From English Prof to Tech Startup CEO: Steve Adams of Sabrix (Part 7)

SM: Let’s go back to 2002. You arrive and have this product. What was your launch strategy?

SA: Timing was important. That was the nuclear winter of software. There was a general malaise in the software industry because of Y2K and then the euphoria of the Internet. A lot of companies bought a lot of software that ended up as shelfware. When the bubble burst, software purchases squeezed down dramatically. In the middle of this nuclear winter along comes Sabrix, and enterprise tax application. Companies had ERP systems, shelfware, and were not interested enterprise applications in general. We came along and sold an average deal size of $300,000 which was substantial in that time period. We sold it to purchasers who had never purchased or influenced the purchase of enterprise software in their companies.

SM: Who were the purchasers?

SA: State and local tax managers inside of large corporations. We were not selling to the VP of Tax, and we certainly were not selling to the CFO. We were selling lower down in the organization, and it was a big-ticket item. I am pleased to say that when we put the business plan together in June of 2002, I had looked at enterprise software companies which had been funded in the early 1990s, that had successful exits of one kind or another. There was a fairly clear model as to what a top 10% enterprise software company looked like from a financial metrics point of view. I looked at them five years prior to IPO, during IPO, and after IPO. Those metrics became our goal. One of those were average deal size and revenue mix. We set that and have exceeded it every year we have been in the business.

I laugh because it is interesting doing things the hard way. We did it in the wrong space (enterprise software), at the wrong time (nuclear winter for software), and by the time we came out of the nuclear winter, everyone was saying the only software which should be purchased was software on demand. Yet, through that time we have built a very successful enterprise software company.

SM: It is almost counter-intuitive that you were selling so low into the organization since the item was such a high dollar figure. Instinctively, you would probably want to sell to the CFO.

SA: It should have been a C-level executive, but at that time CFOs were focused, from a tax perspective, on effective tax rate, which is driven by direct tax or income tax. As we have seen in subsequent years, many companies have artistry when it comes to managing their effective tax rate, so there wasn’t a lot of software automation in the planning and revision steps. Even though this was a large function in terms of financial implications, it was handled and managed lower in the hierarchy of the CFO.

[The 2002] Sarbanes-Oxley [Act] has changed that to a certain degree in that all financial processes, especially those which deal with compliance, now need to be managed very carefully. While in the past as a large multinational you could say, “my error rate on sales and use is about this so I will put monies aside and if we are off we will be covered to pay the tax, penalty and interest. If we are off we will just pay the money off”. Today Sarbanes-Oxley says that you have to be accurate. It was very counter-intuitive, the way we sold.

SM: Was it trial and error that led you to that decision?

SA: No. We relied on enterprise software experience and believed completely in our value proposition. We felt if we could get the audience and the opportunity to explain, they would see the value. The fact that we have been able to grow and maintain that deal size suggests that is true. There is real value and we can explain it. The increased legislation on compliance also helped.

This segment is part 7 in the series : From English Prof to Tech Startup CEO: Steve Adams of Sabrix
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