Paycom is a cloud based HR/ Payroll software company primarily focused on small/ medium business segment. After stellar growth, the growth is slowing, and the company has initiated some strategic changes. Investors used to growth, raising sales, raising guidance are disappointed and the stock price is reflecting that, after hitting $550 on Nov 2022, today after 19 months it is trading < $150, or the stock is down 73% from its peak.
There are executive changes. Recently CEO added a co-CEO so that he can focus on product innovation and the new guy will focus on operations. However, on Friday the new co-CEO is leaving and the company has promoted some old hand as COO, Chief Operating officer, but expect the CEO to get distracted from product strategy and focus on the “operations”. There are other new “Chief” roles too. The headwinds are:
- Sales growth is slowing
- New product/ sales strategy
- Lot of personnel change at the executive/ leadership roles
You have all the ingredients for a messy situation. Is the stock sufficiently reflecting all the headwinds, or there any early signs of stability? At least at this time no. Some other important questions are:
- Is it company specific issue? If so, can they fix it? Do they have leadership to fix it?
- Is the market segment they serve is a viable one? or how big is TAM?
- What is their competitive position? or how is the competition doing?
I will explore each of the above in subsequent future posts.
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Management
- Founder CEO is still there
- Directors are there for a longtime, the company can certainly use some fresh perspective
The company has serious bias towards Oklahoma, most of its senior managers are from Oklahoma state university.
- Chad - CEO - University of Central Oklahoma
- Randy - COO - Oklahoma State University
- Craig - CFO - Oklahoma State University
- Brad - CIO - Oklahoma State University
- Jason - CAO - University of Central Oklahoma
- Amy - VP Sales - Missouri State University
Most have grown to these positions, meaning not much lateral talent infusion. I can certainly appreciate the leaders coming within the organization, growing through the ranks, however, a healthy mix of lateral talent is a must for any organization. Leadership that is devoid of outside talent shows certain “group-think”. A company that is in midst of strategic shift and an industry that is facing major technology change like AI, requires new perspective. I guess the need to move to OK, and a lonely outsider amongst strong-knit group may be barrier to attract talent.
I would certainly like to see a new CIO and the company might benefit from a strong CTO (replace CIO) with deeper technology background and few Product owners from silicon valley or startup’s. Again the challenge is attracting someone to move to OK.
The company faces some serious competition from ADP, Paychex, and even SaaS players like Oracle. Both ADP and Paychex are going after PYCM business. To deal with that they need to improve the leadership/ management.
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The company has launched “Beti”, they are pushing existing clients also to move to “Beti”. Now, the problem is when the decision makers are HR employees and your product eliminates many of the tasks done by HR employees… you have a problem. HR Employees also generally reluctant to make changes/ change the product as they have to deal with many complex regulations, tax deduction, etc.
I think PAYC did a very poor job of explaining the product and also rushing existing customers to switch over. Switching companies from an existing SW version to a new version is a challenge, and if your new product is radically different… you really have to slow walk. You have to have a way of getting from A to B gradually, whereas you can have your newer customers directly come at B.
Of course, this creates a nightmare for your developers in maintaining multiple versions, managing the dependencies etc. There is a tradeoff and not an easy one.
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