Show 132 – Unicorn Interviews – Pedro Bados – Nexthink
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Our 16th episode of our series of interviews that we’re recording in partnership with the European PR Agency Tyto, and their own ‘Without Borders’ podcast.
Russell Goldsmith and Tyto’s founder, Brendon Craigie were joined online from Boston in the US by Pedro Bados, Co-founder and CEO of Nexthink, a company that specialises in digital employee experience management software. Nexthink has headquarters in Boston and Lausanne in Switzerland. The company reached unicorn status in February 2021, after announcing a $180 million series D funding found, reaching a valuation of $1.1 Billion.
Pedro explained that Nexthink is the pioneer and one of the leaders in digital employee experience. They make sure employees have a great digital experience with their companies. He said it’s a pretty straightforward definition of the value because any interaction that an employee has today with their company will be digital. However, most companies still consider IT as one way of putting services out there and not really understanding employees, they have problems with how they’re adopting these services. Nexthink make sure that IT departments, and companies in general, are providing these IT services that can really be adopted by their employees.
Inspiration behind the business
Nexthink has been a story of resilience and change, it’s not been an overnight success. The reason why they launched the business is because, at that time Pedro was conducting his research project at Swiss Federal Institute of Technology in Lausanne, and it was more related with security and trying to understand the normal behaviour of computers. So, they followed these behaviour changes and when they went to the first customer and showcased the product, the customer said it was great to understand all the security incidents but actually, the data is even more important for them to understand. This is because if their employees are consuming the services and they’re having problems, it’s critical for them to know the data, so people can then do their jobs properly. He said that’s the moment in which he thought, it’s really a contradiction, the number one customer for an IT department is the internal employee and they don’t have the information they need to make sure they deliver a great service. Pedro explained that it took them a few years to understand the market and then the adventure started.
He added that like any good story, Nexthink is made of chapters. The first chapter, back in 2004, 2005 in Europe, start-ups were not really something the market was aware of, companies weren’t buying for them. So, at the very beginning, they bootstrapped the business with the founders and a few early employees, it was mainly security the first three or four years. It was a little bit later when they understood the power and potential of digital employee experience market, 2009, 2010. But at that time, there was a big crisis, Pedro remembers, in terms of raising money, it was difficult. He said that around 2011, 2012, they were still below 10 million in revenue in which they got funding, they then expanded the business to other countries and then in 2015/16, they had a Series B and the company grew exponentially.
Pedro added that he’s learnt many lessons from his experience, especially today, with this craziness in the market. Some giant entrepreneurs might think that success has to come overnight and if the company is not successful in a few years, they have to stop and do something else. He said that Nexthink went through highs and lows, yet here they are with one of the highest valuations for an infrastructure software company in Europe. He believes they are very bullish about their growth in the next years to come and resilience is probably one of the most important attributes of a company and entrepreneur.
Perception of the business since becoming a unicorn.
Pedro related becoming a unicorn to being a football team who has started playing in the Champions League. He said people are very proud of playing for one of the main teams, but also the expectations are higher, the stakes are higher and the investors are more ambitious. Everything is a new level in the game, which is very exciting, especially for himself. When you’re running a business, you want to really open a new chapter with new, higher challenges and goals. He said the valuation is not so important, but it’s a landmark, now that they have reached a certain milestone they can focus on the next chapter.
Coming out of Switzerland
Pedro said that it was little bit more challenging coming out of Switzerland, the teams are crucial for a company, with Switzerland and Europe in general there are not so many people that have made it before in their particular market, so the teams have to learn while they grow, therefore, it’s a little bit harder to a scale. He said in the US, they have done it a few times and they have this pattern recognition and can scale easily.
Nexthink Digital Employee Experience Score (DEX Score)
Pedro said it’s interesting to understand the relevance of digital employee experience and right now we’re seeing in the market something which is really different from 20, 30, 40 years ago, these great employees have choices. They can work for any company, so, companies are worried about attracting and retaining the best talent. When they analyse why people are leaving companies, it has nothing to do with salaries or managers, it’s really this feeling of getting the job accomplished, which is obviously a big problem for the business. They see that one third of the reason people leave a job is related to tools, processes, technology. There are many companies that are saying, ‘new generations are coming in and expect to have great processes, great digital tools, great digital interactions with their companies and if they don’t have it, they get frustrated and they change’. And that’s why, digital employee experience is really important.
One of the first questions around digital employee experience is how to quantify it, Pedro explained. Because we are all very used to, for instance, the Glassdoor score or the NPS or when we read a financial statement revenue or PNL, but there are no really good metrics about how people are perceiving the digital experience. One of the first things that Nexthink did is really try to standardize this market and said we need a score, the digital employee experience score. Pedro added that whilst it’s a little complex, the philosophy is simple. It’s based on hard data, on metrics, how digital systems are operating, response times, problems, things that they can detect automatically. But there is another 50 percent, which is based on sentiment, how people are perceiving things. So, it’s very important to engage with employees; ‘Are you happy with your computer? Are you happy with this application? Do you feel productive with these types of systems?’ So, putting them together into a simple score, in Nexthink’s case it’s based on six different dimensions. That gives a very important tool for a company to make decisions about how to improve the digital employee experience.
Nexthink were one of the first, if not the first company to put out a comprehensive score, they have seen other competitors and other companies putting out their score and all of them are based on similar philosophy, which is really hard data and sentiment. Pedro believes they have probably the most advanced technology for engagement and that their score is more accurate, representing the real feeling of the organisation. The scores is one thing, but how to react to the scores is something which is a differentiating factor for Nexthink because they link their score with actions and that’s what their customers really appreciate.
Impact of Coronavirus
The impact of the past year has been massive, according to Pedro, because, as a consumer, we are used to enjoying real time information from Google, Facebook, our iPads, but actually the reality of an employee in a big company is quite different. There are millions of people working from desktops that they couldn’t take home, many legacy applications are developed on-prem and everything has to work from home. So, from an office of five hundred people, IT departments had to support 500 offices, everything has to work fine because people still have to be productive. So, from the technology standpoint, it’s challenging, especially the first phase. Nexthink were able to put out there what they call the ‘remote worker pack’. So, people were able to monitor that everything was working well e.g. the Wi-Fi at home, different applications, that people had the right laptops, helping to make decisions quickly for companies to make sure they didn’t stop the production. That’s one area, then after a couple of months, they had a lot of demand for almost HR business cases, wellness burnouts, making sure people are not abusing the digital world with too many Zoom calls and check ins. Pedro wanted to use Nexthink Engage, which has the ability to measure sentiment, not only about the digital application, but also to see if people are doing well. So, a little bit outside of their core market, but because they have this real time capability to engage with people based on their behaviour and on what they do, many people were using it. So, for them, it’s been really a massive transformation and as a digital employee experience company, now most of the interactions are digital, they are almost an employee experience company.
They had to adapt their offering in this time, they now have more and more use cases around HR and the frontier between HR and IT has become really closed because most of the problems in IT now is trying to figure out the conference rooms so people can collaborate in a hybrid environment from home, making sure employees have their applications. Pero said it’s between HR and IT and Nexthink are really in the middle of both.
Pedro explained that there are a couple of challenges in the future that as a company he can envisage due to more companies moving to a hybrid model. He said operationally, it’s very hard to, for instance, run meetings in a hybrid environment. The people working from home don’t have the same interaction and that’s a problem that we have to fix. Another thing he thinks is important is the talent piece, there are so many people now that work from home, they are not really attached to an office. For them, it’s very easy to switch and go to another company because they don’t have this personal attachment. So how can companies really make employees feel that they care about them, that they are important, that they are part of a culture. Covid has exposed some of the weaknesses in this area as well. He said many people are thinking about the offices in general, are they more social hubs or are they really traditional offices? So, there is a lot of thinking around that and there is a lot of change going on for Nexthink.
The future of Nexthink
Pedro said the stage in which they are now is assisting investors and the management team and thinking about potentially an IPO in the years to come would be great for the employees. As for visibility of the company, with the partners, customers, he said that’s an interesting milestone. In terms of growing the business, they are just scratching the surface, it’s about a 5 to 7 billion opportunity right now. So they are, in the 5, 10 percent of the market opportunity, they are still continuing to deliver digital experience to many companies in the world, they want to make the companies smarter in the way they provide applications. Making sure they make the right decisions, buy the right applications and buy the right hardware for employees, include the employee into the equation. Pedro said something very interesting is, in the past, the traditional world of IT has been, they have thought they know best for their employee, however, more now they are starting to include the employee in the thinking process. So, gathering feedback, doing a first prototype, launching an application for a few employees, gathering feedback from them, including the employee as a part of the solution, not at the end as a consumer of a solution. So, Pedro said fostering a partnership between employees and IT departments, is super important to build the technology of the future in companies, and that’s something they are seeing more and more.
What happens sometimes is that, especially in new categories, people know the problem, but they don’t know really there is a solution. On average, Pedro said there are two incidents per employee, per week and each of these incidents is twenty-eight minutes. So that means on average, every employee in a company wastes 1 hour of time because of a technology problem, that’s millions of productivity losses even for a company of 10,000 people. So, this problem is big from the financial standpoint, but then you have the attrition problem, the employee productivity problem. So, telling others that this is really a big problem but there’s a solution or a part for that, is something that Nexthink are constantly communicating. They are going to launch a big initiative, which is going to be a hub in which IT professionals, executives, can go and speak about this problem. They have their own podcast to really tell the market and bring in leaders that want to talk about digital employee experience, there are many initiatives that with their customers and partners, they are putting in place to talk about this domain.
Building company culture
Building culture has been an interesting journey. Pedro said for Nexthink it has probably been a little bit easier because their mission is very much about people, they say their mission is to delight people at work because this is what they do for their customers, so, they do it internally with their employees and also with their community. He said they are very clear about the four core values and to create these values, they looked backwards, tried to understand what makes a great Nexthinker, what a successful employee in the company is, and getting this DNA. The four values are positive attitude, one team, continuous growth and getting things done, these are what really shape a great Nexthinker, all of that is creates a culture. Nexthink is also very international, they are binational with headquarters in Boston and in Lausanne, but also have offices all around the world, they are very diverse with almost 800 people speaking about 80 different languages and within the management team there are probably 4 or 5 different languages and 6 or 7 different countries.
Pedro circled back to the football analogy when talking about how to overcome the challenge of not necessarily being able to be face-to-face with your team. He explained that you don’t know anyone from your favourite football team, but you feel attached to them. He said it’s very important the communication is really something that you cannot fake, people feel it when they interact with other people in the company. For instance, if they say they care about diversity they have to take actions, run multiple webinars about the problem so people can get educated, inviting external speakers about the problem and why it matters. If an employee cares about employee experience, they have to take actions, make sure when somebody joins the company, the onboarding process is not just average, it’s great. Pedro said certain moments matter for a new employee, for example somebody giving them a call to say, ‘Are you doing OK?’. Part of the success in Pedro’s opinion is that it’s not really an HR job, it’s a top management job. HR is executing some of these things but everybody should care about it. He said they also make sure that people have a great experience in events, they try to over communicate with newsletters. They have something called Next in Life every month, in which Pedro and some other people tell everyone what’s going on in the company. Sometimes the communication has to be very local, so they try to do town halls in every region in which they have very specific questions and specific needs. Pedro explained that he tries to be very accessible, so far he has attended all of the welcome days, every single employee who has joined Nexthink at least has had the opportunity to talk to him on a welcome day in a small group, the same with the rest of the executives. He said it’s really mandatory for all executives to attend a welcome day to make sure that new employees understand and ask questions to the leadership team. Something that Pedro has in place is called Darwin, because Darwin is about evolution and growing, it’s a mailbox in which any employee can send any idea and Pedro commits that he will reply personally to them.
Pedro believes that he is somewhere in the middle of the spectrum when it comes to external communication. He definitely likes spending a lot of time with customers and partners to make sure they’re successful. He enjoys doing things like this interview and podcasts but he is not someone who really thinks success comes from speaking too much externally. He said success comes from great products, customers getting value, employees that are engaged.
Biggest communications challenge
The biggest communication challenge Pedro has had to face is that as the company grows, you have to be really mindful about the things you say and you have to mean it, because people really listen to you. He added that although one day he may think one thing and the next day something different, there has to be some stability in the communication because people really pay attention, and they react. That’s something any founder has to learn as the company scales.
Everybody has a different story unfortunately with Covid and the lockdown. In Pedro’s case, he moved with his family to Boston just one week before the lockdown and it was tough for a few months. However, he said in the last few months, especially in the US with things opening up, he feels very happy to have made this move. His family are really excited about the opportunity in the US personally and professionally.
From the company’s standpoint, many employees were struggling and they still are, things may be better in the US, but when you look at what’s going on in India, in which Nexthink have many employees still, it’s something they are taking very seriously. He said they really care about their employees there and are putting in initiatives to make sure they get through this period.
Because Pedro comes from an engineering background, he said engineers tend to be a little bit conservative, worried to over commit instead of trying to impact emotions and sell the dream. And so, he would say to young Pedro, ‘be a little bit more vocal on selling the vision and selling the dream’. That’s one thing that he has learned. He had this dream and this vision but kept it for himself because there was always a risk. So, taking risks, especially when you communicate internally and making people dream, is very important.