July 18, 2024

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How CEO-For-Hire Frank Slootman Turned Snowflake Into Software’s Biggest-Ever IPO

How CEO-For-Hire Frank Slootman Turned Snowflake Into Software’s Biggest-Ever IPO

Snowflake’s Frank Slootman doesn’t start companies. But no CEO has a better track record for turning the ideas of others into jackpots. Now the 3x IPO veteran is exclusively sharing his playbook.

By Labor Day, it had become clear that Frank Slootman’s third initial public offering would not be like the other two.

After a slight summer lull, Covid-19 was resurgent, which meant that rather than a global tour of get-to-know-you lunches and PowerPoints in hotel meeting rooms, his roadshow for data warehousing company Snowflake was going virtual.

Slootman, 62, took over a nondescript conference room on the second floor of Snowflake’s Dublin, California, office, embarking on a series of meetings that now rank with Mark Zuckerberg’s Harvard dorm coding sessions in terms of value per hour. For seven days in mid-September, packing in everything from a series of one-on-one meetings to large presentations, the naturally gruff Slootman met over Zoom with more than 1,000 people, including fund managers and investment bankers, who were on hand to win a piece of his IPO.

Rather than the usual grilling, Slootman was toasted instead. “The issue was not ‘Do I like the company?’ The issue was ‘How many shares do I get?’” he recalls in his Dutch accent. Of the virtual IPO he says, “I absolutely loved it.”

Slootman, who took over Snowflake in April 2019, had been as ruthlessly efficient with the rest of the process. Just six months in, he had lined up his anchor investors, including Dragoneer Investment Group and Marc Benioff’s Salesforce. Around the same time, he began meeting with research analysts who would wind up setting bullish prices for the IPO. And when Slootman and his team virtually rang the bell of the New York Stock Exchange, a process that looked as awkward as it sounds, raising some $3.4 billion in the process, Salesforce and others were there to support the floor. “These are people we knew from previous rodeos,” Slootman says with a shrug.

Snowflake, valued at $4 billion when Slootman took over, more than doubled that first day and is up significantly since. It currently boasts a market capitalization of $81 billion on trailing sales of roughly $580 million. His personal net worth, an estimated $2.2 billion, is an extraordinary figure for someone who has never been part of a company in its earliest days.

Outsize Offerings

Software’s largest-ever IPO, Snowflake, stands as the fifth largest of all U.S.-based tech listings. 

Slootman likes to say that he doesn’t have a formula, even after having pulled off similar magic at both Data Domain and ServiceNow. Talk to him at length, though, and watch the patterns, and you can see that’s not true. The former sailor runs pre-IPO companies like a tightly rigged high-performance watercraft, a captain with extreme confidence who will throw overboard anyone who shows the mildest mutinous inclination.

“When I was a younger man, I was more tolerant; I always thought I could coach people to a place where they would be great,” Slootman says. “And 99 times out of 100, you’re wrong on that, which is the reason I [now] pull triggers much faster. I still don’t think I’ve ever taken anybody out of a job too soon. It’s [always] been too late.

“I exercise executive prerogative,” he adds. “I don’t have to justify it, I don’t have to convince you. I just have to know that this is what I want to do. And the reason is, CEOs are only there for one reason, and that is they need to win. When you win, nobody can hurt you. And when you lose, nobody can help you.”

Frank Slootman’s path to the American Dream, via IPO billions, started with his making Naugahyde seats for the automotive and boating industries. Born in the Netherlands to a military veteran and a portrait artist, Slootman had a childhood regimented by high academic achievement and racing sailing dinghies. A standout economics student at Erasmus University Rotterdam, Slootman finished school a year early to pursue internships in the United States. His dream employer: IBM. In 1982, after a number of rejections from Big Blue, he “crawled ashore with $100 in my pocket” (a phrase he repeats so often his employees know it by heart) in South Bend, Indiana, with a job as an intern in the seemingly dead-end fake-leather industry.

“I learned from that experience that I don’t want to be in an elevator that’s going down,” he says. “It doesn’t matter how good you are or how bad you are—in the wrong elevator, you’re going to get hosed.” Eventually, he was able to shift to the up elevator—computers—first in Detroit, then in Ann Arbor, Michigan, where he moved customers off mainframes to more modern server products. When executives at a later company, Compuware, realized in 1995 that an acquisition in Amsterdam was going sideways, its young staffer, a native Dutch speaker, was given a chance to clean up the mess.

By 1998 Slootman was running Compuware’s California office amid the dot-com boom. The assignment itself was another challenge: Compuware was bleeding employees to Silicon Valley’s emerging powers. “My whole career was doing jobs that other people didn’t want to take,” he says. “So after a while I’m, like, ‘Instead of bitching about it, I’ll just stick to these train wrecks and show you what I can do with them.’”

Prioritizing the development of raw talent with high upside, Slootman was able to stabilize Compuware. Rather than return to Michigan, he jumped to Borland Software, a database darling of the 1980s by then in dire straits. After successfully building out its Java development and testing business, Slootman received his first CEO job offer in 2003, when investors in a data-storage startup tapped him for another rescue. Data Domain was running out of money; its technology, while theoretically more powerful than the existing alternatives, ran prohibitively slowly.

Slootman began to hone his skills: He put more energy into short-term sales, worked to improve the product and raised cash to keep the business afloat. Data Domain’s revenue more than doubled each year for the next four years. The day he took the company public on Nasdaq in 2007, shares jumped 66%; two years later, EMC outbid rival NetApp to acquire the business for $2.4 billion.

IPO Mania

It took nearly a quarter century, but companies are cashing in on public offerings and a new twist, the SPAC, at a rate approaching the dot-com bubble’s highs.

With an exit in his back pocket, Slootman had his pick of companies for his next act, in 2011. He settled on a fast-growing but under-the-radar software startup based in Santa Clara called ServiceNow. Founded by billionaire Fred Luddy, ServiceNow was cash-flow-positive and doubling revenue, but understaffed—“anemic,” as Slootman now says. Investor Sequoia wanted an executive with more experience building a sales team to target the world’s biggest corporations. The board, including Doug Leone—an investor on Forbes’ Midas List and Sequoia’s coleader at the time—tasked Slootman with doing for ServiceNow what he had just done for Data Domain. “Frank took us from a very large startup and made us into a very large, well-oiled machine,” Luddy told Forbes in 2018.

Slootman once again led with sales as a bridge to a better product. To win over large customers like Johnson & Johnson, he repositioned ServiceNow from a help-desk IT solution—not exactly something to excite a fellow CEO in a meeting—to an all-you-can-eat buffet of tools that could help a needy CIO solve any challenge. About a year after he came aboard, Slootman took ServiceNow public on the New York Stock Exchange. Along the way, investors witnessed his brusque leadership style firsthand when Leone made the mistake of interrupting Slootman with unprompted advice in a board meeting. “Doug, thank you for that comment,” Slootman replied. “Have I told you my point of view on boards? The job of the board is to hire and fire the CEO. If I’m doing a bad job, you should go ahead and fire me. Otherwise, I’m going to go ahead and run the company.”

Slootman’s my-way-or-the-highway attitude caused a stir when he arrived at Snowflake on April 26, 2019, hours after cofounders Benoit Dageville and Thierry Cruanes informed well-liked CEO Bob Muglia, a Microsoft veteran, that his services were no longer required. One major cause for the shock: By all appearances, Snowflake wasn’t struggling—and it already had a high-profile CEO.

Snowflake was founded in August 2012 by Dageville and Cruanes, two French-born database experts from Oracle, and was backed by Sutter Hill, whose venture capitalist Mike Speiser served as its first CEO. The company promised to do for data warehouses, which then lived on customers’ own servers, what Amazon Web Services had done for data storage. Harnessing the cloud’s flexible computing output as if it were one giant supercomputer, Snowflake’s software could locate and organize customers’ increasingly large amounts of data—consumer information, product sales, employee overhead—then help make sense of it all quickly and cheaply enough to make it truly useful.

In 2014, after two years under the radar focusing on shipping the software, Speiser tapped Muglia to replace him as CEO. Muglia was no slouch: an engineer who was one of Microsoft’s four presidents before Steve Ballmer replaced him with Satya Nadella. At Snowflake, Muglia moved fast to get the company into the market, pricing it to match Amazon Web Services’ by-the-second consumption model, which offered a pay-as-you-go alternative to a subscription, then targeting customers of Amazon’s own rival product, Redshift. Billboard ads with corny messages like “Happy Holi-data” soon lined Silicon Valley’s main highway, U.S. Route 101. In early 2018, just over a year before his dismissal, Muglia met Forbes for breakfast at a New York hotel. A Gartner analyst on vacation spotted the executive and crashed the meeting to go full fanboy.

But behind the scenes, months before WeWork’s epic IPO-attempt flameout helped make profitability cool again, Snowflake was shaping up to become the tech industry’s next great cautionary tale. Buying up cloud storage credits from Amazon and its rivals and reselling them, all while keeping Snowflake’s own software running, was costly, especially as Snowflake expanded to new markets such as Australia. Its technology—quicker to offer cloud data warehousing than Oracle, Teradata and other database companies but challenged at every turn by Redshift, Google’s Big Query and Microsoft’s Azure Synapse products—required a large and continuous amount of R&D spending. After needing just over $5 million in investment in its first two low-profile years, by early 2018, when Snowflake reached a valuation of $1.8 billion, it had raised almost a half-billion. It took on another $450 million, this time at a $4 billion valuation, about nine months later.

Concerned about Snowflake’s appetite for capital, Speiser approached Slootman, whom he knew through the board of another investment, Pure Storage, to see if he could tempt him to join the company’s board. Having built ServiceNow to a market cap of $14 billion by 2017 (it’s valued at seven times that today), Slootman was focused on bringing back professional yacht racing to California and running a conservation and animal welfare foundation from his Montana ranch. In other words, he was bored. “I have empathy with a lot of quarterbacks who don’t know to retire,” he says.

“The job of the board is to hire and fire the CEO. If I’m doing a bad job, you should go ahead and fire me. Otherwise, I’m going to go ahead and run the company.”

When Slootman expressed interest in the Snowflake CEO job, Sequoia and Sutter Hill jumped. In a rare interview, the press-shy Speiser discussed the difficult decision to fire Muglia: “When you have the potential [to build] one of the game-changing companies of all time, you should take the chance.”

Just one problem: No one told Muglia until the day the company announced the coup. Speaking publicly about his departure for the first time, Muglia tells Forbes that it took him months to get over the shock. “The board was the one telling me to spend money, the board was just as strongly behind this. But certainly I did it,” says Muglia, noting that overall spending at Snowflake increased after he left. “I used to call it ‘drunken sailors’ spending. I would say, ‘We’re spending like drunken sailors,’ and they would say, ‘Yes, keep doing it.’ And it was the right thing to do.”

In the weeks after the Slootman era kicked off at Snowflake, executives filed into Slootman’s unadorned office one by one to meet the boss, while Speiser, the one who had reached out to Slootman, filled in for him in meetings. Soon Slootman resumed his old tricks. His first action: reorganizing the sales arm of the business to separate large customers from small, focusing more intently on converting the bigger fish. His second: parting ways with anyone who seemed fond of palace intrigue or who didn’t deliver precisely on their word. In came two of his top lieutenants from Data Domain and ServiceNow: Mike Scarpelli to oversee finances and Shelly Begun to run HR. Out went executives and sales reps who didn’t fit Slootman’s mold or didn’t want to work for new supervisors who did.

Just a month later, Snowflake under Slootman had shifted to become a performance-based business. Chief revenue officer Chris Degnan figured his lack of experience in such a structured sales organization would be enough for Slootman to show him the door. To his relief, Begun told him a few weeks later that the new CEO valued his hustle and loyalty to the product. “He’s, like, ‘I’m getting [to be an] old man, I don’t have time to wait.’ That’s just how he operates,” Degnan says.

Scarpelli got to work on Snowflake’s books. Under the company’s Amazon-style pricing, customers could easily expand their usage over time. The flip side: sticker shock, as companies’ bills rapidly grew, and unpredictability, as Snowflake struggled to deliver accurate revenue projections. To make the company more Wall Street ready, Snowflake started working with its bigger customers to show them where they were wasting money running needless reports. Better modeling and the focus shift to larger accounts also made it easier to guess how users might expand or contract.

When Covid-19 hit, Snowflake was prepared, having just raised $479 million from investors, including Salesforce, in early February. Because struggling sectors like the travel industry could simply reduce their usage without renegotiating contracts—and others, such as those in e-commerce or food delivery, saw demand quintuple—Snowflake’s sales barely hiccuped. Slootman hit the austerity button all the same, refocusing resources toward the “drive train”—product, engineering, sales and legal—and away from less urgent areas like marketing. “It’s like being on the America’s Cup boats: Every day is about sailing faster,” says Denise Persson, Snowflake’s CMO. “It’s about getting this entire organization to go in one direction.”

So far, Snowflake is outrunning its competition. Analysts say it continues to beat Amazon and the tech giants’ products head-to-head; as Snowflake gets bigger, it can negotiate better rates, too, driving down its operating costs.

“They’ve clearly shown they can execute, but I can’t justify this valuation by any means. This stock is being completely driven by the Robinhood crowd.”

Perhaps Slootman’s greatest triumph so far: selling both outside experts and those within the company on the possibilities of “Snowflake 2.0,” its shift from being a data warehouse to more of a data hub on which businesses can securely (and temporarily) share information with each other, develop apps and feed their data into artificial intelligence tools. That push, which Snowflake says would increase its addressable market from $14 billion to a recent $81 billion, is very much a work in progress. Inside Snowflake, Slootman reengaged cofounder Dageville, now a billionaire himself, to spearhead the project; outside, analysts trust Slootman to figure it out. “Very large enterprises are choosing a vendor to go to bed with for five years, minimum,” says Patrick Colville, an analyst at Deutsche Bank. “So it’s showing them a really nice path forward. It’s much easier to select [Snowflake].”

One unanticipated challenge, however: Snowflake’s current stock price, which has exceeded even Slootman’s expectations ,and which, as of mid-January, was trading at a revenue multiple of 140 times its estimated fiscal 2021 revenue, ahead of cloud darlings Crowdstrike, Okta and Zoom. Should Snowflake stumble on its numbers, or if exuberance fades, employees who made their money in the IPO might not want to stick around. “These are multiples, frankly, that the world hasn’t seen since the internet bubble in 1999,” says Brad Zelnick, an analyst at Credit Suisse. Adds Srini Nandury of Summit Insights Group, who has a rare sell rating on Snowflake: “They’ve clearly shown they can execute, but I can’t justify this valuation by any means. This stock is being completely driven by the Robinhood crowd.”

The ever-cocky Slootman relishes the idea of proving the doubters wrong. “You can look at my private companies and see how that turned out,” he says. The CEO has plenty of reason to stick around, too, with billions tied up in unvested Snowflake shares.

After fighting so hard to become a CEO, Slootman doesn’t know how to do anything else. So, the day after Snowflake’s public offering, he was back to business as usual, demanding that executives present their plans for the next quarter and beyond. “I don’t get that excited,” he explains. “My eyes are on the horizon.”