Forma.ai Sets Out to Disrupt Sales Compensation – BetaKit
This article was originally published on BetaKit.
Nabeil Alazzam was all of 10 years old when he first understood the power of a sales incentive. Working as a newspaper delivery boy for the St. Catharines Standard, he was able to earn a small commission for signing up new customers. This extra bonus motivated Alazzam to increase and optimize his delivery route, leading him to not only work harder but smarter.
“For sales compensation, we’re operating the same way that we did 40 years ago.”
Now, Alazzam is the founder and CEO of Toronto-based Forma.ai, a startup hoping to disrupt the world of sales compensation through its automated incentive compensation management solution. In the last year, the startup has quadrupled its revenue, secured notable enterprise clients, and more than doubled its headcount – all good signs for a company that operated in stealth until late 2020.
“In this last year, not only have we truly demonstrated that we can handle the most complex of sales comp challenges, but we’re doing it in a way that’s totally disrupting how organizations operate, for the better,” Alazzam told BetaKit.
In the world of enterprise sales, incentive compensation is a system companies use to reward and recompense high-performing sales reps to motivate better performance, such as commissions, bonuses, and recognition.
Though every company’s incentive compensation plan varies, each requires planning and continuous optimization. Companies spend a fortune and often months of labour on sales compensation, but most are merely guessing at their incentive structure.
“No one is stepping back and asking ‘What’s the real ROI? Are we actually using a scientific approach to figure out the best incentive to drive behaviour?’” he added.
Forma.ai’s solution is aimed to help companies strategize, manage, and administer sales compensation from one, unified platform. The solution combines behavioural psychology with data science to help companies design and improve their sales incentive plans. Alazzam described the platform as a “single source of truth” for sales performance managers.
Alazzam discovered the market need for this kind of platform when he was a consultant helping medical equipment firm Stryker Canada set up a new sales compensation software. He said the amount of programming and reprogramming required to optimize the compensation structure was taking a colossal amount of time and money.
After realizing these inefficiencies, Alazzam set out to create a database of sales compensation plans and changes. His aim was to share the knowledge from this database, allowing companies to model and roll out new, complex incentives in a fraction of the time, and with much greater predictability.
“It’s about bringing awareness to the fact that sales compensation is due for a change,” Alazzam said. “Every other part of an organization operates off of data, insights … and best practices. Yet for sales compensation, we’re operating the same way that we did 40 years ago.”
In 2015, Alazzam left his consulting job and started building this solution for Stryker Canada, whose management agreed to implement his solution if it could go live within eight months. Alazzam withdrew his life savings and began working with a tight-knit team around a kitchen table, coding models to test the solution. Within eight months, Forma.ai’s solution went live with Stryker Canada.
Forma.ai claims its platform can boost sales performance by a minimum of four percent, retain at least 10 percent more of their customers’ top sales reps, and predict sales compensation spending with 99 percent accuracy.
After Forma.ai’s early success with Stryker Canada, the startup took on several more enterprise customers in the United States, Canada, and other global markets. Despite achieving nearly 1,300 percent revenue growth from 2018 to 2020, the company was operating mostly in stealth.
“To be this disruptive, you have to have the data points and the backup to do so,” Alazzam said of Forma.ai’s decision to operate behind the scenes for a few years.
In 2020, Forma.ai migrated from a kitchen to a downtown Toronto office space in March 2020, a mere two weeks before the pandemic shut down most of the world.
However, the demand for Forma.ai’s solution did not change due to COVID-19. In fact, Alazzam said the pandemic’s impact on market dynamics made Forma.ai’s solution even more helpful to companies looking to quickly refigure their sales incentive plans. The startup launched out of stealth later in 2020.
The pandemic also didn’t stop Forma.ai from closing a $12.5 million Series A round in 2021. At the time, the startup announced it handled more than $1 billion in annual managed commissions.
“Everyone else is building a slightly better car, and we’re building the autonomous car.”
Following that deal, the company continued to grow rapidly. According to financial documents provided by Forma.ai, the firm’s annual recurring revenue quadrupled in 2021. The company also added a number of notable clients in the last year, including AutoDesk, Trust Pilot, and CareerBuilder.
Forma.ai’s headcount has also exploded in the last year, from 55 people in January 2021 to 115 today, with goals to reach 200 people by the end of 2022. Some of the more recent hires include three new leadership roles: Lisa Welch as senior vice president of sales; Alain Boutros as vice president of revenue optimization; and David Gerardi as vice president of customer operations.
The global incentive compensation management market is expected to reach $2.7 billion in the next five years, and Forma.ai is not the only startup looking to break into this space. In recent years, several new players, such as Spiff and CaptivateIQ have emerged in the sales comp space with tools to help organizations manage commissions.
However, Alazzam claims Forma.ai is the first single solution that automates every aspect of the sales incentive and compensation management process. “Everyone else is building a slightly better car, and we’re building the autonomous car,” he added.
As Forma.ai continues to acquire market share, Alazzam said the startup is focused on growing into a large, enduring business that drives what he believes is a much-needed change in how companies reward their sales reps.
“In today’s world, we guess at incentive structures. We guess at how to best motivate our sales teams,” he said. “We are looking to bring a scientific approach, where it’s going to be unacceptable in a few years to build incentive plans and manage incentive comp in any other way.”