Soren Ryherd is Co-Founder and President of Working Planet, a paid search agency located in Providence, Rhode Island. The company is focused on “putting the math behind advertising for data-driven, profitable results.”
Before we get into the interview, a bit of background - I have hired Soren’s team at Working Planet multiple times. I am admittedly biased, but I’d put it this way - Soren’s company is not just the best paid search agency that I’ve worked with other the years - they are the best agency of any sort that I’ve worked with.
All of that said, I am constantly getting questions around paid search management for start-ups and I continue to see significant challenges at this end of the market. Even further up market and in my past engagements with Working Planet, there are a number of challenges related to paid search management that I’ve felt first hand and still don’t see a great solution to. My intention with this interview is to ask Soren the toughest questions that I’ve had to grapple with as a marketer responsible for paid search performance, and to specifically get his take on how early stage start-ups can set themselves up for success with paid search.
Geoff Roberts: OK Soren, let’s do this. I’ve been thinking about these questions for a while now… I hope you’re ready. Why don’t you start though by giving us a brief background on the work you do at Working Planet.
Soren Ryherd: We build profitable customer acquisition programs using paid digital advertising. I say profitable as we are using our client's’ financial data to determine what to pay, or often not pay, in the digital advertising platforms we manage. Basically we’re doing the math behind the advertising and using that information to remove risk and increase return.
Geoff: Someone once told me... “Soren used to be a rocket scientist. Now he manages PPC campaigns.” Is there any truth to that? And if so, how did you make that transition?
Soren: My Co-founder and I met in graduate school where we were creating algorithms for processing satellite imagery. At that time I had a NASA Graduate Research Fellowship through Goddard Space Flight Center, so I spent a little time there, but they did not let me anywhere near the rockets! After graduate school we worked at separate start-ups and definitely caught the start-up bug. In 2003 we realized that CMOs were really struggling with the auction-based nature of media buying in Search and we knew that was a math problem we could solve in a way that would tie directly to their business success. We kicked the idea around and launched Working Planet two weeks later.
Geoff: What was your familiarity level with Google Adwords at that time?
Soren: This was 2003, and I was working as Head of Business Development for a web engineering company in Boston. We were building websites that “do stuff,” and a lot of our work with tech start-ups was in support of their advertising campaigns. I knew that Adwords was an auction, but I’d never run an Adwords campaign. But people were throwing their hands up, they had no idea what to do with this idea of an auction. And I said “This seems pretty straightforward, you pay what it’s worth.” We knew how to put the math behind this, and we knew we could learn everything else. So we basically just begged some friends to let us run their Adwords campaigns out of the gate, landed some clients, and started doing that.
Geoff: Let’s discuss paid search management for start-ups specifically. Most good paid search agencies have a minimum monthly ad spend that early stage start-ups simply can’t afford. At Working Planet that’s a minimum spend of about $20,000 per month. For a bootstrapped start-up that’s just starting to run its first customer acquisition programs, what options do they really have when it comes to responsibly managing their initial paid search programs?
Soren: It really is a tough question. It is hard to afford the hours to dedicate to a small campaign, but you need to invest the time to build something that can scale. I would say that the two pieces of advice I most often give to startups are, first, get your data collection nailed down before you start spending money. Good tracking is everything, but I often see startups rush to “try” advertising before they have the tools in place to measure performance. Secondly, know your business KPIs and use those as a lens for evaluating marketing performance. There is really no marketing metric that is good or bad without the context of financial performance.
“Good tracking is everything, but I often see startups rush to “try” advertising before they have the tools in place to measure performance.”
Geoff: How should start-ups begin to think about the tools they’ll need in place to measure paid search performance? What’s a good starting place; how can they identify the tools they might need?
Soren: The first thing you need is some kind of conversion tracking. Everyone’s go-to there is Google Analytics, which has gotten better but which is problematic for us because it’s just aggregate data, it’s very difficult to get per user data out of it. So then people start looking at Conversion Ruler, which is our choice, or Mixpanel. People are just rushing to try advertising, people who aren’t used to thinking about performance based advertising often literally think that all is involved in digital marketing is just launching an ad, and everything happens automatically after that. So people start spending money with nothing in place, they’ll just say “let’s create this ad and target this audience and see what happens.” That’s usually just a waste of money.
Geoff: I personally see a huge gap in the market when it comes to paid search management for start-ups. The good agencies are out of reach price wise. Overseas agencies or freelancers with a lower minimum monthly spend tend to be pretenders rather than contenders. Software tools like Wordstream that automate the management of your spending are a step in the right direction, but tend to optimize for impressions and clicks more so than profitability. Even asking a smart, early employee to manage paid search spending is often problematic - if it’s not something that the person has done extensively in the past, it’s still so easy to burn though budget with these channels. I’m wondering aloud what the best solution for this end of the market might look like…
Soren: You are absolutely right, and most of the software tools out there don’t do much more than what you can do in AdWords or Facebook and often very expensive. What they are trying to solve is to ease management for people who don’t know the networks well, but they have dropped the view of financial performance in doing so. There are a few exceptions. Kissmetrics, for example, has done a great job of pushing financial data into the measurement tools, but that is just on the evaluation side. Meaning Kissmetrics doesn’t manage your bids or your ad campaigns for you, it just provides you the data that can give you the insight to do a good job in managing the campaigns.
In the end though, a startup really looking to scale should invest in digital optimization experience as early as possible. For most of our clients we are driving 50-95% of their customer acquisition and are arguably the most important factor in their success outside of product development.
Geoff: 50%-95%! I’m sure some people will balk at this, feeling that this is being overly reliant on paid advertising or that your clients’ marketing channels aren’t diversified enough. What would your response to that be?
Soren: The reason why this happens is we’re the safe haven. The financial optimization of the campaigns removes the risk from campaign management, making it very safe to invest in marketing. The financial outcome from that investment is very clear, very predictable. So when we can provide that level of reduction of risk and predictability, we get bigger budgets. It becomes a very safe place to invest in marketing compared to almost anything else they could do.
We’re managing across all paid digital. If someone had 95% of their acquisition in search, then the concern that you have of all of your eggs in one basket is very warranted. The diversification within digital is very important. I think what we’re also seeing is it’s easier and faster to execute with paid advertising, and to optimize to a financial outcome, than it is to with say content marketing, or SEO, or PR. It doesn’t mean companies shouldn’t do those things, they absolutely should, but it’s easier, safer, and more predictable when you look at paid digital. And that’s why we tend to end up with the lion’s share of the customer acquisition.
There’s also just more in that bucket than there used to be. There are channels that are moving into the bigger digital bucket now that just weren’t part of digital five years ago.
“It’s easier and faster to execute with paid advertising, and to optimize to a financial outcome, than it is to with say content marketing, or SEO, or PR.”
Geoff: Ongoing paid search management aside, it’s pretty common for start-ups to want to use Google Adwords or other paid channels to find validation for or initial traction for their product. The instantaneous, real world feedback that you can get from paid search is hugely valuable to start-ups in that way. What best practices, strategies, or guidance would you give to start-ups that want to use Google Adwords as a means to validate a market or idea?
Soren: First, unless you are testing messaging, DON’T test for “traction” until you have built your payment functionality. We’ve seen many companies “prove” their business model through free sign-ups only to have crickets chirp the second they ask for money. There are many valid ways to use digital advertising to help in the early validation stages of a start-up, including finding real customers to speak to in the MVP development process, determining key selling propositions to early users, and seeding test users into applications while in development. I would say the key is to be really explicit in what you want. The absolute worst goal is to “get exposure.” Getting exposure means that there are assumptions about the value of that exposure that you haven’t surfaced. Is this a euphemism for driving product demand? For getting investor attention? That doesn’t happen by magic and the most dangerous thing is to think that delivering ad impressions is in any way a goal.
Geoff: I recently installed Adroll on Outseta’s website so that I can start building an audience of visitors to run remarketing campaigns to. What other easy items represent low hanging fruit and are things start-ups can do now to set themselves up for success with paid online customer acquisition programs?
Soren: AdRoll retargeting is a very good move, but only leverages people being driven to your site from other initiatives. The first thing we would suggest is getting ads on your brand out there in Google and Bing (yes, really, Bing). Use your core value proposition and say something different than in your organic listing. Secondly, if you already have a customer list, there are many targeting options now for creating lookalike audiences which tend to work well. Another low-hanging opportunity is ads on your competitor brands in Google, although I will say that many startups are often reluctant to do this as they (usually mistakenly) think that by not doing this they are staying off the radar of the big guys. What we find is that if you are new, leveraging the brand equity of the existing big players works to your advantage.
Geoff: Let’s get into one of the biggest challenges I consistently see start-ups face with paid search programs - expectation setting with the C-suite. It’s very easy for paid search programs to be seen as a major expense - they are often one the of the biggest line items in a marketing budget, and at the outset campaigns almost never yield the desired results. Making these programs work is a process that takes commitment and quite a bit of iteration. How do you go about setting appropriate expectations with the C-suite in terms of what it will take find the value of paid search programs to their business? If you could get Founders, CFOs, etc to all sign an agreement outlining what expectations they should have when you start working together, what would it say specifically?
Soren: One of our biggest goals with any new client is to move digital advertising out of the cost column and to be seen as a profit center. But to do that, we have to connect the dots so that the C-suite knows that X dollars in yields Y dollars in profit - and they have a say in what X and Y look like. We think that the CFO should absolutely be in the conversation, and (I guess not too surprisingly) CFOs tend to be our best friends and internal champions.
One of the most important things to making profit-based campaigns work is having good targets, in terms of cost of acquisition. This is something we spend a lot of time on with our clients. If you just accept “Get us $100 leads” as a goal, you are never going to be well optimized, as all leads are not equal in value and should not be paid for equally, and, frankly, someone probably just made up the $100 number in the first place. Better targets are those that will truly raise profitability.
Geoff: Do you have any advice on how SaaS businesses should go about identifying a good CAC target?
Soren: Every company is going to have a different comfort level on cost of acquisition relative to predicted lifetime value. Some of that comfort is going to be based on their funding, and just available cash that they can put into marketing. Some of it is going to be how much data do they have to show the predictability of what they think lifetime value might look like. LTV has become a little less part of the discussion, surprisingly, as we look more at what are the predictable ways to raise MRR and manage cash flow effectively. So months to break even tends to come more into play relative to those things.
The higher value the customer and the more embedded the technology is in the client’s company, we tend to see bigger multiples in terms of months to break even - you might see something like one year or 18 months. When churn is a question, when LTV is a question, or if it’s just easier for companies to churn out of a technology, we’re probably going to see a lower target in terms of months to break even.
The great thing about digital is it’s not difficult to change your acquisition targets. You shouldn’t do it all the time, but you should be influenced by how the data matures over time. If you’re a SaaS client and you don’t have a churn issue, if you’re targeting 1-2, or 3 months to break even as your cost of acquisition target, you’re probably undervaluing the market. By a lot. Your LTV is so high compared to what you are willing to invest in that customer, that you’re really ceding opportunities to competitors at that point.
Geoff: So when expectations with the C-suite aren’t set appropriately, I see two things tend to happen. First, too little is actually spent month to month, meaning it takes a really long time to find which channels, bids, and campaigns can yield the results you are looking for. The company doesn’t see a big impact on their business after a few months, so they give up. The second is the company spends enough money, but doesn’t have the patience it takes to optimize the campaigns over time. After a couple of months of significant spending not yielding the desired results, the company throws up its hands and says “paid search just doesn’t work in our industry.” What’s your viewpoint - can paid search work in just about every industry?
Soren: Yes, but not always at scale, and not always immediately. All digital, and search is a great example, has volume that is top-loaded in the auction based on ad position. Every advertiser wants the volume and therefore top position. But often the math just doesn’t work to have your ad show up there, so you are losing money in volume. Optimization means learning over time how to value the audience appropriately based on the value they create. A lot of the time we are learning when not to spend money, or what needs to change in terms of conversion, close rates, and customer value in order to afford the advertising. The good news is that data and complexity help as we can find the audiences that work while attacking “the math” through testing and optimization to achieve scale.
Geoff: OK, so Working Planet talks a lot about “putting the math behind advertising,” about profitability, about “closed loop reporting.” Let’s talk about what this actually means for a SaaS company when it’s working properly. For me, the marketer, the coolest part of seeing this come to fruition was that each month our paid search spending would be a fixed cost - say we spent $20,000 on paid search programs in July. In each subsequent month when I looked at my month end report from Working Planet, I could see how much revenue that $20,000 in spending had actually generated. Because it’s SaaS the revenue realized number would grow each month, I could see exactly when we reached break even on any month’s paid search spend, and I could see the profitability of any month’s spending continue to grow thereafter. Of course as customers churned, you’d fold that in as well and would see that also impact the actual revenue that was realized. It’s incredibly powerful to have that level of understanding of the relationship between your spending and your profits. But let’s talk through what it takes to get there - proper lead source attribution, billing and cancellation information synced with CRM records, that sort of thing. Talk us through the integration and technical work that your clients need to understand and commit to to truly “close the loop.”
Soren: We use three buckets of data that, in combination, give us the ability to make good decisions on buying digital media. First, we have cost and targeting data from the ad networks like Google, Bing, Facebook, Twitter, LinkedIn, DSPs, etc. Second, we have multi-touch per-user tracking on our client’s site to measure engagement, and; Third, we have customer value data from our client’s CRM, Finance, or other internal systems. We work the “loop” both backwards from the customer value data to create our models, and forwards through the user engagement path to monitor performance by granular segment.
The client-side systems and data are always the wild card. While all we really need is the common “join” to marry the back-end data to the marketing data, we always find significant data gaps, multiple “systems of truth,” or missing revenue when we dig in. Inconsistent use of a CRM by the sales team is also a huge issue.
For SaaS clients, we are typically looking at a months-to-breakeven target that is related to growth of MRR. In some ways SaaS clients are easiest in that there is a built-in recognition that the investment in marketing does not occur in the same time period as revenue realization. This point is lost on a lot of companies that only take a “cash flow” view of in-month expenditures and revenues. This can cause real problems in evaluating performance so we try hard to introduce a cohort-based view of that investment and how it pays off over time.
“DON’T test for “traction” until you have built your payment functionality.”
Geoff: Let’s talk about tracking scripts and pixels - admittedly these have become sort of dirty words to me. In order to deliver on closed loop reporting, you need to add tracking scripts or pixels all over the place - website pages, lead capture forms, etc. Depending on the actual paid search network, or remarketing network, or social channel you are using, there seems to almost always be another tracking script that needs to be added somewhere. And all of this tracking work needs to happen consistently across different device types and different browsers.
I’ve enlisted the help of plenty of very technical people who have sort of poo-pooed how difficult this work could possibly be, only to find that it’s almost always more… finicky... than they initially expected. I’d go so far as to say that at times I felt like we even spent more time working on tracking scripts than on the campaigns themselves. Yes, there are tools out there like Google Tag Manager but frankly they don’t solve this problem. How do you think about this and address the pain that customers, including myself, have felt in this area?
Soren: Well, first, I would not knock GTM as it solves a lot of the pain that we experience with scripts and pixels not being viewed as supported technology by our clients’ web teams. If you want data-driven optimization your only source is in fully utilizing all the scripts and pixels from all the networks, and not just your primary tracking tool.
A bigger issue is, in my opinion, in the limitations of tracking technology. We are a very technical data-driven shop, and our biggest “data challenge” is getting clients to buy into cross-channel behaviors. For example, 95% of engagement from a Twitter campaign will come from people who never click on the Twitter ad. Some clients still believe that if the click didn’t happen, the channel had no influence (and, conversely, “How do we buy more of this “Brand” traffic? That performs great!”). This is such an issue that we are now trying to report 100% of paid and non-paid engagement in all our reporting plus explicit testing to validate out-of-channel lift.
Geoff: Can you give me an example of how you validate out of channel lift with paid advertising campaigns?
Soren: With a start-up client that we’re working with right now, we knew we were getting significant out of channel lift from Facebook campaigns. It was very difficult to convince them of how much that might be - because it never involved a click on an ad it couldn’t be tied to Facebook specifically.
So we did some geographic tests where we used Texas as our test area, and Florida and Georgia as the control. We dramatically escalated Facebook advertising in Texas, and what we found was there was a 90%-100% lift above what we directly tracked to Facebook showing up in their brand and no-referrer traffic, meaning 45%-50% of all value from Facebook was being created without a click on an ad.
This allowed us to create a really good model for how we should think about cost of acquisition targets for tracked Facebook relative to the whole campaign. We then did a confirmation test using Colorado and Utah, and we found the exact same behavior. We were able to validate for the client that it wasn’t just 60% of their acquisition that was from the paid campaigns, but actually over 80% of their entire business that was being driven by their paid campaigns when you factored in the out of channel lift.
When you can nail down the math on this and predictably show that an outcome is going to exist, and you recalibrate that on an ongoing basis, what we find is people are going to give you an unlimited budget. One that’s limited only by their own limitations as an organization, which might be financial in which case a capped budget is appropriate. Otherwise it’s going to be restricted only by cost of acquisition targets relative to the competitiveness of the market.
Geoff: Beyond the mechanics typically associated with paid search management - keyword selection, bid optimization - talk to me about what else goes into optimizing paid search campaigns over time. What I’m getting at here is the client usually has to play an active role to truly allow your company to do it’s best work whether it’s customer research, feedback on new messaging directions to test, conversion optimization, etc.
Soren: The “math” we are solving for involves the entire engagement path, so we have always advised on page testing as one of the key additional areas where we can help scale. Last fall we launched a Conversion Design Service for a small monthly retainer that allows us to now build and deploy landing page tests as well, accelerating learning and optimization for clients that don’t have those resources in-house. Our clients are very involved in this as well, addressing other core factors in the equation through nurturing programs, lead response times, proper lead scoring, use of SDRs, and retention programs. Every gain in the entire acquisition/LTV chain makes it easier to scale the programs.
Geoff: If there was an idea or two that you could beat into the head of start-up Founders when it comes to paid search or digital advertising more broadly, what would it be?
Soren: This is a process of ongoing, continual improvement that will never end. That’s it, really. I guess if I were really hammering it home it is that what you are improving on is the ability to generate revenues and profits.
Geoff: Let’s end by tying this all back to Outseta for a moment. We are a platform play that competes in an ultra competitive market, across extremely crowded categories like CRM, email marketing, customer support, and subscription billing software. On top of that, the vast majority of our competitors in these categories are established or very well funded businesses. How can we possibly compete in paid search? How would you think about the role that paid search should play in our business, or the strategy/approach to paid search that might make the most sense for us?
Soren: Search is a media that serves up solutions to stated problems, so for search, you need to look at the many problems you are solving that people are searching on. However, many start-ups solve problems that exist, but are unstated or unsearched on because people can’t envision the solution exists (imagine selling a self-driving car before people knew this was technically feasible). In those cases, you need to create that awareness with media outside of search, but there are more options for that everyday in Paid Social, Display, Programmatic, Video and other platforms. For Outseta, like many SaaS start-ups, it will be a process of testing many varied potential audiences against their actual engagement in the sales process.
Geoff: That’s a wrap. Thanks for your time, Soren!
The Case Against Budgets, Forecasts, and Performance Targets
Forecasts, budgets, and performance targets; these activities have long been seen by business people as critical activities in the operation of companies of almost any size. They provide a necessary compass for the business, an accepted and understood path towards a business achieving its goals. They are also critical activities in driving accountability within an organization - performance will ultimately be measured against the budgets, forecasts, and performance targets that were agreed upon by the CFO, the Board of Directors, the company’s investors.
We’ve all been there - this is simply how businesses are run.
But a growing number of businesses - particularly those who are embracing self management principles - are beginning to flip the script. Simply put, activities like budgeting and forecasting are not compatible with self management. You can’t have a top down budget created by an executive team and approved by the board, while also having self managed teams that are empowered to make decisions by sensing and responding to what the market and the business is telling them. The case for doing away with these activities becomes pretty straightforward - not only can these activities be a big waste of time, but they can actually be detrimental to a company’s performance.
My start-up, Outseta, has decided to pass on these activities. We’re a start-up without a forecast of where we’ll be in one year, let alone five. We don’t have any agreed upon budgets, or any sales reps with quotas. But before we start to build the case of why we think this makes sense for a lot of companies, let’s start with a couple of stories that will likely sound awfully familiar.
Sales quotas and forecasts can hurt your business… and we’ve all seen it
Let me start by saying that I live in the same world that you do, one where it’s nearly impossible to avoid being beaten over the head with messaging citing the importance of goal setting. If you write your goals down you have a better chance of achieving them. If you share them publicly, even better. I’ve heard countless talks on the importance of setting S.M.A.R.T. goals - those that are Specific, Measurable, Achievable, Relevant, and Time bound. I believe in all of the above - the point of this article is not to reject goal setting altogether. But as I’ve witnessed a growing number of businesses work through the process of setting budgets, forecasts, and performance targets I began to see these processes start to break down. And when I began to learn how self-managed organizations view these activities, I couldn’t help but find myself nodding my head in agreement.
Let’s start with probably the most familiar scenario - I was working at a tech company, with top tier venture capital investors. Each year the company’s revenue targets were set, rather arbitrarily, at the beginning of the year. Where do we want to end up come year’s end? What sort of revenue growth will our investors be happy with?
Come the end of each quarter, I would inevitably find myself sitting in a room full of sales reps. They’d work two or three 10-12 hour days in a row, trying to bring in as much business as possible before the quarter’s end. Stress levels were high. Huge discounts were offered. Some prospects that were in our sales pipeline would get 3-4 calls per day as we tried to get them across the finish line. This scenario is in no way unique - it happens four times per year at businesses all around the globe.
What happened next wasn’t unique either, though. I’d see my friends in sales get really burnt out. The pipeline that they would be relying on to hit their quota the next quarter would have all but disappeared. Perhaps worst of all, those last few accounts that they had so desperately tried to close would cancel, churning at a much higher rate than the business they closed earlier in the quarter. The buyers hadn’t truly been ready for our product - we had forced the issue.
The second scenario is equally as common. In this case I was consulting with an early stage tech start-up. I had a front row seat as the CEO, the CFO, and several other member of the executive team spent countless hours putting together a 5-year revenue plan that would take the company from $0 to $50mm+ in revenue. The plan included budgets for each department, each year. It had customer acquisition and revenue targets for existing products, and new lines of business that did not yet exist. It was a perfectly detailed path to the promised land.
The executive team needed this plan to drive alignment. They needed this plan to share with investors, to show the awesome return their business would provide in just 5 years. But the problem in this scenario was maybe even more troubling. The activity took literally hundreds of hours of the company’s most valuable employees’ time. I found myself wondering, why would you spend that much time figuring out a path to $50mm+ in revenue when you haven’t yet figured out your path to $500,000?
Self management’s perspective on budgets, forecasts, and performance targets
It’s worth noting that as I started working on my own start-up, my Co-founders and I made a deliberate decision to embrace self management principles. We’ve derived significant inspiration for Fredric Laloux’s Reinventing Organizations, as well as companies like Zappos that have recently made the transition to self management. While that’s the case, we are by no means strictly adhering to self management principles - whenever we’re making an organizational decision, we carefully consider whether self management’s philosophies on any one topic resonate with us and are applicable to our business. In lieu of the stories that I shared above, much of what I read about self management’s take on forecasting, budgeting, and performance targets started to make sense to me.
Let’s start by acknowledging that self management does not advocate completely scrapping all budgeting, forecasting, and goal setting activities. What is does advocate for is making these quick and dirty, back-of-the-envelope type of activities as opposed to hunkering down with your executive team for an offsite session, followed by several weeks of revisions to your plan.
The basic premise self management shares is that these activities are most often a shot in the dark, can be confining, and can drive behavior that’s not in the best long term interest of the business. Let’s start by unpacking a few key themes.
Sense and respond rather than predict and control
I think few people would argue that most forecasting and budgeting processes are an attempt to predict and control aspects of your business. It makes sense that this is something that we try to do - for most of us, our livelihood depends on our performance at work. We take some degree of comfort in knowing that there’s a plan, that we have some sense of control in terms of what the future looks like.
But to what extent can we actually predict the future? In any company or market, how much control can we ever really have… or do these activities simply give us an illusion of control? Jason Fried and David Heinemeier Hansson, Co-founders of project management software company Basecamp, weighed in on this exact topic in their 2010 book Rework.
“Planning is guessing. Unless you’re a fortune-teller, long-term business planning is a fantasy. There are just too many factors that are out of your hands: market conditions, competitors, customers, the economy, etc. Writing a plan makes you feel in control of things you can’t actually control. Why don’t we just call plans what they really are: guesses. Start referring to your business plans as business guesses, your financial plans as financial guesses, and your strategic plans as strategic guesses. Now you can stop worrying about them as much. They just aren’t worth the stress.”
Frederic Laloux’s book gives a great example further illustrating this point. Imagine two companies tasked with having an employee ride a bike from Point A to Point B. The first company huddles up and puts together a detailed plan on the path that their rider is to take. They carefully calibrate the angle of the handlebars, measure the slope of the ground, and consider the speed of the rider. A team of product managers carefully roadmaps the rider’s course.
The second company asks their rider simply to be an active participant in the ride. They ask him to sense and respond to the terrain as he sees fit during the course of the ride.
When the riders take off, the rider from company one rigidly sticks to the plan - the “optimal” plan - that his team has put together for him. He doesn’t change course when an unexpected wind arises, and as he veers off course his team of product managers demands that he stick to the original, optimal plan. Later, when the rider has failed to reach point B, the product managers begin pointing fingers at one another. Someone must have made an error during the planning process.
Meanwhile, the rider from the second company simply senses the wind and makes adjustments on the fly, arriving at Point B safely.
Fried and Hansson take this point even a step further, noting that, “The timing of long-range plans is screwed up too. You have the most information when you’re doing something, not before you’ve done it. Yet when do you write a plan? Usually it’s before you’ve even begun. That’s the worst time to make a big decision.”
“You have the most information when you’re doing something, not before you’ve done it. Yet when do you write a plan?”
Ultimately, this comes down to improved agility. Self managed companies value workable solutions and fast iterations rather than focusing on finding the best possible solution. A “workable” solution in this case is simply one that no one thinks will make things worse - decisions can always be reviewed or changed if new data or a better idea are presented. The key here is that time is never wasted or decisions postponed because someone thinks more data or analysis could lead to a more optimal path.
It’s interesting that many companies, across industries, buy into the importance of agility in other areas of their business - but not when it comes to budgets, forecasts, or performance targets. For whatever reason, these items remain fairly rigid. The tech companies that I cited in my examples above all practiced agile software development, for example. The basic premise of agile software development is that fast iterations rather than a few larger leaps will help products progress faster. This same concept is also at the heart of lean manufacturing practices.
A final benefit of this approach is that by favoring agility as opposed to the “optimal” plan, we become less attached to the decisions that we make. We become more comfortable adjusting to reality and changing our plans as needed, rather than stubbornly sticking to the carefully plotted course we spent so much time and energy defining.
Arbitrary performance targets drive shortsighted behaviors
Agility aside, most performance targets are at least to some extent arbitrary numbers. Sure, in established businesses benchmarking and historical performance can set some precedence. But really, how useful and specific can that really be? You needn’t look any further than the stock markets to realize how little capacity we have to predict or control - and in a start-up company any performance targets are almost completely arbitrarily pulled out of thin air.
More often than not these targets will fairly quickly become seen as too easy, in which case their value is eroded, or too difficult, in which case shortcuts must be taken to reach them. We’ve all heard of sales reps that reach their quota and stop selling early, either to pad their pipeline for the next quarter or for fear that their quota will be seen as too easy and will be updated to be more aggressive in the following quarter. Similarly, it’s all too common for excess budget to be spent on non-critical items to avoid budget cuts in the future. So what’s the solution?
The first is simply accepting that there’s so much outside of your control, that the best thing you can do is focus on getting everyone to work hard and do the best job they possibly can, across the organization. If you truly focus on doing this, and on optimizing for the long term rather than to meet an arbitrarily set performance target, then the numbers will fall where they will and that’s OK. If you did your best, you did your best - isn’t that what we should all be trying to achieve?
To bring it back to the example of sales reps, simply because it’s an easy example, in the absence of quotas you’ll still have some reps do better than others. Some will need additional coaching. Some who consistently underperform will need to be exited - none of that changes. All that changes is that you’re measured on the reality of the best you can do, rather than against an arbitrarily set performance target.
Secondarily, goals and performance targets can still be incredibly useful as you strive to do your very best and optimize for the long term. For example, think of joggers who time their average pace per mile when they are exercising. Most of us are not Olympic athletes and are not out to break any specific records - instead, we do this simply to better ourselves and see if we can do a little bit better than we did previously. This is a self prescribed tool that we leverage to help us get better at an individual level.
Companies with new approaches to budgets, forecasts, and performance targets
It’s worth noting that there are already thousands of organizations that have begun putting the practices we’re advocating for in this article into practice - and no, these practices are not just applicable to start-ups.
Take for example Charles Towers-Clark, CEO of POD Group, a maker of mobile connectivity solutions with offices in England, the US, and Spain. Founded in 1999, POD Group only recently began embracing self management after Towers-Clark realized, “Everything was being held up by me.”
“What would happen is one of the development guys would come to me and say ‘We need more cloud hosting servers, I think we should use these, can we do it?’ and I’d ask, ‘Do we need to get more servers?’ to which they would say ‘yes’, so I said ‘yes’. They wasted their time asking me a question they knew the answer to before, I had to say yes, otherwise the business would stop and the responsibility was passed from them to me. If everybody in the company knew the financial situation of the company then the expert would make the decision - not a clueless CEO. Now anyone can make any budgetary decision they want, regardless of the amount, as long as they seek relevant advice. The only fireable offense is not seeking advice, and if it’s a budgetary situation they should check the company financials on the intranet."
At POD Group this included making all employees’ salary information available as well - a process that was not taken lightly and that included quite a bit of feedback from the company’s employees. “One thing we found is that people valued their salary more so than income from profit sharing or bonuses,” said Towers-Clark. “I came to the conclusion that the only way to motivate people properly is the let people choose their own salary. People now feel like they’re valued according to their worth, because they are setting their own worth - and if they don’t feel valued on their next salary review they can change it.” POD Group now has a salary review process that occurs every four months, and even had several of the company’s managers lower their salaries after embracing the change.
“People now feel like they’re valued according to their worth, because they are setting their own worth.”
Ricardo Semler, CEO of Semco, offers an additional perspective on how his organization handles the budgeting process.
“We do budgets on a small scale at Semco. Each group of six to ten people, once every six months, puts together the numbers for their unit. If they need help, they easily get it from the financial office. We believe that any company, even a Boeing, GM, or the U.S. Postal Service, should allow their workers to organize themselves, even when tens of thousands of employees are involved. It could be done the same way we do it at Semco. It’s not a question of size. Rather, it’s a question of relinquishing control, trusting workers to pursue their own best interests, sitting back and letting nature take its course. This isn’t an academic exercise for us.”
It’s worth noting that Semler’s company is doing this at scale - the business has thousands of employees, and has grown revenues from $4mm in 1984 to $212mm in 2003 - all the while pioneering self management practices like their approach to budgeting.
Dimitris Georgakopoulos, Co-founder of software companies Outseta and Buildium, offered this perspective on the forecasting process used at Buildium. “I think it is important as a company to have a streamlined mechanism to know how recent results affect the outlook for the business over the long term,” says Georgakopoulos. “What we’ve done at Buildium is build an automated model that projects out the future performance of the company based on the last few quarters’ performance. As a board member I rely on this to see if we’ve directionally changed the trajectory of the company - this is a lot more useful to me than assessing the businesses performance against a top down forecast based on biased predictions and individual assessments.”
Conclusion
This article and the concepts shared within it will be unpopular with many, no doubt. But rather than discrediting self management’s approaches to budgeting, forecasting, and performance targets as the latest management fad or academic theory, it’s worth reflecting on why self managed organizations are embracing these practices in the first place.
“Management is a lot easier if you make people responsible for managing themselves,” said Towers-Clark. “I decided to embrace self management for three reasons. First, it was simply easier for me. Second, I realized we needed to use everyone’s brain and not just mine - that’s how you create value. Last but not least, this has helped us with attracting and retaining employees - we’ve never lost anybody.”
For those struggling to give up “control,” I leave you to contemplate a few questions - how much control do you really have? And what’s your concern with simply asking everybody to work hard and do their very best?
Perhaps the most fundamental tenet of self management is that people are fundamentally good and can be trusted to do the right thing. If you believe that, then the answers to these questions will reveal themselves pretty readily.
Feedback, please... Which of Outseta's Key Messages Resonates Most With You?
If you are the founder of an early stage SaaS start-up, or simply someone who has worked in an early stage SaaS start-up, we'd love for you to complete the survey below. What we want to know is which key message would be most compelling to you as you considering buying a handful or point solutions versus Outseta - a platform that offers basic CRM, subscription billing, email marketing, customer support, and reporting tools that are fully integrated from the get-go. Further discussion of the relevance of each of these key messages can be found in the article below.
When we wrapped up our idea validation interviews for Outseta in December 2016, one of the first items we turned our attention to was creating a first draft of our company’s value proposition and messaging guidelines. We wanted to make sure that as we started talking about our start-up publicly we were doing so in a consistent manner that resonated with an audience of early stage SaaS start-ups as much as possible.
The output of that work is what you’ll see on our website, our social media channels, our Angellist profile, and just about every other public facing mention of Outseta that you can find today. Over the last 7 or so months our product has gone from an idea to a minimum viable product, we’ve talked to dozens of additional start-ups, and as we get set to really step on the customer acquisition pedal for the first time it feels like the right time revisit our messaging to make sure that our go-to-market messaging is as compelling as possible.
In all honesty, we still don’t know exactly how we should be talking about Outseta and which messages will resonate best with our audience. On top of that, we don’t yet have the website traffic to test our way into conclusive results in terms of which message variations perform best. With that in mind, this post will serve two objectives:
- To offer an honest, stream of consciousness look at my thoughts on our messaging.
- To call on other SaaS founders to get their input on the messaging that would best resonate with them.
Let’s get to it, shall we?
Outseta Messaging Guidelines Version One
The statement below is the first version of our value proposition. This is written in a fairly “standard” format, with each of the words in CAPS representing a trigger word that should be followed by a particular part of the value proposition statement.
Outseta Value Proposition, V1
“Outseta is FOR early stage, SaaS start-ups WHO are frustrated by the time, complexity, and costs involved in integrating multiple software solutions required to effectively run their businesses. Outseta IS the only all-in-one platform integrating subscription billing, email marketing, support, CRM, and reporting tools THAT reduces costs, maintenance, and helps SaaS start-ups get off the ground faster BECAUSE a single, clear view of their business’ operational performance allows them to better focus their efforts and spend more time building their business.”
For the most part, I think we did a pretty good job with the first version of our value prop - I don’t read this and consider any of it to be “wrong” at this point, but there are a few areas that I think we might be able to tighten up. Let’s go through it piece by piece.
FOR (target customer): “early stage, SaaS start-ups”
We got this part right. While there are likely other types of businesses who could derive value from Outseta, this is who we are building the product for and I think we’re right to keep our target market narrowly defined at this stage.
WHO (what’s the opportunity): “are frustrated by the time, complexity, and costs involved in integrating multiple software solutions required to effectively run their businesses.”
This part I’m not so sure about. In order for a SaaS start-up to have felt this frustration, we must either be dealing with second time founders who are now working on a new start-up or a company that’s already tried to integrate a handful of point solutions and struggled with it. I think the majority of the companies that are going to be a good fit for Outseta likely haven’t made those software decisions yet, so I’m not sure that they’re actually frustrated and feeling pain just yet. I think it’s possible that the real opportunity more about consolidation and working one vendor to address these needs - that means one bill, one company to call for support, and a smaller technology footprint. My thinking is that many companies will understand the benefits of buying a platform solution, even if they haven’t necessarily felt the pain associated with taking a different path.
IS (what are we offering): “the only all-in-one platform integrating subscription billing, email marketing, support, CRM, and reporting tools”
I think we got this part right as well. This is the most succinct, easily understood description of what it is that we’re offering. I’ve heard from others that we might be making a bit of an over-statement by saying we’re “the only” vendor offering this, but from what I’ve been able to find we’re the only vendor offering this combination of functionality specifically for SaaS start-ups.
THAT (differentiating benefit statement): “reduces costs, maintenance, and helps SaaS start-ups get off the ground faster”
I feel pretty good about this part of the value prop statement as well. We deliver on this, allowing SaaS start-ups to launch more efficiently.
BECAUSE (proof statement - why does this matter): “a single, clear view of their business’ operational performance allows them to better focus their efforts and spend more time building their business.”
This is the other component of the statement that I think we might not have quite right. Giving a start-up a clearer, more useful understanding of their customers and their business’ operational performance is absolutely valuable. But I think the reduction in costs, in maintenance, and in general in the overhead associated with a handful of point solutions really boils down to one thing that’s hugely valuable to start-ups - time saved. We allude to that when we say “spend more time building their business,” but I think we could call it out more deliberately. Time is perhaps the most valuable currency to start-ups, and any time savings both extends runway and increases a start-up's chances of success.
Outseta One Simple Thing (OST), V1
“The software starter kit for your SaaS business”
The notion of “One Simple Thing” is a concept that we borrowed from Mike Troiano. The basic premise is to describe what your product or company does, and make sure that prospects are categorizing your product on your terms rather than their own, in a single sentence. I think it’s hugely useful.
It’s tough to be terribly specific in a single sentence, but I think this statement achieves a few objectives - it specifies that we’re selling software, that the software is for SaaS businesses, and that it’s an entry level offering or something that you’d use when starting out. I like the statement for all of those reasons.
When describing Outseta to others, I’ve often heard “Ahhh, I get it. You’re offering a start-up in a box.” For whatever reason that analogy has helped people understand the concept - “here’s a pre-packaged set of tools.” It doesn’t matter to me all that much whether we’re talking about a “box” or a “kit.”
I have two issues with our existing OST. First, there’s software for functions like accounting, HR, and software development that aren’t included in our platform. I think we’re missing a bit of specificity around what functions our software does and doesn’t cover. Second, it lacks a bit of emotional appeal to me - it’s accurate, but maybe a little flat or dry. It’s not exactly spurring me to action. Apple’s OST when they first launched the iPod - “1000 songs in your pocket” - is more successful to me in terms of delivering on that emotional appeal.
Home Page Headline and Sub-head, V1
"The software starter kit for your SaaS business." (headline) "Focus on growing your SaaS business, not integrating the software systems that support it." (subhead)
When we first launched our website, we used our OST as our primary headline followed immediately by the sub-head “Focus on growing your SaaS business, not integrating the software systems that support it.” I think that leading with the OST made sense - as a new company, we need to help people quickly and easily understand what it is that we’re selling. It’s tough to lead with the “why,” or to lead with benefits when people don’t yet understand what it is that you’re offering.
That said, I think we got the subhead wrong for a couple of reasons. First, I think we overestimated the amount of pain that start-ups would associate with integrating a handful of point solutions. Start-up founders tend to be relatively technical people with a can-do attitude - while the integration work is time consuming, it’s often not seen as terribly difficult or painful. Second, it’s something of a negative statement - “do this, NOT that.” This led us to a second iteration on the subhead that is more focused on benefits “Better understand your customers. Reduce your technology footprint. Launch more efficiently.”
I don’t think we have this perfect just yet, but I do think it’s an improvement.
Key Messages
Key messages are those primary marketing messages that resonate with your potential customers and help you deliver on your value proposition. There are a number that we’ve considered from the get-go, and more than anything I think we need additional feedback on these and help prioritizing these messages against one another.
- “A single view of the customer, from lead to lifetime value”
I like this message because it hits on the single, 360 degree view of the customer angle. Ultimately that’s what integrating a stack of point solutions is most often working towards, although I don’t know that that’s necessarily something start-ups are trying to achieve when they begin shopping for software. I like the “lead to lifetime value" bit because it reinforces that we’ll help you better understand the entire customer lifecycle.
- “Give your technical co-founder their day back”
This message hits of time savings. Technical co-founder time is always extremely valuable (and expensive) - there’s a significant opportunity cost if your technical co-founder is working on anything other than building product.
- “Reduce your technology footprint”
I personally don’t think many start-ups give much thought to reducing their technology footprint. That said, I think most will understand the benefit of paying fewer bills, working with one company for support, etc.
- “Focus on growing your business, not integrating the software systems that support it.
Per my previous comments, I think there’s a bit of a negative connotation here. That said, I like the notion of “more time to focus on the important stuff.”
- “Extend your runway”
By saving start-ups time and money, Outseta can effectively help start-ups extend their runway. While that’s hugely valuable to any start-up that hasn’t raised a ton of funding, I worry that it also could have a negative connotation to it... “we’re going to give you more time before you run out of money.” It feels a bit to me like we’re offering a life preserver to start-ups, who tend to be wildly optimistic.
- “Improve your odds of raising funding”
This is one of the most interesting messages to me. Start-ups that are using a handful of point solutions often really struggle if they are trying to raise funding. They struggle with issues around data quality, they struggle to surface business insights for potential investors, and they don’t have accurate or “standardized” SaaS metrics that potential investors can use to compare their business against other potential investments. Outseta can provide standardized, apple-to-apple comparisons of key SaaS metrics as well as benchmarking data against other SaaS businesses. This can definitely save significant time and increase investor confidence during a fundraising process. That said, as a business we believe that way too many SaaS companies focus on raising funding rather than building a profitable business, so we’re hesitant to really emphasize - or at least lead - with this message.
Other similar or related companies whose messaging I like include….
17hats.com - “Chaos. Simplified. Designed for 'businesses-of-one,' 17hats is the complete system to tame the chaos of invoicing, contracts, and client management.” I really like the notion here of bringing order to chaos - I think that’s something we’re doing at Outseta as well. I also like that they are embracing being a “complete system” or platform.
Intercom.com - “Our products work together to help sales, marketing, and support teams better communicate with with customers.” I really like how Intercom deliberately calls out the groups that their platform is meant to serve.
Conclusion
Our messaging will always be a work in progress, evolving as we spend more and more time interacting with prospects and customers. I am certainly eager to get to the point where we can consistently run A/B tests to see with statistical significance which messages best resonate with our audience.
In the meantime, we’d love any comments, opinions, or feedback that you have based on this article. Feel free to add your thoughts in the comments section below, or better yet take the brief survey included at the beginning of the article.
An Interview With Scott Brinker, Founder & Editor, Chiefmartec.com
Scott Brinker is the Co-founder and CTO of Ion Interactive as well as Founder and Editor of Chiefmartec.com, the most widely read blog on the web focused exclusively on the intersection of marketing and technology. Today Scott is considered one of the preeminent thought leaders in the world when it comes to marketing technology. We caught up with Scott to get his take on what we’re building at Outseta and to learn how he thinks about the technology related challenges that start-ups often face.
Geoff Roberts (GR): Scott, for the sake of our readers tell us a little bit about who you are, what you do, and how marketing technology became such an important part of your professional life.
Scott Brinker (SB): Sure thing, Geoff. I’ve been in this industry for 20+ years now, but I became really fascinated by marketing technology as I saw two business functions that previously were very siloed start to collide - IT and marketing. As these functions started to intersect more and more, it became clear to me that there was very little knowledge shared or best practices around how these functions could support each other’s needs effectively. There’s no doubt that marketing teams today need to be staffed with technical resources, much more so than they did previously - I refer to these people as marketing technologists. So the merging of these two functions was really what gave birth to my blog, Chiefmartec.com.
GR: You are perhaps most well known for the infographics of the Martech landscape that you put together each year - over 5000 Martech vendors in 2017! How does this make you feel? Do you perceive this to be a problem? I’m curious, generally, how you think about this.
SB: That’s a good question. At the end of the day, there are both pros and cons to this. On one hand, there are simply so many options out there - the more than 5,000 marketing technology vendors that you mentioned - it’s overwhelming. There are simply so many options for any one category of marketing technology, that there’s a problem with over-saturation and it can be difficult to identify the technologies that your business actually needs. On the the other hand, marketers have access to more technology and tools than ever before. For pretty much any marketing touch point or need, it’s pretty likely that there’s a software tool out there that can fulfill your need. So the pro would simply be the accessibility of tools and the wide range of functionality that the marketing technology landscape now provides.
GR: Former SAP exec and new Marketo CEO Steve Lucas recently made the following comments…
“What’s crushing the marketer right now is that every time there’s a new consumer touch point, there’s a new point solution for it,” Lucas said. “It’s overwhelming the marketer.” The problem with that, he said, is that “you lose any context on who the customer is.”
What is your take on Steve’s comments, and what do you think will emerge as the solution to this problem over time?
SB: I agree with Steve’s comments, but I do think that there’s more than one path forward. We’ll see a couple of different types of solutions continue to emerge as we consider the challenge that comes from an ever growing number of consumer touch points.
The first is going to be the all encompassing platform play, much like what you’re working on at Outseta. There are other companies working on this sort of approach as well. The idea here is to build a single system that’s wide enough to cover all of the major touch points, or at least the most important ones. This has the advantage of companies only needing to pay one bill, only needing to work with one company for support.
The other route is continuing to integrate any number of point solutions that are more specialized and do one thing really, really well. There’s a growing number of companies that are either data warehouses, or pre-built system integrators, that allow you to effectively make use of data coming from disparate systems in a meaningful way.
GR: How do you think about the differences between solving these issues at an enterprise versus a start-up level? My own take - while the costs and number of point solutions that need to be integrated are all larger demands within an enterprise, the importance of solving these issues within a start-up may actually yield a bigger return. Start-ups don’t have dedicated resources to devote to this work, so it comes with an opportunity cost of technical co-founder time. They are also more cost sensitive than their enterprise counterparts, and the benefits of having a clearer understanding of their customers and business may be that much more beneficial in helping them find initial traction and scale their business successfully. What are your thoughts?
SB: I agree with you 100% with regards to their being a significant opportunity cost for start-ups. I don’t think the real issue for start-ups is the integration work associated with integrating a stack of point solutions. Most of that integration work isn’t terribly difficult, but it is work that needs to be thought through carefully. Which systems actually need to be integrated so that the data can be put to use in a meaningful way? How do you actually intend to use the data? What real world business process, or use case, or workflow are you trying to support? I think it’s most important that the real world use case is carefully considered so that you’re actually getting business value out of integrated and accessible data. At the end of the day start-ups are all about prioritization - there’s not enough time in the day to do everything. Start-ups are also going to be more resource constrained in terms of dollars, in terms of people, and in terms of time. If you can provide a single platform that saves start-ups time, then that’s very valuable.
It’s worth noting too though that start-ups have a huge advantage - they are starting from a blank slate. They have the opportunity to consider their needs and deliver a tech stack that they build to address those needs from the ground up. That’s huge. In almost any other business there are going to be legacy systems in place and an existing way of doing things. Not just from a technical perspective but also from a cultural or change management perspective that can be very, very challenging.
GR: So the concept for Outseta is to provide basic functionality across CRM, customer support and knowledge base, email marketing, subscription billing, and reporting - the basic functionality that SaaS start-ups need and nothing more. It’s a platform play, and we’re going wide rather than deep in any one area. This definitely flies in the face of “conventional” start-up wisdom, which often suggests that you do one thing very well, very deep. I’ve certainly heard this from many smart people whose opinions I trust - what’s your take?
SB: Everybody has heard the “do one thing and do it really well” mantra. You’re either choosing a high level of specialization, or less specialization with a broader reach of functionality. I don’t see either option as being correct, or more right, than the other - I think it’s simply a matter of approach and the strategy you are using to deliver value to whoever your customers might be. If your customers only need basic functionality across A,B,C,D, and E and you can deliver that to them in one platform that’s built well with these components integrated from the ground up, I’m all for it.
GR: Is reducing your technological footprint, within any company, an import thing to be thinking about in and of itself? Why or why not?
SB: It’s definitely worth considering, but I think it’s most important to focus on what technology you need to help you achieve your business goals, whatever they may be. If you’re too worried about your technological footprint, you could end up with fewer tools, or not the right tools, that you really need to support your business objectives. The converse is true too - you can go way overboard and have all sorts of software that’s simply overkill for your needs. But again, if you can pay fewer bills and work with fewer vendors while still supporting your business needs appropriately more often than not that’s a good thing.
GR: How important is or isn’t delivering on a single, 360 degree view of your customer? It can certainly take companies a lot of time, effort, and money to get there - is it worth it, or is this an aspiration that’s not as important as it may seem?
SB: I think it’s very important if it’s delivering a view of your customer that’s actually useful in a real world setting. For example, it used to be that there was one marketing message that businesses pushed out to just about everybody. One of the things that marketing technology has really delivered is the ability to better segment and personalize your marketing messages to buyers with different characteristics, personas, etc. Say you want to use marketing automation to send different messages to different customer segments - you’re probably going to need your automation tool to be integrated with your CRM and have context on those different customer segments. There’s real value in having that context; that better, more complete understanding of the customer.
The flip side here is it’s easy to go overboard. There can be prospect or customer records with crazy amounts of detail, tracking every touch point imaginable, but if you’re not using that detail in any specific way then it’s just a longer, more detailed record than it needs to be. I would start by making a list of the data from different types of point solutions that most often has to be integrated to help support a business goal within a SaaS business.
GR: One thing we learned during our idea validation interviews is that start-ups solve for their immediate need - if they need to send an email campaign, they buy Mailchimp. If they need to start billing customers, they buy Recurly. They are not thinking at an early stage about buying a platform to solve multiple needs that they’ll have at some point in the future. From a go-to-market perspective, how would you solve for this?
SB: I don’t think there’s any one trick here, I would simply lay it out for them. You’ve worked in a number of SaaS start-ups before, and you’ve identified 5-6 needs that are common to most of these businesses. So the pitch becomes, “You only need functionality A today, but we know that you’re going to need B, C, D, and E in the near future. By working with us you’ll get functionality A today, but the rest of the functionality you need will be there for you whenever you’re ready behind the same login credentials.” This is a simpler solution and if it saves start-ups that ever valuable time, I think they’ll get it.
GR: Knowing what you now do about Outseta, tell me why you think our idea sucks. Or if you insist on being nice to us, what’s the biggest challenge you think we’ll face?
SB: I think the biggest challenge for you is simply going back to the size of the marketing technology landscape - these are so many good options out there across each of these categories. There’s some irony here in the sense that you’re offering a system that out-of-the-box should help more SaaS companies launch successfully. If they have a good business idea, the promise is your company can increase their odds of being successful and some portion of them will undoubtedly be in the marketing technology space!
GR: Now let’s flip it - what do you like about our idea? What concept excited you or do you think at least shows promise?
SB: All of the things we’ve talked about - I think it’s a simpler solution and if it can meet a start-ups basic needs, it will give them more time back to focus on other aspects of their business.
GR: I am personally of the belief that most companies understand the impact that well integrated and effectively used marketing technology can have on their business. They get it. But I do think that most companies tend to underestimate the resources, time, and costs associated with evaluating, buying, integrating, and maintaining their tech stack over time. How do you educate companies on what it will take to deliver on their vision, and what are the common traits you see in the companies that are most effectively leveraging and supporting their marketing technology?
SB: I think there’s really two things of note here. The first is the work associated with figuring out what business processes and campaigns you actually need your technology stack to support. There’s real strategic thinking that needs to be done here, and it tends to not be a one-off project - you’ll need your tech stack to support an ever changing set of business needs. I agree that most companies tend to underestimate their needs in this regard. The second is simply about the structure of modern marketing teams today. I’ve written a lot about the “Marketing Technologist” role, but I don’t think the structure of modern marketing teams has necessarily kept up the requirements of the marketing function in many businesses.
GR: What’s most exciting trend/characteristic/movement to you that’s happening in the Martech space right now? What gets you giddy thinking about what 2018 holds?
SB: There’s so much it’s hard to pinpoint any one thing. There are totally new types of customer touch points being created every day, like virtual reality experiences, just to give one example. Another huge one is just machine learning and data science tools making data not only accessible, but also highly useful to marketers with so much less effort than was required before. If you look across the various categories in my marketing landscape infographics, there’s exciting innovations happening just about everywhere.
GR: We’ve gotten pretty technical in this conversation - what’s something about Scott Brinker the person that those that know you only by professional reputation wouldn’t know or expect?
SB: I was a music major, which most people probably wouldn’t guess given how technical my job is today. But I think there’s an interesting parallel between orchestras and how businesses used to be run, versus how they are increasingly run today. In an orchestra there’s one person up front, coordinating the efforts of many musicians to deliver the final product. I see that increasingly as the old way of doing business. Today, I see a growing number of companies operating without that conductor, instead leveraging a number of small teams that are all focused on their own objectives. Think of this more a a jazz band, where everyone is doing their own thing but there’s enough structure there for it all to come together beautifully. I’ve always enjoyed that parallel and I think it’s true. I play keyboards and a bit of guitar today.
GR: Thanks, Scott!
Our SaaS Start-up's Expenses Six Months Into Building Outseta
We’ve talked quite a bit on this blog about our desire to build a self managed organization. Self management depends heavily on transparency - everyone in the organization is enabled to make decisions, including spending company money, because everyone is operating with all of the information available. With that in mind we thought it would be both fun and appropriate to take a closer look at our expenses now that we’re six months into building Outseta. This exercise was a valuable checkpoint for our existing team, and let’s face it - we’d like to work with some of the people reading this post in the future - so we figured we’d start giving you access to all of the information available now.
The graph and breakdown of our spending shown above is from Mint.com. We’ve spent $4,702.85 to date. That includes $1,541.18 on “Food and Dining” - this is mostly Dave & Dimitris getting lunch together when they work from Dave’s house. The $178.88 spent on “Entertainment” was primarily a round of golf that the three of us played together when I was in Boston last.
Where this is most interesting (and hopefully valuable) to other SaaS start-ups is looking at what we’ve spent in the broad category of “Business Services.” It’s interesting to look at both the timing of these expenses, and the breakdown. Some highlights are below - they are listed in the order in which we first incurred an expense with each vendor.
My initial reaction to this table? It’s fairly remarkable how little overhead is needed to start a SaaS company. It’s worth noting that we’ve chosen to bootstrap the company, and have made a pretty concerted effort to keep expenses low to date. For example, we are all using computers we had purchased on our own and we are not yet paying ourselves at this stage (we are working for sweat equity).
Oh, and Dave and Dimitris really like Pure Cold Press in Brookline - they’ve eaten lunch there more than anywhere else (6 times!). They even brought me once the last time I was in Boston - good place.
We’ll circle back at the end of the year and publish a similar update focused on our total expenses in our first year of building Outseta.
Alptitude - A "Conference" For Purpose Driven Founders
By Dimitris Georgakopoulos
With this post I want to share some highlights from my recent trip to the Giffre Valley of the French alps in a small village called Samoens. The week was organized by The Happy Startup School whose mission is to build a community of purpose-driven entrepreneurs and changemakers. Alptitude is the group's flagship event and brings together 25 purpose-driven entrepreneurs and changemakers from around the world for a unique, meaningful experience in stunning natural surroundings. Their next event is in Mt. Hood, Oregon in October.
The event was nothing like I’ve ever experienced. With a loose agenda the organizers left space for the group that attended to explore the areas that they were most interested in. People were asked to let the group know what they need help with and what they could offer the group. Part of the time was spent on topics that the group brainstormed and wanted to talk about; part of the time was spent 1-on-1 with other attendees getting to know each other; and the most significant portion of the time was spent on outdoor activities that exposed us to the beauty of the valley.
The day typically started with a mindful activity like yoga, meditation or pilates followed by breakfast. Then we spent 2-3 hours on topics that attendees had experience with and wanted to share with the group. Some were more scripted presentations and others were facilitated discussions. After lunch we would head out to experience the area by hiking, biking or a nature walk. The outdoor activities gave a lot of space for folks to get to know each other well. My favorite activity was hiking up to a refuge at 1,763 meters and spending the night there. The refuge is taken care off by a family and provides food and shelter to hikers. There are hundreds of these refuges in the Alps and one can plan hiking trips and visit a number of them in a trip.
I signed up to attend this event without a specific goal in mind. I was attracted to the unstructured agenda and the opportunity to meet other like-minded entrepreneurs. The setting and the outdoor activities was the icing on the cake. The event delivered everything promised and then some. The conversations and discussions validated and reinforced what I’ve come to appreciate about life in the last few years. The best way to live, in my opinion, is by focusing on the process instead of the outcome. The journey not the destination. Optimizing for the long term over the short term. Couple that with leading a creative life, focusing on intrinsic motivation, and spending time using your talents to build something that gives you joy and pleasure at each moment. Finally, do all the above in the presence of friends that share your values and you have the best opportunity to live a truly fulfilling life. I left the week reinvigorated and with a number of new friends.
Below is a collection of resources organized by topic that sparked my interest during the week.
Entrepreneurship
Gini Handbook
Gini is a German company whose purpose is to free mankind from paperwork. The company has enjoyed success by partnering with a number of banks and building a solution that enables customers of a bank to pay any invoice that they receive electronically. The company has primarily had success in one market segment and has grown its team to close to 30 people. They recently began to consider other market segments and also began questioning how they should organize the company to best be able to fulfill its vision and build the best possible working environment. The company decided to organize around a structure that is as flat as possible and decentralizes decision making. The Gini handbook is an inspirational resource that covers how the company organizes and conducts day to day business.
Maptio
Maptio is a startup that is focusing on helping self managed organizations visualize their organization. It’s for leaders who want to find ways to work and organize without traditional management hierarchy or the overbearing rules of Holacracy. The product lets you see who has taken responsibility for what; who's helping who; and how the big vision breaks down into its component parts. The company is in private beta and is looking for prospects.
Agile manifesto
Agile manifesto is widely known but I wanted to include it in this blog post as a reminder. It came up in a number of discussions and I had forgotten how inspiring the main 4 principles are:
- Individuals and interactions over processes and tools
- Working software over comprehensive documentation
- Customer collaboration over contract negotiation
- Responding to change over following a plan
While items on the right are valuable it’s the items on the left that should be focused on more.
EOS
The Entrepreneurial Operating System (EOS) is a complete set of simple concepts and practical tools that helps entrepreneurs get what they want from their businesses. The system helps get everyone in an organization on the same page, instills focus and accountability throughout the company, and helps create a cohesive, functional, healthy leadership team.
The entrepreneurial lifecycle
Jeroen Meens was kind enough to share his thoughts on the entrepreneurial journey. He discussed what to expect from each stage and what you should be doing.
Personal Development
Gallup StrengthsFinder
StrengthsFinder is a tool that helps you find and develop your talents into strengths. It's based on decades of research and documented success in multiple case studies. Talent is your natural way of thinking, feeling or behaving. When talent is combined and developed with knowledge and skills, it becomes a strength. Strength is performing with near-perfect results on a consistent basis. To take the assessment allocate about 30 minutes of uninterrupted time. For better results work with an experienced coach like Jo Self. I am particularly intrigued to use this tool for parenting and to help raise my kids to discover and strengthen their talents.
Money
I had the chance to experience a short version of the workshop that Tom Nixon runs on the topic of money. The workshop was very insightful and reinforced my beliefs about money. I came out with new tools that help me identify and keep at bay undesirable ways of thinking and projecting myself when it comes to money.
Impact
Once Upon a Doug
I had the pleasure to meet the founder behind this non-profit project. At the moment this project provides regular monthly income for 15 women. The goal is to grow that to 200 by 2020 and he needs your help. Check out the inspiring story via the link above.
Forest Man
Since 1979, Jadav Payeng has been planting hundreds of trees on an Indian island threatened by erosion. In this film, photographer Jitu Kalita traverses Payeng’s home—the largest river island in the world—and reveals the touching story of how this modern-day Johnny Appleseed turned an eroding desert into a wondrous oasis. A truly inspiring story about the impact one person can have.
Incredible Edible
The Incredible Edible project is an urban gardening project which was started in 2008 by Pamela Warhurst, Mary Clear and a group of like-minded people in Todmorden, West Yorkshire, England. The project aims to bring people together through actions around local food, helping to change behavior towards the environment and to build a kinder and more resilient world. In some cases, it also envisions to have the groups become self-sufficient in (local) food production.
Cycling Without Age
Cycling Without Age is a movement started in 2012 by Ole Kassow. Ole wanted to help the elderly get back on their bicycles, but he had to find a solution to their limited mobility. The answer was a tri-shaw and he started offering free bike rides to local nursing home residents. He then got in touch with a civil society consultant from the City of Copenhagen, Dorthe Pedersen (now Cycling Without Age), who was intrigued by the idea and together they bought the first 5 tri-shaws and launched Cycling Without Age. The company has now spread to all corners of Denmark, and since 2015 to another 28 countries around the world.
Fun
Alp Adventures
Your one stop shop for adventure planning in the Giffre Valley - this week would not have been successful without the help of Alp Adventures. Most of the outdoor activities consisted of exploring the trails of the Grand Massif either hiking or on bikes, and were organized by our guide Arno de Jong.
Alpsretreats
I had the pleasure to meet the founder of this company that has transformed her home into a place that folks can use to experience the wonder of the area. Sally-Anne organizes customized retreats to serve your needs. Check out her cool site for more info.
Dan Milner
Dan lives in the area and came over and gave us a slideshow and a funny narrative from his experiences travelling the globe to capture awesome moments (he’s a photographer). He represents the epitome of living a full creative life. I encourage you to check out his adventures.
Other fun activities included….
Yogic laughter - A fun group activity
Coupe des Alpes - An automotive event
Naturally seven - The art of becoming an instrument using the human voice
Conclusion
While it may sound a bit (and I admit, it felt a bit this way) like I just spent a week gallivanting around the French Alps, the more I reflect on my experience the more I realize how valuable it was. I have spent my career in an industry obsessed with “innovation,” yet when I reflect on the industry conferences and meet-ups I’ve attended over the years I see anything but innovation.
What is there to the “standard” conference format of cheap hotel rooms, quickly erected corporate booths, and regimented presentations that is so effective? The inspiration that I derived from a week spent in nature with a small group of 25 reinvigorated me in a way no other event has. The relationships and friendships that I formed, both from a personal and business perspective, will benefit me for months and years into the future. When was the last time you could say that about any event that you attended?
As I continue to build Outseta I plan to look for opportunities to borrow heavily from Alptitude’s format. Whether it’s putting on customer events or organizing a company retreat, I believe that this format can be both more enjoyable and more productive than what’s today so often considered “the norm.” My hat is off to the team at The Happy Start-up School for so fully embracing their purpose driven mission with this event. It was my pleasure to attend!
Outseta Company Update - June 2017
This month’s company update is focused entirely on pricing. Our goal is to share the process we used to come up with our pricing, to publicly share Outseta’s pricing for the first time, and to share our thinking and values around how we’d like to price our product well into the future.
Let’s start with our process.
When thinking about pricing, there are three useful barometers that we considered:
- Pricing based on persona
- Pricing based on the market or competitor pricing
- Pricing based on value delivered to the customer
Let’s tackle each of these one at a time.
Pricing based on persona
Considering our pricing based on the persona of our potential buyer was relatively easy - we are going to be selling to early stage, SaaS start-ups. We want our pricing to be accessible to bootstrapped companies (like ourselves). The companies we’ll be selling to may even be pre-revenue, so we know that they are going to be highly price sensitive.
On top of that, there are a slew of point solutions out there already targeting this buyer persona and it’s the norm for these products to be free or very inexpensive. Hubspot CRM, for example, is free. Mailchimp’s email marketing software is also free for up to 2,000 subscribers, with a cap on the number of emails that can be sent. You get the idea. This led us to...
Decision #1 - We wanted the eliminate the barrier to entry and allow companies to start using our product for free.
We think this is important in allowing us to effectively compete against the other point solutions in the market. Perhaps more importantly, we know that we’ll be competing against more established and better funded competitors - as a result, we’re designing our go-to-market strategy to keep customer acquisition costs as low as possible from the get-go. Rather than relying on a time-constrained free trial model with an inside sales team following up on those leads, we’re going to focus on building a product qualified leads (PQL) model where users can access the software for free and essentially qualify themselves based on their engagement level with our product.
Pricing based on the market or competitor pricing
Pricing Outseta against the market or our competitors was a bit trickier, as we had to look at the overall cost of a handful of point solutions against the cost of our platform. There were countless permutations, but here’s a pretty representative view.
*This table does not include subscription billing pricing
Let’s start by acknowledging the above table is imperfect - these companies all price their products based on different value metrics and have different thresholds for users, contacts, customers, etc. Beyond that we’re not talking about complete parity of features or functionality.
All we’re trying to do here is illustrate that there are countless different permutations, options, and prices… and I think the table speaks for itself in showing that it’s very easy for a start-up to lose sight of what they’re actually paying at any given point in time for the combination of point solutions they select. Which led to...
Decision #2 - We wanted our pricing to represent a great value against even the least expensive combination of these point solutions. This is important because we won’t offer true feature parity; just the basic, core functionality that a start-up actually needs (we don’t and will never support emoticons, sorry). And we wanted our pricing to be easy to understand so you’re never surprised when you look at your bill.
Pricing based on value delivered to the customer
More than anything, we wanted our pricing to be based on value delivered to the customer. We think this is simply good business and if our customers are truly getting significant value out of our product they will have no problem paying us for it. The difficulty here was deciding on how we can measure value delivered to the customer - what was our value metric going to be? With such a broad range of functionality within our product it could be anything from number of users, contacts, customers, revenue, support tickets answered, or emails sent.
We initially came to the conclusion that users was the value metric that made the most sense. As a start-up begins to grow, they inevitably need to give more salespeople access to their CRM, more customer service people access to their support ticketing system. What our customers pay us should scale up in parallel with the growth of their business, and users felt like a more real-world indication of growth than simply growing the number of “contacts” in your database.
That said, we are a new email marketing provider and need to be cognizant of building a strong “sender reputation.” Basically what this means is we need to safeguard ourselves from bringing on companies that will try to use our platform to send email broadcasts to large lists of people who did not give them permission to email them. When this happens the emails inevitably have high bounce and complaint rates, which in turn hurts our sender reputation and lowers the deliverability rates of our email marketing tools. This risk led us to...
Decision #3 - Our value metric is going to be a blended model of both users and contacts, because both the number of users and the number of contacts should naturally grow as a start-up gains traction, begins to hire more people, and begins to market to more folks. Our plan is to give our users more than enough contacts for the stage that they are at, but to provide some sort of cap in the vein of building a strong sender reputation and ensuring our email marketing tools aren’t abused.
Outseta’s Pricing - Where did we end up?
Reviewing the above decisions, we know that we wanted to…
- Offer a free plan so there’s no barrier to entry to get started with Outseta.
- Offer a fantastic value, even in comparison to the least expensive combination of point solutions. And have an easy to understand pricing structure so you always know what you’re being charged.
- Use a blended model of users and contacts as our value metric to effectively mirror the traction and growth of a start-up.
Without further adieu, here’s a link to our first pricing page.
Let’s unpack this a little bit - everybody who wants to use Outseta will start on our “Founder’s Plan” which is free forever for 1 user and up to 500 contacts. This is not a time constrained free trial, or a limited functionality offering - you’ll get access to all of our features until you outgrow this plan. As a small, bootstrapped start-up ourselves we’ve been working on Outseta for six months now and would still be on this plan - we wouldn’t have paid a penny, and we think that makes sense given our stage.
Eventually as we start bringing on more salespeople, more support users, whatever it may be we’ll need to scale up. Or maybe we’ll simply have grown our database beyond the 500 contact limit. Whatever the trigger is, the price is the same - you’ll pay $30/mo (billed annually) for an additional user which includes 2,000 additional contacts. Free to start, easy to understand, and it scales with growth.
Now, let’s look at how our pricing scales as a start-up grows versus that least expensive combination of point solutions (Hubspot CRM, Groove, MailChimp, Profitwell).
Total Price Per Month - Outseta vs. Point Solutions
We think any way you cut it, Outseta is a great deal.
What we think we got right and what we’re not sure about
Any time you release a new product into the market for the first time you’re taking an educated guess at best in terms of how the market will respond to your pricing. Despite the fact that we’ve given this a lot of thought (enough to devote a 2000+ word blog article to it), that is absolutely true in our case as well. There are three things that we feel really good about that we haven’t discussed yet.
- We’re giving a 25% discount for selecting an annual versus monthly plan. While the dollar amounts here are small, that’s a significant discount. We’re selling to start-ups, which we know is a population that will naturally have a high churn rate. As such, we want to incentivize people to make that larger commitment to our platform which will help us raise our average customer lifetime value (ACLTV).
- Despite the fact that we already win on price for the price sensitive customer, we think our customers will realize enormous value from gaining a single, “360 degree” view of their customers. They’ll be able to better understand their customers and their business, which is imperative to an early stage start-up.
- Our customers will also realize significant savings in terms of time spent evaluating, integrating, and maintaining a handful of point solutions. Over time the cost of these activities becomes, very, very real in terms of employee time. Your VP of Engineering has better things to do.
All of that said, we do have a mild worry which was rightfully raised by Patrick Campbell of Price Intelligently in his article Stop Per User SaaS Pricing You’re Killing Growth. In short the point that Patrick makes is if your pricing is tied to the number of users, then companies will try to limit the number of users to limit their costs. If you think about it, you should want everybody possible to be using your software because that increases the stickiness of your product and makes the customer less likely to churn. We absolutely buy that and it’s something we’ll monitor closely going forward, but our thinking is that with our blended model companies that are growing will either need to genuinely add more users or increase their number of contacts.
Conclusion
All things considered, we’d betcha we didn’t get our pricing perfectly “right” this first time around. Almost nobody does. FrontApp published an article we found useful on derisking your pricing strategy that gives an interesting perspective on the path they took to optimize their pricing. It’s worth the read and started an internal discussion amongst our team around the commitments we’d like to make to our customers when it come to pricing.
We know that we don’t want to be the company that nickle and dimes you, raising prices every time a new feature is delivered. We also don’t want to be the bait and switch company, whose prices start out low and then increase almost every year in an effort to keep up with investor’s revenue expectations. But we do want to reserve the right to experiment with our pricing consistently; it’s too important not to. Our thinking is simply that as we run future pricing experiments, we’ll do so only for new customers and will honor the pricing that our customers originally signed up for. Across the board pricing changes will be very few and far between.
So now to put the ball in your court… what do you think? If you are someone who has purchased the point solutions we’ve reference in this article or just someone who has thought quite a bit about pricing SaaS products, we’d love to get your take. Please share you thoughts with us via a comment below.
An Interview With BJ Lackland, CEO, Lighter Capital
BJ Lackland is the CEO of Lighter Capital, a Seattle based company that provides revenue based financing to tech start-ups. Lighter Capital typically invests $50,000 to $2mm of growth capital into businesses without taking an equity stake in the company or a board seat.
Geoff Roberts (GR): Thanks for taking the time to chat with us BJ. The funding model that Lighter Capital uses is really interesting and might be a great alternative for our audience of early stage SaaS companies. Why don’t you start by walking us through how revenue based financing works?
BJ Lackland (BJ): Revenue based funding is an alternative to the typical model of angel or venture capital funding that’s so common in tech. This funding model allows companies to raise growth capital without giving up equity or a board seat, so entrepreneurs maintain control of their businesses. Companies agree to pay a percentage of their revenue on a monthly basis until they repay their loan, and the amount that they repay is capped. What this means in practice is if your company has a good month, you repay a little bit more. If your company has a bad month, the payment is less. Typically monthly payments are 2%-8% of monthly recurring revenue, and repayments are capped at 1.35x-2x of the amount invested in the business. Repayment typically occurs over a 3-5 year period.
GR: When I first heard of revenue based financing, an analogy was made to how funding is raised in Hollywood when it comes to making movies. How did the idea come about to leverage this model in the tech sector?
BJ: There a huge need in the tech sector for alternative funding sources. Traditionally, the only growth capital available is equity investments from angels and VCs. But raising VC money is incredibly time-consuming and it’s like strapping a rocket to your back - you’ll either shoot to the moon trying to make investors a 10x return or you’ll blow up halfway.
The vast majority blow up.
That just doesn’t fit a lot of companies and entrepreneurs. Lots are great business people who want to build companies to last. Or they want to put off an equity round until later. Or they don’t have 6 months to spend raising VC money. Either way, there’s a huge opportunity to provide capital that is non-dilutive and yet still aligned with the entrepreneur toward growth.
GR: What problems does this model solve when you consider the typical model of VC/Angel investment that’s been so prevalent in the tech sector?
BJ: This model solves several important problems. To start, the non-dilutive nature of the model means entrepreneurs don’t need to give up an equity stake in their business, or a board seat. The second is we allow companies to spend substantially less time on the fundraising process - this can become a huge distraction to early stage start-ups whose time is better spent building their business. I heard a statistic that it typically take a start-up something like 60 meetings and 40 pitches to raise $500,000 from angels or VC firms. We offer companies seeking funding an easy online application, and the funding process typically takes 3-4 weeks. Last but not least, with this model entrepreneurs don’t need to hit a “home run” or have some sort of liquidity event in order for the investment to be seen as a success. This model works much better for entrepreneurs who are looking to build a sustainable business.
GR: What do you look for in potential investments? What’s the profile of your typical investment?
BJ: There’s really three criteria that we look for in potential investments. The first is a monthly recurring revenue stream of at least $15,000 per month. We’re typically investing in businesses that have anywhere from $200,000 to $10mm in annual revenue. The second is high gross margins - at least above 50%, but more often than not above 80% which is fairly normal in SaaS businesses. Last but not least, we’re looking for an indication of stickiness - products that are providing sustainable value which is evident through low customer churn rates.
GR: My understanding is your decision to invest in any particular company is based more on an algorithm and the financial performance/unit economics of the business than qualitative factors like strength of team, market opportunity, etc. Can you speak to the process you use in deciding whether or not to fund a business?
BJ: You’re completely correct. We’re really looking more at the financial performance of the company, the unit economics, and you know - is the company offering a basic, durable offering for the market? And certainly the management team is a piece - we want to be working with good people and good people are what drive good returns no matter what business you’re in. It’s not nearly as important to have an MBA from Stanford or Harvard; you don’t have to be fraternity brothers with a VC to get funding at all. We do background checks, we want to make sure the entrepreneurs understand their business well, that they can speak articulately about their business, that they have a good financial understanding of what’s going on when operating their business. What’s least important is are they going to go on to be the next Uber? I mean, we just don’t really care. We’re really focused on funding businesses that are solid, that are durable and are going to be around. And they’re able to scale up - one of the reasons we want to see high gross margins is we want to see that if they land a bunch of new customers they can scale this thing up from $2mm to $10mm in the next 4-5 years. If they do, this model makes a lot of sense for the entrepreneur.
GR: What have been some of Lighter’s most successful investments?
BJ: It’s interesting because when you think of successful investments for a VC fund it’s all about what was the multiple and what was the exit and was it a brand name? And we have a couple of those but by our very nature our upside is capped. For us as investors, sometimes the companies that do best with us aren’t exactly household names. The biggest brand name company that we’ve funded is probably Steelbrick. We funded them when it was 5 people, a virtual organization, and they were totally bootstrapped. The original entrepreneur brought in a new and highly experienced CEO, they raised a ton of money, and they ended up selling to Salesforce for $360mm. An incredibly great outcome for them. That’s probably the biggest name we’ve funded because of the big exit. MapAnything is another - they do geolocation on Salesforce and ServiceNow’s platforms and are growing like a weed. They also went on and raised a lot of VC money. But most of the companies we fund are small businesses that are well known in their niche industries.
GR: What involvement does Lighter Capital have with their portfolio companies post investment?
BJ: It really depends on the entrepreneur and what they want. The only thing they need to do is provide us with financial data and handle the payment. We try to make that light as possible, so we have software that attaches to their accounting software package so they can login to our portal and hit a button and do all the reporting. A lot of the businesses have a bookkeeper or a controller do that work. Aside from the reporting, where we are most helpful is planning out their financing, frankly. As opposed to a VC we don’t necessarily need to know the best VP of Sales candidate in healthcare tech in South Carolina. What we know is if you’re doing X million in revenue and have this kind of burn rate and this kind of growth rate, what kind of capital is available to you from which different sources? Whether it’s angels, VCs, banks, and probably how to introduce you to any of those sources. So we can help with strategy, mostly on the capital side. We’re also coming out with some BI tools for entrepreneurs - we’re learning more and more and more about what drives growth. For example, we can say what an acceptable churn rate is for a company with an ASP of $1,000 per year and we can share that information back with the companies so they can benchmark themselves and learn how to grow their businesses.
GR: This all sounds great, and I love the non-dilutive aspect of this model. But what are the disadvantages or downsides of this funding model? What happens with your investments that don’t do well? Who does this model not work well for?
BJ: We’re a creditor, we’re not equity so we get paid first. We’ll take a second position behind a bank, but we’re not equity so we get paid first if the business goes down and is not successful. That’s the legal side but we try to work with the entrepreneurs. The businesses we’re funding don’t have any hard assets so it never makes sense for us to go and try to force a liquidity event - there’s nothing to liquidate. Their real core assets are the fact that they have sticky, high margin revenue streams. And if things don’t go well hopefully they can cut their expenses and survive with a sticky high margin revenue stream and have enough money to keep the business alive and pay us back our principal. If we don’t get the full amount that we’re owed, we have to work with the companies to figure that out and we’re not always going to win. That’s the reason we have a large and diversified portfolio. We fund something like 10-12 business per month and funded 101 businesses last year. Our goal is instead of having what a VC might have - 10-20 highly concentrated positions - we’ve funded 160 businesses and accept the fact that with some portion of those we’re not going to get repaid.
GR: You spend much of your time with founders of early stage SaaS businesses… what technology related challenges do you see most frequently within these organizations?
BJ: I think the number one thing is finding good developers. That’s a key, and it’s hard in this market and you need to have the capital to do that. One thing that’s cool that you’re doing at Outseta is you’re simplifying a lot of the software offerings that SaaS start-ups need, and that’s going to save them a lot of money. Another thing is getting their product offering good enough to sustain customers. I’m sure you’re familiar with the lean start-up and the notion of minimum viable products, but the majority of our customers are B2B and they just need to get their products to a good enough place where they can not only attract but sustain customers without under serving their needs and having them go elsewhere.
BJ Lackland can be found on Linkedin, or on Twitter @bjlackland.
Outseta Company Update - May 2017
We’re back! Here’s what our team has been working on since our last monthly update.
We built our customer support and knowledge base tools
While we focused primarily on building our email marketing tools (email broadcasts and drip email campaigns) in Q1, we shifted our attention to building our customer support and knowledge base tools moving into Q2. The knowledge base tool is a searchable and easily organized home for product documentation and “how-to” content. It will be home to our own product documentation content shortly - we’re focusing on building out the “must-have” content that we’ll need to support the launch of our product. This will mostly focus around things like how to register for an Outseta account, how to reset your password, and documentation around how things like People, Accounts, Segments, and Custom Properties work in Outseta.
On the customer support side, we built a customer support ticketing system. Dave, Dimitris, and myself got together in Boston and spent a couple of days tearing apart customer support tools including Zendesk, Intercom, and Groove to inspire our own design. Here’s how our own ticketing system works.
- Any customer of ours can email support(at)outseta.com with any sort of customer service inquiry or question. They don’t have to navigate to any particular URL, screen, or form to submit a customer service request; they can simply send us an email from their email client.
- We receive the request in the “Support” section of Outseta. The email’s subject line displays as the topic of the ticket, and the body of the email shows up as the content of the ticket. We can then easily assign the ticket to anyone on our team and respond to the inquiry.
- Our response shows up as a personal, 1-on-1 email in the customer’s email inbox from whoever responded to the ticket.
While the support ticketing system is our first customer service oriented tool, it’s also worth noting that we’ve already taken into consideration how we are going to layer in support interactions from other channels in the future; for example chat requests and social media interactions.
We’re working towards a September launch date
One of the challenges that we face as we’re building our minimum viable product is that we can’t truly deliver on our stated value proposition until we’ve built basic tools across all the different functions of our product; CRM, email marketing, customer support and knowledge base, subscription billing, and reporting. While that remains true, we’re eager to get some real world user feedback. On top of that, we feel like what we’ve built so far - our CRM, email marketing, and customer support and knowledge base tools - would provide real value to an early stage SaaS business.
With that in mind we’re planning to launch the first paid version of our product including those components in September. There are a few reasons that we made this decision.
- We think there’s value in what we’ve built. We’ll be able to start getting real world user feedback and testing our initial customer acquisition strategies sooner by taking this route.
- While this functionality is already built, this gives us some time to work out details around things like account registration, product documentation, pricing, and billing.
- By publicizing our intention to launch this first wave of functionality in September, you will all help hold us accountable to that date!
The plan thereafter is to focus on our subscription billing and reporting functionality. By the end of 2017 we should have our minimum viable product complete, we should be delivering on our stated value proposition, and we should be ready to make waves.
We need your help! We’re looking for referrals to a handful of beta users.
With our September launch date officially out there on the horizon, we are starting to look for a handful of companies that would like to be “beta users” of our product. I put “beta users” in quotations because I think it really undersells what we’re after... “congrats, here’s your opportunity to be our test dummy!” Here’s what we are able to offer to any company that is referred to us.
- A basic, functional tool encompassing CRM, email marketing, support, and knowledge base tools.
- No cost - your Outseta account will be free for life.
- An advisor to your business. Dave, Dimitris, and I will make ourselves available to help you with your business in any way that we can. Just as you are helping us work out the kinks with our technology, we’ll lend your business our collective experience in everything from engineering to go-to-market strategy.
Here’s the ideal profile of the initial users we’re after.
- Ideally an early stage, SaaS business. If you’re at day one, that’s great. If you’re a little further along and are already using some point solutions but are willing to make the switch to Outseta, that’s great too - we’ll work with you to make that transition as painless as possible (we recently went through this process ourselves).
- If not a SaaS business, other subscription businesses could also be a great fit. Subscription “box” businesses (think BirchBox or Blue Apron) or subscription content businesses, for example, would likely be a good fit.
- If not a subscription business of some sort, any early stage business with a need for basic CRM, email marketing, and customer support tools could also be valuable to us.
So to put the ball in your court… do you know anybody that we should be talking to? You can email us or send introductions directly to either geoff, dave, or dimitris @outseta.com. If we start working with someone that you refer to us we’ll be A) forever indebted to you, and B) will pay it forward in some awesome way when Outseta takes off!
Further validation of what we’re building
While we’re eager to bring on some beta users and start running some customer acquisition programs to further validate our idea, it always feels good when external sources provide validation that we’re on to something. That happened a couple of times recently. The first was an unsolicited email from the Head of Growth at a Boston based start-up. Perhaps most importantly, this email came from someone that neither Dimitris, Dave, or I knew.
That one felt good! Another came from Zak Pines, VP of Marketing at Bedrock Data. Bedrock Data is solving a similar problem to Outseta, but with a different approach and generally a focus on later stage companies. I recently interviewed Zak on our blog (check it out!), but the excerpt from the conversation below stood out.
“What’s interesting to me about Outseta is you’re going to be marketing to smaller companies, start-up companies that don’t already have these (SaaS) systems in place, and that’s the right time to address the issue. As you layer on more and more systems, it becomes more and more challenging. If you can start your business with that integrated view, you’re going to be in a much stronger position to deliver on closed-loop reporting, ensure a really great customer experience, and keep your teams aligned from the start.”
That’s our progress report for May - if you are willing and able, please remember to hit us with any referrals of beta users that you think could benefit from our product. Thank you in advance.
Onward!
-Dimitris, Dave, & Geoff
An Interview With Zak Pines, VP of Marketing, Bedrock Data
Zak Pines is the Vice President of Marketing at Bedrock Data, a Boston based software company that connects, cleans, and synchronizes SaaS systems. I caught up with Zak to discuss systems integrations, closed loop reporting, and the importance of “a single view of the customer.”
Geoff Roberts (GR): Zak, why don’t you start by giving us a brief introduction to Bedrock Data.
Zak Pines (ZP): At Bedrock Data we help sales, marketing and operations teams connect disparate sales and marketing systems, without code or complexity. Marketing and sales systems are exploding, and as you add more and more systems, to get the most out of those systems they need to be connected and have aligned data.
It typically starts by ensuring you have a strong, multi-directional integration between your marketing automation and CRM system, and then layering on additional sales and marketing systems.
Some of the typical systems we connect are HubSpot, Marketo, Pardot, and Eloqua (on the marketing automation side) and then Microsoft Dynamics, NetSuite, ConnectWise, SugarCRM, Zoho, Insightly, Base CRM and Salesforce (on the CRM side), to name some.
GR: What’s the profile of your typical client?
ZP: Our clients tend to be small to mid-sized companies that are looking to grow and are reliant on sales and marketing to do that. They are looking to get technical projects done quickly without time consuming IT projects. Our customers come from all industries; many of them are SaaS, B2B companies themselves.
GR: Zak, you’ve been at Bedrock Data for about a year now. What led you to join the company?
ZP: Bedrock Data is solving a problem that I had first hand experience with. What’s unique about how we are solving this problem is we are looking to allow business users to connect and integrate systems in a turn key fashion, avoiding development, avoiding IT projects, avoiding long time lags. These were challenges I faced in the past and there’s huge value to businesses to operating in an agile manner. It was a compelling problem I had experience with and I was very motivated to help broaden the adoption of Bedrock Data.
GR: I had similar reasons for deciding to start building Outseta. I had spent a lot of time with early stage SaaS companies, both in operational and consulting roles. In both circumstances a common occurrence was the company’s VP of Engineering was spending a good chunk of their time integrating or maintaining the software integrations the business relied upon. These were highly skilled, expensive employees who had other competing priorities. For a start-up with limited runway, there is a very real opportunity cost associated with this work.
ZP: Geoff, to build on that I have a customer at Bedrock Data, a very progressive, bright President of a company who said something very similar about integration. He needed to connect Marketo and Zoho as his marketing automation and CRM systems and he said “I have a room full of developers, I have a CTO, I could have thrown this project to them but why would I do that? They have other priorities they are working on. The last thing I want to do is pull them off of those essential priorities to deal with system integrations when we could instead leverage a best-in-class pre-built connector."
GR: You’re a marketer Zak - what is the value proposition that Bedrock works to deliver to your clients?
ZP: We get your systems integrated faster, so that it’s not an IT project but something that can get done for sales, marketing, and operations teams. We get it done quickly and done well, leveraging best practices and expertise. Then on an ongoing basis, as needs evolve, you’re able to adjust your systems so they connect at the speed of the business. The value is therefore teams being well aligned, increased velocity around sales and marketing processes, and a better experience for customers.
GR: You just mentioned how systems integrations impact the customer experience. Can you talk me through that?
ZP: Integrated data has a direct impact on customer experience. I’ll give you several examples. As a customer, more and more companies are trying to leverage customer data to communicate effectively with their customers. It could be personalizing an offer to them when they visit your website. It could be personalizing an offer to them through email communications. If I have the wrong data about you, if you’re a customer but I think you’re a prospect because I’ve got duplicate data for you that’s not aligned, it’s actually going to result in a negative customer experience.
Another example is say a customer wants to change their email preferences - they want to communicate with you on certain topics but not others. If you have duplicate data that doesn’t get properly updated to that customer’s email address, that’s another negative customer experience. As a customer engaging with sales or support people, if those folks have the right visibility into my interests, how I’ve engaged with the website, past customer support tickets, that’s going to allow for a more relevant customer experience. It’s both automated, digital processes as well as more personal 1-on-1 interactions where this can personify itself.
“Integrated data has a direct impact on customer experience.”
GR: When do your customers typically come to you in search of your services - is there a particular stage in their lifecycle or a frequent trigger event that results in customers coming your way?
ZP: Yes, getting ready to add a key system like a HubSpot, Marketo, Pardot or Eloqua is one trigger. Alternatively companies come to us when they have been using those systems for a little while and begin to realize how important it is for those systems to connect across all their systems.
GR: Bedrock’s website speaks to “deep systems integrations without code or complexity.” How does your team deliver on that?
ZP: It all starts with a product that automates integrations. We index data, map fields, de-duplicate data, and control business rules for when data syncs. All of this is managed through a web interface.
It’s more than product though - it’s product plus process. We employ a rapid onboarding process, to help customers make key decisions around setting up the best possible integration. Bedrock Data integrates these systems, meaning data is passing between these systems. By that I mean it’s not an i-frame, and the reason that’s important is data needs to transfer between these systems in order to enable workflows in those systems, in order to show up on field records in those systems, in order to show up in reporting in those systems.
For example, when we’re passing marketing data into a CRM, when salespeople are using that CRM they want to see that information right there on the lead or contact or account record that they’re working with every single day. In order to do that, some work needs to be done in those systems to prepare for an integration. If I want to connect my marketing automation and CRM systems I need to have the right fields set up in those systems, and those fields need to be the same type, so I’m mapping a number to a number or a picklist to a picklist, and those picklists will need to match too. This is work that during rapid onboarding we can knock out in the course of an hour web meeting. We can help customers get all of this pre-work done, which might take them weeks or months to figure out without that expertise.
The rapid onboarding allows the systems to be connected much more quickly than a system integration project would have taken in the past. Our customers tell us they’re really getting two things from Bedrock Data - they’re getting the integration platform and they’re getting the expertise around how you connect these systems and get them working together most effectively.
GR: Across sales, marketing, and support how many point solutions are your customers typically using?
ZP: Many. 3-12 different systems is the norm.
“If you can start your business with that integrated view, you’re going to be in a much stronger position to deliver on closed-loop reporting, ensure a really great customer experience, and keep your teams aligned from the start.”
GR: How do you see businesses quantify the cost of evaluating, integrating, and supporting so many SaaS systems?
ZP: When it comes to evaluating software, I think that’s a challenge in marketing technology today. There’s just such a crowded set of products with over 4,000 different marketing technology vendors. There are so many different options and it’s typically hard to understand the differences between them. I think evaluating software is a challenge for many companies, therefore they tend to rely on their network, rely on referrals, rely on input from people. That’s the evaluation piece.
As for integration - the traditional paradigm for integration is it’s a professional services or consulting engagement, so in terms of cost, that’s typically how people think about that. “What would someone charge me to do this integration? What would this cost me in terms of my own resources to hire a developer or hire consultants?” Bedrock Data is disrupting that by saying you don’t need to pay for the integration, we can help you get that done quickly, but you’ll pay more so for the ongoing management of those integrations. And the cost you pay ongoing will be less than what it would cost in terms of internal or external resources to manage your integration, and you’ll get the flexibility to make changes yourself, immediately.
Supporting integrations is an area most people overlook and it’s an area where Bedrock Data provides some education. Things like troubleshooting an API, having error reporting, or having the ability to easily add a new field or adjust a business rule, these are things that companies don’t typically appreciate heading into a project, that there will be resources required whether they are internal or external to maintain those integrations.
GR: Interesting. From my own experience - again with mostly early stage start-ups - I’d say most companies don’t associate much in the way of cost or pain when it comes to the evaluation stage. They tend to go with what they know, so it’s “I’ve used Mailchimp before,” or “I’ve used Hubspot CRM before.” I think the other factor at play is people, whether they are marketers or not, simply like to buy stuff. They don’t perceive software evaluation as painful as a result.
From there I tend to see start-ups underestimate the work required at the integration stage. There’s often this mindset of “I’m throwing my VP of Engineering at this, it should be a piece of cake.” It’s not so much that the work is terribly difficult, but the devil’s in the details and with poor documentation this often takes longer than expected. Or the company chooses to use a pre-built integration that simply doesn’t work as well as expected. But it’s really the maintenance of these integrations where I think the primary pain lies - these are simply not one-off projects.
ZP: Yep, totally agree with that.
GR: Switching gears a little bit now… I’ve come across many business leaders who speak to the value of well integrated technology that provides a unified view of the customer and enables data driven customer acquisition and success programs. That said, one of my own observations is most businesses underestimate what it’s actually going to take to deliver on this promise - whether it’s working with a company like Bedrock or just making the case for a full-time sales or marketing ops professional. Why do you think that is?
ZP: I don’t know that I have that opinion as strongly as you do, saying there are folks out there with that vision but not executing on it. What I’d say is it’s one thing to have a vision for closed-loop reporting, but to execute on that takes a lot of ongoing work. The devil’s in the details. It’s one thing to have a vision but you need to have methodologies for tagging data, for reporting on that data, so there’s a lot of work involved and that’s where the disconnect can occur between vision and implementation.
Also on this topic, something I’ve been advocating for is moving away from the structure of siloed marketing ops or sales ops, and instead having a unified role if you’re a relatively small business. I’ll be talking to James Carbary about this at the Aligned Virtual Summit. Really what I'm advocating for is having one operations person who’s capable in your marketing, sales, and customer success systems. Don’t think of it as a siloed or specialized role, think of it as a person who is going to support closed-loop operations across your entire business.
GR: What would you call that person in title?
ZP: Business Operations. Biz Ops. Or longer form could be something like Sales, Marketing, and Customer Support Operations.
“The case for integration should center around driving growth.”
GR: What is your advice for sales and marketing leaders who are trying to make a compelling case for further investments in this area? How can they best speak to the ROI that well integrated SaaS systems deliver?
ZP: First of all, Bedrock Data has relatively low price point so we’re typically not getting into ROI conversations; it’s more use case conversations to reinforce “what could this do for you?” The first thing is often speed of execution within your sales and marketing teams. One of the stats I like to go back to is an old study from insidesales.com, which is the great drop off that occurs in conversion rates as time passes when engaging with a prospect once they’ve reached out to you. So speed of execution, moving data from a marketing system to a sales system to a customer support system, this has real impact in terms of success rates for those various aspects of your business. Enabling sales and customer support people to have the most effective conversations impacts conversion and success rates. Enabling your marketing team to segment your database in a real-time fashion and communicate in real-time has an impact on conversion rates for customer marketing programs, and marketing programs in general.
Another key to this is closed-loop marketing. What’s emerging as a best practice is you integrate your systems so that you can directly connect your marketing investments and your dollars to the sales results and make data driven decisions on what’s working, what’s not working, and how you’re going to grow your business. The case for integration should center around driving growth.
GR: Cheers to that! Last but not least the question we’ve gotten dozens of different perspectives on… How important is or isn’t a “single view of the customer?” What’s your take?
ZP: I think there’s massive value in it for all of the reasons and use cases we’ve talked about in this conversation. What’s interesting to me about Outseta is you’re going to be marketing to smaller companies, start-up companies that don’t already have these systems in place, and that’s the right time to address the issue. As you layer on more and more systems, it becomes more and more challenging. If you can start your business with that integrated view, you’re going to be in a much stronger position to deliver on closed-loop reporting, ensure a really great customer experience, and keep your teams aligned from the start.
Zak Pines can be found on Linkedin or on Twitter @MoneyballMktr and his blog MoneyballMarketer.com.