Top 10 Lessons Learned in Getting to $100M ARR with Adaptive Insights

And how's everybody doing this morning? How's Saastr so far? Good. Good. All right. So let me check the audience. How many founders in the audience? Show of hands. Wow. Awesome. How many CEOs? About the same. Fantastic. So I'm going to start with just a little bit about my background. And we're going to talk about some lessons I've learned in building SaaS companies to scale. So, you know, I have— I've had the opportunity to be part of 3 SaaS companies that we've built to $100 million plus. I'm going to share some lessons. So early in my career, I started in technology a long time ago and had the privilege of being president and running Rational Software in the early 2000s. And as you may recall, we sold that— we built that business to about $800 million. That was perpetual license software. We sold that to IBM in 2003, and it was a fantastic experience. I then went to Greylock Partners and spent 6 years in the venture industry, and, you know, during that— during that period of time, we began to see the early phase of cloud and SaaS companies, and we saw the change in the business model and had conviction that it was a powerful change and would really fundamentally alter the way we thought about software companies, the way we built value. And as you all know, that was really foundational for the class of companies we've built today, because the subscription model meant that we had to focus on things like customer experience, customer success. That was critically important as we built those companies. So I had the privilege to be an investor in a company called Apptio. We were the founding investors, worked with the management team there, went public in 2016. And you may have seen we just sold that. We got to over $200 million, and we sold that to Vista Partners. That was a deal that was completed a couple weeks ago. Also had the opportunity to be a board member at a company in Boston called Acquia. Which again has built, you know, a SaaS company built to scale. But the most relevant experience is really my experience at Adaptive Insights. And I joined Adaptive as CEO 4 years ago, moved from Boston to Palo Alto at that point in time. And really, you know, we've had just an incredible experience. You may have seen we were actually in the process of going public last June. We were 3 days away from our, you know, from IPO, 2 days away from pricing, and we were acquired by Workday, which is, you know, an extraordinary company, an extraordinary team. And the— by the way, I don't recommend doing an IPO and M&A concurrently. That is— that's not something for the faint of heart. But we have an incredible team. But I want to start my story really with a different experience. And it's really a company that I was running in the mid-'90s. And we were based in San Diego. You may recognize San Diego Harbor here. It's probably the only gloomy day in the history of San Diego. But there's a reason I chose this picture. So I was— this is mid-'90s. I was driving into work one day and I picked up a message from our voicemail from our CFO. And she said that she wouldn't be coming into work that day. And over the course of the next several hours, we discovered why. Because when I got to work and we began to understand what was happening, there was several hundred thousand dollars missing from our bank account. She had committed to pay the bank back some money on some term loans we had that day, which we hadn't realized. And by the end of that day, the worst day of my business career, by the end of that day, we realized that We were bankrupt. We couldn't pay our creditors. We had to lay off the team without severance. We eventually got the company sold, but it was a, it was just a, it was a terrible experience, as you might imagine. So at the end of that day, as a leadership team, we gathered and we said, as horrible as today is, there are lessons that we will take from today. And it's those lessons that will be with us for the rest of our careers and will form the foundation for the good things we do going forward. And that's really the first lesson I wanted to share, which is we have to embrace things that don't work out. It's important— when I think of that experience and I think of myself as a leader, I didn't lead as effectively as I might have. Because there was part of me that failed, that fear, feared failure. And you have to be willing to accept mistakes if we're going to be able to accomplish and do great things. And it's an important lesson I share with our team. I tell us, I tell our team that we can't fear failure. We have to be willing to take risks, to make mistakes, but we also can't fear success. Too often people will set targets that are really achievable because they want to make them. They don't want to fail, right? So we have to both not be afraid of failure and we also have to not be afraid of success. The second lesson, and I will say upfront, I think this is the most important, and it's about team. You know, in the venture business we learned there are two maxims. That we, we learned early on. The first was if you had a great trend, if you had tailwinds in the business, that really helped. But the primary differentiator between success and mediocre or not so great outcomes is team. Because team will find great markets and team will find ways to solve problems. So my experience My experience at Adaptive, I'd like to share with you. And by the way, Adaptive Insights, we're a cloud-based company. We make budgeting and planning software, selling to, you know, a lot of technology businesses. I'm sure many of you in the audience, so thank you. But when I arrived at Adaptive, we were about a $40 million business. And we realized that we wanted to scale and grow the business, so in selecting Team members, my design focus is we want a team that can lead a $500 million business. We want a team that has seen scale, that has been where we want to go. And we thought we had ways to get to $100 million, but when we thought about that team, it really was a set of skills that would be able to lead us beyond that. That would anticipate and understand the problems that we would face. This is pretty obvious, but it's important to emphasize. Team— you know, building a team isn't just about skills. It's about fit and culture. And when I think of skills, skills aren't absolute. Your team has to fit together. We all have strengths and things we don't do so well, and it's a question of the way that all fits together. Together. It's kind of like a puzzle. As you are leaders, you know, in building your teams, it's about the way we put those teams together and have complementary skills. We screened as hard for culture as we did for skills. I had to replace 4 leaders at the executive team, and those— I interviewed more than 100 people. It took us 15 months to fill that team. And I think we got most— I think we got most of that right. And I can tell you as we continued that journey over the next 2 or 3 years, that was an extremely important part of what we did. All right. Let's talk about funding. I'm going to get most of the audience. Who's raised money? Right? Virtually everybody. Most of the audience. Now, what I'm going to say here is a little controversial. So I think most people, when we do funding, we're always trying to raise, you know, at the highest valuation. And of course that's important. I would suggest to you that it's more important— you have to be sensitive, of course, to valuation, but it's more important who your team— who does the funding. I think it's the reputation of the firm that matters. But it's also the individual from the venture firm, if you're raising venture, who's going to be on your board. It makes a huge difference. And having— because the board is part of your team. You're constructing a board team as well as a leadership team. And, you know, I would suggest that taking the highest valuation isn't always the right thing to do. Of course we're sensitive to dilution. And we've got to manage that appropriately. I'd also suggest that structure in financing rounds is not something I'd recommend. I think that structure is a way to not accept the valuation the market's willing to pay you. And structure creates different motivations and different outcomes. It, it creates artificial— outcomes depending on where your investors are in that hierarchy. So when I came to Adaptive, all our previous rounds had participating preferred, and when, when I joined, we did a straight preferred round. It turned out it worked out for us. We cleared the hurdles associated with the prior rounds, ultimately with the valuation. But I think that, you know, as leaders, when you think about funding, I would, I would suggest it's important to give consideration to who the firm is, and then particularly who the team is that's doing that funding. All right, number 4 is culture. We all understand the importance of culture. There used to be an expression that culture trumps strategy. So I now, I'm told by my team, it may not always be politically correct. So, but culture certainly, is more important than strategy. I think Peter Drucker used to say, culture eats strategy for breakfast. And culture is what you want, it's the way you want your team, your organization to behave in certain circumstances. One of the things, and I think this is particularly true when we think about M&A, Culture is probably the most important factor in determining whether M&A is successful. I think I've been acquired now 6 times, 4 as a public company. I think on the buy side I've been involved in probably more than 100 transactions. And if there's one constant in terms of the deals that worked versus the ones that didn't work, it really is about culture. So, at Adaptive Insights, our culture was very much customer success-oriented, team-oriented. We value transparency, we value accountability, and the Workday culture is very much aligned. And I think in the 6 months we've operated together, we found that that provides a, a strong foundation for the way we can operate those— our 2 businesses together. So I think, I think your responsibility as leaders Culture is one of the most important things that you do. So number 5, you know, really is an extension of this. It's about trust and transparency. And, you know, conventional wisdom is that we often don't want to share the hard messages with our team. That it's— that very often if we've got something that's difficult, you the team may not be able to absorb it. It's a fact, when there's uncertainty, people fill in the blanks with bad information. They assume bad outcomes. I'd suggest to you that we'll do far better if we give people the information. I'll give you a couple of examples. I talked about that company in San Diego. After that happened, we told the team exactly where we were, what the challenges were. We said our, our future is uncertain, you know, we're not sure whether we'll be able to sell the company. And the reality is that although that unsettled a few people, most people stayed. Most people stayed for that ride and were able to get us all the way through. At Adaptive Insights, when we were going through leadership changes, we did an all-hands at the beginning of that year at the beginning of that 15-month process, and we told them, here's what we're going to do, and there is going to be uncertainty over the course, over the course of the next several months, and some of you will have new leaders. But by doing that, we built the trust so that when times are challenging, you're able to, you're able to rely on the fact that your team believes that you're willing to be honest with them, to give them hard hard messages. So my colleague Robin Sisko, our CFO at Workday, has a great blog this morning that if you get a chance, look at it. This wasn't planned, but when I read it, there are a lot of very similar messages that Robin shared. Let's talk about a founder's culture. I think over half of you were founders from, you know, when you raised your hands at the beginning. I think, and you remember as founders, when you were starting your companies, you either, you know, with a small team, you gathered in a room, you talked about what you wanted to create, the vision for your business, what you wanted it to be, what you wanted behaviors to be, how you were going to go to market, what your product market fit was, all those critical things that have made you all successful. Well, we need a founder's culture at every stage of our journey. When I joined Adaptive, I said to our team, we are all founders of the $40 million Adaptive trying to build the $100 million Adaptive. I joined Rational Software, we were $100 million, and we were founders of that company trying to build the $800 billion Adaptive. We want that same connection, that same commitment that all of you have. You want it to be instantiated in your entire team. That is, you know, I think, I think this notion of the commitment, the belief that founders have is a really, really important part of what you do as a leadership team. Setting goals. It's one of your primary jobs as leaders, and I believe in a philosophy that we have aggressive but realistic goals. Aggressive, why? Science shows that if we commit to stretch goals, we accomplish more than if we commit to grow— goals that are less aggressive. How many of you follow a process called OKRs, Objectives Key Results? So a fair number. It's, it's increasingly popular. There's a great book by John Doerr, Measure What Matters. If you, if you have a chance, take a look at it. It really reflects his experience at companies like Intel and Google and others. And in the book, he discusses how if we set more aggressive goals, if we set stretch goals, we accomplish more. So goals need to be aggressive. But why realistic? Realistic because if we have goals that aren't sustainable and we as CEOs say, hey, this is what we're going to do, and the team doesn't believe that's possible, we fail. Cuz the team can't commit to it. So there's a real balance here in terms of the way you set goals for your team. Personally, I believe if I'm setting bookings targets for our company, I believe we've done a good job if we hit about 3 out of every 4. So the notion of having, of having goals is, I think, really important. Stretch is good. But it's gotta be balanced, and I think that's important in all aspects of your business. And whether it be balancing, say, investment versus growth, or balancing investment in go-to-market initiatives versus product initiatives. It's your, your job as leaders to strike that balance. I'm sure most of you— who's familiar with the Rule of 40, right? Probably many of you. So there's this notion that as we build, you know, SaaS companies, the combination of 40 between revenue growth and, and operating income or margin is a magic number. And so if we're growing 50% a year, we can burn about 10% a year. If we're not as— if our growth isn't as robust, if we're growing 20% a year, then we are expected to return about 20% in terms of our operating income or operating margin. It's a good way to think about how you balance your investments, and it's a good guide to determine if you're in balance. Now we all know we get paid a lot more for growth than we do for profitability, so there is a bias there on the growth part. Part of the curve, but it's a good way to think about, you know, how you balance your investments, whether you have to raise an additional round, whether you need to consider fundraising, and it gives you, it gives you a framework, it gives you a framework in which to think about it. So that's balance. I've got two more, but let me start first with a personal, a personal story. So early in my career, I started in finance, And so early in my career, I had the opportunity to work for some just amazing people. So I was a very, very, very young person in finance. And I was working for a CFO, we were a public company, we were about $400 million, and we had 500 profit centers in this company. And my boss came to me, he said, hey, I want you to do the budget for the company, I want you to lead the budget, you know, for the company next year. So I guess a pretty good indicator of what I do now, I suppose. But he said, and this is a long time ago, so this is before we had spreadsheets, and he hands me a binder and it's about this big, and it's got this manual handwritten spreadsheet for every profit center, 500 of them with all the regional district roll-ups. But he said, you know, I've got this other thing, I just heard about it, it just came out, something, the very first spreadsheet, probably many of you haven't heard of it, it was something called VisiCalc. And it ran on the first popular personal computer, an Apple II. So, our company was based in downtown Boston. In this picture you see Faneuil Hall, if any of you are from, from the Boston area. And we're at 60 State Street, which is that building you see in the background there. So, a Saturday afternoon, I drive into work, I'm the only one in the office. And I spent 10 hours going through VisiCalc and Apple II trying to figure everything out. At the end of 10 hours, I stood up. I was in this room that overlooked Fennell Hall. I'm the only one there. I say out loud, I say, "This will change the world." And it did. It changed everything we believed and we knew about the way computing was done, about the way business applications were done. It changed everything about the way we were going to work. What I didn't understand in that moment is it would also change the arc of my career in a very fundamental way. And the last two points are related to that. And the first is— The megatrends matter. When you attach yourself to high-growth impactful areas that are driving fundamental change, your probability of success goes way up. So find those. Cloud is one. That's why you're all here. But find those areas. And when you attach it, it's easier to get investment. It's easier to have success in your business, and it's important to identify those, and identify those fundamental shifts. The last is the most important. You create these incredible visions for your company. When you connect that vision to your team's personal purpose, for me, My purpose in my career was evident in that moment as I looked out that window, looked down on Fannell Hall. I knew how I would spend the rest of my business career. When people attach their personal purpose to your vision of the company, you can create amazing things. Everybody wants to join you in changing your portion of the world. You have— we live in the most amazing time, driving fundamental change. You're creating the next generation of change. Your team wants to join you. Thank you for the opportunity to be with you this morning. I'm so proud of what you all do. Enjoy the rest of SASTR.