55: Create Predictable Revenue with Jim Barnish

20
Jul

Jim Barnish is the Founder and Managing Partner at Orchid Black, a growth services firm that helps tech-forward companies build better game-changing businesses. We talk about finding your ideal client profile, value creation strategies for flatlining companies, and dissect Aaron Ross’ Predictable Revenue.

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Create Predictable Revenue with Jim Barnish

Our guest is Jim Barnish, who’s a 20 year entrepreneur, operator, investor, and M&A expert. He runs today Orchid Black, a growth services firm, helping founders let technology companies grow and exit. Welcome to the show, Jim.

Thanks, Steve. Happy to be here.

Great to have you. So Jim, tell me a little bit about how you cut your teeth in entrepreneurship and then also, you know, where this journey led you, because you’re a very early starter, as I understand. So tell us a little bit about that, and then I’m going to have a follow-up question about what you’re doing now and how you kind of transitioned over to your current stage.

Sure. So I may be the only person your audience will ever meet that appears on both the 40 under 40 list and has also been growing and exiting businesses for more than half of their life. But ultimately I got my start in my family business that was doing well, but was your typical family run business really focused on trusting family and only bringing in family to help run and drive the business. And so at the ripe young age of 15, I was put in charge of finding our target acquisitions.

And then ultimately later on in charge of both acquiring and integrating these businesses into our existing business. And, you know, thinking about what most people are doing at 15, probably the other stuff I was doing, going to school full time. But ultimately was entrusted with a pretty major operation with very little to rely on other than my gut and a learner’s permit.

Okay, so that was your family business, and this is where you got started, and are you still involved with it now, or are you focusing completely on Orchid Black, which is your current business? What are you doing right now?

I’m no longer involved with that business today. It’s doing well through the years. While I was there, it grew to over 600 million, and now today, it is over a billion in our enterprise value. So a nice family business that’s now worth, you know, quite, quite a bit and a lot of great, great success stories there.

What it really did was instill a fire inside of me to help founders and CEOs, similar to what my family was going through, that are founder led companies, wondering if their company could be worth much more and what to do to drive growth within that existing business, whether that’s organic or inorganic. And so ever since the family business, that’s what I’ve been doing is building and growing businesses focused on tech founders, CEOs that have typically hit some sort of growth stage revenue obstacle, you know, 5 million, 10 million, 25 million, and are ultimately looking to maximize the value of their business and leave a legacy for their family. Just, just like, uh, the family story I told.

And so what’s really great about that is I’ve been fortunate enough to have worked with a number of other serial entrepreneurs, C-level operators, and investors who’ve seen and done it all and had a bunch of exits behind them as well. And that’s what Orchid Black has really become is helping to turn good, but somewhat stagnant companies, tech companies into great high growth companies with a hand-selected team that can really drop in and provide guidance and operational support, whether that be around M&A like myself, or more allowing customer success, sales, marketing, partnerships, really anything that when combined with our playbook as an organization, we’re able to help founders navigate all of the growth stage obstacles that could possibly be presented to them, because we’ve been there ourselves.

So how did you get Orchid Black started? What was, you know, how did it come about? Was it an M&A firm? Was it a consulting firm to begin with and evolved into this hybrid model or it was something totally different?

Yeah, it’s a good question. Well, you know, my co-founder and I, Stephen Horowitz, had been doing the same thing that we do at Orchid Black for about five years prior to that, which is growing technology companies. But we realized the most that we could take on between the two of us at any given time was two, maybe three, in order to provide them the level of support that they needed. And so what we did is we took six months off, put together the methodology that we had been garnering and, and implementing, but more of a consistent, repeatable framework that we could teach to others and brought that out to a group of operators, the ones that I just mentioned before, are operating partners at Orchid Black, and brought them into the fold, and ultimately, we’re able to scale that business into about a 30-person partnership as it stands today.

Okay. That’s really interesting. Basically, you have a group of experts that you can pull in, and they help you fix up these technology, businesses improve them, and bring in the expertise that they don’t have inside the business and put them on a faster growth trajectory and improve profitability?

Yeah, that’s exactly it. It depends on the nature of the business as to what the core problems that we’re solving for are initially, but ultimately one good example is we were brought a company about a couple of years ago, founder who had bootstrapped for 15 years, good business, good customers, but just was flatlining. He wanted to exit and spend his next chapter enjoying and investing in other startups.

But the company’s current valuation just wasn’t quite where he was expecting it to be and what he was accepting as an exit. And so he tried his usual ideas to generate new customers, but ultimately revenue cashflow was only getting worse. And so he called us in at Orchid Black to help. What we did is we implemented our programmatic approach towards growth and focused on presenting him with a roadmap on how to increase the value of his business over the next 12 months.

He was really pleased with the road mapping work that we did, that we actually brought our team in. He asked our team to come in and operate the plan alongside of him. And together we increased the value of that company from 23 million to 36 million in enterprise value in a matter of actually only seven months ultimately getting acquired by a strategic partner. That’s kind of the everyone wins big philosophy and that’s kind of an example of the way that we work with our partners and our partner clients.

So that’s really interesting. So you basically seven months you managed to grow the enterprise value by about 50%. So what are the typical low hanging fruits that you can do? So someone is running this tech company, it’s flatlining, it’s stopped growing, they are burning themselves out, they ran out of ideas. What are the typical things that you can, the levers that you can pull when you come in and what is your process?

Yeah, we have hundreds of levers that we can ultimately pull but it all starts with our proprietary IP that we’ve built to diagnose what problems to fix first that are going to drive the most value creation in the near term and long term. And so if you kind of imagine doing that for not only founders, but for yourselves, you’ll, you’ll see that there is a objective lens that you can view a company’s potential by right. And view a 360 perspective of the business.

If you will, the challenge was how to create something comprehensive, but also simple because there are hundreds of plays ultimately that we focus on. And so our focus and our answer became the value creation assessment or VCA, which is a system that looks at a company from every angle, the strategy, the people, the revenue, product operations, and hundreds of data points within each of these areas of the business.

The VCA is our system that examines a company from every angle—strategy, people, revenue, product operations, with hundreds of data points within each area. Click To Tweet

And so when we looked at all these areas and all these disciplines that we could potentially affect, we’re able to see the exact amount of opportunity within each of these areas as we dial in and compare those to benchmarks that typical companies will be at when we’re analyzing, you know, at more of a benchmarking and scale perspective. And so what we do is we now leverage that VCA as a plug and play at every tech company that’s seeking growth and exit that we come across.

And it helps us to not only diagnose these companies and present a value creation roadmap that shows them the best optimal path ahead, but also designs a level of impact that our team is going to be able to have on that company coming out of that plan if we are implementing the plan alongside of those founders. So it’s really customized to who we are, what our team does, but also the hundreds of variables that would ultimately be our blueprints to putting things in action at clients.

So, can you give me a couple of examples of the kind of situations that a tech company specifically get themselves into? I understand generally they flatline, you know, they cannot grow and they need a roadmap, but give me some examples. What kind of levers are you pulling? What kind of changes are you making in order to get these companies growing again?

So typically, it starts on the strategy side, having a plan that’s aligned around the team and that is hired for, from a talent perspective, that everyone has roles and responsibilities that connect directly back to that plan. And that there’s not any missing from that plan. So, you know, initially that’s one big low hanging fruit that usually exists is having a plan in place and talent aligned along the plan.

When we go beneath that into more of, you know, typical obstacles or problems that are, that are stumped in growth, customer concentration is oftentimes the big one and the customer success versus account management philosophy. That somebody that an organization is looking at, whether that’s more proactive as in a customer success philosophy or reactive as in account management. Sometimes both are needed, but with tech companies, typically customer success should be the core focus of where we’re looking in the way that we’re interacting with customers.

Beyond that, lots of product roadmapping, product strategy, and forward-looking and market-driven pricing and product strategies. Typically, especially with the companies we work with, you know, it’s brilliant technology, subject matter expert CEOs who have built some wonderful products. It’s typically not always market driven in the way that they’ve built in the past. And so what we help them to do is develop a methodology for being more of a continuous product optimization company. And, you know, general operations within the company are typically very startup-esque when we’re getting involved, which is okay.

But as a company that matures and looks towards exit, there’s a number of fundamental operational process improvements and general standard operating procedures that we need to get in place to make sure that valuation is not discounted at all once we get towards a transaction or an exit. So these are fundamental principles of what our methodology and our blueprints, if you will, focus on.

So that’s very interesting. So what I’m hearing is that you focus on having a strategy and a plan. You wanna make sure everyone, the talent is aligned with the plan. So they have the right tools and responsibilities defined. So they know what they need to do, how they contribute to that plan. You make sure that you don’t have customer concentration or vendor concentration issues that can diminish value.

You talked about roadmapping the product to make sure that the product, the price is optimized and the product is market driven. So I can imagine that maybe some founders have fallen in love with a product that is a sacred cow and it’s not anymore going to generate the right kind of growth that they need. And then you also have to make sure that the company is process run on processes, especially as it scales. So it becomes scalable, process driven, operationalized. These are the main things I heard. Anything I missed?

I think the only thing is doing the right things at the right time is the final element of that. When a business has established product market fit, which is typically once we start to get involved, there are different things that need to be focused on versus prior. And so innovation needs to be looked at differently. Predictable revenue needs to be looked at differently. And ultimately, the way that we scale through indirect versus direct channels needs to be looked at a little bit differently. And that’s so those are kind of core things as well that are really foundational in the way that we view building companies.

So, you mentioned predictable revenues. Is it about focusing on recurring revenue? Is this what you call predictable revenue or there’s something else?

So revenue can really come in three in three major ways, right? You get your organic, your what I would call seeds, right, which are things that are planted and ultimately little by little, they amount to great growth, whether that’s referrals from customers, referrals from happy partners, or ultimately, some of the general organic activity that your brand has built up over the years. Those are not predictable, right? They can be the most impactful and quickest to close because they’re very warm handoffs, if you will, but ultimately not much predictability.

Then in the middle, you’ve got a lot of your more programmatic marketing programs, right? Traditional marketing campaigns, paid media, things along those lines that have some predictability, but are a bit wider, which is why we call them nets, in their approach towards getting you through your funnel, right? And then the final one is really the easiest to create, but the one that most companies struggle with the most, which is creating a spear engine.

Some might call it like a sales development program, a business development program, but ultimately some methodical way towards being able to say, when I put a dollar in here to my sales engine, here’s what comes out the other end. And that is done by leveraging a new philosophy around what sales is and how to sell. Old school code calling techniques and programs such as those have their place, but cannot be what you consider your spearing engine or your predictable revenue engine.

You must build a methodical approach towards how that sales development representative or business development representative is able to bring a hot lead or a hot prospect, qualified lead, if you will, to a account executive or more traditional salesperson so that your salespeople are not spending all of their time prospecting. In fact, they should be spending less than 20% of their time prospecting. And so by creating this sphere approach or predictable revenue, as I called it, that’s what really starts to see those gains.

So, is there a process for doing that? There’s a book actually called Predictable Revenue. Is this the process that you are using?

Yeah, it’s damn near the same. It’s very, very close. Yes. Aaron Ross is a predictable revenue genius who’s the writer of that book. And we leverage 95% of what Aaron has dictated in that book as part of our program.

Okay, so let’s talk a little bit about that. How do you do this? What is the process? Can you describe how people, I think the listeners will be very interested to learn about how to spot these opportunities, create these opportunities, and then move them forward and kind of get something that becomes close toa sales engine.

So it starts with truly understanding who your ideal customer profile is or your ICP. And that’s important because you really don’t know that until you’ve validated product market fit. So this is a post product market fit exercise where if you understand your ideal customer profile, their buying tendencies, you know, what trigger events they have, what gets them excited and up in the morning, and ultimately where the value is between your product and their problems, you’re able to get started on the predictable revenue formula.

The foundation of predictable revenue lies in understanding your ideal customer profile post-product market fit. Click To Tweet

And so once you have this ICP, you find your target accounts that are perfect fit around that ICP. You build your list to make sure that you have a targeted list and very niche in terms of what people are going at, what your team is going after and why. And then ultimately, once you have that list, you begin to build a, what we call SDR, sales development representative program for outreach. These are highly motivated, less experienced than sales people, but highly motivated, highly detail oriented folks who are really experts in mapping accounts and, and, and the stakeholders that are within those target list of accounts for you.

Once you’re able to build that program, you know, fully well, every dollar that goes into your SDR program equals this many qualified leads. And so where those SDRs become experts, the sales development representatives become experts is, and then handing that off to an account executive, a true salesperson, traditional salesperson, who works that from qualified opportunity through to close. And that handoff is incredibly important, not only between that sales development representative and the account representative, but any marketing programs that tie into that as well. And that’s really where the predictable revenue formula starts to accelerate and be truly predictive revenue.

So does it mean that you have the people who are kind of researching, teeing up the opportunity, who are more of an analytical type people, and then you have the closers who are more seasoned salespeople who can get the deal signed kind of thing, or is it more about these are more nurturer type people, the relationship driven rather than analytics, and then it’s the, I don’t know, it’s more the personal interaction experts take over. Help me understand a little bit better.

Yeah, it depends on the size of the organization, how many different tiers you need to have. But as you start to think about building it, it’s essentially three types of roles. One is anything inbound from market development activity. Some might call this a market response rep. The second is outbound, which is the position I was referring to before, the sales development representative, or SDR.

That SDR is very detailed in their approach, is experts in your Salesforce automation system and any building blocks that it takes to get things to a qualified opportunity. And that account executive is an expert in taking qualified opportunities and bringing that through to close. Everything’s about relationships these days versus transactions. So I think all three roles have a relationship element to them, but the later stage that you go is kind of the career development path and ultimately the less accounts that that person is responsible for as well.

And, so, if someone wants to follow this approach, is there like a critical size that the organization has to have in order for you to be able to break up these roles into three different buckets and have at least three people, or potentially much more than three work on it?

I mean it depends the emphasis on this program. So once you understand how much expense you have to put into your general sales and marketing expense, this predictable revenue formula should be significantly, a significantly high portion of that, at least 50%. So the SDR is going to be the first person that you are ultimately going to be fitting up with in the organization to help supplement salespeople. As the business gets more inbound leads, that third position and most junior position, the market response rep is going to be the person that you bring on to help field more of the inbound activity. It’s a very different response for inbound versus outbound.

And then maybe initially the CEO can be that closer?

Yes, absolutely initially.

And then the last step is to delegate that responsibility to someone which probably the company may have to be bigger to be able to afford. That’s probably a more expensive role, right? Having someone who are able to close business.

Ultimately, the core thing is, do you have you established product market fit? And do you understand who your ideal client profile or your niches? And if you have those questions answered, provided you can afford, you know, at least $100,000 all in to put towards sales, you can build a program like this. It’s just depending on the size of the program that you start with.

So 100K a year or 100K kind of initial investment?

100K a year in terms of investment is your starting point.

It doesn’t sound too much.

No, it’s not. And typically the companies that are ready for this have a couple million in annual revenue already. So it’s typically something that they’re able to do.

Yeah. That’s fascinating. So when you talk about product market fit, what is it exactly? So is it about defining niche? Is it about the target market or is it about testing the product?

Yeah.

Tell me a little bit about that.

So the short answer is that you’ve got your customers pulling you in versus you pulling them in. I mean, that’s the short answer. Now, what does that actually mean? What it actually means is that your customers are acting as advocates for you because they believe in what you’re providing them so much that they cannot help themselves but bring in other folks in their network that are a great fit for you and ultimately be your raving customers. Right? So that’s one big element of it.

The second is there is a very clear value and defined value and propensity to buy value connecting your solution to the problem in the market to a specific stakeholder or set of stakeholders within a specific type of company. And once that is realized, again, you will know there will be people coming to you versus you having to sell, if you will, or oversell to your target market. But ultimately it means that you’ve got a number of customers in a specific industry, in a specific set of problems, if you will, that were very clearly designed or your solution was very clearly designed around and that equals product market fit.

But I mean, I assume you’re not passively waiting for this to happen, right?

Oh, no, you’re constantly experimenting, you’re constantly iterating to try to figure out, you know, where the solution is the perfect fit. So in your early days, it’s all about validation and experimentation. Not that you don’t experiment as you grow as well, but all of it is about experimentation for where your perfect product market fit is. And again, you only know that you will know it as soon as it happens.

So is this what startup in startup parlance, sometimes it’s called the finding the MVP, the minimum viable product that will meet the market where, you know, market demand and then grow from there. Is this finding the MVP or is it similar or different?

A little bit different. I mean, the creation of your MVP is the minimum viable product to get you to the point where you can start testing in a more meaningful way with your customers. True product market fit is actual realization that there is a market starving for what you’re providing to them and a repeatable set of customers that you’ve garnered and acquired over the years that are sticky, that are viral, and that are ultimately a core target persona for yourself as you’re looking to build your business.

So for us at Orchid Black, it took us about two years to identify our perfect product market fit. We found that companies between 5 million and 50 million in annual revenue were our core target. We found that companies that were SaaS companies or software enterprise software companies were our perfect target. And we found that companies that had not yet raised institutional capital, but that were very focused on growth, even if they might not be hitting the milestones that they had originally set out to do are our perfect target.

And so, you know, it’s founder led companies for us between 5 million and 50 million, um, oftentimes in the black, hence the name, meaning they’re profitable, and that are experiencing a common set of growth challenges, whether that be that the founder is stuck in the day-to-day, that they’re not hitting their initial plans that they set out to, or perhaps even that they really just don’t know how to exit and are looking for a firm to help them. And that’s really our ICP or our ideal client profile, our product market fit.

True product-market fit is not just finding the minimum viable product; it's the realization that there's a market hungry for what you offer. Click To Tweet

That’s great. And how did you find it? Did you stumble upon it or you had kind of a cautious process to find it? Yeah, so for us, it’s the same as it is for our clients.

A lot of experimentation, a lot of failed experiments along the way, but a data driven process to make sure that we would figure out if it was a failure or a success by setting milestones in place for when we were gonna measure against the tests or experiments that we were doing and hypotheses that we had out there. So, we started off thinking that our perfect target market was going to be companies that were pre-revenue in some cases, all the way through about 50 million in annual revenue.

We’ve dialed that into a bit more of a later stage focus. We no longer serve most companies below 5 million in revenue. We have a few exceptions here or there. We thought that venture capital and private equity backed companies would be our target. We soon realized that while we could help those companies, our model wasn’t quite as meaningful for those companies because VC and PE firms are typically looking for the A or A plus companies to invest in. And once they’ve invested, most of those companies are often doing quite well.

We’re looking for the companies that are just below that, that might not be ready for investment, that might not be ready for VC or PE, but have a ton of moldable raw material on the team and have growth on the horizon, but ultimately aren’t hitting the milestones that they set out to. So a little bit different of a target in a number of ways from where we initially started.

Fascinating. Well, that’s really interesting the way you described it. I love the idea of the product market fit, how you iterate, how you get to that from your MVP. And then I love this idea of the predictable revenue that’s kind of a management, one of the management blueprints that you use to break up the sales process, the 100K a year, if you can invest in that, then you create that SDR, your sales development representative, and then you start to work on your inbound, the CEO is closing, and then you get to a point where you can hire a high-powered salesperson, then you basically remove the CEO from that role. That’s fascinating.

It sounds like you have a great program out there for companies between five and 50 million, technology companies, SaaS companies that are unhappy with their progress basically and want to accelerate, want an exit at some point. So if people would like to reach out and learn more and connect with you, where should they go?

So the best place to go, just email me at jb@orchid.black. I have office hours every Friday. So give me an, shoot me an email if you have just a personal connection and see if there’s a way that either we can help you or that we might be able to refer you to someone who can help you. Also, we’re constantly producing wonderful thought leadership content.

We have a newsletter called the dirt that really highlights the companies that we’re working with and also the market insights, if you will, that are going on that are really important towards founders and folks that are within the ecosystem we live in. And so feel free to sign up on the website or I can sign you up if you reach out to me. Either way, we’re constantly producing great content, which is at orchid.black.com. And really, thanks for having me, Steve. It’s been a pleasure.

No, it’s great to have you. So please check. I encourage you to check out to Barnes on LinkedIn is going to leave the landing page or kid dark black is the website, and lots of great content coming already through this podcast so you can imagine that it’s probably a this week and if you enjoyed the show, please rate and review us on Apple Podcast and subscribe to us on YouTube and stay tuned because next week I’ll have a great entrepreneur again for you to learn from. Thank you. And thanks, Jim for coming.

Thank you, Steve. Thank you all.

 

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