ServiceNow CEO Bill McDermott on Entrepreneurship, AI, and Automation
Channel: Alex Kantrowitz
Published at: 2023-07-04
YouTube video id: 6QhsU98dydw
Source: https://www.youtube.com/watch?v=6QhsU98dydw
let's start with the deli at 16 years old you bought the Amityville country Delicatessen in Long Island not far from where I grew up for seven thousand dollars so I want you to just give the story of like how and why you did that just so we can learn a little bit more about what makes you tick in the beginning well I actually there was a couple of reasons one I was trading in three part-time jobs for one full-time job which was the Delicatessen so you know bussing tables stocking shelves pumping gas doing all the side jobs that lots of guys like us who came from Long Island did and I had an opportunity to work in the deli and then ultimately make an offer to buy the deli because the owner was selling it and it was pretty obvious after a year on the market that there were no takers and I ended up getting it for fifty five hundred dollars seven thousand with interest and the rest is history I think the big idea behind the deli that I always found inspiring is I had no money but I did have relationships with the vendors and I asked them to give me the first order on consignment I told them you might even charge me a little too much but I'll always pay you back at some point you'll always get that money back on the First Consignment order and I had great relationships with the customers and just knew what they liked whether it was their coffee their brand of cigarettes that was pretty big back then and whatever beer they like to drink or whatever sandwiches they liked you know I really could customize it to them but the the key to the whole thing was really the early days of video games um because I built a video game room on the Delicatessen to draw the young people a block and a half past 7-Eleven to my store and what was fascinating is I went down to 7-Eleven one day and I realized there was four kids in the store and like 40 online waiting to get in and I asked them why are you all waiting online out here when there's a big store in there and they said well they think we're going to take things I said don't worry about that you come down to my store and I let him in 40 at a time playing video games hanging out treated with respect and it really underscores um what it means to treat people as you wish to be treated because at the end of a long day one of the young people said to me Bill when we want to have good food and get treated with respect and play video games we come to your store and when we want to steal stuff we go to 7-Eleven so Bill it's interesting because so many kids by the way like this is like actually the true Long Island childhood I can say authentically that's the case um but like so many kids when they're younger they say Okay I want to start a business maybe they do a lemonade stand very few actually go out and buy the Delicatessen they were working at so I'm just kind of curious like what do you think made you take that that extra step was it something about being in control of of your future and your destiny that was something that that made you want to go ahead and do it I mean you know it is a very unusual step to do so what was behind that well I really wanted to make a living and I felt like you know working full-time and building up enough cash to at least have a chance at buying it gave me Freedom it gave me the opportunity to build something and it gave me the opportunity to pay for my education uh so you know I was able to contribute a little bit at home I was able to get a car and do the things that young people want to do and I also put myself through school and really set myself up for what I really wanted which was to take a shot after I graduated from college and go into the Big Apple and work for a big Corporation and start my career so it was just an evolution of leadership you know the desire to lead the desire to control your own destiny the desire to make a living the desire to be a winner you know and that's that's one part of your bio that I don't fully understand I'll explain why okay because when you when you actually set up and are running a successful business right when you're running it it's one of the things that actually it's it's much easier to set up a business than a lot of people imagine it's just about putting in the work to sustain that and then you go ahead and you trade that in for being somebody else's employee so that's actually a very difficult thing to do I'm curious why you decided to do that because you know at the time my dreams were bigger right then being a delicatessen owner and you know I would there's nothing wrong with it obviously I'm very grateful for the opportunity but you know if you get up at five o'clock in the morning enough days to get the coffee ready get the rolls buttered and get the hot you know Grill going so you can make egg sandwiches and serve people by the hundreds um do that for a while and then finish the day at midnight where you wax in the the floors so everybody the next day can come into an Immaculate store and just the grind of being a sole proprietor and doing that to make a living it's really no Cakewalk and at the end of the day I really wanted to be part of a giant Corporation and people would come into the deli and their suits and their Ties on their way to the Long Island Railroad and I would say to myself I'm gonna do that someday yeah in fact I even got into conversations with them asked them about their jobs what they were doing and I just found that intellectually so interesting so essentially I did a direct mail campaign to several companies that were highly prestigious at the time I got a result Xerox invited me and so did a few other companies but I was really excited about Xerox because of the training program the brand and at that time you know that was you know one of the most prestigious tech companies in the world and it was just a thrill to have a shot at the big city in New York and I went for it yeah it is interesting I mean obviously I think trading in the deli for your career turned out to be a good decision you're running 110 plus billion dollar market cap company today and there is something about growing up on Long Island and I'm not going to spend the whole show talking about this but I feel like you know having you here this is sort of the environment that I grew up in also that inspires it's it's sort of you grow up with maybe you tell me if I'm wrong about this but you kind of grow up with a chip on your shoulder you see everybody in the suits going into Manhattan but you know somewhat internally you're not part of it and there is that that bigger show out in the city and you want to be part of that and it sort of does I think maybe that is something that inspires people from Long Island to like maybe put harder work in or just go for it in ways that other folks can't match because I do think there is this ethos from Long Island not to knock all the other boroughs and everything else but it's there's something about that place growing up there and it gets this reputation as like a rich place but it's actually quite working class and it is I'm curious what you think about that about that hypothesis yeah well as you know you know Long Island is a pretty diverse place and socioeconomically you know it runs the gamut and I came from a blue collar working class family and I'm really proud of that and at the time I loved Long Island because the people with dynamite I uh I love the water you know so the Great South Bay or Robert Moses or Jones Beach you know I think about those places and literally driving in my car over the bridge three hours in traffic to get to the beach was like such a privilege so you do grow up hungry you do grow up humble but you also do have a desire to get out of Long Island and be somebody and so you kind of spend your whole life thinking about how am I gonna make it what am I going to do to get there and then once you get on your path you have that built-in blueprint of hard work determination in fact I would just say like wanting it more and then ultimately being in a position mentally physically and emotionally to do whatever it takes momentum and be a winner and that to me was the gateway to Prosperity just to really want it more than everybody else I remember my first interview at Xerox and uh you know my dad oh I know the story drove me to the railroad station that day as you know my house flooded and my brother basically carried me to my dad's car so I wouldn't get my new suit wet I got a 99 suit at the mall charged it on my credit card first credit card and uh I get out of the car finally at the railroad station I told my dad I intend to come home tonight with my employee badge in my pocket and my dad said Bill like you're a good guy just do the best you can I said no no I guarantee it I go up to you know escalator get on the Railroad and I read the annual report about this guy David Kearns who was Reinventing this company called Xerox and I started out going to interview for a sales job by the time I got to Manhattan an hour and a half later I wanted to be the next David Kearns so that dream inside you is the reason I named my book when is dream because all the winners I've ever read about or seen began with a dream a bold dream and I get to the interviewing Center top of the sixes in Manhattan and I'm looking around the room and you know this this person graduated from Notre Dame this one's Yale this one is you know some other prestigious school like Columbia and they came from you know the pedigree for the most part of families that were either wealthy or had white collar workers in their past because I asked them you know what's your dad do what do you do and starting conversations with everybody waiting room yeah exactly and so as I'm waiting I'm getting warmed up just talking to them and what I realized Alex is they would say well I'm interviewing here or I'm interviewing their IBM boroughs Goldman Sachs Morgan Stanley you know and play in the field and that was the moment that my superpower kicked in and all the nerves went away because I knew I wanted it so much more than they wanted it and I'll never forget getting to the last interview that day with the big boss Emerson fullwood in his office in Nine West 57th Street and I'm on a couch sitting next to this gentleman David and Michael can you believe this who's a great friend of mine to this day and Joanne Siciliano was the receptionist and I go up to Joanna I said Joanne you know I've been here for a while I just want to let you know I'm here to see Mr fulwood and I'll wait as long as he needs me to but I just wanted to make sure he knew I was here next thing you know boom I get an interview into his office a walk to the office man is beautifully groomed I'm looking over his shoulder on Central Park from Nine West 57th Street on the 38th floor and I realized as I went through the Hearth of that door to sit down with him that I wasn't going for a job interview at all I was in a fight for my life because if I could get that job the destiny of my life was now within my personal control we sit down we have an unbelievable meeting at the end he said to me Bill very interesting young man thank you very much for your time and the HR department is going to get in touch with you within the next couple of weeks I guess some of your listeners might have heard the HR department story before and I said you know Mr fulwood I don't think you completely understand the situation sir and he kind of looks at me tilts his head and he and he's like what's this kid up to and I said I haven't broken a promise to my dad in 21 years and I guaranteed him I'd have my employee badge in my pocket when I get home tonight and he kind of tilts his head again looks at me and he said Bill McDermott as long as you haven't committed any crimes you're hired and I said I certainly haven't committed any crime so you mean it I'm hired we shake hands I kind of embrace him carry him around a little bit put him down safely blow past Joanne Siciliano get on the elevator go down 38 floors go to 6th Avenue and 57th Street to bunenberger throw quarters in the phone call up my mom and dad now this is Long Island style and I said Mom and Dad I got the job we're going to celebrate tonight break out the corvelle and the rest is history yeah and it's interesting when you talk about the vision that you saw at Xerox at the time it was one of reinvention and it is sort of the challenge that's facing every company right now and it's one that maybe Xerox you know handled for a while but ultimately didn't and you've you were there you know for the Heyday and you were also there as the company sort of started what began as decline um I won't say you were there for it but you definitely saw it in action what lessons do you think now look the the conventional wisdom is Xerox didn't see the shift to digital coming and it was so slow that by the time it realized uh what to do it was it was toast um I bet there's a more nuanced story than that yeah there definitely is more nuanced story there is you know first of all I got there in 1983. um and and that's um the summer of 83 um when I got the job um at that time Xerox had already been in a situation where it was facing an onslaught of offshore competition and the competition was building a product building a product that actually performed better than many of xerox's products and they were selling that high quality product for the same price that it was costing Xerox to build a product that perhaps in many cases was inferior in terms of the performance but the company still had a great brand and the company had a CEO that wanted to reinvent the company as you said based on total quality management and really followed the Deming principles from Japan on quality and essentially the main lesson in quality is do the job right the first time because the cost of quality when you don't build a great product and you know take care of your customer with a great service is you're chasing your tail trying to clean up the mess in the market and even if you sell things you don't make a lot of money doing it that way so the whole force field towards quality reinvented the company so they did see digital but they saw digital through the prism of printing and copying and while I was there one of the real breakthroughs in the company was the division I had the pleasure and the privilege of being responsible for which was called Xerox business services and at that time it was very clear that the market was moving away from owning boxes and paying maintenance on boxes they were really interested in procuring a service a digital document Management Service and my division went from 700 million to over four and a half billion in just a few years by providing the document the people that managed the documents and the digital nature of the document as a service and that was the early days of cloud computing so what might have been missed is that business came at a lower margin than just hard selling boxes because it had a labor mix in it like many of the cloud computing companies do today and companies have to be willing to change their business model and lean into where the world's going not where the world has been if you want to transform yourself and win so if there was any lesson to be learned digitization was one aspect that you had to lean in but also providing everything as a service was another one and if you think about cloud computing and distributing things on demand Xerox had all those ideas but didn't necessarily lean into them with a single purpose at the time I think that could have made a really big difference now how much of this is the actual decision making versus the amount of work that it takes to maintain the flagship product because you have a book about this always day one which talks about how the tech Giants have sort of reduced some of the and this is going to be a nice setup for us in a bit but reduce reduce some of the work they're doing on internal processes so they've actually more room to reinvent than the others who like you know they'd like to make these decisions to go towards these future products but they can't because they're just so loaded down on maintaining the flagship and they know that without the flagship their toast so talk about what you've seen in Xerox and elsewhere in terms of like what is the thing holding back most companies is it is it the will and the deter because like you mentioned Xerox had the vision they knew digital was coming or is it the fact that they just are so overloaded on maintaining Flagship that they can't think about anything else culture is the number one thing you have to have a great company culture that's built on simplifying everything so you can do anything you have to distribute net new innovation to the marketplace you have to build products the world doesn't know it yet needs but once it gets them it doesn't even realize how it ever lived without them so this whole bias has to be net new innovation-led where you're building things that are really changing the game and the marketplace that's where the Leverage is to pull that off you have to have a company culture that's not looking internally but it's seeing the World Through The Eyes of the customer and understanding everything from the external Viewpoint and it sounds simple it sounds basic and it is but basic things done extraordinarily well have proven hard to do for a lot of folks so my feeling on it is you have to have an uncommonly great vision because people have to see themselves in a beautiful picture the culture has to be radically simplified and ultimately it has to be Innovation driven and customer-led and if you could pull all that off you got a good chance at doing some big things well you can't always listen to the customers so here's one example that I learned in researching my book that in Microsoft there was Chief Information officers who were responsible and chief technology officers responsible for maintaining the on-premises servers and Microsoft brought this idea of cloud up to them they laughed it off and they said no we're not moving to the cloud we like the setup and the reason was because they would lose their power if they moved to the cloud and then Microsoft looked as a level deeper and said hey wait a second you know after really going through the economic analysis they realized that these people would either be a on board with cloud in a few years or be fired and so they said okay we're actually going to put and this was under saiya and that's how Azure was really turned into what it is is they didn't listen to the customers and went ahead and moved forward I'm curious what you think about that well I'm I'm really fortunate with service now because we're in natively built in the cloud architecture and Company so we were in the cloud and the 21st century as opposed to taking a 20th century architecture and trying to reinvent it from on premise to Cloud so this has been refreshing for me because I've been in both worlds and it is true that you have to see past the corners that your existing customer base might be caught in but it's also true that it's not only about technology and the technologists that use your product it is also about the business people and this is why I believe it and business have to be co-joined in a shared vision for the future so you have to spend a lot of time not just with the technical people but also the business people on what their dreams and goals are and how I think it has really transitioned is the I.T strategy because of digitization has become the business strategy so now the business people are going to I.T saying take me someplace new because these are the goals that I have to hit these are the things I have to do whether it's taking cost out improving productivity or putting growth into the business and I T now has become the Catalyst in helping business do that so we're in a new era now and you're right you can't just simply serve what got you from there to here what got you from there to here will not get you from here to there and it is the here to there that you have to spend your critical thinking and your resources on to create that net new innovation so I'm going to hand you a challenge and uh I think you can pull it off so I'm going to ask you to describe because this is kind of my level of understanding sometimes your business describes what what service now does to the level of let's say a later in their career high schooler and maybe do it within under two minutes just for people who haven't really been introduced to the company can get a sense of it because it goes down to it really goes to this idea of reducing some of the processes that properties are working to you know well anyway I'll get I'll lend it to you but I do think there's something to be said about this let's tell that latest uh stage high school individual what's going on companies have spent billions and billions of dollars trying to digitally transform their companies so they become a digital company so the experience you have with your digital phone on your living room couch and that great user experience you get from Google and many other wonderful companies needs to come into the Enterprise and the reason that the Enterprise has not provided that great consumer grade user experience is because there's 50 years of sludge and mess in these Enterprises and 80 percent of those billions of dollars that got invested by these companies in digital transformation has failed to deliver a positive Roi return on investment and so then the question becomes why and the answer is one word integration the I.T system doesn't talk to the employee system that doesn't talk to the customer system and the smart people like yourself a young person coming out of school that just wants to build an app and do something different and innovate can't do it because the platform doesn't allow for easy low code or no code development what if we had one platform that could lift up an entire company and integrate that mess so you never had to see it again and your user experience in a corporation could be as simple as using that smartphone on your living room couch on the weekend and the consumer grade experience could be just as good what if we could do that for you would you be interested in that okay and so that's servicenow that's it so it's great because it sounds like we talked about it in the beginning but just like the amount of processes the amount of work companies have to maintain their Flagship product right they're in all these Point Solutions and they just can't handle it um and you know by the time they are able to get a task done they don't have time to think about what's coming around the corner which is why I think that your company is very interesting and it also gives you an unbelievable perspective into what all these debates about automation like what they're actually going to amount to because that's something that you are working or hoping to work with clients on is to automate a lot of these processes that they end up spending time on giving them more time to invent and create that next reinvention so why don't you sort of give your perspective on on these big automation questions it's interesting I'll tell you Bill when I speak with you know people speaking publicly they always say automation will lead to more productivity and more employment and then you know behind the scenes people say yes that's going to happen but we're going to have to lay off 50 of our Workforce to get there so talk a little bit about what this will do to the human side of this question yeah I think first and foremost the service now vision is all about people what good is technology if it doesn't help people have a little bit better experience in the office do something that they were probably incapable of doing before because technology got in the way this is about liberating people so if you think about an employee and a day in the life of an employee in most companies let's go for that one let's take this high schooler that wants to come into the workforce how do you recruit them how do you actually hire them and then once you hire them how do you onboard them they get their computer they get their phone they know where their office is they have a complete map of what to expect when they get there then when they get there you train them you certify them you teach them what they need to know and then once they're now smart they know how to do their job they have a question about that comp plan they have a question about their health care 401K long term this maternity leave the other thing all of these things should be so simple and it should just be on there cell phone and they should be able to do everything on their smartphone without going anyplace else think about that think about that for starters let's think about a customer now a customer doesn't necessarily want to go to your bricks and mortar store anymore to buy something they want to have a direct to Consumer relationship with your company how do I get my smartphone to look at your product order your product and the form that I wanted the configuration the price ship it to me where I want it to go and then service me you made me a promise that this is going to perform well but unfortunately the size didn't fit something went wrong with the delivery how are you going to recover from that because if you don't do that really well especially if you can't recover well I'll likely not do business with your brand anymore this is all digital transformation on the servicenow platform but here's another big one there's going to be a billion apps built in the next two years by the customers we serve on our platform how do we make it easy for you to take an idea maybe you now have been promoted you're a new manager and you want to have a Rewards program for your team I want to recognize three people that did a great job I don't want to go to the HR department and the finance department and six months later come up with a solution to that I just want to build a simple rewards recognition program on the platform and let that app roll out in a few minutes not a few hours or a few days or months like is the case in a lot of companies just do it on the servicenow platform and you don't think that this is going to lead to lots of people like in those other functions losing jobs no and here's why here's why the big thing about jobs is growth so when you think about the generative AI opportunities in front of Enterprises today think about this with servicenow and great companies like Nvidia we're taking large language models and we are building them in use cases specific to the servicenow platform and Within These Enterprises there's literally thousands of opportunities to build conversational Next Generation applications on the platform so you say well what if you reinvent a call center and the call center instead of a thousand people only needs a hundred people well the call center right now is experiencing 40 percent annual turnover anyway so the people you hire can't stand the work they're doing because they don't have the information at their fingertips that servicenow can give them so they basically leave because they can't handle answering the same 10 questions a hundred different ways without the real insight on solving the problem for the customer so now with AI on the servicenow platform the human has all the contextual information they need to solve the problem so you need less humans doing that so the company is spending less money on things that technology can do better to make The Human Experience better and instead of having 40 turnover maybe a five percent turnover now we're at the 900 Jobs go they're going to be retrained and retooled to do things that can actually help the company grow and get bigger and when you get bigger and you grow you need people and you create jobs so there's going to be retooling there's going to be re-skilling there's going to be retraining but there's also going to be new vectors of prosperity and that's what's missing we have to focus on growth again so right now everything is cost out productivity in where's growth so the winners will focus on that growth and they will use technology as the weapon to get them from here to there and I do want to say a little something about servicenow for your listeners we have a program right now rise up with servicenow where we're actually putting our money where our mouth is and we're training reskilling retooling and certifying a million people in the economy in the next year and you say that sounds like a lot I think we'll blow past that number but that's one that we stated publicly that we'll do we already have 400 000 on board now you're like well is that self-serving I mean how are you going to hire a million people I'm not we have a vast ecosystem of Partners and customers that have now realized that servicenow is the intelligent platform for end-to-end digital transformation so all things that get done in a company can now be activated on the servicenow platform so we need the people in the ecosystem to do it that's going to equal enormous job creation on the servicenow platform and opportunity for your listeners if they want to be in Tech and they want to win so you mentioned artificial intelligence which is obviously going to play a large role in this automation you're the CEO of a large public company I want to get your response to this so this is a quote from Scott McNeely who is the CEO of sun Microsystems yeah talking about what happened after the.com collapse so he goes two years ago we were selling at 10 times revenues when we were at 64. at 10 times revenues to give you a 10-year payback I have to pay you 100 revenues for 10 straight years in dividends that it seems like that assumes I can get my shareholders on board I mean that assumes I have zero cost of goods sold which is very hard for a computer company that assumes zero expenses which is really hard for 39 000 employees that assumes I have to pay no taxes etc etc and he goes now having done that would any of you like to buy my stock at sixty four dollars which was 10 times Revenue the amount of enthusiasm about AI is blowing past that Nvidia one of your partners is Now 37 times Revenue isn't this a like glaring alarm Bell right now that like we should all slow down in terms of our enthusiasm not that it's not going to have an impact but the public market seemed to be just completely um nonsensical in some ways about the valuations they're ascribing to companies that AI touches well if you look at Nvidia in particular I don't know of too many companies that had a quarterly forecast as you look into the next quarter that goes up about four billion dollars so what you have there is a company that has reinvented the computer and basically taking 60 years of computing into a new platform that's based upon generative Ai and if you believe like I do that this is now a secular movement that's undeniable and one that will fundamentally change the Enterprise then you'd have a bull case on Nvidia and all companies in the Enterprise that can be generative AI Market leaders and why do I think that the Enterprises and not everyone's going to win here but the ones that have permission to win and brands that can resonate are gonna tremendously change the rules of the game in the Enterprise so for example I started my day-to-day talking to a CEO that's in the travel industry we're going to take his chatbot and reinvent it on the servicenow platform and the idea there is not just applying the logic of large language model and generative AI on huge oceans of data but that's Enterprise data and that's not purely off the internet data where a lot of the hallucinations exist this is clean Enterprise data not perfect which is why you have to govern it and you have to manage the process and you have to make sure you're doing this properly but with that data now this particular company can reinvent how he Services the air industry globally he completely rethink the consumer experience of what his customers are doing for their customers that is a completely new business model and potentially takes massive friction out improves productivity dramatically and helps him get more Revenue and when he grows and he beats expectations he can hire people expands his operations and do so in parts of the world that he's not covering right now so we have to think differently we have to see things differently before we can do things differently and to debate whether a particular share or a particular buy-in on the capital markets it is too frothy right now because generative AI has too much hype around it I would basically distinguish that by saying what hype what kind of hype because with businesses and Tech businesses in particular that can put that to business use cases on platforms like servicenow with fundamentals that come with a great company like Nvidia you go from the chip all the way through to how you help the customer solve their customers problems that's Game Change yeah for sure it's just a question of I mean I guess this is one of the things that's sort of out of your control is is how exactly you know the market price is it but it does seem quite high so Isn't it nice to have something that's working in the market I mean listen I mean I'm sure investors are happy but we saw we've seen recently that like you know something's working that's great but eventually it faces the music like the market is no longer able to sort of run on phone you know it depends I mean I think you know this is an iPhone moment um for the industry and it just depends on who's doing it how Innovative it is and how much value it creates but I will say this I've never been a guy in terms of stock and valuations that looks at the r measures meaning the actual result of the actual price what you have to look at especially in quality terms is the process measures the in process measures are you building a great product does it have unique Market differentiation are you providing an uncommonly good service do you have the ability to articulately tell a clear and specific story on how you're impacting value are you inspiring a new generation of employees customers and partners to aggregate around that vision and finally are you creating the next net new innovation machine because it's all about Innovation and it's all about a pipeline of innovation and that's really where we started this conversation net new innovation equals immense opportunity how people price that that's a TBD but I wouldn't get caught up in that as much as I would right now look at the brands that are built to win because the market opportunity is gigantic for example you know there's a seven trillion dollar opportunity just in Reinventing data centers that have existed in a similar fashion for the last half century so think about that opportunity yeah all right bill I want to close the one question that I'm curious about because having spoken with people who know you one of the things they say is deal is stuck at ninety percent you put bill on the plane that deal closes what do you do in those meetings after you fly into the client that will will sort of yeah make that deal go across the Finish Line do you watch yourself there yeah you know going back to the beginning you can get anything in this life you want if you help enough other people get what they want so everything that I do everything I compose is always based upon helping