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Home IT Management Software

How Pega Ignored All the Rules to Approach $1B in ARR Over a 36 Year Journey

by Rohan Nagpal
March 17, 2020
in IT Management Software, Venture Backed
4 min read
0
How Pega Ignored All the Rules to Approach $1B in ARR Over a 36 Year Journey
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In a culture of fast growing, high velocity SaaS, this CEO shows us the value of the Long Haul

 

The words “Digital Transformation” are absolutely everywhere, but when it comes to acting on them, many are at an almost complete loss.

The first sentence on Pegas website is “Does your digital transformation look more like digital chaos?” and it is hard to deny the reality of that sentiment for many enterprises and SMBs today.

Well-built software, painless implementation, and genuine expertise are all in tremendous demand. On each one of these fronts, PegaSystems has been delivering consistently and elegantly.

Their suite of high-quality software products includes multiple CRMs, chatbots and virtual assistants, business process management tools, compliance systems, automation and AI analytics, and software development and testing platforms.

Additionally, they have specific solutions spanning across almost every major industry including Financial Services, Insurance, Healthcare, Manufacturing, and several others.

Further, the quality of their partnerships is incredible, consisting of global alliances with firms such as EY, Accenture, Infosys, and close to a dozen other such giants.

For most, it would be very natural, bordering on subconscious, to assume that a company like Pega is the product of Silicon Valley, founded by a Stanford alum and backed by big brand VCs. What’s amazing is that the reality couldn’t be further from the truth.  

CEO Alan Trefler founded the business in 1983 at the young age of 27 out of Cambridge, MA. That’s right, Pegasystems is 36 years old, and was not always the clear example of success that it is today. In the words of Treffler, “We became an overnight success after 24 years…”

It took 24 years (until 2005) for the business to hit $100m in revenue, and since then a slow but steady growth rate has brought Pega into prominence. Today, PegaSystems retains almost 4500 employees around the globe, had a 2018 revenue of $892m, and has a market cap of over $5B.

Image from macrotrends.net

CEO Alan Treffler openly admits “I was not a great manager. I started the business and I hadn’t had enough experience…” He brought in outside leadership from 2000-2005, took a step back to learn and focus on product, and came back to grow the company dynamically over the long term.

Another stumble along the road was Pegas 1996 IPO, which Treffler admits, in hindsight, was a mistake. The company was capital constrained, a swarm of businesses (including some competitors) were going public, and the banks were itching to keep the momentum going.

Treffler met with some Wall Street execs in Q1 of 1996 for “research purposes”, and by Q3 Pega had gone public, with a run rate of only $32m. Most SaaS businesses filing for IPO today have a run rate of at least $90-100m on the low end.

Further, with Pega being a company accustomed to bootstrapping at the time, the sudden inflow of capital (over $100m on day 1 of IPO) led to quite a bit of wastage. This is certainly a familiar story even today with many lean businesses who meet with a fortuitous surplus of funds from outside sources.

Despite these early hurdles, Pega has been making waves. According to Crunchbase, it has acquired 8 businesses over its history, with 7 of those purchases occurring in 2010 or later. In spite of this, Pega remains committed to maintaining the integrity of its agile software architecture at a macro level, often a difficult task when aggregating disparate products and systems. Treffler credits this foundational soundness with Pegas ability to conduct “heavy lifting at scale,” and facilitate digital initiatives cleanly for large and complicated organizations.

Although from many Investors’ perspectives Pega belongs in an obscure corner of enterprise SaaS, the last decade and a half tells a compelling growth story. Pega may very well be the embodiment of that age-old lesson “slow and steady wins the race,” as they aim for a 20% YoY growth rate moving forward. Perhaps founders and funds alike should take notice.

Where will Pegas strategy go in its next 36 years? Treffler is a chess master after all, and I’m looking forward to seeing his coming moves.

https://www.youtube.com/watch?v=sIcJM0E7g8c

 

Tags: Unicorn ($100m+)

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