AI-Native or Not: The Defining Choice for Companies Right Now - with Melissa Cheals, CEO of Smartly

0:00And then we're getting these crazy sizings from the engineering people saying it's going to take 12 months and a million bucks to build that. And I'm going, no, no, no, no, no. I'm not sure that this is good work. It's like opening a can of worms. We're probably actually, to be honest, well not probably, we actually are going to have to reinvent. If you don't start to think about how you're going to move to AI native platforms or architecture, I think you're going to just end up with a legacy product that'll be dead. Hello, I'm Melissa Cheels. I'm the CEO at Smartly, which serves 24 ,000 small and medium businesses in New Zealand.

0:38We're owned by Datacom, which is an Australasian technology company. And I'm very excited to be here today and talk to you about how AI can help organizations transform and change and really scale their human potential. Maybe it'd be helpful to take a step back and set a little bit of context because you have these hard won insights around driving organizational change. And I'd love for you to give us a sense for the journey that you've been on. Call it the last, what, we met 18 months ago. Is that right? Approximately? remember downtown Palo Alto approximately 18 months ago. Ella introduced us.

1:22I had come to know Ella through some work with the New Zealand government 15 years ago. And then I get a call from Ella saying, Hey, I want you to meet my CEO. We're in town for Saster. We sit down sitting outside of Verve Coffee there in downtown Palo Alto. And you start telling me about your vision for change. Can you start there and just say, why did you feel the urge to transform and how did you begin that journey?

1:49Melissa Cheals:How did I feel the urge to transform? Yeah, I remember that day and it was sunny, beautiful sunny day in Palo Alto. And oh my God, you started talking into your phone and you were talking to Jack GPT and I'm like, oh my gosh, what is he doing? And then you had come up with and created some communications that went back out to us and within the meeting before it even finished and I think I had a number of those kinds of experiences seeing what what was early stage you know happening in the market and the software industry around AI technology and thinking oh I really really we really have to learn more about this because it's going to change the landscape and so how do you get going with that?

2:39I think one of the first things was to really start to set a bit of a vision with kind of people in the organisation around what might be possible in the future and what was happening and help people really kind of understand the potential for what we could do and so be able to talk about a number of case studies and think about a number of case studies of how people had really completely changed, you know, speed, cost and quality through kind of starting to adopt AI. But also recognising that data and AI are inextricably linked. And so actually having to think about those things together. I think at the same time, that was why actually Ella was brought into the company was actually going, right, we need someone with some passion and energy and some kind of real drive to understand and bring this capability into the business and then start talking to the business about the importance of it and the why and actually how it could help them.

3:47I think it's really, it's a really important insight, Henrik. One of the things that we learned from Bryce Shalemel was that he was brought into Moderna before the AI moment. if you kind of trace his hero's journey, he wasn't brought in as the AI guy. And Melissa, I'm hearing you say the same thing about Ella. It's not that she was brought in as the AI person. I know Stefan, who's the CEO of Moderna, hired Bryce a year before Chad Gbti came out because he knew they needed to change. And then AI kind of got served up on a platter, right? And I think in the same way, Melissa, what you're saying is you had a sense that something needed to change even before the AI moment.

4:28And you, in bringing in a person like Ella, you actually created capacity for change. I'm just thinking about that as, as a, I think a leadership tactic, because I think a lot of leaders make the mistake of going, who on my team should I add this to their plate? Who should be the AI person or the change person? And if it's just another kind of responsibility on someone's already existing long list of things, it's going to get neglected. Whereas it sounds like, correct me if I'm wrong, but you actually hired someone for the express purpose of catalyzing a change. Is that right? Yeah, I think if I look back, so I've been working with Smartly, which is obviously payroll and people management for kind of five six years now and when we started we were uh I think we've 3.4 times the revenue since um in that period wow and we started out revenue in five years in five years so all I would say is you've got to almost stay in a constant state of kind of change and what's the next thing you need to do to grow and you start with this capability which might be in really good customer support really good sales really good engineering capability but then you need to augment that with other kind of capabilities and skills as they're coming up and around and so marketing and go to market and all of product development and all of these things all have to be built up and you have to build that up, I think, by bringing in key people who you really give permission to build a capability or build out to the possibility of the idea of what it can do.

6:26And that's exactly where this came from going, well, as a payroll business, the amount of data and information we have that could really support even like economic trending, understanding, you know, insights that would actually help businesses you know you start thinking about for example you've got all the you've got all the salaries of all the kind of customer support people that do things in call centers and you almost could tell people well this is roughly what you should pay and as a new business or a startup of small businesses that sort of entails extremely valuable but how do you unleash that how do you harness that so you're having some of these problems before ai even turned up to say that you've got this latent potential in the business, either through your people or your information or your products and services, and how can you really unleash that?

7:22And so, yeah, Ella was brought in with the whole idea of what can we do? Right, let's really, really look at this and then start talking more broadly to the business and people in it.

7:34Melissa Cheals:So I think we have increasingly been identifying that one thing is AI and learning that. The other thing is basically the organizational permission or structure or space or methods to allow that unleashing to happen, right? Jeremy brought up yesterday that in Amazon, they have like a whole kind of like methodology where you have a new idea, you can express it as a press release and then if your boss like it there's like a whole method for then allowing that person to go and pursue that could you talk a little bit to what is some of the kind of like the learnings you have from doing that in your organization it sounds like learning ships is kind of like maybe one approach for for kind of unleashing potentially the palace that ai gives you i've got some stuff i wanted kind of just going through my heat so um i think one of the big things I just wanted to kind of talk about too is one of the things is actually the power of the multiple people rather than one person.

8:42So we've talked about how we brought Hala in and how you kind of can bring some people in to drive change. But one of the things I'm a big proponent of is we run the business. We don't run departments. So siloism and I've got responsibility for this or I've got responsibility for that is less powerful than if you work on it together and actually saying we're actually working on this as a team and so I find that quite interesting because AI actually creates conflict because actually if you want this kind of outcome in engineering or you want this sort of outcome and product and then somebody else can't keep up with the speed with which AI can now provide, then they'll get frustrated with those people.

9:27But if we're not trying to solve these problems together and we're just leaving it to that person and that person, it's actually not as strong. So I think one of my, to come back to your

9:38Melissa Cheals:question is, I think one of the big learnings is sometimes tackle some of these things that you're finding out of your developments as a team and try and utilise the different skill sets to come up with something that's bigger and better than what one person would come up with on their own. We haven't talked about that much. I mean, I think you've got to have two big things going on at the same time. You've got to have leaders who are working together and brought in to kind of drive the change. But then also from the bottom up, you want to create champions and individuals within the business from everywhere, from every area.

10:21And you want to open it up to everybody. So it's not just for the leaders and the managers, or it's not just for this one person that comes in and tries to create change. You actually want to elevate, elevate the whole company and everybody. So everybody's using it daily or everybody's problem solving. You know, the other thing that comes to my mind, Melissa, and I just want to give you a compliment on the air, so to speak, is you didn't approach this like this is everybody else's thing. You approached this like you had to change as well. And I think that is a really important piece of this puzzle is you and your own learning journey.

11:02because I have seen, and maybe we can get into some of these anecdotes, but I have seen many times you're actually able to call people on, whether it's expectations, whether it's that conflict, whether it's timelines and capabilities and features because of the, your depth of knowledge. Can you talk about your own learning journey? It's because it's not just about senior leaders working together and champions from everywhere. It's also, or maybe it's just implicit in how you think about these things, but it's you coming alongside the rest of your team to be learning as well. Am I right? Oh, you're absolutely right.

11:39And I think one of the powerful things we did early on, and we did do, you know, some real dedicated time to training to learn and be curious about prompting and what that actually looks like and what does it mean. If I can't prompt, how can I talk to it? If I'm not learning about that, how can I support or challenge others to grow. And so I think, you know, leading by example, yeah, I've heard examples of CEOs who they, you know, do a weekly video showing what new thing they've done or how they've done something. One of the powerful things we did was we had dedicated time where we just sat together, where we were in a meeting, but nobody was talking and everybody's got their cameras off.

12:26but you can actually put some ideas or thoughts or ask some questions to everybody. But I'm there with the team. We're learning prompting and we're trying to do a different kind of thing or we're challenging ourselves to learn a new piece of it. And I'm in there with them doing it at the same time. And what was the impact of that? How did that impact you as a leader to be on the learning journey with the rest of the team? Well, it was massive energy. I mean, when you can achieve something that you never thought you could, I mean, one of the things that makes, which is just a very simple thing, but just makes me feel better is if I'm more excited and heated up about a topic, AI makes sure I express that with dignity and give dignity to others and actually give respect to others and reframes it when my emotions might be really heightened.

13:23And so, you know, being authentic, it can make you, I think, interact with people in a better way. And so once you start experiencing some of that, you feel better about yourself and you feel better about what you're doing and how you're doing it. And that's quite powerful, I think. Can you walk us through that? I mean, I know you're a very passionate leader, but you said when I'm heated, AI helps me express it with dignity. Walk us through as a leader, what's an example of a time where you go, I'm heated about this, and how do you get AI to call it dignify the expression of those passions? What are you actually doing?

14:06How are you actually working? Well, a recent example, actually, I know we've talked about this one, is we have to speed up. We need faster shipping, and it'll be cheaper. and more quality. And I know that AI can do that because I've heard examples and I've seen some of the things that it can do. We're trying to build out our new product to competitor parity and to make sure it's amazing and what customers want. And the product guys were putting in their requirements and their prototype. They built these cool prototypes in five minutes with these amazing design sprints and got them up and running and the customers love them.

14:51And then we're getting these crazy sizings from the engineering people saying, it's going to take 12 months and a million bucks to build that, thank you. And then that's multiplied by a number of them. And I'm going, no, no, no, no, no. And so I'm feeling very excited about it and very, I'm not sure that this is good work. So I have spent quite a bit of time talking to myself and talking to Chatty G or talking to our AI friends. and they're kind of going, well, actually, your engineering people, don't forget, they're all about quality and they're used to compliance and if they do something wrong, there's big consequences.

15:31And so you need to remember that they're coming from this mindset and you need to help them shift their mindset to ABC. And so it's kind of helping me really think about it in their shoes and so then actually I was able to get some coaching advice around quotes that I can say that'll make me sound really great and respectful and with integrity, but also get across the fact of the kind of change that we need to have and that we need it now. Okay. Okay. But hang on. So there's, okay, this is amazing. This is so good, but there's two layers here, right? And I think it's actually worth unpacking both layers.

16:08One is the knowledge that there's a new way. And that is actually really important, right? because the reality is a lot of CEOs get an estimate from an engineering team that's going to be a million bucks in 12 months. They go, great. Can't wait to see the progress update in six months. So you, there's an important kind of awareness layer where you go, no, no, no. Like you said, no, no, no, no, no, no. Like it can't be a million bucks. It can't be 12 months, which that's one. And then the next layer is the self-awareness to say, I now have a cognitive amplifier to help me express this in a way that's not going to be off-putting to these engineering leaders.

16:48It's going to be inspiring. Right. Respectful. That's amazing, right? It's multiple orders, layers, if you will, of leadership, call it wisdom, that you're able to deploy because of your own experience. That's incredible. I am flabbergasted too by the constraints that we're working to that are sitting in our organisational psyche so you know for example the product guys they were feeling it too but they were kind of going well this this is obviously all we can do is cut down scope and all we can we can cut and cut and cut scope to make it smaller and get it in and that's how what they would try and do rather than going, actually, we might have to completely turn everything on its head.

17:36It's like opening a can of worms. We're probably actually, to be honest, going to have to, well, not probably, we actually are going to have to reinvent. And that's a big decision for a CEO of a tech company. Are you going to go AI native and start your, reinvent your architecture and your platform and your tech? or are you going to try and, you know, build it in on top of what you've got? It's a really big decision.

18:01Melissa Cheals:Can I ask you to maybe spend a little bit of extra time on that decision? And what are kind of like some of the pros and cons in your mind because to your point it's a big decision? I think that if you wait and you decide that you want to rebuild out your platform to be AI native how long is that going to take and then are you going to get behind competitors and behind the eight ball while you're doing that so how much is it going to cost and how much time is it going to take and then how far forward is that going to take us into the future relative to just building out what we've got and I think this whole idea too of what exactly it is that you're going to build because often build versus buy has never came into it but actually you do need to start thinking about that now that sometimes there are companies that can do for example like access and identity management or they can do big parts of what you might want to build they build that out already So maybe you should be focusing on building back out your platform or building out the pieces that are really differentiating, that are real assets, that are really value to your shareholders, rather than thinking about just building out everything.

19:31I mean my kind of approach to it is it's and and so you probably actually have to build out your platform and change it and you need to get going and learn and get all of the AI infrastructure and orchestration in at the same time because that will inform what you should build if you don't start to think about how you're going to move to AI native platforms or architecture I think you're going to just end up with a legacy product that'll be dead

20:00Melissa Cheals:And how much do you think it's a technology decision and how much do you think it's an organizational decision? Well, I think it's an organizational proposition decision. I think it's about thinking about what it is that drives shareholder wealth and also competitive advantage. I mean, some of these small startup companies, Henrik, that you're supporting or that you're kind of people are involved in, they can actually rebuild, especially when you're operating in an environment like ours and payroll, a lot of our stuff's rules-based. Actually, someone's going to come in and someone could come in and rebuild that out reasonably quickly.

20:46So with that in mind, why wouldn't we do that rather than others?

20:50Melissa Cheals:side i think one thing that you mentioned in passing which i think more and more of the companies that at least i talked to that are going through kind of this ai coming of ages kind of moment is that when everything is possible for you and your competitors then it kind of like very quickly come back to what do you want to be as a company like yeah not what you do right now but what do you actually want to be and because you can be most things today because you can write most things in code then it becomes like both a philosophical question but it also becomes a very much leadership question right what is it yes i as a leader decide that this company is going to be over the next five years are you in your in your pondering is this some of the things that are then also kind of like suddenly becoming front of mind of we actually have to articulate as a narrative what it is that we want to be oh i think that it's been front and center of um i think clarity and curiosity and connection of, I think, are really, really critical principles to how you should run a business.

21:59And people can't get clarity and get rid of their fear unless everything's... So this whole culture of documentation, which is all your data, all your unstructured data, the power of putting that within the system, within your company is astronomical. And I think the other thing I'd just say is what you want to be in five years what you want to be in 10 years um we're operating in the old model thinking and even i have to really check myself at times around what's possible and so when you're creating this vision of what you want to be in five years or you're thinking about where you're going you almost kind of need to check yourself and go right well have i thought big enough and actually how could this be even bigger or bolder because the constraints and what we can do are completely different so um where do you go to push that thinking or when you when you ask the question am I thinking big enough how do you know are there do you have a external board of advisors that you're where are you looking to orient around kind of scale of ambition or to calibrate even yeah so that's we need more time doing research and looking at other things and not talking and meeting and checking on things.

23:17I think you have to be looking, if you're partnering with other companies, especially tech companies, actually the ones that are forward thinking and seeing what they're doing, listening to Beyond the Prompt, a bit of a pitch, but actually hearing what people are doing. Let's double down a little bit on that.

23:36Melissa Cheals:Yeah, let's double down on Beyond the Prompt. Tell us a little bit more about it. So I think more than ever, So you can't be internally focused and you have to be out finding and seeing what's working and hearing and talking to people and seeing what's happening. And that's where you also, though, I think with AI, you have to inject, you have to keep trying to inject some experience and capability into the business at the same time as growing your capability. Let me say this just because Henrik and I had a conversation yesterday, which we're not going to release to the public. And so Henrik and I have in our minds a insight from a conversation which won't be released for other reasons.

24:22But one of the things that came up in that conversation that I actually think is very valuable and we're just kind of flagging here because now people aren't going to hear it otherwise is part of what a leader has to do with that extra time is seek outside inspiration, is go to the conferences. I know, Melissa, you're big on conferences, is getting outside of your bubble because unexpected input is what provokes your imagination. and if what you do with the 20 % or 50 % or whatever the number is kind of new capacity, if all you do is more of the things that you're already doing, then that is, it's effectively an inward orientation, right?

25:01If what you do with that extra capacity is flare out and seek unexpected information and sources of input, whether it's beyond the prompt or whatever it might be, right? There, I think, is actually a very pragmatic way to preemptively decide you want to be using newfound capacity.

25:22Melissa Cheals:Can I actually, that triggered a question, Melissa, when you are a team in your new AI native world in 2026, your team gets 50 % more time. And they might decide to go and get more inspiration, all those things we talked about. what is the thing that you ask them not to do? What can they not spend their newfound time on?

25:49Wow, what a great question. Because I think the amount of time that they spend maybe trying to influence other people on going a certain way or talking about something that they want to do, ideally they're writing stuff down rather than having meetings with people when they're unformed thinking, the thinking's not formed. So I don't want them to spend their time having meetings with other internal people to ask them their ideas about what they're doing. Can we go back to, I think this is related to the idea of self-disruption We didn't call it that earlier, but you mentioned with AI-powered startups effectively capable of replicating capabilities, features, etc.

26:47You, Melissa, asked the question, why don't we do it ourselves? Which to me is that's a self-disruption imperative. Why not do it ourselves? Can we talk about how you have those conversations internally among your leadership team? How do you think about deploying resources, commissioning experiments, setting goals around disrupting yourself? So the question is, how do you go about? It's hard. I mean, well, maybe I'll say this. Self-disruption always involves destroying part of the business. You know, the kind of canonical example, obviously, is when Jeff Bezos saw what the iPod was doing to CD sales.

27:30CDs were the third biggest product on the Amazon platform. And Bezos had this thought, what happens when somebody does that to books? And then his next thought was, why wouldn't we be the ones to do that to books? And so then what he did is he went to Steve Kessel, who is the head of physical book sales at Amazon. And he said, Steve, you're fired. Your job is to build a new product. And your key goal is to put your old team out of business. good luck right that is an unfathomable kind of strategic framing right and so my question to you is how do you and the leadership team at smartly and at datacom think about commissioning people and efforts to disrupt the business i mean the ipad the primary product the ipad destroyed was the macintosh right steve jobs is literally paying people to destroy another product's business how do you and your team think about that that's that's yeah yeah yeah that's a great it is a great question and I um I was thinking about this from two angles actually one you can um you can just disrupt it by deciding to do something differently and um I think when you're trying to reinvent everything you have to go there so you're going to have some mess along the way because that's part of the learning and then you've got to be very thoughtful to make sure that everybody doesn't feel completely sad and upset when something doesn't go right because that's actually part of the learning process.

29:07So a couple of things I would say one is last year one of the things that we as a leadership team decided was to try and break down silos and again it's kind of pulling in some ideas but then letting people contribute to that but we came up with this whole idea of value streams where you would have a group of people, cross-functional group of people that would be assigned to create value in some sort of area. So whether it's payroll or whether it's integrations that will provide outcomes for customers and so we set up these groups and of Of course, the product and engineering people are going, what the heck?

29:51Why have we got an accountant and a finance person in our payroll team? Why have we got these group of people contributing? It was crazy, the cross-pollination of thinking, because it's that whole idea of people with different perspectives bring whole kinds of new ideas into the whole idea. And so then each of these groups was allowed to swarm around the particular thought that they thought would add value to the customer. And then they were allowed to go and trial it and create a paper and do a prototype to see if it would work. And so the energy that created was amazing, but at the same time the fear and the uncertainty around, okay, now you're mucking with what is our standard operating, you know, this is how we run the factory, this is how we run the engine, and you turn it upside down.