Go-To-Market strategy for ANY company

While browsing through the Stanford course list, the course on “Go-To-Market Strategies and Tactics for Entrepreneurs” caught my eye. What was more impressive than the title of the course was the instructor, John Rizzo. A look at John’s profile and I could visualize the amount of experience he would be bringing into the class. My expectations weren’t wrong. 

The last time I was working on GTM strategies was when I was evangelizing at Riverbed to modify an existing Riverbed product to cater to a new market. The Stanford course reinforced my previous learnings that GTM strategy is not only about the product market fit but it is also about who do we sell the product to (customer) and how do we sell it (channel). 

I am going to talk about the project which my team did for this class. The following can be used as a template to valuate any company or to come up with GTM strategy for the same. Our team’s project was on SolarWinds, an IT management company.

Below I am going to discuss how we eventually arrived at $1B revenue mark and also how we valued the company to be at $10B by 2020.

1. What market does SolarWinds cater to — Market
2. What does SolarWinds do — Product
3. Who do they sell to — Customers
4. How do they sell — Sales / Channel
5. Why did the stock price tank — Stock market
6. Why SolarWinds was sold to ThomaBravo & SilverLake
7. Why SolarWinds might need a change in their GTM.
8. What is an exit strategy for ThomaBravo + SilverLake
9. How we evaluated SolarWinds valuation to be at $10B by 2020

What market does SolarWinds serve to ?

IT admins of network, storage, systems, databases and security.

What is the product?

SolarWinds has a line of products to manage an enterprise’s IT infrastructure — computers, applications, networks and their users.

What is the value proposition? 

Why do they have 250,000 customers?

They have a suite of products with consistent look and feel, and simplified user experience to manage a heterogeneous set of network devices from a variety of vendors, which clicks well with Small and Medium Business Owners.

How large is the market?

Total Addressable Market — Greater than 156B*

TAM as estimated by SolarWinds in 2013 – 73 B**

Good products + great market opportunity, then why did the Stock Price dip ?

By analyzing the income statement of SolarWinds from 2010–2015(till Q3) and approximating 2015-Q4 results we came up with the above stats. Revenue kept increasing YOY at a decent rate. However, the operating income declined in 2013–2014 and this is the most probable reason why the stock price dropped. 

Operating income is the final income after deducting operating expenses, depreciation and amortization. Basically, their operating expenses grew at a higher rate compared to their gross income. Wall Street wasn’t happy with decreasing operating income, naturally stock price dropped.

Then What ?

SolarWinds was acquired by Private Equity firms Thoma Bravo and SilverLake Ventures in Feb 2016 for $4.5 Billion. 

Why a PE acquisition ?

Companies like Riverbed and SolarWinds go private rather than getting acquired by a bigger company for operational flexibility. These companies were definitely cash positive and would like to pivot their business for future growth but not under Wall Street’s quarterly scrutiny over profits. In case of SolarWinds, I believe that they wanted to move towards a cloud model of business with a subscription based billing rather than the one time payment and also bring in changes in their product line to suit cloud business. All this is very difficult to achieve while Wall Street is watching over your quarterly results and not what technology you want to build or how you want to pivot a company.

Alright, what was SolarWinds GTM Strategy before acquisition ?

How is the product sold ?

Free trial, downloadable from website.

No need of external sales team — saves a lot on commission.

What is the process for acquiring new customers?

Engage forums where IT professionals hangout. Word-of-mouth referrals, Analyst reports (Gartner MQ), events, webinars, industry trade-shows and social media.

How is the product priced?

Priced from $295 — $15000. Primarily priced to fit within IT professionals budget authority of around $3000 — $5000. This way there was no approval required from their higher ups like VP of IT or the CIO to buy the product.

How is the product positioned?

For traditional IT professionals, simple and consistent UX across the product portfolio.

What threats did they face ?

1. SMBs were moving towards Cloud/SaaS business. SolarWinds NPM product line was built for the traditional IT.

2. Startups like AppDynamics which were solely concentrating on APM product line became a threat for SolarWinds in the APM space. 

What is the change in GTM strategy needed ?

Sales: SolarWinds doesn’t have an outbound sales team. Building an external sales team would help in sales especially when chasing large enterprise customers.

Since most SMBs are moving their IT to cloud, SolarWinds should change their strategy to concentrate on cloud IT sales. Even though SolarWinds has 250,000 customers most of its customers are in the SMB space. They should concentrate on making more large enterprise sales as well. 

Product: SolarWinds sells it’s product “as-is” without any customization. To expand their market to large enterprises, SolarWinds will have to look at customizing it’s products. 

Marketing: SolarWinds though a known brand among many IT professionals, will still need to work on increasing their brand awareness, especially internationally. 

What about GTM for the owners ?

At the end of the day, SolarWinds is acquired by ThomaBravo and SilverLake. So, let’s also take a look at what ThomaBravo and SilverLake could see as an exit for them.

As shown above, ThomaBravo is known to acquire positive cash flow IT companies. 

Let’s take a look at product portfolio of SolarWinds. SolarWinds has a slew of products in the Application Performance Monitoring (APM) space. Well, in 2014 ThomaBravo had acquired Dynatrace which is an APM company. If Solarwinds APM products are merged with DynaTrace, then the valuation of the merged company would go high.

SolarWinds is known for it’s NPM (Network Performance Monitoring) product line, the only product of SolarWinds listed in Gartner Magic Quadrant. If SolarWinds concentrates only on the NPM product line and cuts off its other products, then it can become leaner and decrease it’s operating expenditure on any non-performing products, thus increasing the valuation again. 

Well then, what’s next ?

Private Equities typically look at 3–4 year exit after acquiring a company. Let’s say that SolarWinds would be aiming for an exit by 2020. By our valuation(which I am going to talk next), SolarWinds would be valued at $10 Billion in 2020. 

The most probable exit at such a high valuation would be an IPO. Or if it gets acquired/merged with other companies, then it would be with highly valued companies like Cisco, Vmware, IBM. However we do feel that an exit as an IPO is more probable than an acquisition. 

How we evaluated SolarWinds valuation to be at $10B by 2020

Till 2015 we have public data wrt quarterly income sheets. For ease of calculation, we are using just Revenue for valuation. 

The revenue in 2015 was $504 Million.

The company got acquired in Feb 2016 for $4.6 Billion

Hence it was valued $4.6 B / $504 = ~ 9 times it’s revenue.

Now, let’s look at the YOY growth wrt revenue. 2014–15 had slowed down to 17%. With the changes in SolarWinds strategy by acquiring Cloud/SaaS companies let’s assume that the transition will take some time and till 2017 the YOY growth will be at 17%. 

For 2018, 2019, 2020 we estimate a nominal increase in YOY growth to 20%, 23%, 25% respectively. Based on the YOY growth rate, we can estimate that by 2020 the revenue of SolarWinds would reach $1.27 Billion. 

Our revenue projection of $1B is close to what SolarWinds analysts estimate as seen here → https://www.channele2e.com/technology/management/solarwinds-targets-nearly-1-billion-in-revenues-by-2020/.

The valuation should go high by 2020 but even if we use a slightly lesser valuation metrics of 8 (9 times in 2015), then the valuation of company in 2020 would be 

$1.27 B * 8 = $10.2 Billion. ~= $10 Billion

Summary

Even though industry(SMBs) is moving towards Cloud/SaaS, traditional IT is not going away entirely for a few more years. By concentrating on their core strengths of NPM and also building their portfolio on APM, SolarWinds should be able to fend off competition. 

We feel that building an external sales team will be critical if SolarWinds wants to target more enterprise customers. In parallel, investing in research and development for customization of their products for the larger enterprises might be the key to more enterprise sales. 

In summary, our research shows that SolarWinds would be a low-to-medium risk company.

The above steps were critical in analyzing the overall company and thinking about it’s GTM as a whole. Please feel free to reach back to me via LinkedIn or comments if you feel that we have missed any other considerations. 

Thanks,

Prasanna

PS: This article is on basis of a project at the end of a GTM course, I am not a financial expert and the above data is accurate to my knowledge and should not be used as a financial advise in future investments. Article contains my opinions only and doesn’t reflect the opinions of the Professor of the course or any organizations that I might be affiliated with.

*Source: https://www.sba.gov/sites/default/files/advocacy/United_States.pdf. 5,768,372 total small businesses that are employers. Assuming the same amount as SolarWinds’s 2013 estimate of a spend of $27K per SMB, total SMB market could be 155,746,044,000. ~156B

**Source: SolarWinds internal estimates from November 2013 along with research commissioned to Compass Intelligence from October 2011 and U.S. Census Data as of 2010.

Originally published on Medium.