In a live version of the popular CXOtalks, Michael Krigsman interviews Zach Nelson, CEO of NetSuite. They touched on the differences between an early-stage company and a private one, and the power of being a services organization, and the three factors that ensure a company’s longevity.
Over the next three days, DataFox will summarize the SaaStr 2016 panels. If you miss the tactical theater or strategy stage, are networking on the ground, or didn’t get a chance to attend this great conference, we’ve got you covered.
Special thanks to Jason Lemkin of SaaStr for putting on this conference and giving us the chance to publish these summaries.
In a nutshell:
- Your metrics may change as your company scales, but your focus on metrics shouldn’t.
- Selling to medium-sized companies and enterprise companies are completely different, and performance metrics should reflect that.
- Services are the driver of recurring revenue.
From early-stage to IPO
In NetSuite’s early days, Nelson says, the company was focused on closing deals. Metrics revolved around new accounts: how many deals can an SDR do in a month, or quarter? What’s the average sales price? At the time, its primary customers were SMBs.
But when the company went public, the focus shifted from getting customers in the door to nurturing the ones they already had, and from SMBs to enterprise. Now, they focused on internal metrics, too - retention was top of mind. Not only did they emphasize customer retention, but they went out of their way to keep their top-performing employees on board as well, making a special effort to engage almost-fully vested employees. Additionally, as part of that transition:
- Executives switched from focusing primarily on a sales model, to sales, product and service.
- The company emphasized its services more and more - not just getting customers in the door, but avoiding churn.
- He noted that the focus was on revenue churn, not account churn, as SMBs tend to churn faster but have a lower ASP.
- They focused on choosing the right customers - if a customer grew from 50 employees to 500, that was huge for the business.
Finally, Nelson noted that once you go public, investors will want to know how you plan to expand into new markets. As NetSuite prepared for its IPO, it lined up proven plans to expand, but waited to announce them until earnings calls to impress its new shareholders.
Why it pays to be a services organization
NetSuite didn’t want to be a services company, but it made itself into one to ensure an ongoing source of revenue. Initially, they’d put the product out, sign on new customers, and watch the money flow in. Now, they’re focused on helping to streamline data and connect applications - which creates a great opportunity for upsell.
“If you have data in two places, one of them is wrong. You just can’t tell which one.”
This focus on ongoing customer success changed the metrics they focus on. For example, they don’t look as much as revenue per user per month. New functionality may actually decrease the number of users by automating their jobs - but that’s not necessarily a bad thing. They’re also looking at net revenue churn, which captures upsell as well as downsell and lost customers.
The three factors of a long-lived company
The pillars of a strong organization, Nelson said, were:
- Vision of the company. For example, the Dutch West Indies Trading Company survived because it was a trading company, not a spice company - it was sufficiently generalized to survive hits to one specific sector.
- Financial management. Profitability isn’t necessary, but wise investments are.
- People. Hiring A-players and keeping them on board is essential.