The successful turnaround of Secunia
Whitepaper from TBK Consult
Author Hans Peter Bech, M.Sc. (econ) TBK-WIPA-025
Š Hans Peter Bech, 2016 Unless otherwise indicated, Hans Peter Bech holds the copyrights to all materials on these pages. All rights reserved. No part of these pages, either text or image may be used for any purpose other than personal use. Therefore, reproduction, modification, storage in a retrieval system or retransmission, in any form or by any means, electronic, mechanical or otherwise, for reasons other than personal use, is strictly prohibited without prior written permission. Published by TBK PublishingŽ (a division of TBK Consult Holding ApS) Strandvejen 724 2930 Klampenborg Denmark CVR: DK31935741 www.tbkpublishing.com ISBN: 978-87-93116-20-7 TBK-WIPA-025
The successful turnaround of Secunia
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Table of contents:
3
Target audience
4
Abstract
4
Author
4
Acknowledgements
4
Introduction
5
Secunia
5
Something must be done
5
Situation analysis and mapping the options
6
Migrating from a direct to an indirect go-to-market approach
6
Partner Program kick-off
7
Reseller #100, but the course needs correcting
8
1st Secunia World Wide Partner Conference
9
The divestment process starts
9
Mission completed
9
Serving or making a market?
10
Piggybacking on Microsoft
10
Not really fit for an indirect channel
11
Changing the organization
11
The McDonalds approach failed
11
North America is special
12
Filling the gap
12
Why did the Secunia turnaround succeed?
13
About the author
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The successful turnaround of Secunia
Targeted audience
The target audience for this whitepaper is the board of directors, the CEO and the sales and marketing executives of software driven companies1 with ambitions for achieving global market leadership.
Abstract
The whitepaper describes the turnaround of Secunia from a troubled loss making company in 2013 to a profitable and growing company in 2015. The turnaround started with some internal housekeeping performed by the board of directors before they brought in a new CEO. The new CEO, Peter Colsted, then made a fast analysis of the situation and decided to implement two major changes: • Introduce an indirect go-to-market approach in Europe • Focus on selling to medium and large organisations There were many surprises on the way, but the owners supported the strategy, provided the funding required and had the patience needed for the results to materialize. In September 2015 Secunia was acquired by Flexera Software and the mission completed.
Author
Hans Peter Bech, M.Sc. (econ.)
Acknowledgements
Design and lay-out: Sordako OÜ, Tallinn, Estonia, info@kompot.ee Proof reading: Emma Crabtree, ecr@tbkconsult.com
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Independent Software Vendors (ISVs)
The successful turnaround of Secunia
Introduction
In September 2015 Secunia was acquired by Flexera Software, providing the Secunia shareholders with an attractive return on their investments. The acquisition was the culmination of a transformation process that started in July 2013 when the board of directors appointed a new CEO. This whitepaper documents Secunia’s journey from a company in trouble to a profitable company on a promising growth trajectory.
Secunia
Secunia is a provider of cloud-deployed and on-premises vulnerability assessment and security patch management software. Secunia’s solutions allow organizations to assess, prioritize and mitigate software vulnerabilities quickly and cost-effectively. The Secunia products belong in the Software Vulnerability Management category. Secunia was controlled by the two private equity funds DKA Capital and The Damgaard Company. Entering 2013 the company had accumulated a somewhat poor reputation for its aggressive direct telemarketing based sales approach in the Nordics and their international sales efforts had not performed as expected. The company was suffering from internal organizational conflicts and heavy losses. The failed international expansion projects had left the company bleeding with stagnating revenue and an increasing cost base.
Something must be done
Between May and June 2013 the board of directors sorted out the most critical organizational conflicts and assigned Russell Reynolds Associates to search the market for a new CEO. In July 2013 Peter Colsted was appointed CEO of Secunia.
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The assignment given to Colsted was clear:
Ensure a positive turn-around and prepare the company for sale as fast as possible.
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The successful turnaround of Secunia
Secunia P&L 2010-2014 Million DKK
2010
2011
2012
2013
2014
71,478
113,322
118,452
120,336
121,834
Gross profit/loss
41,82
64,612
66,105
64,773
77,996
Operating profit/loss
-1,79
-2,744
-20,303
-23,05
5,124
-18,888
-20,096
-36,106
-58,179
-45,113
60
102
126
107
97
Revenue
Equity Staff
Looking at the P&L for the years 2010-2014 you can imagine that entering the fray in July 2013 was not pretty. Cash flow is inadequate to fund operations and making investments requires asking the shareholders for additional cash. However, the shareholders know that a turnaround will require further investments and they are prepared to chip in.
Situation analysis and mapping the options
After analyzing the situation in July and August, Colsted and his management team come to the following conclusions:
1
Secunia must shift focus from the low-end market to the upper mid and enterprise market. The low-end market segments are no longer attractive mainly due to competing low cost products.
2
Outside North America Secunia must move from a mainly direct go-to-market approach to an indirect two-tier approach. Secunia must continue the direct go-to-market approach in North America.
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Migrating from a direct to an indirect go-to-market approach 6
Secunia should consider penetrating additional markets and Eastern Europe seems an attractive opportunity.
The decision to change the go-to-market strategy is supported by the fact that there is an existing channel of distributors and resellers specializing in security software. Based on existing relationships, Colsted and his team now reach out to these distributors and in September 2013 a meeting with 15 potential distributors takes place at the Secunia Headquarters in Copenhagen, Denmark. Colsted explains the new strategy and admits that Secunia has no great track record with the indirect channel approach, but he and some of the new
The successful turnaround of Secunia
members of his management team have substantial indirect channel experience from previous jobs, they know what to do and they are committed to making it work. However, the necessary channel programs and frameworks are far from being in place and the distributors have to cooperate actively in putting it all together in parallel with recruiting resellers and ramping up sales.
The distributors are all excited, support the strategy and most of them sign distributor agreements to get started. Secunia had deliberately only invited specialized Value Added Distributors and left the broadliners out of the picture realizing that they would be hesitant to this “joint venture” approach of building the markets. To build this market requires a much more active hands-on engagement by the distributor than a typical broad-liner is prepared to do.
Partner Program kick-off
In September and October 2013 Secunia completes the development of the partner program and kick-starts the partner portal and the partner recruitment.
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Training and certification programs are initially based on classroom training, but during the spring of 2014 Secunia defines the certification criteria for sales and support staff and develops a corresponding curriculum to be delivered as e-learning through the web. The expensive “brick and mortar” type training can be reduced and product presentations and skills development beyond the e-learning curriculum are now delivered as webinars and web-based Q&A sessions. As Secunia pass their direct sales activities to the distributors and
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The successful turnaround of Secunia
resellers they realize that the pipeline of leads is very thin. Colsted and his team know that expecting resellers to invest in lead generation at this early stage of market penetration is unrealistic and they therefore set off to design lead generation campaigns that they can pass on to the distributors who then can implement these with their resellers.
Reseller #100, but the course needs correcting
By mid 2014 Secunia and their distributors can celebrate the recruitment of reseller number 100, but there are a few issues:
xx An inside sales operation to support the distributors that was established in Vienna in December 2013 doesn’t provide the value that was expected. The unit is closed and two of the people are offered jobs working from their own homes.
xx Most of the new resellers are unfamiliar with selling to the upper mid-market and enterprise segments and sell too low in the market. Deal sizes are too small and the sales efforts required by Secunia, the distributors and the resellers themselves are too expensive. Recruiting and ramping up resellers and systems integrators that are familiar with the target market segment takes more effort and time, but Secunia now work with the distributors to refocus the partner recruitment strategy on the upper segments. xx The effort in building lead generation based on inbound principles doesn’t bear fruit. The conversion rates are too low. Proactive outbound lead generation activities need to be continued to secure a steady growing pipeline of sales opportunities. xx The two-tier distribution approach doesn’t work well everywhere and Secunia decides to take over distribution in the Nordics and to put Eastern Europe on the back burner.
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From the middle of 2014 the focus markets are North America (direct sales and selected partnerships), DACH (Germany, Austria & Switzerland - indirect), UK & Ireland (indirect), MEA (Middle East and Africa - indirect), Benelux (indirect), Australasia (indirect) and the Nordics (indirect with own distribution).
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The successful turnaround of Secunia
1st Secunia World Wide Partner Conference
In October 2014 the 1st Secunia Worldwide Partner Conference is held in Dubai with 60 attendees and they conclude that it was a tough journey, but that the platform is now in place to develop the business substantially in 2015 and beyond.
By the end of 2014 it is evident that the turnaround has been successful and the books can be closed with insignificant increase in revenue, but with black numbers on the bottom line. The foundation for substantial growth and profitability is in place for the years to come.
The divestment process starts
After a successful Q1 in 2015 the board of directors decides to start the divestment process and commission Mooreland Partners to lead the process. An investor prospectus is developed and by the end of April potential candidates have been identified. By mid May a handful of candidates have submitted bids and in July Flexera Software is given exclusivity. The detailed due diligence and final negotiations are completed in seven weeks.
Mission completed
Colsted’s mission is completed, but getting there was in no way the simple result of setting a strategy, making a plan and executing it. There were many surprises and set backs on the road, but acting swiftly and correcting failures fast enabled Colsted and his team to achieve the overall objective.
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Let’s take a closer look at some of the challenges that they faced.
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MISSION
COMPLETE
The successful turnaround of Secunia
Serving or making a market?
Secunia was and still is making a market rather than fulfilling captive demand. The Vulnerability Management space is growing – the threat is more prevalent than ever, and awareness around the consequences of vulnerabilities is building. However, there is still a knowledge deficit in the market around the risk associated with un-patched software. Secunia, the distributors and the resellers often have to educate the customers and activate the need first before they can start the sales process. Moving up market does increase the length of the sales cycles and the complexity of the sales projects and making this move through an indirect channel sounds like a suicide mission, but Colsted and his team found a short cut.
Piggybacking on Microsoft
Secunia’s products are complementary to, and the Secunia CSI even integrates seamlessly with, Microsoft WSUS and Microsoft System Center Configuration Manager, which is the preferred System Management solution for large organizations worldwide. Secunia extended the partnership with Microsoft by signing an agreement that enables the Secunia CSI to be installed in all Microsoft Technology Centers globally – the only product of its kind to have such status. This has led to increased visibility of Secunia and their solution, and has also had a positive effect on customers’ perception of the Secunia CSI. The Secunia CSI is now deployed in Microsoft Technology Centers in North America, the UK, Germany, Singapore, Russia, Dubai and Israel. The increased collaboration with Microsoft has had a significant impact on awareness and recognition, and Secunia experience greater interest from, and collaboration with, Microsoft customers through System Center User Groups, System Center implementation partners and MVPs (Microsoft Most Valued Professionals).
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Piggybacking on Microsoft is a clever move that makes it much easier to identify potential customers and shorten the sales cycles, and it also solves a few additional headaches.
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The successful turnaround of Secunia
Not really fit for an indirect channel
Considering the indirect channel option, Colsted and his team are facing two fundamental challenges:
1
There is very limited value add associated with the Secunia products.
2
Secunia products will never be the main revenue provider for any reseller.
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The indirect channel works best when the resellers can add value on top and around a product and when the product is a core component of all reseller activities. As this is not the case for Secunia they must find other ways to make reselling their products attractive. The solution is to work with the Microsoft infrastructure resellers and resellers that already have an established business with security solutions and where including Secunia’s products can be accomplished without incurring additional sales costs over and beyond the initial training. These resellers already serve the target segments and can benefit from the larger share of potential customers offered by Secunia.
Changing the organization
Recruiting many partners to address a larger footprint and changing the market focus at the same time called for more and more senior channel development resources within Secunia. Cutting off the direct sales organization was easy enough, but building up the muscle to work actively with distributors and resellers would take time, which Colsted didn’t have. It was therefore decided to reduce staff at Secunia headquarters and build small satellite expert teams in the regions. Accepting that people could work from anywhere in the world offered a much larger base for the recruitment of qualified talent and the resources required for executing the new strategy were quickly brought on board.
The McDonalds approach failed
Designing lead generation programs that were to be implemented in the various locations faced resistance. The markets apparently respond differently and what works well in the UK fails in Germany and vice versa. Colsted didn’t have the time to verify if this feedback represented genuine differences in market behavior or were mere reflections of differences in attitudes within his own organization. He decided to decentralize the decision making process and leave the program definition in the hands of the local teams. As long as they generated sufficient volumes of qualified leads they could do as they pleased. The programs designed by Secunia marketing were available for those who wanted to use them.
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The successful turnaround of Secunia
North America is special
Since the Secunia revenue generation model worked well in North America Colsted decided to only make a few changes here. They continued with the direct go-to-market approach, but this was complemented with very selected partnerships with system integrators and IT security consultants in a referral fee format. The new market segmentation and focus were applied, which meant replacing most of the sales organization with enterprise savvy sales staff. The partnership approach was positively facilitated by the cooperation with Microsoft, which elevated the status of Secunia in the eyes of the IT security community in North America. The Secunia operations in North America continued to deliver sustained revenue growth with good gross margin throughout this period and thus helped fund the turnaround of the European operations.
Filling the gap
The move from the direct to the indirect approach in the markets outside North America meant taking 40% of the revenue and accepting a 60% immediate reduction. The impact on the bottom line was somewhat offset by the reduction in operational expenses caused by downsizing the sales organization, but investments were required for the recruitment of new staff and for increased international travel activities. The reduction in revenue was to be compensated later by the scalability opportunity offered by the two-tier distribution model. Colsted obviously took as much cost as possible in 2013, which wasn’t “his” year anyway and where making a profit was already out of the question, but when the revenue increase would kick-in was difficult to say. It didn’t happen in 2014. Sales invoiced and agreed in 2014 totaled DKK 106.1 million; a decrease compared to 2013 results, but after Q1 2015 the scalability potential materialized, proving that the two-tier model was working.
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The successful turnaround of Secunia
Why did the Secunia turnaround succeed?
It is worth noting that the products Secunia offered during the turnaround were exactly the same as those that they were offering before 2013. They do have a new product in the pipeline, but it was not released during the process and therefore had no impact on the outcome. It is also worth noting that the business environment didn’t change substantially during the process. Although customers are becoming increasingly aware of the risk associated with un-patched software there is still a lot of missionary work required before a sales effort will bear fruit. The turnaround must be credited to Colsted and his team. They didn’t make miracles or perform wizardry, but did a solid analysis of the situation identifying the opportunities as well as the obstacles. They executed with determination and corrected swiftly when needed and often on a hunch rather than waiting for solid failure. It was not a happy-go-lucky approach closing their eyes to the pitfalls and hoping for the best, but a professional strategy crafted by people who knew what they were doing. Colsted and his team have solid experience with building and managing indirect channels and don’t suffer from the misconception that channel partners are just cheap sales resources that will do our job for us. The Secunia shareholders and the board of directors also deserve a big round of applause. Picking the right person and getting the right team into the right seats on the bus is no simple endeavor. Being prepared to invest when things look grim requires guts, but this is what investors are supposed to do and DKA and The Damgaard Group delivered on their responsibilities. The only question I have is the timing of the divestment. If they had waited a year could they have asked a much higher price for the company? I am sure they have considered this opportunity and had their reasons for not being more patient.
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All in all, a job extremely well done.
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The successful turnaround of Secunia
About the author
Hans Peter Bech Hans Peter Bech is an Amazon bestselling author. He is a frequent blogger on issues related to growing information technology companies to global market leadership and has written several books and numerous whitepapers on business development in the IT industry. Hans Peter also facilitates workshops for the TBK Academy速 and is an advisor for governments and companies. He holds a M.Sc. in macroeconomics and political science from the University of Copenhagen.
More about Hans Peter Bech
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