IPO

Thoughtworks, which is a global technology consulting firm, pulled off its IPO today. The company issued 36.8 million shares at $21 each, which was above the $18-to-$20 range. The shares gained 40% to $29 on the debut. 

The CEO of the company, Guo Xiao, joined as a programmer in 1999.  “I still consider myself a technologist,” he said. “I code as a hobby but not for production.”

His technical chops have definitely been critical. After all, Thoughtworks has been a major influencer of key trends in IT since its inception, such as with agile development, microservices, the data mesh and CI/CD (Continuous integration and continuous delivery). 

Note that the company has created numerous open source projects. One is CruiseControl, which is a pioneering system for continuous integration. Then there was the development of Selenium. It has become a critical part of the stack for test automation. 

There has also been much thought leadership from the company. Consider that the employees have written nearly 100 books.

Growth

Now when it comes to tech consulting, the perception is that it can be difficult to grow efficiently. The main reason is that there is an ongoing need for recruiting people.

But as for Thoughtworks, the company has been able to build a platform that has proven to scale. Part of this has been due to its own creation of software and systems. But the company has also built a strong training program, which is called Thoughtworks University. There is also a budget for employees to purchase their own educational materials or programs. 

“A developer can no longer learn one language and stop learning,” said Xiao. “There must be ongoing learning.”

And the strategy is certainly paying off. Last year, about 92% of the revenues came from recurring clients. What’s more, 24 clients generated between $5 million to $10 million and 23 clients were responsible for over $10 million

The Market

The opportunity for Thoughtworks is substantial. According to research from MarketsandMarkets, the spending on digital transformation is forecasted to double to $1 trillion by 2025. 

Then what are some of the main themes? Here’s what Xiao is hearing from his customers:

• Enterprise Modernization: This generally is about upgrading mainframe and traditional Windows environments. But this does not necessarily mean a lift-and-shift to the cloud. The projects are also be about getting more from existing systems, which can mean lower risks for the modernization. Keep in mind these technologies are often built for mission-critical operations.
• Data and AI: Companies want to find ways to be more data-driven. But this is more than just spinning up some algorithms. “We find that 80% to 90% of successful AI and machine learning is about data preparation, such as with cleaning the data and updating it,” said Xiao. 
• Customer Experience: With the ubiquitous use of apps like Uber, Airbnb and Amazon, consumers expect a seamless design. However, this can be extremely difficult for companies to achieve, especially with omni-channel experiences. 

The Future

It was a decade ago that Marc Andreessen wrote his Wall Street Journal article entitled “Software is eating the world.” And yes, this was prophetic.

But Andreessen did not imply that traditional businesses were doomed. He noted that they had strong advantages, like trusted brands, extensive distribution, and talented employees.

Yet to succeed, it is often about partnerships. In other words, this is why the future for firms like Thoughtworks is so promising.

This week, Robinhood came public and raised $2.1 billion. Yet the shares fell nearly 8% on the debut. Part of this was due to the confusion of its distribution of shares to retail investors. There were also concerns about the legal liabilities and regulatory issues. 

But despite all this, Robinhood still was able to sustain a hefty $30 billion market valuation. Then again, the company is growing at a breakneck pace. Since March 2020, the number of accounts soared from 7.2 million to 18 million and the assets under management jumped from $19.2 billion to $80 billion. 

Robinhood was founded in 2013 by Vladimir Tenev and Baiju Bhatt, who had backgrounds in developing high-frequency trading systems for Wall Street traders. But their new startup would be something very different. The focus would be on developing a mobile app for anyone to invest in the stock market. 

When the company was founded, I interviewed the founders for Forbes.com and was struck by their vision. According to Vladimir: “Robinhood is a great tool for surfacing the next generation of Warren Buffets.”

At the time, there was lots of skepticism. Could a startup upend the mega players in the brokerage industry? What about the regulatory requirements? Would beginner investors really care?

Well, they did. And Robinhood would ultimately disrupt the financial services industry.

So then how was this done? What are the lessons? Let’s take a look:

Pricing: A major part of the strategy for Robinhood was zero commissions on stock trades. This certainly ginned up lots of attention and helped with user acquisition. To pull this off, Robinhood monetized it business with the payment for order flow, stock loan fees, and subscriptions. 

The approach proved so effective that the incumbents in the brokerage industry, such as Schwab and TD Ameritrade, had little choice but to offer free commissions. 

Design Focus: From the start, the Robinhood app was easy to use. The company also added features for gamification, such as allowing users to share their stock ideas on their feeds as well as providing for completion rewards.

“At its core, the UI or what some call gamification has again almost single handedly brought a new cohort of investors to the market, such as Millennials and the Gen Z,” said Cody Ryan, who is the cofounder of Clearblock Insights. “Rather than call it gamification, we just call it excitement.”

The result is that the Robinhood mobile app has become one of the most popular on the Apple Appstore.  In 2020, it garnered more than half of all new downloads for mobile investing and trading platforms. As for those who visited the app on a given day, they would engage with it seven times on average. 

“Design is a moat that is often undervalued,” said Michael Sikorsky, who is the CEO and founder of Copia Wealth Studios.

Content: Getting young people interested in investing was no easy feat. So for Robinhood, the strategy was to focus on creating compelling content to educate people. 

According to the S-1 filing:“[W]e have created educational content for everyone, no matter where they are on their investing journey. That means jargon-free financial literacy resources and digestible financial news direct to customers.”

This has paid off in a big way. Consider that the Robinhood Snacks newsletter and podcast has close to 32 million subscribers. 

Radical Customer Focus: In the early days, the founders of Robinhood would walk on the Stanford campus and share their app with anyone who would listen. But as the company grew, there needed to be a way to scale this. The founders did this by building a solid technology foundation that allowed for customization and real-time feedback. As a result, Robinhood was able to quickly launch innovations like cryptocurrency trading and fractional share purchases. 

According to the S-1: “We want to understand our customers and their expectations, ambitions, fears and challenges. Their insights help us focus on what is important and this approach enables us to expand our offering centered on their needs.”