Ask the Expert - Paulo Rosado, CEO OutSystems

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Paulo Rosado, the founder and CEO of OutSystems, had a vision: revolutionize the world of IT with technology that supported rapid change at low cost. But the OutSystems journey wasn’t always easy. After almost going bankrupt twice, Paulo’s resiliency finally paid off. OutSystems is now a market leader. We talked to Paulo in his office in Lisbon about the hard times, the challenges, the success, and lessons

1 . Do you remember the most extreme reactions people had when you presented your idea?
I remember meeting a partner of a very large systems integrator, who said, “In three years, you guys will have disappeared. You’ll never make it.” There was also an analyst from a large analyst firm who said that “This will never work. It’s a stupid idea.”

2. That’s tough. It can’t be easy to have someone tell you that. How did you deal with it?
I always say that an entrepreneur should be the perfect mix of humility and ego. Humility is what makes you change direction after someone’s given you their opinion, you realize they’re right, and you admit to yourself that you should have taken the advice sooner. Ego protects you when you get feedback from people who lack vision and don’t deserve to influence. So, those comments from the systems integrator and the analyst affected me for about 10 minutes, and then I moved on. Neither of those guys had vision.

3. A garage in Linda-a-Velha, frustration with the status quo, a revolutionary idea: OutSystems seems like a story straight out of Silicon Valley. But how did it start?
The story goes back to the first company I created in 1997 that delivered internet-based systems but never on time or on budget. There always something unforeseen that made us go back and redo the whole thing. The problem was that we were focusing on trying to get the requirements right up front. It never worked. Two-and-a-half years later, we sold the company, and I spent 18 months on the executive
team at Altitude. Things weren’t any different there. After realizing we’d never be able to predict what the system would be like, I started to wonder. What if we stop trying to get it right up front and instead assume there will always be mistakes? We can guess how the system is going to be and then support it so that making changes is fast and cheap. That magical thinking produced OutSystems, a platform that reduces development time from two years to six months and keeps the costs of changing software low.

4. What were those first years like?
At OutSystems, our level of innovation was so high so early that people thought we were crazy. SupposeI told you that if you used my new product, you could live to be 150 years old. Would you believe me? No. That’s what happened to us in the beginning. The IT departments in enterprises knew that their big critical projects took four years, not 18 months. It really is hard to explain something when no one wants to believe you. Until one day, a visionary comes along. For us, it was the team at Optimus, then Brisa, and then ANA Aeroportos. They became our evidence that this was all possible.

5. Besides that skepticism, were there other particularly painful moments in those early years—or even later?
There were several points when the company could have gone bankrupt. The first one was when we were going through a round of investment in 2001. We had decided that if we didn’t get funding by December, we would stop and everyone would go out on their own. Luckily, we managed to get $1 million in October, one month after 9/11, and right before the capital market closed. The second was when the telecommunications industry, our major market then, went into recession. Telcos were both our customers and, in a way, our partners, because there were no cloud providers back then. By the end of 2002, the telcos had stopped spending, and suddenly, we didn’t have any pipeline. At the same time, we noticed that our telco clients were using OutSystems to build internal applications very quickly. So, we decided to change our business model, and sell application
development in the enterprise. But that switch took us six months and, for a long time, we didn’t have any revenue. That was tough, but eventually, we broke even.

6. Did you ever think about giving up?
There were times when I was really tired. But no, I never thought of giving up. I always went back to the first principle that makes something successful: give something valuable to a customer who has money to pay you. That’s my fundamental rule—helping someone. And our value proposition was fantastic. It had to be just a matter of time. Also, no matter what was going on, we kept on acquiring customers who didn’t leave us, so something good was there. Whenever you have something that’s valued, you should hang on to it. If you are confident enough and see something’s working, then keep going. Eventually, it will take off--and, for OutSystems, it did. I was willing to wait, and I had the power to make it take off.

7. When did you know the tides were turning?
We’ve had some exhilarating times over the years, so I can’t pinpoint it exactly. Probably between 2010and 2012. We’d been doing this for a long time, but we still hadn’t taken off. We had a lot of customers, but each sale was a big effort, evangelical almost. We were growing but not as fast as we wanted. Wewere even a little demotivated. And suddenly, there was a market. Two or three other vendors had come up with similar products, and that created a category. Then an analyst picked it up and from that point on, it snowballed. We finally gained market and mainstream acceptance. Before that, OutSystems had been 12 years ahead of its time.

8. And now you’re a market leader. What should we expect from OutSystems in the future?
Today we’re distinguishing ourselves from our competition more and more. Eighty percent of what we do is driven by what our customers are asking us for and by our vision of what we think is the best way for them to achieve their goals. For the other 20 percent, we’re looking at what our competitors are doing. Sometimes they have great ideas, but most of the time, they’re just copying each other. And, they’re copying the wrong thing! That’s how I think we’re going to continue to win. The target market is absolutely monstrous, but we are unique, which puts us in the position of not only continuing to be the leader we are, but also increasing that value we provide our customers. This is all thanks to our hard
work, quality, principles, and culture. It took a long time, but it paid off.

9. From your perspective as the CEO of a technology company, what issues are affecting businesses today? How does OutSystems view them?
The fundamental issue today is that every business process has to have some form of digital component, whether it is data, interfaces, or self-service. Even the manufacturing, construction, and agriculture sectors, once considered digital laggards, have to build and deploy digital assets just like the digital leaders—finance and technology companies like OutSystems. Not only that, but these assets have to be
produced very quickly.
Meanwhile, enterprise business model lifecycles are getting shorter. Years ago, you could reinvent your business every 20 years, but now it’s seven years, plus you have to make drastic changes every three years. In five years, this will probably compress to cycles of two years. So, if you’re constantly shifting your business dramatically and changing your offer and your audience much more frequently, here’s
what happens. The digital systems that run your business break under the weight of all that change. That’s the pain OutSystems wants to spare customers. So we weave agility into the digital fabric of an organization, and when the business wants to make a change, the platform supports it. Today, in a lot of cases, IT is the slowest piece of this. Our goal at OutSystems is to make it the fastest, and, as much as
possible, make it what drives innovation.

10. What advice would you give an entrepreneur who’s just starting a business?
I have three pieces of advice. First, look at a collection of people, or enterprises, or whatever your market is and decide to resolve a well-defined problem with a meaningful solution. Start with a large market, like the UK, Germany, Japan, or the US. These economies are large enough that you can choose a niche and offer a specific value proposition. If you go with a smaller market, you won’t find that niche,
and your value proposition will be too fuzzy.
Second, be careful of your timing. You can be too early or too late. OutSystems was too early. We were lucky because we were able to survive until our market emerged and exploded. But it wasn’t easy, and we had to have a lot of resilience. Normally, if you’re too far ahead, it takes too long to establish yourself, and you exhaust your resources. Ideally, you should enter three years before a market emerges. Pay close attention to early signs and trends. If you enter when there are already one or two players in the game, you’re already too late, and, from that point on, you’ll always be too late. Unless you’re a very large company with a lot of resources. Really, timing is probably the most important.
Third, cultivate that balance between having an ego and being humble. Be resilient when people say you’re going to fail, and at the same time, learn from the advice of the right people when you have to. Two-thirds of the time, you’ll have to change your business model. Test the market, and if it’s a little bit off, move quickly to correct it.

Paulo Rosado, CEO OutSystems