Vertical IQ
Bobby Martin had already built and sold First Research, a sales intelligence company that provided industry profiles to sales and marketing professionals. He sold it for $26 million to Dun and Bradstreet in March 2007, just before the bubble burst. Vertical IQ applied the same idea to a different buyer. Bankers would get customized industry profiles on the businesses they were about to visit, covering how those businesses operate and their financials, so they could prepare for each call.
The business grew steadily with very little marketing. Martin said, "We have very little marketing spend." Instead, the company relied on a sales-driven approach. Its three salespeople met banks face to face, sometimes spending 20 to 30 percent of their time outside the office. Sales cycles were long, sometimes three years and sometimes six months, but customers stayed. Martin reported a 98% annual renewal rate and said most lost customers were due to bank mergers.
The pricing model also set Vertical IQ apart. Martin said, "We don't charge per seat." Banks paid according to the number of bankers in each division who would use the service. Those banks were then given unlimited seats, so the company did not have to police user counts. The company encouraged more users, and the host's estimate suggested a typical contract of $15,000 to $20,000 per year, ranging from $5,000 to about $250,000.
The company aimed for 10 to 20 percent operating margins. Martin said the company had started in 2011 with less than a million dollars of founder investment. Revenue was about $30,000 in its first year, $1.4 million in 2015, and was on track for about $2.1 million in 2016.
As of December 2016, Vertical IQ served almost 150 banks and more than 30,000 users. Martin had hired a president, Kevin McNamara, to run day-to-day operations, and was spending 10 to 20 hours a week as chairman. The company had 15 employees, mostly based in the Raleigh-Durham area, and a team of researchers who updated industry profiles, which Martin described as a large part of the cost structure.
- •Selling per division instead of per seat removes friction, so banks adopt the product more widely and expand usage on their own.
- •Annual prepaid subscriptions and a 98% renewal rate show that the product becomes hard to remove once bankers depend on it in daily call preparation.
- •Long, expensive sales cycles are justified because customer lifetime value is high, with customers staying more than four years.
- •Reusing the proven First Research model in a new buyer segment let the founder apply a tested product and sales approach rather than starting from scratch.
- •Keeping marketing spend low and investing in a small, experienced sales team fit a high-price enterprise product sold to banks.
- 1.Identify a professional buyer who prepares for meetings and can use structured industry intelligence before each call.
- 2.Price by the number of teams or divisions that will benefit, and allow unlimited users inside each account to encourage adoption.
- 3.Sell annual subscriptions paid upfront so cash comes in early and offsets long sales cycles.
- 4.Hire a few experienced salespeople who can meet clients in person, and pay them commission plus a share of renewals to align incentives.
- 5.Track renewal rate and customer lifetime value to decide how much you can afford to spend acquiring each new account.
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