What made Box's 2006 pivot exciting 📦 🤩
Finding perfect resellers and how to enable them greatly, offsetting the fears of switching costs, and Box's enterprise bet.
Welcome to the fifty-third edition of The Baton. A fortnightly newsletter that brings you three, hand-curated pieces of advice drawn from the thoughtful founder-to-founder exchanges and interviews taking place on Relay (curated with 💛 at Chargebee) and the interwebz. So, stay tuned!
In this edition, you’ll find instructive and inspiring pickings from the brains of (#1) Databox’s Peter Caputa, (#2) Contentstack’s Neha Sampat, and (#3) Box’s Aaron Levie.
Recently on Relay:
Heuristics and Hunches — Iterating Minimum Viable Funnels, Evolving Freemium for Reach and Focus, and Other Growth Lessons with Sendspark’s Co-Founder, Bethany Stachenfeld
#1: “If you’re approaching an agency, just to get them to resell your technology, it’s not going to work well” — Databox’s CEO, Peter Caputa, an elder statesman of reseller strategy, unpacks his understanding through the lens of how martech SaaS startups can scale with agencies. (Source: Reverse Engineered)
There’s a uniqueness about agencies that makes them unique for selling marketing technology, versus any other reseller out there. In fact, the only parallel that seen is accountants and accounting software..
The reason is that marketing agencies and accountants provide ongoing services to their clients. I don’t know how often, if ever, you’ve changed your accountant, but I never have. And I don’t plan to. Things have to get really bad.
Marketing agencies rotate through clients faster, but generally, if you’re happy with the marketing agency, you aren’t going anywhere for a few years.
You might augment them with another marketing agency does something different, but, but for the most part, you’re sticking with them. So I think the fact that they’re already offering ongoing services was a perfect connection to SaaS companies that were trying to sell ongoing software subscriptions.
And so what we did – one of the unique things that made me the right guy to start that was also my sales background. I had just learned how to sell. I went through an intensive program with a sales coach and learned how to sell. And I realized that marketing agencies aren’t good at selling.
And so not only do we teach them what services to sell, we taught them exactly how to sell them. What questions to ask, ask how to position value, the steps to go through in the sales process to ensure they’re not wasting their time with prospects and aren’t gonna move forward. Quantifying the upside for the prospect.
We gave them what most people would pay 20 grand for a sales training course for free. That uniqueness of the agency, it also helps, and this isn’t true with accountants, but it also helps that marketing agencies often are pretty good at marketing themselves, and a lot of times they’re also are awful at it, but because they just don’t do it very well, but very frequently, marketing agencies are pretty good marketers.
So partnering with a company that’s good at marketing, one of them is great, but partnering with thousands of them partnering them gives you some extreme advantages when it comes to search engine optimization.
One of the reasons that HubSpot has done so well with their own content marketing is because they have thousands of companies talking about the same stuff, linking to them as the source.
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Most marketing agencies are very small. In fact, like 50% of them are less than 10 employees. And they don’t make payroll unless everybody’s billable at least 60, 70%, which is low.
It’s hard to get attention let alone mindshare, from agencies. At HubSpot, we had good timing, with Databox we figured out some, some angles to get their attention.
But I think if you’re approaching that agency, just to get to them to resell your technology, it’s not going to work well. You need to find a way that they either use that technology to make themselves more efficient or you’re helping them get to a market that they couldn’t get to otherwise. Or you’re cutting them in of course, or…
This is how I usually recommend small MarTech companies start is you’re going to pick a small number of marketing agencies and work pretty tightly with them to go to market.
Meaning you’re going to help them go to market as much as they help you go to market by working with them to make them look good and look like a good option for someone that wants to implement your technology and you’re sending them referrals. That’s really common in reseller programs to the enterprise.
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The other thing that’s really important is that enablement, and we haven’t done this at Databox, it’s on the list of things to do, we need to hire someone to do this if that’s ok to say, is partner enabling.
You can’t expect them to come in and figure everything out on their own. Most likely you’re going to get delegated to someone. And so the easier you make it for them to go learn your product, learn the services they can earn on top of it, learn how to present it or position it to clients or prospects, the better it is.
And I’d highly recommend a certification program because most agencies, as I mentioned earlier are very small. They rely on MarTech companies to train their team members.
So if you have a certification, it makes it real for them to say, all right, go get your HubSpot certification and go get your Drift certification and go get your Databox certification. You can literally tell a new employee to go do that in their first month, without a whole lot of effort on the agency’s part.
#2: Competing against legacy players by spotlighting opportunity costs over switching costs — Contentstack’s co-founder and CEO, Neha Sampat, relates how they’ve succeeded in an ever-crowded, CMS space. (Source: How to Win)
So, it’s interesting because the switching costs, there’s pros and cons to it, right? You’re always competing with status quo, and content management isn’t brand new.
You’re always competing against something that’s already there. So, there is the switch, but there’s also the opportunity cost if you don’t switch, and that’s where the value sell really comes in.
So typically, what we do is, we help uncover a project where we can deliver value really quickly in an organization.
The way that we do that is through the selling process. We’ll ensure that you’re able to get something built in a POC, something that delights both the business user and the tech user.
We’re able to then turn that into the first engagement. That time to value is so fast, that eventually, there’s always just going to be growth in the account, because people want to do more once they understand how the product works. They uncover ways to use it.
A lot of that is organic, to be honest, because it’s just so easy, compared to what people are used to. But they kind of have to get over the hump of believing that that’s real.
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Then from a differentiation standpoint, it does come down to our enterprise know-how. That comes across really strong, not just in the product, but in the whole process of engaging with Contentstack.
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It’s just who we are and it’s in our DNA, and I think that’s probably the most important part of our strategy so far, and our understanding of the complexity in enterprise and being able to navigate some of the hairy things that happen.
Not just from a product and technology perspective, but also cross-functionally. There’s different, competing agendas. And, we actually understand that really well because we come from the services side of the world.
So we’ve built the product and our processes and our sales process and the POCs and our post-sales process to address some of those challenges that enterprises have.
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It’s how we sell, how we have conversations, the consultative approach, how we take care of customers post-sale, how we connect them with partners that will make them successful, how we connect them with other customers or colleagues in the industry that have had success with Contentstack.
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Then there’s this equality by design, which is really about understanding both the developer and the business user in an organization, and ensuring that we’ve built the product to address the needs of both sides, which most CMSs will choose one or the other.
They’ll kind of go down the path of, this is a developer play, or they’ll go down the path of, this is a WYSIWYG, easy to move things around play.
We’ve actually believed that, to be really successful, you need to empower both sides of the house, so that developers can be really innovative and build cool stuff, and business people can bring things to life and figure out how to monetize and engage their audiences.
That’s been a big differentiator as well.
#3: The thinking behind Box’s industry-shaping enterprise pivot back in 2006 — Box’s co-founder and CEO, Aaron Levie, on the crossroads Box encountered early in their journey. (Source: First Pitches)
Focus on things that are hyper-focussed on the user, this I’m going to steal from Paul Graham. Things that, ideally, are a wedge into a market. That let people get started really easily and then you expand from there over time.
Usually that’s better.
If I look at our Box story, most people thought that we were a feature of email. “Why can’t you just file attachments, why can’t you do a thumb-drive? Or “this could just be built into the phone or something..”
All those things were completely true.
But what people missed was how important things like corporate data security was going to be, and workflow was going to be. And so there’s enough innovation you could do after you had that really, really simple way to get started that let people get drawn into the product that we could then expand on.
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…we had raised another seed round and a Series A, and now we’re kind of in 2006. And, essentially, we were faced with this dilemma which was…Anybody considered to be a real business, maybe generating a $1m or $2m in revenue. All recurring. All online.
So a fairly efficient business model. Growing, probably doubling or tripling every year. Pretty good growth rate. Nobody would complain about this business.
But when you looked at the market reality and you said, ‘okay, let’s sort of extrapolate that out by 3 years, or 5 years, or 10 years. ‘Do we really think that we’re going to be able to compete with Google and Apple and Facebook, and at the time, Yahoo, when they come in to this market?’
‘And they give away free storage for their consumers. Because they have other ulterior motives of advertising, or they want to sell devices. They were going to give away our product for free. Are we really going to be able to withstand that onslaught from a competitive standpoint?’
We looked at that and it looked pretty bleak. And I, actually, was the last person of the founding team to come around to that conclusion. I think the other founding team members had already built up that perspective.
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Eventually what we did was between a board member and one of our initial employees, Alex, they were really pushing on ‘hey, we probably need to pivot the strategy and we need to go after the enterprise market.’
The reason for that was, at the time, the most you could pay us was $9.99 a month and that was the most you could pay us. If you were an enterprise, you could buy 10 of those accounts, 50, or 100 maybe, but nobody really did…
So the most amount of money we could get per customer was $10 per month. And you had consumer churn rate, so you’re kinda cycling through customers every 1 to 3 years.
And on the consumer side the features that they wanted were, again, things that we felt could be very easily commoditised over time…
Conversely when we went and talked with enterprises and listened to what they were doing with Box and what they wanted to do with Box. They talked a lot about, ‘hey, we actually need these security features, these new collaboration features, these workflow capabilities.’
So it felt like there was a really, really wide amount of innovation that you could go and build for the enterprise and get paid for it.
When we said, how much would you pay for a service like this. They didn’t say $10 or $100 or $1000, they said 10s of thousands of dollars or 100s of thousands of dollars….
We were like, do we want to commoditised and disrupted in the consumer space or you want to build a viable business that might able to exist for the long run. That forced us to pivot.
We were required to pivot to survive. The thing that made the pivot exciting and attractive, which, I don’t think on its own would have, which made us say, ‘wait a second, what if the way that we actually scale in enterprise is through more of a consumer-like model?’
Which is we build simple software for the masses, we go viral within their organisations, we do a bottoms-up sales motion, and we don’t use our focus on building simple, end-user software.
We’re going to get paid by the ‘enterprise’ but really build for the user.
Until next time,