Zipcast Episode 12: A Venture Capitalist’s Take on Texting, SaaS and Success

Scott Maxwell from OpenView

Business communication is evolving at a rapid pace, with texting pulling ahead as the most effective way to reach customers.

Scott Maxwell is a venture capitalist, partner and founder of OpenView, where he focuses on businesses addressing the “next generation” of technology like SaaS, cloud computing, mobile platforms and more. He’s also an investor in Zipwhip.

In this episode of Zipcast, host Scott Heimes sits down with Scott Maxwell to discuss growing market opportunities for SaaS companies, what VCs look for when choosing companies to invest in and why business texting and Zipwhip caught his eye.

Listen below:

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Full Transcript:

Scott Heimes: Welcome to the Zipcast, where we talk about the latest trends in texting for business, customer communication strategies, and technology. I’m your host, Scott Heimes, chief marketing officer at Zipwhip and thanks for tuning in.

Scott Heimes: Does a venture capitalist view business success differently than the rest of us? Today, we speak with Scott Maxwell from OpenView, one of the leading SAS software venture capital firms in the United States, and also an investor in Zipwhip. Scott has spent years looking at emerging growth companies focused on SAS, cloud computing, mobile platforms, and IT tools. Looking from the outside in, Scott has a bunch of insights and learnings that might just inspire you in your own business. Stick around to learn more.

Scott Heimes: Welcome to the Zipcast, Scott, it’s nice to have you here.

Scott Maxwell: Thanks Scott.

Scott Heimes: Tell us about OpenView and what you do there.

Scott Maxwell: Well, OpenView is a venture capital firm that focuses on expansion stage software, and I founded the firm and now I’m one of the partners.

Scott Heimes: Yeah. How many companies do you have in your portfolio today?

Scott Maxwell: It’s about 25 at any given point in time.

Scott Heimes: Got it, that’s cool. What’s your focus as a VC firm? What kind of companies do you look for?

Scott Maxwell: Well, we only invest in companies who build software for businesses. What we’re looking for is we’re looking for the next set of solutions, the next generation infrastructure, the next whatever the trend is in businesses wanting to pick up solutions that are going to be valuable for them and invest in them relatively early, and hopefully grow them large.

Scott Heimes: Yeah. Do you have a bias towards subscription businesses or any kind of a model like that, or is it all over the board?

Scott Maxwell: It’s really, the way I describe it is we boil the ocean. We actually spent a lot of time thinking top-down about, you know, theorizing what the next great software is going to look like. But, what we truly end up doing is trying to find all of the software companies globally who are marketing in English, and trying to find the ones who are growing, talk to them, and then try to sort out, well, why? What have they discovered that other people haven’t discovered? That tends to be a very good way of making sure that you’re capturing the growth markets. Now, that said, we are spending a lot of time these days focused on product led growth companies, which are essentially, they have great models.

Scott Heimes: Yeah. Tell me more about product led growth. What’s that mean to you?

Scott Maxwell: Well, to me it means that the product is doing the work. If you spin back to the first generation of enterprise software companies or business software companies, they built something and then they had a sales people that literally showed up at companies and tried to explain what the software did and why, and so on. Over time, that model got a bit simpler by having inside sales people who would telephone the companies, and then marketing led. At this point, there’s just great opportunities for the product to do a lot of the work of explaining to prospects and customers what the product does, or even better, just intuitively transferring the information and helping the users use the product and get great value, and eventually buy it.

Scott Heimes: Yeah. There’s always kind of this a virility component to the best ones, right? That, sort of virally expand by getting usage and get more usage by more users, and you get this exponential effect, this nice fly wheel it happens.

Scott Maxwell: Absolutely, absolutely, yeah. That’s the hope.

Scott Heimes: That’s right. That’s what you’re looking for. Tell us, you invested in Zipwhip in our series C, you led our series C round in last October or so. What was the driver behind that? What was attractive about Zipwhip?

Scott Maxwell: Well, first of all, I think from my perspective, I had invested in a company called Exact Target and caught the email, business email wave with Exact Target, and they’re a great software to service as company. As we came across Zipwhip, the idea that we could interact with businesses via text, you know, the time has come, and so I’d like to interact with all the businesses I do business with via text. Almost all of them were not texting enabled, so there’s that aspect of it. Then, just looking at it more from the company and the market perspective, we think it’s a large and very, very high growth opportunity for the companies in the market, and Zipwhip in our view has a competitive advantage and has the right team to really excel.

Scott Heimes: Yeah. Well, we’re also super excited about, we feel like it’s kind of like day one in a long journey here as business texting starts to take off and evolve. There’s, you know, tens of millions of businesses in the United States and very few of them have been text enabled or are using a software to communicate with customers. A lot of runway in front of us. We’re excited about that.

Scott Maxwell: Totally agree. Every time I go to the dentist I think about it, who is not texted enabled.

Scott Heimes: Anything, you know, when you think about business communication and how it’s evolving over time, anything come to mind about what you think will be part of the next several years around how businesses communicate with their customers? I mean, obviously texting is one of them, but anything else that comes to mind for you?

Scott Maxwell: Well, I think that, I mean, the texting is ultimate because it’s real time. I mean, that’s really the communication mode’s real time, and I think businesses overall from various aspects, not just communication, but real time is more and more of a goal that’s being met. I think the text messaging real time aspect to it is something that’s super important. But, what it also does is it puts a hurdle in place for businesses not to communicate with me unless it’s super important, because if you communicate something via text with me and it’s not important, I’m blocking you. It makes it so that that hurdle, though, I think makes it so that the businesses themselves need to be more thoughtful about the value that they’re delivering to customers via the communication. I’m pretty excited about it, quite frankly.

Scott Heimes: Yeah, and I am too. One of the things, interestingly, I was just talking about this with the analysts from Gartner this morning about the unique channel of texting and how it’s remained largely spam-free compared to email or phone, for example.

Scott Maxwell: Yeah, totally.

Scott Heimes: Robocalls has now become a real spammy channel, and people rarely even answer the phone if it’s a non-known, unknown number. We’re focusing a lot on trying to maintain the purity of the texting medium. We spend a lot of, I was telling this analyst this morning about how, the industry is unique in that it works together to maintain the purity of the channel. Right? The carriers care about it just as much as we do as the software provider. There’s a lot of collaboration that takes place, and that’s one of the things that’s different about business texting than email, for example, which doesn’t have that sort of industry consortium of carriers that are delivering the message over it, and it’s allowed the medium to stay fairly pure, which is a pretty interesting thing.

Scott Maxwell: Well, I think also the cost per text that people are paying actually I think is a benefit from a consumer perspective.

Scott Heimes: Yes, I would agree. When you think about other companies, any aspiring entrepreneurs out there that are listening, what kind of tips do you have for companies that are seeking venture capital? You must get your door knocked on quite a bit because people are looking for investment.

Scott Maxwell: Yeah.

Scott Heimes: What kind of recommendations do you have around that?

Scott Maxwell: Well, my first recommendation to all companies is to think about not raising capital and trying to get customer capital, which is the best capital. Trying to get something out there where the customers will buy it and you’d be able to build a business that way. I think that there are a lot of businesses that can be built that way, and there’s quite a few that also can’t.

Scott Maxwell: The extent you actually do need outside capital, the best businesses are from a investor perspective are going to be businesses that can show that they have a large market they’re selling into, that they offer a really good value proposition to the customers, that they have something that is unique relative to other products that are out there. Ideally, that uniqueness is hard to replicate. It’s this a moat that Warren Buffett talks about, the defensible competitive advantage. Then, the team is a suitable team for the stage of company. That people can look at it and say, “Oh yeah, I can see how this team could get from where it is to being able to continue to build out the team and execute well and build this big company into this, ideally, enormous market.”

Scott Heimes: Yeah.

Scott Maxwell: It’s really, it’s more communicating those aspects than it is kind of setting up in any kind of specific way, from my perspective, because that’s kind of how investors think even if they don’t describe it that way. Now, the other way investors think is that momentum is key, because the basic idea is everything I just described is somewhat theoretical, but if a company actually has traction with customers, actually has more customers every day and they’re able to calculate some metrics and talk to some customers, then there’s nothing like that to really help sell the company to an investor.

Scott Heimes: Yeah, wise words. As a board member and an advisor to Zipwhip, or just thank you for joining us today.

Scott Maxwell: Yeah, thank you.

Scott Heimes: It’s been a really engaging conversation, and look forward to talking some more in the future.

Scott Maxwell: Thanks for having me.

Scott Heimes: Thanks for joining us. Hey, if you haven’t heard Zipwhip recently published the ultimate guide to texting your customers. Whether your business is considering texting or you’ve already adopted a texting tool, this new ebook has all the info you need for a successful texting strategy. For a free download, just go to zipwhip.com/ultimateguide. Until next time.

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