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By Steve Morrison, Managing Director – Sheffield Haworth Technology
Mike Ettling is the CEO of Unit4, a cloud-based enterprise software and services company. He is a non-executive director for several businesses, and has been a tech and software business leader for 30 years.
All of this experience meant that, even as Unit4 experienced Covid-related turbulence less than a year after he joined, he had a clear vision of how to manage through the disruption. Besides that, he also has a lot of insightful things to say about leadership in the context of PE-backed businesses, the concept of collaborative IQ, and what it takes to lead a growing company on its Good to Great journey.
The dangers of over-reaction in uncertain times
Having only recently come through the economic impact of Covid, we’re now plunged into yet more global uncertainty as a result of the war in Ukraine, continuing supply chain issues, and the threat of global recession. For Mike, however, the key to managing in tough times is to avoid over-reacting.
“You’ve heard the CEOs of big software companies saying they regretted cutting too much in 2008, right?” he says, adding: “During Covid it was the same. Many companies looked to cut costs too deep and too fast.”
Mike’s leadership team took a different approach. “We didn’t want to let people go because of Covid, but we still had to protect our business. The question was how to build dykes to protect the business from being flooded.”
“It’s pointless trying to guess the height of the wave. Just build the dykes and then you can deal with the wave when it comes.”
His team came up with three ‘holy grail’ things they wanted to avoid doing during Covid:
- Not making people redundant
- Not cutting bonuses
- Not reducing marketing spend
“By sticking to these promises, we were then able to focus on successful initiatives to get the business through Covid, and we ended up in a much stronger position than we would otherwise have been.”
His team also ended up banning scenario planning. As Mike explains: “If you put out numbers, people will fixate on the lower number. It’s pointless trying to guess the height of the wave. Just build the dykes and then you can deal with the wave when it comes.”
The Race for Success – what it means and how it works
Although the company is well past Covid, it still faces operating in an uncertain economic climate, so is Unit4’s approach the same? To an extent, it is. Mike emphasises that most recessions are shorter than people realise: “The data on recessions over the last 50 years shows they’ve lasted for an average of nine months.”
At the same time, companies tend to react too late when recessions happen: “They’re still taking out costs and being reactive by the time things are recovering, and then they’re behind the curve.”
“If you only take out cost, you’re not going to succeed. You also need to focus and accelerate.”
With this in mind, Mike and his team developed an approach to managing through tough times, which they call the Race for Success and which boils down to doing three key things:
- Emotionally difficult, but easier operationally. Take out 10% of your running costs to get fitter and nimbler. “This is important but if you only take out cost, you’re not going to succeed – you also need to look at points two and three.”
- During good times companies often lose focus. When times get tough, it’s time to ask what you should focus on and where to put your dollars. Bring focus back to the business and cut all superfluous initiatives. “Redefine and reconfirm your focus and put the money behind it to support it.”
- Identify and develop a handful of accelerators – five or six things which, if you put effort and energy into, will accelerate the business as you come out of a downturn.
If the worst-case scenario comes to fruition, accelerators can instead become mitigators that stave off the worst, but they remain essential to put in place. And the key to getting all of this right?
“Your people have got to understand the full plan and why you’re doing it. Then one is in a good position to be able to weather whatever happens next year, come out of it and take market share.”
The leadership challenges of Good to Great
The importance of having the right people in place is a point that Mike often returns to. In March 2021, Unit4 announced a strategic growth buyout by private equity firm, TA Associates. This was quite an achievement for any company during Covid, let alone one that had begun to lose its way in the years before Mike came on board.
As Mike explains: “The journey from when I joined to when we sold to TA was very much taking a business which had a lot of really good things, but was not in good shape, on a sort of ‘Bad to Good’ journey. What got TA interested in the business was the opportunity to now take it on a ‘Good to Great’ journey.”
Mike believes there is a significant difference between those two journeys – Bad to Good and Good to Great are not the same. They require different visions, skillsets, and mindsets – and that often means they require different people.
“My team now includes maybe 20% of the people who were with me on the Bad to Good journey. They did a phenomenal job as leaders getting us to that point, but they’re not the right leaders for the next phase of the company’s growth.”
The difference for Mike is largely about experience:
“When you’re on the Good to Great journey, you really want a team that knows what Great is, has been on that journey and has already lived in Great and comes with the right mental model of where things need to go. You’re doing so much transformation in the Good to Great journey, which would be made a lot harder if you have leaders who are, at the same time, learning what that looks like. If I look at the type of leaders I’ve brought in, it’s people who’ve been there, done it, and experienced it.”
The importance of the right PE partner
“A lot of PE firms like companies which are on Good to Great journeys because they often offer very asymmetric returns,” Mike says. But it’s also important for those companies to have the right PE partners on the journey.
“We chose TA because we really felt they could bring a lot of pattern recognition, helping us with unknown unknowns, avoiding pitfalls, and accomplishing our journey faster. That also needs a management team which accepts there’s going to be a lot of learning to be done. In the year since we’ve been with TA, I’ve learned a number of things which I never knew before, which I think are really great leadership practices.”
In his career, Mike has alternated between working at big corporates and working at PE-backed companies. This combination has worked well for him, although he says “well-run PE companies are way less political. You’re focused much more on building a great company and what the business will look like in three years’ time, not so much on every quarter.”
That longer-term view is very helpful when trying to focus on building a great business. When it comes to TA, Mike particularly praises the firm’s focus on exit run rates rather than the quarterly P&L, as well as its focus on backwards sales plans, a model that determines week by week what pipeline you should have to deliver the projected outcome, based on historic win rates.
Leadership, mindset, and culture
In the end, a lot of leadership success boils down to mindset and culture. As Mike says, “For a while, we were on a treadmill to get to where the company was good. But you can’t simply run faster on the treadmill to get better. I had to communicate to the company that this wouldn’t work. Instead of just going faster on that treadmill, we would need to climb onto a different treadmill – or a cross trainer – to get to Great. Getting people to really understand this was a key component for us.”
In other words: “Just because you’ve succeeded in becoming a good business, it doesn’t logically follow that you’ll succeed in becoming a great business.”
“Do your leaders build and increase collaboration in your organisation?”
So, clarity of vision and transparent communication are important, as is the willingness to learn and develop. But Mike is also interested in a concept known as collaborative IQ – or We-Q:
“We’ve always talked about IQ and EQ, and how both are really important. We-Q is defined as a person’s ability to collaborate and increase the circle of collaboration. Can a leader come in and foster broader collaboration in an organisation? I think it’s an interesting concept. Do your leaders build and increase collaboration in your organisation? Because that’s a really important success factor. I’m doing a lot of research on this topic, both around how you measure it and how you have it as a goal.”
How is Mike planning to lead Unit4 through an uncertain 2023 and 2024?
With such a clear leadership vision and style, how does Mike see the next couple of years playing out? The first point he makes is that, thanks partly to the impact of Covid and the need to digitise, more than 50% of Unit4’s revenues are now cloud-based. The main challenge now is for the company to move more of its maintenance book to the cloud.
“Don’t fixate on the things you can’t control.”
Beyond that, Mike seems calm about the challenges that lie ahead:
“We’re not seeing pipeline disappear, as we did when Covid happened. But we are seeing deal cycles slow down. Year on year, average deals to close has increased by about 20% and the days to close is also 20% up. We are seeing organisations double checking the business case and adding extra people into the approval chain. But we’re not seeing people saying they don’t want to buy software or stop the process. People are still very focused on the need to digitise.”
In short, Mike’s mindset and his message come through loud and clear:
“Don’t fixate on the things you can’t control. Fixate on the things you can control. Build the best plan you can. Execute on it. Keep people focused on the mission and the purpose, and then deal with whatever comes.”
