Episode 1, Series 3, The Pain of Scale

Why great product is the foundation of every SaaS success, with Jonathan Gale

Episode 1, Series 3, The Pain of Scale


  • Capital efficiency is the critical output of product market fit
  • Choose a market in which less than 1% market share means hundreds in millions in revenue
  • Don’t confuse constraints for objectives
  • Emotional alignment with strategy is critical

Across 20 years, Jonathan Gale has taken two of Europe’s biggest SaaS success stories from early product / market fit to global scale.

At MessageLabs, he grew sales from $1m to over $100m in annual revenue, becoming Chief Product Officer just before its acquisition by Symantec in 2008.

Jonathan joined NewVoiceMedia as Chief Commercial Officer in 2010, before taking over as CEO and growing the business from $2M to £70M annual recurring revenue in just seven years.

It is these successes that have made Jonathan one of the most highly-regarded SaaS executives in Europe, and we’re very proud to have him as an XiR for Notion’s platform and portfolio.

What were the biggest challenges you faced at MessageLabs?

Everything for me centered on the product. In my opinion that’s always the case with a SaaS company; everything revolves around the quality of the product, all the metrics and success are driven by it.

When you look at problems or weaknesses across the business, such as cost to acquire, cost to serve, or marketing spend, it can be easy to think of those things in silos and in isolation from each other. But invariably these problems come back to product .If the product isn’t compelling or if the product isn’t easy to use, or if the product is difficult to implement or integrate, then the symptoms surface in overall company performance.

This will determine whether your sales, marketing, churn, capital efficiency etc looks good or bad. All roads lead back to product.

I went off to run product at MessageLabs because I knew that the way we were executing in sales was very consistent, but the numbers went up and down. This fluctuation in numbers was down to how well we were competing in the market relative to our competitors and relative to the needs of our customers.

What I saw was that, when product was good, sales were high and churn was low, but this wasn’t the case if the product was late or the platform unstable.

If your online expenses system is down for a few hours, it’s an irritation. But if you are running, for example, a 600 person call centre and it can’t function because the underlying tech is down, that’s obviously a huge problem.

I always think it’s finding a balance between how strong the platform is at the core role and how innovative is the product. And when the platform is stable and you are bringing new capabilities to market then - surprise, surprise - sales are better and churn is lower.

The quality of the sales or marketing people and the quality of the execution really didn’t move around that much.

How did your experiences at MessageLabs shape your thinking at NewVoiceMedia?

We had to focus on what we were going to be best at. So we set out to have the best contact centre for Salesforce customers, and with the limited resources we had, that was achievable.

If we’d set out to be the best contact centre full stop, that would not have been achievable. We would have failed. It was still a big decision, but it was doable.

So we could say to a customer, “if you have Salesforce and you want to leverage your customer data and create a unified call centre, we are the best in the world at that”.

How do the challenges change along their journey - from startup to global scale?

I honestly don’t think the challenges are that different.

Assuming you set a compelling strategy and you're able to execute on it and manage all the stakeholders, then all you need to do is grow, hit your numbers, deliver on your roadmap and deliver to your customers. That’s it.

Sure you have to figure out who to hire or fire and figure out when to bring in more senior people. But the essence of what you need to do is simple and doesn’t change.

How do you know if a company has product market fit?

There is no hard and fast rule, but there are some obvious characteristics:

  • PRICING: A stable pricing structure, so people aren’t making that up as they go along.
  • CUSTOMERS: A critical number of customers - maybe 10, 100 or 1000 - in essence a decent and growing customer base, customers that have been with you long enough to renew and have renewed. And less than 10% churn.
  • REVENUE: More than $1m or equivalent in recurring revenue.
  • GROWTH: I think you need to strip away growth that is fueled by external investment and see underlying growth of 30% YOY that is generated purely by the cash the company generates.

This last point is critical because it talks to how capital efficient a business can be as it grows.

There are businesses out there that can sustain 100% YOY growth in bookings, purely on the cash they generate, and those are great ones to work with.

But there are companies that slow down with the injection of capital and when you strip away the growth fuelled by external cash, you can see the real underlying inefficiency.

Unless they are taken in the context of the cash performance of the business, headline growth rates can be misleading.

How do you know when the time is right to really start scaling?

Before investing for growth, you need to establish that you are in fact addressing a big enough market.

To be ready to grow you have to recognise that you may only have proven PMF in a small niche and not necessarily in the large market that you have told all your investors you are going to address.

So one element of qualification is that the market in which the company has achieved fit in is sufficiently large. You need to be able to demonstrate that you can build a business with revenues of $100m or $200m, with less than 1% of the market.

If a business says we have PMF, but we need a 50% market share to hit $100m in revenue, then to meet that is a niche solution that will run out of steam and get lower returns on investment as it goes forward.

What changes for the company post product market fit?

The most important trait for the CEO is the ability to engage all the stakeholders on a logical and emotional level.

To do that they need to be able to think clearly, to be strategically strong, and take everyone with them - their executives, investors, employees and customers.

In early stage SaaS, it can be very hard for leaders who are organised and strong on execution, but lack that ability to define and deliver on a compelling future vision.

If they have that compelling vision, it is much easier to bring in people who are operationally excellent and live to get shit done. It’s possible to go out and hire people who can execute and can plug the gaps.

The CEO must be the custodian of the future of the company. Assuming they can do that, they can plug in the resources as needed.

Now I’m making that sound incredibly straightforward, when in fact it is unbelievably difficult.

It’s tough trying to hire talent into a company that is two years younger than they would typically consider, and it’s tough to recognise when people have hit their limit.

Once you’ve defined the strategy, built the team and made moves to scale, what’s next?

Once you get to scale its highly unlikely you will be able to execute through a direct only model, so different channel and ecosystem strategies will emerge. But all of this is dependent on the quality of the strategy you set and the quality of the job you are doing to align everybody in the business.

I’m talking about every aspect. This can be how the website looks, how 10 different people in the company talk about the business, how customers feel, and whether what they believe is good about the company ties in with what the company thinks.

Having the right strategy and driving alignment is the basis of everything.

You talk about the differences between objectives and constraints. Can you elaborate on this?

It’s very important for CEOs to understand that having happy customers that don’t leave, having happy employees that don’t leave, having a happy board that continue to invest, having happy partners that bring their best people - is not a strategy.

In this case, they are in danger of confusing objectives with constraints.

All these stakeholders have infinite choice. A VC can invest in you and then see something else they prefer. Employees can leave because someone offers better sandwiches. People can make decisions of where to work on really small things.

So if all you are doing is focusing on managing the needs of those stakeholders, then you won’t be focused on what you need to do -- thinking about how you are going to create a clear competitive advantage in the market.

Just remember, no matter how good a job you happen to be doing at any given time, it’s just table stakes and keeping the lights on.

If you have written out your objectives for the year - decrease churn to 5%, increase employee satisfaction blah-blah - you aren’t defining objectives. Customers will leave, employees will be disloyal, investors will be inconsistent - get over it.

Have a plan that balances resources to deliver on these constraints, but don’t confuse them with objectives or strategy.

Strategy for me is about having clarity on why you are different now and how you will win now and in the future.

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