Back in late 2009 we pitched dozens of VCs in an effort to raise money for Pardot. When asked the common question “who are your likely acquirers?” we’d always answer that Salesforce.com was perfect — the market leader with 100,000+ B2B CRM customers needed a complementary B2B marketing automation platform. Then, of course, we’d get the expected follow up question: why doesn’t Salesforce.com just build a marketing automation product now and compete directly?
Immediately, we’d respond with the answer every entrepreneur should give when asked why doesn’t big company ‘X’ get into their market: it’s not worth their time. Of course, this is a confusing response. As entrepreneurs trying to raise money, we’re arguing that marketing automation is a great market worthy of millions of dollars of investment. Yet, we’re also arguing that the most logical player to get into the market shouldn’t do it because it’s not worth their time. Well, what is it?
Here are the two reasons why Salesforce.com didn’t get into marketing automation sooner:
- Strong Core Business Growth – When the main business is growing at high double digits, it doesn’t make sense to take resources away from it to address a related market. As long as the core business is experiencing major growth, stay the course.
- Market Too Small, For Now – Startups often help create new markets that are small but fast growing. Marketing automation back in 2009 was too small for anyone to care about, especially Salesforce.com with their amazing growth. Put another way, if the related market can’t immediately add substantial revenue (e.g. > 5% of current company revenue), it isn’t worth their time.
Salesforce.com was smart not to get into marketing automation 7+ years ago as their core business was growing fast and marketing automation was too small a market. Eventually, it became clear that marketing automation was a bigger market than expected with growth much greater than the CRM market, making the acquisition of ExactTarget + Pardot a strong strategic move.
What else? What are some more reasons Salesforce.com didn’t get into marketing automation sooner?