Dan Frawley, Managing Director of Falmouth Ventures, joins our host, Camela Thompson, Go-To-Market Thought Leader and B2B Insights Expert, in this episode of the Revenue Marketing Report. Dan taps into his experience as a Top Gun-style fighter pilot, CEO, and Venture Capital investor to share the qualities of B2B companies that have continued to thrive during the latest economic downturn.
What are some characteristics of the companies that are thriving today? And I’ve been calling it SaaSacre. I’ve heard the diSaaSter. I’ve heard a lot of variations but things have been a little tough; different than they were for the last ten-plus years.
“Yeah, great question because I’m the old guy in the room here. I can say that I lived through the dot com disaster and that’s a long story, but I was the CEO of a tech company then. To some people, it feels like the sky is falling, but to me, I’ve seen that movie before and it’s painful. Glad you brought it up because I’ll give a couple of stats. I’m kind of a numbers guy. 38% of VCs have stopped making deals in 2023. Almost 40% haven’t shown up. Something has changed clearly, right? That makes it very difficult to get capital. Deal volume down 30%. A number of shutdowns. Companies just close the door. I will tell you this, the ideal stage to endure, is if you had raised a series A at the beginning of 2023. And I say specifically a Series A just coming out of a seed round, that would be an optimal situation with about one to two years of cash. Then something I’m going to say probably twenty times in this conversation because again, I want to be really clear. I was not running an established enterprise. I ran early-stage companies. Typically, it took over with less than $100,000 and locked arms with the founders and then we tried to take them to the promised land, grow them, and exit them either publicly or privately. I will tell you something that’s the truth, product-market fit is a very big deal.
“And when you couple that with this stat 75%, roughly, of VCs deals fail. Of those, 75% don’t return capital to the VC. Of those 75%, about half of them go under. So it’s a risky business. It’s a very risky business. It’s not for the faint of heart. But if you have a heart for it, and aptitude, it’s a lot of fun, which is the way I looked at it. So to your question, which companies are thriving today? Boy, if I had raised a series A and I had a really good product-market fit, that would be the bullseye, right? In some cases, and I want to stress this today, maybe I’m smiling more than normal. We had an exit today, right within our venture company. It literally closed on Wednesday.
“And today, the check cleared. It was a really nice return for all of our investors, which we’re really happy with, but I have to tell you, from the time I saw the Founder and invested in his company, this guy did it right. He had product-market fit out of the gate in a very big market. He has grown every quarter even to the end. But in the end, in classic entrepreneurial fashion, he said, ‘I’m not sure I should sell’. Even though he’s got this phenomenal offer, he can take a private jet for the rest of his life and his kids.
“And he was reluctant to take outside capital. I’m one of his few insider VCs. He owns 50% of the company which is very unusual. So to your question, what are his characteristics, big market, incredible product-market fit. A lot of times in the companies I was with, it took us a couple of clicks to find that product-market fit. You often didn’t have it right out of the gate. You may be close, and think you got it, but you don’t have it. And I won’t go into all the metrics, LCV, to CAC, and all those things that tell you whether you’ve got product market fit right. But when you have it, you know it. And again, it’s good times for him. He’s going, what tech depression? What Saasacare? He’s a very happy man. And another one happened last year. They had tremendous product-market fit in big markets. They had something very unique and they’re just crushing it. For me, that hasn’t changed.
“Another one would be like what I’ve seen some recent success on is event marketing. Therefore, if you’re looking to meet up with people or invite them to an event. If you do it on alternative domain names, I think that actually is a great use case. I think it’s one that many marketers are missing right now. Because if you do an event, if you can justify that in your budget right now, you have to nail that event. If that is going to require people out of the office and people going to these events and traveling and all costs associated with it.
“Another one that I would say is guest blogging, another one that I think many people miss. There’s plenty of backlinking, SEO, and all sorts of other things that you can get out of it. I think what you need to start doing is start thinking a little bit outside the box with email. It’s a wonderful protocol that people can use. It’s not social media. You need to think of it that way. And what you need to do is take a step back to say, are we just asking people for meetings? Why do we really want these meetings with people? I mean your goal isn’t the meeting. And if they’re in the market wouldn’t they come to you? There are a lot of people doing very odd things.”
“The thing that excites me is what a critical role data savvy B2B marketers could play in a company where you’re seeing signs that product-market fit isn’t quite there yet. Doing interviews with closed opportunity contacts, interviewing customers, and running reports on what common characteristics churned customers share, there are a lot of things that marketers can do to make a big impact there. Are there other things you’ve seen work successfully? You mentioned you were with some companies that didn’t have it right away and they had to make some changes. Can you tell us a little bit about what that looks like?
“It’s very challenging when the founder and CEO like myself bring in a young marketing team. And I want to be clear that with early-stage companies, it’s sometimes difficult to distinguish between sales and marketing. They are almost the same early on. A lot of companies, they’ll have just salespeople to start. They don’t even have marketers. I was not a B2C guy. I was a B2B guy,my whole career. I was specifically B2B SaaS. So it’s one of the most frustrating and one of the most important things you can do is to figure out what that is.
“And from a marketing and sales standpoint, you’ll know it because your salespeople aren’t getting to quota. Typically, it is very formulaic in many ways. You see anywhere from 350 in the low end to a million plus of quota per salesperson in a SaaS market, depending on the average price points. Another clue insight into that is renewal rates. Renewal rates is the market telling you something. I’ll tell you from the venture perspective if you’re not 85% of what I call wallet renewal or net retention, if you’re not at a minimum 85%, they preferably want to see you around 100% if not over that.
“What that means is if you renew something that sold at a dollar, if it doesn’t renew, that’s zero. If it renews and they buy more at a dollar ten. That’s a 110% renewal rate. And if you see 100, 50% of them you’ll get a 50% renewal rate unit. So that’s a really critical metric as much as anything else. And that’s another indicator of the question: do you really have product-market fit? It’s very challenging for a marketer to walk into an early-stage company with a founder and CEO who don’t quite have product commitment. They may think they did when they talked to you. It’s a complicated topic.
“I’ll quote something here. An old skipper of mine back in my flying days – it’s amazing how many truths came out of that environment – if you lie to yourself in this business you die, meaning the fighter pilot business. Don’t believe your instruments. Think you’re there when you’re there. That optimism can sometimes get you in trouble. That instrument panel for me is important. What are your renewal rates? How are reps doing relative to quota? What are your conversion rates? What are your email response rates? I’ve seen numbers around 1%. However, there are obviously some opportunities on the horizon with AI and a number of technologies that we’re seeing coming down that track now. AI is powerful. We work with companies that do it, but I’ve to be cautious and not put a brush on everyone since it isn’t just AI. There’s many phenomenal technology companies coming down the track that are changing the way B2B marketing is getting done in some really cool and exciting ways.”
I’ve seen some scary things too. You've hinted that many companies are trying to find any way to attach AI to their product. They’re rushing to get it out the door. And then once they start pushing content materials, they lose some credibility, I think because a lot of people are gun-shy about AI. They need to see it work in order to trust it since we’ve seen a lot that is just ok. So, it’s trust building. I heard you say that sometimes it’s hard to work with founders who don’t have product-market fit because there are a lot of feelings involved there, and not everybody is super-honest with themselves.
“This tension between what I said about don’t lie to yourself, on the one hand. And then, I played hockey in high school and college and you want to go where the puck is going to be and not where it is. And therein lies the tension. Don’t lie to yourself about the facts but an entrepreneur has got to get there where the puck is going to be. That’s the tension you typically see. And that entrepreneur, interesting stat that CEB quantified in leadership styles, that entrepreneur DNA is about 2% – 2.5% of the population and the productivity is significant. It’s 30% , 40% or 50% of the population if they measured it. So 2% of the population is, like 30% of the productivity. They’re a highly productive group, very complicated and very talented. And there’s always that tension you just pointed to between the feeling is where is the puck going? And the data is telling us this isn’t looking good where we are and so how do you rationalize those two things.”
Yeah. That is a really interesting point to make. I think some of the CEOs I’ve been the most frustrated with are the visionaries who are pulling everyone along with them. What I’ve struggled with as a marketer is knowing the right time to strike and start publicizing and really making a big deal out of things. I think most boards and CEOs I’ve worked with want to go as early as possible. That kind of depends on the market and the trust that’s there or are you more worried about beating out the competitor that has the same idea?
“Usually you wouldn’t have VCs around the board and typically somebody like me, if the guy was the 10th guy in line, they’re typically first. Therefore, what’s not the immediate concern at the time. The challenge is going from the idea stage which is entrepreneurial land to the first product, the first customer then to scaling. Those are steps in the process like anything else. I wouldn’t have a career if it were not for the talent of these entrepreneurs that have that gene. With that said they are a very colorful group and being very blunt, in military speak, I had to take half of them out.
“Meaning they had to be let go. The same things that make them phenomenal founders literally gets in their way later on. When you start to scale and build processes that you can replicate to hire other people, it can become very challenging. That’s just the reality of the way that. There was a book written once, can’t remember the name of it. It talked about this dilemma with the founder and the tension between do they want to be king or do they want to be rich. That’s a wonderful paradigm since it really resonated with me. That really explained a lot of what I experienced since some of them just want to be king. And it took me a while to figure that out. If you want to be king, we’re not going to get rich.
“And once you have VCs and invite investors to the table, that’s in the way of those who want to get rich, who want to grow the company, get products-market fit and then scale the thing. Employees want to grow it. Everyone has a vested interest in growing and again it’s a very risky environment. But there is still tension there. You sometimes have to let them go from their own company which is very difficult on everyone because they are generally very loved and talented.
“I had one founder call me up and say, Dan, I apologize. I hope this doesn’t upset you. I’m not the guy to take this to the next level. He added, I just wanted to be the first to let you know. And I replied if I could hug him on Zoom, I would. He has proven he’s more interested in growing this company, all of his employees’ success, and all that than he is being king. By the way, he’ll get rich in the process too. Very smart, sharp, guy. It’s so great to hear that entrepreneurship and empathy can be in one person.
For more content on B2B marketing trends, listen to the full Revenue Marketing Report episode at the top of the article or anywhere you podcast.