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- [00:01]
A
Hello, I'm Ray Reich, Founder and CEO of RevOps Squared and your host of the Metrics that Measure up podcast. We talk to a wide variety of B2B SaaS and Cloud Thought leaders, executives, investors and people just like you to discuss the metrics and benchmarks they use to make metrics informed decisions. Now, on to today's show. Welcome to today's episode of the metrics at MajorUp podcast today we are joined by Ryan New, the co founder and CEO of Vendor. We'll be covering three main topic areas with Ryan today. First, his definition of envision for SaaS spend management the top ideas for implementing a SaaS spend management program in 2023 and the top ideas and recommendations for SaaS companies and SaaS professionals who are selling into companies with a SaaS spend management program in place. Ryan, would you please take a moment to give a brief overview of your journey to becoming a guest on the Metrics that Measure up podcast?
- [01:17]
B
Yes Ray, absolutely and happy to be here. So my background in a nutshell. Born in Michigan, raised in Ohio, moved to Boston after college and I've been in Boston ever since. So Ohio creative slash Bostonian is what I've become. And out of school I spent my early career as a public accountant as I worked for KPMG and quickly realized I was not a good or passionate public accountant. So I ended up leaving and venturing into software sales and I've never really never looked back ever since. I spent about five and a half six years at HubSpot here in Boston where I got to see the pretty much the birth of inbound marketing and started at HubSpot when they were about 200 people saw it through IPO and ended up running some sales organizations for HubSpot. And what I learned selling was actually the whole idea for Vendor came about which is why the heck is it so hard to sell these amazing products? And I think a lot about what we'll talk about today is really the inefficiencies of the distribution or channel of SaaS. And as a seller myself I always felt the challenges of selling a great product. It would take a really long time from a sales cycle perspective and I had low close rates and even the best sales orgs in the world are still spending the majority of their time with non buyers of software. So I've really been passionate about SaaS and software sales more specifically ever since. And in 2018 I founded vendor to create a new way to buy and sell software and that has led me on this journey and here on the Podcast today.
- [02:55]
A
All right, well, I always love to try to find points of connection. Right. Something I was trained early in my career when I went from engineer to sales. And you know, we're both from Ohio. You worked at HubSpot with a recent guest of mine on the metrics of major podcast, Mark Roberge. Right.
- [03:11]
B
Marc Reberge hired me and it's funny, I'll tell a quick funny Marc Reberge story. So in my final round interview, I was in a conference room, I remember like it was yesterday. I was in a conference room with Mark and I asked the classic closing interview question when someone's, you know, you final round screen. I said, mark, is there any reason why you wouldn't hire me? And he said, you know, there's, there's only one. And that reason is I think you will quit HubSpot and start your own company. And I laugh about like thinking about that because I don't know if Mark remembers ever saying that. And I ended up spending six years at HubSpot, so it was longer than expected for probably in Mark's eyes, but he was, he was exactly correct. I had always wanted to be an entrepreneur and he sensed that in our 15 minute thought final round screen back in 2011.
- [04:01]
A
Well, that was a foretold what he did next, which now he formed Stage two capital and he's funding entrepreneurs like you. But let's take a step back and start with something I think is important and that is laying the foundation. And my first question is, Ryan, how do you define this evolving category of SaaS spend management since quite frankly, you helped create the category?
- [04:25]
B
Yeah, I mean I would define SaaS spend management as a back office tool to track visibility in terms of where are you spending money today, where have you spent it in the past? And then insights to help potentially drive savings for tomorrow. So SaaS spend management, I think it's an ever evolving category. I actually think it's more of a reactive category in the sense that it's tracking what has already happened versus a predictive category of guessing or predicting what happens next. And you know, one of the things that when I think about Those words of SaaS spend management and whether vendors bucketed is that or not. I personally don't relate to it. I personally don't identify our company with SaaS spend management because I actually think that that's covering one side of the coin, not two, which is the buyer of software. I think there's another side of the coin which is the seller of software. And, and I think an effective approach to SaaS. Spend management is really one that connects buyers and sellers together because at the end of the day, we're talking about transactions and partnerships being formed, not just tracking what's already happened. In the past.
- [05:37]
A
You laid down some bait that I could take and that's how it changes the seller side of the equation. But we're going to put that to the side for a few minutes and go back to that buyer side. So I think about the SaaS industry and the last 20 years of rapid evolution and one of the beautiful things about being a SaaS company kind of seller was the decentralized purchasing process. No longer did we have to get the CIO and IT involved because it had to be deployed on their hardware. We could go right to that economic buyer Persona, the head of marketing or head of sales or head of finance, and sell directly to them. So is this SaaS bin management category just an evolution of the SaaS industry as we mature?
- [06:23]
B
You know, it's funny, I think back to when I first started Vendor and our first couple of customers. My assumption was that the buyer of vendor would be it because my assumption was it owned SaaS. And I quickly realized that that is not the case. And it owns a portion of the SAS stack. You know, if you're procuring Zoom or G Suite, absolutely that's going to fall into the wheelhouse of it. But if you're procuring Datadog or Splunk or Snowflake, it's not usually an IT purchase, that's an engineering purchase. And if you're procuring six Sense or Drift or HubSpot or Salesforce, you name it, it goes to the go to market stack. So my point being, I think what we've learned is that SaaS is actually built for for the department and it's built for the individual. And what that's led to is the decentralization of SaaS purchasing or SaaS procurement, where now in order to do an effective job as a buyer of software purchasing SaaS, you've really have to solve for the individual. You don't really have a way around that. And that's because sellers of software are selling to those people. And when you have salespeople picking up the phone or you have PLG products gaining adoption through your employee base and you really have to iterate and change your processes to mimic what sellers are doing versus your hope of centralizing SaaS. I think those cards or that story has already been written where it's really more about solving for the individual employee versus solving for employee and department versus solving for the company. We really have to tackle it at the individual level or else we kind of run into this death by 1000 paper cuts where you've got this rigid centralized process, but everyone's going around it because they're being sold to individually.
- [08:13]
A
And Ryan, you know, all we do every day is talk about benchmarks and metrics here. So I bet you've got some great insights. I've seen some reports that said 30, 40, up to 50% at SaaS spend, especially in earlier stage companies can be non centralized directly through expense account reimbursement. A salesperson buys a new kind of outbound tour marketing buys a data intelligence tool. Is that what your data shows?
- [08:40]
B
Short answer is yes. The dirty little secret about PLG is it's this acquisition tool to get a buyer of software to try and buy or use a product. But what happens in reality? And maybe those, those PLG licenses are expensed, maybe it accounts for your 30 to 40% benchmark. But what happens eventually is that contract gets larger and it starts to trip the procurement wire for the buyer's organization like the compliance team. And what happens is companies have thresholds of materiality that if you exceed oftentimes $5,000 per year or $10,000 per year for smaller organizations, those contracts need to actually flow through an approval process which typically entails a finance budgetary approval, a security review, a legal msa, potentially a DPA and then signature. And PLG oftentimes didn't have those things. And so there it's sticky in the sense that PLG products get usage but then all of a sudden we hit a ceiling and we actually have to do a proper procurement process to ensure that the products being used at a company are actually compliant. Right. And so it's not just about price. A lot of this actually comes down to the risk profile. And companies have a standardized process. So I see this conflict from a seller's desire to quickly adopt a large customer base and they'll, they'll make it free or they' make it very low cost to do so versus the company's duty to ensure that every product and use at a company is actually not jeopardizing the risk profile that they're signing up for. So there's this natural, there's this natural friction. But you know, I think a world class purchasing organization or procurement organization has to account for that. And in order to account for that, we've got to have a plan in place and a process in place that allows our Employees to get the SaaS they need to do their job when they need it, without a headache, without friction, while remaining compliant. It's, it really requires both sides to accommodate the other because there's I believe, two different objectives from the buyer software as compared to the seller software.
- [10:48]
A
We're going to ask one more question on the buyer side. So a lot of the spend management solutions I've seen out there in the SaaS space are more of a managed service that have some technology enablement. The buyer services, which is may start with identifying the best players in a category, maybe going through the entire negotiation, contracting and compliance process on behalf of their customer. But here's my question to you. Do you see this over time becoming less of a managed service that's enabled by technology and more of a technology centric solution, maybe even a marketplace over time? Ryan?
- [11:30]
B
Yeah, I mean I'll give my two cents on it. So vendor was the creator of what we call negotiation as a service or SaaS bot. And so that managed service you're referencing, we were the first company in the world to do this solely for SaaS. Now there's others that have done this in the past like Gartner for Top Spend. Like that's been in practice for 40, 50 years. But when SAS came into the market and companies are increasingly more and more reliant on procuring or purchasing the best software, best software products in the world, that forced the hand of how do I buy these things economically? How do I ensure I'm getting a fair price every time I'm buying a software product and how do I ensure that I'm selecting the right products to meet my needs? So when I first started a vendor, we didn't really have an option for managed service versus product. And there's a couple of reasons for that. Number one is we didn't have a product team. So if you take go back four years ago, I had a couple requirements for myself when building vendor and creating this category. Number one was I had to be able to do it on my own. I had to ensure that every part of the business I could do, from selling it to servicing it. And the reason that that was a requirement for me was because I didn't have, I'm not an engineer by trade, I'm a salesperson by trade. I've started like a dozen startup in the past and none of them have ever worked because I wasn't able to actually build the product. So I made myself the product day one. Number two, I didn't have any data and so four years ago, when I was negotiating negotiation as a service, I was just making it up and I was doing it with the what I thought as a seller, I was putting myself in the buyer's hat and just counteracting sales tactics. And it worked, right? We were able to save a ton of money for our customers because the price of SaaS is such a black box. But then, number three, the natural evolution is to productize the experience of buying software and eventually selling software with the data. And so the middle of our flywheel or the red hot center of vendor is data and insights. And at first, I think what's happened to our category is like everyone assumes that the data that a negotiation as a service company has is to serve the buyer of software, but in reality it's to serve both parties. And what I mean by that is, if you're a buyer of software, actually, let's pick different industries. Like, how do you buy a house today? You know, the first thing you do or I do is likely go pull out our phone and we go to Zillow and we look in the neighborhood to see what's available, and we can see the price per square foot and we can see how close it is to the beach or park or whatever the case may be. Right? We have information, symmetry between the seller of the house and the buyer of the house. How do we pick a company? We go to Glassdoor and check it out first. Right. We have a fair shot at understanding, is this a good company for me? How do you book travel? You go to like Expedia or now Kayak or Travelocity. But all three of those examples, those were actually built by Rich Barton. And so what he's done is he's brought transparency into industries that didn't have it to begin with. We're doing the same exact thing for SaaS. And if you think back to those examples, it benefits both sides. Like, data is a really good thing. Data and insights actually power better decision making for the buyer software, which then leads to healthier customers for the seller of software. And when I look back at how I've sold software in the past, I don't get it. I'm like, why did I have the ability to determine what Ray pays for my product? Why is that up to me? And if I'm at my quota, you're going to pay less price? Because I don't need this deal this month yet. If I'm not at quota, you're going to get a steal that is totally unfair to the buyer of Software. And I think it's incredibly punitive to the seller of software because what we've introduced is friction and it creates distrust between buyer and seller, which. What does that do? It extends the sales cycle. So my fundamental belief is that the act of negotiations, the act of discounts, hurts sales. It doesn't help. And I'm sure there's a ton of people that would counter that and say the discount is like the best things in sliced bread because it helps them close deals faster, because the lever. I think that's bs. I think it's been proven that if you can have quality data and insights and information, symmetry between two parties, they have all the information they need to just transact. And at the end of the day, that's what we're doing. When we're buying SaaS, we're entering a partnership, buying a product because we think it's going to help our business likely grow or win. It doesn't have to be transacted with games.
- [16:25]
A
We're going to double click on some of the things you just said and look at it from the seller side a little bit deeper. What's interesting, I was provided a demo of some software yesterday that's used by enterprise class, SAS and software selling organizations that takes all the data from their CRM and shows the effective discount that they provided by product for every customer over the last quarter year, two years, five years, and Ryan, I was amazed. For the same product, for the same kind of volume, some people were given 80% discount, 20% discounts, and the software was really, what's the optimized price per unit that's best from a profitability perspective for the seller? I don't give 80%. You don't need to give 80% of 40% your probability of closing deals just as good. So I was blown away when I saw that because as a former CRO, I'm like, wow, this would be a great way to say we're not doing discounts for this particular size of deal over 40%. But now let's go to some of the things you just said. How does a B2B seller, in this transparent world that you envision, how does that change how they're approaching and selling to B2B SaaS buyers, do they fundamentally have to change their engagement technique or just a negotiation technique?
- [17:48]
B
You know, I think it becomes both. And let's start with the engagement. What do we do today? Well, we hire BDRs to make a bunch of cold calls and, you know, do some early qualification to try to find Fit. We hire a bunch of talented account executives to close, you know, qualify and close business. We hire a lot of marketers to publish content, draw people in, go to trade shows and then we spend all of this money and eventually we have billboards and TV ads. Right, well what is that done? Well, it's, yeah, it's helped companies grow is we've, you know, SaaS, we've proven that like SaaS companies can grow incredibly quickly. There's like massive, massive addressable markets for SaaS. You know what else has grown?
- [18:31]
A
CAC, right?
- [18:32]
B
The cost of customer acquisition. Like pull up the best SaaS companies in the world. What is their CAC? What is Salesforce is 40%, 50%. And so some of the most well known brands in the world still have to spend like half of their revenue to acquire customers. I think the distribution is fundamentally broken and we keep throwing money at the problem. We keep throwing, we keep. What do companies do to grow more BDRs, more 80s, more marketers, more marketing doll. Right. So it's scaling linearly with your growth. I think in the future world CAC is right to be disrupted. And I mean that. Because if the buyer is selecting a product, why should it be that the company with the best sales team wins versus the company with the best product? And sometimes those are one in the same. Sometimes you just happen to have the best product, the best sales team. And those companies are dangerous, right? They're going to get a ton of customer, they're going to acquire a lot of customers. But I've also seen a lot of companies that have crappy products and amazing sales teams, they also acquire customers, right? And so the buyer is now on the defense because they are forced into this game where they are listening to why some product is so great and then they're making a purchasing decision based on that. In the future world, in our vision, that will be disrupted and buyers of software will be able to validate their decisions through validated trusted buying decisions of people just like them. And if you think about like where can you find that today? Well, you can go to G2 Crowd and find great reviews on a product, but when did those reviews happen? Is that company just like you? Are they not like you? You could go to Gartner and see the magic quadrant, but what if I'm not big enough? What if I'm, what if I'm not an enterprise? Is the magic quadrant really relevant for me? It's really hard to validate your purchasing decisions. So what companies usually do or people, what they usually do is they buy the stuff they've used in the past or they've called their friends and people, coworkers at other companies and say, hey, what are you using to solve this need? But all of those data points are out there and we're pulling them into vendor so that the buyers of software can validate their decisions through data. And your second question regarding price. Yeah, sellers are going to have to change but better yet, they can change for the better and actually just be consistent and fair without a gain. The data's out there and so if I'm a seller, what I'm doing is I'm going to my customers with the guaranteed fair price so I don't even have to enter into a negotiation. And a lot of companies do this already like Figma, like do they really negotiate? No. Does LinkedIn? No. There's companies every single day that are attempting to standardize but standardization of price is really, really challenging because you have legacy contracts you've been selling with high variability for the past X amount of years or decades. So you've got this. The history is not great and but yet going forward, companies will be forced at some point to make a decision. Do I want to keep do I want to double down in the game and double down on our sales organization's ability to make up the price and ability to exert power over the buyer of our products or do I want to lean into the fact that transparency is better for all of us and actually commit to giving a fair price to the buyers, their consumers of their products. And our bet is is on that world and we actually think we'll be one of the companies to ignite that change.
- [22:01]
A
A lot of data you just shared and we agree that customer acquisition cost, especially the customer acquisition cost ratio which measures how much sales and marketing investments required to acquire $1 of new arrival and it's went up about 28% over the last five years. It was about $1.21 to get a dollar of ARR five years ago and last year was about a dollar 60. So it's, it's increasing. However you said something and I'm going to take a contrarian position Ryan, and just have a little discussion for our audience, especially those CROs out there who are listening that are value based sales advocates and zealots. Right. So one of the things I always taught my sales team was you need to be kind of the business value sherpa of understanding your potential buyers business process. Their business wins as well as their personal wins better than any other vendor Be able to show roi, you say, let's say we're reducing your inventory carrying costs by 40% and that's going to add 300 million to your net income. I'm just making those numbers up so we could extract more value. Ryan, do you think in this transparent world that sellers are going to lose focus on creating value both real and perceived, in the buyer's mind?
- [23:19]
B
So, you know, when I talk about this topic of standardization, oftentimes that's the contrarian view, which is those who are selling to strategic accounts or those with the enterprise software, they're these special snowflakes and they're different. I don't think they are. And I've also sold those products and I've been that salesperson that convinced someone to assign more value to our, my product. And then I raised the price and if I was unsuccessful, I lowered the price. So it was really like the skill of the seller to get someone to determine the value they received from the product. But look, I actually, I'm on the same pages. I actually believe that the price of software can and should be variable. I just don't think it needs to be negotiable. And everything you just said is a variable. For example, if our product reduces your cost of inventory by 40% or if our product generates X, you know, BIPS to your EPS or whatever it is, like whatever that thing is, is structured, that, that's, that's structural. It's a variable. And if your product can deliver on that and generate those returns, you should absolutely be rewarded based on the cost of your product, like you're able. And it's within your right to charge more for that. What I don't believe is fair is that that is determined by the strength of the salesperson and the strength of them to convince you that you're going to receive this value. It can and should be structured. I think that fair pricing should come from the CFO's office. I don't think it should come from the director of sales office based on their quarter. So SAS Canada should be variable. SaaS does not need to be negotiable in that future world. Our chips are on that table. It's coming. Get ready for it. And I do think there will be laggards. Absolutely. And I think those laggards will likely be those heavier enterprise products that are potentially targeting niche industries. But I think all of those top 1,000 sellers, B2B SaaS, companies, they're going to be on that train in the next five years. If we have anything to do about it.
- [25:25]
A
I'm going to invite you back in five years and see how this kind of vision pans out. Right. It'll be fascinating to me. One last question or 30 minutes is almost up. But I wanted to ask this one, and that is we recently conducted some benchmarking Research and the SaaS CFO Ben Murray did his financial tech stack survey and SAS Ben Management is still kind of a new market. Still on innovators and early adopters. We found that 85% of B2B SaaS companies still don't have a formalized spend management program in place. 49% are doing it through Excel, you know, start date, end day, when's it up for renewal? 36% are doing nothing. And then they had some of the leading providers, like your company vendor, which is at 2 to 3% market share. Whether that's right or not, it just showed that nobody's owning 30, 40% of how B2B SaaS companies are managing SaaS spend a day. Because the answer is they're not. So question to you. What advice do you have for a CFO out there of a SaaS company who says, I got to control my SaaS spend better? How do they get started? When do they start? Like, what size is a good time to start and how do they get started? Ryan?
- [26:40]
B
Yeah, you know, so the when to get started, the earlier the better. And obviously that sell that serves vendor, but more so for the cfo, if you get started, like with diligent spending earlier, you can create processes for your company that don't feel like processes. What we say at vendors like White Glove Service, like, you can build a procurement process for your employees that is actually delightful. It is not. Like I give an example, is it worth the engine, your best engineer? Do you want that person on the phone negotiating their data dog contract? Absolutely not. Do you want them navigating your internal purchasing process, like going on a wiki, figuring out how to like buy this product or get it through security? No, you want them writing amazing code, building a great product or leading a great team. Like, it is not their job to be the buyer of products. So. So the earlier you do that, you can, number one, keep your people producing. Right. Number two, you can actually create something that adds benefit to them so they can get the great products they need when they need it without having to do it themselves, while enabling your team to actually manage all this from one single place. And so, you know, for vendor, we're a system of record. Like every single SaaS product in use is tracked and monitored on vendor. Every single procurement process, from finance review to security review to legal review, that is coordinated or orchestrated on our platform. And so the earlier the better when it comes to when to start. Typically, if your SaaS spend is like call it 400,000 bucks and up, that's usually a time where there's a lot of margin, a lot of savings to be had earlier than that. Vendor absolutely wants to serve those companies as well. And we have some more exciting stuff to come shortly there. But for now, I'd say if you're seeing that SaaS spend near 400k, not inclusive of AWS or GCP or Azure, that's a really good time to consider calling vendor or one of us in the category.
- [28:43]
A
Yeah. Well, we're going to give the listening audience a chance to get to know you a little bit better, Ryan, on a personal basis with three quick questions. And those are, is there a CEO company that you're following today? Do you think some must follow?
- [28:58]
B
Not necessarily the CEO, Dave Kellogg. The Kellogg. I'm a huge fan of Dave's work and I track it to. I read his tweets on like getting an MBA in SaaS metrics. So I would say Dave Kellogg is a must follow.
- [29:12]
A
If you're in sas, shout out to Dave. Dave's a good friend. He's on our SAS Metric Standards Board Advisory Council. And I'm like you, a big follow of Dave. So that's a great one. Second question tool not your own that you think every B2B SaaS company should be using. It could be a category, doesn't need to be a company name, but what's something you think is critical to enabling growth?
- [29:36]
B
So I would actually, I'm going to take it in a different direction. I would encourage your listeners to connect with me on LinkedIn. And the reason why is I publish all the purchasing data, a lot of the purchasing data that we're seeing on our platform. So vendor is seeing about $3 billion of SaaS spend on our platform. We identify those products that are being procured or purchased the most often from our customer base, and I just publish it on LinkedIn. So there's a really cool top 10 list we just produced. We do it every single month. So I would say some of the hottest and fastest growing SaaS companies, I would monitor that list.
- [30:11]
A
That's a good one. I like the way you got around not your own tool, but your own data. I love it, Ryan. Okay, last question. We have a lot of early career people who listen to Our podcast. And they want to be the next great B2B company founder. They want to be Ryan New. What advice do you give them right out of undergrad so they can be a very successful B2B company founder?
- [30:34]
B
Yeah, I mean, I think back to some of the best advice that I've ever received in my career, and the one thing that really stuck with me is like, make yourself indispensable. Like, don't become overhead is the advice I got. And I asked for more clarity, and the person said it was, you know, companies need two things at the foundation level. They have to. You got to build it and you got to sell it. If you find yourself in one of those buckets and you are excellent, you will be indispensable. You will always have a job, you will always have opportunity. But taking that a step further to why that's relevant when you're building or founding a company is every company needs those two things. And in my career, when I learned how to sell, it really jumpstarted my ability to create vendor because I was able to go acquire customers on my own because I had that skill set. Same thing applies for builders, right? Builders are able to go build a product that can attract people and they can do it all on their own. So reduce the reliance on others, increase the reliance on yourself. Right.
- [31:37]
A
I love that. And pivoting back to when we were talking about Mark Roberts, right? One of the things he did right, he was an engineer, went to Sloan, got into sales at HubSpot, and now he actually created in his training mit, Sloan and Harvard Business School students how to sell using his sales curriculum. Because one of the things he saw was great business people, but not necessarily people who know how to sell.
- [32:02]
B
So. Right.
- [32:02]
A
I love it. Build something or sell something. Right?
- [32:05]
B
You got it.
- [32:06]
A
Okay, Ryan, that's all the time we have today. Thank you so much for being a guest on the Metrics of Majorette podcast.
- [32:12]
B
Thanks, Ray. Had fun.
- [32:13]
A
And to our listening audience, if you're enjoying the guests and content we have, like Ryan new talking about SaaS, band management. In the future of not only buying but selling SaaS software, it would mean the world to us to go ahead and subscribe to Metrics to Measure up podcast and your favorite podcasting app, go ahead and give us that five star rating because it allows the algorithms to further syndicate the podcast episode so that your peers and colleagues can gain the benefit you had from listening today. Ryan, thank you. And to the audience, thank you so much. Thank you for listening to today's metrics Measure up podcast. If you would like to learn more about B2B SAS metrics and benchmarks, please visit RevOpsquared.com.