Trilogy Search Series Ep.6: Stijn Hendrikse

Ravix Group — Ravix Group is the leading outsourced accounting, fractional CFO, advisory & orderly wind down, and HR consulting firm in Silicon Valley. Whether you are a startup, a mid-sized business, are ready to go public, or are a nonprofit, when it comes to finance, accounting and HR, Ravix will prepare you for the journey ahead. To learn more, please visit their website at https://ravixgroup.com/

Hood & Strong, LLP — Hood & Strong is a CPA firm with a long history of working with search funds and private equity firms on diligence, assurance, tax services, and more. Hood & Strong is highly skilled in working with search funds, providing quality of earnings and due diligence services during the search, along with assurance and tax services post-acquisition. They offer a unique way to approach acquisition diligence and manage costs effectively. To learn more about how Hood & Strong can help your search, acquisition, and beyond, please email one of their partners Jerry Zhou at [email protected]. 

Oberle Risk Strategies– Oberle is the leading specialty insurance brokerage catering to search funds and the broader ETA community, providing complimentary due diligence assessments of the target company’s commercial insurance and employee benefits programs. Over the past decade, August Felker and his team have engaged with hundreds of searchers to provide due diligence and ultimately place the most competitive insurance program at closing. Given August’s experience as a searcher himself, he and his team understand all that goes into buying a business and pride themselves on making the insurance portion of closing seamless and hassle-free.

If you are under LOI, please reach out to August to learn more about how Oberle can help with insurance due diligence at oberle-risk.com. Or reach out to August directly at [email protected].

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(1:53) – Breaking down the SAAS business model

(4:22) – What are some of the SAAS companies and marketing teams you’ve been a part of over your career?

(7:20) – What led you to ultimately work with Search Funds?

(11:22) – What kinds of companies do you encourage Searchers to look for?

(13:50) – How do you value the effectiveness of a marketing function in a company?

(20:03) – Where can early CEOs improve on pricing?

(25:58) – Do you recommend any proactive communication cadence with customers?

(30:45) – How do you start developing a high-performing marketing function?

(33:38) – When does bringing on a fractional CMO make sense?

(35:24) – What’s the best mix long-term for in-house marketing vs. outsourcing?

(37:36) – How do you find the right person to grow within your marketing function

(42:17) – What strategies do successful CEOs use to help get teams behind their vision?

(43:49) – What’s really important to know about the Ideal Customer Profile?

(48:25) – How do you develop an effective outbound campaign?

(57:36) – How incoming CEOs can add value

Alex Bridgeman: We bought this data software business at my chief of staff role, and it’s been a ton of fun learning more about it. But the SaaS world seems to be becoming a lot more familiar to the search world, it seems.

Stijn Hendrikse: Yeah, SaaS is, of course, the new business model. It’s evolved in the last 15 years or so. And it’s always important to think to separate the subscription part of the SaaS acronym and the software part. And I think the combo is even more powerful; the sum is much bigger than the parts. But both have been proving the last 20 years or so, longer if you count software, to be fantastic business models. Software is this magical way of creating value that scales without a lot of additional cost, whether it’s scaling human labor or scaling the ability to have materials in the right place in the right time, scaling operations and process. So, if you pair that up with subscription being a business model, that is the best combo of long term value creation for the person who’s selling something, they sell something once and they keep getting paid for that same value proposition. But it also works in the other way, that now the client is actually going to be able to count on that the service provider is incented to keep improving the service, or at least keeping it to be on par with any alternative. So a lot of people think of SaaS as oh, it’s great, just the economics. You get a client once and they keep paying you forever, at least 6, 7, 8 years, it’s a typical way to calculate lifetime value. But it also works the other way. It keeps the service provider on edge to constantly keep innovating and providing value. Because otherwise, so the premise of SaaS also means that you are able to invest a little more upfront in acquiring customers. So you spend more money on getting a- because we’re going to get 7, 8 years out of service payments from this, which also means that your customer acquisition costs are going to be relatively high, but that means you have to make sure that you get that 7, 8 years of return, otherwise the economics don’t work. So anyway, SaaS is magical I think in many ways, but it is really because these two things in themselves, software as a magical ingredient to building value and the subscription side of SaaS to make sure that that value gets scale over time, I think is really powerful.

Alex Bridgeman: Yeah, absolutely. Can you walk me through some of the SaaS companies and marketing projects that you’ve worked on in your career?

Stijn Hendrikse: Yeah, there’s so many. So, I started and the first half of my career, Alex, was at Microsoft. I started as a software developer turned consultant at Microsoft, helping large enterprise companies. And then at some point, I moved into sales. At the moment, Microsoft wasn’t really a sales organization, but we were starting to do business with large enterprise customers. And I became part of the global team at some point. I moved from the Netherlands to work at Microsoft headquarters. And then I actually was asked to run marketing for Microsoft Office products, which is, of course, one of their largest businesses, for small and medium business and for public sector, which was kind of new. Microsoft just sold these products more as an end user productivity tool, Word and Excel. And we were now saying let’s get serious about servicing businesses in the public sector. And so that was my first job at Microsoft in a real marketing role, in a global marketing role. And it was only a couple of years before SaaS became the de facto business model. So my team was part of the whole creation and launch of Office 365, which today, I think, I don’t have the exact number, but I think it’s the largest SaaS business in the world, in itself, if you think of actual product, not necessarily running something like AWS, but an actual product that people use. So that was the first. And then I left Microsoft at some point after being there for the first half of my career to go do startups myself, and I’ll talk probably more later about why that is so fun in itself. But then I ran a couple of SaaS businesses, founded a couple, and then now I’ve been working with CRM companies, ERP accounting software companies, a lot of SaaS businesses also that are acquired by searchers, Alex. They’re either started by an engineer who found a problem that they’ve found worthwhile solving, or you find a subject matter expert who attracts the right talent to actually do the technology, like the dentist who built a dental practice management software solution, or the tire recycling business who built a fantastic ERP system to track the whole supply chain of rubber and turns that into a real software company. That could be global dominance because there’s- pressure to actually build something like that because it’s so niche. And so yeah, I’ve worked with probably about 80 or so SaaS companies really myself hands on and then impacted, influenced others through some of the training I’ve done and workshops. But mostly in CRM, ERP, accounting software, HRM software, all the RMs. There’s just so many because what happened in the last 10, 15 years is a lot of those became specialty. You have accounting software for certain verticals. You have CRM software for all these different types of business problems. And so, yeah, that’s really my niche now for the last 10, 15 years to work with a lot of software companies who are in any of these b2b solution categories.

Alex Bridgeman: And when did you start working with search funds? And what made you excited about the intersection of software and search funds?

Stijn Hendrikse: Yeah, my passion has always been after I left Microsoft, where I was working on these amazing large global scale problems, but you never knew – well, you kind of knew – you knew that that would have happened without you as well. So you never really knew what did I personally really cultivate. So when I left Microsoft, I gravitated all the way to the other side of the spectrum, including doing some grush style incubator things that that wasn’t that fun for me because my experience was just not as applicable there. So, I landed on companies that are between a couple million and 50 and 20 million ARR, which is where there’s still a lot of break it or make it kind of pivotal moments. You scale or you fail. And it is because of you that that happens. Because you’re there, or you’re helping an owner or a founder, you have this amazing impact and ability later to either blame yourself or celebrate the success that you have. And that’s just so powerful. And I love the anxiety that comes with it as well. I really love the urgency that creates, where you almost don’t have time to waste, and you have to ask why constantly. Are we working on the right thing because we can only spend our energy in one place at a time. I love it. So, search became a very logical expansion of that. So Aaron at Trilogy and I met I think about five years ago, and I was helping a lot of smaller b2b SaaS companies in the Seattle area. And we’ve talked about how the searchers of today, also they’re very interested in technology companies. A lot of the exits of the baby boomer generation are SaaS companies. The dental practice management software is an example like that, those exist. And for me, because it’s not for me about the pure technology behind the SaaS company, I’m not necessarily looking for the latest AI innovation or fundamental algorithm that can be patented. But really applying some of sort of what I learned in the last 20 years to help these founders and these searchers do things a little bit faster that they haven’t done before. But it’s also not rocket science. The reason I could write the T2D3 book, Alex, is because this is literally the same, 90% of this is the same for every b2b SaaS company who gets started. The nurture campaigns that you need to run, the things that people are looking for on your website, type of sales materials that you need to equip your first sellers with, it’s all the same. So when Aaron and I met, he basically described the journey of a searcher, especially when a lot of the initial deal thesis is based on growing the sales and marketing capability, doubling down on the fact that these companies have really achieved product market fit. They grew for 10, 15, sometimes 20 years, without any significant investment in customer acquisition. It’s partly because they found real product market fit. The product sold itself or the service, and customers tell each other, etc. So it’s a very logical conclusion that if you pour some fuel on that, that you kind of know where to pour the fuel. It’s relatively easy for those companies to answer the question, what does your ideal customer profile look like? And then when you add capital to that and you add search sort of IQ and the searcher coming in with a lot of new energy, it’s easy to then make sure that you point it in the right direction and really achieve that sort of growth potential. But because most of it is marketing and sales and sometimes customer success related, those are also functional areas that both the original founders of a company, the owners, sellers, but also often the searchers don’t have a lot of experience. And because none of that is rocket science, this kind of helpful to have a playbook to kind of just say do these 10 things and don’t do these other 12. That’s even more important. Because these companies are small, you can’t do everything. Anyway, I digress a little bit. But yeah, that’s how Aaron and I met and we got excited about working together and I became part of the Trilogy team. And I think half of what I do is with search companies, often more but at least half.

Alex Bridgeman: So given your background in marketing and SaaS, what kind of companies do you encourage searchers to look for? Are there any key characteristics or types of SaaS businesses that you find really interesting and the best fit for searchers?

Stijn Hendrikse: It’s a combination of having real product market fit that we already talked about, where the searcher can really connect I think with the business problem. Because what often is the immediate opportunity is to do a little bit of customer research, to start listening and get maybe different answers than the seller usually got or the founder, because they just have- relations have been so tenured and maybe there’s such a kind of standardized way of doing business that they haven’t- they got a little tone deaf maybe to the new needs or the evolving asks. So having a searcher who is passionate to go match the new energy and the capital that they’re bringing in with what customers may have been asking for a while, but what’s basically also a little bit ignored maybe because they could. If a company is pretty profitable, there is maybe a reluctance to change too much. So a searcher is willing to do that, and buying a company that has real product market fit. And the way I measure that, you can do all kinds of numerical benchmarks, but it’s really having customers who not only pay but they stay with you, and they say so to others. They kind of tell others about it. If you think of a SaaS business, there’s two reasons why a flywheel can start spinning. One is just a fundamental business model of SaaS, people who pay you over and over again. But the other is because when you have a software product, your ability to use the technology, the actual software experience, to make it easy for customers to tell other customers about their experiences, to have referral programs, etc., to even use the way the product works, the way you maybe share reporting or the way you include others in your business workflow allows you to find more customers and to sell to them. All those things make it an ideal sort of product market fit test case. If you have achieved that, and I have an article that says these 10 milestones to kind of know if you have really achieved product market fit, it’s a perfect case for a searcher. Because now if they bring in just enough curiosity to learn what customers have been asking for maybe for a while, and they know that the value prop of the product is proven with a very specific customer base where you can define what that ideal customer profile looks like very easily, it’s a relatively straightforward formula to then drive scale.

Alex Bridgeman: And so if you find a company that fits those product market fit elements and a couple others, then how do you evaluate the marketing function, assuming there is one? How do you determine if it’s been effective so far or if there’s room to grow?

Stijn Hendrikse: Yeah, there’s a couple of things that I look at first. It’s really important that you talk about your customers and not about yourself. And you can test this with an email or the website, you go to the website, and especially technology companies have- it’s very predictable. Nine out of ten times, you’ll see most of the content on the homepage to be about themselves. Look at this great product, look at these five things it does, look at these twelve other things you can do with it. And we haven’t even started to talk about these new things we’re working on. And it’s all about them, them, them, them, them. And just seeing that there’s enough value there, that they have a real solution, but they just haven’t learned how to tell the story correctly, that’s a fantastic opportunity. Just flipping that around and having customers tell the story on behalf of these companies, showing the customer logos and their faces and what they do with the product and the solutions, amazing upside. The second one is are they able to articulate what their ideal customer profile looks like? Is it a relatively straightforward but also small part of the market that is so well defined that it’s also easy for you to say this is where we will focus on marketing and sales efforts, and we’re not going to be distracted by all these other opportunities. You and I touched on this earlier, this notion of people having a hard time saying no to things. I mentioned that when we were caveman, we wouldn’t say no to food that walked in. If it was in eyesight, we would go after it. And it’s the same with a lot of small business owners. If you have to make payroll every month, it’s very hard to say no to these five other opportunities that walk in the door or come on your website, and they may not be the perfect fit. So you’re going to have to jump through a couple of hoops, but you still want to service them because it’s money. They’re planning to pay you. And if you find a small company that has a marketing opportunity to double down on a really clear ideal customer profile, great, great fit. What other things do I look at? Just the digital marketing footprint, looking at how much of their customer base came sort of inbound, came because they knocked on the door of the business. They found them online through a search or through a referral or through word of mouth, versus how much of the business is generated by the founder or the owner or some other people in the team having to really knock on doors and drive the business by spending calories on it. And maybe not only just knocking, even inbound, if you have to pay for advertising, things like that. So finding out if there’s one or two ways that new customers get acquired that is relatively predictable because then you can add another, a couple of other growth levers. One of the things that’s interesting, Alex, is that when you want to scale a business that has achieved product market fit, and this is actually what the T2D3 acronym refers to, to triple your ARR two years in a row and double it three more years in a row, the formula to do it is the following. That goes back then to your question, what do you look for from a marketing assessment or diligence perspective. But to scale, you need to do three things. You need to diversify the demand gen channels. So it doesn’t really matter if a successful company that’s been in business for 20 years has done a great job organically, having people find them online, or they have a fantastic partner model where they have a channel that sends customers their way, or they have a great way to find customers every year on a certain set of events, any of those is fine. But you’ll have to diversify that. You have to, in addition to those one or two demand gen channels that work, you need to find three or four others. And of course, the cool thing is when you have a clear definition of what your ideal customer profile looks like, you can then double down on some other marketing tools that you haven’t explored yet like paid search or maybe do a sponsorship of certain media where you know your audience hangs out. So that’s number one – are you able to diversify to the demand gen channels. And that’s the first ingredient for scale formula. The second part is to add capability to retain your customers but also monetize them. So, a lot of these businesses have been very good at customer retention. That’s one of the- often one of the criteria that a searcher uses to find a healthy business. Are they able to retain their customers? The growth lever they can put on top of that is can I monetize those customers. And it starts with simple things like hey, usually these companies haven’t raised their prices in years. Just raise the price. And there’s plenty other examples of how you can monetize your customers by cross selling, upselling, turning some of maybe the great customer service that you’ve provided for, the more professional service into selling that as part of your product packaging. And so number one is diversifying demand gen, and number two is retaining and then also monetizing your customers. And then the third one, and that goes at the heart of really focusing on marketing and sales as functional areas, which is often new for these companies, is to optimize conversion, the conversion of interest and eyeballs, etc., into actual paying customers. And that’s usually relatively mechanical, like inspecting what does the funnel actually look like? When someone sends us an email, it’s actually replying to the email. When someone talks with someone in a sales conversation, does the salesperson have the right materials, are they able to actually sell the customer the right things, are they able to qualify correctly, so they’re not spending time on 10 leads that may not be a good fit for what we do anyway. So it’s kind of these three things, diversifying demand gen, optimizing both retention and expansion or monetization of your existing customer base, and then optimizing the conversion of your commercial funnel, both in marketing and in sales, etc. And so, in your diligence to look at is there a go-to market opportunity here, is the foundation strong, you kind of look for those three things and see if the ingredients like an ideal customer profile are strong enough for you to then double down and do any of these three add scale.

Alex Bridgeman: Yeah, diving into pricing a little bit more, are there any early CEO mistakes made with pricing or opportunities to improve in some way?

Stijn Hendrikse: Yeah, pricing is a very interesting thing. We can have five podcasts on the topic alone. So first of all, every company, especially when they deeply care about their customers, and that’s often the case, when a searcher finds a good business to buy, they’re usually based on phenomenal customer loyalty and great sort of relationships with customers. And almost by definition, Alex, those products and services have overtime become underpriced. Because what do businesses do as they grow, they become more credible at what they do, they become bigger, so they’re able to service their customers better, they innovate their product or their service, so this product or service becomes more valuable. And then inflation also catches up with us, especially the last couple of years. So by definition, we always kind of say raise the price. And then there are tons of objections to that – oh, our customers are going to walk out the door, and we’re going to shine a light on maybe customers who haven’t used our product as much as they think but they’re paying for it, and we don’t want to rock that boat. And there’s all these reasons why not to do it. And none of them have ever turned out to be a larger problem than the opportunity of actually raising the price. And what’s interesting when you raise a price, it forces you to actually have conversations with customers, to ask them what they’re actually looking for. You’ll get a ton of great feedback. So even if you raise a price, and you end up having to either grandfather certain customers into former agreements that you made with them or concessions that you did, and so you may not raise the price for everybody at the same level, or you actually may end up not being able to raise the price for some of your customers, the amount of learning that you get from just that feedback loop is valuable in itself. So that’s the first kind of no brainer recommendation. Whenever a new company gets acquired, raise the price and take all these challenges that come with it heads on. You’re being forced to be able to communicate the value that you bring, that you’ve always provided but maybe never really articulated well, you’re forced to think about your customers that may not be experiencing the value you think they are. And it’s, of course, a great way to get some quick wins on the board. But then pricing more strategically, that is about really thinking through the package. So, packaging and pricing go together when you think of it more long term. And when you want to run a successful SaaS business, a software as a service business, a really important part of the cost side of running the business is what’s called the customer cost to service. We often look at what’s called CAC, customer acquisition cost, what does it cost you to acquire a customer with marketing, sales costs, etc. But in a SaaS business, that actually is not the most important metric. Because of the long term relationship and the lifetime value of these customers being that they’ll pay you 6, 7, 8 years in a row, the CAC is usually relatively quick to be offset, typically two, three years, not more, usually much less, it will take you to recover your CAC. It’s an important SaaS metric, the months to recover CAC MRC. But the other metrics, I think, are actually more important because especially when you’re in the search fund business, it’s about profitable companies. It’s not about the last couple of years of it’s all about growth, growth, growth, growth, growth at any expense. Those days are over a little bit. So now you have to think about CTS, cost to service. And one of the biggest problems, and I’ll come back to the pricing question or connect it, one of the biggest problems with a lot of SaaS companies is that the cost to service is not very clear. The amount of customer success resources that you have to hire, the people that are actually picking up the phone, that are hand holding customers to onboard them, to support them may have grown over time because you wanted to get your churn levels low, you want to optimize your customer retention because that’s a very important metric for a SaaS business. But you could do that by just adding people to your team instead of making the product better, for example. And that, of course, immediately goes to your cost to service these customers, which immediately eats into your profitability long term. So one of the pricing and packaging opportunities that every new owner of a SaaS business has when the searcher comes in, is to rethink how the value that they create that is relatively high cost, usually it’s human labor related, free customer service. A lot of these businesses, they pride themselves on having the best customer service in their category. And usually, that’s totally fair and it’s true. And I always wonder, okay, how can we monetize that? How can we make sure that the customers who really value that pay for that as part of paying for your service, not paying for your customer service in the form of hours. Sometimes these professional services get billed based on an hourly rate. How do we put that into your software pricing tiers, having maybe a premium tier that includes a bunch of services, training, customer success, support, onboarding, and make the price point of your SaaS price then 10, 20, 30% higher. But that price point, of course, will remain higher for the lifetime of these customers. And it’s a much better way to recover your cost to service then, for example, try to bill for professional services, etc. So, two things to your pricing question. First, raise it right away and take on all the nightmare scenarios that you think come with that. And then second, think strategically about repackaging your SaaS pricing tiers, including any form of service that you’re providing, whether it’s customer services, promises that you make for maybe a response time, in support, onboarding, all those things are so valuable for customers, that you can always find a way to put those in the way you price your core products.

Alex Bridgeman: You touched on this topic a little bit just now. But in thinking about a communication cadence with your customers, obviously, you’re going to talk to your customers if there’s a problem with the product or there’s some billing question or what have you. But do you recommend any proactive outreach and communication cadence with key customers or all customers?

Stijn Hendrikse: Yeah, it’s nice, it actually builds on the previous topic, Alex, because one of your costs to service is if you do that with people. And if you can automate some of that, whether it’s in the product, actually having a great way for people to interact with you through product experiences and giving feedback on what’s good, what’s not good, where do they get stuck, but then also as part of things like onboarding and training, how do you scale those things through digital media, through in product learning, in product feedback, so that you don’t have to make phone calls and things like that. You can still have nurture campaigns that send emails and even do some of these product journeys, they use text messages. And for certain scenarios, for certain audiences, that works fantastic. if your SaaS business is providing a software solution for maintenance and repair technicians for the oil and gas industry, having the onboarding of the app that they are now using on their phone through text messages might be the perfect user interface for them. So the content channel may be different, but having a great way to digitally onboard and support and get feedback from your users without having it be people I think would be my main focus there.

Alex Bridgeman: What about if you’re kind of the new CEO and you want to have that ongoing communication with customers, but in a way of learning about their use of your product and developing kind of key relationships with top customers? Is there any kind of recommended cadence or something that the CEOs should do within the first 100 days or six months of buying the business?

Stijn Hendrikse: Yeah, absolutely. There’s this interesting rule in psychology, Alex, that the best way to make a friend is to ask someone for help, and not offer help but ask for help. And so when you come in, especially when you come in as the new owner, the opportunity for you to ask your customers genuinely for input, feedback, what’s going well, what’s not going well, etc., is amazing. And you need to capitalize on that. And of course, the most common way to do that is with some form of a survey. And there’s many ways to do that really well, from just general questions to really specific things like a pricing survey, what would you be willing to pay for, etc. But the other thing, I think, when you think of real voice of the customer, VOC research that a lot of searchers actually do, even as part of diligence before they acquire a business, asking customers just genuinely what’s been valuable for them, how has the product driven downstream impact, how do they measure tangible results, how do they maybe defend the investment in your solution to their stakeholders. It usually leads to very good content that also allows you to turn into blog articles and content for your marketing purposes. So often when I meet a searcher, especially when they’ve already acquired a business, and I hear about these 30 or 40 customer interviews that they did that’s part of diligence, I’m always so disappointed that we didn’t get an opportunity to turn some of that into marketing materials. Because it is amazing how many of those customers, even if they’re not 100% happy, are totally willing to help you as a business to be successful. So if you then ask, hey, can I use some of these insights to turn them into content or a blog article or nurture campaign for our other clients because the other clients could actually benefit from what you just shared with us, you usually get a positive response. So, when a searcher comes in, yeah, absolutely use that, asking for help is a great way to make friends to do that, whether it’s in the form of a survey or interviewing your customers. But also always think about the opportunity that you then have to turn those into great pieces of content that your other customers might benefit from or people you sell to. And you’re often worried about customers don’t like that and they’re going to have to ask their PR team for approval. And usually, they don’t. Usually, they’re totally fine. And it’s also one best practice is to go for the customers that are the hardest customers, the most difficult to serve, the ones that have the most complaints. Because if you actually take them seriously, because why do they complain, Alex? Because they care. Otherwise, they wouldn’t, you wouldn’t hear about them. So go to your sales team, your support team and ask who’s the toughest, -the most, and go talk with them and genuinely listen. Even if you can’t solve all the challenges, they usually love to help you make the business better.

Alex Bridgeman: So once you’re in the business, and you’re starting to have those customer calls and getting to know your team a little bit more, how do you start developing a high performing marketing function? Like to start with, what principles do you use to define a high performing marketing team in the business? And then what are some kind of roadmap steps to get there?

Stijn Hendrikse: So marketing is an interesting discipline, Alex, because most people think they can do it themselves. Oh, it’s only marketing. Well, how hard can it be? So, I think one of the challenges with marketing is to do good marketing at the technical level, whether it’s managing an event or running a couple of ads or building a website, and that is actually not rocket science. But some of those, I don’t think they’re as easy as people sometimes think. But they’re also not that complicated. But none of them will be any good unless you do what I call the Big M marketing piece, which is the real good positioning, really understanding what your ideal customer profile is and who are the personas that you have to care about in the buyer’s journey that these customers go through. So building a solid marketing team starts with making sure that the foundation of your marketing can be covered by someone. And sometimes the founder or the searcher has a real talent for answering some of those more strategic fundamental questions, what is our positioning, who’s our ICP. And if you have someone like that, then investing early in a relatively technical marketing execution, someone who can run a couple of campaigns, manage a website, keep it up to date, make it look beautiful, is probably a good first investment. The problem is that most small companies, especially if they haven’t invested in marketing and sales for the last 50 years, they don’t have that foundation. So then what you often see is that companies hire a PR agency, or a web agency, or a general digital agency that is going to do a bunch of campaigns or they hire someone to run some kind of sales enablement program and do outbound selling. And all of that is going to be a huge waste unless the content that they can rely on is any good, they’re targeting the wrong part of the market, they can’t really get answers to the questions, who’s it for, what’s it for? So that’s what I often see go wrong. So when you ask, how do you start? What type of a marketing team do you build? What type of capability do you invest in? It starts really with do you have the big M, kind of the foundational pieces in place. And that, by the way, doesn’t have to take long, usually a couple of weeks, you can get all that figured out. But if you need someone to help you with that, that should not be a long time hire because you only need to do that really once and then maybe revisit that a couple years later. So you don’t need to go hire an expensive CMO to do that. But if you don’t have that capability yourself as the founder or maybe someone in your leadership team, you do really want to do that before you start spending money on tactical marketing execution.

Alex Bridgeman: When does spending on a fractional CMO make sense?

Stijn Hendrikse: Yeah, I think the popular role that I think has evolved in the last 10 years, in Europe, it’s far more common to have interim leaders, who have- partly because it’s so much costlier there to hire them and then let people go. So, here’s a little newer. But for marketing, it’s a very common solution for a couple of problems. One is you don’t necessarily know what you exactly need. So if you hire someone at that level, full time can be very costly, the needs change faster. What I just described, you probably need a couple of weeks, maybe months of building that foundation. But after that, you actually do need people to just execute. You don’t need a fractional CMO maybe of the same magnitude anymore. The needs change fast. And then the last reason why a fractional CMO is often a good fit is because it’s just extremely hard when you’re a company under 20, 30 million in ARR revenue to actually pay for the talent that you need. Because the really good marketing leaders are working for companies that are 10 times your size. And if you find someone like that who’s going to work full time for you, they’re probably going to be too expensive. So it’s very hard to actually find the person who can do the big M part, the big marketing, the strategic part. And then you also probably don’t need them for more than a couple of months. So that’s why a fractional CMO I think is a good solution. You still want to make sure that you start building a relatively small marketing team relatively early. It could start with someone who’s just a great writer to start building up some of the institutional knowledge of your customers inhouse. So, you probably want to have a mix of a fractional CMO with maybe someone who’s inhouse who can start really accumulating the knowledge of both your customer audience but also the systems that you have, etc.

Alex Bridgeman: That sounds like a good setup for a short term solution. But in the long term, what’s the right mix of fractional outside services used and inhouse team for marketing?

Stijn Hendrikse: I have found very few companies under 10 million ARR that could afford a full time marketing leader of the right quality and experience level. But they do need probably three, four internal resources when they get to the 10 million mark. It’s the, I call it growth hacker, the person who manages all the digital systems and the ads, etc., the website, someone who’s really a good writer, ideally a combo of doing short form copywriting for the website or for an email campaign and also being able to do longer form articles, meaningful thoughtful pieces for the website, a podcast if you launch something like that. And then you need someone who’s really focused on enabling the funnel with sales materials and helping your customers, your salespeople with the right demo materials and doing a webinar and call it the sales engineer who’s really usually more of a marketing person who creates content, etc. So those two, three functions would be where I go first. There’s another afford role that usually is hard to outsource because it requires someone with institutional company knowledge. But it’s also hard- It’s not a real full time role either, but it’s a real product marketing resource who thinks strategically around pricing and packaging and things and positioning. That’s the trickiest because you usually don’t have a full time need for someone like that. But just like with the fractional CMO, you kind of need someone who’s done this before, who knows what they’re doing. With the digital marketer and the writer and the sales engineer, you can kind of groom them yourself a little bit with the right adult supervision. But the mix when you go from a couple of million to 10 million is probably hiring two, three people over time in those categories that I just mentioned and keeping a fractional leader up till maybe the $8, 9 million point is fine. And then at some point, you will have to go find someone full time. Ideally, as you hire your first three, four marketing team members, one of them really becomes a potential leader to take over the role and become your first director of marketing.

Alex Bridgeman: So you mentioned that hiring that CMO who is willing to come down from that large organization that they’re likely at to come help you as a smaller company, they’re probably going to be too expensive for you. But if you’re trying to find that role as an up and comer, who maybe hasn’t had that experience, but you think hopefully will have potential, how do you find that person? Is there a set of characteristics or experiences you’ve found correlate well to that person’s ability to grow in the marketing function of a search company?

Stijn Hendrikse: Yeah, there are three things that I look for, Alex. I separate leadership and management of the marketing function, two separate things, I’ll talk about both, and then making sure you drive real good ROI through the marketing engine. So, the latter is the easiest to describe. You want someone who has some proven track record of turning dollars and time into actual leads and acquired customers that stay with you, etc. And that is, of course, a very specific KPI that you cannot really compromise on that. There’s no room anymore for marketing leaders or marketing team members who don’t think of the outcome, the outputs of their work. So that’s one. But then the other two are more about when you think of the real leader of the team, the leader of marketing for your company. Management is where I put ability to hire and develop the right team members from having a good marketing dashboard, to having a plan, to understanding how to work with vendors, to manage campaigns, to manage reporting, to make sure that the budget is in place and gets managed correctly, all those things fall under managing the marketing function. And that’s typically where when I look at the job description, when I look at the roles that companies often hire, that’s where most of the energy in the search goes and the interview questions, etc. Has someone done this before, do they have the breadth of experience to cover all parts of marketing, whether it’s from managing a press release cycle, to managing digital apps, etc., which is fine. And I think for those, because you will never get someone who’s done all of those, understanding what parts are most important for you is really critical. But those are the first two. The third is the one that usually goes wrong. And so what I mean with leadership in the marketing leadership role is that you have to have leadership in three sort of directions. You have to- and leadership being defined as people wanting to follow you. Of course, there’s the leadership towards your own marketing team. You have to be the person who can sort of lead from the front and get everybody to be excited about the direction that you’re taking them. But the other two parts are far more critical. Leadership in your own executive team, you’re going to be the one, as the marketing leader, who sets the direction for the positioning of the company. Some of these choices are very strategic, the ideal customer profile, or you think about the messaging and the branding and the brand positioning. And if you are not able to get your co-founders, the CEO, the CFO, the developer, the CTO all to be kind of willing to follow you, it can get very messy and very costly over time. So I’ve seen a lot of marketing leaders fail to get their sales leader or their CEO to really be on board with the direction they want to take. And that takes a ton of extra churn. And some of this means that two years into the relationship, the marketing leader leaves the company, you haven’t really achieved much. So that’s one. And the other one, especially with smaller companies, the board of directors are just going to have a relatively hands on relationship with the company. So, you also have to be able to get their buy in. So think of a searcher hiring their first marketing leader, the board will have an opinion on that. And sometimes they’re going to be more involved than they would be maybe with larger companies. So for a marketing leader, a CMO to have an ability to get followership with the stakeholders outside of the company, board members, investors, etc., is really, really helpful as well. And I think that leadership category last is where I often see the biggest challenge and where some fractional CMO just brings more credibility and it’s easier for people to trust that he or she will take them in the right direction. So those would be the three things to look for, ROI, proven ROI, if they can detail just a simple star interview process, can they describe the situation, etc., with the activities that they deploy, then a result of a situation where they were in where they drove real ROI that was when they had made that impact, and then describe how they would manage the complexity of the broad marketing function, which is just by definition, very diverse, but then also an ability to gain followers in both their own team, across their leadership team, and stakeholders, board members, etc.

Alex Bridgeman: For CEOs you’ve seen who have gotten their marketing teams behind that CEO’s vision for marketing that company and positioning and branding, what do they typically do? Or what strategies do they use to help their team get behind their vision? I’m sure it’s not just there’s but there’s some collective decision making and idea generation that happens to make sure that everyone’s on the same page. But those CEOs who do it well, what do they do?

Stijn Hendrikse: Well, when the CEO is a new searcher acquiring a company, listening, I think being genuinely curious. You find so much information during diligence that you can come in, like, okay, I have my plan, let’s go execute. But I think you can find that you’ve probably only found the tip of the iceberg. And in the next three, four, five months after you’ve become the new owner of a business, just keep listening for a while before you make broad stroke statements or decisions on whether the strategy that you’re going to implement is the right one, or the ICP that you’ve selected, or the way you want to invest some of your growth capital. I think taking a couple more months to be really curious can really help raise the chance for success. There’s a lot of urgency immediately when you get external capital. You feel like you’re sitting on someone else’s money now, you’ve got to go use it, you’ve got to show people that you’re able to do the things you’ve been talking about for the last couple of months. But there is still a lot to learn I think in the first couple of weeks or sometimes months.

Alex Bridgeman: You mentioned kind of ideal customer profile, a couple different points. But of the things to learn within that first few months in the business, how does that rank, and then what other parts are really important to understand fairly quickly in the business?

Stijn Hendrikse: The ICP is not really anything else than an acronym that really is a proxy for having a real strategic focus. When you go to market, GTM is an acronym that I also like to use, when you go to market, you can do that I think in three different ways. One is you can say hey, I’m going to try to dominate the category that I’m in. I think this company has the product market fit and the quality, premium value proposition and the existing like beachhead with our customer base that is so strong, that we can dominate the category that we’re in. And by just spending a little more money, maybe we find a couple more customers, we ask them to pay us more. And there’s all these things that go into the growth thesis that are about dominating a category you’re already in. That’s one scenario. But the other two are far more common. And they’re either to disrupt or to differentiate. And disruption is what you do when you feel that in a certain category, there was a group of customers who are over serviced. They get actually more than what they need. And you can, by maybe providing an alternative solution that’s maybe a little lower priced or a little simpler to use, little easier to access, you can find a way to serve as a part of the category that maybe nobody else is right now. And I would call that a disruption strategy. And for that, you will not necessarily have the same ICP, ideal customer profile, as for a domination strategy. Domination is much more what our current customers look like, the ones that pay us the most and are the happiest and have the best net promoter scores, that are referring other customers. That’s kind of for your dominate strategy. For disrupt, you got to kind of say, hey, there’s a small group of customers maybe that we already service that are paying actually too much or that are getting too much, and they actually don’t need that and they’re over serviced. And if we can focus on them and give them a fantastic value proposition, then we can unlock a whole bunch of other market segments that are also over serviced. That’s disruption. Then the third one, differentiate, is you are in a category where you feel that some of your customers actually have specific needs. And you can call them premium requests for things that are actually very valuable for them that nobody is providing right now, a certain capability that is unique for maybe a problem that a smaller group of customers is trying to solve or a certain part of the market that has policy or regulatory requirements that you can uniquely solve for, but it’s a premium feature. It’s something that not all your customers need. And then doing that means you have a new point of differentiation, which means also to our earlier discussion, you can raise the price a little bit because of that. That could be your strategic focus, you’re go to market play, which then means that your ICP is actually smaller, your ideal customer profile, and more tight than maybe the customers that you service today. You grab a subset of them and you say, hey, there’s this smaller group, let’s say 25% of our current customer base that needs something extra. And we’re going to invest in, we’re going to build that. And sometimes it is not even building a new capability. It could just be the way you position yourself, that you’re very focused on a certain niche category and the way you talk and the content that you produce. So those would be kind of my thoughts when I talk about ICP so much. Your ICP is kind of a reflection of what strategy you’re going to follow. And then it’s also really important, Alex, that an ICP, and the same goes for personas, by the way, is really practical, it’s really usable and useful. It’s not, I mean, you think of a persona, it’s not describing like the mom who picks up their kids from soccer practice at a certain time. That’s maybe interesting for brand campaigns or for consumer packaged goods. But when you’re a b2b SaaS company, it’s more about organizational attributes that allow you to then find more companies that look like them. It could be things like the type of people they employ, the type of roles they have on their team, the type of regulatory requirements they have to abide by, or just things like geographical and demographical footprints, size of a company, profitability, etc. But I think having a great ideal customer profile is a fundamental strategic first step to then be able to have the right content, the right campaigns, hire the right salespeople, have your product strategy match what these customers need. And then, of course, go listen to them, go talk with those type of customers and see what they need.

Alex Bridgeman: So once that ICP is developed, how do you develop an effective outbound campaign?

Stijn Hendrikse: My favorite subject. So outbound, let me tell you a story, Alex. When I came to the US, I’m from the Netherlands, we moved here in 2004, about 18, 19 years ago. We bought a house here, we live in Seattle. We bought a house in the area here and there’s a lot of trees, and we had a tree hanging over our garage. And so we lived here for six, seven months. Someone knocks on our door. We weren’t home, my wife and I weren’t home. So our son opens. It’s 8pm at night or something like that. And it was one of those services who provide tree cutting, pruning services for a landscaper who specialized in tree management. My son has no decision-making power, so of course, after some nice words, he closed the door, but this company was smart enough to hand him a flyer and say, hey, this is who we are. And so what happens? A couple of months later, my wife is looking at the garage, and this branch is sticking out. And she remembers that my son grabbed that flyer, and we call this company and they become our service provider for many, many years to come. What did they do? And this is the analogy with your question on outbound, knocking on doors, as I like to call it. If you have a good ICP, if you know what your ideal customer profile looks like, and in this case, not just houses in the Pacific Northwest, but houses in the Pacific Northwest that have maybe a tree branch hanging over the garage. And if you can identify those, then your targeted knocking on the right doors is a critical first step. And the amount of lists that are being used that are being bought from things like Zoom Info, etc., that are just not very good quality is amazing. And a lot of money gets wasted on that, both on the data but also then on the effort to knock basically on the wrong door. So to be extremely precise in the ICP is step number one, and I’ll come back to that in a sec, how you can you be precise in your ICP. But then the next step is that you know when you do outbound that you’re interrupting someone. They were not waiting for your call or for your email. I was not waiting for that person to knock on our door. And I wasn’t even home, my son opened the door. And so you have to assume that you’re both not invited, you’re not necessarily welcome, and you’re going to get the door shut on your face. And if you know that, you also know that, hey, I better have a flier ready to either hand out or to even slide under the door, throw in the mailbox, if they really don’t- but I still see that branch hanging over, let me throw the flyer in the mailbox. My best customer when I started my first marketing agency a couple of years ago was a customer who I had spammed on LinkedIn, who I had sort of spammed with my service, Alex, and he had completely ignored it and archived it somewhere. But then a year later, he remembered, oh, there was this person, and actually became my largest client. It was a German startup. So outbound also takes patience. So, the first lesson is have the right list. The second is make sure that you have something to leave behind in case the door actually opens. And the amount of times that when people do outbound email campaigns, for example, and they get a response, but then they have nothing to say, or when the email is clicked on and someone actually reads the email, there’s no attachment, there’s nothing of value, no good link. And that’s the equivalent of having a flyer that you can leave behind. So those are kind of two ingredients for good outbound. There’s a third. But let me first finish on the targeting. So, a good ICP profile includes what I like to call filters and signal. Filters are the things that you use to filter out any of your TAM, your total addressable market, that you just cannot service. And that’s how you go from TAM to SAM, the serviceable part of your addressable market. And you just have to be really honest with yourself. Customers who are in certain parts of the country or of a certain size, or speak a certain language, just don’t bother and take them out of all your lists and having a really crisp set of filters where you are really honest with who can I really service to a point that they will be satisfied with my products and services, etc., is really critical. But then you have signals, and signals are those things that you use to just differentiate who you should prioritize. So, you’re not necessarily filtering any of these prospects out or suspects when you’re doing outbound campaigns. But you use a signal that, for example, is about maybe again geographical location, where you say, hey, if they’re in a certain metropolitan area, they’re just going to be easier to service than if they’re not. So I use the signal to prioritize. If they have maybe done a recent investment, if publicly, they have a press release about something, a news cycle that makes me think they’re a better fit for us than maybe some other customers, and use those signals to really prioritize who do you really want to go after, your obtainable part of the market. So you go from the SAM, the serviceable addressable market, to the serviceable and obtainable market, the SOM, by using signals because you only have so many resources, you have so much time in a day, your team is a certain size. You cannot go after everyone. So that was targeting, and then having something to leave behind. The third element to make an outbound campaign successful is that you have the patience because you know that you were not invited, you were interrupting someone, you have to be ready for the results to take a couple of months. If you’re launching let’s call it an account based marketing campaign or an outbound mailer, if you expect results and customers to be converted in a month, you’re going to be disappointed. Then you might as well not do it. But if you have the grit and the tenacity and the patience to wait it out for a couple, three, four, or five months, you can now learn from what you’re actually- is the flyer that I sent out any good, do people like it, whether they tell me about it, is my list any good, how can I improve it, or my signals and filters. So having a certain level of patience, planning ahead, etc., is a big factor in whether you will get something meaningful out of this. It’s like in a football game, the running game in America football. If you only do it for a quarter, you might as well not. But if you keep pounding, and you learn and you understand where the holes are, and you’re willing to kind of wear down the defense a little bit, then suddenly, in the third quarter, you’re going to have some big runs that break. And it’s the same with outbound and account based marketing. I think when I see it fail, it’s usually because the list quality is bad, and the content is not very good that they leave behind. But guess what, you can improve on that. If you learn from the first couple of months doing it, you’re testing your value prop, you’re testing your ideal customer profile. But if you’re not willing to learn, if you’re impatient, then those two first things will never get better. Your targeting will not get better, your content will not get better. And that gets to the last, the final ingredient, that you have to be ready to cultivate this, what’s called digital relationship. When people click on the email, but they don’t click on the link, or they open the email to click on the link, but they don’t stay on your website. All of those things are part of the journey that gets interrupted at some point. But it could also be picked up again later. So be ready to make sure when someone comes on your website, they now have a cookie, you can retarget them with ads. If they opened up your email, but they didn’t click on the link, you can email them again because maybe you actually piqued some interest, but the content of the email wasn’t good enough. Also, one last note on this. Sorry, this is one of my passionate topics, Alex. Email is by definition, you and I experience this every day, we get too much email. So, we’re not going to read everything. We’re definitely going to miss things. So when people don’t click on your email, but they also don’t tag it as spam, they might just have missed it. They might just not have gotten to it. So this rule that a lot of marketing and direct mail agencies will tell you about, that you have to do six or seven touches, it’s true. And it’s based on that because even if you email someone three times, they might still be- they just might have missed your email. And the fourth time might be the one time that you hit it at the right time of the day, the right part of the week, and they actually see it. So that’s the other part of this kind of tenacity and grit that don’t worry, don’t think of yourself as too much of an impostor. If you do outbound, you should feel guilty because you are interrupting people, but you might as well then stick to it. You might as well try to do with well, instead of doing it half.

Alex Bridgeman: Why do you feel like it’s so hard for small businesses or so rare that you see a great outbound marketing campaign in small business?

Stijn Hendrikse: Because I don’t think people take the time to understand their audience, like take the time in the neighborhood to look at which houses have trees that hang over the garage, and where can I really add value. I believe if you interrupt people, if you do outbound, but at the same time, you make sure that your content is fantastic, that you’ve really thought about who you target, that you really make an effort to provide value, then I think it can go actually extremely well. Because now you’re suddenly interrupting people who don’t have time to think about this problem. But it is a real problem for them. If you actually show up on the doorstep with a real solution, you’ve been thoughtful about who you target, you have a relatively low friction way for them to engage with you, then I think it can be a runaway success. And it can actually work really, really well.

Alex Bridgeman: What have I not asked you so far that I should ask you or you feel like I’ve missed?

Stijn Hendrikse: I think the topic on the CEO, yeah, the topic on the CEO, the new founder adding value. So I think when you come in with a fresh perspective, recognizing that your first job, well, the second – the first job is managing a great, fantastic team and hiring the right people and developing, that’s probably the first job for a CEO. But the second job is improving the relevance of a company for their customers and being able to add more value customers to like you even more, etc. And the CEO has an amazing opportunity when they come in new to do that also through marketing and through content, to write up their vision. It is hard, writing up a press release that you would like to see five years from the Amazon methodology, or writing down a fantastic blog that really describes your vision for the company and why you think customers can benefit from what you’re planning to do with the company, it is really hard. And I think a lot of CEOs will in that sense, they’ll kind of outsource that to either someone they hire or- but it’s actually the part that you shouldn’t outsource. You should really try to do that yourself. And it’s tough. It’s tough. And you can get, of course, help; you can get people to coach you on that. But forcing yourself to do to that as a new founder, a new CEO, new owner, I think is really, really powerful. So that’s another thing that I always think about when I work with a new CEO. Then don’t underestimate the value of you spending quality time, of articulating and understanding how you’re going to bring value to your customers.

Alex Bridgeman: Thank you, Stijn, for coming on the podcast. This has been really, really fun to chat all things SaaS and marketing. You have quite a career and a book that people can go find as well to hear all about SaaS marketing. We’ll link to all these below. But thank you for coming on and sharing a little bit. This has been really fun.

Stijn Hendrikse: Alex, fantastic set of questions. Sorry to ramble on a little bit here and there. But yeah, I’m very passionate about most of these topics and exciting to- always thankful for having a listening ear. And now of course, your whole audience, thank you for that.