12. Pioneers. with Carsten Thoma, co-founder of Hybris (SAP CX)

This conversation is about the early days of eCommerce (Hybris started in 1997!). You will find out how Hybris found the product market fit. How did Carsten's company gofrom 0 to 50+ M USD in revenue just under 24 months? What's the recipe for entering US market being the EU based startup? You will also find out the details of the SAP Acquisition of Hybris, how to keep the company's culture while growing at a rapid pace and Carsten's biggest learning and investment strategy!

Questions discussed in this episode:

·       We all know Hybris is an unquestionable eCommerce platform leader in the B2B, B2C, retail, telco and all the other segments. How did it all start?

·       It was 1997. Do you rememberwhat other eCommerce platforms were there on the market when you were starting?

·       It was a startup mode and I guess you needed to test and adjust the first hypothesis on the product marketfit to find the right USP. What did this process look like?

·       The first market you targeted was Germany right? 

·       eCommerce is pretty much a local business. Very much optimized to the market. Many other platforms limited themselves just by being satisfied with short-mid-term successes.

·       How did you avoid the risk ofbeing too focused on just a single market? 

·       Hybris grew quite rapidly. UK,US market where you grew up from 0-50M USD license revenue in just under 24 months. Impressive. What was your engine of growth?

·       How did you finance growth at such a tremendous pace? I guess it would be difficult just with the organicgrowth?

·       Interesting! You grew the USmarket pretty rapidly. It’s a big deal for European based companies. How did you do it? I guess it’s somehow related to the iCongo acquisition? 

·       Germany, US, UK operations,Canada, Poland. I guess you were traveling a lot?

·       How big was the company on the eve of the SAP acquisition? How many employees?

·       How did you manage this number of people not losing the speed and the fit to the market?

·       Any advice to our listeners how to keep the company culture in the rapid growth phase?

·       eCommerce is changing rapidly with the market's growth. What was your recipe for being up to date with all these changes, customers need and product fit?

·       I suppose the next phase of Hybris development was the acquisition by SAP? Would you tell us more about it?

·       Eventually you did a full exitand left the company. How is it for the founder to leave his child and well actually start over the career? How did you feel?

·       You stayed with the company after the acquisition. How did your role change?

·       How do yousee the future of ecommerce enterprise software market?

·       Is there a place for newplayers?

·       Which trendsare over and which are under-hyped?

·       If you lookback: what was your biggest challenge/mistake ?

·       I guess your career changed but not ended. How did you redefine it after exiting Hybris?

·       What’s your investment strategy if I may ask? 

·       In What ecommerce startup would you invest now?

·       What is the biggest learning of your professional career?

 

Transcript:

Piotr Karwatka: [00:00:00] In today's episode, we are going to talk about the early days of e-commerce platforms. I'm going to ask my guest - Carsten Thoma, founder of Hybris - about his journey from a small e-commerce startup to a market leader. How they found the product market fit, or rather how they built a market of enterprise ready e-commerce platforms that didn't exist before. Carsten is a truly e-commerce pioneer, a successful entrepreneur. Personally, a very nice and humble person.
Carsten, I'm really glad to have you here. 

Carsten Thoma: [00:01:44] Thank you. Thanks for having me. Actually, I'm going to enjoy that call because it's really cold and rainy outside, so it's a good thing to sit in an office virtually with people. 

Piotr Karwatka: [00:01:55] Awesome, especially that nowadays it’s very difficult to meet otherwise. So... funny story, I was wondering how to approach you and invite you to this interview, searching for some common contacts and this kind of stuff, because I was afraid that there is no other way to get in contact with you, but actually I just, in parallel to this, I just send you a message and you just replied saying like: “Okay, no problem. It's going to be fun.” And you know, that was really cool. Thank you for that. It was very straightforward, very humble. I really like it. Thank you for, for being here. 

Carsten Thoma: [00:02:36] Sure, sure. You're welcome. 

Piotr Karwatka: [00:02:38] Okay, cool. So let me just start with my questions. I guess that I don't have anything innovative to say about the company you founded - Hybris. We all know it's an unquestionable e-commerce leader in B2B, B2C, retail, telco, and all the other segments... But what I'm curious about is how it all started? 

Carsten Thoma: [00:03:02] I guess we set a standard for e-commerce platforms. That's true, looking back. How did it all start? It started from numerous directions.

I was studying law, and worked for Hewlett Packard in parallel, and funny enough, I was basically responsible for manual process mining and re-engineering what allows us today for a certain group within HP and we published the results of our findings.

I came across a technology where you could publish content on the intranet, but I also knew that you could publish it on the internet. So there was this moment, where you have that strong conviction and where you get a glimpse into the future, that almost makes you a bit uncomfortable because you know that something big is going to change if you're not completely mistaken. So I took my chance and moved back to Munich, and found the ride co-founding partners, and we just tried it, just went for it.

Piotr Karwatka: [00:04:07] Gotcha. I guess it was 1997, something like this.

Carsten Thoma: [00:04:13] Correct, yeah, it was 97.

Piotr Karwatka: [00:04:14] Do you remember other e-commerce platforms that were on the market when you were starting?

Carsten Thoma: [00:04:19] I actually do. There were quite some, like small tools, e-shop tools, out of the box, that were back then sold alongside magazines and stuff like that. I think it was around with e-pages also out of the box solution. I do believe that we were the first ones looking at e-commerce topic more from a holistic platform perspective.

The Ad Technology Group - ATG - was pivoting at that moment or during that time too. I do not exactly remember the year but it must've been around the same time. But they were more focused on B2C. They had a very interesting approach to enterprise commerce as well.

That's what I remember. And then a few years later into shop with infinity, for the B2C in particular for B2C, was in that space too. Nevertheless the focus also on collect more complex industries in B2B. I think that was a state exclusive to us. 

Piotr Karwatka: [00:05:28] Interesting. It's good that you mentioned it because I think it was, and maybe still is, kind of a USP for Hybris. Supporting all those more complex business models, not only B2C, which is pretty crowded regarding the e-commerce platforms, but I guess that then in late 1990s, early 2000s, you were still in the kind of startup mode, looking for the product market fit as all startups do, testing the first hypothesis. How did this process look like? Building the actual product, it's fit to the market and searching for the USP. Do you remember? That's pretty interesting for me. 

Carsten Thoma: [00:06:11] Oh God. Yeah. I do remember. I mean… look, we were building an ambitious product that delivered real value. And then dot-com crashed, which was completely unrelated to what we were doing. But obviously it did direct a whole commerce topic data. It did not only track the whole commerce topic down, it also that basically evaporated at the startup scene in Europe, and it also distinguished any activities from professional who sees in particular some of the S companies branched out into Europe for the first time, it was all gone afterwards. So we honestly didn't know what hit us. We were not in that business. We were like a substantial series after player on the way to becoming one. And we didn't know what hit us like “Oh my God, what was that?”. And it hit us prudently. So we had to find a way in product market fit and I would almost call it product market people fit. Because we also had to operate with the people that we could attract back then. And then given the macro trends in the market, it was not that easy. You know, there were not that many after what happened in the dot-com crash that wanted to work for an eCommerce startup. So we were kind of limited on how we could do things. And we realized that it was a little bit easier for us. That the first wave of B2C retail marketing focus, it was too close to the dot-com question. And also in terms of people and talent that we attracted, wasn't the right thing for us. So we had to position the company almost one level down in the more complex platform and the more complex platform layer, which we did. I would call it product market people fit, because we had an additional dimension of complexity to solve back then. 

Piotr Karwatka: [00:08:08] That's interesting. And have you focused on any particular market first? Like, was it Germany or any other market or have you started thinking globally from the day zero? 

Carsten Thoma: [00:08:23] I always thought globally, but back then, that probably was not the right thing to have global emissions. Global emissions back then would have probably brought up some question marks with people. Germany was early, yeah, but actually Switzerland showed earlier attraction. Almost a little bit sooner than Germany. I think the reason Switzerland was a great fit for how we approached the topic, because Switzerland back then had a lot of global companies that had like specific products, complex products for specific industries that are market leaders, but the companies were still small. So you had to solve high complexity with limited budgets. There was one company, it was a producer of test measurement devices, like a small company, but global market leader for testing measurement devices. So you basically were operating with the budget of a medium size company but you had to solve readers that van depress grade. And I think that honestly it was a good thing for our platform. Of course we solved those readers. And Switzerland being able to deliver that, the company structure there, rewarded us earlier. But then we obviously also, I one point kind of that attraction chairman in Austria as well, yeah.

Piotr Karwatka: [00:09:47] Absolutely. That's interesting, this plot about the Switzerland based companies that were operating globally. I had a next question, maybe you partially answered it already because the question was: how did you avoid this temptation to be short, mid term, successful on that dark market, which is always a trap, that you can easily step into and many different platforms did it. But you didn't, you just rolled out globally. So do you think that this was the receipt for that, or maybe you had some different approach to not be stuck into that? 

Carsten Thoma: [00:10:30] No, honestly no matter what happened, in which time, you always knew. And in software, in particular commerce, is going to be a global business and it was our ambition to serve that globally. This is how the software looked like. Quite honestly, that's how the software looked like in 2000 already. We’ve had many changes along the way, and some have been too complex and almost too flexible, but it was always ingrained in the software, MIT language, multicurrency, MIT market in able to end, and be across industries in B2B, 2B, 2C it's like if you want to become a platform and not a tool. If we wanted to become the execution platform, that's what you got to do. And we believed that commerce is going to be the platform. We also believed, and that's why we had a very strong management console, behind the frontend, that commerce is going to be the new cockpit, how companies do business. I mean, it was hard to believe back then. And then I noticed also that the division was sometimes hard to articulate and we would probably have also not been particularly good at it back then. Lack of experience, lack of confidence after what happened.

Piotr Karwatka: [00:11:41] You were pioneering this market. 

Carsten Thoma: [00:11:43] Yeah, but also less than 2% of transactions back then have been online. So it was a big bet to assume that the commerce platform is going to be the platform. It was a debate, indeed, but in the end, I guess we were right. 

Piotr Karwatka: [00:12:01] I guess it was a pretty good bet. And then the UK, US market where you grew up from zero to 50 mil USD license revenue...

Carsten Thoma: [00:12:11] That was US only.

Piotr Karwatka: [00:12:14] US only, okay. That's even more impressive, like zero to 50 million USD in just under 24 months. What was your engine of growth? 

Carsten Thoma: [00:12:26] That was really a masterpiece between many things that we did and many things that we had to react to. It wasn't between choice, like what to focus on. I think it was great that we did not get tempted to go to the customers where everyone went. So we literally pick the complex sponsor. We focused on complex SAP, B2B accounts and no one else could serve that. It was a very strong ecosystem play and it was people. We managed to put a foundation in place in North America that was as strong as in the headquarter back in Munich. It was a bit of everything. Many things have to fall into place, many little things that in hindsight were big bets, but at the same time totally illogical. As an example, I picked New York as my main location. Back then, in 2009, 2010 I did that right. If companies went to the US they went to the West Coast. It was clear. Company goes to the US on the West Coast. The target industries that we had back then that made Hybris most successful, not at the West Coast. Right. We didn't set into media and high-tech, that was not our core customer base. That'd be at the West Coast. So the East Coast was where our customer profile was sitting, consumer packaged goods, distribution, a B2B distribution, and then discrete manufacturing, if we move more to the middle of the country. That's what I did and I think it was the right thing to do. Proximity again, also to the customer. 

Piotr Karwatka: [00:14:07] That's interesting. Then Boston became this hub of e-commerce for many different products, also was born there. So the East Coast was getting more and more popular, but you were further.

Carsten Thoma: [00:14:22] Boston existed already, when I moved to New York it was not. But if you look at New York now, I think it is probably the more vibrant SAS startup scene, even compared to Boston.

Piotr Karwatka: [00:14:36] Absolutely. For European companies it’s pretty tough to do this US expansion. Usually it takes years and sometimes fails. How did you make it? You also acquired iCongo, right? Somewhere in this period...

Carsten Thoma: [00:14:58] That was 2011, yeah. I mean, revenue-wise, the growth was all organic almost. Initially department with Endeca, the US which was the marketing commerce platform for search and merchandising and personalization back then, which gave us a good entryway into a customer base and also could access to enterprise grade Salesforce. Which Endeca had a very, very good one. that was basically accelerating our growth initially in the US market. Then, from that moment on, we got a lot of traction and we had to think about how can we fuel that growth and also deliver the projects and satisfy our customers. And also get leeway into some additional industries which we did with iCongo acquisition. It was not interesting for us from a revenue perspective because we knew that we were going to discontinue the product. So we migrated most customers at a substantial expense, but customer first was always key for us. And we were also tremendously focused on our customers. But yeah, the iCongo organization had some strong elements. That'd be then could turn into Hybris North America which also was interesting because we had a clear headquarter, then it was Montreal. It was a big location. It was a good management team there. I'm still in touch with the people. That was a good move. It pretty much also avoided us falling into a trap of being understaffed, despite the explosive growth that we could see in those times. It was all those supports, all those elements. And again, it probably was a bold move, but we could convince the people and their support of the story and the mission. That was a key element to what happened next. 

Piotr Karwatka: [00:17:01] Now it makes perfect sense, so thanks for this explanation. How you financed the growth? That's such a tremendous space, I guess it will be difficult, for even most successful company growing just organically to under such an expansion.

Carsten Thoma: [00:17:17] Yeah, I think it was kind of the horrific experience that we had to make after the dot-com crash, you know? The company was pretty much like more than bootstrapped for many years afterwards. We had an enormous discipline in our cost structure and spending behavior. Despite the triple digit growth that we achieved almost year after year, the company was running pretty much neutral cashflow positive sometimes. It was unbelievable. But I think that the DNA that we had to develop during those dark years helped us a big deal in order to achieve that.

Piotr Karwatka: [00:18:05] Amazing. Starting in the crisis hustle. It's a process. 

Carsten Thoma: [00:18:10] Oh yeah. Can only encourage people now. I mean, even with what's happening now, there is no shortage of capital, right? If you see what happened last week, shutting down a startup within a year after one and a half billion of funding is probably exactly what happens if there's too much capital around. I'm kind of thankful that we had to do it that way. I think it led to all types of success. 

Piotr Karwatka: [00:18:43] Absolutely. It's prepared you for success, in some way. With all those offices you had around the world, like us, Canada, Germany, Poland, I guess you are traveling a lot aren’t you? How have you managed to keep under control the whole company when it was growing so rapidly? 

Carsten Thoma: [00:19:10] I probably had many homes. Maybe one way to look at it is I traveled a lot. Maybe the other way is to say I had many homes where I took base and could support people in proximity and being present in those locations, making sure that people work amongst a certain standard and culture. Key belief I had was that this is important, in particular because of course to fast. Having that discipline and showing that presence, and being consistent or so, on many things, I think that was probably one parameter that you have to set if you support such a growth story. 

Piotr Karwatka: [00:20:00] Yeah. That's a good point. My next question was actually about the culture. So, we move smoothly to this point. I spoke to some folks that used to work at Hybris around the mid two thousands. Now some of them are still working on SAP and what is common in what they are saying is that the culture was really brilliant, very unique. There was this feeling that everything is possible. So people were very, very encouraged to do bold things and push the limits. You already said that one of the vital reasons for that was to be present, to support them. Any other advice on how you can set this kind of vibe and culture? 

Carsten Thoma: [00:20:56] You always have to deal with certain growth pains. There are some things that you cannot avoid. One thing that I always was fascinated by at the very end before we sold it but also like within SAP, when the unit that we were leading and spearheading was even bigger than what we brought into SAP, is the loss of productivity in some areas. When you believe you knew, because you have been there like 10 years before, when you knew like that 10 years ago you could do this at the same output, like with one fifth of the resources. And I always was like, how is that possible? And I guess in particular back then, I still believe it's a challenge today, despite the fact that there's more tooling, and more data and insight that you can access. But I still believe that the way how sales has example is managed is much more data and result driven. It's much more ingrained in the culture and the management culture. And it’s always been like this, you have your quarters, you have your productivity, you have your ramp up, you have the quarter achievement rider has the account distribution and territory distribution. So it's just very established, right?

Yeah. I think establishing a similar productivity tools for R and D and other departments, we are on our way and accessibility of data I think is supporting and enabling us more and more, but it's still not on the same level. It's still not on par. So this is, I think companies, the more you can access. those enablement layers and tools will be able to grow faster and at higher productivity levels. So I think there's still a golden age of startups out there. The cultural question of that is a different story, right? There's nothing to do necessarily, or not always has to do something without putting yeah.

And conscious also something that, I believe you cannot define what you can define. You can define a system of virtues. And that system has to make sense for what you try to achieve. And that system has to be consistent. That's really like, once you find that, that's how far the theory goes. That's not the end of the line, because then the hard part starts. You have to live that system and you'd have to live those virtues in a way that is believable, right? It has to be authentic and it has to be without any fear, because once you failed that system, you basically take out of the room for creating culture. So culture is something that grows. And that they can foster based on a system of virtuous and the culture gets strong. I think the more people lifted that system and basically transport that message also to two other layers and parts of the organization. And like, you have to lift the deck, every segment and every decision like there's no, if you want to create something like this, that is exactly it. That's exactly what's a prerequisite. And do you have to create the right gravitas for people? And do you have to make sure that if you have a system of virtues is that the people that you hire and the people that you work with, attract the same type of people. And if you make mistakes, you have to correct it.

Piotr Karwatka: [00:24:27] Gotcha. Thank you. Thank you for four designs for it. I think it's something which is always easier said than done.

Carsten Thoma: [00:24:35] Yeah, but that's exactly what I said. Like the hotspot comes after you do often after you define it. It's if to live it. 

Piotr Karwatka: [00:24:43] Yeah. You need to live it, absolutely. Okay. I suppose the next phase of Hybris development was the acquisition by SAP. Would you like to tell us more about it?

Carsten Thoma: [00:24:56] It was tough. It was a tough moment. The company was growing, growing tremendously and commerce was becoming more and more mainstream and we had good visibility. How to further grow with the company. we always had visibility. Of probably what would not have sustained, from an organizational perspective and strategy perspective for further growth and the public markets as well. But we had a plan, but we had a lot of stakeholders that got to flattered by those offers. Right. And, and at one point the pressure was just very high and, and also the deal. and the integration scenario was very attractive and they could really see despite the fact that we had other plans and dreams as a standalone company and toolbar, we really could see it, that SAP could help us, achieving. SAP really helped us manifest our position as a global standard for B2B and B2C enterprise commerce. And that's, that's, that's been really when we finally eventually supported, supported the decision and a few quarters, in, after the acquisition, SAP basically lived up to the promise and, and Hybris became the key pillar for the complete front office. Which was a big deal. It was almost like a reverse integration. 

Piotr Karwatka: [00:26:25] Yeah. Awesome. So it was a great decision for the product. But as a founder, when you eventually left the company, how did you feel?

how is to restart, redefine your career because you know, you were engaged with Hybris for so many years and it just ended yeah. 

Carsten Thoma: [00:26:52] The opportunity and platform that SAP gave us. Oh, it was attractive. There was a lot of entrepreneurial room to move students for me, but obviously, obviously, yeah, you've got to face it. I mean, I became a. GM, right. I was CEO of that unit. I became GM of that group at one point. And, it was a classic CHAM role in large enterprise, the substantial P and L responsibility. And, and you got to perform, that's what we did. We accelerated that the trajectory of growth trajectory and, we all performed. Outperformed the model that they had for us to be also revitalized the broader front office mission within SAP. And, and, it was an amazing continuation of the success story. Yeah. And I learned a lot. I mean, it was, it was a pretty interesting journey for me from finding the company to ending up for the mighty ability billion dollar P in there, and succeeding in their tool like, like from, from, from founder, to enterpreneur to executive, staying a founder and then become a corporate executive is pretty much every facet of the technology and software.

But I think you can, that you can live and if you are blessed after a tough start to live that successfully, it was incredibly real. 

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