0:00:01 - Alex Shevelenko
Welcome to Experience-focused Leaders! I'm delighted to introduce to you Greg Head, software industry veteran, particularly in CRM software, with three startups under his belt, including an IPO success story. Greg has been in the traditional venture-backed software tech universe. Now he's actually pioneering a new way of thinking about technology startups through his Practical Founders Community Podcast and peer group where he's advising 40 SaaS founders on how to build a capital efficient business,
Greg, welcome to the pod!
Let's start with the subject near and dear to my heart, the CRM industry. One of my first introductions to tech was working at a place called Salesforce right around the time of IPO, as an intern. Obviously, the world has changed. You've done a few CRM startups even since then. Tell us a little bit about how you see birds eye view over a long career in this particular category? What's changed? What remains the same? I think people are probably more curious in particular what has not changed. Because everybody assumes everything has changed, but some things are probably still the same. I'd love to hear your perspective on that.
0:01:46 - Greg Head
Yeah, it's actually one of the things that I think about. I'm very active in the software business. I'm inside 40 different modern SaaS software companies and I talk to hundreds of founders and investors every year. I'm very active. But I spent 30 years building software companies and starting in the early 90s with ACT software, which was one of the first software products used by millions of salespeople all over the world, got salespeople on their laptops for the first time and helped start a company called Sales Logics. In the mid 90s, when sales teams were starting to use software for buying and growing companies to 100 million in revenues. In the 2011-2015 timeframe, I was the Chief Marketing Officer of Infusionsoft. That was sales CRM and marketing automation for small businesses.
0:02:44 - Alex Shevelenko
So you took it from 15 to 100 million. That was a pretty amazing journey.
0:02:50 - Greg Head
Yeah, and so I played in the sales software/ CRM software game even before it was called CRM, and the sales and marketing game. They're all kind of coming together and I've run software businesses. I've been the marketing leader, the product leader, the evangelist, the kitchen table to working inside, owning a big P&L inside a big public company with hundreds of employees that report to me. So I've done all kinds of things and I'm still really curious about it. What has changed and what hasn't changed is a really important question for marketers, entrepreneurs and anybody playing the game and trying to create something bigger in the world.
So the tactics have changed, the world has changed. The internet has come and we've seen different phases of it: social media, marketing technology, tracking and sales software. In the 90s we didn't have marketing software. But we have plenty of marketing software these days, of all types. And the tactics that work today to find potential customers, engage with them, convert them is changing pretty quickly. Unfortunately, in the marketing game if something works, it kind of gets popular and then beaten to death. So there's very few tactics left.
0:04:17 - Alex Shevelenko
Well, that's one of our guests who founded and was the CEO of Eloqua, Mark Organ. He said one of my favorite quotes that I repeat, “Now marketers ruin any party they get invited to”, and I think that sounds like “the abuse of a tactic is a prevailing one”. So it sounds like it’s short term. It used to be that you could run something for a few years and now these tactics expire in six months, a year’s cycle.
0:04:57 - Greg Head
It moves pretty fast because in the old days we had different tactics: television ads, direct mail, magazine ads and door to door sales. But these days, in the digital world, where marketers meet potential customers, attract and convert, technologies are cheaper, easier, and broader. These weapons of marketing destroy them easily. It's easy to push the button and scale it but they get killed pretty quickly here. These things are happening even in the software business.
Some things haven't changed but some things have changed. One of the things that has changed is that it's easier to make software, it's easier to go to market than it was even 10 years ago, almost by a factor of 10, if you know what you're doing. So you don't need venture capital to get going. And venture capital funds are three times as big but they're actually more risky. So one of the things that has changed in the software industry is that most software companies don't require venture capital to get up and running these days, to grow and be successful. That has changed in the game. So I'm helping those founders generally stay off the funding drugs or use it very appropriately because it's just got overcooked.
0:06:29 - Greg Head
What hasn't changed, Alex, is that our brains haven't changed. They haven't changed in thousands of years. We're still crocodiles.
0:06:38 - Alex Shevelenko
We're crocodiles that pay attention to movement and emotional creatures?
0:06:42 - Greg Head
No, I think we hear things in the same way. Whether it's an ad or a social media, the narrative model of telling me something interesting and taking me through the hero's journey is universal, simple and doesn't change. The narrative model still works and it's maybe harder than ever. But applying that through all these new tactical media is a trick.
I also think about positioning and the classic sense by Al Ries and Jack Trout, who created the word Marketing. I think branding is a bad word, actually. Positioning, I think, is real. What is it? Who's it really for? What does it really do for them? How is it different?
This is one of the most important things that entrepreneurs and marketers can do. Not just go grab somebody by the collar, pull them in and try to sell them. But to be known as the best at something important for someone specific is still a modern way to stay in the positioning game. It still hasn't changed. And that old product adoption life cycle at the beginning where early adopters who are kind of crazy, curious and interested, play with it before they're going to be able to do that.
Play with it before normal people do, that also hasn't changed. Maybe it moves a little faster these days, but that hasn't changed. Those are human, let's say psychological and sociological dynamics that can be played for good, or for evil by marketers, politicians or whomever.
0:08:37 - Alex Shevelenko
Interesting. I would probably even throw out that positioning in a noisier environment which is even more critical in a less noisy environment. So as the environment is crowded with massive marketing distractions, the positioning game is critical. But one of the things that you brought up, in the adoption, that I think is very interesting. You were pioneering about people being able to buy and download ACT. But product-led growth is a buzzword. Frankly, you know Microsoft Word, PowerPoint where product-led solutions the way they started out.
So again, it's not a completely new thing, but it has become a buzzword. And I'm curious as to what's the implication of that in terms of buyer expectations and generally on the investment necessity. Because, as you said, if it's easier to build a product then the distribution becomes critical in a noisy world, right? And then the question becomes, “Can you build cost efficient distributions or do you just need to put investment resources into distribution more than you need in the product development?”
0:10:08 - Greg Head
Well, there's a few things there: the attraction, marketing, distribution, and sales games. You have some of the same core principles. Product-led growth creates an experience where the spreading occurs from the product, just like Uber. We heard it from other people who used it. The experience of using and buying the product happens without talking to a salesperson.
So that's the modern version of product-led growth and, in fact, the ACT in the early 1990s was something that soft people found on the shelf. “I need something to manage my contacts and sell more.” And literally, the box, the CD, the disks and all that kind of stuff. But there was product-led growth because people gave their disk to somebody else and said, “This is awesome, try this!” And without talking to them word spread, marketing and sales.
0:11:13 - Alex Shevelenko
I guess word of mouth was word of mouth.
0:11:15 - Greg Head
Probably is probably that, yeah, and but also they could experience the product on their own without talking to people, and all that. So the modern version is like any free software that you use or you can just run up and try it yourself. That's the modern version and that's the antithesis of the big enterprise software that Salesforce reeled against. You know, Salesforce was almost product led that you didn't have at the beginning, at the beginning. Salesforce and you could just go to the website and try it yourself, right, yeah?
0:11:48 - Alex Shevelenko
So eventually they cut it off right. And yeah, very enterprise.
0:11:52 - Greg Head
Now Salesforce is the evil enterprise. You know, borg, these days, and there are a lot of successful CRM, sales and marketing software companies where people say I know what I want and they can literally go to the website, learn from themselves, get a trial, get the free version and the user can drive the conversion, not some heavy-handed salesperson or sales process or even assisted sales. So I think that it's a. It doesn't always work, it's not. There's no one formula and product. Every everybody's going product led. There's still a lot of things that need a discussion, that consultative sale or advised, advised, you know, connection people in the process before buying, to get a demo to see if this is the right thing.
Big complex software still needs people to have big complex conversations and so forth. But when you know, over time more and more things become I don't wanna say commoditized, but at least known. The position and the market adoption is well known. Everybody needs one of these things and the product led growth game, the do it for yourself or try yourself for free, can be very efficient for practical founders. You do need a lot of value. Let's say, hundreds of thousands of tries to get tens of thousands of demos, to get thousands of paying customers, to get hundreds of paying customers who pay a lot. So it works in that kind of model where big crowds like a lot of people are just gonna be in SEO.
0:13:39 - Alex Shevelenko
It has to be mature category. You have to be able to find it Most of the time most of the time.
So let's actually so let's pinpoint that Is, the emergence of these new, maybe more efficient buying channels like product led. Yeah, is that enabling this practical founder movement that you're advocating for? Or are you finding that, hey, a lot of my practical founders are niche solution for enterprise and they just niche down and it's very efficient to get 100K deals up front, right, and then maybe experiment was other dimensions as the product matures. So like especially historically, that's I would say, majority is like, hey, let's start very low end and then over time we move up to the enterprise right. That's the classical.
0:14:34 - Greg Head
That's what Salesforce did.
0:14:35 - Alex Shevelenko
That's what Salesforce, but tends to be a VC backed play for some of the reasons. It's hard to get a perfect product perfect, and then the distribution volume is still competitive. Even if you're trying to acquire product generated leads right, you need to get them in somehow, and that doesn't happen like magic versus the enterprise sales right, and that also has its own expenses, and so I'm a bit of two minds actually. Like what's the? Is there? Like when you look at the peer group, maybe the people you advise, and then tens of thousands is it leaning towards product led or is it leaning towards mid-market enterprise as an initial step into the market?
0:15:21 - Greg Head
Well, here's how I see it, as somebody who literally was in the game for all these years building software companies right there, building global, scalable companies from startup to scale, and I'm talking to 500 founders a year about what's working in their business and how they're approaching their funding and their end game. So here's how I see it. 20 years ago you needed 10 engineers or 20 engineers to go build a Windows software product that worked on servers, the box and all that kind of stuff. Salesforce kind of changed that with a new web software, but even then back then you needed a lot of engineers so you needed to raise venture capital to get the product built to go to market. Then you needed to raise another venture cap around to go do marketing expensively with ads and then build the Salesforce that would go knock on doors in enterprise, or you had to spend big money to get out there. These days you don't need to do either of those in most cases. In some cases you do, and VC funding isn't bad. It's just overprescribed and generally misunderstood by founders. But there are way more options for serious software founders to go to market efficiently and fund their growth 30, 40, 50, even 100% growth with customer revenues, not outside funding, so funded along the way.
Product-led growth is one of those To do paid ads that convert efficiently, or SEO that converts efficiently to a high volume traffic that tries out your product and many of those buy if your product's good. So that's a high standard. But there are other ways to go to market efficiently and it's kind of a myth that if I have VC funding I can go to market efficiently. Nobody is advertising their way into a market successfully. Nobody is doing the old PR handshake. They get getting depressed like used to 20 years ago. There's a product-led growth as one of the tactics in that toolbox, but there are other tactics. For instance, I am active on LinkedIn and I'm effectively a LinkedIn influencer. I get 2 million views of my LinkedIn post every 90 days. I have effectively. It's not free. I do the work to do it. But I don't need to raise VC funding or crack the book publishing game to go get an audience of hundreds of thousands of people. In the software game I can reach those people and get in a conversation and engaging and get them to my website. That's one way to do it In vertical markets which are very efficient.
There's three trade shows that everybody goes to, the people in your market are identified. You can partner with the four partners that work with everybody who's the profile that you sell to. There's all kinds of ways to do it. The VC model for Big B2B Enterprise is we raise money and you add a lot of salespeople and the salespeople go out there and blanket the big companies and surround them and start selling. That model is tactically difficult these days, but it still works. If you're selling 100,000 a year to a million dollar a year of software, it's just not as required. So there's other ways to. I don't even call these hacks. They're just efficient channels that you can't buy. Let's say they're more earned in some ways.
0:19:09 - Alex Shevelenko
So for you, what you're saying, LinkedIn for you is earned channel because you have three decades of experience.
0:19:16 - Greg Head
Right, you were investing in mo or you're investing in it.
0:19:20 - Alex Shevelenko
Right, you're building a long-term. You're thinking of not just an audience, but a community you're building.
And so, therefore, it's a good investment. But let's say somebody's in a rush, resource constrained, and they don't have two years to build the LinkedIn audience. So what are you finding that? Are you said the word hacks? Everybody's looking for a magical hack of cost efficient channels. And also I'm kind of curious are you only seeing practically the startup founders being interested in this cost efficient, go to market approach, or are you seeing corporates that are looking to innovate and build new products, experiment with new areas? Are they adapting some of the same techniques, especially in this environment as well?
0:20:17 - Greg Head
Well, there's a couple of things here, so I'll generalize. Big companies don't innovate like creative front line edgy entrepreneurs. It's an advantage for the small companies that don't have billion-dollar quotas that they can do things creatively and differently. If you just need to get 50 new customers this year who pay you 10,000 a year, that's half a million revenue. There's all kinds of savvy ways to do that that don't require a huge marketing team engine and the technology and a big media spend. It used to be that the big guys could outspend, outscale out infrastructure. The little guys they just kind of owned that. But in the modern technology gain we want to hear authentically from people who can reach us with a unique and valuable message for us. The big companies tend not to do that as much. They do have the position as the leader, like Salesforce, but they're easily easy to position against. That's actually one of the fastest ways for product-led growth and other new companies is to position against the leader. As Salesforce got into market, it was the anti-enterprise software in the beginning. They filled up stadiums of people who were interested in that. It's easy to position against Salesforce. The number one easy thing to do is to say Salesforce is great, but it's for big companies. If you're one of 30,000 insurance agencies in the United States those offices that broker insurance local customers it's easy to position against Salesforce. We're just for in a positioning kind of way. We're just for insurance agents. We do what we just need. You don't need to pay for all this extra stuff. We solve your whole problem. Data, language, training, whatever that kind of thing. There's all kinds of ways to do it product-led growth and the rest.
I think there's kind of a myth that funding can help you get to product market fit faster, find your best customer and build the product that's unique to them, because that takes a little time in Finesse. When you raise money you lose time and you lose Finesse. Money is a brute force tool. Funding is it's like hurry up and get there. I would say if you could find an efficient channel, that if you could put more oomph behind it sometimes paid ads work. If you have high conversion and really works, you can raise money and scale on that. Or if you have a vertical market kind of outbound approach that works or whatever. One of the reasons the practical founder methods staying off of VC funding and still creating a valuable company that works these days is because they go to market tactics that are just brute force. “Spend more. We need 10 times more leads this year.” Don't work as well as they used to.
0:23:54 - Alex Shevelenko
The saturation is not a helping. The creativity doesn't scale necessarily.
0:24:00 - Greg Head
That's true.
0:24:01 - Alex Shevelenko
Your size is the advantage, like in the small organization, but also size brings its own problems. I think one of them is, if you're small and you're experimenting and trying to find where the market is heading, you may not have enough resources to experiment, which is frustrating. I could certainly feel that tension. Hey, you're small. We have big vision. We're still at a stage where we want to draw in the big audience and see who is the ideal customer. Maybe some of them will be ideal down the road. There's that discovery process. The challenge was that someone going through this is that this is the antithesis of focus. You're being curious, you're seeing directions.
The conventional VC advice is focus, focus, focus, focus. Maybe have a plan B. I've heard some more sophisticated people say well, you focus on this market, but you probably want to have another market ready to go. That's about it. That's the conventional wisdom. I heard one of your podcasts where you're articulating a little bit more nuanced views. Up until a certain stage you do want to experiment, and then you actually narrow down. I thought that was really helpful and not something you frequently hear.
0:25:30 - Greg Head
Well, I'm a big focus guy To grow a serious company. It's a law of nature that you can't be more things to more people. As you grow fast, what happens is you start out thinking you're everything for everybody. You start trying them and you see these things work. You start stop doing the other things.
At focus, every restaurant owner could make any kind of food. Any chef could make any kind of food in their restaurant by the end of the week. Thai, Italian, French, ice cream, hamburgers, but they don't. The ones that scale globally, nationally, are the ones that are known for a very specific kind of food. It's the same with any product or politician or musician or the rest. The experimentation zone of startups startups are experiments. Is it this kind of thing for these kind of people? Or is it this kind of thing for these kind of people? What you said about focus, focus, focus and VCs and big funding and Silicon Valley style venture capital funding require focus, meaning they're waiting on the other side of you running your experiments, saying we try all this and we know we have product market fit, we have this product for this market and they love it.
They say, well, what about all these others? They say, no, this is the best one. We're focused here. We're going to be known as the best here. We can invest now because there's something that you can sell efficiently.
0:27:03 - Alex Shevelenko
Well, right, Except for there's a little twist. Right, I think you've highlighted it, but let me correct me if I'm misreading. The twist is the overfunding in the early stages. That has happened recently but it's still to some degree happening. It's happening so early in the process when the founders barely know what the hell they're doing.
Right, they may have a product out, they don't know who's their ideal customer, they don't know the right channels to pursue them. They have not had a year to see if those guys stick around and girls as customers and become referenceable and bring in you. But they're already raised three mil and the next one is 10 mil and they're kind of on the sort of an addiction journey and so they're going. It feels like they could be going down the wrong directions because they haven't done that experimentation stage and something could be okay, right, could be working somewhat, but it doesn't end up venture scaling. And so then you end up having these like dramatic pivots, and I have friends have done them because they've already gone on the venture thing and the only way you can make that work if you bat it or throw it all in the red, which is the pivot right, and roll the dice and hope that pivot works, and it feels really tragic actually, because there's a gem of a good idea but got over funded. Is that what you're like? Advocating against that early funding?
0:28:42 - Greg Head
That's mostly what happens In the software industry with modern VC funding. They can't give you a little bit to try. Their funds are so big, they have to give you a lot.
0:28:54 - Alex Shevelenko
The economics of the fund are. The funds got bigger, so there's no such thing as a little bit.
0:28:59 - Greg Head
And we'll be patient with you is. I just raised a billion dollars or a hundred million dollars or 500 million dollars and I got to place bets and they got to win and hurry up. So if you get those kind of funding and you're not ready to hurry up the rocket fuel, if you don't have a rocket that you've built and that's ready to go, that if you put rocket fuel on it it will go forward as you anticipated. If you put rocket fuel on something, that's the startup experiment we got no good idea but we don't know yet and you forget rocket fuel, I think half the time.
0:29:31 - Alex Shevelenko
It's like you're pumping diesel fuel into gasoline tanks.
0:29:37 - Greg Head
I don't think if some of it is like before even rocket fuel stage.
0:29:40 - Alex Shevelenko
It almost feels like it's even before that.
0:29:45 - Greg Head
Well, marketers know this too is you test before you scale and you try a lot of things if you have the capability in your creative, modern marketer with your team, but you have things in your scale up engine and you have things in your startup innovation engine and what these startups are is all innovation. It's a new thing for a new crowd and you're trying to figure it out. So what's most important to software entrepreneurs, the innovators in this experimentation zone of almost anything, isn't hurry up, get to 10 million in revenue, figure out what works, hire fast, put all the money on red. That doesn't work. What works is a more patient approach. Like the lean startup described it, where you say, “I think it's this, but it may not be. We tried it. We tried three things. Okay, that's better than this and that's what we learned here.” You need time and tries to figure out what works.
And what I'm seeing over and over again, Alex, is if I sell an idea and VCs kind of make, you say I know what the answer is before. Founders know what the answer is because they need the rate. They're looking for the answer. So founders say I've got the answer and they don't have the answer yet and the rocket fuel comes and everything blows up. Most VC funded companies blow up. They don't. Half of them that are funded fail outright. Another 25% don't pay back investors. So it's that kind of game there, but I see it over and over again.
I didn't quit my day job. I have this other business over here. This doesn't need to get to a million revenue in six months. I'm gonna keep trying. The reason that I have tens of thousands of followers on LinkedIn as a rest is I've been playing this game and seeing what works for several years and developing a tribe and a reputation and improving my content and all the kinds of things that if I needed to do that in 20 minutes, I couldn't do so and I can't buy my way there. Buyers don't want, by the way, buyers don't want people who bought their way there. They want authentic, validated solutions that are built just for them, which is again has it changed there? So it's not to say that VC funding can't work. It just usually doesn't and in the modern VC model and the modern go-to-market and software building model, funding too early is overprescribed and misunderstood.
0:32:39 - Alex Shevelenko
And I will almost argue and I think you would, I hope you would agree is that the modern VC and I think, because you're using that word, modern VC does not operate the same way that traditional VC did. Traditional VC was a little bit more measured, it wasn't an overnight.
0:32:55 - Greg Head
That was a little more practical in the old days, literally.
0:32:57 - Alex Shevelenko
It was more pragmatic, exactly. It kind of had stages and it wasn't overfunded.
0:33:01 - Greg Head
But there's the riches. This happens in this, another human factor we could say that hasn't changed. Let's say the greed scale, the ego there's a lot of ego plays all those humans, things that are natural, and I'm not immune to it myself, and it happens in a lot of industries, the big industrial complex. All of a sudden we perceive that it's the only way to do it and in fact, it's almost never works and it's very rare when you get an exit and it's not the most common way that software companies are started and it's not the best way to grow for most founders, but it looks like it.
So, yeah, the VC funding game has changed. They're hurry up and get me to raise more money, keep going. That's quite painful right now for most funded founders out there. So, Alex, I know it's difficult in your business, right, trying to build the product and find customers and run an experiment, and it's very challenging. I totally understand that. It's worse and it will lower your odds if you said I got two or $3 million in funding from an inpatient investor, and I don't think that if you knew what your game was and you had a rocket ready for rocket fuel, I'm not against that.
0:34:23 - Alex Shevelenko
But that's the key word, right? I think you're not counter VC. You just need to know what game you're playing, be open-eyed. The biases that I think most founders get is from the press. It's the TechCrunch stories, it's the venture announcement that people congratulate you on. Yeah, it's the ecosystem, too, whether you're in.
0:34:48 - Greg Head
Paris or Silicon Valley or Dallas or whatever they're kind of oriented around. I call it the funding industrial complex. They're kind of oriented around get funding, spend funding on us, the events, the pitch events, the people on stage, I raise funding, so forth. So there's this clapping for funding which is kind of like, you know, clapping for I'm just taking a major prescription that is very high risks, you know.
0:35:15 - Alex Shevelenko
Like there's not that much, nobody's going, it's kind of implied but nobody's going. Oh great, I'm getting really intimate with my customers.
0:35:22 - Greg Head
I'm really getting in, really getting in their head All that complicated stuff which is I tried seven things and now I figured this angle of my product and this corner of my product for this corner of this market oh my gosh, they love it. And it took us, you know, 18 months to figure that out. And now you know the milestone that people should be clapping for is. I got through my experimentation phase and I'm starting to build a more scalable recurring revenue SaaS company and I got to a million dollars of recurring revenue and we're focusing in. That's where we should be clapping.
That's where the flywheel of the almost unscruel-up-able business in software starts. And it's really messy before then funded or not and it's hard after that funded or not. But that's where the milestone is. And these recurring revenue flywheel businesses that have happy customers who stay a long time and tell their friends product market fit, as it's called, you know those are very valuable. This is why software companies are valued at multiples of revenue, not multiples of profit is because they're really hard to kill and if you grow them 20% a year, all of a sudden they're you know, market leaders not in the same pace that VC funded money needs you to perform.
0:36:49 - Alex Shevelenko
Well, let's talk about the value right and how that value gets calculated. So there is kind of the exit market as in somebody buys your company and there was this buzz of one overfunded company buying another slightly less overfunded company and sort of worked, I think for a period of time that worked, and I think now there is private equity buyers, there's still strategic buyers, the IPO market.
You know, you've been in a public company, I've been in a public company. What's your take and what's changing was the dynamics of exit. Yeah, let's assume that it's always been true that if you build an amazing business, there's gonna be an exit opportunity for it. Yeah, right, but there's a lot of these sort of less amazing, slightly problematic businesses. Right, are they falling out of favor now in terms of acquisition options because they've been either overinvested in or they're just nobody wants to buy them big for some of these fundamental flaws that you're describing?
0:37:50 - Greg Head
Well, there's a few things there. So, in the maturity because now the software as a service recurring revenue, modern web-based software is, the model has matured quite a bit since it was kind of invented 20 years ago. They're very sophisticated, very mature buyers of these flywheel, steady, growing businesses at all sizes, not just billion dollar businesses and so forth. So we also have the run up 2018, 19 of interest and funding and valuations and hype around these software as a service companies, and then 2020, 2021, the bubble. It was literally a bubble. It wasn't just a surge, it was crazy time for using software, for funding software companies, for selling software companies. So that was an anomaly and now we're back to a little bit more normal time.
So a few things have changed in the last 10 years. In software, you can sell a two or three or $5 million recurring revenue software business for multiples of revenue, like four to 10. And you didn't used to be able to sell a little company like that. But since they're flywheels and they're going, there's a very active market that says I'll take your flywheel and I'll grow it and I'll sell it again and so forth. So that's one things that changed. The bubble is we're no longer in a bubble. So most companies that IPO'd are valued less. Most companies that have public stock are valued much less. Funding is less and so forth. So generally companies get acquired, bootstrapped or funded, get acquired by other funded companies big PE backed companies, public companies, Microsoft, Google and the rest. So in the end the public markets or the funded markets kind of drive some of the acquisition market. So there's all kinds of flavors and ways to sell a software company.
If you raise big funding and you do your 3 million round, your 10 million round, your 50 million dollar round and you keep up and growing, you need to sell your company for 500 million or a billion dollars public or whatever. Otherwise founders really lose. Like they could literally sell the company for 300 million dollars and the founders and employees cannot make anything in the deal. The investors make all the money. So you really have to win big in the VC funded game, or it needs to go big or go home. So that's kind of the game.
But for practical founders who've built a software company there's all kinds of options the average on my practical founders podcast I interviewed 70 founders in the last year and the average exit value and the value of the company that created it that they haven't sold. It is $50 million for the founder, which almost very few funded software founders walk away with a prize like that after they raised, vc funded and suffered the slings and arrows and so forth. So and these are just there's way more of that going on than people can see, so it's really interesting. It's just a market hidden in plain sight. That's out there, so I wrote about it in my ebook that I have on my practicalfounderscom website. You can download it for free 60 page ebook the seven success paths for practical founders.
To talk about strategic exits and private equity exits and growth equity exits you saw a little bit now and sell more later, including run it forever profitably or take out a lot of profits. So one of the ways to succeed in this game and quote exit, take money off the table for a founder is to grow a five or $10 million business and then take three or $5 million out of it every year for years. You don't actually have to exit and that's making more money than 90% of VC's make a year.
0:41:56 - Alex Shevelenko
So it's really interesting what's going on out there, yeah, and actually I wanna quote a part of it that kind of aligns with this. The happiest founders I know are the ones who own independent, profitable companies and don't have any big VC funding. Your optionality and patience are your superpowers to maximize the success pass that works best for you and your business and, effectively, that's why I think you're you kind of are highlighting on the exit part, if you don't need to exit, if you don't have that pressure, you're just and hopefully you're working on something that you're passionate about and deeply find enjoying, and not killing yourself to please an investor with some sort of made up growth plan. That typically does not.
0:42:44 - Greg Head
I don't know if it's hopefully it is what happens If you can build a sustainable software company. It's amazing when you do creative things with your team and your customers and people are happy. And people say, well, we'd like to buy your company. And you say, well, make an offer. And they give you a low ball offering. You say, no, thanks, I don't need to spend five minutes with you, like, let's keep going, right, I'm gonna double the business in one or two or three or 10 years anyway, so I don't have to do anything.
And in fact, when you sell a company to a strategic or went to a private equity investor, it's not longer your company. The founder has to go find something else to do and it generally screws up the company. All that culture and charm that you've built up, all that knowledge, generally gets dissipated. My buddies at Eloqua, when it was sold in, I think, 2008 to Oracle, I used an old joke. So here's another thing that hasn't changed what do you get when you cross Eloqua and Oracle, the acquired with the acquireer? So I would ask my buddies at Eloqua and Oracle, they would say what do you get when you cross Eloqua and Oracle? Eloqua, you know, I'm like, no, you get Oracle. And they went exactly five minutes after showing up there. It's no longer Eloqua and all that charm founder goes away, the climbing the hill, the quest, everything else it just goes into the machine and if it doesn't fit in the machine it's gonna die. So that happens. What do you get when you cross Figma and Adobe? One of the big deals you get Adobe.
You get a currently illegal case, whether it's gonna happen For those of us that love to build great products and get happy customers and build amazing teams and really clever businesses. It's never been a better time to grow a soft great and grow a software company, a valuable software company, right now, if you can do it without big funding, which is Because you don't need to get on it.
0:44:52 - Alex Shevelenko
Fundamentally, you're saying you no longer need to be on a hamster wheel, you just need to be creative and scrappy. Right, and there are simpler ways to build a product and to go to market on a product.
0:45:05 - Greg Head
And it actually requires you to be savvier. There's a myth that the smart guys raise funding and the C students don't raise funding. Sorry, bootstrap, or you weren't part of the cool kids. Now, if you're smart enough to go to market, get to product market fast, run the test, build a team and be super efficient, if you're savvy enough, you can stay off the funding drugs. And what's happening now in a lot of tech centers is this indigestion from the overfunding of 2020-21 is kind of running its course. Companies are shutting down, the gun to the head, kicking out founders, laying off employees. It's really kind of no fun in Silicon Valley right now. The big companies and a lot of small ones and a lot of founders are saying that didn't work. There's gotta be a better way. So I'm out here waving my hands than I did during the run up. You don't take it. It's not going to end well and there's a better way to do it.
0:46:12 - Alex Shevelenko
So, on that note, let's dig into this, because actually one of the things that opened my eyes, looking at the space around content, in particular that where we focus on was my own startup. It turned out that many of the more successful companies now that are kind of post your child for success, one I would say is Webflow kind of no code.
0:46:37 - Greg Head
Yeah.
0:46:37 - Alex Shevelenko
Success story. We know we love the founders, the business they build, but it was actually a third version of a content management system built by the same founders. It's raised some a little bit of money that went into that experimentation phase for a really long time.
0:46:55 - Greg Head
Yeah.
0:46:56 - Alex Shevelenko
And fundamentally was not an overnight success story by any stretch of imagination even though very few things are, what is it need to be? Yeah, well, I don't know. That seems to be the story, right. Canva Everybody knows Canva, we love Canva. We have a lot of users who use Canva. Turns out, the founders of Canva built a couple other related businesses before Canva, and so they've been at it doing that experimentation, owning the problem and that solving the puzzle.
0:47:31 - Greg Head
If you can solve the puzzle, right Like you can solve like.
0:47:34 - Alex Shevelenko
And what you're saying is VC funding. Never like you're saying it doesn't solve it today, but one could argue when you really drill into some of these stories. Even in the past it wasn't even solved back then. Right Like it really there. Those stories just were not advertised because everybody wanted to look like a genius that mastered it overnight.
0:48:01 - Greg Head
Yeah, let's say it is possible to raise funding in the early stage. But you kind of like we did with Sales Logics, I was the product manager for the number one software product for salespeople in the world in 1995, six where I quit my job and with the founder of that product who sold the company to Symantec when you get, when you cross Acton, Symantec right. So I kind of was in there for a few years. We started a company. I knew exactly what the market wanted. I was literally at the trade shows watching them bounce around between Siebel and all the booths and talking to a crowd in the booth and the market was evolving. That quarter Sales teams were finally saying I need one database, I need all my deals in one place, and this was the time that it was actually happening. So we knew if we built a product that got everybody in one database and was the CRM kind of story, the modern CRM, a precursor of that that we could sell it. So we raised funding to build it. We raised funding to go to market. We built a channel. We were the mid-market leader there.
It was a wide open market. It was harder to build software. It was easier to find wide open markets. Now it's completely opposite. The puzzle is trickier, but it's figureoutable if you get enough time and tries. It's just if you try to rush it too fast or throw money at it and solve it with paid ads or something like that, it generally doesn't work. There's more leverage in the business than ever for marketers and entrepreneurs and the rest, but it also is. The puzzle is a little trickier, so I think that it takes, it takes.
0:49:44 - Alex Shevelenko
So I love that idea that actually it's more clever to be bootstrapped.
0:49:49 - Greg Head
Yeah, I actually do see this, they have more product market fit, more tracking, more discipline about their go-to-market spend and their conversion, which you can have if you're not trying to triple the business every year. If you have modest growth rates, you could find the ones who are ready to buy, who won't leave right away. You don't have to overcook it and you can be very savvy and very frugal and very efficient. I think founders should raise their leverage in the business, find the leverage and grow off of that, and not Because they think it's through funding but it isn't.
And, Alex, if I talk to you in a year and your business is growing, you're going to say we tried this, we tried this and this worked and we figured out what the thing was underneath that. And then we turned the product, we moved it over and we took it out to this and we found this crowd says that is absolutely amazing. We closed 100 customers. That's what that turn looks like too. Oh my God, I'm really onto something. But this is why big companies can't do it. The innovators deliver them. They're not going to try those 17 things and look for the finesse and fail 60 times until you find it, or something like that. So that's always there, by the way, that experimentation phase and the narrowing down phase, so they're both required.
0:51:12 - Alex Shevelenko
I love it, I think I'm writing this down, by the way. The leverage is really when we think leverage, we think capital. That's fundamentally and you're saying, yeah, capital could be leverage in some timing.
0:51:24 - Greg Head
No, it isn't, it's just acceleration, it's just reports.
0:51:27 - Alex Shevelenko
It's not the yeah it's not, so that's very perceptive differentiation.
0:51:31 - Greg Head
No, actually, and marketers and entrepreneurs know this Right, like one guy me is getting 2 million people to see my posts on LinkedIn. Because of the clever leverage of the content and the focus, I'm known as the best. It's something important for someone specific, for these practical SaaS founders, bootstrapers and the ones who are getting by without VC funding. There's a little funding flavor in there, but I'm the one of you talking about it and I'm the one of you who's done it, and I'm talking about the real stuff and I'm showing the examples and I'm bringing out the insights and I'm toning it in a way that these people can hear. You couldn't hire five writer LinkedIn social media specialists to do what I do, and so there's a person behind this, which is also harder to scale, but I'm winning against the brute force marketers.
0:52:27 - Alex Shevelenko
The last thing I want to say is, Actually, let's drill into the scaling of the founder, Because one of the other quotes that I wanted to highlight from the book creating and growing valuable companies usually an all-consuming effort. For many years Some founders sacrifice their health, relationships and families. So you have to define what success means to you so you can choose the best path for that success. Yes, let's talk about that. And what are the particular challenges to the practical founder scrappy model, where you may not be able to hire the person that's done this before. You may have more junior talent that is figuring it out along with you and therefore you can't delegate and get some of that leverage.
0:53:19 - Greg Head
How do you?
0:53:19 - Alex Shevelenko
find people are working around that. Do you find the practical founders are happier as a group than the ones that are VC backed? Who could afford maybe better talent?
0:53:32 - Greg Head
Right. I could say that it's rare for a practical founder who has customers and revenue and a little team and no outside funding and they're pretty close to break even. They're not going to run out of money anytime soon. It's rare to find somebody who's miserable. They love this game and nobody's going to kill them. They got time.
It's hard. We're all in on this kind of thing. So and it's almost a rule that if somebody raised a VC funding, they're in a stress zone. If I don't get my number hit my growth number, if this doesn't work, I'm out of business. They're going to shoot me, they're going to take down the business. I can't survive without VC funding. So if I don't raise another funding round, I got to close the doors. That's a really brutal stress game. They're both very exciting. They're both hard in the practical founders zone. So that's a generalization. That's what I've seen in the last five years talking to 3,000, 4,000 founders. The VC funded founders are generally miserable, stressed and, no, it probably won't work. The Bootstrap founders, especially once they're over a certain milestone a million ARR and not burning cash they're generally happy. This is a fun game. We love this game.
0:54:55 - Alex Shevelenko
They've probably gone into it, not to, you know, I think, a lot of VC founders. At least historically, they would be kind of an MBA type that said I did the analysis of all these markets and I did this. Therefore, I think this is the biggest opportunity that's underserved.
0:55:11 - Greg Head
Some of the VC funded prices are like that yeah, they don't care about that.
0:55:15 - Alex Shevelenko
But they may not be as passionate about that particular business. It's just a financial decision of how to allocate, Whereas I think a lot of practical founders I don't think they're thinking like that they probably deeply care about their customers, this particular niche that they're going after. This is near and dear. This is not a financial.
0:55:36 - Greg Head
No, and this is why they're just like. Steve Jobs talks about passion. This is why they're going to keep doing the hard things that normal people won't do is because I care about these early stage founders, my friends by pals. These are my people, these are the ones who I, these are the crazy ones who I think are going to change the world, and I think it's better for most of them and I counsel them. You know, stay off the funding drugs as long as possible. Alex, I would say that to you. If you can get to a million ARR and find your sweet spot and keep growing from there, you know I would do everything possible and there's a line that some things at times is not possible, everything possible to stay off raising two or $3 million from a institutional fund that gets preferred shares and all that game and wants you to get another round, and I'd you know. You know it generally doesn't work that way. So the founders there's all kinds of ways. The other thing about the practical founder game not raising big VC funding, vc funding there's one way to do it Go fast, go or go home. You know, go big or go home in practical founder land.
Who you are, I love this industry. I love building slow, steady companies. I love going fast. I'm an extrovert, I'm an introvert. I'm in Copenhagen. I love selling to the Dutch market. I love this industry. Like people can see that I'm showing up in contributing and caring and gifting to the people that I care about, who are the serious SaaS founders and the folks who joined them on their quest. So there's all kinds of ways to be happy and play the game. That's actually one of the ways that I think the practical founder game can win Women founders, people in different countries, people who don't fit the NBA you know fast talking, smart guy, you know VC funded template right.
They can do it at their own pace and I see this all the time. The passion and the pace and the continuous improvement and the steady and I'm not stopping wins the war more often than not. In a lot of vertical industries the legal software market, the dental software market the buyers the dentists and the lawyers are sick of the overfunded sales-oriented pushers who don't understand their business. They want to buy from savvy dentists who are built a solution that works way better for them and aren't trying to crank this thing up and raise prices on them. Everybody's feeling the funding industrial complex impact on the software that they use to run their businesses, and you know they're stepping back from that. They know when they're being hyper-marketed too right and they're looking for the savvy person to follow there.
0:58:39 - Alex Shevelenko
So we love this part, Like we love the buyer-centric experience versus sales-centric. And I think when you talk about even just the way people talk about the metrics, it's all about sell, sell, sell, sell, sell, market, market, market, MQL to SQL, and of course it's a measurable approach. But people forget that at the end of the day, you know the buyer is the king, right, and how do you create?
an experience that draws them in versus pushes stuff. And I think the venture approach introduces that risk, right, Because you bring in people who have done that mass, mass, high-volume approach and that is a factory. They're a playbook you can point out like a playbook and I think increasingly you need a different playbook, right, you need a playbook that draws people in Whatever playbook works, you know, find the leverage in your playbook right, find the leverage in your playbook Now.
But I will say this, and I'm curious what your response to it is Like so great patience is wonderful. We all agree about creativity, experimentation, but people are people and if there is no pressure external pressure of some kind to do your best performance, we tend to drop off. We tend to get familiar. Even entrepreneurs who are driven could get kind of stuck in a hey, I've done this, it's comfortable and you don't push yourself as much. This happens obviously to large businesses, right, they kind of slow down, they get comfortable. Certain processes get embedded. I think one of the advantages of the VC funding model because the returns need to be substantial, there's a pressure, right that to pressure to continue to grow and experiment, and sometimes that pressure is helpful because there's a big opportunity. There may be competitors coming in, so you do need to move faster in some markets. What's your take on combining this patience and passion and some degree of independence, as you described, was hey, let's take the best out of the VC model, right, they're like they're pretty smart people.
1:00:57 - Greg Head
Well, I think the best out of the VC model. I don't see any practical founders that are not working hard and pushing hard. Okay, I think we just went through with 40 founders what their general vision is for next year and generally the growth rates across all my 40 founders in my peer group is about 30%, which is what funded companies are growing at right now. So, and they're all pushing and the rest, but they're not doing unnatural things as founders and in their business and spending and the rest to make it 50% next year just because they found a healthy rate in there and it's gonna be hard. So they don't have extra people and all that kind of thing. So I do think one of the things that founders miss in some take funding and for this reason they don't need the money but they want the advice and the help. And Google took funding not because they needed the money but because they wanted the best help on the planet for scaling a software company Kleiner Perkins and the rest. So generally bootstrapped and practical founders spend less and get less experienced. Help from investors can bring help in networks and they've been through that phase of the growth game before and so forth. So that's generally the thing there, but I think they're not sitting on their laurels. Nobody's sitting on their laurels in this game on the opportunity.
There they have different timeframes. Like, yeah, I'm gonna be a $50 million business, but I don't need to do it in four years. Like the company that I helped start went from a kitchen table, let's start this company to a hundred million in revenues in four and a half years and 500 employees. It was crazy and it was brutal and the company effectively is in a round anymore. It wasn't a long-term kind of strategy. We did the rocket ride game and went public and sold it and did all that kind of stuff. So there's another way to do it and all kinds of gradients from 10% growth to 50% growth. Many of my practical founders are growing 100% a year and they're doing big, complex, heavy solutions and it's not just these little lightweight little apps. They're doing really serious stuff but they're finding the leverage to be able to do it.
1:03:39 - Alex Shevelenko
So I'm gonna come back to the investors. So let's say I'm an investor and I wanna propose my capital to a practical founder. Yeah, what do you think the investor should be doing to appeal to this type of founder that does not wanna be dependent on the investor, but the founder is already rich let's say a million ARRs you describe right, and they have some degree of sustainability. They've done the early experimentation phase. What would be my pitch as an investor to that type of founder.
1:04:13 - Greg Head
The traditional VC pitch the big VC funds, the Silicon Valley funds, and there's a game that's played and there's people who win that game. But that traditional pitch is you need to take five to 15 million because we raise this big fund and we can only invest big chunks, and then in five to seven years you need to sell this for half a billion to a billion dollars or we'll fire you along the way and we'll change you and we have preferred shares and you're gonna raise more money along the way. That doesn't appeal to these practical founders. They've already bought their independence, they know what they're doing, they know what works and they're not gonna screw it up. So that traditional model doesn't work with these kind of founders and those VCs know it. I know those VCs and they're like yeah, I know these people out there gonna be successful. We can't invest in them. Their total available market is too small in that vertical and they're gonna do fine. We just can't win in our game. To appeal to those practical founders, you need to say they literally need to be practical investors. We invest smaller chunks. We don't expect crazy growth rates, we expect reasonable growth rates. We'll help you with the things that you don't know that you need.
Yet hiring senior help, building scalable go-to-market engines those are things that are challenged as you move from startup to scale. And we are relatively patient, meaning we don't have to get our money back in five to seven years or we're gonna start making you do unnatural things. Most VCs would rather see a slow growing company fail than keep it on the books for another five years. It's just not the way their funds work. So growth equity and some private equity investors and some patient practical capital a lot of times from founders or the rest says we're here to help. This could be your last round. That would be good. We like your efficiency. You don't need to sell it right away. We see some opportunity. We think you're the guy. We're gonna help you to run it. We're not gonna push you out. We want all of our investments to win. By the way, those things I just said it's not how the traditional VC game works.
1:06:37 - Alex Shevelenko
Got it Well, Greg. This has been really fantastic advice for anybody thinking about how to build a sustainable independent business, achieve more control over the future of their business and potentially decide whether you are ready for investment decisions. I think it's really important to highlight that you're not saying no, it's just like we said. It's an accelerant at the right stage, at the right time, when there's a perfect alignment, and I'm really really glad that you're introducing this worldview, which doesn't get publicized in the press releases and the tech media but fundamentally could impact 95% of the actual people building the college business.
1:07:28 - Greg Head
I'll take 90. People say, oh, I'll let you have it. I say, well, I'll take 90% of the market. That's fine.
1:07:34 - Alex Shevelenko
So if you're, 90% of the market. You better be listening to this episode and you better be checking in. And, Greg, how can people find you on LinkedIn? Obviously, yeah. What else do you?
1:07:45 - Greg Head
want to be found. They can connect with me and follow and join the conversation that's happening in my LinkedIn posts and there's quite a crowd there and message me if you have a question. They can go to practicalfounderscom to find the Practical Founders podcast, download the ebook and find out about peer groups that I do and other ways to get connected and stay in part of this growing community.
1:08:10 - Alex Shevelenko
All right which?
1:08:11 - Greg Head
global too. That's another thing too is just as many founders in Europe and India and around the world who are building these kinds of software companies as there are in the US. So it isn't a Silicon Valley phenomenon or New York or London, it's everywhere else. So I'll take everywhere else.
1:08:29 - Alex Shevelenko
Yeah, this is highly relevant because, as the distribution channels have opened up and become more global, it sounds like the world of creativity is not limited to Silicon Valley. So thank you for advocating that and we hope you dig in and download the book. Thanks so much, greg, thanks Alex.