I just got off the phone with Steve Singh, CEO of SaaS Travel and Expense vendor Concur.
I interviewed Steve last September, and he continues to be a very easy person to talk to, considering he is the CEO of one of the most successful SaaS vendors out there. Phil Wainewright has taken to calling Concur one of the “four SaaS horsemen” alongside Salesforce, Taleo, and Omniture. Those four are the largest pure play SaaS vendors out there at this point. Singh’s style is very down to earth and self-deprecating. He does not bash his competition, and genuinely values his customers and employees as you’ll see in the interview below.
Concur just turned in another great quarter of results that included tripling their net income year on year to $3.7 million, and increasing sales 74% to $53.6 million versus $30.8 million in the 2007 second quarter. In light of this performance, customer acquisition was on my mind, so I this was the topic for our discussion. Here’s how it went:
Steve, if I look at what I get the most questions about, and what would make for an itneresting read for my audience, it would be around the area of customer acquisition. people really want to understand what works and what doesn’t in the SaaS world. As I look at Concur versus your peers, you seem to be able to grow more while spending relatively less on sales and marketing. Help us to understand what Concur does differently?
We deliver a service that really works in this difficult environment. I’m a big fan of Salesforce, Taleo, and Omniture. There’s a good group of SaaS companies that’s starting to emerge from the pack and really show what’s possible and what the future will bring.
Our view is that it’s nto a question of valuing enterprise growth over earnings growth. Both should increase and the question is the mix. We look at every dollar invested as if it was our own personal money, and it is in some sense, because we’re all shareholders here. We expect a return on those dollars invested. We quantify that as every dollar invested going towards at least 25% topline growth and 100 basis points of improvement in the operating margins.
For example, I’m perfectly happy if we can’t grow at 25% (although so far we’ve always beaten that!) to reduce the growth rate and increase bottom line growth. If we can grow better than 25%, we are still not willing to come off the goal of improving the operating margin for the year.
Can you give us an example of what you’re trading off there?
Well, one of the big differences between Salesforce, a company I have huge respect for, and Concur, is how much we each spend on Sales and Marketing. They spend about 50% and we spend 26% or so. We are much more efficient in that way.
This efficiency comes from a couple of different points. A higher percentage of our quota carrying salesforce get to their quotas. And, we spend less on brand marketing. Our view is brand marketing is not the best use of dollars.
My job is to win the customer by giving them a great value. We deliver a better service than anayone else can offer at a better value equation. Beacuse of that, we get a huge amount of business from existing customers referring prospects.
<The angle brackets signify my parenthetical remarks, not voiced to Steve. The trade off between brand marketing versus focusing on the better value proposition is an interesting one. Concur is certainly a lot quieter in the market than Salesforce. Steve is quick to point out that there is no one formula and that he isn’t saying the other guys are wrong, he is just saying what’s worked at Concur. One wonders how much of the brand marketing is reflective of CEO personality differences, market differences, or other unaccounted for factors. One thing that is sure is that Concur is very efficient at gaining new business! The remarks about quota are also interesting. Most sales managers I’ve talked to have 1/3 of their people wildly beating quota, 1/3 under review to see if they can make it or need to move on, and 1/3 who are too new to be held accountable. It sounds like Concur has changed those ratios somewhat.>
So what’s your go to market advantage?
Boy, we could look at that in terms of hosting operations, platform as a service, sales and marketing, or research and development.
Let’s focus on sales and marketing
Okay, for Sales and Marketing we try to drive as much of the prospecting experience to the web as possible. We give potential customers the ability to see the product. We make sure they can learn about the service from the web, know what it costs, and understand the value generated. We do as much of that online as possible.
When our direct sales force actually speaks to the customer, that prospect is much more developed and educated about Concur than is true at other companies.
From there it is also very important how you price your services and the types of contracts you drive. We look at contract terms as moving closer and closer to 90 day or 1 year evergreen contracts. A 3 to 5 year contract with cash up front is only reassuring for the vendor, not the customer. Customes want you to be measured on quality every day. Making that possible lowers the barrier for the customer.
Are those contract terms a differentiator?
<Singh chuckles>
We talked about that last time we chatted. I don’t think of it as a differentiator because I expect that over time everyone will do this. Why wouldn’t you make the vendor earn your business? Vendors should make their contractual terms customer oriented. Don’t collect the money up front. This is a hinderance for many On-demand companeis. They need to get to where there is literally no risk for the customer to move forward.
The next piece is that the quality of the service has to be so high that the retention rate is fantastic. Our retention has been at 98% for 7 years now. On our expense reports, literally 80% of the report is filled out automatically, so the end user experience is dramatically better.
When you chcuk out of a hotel, you have to break out all those numbers on the bill slipped under the door. With Concur, we pull all that data from the hotel for you and populate it for you in your online expense report. We already know every line item of detail–room rate, taxes, incidentals, whether you refueled your Hertz before turning it in or not. You just use the service, and your experience is dramatically better. That’s a positive feedback loop.
So when employees move to new companies, they ask for Concur. One of the most satisfying experiences we have is watching controllers among our customers move to new companies, because they nearly always install Concur as one of the first prioriries on the new job.
<The focus on customer experience is fascinating. There’ll be more on this theme in a bit, but you get the impression that Singh will spend a lot to improve that experience because it increases his sales. That’s a very product and customer-centric focus, as opposed to using clever sales and marketing tactics to force more product into the market.>
Give us some examples of things you tried that didn’t work
<Loud chuckle>
Well the old perpetual license approach didn’t work!
We do invest a fair bit in going after different lead generation programs or different marketing and advertising programs that sometimes are wildly successful and sometimes are not. We give our folks a lot of latitude to test and understand. In all fairness, we push very aggressively on new functionality in the product.
Our customers give us a lot of requests for refinements. For example, we’re announcing integration with RightCharge which improves our ground transportation integration. You can book a taxi, shuttle, or town car and get it paid for and then populated on your expense report automatically.
I don’t want to come of sounding arrogant, but we haven’t had too many failures in all fairness. Certainly nothing big.
<I wanted to follow up on his comment about testing and see whether Steve was a big believer in conducting tests and then doubling down on tests that worked well. I didn’t get the impression he thinks that way>
Are you a test-oriented company?
We’re a company that’s very oriented towards giving our folks a lot of latitude. The value of our business is entirely the people, like most technology companies. These are incredibly bright people who have a great understanding of our customer’s needs and values. We drive decisions down in the organization and have found that to be pretty low risk.
This manifests itself as something like Concur Imaging (Fax Imaging). This feature happened because one individual 6 or 7 years ago hated pasting receipts on a piece of paper and mailing them off. So, we added an 800 number you could fax your receipts to. Customers loved it. It improved the experience. We kept on following our noses there and wanted to make that one step even better. So we got a massive improvement from eliminating the paper receipts entirely.
There shouldn’t be any reason 2 years from now that you should fill out anything on your expense report. It ought to be filled out for you. We can do most of this today. Use our booking tool to book travel. It generates an itinerary, and you take your business trip. As you take your trip, we get corporate card receipts every single night. We match them to your itinerary. As you check out of the hotel, drop off your car, we pull the receipts and match them back to the itinerary. If they agree, your reprot is done for you.
Compare that to the experience of doing expense reports 7 years ago on Avery forms or Excel templates.
<At this point I began to get an idea of the competitive barriers to entry that were being erected throughout all this. Concur has built up tons of partnerships to collect this data. Conversely, if I have a choice to buy from a Concur partner and get my expense automatically handled or to choose someone else and have to rekey the data, guess which one I prefer? We didn’t talk about this, but it’s a compelling story.
We were about out of time, so I lobbed in a last question about Sales 2.0. There’s been a lot of discussion around this topic in the startup and VC world. It means a lot of things to a lot of different people. Mostly, it has to do with the view that old school sales models are too expensive in today’s world. Companies pitching to investors need a story about why their sales will be more efficient. I had the impression Steve hadn’t really heard too much about Sales 2.0, or didn’t put much stock in it, but his answer was interesting.>
What does Sales 2.0 mean for SaaS?
What do you mean by Sales 2.0?
It means a lot of things to a lot of people, but basically, it means making you sales process radically more efficient using the Web. In the extreme, it may mean the end of feet on the street.
<The latter elicited a real chuckle>
The idea of the end of feet on the street is ridiculous. It’s just not going to be that way, especially in larger deals with a significiant ongoing commitment. We manage very sensitive data for our customers. There is a relationship built on trust. You can’t do that in a completely automated way.
I do think that you can do a lot more education over the web in a Sales 2.0 model. That’s what Sales 2.0 has to be focused on. Help the prospect understand what service you are delivering and the value proposition there. At least a telephonic contact will be needed to close the deal.
You can drive greater efficiency. ADP needed a couple thousand sales people to get 500 thousand customers. You can do even better with Sales 2.0.
Anything else you’d like us to know?
The other piece from last quarter’s call is that not only do we see great demand in a difficult economic environment, but the travel and expense integration business has really taken off.
<Phew! That was a high bandwidth half hour! And thanks Steve, always a pleasure! >
My takeaways:
– Relentlessly improve your product or service to deliver the best user experience and ROI.
– Use a deep partner ecosystem to build competitive barriers, improve the experience further, and potentially create sales allies.
– Use the Web to educate prospective customers about the experience and the value.
– Follow up with great sales people to close the business.
My emphasis on “great sales people” is not just lip service (as in all sales people are great). I’m keying off Steve’s mention that more of their people make quota than normal. There’s some sort of focus on excellence there.