Inside AppDynamics’ IPO Playbook: Preparing Your Sales Org to Go Public
Editor’s Note: AppDynamics was acquired by Cisco immediately ahead of its planned IPO.
Joe Sexton has a lot of impressive, real-world experience growing sales revenue. Since the 90s, he has helped some of the biggest names in the software industry double, triple and otherwise exponentially increase their revenue. At Computer Associates, Mercury Interactive and McAfee, Sexton played a key role in managing growth through sales and acquisition, but one challenge had eluded him: taking a startup through IPO.
It took the sustained effort of a very persistent recruiter to eventually connect Sexton with an opportunity that would ultimately help him meet that goal. The recruiter introduced Sexton to AppDynamics’ Founder and Chairman, Jyoti Bansal. When Sexton joined the company in 2012, it was doing about $28 million in bookings and $12 million in annual revenue. Three years later, they were clocking in north of $300 million in bookings and well over $100 million in annual revenue.
“It was a combination of a fantastic product and our ability to convince people that the total addressable market (TAM) was substantially bigger than conventional wisdom would have them believe,” Sexton recalls. In fact, while most people estimated that application performance management was about a $2.5 to $3 billion TAM, Sexton proved to skeptics that the actual opportunity was closer to $15 billion.
While pitching a TAM five times the generally accepted value might seem like an over-the-top move, drawing a grand and confident line in the sand is actually a hallmark of Sexton’s approach to building revenue. But, there’s much more to his strategy than bravado.
Grow topline revenue, but never forget the bottom line.
“One of the main things startups need to keep in mind is that you have to act like a public company before you actually become one,” Sexton says. “If you wait until after you do an IPO to establish all the processes, capacities, forecasting and other rigors you need to stand up as a public company, it’s way too late.”
This was the mindset Sexton had when, shortly after joining AppDynamics, he stood in front of the company and told them that they were going to grow from $28 million to $65 million in the upcoming year. “Everybody thought I was crazy,” Sexton says. “But I had a vision in my mind that if you set high enough goals and then built the capacity around those goals and put the processes in place to execute against those goals – anything would be achievable. So, why not aim high?”
“My theme when I walked in the door,” Sexton explains, “Was that we’d done great up to that point, but we were entering the big leagues and had to start acting like it.” The strategy paid off. Sexton helped take the company to $77 million that first year (beating his initial goal), $157 million the second year, and $303 million the third year.
Sexton sees setting these kinds of “big, hairy, audacious” goals as part of his responsibility, but he also knows that there’s more to achieving the goals than simply putting them out there. “There were two components to it,” he explains. “There was the what we were going to do — the numbers — then there was the how we were going to do it: hiring the right people, retaining them, keeping them motivated and being very, very customer success focused – and always doing so ethically and with the highest integrity. In my mind, the how was way more important than the what. If you do the how right, the what follows.”
Also mitigating the potential risks of his big thinking and audacious goals was Sexton’s commitment to balance. “Each year at the company kickoff, I presented the topline we were going for,” he says. “But, I always closed with a statement about the importance of spending our resources wisely. It’s not like a drunken sailor. You have to have ratios and be efficient when you’re looking to go public, so it’s not just about growing topline, but also about optimizing the bottom line as you scale.”
Set a formula-driven approach to scaling.
Moving from high-level goals and strategies to in-the-trenches growth plans, Sexton focused his formula-driven approach on three primary areas: sales capacity, enablement and measurement. Understanding and optimizing each of these metrics is critical for any sales leader who wants to partner successfully with a CEO as a company heads toward IPO.
“Number one, focus on your sales capacity,” Sexton says. “Many people get too focused on quotas, but quotas create a false sense of security. You can give anybody any quota you want, but the real question is, can they hit it? Yield refers to what people actually do versus what they are striving for.”
Sexton notes that when looking at yield, it’s important to remember that there are “ramped” and “unramped” reps. “A ramped rep is somebody who’s been trained and enabled and who has gone out on the battlefield and gotten some scars,” Sexton explains. For AppDynamics, these reps usually have six months under their belts and are expected to make their assigned sales targets in each successive quarter. Based on this expectation, Sexton is able to define the yield – what, on average, a rep should be able to produce. Unramped reps, on the other hand, are new hires who are still learning the ropes and to whom Sexton doesn’t attribute any yield for the first quarter.
“You’ve got to make sure you have capacity on the sales side and you’ve got to make sure you have a good partnership with your CEO and your CFO so that everybody agrees up front that this is the first order of business,” says Sexton. “If we don’t have enough sales capacity, we won’t hit our targets. Especially in a startup trying to IPO, nobody cares about bottom line as much as they do topline. Make sure you get that right first.”
The second key area of focus is sales enablement, because it’s not just about hiring enough of the right people; it’s about making sure those people have what they need to do their jobs. Sexton sees two primary components to enablement: training and the back office.
“It’s hard when you’re hiring at scale, sometimes doubling your team size in the course of a year,” Sexton says. “In that situation, it’s critically important to have key assets available to enable people and get them ramped up quickly.” At AppDynamics, Sexton tapped the European CTO to lead sales enablement. “It was a big strategic move to take somebody with that much talent and put him in charge of a capability a lot of people overlook.”
In addition to putting a key team member in charge of sales enablement, another thing Sexton focused on in the training sphere was making sure everyone was consistently telling the same story. “You’ve got to be able to tell the company story,” Sexton says. “There’s a lot of pressure on reps to be able to tell that story, but once they’re able to do that, it’s very, very effective.” This piece is so important, that AppDynamics reps are required to achieve certification in telling the story. They have to stand and deliver the story to a manager who provides a pass/fail assessment. Three failing assessments, and that’s the end of the line.
The other half of the sales enablement equation is a strong and effective back office. “You have to start behaving like a public company before you become one,” Sexton reiterates. This will look different for each company based on their strategy and needs, but at AppDynamics, a heavy focus on developing pipeline made implementing Salesforce to capture and measure pipeline crucial to supporting the sales effort. In fact, a culture where everyone was responsible for generating pipeline became pervasive. “PG Monday” was a weekly exercise where every field sales rep spent their entire day prospecting for new routes to money. When added to pipeline activities from marketing, partners, inside sales and inbound inquiries, this led to massive pipeline overall.
Also to support the culture of pipeline generation and enterprise sales, Sexton and Bansal agreed that it was important to have inside sales support. “You need to have an inside sales team so you can can be both effective and cost efficient in your efforts to touch the market. All of this comes back to the idea of productivity, of making sure those expensive enterprise field reps are calling on people who have been qualified. You want to be sure that their shots on goal are where they should be, and that they aren’t off on wild goose chases. Having inside sales was critical for that, helped our cost ratios and was also a great training ground for future field reps.”
Lastly, sales leaders preparing for an IPO must measure performance. “We measured and managed people based on activity,” Sexton says. “So, based on our pipeline generation focus, each Friday we would inspect those field reps and look at key indicators.”
For AppDynamics, Sexton looked at three primary goals. “We looked to have two really well scoped out proof of values each quarter,” he says. “We also tried to have one ‘business value assessment’ each quarter, an exercise in which we get the customer to buy into the value relative to the price.” Sexton also looked at what his team called “visible opportunities” in order to track dollar-value commitments.
“Rigor around numbers, metrics, and leading indicators is something you can definitely think about with your CFO and CEO, “ Sexton says. “You want everybody to be comfortable that you have a clear and well-defined line of sight on making the numbers.”
Remember that everything starts and ends with the customer.
One of the key challenges sales leaders face when working with a team that’s anticipating an IPO is keeping that team focused and steady. Sexton recommends transparency and constant communication.
“At AppDynamics, we weren’t afraid to talk about the goal of becoming a public company,” Sexton says. “But, at the same time, we helped our team gain the perspective that the IPO was only a point in time, not the end. Our constant and consistent message was crafted to remind the team that our focus was and is building a great long-term company.”
Again, the details of the message will vary from company to company; but it’s important to be specific and aligned. For AppDynamics, the message was all about customer success. “One of the key things that Bansal drove home (and, one of the reasons why I bought into him as CEO) was that everything started and ended with customer success, not customer satisfaction,” says Sexton. “When I started, our net promoter score was 72. By the time I left, it was in the high 80s, which is unheard of. This is the point at which people become advocates, telling others about you and your company.”
By adopting a singular focus on customer success, Bansal and Sexton were not only able to reap the revenue benefits of a coordinated and aligned land-and-expand approach, they were also able to keep the team focused on the job at hand rather than allowing them to become distracted by the anticipated IPO.
Stepping back for a broader view, Sexton points out that, at the end of the day, it’s never just about sales. “Whether you’re in support or marketing, the back office or development, in the end, the objective is to go out and secure customers by consistently beating the competition,” he says. “So, think big and set your targets high, but make them achievable. Constantly remind people of the mission, and encourage them by recognizing all over-performers. Every win was recognized across the company and the bigger ones were done via a WinWire that talked about why we won, the competitors we beat and called out everyone who contributed regardless of their role in the company. And the last day of each quarter,” Sexton adds, “an all hands meeting occurred to celebrate, recognize contributions and discuss the results against company goals.”
“This is a tough business,” Sexton says. “No matter what you do in the pursuit, you want to end up with a win. But, despite my big, hairy, audacious goals, it was always about integrity and ethics. You want to make sure the company is proud of the sales function. You want to bring in the right people, do things the right way, and build a culture of not only hitting goals, but of winning. And while it may sound corny, winning is a (T)ogether(E)veryone(A)chieves(M)ore sport.”