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Bill Kutik: Namely grabs new CEO!

By: | September 3, 2019 • 7 min read
HR Technology columnist Bill Kutik, as chairman emeritus, is at the 22nd Annual HR Technology Conference & Exposition® in Las Vegas, Oct. 1-4, 2019. Watch Kim Billeter, the new Americas Lead for EY HR advisory group (PAS), discuss the question: Why is Cloud adoption taking so long? Just six minutes for the current video episode of Firing Line with Bill Kutik®. Bill can be reached at [email protected]

Yes, I did just write about old friend Larry Dunivan in May as CEO of ThinkHR, automating compliance. Happily, there are new things to say as he’s become CEO of Namely, battling hammer and tongs  with BambooHR (having nearly 10 times the customers) to become the top HCM vendor for small and medium-sized businesses everywhere.

Problem is, both Larry and I are “enterprise” guys, the term software companies generally use for customers with 5,000 employees or more and the vendors that meet their needs. You’ve most often read me bloviating about the Big Three: SAP SuccessFactors, Oracle and Workday. Plus many others, including Ultimate, Infor, IBM, Cornerstone, ADP, Kronos, Ceridian, ServiceNow and start-ups. But nearly all—except Zenefits—serve big companies.

And if you recall from that May column, Larry has only worked for enterprise software companies and their end users. Plus, he’s almost always been the executive (or No. 2) in charge of products. In many software companies, the CEO’s primary job—despite the title—is to close new sales to generate revenue. Sometimes, the COO or a president actually runs much of the rest of the company. It varies.

So, after 35 years in HCM, starting right out of college, canny Larry told me long ago that “you never get to be CEO without having run sales.” Unless you’re the founding geek who manages to hold on, which CEO David Ossip more than did at Ceridian after its private-equity owner bought his company Workforce and put him on top of the whole thing!

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After helping David build a great new product suite, Larry eagerly became Ceridian’s new “chief revenue officer,” a ridiculous new title—CRO—for the head of sales. A likeable guy, experienced manager and very enthusiastic about good products he helped create, he did well.

So, now he’s CEO of Namely engaged in the most competitive battle in HCM outside of the Big Three, and he has zero experience in the SMB space. What’s he gonna do?

“The same thing I’ve always done,” he says, “shepherd companies from their old products to their new ones.”

Right. Mainframe vendor Cyborg only had payroll (but what a payroll!) when Larry joined, and he helped create its first HRIS. At Lawson, he took HCM off its only hardware platform, the IBM AS/400 mini-computer, and created client/server products that ran on anything and eventually in the cloud.

Ceridian was still a payroll service bureau when Ossip became CEO. It had three or four payroll engines, at least two front-ends and the usual cluster of unintegrated acquired HR software products. Larry and others helped turn it into a software company.

What about the flock at Namely? Always straight-talking, Larry says, “The company almost never had anyone with HCM domain experience before.”

True, until Namely board chair Elisha Steele (also board chair at Cornerstone) became acting CEO after founder Matt Straz left in May 2018. Getting Larry on board is the culmination of her efforts, which included hiring Erinn Tarpey for marketing after eight years at talent-acquisition vendor iCIMS and Kevin Thompson for professional services (implementation and customer care) after 15 years at Ceridian.

I’m amazed at how little importance is routinely given to HR domain expertise. I was hired 30 years ago to start an HR tech magazine without any. Parker Conrad started Zenefits and raised nearly half a billion dollars without any. Lots of Valley start-ups pick it up while growing.

And growing a business is what Namely’s founder knew how to do—and fast. He kept revenue increasing at 40% or more year over year for a while. Largely by spending an undisclosed—but I’m sure whopping—portion of the $210 million investment he attracted to the company on cable news network advertising. Maybe radio and other mass market outlets, too, but I never noticed those.

Have you found yourself watching more cable news since the 2016 election? I’ve spent so much of my life doing it; I can’t bear to count the hours. But even a casual viewer last year of CNN and MSNBC would have seen dozens and dozens of Namely commercials, as well as those for ZipRecruiter, which I did hear on the radio, too, making the most outlandish claims: “You only get qualified candidates!” Perhaps they’re even true.

What do you get from untargeted direct-response mass-market advertising? Thousands and thousands of mostly completely unqualified leads, of course. TV offers no way to filter them in advance.

But, after spending another huge chunk of change sifting through them and selling to the good ones, Namely ended up with 1,400 paying customers, a solid number for a company officially only seven years old. And an estimated yearly revenue approaching $75 million, though Larry won’t say at all. (Some friend!) Plus, good name recognition among news junkies.

The customers are small businesses—25 to 500 employees each—with the usual large outlier every non-enterprise vendor has, and Namely’s big hitter has 3,500 employees. Larry says the company’s sweet spot is 50 to 300 employees, which happens to be the low end of ADP’s 200,000-plus Major Accounts customers. Few ever talk about them and Paychex when considering the viability of the raft of HCM SMB newcomers. They get labeled “legacy” vendors, as though they don’t count anymore, or often have a solid grip on their customers.

Like ADP, and unlike BambooHR, Namely customers are offered all the modern HCM essentials: HR, talent management, payroll, benefits, time and attendance. The first two are bundled; the rest (and more) are sold separately.

Namely didn’t acquire payroll functionality until 2014, buying a company named Trax. But it quickly learned—just like Silicon Valley’s current HCM start-up darling, Gusto, did with its 100,000 truly tiny payroll clients—what ADP knew in 1949: Companies want to buy payroll first! Fully 75% of Namely’s customers have bought payroll, in addition to HR.

Gusto is struggling to add HR functionality (adding pieces around the edges), while going the same benefits route pioneered (and now abandoned) by Zenefits and also offered by Namely: employing certified brokers selling health insurance for various carriers state by state to customers.

The legal complications being the broker of record abound, but customers like the one-stop shopping, when accompanied by a good analysis of current coverage and expert guidance for changing it.

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Small companies have always been desperate for HR advice, particularly on legal and compliance issues, because many don’t hire an HR professional until reaching 100 employees, by which time they have broken dozens of state and federal regulations. They should hire one at 50 but think they can’t justify the expense.

Namely offers them “managed services,” basically offering a human and tech HR function. There is HR advice for the boss (Don’t hire your relatives over protected classes of candidates!) and experts to answer employees’ questions. Larry says it’s full-service enough to have lured some customers away from their PEO providers.

Doing everything for the customers includes implementation. Too many SMB vendors think their software is so intuitive (or so minimally configurable) that customers can implement it themselves. Or with a couple of phone calls. Sure, if they’ve got 10 employees.

While Larry may brag that the HR module alone can be implemented in just two days at a 200-employee customer, he knows that a full suite can easily take 200 hours, and Namely remains responsible for 75% of that work.

Looking ahead, Larry thinks Namely will win on its HR product bundle and user and mobile experiences. But his battle in this SMB coliseum presents a challenge he’s never faced before as an enterprise guy: customer “churn.”

After spending 18 months implementing software, big companies tend to stick with it through good times and bad, weathering their own bad economic patches. But small companies—while their numbers seem to be endless and guesses vary at more than 2 million in the U.S.—go out of business or get acquired at an alarming rate!

Being CRO as well as CEO means replacing a lot of them  every year before adding the first new one counting as yearly growth. Think Larry should start advertising on Fox instead?

 

 

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