Episode Transcript
[00:00:04] Speaker A: All right, Baird, we just got done talking to Randy Wooten from Maxio. My head's still spinning a little bit. What a great discussion. We talked a lot about m and A, talked a lot about private equity funding, but they also released this report, what was it called? B two b growth report for SaaS. Really good insights in there.
[00:00:23] Speaker B: Yeah, it was great. Yeah, they do this, they do the report quarterly, and the Q one report came out from this year. And good news. A lot of positive signs in the private SaaS space in a lot of different sectors. We talked about SaaS growth across a lot of different industries, a lot of different pricing models and different size companies. So if you're running a SaaS company, you probably want to hear where you fall in their benchmark reporting.
It was good, and it was optimistic, especially compared to a lot of what we heard last year in the public sectors in SaaS. So I'm always up for a dose of optimism in our market.
[00:01:00] Speaker A: Don't you think it's funny that when we have a growth rate of 14% in SaaS, we call that a recession? Yeah, because it's actually not a recession by the technical definition, but people feel like we're in a tech recession right now. But recession, the definition of that is that you're actually going backwards. Right? You're shrinking, not growing, but the industry is still growing, which is good for us, good for Maxi.
[00:01:21] Speaker B: Yeah, it was optimistic. And then we got to hear about the Maxio merger that happened a few years ago, and Randy leading that merger between those two different companies. And that sounds like quite the journey. So this will be a good listen.
[00:01:34] Speaker A: Awesome. All right, y'all enjoy.
Well, thanks for taking some time to chat with us.
[00:01:39] Speaker C: Sure. My pleasure.
[00:01:40] Speaker A: We wanted to pick your brain. I mean, I think we serve different sides of maybe a similar marketplace. You all. And maybe you can share a little bit more about Maxio and how it came together. You know, the companies that came together to form it and the types of customers that you work with, but sort of more the invoiced side of things. We service heavily, a PLG kind of company today.
[00:02:00] Speaker C: Right.
[00:02:01] Speaker A: So anything with an online self serve purchase process. And, you know, we deal with cancellations and involuntary churn. And so that's an important part of the world for us. But I think there's a lot of overlap, too. And the kind of things that your customers care about, the kind of things that our customers care about. And one of the things we always do on this podcast we like to do is we like to learn because we're building a business. This is a, we're a relatively early stage company, so we might have some selfish questions for you along the way.
[00:02:28] Speaker C: Sure.
Yeah. Are we recording already?
[00:02:32] Speaker A: Recording, man.
[00:02:33] Speaker C: All right. There we go.
[00:02:35] Speaker A: Takes all the pressure off when you just hit the record button, doesn't it? Okay, you shared something interesting with us. I mean, I was actually looking at your state of B two B subscription growth report from January, and you were kind enough to send us completed q one version of that or a draft version of that. So I'm curious, what sticks out to you is interesting in this report. What's the blinking beacon in the q one state of b two B growth report?
[00:03:03] Speaker C: Sure. I'll be happy to answer that. Maybe just a little bit of context about Max and then that helps sets the report. Maxio, we're primarily focused on B two B SaaS, and we support both what would be classic term subscription businesses. So sales primarily sales led models or to your point, product led growth. We support usage based invoicing, billing as well. We have about 2200 customers. So we have a large n. We take that data anonymously, roll it up and are looking at different dimensions in terms of growth, primarily was the first version of this report. So what's happened across that customer base? We work with companies that are early stage, even pre revenue. They're trying to put a billing system in place up to, we have about 50 public companies that use us within divisions. We have about 100, 200 companies that are greater than 100 million. So a really wide range. The common denominators are all B two B SaaS. And I would say the other common denominator is most of them are backed by VC or PE. So we offer billing and invoicing, rev rec and reporting, and that reporting in terms of what's going on, gross retention, in net retention and LTV to CAC and magic number, all those things that you want to be able to manage your business better, but then manage your investors if you're going to go raise money. So for early stage companies, they're often on Quickbooks and HubSpot or Quickbooks and Salesforce. We sit between those two systems and we act as the system of record for billing and invoicing. So to your point, Jay, we do have an AR module, but we're not dealing with B two C customers where there's a lot of cancellation and chasing. So we do dunning in some other pieces, but probably much lighter touch than you. So the report, Maxio Institute growth report, what we're trying to do is provide a report on a quarterly basis that talks about the year over year growth trends. And my hope is it's something that B two B SaaS CEO's and CFO's are using to triangulate in terms of what's going on in the market, in the private sector. There's a bunch of information out there in terms of public sector companies and what's happening on their growth. There are great surveys out there. Insight partners, Openview, ebank, Ray Reich and Benchmarket had just released their report, which is really helpful, but it's all survey based. So people are submitting the answers, which I think most people are truthy in terms of the way they submit their answers. But we are the system of records. So for these 2200 companies, in our end for different components are anywhere from about 1000 to 1500, depending on how we're parsing it. Give you, I think, a really good sense of what's happening broadly. So at the high level, the thing that I would say would pop for me is the average growth rate of all B two B SaaS companies had had a dramatic drop off starting in Q 420 22, it went from about 20% on average to down to Q 120 23. So a year ago, 14%. And it's kind of bumped around there. In Q two or 23 it was 16%, q three was 16% and q four was 15%. The question we were all asking ourselves is, when is this b two b tech recession going to turn? And I think there are a whole bunch of reasons why there was pullback on growth. I'm sure you felt it as well in terms of VC's pulling back on the money and telling people they need to extend their runways, et cetera. But we saw a return to growth in Q one at 2024 at 19%. So does one data point make a trend? No, but I do think we may be seeing things shifting a little bit, which is good for all of us that are selling in the b two B SaaS. I would say the other interesting thing that we do is we do split out by size. So small companies below a million bucks is there's a lot of churn in that and churn in companies whether they can get funded or not. And we saw really anemic growth in that segment since really it took a precipitous dive in Q three of 2022, where companies that were less than $1 million were growing negative 6.7%. So fast forward, whatever that is, eight quarters. And in Q one of 2024, those companies less than a million bucks average growth rate was 25%. So a bunch of companies went out of business, a bunch of new companies are getting started. But still, to hit a million bucks is probably a couple years of work, right? Unless you're just totally on fire, there are things to explore there that we will over time. Are most of these companies that riding the wave of AI or cyber? We've seen we break out by verticals as well. So to that point, if I can just pull my report up, and we'll be happy to provide copies of this to people in the show notes later. But let's see. So if you look by vertical, for example. Whoops, where is it?
[00:07:48] Speaker A: Yeah, that was the one thing that stuck out to me, is that table with the vertical growth rates.
[00:07:53] Speaker C: Yeah.
So cyber has had really strong growth over the last couple of quarters. Actually was down to 17% in q 120 24, and that was down from 33% in Q four and 40% in Q three. So cyber had been growing like crazy. A little bit of the tail off, where you're seeing a lot of growth. The largest vertical is developer and engineering tech. And so that may be, that's 40% year over year growth that may be tied in with people investing in their engineer, trying to get scale in the technology that they're using. I know we've imported some tools for our DevOps, for example, but the verticals are just getting crushed. Media tech, and that's been consistent. Media marketing tech has just really had a rough go of it, which sort of near and dear since I spent 22 years in marketing tech to see that and how hard it is. There's so many competitors in that space and a lot of that technology, I think you're just getting more clear in terms of must have versus nice to have. A lot of the marketing tech, I think, sort of falls below the line. One comment, not in the report, but one of the things I have heard is that PE firms and investors are getting tighter in terms of what percent of your revenue are you spending on internal software, and what ive heard is best practices, two to 4%.
We actually went through an exercise at Maxio. We had hundreds of different software that we were using because you have this world where anyone can buy the software on their credit card, and we had to bring it all together and say, wait, this is how much we're spending. We have to reduce that. And so it was like whack a mole and cutting out software, renegotiating software, refusing buying new software, and we've gotten our down to about 2.5% of revenue, which is pretty darn good. The people who back us battery started this, down this path when they said, randy, every company we meet says that Maxio is a customer, and that's not necessarily a good thing.
It wasn't that they were customers of Maxio, is that we were customers of them. And, you know, I think that's a whole market. Yeah, we loved every single b two b tech company that was out there. And in the heady days, I think that was people were buying tech and using it and deploying it across different silos. So I do think we may, part of the return to growth may be a lot of people who have done the belt tightening have now coming back into the market and being more deliberate and intentional in the purchases they're making.
[00:10:24] Speaker B: I was just going to chime in. I think that seems really interesting and it's pretty, it relates. Obviously, we're in a different world, more in the b two c and prosumer space with who we serve, but it definitely seems like the space is getting way more competitive. And that last year we saw really high levels of cancellation. We also did a 2023 State of retention report for our cohorts and we saw similar things where the cancellation rates were really high and then now theyre starting to dip back and growth is coming back a little bit. And it seems to me that theres just a huge increase in new entrants in the market and high competition. Yeah, hard to put your finger on exactly what that is and what that means, but it definitely at least feels like thats happening.
[00:11:06] Speaker C: There is a guy who did a top spin to the article that Ray Reich published, this benchmarket survey, which I encourage everyone to look at it because it's really sophisticated, it's split by. I like what he does is he splits his data analysis by size of company and by size of contract. So what size ACV do you have and what's the average CAC, new CAC blended expansion CAC and all those details, and then also by size of company. So I think it really helps. You can triangulate on that. And there's some guy, shoot, I could find it in a second. But he wrote this great report, and basically he showed over the last ten years the growth of funding, the number of startups. And so to your point, Baird, there's just this concentration. If demand is going down and you have more competitors, then the cost per acquisition has gone up and it's just making it harder. And we've seen that as well. In his report about the cost for expansion. CAC so going into your current customers trying to sell more, that's what everyone did about a year and a half ago was, well, if I can't get new logos, it's so expensive. Well, I'm going to focus all my energy and effort on to drive module adoption and penetration in the customer base. But it's just everyone is kind of holding on the line in terms of spending more.
[00:12:19] Speaker A: Yeah. And then there's also a price increase thing that's happening as well. When you talk about expansion, are you all able to see that in your data as well?
[00:12:28] Speaker C: We know we haven't been able to publish that yet. We could. It's an interesting question because we do have price catalog data that we capture. I don't know. It's a good question. I can take a look at that. I will say what I've seen written by other folks is at least the public companies, a lot of the way they're driving their growth is through price increase and it's on average like seven to 9%.
And so that has been, yeah, 79% per year CPI. Right. And I know I felt that with salesforce, they came in and said, here's your new price. And I was like, wait, what do you mean? This is a recession, you need to give me a price discount. And they're like, no, we got you. So at some point I'm going to get my skin back from them. But it did make us think about pricing and we look broadly across our customers and there's a whole set of customers where we haven't increased priced in years. And it just wasn't a lever that we pulled. It is one of the levers, pricing and packaging. I think that people are going to get, it's the first, like first thing you do is increase price, second thing you do is cut people, right? Like if you're going to try to be efficient growth and then you got to do the hard work after that. And so I do think a lot of people followed the path sales forces of the world, the marketos, et cetera, did in terms of increasing price broadly in the market.
[00:13:43] Speaker A: It feels like the SaaS world is finally hit this inflection point and maybe this is just temporary, maybe not, but it feels like it's finally hit this inflection point where everybody is expecting a SaaS company now to be a real business just like every other real business on the planet. Do you feel that?
[00:14:02] Speaker C: I do. Gosh, let me see if I can find this.
[00:14:05] Speaker A: Let me just for people who listen to this. Let me clarify what I mean by real business. It means at some point, like, you have a viable, clear path to sustaining your own company on your customer revenue, not outside fundraising. Assuming that the company is going to double in valuation in 24 months. Right. There's not necessarily as clear of a path to raising money. So you almost have to run it like an actual business, where it supports.
[00:14:31] Speaker C: And sustains itself 100%. And I think that is, it's a real business. Right. It's not just the promise. We see that in terms of, of how people are valuing companies. So they're not valuing it just on top line revenue anymore, they're valuing it on EBITDA. And can you drive to. At one point, we were talking about the rule of 40 and moving from growth at all costs to efficient growth. And the benchmarket report, which I gave you the link to the guy, Mark Haney. I think it's Haney at Harney, excuse me, at cloud ratings, did a really great.
[00:15:02] Speaker A: I saw that. I know what you're talking about.
[00:15:04] Speaker C: Really good.
[00:15:05] Speaker A: I didn't go deep in it.
[00:15:06] Speaker C: Right. But he talks about the cumulative SaaS funding. To your point, Baird, he talks about what the funding history has been recently. And so there's a lot of pullback on that, the increase in expansion, CAC, and percent of just really nice job from 2009 to 2023. And so I just think that snapshot really helps contextualize the broader, what happened in 2023. But your broader point about your companies having to grow up and have a viable business model, I think especially if you start to get north of $20 million, right, zero to one, you're just doing product market fit. One to ten, you're trying to do a bit of scale. You build a reputable sales model, but then after ten mil, ten to 30, ten to 40, you have to show that you can keep and grow customers. And then I think when you get in that next zone where we are in Maxio, it's a business model thing. So now you start to come into pricing. How do you think about different pricing across different products? How do you think about regions? How do you think about partners?
And you got to be showing a pathway to profitability if you aren't profitable. There's a great article by a guy named Todd Gardner, who I'd like immensely. I don't know if you follow him, he's a total hoot. Wicked smart. One of the founders of SAS Capital originally. Now he's doing his own gig. And caveat. He does do some writing for us. So I talk with him regularly and he had this article called the Dolphin Principle. And the dolphin principle was, can you get your company to go profitable? Can you actually get it to a point of being profitable? Because then you control your own fate and you can be decisive about future investments and so you don't have to remain profitable if you've got a new region, a new segment that you're going after, you're launching a new product, but it's, you're out in front and controlling your fate. And so when I came to Maxfield, that was one of the things I was doing. I hadn't had that metaphor, but I'd love it of get profitable every once in a while and then be deliberate about the next set of investments, which is what mature companies do. They think about ROI, present value versus the trade off of long term investment capital efficiency using things like NPV and ROI.
And he has a great article on that.
[00:17:10] Speaker A: Definitely have to check that one out. Dolphin principle. I like that you can go in and out of profitability.
The pricing conversation is an interesting one. We've just been revamping our pricing a little bit just to try to structure it differently. And we ended up going with something which is, I guess you think of as like a two part tariff where you have sort of a base platform fee and then some kind of usage on top. And the reason we did that is because we didn't want to go to a pure percentage based model. Like we save our customers money, we save our customers revenue. Actually, we didn't want to charge by percentage there. It's just operationally tough for us and customers. CFO's don't like a variable bill from a vendor. They actually like a, the steady bill from a vendor. So we try to come up with a model that met somewhere in the middle. We're not convinced we have it totally right yet, but just curious. The report talks a lot about invoice or sort of the consumption based model versus the subscription based model.
In what you found, I think if I assimilated it appropriately, is that the growth in the consumption space is actually up, whereas it was down a couple of years ago when people were starting to cut back and tighten their belts and everybody was looking at their cloud spend and AWS and Google and Azure and all these things. So just curious.
[00:18:38] Speaker C: The thing I would say is it's not completely synonymous, but in general, sales led motions tend to be annual subscriptions.
You got to negotiate it, you got to get the procurement. And they're often annual terms. The PLG motion is often a usage based month to month. So when you look at the consumption trend that you're pointing to, I think they were hit earlier with the retraction and people just stopped paying because it's month to month, whereas you see a step down with the subscription billing model.
Each year there's a set of customers that either contract or churn. I think what we would argue, and when I started this company two years ago, it felt like there was this existential debate about are you PLG or SLG? And I was like, I don't know, I'm both.
I think the answer when you look at the data is you need to be bothered, is the companies that have a platform fee is a great point, Jay, is you're covering your cost to develop the platform, you're delivering a set of value and then you dial in this usage component or consumption based component which has more direct, perhaps if you can, a direct association with the value that's being delivered by the customer. So if they sell more widgets, they see that the value you're offering totally in line with that. But it does introduce volatility to your point in terms of your own trying to figure out managing your own ARR. And most VC firms will say usage is ARR, but you're kind of like, I don't know, it's kind of a gray area. And how do you forecast your usage ARR? Do you use one month times twelve, the last trailing three months times four? So if you're going down the path of introducing usage based pricing, metering, pricing, invoicing, it's more complicated and that's what I would say is where Maxio can help because that's something that we do well. There are a lot of invoicing engines out there that will allow you to do the standard year contracts and then you're just worried about the rev rack and reporting if you're doing that right in accrual accounting. But I do think the world is moving in the direction of can you associate your pricing and packaging more directly with the value that you're delivering?
My whole world prior to this has been, well, not 100% true, but mostly was seat based. Like at Salesforce, you would sign up for number of sellers that were on your platform and then number of modules that they bought. And then it was a conversation around, well, how much am I willing to pay for a seat on Salesforce versus a seat for gong or a seat for all my other sales tech stack? And you were working with a I'm willing to spend this much money for technology, for my salespeople totally shift because we actually do pricing based on trailing twelve months of revenue. And the assumption is that the value you're getting increases over time in terms of the rev rec reporting the complexity that manifests in efficiency and effectiveness for you and your finance team and et cetera. It's tough. I think we're fortunate that the early billing vendors all had that as their model percent of billing.
But we do get customers who don't like the volatility. And so we do have some tier, we do tier based pricing. Like if you hit this tier and then you pop up to the next tier, and we're actually working through pricing right now doing a presentation next week. The board, to my earlier point, I think pricing, getting sophisticated about pricing is one of the management capabilities all B two B SaaS companies need to be developing.
[00:22:17] Speaker B: Randy so there's a lot of parallels here with us in our world. We have, our customers can be very different. Like you said, if they're doing feature based pricing based on usage pricing or seat based pricing, they generally fit very different playbooks on our side, which we've been learning to kind of, you know, have some different cohorts that we treat differently. And I'm curious, how do you all manage? Well, first off, my assumption is consumption versus subscription based models. They feel, are they very different types of customers for you all, and if so, how do you all kind of serve both, but under one platform and one kind of unified message?
[00:22:55] Speaker C: That is the challenge. Baird, you put the finger on the thing that I've been struggling with is when we think about the billing engine supporting PLG, that's usually early stage companies. So founders, they got a product, they want to go get paid. They do in a PLG motion. Everyone loves PlG, and then they're selling to consumers or SMBs. Once you start to move up market, mid market, early stage enterprise, you're going to need sales, a sales assist motion, and that's where you introduce your sales led growth. So when you look at our customer profile, our 2200 customers, it pretty much plays out that way that our larger customers tend to be what would have been our legacy. SaaS optics solution. It's rev rack and reporting. The other kicker for us is early stage companies usually don't have a finance team. They're using a CPA firm or their uncles or bookkeeper or something like that. They're not taking private, they're not taking professional money. Yet, friends and family, once you bring on, you get to a certain size and you bring on either like a fractional CFO or you hire your first controller and you take private money. There's a new level of accountability that you have, and you move from cash to accrual accounting. There's a new level of accountability that you need to be able to do in terms of rev rec and reporting. And so it becomes more of a mandate to have a system like ours in that place. But what you're pointing to my big challenge is our value proposal for early stage founders, who tend to be technology savvy, who would most likely just go to stripe, is how do we sell against that? Because stripe, you can get up in ten minutes. It's a PLG motion. We don't have that yet. We're working on it, but we don't have that yet. And then the other Persona, same ICP, right? It's b, two B SaaS, private equity, VCPE backed, it's high growth type companies. The other Persona though, is this head of finance. So the story you're telling them is really different. And so it has been a challenge in terms of how to think about messaging. One of the things we've done, which I introduced when I got here, was segmentation. So how do you segment the people you're going after the prospects, then have a sales motion that's supporting a segmentation and then actually that rolls all the way through your customer success. So the early stage startup companies we're going after, our expectation is the price points can be a lot lower. The sales cycle should be less than 30 days. They should be able to get up and run with really low touch, and we're not going to have a whole lot of CSM engagement. The larger customers that we sell, I don't know, $150,000, like that's going to be a 90 day sales cycle and it's going to require a digital sales room, and you're going to have multiple people on the buying committee. I'm going to be involved. It's going to take implementation specialists and two sales engineers to get them up and running. It's going to take four months. And so we have tried to segment our go to marketplace to make that more clear. Where the rub is is if you go to our website, you go to our website, it says billing and financial operations. It's kind of like if you're a founder and you're looking at that, you're like, well, I don't know what financial operations is because I've never done it before. So obviously, if people are searching on keywords or organic search, it will resolve into the specific solutions we offer. So I think we'd have a good job of that. But just on the front door, it feels to me like we still got a little complexity that we're trying to work through.
[00:26:10] Speaker B: That makes sense.
[00:26:11] Speaker C: Yeah.
[00:26:11] Speaker B: I like the concept of having customers grow into different parts of your platform over time, because even when just looking at Maxia, we're going through our pricing, and I'm like, oh, yeah, we might be. We're now at a stage where we're implementing a little bit of a consumption based, performance based element to our pricing and just looking, oh, yeah, we might need something to help support that and.
[00:26:33] Speaker C: Well, that would be happy to do that sale.
What I would say is bringing those two platforms together. So what are the go forward idea is we have one billing engine where you can do both term based and consumption, but it's one billing engine, and then we have one reporting platform. So when you're looking broadly across, hey, what's happening across all my different customers, and they could have different skus and, like, you think we can bill it, is basically the idea, and then you can aggregate it.
[00:27:03] Speaker B: So, I'm sorry, I'm taking a far left turn here, but just out of my own interest. So the Chargerfi SAS optics merger, that was April 2022. So we've been.
[00:27:14] Speaker C: No, the original acquisition was 2021. I joined in 2022.
It was basically a simultaneous close, which, and an MOE, a merger of equals, which I've talked with some folks about, like, really hard, versus an acquisition where you have a larger entity that brings a smaller entity in and says, this is how we do it at company x, you need to come play by our rules. When you have two companies about the same size, literally about the same size in terms of people, dollars and customers, it was, you know, the bloods versus the crips on every decision in terms of which was going to win.
[00:27:54] Speaker B: Yeah, and sorry to open a big jar towards the end of the podcast, but, yeah, what was that experience like? And I guess the, maybe one question is, how long did it take for the proverbial dust to settle? Is it or is the dust still settling? How does, where are you all in the life cycle of a merger like this?
[00:28:10] Speaker C: Of each. Yeah. So I came in a year after it started, and I would say they hadn't done a lot on the integration before I showed up. Now there will be people who say, that's not true. They did agree on a brand. So Maxio became a brand.
We launched that basically simultaneously when I showed up. And then it was, hey, SAS optics by Maxia was the initial start, and then Maxio, former SAS optics. And so there was a journey there. I would say it took longer than it probably should have. I had to hire a new head of engineering when I started. It took a little while for that guy to ramp and get his head around it, but I mean, we were in the worst possible way world. The engineering team for charger five, wicked smart, all 98% was in Poland. The platform was based on Ruby, SAS optics. 98% of the engineers were us, based in the southeast Atlanta, and it was all on Python. And we even had something else that was Java, another company that had been bought. So we had three different language based platforms. And so you go Java, do you go Ruby, what do you do? And the engineers don't even speak the same language. So there was just a lot of that, which was hard. When I came on board, I started an initiative called one Maxio, and it was across everything. How are we going to take down one brand? So the first thing we did is we launched an integrated website, right? Next thing we did was integrated the sales team in one sales motion. Next thing we did was all marketing. Next thing we did was all systems back. Like, we had two different Jira systems, we had two different salesforce systems. So getting all of that back end infrastructure probably took longer than we wanted to. Where are we on the journey? Everything is one Maxio, except where there are a couple of components. In terms of the platform, where we're moving to a microservice architecture, we're using the services that used to be chargedify, and now we need simultaneous data sync across both. And so we're going to get over that hump this summer, and then it truly will be an integrated platform. The UI UX has gotten a lot more integrated. I would say if you look at it still, there's probably a couple things, really, that seems like it's a little wonky, but we have a new design system that we've been working against for a year, so we're probably a year behind what battery wanted in terms of integration. I have never seen something as hard as this.
Again, going back to the two companies coming in with same size sumo wrestlers, I'd say the advantage I've had is I came in as Maxio first, so I don't have any allegiance to either. I just want the best answer. And now I've also, unfortunately had a cycle on the executive team. I don't know, 50% of the executive team is new, so they're coming in with the perspective of, like, how do we scale B two B SaaS companies to $100 million? What are the systems process, the tools? How do we make decisions in terms of what's best for Maxio? So I think the blood crip thing has died down a little bit. I think if you take people out for a beer, that they used to be SAS optics that used to be charged. If I. They'll still tell you it was better when it was, you know, back then. But we just. I'd say the other big challenge, and I've talked about some of this with some folks, which was an AhA for me, was both companies, call them twelve, $15 million. And then all of a sudden, you bring two companies together, and now you're 30, $40 million. You kind of went from childhood to going off to college without the awkward teenage years. No one had seen that movie before. And so you are a different company when you are 15 million and 20 million and 30 million and 40 million. What you expect, what you need in terms of infrastructure, how you think about strategy, how do you think about investment? It's just really different. And so that was something that was wild for me, was I was like, oh, I'm coming in at a company this size. We're going to have, I assume, X, Y and Z. And then as you start poking around, you're like, oh, no, no, no. It's still being done as a, two companies that are twelve to $15 million. Does that make sense?
[00:32:02] Speaker B: It does, yeah. Yeah. That's really interesting. Tough, interesting problems to solve.
[00:32:07] Speaker A: Well, in my experience with M and A and integrations, it's almost like the size does not matter. It's as complex to integrate a $10 million and a $2 million company as it is to integrate to $20 million companies. Now, you had it probably more complex and the tech stacks were not aligned and that kind of thing. But it's almost like with M and A, bigger is better because you're going to incur the same kind of pain and the same kind of slowdowns. Either way, I think you're right.
[00:32:34] Speaker C: Unless you're doing, like, an aqua hire, where you're bringing in talent that's going to say you're not going to continue on with their technology, but you want their brains and you're going to put them against your platform to build that next new capability. I think that's probably true. I think.
Yeah, I mean, there's different types of and a. We can talk all about it, but I will tell you, one of the ones that I hope never to do was it's seismic. They took out a competitor and the idea was to migrate all of the competitors customers over to the seismic platform. But up until the point that the acquisition happened, I mean, they hated each other. It was like seismic had a bullseye of the CEO of the other company in the sales room and people were throwing darts at it. Right. And Doug showed up. Doug Winter is the CEO. He tells the story. He showed up this company, I think it was in Chicago, and it was like the Antichrist had arrived.
But they took out a competitor and they were able to migrate customers over time. And so that has its own challenges for how to manage and do that well. But I think, Jay, my experience at M and A, and I've done it. I've been on the integration teams and then I led M and a corporate strategy at seismic for a couple years, and now I'm doing another integration. I do think everyone gets all fired up about the deal, and unless you have someone that's almost OC, like, you know, they totally focus on details for the integration plan, then 80% of m and a fails. And it fails, they say, primarily because of culture. But I also think it fails because there hasn't been detailed planning around integration and accountability to shut things down or just things just keep, you know, keep going because it's just easier than making the hard call. So you gotta have.
[00:34:14] Speaker A: That's 100% true. 100% true. I. And I've seen it. You know, where you avoid making the hard call because, like, you really need to. Like the call you made at seismic to close down one product. That's a call that I would say 90% of people don't make, because it is hard. And you're afraid you're gonna lose the people that you just brought on, which you are. Are afraid of because you feel like you need them to keep the business. And it's just. And before you know it, you're two, three, four years down the road, you haven't integrated those. Those acquisitions, and they're like separate businesses sitting under one roof with carrying way too much cost for what they're producing for the business. I've seen it over and over again.
[00:34:52] Speaker C: Yeah. Well, I.
It's funny because it is super cool to think about it and look, I'm part of a PE company. The assumption is I'm going to do more m and a.
And what PE, if you sell to another PE, is what they want to see is that you've built that muscle. And so how do you go find the next m and a deal that is manageable? So it's not the pig going through the python, but it's not going to distract the team, but you're able to show how it augments because. No, I mean, I'm making a statement. Someone's going to tell me I'm totally wrong. But most software companies, when you get to this stage, between that 50 and $100 million, your growth is going to come from organic plus inorganic. So as a CEO and executive team, you got to be able to do this well. And the partner, not partner, but the board member, my chairman, Maxio is super successful PE back, CEO guy multiple times. Like, he ran a company. They did like 20 m and a transactions over three years or something. And it's just what they did and created an enormous amount of value, drove EBITDA consolidated. And so I think it's the anything.
If you focus on it and practice, you can get better, but it can't just be some random idea because you thought it would be cool to add this capability and buy them and go, which I think happens sometimes.
[00:36:11] Speaker A: Yeah. It's like a different business model. It is a business model of its own. And I would venture to say that a lot of our listeners are on the earlier stage of developing and building companies, and they have the product innovation ideas and they're probably thinking, wow, like, this is what I have to look forward to. Like, well, maybe, yeah, we call it.
[00:36:31] Speaker C: That's part of our positioning is around the scale up challenge. And so when you're one product, one channel, you have a set of challenges you're facing with then when you introduce multiple products, there's another set of challenges that multiple products, multiple challenges, and then multiple products, multiple channels. Multiple products, multiple channels, multiple regions. Each one of those is kind of those inflection points. And I think you'll see it. They call it Death Valley, right? You have these valleys of death between when you hit 10 million, can you get what you need to get sorted out to get to the 20 million valley of death? And I think there's a valley of death at 1 million. Like once you get past 1 million. And this is where for you all as the executives, it's what are you doing today to get you ready for the next twelve months? And as you get bigger, your altitude has to go higher. Like I tell my team, if we're making decisions about what needs to be done today or in the next month, we're over functioning and we're disempowering our management chain. Like we, as the ELT, we get paid to think about the bets we need to make that are going to manifest over the next 18 to 24 months. It's super hard. All that important, not urgent. Much easier to take on the urgent thing and feel like you're making a lot of traction and your activity filled day. But are you making the hard decisions that are going to change, change your business? And I think that's true up to about 100 mil. And I've talked to a couple of folks who've done that transition past 100 million, and they say, look at 100 million, you now have things that are ossified that you're not going to be able to change. It's too hard to change. So that zone between 40 as you're setting up into 100, like trying to get it right in anticipation of what it means to be at scale, at $100 million. Because if you're going to go sell to a strategic, are you going to sell to a PE firm at that size? They'll want to see a bunch of that stuff is in place because they know that you know how to operate at scale.
[00:38:22] Speaker A: Oh, and they're not going to invest in changing it either. Right. If you have systems issues, because they're only going to hold the company for what, three, five, maybe seven years if it's like the cycle we're in now.
[00:38:34] Speaker C: Yeah.
[00:38:34] Speaker A: So, yeah, and then those are investments at that point.
[00:38:37] Speaker C: I think people like, when I started and software, well, I was fortunate, right? Like my first CEO gig was of a public company. I got a battlefield promotion to a public company. Now, I didn't enjoy the fruits of taking a company public, but I enjoyed all the challenges of being a public company CEO. But I always thought, well, yeah, now I want to take a company. I want to take a company public. Like, I want to check that box. But the reality is 80, 85% of all software exits, if you, if you get to an exit, a good exit is going to be selling to someone else. It's going to be a PE firm or another strategic. And I think understanding that, that what are you building a company for? You're trying to deliver value, obviously for customers and value for shareholders. But when a PE firm especially comes in, to your implied point, Jay, they're looking to say, okay, I got in at this amount in three to five years. I need someone else to believe in this ham and the teams ability to execute, and theyre going to pay this much more. And its like the knock on effect, right? You just keep going up the stack on the pes and then all of a sudden youre talking to the big vista funds and the tomoe bravas of the world and all right, now were talking about a billion dollar transaction. Youre like, okay, yeah, right.
[00:39:51] Speaker A: Or in some lucky cases, you find the right strategic buyer, which is somebody that your product fits into their portfolio in a very special way, and it's more valuable to them than it is just the next private equity firm who's going to recap.
[00:40:05] Speaker C: And I was fortunate I had those two experiences. One was rocket fuel. We ended up selling it to PE with the public company, in part because we were burning cash like crazy. And there was a business model problem that we were trying to sort out. And it's very hard to do a pivot or transformation in the public market. So it was right to go private and I didn't stay with them. But the second company, percolate, I sold to a strategic seismic. And to your point, it was because the CEO and I had a real common vision for how to think about content and creating content, distributing content across marketing and sales, and how you can improve, go to market. And so those patterns that we had at percolate still are manifest in seismic. And so a lot of employees are still there, customers are still there. But it is really rewarding to have a strategic safe harbor which brings you across because they value what you're doing and you have a shared vision. Versus what might happen with a PE firm is you got a platform who says, no, I'm going to stick you here and this is what we're going to.
[00:41:04] Speaker B: Was that strategic acquisition that you mentioned, did that just happen organically because of the relationship, or was it an approach first that then was a fit?
[00:41:13] Speaker C: Yeah, Barry, that's a great question.
One of the things I've heard over my years as CEO is that the best companies don't sell themselves, they get bought, meaning that there's a strategic out there that has a vision for what they want to do and accomplish. And they get to know you. You know, you date, then you get engaged and you get married. I would say for percolate specifically, it was a kind of a mixed bag. Doug and I had gotten to know each other, introduced by a mutual investor, and we're starting to build that relationship and talking about the future and how things could work together, working on just trying to do deals together. Then we started it percolate to go into a process. And that's when it was like okay, now you know. How sexy do you think I am, Doug? Like, can we make this thing work?
But I don't think it would have worked if we hadn't had strategic alignment from the beginning. So I know, like, we're trying to buy companies. I've gone at percolate. There's a bunch of deals that we've tried to do and we just haven't been able to get alignment in terms of what battery is willing to pay versus what they want to sell for. But the ones that have I've been talking to for the entire two years I've been here, a lot of it has been about the relationship I'm building with that CEO and painting a picture of where we see the world going in the office of the CFO. And how could we add you all to this picture that would create another module and provide more value. And so I think there are the one, the deal that we will do will be one that will have come from those relationship versus. I got bankers calling me every day saying, hey, take a look at this, take a look at this, take a look at that. And theyre often distressed assets. I dont know anything about them. They want me to do an loi in 30 days. And im like, I dont have time and energy to do that. So I think the best deals are the ones where you have that long courting going on. I mean, I tried to sell percolate to the other thing, just mention I tried to sell percolate to Adobe and was trying to figure out who is the right people to get to know and blah, blah, blah. They ended up buying a company called workfront, which was kind of similar to what we were doing killed me because it was like we were better in some ways. And the workfront CEO was brilliant, don't get me wrong. He did a great job, but he had courted the relationship better than I had and they also were bigger. One of the things about selling to public companies, at least this was a couple years ago, you needed to be at least $100 million and you need to be EBITDA positive because you couldn't be dilutive to their earnings and you needed to be meaningful in terms of what they, you know, they say they buy this company. How is it going to actually help in terms of revenue or generating new customers? And we were just subscale. So I think as a CEO understanding, we were talking a little bit about this a little earlier, what is the set of strategics where you would add value if you're a $1 million company. Unless you're doing an acqua hire, you're probably looking to sell to companies that are $20 to $30 million at 50 million. Now we're looking to sell to companies that are $200 million. Right. But I'm probably not going to sell to a multi billionaire, billion dollar company as a $50 million revenue company at 100 million. Now you're talking to public companies. Right. And all the bankers will help you with that. But I do think the targets you're building relationships with changes based on how big you are.
[00:44:30] Speaker A: That's a huge insight. And I think for us and for anybody who's running firm, these are the companies that you're naturally talking to about partnership of some form or fashion anyway.
[00:44:40] Speaker C: Yeah, yeah, I think. Right, right. You want to figure out joint go to market. And so, hey, you guys, you know, we, I know we're talking about a partnership, but yeah, you know, you get to know each other. Do you like each other? Do you have a common value prop? Do you have customers? Do you have a common, I would say, let's go get a case study. There are a set of customers who believe, and this is what workfront actually what Adobe had said to us. We were trying to show how we augmented Adobe and get customers to tell that story. Because if you're at Adobe and you've got a bunch of customers saying, gosh, we're using you plus percolate, why don't you bring percolate on board for us? Similarly, when we go talk to our partners, we're like, well, what our customers, what are the set of capabilities that you think we should be partnering with? And there's this subset and we go build relationships with them and we find out we like each other and we have aligned interests and valuations within, boom, let's do a deal. And you've already got joint go to market. Youve got referenceable case studies, youve gotten to know each other across your go to market teams. So, yeah, I think it is. One element of partnership is youre warming up potential m and a targets over time.
[00:45:45] Speaker A: Gosh, how much easier is it to convince your investors that its the right thing to do if youre already, if you have proof, totally.
[00:45:50] Speaker C: Well, the thing about that, Jay, spot on. And that was actually one of the challenges in this last deal that didnt go couldn't get over the finish line was every deal you do needs to have a model with it and the model is going to be, okay, we're going to spend this much money. How are you going to cross sell that in. What are your assumptions and how much new revenue you're going to be? And how's this going to help improve your gross retention if you don't have any experience with that customer, that partner or customers you don't know. It's just a modeling exercise. And so I think to your point, when you have a set of customers or several partners where we have 40 or 50 customers in common.
All right, let's go spend time looking at them. What happened to them? Do they value that partnership? Would they be willing to pay more? Is there a way to integrate the technology through APIs and, you know, absolutely. And I think that is the proof that you need to get investment case done.
[00:46:42] Speaker A: Yeah. It's like the minimum viable product for an acquisition.
[00:46:46] Speaker C: You got it.
[00:46:47] Speaker A: Never thought about it that way before.
[00:46:48] Speaker B: But, yeah, makes a lot of sense.
[00:46:50] Speaker C: It is. It has to be. It would like, where is this going to add value? And I think that was something I learned when I was at seismic as you were presenting it. You're building this model. You got to go through all the assumptions. You do all your due diligence, right. You do your sales, your service, your tech, but then you got to get down to the business model and that's a little bit more art than science and not change this assumption. It works. Change this assumption. It doesn't. Because then the next thing they're going to do is the board is going to say, great, go do that deal, and this model now becomes part of your next fiscal year budget.
[00:47:20] Speaker A: That's right.
[00:47:22] Speaker C: You said you were going to do this.
[00:47:24] Speaker A: That's right.
Yeah.
Yeah. The tech, the ops, I mean, that's the easy stuff. It's the go to market. That's.
[00:47:31] Speaker C: I think so in delivering on the promise, right? Like again, Doug Winter, who I respect immensely, he was like, randy, you know, unless you, like, you and your team are banging on the table saying you must do this deal, you're not going to have enough conviction to, one, get it over the finish line with your investors, but then to get through the hard time, right. So you should say, unless it's a hard yes, it's a no.
And that's been some good. I tend to fall in love with lots of different opportunities and I hear him in the back of my head is like, is this a hard yes? If not, it's a no. Don't spend any time on it because it can just be black holes of time and energy to go talk to all these different targets.
[00:48:14] Speaker A: Totally awesome. Well, hey, we're running out of time, but this has been a great conversation.
[00:48:19] Speaker C: Yeah, I know.
[00:48:20] Speaker A: I really enjoyed it, jumping in with us to do it, and.
[00:48:22] Speaker B: Yeah, this was great.
[00:48:23] Speaker C: Cool. Awesome, guys. Enjoyed it.
[00:48:26] Speaker A: Awesome. That's great, man. All right, let's stay in touch. Good to chat with you.
[00:48:30] Speaker C: Yeah. Have a great day. Take care. Cheers. Bye bye.
[00:48:32] Speaker A: Have a great weekend. Take care. Bye.
