Feb. 9, 2017, will go down as one of the toughest days in Apptio’s history.
It had been less than five months since the Bellevue, Wash.-based enterprise technology company pulled off a successful initial public offering, seeing its shares climb more than 46% in its stock market debut.
But on this day, Apptio’s leaders issued guidance for the year that fell short of analyst’s expectations. Investors punished the company’s stock. In the ensuing weeks, Apptio’s market value dipped into the $300-million range, down from its initial valuation of more than $500 million, and less than half its post-IPO peak.
“That was my ‘welcome to the public markets’ moment,” said Sunny Gupta, Apptio’s CEO and co-founder, reflecting on the company’s journey in an interview this week. “And then, obviously, we persevered and consistently executed.”
Less than two years later, Vista Equity Partners acquired Apptio for $1.94 billion.
And this week, IBM announced a deal to buy Apptio from Vista for $4.6 billion — the ultimate statement about the value of Apptio’s technology, which helps companies understand and manage their tech spending.
It’s a case study in the value of perseverance, patience, and believing in a long-term vision. That’s one of the lessons to be drawn from the company’s 16-year journey. Here are a few others.
Ask people about their problems. Gupta was the previously CEO of iConclude, an IT automation software startup acquired in 2007 by Marc Andreessen-backed Opsware, which was acquired by Hewlett-Packard later that year.
After those acquisitions, Gupta found himself working for HP, and engaging in regular conversations with corporate technology leaders, recalled Matt McIlwain, managing director of Seattle-based Madrona Venture Group, which backed iConclude and ended up becoming a founding investor in Apptio, as well.
“He was asking all these CIOs, ‘What other problems do you have? What’s on your mind?’ ” McIlwain said. “And this idea of what became Apptio started to form.”
Don’t forget about data. Apptio has tripled its customer base to more than 1,500 companies under Vista’s ownership, including more than half of the Fortune 100.
Its annual revenue has grown to more than $400 million through a combination of acquisitions and organic customer growth, roughly double its projected revenue at the time of the Vista deal in 2018.
But beyond the revenue and customer base, another key source of value in the deal for IBM is Apptio’s underlying data about technology spending. The tech giant pointed out in its announcement about the acquisition that Apptio brings “$450 billion of anonymized IT spend data, unlocking new insights for clients and partners.”
Never stop building. It’s a cliché for founders and investors to describe an IPO as merely another financing event, the beginning of a new chapter and not the end of the story, but Apptio has lived by that mantra.
Even if the company’s financial results didn’t always match Wall Street’s expectations, there was significant value in being a public company when selling to big enterprise clients.
“It was worth the trade-off,” McIlwain said.
Gupta, who started Apptio in the Bellevue library and his home basement, knew that his transition from leader of a venture-backed startup to CEO of a public company would be challenging, but he embraced it as an opportunity.
“I learned and grew a lot,” Gupta said. “And then from there, going into private equity and Vista taking me under their wing, I’ve learned so much in the last four years about how to be operationally excellent.”
Apptio has more than 1,400 employees, about a quarter of them in the Seattle area, and the company’s employee base is expected to “increase significantly” after the IBM deal closes, in locations including Bellevue, Gupta said. The company’s expect the deal to close in the second half of the year.
Gupta, who turns 53 this week, started his career at IBM in 1992 as an engineer working on OS/2, and will now rejoin the company more than three decades later.
He said there’s still plenty of work ahead for Apptio as part of IBM.
“You’ve just got to keep grinding every day,” he said. “You’ve got to keep showing up with the same passion, with the same commitment to innovation and customers, and let the results speak for themselves.”
