I’ve had the good fortune of working for a variety of great software companies since the early 1990s; further, having spent many years in consulting, I was exposed to hundreds of client companies through short engagement stints. Each experience taught me different lessons. Now, 25 years later, I’m able to draw some clear patterns I saw between companies of different stages of what appears to be a very similar path to maturity. While not all companies aspire to grow year-over-year (e.g., very successful but constantly-sized COMPanion Corp. in Salt Lake City, Utah), the vast majority do. The following are five distinct stages of a software company’s evolution based on my personal experience in the industry over the past 25 years.
1. The People Company (typically up to ~100 employees)
These are the most lovable of companies; they consist of a relatively small group of very ambitious, enthusiastic people who wear many hats to get the job done. At these companies, employees typically cite “people” as their favorite aspect of their job and customers cite “people” as the best aspect of their experience.
People companies are the basis of all software companies; it is these people who build the first iterations of the product, who market and sell those products to the first customers, and who support those customers when they need it. It’s not unusual for these companies to depend on specific people who are critical to ad hoc processes with which only they are familiar; when these specific people are on vacation or call in sick, delays and failures are frequent.
I was at Attensity at this stage from 2003 to 2005 and found the people and culture invigorating. Many of my colleagues from Omniture remember the company being in this stage until about 2005.
2. The Process-Focused Company (typically between ~100 and ~1,000 employees)
At some point, typically around the 100-employee mark, people companies realize that their ad hoc, people-specific processes aren’t scalable and are no longer suited for their new-found size. They inevitably begin a transformation to a new stage of company, a stage focused on well-defined processes that depend on generic roles that are filled by one or more people. This transformation is not easy and frequently takes years to complete. In fact, some companies are unable to successfully complete this transformation and are destined to remaining at small scale, although that is just fine for many companies who aren’t seeking growth.
It is in this stage that the company’s cultural norms are stressed and challenged as the new talent, typically recruited from bigger-name companies in the same industry, bring their ideas and philosophy to the existing talent who feel a personal investment in the company’s traditions. For this reason, this is typically the most culturally-difficult stage in a company’s lifecycle with company veterans feeling like the company is becoming “too bureaucratic” and newcomers frequently stressing that “change is necessary”. I love this stage :-).
Before being acquired by Adobe near the end of 2009, Omniture blasted through this stage very effectively growing from 100 to well over a thousand employees in a matter of a few years. At roughly 450 employees today, inContact is currently making great strides in this stage as we standardize processes, manage increasing scale, and optimize operations.
3. The Automation & Systems Company (typically between ~1,000 and ~10,000 employees)
What’s next after you’ve figured out how to standardize processes and leverage industry best practices? The answer is typically to introduce continuous improvement programs that leverage the automation and systematization of just about everything: new customer on-boarding, employee performance reviews, voice of the customer programs, contract “quote to cash”, employee training and on-boarding, and so on…literally everything becomes a target for increased efficiency and optimized results.
In short, software companies in this stage have generally figured out the formula for success for their product set; what’s necessary now is just making it better, faster, easier, and more profitable. I was fortunate to have been part of Siebel Systems‘ rise through this stage before it was acquired by arch rival Oracle in 2005. When I joined Siebel, it wasn’t about figuring out the products or the processes, it was about scaling those processes ensuring their repeatability as the company hired hundreds of employees monthly to keep up with its fantastic growth rate.
4. The Company of Companies (typically between ~10,000 and ~100,000 employees)
Software companies in the tens of thousands of employees are typically at a scale where they’re adding to their portfolio of businesses by acquiring and growing neighboring or related technologies. Some companies reach this stage below the 10,000-employee mark; however, most are in the tens of thousands of employees. One contemporary example of a company on the high end of the employee count is the venerable Oracle. At just under 120,000 employees, the company is a conglomerate of somewhat-related, constantly-being-integrated business software products: from database management systems to CRM systems to ERP systems. Oracle is a software company of software companies, with each being a successful standalone business in its own right. Microsoft is another such example of a “company of companies;” of course, some might argue that Microsoft is working its way to the ranks of the next stage of software companies.
5. The Institution (typically > ~100,000 employees)
Few brands are recognized on a worldwide basis than the three letters, “IBM“. The company, at well over 400,000 employees worldwide and revenues in excess of $100 billion make it more than a company, it’s a household brand. And, more importantly, it can leverage that name in just about any business. At this scale, these businesses aren’t just entirely distinct business units that are run nearly completely independently, they’re frequently so varied that it’s sometimes surprising they’re under the same brand umbrella. In IBM’s case, its businesses span enterprise software, computers, printers, ATM machines, software development platforms, accounting services, IT consulting, call center outsourcing, and the list continues.
I thoroughly enjoyed my years at IBM’s then-called Global Services division in the mid- to late 1990s. At a company with this kind of scale, there was never a shortage of experts in any field you could imagine who can assist with a project, more education courses being held than you could possibly attend, and lots of opportunity to learn how the few truly large institutions are run.
An interesting thing to consider given these five stages is which stage company do you most enjoy and are you most likely to succeed in at this point in your career?
This post is featured on Wired Magazine‘s Innovation Insights.
7 thoughts on “The Evolution of Software Companies: A Personal Account”
Interesting perspective. I think I’m glad I’m just a simple fireman though :).
Wade, software companies would be honored to have you among their ranks!
Disclosure – you and I worked together at Omniture during “Stage 2”, and I fully agree with your assessment, especially stages 1-3. It’s interesting the challenges that come up to transition a company from stages 2 to 3. The “internal strife” can derail efforts to introduce process, and often I’ve heard complaints that “all this process” reduces the ability to be “nimble”, as companies in stage 1 often consider themselves to be.
I’ve also seen some ‘backlash’ during stage 3, where the drive for efficiency coupled with effectiveness begins to ‘threaten’ certain teams/individuals. The risk of being made redundant can introduce a combative/defensive corporate culture at some levels that sometimes needs to be managed appropriately.
Not surprisingly, I agree with your experience here.
As I consider some of the biggest challenges that stem in stage 2 but sometimes propagate into stage 3, they’re frequently rooted in bad hires (made in stage 2). As I mentioned in the post, stage 2 frequently brings “big company” outsiders into the fray; with all due respect and humility, I’d argue you and I were exactly that during our Omniture days. These outsiders, if not sufficiently able to scale their experience down to the appropriate level, can overly-complicate a company’s processes unnecessarily. I’m sure you’ve seen this before: a new leader from a stage 4 or 5 company brought in to an early stage 2 company and, unable to fathom the scale difference, introduces gargantuan, bureaucratic, and counter-productive standards into a nimble organization under the false banner of “best practice”. I’m very sensitive to this as I lead that transition in my own stage 2 company currently.
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Another interesting point in this lifecycle occurs at the acquisition stage…articularly when a company at stage 2-3 acquires a company at stage 1-2. This can be akin to the “bad hire” scenario you describe above, but compounded by the fact that an entire company (typically lacking acquisition experience and fundamentals) is now pushing the newly acquired entity to leap-frog stages in the maturity model.
Jack, thanks for your thoughtful addition. You are exactly right: acquisitions tend to accelerate and force an uncomfortable “leap-frog” (as you call it) of stages for the acquired company. That topic alone warrants its own post!