Excellence in Action

Leaning Forward with Scott Dorsey

When you’re on the steep part of the s-curve and customers are still buying, how do you accelerate through the uncertainty of 2022 and beyond? A conversation with Scott Dorsey, co-founder of ExactTarget and current co-founder and managing partner at High Alpha, on when to forward-invest in growth, even in a recession.

Welcome back to our deep-dive series on building fundamentally strong companies. In our last session, we talked with Nick Mehta of Gainsight about when a growth company needs to slow down to create both time and profits to fund the next s-curve of growth. 

In this session, we’re going to talk about the opposite—when to forward-invest in growth, even in a recession. When you’re on the steep part of the s-curve and customers are still buying, how do you accelerate through the uncertainty of 2022 and beyond?

Our guest is the perfect person to talk through that exact scenario. Scott Dorsey is the co-founder of ExactTarget and current co-founder and managing partner at High Alpha.  Scott grew ExactTarget to ~$50M ARR and profitability, with less than $6M in primary capital. Then, in 2009, in the heart of the global financial crisis, ExactTarget engaged in an aggressive investment and scaling effort. They took margins negative and raised $200M+ in funding to reach $400M in ARR and category leadership.

ExactTarget was my first lead investment at my previous firm, and I was fortunate to sit on Scott’s board as we accelerated aggressively through the 2009 global financial crisis. We ultimately took ExactTarget public—the biggest SaaS IPO then—and later sold it to Salesforce.com in the largest acquisition they had made up to that point. Over that period, we scaled to close to half a billion in ARR, and we’ve heard that ExactTarget is still growing strong, reaching $2B+ ARR inside of Salesforce. 

As I look back, I'm not sure if I realized at the time quite how remarkable what we did with ExactTarget was—both the decision to forward-invest in growth while the sky was falling and the precise execution of the team. Two and a half recessions later, the story stands out to me even more.

We hope you enjoy this conversation with Scott as much as I did. 


Dave: Welcome to our deep dive on building companies with strong fundamentals. That’s all in vogue now, but it’s always been a focus of Tidemark and the companies that we work with.

In our last session, we talked to Nick Mehta, CEO of Gainsight. When you start hitting a wall as a growth company and things aren’t working, you have to pause, slow down, and create enough time and profit to reinvest and build that next s-curve of growth.


But what happens if you’re actually in your s-curve and the market changes? And, god forbid, the stock market drops 60% or 70%? It’s a pretty relevant discussion for today. What happens? Can you still lean forward? What we want to do today is walk through a case study with Scott Dorsey, co-founder of ExactTarget. That scenario I just described is exactly what Scott did in 2008 and 2009, when the sky was falling. 

ExactTarget was my first lead deal at my prior firm where we were the largest investor. Scott was nice enough to invite me on his board and take a chance with me—I’m forever grateful. I was on the board when we were private, and saw it through to the IPO and growth of the business, up to the time when ultimately Scott and the team sold it to Salesforce. When Salesforce bought ExactTarget, it also set a standard—it was the largest acquisition that they had ever done. And my understanding is, within Salesforce, it’s doing billions in ARR. It’s an incredible business that Scott built, and we wanted to talk to him about this formative time. 

Scott, you built ExactTarget from its very early days. In the beginning—call it Phase One— from zero to roughly 50 million ARR, you only raised $6M in primary capital. Then, in Phase Two, you ultimately raised hundreds of millions to grow it to $400M ARR. Tell us about the ExactTarget story in Phase One, the founding. 

Scott: Thanks, Dave. It’s wonderful to be reconnected. It’s still an honor for me, by the way, to have the first deal you’ve ever led in the venture industry be ExactTarget. That one worked out really well for both of us! You were an incredible partner and investor, and I’m grateful for the friendship we’ve had over the years.

Let’s turn back the clock here a little bit. We started ExactTarget, I’d say, two financial crises ago—in late 2000, early 2001—as three first-time software entrepreneurs. We had a vision of bringing marketing online, leveraging the principles of database marketing and personalization, and doing so through digital marketing. 

Fortunately, we kind of latched on to a really big idea, but it certainly was a challenging time to start a software company—very akin to where we are today. We were very, very scrappy. To your point, Dave, we were super frugal and capital efficient, to such an extent that the three of us who started ExactTarget worked without a salary for the first year. We raised money from friends and family.

However, one of the opportunities that economic downturns present is that pressure to be really creative, and really resourceful. That was us to a T. I’ll give you a quick example: many of our friends had worked for dot-coms and got laid off. They were out of work, but we were very small and not in a financial position to hire them. So we created an independent sales agent program—we gave them equity in ExactTarget and a 25% commission on anything they would prospect, sell, or implement, but we couldn’t pay them any base salary! [Laughs] It was a promise that, if we turned into a real company, we’d hire them. And it worked out brilliantly. By the time we became a funded company, we had a sales team of 15 or 20 reps, trained, enabled, and ready to go.

But to your point, in Phase One, we scaled all the way up to about $70-72M in GAAP revenue on only $6M of primary capital, and we still had $4 or 5M on the balance sheet. [Laughs] That was an unprecedented level of frugality and capital efficiency that I haven’t been a part of since.

Dave: All right, so you were super frugal and crafty in the first tech recession. Then you go through the global financial crisis in 2008, 2009. Knives are falling again. [Laughs] You’re a profitable business. I remember the numbers—$72M on the nose. You’ve historically been super frugal and crafty, and then you decide to do something different. Explain that, Scott.

Scott: I’ll take even a half-step back. We actually filed to go public in December of ’07. That was a time when smaller SaaS companies were being very well received in the public market, so we filed to go public. Our gap revenue that year was $48M, and then the next year $72M, so we were growing at 50%. We were cash-flow positive and profitable. Then, all of a sudden, the financial crisis hit in ’08. And it was miserable. It was really, really difficult.

Then, early ’09 presented an opportunity to bring in outside investment. That became a time when, all of a sudden, we could think about scale. We had fresh capital, and we were moving upmarket. We had started out-selling to small and medium-size businesses, and then over time discovered that we had a technology platform that could cater to large e-commerce,  financial services, and retail organizations. It became a really opportune time to hit the gas when everybody was pulling back.

Dave: To put it in context, we’re not talking about just inching forward. You went from—I think it was $15M in EBITDA, to something very negative at scale. [Laughs] All with incredible thought and precision and execution, but it was a big bet. Walk me through the thought process. Where did the initial idea around doubling—or tripling—down come from? How did you get conviction? 

Scott: I think it took a lot of courage from our leadership team and our board, and investors like you, to say, let’s zig when everybody else is zagging—to really lean in on aggressive growth at a time when it felt like the economy was falling apart around us.

I would say it started with the belief that we were starting to emerge as a category leader. We were winning larger deals in the market, our clients were very happy and successful, renewal rates were high, and those accounts were growing and expanding. This was before NRR became the North Star that it is today, but essentially we had a very high NRR. Our customers were not only renewing, but they were growing with us. Then we started to get smarter and smarter on the unit economics of our sales team. How do we hire effectively and ramp productivity? How does productivity grow with sales rep tenure?

We started to really have a vision for how we could grow even faster if we invested more in R&D, innovation, expanding internationally, thinking about M&A. But it all came back to a good understanding of our unit economics, having a feeling that we were starting to win in the market, and having an incredibly strong culture with a team that was locked in and aligned around working hard, working for one another, and building something special.

Then, as we got into financial modeling—Dave, you might remember this—instead of planning one year at a time, we started looking out over a three- and five-year horizon. We started mapping what our growth rate would look like if we grew our sales team by 10% or 20% each year. That was the natural place to start. Then we started asking ourselves, what if we doubled the sales team over the next year? Over the next two years? We got smarter about our unit economics and how long it takes to ramp a rep, and how their productivity really kicks in, in a meaningful way, at month 12, 18, and 24.

Also, our competitors were doing the opposite. Sequoia sent out their famous PowerPoint deck of “rest in peace good times,” and venture-backed companies were being instructed, if not mandated, to reduce head count and slow hiring. We ended up doing the opposite. We felt that, if we executed, we could create a lot of separation between us and our competitive set, and thankfully that’s what happened.

Dave: One hundred percent. I remember when we first proposed the deal internally. I was out there pitching my IC, and your two biggest competitors—I think it was Omniture and Constant Contact at the time—were down 20%, 15% to 20%. [Laughs] It was pretty gnarly. 

Let’s unpack this. The macro was bad, but ExactTarget was good—growing fast, customers renewing, and so on. I think this is really important in 2022, as there will eventually be a dispersion. How did you know in your gut that ExactTarget micro would not only be different, but exceed the overall macro?

Scott: I think it starts with understanding your value proposition and how you’re impacting the business of your customers. I always used to describe ExactTarget as having bidirectional ROI: We could help our clients increase revenue, but we could also lower their cost via their marketing expenses because digital was so efficient.

I think it’s important to shift the narrative when you head into a time like we’re experiencing now, with real economic headwinds. In today’s environment, saving on the expense side is probably more important than growing top line. SaaS platforms have to be sharp enough to know their value prop and ROI, but make sure it’s tuned in to the economic environment in which they’re operating. Two years ago, it was all about growth. Now the platforms that are about efficiency and saving an organization’s money are having their moment. With ExactTarget, we felt like we could shift the ROI message and still be able to deliver a lot of value. That was imperative.

I’d say the second component is knowing how deeply woven you are into your customers’ business. Are you really integrated into their business processes and other systems that are part of their day-to-day, week-to-week work? Are you hard to take out? If you’re not, you become really expendable. Knowing we were woven in gave us confidence that we had staying power, and we could build these long-term relationships with our clients.

Dave: Scott, as the CEO, you’re in some ways removed from the customer and the day-to-day operations, and ExactTarget wasn’t a small company at that point. Were there certain tactics that you used to make sure you really understood the customer perspective on this new narrative? Because it’s a big bet—if you get it wrong, and your value prop isn’t aligned to efficiency as much as you’d like it to be, then you have a very different result.

Scott: I think you have to look for signals in all directions. It’s customer advisory board meetings, it’s one-on-one meetings with customers, it’s really understanding your renewal data and how your accounts are growing. Then, I really push the product and engineering teams to make sure we’re building more integration capability and that we’re really thinking about the work process of our customers so we become an embedded component. That was really, really important. If we lose an account, it’s important to understand why. We’d really dig deep into losses, both on the new and existing customer front. There are always amazing insights we can learn from there.

Dave: One thing you mentioned is a culture and an organization that are aligned to predictable execution. You had that in spades. We knew each other three years before I invested, and I think you hit every single forward projection. [Laughs] You hit them all.

That’s table stakes. But then, execution in a changing environment is also quite challenging, because things that worked in the past may not work in a different environment. So how did you calibrate your predictability of execution in this rapidly changing environment?

Scott: We ran ExactTarget for 13 years—52 quarters—and we only missed a couple along the way. I think we were very good at forecasting, and maniacal about hitting our numbers. 

We worked hard at ExactTarget to build a culture that was kind and genuine—we really tried to hire nice people, and our number one core value was treat people well. But that could get mistaken for not being hypercompetitive, or very driven and ambitious, so we worked to bring those things together in a special way. I never wanted to disappoint our board, our investors, or our employees. Any goal we set, we’d work day and night to make sure that we achieved it whether we were in good economic times or bad.

We also had a no-excuses mantra. We weren’t going to let the dot-com bubble, 9/11, the financial crisis, any outside factors, serve as an excuse for lack of performance or lack of execution. We really tried to carry that with us as well.

Dave: That’s a great segue, Scott. How do you get this board of investors—who can be, in some ways, risk averse—on board with this?

Scott: [Laughs] That’s a good question. I should ask you, Dave, your perspective also. I think it started with trust. It’s really important that you build one-on-one friendships and relationships, built on a foundation of trust and transparency, with your investors and your board. We had a super talented board that was very diverse—they came from all walks of life, and everybody played a different role. I really tried to build a board where everybody brought their own unique contributions that were different but complementary.

I think it’s about one-to-one trusting relationships. I think it’s about getting the team to gel as a group. And ultimately, I think the board looks to the CEO to see if they’ve got the data, the confidence, and the conviction to make a move.

Dave: I think you nailed it. I mean, trust is an asset that, every day, accrues or gets depleted, and it’s built by transparency and accountability, right? Your point earlier about the no-excuses policy, you build that over multiple years. A rational set of investors will value that very highly.

You built the trust, Scott—and it’s uncomfortable to stare a recession in the face and take the margin so negative against very strong unit economics, but that’s where real trust, accountability, and transparency around the board table pays off in spades. So, hats off to you. I think today, in 2022, the CEOs and boards that have invested in that type of communication and trust are in a great position to take some big swings. And those that didn’t, won't. They can't. They shouldn’t. 

Let’s get maybe one level deeper and talk about the bets that you made. Break it down into the handful of big bets that you wanted to take.

Scott: Sure. I think they fell into a few categories. The first would be, I’d say, R&D. Continue to lean in on innovation. We ended up spending about 20% of revenue on R&D consistently, and really never tapered it. Our CTO, Scott McCorkle, always was very ambitious around adding more developers and product leaders, and there was just a lot more functionality to be built. I think we had a great eye toward product roadmap and adding new capabilities, and a real willingness to continue to invest in product and development.

The second, which I touched on, was just building a lot of sales capacity. I thought we knew a lot about building sales capacity at ExactTarget—that was really one of our differentiators that created separation in the market! Then we got acquired by Salesforce, and I learned even more about creating sales capacity and distribution. As the marketing cloud within Salesforce has now become a multi-billion-dollar product line, they’ve continued to build much more sales capacity than we had back in the day. There’s always a high correlation there.

Then I’d say third is global expansion. At that time, we were very US- and North American-centric. Then we started opening up offices around the world. We acquired several resellers that we had in markets like the UK, Australia, and Brazil, and that gave us a global footprint that we could really build from. Fortunately we also had amazing clients, like Nike and Expedia and Microsoft, that were pushing us to build more of a global footprint. We weren’t doing it in a vacuum; we were expanding arm in arm with customers who had global needs. That was probably a third area, I’d say, where we leaned in pretty aggressively on investment.

Dave: Yeah. Referencing back to the crafty and clever point, I loved how you went international. You got some exclusive partners that learned and sold your product, and you knew the people. Did you have a right to buy them back, or what? Did you structure that as a one-off deal?

Scott: We really didn’t, Dave. We went in with the best of intentions—if the partnership flourished, and we found product market fit in these new markets, there was a likelihood that we would work to acquire the reseller. But we had no prior commitment, no pre-negotiated price. You’re right—it turned out terrific for the entrepreneurs, and it was a very capital-efficient way for ExactTarget to build that global footprint while reducing cost and risk in those early days.

Dave: Let’s shift to the less obvious but also important bet, sales capacity. I think we have a lot of machinery now that means most growth investors can understand cohorts, onboarding, and payback. Was there anything specific that you think you got really right with that? It drove so much of the success of the business.

Scott: Good question, Dave. I think we invested heavily in sales enablement. Onboarding and training were really, really important. We started to add resources like solution consulting, and other roles that helped give our sales team more leverage, and we always celebrated their successes. And I’d say we had great rep longevity, which is really interesting. I’m working with many early-stage companies right now that are experiencing a lot of turnover in their sales organization, and I’m reminded that tenure is a huge predictor of sales productivity. The longer you’re with the organization, the more customer relationships, stories, and confidence you have. You know how to reach back into the organization internally and get things done. 

Those cross-functional relationships are so imperative that there’s just a high correlation between tenure and productivity. You’ve got to work hard on the cultural side to make sure that members of your sales team are succeeding and feeling supported and are hitting their earnings targets. I think ExactTarget did a good job in that regard.

Dave: Absolutely. Let’s now talk about product. It’s incredibly important to invest in a downturn, while your competitors aren’t, because you leave the bad times with a much stronger product and value prop. But in a world of scarce resources, how do you think about resourcing that? How do you think about the return on investment, and managing it internally and externally?

Scott: It was kind of hand-in-hand with stretching up into the enterprise. Larger, more sophisticated clients were demanding that we add more automation, more data capabilities, and additional channels, so we became a true multi-channel platform. We added multilingual and global capabilities. It just felt like we never ran out of big, important things to build, many of which were informed by very tight relationships with our customers. That was important.

More than anything, Dave, I think we were just great listeners. We were very good at building relationships, listening, identifying patterns and common themes, and prioritizing what to build. 

That’s one of the things I’m most proud of, as I reflect back on our journey. Even at the time we became part of Salesforce, we had a couple of clients that were spending more than 10 million a year with us, and we still had SMBs and nonprofits spending sub-5K with us. That’s really hard to do. We were one platform that could serve the smallest of the small business but scale all the way up to the sophisticated needs of a global enterprise. We did that with the capability to turn features on and off, so we could really simplify the platform or dial in all the advanced capability. And we kept always tuning pricing to make sure that it worked for all those different market segments as well.

Dave: That’s great. And all these bets paid off. The thing that you mentioned earlier, that I think also was important, is looking at it on a three-year timeline. I remember the three-year plan that you put forth was fairly high-level—basically a certain revenue progression, a percentage of email versus non-email, and US versus international. But you nailed it. [Laughs]

Maybe spend a little time on the three-year plan. What is the right level of detail? How do you decide the critical elements to draw out in terms of segmentation or otherwise? And how do you do it in a world where the market’s changing?

Scott: Thanks for highlighting that, Dave. It was something called Accelerate 2013, and I think we implemented the program in ’09—so it was technically a four-year horizon. But if I had to sum it up into one piece of advice, it would be starting with the end in mind. We spent a lot of time thinking about what we wanted our company to look like in four years. We got really specific around revenue, US versus international, our market position compared to our competitive set, product diversity, and revenue diversity across these different product lines.

It’s a fabulous exercise, I think, for leadership teams and entrepreneurs to envision what the future looks like and write it out. What it really did for us was light a fire around the investments we needed to make now in order to become the company we dreamed of being in three or four years. We were at maybe two or three percent of revenue outside the US. If we wanted to get to 20, we’d better get moving on that strategy now. Same thing with building multiple product lines, etc., and sales capacity. 

It really helped us think about that two- to three-year investment horizon and where we needed to have a sense of urgency. That’s very hard to do if you’re just planning one year at a time, so it was a powerful planning tool for us. It’s difficult when you’re early in your life as a company, but once you have a little more history and a little more predictability in your business, I think that’s a really healthy exercise. And you’re right—we not only hit all the targets, we arrived early, which was fantastic.

Dave: Yeah. It sounds simple in retrospect. You build up the asset of trust with your team and your board, lean in when others are leaning out, and then plan on a multi-year horizon. You invest in the S-curve that required future S-curves, that will fund the next level of growth.

You’ve lived it, so you know it’s not that easy. Now you’re the founder of High Alpha and advising companies earlier in their journey. As you reflect on this experience through the financial crisis and thereafter, what are you telling your teams now, in 2022?

Scott: You’re right, I’m on the other side of the table now, and it’s fascinating. I have a lot of empathy for entrepreneurs and CEOs who are guiding their companies through really challenging economic times.

First of all, I’m not a big fan of one-size-fits-all advice. I find there’s a lot of one-size-fits-all advice out in the market, and I think leadership teams need to be careful not to think like the masses. There’s a level of critical thinking and deep insight into your business that’s required to understand whether this is a time to be pulling back or leaning in.

The businesses that have a strong value prop in an economic downturn should be leaning in and getting more aggressive. I have a company in my portfolio, Zylo, which is a SaaS management platform that helps organizations understand their SaaS footprint and manage SaaS expenses. They’re highly relevant today; they’re having their moment. They’re actually growing faster than they ever have before. It’s a good example of understanding unit economics, your value prop, and when you should be dialing up investment and getting more aggressive. Many companies are not in that category, and they need to think more critically about extending runway, and how difficult it is to raise capital in this market. 

I think it’s really about understanding the strength of your value prop, your unit economics, and what trend lines you have in the business—and then building a strategy accordingly. If you have those data points that show what you’re doing in the market is working, and might even work better in an economic downturn, that’s a phenomenal time to be aggressive when everybody else is pulling back.

And what an opportunity to add talent. We’re at a place today where the talent availability is shockingly good compared to where we’ve been over the last two or three years, and those that can be aggressive can really add some tremendous talent to their organization.

Dave: Those are wise and inspiring words, Scott. We at Tidemark are super excited about this period. 

To close on a personal front, you’ve done a lot. You built this company through the recession; you’ve now built a very successful investment firm. You’ve done a lot on the sports side; you’ve done a lot on the community side. What do you think your legacy will be, Scott, when you decide to hang it up, fifty years from now or whenever? [Laughs]

Scott: I hope it’ll be that I was someone who enjoyed serving others. Supporting, coaching, mentoring—being a helping hand to entrepreneurs and founders. That’s really what drives me. I have so many extraordinary people like you guiding, advising, helping, and encouraging me to grow as a leader and grow a break-out company. It’s a joy and a privilege to be able to pay that forward and do that today under the High Alpha platform.

I’ll say to those entrepreneurs and leaders building companies: you have an incredible opportunity to build a legacy and create a transformative experience for your team. Where they’re building experience, they’re learning and growing. ExactTarget was an incredible springboard for many remarkable careers. We had this powerful culture that you were a part of, Dave, and the alumni network is extraordinarily vibrant 10 years beyond the company existing. We still have a Facebook group with nonstop posting about where everybody is in their personal and professional lives. Many of our colleagues are still at Salesforce doing extraordinarily well, and so many of the others have spun out and are now running their own companies or just continuing to grow professionally. I’m really proud of the legacy of ExactTarget.

Salesforce has been an incredible corporate partner and driving force in Indianapolis, and that makes me proud too. The tallest building in Indiana is now the Salesforce Tower; the Salesforce marketing cloud is nearly 3,000 strong. It’s been really fun to see what we worked so hard to build continue to grow and take on new life under their guidance. That feels really good as well.

Dave: Scott, thanks so much for sharing your wisdom. Thanks for your friendship and all your support. I think your story and the ExactTarget story are super needed right now, because I think there’s a massive opportunity, and everybody’s saying cut back; no one is saying think about leaning forward.

Scott: My pleasure, Dave. Thank you, and best of luck to all those entrepreneurs out there. I know it’s a tough market environment, but amazing companies can be built in economic downturns. In many ways, this may be the best time to build an incredible team and talent, and build break-out companies. I wish everyone the best of luck.

Dave: Awesome. Thanks so much, Scott. 


December 2022

The information presented in this post is for illustrative purposes only and is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by Tidemark or any of the securities of any company discussed. Tidemark portfolio companies identified above are not necessarily representative of all Tidemark investments, and no assumption should be made that the investments identified were or will be profitable. For additional important disclaimers regarding this post, please see “ Purpose of the Site; Not Investment Advice; No Recommendations” and “Regulatory Disclosures” in the Terms of Use for Tidemark’s website, available at Terms of Use (tidemarkcap.com).

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