Shay Howe: Integration, Automation and Marketing Insights to Scale to $165M ARR #217

Hello, hello everyone. This is your host, Akhil Jabbar, and welcome back to another episode of SaaS District. In today's episode, we'll be talking about integration, automation, and marketing insights from our, our leader over at ActiveCampaign. So today we have our guest, Shay Pow, joining us. Shay is CMO, Chief Marketing Officer at ActiveCampaign. If you guys don't know about ActiveCampaign, they're a cloud-based email and CRM automation platform. They have over 185,000 customers and have secured over $360 million in funding over 3 rounds. Shay is a product leader with a design and engineering background. And before working at ActiveCampaign, he served as a VP of Product at Belly and Yellow overseeing product strategy and design. And he led product teams at high-growth companies like Groupon, and advised many companies such as Techstar, LightBank, and Prota Ventures. So welcome, Shay. Super excited to have you on the show today.

Yeah, likewise, Akeel. Thank you so much for having me. I appreciate it.

Yeah, so I would love to hear the story of ActiveCampaign. I actually haven't heard too much about you, but you know, you joined at some point, but love to hear, you know, at what point did you join and what's been the financial growth story of ActiveCampaign over that time where you guys secured the funding and grown to where you are today?

Yeah, yeah. I joined, it'd be 6 years ago next month. Wow, I don't know. At a time the company's roughly, that moment, I think about 100 employees, probably in the $25 to $30 million in revenue. But to put that in perspective, the funding side of it, it's 2016, we raised our very first round of funding. The company had been entirely bootstrapped up to that point. And we raised $20 million from Silversmith Capital Partners. Interesting in that we raised that doing roughly $20 million in annual recurring revenue. So you see people go raise $20 million when they're doing $2 million in revenue. We did it raising, you know, at the same amount of what our revenue was. So a little bit different, but the idea of we're bringing in a strategic partner to help us. Fast forward to January of 2020, we raised $100 million. That was roughly same story, doing about $100 million in ARR. So again, just bringing in some more strategic partners. And then it would be April of 2021, we raised $240 million, bringing in again a couple more strategic partners in that sense. And yeah, you said it in the intro, it's an incredible business to the point where we have 185,000 paying customers. Those customers are in 170 countries. So we always like to say we have— customers in more countries than McDonald's has locations. And yeah, just an incredible business growing and scaling in that hypergrowth speed.

Love it. Well, we're going to talk about all about the growth stories, growth levers, channels you guys have worked with and how it worked. Because, you know, SaaS founders, we want to know what the best of the best are doing. So excited to hear your stories. But before we get into that, I'd love to hear a story. You guys did an acquisition of a company called Postmark. Sorry. So growth through inorganic channels or inorganic growth is something that maybe is not as talked about as with many companies, but we'd love to hear, you know, what was the reasoning behind that? And was that a strategic move? Was it a financial move? And, you know, as many, as much details as you can share within the NDA bounds of what you have.

Very happy to do so. Postmarket is a company and a product line for us that's very near and dear to my heart. I had the opportunity of actually leading that acquisition from the concept of idea to it into pitching, negotiating, diligence, and then even integrating. So even the Postmark team sat on my side of the org for their first 18 months at ActiveCampaign. So I go deep here. I think that idea of, as your company's scaling, there's— you reach certain thresholds to a point to where you have to start to think about how are we going to diversify our product lines and how do we start to think about how we're going to make acceleration of revenue. And you can do that through plan tiers or different differentiators in pricing. But inevitably, you're going to start to think about how do you become more of a multi-product business, right? Like at scale, how do you start to sell different things as well as add-ons or extensions of existing accounts? So we thought of Postmark in that scenario, and it kind of happened organically, honestly. Basically in 2021, you went and talked to some of our sales team and asked them, hey, what's one of the major reasons you lose a deal? or an opportunity. They would say, we don't have transactional email, right? We have marketing emails, we have great automations. Folks want to bring their transactional emails into that same lifecycle. So for us, it started out as a, there's a product gap here we should probably look at. And as you normally do, it was a, hey, do we build this? Do we buy this? Do we try and partner with someone to do this? And ran an exploration to actually go explore that. I had previously used Postmark at a different business, and I just absolutely loved the product. And it was, as it was, the kind of only freestanding transactional email product that hadn't been acquired or basically under the umbrella of a public company, and was open to either, hey, would we partner with them? Could we acquire them? What would that look like? So just reached out to the team and started a conversation with them around, hey, how would this work? And over the course of a couple months, we all agreed, hey, acquisition is probably one of the better ways ways to go. And in a sense, there's a gap on the ActiveCampaign side we wanted to address, but we were solving a lot on the Postmark side too, where a lot of their customers were asking for, hey, how do we get kind of a what-you-see-is-what-you-get editor for emails, right? All the emails they have, you had to design or code by hand. You have to trigger the sending of them through an API. So how do we get an editor in here? And then also, can we trigger these emails through an integration or through some event that happens in a different platform? In a no-code type of solution. So there's, there's a lot of harmony between the 2 businesses. So yeah, we completed the acquisition last year, integrated Postmark directly and natively into ActiveCampaign, right? So now in an automation, you can set that up to send a transactional email. So not only can you use our editor and designer, you can trigger it through any of the other triggers for an automation. And we've also been able to offer Postmark some things that they hadn't had in the past. They never had a sales team.

Right.

Right. So the ability to actually have a sales team step in and help sell that. And, you know, you have 185,000 customers at ActiveCampaign to cross-sell into even, right? So a pretty good pool and base to play with. So one where, yeah, the post-market growth rate is accelerating. It's been, I'd say, good for all parties involved and just accelerating a bit of that growth.

So. Nice. That makes sense. I mean, using— were they an integration of your platform before that, or this was later on?

Yeah.

Like as you found— oh, interesting.

Yeah, no, we— yeah, it was interesting. It was the kind of conversation started. I say, could this be an integration? What would that look like? And we have a lot of different ways you could build integrations into ActiveCampaign. And we thought, you know, that's actually— that would be pretty easy and well-means to do. But there are some features and capabilities in ActiveCampaign that if it was more natively embedded, right? So not just like an integration onto the side of it, but natively available in it, more could be possible. So that's kind of where the acquisition conversation took tone.

So you guys raised over $100+ million a couple of years ago. Are you able to share what the size of the valuation of the transaction was?

Yeah, no, we shared basically the valuation at that time. It was north of $3 billion on revenue that was surpassing $165 million. All that was back in 2021. I can say it's, it's grown and continued to grow significantly from that.

Okay. And then the transaction with Postmark, what was the size of that? Or can you share that?

Yeah, we've not shared.

Yeah. Yeah, you can't share. Okay, I figured, but thought I'd ask.

Cool.

No worries. And then so when it comes to integrations, because that's an interesting piece I want to talk about. I mean, a lot of— I've seen other companies, you know, Amazon, a lot of the bigger players, when they do acquisitions, they look at their integrations and then they use that as their guide, right? So like, okay, we have this email marketing platform connected with us. is driving a lot of traffic, it's making noise, right? They let the noise kind of decide that decision. So I'm kind of curious, like, what's your— I would like to understand, describe your internal approach to identifying like what integrations work best. Like you listen to your customers and you're like, hey, this is what we need. And then you see it really taking off and people really take, you know, using that integration.

Yeah, it's kind of 2 ways to look at it. And Postmark was beautiful in that it hit a lot of these numbers. One of the ways we looked at it, you said it, right? It's like, hey, what are our customers saying? What are they trying to connect with? And so we just simply sit back and listen to what is the demand for integrations into the platform. And we do this in, I believe, some creative ways, right? Where when you sign up for ActiveCampaign, you're creating your trial and it's gonna ask you your name, email address, business, et cetera. But one of the things we ask you is, oh, what tools do you use? Right? Like, what's in your toolset? And freeform, right? You can almost just type those out. We look at that log and see what's registering there, right? Vice versa, we'll look at call recordings, right? So we use Gong to record a lot of our calls we have with customers, and we look for when the customer is speaking about an integration. We'll do some keyword searches against that to build out just a number of mentions and references. And then even in the, like, app marketplace we have, right, where you can see the list of our integrations, you can search. We just look at the searches to say, hey, what is someone actually searching for that maybe we don't have or they can't seem to find? So we'll listen just very directly from customers, and then we'll even take some of our customer data and enrich it, right? We use a tool like BuiltWith to say, hey, what are the other tools they're using, right, to understand where they might want an integration? So what's this demand? And that's honestly, that conversation turns more into kind of a retention side of you can get them to integrate their tools, they'll probably stay with you longer because they're starting to do more. in the business across them.

Mm-hmm.

The other side we look at is probably more opportunistic, and that is this idea of, hey, right before someone signs up for ActiveCampaign, what are they doing? What tool are they using? Where are they coming from? And for us, right, it's marketing automation, email marketing. Generally speaking, before someone gets to us, they've built a website, right? So they're, all right, I'm using a Squarespace or a Wix or WordPress. So the idea of, hey, if we build integrations into those, we can activate ourselves in their ecosystems to say, hey, you're starting to capture some of your customers or opportunities, just contact information. What are you going to do with it? Do you want to build some automation around that? Maybe you want to talk to them. So we look at website platforms, e-commerce platforms in the same line of that, right? People signing up for WooCommerce, Shopify, BigCommerce, what have you. And then even alternative ways where maybe someone's using a spreadsheet, right? And it's a Google Sheets integration we should be looking at. Or maybe they're doing something where they're running some ads in Facebook or Google, right? Or LinkedIn. We want to— hey, what are you going to do with the contact information you get from that? So finding ways to funnel them into ActiveCampaign and ways where we believe we could grow new business off of an integration versus just the retention piece. It's beautiful when you can get both of those to come together, but we look at them both ways based off customer demand, where we might see the retention side, as well as what's upstream from us that we have opportunity to kind of go build new business off of.

Nice. Is that kind of the shift and move that you guys continue to keep moving upstream? The focus?

We're always playing with it, honestly. Like, there's just some baseline of integrations our customers are going to want and expect. And the dynamic depends on our size as compared to that company too, right? So often we'll try and encourage that other company to build it and sweeten the pot best we can to incentivize them to do so.

Yeah.

There's some companies that just aren't going to do that, right? Like Google's probably not going to build that integration from Google Ads to ActiveCampaign. LinkedIn, probably not going to build that integration. So we're going to have to go do it. But we're always just kind of playing with the edge of that, honestly. And even where we do build it, We think deeply about how do we go build a relationship with that company and try and give them creative, intuitive ways that they can even gain a little from ActiveCampaign, right? Like, that true partnership should go both directions and not be one-sided. So we're just trying to do our best to make a little noise and become known within that ecosystem as well.

One thing that a lot of founders think about when they're trying to decide whether they're going SMB or trying to decide upmarket and have that balance, which it seems like you guys are still also working on, you know, is going back to your pricing model and how you present that, you know, the offering to attract the right people. So, you know, people try, you know, the free trial, the freemium model, or demo, or, you know, those are probably the main ones. What criteria do you guys use, you know, to help? Or maybe just share what would be helpful if you think if a SaaS founder is thinking through this, what are some criteria they can use to determine the best option for pricing and how to set that up properly?

Yeah, I'll answer broadly, then can dial that into ActiveCampaign and how we're doing it. But generally speaking, right, where think about complexity or cost. So if a product is complex and it's going to require a decent onboarding process, you're probably going the route of a demo request. Come talk to us, right? You want to be able to allow potential customers to experience the value of the product before they commit to that purchase, right? So you got to— you probably have to show them that. The product cost, it's, you know, you can go the route of free trial or that demo request, but you want to make sure you give them the confidence they need to make that purchasing decision. And if you can do that in a free trial, awesome, right? Like, go for it. But if the value you believe is high enough that you could use a human-like relationship there in the demo request to actually convert that, I would, I would look at that. I'd also just more broadly look at your target market, right? So you were mentioning some things on the SMB side where You know, if you think that target market is composed of individuals or businesses that have tight budgets, there might be that free trial to freemium model might be the best way to attract and convert them, right? For us, it's always been a mix. Cost per campaign can be decent, and the size or ability to set up and integrate can be challenging. It just kind of depends on what you're after. We make it as intuitive, as self-service as possible. But the breadth of what you can do from the platform is so wide. Someone sometimes just wants to have a conversation around what all of that is. How can I set that up? Most folks, though, by and large, sign up in a free trial, poke around, see, hey, does this actually do what I want it to do and is it going to work for me? And then they convert. I'd say the majority of our customers we actually probably won't talk to unless they reach out or are looking very specifically for our help. We've tried the freemium side, but we found the free trial directly to paid works best. It shows a stronger propensity to actually pay us long-term and filters out some of the tire kickers from the free users that ultimately might not convert, but could drive up some of the support costs.

Got it. So the product-led growth wasn't the freemium. You put a higher filter on there to hopefully attract people who are going to take it seriously. And with that, did you find you were getting more customers upmarket? Did that make a difference or were you just weeding out the— were you just weeding out more or was your volume of higher quality going up, I guess?

Yeah, it's quality that you're seeing through that. And we're in kind of just a market where there are freemium offerings too, right? You could go use different competitors of ours in very limited scenarios on a free side. For us, that's— go for it, right? We think we have the better quality product and ultimately we can win out on that. So we'll see a lot of folks actually start on a competitor and graduate off of it based off of a limited set of features or capabilities, or quite frankly, They might come the opposite direction where they're using something more upmarket, but the cost of value isn't matching and the complexity to actually use and set that up is far too just out of reach or desire. They can come back to Campaign and find something that is easy to use but not overly simplistic in its features and still provides that right level of, I can build the automations I want here and I can do it versus having a consultant do it or having to pay someone to do it. And then It's well within the affordable reach for my business.

That makes sense. When it comes to the marketing levers, you know, so one thing a lot of, you know, we can talk kind of some details, but, you know, many businesses are dependent on maybe one platform, one channel, or they think of, you know, more short-term investing in different assets that work on the short term. But how do you kind of view the importance of balancing or maybe investing in assets like email list or the podcast or more long-term branding growth versus thought leadership versus the other ones?

Yeah. Most businesses I've seen and honestly even been involved in, there's usually one channel that kind of spikes and drives a lot of growth for you, and you should take that and ride that for all that it's worth. But don't be so shy to just say, I'm only going to rely on that, right? You're going to need diversity in those channels. I think building those out are super important and the ones you mentioned even more, right? An email list, a podcast. I put those under the umbrella or category of what would be an owned channel, right? And I think the idea of owned channels are becoming much, much more important and prevalent today in the sense that there's a lot of things happening around us through different channels or ecosystems. So you just think of algorithms changing, right? Google is switching from this idea of being the index where you can click to go find results to using different forms of AI to say, ah, we think we could just give you the answer rather than linking you out somewhere. So there's an umbrella question under SEO right now as to where that will go. LinkedIn's made some sweeping changes to their algorithms where I know a lot of folks were driving significant impressions every single week based off their posts, and now they're like, I'm seeing a 10th of that. It's almost just vanished overnight. And that's a hard risk. They even go paid search. It's the cost of that just continues to climb, right? And competitors can jump in there. So the idea of having an own channel where you control it, that email list, that podcast, incredibly valuable. There's a number of benefits that come with it we could dig into, but I just think the idea of having more control over that is very important.

Yeah, people don't understand, right? Like, you know, big companies change one line of code and they can tank your business overnight. And that's happened to me several times. So Google Ads, I've had businesses, you know, websites would depend on Google, same thing, algorithm change, boom, you wiped out. Amazon affiliate programs with, you know, when I have Amazon sites, Facebook Ads, like you mentioned, they're, you know, the iPhone update, I think that was a huge one that wiped out a lot of, you know, I heard TikTok, they're banning people for certain content. So then people are losing their business. So yeah, I mean, it's tough, right? When you're so dependent on one platform, a big guy, you're dependent, right?

Yeah. Even the tides of platforms change too, right? Like the amount of people that were on Twitter that are now just migrating in different ways, you have to follow your target audience, right? And stay with them. So just staying tuned to where that's going is important.

What has worked best for you guys? I guess what's been the biggest levers for 2023? And then where would you say you guys are mostly doubling down on your marketing budget for 2024?

Yeah, this is the hardest thing in marketing, I believe. It's also what excites me in that it's our job to continually play with what is that emerging channel or emerging scenario where we can go activate ourselves, market ourselves, and get an adverse advantage as compared to the competition. Owned channels is something we've been digging a lot deeper into, areas where we can connect with our audience and build relationships with them. We're thinking about how to do that in more valuable ways than just purely promotional. So how do we give them true thought leadership that is applicable, approachable, actually directive into their business? We played a lot around with different short-form videos.

Mm-hmm.

I think creative these days is Incredibly important, right? That's how you're going to capture some attention and pull some people in. So we played around with be it TikTok, YouTube Shorts, et cetera. And in that too, also working with influencers. So this idea of, hey, don't take our word for it. Let's find authentic people that are customers of ActiveCampaign that would be willing to recommend us, refer us new business, and can we incentivize them or give them some offers to pass around? So we've been experimenting, playing around in some different areas there, if you will. That landscape is always changing though. So what I share, your mileage may vary, right? Like, I think you can see that change for different folks. And quite honestly, I expect it to change for us. I don't expect 2024 to kind of be in that same conversation.

Makes sense. I mean, so if you're— so this is a strategy, you know, you guys are $150, $160 million plus ARR. Would that be the same? Let's say somebody listening in has a $5, $10, or under $50 million ARR company. Would you still be investing in those same areas?

I would, yeah, honestly. And I mentioned own channels in a way that as you think about just artificial intelligence and the way that that's going to, I think own channels are going to be more important. And then quite honestly, Some of that also just dovetails more into brand awareness, brand recognition, or authority. And I think some of that's gonna play into how those algorithms think and how they kind of prioritize you or put you into some of their own generative responses. So owning some of that and digging deeper into the brand side, I don't think is a bad idea right now.

Speaking of AI, I guess, how is ActiveCampaign thinking about using AI within its automation platform, or is there specific processes that you guys are employing AI in your teams?

Yeah, so I would say, a couple of thoughts. AI has in the last 9 months just exploded through