Reinventing Progress Software—Boston’s Next Billion-Dollar Company? Part 2

Yesterday we published the first part of an extended Xconomy interview with Progress Software CEO Richard Reidy and chief technology officer John Bates. While Bedford, MA-based Progress (NASDAQ: PRGS) is one of the largest software makers in Massachusetts and was founded just a couple of years after EMC, its profile is nowhere near as high in the state, in part because it evolved as a hodgepodge of divisions serving distinct parts of the business software market.

But under Reidy, who took up the CEO mantle last year, the company is unifying both its product lines and its marketing strategy, in an attempt to explain how it can help companies increase their “operational responsiveness”—meaning their ability to sense and respond to real-time events in their markets. Reidy described, for example, how Progress is working with financial-services firms and regulators to detect insider trading and with logistics firms to improve the efficiency of shipping ports.

In the second half of the interview, below, Bates talks about his own perspective on Progress Software’s consolidation and growth. Reidy describes what the company has learned over the years about how to integrate newly purchased subsidiaries (and says the company probably isn’t quite through acquiring other companies). And the two talk about the challenges and opportunities raised by ongoing change in areas like cloud and mobile computing.

Xconomy: John, how do you describe this transition that Progress is going through?

John BatesJohn Bates: Rick set the vision when he took over as CEO of us becoming “one Progress,” with the goal of delivering solutions to our customers not as disparate organizations but as one sales force, one marketing team. We are well underway in executing that vision. Our aim is to make it so that all of our solutions can be bundled under these three capabilities of gaining visibility, sensing and responding, and business process management. Those are principally orchestrated through our Progress Actional, Progress Apama, and Progress Savvion products.

You can sum it all up into one phrase: responsive business processes. We don’t believe that any other organization can deliver that. Other organizations have pieces, but they haven’t put them together in the way we’re talking about. We have sponsored a number of research projects on this with market research firms, and 95 percent of respondents say they absolutely have to respond in their business processes to real-time information. It’s gone from a nice-to-have to a must-have. We think there is a real opportunity for Progress to steal the leadership here.

X: Do businesses need to start from a clean slate and buy all of Progress’s products together, or can they bolt them on one at a time?

JB: Progress can come in and integrate with whatever they’ve already got. One of the biggest problems we’ve seen in our customer base is people saying, “This is all really nice, but I don’t even know how effective my existing business is. I have 20 years’ worth of legacy software, layer upon layer, from different vendors, and before I start adding bits on, I don’t even know where I am.” Through Actional, which is our business transaction management product, you can non-intrusively plug into legacy applications and find out where the bottlenecks are.

X: As you noted, Progress’s growth over the past decade has mainly been through acquisitions. When you say that you want to double your revenues to $1 billion, are you saying that you’re going to do it through this bundling and this unified marketing strategy, rather than through more acquisitions?

Richard Reidy: It is the main way, but I would say that it would not preclude us from doing further acquisitions and rounding out the product portfolio. But even without acquisitions, I expect double-digit growth this year, and we feel pretty good about the future. But we probably will be doing more acquisitions this year, just to round out the strategy.

X: How has your acquisition strategy changed over the years? I’ve heard you make a distinction between “anchor” acquisitions and “tuck-ins.”

RR: We’ve historically classified our acquisitions as anchor acquisitions where we diversify, or as tuck-ins. DataDirect [a 2003 acquisition] was one of those anchors, an established, healthy business that we bought, and we subsequently did tuck-in acquisitions, using DataDirect as a primary assembler. Right now, I don’t really have the desire to diversify the company any more. Rather, I think all future acquisitions will be to enhance the existing strategy. To the extent that we may add data cleaning tools, improved visibility products, dashboarding, whatever it might be, it will all be behind this strategy of operational responsiveness. You won’t see us going into source code control or business intelligence or document management.

X: The different ways that large companies go about integrating their acquired companies is something we’ve studied a bit here at Xconomy, especially with big local players like IBM and EMC. What do you feel like you’ve learned about that process over the years?

RR: There’s a big difference in our maturity and our understanding of the process from the first three or four acquisitions we did to the last three or four. It’s almost cookie-cutter for us now. It’s not scary for us. Every time we do one, there might be a little bit of change or surprise, but generally we’re looking for the same characteristics in the companies we acquire. This could be a three-hour discussion, but culture is important. can’t think of a case where we acquired a company that was absolutely a bad fit.

One thing we learned is that whenever there are redundancies, you take the best person, and that person could be from the acquired company, not from the acquiring company. The cream floats to the top and stays with the combination. Over time, you build up a whole company that attracts really smart people. We have done a pretty good job of that, versus just acquiring a product and a few developers and firing everyone else. When we acquired eXcelon, a database company, we took the vice president of development and made him vice president of development for all of Progress, because we just thought he was a really talented guy.

Ultimately, people get the most jazzed when they think their product and their team now has the ability to own the market. If you have a more compelling strategy as the result of being acquired, that is a success. Of the 14 acquisitions, I wouldn’t say we’re batting a thousand, but we’re doing better over time.

JB: Having come to Progress through an acquisition [of Apama], I can say that it’s a good environment to come to if you are an entrepreneur. You don’t tend to find many entrepreneurs in larger companies. But creating that culture of entrepreneuring in large companies is something that Progress has done quite well. Being an entrepreneur myself, and still being here after five years, that speaks volumes. You have many big companies that are just huge bureaucracies that bog you down, and you just want to go and drown yourself after a while. Then you’ve got small companies that don’t want to take risks. You’ve got a wonderful middle ground at Progress. We’re not an oil tanker that needs years to turn. I was able to work with Rick and the team to take Apama global, but also join it with the other things where there were synergies.

X: You went through a big round of layoffs in December. When you acquire a new company, do you always look for big opportunities for staff reductions?

RR: Obviously, you don’t need two general counsels and two chief financial officers, so right away you are talking about some overhead being eliminated. Typically you keep most of the product folks and the marketing folks and the good salespeople—they are always hard to find. If we think they’re better than ours, we keep them. Savvion’s sales people are great, for example. But you do tend to trim a little bit.

But at the same time, the company is growing overall, with hiring going on throughout the company. We did have a major restructuring in December and let go 250 people. That was a result of the “One Progress” strategy. When you have seven companies, all with their own infrastructure and sales teams and marketing, there is a lot of overhead that you can put together.

X: You talk about wanting to double your revenue and become a billion-dollar company. The larger Progress becomes, the more you may be seen as one of the local anchor technology companies, and I think that brings a certain amount of responsibility to give back to the community and help to make sure that talented people have local career paths open to them. Are you ready for that role?

RR: Nothing would make me personally happier than having more of a high-tech ecosystem for enterprise software in the Boston area. To the extent that we can help drive that and contribute to that, that would be great. But we ought to keep in mind that more than 60 percent of our revenue comes from outside the U.S., let alone outside of Massachusetts. Even though we may be headquartered in greater Boston, our 250 people in India are also Progress people, not just Indians who happen to work for us. We are a global company, and therefore what goes on in Raleigh-Durham, North Carolina, is as important to me as what goes in Massachusetts.

But having said that, culturally I prefer the East Coast. The quality of the schools in this area, the whole educational system, the people, the R&D culture, and the people who really sit down, think, and analyze. It’s not just about the exit strategy here, it’s about making a company really successful and making customers successful. We just bought a California company, but as an East Coast company, I’m generally wary of acquiring West Coast companies, because it’s instantly “What’s in it for me?” Acquisition is seen as an end, not a beginning.

But at the same time, there are very few people you meet in California who have been with the same company for more than five years, and there’s something to be said for mixing up the gene pool. We’ve done it ourselves, just by buying companies.

X: Do you see Progress staying independent for the long term, or is there some chance you could get swept up in the wave of tech mergers yourselves?

RR: There are only four or five strategics [big enterprise software companies] that could afford to buy us. One is in New York, one is in Massachusetts, and all the rest are in California. The New York one being IBM, of course, and EMC being the one in Massachusetts. I don’t see any synergy with EMC, and as far as IBM, there’s too much overlap. The same with Oracle out in California. So the way I look at it, we’re very likely to remain independent. From my perspective, that is also the best way to maximize shareholder value. I am not interested in selling out at a 10- to 15-percent premium on where we are today. But I don’t own the company. If somebody comes along and makes the shareholders an offer they can’t refuse—that could happen.

X: How do you think the growing interest in cloud computing will affect the market for your software?

RR: We often use the term “future proof.” When the original Progress customers back in the early days of Unix and PCs were writing code, certainly nobody then envisioned client-server architectures or the Internet or Web services or SOA or anything like that. But that same technology has carried onward and works well in those environments. I look at the cloud first and foremost as a business model and a platform. It’s a platform in which all of our customers products and our products will plug into.

JB: A large percentage of the partners deploying our applications are deploying them in the cloud. 95 percent of new licenses for our application development platforms will be sold and licensed to be used in the cloud.

RR: But we have no intention of becoming a cloud provider ourselves. Some companies are using our tools to enable that, like BT. We are more like an arms supplier to those companies.

X: What about the mobile computing revolution—how does that change the nature of business processes and complex event processing?

JB: You’re right, the cloud is everywhere, and every object is mobile. An object that is in Seattle could be somewhere else shortly. We have to anticipate a world like that. We have a partner called match2blue that offers location-based social networking and content, with millions of users around the world. Say that they want to offer real-time networking—if two people who are both interested in the NFL come within a certain range, they might get connected. The challenge with that is that each of their 10 million subscribers is a moving event, with changing locations and profiles and desires to communicate. Knowing when you are within range of any of the other 9,999,999 users is a computationally explosive problem. But that is the kind of challenge that you have to be able to handle with business process management. We don’t have the answer yet, but we are working on it.

X: Any final thoughts?

RR: We want to double the size of the company and go to market as one Progress. We want to promote Progress as the brand in ways we’ve never done in our history, and we think we have a really effective set of products and a go-to-market strategy for those products. We feel pretty good about our prospects. We’re like a $500 million startup. We’ve got the financial wherewithal, the assets in terms of products and people and customers. At this point it’s pure execution, and I think we’ve got the right vision and the right strategy.

Wade Roush is a freelance science and technology journalist and the producer and host of the podcast Soonish. Follow @soonishpodcast

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