K2 Software’s Product/Market Fit Retrospective
Scale-up Gap Challenge - K2 optimized Product/Market Fit to unlock new revenue and customer growth which setup the company for acquisition by Nintex.
In a recent post, we explored the topic of Why do startups “get stuck” as they grow and evolve, and why keeping Product/Market Fit isn’t a given once you reach that initial milestone. In another post, we looked at my experiences at Kony leading their product and engineering teams and the adjustments we made to Kony's Product/Market Fit to keep pace with the evolution of the mobile space, ultimately enabling Kony to return to accelerated growth. For this blog post, I'm going to pick another example from my recent past as CPO of K2 Software which went through a similar transformation in pursuit of Product/Market Fit. This blog post tells that story…
INITIAL P/MF: K2 Software thrives in SharePoint and BPM heyday
K2 Software was founded back in 2000, in the early days of what would later be called Business Process Management (BPM). This was an approach to automating business processes using visual design of workflows and forms. While the concept of process automation was not new, previously it had been extraordinarily expensive and largely implemented with custom development. In the early 2000's there was an inflection in the market as companies started to invest in a new breed of general-purpose middleware tools that offered easier, low-code visual design and automation of process; this coupled with an overall push towards web services and service orientation made it possible for these visual processes to readily integrate Line of Business Systems as well as human-centric processes.
K2 benefited not only from the rapid expansion of the BPM market, but also from their strategic relevance to Microsoft's SharePoint product strategy. Microsoft SharePoint was an entry into the collaboration market and was disruptive at the time (circa mid 2000's) because of its low cost of acquisition and deployment. Unlike many of the still fairly complex enterprise software options, SharePoint could be implemented readily by both small businesses and departmental groups. This triggered SharePoint to go "viral" and become one of the fastest growing Microsoft products of all time. However, at that time the workflow and process automation capabilities of SharePoint were still rather limited. K2 invested heavily in their collaboration with Microsoft, making it easy to extend SharePoint with richer K2 workflow and forms automation. As a result, K2 was able to achieve a strong initial product/market fit and subsequently enjoyed a long period of accelerated hyper-growth.
DISRUPTION: Automation shifts to Cloud, Low-code and RPA
Over time and after many years of strong growth, K2 began to feel the effects of the flattening of its core BPM and workflow market. K2's install base remained loyal and happy - they loved K2's product - but there were several inflection points as changes in the market amplified the threat from competition.
Shift to the cloud - K2 had launched its product in an era of 100% on-prem deployments; and optimized much of its product capabilities to enable powerful integration capabilities. They were not unique - most of the BPM vendors experienced disruption as companies began rapidly shifting their systems to SaaS and cloud; this often led to complexity in automating workflows spread across on-premises and cloud. While technically K2 had updated its platform with a cloud version that was quite capable, it was not a quick or effortless process to move its install base into the cloud.
Low-code automation - Another shift happening in that timeframe was the emergence of low-code vendors, such as Outsystems, Mendix, Salesforce, Microsoft and Kony. While they all lacked the sophistication of more powerful process automation vendors, they typically offered their customers "good enough" workflow automation as part of building a low-code app. As customers were starting to adopt low-code strategies they would often revisit whether they needed a separate workflow vendor or could simply use in-built automation within their low-code toolset.
Robotic Process Automation (RPA) - An additional and significant competitive force came from the emergence of RPA, which applied artificial intelligence to automate many of the repetitive workflow tasks performed by employees. While much narrower in terms of its focus, RPA hit a strategic resonance with the market - it was easy to pick up and had a fast time to results, unlike some of the process automation workloads linked to digital transformation efforts (which could take many months or years to implement and realize benefit). A number of emerging vendors in the RPA market broke out and demonstrated much faster market growth due to their focus and simplicity.
This trifecta of market forces converged to result in a new crop of competition that was able to ride the wave of these new technology advances, and easily surpass the growth rates of the more mature core workflow and BPM automation vendors. Importantly, these changes directly influenced IT buying criteria, and changed the types of vendors these buyers considered.
As mentioned before, K2 had the benefit of a broad and generally happy install base; and had reached a point of profitability which allowed it to maintain sustainable operations. However, as these market changes occurred, K2 did not have the market capitalization to build or acquire these adjacent capabilities quickly enough to keep up with the pace of the competition and was forced to add these capabilities to its offerings through partnership. Over time this partnering approach proved to be less and less effective as vendors were expected to provide these capabilities in-built as part of a horizontal automation platform. This resulted in slowed revenue growth. While K2 renewals continued to be positive and above industry average, that alone was insufficient to achieve future revenue growth targets. The Product/Market Fit that had once enabled the company to grow successfully would not continue to be sufficient, nor would it yield business results needed to enable a successful exit for investors. A significant overhaul of Product/Market Fit was required…
P/MF OPTIMIZATION: K2 pivots to industry and horizontal solutions focus
When I joined K2 as their CPO, the company had recognized that it needed to take steps to re-ignite growth and revitalize new customer acquisition. After assessing the market competition (especially from some of the larger and much better capitalized competitors) we decided to map out a Product/Market Fit shift to avoid the low-end battle of commodity automation. This pivot was intended to move K2 upmarket (to what Forrester called the DPA “Deep” category) and take on some of the larger incumbents like Pegasystems and Appian. To make this shift effectively required a significant repositioning of K2 away from the broad horizontal options, and instead target a new industry and focus on building horizontal solutions.
Early in my tenure with K2 we kicked off an effort to craft a new strategic vision and conducted a 3-month strategic planning exercise that looked across our install base, reassessed the addressable market opportunity, reviewed the competitive landscape, and surveyed customers and prospects. This resulted in defining a prioritized set of horizontal and vertical industry solutions targeting a new ideal customer profile – seeking to engage the business directly, instead of the traditional IT buyer that K2 was used to. This effort also drove a comprehensive reprioritization of our product vision and roadmap, as well as a series of new technology partnerships and alliances.
It’s important to emphasize that this was much more than just a changeup in the product portfolio – it was a full optimization of K2’s Product/Market Fit to address an entirely new and different ideal customer profile (ICP) and GTM motion, and required adjustments simultaneously across sales, marketing, professional services, alliances and channel strategy in addition to adjusting our Product Investment Mix and Solution Roadmap. If each of these changes had been applied independently it would not have proven effective; it was only when all of these efforts were aligned and optimized together in support of the new Product/Market Fit strategy that we once again achieved the much-needed accelerated growth.
OUTCOME: Increased average deal sizes and strategic exit
We introduced the new company vision and solutions approach at our annual user conference, with a new focus on targeted business solution areas. These solutions were identified as higher priority and urgency to drive executive-level visibility and as key to increasing average ASPs and contract durations while improving the ability to cross-sell and upsell. In the first quarter after testing the new vision and solutions, we landed several deals in excess of $1m TCV and validated our ability to shorten close cycles by selling more directly to business stakeholders with an outcome-driven value proposition.
In the midst of the shift, the competition in the market for intelligent automation was continuously increasing. At this time, K2 reached a decision that it was necessary to more significantly accelerate scale and capability to grow at a pace faster than what organic expansion alone could offer at the time. After months of considering different strategic options, we decided to combine forces with one of the leaders of the workflow automation space - Nintex - in order to achieve greater scale, breadth of capabilities and GTM reach. As a combined company, the Nintex/K2 merger created the largest privately held standalone vendor in the BPM space with 10,000+ customers and nearly $200m in revenue. This provided the capitalization needed to further accelerate the development of solutions and added a broader set of automation capabilities (such as RPA, process mapping, doc gen, and more) into the portfolio.
This was a dramatic example in some ways of the velocity of change and dynamic nature of the market which highlights the importance of maintaining or regaining Product/Market Fit to drive growth.I feel fortunate to have been part of the highly talented K2 team that executed this transformation and enabled the strategic acquisition. The experience taught me lessons on the importance of looking broadly at the full range of options - internal development, partnership, M&A - that are necessary to drive to the right outcomes in the market to enable a compelling and successful Product/Market Fit.