You Fired HOW Many People?! | Beautiful Business Advice EP 2

You have a cohort of customers that just came to you because HR was a nuisance and they didn't want to pay any money.

The previous owners didn't really care that much about growth.

You had these sales reps before that were not functioning.

We've essentially eliminated everyone in the sales and marketing team. How we can position ourselves so that we can be successful. It was really hard to build content. It was really hard to build a marketing strategy.

This is my buddy Andrew Swiler. He and I have known each other for a while. He actually lives in Barcelona with his own money and some investor money. He bought a software company and is a small software company that he acquired a few years ago. Turned out to have some interesting characteristics. It's called Lanteria. It's basically a set of HR management systems, so an HRMS that you can run, but specifically for people that are on Microsoft's SharePoint platform. It gets targeted, unique customer base, typically 200 to 5,000 employees who are just hard hardcore Microsoft infrastructure people. It started out pretty interestingly. He discovered that the team wasn't one that was really set up for growth. They just didn't know how to become a bigger, better company. And that was something Andrew really wanted to do. That was his aspiration when he bought this business. He wanted to help it grow, help it to become bigger than it was, as opposed to just flat and sleepy thing. And he discovered at the business there was just a lot of stuff you expect in a company that's not growth-oriented. There were no sales KPIs. He talks about in the first couple of days explaining to people what the word ARR was, annual recurring revenue. Those things that just happened in a business that was kind of run as a lifestyle business. Andrew has a vision to change this business over time and to make it something bigger and better. He's gone through and changed the culture of this business. Now he's in a place where he needs to figure out what next. How does he change the business to make it really successful? And they're seeing some struggles and some challenges in the market. They're having trouble selling the product. They're having trouble finding the right people, communicating to their potential buyer. And we dug into a lot of those things to really try to figure out what he can do to unlock the next steps of growth and make Lanteria the big badass company that he wants it to be. So here we go. Andrew, so glad you're here, man. What's going on? You're in Barcelona. You bought a software company. Tell me what's happening.

I live in Barcelona. Our software company is— it's US-based. Acquired this company a little over a year ago, about 18 months ago. The previous owners didn't really care that much about growth. They were focused on more like, what is comfortable for me? They were living in Kiev. They were making good money. They were probably taking home $600K a year each living in Kyiv. So you can imagine that that was good enough for them to live well. The team that we took over wasn't really focused on growth. I mean, even the sales guys had no KPIs or objectives. Zero. One guy, the first week that we came in, we had to explain to him what ARR was. That was the level we were starting at. We tried not to do anything. Like when we came in, we just tried to observe and take it in and not try and set up new systems and try and break everything and start new. We tried to see like, what can we do? Just tweaking things and working with the current team and getting them better. And as time time has progressed, we've essentially eliminated everyone in the sales and marketing team. So when we took over, there was 5 people. Now we're down to— we've kept one account executive. He knows how to demo the product. We obviously still need someone to demo the product. Everything that we tried with this team, they just couldn't move the ball forward. We tried to come up with new ideas, but they kept blocking them. They would say, oh, we tried that back in 2015. And it was like, well, what— why didn't it work? And they couldn't give a reason why it just didn't work. So we don't know if they tried it for 3 days and they just gave up. The point that I've kind of come to now is part of this was a people thing. So we've eliminated that part of the equation and now we're bringing on some new people and I've brought on some freelancers and brought on some— now we have a marketing director that's going to be joining us soon. Where my concerns are, the way the product was positioned before was it's an HRMS, so it's like Workday, but it's focused on SharePoint users, a subset of Microsoft users. What we've done now is we've expanded the product. We want to focus on Microsoft users. We can't compete with Workday. That would be stupid. So the idea is to lean into the Microsoft part, try and be in the AppSource store, try and get customers through there, how we can position ourselves so that we can be successful with US customers in such a competitive landscape. I mean, we're competing with Lattice, we're competing with, you know, BambooHR, competing with Workday. You know, when we took over, that was a big concern and that was something that we knew, but we thought there's enough space here that we really only need to get 500 clients and this would be a solid business. It wasn't like we were shooting for the moon, like we weren't looking to IPO. We were just looking to build like a pretty strong, stable business that had some growth. But since we've tried some of this stuff with the previous people. One concern is like where our positioning is, what we can do better, what we could do to lean in better in Microsoft, what could be doing better. Other digital strategies are out there, even things we might not even be thinking of, that we should be going to certain conferences, certain things that are like in real life marketing stuff that I haven't thought about in years could be things that we should be thinking about now. I don't know if those are successful or those are working in the market right now. That's really my biggest concerns that they're occupying my time right now is hiring new salespeople, hiring new marketing people, coming up with a better strategy and figuring out sort of the positioning of this brand for the next 5 years and it could be, knowing that our market is super competitive.

Quick step back in terms of what the software does. The end user is people in small companies that are the HR function and they're Microsoft shops. Is that basically who uses it?

The end user is pretty much anyone inside of the company. Our typical companies are 200 to 5,000 employees is sort of what we target for. So I'd say mid-market because we're going after Microsoft. That's sort of a mid-market type of client. The user is the HR person, but the end user is pretty much anyone in the company. It's, you know, absence plans, it's performance management. Anyone's touching this inside the company.

So if you've already you bought SharePoint as an enterprise and you want to just have HR seamlessly fit into that, you buy this software. Yeah. And, uh, and put that all together. And historically, when people have bought it, why buy it? Is it just because it fits in with SharePoint and they can save money as opposed to getting one of the standalone solutions?

There's different tranches of buyers that have come in. So early on, these guys were just selling it dirt cheap. They were selling perpetual licenses as cheap as you could possibly imagine, and that was why people came in. They would buy the perpetual license and they would pay the maintenance fee for years to come. But we have some clients on here that are 600 employees and they're paying $2,000 a month, $2,000 a year for the maintenance.

So it, look, it is a growth strategy. It's not a great one, but it's a growth strategy.

That, that's like one of the cohorts of the buyers. Then the next cohort, when they sort of updated the product and actually made it a little bit more robust, was a lot of, a lot of times it was the IT managers that were driving the process. They had SharePoint on the mind. The SharePoint was growing. So I would say like 2017 to 2019, that's sort of the cohort there that, that would grow inside of there and they would pay a lot more like the the licenses went up 10x from where they were at before. And then where we're at now is we've tried to move away from the IT buyer just because they're so difficult to deal with. A lot of times they end up getting into these buying equations that don't really make sense, and it's really hard to market to them. Frankly, what we found is like it was really hard to build content. It was really hard to build a marketing strategy focused on that type of buyer. We saw that over the last, I'd say, 3 years, the buyer persona was 70% HR, VP of HR, manager of HR, and 30% IT director. So we've tried to just lean into that HR group. Group more and more.

Sounds like initially you have a cohort of customers that just came to you because HR was a nuisance and they didn't want to pay any money, so you got some great customers.

Exactly.

And then they don't care.

And I do, I do customer interviews, and it's always funny to talk to those ones. I'm like, so what do you like about the software? And they're like, well, it's cheap. Like, okay, yeah, that doesn't really help us.

The HR, the HR is a nuisance crowd. It makes for some compelling, some compelling customers not willing to spend. IT started to buy it. IT also sees HR as a nuisance and went for a really inexpensive, easy-to-deploy solution that they don't have to train anybody on. But those have proven to be difficult customers. So now you're trying to go to this true HR buyer who's going to think more strategically about people and all that kind of stuff. And it's interesting that you're doing that because as you go into that segment of the market, they don't care about a lot of the things that are where you have unfair advantages. You have unfair advantages that you're relatively cheap for them and you're relatively easy to install because you just plug into SharePoint. And now you're going to a VP of HR and you're like, hey, we've got this thing for you. It's cheap. Cheap and easy to install and IT will love it. Please buy it. Why, as you think about the product today, why against this myriad of competitors in HR management system space, why would a VP of HR want to buy our product as opposed to one of the competitors?

We offer the same robust software package as, as most of these other ones. Our usability is slightly less easy to use from, for like a layman, uh, than someone else. But if you're already using Microsoft, I would say our product is pretty easy to use. Like if they're using Microsoft in their day-to-day, it's pretty intuitive. And like you said, it's cheaper. We have a great channel partner in Australia, and the way he phrases it in his pitch is it's a Ferrari for the price of a Fiat. That's his kind of his way of positioning it to people. He says you're getting a super robust product that can do whatever you need, right, at 30 to 40, 30 to 50% less than what even just BambooHR is going to charge you. That's one of the pitches there. But leading with cheapness is always difficult in software. It is something that we're kind of exploring.

It kind of comes back to this concern that I have, which is like, okay, you're going to sell to these HR people and IT cares about expense, executives care about expense. But it's interesting to me that you're trying to go sell into HR and I don't know that we still know like what's going to matter to HR or that we can, we can give them something compelling because to win in a market like that, especially when it's a big red ocean like that, is you have to have something distinctive that they're truly going to care about. And it could be, hey, we're just going to be cheaper and you're going to, we're going to fit into SharePoint and you only just talk to HR that cares about that. And that's, that's all you do. I'm wondering what does HR truly care about that we're going to go be compelling for them? Because right now we're not the safe choice. There's like a ton of safe choices out there. All those Lattice and Workday, those are the safe choices for the VP of HR and her people or his people probably already know that because they've come in from where Workday is already being used in other places. So, you know, that's. That's where I'm kind of stuck is how we think about it.

I use Workday as an analogy just because that's one that people know. One of the good parts about where we're positioning, I know some people at Workday and one of the interesting things is Workday has been trying to go downmarket for years and apparently they just can't. It's too expensive to implement. It's too expensive of a product. They really find it difficult to get to companies that are 10,000 and below. And I've been talking to people in the market and this mid-market is an interesting area where a lot of these Bambus and HiBobs and all these, they focus on sort of like the SMB and the startup market and high-growth companies. Companies, but there's not a lot of people solely focused on this like 1,000 to 5,000 employee marketplace. There is a space there to play in. The question is, like you said, you got to position yourself. You got to be out there. Has to be a safe choice. But Workday does not really go down into this, into the space, which is a good part. But there are a handful of them. I mean, Paycor, you know, there are a lot of payroll types of solutions that do Paycor and Paycom and Ceridian. And things like that, that, that do play in this, in this mid-market, but they're, they also have very low NPS, like they're products that people hate. So that's, that's also a positive thing.

Yeah. How does, you know, you're talking about this kind of lower middle market into the market is where customers, where you think your ideal customer is. And so far where we've had success so far, like, yeah, I mean, that's just where they've been in the past. How do they go about buying software like this? If they do have an HRMS, how are they buying that? And like, who are the leading vendors right now?

Our typical process is pretty long. The demo process is like first demo to HR manager, sort of a mid-level person. Second demo to HR team. Third demo usually gets the IT director or the IT person or infrastructure person involved to ask the questions on security. And then the last one might get a CFO involved. Uh, it usually actually the CFO doesn't get involved in our types of purchases, but sometimes they do in the last phase. It's a 3 to 6 month long process usually in their purchasing. Sometimes there are RFPs involved where they go out to the market They look around and then they throw out an RFP and they tell you to kind of come in there. It's a pretty long process. I mean, we haven't seen anything that can be shortened from there. Most of the people that come to us because they're Microsoft users, they are pretty diligent and they have— there are a lot of box checkers and a lot of compliance that goes with it. We stuck into that. What was the second part of the question?

I forgot what my second part was. I have another question. So full-on enterprise sales is the model. And then what's your average selling price currently when you do close a deal? What is the annual ticket?

ACV is about $35K right now. We want to get it up to about $45K. The previous owners we're taking anything from 50 employees to 5,000 employees, we want minimum 200 employees.

Got it. Okay. When you had these sales reps before that were not functioning, um, they— you fired them, so I guess we could talk about them very nicely. But yeah, I think I understand why they didn't work out. I assume— were they overseas or were they here in the US? How are they selling?

No, they're here in the US. They were in the US.

Okay. How many of them had kind of enterprise sales background and abilities, had gone through the whole RFP?

And there was one guy who was actually a Microsoft enterprise sales prep before that. He was 69 years old, 68 years old when we let go of him. He just wanted to run demos. He didn't want to be prospecting, didn't want to be looking for anyone. As a team, we needed to be more proactive. I had some people do some secret demos with him. What we found is he was just— wasn't really doing anything. He was just scrolling through the web page and showing people and not asking any questions and just explaining our website to them and then being like, so what can I do for you? It was just— it was very bizarre.

So the opposite of knowing how real enterprise sales does, because the next question there What is the process to go from here to getting you the right solution? Or what problems are you trying to solve? That's probably a better first question before you ask what's the process.

Our biggest issue right now is we're not getting people into the funnel. We're getting 12,000 visitors a month on our site. I would say of those, 3,000 go to a landing page that gets very high traffic for like a really stupid HR meme jokes. But the rest of it goes into pretty good parts of our website. But even we'll get 1,000 visitors to our book a demo page per month and we'll get 32 people that click on book a demo. Trying to think of different calls to action is something that we're doing, trying to figure out ways to just get more people into our funnel is, is one of the areas we're working on.

So of the 32 demos you're doing per month, how many of those are you closing currently?

Those are 32 people that click book a demo. Of those that are actually— that fit our qualified leads, I would say there's 8.

Okay.

Uh, of those 8, I'd say 6 turn into demos, and of those 6 demos, probably turn 1 into a client. Okay.

Do they match your ideal customer profile when you do close them?

We don't close any deals with people that are outside of our ideal customer base. We don't really have to stretch because the people that do make it through the funnel usually are sort of a fit for what we're trying to do.

So right now, 1,000 people— we get about 12,000 on the website per month. About 1,000 click on the Find Out More page. About 35 of those turn into demos. 8 to 6 to 8 turned into leads, and one of them closes, turns into a closed deal.

Yep.

Okay. Yeah, at first blush, that's not the worst funnel metrics ever. So I think you're right that your funnel is, is wrong— or is right. I think you're right to focus on how do we grow that funnel at the very top. As you look at the people who are succeeding in the lower middle market selling into your market, what are they doing? You mentioned HiBob and the other folks who have been successful in this lower middle market. How are they generating top of funnel?

Based on research that we've done, a lot of it is PPC. PPC, they're doing a lot of long-form content and doing LinkedIn ads with that. I've never found LinkedIn ads to work for me. I don't know if you've ever seen that work. Usually when I've seen it, it's like lighting money on fire from my experience. HiBob's running about $175K a month in PPC ads in the US alone. Bamboo's at $125K. There's another company called Name namely that's doing around that, about $100K a month in PPC. This is on Google because that's really the only place we could be able to pull the metrics. Comes from there. A lot of it's on G2. I'm sure they're spending a lot of advertising money on G2, Capterra, places like that. We are as well. We also get G2 intent data, although it's been pretty weak, hasn't been the best experience for me. But part of the rebuilding of this is I'm bringing in like an SDR that'll be more active. One area that we're testing out at least is buying lists of SharePoint and Office 365 users and doing more of an active outreach campaigns and see what we can do from there. So far, cold email hasn't really worked. I think people are pretty inundated, especially in the HR space, from our competitors and just from other point solutions that are out there. It just eats up their inbox. That's an area that I'm starting to explore.

The one thing you kind of hinted at was the other guys doing PPC and LinkedIn ads, and then the long-form content. To me, that comment you made was really interesting. Your business really coincides with other ones that I've seen where you're looking for a long-tail client type with an intent to buy. Your ideal customer profile is of a certain size in the US who has a certain attitude towards HR and is a hardcore Microsoft shop. And some of them may not even know that you don't have to buy a third-party thing. You just extend SharePoint with your solution to make it really good. And to me, that makes me wonder if there's a big opportunity for SEO for you guys. Have they tried anything historically to do well around SEO and long-form content?

They did a little bit. That's where most of my investment right now is. Since I let go of the marketing person, I basically took all the money and put it towards long-form content. So we hired a woman that does HR content, and she's built— doing white papers for us right now that we're in a kind of— not paywall, but put behind call to action to give us their email. And then I've got a couple people that are working on just long-form content, some focused on Microsoft, but a lot of it focusing on just clustering around words and trying to find keywords that we can cluster around and go up the ladder on.

Go up the ladder. How long have you been doing that?

3 months. Okay, super early. Yeah, yeah, it's super early.

My experience with SEO, you really have to invest somewhat heavily in it and go hard and measure it, and really it's going to take you 9 months to a year to start to see anything, which is why all the startups don't do it because they don't have time. They throw money in PPC and all that kind of stuff. But I agree with you, I think PPC and LinkedIn ads and all that kind of stuff is not going to work. I'll be curious when you run your direct outreach with cold email and stuff like that if that works, but my suspicion is you will end up with SEO and referrals being your top 2 customer leads, you know, a year from now.

Yeah, SEO has been my suspicion that that was kind of what we needed to do. The reason I actually let go of— the straw that broke the camel's back with the previous marketing director is She set up a new website and tanked our SEO with it. And I said, that's it. Like, I can't do this anymore. This is like our main strategy and you screwed this up. I brought in a guy from Pakistan, this guy Faizan, who now could be our marketing director now. And he fixed it in like a week. This guy worked around the clock manually fixing this website and he was amazing. I would recommend him highly if I didn't want people to hire him away from me. He was amazing, stepped in and fixed a lot of these problems. That's my suspicion is that's kind of an area we need to focus on. My concern is what you were saying of HR people looking for Microsoft things is where my biggest concern is, if that is something that's going to happen. The move away from IT people, it wasn't actually move away. I mean, it was just when we came in, we just analyzed what's the buyer persona here for each client. We saw it was basically 70% was the HR person, 30% was IT. We just said like, well, let's lean into where we have the most. It could be something that we lean into more IT director type of person, but I don't know how often they're the buyer in these types of things, especially now that HR is getting more presence inside of companies.

My suspicion is when you go dig into this, you an opportunity to go hire somebody. It's the type of person that you would normally hire for an SEO agency to go run all this for you, and you pay $10,000 or $15,000 or $20,000 a month and they start producing content and playing all that game. My suspicion is to run that but go all in with that being in-house. And I love it when it's in-house as opposed to an agency because of the agency problems. You know, agencies have this problem. They actually are not motivated to do the absolute best for you and not to do the hard things. They're motivated to do the bare minimum, which agencies are going to agency. That's the way it works. But that'd be my— so tempting. It's super tempting to be like, hey, we're an agency, we have it figured out. In your shoes, that's what I would do. I would just totally go all in on that. When you have the right person, they'll find those searches and keywords that people are going after, and you can start to highlight those. Because just as you talk about, this is a relatively small business still. We haven't talked about the size of it. Just you adding dozens of clients, and we know there's a long tail of Microsoft-only shops out there, and they're out looking, and you just being there when they type in words like Microsoft-based or any of that kind of stuff has to— yeah, that's gonna, that's gonna win, I think.

That was our thesis when we bought company was this is clearly a niche and it's easier than fighting this. It's a great market and it's easier than fighting this out in the open with just a generic offering. Even from a product perspective, we've leaned into it further, building out our Microsoft Teams products and building out better integrations into the rest of Microsoft because we want to go beyond SharePoint. But the issue right now is top of funnel, basically.

I really question going beyond SharePoint as a strategy for the company. You have, I think, a beautiful blue ocean in terms of the HR management system space, which is you're the only one that we've talked about that is this SharePoint-based solution. That's a great market to be in. If you try to go against these guys who have venture funding and are doing PPC and are more mainstream service, I'm scared about that strategy. I don't see how you're gonna win there, but that's just my two cents.

No, no, I agree.

In your shoes, like, I would totally think about going all in on SEO, bringing in a person. I've seen it work. You just make it their thing to worry about, and you find that person who's just really good at it. Maybe they've spent time working at one of the agencies. I think that's the route to get you there. Number one for your top of funnel problem. I also have a suggestion for your bottom of funnel problem, which I would love to give you if you care. If you're just— look, I think you have a problem right now with your product mix and how you're selling it. We talked about the senior guy who would just be like, here's the demo, who sounded more like a sales engineer than a real sales rep. The problem with selling enterprise 6 to 9 months to 12 months close cycle software for $35,000 is there's not a big enough pie for you to justify having serious enterprise sales reps actually outselling that. And I think the types of clients that you're talking to who are buying you because you're SharePoint-centric, they're going to have just the same amount of interest in what you're doing if you're double the price and pair at parity with everybody else than if you're 50% the cost, because your software is only a small part of what they're spending on to deploy your software, if that makes sense. I think the bottom of funnel, I think you can improve that ratio by charging the right price for an enterprise sales model and like hiring a real enterprise salesperson who understands how to do the dance that we just kind of talked about with somebody's interested, you, they understand the lay of the land inside the company, the decision criteria, they start asking and can help and get stuff through legal and finance and all that kind of stuff and answer RFPs. That is a whole dance that like a real enterprise sales rep knows how to do and improve that close rate. Because my suspicion is your bottom of funnel is a place where you're leaving money on the table as well.

Yeah, no, no, I agree. I mean, that's our next hire is we've found a marketing person now. I have an account executive, but we're trying to close around funding hopefully by the end of this month. But I've got a guy that's on the line. He's ready to go. But I told him I had to pick between marketing or sales first. And I said, our funnel is just too barren right now to justify bringing on the account executive first. But I agree. And that was the next step is bringing on like a good person that comes from the HR space, that comes from like a competitor, knows the space, knows how to run the cycle and has sort of done it on their own, like the full sales cycle.

One more thought for you. And then I think I'm out of even reasonably intelligent things to say. When was the last time you went and did account visits with some of these, with some of your bigger customers? Have you gone to visit them in person? Have you guys gone over to see them?

In person? No. On the phone, pretty much weekly. I talk to at least one customer from, from our company. When we first took over, I went down the line, like from the largest on down and had phone calls with each each one just to find out, like I said, what do they like about it, what do they not like about it, what can we improve. From there, pretty much weekly, I'll end up having some sort of call with one of our clients, or even sometimes potential clients. Like, I'll get in on the sales calls as well and hear sort of like the problems, hear what they want, hear what they're doing, see if we can fit that into our product roadmap.

One thing I would encourage you to think about, and I've seen it work a lot, is go get on the plane and go try to visit at least your top 10 customers each year. And what happens is you think that, oh well, we're not going to have anything to talk about, we talk every week, like they They know my cell phone number. They know, you know, they know you had COVID last week or not COVID. But like what happens is when you go show up and visit those people, there's this weird social interaction where, you know, the thing where people like give you a little gift when you— yeah, it's part of a sales process. Like timeshare people will give you like free food. And then there's this reciprocity thing where humans have this fallacy where you feel obligated to do something for the other person. When you get on a plane and go to Birmingham, Alabama and visit down, visit to see your top 5 customer, what ends up happening is they start to do things, think about like how other HR people they can refer you to or more ways they could grow the business. And it's almost like psychological that these people end up just starting to be more helpful to you just because you went and did that. And so everybody I've seen do that who goes and visits either key vendors or key customers like on a regular basis. And even if you don't have much to talk about going in, it always ends up paying for itself 10 or 20 times. And I saw one of my companies—

that's a good idea.

I saw one of my companies do it this fall and they would go in and visit with like a customer in Atlanta and the customer in Atlanta be like, oh yeah, you know what? I was just thinking about you guys on the drive in today. and they were thinking about them because they flew all the way to Atlanta to visit with them. And the, the, and the customer says, I was thinking about you. I know two people from my fraternity that I can send you to be customer leads for. Instantaneously, like, just because of that weird thing where they had decided to, like, fly into Atlanta and stay in a Holiday Inn Express, get paid for itself. So anyway, that's the last kind of idea I have. No, no, don't go see the $50 customer, but go see, like, the $50,000 customer, right? And, like, Yeah. And even if you have no agenda, like, just show up. Like, it'll pay for itself. I've just seen it over and over again.

It's good advice. I've heard that before and haven't taken it yet, but I agree. I think it's good advice, man.

Well, I'm interested to see how things go over the next year. I, you know, you and I have been friends on the internet for a while, so excited, excited for you to be doing this deal.

Yeah.