DocuSign Inc. Chief Executive Officer Dan Springer is retraining his sales team and hiring a new leader in the division, seeking to mitigate a swift decline in demand for the company’s electronic-signature software.

DocuSign’s product became a vital lifeline for businesses, consumers and governments when the pandemic hit in early 2020, turning the company into one of the most-watched software vendors. Now that heightened demand has evaporated, the shares have tumbled 76%, and Springer is working to convince skittish investors that DocuSign can flourish in the new world of hybrid work.

While Springer said he always expected the Covid-19 boom to subside, the drop-off caught him and the company flat-footed. DocuSign failed to anticipate how substantially the return to quasi-normal operations would impact sales, as well as how severely the fallout of one-time pandemic use cases would affect its business.

“We always believed that Covid as a dramatic tailwind would come to an end,” Springer said in an interview. “The place that we missed is how fast we would see that drop.”

The fix is underway. The company is hiring a new sales head, Springer told investors on the March 10 earnings call, and bringing on executives from established software providers like Oracle Corp. and Salesforce.com Inc. It’s also educating a sales team, one that grew substantially when demand for DocuSign’s product was robust, on how to effectively sell existing customers on more licenses or additional services.

“We didn’t properly onboard them,” Springer acknowledged.

It’s not uncommon for software vendors to change their leadership teams once certain levels of growth are achieved, often around $1 billion in annual sales. That wasn’t the case for DocuSign, which reported $2.1 billion in revenue last year, a decision Springer says likely contributed to the challenges the company is facing now.

“We were crushing it, so we were in a position where everyone looked like a star,” he said. “It was difficult to say: ‘Now is the time to change people out.’”

The pandemic was exactly what DocuSign needed to establish e-signatures as a viable alternative to wet ink. While the option became legal in 2000, it wasn’t until relatively recently that companies began to fully embrace signing documents online.

Once Covid-19 swept the globe, the technology became critical for businesses that pivoted overnight to fully remote operations. Governments also needed to disperse unemployment funds without recipients coming into local facilities and companies used e-signatures to tap into new federal aid.

“While we knew some of those one-time use cases weren’t going to have legs,” Springer said, the company misjudged “how completely some would fall off.”

DocuSign last week gave quarterly and annual revenue forecasts that fell short of analysts’ projections, sending shares plummeting 20% in a day. The stock fell about 1% to $74.41 at 2:13 p.m. Monday in New York, extending its decline since hitting a high of $310.05 last September.

It isn’t just the sudden drop in demand that is causing a headache for DocuSign. The company’s sales model is predicated on customers using its e-signature product for a single action — like a new hire signing an employee agreement — then pushing the software more broadly across the business, a strategy the industry often refers to as “land and expand.”

As some of those demand drivers evaporate completely, it erases the ability for DocuSign to expand its presence within those businesses. The company, however, has ample room ahead to grow within its existing user base. Just 852 of the 180,000 customers that buy through a DocuSign salesperson spend more than $300,000 annually with the vendor.

What Bloomberg Intelligence says
DocuSign’s recent results lead us to believe the company is struggling to better mine its existing client base, and that our expectation of an early recovery appears delayed until 2023. Longer term, we’re optimistic that the company can increase average spending per client by better focusing on its current base.

— Anurag Rana, senior technology analyst

Compounding that problem, many customers purchased additional licenses at a more aggressive pace as the pandemic lingered on. Now, as businesses begin to bring employees back to the office and other operations return to in-person, users are finding themselves with excess capacity.

Customers are coming for their renewals and realizing they “don’t need to buy any more this year,” said Springer. “The amount of that more fulsome buying, we knew the concept but we didn’t know the amount that was there. We were surprised there was that much of a fallout in demand.”

For DocuSign and Springer, speed is the name of the game. If sales continue to falter, the company runs the risk of an activist investor campaign or becoming a takeover target.

“When you go public you make a choice that you cannot completely control your own destiny,” said Springer. “That’s just the reality of being public.”

–By Joe Williams