The classical enterprise software model seems to have gone out of favor with many investors, as it is associated with high upfront costs, long sales cycles, lumpy revenues, lengthy delivery – which make it very difficult and costly to scale. Yet, some software companies have been re-defining the enterprise software model and are experiencing strong growth.
I had the chance to catch up with a former colleague of mine, Chris Pick, who is now CMO at Apptio and learn about some of the secrets behind their impressive growth trajectory.
Note: Apptio is the emerging leader in a new market category called Technology Business Management (TBM) and their SaaS applications are designed to help CIOs manage IT like a business function. The company has experienced impressive strong growth over the past year.
What are the secrets of Apptio’s success and how is it re-defining the enterprise business model?
“Apptio’s success stems from a combination of creating disruptive SaaS technology, leading the creation of our own market category with TBM, and uniting a community of IT leaders who are personally and professionally committed to managing the business of IT.
In the early days, we focused on helping CIOs drive transformations for their teams, who would in turn do amazing things for their business. These CIOs were the visionaries and the innovators. They knew that they needed to change the way IT was run. This meant that they needed to get away from being seen as a cost center and become an enabler and agile business partner. For many of these individuals, this took a tremendous act of courage. We helped them accomplish this and then profiled these acts of courage to help other CIOs do the same. In short, we tapped into the art of the possible and scaled out from there.”
What are the key metrics you look at from an internal business model perspective?
“At a macro level, we closely monitor our Customer Acquisition Cost (CAC) ratio, which is a reflection of the sales and marketing costs needed to acquire a customer. We consider these costs—and the time it takes to recover those costs—as a key indication of our overall Revenue Engine efficiency.
Our demand gen efforts are measured and modelled against five Revenue Performance Indicators (RPIs): Reach, Conversion, Velocity, Value, and Return. From these metrics, we can determine if we’re talking to enough of the right people (by segment), and whether or not those people are engaged. We can predict, with precision, the value of our pipeline at each stage.
Also, we can tell how quickly and efficiently opportunities move from someone engaging with us to someone subscribing to our solution. This is the science behind our go-to-market strategy. And, it is critical in order to make the right investment decisions…especially as we grow across geographies.”
Apptio appears to have a handle on the science of marketing. You have also built an impressive executive community, so there is more to it than just the numbers. Tell me more about how you achieved this.
“Although everything I just said about the Revenue Engine may seem like it is just science and analytics, I assure you there’s a lot of art and creativity involved. For example, in my first year at Apptio, the CIOs on our advisory council were more interested in transforming their IT operating models than giving Apptio feedback on our product. Which, was understandable.
They felt the product had maturity but they lacked knowledge they needed to embrace transparency in IT and drive a transformation within their own organizations. What’s interesting about this is that many were looking to us for strategic consulting – the opposite of what we had built with our software.
To solve this challenge, we decided to help develop a community of enterprise IT executives around a nucleus of leaders who had experience in transforming IT. And here’s where the creativity came in – we developed a non-profit community to capture their learnings and leading practices, so that we could make this knowledge openly available to the market.
Many of the CIOs wanted to give back to their profession, but didn’t want their management practices monetized by a third party. Because we were an independent organization, they openly embraced us. So, in early 2011 Apptio invested capital in forming the organization and we became the Founder and Technical Advisor of what is now called the TBM Council.
Today, the Council is has 18 CIOs on its board of directors, counts over 1,300 members, and is supported by other leading companies such as KPMG, ISG, E&Y, Citrix, and AWS. In addition to my role at Apptio, I serve as the President of the Council. Our mission remains focused on supporting our members, so that they are able to do great things within their organizations.”
It seems like building and managing the community is what Marketing is at Apptio…
“You may remember this from our time together, but I’ve always enjoyed and maybe gravitated towards the art of marketing. Since I joined Apptio, I’ve truly studied the science of marketing and become much more analytical as a CMO.
Right now, our non-profit community is just one of the several marketing channels that we have built and are optimizing. These channels include online, field marketing, events, prospecting, brand promotion, partners and even direct mail – if you can believe that. You might think that direct mail is weird and antiquated, especially for a modern day digital marketing team. But back to my comment about the art of marketing – direct mail has had some of the best conversion rates for us! Think about it, if it is done right, it breaks through the noise of the hundreds of emails and calls a CIO gets daily. We call them clutter-busters and they are very simple. It’s all about bundling social proof through profiles of their CIO peers, those courageous leaders who have successfully implemented Apptio before them.
No short cuts in lead gen. Is success then all in the efficiencies of the revenue engine?
“That is totally correct. It comes full circle to the CAC, which needs to be in line with other enterprise B2B SaaS companies. From a marketing perspective, we must have a highly efficient lead (or demand) generation engine where our performance indicators are best in class.
But, CAC also includes the cost of our sales and partner function, so we have to work in unison together to do this well. Our philosophy is that marketing needs to support conversion and velocity improvements throughout the entire pipeline.
In my opinion, the short cut that you mention in your question is that most CMO single-mindedly focus on driving results for their function. This kind of dedication is great, but it silos marketing away from the rest of the business and leaves opportunities for collaboration and improvement on the table.
To me, this is exactly the type of behavior that held back many of those CIOs we discussed earlier. The courageous CIOs, the ones who embraced TBM to transform IT into a strategic business function, those are the leaders that CMOs should be taking cues from. It takes real bravery to break down the walls within your organization and lay your cards on the table. But, in doing so – that’s where I’ve found real innovation and growth.