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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