Video

David Ulevitch (OpenDNS): Learning to Love Enterprise Sales (Video + transcript)

gretchende@gmail.com'

Gretchen DeKnikker

SaaStr 1 398

We’re publishing the full series of transcripts and videos from all of the awesome SaaStr Annual 2015 sessions (check out the Why Sh*t Really Gets Funded Part 1 and Part 2Partnering with the Big GuysHyperscaling Inside Sales with Zenefits, and the unicorn journeys of Slack and Yammer posts if you missed them).

This session features one of our favorite speakers, David Ulevitch, founder of OpenDNS, which was acquired by Cisco for $635m earlier this year (but after this session was recorded). A pivot from B2C to B2B is a treacherous one that many don’t survive.  In “Learning to Love Enterprise Sales,” David candidly shares his journey from a consumer model supported by donations (for reals!) to hopping on a plane and closing 6 figure B2B enterprise deals over steak dinners.  

Check out the full transcript from the session below.  And if you want to hear more from David, check out the AMA on “Getting Acquired by The Big Guys” we did with him a few weeks back (transcript coming soon.)

Also, make sure you grab your ticket to the 2016 SaaStr Annual. Bring your team and join 5,000 SaaS founders, execs, and investors for 3 full days of inspirational content and unparalleled networking. We’re 89% sold out, and everyone in SaaS will be there. You can’t afford to miss it

 

 

 

Jason:  You got a zinger?

David:  Do I have a zinger?

Jason:  Yeah. What we need is, like, just give me like a bad joke real quick or something like that. Do you got one on SaaS?

David:  I don’t know if I have a zinger on hand. We’ll save them for throughout the discussion.

Jason: All right. How about this? Let’s wish David luck in the Crunchies.

Aaron Ross:  What do you call a boomerang that doesn’t come back when you throw it?

Jason:  I don’t know. What is it?

Aaron:  A stick.

Jason:  All right. Very good.

[laughter]

David:  I’m glad I…

Jason:  All right. That deserves it the drum roll. So David was gracious enough to join us and I thought we would be fun to chat with for several reasons. First of all, he’s a great CEO, a great founder. He’s gone through a great journey of learning to love and learning all about enterprise sales from a very broad denominator background, which I want to chat about

Also, a great case study of someone that’s in that pre‑IPO phase and getting there to balance out the team. I think we’re lucky, very fortunately to have you, David. I want to ask a lot of things, but step back, and I want to focus on sales and enterprise.

Give us the 120 second version of your whole journey to what OpenDNS is today, going back to this whole journey that you’ve been on.

David:  I’ll start with today. We are an enterprise cloud‑delivered security service. If you think about the transitions in the IT landscape of people moving and working outside the office on myriad devices and using cloud services like Box and NetSuite and Zenefits.

It’s a radically different IT landscape than the one that people had originally thought about enterprise security for, where they just stack a firewall at the edge of the network.

We developed a cloud‑delivered equivalent that replaces that bump in the wire that you have at your office and delivers it as a service. We now have about 260 to 270 or so employees, depending on what day of the week it is.

We have a big, rapidly‑growing sales team. We opened up our London office last week. Our customer segments range from some of the largest companies in the world. We have global deployments with two of the Fortune 10 now, all the way down to various small mom and pops.

One of the beauties of SaaS is that if you can stomach the cognitive dissonance, you can really serve multiple markets at once. 2We can probably talk about that a little bit. The original journey started as a consumer company.

We were building a security service. It did very well from a customer adoption standpoint. We’ve always been a great products company, but I would say we were building great products maybe for the wrong market or we had the wrong business model.

We originally had an ad revenue model, and we discovered that building a great product for users over on this side but getting paid by advertisers on the other side was really this intractable problem, where advertisers wanted pop‑up ads and Flash ads and all these things that are intractable when you’re trying to build a security company.

We eventually made the transition to actually say hey, people that we’re building a great user experience for, why don’t you pay us money? It turned out that that constituency was businesses, and we can talk more about that.

Now, we are on the path to building what will hopefully be a very large enterprise security company and maybe in the long run, a just general security company.

Jason:  You’ve gone from ads to six and seven figure deals. You couldn’t be more polar opposite on the continuum of the ways to make money from the Internet.

David:  It’s been a long journey, and a long move up market.

Jason:  A lot of stuff. Tell us the uber learnings there, building the first sales team, the things you had to get your arms around to learn to make the transition.

Aaron Ross:  I will say when I talk to Jason, OpenDNS always comes up as these companies where there’s maybe an engineering based founder who doesn’t really know much about sales or doesn’t care. Then that transition to a…

David:  Yeah, it’s a massive transition. You’ve got to change the whole culture of the company, the whole team. In fact, we did that. In 2009, we took about 25 people or so. I would say about three of those people are left from the consumer business to the enterprise business.

Jason:  Including engineers, or do you mean just…

David:  Oh, yeah.

Jason:  Really? That’s a tough transition.

David:  Some people are really excited about building a consumer service, and the idea of building delegated administration and access control…

Jason:  They can’t do it.

David:  …all the enterprise features. It’s just not what’s interesting to them, and that’s OK. We ended up having to transition out most of the team. For me, you really have to get comfortable with building a product that is listening to customers, customer‑focused.3

We can talk about that, but it is a journey. One of the hardest things for us, I think, was getting comfortable with the fact that we had built a product that people felt like it was worth paying for because we were so used to giving away things for free. That was a personal challenge.

We also lucked out. Our first customers came to us, because they were using our free service. We had a global, one of the largest oil and gas companies in the world using our free service, that had 100,000 people using this thing.

I think we did the analysis, and we were making $1.87 on ads from them.

[laughter]

David:  Finally, their lawyers called us and said hey, we need a support agreement. We need an SLA and a phone number to call for support, and there was no phone number. I think we told them for 100 grand, we’d give them a phone number, and that was the beginning of the enterprise business.4

David:  It was pretty good to get 100 grand. By the way, if you had found my phone number, you got free phone support anyway. Now this company was giving us 100 grand for it.

Aaron:  Can I just ask people to please put a phone number on your website? I know it’s very cool to not have a phone number. I don’t have one on mine, but I’m going to. Put a damn phone number on your site.

David:  Yeah, same with web chat. We have a phone number on our site, you can call and a real human picks up. We also have that stupid human web chat thing that pups up and it’s like, “Do you want to talk to somebody?”

Whenever I see those, I’m like there’s no real person on the other end but there are real people. You could be a CIO of a Fortune 500 company and they occasionally will ask a really technical question and so the person on the other end of the line as to be pretty well trained in your product and it’s actually a way of creating leads.

Aaron:  It doubles… Clay over at LeadPages said it doubled their conversion rates. Just at lunch I saw him…

David:  It’s crazy that stupid live chat thing is effective. I’m not a personal user of that live chat thing, but people use it all the time.5

Jason:  Let’s go back. You do this radical transition, you lose 20 out of 23 on your engineering team, I lived it, tried to hire gamers, never works in selling a business product, right?

David:  I’m skipping some of the drama where there’s a CEO transition.

Jason:  There was some drama.

David:  There was like some minor coup d’état and then I came back as CEO. Some of the people bailed out because that wasn’t a bad week or bad month… that was a bad year.

Jason:  A bad year? We all have a year from hell, it turns out.

David:  Half the team just bailed out on their own. Half the team did.

Jason:  If we had more time we could go through the cathartic side of the story.

David:  Sure.

Jason:  So you go through this year of hell, it’s tough, you transition. Was there a great hire you made, a great someone? Because in a way it’s a very unique ‑‑ we all have the same story ‑‑ in a way it’s also like a lot of folks trying to figure out how to sell to the enterprise that haven’t done it before. You had a number of years on the product side. Who helped you?

David:  We ended up having a CTO who came from an enterprise security company, who basically called us and said, “Hey, the future of security is going to be cloud delivered and you have this global infrastructure. The future of security is going to be based on analyzing data and you have these 50 million daily active users. You guys should be doing enterprise security.”6

He was actually the CTO of WebSense at the time, one of their first employees. He basically pitched us that we’re sitting on a gold mine, and we are screwing around with this consumer business. We hired him. That was the first of a number of executives who had been there and done that in the enterprise space.

Jason:  What role did he join at?

David:  He joined as CTO…

Jason:  CTO.

David:  …and that was January or February of 2012.

Jason:  Got it.

David:  Then we built a whole enterprise product, that was sort of a mediocre enterprise product and then in January of 2013, we hired a VP of sales to go out and start selling it.

He came from an enterprise sales background and we’ve now filled out the full executive team with people that are well educated in the SaaS metrics, the SaaS economics and how to really go to market and sell a product, and they certainly educate me on a daily basis.

Aaron:  Yeah, revenue roughly 2012 til now, what was the…?

David:  We see what numbers are we talking about now. Here are some numbers. Our average deal size has increased almost 10X on our enterprise size in the last eight quarters.

All right, we have done about 123% CAGR since we launched the enterprise business year over year, subs growing from 100 percent year over year for last three plus years. We are averaging 20 percent quarterly growth and we now have four years’ worth of cohorts that are now starting to renew that we’re starting to upsell into, so hopefully, we will see that accelerate in 2015.

On that path too, the $100 million ARR number which is something the whole company – we’re a pretty open and transparent company – has its eyes on the prize. We’re very transparent from engineering all the way to the sales side about how we’re performing.

Jason:  I want to talk about other things. How today, how does the longer tail of the OpenDNS brand helped with the customers today? It obviously built awareness over time. Is it still helping today? Aaron Levie was on earlier, his point was it helped him until 2012, I think 2011 and then it didn’t matter anymore.

David:  Aaron’s certainly a few steps ahead of us and we would love to follow…

Jason:  You’re just saying you’re just trailing, right?

David:  Similar trajectory, a few steps behind.

Jason:  You’ve got this brand.

David:  The brand is awesome and actually Aaron and I have talked about the brand. We were contemplating a name change because at a certain point, the name OpenDNS is really stupid because if we really do a lot more than DNS, we’re not that open.

[laughter]

David:  I will not advise you to take a literal name but then the solace we get, like Salesforce, it’s really much more than just a sales product now, it’s more like CRM. If it worked for Salesforce, it can probably work for us.

But we do find that the brand helps us. When I go to a customer and I say, “Hey, I’m from OpenDNS, have you heard of us?” They say “Of course, I use it at home.” I say, “Have you heard that we have an Enterprise Security product?” They say, “No, tell me about it.”

That’s very different from calling and saying, “I’m from ThreatForceBoxGridZen whatever. Have you heard of us?” They are like, “No, I don’t… You just said words and I don’t know what they mean.”

Jason:  Security chimp.

David:  Yeah.

Jason:  The whole thing is let’s dig in a little more. Now when you’re selling really to the Sales office, you’re selling a security product which is not easy, right?

David:  Sure.

Jason:  Does the long tail brand there help too?

David:  It totally helps, I mean we have champions inside of our… the way we sell security is we start with like a CIO or a SESO who is usually saying… most CIO’s in large enterprise companies have sort of the right hand man or woman who is their technical sort of check it out, check it outer kind of a person. They will basically say “Hey, this is interesting, the problem you are describing that I have no visibility outside my corporate network, the people are using their own devices at Starbucks and using Box and Salesforce, like those are problems. 7

I want to deal with that. If you can go and get my champion, my sort of technical wizard on board that is our next step. We go and get that person to use our product. I would say one of the benefits of SaaS, and this is atypical in security, almost every one of our customers is using the product before they buy it. That means that after they buy it there is no sort of big surprises like, “I thought you did this thing” that you don’t actually do, because you are already using it so you know what it does.

Jason:  On the bigger deals, does that sort of impact account management deployment or customer success?

David:  Yeah, our sales engineering team is much more technical maybe than most SE teams, and we have very little post sales support that we have to do, because again most of the customers have already gone through the ‑ it’s not that arduous to deploy cloud service, but they have already gone through those hoops and that certainly helps.

It also has a huge benefit for our turn because if a customer is using our product we track their using it, we know in the selling cycle our sales people can see ‑ there’s a thing in Marketo, these interesting moments things, where we can see somebody is sending traffic through us and they have added networks and that we’re blocking security threats, and that makes our sales conversation much more fulfilling and valuable because we can talk about how they are using the product. Then by the time they close, we already know they’re happy.

When it comes time to renew, we’ve already tracked them, that they are using the product, they haven’t stopped using it and so we have all the visibility just like you would have. I’m a product CEO and so this is sort of extending that product management mentality throughout the whole customer life cycle.

Jason:  Let’s talk a little bit about the product CEO and the chain. Before OpenDNS went Deep Enterprise, how much time did you spend with customers?

David:  Before it went Deep Enterprise? Very little at all because we had 50 million and when I wore the t‑shirt sometimes people would say “Hey, I use OpenDNS.”

Jason:  Never met with a customer?

David:  Never, never with a real customer.

Jason:  How much of your time now do you spend in the customer connecting room?

David:  I’m on the road all time and I fly on the most annoying route to the oil and gas cities. I flew 250,000 miles last year almost entirely domestic and almost entirely on the smallest United props, to Tulsa and Calgary. Occasionally if I am lucky I get to go to New York.

I am in front of customers at least half of the time. We do these road show events, these dinners…

Jason:  I want to talk about that next.8

David:  A steak dinner and if you read Benioff’s “Behind The Cloud” book, it talks about the effectiveness of this. We bring in about 30 prospective customers and I try to plant the room with maybe four or five existing customers. I’m pretty confident that we know our customers are happy, so it’s nice that I don’t have to be the only show in the room. There are people, there are peers that can talk about how they use products and other issues they are facing.

Jason:  Let’s just dig in to a little bit of that. It sounds like you probably spend something like almost a third of your time on the road, may be half, and it sounds like at these events like Aaron talked about. You are trying to get the steak dinner, I won’t talk about it as a concept, but the goal is to seed it. Have five customers in the room and 20 prospects, right? Most of that time on the road is not one on ones, even the biggest customers, it’s doing these sort of micro events because you’ve got the high ACV. Because you’ve got the high deal side. You only need to close one customer out of that to impact this court, right?

David:  Yeah, the economics are super clear. The ROI is extraordinary on the roadshow events.

I do occasionally meet with customers one‑on‑one, but that is not the highest and best use of time, but it does happen. We have customers that like coming to our office.

A lot of customers that are out. If you’re in Northwestern Mutual in Milwaukee, the idea of coming to Silicon Valley, and we’ll set you up at our office, and we’ll set you up at a couple of other enterprise companies, is really appealing. We do the dinners. I’m chief dog‑and‑pony show officer.

I do the pitch. I get up there and I answer questions. I’m pretty technical.

I do a demo of the product. After that, anyone who is not already on a trial, almost everyone goes on a trial after that.

Jason:  Yeah. How does that, because I think it’s helpful to the audience, how do you work with your VP of sales on that?

We were here earlier with Guidespark and the VP of sales, Shep, said, “I think he sets up 60 and 60 appointments.”

Aaron:  Sixty‑eight.

Jason:  Sixty‑eight. And half of them are for prospects and half of them are existing.

You’re doing the demos, right? How do you manage through that process?

David:  Wait, whose VP of Sales sets up the appointments?

Jason:  Yeah, Shep is the SVP of Sales with Guidespark.

David:  Yeah, I need that. Why don’t we have that?

Jason:  Before you answer that…

Aaron Ross:  You know who you’ll be talking to quickly in the afternoon. Yeah.

David:  Who is this? I’m going to LinkedIn connect.

Jason:  Guidespark. Yeah, it’s one of your most popular case studies.

I can see a new chapter, actually, in the book coming and it’s titled “Steak dinners are Alive and Well.”

Aaron:  Yeah, they perform.

David:  I will say, we do find, we also do these dinners with partners. Because it is hard, especially if you’re in a major metro.

The smaller the geography you’re in, like if you’re in Tulsa, you can pack a room because there’s nothing else going on that night. If you are in New York City, it is what it is.

If you are in New York City, it’s very hard. People are working late, there’s a ton of things they could do on any given night. They need to commute out of the city.

We will usually partner up with another security company that’s a friend of ours or we’ll work with a VAR. A channel partner.

That will help create a little more of an appeal. Because a steak dinner in New York City is not as appealing as it might be in Dallas or Houston or Tulsa.

Aaron:  Yeah. It’s a sort of joint‑partners, CIO, kind of thing. That, actually, performs pretty well. Doesn’t it?

David:  It’s great. Especially if you have one of your customers talk a little bit about their experience, which most are more than happy to do.9

People love to sort of stroke their ego and talk about their thought leadership in the space and we learn a lot, so it works. It’s like a win‑win. Everyone wins.

Jason:  It sounds like you will have personally interacted, at least 20 meters away, 20 feet away, with just about every customer you’re going to close, right?

David:  I would say, any deal over 100k, I think that’s true.

Jason:  You’re good at that.

David:  If it’s under 100k, I would like to eventually.

Jason:  Yeah.

David:  These are all multi‑touch marketing activities. It’s hard to know, if they didn’t come to that roadshow dinner, would they have eventually closed? Probably.

I would say, almost every large deal that closes, or even after they close, they still come to a dinner. They’re fun events and we learn a whole lot.

We learn from what challenges people are facing. We learn what parts of our product need improvement.

They always try to play stump the chump, which is a favorite game of tech people. They try to ask you some question that they think there is no way you can answer it. You get pretty adept at that.

Jason:  That’s the winner?

David:  Yeah.

Aaron:  Chump.

Jason:  Is it hard? You go from wearing your flip‑flops and your tee‑shirt to flying to some of the smallest, minor metropolitan areas in the country.

No matter what anybody says, getting on jets is not that fun. Right?

Even if you love your iPad when you’re up there, you’ve got to get there. You’ve got to wait. You get sick, right.

Two things. Was it a rough transition, and…?

David:  Yeah. I mean, the flying part is not super appealing. Being in front of customers, is actually really 10exhilarating.

If you have a good product, it feels really good to hear people talk about enjoying your product and liking your product. That certainly more than makes up for it.

Then, the fact that you know, if you just close one deal, the whole thing has paid for itself more than once or twice or three times or four times over.

If you imagine, you get a 400K ARR deal out of one dinner, my time is absolutely worth going there.

Jason:  That’s the math right? Yeah. Because, I find that, it can be a rough transition to get to doing that from not having done it, right? I think if entrepreneurs can’t do it they’re probably gonna fail. Right?

David:  Yeah, I think you gotta get on the road. If you’re trying to do, I mean, if you’re in a super‑transactional business maybe, you always have to be in front of customers, whoever your constituents are.

Jason:  Yes.

David:  It’s not that bad. Once you start flying a lot then you basically get upgraded a lot, and so it’s not as horrible.

The upgrade’s less about the plane, it’s more about not having to wait in security. Get global entry, get TSA pre‑check, only fly carry‑on, wear like three outfits. It’s just not so bad.

Jason:  Yeah. Or you just‑

David:  It’s definitely not the worst part about being a CEO.

Jason:  Yep. A few related points. The last twelve months is when you’ve continued to see sort of the dramatic enterprise growth, right? What’s changed a lot the last twelve months on sort of the sales and revenue side?

David:  Yeah, I’d say that we’re a very different company today than we were twelve months ago, and we’re a very different company than we were twenty‑four months ago.

Jason:  Yeah.

David:  And we’ll be a different company twelve months from now. We have three swim lanes for sales. We have an inside sales team that’s doing sort of over‑the‑phone transactional sales. We recently split that team; we realized that some of that team would rather go outbound and hunt for deals and hunt for thirty‑ or forty‑ or fifty‑K ARR deal.

Jason:  Yeah.

David:  And there’s other people on that team who would rather sort of deal with the inbound flow and deal with maybe the five‑ to ten‑K ARR deals, and what’s happening is it used to be just one team, and the people, the men and women who want to be hunters, would ignore the inbound three‑K deal and just let it fall on the floor and then the people we thought could be hunters were getting just sort of bogged down with all these BS deals that they didn’t want to spend time on. We really split the team, now there’s a team that’s going outbound, prospecting, focusing on larger opportunities, and the inbound team‑

Jason:  Yeah.

David:  That swim lane has their own sort of issues and challenges, and then we have a field team that’s going out for the hundred‑K‑and‑up deals and they’re scaling. The challenges we have now is that the messaging and marketing positioning that we have for those different swim lanes ‑ I didn’t talk about the third swim lane but we can get to it, maybe ‑ the challenge is that you want to give a different value prop to those different audiences.

We didn’t think it would be possible, but it turns out it’s almost as hard as dealing with consumer and enterprise at the same time, which is very difficult. It’s hard to know on your web page, whether you’re talking about ‘simple and easy to deploy’ or ‘we find threats that no one else finds’ because different audiences care about that different kind of messaging.

It creates a cognitive dissonance of not knowing how to sell.

Jason:  We all struggle with that if we have an application that spans different customer size, right?

David:  Sure.

Jason:  Any learnings from how to ‑ I mean, it’s not a totally solvable issue, right?

David:  Not a totally solvable issue.

Jason:  Yeah.

David:  I mean, you have to focus. I think when I first met you we still had our consumer business, and I think you looked at me like I’m nuts that I was going to prosecute both activities at once, and you were right. We basically have put the consumer business on hold for the moment. If anyone wants to run that business, I’m talking applications.

It is hard to prosecute multiple activities at once, you do have to focus, and right now our enterprise field sales team is sort of on a runaway from a revenue standpoint, which means it’s going to be increasingly hard for us to spend mental calories on smaller deal sizes that have lower volume.

We’re looking at things like exploring CDW as a channel to deal with the lower end of the market and focusing our internal marketing efforts on the larger side of the account. We did an analysis that the amount of energy that’s spent to get a ten‑K deal is actually the same as getting a hundred‑K deal.

If you think about where you want to focus your areas of energy, you can’t focus on the ten‑K deals when you know you can get the same number of hundred‑K deals.11

Aaron:  Yeah. It’s hard to make a big business out of little deals.

David:  It is very hard. Unless you’re Zenefits. They have the magic sauce. But it is hard.

Aaron:  I think there’s a unicorn session at the end of the day, actually.

Jason: As the map becomes clear on the hundred‑K versus the ten‑K and these two‑K deals seem like you’ve just gotta give it away ‑ one of the things that’s happening is you’re sort of solidifying your market position enterprise without question, right? At the bottom of the market, which you’re less interested in, does that open up opportunities for competitors at some level because there’s only so much effort you’re going to put in to a $200 a month deal, right?

David:  You know what, we talk about it all the time, that why would you want to give up the ground you already hold?

Jason:  Yeah.

David:  You have to focus on where you think the biggest opportunities are.

Jason:  You have to!

David:  Yes, it opens up opportunities for competitors. Don’t get into security, it’s terrible.

Jason:  Don’t even consider it! But Salesforce, there’s ten thousand small CRMs, ’cause Salesforce can’t play around in that space. Right? I mean, it’s not worth it.

David:  The other thing that happens is, if you read Crossing the Chasm, I probably reread that book every nine or twelve months just ’cause it’s sort of cathartic, you have these early, early, early adopters that start to get annoyed about your price increases, or the fact that your product’s getting a little bit more feature‑rich in a way that they don’t care about, and you’re not building these cutting‑edge features that your early evangelists really care about. I start to get emails periodically from some of our earliest customers that I spent time with, and they’re like, “Hey, why does your road map look so screwed up” and it’s like “Because you’re not Exxon, and if you were Exxon you would want those things.”

Jason:  Yeah.

David:  It is a little bit painful. Like, once a week almost I get an email from someone asking why we’re not building their features, why we’re building some other features. It’s because you gotta make the tough choices.

Jason:  Yeah. Yeah. You gotta take your small, medium, large and stack‑rank it. The large getting, I’m guessing, 80 percent plus of, maybe 100 percent plus of the development.

David:  We try to focus on things that are applicable to the whole spectrum, but there’s always gonna be features, the small 20 percent company doesn’t care about active directory integration.

Jason:  Yeah. That makes sense.

David:  If you’re a hundred thousand employee or bigger company, you need it, you can’t close the deal without. It’s table stakes.

Jason:  So a couple of things I want to make sure we have time to dig in on. You brought up a fun one which is competing against incumbents, right? Tell us what you’ve learned as you’ve gone more enterprise, especially because security to me is interesting because on the one hand, people are worried about security so you can get a meeting because if you don’t know what is out there, you might not have the best protection. But on the other hand, change is tough. In a couple of years you’ll be the incumbent, but what have you sort of learned selling against that successfully?

David:  The security market is super fragmented. The dining table of security entrees is overflowing, and so we find that rather than trying to position ourselves necessarily as a replacement for an existing solution, though they have 10 years of feature check lists that we don’t have yet, where they have done R&D for 10 years on little esoteric corner cases that we don’t have.

We say, “Hey look, we’re protecting you outside the perimeter and you’re not getting any protection there. That really awesome Palo Alto firewall that you bought, it’s only doing its work when you’re in the office. That’s a 9‑to‑5 security model. We’ll give you a 24/7 model. We don’t have other features, but right now you’re totally blind and we can give you visibility there.”

We try to change the conversation about things they don’t have that we provide, and really say “Look, you can layer us in as an additive solution.” One of the selling motions we’ve discovered is that most of the hardware appliance models, a customer is used to spending maybe 500 grand on a metal box, but in the ARR model they are actually spending much less up front, and so it seems less expensive to add in this additive solution. Maybe it’s only 150K ARR, the equivalent would have been 500K.

We try to change the conversation to say “Hey look, you don’t need to compare us to your existing thing. This is a whole new security landscape, you have no protection here. Let’s go and cover that in the visibility.” Then we’re not in this feature bake‑off, it’s more like we are giving you value and proving this thing actually matters, this area over here.

Jason:  And do you find, if part of the pitch is, “Hey, Palo Alto Networks is great for your office.” At the end of the day, budgets are elastic but fixed. So do you find ‑ I am just curious ‑ do you find that when you use that argument, does it bound some of your pricing? In a sense you’re expanding the budget, right?

David:  Again this is where you get into those two swim lanes, and different swim lanes of sales. On the high end of the market, if you can prove very concretely that you find threats no one else finds and you’re easy to deploy, there’s budget for you. There will always be budget. Nobody wants to be next Sony, the chairwoman of Sony just stepped down this afternoon. Nobody wants to be that CEO stepping down. The CEO of Target also stepped down, nobody wants to be that.

If you’re in that segment of the market you can prove your value and you’re deployable, there’s always a budget. In the mid market there is less price elasticity there and it is more competitive, and so there is different messaging that that we go with there. “This is easier to manage, it’s easier to deploy. And you don’t have to deal with bandwith upgrade cycles and new hardware and hardware refresh cycles. As our services get better, yours get better too.”

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Jason:  So let me go back to because it’s a fun… maybe we’ll have to time for two more questions but when you’re in that real enterprise scenario, you don’t want to be Sony, you don’t want to be Target. Obviously whatever the cost of those breaches are 50 thousands of OpenDNS are a five‑hundredth, right? But how do you provide context around pricing? This is all still software. Costs lots of money to build, not that much money to ship, so how do you provide that because the ROI in theory is so high. Is it against competitive comps or how do you figure out how it should cost?

David:  We’re really bad at that. We’ve raised our prices four times in the last two years roughly 30 percent each time. A woman we hired to run products so our company did an analysis of discounting about a year ago when she started and found that on average every deal was selling at negative 20 percent discount. Every deal was selling at 20 percent over list. And we don’t actually list our pricing which, again, this is part of that transition. To me the idea of not putting your pricing on your website was crazy. It was like only a‑hole companies don’t put their pricing on their web page. But yet…

Jason:  You learned. No phone numbers.

David:  …you have to. And we also used to sell the whole kitchen sink, and it turns out customers don’t really want that either. They start to say, “Hey, well I don’t want that feature so I want to pay less.” So then you start to segment out the product SKUs. We continuously to raise our pricing. I think that because we came from a consumer sort of heritage and then sort of went to up to SMBs and then we have now switched to the whole high end of the market, we had to get comfortable with the idea that we had this really valuable offering and then our security turned out to be better than we thought. Now it’s more like an internal confidence thing that we really felt like we had confidence in our offering. Now we do and so we’ve priced accordingly and now it’s a premium security play.

Jason:  I’m just curious. So then as you’ve gone through that journey in ’15, did you figure out a strategic plan as a way to raise your ACVs materially?

David:  Yes, we looked all the different knobs, like do we want to get more dollars per seat? Do we want more seats per deal? Do I want to upsell additional product to the existing cohorts?

We sort of have a little heads up display of what are those little dials? Do we hire more reps, that we want to ramp up and carry more quota? We also basically look at which dials do we think are the ones that are most in our control. Sometimes it’s product that add more value, sometimes it’s going up market to get more seats per deal and sometimes it’s just trying to charge more dollars per seat.

When you turn to all those dials at once, it sort of becomes a force multiplier. I mean, that’s why our enterprise team is 10x to the average deal size and it’s a combination of all those factors. That certainly has been a good way of sort of taking I think that product approach and using those same sort of analytical methods of how people use your product and what they are asking for and then driving it up market.

Jason:  I wish we had more time this is amazing. Thank you David, we are going to root for OpenDNS tonight at the Crunchies.

This was terrific.

 

Published on January 7, 2016
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