WITH KPMG THE GREAT RE­WRITE: DIG­I­TAL REIN­VEN­TION

FROM TRAC­TOR MAK­ERS TO LI­BRARIES, SMART OR­GA­NI­ZA­TIONS ARE TURN­ING DIG­I­TAL THREATS INTO OP­POR­TU­NITY

Forbes - - CONTENTS - By Leonard Brody

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.”

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