Scott Dorsey: The Journey to a Unicorn - And How We're Doing It Even Better This Time

We've got another treat. We've got Scott Dorsey, who another real unicorn, not a paper unicorn. I got nothing against paper unicorns, but founded exact target, which IPO'd and was sold for billions to Salesforce. So he's seen everything. And we've got Gordon Ritter from Emergence, who's been a very successful entrepreneur himself, the first investor in viva, so. And they're old friends, so I'm pretty, pretty looking forward to this dialogue. So I think they're here. Let's welcome them out as they come out.

Hey, Jason.

Yeah.

Thank you.

All right, our pleasure.

Thanks, man. Take all the time in the world.

All right, you got it.

Hi, everyone. Whoa, that's loud. I think the cocktails have already begun. Right. So you guys are able to hopefully bring them in here if possible. But we're going to make, we're going to have this be a fun sort of end of the day session with Scott Dorsey. I wanted to say a few words about Scott, but starting off briefly, you've heard Emergence has been up here quite a bit today. So you've heard a little bit about our firm and Jason Green has gone over our wonderful portfolio. I'd like to, this is about unicorns and I guess I'd like to highlight a company that I've had. I've been a three time founding entrepreneur from scratch to successful Exit prior to founding Emergence. And I've had the honor to be chairman of Viva Systems, which if you haven't heard, sort of $3 million of capital. Luckily it was our capital went in and ultimately took it all the way to a public offering and now a $400 million run rate public business. So truly there are few real unicorns out there. And Aviva is one that we're just so proud to have as part of the portfolio. And we're going to talk about another unicorn today with Scott. Let me give you a quick background on Scott. And the critical thing to know about Scott Dorsey and many of you may not have even heard of Scott, but he is one of the great SaaS CEOs on the planet. And the key that you may not have heard about him is he's not as loud as some of the CEOs that are out there. We know many of the CEOs that do well in this world also have huge personalities that have to dominate Scott and people like Peter Gassner. VIVA can lead in a very different way. And as you get to know Scott today, I think you'll see that he truly is kind of a quiet leader and a Super high integrity leader. He's from the Midwest and kind of drives an incredible leadership culture that you'll be hearing about. So Scott grew up in Chicago, graduated from Indiana University and then Kellogg for his mba. He married his high school sweetheart ironically and they have four beautiful daughters at this point. He started Exactarget with two co founders in December of 2000, which was after the bubble burst. So this is back when the world had completely imploded is when some of the best companies are started and led Exact Target as CEO all the way through. CEO and Chairman from startup all the way through a successful IPO on the NASDAQ in March of 2012 and a two and a half billion dollar sale to salesforce.com in July of 2013. He stayed with Salesforce and led the marketing cloud which included both Exact Radiant six and Buddy Media for about a year and then a recently started High Alpha which he'll be talking about, which we have had the great fortunate emergence to be his lead investor. So I've known Scott for about 15 years now and it's been an amazing opportunity. I not only have a chance to work with him closely, but I really call him a very close friend and it's wonderful to be able to have both of those in my life and I'm honored to be able to be up here with him today. So Scott, great to be here. First of all, welcome.

Thank you, thank you, thank you, thank you.

So let's kick off with kind of the maybe help the group understand the root of Exact Target and how your founding team came together. What kind of made this kick off.

As well as it sure be happy to. Gordon, thank you for the kind words and thank you to everyone here. I think this Saster show is incredible. I just want to say hats off to Jason and the Saastor organization for pulling this global SaaS community together. I heard today we have attendees from over 47 countries which is really remarkable and I think proofpoint, you can start and build amazing software companies anywhere in the world. We happen to build exactarget in Indianapolis. The founding story Gordon was three of us. Chris Baggett, Peter McCormack and I started exact in late 2000, early 2001 and saw an opportunity to really apply all the database marketing principles that were being utilized in the print world to the online world. And it's actually my brother in law Chris. We mixed family and business together and fortunately it worked out remarkably well. But Chris really had the original idea and vision for the business coming out of his database marketing background and his belief, which today feels extraordinarily obvious, is that every organization in the world would be using the Internet and using email specifically to deepen relationships with their customers. And we were three first time software entrepreneurs. In fact, three of us really didn't have any software experience. All three of us were really non technical, coming more from the marketing and general management side. I just graduated from Kellogg where I was studying Internet business models and very much had a prepared mind around the Internet and how it was disrupting business. And it was really Chris's vision for Exact Target and my kind of newly minted MBA that gave us the courage to give it a start.

That's awesome. So, and what the last speaker commented on, sort of the unobvious risks that you have to take to have something be successful. What did you at the time, what were the risks that you took? And they happened to have paid off obviously brilliantly.

There are many, I think many unobvious characteristics. Starting with building a marketing software company in Indianapolis is the first. I would say the second, which we've heard quite a bit of discussion on today is we started by building a platform for small businesses and then eventually moved up to the mid market and then eventually sold and served many of the largest organizations in the world. Microsoft, bank of America, Nike, Expedia and many others. And we really stayed true to that SMB to enterprise focus which stretches the organization in really some remarkable ways. When you have customers spending one or two thousand dollars a year with you. And then on the other end of the spectrum we had some clients that were north of $10 million per year, essentially leveraging the same code base. But there were some wonderful elements of that SMB to enterprise strategy. First of which it really forced us to be laser focused on ease of use. We wanted the non technical marketer to be able to do amazing things with our platform. And fortunately it turned out the non technical marketer was living within big organizations and small. So we scaled up and down every feature we ever built. We had an on off toggle in the back. So we had infinite flexibility around pricing and packaging, which I think is really imperative. And then I'll tell you, one of the real surprises is that small companies become big companies and marketers working for small organizations leave and join enormous enterprises. So the virality that SMB at Enterprise created for us was really, really exceptional. I'll just share one quick story. Small little company called Groupon actually came in through our inside sales team, became a customer, started using the ET platform and along the way their CEO called Me and actually got Brad Keywell and Brad said, hey Scott, you don't know me, you don't know Groupon, but I'm going to be your largest customer. And I thought that's crazy, but if it turns out to be true, that'd be wonderful. And we built a really amazing relationship and we were able to serve the needs of Groupon from their startup days to them becoming a really big organization. And then we're leverage the daily deal expertise that we built and be able to support daily deal companies all around the world. So that was one example where SMB to enterprise turned out to be really spectacular.

Well, many of the folks here are from outside of Silicon Valley. So what is it that, what was the opportunity to build exact in Indianapolis? How did that, how did that work for you? What were the positives and negatives of that? Sure.

As SaaS entrepreneurs you really have to think about what's your competitive advantage and what are the advantages to your location, to your region if you're based in San Francisco. Extraordinarily talent, amazing network, lots of funding alternatives. In Indianapolis, we had a different set of strengths, starting with central location, very low cost of operation, amazing workforce, amazing universities. Within an hour, hour and a half, we were able to reach Indiana University, Purdue, Notre Dame, Rose, Hulman, Butler, kind of on and on. So we were able to build a very big brand on campus and created internship and new college graduate programs that became a big part of our culture. We also were the big fish in a small pond. So we received just incredible support from the city of Indianapolis and the state of Indiana. Actually in total, over $50 million in economic development incentives because over the course of time we created 1,500 2,000 high tech, high paying jobs. And in a city like Indianapolis, that can really move the needle. So we're very proud of building, I think arguably the largest marketing software company in the world and doing it in Indianapolis. And we were able to really leverage many of the strengths of the region.

So I've commented on your integrity and the kind of midwestern roots that you've brought to the table. Your culture has always been an incredibly strong asset for you. It really is a competitive advantage. How did that culture start? How did you build it to the public offering and how did it change as you went public?

Sure. Like many of you, we established core values right at the outset of the business and always thought of the core values as really the framework in which we wanted our employees to make decisions. We wanted to empower our team to the very fullest and having core values that they could rely on when making a tough decision allowed us to go much faster than we could have otherwise. Over the course of time, it became apparent that our culture was a huge differentiator, not only for attracting amazing people. My goal always was to build an organization that just extraordinarily talented people wanted to be a part of and wanted to build their career and work incredibly hard to build something really special. But we kept hearing it from prospects and customers and partners that our culture was really different. Everybody was so positive and kind and hard working and always put the customer first. And we had a really pivotal time in our history. We had filed to go public in December of 07, and the market started behaving very similar to how it's been behaving the last couple weeks. And we were on file for all of 2008, which was a remarkably difficult period. We had kind of all the burden of being a public company with none of the benefits. And in early 09, we elected to pull our IPO and actually raise outside capital to really hit the accelerator on growth. And this was a time when many of our competitors were pulling back on hiring and expansion. We went the exact opposite direction and had an amazing group of investors really architect that growth strategy. That was a time when we were three or 400 employees and we had a pretty good sense we were going to go to 1,500 or 2,000 very, very quickly. And we felt we needed to build a culture framework. And we did so around our preeminent brand color, orange. I'd always kind of looked across the landscape of software companies and envied Omniture had that amazing green color. And you could see that green and just know that was Omniture. And at the time, Salesforce was red. I wanted us to own a color and that color was orange. And it became such a big part of our brand that it actually became how we described our culture. So if an employee did something extraordinary, it was, hey, thank you for being orange. Our leadership development program was called Leading Orange. It really started to gain momentum around our user conference connections. And I think, you know, you're doing something right with culture when your culture becomes so infectious that your customers and your partners want to become a part of it. And often we'd win a big new client and they'd say, hey, I can't wait to be orange. So that orange was really the thread that powered us as a business and really was kind of the common thread across international offices and acquisitions that we're able to Pull together later.

So to that we want to kind of toggle to the scaling side. You did use M and A and international expansion in pretty powerful ways. Talk to us a little bit about that.

We did. Over the course of Exact target, we completed six acquisitions. Three that were geographic expansion and three that were product extension. And all in all, they went incredibly, incredibly well. We had a strategy around resellers where when we were a very young company, really couldn't afford to open offices around the world. We would partner with other entrepreneurs and really start resellers where they were selling and servicing exact target. And we always thought if things went well that we'd incorporate them into our business later. And that worked incredibly well. And later we acquired our reseller in the uk, then Australia and then also Brazil. And on the product side, we had amazing depth and expertise around email marketing. But our vision really was around that data model and becoming a multi channel digital platform. So acquisitions really helped us execute that faster. We acquired Cotweet, leading social media platform in 2010. And then in fall of 2012, actually on the same day, we closed two acquisitions on the same day. Igodigital in the predictive analytics space, Amazing company in Indianapolis. And then Pardot, one of the leaders in B2B marketing automation down in Atlanta. Both of those came together in October of 2012 and helped us a great deal.

Awesome. And so let's talk about the ultimate M and A. You know, the various. Maybe talk a little bit about the relationship with Salesforce over the years. You and I spent a lot of time on that over the fits and starts. Touch on that. And then what was it like to be a part of Salesforce?

It was an amazing journey, you know, to your point, Gordon, going all the way back to kind of the first couple years of our business. We became a Salesforce customer and it was really one of the best moves we ever made because we had a front row seat at watching how Salesforce really built the SaaS and cloud industry, how they built their technology, how they executed their business model. Since we were really focused on helping marketers leverage data to communicate with customers in a more meaningful way, we needed to connect to data sources and CRM was a very obvious data source to connect to. So we actually integrated with Salesforce prior to the app exchange existing and really built a very strong partnership with Salesforce over the course of time. What's very interesting is we'd gone public in March of 2012 and loved it. We had an amazing IPO. We were public for five quarters, really met and exceeded street expectations every quarter. We had executed the two acquisitions and things were going along swimmingly. And Salesforce really started moving more and more directly into the marketing cloud space. They had acquired Radiant six and Buddy Media, really sensed that their customers had a big appetite for marketing technology and felt that our technology would really complement what they were doing quite well. So Mark and John Samorajai, who runs corporate development is going to be speaking tomorrow came knocking. And there's quite a bit you need to do when you're a public company around governance and making sure you handle inbound inquiries in a responsible way, which we did. And one thing led to another and we ended up selling to Salesforce in July of 2013 for two and a half billion dollars. And it turned out to be an incredible experience. And I felt like I learned so much about how to build and scale SaaS companies, but once I got into Salesforce, I felt like that was my PhD in SaaS.

Talk more about what was that experience. What were some of the big takeaways from being a part of salesforce.com?

Okay, can you guys hear me? Okay. All right, good.

It was. Your whiskers were rubbing.

That's right. So I had incredible experience at Salesforce. I stayed for one year. It was really important to me to lead the integration and make sure that our employees and our customers were in an amazing place, which I fully expected they would be kind of living within the world of Salesforce. I was a part of Marc Benioff's executive team for a year, had an opportunity to report directly to him and learned so much. You know, a couple lessons that I'll share. Actually, the first one started right here. Actually, the last time I was in this theater was a little over two years ago practicing for Dreamforce and Salesforce. Their sense of urgency, their preparation is extraordinary. And before Dreamforce was, we did a full run through of the keynote, which is two, two and a half hours. And we actually presented from this stage to all Salesforce employees around the world. And all employees were given an opportunity to score us, to rate how we did, to give us comments on what worked, what didn't work. And Salesforce has this amazing score him. Well, scoring, scoring. Salesforce has this amazing culture of transparency and accountability and incorporating feedback into everything, everything they do. We had a speaking coach and we took all that feedback from the employee base and actually made quite a few changes before we went on stage the next week at Dreamforce. So kind of preparation, transparency, amazing speed and urgency. I felt like we Moved incredibly fast at exact target. Salesforce was at a whole different gear relative to serving customers. Growing, expanding, thinking big. Many of you probably read or even used. Salesforce has a planning methodology called the V2 mom that I've become an enormous fan of. And it stands for vision, values, methods, obstacles and metrics or measures. And it's a very simple planning framework, but extraordinarily powerful. And what it really revealed when you look at the Salesforce culture is a big focus on vision and thought, leadership and inspiration, but an amazing amount of focus on the details and on the blocking and tackling of the business. And actually, Mark, obviously is an extraordinary visionary, but he's also an excellent manager. He's very, very focused. And during my time at Salesforce, we agreed to three priorities and we really focused on those three priorities. In fact, after the acquisition closed, said think of me as your board of directors. And formerly I had eight or nine members of my board. Now I had a board of one, but he's a very large and his name was Mark Tall man. And the three things we focused on which are important to every SaaS business. More upfront annual billing. Important for any SaaS company that you're trying to capture as much upfront annual billing as you can. That cash flow is so important. Second is building out the sales organization. We had really built a sales organization that was 3 or 4x the size of our nearest competitor, but in the world of Salesforce, it actually wasn't large enough. And Salesforce has a rule of thumb that they like roughly 20% of their overall headcount to be account executives, quota, caring sales reps. So we did a lot of hiring and then three was really integration and we were integrating Radian6, Buddy Media, and exact Target together. And that's what was a fascinating experience for me and incredibly challenging as we were not only integrating exact Target into Salesforce, but then we were doing a reverse acquisition of bringing Radian6 and Buddy Media together. Technologies, organizations, cultures. So it was a lot of hard work, but very rewarding and I learned a tremendous amount.

So let's switch gears and talk about. You've been at one of the largest tech companies on the planet. You've built one and then been a part of one, and now you're doing high alpha. And maybe start with the origins of high alpha and kind of what I get a chance to be a part of, but tell us what you've done.

Well, Gordon, thank you. By the way, Emergence is our lead investor, and I couldn't imagine a better partner to help us pioneer this new model of entrepreneurship, entrepreneurship called High Alpha. But when I left Salesforce and Exact Target, I decompressed. It was a fast 12 or 13 years of running and growing the business and then really centered in on my passions are helping entrepreneurs. I love software as a service and I love Indianapolis and the Midwest. And I looked for an opportunity where I could kind of check all three boxes. And I was so fortunate that three of my very good friends, Mike Fitzgerald, Christian Anderson and Eric Tobias, had begun founding Early Stage software service companies and were really finding unmet needs in the market, disruptive opportunities and pairing them with capital and with aspiring entrepreneurs. And really we're doing a startup studio kind of nights and weekends. And we got together, the four of us, and said, boy, I think there's a huge opportunity, especially in, I would say, an underdeveloped tech ecosystem like Indianapolis or an emerging tech ecosystem like Indianapolis. Kind of the matchmaking of big ideas, talented entrepreneurs and capital takes some work and if you do it right, you can really produce some amazing high growth breakout companies. So that's really what we set out to do. We are pioneering this new model of entrepreneurship entirely focused on B2B SaaS. And there are two sides to Hialpha. One is High Alpha studio. We raised $15 million in capital thanks to Emergence. As our lead investor, we have about 20 employees and we're focused on starting new companies. And we've signed up to start eight to 10 new SaaS companies over the next three to four years. And we partner with Early Stage entrepreneurs, we partner with universities, corporate innovation groups. We're looking for disruptive ideas in many, many places. And then we provide capital and pair up leadership teams and get those companies off the ground. The second element to High Alpha is High Alpha Capital, and that's a venture fund focused on seed and series A investing. We invest in our own companies coming out of the studio and then we also invest in amazing SaaS, entrepreneurs that we see around the country where we think we can add some value to their business. And a number of them are in the audience today.

One of the things that's been so special for Emergence is we, we very much believe in focus. As you've heard, we're squarely focused in the enterprise cloud and we haven't ever wanted to do a seed fund. We just think that that just defocuses, takes away what we do. First institutional round is where we've spent our time and this was an opportunity to both have a seed or earlier stage opportunity for emergence and take some of the ideas we're seeing that we were either not yet seeing from you, all new ideas, new concepts, because we're always trying to think about what's going to happen next in the cloud and feed some of those ideas to Scott and his team and see if it creates an interesting opportunity. So this has been an amazing marriage of the two firms and just a great opportunity to work together.

Thanks, Gordon, for that. Thrilled to be a part of the Emergence team.

So you did say you put together a bunch of partnerships for High Alpha. Talk a little bit about, again, the differences in the model that you've created and, and how partnerships are helping out.

Yeah, I'd be happy to. Our real hypothesis with High Alpha is that we can help entrepreneurs and SaaS companies go faster with us, go faster by launching on the High Alpha platform. And we've started to assemble an amazing collection of partnerships with Salesforce for startups, aws, kind of many other tech platforms. And actually, today we just announced a partnership with Appirio that we're really, really thrilled about. Appirio, really one of the leading cloud services companies in the world, with headquarters actually in Indianapolis and a large presence here in San Francisco. And Appirio, we're going to be able to really tap into their services and cloud expertise and leverage their top coder crowdsourcing development platform to build software very, very quickly and get it to the marketplace. So we just sent out a press release on the partnership today. We're partnering up on one company specifically that we hope to be announcing later in the year.

That's a good one. Excellent. So let's start to wrap up. I wish we could open it up to questions, but start to wrap up on if, you know, given all your experience, what if you could give one or two or three pieces of advice to if your younger brother or sister were starting a SaaS company these days, what would the core advice be?

I'd be happy to. You know, what's occurring to me, Gordon, is I see many people in the audience having a drink and a cocktail. I love that Saster started happy hour early, but I haven't seen a panelist take a sip of a beer yet. So let me give it a try.

The moderator, I don't know if the moderator is allowed to know. It could be crazy. Maybe as you're answering, my advice gets a lot better.

I think after a beer, I think advice to entrepreneurs, what first comes to mind is make sure you're solving a real problem and be very passionate about the problem you're solving. And Especially when we head into tougher economic times. And many of you have kind of endured tough economic cycles, and we're all going to face new ones going forward. You have to make sure that you become mission critical. You become a need to have, not a nice to have. And that comes from really understanding the problem you're solving and getting extraordinarily close to the customer. That sounds so trite to say getting close to the customer, but it's so important. Our Chief Technology officer and later my successor, Scott McCorkle, he's CEO of the Salesforce Marketing Cloud. When he joined us, he said his goal was to talk to a customer every day. And I was like, whoa, that's really hard to do. You get so busy with internal meetings, with travel. And Scott really upheld that belief of, I'm going to talk to a customer every day, and that's going to help me understand where the market is going. And the beautiful thing about software as a service is if you listen to your customers, guide you to where you need to go. And I think that's one thing we did a really great job of at Exact Target is we were extraordinary listeners, we cared deeply about our customers and we listened. You can't build everything your customer wants you to build, but you can discern what's going to work across the marketplace the closer you get to your customers. So I think that's incredibly important. And then maybe just the last thing I'll share is surround yourself with amazing people. Don't settle for mediocre talent. You need to make sure you have an incredibly high bar around the people you surround yourself with. And always look for extraordinary people that complement each other well and compliment you very, very well. I think for CEOs of SaaS companies, you really want to surround yourself with amazing people that really complement you and bring a level of diversity into how you, how you think, how you run the business. And surround yourself with advisors that make you want to be better, that raise the bar and make you a better person and a better leader. So I think those are some of the key ingredients. Solve a big problem, stay very, very close to customers, assemble an extraordinary team, and don't give up. Probably the number one attribute of an entrepreneur is perseverance. So I wish all of you nothing but the greatest success and, and stick with it and go build great companies.

Excellent. Well, hey, want to just say thank you to Scott Dorsey for calling us on well done.