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Enterprise Cloud Playbook Insights From The Front Lines Thoughts from Emergence Capital leaders on hiring, scaling and building successful SaaS businesses. December 2015
What does it take to build a successful enterprise cloud business? At Emergence Capital, we were early investors in the movement of enterprise software to the cloud. Over the last decade, we’ve closely studied the factors that drive success in building successful companies. In an effort to share some practical insights with the greater startup community, we sat down with the CEOs of some of the most successful SaaS companies to create a playbook on how to hire, scale and build an enterprise cloud leader.
What follows is some tips from industry leaders in the Emergence portfolio on important factors such as hiring the right team, the role of culture, professional development and retention, the connection between sales and marketing, and building for scale. Featuring insights from: Godard Abel, CEO, SteelBrick Steve Adams, CEO, Navera Larry Drebes, CEO, Janrain Katy Keim, CMO, Lithium Rene Lacerte, CEO, bill.com Umberto Milleti, CEO, InsideView Raj Narayanaswamy, CEO, Replicon Jim Patterson, CEO, Cotap Kyle Porter, CEO, SalesLoft Rob Reid, CEO, Intacct Josh Reeves, CEO, Gusto Oliver Roup, CEO, Viglink Paul Stahura, CEO, Donuts Charles Thornburgh, CEO, Civitas Learning
Godard Abel CEO, SteelBrick San Mateo, CA On culture… Culture is really important to maintain across the team. We are conscious of building and communicating a consistent culture through monthly, all hands, systematic sharing of plans and challenges and recognizing team members who are going above and beyond to help us win. On scaling… The key to scaling successfully is having an experienced sales and marketing leadership team. This is particularly important when you are experiencing small stage growth because you are building out the team that will take you to scale. In your leadership team you need people that can identify and recruit people that will thrive in the startup world. On ﬁnding the right managers… You need to find people who can and will lead from the front– player/ coaches more than player or coach. This is particularly important in sales where the person you hire needs to be willing and able to execute as well as be a capable manager as the process scales. On retention… We have zero voluntary attrition at SteelBrick, but to maintain this, the company has to be winning. People want to be part of something that’s winning and growing, which creates career paths for people.
Steve Adams CEO, Navera San Francisco, CA On team building… The biggest mistake I’ve made (repeatedly) when building a team is taking too long to identify when an individual is not performing, trying to find another role where their talents can be applied, transferring the problem to someone else, or just taking too damn long to terminate their employment. It’s a huge mistake. If you want to leverage high performers, you better surround them with high performers. On retention… Treat retention (as you do hiring, recruitment and termination) as a business process that deserves focus and commitment; that means training managers on how to retain and develop the members of their teams. On hiring… Treat hiring as the most impactful decision that you and any of your hiring managers can make. Every hire in the early stages of the corporate lifecycle is a “can’t miss” hire and should be treated with commensurate gravity. On culture… The biggest mistake that new entrepreneurs are likely to make is to think that creating a culture is an ad hoc exercise, a natural extension of their values and that personally setting the standard and then holding others to it will be enough. Creating a culture requires a disciplined and rigorous process that includes planning, putting a framework in place, executing and assessing performance against that framework. If you want to create a culture, you must define and codify it so that it can be socialized and scaled. While it may be abstract in its language, it must be concrete in its execution.
Larry Drebes CEO, Janrain Seattle, WA On team building… Top talent is attracted to achieving big, audacious objectives. That means you have to work to make the company vision huge, and give talent the autonomy to attack problems. Since there are so many companies with big visions today you have to find the ways that your vision intersects with the path of highly talented team members. On sales and marketing… Sales and marketing need to be in lockstep in terms of objectives and approach- they succeed or fail together. We measure meeting conversion rates as the ultimate indicator of whether marketing is creating the right conversations, and also as an early indicator of revenue growth. On hiring… Wherever possible, promote from within. Your existing team lives your values every day; someone from the outside needs to learn it from scratch. But, inevitably, you will need to bring in outside talent to break through barriers to get the company to the next level. On scaling… Scaling is a balance between doing things manually, and automating. Do it manually first, so you can do it fast. Then, when it works, automate it. The team should spend 60% of their time doing things manually, and 40% of their time automating new things.
Katy Keim CMO, Lithium On team building… I've always built my team around the outcomes that you're trying to drive for the business. San Francisco, CA On outsourcing… If you have the luxury of a large budget, shift as much as you can in-house. People integrated into the team and focused on delivering the right results really pay off. On hiring… Lithium has what we call a talent profile. We've formulated them to the key areas that we're looking for, and as we interview, we focus on each of those attributes. Today, I would say in this market, a smart way is going out and finding talent, not waiting for what's coming to you. On building for scale… In terms of scaling, there are a few things that are contrary to what I have done in the past. One is way more emphasis on digital and content. Content and digital metrics are air to some extent, and have an exponential scale built in in terms of how they reach people. If I was building a marketing department today from the ground up, I would put digital hires and my Marketo specialists in content as the first people in.
Rene Lacerte CEO, Bill.com On team building… An important lesson I’ve learned over the years is that employees who mesh well with the company culture-- and whose thinking aligns with leadership’s vision-- are those who are the most successful and have the greatest impact on the business. San Francisco, CA On scaling… Scaling should be in mind from day one. With each organizational threshold comes new issues, roles and responsibilities. Anticipating these changes beforehand and cultivating a culture to meet them in full stride is necessary to overcoming the challenges of propelling the company to the next stage. On hiring… We create scorecards, not job descriptions. Developing a focused understanding of what success looks like for a new hire in 30, 60, 90, 180, and 360 days helps to clarify the role for you and the organization, and allows the candidate to better understand the scope of work and what is expected of them. On culture and values… Culture should be divided into values and behaviors. Values will remain constant. They are the fundamental underpinning to all that your organization does. Defining organizational values is defining your true north when it comes to who you are, the people you work with and the customers you serve. True north shouldn't change. Behaviors, however, can vary from year to year, person to person. It is important to evaluate these quarterly.
Umberto Milletti CEO, InsideView San Francisco, CA On culture… Culture needs to be consistent and uniform across sales/marketing and the rest of the company. Oftentimes this is challenging because people tend to be so different. Some CEOs look the other way when it comes to culture, particularly around sales-- sometimes heads of sales have questionable judgment, but they close deals so they aren’t seen as a problem. You need to find cultural alignment and not create a special set of rules for people-- this never works well in the long term. On diversity… Importance of diversity cannot be understated. In 10 years at InsideView I have learned that one of the most important types of diversity is gender diversity. You want to be able to attract talent across the whole population. If your whole leadership team is all male, you are probably scaring away a huge population that is valuable to you, or at least not creating a friendly environment. I actually think the solution is pretty simple– you need to hire women at the executive level. All the diversity programs in the world don’t matter if you’re communicating that the only people that will be on the executive team are men. On go to market strategy… For early stage companies, the “go to” market piece and how you’re going to sell and market oftentimes comes too late. Most early stage companies come from the product perspective and don’t spend enough time on the most effective way to take it to market. On hiring executives… Don’t hire people for your executive team who all look like you. You know if you’re hiring people who are like you-- if everyone feels super comfortable then you’re hiring a bunch of people like you. You don’t want it to feel like a bunch of buddies.
Raj Narayanaswamy CEO, Replicon On scaling… The way to scale sales and marketing is to create a process that is repeatable, and then to scale it. This process is tied to a channel, so you will need to do this for every channel in which you sell. San Mateo, CA On mistakes… The biggest mistake I see is scaling ahead of your understanding of the market, channel and process. On growing the team… You need both inside talent and external talent in terms of developing the team. We tend to provide opportunities for people inside who have potential to grow. If you’re scaling fast though, you need people who have done it before. On executive mindset… From an executive point of view, you need to think about if you are creating a process or implementing a process. Creating a process involves understanding your channel and the message, which is an intellectual exercise-- really understanding your customers and how they’re buying. Document this and create a process, and then hire to fill out this process for implementation. Then you just need a management system to implement the process.
On hiring salespeople… Jim Patterson CEO, Cotap San Francisco, CA The tricky part about hiring salespeople is that they're salespeople. They're typically good at selling themselves. It's really hard to make a decision based on an interview, particularly when your expertise is not sales, because they're really good at selling themselves. But they might not be the right culture fit or the right experience fit for the start up where you are even though they're good at selling. On a critical sales mindset… I'd say the single biggest thing that is important for setup is a salesperson who understands that you can't sell out the product roadmap. What I mean by that is there are some customers who will always ask for, "Oh I want this. I want that. And I want us to do it this way." If you have a salesperson, particularly your head of sales, or a director level, who are constantly promising customers new features, or even worse, very specific custom things, you will be in trouble. On waiting to scale… You really don't want to build out your sales team until you have your target market figured out, because once you start adding sales reps it creates a momentum forward that makes it very difficult to change course. On promoting internal talent… I think in general it's usually better to promote from within. There is certainly less risk promoting someone who has already commandeered the respect of the team. Bringing in someone from the outside is higher risk, but potential high return.
Kyle Porter CEO, SalesLoft Atlanta, GA On culture and hiring… If you want to change culture, hire externally; if you want to promote culture, promote internally. I like to hire people who can punch above their weight class in terms of what they can do for the team and also what role they can grow into. We decide through interview questions, and have a coordinated and pretty structured interview process. We also hire for culture– all hires need to share our core values, including being positive, supportive and self-starting. On sales roles… It is important to have a modern sales organization where you have divided up the closers from the openers and the prospectors. The biggest innovation to happen to the sales process in the last decade is the emergence of the sales development field. We are huge proponents of the sales development industry, and do the best we can to practice what we preach. On metrics… My favorite and our most important metric is revenue churn. This metric tells you if you’re losing revenue from customers. Our second most important metric is probably month over month MRR growth. On scaling… Scaling a business can be the #1 threat to losing the energy, culture, vibe and core values of the company you built.
Josh Reeves CEO, Gusto On focus… I would say first, the backdrop to anything in a startup, in my opinion, is having focus, because there are always a million things to do. San Francisco, CA On hiring… What I would advise other entrepreneurs to do: I would probably have hired a recruiter as a second employee. Again, it's something that is a huge focus. Doing it part-time just makes it harder. Having a partner who's going to do it full-time would have probably been helpful. Hiring is never easy, but I think it never should be easy. People are the foundation of every business and they're the key foundation piece of what makes everything we do possible. On hiring perspective… I jokingly say my job is to keep firing myself from as many jobs as possible. What I mean is really divide and conquer. As things become more effective, as they become more successful, we want to give new folks and hire or promote folks the ability to really own those functions and be responsible for their outcomes. On growth… The overall, holistic philosophy is cost-effective, scalable growth. That's all that matters. It's not growth for the sake of growth. It's not growth to hit a short-term outcome. It's easy to measure costeffective in the context of SAS because you have very clear projections on LTV, of ACV, on CAC. Basically, there's an industry standard and best practices in terms of what those ratios should be, what turns should look like, what revenue returns should look like and what conversion rates should look like.
Rob Reid CEO, Intacct San Jose, CA On focus… Don’t go on to the next thing unless you have at least 50% market share in what you’re doing right now. Most people move on because 1) they think it’s easier or 2) they’re greedy and think they can make more money. So for these reasons, lack of focus is why companies fail. Employees also fail for similar reasons. On the intersection of sales and marketing… Sales and marketing need to have joint metrics to measure so that they can have joint success. You need to weave the fabric of the company together so that you get team-oriented results, not orient around individual people (although that accountability is necessary). On retention… As long as people are performing you need to retain as many people as possible for as long as possible. Intellectual capital is hard to get and hard to maintain. This knowledge is built over time spent at your company, and increases in value with the length of time employees stay. You cannot replicate this type of knowledge, which is why it is so valuable. On developing employees… Try to have a 50-50 relationship with employees, and try to figure out what’s exciting to them and challenging to them. Pull this together in both objectives they need to pull together for the company, and also what they need to ‘sharpen their saw’ personally. We do this quarterly for every employee and it all goes down in a document for both the employee and the management team.
Oliver Roup CEO, Viglink San Francisco, CA On building a team… When you’re coding something new, you want to build for something that's 10x as large. If you're building for 100x as large you're probably over-engineering and if you're building for 2x you're probably going to run into the limits before you finish. A similar principle applies in management, but it's not 10x. It's probably 2x. When you are currently building a team of 20, you should keep in mind that it's going to be 40 soon and build for that team. On ﬁnding the right people… The very simple framework is can they do the job, will they do the job, and can I stand to be around them while they do the job? On hiring… I have had pretty bad success bringing in expensive, experienced outsiders, and I have had pretty good success growing young, hungry insiders to take on a bigger job. On scaling… Clarity around communication is also something you have to keep in mind when building a team. Getting a message to a group of five is easy-- you sit in a circle, you have dinner, you talk, everybody hears you. Getting the same message to a group of 50 involves communication plans, delegation and talking points and a roll-out plan.
Paul Stahura CEO, Donuts Bellevue, WA On team building… It's very important to think about scaling when you build out your original team. When we started making hires beyond just the cofounders, we looked for people with wide sets of skills who could handle more than one function with their core competencies. This helped us ensure our hires were efficient and very productive. On values… One important value stands out at Donuts-- we constantly challenge ideas without challenging each other personally. It's important that we test our own thinking until we know we're on solid ground, and we do so consistently while ensuring nothing is taken as an offense. Employees here know they're on safe ground when it comes to contributing their thoughts and ideas. On hiring… We've intentionally hired equally for personality and fit as much as we have for talent. Donuts has tried to secure talent from both inside our industry (for the benefit of experience in a very niche business) and outside (to benefit from fresh thinking, particularly in the area of marketing). On retention… While we have a very businesslike approach to our work, we also have a "family" atmosphere that gives our people the sense that we have each other’s best interests at heart. Our approach is unique because employees know there's long-term reward available for a job well done, and they know there's latitude to create value even while making the occasional mistake. Our experience is that employees need more than just a financial incentive for motivation-- they need a personal, emotional connection to what they're doing, and a belief that they're contributing to something larger than themselves.
Charles Thornburgh CEO, Civitas Learning Austin, TX On sales… We needed to find a way to build an organization that brought a different level of sales athleticism into this industry than has traditionally been in the industry before. And part of the reason why I think that is so important for vertical SaaS businesses is that you're often defining a new category. On domain expertise… As a founder and CEO, if you don't have enough domain, insight, or credibility in your domain to be able to effectively sell your idea yourself, then you've got to find somebody who has credibility and relationships within the domain to make sure your messaging is the right messaging, and that you're not stepping on any land mines that you're unaware of. On traditional sales values… What I found in my experience early on in building Civitas Learning is all of those things that are traditionally valued in enterprise sales-the need to have a Rolodex and relationships within the vertical, to speak the language of that particular industry really effectively-- are dramatically less important than people believe them to be. What's been most important for us has been finding really, really high caliber sales athletes. On culture… I get this question all the time-- how did we protect our culture as we went from a 5 person to a 20 person to a 50 person to a 100 person company? I actually feel like we've got, in some ways, a stronger culture now than we did when we were smaller. And I think part of the reason is that you're able to often attract a different caliber of leader as you get further down the road and as you cross a variety of thresholds in size and scale and traction.
About Emergence Capital @emergencecap Emergence Capital, based in San Mateo CA, is the leading venture capital firm focused on early and growth-stage enterprise cloud companies. Its mission is to invest in the cloud visionaries who are building the most important business applications. The firm's investments include Salesforce.com (CRM), SuccessFactors (SFSF, acquired by SAP), Veeva Systems (VEEV), Yammer (acquired by Microsoft), and Box (BOX). Emergence Capital has nearly $1 billion under management. More information on Emergence Capital can be found at www.emcap.com. Contact: Alison Wagonfeld, Operating Partner, Emergence Capital, email@example.com