Workshop: Cybersecurity Firma mit 304 Mio Umsatz optimieren

0:00I run a cybersecurity company. Uh, we sell cybersecurity analytics. Specifically, we catch hackers in large organizations. Right. Primarily sell to the Fortune 1000, Global 2000. Mhm. Specific focus on financial services, nation states, and uh and retail. Right. >> uh last year we did a $304 million of top line. Awesome. And uh our gross margins are about G, about 88%. Right.

0:25Uh net operating margins are lower uh primarily because we have significant uh costs in terms of sales and marketing and and what have you. There's a lot of infrastructure on the back end there. Yeah. Even though the delivery costs are low, the sales and marketing efficiency is not there. We'd like to get to about $500 million of revenue in about a year and a half from where we are. And that's recurring. >> What's stopping us is that we're sort of addicted to those large deals. If you take a look at our average deal size, we're talking about about 536k for average deal size today.

0:53Um and what that really causes is it causes a significant amount of lumpiness in the business. Uh-huh. Moreover, there's a lot of platformizations in in terms of what we have in terms of the technology. And what I mean by that is we've we tried to do a land and expand sales model. Yeah. We sold we sold smaller amounts, if you will. We We tried to transact those and try to upsell. But ultimately, we have an elephant hunters on our enterprise sales team who just go and sell the entire fleet of products in one shot. 9 months It's 9 months or bust.

1:22Um really what's happened over here though is that this is a fundamental risk to the business. It's very very lumpy. And sometimes uh a quarter will be um we'll we'll we'll either make the quarter or lose the quarter based on a particular on one deal. And this is particularly um frustrating right now because we are PE owned. We've sold the company We've sold the company twice. We sold it from VC to PE, and then from another PE to another PE. And now we're looking at the third exit here in the next year and a half, which is why we have the $500 million ARR target.

1:50Any suggestions on as to how to take an established model where we have various covenants and add a a minnow, or basically a land and expand motion, without disrupting the existing enterprise sales motion? Did you found the business? Yes. Congratulations. Thank you. How long's it been? 18 years. Feels like 18. >> [laughter]

2:17>> That might be my quote of the day. Um okay. So, I think that um So, I mean, margins have to be razor thin if a $500,000 deal is going to make or break the quarter. So, what part of my misunderstanding there? Uh it's not So, it's not so much um So, basically, we reinvest a significant amount in growth. So, for example, we have 204 sales people in in in the company today. And what we generally have been trying to do is rather than optimize on the operating margin, we've been reinvesting into the business so we have sales capacity for the next year. Do you trade on EBITDA? Uh we have now we've recently moved from covenants Basically, our leverage covenant moved from uh moved from ARR to EBITDA uh as it it's actually it's moving next end of this year. So, we're preparing for that right now. Yeah, because you'd have to dramatically increase EBITDA if you're That's right.

3:03So, we've moved We've actually moved from negative EBITDA to $37.6 million of EBITDA this year. Got it. Okay. Um All right. So, I'll I'll tell you what I I might start by what I wouldn't do. Um which is I probably wouldn't allocate existing resources or people um and try and t- take people from one to the other because it's it's such a different sales motion uh kind of going after minnows. And so, I think you'll probably need somebody who's kind of entrepreneurial. It might be a real cuz given the size that you have, it might make sense to acquire somebody who already had like that's like if I'm in your shoes, because you need to have such a significant amount of scale in order to make a you know, make a dent in this. Yeah. It's like I'd be looking at somebody who has inferior product to yours, but has a really good marketing and sales function for minnows. And just say like, "Listen, your back end's trash. Uh like we'll plug it into ours. Uh but we just want like this There was a deal that I was looking at um for gyms, obviously smaller, but um where there was a marketing agency that was selling like 50 gyms a month, and they would keep them for 3 months, and they'd turn out.

4:07And I was like, "Man, I could just buy this company and just say like, keep everything the same, just sell our thing." Um we ended up not doing the deal for a different reason, but like I think that would probably be like the fastest way of getting into the minnow market. Start building that from scratch, given the fact that no one in the business sells to minnows now. Given the timeline, Right. uh I don't think I would I don't think I'd try an organic growth strategy for minnows to get from, you know, 340 or right around where you said to to 500 in 18 months.

4:39>> Right. I don't think I don't think I just I think it'd be really really tough. >> I think that that's that's our sense as well. Uh we were looking at doing an inorganic uh rather than an inorganic acquisition there. >> Uh the catch is also one of them maintaining the culture of that acquisition. That's going to be such a distraction. >> [sighs] >> I mean, I think either way it's going to be a distraction. I wonder if like I mean, you said that the lumpiness is an existential threat to the business.

5:05What is sales velocity? So, sales So, like as I mentioned, the sales are I'm not happy with that sales cycle either. It's about 9 months. But how many deals a year do you do? So, in general So, right now, we have about 40 customers with with ARRs of over a million. Our total customer count is approximately a thousand today. Got it. And uh so, we'll we'll add a net new this this year of about 150 customers. So, this

5:30>> So, a thousand customers, 340 million roughly. So, annual revenue is like 340-ish per customer. And then top 40 are disproportionately higher. >> That's right. So, So, we have a long tail. So, we raised prices in recently. Now, we're looking for larger deals. The The average deal size has increased as as we've grown the company. Yeah. Yeah. So, if we were looking at the more better new, I know as as as rudimentary it is, I still think that way. Um if I had to make a bet, I would probably bet on the better button for the existing sales function with like Do you have 204 or 40? 204? I just

6:07>> 204 people. Yeah, 204 sales people. I would probably be thinking like, "Okay, I I'm dissatisfied with this. I'm probably not going to introduce a new variable into the business when I know that if I if we just I guess thinking like 12 months in the future, if we just nailed one thing, what would have the highest likelihood impact on us getting to 500?" Well, probably taking the existing infrastructure, existing deal model, and just say like, "How can we tune this thing up?" >> Right. Would probably be and that's just going to be a lot of like rolling sleeves up. But I think realistically that that's probably and there's probably a lot of bloat right now.

6:40Um and I'll bet you that from a cultural perspective, I know you want to maintain the culture, but I'll bet you the culture of that team is probably not as good as you want it to be. It's probably a lot I mean, especially like tech sales, it's like literally the butt end of jokes for lack of work ethic, right? >> That's right. So, um probably putting in like almost like a Welchian like Jack Welch um perspective of like every quarter bottom 10% gets cut. >> Right. I think would probably dramatically signal to them that like we need to produce. Um and usually laying off the top bottom 10% in a business of that size it won't like it'll you will make more money.

7:15>> [laughter] >> Um and so that actually I I know I know we we had to like derive that be a bigger business. That's probably what my next move would be. And then I would be looking at So, if we're It's kind of funny cuz this really what we're doing. Um One more? So, this is a like a perfect case study here, which is like we need to get more customers, right? Are we doing more? Are we doing better? Or are we doing new? So, new would have been we're going to go after minnows, or we're going to do an acquisition. That's new. So, we talked through that. It was like, "Eh, I don't know, especially on the timeline.

7:47Is it going to create 150 million in sales? Probably not. It'd be really tough unless you just did you acquired one that it was already doing that." >> That's right. Um so, then it's like, "Okay, do we hire more sales guys or better?" Well, we have a lot of bloat on the team right now. I'll bet you we could do it better. Cool. Okay. So, who's in charge of that team right now, and why are they not winning? Um It's Does that >> Yeah. Yeah, so Yeah, we have we have a CRO on that team. Like again, he's the incentive on on again is is completely revenue based. Yeah. So, um really all My concern more than anything else is I I and I keep on hearing this. And this is a a topic that we have fairly frequently of it ain't broke, so don't so don't try to fix it. Yeah.

8:30>> At the same time, I'm >> Well, is it broke though? I look at it, I'm not happy with the way I mean, look, when we started this company, the goal was it was less it was less about revenue and more about ubiquity. We said, "Okay, we have the solution that can get everywhere." >> Yeah. >> And as we sort of learned got wedded to the teat of the big deal, it's been hard to to break that habit. Yeah. Heard. Um So, I'll say this. Um And you may not need to hear this from me, but I think that founder founders uh have a special privilege, which is that you know how the company was founded, you know how it was made, you know how to break it, you know how to bend the rules. And so, if you started this, the first few sentences you said was this is an existential threat to the business.

9:14And so, if the private equity firm is not recognizing it as an existential threat, it's because they don't have the same information that you do, because they couldn't. They haven't been around the business for 18 years, but you do. And so, whatever pulse you have, I would probably trust your gut and say, "No, this is a threat." So, like when you say it ain't broke, don't fix it, I say it is broken, and we do need to fix it because we will not hit the $500 million goal if we continue with status quo. And if we if we don't hit that goal, then all of a sudden, you know, um one of the private equity guys I know, he says, "Uh all businesses increase in value over time, unless they don't, in which case they are worth nothing."

9:48Uh and so, you were you from that perspective, that's kind of where you're at right now. Um and so, I think it would make sense for either you to parachute in, and you might need somebody who's a little bit more entrepreneurial, a little bit more renegadey, uh to go in and kind of rattle some cages and say like we need to we need to do better. And I think that's probably going to be um what will be required. And it'll And I focus obviously we think I talk a lot about behavior, but what are the behaviors that we're going to change?

10:16And how can we I mean, we solve sales problems in every organization by more role-playing than like role-playing till your eyes bleed. Like that's how we do it. And that's fundamentally how we fix sales functions because we can just give rapid feedback. Um and so it's like I think you need people who it's not like you're getting all the sales team to attend a raw-raw event and having some sales speaker speak for 8 hours. It's not going to do anything, right? I think it's you need to have um probably almost like a SWAT team of people going in and then retraining and quickly red red-yellow-greening um the team as is and be like, "This guy sucks, he's out.

10:52This guy has potential but like still needs to learn. This guy's great, let him do his thing." And um I mean, that might take 12 months. But at least at the end of that 12 months like your sales velocity will increase, the the deal cycle will probably shorten, the deal average deal value will go up, and those are the things that I think would have the highest likelihood of of getting to the 500. It's from my vantage. I appreciate it. Thank you very much. Thank you. No, 100%. Thank you.

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