ExactTarget (acquired by Salesforce) with Scott Dorsey

Ben and David return to make their first foray into enterprise software, covering Salesforce’s $2.5B acquisition of ExactTarget in 2013 with the help of special guest and ExactTarget cofounder & CEO, Scott Dorsey https://www.linkedin.com/in/scott-dorsey-096b393. Technical note: due to an issue we didn’t catch during recording, audio quality is significantly lower than usual for this episode (especially David’s voice). We apologize but hope you’ll give it a chance anyway— Scott offers great wisdom & insights, and the ExactTarget success story is a inspiring one underdog entrepreneurs, especially (but not limited to!) anyone located in the Midwest or elsewhere outside of traditional "Silicon Valley-style” tech hubs. Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC Topics covered include: The decision to start ExactTarget post-internet bubble and in Indianapolis, with zero software experience between Scott and cofounders Chris Baggott & Peter McCormickRaising initial money from friends & family, followed by early investment and mentoring from Indianapolis venture pioneer Bob Compton http://www.ibj.com/articles/58776-bob-compton-helped-plant-seeds-of-now-flourishing-local-tech-communityBuilding and scaling a great sales organization within a technology companyThe importance of focusing early on a clearly defined target market (SMBs in the case of ExactTarget), and then “stair-stepping” up as the product and business scale grow over timeExactTarget’s unsuccessful first IPO filing https://www.sec.gov/Archives/edgar/data/1420850/000104746907010051/a2181554zs-1.htm during the financial crisisBuilding a "capital-efficient” early stage company, and the value of raising growth capital at the right time to step on the acceleratorThe value of “secondary” investments allowing founders, employees & early investors to “stay hungry” by achieving some liquidity along the wayWhen and how to expand internationally and the importance of strategic resellersExactTarget’s second successful IPO filing https://www.sec.gov/Archives/edgar/data/1420850/000119312512124845/d256812ds1a.htm and life as a public company with quarterly financial reporting to Wall StreetHow the acquisition process played out with Salesforce and other bidders (including reference to ExactTarget’s incredible SEC filing https://www.sec.gov/Archives/edgar/data/1420850/000119312513255538/d548389dsc14d9.htm detailing the entire negotiation—scroll down to "Background and Reasons for the ExactTarget Board’s Recommendation”, starting at the bottom of page 13)Approaching the difficult task of integrating a major acquisition involving thousands of peopleThe fun story of ExactTarget’s winning Microsoft as a large customer—including actual sledgehammersScott’s new Indianapolis-based venture studio, High Alpha http://highalpha.com/Plus as always the "hard hitting" analysis across acquisition category, what would have happened otherwise, tech themes—and final grading The Carve Out Ben: The Talk Show live at WWDC 2016 http://daringfireball.net/thetalkshow/2016/06/17/ep-158 with Phil Schiller http://www.apple.com/pr/bios/philip-w-schiller.html & Craig Federighi http://www.apple.com/pr/bios/craig-federighi.htmlDavid: The Score Takes Care of Itself https://www.amazon.com/Score-Takes-Care-Itself-Philosophy-ebook/dp/B002G54Y04 by legendary 49ers coach Bill Walsh https://en.wikipedia.org/wiki/Bill_Walsh_(American_football_coach), originally recommended by Jack Dorsey [no relation to Scott :) ] at YC Startup School '13 https://www.youtube.com/watch?v=wEQawgkCMOUScott: 2016 Scipps National Spelling Bee http://spellingbee.com/, including one of the finalists’ favorite words: indefatigable https://www.google.com/search?client=safari&rls=en&q=indefatigable&ie=UTF-8&oe=UTF-8 Followups: Instagram’s incredible user numbers announcement: 500M monthly active users / 300M daily active users

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  This is gonna be a great episode.

• 0:02David Rosenthal?

  This is gonna be awesome, yeah.

• 0:03Speaker 00

  I think Administrivia might only be asking for reviews. Should we keep doing that? Does it sound needy?

• 0:26Speaker 00

  Welcome to episode 15 of Acquired, the podcast where we talk about technology acquisitions. I'm Ben Gilbert.

• 0:33David Rosenthal?

  I'm David Rosenthal.

• 0:34Speaker 00

  And we are your hosts. We'll be talking about the 2013 Salesforce acquisition of Exact Target. We have with us today Scott Dorsey. Scott was the founder and CEO of Exact Target. And I actually interned at Exact Target for a summer when I was in college. And probably worth mentioning, Scott is also my cousin. So, super, super excited to have family on the show and welcome Scott.

• 0:57Speaker 02

  Hey, thanks Ben, really appreciate it. And David, delight to be on the show and proud to watch how your careers developed, Ben. And glad that you had a little stint at Exact Target along the way. That's pretty neat.

• 1:10Speaker 00

  Super, super fun. Met a lot of great people there, so.

• 1:13David Rosenthal?

  Wouldn't be here today without it.

• 1:14Speaker 00

  No, no, it's true. I think normally we talk about the acquisition history and facts. And David sort of reviews that. But I thought a really cool way of diving into the show today would be to kind of have David do a little bit of review of facts, but kind of go into a Q and A with Scott.

• 1:31David Rosenthal?

  Yeah, that's the plan, since we're lucky enough to have the primary source here sitting with us. So, for folks who don't know, Exact Target was founded by Scott and your co-founders Chris Baggott and Peter McCormick in Indianapolis in December of 2000. So, Scott, December of 2000.

• 1:55David Rosenthal?

  How'd you guys decide to start a tech company? The bubble had just burst. You weren't in Silicon Valley. What was going through your minds?

• 2:04Speaker 02

  Exactly, David. It's a great question and we're a classic, you know, kind of didn't know any better against long odds story in that we started Exact Target in December of 2000 under the toughest conditions. The internet bubble had burst, you know, VC funding had really dried up and we were three first-time software entrepreneurs, you know, starting a tech company in Indianapolis. And actually, none of us had a technical background. So we were against long odds for sure, but we had a real clear vision around what we were trying to accomplish. And it was actually my co-founder, Chris Baggott. And while we're kind of unpacking some family stories here, Chris is actually my brother-in-law. So we both married into this great family from Indianapolis.

• 2:48Speaker 02

  He's from Pittsburgh and I'm from Chicago. And I had just finished my MBA at Kellogg over at Northwestern and really studied entrepreneurship and internet business models and had just come back from our Capstone course, which was studying really the Silicon Valley ecosystem and figuring out how to apply that to Chicago and how to apply that to the Midwest. And Chris had this big idea around database marketing and how to apply database marketing principles to the internet. And Chris is one of these just incredible visionaries and evangelists and he's now done it multiple times, even post Exact Target by founding a company called Compendium in the blogging software space. And now he's very deep into food tech and agriculture.

• 3:30Speaker 02

  But 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 and be able to build these kind of personalized relationships and be able to deliver relevant content that drove business. And he was right. So he was so passionate about the idea that he really convinced me to kind of quit my day job. I was working for an internet incubator in Chicago called Divine. And we sold the house and had two little ones and put the family in the car and drove to Indianapolis and said, "Let's give this a shot."

• 4:08David Rosenthal?

  Wow, that's a, that's a pretty crazy, did you guys, did you guys try and raise money from Silicon Valley VCs at that point? I know, so you, you raised some money from friends and family and a few local individuals. Uh, Bob Compton, I believe, was your lead investor. Um, but, but you know, I got to imagine in December of 2000, not many VCs are making any investments, let alone first time tech entrepreneurs in Indianapolis.

• 4:32Speaker 02

  No, that's exactly right, David. We, we spun our wheels, you know, talking to a lot of different, uh, VCs in Indianapolis, Minneapolis. We really didn't head back to the Valley in a meaningful way, but we certainly talked to a lot of VCs in the Midwest, uh, with absolutely no luck. And, and then started talking to angel investors who were also kind of slow to move. So our first round of financing was just a classic friends and family round. We raised about $200,000 from, you know, those that loved us and trusted us. And that, that early investor roster was, you know, my parents and my brother and my father-in-law, and then pretty much all of Chris's neighbors. Chris, uh, Chris, Chris has just this infectious enthusiasm and it's not much of an exaggeration to say

• 5:16Speaker 02

  he went door to door with, uh, with the PPM in his neighborhood and collected $5,000 checks. And we were, we were so careful, you know, especially with Chris and I being family, we only wanted to raise small amounts of money from family members that if it didn't work out, you know, there'd be no hard feelings and we wouldn't have any discomfort, you know, around the Thanksgiving dinner table. So we, we scooped up a lot of five and $10,000 checks and cobbled together the first couple hundred thousand, uh, dollars in the business. And, uh, really cool story is that for those investors that put 5,000 into that seed round and, and went the distance, and actually a handful of them did, they, they held the stock all the way through the Salesforce acquisition, that $5,000 became,

• 5:58Speaker 02

  uh, well, yeah, well north of a million dollars. So, uh, lots of, uh, lots of pools and home renovation projects started popping up in Chris's neighborhood. Yeah, and we had a lot of, we had a lot of happy family members. So that was, that was really our first move. We were a bootstrapped startup, you know, the three of us worked without taking a salary for the first six months of the business. And then we were really fortunate to find Bob Compton. And Bob was a very accomplished venture capitalist and tech entrepreneur in his own right. Bob had invested in a company called Software Artistry, which was the first really Indiana software company to go public and then later was acquired by IBM. And then

• 6:38Speaker 02

  he was a venture capitalist at CID Equity. And then actually ran one of their investments, Sophomore Danic. And Sophomore Danic sold to Medtronic and was a big exit. So Bob was a very accomplished investor and tech entrepreneur. And he became our lead angel investor and really became my mentor. He was chairman for, you know, the first seven or eight years of the business. And once Bob put money into the business, then raising capital got a lot easier. We had that stamp of credibility that we really needed.

• 7:05Speaker 00

  And with only 200,000 raised, I mean, this was the era before cloud computing. How did you invest that to build the business?

• 7:14Speaker 02

  It's a great question, Ben. And it's so different. You know, AWS didn't exist. So we were, we were buying servers, you know, we were racking servers, we were buying networking equipment, you know, we really had to build the infrastructure. And ironically, our first $10,000 went to Lyris, which later turned out to be an email marketing competitor. But Lyris had a server-based solution for sending email at volume. And that was one of our, one of our early licensing purchases. So really, most of the money went to building the product and building the early infrastructure. And then, this was interesting. You always have to leverage your timing and your unique assets. And one of, one of our unique assets

• 7:55Speaker 02

  and an element of the, of the era was that we had a lot of awesome friends and colleagues that were looking for what was next. And a good number of them were with dot coms that didn't work out. And we ended up hiring our first sales team as kind of independent contractors, where, you know, we convinced a friend that we had a big vision, this was a neat opportunity, and they would sell for us. And we gave them equity in the company. And they would sell for us, you know, really as an independent Contractor, no salary, commission only, and they they had to do it all. They had to find the lead, uh, put the pitch deck together, sell the deal, collect the deal, implement the customer, and if they made it all the way through, we paid him a commission. So we actually built this really kind of seasoned sales team early

• 8:39Speaker 02

  just on the back of of the fact that we had a lot of really good friends that were kind of looking for something that was next in their career. And then once we got funded, they became real employees and we were able to provide benefits and all that good stuff. But we built a very scalable sales organization before we really could afford to.

• 8:54Speaker 00

  How much do you think that sort of original DNA of totally giving all, you know, pure commission-based sales um to those early sales folks, do you think kind of helped shape the way that that organization was built?

• 9:07Speaker 02

  Great question, Ben. Huge influence. You know, we from day one were a very sales-driven, customer-driven, you know, organization and, you know, just the nature of the three founders, all sales, marketing leaders, you know, kind of general management background, you know, everybody sold, everybody spent time with customers and and early on, we would describe ourselves as marketers building software for marketers. You know, we had a very very keen sense for what problem we were solving and what we wanted the product to look like and how we wanted to function. So that was, you know, product management uh V1, you know, was really all driven by the founders, but we created a sales culture early on where the three of us were very aggressive in selling and working with customers and

• 9:48Speaker 02

  it's perhaps the my very favorite element of software as a service is that if you, you know, are a good listener and you work closely with customers, they will reveal your product roadmap for you, you know, and it's really your job to certainly bring your vision and your point of view, but you're really distilling feedback from many, many uh individuals and and organizations, your customers and your prospects in the marketplace. And if you can distill that feedback in the right way and take action upon it, uh, you can build an amazing solution that clients really want. So that was one of our, you know, I think one of our real strong suits was being very close to the customer and and being great listeners and really helping them shape our product. But we were incredibly sales-driven and because of that kind of independent network

• 10:31Speaker 02

  of sales representatives uh that we built, we were very sales-heavy early on. Actually, I look back, I did a history of Exact Target uh chat a few months ago and I looked back at one of our early decks. This was, this was even staggering to me, but at the moment where we had forty-four employees, we actually had twenty-six in sales. Wow. That's heavy, that's heavy. So we're very, very, very sales driven. And then we also, we also unlocked a channel far earlier than most software companies. We realized that digital agencies could be great partners of ours. They were building websites, they were writing copy and content, but they really didn't have tools for email marketing specifically. And we built a big channel program that allowed these agencies to leverage our tech platform,

• 11:15Speaker 02

  rebrand it or white label it where they needed to and, and build these recurring revenue streams that were advantageous for them. And that allowed us to start reaching into big, you know, Fortune 500 companies like General Mills and Home Depot became clients of ours through their trusted agency at a time when we were still a small and scrappy company. So it helped us kind of punch way above our weight class early on. And that was, that was a big driver of our early success.

• 11:39David Rosenthal?

  On that front, you know, we, we should say for our listeners too, this is, I think, really our first or one of our first pure enterprise technology companies that we've covered.

• 11:49Speaker 00

  Ooh, actually, I'd be curious on Scott's take on, on saying that.

• 11:52David Rosenthal?

  Well, well, but I want to come back to that because, you know, and I say that because, you know, as VCs, there's sort of this like trope when you're looking at, you know, investments in the enterprise that like there's this matrix of, you know, what, what your target customer is when you're, when you're an enterprise, you know, software company and who you sell to. And you need, you know, it's like a test, like you need to, you need to have that nailed. It's like, are you enterprise or are you mid-market or are you SMB? Do you sell direct? Do you sell via the channel? You know, and, and typically you need to have very clear answers to those. But it sounds like, you know, from the get-go, you guys were like, yes to all of those. Was that deliberate? You know, how did you think about that?

• 12:35Speaker 02

  No, great question, David. We were very small business focused, very small business focused. In fact, our, you know, first wave of customers were literally. Restaurants, dry cleaners, pizza shops, we are very SMB and very retail oriented. And the original problem we were trying to solve was that when the retailer, you know, 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, you know, deeper relationships. And that was part of the background that Chris brought to the business. So, early on, we were, you know, a thousand dollar a year subscription and very small business focused. And actually, a good number of the reasons why those early VCs said no is they just, they just couldn't picture that this could become a large business.

• 13:19Speaker 02

  And, and then over time, through, you know, I think being crafty and agile and, and very sales and customer oriented, you know, we started to realize, actually, our first wave of expansion was, you know, to, to grab lots of small businesses at one time, you need to start selling to franchise organizations. So, we started evolving to franchise organizations where the franchisor cared a great deal about centralized branding and content, but they wanted to give autonomy and authorship down to the franchisee. So, we started to build kind of this, this parent-child relationship and this kind of enterprise architecture to serve franchise orgs, and that gave us a big boost. Then, we started realizing that really every organization in the world is going to need to use email and digital marketing

• 14:04Speaker 02

  to communicate with their customers, whether you were, you know, a nonprofit or, or Microsoft on the enterprise side, you know, there, there really were a common set of needs. And we just, we just built more and more sophisticated technology. And then ironically, we were a Salesforce customer from the inception of our business. So, we, we were students of Salesforce. We really watched how Salesforce built and scaled their business. And we admired that they were, you know, a multi-tenant SaaS platform that serves small businesses all the way up to large enterprises. And I, I just fell in love with the idea that you could essentially build software once and sell and deploy it over and over again, and that you could build features that, you know, could be Every feature we ever built, you know, had a switchboard. We had a, you know, an on off

• 14:47Speaker 02

  button where we could deploy the software and, and package it in a really flexible way that was very simple for the small business, or we could turn on all the advanced capabilities for the, the more sophisticated enterprise and to have essentially one code base where we have clients, you know, paying a thousand dollars a year and clients, we had, we had a lot of seven figure clients and even some eight figure clients essentially using the same platform. That's just a remarkable level of scale and flexibility. And there's a lot of tension that comes, that applies to the organization around segmentation. Who are you building products for? How do you build your services org? What are your support models?

• 15:23David Rosenthal?

  These are all the things VCs are afraid of, right?

• 15:26Speaker 02

  Oh, yeah, yeah, absolutely. But so we, we started small and then we disrupted, we really disrupted the incumbents by kind of inching our way up market. And I, I think they often underestimated us. But, uh, but it was that, that flexibility that was strong. And I really, I, I wanted, I wanted to be a part of that democratization of software. I wanted to deliver, uh, compelling software to small businesses in an affordable way. And I always felt that our market opportunity would be a lot bigger if we could continue to serve SMB to enterprise. And then the really neat thing is small businesses become big businesses and marketers leave small companies and go to big companies. So we had a lot of pull through. Actually, one of our largest customers over time was Groupon and Groupon came into our small business inside sales team when they were barely just

• 16:08Speaker 02

  getting started and they were able to scale with us, you know, nearly every step of the way. So there are a lot of neat success stories where that SMB to enterprise range, yeah, was a big differentiator for us.

• 16:18Ben Gilbert?

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• 16:38David Rosenthal?

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• 18:06David Rosenthal?

  So I'm curious, so you have a few years of bootstrapping. You start really small, clean up drag cleaners, pizza shops, as you're saying. And then, you know, things go well. A couple of years, well, four years later, 2004, you end up raising 10 and a half million from Insight. By 2006, you raise another $7 million. And at that point, you're doing... Sort of forty-ish million in revenue. What, you know, on that, on that kind of stair step up, you know, how long did it take to get to, you know, from the individual little guys to the franchisees to up to, up to, I would assume by the time you're doing, you know, forty-ish million in revenue, you're probably already at the enterprise or starting to hit the enterprise at that point.

• 18:52David Rosenthal?

  Would, were there like specific breakpoints along the way? I'm thinking perhaps like, you know, Microsoft is one of your biggest customers. How did, how did that conversation start? How did they come into the fold?

• 19:03Speaker 02

  Yeah, that's a, that's a great, a great question, David. And maybe I'll first start with just kind of going back to that, that timeframe. So in December of oh seven, we actually filed to go public. We were, we were forty-eight million. Yeah, we were forty-eight million in revenue. We were profitable and we were just starting to kind of reach the enterprise space. And, and we were extraordinarily capital efficient. So the fundraising that you reference is all accurate, but actually can be a little deceiving because each of those rounds was a mix of primary and secondary capital. So we, we often had a secondary component to our fundraising to provide founders, employees, and early investors an opportunity to take a little bit of money off the table along the way.

• 19:46Speaker 02

  And I was so grateful we did that actually because we, especially because of how we bootstrapped the business and how our three co-founders worked for kind of a very long period of time without paying ourselves, having an opportunity to take a little bit of money off the table along the way was powerful because it, it just allowed us to sleep all at night, knowing that, you know, we had some level of financial security for our family and we'd, we'd be able to send our kids to college and all those good things. But then it just, it got us hungry, you know, to really want to take the business a distance and make sure we didn't prematurely, yeah, sell the business. So what was interesting is when we filed in December of oh seven, we had only raised six million in primary capital and we had nearly as much on the balance sheet. So we, we had been, we had been extraordinarily capital efficient up to that point.

• 20:29Speaker 02

  So, so we filed to go public in December of oh seven. The, you know, public equity market just fell apart in early oh eight. And we actually stayed on file all of oh eight and, uh, and, and ultimately decided to pull the IPO in early oh nine. And that's, that's a whole nother story I'd be happy to jump into. But it was, I would say it was that timeframe where we started reaching up into the enterprise and the nature of our business was shifting. We started building more professional services capability. And, you know, the, the, the fundamentals of the business started shifting. And in addition to the equity markets not being very favorable, it actually was a huge blessing for us because it, it gave us a chance to stay private, bring more capital in the business and, you know, kind of recalibrate toward the enterprise. And it was much easier to do that as a private company.

• 21:13David Rosenthal?

  Yeah, that, and that's where I wanted to go next here, kind of leading up to, so you finally go public in December of two thousand and seven. And this was the days before the Jobs Act, uh, which, you know, hard to, uh, imagine now that, well, easy because we all lived through it. But, um, you know, you, your prospectus was standing, you know, out there in the public domain from December of two thousand and seven. You know, well, still to this day, but until May of two thousand and nine, you were on file and all your competitors could come, read your S one and, you know, see all your financials and, um, and then, and then you ultimately didn't go public then. I assume because of the financial crisis and in large part, you know, there were no IPOs happening then.

• 21:58David Rosenthal?

  What was that like?

• 21:58Speaker 02

  It was so difficult. It was so difficult. You're, you're exactly, you're exactly right, Dan.

• 22:03David Rosenthal?

  The press, I'm sure could read everything about you and, you know, you're still a private company, but you have none of the benefits of being a public company, but all the downsides.

• 22:11Speaker 02

  That's exactly right. I would, I would commonly say we had, we had, you know, all the burden and cost and pressure of being a public company with none of the benefits, you know, zero, because you're exactly right. This was pre-Jobs Act. And, you know, we had to report every quarter just as if we were a public company. So the, the silver lining is we had a great training ground of how to set quarterly expectations, how to work with the street, how to work with analysts. We had to do quarterly, you know, earnings calls, you know, with the analysts that would be covering our stock. It was very, very difficult and a testament to the strength of our team and our company culture that we kept everybody focused, we kept everybody very positive. And, and oh eight was just a difficult year for running the business in general, you know,

• 22:56Speaker 02

  given the economic crisis. Our churn numbers went up because a lot of our small business customers were going out of business. Renewals got tougher, upsells got tougher, new business, there was a lot of price pressure. So, you know, we had a, we had a good year in oh eight, but it was a very different year, you know, from, from the, from the prior years of our business. But it was a great, it was a great learning and growth opportunity for us. And in early oh nine, it just became, it became evident. We were, we were not going to get out, we certainly didn't want to, we didn't need the capital. You know, we didn't want to go public unless we were very confident it was going to be a successful IPO. And then to my earlier comment, the business really started shifting more to the enterprise. And I also learned a valuable lesson.

• 23:37Speaker 02

  We were profitable at that time and, you know, the public markets really want to see margin expansion. And it became really evident that if we were to go public, we were going to have to show margin expansion, both gross margin and, and operating income. And it was going to make it very difficult for us to make the strategic investments in the business that we wanted. We were very passionate about moving beyond email into a pure digital marketing platform. We were ready for international expansion. We were ready to start a couple of our acquisitions. And all of that became a lot easier as a private company. So we, we pulled our IPO in early nine in conjunction with a large round of, of capital led by a battery and, and scale. And then later TCV came on board as well.

• 24:22Speaker 02

  And our internal tagline was better than an IPO. And we really, we really outlined for our employees.

• 24:28David Rosenthal?

  Between that and then a, a later round you did in 2011, I think you raised more money than in the private markets than you ultimately did in your IPO.

• 24:35Speaker 02

  Yeah, we, yeah, we raised a hundred and forty-five million in, in 2009. And, and, and once again, there was, there was a large secondary component. But it, it gave us, you know, a war chest to really get aggressive, you know, in expanding the business. And we, we created a vision we called Accelerate 2013 where we became very specific. Pacific around the company, what we wanted to look like in 2013. We started with the end of end in mind and then worked our way back. And very counterintuitive, this was, this was the time where, you know, Sequoia sent out their favorite, you know, kind of famous deck around, you know, kind of the, Good times. Yes, yes, good times are over. Uh, almost mandating, you know, 20% headcount reduction across all their portfolio companies. And as all of our competitors were pulling back, we hit the accelerator.

• 25:20Speaker 02

  We, we got very aggressive uh in investing in uh R and D development, uh building uh big sales capacity. Ultimately, we built, you know, a sales organization that was, you know, three or four times larger than our nearest competitors. So we, we kind of hyper invested in the business in oh nine and 10, counting on the fact that when the economy came roaring back, we were going to be the best position to take advantage of it. And that happened. And then we, we actually rolled into our IPO, which was March of 2012 with just huge momentum. We had, we had accelerating growth rates. We had grown in that uh that oh eight timeframe, oh eight, oh nine, around 30%. And then we moved up to the 40s and then we were mid 50s as we kind of rolled into the public markets in early 12.

• 26:02Speaker 02

  So that, that hyper investment and that decision to stay, stay private uh paid big dividends for us.

• 26:09Speaker 00

  Yeah. And then talking about accelerating growth, one of the things that always struck me is, is um really unique about ET was how deliberately you expanded the business internationally and using channel partners as the way to grow. I, I um, I think we haven't really talked about our international expansion at all on the show. And it'd be really interesting to kind of hear how you thought about that.

• 26:28Speaker 02

  I'll be happy to. And you're exactly right, Ben. This was kind of a derivative of our, you know, our channel and agency program and that we knew we could get uh reach into markets that we likely wouldn't be able to address directly uh through channel partners. And we did the same thing internationally. So we found a partner in the UK and they spun up essentially an exact target uh reseller. And we did the same in Australia and as those uh, you know, great teams and, and later, you know, became friends, you know, they built their business and really scaled it around the exact target platform. When they started to reach some critical mass of, of customers and employees, uh we then acquired the business. So it was, it was kind of a, a low cost, low risk way for us to expand internationally before we would have been able to do otherwise.

• 27:12Speaker 02

  You know, as, as kind of a small capital efficient company and we really validated. With with these partners that there was a market for our our our software and our services, you know, outside the United States. And then we started working with multinationals like Nike and Expedia and Microsoft. And it became imperative if we're going to grow those relationships that we had an international presence. So yeah, three years in a row, we actually acquired every August. First, we acquired our reseller in the UK and used that as a beachhead to expand through Europe. And then the next August, we acquired our reseller in Australia. And then the next August, we acquired a reseller in Sao Paulo, Brazil, and and gave us a great reach into that marketplace. So we did six acquisitions over the course of Exact Target history,

• 27:56Speaker 02

  and three were product expansion and three were geo-expansion.

• 28:00David Rosenthal?

  Cool. Yeah, so you go through this, you go through this period of kind of from a, you know, a dead IPO that wasn't going to happen. You pull back, you raise a bunch of money at a time when nobody could raise money. You accelerate the business, come out and you go public in March of 2012. And then and then it's just a little over a year later that the acquisition happens. Obviously, the the topic of our show, we want to, and we'll get to, we'll get to category and and tech themes and everything else in a minute. But but I want to spend a little bit of time, we were talking with Scott before the show. One of the things we love to do on Acquired is dig into these legal court cases and SEC documents and all sorts of stuff.

• 28:43David Rosenthal?

  And luckily, in Exact Target's case, I don't think there were any major court cases. But one of the things that happens when a public company is acquired is there you're required, and this will be coming out for LinkedIn soon, I can't wait to dive in. You're required to disclose to the SEC the the play by play of exactly how the acquisition happened. And so that we'll link to it in the show notes. It's this amazing document about how the Exact Target acquisition happened. And I'd love to just, you know, ask you to talk a little bit about that process of, you know, how it started and and, you know, again, all of it's documented publicly. Like, there were three other bidders that we can't talk about their identities.

• 29:26David Rosenthal?

  They're referred to as Party A, Party B, and Party C in the document. But multiple offers going back and forth. I mean, that must have been such a stressful time for you. How did you navigate through it?

• 29:38Speaker 02

  It was incredible. It was incredible learning experience and exhilarating and nerve wracking at the same time, for sure. So, we had been, we had been a public company for five quarters and, you know, life was good. We actually, we had a great time. You know, our IPO was super successful. You know, we came out of the New York Stock Exchange at, you know, north of a billion dollar valuation and our IPO was heavily oversubscribed and we felt like we had all the right investors supporting us from, from day one. And all that learning that happened in 2008 and 2009, we're able to really apply to the, you know, S1 and filing process and IPO and how to pick the right banks and the right analysts. And we, we

• 30:20Speaker 02

  just had, we had, we had amazing time going public and, and really loved it. And then five quarters as a public company, more of the same. You know, we kind of met and exceeded plan every quarter. We were really embraced by, by Wall Street and had a great investor base. We had completed two acquisitions, one called Igo Digital in the predictive analytics space and a second, Par Dot in the B2B marketing automation. And, and, and life was great. We're very happy, you know, as, as an independent public company and we were growing, you know, north of 40% year over year. Wow. What started to really happen, you know, across the, you know, kind of software ecosystem is that, you know, marketing cloud solutions started really garnering more attention. And

• 31:04Speaker 02

  I would say really the, the largest probably five or six software companies in the world, you know, were really all shifting to the cloud and, and publicly stating an intent to go a lot deeper into marketing, you know. So that started happening in a big way. And, and for, for us at Exact Target, a big part of our strategy had been to build a very open platform, robust APIs and lots of integrated partnerships. So, our, our premise was that marketers need one place to, to store all the data they have on their customers and then to use that data to drive more personalized and relevant communications and, and relationships. So, even literally before the app exchange even existed, we integrated into Salesforce and

• 31:47Speaker 02

  We integrated into Microsoft Dynamics and we had great relationships with Adobe and and Omniture and kind of many others, you know, across the industry. So it was very logical that we were attending shows and conferences and co-selling and co-marketing kind of with all these companies. But Salesforce, you know, we've had this really rich relationship with from being a customer to being an integrated partner to doing lots of things together in the market. And, you know, we got to know Mark and the team. And, you know, Salesforce had made a big push into marketing with the Radiant Six and Buddy Media acquisitions and really, you know, had a social first strategy. And over time, it just became apparent that their customers wanted more, you know, that social was

• 32:31Speaker 02

  an important channel, but they really wanted a multi-channel platform. They wanted greater data capabilities and they wanted a platform that was not only oriented for B2B customers, but also B2C. So we, you know, we always had a close relationship with Salesforce and would always kind of share product roadmaps and vision and direction. And it, it just became apparent they were going to make a bigger investment in marketing and knocked on our door and said, hey, we'd like to, we'd like to collaborate and take a closer look at and kind of joining forces. And, and you're absolutely right, David. When you're, when you're a public company and you get that kind of inbound inquiry, you know, the level of governance and process is, is at a very different level.

• 33:09David Rosenthal?

  Yeah. And I'm curious and really for our listeners, we'll link to this document. You should read it. It's like a, you know, it's like a legally used version of like high drama of like Shakespearean drama. But did somebody hand you a playbook and be like, okay, you know, here's what you do in this situation? Or were you guys, you know, figuring it out as you went along?

• 33:26Speaker 02

  Clearly it was a first time experience for me, but fortunately we did, we had an excellent, you know, set of advisors and board members that had quite a bit of experience, you know, in this area to make sure that we really followed the right process and and did what was ultimately in the best interest of our shareholders, you know. And for me as, you know, as founder and CEO, it certainly can be, you know, kind of an emotional and even a bittersweet process. And I, I had, I had hoped that I had hoped that the premium we were offered would be, you know, so substantial that it was really an excellent outcome, you know, for our shareholders and for our employees. And then I'd really hope that we, we ended up with a, with an acquirer that was very strategic and would continue to invest in the business and, and Salesforce became that, you know,

• 34:09Speaker 02

  and a whole lot more. So the, the process was amazing. It was, it was fast and exhilarating and certainly had a lot of pressure associated with it. But I, I, I was very, very comfortable that this was the best decision for our shareholders and for our employees and all of our constituents. And now that we're able to, you know, see what's transpired over, over the last three years, I have, you know, 100% confidence that this was a huge win for, for Salesforce and for Exact Target and everybody involved with the company along the way.

• 34:39Speaker 00

  Yeah, I'm, I'm really curious. You guys sold for about a 50% premium over your, what you had been trading at publicly. There's gotta be a bunch of offers sort of coming in from investment bankers or perhaps even CEOs calling you and saying, hey, you know, I think this might work out. What number do you start actually paying attention and listening? Like, when do you form the subcommittee?

• 35:04David Rosenthal?

  And we should say to the, so the, the acquisition happened in June of 2013, $2.5 billion, $33.75 a share. And your IPO price, I believe, was $19, just over a year before, so.

• 35:21Speaker 00

  And I think trading at 22 or so, day, day before.

• 35:24Speaker 02

  Yeah, that's, that's about right. That's about right. We, our IPO price was 19. We came out at 23 and a nickel. And then, you know, largely traded, you know, in the twenties and we're kind of in the low twenties, you know, when Salesforce, you know, first put their, their first offer of $26 a share in front of us. And I'll tell you, Ben, it was less about even coming up with a, with a number that was interesting. We were really just focused on make, making sure that when you get that, you know, first level of inbound interest, that we take it seriously and, and really handle the process in a way that's above reproach and, and that we're, you know, kind of following every step you need to as, as a public company and, and let the process run and then ultimately let the, the

• 36:09Speaker 02

  subcommittee and the board make the best decision at the end of the process.

• 36:12David Rosenthal?

  And it it helps to, I think you guys during the negotiation process released you beat Q1 earnings and and up to guidance and that's that's always a good thing to do. It's it's as you were saying, you know, too about like, you know, when you pulled the IPO the first time, you know, and then went out, raised all the money, then went out afterwards with the accelerating growth, like, you know, great acquisitions happen when companies get bought, not sold, you know, when you had a bright future ahead of you and things were going great and didn't need anybody, you know, that's that's the.

• 36:42Speaker 02

  No, that's exactly right. And you really you maximize value, yeah, when you are operating from a position of strength and you have multiple parties that are really interested in either making a venture investment or ultimately acquiring the company. And fortunately, we we had that, you know, we had that in a big way. And we just fit so beautifully into Salesforce. You know, they had a big vision around the marketing cloud. We were a perfect complement to the two acquisitions they had already made. And we really brought this, you know, data architecture that was very consumer oriented to the table. So we we give Salesforce a big entree into into the B to C side of the industry. We brought, you know, this multi-channel marketing platform where by that time we'd expanded, you know, beyond email into mobile

• 37:27Speaker 02

  and social and and and web analytics. We had we had a really broad, you know, kind of digital multi-channel platform. We were, you know, the largest and the fastest growing marketing software company really in the world. And we were able to fill the big gap for them. 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 for right around a hundred million dollars. And they were a B to B marketing automation player tightly integrated into Salesforce. So Salesforce, you know, not only was able to get all the benefits that Exact Target brought to the table, but Pardot was a was a great snap in that put Salesforce in a position where

• 38:07Speaker 02

  they could compete with Elacua and and Marketo and other players in that, kind of that slice of the industry as well.

• 38:16Ben Gilbert?

  All right, listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team, and deploying them is no longer the hard part.

• 38:30David Rosenthal?

  Yeah, the hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like, the risks are real.

• 38:44Ben Gilbert?

  Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI Control Tower.

• 38:53David Rosenthal?

  Yep. AI Control Tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with any AI, not just theirs. Every device on your network, every permission across every system, every AI agent, visible and secure in one place.

• 39:11Ben Gilbert?

  And ServiceNow can do this because they've spent more than 20 years building the operational backbone of the enterprise: the workflows, governance, approvals, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security.

• 39:27David Rosenthal?

  ServiceNow already runs more than 100 billion workflows annually, and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates.

• 39:44Ben Gilbert?

  And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all?

• 39:53David Rosenthal?

  So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale, go check out servicenow.com/acquired and tell them that Ben and David sent you.

• 40:04Speaker 00

  Well, I think this is a, it's about time we move to our next section of acquisition category. And what we'll kind of do is David and I will kind of make our picks between people, technology, product, business line, or other. And then Scott would love to get your take.

• 40:18David Rosenthal?

  The all encompassing other.

• 40:19Speaker 00

  Yeah.

• 40:22Speaker 00

  It's always kind of cheap when we do.

• 40:24David Rosenthal?

  Well, I think, I mean, I think for me, it's, Scott, obviously, your word is most important here. But clearly, this is a business line acquisition for a sales force, you know, going from...

• 40:35David Rosenthal?

  And it's interesting, this is gonna go into my tech theme in a minute, but you know, having been selling into the sales organization for so long and developed these huge accounts and big scale business that Salesforce had to pick up Exact Target, and as you were mentioning, Par Dot and everything else along with it, to now be able to sell into the CMO and the marketing side was clearly a business line and a great one for them.

• 41:04Speaker 00

  Yeah, I mean, I've nothing to disagree with there. I mean, Exact Target clearly had, it was not just a product, but a suite of products. I think when I was finishing up my tenure there, we were launching the digital marketing hub, and that included SMS and email marketing, microsites, we had social with CoTwee, and it became clear that like, you know, there was their own, Exact Target had channel to a lot of different customers that then Salesforce could expand into, but really a whole suite of products to add to Salesforce's repertoire, too.

• 41:34David Rosenthal?

  And if it weren't more clear that this is a business line, Salesforce actually still, you know, calls this the Salesforce Marketing Cloud business line, that they break out into results. And Scott, you ran it when you came there, right?

• 41:44Speaker 02

  Correct, correct. I would absolutely agree, guys. There's no question that we, you know, brought a tremendous group of people and talent and culture to Salesforce and a lot of really unique and proprietary technology, but I would agree, if you had to classify the acquisition into category, I would call it business line because we just fit so beautifully into their marketing cloud strategy and brought a sizable amount of recurring revenue. You know, we were 300 million in recurring revenue, moving to 400, and for Salesforce, at their size and their growth velocity, and now you see it with Demandware, you know, they have to make large acquisitions, you know, that are meaningful, you know, that are actually relevant and can contribute to that top line growth, and

• 42:26Speaker 02

  we were able to do that in a big way. And it's made me really proud that, you know, Mark, on a number of occasions with Jim Cramer on Mad Money and other places, has said that Exact Target's been the most successful acquisition that Salesforce has ever completed, and I believe that to be true. It's just gone remarkably well, and the leaders... That were on my team that are now leading, you know, kind of big functional areas within Salesforce and the marketing cloud. They're they're happy and having a tremendous amount of success and really growing the business in a big way. And committing to Indianapolis, which is really, really cool. Salesforce just recently announced that in addition to the 1,400 employees they have in downtown Indy, they're going to add 800 new positions over the next few years.

• 43:07Speaker 02

  And then I don't know if you've heard this, Ben, but the the tallest building in Indiana is the Chase Tower. Salesforce is going to consolidate and move employees into that tower. And it's actually going to be renamed the Salesforce Tower. So to have the

• 43:21David Rosenthal?

  Thing about towers too.

• 43:22Speaker 02

  Oh, yes, yes, yeah, no, absolutely. Mark, Mark, Mark likes his towers. Mark, Mark and the team like they love their towers. But it's it's it's going to be so fantastic for our tech community that the tallest building in the city and the state is actually a tech building. So it's going to be a big, a big boost and accelerated to our tech community, which I'm very happy about.

• 43:39Speaker 00

  Well, and I always remember too, there's so many like unique things about Exact Target for the region. There's this big like drumbeat from, I think, maybe your first or second office that it it was about being an urban company. And that people needed to, you know, we were in Monument Circle, which was like this incredibly cool historic like center of downtown. Big statue, Exact Target had a building with this cool roof deck that looked out over it. And I I remember thinking, well, I never want to work in an office park again. And I think that like a lot of Exact Target employees got super spoiled in that way.

• 44:12Speaker 02

  No, that's exactly right, Ben. Our our real estate strategy was was to really build around this urban core and build a build a campus and a work environment that was super appealing, you know, really to the the millennial, the younger generation. And it's been really fun over the last decade, you know, downtown Indianapolis has had this huge resurgence of housing and amazing, you know, restaurants and and, you know, kind of a lot of arts and culture and sports. And Exact Target, you know, has has been a part of that fabric of downtown Indianapolis. And I really felt that to build, you know, a high growth category leading company in a in a market like Indianapolis. We had to be in the urban core to really take advantage of just the the energy, the vitality,

• 44:56Speaker 02

  the ability to to recruit, you know, top-notch people from all over the country and then even to bring in, you know, partners and VCs and customers that could fly into Indianapolis and, you know, take a 15, 20-minute cab ride to downtown Indy and then be able to just enjoy all the benefits of that that downtown setting has. And that's that's been neat. And I'll tell you, one of the one of the neat legacy elements of Exact Target is for years we've worked on getting a non-stop flight in place from Indianapolis to San Francisco and not having it's been a real barrier. Our our West Coast investors, you know, have to jump through lots of hoops to make it make it into Indy for a board meeting and and it makes just fundraising for all companies here in Indy more difficult. And right around the time of the acquisition, we actually got it done with United Airlines and and

• 45:39Speaker 02

  have had a have had a non-stop flight back and forth to San Francisco, which which might seem trivial, but it's actually been a game changer for for our tech community and and Salesforce has appreciated it as well.

• 45:48Speaker 00

  No, I totally believe it. I think a lot of a lot of credence is paid to Seattle's proximity to San Francisco as a competitive advantage in in fundraising and and starting a company in general. And I think that kind of quick, direct flight has has, you know, just a tremendous amount to do with that.

• 46:04Speaker 02

  It's so true. It's so true. And I the same is happening at Salt Salt Lake City. You know, Salt Lake is this amazing tech ecosystem, you know, with Omnitron, Adobe, and now you've got, you know, almost a dozen, I would say, you know, kind of unicorn-level valuations. And so much of that is, you know, Salt Lake and and Park City are kind of a wonderful place to be, but it's it's such a short hop away from Silicon Valley that you're you're able to raise capital and get those investors really engaged in the business.

• 46:27Speaker 00

  Yeah. Moving to the next section, what would have happened otherwise is sort of two alternate futures here. And I kind of want to pose both questions to you. One is, do you think Exact Target would have made sense with any other acquirer? And then two, you know, Exact Target competed against responses and many other

• 46:49Speaker 00

  Companies that started as email marketing solutions for a long time, do you think there was anyone besides Exact Target that could have made sense at Salesforce?

• 46:57Speaker 02

  I think yes to both questions. You know, we certainly could have fit in well with a number of kind 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. And then there's no question that Salesforce looked at lots of different players over the course of time to potentially acquire. And you know, one element that's interesting, when you go through that evaluation process as a public company and really try to make the best decision for your shareholders is you really have to do a lot of financial modeling and a lot of thinking about what does life as an independent company look like? And we ultimately did come to the conclusion that being a part of Salesforce was a better outcome, higher probability outcome for our employees, for our shareholders.

• 47:42Speaker 02

  But there are a number of different ways that our future could have played out, but I was very, very happy the way it played out. And I'll tell you, the other interesting dimension is the public company, we would get an enormous amount of pressure around email. You know, when is the end of email coming? And these new channels are going to cannibalize email? Oh, my gosh, it's just, you know, it's kind of like if I had a nickel for every time I answered that question, but it was just a heavy theme. And even sometimes I'd say a cloud over our company where we were thought of as such an email-centric company that even as we expanded around the world and expanded into all these other adjacent technologies that you referenced, Ben, we were still thought of as an email company.

• 48:23Speaker 02

  And I think often didn't get credit for being a broad, multi-channel, omnichannel platform. But email was such a powerhouse for marketers that that line of business just kept booming. And our other lines were growing, but they could never, never even get close, you know, to the email side of the business because it's just the most powerful tool that a marketer has. And as e-commerce has exploded with growth, email has become even more relevant.

• 48:50Speaker 00

  Yeah, I'm curious when you're forecasting, what does life look like as an independent company? I mean, let's say you could continue to grow forty percent year over year indefinitely, or at least to some, the top of some S curve.

• 49:02David Rosenthal?

  Easy to say on paper, hard to do in practice.

• 49:04Speaker 02

  That's right, that's right, that's right. Gets tougher with a lot of big numbers.

• 49:07Speaker 00

  Yeah, yeah. So at what point do you, one, factor in the top of the S curve? And then two, how many years out, you know, what do you look at as like sort of the payback period of that premium and say like, well, they're giving us fifty percent premium and we don't think that we will reach that market cap for twenty years and we're only looking at a ten-year time horizon or something like that?

• 49:30Speaker 02

  Yeah, I'll tell you, that's where, you know, that's really where the bankers and advisors and, you know, kind of independent committee come in because they had a lot of expertise in how to build those financial models and what time horizon, you know, makes the most sense in order to, in order to kind of predict your independent path versus joining forces with another. So I probably can't provide a lot more detail than that, but you're exactly right, Ben. That's exactly the process that you go through. That's right.

• 49:53Speaker 00

  Yeah.

• 49:54David Rosenthal?

  I'm curious, before we move on from this, and this also bleeds into my tech theme, you don't have to say whether you considered it or not, but do you think, looking back, most of the big data-driven marketing companies of that generation, Exact Target being one of, if not the leader, you know, got really big. Were growing really fast on a great trajectory, but then they all got swallowed up by other big enterprise companies, whether it's, you know, Oracle and Elacua or Exact Target and Salesforce. Do you think there was any way that, you know, maybe there had been consolidation among the companies into, you know, could there have been a giant, you know, there are so few giant enterprise software companies.

• 50:38David Rosenthal?

  Could one have been built in the marketing category?

• 50:41Speaker 02

  Yeah, that's a great question. I think... I think that I think why it didn't happen is is overlapping functionality. You know that when you when you take a look at and there were certainly a lot of conversations that ensued along the way. Could you stack together, you know, some of these kind of large marketing tech companies become something bigger and something more meaningful? And where it starts to where it starts to run, run, run afoul or kind of collapses that you just have a lot of duplication of functionality. So, you know, an Amature, you know, got kind of pulled into Adobe early, you know, there certainly could have been a fit between, let's say, email and digital marketing channels and analytics, you know, that would have been a logical connection point, but they kind of got pulled into Adobe early. But when you looked at, you know, Austin responses and some of the B2B marketing automation

• 51:26Speaker 02

  companies, you often had, you know, kind of a lot of a lot of redundant functionality. But but we were we were headed down that path ourselves, you know, and that's really why the part out acquisition made sense and we we kind of kept moving deeper into into data and analytics and the web and really trying to build out that robust platform to make all these channels work together. And what's really interesting is the big product we built that stitched it all together is a product called Journey Builder and Salesforce has really embraced that Journey Builder platform and is applying it even across different clouds within Salesforce and using it lots of unique ways.

• 52:00Ben Gilbert?

  All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 52:13David Rosenthal?

  Yep, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Logora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 52:29Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 52:45David Rosenthal?

  And that's how you get features that customers love like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Legora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 53:08Ben Gilbert?

  And they recently launched Legora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

• 53:27David Rosenthal?

  And Legora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Legora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 53:58Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at legora.com/acquired and just tell them that Ben and David sent you.

• 54:23Ben Gilbert?

  David, do you have anything before we go into tech trends?

• 54:27David Rosenthal?

  No, I don't think so. The only comment, just Scott on what you were saying is it's interesting. 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. You know, I'm thinking. Anything from from mix panel and segment is part of this ecosystem in a different way. But you know, so many customer I O and Portland, you know, intercom. They're it's funny, they're taking exactly the approach that you're that you're saying Scott.

• 54:59Speaker 02

  No, it's fun. It's fun. Fun to see it evolve. You know, one other topic that you asked me about David, but I think I jumped into another category. But it's kind of a fun story. I'd love to tell you about it. It's just the the nature of our Microsoft relationship. Do you mind if I just touch on that real quick?

• 55:12David Rosenthal?

  Yeah, I would love that.

• 55:13Speaker 02

  Yes, that was a really fun story. So we we really became the largest cloud company running on Microsoft technology. We were early users of SQL and .NET and really everything we built was on the Microsoft framework. And we, you know, pushed Microsoft technology, I think, to the edge, you know, as we were building a super transactionally intensive, you know, multi tenant platform. But but through that, we really built this wonderful relationship. And then we started integrating it into Microsoft Dynamics and had a really nice relationship there. And then and then ultimately, Microsoft became a customer. And it's a really fun story. Microsoft had an internal platform, internal email platform called PENs that that really kind of powered marketing automation and email marketing specifically for for Microsoft business units.

• 55:57Speaker 02

  And the internal solution was was not well liked across Microsoft. So when we were we were fortunate to land Microsoft and really go through our adoption, we built like an 18 to 24 month implementation period where we would be onboarding different business units of Microsoft onto exact target and offboarding them on the internal system of PENs. And and we set we set a joint goal.

• 56:25Speaker 02

  It was an acronym for I'm sorry, personalized email, something, something notification system.

• 56:30David Rosenthal?

  You had to beat it if you're competing against PENs.

• 56:33Speaker 02

  That's right. That's right. Exactly. Exactly. So we actually set a goal with the with the Microsoft implementation team, and they were incredible to work with, that when we got to the end of the implementation and were literally able to turn the lights off on PENs, you know, retire this internal system that was was not well liked across the enterprise, that we'd have a celebration, we'd we'd have a party. And and we did. We actually. On the Microsoft campus had a huge tent that was erected in an event that was just catered to the fullest, I mean beautiful wine, beer, food. And the Microsoft team, they had to get fire marshal approval, but they actually pulled the servers that were running pens out of Microsoft data centers and brought, seriously,

• 57:17Speaker 02

  brought them to the party and we sledgehammered them. We, we, we all strapped on goggles and just beat the tar out of these servers.

• 57:26Speaker 00

  Office space.

• 57:27Speaker 02

  It seriously was, it was total office space. It was just like a spectacular way to retire their internal system. It was, it was a blast.

• 57:33Speaker 00

  Wow, that couldn't be like a better segue into, into what technology themes does this illustrate for you? And that's like a very physical visceral manifestation of the one that I want to touch on. And that's businesses using software as a service to outsource anything that's not their core competency. We, we keep, this keeps, this keeps coming up in episodes over and over again where businesses now, you know, with, with the advent of cloud computing and the, the general cost of starting a company going down, companies operate using tens of other companies' infrastructure and software, often even starting at a free tier or on, on some kind of free pricing structure. And you know, it's, it's different at that, that sort of scale where they're actually

• 58:17Speaker 00

  migrating from something they built in-house. But I kind of wanted to open it up to you since, you know, what you do at High Alpha is, is start these new, these new software as a service companies. How do you identify where are the sort of holes where we can take something that a whole bunch of companies are doing and do it on one platform and then they can all just pay us to use our platform?

• 58:41Speaker 02

  No, it's an exciting part of High Alpha. So, you know, High Alpha, we're a, we're a venture studio. We started a year ago and we're a venture studio focused on starting new cloud companies. And we, we actually have two sides to High Alpha. High Alpha Studio is our startup studio and we've, we've signed up to start eight to 10 new companies over the next three to four years. And then High Alpha Capital is our kind of second arm and that's, that's a venture fund that is utilized to fund our own companies when they're ready to reach scale and then, and then also fund other great SaaS entrepreneurs around the country. So you're right, Ben, we spend a lot of time on just ideation, you know, looking for... Unmet needs, you know, within the enterprise cloud space and we do that through our own ideas. We do that through entrepreneurs that approach us.

• 59:23Speaker 02

  We spend a lot of time with corporate innovation groups and universities and just, you know, tech visionaries that, you know, have a sense for where the market's going. And this whole, this whole notion that every employer is a buyer of software is something radically different, you know, you kind of think back to, you know, the client, client server days, pre-cloud and, you know, tech, tech spending and buying was tightly controlled, you know, tightly, tightly controlled by the CIO and the IT department. And then, you know, with the advent of cloud, it, it starts to kind of open up to different, you know, business unit or business line owners can, can make decisions within a framework. And now we're in an era where every employee is a buyer, you know, with freemium and, and

• 1:00:06Speaker 02

  employee credit card, you know, you can spin up Slack channels and lots of other solutions. And it's, it's creating lots of opportunity, but it's also creating quite a few unintended consequences. So you'll, you'll get a kick out of this. We actually have, have started a new business, we haven't announced it yet, that essentially is a SaaS platform for managing SaaS, SaaS, managing SaaS applications. It really is, and it's, it's targeted at the chaos and, and kind of the overcrowding Curious problem. Of SaaS spend. It's a huge problem. And we are, our, our MVP is about ready to go live with our first group of pilot customers. But it, it brings together SaaS spend, SaaS utilization, and then user sentiment, user feedback. So it brings those three variables into one platform.

• 1:00:47Speaker 02

  So organizations can, at a minimum, actually understand what they're using, you know, what have they paid for, what's being utilized across the enterprise? What, what have maybe they paid for but isn't being utilized? Where do they have overlapping products and platforms? Where's there maybe something cool happening? Like where's there innovation happening within like one group or department that should be thought about across, across that organization? So, so that, that's kind of a cool company that we're excited about to help organizations kind of get their arms around how their business is using SaaS and, and use it in the most optimized way.

• 1:01:19David Rosenthal?

  So the tech theme that I've been referencing a bunch, and this is another perfect lead in, is there's been this sort of historically in the enterprise space, which again, we haven't talked as much about on the show, there's been the, there've kind of been sort of four-ish giants, right? Like there's, there's Microsoft, there's SAP, there's Oracle, and then there's Salesforce, which has emerged as sort of the, most recently as one of these giants. And there's this concept of like account control, and like there are lots of startups in the space, but ultimately, those four companies are by far the biggest, and they have the account control with the CIOs, and increasingly CMOs, and head sales, and CEOs,

• 1:02:04David Rosenthal?

  where they can push all sorts of products through their channel. And Exact Target, as we talked about, being a business line acquisition, was a perfect fit with Salesforce as one of their first forays into a, you know, a new product, sending through their, their guerrilla channel, or guerrilla-sized channel. Do you think that's, you know, how do you, how do you react to that? And/or, one of the main theses I think of SaaS enterprise investors is that with SaaS, like that's changing, right? Like you don't, you know, people can buy stuff freemium, like individual employees, and account control is being eroded. I don't know, do you, how do you think about that, being on both sides now?

• 1:02:47Speaker 02

  I definitely see both, I definitely see both sides of it, and you're, you're totally spot on, David. It's, one of the big reasons why the Exact Target acquisition's been successful is that Salesforce just has these amazing executive level relationships with the biggest companies around the world, and they, they know Salesforce, they trust them, they want, they want to buy more products, they want to buy more products that are tightly integrated, and, you know, when you, when you look at the Salesforce marketing cloud numbers, they're booming, and they're, and they're really booming because they have all those trusted CEO and CIO relationships, and then the marketing team, they're just incredible, you know, innovators, and amazing at executing, scaling the business. So that's, that's real, there's no question about that. However...

• 1:03:31Speaker 02

  There's still plenty of opportunity for new innovation and new entrance and and the innovator's dilemma of companies coming up with new ideas and new concepts and software that's lighter and more flexible and more mobile friendly and more consumer like. There's, there's no shortage of room, I think, you know, for, for innovation and, and for new companies to find their groove.

• 1:03:52David Rosenthal?

  And that you don't need your CIO to approve to buy it.

• 1:03:55Speaker 02

  You don't, you don't. That's exactly right. That's exactly right.

• 1:03:58Speaker 00

  Which honestly, you know, you're talking about ideation and getting ideas for new companies and getting your first customer. Obviously something near and dear to my heart at Pioneer Square Labs. And as someone that is often going out and transitioning from the customer development to getting your first customer and taking the people that you were talking to about what are your needs and saying, cool, we built this, will you pay for it? It's become extremely easy to do that when you have an advocate in the organization who for, you know, like you're going to charge less than a thousand dollars for your product. So they just can use their credit card and you don't have to go through the CIO. So it's opened this whole new wave for, for us of the ability to land your first customer in a much faster timeframe.

• 1:04:37Speaker 02

  Absolutely. No, that's exactly right. And then, and then all these great cloud platforms where you can really quickly, right? Build technology, build MVPs, get it to market and, and really see if you've got product market fit. And if you've got, you've got something that can be viable. And that's what's so fun. I think, Ben, about what, what we're both doing in, in coming up with new ideas and launching new companies is you can, you can go from idea to, to MVP and proof of concept really, really quickly.

• 1:05:04Speaker 00

  Yeah, yeah. All right. We're going to move on to what was formerly the, the last part of our show. I think we've, we have a couple of cool sections after, but grading the acquisition. And Scott, you can choose to participate in this or not. I feel like you might be a little bit biased. But this is obviously an incredibly successful acquisition. I mean, you hear, you hear Mark preach it to, to the world time and time again, and, and some of the biggest stages he's ever on. Obviously a success. We've given As to things that have like ridiculous multiples. I mean, you look at what Instagram did at Facebook, or you look at Pixar's sort of reverse integration or reverse acquisition of, of Disney, Disney Pictures, Disney Animation. And those are As. So I guess what we're, I'm going to land on this is, is an A minus for, for Exact Target.

• 1:05:49David Rosenthal?

  I think I'm similar. Um, you know, we've talked about all the reasons why this is a great outcome. You know, one, one thing that we actually didn't quote, it's funny, we're not super quantitative on this show, even though we're about, you know, acquisitions. Um, so, you know, we went through this whole, uh, this whole episode. We didn't talk once about your revenue, but some numbers I want to throw out. When the exact target in 2012, which was the final year, uh, a full year of, of, uh, being a standalone company, I believe you had about 294 million in revenue. And in Salesforce's fiscal 2016, which ended January 31st, 2016.

• 1:06:34David Rosenthal?

  So essentially the calendar year 2015, the marketing cloud division did 654 million in revenue. So over twice as much in, um, less than three years. So that's a, that's a pretty great outcome. I think, and, and speaks to the power of this, you know, um, there are many product things that, that I'm sure that Salesforce has done with the acquisition and bolted on many things, but also just the, the power of these enterprise relationships that they have. So I, I think this was a great, a great deal. I'm, I'm also gonna, you know, uh, when I think about Instagram, like, you know, it went from a, a billion dollar acquisition price to $3 billion in revenue in, in like three years.

• 1:07:18David Rosenthal?

  And that's all right. I'm also a minus, but I'm on the fence here. Scott, any, any, any comments?

• 1:07:26Speaker 02

  You guys are tough graders. You're really, you guys are really, really, really, you'd be like that professor that's really difficult, incredibly stingy, incredibly stingy about giving away an A. So my.

• 1:07:36David Rosenthal?

  It's not fair, so.

• 1:07:37Speaker 02

  I know, I know, I know. Instagram is the, is, is the bar. Um, that's a, that's a high bar. Yeah. There's no question I'm biased, but I, I, I think I'd give you a really fair grade and I, I definitely, I definitely, I'd definitely give a full A. No, no, no minus. I'd go with the full A. And, uh, and I'll tell you, the reason is that this was an extraordinary outcome, you know, for Exact Target. You think about. You know, three first-time software entrepreneurs, you know, starting a software company in Indianapolis, you know, with, with very, you know, humble expectations.

• 1:08:08David Rosenthal?

  Nobody thought this was gonna happen.

• 1:08:10Speaker 02

  Inconceivable.

• 1:08:11David Rosenthal?

  You guys are the definition of underdogs.

• 1:08:12Speaker 02

  Inconceivable that we would ultimately sell the business for two and a half billion dollars. And, and what, what I'm so grateful for is that every, every employee who was a part of Exact Target had equity in the company and this was really a meaningful outcome for our employees. Not only just the kind of experience of a lifetime and being a part of this powerful culture we called Orange, but there was a financial outcome that was meaningful. And, and the neat thing is that, you know, at thirty-three seventy-five a share, every person who ever invested in Exact Target, from friends and family to venture rounds to public investors, made money. So, so I, you know, smile from ear to ear just thinking about what a, what an incredible outcome this was for everyone at Exact Target.

• 1:08:55Speaker 02

  And then the neat thing, and David, I'm glad you referenced the numbers, is that, you know, integration is, is remarkably difficult. It is so difficult to acquire companies, integrate them effectively. And when you look at Salesforce, this was the largest acquisition they had done. First time they'd have acquired a public company. And to see the kind of results that had been produced. And, and I just know how delighted Mark and the team have been about the performance of the business. I, I give it an A on both sides, the Salesforce side and the Exact Target side.

• 1:09:22David Rosenthal?

  As an entrepreneur, you have to love your company, right? Like, if you don't, you know, who else will?

• 1:09:26Speaker 02

  Oh, absolutely, absolutely. That's right.

• 1:09:30Speaker 00

  Well, let's, let's move on to a little, the, some fun we have at the end of the episode. It's a section called "The Carve Out." And this is where we talk about something that's in pop culture or media that we, we read or watched or stumbled upon or a product that we love. And really anything that, that really tickled our fancy in the last, last couple of weeks. And I'll, I'll start with mine. I, I'm a big fan of the talk show. It is a podcast done by John Gruber of Daring Fireball that mostly covers Apple. And John does a live show every year at, at WWDC, the biggest Apple conference. And this year, his guests, you know, his guests are normally friends of his or other people sort of in the Apple journalism space. And out walks, you know, Craig Federici and Phil Schiller,

• 1:10:14Speaker 00

  the, the Senior VP of Marketing and the Senior VP of... Software or just engineering all up. Anyway, just like an unbelievable candid interview with with two guys that have great personalities on stage and you normally only see these people in in, you know, the extremely rehearsed, very, very perfectly timed and executed Apple keynotes. And getting them off the cuff like the it's just so fun if you're you're a fan of Apple or just like a fan of technology and how these businesses run in general to get that sort of candid look at these guys.

• 1:10:49David Rosenthal?

  Mine is a great book that I'm almost done reading, but have been enjoying immensely. This was recommend I saw this as a recommendation. I went to Y Combinator Startup School in 2013, I believe, either 2012 or 2013. And Jack Dorsey spoke there and he recommended it as a book. And it's been on my list, you know, ever since and I just finally got around to reading it. The book called The Score Takes Care of Itself, and it's by Bill Walsh, who was the legendary, unfortunately, late coach of the 49ers during their amazing dynasty in the in the 90s. And which I remember, you know, growing up and watching, you know, Joe Montana and Jerry

• 1:11:32David Rosenthal?

  Rice and Steve Young. And but the book is just it's about his, you know, kind of philosophy and lessons on leadership. And he's such a he's such an amazing guy like he's not the you think of like a football coach in that era and it's like, you know, super, you know, hard at yelling and screaming like that's not his style at all. It's just like it's just this commitment to excellence and like, you know, that's all that matters and all the other stuff is just show. And but anyway, there's lots of good gems in the book. We'll link to it in the show notes.

• 1:12:02Speaker 02

  I'll have to check it out. That's very fun. I love the carve out feature here, guys. This is kind of fun.

• 1:12:05Speaker 00

  Thanks.

• 1:12:06Speaker 02

  And David, I should clarify, Jack Dorsey is no no relation. I mean, although I've got lots of family connections here on the on the show, Jack, Jack and I are not related to one another, although that'd be kind of fun. So my carve out was a month ago, I was Flipping channels, trying to find, I think, probably an NBA playoff game, flipped over to ESPN and caught the end of the national spelling bee, the Scripps National Spelling Bee. And it was phenomenal. They, the two finalists were an 11-year-old and a 13-year-old who were just extraordinary at their ability, obviously, to spell very difficult words and handle a tremendous amount of pressure. And they ultimately tied in the end. And this, the 13-year-old had had an older sibling that had won previously, and the 11-year-old

• 1:12:48Speaker 02

  was a fifth grader, who was the youngest kind of finalist and champion ever. And watching those two operate was incredible. And to me, I'll tell you two little stories. One, it's just quite exceptional, I think, how young people are developing so quickly. And when we look across our businesses at interns or contributions new college graduates can make, they are able to contribute to businesses in a way today that that never existed in the past. And watching these two kind of young students compete was really incredible. And then one of my favorite parts is that each of the finalists had to share their favorite word, which I would definitely have a difficult time spelling any of them, probably even pronouncing one of them. But, but one of them that stuck with me was indefatigable.

• 1:13:31David Rosenthal?

  Great word.

• 1:13:32Speaker 02

  And for whatever, great word, which, which really means tireless persistence, to be indefatigable. And as I'm working with early, all these early-stage startups, to me, that's like the number one characteristic for a CEO or a founding team is that they have this tireless persistence and they just, they have such a burning fire inside them to succeed and to solve a big problem and make a difference in the world that you just know they're going to be successful.

• 1:13:54Speaker 00

  That's great.

• 1:13:55David Rosenthal?

  Totally agree.

• 1:13:55Speaker 00

  David, do you want to table follow-ups until next time? We're, we're running a little long here.

• 1:14:00David Rosenthal?

  Yeah, well, maybe I'll do, I'll just do one real quick, which, because we've mentioned it a few times on this show. Instagram reported latest user numbers this week, or Facebook reported Instagram's latest user numbers this week. Pretty incredible. They passed 500 million registered users, 300 million daily active users. Think about that ratio. Three out of five registered users on Instagram use it every single day.

• 1:14:23Speaker 02

  Wow, that's impressive.

• 1:14:24Speaker 00

  That's engagement.

• 1:14:25David Rosenthal?

  You know, we, Instagram was our, one of our very first shows. And like I said, it's our canonical, but especially with Snapchat and everything going on, there's all these existential questions and that business just continues to perform at an amazing level.

• 1:14:40Speaker 00

  Indeed.

• 1:14:42David Rosenthal?

  Thank you, Scott. All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

• 1:14:50Ben Gilbert?

  Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

• 1:15:01David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next.

• 1:15:21Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

• 1:15:33David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started.

• 1:15:44Ben Gilbert?

  Yeah, hey, just to kind of close down the show. Anyone listening out there, thanks so much. Tell your friends, review us on iTunes, share it on Twitter, Facebook, whatever you like to do. Snap about us if that's your thing. And Scott, how can our audience find you?

• 1:16:01Speaker 02

  @scottdorsey on Twitter and then highalpha.com. You can learn more about the new venture that we're building here in Indianapolis.

• 1:16:08Ben Gilbert?

  Awesome. Well, thank you so much.

• 1:16:09Speaker 02

  Yeah, thanks so much, guys. Really enjoyed it. Thanks, Ben. Thanks, David.