A draft of Salesforce's annual planning document details how the company plans to exceed 30% profit margins, including significant cost cutting and new releases for Slack, Mulesoft, and Tableau. The new strategy is a key part of embattled CEO Marc Benioff's effort to fend of activist investors circling the company.
An excerpt of the draft plan previously viewed by Insider mentioned the new margin goal, which appears to be a response to pressure from Starboard Value, one of the activist investors that have built stakes in Salesforce. An October presentation from Starboard called for Salesforce to aim for 31.7% adjusted operating margin in the next two years.
Insider obtained a full draft of Salesforce's V2MOM document, which stands for Vision, Values, Methods, Obstacles, and Measurements. This is the company's annual strategic plan that is typically shared internally with the entire company at the start of its new fiscal year in February.
The draft that Insider obtained states that Salesforce wants to accelerate a path to more than 30% non-GAAP operating margin targets by capping headcount growth, reducing general and administrative expenses, sales and marketing spending, and cutting back on real estate. The document also outlines plans to release new features in chat app Slack, data integration platform Mulesoft, and data visualization tool Tableau.
Wall Street analysts have mostly cheered Salesforce's efforts to respond to pressure from activist investors, especially the switch from a focus on sales growth to profitability.
Arjun Bhatia, an analyst at William Blair, recently noted that Salesforce's current sales and marketing spending is much higher than peers. Other software companies with more than $10 billion in sales spend about 25% of revenue on sales and marketing compared to Salesforce's 37%, according to Bhatia.
To achieve higher profit margins in a reasonable period of time, especially if growth is slowing meaningfully, Salesforce will "have to do a lot more cuts or divest pieces of the business," Mark Moerdler, an analyst at Bernstein, said. "There's some amount of fat to take out, but beyond that requires more fundamental change."
In the draft plan obtained by Insider, Salesforce directs employees to "run lean and mean" and "spend like it's yours," and to not let considerations like company culture get in the way, decrying obstacles like policies that favor culture rather than efficiency or "using culture as an excuse," for not acting on changes.
The company has already taken some steps to cut costs, including laying off 10% of its workforce. The draft planning document has also been revised already. For instance, Salesforce toned down a proposal to stack rank employees.
Salesforce will report results late on Wednesday. The company did not respond to a request for comment.
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