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Late in 2012, we sold Pardot to ExactTarget and it was subsequently acquired by Salesforce.com. Only in January, the year before, we were actually in discussions to sell the business to HubSpot. At the time, HubSpot was focused on content marketing, search engine optimization, blogging, and analytics. They realized that marketing automation and using the web for email marketing, lead generation, and lead nurturing were the next big opportunities.

So, they decided to evaluate potential acquisitions in the market. For us at Pardot, we had built a strong micro brand. We had a number of customers who loved us, were growing rapidly, and had the start of a platform. In late 2010, we received an inbound email from HubSpot asking if we were available to discuss partnerships. We got excited and thought about partnering with the content marketing giant that we admired.

After some back-and-forth it was clear that a “partnership” wasn’t the intention, so we scheduled an on-site meeting for Adam and me to fly up to Boston in January 2011. Of course, we prepared extensively for the meeting thinking through potential questions, built a new slide deck, and headed north. We arrived in Boston with plans for a full day of meetings followed by dinner and a return flight the next day.

During our visit, we had the opportunity to meet with Brian and Dharmesh, the founders of HubSpot, their executive team, and David Skok, a prominent VC on their board. We spent hours discussing the business, the market opportunity, and shared all our metrics. We talked about the potential to work together and had an incredible working session with their team.

After our meetings, during a small founders-only dinner, we had the chance to talk with Brian and Dharmesh. We discussed why they started HubSpot, their goals, what had worked well, what hadn’t, and their startup philosophies. It was a unique experience, as there are only a handful of times in a career where you get to sit down with like-minded entrepreneurs who so closely share your vision.

By the end of dinner, Brian and Dharmesh floated an acquisition offer. The offer was roughly $10 million in cash and $20 million in HubSpot stock. At that time, HubSpot had just raised financing from Sequoia Capital, valuing the company around $300 million. Our annual recurring revenue at Pardot was about $5 million and growing 100% year over year.

Adam and I considered the offer carefully. We wanted more cash upfront, given the uncertainty of illiquid stock in another private company. We went back and forth, suggesting an increase in the cash component. If not, we were willing to sit tight and continue growing our business.

Ultimately, HubSpot chose to go its own way and continued its incredible growth. Today, HubSpot is a publicly traded company valued at close to $30 billion. Meanwhile, we at Pardot stayed the course and kept building our company.

About 18 months later, we decided to sell the business to ExactTarget, which was quickly acquired by Salesforce.com. Thanks to Salesforce.com’s efforts, Pardot became one of the most widely used B2B marketing applications on the Internet.

Looking back, it’s always fun to reminisce about what could have been. It’s enjoyable to think about the experiences along the journey. The opportunity to spend time with Brian, Dharmesh, and their team, and consider what it would have been like to merge our companies, remains a fond memory.

As an entrepreneur, it’s essential not to get too caught up in the potential exit. The focus should be on enjoying the journey and continuing to build a great business. In 2011, we had one of our first serious opportunities to consider selling, but we chose to stay the course, and were better off for it.

Last month, I was talking to the leader of a well-known organization about his approach to achieving excellence. We shared some of our own personal best practices and learnings over the years. He shared one that really resonated with me: the idea is to be pleased but not satisfied.

This involves pushing the team hard and having a strong opinion on how things should operate. The idea is that there’s a balance between encouraging the team and individuals to do their best while also finding opportunities for them to do even better. Sometimes it’s easy to take what you get and move on, and sometimes, you know that more is possible.

Late in the Pardot years, we were making a push for customer referrals. Our sales team would ask for referrals after a new customer had a successful launch. Customer success would occasionally ask for a referral after an excellent check-in call. It was okay but not great. I pushed the team. Surely, there were other options. Then, after pushing more, the answer emerged: an in-app Net Promoter Score questionnaire once a quarter, and for users that were promoters, an automated prompt for a referral in exchange for a $100 Amazon.com gift card. Bingo. The referrals flowed in. Pleased initially with the referral push, I was not satisfied until we achieved better results.

As a leader and manager, you have to find that balance. Do you push more, or do you take the progress and be done with it? My favorite saying, after reflecting on this and thinking more about his perspective, is exactly how he described it: you want to be pleased but not satisfied. You want to share with the team or individual that you like the progress and the direction, but you’re not satisfied. There’s always something better, a next level, a new realm of possibility. So, the next time you’re working with a team and the result comes back, but you know even more is possible, tell them you’re pleased, but not satisfied. Stay hungry for more.

Last week, I was talking to an entrepreneur, and we got to the topic of ways to relieve stress during especially difficult periods. He shared some of his past experiences, and I shared one of mine that I remember vividly. 

Back in mid 2012, we were going through the process of selling our company. As part of that experience, there were a couple of months of negotiations, which had a little bit of stress. Then, as we got deeper into the negotiations, the stress ramped up. In the final two weeks, the stress got unbearably high for me personally. Then we signed the letter of intent to sell the business, and we had this 45-day due diligence period, driving stress up even further. 

If everything went according to plan, our company would have a new owner, and my life personally would change dramatically. Not knowing how to handle this anxiety, stress, and looming deadline, I looked around and tried to find something to occupy my mind, especially when I was caught up on everything related to the acquisition and the day-to-day running of the business. For me, I arrived at something pretty simple: staring out the window while working on my laptop. I would look at the backyard and see a bunch of grass with weeds in it. So, as soon as I finished what I needed to do at the office, I would go home and hop on a little gardening cart and pull weeds to clear my mind. One by one, little weeds, medium-size weeds, I’d fill up the garden cart, take it to the back bushes, dump it, and then start over. No phone, no laptop, no podcasts, no distractions, just me, a garden cart, and a backyard of turf. 

So for that 45-day period, and even a bit before we got to the due diligence, my go-to activity when I cleared my most immediate tasks at home was to pull weeds. This experience and this process of having a stress release valve made a huge difference. We got through the transaction, sold the business, and announced the sale to the world. It was off to the next chapter in my professional career. 

My recommendation for entrepreneurs is to find a relief valve during stressful periods. For some, it’s going on a jog; others, it’s playing video games. Some love to cook or read fiction. In the end, it’s important to have something that works for you so that when the stressful times occur, and they always will, you have a relief valve ready to go.

A decade ago, I was helping an entrepreneur with a fast-growing, successful business. At the time, he felt that he had to raise venture capital. Initially, I thought it was the typical story of needing more money, the opportunity to capture market share, and the desire to grow faster. Only after digging in some more did I realize that his main reason for wanting to raise venture capital was a combination of having someone experienced to ride alongside him and the expertise offered by this particular venture firm. This expertise is often positioned with terms like “centers of excellence,” “operating partner,” or “consulting teams,” which are basically in-house specialty functions within venture firms to support entrepreneurs.

This approach was originally popularized in the Hollywood world and then adapted to the venture world, made well-known by the venture firm Andreessen Horowitz, also known as A16Z. For this particular entrepreneur and the venture firm he was talking to, it wasn’t A16Z, but it was another firm with a great reputation and a strong consulting team as part of their offering.

After spending time with the entrepreneur to understand where he really wanted help—with respect to pricing, packaging, recruiting, strategic planning, and product management—it became clear that what he really needed was a series of boutique consultants, experts in their craft, that he could call and build a relationship with. He could develop a retainer fee structure if needed but really have direct access to these specialists. He did not need to raise venture capital to do so.

After six months of playing the fundraising game and going back and forth as to whether or not he should take the money, he ultimately decided not to. He continued to grow the business organically and build out a network of experts to hire directly without having to take on venture capital.

My recommendation for entrepreneurs looking for help and expertise in their business is not to feel like they have to raise venture capital to find people who can help. The great thing about the startup community and the size and scale of the startup industry is that we now have experts across the board. Founders would do well to build out their own team of experts.

Just this past week, an important topic has come up twice: the idea of having an incredibly strong vision to repel distractions. On Thursday, I was talking to an entrepreneur, asking about his favorite piece of advice for new entrepreneurs and initiatives. He mentioned that with a clean slate, energy, ambition, and excitement, it’s easy to get inundated with other people’s ideas, dreams, and pet projects. One of the most important things an entrepreneur can do is to have a really clear, strong vision for how they want the world to look and use that as a lens for all incoming requests. Think about it: with opportunities to do anything and everything, the chance of chasing the shiny object or getting distracted is incredibly high.

Personally, I remember in one of our earliest companies, we were desperate to keep the lights on and had some software sales coming in. A customer made a request for a feature that didn’t fit our vision of the world, but we were so focused on generating revenue that we said yes. We built this feature, very specific to this one customer, and rolled it out. We got a little bit of money from it, but no other customers used it. The customer that had to have it churned, and now we had a bunch of code cruft and technical debt that had piled up over the years, which we had to unwind. The process of unwinding and refactoring was a much greater headache than the cash received from the one customer. Now, the flipside of that is maybe we had to do that work to keep the lights on, and maybe we should’ve had a different approach to how we implemented it. But knowing what I know now, if we were confident that we were going to keep the lights on outside of that customer and without building that new module, I am sure that we would’ve been better off staying the course on our vision and not doing a one-off feature for one customer.

Entrepreneurs, by their very nature, are eager to build, sell, and make progress. So when you add it all together, it creates an environment where distractions, requests, and feedback are plentiful. One of the most important things an entrepreneur can do is have a strong vision to repel distractions.

Every once in a while, I come across a document that blows me away with its contents. In today’s example, startup CEO coach Matt Mochary has built one such information source, and every founder needs to know about it: Mochary Method Curriculum. 

In the journey of the founders’ experience, it’s important to have context and relevant information based on what’s happening at that moment in time. For example, if there’s an article about raising a $100 million late-stage round, that article isn’t applicable to a seed-stage entrepreneur trying to find product-market fit. The great thing about the Mochary Method Curriculum is that it has valuable, mostly general-purpose information, from hiring to firing, to board meetings, to product development, to the emotional side of running a business, to the personal health and wellness side of being an entrepreneur. 

Based on the contents of the articles contained in this curriculum, it’s clear that Matt has had the opportunity to work with a number of exceptional entrepreneurs over an extended period of time. The wealth of knowledge in these documents is tremendous. 

My recommendation is for every entrepreneur to visit the Mochary Method Curriculum, bookmark it, and revisit it on a weekly or monthly basis as new challenges and opportunities arise in their business. It truly is one of the most remarkable curriculums for entrepreneurs.

With all the talk around AI, my favorite way of thinking about it is building software to “Iron Man” a job function. “Iron Man” is a famous movie and superhero where the idea is that an inventor creates a suit that gives them superpowers. The inventor is productive on their own, but when adding the Iron Man suit, they gain the ability to fly, battle enemies, analyze situations much faster, and control other systems. All these abilities get integrated into the person, becoming the proverbial man and machine combination. 

Just like with the industrial age, where the invention of machines helped increase productivity, we’re now in the AI age. We’ve had computers, software, and technology for a long time, but AI fills in that missing piece around intelligence. AI enhances decision-making, decision support systems, and analysis, allowing us to look at volumes of data and find patterns in ways that were never previously attainable.

When we think about different categories of software, the most obvious ones are the big employment centers like sales, marketing, support, engineering, operations, finance, and HR. But, just like these mainstream categories, there are thousands of long-tail categories of employees or job functions that also need their own Iron Man AI system. 

Take healthcare, education, and the legal profession, each with its own specific job functions. Every single job function will have both general-purpose AI tools, like ChatGPT, as well as job-specific AI tools that create the Iron Man capabilities for that job function. So when people say they want to build AI for vertical SaaS, one way to think about it is whether it’s for vertical SaaS across the business or a job function. Are you building software for dentists to run their whole dental practice, or is there a better opportunity to build an AI Iron Man suit for one specific category of employee like the new patient coordinator, one specific job function, and then go really deep with that as the wedge into the market? 

Every market is different, and every opportunity has to be evaluated on its own. One recommendation is to go to the individual job function and think through the AI Iron Man suit functionality to make that person ten times more productive or to enable the employer to fulfill the mission of that role in a way that is more scalable, more distributed, or more economical. Build software to Iron Man the power of a job function.

Once an entrepreneur has gained some traction, product-market fit, and the beginnings of a repeatable customer acquisition process, one of my favorite exercises for them is the 10X scale. The tenet of this scale is the idea, “What would the business look like at ten times its current scale?” So, we’re talking ten times the size, ten times the revenue, ten times the customers, and ten times the opportunity in the market.

As entrepreneurs, it’s easy for us to get caught in the weeds, to focus on the thing that’s right in front of us. It’s also easy to neglect allocating time to the bigger picture, to where we’re going, and what it will take to get there. This 10X exercise is designed to slow down our day-to-day tactical work and really back up to look at it from a longer horizon.

Some questions to ask when doing the 10X exercise: 

What does our employee org chart look like with ten times the scale? 

What will our customer mix look like at ten times the revenue? 

What types of funding sources and capital stack will I need to fund the growth of the business to achieve this scale?

What types of partnerships, infrastructure, and geographic locations will be necessary to 10X the business?

Often, entrepreneurs think more linearly, such as where they want to be next quarter or the quarter after that, maybe as far as their plans for the following year as part of annual planning and budgeting. However, the exercise of thinking about being 10 times the size, about having 10 times the customers, and about having 10 times the revenue forces a longer-term perspective on things. What I’ve found is that entrepreneurs, when going through this exercise, often see that certain executives on the team might not be the right people for 10X the scale. They might be suitable for doubling in size, but when you start thinking about 10X in size, it’s a gut check, and there’s a sense that this person might not be the right one. When you start looking out at 10X the scale, you might realize that we need more internal management programs, more focus on employee development, and more emphasis on developing our internal skills so that our employees can grow as fast as the business grows.

One of my favorite entrepreneurial adages is, “The startup only grows as fast as the entrepreneur grows.” In the companies that I’ve seen achieve the most success, the entrepreneur has grown as fast, if not faster than the business, and continues to do so for many years.

Once entrepreneurs achieve product-market fit and have the start of a repeatable business model, they should undertake the 10X exercise. Thinking through what the business would look like at 10 times the scale, 10 times the revenue, and 10 times the customers is crucial. Going through this exercise will help foresee some of the challenges, start conversations on potentially challenging elements of the business, and overall help the entrepreneur orient more towards a long-term horizon.

Jeff Bezos once said, “If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people… Just by lengthening the time horizon, you can engage in endeavors that you could never otherwise pursue.”

Recently, we’ve seen two SaaS unicorns announce acquisitions to grow their total addressable market. In the first instance, announced last week, HubSpot said they are acquiring Clearbit. HubSpot offers software for marketing, sales, and customer support teams, and they’ve already experienced tremendous platform expansion. With this most recent acquisition, they’re entering the contact data space, providing people’s names, company demographics, various types of email addresses, phone numbers, and other data sources to help sales and marketing teams be more productive.

In the second example, Clari announced their acquisition of Groove. Historically, Clari has operated in the sales forecasting and pipeline space, and Groove is a provider in the sales engagement space. The products are complementary but not competitive, and again, Clari is working to grow their total addressable market.

Over the last 10 to 15 years, the main conversation in SaaS focused on doing one thing really well. The idea was that if you were a best-of-breed product, a point solution, you provided tremendous value to the customer and stayed in your lane. Partly due to the incredible amounts of funding in 2020 and 2021, there are dozens of unicorn SaaS companies and hundreds of non-unicorn SaaS companies that are solid businesses but have slowed growth rates. Their teams and boards are looking for ways to grow faster and create more value, thus entering complementary markets primarily through acquisition.

The big idea is that while point solutions worked in the past when the markets were newer, now that the markets are more mature and competitors are established, companies that are still performing well have to find new avenues for growth to grow into or exceed their previous valuations.

From a consumer perspective, as an end user of these software products, there are definite pros and cons. On the pro side, there’s the potential for fewer vendors. Imagine having to support your sales and marketing functions with 10, 20, or 30+ vendors, and being able to simplify that number as companies add more products or modules to their platforms. You’re able to reduce the number of products you pay for and hopefully get some economies of scale or better pricing by buying more from the same vendor. Salesforce.com, having done this for over 20 years, has become the expert, acquiring many products and building a huge platform. However, with scale often comes significant challenges in maintaining agility and supporting the customer.

Are we seeing the beginning of the next platform companies that will become the Salesforce.com of the future, or will Salesforce.com itself acquire some of these emerging platforms?

On the con side for the end-user, fewer competitors can mean product functionality may not advance as quickly. The opportunity to influence the product roadmap or be a customer that acts as a sounding board will be more limited. The main downside is that it’s simply harder for a company to do many things well. The more products they add to the platform, the more likely it is that those products will not be as innovative as they were when they were the sole focus.

Expect this consolidation to continue, especially where platforms are emerging, and complementary products integrate well. Over time, we’re going to see more consolidation, but not as much as some might think. The nature of SaaS, with its predictable cash flow, recurring revenue, and great gross margins, means that companies can remain in a “zombie state”—not growing rapidly but not dying off either. They don’t have to transact, and they don’t have to be acquired. So, the majority will not consolidate, but for those that align well with a larger platform, look for more M&A activity, especially over the next two to three years, as larger, well-funded platforms look to expand their total addressable markets more aggressively.

Last week, I spoke with a tech entrepreneur about AI and its potential to make software companies, among others, more efficient in the future. What will happen when many of the functions done manually today become semi-automated? Let’s take a look at a few ideas.

• Software Development: With “Copilot” type software from GitHub and other new tools entering the market, software developer productivity has increased dramatically. While there will always be a need for software developers and a demand for more software, these productivity gains mean we can amplify the output of existing talent, perhaps making them ten times more productive.
• Quality Assurance (QA) and DevOps: QA usually involves a mix of manual human testing and automated tests. Imagine an AI bot that observes real product usage, generalizes user activities, and then automates those tasks. Such AI can also introduce its tests based on usage patterns as well as random guesses. We will still need a QA department, but human roles would shift towards managing and coordinating AI.
• Customer Support: Think about all the trouble tickets, support calls, message boards, and routine check-ins related to offering a superior customer experience. With AI, we might be able to handle 70-95% of these experiences through natural language processing, ensuring correct and accurate responses. Humans will still be essential for edge cases, quality control, and providing feedback to AI. Still, from a productivity perspective, we can support customers much more efficiently.
• Sales and Marketing: On the marketing side, AI with large language models can generate content with a specific tone, style, and voice. This content can be utilized for email templates, landing pages, websites, and social media campaigns. In sales, AI can draft email templates for outbound activities, produce content for slides, and customize presentations for potential clients or requests for proposal. While human involvement remains crucial, AI can reduce the labor intensity of these tasks significantly.
• Back Office Functions: Consider areas like finance, HR, and operations. We’ll see AI enhancements in collections, bookkeeping, controller functions, and financial planning and analysis. AI will also play a role in talent recruitment, applicant tracking systems, and candidate evaluation. All these sectors will benefit from AI-driven improvements.

Taking all these factors together, one must wonder about the efficiency gains for a software company. Will it be 20% cheaper or even 50% less costly to run a software company? This will undoubtedly impact the costs, scalability, and efficiency of running a business. Will it lead to the creation of more software companies or result in more mergers and acquisitions? Will the market competition offset these efficiency gains?

The exciting aspect of technology and considering the future is that these advancements are inevitable. From the perspective of software companies, using AI to enhance business operations, not just the products they offer, will be an intriguing area of innovation over the next decade.