Why Profits Matter

by Contributor on Thursday, September 30, 2010 in Revenue Performance Management

Two years ago Eloqua needed software to manage our online communities.  One company approached us with a sales proposition that seemed too good to be true.  They were the “hot, new Silicon Valley startup” in the space.  Their software was “easier” than the established vendors; they had a nifty UI; and, to top it all off, they were the cheapest solution by 30%.  We were sold.  We didn’t think to ask about their financials, nor did we question how they could survive with such low prices.  We simply jumped at the deal.

We selected Helpstream.  We never really received the support we were promised. Nor the innovation.  Now we will spend five times our original investment – along with enduring considerable angst and distraction – just 18 months later re-doing the entire project.  Why?  They went belly-up and shut down.

I’m starting to see a similar dynamic in the marketing automation space.  Over the last few years, a number of start-ups have emerged in the Valley that “do everything Eloqua does,” but for less.  If you are a customer, you are probably thinking, “Well, that’s good for me, Joe.”  But I am not so sure.  I think you want your vendors to be profitable. Here’s why.

Profits allow for investment

When a company isn’t making money, it is very difficult to justify investing in non-revenue producing projects that actually help customers.   Boards are happy to invest in sales people and in marketing to drive growth, but they view customer support and customer success managers as overhead (and overhead only makes unprofitable companies more unprofitable).  Let me give you two specific examples that are about us.

After we became profitable two years ago, I was able to hire an industry expert from the email deliverability space.  He promptly forced us to make some difficult and expensive changes to our platform and methodology. This has led to best-in-class deliverability that dramatically improves our customers’ ability to get their messages to their prospects’ inbox.  You can’t sell new prospects on this – deliverability is too “wonkish” for newbies to the space.  But customers keenly feel the investment in their results.

The second example is Eloqua University.  All players in our space have a “university” – it has become table stakes.  But Eloqua doesn’t just pay this lip service, we have staffed ours with eight full time professors, each of whom has over five years experience in the discipline.  In a 10-year-old industry that is saying something.  That’s a million dollar investment.  We don’t make money on education, but the money we make on our core business let’s us invest in it heavily.  We aren’t teaching about Eloqua as much as we are teaching industry concepts: lead scoring, lead nurturing, revenue performance management.  Our profits allow us to make these investments, and that is good for customers.

The players with profits can hire the largest product team, which means more and deeper features for customers.  They can hire the largest production team, which means good product performance in a SaaS environment.   They can afford a big support team to answer the phone within 30 seconds, which customers appreciate.  And they can put people everywhere from London to Singapore to provide on-the-ground support for their constituents there.  Our profits allow us to make these investments and I think our customers are better off because of them.

Profits ensure stability

We have a world-class team at Eloqua – a team that has proven it can make money.  This means that there is stability in our company and we can pursue innovation and we have the time to see our strategies bear fruit.  We took two years to fundamentally change our user-experience and we did it right.  Our healthy business provided the stability to not cut corners that would have hurt our customers.

When companies burn through loads of cash, what happens to customers?  Change. We have all seen this movie hundreds of times.  VCs pouring money into companies expect those companies to make money eventually.  If you raise $50M in cash and return $20M in revenue there is going to be change for the customer because there will be change at the vendor.  If you are lucky, the change will start and end with a whole new management team.   First (sadly) they blame the marketing guy and he is replaced.  Next goes the VP of Sales.  And finally the new CEO arrives to “take it to the next level.” As a customer, this means you will see starts and stops in product development as the new team figures out its new vision.  You will also see a degradation of service as the employees focus on the internal world they live in and not on customer success. This has already started in our space.   Watch out for companies who are raising money to cover their losses.  Raising more money in a “huge up-round” only accelerates this dynamic.  The higher the valuation, the more the new VCs need to see change to make a return.

If you are unlucky, as we were with Helpstream, the business actually fails and you get stuck with some empty promises.  This is also happening in our space.  Market2lead left over 20 customers twisting in the wind when it sold its assets. And today there are no fewer than three more vendors in our space on the brink of shutting down due to lack of cash.  If you are one of their customers, you will not enjoy that.  Trust me, I’ve been there.

As our space gets more mature, doing things well becomes more important than doing things cheaply. And adding lasting value becomes more important than the latest feature release.  We have learned our lesson at Eloqua.  If the purchase is important to our business, we ask for financials, and we actually make sure companies we work with are not burning cash.  Given all the changes in our space, if you are looking at a marketing automation system, I strongly recommend you do the same.   We welcome that conversation and will share our financial plan as readily as our product plan.

I welcome your comments and your stories.  I have a feeling I’m not the only one who has seen (and experienced) this movie.


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