Jeff Cotten, CEO of Tenfold, shares insights from their journey to an exit:. In “The Tenfold Turnaround Story: From $5m ARR, Flat, Burning $1m per Month…
Featuring Jeff Cotten · Published September 1, 2022
Jeff Cotten describes Tenfold’s turnaround through focus, a more efficient demand-generation model, and better coordination between sales and product. He connects operational discipline to the Rule of 40 and acquisition readiness.
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“understands how to run a business and and what to focus on because focus is key the investors can really give you a boost but if not it can be problematic so Andresen Horowitz LED and Ted folds series a the company had completed a b just before I joined which was led by next Coast Ventures here in Austin and those are the two primary investors The company took on a lot of seed Capital uh prior to the a by a lot of folks all throughout Texas the company was actually headquartered and based here in”
“were and actually many of those people actually were paid in our exit ultimately which was which was really critical the other thing I would tell you is unfortunately the company did have to do a reduction before I joined and I had to do one more but rest assured when I did mine it was the last one when you do these you've got to go as deep as you possibly can so the company was about 200 people before I joined I took it to 29 and that was at 5 million in Revenue we went down to 29”
“kind of general sales culture and I think in a startup you really have to be all over this you can't let people go a year I now run a 350 million dollar company and we let people go well over a year and that's not good practice but in a startup you got to do it I think every six months and if someone's not able to perform build Pipeline and show that they can produce you got to get new people in the last thing then that I want to just spend one more second on because I've said a lot about it but know the the demand generation model”
“ownership in that with my board and a couple of other advisors where we would quarterly have a a strategic planning session to sort of look at the metrics of the business what we thought valuation really really was not just what some math model is telling you what's going on in the market who are the potential exits uh Etc so that we were just constantly keeping an eye on that now in our business maybe very different than some of what you all are dealing with but because we went with a”
“upside so I asked our board uh maybe more like demanded our board and they supported a complete recap of the company so that would be something that if you're facing that type of a situation I would absolutely make sure that you're thinking about how can you recap all of your employees which are really important so that everyone can win and look we we also were successful at getting fifty percent of the company back in the hands of the employees you can imagine raising three rounds of capital now with the types of valuations”
thank you sir well good afternoon uh it's great to be here I'm gonna apologize I'm a little hyped up on coffee I just arrived a few hours ago from Brazil so if I say bomji and start busting out into Portuguese forgive me for that as well uh it's actually really cool that we line this up for me to go right after Kevin because he's actually just presented everything you're going to hear about tenfold tenfold was a braving success which I'll talk about in a second but when I joined the company I was not a Founder so I'm not like a lot
of you in the room the company had just done exactly everything that Kevin just told you not to do and so let me try to break that down so you can see a real world example I'm going to cover three things first deadly burn and I could not agree with Kevin Moore it is not about cash it is about networking Capital that is so true number two growth you've got to understand your demand gen model I think dementia models are everything and then I'm going to talk a little bit
about the exit and where we sort of took tinfol to so deadly burn this will tell you a little bit about where tinfoil was before I joined my little picture up there is when I started to influence the board so I actually did not join until January 1st 2019 but I started working with the board in 2018 when the company knew they were in really big trouble we were averaging about two million dollars a month in Burn we had raised about 14 million a year the prior two years and by the time
I joined we had 2.2 million in the bank with 2 million average burn and uh I had about two million dollars in debts receivables and money that I owed development firms and all kinds of legal organizations it was completely crazy Jeff on your left real quick yeah just name some of the investors that were on your board and how much was raised is it okay you're not oh yeah yeah I'm gonna cover that great investors by the way um I think part of the story here is when you have the right team that
understands how to run a business and and what to focus on because focus is key the investors can really give you a boost but if not it can be problematic so Andresen Horowitz LED and Ted folds series a the company had completed a b just before I joined which was led by next Coast Ventures here in Austin and those are the two primary investors The company took on a lot of seed Capital uh prior to the a by a lot of folks all throughout Texas the company was actually headquartered and based here in
Austin and actually let me cover quickly I'm not going to cover a lot about the business because it doesn't really matter a whole lot but we were in the CX space the customer service and customer experience space so we were an integration platform that tied phone systems and crms together for big inbound contact centers so think someone like HP right print printers laptops Etc you call in you've got a problem with your laptop we would arm an agent with automatic information Auto display to them about you potentially calling in
and even potential problems that the agent sees about a device that you may own from Dell or HP or whoever those were the types of customers that we had so this is sort of the setup here in terms of where I stepped in and a company that had really gone off the rails it had a phenomenal idea it had a great product it had grown to about 5 million in revenue and then it started the plateau and Shrink for a number of reasons which I'll cover here in a second so first of all I've already sort of covered some of these numbers here
one of the things that I will highlight is a cautionary tale is focus so when you have some of these big V sees uh into your company do I have any Venture capitalists here by the way okay all right a couple love VCS right I'm an LP and a lot of funds myself and and VCS are the lifeblood of innovation right we have to have Venture Capital but you have to make sure you really are uh cautious
specific in what you're looking for out of a VC when you go after one and I think before you really take on Venture Capital you really have to know your business model your business model has to be repeatable and when I say business model I'm primarily talking about demand generation can you reliably repeatedly generate demand and you're truly getting on a growth curve that to me is a marketer go take on Venture Capital once again very much in line with the things that Kevin just outlined in terms of do you use debt do you use cash you use equity cash Etc
um so so so that was one huge issue was Focus the company decided even though we were in the CX space with a big VC behind them with lots of ideas hey crypto's hot now let's go spin up a team that's going to go try to figure out how we can help customer service operations take on uh cryptocurrency interesting idea but there are many other things that are more adjacent to the core product uh that we could have invested in chose not to not to mention the sales motion is very different for that type
of a product uh the company just started to sprawl very quickly and did not stay focused on its core product before it had reliable demand once again getting to 5 million in revenue and ARR is great but you have to have a sustainable path well beyond five before I think you start to expand uh products sales expense once again the company did not have a reliable demand generation model as I mentioned a few minutes ago and had grown sales expense wildly so they had basically gone and hired
um sales Executives all over the United States primarily North America focused but had a sales team of about 26 quota bearing reps and were only generating about 500 000 in AR sales bookings a quarter that's going to get you killed very quickly and was a big part of what was burning cash without generating a lot of Revenue and cash returns and then no successful kpi so I'm mostly a big Enterprise guy this was actually my first startup which I very purposely wanted to go do to spend time with
Venture Capital put my arms around a small company organization I'll talk a little bit more about that in a second um but I am a maniacal operator it is all about what are your demand gen metrics say success based models to poor uh more investment in behind repeatable models making sure that product is delivering and and you can you know build revenue behind the product delivery Etc so a part of what we had to do with the burn like you saw was go eliminate
expense how many of you have had to do any kind of a layoff here so far anybody had to eliminate people a few hands so for those of you haven't which is most of you in the room don't don't get yourself into this situation but if you have to it's doable and and you can survive it I believe in the old uh Peter Drucker uh uh quote that uh cultured strategy for breakfast to me it is all about the people ultimately you can have the best strategy you can have great product and you're going to struggle if
you don't have a great team but if you do have to lay people off look first of all you as a Founder as a CEO have to own the message you've got to stand up front of the team and say look we have struggled we have we have failed in in whatever way or area which you failed you've got to own that message and you also have to treat people really great as you're exiting them one of the things that we did is we made sure everyone kept their Equity so that they felt like they still had a piece of something that they still had to share for the work that they had done to get us to where we
were and actually many of those people actually were paid in our exit ultimately which was which was really critical the other thing I would tell you is unfortunately the company did have to do a reduction before I joined and I had to do one more but rest assured when I did mine it was the last one when you do these you've got to go as deep as you possibly can so the company was about 200 people before I joined I took it to 29 and that was at 5 million in Revenue we went down to 29
people and it was probably 80 percent of the 29 that were left were developers so the point about I was the CFO I was the chief legal person I was the marketing I was everything pretty much except for product and Engineering to get the product where we ultimately needed it so that we could grow it again the other thing is with a company that had raised 28 million got to 5 million in ARR and had basically gone flat we were not in a position to go rebuild a significant demand gen engine and once again you've
heard me talk about this word a lot so one of the other things I felt was really critical is we needed an extremely efficient uh CAC model an extreme extremely efficient Revenue generation model and so we pivoted the go to market 100 towards a channel partner-based model which in our business made a lot of sense because we had a lot of natural Partnerships because we were an integration platform built into our ecosystem all right um this was another metric that I
personally started to obsess about which is burn as a percentage of Revenue as we've pointed out here the sort of dashed line is where you're at negative a hundred percent meaning you were you are burning your entire revenue and then your entire Revenue again so two extra revenue is how much you're burning a month and as you can see once again before I join we were uh well above that and we ultimately sort of got it into this range where we were sort of break even right most startups are burning
cash right that's not a bad thing necessarily but it is if you don't have all of these reliable demand generation engines Etc so that you're getting your Revenue ultimately where you want to go so this to me was a really key metric to understand and obsess about and get it as close to zero as you can even though you're a startup and what helped us turn that around was getting deal sizes up so as we started to look at how am I going to get more demand in I also had to look at the
types of deals that I was doing and what was going to help us be as efficient as possible in that demand generation model we were primarily SMB focused when I joined which is interesting because our platform the product itself was really not an SMB product we were integrating a lot of Legacy technology with new modern technology like say a via phone systems with Salesforce CRM well most of you today are probably not going to go to Avaya or Cisco and buy a Cisco phone
system for your employees or for your inside sales teams or whatever it else you have right you're going to go buy some you know modern VoIP based system and you're going to have a lot of the built-in features that our product was ultimately buying so we'd kind of misdiagnose the market and as we got really maniacally focused on large Enterprise of course large Enterprise is going to have much larger deal sizes so we had to really under understand the market and that was really key in terms of getting a more efficient demand generation model so as you can see here a multi-year view of how we ultimately
increase deal size which was a huge part of our turnaround and the sort of shift there also was as we were thinking about the types of sales people we needed we had to really kind of remake the sales team so first and foremost we were maniacal at aligning investment with Revenue I had a quarterly Cadence and I'll show you a scorecard here in just a few minutes that we completely ran the business on monthly I knew exactly where networking
Capital was and cash balances and what pipelines and last quarter numbers were with cash likely coming in over the next 30 60 days and we align the company 100 I was making decisions on do I hold back three hires this week or this month based on how we're performing today we would review cash literally every single week in my weekly staff meeting we also cut down vendor spins significantly I
was shocked and I'm sure some of you have seen some of this you may even have the desire to do it yourself but as a startup I think everyone wants to use all the coolest newest latest whatever and when I looked at our vendor stack we had three of everything you know someone went out and bought calendly and they love it and then all of a sudden everybody the company's got calendly and we're spending you know ten thousand dollars a year on calendly someone went out and bought yesware and all of a sudden oh my God that's so cool I can see who read the emails I'm gonna go get that right and then we had everybody with yesware my vendor stack was ungodly
I mean we were spending millions and millions of gear on stuff that we didn't need when a spreadsheet would frankly do the job so we really really cleaned up the the vendor Spin and I would really caution anybody about all this free sign up stuff that you feel like you can take advantage of because it really does kill you in the end sales reps performance we would not let sales reps go past six months if they couldn't build Pipeline and perform and this one's really hard because it's always hard to exit people but this is
kind of general sales culture and I think in a startup you really have to be all over this you can't let people go a year I now run a 350 million dollar company and we let people go well over a year and that's not good practice but in a startup you got to do it I think every six months and if someone's not able to perform build Pipeline and show that they can produce you got to get new people in the last thing then that I want to just spend one more second on because I've said a lot about it but know the the demand generation model
I've run two different types of business in my life I've run a highly website driven pay-per-click model and in those models you obsess every single day on your metrics what your spin was yesterday how many leads you got in our conversion rates changing Etc et cetera et cetera if that's your type of business you need to be on it and you need to manage it every day if you're foreign Enterprise or B2B type software business it's much more about pipeline pipeline quality having you
know the proper checks in on where ideal actually is and its life cycle and understanding that deal cycle but that to me is what you have to really own to build a reliable Dimension model and I would not be spending crazy burn and increasing burn anything near even 50 percent of Revenue if you do not have a reliable demand gym model all right let me shift and talk growth section here for just one second I've already hit this one let's keep moving
um so here was the score card that we obsessed about we kept this as simple as we could we always had four metrics and this was for the whole company and we set those metrics about this time sort of maybe beginning of Q4 every year for the following year and we did not change them we set those goals one of the challenges I had was everyone felt like the company would change every 30 60 days and it was always something new we got to change this over here add this over here you need to be flexible this
is one of the things I loved about startup Land versus beginner prize which I'm typically uh spending my my time in that you can change on a dime but your top level strategic objectives really need to be set and so we always had a customer goal uh that was all about customer satisfaction loyalty you know support metrics we had a number of of metrics that we would look at under that underlying goal we always has had a product goal one of the other struggles I had was different teams fighting
inside of the of the company and once again small company right we got down to 29 we grew to 100 before we exited but even those small groups were fighting over well you know I just sold this deal and product didn't deliver on time or product would say hey we didn't know that was coming you know we didn't incorporate it in the proper timeline uh of the road map so we published our roadmap and we would talk about it every single month and we would highlight things in weekly Fireside Chats on how we were progressing on key roadmap items so that sales always knew what was coming when our Channel management team
knew what they could talk about with partners and then also from a revenue perspective we were always sort of keeping up with okay when do I think I'm probably going to be able to generate new revenue streams based on new product uh channel was very us what I would call number three for most of you here's demanding model make sure that you were highlighting to the whole company how your demanding model is is progressing because this is going to be a key lever for are you going to keep hiring are you not going to keep hiring and I would use this one and I want to talk when I would talk to the company at times to say hey
gang we just had a really bad 45 days in demand you we're going to slow some things down until that demangian model picks back up and then of course Financial targets we were always keeping the company fully abreast on where we were with networking Capital cash in the bank Revenue Etc okay so let's switch gears here and talk about the exit so one of the things that I think a lot of startup Founders especially but even as you start to take
on VC and you spend time with the board uh is you know how should I think about exit how how often should I obsess about what is my exit path who should I talk to about exit does everyone in the company need to understand what's going on how we're thinking about exit one of the first things I'll tell you and you've all have all heard it I'm sure which is that companies are bought not sold and I would sort of spend time with my top leadership team obsessing
over that Mantra and that look we have to build great product that customers love and continue to buy and expand and the rest of that stuff will take care of itself because that's what I needed the internal team focused on but of course as a Founder as a CEO and for those of you that have a board you obviously do have to think about this and manage it so what I did is I created a little Council that included the two founders of the business that were still there when I joined because I wanted them to feel like they still had a voice and
ownership in that with my board and a couple of other advisors where we would quarterly have a a strategic planning session to sort of look at the metrics of the business what we thought valuation really really was not just what some math model is telling you what's going on in the market who are the potential exits uh Etc so that we were just constantly keeping an eye on that now in our business maybe very different than some of what you all are dealing with but because we went with a
primarily Channel distribution model we had a lot of natural exits built into our business and in fact one of the decisions we made was to OEM our software and white label it so that others could sell it as their own and clearly in that type of a of a model those are going to be potential acquirers for you down the road I had made the call that because we were effectively a tool I didn't believe that this really had a public IPO path uh you know you've got to get to 100
million with rule of 40 at 100 million for you to really be on you know a potential IPO path and I didn't see that with this company and it was so valuable I knew that I could get 20x Revenue multiples uh if we aligned with the right types of Partners so we chose to use that partner strategy to align ourselves with people that probably would end up buying but once again I'm maniacally focused on execution acquiring customers making those Partners happy showing that we were delivering high quality product that
they needed and ultimately what happened is one of those OEM Partners said hey we really would like to have a conversation because we believe we need to own this technology and we said that's great we've actually just taken on debt funny enough uh I did not want to take on any more dilution so we had gone and done a debt round to basically just continue to fund some working capital and that we were going for it we were not for sale but you know look we have a pragmatic board we absolutely would
listen to you know an offer if someone wanted to uh surface with that so ultimately live person did um as a result of these OEM agreements we did offer uh notification rights we did not give roafers you obviously never want to give a ride a first refusal uh and we had everyone demand it and ask for it and in every case we except for one actually we we did not successfully get one OEM agreement done because of uh
not granting a roofer but we did Grant notification rights which you know is only to your benefit because in the end what happened is once you had an offer on the table we served those notification rights which then triggered a competitive process and so that worked very much uh in our favor so live person service with the first offer it triggered that competitive process and I believe that we would not have gotten there if we had not really
obsessed about rule of 40. so you can see uh prior to uh 2020 let's call it we weren't even in the realm of possibility to be acquired and we did have a mega multi-billion dollar company who all who was an investor actually a relatively small investor but they always wanted to acquire the company but they never did until we could actually get the business growing and get burn rate to a responsible level and finally once we
had literally six quarters of sort of being above zero and then getting into that sort of 40 and above sort of level finally they were interested but you can be the best product you know you you can be acquiring customers you can be making customers happy but if financially you're not delivering or performing it's going to be really hard to ultimately get an exit and so if we hadn't put this up we would not have gotten uh there so ultimately live person is to acquired tenfold live person was primarily in the
chat business so when you go on to a website today and the little bot pops up probably six out of ten of those that you see is going to be live person they are the dominant market leader in that space and they wanted to get more into this sort of voice and CRM integration space which is ultimately why they chose to acquire tenfold so um you know I've covered most of this we had taken on about 35 million just shy of that in total Capital we returned
more than 2x what we raised and we because we'd done a number of rounds including a Down Round uh our investors got anywhere between 2 and 5x depending on how much they invested in every round of course as you can imagine the latter investors got the 5x they were over the moon uh excited I would tell you on a Down Round a couple things first of all this was painful no one wanted to do it but you got to do it if if you're in this type of a situation and couple
things that I would think about I was lucky to have supportive investors but I was also demanding of those investors at number one you have been here along the way you've helped this business get into the spot it's in and number two we've got to do the right thing by the employees if we do not get a team that is reinstented re-signed up because they've just taken a whole lot of dilution as well on this down round and they don't necessarily have the opportunity unless we re-up them as a part of this down round they don't have the ability to participate in now future
upside so I asked our board uh maybe more like demanded our board and they supported a complete recap of the company so that would be something that if you're facing that type of a situation I would absolutely make sure that you're thinking about how can you recap all of your employees which are really important so that everyone can win and look we we also were successful at getting fifty percent of the company back in the hands of the employees you can imagine raising three rounds of capital now with the types of valuations
that we had we had taken a lot of dilution on and we were probably down around 15 percent was what employees were holding prior to that down Realm um one last thing um and probably the way to think about this more for you all is bringing on new leaders into your organizations um one of the things that I did that I think ultimately made this successful is I was not a founder and I knew it was critical to really prop the founders of the company up and keep them highly
visible keep giving them accolades and praise for getting the company to where it was and being Central figures anytime we had a strategic uh a topic or a long-range planning topic product Vision roadmap those kinds of things I let those guys deliver the message present to the company Etc because I needed them it was critical to have them on board but but really emphasizing that it was really their company uh really mattered but
I would be thinking about how can you get experienced operators I will tell you now as a board member and an investor and a lot of early stage companies this is one of the things I see most organizations struggle with the most you need help operationally you need someone who's going to build structure and operating rigor tricks that help you build repeatability repeatability is the thing that I see over and over that people struggle with and and by the way acquires or PE firms or whoever is a potential exit for your business is gonna that's the primary
thing they're looking for is repeatability and you're going to need that type of operational rigor to help you get there so I'd be thinking about that but then making sure that it's someone that understands what their role is and fits within that sort of founder mentality because it's very it's very possible to do that and you just have to make sure that the old and the new all feel like they have a seat at the table all right that is the tenfold story thank you [Applause]
