Reaching $100 Million In Revenue In Less Than 5 Years
A Q&A with Vlocity founder and CEO David Schmaier, whose industry-specific cloud and mobile software company is the fastest-growing company ever built on the Salesforce AppExchange platform
Vlocity is a leading provider of industry-specific cloud and mobile software built in partnership with Salesforce. It is the fastest-growing company ever built on the Salesforce AppExchange platform and grew from inception to $100 million in revenue in less than five years.
Vlocity’s remarkable founding story and fast-track to success is best told by its founder and CEO, David Schmaier. He sat down with Software Executive magazine to talk strategy, scaling, raising capital, being efficient with that capital, and his vision for the company moving forward.
Software Executive Magazine: Why did you found Vlocity? And why did you make the distinct choice to build a vertically focused company instead of a horizontal product?
David Schmaier: I saw a rare opportunity to build something meaningful and important and to capitalize on a large and (until now) untapped market opportunity. My background is software product management, so I love to build software and to build software companies.
I started in the very early days of CRM software. I was one of the original founding executives at Siebel Systems back in 1993, when CRM was a $50 million dollar global software market (Gartner estimates that CRM software is today a $30 billion market). We thought CRM was a good idea, but frankly it turned out to be a great idea.
During those early growth years at Siebel, customers kept asking for industry-specific capabilities “out of the box” on top of their CRM software. The pharmaceutical companies all asked for 12 features. The banks all asked for 10 features that they really needed. The telecommunications companies asked for 17 or so different capabilities. And so on and so forth across each industry vertical.
For a while, we brought in our friends and partners at the global systems integrators (SI), and they would customize the software to meet those industry-specific requirements. Eventually, after watching our SI partners repeat the very same customizations for each company, a light bulb went off: Maybe we should make this easy for the customers and build the features they want into the product. Imagine that.
So, we built our first vertical product for one industry — and then another, and another. After a year, we had two vertical products, then five, then eight; and after several years we were shipping 24 industry vertical software offerings in 20 languages, on the same day, with every release. While this sounds like science fiction, it is all 100 percent true. We spent over a decade doing this and really learned how to build vertical software.
Fast forward twenty years. It’s now 2013, and I’m on the board of a private equity firm with my Harvard Business School roommate helping found and build their enterprise software business and portfolio. Our strategy was to acquire industry-specific software companies. After watching my friends and former Oracle and Siebel colleagues Craig Ramsey, Mark Armenante, and Young Sohn found a phenomenally successful company called Veeva for the life sciences industry, I decided to go to Salesforce’s annual Dreamforce conference to look for the “next Veeva” in another vertical. I planned to shop for a company to acquire, build, and grow.
SoftEx: So, you set out to buy a company, but you ended up building Vlocity instead. Why?
Schmaier: At Dreamforce, I was blown away by two things. First, the sheer scale of the show and the Salesforce ecosystem. I always knew that CRM was a huge opportunity that would eclipse ERP software, and Salesforce had definitely emerged as the clear market leader. Second, six years ago I was shocked that I couldn’t find another company (other than Veeva) focused on extending and tailoring Salesforce for vertical industries. I realized that there was not “another Veeva” to acquire. That’s when it dawned on me that we needed to start a company (not buy one), and that was the beginning of Vlocity.
From Dreamforce, I called up my three former colleagues Craig, Mark, and Young, who cofounded Veeva, and the four of us got together the next day to put together a strategy we called “Veeva x 10.” How could we start a company that would deliver several vertical product suites with a total addressable market that was 10 times larger than the life sciences software market?
Instead of focusing narrowly on one industry, such as Veeva was doing for the life sciences industry, we decided Vlocity would extend Salesforce for some of the largest industries in need of digital transformation, including communications and media, energy and utilities, insurance, healthcare, and government.
The secret to providing software to multiple verticals involves reusing components, while also delivering deep industry-specific capabilities.
– David Schmaier, Founder & CEO, Vlocity
SoftEx: Walk us through Vlocity’s fundraising history.
Schmaier: Originally, our founding team had planned to fund Vlocity ourselves. But one of our very first meetings was with Salesforce, and its executives were 100 percent supportive of our plans for Vlocity. They immediately wanted to invest with us. We started with a seed round from the Vlocity founders, and then Salesforce Ventures led the Series A of $42.8M with participation from Accenture, with whom I had a long-standing and strong relationship from my Siebel and Oracle days.
Our Series B of $50M was co-led by Salesforce Ventures and Sutter Hill Ventures.
In March 2019 we announced our $60M Series C round with existing investors, including Sutter Hill Ventures, Salesforce Ventures, Accenture, and New York Life Ventures, along with a new investor Bessemer Venture Partners.
SoftEx: What did you learn during Vlocity’s prior rounds that you applied to this Series C funding stage?
Schmaier: We learned that a positive record of building successful companies and a strong management team makes all the difference when attracting investors.
We’ve known most of the people and companies that invested in Vlocity for three decades. And we have had, in my opinion, a very simple, straightforward, and crystal clear business plan. There is no confusion at all about our strategy or the size of our addressable market. And we have had, and continue to have, a very talented and experienced management team.
The best ideas are simple. So the simplicity and clarity of our purpose has made it easy to attract blue-chip investors.
And the best ideas are unique. We are one of a very small number of companies going after this new and increasingly important category of cloud software called the “industry cloud.” This is a natural and we believe inevitable evolution of cloud software where industry-specific capabilities are included in the software “out of the box.”
The Vlocity value proposition is “The best customer experiences are industry-specific.” We take the world’s #1 and best CRM and Salesforce, and add the last mile capabilities for different industries. It’s a set of capabilities that customers and investors alike find compelling.
SoftEx: In a recent press release you said Vlocity’s Series C will, “enable us to accelerate delivery of Vlocity’s industry cloud software by fueling the expansion of our product development, customer success, and support infrastructure.” What does that look like, in practice? What are some examples of specific enhancements you’ve made in each of those areas?
Schmaier: There are a few dimensions. When it comes to the industry cloud, rich functionality really matters. You have to speak the language of the customer and understand what they want. The secret to doing one vertical is to go deep and deliver compelling industry-specific capabilities.
The secret to providing software to multiple verticals involves reusing components, while also delivering deep industry-specific capabilities. We have built and continue to enhance the Vlocity Digital Interaction Platform. It provides a series of components and capabilities that operate and are reused across industries. So instead of building the same component multiple times for each vertical, we can reuse them via the Vlocity Digital Interaction Platform that operates on the Salesforce platform. We have a capability, for example, called OmniScript that is an omnichannel business process engine in the cloud. That’s the core process engine that enables guided selling for a telecommunications company to sell the “quad-play” (voice, TV, mobile and broadband) or an insurance company to sell life insurance or a health policy.
There are very different processes for each industry, but we use the same engine to deliver this capability. There are several engines like this that we’re able to use across industries, and then there are very specific capabilities that apply exclusively to industries. We are investing in both the reusable components and in additional, specialized industry-specific capabilities that allow us to go deep for each industry vertical.
My dad was a college professor, my mom was a social worker, and maybe it’s old school, but the philosophy here is the same one I grew up with: Figure out how much money you’re bringing in and spend less than that.
– David Schmaier, Founder & CEO, Vlocity
SoftEx: A 2015 Forbes article about Vlocity said, “do not expect the company to be like the other cloud firms, which are constantly raising huge rounds.” You were quoted as saying, “I hope we do not do another round. I want to be as capital-efficient as possible.” Why did you initially not want to raise again, and what factors changed your mind?
Schmaier: Our total capital raised to date has been right around $163 million. That sounds like a lot, but on the Forbes Cloud 100 list, we are one of the single most capital-efficient companies, where we have raised the least amount of capital of all but a few companies. When taken in context – we are building a cloud software company growing at approximately 100 percent per year with very large customers (often Fortune 50 companies) — we have not had to raise a lot of money.
In the B2B software world, this is about as fast as you can build a company.
There are approximately 5,000 companies on the Salesforce AppExchange, and we are the fastest growing company ever built on the platform. We grew from inception to over $100 million in revenue in less than five years, and we are having another record year of hyper-growth this fiscal year. This is faster than any other Salesforce partner (and virtually all cloud software companies) — so I’d say that we are pretty darn efficient.
There are three main reasons we are so capital efficient.
One, we’re built on the Salesforce cloud platform and core applications, and the economic advantages of that are huge. Instead of building our own platform, which would take years and cost tens or hundreds of millions of dollars, we use the world’s most trusted, secure, scalable CRM platform that millions of people log on to every day. That means that right off the bat we’ve eliminated a nine-month technical evaluation with IT organizations because Salesforce is trusted, proven, and secure. Most of our prospects already use Salesforce.
Second, you don’t need massive sales and marketing budgets to address the verticals. We don’t need to run Super Bowl or Wall Street Journal ads to market our software. We know every company in our target industries. You can simply go through the list of the largest companies by vertical. Those are our customers — or they soon will be!
Third, all of our employees truly act as shareholders, and for me, frugality is innate. My dad was a college professor, my mom was a social worker, and maybe it’s old school, but the philosophy here is the same one I grew up with: Figure out how much money you’re bringing in and spend less than that.
SoftEx: The idea of being “capital-efficient” is a concept we hear a lot less about in the software world compared to an emphasis on growth, growth, and more growth.
Schmaier: We would have raised even less money, if not for the fact that we’re building six Veeva-like verticals at once. And that was a subject of some internal debate — how much money should we raise? How fast should we go? At the time, we thought we might have others jumping into the market to try to attack this untapped opportunity for the industry cloud, so we wanted to move fast.
As it turns out, we were the ones who raced ahead and stayed ahead. And multiple industries have been a great thing for us. It balances out our quarters, and it results in a more diversified, interesting, strategic, and ultimately more valuable company.
SoftEx: What’s next for Vlocity? What is your vision for the company five years from now? What about your 10-year goals and beyond?
Schmaier: I’ll start with the longer-term view. Ten years from now, all software will be in the cloud, and the vast majority of that will be industry-specific. That bodes really well for Vlocity. We are in the right place at the right time. The industry cloud is a certainty, and our mission is to lead with best-in-class cloud software and deep industry domain expertise to help companies transform for the digital age.
Second, our goals have always included being the #1 app on Salesforce and ultimately the #1 app on any platform in our target industries. We’ve accomplished the first and are now working toward the second.
As we continue to grow, we are focusing on embedding AI into our industry-specific applications to make these applications smarter.
Bottom line, the industry cloud is faster to deploy, far better, and costs less money than traditional solutions. Why wouldn’t any company want that? That’s why Vlocity will be successful over the long term. We are excited for the road ahead into the digital future.
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