We had an interesting conversation with Paul Ríos, current investor and advisor in COR, about the challenges of scaling a company and the importance of finding existing opportunities. Ríos has worked for Ford, ZS Associates, Sears, SloanGear and ALPFA Inc. These experiences have prepared him for taking the plunge into his Regional Manager and Sales Director positions in HubSpot, a software company that created the Inbound Marketing category, making it one of the CRM with the highest growth in the market. Furthermore, Ríos is an investor in Stage 2 Capital, a limited associate in Castor Ventures and a member of Revenue Collective. Paul has become a key player when it comes to focusing on actions that allow for the development and growth of a company that makes its way with a unique solution of sorts.
Expansion towards new markets
HubSpot is a similar software to COR, only that it is dedicated to other problems. It has been a visionary company that created a new market. They refused to enter in the Online Marketing category, so they created, defined and opened the Inbound Marketing market, or “Attraction Marketing”. How did they manage to open it in the Latinamerican market? What metrics should be taken into account when expanding to a market that was not explored before? In a company with a sales-motivated culture, Ríos firmly believes that:
“Luck does not exist, someone creates their own luck by keeping their eyes and mind open to identify opportunities as they appear. And by having the abilities to execute that vision”.
In the beginning, HubSpot did not have offices abroad. International sales happened every once in a while and went through many complications at the time of being executed. HubSpot’s entrance presented itself in the shape of a resort hotel in Mexico, achieved thanks to a successful sale made by Paul. It was then that the possibility to expand to other markets became clear, and looking for business opportunities that had been ruled out around Latinamerica and the Iberic peninsula was now an option. There were around 30.000 unexplored contacts! Paul was in charge of investigating that market, and the metrics he used to measure the task’s chance of success were those valuable to the company at that time: productivity, average value per contract, discount rate and client retention.
For Latinamerica, the KPI (Key Performance Indicator) used was the productivity in relation to the global average, because then, the benefit of adding a representative to that market could be proven. Taking into account that the company was solely dedicated to Inbound Marketing, representatives must be fed with the data generated by marketing. What should be demonstrated is a substantial monthly productivity that can last through time and that has enough demand in order to add more representatives to it. According to Paul, the important thing is to think about the projects in terms of how many people will be needed in order to complete them: “Once the productivity per representative is higher than the global average, then it’s time to add a new member to the team. New members will be added as long as the productivity is higher than the average”. Eventually, the department’s average is stabilized, because the new talent needs time to get used to their tasks and because the market gets saturated due to only accepting accounts generated by inbound marketing and not by diving into the field to get new clients.
It is here that the importance of the company’s other departments appears. For example, the growth team is dedicated to increasing the amount of clients, their retention and the profitability by improving products and by interacting with new marketing channels. The growth team’s job is to generate new users, and more importantly, activating them. The activation ways depend on the clients’ activity and the different hypotheses that the teams handle. It is an area that must feed on data gained through different campaigns and the variations in their approaches.
An all-in-one client
Because it is a software that meets a company’s several needs, it usually is compared to other tools that completely cover only one of the services offered by an All-in-one solution like HubSpot or COR. At this point, the question should be: “What’s the profile of an ideal client?” Ríos recommends defining not only the client’s profile, but also the profile and possibilities of the sales department. Is it a company that makes outbound or inbound sales? Where do they get their business opportunities? “The sales cycle in big companies calls for onsite meetings and a span of up to 36 months to finalize a contract. We do not want that”, says Ríos.
In the middle market, an all-in-one tool solves the needs of a middle-sized company in an efficient and accessible way. It is more profitable to hire an all-in-one software than to hire different softwares for each of the services that a company like COR or HubSpot offer. The cost of the licences alone is highly expensive and unnecessary. Besides, an informatic display of that kind requires the hiring of many computer engineers in order to integrate all of those products, which is something normal for a big company with a dedicated department for that but is an unnecessary complication for a middle or small-sized company. Ríos explains that “Everything is in the same place, it is really simple. If something is not working, there is only one customer support number to call”.
Challenges for creating a category
“Creating a category is creating a new solution for an existing problem”, begins Ríos. To achieve that, you must know about the problems of the industry towards which the software is aimed. According to Paul: “People must be educated on what their problem is and how it can be solved, and it is there that your new solution or a new way of solving an old problem appears”. One of the most important sides of inbound marketing is education.
HubSpot launched an awareness campaign 12 months before their product release that included blog articles, marketing campaigns and a strong content generation that educated the market on what was about to come, and in turn, this created intrigue and demand. Education is even more important when presenting a service that was never seen before. The same happens with a newly explored market. If a potential client is well educated, then the sales rep will not have to spend a lot of time explaining, thus reducing the emerging markets’ maturation time.
How to avoid saturation when scaling
When considering the link between time and profitability, there are few products that have a growth that explodes at a global level from the moment of their release. Usually, some time must go by before the product or service creates enough traction in the market in order to generate a considerable revenue. Then comes a plateau period; not a lot of companies can continue experiencing an exponential profitability growth without adding new products. This can be seen in big companies like Apple, where new products are constantly introduced, given the oversaturation of products that become obsolete in the face of the technological competition. Are there other ways of maintaining the growth of a business?
The opening to new markets, whether in new places, in a new industry or attracting a different kind of client is a well known way of doing this. Another way can be changing the kind of growth curve. For example, before the plateau stage of the marketing curve, a company can think about scaling the sales department or the client retention area. Once that curve has reached the point before their highest possible growth, a company can start thinking about scaling the content generation system.
Obviously, this growth will depend on the size of the company and their annual profit. It is easy to triple the annual income when you have a young company. For example, Microsoft has a 10% growth, but their foundation is billionaire. It is not logical to compete head to head with Fortune 500 companies at that stage, but does not mean that you cannot project a scaling that will allow you to be in that position in the long term.
How to recognize good investments
Apart from being a great engineer and sales director, Paul has been a visionary investor. “Every investor has a thesis, and if he doesn’t have one, then he is a fool that’s losing money”, says Ríos. Some investors focus on innovation companies, others in start-ups that have big teams while others focus on specific markets. Paul specializes in finding smart and hardworking people that have a strong moral code, but that is not too scalable and only reaches personal relationships, so he decided to broaden his horizons. Ríos now looks for projects that have a big chance of success and provides new solutions in an ideal market, which in turn offer new opportunities to talents in emerging areas such as Latinamerica.
Meanwhile, COR choses investors with a certain profile, people with ideal characteristics and the potential to come along with us in the growth we are achieving; people like Paul, with whom we created a partnership that promises to last for a long time.