An investment in Salesforce.com at the 2004 IPO would have yielded a ~100x return ($1.1B market cap in 2004 to $242B today), this sort of performance is worthy of an understanding in our view.
Marc Benioff started Salesforce in a rented apartment in 1999 with the goal of making enterprise software as easy to use as a website. The overarching goal was to make applications deliverable over the internet - quite a revolution at the time. Even from an early age at college when Marc was developing his own software, he had a blinkered focus on customer feedback with a continual loop incorporating this feedback into development.
Salesforce is arguably the founder of the SaaS market having delivered the first cloud-based enterprise software package for a monthly fee. There are the normal warning signs of a 100 bagger in the Salesforce S-1 that hit you in the face such as a $1 salary, very strong revenue growth, Customer obsession, and large insider ownership. The lessons that Marc outlines below have been taken from his book Behind the cloud – the untold story of how salesforce.com went from idea to billion-dollar company and revolutionized an industry
Salesforce S-1 Extracts:
Very strong revenue growth almost doubling each year into the IPO, with revenue per customer spend growing from ~$551 per year to over $650 while volume also grew from 9,800 customers to 147,000. This volume of revenue would literally become a rounding error in the decades to come.
Yet another founder CEO that is paid a $1 salary! Seriously how many times does this correlate! Marc not only founded the business with his own savings he then proceeded to participate in every capital raise along the journey, this resulted in him retaining ~28% of the issued capital of Salesforce post IPO:
Salesforce.com revenue growth has been incredible since the IPO revenue has grown every year, even though the GFC and COVID revenues continued to grow.
The Larry Ellison Playbook
Larry Ellison was Marc's most trusted mentor during his 13-year career at Oracle, Larry believed so much in Marc's vision he invested $2M in seed capital in Salesforce (Now worth over $200M). The key lessons Marc outlines from his time with Larry were:
o Accomplishments are fueled by faith.
o Always have a vision for what you want to achieve
o Be passionate
o Act confident even when you are not
o Think of it as you want not as it is
o Don’t let others sway your point of view
o See things in the present even if they are in the future
o Don’t give others your power. Ever.
A brand and a logo are different, a logo is simply a graphic representation of a company, a Brand is more. It must be a collective set of memories. To be an effective brand it must be consistent, a company must use its people, its product, and its messaging to consistently reinforce the same points – for example, a delivery service that promises to care about your packages must not have dirty trucks (Think Mainfreight!) Brands that break promises destroy customer trust. Salesforce’s brand stood for the message of no more software, at times keeping this brand promise cost the company but it was vital to remain true to this purpose.
Street Teams: Make Customers part of your Journey – MC Hammer
The street teams concept involves cultivating a group of salesforce enthusiasts that encourage other enthusiasts to follow, it was introduced to Marc Benioff by MC Hammer of all people. For Salesforce it was adopted in the city tour program where local networks of people were adopted to attend presentations, these enthusiasts act as the best salespeople and new customers find them much more believable it also acts both ways where existing customers are locked in by their own testimony as well as encouraging further customers.
The way this strategy was adopted first revolves around your customer and to adopt them you need to:
- Give them a service or product they love
- Elicit customer insight – and use it! This reinforces the love from active involvement
- Provide a platform for customers to share their enthusiasm
- Operate locally to build teams that influence others on a community level and act collectively on a global level.
There have been several companies that come to mind that adopt this strategy such as Jack Henry & Associates who have customer advocacy days where key customers are given the opportunity to voice their feedback publicly to the company and other customers.
Salesforce found early on that by bringing customers to key events was a powerful network and a very efficient platform for growth.
Sell to the end-user
The major growth inhibitor of enterprise software has been the channel to market, most enterprise software is sold to executives that control the budget instead of targeting the end-users. Salesforce focused on the user, not the company, and made them “customer heroes” – they went as far as blowing up big pictures of them to post at events and include in company materials. This strategy had a Win/Win result in that the companies received ownership by the key individuals which resulted in better implementation and Salesforce had an identity to leverage for customer advocacy. A sign that this strategy was starting to work was when Job Adverts started claiming Salesforce Experience as a key skill.
Salesforce also aimed at taking all friction out of the sales process where the product was so simple it was a DIY subscription process with a fixed price and no lengthy consultation, presentations, or quotation.
Salesforce found that they capped out at $50k - $70k per salesperson per month and the main impediment to sales growth was the volume of people. It was found in the early days that roughly 25%-50% of the employee base needed to be salespeople. During the 2000 crash where venture capital financing capacity dried up salesforce was required to focus on cash flow, to turn this around they moved their subscription model from paid monthly to paid yearly in advance, this simple change switched the company from Cashflow negative to Positive.
Key metrics that Marc used to monitor sales team success were:
o Inbound sales
o Raw Web Traffic
o Capture rate
o Lead conversion rate
o Close rate
o Average deal size
o % of sales that are new vs up sales – if you are upselling more customers than you are adding then next year will be harder
o Sales cycle length
o Average sales volume per person.
Hiring Principles & Culture
Marc has a group of rules that he adhered to when building the Salesforce team:
- Don’t wait for resumes to come to you: always continue to search for good people and always search the top 5-10% of talent and competing organizations
- Consider recruiting to be part of your job: Marc personally still holds one meeting every day that he considers a job interview and he continues to stay connected to good people. You must continue to follow up with good people.
- Include employees in the talent quest: Employees are the best source of top talent, good people always know other good people. Salesforce offers a $2k - $10k incentive if a referral is hired.
- Add people at your leadership level first: you need to set the foundation with exceptional people so that it flows down from there.
Once a person is hired in Salesforce it became a rule that you had to ensure the new hire had lunch plans on the first day, this was a good platform to set the message and make them feel involved. The company went beyond this to ensure the culture was upheld by offering a fully stocked kitchen, a company-paid gym membership, free yoga classes, and discounted air flights.
Another incentive program that was put in place that had a great return was Breakfast at Tiffany's, each year the company took the top-performing salesperson and their significant other to a four seasons resort in Hawaii to have breakfast and champagne before a personal shopping trip at Tiffany and Co before the store is open to the public, this made employees and their family feel special and was a unique experience.
The company culture was to hire fast and fire fast, it became company policy that although everyone does their best sometimes people aren’t suited to the organisation, firstly it is important to recognize this and move them into an area that might be better suited if this doesn’t work out it is time for them to move on. The key test for whether this person should leave is the following question: “If person A were to walk out the door would you regret losing them?”
The company put in place the following checklist to measure the success of managers and strives to ensure employees can check off each of the below:
o I am doing the best work of my professional career
o I have the opportunity to do what I do best every day at work
o In the past 6 months I have talked with someone about my progress
o There is someone at work who encourages my development
o I have opportunities to learn and to grow at work
o My opinions are sought after and seem to count
o My supervisor or someone at work seems to care about me as a person
o I have a support network at work
o My coworkers are committed to doing quality work
o I am recognized and rewarded for my contributions
I hope you found this a worthwhile read. If you come across any companies that are founder-led (~30% founder-owned), with modest compensation, and growing revenue rapidly please let me know on Shaun.email@example.com
If you would like a copy of the Salesforce S-1 please also reach out.