Daniel Saks is the co-founder and co-CEO of AppDirect which provides an end-to-end cloud commerce platform for succeeding in the digital economy. The company has raised so far $300 million from investors such as Foundry Group, Inovia Capital, StarVest, Peter Thiel, and Mithril Capital.

In this episode you will learn:

  • The traits AppDirect looks for in employees
  • The one word not to say if you want to get hired here
  • Team engagement tools deployed at AppDirect
  • Daniel Saks top book recommendations for entrepreneurs

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About Daniel Saks:

Daniel is President and Co-CEO of AppDirect, which he founded in 2009 with Nicolas Desmarais.

Under Daniel’s leadership, AppDirect has helped shape the global ecosystem for cloud services and continues to lead with innovative technology and game-changing partnerships.

A sought-after expert in cloud and startup innovation, he was named to the 2015 Forbes 30 Under 30 Enterprise Technology list and has spoken at numerous industry conferences, including Web Summit, Collision, CeBIT, and more.

Prior to AppDirect, Daniel worked in finance and investment banking and has pursued other entrepreneurial projects.

He holds degrees from McGill and Harvard universities.

 

Connect with Daniel Saks:

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FULL TRANSCRIPTION OF THE INTERVIEW:

Alejandro: Alrighty. Hello everyone and welcome to the DealMakers show. I think today we’re going to learn a thing or two about Cloud Commerce. The guest that we have today has a lot of experience in building, financing, and scaling businesses. So, without further ado, I’d like to welcome to the show, Daniel Saks. Welcome to the show today.

Dan Saks: Hi, Alejandro. Thank you.

Alejandro: So, originally born in Canada. How was life growing up there?

Dan Saks: I loved it. A great place to grow up. I grew up in Niagara Falls, Canada; a great spot.

Alejandro: So, you attended McGill University, and you did political science. Is that right?

Daniel Saks: Exactly. I did my undergrad at McGill University. I’m a big promoter of the school. I actually sit on the Principal’s Advisory Board. It’s an incredible academic environment.

Alejandro: Why political science, Daniel?

Daniel Saks: Actually, great, great question. Growing up, I was always business oriented. From like the youngest ages, I created different business ideas and was obsessed with business. It was very obvious to me that when I was going to go to school in undergrad, I was going to go into a business degree. I applied and got into business schools across the country, but my parents suggested, “Because you are so business-driven, we think you should go do something that’s not business.” So, I took their advice and ended up in a political science degree. I thought that was a unique opportunity to learn about leadership but from a different lens.

Alejandro: What were those learnings?

Daniel Saks: I would definitely say that learning political science, and geography, and different concepts, you get the sense of the macro, and also the sense of the perspective of masses. So, classes in sociology and psychology really give you the ability to think critically and break down problems. I think where if I were to contrast my studies in business versus arts – the arts enabled me to think about structure, brainstorming, creativity, and communication. Whereas, business gave me more of the tactical execution and elements. Years later, it’s funny, because both myself and my co-founder studied liberal arts, and a lot of our early leadership team as well.

Alejandro: So, you came to the U.S., and you went to Harvard. Why did you decide to go after that type of transition, and I believe this was like your first experience touching finance, accounting, etc.

Daniel Saks: Yeah, exactly. Because I had the background in liberal arts, I did want to get some management experience. I look at different programs, and this was a new program that Harvard, the Extension School, was operating. It enabled me to get lessons, particularly in different groups. A lot of it was case-study based. We got to learn about the tactics behind corporate finance, strategy, and organizational behavior. That enabled me also to mindset, to think in more entrepreneurial ways through my tenure.

Alejandro: One of the things that I always see in founders, especially in some of the most successful founders is this pattern where they have either been at a consulting firm, or perhaps they were doing investment banking, or they were at a startup that was a rocket ship. Then they learned the ins and outs. But one of the things that I see here that you definitely fit into that bucket as well because you did an internship with Viant Group basically doing investment banking. What kind of things did you learn there because this was the most immediate step to launching your own business?

Daniel Saks: Yeah. It was interesting. I came from a family business background, but when I went to McGill, I looked at leaders that had been really successful and recent grads and their trajectory. Essentially, I came to this conclusion that if you want to raise a lot of capital to start your own business, therefore a background in investment banking or consulting is a great pedigree or background to enable yourself to then launch business. So, throughout my college career and even the decision to go to school after was to be able to get a job in investment banking or consulting so that someday down the line, I could raise capital. The time in which I graduated was at the height of the Great Recession. Wall Street was collapsing, and there were less jobs available; in fact, barely any jobs in investment banking or consulting for that matter. I did get an internship at a small investment bank but really the intent of my going into investment banking at the time was really this idea behind getting trained so I could then raise capital. Literally, I remember, I had over a thousand job opportunities that I reached out to across investment banking and consulting. I was denied almost every time. Through most of the processes, I did interview at some big places like Morgan Stanley or Goldman. In the end, after ’08, ’09, none of them really ended up hiring the right amount of jobs, and it was really hard to work with the recruiting. In some cases, their entire recruiting teams got wiped out. But really, what that taught me was the art of prospecting and persistence. What I ended up doing was actually interviewing instead of just applying online or networking through on-campus recruiting. I actually emailed the founders or MDs at most of the investment banks across the U.S. What I found was actually I almost had a really good response rate, or a much better response rate reaching out to the founders of boutique banks. So, this is everyone from the head of Gleacher Partners or Thomas Weisel or Scott Smith at Viant which were all the boutique banks. It was because the more entrepreneurial leaders ended up being really receptive to responding to cold emails, whereas the recruiting engine wouldn’t. I ended up getting my internship through the founder of this firm, which is called Viant. So, I ended up getting mentored by him over the summer and got brought into a lot of great deal opportunities. There, I learned skill sets, such as how to assess a business, how to advise a founder on M&A and positioning around the company. Coincidently, I also learned about SaaS in its early days. Really the infancy of Salesforce and other companies that were essentially solving this problem around the cloud in the very early days.

Alejandro: One of the things that I also know from experiences like this in investment banking is that you really get to identify or do the pattern recognition of some companies that are working out well and some companies that are not working out so well. I also understand that one of the things that you’ve done as well is studying other founders. For example, Gates, Brin, Page, or Bezos, what have you learned in terms of pattern recognition of things that have potential success?

Daniel Saks: Yes. Actually, that’s a great point. So, when Nick, my co-founder and I first met – this was years ago. We were friends through school. Essentially, we started brainstorming business ideas. For many years before we started AppDirect, we wanted to look at what creates a durable business or business that we admire. We essentially looked at many, many businesses. I think the list was thousands. We narrowed it down to a few that we considered enduring businesses. We found that they were often founder-led, and in the early days, that founder defined their long-term vision and values for the company. Therefore, after that, we knew we wanted to look at a really big impactful vision that would last many generations, not just one product cycle. Then we wanted to define the values. Examples of companies like that, one of the founders I really admire is Issy and Rosalie Sharp, who founded the Four Seasons. In the early days they were in the hospitality industry, but what they really did that defined the difference between Four Seasons and other hotels was they defined their vision over time and their values. That really enabled them to last many generations and align people around their vision. So, with AppDirect, when Nick and I started, we used those examples, and we defined our vision values from day one.

Alejandro: Let’s talk about that experience with your co-founder, Nick. You guys started brainstorming. Make us insiders for just a little bit here. How was that process of coming up with the idea and brainstorm to the moment that you finally said, “Hey, Nick, let’s make this happen”?

Daniel Saks: It was actually many years. From the first time we met, we started brainstorming different business ideas. We went on a trip to New Zealand. This goes back to probably ’05, ’06. There we were really thinking about leadership, reading a lot of books. At the time, I remember, Nick was reading Good to Great, and I was reading Dale Carnegie, How to Win Friends and Influence People. Those are two great books that I think really shaped our perspective on business. One of the things we did was look through the Inc. 500 at the time, and we always dreamed of being on that list. But the early days were just studying people we admired and looking at different business models. It was less about saying, “I have this idea around something.” It was more “How do we create a great enduring company.” Then years later, which was ’09, we spent the summer together. We really noticed a few trends. One was this shift to digital or software as a service in which would really change the way people start and manage businesses. At the time, large businesses were also struggling because of the global recession. So, we saw those macro trends and really brainstormed around that to say how can we enable big businesses and small businesses with access to this new way of doing business, which was Software as a Service? That was really the genesis of the brainstorming, but it took us many years to look at both the framework of what do we consider the fundamentals of the business in terms of the vision and the values? Then how do we create a business around that? The first product, which was a Marketplace as a Service, had less to do with that being the reason for starting the business. It was more: that was the entry point that we saw to fulfill our vision of making technology accessible globally.

Alejandro: You guys founded this around 2009 as you were saying. I believe that the first couple of years were very tough for you guys, meaning that you still did not nail it that quickly, like right off the get-go and the product/market fit. I’m sure not being able to be on the product/market fit, it must have been so frustrating, and perhaps those could have been perhaps some of your darkest moments as an entrepreneur. So, what happened during this time?

Daniel Saks: Yeah, definitely. One of the things that I’d say is, when it goes back to that investment banking interview perspective, is that we knew that you have to feed the client a lot in order to be accepted. You have to put your vision ahead of all others. Going back to when we studied other leaders, oftentimes, people thought their ideas were crazy or impossible. I think we always focused on persistence and continuity of vision. But yeah, those first two years were pretty tough. We were in the apartment. As I mentioned, it was the height of the recession, so businesses weren’t spending any money. The common approach at the time was to create a premium product, and then get users, and then convert them to pay. We had a totally different approach which was get one big customer. Then that customer will bring in network effects and help us grow. The challenge in getting big customers from the beginning is that it probably takes about a year’s sales cycle to close them. Then probably a year to launch. So, the first three years of our business was really bringing someone around that value proposition to the first customer. Then selling them. Then launching them. One of the hardest moments for us as a business is when we found that first customer, which was a big Telecon in Canada. It took us two years to get to the point where we launched. At that moment of launch, we had our initial team, maybe six to eight people. We stayed up 72 hours to get the platform ready, launched, and had expected users to come from day one, and a ton of traffic. There was this moment when we were all there. We pressed this button, and played music, and celebrated the launch, and watched to see the volume of users coming on board. That first day after we slept, but then looking at the tracker, there were essentially no users or visitors. Then we came back that week later, and nothing. What we really learned is that in building any business, you have to build your customer base. This vision of launch and they will come doesn’t exist. So, we had to go back to the drawing board and persevere. Those were some of the best moments of really the genesis of the DNA of the company was learning that not everything sticks and works, and you have to work hard at it to drive. Now, we have millions of users. But to get from zero users to millions takes time and perseverance.

Alejandro: Obviously, that was a big breakdown. You guys built this thing, pour in all the energy, and then all of the sudden, things are not coming as you had anticipated, which obviously happens all the time because there’s not a business plan or business model that is bullet-proof to the market. For you guys, Daniel, what was the breakthrough moment? Like during that tough time, there was one moment that changed everything. What was that moment?

Daniel Saks: The breakthrough moment was always hearing feedback from the end customers. When I’d speak to small businesses, they would get so much excitement out of the value proposition of what we had to offer. So, it was really about the go to market and how we package the business in a way that it works. There was also an ecosystem and work effect that we noticed that needed to exist. For our business, in particular, we needed to be able to attract developers or applications and then offer them through channels to businesses. The dynamic is what we call Multi-Sided Platform. Therefore, we needed to make progress on multiple stakeholders in order to have the vision be fulfilled. So, really, the encouragement that kept everything together was this concept of the end user really needing and getting value out of our service. Like I mentioned earlier, from the beginning, we defined our vision of making technology accessible globally. What we meant by that was having businesses get value out of software and solutions. We really saw that as always being important and it being the north star, the true north of our business. We really continued to listen to that end business and breakthrough a lot of the pain points. Essentially, we identified hundreds of pain points in our customer experience that prevented businesses from getting the value prop that we wanted to offer. It took many years, but over those years, we broke through many of those pain points to the point where we grew. So, the one lesson I always learn there is always listen to micro examples, and you could get carried away or lost in the mix of a million feedback points. But if you’re always listening to the customer and addresses key issues, then you can make progress.

Alejandro: I see that, obviously, your background and your co-founder Nicolas Desmarais’ background. Is his more on the consulting side? You had studied all these different things as well that don’t really have to do with engineering as well as Nick. So, in terms of the founding team or the early employees, did you guys go out and get engineers, or who were the first people you got involved with your business?

Daniel Saks: Yes, Nick and I were always entrepreneurial with a lot of intellectual curiosity. So, we really got excited about learning about engineering, platform, product, and development. But the one thing we did was we recognized that if we were going to start a platform company that was powered by great engineering, we need to get the expert or the best person in the world at it. One of the things that we spent most of our time on in the early days was figuring out who our technical co-founder could be. We actually created a list. Similar to when I tried to recruit or get recruited for investment banking and created a list of tons of different investment banking leads. We did the same in this. We looked at criteria of what a great technical co-founder would mean. We did a lot of research as to the technology stack. So, we knew it needed to be someone who knew commerce and who knew platforms and marketplaces. We learned concepts like multi-tendency and languages like JAVA. We created this whole framework and interviewed literally hundreds of leaders and created criteria. At the top of the list was someone called Andy Sen who happened to work at the Salesforce App Exchange and had a background in commerce. It was just obvious based on the business we needed to make that this person would be the ideal co-founder for us. We tried to reach him in different ways. We went to conferences and did all these different things, but in the end, it was a cold email. We sent the cold email to him saying, “Dear Andy, we’d love to share this idea with you. We think you have a great background for it. It’s like the AppExchange for everyone else.” He responded the next day saying, “Dear Recruiting Team, I would love to meet you. I’ve had similar ideas myself. I’d love to meet you at your offices.” At the time, we were in the apartment, so we scrambled. We got offices. We sold Andy on the idea, and he joined us. He’s still our CTO to date. We still, the three of us, align every day on the vision and the values. I’d say a lot of our success was because of focusing on the process and the methodology to find Andy. We’re grateful of that focus and team from day one.

Alejandro: That’s amazing because the thing is that normally, tech people get bombarded from requests from business potential co-founders. It’s really tough to convince these engineers because they have so many requests. What do you think was one trigger to get him aboard? Maybe compared to the other recourse that he was receiving?

Daniel Saks: Yeah. I believe that finding the right fit is the most important thing in anything. It’s just like finding a spouse. There could be millions or billions of people out there, and two people come together for different criteria. I think with Andy, we had the confidence we could bring him on board because his background painted such a similar story to the vision that we had, and because we were able to align on the same values and vision. I think the key to finding a technical co-founder is making sure that you’re methodical on who you go after, and that there is this true fit and vision in values. There are probably a thousand other people that we could have gone after that maybe had a gaming background or consumer background, but the idea wouldn’t resonate with at all. I’d say if you’re a business founder that has a vision that’s looking to bring on a technical founder, it has to do with that vision alignment and the way that you align on values. I think the other thing was that Nicholas and I, one of our core values already was humility. The way we approached it with Andy is recognizing there’s a lot that we didn’t know, but we had this intellectual curiosity and passion for different concepts. So, we didn’t come, just saying, “We need a programmer.” We came saying, “We value your experience in multi-tendency and commerce. We value the perspective that you’ve built here.” We asked a lot of questions, and we learned a lot from him. I think it was that curiosity that made the fit so effective.

Alejandro: That’s amazing. As we’re thinking about roles and responsibilities, one thing that is very interesting is that you guys decided to go with the co-CEO structure. Why did you go with a co-CEO structure?

Daniel Saks: Definitely. Part of our studying lots of businesses made us recognize that some businesses are often dominated by a sales-driven founder, and others are often driven by a product-driven founder. The reality of our business because it was multi-sided like I mentioned or the need to think both about the product and the go to market, we thought that it would be more effective to do this co-CEO model. At the time, many VCs and other stakeholders advised against it, but we had a very unique vision for why we thought that this model would work and why the aspects of our business make it important. We stayed steadfast on that structure. It’s a structure we maintain today. Both of us, including our investors and team, feel that we couldn’t have gotten to where we are if it weren’t for that model. Both of us have shared values and shared passions. It has allowed us to scale much faster and more effectively and cover more ground because of that model.

Alejandro: How do you guys divide in terms of who takes what because at the end of the day, the CEO has a bunch of really critical responsibilities and ultimately is the last say on certain decisions. How do you guys divide and conquer, and the most important: respect and trust each other in those parts.

Daniel Saks: Yes. The starting point is shared values. We align on the same shared values, and that includes frameworks for how we make decisions and execute. But when it came to division of responsibility, Nick was always passionate about product and thinking through how the product and the engineering gets to market and design and those elements. I was always passionate about talking to customers and getting out into go to market and sales and acumen. So, essentially, we divide and conquered in that Nick would build the platform and focus on operations. I would get out in the field and work on the external elements. That’s always worked really well. We have developed really deep trust for each other, and we have cadence in which we connect together on a recurring basis. So, the starting point is that passion. The alignment point is the values.

Alejandro: Got it. One of the things that you were talking about before was that during the dark days of really getting to product/market fit, there are a lot of discussions and a lot of conversations with customers to really understand like what will be the value that they will be requesting to be delivered. I want to ask you here, what ended up being the business model so that the listeners really get it?

Daniel Saks: The problem that we wanted to solve that was, on one hand, you had Software as a Service emerging. This was the early days of cloud. You had companies like Box, Dropbox, DocuSign, Mailchimp, and other SaaS companies emerging. These at the time were all in their Series A or B, really small market size. Now that market is 172-billion-dollar market. At the time, if you took Salesforce out, it was a few billion-dollar market in aggregate. Really, when you look at that market scale, our thought was businesses need to know about these services, but around the world, most businesses didn’t know about these companies. It didn’t trust just subscribing to things online. The misconception at the time was that everyone in the world would just sign up online and use software. What we believed was that software is sold, not bought. Therefore, sales reps and resellers in the channel is really important. We wanted to build the global ecosystem for reselling cloud and do that through channel partners around the world. In order to do that, we had to build up channel partners or people that would resell services. Then we also had to build up the inventory of apps. That was really the hard point. As I mentioned, that kind of concept is called the Multi-Sided Platform. Another example would be Nintendo or Xbox where you could sell the gaming console through stores, but if you don’t have the best developers on it and the best games, then it’s a pretty useless console. We needed at the same time to build up a great inventory of applications as well as channel footprint. That was really the hard part. In the early days, there was this chicken and the egg. The way we sold it was by working with big brands like telecommunication providers and software distributors that were reputable and had a lot of customers already and enabling those brands to resell SaaS companies which were smaller brands. By aligning that, that enabled us to find the alignment and ultimately scale.

Alejandro: Got it. I understand that perhaps for something like this, for scaling and for building something of this nature, it requires capital. So, how much capital have you guys raised to date?

Daniel Saks: We’ve raised almost 300 million in capital, but a lot of that came over time. As you mentioned, the first few years, we did that very lean with very little capital. It wasn’t really until we recognized the market opportunity and the ability to scale our platform in which we raised the majority of the capital. One of the things we always did was look at both how do we create not just a product but a platform to solve our pain points? That was another lesson we learned from evaluating all these great businesses that we admired over many years like the Four Seasons or Microsoft. When we raised capital, it was always for a purpose, and that could be for geographic expansion. That could be for product expansion or M&A and acquisition. But we always would put focus on the use of funds before we raised the capital.

Alejandro: Really cool. Obviously, you guys have gotten on board great people, Foundry Group, Inovia Capital, StarVest. How did you find these folks? Inovia Capital, I believe they are in Canada. So, that’s an easier one, but Foundry Group in Colorado, that’s a little bit far away from where you guys were located.

Daniel Saks: What was interesting was we were two Canadians that started a company in San Francisco. We actually never really pitched Silicon Valley. A lot of people would say, “You need to be in Silicon Valley to find investors.” But we had this idea of being under the radar, and we really focused on selling customers before selling investors and operated very lean bootstrapped at the beginning. The way we found our first investors like Inovia was through signing our first customer through was Bell Canada, a massive company in Canada. That was through some investors, angels that we knew early on, but what we really found was that this idea of staying lean and getting advisors that you trust will then grow and benefit. But at the time, yeah, Inovia Capital was a venture capital firm in Canada. They were focused on a little bit of tech, but also life sciences and biosciences. It was a referral. They really saw that because we were able to sign Bell Canada as two young people in their apartment, they latched on and said, “This is real. Let’s invest the capital.” One of the things I’m really fortunate with there is that Inovia continued to scale, and they’ve since invested in great companies like Lightspeed that just went public as well as Luxury Retreats which got bought by Airbnb. They recently recruited Patrick Busha, who was the CFO of Google and Dennis Kavelman, the CEO of Blackberry. Always good to see your investors grow as well. Then Foundry Group was fairly serendipitous in that we were acquiring a company in Boulder, Colorado in all-stock transaction. Brad Feld was a board member, and we got to know him. This was just before our Series B. As part of it, Brad invested in our Series B as well as became a shareholder through that acquisition. It’s a great example of how you get to meet people in serendipitous ways, and they help. Brad’s been really great advising us on growth and strategy as well.

Alejandro: It’s really interesting because Brad is definitely one of the best investors out there. He’s incredibly respected. He shared incredible knowledge, either with books or with his blog. It’s at Feld.com; FeldThoughts he calls it. What do you think makes Brad Feld such an amazing investor? What are the traits that he has?

Daniel Saks: I think Brad’s incredibly humble and is very passionate about sharing his lessons learned, including the hard times. What’s fascinating about Brad is I could bring up any topic, and instead of him giving the answer, he oftentimes either asks me questions that help me come to the answer on my own, or he says here are three people that you should speak to. I think that approach really helps the founder think through pain points. I think Brad approaches his investment decisions in the same way, which is really looking at data, asking other founders, and I think that’s really encouraging. Yeah, he’s such a helpful person. Not because he gives you the answer you want to hear, but because he helps guide you to the right answer.

Alejandro: You were eluding to this. You guys have been quite active on the M&A. You’ve been doing M&A since 2012, literally like a couple of years after starting up the business. So, what was the strategic lens from where you guys were looking at this, and what have you learned about M&A?

Daniel Saks: One of the things that we learned early on is that there are a lot of different ways to grow. When it comes to M&A, and this was actually our Series C investors, Peter Thiel, and Ajay Royan. Ajay is on our board. He’s the managing partner at Mithril Capital. Mithril always focused on a long-term value proposition, so they were early investors in Palantir, in us, and others. Ajay always mentioned to us that M&A is a strategy, and if you think of it strategically, there are actually very few companies that focus on it and that are good at it. But you have to take somewhat of a portfolio approach because the typical stat is two-thirds of M&A opportunities fail. We took Ajay’s approach and created a framework between 2013 and 2016 that we used to acquire six companies. We said if we want to be the leaders in this space, we want to take our marketplace product and turn it into a platform. So, we have eight capabilities, and we’re going to either build, partner, or buy. We created what we called the Cloud Brokerage Battlefield. We said here are the different components that we need, here’s how we can get there. We recognized that in many of these cases, partnering or buying would get us there faster than building organically. We had a methodology in which we would assess different partners. Therefore, you asked about our capital raised. A lot of our capital was raised to both identify and acquire these businesses but then invest in the platform automation of these components, which really has enabled us to have a massive totally addressable market and really differentiate in the space. So, M&A really became a core strategy for us as well as our integration approach and growth strategy.

Alejandro: M&A is definitely an art. As you were saying, most of the acquisitions fail. I think that the biggest challenge is integration. Why is integration such a beast?

Daniel Saks: I think that integration is definitely such a beast because you’re identifying different cultures, different teams, people are impacted, and oftentimes, the product fit maybe doesn’t work out. So, we have a few different ways that we assess companies. One of those is an alignment of values and team. Another is the product alignment. We had a rule that we didn’t integrate or buy companies that we couldn’t test the integration first. With many of the companies that we worked with, we had already done a technology partnership where they integrated to us via API, or where we could validate this. When we look at a lot of acquisitions that are done by companies, what they often do and tell you first is, go in, and mess up the people, and change the leadership, and integrate the people from day one. What we always try to do is say, “Let’s secure the asset.” Essentially, integrate the technology first, make sure that it works well, and in doing so, you get to know the people. Then over time, you can change or integrate the go to markets, but we really focused on integrating the technology first, continuing to enable the founder to run the business, and only integrate the go to market of the business once the founder feels that they’re ready. In doing so, we’ve had really good response rates with our founders that we’ve acquired. Many of them have gone on to run big components with their business. For example, Emanuel Bertolin, who is head of our Active Devices business unit which was formerly AppCarousel, now runs as the GM of our Platform Services. That has been many years. Also, Emiliano and Isabella, founders of jBilling, which was one of our first acquisitions and stayed for many, many years in the business, plus five years. I think we have great reference ability from our early founders, which I think is really important.

Alejandro: Without going into, obviously, confidential stuff and stuff that you can share with us so that we can all get a sense of how big AppDirect is today. How big is the company?

Daniel Saks: We’re over 700 people around the world. We have millions of business users. We really power a majority of the channel sales in SaaS, which is really exciting. So, when we look at a lot of our cloud vendors or partners that we support whether that’s Microsoft 365, Google Apps, and others, we’re a big contributor of their channel sales. We’re really honored and excited about that.

Alejandro: Daniel, dreaming together, in a world where your vision that you and Nick have brainstormed and outlined for AppDirect, let’s say that vision is fully realized. What does that world look like?

Daniel Saks: I think it’s a world where when people go to work, they have access to the business services that they need very simply. That helps them be more productive and collaborative. Ideally, a lot of that would be powered by us in the backup.

Alejandro: Really cool. You guys have grown the team pretty fast, and you were eluding to the number of employees now. So, I want to ask you is, what are the traits that you look for in employees? When you’re interviewing one employee, what is the one question that you always ask, and why?

Daniel Saks: We actually introduced an assessment, which was an objective way of looking at talent. We did this by looking historically at our team and looking at what were the traits for characteristics in the interview process that would be most likely for these people to be successful in the long run? What we do is, we reward excellence in people’s backgrounds. That could be someone being an expert in a development language that we’re looking at, or it could be going to a top school, or having a background at a similar company. It could be people have backgrounds and passions in military, academics, sports, or other areas. Essentially, we call this the Aptitude Assessment, and it’s a way that we can objectively reward excellence throughout the interview process. That’s been a great way for us to align our team and remove bias from the interview process as well. Then when it comes down to interview questions, we have different ways that we evaluate. One, for example, is based on our values. One of our values being humility. On the humility value what we often do is ask questions around “Tell me an example of something you’ve accomplished.” What I always look for there is if the person just talks about their personal accomplishment and uses I a lot, then that’s a sign that they don’t give the right recognition to the others because any business problem to be solved, oftentimes, there’s a team involved. So, we really look for did they use “we” and did they articulate how they rallied a team around their solution.

Alejandro: Hiring all these people in such a small timeframe, I think that in many instances, you see how people forget about culture a little bit. But in your case, how do you embrace and how do you think about culture?

Daniel Saks: Definitely. We defined our culture as a value-based culture from day one where we defined the vision, the values, and that’s been the unifying element to a culture from day one. We assess talent from it. We reward by it, and that’s been the kind of rallying force behind our culture. The one thing I’d say is that culture definitely evolves over time, and we’ve done a lot from day one to track engagement. Even before there were engagement tools, in the early days, we introduced a culture survey, and we post the culture every six months. What I’d say is that we have huge swings in what the key issues are. So, in the early days, let’s say when we scaled from a team of 20 to a team of 150 really quick, a lot of the challenges were around manager development enablement. Then we spent a lot of time addressing those issues. Today, it’s different where I think a lot of the challenge lies in essentially being clear on why someone gets rewarded. We put in OKR, and our framework is around that. But I’d say that throughout, there are different challenges that come up in your culture, and I think it’s not always going to be rosy. There are going to be pain points, but having the data and the focus on addressing that culture for a founder is a good start.

Alejandro: You were talking about OKR Frameworks. John Doerr just came out with a book about this. How do you think and define those OKR frameworks?

Daniel Saks: I think it’s something that we tried to employ many times unsuccessfully. It takes full commitment from the leadership team and from everyone across the organization to execute on. I definitely say read the book and ask a lot of people how they can be successful or not at implementing it. I think if you learn about the concept behind OKRs which is how do you get the company to set objectives and key results and tie those to corporate objectives, it’s a great way to align and identify cross-functional dependencies as well as really create a meritocratic culture where you can showcase why people are succeeding or why they are not. I definitely think there are other frameworks out there that can do this. It doesn’t have to be the OKR model, but what I do think is important is if you have a vision, and then you have a corporate objective or plan for the year, breaking that down to the individual levels so people fact-feel ownership over what they’re doing and how that contributes to the outcomes and putting a reward system around that is definitely a great way to align the team and essentially scale effectively.

Alejandro: You’ve learned a lot building this business about marketplaces, and I’m sure that we have a ton of people listening right now that are either trying to find their product/market fit or trying to build their marketplace and figuring out their chicken-and-the-egg problem. For those that are really in the process of building their own marketplaces, what piece of advice would you give them?

Daniel Saks: I’d say, number one, when you’re building any type of business model that looks like a marketplace where you’re reselling or selling services, you have to make sure that you’re creating a value proposition to the end user, and to the different stakeholders. Oftentimes, I ask a business or any leader, “What products or services do you want to sell? What channels do you want to sell them through?” That helps define the enablement or the marketplace infrastructure that you need. Oftentimes, people say “Okay, I need to sell multiple products that I’m developing, new products that I develop, third-party products, and then I also need to enable those across different sales channels: online, in-store, through sellers. I think when you build a marketplace, don’t do it just for the sake of having a marketplace as a checkbox, but do it to solve this pain point of what products do you want to sell, and what channels do you want to sell them through? That’s how you can unlock your revenue potential. The one thing I’d say is that many people in their attempt to build a marketplace just essentially build something online and think it’s going to work. What I would say is, while an online marketplace is the start, you really have to integrate it to all your products and channels for it to maximize your value prop. So, I would say, think about marketplace and ecosystem in context to a business confirmation, not just in context to checking a box and having a marketplace for your product online.

Alejandro: You were also touching base on this earlier about network effects. So, when you see the flywheels and the networking effects working properly, what does that look like?

Daniel Saks: What we’ve done is study marketplace models over the last many years and generations of businesses. What we find is any business is going to want to increase their revenue and reduce cost. Ideally, in order to do that, you are reducing churn and creating a better customer experience. What we’ve found is that by transforming your business to enable a marketplace or an ecosystem, you can then unlock better revenue or unlock your revenue potential by creating a better customer experience and by reducing churn. One of the things that we’ve found, which is different in the subscription economy or the digital economy from traditional businesses is that today, we see with SaaS and other models, people subscribe to services and the first sale only represents a small percentage of the overall value or customer lifetime value that you’re going to attain. Therefore, you need to pay attention to the micro signs of that first customer. Is that cohort buying more over time? What’s the experience are they getting? What sales channels are they buying from? What products are they buying? I think that the flywheel comes when you start to see success of one or two customers buying multiple things from multiple channels. That, I think, is really the magic of an ecosystem is that in the early days, it may not be that you’re generating billions of dollars, but you can see that that cohort is buying more, they’re getting more value from your core product. There’s actually a net-dollar retention which means those people are spending more money with you over time. That, over time, will create exponential growth. I’d say paying attention to customers really early in the early journey will then pay recurring dividends over time.

Alejandro: Amazing. One question that I typically ask the guests that we have on the show is – you’ve been at it for quite a while. We were discussing this since 2009, so you’ve been around the block. If you had the opportunity, Daniel, where you were able to just have a chat with your younger self, let’s say during the days where you were interning at the investment banking firm, and you were brainstorming with Nick as to what the future would look like if you guys were to launch a business. If you were able to sit down with that younger self and give yourself one piece of business advice, knowing what you know now, what would that be and why?

Daniel Saks: I’d say have conviction in your vision. Really, only you or your co-founder know your vision. The job, I think, of a founder is just have strong conviction. There are many times throughout the lifecycle, we’ve been at it for ten years, where it would have been easy to quit or sell or give up. But if you have that conviction and persistence in your long-term vision, you always find a way to persevere. I believe that while we’ve been at it ten years, which is a long time, I think we’re only at the beginning of the journey. I hope in 30 or 40 years from now we’re still on this same journey helping make technology accessible. I would just go back to that same focus of have conviction in your vision, and that should guide you to persevere through any challenges along the way.

Alejandro: I love it. For the folks that are listening, Daniel, what is the best way for them to reach out and say hi?

Daniel Saks: Feel free to reach me at dan@appdirect.com

Alejandro: Amazing. Any social media handles that you use?

Daniel Saks: Email is the best, but you can also find me on Twitter @danielhsaks.

Alejandro: Fantastic. Daniel, thank you so much for being on the DealMakers show today.

Daniel Saks: Great! Thank you, Alejandra.Alejandro: If you like the show, make sure that you hit that subscribe button. If you can leave a review as well, that would be fantastic, and if you got any value either from this episode or from the show itself, share it with a friend. Perhaps they will also appreciate it. Also, remember, if you need any help whether it is with your fundraising efforts or with selling your business, you can reach me at alejandro@pantheraadvisors.com.

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