Bernd Gross - CTO at Software AG

(Joel Beasley at 00:00:00) Hello, my friends. Today we are talking to Bernd, the CTO at Software AG. And we discuss how getting customer feedback early can give startups an edge over the competition, why every company should become a truly connected enterprise, and how companies will need to redefine their missions in order to do so. All of this right here, right now on the Modern CTO Podcast.

(Bernd at 00:00:25) Here we go.

(Joel Beasley at 00:00:26) This is the Modern CTO Podcast. So are you out in Germany?

(Bernd at 00:00:39) Yeah, yeah. I'm in Dusseldorf, a smallish town in the western part of Germany, next to the River Rhine. Right? So it's perceived or seen as the capital of the Rhine area of Germany. Right? So it's quite an industrial city, but the center is very, very nice. Very touristic, you know? Very nice old buildings and, you know, very touristic in a sense.

(Joel Beasley at 00:01:07) Do you think the fact that it's very industrial has made it a hub for IoT providers?

(Bernd at 00:01:14) I think so, yes. It's actually quite a funny city. I have been—I was actually born and grew up in Dusseldorf, right? But then I have been working abroad for many years. More than fifteen years I have been away. But when I founded my own company, which we probably have the time to discuss later on, I moved back to Dusseldorf, you know, because it's actually quite a nice, easy, convenient place to live. Small city, international airport, but you have some of the biggest European corporate headquarters in close proximity. Yeah. So it's very, very easy actually to build and retain relationships with decision makers across the corporate level. Yeah. So we have some really industrial companies like automotive car manufacturers close by, you know, Volkswagen, Mercedes, and a couple of others. They're all, you know, in about a 100 kilometer radius. So very easy to reach, very easy to reach.

(Joel Beasley at 00:02:21) So you said you traveled around a lot. You got to explore and live abroad. The first time you left your hometown, what was that like?

(Bernd at 00:02:30) Well, you mean on a job assignment basis? Yeah, just a strange experience, you know, to be perfectly frank. First time leaving family and friends behind. And I actually moved to California, to Los Angeles, you know, just when I graduated my first studies as a software engineer. You know? I actually got an assignment in the US. Yeah. And yeah, that felt quite strange. I remember that. That is—I have to say a few years ago, you know, it's '94. So it's changed a lot. It's changed a lot. Actually, I have been on business then traveling a bit to Northern California. I was based in Los Angeles, but actually our client was based in the Bay Area. And I remember Bay Area today and in '94, completely different. I mean, probably if you were really experienced, you could have foreseen what was going to happen, but I was too inexperienced. I didn't really see what was going to happen there. Yeah? So I just remember after a year, I wanted to move back to Germany to see my friends, family, and I didn't really realize the momentum and the situation that was emerging in Silicon Valley. You know? When you think about it from today's point of view, might be a missed opportunity. You never know. On the other hand, you know, I enjoyed being back home as well.

(Joel Beasley at 00:04:10) And did you learn English as a kid? Because your English is fantastic.

(Bernd at 00:04:14) No. Thank you very much. No. Actually, the reason why I moved to an international assignment was because I wanted to learn English. Yeah. So I actually had a very funny situation in my early phases. I went, you know, from a software engineering school. I went to apply to a Scandinavian company, which was actually Nokia. You know? Nokia from probably from your times used to be the leader in mobile communication and mobile phones before, actually, Apple took over on the smartphone side, etcetera. But I applied for a job there. They had actually—they had a large resource and engineering center. They used to have a large resource engineering center, about 5,000 people. So quite a large development team. I applied for a software engineering position at Nokia. And actually, they liked me. They wanted to hire me, but told me, "Listen, your English is so bad." You know? "We have an international setup here. Everyone speaks English. So you actually should either commit yourself to learn English, you know, or we cannot hire you." You know? So, and with the commitment they meant, they actually suggested I should go six months abroad and come back. That was their opinion, actually. So they were quite—interesting recommendation. But you know what? I really liked that because they told—I remember I had an interview. They were extremely fast growing at that time. You know, mobile communication just emerged. You know, remember, a few—two, three years earlier, people were carrying a suitcase, half—you know, big things around in order to have mobile communication. And then these new digital cellular communication just emerged. You know, there were people mainly—business people at that time in '93. Mainly business people used mobile phones for communication, right? And they were actually one of the global leaders—turned out to be, anyhow, one of the global leaders in that first wave of mobile communication. And they grew so fast that they actually had to interview you in hotel rooms because they had no meeting rooms available because they turned the meeting rooms into, you know, working places. Right? So they were really growing fast. And so I remember when I had my interviews and they told me that they liked me, they would like to hire me, but my English isn't good enough. So I went back to the elevator, and there was actually kind of a mirror in that door. Right? With the door closed. And I looked at the mirror. So I looked into my own face, you know, saying, "So what was that all about?" You know? And then before I arrived at the ground floor, I made a decision to go to California. Yeah. So that was—it took me maybe ten seconds or so. I was actually saying, "If that happens so early in your professional career, what's happening in a few years from now?" So I really identified a weakness or a spot, you know, which I needed to work on. And then, because a good friend of mine was staying there and he asked me before if I wanted to join him on a consultancy assignment, yeah, it was quite easy for me then to make that decision, obviously.

(Joel Beasley at 00:07:42) As a kid, were you really into technology?

(Bernd at 00:07:47) Not too much. Honestly, not too much. I think I have been a bit—you know, my father has been—he has been working in the financial service industry, so completely different. However, I'm from a large family, so I've been—I'm the seventh kid. Right? I have five brothers and one sister. And you can imagine what happened. I was actually the youngest. I'm the youngest. You know? And I learned a lot from my brothers, to be perfectly honest, on the technology side. You know? One of my brothers was very much into computers and stuff, and I looked over the shoulder and learned my stuff there. Another one, he was very much into creating engineering stuff. So he built his first PC almost, you know, by buying a lot of stuff and so on. So I guess I personally wasn't too much into technology, but because of those surroundings, I picked up a lot, which I believe was above average.

(Joel Beasley at 00:08:52) You know, I'm curious. I want to talk a little bit about what Software AG does, but I do have a question. So Germany is known for, like, high quality, excellence in engineering. Why is that?

(Bernd at 00:09:07) That's actually an interesting question. So why is that? I guess the market expectation, the expectation of consumers, the consumer expectation has a very high desire for quality. So if people buy something, they want the things to work in a quality sense. You know? If people build houses, yeah, they build houses in a proper way here in Germany. You cannot imagine how proper it is. You know? You build—you have the cellar. You have stones. You have concrete. You have—you know, if it's not a properly built house, it's perceived as low quality. You know? So it's kind of interesting. I think the whole culture is very much about experiencing quality and appreciating quality. I think people are also willing to pay for that. Yeah. I think on average—I remember when I went the second time to the US, so I have two times' working experience in the US. You know, when you drive an American car, great experience. However, if you compare it with a German car, let's put it—keeping the stereotypes, you know, a BMW or Mercedes or Volkswagen or Audi, it drives nicer. It drives more—yeah. It feels—it feels more convenient to drive and so on. But it's also more expensive. You know? But still, people buy these expensive cars in Germany because they like, you know, they like quality stuff. Yeah. So I think the whole culture, the whole market is very much driven by quality experience, and people are ready to pay for it. I think that's an important driver for then companies to build quality products into the market because if people are ready to pay for it, you know, then, of course, it makes sense. And I think that's kind of a—I would call it a positive feedback loop. I don't know if that makes sense.

(Joel Beasley at 00:11:09) Oh, 100%.

(Bernd at 00:11:11) The consumer and corporates working hand in hand to create that type of quality experience. And sometimes it's also bad. You know? In today's environment, it's actually a negative thing as well because when you have that tradition of quality, high quality, you know, if you think about software engineering and beta releases and agility and testing the market, getting early customer feedback, offering a half ready product in order to launch it and collect impressions, feedback, and so on, it is sometimes against the cultural aspects of quality. Yeah. You see that in our engineering teams, for example. You know? You have to push them to say, "Listen, that's good enough to get out as a beta and collect feedback." So it's sometimes, you know, it can also be a negative thing. It's not always a positive one.

(Joel Beasley at 00:12:13) So it's—let's just say Germany was building great products. They started to get a reputation, which further reinforced a culture of appreciation of quality. And then it just kind of cycled in a positive feedback loop. And now it has pros and it has cons. You want to be able to ship software. And so in the nuance and the details of helping the engineer see how it is good enough, like you can, you know, cut scope but not sacrifice the quality of what you're building. Yeah. It's an interesting—thank you for that perspective.

(Bernd at 00:12:50) Yeah. I guess maybe I—if I may add to that, if you think about processes in a corporate environment, in today's world, people or new talents, you know, younger generations, they expect you to offer flexibility, lean management structures, empowerment. They want in young ages to take ownership, responsibilities. And when you have a very static corporate model, let's put it this way, I believe that has also a negative side. I mean, it's not only German. I think you have that in the US, in North America in the same way. Right? You have large corporates with very well-defined, process-oriented structures and hierarchies. And I think all these traditional industry-driven economies are facing challenges. Right? And the difference here is that in North America, you have originally this innovation hub of Silicon Valley, which helped actually role model a new way of corporate governance and structure, which, of course, has been applied sooner in many other environments and companies across North America. You know? I mean, you have a lot of innovation hubs nowadays in North America related to software and Internet. It's not just the Bay Area. Right? And, but I think that, of course, has been a tremendous success for the North American economy, something it took many more years for Europe to gain momentum. I think in Europe, we have been able to set up modern, I would call it, new corporate structures and styles and innovation clusters, but it took much longer because of the missing kind of Bay Area or Silicon Valley drive. It just took a few years longer.

(Joel Beasley at 00:15:00) And did you—when you founded a company, did you do it in Germany or in Silicon Valley?

(Bernd at 00:15:05) Well, that's an interesting one. Actually, I did do that in Silicon Valley. So I was based in Silicon Valley when I created—actually, I created the idea there for about eighteen months, but then I founded the company in Germany. The business—the company which I founded, cofounded together with three colleagues—it's actually Cumulocity. It's an IoT platform. And the basic idea, it's focused on B2B market. It helps enterprises to create IoT insights and generate applications and operationalize these insights. So it's kind of—it's a platform for B2B business. And when we created the idea, that was in 2010, so more than ten years ago, we realized at that point in time that Silicon Valley, so Mountain View, we were actually based in Mountain View, was probably not the right location for B2B business, for helping industrial companies to automate, because we just looked around us and we saw a lot of great innovations and software companies. But at that point in time, also, a lot of B2C innovations, kind of social networks and etcetera. And we kind of felt that the probability for us to gain momentum in an industrial Internet of Things environment was actually better in Central Europe. That was our gut feeling at that point in time.

(Joel Beasley at 00:16:53) And it worked?

(Bernd at 00:16:54) It worked. Apparently, it worked. You know, we kind of—we went then, we founded the company in 2012, and we became quite successful in a very short time. So we gained some lead customers here in Germany, and we were able to scale it up internationally. It worked actually in that situation that we had, for example, customers from Australia or Japan or South Africa. We have been only operating three offices in Europe. So we only, you know, internationalized in Europe. But we got these requests from these customers, and they actually came over to see us here in Dusseldorf. I remember a delegation from Japan. You know? They're coming with a few people. You know? I think eight people. They visited us for a week here in Germany to buy our software. You know? So that was a good sign. You know? We had no one in Southeast Asia, no one in Japan, still they wanted to buy our software. And same happened with a client in Australia. You know? No one in Australia, no one in Asia. Still, they wanted to get our software, and it was B2B software. Yeah? So they came over and negotiated the agreement with us. So in a sense, when that happened, I knew we were onto something. You know? So that was a good sign. Yeah.

(Joel Beasley at 00:18:18) What was the major value proposition for them to spend money on your software?

(Bernd at 00:18:24) You know, in the early days, when you look at the Internet of Things business, the reason why we founded it really—yeah, before answering your question, maybe it's good to just look into the reason why we founded the company. Because what we saw is that there was an enormous price reduction in the embedded engineering world. So we anticipated that there will be a time when sensors, professional sensors, become so affordable, and also the way to connect these sensors and get data into the cloud or on your edge computing devices.

(Bernd at 00:19:08) The embedded engineering costs were dramatically reducing 25% every year. And the way to connect these things, the connectivity cost, we anticipated also massive price drop. That was based on my experience with Nokia. So, by the way, when I came back from the US, I took the job with Nokia. I forgot to mention it.

(Bernd at 00:19:32) Yeah.

(Joel Beasley at 00:19:32) Oh, you got the job.

(Bernd at 00:19:33) You learned English, you went back, you got it. Exactly. Yeah.

(Bernd at 00:19:36) I went back and I took the job with Nokia on the mobile communication side. Yeah. Exactly. Yeah. So, but anyhow, the price reduction on the devices, on the machines, on the things to connect, the connectivity reduction was happening. But what was really missing was on the solution side. We identified that people were building bespoke solutions every time, again and again and again. Even though it was hosted in the cloud or virtualized in the cloud, it wasn't like a container architecture like you have today. So it was really virtualization architectures in the cloud or in private data centers. But we felt the investment to generate solutions and analytics for industrial IoT was quite heavy, and we didn't see anyone really to optimize this cost. So we created an IoT platform which had about 80% as reusable, like a toolbox. 80% was reusable software elements, software components. And companies using this platform could easily build their solutions on top, right? An application enablement platform was the name you would give it a name today like that. When we did it in 2010, it wasn't really available. And we made that available natively in the cloud. So our clients could run their own dedicated cloud with a multi-tenant native environment. And, you know, that was new. Yeah.

(Bernd at 00:21:13) That wasn't really available. So time to market, cost to operate it, very, very small and very efficient to operate in the cloud. Multi-tenant—you could run hundreds of thousands of customers in one instance. So you need only one cloud instance and still have data separated for your end customers. So these customers who came to us couldn't find that in the market otherwise. Yeah. It was really for them a way to create solution business in the IoT domain with hundreds of end customers using the platform. And it was white labeling as well. So they could brand it with their own brand and generate their own digital service environment in an instant.

(Joel Beasley at 00:22:00) So very valuable. Did you meet with a lot of different potential customers while you were building the product? How did you align the first versions of the product knowing that this is what the customers would need?

(Bernd at 00:22:12) Yeah. That's an excellent, excellent question, because that was the biggest challenge. I mean, I think it's in any startup the biggest challenge. And today, also, you know, as the CTO of Software AG, I'm still also involved because I'm very interested in it, in many startups. I'm a business angel. I'm a coach. I'm a mentor. I'm active in many startups because it's just enjoyable for me. I like it a lot. And the biggest—there are two key questions, I feel, for building your startup. Two main fundamental questions, really. One is: are you meeting the market requirements? And not just current, but also the future market requirements. That's very important. Yeah?

(Bernd at 00:22:58) Because if you're just focusing where the puck is at the moment, you know, you're too late. So as a startup, you have to have that innovation, that edge that you are ahead of the curve. You need to be ahead. So you need actually to focus on your future market requirements, not just what is currently understood and available, because that is also probably done by larger competitors. Yeah?

(Bernd at 00:23:27) You might be able to gain a slight time advantage, but not enough to build—and that's the second challenge—your go-to-market. So it's really anticipating the future needs, but in at least an 18- to 24-month horizon and building so that you get enough time to build your go-to-market. You know? So if you focus on what is today, I would probably say it will always be difficult to gain momentum. And we have been in a sense very early, and it's very hard to time. It's almost impossible. So we have been probably three years too early with our technology. So the first three years have been very difficult. What we then did, because the market wasn't really ready to really appreciate the value proposition what we had—what we did in those three years then, to answer your question—we decided to create co-innovations with customers so that customers get their solutions they wanted, and we improve the platform. So we kind of met in the middle.

(Bernd at 00:24:42) And the benefit for the clients: we gave them a co-innovation. We gave them actually a discount. So rather than—but we kept the IPR. So basically, the co-innovation was set up in a way that the customer wanted to have a solution and didn't really appreciate a platform-based solution with multi-tenancy and all of that stuff and device management and so on. But they wanted to have a solution in the IoT domain. We gave them the solution but based it on our platform. And it was more or less zero profitable. It wasn't really profitable, but we advanced our product for market requirements and got paying customers onto our platform. So we kind of generated lighthouse references, as you would call them today. And the customers have been happy as well because they got what they wanted. But they didn't really appreciate the platform. They at that time, you know, in 2012, 2013, 2014, they wanted to have bespoke solutions rather than ready platforms, product platforms. And so we gave them something which they really didn't appreciate. That's why we needed to find a different model. And for us, it was the co-innovation model to make it happen.

(Joel Beasley at 00:26:05) Well, I think that's brilliant because you had this idea. You brought it into the market, but the market wasn't purchasing in line with the vision of the future. The market was purchasing on a legacy bespoke model. So you had to adapt your process. You were able to generate cash, pay the bills, improve the product, and then the market caught up. And you had that vision and you saw it coming and you stuck with it and you survived until it became reality. And so as a fellow founder, I love that. I love hearing that. It's the most difficult thing in the world, and I know how much work it is. So awesome job.

(Bernd at 00:26:43) Thank you very much. It sounds, I mean—let me also be honest with you. It took us three years really to verify that our vision, that our product vision was really demanded from the market. It could have also turned out the other way, right? So that's always the risk. When you hear these stories, it's always nice and, hey, sounds good, I agree. And at the end of the day, it was the right thing to do, and we have been lucky that we actually pursued that strategy. But actually, there have been also times, you know, where you start to wonder: What if it's really adding value? Is it really—are people really needing a cloud-native platform to create their solutions? And is the time to market really so important for them? How about the operational cost? So you were really questioning yourself in that phase as well. So it was a very difficult phase, I have to admit. You know? It wasn't so easy as it might sound. Yeah.

(Joel Beasley at 00:27:51) We like the highlight reel. We like when it sounds very succinct and perfect. The reality of it is you go through ups and downs and there's doubt. When you were feeling doubt, like we all do—all entrepreneurs feel doubt, right? It's just something you learn to manage. How would you respond to that doubt?

(Bernd at 00:28:13) Yes. Sometimes not sleeping very well, you know. So that's—you know, I remember times in that situation. We also went for venture capital, right? So we did also because, you know, my ambition was that I really foresaw a big market opportunity here with an IoT platform and also knew that others will follow. And I also saw startups popping up, you know, in that domain. Even though I knew our technology, we have been really very solid, very experienced engineering team. But I also wanted to accelerate our growth and especially engineering team. So we needed VC funding, and we got funding, and we needed another round. You know how it goes, right? And there have been times where I was actually wondering how to pay the bill, how to pay salaries for our whole team. You know? As a CEO, you know, I had a very, very luxury situation that we had a founder team, four founders. We knew each other very well. Actually, the team was working with me when I was in a management position at Nokia, right? So we all moved gears and went into that startup, and I could share everything with them. I knew I could trust them and share everything. Also, that I was saying, "Listen, we need to be careful. We are running in two, three months out of money if we don't sign that funding round." And then it got even tighter and so on. So in a sense, that was such a good position for me to share these responsibilities. You have a 50-, 60-people team, and you are running out of money. It's a difficult situation, you know? And there have been different reasons for that. But I believe every startup faces critical situations. And I see founders who are afraid to share that with their teams, you know? And I'm really—I feel very sorry for them because that burden is such a—at least for me, it's a tough burden. It's crushing.

(Joel Beasley at 00:30:29) It's heavy.

(Bernd at 00:30:30) It's crushing. Yeah. Yeah. And if you cannot share that, it's even more difficult to manage. And, yeah, I think in that way, you know, everything turned out to be really nice for us, you know, for the founders, for us. We succeeded, as I mentioned. You know, we had even such a demand from international clients that we were able to grow. And then we actually ran into—we became a victim of our own success in a sense. We doubled, we even sometimes tripled our revenues, and then we couldn't fulfill, we couldn't deliver the projects. So we really had issues on that. And then we basically decided to start with an exit, or we started to look into the market: who could accelerate growth, who could help us in a professional sense to help to scale up the whole operation, right? And we have been below 100 people still, but growing nicely. And, you know, we had to—we entertained a couple of discussions with various interested strategic buyers. And it turned out to be Software AG, you know, a German software company not well known. Yeah? Even not well known to us, I remember. You know, when we discussed with the management team of Software AG, I remember I didn't know them very well before, right? So I was—I knew SAP, but not Software AG, you know? So yeah. And then we sold to—we actually teamed up with Software AG, and it turned out to be the right thing to do. I'm still there. You know, I'm now the CTO of Software AG. You know? So that's kind of one of the proof points. Yeah.

(Joel Beasley at 00:32:25) They're a large company. They have thousands of engineers, right?

(Bernd at 00:32:29) Yes. 5,000 people, operating in 70 countries. Very successful company. Yeah.

(Joel Beasley at 00:32:36) What's their main line of business?

(Bernd at 00:32:38) Well, it's an interesting one. It used to be integration. I don't know if you ever come along with a product name, webMethods. webMethods is a middleware integration platform to basically create these kind of IT enterprise integrations. Like, you connect your SAP system with your CRM and with your other IT—Zapier.

(Bernd at 00:33:02) Yeah. Yeah. Yeah. You know Zapier, exactly. That's a sales-service UI, but in the background, you need connectors to create these integrations. And Zapier is a cloud-based tool. And 20 years earlier, it used to be IT tools, right? That's the webMethods tool, you know, one of the global market leaders creating integrations for enterprise IT on-prem. Yeah? And, of course, it has been completely modernized. It's now cloud-native as well. But the original is really 5,000 customers using that. Fortune—we have over 10,000 customers globally as Software AG, and I would say about, I think, 70% of the Fortune 1000 use Software AG software. You know, it's very, very specific and not very known to the wider audience, the company.

(Joel Beasley at 00:33:58) Yeah. And they've been around for a while. I read that they were over 50 years old.

(Bernd at 00:34:02) That's right. That's right.

(Joel Beasley at 00:34:03) How do you keep—how do you not become Nokia? Like, how do you keep doing these things we're talking about earlier and staying close to the customer?

(Bernd at 00:34:15) Yeah. Well, it is also one of my roles and assignments as the CTO of Software AG, right? So I'm responsible for our market vision, for our technology vision, for our technology strategy, for our portfolio developments. And first and very important: we are in a transformation of Software AG. You know? We have a new management team. We have a new CEO as well. That's probably the reason why I'm still with Software AG, you know, because we have agreed that if Software AG wants to continue for the next 50 years, we have to transform the company. We run a project—we run a transformation program called Helix. That's our name for it.

(Joel Beasley at 00:35:06) That sounds cool.

(Bernd at 00:35:07) Yeah. Yeah. Exactly. That's—and yeah, we are working very hard to build the foundation for the next 50 years. While I'm saying that, we have a lot of talent in Software AG, 5,000 people, great bright talents, a lot of very good innovations. However, what we identified as well is that we have been spreading too soon in too many product areas. You know? We have not been specialist enough. We've not been focused enough. That's one of the initiatives I'm driving at Software AG: focusing Software AG into a target market, which, by the way, combines what I did with Cumulocity, yeah, with the IoT world, with the integration and our—we have also very good business process to help our customers to transform. And we do also process mining stuff and a lot of cool stuff nowadays. And we have been really putting this all together and packaging it towards a market vision of what we call a truly connected world. Yeah? And that helps us to, I believe, re-innovate because we identified a market opportunity: truly connected world. What does "truly" mean? The word "truly" means really that we do not just see the connectedness as a key disruptor, actually touching almost all industries globally, right? It has a new, you know, a complete new way how you need to manage your business. Maybe I'll give you some examples in a few minutes. But, you know, personally, I feel it's the most underestimated disruptor at the moment. And so what we did is we reshaped our entire company and portfolio into that direction. It's a massive growth area. And with that, we're innovating into helping companies become a connected enterprise. We call them truly connected enterprises. And that's our mission, really. Our mission is we help our business to turn them into truly connected enterprises.

(Joel Beasley at 00:37:37) That sounds good. I like it. It passes the marketing test. It sounds good.

(Bernd at 00:37:43) Thank you very much for that. Yeah. Yeah.

(Joel Beasley at 00:37:46) If I have an enterprise, I want a truly connected enterprise.

(Bernd at 00:37:51) Yeah. Actually, let me give you some examples. I guess that makes it more tangible. Yeah? So why is that important?

(Bernd at 00:37:58) Because, you know, when you look at customer experience, for example, in the, let's say, the old way of customer experience, you looked at smartphone experience or PC-driven experiences. In the new way, you need to also look into experiences across the physical world. So you cannot just look into your back office, IT office, or the Internet services. You also need to combine machines, employees, sensors, actuators, whatever you have—cars, pumps, compressors. The customer experience in the B2B sense is redefining.

(Bernd at 00:38:40) Yeah, you have to reshape your thinking about experiences. And, for example, we have a lot of engagements with clients who reshape experiences towards their, you know, product offering, again, in a B2B sense. Let's say you are a compressor company. You produce compressors and you're selling compressors.

(Bernd at 00:39:03) What you nowadays want to do is you want to exactly know how your compressors are used. Who's using it? Are there issues with the interface on your compressor? What's the experience when using your product? What are the operating hours compared to the maintenance hours?

(Bernd at 00:39:22) How can you optimize the cycles? How can you optimize the maintenance cost? How can you predict maintenance events, like proactive maintenance? How can you maybe innovate new business models, like everything-as-a-service? Business models are becoming very viable across different industries. So connectedness enables all of that.

(Bernd at 00:39:47) Yeah, and that's why a lot of companies have to rethink how they operate, how they commercially offer their products, and that's why they have to think as a truly connected enterprise.

(Joel Beasley at 00:40:00) Yeah, the predictable maintenance, predictable failure is something I'm seeing emerge across all industries—from cell phone towers to compressors to cars or semi-trucks. It seems this predictable maintenance, predictable failure is just becoming a standard. And if you're a company that isn't transforming yourself to meet the customer demands, it can creep up on you really fast, and then you don't have the infrastructure, you don't have the teams or the people in place to respond.

(Joel Beasley at 00:40:33) Whereas if you're always innovating, you have these teams, you have this as a core competency of your business. I think a large part of digital transformation, or transformation for companies in general, is having technology as a core competency within the organization.

(Bernd at 00:40:52) Absolutely. I think you're absolutely spot on. And, you know, the funny, interesting thing is with my—I feel a lot of executive engagement discussions literally globally. At the moment, doing a lot of virtual sessions, obviously. And you know what?

(Bernd at 00:41:09) When they define what they want to do, I'm actually using a summary for that, and they like it a lot. I'm actually saying to most of the clients I'm engaging, listen. What you really described here is that you fully understand that software is the ultimate value driver for you going forward. Right? So software is the ultimate value driver.

(Bernd at 00:41:35) That's how I describe it. And it's reality. And, of course, for me as the CTO of Software AG, it's also a nice twist. Right? Because, you know, what we are looking for—we are an enterprise B2B software company.

(Bernd at 00:41:49) We have a product. We are a product company, but we are helping companies to transform into technology software-driven companies. And it helps me a lot to position us as a company as well.

(Joel Beasley at 00:42:03) Because you're so involved with IoT and you're so experienced there, can you share with me a misconception that you see a lot? Something people get wrong or don't exactly understand about IoT?

(Bernd at 00:42:17) Yeah. I think the current situation is that people—sometimes I have a feeling that the appreciation for IT technology and the adoption of the technology is not as great as you would anticipate. And I believe that is because a lot of successful IoT propositions have IoT embedded. It's an enabler. It's not a service proposition by itself.

(Bernd at 00:42:49) But if you think about the most innovative companies on that planet, they're using IoT technologies. Think about Uber without IoT. Is that possible? No. It's not.

(Bernd at 00:43:02) Think about, you know, delivery companies in many senses. You know, without IoT, it's not anymore really possible to deliver high-quality, fast demand from your client base. So there's a lot of consumer technology innovators or, you know, there's hotel chains which offer you a full digital experience nowadays. Right? They use a lot of sensors, actuators. You don't have to queue up at the reception anymore.

(Bernd at 00:43:34) You go into your room. You have your codes on your Bluetooth-enabled access code, and you enter the room and you leave. The bill is automated in the background. You don't need to queue at the checkout. All of that—the whole interaction is based on sensor technologies, which are connected to some sort of an IoT platform in the background.

(Bernd at 00:43:57) Right? And that's often not seen. So that by people who originally anticipated we have 50, 100 billion devices connected in that IoT world, they feel it's not happening. But in reality, I think the last time I read a report with Gartner, I think they counted 30 billion devices already connected in the background. Right?

(Bernd at 00:44:23) And people do not realize that. They don't see it. And I think that's a misconception. I think what I see is very successful uptake. We are growing on our IoT portfolio 60% last year.

(Bernd at 00:44:40) And we have a multimillion-euro business. So it's, in total now in that domain, I think, if I count everything here, it's about 100 million recurring business in the IoT domain. It's recurring. It's different than perpetual. You know the difference.

(Bernd at 00:45:00) I mean, in today's world, ARR is a very typical KPI. So it's a massive business, and we are growing that a lot. And I do believe that there's a misconception about hundreds of players out there, and it's not really working. It's still proof of concepts and pilots. I would say no.

(Bernd at 00:45:22) I see a lot of successful projects. For example, you know, we have a very strategic engagement with Stanley Black & Decker in the U.S. And we are actually there in StanleyX. That's the innovation force, innovation department, which delivers digital products to all the Stanley in-house line of businesses. You know?

(Bernd at 00:45:50) I think they have tens of different businesses, you know, from drilling machines to bigger Caterpillars to automatic doors. I mean, there's a lot of different—I mean, Stanley Black & Decker is a massive industrial company. And our platform sits on all of these digitalization initiatives they're having. And it's, you know, I see very successful traction there with their digitalization campaigns in these different areas. But people—then, you know, when you enter a grocery store and the door opens, you don't know that it's fully connected and the maintenance cycles are automated and people are repairing it on a dynamic routing plan.

(Bernd at 00:46:38) You know, they are maintaining—it's not just once every three months, but they are coming based on demand, on analyzers, and on predictions. And these engineers, they are visiting these different automatic doors on a dynamic routing. Yeah. So they are cutting out massively on cost for maintaining these doors, and they are selling now to shops, not just the door, but the availability of a working door. Right?

(Bernd at 00:47:10) So they're really innovating in that sense. And this is not seen to most people. Right? But there is a real transformation behind these type of propositions.

(Joel Beasley at 00:47:21) That's so interesting. That is really, really cool. And they seem to be putting it in everything these days. You can get, you know, IoT, Wi-Fi-connected laundry machines, ovens, microwaves, tea kettles. Right?

(Bernd at 00:47:37) Exactly. Yeah. Yeah. You need it. A lot of consumer products are enabled by that.

(Bernd at 00:47:42) But what do consumers see? The consumers see something, you know, a proposition which is not IoT. You know? IoT is maybe a technology term for insiders like us, but not really for the wider public. But also in the business sense, I do see a lot of companies still not sure about the new way of connectedness.

(Bernd at 00:48:08) You know? Should they really become a connected enterprise or not, you know? And why aren't they sure? Because I believe that has to do with how they define their business. Let me explain what I mean with that. Actually, I had, a few months ago, I had a very interesting discussion with Guy Kawasaki.

(Joel Beasley at 00:48:29) I guess you—you know the, uh, used to Rich Dad, Poor Dad.

(Bernd at 00:48:33) Yeah. Exactly. Yeah. So we had a very good discussion, and he has that concept of mantra. Do you know what the—a lot of companies actually—I like that a lot.

(Bernd at 00:48:45) A lot of businesses, they haven't really defined their mantra. You know? What are they in? What is their business? And, you know, as a client—unfortunately, I cannot name the company name, but they are one of the largest global elevator providers.

(Bernd at 00:49:05) You know? And so you think elevators? Yeah. They're producing elevators. So what?

(Bernd at 00:49:10) Now they are defining themselves. They're redefining themselves. We have a strategic engagement with them. And they are saying, no. I'm not an elevator company.

(Bernd at 00:49:19) I'm a transportation company. I'm transporting 1.5 billion people every day with my product. 1.5 billion people every day with my product, but I'm not a horizontal transportation company. I'm a vertical transportation company. Yes.

(Bernd at 00:49:36) That's how they define it. But now we have a different way of perspective. Right? If you define yourself as a transportation company, you have to think, so what—how can I maybe monetize or—before that, maybe you have to think, how can I improve the experience?

(Joel Beasley at 00:49:53) That's where I was thinking. Yeah.

(Bernd at 00:49:55) Yeah. How can I improve the experience of people using my product? And they actually, you know, have ideas like, listen. Why do you have to stand in front of the elevators and push the button all the time to wait for an elevator? Shouldn't the elevator wait for you?

(Bernd at 00:50:12) Question mark. Shouldn't the elevator know where you want to go? Question mark. And so they're really redefining because they changed the position of being an engineering company, developing elevators or, you know, installing elevators. They changed completely the position of being a transportation company, improving experiences of their clients.

(Bernd at 00:50:36) And then they're also thinking about digital signage, about information they could show in this place. They are actually, you know, they have—they have a massive amount of innovations developed now, you know, which they are rolling out based on our platform globally. Yeah. And that's the new way of thinking at your business. And when answering your question, shouldn't every company become a connected enterprise?

(Bernd at 00:51:03) I think yes. However, if you do not redefine the way in which business you operate, you do not, you know, generate the need for it, the requirement to transform. And I think, you know, a lot of companies haven't yet reshaped their mantra. What is the—what do they really would like to achieve going forward?

(Joel Beasley at 00:51:32) That's one of the things I like about Elon Musk is he seems to constantly be rethinking products and experiences with a high level of quality. And I find this a recurring theme for me is I find that companies that still have their founders, they tend to do better because they have somebody who feels responsible, who can be a figurehead versus it just being board-managed by a successive board each year and money changing hands between private equity firms and things like that. When there's a person, someone who can be responsible, they tend to be an active participant and question these things and how they can improve and grow the product, how they can rethink.

(Bernd at 00:52:19) Yes. So I like to agree with you a lot here. And I even saw—I'm using different words. Yeah? But in my words is, do you want to have a financial management team managing your company?

(Bernd at 00:52:34) What do you expect as a customer experience from a financial-driven company?

(Joel Beasley at 00:52:40) It will be like having an AI algorithm run your company.

(Bernd at 00:52:45) Exactly. So and entrepreneurs have a different way of managing a company. They look at the experiences. They look at visions. They look at reshaping, you know, things, and they see opportunities behind the corner, which, you know, other people don't.

(Bernd at 00:53:04) And I think that's why there's so much passion in entrepreneurs managing the company. That's why I think, you know, you see the difference. You feel the difference. And, you know, it's exactly like what you pointed out, just with different words in my view.

(Joel Beasley at 00:53:18) Well, I want to do a call to action for people who are listening that they're interested in learning more about, like, truly connected enterprises, maybe having a conversation with you or one of your teammates. Where do they go? Do they go to Cumulocity, Software AG?

(Bernd at 00:53:34) Yes. They go to the Software AG web page, and they can contact us there easily in the region. So it's directed to the regions. I'm also very happy to—go and contact me directly or my LinkedIn account. And, yes, we are—in that sense, we are Software AG is like a bit like a startup.

(Bernd at 00:53:55) It's a mixture of large corporate. We are solid. We are, you know, robust from our delivery processes. Financially very strong, but we have the agility of a startup. So it's a good mixture, and I believe that makes us so attractive for very large corporates to help them transform.

(Bernd at 00:54:18) Not only—we typically come not just with products and sell products and run away, we tend to stay with them. We tend to—we help our clients to become successful. That's our ambition. That's also my personal ambition. We have the commercial model is based on that.

(Bernd at 00:54:35) So we have a model which enables us to jointly create success. And I think people feel that. They can, you know, experience it, and that's why, you know, they like to work with us. And so that's kind of, you know, beside technology, it's one of our USPs. We are a mid-sized software company with a very familiar, easy access to the management, entire management team, and really want to turn our clients' projects into success. That's really the ambition what we have.

(Joel Beasley at 00:55:16) Thank you so much for listening. And if you found this episode useful, please share it with a friend or colleague who you think would get value from it. And if you have topics that you'd like to hear discussed on the podcast, either add me on LinkedIn, or send me an email: [email protected]. Every time I get an email or LinkedIn message, it absolutely makes my day and inspires me to keep going.