CLOUD’S NEW CAP­I­TAL

Forbes - - CONTENTS - by ALEX kon­rad

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.

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