Snowflake CEO Frank Slootman isn’t worrying about hurt feelings as he goes for IPO three-peat

Tech

Snowflake CEO Frank Slootman

Snowflake

In an era of founder-led tech companies, Snowflake’s Frank Slootman is a corporate throwback.

Slootman, 61, is a professional CEO. He’s an operations guru, the leader who turns a jet plane into a rocketship and makes piles of cash for investors, employees, and himself. Along the way, some feelings will get hurt. As Slootman says himself, he’s more Marine Corps than Peace Corps.

Now, as Snowflake heads out on its virtual roadshow, Slootman is gearing up for his third IPO in what many investors say is the hottest tech deal of the year, even with Airbnb, Palantir, and Asana all run by founders in the pipeline.

“He’s one of the most impressive, most accomplished, most respected CEOs in enterprise tech,” said Asheem Chandna, a software investor at Greylock Partners, which invested in the first two companies Slootman took public, Data Domain (later acquired by EMC and now part of Dell) and ServiceNow.

“He’s a take-no-prisoners leader. He can point at a hill and inspire the entire team to follow him to take the hill.” 

Sixteen months ago, Slootman was named CEO of Snowflake, which gives businesses new ways to store and access data, rather than relying on clunky databases tied to hardware. Before he arrived, the company, guided by former Microsoft executive Bob Muglia, was already valued at about $4 billion by venture investors.

Muglia was ousted suddenly in late April of 2019. As a former senior employee described the situation, the board saw Muglia taking Snowflake to the moon and believed Slootman could pilot the ship to Mars. To get there, Slootman would impose more aggressive sales tactics, cut back on perks like ski trips and expensive lunches and bring his trusted confidantes into the C-suite.

Muglia was informed of the move on a Wednesday, just two days before Slootman was introduced to employees in an all-hands meeting, according to people familiar with the matter. Lead investor Mike Speiser of Sutter Hill Ventures was at Slootman’s side.

The supercharge was underway. By February, the eight-year-old company lifted its valuation to $12.4 billion in a round led by Salesforce as part of a product partnership. In a blog post, Salesforce’s venture group described Snowflake’s technology as a “game-changer for any business that relies on speed and security, such as those in finance or healthcare.”

Snowflake CEO Frank Slootman, far right, addresses the team at an all-hands meeting.

Courtesy of Snowflake

Snowflake said in its prospectus, filed publicly on Monday, that revenue in the first half of 2020 more than doubled to $242 million from $104 million a year earlier. Headcount jumped by more than 50% to just over 2,000.

With that kind of growth, annualized revenue of over $500 million, and cloud stocks receiving historic multiples, investors are bullish on Snowflake’s offering, even in the midst of a global pandemic and heated presidential campaign. 

“I’m very excited to see the ongoing success of Snowflake and am very supportive of the team going forward,” Muglia told CNBC, although he didn’t comment on the circumstances of his departure. He still owns 3.3% of the company.

Snowflake declined to make Slootman available for an interview for this story. CNBC talked to more than 20 people who have worked for Slootman at Snowflake or ServiceNow, as well as some investors and personal friends. Most asked to remain unnamed because of confidentiality agreements or to feel comfortable speaking freely. 

Changing course

Snowflake’s decision to hit the public market now is another sign of how dramatically the world has changed since March, when the coronavirus forced much of the U.S. to shutter and created a surge in unemployment. In October, months before the crisis struck, Slootman told CNBC’s Jon Fortt that an IPO would either take place by early summer or after the presidential election in November.

The early summer window came and went without a filing, but companies are now lining up to debut ahead of the election, as U.S. stock indexes trade at a record and investors pile into high-growth tech companies. On the same day Snowflake’s prospectus was made public, Asana, Unity Software, JFrog and Sumo Logic also revealed their filings. Palantir’s landed the following day.

Covid-19 has ravaged the broad economy, but cloud software continues to thrive. Businesses have been forced to adopt tools that can help them manage remote workforces and collect data in ways that are accessible to people spread all over the place.

The pandemic has spurred new kinds of workloads as well. For example, Snowflake is seeing an uptick in demand from the health-care industry, which is using the technology to store, share and analyze data about the coronavirus.

“There’s no doubt that this crisis is going to accelerate the trend towards digital transformation and everything that is associated with that,” Slootman, who owns 5.9% of the company, told CNBC’s “Squawk Alley” in an interview in late March, two weeks after major U.S. cities instituted shelter-in-place restrictions.

“We’re a 100% cloud company. We can literally vacate 2,000 people out of their offices and continue to operate not just our data servers but all our internal systems.”

With his company-wide correspondence limited to Zoom, Slack and email, Slootman now sends a note of 10 paragraphs or so every Monday, according to former and current staffers. In the memo, he updates employees on things that are happening internally and offers observations about the market. 

The itch to lead

Slootman never expected to be in this spot. After stepping down as ServiceNow CEO in 2017, he was retired and plenty wealthy. He had earned over $550 million from his sale of ServiceNow shares, according to SEC filings, and that was after leading the $2.4 billion sale of Data Domain to EMC in 2009.

“I didn’t see it coming,” Slootman said in October, referring to the Snowflake opening. “People like us, we’ve been in operating roles so long, sometimes we don’t know how to be without it. I’d stepped down from my role at ServiceNow, had no plans, was not looking.”

Slootman, a Dutchman who moved to Silicon Valley in 1997, was enjoying his time sitting on corporate boards and racing his sailboat, The Invisible Hand, which he led to victory in the Transpac Honolulu race in 2017. While serving on the board of Medallia, he helped recruit Leslie Stretch to join as CEO in 2018. Stretch knew Slootman from the business world and is a sailing hobbyist himself, though he admitted “I would make a fool of myself” if he ever joined Slootman on the water.

“He’s a brilliant competitor,” Stretch said. “He knows what he’s doing when it comes to software and sailing.”

Sutter Hill’s Speiser, whose firm owns 20% of Snowflake, had been involved with the company from the beginning and knew Slootman from Pure Storage, where they were both on the board. Slootman was intrigued by Snowflake’s rapid ascent and was feeling the itch to get back in the game. Speiser jumped at the recruiting opportunity, according to people familiar with the matter.

Slootman has a tight executive crew from his many years as a CEO. Upon joining Snowflake, he told some senior executives that he’s too old to work with new people.

Joining Slootman from his days at ServiceNow and Data Domain were CFO Mike Scarpelli, human resources head Shelly Begun, and Rob Specker, who was general counsel until quietly leaving Snowflake in May without a public explanation. (Derk Lupinek, another former ServiceNow executive, is listed as general counsel in the prospectus.)

Software CEOs and venture investors heap praise on Slootman’s resume. But some insiders describe a CEO who lacks emotion and is singularly focused on winning, a characteristic that has led to internal turmoil, culture clashes and a hefty dose of employee turnover. 

In his initial introduction to the company after Muglia’s abrupt departure, Slootman told employees that company-wide meetings would move from every two weeks to once a quarter. 

Snowflake’s annual ski trip to Tahoe was canceled. Busing hundreds of employees to the mountains and housing them at the luxurious Northstar resort had become a pricey logistical challenge. But people who attended in prior years described the trip as fruitful for team building and brainstorming.

Slootman scaled back a sales office that was in a WeWork in San Francisco, moving more people into its new Silicon Valley headquarters in San Mateo. Lunch was downgraded from catered local fare to an in-house cafeteria, and sales reps could no longer freely spend thousands of dollars a year on football tickets without showing a valid business reason.

Courtesy of Snowflake

Slootman embraces the contrast with many other Silicon Valley tech leaders, who proudly lure recruits with promises of yoga, massage and top-shelf snacks.

“I put all the focus not so much on lattes and neck rubs, but on us succeeding as a team,” he told Fortt in October. “Silicon Valley is very much a high-fiving, self-congratulatory culture. They love to just do a victory lap. We’re not into that,” he said. “People want to be patted on the back and feel good — I’m into not feeling good.”

Some people who were at Snowflake for the transition from Muglia to Slootman described a culture of fear that took over after the reshuffling, with employees, particularly in sales, just trying to keep their heads down and their jobs intact long enough for the company to go public and their options to vest.

Slootman also brings with him controversial views on diversity, a concept that he’s criticized when it means hiring to meet quotas instead of to improve performance. In a LinkedIn post in 2018, reflecting on his years as CEO, he wrote, “We valued people for their contribution to our goal, not because they had a preferred skin color, gender or ethnic background.”

That approach caused tension at ServiceNow as the company grew from a late-stage start-up into an enterprise with thousands of employees, according to people with knowledge of the matter.

Slootman’s successor at ServiceNow, John Donahoe, quickly made diversity a priority, hiring Pat Wadors from LinkedIn as chief talent officer. Following the lead of other tech companies, ServiceNow started publishing an annual diversity report and implemented efforts to put more women in leadership, declaring “diversity, inclusion, and belonging as a business imperative.”

Wadors told CNBC that companies have a “maturity curve” that dictates “what they do to survive and thrive in that time.” She said things are changing and that “more and more of today’s CEOs are focusing on culture at the inception of a start-up.”

It’s been an issue for Slootman at Snowflake. When protests erupted over the police killing of George Floyd, an unarmed Black man, in May, many tech CEOs spoke out on the need to improve diversity and more actively combat racism. Slootman’s voice was notably absent.

When Snowflake finally made a public statement on the matter at the end of June, it came via a blog post from Eve Besant, the company’s vice president of worldwide sales engineering. In the post, titled “A Time for Reflection and Action,” Besant announced the formation of Snowflake’s first diversity council and its mission to improve skill development and bolster diversity and inclusion.

Besant said the CEO and leadership team sponsored the group’s creation, but near the end wrote:

“Snowflake is not our CEO’s company or HR’s company or our investors’ company. Snowflake and its culture belong to each of us: We ‘own it.'”

His biggest balance sheet yet

Whatever Slootman has lacked in sensitivity, he’s made up for with results.

At Snowflake, Slootman saw a product that customers wanted and that power users were consuming in bulk. From day one, he invested in making sure that clients, the big ones in particular, were getting their money’s worth. He had no tolerance for ineffective sales reps and was quick to show them the door, according to people familiar with the matter. 

Capital One, which accounted for 11% of Snowflake’s revenue as of January, migrated its data analytics over in 2017, and now uses the technology across the bank, from personalized recommendations to real-time marketing. Cisco multiplied its spending on Snowflake by almost 40-fold last year to $4.8 million, and expects to spend $2.8 million in the quarter ending October, according to the filing. Cisco relies on Snowflake for everything from consolidating e-commerce data to improving cloud security.

Snowflake’s losses remain high, but the bottom line is improving, with its net loss narrowing slightly in the first half to $171.3 million. Sales and marketing costs came to 130% of revenue a year earlier, and fell to just below 80% of revenue in the second quarter  still high, but more palatable for public investors. 

Snowflake execs from left to right: co-founder Benoit Dageville, CEO Frank Slootman, co-founder Thierry Cruanes and CFO Mike Scarpelli

Snowflake

Pat Grady, a partner at Sequoia Capital, one of Snowflake’s biggest investors, helped recruit Slootman to ServiceNow in 2011. Grady was a board observer at ServiceNow and Medallia, joining board meetings with Slootman several times a year. He said Slootman’s commentary on operational details was so insightful that he would take notes and circulate them to his partners, with subject lines like, “lessons from Frank.”

“I can’t think of anybody who is more content-dense when he speaks than Frank,” said Grady. “When you get him going on something, there’s so much substance.”

Of the three companies Slootman has taken public, Snowflake has by far the largest balance sheet ahead of its IPO. ServiceNow was running at just about $200 million in annual revenue when it went public in 2012. Data Domain was around $80 million.

Along with size comes a more complicated competitive landscape. Snowflake is winning a lot of business from companies transitioning off legacy databases like Oracle and Teradata and into the cloud. But as companies make the move, they can also choose Amazon’s cloud data warehouse offering, a product called Redshift. 

Redshift is part of Amazon Web Services, which also owns the infrastructure that Snowflake primarily counts on for storage and compute power. Slootman said last year that 85% of Snowflake workloads were on AWS, while the rest is on Microsoft Azure and Google Cloud Platform, which have their own data warehouse products.

In other words, Slootman’s top competitor is also his biggest partner. Snowflake is committed to spending $1.2 billion with Amazon over the next five years on a cloud infrastructure contract. The numbers go up every year, reaching $350 million by 2025. That’s a giant bet by Snowflake that, over the next half decade, it can fend off Amazon’s database competition while also growing rapidly enough to comfortably pay it hundreds of millions of dollars a year for critical cloud services.

Peter Wagner, an early Snowflake investor, said there’s likely to be plenty of competition from Redshift and other players, but Snowflake is winning its fair share of deals. Also, the opportunity is massive. Snowflake estimates in its prospectus that the addressable market for its cloud data platform is already $81 billion.

“We’re going through this shift and Snowflake is right at the center of it,” said Wagner, a founding partner of venture firm Wing VC. “Increasingly value is accruing to that data layer. There’s tremendous power in terms of what enterprises can extract from that.”

One big question for Slootman is does he want to run a big company and can he do it successfully? His track record suggests that he flourishes with fast-growing start-ups that are taking on large incumbents and setting out to conquer the world.  

Whether he will stick around with a company as it hits speed bumps and has to manage a wider assortment of annoying personnel issues and administrative challenges is unclear. 

But Slootman says that, at least to date, he’s adapted to the circumstances. As he told Fortt:

“A lot of people think I have a playbook, like a football coach. It’s really not like that. We are incredibly situational. We deal with the situation that we encounter.”

WATCH: Snowflake CEO Frank Slootman on the company’s funding round

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