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Reprinted with Permission from SoftwareCEO Article of August 2006.

 

SoftwareCEO Exclusives

August 8, 2006

How to grow 380 percent with an unknown software product: 14 tips from SaaS firm Acrelic

by Adam Stone, Senior Writer, SoftwareCEO


Maybe there's an easy way to build a software firm. There's certainly the hard way.

And then there's David Rosen's way.

 

When Rosen launched Acrelic in 2002 with partner Garth Rose, he faced two huge challenges. First, he was pioneering an all-new software category that no one had ever heard of.

 

Second, he was relying on a new business model of software-as-a-service (SaaS) which meant he couldn't just repeat the same things he'd done for the past 15 years in other technology firms.

 

But if anyone could handle both challenges, Rosen was the guy for the job.

 

He's the former CEO of Every Net Works, an internet marketing software company, now Synchris. He served with VC group BRM Capital, and as a top executive at Telcordia (formerly Bellcore), where he helped build one of the world's largest management consulting firms.

 

That experience seems to have served him well.

Fast forward to 2006, and we find his Warren, N.J.-based Acrelic (pronounced "acrylic") growing at more than 380 percent a year. And it's building an impressive roster of clients, including IBM, Northrop Grumman, and RedDot Solutions.

What exactly does Acrelic do?

That's the million-dollar question.

How's this for an answer: The company offers an automated way to boost sales productivity, helping salespeople track leads in real-time, respond to opportunities with lightening speed, and talk to prospects when they actually want to talk.

Who wouldn't want that?

SoftwareCEO talked to Rosen about sales tools, SaaS, and his strategies for taking an unknown product with an unproven business model, and driving them both to full speed in just a few years.


Growing an unknown tip #1: Start by consulting.
When Rosen launched Acrelic, he faced more than the usual marketing challenge.

He didn't just have to sell a product he had to sell an entirely new concept, a software niche was that completely unknown.

What to call it? Tools for sales and marketing effectiveness? Lead qualification and management? These weren't even on the horizon for most prospects.

So how could he get his foot in the door?

"We started more as a consultative approach with clients, working with them to solve their business problems," says Rosen.

He was working as a management consultant at Northrop Grumman when he first pitched the idea of an on-demand sales tool. As one of the company's first customers, that company helped determine the shape of Acrelic's product.

"They were the ones who helped us develop the foundation of the WarpSales product," says Rosen.


Growing an unknown tip #2: Let customers pay for ongoing development. This makes the product better.

But Acrelic soon came to a fork in the road.

With the product shaping up and customers starting to materialize, executives had to figure out how to fund the next phase of the company's growth.

It looked like it was either raise money from outside investors, or use revenues from customers to fund ongoing R&D.

"We realized that if we could have customers fund our growth, we would have a more sound business," Rosen says. "If you let customers drive a product, that product is going to have a much tighter basis for its performance," he says.

This insight proved sound for Acrelic.

"Our initial customers had huge problems in areas that we could solve," Rosen says, and the software grew into a close fit with what his customers really needed.

Rosen loves to talk about his decision not to take venture money.

Among other things, he says, the absence of big bucks in the early days ensured that the company steered a careful course.

"We don't have a lot of excess capital around that would allow us to do a lot of nonsensical things," he says.


Growing an unknown tip #3: Fix the cause, once and for all.

Even without excess capital to burn through, Acrelic still made mistakes.

And Rosen learned that the smallest oversights sometimes cause the biggest headaches. Still, it's not whether you got bit, he says, it's about what you did afterwards that really counts.

He notes, for example, that a number of implementation procedures within his software must be done manually.

In one campaign, that manual involvement caused a single tag to be left out. As a result of that oversight, the customer couldn't see any results unfolding, which undermined the entire value of the software.

Rosen's fix is telling.

Not only did his people repair the missing tag for that customer, they went a step further. They put in a system to ensure that it would never happen to anyone else.

"We automated our application so that it checks for the tag in the system," Rosen says. "We were able to develop it, test it with the customer, and get it out to all customers within a week."

This, of course, is the beauty of SaaS.

There's no time lag between having code ready to release, and seeing all your customers running it. The next time they log in, they're using the new version.


Growing an unknown tip #4: Build something truly worthwhile.

Everyone's software breaks ground and shakes the earth. We all make this claim.

And sometimes it's really true.

Acrelic is putting out a powerful tool to help sales people improve their productivity by managing leads more effectively.

"They log into our system, and our system lets them know when their customers are interested or able to converse with them," Rosen explains.

"Our customers average over 37 percent live connect rate with their prospects, whereas the B2B industry average is somewhere between seven and 12 percent," he says.

And he's got the clients to back up those claims.

"We're connecting with the right people faster," says Elise Segar, manager of account development with content management firm RedDot Solutions.

The company's inside sales reps now get up to 40 percent open rates on e-mails, and more than 35 percent live connect rates on phone calls.

"This is really beating at the heart of a sales person's compensation, when the first day they're sending out twice as many proposals as they normally do in a week," says Rosen.

"It's definitely affecting their bottom line."

The point: Never under-rate the value of a really good product. The ability to deliver fast, serious return on investment has been a significant driver in Acrelic's success.


Growing an unknown tip #5: Make sure customers can use your product.

Chinese fable: Salesman peddles an umbrella to a damp peasant. Just wait for the rain, he assures them, hold it up, and your problem will be solved.

Cut to peasant in the driving rain, umbrella held aloft... closed. Salesman returns a few weeks later. Zero repeat business in that village.

In other words, you've got to show your customers the ropes. If they can't use your software, they won't succeed, they won't renew next month, and they won't tell anyone else about it.

It's not just about adding new skills, but about modifying behaviors and ways of thinking.

"We realize that no one likes to change, yet we have to change the behavior of salespeople, we have to get marketing and sales to work together," Rosen says.

To help make those changes, Rosen lays out a clear map in advance, so that everyone can see where they're headed.

"Our program manager has to make sure that we have well-defined roles and responsibilities on both teams, that we have a clear calendar, and that we have a very clear process for launching the program."

Many startup issues are interpersonal, rather than technical.

"We work with our customers from the beginning, not so much on technical issues, as in helping them understand how they can apply best practices using our product," Rosen says.

"The real challenge is in coordinating the activities of the sales and marketing organization at the client. In many organizations, marketing and sales are not synchronized."

You can say that again.

And this schism presents a deep hole where Rosen's software could fall unnoticed.

Someone needs to make those teams mesh, and the best person for that job is typically someone with dual skills.

For instance, Rosen started in the pharmaceutical world with a dual tech/customer service background. People like him are often best-suited to ensure that a customer slides smoothly into the new way of doing things with software.

Once the customer gets the hang of it, Rosen's team will follow up after one week, three weeks, and six weeks to help make course corrections.

Get all those steps right, and that umbrella should bloom open right on cue.


Growing an unknown tip #6: Be flexible with releases. Not everyone may need them.

The great thing about SaaS, Rosen says, is that he can roll out a new release to all his clients at once.

Push a button, and everyone's updated.

"We don't have to worry about the logistics of rolling out a release, so we can have more or less frequent releases as needed," Rosen says.

In most cases, for example, bug fixes can be distributed across the entire client base in a matter of hours.

The downside: What if not everyone wants the upgrade? What if some don't need the fix?

Rosen seeks his solution through flexibility. Specifically, he is working from the premise that a universal rollout need not be entirely universal.

"We spend a lot of time coaching and working with our customers," he says. "Based on their workflow, we can see whether they have the right configuration for any given release."

A sales manager, for instance, may want to get a detailed look at specific territories. Other executives might gladly skip that feature in favor of broader reporting.

"We work hard to understand our customers' environment to make sure we are adapting to them, as opposed to a model where they have to forcibly adapt to us," Rosen says.

The result is a customized roll-out, in which Acrelic can push out an update to the entire client base, while limiting certain features or functions, depending on the recipient.

"If some customers aren't ready for new functionality, then we can turn those features off for them," says Rosen.

And all without shipping out a single CD.


Growing an unknown tip #7: Smaller development teams are more nimble.

Acrelic puts out a new release every eight to 12 weeks, in what Rosen characterizes as an extremely vigorous production environment.

Over the years, he's come to believe that success in development comes from keeping things lean. He's been in organizations with 100+ people on a development team, but where new releases creep out every year or two.

A bigger team practically invites people to lose focus, he says.

Not so at Acrelic, where a working group is typically no more than six or seven developers.

"We can get a lot more done with a small team. We can stay very focused. We can develop and test on a much shorter timeline," he says.

"I have seen companies generate millions of lines of code, and still not get anywhere," he says and he blames those bloated development teams.

"When they have systems that large, when they have a complex environment that requires large teams, they typically fall short in not breaking it down into clearly defined 'tiger teams' that can attack specific enhancements or functions, and get them done quickly," he says.

How do you build a small team?

"It really falls out pretty easily. You've got back-end issues, you've got GUI issues, you've got database issues, web-serving issues, and QA issues."

And you've got certain people who are best at solving each type of issue.

Not that Rosen needs one of each type on a team. In fact, he likes to see people with overlapping skills as often as possible. "That's worked for us so far," he says.

That kind of pragmatic approach is typical of Rosen's management style. He makes a practical product to solve a real problem, and he looks for the same kind of pragmatism in his own organization.

"We don't worry too much about what is going on internally and having to benchmark it externally. We'd rather spend our time talking to features and benefits, rather than worrying about our structure and organization," he says, "as long as we are being productive."


Growing an unknown tip #8: Swim in a big pool. Target a big market.

Rosen took a big risk when Acrelic first hit the ground.

The product category didn't exist. And the delivery model, SaaS, was unknown to most users back in 2002. What made him certain the thing would fly?

Short answer: He played the odds in a big potential market.

"One of our target markets, for example, is enterprise software, customers like Computer Associates and RedDot. We have numbers that say 60 percent of these companies have inside sales people.

"If you consider there are 6,000 to 8,000 of these companies larger than a million dollars in size, that's a pretty big marketplace to set our sights on," he says.

Big enough that the product category and deliver mechanism hardly seemed to matter. Even a slim percentage of that market could keep a company quite comfortable.


Growing an unknown tip #9: But know what adding more business will cost.

Even though he has a big market, Rosen isn't one to jump blindly.

"I have learned to always mitigate risk," he says. "So in this case, one tool was to grow the business based on no downside surprises. I always know where the floor is.

"If a disaster did happen, I've always known what my worst case is from an expense perspective and I know I've got it covered.

"I know my headcount. I know my network infrastructure. I know my budget for new hires. If I lost all my customers today, I know what nut I'd have to carry, and I know how long I could cover it."

This attitude helps Rosen to grow the business with minimal risk. It also helps him gauge financial scenarios when taking on new business. Ramping up a new client costs money, after all. He likes to know how much and when, to keep the books in balance.

"When I look at acquiring a very large customer, I know that will bring in X amount of revenue and incur Y amount of expense. That income will not hit for 30 to 60 days, so we have to cover that expense, and that's something I always know on a six- to 12-month basis."


Growing an unknown tip #10: Make it easy for customers to get started, even if that leaves money on the table.

Acrelic operates in the SaaS world, where customers pay a month-to-month subscription.

But that's not what Rosen first had in mind.

"My first inclination was, let's have an annual contract, a two-year contract," he says.

There was comfort in the familiar model, but Rosen soon learned that annual pricing would not help him introduce a new product category. Potential users were wary of the commitment.

"After working with a couple of initial customers, we realized that wasn't going to work," he says.

It made more sense to go month-to-month, with a smaller price tag and a less daunting commitment.

"We didn't want a contract as a barrier to doing business with us," he says. "We realized we had to be easy to do business with, because we were introducing something that people weren't familiar with."

Acrelic charges the typical client $2,000 to $3,000 a month, and returns superb value for that money. In fact, Rosen could be hitting them up for more.

"Our customers have no problem generating a rapid ROI with this solution," he says. "So we're in a unique position where we are not in a commodity marketplace, and our customers have generated payback on our solution even within the first week or two."

So why not charge more?

"We'd rather be reasonable, and make it easy to get in, and get started with us," says Rosen.

The SaaS world is all about earning ongoing revenues, not one big score. Keeping the monthly fees low also makes it tough for any future upstart to dislodge Acrelic.


Growing an unknown tip #11: For a SaaS sales force, balance "hunting" with "farming."

Sales-force compensation was another area where Rosen had to make new choices.

Under SaaS, closing a sale doesn't yield one big check. Rather, revenues are generated by the customer's willingness to stick around from one month to the next.

So Rosen set out to re-envision his sales force. Now his team works just as hard on retaining customers as it does on signing them up in the first place.

Some call this the difference between "hunting" and "farming."

"They are engaged as account managers through the first quarter and more after the initial sale, and then they go back to a focus on hunting new accounts," Rosen explains.

As account managers, sales staff "shepherd the process through implementation and the customer's first use of the product," he says. Their compensation comes as an initial payment, followed by incremental paychecks over the first three months until the customer is solidly in place.

While sales staff take the high-level view of implementation, Acrelic's client services staff bring it all home, helping customers navigate through specific issues.

"The customer is assigned a program manager from the beginning, who walks them through the entire 18-step on-boarding process," says Rosen.


Growing an unknown tip #12: Time your entrance for maximum effectiveness.

As a new company in a brand-new niche, Rosen might have felt some pressure to get his name out on the street to start building buzz.

But he held off, waiting until he had real-world success stories to tell. Only now is Acrelic reaching out to a broader audience.

"We felt we would rather build a good base of customers, and get some legs in the marketplace before we started ramping up our media exposure," Rosen says.

But now it's time.

"We are reaching out to the vertical online and offline magazines that relate to sales and marketing. We're exploring ideas with at least one sales-oriented business school that will start verifying our model from an academic perspective," he says.

"We've gotten validation from analysts who deal with inside and outside sales. We're also working with some of the larger sales coaching and training organizations who are studying the inner workings of sales effectiveness."

With this many seeds sewn in the field, Rosen isn't sure which ones will flower.

"We are just at the beginning of our PR campaign, just trying to understand which programs are going to work."

By the way, SoftwareCEO's talk with Rosen isn't part of this campaign. This feature grew out of our ongoing scan of the industry for interesting and hard-driving companies.


Growing an unknown tip #13: Find a community. Somewhere.

Asked for his biggest challenge, Rosen offers a surprising answer.

There's no one to play with in the sandbox, he says.

"One of the challenges we have is finding other people who are dealing with the same issues we're facing," he says.

As a player at the edge of a still-emerging software niche, "we are constantly pushing the limits of our applications. If we had other smart people out there, we could move a lot more rapidly."

No offense to his in-house group "I have a great team of very smart people" but a broader community naturally tends to generate more intellectual heat and light.

"From a technical perspective, there are a dozen or so companies doing anything in the on-demand software world that interest us, companies like SalesForce.com and Salesnet. But there's not a lot out there in terms of people sharing what they know."

He says this gap is especially noticeable in comparison to other software specialties.

"Everybody's got the database skills, everybody's got the Java skills, in the forums everything's based around traditional client/server skills," says Rosen. "But when it comes to on-demand architecture, there is relatively little being said."

A rising tide of intellectual back and forth would help float the boats of all on-demand players to a new high-water mark.

He's not sure when or how that will develop. It sounds to us like he may be pointing to the need for a new forum, conference, special interest group, or even an all-new association for SaaS executives. Any takers?


Growing an unknown tip #14: Manage the soft stuff, too.

We've said that Rosen is a practical guy.

He builds tangible products to solve real-world problems, and insists on a production process in his own company that generates practical results.

But when it comes to management ideas, Rosen is all about the soft stuff. Sure he wants practical outcomes, but he knows it takes people skills to get there.

He uses web conferencing and peer-to-peer technologies, not just to enhance productivity, but also to give employees a break.

"I can have customer support people working from home one or two days a week, and they can spend more time with their kids," he says. "We have the tools we need so that the same technology is at their fingertips whether they are at home or at the office."

Harmony is at a premium here. And that kind of environment starts with the boss.

"I've realized that as CEO of the company, people don't work for me, I work for them. I am here as a resource for them. We have an open dialogue all the time. We admit to issues that we need to manage. We are all open to criticism, and we learn from disagreement."

All this touchy-feely sentiment might be over the top for some executives. But it must work: The company has had literally no turnover since 2002.

Getting results is a major theme at Acrelic. With a vast market, a good product, and effective management, Acrelic has been getting results for its clients and for itself ever since its doors opened.

 

 

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