Lessons from Leaders: How JBoss did it

JBoss was an Open Source company providing free middleware software to it’s customers. By the end of 2003, JBoss had been downloaded 5 million times, and the company was doing about $1m a year in revenues, selling training, documentation and consulting. Around that time, Bob Bickel joined the company, and initiated a process to raise venture capital. The raising of VC funds was a trigger that was needed to hire a professional management team, and to enter a new growth phase. Together with Bob, the company had figured out that once an application migrated from development to production, they could charge their customers for a subscription based initially around support, that should result in a better monetization than the other revenue streams.

I joined the board, and we immediately started working together as a team to build their sales and marketing machine. The photo below shows the two whiteboards after the first brainstorming session.

JBoss brainstorming photo

JBoss were extremely successful in building their sales and marketing machine, and went on to reach an annualized bookings run rate of about $65 million a year within two and a half years after starting the process. At that time they were acquired by Red Hat for $350 million plus an earnout of $70 million.

While I take a tiny amount of credit for introducing the methodology and helping to hire the management team, it should be made totally clear that the real credit belongs to the outstanding team who did the work to make this all happen. There were many players involved, but to give credit to some of the main people involved, I would like to highlight Marc Fleury, the founder and CEO; Sacha Labourey, co-founder and CTO; Bob Bickel, who brought professional business thinking and great management skills; Joe McGonnell who ran marketing; Rob Bearden, who ran sales; Brad Murdoch, who was responsible for the products and services that were used for monetization; Nathalie Fleury, responsible for PR, and working the blogosphere; Tom Leonard, head of business development; and Ben Sabrin. (My apologies for those left off this list. There were many other great individuals involved, and the full list would be very long.) They were not only great strategic thinkers, but they also executed flawlessly.

Starting the lead flow

The first question we looked at was: Did they know the names of the people that had downloaded their software 5 million times? The sad answer was no. Not only did SourceForge not allow them to collect names, but even if they did allow it, there was clear evidence that developers would simply not go through with the download if they were asked to provide their name.

Following one of the key principles of this methodology, we immediately realized that they needed to find a motivation to get the customers to provide the company with their contact information. The best motivation appeared to be the documentation, that they were currently selling. There was one big problem: selling the documentation was resulting in $27,000 per month in revenue, which was paying the rent and several peoples’ salaries. To me it was obvious that this was a small price to pay to get the names, but to the JBoss team, who had battled their way to get every dollar of revenue, that was less obvious. We debated this issue over the next three months, but finally they gave in and switched on the offer. It turned out to be a huge success: over 10,000 leads started pouring in every month. Over time this grew to 16,000 leads per month.

JBoss sales process

Dealing with an overflow of leads: Lead Scoring

Most companies suffer from not having enough leads. We had the opposite problem. As any salesperson will tell you, 10,000 leads is a huge problem. No one has the time to contact that number of people.  – We needed an automated way to solve the problem.

Given my interest in marketing automation, I had recently taken a look at investing in Eloqua. (I had passed on the investment, for a very specific reason, but still really liked what they were doing.) JBoss took a look at Eloqua, and realized they could use the software to automate the first stage of the qualification process. They did this by tracking what each customer was doing on the web site, and how they were responding to email campaigns. Certain parts of the web site clearly indicated an interest in support, or other paid services, which were a good indicator of likelihood to purchase. When the customer looked at one of those pages, or viewed an email and clicked on the links, JBoss would mark that prospect as a qualified lead. (Eloqua dropped a cookie into the customer’s browser at the time of them registering their contact information, which made this tracking and scoring possible.) Since that time, several other players have emerged that can provide this exact same functionality that may be simpler to use and less expensive than Eloqua.

This resulted in a significant reduction in the leads. (Approx. 4:1 reduction, or a 25% conversion rate).

Later on the process, JBoss was able to look back at the customers who had actually bought the product and close the loop, by testing whether they had predicted the right events as qualification events. They did a lot of analysis to refine the events based on this information. Several of the original assumptions, based on common sense, turned out not to be true. For example, the amount of time that a lead spent on the website had little impact on their likelihood of becoming an opportunity or a closed deal. The same was true for time spent using the Wiki or the Forums.

From Joe McGonnell, VP of Marketing: “One of the other important benefits of Eloqua is that it provided us with a lot of valuable insight into what companies were using JBoss, even if we didn’t have qualified leads. It helped the inside sales team identify where to spend their time beyond just lead follow-up. For example, let’s say that we knew that we had 8 unique visitors from Hershey Foods during a given month. Even if none of these individuals had registered on our site or met the qualified lead pre-requisites, using common sense we could identify that they were probably working on a JBoss project. We also armed our sales team with contact discovery tools (e.g. One Source, Hoovers, Jigsaw) to then find the appropriate contacts to call into these accounts to find out if there was an opportunity brewing. Obviously inbound leads are more valuable, but this Eloqua data was very important as we scaled up the team and the number of leads per sales rep dropped.”

Further qualification needed: Telemarketing & BANT

Those leads still needed more work to make sure they were really a true “opportunity”. Sales got together with marketing and defined what they were looking for from a lead: did the buyer have the Budget, Authority, Need and Timeframe (sense of urgency to get something done in the near future) – often referred to as BANT.

This work was initially done by the inside sales group, but later was handed over to a lower cost telemarketing group. However the really well qualified leads were handed directly to inside sales.

This resulted in approximately a further 3:1 reduction in the leads (33% conversion rate).

Final stage selling: Inside Sales

JBoss then set about building an inside sales organization to close the qualified leads. The profile was people recently out of college with some sales experience and a lot of hunger. We discovered that an inside sales person could be fully productive in their 4th month, could generate revenues of about $140k per month.  We also discovered that they needed about 4 opportunities for every one closed deal (25% conversion rate), and that the average selling price was $10,000.

With these conversion rates, and the average deal size, we had the numbers we needed to  understand the complete model.

image

Handling the less qualified leads: Lead Nurturing

You might ask what happened to all the leads that weren’t qualified? Many of these were customers that had just downloaded the software for the first time, and still needed to develop their application before they would be ready to put it into production (when they would be most likely to purchase a support contract). These leads needed nurturing to keep them aware of JBoss’s service offerings. To do this, we constructed a series of campaigns using Eloqua, that sent them regular emails with a newsletter, invited them to various webinars, etc.

As they went through these stages, we would monitor their progress using the scoring techniques built into Eloqua to tell us if they visited the parts of website that indicated a likelihood to purchase. If they hit the appropriate score, they would immediately be thrown back into the telemarketing queue for direct contact and further qualification.

Blockage Points

Following the Building a Sales and Marketing Machine methodology, we set out to identify the blockage points in the sales process. It turns out there were two:

  • JBoss had gained its initial traction with developers who loved it’s much faster development cycle compared to competing products like BEA’s WebLogic, and IBM’s WebSphere. However there was a strong perception that when you went to put an application into production, JBoss wouldn’t scale, and didn’t have the reliability that these other products had, and you couldn’t get an appropriate level of support needed to run mission critical applications.Since we got most of our monetization from customers putting JBoss into production, this was a very big problem that we had to address head on. One part of this was putting the appropriate features into the product to address scalability and fault tolerance. The other part was creating the appropriate support offerings.
  • Although customers were very aware of the JBoss brand name, and free software, they were not aware that there was also a company of the same name, that could provide them with the appropriate level of support that they needed to feel comfortable to run mission critical applications on the product.

Blockage Points Diagram

JBoss - key blockage points

Using the methodology, we worked to understand the customers’ mindset and motivations at these key steps in the sales cycle, and looked at the tools available to motivate them to do what we wanted.

Concerns and Motivations Diagram

JBoss - concerns and motivations diagram

Tools to move customers through specific stages

JBoss - tools to affect customer acquisition diagram

If you are interested in learning more about how the Building a Sales and Marketing Machine methodology works, click here.

Next focus: Growth

Now that we understood the model, we could focus on what levers we could pull to optimize the model and create growth.  The team soon realized that if they could keep the conversion rates the same, but increase the average selling price, they would have a great lever to create growth.

The Subscription

To do that they introduced the concept of a Subscription. What is a subscription, you might ask. The answer, in JBoss’s case, was that it represented a very powerful marketing concept where they packaged together a series of different services, and charged the customer a recurring fee. The trick was to group several things together, and not allow the customer to unbundle the package and examine the value for each individual component.

Monetizing free software turns out to be hard. The customer already has the software, and has no need to pay you. So you have to find associated “things” that they will value, and persuade them to pay for them. Support turned out to be great for a while, but the problem was that the product was so good that at the end of the first year, the customer would look back and see that they had made only two calls, and paid $40k for that. JBoss needed something more. The subscription was the solution, but even the subscription would need something very substantial to make it appealing. Enter the JBoss Operations Network…

JBoss Operations Network

JBoss was not the first Open Source company to figure out how to monetize free software. There was a very successful predecessor: Red Hat. Red Hat had created a subscription, and most importantly had invented something called Red Hat Network as a powerful value added capability. Red Hat Network was essentially proprietary software, delivered as SaaS (Software as a Service) to help their customers manage their many Red Had instances.

JBoss realized they needed something similar. The opportunity lay in the fact that JBoss’s application server shipped with very rudimentary operational management tools. So they set out to create the JBoss Operations Network, which was management software to provide visual management and monitoring for multiple JBoss application servers, and delivered to the customer as a SaaS service.

Bundling this into the Subscription provided the key value element that allowed JBoss to raise prices.

Scalable pricing:  The Pricing Matrix

Another major problem the team faced: JBoss was selling to some very large customers, who kept telling us that our prices were too cheap. Our pricing was very simple, and did not scale in any way to capture the full amount that they were willing to pay.

The team set out to create a scalable pricing matrix. To do this, they created multiple dimensions that would scale pricing: different JBoss products covered (we kept expanding the product line), number of servers, number of locations, number of named support people, etc.

The final result: ASP goes from $10k to $50k

The final result of all these initiatives: JBoss was able to move the average selling price (ASP) from $10k to $50k, while still maintaining the same conversion rates as before. This was key to the extremely rapid growth that got the company from a $2m run rate to a $65m run rate in just two and half years.

JBoss: a classic illustration of the Power of Free

JBoss is a great example of the the Power of Free. It perfectly illustrates several important principles of the model:

  • By giving away a really great product for free, JBoss developed a loyal following and active community that virally spread the word to other developers.
  • This led to an incredible adoption of the product, which could be converted into leads that flowed in at a rate that was many times higher than that experienced by most traditional software companies.
  • JBoss realized that they would never monetize their entire user base. When we reached the $65m run rate level, we calculated that we had only monetized about 3% of the customer base. However that 3% represented a very attractive, and fast growing recurring revenue stream, that was worth a lot of money to several acquirers that bid on the company at the same time as Red Hat.
  • One of the key points to understand about this model: instead of building a very expensive marketing process like their competitors BEA and IBM, JBoss used their R&D resources to build a free product that achieved the same goal: widespread product awareness, and high customer demand – all for zero marketing costs.

The JBoss Style

JBoss, the company had an aggressive and bold style. They leveraged this to get the attention of the press. Marc Fleury was controversial and in-your-face, which the press loved. I have included a couple of items that might give some small sense of the fun the group had. The first is a couple of their banner ads:

jboss-ad

jboss-ad2

And the second is the JBoss team dressed as Batman Villains appearing at theServerSide’s Java Symposium:

The JBoss Team as Batman Villains

Posted by David Skok

If you are interested in learning more about how the Building a Sales and Marketing Machine methodology works, click here.

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  • ianbruce

    This is a great overview of lead management and deal development that applies to any startup, not just OS. Would be interesting to overlay social media on this and see how it plays at the front end of the funnel. Thanks.

  • David Skok

    Ian, I am planning to discuss exactly that in a later section called Inbound Marketing that will fall under Building a Sales & Marketing Machine.

    The site wasn't supposed to be launched until later when I have completed more of this content. But this particular article was complete.

    Thanks, David

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  • http://masteringwave.com/ Daniel Graversen

    Hi,
    Thanks for sharing, it is inspirational to see how services can be monitized and Opensource business grow. I like the idea of qualifing the customers using logins to the page.

  • LMB

    Great article!

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  • sree

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  • sree

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    Inspiring

  • Scott K Campbell

    David – Excellent blog – I’ve been referring to this off-and-on for the last 18mos and its really been helpful.

    I’m curious how JBoss handled major account sales?

    I agree with your premise that you don’t need highly experienced Reps to handle Inside sales, but there are certain accounts that we’re dealing with that need hand holding and some f2f interaction. These opportunities are generally greater than $200k.

    Did you have a major account team, or did you have a field sales team that worked with their Inside Sales counterparts?

  • http://www.forentrepreneurs.com David Skok

    Scott,

    JBoss had used the inside sales people to bubble up the big deals, and then had a couple of experienced enterprise sales folks who would work with them to help close the big deals. As time progressed and big deals become more common, the better inside sales people were sent on the road for about one week a month to visit those large deals.

    Depending on your circumstances, you may find it valuable to have an overlay sales team dedicated to larger deals (possibly based in the field). I would recommend coupling them with the inside sales folks, so that there is some commission sharing on deals that the inside sales people find, and then bubble up to them. It is worth doing a spreadsheet to look at the costs of this and the expected returns before committing to it, as it can be very expensive to have field sales people.

    Best, David

  • Scott K Campbell

    Thanks….that is what I would have guessed, but getting confirmation help. I am designing a very similar model. We’re not as mature as a sales organization/company and our revenue stream is quite a bit less than when you joined JBoss, but we’re growing quickly. I am intending on hiring at least 2 very experienced Inside folks that can go on the road if necessary and handle our larger opportunities. These people will be my cornerstones of the organization, then I’ll be complementing them with less experienced, highly motivated Inside-only folks.

  • http://www.forentrepreneurs.com David Skok

    Scott, best of luck with the hiring. The lesson I’ve learned here is to put an enormous amount of energy into finding the best people, and don’t settle for mediocre. The good ones are hard to find.
    Best, David

  • Scott K Campbell

    Agreed….B and C players may become A players, but it takes WAY too much time and energy to manage that process unless you have the resources for training programs, mentoring, etc. And in my experience, startups don’t have that luxury.

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  • AJ

    I know this post is a couple of years old but its is timeless and GREAT post! Thanks

  • http://www.forentrepreneurs.com David Skok

    Thanks AJ. Best of luck applying it to your own business. The key elements here are still just as applicable as they were at that time.

  • Grant

    Great info! David is there a software program that you use to make these diagrams?

  • http://www.forentrepreneurs.com David Skok

    I just use PowerPoint.