CP10: Industry-Specific Cloud-Based CRM with Vlocity – Podcast with David Schmaier
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Martin: Today, we are in talk with an entrepreneur who knows lots of stuff about bringing your business into a cloud. Hi David! Who are you and what do you do?
David: Hi Martin! My name is David Schmaier and I am the CEO and founder of Vlocity – the first company to build multiple industry-specific applications on a Salesforce platform.
Martin: Great. When did you start this company and what did you do before?
David: We started this company two years ago in early 2014. Prior to this, I spent the last 27 years in the CRM software business mostly on a place one of the founders of the Siebel Systems.
Martin: And how did you come up with idea of Vlocity?
David: It’s a long story but I’ll try to give you the short version. I like to describe this that 28 years ago, my co-founder, Craig Ramsey, and I had also met Marc Benniof, who’s the founder of Salesforce and a guy named Thomas Siebel, who was the founder of Siebel Systems, so we all met in Oracle Corporation in the early 90’s when Oracle was about a 200 million dollar company. I had joined Oracle out of Harvard Business School because I thought it might be interesting to get into software business – it turned out to be very interesting to get into the software business. And I met Tom and Marc and Larry Ellison and a bunch of other people who became famous in the software business. And back then the worldwide market for CRM software was 20 million dollars globally. Today the worldwide market for CRM software is 20 billion dollars, so it turned out to be a pretty good idea.
I left Oracle with Tom Siebel, as one of the founding executives for Siebel Systems and at Siebel Systems we built the company that, over 13 years, became a company of about 2 billion in revenue and eight thousand employees. We ultimately sold that company to Oracle – Oracle acquired Siebel in 2006. I thought I was done with the CRM software business forever but that turned out to not be true.
Martin: Great, so what type of problem did you identify once you’ve sold your last company that you said: “Oh, this is a problem that’s unsolved; I need to start another company or at least test some hypothesis called Vlocity”?
David: Exactly! The idea for Vlocity came 3 years ago. I went to Dreamforce – which is the big Salesforce annual user meeting with about a hundred forty thousand people – and I ran into a lot of my old friends from the CRM business and what I saw in the Cloud Expo at Salesforce is: 3,000 companies that are built on the Salesforce platform, but none of them provided vertical or industry-specific applications. And so that was the opportunity. Companies today have a choice, they either buy an industry-specific applications which are typically on-premise or they buy Cloud for companies like Salesforce. And they have to choose Cloud or industry-specific, Cloud or industry-specific? What we believe is in the year 2016, you can have both – you should be able to have industry-specific applications in the cloud. We call that the industry cloud.
Martin: And how did you start? Because right now, you have a bigger product portfolio of different kinds of applications for different industries. With what type of industry did you start?
David: We picked the largest industries that required the maximum amount of industry-specific functionality. Each one of the industries that we’re in – and we’re in four of them – so telecommunications and media is one, our second is insurance, our third is health insurance and our fourth is government. We picked those for a couple of reasons:
- first, they’re really large markets,
- second of all, a recent survey came out and it picked those industries as four of the five worst industries in terms of customer service.
And if you think about your personal experience when you deal with the government or when you deal with your telco provider, or when you deal with your insurance company; the service is not very good and the customer experience – it’s like getting your wisdom teeth pulled at the dentist.
Martin: It’s not fun at all, yes.
David: And so what we believe is that shouldn’t have to be true. That is could be an omni-channel experience that I might want to interact with my telco, let’s say, over the web, the web browser or maybe on my mobile phone and you might want to call your telco through contact center or any combination thereof. And when you go to the web or talk to the contact center or walk in the retail store, they actually know who you are, they say: “Hey! Hi Martin! How are you? How are your products working today, can I introduce you to these new offers?” And there are a personalized, tailored conversations to who you are and what you want and what kind of service they can provide.
It sounds simple but most companies in these four industries can’t do it today. That’s what we do; we basically provide the enabling technology for them to have that conversation with their customers.
Martin: Great. David, can you walk us through the process of how you acquired the first customers? So, did you only use the Salesforce platform or did you go out and acquire the customers one by one? How did it go?
David: That’s a great question. So we started the company and hired a development team to build these four products – so we built the products before we got our first customer. And the reason we built the product is we had built vertical applications for these same industries in our prior lab in Siebel. And so we already had some very good understanding of what people wanted in these four markets and we knew that they didn’t want the same thing that we built for them before, the world had changed some but they wanted similar functionality, modern functionality but now they wanted it in the cloud.
So we built four of these industries, we built what – back then was Version One of our product – and we launched our company at Dreamforce – the annual Salesforce conference and one of our biggest customers is a company called Sky Italia. So I met the CTO of Sky Italia at Dreamforce and they had just bought Salesforce and they were going to customize all the telecommunications capabilities themselves. And when I met the executive team, I talked to them and said we’ve already built all these customizations that you’re trying to do and they were surprised, they said: “Really you’ve already built this?” So we brought them over and showed it to them and 90 days later, they became a customer. So it’s a very large customer at the five thousand agent B2C contact centre on the Salesforce platform so that was a great customer win.
Another one of our early wins was an insurance, in fact our first customer was an insurance, was a company called ABD Insurance. ABD Insurance is one of the top 100 insurance brokers in North America and they took Vlocity insurance and ran live on it in 45 days, including back office integration, to automate their whole sales and service process for the customers.
So that really talks to the agility that you can get with the industry cloud because we already have the industry functionality and because it’s all built in the Salesforce platform, you can deploy it very quickly and more importantly you can change it very quickly because your business changes and so we allow you to, kind of, modify the business processes, modify the user interface, modify the offers that you present to customers, modify your service approach and you can do it in a very agile fashion so you can be very nimble versus the old world of legacy applications that are brittle and hard-coded and very costly to change.
Martin: And back then when you were on this Dreamforce conference, did you really look for specific people who you wanted to get in touch with and then just approach them and then pitch them your, kind of, products? Or was this just by accident that you ran into this CTO of Sky Italia?
David: A little bit of both, that’s a good question. We went there to launch our company and we had a big presence at this conference and because there weren’t other industry-specific applications, we created a tradeshow booth in their exhibit hall that had very clear signs of – about our four industries so telecommunications signs, insurance and pictures of imagery of those verticals, government and health insurance. So that, in a way, naturally attracted everybody at that conference who was in those industries came by to look. That was one thing that we did.
The second thing that we did was we tried to do an outreach either before the conference or during the conference to people that we knew were in those industries.
BUSINESS MODEL OF VLOCITY
Martin: Let’s talk about the business model of Velocity. You talked about the kind of industries that you are trying to serve. Now the question is, what are the most effective sales or customer acquisition channels that you’re currently using?
David: Sure. We deal a number of joint marketing activities with Salesforce, so they’re our number one partner and we built our applications on their platform. So for example: next week a guy named Mike Milburn who is the Head of Salesforce service cloud, and I are doing a webinar worldwide and we’re talking about how you move from legacy CRM to the industry cloud on the Salesforce platform. And we’re going to talk about a number of customer examples on how we have moved people from on-premise and legacy systems to the cloud. So I think there’s several hundred people already registered for that so that’s one example of a joint marketing program.
We did a webinar like this a month ago with the CIO of Sky Italia talking about their project and I think we had over 500 people register for that webinar, so it’s very successful. And what we find in the industries – this industry approach is it’s a reference selling business so we’re very, very focused – our top goal in the company is customer service. So we’re in the customer service business and as we make these companies more efficient and more connected to their customers, they tell other companies in the industry about how Vlocity and Salesforce really changes the conversation of their customer so that’s why we do event like webinars or we also do executive events, we do direct marketing and go to tradeshows for all these different verticals.
Martin: When I look at your business model, what popped out to my eyes was one thing that you’re partnering very nearly with Salesforce as a platform and also they invested some money into your business, and on the other hand, you’re using, I guess, some coinciding companies as a distribution channel and finally, Accenture also invested in the company. The investment from Salesforce, I can understand. What is the proposition of, let’s say, coinciding companies investing in tech companies? Is it something like they want to find a scalable way of using that kind of customer context because the coinciding business is not really scalable per se?
David: Yes, it’s a pretty unique relationship that we’ve developed with Accenture, they don’t invest in that many technology companies, they invested in a few. But our view of this is that you have to look at the entire value proposition for the customer. So we sell our industry clouds to the small, medium and large companies but our big focus is on large companies. When you go to a large telecommunications company or a large insurance firm, these are big projects and so it’s very hard for us to scale teams around the world for these deployments and so if by working with Accenture, we can have global reach where we put a few people from Vlocity on our project but Accenture will run those projects and Accenture is the largest systems integrator on the Salesforce platform so they have a huge practice of what they call certified Salesforce consultants. And so our product is built 100% on Salesforce so we train the Accenture people and then we also go to market with them, and joint market with them in each one of these industries.
So it’s actually a great relationship – they’ve invested in the company, one of their top executives is on my Board of Directors and we have a have synergistic relationship. Now, it’s not an exclusive relationship so we also work with Deloitte and IBM and the other systems integrators but we do have a particularly tight and close relationship with Accenture.
Martin: Good. How is the pricing model working?
David: Well, it works very well. What we do is we sell industry-specific modules on top of the Salesforce products. The Salesforce has, I think, now 7 clouds; sales cloud, marketing cloud, service cloud, communities cloud, etc. They have a price for each one of those and then we sell different modules on top, like our Vlocity communications product, our Vlocity insurance product, our Vlocity health insurance product, or Velocity public sector product.
Martin: Is the pricing based on a per user base or just on a per company base or is like a SaaS model or…
David: Yes, it’s a SaaS model. So we price, kind of, at a consistent way like how Salesforce prices. So the pricing is a price per user, per month. It’s a subscription fee for the software as a service.
Martin: Great. You have lots of experience with raising money. So how did you think about going to investors and then what point in time did you talk to them?
David: We were very fortunate in this regard. I think, to date, we’ve raised over 54 million dollars. Our original intention was myself and my co-founders were going to fund the company completely and in our very first meeting with Salesforce, it became clear that Salesforce wanted to invest in our company so they led a 43 million dollar equity investment so they led it and Accenture participated and I believe Salesforce’s investment was their second largest investment ever in a company like ours. So it’s a pretty sizable investment. So they’re our largest outside minority investor.
Martin: David, what is your perspective on the future of the cloud businesses in general? Do you think the market is strongly growing, what type of trends can you identify?
David: Yes, Martin. That’s a great question. In my professional opinion, a 100% of enterprise software will be in the cloud in the next 10 years. So the probability if you’re a CTO or CIO or CEO then all your systems will be running in the cloud or almost all of them is 100% and today I think maybe 10-15% of all enterprise software is in the cloud. So if you go from a 10-15% to 100%, that means there’s going to be a huge growth in the cloud. It’s basically all going into the cloud, it’s just simpler, better, more efficient, it’s more agile, the users are more successful with the cloud software and ultimately, it’ll cost you a lot less money. It’s just an amazing revelation in computing so that’s the first thing: it’s all going to the cloud.
And then, what we believe at Vlocity is it’s not just going to the cloud, it’s going to the industry cloud. Let me give you a couple of examples: If you’re an insurance company and I asked you: “Hey Martin – let’s say you run an insurance company – do you want it insured CRM or a generic CRM?” Most people in that industry will pick the software for their industry. The example I’ll give you is when you go to a men’s store to buy a suit, do you buy one off the rack that doesn’t really fit or do you buy one that’s tailored for you, that fits like a glove. Most people would rather have the tailored suit, well, the same thing’s true for business software which is people want software that’s tailored to their industry.
And so we think that the industry cloud is the next wave, the cloud. And it’s a natural specialization of the cloud for telecommunications, for insurance, for health insurance, for every industry, this is going to happen.
Martin: I also believe that tailored products increase the relevancy for your customers but are your products very modular given even in a specific industry so that you can really tailor them to a specific customer or is it just a generic framework for a specific industry which is most of the time right?
David: Yeah, it’s very modular and the, kind of, future of modern software is modular components. And so in each one of our industries, we actually have 5 or 10 products, it’s a family where you can pick and choose – you want the whole suite, or do you want this module or that module. And we can plug our modules into other software or people can buy the whole suite.
ADVICE TO ENTREPRENEURS FROM DAVID SCHMAIER
Martin: Let’s talk about your major learnings. So when you started Siebel and also Vlocity, what have been the do’s and don’ts when you think back and say: “Hmm, these are what people who are starting their first company should not do and these are who they should be focusing on”.
David: I would say there’re three things that are really important in starting any company. So I’ll talk about the do’s first then I’ll talk about the don’ts.
Number one is hire the single best people that you know better, either really smart, really talented. I think most importantly in starting a company, people who have done this before, sometimes being smart is not enough, the experience really matters, because if you don’t have the experience, you waste time and when you waste time, you waste money. Recommendation number one is: hire the single best and most experienced team that you can, to start the company, that’s recommendation number one.
Number two is there has to be what I’ll call product market fit. You have to be in a market that’s big enough to build a real company and a lot of, I think, start-ups fail because they go after like a little, tiny market and even if they’re successful, the company never really amounts to anything. So it has to be a big enough market to be worth doing and the product market fit, part of it is that you have to build a product that’s well designed and attuned to that particular market. That’s very important, I think, that’s where a lot of the venture capitalists look at is the product market fit of your company. You might start with an initial idea and as you start working on your company and building your company, that might change in terms of what the product market fit really is. But that’s critically important, I think without the product market fit, it’s very difficult to have a successful company – that’s the second.
And then, the third sounds obvious but it’s not so obvious is customer satisfaction. Particularly, when you’re a small company, every single customer has to succeed. Every customer’s a reference and the reference effect of your initial customers is every powerful. So our commitment when we talk to a new company like Sky or ABD or APN or others is we will do whatever it takes to make the customer successful and whatever it takes is whatever it takes. So it’s very important to keep your entire company focused on the customer. So those are all the three things I’ve learned from my Siebel and now my Vlocity experience.
Martin: Good. David, how do you find great talent and especially once people are interviewed for a position or so, when you’re talking with them, how do you really identify that they are great and not only good?
David: Yes, I think there are several aspects of hiring. We surely look at people’s educational background and smarter, more talented people tend to go to better schools, not always true, but certainly good places to start so that’s the first one. The second one is experience as I talked about before so if you’re hiring a product manager, have they been a product manager before for this kind of software? Or for hiring a sales person you could say, okay how long have they been a sales person and how they did their sales numbers, did they beat their sales objectives or did they miss their sales objectives and we look for sales people that consistently beat their sales objectives. Those are two of the obvious things you look at – their educational background, their work experience.
I think the final one is, kind of, the hardest but maybe the most important is are they hungry? People that are hungry to success they figure it out. They figure out what they need to do to be successful and you can have somebody that’s really smart and has went to the right schools and has the right experience but if they’re not hungry, it doesn’t really matter, that third one is intangible.
I find its good to get multiple people to interview someone because people are complex and I find that my best people all interview a candidate and if 5 out of 5 of us really want to hire the person, then it’s probably a good hire. If three out of 5 of us want to hire the person or 4 out of 5, usually it’s not a good sign. Like if there’s some doubts there it’s better to hold off than to just do it because it’s all about the people and you know great people do amazing things and bad people or not so good people, not only do they not do amazing things, they sometimes make things worse.
Martin: Great. What type of advice can you give for some entrepreneurs who think: “I don’t have a great business idea or at least I don’t believe it’s one. How can I find a great business idea?”.
David: I don’t think that you simply have a great business idea pop in your head. I think the way you come across these ideas is you, kind of, stumble upon them. So you might working at a company and you’ll see something that isn’t done right and then maybe you’ll try to solve that problem at your company and you’ll realize that the way you’re solving that problem is a whole different company. I think a lot of people think that entrepreneurship solve is kind of like a lightning bulb just hits you and all of the sudden you know there’s this brand new idea. I think that’s the exception of the rule.
I think it’s more likely that people are doing something as their daily work, they see something that isn’t being solved and then they come up with a way to solve it. These ideas just don’t materialize, you kind of bump into them through your daily course of work so that’s, kind of, one idea.
The second thing i would say is building companies is incredibly fun, there’s incredible highs but there’s also incredible lows – takes a lot of work and a lot of hours. So my other piece of advice is do what you love otherwise to do something that spend these many hours and not loving it – that’s hard to deal. You got to pick something that you’re really passionate about and want to work on 100 hours a week.
Martin: Great. David, thank you so much for sharing your knowledge.
David: Martin, it was a pleasure, really enjoyed the conversation. Thank you.
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