The goal of marketing in every industry is to engage customers and influence perceptions. The difference in the B2B technology space is that third-party analysts play a major role in this process. Firms such as Gartner, IDC, and Forrester Research arose with the proliferation of digital technology in the 1980s, and they are now as influential as ever. Your customers are always looking for external validation of your offerings before they buy, and industry analysts can be valuable connections due to their deep understanding of their covered industries, the companies involved, and emerging business trends.
Download your copy of the report and sample vendor briefing here.
This influence is based partly on the analysis that analysts provide, but even more important is the objectivity that they maintain — you can’t “buy” favorable analyst coverage of your company with trips, tours, or favors. You have to earn it by understanding analysts’ needs and helping them do their work. That’s why an effective analyst relations strategy is an important part of category leadership.
TCV recently hosted a webinar on “Best Practices in Analyst Relations” with Peter Sondergaard (founder of The Sondergaard Group) and John Vincenzo (CMO of Silver Peak), in which we discussed the analyst landscape and lessons learned from experts in the field. In this post, we present the essential elements of a successful analyst relations (AR) strategy. You’re probably employing some of these strategies already, but the elements across all these lessons are mutually reinforcing, so it’s worth revisiting and looking for any gaps in your own analyst relations program.
Element #1: Organize and Focus
A coherent analyst relations strategy focused on the research firms with the best coverage for your industry is our first focus. The larger firms present most of the information you would need to qualify them on their websites. You can gather the rest of the information you need through inquiries directly to the firms and by talking to peers.
Take a long look at firms that are interested in your company (or already providing you with advisory services), and then widen the search.
Don’t overlook smaller, boutique firms that have dialed in your customer base as their target market.
You ultimately want to engage with several firms that you can manage operationally but that also have enough market influence to move the needle on customer perceptions. Analyst firms themselves consider 5 to 10 to be a good range.
Once you identify the firms you’ll focus on, form an internal team for each one. Each team should include a representative from marketing, sales, and product, alongside a senior executive sponsor. Any of these individuals might serve on more than one AR team.
Your CEO is implicitly on every team, because analysts will expect the CEO to lead key meetings early in the relationship.
Element #2: Cover the Analysts That Cover You
Success with your AR program requires knowing the analysts better than they know your company. This is easier than it sounds. Given that these firms have been tech and marketing experts for decades, they have some of the most informative websites in the world. In addition to reading public-domain information, subscribe to their research reports and read all relevant analyst coverage of your market every quarter.
As you read, pay attention to these three characteristics of the individual analyst and/or their firm:
The metrics and examples they emphasize
How they present quantitative data
How they present narrative examples of vendor solutions
Knowing these attributes will enable you to develop your presentations (datasets and case studies) in a way that aligns with what the analysts do themselves. The analysts will interpret your data and examples more quickly and intuitively, and it can’t hurt if they notice that this was precisely your intention.
Also pay close attention to the cadence with which analysts conduct research and publish reports. It’s like knowing your customers’ purchasing cycles: You want to be just ahead of the curve, never behind it. Knowing the calendar also helps you schedule regular, timely meetings with your target analysts, both formal and informal. You want to keep analysts current with your products, performance, market developments, and future growth opportunities.
Element #3: Ace the Test
One of most important components of analyst relations, especially with a firm new to your program, is the “vendor briefing” (see example in the TCV presentation). According to Gartner, a vendor briefing is “a research tool for industry analysts, and an opportunity for an IT vendor to present its products, services, and business strategies to analysts who cover the vendor specifically or a related technology or market.” Briefings typically amount to a presentation to the analyst by the vendor, so the onus is on your company to ace the test.
Like growth equity firms, analyst firms hear pitches on a constant basis. Here’s how you can gear up to stand out:
Present your company as vividly as possible, with the CEO leading your internal AR team.
Adapt your pitch to the analyst’s preferred briefing agenda (if they publish one); skipping an element they consider important makes it look like you didn’t care enough to prepare.
Work in references to the analyst’s own reports or perspectives, to show that you’re already thinking along with them.
As often as you can within the briefing agenda, emphasize differentiators, unique attributes, and trends that are tailwinds for you. You want to be a shining example of what the analyst firm recommends to your customers.
At the same time, however, be realistic. Analysts consider themselves clear-eyed experts on market dynamics — with good reason — so don’t oversell your market position, TAM, or growth prospects.
Two final tips about the vendor briefing:
Before you go in, make sure your website is up to date, particularly regarding reference customers, so the analysts find the same story online as they heard in the room. If an analyst has never heard of you, these references are gold dust when analysts perform initial due diligence.
During the briefing, listen carefully. The analysts may not talk much, but what they ask or mention can give you valuable insights.
Element #4: Leverage Everything
One of the key benefits of a strong AR program is that it can increase your ROI on other marketing efforts. Here are just a few suggestions for how to make that happen:
Industry events: analysts attend the same conferences as your company, so arrange to meet them both at the venue and outside of the venue for more confidential (and more informal) conversations.
Product roadmaps: analysts love these and know how to use the information without compromising anything proprietary.
Case studies: if they’re worth creating for your customers and prospects, share them with analysts as well; better still, develop future case studies to fit analyst perspectives, which are carefully attuned to your customer base.
Customer reference system: if your reference customers are amenable, consider making them available to analysts — especially to smaller analyst firms seeking a wider reputation.
Element #5: Keep It Human
We’ve been talking about analyst firms in this article as a shorthand. The reality is, you’ll be dealing with one or a few human beings at each firm. So, relationships matter.
If someone on one of your internal AR teams has good personal chemistry with an analyst, put them in first chair.
Most firms develop young analysts into senior roles at a steady pace, and regularly rotate senior people into new roles, so treat junior analysts respectfully from Day One — they won’t be junior for long.
Work new people into your own AR teams as well, and don’t neglect diversity.
It is also important to play fair. Each party has its own goals and success factors. Sometimes it may feel frustrating that your customers listen to analysts as much as (or more than) they listen to you. That doesn’t mean you can’t lean into areas of natural alignment. For example, you both want thriving markets for innovative companies that make the world work better.
When you have the flexibility to do so, alert analysts to upcoming changes in your business or markets that could impact the timeliness of their publications. It’s also worth your time to give analysts praise or constructive feedback on their reports, because they too are competing hard for every dollar of revenue out there — and you’re their target market.
***
The views and opinions expressed are those of the authors and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). TCV has not verified the accuracy of any statements by the authors and disclaims any responsibility therefor. This presentation is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed. The TCV portfolio companies identified, if any, are not necessarily representative of all TCV investments, and no assumption should be made that any such investments identified were or will be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies/. For additional important disclaimers regarding this article see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/.
Keeping our team members safe and helping our companies navigate COVID-19 and prepare for the rebound has been our main focus at TCV. Our Portfolio Operations group, along with our Investment, Legal, Marketing and Capital Markets teams, are providing a surge of support for our companies. The takeaways of these efforts are the main themes of this newsletter. We hope that you will find nuggets you can apply in your business, in areas such as talent, sales and marketing, systems and technology, and more.
We believe that SaaS vendors, particularly vertical and SMB, that provide a “system of record” are seeing massive increases in TAM, competitive moats, and economic opportunity. By extending and leveraging their workflow, data, and account ownership, SaaS vendors are delighting end customers while creating platform and networks.
With
opportunity comes competition, both from within one’s category (e.g.
application area) or from adjacent categories within one’s vertical (e.g. industry).
As boards and management teams wake up to the opportunity, they realize that
the race is on to capture the full potential of their vertical.
This post is
a framework to help leaders of SaaS companies think through the strategic
choices and hopefully increase the odds of reaching their full potential.Strategy
is implemented by focused alignment of execution, talent, M&A, organizational
structure, functional excellence, and financial and governance/board frameworks.
I hope to write about these supporting pieces over time, but I wanted to start
with strategy first.
Finally, I
think it’s important to acknowledge that very few companies have reached “full
potential,” and this framework is
inherently aspirational. However, “most entrepreneurs aren’t building a house,
they are putting bricks in the foundation of a skyscraper” (Naval Ravikant). Aspiration is important, so
hopefully this is an articulation of what is possible.
This phase
of the SaaS strategy is well understood so I won’t spend much time on it. A
SaaS company aspires to:
build a great product (and service)
over time, build an efficient and repeatable
go-to-market model (marketing -> sales -> onboarding)
and then “add capital” and execution
to press its advantage against sluggish incumbents or poorly capitalized
competitors
This is the
playbook that Omniture and our portfolio company ExactTarget pioneered a decade ago. Despite
massive capital inflows into SaaS and deteriorating economics, this model
generally still works today.
On the product side, scale
in data + AI can create increasing differentiation. For example, when you start
to have more data than anyone else, you can flip your product from being
reactive to proactive — having the product tell users where to look and how to
optimize the system. Both Xero and Shopify have done this well.
Five other things
to think about in this early phase that don’t get enough attention:
Scalable onboarding: Onboarding friction can be unaccounted
drivers of CAC and churn. A great onboarding process builds the trust and
confidence that are the foundations of virality/word of mouth, future cross- as
well as third party channel strategies. Carefully measure funnel metrics and be
attentive to new customer NPS. Automate early as “throwing bodies at it” can
create process debt that will be difficult to unwind later.
Expansion: Expansion drives net revenue
retention and most of the strategies we are about to discuss. With all sales
processes, it’s a lot easier to learn, iterate, and optimize with fewer bodies
and less complexity.
UI and Architecture: Like onboarding, these can be long-lead
time fixes that compound as your business scales and gets more complex. A
specific call out is to plan for an API strategy. It can facilitate future
partner strategies and increase the value and stickiness of your offering.
Pricing structure/strategy: You will constantly revisit tactics,
but it’s important to have some sense of how your pricing structure might change
over time.
Foundations for global, including a work culture that can
support distributed executives and operations, and good product feedback loops that
incorporate non-home market needs.
Hyperscale Locations, Feed
the Beast
A lot of ink
has been spilled on forward investing in sales and marketing, and arguably it’s
part of a/the “lead the category” strategy. But, it’s worth a call out as it’s
important you don’t take your eye off the ball too early. So much of winning and
future monetization is getting location market share. When the wind is at your
back, go get it done! Market structures have a nasty habit of shifting, future
secular tailwinds may abate, or competitors may leapfrog your product or your go-to-market
model. If your churn and sales economics are sound, keep “feeding the beast!”
One
particularly powerful unlock is Channel. There are verticals and
categories, where influencers in a channel are kingmakers and can help you
engage with segments that are otherwise difficult or uneconomical to
reach. Furthermore, Channel partners’
engagement and contributions can enrich your products and increase overall
customer value. A great example is in tax software, where Xero’s wooing of accountants proved to be
an effective source of customers and a formidable competitive moat (thereby
disrupting the incumbent provider). Xero went as far as offering free practice
management tools to help accountants run and grow their business on Xero.
Win the Control Points:
Own Your Vertical
This is
where management teams are faced with a paradox of choice: “Where should we go
next? How should we spend the next incremental dollar? On increasing ARPU, acquiring
incremental locations, or expanding into new verticals, geos or segments?” At
this juncture, it is my belief that you should focus on winning the control points. In vertical SaaS, there are
typically one or two control points, “systems of record.” Usually one control
point in the front office (e.g. Point of Sale, CRM, e-commerce) – “that drives sales,
that grows the business, that serves as the cash register.” And one control
point in the back office (e.g. general ledger) – “where everything else
reconciles to.” Hopefully, you provide one of the systems of record, so go
build or acquire the other system(s) of record and secure the high ground!
Pragmatically,
a system of record is the last software package a customer will “turn off” in a
tough economic time.
I also like
to think about the concept of “gravity”:
Workflow
gravity – the system that all other systems integrate to – it’swhere the most users spend the most time. Not all workflows
deliver the same value; in my experience the system of record workflow tends to
deliver the most value.
Data
gravity – the system that creates and holds the most critical information and is the
hardest to migrate. That data can be critical to a client for a wide range of
applications, from understanding their customers (e.g. CRM) to managing risk
(e.g. compliance). Data also can be critical in two-level situations, such as
loan underwriting (e.g. a bank underwriting a merchant’s risk via POS data) or
supplier information management (e.g. a client managing risk by validating
supplier capabilities and quality). Data depth and scope also create gravity
where AI technologies can be highly productive.
Account
gravity –
the user/sponsor of the system is the highest-ranking individual in the customer
organization; it’s the system that requires the biggest financial outlay, etc.
Winning the
other system of record is not easy. By definition, a system of record is hard
to displace and unless the market is greenfield pen and paper, competition can
be challenging. You may be able to do it organically with product innovation,
but M&A can be the more desirable path if “integration debt” is manageable.
If M&A is not possible, a slow winnowing of your competitor may be the only
approach available to you.
If you own
multiple systems of record in a vertical, the benefits are enormous:
Customer delight: automation from integrated
workflows and potentially unified data and data models allow efficiencies and
offerings unavailable before
Stronger account ownership
to capture incremental spend and drive more efficient growth
A new level of
durability and stickiness
A good example
is Veeva. The company started in 2007 with the launch of a CRM
and a sales automation platform for pharma sales reps (e.g. record their
activity, keep track of the doctors they meet with or drop off samples for, etc.).
After becoming the dominant player in that category, Veeva saw an opportunity
to move backward into research and
development for their life science customers (developing new drugs,
conducting clinical trials and bringing those drugs to market). In 2011 Veeva
launched Vault, a suite of applications that first centered on the core content
management needs for clinical trials, regulatory submissions, and quality
documentation. The company then expanded to include a series of core data
applications that help manage clinical trials, quality processes, safety processes, etc. Veeva is expected to
finish 2019 with $1.1B in revenue (26% YoY Growth) and 37% EBIT margins. Vault
represented 51% of total revenue and grew 38% YoY. Analysts also estimate Vault
meaningfully expanded Veeva’s addressable market.
Another recent
example might be front office player Shopify’s $450M acquisition of 6 River
Systems to move into back office fulfillment and warehouse management. Some
financial analysts estimate that merchants spend up to ~10-15% of their GMV on
logistics which could potentially provide multiples of Shopify’s current take
rate.
Expand Headroom
With
category leadership comes high market share and potentially high saturation. Long-term
growth is driven by location growth, as there’s generally a finite share of
wallet you can access. It’s important to invest in the S-curves of geos,
segments, and adjacent verticals that can unlock new location TAM. This can
take a couple of tries before you’re successful, so start this during your growth
phase when there’s less pressure on maximizing profitability.
Extend Through the Value
Chain
This stage
of growth can be transformative. By leveraging the strengths of your core
customers, you can expand into a new market with a new set of customers. Typical
patterns include moving from front office software to extend to your customer’s
customers, or from back office software and extending to suppliers. These can
be riskier bets, but success can pay out big here:
Increased TAM
Workflow that spans multiple parties and
creates increased customer value and vendor stickiness
Two-level network effects
Supplier
Extension
seems to work best by “following the money” and leveraging purchasing power. TCV
portfolio company Ariba articulated the “golden rule”— He
with the gold rules! By using their leadership in procurement software at large
corporate buyers, Ariba extended to build a robust suppliers software business
for merchants that serviced those corporate buyers. More recently, Avetta has followed a similar path in the
supplier information space by building a strong two-level network effect. We
believe corporate clients want to be on Avetta because it has the largest
network of suppliers, and suppliers want to be on Avetta because it has the
most corporate clients. Avetta’s advantage gets stronger as it scales. Moreover,
Avetta has an opportunity to help suppliers do more than just manage compliance
information. As a result, Avetta sees growth in helping suppliers grow and
operate their business.
CCC is on the third generation of this approach. They started by
serving large auto insurance carriers and then extended into autobody repair shops
that serve the carriers. CCC is now in the process of expanding to parts
suppliers. By getting all the key constituents on its software platform, CCC is
able to leverage AI and automation to massively reduce friction and provide a
great customer experience across all steps of the auto insurance process.
Employee
The employee
opportunity is similar to the supplier opportunity in terms of “following the
money.” Companies can use integrated payroll or time & attendance offerings
to establish a relationship with the employee. Employees are also consumers who
represent significant B2C opportunities such as consumer lending, insurance,
etc. There are big dollars here, but perhaps less opportunity to build significant
network effects.
Consumer
The
consumer/demand opportunity is the white whale. We believe that SaaS companies
tend to capture ~ 50-100bps of GMV for software subscription, whereas online
demand channels can take 15-20% of GMV in categories such as hotels and
restaurants. In addition to the massive revenue opportunity, Consumer also represents a strategic
flank worth monitoring carefully. Online marketplaces have large competing
salesforces that engage with your merchant customers and have strategic
interests encroach on the software layer to try to control supply. Booking.com bought Buuteeq and Hotel Ninjas to
vertically integrate into hotel supply. Uber is rapidly expanding its driver
offering to over-draft protection, a debit card, and likely lending over time
to manage driver churn. This is another example of increasing marketplace + SaaS convergence.
Some
derivative Consumer monetization
models include:
Consumer pay:FareHarbor approaches tour and activity
operators with a free to merchant, consumer pay model: “We’ll build your
website and booking engine for free, with no work on your part; you just pay us
for payment processing and the customer will pay us a booking fee.”
Channel management:SiteMinder offers
channel management to help hotels manage existing channels in real time. SiteMinder
has extended that value proposition to “Demand Plus,” an offering that helps
hotels easily expand into new channels to scale demand.
Existing customers: While 15-20% marketplace take rates may
be sensible for new customer acquisition/discovery, companies such as Olo are looking to move existing
customers to lower cost channels through their dispatch offering while taking a
much lower percentage of GMV.
Customer Co-opt: By seeing consumer data pass through
their systems, some SaaS vendors are building consumer profile databases that
they might monetize over time. In the recruiting market, we’ve seen players
leverage job distribution tools to build a candidate database. Shopify
similarly has built a large shopper profile database across all their
merchants. While Shopify hasn’t monetized directly, the uplift in conversion
rate is likely significant. This model is the most capital efficient but can create
conflicts with the vendor’s core merchant customers.
The biggest
benefit of extending through the value chain is that it gives you a
beachhead and a right to win in a new vertical to start the “full potential”
growth cycle again. As you do this, it’s important to reconsider your end
market and focus. When Ariba transitioned from procurement software to supply
network, they started to represent a front office “system of record” for their
suppliers. In doing so, Ariba was both a large enterprise “procurement company”
and an SMB “supplier enablement company.” The question was: “Which priority
should dominate?” When extension leads to conflicts, there are no easy answers.
As such, it is important to acknowledge that this growth strategy is ever-evolving.
In winning the key control points,
for the same reason a single system of record has a lot of “gravity,”
you now have an even stronger opportunity to turn your product into a channel. This
enables entry into adjacencies with data, workflow, and account ownership
advantages for you as well as for the end customer. The most extreme example is the “platform/ecosystem”
play, where you monetize third party vendors that want access to the channel your
product has become (e.g. Salesforce, Intuit, Shopify). However, most commonly a SaaS
vendor will pursue additional monetization with in-house or white-labeled
products.
Another key
consideration in prioritizing adjacent function/monetization is consistency
with your core go-to-market channel and proximity to key decision makers. Go-to-market
will determine the financial leverage of the cross-sell and often the overall
success. The core advantage of SMB software here is that often the
decision-making is relatively consistent and concentrated across software
purchases.
Every
vertical is different, but there are some common functionality/monetization
patterns emerging. Each of these patterns deserves its own write-up, but for the
sake of brevity here are some highlights:
“Integrated payments -> integrated banking”: The attachment of payments to SaaS has been well covered. That trend is expanding to the attachment of integrated banking. I had an opportunity to interview two of the smartest people in the business, Tim Barash and Jackie Reses. Square is out front here with broad based merchant and consumer plays. To understand the magnitude of the opportunity, Square’s Subscription & Services (most of which are financial services) are expected to reach $1.3B in 2020. This represents 23% of 2020 total GAAP revenue and 47% of 2020 Total Gross Profit (incremental gross profit is ~90%). Brex is earlier in its progression, but we’re excited to see how the company leverages its initial corporate card and expense management offerings to extend into broader financial services.
“Follow the workflow”: At times SaaS companies have
actually observed customers at work or mapped out the physical sites to
understand all the areas their workflow touches as areas of expansion.
“TAM shark”:HashiCorp CEO
David McJannet describes expansion as “TAM Shark,” constantly circling the
biggest, fastest growing (most change/opportunity) markets. He requires product
managers to report on market size and growth of all adjacent categories to make
sure they are focused on the biggest opportunities. Generally, over a 2-3 year
period companies have one, maybe two opportunities to build distinct add-on
businesses. Make sure you’re picking the biggest markets and therefore the
biggest payoffs.
Summary
If the
typical SaaS playbook is “Lead the Category” and “Hyperscale Locations,”
clearly the full potential for vertical SaaS players is dramatically larger
than conventional SaaS wisdom would suggest. We’re excited to work with — and
hopefully invest in —the frontier players as they explore the “Full Potential
of SaaS.”
If you found
this useful, let me know, and we’ll continue to publish and explore the topic. I
look forward to hearing your adds, edits, and challenges.
Caveats
There’s a tension between aggregating as big a profit pool as quickly as possible vs. “winning the market.”
This framework is characterized as a sequential strategy. In reality, most companies are pursuing multiple steps concurrently, and the sequence is more a reflection of prioritization.
Time horizon: this approach is a long-term strategy to winning, which may often be at odds with short-term maximization of valuation multiple and financial performance.
This approach is informed by a U.S./western/mature approach. In emerging/more greenfield markets, less focus and value chain expansion earlier in company development may make sense.
The
views and opinions expressed are those of the authors and do not necessarily
reflect those of TCMI, Inc. or its affiliates (“TCV”). TCV has not
verified the accuracy of any statements by the authors and disclaims any
responsibility therefor. This blog post is not an offer to sell or the
solicitation of an offer to purchase an interest in any private fund managed or
sponsored by TCV or any of the securities of any company discussed. The
TCV portfolio companies identified above are not necessarily representative of
all TCV investments, and no assumption should be made that the investments
identified were or will be profitable. For a complete list of TCV investments,
please visit www.tcv.com/all-companies/. For additional
important disclaimers regarding this document, please see “Informational
Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/.
[1] See TCV’s SMB and Vertical SaaS investments at the end of the document.
Compliance seems to divide enterprises into three categories: those that primarily publicize it as proof of “good governance,” those that actually push the boundaries far enough to bring consequences, and everyone else with their heads down, trying to address whatever regulatory standards govern their industry and the seemingly ever-changing nature of those standards.
Now a
fourth group is emerging, charting their own course. These enterprises are
turning compliance to their advantage by mining compliance data for digital
gold: insights that increase efficiency and competitive advantage. Like the
governance crowd, they have automated many compliance functions with emerging software
solutions. They are looking at the resulting data with fresh eyes and using it
to improve their businesses.
More
Regulation…
Most
people think of compliance in terms of rules and regulations imposed by lawmakers
and other governing bodies, for good reason: there is a proliferation not just
of new regulations but of whole new regulatory frameworks such as Dodd-Frank
and GDPR. Even long-time frameworks such as SOX, HIPAA, and FCPA continue to
evolve. Yet at the same time, many enterprises are setting rules of their own
to address an increasingly complex environment that includes global supply
chains, cybercrime, trade wars, Brexit, and other evolving risks.
In the
end, it doesn’t matter where the rules come from: compliance, and the
documentation that comes along with it, is essential for managing risks and
maintaining brand reputation. The roster of damaged brands from just the past
few years illustrates what can happen when risk and compliance management break
down.
Until
recently, enterprises managed compliance risks with home-grown, often siloed and
disparate initiatives that focused on people and processes. The components
included manual record-keeping, time-consuming audits, constant training,
ever-lengthier supplier questionnaires, C-level compliance positions, and
board-level reporting. The reams of information gathered and presented were
considered useful mainly for answering a simple question: Are we compliant or
not?
Then a new
question arose: Can we at least automate and digitize risk and compliance data,
like we have done with so many other processes? The answer to that question is
clear: We can, thanks to a growing community of companies providing governance,
risk, and compliance (GRC) technology solutions that automate the process of
collecting, aggregating, analyzing, and presenting relevant data while reducing
their costs to the organization.
…Meets
Smarter Compliance
We believe
that just as homegrown compliance structures created the opportunity for
digitization, a critical mass of companies are now positioned for a new
opportunity that may eclipse the earlier one. Data that was once viewed merely as fuel for the compliance machine
can now be considered a strategic output in its own right, with value to the
business beyond compliance.
Whether
it’s a bank mining Know Your Customer data to pitch targeted travel insurance
to its customers or a CPG manufacturer analyzing complaint data from the Consumer
Financial Protection Bureau to improve its manufacturing methods, we see an
opportunity for companies to extract incremental, “offensive” business insight
from large risk, compliance, and regulatory data sets.
Why
Now?
This
opportunity represents a convergence of what may seem unrelated factors. But
let’s remember that in a globalized, highly competitive economy there are few
trends that arise in isolation.
The first
trend we note is a dramatic change in the people sitting in the chief
compliance officer (CCO) chair. Russell Reynolds
Associates analyzed
the career backgrounds of 72 CCOs in banking, insurance and asset
management and reported that “gone are the days of principally legal and
compliance executives nabbing the top job in the compliance function.” So who’s
getting the job instead? According to the report, it’s “broader-focused appointees
from consulting, risk and audit. This new breed of appointees would be
well-positioned to contextualize compliance (and the associated cultural
change) in the wider picture of the organization.” In other words, compliance executive leadership is not just for
lawyers and specialists – it’s for multidisciplinary executives who are as
fluent with brand value and enterprise risk as they are with the P&L and
operations.
The second trend we note is increased use of AI/ML.
The transportation sector is a leading example, in part because it is heavily
regulated. Shipping companies, notably UPS, now place dozens of monitors on
their vehicles for compliance with internal and regulatory rules – and then
apply AI to the monitor data to optimize delivery routes and driver behaviors
in ways that squeeze out fuel costs and improve customer satisfaction. Fleet
operators are further served by solutions from the likes of Keep Truckin,
Samsara, and Geotab, which help improve driver safety and increase the
precision of preventive maintenance.
The third trend is the evolving
consumer privacy landscape. Ironically, more robust data protection and
security regulations such as GDPR can actually serve to enhance business value
by increasing the trust between companies and their customers. In its January
2018 report, “How
GDPR is an Opportunity to Create Business Value”,
Gartner notes that “handled effectively, there is great potential to obtain
consent to increase data access, use, and sharing rights — aligned with goals
of a wider organizational data and analytics strategy. This can help drive
competitive advantage, while also helping to achieve compliance in other
countries and regions.”
Examples of Leveraging Risk &
Compliance Data to Drive Business Value
These are
examples of companies that are helping advance the use of risk and compliance
data for improving everything from customer experiences to supply chain
performance to more effective emergency response:
Avetta’s
customers use Avetta to certify compliance quality of its suppliers (green
flag, yellow flag, red flag) and then mine the data to identify which suppliers
are best trained and best equipped for certain on-site jobs.
Higher education institutions have long collected
data to achieve and maintain external accreditation. Watermark Insights helps universities and colleges not only
collect, digitize, and report on that data to demonstrate effectiveness, but
also to use it to inform curricular changes and improve student outcomes.
AxiomSL’s financial services clients utilize its data integrity and control platform and
its risk calculation and reporting solutions to satisfy regulatory requirements
across the globe systematically. With
trusted data, banks are now also able
to identify opportunities to fine-tune capital/credit risk and deliver
compelling business insights across the enterprise.
Global
Trade Management solutions from the likes of Descartes and Amber Road (now a part of E2OPEN) have long been used to satisfy mandatory export
compliance obligations (e.g. restricted party screenings) and to remain abreast
of regional duty programs and tariffs. But by marrying these regulatory
datasets with companies’ more “traditional” supply chain data (such as bill of
materials and transportation fees), clients are now able to more accurately forecast
true landed costs (the total price of
the shipment including customs, duties, taxes, tariffs, etc.), all the while
minimizing risks and delays.
Rave Mobile Safety enables schools to automate collection of and access to critical facility
information (e.g., floor plans, alarm information), which they need to remain
compliant with fire department ordinances – and it also provide 911 dispatchers
and first responders better real-time capabilities when emergencies arise.
Information
governance and eDiscovery vendor Nuix is well known for its deep
technical capabilities in high speed processing and analytics around vast data
sets, typically in the context of litigation and investigations. But enterprise clients are also able to
leverage the platform to create “data lakes”, making data more accessible for
re-use in future investigations, litigations and data management programs,
helping reduce costs.
Biopharma companies rely on software
from ETQ for much more than compliance with FDA requirements; they also
leverage the data to mitigate and prevent high-risk events, scale operations
more effectively, and streamline their go-to-market activities.
There are many other examples of organizations across
industries utilizing technology from GRC vendors to not only achieve their risk
and compliance objectives, but also advance their strategic objectives. The trend is still very much in its early
days, but it provides an exciting avenue for continued growth in the
sector. As an experienced technology
focused growth equity firm, TCV is committed to investing in the category
innovators in the GRC space and has invested in such companies as Avalara,
AxiomSL, Avetta, LegalZoom, Rave Mobile Safety, RiskMetrics Group, and
Watermark Insights.
***
The statements, views, and
opinions expressed are those of the speakers and do not necessarily reflect
those of TCMI, Inc. or its affiliates (“TCV”). TCV has not verified the accuracy
of any statements by the speakers and disclaims any responsibility therefor.
This interview is not an offer to sell or the solicitation of an offer to
purchase an interest in any private fund managed or sponsored by TCV or any of
the securities of any company discussed. The TCV portfolio companies
identified, if any, are not necessarily representative of all TCV investments
and no assumption should be made that the investments identified were or will
be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies. For additional important disclaimers, please see “Informational
Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/.
Part 2: Aligning HR with Technology and Data / Planning for Acquisitions
Beth
Grous, Chief People Officer for TripAdvisor,
is applying the same strategy to HR and strategic talent management that TripAdvisor
utilized to become the world’s top
travel site: leverage new technology and approaches to gain insights that drive
decisions and positive business outcomes. In Beth’s case, that includes
everything from recruiting and retaining employees to increasing equity,
diversity and inclusion. In this second part of a two-part conversation, Beth
talks with TCV General
Partner Nari
Ansari about the many ways this approach is benefiting both TripAdvisor
and its people. Examples include informing business strategy with direct
feedback from employees, using smarter benefits and training to retain
employees, building a more diverse talent pipeline, and how her team plans for
acquisitions so that people management operates effectively during and after
integration.
***
Nari Ansari: Beth, thanks for joining us again to discuss
TripAdvisor and your talent and people operations journey. We previously talked
about aligning
HR with business strategy, and jumping back in, I’d love to hear a little
bit more about how TripAdvisor is using technology and data in HR operations.
Beth Grous: Great question, and I can give you some relevant
examples across different areas.
Let’s start with employee development. We want to use
technology to think about learning differently and less traditionally, and we
want to meet the workforce where they are. As one example, we recently began
piloting Audible for Business. Employees like to get training delivered to them
during their commute or during their downtime; it’s a different approach to
content delivery than classroom learning, and one which our employees have
embraced.
Additionally, we seek employee feedback as a key input to
how we build and evolve our people programs. We do everything from surveys to
monitoring Glassdoor to, and it sounds overly simple, but just talking to
people. As much as I love tools and technology, you’d be surprised at how much
you learn if you just ask people what’s going on … they’ll generally tell you.
And we are increasingly looking to data to help us think about our people in
more detailed ways. Let’s use the turnover example. You’re never going to get
it to zero attrition, so it’s really about slowing that path to exit and
increasing engagement.
One of the recent data-driven insights we had is around the
leave of absence journey. When an employee goes out and then returns from leave
of absence—particularly one taken to welcome a child into the family—they enter
a meaningful period from a retention standpoint. It doesn’t matter whether the
employee is the birth parent or not. Our data indicated that one of the most
important factors in determining retention during this period was the
employee’s relationship with their manager; do they feel supported as they
leave and return? So with this
understanding, this past year, we did two things. We increased our benefit
level around leaves in general, expanding our leave policies to include a paid
caregiver leave: 8 weeks fully paid for caring for a newborn, caring for an ailing
family member or elderly parent. For birth moms, who also get an additional 8
weeks of short-term disability pay, this brought our full maternity benefit to
16 weeks; non-birth parents get 8 weeks. We also coupled our leave enhancements
with improved manager training. The data gave us insights that if our managers
aren’t paying close attention to that transition, your likelihood of losing
someone just after a leave of absence increases significantly.
Nari Ansari: Clearly some impactful examples with regards
to the use of data to inform your people strategy. Are there any other areas
where you have experimented with the use of data to make people-based
decisions?
Beth Grous: We’re in stage one—the early phase—of our
overall people analytics journey, but I believe we are starting in a very good
place. We have robust systems, including Workday and Greenhouse, to capture
data. With 3500+ employees, we have scale, which provides a lot of data points.
So we’ve got a good basis to work from.
We’re actively thinking about data and analytics and how we
apply it to the workplace. Within talent acquisition, we monitor a number of
key metrics: How many days does it take us to fill jobs? Where are the pinch
points in the various recruiting stages and how can we speed throughput for
candidates? I expect that in the future we’re going to be even more intensive
about how we aggregate all the signals, both active and passive, around some
interesting analytics. I think we’ve barely scratched the surface here. And
that’s really exciting.
Nari Ansari: I
think certainly the world is recognizing that business is going to be intensely
data-driven, and on the people management and HR side it’s very much heading in
that direction as well. As we continue to shift from a manufacturing economy to
a knowledge economy, many would argue that people are a corporation’s most
important asset.
Beth Grous: I
couldn’t agree more.
Nari Ansari: Along the lines of employees as a critical
asset, one of the things we are also seeing many tech companies grapple with is
how to make workforces more diverse. I know at TripAdvisor you have an equity
diversity and inclusion department with a responsibility in this arena. Perhaps
you can shed light on that department’s role and your organization’s journey.
Beth Grous: It’s an important topic and something
many companies are grappling with. My personal macro view is that individual
companies need to do much more, but that said, this is not a one-company solve
for one-company problem or opportunity. This is an ecosystem opportunity. I
think about not just building diverse and inclusive teams here at TripAdvisor
but building diverse and inclusive skill sets that help the greater employment
ecosystem. I had a new dad tell me recently how grateful he was for our eight
fully paid weeks of caregiver leave, because it allowed his working wife to go
back to work at her company, and not have to worry about finding a nanny, childcare center, or a relative to help for
those first several weeks she was back to work, because her spouse was able to
be home with the baby — because of our benefits. I was excited to hear that
our benefit had eased the transition to motherhood for a woman working in
another organization. It is important
that all companies — sort of like all boats — rise together.
When we built and crystallized our organizational values
back in 2016, one of the values we were explicit on is “We’re Better Together.”
We then built a small team in the end of 2016 to focus on equity diversity and
inclusion or what we call “ED+I.” In 2018, we looked at the demographics of our
workforce, to be clear on our starting point. We asked our workforce what their
experience here has been around the topics of equity, inclusion, diversity and
belonging to really understand how people are experiencing our workplace. And that
information helped inform our initial approach.
Over the last year, one of our insights was that we needed
to focus even more purposefully on talent acquisition, which meant providing
our recruiting team and our hiring managers with better tools and training
around sourcing and recruitment delivery, and around building a diverse
pipeline. You can’t have a more diverse
organization if you don’t bring more diverse people into the pipeline. And once
they get here, they have to experience an authentic sense of belonging. It’s so
obvious, right? And you can’t build a diverse pipeline unless you’re really
paying deliberate attention to the talent acquisition process.
Nari Ansari: That
makes sense. And it ties back to our point earlier, that people are the most
important asset in companies. When you do an acquisition, it’s a talent
acquisition, not just the IP or
the customer base. The people are a huge part of it. Most of our portfolio
companies do augment their organic growth with inorganic growth as part of
their strategy, and these acquisitions can introduce a lot of complexity and
challenges from a people management standpoint. What role have you and your HR
organization played as you think about strategizing around and integrating
these various acquisitions, particularly the ones that are global in nature and
may have additional unique complexities as a result?
Beth Grous: We recently acquired Restorando in South
America and Bokun in Iceland. Both are companies with teams that are not
located near any other TripAdvisor office. I mention this because it’s often easier
to integrate acquisitions if you have a local presence in that market already,
or a leader from the new parent company who joins the newly acquired team. When
organizations do that, people on the acquisition side can see and understand
what the parent company is about, through that leader. You have to think about
it a bit differently when you’re totally remote from the center or other
offices. Our business leaders, for sure, recognize that having a successful
integration and change management strategy materially increases the likelihood
of that acquisition being successful. So, therefore, the HR teams or people
operations teams are very involved in the pre-acquisition planning. We invest a
fair amount of time in that upfront planning, and I’m diligent about making
sure that people have well-thought out, detailed project plans so that at the
appropriate time, you can just enter execution mode and go from there. How do
we think about organizational structure? How do we think about Day One change
management and culture integration? How much of the TripAdvisor fabric do we
superimpose on this acquisition, and how much of the local culture should
continue to exist? I think it’s always a really healthy balance of those two
things. An acquisition can be both a thrilling and terrifying time for people.
There are many unknowns and a lot of uncertainty. Part of what we try to do is
bring that human element to the forefront and recognize change management and
communication are vital parts of that journey.
We’ve started to develop a bit of a muscle around
acquisition integration. And again, when we’re buying a company, we’re often as
excited about the employees and what they bring to the whole of TripAdvisor as
we are about the customer base or the part of the industry that they’re in.
We’re thrilled to be welcoming these folks to the family, so we try to make it
as seamless as possible.
Nari Ansari: Right. I’m glad you used that term,
“muscle,” because it’s certainly a term that we think about a lot as we work
with our portfolio companies. We also compare conducting acquisitions to
building a muscle, and like any muscle, it’s developed and honed over time,
through practice and exercise. And I think you get better with each one.
TripAdvsior has certainly done enough where you’re seeing pattern recognition and
have enhanced your approach on the people side, to ensure things go as smoothly
as possible and you get all the good positive impacts you want on the other
end.
Beth, my last question is a little more open, because of
where you sit at the intersection of technology, people management, consumer
internet, and international growth. You see a lot. What else in the world of
tech outside of TripAdvisor gets you excited? What are you watching and
thinking about in the tech world more broadly?
Beth Grous: Good question. First, I think technology
is improving and becoming more integrated into people’s lives. Five years ago,
if you had told me that people would be comfortable booking an expensive trip
on their little, slow mobile phone, I would have probably raised a bit of a
skeptical eyebrow. That was a big transaction to do in that way. And now, we
see this happening all the time with our customers. Consumer habits and
technology have shifted.
Personally, I’m very excited about the level of innovation
in HR technology across the spectrum, whether that means delivering benefits in
a different way, new data and analytics approaches, thinking about various
talent acquisition strategies, or how we use technology to help us end up with
more diverse workforces. The new technology solutions that I see today are very
exciting to me as an HR practitioner. I do think that technology will continue to
transform the work of HR and it’s going to have a net positive impact on
organizations, which is energizing.
Nari Ansari: As
someone who invests in HR technology, I definitely see more interesting things
and innovative approaches than in years and decades past. So, lots to be
excited about.
Beth Grous: The
last thing I’ll add, and I say it to people all the time, I am so lucky to have
the opportunity to do this work in this company. It’s really fun. I’ve got a
great team and work with a great team of executives. And for that, I’m very
grateful.
Nari Ansari: That’s great to hear. We are very proud
to have TripAdvisor in the TCV portfolio. Thanks so much for sharing your
thoughts with us.
Beth Grous: My pleasure!
###
The statements, views, and opinions expressed are those of the speakers and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). TCV has not verified the accuracy of any statements by the speakers and disclaims any responsibility therefor. This interview is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed. The TCV portfolio companies identified, if any, are not necessarily representative of all TCV investments and no assumption should be made that the investments identified were or will be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies. For additional important disclaimers, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/.
When Beth Grous joined TripAdvisor as Chief People Officer, the popular travel platform was growing rapidly, with 40+ locations around the world. Beth quickly moved to develop Human Resources (HR) as a strategic partner for business functions, so that the team’s initiatives would more directly support company objectives. In this first part of a two-part conversation, Beth talks with TCV GP Nari Ansari about how she re-oriented her team for business partnership. She also explains how her team manages the employee journey within TripAdvisor as strategically as the company manages its customer journeys, so that recruiting and retaining talent is both systematic and flexible for an increasingly diverse workforce.
***
Nari Ansari: First off Beth, I really appreciate you
taking the time to chat with us. It was great seeing you at TCV’s East Coast CHRO
event in New York with portfolio company people and talent leaders. We had some
great conversations and wanted to share a few topics with a broader audience.
Beth Grous: Absolutely. Great to speak again.
Nari Ansari: Let’s dive right in, starting with
TripAdvisor. What does the company do?
Beth Grous: I think most people who have traveled, or
know someone that’s traveled, are familiar with TripAdvisor. We are the world’s
largest travel platform. We help about 490 million travelers every month plan,
book, and get excited about having the best trip of their life. We’re a global
website, and we also have a mobile app that helps travelers browse more than
three-quarters of a billion reviews and opinions on over eight million
restaurants, accommodations, experiences, airlines, cruises, and so on.
Nari Ansari: When did you join? What motivated you to
jump onboard?
Beth Grous: I joined TripAdvisor in September of 2015.
I’ve been a review writing member on the TripAdvisor platform since 2006 so I
was a long-time consumer of the brand and loved it. When I got the call about
the job, I thought that it would be a unique opportunity for me to take the HR
skills, experience and capabilities that I had, and intersect them with a
consumer brand that I have a lot of passion for.
Around the same time frame there was an increasing recognition
at TripAdvisor that with 2,500 employees, and the company growing globally, we
really needed to elevate the people function to work in partnership with the
CEO to execute more strategically against our business and talent priorities. And
so that was very exciting for me as well, thinking about the potential impact I
could have.
Nari Ansari: Absolutely. You’re titled Chief People
Officer, so what areas fall under your responsibility?
Beth Grous: That’s a great question, because my job
description is perhaps a little different than most heads of HR.
As
Chief People Officer, I have all the traditional HR domains:
HR
business partners
Total
rewards (compensation and benefits) and HR systems
Talent
acquisition (our recruiting engine)
Learning
and organizational development
Equity,
diversity, and inclusion
In addition to those more typical functions, I have a few
other areas of responsibility, including our global real estate portfolio and office
experience for our 40+ offices worldwide, and our social impact function, which
is a combination of both our TripAdvisor Charitable Foundation and our employee
volunteerism and giving activities.
Nari Ansari: Since you became Chief People Officer,
how have you established the HR team as a business partner to the rest of the
organization? What steps did you take, what lessons did you learn as you
industrialized the function, and what advice would you have for other HR
leaders of growing tech companies out there?
Beth Grous: When I joined, I looked around and I
said, “There are some places where we have real strengths, and some places
where we need to fill in some blanks.” Probably the biggest shift we made
was to build out an HR business partner (HRBP) function – we wanted to shift a
portion of our team from being more focused on tactical day-to-day priorities
to taking a pro-active focus towards business objectives and working with their
counterparts throughout the organization. That shift in focus meant that some
people stepped up to develop their skills and to work differently. Other team
members transitioned out of the organization and, also importantly, we had a
few members join from the business side.
It was a significant shift to staff and organize this HR business
partner team.
Nari Ansari: That’s an impressive shift. Tell us a
bit more about the role and skill set of HR business partners.
Beth Grous: The members of our HRBP team are expected
to have a deep understanding of the business—financials, strategy, and how each
business function aligns and interacts to execute against those objectives. I
encourage the HRBP team to frame their day-to-day work by asking the question:
“How am I working with people at all levels of the organization to help drive
the business forward?” Much of this learning happens on the job—and our
business leaders are very supportive of sharing their expertise. It has been an
important shift for us, because with this knowledge and understanding, they can
then support the business most effectively: defining the right organizational
structure to support strategy, ensuring that we are hiring and developing a
diverse and talented group of employees across the organization, and aligning
rewards, as some examples.
I am fortunate that I work for a CEO and with an executive
team who greatly values the input of our people and human capital team on
matters not just related to HR domain areas, but also matters related to the
overall business. This has been exciting and fulfilling for me and my team.
Nari Ansari: That’s great. I think what’s top of mind
for many company leaders and talent leaders is retaining exceptional talent.
You talked a bit at our recent TCV CHRO event that TripAdvisor very
methodically thinks through, manages, and monitors the customer journey and
that you and your team symmetrically are methodically thinking through,
managing, and monitoring the employee journey as well. Can you talk a little
bit more about what that looks like for your 3,600 plus TripAdvisor team members
today spread across 40+ offices?
Beth Grous: I’m going to make an obvious statement
here. If you retain and engage more of your workforce, you have less of a need
to recruit people…
Nari Ansari:
Right.
Beth Grous: We
recognize that those two things sit in a very healthy and logical balance. We
also recognize that turnover in and of itself is painful. You lose
institutional knowledge. It’s disruptive to teams. It slows throughput. It
slows innovation. We’re only as good as the people that we have working in the
right teams and right configurations to execute against our business objective.
We think a lot about how to make TripAdvisor a great place to work, to
encourage not only retention, but also to drive engagement and satisfaction. Just
like our sales team thinks about the “customer first”, we think about how we
can put our employees first. That also means that we are taking their views
into account, so it’s not just about delivering “HR services” to our employees
but having a dialogue with them. This aligns with our brand, which is all about
transparency and providing honest and constructive feedback. For example, we know
that what makes a company a great place to work likely means different things
to different people. To someone early in their career, that might mean, “I
get to have a lot of different experiences and I’m promoted pretty
rapidly.” To someone in a different phase of life or with different
interests or needs, that might be that an individual wants a lot of flexibility
in terms of the hours when they work or the places where they work. We
encourage flexibility, and we also have office spaces with many different
places where people can get away from their desks if that helps them work more
effectively. We think about our workforce just like TripAdvisor (and many
consumer-facing companies) think about their customers, recognizing that one
size doesn’t fit all. That does not mean that we can necessarily be all things
to all people—but we try hard to listen, learn, and discern what’s most
important to our workforce, and meet our employees’ needs, as long as it makes
sense for the business.
I believe that there are some things that transcend all
employees, regardless of role, experience or tenure. Employees want to come to
work at a place where they understand the business objectives, they understand
the strategy, and they know their role, how their role ladders up to executing
against that strategy. So as a company, we spend a ton of time being
transparent about those elements – we do that through company town halls,
through company meetings and through various forms of communication.
Communication is so important, and I don’t think we can ever do enough of it
internally! We’ve found it critical for our employees to understand the
business context and importantly, how they fit into that context, so that they
can be most successful—and therefore we can be most successful as a company.
Nari Ansari: That makes a lot of sense. I
do think that having a much more rigorous multi-faceted view of your employee
base is becoming critical for companies of all sizes and in all
industries. And I also think open communication across the organization
is important, particularly when it feels like change is the only constant these
days.
Another trend – and transition – we are seeing is that HR is
becoming more tech and data driven to deliver on human capital and business
goals. We’ll talk more about this in a follow-up Q&A and address other
topics that are top of mind for today’s HR professionals and tech companies,
including HR’s role in successfully executing acquisitions. Thanks so much for
sharing your thoughts with us, and I look forward to our next conversation.
Beth Grous: My pleasure!
###
The statements, views, and
opinions expressed are those of the speakers and do not necessarily reflect
those of TCMI, Inc. or its affiliates (“TCV”). TCV has not verified the
accuracy of any statements by the speakers and disclaims any responsibility
therefor. This interview is not an offer to sell or the solicitation of an
offer to purchase an interest in any private fund managed or sponsored by TCV
or any of the securities of any company discussed. The TCV portfolio companies
identified, if any, are not necessarily representative of all TCV investments
and no assumption should be made that the investments identified were or will
be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies. For additional important disclaimers,
please see “Informational Purposes Only” in the Terms of Use for TCV’s website,
available at http://www.tcv.com/terms-of-use/.
The opportunity set for SaaS is on the rise. The original SaaS model that revolutionized software is now enabling SMB and vertical SaaS companies to evolve from tool companies to market makers. Pioneers of these new SaaS models not only provide a tech platform to service providers, but also strengthen their position by extending into marketplaces. When these providers aggregate enough supply, they leverage their data and mindshare advantages to create two-sided marketplaces that enjoy powerful network effects. The result is a much stronger financial profile, deeper moats, and a significantly larger TAM.
TCV recently hosted an offsite focused on emerging trends that we believe are dramatically expanding the opportunity set and economic strength of vertical and SMB SaaS companies.
We were fortunate to have Brian Rothenberg as a speaker. Before joining a leading new early stage venture firm Defy as a Partner, Brian was on the leadership team that took Eventbrite from startup through IPO – while evolving the company from a SaaS platform for event venues to a marketplace for live experiences.
In this conversation with John Burke, EVP at TCV, Brian explains the steps and structures necessary to accomplish this strategic transformation and reach scale. He also offers priceless tips on timing and managing relationships with original SaaS clients that leaders can apply as they focus on dramatically expanding their addressable markets.
To talk about SaaS opportunities and get a copy of the presentation, please contact John Burke or Katja Gagen at TCV.
The statements, views, and opinions expressed are those of the speakers and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). TCV has not verified the accuracy of any statements by the speakers and disclaims any responsibility therefor. This post is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed. The TCV portfolio companies identified, if any, are not necessarily representative of all TCV investments and no assumption should be made that the investments identified were or will be profitable. For a complete list of TCV investments, please visit https://www.tcv.com/all-companies/. For additional important disclaimers, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at https://www.tcv.com/terms-of-use/.
We believe that many SMB and vertical SaaS companies are starting to exhibit platform characteristics. Some of these companies are beginning to build consumer and supplier networks that are expanding the SaaS model dramatically.
We recently brought the pioneers of these new SaaS models together and were fortunate to have Jackie Reses share her thoughts on the emerging lending opportunity for SaaS. Witty, wise, and incredibly insightful, Jackie is a total superwoman. In addition to running Square Capital, Jackie serves on the board of the San Francisco Federal Reserve Bank and is a former board member of Alibaba. She also worked in private equity for 20 years.
Dave: Great to talk
to you, Jackie! Is it true you started your career on the dark side, as an
investor?
Jackie: Yes, I
worked in private equity for 20 years. I just kept going forward. I had a
mid-life crisis without the crisis, as I like to call it. I ran parts of a
large private equity firm, but I much prefer being on the operating side. I
still invest and that’s my fun side project. But I love working at Square. It’s
a really fun place to be.
Dave: Square is certainly
on a tear. Maybe we could start and just talk a little bit about that. Very few
companies reach your scale, and then accelerate. But that’s what you’ve done at
Square.
Jackie: Yeah, it’s
exciting. We have driven strong revenue growth at scale since we went public. It’s interesting to think back to when Square
was starting with payments and building on that. That really was the catalyst for
what we should build in an ecosystem in a very different way. Since then, we
have built ancillary products around payments like point of sale, loyalty,
employee engagement, lending, and payroll around an ecosystem.
Dave: You mentioned
that every one of your products is an onboarding product. You don’t think of “land
and then expand,” it’s all onboarding, it’s all “land”?
Jackie: Like lending
we consider it to be a product that will onboard into Square. We have two parts
of our lending business. One is the business lending, and that’s something we
launched with Square sellers, and we extended it outside of Square in the
United States.
And then we also have an Installments product which has been
incredible. Installments is a consumer lending product that can have a customer
pay for large purchases with installments, which provides the buyer with
payment flexibility.
That said, I think about Square Capital first. My job is to
grow Square Capital. That should stand on its own. The product itself has to be
remarkable.
When we launch a new Square Capital product, we launch it
because I think about all inbound customers into Square for lending and then
create a cycle throughout our ecosystem to evolve as they learn about other
products.
Dave: You talked
about Square and the multiple product lines and high rate of self-onboarding.
How core is self-serve to Square?
Jackie: It’s the way we start on every product. They have to be self-serve, elegant and fast as a means to make them remarkable. Driving your thought process around self-serve forces you to create simplicity and ease of use.
Dave: You’ve described
several different businesses that have arguably very different DNA. SMB, point
of sale, consumer cash, credit, etc. How does that work in the same
organization?
Jackie: I think
lending is the one that everyone has the hardest time with. If anyone thinks
that payments are regulated, lending is like 10x that.
Managing risk and the dynamics of a high-growth company are very
different disciplines. I think that’s probably the hardest thing I deal with as
an executive at Square. The dynamics of credit risk can really hurt sellers,
and they can hurt us, and they can hurt our ecosystem of investors.
And so top line growth on a lending business is not the
goal. I think you have to have a very different level of responsibility and a discipline
that is almost the inverse to payments, where topline revenue growth can be the
goal.
You need to remain focused on what’s good for the end
merchant. There are some lenders out there that have a goal of maximizing loan
size. I think that’s irresponsible. We try to maximize a loan that helps sellers
grow. That’s a very different mindset. We are also very fortunate that we don’t
have channel or customer acquisition costs which helps us take a pretty responsible
approach.
Dave: Right. There is a real trade-off between growth, risk, and merchant health. How do you measure your success, what are the metrics you report on?
Jackie: It’s
originations and different views of defaults. We could double our loans if we
wanted to tomorrow. Yet, you double it at the loss of small businesses who
can’t afford the debt that you’re giving up. The one limitation of credit is that
there is a natural debt capacity of what these companies can afford based on
their cash flows. And you’ve got to make sure you’re really good at how to
predict that and then manage it so you’re not putting companies at risk.
Dave: Let’s talk about the risk side. Companies in an earlier phase want to learn. They want to train their algorithms. So in some ways having defaults is actually a data point to trigger. How do you get through that initial learning period?
Jackie: We do the same thing. Although I have to say that many refer to models which really aren’t machine learning models – the data set is too small to be driven off of machine learning.
It’s hard to train models when you have a really narrow data set. Many lenders use basic heuristics to limit who they lend to. That is not a machine learning model – its addition and subtraction in a ton of excel.
Loan losses also can be instructive for
model training, so you need to be willing to invest in your weakest credits in
order to learn. If you look at the public fintech lending companies,
very few of them have actually been successful at long term customer
acquisition and default profiling. It’s a hard, capital intense business and
takes years to do. We think of lending as a platform to help our sellers
grow. The regulatory environment and the amount of capital required to do
this is just really high.
Dave: What about
payments data?
Jackie: The payments data is super useful but you have the fidelity of moment to moment transactional changes. Matching risk, credit, behavioral and bank data together with payments is very powerful!
Additionally, for model training, its instructive to look at why sellers de-activate off of our system. Insights around business failure and fraud can also be a helpful part of the equation.
Dave: You mentioned
just how different being a lender is than the rest of Square and orientation
around growth, versus risk management. How did you actually set it up so that
it was able to perform this task culturally? Did you wall it off?
Jackie Reses: I
thought about it every day. To be honest I think we’re very unique and lucky at
Square because the way we are owned and run is with a long-term orientation,
which most public companies are not.
Being focused on the long term, you can set up the ethos of
what you need it to be. Because it’s the right answer for that kind of business
long term. But we talk about it every day because it’s really easy to lend
money, and it’s really hard to get it back.
And then the compliance is huge. I have everything
documented in a way that’s profoundly non-tech. And that’s in a product that’s highly
automated. We practically have a lean lending team. And then I have to have all
these policies and reviews and committees. It’s the only product at Square that
has a board committee.
We’re growing fast, but you got to be really strict about it
and stand up if you see issues.
Dave: Let’s switch
gears a little bit. I’d love to take advantage of your experience with Alibaba.
The dynamics in China seem totally different.
Dave: Do you think there’s
a future state in China where you do have to worry about some sort of disaggregation
or actually consolidation of the payment infrastructure?
Jackie: The
dynamics in China are really different because there was an escrow system that
existed 10 years ago in China because there were no logistics, and there was no
trust. If you were going to order a package in China, you never knew whether
you were going to get it, how you were going to get it, because neither system
existed around credit and shipping. They just didn’t exist. And so the idea of
an escrow system was the genesis of how Alipay got started. It really became a
predominant payment rail. And it did so in an environment where it matched its
sister company which controls 60 percent of the eCommerce in China. So those
dynamics are really different than the dynamics that exist in the United States
today, where the proliferation of credit options is extraordinary. In the U.S.,
there is no logistics issue with the way we think about freight and the
multiple players. You can trust that if you send a package by FedEx it will
actually show up.
All these dynamics of eCommerce that we take for granted in
the United States are really the reason why there’s such a tight band of
competition in China. I think WeChat is interesting. WeChat evolved after QQ
started. Tencent built an unbelievable business and their second version of it
has just been extraordinary because it’s become like a full utility app for
everyone in China.
So now you have these two non-bank players in China competing
with one another. Neither have really been able to get into the United States. I
don’t know whether you noticed, but you’ll start to see Alipay showing up at a
register. Go ask how many transactions have actually happened at that counter. There’s
the notion of these Chinese tourists that are coming here but they use UnionPay.
That said, there’s not a lot of demand for it at this point
in the United States. I think they’ll have a better time in Southeast Asia
where they’re more connected and Japan, because they’ve got the Softbank
connectivity that still owns a huge portion of Alibaba and Alipay. I just think
it will be much harder in the United States.
David Yuan: Well
Jackie, that was incredible! Thanks so much for taking the time to share your
views.
###
The statements, views, and opinions expressed are those of
the speakers and do not necessarily reflect those of TCMI, Inc. or its
affiliates (“TCV”). TCV has not verified the accuracy of any statements by the
speakers and disclaims any responsibility therefor. This interview is not an
offer to sell or the solicitation of an offer to purchase an interest in any
private fund managed or sponsored by TCV or any of the securities of any
company discussed. The TCV portfolio companies identified, if any, are not
necessarily representative of all TCV investments and no assumption should be
made that the investments identified were or will be profitable. For a complete
list of TCV investments, please visit www.tcv.com/all-companies. For
additional important disclaimers, please see “Informational Purposes Only” in
the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/.
ZipRecruiter is one of the few companies that have been able to extend into consumer demand. We were fortunate to have Co-Founder and CEO Ian Siegel join us and share his thoughts on ZipRecruiter’s journey.
***
Dave: So maybe to kick us off, tell us a little bit about yourself and ZipRecruiter.
Ian: Sure. ZipRecruiter is an online employment marketplace that I co-founded in 2010. Based in LA, we use Artificial Intelligence (AI) to actively connect people to their next great opportunity. We’ve helped over 1.8 million businesses of all sizes (from SMBs to Fortune 500 companies) with their hiring needs. Tens of thousands of businesses use us every month to find their next great hires and millions of job seekers search for jobs on ZipRecruiter on a monthly basis.
Dave: We’ve been talking to each other for a while, and your first demand side offering was allowing employers to use your distribution software application. And if they weren’t getting applicants fast enough, they could push a “boost” button and get more applicant flow. That was a recruiting facing experience. Explain what’s going on in the background.
Ian: We distribute job postings to more than 1,200 sources. That includes
job boards, aggregators, talent communities, social networks, etc. We send jobs
to online destinations where talent may be congregating and then we pay those
sources on a per-click basis for the traffic they can deliver to us. And then
there’s TrafficBoost, our own job promotion product. Employers can buy a
“Boost” and get more quality candidates faster.
Dave: Great. So, you have this distribution software, and then the “boost button” which is like performance media buying for lack of a better description. And then you started your own candidate profiles. How does that work?
Ian: Good question. The tricky thing about our category is that it
represents a point-in-time need. One of the things you need to contemplate when
you have consumers, for example, in restaurant reservations or looking for a
job, is that they need you for a moment, and then they’re theoretically going
to go away. You have to start thinking about what you can do to get a data
lock. What are the things you could add to your service? That means they don’t
just use you this time but there’s an advantage to using you in subsequent
visits or a subsequent need for that service.
We started moving from résumés to profiles.
Imagine you are a nurse: You come to our site and upload a résumé. We’ve become
very good at enriching résumés and identifying the single skills that employers
are really looking for—for example, a nursing license number turns out to be
the only thing you need in your profile to be inundated with interest from
hospitals and healthcare providers. As a result, you are persistently being
found by new employers who can give you subsequent offers.
Our theory is that job seekers never want to
miss a great opportunity that’s coming through. There’s this misnomer about the
job search category which is that there’s an active and a passive job seeker
profile. The reality is that a person who is eagerly full-time searching for
work represents only about 12% of the total job-seeking population. The other
88% are people who are somewhere between dissatisfied and happy at their
current job but are willing to learn more about new opportunities.
Dave:So, basically, you’ve gotten the consumer applicant to engage with you, which is quite different, right? You’re running essentially a SaaS business, and then you have to build a consumer business on top of it?
Ian: After two years in, we realized that, no matter how many cool features
we put into our product, employers were (and are still) using us for one thing:
access to job seekers. The more people we have on ZipRecruiter, the more
employers we attract, the more new jobs we have, and the more people we get.
It’s a virtuous circle.
And so suddenly, we’re not just in the
employer business: We’re also in the job seeker business.
Dave:So how did you go and do this?
Ian: When our aided brand awareness peaked in the U.S., it became much more
important to make sure that job seekers also knew about us. Which is why most
of our engineers are now working on some form of search algorithm or search
interface. We are deeply thoughtful about focusing on job seekers because,
fundamentally, we sell to them.
Dave:Okay. You made the switch, which was tricky since you recognized that you potentially competed with some of your suppliers, and you had to go all in on brand. Or not just brand, but a switch from a business to a consumer business brand.
Ian: It’s always harder to get the buyer than the seller. If you have the
buyers, the sellers will come to you. To get to that next level in our
category, it’s important to be first and top of mind. When someone decides
they’re ready to look for a job, you want to be synonymous with job seeking so
they go straight to ZipRecruiter to look for work.
Dave:How do you balance ongoing management of your product teams and the focus of the organization between both customer groups? Because in reality, you still need to maintain some amount of excitement and engagement around the recruiters while you’re sort of shifting to job seekers. How are you thinking about that?
Ian: It’s such a good question. Let me take you through an exercise that
was a real-world problem we had in our business. All of you are hiring
managers, right? Would you like it if someone submitted a résumé to you, and
ZipRecruiter corrected the grammar? The underlying question is “Do you consider
spelling errors and grammatical errors a signal that tells you something’s up?”
Dave:Massive signal.
Ian: Right, signal. If I ask that question to the job seekers, they really
don’t like typos. That’s a real-world problem I’m faced with. Who is our
customer? The answer is nuanced and depends on the situation. How did we decide
who that customer was? In that particular example, we did not correct their
spelling and grammar.
Another example: We are the number one-rated
job search app on both iOS and Android. How did we become number one? With one
simple feature: We tell job seekers when an employer looks at their
application. That’s it. The number one thing job seekers hate more than
anything is what they call the “résumé black hole”, i.e. when they apply to a
job and never hear anything back. In this case, we made the choice for the
benefit of the job seeker.
Dave: What about the team? Was it a separate build? Was there significant change since this is a very different business?
Ian: Our product team members were all revenue-focused, which is to say
employer-focused. So, we decided to split the team and have one subteam
focusing on job seekers and the other subteam focusing on employers. We made a
significant investment to support the job seeker subteam and, in some areas, we
have multi-year timelines because you can either play to make money or you can
play to win. And to win in our category, you need liquidity. You can’t have a
marketplace without some form of elite brand recognition and differentiation.
Dave: Absolutely, great point to end with. Thanks so much Ian!
###
The statements, views, and opinions expressed
are those of the speakers and do not necessarily reflect those of TCMI, Inc. or
its affiliates (“TCV”). TCV has not verified the accuracy of any statements by
the speakers and disclaims any responsibility therefor. This interview is not
an offer to sell or the solicitation of an offer to purchase an interest in any
private fund managed or sponsored by TCV or any of the securities of any
company discussed. The TCV portfolio companies identified, if any, are not
necessarily representative of all TCV investments and no assumption should be
made that the investments identified were or will be profitable. For a complete
list of TCV investments, please visit www.tcv.com/all-companies. For
additional important disclaimers, please see “Informational Purposes Only” in
the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/.
