the colleague of Johan who wrote the evaluation estimate really went all the way and almost made a complete book out of it. So let’s summarize.

Colleague from Peak: Signavio is acquired by SAP, one of the world’s largest enterprise software conglomerates in January 2021. SAP has significant penetration in the enterprise software space and possesses a huge volume of rich process data generated by its ERP system. While SAP has the data, it lacked the capability to effectively utilize it and deliver process intelligence [00:58:00] and actionable insights. SAP recently launched a dedicated business process intelligence unit where Signavio’s process mining capability is the missing piece in their portfolio. The purchase price was not disclosed but a Bloomberg report speculates a stunning valuation of 1.2 billion at the time of acquisition.

In January 2021, Signavio’s revenue was estimated to be 100 million servicing over 1 million users in 2,000 organizations worldwide. In total, the business raised 230 million in funding. The last funding round was in July 2019, one and a half years before the acquisition. At that time Apax Digital, a US growth equity and buyout investor invested 177 million in a Series C round. Apax Digital is known for their minority investments. Research by TechCrunch shows the average take for a [00:59:00] Series C round to be 17%. For Signavio, this came to a valuation of 1 billion in 2019. One and a half years later, taking into account the pandemic and the discount for the dependency on SAP as Signavio’s biggest client, a valuation of 1.2 billion early 2021 would be no surprise.

Taking another approach by looking at competition, we identified Munich-based Celonis as a frontrunner in this market. Forbes publishes that Celonis reached 100 million in ARR with 2x growth a few months before raising capital at a 2.5 billion valuation. January 2021, at the time of acquisition, Signavio was generating 100 million ARR, just as Celonis did back in 2019. There’s no information on growth numbers but Apax Digital publishes the following:

“Signavio has achieved high growth [00:60:00] while delivering its innovative business transformation suite to over 1 million users worldwide. Assuming Signavio growth with equal speed suggests a significantly higher valuation.”

Lastly, let’s check these numbers using the ARR multiple approach. At the time of acquisition, Signavio was generating 100 million ARR. Research by Blossom Street Ventures in 2021 shows the average ARR multiple for B2B software companies within above 100 million ARR to be 14x. We all know Americans are a bit crazier with valuations than we are here back in Europe, but let’s say we use a multiple of 12x. Taking this approach comes as close to the 1.2 billion speculated by Bloomberg. All in all, we would say the valuation of Signavio would be, at least, the 1.2 billion suggested by Bloomberg. So Gero, are we under or overestimating the sales price of [01:01:00] Signavio?

Gero: Well, valuation is in the right ballpark. The revenue was actually slightly overestimated at that point.

Remy: Hmm. Very good. Gero, thank you so much for inviting us here in Berlin to your office and talking for over an hour with you about your wonderful company. You really did a tremendous job with all of your colleagues. And ladies and gentlemen, thank you so much for listening to this episode of The Big Exit Show. We hope you enjoyed today’s program. If you did, please subscribe to our show at Spotify or at your favorite podcast platform. And if you have any feedback, please send a message to [email protected] My name is Remy Gieling.

Johan: And I’m Johan van Mil.

Remy: Thanks again for listening. And we hope you join us at the next episode.