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Salesforce’s MuleSoft Unit Is Going Through a ‘Rough Patch’

(Bloomberg) -- Inc. is grappling with a sales-growth slowdown and a wave of high-level departures at MuleSoft, raising concerns the business won’t continue to produce the gains it has generated since the software maker bought the company for $5.67 billion in 2018.

MuleSoft, which helps customers connect their software across the internet, sells the most complicated product at Salesforce, making the exodus of experienced engineering and sales managers all the more difficult to overcome. A decision years ago to fold hiring into the broader Salesforce personnel system has hurt recruiting, former employees said, further diminishing the talent needed at the unit. 

Executives have publicly acknowledged there are challenges facing MuleSoft, but assured Wall Street that a fix is underway.

MuleSoft is “going through a bit of a rough patch. It’s not completely unexpected,” Salesforce Chief Revenue Officer Gavin Patterson said at an investor conference this week hosted by Barclays Plc. “I am very confident we will work through them in the next couple of quarters.”

Since Salesforce acquired MuleSoft, annual sales have jumped to $1.5 billion from $284 million, according to a slide shared at a recent investor day. But that growth has slowed down notably. In the three months through Oct. 31, the unit’s revenue increased 16% to $356 million, down from a year-over-year growth rate of 39% the prior quarter.

While some analysts are bullish on Salesforce’s ability to fix the problems in the next few months, others caution it may take much longer. Unlike the company’s market-leading customer relationship management product, which can be sold as a stand-alone application, MuleSoft operates in a more complex corner of enterprise technology. 

When McDonald’s Corp. wanted to partner with Uber Technologies Inc. for food delivery, for example, it tapped MuleSoft to build APIs between its internal system and Uber Eats’ platform.

The benefit of that complexity is most businesses are going to be locked in to whatever vendor they partner with initially, given the challenges of moving to a new provider. Effectively selling the product, however, requires a deep knowledge of an end customer’s current information technology portfolio and an understanding of how linking different programs can help the business reach its goals.

“This is their own sales execution issues,” said RBC Capital Markets analyst Rishi Jaluria. “The good news is, it’s fixable. The bad news is, it’s never one quarter. It takes a couple quarters to turn things around.”

Patterson, speaking at the Barclays event, attributed the slowdown to internal changes to “align territories and sales teams so that we could turn up to the customer more consistently.” 

“Trying to grow the sales teams at a very, very high rate, we’ve run into a few challenges,” Patterson added.

Compounding the problem is a wave of recent departures. Former Chief Technology Officer Uri Sarid, a pioneer in popularizing integration technology, and Chief Marketing Officer Lindsey Irvine departed in the last year. And founder Ross Mason left in July, though former employees said the departure didn’t have much of an impact on day-to-day operations.

The resignations go beyond the C-suite. Key engineering talent, like former senior director Ramiro Rinaudo and senior vice president Chris Lyon, also resigned from MuleSoft in recent months, along with a slew of sales leaders, including head of global sales Matt Kilguss, according to the respective LinkedIn profiles. It’s not a new problem for MuleSoft. When former security chief Kevin Paige defected to Flexport Inc. in 2019, for example, several employees followed, according to their LinkedIn profiles.

Salesforce declined to comment on the issues at MuleSoft. Now the world’s third-most-valuable software maker, the company’s stock has gained 19% this year, lagging behind the S&P 500 and an index of technology stocks.

The difficulties can be partially traced back to decisions Salesforce made when it first began absorbing MuleSoft after the acquisition was completed in May 2018. The company immediately began to pull different units apart and integrate them into the Salesforce organization, including hiring and IT, according to former employees. The approach was a stark difference from past acquisitions like Heroku Inc., which was permitted to operate largely independent from Salesforce for several years.

MuleSoft had its own hiring practices developed long before the merger that catered to the workforce it needed. When Salesforce absorbed MuleSoft’s recruitment unit, it imposed its own protocols that made it more difficult to hire the talent necessary to sell and oversee MuleSoft’s technology, former employees said. 

The competitive landscape is also getting tougher. Smaller rivals like Workato Inc. are gaining traction, while perennial competitors like Microsoft Corp. also loom. 

Overall, Salesforce must prove to investors it can grow beyond the core application business. And MuleSoft is a critical part of that mission. The company regularly touts its “Customer 360” strategy, one that is predicated on the ability to link Salesforce systems together, as well as outside applications. Such a vision can’t be achieved without MuleSoft.

“I can’t underline enough how important MuleSoft is to our overall story and our overall proposition,” Patterson said.