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Making Markets EP28: The Digital Adoption Category Has Big Growth Ahead, with WalkMe CEO Dan Adika
by Daniel Newman | February 25, 2022

In this episode of Making Markets, WalkMe CEO Dan Adika joins host Daniel Newman to talk about the company’s recent Q4 results and the full year, which brought strong revenue growth and adoption to the company. With its IPO now a few quarters behind it, the focus is on growth, but in a market that wants profit, how should investors be looking at WalkMe and the Digital Adoption Category? We discuss this and more with the WalkMe CEO.

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Transcript:

Daniel Newman: With the speed of digital transformation accelerating by orders of magnitude throughout the pandemic, the adoption of digital adoption platforms have come into focus. WalkMe has been a leading player in this category over a 10-year journey that led to a 2021 IPO. CEO Dan Adika joins the show to talk about the company’s strategy, choosing growth over profit, the opportunities for digital adoption, and more. Here we go. You are tuned in to Making Markets.

Announcer: This is the Making Markets podcast, brought to you by Futurum Research. We bring you top executives from the world’s most exciting technology companies, bridging the gap between strategy, markets, innovation, and the companies featured on the show. The Making Markets podcast is for information and entertainment purposes only. Please do not take anything reflected in this show as investment advice. Now, your host, principal analyst and founding partner of Futurum Research, Daniel Newman.

Daniel Newman: Dan Adika, CEO WalkMe, welcome to Making Markets.

Dan Adika: Thank you for having me, Daniel.

Daniel Newman: Great to have you here. I’ve been talking to your team for a few months. I thought it would be great to have you on the show. Here on Making Markets, we love to focus on both the big tech companies that everyone knows and getting a bit more about their strategy, how they plan to continue to grow, even despite a lot of headwinds that are going on in the market right now, and then another thing that I love, and from the very onset of the show, I’ve always wanted to do, Dan, is talk to these newer IPOs, companies that have gone public, that have exciting products and innovation, and of course, talking to their CEOs and putting them on the map with the community that we have here at Futurum Research and on the Making Market show.

So I’d love to start off with you. I’ve been following WalkMe for some time, worked with the company. I’ve watched its iterations. I’ve seen the products change. I’ve seen it grow private to public, all these things. But WalkMe isn’t necessarily a household brand, so I’d love to start off, you as a CEO, founder, someone that’s been with this a long time, just talk a little bit about the heritage, the growth, and your decision to go public.

Dan Adika: Sure. So we start with the simple, basic explanation of WalkMe. We’re walking through people over the internet, so when we started with WalkMe, it started with a very simple idea, why we can show people how to do things online, like GPS. So it all started with my co-founder mom. She was constantly calling him, “Hey, how I do this? How I do that?” And that’s how the idea was generated, let’s show people how to do things online.

Has the market changed in, I’d say, the past 10 years, right? Cloud. Everything moving to SaaS, digitization of the workforce. The last two years, obviously, with COVID and the new future of work, we’re seeing huge opportunities. So WalkMe evolved to be not just the platform that shows user how to do things. We’re actually understanding how people are completing processes. We can analyze processes, we can understand exactly what’s not working, and basically show users how to do it, obviously, with automation and many, many things that we evolve as a platform.

I would say around 2018, ’17, we came up with what we call digital adoption platform. We coined the term and actually started this category we call DAP. A few years later, in 2021, last year, we actually went public, so June 2021, over a thousand employees, over 2000 customers worldwide, so very exciting journey. Actually, in April 2012, we launched WalkMe, so two months from now, we have the 10 years anniversary as a company. And yeah, that’s what we achieved in 10 years, amazing journey, and we’re just starting, obviously.

Daniel Newman: Yeah, it’s always interesting because I think sometimes when people see a company go public, they think, oh, it’s brand new or it’s a startup, right? No pun intended, you’ve been walking this journey though, for almost a decade now, and I did see a major pivot. When I first came in contact with WalkMe, it was sort of like this technology that would prompt you in an app like at Salesforce. Hey, here’s what to do next, in order to complete a process. It was almost like what we’re starting to see with intelligent process automation. Before, it was like, hey, we’ll teach people how to not make mistakes, how to use the software, how to speed up the adoption, and it did create a category.

And by the way, that’s something definitely noteworthy for your success and your team, Dan, as you guys did create a category of companies. And now there are a bunch of sort of WalkMe twos that are trying to do what you’re doing, but you guys have continued to pivot and continued to iterate and it’s been impressive to watch. Now, we covered your recent earnings, your Q4, and you guys had some really solid results, 37% increase in revenue, 39% subscription increase. Talk a little bit about the quarter, just how it went, what were some of the highlights for you, some of the areas that you’re really excited about, maybe some areas that you think… the analysts and the call and everything else that have got you thinking about needing to focus on.

Dan Adika: Yeah. So one amazing quarter, and kudos to our teams. One, RPO was off charts, so it’s not just a strong net new ARR quarter, but companies are signing longer contracts with WalkMe. That shows how confident they are with our product. And that’s not just new deals, renewals as well, so overall, we’re seeing great momentum.

In addition, I talked about it in the script, but the value we’re bringing to customers, it’s just mind-blowing, and I’m actually very excited every time I see it because it’s not just how many deals we close, it’s are we actually providing value to our customers? And 31 customers over one million in ARR, 450 customers over a hundred K prove that we are, and it’s consistent and consistent and consistent. One of the customers, we actually interviewed them to our SKO and I asked them, “How did you go to your executive leadership team and justify the cost?” So strong ROI, so I would say that was a great finish for the year. We increased the net retention, We increased the training four quarter’s net retention, so every metric actually accelerated, and that’s exactly what we wanted to do in 2021, so it was very, very strong.

From the analyst’s perspective, obviously, in the past two, three months, even more, right, the market sentiment changed, very, very hard to predict. I will tell you, sometimes it’s even frustrating, right? When we were going on the call, we’re super happy, we crushed the quarter, we’re increasing the guidance, but still, you are getting punished. I would say that analysts and investors wants to see past profitability.

That’s a lot of the feedback that we got, “How are you going to be profitable?” Obviously, we explained that we are going to continue our investment because it’s a new category. We’re seeing so much opportunity. So we’re explaining, we’re showing exactly how we’re going to get the ROI from each one of those investment.

And I would even say, in 2020, before we went public, we actually showed that in one quarter, we can go to be cash flow positive. That show how strong is the unit economy. But I would say in today’s market, that we need to prove, right, that we’re constantly executing. So tough year, obviously, on the markets, but we know where we’re going, we’re doing the right things, everything is building according to the plan, we’re investing in the right, obviously, areas, and we’ll continue to execute, right, and the market will follow, at the end of the day.

Daniel Newman: Yeah, it’s interesting. You jumped right in front of what I was going to talk to you about next, Dan, and that’s perfect. The markets started talking about the change of sentiment, maybe really coming after the new year, but if you were a growth name, and I’m someone that does focus… Personally, I invest in growth a lot, and growth names, for the last three to four months, have really started to sell. It was really around the time that Omicron… and we’ve had a few episodes here where we’ve brought some folks… I even brought Niccolo De Masi. He was a guy who led three or four specs public last year, and I mean, you’ve seen some of these shed 60, 70, even 80% of their values off their high.

Now, of course, there’s a question of sentiment on both sides. A, did this sentiment run too fast? These things are trading at 25, 30 times revenue, some, even more, and obviously, didn’t have profitability. At the same time, these companies, in most cases, have improved their metrics since the actual time that their numbers ran all the way up. You’re in the same case. When your stock had peaked, your performance right now is better. You’re growing faster, you’re adding more customers, you do have more revenue strength, so it is a very interesting inflection point in the market.

Now, this is probably related to, Dan, the raising interest rates, the high inflation that’s going to cause growth metrics and growth multiples to compress a little bit. I guess, just poking a little further on your last answers, do you think pushing for profitability sooner is the right answer, or do you think maybe just being patient and understanding that everything is cyclical and once a few of these interest rate hikes come into play, people see tech companies are still crushing it, which we started to see this quarter, and it’ll turn around, because what I do know is, you can’t do both. You can’t go for profitability and accelerated growth at the same time, at least not to the way that the street’s going to be looking. I mean, they want to see 30% growth, but they also want to see you profitable. How do you do that?

Dan Adika: So I would say, I don’t think companies needs to run to be profitable. I think they need to show a path to profitability, meaning investors wants the confidence that your unit economic metrics are actually something that can drove profit. And if you can show that you’re investing in the right places and actually showing leverage, I think that the market condition will change, and once the market condition will change, obviously, we’ll see that the high-growth companies are actually benefiting from it, so we’re not in a rush to go and change everything. Obviously, everything changed in the last two years. Salaries went up, so it’s the great resignation. So right now, companies dealing with a lot, so companies just need to do what they think they do best.

And we have a strong plan for the next three years. We strongly believe in it and we’re going to do it. If we’re going to put more, I would say, focus on our expenses, yes, but we always did. We just need to be more transparent with the market, show them the three-year plan, and just, obviously, go and explain and make them feel comfortable, they are still our investors, like we made our investors when we were private, comfortable. We explained every step on the way. But the most important thing is to be very, very loyal to your vision and what we’re actually trying to do. Our number one priority is to drive value to our customers. That’s what keeps us at night, right? If we wouldn’t be able to drive value to our customers, we would be in a big problem, but we are driving value and we’re seeing it.

Markets, I wouldn’t tell you that it’s not hard, right, when it’s going up and down and you need to explain it to the employees, but at the end of the day, the company is super strong. We have a lot of cash on our balance sheet, we have steady stream of cash, we have great customers, they’re signing long-term contracts. So we would need to power through, like other companies. And I agree with you, I think that in 2021, there was a lot of companies that go and went public, and for a lot of investors, they couldn’t tell the difference between a company that’s just riding the hype and getting 30, 40, 50 X multiplier or real businesses that were built over a decade with strong customer base and really good unit economic.

Daniel Newman: Yeah. What I will say is, the business and the space you’re in is one that I do believe in. I do believe companies overwhelmingly struggle to get full value out of their technology investments. That was what attracted me early on to having conversations with your team, getting to know your business better. Is there opportunities to continue to optimize and expand that? I would say there are, but that’s been your evolution. You guys went from, really, a utility. You were almost a feature that became a company, and I think that’s one of the biggest maturity indicators that I’ve seen, is when a lot of companies start as features and actually go to market as features, they usually quickly either get rolled up or acquire… something happens because they’re that. You’ve expanded the horizon, which is very important. We saw how much digital transformation accelerated throughout the pandemic. That had to have been an opportunity for you.

But of course, when you’re not as well known, it was also a challenge because your sales force couldn’t be out in front of people. Everything went online, everything… And so, we were experiencing that transformation in real time, forcing your team to change all of its behaviors, but you also became paramount to those companies now, those large customers that you’re adding. I know you made a big pivot to bigger enterprise. You’re working more on getting those big companies that can spend big. You have partnerships with, I think, Accenture partnerships, with SAP, so these are some really big names. I’d love to have you just spend a few minutes. I mean, you’ve indicated how you can get the confidence, but what’s the opportunity? I mean, talk a little bit about the overall TAM. How much growth do you think is still here for you? Why should people be excited about maybe that next ramp, that next acceleration of growth that should come in the coming few years?

Dan Adika: Yeah. So as you know, we have two main use cases, WalkMe for customers and WalkMe for employees, and both are huge. But when we’re looking at the digital transformation and we talk about WalkMe for employees, every employee for every company, over two, 300 employees using software, and they want to actually be better. They want to improve their bottom line, they want to increase revenue, and in order to do so, they need to use technology. WalkMe helps them to use that technology. WalkMe accelerated, give them more ROI, increasing the adoption, so we can be, literally, on every employee desktop, showing them how to do their work better. So when we’re looking at the TAM and the opportunity, it’s massive because every company are in that phase, even government and so on, to digitize their workforce, so if we can be on every employee desktop, right, we’re talking about a massive, massive, massive opportunity.

Obviously, in our perspectives, we estimated 34 billion, but we really strongly believe that that’s growing as we’re seeing more and more and more companies digitize their workforce. You want everything to be automated. You want everything to be done in one click. When we’re looking today, how CIOs and IT leaders deploy software internally, this is so old-fashioned compared to how product managers deploy features to customers. So when we’re doing something in our website or in our product, everything is so fine, and everything is so thought through, and you have data, and analytics, and you’re doing everything and you maximize everything. But then, when you’re pushing a form to your employee, sorry of my language, but it’s looking really, really bad, right, and no one cares about that experience.

But today, and even now, when people are competing for talent, employees wants the best experience. Companies need to start think about user experience when it comes to their employees and their customers, and not just their customers. And the only way to do it is with digital adoption platform because they don’t have data, because it’s not their apps, and they don’t have a way to actually create the action and improve stuff. So this is why we believe that every CIO, CDO, IT leader would use digital adoption platform as their rollout, their five, six, seven-year digital transformation plan. And we’re excited to lead that market, and obviously, continue to innovate, and there is a lot of things that are cooking, like [inaudible] discovery that we’re doing on the UI, and creating automation automatically, and a lot of great features that we’re planning to roll out.

Daniel Newman: Now, I just got to ask this because I don’t know if people fully appreciate this, but do you think the pivots you’ve made in terms of product are also bringing you into new spaces, because I know you talk about DAP, but there’s a little of workflow automation that I’m hearing in here, a little bit of RPA and IPA that I’m hearing in here, a little bit of data and analytics. The TAM must be expanding significantly from what DAP was originally because some of what you do are part of what, I would say, significant spends that companies are putting in things like workforce and workflow automation.

Dan Adika: Yeah. So I would say the DAP category potentially can hold a lot of subcategories, and it’s going to be really interesting to see how it will evolve. I would tell you that today, RPA mainly focus on the office and time saving, right? Their, I would say, elevator pitches. We’re going to save you hours on those tasks, right? We’re going to deploy robots that will just do the task instead of humans.

We’re saying something completely different. We’re saying, we’re going to help people to get the most out of the technology, and getting most out of the technology is not necessarily doing the task for them. It’s learning, it’s understanding what they need to do, it’s to tell them where they’re doing things wrong, right, and basically, harness the power of technology with what that person is doing to create better results. That’s what digital adoption means and that’s what we’re trying to do. So technology wise, I agree with you. We can both click on buttons and fill out forms, both in RPA and both in WalkMe. But the use case is a bit different. Now, if RPA would go more towards to the users, maybe, right, but then this is where we’re going to start seeing them as a subcategory, obviously, of DAP. And now-

Daniel Newman: Yeah, I think-

Dan Adika: Yep.

Daniel Newman: No, I was just going to say, I think it’s going to be an interesting conversation to keep having because there are demarcations in RPA, right? There’s attended and pure, unattended RPA. And you’re talking about, you’re doing it, but you’re focusing on a slightly different user, but it’s still the same set of elements, and by the way, a significant opportunity. So it might not be, like you said, a traditional ERP-based automation where you’re saying, hey, instead of doing these seven forms in SAP so you can procure a new set of fasteners for your… you basically can eliminate, that’s a traditional one. So now, it might be, hey, how do you get the notes from your latest sales meeting that have been auto-streamed up into the system so that you can make sure that all the right project people are engaged and the whole workflow is all streamlined with participation from the worker that are involved? It’s not just all automatic and just done, right, because you want everybody engaged, and that’s kind of…

Dan Adika: Yeah, but we’re taking it even one step further because we’re saying, one, it doesn’t need to be just for the worker. It can be for the consumer because the way we work, right? So imagine that I’m going to a government website and I need to apply for my taxes and I have a bot that helps me do it, right? Imagine that I’m going to my insurance company and I need to file a claim and I have automation. So we’re taking the automation to the end user, and you don’t need to install anything and there is no computer vision involved, so obviously, all the security aspect that comes with… We’re not taking a screenshot, nothing like that. That’s one.

Two, contextual and contextualization and personalization, that what will bring it. And obviously, you’re covering that topic with hyper automation, right, but because we understand what each human is doing, we would be able to create customizable actions to each one. We wouldn’t need people to go and program those scripts. That is really good, as you said, for procurement, right? It’s the same task 50 times, same form, same fields, but that’s not reality, especially one for consumers and even the day-to-day agile workers.

And I would just add this, the massive, I would say, tailwind from no-code low-code platforms will just even increase the need for digital adoption platform because companies will be able to deploy million feature sets, million application that are custom-made to a single use case. And then imagine that you have a digital adoption platform feeding you with what’s working, what’s not working, where you need to improve. So we think that CIO will start to think more product managers, and we’re giving them that tools, with the data, with the automation, and obviously, with the action.

Daniel Newman: Yeah. The low-code movement towards making every employee a citizen developer definitely will create a massive volume of applications, I’m sure not all of which are going to be ideal, and you’re going to need some type of technology that’s going to help you sort through, like, hey, what was the best way to ultimately create that form for filling out a 10/40 EZ for a worker that made less than $10,000 last year and wants a quick form to upload? Totally get it.

So we only got a minute left here, Dan, and it’s been great chatting to you. I love to wrap up on a question when I’m talking to companies that are maybe lesser known. WalkMe is certainly gaining momentum, it’s gaining visibility. You’ve talked a little bit about the headwinds related to the economy, but what, if anything, do you think the market is missing about the opportunity with WalkMe? What maybe is not being fully appreciated that you think investors, institutions, and of course, technology leaders should want to know about the company, or should be thinking about?

Dan Adika: Yeah. So one, I think people, when they hear the name, the first thing that pops up is, oh, they’re walking through, it’s an onboarding and training tool, so that’s, obviously, only a small portion of what we’re doing. So I think two things that they need to understand, one, and I like to give them the equivalence, when we, as a technology community, move to container-based microservices and so on, you need to have an observability, right, like Dataloop, like New Relic, and so on. No VP R&D in the world would actually go and do a massive deployment without it. Why is CIO, that deploys hundreds of enterprise software, doesn’t have the same observability? So that’s one. That’s how they need to think about it. Companies can’t go and throw money in technology without really measuring it.

The second piece is how you’re becoming agile, how you’re actually creating those experiences. And it’s all about the user experience, so I want them to think about WalkMe as a user and customer experience company that’s boosting the ROI for all digital assets, so for all technology. And I don’t think they know it well yet because we’re a newer company, but as we’re telling the story of our customers, as we’re showing the ROI, as we’re showing the use cases, they’re starting to get it. So it’s a lot of work on us to go and spread the word, and thank you for inviting me and helping me spread the word, so I really appreciate it.

Daniel Newman: Dan Adika, CEO WalkMe, thanks so much for joining me on this episode of Making Markets. We’ll have to have you back on in the next few quarters and let’s catch up soon on the progress.

Dan Adika: For sure. Thank you so much.

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About the Author

Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. Read Full Bio