Lessons in building BroadSoft to a $2 billion exit

0:00You know, it's really hard to be effective in delivering a message to the marketplace with the amount of noise that's in the marketplace if you're just too unfocused. And so that's a really important part of our process at TrueNorth. And sometimes there's a lot of kicking and screaming, I have to tell you, when we force entrepreneurs to choose. It's not A or B and C and D and E. It's A or B or C or D. Welcome to the SaaS Revolution Show, a podcast by SaaS.com. Here we interview SaaS founders from around the world who've been there and done that. as they share the ins and outs of how they built their businesses, their operations, their path for securing investment, and more.

0:42Our mission with the podcast is to help you, the founder, learn how to scale your SaaS, maintain your well-being, and navigate the complexities of this ever-changing industry. I'm your host, Alex Deema, and together we'll explore the good, the bad, and the ugly in the journey to SaaS success. Delighted to be joined today by Mike Tesla, who is the managing partner at True North Advisory and the founding CEO at Broadsoft. Welcome, Mike, to the show. Hey, nice to be here, Alex. Great to have you on. So you're now based in Austin, Mike. How long have you been there? And what was the decision to move to Austin?

1:21Obviously, a great place. And Sassock USA is there as well. It is a good place. I've been here about two and a half years. I kind of moved in the middle of COVID. And, you know, some decisions you make cautiously and some you just kind of bump into. I had kind of run my course of I was living in Bethesda, Maryland and kind of bored of the four walls. I read it. I Airbnb'd here in Austin. I have some friends here and figured just kind of change the scenery. And one of those friends is a real estate agent, and we went to see a few houses, and before you know it, I made an offer. And before you know it, I moved to Austin.

2:03So it's been a fun two and a half years. It's a fun city, lots of entrepreneurial spirit, lots of interesting folks, lots of good music, good food, so fun place. Yeah, exactly. I mean, I came to Austin for the first time for SAS.USA, which happened, you know, end of May. And yeah, just absolutely loved it. Everything that you said, I don't need to repeat, it had all of that in abundance. And I came away thinking, oh, I could really live here. But I don't think I could convince my partner to do so. I mean, you never know, but I'm not sure she's been so maybe I have to get her over at some point.

2:41But Mike, so we know you live in Austin. But we need to know a little bit more about you. Who is Mike Tesla? Who is Mike? Well, I guess the best way to describe who I am is I've been in the tech space since the beginning of my career. I'm always fascinated by the impacts of technology and how kind of bringing new technology to the world, mostly in the space around. I started my career in the telecommunications space and then obviously with the transition, you know, kind of in the middle of telecom and SaaS and Broadsoft moving into that space. So, yeah, it's been it's been a fun career in the space and and excited in my last or my current hurrah, really focused on helping entrepreneurs in our advisory, helping them with strategy, messaging, leadership.

3:38really it's been fun to kind of meet a large number of very interesting entrepreneurs all have the same kind of characteristics work hard you know you know wake up wake up with one mission go to bed with one mission focus so that's that's been been a lot of fun tell us a little bit about that true north advisory why did you decide to to set that up and you know what does it do you alluded to a little bit there yeah it's interesting um you know again timing was was interesting um You know, we had in 2018, we had sold Broadsoft to Cisco and I had agreed to stay at Cisco for a couple of years. And my time at Cisco was ended strangely March 1st, 2020.

4:25And my next activity was actually along with a couple of my friends and colleagues. We were coming to Austin for South by and then, you know, the COVID shutdown happened. And we were all stuck at home. And we had kind of talked about doing some work together. But we really were, we didn't have much to do besides work. So we decided to kick off this advisory business. And we thought that what was interesting is we have five partners. We all know each other for a long time. We all have Broadsoft in the ecosystem. And everybody at one point worked at Broadsoft. And we have different skill sets from sales and go-to-market to CFO to IP to technology.

5:19So we thought it would be a really interesting opportunity to kind of give back, stay very active in the community, but really kind of work with entrepreneurs and helping them kind of scale their business. You know, that's really what we're all about is figuring out where they want to go, scale the business, work with the entrepreneurs, make sure that they get, you know, they meet their expectations or their objectives, help them accomplish those. And we try to help them in any one of those ways that we can. And with the entrepreneurs, do they need to be at a, because obviously we're talking about scaling here.

5:56So do they need to be series A, series B? Is it B2B SaaS specific or is it just in general kind of tech? Where's the focus? You know, as any new business, we have to experiment a little bit. And what we found was we're probably a little bit too much firepower for really early stage, where you really kind of haven't figured out that, you know, what are you doing? What's the product market fit? You know, pre any customers probably were a little bit too much firepower for that. So typically, we like to be we like to involve ourselves in companies that are just beyond that. That would be the earliest stage, you know, have a few customers kind of proven product market fit.

6:40Then we can come in and really help scale across all of the various dimensions. You know, scaling requires more capital investors. It requires recruiting the right kind of people, you know, growing the leadership team and obviously investing in sales and marketing and messaging and so on. So that's kind of where we play in. Again, experimenting a little bit, we were focused on B2B SaaS as kind of a generic area. We spend most of our time in the category of CX, customer experience. So obviously, you know, legacy stuff like call centers and and but analytics and, you know, latest the big investment area now conversational AI, you know, but lots of areas around automation, data cleanup, all kinds of stuff that all, you know, all impacts the customer journey.

7:31And so most of our activities is is in that domain. And just then on Broadsoft, just to share a little bit of data there for the audience that may or may not know them. So how old was Broadsoft when it got acquired? How many people? Can you share the revenue? And then I think the exit amount that Cisco paid is public. I saw between$1.8 billion to$2 billion. So within that range. But yeah, can you share a little bit of data points on that? Sure. So we started Broadsoft in 1998, where, you know, I always like to say all the terminology that we know today around SaaS and, you know, like that word didn't exist and, you know, cloud didn't exist.

8:17And so we started really early in this real effort to migrate enterprise communications voice collaboration from prem to cloud. And that's kind of where we and we decided to uniquely focus on a go to market strategy through through service providers of all sizes, you know, very small boutique service providers, many of which who really used our technology to start a new business. It was a completely, you know, a lot of the entrepreneurs that were customers of ours really created businesses and were successful in this whole UCAS, which now has evolved into this unified communications marketplace.

9:05So we uniquely went through service providers and they white label these services. We grew the business. We went public in 2010 on NASDAQ. um we sold in 2018 to cisco we were a little bit over 2 000 employees in 23 countries we had customers in a little over 80 countries like 85 something like that um and probably you know i can't remember exact uh revenue wise the last quarter which always a little bit weird because it actually goes up when you get acquired um was probably on track about a you know 500 million dollar you know size revenue company um and yeah as you said sold for just shy of two billion dollars can i say so when you went public and so you went public and then obviously uh then got acquired but when you went public what was the the revenue sort of milestone or the the tipping point for you to take it public back then it was about a hundred it was i think we had we're on target for about a hundred which was at that time was a you know kind of a minimum ipo size Anything smaller is hard.

10:10That always changes a little bit. At that time in 2010, that was kind of the, you know, the target. It was even small by at that point. We, you know, just kind of a little footnote to the 20, like really allowed us to energize is that in 2008, which, you know, was not a great time for lots of folks, you know, with a pretty serious financial crisis. We actually acquired two of our, you know, what's they call pure play competitors and were able to consolidate revenue to give us really that jumping point into IPO in 2010. So that was really kind of an important stepping stone in the evolution of the business.

10:51Makes sense. And then can I ask then, you know, why sell when you did? Why to Cisco? How is that decision making process with the founders? and and once it was i guess how long was the process and once it was done um how did you feel you know what was what was what was the plan yeah um so you know the funny thing is we we started the activity that led to you know like as things kind of happen um we started the activity really looking at the the business um and trying to figure out um you know our strategy was all this indirect strategy. You obviously have seen companies like Zoom and Ring and Ring Central.

11:37But, you know, and they were direct, you know, somewhat direct. They had a direct brand to the end user. That wasn't our strategy. And we were evaluating opening a part of our business, which would be more direct versus an indirect strategy. And to do that, we said, well, you know, we could start, you know, hire a salesperson in, you know, New York. And so, and it's just a long process. So we went out and we started looking for complementary companies that we could acquire because we were large enough at the time, companies that we could acquire and that were in the enterprise sales, direct enterprise selling motion, had a complementary product that made sense with our UCAS product.

12:21And so that led us to have a lot of conversations with private equity firms that had assets that we were considering, went down a few of those paths. None of those really work. But then private equity guys started to know us and say, oh, wait a minute, you guys want to do this big transformation. You really should do this as a private company, not a public company. And so they started kind of proposing a take private process, which then started kind of a frenzy around that. And then, of course, the board said, oh, wait a minute, we've got all this private equity interest, why don't we open it up to some strategic?

12:56So I'd say because it's somewhere, I know it's well documented somewhere. I think the process had 16 players at one time. So how long it took, it took a lot longer than anybody could imagine, probably a year for the whole process to occur. And we eventually came down to choose between three offers. And I think for the customers and the employees, I mean, the pricing was pretty much the same. So proceeds to the shareholders and we were public companies, so public shareholders was about the same. But Cisco just felt like a better home for the technology, better home for the employees and better home for the customers.

13:47So they just seemed like a really good fit. You mentioned it taking a year. During that year, are you spending 50 % of your time on that, 75 % or 100 %? A lot. And in fact, Alex, good question, because at some point, the process just was, you know, you need a trigger point, right? And it was just dragging on. And I'd probably say I'd spend, like, you know, historically at Broadsoft, I would spend most of my efforts in sales. I was on the road a lot. I was very customer centric. had a really great team of colleagues kind of managing internally and managing back office and so on. And then this sales process kind of took me away from selling, which was not something that I liked to take my eye off.

14:38And so eventually I had to go to the board and say, look, we're going to call time on this and basically tell parties that have been in the data room and talking to us. That you've got, you know, there's a board meeting happening. I remember the board meeting on Thursday. Your bids are due Wednesday. Thursday morning, we're opening bids, and we're going to pick a bid, or we're going to pick no bid, and we're going to just get back to business. And that's how the process finally got, it was a forcing function. It was a timing forcing function. I worry that we didn't do that. It would have gone on longer.

15:15Yeah, no, I can imagine. I mean, I've spoken to a lot of founders that go through M &A and they always goes on longer and they get very frustrated at certain points that, you know, they get perhaps so frustrated they kind of want to stop the process. But it's a matter of patience. In our history, we acquired 25 companies or pretty close to 25 companies, mostly small companies, tech companies, you know, tuck-ins. um so we were we're familiar with the uh the pain we inflicted on others but we had no idea how it felt when the pain was being inflicted on us but yes um and you know you ask questions like how does it feel it always feels a bit um you know like you know the day after it's like okay it's like i'm no longer well the day after i was still kind of in control there was like really like very little change but over the first six months you you start to lose control of the business.

16:11Things start getting chopped up, you know, all over the place. And it, you know, at some points you're, you're, you get frustrated because you see your baby being mistreated or treated in a different way that you would have. But, you know, you got to, you got to move on. It was, it was, you know, it was, it wasn't a short ride. It was 20 years for my co-founder, Scott and I. So, you know, it was also, you know, to be honest, a good way for us to make a transition out without, you know, kind of just dropping the ball and leaving after 20 years. I think, I think the employees found a good home at Cisco.

16:49They all seem to be well taken care of. So I think that was, that was all, you know, kind of a good set of moves. Well, let's talk about some of the key sort of lessons then. Obviously there's loads, right? But if we distill it down into like, let's say three key lessons as you grew the business to 500 million, over that period of time, in terms of revenue, that is. Let's talk about some of the things that help you do that. So I think one of the things you mentioned in the notes around sort of like continuously reviewing strategy, aligning the team to the big picture. So let's talk more about that.

17:24Yeah, one of the things that we started early on at Broadsoft is really an annual process of really bringing the leadership team. And sometimes, you know, it could be a couple of layers down. Every year was a little bit different based on circumstances. But and really, you know, kind of looking at the numbers and with, you know, kind of a critical eye, look at the customer feedback, look at the, you know, the product, look at competition, look at market dynamics, you know, raising money, capital evaluations. And we would really spend kind of a day, kind of a day kind of just looking at all that data.

18:07And then we kind of really tear down the proposition and say, OK, what are we doing? What's our strategy? Should we make course corrections? and settling with a consensus view of really high-level kind of strategic directional statements. So five, you know, we always pick five statements for what we wanted to accomplish over the next year. And with the goal of really leaving it up to the executive team, the leadership team, to kind of find the path to deliver on those five statements. We didn't want to, I had no plan to micromanage the business. but really kind of setting out where we wanted to focus the business.

18:50And, you know, sometimes year to go, you know, from year one, year two, there wouldn't be a lot of changes. There'd be some fine tuning to those strategic. Sometimes there'd be more major changes. Sometimes those changes that we aspire to deliver became a lot more challenging than we could ever imagine. You know, we made a strategic decision in our evolution to go from kind of software delivered to partners. They ran it. They managed it to a wholesale SaaS, which was really a new phenomenon when we did it. And the operations, the complexity of really running a service now, running a 7x24 service.

19:39we had no idea the complexity that would introduce to the business, the sales models, etc. And that was a lot harder than we imagined. But it was really important to get, you know, I think that the lesson learned to me is, you know, execution, you got to know where you're executing and alignment is really important. And one of the things we really beat into our partners in our clients at True North is, you know, the team's got to be aligned. Like before we start executing anything if the team's not aligned and surprisingly it doesn't it's not that easy because alignment and strategy requires choosing and what i find a lot of times with technology entrepreneurs is you know they're enamored with the tech and the tech can do 10 things but we don't want to talk about 10 things we want to talk about one one vertical one use case one geo whatever that is um so we've been execute on on marketing messaging and go to You know, it's really hard to be effective in delivering a message to the marketplace with the amount of noise that's in the marketplace.

20:46If you're just too, you know, you're too unfocused. And so that's a really important part of our process at True North is really. And sometimes there's a lot of kicking and screaming, I have to tell you, when we force entrepreneurs to choose. You know, it's not A or B and C and D and E. It's A or B or C or D. um i mean it's very interesting uh around strategy and execution right so obviously i mean if you can pick the right strategy and execute really well against that obviously you've got this this great chance of success but often what i see is that you know folks will pick the the strategy but have a lot of issues around execution um and and i guess in in many cases that there can be sort of different reasons like how did you get your team to execute like you know what what's the sort of like the Broadsoft way or the Mike Tesla way to get the teams, the company to execute?

21:43You mentioned about, obviously, you've got to be all aligned. Obviously, that would be sort of like a key ingredient. But aside from that, you've set the goals for the quarter, for the year. How do the teams execute so well? Obviously, you're absolutely right. Setting the direction is critical. And one thing we would also then do is allow the teams to go away, take that and create you know, what their execution plan was and be realistic around how much we could do, how much we could fund. Sometimes we just simply couldn't fund all this activity we had to choose. And so really have that next level of conversation around, you know, really building realistic execution plans that we could deliver on.

22:27And then holding everybody accountable. Accountability is really important. Everybody's got to deliver, you know, sales guys, you know, Talk to anybody who worked for me in sales, they had to deliver. There was not a lot of forgiveness on the sales front because we were an eight-year public company. We deliver eight years on target really hard, but that was important. That drove our valuation, drove our business, drove our cash flow, which drove money for R &D and stuff. So that was one of the things why the alignment was so important to make sure that everybody had a seat at the table. Uh, and everybody felt, uh, vested in that, in the, in the decision, but then everybody had to go away and figure out their execution plan.

23:12And then just, you know, um, not micromanage, but micro, you know, like often look at it, report, et cetera. Um, so that's, that's, that's really, you know, uh, you know, execution is attention to detail. It's not, there's no magic to it. Um, you gotta have the right people. That's also the other thing. And, um, I would say that, you know, as organizations go, you know, we had an certainly an evolution of leadership as the company went from, you know, five employees at start to 2000. Some people can't scale and some people don't make it with our new strategy. And so there's, you know, we've got to figure out the right leadership, constant evolution of the right leadership for the company and scale at the time.

23:55It's a nice segue into that. So a lot of people listening are really in the startup world. as the organization goes from startup and, you know, just a few employees to, you know, hopefully, and many of them, you know, scaling up, you know, how does the leadership change and how did you manage that? Yeah, you know, it's a kind of a learning as the company scales up. You know, lots of things that you just do informally in a really small company suddenly is to start, you know, getting more process, sometimes bad word in startups, but, you know, really kind of understanding how you're going to really manage the team and get the team to execute.

24:40And it becomes, you know, it's a complex, you know, employees in 23 countries, kind of a complex operation. And aligning cultures, like, you know, like, as I said, we acquired lots of companies all over the world. We learned some real interesting culture things that we never imagined. You know, small things that don't impact employees here, you know, really, you know, make people crazy in Finland, you know. So you've got to just be careful and understand that. But I think for a leader, I think what's really important is understanding, you know, what you have to personally communicate to the like, you know, when you have five employees, you can meet every employee.

25:19You can shake hands. You can talk to them. You can have coffee. When you have 2 ,000, it's just not possible. And so as you grow this team, you have to kind of think about the leaders have to be really, you know, your ambassadors, they have to be really good at it. You have to have enough people touching, you know, if you're multi-geography, you know, work at home is a really tough phenomenon for building culture. We had a lot of people distributed, but we didn't have 2 ,000 all sitting at home. That would have been even harder. And so I think just as you evolve, continuously evaluate. And I'd say personally, I have to reserve more time in my pie for internal communications, culture, employees, so on.

26:04As a leader, you've got shareholders, stakeholders, you have employee stakeholders, you have customer stakeholders. and you got to figure out how you split your time. And when you're small, the employee stuff kind of gets done by just meeting them over coffee and running or going to the same meeting. When you get larger, you have to think a bit more formality. We decided at some point that the scale was getting difficult. And so I recruited and hired someone to run internally what I call the chief transformation officer, which was really around getting our messaging out, getting the value out, really spending all the time focused on those key issues, getting the team super aligned from a value perspective, communicating progress at a company level, making sure that all the teams in the various geographies felt like they were part of the family.

26:58That's a really important part of that role. So we decided to invest and hire somebody full-time executive on my team. And that's all they did was focus on the people issues. Something that was really successful for you guys, and you mentioned it earlier, is around your partners and the model that you had there. And it's quite, I think, topical this year. Hearing a lot of SaaS companies certainly inquire about how do we build a partnership program, partnership model, reseller model, et cetera. A few have done it well. Probably most are still trying to figure it out. But you guys did this really well.

27:37So how did you make your go-to-market partners really kind of work? But what was the secret to the success there? There's a couple of things that were unique to us. One of them was that we never competed with them. There was no direct versus channel. That's a challenge some companies have. I think the other thing is that in many cases, we are enabling a new opportunity for the partner. So it wasn't like we were coming along and there are five other companies doing the same thing. We were enabling a new service that they were going to make money on. And probably the most important thing is we made it very clear in our approach, our investment, and even in our pricing business model that we say the rope is really tight.

28:26And what does that mean is that we wanted the partner to make money and then we made money. So we weren't like we weren't saying, hey, you know, here's a bunch of software. Good luck. Here's, you know, write us a check for 10 million dollars and goodbye. why? We did not like signing very large initial deals. What we liked was our partners to start ordering every month, every, oh my God, you know, we ran out of inventory. We need some more, we need some more licenses. So that rope was really tight, which made it meant that it was our responsibility to help that partner technically mark whatever they needed.

29:03We really went out of the way to help them, you know, train their salespeople, go to their sales events, go to their leadership events, talk about the evolution of the industry, did all of those, you know, because it was critical. And I think bringing them into the family and them feeling like, oh, okay, broad soft success is dependent on the partner's success. It's not the way a lot of people, you know, people treat partners like, oh, well, I need someone to sell my stuff, you know like oh i gotta give margin you know like it starts you know you know like we never we never had a retail price we sold wholesale uh we had a different mindset from the beginning we never thought about oh okay you know did this partner do enough for their 30 point margin which i hear a lot of um and and it's not and and the partners are not close to you either they've got this big you know inventory of suppliers um technology partners um how can they be helpful if they're representing three of your competitors.

30:05Doesn't really work. So I think that to me, the distribution business is a little flawed at the moment. You know, one thing that I did learn from my time at Cisco, which is like one of those strange observations you have, is we got acquired and we went to the first Cisco sales event and they have it in Vegas every year. And you show up to the opening event And it's in the hockey coliseum and there's 20 ,000 people there. And I'm like, I thought we did 98 % of our business through channel. And the answer is we do. But we actually, you know, that company basically, you know, they're direct and channel and partners, managers, and they all get comp.