SaaS Interviews with CEOs, Startups, Founders
1136 Outreach.io CEO: "We'll hit $10m/quarter in 2018" with focus on ARPU expansion
03 Sep 2018
Chapter 1: What is the background of Outreach.io's CEO, Manny Medina?
He would have started his company sooner.
He really cut his teeth inside of Amazon, watching Bezos go in and zoom in and really understand every detail of the business, then got in and wasn't really excited about it, but learned a lot at Microsoft before jumping out, teaming up with some buddies in Seattle, coding at bars, launched a company called Group Talent, realized that wasn't the real product that was taking off, pivoted, kept the investors for supporting him early, is now building Outreach.io.
This is the Top Entrepreneurs Podcast, where founders share how they started their companies and got filthy rich or crash and burn. Each episode features revenue numbers, customer counts, and other insider information that creates business news headlines. We went from a couple hundred thousand dollars to 2.7 million. I had no money when I started the company.
It was $160 million, which is the size of many IPOs. We're a bit strapped. We have like 22,000 customers. With over 5 million downloads in a very short amount of time, major outlets like Inc. are calling us the fastest growing business show on iTunes. I'm your host, Nathan Latka, and here's today's episode. Hello, everyone. My guest today is Manny Medina.
He's the CEO of a company called Outreach, the number one sales engagement platform. Before Outreach, he led Group Talent, which was Microsoft's Windows phone business development team in Latin America and Canada.
Before that, he engineered Amazon's compensation system for Amazon Associates, which is the web's largest and most successful affiliate business, and their web services, which accounts for about 15% of Amazon's traffic. He's got an MBA from Harvard Business School and MS in Computer Science from University of of Pennsylvania. Manny, are you ready to take us to the top? I am. I am. I'm ready.
So, so, so Bezos is obviously always in the news and I want to focus on outreach for the majority of the show, but give us some quick insights. What makes this guy so successful? Is it some kind of discipline? Is he, you know, really strict and mean like Steve Jobs? I mean, what did you see?
Um, there's a number of things that he does, but he has a philosophy of running the business that I think is unique. Um, the main two things are that he is
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Chapter 2: How did Outreach.io pivot from its initial business model?
There's no detail too small for him.
And not only as part of being CEO and knowing the strategy and having the vision and where you're going, but also having the understanding and the empathy to get down into the lowest levels of your organization, into the deepest and darkest and most broken systems and understand what makes it work and what makes it not work and what can you fix right now and need to fix right now and what can you punt.
To have that kind of like Zoom, ability to Zoom in and out as a CEO, I think it's a superpower. Interesting. And I model my own behavior after that particular superpower that he had that he showed in spades. His Monday morning or Tuesday morning meetings that will last all day are colonoscopies on the entire business.
He will go in and just be all up everybody's things and just understand his business to the very,
same thing here in which it gives you a peace of mind and understanding that you have your entire head wrapped around everything uh and it is very good the second thing is for him that his decision making is is very crisp and he's very principled in that respect and that a no decision is a decision not to do something and that's very important because most people think that if you can't make a decision right now and you punt that you're getting free time and it's not true when you decide to stay in status quo
He thinks of it as a trade that you decided to long the status quo and short the optionality of the future. You see what I mean? Yep. And you're doing it for a reason. So that crisis of thinking of like there is no such thing as a free lunch in which if you decide what you want, you're making a bet in your current system.
If you're going to make a change, you're saying, look, the current system is not going to scale. It's not going to work. I'm going to go into the next one. But that is always a conscious decision. So that's one of the things I love about him. And that allows me to sort of like, you know, do quick principle decisions on outreach as well. So take us now into outreach.
How do you describe yourself and what's your revenue model? Are you pure play SaaS? We are PurePlay SaaS. We are a sales engagement platform, which is a new category in sales. And what this does is that sales engagement sort of separates the two sort of core components of the sales stack.
One is where you store your data, which is your CRM, where you build your lists, where you keep your accounts, where you keep your contacts, where you come in with your leads. And it sort of becomes this big bucketed repository of lead account and opportunity information and personal information. But you execute this,
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Chapter 3: What is the revenue model for Outreach.io and how do they price their services?
emails and your voicemails and make your calls and send you kind of their appointments, we're able to now compress time that takes to get to the same outcome. And that's what the important thing about outreach is that we allow you to increase your productivity as well as compress time. We give you sort of significant leverage on that resource. And that's what our.
And so give me give me a general sense of customer size. What would you say the average customer will pay you per year? Are we talking, you know, a grand, 10 grand, a million? So the price of outreach varies depending on what you have calendaring or voice along with it. And it varies anywhere between $120 to $140 per month. Per seat.
And the majority of our customers have sales teams of around, they start at around 20 to 30 seats and they go up there. That's sort of the mean. We have as customers are large as CenturyLink or General Electric. MindBody, Splunk, customers of that ilk. Capital One. It's a very broad, diverse set of customers.
And if you think about it, if you have a rep that is facing a customer, you need outreach. It's the way you think about us. There will always be a communication and a workflow to what your rep does that can be optimized and can be made better. And that's where we come in.
And where, so now that we kind of understand what you do in average kind of deal size, et cetera, take me back to the beginning. Did you decide to leave Amazon and jump right into outreach? Where was your brain at that point? Oh, this is, that's a great question. So I was at Microsoft and I was peddling the last version of Windows Phone. And that's you. That's not a good way to say it.
That says I didn't enjoy doing this. I felt like I was peddling, you know. Well, we, because we, nobody felt great about it.
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Chapter 4: What strategies does Outreach.io use to increase customer engagement?
And it was one thing after the phone itself was a great product. But we could not crack the market that was slowly being monopolized away from low BlackBerry right into Apple and Android. And Microsoft sort of tried to throw resources at this problem with a grander vision that there will be no sort of winning market.
a foreign factor in terms of size, that the phone is just, you know, one smaller device than a tablet, which is one smaller device than a bigger tablet, which is one smaller device than a laptop, which is one smaller device than a PC. So they approached the problem comprehensively and they sort of missed the boat around like, no, the phone needs to be fucking great. And that's where it ends.
So they went against his larger strategy that now you see they're peeling back by selling off Nokia and et cetera, and sort of getting back to first principles and being a real software company. So that led to Outreach. What year was that? When did you launch Outreach? No, no, no. Actually, that led to group talent. So I first of all, I quit. I quit with a great idea.
I just said to myself, these are the best, most productive years of my life. How old were you? I was. So that was almost 10 years ago. So I was I was almost 40. So I guess I guess it was a midlife crisis. Instead of getting a Harley and, you know, changing my life significantly, I just decided to quit and start a company.
And what I did is I sort of went back to coding and I started hanging out with the sort of the the the Seattle low life that is starting to start companies. Right. So we will gather at this bar and meet other founders and like, you know, kind of like do hackathons and, you know, encode the ideas that we had in our head. And then in that process, I met Andrew Kinzer.
who was roughly doing the same thing. And so we decided to, with a small group, to apply to Techstars with a different idea than what you have right now. And during Techstars, we met Andrew and, sorry, Gordon and Wes, who are my other two co-founders. And that started Group Talent. So Group Talent was what is now Hired, or was a competitor to Hired.
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Chapter 5: How does Outreach.io differentiate itself in the sales engagement market?
It was a marketplace, but it ended up being just a glorified agency for talent. And what we tried to solve the recurring problem by using technology. So we said that we argue that we would have a leg up if we were to create better matching algorithms between companies and individuals. If we were to create better profiles for developers and engineers and so forth.
And that was our hypothesis going into the market. That hypothesis did not work. But what we did learn is that there was sort of demand for hiring. And if we were just to capture that demand, we would make money and not go broke. So we had this seminal moment around when we had two months of cash left in the bank that we need to sell our way out of. Which was how much? Like 60 grand?
It was around 50 grand. 50 grand, okay. It was probably a little bit less, but we were paying ourselves very little. And what we decided to do was to build an engine that would allow us, we had a small group of two salespeople. that will build an engine that will allow those two salespeople to select a team of 20.
And when I say that, it means we generate enough meetings for all of us that we can turn into opportunities and then into close sales. So we went back and we analyzed what gets to a meeting the fastest. And we found out that we built something that does that, right? One is it allows you to follow up. and it creates an avenue for quick personalization.
And when you put those two together, you can take a team of two and turn them into a team of 20 because they can execute so much faster and generate the meetings. As we were generating these meetings, The people to whom we set up the meetings were way more interested in the tool that we used to get that meeting than what we were selling. Was that just a cold email? What was the outreach?
It was a cold email. It was two components. It was a cold email that had a one-liner personalization. which allow us to then hire writers and pay them per email so that we can scale faster the personalization.
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Chapter 6: What are the growth metrics and goals for Outreach.io?
You see what I mean? Yeah. And then the machine will do a lot of the follow-ups. It will say, hey, I know you're super busy. I was wondering if you saw this. Here's an article, et cetera. So a lot of the follows were automated, and a lot of the first emails were personalized. And we would have ā and so what we found out is that we would get 45% to 50% reply rates on cold emails. That is amazing.
And what year was this, Manny? This is in 2014. Okay. So in 2014, we built this engine and we're digging our way out of this thing. And people were not buying our recruiting services. And they were really saying, hey, can I just use your platform to do my work? And that was sort of the seminal moment of like, all right, maybe we need to change the business.
So do you pivot or do you clean the cap table, shut the company down and restart from scratch? That's a great, that's another great question. So we pivoted. And the reason we pivoted is because you know, you don't shit where you eat. And we're, we're Seattleites. We raised our funds from local individuals and those people bet it on us. They didn't bet on group college.
How much had you raised at that point? About a million and a half. And what are you at today in terms of total raised? 60 million. Yeah. So good.
Chapter 7: What challenges does Outreach.io face as it scales?
So those people are still on the cap table today, unless there was a secondary or something. Very much in the cap table. But now here's a trick, right? So for your listeners is that when you're pivoting and you're running out of money at the same time, it's really hard to go and bring in new investors.
So especially because people say, you know, your cap table is dirty, you're going to get diluted. There is all these dynamics that you sort of have to navigate through. What we did is we built the initial version of outreach and then we sold a note at a significant discount from the previous valuation. Okay. You mean the cap was a discount to the previously priced round? Correct.
The cap on the note was a significant discount from the previously priced round. And then what that allows is to go out to market with a new value prop that seemed very cheap to new investors, especially because a lot of my raise for outreach, I did it in Silicon Valley, where to get into a company, you're paying just to talk to the entrepreneur.
You're looking at $10 million valuations, even though the entrepreneur has at least a finger. You see what I mean? So we can come in with a $4, $5, $3 million valuation. You look sexy. What's that? You look sexy then. to look very sexy when you have a working product, a team of entrepreneurs that already mean through hell and back, and the valuation is really low.
So that allows you to sort of get momentum on the note. And we raised, so I sold the first hundred customers of outreach door to door in the Soma in San Francisco. And I raised my first $400,000 of new capital walking the streets around Soma and meeting a lot of angels in that area because that area also has a ton of angels. That's amazing.
Real quick, Manny, just quickly because we're running out of time, the customer count. So you got your first hundred door-to-door. I love that. It sounds like you dual executed and got investors doing the same thing. What have you scaled customers to today? Give us a general sense of size.
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Chapter 8: What are the final insights shared by Manny Medina?
We have now 2,200 customers. We have a sales team of around 30 account executives and 20 SDRs, etc. So now we're a bigger proper operation.
um i'm not selling door-to-door anymore to small accounts selling you know at&ts and you know capital ones of the world so um we're we're now you know significantly larger and manny just to be clear you said earlier that on average these guys these low 2200 logos are putting 20 to 30 seats a pop just and i imagine in first year acv and then you've got you know 140 rp so you guys are doing well we're doing you know north of six million a month now at that point right at this point right correct okay good have you broken 10 million a month or you think you'll do it this year
we will do it this year. That's great. And break down the team for me. So you see, I want to understand the differentiation between engineering and sales. How many total on the team? It's around, it's roughly, so we don't consider sales sales because when you're a SaaS business, the majority of your sales are expansions, especially when you're a land expand operation like we are.
So our go-to-market team is almost half sales and half success. Okay. And the other half of the company, if you would, or the other sort of like third of the company is product and engineering, R&D in general. And engineering has both product, design, machine learning, and software development. And how many total team members? The company is 250 people. All based in Seattle?
About 120 live in Seattle. And the rest are remote? There are a few of them in San Francisco, in the Bay Area. And then the majority of the AEs are in our target markets. Many of you use email marketing to grow and build your businesses. But I've got a big question for you.
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I mean, what are you growing at year over year right now? So last year we posted over 150% growth year over year. That's, I mean, that's, that's great. So we've been doubling every, every year. That's great. So you recall, I mean, go back 12 months from today. That means you're doing about what? Two, eight, 2.8 million per month. And you've, you know, more than doubled now today.
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