CLOUD’S NEW CAPITAL
Led by three unicorns eyeing an IPO, Utah is becoming as well-known for its cloud as for its mountains.
LED BY THREE UNICORNS EYEING AN IPO, UTAH IS BECOMING AS WELLKNOWN FOR ITS CLOUD AS FOR ITS MOUNTAINS.
In a particularly decadent Mcmansion, complete with personal theater, tennis court and replica hobbit hole, in the appropriately named Alpine, Utah, a few miles north of Provo, the clock ticks past 1 a.m. Wide awake on a couch, Josh James, founder of the $2.3 billion business-analytics software company Domo, sits in the enormous kitchen, flanked by two of his unicorn rivals: Ryan Smith, cofounder of Qualtrics, and Aaron Skonnard, founder of Pluralsight. At least once a quarter, the trio put down their swords and meet for an all-night jam session designed to forge consensus out of the earshot of their employees and without missing weekend time with their combined 16 kids. This one is fueled by chocolate chip cookies and Monster energy drinks, caffeine-fueled bombs you wouldn’t expect of three coffeeshunning Mormons. Then again, the topic at hand is how to attract more diversity to Utah—around Provo, Mormons make up 97% of the population—america’s eighth-whitest state and the third worst when it comes to gender pay disparity.
“I’m sick of words and statements on this,” Smith says as the others nod. “Let’s settle on three or four things we agree on that we can actually do at our companies.” The head of a local nonprofit organization for entrepreneurs takes notes as his three board members speak. Utah’s governor, Gary Herbert, stopped by earlier, pledging infrastructure improvements and student work programs that can add to the talent pool. And now the group is reviewing the roster of speakers at a tech summit they’re backing at the Salt Palace in Salt Lake City, an event coinciding with the more famous Sundance Film Festival, trying to make sure more VIPS don’t look like them. Smith tells the others how Qualtrics ripped up its maternity-leave policy and started over with female employees in charge of it. Skonnard proposes that local tech companies release joint diversity reports. James wants to impose mandatory interviews for diversity hires in certain roles, in a startup version of the NFL’S Rooney Rule.
At 2:15 a.m., the group releases their scribe, Clint Betts, and Skonnard departs for the hour drive north to Farmington, where Pluralsight is based. Smith and James linger to speak privately until after 6 o’clock. “I don’t think our own employees know how much we talk,” Skonnard says. “They’ll interview for jobs and think we won’t tell each other.”
Silicon Valley, of course, is famous for its cutthroat culture, with the real estate bidding wars and the talent scrambles to match. From Boston to Austin, Seattle to Santa Monica, North Carolina’s Research Triangle to New York City’s Silicon Alley and other places in between, American regions have long aspired to build an alternative tech capital.
Now Utah is making its play. The state has a legacy of modest tech success: Novell and Wordperfect rose here in the 1980s; Overstock.com pulled off an IPO in 2002; and Ancestry.com dominates online genealogy. Adobe bought James’ first company, Omniture, for $1.8 billion in 2009. If Silicon Valley knows how to make great engineers, Utah breeds salespeople. Hawking security systems or enterprise software isn’t so hard when you’ve spent two years on a mission trying to convert strangers to a new religion, which is why—in addition to aggressive state tax breaks—tech giants like Microsoft and Oracle locate sales offices and call centers in Utah.
But that was before the advent of the cloud. That sales prowess, mixed with business-friendly policies, an educated workforce, low energy prices and a culture of deliberate growth, dovetails with a new tech era that requires huge server capacity and even larger contracts. The Beehive State hosts six companies—led by Qualtrics (No. 6), Domo (15) and Pluralsight (20)—on the Forbes Cloud 100, a list of the leading private tech companies in cloud computing, which today spans everything from infrastructure to business software to cybersecurity. Dozens of cloud-focused startups are incubating behind them. “We all have a chance to do something great,” Smith says. “We know the enormity of what we are doing.”
For decades, Utah County and its tech cluster in Provo was known (sometimes with irony) as “the Happy Valley.” More than ten years ago, James opportunistically trademarked a new catchphrase, dubbing the 60-mile stretch from Farmington down to Provo “Silicon Slopes.” After years of precocious marketing, Silicon Slopes is now for real. IN BASKETBALL-CRAZED UTAH, Smith has a court in his basement, and he takes it farther at work: a hardwood half-court right inside the front door at Qualtrics’ new headquarters, where he shoots three-pointers with executives and random junior staff to alleviate stress. The company provides software that measures customer satisfaction and employee engagement for clients. More than 100 people started at Qualtrics in late June, swelling its numbers to almost 800 at the headquarters and 1,500 worldwide, and sales growth has it on pace to do $250 million in revenue in 2017, up about 50% from last year. But Qualtrics is far from an overnight success. Smith started it 15 years ago. Pluralsight and Insidesales (No. 92 on the Cloud 100) are both 13 years old; Workfront (58) is 16, and Health Catalyst (64) is approaching a decade. Even Domo, as James’ second company and the one built the most on Silicon Valley tactics, is 7—the average age of a startup exit.
Slow and steady growth, with a focus on profits over nascent market share, may seem old-fashioned, but with flame-
outs proliferating in Silicon Valley, that Utah bootstrapping culture has been attracting investments from the likes of Benchmark, Insight Venture Partners and Sequoia Capital— albeit usually after the companies are profitable and thus can negotiate with the VCS from strength.
That’s how Qualtrics did it. Smith dropped out of BYU to work on it out of a basement with his father (a former professor at the university), his brother Jared and a college roommate, Stuart Orgill. The idea: Put surveys and questionnaires on the internet, allowing anyone to conduct market research. Qualtrics raised its first outside capital only in 2012: $70 mil- lion for a company used in universities across the world and that had already been profitable for a decade.
Pluralsight first got started in software as a way for Skonnard to put online the corporate training classes that had been dragging him to Europe on dozens of roundtrip flights for three years. Profitable since its four cofounders each put in $5,000 to get under way in 2004, the company shifted gears again in 2010 to focus on providing its technical proficiency training to corporations. Pluralsight went nine years before raising outside capital: $27.5 million from Insight and then $135 million from Iconiq Capital, Utah-based Sorenson Capital and others so it could make eight startup acquisitions and absorb their offices.
James didn’t take venture capital for years at Omniture. When the company went public, it was still something of an oddity to Wall Street—less so when Adobe acquired it for $1.8 billion three years later in 2009. With his second go, for Domo, James raised money the Silicon Valley way: $690 million in seven years for a company that connects all of a customer’s sources of data, up to 300 billion rows per client, to track the health of the business in real time. But that conservative business culture remains. While James drives sports cars and jets to Idaho for summer weekends, employees must remain austere. “Just because I’ve made it before, doesn’t mean we have at Domo,” James says on the way to shoot skeet with his contractor on a Saturday afternoon. “Utah’s culture generates extremely ambitious entrepreneurs who tend to be quite frugal,” says Bryan Schreier, a partner at Sequoia Capital who led its investment in Qualtrics. “I think there are more great companies per capita in Utah than anywhere else.”
With 100,000 students in the Provo area, many paying just $4,000 a semester in tuition, prospective employees emerge from universities debt-free and sales-driven. At BYU, 65% of students go on a mission as part of their Mormon faith, many of whom learn a second language. Research by BYU Marriott School professor Jeff Dyer, MIT’S Hal Gregersen and Harvard Business School’s Clayton Christensen has found that people who live six months abroad are twice as likely to start a new product or company. At Qualtrics, where Jared Smith helped instill Google-style hiring processes and interview questions upon his return from a six-year stint, completion of a Mormon mission counts as “sales adversity training,” which boosts a candidate’s résumé—bonus points if the candidate went “somewhere hard.” Until it raised $70 million from Sequoia and Accel Partners in 2012, Qualtrics was light on engineers but heavy on young salespeople willing to work relatively cheap. “That’s how you make 100,000 cold calls in a quarter and don’t get fazed,” Jared says.
Collaboration helps. You won’t find turf wars or ego-driven battles among Utah cloud companies. In June, Domo sent a delegation to Health Catalyst for four hours, and that’s quite typical. Each niche within the same field is respected by the others. While James is rare in sitting on Insidesales’ board of directors, the whole group maintain endless text threads and
Ryan Smith, CEO and cofounder of analytics firm Qualtrics, is helping make the Beehive State cloud nine for tech startups.
A herd of unicorns and a wrangler: Domo CEO Josh James, Qualtrics’ Ryan Smith, Pluralsight CEO Aaron Skonnard and Silicon Slopes executive director Clint Betts.