From English Prof to Tech Startup CEO: Steve Adams of Sabrix (Part 8)

SM: Who were your first customers?

SA: They were folks like Franklin Covey, General Electric, and Hewlett-Packard.

SM: You went for the real big companies first?

SA: Yes. Today we have 150+ large multinationals that have purchased this. I am very proud of our team, and our sales team. For a company our age we have the most blue-chip list of marquee customer names in the world.

SM: Do you have any competition?

SA: We do have a competitor, a company named Vertex that has been around for more than 30 years. They initially took the approach of building a single calculation engine, and they have since worked to develop a competitive product to ours. In those large multinationals, with the value proposition we had in terms of consolidating the tax under a single engine with a single source of content and therefore a single system record, we set a new standard and everybody has been chasing it since. Everybody really today, one company today independent, the second was acquired two years ago by ADP.

SM: What kind of ramp did you see when you started selling the product?

SA: It was that typical $1.25 million the first year, $3.5 million the next, and then $6.5 million, $8.5 million, and $18.5 million ramp. In 1997 if you had that profile for the first five years of your company, you would go public at about $25 million in revenue, you would get a meaningful multiple based on the last 12 months’ revenue, you would get a slug of cash and start building your business from there.

We hit that in 2007; the rules are all different now. Today everybody values recurring revenue. In anticipation of that revenue coming in the fourth quarter of 2005, we sat down to evaluate our path. We knew we were on a great track for the previous decade, but things had changed in this decade. How could we use it as a foundation for growing? We had three ideas. We looked at acquisitions that we could not get done. We looked at buying or merging with companies in an adjacent space, but when you are a VC company it is hard to get those types of deals done. Finally, we looked at the opportunity for organic growth by expanding our addressable market. We have exhausted the other two opportunities, so in the interim we are doing market research in the SMB space.

This is the most meaningful set of results I have ever produced from a primary marketing research project. We talked to over 500 companies from $20 million to $1 billion in revenue. We thought we were going to go to market with an SaaS model based on our technology and content. The CFOs and VPs of Finance came back to us and said they did not need software delivered to them in a different model, they needed us to solve the business model. We discovered that we needed a different offering, which was software-powered BPOs.

We went out to get funding in the first half of 2006. We were missing one key technology component,  the returns software itself. We spent the last half of 2006 building out that returns capability from a software automation perspective. We beta’d the managed tax service in the first half of 2007. Doing a beta of compliance process is an important thing. You have to go out with 100% correctness. You need all of the functionality. We launched the managed tax service late last year.

SM: The original thinking was ASP but went to market as enterprise software. The latest thinking was SaaS, yet it went to market as a managed tax service. Somehow ASP and SaaS do not seem to be working out for you!

SA: When we had all of these conversations with business users, they took our thinking about SaaS and indicated that they would like the benefit of a lower cost of entry, and that they did not want to use their IT resources to manage it. They also liked the pay-as-you-go model. They told us that their real problem is people. They do not have the numbers or expertise. The value they were looking for from us was to address the human issue. That is why I think what we offer is very attractive. Domain expertise differentiates us. We become an extension of the finance department. It increases stickiness and is a formidable barrier to entry.

This segment is part 8 in the series : From English Prof to Tech Startup CEO: Steve Adams of Sabrix
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