Saastr Podcast #192: Michael Katz, Founder & CEO @ mParticle Shares Why Multi-Year Deals Are Not All Good

Welcome to Episode 192! Michael Katz is the Founder & CEO @ mParticle, the customer data platform that integrates all of your data and orchestrates it across channels, partners and systems. To date, Michael has raised over $75m in funding with mParticle from the likes of Social Capital, Greylock Partner, GV, Battery Ventures and more great names. Prior to founding mParticle, Mike was the Founder & CEO @ Interclick, where he organically grew revenue to over $140m in 5 years. The company went public in 2009 and was acquired by Yahoo in 2012 for $270m, a 50% premium on existing share price. If that was not enough, Michael is also a board member at Adaptly and Brightline.

In Today’s Episode We Discuss:

* How did Michael make his way into the world of SaaS with the founding of Interclick? How did that translate to his founding and running of mParticle today?

* How does Michael think about building a company and a category at the same time? In terms of resource allocation, if one is required to invest heavily into brand, how can this be done with a seed round? What were the most challenging elements of category creation for Michael with mParticle?

* When it comes to selling to enterprise, how can startups look to meet and stand out in the sea of startups to the enterprise buyers of today? How can they look to build trust with those buyers? How much of a role do VCs provide in terms of providing legitimacy and validation to a startup?

* Before Michael has said ‘multi-year deals are not good’ why does he hold this belief contra to most in the ecosystem? In which cases do they work well and is there nuance? How does Michael think about the element of deferred revenue and it’s subsequent effect on potential acquirers?

* How does Michael think about pilot programs? If mainly selling to one market segment, should pilots within other segments be accepted? What conditions on signing must be set to ensure success on completion of pilot? How should pilot programs change and evolve over time with the company?

Michael’s 60 Second SaaStr:

* What does Michael know now that he wishes he had known at the beginning?

* Who is crushing it in SaaS right now? Why?

* Pros and Cons of building SaaS startup in NYC?

* Motto or quote that Michael most frequently reverts to?

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Jason Lemkin
Harry Stebbings
SaaStr
Michael Katz

Transcript

Harry Stebbings: It’s me, Harry Stebbings, at hstebbings1996, with two B’s, on Instagram, and you’re listening to the official SaaStr Podcast. And my word, what a show we have in store for you today. Before the episode though, I do wanna do something quite unusual and take the time to say that not only is today’s guest an incredible leader and CEO, but he’s one of the kindest and most genuine individuals in the ecosystem. I really am very proud to have him on the show today.

So, I’m thrilled to welcome Michael Katz, founder and CEO at mParticle, the customer data platform that integrates all of your data and orchestrates it across channels, partners, and systems. And to date Michael has raised over 75 million dollars in funding with mParticle from the likes of Social Capital, Greylock Partners, GV, Battery Ventures, and many more great names.

Prior to founding mParticle, Mike was the founder and CEO at Interclick where he organically grew revenue to over 140 million dollars in five years. The company then went public in 2009, and was acquired by Yahoo in 2012 for a reported 217 million dollars. A 50% premium on the existing share price, I hasten to add. And if that wasn’t enough, Michael is also a board member at Adaptly and at Brightline.

I do also wanna say a huge thank you to both Auren Hoffman and Howard Lindzon for the intro to Mike today. I really do so appreciate that.

But you’ve heard quite enough of these terrible English tones, and so now I’m very, very excited to hand over to Michael Katz, founder and CEO at mParticle.

Michael, such a pleasure to have you on the show today. Heard so many wonderful things from Auren Hoffman to Howard Lindzon. So thank you so much for joining me today.

Michael Katz: All lies, but you’re very welcome. It’s great to be here.

Harry Stebbings: Well, I’m sure not, Michael, but let’s start today with a little on you. So, how did you really come to make your way into, what I was always call, the wonderful world of SaaS, and really come to found mParticle?

Michael Katz: Sure. So, mParticle is actually the second company that I started. The first company was in the advertising technology space. We started a company called Interclick back in 2006 or so, and we took it public a few years later, and then Yahoo bought us for a little under 300 million back in 2011. It was at Yahoo where I saw, really, the emergence of mobile, and we saw a nascent ecosystem where there were lots of point solutions that were aggregating various technologies and approaches. The thesis behind mParticle was that, as the investment into the mobile ecosystem continued, you would start to see specialization and you would start to see this disaggregation of technologies.

You see this a lot across various industries where over time as the supply chain matures you find not only these specialists, but then you find integrators. So what mParticle set out to build back in 2013 was an integration solution. We are a customer data platform that makes it easy to unify data across various digital and analog touch points, and then make it really easy to integrate that data into any of the systems that a consumer-facing company, like Airbnb or Spotify or Hulu or anybody else, uses to ultimately run and grow their business.

Harry Stebbings: I do have to ask, Michael, we spoke about the scaling of Interclick there, and I’d be a terrible interviewer if I didn’t ask, what were the core takeaways and lessons for you in really seeing that scaling of Interclick? And how do you think it kind of fundamentally impacted your operating mindset and how you build mParticle today?

Michael Katz: Yeah. Great question. There are so many takeaways, as you can imagine. The first one though, I’d say, would be to build for sustainability. So, think about building the strongest foundation possible, first and foremost, across tech and finance and operations and sales. While every competitor may be doing sexier things, and we see that right now with AI and ML, just master the fundamentals. We set out to build the best possible company, we weren’t always doing the sexiest stuff, but it put us in a position to be able to extract as much leverage out of the business as possible.

I’d say second, the customer is by far, in a way, the most important stakeholder. So competition doesn’t matter as much as people make it out to be, and ultimately there will be competing priorities. You get pulled in lots of different directions by clients, by partners, by employees, by investors and you have to relentlessly put the customer at the top of the list in every decision that is made.

Then I say the last takeaway that I’ll talk about today is winning can sometimes look like losing. It’s really easy to become fixated on an outcome really early on, only to realize that in hindsight not winning that deal or not hiring that person was really the best thing that could have happened. So my takeaway there is just don’t be overly obsessive about any one thing, and also enjoy the ride because it’s fun building a company.

Harry Stebbings: I couldn’t agree with you more there in terms of the enjoyable elements of company building, but I do wanna start on what we said there about customer data platforms. They really are the buzzword, so I wanna start with that and how you fundamentally thought about not only building a company, but also building a category, as you really have with the pioneering of mParticle.

Michael Katz: Yeah. It’s not easy. First and foremost, we didn’t set out to build a category, we set out to build a future. This was based on some strongly held views that we as a founding team had based on our experience. And so, we invested heavily in our brand, in our market presence, really early on, so I think we may have created the perception that we were bigger than we were. I think other folks took notice and said, “Oh, these guys are doing well. I wanna do what these guys are doing. This seems like a great opportunity.” But you can’t focus too much on the category itself, you just have to focus on building the best possible solution to create as much value for your customers as possible.

Harry Stebbings: I do have to ask, Michael, you mentioned there the heavy allocation in terms of resources towards brand. The obvious element now is the sunk cost in terms of brand building versus platform building, and kind of resource allocation accordingly. How do you fundamentally think about that?

Michael Katz: Sure. So just to review, sunk costs are costs or investments that have been incurred by past decisions, and the implication is that the upfront investment is high and by nature somewhat risky, but it pays dividends over time. So, a lot of people think about sunk costs in relation to engineering and platform building, but when selling to the enterprise you have to invest a ton in building your brand. Especially in the early days because most big companies like buying software from other big companies or other successful companies. They can be somewhat risk-averse as it relates to engaging with startups. And so, you have to invest a ton in your brand and your market presence in the early days to portray that image that you’re probably bigger than you are, so that if you are selling to the enterprise they will take you serious.

Harry Stebbings: Now, I do have to dive in. I have so many founders that email me, Tweet me, on a daily basis asking two fundamental things about selling to enterprise. First, is kind of from a more starting point perspective. How can startup founders really look to build relationships with kind of enterprise buyers in the sea of startup founders looking to build those relationships? Is there any advice you’d have?

Michael Katz: If you’re selling to the enterprise focus on selling to the enterprise. That means invest all of your energy in building relationships with enterprise buyers. Focus all of your go-to-market on creating awareness within the buyers of software within the enterprise community. Right? There’s lots of amazing communities and forums if you wanna sell into the developer community or if you wanna sell into the long tail and you probably have a bunch of competitors around you that are doing really well with respect to those tactics. None of that matters if you’re selling to the enterprise. So focus on the buyer, and the buyer at an enterprise is very different than a buyer at a smaller, medium size business. They want to meet with you. They want to engage, so good old fashioned sales is still very much in style in the enterprise. So, go pick up the phone, send an email, get on site, leverage your network, by any means necessary, get in front of the buyer. That would be my advice.

Harry Stebbings: I mean, I love that advice in terms of getting in front of them. Other than getting in front of them and kind of really building the brand to be maybe larger than it is in reality, are there any other ways that startups can then subsequently, once the kind of initial touch point has been built, they can build trust with that enterprise and kind of validity. How much of a role do you think like VC backing and brand name VCs play in providing that validity to the startup?

Michael Katz: So, your VC backers absolutely matter to a certain extent, but they’re not going to win you the deal. It’s a stamp of approval that says this startup who has just received x amount of dollars in funding is a legitimate company. The investor has done their research and their diligence, and they have put their money where their mouth is, and they have invested in this company. So, it provides a sense of credibility, but you still have to go out and win the deal. They can help facilitate the conversation, but I’ve never seen a deal get done because somebody was an investor or not an investor. You still have to do all the heavy lifting.

Harry Stebbings: If you progress this kind of relationship through the funnel there now, and these enterprise buyers are now partners and clients, you said that, about making them successful and having that as a priority. I’m intrigued, how did you think about that? Then also, just in terms of kind of from an accounting perspective, do you bake that into your CAC when thinking about kind of capital efficiency and forecasting? Or what’s the thoughts around that?

Michael Katz: Sure. So, as it relates to our partners and our clients, their success is our success, their failure is our failure, and that becomes deep rooted in our culture, in our value system, and the way that we operate day in and day out. What’s funny, or somewhat counterintuitive, if you focus on everyone’s success around you, that can actually make you very successful. And so, where we sit in the ecosystem by connecting our customers, customer data, with a whole sea of integration partners, if something goes wrong, eventually like all fingers are pointed our way, but when things go right we’re somewhat invisible.

So we know that we’re not necessarily ever going to be the center of attention or get the credit. We’re here to facilitate with dial tone reliability a transfer of data out to mission critical systems, and to be that infrastructure. And so, if everybody around us is successful, we’re doing our job.

Harry Stebbings: No, I love that kind of focus solely on the customer there. In terms of, I do have to go back to the element of kind of building the brand and that importance just to gain those customers and that trusted relationship, if one’s at seed, how can one think about kind of raising enough funds to both build the brand and build the team in kind of a simultaneous step like function? How do you think about that when so early on in the fund raising process? And is that really possible?

Michael Katz: It absolutely is possible. The advice I got, and the advice I give to young entrepreneurs, is no matter how much money you think you need, double it. The size and the quality of the logos really does matter, especially in the early days and selling to the Enterprise. So we spent a lot of energy making sure that we won a few lighthouse accounts really early on. For us it was SeatGeek, and then Starwood, and then Zappos, and then Spotify. That allowed us to create that early momentum, by which when we walked into the next handful of meetings, and people would naturally ask us, “Well, who do you work with,” we didn’t have to beat around the bush or say, oh, well we’re talking to x, y, and z. We had a list of customers that were really, really impressive.

And so, the balance though, is capital efficiency because you do have limited resources and there is no really perfect way to address this. You have to get creative, and you have to be thoughtful. I’d say zig when everybody else is zagging. Don’t just invest a lot in SEM because everybody else does. For us, especially selling to the enterprise where we have a target list of maybe 2,500 customers, we’re not trying to reach millions and millions of people. So, we knew that that wasn’t going to be a good investment in terms of marketing resources. We’ve actually been really successful investing in areas or platforms that others weren’t, and that allowed us to stand out. For example, we’ve invested a lot in podcast and a few other areas, and I feel like you have to be able to stretch those early dollars as far as possible.

Harry Stebbings: Well, I mean, I’m horrendously upset that you’ve never come to me for podcasting, but we’ll take a break from that one, aye?

Michael Katz: We will. We will. We’ll be back.

Harry Stebbings: I’m sure, but I do wanna ask, you make it all sound very easy with, as you said, the incredible clients that you built early on there, and the journey that you’ve had so far, but if you take a slightly reflective stance, are there elements that you look back on that are within that kind of category creation process that you really found most challenging? Are there some that stand out to you?

Michael Katz: It’s everything. So, from educating the market, it’s a slow process, so you have to be patient. Budgeting and budgets aren’t readily available, so you sometimes have to get creative with how you price things, especially early on. Marketing and communications is not obvious because you can’t just identify another company doing what you’re doing and say, ah, I’m just gonna improve on what they have. So, you have to iterate a lot. Hiring is tough because you can’t just pull people from some bigger company that you aspire to be some day. You are hopefully building the company and category, and you’re saying I’m going to change the paradigm and create something from nothing. That’s very hard for all of these reasons.

And so, where a lot of people can go wrong is they get caught in the weeds and they don’t step back and they don’t see the big picture. You don’t wanna just create a category and a company, but you want to lead it along the way. Right? So, it’s a delicate balance, but I think it’s something that we’ve done pretty well so far.

Harry Stebbings: No, I mean, absolutely you have, but you lead me very nicely into my segue with the talk on pricing now and how it changes. Because I do wanna move slightly away from the landscape and drill one layer deeper, really, into kind of business mechanics, and discuss both multi-year deals and pricing. So, often in the world of SaaS, and I’m really looking forward to hearing your thoughts on this, multi-year deals are kind of this hail deity of brilliance. However, when we chatted before you mentioned to me that multi-year deal are not always good. Talk to me, Michael. Why do you think this? And what are some kind fundamental challenges associated with them?

Michael Katz: Sure. Well, I would say multi-year deals are good if you have a very transactional sales process, but if it becomes much more strategic, and for us, elongated, our sales processes are usually six to twelve months or so, but on the other side of that our product is inherently very sticky because of all of the different systems that we’re syndicating data to. If there’s a strong element of stickiness, then you don’t wanna lock yourself into a multi-year agreement, especially in the early days of the company because ultimately how you price today may not be how you wanna price next year. As a very small company you have to take more risks and be more flexible with your pricing in the early days, and then you can let that evolve and you can recalibrate it as the company gets bigger, as the category matures, as lots of things naturally happen that will allow you to reorient your pricing towards a more balanced structure.

Harry Stebbings: I’m really pleased you said that about that concern because I have a different concern, which is the concern of kind of deferred revenue and essentially being cashless revenue over the subsequent years. You’ve had an incredibly successful journey prior to mParticle, so I’m really interested, how do you think about kind of that deferred revenue and whether it affects the mindset of potential acquirers, and how you think about that?

Michael Katz: Yeah. That’s a good question. Obviously, deferred revenue and having multi-year agreements is great because it presents an element of stability, but again, I go back to what I just said. If you know that your product is inherently very sticky and you have very high retention rates and your net retention is well over 100%, I think optimizing to deferred revenue would be a bit misguided. You need to be confident in the business you’re building and the product that you have, and continue to build and improve upon and bear some of that risk in terms of sustainability for the trade off, which ultimately will be larger contract values and sizes in the out years. In years two, three, and beyond.

Harry Stebbings: Yeah. No, absolutely. I do wanna jump on one element that you said also, being your sales process between six to twelve months. I often get founders kind of tolerating enterprise, say to me, “Harry, six to twelve months. The ROI on those sales reps is taking time. I’m getting nervous. It’s just too a long a ramp time. Should we be doing smaller deals in between to kind of make up for that lack of immediate revenue generation?” How do you think about that? And what advice would you give to that founder?

Michael Katz: In the early days? Do everything. And I know that this is contrary to what most people will tell you, but we took on a number of deals in the early days that we would never contemplate taking on today. What that did for us was really three things. It allowed us to build momentum. So, it got the team believing in the fact that were doing the right thing, and we could win. It created revenue for us, so obviously it slowed the burn, which is also good because that elongated our ability to last. Then it allowed us to seed data flowing through the system, and be implemented and instrumented in these live environments, improve upon our product.

And so, yes. You do want those lighthouse accounts, but to your point, it is going to take several months if not several quarters, or a year plus, to get into those accounts. So in the meantime, where are there quicker wins? Can you work with people in your network? Can you give the product away free? Do limited proofs of concepts by any means necessary because you need to get those proof points that I just mentioned.

Harry Stebbings: In terms of kind of getting some of the proof points, some founders say to me kind of in their urgency, “Hey, should we do partner programs? Might that be a brilliant savior?” How do you think about then when the right time is to maybe engage with partner programs?

Michael Katz: So, I think partner programs are a bit of a sucker’s bet, especially early on in the company. You really wanna be able to control your own destiny, and you really wanna be able to understand the motion of your business. By outsourcing to a channel partner, ultimately, you’re mortgaging your future if you don’t already have the fundamentals mastered in your own business. There’s no way that you can have the fundamentals mastered just by nature of being an early stage company. There is a point where the business evolves and the unit economics are in place, the systems are in place, the processes are in place where then you can start to look at channel partnerships and outsourcing, and things like that that augment your core strategy. So, it’s really a matter of augmentation. I don’t believe, at least for this business, that channel partnerships should ever be part of the nucleus of the company.

Harry Stebbings: Yeah. No, I completely agree there. I do, though, wanna finish, and before we move into the quick fire round I wanna discuss your location. You’re based in New York, not a conventional wisdom for success in SaaS, but a huge and great ecosystem. So tell me, what’s it like to build a SaaS company specifically in New York? And maybe specifically a SaaS company versus the valley.

Michael Katz: Well, New York is the greatest city in the world. [crosstalk 00:21:19] Tough to argue with that. I’m actually a big supporter of New York tech, and you look at some of the enterprise software companies that have come out of New York recently, and I think there’s never been a better time to build a software business in New York City. You have Data Dog, and Flat Iron, Nexus, Moat, Oz, Braze. You have a number of really exciting startups like Troops and a few other folks, and I feel like the ecosystem is as strong, really, as it’s ever been. But I think what’s nice about building in New York City is that you do stand out, right? There are so many industries here. There’s so many different types of people, and you can draw on that wealth of diversity, and you’re not drowned out by 18,000 other tech companies. And so, for me, being in New York City really provides us a platform or soapbox to stand out, and I think do great things.

Harry Stebbings: Can I ask what are the fundamental challenges of being there? If that’s kind of the access to incredibly diverse talent, being all around the world’s greatest city, kind of the growing ecosystem itself, what are the challenges that you maybe think about a lot?

Michael Katz: So, I think getting access to great sales talent is definitely tougher in New York City. There’s lots of amazing enterprise sales talent in the bay area, but the talent pool here in New York City is just smaller. It is what it is, and so often times when we’re building out our sales team, or we’re trying to find our next sales hire, there often times isn’t a perfect background or Linkedin profile, and we’re trying to figure out what are the right proxies that represent a high likelihood of success because, like I said, the talent pool is potentially a lot thinner here in New York City.

Then just the mentality that you have to have in order to survive in New York. It’s just different. You have to be tougher, you have to be nastier, you have to be scrappier, you have to be smarter, and more thoughtful at the same time. So, it presents a whole different element that you don’t find in other cities.

Harry Stebbings: Now, I could talk to you all day, but I do just have one final thing to jump on from that before we do the quick fire. You mentioned kind of the proxies to focus on with those candidates. I’m really interested, and I’m always fascinated by it, when is a stretch a stretch too far in terms of a candidate?

Michael Katz: That’s a great question, and it’s something that we ask ourselves all the time. I think what it comes down to is a few factors. How much do I have to pay this person, what is their background, what is their likelihood to be successful, have they been successful in the past? You know, we see that as one of the strongest indicators of sales success. Have they sold a complex product in the past and been successful at it because good sellers are good sellers. And so, if somebody wants $100,000 or $110,000 base salary plus commission, we’re probably willing to take a pretty good chance on that person. If they want twice as much as that, or say they’re coming from a much bigger company and they want three times as much as that, the value trade off probably isn’t there.

Harry Stebbings: No, I totally get you on the value trade off there, but I do want to move into a quick fire round. It’s very annoying. I wish we could chat for hours, but I would-

Michael Katz: Likewise.

Harry Stebbings:  -love to move into the quick fire. So, I say a short statement Michael, and then you give me your immediate thoughts, and about 60 seconds per one. Are you strapped in and ready?

Michael Katz: Let’s do this.

Harry Stebbings: Okay. So, this is probably one of my favorites, what motto or quote do you most frequently revert back to?

Michael Katz: Life is good. You know, sometimes the journey is bumpy, but we’re incredibly blessed and incredibly fortunate to do what we get to do every single day. So, always good to step back and just acknowledge the fact that we live in an amazing time, in an amazing place, we get to work with amazing people, and as I was saying earlier, enjoy the ride.

Harry Stebbings: This isn’t in the schedule, but I do have to ask it, CEO of two hugely scaling companies, one sold, and mParticle now absolutely crushing it, what do you do, though, to de-stress? What’s your coping mechanism? What’s your calm down? What’s your stress reliever?

Michael Katz: I work out a lot. Probably five days a week between circuit training and I’ve done Muay Thai, kickboxing for probably ten or twelve years at this point, and that is extremely cathartic.

Harry Stebbings: No, always better than punching an employee. HR would love me, huh?

Michael Katz: Yeah.

Harry Stebbings: Tell me a moment in your life, Michael, that served as an inflection point and really changed the way you think.

Michael Katz: That’s an easy one. That was when my son was born. I think prior to that, working extremely tirelessly and selfishly on the business gave me incredible joy and satisfaction, and rightfully so, but I think when Connor was born it allowed me to step back, and walk in the apartment at the end of the day, and realize there was much more to life than just company building.

Harry Stebbings: Well, I mean, I would love to say that I couldn’t agree more, but I would have no idea. It’s quite a way off. I think I need to find a girlfriend first, but-

Michael Katz: That’s a good first step.

Harry Stebbings: It’s a good first step, but who do you think is crushing it in the world of SaaS today? And why?

Michael Katz: That’s a great question. There’s so many incredible companies, but I think the companies that focus in API first strategy are the ones I most admire and try to emulate. So, companies like Okta, and Twilio, Stripe, Braintree, I have a ton of respect for what all those guys have built. MuleSoft as well, so I think those guys are absolutely crushing it.

Harry Stebbings: And then I wanna finish today, Michael, on what do you know now that you wish you’d known at the beginning? Now, I’m gonna give you a choice, it can be at the beginning of your time with mParticle or it can be at the beginning of Interclick, but what do you wish you’d know now at the beginning of dot, dot, dot.

Michael Katz: That it would all work out. There’s been far too many stressful moments over the past, call it, ten years, and I think it does get a lot easier over time as an entrepreneur to manage your emotions and your psychology. There’s been a lot written about that, how that’s 70% of the struggle, in terms of being a founder. So I would just say no matter what, keep your head down, stay in the pocket, don’t get too upset, don’t get too excited about any one thing. Kind of stay as even-keeled as possible.

Harry Stebbings: Michael, I think you can tell from my overexcited tone I’ve absolutely loved having you on the show today. I’m so excited for the future ahead with mParticle, and absolutely gutted I’m not a major investor, but it really has been such a pleasure. So, thank you so much for joining me.

Michael Katz: Pleasure was all mine. Thanks a lot, Harry.

Harry Stebbings: What a fantastic episode that was with Michael, and such exciting times I had with mParticle. And if you’d like to see more from Michael, which you should, then you can follow him on Twitter at mkatz0630. That really is a must. Likewise, we’d love to welcome you behind the scenes here on SaaStr. You can do that on Instagram at hstebbings1996 with two B’s. It would be great to see you there.

As always, I cannot thank you enough for your support, and I cannot wait to bring you another exceptional episode next week.

 

Published on September 14, 2018

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