Basware Appoints New CEO – Esa Tihilä Retires

Our colleague and founder of Spend Matters in the US, Jason Busch, wrote last week about the recent departure of two CEOs from the procurement software world. Esa Tihilä left Basware  and Robert Bonavito replaced Stephen Wiehe as CEO of SciQuest, coming on the heels of of Accel-KKR’s $509 million buyout of the provider earlier this summer.

We know less about the SciQuest situation - the firm has very little presence in Europe now, with CombineNet (perhaps the best known part of the group here) having lost ground to Trade Extensions and others in the last couple of years. But the Basware move came as a bit of a shock to most market observers.

Tihilä is replaced by Vesa Tykkyläinen who was "previously Senior Vice President of the Network business area and a member of the Executive Team at Basware, having joined the company in January 2016. Prior to joining Basware, Vesa Tykkyläinen was Vice President of the Liquid Core Business Line at Nokia Networks and he has over 25 years of leadership experience in the technology industry".

Basware 's Board of Directors also said that they and Tihilä "have jointly agreed that he will step down from his position of Chief Executive Officer with immediate effect and will retire from the company".

Tihilä became Chief Executive of Basware in 2011 with the share price of the firm at just under 20 Euros. It is now around 40 Euros - so one might think that a more than doubling is a decent enough performance. But most of that came in a burst in 2014 when the market realised that Basware was a "network"  and SaaS (software as a service) play, not just a boring eInvoicing software and services firm. But since then, the shares have moved in a relatively small range around that level.

At the beginning of this year, Basware announced a new growth strategy for 2016-18. Having been comfortably profitable for some years, Tihilä told shareholders that profit would disappear but revenue growth would accelerate, with investment in product development, sales and marketing  driving that growth. You can see why this might be a chosen strategy and and appropriate response to the competitive landscape, as Basware face the size and power of SAP / Ariba and the dynamic growth (driven by huge sales and marketing investment) of Coupa. Basware risked being left behind.

But that bold approach - not particularly aligned with the usual Finnish business mentality either - has risks as well of course. If growth does not come quickly, shareholders may notice merely that the profit has disappeared. Now it seems very rapid to have made that decision about Tihilä on the basis of less than a year's results since the new strategy was unveiled. But perhaps if the Board had any existing doubts about the CEO's ability to execute that more dynamic, marketing-driven strategy, then the half year results reported in July would not have been re-assuring, as they showed growth barely accelerating:

Basware Group’s net sales for the period amounted to EUR 34 125 thousand (a growth of 0.2 percent). This equated to 3.5 percent organic growth at constant currencies. Adjustments for organic growth included deducting non-recurring alliance fees booked in Q1 2015, and deducting net sales from businesses acquired in the last 12 months from Q1 2016.

And of course there is another 6 months financial information available to the Board that is not public yet. So have they been impatient? Yes, perhaps. But they have certainly been decisive. We liked Tihilä personally and thought he was impressive - he seemed to be a very clear thinker, calm and structured. Perhaps the Board decided he was a thinker rather than an aggressive (in a good sense) "do-er", which is maybe what is needed now. In any case it is clear that the Board wants to see the new strategy paying off - and fast.

The good news is that Basware has a very strong client base, and strong products, well-regarded by Gartner, Spend Matters and others. But competition in the P2P, eInvoicing and SCF markets from Ariba, Coupa, BravoSolution (post Puridiom acquisition), not to mention Ivalua, Tradeshift, and others is tough and getting tougher. So we wish Tihilä well for his retirement and good luck to Vesa Tykkyläinen  - we hope to meet him soon and get his outlook on the future direction for the firm.

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