Web Masters Episode #66: Phil Fernandez

Envera Systems Selects Marketo to Engage Customers At-Scale - Envera Systems

Phil Fernandez:

I used to like to use the line that companies that came before would be on a race to a thousand customers and that we were on a race to a hundred thousand customers. And at the time salesforce.com probably had 30,000 customers or something like that, millions now. So it was still even early days in their journey but it was the first time that we started to see software companies even aspire to selling to tens or hundreds of thousands of businesses. Just wasn’t even a model that was in people’s brains I don’t think before 2006, 2007, 2008 timeframe, when all of a sudden these very high velocity high customer count software companies were starting to kind of come onto the horizon for the whole industry.

Aaron Dinin:

The commoditization of business software. That’s what this episode’s guest was describing. His name is Phil Fernandez, and you just heard him alluding to the fact that in the early days of computers, business software was highly customized and extremely expensive. However, as the web enabled new business and technology paradigms, an important shift happened in the software industry. Companies started buying subscription licenses to prebuilt web hosted platforms. This allowed software startups to sell their products at a much cheaper price point to a lot more customers. The result was the SaaS industry, S-a-a-S which stands for software as a service.

            The best known example is surely salesforce.com and their CRM platform for sales teams, but marketing teams needed a different software. And a lot of them turned to Marketo. A marketing SaaS platform founded by, well, this episode’s guest, Phil Fernandez. Are you ready to hear the story let’s get dialed in?


Aaron Dinin:

Hi there, welcome to Web Master’s, it’s the podcast where we all get to learn about entrepreneurship by listening to stories, tips, tricks, and insights from the web’s most successful and impactful innovators. My name is Aaron Dinin and I teach Entrepreneurship at Duke University.

            I’ve also spent time running venture backed marketing SaaS companies, which is an industry that was heavily influenced by this episode’s guest, Phil Fernandez and his marketing automation company, Marketo. He’s got lots of interesting insights about the evolution of the SaaS industry, and we’re going to hear all of them right after I tell you about our sponsor.

            Web Masters is being brought to you, thanks in part to the support of Latonas. Latonas is a boutique mergers and acquisitions broker. They help people buy and sell cashflow positive internet businesses and digital assets. That definitely includes SaaS businesses like we’ll be talking about in this episode. It also includes content websites, e-commerce stores, Amazon FBAs, domain portfolios, and any other type of online work from anywhere internet business you can imagine.

            If you’ve got a profitable internet business, you’re hoping to sell contact Latonas their team has decades of experience, and they’re going to be able to help you find the perfect buyer, or if you’re interested in buying an internet business head on over to the Latonas website, where you can see listings of all the companies they’re currently helping sell. That website is latonas.com. L-A-T-O-N-A-S.com.

            The thing I love about the company will be focused on in this episode is that you either know it and are probably pretty excited to hear all about it, or you’ve never heard of it. That’s because Marketo is absolutely huge in the SaaS business to business marketing industry. So to a person like me who spent a huge chunk of his professional life in that industry, the founder of Marketo has quasi rockstar status.

Phil Fernandez:

You know, if you were a marketer or watched the SaaS industry from some of the early days, Marketo was one of the iconic first companies and pretty gratifying thing to have built and created and brought through its life.

Aaron Dinin:

Of course, I’m guessing not everyone listening to this episode spent a decade studiously following every detail of the marketing industry, and honestly good for you. You didn’t miss much, but don’t worry because even though Marketo is marketing software and that’s maybe not relevant to everyone, Marketo’s legacy and impact goes well beyond the marketing industry. If you care at all about venture capital, SaaS, B2B startups inside sales, any of those kinds of topics, the story of Marketo will interest you. And that story of course starts with the story of its founder, Phil Fernandez.

Phil Fernandez:

Well, I go in tech way back to 1974, which is a little embarrassing, which is kind of age 13 or 14 for me, when teachers in my freshman year in high school, plucked me out of some kind of math class that I was kind of overachieving in and put me in front of a teletype and told me to learn programming. And that just was the start of an amazing thing.

            I won a couple of national high school programming contests in the 70s, ended up with a job as a assembly language programmer in the late 70s, went up to Stanford in 1978, where I found that they didn’t in fact have an undergrad computer science program, which was probably the best thing ever leading me to become a American history major. But I ended up… well at Stanford I sent my first internet email message to a friend at UCLA in 1978.

            So I’ve been doing internet email for a lot more years than most people, but that really led ultimately fast forward a little bit to getting involved in an incredible Kleiner Perkins funded startup that I joined in 1981 before my senior year in college and grew with this company into an IPO that they had in 1984. And I watched the whole venture backed technology cycle, even as a young programmer and engineering manager at that company, kind of watched the innovation and the way venture tech happened. And it very much got in my blood. And I’ve been building companies ever since.

Aaron Dinin:

Was Marketo your first startup or had you launched something before that?

Phil Fernandez:

Marketo was actually my first ground up venture. I was involved in a company in the 90s, a company called Red Brick Systems. That was a very early innovator in data warehousing and analytic databases. And I ended up being employee five or six, right after the founders of the company. And for all practical purposes, I grew that skin as being a founder, I was ready to start something in 99, kind of ready to pull the trigger when a red hot bubble years startup came along and plucked me off the street.

            Again, as a very early employee, you had a company called Epiphany then. So I’ve had the spirit of starting things and of starting very, very early on. But Marketo was actually the first where I founded it from a blank sheet of paper. And was the founder, or the co-founder despite having been that close for a decade or more before that.

Aaron Dinin:

When most people think about first time founders, they imagine young upstart entrepreneurs who start billion dollar companies from their dorm rooms. Yeah, right. Sure, occasionally a 20 something gets things right. Very occasionally, but usually successful companies get launched by people in their 40s. They’re people like Phil and yeah, technically Marketo was his first company, but he was going into it with tons of experience.

Phil Fernandez:

I had been President Chief Operating Officer of the two previous companies, which were public software companies. At the time I started Marketo, I had had both good entrepreneurial experience, operations experience, public company experience. So to me, I came to it as a pretty seasoned executive relative to a lot of the people I work with. I love working with first time entrepreneurs and young entrepreneurs, and it’s one of my favorite things to do, but I was pretty experienced.

Aaron Dinin:

How did your experience inspire the idea for Marketo?

Phil Fernandez:

I had been working on various kinds of marketing technologies at the time we started Marketo for upwards of 15 years. Some that were very focused on analytics, data visualization. How do you kind of get information into the hands of marketers so that they can make better decisions? And then I did a company in the late 90s and the early 00s it was called Epiphany Marketing Software.

            That was a real pioneer and we were building at Epiphany technology that some of the biggest consumer brands were using, American Express, Citibank, AT&T Verizon were the kinds of companies that were using the technology at the time. This is just as email marketing was taking off, just as web marketing was taking off. And what we saw there was that people were doing incredible things in marketing using technology, but the entry price at Epiphany was about 4 or 5 million dollars.

            It was a big, expensive perpetual licensed piece of software. And so there was tremendous friction, only marketers at the world’s largest companies AT&T and Citibank and American Express had any ability to get to the technology. And so the idea that we saw at Marketo was really one was not so much about the exact niche of who we were going after, but it sort of a democratizing idea. We saw with companies like Salesforce.com that had been out at that time for a couple of years, that software as a service or Cloud software had this tremendous democratizing effect that all of a sudden people could get into software for a few hundred, a few thousand dollars rather than millions of dollars.

            And so the idea was sort of less specifically what the software would do, but this idea that we saw this opportunity to democratize this whole category and bring very powerful and sophisticated marketing technology to kind of mere mortals, to people that had no access to such things and that was the really founding idea.

Aaron Dinin:

For anyone listening, who doesn’t have a strong background in marketing tech, could you maybe explain what exactly Marketo is?

Phil Fernandez:

Yeah. Marketo was a company designed to help people in marketing departments and particularly those in B2B companies that is companies selling products up a value chain to other businesses, to allow marketers to be more able to help their sales people create productive revenue.

            Marketo was created at a time when Google AdWords was just emerging on the scene. Marketers were figuring out with tools like Google AdWords that they could suddenly connect with buyers in ways were never possible in a one to one way of a marketer to find a buyer and start to go into digital dialogue with them.

            Marketo was created at that time to help marketers use email, use the web, use social media, use paid advertising to create leads, to develop leads and ultimately help sales people be more productive at selling and was a transformative company in the way that modern companies sell products to each other to this very day.

Aaron Dinin:

So you are, as you said, democratizing marketing automation software, which I assume means making it more affordable for smaller companies, who were you selling to in the early days?

Phil Fernandez:

Well, the initial target, we really went to a very opposite poll of the marketplace. I had been working on these multimillion dollar software solutions for the world’s largest enterprises. My co-founders and I first started Marketo thinking we were going to sell for less than a thousand dollars a month to very small businesses.

            We got very interested in how could we help very, very small businesses get their hands on very interesting technology and sometimes even kind of Ma and Pa stores or very, very small kinds of things. We discovered very early on that that was a very interesting segment, but that it was still very early on around how churn was happening and people’s readiness to buy and adopt. So very early on at Marketo, we kind of notched up one notch and we started selling products to other companies like ourselves. We soon realized that Google AdWords was one of the very best ways to find people interested in our own company.

            My co-founder was a prolific writer. He knew very early on how to do search optimization. And so he had this ability to start to bring in people who wanted to hear about what we were doing. And so we started to sell initially to other software companies that wanted to do the same thing as us. So our very first customers were all Silicon Valley software companies like we were.

            We knew that wasn’t a great market to ultimately build a business on, but it was a great place to get started. And pretty soon all the software companies in Silicon Valley were beating a path to our door to get some of what we had. And it was really what launched the company into a very successful arc.

Aaron Dinin:

What was so attractive about what you were building? For lack of a better phrase, what was your secret sauce?

Phil Fernandez:

Well, the secret sauce, there was so much more to our ambition about analytics and about multi-channel marketing and about leveraging emerging social media and all sorts of things. Marketo, I like to say was founded the same quarter that the iPhone was introduced and that Facebook was founded. So it was a time of tremendous foam at the emergence of next generation mobile, the emergence of the very first social media technologies. But what we heard, and I remember this quote from one of our early customers, she said, “Phil, I can put money into Google AdWords and qualified buyers click on my ads and I get their names, but I literally am just awash in leads.” She said, “I’m awash in people that clicked on my ads on Google, and I don’t know what to do next.” And that was the essence of what created Marketo.

            What if you could have somebody place an ad on Google, old blue ads that used to sit next to links on Google on the original web pages, somebody clicked on one of those ads, that click needed to go somewhere, right? The idea was you clicked on one of those blue links in a Google ad.

            Well, Marketo built what were called landing pages, the actual pages where those clicks through Google would go and we optimized those so that they were ranked better at Google. And then if somebody filled in say their name and their email address on a form on one of those pages, then Marketo would send a follow up email that said, “Hey, we got your link. You’re now in our system. Click here to learn more.”

            It was amazing that that very simple step of have a good click on Google, have it land someplace that made sense and was highly customized. Have it get followed up with a quality email, one on one email, one email to one person because they clicked. That produced a dramatic difference in how possible buyers were researching should I buy from company A or should I buy from company B. If company B caught that click, followed up, did that well, all digitally the odds that they were going to close business just went through the roof.

            And so what we were able to find and very early on able to document was that people that used our technology could double the effectiveness of their sales force, literally those kinds of numbers that would fundamentally change the economics of sales and marketing. And I like to say back then, it’s still true. Companies spend 40 or 50 or 60 or 70% of their revenue in an early stage on sales. And so if you’re able to make that even a little more efficient, a little more productive, you have the ability to actually change the economics of a software company.

            And that was the original secret sauce is we were changing sales and marketing economics by doing these things better in this new digital way, it was quite profound the kind of impact we could have.

Aaron Dinin:

It’s honestly kind of amazing to hear you describe all of that because everything you’re talking about is basically a best practice now. Right? But that wasn’t the case and Marketo isn’t even that old of a company. So all of these sophisticated forms of marketing we’re talking about that are considered standards are they’re actually really new, right?

Phil Fernandez:

Yeah. Yeah. And it was just an amazing time. Byron Deeter, a venture capitalist at Bessemer Ventures, who’d actually funded our biggest competitor at Marketo, a company called Eloquent had published the very first blog posts about customer acquisition cost. The magic number, the world was just starting to think about SaaS or Cloud or subscription economics at the time.

            What we were able to show at Marketo is that we could produce for our customers, customer acquisition economics that were just off the charts. And so in the early days of Marketo, I had CEOs of every last SaaS startup you know now came or went or survived come to want to see us and see what kind of magic we were producing and how we were changing the cost of acquiring customers. And it was a really petty time because it was changing the economics of the industry. It was kind of fun.

Aaron Dinin:

As a reminder, we actually heard from Mark Organ, founder of Eloqua in Web Masters, episode number 51. In my conversation with Mark, he described Eloqua as trying to do something similar in terms of making marketing automation more accessible, but Eloqua was founded seven years before Marketo. And it’s interesting to hear how much the entire industry changed during that time and how accessibility meant something very different for each company.

Phil Fernandez:

There had been this earlier generation predominantly oriented towards consumer businesses rather than B2B that got called marketing automation. In many ways was seen as having been a failed category. I mean, when I first went to raise money for Marketo, the main thing I heard from venture capitalists was, “Phil, I like you a lot, but this is a stupid idea. It’s a failed category you’re working on.”

            Because it was seen as one that never quite caught fire in the late 90s and early 00s. Eloqua had been founded several years before and it had been around for three or four or five years before Marketo was founded. Very much trying to solve the same problem, but with a very different point of view. Eloqua I like to say, and I don’t know if Mark Organ it’s founder would agree, but their sales model was still very enterprisey. Their average entry price was like a hundred thousand dollars a year.

            So it was still at a time when economics of buying were changing. And so what we did very different in Marketo was rather than a hundred thousand dollars a year subscription, it was let’s do an $800 a month subscription, sub $10,000 a year. And it was this very strong democratizing point of view that subscription software wasn’t just a different way to economically buy software. It was a different way to let people who didn’t have access before get access to powerful tools.

            And I think that then led to a very strong point of view we took of empowering the buyer and of speaking to the buyer and of trying to push this democratic idea or this accessibility idea. And it really led us ultimately separate from Eloqua. We came to be a much bigger company. They got acquired by Oracle. Marketo got acquired by Adobe. Both great success stories.

            But I would say in some sense, Marketo ultimately grew the fastest because we had this sort of sense of accessible by all. That was I think one of the transformative moments in Cloud software or SaaS Software that you now see in all the tremendous new product driven products and other things that define almost the subscription software market now.

Aaron Dinin:

When I’m talking about Marketo’s legacy, this is really what I mean. The idea that small companies, something like 10 people in a tiny office could access incredibly sophisticated software, well it was Marketo that started that trend. And the idea that targeting those types of small companies could be valuable.

            That that strategy could scale into an enormous business by using automation to dramatically decrease customer acquisition costs, act well that was Marketo that made all of that possible. In addition, Marketo also showed other people how to do it by using their own software, which is also pretty cool.

Phil Fernandez:

We were awesome users of Marketo and it was great because I had done this company out of college that was selling 10 and 20 million dollar storage systems to NASA. And that never was the right product for the company that was building it. And it was absolutely totally cool at Marketo to be able to drink our own champagne, eat our own dog food or whatever we call it.

            In fact, we became extraordinary at it ourselves and it was one of the drivers of our business. But also we talked about it. We talked about our learnings about it and it became one of the most critical feedback loops because the things we learned, we then published back as best practices. My co-founder was a prolific writer and he wrote a series of things that we called The Definitive Guides effectively were how two manuals for using our own software, but expanded in a kind of way.

            We then search optimized those so that they were the easiest thing to find so that we had the best search rankings of anyone in our entire area of the business, which caused the positive feedback loop of people coming back to us. And it was this tremendous virtual cycle that we were able to build because we used our own software because we talked and talked about our learnings from it, shared those and brought other people along on the journey.

            And ultimately again, one of the things that we sort of pioneered at Marketo was activating your customer base, doing what we called our marketing nation events, where we had thousands and thousands and thousands of people to hear me interview Hillary Clinton on stage and things there we’re all now very much emulated by many more software companies, but were, I think a lot of things that we helped really start at Marketo and kind of plant the seeds for how this industry developed.

Aaron Dinin:

So what we have here is Phil and Marketo teaching a new customer acquisition paradigm. It’s a paradigm that treats business software like a commodity, much more one-sized fits all than it had ever been in the past. They also treated the customer acquisition process like a machine that could be optimized through automation and efficiency.

            Now consider for a moment how many millions of businesses there are in the world that can’t necessarily afford to pay hundreds of thousands of dollars a month for software, but they can afford to pay a few thousand dollars a month. Once you have a commoditized piece of software and a machine to sell it with suddenly those millions of small companies able to pay a few thousand dollars, well, they become a ridiculously valuable customer base.

            That’s what Phil tapped to into and it led to rapid growth. Even better that same machinery also allowed Phil and Marketo to eventually start moving up market and targeting bigger businesses.

Phil Fernandez:

The founding principles at Marketo was that we wanted this very accessible, low cost of entry, very usable product, but I and my co-founders and my whole career had been building this sort of big intense enterprise grade software. So in fact, the platform we built and the product we built while it had a very happy little face on the front of it had some pretty substantial capability.

            I knew that I always wanted to move the business toward larger enterprise. And that was really a incremental sales process. You know we had built this amazing high velocity, high intensity inside sales, telephone driven sales organization in Marketo. And then with my head of sales at one point it was time to start to move to the enterprise.

            So we hired a guy that had been at PeopleSoft and had sold slightly larger, more expensive enterprise software and said, “Hey, Pete, your mission is to go hack around and find us some enterprise customers.” And it was sort of funny. I remember this day when a big, bad hundred million dollar a year software company up the road in Silicon Valley, got interested in our product and said that they were going to buy. And I remember pulling the entire company together at the time and said, “Hey everybody, we’re going to bet the company on this next sale.”

            It was going to be the hardest thing we ever did. And it was a $20,000 a month deal or maybe $15,000 a month deal, tiny in retrospect. But it was the first big bet on selling above our weight class or playing above our weight class. And then that just became a theme. It was, how do we sell one bigger, one harder deal, one bigger, one harder deal and get somebody to believe in us, go back to people in my network from past sales, one day, somebody at Agilent that had spun out of HP, bought the software.

            And then one day at Trimble Navigation somebody bought the software and then one day lo and behold, a division of General Electric bought the software. And it was this truly bootstrapping process of earn a little bit of reputation, make a customer successful, make them referenceable, sing from the rafters about we just made this company successful and literally earned our way up.

            Ultimately by the time that I was involved in selling the company to take private, we were routinely doing multimillion dollar a year deals and had found a place as a very substantial enterprise software company. But it was literally a decade of one bigger deal at a time, one harder customer at a time until we earned our way there.

Aaron Dinin:

I feel like a lot of entrepreneurs, myself very much included here. They struggled to evolve their market. How did you approach it? How did you move Marketo up market?

Phil Fernandez:

The experience of going up market was, I think my whole being is to try to think about markets through the buyer’s eyes and what’s going on for the buyer. And that’s what kind of gets to the answer for this question for me, which is that at the very low end of software systems, you can try something you play with it, you use it for a few minutes or you use it for an hour. It solves a problem or not, but you’re probably onto your next thing.

            You know if you’re a proprietor at a very small business, you might do marketing on Tuesdays and Thursday mornings for a few minutes, but then you’re onto something else. And so as a result, it has to be very accessible. You come up a little bit and you start to have two things happen. One is your price point comes up and the buyer has to make a conscious decision to buy.

            You know, something’s free or $10 a month nobody has any skin in the game. So it’s really easy to walk away. But if you have a thousand dollars a month into the decision, even if you’re a small business, now you have skin in the game. You’ve made a commitment where you need to get value for that decision. So you have a little more propensity to come back, try a second time, try a third time.

            So you have this sense of buyer buy-in and at the same time, if you’re using a piece of software and you use it every day, you’re building skills in it, you get good at it. You come up a learning curve as a user. And so software that comes up both as economic hurdle of… I make a conscious commitment to it. And maybe I have to go get somebody approved my purchase order.

            And as a buyer, I now have the sense that I’m building skills and I’m better next week than this week. Then that has a positive feedback loop as well as you learn. And I believe that then that’s a huge accelerant because people are committed. They want it to work as long as you give them good support and the product actually works, then you have this virtuous cycle that people are committed. They want more, they’re already body in and now they’re getting good at it. So they get better and better. And then you’re often running.

            To me that was the magic moment where Marketo took off was when we got past those two activation places of enough commitment to not just churn and enough skill to actually keep extracting value from an ever increasing more sophisticated product. And I think that those basic kind of ways of thinking about the psychology or buyer so much entrepreneurial value does or doesn’t get created in all sorts of businesses.

Aaron Dinin:

So it sounds like you’re an advocate of getting customers to have skin in the game early, which forces them to use a product as opposed to something like a free demo or free trial. Is that right?

Phil Fernandez:

You know, it’s tremendously challenging. We always wanted to have a free demo version of Marketo so that people could try it before they buy it and click, but this is a sophisticated piece of softwares. It was just like no way to dumb it down and make it easy enough for somebody to demo it. And it drove my investors crazy all the time. I just would refuse to build a web demo. And you got to think about all these things, rules vary depending on the piece of software, who the buyer is, what the use case is. And to me, the key entrepreneurial lesson is just always fit to exactly the nature of the buyer and what they’re trying to accomplish.

Aaron Dinin:

You mentioned investors and taking capital. Why’d you go the VC route. And what was your experience with it?

Phil Fernandez:

Well I’d been in venture backed companies from Kleiner Perkins’ company that went public in 1983 or 84, whenever it was and had a lot of experience with raising money, a lot of experience with the process, but it was hard. It’s such a faddish thing. And when I was trying to raise money for Marketo, I think I said, people were telling me it was a failed category. It was dark days.

            My co-founder, he and his wife had just had their first kid and I had to start paying him out of my pocket, because we didn’t have any money to even continue for another few weeks. And I didn’t have a lot of money at the time to pay him. So it was a very, very tough process. And one where I realized how faddish it is, how everybody’s chasing the same deal at the same time. And if you don’t have that deal, it’s really hard to get funded.

            And then I found finally a venture capitalist that saw the vision and took the bait and wrote a great big million and a half dollars series A check for us and got us off in running. And so boy, back in the day it was an incredibly hard process. Now there’s so much money running around. It’s such a very different process. I still spend a lot of time in and around venture.

            So it’s been just a fascinating whole career being in and around venture. I did a year as a venture partner up at Shasta Ventures after we sold Marketo. So I got to sit on the other side of the table and man that was eye opening about how the business works and how VCs think about where to invest and where not to invest. And man, what an industry that’s created just so much value. And I’m still kind of a student of an evolving venture culture. I don’t know if that answered any of your questions, it’s an overwhelming set of experiences that I don’t know how to even quite net them out.

Aaron Dinin:

And to be fair, taking VC money is a mixed bag. It’s got its benefits and its drawbacks. In every case though it has one goal and that’s to generate a return on investment, which is exactly what market was able to do for its investors though, in a bit of a non-traditional way.

Phil Fernandez:

It was kind of wacky, Vista, I knew of them. I had never met anybody at Vista, but they had already made a management decision inside their portfolio of the great businesses that they had worked on before. Acquiring Marketo, they would ask them to use Marketo as part of their standard software foundation in their own businesses and had asked to come see me ostensibly, as part of a commercial transaction discussion.

            And one of the top two principals of Vista showed up on my door one day and said, “We want to make you an offer you can’t refuse. We have a new theory,” is what he said, “that if we buy a high, fast growing software as a service subscription software company. Own it for three years, double it, triple it in terms of its revenue and resell it. We carved just the growth multiple on that SaaS growth, if nothing else.”

            And so they had just made a offer that was in the press for a company called [inaudible 00:30:56] a few days before and basically signaled that they were going to make an offer of a similar kind of premium to our trading premium. We were a public company at the time and this was a time when SaaS multiples just subscription software multiples were, in fact, if you look at 2005 to this day were at their lowest two quarters of multiples. So multiples were depressed industry wide and they made us basically an offer for 80% premium or whatever to the trading price in the stock market.

            And the board met and was like, got to take this seriously. In fact, moved me out of the way, because an all cash offer with a lucrative offer in the hands of the CEO to reup with the private equity firm is one of those conflicted things even to this day that the lawyers say, “Don’t do that.” So the board met mostly without me, although solicited my opinion. We shot the company. We had offers from some of the obvious strategic buyers from other private equity buyers, but ultimately the original private equity firm that came in had made such an offer, it was too good to refuse.

Aaron Dinin:

Did you think about staying on after the acquisition or did you even have an opportunity to be involved?

Phil Fernandez:

They did this amazing thing that we don’t quite understand why they did. They offered that every individual in the company’s stock would vest. Mine, my executive team, everybody down to every employee had stock options or RSUs in the company and basically said to me, “Phil, you know we’d love you to stay on as the CEO. If you want to go do an elegant transition and go.”

            I decided that I was a builder and not somebody for that next stage of the journey, they put ultimately $600 million of debt into the company. So leverage the company from a financial engineering perspective was a shrewd economic move, but I wasn’t really all that interested in taking a break even software company and finding a way how to pay 60 million dollars of debt service that year. In other words, that’s lay a bunch of people off to pay back the debt.

            So I decided that I was going to take the opportunity to go. So I helped recruit my successor. A guy that came in out of SAP, very different company background, took the company for the next few years before Adobe bought it and decided to exit stage left.

            It was wrenching for me to take this baby I had built, but I had been at that point a 35 year veteran of the Valley and it was time to go do something different. So I decided to sell the company, hand off the keys with a smile on my face and a very elegant transition and go about this last stage of my professional career that I’m in now.

Aaron Dinin:

As for the private equity company well, their thesis proved correct. Vista Equity Partners closed their purchase of Marketo in August of 2017 for 1.79 billion dollars. That’s a pretty nice price, however, by September of 2018, so just over a year later, they actually sold Marketo to Adobe for an incredible 4.75 billion dollars, a nearly $3 billion premium, not bad for a years worth of work. And sure, Phil probably has some regrets, but overall it sounds like he’s pretty happy with how things worked out.

Phil Fernandez:

Ultimately in the end, I did not make the best personal financial decisions from when I decided to get off the train or whatever, but the stuff I’ve been doing since has been so gratifying and people often ask me, “Do you regret it? Do you wish you had stayed on?” Did you know, whatever, I would do it all again, exactly the same way. I just love the way the arc went. It just worked out perfect for me.

Aaron Dinin:

So you are happy with the outcome?

Phil Fernandez:

I think we built number one, a great company. One that really thinks about stakeholders, it’s customers, it’s investors, it’s employees, the communities in which it operates, the environments in which they run. And we modeled from how we gave back, how we made customers successful, how we made careers or our customers successful, how we made our employees successful. I think we modeled a lot of things about how to build a great company.

            I think in terms of some of the contributions we made to subscription economics to what are the metrics that matter? What are the measures that matter? We were a foundational company for how every subscription software Cloud software business runs itself. What are the metrics that venture capitalists look to? What are the metrics in the boardroom that matter is investments are made in companies. A lot of that came out of Marketo and to this day, it’s amazing.

            I go to websites of lots of different companies and they have their lists of partners and who does their products integrate? And what are the main platform, SaaS software. And you know Marketo’s one of the handful of foundational companies that are known everywhere throughout the industry today. And so for all of those things of having built a durable company, having built a company that created wins all around, having built a company that laid the foundation in a lot of ways for what’s come since and produced a great set of outcomes for a lot of people. It’s just a very proud thing.

Aaron Dinin:

Phil deserves to be proud. I know I’m a bit of a broken record here, but Marketo was really the start of a huge transformation. And even if you don’t care about the marketing industry per se, the impact of Marketo on the marketing industry created a template that got used in everything from payroll software to bookkeeping software, to HR software, to Cloud hosting software.

            In other words, even if you don’t pay for any of those SaaS platforms yourself, I guarantee you are a customer of a business that does, and it’s very possible those businesses couldn’t exist in their current forms if they didn’t have access to cheaper software, thanks to pioneering SaaS companies like Marketo.

            So thanks to Phil Fernandez for helping usher in the SaaS software revolution. And thanks for talking about it on this podcast. I hope everyone listening enjoyed the story. If you did make sure you’re subscribed to Web Masters on your favorite podcasting app so you’re sure to get the next episode as soon as it’s released and while you’re at it, maybe leave a five star review. I’d really appreciate it.

            If you have any thoughts, comments, or questions about the episode, you can let us know we are on Twitter @WebMastersPod. This episode guest is on Twitter too, he’s @philf1217, and I’m on Twitter @AaronDinin. That’s A-A-R-O-N-D-I-N-I-N. I also write lots of articles about startups in entrepreneurship. You can get them all by subscribing to my free newsletter. It’s at aarondinin.com.

            A quick thanks to our audio engineer, Ryan Higgs, and a thanks to our sponsor Latonas. Don’t forget if you’re interested in buying or selling in internet business make sure to check out latonas.com.

            We’ll be back again soon with our next episode of Web Masters and another incredible story from a pioneering internet entrepreneur. I can’t wait. I hope you can’t wait either. Unfortunately, we’re all going to have to wait because well, for now it’s time for me to sign off.