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Q&A: Dr Jim Goodnight, CEO, SAS
On R&D, visas for foreign workers and Bill Gates...

By Will Sturgeon

Published: Friday 30 June 2006

silicon.com's managing editor Will Sturgeon met up with Dr Jim Goodnight, CEO of SAS - the world's largest privately-owned software company - to discuss his company's strong commitment to R&D, his thoughts about the best way to fill the skills gap and his feelings now that a favourite sparring partner is stepping out of the IT industry.

SAS is well known for ploughing a lot of money into R&D. How much are you currently investing?
Last year we were at something like 24 per cent of our total revenue which is quite a bit more than most companies. That's part of the value proposition that SAS provides its customers. It's the promise that we're going to look after them and we're going to add the features that they want [to our software].

Software is not a static thing that you write once and that's it, like a book. You should be constantly updating it.

And as your revenues continue to grow, will it always be roughly a quarter of revenue that you invest [in R&D]?
That's the way we operate and it's absolutely critical to our business. Our customers have come to expect it. They want to see the features they request in the next release and they expect it of us that we will deliver. Customers of SAP are used to waiting four or five years for something but we listen to our customers and deliver what they want.

I might say that's a very successful way to run a business. Every business should be run that way.

Does it surprise you that some of your rivals don't make such a commitment to development?
Software companies have become so tuned in to sales and marketing - that's where most of their money goes.

I've never paid much attention to sales and marketing until maybe the last four or five years.

A lot of your rivals are also more acquisitive - wouldn't it be easier to buy tried-and-tested technology than develop it?
Most of the acquisitions we've done over the years - I guess eight or nine - have always been to acquire new technology.

There are no plans as such for more but quite frankly we are asked to look at acquisition targets on an almost daily basis and we have several people who do that, so you never know what might happen next.

But I would also say that quite often it's not tried and tested - that's often why the company is up for sale. Why would you sell a company which is doubling or tripling year on year? The fact is most companies are sold because they are running out of money, or their backers want to get their money out.

Does the fact that you have remained a privately-owned company mean you have more freedom to invest in R&D? Is this another reason you refuse to consider an IPO?
I would say there would certainly be more pressure to spend less money on R&D [if we were a public company]. I always say that our customers are our shareholders and none of our customers are worried about our quarterly profits.

How do you quantify the ROI for your R&D?
If you break down our total revenue which was $1.7bn this past year then with 1,700 or so developers that means to me that any product which is bringing in more than $1m per developer, then that's a good thing, but anything less than $1m, or perhaps less than $500,000, that's something that needs to be looked into.

$1m is the average that a developer needs to bring in.

In order to innovate I assume you have to be prepared to fail sometimes and try things which may take you closer to potential failure. How often do you realise you've made a bad investment?
I guess one or two products a year we find aren't really working out.

And when you decide to pull the plug, how difficult a decision is that?
It's hard when you have customers who are using the product.

We often say the absolutely worst thing you can do in the software business is to sell a product to one customer. We'd much prefer you don't sell it to any customer than just one, because if you sell just one then we at least feel obligated to continue to ship the product.

How is your R&D team changing?
We have slowed down R&D growth in the US and we've been adding more and more developers in China and India. We also have R&D centres in Copenhagen and Heidelberg so we have a global R&D operation.

What's interesting is we're using Beijing as our build environment. We've got about 120 people in Beijing. Our developers in the US work all day and when they go home the Chinese come in, they do all the builds and work out what works and send a note to that developer and tell them if they've messed up.

Where will you get future generations of developers? Will you continue to look overseas?
Yes. The obvious answer is there seems to be a lot of development work in India and China.

The industry is screaming for help in this area. In the US we are not producing enough skills in science and maths and yet we're not allowed to bring in more than 65,000 people each year who have those skills.

You want to talk about some of the stupid things Bush has done? Why restrict the best and the brightest people from coming into your country?

It's absolute foolhardiness at a time when we need these skills and at the same time our countries are not producing students with these skills.

Do we therefore need to do more to encourage students to pick up useful skills at school and university?
The US is 16th in the world now in terms of how many kids graduate from high school, as a percentage over a third of our kids in the US drop out of school before 12th grade. What value are they to society? They don't play, they don't fit in.

Two thirds of our prison population do not have a high school diploma. It seems pretty clear to me, do you want to educate your children or do you want to put them in jail?

With such a large and dispersed team, how hands-on do your remain with development?
There's hardly a day that goes by that some issue regarding R&D doesn't come up. Perhaps some sales person promised a feature would be included in the next release and the customer finds it isn't included - so now I'm involved.

And how long will you continue with your day job at SAS?
I think at least another 10 years. I'm only 63 and 63 isn't old now, or at least I don't think so.

You're not tempted to follow the example of Bill Gates and Scott McNealy and take a step back?
Those guys are pretty much aged now. It's time for them to go. I'd rather keep playing golf with customers.

You've had some strong words for Microsoft in the past. What effect will Bill Gates' departure have?
He's talking about two years and he's pretty much handed the running of the company over to Ballmer so I don't think it will have any impact.

The rest of his people can copy other people's ideas as well as he has. My God, you look at everything he's done, it's all copied. They've copied on word processors, they've copied on spreadsheets - they didn't come up with these ideas.

Probably the least innovation of any company on this planet is being done by Microsoft.