from the December 2016 issue

WalkMe chosen as most promising 2016 startup

WalkMe CTO: We designed the company to be big, and we really mean that. After surveying high-tech insiders in Israel including investors, entrepreneurs, and venture capitalists "Globes" has chosen WalkMe, the enterprise guidance and engagement platform, as Israel's most promising startup for 2016. Previous winners of the award include Mellanox, Outbrain, Fiverr, GetTaxi and StoreDot. CEO Dan Adika, president Rephael Sweary, and Eyal Cohen founded WalkMe in 2011 (Cohen left the company).

Described by their associates as modest, Adika and Sweary, who avoid the media spotlight, declined to be interviewed on the occasion of their company's selection. Adika is permanently located in San Francisco, while Sweary lives in Israel. When we visited the company offices on the corner of Walter Moses and Kremnitzky Streets in Tel Aviv to interview VP R&D Nir Nahum, Sweary dropped in for a few minutes to say hello and talk with us a little about the company's business model. "You won't even find a photo of me on the web. I don't like it," he told us.

WalkMe has raised $92.5 million since it was founded ("The half million is the most important, because it's the half million we started with," Nahum quipped), hinting at both the company's potential and its size, meaning its revenue turnover from which its value can be derived (although a startup's value is dynamic, changing almost every quarter). The company already has 300 employees ("The number will grow by the time this story is printed"), including 190 in its rather elegant offices in Israel.

"Our solution is designed to simplify the user experience in the technology era, whether it's a website or a mobile app," Nahum offers as an explanation of what WalkMe does. Nahum, who joined the company just over five years ago, shortly after it was founded, is a pure technology geek. It is hard to ignore the sparkle in his eyes when he explains the WalkMe solution to us, using examples of the company's major customers to help us understand (maybe because we insisted). "For example, take, a major customer management software solutions company listed in the US at a $50 billion market cap. Like other online systems, it's very complicated. A new salesman coming to work at and trying to learn its software will get lost. We help him learn how to work with the software."

Here is an example of how WalkMe's solution works: one of a salesman's most common actions is writing a price book. "Without help, he's likely to take an hour to find it on the website," Nahum says. "Our solution enables him to create a query, "How do I make a new price book?", and he gets a gray window directing him where to go on the website, what link to click on, and so forth. Actually, it accompanies him throughout the entire process he has to go through. It leads him. This is our internal use case solution; it's aimed at helping to train a new employee how to use the software he'll be using regularly. We also have an external use case solution, as in the case of eBay, another big customer of ours, designed for someone selling merchandise on eBay, and there are a million such people. On eBay, we teach them how to be salesmen."

"Globes": In the internal use case, does this mean that you replace human training?
Nahum: "Yes, you could say that. Instead of a veteran salesman working together with the new salesman, the WalkMe software will work with him. We have a customer that used to have classrooms, and no longer has them, because the WalkMe solution has replaced them."

But doesn't that require greater technological ability from that new salesman?
"No, and that's what's good about our solution. Even our liaison personnel with our customers don't have a technological background; their background is more in support, marketing, or training. We give them a tool that improves the user experience. Their alternative is to beg their development teams to develop some kind of training software. WalkMe gives them the power - they can make up any kind of training they want."

What happens when the user doesn't listen to WalkMe's instructions, and refuses to be led?
"First of all, that happens, and it's OK. Secondly, when it happens, we recognize it, and we can warn him or go with him. We try not to bother him too much, because using our solution is a deliberate act, and the user can always turn it off. The training sometimes includes 20 steps, and the user turns it off after five of them, and that's fine, because we gave him the initial push. Our added value is that we helped him at the beginning."
Adika: This company is our life

Adika was previously an HP software engineer before Cohen, who came up with the original idea, recruited him. In a short interview in late 2012, about a year after WalkMe was first founded, Adika said, "It wasn't easy at all. One of the biggest problems in a startup is that you don't know what's coming tomorrow. You build everything from scratch, work hard, and hope it succeeds. This company is our life. We sat in my home garage and worked hard for a year and a half. At the same time, Rafi (Rephael Sweary) was doing amazing things in marketing, such as blogs, articles, and creating good connections with the Internet. Friends and family helped us with financing at the beginning." Adika added, "Rafi and Eyal (Cohen) are family men with children, and so the development base stayed in Israel. I went to San Francisco to build something big, because we think that the company will change the face of the Internet. It's reinventing the entire user experience."

Four years have passed since that interview, and it can now be seen that Adika wasn't just whistling Dixie. WalkMe has more than 800 organizations as customers. The company is a pioneer in its field, and as of now has no competitors breathing down its neck. WalkMe's better known customers include Kimberly Clark, 3M, SAP, Mastercard, Adobe, AT&T, Comcast, Microsoft, and many others. "You could say that one third of our customers use our solution to bolster their productivity, one third for customer support, and one third to increase their revenue," Nahum declares. Give me an example of an external use case.

Nahum: "One of our customers is a company that builds a website for anyone who doesn't know anything about building websites and wants to build a website for his self-owned business, such as grocery store owner. The grocery store owner gets into trouble when he tries to build a website by himself, and calls the company's support. Every such call costs money. In this case, using the WalkMe solution significantly reduced the number of calls for support services. WalkMe doesn't necessarily eliminate the need for support services, but it cuts the number of calls and reduces costs for our customer, while enhancing the satisfaction of his customers, such as a grocery store owner."

How do your customers measure your effectiveness?
"For the external use case, the customer measures the number of calls to the support center before and after. For the internal use case, effectiveness is measured by surveying customer satisfaction and by our analytics solution, which measures the frequency with which the WalkMe solution is used. We also have a machine learning solution called Abra, which enables us to analyze surfers' behavior and develop insights on the basis of information we collect about them, thereby improving our solution. WalkMe both finds the problem and offers a solution for it."

Doesn't it sometimes happen that after a user uses WalkMe a number of times, he manages by himself, without you?
"That's a good question, and the answer is not necessarily, because the systems that WalkMe helps you work with are constantly changing, are being upgraded, their versions are being revised, etc. We have three programmers working just on, because its systems are very closely tailored to the users' needs, which means that they change a lot, and it's harder to get used to change than to something new. Every time the system changes, the need for our solution becomes greater."

How does the company's business model work?
"We are a software as a service (SaaS) company. We sell licenses to use the software as a subscription, usually for one year. Our price is a function of the number of users in the organization, its size, and whether the use is external or internal."

Website guide developer WalkMe raises $50m
At this point, WalkMe's executives stress that the SAAS model is not easy for investors to digest, and especially not for the US Securities and Exchange Commission (SEC). They say that some investors assert that WalkMe's key performance indicators (KPIs) are exceptional in comparison with all other SaaS companies (which focus on B2B solutions).

"For a SaaS company, looking at revenue is a mistake, because you think of it as an ordinary software company. Let's say that on December 31, 2015, I sold WalkMe's software to a customer for $10 million, and he paid me the entire amount. I can't recognize this revenue, because I haven't provided the software to him as a service. Take Tami 4, for example: when you buy a device costing NIS 1,000 and pay NIS 100 a month for it, say, then the more devices Tami 4 sells, the more money it loses, because it doesn't recognize NIS 1,000 in revenue; it recognizes only the NIS 100 it gets each month. As a private company, the KPI we report to our board is therefore different than what we would have reported as a public company, because the SEC doesn't know yet what to do with the SAAS business model," Nahum explains. Nahum asserts that the company's annual recurring revenue (ARR) doubled or tripled in each of the past three years, and that the company has deliberately chosen not to make a profit. "When you're an SAAS company, the faster you sell, the less profit you make. So we recently chose to raise money ($50 million last June), so that we could continue to grow at the same rate," he said.

Now for the obvious question: When will you have your IPO?
"Sometime. When all parts of the puzzle are ready. It's a maturing process. What's great about WalkMe is its ability to devise different kinds of training for different employees. The training for a salesman isn't the same as training for a marketer, and that has been, and still is, WalkMe's big advantage. This is what has enables us to leave the competition behind.

"In general, we designed the company to be big, and we really mean that. We've built a company that can stand on its own two feet. We didn't just try to develop cool technology, so that someone would buy us. We built a business."

Reprinted from the Israel High-Tech & Investment Report December 2016

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