To say that Veeva Systems (VEEV 0.59%) has performed well as a publicly traded company would be an understatement. While the stock itself is actually down since its post-IPO days, the company's fundamentals have vastly improved during that time frame.

The cloud company that focuses almost exclusively on the pharmaceutical industry has seen its client list grow, while the number of offerings has exploded. All of this is helping to build a very strong moat.

Image source: Getty Images.

However, it doesn't mean that Veeva is immune to risks. Foremost among those risks right now are growing pains. These phases are normal as a company transitions from a start-up to a market leader, but it's a process that should prompt caution for investors.

But first, you must understand the moat

Veeva got its start when founder and CEO Peter Gassner was working at and noticed that pharmaceutical companies had very industry-specific cloud needs that couldn't be addressed by what Salesforce was offering.

When he founded Veeva, a suite of customer relationship management (CRM) products became the bread and butter of the business. But since then, the company has spread its wings. The most important segment now is Veeva Vault, which helps companies bring a drug from the idea stage to market, while collecting all of the necessary data and complying by all of the necessary regulations, all from a single platform.

As you might have guessed, such a convenient service ends up building an enviable moat around it in the form of high switching costs. If I run a drug company, and I have all of my employees trained -- and all of my data stored -- on a single platform, I don't even want to think about switching. Not only would that include a slowdown in work as a retrain my workforce, but it also creates operational headaches that just about no one wants to experience.

That alone is a powerful reason to own the stock, and helps explain why it occupies over 3% of my real-life portfolio.

The dark underbelly to high switching costs

Here's the catch about building your moat around high switching costs: You have to defeat high switching costs to gain traction. By that, I simply mean that if Veeva wants to replace the entrenched systems in place at drug companies, it has to convince potential clients that the switchover is worth the time, money, and headaches that it will undoubtedly create.

It accomplishes that task on two fronts: offering a superior product and having a stellar, committed sales force. Based on the number of awards the company has won and customers it has acquired, I'm not worried about the former. But after perusing a number of reviews on, I'm going to keep the latter on my radar.

While Gassner's employees still give him high marks (an 85% approval rating), the overall distribution of company reviews has trended downward.

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And the picture got a little bleaker when I looked at what employees said just during the past year. The breakdown of the reviews looked like this:

Overall Rating

CEO Approval

Would Recommend to a Friend

Positive Business Outlook





Data source: between Jan. 1, 2016, and Jan. 1, 2017.

This doesn't paint the most flattering view of the company. To be sure, it's clear that these employees understand that Veeva has caught lightning in a bottle -- 70% have a positive outlook for the business, and 20% have a neutral outlook. Only 10% have a negative outlook.

But there were some common threads among the complaints: a lack of work-life balance, a vague career track within the company, and a difficult time collaborating with others as a result of silos that exist in the company.

The last point -- regarding collaboration -- is the most alarming, because the very best companies find a way to integrate the work of all employees toward a common goal. When silos form, it becomes very difficult for that to happen. And if it's happening now, change will be hard without serious rethinking of how the company does business.

How I'm approaching this risk

To be clear, none of the concerns raised in the reviews is enough to serve as a foundation for a solid buy or sell decision. While Glassdoor has its place as a data point in making decisions, it has shortcomings as well.

My own personal takeaway is that the company is simply having growing pains. The world's largest and most successful companies are able to find ways to navigate the process of growing up. Alphabet's Google, for instance, has an average Glassdoor rating of 4.4, and Facebook clocks in with a 4.5.

Veeva's traction in finding new customers, trends on Glassdoor, and spending on sales and marketing -- which increased 56% through the first nine months of last year -- will be the factors I monitor to gauge the situation.

No company is without risks, and for the time being, I'm more than willing to accept these risks with my own investment.