An Interview With Ryan Smith

In the following interview, The Motley Fool talks with Qualtrics CEO Ryan Smith, one of Forbes' "Most Promising CEOs Under 35." Smith's online data collection and analysis platform has enjoyed meteoric growth and success in its quest to "help companies be right."

Smith shares his insights on big data, the value of hard work, learning from the successes -- and failures -- of others, and of course why he wouldn't sell his company for half a billion dollars.

A full transcript follows the video.

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Brendan Byrnes: Hi folks, I'm Brendan Byrnes and I'm joined today by Ryan Smith. Ryan is the CEO of Qualtrics, also recently No. 2 on the Forbes list of CEOs under 35, and you recently turned down $500 million for Qualtrics. First of all, thanks so much for your time.

Ryan Smith: Thanks for having me out.

Brendan: I was wondering if maybe you could give us a quick elevator pitch of what Qualtrics does, exactly.

Smith: We've created a cloud-based platform that helps organizations gather insight, anywhere from the Voice of the Customer programs to any type of data collection that could happen within the organization, on the employee side or testing products. Basically, we're helping companies be right.

Brendan: How did you realize there was such a big market? You're growing rapidly. How fast are you growing, first of all, and how did you realize there was such a big market for your products?

Smith: We've had triple-digit growth pretty much every year. We're acquiring about 600 enterprise customers a quarter, which is pretty hard to digest, but we're doing a pretty good job at it.

I think that the market's changed. I think the market's changing as work coming in as well, primarily from organizations that want to be data-driven. It's absolutely critical to compete right now. I think organizations that master it are going to be the ones that win.

As they start seeing the effects, that they don't have to guess anymore, that they can capture this data and make decisions on it and be right, you're going to start seeing that becoming even more and more popular. I think the market's definitely growing.

Brendan: You started out with mostly business schools, transforming into companies. Could you give us an example of what companies would use, specifically, your data for?

Smith: Yeah. We started out in academia. We only focused on business schools. We had 1,300 universities and now, in about 2007-08, we really started shifting toward the corporate market as well and we have over 5,000 enterprise.

You could have a retailer, Bonobos for example, who was testing and doing research on how to build a better-fitting shirt. Or you'll have large airlines or cruise ships running all of their Voice of the Customer, the customer satisfaction.

The goal is that all the data that's being collected within the organization is in one spot, which is very powerful because it's very difficult if it's fragmented or it's sitting in four or five different locations or formats, to be part of the data initiative within the org, or integrate back into Salesforce.com, or other systems like that.

We're seeing everything come together into one platform, and trying to get the organizations to talk to each other because it's really important to use this data to make those decisions.

Brendan: You recently received $70 million in capital from Accel Partners and also Sequoia Capital, but you've been profitable for a while and you've said you didn't necessarily need the money, so why partner with them?

Smith: We didn't. We didn't need the money. We've been profitable. We have 200 employees and we've been doing very well in acquiring our customer base. The challenge is, as we look ahead, we really believe in this "nail it before you scale it" philosophy, and I feel like we've done a really good job of nailing it, and really want to scale it.

We want to open up international, which is what we're doing pretty much this month. We're growing at a level where we've tripled our workforce in the last three years. We doubled this year. We hired 60 employees last quarter.

There's challenges and opportunities that are going to open up, where we want some of the brightest minds around us. I think we've done a phenomenal job at partnering with Accel and Sequoia, and we haven't been disappointed up to this point, and we're really excited for the future.

We really view them as partners. If you look through our deal, and how this whole process went about, we wanted to partner. We didn't want someone that could just write a check. We wanted someone that was going to be there with us, to help us when we needed it.

Opening up internationally is a great example with that. I think they've both been heavily involved in either connecting us with other portfolio companies that have done it, or really just being on the ground with us.

Brendan: As I mentioned earlier, you turned down the $500 million for the company. Why did you do that, and how difficult of a decision was that?

Smith: When you build a company to keep, or you build a company with a long-term vision, and you're profitable, and you bootstrap, you're going to get a lot of offers. Those are going to continue to come. I think that's part of it.

But we've been, historically, a single-product company. We're building on our entire platform and we're launching new products. Most of our revenue was U.S.-based. You start looking at it and saying, "Wow, this is a billion or multibillion dollar opportunity." I've been around enough to know that those are rare.

Aside from the money, I think we're doing something great. We're changing the way people do research, and we're changing the way that data's being collected and digested and turned into insights within the organization.

Watching that, it's bigger than money. It's actually pretty fascinating.

Brendan: With this big opportunity -- you mentioned multibillion dollar opportunity -- people notice that. The big companies notice that, but yet you have some big companies also, that are your customers, like Microsoft.

What are some competitive advantages that Qualtrics has that can maybe fend off if one of these deep-pocketed giants -- maybe Google, say -- want to come in and try to do the same kind of things you're doing? How do you fend that off?

Smith: This is the million-dollar quest. The billion-dollar question.

Look, I think this is what we focus on. This is what we do. This is who we are. Now, organizations have always tried to do this but, I think, No. 1 is we develop great products that are phenomenal. We've got great customer experience and support within our org.

But, look. I don't spend a lot of time focusing on them. We're busy focused on what Qualtrics is going to do, and how we're going to dominate, and everything that we're going to come up with. That will take care of themselves. I can't spend much time worried about what Google's going to do.

Brendan: One of the things we're big on at The Motley Fool is how culture plays into the performance of a company. When you look back, some of the biggest winners of the past couple of years -- companies like Whole Foods, Netflix, Salesforce.com -- are also coincidentally the highest-rated on Glassdoor.com.

We don't think that's a coincidence. Could you talk about how Qualtrics' culture plays into your strategy and also, especially with such a fast-growing company, how you bring so many people in at the same time and still preserve that culture?

Smith: Yeah, it's challenging. We've onboarded 150 people. We doubled our workforce last year. We've got a very transparent culture -- extremely transparent.

Everything we try to do is to get information into the hands of the employees. We're hiring people to think. I think that's very important to understand, because it's not 1985, where you've got specific roles for people, that that's all they're doing.

We're actually hiring people to sit in front of a computer, and go blow it up. With that being said, I think the No. 1 reason why companies fail is because they either get inward focused, or they're externally focused on a million different things. It's not because they're stupid or they're not smart.

What we tried to do is figure out, "What would people want to know? What's going to enable them?" and turn the default from being closed with information, to being transparent, and try to get everyone rowing in the same direction.

Doing that while onboarding that many people is definitely challenging, but I think that our culture will change over time. It's always going to change. I can't set that, but I think our culture keeps getting better and better, as we grow, which is the goal.

Brendan: Taking kind of a 30,000-foot view, big data era is here. How do you see it evolving over the next 5-10 years or so?

Smith: It's a question I get all the time. What does big data mean to you? I've sat on a couple of panels where they're discussing big data and everyone's describing it differently.

I think that the big data... it's a problem. I don't think for many people it's the terabytes of data that people are worried about. It's more -- not the depth but the breadth.

Now, there are companies that are worried about the depth of it, but most people I've talked to, it's more around, "We've got so much of it. How do we interpret it? How do we make it actionable?" That's the problem we're solving.

I believe in getting data fast. If I were to make an argument it would be that the most important data in your company -- or the stuff that you need -- is the data you don't have, which is, "What's the name of the new cruise ship?" "What should I do with this product?" because that's not sitting there.

How do you get it quickly, then how do you get that and make it actionable and have it in one spot that can integrate with all your other data initiatives? That's the problem that we're solving.

Brendan: What have you learned in the past? I don't know if you've looked at high-growth companies in the past, maybe, that have been big successes or big failures in the tech world. Do you take any lessons from them, specifically?

Smith: Very much so. I think they're equally important. A lot of times I look at some of the companies that have failed, or haven't achieved their potential, and tried to digest what went wrong. I surround myself with some of those people, who have regrets or had a huge opportunity that didn't pan out the way it could have.

Then I also look at companies that I admire. I really admire Salesforce.com. I admire what they've done. I've admired how they're scaling. LinkedIn is a fascinating company to follow and watch, and I think they're as disruptive as anything that's out there, and that's been amazing to watch.

Brendan: How about leaders? As a young CEO do you look to different leaders, learn from their example? Are there any in particular that stand out to you?

Smith: I think I look a lot more at the companies, and what's going on, but as you look at that... You look at Salesforce and see Benioff. It's definitely an impressive company, but I think it starts with the leader. The LinkedIn side of it is very similar.

I read a lot. I read a lot about leaders, not only in tech but outside of tech. I'm reading a book right now about presidents of the United States. I'm going through all of that.

Yeah, I think you've got to. If there's anything... we're all trying to get wisdom beyond our years. How do you get 20 years of experience, or not fall into the same traps, or the holes that other people have fallen into?

I think it's absolutely critical. I think it's critical for organizations to do the same thing as well. It's something that we're trying to do with our employees. How do we get everyone five years more experience, tomorrow?

Brendan: When you're talking about a triple-digit growth rate, that we spoke about earlier, do you worry about growing too fast?

Smith: You can often run in front of the team, which is scary. We've gone with this "nail it before you scale it" philosophy.

There's a strong argument, and we've seen it, that if you can nail it -- or have more certainty that you're growing in the right direction -- you'll be farther ahead because you're actually plowing through growth at a 95% certainty rate, and you're coming in with more aggression than if you were 40% of the way there and thinking you're doing the right thing.

As far as growing too fast, I think it's a concern. I don't think we're anywhere near that yet.

Brendan: About half of the Fortune 100 companies are currently using your products. Can you talk a little bit more about that shift from academia to getting these businesses on board? How that happened, and was that a big challenge? That's really where the growth is, right?

Smith: Yeah, it's definitely where the growth has been. We love our academic upbringing and we wouldn't trade it for the world. I think we learned a lot. In 2007 and 2008, that's where the big shift came, for us.

The companies that we were calling in 2004 weren't listening to us, or didn't have a need, or didn't see the value of it. It's kind of a weird time, because that's when the recession started happening. I used to wear a pin that said, "I will not participate in the recession." It's not for us.

It's almost like it was high fives and chest bumps all around in 2005 because everyone was making money. Companies really started to struggle, and ask why. They couldn't throw mud at the wall and see what sticks. It was a shotgun approach. They had to hit.

If you just think about every company, if they were able to execute 100% of the time, and be right, it would be a phenomenal place. We started seeing companies, who historically had not wanted to pay attention to the data, become extremely data oriented in the downturn, and our business took off.

I think that those companies who have maintained that scrappiness and just wanted to measure a couple more times before they cut, and then cut very aggressively, have historically done very well.

Brendan: What advice would you give to entrepreneurs, either young, old, that are starting a company? Or, what's the best advice that you have received?

Smith: There's two things. No. 1 is, a lot of entrepreneurs I talk about are trying to scale before they have a clear idea of where they're going. I think that there's a balance there that needs to be looked at, because once you've got a better idea you'll be able to scale very quickly. Now, that's not always the case.

The second is hard work is a competitive advantage. Recently, I'm here in New York City with a client event. We had 150 corporate customers in a room yesterday.

Four years ago, I was riding on the subway with my trade show booth between my legs and my bags on the train, coming from the airport because I didn't have enough money to get a cab. We were printing our business cards at Kinko's, while we were out here.

It was hard not to think back and say, "We have this many customers filling a room in New York City, and we just did the same thing in Chicago. Hard work pays off." We're a 10-year overnight success, but I think if you look around, most companies who do succeed have been at it for a long time.

Don't be impatient, and hard work will get you there. If you stay the course, then it's amazing what execution can actually do.

Brendan: Ryan Smith, CEO of Qualtrics. You guys going to go public any time soon? Are people going to be able to invest in you?

Smith: Well, I think the bigger we get, the more opportunity. We look at things, but for now we're pretty heads-down focused on our growth.

Brendan: Great. Ryan Smith, thanks so much for your time.

Smith: Thank you.


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