Video

Daniel Chait (Greenhouse Software), Scot Chisholm (Classy), Andy Wilson (Logikcull): Building a Killer Company in a Non-obvious Market (Video + Transcript)

gretchende@gmail.com'

Gretchen DeKnikker

Many folks (present company excluded, of course) don’t find enterprise software especially sexy.  And even within our own ranks, there are some companies that make us think, “Ugh, no thanks.”  In this session, Aileen Lee of Cowboy Ventures quizzes (literally) Daniel Chait of Greenhouse Software, Scot Chisholm of Classy, and Andy Wilson of Logikcull on selling HR software, a platform that helps charities raise money, and a service to help law firms minimize litigations costs, respectively.

Honing in on a non-obvious or unsexy market forces you to face some interesting challenges when it comes to raising money and having the foresight to prepare yourself for a long winter when funding is scarce. But these companies get to enjoy some unique benefits, too. In an unsexy market, it’s highly likely that people who work for you aren’t just there for the catered meals and ping pong table; they’re also passionate about their work and the company’s mission.

If that isn’t enough to reel you in, you can learn about how Andy helped his 9-year old son close the CTO of Salesforce on a cat-sitting business.

Check out the full transcript below! 

If you want to see more sessions from 2016, we’re releasing a new one each week. Subscribe here to be notified. And be sure to grab your tickets to the 2017 Annual NOW.

 

 

TRANSCRIPT

Andy Wilson:  You guys get the cool chairs.

Aileen Lee:  Hi, everyone. Thanks for having us. We’ll just introduce ourselves. I’m Aileen Lee from Cowboy Ventures. I am honored to be here, talking to these fine gentlemen. The topic of our discussion is building a killer company in a non-obvious market, which I took as sleepy market, not sexy market. We’ll talk about all those things.

I’m going to actually have our guests introduce themselves, first, with your name, how long ago you started your company? What do you do and why is it awesome? Then, give us a sense of where you are in the journey in terms of momentum, traction, sales, size, something like that.

Andy:  Sure. I’ll go first?

Aileen:  Go for it.

Andy:  My name is Andy Wilson. I’m the CEO and co-founder of Logikcull.com. I’ve been…

Aileen:  Can you guys hear OK?

Andy:  Everything OK?

Aileen:  Good?

Andy:  Sounds OK. …going on 11 years. We’re one of those services companies that transitioned to SaaS about four years ago. We build a SaaS product in the legal market that helps law firms, enterprises, governments, and nonprofits drastically reduce the time and cost associated with litigation and investigations by anywhere between 50 to 90 percent.

The reason why that’s awesome is litigation kind of sucks and it’s very expensive. The average litigation being around $1 million to $2 million. The reason for that is this process called Discovery. It’s about 70 percent of that cost, and we drop that down to the ground.

Our momentum is we’ve been growing revenue 3X every year. Our ACV is ranging anywhere from on the low end, like 10K from a solo practitioner law firm or a nonprofit, all the way up to the high six figures. We just closed a $2.3 million contract with a law firm.

Aileen:  Nice job.

Andy:  Thank you.

[applause]

Andy:  Daniel.

Daniel Chait:  Hi. My name is Daniel Chait. I’m the co-founder and CEO at Greenhouse. We make recruiting software that helps growing companies do a great job at hiring and bringing on the best people.

Why is that awesome? Because hiring is the top challenge for most companies. It’s something that everybody views as the most important way to succeed as a company but also one of the things that is the hardest to do.

Our company helps our customers optimize that process and bring everyone in the company along on the journey from a small company to growing really big through great recruiting and onboarding.

Where are we, so the company’s four years old? We started in 2012. We’ve raised our series C last year $35 million, led by Thrive.

Last year was a year of tremendous hypergrowth for us, we about quadrupled in every metric, so that brought a lot of challenges along with it but it feels great.

Aileen:  Awesome.

Scot Chisholm:  Hi, everyone, my name’s Scot. I cofounded and I’m the CEO of a company called Classy. We are building the world’s first social impact platform, or operating system, rather, for social impact.

We started as a fundraising application and now we’re building out the suite to help nonprofits scale.

What we focus on is revenue generation and revenue retention, basically keeping donors around and allowing those organizations to become sustainable so they can scale their impact.

The company actually started as a pub crawl, of all things, a charitable pub crawl. We were raising money for the American Cancer Society, because my mom had been affected by the disease and some of my roommates.

That pub crawl inspired us to do dozens of different events, walks and races and big concerts and all sorts of stuff.

We actually built the alpha version of Classy for one of our own fundraising events, to do the registration and help the attendees to do the fundraising.

The beneficiaries of that event, the nonprofits, said, “What you built is actually pretty cool. Can we try it for other stuff?” That was the beginning of Classy, and that was about 2011.

We grew from the pub crawl, and now we’re about 150 people strong. We’ve raised about $23 million in venture capital, Mithril Capital Partners raised our last round. We’ve seen pretty similar growth metrics to these guys.

Aileen:  That’s awesome. I know it’s the afternoon, and sometimes afternoons can get a little bit sleepy, you might want to have a little fun.

We have cocktails up here, so I decided we might try and play a little party game. We have here your paddles, handmade.

Andy:  Yes, they are handmade.

Daniel:  Can I just volunteer that we didn’t know that this was happening?

Aileen:  Don’t smell them too closely.

Daniel:  And we still don’t know what’s happening.

Scot:  That’s why they brought us beers.

Daniel:  Exactly. I’m going to have one.

Aileen:  You’ll see a green side and a red side. I’m going to ask you guys some questions. It is not yet a drinking game, but it clearly could be.

Daniel:  It is now.

Andy:  Burn rate Drink.

Aileen:  I’m going to ask a question, red is no, green is yes. Question is, raising money for my company from the beginning was super easy.

[laughter]

Aileen:  OK. You all agreed. Anybody got some more stories to share? Come on, sexy market, HR. So easy.

Andy:  [laughs]

Daniel:  Exactly. Yeah. I had people tell me that, basically I found that the more they knew about recruiting and the HR industry, the less interested they were in our business.

Andy:  [laughs]

Daniel:  HR people don’t spend money and people have done a million of these applicant tracking softwares and they’re all garbage. Then you’ll never sell one.

Aileen:  I was one of those people, by the way.

Daniel:  I wasn’t going to say that.

[laughter]

Daniel:  First of all, you’re a jerk if you say, “Yes, fundraising was easy.” I’m not going to say that anyway. But it’s a skill that you’re not born with.quote1-chait

You have to develop it like any other skill and it’s like a weird situation and VC’s have their own secret language that you don’t know and nobody tells you. I’ve never been to Sand Hill Road before I started at this company, so it’s hard.

Andy:  Yeah. Related to that, we’re selling efficiency software to lawyers and people that bill on time.

Daniel:  [laughs]

Andy:  “No one’s ever going to buy that.” We got told that a lot. So yes, not easy.

Scot:  We’re headquartered in San Diego and we’re first time entrepreneurs. It’s really tough for us from…

Aileen:  It’s like a triple whammy. Never done it before, in San Diego, nonprofits.

Scot:  We had people saying to us, “We’re only going to invest in Bay area companies.” We got emails like that. For us, we had to raise $5 million dollars of all angel money basically locally, from our own networks. That’s a lot of angel money but that carried us through about three years. We had to show traction to then basically get in front of some of the VC’s.

But our early ventures down Sand Hill Road was like the “Silicon Valley” comedy show on HBO but not the first time around where he does the you know what. It was like second time around.

Andy:  [laughs]

Scot:  We just got a whole bunch of no’s but traction was basically our best friend. That helped it get a little bit easier over time.

Aileen:  Did you figure out a trick for fundraising before you had traction? Was there an unlock?

Daniel:  When we raised our angel round, we didn’t have traction at all. It was two guys and a PowerPoint. The trick I learned, like I said was, there’s kind of secret language that VC’s have. If you just talk normally about what you think, it doesn’t work.

Aileen:  [laughs]

Daniel:  You have to understand and learn, what’s the secret and at every stage, it’s different. The angel round, when we have no traction at all, we were raising angels as well. It’s just a geometric increase in difficulty for every dollar raise or decreased.

The first dollar is way, way, way the hardest. They’re all just waiting and seeing who else is going to invest and who’s going to move.

The more you can say about how close the round is to closing and whatever, the easier. We were trying to raise 500K and we got to like a hundred or you could squint and see 200. We just started telling people the round’s going to close. Until you told people the round was going to close, like everybody was waiting.

Finally, when the round was closing, we got 180 grand in a week and over subscribed, which was the plan all along. You have to generate that demand.

Aileen:  All right. For those of you who may raise next, see Daniel afterwards. He’ll teach you all the secret words to use.quote2-chisholm

Scot:  The story I think, just to add on to that. The story does change every single phase. What I usually do is to sit down and look at the numbers and look at the business and say, “What’s the most compelling nugget?” I craft a story, the narrative around that. There’s always the basics like the market opportunity, your revenue ramp. All that.

But what’s the one metric that we’ve been really concentrating on recently? How did we do over the last six months? Really focusing on that as a proof of concept or a proof point has worked.

Aileen:  I think that’s right. OK. I’m going to move to the next question. Things have gone pretty much the way I planned it. [laughs] Explain.

Andy:  Oh, man. I think everybody in this room realizes that doesn’t go as planned. You try and get that. The financial plan of course always lies to you, right? It’s just a spreadsheet.

You need to have some sort of random error in there. But things change month to month. In a startup, time is just compressed so you can’t possibly plan anything. Our road map planning now is every 90 days because that’s about as far as the future…

Aileen:  Quarterly planning.

Andy:  Yeah, it’s about as far as in the future we can predict. A year long roadmap is just a joke because things move so quickly.

Daniel:  The reason I said yes to that question is I think probably the best thing we ever did was we really, really took our time before we started the company. I take zero credit for that. I have a co-founder who’s extremely patient and thoughtful and I’m neither of those things.

My first instinct was like, we had an idea. On a Monday, it was like, great, let’s incorporate online and we can start Tuesday. What are we waiting for? He wisely brought me along on a journey of actually figuring out what we wanted to sell and to whom and how it would go and all that. We worked at it for about six or seven months before we raised a nickel, before anything.

We actually have a pretty well tested plan for the first couple years, how to get to our seed and then series A rounds before we had done anything. I had never done anything like that before and I’ve been doing this a while. It’s a really good idea.

Scot:  I said yes and then no. We started as a charity pub crawl, so clearly we didn’t have things planned out completely in the beginning. That process of doing the fundraising events was about four years. We hadn’t quit our day jobs yet for the most part.

Basically, I usually say it was a four year market research opportunity with a lot of beer. I think from the point where we became a SaaS company fully to now, which has been about four to five years, I think, did we envision where we’d be today? Absolutely. However, the path to get there was very different than what we probably thought initially.

Aileen:  I think Greenhouse is a little bit of an exception. For most companies, there are a lot of turns in the road and it’s a very long journey to build a great company. It’s usually not as quick.

Andy:  The chaos will not be minimized. It’s something I do in my culture deck.

Aileen:  Here’s another question. I have learned a serious lesson or two by making mistakes that I’m willing to share publicly.

Daniel:  Right now or just…?

Aileen:  Yeah, you can…

Scot:  I didn’t hear the question, so it’s risky for me to…

Aileen:  I made some mistakes that I’m willing to share what I learned about.

Andy:  Sorry.

[laughter]

Andy:  Sure.

Aileen:  Any lessons learned, mistakes along the way?

Andy:  There’s a bunch. I’ve been doing this for 11 years. I probably made every mistake you can possibly make from hiring the wrong person culturally. I think that’s probably one of the biggest mistakes people make.quote3-wilson

They feel like you need to hire very quickly. “I need to get those two people because of X.” They put some sort of timing event in front of culture. That just never works out. Ever.

Aileen:  How can you tell?

Andy:  How can you tell they don’t fit in culturally?

Aileen:  Yeah. How would you interview for culture?

Andy:  You got to understand what your values are and your company first. Once you have that down, I think the questions will become really easy. One of the questions I just came up with from my team is, give me three instances where you persevered and why did you not quit?

I think in this time, where things are chaotic, perseverance is going to be critical to people’s success. Those are the type of people that you want on your ship, people that don’t quit.

Aileen:  Is recruiting in a non-obvious market harder or different than in an obvious market?

Daniel:  I think in a lot of ways, it’s easier. For us, nobody wants to come work at Greenhouse because it’s super trendy. You don’t have hangers on and people that want to show up for the ping pong tables and stuff.

You get people who think what we’re doing is actually really interesting and meaningful and it resonates with them, and you don’t have the problem of people showing up and not really giving a crap about what you do, which is a big problem.

Especially as the company starts to take off and show some traction, people want to be a part of that, but they’re not willing to put up with boring HR software they don’t care about to get the fun part. They only will be here if they actually care. That part’s a lot easier, I would say.

You’re fishing in, in some sense, in a narrower pond but you definitely have a much better ability to differentiate and certainly to retain people because even, as you mentioned, up times or down times, your mission and your values will stay the same and important to people.

Scot:  I think as far as mistakes go, one of the ones that comes to mind that we sort of squeaked by was, as I mentioned, we raised the five million all from angels.

When we had a term sheet from sort of a, I would say, lower tier venture capitalist and we were so hungry to just create runway for ourselves and be able to think long term and not be living $25,000 chunks on a convertible note at a time, that we basically signed it.

From the time we signed the term sheet to the time we ended up breaking up, they started changing some of the terms, started renegotiating some of the terms. I’ll never forget it, myself and my co-founder were on a call with them, and it was during the holidays.

They brought this guy on the call. It turns out, we have this thing called the Classy awards, which is really the social mission of the company and now the largest philanthropy award show in the country.

Basically, what we learned really quickly was that they were trying to sell it off, because they thought it was too expensive for where we were at as a company. That completely basically went against all of the company’s values, our mission, and everything. We basically just said, “The deal is off, pretty much.”

We had break up fees there and everything and luckily we didn’t have to pay them.

Aileen:  Break up fees?

Scot:  Yeah. It was pretty bad. We barely got by that. It was scary for about 60 days.

Aileen:  How much cash did you have left when you walked towards that term sheet? How many months of runway did you have?

Scot:  30 days.

Aileen:  You had 30 days?

Scot:  Yeah. What ended up honestly saving the company is one of our customers launched this campaign. It was called Kony 2012. It was a video, a viral video, that became the biggest viral video of all time and we were the donation link at the end of that video. Our business model is part subscription and part transaction fee on the donation.

Literally, the success of that video and the donations they were getting floated us for another 60 days. We found a super angel that put in $500,000 and kept going.

Aileen:  How much more runway did that give you, raising 500 and 5 million?

Scot:  At the time, probably quite a bit, much more than 30 days. Anything was good at that point in time.

Aileen:  Any other lessons that you’ve learned on your journeys that you want to share?

Daniel:  We touched on this earlier, but just hiring and how important that is to be thoughtful in who you bring on. The earlier you are in the company’s journey and the smaller team you are, the more impact that can have or the more senior of a person that you’re bringing in.

You just need a ton of care that you have a well thought out process, with good criteria, like you said, and that you’re actually basing it on some sound decision making. Every time I’ve forgotten to do that in my life, you regret it.

Scot:  The purpose of the company too, you mentioned recruiting in a non-obvious market, going beyond what you’re selling, the features you’re selling, even some of the traction, just really digging deep for why are you all doing this together?

Why are we going to spend the next 10 years of our lives building this company together? Getting really succinct with that and being able to communicate that to a prospect is probably one of the most powerful tools you have.

Andy:  Your purpose.

Aileen:  Next question. A lot of the SaaS metrics were talked about today in earlier panels. The question is, I believe that you should follow traditional SaaS metrics religiously.

Andy:  I’d say yeah.

Aileen:  What do we get? Two reds and a green? Which ones do you believe in religiously and which ones do you not believe in religiously?

Andy:  The talk that David Skok did and then Byron’s, those were fantastic. It’s very mathematical, the SaaS business model and LTV to CAC. I know David said he came up with it on the fly, but it’s a really good metric as a health of the business, CAC payback is obviously really big.

I think there are these metrics that you should have your dashboard. That’s how you should run your business. There’s other things too of course. There’s unique metrics to your own business, but as a general rule.

Aileen:  What are metrics you guys have made up or you disregard?

Daniel:  Not to sound mealy mouthed. It very much depends on the company and the situation. I think so for ourselves we went through a journey where early on we really thought of ourselves at the early stage of the lean startup cycle, where we weren’t concerned about revenue growth or these other metrics. In fact we thought those would be distracting and harmful.

We really were focusing on how quickly can we learn and how quickly can we iterate? That meant doing things that don’t scale and all those things that you do when you’re really small til we really felt like we hit on the formula.

Then when you feel like you hit on the formula, the thing that you see as you build the business is like, it doesn’t all come online at once. I had two years of board meetings, where I had a slide for a CAC that said, “We don’t calculate that. We don’t know yet,” and slide for LTV.

I didn’t know my LTV. We sell two and three year contracts. We’ve been selling them for under six months, so I don’t know my LTV.

It changes. Now that we’re a much more mature company, 200 people and growing really quickly, we’re much more financially oriented. In fact now we’re way more deeper than the things you can read on blogs or the things you can find in these other sources.

In terms of how we slice the business up into different cohorts and into different tiers, and measure the impact of individual team changes. The period of time where that spreadsheet that you can download is exactly you is really, really narrow.

Scot:  I think they’re fantastic guideposts. We were talking earlier about it. We all basically went to the David Skok and Jason Lemkin SaaS MBA school, when we were starting, by just reading everything.

They’re amazing guideposts, but here’s an example. The CAC to LTV ratio. It’s really easy for your LTV in the beginning to look really big. Basically the guidance is, “Step on the accelerator.”

If you have X amount of runway, you’ll probably want to stay a little bit careful and look at, “How easy is it going to be to raise money?” All these different things. Especially in an environment like this, you really have to weigh those other factors and variables when you’re looking at these guides.

Andy:  I think guidepost is a better word than bible. Yeah. Definitely.

Aileen:  Got it.

Andy:  Super easy.

Aileen:  Next question. Our company has figured out some special sauce or hacks that have been the key to our success. All right. Share your wisdom please.

Andy:  What specific…?

[crosstalk]

Aileen:  We don’t have to go in order this way. You could go that way.quote4-chisholm

Scot:  No. I’ll start. I’ll go this way. For us I think it was differentiating through the company’s ideology. In our space you have one company that has a large pretty much monopoly over the top of the industry, and hasn’t changed for decades.

For us it was really being strong about our viewpoint on the base and the future of the social sector, and aligning with the customers that felt the same way. By using that message and narrative through all of our marketing, being authentic to it, and showing up when doing things like the Classy Awards, which frankly it was huge…

Aileen:  Classy Awards.

Scot:  Classy Awards is our Oscars for philanthropy. We also have a whole summit around that now. In the beginning that was a really scary decision to make. It was expensive. Now I think it’s paid dividends for us in making sure that we’ve grown an authentic brand and that message is succinct. I think differentiating through the company’s ideals is a really great way to establish…

Aileen:  Investing in a brand, in your space, is probably a non-traditional choice and risky in the sense that it takes time. It may be hard to prove short term ROI. What was the internal conversation like? How do you figure out short term whether it’s worth it to invest in a brand?

Scot:  Honestly for us we have always looked at ourselves as a social enterprise ourselves. Now they call them B Corps and things like that. I think we’re all about growth, for sure. At the same time it was really important for us to stay true to our customers and to the space.

It isn’t just about building a fundraising app that helps them raise money. It’s really about helping the organization scale and getting to that deeper problem.

The brand basically spoke to that. Why is it really hard for a nonprofit to scale from 500,000 to over a million? It’s really just not done that often. Digging in deep there and saying, “Well, there’s some serious things that need to shift in the overall infrastructure of the sector.

Not even necessarily that we’re going to control, but we’re going to be a champion for that, for that forward progress.” I think the brand does stand for that in a way. That’s hugely attractive. It’s like a magnet, I think.

Aileen:  That’s cool.

Daniel:  I think ours was similar to that. Rather than think about it as a brand, what we think of as our secret sauce or the key to our success ultimately was focusing ruthlessly and relentlessly on what the customers actually need and delivering them that.

The thing that you see in our industry is there’s been kind of a mediocre applicant tracking software sold for decades. It’s kind of like low rent category that no one really cares about. Fundamentally the underlying reason for that, we think, is because those products were never focused on solving the real need of the actual customers that care.

Which is, you want to make great hires, and you want to avoid making bad hires. If you talk to any entrepreneur, I’ve never been on a panel it doesn’t come up as the number one topic.

What you find, when you actually set out to execute, is you hear all this stuff from the market. Your sales people run in everyday and say, “If we only had this one other feature, that the guys down the street have, we could sell a bunch more stuff.” Customers are always saying, “Oh, it’s like this button is too hard and the competitor’s application uses a newer JavaScript framework and it’s prettier looking.”

All those things are true. I wish I could wave them all away and solve them, but chasing all of those distractions comes at the cost of not solving the main problem your customers have.

We’ve always just tried to center the entire company, which means the product, but also our customer success, even our sales and pricing model I’m happy to talk about, is oriented around helping our companies do a better job at hiring. I think that’s what made us the fastest growing company in our industry since the first moment we launched.

Andy: Yeah. It’s kind of really…

Aileen:  Let me go back there for a second though. It’s easy to say, “We really focus on what our customers want.” Pretty much everyone would say that.

Daniel:  What they need.

Aileen:  What they need.

Daniel:  Different.

Aileen:  A lot of people would say that. 50 different customers, especially if you’re serving large enterprises, have 50 different…Yesterday we talked about this with HubSpot. You wind up building franken features. How do you stop that?

Daniel:  Basically what you have to do is you have to develop a theory of, “What is it that we’re trying to get our customers to do differently?”

If you don’t have that, then what you’re left with is like, “What are they saying?” If it’s like, “Oh, they’re complaining about this button and they’re complaining about that feature,” or, “The guys down the street just shipped this really neat sounding thing,” then that’s your orientation.

Instead if you think like…and this is part of the preparation that I’ve talked about earlier. We really spent quite a bit of time reading like, “What’s academic research say? What have the top practitioners actually done that’s worked in recruiting?”

Then those are the things that we’re trying to embody. When a feature or request comes in, or an idea comes to light, the first question I ask is, “Is it one of those things we’re trying to get customers to do?”

How should our customer success people, our account managers, relate to their customers? Should it be to delight them? Should we make them happy? Should it be to get references or make sure they renew? No. It’s help them do a better job recruiting. Look at their metrics.

Are they taking too long to hire? Are they not using enough evidence to make decisions when they make it to a decision point? If they exhibit those behaviors, let’s help them fix those things.

Our product isn’t as nice looking as the other guys. Fine. Ultimately, if you focus on that value, and make those hard choices, the difficult choices, that we think in the long term it will matter. The surprising and I think pleasant thing for us was it mattered in the short term, as well.

Aileen:  Yeah. Obviously companies have to make trade offs all the time. You’ll often hear companies say, “We’re doing this for marketing purposes.”

Daniel:  That’s right.

Aileen:  “We’re doing this because it’ll be a lighthouse customer and it’s going to be a pain in the ass.” You guys do not do those things?

Daniel:  No.

Aileen:  Wow.

Daniel:  You’re making trade offs all the time. I’m not going to say those don’t come with their downsides. You lose a deal. A customer says, “Hey, we’re your big customer. We really need you to build this feature.”

Ultimately, it’s like if this isn’t something that’s going to generally get us to our mission of making it easier for companies to do a better job of hiring people, it’s a distraction. It’s not something we want to do.

Andy:  Yeah. Kind of related to that. We follow a similar framework. The “jobs to be done” framework, if you’ve heard of that, is to work backwards from, “What is the job that they’re trying to do?”

If that fits into your model of what your product does and the value that it delivers, then you can plot it out and say, “OK. Does this fit into that top right corner of oxygen where it means that everybody’s going to use this every single time?”

If that’s the case, and it fits into that model, it’s probably a really good thing to do. Then the job of your product team is to figure out, “Well, let’s think about the job and not the feature, and maybe we can figure out some other new way of doing it that the customer didn’t request.”

Daniel:  I think also it’s relevant to the topic of this panel. Non-obvious or unsexy, but I think the other indicator of businesses like ours is, generally speaking, our users have to use our products. If you’re Facebook, and your users are using their products, they like it.

It’s doing its job. If you’re a Greenhouse, the users are in there everyday regardless of whether they like it or not. They have to. It’s their recruiting product. Until one day they decide to quit and go to the guy down the street.

You can’t just look at daily active users or basic stuff. You have to go deeper into, “Are they actually getting what they need to be getting out of the platform? Are we moving the needle?” We do analysis across our thousands of customers, hundreds of thousands of jobs.

We’ll say, “Oh, OK.” We just had a conversation with a customer yesterday where we literally showed them, “Here are your recruiting metrics. Are you collecting a lot of evidence about each candidate when you make a hire? How’s your speed? Where are you finding your candidates?”

Plotting that against their competitors and against the cohort of customers. Like, “You are not doing the things as well as you should.” It’s nothing really to do about Greenhouse. It’s like, “If you guys aren’t succeeding, and here’s the data to show it.

Here’s how then you can use our platform to do those things better to succeed,” is now a conversation that they’re happy to have. If you’re just harassing them with pop ups to try to click the button, or whatever it is, you’re not really doing the right thing.

Aileen:  Is thought leadership one of the keys to success for each of you to break through the sleepiness or the noise of being in a potentially a crowded or a done market?

Andy:  Yeah. For us especially. We’re in an established market. It’s all legacy, on premise, terrible software and lots of service providers. You have to cut through that. You have to come up with a completely new concept and get people thinking, “Oh, this is actually a much better way of doing it.” Thought leadership, call it that, is…

Aileen:  Do you sometimes take a more extreme view than you actually believe just to make it more interesting?

Andy:  Yeah. This is. We took the SalesForce. We took a page out of their playbook. Of course, SalesForce is a software company. They went around saying, “No software.” We took a page out of that and said, “No e-discovery.” That’s what that category has come to represent all this old antiquated things. In order for us to differentiate we had to say, “We’re completely against that.”

Daniel:  Sorry.

Scot:  I think it comes down to the company ideology again and, what do you stand for? If you figure out what you stand for and what your angle is on things, what your stance is, then you can build a thought leadership content repository around that.

It’s still one of our most effective sources of new leads today. We’ve really grown that tremendously. It’s really just about figuring out, “What does the brand stand for? And what does the Classy network stand for?”

Daniel:  I would just say we don’t really think of it so much as thought leadership as much as leading a movement. We realized early on that we’re not the only people who think what we think. We’re not the only people who think hiring the best people is important and an important mission. We don’t have all the answers.

By coalescing our customer community together and helping give shape and direction to that movement that was already out there anyway and joining in with that and bringing that to the forefront that lets us, I think, achieve our ultimate mission much more scalably than us writing a million blog posts to try to get people to see things our way in some kind of new way.

It’s not so much innovation that we’re pushing so much as bringing ideas that are already out there into reality and into practice and so people can do them.

Aileen:  Got it. Next question. SaaS CEOs should spend most of their time on building the cult of personality of the CEO. [laughs] All right. SaaS CEOs should spend most of their time on recruiting and culture.

All right, that’s easy. You guys all agree, no disagreement there. What would be the second bucket that you spend most of your time on other than recruiting and culture?

Andy:  Customers.

Aileen:  Customers?

Daniel:  Customers.

Scot:  Customers and product, but I guess I’ll go customers.

Aileen:  OK. Good agreement.

Daniel:  I’m actually really lucky. I’m kind of  cheating here because I have a co-founder who runs product and he does it at a world class level so I can skip all those meetings.

Andy:  [laughs]

Daniel:  The more I involve myself in the product the worse for everyone.

Andy:  We should do this.

Aileen:  OK, here’s a prediction. In the next three years there will be a new vertical SaaS unicorn.

Daniel:  A what now?

Aileen:  A new vertical SAS unicorn. OK, and the category will be?

Andy:  Legal.

Daniel:  Recruiting.

[laughter]

Scot:  What was the question?

Daniel:  In the next few years there’ll be a new SaaS unicorn.

Aileen:  Can you not hear me that well? We’ll speak louder. Here’s another question. I have prepared my company for a long winter for SaaS companies.

Daniel:  Working on it, but…

Scot:  Yeah. I’d say preparing for the long one.

Aileen:  Can you elaborate a little bit?

Daniel:  I think it’s not a thing where you know, LinkedIn dropped 45 percent. Call an all hands meeting and freak out like it’s too late. Right. We’ve prepared the company for this from the first day.

We started the company with a long term vision and telling people why they were here and what we were trying to accomplish. I think I’ve always been very clear, and I think the people that work at our company would agree.

Nobody thinks we’re going to effect the change that we’re trying to effect overnight. When we say, “Hey, our mission is to make it easy for companies to be great at hiring it’s not going to be done by Q3.” That’s not the expectation.quote5-chait

If you set out on a long term journey almost by definition you’re going to go through all kinds of economic climates. You’re going to go through ups. You’re going to go through downs. There’s no way that if you don’t mean, if you don’t get there it means you haven’t lived long enough to see it.

Everyone bought into that from the first moment. I think that’s all well and good. You don’t know when. Then the second piece of that is having prepared the culture to be resilient through all kinds of different conditions like when they happen what do you do?

I think that’s where I put my hand in the middle is like that’s an ongoing conversation and communication with the company especially in a growth phase like we’re in where things are growing and changing so quickly.

Aileen:  Like if you had an all hands…

Daniel:  You have an all hands…

Aileen:  And told people what’s happening in the market if they haven’t been paying attention and what that means for your company?

Daniel:  It’s like we have it on the books, right? It’s like it’s coming. The last all hands we had was a month ago. In the pace that we’re growing monthly all hands is…Is that the word?

Stuff happens in a month so getting that communication, cadence, and format right at different phases of the company is a continual challenge.

Scot:  I agree you should be prepared before it happens from day one. It’s about running the company in a smart way. One of our core values is dream big, execute smart. The execute smart piece is really important.

You do that when things are good and when things aren’t so good and LinkedIn drops 40, 50 percent, whatever it is, you stay the course. You make sure you keep the agility where you can make decisions and it’s not going to totally destroy your entire plan.

Some of the metrics, those guideposts we’re talking about, are excellent at helping you navigate the good and the bad times.

I think it’s often a little bit of a knee jerk reaction to sway back to being almost too conservative and really making sure that if you’ve got momentum, keep the momentum. Just be smart about it.

Andy:  Yeah. I mean I’ve lived through it so it’s like we’ve been here before. We started the SaaS transition during the Great Recession so we saw that.

Aileen:  You took away the free massages.

Andy:  Those are gone. [laughs]

Aileen:  All the free food.

Andy:  The unicorns at every corner. Those are gone. All the same. Right. It all comes back to values.

Daniel:  The “New York Times” referred to us last year as the Sunicorn, and I wanted to hang myself.

Aileen:  A Sunicorn?quote6-chait

Daniel:  It’s exactly the wrong idea to have people thinking. It’s like, oh, yeah, great. We raised a bunch of money. That must mean we’re rich and have it made, and we can all hang up our cleats. No, no, no. that’s when the real problems actually start.

Now you have a way higher bar to clear. Your competition is way better. They’re smarter. Your customers are smarter and have more capability to make things hard for you.

You’re swimming in deeper waters. That “rah rah” feeling that you see in a lot of the tech press about how amazing things always are, it’s actually not very healthy.

Aileen:  The question of what happens to…What do you call a fallen unicorn? I don’t know if you have names. We call them Jenny Craigicorns.

Daniel:  A what?

Andy:  Oh my god.

Aileen:  Or Betty Fordicorns. People who are addicted to growth and they had to go to rehab.

Daniel:  Can you find another corn, non-corn word? Trying to get out of the whole, get away from the whole corn thing.

Andy: Could we get into rabbits here or something?

Daniel:  Maybe we’re just a horse with a little thing on its head.

[laughter]

Scot:  There is one staring at us over here on the side.

Andy:  Oh, my god. Take it away.

Daniel:  We’re also on thrones. Could I point that out also? That’s like…

Aileen:  Yes, you are on thrones.

Daniel: Like that’s not really… I don’t have one of these at my desk.

Aileen:  We’re going to take a break from the paddles for a second. Do you have any advice that you would give your younger self in starting your company looking back on what you now know?

Daniel:  Other than get one of these things at work? Because I mean…quote7-wilson

Andy:  That’s an interesting question because I have a nine year old son, and he just started a cat-sitting business. I’m like, “Yes, I’m going to tell you everything that I know now.”

[laughter]

Andy:  I’m teaching him about MPS.

[laughter]

Aileen:  That’s awesome.

Andy:  And he’s using it. And he’s kicking ass.

Daniel:  Nice.

Andy:  He just closed the CTO of Salesforce. He’s our neighbor down the street.

[laughter]

Andy:  He called him up, said, “Scale 1 to 10, how am I doing?”

Aileen:  Nice.

Andy:  He said, “10, Jack.” Like, “Sweet. So…” It’s a super awkward conversation. “Do you have any other friends that you could refer me to?” He’s like, “Oh, absolutely.” He’s like, “Cool. Are you on Next Door?” He’s like, “Yeah.” He’s like, “Could you write me a review?”

Aileen:  Nice.

Andy:  These are things I wish I had known.

Aileen:  Only in San Francisco.

Andy: I’m teaching about LTV. I asked him how much is this customer worth? He said, “Well, he paid me $20.” It’s like, “Wrong.” [laughs] How many leads? All this stuff. Anyway, I’m teaching my son what I wish I had known.

Daniel:  I have a four year old named Jack, actually, also.

Andy:  Awesome. Good name.

Daniel:  I don’t have any advice for him about how to run a SaaS company.

Andy:  Cat sitting. Different.quote8-chait

Daniel:  But for those of us who are maybe in their 20s, 30s, maybe a little more open to this type of advice I think the thing that I’ve gotten better at over time is just being more patient and more thoughtful.

Again, I’ve always been like a ready, fire, aim type of guy. Now that I’ve seen some of this stuff play out and have a big organization that I’m looking after, just being more patient and more careful and thoughtful about things.

Aileen:  That’s counter to what most CEOs are taught. You’re supposed to run really fast.

Daniel:  Yeah, I was a spaz.

Aileen:  In the beginning you were a spaz?

Daniel:  Yeah, for about the first 40 years.

Aileen:  What changed?

Daniel:  I don’t know. I met someone I like who’s really organized and helped me figure out this business. My whole thing, my whole life was I’m young, and I can figure stuff out, and I can work really hard in any situation. That’s great.

But now I’ve been doing this almost 20 years. I’m in a position where I feel like I know what I’m doing a little bit, and I’m coming into situations I’ve done before and I’ve handled before so you have a perspective to plan things out two, three, four moves ahead.

The power of doing that is frankly nothing I ever had before. Having done it, “Oh, right, if you can see things two three, and four moves ahead you can play chess instead of playing checkers. It’s just a more powerful way to execute and that just took 40 years for me to figure out.quote9-chisholm

Scot:  I think for me it would be in the first couple years optimizing. Trying to really focus on optimizing for customer success versus optimizing for the next fundraise. It’s really easy to say now.

We were literally living off of $50,000 chunks at a time to keep going. It was very difficult to look longer.

I also would have probably, looking back, probably cared less about the initial valuations and just gotten the fundraise done and then just refocus on the company and the customer.

It’s looking backwards and I think maybe we saved a little bit of the company because we basically did it in chunks like that on a huge convertible note before we even knew what that was.

But it was a pain in the ass, and it really distracted us. I would just do clean, get it done, get a great partner, and move on.

Aileen:  I think it’s a great combination what you all said, which is like stepping back and taking the time to reframe your filter, because obviously it’s really easy to think about like, “OK, I have 24 months of cash left. What are the milestones?”

But step back, give yourself discipline time to think, “OK, what if I wasn’t thinking about that but I was optimizing for customer success? What would the metrics be, and how should I think about that?”

But you have to structure your time, otherwise it’s really easy to get caught up in the other way of thinking.

Daniel:  Yes, I can second that perspective as well. It was a lesson I learned while building Greenhouse was I spent the previous 10 years on Wall Street where it’s all hard dollars and cents.

You’d read these things in TechCrunch about, “Guess what? Venture capitalists love saying, ‘Oh, don’t worry about the terms. Don’t worry about the money. It’s all about the partnership.'” I was like, “Of course, you’re saying that because you’re trying to screw me.”

Andy:  [laughs]

Daniel:  I would say that one of the lessons I’ve learned now having raised a bunch of money is I’ve actually come around to that religion. I really believe that. I think we’ve made sometimes difficult choices of who to work with.

We’ve taken sometimes less favorable terms, but I think we’ve in our case felt really good about the choices that we’ve made on who to work with and started to see the value of doing that over, “Hey, we’ve got an extra nickel on this one round,” or whatever it is.

Aileen:  Exactly. I have one more question. Before I do, I wonder if anyone wants to leverage the paddles to ask a question. Are there any questions out there or if you guys have a question you want to ask each other? I can’t really see so you’ll have to let me know if you’re raising your hand.

Daniel:  Does anyone know what leveraging the paddles even means?

Aileen:  I can’t hear you. What?

Andy:  Leverage the paddles.

Daniel:  Leverage the paddles.

Aileen:  Yes, go ahead. A question.

Audience Member:  Is there less friction in terms of sales and marketing, less sales people required when you’re in a vertical…

Aileen:  The question is if you are in vertical SaaS do you need less salespeople?

Scot:  I think it depends on the vertical and the buyer. In our case we started as actually just a transaction only model. Looked a little more like an Indiegogo even.

What we found is to solve the problem we were tackling, which was basically how do you help them scale long term? The subscription component was key to the buy in.

Everyone told us you’ll never be able to charge X amount to a nonprofit organization and that was really scary to evolve the business model in that way, but it ends up working.

The ROI for the company and the customer is much better when you actually do have that contract and have that subscription element to it.

I think the price and the friction to the question really just depends on that buyer and what the vertical actually is.

Aileen:  I thought you guys were going to say, “Our software sells itself.”

Daniel:  Exactly. The thing we absolutely found to the question is people love talking about recruiting. They all know each other. Recruiters love…They have a million secret Facebook groups that you never heard of.

When we first came out with our product and started selling it, we just started seeing people coming up to our landing page and saying, “Request the demo. Request the demo.”

We’d never heard of them. We didn’t know where they came from. We didn’t know what was happening. It took a while for us to realize, ah they all know each other, and they all talk.

That was in retrospect a huge part of our early success was the fact that we were selling something super focused to a group of people that all knew each other and all wanted to talk about what we had to say was what got us off the ground.

Andy:  Yeah, I agree with all that. It depends. We tried to do the Basecamp, Atlassian, total self service. We’re like, “It’s just going to sell itself. ” But the product doesn’t make the phone call and say, “Will you pay me half a million dollars here?” It just doesn’t work that way.

A sales person really…When we brought on a sales team it really changed things and increased ACV so you just got to see what works. There’s no…

Aileen:  OK. One more question out there? Down there? Yes. Speak loudly.

Audience Member:  Were there any specific tools or solutions that from a finance analytic standpoint helped you raise the amount of money you paid you did in the amount of time, or was it all just spreadsheet work and…

Daniel:  PowerPoint.

Aileen:  Can you guys repeat the question?

Daniel:  Oh, sorry. The question was were there any specific tools that helped us raise money? PowerPoint and Uber.

Andy:  And Uber. The same here. [laughs]

Aileen:  The last paddle question because we’re running out of time is will the prices for public SaaS stocks end lower in 2016 than they are today?

Daniel:  I’ve never bought a stock in my life.

Aileen:  You know what’s going on in the market right now. Do you think at the end of 2016 we’ll be at the same place? Worse, we’ll be red. Better is green.

Andy:  Better is green? OK. I’m going to take the optimist route.

Aileen:  All right. That’s good. Two to one. Congratulations to each of you on your awesome companies and your awesome success. Hopefully you’ll stick around if there are any more specific questions, but thanks again for having us here, and thank you to each of you.

Daniel:  Thank you, Aileen.

Scot:  Thank you.

[applause]


 

Transcription by CastingWords

Published on October 13, 2016
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