Palantir’s Salesforce: Ready for Prime Time
Analysis of Palantir’s sales side of its business
In this post, I’ll correct some misconceptions of PLTR’s growing salesforce, play a couple clips of CEO Alex Karp, and explain how recent developments such as the IBM partnership tie back to Palantir’s master plan for client acquisition, retention, and, ultimately, revenue generation.
Misconception
This is a pinned Tweet from Tom Nash, which has since been unpinned, but nevertheless shows that many people — even some disseminating information on the company if they have not done enough research — don’t realize that Palantir has moved on, evolved, and is re-calibrating for much more future growth. More on that later.
The Original Stance
But let’s read the highlighted section regardless. This is from Zero to One by Peter Thiel which I previously reviewed on this channel and is linked in the description if you want to check it out for yourself.
“Alex Karp doesn’t employ anyone separately tasked with selling its product. Instead, Alex, who is Palantir’s CEO, spends 25 days a month on the road, meeting with clients and potential clients. Our deal sizes range from $1 million to $100 million. At that price point, buyers want to talk to the CEO, not the VP of Sales.”
So, does this change in strategy towards a more sales focus today mean that Palantir is now looking for short-term financial results instead of long-term business health? No, actually, it’s a sign of maturity. Let’s continue on.
The New Stance
This is a great article (https://www.latimes.com/business/la-fi-palantir-sales-ipo-20190107-story.html) from early 2019. I’m going to pull some key excerpts from it.
The LA Times: Palantir once mocked the idea of salespeople. Now it’s hiring them
Palantir has always been a different sort of company. It didn’t hire salespeople; it seemed largely unconcerned with pedestrian headaches like turning a profit; and it was co-founded and backed by Peter Thiel, tech’s reigning contrarian.
The 15-year-old startup has taken a cue from other, more traditional tech companies. It has trimmed runaway expenses, revamped its product aimed at large companies and even begun building a sales team, a function it has long disdained.
Palo Alto-based Palantir has brought on dozens of sales staffers to pitch its new product, slowly changing its mix of employees.
The sales push is a marked departure from Chief Executive Alex Karp’s long-held philosophy. For Karp, it was a point of pride that the tech was good enough to sell itself. Karp once said publicly the only way he’d hire a sales team was if he were forced to by investors, or if he were “hit by a bus.” As recently as 2017 he told CNBC, “Almost everyone here is an engineer. I’m a PhD in philosophy,” and “We have no salespeople.”
Some of the new hires have been top salespeople at major American companies such as Oracle and IBM. And additional hiring is underway.
The product that most of the new employees are selling is Foundry aimed at large corporate clients.
By pouring resources into Foundry, the company has signaled a change of priorities, moving beyond a focus on government work and toward more seriously pursuing the larger, potentially more lucrative corporate market.
The stakes are high for the new product. “Everything rests on Foundry and the ability to sell it,” said one Palantir investor. “It’s what makes Palantir a software company instead of a consultancy.”
Now the company’s sales method is being duplicated worldwide. This involves dispatching a three-person team — consisting of one engineer and two people in what would typically be considered sales jobs — to pitch clients on the software.
It’s still far from a traditional sales meeting. Even with the increasing pressure to turn a profit, Palantir’s pitch to clients remains fiercely technical. One recent hire tasked with wooing new customers said that, after the first two months on the job, all training had been on the Foundry software itself, with no sales instruction.
Palantir’s evolution is not uncommon: Other engineering-first companies including Slack Technologies Inc., Microsoft Corp.’s GitHub and Dropbox Inc. “all went through similar phases of this anti-sales culture.” Despite being much older than its peers, Palantir could pull off the same transformation. “With maturity, they will bring in the right people.”
IBM Salesforce
IBM and Palantir’s partnership will dramatically expand the reach of Palantir’s existing salesforce.
This global partnership is the largest of its kind for Palantir given that it now has access to a sales team of more than 2,500 people, up from the low single digits.
“This is the biggest [partnership] we’ve announced — expect more,” Sankar said. He said he expects to triple Palantir’s direct-sales team to about 100 this year, a significant hike for a company whose management once prided itself on not employing a single salesperson.
Here’s what Palantir management had to say on the Q4 conference call:
Shyam Sankar — Chief Operating Officer
This partnership dramatically expands our distribution capabilities, leveraging IBM’s data and AI’s 2,500 sellers. For context, that is a sales force that is larger than all of Palantir, along with an already large installed base of cloud-backed customers. We’re very excited about what this partnership means for our go-to market in 2021 and beyond.
Additional Commentary
I want to share some additional commentary from Palantir’s management that I was able to pull up after listening back over the Q4 call. I’ll make this quick, but I do think the context here is quite important and really explains what is going on.
As we move into 2021, these innovations are not only helping our customers generate value much faster, they’re also allowing us to broaden our go-to market. We expect to add triple-digit headcount to our sales function this year. In our commercial segment, we generated greater than 100% U.S. revenue growth in 2020 on the back of investments in our direct sales force.
U.S. commercial revenue rose 107% year over year in fiscal 2020 aided by our ongoing investments in our account-based sales force and channel partnerships.
Roughly, a good way thinking about this is about half of incremental growth is now being driven by our investments in the direct salesforce and channel partnerships. And we expect that can grow pretty substantially here. But the places where we’ve had the most growth, U.S. government, U.S. commercial, that is way more than half.
In terms of productivity ramp, I think we’ll be ready to comment in that in future periods but what we’re seeing is a marked compression in how long it’s taking to ramp our reps and get them to be productive. And we’re also seeing this is happening at a time where there’s just a lot more demand in the market, there’s a lot more inbound coming to us. So, we’re pretty excited about ramping the reps and ramping the hiring as quickly as possible to meet that demand.
The Master Plan
Recall, Palantir’s three-staged master plan: Acquire, Expand, and Scale. In the first two phases, customers go through a pilot (Acquire), and if the pilot proves successful, they move to a second phase (Expand). In both phases, as Palantir proves the project’s technical feasibility, and it customizes it to expand it across the whole organization, it runs those projects at a loss with a negative contribution margin. However, as the customer/account moves to the Scale phase, its contribution margin becomes positive, and improve over time.
Since this is a flywheel, introducing clients to Palantir’s software is crucial and that’s the power of a salesforce.
Dave Glazer — Chief Financial Officer (speaking to volatile financials)
Last year, Apollo delivered a massive step-change in terms of both cost of revenue and the efficiency around sales and marketing and how we acquired customers in our three-phase model.
Outside of product is the investment in the direct salesforce which for us has paradoxically reduced the unit cost around sales and marketing. It’s cheaper for us to acquire customers by building out the direct salesforce. So, you should expect to see, of course, a very significant investment in that going forward.
The right way to look at this from our perspective is the amount of growth that we had in U.S. commercial, the place that we have invested significantly in our direct salesforce here which resulted in 107% growth. And then when you look at the investments that we’re making with channel partnerships, Fujitsu in Japan, IBM Worldwide, distribution in 180 countries, adding as many folks and effectively a week to our salesforce we have, employees at Palantir, we’re feeling really good about what we should be expecting from commercial going forward.
Conclusion
In closing, Palantir is increasing its salesforce at a rapid rate despite its comments from many years ago. Personally, I’d rather have a company that I’m invested in change for the better if they believe they’ve found a way to improve their operations than not change at all, obviously.
And it’s a little ridiculous to have Alex Karp handle all the deals considering how much Palantir has grown at this point.
So, ultimately, I think Palantir’s sales hiring, partnership with IBM, and focus on its three-tiered master plan only suggest that Palantir is ready for prime time. Its products are fully baked and backed by the biggest names. As I see it, 2021 is Palantir’s time to shine. Each new contract is a victory and one to be celebrated for the company. This year should be a landmark one for the business.
Until next time…
