Demand Generation Automation: The Next Billion-Dollar Market in the Customer Automation Space (or Why I invested in LeadGenius.com)
Yesterday Sierra announced our investment in the Berkeley-based company LeadGenius.com. With 120 plus customers after only selling for 4 quarters, LeadGenius has emerged as a leader in the nascent but very fast growing Demand Generation Automation market. I am very excited to become partners with Anand, Prayag and David and this blog outlines the thesis behind my investment.
All businesses need customers. The software that businesses use to get and keep customers is commonly referred to as Customer Automation Software. This umbrella category is comprised of the well served Sales Force Automation, Marketing Automation and Customer Relationship Management. A fourth fast growing category, Demand Generation Automation (DGA) has emerged, and players like LeadGenius.com are spearheading that growth. Before I describe DGA, let me share my historical perspective on the Customer Automation space.
Customer Automation creates billion plus value every decade: Can we keep that historical pace?
I have witnessed many billion dollar plus of value created every decade in the “Customer” Automation space starting in the 80’s. In the 80’s, it was Dendrite and Cegedim. In the 90’s, it was Scopus (a company where I was the sixth employee), Vantive, Clarify, Seibel Systems and Octane (a company I founded and was CEO). The new millennium was lead by Salesforce.com. So, I have often thought long and hard about “what’s after Salesforce.com”.
Answer was: Marketing
Market forces causing budgets shift from Sales to Marketing
In 1997, when I was CEO of Octane, it was standard practice to spend 35% of one’s P&L on Sales and Marketing, of which Sales got the lion’s share. This budget typically went to hiring sales execs & sales engineers, fund travel & meals, sales clubs and all the activities associated with running a direct sales force.
Fast-forward 15 years, and the spend has reversed permanently to where Marketing is getting the lion’s share of the S&M budget. The primary reason is due to the connectivity and ubiquity of the Internet.
– The customer’s purchasing journey is primarily self-directed as they discover products online.
– Today’s B2B products are primarily Internet native, allowing prospects to easily trial and make a needs-fit independently.
Once the prospect is identified and qualified, most B2B sales are now inside sales driven, quickly reducing the number of “boots on the street” as a percentage of the total sales force.
I believe that, in B2B sales, this shift towards purchaser self-identifying themselves after they are sufficiently educated is permanent.
Enter Marketing Automation
The ability to score and process leads at scale became the obvious first pain to solve. This caused the emergence of Lead Automation companies like Marketo, Eloqua, ActOn and the more recent IPO bound, HubSpot, which all started circa 2008 and have now gained scale. These companies provided a wide variety of capabilities to automate the process of internet-based marketing and created a data bound marketing culture that’s integrated with CRM. I consider this a very important piece of technology, and believe that market leaders like Marketo and others have a long run ahead of them.
Filling the top of the funnel: The next billion-dollar market opportunity
While sales process and the market process have been automated with next generation tools, the process of getting leads at scale that convert is still very much a black art. My conversation with some of the members of Sierra Venture’s 100 person strong CIO Advisory Board yielded that most B2B spend 5% to 20% of their Marketing budget on Lead Generation programs. The hard-numbered budget for a mid-sized B2B company can run from $3M ($80M revenue software company) to $20M/ year (SMB focused Office Supply company).
Automating this spend and creating a more accurate way to qualify, deliver and ultimately convert leads to closed business is the holy grail for a more effective return on marketing, unlocking the next billion dollar market opportunity: Demand Generation Automation.
Demand Generation Automation approaches and development
here are two fundamental techniques that need to come together to crack the code in Demand / Lead Generation a) Data Machine: Generating lead data at scale, cleansing and annotating it and b) Math Machine: Getting the “purchasing intent signal” out of the data, using data science techniques.
When I started looking at the space 12 months ago, I was very impressed after meeting innovative teams who were well along the path on the two vectors given above, while producing customer value. But no matter how good their math was, the customer was never satisfied until they “audited” the leads themselves, causing a slow down in the sales process. Therefore, I kept looking for the perfect company and stopped when I was introduced to LeadGenius.com
Data Machine + Math Machine + Human Machine = LeadGenius.com
LeadGenius’ DNA begins in Big Math at UC Berkeley where the founders had built a framework for using crowd sourced labor to “check the math” at internet scale. They applied these techniques on Demand Generation Automation in 2013 and LeadGenius as an application company was born.
The other innovation, taking a page out of Google AdWord Campaign workflow, is the “Self Service” nature by setting up demand generation campaigns. This “self service” engine lets a demand generation manager set up a lead generation campaign in the cloud, swipe their credit card, put some parameters on where they want the leads delivered (i.e. SFDC), and press GO. Very quickly, leads start to flow from the cloud into the company.
The ultimate test of value is customer momentum and love. The 12-person team at LeadGenius was able to land 120 customers. Now that’s what I call a product market fit!
A common belief in business and in venture capital is that it so much easier to “learn how to surf when the tide is up” i.e. when there is market momentum, large substantial businesses can be built. That’s certainly the case in Demand Generation Automation and LeadGenius.com
The surf’s up in Berkeley, and Anand, Prayag and David are shredding it!