Outreach Revenue, Valuation & Funding (2024)

[00:00] Hello, everybody. My guest today is Manny Medina. He's the CEO of Outreach, the leading sales engagement platform. Medina joined Amazon's AWS team as an early employee and helped Microsoft drive the mobile division from launch to 50,000,000 in annual revenue. He has an MBA from Harvard Business School and a computer science master's from the University of Pennsylvania. Manny, you ready to take us to the top? [00:19] >> Let's do this. [00:20] All right, come on. In the bio, your team says the leading sales engagement platform. Know I have to push you on the fluffy stuff. So how do you know you're the leading one? [00:30] >> We have a good sense of the market and we always know who's buying who. We are in a very privileged position in which we are creating a new category. So as the category is getting created, people are talking to all of us, to everybody in the category. So we have visibility into who is doing what at all times. So we track very closely the wins and the losses and the sizes of each of those and the [00:51] >> expansion opportunities and so forth. So we know by the numbers that we are the one that win the most accounts and the most money. Because we're also growing, we're also racing, we're close to Silicon Valley and everything, hear the feedback from investors telling us that we are the leading. So it's both the feedback loop and the market itself telling us. [01:10] So when you were back on the show last in February 2018, you'd said you were at about two fifty employees at the time. You'd raised, I think, 60,000,000 in funding is what you said. Give us an update on those two numbers. What's team size today, and have you raised additional capital? [01:23] >> We haven't raised additional capital, but we're always talking to investors, so don't be surprised as news come out. We are at three fifteen employees right now. We actually just moved, we're in brand new offices right here in Seattle. And we are hiring a fresh new batch of the C level suite. So we have a new CRO. [01:47] >> And what else? [01:49] Well, Manny, hold on, hold on. New CRO, this is usually one the first signals I'm looking for, for anyone that I think might be pushing a 100,000,000 in ARR in terms of, Hey, we're looking at going public. So who was the CRO and have they taken a company public recently? [02:03] >> No, so right, you're right. So we hired our CRO, we hired Mike Muni from Centrify. And he was involved in growing north of 300,000,000 with HP and then with Imperva, took him to almost 800,000,000 in ARR. And then recently he joined Centrify, but that got acquired by Toma Bravo. So he's looking for a clean slate, something to take from zero to public himself in [02:29] a public Well, maybe you're not exactly at zero anymore. I mean, maybe more like 60 to public, right? [02:34] >> Well, 60 to public and the public numbers are a moving target, right? So you can't, 200 is a new 100. So you can, it's no longer a [02:42] long Is that right? Is that it? It's really, gotta you hit 200,000,000 in ARR to have a have a good IPO? [02:47] >> That's what Goldman is telling everybody. Interesting. [02:51] Why why why is I mean, why do you think that is? [02:54] >> The the amount of liquidity in the market is just stupid at this point. [02:57] So you can stay private for longer? [02:59] >> Stay private for longer. Funds are playing both sides now, funds that used to be public funds, hedge funds and so forth, are playing the private markets now too. Because you can write a $50 to $100,000,000 check and invest it all, like that whole thing, into one company, and then let that ride out. So if you have a $600,000,000 allocation for a particular company, you can start making bets early on and just capture the upside as the [03:22] >> company goes from growth stage to public. [03:24] Is your, in the back of your head, you're kind of like, wow, the whole team is kind of aligned on, we'd love to go public one day, or do you think there's a path to actually staying private, up to $405,106 $100,000,000 in ARR? [03:36] >> I think that we have to go public. The accountability is different, the liquidity is different. I want to do what Amazon is doing, which is they pay their salaries fairly low, but each employee is capturing the entire upside of their execution because of the market reward. You see what I mean? [03:59] >> It's a beautiful position to be in, in which you sort of cap your base, but the market is paying your employees their bonuses and their salary increases. So it's an incredible position to be in. And I wanna be the Amazon for SaaS enterprise. [04:15] Yeah, you see it as a way to potentially attract talent, but save your cash flow, use the equity value in the liquid markets to build a rockstar team. [04:22] >> Exactly. And it's like the market is paying the employees a bonus for performance. So we all align, there's no better alignment than that. [04:29] Yeah, all right Manny, for people that don't know, the rare person that doesn't know what outreach is, what do you guys do? [04:35] >> You were to think of, sales engagement means that if you were to think about what a rep does every day, the rep calls and emails and follows up and book calendar appointments and documents, LinkedIn, etcetera. That whole thing needs to be orchestrated for you to be able to measure it and improve it. So in Outreach it creates the single pane of glass where you can live and take all those actions. So what we do is we're [04:54] >> separating the CRM layer, which is where the data is stored, to the system of action where the data is acted on. So by creating a layer where the system is acted on, you actually get better performance because you have visibility to what the rep is doing at all times, and it's not working. It's not getting what you need out of the rep to move the deal forward. [05:12] Yep. Last time you were on again, February 2018, you said you had about 2,500 customers. [05:16] >> What do you [05:17] what do you announce? Or sorry, 2,200 customers. What do you announce today? [05:20] >> 3,100. [05:21] And so where's Manny, where's most of that growth coming from? What's the what's the tactic that you've been testing? An outbound, inbound content? What is [05:28] >> So we have been heavily outbound. We actually I used to pride myself of being, you know, called outbound engine for the longest time. We bought we bought a company, SalesHacker, since last time we talked. [05:38] Yeah. Max by the way by the way, I was, in like, the middle of trying to work a deal with him to buy the conference somehow. I'm like, he's not replying to my emails. He's working on something big. And then I see the news. I'm like, goddamn it, Manny. Get out of my way, man. Now Max is a great guy, and he has a book out too. How's that going so far? [05:56] >> Oh, it's blowing up. It's blowing up because, again, we're redefining what sales means. Sales is no longer bravado, lone cowboy, do whatever it takes to win. Some people win, some people lose. Sales is becoming a very scientific game in which you need to optimize the time of the rep and the activity that they take to get the most juice out of that transaction. And matches both empathy, [06:22] >> science, and obsession into one package. And that's what the book is. It lays out the groundwork for what sales engagement will be. But to get back to your question, so we bought CellSlackers so that we can actually have access to educating the community. What we figure is that our impediment to long term growth was education, was educating the market that any of the stuff that we're doing is actually possible. And every time we release something from [06:44] >> the machine learning team and we tell the market that we just did this, the market is like, Oh my God, how is this even possible? I don't believe you. You see what mean? And because we're true to our Seattle like roots in which we do what we say we're gonna do, we never market ahead of capability, we needed the ability for us to have an outlet to tell our story. And that's what we bought CellSacker and [07:02] >> that's what brings us here. [07:03] So heavy outbound, give the ratios real quick, because I'm sure you've tested this. In the inside sales team. So what's the ratio from SDR to AE right now? [07:13] >> Oh, it's less than one to one. So last time we talked, I think it was over one to one, one and a half or so SDR per AE, and now we're dialing that down significantly to less than one SDR, and we're gonna get to one SDR per two AEs. [07:27] Okay, per two AEs, what has allowed the SDRs to get more efficient? [07:32] >> Outreach. [07:33] What? Outreach. Well, your tool. Okay, got it. Can you be specific though? I mean, I know it's your tool you build it in, but what actually is it? Is it higher response rates on the cold emails? I mean, what is it? [07:44] >> So it's because we are nonstop testing. So we have a team actually internally that what they do is they test language. As we break down by persona, right? So we figure out what persona are we reaching out. And then for each of those personas, we break it down by segment. You see what I mean? So you have persona mid market, persona enterprise, persona blind market. [08:05] How many personas do you have by the way? [08:07] >> On the SDR team, think we're testing about 15, give or [08:11] And then go down one more layer, you said each persona has segments, how many segments? [08:15] >> So we have four segments. So we have four segments and about four personas, so four by four is 16. There's a few that are just non performing for us. So we have about 15 sequence types that is addressing each of these persona market dotting the matrix. And so for each we have a sequence and then we test everything that goes out to them. So to make sure that we are Every performance improvement of like 1% of [08:42] >> connection rate or 1% on reply rates or 1% of connect rates on LinkedIn creates a downstream effect on the amount of funnel that you can create per SDR. [08:51] Hold on Manny, hold on. That's a really valuable thing. Wanna go deeper there real quick. You just mentioned cold outreach on LinkedIn. Again, testing maybe the subject line in the first sentence of the InMail or the cold email. What are two or three other first touches you're experimenting with besides email and LinkedIn outreach? [09:07] >> Packages. [09:08] What do you mean? [09:09] >> I feel direct mail. Really? So sending you something ahead of the call, sending you something ahead of the email has incredible ability to move the needle. [09:21] >> The way you think about your entire go to market program is that you have an efficient frontier of what is SDR generated versus sales respected by the [09:34] >> figure that out versus what is the number that you're solving for in your CAC, in your payback time, and in your margin. And then you sort of like draw a line and you figure out what is the right combo per segment based on your ACV and based on your time to close, so that you can actually get to the right economic unit for that persona. See what I mean? So what we are constantly doing is constantly [09:53] >> saying, okay, my SDR is gonna perform all these activities and I'm gonna get all this juice out of it, while we're ABM ing, we're doing an account based marketing program against the same persona. Meaning, the moment you get a package, you also get an ad on LinkedIn. And then the moment you click on that and you see something on the website, you're also getting retargeted. And then we see, what do you spend time on? And then [10:16] >> we have a call outbound going to you saying, hey, I noticed you did this, would you want to talk about it? So the ability to create that surrounding of the experiencing is what gives us the ability to measure what is efficient and what is not. [10:28] Manny, give me the inputs again. You said CAC payback, what are the other things that change depending on which segment and persona combo you're at? [10:33] >> Yeah, the deal, so CAC payback, the ACD. [10:37] Okay. [10:38] >> And then how long does it take to land that deal? Because if your team isn't prospecting against a deal but it takes six months to land a $10,000 deal, that's not very efficient. So you wanna figure out what is the right ACD CAC deal length combination to figure out the right program for that portfolio. [10:58] There any single metric you are normalizing across all your segments? Like you never want payback to be longer than eight months? [11:05] >> You never want payback to be longer than twenty Okay. Gross margin adjusted payback. It can be [11:11] a little [11:11] >> bit months. [11:12] So when you say gross margin adjusted, just to be clear, you're taking your ACV, your first year ACV, you're then taking your CAC and then you're multiplying times whatever 87, 84%, whatever your margin is. [11:23] >> Exactly. What is your margin? I think it's in the 80% right now. [11:27] Okay, got it. Good, okay. [11:30] >> And most SaaS companies will have roughly, assuming there's nothing weird, right? You don't have a big component of professional services, etcetera. Assuming all that, a good healthy SaaS company should be running margins end of somewhere between 80 to 70%, 65% even if you're growing really fast. Because the majority of it is support in Amazon Web Services or Google Cloud or whatever you're using. Finish [11:55] the kind of sales stack you're using with here right now. So less than one SDR per two AEs, once an AE closes that deal, are they passed off to a customer success person or does the AE own the upsell expansion as well? [12:07] >> That's a great question. So the moment you close a deal, for us in particular adoption, because we're an engagement, we're a system of action, adoption is our true north. So the moment you close a deal, then it gets passed on to what we call the implementation manager. An implementation manager takes that entire account, the seat, so if somebody bought 100 seats, that deal goes to the implementation manager and we need to assure that 70% of those [12:31] >> seats have daily usage. [12:33] Like measured by logins or number of messages sent? [12:36] >> Measured by what we call them, sales positive motions. So the ability for you to use the application manually, like you're doing something in the application that creates an opportunity, creates a meeting, creates a reply, creates a follow-up, whatever is creating something that is moving the deal forward, we measure. And we need to get 70% of the seats doing daily positive motions. And that's when we graduate into a CSM. And then the CSM gets into the business [13:01] >> of educating that account as opposed to getting to adopt. [13:04] Okay. [13:04] >> And that's [13:04] how we [13:04] >> break it down. [13:05] Your typical implementation manager is on these accounts for about how long? That take a month or a year? [13:13] >> It depends on the length of the deployment. So if it's, again, a 100% account deployment, it usually takes about a month to two months to get everybody to learn and to use it at a scale in such a way that it doesn't become a problem downstream of adoption, etcetera. [13:28] Okay. So this is your tactic to get month one to month two churn as low as you possibly can, right? [13:34] >> Precisely. That's how we manage to have Our net retention is in the 140s right now because of that. [13:42] The way, Manny, you know I do a lot these interviews. I mean, I would consider that world class net revenue retention. [13:48] >> Yes. But that's how you do it. It's that you solve for the user activity by attacking that user activity upfront. While the deal is hot, while there is engagement and you have the champion, the ink is still wet on paper, that's when you attack the adoption problem so that you don't have to deal with that later on when you're trying to do your renewal upsell, cross sell or whatever. [14:09] How many implementation managers per AE? [14:13] >> Depending on the size of the AE, we usually have, [14:19] >> at this point we have one to one. [14:21] Okay, got it. Manny, I'm just going to summarize up to the CSM. Less than one SDR is keeping two AEs busy. Those two AEs are closing and all the things those two AEs close, one implementation manager can handle over a month to four months, however long it takes to onboard 70% measured by sales process motions. Once the implementation manager hits that 70% seat usage, it's passed off to a CSM and call it month four or five, [14:46] six, somewhere in that timeframe. How many CSMs per implementation managers? Raise. [14:52] >> It's a little lower because at this point the CSM is working on education programs. Meaning the CSM, she doesn't have to worry about adoption anymore, she has to worry about education. So we already have dashboards for all of them to see how sophisticated they are in the platform. Meaning, are they using AB testing? Are they using persona triggers? Do they have their inbound workflows capturing outreach as opposed to the outbound workflows? And if it's not, then [15:18] >> go capture that other workflow. Then go capture the account executive workflow. So the CSM is already trained to see for opportunities to capture additional workflows and bring them into outreach. [15:27] So it's like the implementation manager is going wide. 70% seats, the CMSs go deep. Correct. Yeah, interesting. Okay, here's a big question. This is a big debate right now amongst other companies in the 100,000,000 kind of ARR range. Are your CSMs quota carrying based off expansion revenue? [15:43] >> That is a hot topic. Yeah. They are not quota carrying per se, meaning they don't get fired, they don't get a quota, but they do have a renewal target. [15:55] Okay. But they get no personal upside if they hit it other than maybe a bad performance review. [16:01] >> They they do. So they do. So they you have you get the upside, but you don't get the downside. So quota carrying in my mind will mean you get fired if you don't hit quota. Yep. You get the upside if you don't hit quota. [16:10] Oh, so they are there's a commission? [16:12] >> Yeah. They do have a commission program. Yes. [16:14] Oh, okay. Can I ask, like, minimum commission in the year is like 10%, 5% too? [16:19] >> It's less than 10. But it's less five. I I it could be 10, but I don't recall. [16:25] Yeah. We're getting we're getting really in the weeds, but I'm just I'm curious. So if a CSM- [16:29] >> I think it's important. So this is the part that is tricky, This is why it's a hot debate, is that I am far more concerned about maintaining that 70% user adoption and acquiring new workflows. And we have proven here internally that by doing that, you hit expansion triggers. But I cannot explain, like if you were to ask me why, or how does it work, I won't be able to explain [16:50] to Manny, this is why, and not just trying to blow smoke up your ass. If you understand, if you if the process works, the outcomes will just happen. You're investing in the golden goose and you know the golden eggs will just come out faster. Right? [17:03] >> So I'm far more concerned about the leading indicators as opposed to lagging indicators. [17:07] 100%, okay. So 2014 launch, 3,100 customers today, you've added, that's up from 2,200 about eighteen months ago. Average customer paying about what these days? [17:17] >> We're up to, [17:20] >> I think it's somewhere between 40 and $60,000 per year. [17:23] Per year. Okay, good. So we'll say $40,000 per year minimum there. That's about 3,300 per month. Let me see. That's up. Yeah, that's up your ARPU a year and a half ago. You told me it was about $2,400. So that's testament to you've driven expansion revenue, right? It makes a lot of sense. [17:36] >> Yeah, not only that, but we also move quite a bit up market. And when you move up market, levers of negotiation kind of change a little bit, right? Because they want a lot of security, they want a lot of governments, they want all these other things that are way more expensive and they either have it or they don't. You see what mean? It's not like an SMB account can trade them off. And a big enterprise account, [17:58] >> fuck, I don't remember what you said. In a big enterprise account, there's a lot of things that are non negotiable. [18:05] Now Manny, I have to do the math because you gave me the numbers. So correct me here if I'm wrong, but 3,100 customers, dollars 40,000 ACV, that would put you north of $10,000,000 a month right now in MRR. Is that accurate [18:16] >> or near? We're not quite there yet, but I can tell you the following, I don't have permission to do this, so this is an exclusive. [18:24] This is great. [18:25] >> We passed the $10,000,000 quarter mark last year. So we're now adding over $10,000,000 a quarter every quarter. [18:32] In new bookings? [18:33] >> In new bookings, yeah. [18:34] And that is actually, that is the metric a lot of the most advanced kind of investors and VCs and PE firms will look at is actually new bookings per quarter. So congratulations on that. Growth year over year. [18:46] >> We are worth north of a 100 still. [18:48] Even at these even at these kinds of big numbers. I mean, because last time you by the way, last time we came on again, February 2018, told me, I mean, you were north of five five point three a month, right? So you're pushing, it sounds like getting close to 10. I mean, that's impressive at this scale. [19:03] >> So the good news is that because, the size of the market is just enormous. We're deploying against install base for CRM. So we're now, we're just mopping up, everybody who has Salesforce or Dynamics doesn't have a layer of engagement. So everybody's working out of spreadsheets or somewhere outside of CRM. So that entire market is available to us and that's an $80,000,000,000 So for us it's literally a capacity problem and an education problem. The more educated market, [19:30] >> this is what we build sales cycle, the more educated we have. And then all I need is capacity to go deliver against that. This is what we need to, to my earlier point, is what we need to address that need with the right effective approach for that particular segment. As long as we do that, it's all the way to $80,000,000,000 so there's no constraint. [19:47] Will you pass 10,000,000 a month you think this year at some point? [19:50] >> Oh, have to, yeah. [19:52] Yeah, okay, good. Can you tell me the goal by the end of the year, by 2019? What would be like a stretch goal? [19:59] Like 140, 150? [20:03] >> So the stretch goal is to get to about, I think it's like 17, adding $17,000,000 a quarter before the end of the year. [20:12] So you're measuring everything really. And this is interesting to hear you talk. You're really measuring everything in terms of velocity. Right? You're So saying 17,000,000 in new bookings per quarter. Correct. It's just interesting I asked the question and you give that response versus what most people would say is we wanna break a $150,000,000 in ARR. Just it gives me a little it gives me a you know, into your psyche. [20:29] >> It's input metrics. Right? Like, I think about input metrics. Like what capacity do I need to generate that kind of money and everything else takes care of itself. You see what mean? I'm thinking about the output metric then I sort of forgo a lot of steps in the middle. [20:40] Yeah, no, that makes a lot of sense. Okay. It sounds like you're talking or thinking about funding right now. Don't tell me obviously what you're actually negotiating, but for where you're at, right, it sounds like you have passed, and I do think this is a critical point. When CEOs get to the point where their ARR is greater than the amount they've raised, right, you now have leverage again versus the other way around, which is you've raised [20:59] way more than what your ARR is. So you have really, I believe any options you want on the table. What is the right next move for you in terms of capitalization? [21:08] >> So [21:11] >> the broader way to think about this is play it all the way out to cash flow positive or to some kind of EBITDA number. And then figure out how much money do you need to get there and then double that. And then that's your new minimum. [21:23] Are you cash flow positive today? [21:26] >> No, no, no, no. And We're growing fast to do then we are in a tricky situation that because we're so sales driven, we have to buy the capacity at the beginning of the year, ramp the capacity, make it productive, and then that delivers a double. So every time we double, we have to sort of execute the same trick. Now that all becomes sort of self sustaining in about a year or two. And that's not even including [21:44] >> international, and that may put a dent in the whole plan. [21:46] Manny, we have to wrap up, just realized we lost track of time. I mean, you give me a general sense of scale? Are you burning like a million net per month or 2,000,000 net per month? Where are you generally? [21:54] >> North of 2,000,000 per month right now. [21:55] Okay. But South Of 3? [21:57] >> That is South Of 3. [21:58] Okay. Between two and three. Good. That gives me just give you a good general sense of kinda where you're at. Let's let's wrap up here with the famous five. Number one, what's your favorite business book? [22:06] >> I think fast and slow. [22:07] That's a good one. Number two, is there a CEO you're following or studying right now? [22:11] >> Oh, always be in Bezos. [22:12] Bezos. Yep. By by the way, real quick, you you're in Seattle. Obviously, Amazon is up there. Henry is getting very aggressive with his nice PE from behind him. Just took out ZoomInfo. Are you in any acquisition talks with them? This would be a nice natural add on. [22:24] >> No, Henry. I take notes from Henry. You know what I mean? When grow up, wanna be like Henry. [22:29] Well, he gave me the same process I asked you, and I'm now I'll write a big post on comparing your process with his in terms SDR to AE to CSM. All right. [22:38] >> Henry is a genius because he has SDR doing his expansion. [22:42] No, I know. Know something else too. He has employed, and he doesn't talk about this a lot. He has employed actually external firms to run a lot of his engine. And I've interviewed a few of them. And so when you add them all together, it's like little mini SWAT teams running different tests. [22:57] >> That's right. [22:58] Makes sense. Number number three, Manny, what's your favorite online tool for building your company besides Outreach? [23:06] >> I will still say Google Docs. Like, I'm I'm still very reliant on Google Docs for everything. [23:10] And number four, how many hours of sleep you get every night? [23:12] >> How many what? [23:13] Hours of sleep do you get every night? [23:15] >> Six. [23:15] And what's your situation? Married, single, kids? [23:18] >> Married with three kids. Three kiddos, how old are you? I am 45. [23:23] 45, last question, what do wish your 20 year old self knew? [23:28] >> Starting a company is not that hard, It's a lot harder than it looks. It looks a lot harder than it is. [23:33] Guys, looks harder than it is. Coming from Manny again, Outreach growing fast, 3,100 customers, bookings per quarter. Now they passed last year 10,000,000 in new bookings per quarter, hoping to break 17,000,000 in new bookings per quarter by q four of twenty nineteen. That'll put them past $10,000,000 per month in revenue. They're still growing a 100% year over year even at their scale. 60,000,000 raise may be a big announcement on the way in terms of funding. We'll [23:58] see what happens. Burning call between 2 and 3,000,000 per month right now, which again, is allowing them to drive so much growth. Three fifty folks on the team in Seattle, 145% net revenue retention. Super impressive. Less than one SDR for two AEs, then one implementation manager, and then again, CSMs that are incentivized by with commissions to drive expansion revenue. Interesting model, Manny. Thanks for taking us to the top. [24:19] >> Damn it.