The David Rubenstein Show: Bill McDermott

This is my kitchen table and also my filing system. Over much of the past three decades, I've been an investor. The highest calling of mankind I've often thought was private equity. And then I started interviewing. Well, I watch your interviews because I know how to do some. I've learned in doing my interviews, how leaders make it to the top. I asked him how much he wanted. He said 250. I said, fine. I didn't negotiate with him. I did no due diligence to have something I'd like to sell and how they stay there. You don't feel inadequate now because being only the second wealthiest man in the world, is that right? One of the most successful business executives in the world over the past 10 years has been Bill McDermott. He took SAP to record heights and now is doing the same with service. Now had a chance to sit down with Bill McDermott in his offices in New York and had him describe to me how he came from very modest roots to the top of the corporate world and how he inspires his troops, inspires his customers and loves his job. So in October of 2019, you surprised the business world by stepping down as the CEO of SAP, a very, very large company whose value had more than doubled during your co-CEO position and CEO position. And you took a position with a much smaller, less known company, ServiceNow. Usually people, when they leave a job, they go to a bigger company. Why did you go to a smaller company? Well, I saw the future and where it was going. First of all, I want to say I had a great run at SAP and it was a pleasure taking them from 39 billion to 163 and really inspiring lots of people and customers. And it was a wonderful experience. But after 17 years, nearly 10 as CEO, I was ready to do something different. And when I saw ServiceNow in the marketplace, I knew what it was. And I knew what it could do. And I knew with my background, that was a pretty good cultural fit for what ServiceNow needed to scale it. So let me ask you, what does ServiceNow really do? Tell me in simple English language that everybody can understand. What do they actually do? Yeah, it's a very good question, David. It basically drives productivity in work. So think about tech today. Every CEO you talk to is going to tell you, I have to digitize to survive. 40% of the CEOs say today, if I don't digitize my operations, my company will no longer be viable in less than a decade. So we were the IT backbone for companies all over the world. How do they manage their assets, run their operations, secure their operations, all things digital having to do with IT. That's where we started. But then as you know, the employee experience, hybrid work, all of these concepts became so important. How do I hire people? How do I onboard them, train them, provide them all their services on a mobile device? We do it. Now, about two years and two and a half years ago, when you took over your position now as the CEO, and you're the CEO Chairman of ServiceNow, during that period of time, the technology world's had some challenges for sure, and there've been layoffs and other things. But you have more than doubled the value of ServiceNow during this period of time. The revenues are more than doubled. Operating earnings are up about eight times, and you've doubled the number of employee base. So what was your secret sauce when everybody else was going this way, you were going this way? Well, I give all the credit to the original founder, Fred Luddy, because he had the idea and he built the platform. And lots of people came into the company and expanded on that platform. The original idea was to give people technology that truly enabled them to do things they could never have done before. So it's really a product-centric engineering company at its soul. What I tried to bring to the company is continue to expand that, continue to build innovation into that platform, but at the same time, build a truly global software market leader where everybody understood the brand, the hungry and humble nature of how we focus on the customer that customers everything here, and ultimately the value that we deliver. Somebody watching this, should they say, I should buy this guy's stock because he can do it another next couple of years as well? Or is it, you kind of plateaued, you can't keep going at the rate you've been going, I assume. I think we're just getting warmed up. It's really interesting. Very few software companies ever make it to a billion, even less make it to 5 billion, even less than that make it to 10. We'll be the fastest enterprise software company to have ever gotten to a billion five and 10 organically. In fact, it's never been done before. The world we see is so bright because we're like 5% penetrated in the enterprises, even that use our service now. So there's many that don't. And I believe like net new brands, net new logos that are not doing business with us should see a show and say, I gotta get in touch with that guy. And the ones that are already doing business with us need to say, he's talking about a completely different approach to digitizing my company. Are we looking at them closely enough? If I've achieved that, then we'll go in places. Now, sometimes people who run technology companies have a technology background, they're engineers. You have an MBA from Northwestern, but you're not an engineer. So does the technology jargon go past you or you can understand all what the engineers are saying when they come up with some new products? I've been around it for a while now. So while it's true that I'm not a coder, it's also true that I understand where the idea can fit into a customer's world. I'll give you an example. With AI, the expectation of AI is gonna be the iPhone moment. When the consumer begins using AI in the consumer world, they're gonna expect that the business leaders are bringing AI in to make their world better in the office environment. That is why this is the iPhone moment for the enterprise. There's no doubt about that. So I know that we have to be the market leader in AI, which is why we started working on it. And the first acquisition I did was Element AI, which was an AI company in Montreal, Canada. And we did that in 2020. We were working on it all 2019, as soon as I came in, but then 2020, we actually executed that. And the reason for that was they had a gigantic group of researchers, data scientists, and engineers exclusively working on next-gen AI in large language models. And that's how come we teamed up with Jensen and NVIDIA, and we started building them on the Now platform, and we saw what it could be. And now that it's in the platform, we see the commercial sensation it'll be for us, but more importantly, we see the productivity and the cost savings and revenue growth that our customers will get from it. Is AI gonna reduce the amount of jobs that people have now? I don't believe so. I think if you look at the market today, we have a 17-year situation where it was 17 years ago when the job market was this tight, where the openings outpaced the opportunity for candidates to jump in those jobs because the candidates aren't there. So we really are capitalizing on technology to fill that void. For example, I talked to a CEO just yesterday of a major financial services company who was interested in AI, but he said, I just can't get enough people to do what I need to have done. I said, well, how many engineers do you have? He said, I have 7,000. What you need to do is AI-enable them because now you can text to code, text to workflow automation, or even text to new application development so we can make your engineers 50% more productive than they are today. Look, you've done a great job, but why don't you do something more important like running a private equity firm in digital transformation? You could do very well financially. You ever thought about that? And if not, think about it. I'd be happy to figure out a way to get you in the private equity world. To work with you would truly be an honor. So we must think about different ways that I can help you. Let's talk about your past. It wasn't preordained that you'd be the CEO of SAP or the CEO of ServiceNow and at the top of the technology world. Where did you grow up? I grew up in a place called Amityville, Long Island. I was born in Flushing, New York, grew up in Amityville, Long Island. And it's that Long Island grit. Now, when you were growing up, were your parents professional workers or were they blue-collar workers? What did they do? I come from a working-class family. My dad worked for Con Edison. He was a troubleshooter for Con Edison, meaning that you called him the spider. He went into the manholes and basically worked on those high-voltage lines to keep the electric on in New York City. And a very dangerous job and he was great at it. Was that a safe job? No, it was not a safe job. Very dangerous job, in fact. I always admired my father and the image that stayed in my mind, he worked the midnight shift most of the time, midnight to eight. I could just see him in the driveway chiseling the ice off of his windshield, knowing that he was going into New York to get into those manholes like the spider and solder those cables. And that was to put food on the table and give us a very nice life. And I had a great life. But you always did some working. From what time did you begin working for some money? I think the first time was around 10 or 11 when I was delivering papers door-to-door in Long Island. As a matter of fact, I remember the paper was Long Island Press. I don't even think they're in business anymore. But my mom co-signed for me because you had to buy the papers and you got the money back when you collected it. So she put up the money for me, got me started. And I'll never forget what it took to be successful as a paper boy. All the same things it takes to be successful today. I had to know my customer. I had to know how you wanted it. Is it in your door? Do you want it wrapped in plastic? Do you get upset if I throw it? There were all kinds of techniques. But why did I do it? Because I wanted them to be happy and I wanted them to give me a good tip. Well, you wrote a book about your life. And in that book, you talk about the fact that sometimes people didn't pay you and you had to go and kind of ask them to pay for two or three weeks. Was that hard to do? It was because when I went there and I asked them for 10 bucks, and that's a lot of money for paper. But I'm like, yeah, but you're three weeks in the arrears. And the technique there was not only to get the 10 but hopefully get 12. So I would get a nice tip as well. And, you know, I kept very good records. It wasn't too automated. It was a little book with check marks. And I was just showing them the facts. And if I show them the facts and you just, you know, heart to heart with people, they'll respect you. Later as a teenager, you bought a delicatessen. Yes. How old were you when you bought a delicatessen? I think we were about 16 in that, 16 turning 17, something like that. Where did you get the money to buy a delicatessen? I didn't have any. I was working three jobs. I was working at an Italian restaurant, VIP type Italian restaurant, finest supermarket, town of Amneyville, always three jobs, whatever I could fit in. And it was kind of chaotic. And one day I saw a help wanted sign in this deli and I traded in all those hours to go to the deli because the owner said, I can give you all the hours you need. But I took my bow tie from the restaurant, my white shirt, my tuxedo pants, and upgraded the delicatessen to how we would serve customers as a kid. Because I knew it worked at the restaurant. I'm like, why wouldn't it work here? And that led to a very good relationship because when he wanted to sell, he couldn't have any buyers because nobody wanted to buy it because it was Sunmark Industries, the Sunoco gas station actually owned the land. They'd only give you a one year lease. He wanted 25,000. And I was like, why would I give you 25,000? They could take this lease away from me in an instant. I said, look, after no one else came to him, I'll give you 5,000. He said, 7,000 with interest. You pay me back in a year. If you don't make your payment, I automatically repossess the business. I said, great. So I still had the machine. Where'd you get that money? No, I didn't. That was a loan from him. It was only a loan. And if I didn't pay him, I wouldn't have the business. But all of the people that brought the beer, bought the cigarettes, brought the potato chips, all the vendors basically said, we'll front you the first delivery on the arm. I said, I don't want anything for free. I'll always owe you that money. So the day I sell or close, you get your money back. Meanwhile, you know how I got the money back? That was early days of video games. And I put asteroids in Pac-Man and some dinosaur game. My brother built the wall. And I learned this at the mall. I saw the kids plucking quarters into these machines one after another. I said, wow, I'll build a game room on the side of the store. We did that. I made more money splitting the quarters with the guy that actually owned the machines than I did slicing meat and making sandwiches. What did your parents say? You're supposed to be going to high school. Did they say, how about going to high school? I'm so blessed because my mom, who's the best and people that I knew that were great friends of mine, they actually worked in the store when I was at school, holding the place up. And then when I came out of school, I got right behind that counter and worked till midnight. All right, so you graduated from high school and did you go to college? I did. I went to Dowling College in Oakdale, Long Island because I could do all my classes on Tuesday and Thursday and then be in the store all the other days. So when you graduated from college, were you still owning the delicatessen? Yes, I was. And at that time, I made a decision. I got a job at Xerox, which was a dream job. And at that time, I sold it. And then we invested that money in a great beach house for my parents down in Myrtle Beach, South Carolina. Your job at Xerox was to be a salesman. Yes. You were selling what was a complicated product at the time. At that time, it was copiers and it was electronic typewriters and printers and fax machines and all that. So you did that for 17 years? I was at Xerox for 17 years. I sold door-to-door for a couple of years and then got promoted and ultimately became a division president and corporate officer like my mid-30s at Xerox. So one time, you thought maybe at the beginning you could aspire to be the CEO of Xerox, but you had an offer to leave. And why did you take the offer? I did it because I stopped learning. At that time, it was like, what else am I gonna do? All I really want is a CEO job. And there's steps left before I'll get it. And I started to think, that's not the right reason to stay. So Gartner Group offered me a job to be the president there. I was very excited about that. And I felt that IT advice and really meeting all the technology leaders of the world and advising them would really get me sharpened up for anything. All right, you took that job, but you didn't stay there that long, right? I didn't, no. I missed the big technology stage. That's kind of what I really wanted to do. So I went to Siebel Systems to run worldwide sales and operations for Siebel in California. And I learned the software industry at Siebel. So after that, you then took a position as the head of SAP's Americas. Correct. Now, SAP was a software company, but what was its innovation that made SAP such a strong company, even at the beginning? Yeah, they call it ERP. And just to break down ERP, running financial systems for the biggest companies in the world, connecting that based on the industry to supply chains, managing human resources, put that into one bucket, you call it ERP. And when I got hired by SAP, they were a very fine company, but in the Americas, they had missed 24 out of 25 quarters. So it was really the operation that was bringing down the whole company. So they had to fix that because they had five CEOs in six years of SAP America. You became the co-CEO of the entire company at one point. Yes. And then after five years of that, you became the sole CEO. Yeah, I became the co-CEO in 2010 and the sole CEO in 2014. And what I can tell you is, it's actually a very nice design. A lot of people knock the co-CEO model, don't think it can ever work. But in our case, I had a great partner, Jim Hagemann-Snaba, who's a great friend of mine still to this day. And we had a great orientation around our partnership. We talked every day. Jim was kind of like Mr. Inside in terms of representing development, especially in Germany, where we had very large engineering. And I was the guy on the front lines, moving the number and working with the worldwide operations. As you were working at SAP, you're the CEO, things are going well, the company's in good shape. What motivated you really to do something else? I mean, most people at the top, when things are going well, they kind of stay at the top. Yeah, you know, I think I get like the 17 year itch, you know, I love... 17 years at Xerox, 17 years at SAP, right? At SAP, exactly. I think after about 17 years, you know, I kind of feel like I need to do something else. So those were two of my greatest experiences and I needed change, you know. And I really did want to take service now because I saw what it could be. And I really did want to make it the best. And I felt like my skillset and where they were and what they needed was a good match. So you'll be here until 2036, in other words, another 17 years here. I don't know about 2036, especially with you and private equity in my future. So you're obviously a very good salesman. What is the secret to being a good salesman? You can get anything in this life you want. If you help enough other people, get what they want. You're obviously a very good salesman. What is the secret to being a good salesman? You can get anything in this life you want. If you help enough other people, get what they want. I care about what you want. I care about what you need. And when I understand that, I can compose solutions thanks to the great team that I'm fortunate to work with that matter. And if I say something to you, if I make a promise to you, no matter what, you will get that promise kept. I'd never break my word. And I think that's what it's all about. So in your business career, what's been the best advice you've ever received? I think the best advice I've ever received is just in the long run, play the long game. Most people grossly overestimate what they can do in the short run and grossly underestimate what they can do in the long run. So I've always tried to take a long view and not be so focused on just the here and now. So today, I'll have a very complete day in New York City. I'll meet some of the biggest CEO business cards in the world. But as I make those trips, I'm constantly thinking, what do we got to look like five years from now, or maybe even 10 years from now to keep up with having ideas that they don't even know they need to know about. But we need to know where we need to take them. We have to invent the future we want. We can't wait for somebody else to do it and try to copy them. It's already too late. So constantly trying to see around those corners, long view. What's the worst business advice you ever got? Go for the money. Don't go for the money. And I would just say like any career choice you make, any deal that you do, it's not about the money. The money is nice to have, but it's much better to do things that are sustainable. So when you take a job, do it because you're loving on that culture and you believe it's a match with your personal DNA and who you really are. When you're doing a commercial agreement, yeah, the transaction's nice and you wanna win it and you wanna accomplish things. But that relationship is so much more important because that is sustainable and it's long-term. So your ambitions is to grow the company and maybe do something else later on if you're happy with what you've done here. Any aspiration to ever go in government or public service? You know, I would love to. I do think that there's a place to give back and to serve. And I think public service needs executives that have experience, especially global experience, where they've actually physically been to all these places around the world and have a sense of culture and the dynamism of humans, no matter where they're located and how to really do the right thing, not just the convenient thing. So it would be an honor to someday do that up the road. It's way up the road, but I wouldn't rule it out. Now, in 2015, you were walking down the steps of your brother's house and you fell down and glass fell into your eye or went into your eye. Can you describe what happened and how you dealt with that loss of your eye? It was a rough night because I had a giant water glass, very thick, slipped on the stairs and met a concrete foundation and glass and my face. And the glass actually went through my eye and cut it in half. And dealing with that was a pretty traumatic experience to say the least, but I'm so blessed to be here. And I think I have a greater appreciation for everything. And I've also learned that vision is not just about what you see, but it's how you make other people feel and how you feel by making other people feel good. So you had, as I read, about 11 surgeries to kind of save your eye and ultimately they could not save your eye. That's correct. I lost that battle, but I think I won a bigger war. Look, it's an incredible story and congratulations. You started with virtually nothing and built up a great reputation in so many different industries. So I wish I had bought your stock when you came here, but you'll still buy the stock in the future, I guess. It's not too late, David.