Background: Building a SaaS company that reaches a competitive Series A round from a top firm is more difficult today than it was a decade ago, in particular in Silicon Valley. There are many more companies getting funded at the seed, and top Series A firms expect ever greater traction and growth from SaaS companies. Competition for top talent is stiff, and new SaaS startups are battling against incumbent SaaS veterans that have substantial resources and scale. All of these factors have made the process of reaching competitive Series A round even more Darwinian.
We had the opportunity to interview Justin Zhu, CEO and Co-Founder of Iterable, whose company successfully navigated this challenging path to Series A round led by Charles River Ventures. Even more impressively, Iterable’s Series A round was highly competitive, with multiple top firms providing the company with term sheets. We sat down with Justin to learn more about how he and his co-founder accomplished this feat, and what seed founders can learn from Iterable’s success.
Founded by Justin Zhu and Andrew Boni, Iterable is a leading SaaS company providing growth marketing software. The company’s mission is to enable customers to deliver the right message, to the right device, in record time. Before co-founding Iterable, Justin was a software engineer at Twitter, and Andrew was a strategist in Google’s online partnerships group. In four years, the founders have grown Iterable into a rapidly-growing business with customers such as Zillow, Yelp, DoorDash and Munchery.
Most impressive about our interview with Justin is his candor and humility in describing how Iterable got off the ground, combined with a deep hunger to win. As with many startups, there are elements of luck and chance in the Iterable story, as well as early setbacks. Justin and his co-founder had a chance meeting at a house party. They tried an initial idea, but it didn’t go anywhere, and they had to start over. They were rejected by Y-Combinator. They did non-conventional things, such as making their first salesperson hire a person with no sales experience. Justin’s story is exemplary of the non-linear, choppy road that many SaaS founders experience early on, and the perseverance required from him, his team, and investors to navigate this road effectively.
It’s also fascinating to note the differences between the early growth paths of Iterable and Exact Target, the subject of our first interview in this SaaS Founders at Work series. We highlight some of those differences in the key learnings section at the end of the interview. Those differences are representative of both of how far the SaaS industry has come since its early days, and the stark contrast between building a business in Silicon Valley in the 2010’s vs. Indianapolis in the 2000’s.
Finally, we’re very pleased to note that 645 Ventures is also an investor in Iterable, having first invested in the company at the seed stage. We’ve had the privilege of working with Justin and his team since they were a small operation, and it’s been a privilege to join them on their journey.
Summary: Iterable is a SaaS growth marketing software company. Iterable empowers marketers to create world-class user engagement campaigns throughout the full lifecycle and across all channels. Using Iterable’s software, marketers can segment users, build workflows, automate touch points, and test strategies at scale without engineering support.
Founders: Justin Zhu (JZ), Andrew Boni
Year Founded: 2013
Interview with Justin Zhu:
Q: Thank you for taking the time to speak with us, Justin. To get us started, could you provide some background on how you and your co-founder started Iterable?
JZ: I met my co-founder Andrew at a house party. We attended a few hackathons together, and started to think about business ideas. We had a first idea that didn’t work. We wanted to build a company providing near-field communication (NFC) for restaurants. We applied to Y-Combinator and we didn’t get in. We decided that we needed to change the idea.
At Twitter, I worked on a marketing automation project to help them effectively market to their large audience, and I saw how effective marketing automation can be. I also recognized a need for sophisticated marketing tools that could be used by non-technical marketers. So we started working on building a company in marketing automation.
We applied to AngelPad and got in, and started working on the product at AngelPad.
Q: Who wrote you your first seed check?
JZ: Our first seed money was from Thomas Korte at AngelPad and Dave McClure at 500 Startups. We met them at an event. We raised our first capital in the form of a convertible note in May of 2013, then started building our product that June.
Q: How did you build your team in the early days?
JZ: Our first real hire was a co-worker of mine from Twitter, an engineer. We paid him $50k in salary to join us. We then hired another engineer, and then our first sales and marketing person. We leveraged our networks in the beginning to build our team.
Q: What were your initial key learnings in building the product?
JZ: It takes time to build a good product. The analogy is that you’re trying to build a Ferrari engine. You’ll go fast after the engine has been built, but it needs to be built first. You can’t take shortcuts. This is something that a lot of investors don’t understand — they expect rapid growth immediately, and they don’t have patience in allowing their companies to build great product.
Q: How did you sign up your first customer, and how long did it take? Did you have a minimum viable product at the time?
JZ: We found our first customer, Eat24, about 6 months after we started the company. We found them through networking. They had an existing product that didn’t scale, and we replaced it.
Our second customer, Dot and Bo, was a good story. They were having real trouble with their email-marketing provider at the time. To get them to switch, I made a personal guarantee. If our product didn’t work for them, I would come and work for them for 6 months. That convinced them. They eventually moved all of their email campaigns over to us.
Q: How did you identify the types of customers you wanted to focus on?
JZ: We began to hone in on e-commerce as a key vertical. We figured out that e-commerce companies were running a lot of email campaigns to attract and retain their customers. Companies that have large campaign lists are a good fit for us. E-commerce companies are also constantly iterating on their campaigns. Our product is perfect for that use case.
Q: How did you think about building a sales model?
JZ: We did a lot of reading, and I also attended conferences and seminars. SaaStr was one example of a conference I attended. We tried to learn as much as we could, and we also learned by doing.
Q: How did you build your initial sales team?
JZ: Our first 4 salespeople were actually hired from our network. We didn’t look for conventional backgrounds. Instead, we looked for top people, but we were ok with their being non-conventional. Our first salesperson, Julian Mclain, came out of Teach for America. He didn’t have previous sales experience, but he was very smart, at the top of his college class. Julian is still our best salesperson today.
Q: How fast did your company grow in the first few years?
JZ: We grew rapidly. Between 2014 and 2015, we grew ARR by 10x. In 2016, we plan to grow ARR by 3 to 5x.
Q: What were the KPI’s that you were tracking at the seed stage?
JZ: We tracked revenue and cash burn. Our focus on keeping cash burn low helped us create discipline in the early days. This helped us get to profitability earlier than most companies.
Q: When did you start to scale?
JZ: We started to really scale in year 2, after we raised our Series A round from Charles River Ventures. We began to sign much larger deals, and that really catalyzed our growth.
Q: What does your sales operation look like today?
JZ: We have a growing sales team. Our sales team consists of a VP of Sales, 5 Account Executives, 1 SDR, 1 sales operations person, and 1 finance operations person. We combine a direct sales model with a telesales model.
Q: How did you find your VP of Sales?
JZ: We found our Director of Sales, Matt Marshall, by using a recruiter.
Q: Which software tools and systems do you use to run your marketing and sales operation?
JZ: We started by using Pipedrive. We then moved to RelateIQ, and eventually to Salesforce. We moved to Salesforce because they enable integration with third-party tools, and we started to integrate additional tools into our sales stack. Those include tools such as InsightSquared and Outreach.
Q: You raised your Series A round from Charles River Ventures, and the round was very competitive. What do you think were the most important factors in your raising that round?
JZ: Quality of our team was very important. We had a strong technical founding team, and we had also started building a great sales team. We also had attractive SaaS KPI’s, and we were growing very fast. Those were some of the reasons.
Q: Thank you for your time, Justin.
Key Learnings from Iterable:
· Go Above and Beyond the Call of Duty to Win Customers: Justin made the bold promise to go work for a prospective customer if they bought his product and didn’t like it. His belief in his product, and willingness to put himself on the line, is representative of the best qualities of technology founders. As a startup, a key hurdle is to get customers to believe that your startup will be around, and that you will stay the course as a founder. Founders should learn from Justin’s example by going above and beyond the call of duty to win customers, and then making sure to back up their promises.
· Take the Time to Build a Great Product, and Make Sure Your Investors are Like-Minded: If you are building the “Ferrari” product Justin discussed, make sure you select investors who understand your product development cycle, and who will help you build your engineering team. At 645 Ventures, we seek to back strong technical founders who are building highly differentiated products, and we do our best to support them as they get their products to market.
· Great SaaS Salespeople Can Have Non-Conventional Backgrounds: SaaS founders should keep an open mind when hiring salespeople, and look for intangible qualities in addition to previous experience. In our experience, we have seen great software salespeople come from varying walks of life.
· Raise Capital Thoughtfully and Strategically: Justin and his co-founder have been thoughtful and strategic in every funding round they raised. At the seed stage, they put together a strong syndicate and sought advice and introductions from their investors, including customer introductions. At the Series A, they raised from a top SaaS firm that could help them navigate rapid growth. Founders should follow their example, focusing on what each prospective investor can bring to the table, and using investors strategically.
Conclusion: What makes Justin & Iterable a highly promising SaaS story? Dedication, persistence, desire, and a willingness to think non-conventionally. This is an example of a business where the founders’ drive to succeed led to a successful second idea when the first one failed. It’s also a story of where the founders’ self-belief, and willingness to put themselves on the line, paid dividends.
Epilogue: At the end of 2016, Iterable raised a $23 million Series B round led by Index Ventures. The business continues to grow rapidly, and has now reached 60 people by June 2017.
 AngelPad is a seed-stage startup incubator located in San Francisco. It was ranked the #1 U.S. accelerator in the 2015–2016 Seed Accelerator Rankings.
 The interview was conducted in mid-2016. Iterable has since grown to a much larger revenue scale.
 As of time of publication, Iterable’s sales team has now grown to over 20 people.
 Pipedrive (www.pipedrive.com) is a CRM and pipeline management tool used by small sales teams.