May - 2006 - issue > Entrepreneurship
Sanjeev Jain
Monday, May 1, 2006
A little more than a year ago, David Achim, the Executive Vice President of operations at Austin, TX based Rome Corporation, was complaining about the spreadsheet based sales compensation management software the company was using. “Spreadsheets are suitable for simple plans but are disappointing to the task of effective sales compensation management,” says Achim. “They’re manually intensive and potentially error prone especially when linking multiple spreadsheets. In addition, spreadsheets aren’t able to provide us with a ‘what-if’ scenarios, web reporting or any auditing capabilities.”

Rome Corporation, an enterprise software company that delivers integrated risk and opportunity management solutions to Global 2000 companies was in search for a product that would help them to do away with the cumbersome spreadsheets. They finally zeroed in on Xactly Incent; an on demand sales application made by Xactly Corp., a San Jose, CA based startup. “We’re excited to finally be able to automate our sales compensation and enjoy the benefits of real-time, web-based visibility with an on-demand approach,” Achim says. “I especially like that with Xactly Incent I can dynamically make changes to our compensation plan and quantify the future expense impact.”

Founded a little over thirteen months ago by Satish K. Palvai and Christopher W. Cabrera, Xactly has raised $12 million in two rounds of funding. In the first round the company raised $4 million from Rembrandt Ventures and Bay Partners. “They (VCs) blessed us on the very first day of meeting them,” says Palvai. Recently Outlook Ventures and Spinner Asset Management invested $8 million in the company.

Palvai, also the Vice President of engineering started the company in March 2005 with his friend Cabrera. They both worked at Callidus Software (NASDAQ:CALD). Palvai was one of the highest paid engineers at Callidus yet after a few years he found his vesting elsewhere. “I was passionate about building products,” Palvai reveals. “It was this passion and also the fact that I was not given any new challenges made me move out of Callidus.” The need to “help medium and small companies with on demand, real-time sales compensation package brought both of us together,” Palvai explains.

Due to high cost of automating sales compensation, only a few sales organizations have been able to realize the business benefits. However for a majority of the companies, the cost to acquire compensation packages has been impractical due to large upfront software license and maintenance fees. Executives and analysts spend hours tweaking the numbers, deciding who gets what bonus, incentive, percent increase, or special parking slot for things above and beyond sales performance and it can get pretty complicated fast.

Then it’s up to many layers of manpower to manage the plan and make sure it works. If one relies on a spreadsheet or in-house system to track compensation data, tracking the numbers becomes a logistical nightmare. This is what led the duo to make a similar product for the small and medium companies. “Managing sales compensation has always been a complicated task,” says Denis Pombriant, managing principal of Beagle Research Group. “As products and product configurations get more complex, companies try to incentivize specific behaviors, compensation challenges mount to the point where traditional solutions like spreadsheets no longer provide an adequate remedy.”
Sales compensation management applications like Xactly Incent address many of the traditional spreadsheet headaches. “Our on-demand sales compensation solutions allow companies to improve their business performance,” says Palvai. “It enables companies to easily and affordably design, implement, manage, audit, and communicate sales compensation programs.”

“Xactly Incent is enabling us to fully automate our sales compensation,” Nick Labao, LoanCity executive Vice President of finance says. “Prior to deploying Incent, our sales professionals had less visibility into their compensation plans and performance. But Incent’s real-time, web-based visibility will help get management and the sales team on the same page fostering a more positive and goal-based culture.”

Xactly has been extremely fast in its product roll out. In January 2005, the founders came out of Callidus and the VCs funded the company in August of the same year. Their first product Xactly Incent debuted in October 2005. Since then the product has seen deployment in a range of companies. “We have a wide variety of users,” Palvai adds. Their customers include EqualLogic, Convoq, LoanCity, Vormetric, Redback Networks among others. Palvai attributes the success of the product launch to his team of engineers. “Most engineers that I have are from startups. They have an idea how to build a product.”

To make the product more visible in the marketplace, the company tied up with salesforce.com. “While Salesforce.com has driven the on-demand CRM category with over 18,700 customers and 351,000 subscribers it has also opened the door for other on-demand application categories such as sales compensation management,” said Peter Goldmacher, financial analyst with SG Cowen & Co. “The companies will naturally look to leverage their Salesforce investment and look for synergies with other complementary on-demand applications such as Xactly Incent, especially if they can integrate with Salesforce.”

The deal with salesforce.com has helped Xactly greatly. “We got more visibility in terms of customers and what else do we need,” says Palvai who got a computer science engineering degree from Karnataka University in Dharwad, India and masters from Kansas State University. To make sales more effective and learn to be a good marketer himself, Palvai sat with his business people daily and learnt more about customer expectations. This way a pure engineer that he is, he learnt the nuances of business that ultimately this led to their first product having multi tenant architecture. “The biggest advantage is this has helped me win customers in two days.”

Customer wins or not, the competition always looms large. Xactly face competition from Centine, Synygy and Callidus Software. “But we are in a niche business,” defends Palvai. By the look of things, Xactly looks like it will make an even bigger mark at the sales compensation space in another year. Palvai says, “we are looking at building a suite of products based on our first launch by this year end or early next year.” With a decade’s of engineering background and senior level engineering positions at companies like Rockwell Automation and Looksmart and one year of being his own master, Palvai says it is easy to become an entrepreneur in five easy steps. They are-Teaming up with people with complementary skills, building a network that goes beyond engineers, learning always, thinking like an entrepreneur and getting the buy in from family.

Palvai says he wants to see his company go public. “We will try to do that. We are definitely interested in acquisitions as well.” Quite possibly. Whether they make it or not, Xactly for now looks like a company with sales of a different kind.
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