Selling software that handles the HR processes of 6000 small businesses is no easy feat. Having the majority of them renew every year is no less challenging.

Pete Lamson, the CEO of JazzHR, believes a good product, engaging customer support, and competitive price are the keys to acquiring and retaining customers.

How is Pete selling software and retaining customers long after? Find out in this episode.

[00:07] So let’s start off. For the folks who aren’t familiar with you, who are you and what do you do?

  • I am the CEO of JazzHR. I am a longtime technology-focused emerging growth company driver. I’ve been doing that in my entire career, which is now a lot longer than I care to admit but let’s call it 30 years or so. And I’ve been the CEO of JazzHR for about four and a half years.

[00:39] And your background before JazzHR was a startup you’re doing before then, right?

  • Yes, well, prior to JazzHR I was with a company called Carbonite that I did not find, founded by a guy with the name of David Friend, which was a terrific run. Carbonite still provides online backup for individuals and for businesses, and we had a terrific run there. I was there for about five years, and I was there when the company was still very small, and we expanded our target market, and grew rapidly, and went public along the way. So it was a terrific run. But I’m now back to more of my entrepreneurial early-stage roots, which is more of my cup of tea.

[01:25] And did something that you learned at the previous company, Carbonite, was that the impetus for starting JazzHR? How did you come up with the idea?

  • So I did not found JazzHR. JazzHR was founded in 2010 by Don Charlton. Don remains on our board to this day. And the business was founded to help small businesses recruit more effectively. And what was true then is frankly still true today, and that is that most small businesses, they obviously have a need to recruit. They have relationships with all the major job boards, whether it’s Indeed or ZipRecruiter, or CareerBuilder, or others. But once candidates are flowing into their business, they typically manage the recruiting process through some hodgepodge of Microsoft Office products, whether it’s keeping track of candidates on Excel, or in Word doc or Word documents, or inbox management. There’s no real efficient process for managing candidate flow through all the steps a business needs to go through in recruiting.

And so JazzHR was founded to solve that problem. And so fast forward about 10 years later, we’ve got 6,000 small businesses using JazzHR, they tend to stick with us so we think we’re doing at least a decent job of helping them recruit more efficiently, more cheaply, it would actually save them money, and with a better candidate experience, which results in better hire. So that was the problem the business was founded to address and what we still do to this day, although we have certainly changed a lot over the last 10 years.

[03:02] Undoubtedly. So, and you’ve been with the company for how long now?

  • About four and a half years.

[03:08] Four and a half. So when you join the ship, was there an exercise in, maybe this was done before you got there or maybe you read it after you got there so where I’m going with this, competitor analysis and positioning?

  • Yes, certainly. But our primary focus was not on competitors, but on the customer. And we spent a lot of time, probably the first six months after I joined, really focused on product-market fit. It’s sort of the classic five questions, the customer-facing questions and that’s, you know, what problem are we solving? For who? How many of them are there? Why will they buy and why will they buy from us? And we spent a lot of time thinking through those five questions. And until we felt comfortable with the answers and the developing plans behind those answers, we didn’t really hit the gas on our new customer acquisition engine, that really kicked off kind of back half of let’s call it 2016. And so while, yes, we certainly pay attention to our competitors, and we have good competitors out there for sure. I’m glad we do. It’s better for customers and it makes us be better as well. We push them, I like to think, or they push us, and I like to think that we push them too. But really our primary focus is on customer experience and delivering results for our customers.

[04:41] So the fifth of your five questions is the one that I was really kind of digging after because it’s an exercise, actually, that we’re performing in my own SaaS company, literally, as we speak, is to answer these five questions. And part of the process of course is looking at competitors, and what markets are they going after, and what their pricing looks like. And all with an angle of, or an eye to figuring out what number five, why would they buy from us? So I asked that question largely for selfish reasons, because I’m thinking to myself, “Well, this guy’s been through this before.” So is there any insight you can share on how you arrived at the answer to number five, why will they buy from us?

  • Got it. So it’s what we’re really talking about is differentiation, right? Why do we have good competitors? I’m sure your business has good competitors, right? How are you different? Why would they pick you over someone else? And we have focused on primarily three things, and it’s really the nexus of those three things that we believe drives new customer acquisition and ultimately, and perhaps more importantly, customer retention.

And that is, first we have a really good product. I would argue our competitors have really good products but it kind of starts with that. Your product has to, the product experience, the actual experience once they buy has to meet or exceed the promise made by sales and marketing. And that’s not true for a lot of companies. There’s an old adage that you can sell anybody anything once, but you don’t have a business until they renew. And because they’re going to buy based on hope, or based on promises that sales and marketing made, but they’re going to renew based on how the product actually works for them. And all the great marketing in the world won’t help you if the product fails to deliver on its promise. So first, we needed a really good product. But that’s not necessarily a point of differentiation, but it is clearly table stakes. It is the ante to get into the game.

Second thing is, we sell to small businesses, many of whom are technically inclined and able to navigate their way around an app, and software, and technology, and so forth, but many aren’t. And or it’s not necessarily not that they can’t figure it out, but it’s not their primary job. We would argue they shouldn’t have to be able to do so. We should make our product so easy to use that they don’t necessarily have to be technically inclined. And that includes customer support, which is our second point of differentiation really which is your small business, you got a question, you shouldn’t have to, you should be able to call in, you shouldn’t have to go through a whole ton of different prompts or only be able to look at online questions or technical documents.

You know, if I’m that manufacturing plant manager in Idaho, and I just want someone to run a second shift, let me just talk to a human being who can help me write the most effective job description I can. Or get my job posted in the most effective way, or help me understand how automatic interview scheduling works for my hiring team, and just explain it to me in English. So our customer support is something we invest in more than our competitors. If you go to any of the kind of the main three third-party software review sites, whether it’s G2, or Capterra, or Software Advice, and read our reviews there, which is from people who are our customers, every second or third one’s going to talk about how helpful our customer support is. And that’s something that’s really, really important to us and we think it’s a big reason that our customers stick with us. And that starts with the trial experience. If you’ve got questions, we’re there to help. We make it really really easy. You can talk to a human being without jumping through hoops to do so.

So number one is product, number two is customer support. We invest in it more than our competitors and we will continue to do so. And then number three is price. We unabashedly compete on price. A lot of our competitors are two or even three times more expensive than we are. And because of the target market, we’re going after small businesses often, you know, these are in many cases, you know, sole proprietor businesses where every dollar matters to that business owner. And so we have priced an annual subscription to JazzHR with small businesses in mind. So, where we win, where we differentiate is the combination of best product by the best support team at a really good price. You can get into JazzHR for as little as $39 a month. Our competitors can’t get anywhere near that.

[09:45] Yep. You guys funded or bootstrapped?

  • We’re funded. We’re venture-backed.

[09:52] You are. And how long? Was it the traditional, you know, friends and family, and then seed series A, B, C, D, the usual?

  • And our first primary rounds really kind of have sort of traditional venture capital was in 2014. And then we did another round in 2017. And we are likely done fundraising now. The business is performing well. We’re running the business of cash flow breakeven. We could be cash flow positive, but we’re choosing to plow every dollar we can back into the business to grow the top line. So I suppose never say never, but our plan right now is that we have finished raising additional capital.

[10:35] Okay. So now we’re going to talk about marketing and customer acquisition. You and I share exactly the same target market, SMB, so this is going to be especially interesting for me and I’m sure many people in the audience as well. So let’s just talk high-level first before we go down into the weeds. How do you attract customers?

  • So we bring new customers on board principally through two different means. One is direct customer acquisition where JazzHR is selling directly to a small business end user customer. And the second is through channels where we have channel partners that offer JazzHR to their customers as a way to strengthen and deepen their own customer relationships.

If you’re in the HR tech community, whether it’s payroll or you’re a PEO, or you’re an HCM provider, recruiting is important and it’s also difficult to do or to do well. So to partner with someone like a JazzHR, a best in class recruiting solution, enables our channel partners to both strengthen their relationships with their customers and solve their recruiting problems, but then they also create a recurring revenue stream for themselves as well.

[12:00] Yep, so, like an affiliate program?

  • Not really. An affiliate program typically is when affiliate marketers will promote JazzHR to their customers, or wherever the company is they’re working. And then if one of their customers comes in and buys from us, great, they are paid for doing that. Our customers, our channel partners, in most cases are actually reselling JazzHR themselves. So it’s a little more of a deeper dive relationship than a pure affiliate program.

So for example, we won ADP’s New Partner of the Year last year, so they’ve got 850,000 small business customers. ADP recognizes the value and the importance of recruiting. They offer JazzHR to their customers as a resell relationship. So in this case, they are actually the ones who are selling JazzHR to their customers. So the benefits to ADP’s customers is as a one-stop shop. They can come to ADP for payroll and all the other wonderful things that ADP provides and in the same place they can purchase JazzHR through their relationship with ADP.

[13:16] Okay. What percentage of your customers come from direct versus channel?

  • So today, we’re about 57% direct, 43% indirect or channel. I will say that the channel piece of our business is growing faster. So while it’s still the smaller of the two, it’s the faster growing.

[13:25] If you can acquire customers in swaths, but I would imagine landing a channel partner like ADP is no small feat.

  • It takes some time. We actually have, if you will, two flavors of ice cream of channel partners.

We have large strategic partners like in ADP or others would be Zenefits, Namely, a division of Intuit. So those kinds of partners that are big, large companies do take some time and some carrots and feeding and some investment in the partnership because they’re betting on us as much as we’re betting on them. And appropriately that relationship and that trust takes time to develop.

Then the other type of partner we have are smaller, more local, regional HR tech, or HR providers, so think PEOs, benefits brokers, HR consultants, smaller payroll companies. And we have several hundred of those, and those are typically quicker relationships to develop. They may not have the reach of someone like an ADP or an Intuit, but we have a large number of them. And they’re important, you know, many small businesses look to their local community for their own needs. And so it’s important that we’re there as well as our larger strategic relationships. So we’re equally committed to both.

[15:10] So on the direct side, if we may, I want to get the weeds as I said earlier, so let’s start off with the most effective direct customer acquisition system. What’s that look like?

  • So we use an inbound model, meaning we mark it through digital and other means with a goal of first introducing our target audience to JazzHR. I mentioned at the beginning of this that most companies have sort of called it a homegrown recruiting solution in place. In fact, it’s 86% of our homegrown recruiting solutions are in place which means they may not necessarily be aware of what an applicant tracking system is, or recruiting solutions such as JazzHR or our competitors. So we start with education and helping them understand that they likely have a problem that they don’t even know they have, which is they’re spending a lot of time unnecessarily on recruiting especially in the administrative pieces, where a very affordable solution can eliminate all that busy work for them. So that’s done through webinars, and ebooks, and general advertising, and all the things you might imagine. But ultimately, the goal is to get them to start a free trial with us or request a product demonstration. And that’s sort of where the magic starts to happen.

So we drive them into a free trial, hopefully, or a demo request. Our sales team then takes it from there and our marketing team and whether it’s a free trial or a demonstration, you’ll hear from one of our salespeople who hopefully will guide you through the process and show you some of the the features and functionality and the overall solution that will result in this a better, faster, cheaper hiring experience. And our free trial lasts about 21 days. And we’ve got pretty good conversion rates that come off the back end and we go from there. So then it just becomes a volume game of managing your funnel from, you know, how many folks, how many qualified prospective buyers can we get into the top of the funnel? How can we be as helpful as we can be through the process so that some reasonable period of time later they’re happy JazzHR customers? And so it’s what we call sales-assisted customers or prospective customers can go through the trial experience without talking to a salesperson, if they choose to do that. That’s completely fine. It’s up to them. But we’ll try and we’ll try and assist and answer questions as you go. And we find that having someone, having a salesperson available to answer questions and show off different pieces of functionality that a prospective buyer may not find on their own as a helpful part of the process and helps improve conversion rates.

[18:11] I’m curious when I hear you talking about salespeople. I think a lot of high touches, I think expenses. What does your AOV and LTV look like to be able to pay for that sales team?

  • Yeah, so our AOV is about $2,400 on an annual basis, obviously $200 a month. And our LTV is about $11,000. And LTV is really the north star of our company when we’re selling, the average customer spends $2,400 with JazzHR and we’re grateful for every one of them, but nobody’s getting rich off of $2,400. We need a lot of them and we do ensure that they stay with us which is why we focus. I said earlier that perhaps the most important metric we have is retention. And that’s because of the point you just brought up, which is driving LTV. We need our customers to stick with us for a long time. And that’s that, ultimately, that’s how the math works. And that was what drives the enterprise value of the company.

[19:19] So early on in our chat, you said you’re very price-focused. It’s one of your competitive advantages and people can start using your app for, I think you said 39 bucks a month. How do you get from 39 bucks a month to a $2,400 AOV? What happens there?

  • So we have three different plans, call it good, better, best, if you will, which is, we call them here. The names are Hero, Plus, and Pro. And Hero is designed for that company generally with 50 or 60 and under employees where it’s a lightweight recruiting solution that doesn’t have all the bells and whistles that a slightly larger company might require. That’s the product that sells for $39 a month. I think it’s $49, if you want to go month to month, I think it’s $39 on an annual contract. Then our next product is our Plus product. And that has, as you might imagine, more features and functionality and so forth, more bells and whistles. It’s designed for a slightly larger company, it’s a little better for folks that have companies that have hiring teams, as opposed to just, you know, one person who’s doing the interview and making the decision. That sells for like, recall correctly, about $200 a month. And then our Pro product, which is full functionality, full feature, really designed for businesses with let’s say, 150 or more employees. That’s priced at a little over $300 per month. So the averages of those three are kind of right in the middle.

[20:51] And judging from your AOV and your LTV, customers are staying for four and some years. Why the drop-off do you think? Why don’t they stick to five or for six?

  • Yeah, so our annual retention rate is about 85%. And the majority of those are a lot of them are companies that get bought or, you know, we sell to a market segment that has, you know, a certain percentage of those companies go out of business every year. So, a big piece of that is simply the companies that no longer are in existence, either because they went out of business or they were acquired.

[21:32] I want to see if we can unpack a little bit more the inbound marketing, and obviously, I know you’re not the entire marketing department, and you may not be able to answer some of the questions I’m gonna ask and if that’s the case, fine. We’ll just skip on past them. So you said you’re largely inbound-focused and you’re doing webinars and you’re doing things to drive leads. So content marketing, traditional SEO-focused blogging, is that a big part of it?

  • It’s certainly, we absolutely focused on blogging. And so there’s a JazzHR blog you can visit today. And SEO not just for blogging, but for our entire website certainly is an important part of what we do.

[22:11] And do you have any idea how many posts per week your team is publishing?

  • I might be quickly getting over my skews on this, but I think we do approximately one new blog post per week, but I would not, don’t quote me on that. They’re actually about what we do.

[22:28] Okay. Do you know anything about the process by which they promote the posts? Are they running ad campaigns? Are they doing retargeting? What other activities are they doing?

  • Yeah, a lot of them. We’re pretty active on social media, you know, and all the places you might expect, and LinkedIn, and Twitter, and Facebook, and so forth. And a lot of our blog posts are mentioned there. We also do, with our customers, with our prospective customers in our database, we do active nurture campaigns to them as well. And that’s several hundred thousand small businesses. And as we have relevant content to share with them, we promote it to those folks as well. So nurturing businesses that have raised their hand and expressed interest previously, but not yet purchased is another part of how we drive inbound traffic.

[23:19] Okay, so I’m guessing ToFu, top of funnel, you’ve got all highly educational content, not brand specific at all. It’s all floating around on the internet. People are finding it in search. They’re seeing it on social, they’re seeing an ad. And they’re thinking, “Hey, that ebook or that webinar, looks cool to me. I’m going to come sign up for that thing.” Now, they’re entering into the funnel, so MoFu, middle of the funnel. So in the middle of the funnel, you’re starting to maybe talk about your brand, some of your differentiators a bit more, encouraging to book a call with a salesperson to get a demo or something like that.

  • Yep, that’s right.

[23:46] Okay. What’s the sales team look like? How many people are on it?

  • We’ve got a bit, on the total sales team, both direct and indirect is about 20 people. Our total employee base is 80. For point of reference.

[24:00] Okay, and those are all folks who, especially now in the middle of COVID, are all sitting in their houses talking in front of their computer doing demos all day long every day?

  • We are 100% working from home, which is a switch for us, because we have historically been the opposite of that. We have very much been we want everybody in the office. It’s how we drive organizational and institutional learning. You know, you may, especially in sales, you know, I may hear how you explain something to a customer, and say, “Boy, I like that, and I’m gonna try that the next time I’m on the phone when a similar question comes up.” And so having people physically in their offices has been a really important part of our culture. And we, you know, we’ve had a really good four year run in terms of driving growth. And I think that’s been a part of the reason why it’s been an important contributor to our success.

So now, we’ve been home for about two months, maybe a little more than that. I think March 16, yeah, so two and a half months we’ve been home now. And it’s something I was concerned about in terms of how we would perform, not just sales, but all of us. And I’ve been really, really pleasantly surprised. First, everybody’s safe and healthy and that’s what matters most. And secondly, the team is dedicated and focused and committed, and our results have been far better than what I might have thought as a company that sells a recruiting solution at a time when we’re knocking on the door of 20% unemployment in the United States. And we happen to sell into the market that has been the most impacted by this downturn, small businesses. And, you know, our new business isn’t what it was pre COVID but it’s performing very, very well. So we’re, we’re still growing as a company. So we’re pleased and to be able to do this in a remote environment is wonderful to see, really gratifying.

[26:01] So I have the opportunity, obviously, as a host of a podcast to get to talk to a lot of different folks, a lot of different CEOs. And you know, much like you, I used to believe that everybody needed to be under the same roof. And as a result of the many interviews that I’ve done with folks that have been running really profitable, fast growing software companies where nobody ever came to the office, as a matter of fact, there is no office. I’ve completely shifted and I would never, ever have an office ever again. Has this experience with COVID, I mean, you just said, “Hey, things went way better than I expected.” Do you think that you’re going to stay remote? Or do you think that when health conditions allow you’re going to go back to the way that was before?

  • So, let’s just say for the purpose of this conversation is when there’s no health issues left, you know, we get to that place we all can’t wait for which is the vaccines are out and everybody’s healthy. So there’s literally no risk because nothing, we wouldn’t change that, we wouldn’t move away from where we are now completely if there’s any health risk at all. But for the purposes of this question, let’s say we’re there. And it’s an open question. I don’t know the answer to that, which is actually a big shift from where we’ve been, because, again, up until March 16, if you worked for JazzHR, you were in the office every day. You know, unless it was one of those situations where, you know, the plumbers come, or the cable guys coming, or my daughter’s got to play, I got to go to that. You know, we weren’t draconian about it, but you had to be in the office.

Certainly, this is something we’re going to look at. I think we have to. While I do think that our being in the office was a contributor, by no means the only thing, but has been an important contributor to the success we’ve enjoyed over the last four years, I think there’s more than one way to skin a cat. And certainly I think this is something we’ll look at hard for when that day does come. And it wouldn’t surprise me if there were changes and how we operated. I don’t think we’d go to the extreme of not having offices, that is, I couldn’t imagine as well. We will look at changes with the frequency of which the employees need to come to work everyday, physically in the office.

[28:18] Yep. Okay. So you mentioned something interesting that I also, we didn’t cover this in the pre interview but I do want to go down the rabbit hole just a little bit. You’re selling into a 20% unemployment market. And the sector of the market that you sell to has been among the hardest hit. So you’ve obviously had to make some changes, I’m guessing, in how you’re marketing, and how you’re selling, or maybe you haven’t, I’m not sure and this is why I’m asking the question, to adapt to the the reality of COVID and what’s going on in the world these days. I’m curious as to what that looks like.

  • We have made changes and again, I give all the credit to our marketing and sales teams for making that pivot. But our new business, for example, in May is going to be about 75% of what it was pre-COVID. So, you know, certainly down significantly, but I mean, there was a period in April when things were really kind of dark, and I think I get up in the morning and just think, you know, who the hell is waking up today saying, “You know what I’m going to go do today? I’m going to go buy a recruiting software.” You know, but they are, and so our team has shifted to focus on areas where there is recruiting happening. So, if you look at our new subscribers, it ends up kind of making sense. So it’s a lot of healthcare. And healthcare is a very broad industry. So in kind of all aspects of healthcare: logistical and supply chain management has been a big area of hiring for us. Again, you would expect that, I mean, there’s a huge shift in how Americans and all over the world how people procure and have goods delivered to their homes. So those are two big ones.

Manufacturing has continued to be strong. Technology has continued to be strong. And it’s all in areas where we are still all, as a nation, consuming. We consume differently, and other areas have certainly dropped. Retail and restaurants where we don’t have a huge footprint but some, as you might expect, those are certainly down from where they were. But have been offset by areas where we’re seeing growth so we’re encouraged with that.

And then the second thing that’s happened that’s been really encouraging is on the retention side, we offer the ability for our customers to effectively suspend their account if they’re not hiring. We call it hibernate. And in April we had a lot of accounts that called us and went into hibernate mode for reasons you’d expect or just plain not going to be hiring for a while. So we like our JazzHR relationship, we don’t want to lose all the customization and configuration we’ve put in place and we want to hang on to all those candidates that are in our database, but we’re not gonna be hiring for a couple of months. And we saw a good amount of that in April.

In May, that number of customers that have reached out to suspend their accounts, it hasn’t dropped completely to pre-COVID levels, but really, really close to it. So what was a high volume of calls in April where people suspending their accounts or hibernated in their accounts is almost now back to normal here at the end of May. So I think that’s probably reflective of what’s going on as the states start to open up more and business begins to come back online. I do think we’re at the whim of what happens with healthcare headlines, and it doesn’t seem like it’s happening so far. But if there is a resurgence in infection rate or God forbid death rate, we may see a drop in some of the trends we’ve been experiencing for the last month or so since April ended. But right now we feel good.

[32:40] Thank you for answering that, by the way. And I want to shift back to pricing. You mentioned again, price being one of your competitive advantages. And the reason I’m asking this is, again, somewhat selfish. We’re going through a pricing investigation on our own for our SaaS at this point in time. If you Google, you know, SaaS pricing, there’s a lot of content on how to do it, and how to do it right, and there’s lots of ways to do it wrong. And there’s all sorts of second and third order unintended consequences. And it’s a complicated topic and we can probably talk for two hours just on pricing, which we don’t have time to do today. How did you determine, at least at the highest level or as best you can answer in a relatively short period of time, how did you determine pricing?

  • Yeah, so you start off with a few sort of sacred tenants, like we knew we wanted to compete on price. And we felt that we have the structure to do that internally. We’re a fairly frugal company ourselves so we didn’t have huge overheads. We felt like we were positioned to be able to compete on price versus some of our competitors that had built larger infrastructure. So we said, “All right, that’s going to be one of our competitive advantages.”

And then it was a lot of market research and trial and error. And so we would reach out to prospective customers and current customers and get their feedback, which is, I always find it a little bit tricky because, you know, when you say, “Would you want a or b?” And yes, there’s ways to do it where you can guide them as effectively as you can to get honest answers. But my thought is, well, of course, people are always going to want the lower price. You got to be careful with that as best you can.

But a lot of market research, and then we would roll out and iterate. And I can’t tell you how many internal staff meetings, some passionate and heated and emotional about this topic. And we still have them like, you know, I don’t claim that we have it exactly right. But we ended up where we ended up as a result of kind of those different mechanisms.

And then another thing that we added, which was all part of really focusing on the customer was, one of the things we’re concerned about was an ability to, like, let’s say you’re in our Plus product where it goes from $200 a month. But to bump up to our Pro, it’s well over $100 a month increase, $1,200 a year. For small businesses, that could be a lot of money, and we were concerned that that’s too big a jump from one to the other. So what we have also done is we’ve constructed JazzHR to be modular. Let’s say there’s one year in the Plus, which is the mid level plan. And there’s one thing you really liked on the Pro, but gosh, I don’t wanna spend $1200 a year more for that one thing. So we allow you to purchase add-ons. So you can purchase kind of one piece of Pro, might up your bill from 200 bucks a month to 250 or 60, or less, or more kind of depending on which one it is. But there’s add-on modular functionality as well. And generally speaking, once you’re going to add that second piece of functionality, you’re probably just better off to upgrade and purchase a pro at that point in this example. But that modular functionality has helped as well.

So add-on sales are a third leg of the stool for us where we call it expansion revenue. So you’ve got the three legs of the stool are you’ve got new business, you’ve got growth retention, and you’ve got expansion revenue. And an expansion revenue is selling more of the same things, more solutions into our base, right? So for our 6,000 customers, how do we get them to purchase more things? And ultimately the Nirvana goal that we’re working towards is a net negative churn. So that you know if we didn’t add a dime of new business in a period of time, the top line would still grow because our existing customer base is consuming additional pieces of functionality sufficient to offset the loss of normal churn MRR that heads out the door at any SaaS model. So, we’re not there yet, but we’ve made really good progress. And what’s nice about the journey towards net negative churn is that even if you don’t get there, you know, let’s say you get halfway there. Well, boy, you’ve made a big impact on your LTV still. So you know, we hold that out as the goal we want to get to. We launched this actually almost a year ago, our expansion revenue strategy launched at the end of Q2 in 2019. So we made great progress, but a long way to go still.

[37:54] How do you sell it? Are there notifications in-app or is it just the sales teams making calls?

  • So it’s, um, it’s a combination of lifecycle marketing, which is in-app and email and newsletters, and all those sort of things that go out to our existing customer base. And then we’ve got a dedicated team, a sales team that does nothing but work with existing customers to address the demand that our marketing to our existing base covers.

[38:26] Yep. It makes perfect sense. You talked earlier about the importance of the customer experience and obviously onboarding is a huge part of customer experience because if you can’t onboard them, they don’t stick around. Well, you know, money wasted. What are some of the lessons that you have learned in onboarding new customers?

  • Yeah, I mean, you just said our strategy, which is, if renewal, if growth retention and renewals is maybe the most important metric we have, that starts with onboarding. You know, the reason we focus so much on onboarding is because of the growth retention. And the key thing for us is that we don’t want to be that subscription, and every business has them, that they purchase, and then they don’t use, or they use 10% of. So we really want our customers to understand how easy JazzHR is to use, to a point where we don’t charge for onboarding. Like a number of our competitors, or as is common in the SaaS industry, you purchase a subscription then you’ve got to pay for you know that initial onboarding or getting kind of up and running with that particular solution. We don’t charge a dime for that. We will invest several hours with you and with whoever the person who purchases, and their hiring team, or their HR team, whoever they want to show them how to use JazzHR and how easy it really is.

I think for us the magic really happens when they post their first job through JazzHR. Because then it switches from academic to real life. So, during the onboarding process we’ll say, “Hey, let’s take an open rack you have right now, let’s get it posted. Let’s get it live.” And all sudden real candidates start flowing in, and they can see how easy it is to parse resumes based on search criteria, or the bane of every hiring manager’s existence is you want to bring Mary, the awesome candidate, in for an interview with a four-person hiring team. But finding a day when everyone’s calendar is free, so that Mary can come in is a freakin goat rodeo, right? It’s always impossible. Well, through our calendarization, you press a button and you can see, “Okay, everyone’s free next Tuesday, including Mary.” Done. And it’s one button press, and it’s done in 60 seconds or less.

So things like that, you get these delighters that drive adoption. And then once they are a customer, we look at product utilization metrics every single week. We want to make certain that our customers are using what we believe are the single biggest customer delighters. The whole point is we want them to have a great experience. We want them to feel like they’ve gotten their money’s worth, that we’re really helping them recruit. But then selfishly, we know that drives retention as well.

[41:25] Yeah, absolutely. Brilliant. So, I’ll tell you man, I’m really enjoying it. I say, I’m really enjoying this interview. I’m typing notes like mad.

  • I think it’s, you know, if LTV is the North Star , o spend a few extra bucks delighting customers and onboarding, it’s money well spent.

[41:51] Do you have any idea how your LTV compares to the industry?

  • I don’t.

[41:56] Okay, because nobody’s publishing that number.

  • No, no. I mean, we’re pretty open about all kinds of metrics around here as you can see. But I don’t have a sense of that.

[42:06] Okay. So the last topic is around processes. Folks who’ve been listening to my show for a while know that I’m a complete process nerd. I have a process for literally everything that I do in all three of my companies. And that’s why I only really have to work in one of them. Because we’ve got great teams, and we’ve got great processes, and everybody knows what to do and how to do it. What does that look like in your organization, and by processes, just to coach my question, what I mean is, we have written processes, checklists, basically, that live in our own software application. Like a podcast episode has 92 steps. And so there’s all different people on the team that handle the steps and that way, we know that it gets done the right way, every single time, consistently. And if one of those people needs to go, then we can relatively easily replace them because of the fact we don’t require this massive amount of training because we have these really great processes. What does that look like in your shop?

  • So, I think it varies team by team, which is somewhat by a combination of by necessity and by happenstance. And by necessity I’m maybe that kind of the tables are turning now in this conversation where I’m going to learn from you. But I think out of necessity, that makes sense. One customer’s buying journey on the sales side may be very different from another. And so it requires us to be more flexible, and almost perhaps flowcharty, if you will, in terms of you know, if then, and yes, no, and how we respond to each prospective customer’s journey.

In other parts of the business such as engineering, it’s more, I don’t use the word rigid, but more set. Whereas you know, the steps we go through to conduct a release of whatever functionality or whatever it is that we’re releasing. Those are generally the same every single time, so there’s a process as we go through there.

And I think that an area that we need to be better at candidly and this is something we’ve had a lot of discussion on this year is process and business operations. And I think that not having proper processes or an awareness where process is required, which probably may even be a better way to put it, has at times gotten us into trouble and caused some internal friction and unhappiness when if you look back on it with hindsight was probably avoidable. So this is something we’re trying to invest more in now.

Pete Lamson’s Bright Ideas

  • Evaluate the Product
  • Stand Out to Retain Your Customers
  • Set a Competitive Price
  • Leverage Channel Partners
  • Request Demos & Back It Up with Strong Customer Support
  • Invest in Customer Onboarding
  • Focus on Expansion Revenue

Pete Lamson on Selling Software

Pete is the current CEO of JazzHR, a SaaS company for HR tools, for four years now. He describes his occupation as a longtime technology-focused, emerging growth company driver.

With his leadership, JazzHR has broken even already. Now he is reinvesting all its profits to grow the company.

JazzHR caters to a staggering 6000 small businesses, and it enjoys an annual customer retention rate of 85%. This means the majority of their clients renew because of their impeccable service. By Q2 of 2019, they have already launched an expansion revenue strategy that would even bring in higher profits for the company.

Pete shares how JazzHR attracts customers and services more people.

Evaluate the Product

Before you launch a sales and marketing campaign, make sure your product is developed to the best form it can be. Companies need to ask themselves these five customer-facing questions:

  • What problem are we solving?
  • For who?
  • How many of them are there?
  • Why will they buy it?
  • Why will they buy from us?

The product experience must meet or exceed the promise made by sales and marketing. Pete says, “You can sell anybody anything once, but you don’t have a business until they renew.”

In other words, customers buy based on hope but renew based on the product itself.

Stand Out to Retain Your Customers

Differentiate yourself from the competition to acquire the most customers and retain them.

One of the surefire ways you can differentiate your service is by investing heavily in customer support.

“(If) you got a question, you should be able to call in. You shouldn’t have to go through a whole ton of different prompts or only be able to look at online questions or technical documents,” Pete says.

Customers place a lot of value on having their needs met quickly. They should be able to talk to customer support without having to go through an entire process just to do so.

For JazzHR, the annual retention rate is a phenomenal 85%, a result of supportive customer engagement and offering an excellent product.

Set a Competitive Price

Pete says a lot of their competitors are two to three times more expensive than JazzHR. That is why JazzHR attracts their target market well because these small businesses and sole proprietors need more affordable services.

It also pays to be frugal to limit the expenses that would make it difficult to offer lower prices.

Also, customer feedback is critical in the entire market research process, particularly in terms of pricing your product. Therefore, you need to reach out to your customers as often as you can.

Leverage Channel Partners

There are two ways of bringing customers in, according to Pete. One is through direct selling software to a small business end user; the other is utilizing channel partners that resell the software to their customers to strengthen their own customer relationships.

Furthermore, selling software entails using an inbound model, meaning, the goal is to first introduce the software to the customer.

To illustrate, Pete says 86% of companies have a homegrown recruiting solution in place, which means they may not be aware of recruiting solutions JazzHR and its competitors offer. Because their customers likely have a problem they don’t even know they have, JazzHR starts with educating them.

Request Demos & Back It Up with Strong Customer Support

The next part of JazzHR’s customer acquisition is attracting customers through a free trial or demo request. Make sure to pique the customers’ interest as this leads to a high conversion rate.

To back up your free demo, you also need to have strong customer support all throughout and use satisfied customer reviews, not just salespeople, to do the talking for your product. Also, make sure to answer questions as you go so that the customer remains engaged.

These strategies drive up the average order value, lifetime value, and, ultimately, the enterprise value of the company.

It is also good to note that selling software to organizations would decline at some point, knowing that some companies go out of business. This is the source of most drop-offs.

Invest in Customer Onboarding

Most SaaS companies charge an initial onboarding fee. JazzHR strives to eliminate the need for this by ensuring the customer understands the full function of the software. In other words, JazzHR relies on the product’s usefulness to retain their customers.

Pete believes investing in growth retention is essential for a company that is selling software to thrive.

“Spend a few extra bucks delighting customers in onboarding. It’s money well spent,” Pete says.

Focus on Expansion Revenue

Expansion revenue can also help you generate income. By offering add-ons to customers who need it, you don’t even need to onboard new clients.

Remember these “three legs of the stool”:

  • New business
  • Growth and retention
  • Expansion revenue

Knowing how to attract new customers and retain them can only get you so far. You also need to know how to gain money through customer upgrades.

Lifecycle marketing is crucial in increasing expansion revenue. The goal is to have a net negative churn, where the existing customer base is consuming additional pieces of functionality sufficient to offset the loss of downgrades and cancellations.

What Did We Learn from This Episode?

  1. JazzHR is a unique product that integrates HR tools in one software.
  2. Focus on your customers, not your competitors.
  3. Differentiating your product is essential to attract and retain customers.
  4. Utilize channel partners, educate customers, and offer free demos when selling software.
  5. There are alternative ways to earn income, such as expansion revenue.
  6. Flexibility to customer feedback is essential in selling software.

Episode Highlights

[00:13] — Pete talks about his background and JazzHR

  • Pete has been the CEO of JazzHR for four and a half years.
  • He used to be in a startup called Carbonite, a company focusing on online backup.
  • JazzHR was founded to help small businesses recruit more effectively.
  • Most small businesses have relationships with major job ad boards. However, they have no real efficient process to manage candidate flow through all the steps of recruiting.

[03:23] — Product–market positioning

  • The primary focus is not the competitors, but the customers
  • Dwell on the five customer-facing questions.
  • Strong competitors push the company to innovate, but customer experience is still the priority.

[05:19] — 3 things that drive customer acquisition & retention

  • A really good product
  • Reliable customer support
  • A competitive price

[09:45] — Funding for JazzHR

  • The company is backed by venture capitalists and has now finished fundraising.
  • The business is breakeven, and they spend their income on growing the company even more.

[10:53] — 2 ways of selling software and bringing customers on board

  • Direct customer acquisition is selling the software directly to end-user customers.
  • Indirect selling makes use of channel partners who resell the software to their own customers to strengthen relationships.

[15:10] — The most effective customer acquisition system

  • JazzHR uses an inbound model. The goal is to first introduce the software to the customer before you even sell it.
  • Many companies have homegrown recruiting solutions, which means most are unfamiliar with Pete’s software niche.
  • JazzHR educates and helps small businesses understand that they may have a recruiting problem and introduce them to an affordable solution.
  • They offer a free trial or demo and focus on customer support to improve conversion rates.

[18:11] — Average order value & lifetime value

  • JazzHR’s AOV is $2400 annually, and their LTV is $11,000.
  • The most critical metric JazzHR has is retention because it drives the company’s lifetime value and enterprise value.

[19:19] — 3 JazzHR plans

  • JazzHR has three plans. Hero is a lightweight solution for small businesses with under 60 employees.
  • Plus is for companies that have hiring teams that need more HR functionalities and features.
  • Pro is a full-function solution for larger companies with 150 or more employees.
  • The company’s annual retention rate is 85%.

[21:32] — Marketing for selling software

  • Being inbound focused means more webinars, content marketing, and blogging.
  • The entire website is search engine optimized.
  • Nurture customers who have raised interest even if they haven’t purchased yet.
  • Social media is also a significant factor in marketing.
  • JazzHR has 20 people on its sales team.

[24:00] —The impact of the COVID-19 pandemic

  • Most companies have a culture of having everyone physically in the office
  • A completely remote work setup has an impact on productivity and processes.
  • The downturn of small businesses and rising unemployment has affected the HR industry tremendously.
  • JazzHR’s team shifted its focus on catering to industries that currently need it most, such as healthcare, technology, and logistics.

[33:17] — Deciding prices and selling software upgrades

  • Be frugal to be able to offer low prices.
  • Customer feedback is essential in market research. Trial and error is part of the process.
  • JazzHR understands that increasing their pricing plans may be too much for small businesses. Thus, they constructed the software to be modular.
  • Earn more income through expansion revenue.
  • Selling software upgrades is a combination of in-app, email, and newsletter marketing.

[38:31] — Lessons learned from onboarding customers

  • They don’t charge for onboarding, unlike some competitors.
  • They look at utilization metrics regularly to check if the customers are having a great product experience and getting their money’s worth.

[42:06] — JazzHR’s process

  • For software with unique clients, companies prefer to be flexible and have a general flowchart instead of a rigid process.
  • Not having proper processes in place has gotten the company in internal friction and conflict.

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Today’s Guest

As CEO of JazzHR, Lamson is responsible for JazzHR’s strategic direction, company performance, day-to-day business operations, and serves as a support center for our revenue teams.

Prior to JazzHR, Pete served as Carbonite Senior Vice President of Global Sales. Pete was a member of the IPO leadership team, responsible for Carbonite’s global sales organization and achievement of all revenue objectives, inclusive of new and retention revenue in the US and EMEA. During Pete’s tenure, Carbonite enjoyed 20 consecutive quarters of record revenue.

Prior to Carbonite, Pete served as Senior Vice President & General Manager at NameMedia, a Highland Capital Partners and Summit Partners portfolio company. Pete managed all aspects of NameMedia’s SMB targeted domain aftermarket businesses. Targeting the global SMB marketspace, NameMedia’s aftermarket business grew 300%+ during Pete’s tenure, with sales in 135 countries.

Prior to NameMedia, Pete served as Chief Operating officer for Monster Worldwide’s consumer relocation division, MonsterMoving.

Pete is a graduate of Harvard Business School

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