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How to Create a Billion$ Category - Mark Organ's Dreamforce 2013 keynote

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Why just a build a company when you can create an entire new category? Category creators grow revenue 4x faster and grow market cap 6x faster than category entrants. …

Why just a build a company when you can create an entire new category? Category creators grow revenue 4x faster and grow market cap 6x faster than category entrants.

In this Dreamforce keynote talk, serial entrepreneur discusses how he created the cloud marketing automation category with Eloqua, his new advocate marketing category creator Influitive, and some other great category creators like Salesforce.com, Tesla and Keurig. A new framework for category creation is proposed, featuring a transformational experience and revolutionary business model underpinned by disruptive technological change.

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  • Salesforce.com in cloud CRM, Tesla in luxury high-performance electric cars, and Keurig in single serve coffee capsules – what do they have in common? Besides creating huge amounts of wealth for their founders and shareholders, they created new categories of value. They literally changed the world. It’s my passion and I want to share with you today my ideas on how to create a category through the stories of my companies. Ready? Let’s go!
  • The company I am most known for is Eloqua, which created the cloud-based marketing automation category, which was originally called automated demand gen. It is now a wholly-owned subsidiary of Oracle Corporation after going public in 2012, and worth around a billion dollars. How do you know it’s a category? Go down to the expo and count the number of companies participating in this space. My new company, Influitive, is creating a category around advocate marketing platforms. I think it is going to be a valuable category!
  • What is the inspiration behind Eloqua? The vision behind eloqua – about sales productivity by generating qualified leads for reps using the internet. This is a personification of that vision. Started with chat. Then added email. Couldn’t raise money, so then focused on getting profitable. Big break came with MTS and the press release … from there won GE GXS 2 weeks after Sept 11th. Got profitable shortly after. Along the way had to give up 20% of company for a loan. You do what you need to do!
  • Product-market fit  Here is the first automation engine. We still had the chat thing. It took us a long time to kill that.
  • Eloqua becomes a platform in 2007-2012.
  • The success of Eloqua and its category has created a whole new set of problems that I was inspired to work on. The world had changed and had created an opportunity to create a new category around advocate marketing.A burning platform. Now there are lots of competitors all blasting emails to people. Its not exactly what buyers want right now.
  • You do need to be both a breakthrough on business model and on product or experience;however, it’s rare to innovate dramatically on one dimension, without enabling or causing related enhancements to the other, so the case of hitting one but not both is uncommon.They don’t really have this for tech companies or venture backed, since a lot are private companies so it’s tough to value them accurately.Category Creators (CCs) have a lot of volatility with investors, markets, etc.; it’s a roller coaster rideOften CCs tie it back to what’s in the best interest of consumers; likewise, one test for CCs in whether consumers define it as such (i.e. to be a CC, consumers must see you that way…)The threshold to use to assess each dimension for true CC status is that each must deliver 2x the value of the previous versionSome companies that are close, but not quite there, are Lulu Lemon and ChipotleCCs typically see a lot of “super consumers”, who drive a lot of your business and are highly vocalCCs are often missionaries, while others are more likely to be mercenariesCCs typically expand the sector, rather than simply steal share: e.g. Keurig has meant that even as coffee unit consumption overall is declining, unit price is rising to sufficiently prop up the coffee industry and make it a growing marketOften, CCs disrupt multiple industries at once, rather than a single industry
  • 80% of Category Growthis captured by ~1% of companiesCategory Creators growrevenue 4x faster and market cap 6x faster
  • Hypothesis on who you are going to serve, the value that you are going to provide. What you expect to see if you are successful. Give the Eloqua hypothesis and story.
  • You will be wrong, guaranteed. But it’s OK. As long as you have written out your hypothesis and assumptions – your expectations if things go right, then you can update your model of the world. Go through an example here.
  • So what do you do when you discover where your assumptions are invalidated? You pivot. You run a new experiment. The CEO should be the experimenter-in-chief in the early going. Every week our early team would meet and discuss what we learned, and come up with new theories of how our world actually worked.
  • Go through the pivot. Then discuss theinfluitive hypothesis, and indicate some signs that our market may be off – we’re getting huge traction in partner marketing because the reward model is working better – and that is updating our model of the world.
  • This is super counter-intuitive for most entrepreneurs. They see amazing success stories like Salesforce, Facebook, Tesla and want to build a big horizontal solution. But even these mighty companies started out as focused players. SFDC focused on the under-resourced, inherently online, predominantly inside sales oriented Bay Area tech firms and provided a transformational experience for users and admins, in addition to a transformational business model and rolled out from there. I know because I was there! Zuckerberg had tremendous insight into social norms at Harvard, then rolled out to other Boston schools, then Ivy League, then all universities for quite a long time before rolling out. You should be an ant-eater, perfectly adapted to your niche. And do you know why you should be an ant-eater?
  • Because your first job as an entrepreneur is not to die. If you are perfectly adapted to an under-served niche, you will survive, even without raising a dime. You will be able to grab the lions share of that market which means fat product margins. Your focus reduces your cost to serve. Every feature that a customer asks for is needed by others which minimizes product development waste. And your services are so unique and valuable that you can charge a fortune for them. Eloqua was bootstrapped and profitable for 3.5 years before raising venture money, because of our unique adaptations to B2B tech companies. Sometimes, if you can survive long enough, then you can build a huge company!So, how do you build a huge company if you are an ant-eater, perfectly adapted to your niche? Well, it helps to pick the right niche which has huge growth potential. How do you do that?
  • This is what you build your category around – the under-served person that with your technology, you can make into a super-hero. You provide a transformational experience for the emergent hero and more importantly, you allow the emergent hero to provide a transformational experience for others. Story of the emergent hero at Eloqua. And the emergent hero at Influitive.Categories are not created by coming up with some 3-letter acronym and talking about it all day long. They come from the experiences of your users and your buyers. Think through how disruptive technologies are enabling new types of emergent heroes in companies, and empowering previously under-served consumer segments. Serve those people. Elevate them. Celebrate them. They will love you. They will be missionaries.Can you think of some people that are under-served, have a terrible experience, that with the right technology become heroic?
  • Category creation is a lot about the mission. A larger sense of purpose. If you want to build a category, you need to get your mission, vision, and values set as early as possible. At both Eloqua and Influitive, we had these from day 1 and we continue to iterate on them to this date.Think about salesforce – No Software. Google – organizing the world’s information. At Eloqua, we wanted to make sales reps more productive by providing them with quality leads from the internet. That mission kept the company focused through the tech wreck of 2001-2004. At Influitive, we are the standard-bearers for the advocate – we provide them with the best possible experience, we elevate their importance, we celebrate them, we love them. We exist for them. People who believe what we believe are drawn to our message – they buy our software, they invest in us and work with us. As Paul Graham said to Brian Chesky, it is more important that 100 people love you madly than 1 million sort-of like you. It’s that sort of focus that drove him to ensure that every place was photographed professionally, to provide the best experience for amateur hoteliers and their guests. It starts with mission, a bold vision for the underserved niche.What about values? They should be defined as early as possible. What do you stand for? What kind of people do you want in your company? Write it down and make it a living document as your company grows. You can’t skimp on this stuff. If you want a great company, you need strong values and attract people who believe what you believe.
  • Lead generation is the most important, strategic function for the young company. This may seem really tactical but I believe that the reason why startups have a hope of winning against huge, entrenched alternatives is that they can choose their customers and the manner that they want to engage with them. Lead generation is a direct manifestation of your mission and your strategy. It also is a critical factor in generating revenue. What did Eric Schmidt have to say about revenue? “Revenue solves all problems!”So make sure that your financial planning model is driven off of leads, and that someone important is accountable for generating them. That person could well be the CEO of the company. It is something that I spend hours a week doing. Your personal lead generation will probably save your company from certain death one day. [eloqua story on MTS]
  • Lead generation is strategic because it is the first act of selecting a niche segment that you are going to innovate around. In the early days of the company, I do not delegate this task. Armed with my hypothesis I get out into the market to test my messages. I’m looking for people and companies that are going to get huge value for my service. I ask how we could add 10x more value than we are proposing. I’m looking for things that the people who respond best have in common, and updating our model of the world.And FIRE CUSTOMERS too. Dan Debow, a category creator, said that it is critical for a CEO to be able to “fire revenue”.
  • After getting a few customers, you need to get that lead generation machine built.
  • The modern lead gen triad – from Aaron Ross, a co-presenter in the Founders’ Series. You need all three of these when you’re building a category creator. Inbound Nets - You need to create terrific content that is going to attract the right kind of people to your service. You want the missionaries, not the mercenaries. I think that the blog is a crucial tool for showing your point of view, so that the right people resonate with your mission. Open minds and you open wallets. At Eloqua and Influitive, we map out what others are saying in the marketplace so that we have original content all the time.Outbound Spears – There are some prospective customers that are a perfect fit for your solution. They don’t always come to your content on their own, you need to target them. We use a combination of telesales, trackable email marketing, CRM retargeting to make sure that the best possible prospects are getting exposed to us all the time. Advocate WOM – These are the best possible leads, word of mouth leads created by your advocates.
  • Quote from my first mentor at Eloqua, who encouraged me to go deep on making customers happy. VCs love to harp on the importance of scale, and it is really important. But happy customers scale really well, because they buy more from you and tell others about their experience. This is even more important if you have not raised a lot of money. No VC would invest in Eloqua in 2000-2001, and it looked like we were headed for certain bankruptcy. Luckily I had Bill as my mentor who showed me what to do. I raised prices, invested in massively overdelivering on our promises to customers, and went after competitor accounts where customer success was not a high priority. We got the company profitable in 6 months and grew it profitably for years. Then once we raised money, we focused on improving customer success operations to enable scale.
  • If you have $1 to spend on marketing, I suggest you do as our patron saint of advocate marketing, Jeff Bezos, commands – spend 75 cents on customer success. You will get a far better return. Especially early. Build Advocates and Mobilize Them. I received a great email from one of our Australian customers a couple of weeks ago, which stated, “The best marketing we ever did is the marketing we never did.”
  • So what is different about Influitive?
  • A lot has changed in the past few years. One of the most important is design and experience. It’s not enough to just get your product out there and iterate fast. You need to think through the user and customer experience and test that early and often. I agree with Dave McClure that one of our founders or early management should be a designer. I wish that my designer co-founder at Influitive worked out, because if he did it would have saved us a lot of time. Quality is also something we are focusing a lot more on. At Eloqua, by the time we brought on QA, the product was already a big hairy ball of bandaids. There wasn’t much they could do but barely tread water. I got an earful whenever I went to meet customers. At Influitive, it’s the exact opposite situation, I can focus on business problems with customers and expand my accounts because the quality and experience are high. How do we do this? (1) Pair programming (2) Early investment in hiring the best QA leader (5th person in engineering after 4 devs), (3) big investment in automated testing. You can’t afford not to do this. If your dev guys are chasing down bugs they are not innovating, pushing your product forward. If they are building products that your customers do not want, they are not delivering future sales for you and are a drain on your company. The time to catch bugs is way before they ever get out in the wild. The cost is a lot lower. The time to test designs is early and often, when the cost to change is low and you have a lot more freedom in where to take the product.
  • Remember the good old days when you could just automate a business process and then charge a per user per month fee, and get your SaaS company to scale? Well those days are OVER. The big boys and girls of SaaS that are succeeding now have a strong brand, balance sheet, customers, and partner lock-in. Most of you here in this room do not. As soon as you get your company to a 100 enterprise customers or 10K small business customers, there will be some free-ware in the marketplace and your growth rate will get hacked to pieces. You need to be smarter than that. You need to really think through the way you package and price so that you get a lot more leverage.At Influitive, we found out from our customers that what they really value is a large army of advocates that are consistently active, so that is how we price. Companies can have as many internal users as they want, as much usage as they can get. But we have not stopped there. This is our revolutionary Maven application, which is targeted at advocates so that they can advocate for any company they want. We are building, together with our customers, the best network of earlyvangelists in the world. When our customers in turn want more new customers, we have a great selection for them. Building maven allows us to keep the pricing for AdvocateHub low.Distribution needs to be wired in to your product strategy. In the future, it will be the only way to compete. No regular company can compete effectively against a player that has effective product-driven distribution. For example, Skype at $0.0001 per new customer versus Vonage at $400 per new customer.
  • Some final notes. Influitive is designed from the beginning to be a billion dollar business. That means that more than just the product needs to be designed well. The whole business needs to be designed well. The product needs to help distribute itself. Everything from the way that we hire, to motivate, do board meetings – is better designed. We think through experience carefully, while still keeping a high tempo of iteration. In order to do this, we had to raise money, and we raised money early and often – but even here we innovated in a couple of important ways.
  • There are some great tools out there to help raise money faster and from higher quality sources early on. My favorite is AngelList. I have 44 shareholders at Influitive which I sourced largely on AngelList. AngelList is a social network for raising money. I highly recommend the entrepreneurs here to learn more about this amazing network and other platforms like Funding Club and OurCrowd. 44 shareholders may sound like a pretty annoying and unmanageable group but we have thought through how to manage with regular conference calls and updates, and now I have 44 advocates out there helping us get new customers.
  • Raising money earlier allow us to think through how we will be attacked in the future so we can prepare for it. As a category creator, once the category is established there is a rush of alternatives, some of them free. Every year we would prepare by asking our team how we would respond if everything we offered today was available free of charge in a year. You need to be ready for that, and provide immense value for the customer to withstand such an attack. Here is how we did it – our AdvocateAnywhere product integrates deeply with our customers’ software – we can do that because we are so focused on that niche – so we can generate advocacy immediately after a user is delighted. It’s a level of integration we don’t think our future competitors will be able to keep up. I mentioned our Maven app, which provides a much better experience for the advocate going across all of the companies and products he/she would want to advocate for.
  • Every entrepreneur needs to focus on hiring the best team possible, you should want to surround yourself with people more capable than you. But that doesn’t mean hiring a bunch of all-stars that can do the job in their sleep. I think it’s better to hire people that are on the way up. Our head of marketing, Jim Williams, is a first time VP but has done every aspect of marketing in the past. Our head of BD, Chris Newton, was an all-star VP Marketing at Xactly, but a first-time VP of BD at Influitive. Our head of engineering was a team leader with enormous potential and now has the nod. Our head of product was the COO of EchoSign, so that breaks the pattern, except he is creating a category for the first time. There needs to be a lot of learning to attract the best people, because that is what they are in it for – to learn and grow. The comp and equity should always be secondary.
  • Salesforce.com in cloud CRM, Tesla in luxury high-performance electric cars, and Keurig in single serve coffee capsules – what do they have in common? Besides creating huge amounts of wealth for their founders and shareholders, they created new categories of value. They literally changed the world. It’s my passion and I want to share with you today my ideas on how to create a category through the stories of my companies. Ready? Let’s go!
  • Transcript

    • 1. Creating the billion$ SaaS category: Zero to IPO secrets from a serial entrepreneur Mark Organ, Influitive, CEO @markorgan @influitive
    • 2. Cloud-based Marketing Automation Advocate Marketing Nasdaq IPO $871M 2
    • 3. 3
    • 4. 4
    • 5. 5
    • 6. List, Attention Spoilage Deliverability Availability of Deep Knowledge 6
    • 7. Ideal Reality 7
    • 8. 8
    • 9. Dependence on knowledgeable peers in the buying process (B2B software buyers) 75% 50% 3.5X increase 25% 0% 2006 2010 2014F 9
    • 10. 10
    • 11. What does it mean to create a category? 11
    • 12. 12
    • 13. Salesforce.com’s status as a category creator enabled rapid growth several years ago Revenue growth (2004-2005) 100% Salesforce.com 80% 60% 40% Amdocs 20% SAP Siebel 0% 0 -20% -40% 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 Oracle (incl. PeopleSoft) Note: Relative Market Share is each company’s revenue divided by the market leader; the market leader’s revenue is divided by the 2nd place company’s revenue. Source: Gartner (http://www.gartner.com/newsroom/id/493005) 13
    • 14. This led to a dominant market position today Revenue growth (2011-2012) 70% 60% SugarCRM 50% 40% IBM 30% Microsoft Salesforce.com 20% 10% 0% 0.00 -10% Oracle SAP 0.20 0.40 0.60 0.80 1.00 1.20 Note: Relative Market Share is each company’s revenue divided by the market leader; the market leader’s revenue is divided by the 2nd place company’s revenue. Source: Gartner (http://www.gartner.com/newsroom/id/2459015) 14
    • 15. Tesla currently is small vs luxury vehicles US unit sales, 2012 300,000 250,000 200,000 150,000 100,000 50,000 0 Tesla Lexus Audi Cadillac Mercedes-Benz BMW Source: Business Insider (http://www.businessinsider.com/tesla-is-not-really-outselling-bmw-audi-2013-5) 15
    • 16. Tesla has shown dominance of US vehicle sales in its specific price range US unit sales, Q1 2013 5,000 4,000 3,000 2,000 1,000 0 Tesla Model S Audi A8 BMW 7-Series Mercedes-Benz S Class Source: Business Insider (http://www.businessinsider.com/tesla-is-not-really-outselling-bmw-audi-2013-5) 16
    • 17. Tesla’s category creator status and rapid growth drive valuation multiples far higher than other carmakers Market capitalization per vehicle sold $800K $700K $600K $500K $400K $714K $300K $200K $100K $60K $0K Tesla $39K $13K $12K $6K DaimlerBenz BMW VW Ford GM Source: Yahoo! Finance, Corporate filings, Analyst reports 17
    • 18. Transformational experience + Revolutionary business model Driven By Disruptive Forces 18
    • 19. Missionary VS Mercenary 19
    • 20. Category creators enjoy a valuation premium Incremental market capitalization per $1.00 of revenue growth $6.00 $5.60 $5.00 $4.00 $3.00 Category creator premium $3.40 $2.00 $1.00 $1.20 $0.00 Overall (20) Category Creators (10) Non-Category Creators (10) CNN/Fortune top 20 fastest growing companies (2010) Source: Cambridge Partners in HBR Blog, 09/2011 20
    • 21. = ≠ 21
    • 22. = Hypothesis-driven, iterative approach ≠ Iterated MVP is insufficient: emphasize design & quality Vertical niche market dominance Focus innovation on the emergent hero Drive leads to achieve profitable, efficient growth Expand your productization and monetization models Drive the company on mission, vision and values Build for the billion. Invest early in customer success 22
    • 23. = ≠ 23
    • 24. Use a hypothesis-driven, iterative approach to quickly find product-market fit 24
    • 25. Pick that niche you want to serve, document why, and test it. 25
    • 26. It’s OK if your hypothesis is wrong. 26
    • 27. Pivot quickly! 27
    • 28. Product Eloqua started with the wrong product in the wrong market Market 1.0 F.I.R.E. (Financial, Insurance, Real Estate) Chat 2.0 B2B Tech Marketing automation 28
    • 29. Vertical niche market dominance 29
    • 30. The narrower the better. 30
    • 31. Your first job as an entrepreneur is not to die I PROMISE I WILL NEVER DIE 31
    • 32. Focus innovation on the emergent, under-served hero 32
    • 33. Mission, Vision, Values Our Vision Advocates are our guiding light. We define and unlock the full Mission, Vision, Values potential of advocacy, for Our Mission for advocates, the organizationsCustomers they We will deliver the world’s central platform for support and the world. possible experience advocacy, featuring the best Drive the company on mission, vision and values …from day one! for all participants, especially the advocates themselves. 3 Mission, Vision, Values Our Mission for Team Members PERSONAL CHARACTER Influitive will be the best place for our people to Open, honest maximize their ability to learn and grow,and direct and with We are transparent and authentic with each that, their value toour customers and investors. the world. other, The only road is the high road We sleep well at night and hold our 4heads high, as we live with integrity. We all inspire and lead We transfer confidence to everyone who works with us. 5 33
    • 34. Drive leads to achieve profitable, efficient growth 34
    • 35. Treat lead gen as a strategic imperative 35
    • 36. CEO must help choose customers strategically 36
    • 37. Ensure the lead flow is increasing in quality & quantity 37
    • 38. Use a marketing mix of seeds, nets and spears 38
    • 39. Invest early in customer success 39
    • 40. Build happy customers: they scale really well 40
    • 41. If you have $1 to spend on marketing, consider spending $0.75 on customer success Need new pic 41
    • 42. = ≠ 42
    • 43. Iterated MVP is insufficient: emphasize experience, design & quality 43
    • 44. Expand your productization and monetization models 44
    • 45. Build for the billion. 45
    • 46. More long-term focus: design a business with multi-billion potential 46
    • 47. Raise money earlier, but use disruptive tools like AngelList for a higher shareholder count 47
    • 48. Build a more ambitious product footprint 48
    • 49. Hire a stronger executive team early, but with room to grow. 49
    • 50. Hire a stronger executive team early, but with room to grow. 50
    • 51. Creating the billion$ SaaS category: Zero to IPO secrets from a serial entrepreneur Mark Organ, Influitive, CEO @markorgan @influitive

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