Selling to SMBs can be exciting. It’s also extremely challenging. With fast-paced sales cycles, lower price points, and higher churn, it means you have to be making sales every single day to grow a company. In the most recent episode of Scaling Success, Sean Cantwell invites Pete Lamson, CEO JazzHR, Jobvite & NXTThing RPO, to join the show and talk about what it takes to scale successfully with SMBs. With a focus on B2B, high-velocity, new customer acquisition, Pete brings a meticulous, measurement-focused approach to help answer the questions entrepreneurs frequently ask as they are looking to really step on the gas and accelerate.
About Pete Lamson:
Pete Lamson is a results-oriented executive with a 30+ year history of a strategic, metrics-driven approach to accelerated revenue. Currently, as CEO of JazzHR/Jobvite/NXTThing RPO, Lamson is responsible for the company’s strategic direction, aggregate performance, and day-to-day business operations. Pete joined the combined company through the acquisition of JazzHR where he served as President & CEO. Prior to JazzHR, Pete served as Carbonite Senior Vice President of Global Sales where he was a member of the IPO Team, responsible for Carbonite’s global sales organization and achievement of all revenue objectives, inclusive of new and renewal revenue in the US and EMEA. During Pete’s tenure, Carbonite enjoyed 20 consecutive quarters of record revenue. Previously, Pete served as SVP & GM for NameMedia’s SMB-focused Domain Marketplace, the largest of its kind in the world, and Chief Operating Officer of Monster Worldwide’s consumer relocation division, helping businesses convert new movers into lifetime customers. Pete is a graduate of Holderness School & Harvard Business School
The Science of Selling to SMBs - Podcast Episode
THE SCIENCE OF SELLING TO SMBS - VIDEO EPISODE
Sean Cantwell: Hi, guys. Welcome back to Scaling Success, a podcast geared towards entrepreneurs, where we discuss a range of topics that contribute to building a valuable and long-lasting enterprise. Our goal is to provide our audience with access to experts on a variety of topics that are critical to scaling a successful business. If you’re new to the podcast, please go ahead and follow us on LinkedIn, and Spotify.
Sean Cantwell: I am thrilled to welcome to the podcast today SMB-SaaS aficionado, Pete Lamson. Pete, following the recent acquisition of JazzHR, which is a former Volition Portfolio company, currently holds the title of CEO of the combined JazzHR, Jobvite, and NXTThing RPO. There, he is responsible for the company’s strategic direction, aggregate performance, and day-to-day business operations. Prior to JazzHR, Pete served as Carbonite’s Senior VP of Global Sales, where he was a member of the IPO team. He also previously held senior executive roles at NameMedia, and Monster Worldwide. Pete, welcome to the podcast!
Pete Lamson: Great to be here, Sean. Good to see you again.
Sean Cantwell: Yeah, always. I’m excited to talk to you today, Pete, for a bunch of reasons, but I thought we could really focus the bulk of our discussion on the unique aspects of selling software to SMBs. You’ve now done it at a number of different stops, but I think before we dive into the Q&A, it might be helpful if you could tell our listeners a bit more about your career journey.
Pete Lamson: I’ve been in the, call it, tech-enabled emerging growth space since almost- well, almost my entire career, since the early ’90s, even pre-internet, working with companies of all different sizes; some very early stage; some much larger. You referenced Carbonite, where we went public along the way, and that was a terrific run, and then at JazzHR, and Jobvite, where we’ve got some nice scale – always helping businesses harness the power of their underlying technology to better serve their target markets and finding the right product market fit for that particular solution in the markets they’re going after, and then, the best way to commercialize that solution with the right go-to-market strategy.
Sean Cantwell: I referenced a recent acquisition of JazzHR, and your new role. Maybe just for context, it would be helpful if you could provide our listeners with an overview of Jobvite, and its focus, and its capabilities.
Pete Lamson: Jobvite, and JazzHR, and NXTThing RPO are in the recruiting space. We bring three companies together for a very, what we think is, a unique strategy to help businesses of all sizes recruit more effectively. JazzHR, and Jobvite, in some ways, can do the same thing, but they’re very complementary. JazzHR is a recruiting solution; technically, an applicant tracking system for small businesses, which we define as businesses with up to about 500 employees.
Pete Lamson: Jobvite does the same thing. It’s a technology based recruiting solution, but really it’s the high end of JazzHR’s SMB market all the way up through mid-market, and enterprise solutions. What JazzHR does for small businesses, Jobvite does for mid-market, and enterprise-level companies. What this effectively does is allow companies to manage their internal recruiting processes in a much more efficient, scalable, results-oriented manner, so we have technology solutions for all market sizes.
Pete Lamson: On top of that, we layer on recruiting services through our RPO business. RPO stands for recruitment process outsourcing. This is arms and legs to help businesses recruit. Regardless of your size, whether you’re a small business, or a 10,000-person company, we’ve got you covered from both technology, and the human services side to optimize your recruiting performance.
Pete Lamson: By no means was this strategy embarked upon because of the post-COVID improving economy. We’re bigger, and longer-term sustainable, certainly beyond that, but the timing of this is, hopefully, we believe, to be very helpful for the market. If you look at any kind of business news, recently, there’s a lot of discussion on businesses’ growth challenges because of hiring and recruiting. We think the timing for this is very, very compelling – again technology, and services-based solutions to help businesses recruit more effectively.
Sean Cantwell: Pete, as you know, Volition Capital has been investing in software businesses for quite some time. We say we’re SaaS investors, which we are. That said, historically, we’ve focused heavily on enterprise SaaS. Jazz is an SMB-focused solution. While both are Software as a Service, I think they are very different, very different animals. I’d love to get your point of view on the unique challenges, and opportunities of selling software to SMBs.
Pete Lamson: The compelling- the exciting argument for SMBs is – let’s just say it again; we’ll use our familiar description – businesses with sub-500 employees. They’re everywhere. Main Street in every single town in America is filled with small businesses. Tons of small businesses are at-home employers. They are everywhere. There are literally millions of small businesses in the U.S. but they’re very different, as you suggest, than enterprise in that they behave, in many ways, much more like consumers.
Pete Lamson: For businesses that that are looking to get into the SMB space, it’s actually a much more- from an execution perspective, it’s much more similar to a B2C play than a B2B play. Then, within the SMB market, another one of the challenges is that if you’re an enterprise-level company, and you’re at 20,000 employees, at the end of the day, if you reach 30,000 employees, there’s not a whole lot of difference in how you do things like recruit. Even within enterprise, there’s not a lot of variation, even with massive differences in size of employees.
Pete Lamson: If you’re a small business with a 50, 60, 70 employees, comparing how you operate to a business that has 500 employees, it’s almost completely night and day, so you need to segment within the SMB market effectively. You need to have a B2C approach, a much more personalized approach because, in many cases, no matter what solution you are offering to that market, you’re selling to the CEO, or you’re selling to the sole proprietor/owner, or perhaps the head of finance. Often, the people that own the business are the people that are making all of the decisions, so you need to be able to speak that language.
Pete Lamson: Sales cycles are typically much shorter. You’re dealing with a lot less stakeholders that you have to win over. You’re typically dealing with a lower price point. All of these can be fun, and exciting, and fast paced, but again, you’re dealing at a lower price point. The flip side of that coin is you’re probably dealing with higher churn – the churn being businesses that choose to move on from your solution for one reason or another.
Pete Lamson: That can be as simple as a much higher percentage of small businesses go out of business every year than enterprises do. They can be also more fickle in their relationships with their vendors, so they can move on more quickly. You’ve really got to pay attention to your churn metrics, as well. Whether it’s how you approach the business, from a go-to-market perspective, or how you market to, and retain your existing customers, very, very different than enterprise.
Sean Cantwell: I want to pick up on one thing you said, just in terms of the volume of leads, and new deals, and it having some parallels to consumer businesses. All of that means there’s a lot of data, and there’s an opportunity to measure performance along a number of different dimensions. I know from working with you, Pete, you would view February very different than March because there are fewer selling days. Very different mindset from what you would have with a $500,000 ACV software business, but every day counts, and impacts the ability to deliver on a number. I’d love to hear from you how you think about setting up frameworks, and dashboards in order to make sure that the team is really all aligned around measuring and managing to the appropriate metrics.
Pete Lamson: Small businesses are- it is typically a high-velocity/low-RPU business. What does that mean? That means you’re selling- you have to be making sales every single day to grow a company because your price point is low. If you’re selling to small businesses, generally speaking, there’s no such thing as throwing a bomb at the end of the quarter to make your numbers. You need to hit it every single day.
Pete Lamson: Recognizing that every business is a little bit different, we would focus on top-of-funnel demand gen, which would be things like visitors to our website, downloads of e-books, webinar attendees, and registrations, that sort of thing. We’d really focus on mid-funnel metrics because mid-funnel metrics will show you where there’s some indication of buyer intent, or at least interest with your audience. We would have goals and measure, literally daily, things like trial starts, or demo requests.
Pete Lamson: Trial starts, and demo requests, those are people that want to know more, so they’re leaning in. We would measure mid-funnel down very closely; conversion rates through our funnel; RPUs at the bottom. Then, you’re just constantly optimizing. How can we get more leads? How can we improve the conversion rate of those leads? How can we drive our RPU higher?
Pete Lamson: To that, you’re adding new subscribers, and MRR, and it’s just a constant, never-ending tightening of that funnel, improving those metrics, and then wherever you can, whenever it makes sense to do so, pouring more gas on the top because once you get your scalable, repeatable metrics in place, it’s just a matter of adding volume. We also found that, generally speaking, in some cases, SMBs can be an e-com-only purchase, but oftentimes, they want to talk to a human being, so you’ve got salespeople involved.
Pete Lamson: You need to balance the investment you’re making in market making, and marketing in those trial starts, and demo requests, and other leads you’re generating with the sales headcount to make certain that you’re not generating more leads than sales can get to in a short amount of time, or the inverse – not enough leads – and then, you’ve got idle salespeople that are twiddling their thumbs waiting for things to do. It’s a constant, never-ending battle of refining the balance between sales, and marketing, and optimizing your funnel every single day.
Sean Cantwell: So, Pete, internally now, when we have our software team meetings, different members of the team will identify interesting prospective investments, and we’re discussing the pros and cons of the investment. I have started asking the team, “On a scale of one to Pete Lamson, how tight is the measurement of metrics,” and understanding of the core building blocks, and fundamentals of the business because I think it’s critical. I know I’ve heard you say, “If you can’t measure it, you can’t manage it.” I know at Jazz, you had this amazing dashboard, which you would show me periodically, that really tracked the performance on a daily basis, which would give you a red-yellow-green on how you were tracking to the month, and the quarter.
Sean Cantwell: I’d love to understand the process. There’s lots of entrepreneurs out there that know measurement of metrics is important, but I think they struggle to create the dashboard, and then, also instill this level of accountability and buy-in amongst the team that everyone really has that culture where you’re managing to the metrics. I’d love to get inside your process a little bit of how you create that dashboard, and how you really collaborate with the team to create that culture where everyone is measuring progress on a day-to-day basis.
Pete Lamson: Great question, Sean. It’s mapping your customers’ buyer journey, and what matters to them, what the metrics are, as well as the emotional behaviors, the purchase intent, understanding those, and then measuring all of those. We began this document you’re referring to now- it was, and remains a living, breathing document. It’s never done. We’re constantly refining it and changing it as we learn more. You start with buyer intent which, again, for us, was often a trial start, or a demo request, a product demonstration request. Then it’s how long is it for a salesperson to engage with that person? How long does that lead sit on the shelf? How quickly do they move to things like getting a job post live?
Pete Lamson: Specific to JazzHR, one of our key drivers of intent was would a prospective customer post a job or not because we knew that it’s easy for us to demonstrate our software to them by taking them through a product demo, but if you can get them to post a job, and it’s an actual real job, and there’s real live candidates flowing through their software during their trial – people they could actually hire – you start to trigger that reaction from the academic to the emotional, where they’re seeing it actually work for them and for their business. We would have some customers who would actually hire candidates as part of their free trial.
Pete Lamson: So, it’s instrumenting that through the funnel, and then we would also do it further by acquisition channel. We would sell direct, as well as through indirect, or channel means. These buyer journeys would behave differently based on how they heard about JazzHR. So, we would instrument each of those, and then optimize for that. Then, I would take the first stab at it. We would constantly refine it over literally a period of years. We’d review these metrics as a team, as a management team, literally every single week. We would spend the first 20 minutes of our staff meetings going through these performance metrics.
Pete Lamson: That would also be inclusive of – we haven’t touched on this yet – churn metrics. What you will often hear people talk about, the unattractive part of the SMB business is churn. If you have a product that customers need, that’s not necessarily true. We would pay really close attention to our churn metrics; find out what the drivers were; find out how we could get out in front of that.
Pete Lamson: Some things you can’t change – when a company’s going out of business, you’re going to lose them – but some things you can influence, so we would pay very, very close attention to our churn metrics. The third leg of the stool would be expansion sales, and how do we sell more add-on services, or upgrades into our base to offset some of the dollars you’ve lost from churn and having that equally instrumented.
Pete Lamson: We put these all into a two-page document that became the culture of how we ran the business. As a management team, like I said, we review this every single week. Some elements of this would show up on dashboards in our offices. Pre-remote work, from COVID, if you walked into either of our two offices, you’d see all of the key metrics cycling through real time on performance boards on the walls.
Pete Lamson: For all of our key metrics, we also had ownership, and accountability assigned, so that people would own and be accountable for different elements of our performance. Everybody knew who those people were, and that level of accountability also helped drive performance. It was a culture of metrics, and results driven by clarity of purpose, and plan that was, and is continually shared with the team, as well as ownership, and accountability of achieving numbers.
Sean Cantwell: Pete, going back to where you started with some of the appeal of selling to SMBs, they’re on every street corner, as you noted. There’s a seemingly infinite supply of potential customers. It’s just sometimes inefficient to reach those customers, so the scalability of acquisition channels becomes critical, and getting in front of those folks in a low-cost way is also important. Talk to us a little bit about the distribution strategies you’ve employed to target SMB customers along the way.
Pete Lamson: A few things … A little bit of context, and then I’ll answer your question specifically. Our North Star, or maybe one of our North Stars, but certainly first among equals at JazzHR was customer lifetime value. All of the acquisition metrics, whether they were direct, or indirect, we never necessarily looked at as a first-year revenue. It was our churn metrics are compelling; they get better every single quarter, every single year, so we’re going to hang onto these customers for a long time.
Pete Lamson: Oftentimes, you’ll hear your acquisition costs should be sub 12 months. That’s certainly a good goal to be shooting for, but in some cases, if it’s a little bit higher, if we’re hanging on to customers for 10 years, I didn’t necessarily sweat it if we went a little bit higher than that through some of our channels. Customer lifetime value was a key North Star for us.
Pete Lamson: In terms of reaching them, we went through direct means, which was never outbound. I have tried, at three different companies, to have an outbound strategy work for SMBs, and I’ve never seen it work. You can’t call small businesses and think you’re going to get them when they have a need and have an ability for someone who can get on the phone and chat with you.
Pete Lamson: We would do an inbound demand-gen strategy to get businesses, which was done through digital marketing, mostly. We’d get businesses to come to JazzHR. We would provide a number of different ways for them to engage with us. Some of these we’ve talked about – webinars, e-books, white papers, that sort of thing. Hopefully, we’d drive them down into trial starts, and demo requests, at which point, our sales team would engage. That was mostly digital marketing; a little bit of network, but not a lot, and a little bit of traditional marketing, but mostly digital.
Pete Lamson: That can work, but typically, if you’re going digital only, ultimately, to really grow at scale, all roads lead to large broadcast media, whether it’s television, or radio, and areas where it requires a big budget, and it requires a big budget to even test it-
Sean Cantwell: You know, Pete, we are looking for sponsors for the Scaling Success Podcast. The number of listeners is really going through the roof, so just keep that in mind for future reference.
Pete Lamson: It can drive your CAC up higher. Your cost of customer acquisition can go higher. We have balanced this with a direct approach and, at the same time, an indirect, or channel strategy approach, where you enlist referral partners, or resale partners to promote your company’s products to their existing customers. You’ll find that, for most industries, there will be large providers, or large potential partners, big industry leaders; the brand names that everybody knows and loves, as well as – especially in the SMB space – smaller VARs.
Pete Lamson: When I was at Carbonite, we launched a VAR strategy – value-added reseller – of our backup solution to SMBs to local area mom-and-pop IT shops. We signed up 8,000 of these that would, when they were in doing their thing with their local area small businesses that all need to back up data, they would recommend Carbonite. For every customer they directed to us, either through a resale, or referral model, they would share in the reward that- they would share in the value that they helped create. We did the same thing at JazzHR through HR professionals, typically recruiters, or HR consultants, that sort of thing, benefits brokers, but then, large players, as well.
Pete Lamson: This strategy allows a SaaS business to expand the reach of the target market that they’re approaching much more quickly, and you can get to big numbers without the big price tag of broadcast media. Having said that, there’s no free lunch, right? If you’re going through channel partners, they, of course, need to be appropriately rewarded for the value they create.
Pete Lamson: I think one of the things that I’ve always done a little bit differently than some of the other players in the space is you’ll see, oftentimes, the economic relationship will say, “We will reward our channel partner for the first 12 months of the relationship, but after that we’re really doing all the work, so we’ll pay them for 12 months, but that’s it.” In the SMB space, go back to the low price – the area you’re selling their product for – even after 12 months, if you’re only paying 12 months, and then that rev share, or that resale discount that the partner participates in drops off, it’s hard for them to really get anywhere.
Pete Lamson: We always offered payment, or reward in perpetuity, which means that, over time, those partners can really be getting a nice big monthly, or quarterly check. That’s the key to all of this – for a channel program to work, the company – JazzHR, or Carbonite, whomever – we need to be important to somebody’s P&L, or they’re not going to care. Given that it’s a low-RPU product, you need a high volume, which means you’ve got to offer payment in perpetuity.
Pete Lamson: The ‘no free lunches’ is you’re going to either – depending on if you recognize this revenue gross, or net, which is always a debate – you’re either going to get a lower RPU on it, or you’re going to have slightly compressed margins. Again, no free lunch, but it’s a way to get scale faster in reaching that target market than only going direct. Our view is that the hybrid approach worked. It still works.
Pete Lamson: The channel approach has been a great way to go for us and to grow our business quickly because you’re harnessing the strength, and scale of your partners’ customer bases. More importantly, you’re harnessing the trust that those customers placed in your partner. You can’t violate that. You’ve got to treat those customers like gold. That trust imprimatur that you get to take advantage of, really, you can scale your business much faster that way.
Sean Cantwell: There’s certainly a lot of appeal in the ‘one to many’ sales strategy. You mentioned at Carbonite you had 8,000 bars, which is shocking, the number, and presumably, the amount of effort, and attention it requires to manage that channel. I think it’s not uncommon. I’ll tell you, from our perspective at Volition, we talk to companies all the time. “Oh, we had a conversation with this potential channel partner, and we think that one channel partner represents a $10 million revenue opportunity, or a $20 million revenue opportunity.” I think, in reality, it’s very rare that there’s a silver bullet channel partner relationship.
Sean Cantwell: Alternatively, it’s really the sum of a lot of relationships that you need to work intentionally, in order to really move the needle. You mentioned Carbonite, 8,000 relationships. I know at Jazz, there’s countless different partner, and alliance members that you work with. Can you just talk a little bit about how you manage that go-to-market motion, and how much focus does that require for an SMB that really wants to succeed with an indirect channel?
Pete Lamson: Interestingly, 8,000 can sound intimidating. From a performance perspective, just to quantify this a little better, and then I’ll talk about how we manage them, each partner at Carbonite – oddly, the numbers at JazzHR are similar – brought us … On the small end, the VARs, the value-added resellers, not the large, more strategic partners, brought us, on average, 0.75 new customers per quarter; per quarter. So, you’re getting less than one sub per quarter, per partner in the VAR program, but when you get 8,000 of them, you’re getting 75 percent of 8,000, whatever that is; call it 6,000 new customers per quarter because of the scale you’ve got. It’s bundling your way to prosperity, which is almost always the way in everything you do with SMBs.
Pete Lamson: In terms of managing them, they’re managed mostly through marketing programs. You set up a partner program; they sign up for it, for a partner program. Yes, they’re going to hear from a human being to take them through an onboarding process of teaching them how your product works, the value proposition, how to get one of their customers up and running. After that, it’s mostly – not entirely – self-service. Then, you’re constantly marketing to those partners, much like you would be an existing customer.
Pete Lamson: In the case of Carbonite, where we had 8,000, or JazzHR, where we have hundreds, they’re hearing from a channel partner marketing team regularly with updates on new product enhancements, or new training webinars, or specials perhaps we’re running, or case studies on how particular partners have helped improve their own customers’ performance through either recruiting, or online backup, whatever the case may be.
Pete Lamson: It’s done mostly digitally. Then, at the same time, each partner does have an assigned partner sales manager internally. If they have a question, if they need help, they have a human being who they can reach out to and have a conversation, but you’re not actively reaching out to hundreds, or thousands of partners all the time. Like anything, the 80/20 rule applies. You’ll have some that you probably are talking to on a pretty regular basis. Others, you may be in touch with once a quarter kind of thing. So, you manage it through partner management software, and systems, and digital marketing, and so forth.
Sean Cantwell: One other aspect that I think separates SMB SaaS from enterprise SaaS is just the maturity of the technology infrastructure of the clients. If I’m to just make a comparison, I think on the enterprise side of things, generally speaking, the market is fairly penetrated, and you’re often competing against an existing solution.
Sean Cantwell: Whereas, I think, in the SMB context, there’s just a lot more greenfield out there, and the penetration rate … This is certainly true of ATSs targeting the SMBs. The penetration rate is still pretty low. I’m curious how that dynamic impacts your strategy, from the product, to the execution, to the customer support, given you’re really competing against inertia in some ways, and trying to convince them to automate a workflow.
Pete Lamson: As always, technology adoption starts at the enterprise level and works its way down. That also is what allows it to get cheaper. You’re absolutely right, you are competing against, normally, legacy homegrown systems. At Carbonite, which was online backup, install Carbonite on your computer, on your server, and forget it. You’re instantly backing up. We were replacing businesses who, without exaggeration, would have a hard drive that the owner would swap out once a week, and bring home, and keep at his house. Then, once a week, he would back up their company’s business and bring it home again. You’re replacing that legacy homegrown system.
Pete Lamson: The ATS industry, where Jobvite, and JazzHR compete on the SMB end, you are competing with legacy systems built from some subset of Microsoft Office, and G Suite tools, which is Excel spreadsheets, and Word docs, and email inbox management, and evangelizing, and educating these customers that there is a better mousetrap out there that’s still very affordable.
Pete Lamson: In both cases, the fun of this land grab, rather than a displacement strategy is when you do this, you get comments after a few months of someone using your product, like, “How did I not know this was a thing five years ago. I would’ve saved myself so much time. This is so much better.” Again, there’s evangelizing; there’s education. That certainly plays into how we market and how we sell.
Pete Lamson: Marketing is a lot of education, and webinars, and white papers, and case studies, and proof points that for fairly short money, there’s better solutions out there. Selling is patience, and it’s education. It’s showing, oftentimes, non-technical people how to use what you and I might think, at the end of the day, is a very non-technical, easy to use solution, but that’s not mainstream America.
Pete Lamson: SaaS tech investors, like Volition, or someone like myself, and others who’ve spent a career in technology, we’re not the norm out there, but we need to be able to explain what we do, and story-tell in a way that is simple, and intuitive, and easy for a non-technical veterinarian to understand how their practice might benefit from the use of technology that’s also offered at a price point they can afford. Again, it comes down to storytelling, both in the marketing, and the sales side, and the product being designed in a manner that’s easy for a non-technical audience to use.
Sean Cantwell: I think a lot of CEOs of SMB SaaS tools spend some decent percentage of their time focused on retention, and how do I improve it? You mentioned some of the pros and cons of selling to SMBs. SMBs are smaller, and they go out of business at a higher frequency, so there’s only so much you can do about that. As someone who has overseen dramatic improvements in retention, and lifetime value, what advice would you provide to entrepreneurs out there that are really trying to put some of the building blocks in place to drive lifetime value with their customers?
Pete Lamson: This part’s actually pretty easy, and it’s what all entrepreneurs should do – stay close to your customers. Your customers will tell you where they wish your product was a little bit different, or the bells, and whistles they wish it had, or what makes them grumpy, or what’s a pain in the neck to use. Track that.
Pete Lamson: For example, at JazzHR, I still have on my wall, literally right up here, two top 10 lists that get updated every quarter, and they have since the new team walked in the door in 2016. We went over the top 10 reasons that our customers who consider JazzHR don’t buy JazzHR, and we wanted to know the top 10 reasons that customers who did choose JazzHR, who also chose to leave us, why they left. We excluded from those lists things that were outside of our control.
Pete Lamson: In our top 10 list of why businesses churned out, you wouldn’t see things like they went out of business. We can’t control that. Again, your customers will tell you. We were ruthless about tracking what our customers didn’t like about JazzHR. The neat thing is if you look at our top 10 list from three years ago versus where we are today, there’s not a thing on it from three years ago that’s on the list today, and it’s because we’ve built everything. Pay attention to what your customers don’t like, and make sure that influences your roadmap.
Pete Lamson: You can’t build a large, scalable organization by just building feature functionality based on what the sales team wants, or what the support team wants. You do have to make some more strategic large bets. This is sort of that feature-functionality punch list of new functionality that every customer base everywhere always wants. It has got to be balanced against larger, more strategic initiatives, but it can’t be only swinging for the fences with big bets. Some of this is just grind it out, delighting features that customers want. If, every quarter, your product is a little bit better in that respect than it was the quarter before, it’s going to show up in your numbers [CROSSTALK]
Sean Cantwell: -what’s your take on month-to-month contracts versus annual contracts?
Pete Lamson: Wherever you can, you’re going to want to get customers on a long-term contract. That won’t be appropriate for all, and typically, you’ll see the smaller the customer, the more likely their requirement will be that they should be month to month, but wherever you can, push them towards annual, or more. Give them an incentive to do so, which usually means a lower price point. “Hey, if you sign up for 12 months, we’ll take 10 percent off,” kind of thing; maybe even give them a bigger discount if they pay all upfront and get as large a percentage of your customer base as you possibly can on contracts. That’s something that every company I’ve been, where we were SMB- focused, that was a big part of what we focused on because it shows up on your churn numbers for sure.
Sean Cantwell: The other piece that offsets churn is expansion revenue, which I know is something you also spend a good amount of time thinking about and continuing to build out; not only incremental features, but also a partner ecosystem where you can continue to add value to your customers, again all in the spirit of listening to their needs and what they want. How would you describe your strategy as it relates to expansion sales?
Pete Lamson: Generally speaking, at its heart, and there are some exceptions to this, but expansion sales usually means one of two things. Either you’re getting customers to move up your product stack. Our product plan, we have a, call it, ‘good, better, best,’ if you will – an entry level product, a mid-level product, and a more expansive product. Each of those levels comes with a different price tag, comes with different feature functionalities.
Pete Lamson: You want to pay attention to your customers’ usage, to what their needs are, to find out which subset of your customers are likely to be receptive to moving up to a more robust plan, which is going to be better for them. It’s better for the solutions they’re trying to drive, or the outcomes they’re trying to drive, and better for the business because the business benefits from more revenue. Getting that fencing criteria between those, if you have three plans, or however any plans you have, is going to be really important. You need to have aspirational things in each level. That’s the upgrade path.
Pete Lamson: A second is add-ons. I’ve always been a fan of building a modular plan, or a modular construct of a product base so that you can offer a customer one more thing without having to upgrade up to a high level which they’ll also pay you a little more for, but if they want two things, they’ve got to go up to that next product plan. Add-ons, selling fries with a burger, if you will, or upgrades are a big part of it.
Pete Lamson: These can be native – things that your company owns – or, to your point, as you suggested, Sean, they can be accomplished through a marketplace, or through a partnership, or one can lead to another. We’ve got a few things that we’ve added at JazzHR that started off as being in the marketplace. Then, we saw attach rates – a percentage of our customer buying enough of them – that we added our own native functionality.
Pete Lamson: Paying attention to add-ons, and upgrades are critical because all of this, it gets you a deeper relationship with your customers, which improves gross churn, and you’re adding additional expansion revenue, kind of the third leg of the stool, if you will, to offset the customers that ultimately do churn out of your business. That’s critical.
Pete Lamson: Then, there’s things that you can perhaps slice things a little bit finer, things like consumption revenue, perhaps. Some of your- we’ve got a pretty simplified ‘all you can eat’ strategy, where most of our usage within JazzHR for various different product functionality pieces is unlimited. Some of them are, if you go over a certain level, we charge additional amounts for some of our power users on consumption. So, you get a ‘razor and razor blades’ model that’s going to be another revenue trigger.
Pete Lamson: Certainly, paying attention to expansion sales is critical because the bigger you get, once you get some traction on new business, ultimately, the most important metric in your business becomes net churn because you can- once you reach a certain scale, you get to a point where you can’t shovel enough coal into the fire on the front end to offset what you’re losing on the back end, if you haven’t fixed your fixed your gross and net churn to be compelling. You’ve got to pay a lot attention to that.
Sean Cantwell: That’s helpful. Thanks. I know these are all questions that we get asked very frequently by entrepreneurs that are at that product market fit stage and really looking to step on the gas and accelerate. I know our listeners will certainly enjoy hearing your perspective on this. Just switching gears, one thing I admire about you, Pete, is your ability to multitask and stay fairly level through ups and downs. It prompts my question about how do you think about the role of a CEO?
Pete Lamson: At its simplest form, the CEO’s job is to do three things. You have to decide upon the right strategy. There’ll be a lot of different opinions on this, but ultimately, the CEO’s accountable for setting the right strategic direction. You have to have the right people on board that can execute that strategy, and you have to have- the business has to have access to the capital it needs to execute until enough traction is seen on the revenue side that additional capital isn’t needed. It’s those three things – it’s strategy, it’s people, and it’s capital.
Pete Lamson: It’s a bit of an oversimplified view, I think. Several clicks down, the CEO sets the tone for what’s important for the business, and what isn’t, and how the culture of the business that’s in place to achieve its objectives, what that culture is going to be, and how the business will carry itself day-to-day. Setting that tone on what matters is critical.
Pete Lamson: Then, beyond that, I think that a lot of how a CEO needs to operate is situational and depends on the circumstances, not only company by company, but this will change within a company over time. There’s wartime, and there’s peacetime. If a business is in distress, a CEO needs to be hands on, quick to diagnose what the problems are, quick to put a plan of attack in place to address those challenges, and then stay very close to execution, if enterprise itself is at risk.
Pete Lamson: In peacetime, when things are going better, and there’s not an imminent, or an existential threat to the business that’s imminent, it’s perhaps a little higher level. It’s coaching; it’s counseling; it’s ensuring professional development; it’s a longer-term view. It’s perhaps a little more hands off, while still staying close to the details to ensure the performance. There’s a situational part of answering your question, Sean, but again, ultimately, it comes down to the strategy, the right people, and the capital required along with setting the right tone.
Sean Cantwell: I ask you that question, Pete, because it was a joy working with you for whatever it was, five years, as CEO of JazzHR, while we were investors in the business. To use an NFL analogy, they’ll often say quarterbacks, as they progress in their career, the game slows down. I think it’s because you can see the playing field, diagnose, be decisive, while also being a leader, and executing with confidence. Thankfully, I had a front-row seat to witness you doing just that.
Sean Cantwell: I know our listeners are certainly very lucky to have the opportunity to hear you share some of your perspectives. I thank you not only for the wonderful job you did at JazzHR, but also for joining me on the podcast today. As I mentioned at the outset, will have to get together for breakfast at Fresco; quick shout out: Fresco. Needham Massachusetts – Pete and my’s favorite breakfast spot. Again, Pete, thank you so much. It was great to spend some time today.
Pete Lamson: Thanks, Sean.