So rather than write an introduction myself to Gail Goodman, CEO of Constant Contact‘s talk from last year’s Business of Software Conference – ‘The Long, Slow, SaaS Ramp of Death’, I will introduce it with some words from Patrick McKenzie, Kalzumeus Software.

Introduction, Video, AMA & Transcript below

Introduction by Patrick McKenzie

Gail Goodman’s talk at BoS2012 regarding starting and growing Constant Contact was the highlight of the conference for me. I am at that point in my business trajectory where scaling accounts sold to SMBs is my primary concern going forward, and I have discovered — like everybody does, apparently — that this is very tricky. Gail’s description of Constant Contact hit the same roadblock, and her actionable advice for overcoming it, were easily worth the trip out to Boston for me. (Watch in particular for the advice to do a roadshow to local Chamber of Commerce events, get an educational-event-qua-micro-salespitch down, and then scale that out by hiring people to replicate the process over other territories.) In addition to the tactical advice which I intend to direct adopt for the business, I also appreciated how inspiring the story was, because it’s nice to hear that even bazillion-dollar megasuccesses like Constant Contact had, in the not-too-distant past, challenges which look pretty much exactly like what I deal with day-to-day. (In addition to the quality of the presentations, the opportunity to informally meet other entrepreneurs like Gail is the reason I make it a point to go to Business of Software every year. It’s simply the best venue anywhere for meeting other folks with real expertise about running software businesses for the long haul.) Regards, Patrick McKenzie

Video



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AMA

Transcript

Gail Goodman: Oh hi, well this will be nowhere near as entertaining. I just get that out of the way. [Laughter] Kind of leave it at that.

Ah, but is probably a little bit more kind of back into the roots of building a software business.

So, they’ve said it couldn’t be done. How many people know what Constant Contact is? Yeah, ok. I’ll just do the quickie. So, we help small businesses and non profits.

And people always say “What do you mean by small?”

70% of our customers have less than 10 employees. Half of them have less than five. I just say that again. Half of them have less than five. And what we help them do is create and grow great customer relationships. Starting with e-mail marketing, social media marketing, event marketing, we learn them do lots of different things now, but at the beginning was about e-mail marketing.

And basically we had this crazy idea, right, to make it affordable we were going to have to charge like 15 dollars a month, 30 dollars a month. And the VCs puked all over it. Right? You cannot make the math of this business work, so, just to give you a time frame, it’s now 1999.

Today we know lots of businesses that do a great recurrent revenue, 15 dollars a month, it’s, you know, fantastic. But at the time, there were not a lot of business models that did that, and very few that did that to the SMB market … and, I probably pitched more VCs than, I’ll go out on a limb, probably more VCs than anyone in the room has pitched.

Ah, it was before the days when you could do a lean start-up. You wanted hosting, you had to go buy some, right? You had to sign a lease, to get hardware, right? It’s so much, you know, it’s so much easier to build a business now.

Ah, and we knew that to get to some scale were going to need VCs, so we started on that path, and they kind of had a point. Not that I would ever admit that to them. But they kind of had a point that really was “it takes a long time to get to scale”, so I called that, ‘The Long, Slow SaaS Ramp of Death’.

And what I’m really going to talk today, is, how you navigate that ramp. So what do I mean by the long, slow SaaS ramp of death. So, we started out… Ah… I just use round numbers to make them easy… we used 30 dollars a month. Actually it took us a little while to get to 30 dollars a month, but lets use 30 dollars a month.

So we launched our SaaS solution, our Cloud, I’m sorry, Cloud computing solution in October of 2000. And by April we’ve had 100 customers. Yey! We’re opening champagne. I actually still have the screenshot of the billing system, which, by the way, we had to licence for a quarter of a million dollars, [Laughter] and you can now get online for, you know, pennies.

But, so, lots of stuff we had to build that made it expensive to build the business and we’ll do totally different now, but, 100 customers, 30 bucks, you’re doing the math in your head? [Laughter] 3000 dollars. Right? That wasn’t going to pay a whole lot of people.

By September that year we were at 1,000 customers. Hey, that’s pretty awesome, 100 to 1,000, now you’re going 30,000 a month. Ok. Right? We had minimal critical mass, about 25 employees. And we were not even close to paying the bills. And by the way, we hadn’t started to do any marketing yet. Right?

So, the long, slow SaaS ramp of death is that it just takes a long time to get to minimum critical mass. And, although you can do it today with smaller teams and no hosting, and minimum viable product, eventually you’ve got to get to enough scale to pay people. Not that many people are going to be willing to work for equity.

Ah, and, I think everybody, sort of, in a recurring revenue business faces some sort of ramp. For us we knew we had a magic number. Do you know your magic number? Our magic number was 15, 000 customers. Like, if I can get to 15, 000 customers, that’s our break even cross over point, right? So, we knew our magic number and we were hyper focused on getting to that magic number and finding our way to getting there.

But what we’re actually planning for, was, you know, the hockey stick! Right? We’re going to find the hockey stick, the inflection point, the magic accelerator of our business.

And, I’m going to show you in a couple of slides that we actually did find it. But it was more like a flywheel than a hockey stick. It was more than finding something that worked, repeating it, scaling it, finding something else that worked.

And what I hear today, and I’ve talked to a lot of start-up folks, is that they are counting on… do you remember that cartoon where is that like an equation on one side and then it says, ‘and then a miracle occurs?’ kind of [Laughter] … They’re looking for that, I call it silver bullet. Free, viral, network effect, right? Hey, by the way, if you can find one, congratulations, right? But I would guess that one in a hundred, maybe one in a thousand, of us, software entrepreneurs, are going to find that kind of a “flip the switch”, and whoosh… off we go. The rest of us are actually going to have to work.

The SaaS, long, slow ramp of death.

And I say of death because we, I actually wrote two shutdown plans for this business, right? Because eventually you start to say “Boy, are we going to make it? “and” What am I going to need to do to get to that next level, and how do I grow along now?”

Mirages

So, I’m actually going to try to share some of those secrets, along the way of how we got over the long slow ramp of death. So, the first thing is, there’s going to be a bunch of mirages, that’s the best mirage picture we could find, [Laughter] so I’ll share a couple of mirages and maybe you’ll have a few others that you can share during the Q&A.

So, the first mirage, and apologies to X who is in the audience, because he was the guy doing all the partners. So, we’re going to get to the SMB market, we’re small, we have no brand, we have no marketing, let’s use partners. Right?

They have tens of thousands, hundreds of thousands of small businesses they can already access. Fantastic! Right? So, we went out and we wanted in these businesses that don’t even exist anymore. So It tells you digits are work. In all business.

We became the e-mail marketing vendor for them. And then there was the big one. AOL for small business. Spent nine month on that sucker. And we fought the technical battle. And we won that piece of business.

And they can’t sell anybody’s else’s product, so, who are we kidding? Right? So I literally, for three years, every Quarter went into the board and said “We are about to sign X and it’s going to change everything” Right? And every partner we learn a little more about what we should do different with the next partner.

Uh, they didn’t really have a marketing commitment, let’s get them marketing commitment, it wasn’t in their flow, their sales team wasn’t bought in, so we need to make sure they’re in earlier, and, right?

Were all this things to try to make partnering better but, in the end, we were the actual guys who could figure out how to actually sell our product. And partners were just a mirage.

So, the next mirage was the next product change. So, I’m going to talk a lot about customer engagement. In the end, the way you work, I think, the funnel, and I’m going to get to the famous funnel picture in a few, is all about making sure whether someone tries or buys your product, they have a wow experience, they get quick to an understanding an outcome that blows them away.

And, if you haven’t instrumented your products or product experiences to know where customers are getting caught or what’s happening and what’s not happening, please, do it immediately.

By the way, back to the, in 1999, we had to build our own instrumentation, now there are third party product you can fast licence that would help you see and understand that, like HubSpot and others.

But we were always just one product change from the next inflexion point. Right? As soon we get rid off…

One of my favourite story was, the startup screen, I got, I’ll tell two stories here…

So, we usually, we started with a setup, because we figured out that, if we could ask just, really, it was just eight fields, if we can get a small business to tell us eight things, we can do unbelievable intelligent defaulting in their e-mail campaigns. Right?

It was little things like what industry they were in, give us your logo, point us to your website… Easy – there were things they already knew, it’s going to be really fast. It was a three pages setup.

People never even saw our product. Right? They never, you know, work. My favourite story is, our original e-mail wizard used, Who? What? When? – who do you want to send it to, what do you want to send, when do you want to send it. Kind of catchy.

Who, What, When. Guess what, who is getting your e-mail list into our system. By definition, that means you have to leave our system. Bad idea. Terrible idea. The other thing about Who, is boring. It’s getting your list formatted into an excel spreadsheet. Jeesh. [Laughter] Right?

It’s the What that’s fun, when you start designing your campaign, and you can see how great it’s going to look.

And by the way, you get invested with Who, with the What. Right? You start writing copy and putting your picture in, or, you know, pictures of your products in. Now, you really want to take that out, you’ll take a little time to format your excel spreadsheet. Right?

You’ve got to get them sucked in, and, invested. What is your first moment of investment from your users or customers. Right? So, product changes though, we always thought they will be one, right? so we change that, and we change that… the mirage was “one is going to make all the difference”, right?

And there were other mirages out there, right? Heard now about a new pay-gate, right? Uh, we’ve got a new pay-gate going in, is going to change everything… free, it’s going to change everything, viral is going to change everything…

But we’ve basically learned that there are no silver bullets.

There is going to be no one thing, unless you get really lucky.

So, I hope I’m wrong for you, but I will go out on a limb and put a general rule out there that says “There’s just not going to be that one thing, that flips you from the long, slow ramp of death, to the hockey stick inflection curve”.

It’s going to be lots and lots of little things. And I would argue that most of those little things will happen if you continue to view your business from your customer or user inward, rather than from the metrics you want to change outward. I hope that makes sense.

I’ll give some examples as I go along, but fundamentally, you know. Next thing I’m going to talk about is work in the funnel.

The funnels are internal metrics.

The key to changing those internal metrics is by starting with the view from your customer looking at your business and your experience, not, by looking at your metrics and trying to change your customer behaviour. We’ll see if it makes sense as I go.

So, I assume everybody’s seen the funnel picture before and even has a rough sense of their funnel. But I’ll tell a few stories about Constant Contact and lessons learn along the funnel.

And this is where we really ended up, kind of, mixing technology and people. So, we all have a tendency to want to have the funnel, easy, cleanly, technology and online driven.

And, again, I’ll go out on a limb, and argue that most of you will find out that it’s not all going to happen online. You’ll have to use some combinations of technology and people to optimise your funnel.

So, what’s the funnel? The funnel is, you know, how people can find, try, buy, stay. So, the first one is how will prospects learn about you, how will you reach them. Right.

So, what’s your pass minimal viable product? It’s all about starting to get your funnel going, and making it wider and fuller and more people in it. So, top question is, how are people going to learn about you? So, not surprising, constant contact, e-mail marketing…

We’ve started with all the classic, I would say, online inbound marketing stuff. Right? Making sure we could be found, getting our landing pages optimised, buying keywords, writing content. You know.

And then we’ve reached a point where we were like… you know… one, two or three and all our keywords all the time. We were number one on national search, for e-mail marketing still are. Wow.

Uhm, lots of inbound links, everything worked, and we still needed to scale another ton. And we were kind of scratching our heads, right? Like, there’s 29 going in small businesses in the U. S, think at this point we are about at 75,000 customers.

Not bad. Almost to break even. But, what are the rest doing? Why are they not flocking to e-mail marketing? We were way past that we were suppose to go viral. The point of our half of our new customers was word of mouth.

So we were getting a little bit of a flywheel, right? Spend on pay per click, get to customers out, right? Get good economics, get another one through word of mouth. But we still were… The flywheel wasn’t, the hockey stick hadn’t started.

So, we went out and really started to understand what small businesses’ thinking and doing, and how they’ve learned. And what a shock, right?

The chef running a restaurant, wasn’t absorbed in internet marketing. [Laughter] Right? They weren’t even online learning about it. We were going to have to actually get offline. To reach them.

Like, by the way, you can imagine this board meeting when we started sharing this data and thinking about it, and they were like “what do you mean?”. And we were like “Well, we’ve got two ideas we’re going to try: radio and seminars”.

Okay, so we decided to try these and we do them on very small scale, we test them. Son of a bitch, they’ve worked. [Laughter] Radio. Well, it just turned out lots of small businesses have the radio on in their business. It is playing in the background. Go figure. [Laughter] Right?

And so we started regionally and we tested it, and we scaled it and we tuned it. So we became, better, we called it test, scale, tune. Right? Have a new idea for a new channel, test, scale, tune. And we’ve tried, I would guess, every channel, some of them multiple times.

We’ve tried feet on the street twice, still doesn’t work. [Laughter] We tried direct mail, like seven, eight times, still doesn’t work. [Laughter] By the way, you want a classic VC question: well how do other people reach this small business market? Who are your models?

So, our models were Intuit, they put software on a shelf, we put a SaaS product in a box on a stable shelf. [Laughter] Not a good idea. [Laughter]

But then we’ve started to really understand that the number one reason small businesses weren’t doing e-mail marketing was they really didn’t understand it. And they weren’t confident it would work for their businesses.

And we’ve had this unbelievable crazy idea of trying to teach them that. This was really the basics. Like, what is e-mail marketing, and why would they do it, what kind of content, how frequently should I send, What should be like a good subject line. Like, they needed to know all of that before they were willing to try.

Our maths never’s going to work, right? Certainly wasn’t going to work one to one. So we’ve decided to try this crazy idea of doing a one to many, we’ve started with webinars, and that worked. But then we couldn’t get traffic into the webinars.

Let’s try seminars. Let’s actually go small businesses, so couple things we’ve learn, small businesses learn in their community and they learn from their peers. And they belong to some association. But, actually, most of them belong to more than one.

So they put a member of their Chamber, and they belong to their whatever their vertical is, the Retail Association, the Restaurant Association right? So, they’ve got kind of at least two strong affinities .

I wonder if we could get the Chamber Commerce to do seminars with us, learn internet marketing. We’ve let only one way to find out. Try it.

So, we’ve had two guys, one in Denver, one in Phoenix, and we said “you guys, six months [Laughter] to prove to us that you can get a regular business going teaching small businesses its own kind of scale, and we’ll measure the lift in your region. We won’t give you any radio, advertising or direct mail, you’re on your own. So we can keep it clean and measure your lift.”

And it took them just about six months to build credibility, to build an audience. But then they started to really get to some critical mass.

So, today, when we hire one of these folks, you call on your regional development director, it takes him about six month to start up, and then, after that, they’re doing two to four seminars a week, forty to eighty people per seminar. We’ve twenty two of them, and they taught 125,000 small businesses.

We get 125,000 small businesses last year to give us two and a half hours. Wow. Math works. Would never, I mean, never when we’ve started we would have guess that. And never we would’ve gotten there if we weren’t out really understanding why customers weren’t flocking to us, like we’ve thought they should be. Cause we knew when folks used our software they’ve got great result, real business.

Like, number one thing a small business worries about is more revenue. We had the magic winning formula for them and they weren’t flocking to us because we had to get out to them the way they learn. Crazy stuff. So then, once we’ve got them to learn and give it a try, you know, how do you get them, how do you get them to buy, right?

So, for us, the middle of the funnel was really two things visitor to trial, got them to the website, how do we get them to pick up a trial or free seminar. And then trial to buy, how do we get that free to paying engagement. And, this is another place where we found technology had a ton to do with it, right?

Deductions derives the answer.

Website optimisation, message texting, SEO, make sign up forms, all sort of great stuff there. But in the end, one of our biggest levers was the use of people. Coaches. We call them coaches. So, someone signs up for a free trial and a real live human being calls them. And says “hi, I’m Gail, I’m here to make sure you get he most out of your trial. Let’s talk about your business and how, what you want to drive with e-mail marketing”.

And they really help that small business. Not navigate the screens of the product. Right? If they needed to do that we’ve messed up, you know, in designing user interaction, right?

But to helping them do decide what that first campaign content should be. But the biggest thing helping them do is to have confidence into hit the send button. Because it turns out, hitting send button, maybe you’ve all been there, it’s an e-mail to your whole customer base, is not a casual thing. And these guys are not text savvy or marketing savvy, right?

This is the chef who opened the restaurant, who does marketing part time and it’s not text savvy at all. And so, mixing in both, technology and people, and technology had a lot to do with it.

But in the end, the thing we’ve learned here was really about quick to wow. So, we live in a world where our ROI becomes just minuscule, minuscule. So, if your path isn’t very quick to wow, and very quick to measurable result, you’re just going to lose people’s attention.

The phone will ring, another e-mail comes in, they get a text message, they’re gone, they’re gone. So, it’s all about optimising that quick to wow, because once you get them to convert you also got to get them to stay.

So, turns out the number one way to get them to stay is to get them successful early. So here is the other bad news, when we learn something new, we’ve a learning curve, we get to a certain level, we kind of feel that we have enough master to be good enough and we stop.

We just do. New features, stop, you got to this level, I want you to get to the next level, hard to do.

So, that first success is also probably your best potential level. But, everything along the funnel, you know, if the top of the funnel is test scale tune, the middle of the funnel and the bottom of the funnel is measure, test, repeat, right? Measure, test, repeat.

And the number one thing and I’m sure you’ve heard it from other folks is, make sure you’re instrumenting your experience so you can see it all. And then, the other thing I’ll say is, you’re funneling on every step of the funnel but you always have to look at the whole funnel.

So what do I mean by that? Uhm, we did a test for widely shorten signup form. Cause we, visitor to trial we wanted to move it. We moved visitor to trial dramatically but lower trial to pay, because they didn’t know what to expect when they’ve got in.

And in the end it matters when you put 100 on the top, how many come out of the bottom, it doesn’t, the inner metrics don’t matter. So, always be measuring individually, but thinking, I hate this word, holistically about your whole funnel.

Because it really is all about, innovate everywhere, so, don’t think that innovation lives on the text side of the house. That’s the bottom, if there’s any message I hope you’re walking away with today is that innovation needs to happen everywhere. And it needs to be guided by customer experience.

Looking at your business from the customer in, how will they learn about these kinds of things, when will they make these decisions, what, you know… ok, great.

Our biggest barrier to usage, by the way, is content. Small business doesn’t know what to say. It’s one of the hardest problems for us to solve for them. When you get to better marketers they have an instinct, they’re not afraid to write. Lots of things we needed to learn is about writing default content that inspired them to say “that’s not what I wanted to say”. [Laughter] And start typing. Right?

We still have competitors where it says “your headline here”. That’s not helpful. Right? We want them to say ” Oh, that’s not what I wanted to say” . And start typing. Because the default content inspires them.

That wasn’t a technological iteration, right? It was an insight on how to solve that problem for them. So, in the end, it’s all about customer economics and scale ability.

So, I’m sure folks have talked to you about LCV? Knowing your life, time value. So, what’s the formula for your life, time value? So I’ll start with the very best blog post I’ve ever seen, is David Skok’s blog post called “SaaS metrics”, a guide to measuring and proving what matters.

So, lot deeper than I’m going to go here. But, you know, here’s the formula, right? You take your average revenue per unit, whatever you monthly recurrent revenue, times retention.

People are always like “How do I know my lifetime customer value?”. It’s one over your retention rate. It’s that simple. So, our average monthly retention is 2.2% a month, so one over 2.2% equals 45 months. That’s how you get it. The math is very simple.

I once had to prove that formula to a VC on a white board. Really? [Laughter] Anyway.

ARPU times retention gives you your lifetime revenue. You take your gross margin, you know, that gives you kind of you lifetime gross margin, you take out your cost of acquisition and kind of what you have left is what, you know, you have to fund growth, R&D and profit. That’s one of the ways to think about it.

So here is the Constant Contact math, 39 dollars a month, 45 month called it roughly 1,800 in lifetime revenue. 72% gross margin, about 12. 50 %in lifetime gross margin, and 450 dollars cost of acquisition. So we’re 800 dollars in lifetime customer value.

So, 450 dollars cost of acquisition, is that good or bad? You only know that in the context of how much lifetime revenue you have. For us, that’s fantastic. Right? It’s everybody getting this? Yeah, ok. Good. You know, uh, it’s just really important as you’re trying to get over, along that, you know, the long, slow ramp of SaaS death, to know your economics.

Because it starts to tell you which things are ok and which things are not ok. And, when you try and test things, sometimes when you’re not doing them at scale, they’re good enough and then you can scale the economics to work.

So, when we did radio, we bought regionally, which is about four times more expensive than the national buy. So, we knew that in advance and so it was ok that our cost of acquisition was too big, because we knew that national it would be a quarter of that.

So the question, so you all have to think of it in context, but test everything. What we have found in general is things are either in the general range or just way the hell out. Right? Get $1,800 in a lifetime revenue and it cost you $6,000 to acquire a customer, you’re not going to scale your way into that model. We’re pretty clear on that.

So, how did we survive? So let me just share a few numbers, started painfully slowly. So, this is our revenue curve from 2002 to 2005. So, it’s started at, this starts at $100k a month.

So, that, we were already passed our critical mass there. But this whole period we lived along the cash line. We call it, we used to call it, only eating what we were killing.

So, without a certain number of customers every month, I remember, right at the beginning here, you know, kind, at some point we’ve got like $30,000 in recurring revenue we were adding every month.

Great news with recurring revenue, when you know your LCV is, you actually know how much of it you can afford to spend. You know, cause the line never goes down, it just goes up. Question is at what rate, how fast it’s going up.

So $30,000 in growth it was one engineer and $15,000 dollars in sales and marketing. One engineer, $15,000 dollars in sales and marketing and we just, you know, kind of kept moving our way up. Until we were completely confident in our scaling model, completely confident in our lifetime value, you know, and then, we started to invest more aggressively.

So then we hit out hockey stick. So this is our actual numbers, monthly revenue from 2006 to the end of Q1, it’s actually cut off to the top, it looks flatter than it should be, [Laughter] this is basically $1.5 million a month to $20 million a month, and you’ll see there is a very clearly an inflection point.

And that was really when the combination of understanding the channels of the top of the funnel, our funnel conversion and our lifetime value, all came together to the point where we were confident in scaling the business.

So this year we will do over $250 million in revenue, and we will do it $39 dollars at a time. [Applause] Thank you. [Applause]

So, all I’ve got to say is, they’ve said it couldn’t be done, but we went out and did it anyway. And the question I get asked more frequently is, “why did you keep going? “[Laughter] .

You know, I didn’t talk about the funding path, but, you know, the funding path was horrible. Awful. So, in 2000 and the internet pre-bubble burst we did a $10 million round at a $29million post money, and in 2002 we did a 2. 5 million round and a 5 million post. And I’ve learn as a first time entrepreneur what the two words meant. [Laughter]

Yeah… it wasn’t great. But, what kept us going was really two things, uh, our customers and their appreciation of our value. So we saw our values presentation earlier today, and, you know, our key thing, our number one thing that hold us together is our passion for helping small businesses.

And, we’ve just kept seeing that when they used our product they’ve got real revenue, and it kept us up. So, again, lots of great things in that values, you know, we told the customer story every week. every week, and we still do.

Because what we do matters to the small business. And so, that kept us going, and our metrics kept us going. Because, while there was no silver bullet, there was a continuous improvement in the metrics.

All the charts were kind of edging up, right? And all our spreadsheets showed us it could happen. We’ve got enough of the metrics working together. That thing could happen.

And so, if your customers are telling you got something, and your metrics are continuously improving, stay on the long, slow ramp of death. But if either of those aren’t true, it is probably time to parachute off. [Laughter]

So, I think we are at the questions point. [Applause]



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Audience: Hi, Shawn. When did you start making a profit? I’m interested cause we’re still at that stage when reinvesting everything and then looking at it, bringing some more capable one to give that hockey stick. But, when did you start actually making that?

Gail Goodman: Yes, so we cross over the profitability at 13,000 customers, I think that was after that atrocious down round. I think it was late 2003. The problem was it took a lot of capital, it took 21 million to get to that, which is horrible. But, I mean I would do it better now.

Audience: And it started growing, does the profit started growing or did you reinvest it all?

Gail Goodman: Yeah, it just starting expanding widely, although we were consciously making a decision to invest in sales and marketing expand. At that point, the cost of acquisition was about 300 dollars and our lifetime value was about … you know… our lifetime revenue was about $1,650 and we were like spend as many $300s as you can and stay cash-flow positive.

So, we were more focused on maintaining cash than we were on profitability because we knew we could always turn down marketing and go widely profitable.

Gail Goodman: That was, you know, eat what you can kill, right, stage.

Audience: Did you charge for those seminars or there were free seminars?

Gail Goodman: Totally free.

Gail Goodman: We have experimented with charging, of course. Test, test, test, test everything.

Audience: You talked about instrumenting your app and what things did you find most helpful to instrument. Do you do that to measure engagement experience, and what sort of things were you using? You’ve talk about different tools that you use and you could use…What are they?

Gail Goodman: So, when we started we’ve had to build it all ourselves, just literally built it all ourselves. And we instrumented all of that, we started by instrumenting the early engagement piece, right?

So, one of the things we learn over and over again was to be more and more and more prescriptive to our customers and what we wanted them to do first. They can always get out of the prescriptive path and see the whole power of the product, but, the more we forced them, doesn’t sound very nice, the more we directed them [Laughter] to that early success path, the better off we were.

And so, it was lot of instrumentation to that, so, for us that was the e-mail wizard and it was… so it was literally how many people got to the template picker, how many people picked a template, how many people saved a draft, how many people edited that template, how did they get to send it and all of that.

But it was also recency and frequency stuff, logins, like first login, second login, third login, how soon till they get there. I mean, at the beginning we just literally, were, you know, putting in our own measurement. And keep it all that in a data base and dropping in access every night and the marketers would come through it and find insights. I remember, really early stage, literally looking at log files for when they clicked and… you know… we don’t do that anymore.

So, there are bunch of products out there, I’m not sure, I know HubSpot is one of them, I’m betting other people in this room know about others that make it really easy to instrument your product now. And it’s all SaaS based and, you know, you don’t have to build the whole infrastructure we had to build.

Does anyone else want to shout out their products?

Audience: Kissmetrics

Gail Goodman: Kissmetrics. I don’t know that one, but ok. Yeah, so, you shouldn’t have to build that anymore, is the short answer.

But it still takes… you still need someone looking at it, thinking about it, that’s really the core of the problem. Is kind the Why, now that I know people are dropping off what’s the Why and what can we do about it. Right, so, seeing the drop-off point is just the starting point.

Audience: Uh, the… I ‘ve had sort of an “Aha” moment when you were talking about the seminars and selling to small businesses, but then the thought occurred to me, “well, how do I market the seminars to get the small businesses to come to those”. I was hoping you may share some insights on that.

Gail Goodman: Yes, we do that all through collaborative partnerships with small business influence organisations. So, fancy words for… we go get the Chamber of Commerce to join seminars with us, we get the retail Association, the Restaurant Association. The challenge there is that your content needs to be not-salesy. They don’t like vendors pitch their audience, but as a trade association, building great … bringing great content to their membership is exactly what they needed to do. Right, we’re all in trade associations and what they want to do is educate us and help us improve our business. So, our education is branded but not-salesy. And that’s what got us over the hump of them letting us getting in front of their audience.

And we almost… we had to do a few ourselves to prove that to them. You know, so the story is kind of like, you go to a chamber guy and you say “oh, we’d like to partner with you” and they say “yeah, we’ve heard that from every vendor ever”, right, you just want to sell them. And you say them “no, really, it’s neutral, I’m doing one of my own, why don’t you come to that, cause I think you’ll learn a lot… and oh, by the way, you should be doing e-mail marketing, we’ll give you a free account.” So, we gave the Chamber free accounts. Easy to giveaway software. Will make you a great marketer and then you’ll see how powerful it is and want to bring it to your audience. So, they’ve had to build, so the guys on the field are both business development and content delivery and educators. So it takes a very unique person to do that job well, and we’ve hired 22 unbelievable good ones. But that’s how they do it. So, ultimately they do an audience, just a quick testing, multiple things, so we kind of thought that was a really expensive way to grow the business. So we decided to see if we could do, i remember the test, we called it “parachute and stretch”. Could we parachute into a town and do the seminars? Could we reach those chamber guys through the phone and make it work and drive a big enough audience? And the stretch was, could we have one of the guys already have drive two hours to the nearest city and stretch? Parachute failed. Stretch worked. So we were always testing. Like, this crazy idea and how we were going to scale it and what was going to work and, kind of made our way through to a repeatable model.

Audience: [inaudible]

Gail Goodman: It has to, no… It has to be somewhere they can comfortably visit more than once a month. So, you may have a guy who is willing to drive further than that, and then you start to look at the country, and you start to see where the big DMAs are, and whether satellites cities are, and sometimes it works and sometimes it doesn’t.

Gail Goodman: Yeah. Down here. I don’t know where the mic’s are, I can’t see you…Ok…

Audience: Quick question on price. I’m fascinated. You mentioned something very briefly at the start about getting to the 30 dollars a month, and I believe you said 39 was the only price point right now.

So, couple of quick questions. What was the history of price over time and also what would you say to guess a lot of people that say a lot about a second price point?

Gail Goodman: Yeah, I don’t quite remember what exactly I’ve said about price, but, we play with price at the beginning.

Pricing is always a little bit kind of half art half science. So, at the beginning we… this was… at the beginning… now there’s lot of folks in e-mail marketing business for small business.

But there were kind of only a few of us, so we were looking at what the competitors are doing, and we also talk to our customers and there were few things we learned from our customers. One was, when you’re doing new, and still to this day, the vast majority of our customers who come to us to do e-mail marketing in 2012 are doing it for the first time. Really? But, SMB market.

They don’t know if it’s going to work for them, so, that’s what lead us to monthly. We would have loved to force everybody into an annual prepaid, but that was never going to work. They don’t know how frequently they going to want to send and they wanted it to be knowable and predictable. So, we ended up going with contact resize.

And so, we ended up with price based on contact resize and we played with the contact size and the price points. We actually started at 10 dollars a month as our entry point, and then, boldly, in 2004, yeah, moved prices up 5-% at the bottom level to 15 dollars a month. It ended up unlimited send at a given price.

It was at a time kind of disruptive to everyone else who was charging by email sent. And we thought the idea of if it going to cost you every time you used our product, was not a compelling, frequency of usage incentive. Right? So, we knew, cause we were able to see the data, that the people who use the e-mail marketing regular, you actually got better results. So, if you are sending e-mails to your customers base, you send them less them, what, once a month? They’re forgetting who you are. It’s not a good thing.

At least once a month, probably twice a month will gets you better results, believe it or not, higher open rates. So, we wanted them to use it, and so the” we charge you based on every time you send” was a bad idea. So, we just kind of came to this “aha” in the conference room, let’s charge that way. We’ve played with where the numbers split, we’ve played with the price point.

So now it’s, for e-mail, it’s 15, 30, 50, 75 it goes all the way up based on the size of your mailing list. And we now formed the price umbrella, for the market, so all of our competitors price, you now, several dollars under us, almost all universally to our pricing structure. Lovely. Yeah. But we believe if we go down, they’ll go down, and we’ll just drive the entire industry to zero, which we don’t want to do. Yeah.

Audience: I’m a happy Constant Contact customer…

Gail Goodman: Thank you …

Audience: And the middle of the funnel works great. I wouldn’t have got into that press the button stage, so…

Gail Goodman: Yay… [Laughter]

Audience: Your strategy works. So, I guess the question is, sounds like you do use partners in the form of Chambers of Commerce and you could vertically integrate to get into that bottom part of the funnel and it, cause the adviser for the middle part happen to work really well to get me to start communicating that way. So, do you think about CRM providers or others as possible partners for your product cause we think about, like the tax accountants and bookkeepers, and not IT or not the big elephant hunting of AOL.

Gail Goodman: Yeah, so, I didn’t mean to totally dismiss partners. Partners still generate over 15% of our business. There were just never a single silver bullet partner. Now, partners come in different forms, and we agreed, Intuit uses the pro advisers, which are the accountants.

But we find as the local marketing consultant, local web developer, like, who does this restaurant goes to get his app or his menu designed. Is a very good channel for us. So we have about seven to eight thousand of those who resell Constant Contact . They don’t make their money on the 15 dollars a month, they charge 200-300 dollars a month to do a full serve version.

We also partner a lot with application providers who have complementary apps. So that could be a CRM vendor, it could be a vertical operating… operational system. Our best example, there is a company called Mind Body that does the back office for day spas and yoga studios. Contacts are going into theirs, they’re the data base record, booking, appointments etcetera…

We become the marketing arm for them. So, if you guys have an app out there, where you need a marketing plug-in, for e-mail, social, events, we’d love to integrate with you. We have an API set, we make it very easy for that to happen. So, we do use a fair amount of partners. It just wasn’t any one that has ever driven, you know, thousand or tens of thousands of customers.

They all generate, you know, small numbers, like the local consultants, it might be one to ten, and some of our bigger partners, you know, hundred to low thousands. But we never found the tens of thousands one. But we’re open to that, if someone thinks they have a great partnership. Still looking for that one. Right. Yeah, who’s got the last question?

Audience: Hi, I’m Jonathan. I have a quick question. Whether channels are part of the seminars actually work with small businesses. You mentioned radio, and I believe you did that at the beginning. Do you still do that and what do you think of advertising in general, and how did you got your message out there.

Gail Goodman: Yeah, so, our core channel … so… I put them in big buckets. So online, which is pay-per-click, social media, SEO, kind of content marketing, we just do a load of that. I would call it combination of inbound marketing and paid online marketing.

We use the regional methodology, do a lot of that. We still do mass media, we do both TV and radio, and we’re constantly testing and tuning. We use partners, and then word of mouth, continues to be the single best channel for us. If you create a great experience, people tell their friends, but you don’t own the gas pedal on that.

No attempt we’ve made to bribe our customers into telling more people or even inspire them into telling more people by making charitable contributions and other things, has ever given us a gas pedal on word of mouth referrals.

The best gas pedal on word of mouth referrals is just a great experience. So, those are the big buckets, and then there’s a million little buckets inside of each of those. Great, one more. Go back there…

Audience: I’m just curious now, that you have a lot of channels and operation for marketing, how do you measure since there’s so much noise, like how you differentiate what’s working and what’s not?

Gail Goodman: Yeah, it’s a great… it is a great question. I miss the days when we had so few things we could literally be sure that we knew exactly what caused the lift in each thing. But we’ve gotten more sophisticated in our marketing measurement .

We actually use a fair amount of big data and statistical analysis, so we have a data analytics team. First two years I was the data analytics team, right, in access and in excel spreadsheet. And we do some fairly rigorous measurement . Where we can, we do direct measurement, and where we can’t, we do statistical analysis and isolation and then everything in the middle of the funnel always has measurement and test group.

So, top of the funnel is the hard part to measure, in the funnel is really… you own all the touches, all the sample sizes, so you can… you know… everything has a control group, right, everything has a control group when we’re in the middle of the funnel. But it’s hard, it gets harder. Top of the funnel gets really, really, complicated.

How do you value the touch points, and it gets hard so we cheat and we try to avoid a lot… you know… first touch, last touch, all touch, try to avoid that who’s arguing for which customer in the mix.

Good. I hope it was useful. Thank you. [Applause]