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 * Episode 195
 * October 31, 2023
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CLEO’S MAHESH RAJASEKHARAN: TRANSFORMING SUPPLY CHAINS THROUGH ECOSYSTEM
INTEGRATION SOFTWARE – EP.195

With Mahesh at the helm, Cleo has grown from a single-digit ARR business in 2012
to nearly $100 million in ARR today, with even greater ambitions for the future.
00.00
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EPISODE DESCRIPTION



My guest today is Mahesh Rajasekharan, CEO of Cleo, a software platform for
supply chain system integrations. A few months ago I asked a few friends which
sales-focused CEO they admired most and they all unanimously said Mahesh. With
Mahesh at the helm, Cleo has grown from a single-digit ARR business in 2012 to
nearly $100 million in ARR today, with even greater ambitions for the future. He
has built some of the most robust and high-performing sales and product teams
I’ve seen and is a value-adding investor and advisor to many other CEOs.

Mahesh and I talk about the story of Cleo and how they drive customer value,
pivot points along the growth journey, building best-in-class sales and product
orgs, growth while remaining profitable, private equity ownership, and so much
more. Please enjoy this fantastic conversation with Mahesh Rajasekharan.

Listen weekly and follow the show on Apple Podcasts, Spotify, Google Podcasts,
Stitcher, Breaker, and TuneIn.

Learn more about Alex and Think Like an Owner at https://tlaopodcast.com/


CLIPS FROM THIS EPISODE




COMMUNICATING WITH CUSTOMERS

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DEFINING PROFITABLE GROWTH

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 * Sponsors
 * Time Codes
 * Transcript

Sponsors

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due diligence assessments of the target company’s commercial insurance and
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Time Codes

(00:04:06) Cleo and how Mahesh has evolved the business

(00:11:37) Identifying customer needs

(00:14:04) Growing and coordinating a product team

(00:18:17) Communicating with customers

(00:21:20) Building and scaling a Sales organization

(00:37:15) How the CEO role has changed

(00:39:02)Self-evaluation

(00:42:49) Defining profitable growth

(00:48:56) Themes for companies who can’t become profitable

(00:52:17) An example of a project that wasn’t working initially but learned it
would down the road

(00:54:13) Experiences as a private equity-backed CEO

(00:58:21) The most enjoyable part of the CEO role

(00:59:27) M&A

(01:03:47) Advice for software CEOs in scaling

Transcript

Alex Bridgeman: I think a good place to start would be a kind of overview and
outline of Cleo and then maybe as a primer like what the business looked like
when you purchased it versus what Cleo looks like today and some of the change
in between.

Mahesh Rajasekharan: Yeah, sure, Alex. Great to be on your podcast. Let me give
you a little background first. A small team of investors and I bought Cleo in
2012, a Rockford based software company. It was focused on mid-market data
movement technology with 37 employees. It is called Managed File Transfer; that
is the name of the software we had. By all accounts, Cleo was a true diamond in
the rough. It was a licensed maintenance model, 4 million in maintenance ARR,
but thousands of loyal customers. Basically, customers loved the product, great
customer satisfaction. It was considered excellent value for money and had a
reputation of being very easy to do business with, all positive things. But what
we saw in it was a high performing asset, which we could move to the cloud, take
it up market into the enterprise and professionalize as a business. And one of
the things we found out early on speaking to customers was that there was so
much more Cleo could do in the sense that the larger B2B integration space was
very much broken in the sense that a lot of the customers that we had sold the
data movement technology had complex partner networks, they had B2B business
processes, they ordered the cash and precure to pay, that required far more
sophisticated orchestration and scalability than was being offered by
traditional integration players. So, this gave us a tremendous view of what we
can do with the business. We realized how fortunate we were to find something
which is truly a once in a lifetime opportunity to establish a cloud integration
platform at the perfect time when companies everywhere were undergoing digital
transformation. So, we saw retail supply chains were giving way to omnichannel
where you are having a retail supply chain but you’re competing with Amazon by
selling through e-commerce front end, working with web front ends or web
commerce platforms like eBay or working with Amazon. So, we just thought that
there was a tremendous opportunity for us to build a platform to support
e-commerce and omnichannel fulfillment. So that essentially gave us the
opportunity and idea to take an on-premise mid-market business and build a true
cloud integration software company to support digital transformation. So, if you
look at the transition point, it’s 11 years for me as CEO of Cleo from 2012 to
now, I would say that there are three major pivot points. Point number one, the
first pivot was a month or two into the business, we realized that we had the
opportunity to take Cleo from a mid-market business into an enterprise business.
So, we still stayed in data movement, but we built an enterprise-scalable
platform for enterprise data movement and landed some very, very marquee deals.
And then from 2016 to 2020 approximately, we built a cloud integration platform,
but also then from data movement to data transformation and integration. So, we
ground and built a cloud integration platform. And along the way, we built a
strong go-to-market engine as well, which can sell large deals, which can create
leads. And now from 2020, ’21, when we had this significant recapitalization
with HHG Capital, now we’re really building a network, a Cleo network on top of
the platform. So, it makes it so much easier for companies and supply chain to
very quickly connect, on board, and run their order to cash and procure to pay
businesses on Cleo. So that’s sort of the three major pivot points. Go
enterprise first, build a cloud integration platform, and then build a network
on top of the platform. And along the way, we had to build a go-to-market
engine, which is going to support large deals, build brand, and build the lead
gen ahead of the sales engine so we have enough leads to position itself.

Alex Bridgeman: Yeah, I’m really excited to talk all about the go-to-market team
and sales team you built. But in that first pivot, seeing that you could kind of
create your own category and go to the cloud, what told you that that was an
opportunity? What were you seeing?

Mahesh Rajasekharan: What we basically saw was that there was a lot of evolution
of companies in the cloud integration space. And all of them focused on
application integration. We saw companies like Neilsoft, companies like Boomi,
which are all getting into a lot of attention. They’re called integration
platform as a service. And at that point, we realized the bigger problem was
business to business integration because more and more as companies are becoming
sort of vertical businesses with vertical integration across a horizontal sort
of going offshore and trying to build the supply chain moving more and more to
Asia, the B2B integration became far more important on the supply chain side,
but also on the digital transformation of e-commerce. We saw Amazon becoming
very important, companies like Walmart, Target, and others were trying to become
like Amazon with their own dot com. And as part of that, we also saw
direct-to-consumer businesses essentially having Shopify and Magento front ends
and taking business from customers. But at the same time, fulfillment became
important. When Amazon was saying two-day delivery, everyone had to match up to
two-day delivery, and then Amazon started to go into same-day delivery. And so
now you have logistics companies on fire. The warehouses are now moving into
population centers. So, we clearly realized in the 2015, ’16 timeframe that
there was a massive need for a company to build a new category called ecosystem
integration, which can serve the needs of ecommerce omnichannel fulfillment, and
essentially be a business that can do real-time integration, which is very
business process centric. The traditional companies were very much
infrastructure software. They were only focused on endpoints. They were moving
bits and bytes. But our focus was we needed a B2B integration company, which was
business process focused, which was in the cloud. It can be real time. It can be
dynamic and intelligent. So that gave us the idea, and we tested it out with a
lot of customers, and we saw a massive interest from a lot of customers. So, as
we’re building the platform, we were also getting deals. And we built a platform
through three generations, and we had growth pick up from generation one to
generation two, now we’re in the third generation of a platform. So that’s how
we got the conviction around ecosystem integration, by recognizing the need and
having customer proof points and adoption to prove this category.

Alex Bridgeman: Yeah, focusing on driving customer value in all of your product
improvements and product evolutions, how did you identify what customers valued
and care about? What kind of customer outreach and feedback mechanism did you
build to understand what the changing needs for your market were?

Mahesh Rajasekharan: So, we have this whole, quote, idea around, internally we
code name it LAER, which stands for Land, Adopt, Expand, Renew. And we look at
that progression because the nature of business-to-business integration is a ton
of use cases. So, once you solve a business use case, so let’s say we’re going
to help a manufacturer connect with Walmart and Target, then the next use case
could be to work with an ecommerce like Amazon or eBay. Then they may have to do
their own direct to consumer. Then they may have to go and manage their
logistics chain for inbound and outbound logistics. Then it gets into procure to
pay. So along the way with customer success, we make sure that every single use
case is very quickly adopted. And we also have a proxy for measuring the value
we’re creating. Our sales methodology is based on quantifying the value
proposition. And when we do that, then we go back and deploy the use case and
then see, using some proxies, whether we’re delivering the value. And our goal
is to make sure we meet and exceed the value proposition, not only in terms of
making the projects go live on in time, which is important, but also making sure
that we have executive dialogue during our EBRs, which is executive business
reviews, which we do every three months, to make sure that we met and exceeded
the customer value proposition in terms of revenue growth, profitability, speed
of onboarding of their business partners. And then we will then use those
success stories to evangelize the company within other parts of the customer and
expand use cases. So, the LAER model, the land, adopt, expand, renew model,
allows us to have C-level conversations on business metrics, which then tied to
the IT use cases we would deploy. So that’s how we validated things.

Alex Bridgeman: And it sounds like it’s not just a go-to-market and customer
success. There’s a product organization that is tightly integrated into this
whole flywheel of customer feedback, new use cases, going to market. How have
you coordinated and focused on a product team, a growing product team that’s
taking on new features and use cases, and how do you get them to coordinate with
success and sales? It sounds like it might be through these executive review
meetings and I assume a bunch of other different ways too.

Mahesh Rajasekharan: Yes, the fast answer to this is really twofold. No company
can do this without a product because at the end of the day, we are the product
companies. We are solving a major customer problem, which is unmet or under met,
through a solution which is highly differentiated than the next best
alternative. So, it really starts with the product. At the same time, no company
can succeed without developing a way to bring in a lot of customers and keep
them, stay with you so they’ll expand. So, it’s really two part. And what we did
sort of from a timing perspective, initially, we went in, we saw great
technology, we thought we can do some tweaks, and really started focusing on
sales and marketing and driving growth. But as we’re doing, as I just explained
early on, we realized that we could do a lot more, a whole lot more. We can
build this ecosystem integration category. And for doing that, we needed a
three-pronged approach on the product side. First, we needed to build a
platform, an ecosystem integration platform, which was real time, and it can do
dynamic and intelligent integration across two different types of technologies.
One is APIs, which stands for application program interface. That’s the real
time. So typically, when you read about ecommerce, people talk a lot about APIs
and digital transformation. That’s because it’s digital and it’s real time.
There is another technology which has been around and it’s where billions and
trillions of dollars of revenue transacts each and every day, which is EDI,
electronic data interchange. What we did is we bought both technologies in the
same platform and no one has done this. So that’s a platform level. Then our
thinking was the platform is scalable. It’s processes billions of transactions,
but we need to build a digital network on top of the platform so I can very
quickly connect to customers, could be retailers, could be the ecommerce
platforms, could be the marketplaces, but also connecting to the back end
different ERP systems, SAP, Oracle, NetSuite, Microsoft Dynamics, so we can
quickly enable digital commerce. And then the third level was we needed to build
an ecosystem relationship management on top. Because at the end of the day, you
want to find a way to do business easily with your customers so that you can
expand revenue, so that you can expand profitability. And so, you need to build
an analytics layer which is proactive in nature. So, we went about building the
platform through three generations. It took us about four years, ’17 to 2021 to
build the strongest B2B integration platform in the world. And now we’re
building the network on top and the ecosystem relationship management layer on
top to a point where we are creating, we’re really becoming the de facto supply
chain execution layer to do efficient supply chain execution for companies in
manufacturing, logistics, and distribution, wholesale distribution. So that’s
what we’re doing. But one of the most important things, Alex, to realize is, as
you’re doing it, you need to get a lot of customers. It’s not product first and
then sales next. So, we’re continuously leveraging our customers who wanted to
go and do something different because existing B2B integration technologies are
broken. So, we saw a lot of Fortune 500 companies and others partner with Cleo
along our journey, being part of the advisory board, being part of our different
conferences, giving us feedback, and really jointly working with us to perfect
the ecosystem integration category.

Alex Bridgeman: Yeah, I would love to dive into that aspect a little bit more,
that customer feedback. So not the sales process where they go from prospect to
customer, but now that they’re a customer, what are some things you’ve learned
about getting feedback from customers and testing features with them and kind of
pace of communications. What tips and things have you learned working with
existing customers?

Mahesh Rajasekharan: Most importantly, it’s credibility. And you gain
credibility by making sure the promise you make in sales is very quickly
delivered through. And so, it really starts with the sales process itself. So we
have customer success embedded in the sales process. And we ask sort of a three
part question for our customer value proposition. Question number one is why do
something? Question number two is why Cleo? And question number three is why do
something now? And what it means is why do something is everything around a
quantifiable value proposition compared to the next best alternative. It could
be because of a process change, a product capability, could be changing
performance metrics and doing different things with the people. It’s all four
Ps. And we quantify that and we quantify not in absolute terms but in relative
terms compared to the next best alternative. Then the next question we ask is
what is it we’re doing that’s unique or better than others to unlock the
incremental value? What are those capabilities? And the third question, which we
actually ask ourselves is, why now, when the customer has 5, 10 different
priorities any given time, why should they do the Cleo initiative? Why now? And
what does it do for them? And then once we close the transaction, our customer
success team and our deployment teams, and then sometimes it may not be Cleo
deploying it, it could be a Cleo partner or a system integrator, but our
customer success is still Cleo teams. So we partner with them to make sure the
initial project metrics, which is in terms of on time delivery, how many
customers and how many suppliers they’re going to integrate as well as a
business metric. Sometimes we may have to get the customer connected to Amazon
first because it can unlock a lot of revenue for them. So, we make sure the
customer value proposition is delivered quickly. And then as we start delivering
that, we build a lot of fans with the organization. And then our EBRs, which is
the Executive Business Review, we try to make sure that it is IT and business,
and sometimes we even try to go to other organizations. For example, if you work
in order to cash which is CFO, CIO, Head of Sales, we try to get the Head of
Procurement, maybe have the Head of Operations. So now we’re unearthing other
opportunities to maybe solve something in the procure to pay, something to solve
in the inbound logistics. So this is how we create credibility and value
creation and we show those metrics, which opens up customers to share more with
us as a trusted advisor.

Alex Bridgeman: So, I’d love to dive into your sales organization in more depth,
but what did it look like initially? And what changes did you make to your go to
market and sales teams in that first year or two of Cleo?

Mahesh Rajasekharan: Yeah, it is really crawl before you walk before you run
sort of thing. Step one was basically I did really two things, very structured
pipeline review, which deals are in the pipeline, what stages they are, are they
accurate, and had a simple close plan, which is who’s doing what in the Cleo
organization, who’s doing what in the customer organization, and what are the
dates in terms of MMDDYY and made sure that there was tremendous rigor in
executing a close plan. That’s all it is; pipeline to close plan. That started
to accelerate sales. What the company was selling in two, three, four quarters
we started to sell in one to two quarters. Then the next step was now we are
exhausting the pipeline. Okay, now we needed a demand generation organization to
be put in place. When we first started, the demand generation organization was
all outbound. We had sales development reps who focused on calling customers.
And then we created a pipeline which the sales team worked on. As part of the
evolution, there are two other things we did. One was bring in a sales
methodology, so everybody has the same language. So all the stages in sales
force so we can track performance of salespeople and we can perform progression
of the sales cycle. And then on the marketing side, we started to augment
outbound and inbound. So, we started to create more digital assets, so customers
started to come into Cleo. So we were trying to expose business challenges
customers face so that they came to our website to find out how to solve the
problem. And through that, we got the leads. And over time, we took a very
vertical focus. And this is advice I’ll give to most CEOs, even in horizontal
organizations, they’re nothing but a series of verticals. So, we decided very
early on that we’re going to be supply chain focused. While in B2B integration
applies to healthcare, B2B integration applies to financial services, we said
we’re going to become maniacally focused on supply chain of verticals, which is
manufacturing logistics and wholesale distribution. And even specifically within
manufacturing, we started to get into subsegments and micro segments like food
and beverage companies, like CPG companies, get into logistics and look at what
third party logistics companies care about, what carriers care about, what do
the freight brokerages care about. And by doing that, we really started to build
vertical knowledge and vertical use cases, which made it easier both from a
vertical go to market and selling and demand generation. So this is sort of how
we evolved, and now we’re evolving more into working with system integrators and
bringing on an indirect channel business, which can further scale up our direct
go to market.

Alex Bridgeman: And how did the leadership team for your sales team evolve over
time? Or you talked about pivot points to open our episode. What pivot points in
the team composition, like who’s leading the sales team, what pivot points did
you see as ARR grew over time?

Mahesh Rajasekharan: So initially I was overseeing sales, and we had a VP of
Sales, but I really came in with a very clear focus on solution selling and
large account selling. So initially it’s about me coming in, looking at all the
deals, doing deal reviews, understanding customer value proposition, being able
to make sure the methodology is followed, we implemented salesforce, implemented
solution selling methodology, and I used to train our methodology to all the new
salespeople. And then about four years into it as we scaled, at that point, we
brought on a Head of Enterprise Sales. And I was still running sales as CEO, but
I had a Head of Mid-market Sales and a Head of Enterprise Sales. And by 2016, we
got to a point where it made sense to get a Senior VP of Sales who managed both
mid market and enterprise. And then we started to grow into Europe, and we
brought in a VP of Sales for Europe. And then by 2019, we took sort of,
basically, we wanted to break the sales organization into a net new
organization, an install based organization, and further look into it in terms
of net new commercial segment, which is a mid-market segment and net new
enterprise. And similarly, we looked at the install based business as net new
commercial install base and enterprise install base. And now, as we’re evolving,
we have not fully done that yet, we are now evolving into a vertical sales team.
One thing to know, Alex, is as you become more and more vertical, there could be
inefficiencies if you don’t scale correctly because now a salesperson can only
look at manufacturing deals and cannot work on logistics deals. So, it’s just
the timing where there’s enough critical mass where you can bring in experts.
And one of the things we do to get around the problem is we bring in industry
experts or industry black belts in logistics and manufacturing and distribution
who are embedded in the sales organization. So we still have a VP of Net new
enterprise sales, but he has a VP of Logistics who can provide guidance and
credibility on a large logistics deal versus a manufacturing business where we
bring in a VP of Manufacturing solutions who brings in the credibility. So, it’s
very, very important to make sure the sales organization scales in an efficient
manner, and there are different pivot points. So, we are at a point where maybe
in a year or so, we’ll break into true enterprise and commercial VPs of Sales
for the different industry segments, like manufacturing logistics, and do the
same thing in the install base as well.

Alex Bridgeman: You said that it’s important to scale a sales team properly.
What would a badly scaled sales team look like? And what are some things that
you can do to avoid that?

Mahesh Rajasekharan: Most importantly, I believe in having pipeline built ahead
of sales. There’s no point in hiring a lot of salespeople when you don’t have a
good pipeline. So, it’s very important to build a lead gen organization which is
world class. Having said that, in the lead gen organization, you have SDRs,
BDRs, or junior, quite frankly. And so, we need to make sure there’s a very
strong alignment between the lead gen organization and sales organization to
make sure the right deals are quickly qualified and acted upon. The second most
important thing is, it’s really important to hire salespeople who have the right
culture, who fit into the organization. Especially in smaller companies, you
need people who are smart, very intelligent, who are not depending on the street
cred of the organization. For example, if somebody works for IBM or works for
Oracle, they’re large organizations and they have a lot of street cred. And
because you’re an Oracle rep, you get people to return your email, pick up your
phone call. That doesn’t happen in smaller organizations. So, we need
salespeople who are fearless, who are intelligent, with the right attitude and
aptitude, who can quickly learn and who can truly differentiate themselves
because of their ability to truly add value for the customer, not just report
the news. We always use that slogan. It’s about not just reporting the news but
creating the news. It is very easy for a salesperson to say, well, not a
question of if but when. But for us, every quarter makes sense. Time kills
deals. Whether you can close the deal in the fourth quarter of 2023 versus the
first quarter of 2024 is huge in terms of growth rate and momentum. So, you need
salespeople who are very resourceful, who are willing to tackle the issues early
on, who can bring it to the attention of the company and get everybody else
involved to close. So that’s where culture becomes important. Methodology
becomes important. We need salespeople who can follow the methodology so that we
know when they are having a problem. For example, some salespeople are very,
very good in quickly qualifying a deal, and then they struggle to progress
through the sales cycle. There are some other people who are very good in
progressing the cycle, but they may take time to qualify. There are some other
people who may get to the finish line but may not be able to punch it in. So, we
need to then know how to- the sales leadership becomes extremely important. So,
it’s not just the sales reps. The sales leadership in smaller software companies
should be able to step in and close deals while mentoring and coaching the sales
team because we also have this other dynamic where we have VPs of sales who can
get deals done, but the sales reps won’t develop with them. What we really need
is great frontline sales managers who can step into closed transactions, all the
while coaching and bringing the salespeople along. So, that’s why I mean, it’s
very, very important to build a sales efficient organization. And the metric we
look at is essentially a very, very simple sales efficiency ratio, which is
basically the new ARR divided by the total spend in sales and marketing. And you
want that metric to be closer to one. It doesn’t have to be one, but you want it
to approach one. And you need to make sure the pipeline, the ASPs, and you get
the ASP, the average selling price, based on the value proposition, so you’re
selling based on value. The ASPs and the speed of sales cycles time have to be
managed so you have a very predictable sales organization.

Alex Bridgeman: What have you learned about hiring that profile of salesperson,
that person who’s hungry, curious, smart, and can move deals through? What are
some effective ways you’ve found at finding that person and identifying them?

Mahesh Rajasekharan: Quite frankly, it is not easy. I think as you alluded to,
great salespeople are tough to find because they’re doing extremely well. And
every intelligent organization is going to do everything to keep them. They’re
going to be- going to get paid more. They’re going to be celebrated. So, we do a
couple of things. One, we have built a farm system within Cleo where we look for
athlete model in the SDR hires, in the sales development rep hires. So we look
at people who have played college sports, been at YMCA, people who have run
summer camps, athletes, with the right attitude and aptitude. And we bring them
in. We do some sales competency tests, et cetera, aptitude tests. And then we
really coach them very rigorously during the SDR process. Our model is very much
a one to two years, you’re going to get promoted into someone within Cleo. One
path is a sales path, become an account exec. Another path could be to become a
customer success manager because some of them love sales, they love working with
customers, but may not want to take the pressure of a sales quota. And they do a
phenomenal job as customer success managers. But to your question on AEs, we
actually, even when we hire, we’ve become so good in our internal analytics that
there are some people we think they’ll be an okay SDR will be a great
salesperson, we will know that. We also know people who can be amazing SDRs who
could be okay AEs, we will still hire them. And so that’s a dominant path of the
farm system. But along the way, we also celebrate sales as a function that as we
grow and promote people, our competitors look at what Cleo does, and then there
is this natural excitement for what we do within the sales organization in terms
of how quickly we progress people, how quickly they improve their competencies.
Then we start attracting people from outside. So that’s sort of second. And the
third thing we do, we talk to a lot of people. We constantly have an antenna of
what is the sales standard outside. We actually have a calibration of some of
our competitors on where people are. And we may or may not have the budget, but
we know who’s out there. And so that way, we have the relationship, we have the
network, and if we find somebody great, we find a way to get them into the
company as well, even if there is no role because we know great sales talent is
tough to find. And when you get great sales talent, they will absolutely earn
their keep. So that’s kind of how it’s sort of a three part model, which is a
farm system, creating a great sales culture so people want to come and work for
you, but also have this broader network of VPs of Sales, Directors of Sales,
competitors in adjacent companies that we have respect for and know who they are
and find ways to get them.

Alex Bridgeman: Yeah, you talked about talented salespeople, especially in
leadership positions being hard to find and smart companies don’t want to let
them go. How do you go approach someone like that and convince them to join your
perhaps smaller company, maybe much smaller company? How do you convince them to
make that leap?

Mahesh Rajasekharan: Yeah, it’s really, it gets to the core mission, core values
of Cleo. We are very much focused on building ecosystem integration. And as part
of that, we have laid out a value goal, which is to create 50 billion in free
cash flow to our customers by 2025. We’re very explicit about the goal. We have
proxy metrics to track the goal. That inspires salespeople. If you look at great
salespeople, they are nothing but CEOs of the territories. And most companies
don’t know how to communicate that. So when they talk to Cleo, we are looking at
hiring a CEO of a territory. It’s like a franchise. You get that. So, having a
customer value proposition which is exciting and celebrating salespeople and
then the culture of the company, the core values are it’s all about customers,
results, innovation, and people. And we talk about how you can be innovative as
a salesperson, how you can provide results. And a lot of times, even successful
salespeople, there is this whole coin operated mindset. Most people think
salespeople are coin operated. We just keep them. We celebrate sales excellence.
We think salespeople are the ones who are communicating our value proposition to
the customers and the ones who become customer advisors and the ones who bring
in innovation and inputs from the market, whether it’s competition from
customers back into the Cleo product organization. So, I think that
sales-oriented culture that we create becomes a great recruiting tool. And then
people start talking about how awesome it is for salespeople to come in, be
respected, their views are heard, not just a coin operator, comp plan
salesperson, but a true sales professional. And we promote them, not only from
farm rank to an account executive. They grow all the way to senior AEs, director
of sales, getting to VPs of Sales, aA very fast, rapid growth within Cleo as we
scale.

Alex Bridgeman: And thinking about your own role as CEO since 2012 to now, what
are some notable changes you’ve observed or changes but also ways you’ve needed
to evolve your role over time? What have you noticed over the last couple of
years?

Mahesh Rajasekharan: Very much an evolution from somebody who is completely
hands on, I’m still hands on, but initially it was about I was looking at two
very important things, building a sales organization and really evolving the
product. Because most, if you look at the mid-market software companies, they’re
very much sort of a single product that works and you just incrementally grow. I
came and fought against incrementalism. We’re going to create a category. So,
there’s a lot of heavy lifting, talking to customers, talking to developers,
really creating the art of the possible and being very involved in everything.
And then I started to pivot into someone who’s going to focus a lot on hiring,
getting world class talent at every rank of the organization, hiring a world
class CRO, hiring a world class CFO, great CMO, great CTO. I had a Senior VP of
product. Just go and aggregate talent. And as part of being an aggregator of
talent, I got to know how great looks like. And now sort of pivoting into
scaling the organization globally and looking into inorganic expansion and doing
targeted growth-oriented M&A, I very much became an allocator of capital. And
part of that is very much talent. Talent is capital. Very much a big allocator
of talent and capital as part of my evolution over the last 11 years at Cleo.

Alex Bridgeman: How do you evaluate yourself for performance along each of these
growth points? It’s kind of the rare CEO that can be really effective at 5
million ARR and then 50, 100, 500. How do you evaluate yourself for what skills
you need to be effective today at Cleo and then maybe the next couple of years?

Mahesh Rajasekharan: Great question. Scaling is hard. And to be able to get
ahead of the curve is even harder. So, one of the things I do is I constantly
challenge myself by taking on things which are beyond my day to day. So, for
example, being on boards of other companies. I’m on the board of Banyan
Software. We are buying a business a month or more. So, it’s a different world.
It’s all about how do you efficiently manage an application platform and be very
successful. I’m on the advisory board of a startup. That’s a very different
world where you’re not trying to create a new category. As you know, Alex, I’m
on the conference committee at Stanford, the search fund conference committee
where it’s all about how do you bring in PE scaling techniques to smaller
companies and what people have done scaling a few hundred million to a billion
dollar businesses. For example, the last two years, I’m on the Ernst & Young
Midwest Entrepreneur of the Year program judge panel. So judging companies which
are 3, 4 billion and really looking at companies which are public, which are
scaled up, much larger companies and really looking at what the CEOs have done
in that evolution. So I try to just put myself on the cutting edge and really
stretch myself and make myself available but also surround myself with very
strong folks. For example, the Cleo board has two CEOs who have scaled a lot of
businesses. We’ve got a billion dollar plus company CFO, who chairs the audit
committee, strong deal managing directors. And so having a large board, which is
also going to be both support and stretch the thinking – how would a 300 million
Cleo look like? And then going and acquiring talent and the org structure to get
there. So, I would say it’s not easy, but it’s also a lot of fun to just imagine
and visualize a much larger organization and see how you evolve to it. Do you
have the talent which can evolve? Do you need to bring in new talent? Would your
current processes scale or not? And having a CEO support network who’ve scaled
companies to billion dollars or more that gives you a 10X from where you are,
that you need to get there. It doesn’t mean you’re going to get there tomorrow,
but you know the North Star is much, much bigger and have the humility to say
that I need to get there, be someone who can listen and get feedback. I also
have a customer advisory board which is very strong. We have multiple billion
dollar business customers, their CIOs and CTOs give advice, and they’re
constantly buying from Oracle and buying from IBM and buying from OpenTax and
others. And so we get a sense of how those organizations- what are the good
things they do that we can absorb, and what are the things that they don’t do
well that we should preserve our culture, our core values and never compromise
as we scale. And both are important. Preserve your core values. Never
compromise. But yet, look at scaled software businesses and accordingly bring in
talent and change and evolve your processes as you get along.

Alex Bridgeman: I know you have ambitions on being not just a growing and
dynamic company but remaining profitable while doing so. What does profitable
growth mean and look like to you?

Mahesh Rajasekharan: This is a huge learning for me over the years. It’s a
great, great question. I’ve always been a growth guy. I always felt you grow the
business and profitability will follow. And a big learning for me is, and
especially not only at Cleo, but being on other software companies as a board
member and advisor, if you don’t have profitable growth as a core DNA of the
business, the profitability will allude you. And even if you get profitable, you
won’t be massively profitable. So, for me, profitable growth means really
focused on the unit economics of the business. It’s not at the high level,
people talk about rule of 40 and I’m growing at 40 percent and my EBITDA margin
is zero. It’s not that. What it is is from the unit economics, are you running a
world class software business? Do you have gross margins mid 70s to 80 percent
for a cloud software business? Do you have sales efficiency which is 0.7, 0.8,
approaching 1? Split the sales efficiency into how does your net new sales
efficiency compare to world class SaaS companies? How does install base sales
efficiency compare to world class software companies? Are you having gross
revenue retention, the GRR metric, gross revenue retention, in the mid 90s? Are
you having net revenue retention, which is basically the gross retention plus
price increase plus add-ons getting closer to 120? Those are very, very
important. If those are met- and then are you growing in the 20, 30 % range?
Then you sort of dive back into what you’re spending in R&D. And is it creating
assets which is going to scale you on a multi horizon? Or are you spending
money, which is not giving you results? So, to me, it’s about really getting the
unit economics right. And then if you say, look, I need to spend a few more
million on product because I need to build a one time lift, whether it’s a cloud
offering or scale up the platform, that’s intelligent investment. Versus people
who look at the headlines, wow, we’re growing fast and it’s okay to not be
profitable. So that’s a big learning. In other words, if you make the physics of
the software business have the right unit economics in terms of all the metrics
I mentioned, then you’re really building a highly profitable business. Early on,
you might be investing in R&D or you may be investing in building a go to market
team, but on a two, three horizon, all the metrics are going to go up and to the
right. So, you’ll have a rule of 50, rule of 60 software business, gross
margins, high 70s, all the retention metrics are fantastic, and most
importantly, sales efficiency really starts to pick up. And that’s when you just
scale for forever, assuming your TAM is there and you’re continuously
differentiating against your competition.

Alex Bridgeman: So it sounds like a unprofitable but growing software business,
it sounds like it’s a matter of discipline around investing and setting a high
enough hurdle rate that a given project is going to pay off in a good time
frame. Am I hearing that correctly? Or is that, am I interpreting and
understanding that correctly?

Mahesh Rajasekharan: Yes, I think when somebody is not profitable, they should
ask a hard question, why? And if it is because, look, all the unit economics are
great, but I’m building this great product, which is going to create so much
ARR, then fine. Then you’re very clear on it. You’ve got product investment
objectives. You’ve got a clear roadmap, and you’re proving it out. As
capabilities come up, you should see clear metrics that you’re signing up more
customers. They’re paying you more average selling price and your win rates
improve and your sales cycle shrink because you’ve got a great product. If those
things are not tracking, you should really ask the question, why are you putting
money into product. Similarly, in go to market, people will- which is much
faster, by the way, because usually most investments in sale and go to market
typically yield results in year one, it may not be in the same quarter, but in
two quarters out, whether you’re building a world class lead generation
organization or a sales organization, you will see the results much faster than
product. Product might have a one year lag, usually. So what I’m saying is you
need to be very, very precise on where that lack of profitability is happening
and it has to be investment and the investment should have leading indicators,
why you’re investing, and you should have the proof points as the investment is
happening and not just tell your board that you’re just building a product and
it’ll come out in two years and it’ll do something magical. No. You’re having
modules being built along the way, you’re selling. The true proof is in getting
customers. The true proof in what you’re doing is in getting customers. That’s
how you build brand. They inform you to make your product evolve correctly. So
staying in this unprofitable realm for too long is a misnomer. A lot of people
think early on, I’m going to just invest for future growth. And if you don’t, if
you’re not very, very smart and very, very focused on it with clear metrics,
investment metrics, profitability becomes elusive. And I’ve seen this movie play
out in many, many, many companies, and my strong advice to a lot of CEOs who are
hearing this podcast is really focus on the unit economics and make sure you
know what is investment, and everything else should be world class. And one area
of investing could be sales, could be marketing, could be product, have clear
investment metrics that you’re meeting along the way.

Alex Bridgeman: You say you’ve seen this movie play out several times where
software companies have this elusive desire to become profitable and mentioned
that, at Cleo, you have best in class teams and track a ton of different KPIs to
make sure you’re on the right track. When you look at a company that hasn’t
achieved those things, is there any root cause or common cause or theme that
you’ve identified for why those companies don’t manage to become profitable
eventually?

Mahesh Rajasekharan: I think the biggest challenge I see with a lot of smaller
companies is they basically don’t have a very clear set of metrics by which-
they need to have a clear north star, what they’re going after, and break it
down in terms of clear metrics that can be tracked at the department level and
the company level. And I think that’s where we see a lot of misalignment, where
product is working on something and the sales doesn’t know how to position it
proactively and get customers, but you don’t have to wait for every single bit
and bytes to be built. You want to get early customers who are going to teach
you. And so those metrics have to be aligned between what kind of positioning
you’re doing to get leads, what you’re doing during a sales cycle to close the
business, and what capabilities are depending on to deliver. And after you
delivered, how do you make sure the customer is successful, they’re going to
stay, and what add-ons you can give them. It could be more transactions. It
could be more use cases, could be an additional add on module. I think, to me,
the challenge you see with a lot of the smaller companies is they don’t have the
discipline of having a clear metrics and accountability structure. And one of
the things we did early on in Cleo was we had this one page plan. In one page,
we really summarized the North Star of the business, where we want to be, then
we had our five year goals, three year goals, one year goal, and quarterly
goals. And we had the name of the executive and initial in the quarterly
objectives. And we clearly had, we tracked how we performed last quarter and
what are the goals for the next quarter. And that just drove tremendous
alignment, including finding out something is not working. So that’s how you get
efficiency. Not only because you’re getting things done. Sometimes there are
some of the things you’re trying to clear that don’t work. And we have the
mechanism to find out very quickly it’s not working, fail fast, and then you do
something else, then you pivot away.

Alex Bridgeman: Do you have an example top of mind for a project that didn’t
work, but tracking certain metrics, you were able to identify that it wasn’t
going to work eventually? Because I could see that if you had a project that
maybe wasn’t working initially, but you could still have hope that it was
eventually going to work, and so you might keep going longer than you might want
to. What’s an example of a project where you can find out faster?

Mahesh Rajasekharan: Yeah. So when we acquired Cleo, we were in the managed file
transfer business. We’re moving lots of files. And we saw the whole file sync
and share business was just growing. We saw the Dropbox, the Box, and there are
a ton of companies. And it looked like it’s so exciting to just share files and
sync them. And we had the core technology. We were moving a massive amount of
files at scale, highly secure, encrypted, and we thought we have the core
technology and when all these startups are doing file sync and share, what are
we going to call a file sync and share company? And it was very compelling. We
were able to take it to the board. It made a lot of sense at that time based on
the information all of us saw, Dr. Gartner, Dr. Forrester. And once we got in,
what we realized was the world was sort of breaking into sort of this low end
business, commercial and consumer, which Dropbox just became fast, started to
become sort of the one stop shop. And then Box.com, which is an enterprise site,
became more of an enterprise content play versus file sharing. And then we
realized, as part of the metrics, as the market is changing, our buyer, our
whole thesis was, our enterprise software buyer who is buying managed file
transfer technology would also do file sharing. And we realized that is not the
case. And so, by tracking the pipeline, by tracking the market, and by tracking
the persona we’re selling to and the messaging for the persona, we realized its
not going to work. And then what we did was whatever we built, we actually took
it into a platform as a capability, which is available, but not something we’re
going to go after as a big market. And instead, we saw the real market for Cleo
was to truly build this ecosystem integration category, which is not just move
the files and move the data, but transform the data, integrate the data, connect
the ERP systems, create this end to end visibility, and really become business
process focused. And so that massively worked. So, this is just an example of
two, three years into Cleo, the file sync and share, the file sharing space
looked so exciting. And we worked, we played. But we played to win, we had
metrics, and we looked at market metrics, sales metrics, and product metrics,
and we made the right pivot.

Alex Bridgeman: Cleo has been through a private equity ownership transition to
this point and may have others in the future. What have you learned about being
a private equity backed CEO versus the early days of Cleo?

Mahesh Rajasekharan: Yeah, and you might have known this, Alex, I was a Vista
CEO at SumTotal Systems doing a lot of the Vista playbooks. And then Alpine was
one of the early backers and now HHG Capital. If I have to look at what are the
key learnings, I’d probably categorize them into sort of three main areas.
Number one, our reporting is far more rigorous and better. We focus on detailed
reporting and financial and operational metrics, your software, your databases,
we track the RRQ, we look at all the KPIs, we look at variances to plan. And so
just the focus of meaningful data and information, which is accurate, gets all
of the stakeholders, my management team, their direct reports, the board fully
aligned. The second thing is more data driven decision making. It’s not just gut
feel. You really could get into making sure that every key decision is supported
by data. And the next level of doing that is not just look at data at the
headline level but now start carefully looking for non-obvious trends, not just
obvious trends. For example, if the pipeline indicators are all showing growth,
let’s say the net new pipeline is growing, the install-based pipeline is
growing, but some of the metric doesn’t show growth, for example, we look at,
okay, what is the current quarter plus next quarter pipeline, compare it over
year or to the previous current quarter next quarter, if that is kind of a
little flattish, we really ask the question, what could be going wrong? And it
could be just a common cost variability, in which case you understood it and you
don’t do anything about it, or there could be some early indicators of weakness
or strength they want to work on. And the third- So that’s sort of the more data
driven decision making, really dig deeper and make it permeate at different
levels in the organization, not just board and the CEO and the management team,
but next levels of the organization. The third thing is all about talent. And
one of the things which is I would say contrary to the typical what people may
think about private equity, private equity firms truly believe in talent as the
only true massive leverage in our business. So, we do not shy away from paying
whatever it takes to land great talent ahead of the growth curve. So, you asked
me a very good question about scaling. It’s not only scaling for the CEO,
scaling for the management team. And when you bring in people who operate in
much larger businesses, now, they’ve seen the patterns. Of course, culture is
important. So, we hire based on culture as well. But culture and expertise and
hiring ahead of the growth curve allows us to truly scale more than anything
else. And then to reward talent and hard work, we have placed much greater focus
on management equity incentive plans, the way we do the annual goal setting, how
we do tracking to quarterly basis. People know that their hard work and success
is going to be richly rewarded, both in terms of bonus plans as well as in terms
of the equity enterprise value creation over time. And so basically, we always
remind ourselves that what got us here won’t take us there. So right now, we’re
imagining a 300 million ARR at Cleo, at least 3X where we are. So we are looking
at the future organization, the future leadership talent, the future
organizational structure, and all the different processes are thought through.
Not everything we would invest today. But we know high level how an org chart is
going to look like, who are the key talent we’re missing, some companies we may
have to acquire, some products we may have to build, some regions to expand. And
that keeps us going. So I would say a lot of the things that PEs have taught us
around great focus on reporting, metrics, data driven decision making, and most
importantly, scaling in talent.

Alex Bridgeman: What are you enjoying most about your role today versus five
years ago?

Mahesh Rajasekharan: I would say now it’s that the scaling fascinates me.
Because we have got people who are CEOs of the business. So we’ve got really,
really strong talent at every level. So now I’m looking at how to go and
absolutely go and disrupt competition. Now we’re truly trying to amp up the
business. We have now reached a point where we have proven the category. We’ve
got nice validation from analysts. We’ve got several hundreds of customers, new
customers we’ve built in the last few years. And so we know we’ve got the
platform. We’re really getting the ecosystem integration network being fully
built. The analytics platform is being built. So now scaling is a lot of fun.
We’re growing, we’re hiring people, and we’re doing larger deals. And one of the
exciting things, Alex, is now that we’ve built this 4,000 plus customer company
and given the nature of ecosystem integration, existing customers are coming
back to buy more. So now we’ve got this real beautiful flywheel kicking in where
existing customers are buying more, new customers want to come in, we’re able to
hire talent, and now we’re looking at interesting businessed to acquire. Again,
part of this organic scaling, but get some inorganic pieces coming in. So it’s a
lot more fun as you start aggregating more talent and people who can do things.
Now, it just frees me up to do bigger things and scale Cleo into a billion
dollar software business in terms of revenue.

Alex Bridgeman: You mentioned M&A a few times. Is M&A something that you looked
at earlier in Cleo’s history? Or did you feel like you needed to build Cleo into
the organization you wanted that was high performing before you could go and
pursue M&A more seriously?

Mahesh Rajasekharan: Yeah, we truly believe in organic growth because if you
want to build a category, not just a marketing buzzword, if you really want to
create a multi billion dollar category, you have to really lay the rails of the
category. Now as part of building the rails, you could have some technology that
can come in versus you building it, but we take a very, very hard look at what
capabilities we want to get in, and one of the lens we apply, Alex, is if
there’s a capability we think we need to have and need to build, and if we find
a company which is actually doing it, that’s almost always a good thing to go
and acquire if we can do it in an efficient manner. But what we don’t like to do
is look at something which is sort of adjacent, looks interesting, it may be
available on the cheap and let’s just buy it. We’ll never do that. So to build a
massive business, you have to focus on the category creation. You need to have
the minds. You need to have the right product management, right engineering,
right product marketing to do that. And along the way, if there are pieces that
can be brought into the platform that somebody else has built that you wish you
had built or you should be building, then you look at acquiring.

Alex Bridgeman: Yeah, you talked early on in our conversation about the power of
focusing on supply chain versus trying to be the integrator for all industries.
And it counterintuitively seems like the focusing on one area of the world
actually allows you to build a bigger company. That feels counterintuitive, but
it’s interesting to dive into more.

Mahesh Rajasekharan: Absolutely. Because if you think about it, companies scale
because you have tremendous focus and because you are now becoming so important
for a certain group of customers who have problems which have been either under
met or under solved. Because most of us are solving things in a market where the
existing status quo is bad. It’s not greenfield where nothing exists, but
existing technologies and solutions do not work, in our case, they do not work
in a world which is digitally transforming in retail supply chain with ecommerce
with marketplaces and direct to consumer, which now requires omnichannel
fulfillment and reverse logistics. Therefore, we have to really focus on which
industry, which sub industry, sometimes which micro segment and which geography
we’re to focus on, and within that, what problem and who is the buyer persona so
that we solve their problem that can be quantified and we have a messaging that
resonates with that buyer persona within the segment. And once you get that
done, now, depending on the TAM, you can do a series of verticals to expand the
TAM. But it’s so important to get a dominant market share. This whole idea, I’m
going to get, oh, this is a 4 billion market and all I need is 1% and I’m going
to create a $4 million business. No, it never works. You have to get 30, 40, 50%
of a small TAM. And then you just get to the next TAM and next TAM and execute a
series of verticals, which is all we do within Cleo.

Alex Bridgeman: In closing, what advice would you offer software CEOs of younger
companies in growing and scaling their businesses?

Mahesh Rajasekharan: My number one advice is always begin with the end in mind
and really approach your work with tremendous focus, a sense of urgency, and
prioritize execution over strategy. Most CEOs, when they take over the job, they
either have some kind of a private placement memorandum or a CIM, a confidential
information memorandum, or a three to five year plan that they worked on with
the board. That’s when they come on board. And a lot of younger CEOs sort of
then immediately jump into the 90 day, 100 day plan, which is important, that
you have a 100 day plan. However, your 3 to 5 year plan is sacrosanct. A lot of
work went into it. So make sure you can execute to that. So do not throw it
away. Break it down into five year goals, three year goals, one year goals,
quarterly goals. So that’s sort of my number one thing. Have a clear North Star.
Approach the job with tremendous sense of focus and urgency. And execution is
key. A lot of people think it’s strategy. When things don’t work, oh, we’ve got
the strategy wrong. The odds are the existing organization, existing people can
do a whole lot more than what a lot of CEOs think, especially newer CEOs. Oh, I
need to make a change. This is not working. I’m going to- Yes, we should
absolutely go and get great talent. We should absolutely redo the organization.
But there is maniacal power if you bring a tremendous sense of focus and
execution, get involved, talk to customers. That’s the other thing I would say,
go talk to your customers. They will tell you, especially if you’re a new CEO.
Pick up the phone, call the Gartner analyst. Go to talk, travel to your
customers. Ask them open ended questions on what you can do better. Not
everything they say you have to do, but you have to really give them the
permission to give you feedback. And then I’ll go back to the sense of urgency.
What did you accomplish in the first hundred days? Measure every day, morning,
afternoon, evening. And by doing that, you’re going to create so much
credibility with your board that they will give you the permission to go do big
things. Always focus on execution.

Alex Bridgeman: I love it. Mahesh, thank you so much for sharing your time on
the podcast. I’ve thoroughly enjoyed our conversation and I’m looking forward to
the next one, but thanks for sharing a little bit of time today.


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