WITH KPMG THE GREAT REWRITE: DIGITAL REINVENTION
FROM TRACTOR MAKERS TO LIBRARIES, SMART ORGANIZATIONS ARE TURNING DIGITAL THREATS INTO OPPORTUNITY
John Deere’s digital technology lab in San Francisco sometimes raises eyebrows. “There’s a WeWork space not too far away, so startup people walk by our office and say, ‘Hey, what’s John Deere doing here?’” said John Stone, senior vice president of Deere’s Intelligent Solutions Group. Now and then, someone pops in looking to buy a tractor. Set amid tech companies like LinkedIn and Salesforce is exactly where Deere wants to be. Countless companies, large and small, have been blown to bits because they underestimated the impact of digital disruption, the changes in customer expectations it has created and the unexpected competition it can bring. The 181-year-old tractor maker has turned to software, connected sensors, machine vision and deep learning so it can keep delivering value to the farm customers it serves. “We opened that office out there to get ourselves plugged into the startup tech scene,” Stone said. After it opened in San Francisco, Deere acquired Silicon Valley machine-vision startup Blue River Technology. Its “see and spray” system uses cameras and AI to let machines in the field recognize and target individual weeds with herbicides, instead of spraying a whole field. It can reduce use of chemicals by 80 percent or more. Stone feels he has a strong pitch to machinelearning engineers who want to make a difference: “You can apply your expertise to building a better spam filter, or you can apply your expertise to reducing herbicides in farms. It’s pretty compelling, I think.” There’s no paint-by-numbers playbook for mastering digital disruption, but there are solid guidelines. A first step is to understand your core value to customers — and strengthen it using emerging technologies. It may be a product line or service. Often it’s about a relationship, a trusted brand.
“My group is supposed to push boundaries. We’re supposed to identify and invest in leading-edge technologies,” Stone said. “But the value is still connected to the machine that turns the soil, plants the seed, cares for that crop as it grows, and harvests that crop and turns it into income for the farmer.” Then it’s about attacking yourself as others would. “Look at the landscape for startups that are encroaching into your space. Think about how you might create a partnership or move to acquire them. Smart organizations launch incubated teams and/or services that could cannibalize their own status quo business,” said Steve Hill, global head of innovation for KPMG LLP. “These startup efforts may in fact shine a light on a lifeboat for the future.” Across the country in Princeton, New Jersey, leaders of the public library saw users’ needs shifting dramatically in the early 2000s.The World Wide Web was rendering reference books obsolete. Did people even need libraries? “We said, ‘Let’s kind of explode the whole concept of what a library is,’” said Leslie Burger, who was library director during the reboot. The library rebuilt itself as a community space and “lifelong learning partner” for families. A floor was turned into a coworking space, where freelancers can reserve conference rooms and use office equipment, with gigabit internet access. There’s a café, a usedbooks store and multiple daily events, from films to classes. “I think it’s about paying attention to your customers,” Burger said. “That’s as true for a library as it is for a technology company or a retailer. How to position your organization to be an integral part of the lives of the people you want to serve.” Sometimes you need to dive into a digital remake, not just dip a toe. “A toe in the water allows you to test and pivot and iterate, but you may not have time for that,” said Fiona Grandi, national leader for strategic investments at KPMG LLP. “Organizations should create environments that reward ‘successful failure,’ where new ideas are explored and developed, including redefining “ROI” in innovation terms.” Brett Bonfield, executive director at the Princeton Public Library, agrees: “You should constantly be trying things and have an appetite for failing. If every single thing we do is working, we’re not trying hard enough.” Deere has a long history of disrupting itself. The company is celebrating the 100th anniversary of making its plows obsolete by adopting internal combustion engines. “Today, that means sensors and software and data,” Stone said. Every one of Deere’s large agricultural machines leaves the factory today with a 4G LTE modem to connect to other machines, the cloud and mobile devices. Vehicles have in-cab touch-screen displays and GPS-based auto-steering systems. Farmers can access data about their crops and equipment at MyJohnDeere.com, and the company has built a digital application platform with 90 software partners. “We’ve got computer-vision systems now, internally developed, on basically all of our large ag equipment,” Stone said. “It’s on tractors, on our sprayers, on our harvesters. These vision systems have deep neural nets underneath them. That is definitely the future of our equipment. I think machine learning is going to be as core to John Deere as the diesel engine.” Don Steinberg contributed to this story.
ORGANIZATIONS SHOULD CREATE ENVIRONMENTS THAT REWARD ‘SUCCESSFUL FAILURE,’ WHERE NEW IDEAS ARE EXPLORED AND DEVELOPED, INCLUDING REDEFINING ‘ROI’ IN INNOVATION TERMS. FIONA GRANDI, National Leader for Strategic Investments, KPMG LLP
day, none of that matters as Courtemanche, 51, squeezes between palm trees and then a gap in his fence.
We’re dropping by unexpectedly so Courtemanche can show me the front steps, which will look like they’re floating in water, and the bay doors to the new infinity pool, which he’s coded to open by voice. Downstairs is the yoga studio for his wife, an instructor, and the new guest room, where his 20-year-old son, a full-time Procore partnerships manager, can crash. Back at work in nearby Carpinteria, Courtemanche can watch the house come together on Procore, tracking worker schedules and fielding questions from his contractor and subcontractors, comparing progress photos to the drawings and finding out how far over budget he’s going. Employees are used to catching Courtemanche in meetings or at lunch checking progress on his home via the app. “Who else gets bug reporting from their CEO?” he says.
Other CEOs carry on courtside at NBA games; Courtemanche is excited to have lunch with construction celebrities like Dirty Jobs host Mike Rowe. But when it comes to ambition, Procore and its CEO fit right in with the brashest high-fliers in tech. “We believe we’re just in the early days,” Courtemanche says. “I want Procore to be the single source of truth for everything in construction worldwide.” At orientAtion At Procore’s headquarters, a record batch of 59 new employees and summer interns gladly take a break from a log-in credentials lecture to meet their CEO. Courtemanche, oozing beach-dad charm, has dropped in to tell a few jokes and take questions. Procore’s founding legend comes up. Does he still own the house that inspired all of this? “I still have my Land Rover from 1998, the same house, even the same family,” Courtemanche quips. “That house is Procore.”
In 2002, when he founded Procore, Courtemanche was a moderately successful tech executive in Silicon Valley, making custom interfaces for online HR software. On the road constantly, Courtemanche had received an ultimatum from his wife four years earlier: She and their son were moving south to Santa Barbara, and he was welcome to join. She’d picked a home, too—one that would need a lot of work. At first flying down on
“Who else gets bug reporting from their Ceo?”
ONE VC PASSED: “MAKE IT A SOCIAL NETWORK AND I’LL WRITE YOU A CHECK RIGHT NOW.”
ed, the iPhone was still one year into the future and Wi-Fi was virtually nonexistent. Procore ran on laptops and required internet connections, still rare on job sites. Courtemanche and Zahm were known to fly across the country to rig up homemade hot spots for clients at a loss. When Courtemanche brought the app to Sand Hill Road to meet Silicon Valley venture capitalists, he was laughed out of town. At Sequoia Capital, a lowlevel analyst told him that focusing on one industry vertical was a sucker’s play. “Make it a social network and I’ll write you a check right now,” Courtemanche remembers him saying.
When the financial crisis hit in 2008, home building froze in its tracks. Courtemanche mortgaged his house and, along with Zahm, cut his salary to zero. All but five employees were laid off. Investors expected to hear that the startup was shutting down.
But Courtemanche was stubborn. He was convinced that construction would need IT eventually. When it did, Procore would be ready. Slowly, trends shifted in Procore’s favor. Construction companies began revisiting their workflows; younger workers, who expected software to be part of their job, entered the industry. In 2010 Apple launched the iPad, bringing a sturdier device to worksites, which increasingly had access to Wi-Fi. A decade into operations, in 2012, Procore was still small, with sales of just $5 million, but growth started to hockey stick. Silicon Valley finally took notice: In 2014 Bessemer Ventures led a $15 million investment round, then poured in another $30 million alongside Iconiq Capital ten months later.
Procore’s customers were starting to get much bigger. Managers at Wieland, a 61-year-old Michigan contracting firm that operates $325 million of projects a year, have used Procore since late 2015. At Wieland’s multimillion-dollar paper mill project in Wapakoneta, Ohio, team leaders and managers are equipped with iPad Pros so they can check drawings and updates on Procore at all times. Because Procore doesn’t charge by head count but by subscription, subcontrac-
tors and partners working with customers like Wieland end up using Procore for free and then often spread it to their other projects. “We have a motto, and it’s simple: 100% Procore,” says Rob Krueger, Wieland’s CEO.
As Procore has added features to cover things like safety inspections and financing, it’s been able to crack some of the industry’s biggest players, like Mortenson, a $4 billion-in-sales construction giant based in Minnesota, which pays an estimated seven figures a year to keep 2,000 employees on the app. Landing these bigger customers has allowed Procore to raise a war chest of $180 million in funding since 2015, reaching a valuation of about $1 billion in late 2016.
Construction tech is now red hot, and Procore has attracted challengers both big and small. Software giants Oracle and Trimble each made $1.2 billion acquisitions in the space in the past six months, and VCs who missed out on Procore are now backing newer startups. And at least one rival quietly bid several billion dollars for Procore in the past and was rebuffed, sources say. Procore declined to comment on the overture.
Still, thanks to its years of survival, Procore’s product looks to have a head start. “I don’t think there are many companies challenging Procore that can hold a candle to their size and strategy,” says Derrick Woods, an analyst at Cowen.
In a little cliffside clearing overlooking the Pacific on Procore’s campus, the management team, sweating in the July heat, forms a half-circle around Courtemanche for their morning standup meeting. Now at 1,200 employees, Procore instituted the meetings companywide several years ago as a salve for the chaos of its rapid growth. Later that day Procore will announce a partnership with Sage, an accounting software maker and erstwhile rival. Elsewhere, cross-functional teams are working on additional versions of Procore’s app for property owners, subcontractors and enterprise-size customers.
Those releases could be the last touches Procore needs before filing to go public ahead of an IPO, which insiders say is likely to come in early 2019. In internal meetings and with customers, Procore is already acting like a public-companyto-be, battening down the hatches for Wall Street to get its first close look at the numbers of an ugly duckling startup turned cloud leader.
Courtemanche says that after all these years, he’s not planning to hang up his hammer once he rings the market bell. As with his house, the vision for Procore may grow grander, but it’ll be the same foundation. “I’m a dog on a bone,” Procore’s CEO says. “I won’t be able to walk away.”