Acquired Episode 15 ExactTarget (acquired by Salesforce) with Scott Dorsey

Summary Notes


In episode 15 of "Acquired," hosts Ben Gilbert and David Rosenthal, along with guest Scott Dorsey, delve into the 2013 Salesforce acquisition of Exact Target. Scott, the founder and CEO of Exact Target, shares the company's journey from a small startup in Indianapolis to a leading email marketing service, eventually selling for $2.5 billion. The episode explores Exact Target's growth strategies, including a focus on SMBs, channel partnerships, and international expansion, as well as the challenges and successes of integrating into Salesforce's marketing cloud. The acquisition is lauded as a strategic business line expansion for Salesforce, enabling it to tap into the CMO space and double revenue within three years. Scott also discusses his current venture, High Alpha, which focuses on launching new SaaS companies.

Summary Notes

Pilot as a Sponsor for Acquired Podcast

  • Pilot is a sponsor and longtime partner of the Acquired Podcast.
  • It is the largest startup-focused accounting firm in the US.
  • Pilot provides accounting, tax, and bookkeeping services for startups and growth companies.
  • The company has prestigious backers including Sequoia, Index, Stripe, and Jeff Bezos.

"Pilot for startups and growth companies of all kinds. Pilot is the one team for all of your company's accounting, tax and bookkeeping needs and in fact now is the largest startup focused accounting firm in the US."

This quote emphasizes the extensive services provided by Pilot and its position as a leading accounting firm for startups in the US.

Startups Focusing on Core Business

  • Jeff Bezos's axiom suggests startups should focus on their core product and outsource non-core activities.
  • Accounting is a critical function that requires professional handling but does not directly impact product or customers.
  • Outsourcing accounting allows companies to focus on innovation and customer satisfaction.

"Startups should focus on what makes their beer taste better... and outsource everything else that you do as a company that doesn't fit that bill."

The quote encapsulates the philosophy that startups should concentrate on their unique value proposition and delegate ancillary functions like accounting.

Pilot's Comprehensive Financial Services

  • Pilot sets up and operates a company's entire financial stack.
  • Services include finance, accounting, tax, CFO services, and even investor reporting.
  • Pilot's clientele includes a variety of companies, from startups to those in growth phases.

"Pilot both sets up and operates your company's entire financial stack... Pilot takes care of all that."

This quote highlights Pilot's role in managing the comprehensive financial operations for companies, allowing them to focus on their core business.

Pilot's Client Base and Offer

  • Pilot serves thousands of companies, including high-profile startups like OpenAI and Airtable.
  • The company scales its services with its clients' growth.
  • Acquired listeners who use Pilot's services through a referral link get a discount.

"Pilot does this for... companies like OpenAI, airtable and scale, as well as e commerce and other companies."

The quote illustrates the diverse and high-caliber client base that Pilot serves, indicating its scalability and reliability.

Acquired Podcast Episode Introduction

  • Episode 15 of Acquired is focused on technology acquisitions.
  • The hosts, Ben Gilbert and David Rosenthal, welcome Scott Dorsey, founder and CEO of Exact Target.
  • Scott Dorsey is also Ben's cousin, adding a personal connection to the episode.

"Welcome to episode 15 of acquired, the podcast where we talk about technology acquisitions."

This opening statement sets the stage for the podcast episode, indicating its focus on technology acquisitions.

The Founding of Exact Target

  • Exact Target was founded in December 2000 in Indianapolis by Scott Dorsey and his co-founders.
  • The company started during a challenging time post-internet bubble burst.
  • None of the founders had a technical background, and they were first-time software entrepreneurs.

"We started exact target in December of 2000 under the toughest conditions."

The quote reflects the challenging circumstances under which Exact Target was founded, emphasizing the founders' determination.

Initial Challenges and Vision

  • Chris Baggett, co-founder of Exact Target, had a vision for applying database marketing to the internet.
  • Scott Dorsey left his job and moved to Indianapolis to start the company.
  • The founders were driven by the potential of permission-based email marketing for small businesses.

"Chris had a real sense that the Internet was going to transform marketing and that email marketing in particular, and permission based email was going to be a very powerful way for small businesses to get to know their customers better."

The quote explains the vision behind Exact Target, focusing on the transformative power of the internet and email marketing for customer relationships.

Early Funding and Investment

  • Initial funding was difficult to secure, especially from venture capitalists.
  • The first round of financing was a friends and family round, raising about $200,000.
  • Bob Compton became a lead angel investor and mentor, providing credibility and making future fundraising easier.

"We raised about $200,000 from those that loved us and trusted us."

The quote captures the initial fundraising efforts, relying on personal connections for investment.

Building the Business Pre-Cloud Computing

  • Exact Target had to invest in physical servers and networking equipment due to the absence of cloud computing services like AWS.
  • The company's first investment was in email marketing software from Lyris.
  • Early sales teams were independent contractors paid on commission and equity.

"AWS didn't exist. So we were buying servers, we were racking servers, we were buying networking equipment."

This quote highlights the technological and infrastructural challenges faced by Exact Target in its early days before the advent of cloud computing.

Sales-Driven Culture and Customer Engagement

  • Exact Target was sales-driven from the start, with founders actively selling and engaging with customers.
  • The company was described as "marketers building software for marketers."
  • Customer feedback played a crucial role in shaping the product roadmap.

"From day one were a very sales driven and customer driven organization."

The quote underscores the foundational sales and customer-oriented approach of Exact Target, which was integral to its growth.

Early Market Focus and Scaling

  • Initially focused on small businesses, Exact Target expanded to serve franchise organizations and then larger enterprises.
  • The company used a flexible software platform that could cater to both small and large clients.
  • Exact Target leveraged a channel program to partner with digital agencies, allowing access to Fortune 500 clients.

"We were very small business focused... The original problem we were trying to solve was that when the retailer turns their lights on and opens their door in the morning, they often have little visibility into who's walking in the door and who their customers are and how to build deeper relationships."

This quote details the original market focus of Exact Target and its evolution to meet the needs of larger clients.

Enterprise Software Sales Strategy

  • Exact Target disrupted incumbents by moving upmarket from its SMB origins.
  • The company's software was designed to serve a wide range of customers, from SMBs to large enterprises.
  • Challenges included product segmentation, building a services organization, and support models.

"We started small and then we really disrupted the incumbents by kind of inching our way up market."

The quote reflects the strategic approach of Exact Target to expand its market reach and disrupt existing players in the industry.

Bootstrapping and Initial Growth

  • Exact Target (ET) started small, servicing local businesses like dry cleaners and pizza shops.
  • Over a few years, ET transitioned from serving small businesses to franchisees, moving towards the enterprise market.
  • By 2006, ET was generating around $40 million in revenue, indicating a shift towards larger clients.

"Yeah, you have a few years of bootstrapping, you start really small, dry cleaners, pizza shops, as you're saying, and then things go, well, a couple of years. Well, four years later, 2004, you end up raising ten and a half million from insight. By 2006, you raise another $7 million. And at that point you're doing sort of 40 ish million in revenue on that kind of stair step up."

The quote explains the gradual growth of ET from serving small businesses to achieving significant revenue, highlighting the company's expansion journey.

Fundraising and Financial Strategy

  • ET raised funds through a mix of primary and secondary capital to ensure founders and early investors could achieve financial security.
  • The strategy allowed the founders to remain committed to the business and avoid selling prematurely.
  • Despite raising funds, ET was capital efficient, having only used $6 million in primary capital while maintaining a similar amount on their balance sheet.

"So the fundraising that you referenced is all accurate, but actually can be a little deceiving because each of those rounds was a mix of primary and secondary capital."

The quote clarifies the nature of the fundraising rounds ET conducted, emphasizing the mix of primary and secondary capital to provide financial security for stakeholders.

IPO Attempt and Market Conditions

  • ET filed to go public in December 2007 with $48 million in revenue and profitability.
  • The public equity market collapse in early 2008 led ET to remain on file throughout the year and ultimately withdraw their IPO in early 2009.
  • Remaining private allowed ET to recalibrate towards the enterprise market and build professional services capabilities.

"We filed to go public in December of seven. The public equity market just fell apart in early eight, and we actually stayed on file all of eight, and ultimately decided to pull the IPO in early nine."

This quote explains the timing and circumstances around ET's initial public offering attempt, highlighting the impact of market conditions on their decision to remain private.

Challenges of Being Publicly Filed Pre-IPO

  • ET faced the challenges of being a publicly filed company without the benefits of being public due to the pre-JOBS Act regulations.
  • They had to report quarterly and engage with analysts as if they were a public company, providing a learning experience but also creating pressure.

"We had all the burden and cost and pressure of being a public company with none of the benefits."

The quote summarizes the difficulties ET faced when they were publicly filed for an IPO but not yet public, emphasizing the regulatory burdens they bore.

Strategic Decisions Post-IPO Withdrawal

  • ET used the extended private period to bring in more capital and make strategic shifts towards the enterprise market.
  • They pulled the IPO in conjunction with a large round of capital and created an internal vision called "Accelerate 2013" to outline their goals.
  • ET took a counterintuitive approach by investing heavily during a time when competitors were pulling back, positioning themselves for growth when the economy recovered.

"We pulled our IPO in early nine in conjunction with a large round of capital led by battery and scale. And our internal tagline was better than an IPO."

The quote highlights the strategic pivot ET made by pulling their IPO and raising more capital to fuel their growth and investment in the business.

International Expansion and Acquisitions

  • ET expanded internationally by partnering with resellers in the UK, Australia, and Brazil, eventually acquiring these businesses once they reached critical mass.
  • This approach was low risk and validated the market for ET's software and services outside the US.
  • ET made six acquisitions in total, with three focused on product expansion and three on geographical expansion.

"We did six acquisitions over the course of exact target history, and three were product expansion and three were geo expansion."

The quote outlines ET's acquisition strategy, differentiating between product and geographical expansion and emphasizing the company's methodical approach to growth.

The Acquisition Process and Salesforce's Interest

  • ET was approached by Salesforce about a potential acquisition due to their robust platform and strategic fit with Salesforce's vision.
  • The acquisition process was governed by strict legal and board processes to ensure shareholder interests were prioritized.
  • ET was ultimately acquired by Salesforce for a substantial premium, validating the strategic decision and providing a strong outcome for shareholders and employees.

"Salesforce became that and a whole lot more. So the process was amazing. It was fast and exhilarating and certainly had a lot of pressure associated with it."

This quote captures the speaker's perspective on the acquisition process by Salesforce, describing it as an amazing and fast-paced experience with significant pressure but ultimately a positive outcome.

Acquisition of ExactTarget by Salesforce

  • ExactTarget was a pivotal acquisition for Salesforce, filling a significant gap in their offerings.
  • Pardot, acquired with ExactTarget, was a valuable addition, allowing Salesforce to compete with other B2B marketing automation players like Eloqua and Marketo.
  • ExactTarget and Pardot integration into Salesforce was seamless, providing a competitive edge in the marketing cloud arena.

And then Silver Lining was that we had recently acquired Pardot and Pardot was this just gem of a company in Atlanta that we acquired for right around $100 million. And they were b two b marketing automation player tightly integrated into Salesforce.

This quote emphasizes the strategic value of acquiring Pardot along with ExactTarget, highlighting its tight integration with Salesforce and its role in enhancing Salesforce's position in B2B marketing automation.

Statsig Sponsorship

  • Statsig is a new sponsor for the podcast, having gained attention from a previous episode featuring their CEO, Vijay.
  • Statsig offers feature management and experimentation platforms to help teams ship products faster and with data-driven decision-making.
  • The platform allows real-time observability of product features' impact on core business metrics.
  • Notable customers include Notion, Brex, OpenAI, Flipkart, Figma, Microsoft, and Cruise automation.
  • Statsig is also suitable for AI feature rollouts and integrates with company data warehouses.

Statsig is a feature management and experimentation platform that helps product teams ship faster, automate a b testing and see the impact every feature is having on the core business metrics.

This quote describes the core functionality of Statsig, emphasizing its role in accelerating product development and enabling data-driven decisions based on the impact of new features.

Acquisition Category: Business Line

  • The acquisition of ExactTarget by Salesforce is categorized as a business line acquisition.
  • ExactTarget's suite of products, including the digital marketing hub, allowed Salesforce to expand into new customer channels.
  • The acquisition brought a significant recurring revenue stream to Salesforce and was deemed their most successful acquisition by Salesforce's CEO.
  • The acquisition also had a positive impact on the Indianapolis tech community, with Salesforce committing to adding new positions and moving into the Salesforce Tower.

Salesforce actually still calls this the Salesforce marketing cloud business line that they break out of the results.

This quote confirms that the acquisition of ExactTarget is considered a business line by Salesforce, as it directly contributed to their marketing cloud strategy and financial results.

Impact on Indianapolis Tech Community

  • ExactTarget's real estate strategy focused on an urban core to attract talent and contribute to the city's vitality.
  • The company played a significant role in the resurgence of downtown Indianapolis, with a positive impact on housing, restaurants, arts, culture, and sports.
  • ExactTarget's legacy includes facilitating a non-stop flight from Indianapolis to San Francisco, which has been a game-changer for the local tech community.

And it's been really fun. Over the last decade, downtown Indianapolis has had this huge resurgence of housing and amazing restaurants and kind of a lot of arts and culture and sports.

This quote highlights ExactTarget's influence on the urban development and cultural resurgence of downtown Indianapolis, showcasing the broader impact of tech companies on their local communities.

Alternate Futures and Competitors

  • ExactTarget could have fit with other large software companies, and Salesforce considered various players before the acquisition.
  • Financial modeling was crucial in deciding the future path for ExactTarget, weighing the benefits of remaining independent versus joining Salesforce.
  • The public perception of ExactTarget as an email-centric company overshadowed its broader multi-channel platform capabilities.
  • The Microsoft relationship story illustrates ExactTarget's impact and the strategic partnerships formed, including the retirement of Microsoft's internal email platform.

We certainly could have fit in well with a number of the other largest software companies in the world that have been focused on going a lot deeper into marketing tech and saw it as a big growth area.

This quote discusses the potential for ExactTarget to align with other major software companies, emphasizing the strategic importance of marketing technology in the industry.

  • There's an emergence of next-generation marketing automation startups integrating data and analytics.
  • Companies like Mixpanel, Segment, Customer IO, and Intercom are following the trend of combining marketing automation with data and analytics.
  • The discussion about the possibility of consolidation in the marketing tech industry and the challenges of overlapping functionalities among different players.

You're seeing so many startups now that are emerging that are next-generation marketing automation, but they're all taking the approach that you said of marrying it up with data and analytics.

This quote reflects on the current trend in the marketing automation industry, where startups are focusing on integrating data and analytics into their platforms for more effective marketing solutions.

Business Utilization of Software as a Service (SaaS)

  • SaaS enables businesses to outsource non-core competencies.
  • The advent of cloud computing and lower startup costs have led to companies using multiple SaaS platforms.
  • Businesses often start with free or freemium SaaS models before scaling.

"businesses using software as a service to outsource anything that's not their core competency."

This quote highlights the trend of businesses leveraging SaaS to focus on their primary operations while outsourcing other functions to specialized SaaS providers.

High Alpha's Venture Studio and Capital Fund

  • High Alpha is a venture studio and capital fund focused on starting new cloud companies.
  • High Alpha Studio aims to launch 8-10 new companies in 3-4 years.
  • High Alpha Capital funds both in-house and external SaaS entrepreneurs.
  • The company ideates by identifying unmet needs in the enterprise cloud space through various sources.

"High Alpha, we're a venture studio... High Alpha Studio is our startup studio... High Alpha Capital is our kind of second arm."

Scott Dorsey explains the dual structure of High Alpha, emphasizing their role in fostering new cloud-based ventures and supporting the growth of SaaS companies.

Evolution of Software Buying in Businesses

  • Cloud computing has shifted tech buying from being centralized to more democratized within businesses.
  • Employees can now make software purchasing decisions, often starting with freemium models.
  • High Alpha is developing a SaaS management platform to address the complexities of SaaS utilization and spending.

"every employee is a buyer with freemium and an employee credit card."

This quote illustrates the modern landscape of software procurement where individual employees have the autonomy to adopt SaaS solutions, leading to a more fragmented and diverse tech stack within companies.

The Role of Major Players and Account Control in SaaS

  • Historically, giants like Microsoft, SAP, Oracle, and Salesforce dominated the enterprise SaaS market.
  • These companies exerted account control through C-suite relationships.
  • The SaaS model is seen as eroding this control, allowing for more innovation and entry by new players.

"Salesforce just has these amazing executive level relationships... And then Mark and the team, they're just incredible innovators."

Scott Dorsey acknowledges the influence of Salesforce's executive relationships but also points out the opportunities for innovation and new entrants in the SaaS space.

Starting New Companies and Product-Market Fit

  • The ease of starting new companies and reaching product-market fit has increased.
  • Cloud platforms enable rapid MVP development and market testing.
  • Getting the first customer has become easier, especially when bypassing traditional approval processes.

"you can really quickly build technology, build mvps, get it to market, and really see if you've got product market fit."

Scott Dorsey discusses the streamlined process of launching new SaaS products and testing their viability in the market, highlighting the significance of cloud platforms in this process.

Grading the ExactTarget Acquisition by Salesforce

  • ExactTarget's acquisition by Salesforce is deemed highly successful.
  • Revenue figures are used as indicators of the acquisition's success.
  • The integration of ExactTarget into Salesforce is praised for its effectiveness.

"I'd give a full a... every employee who was a part of exact target had equity in the company."

Scott Dorsey grades the acquisition with an 'A', emphasizing the positive financial impact on ExactTarget employees and the successful integration post-acquisition.

Personal Recommendations and Insights

  • The speakers share personal recommendations and insights from various fields, including technology, literature, and competitive events.
  • They discuss the value of leadership, innovation, and persistence in entrepreneurship and business success.

"watching these two kind of young students compete was really incredible."

Scott Dorsey shares his admiration for the young competitors at the national spelling bee, drawing parallels to the potential and rapid development of young talent in the business world.

Closing Remarks and Audience Engagement

  • The hosts thank the audience for their support and encourage sharing the podcast.
  • Scott Dorsey provides his contact information for those interested in learning more about High Alpha.

"tell your friends, review us on iTunes, share it on Twitter, Facebook, whatever you like to do."

The hosts conclude the podcast by inviting listeners to spread the word and engage with the content through various social platforms.

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