Amid an almost certain recession, KnowBe4 CEO preps for growth

Stu Sjouwerman, CEO of Clearwater cybersecurity training business KnowBe4 — the first technology unicorn headquartered in the Tampa-St. Petersburg area — is starting to run the privately held company as if it were a publicly traded firm.

The company has recently brought two veterans of public company boards onto its own board of directors and promoted two C-level executives to serve as co-presidents. Sjouwerman also expects to implement other policies and procedures to emulate publicly traded businesses.

“We like to say we are getting ourselves ready to report to the SEC [Securities and Exchange Commission],” Sjouwerman told the St. Pete Catalyst. “Getting ready for it doesn’t mean that it’s actually going to happen, but if you don’t get ready for it, it will never happen.”

The preparations come amidst the Covid-19 coronavirus pandemic and the almost certain recession it will create in the economy.

“I have always started my businesses when the economy was in the tank. I always invest against the cycle. When everyone is else is saying the world is going to hell in a handbasket, I say, perfect timing to start something new. You can start at the bottom and ride up,” Sjouwerman said. “Since we are focused very much on operating excellence, we are simply going to run the place as if we are a public company, then we’ll see what happens.”

Initial public offerings could dry up in a recession, Sjouwerman said.

“It could take three years before the IPO window opens up again, but in the meantime, we’ll just run the place as if we are public so that in case we make that decision, it’s going to be an easy transition.”

Timeline: KnowBe4 preps to go public

Gerhard Watzinger

Nov. 19 — Adds Gerhard Watzinger as an independent board member at KnowBe4. Watzinger, who has been CEO of several IT companies, is chairman of the board of CrowdStrike Holdings Inc. (Nasdaq: CRWD).

Jan. 2 — Reports Q4 2019 sales were up 54 percent compared to Q4 2018, 27^th consecutive quarter of growth.

March 10 – Promotes Chief Financial Officer Krish Venkataraman and Chief Revenue Officer Lars Letonoff to the roles of co-president.

Kara Wilson

“I am super-busy with hyper growth and don’t have that much time to talk to investors,” Sjouwerman said. “Both of them speak Wall Street. They now have sufficient altitude to represent KnowBe4.”

March 18 – Adds Kara Wilson to board of directors. Wilson is a strategic advisor for KKR, which led a $300 million funding round for KnowBe4 last year. She’s a marketing professional, giving the board variety and diversity, Sjouwerman said.

While an IPO may be a while off, it would be a turnaround from the recent trend in the Tampa-St. Pete area. WellCare Health Plans, a Tampa managed healthcare company, was acquired by Centene Corp. for $17 billion in January. Clearwater IT distributor Tech Data (Nasdaq: TECD) is on track to go private in a $6 billion deal with Apollo Global Management.

KnowBe4 offers security awareness and simulated phishing platforms to train workers to become human firewalls to stop cyberattacks. It’s among the fastest-growing companies based in the area and was No. 21 on the recently released Inc. 5000 Florida rankings, with 609 percent growth from 2016 to 2018. The company had $72.3 million in 2018 revenue, the most recent year for which information is available, and posted double-digit sales gains for each quarter of 2019.

Related story: KnowBe4, CyberFlorida warn malicious emails are on the rise amid Covid-19

March has been a little slow, Sjouwerman said, as customers deal with business interruptions caused by the pandemic, but he’s confident KnowBe4 will still make its numbers. And he’s not scared of recessions, after starting and growing businesses in previous downturns.

An earlier company, Sunbelt Software, began as a software distributor and pivoted to software development in 2000, just as the dot-com bubble burst. Sunbelt was bought by GFI Software in 2010, the same year Sjouwerman launched KnowBe4, on the heels of the global financial crisis in 2008-2009. Now there’s the coronavirus pandemic, dubbed a “Black Swan” event by Sequoia Capital.

“Coronavirus has shut down the whole economy worldwide. You have to deal with it,” Sjouwerman said. “The good thing is this is why I teamed with investors like Goldman Sachs, because we have enough reserves in the bank to weather a storm like this and actually use this as an opportunity. Some competitors may not make it, and no one in this business is as well positioned and strong as we are. So if people are interested in new school security awareness training, then they would wind up here.”

Sjouwerman said the economy is about to take a massive hit. He expects flying and travel to drop to zero and lockdowns to occur.

“Most people have not quite confronted how this will look for a while. Take a look at things in Italy at the moment, where there are more corona deaths than in China. If you don’t jump on it quickly and lock it down with fairly draconic measures … if you don’t do that, this thing will spread like wildfire and you’re going to have to deal with the consequences,” Sjouwerman said. “If you hard stop the economy, it will take a while to get booted up again … The economy is a just-in-time machine. Everyone has optimized their operations to get their stuff just in time so they can produce. If you stop that just-in-time machine, you need to start at the beginning again and slowly boot that machine back up, almost like an operating system, but it’s going to take a while. There’s going to be a recession, a two quarter or three quarter recession. Next year things will be fine, but 2020 will be a tough year, so better get ready.”

KnowBe4 is uniquely not impacted by the local economy; 95 percent of its business comes from outside of Florida.

“For us. a lot of local organizations are not so well-positioned. and they will have to fire employees. We are in a position where we can pick those up,” he said. “We have 130 open positions and we are not stopping hiring. On the contrary, for us this is a great time to get people we otherwise wouldn’t be able to get.”