In our latest episode of SaaS Conversations, Lauren Kelley – Founder and CEO of OPEXEngine by Bain & Company – answers a round of questions about the founding of OPEXEngine, her decision to pursue SaaS benchmarking, leadership, and diversity in the tech space.
Click here to listen to the episode on Spotify.
An Interview With Lauren Kelley
“When I started OPEXEngine, SaaS was just coming onto the scene as a major evolution of the software industry.” - Lauren Kelley
OPEXEngine was founded nearly 20 years ago when Lauren Kelley identified a need for reliable industry benchmarks in SaaS. In meetings with boards and management teams, she was asked the same questions about growth models, headcounts, resource allocations, and the operating metrics that subscription businesses should track.
That was the genesis of OPEXEngine, a platform where SaaS companies could share operating metrics in a secure and confidential way with dedicated professionals managing the data. Kelley cites two fundamentals of benchmarking: “You have to have a large enough pool of similar companies in a particular vertical industry and the data has to matter and be valuable.”
OPEXEngine clients define benchmarking cohorts that fit their needs based on their operating models and other key factors. In addition, as the industry’s only validated database of SaaS metrics, our proprietary algorithms stress test data to identify discrepancies, missing data, and outliers.
Over the years, OPEXEngine has evolved alongside the SaaS industry – from the days of pure play SaaS apps to the present. Kelley attributes much of her success to being both analytical and operational, qualities that have shaped her as a leader and decision-maker. According to Kelley, data enables better decision-making by providing insights that challenge assumptions.
Diverse perspectives challenge assumptions. Diversity reduces groupthink, biases, and fosters innovation. This episode speaks to the importance of hiring the best talent regardless of background, expanding your professional network to include diverse perspectives, and nurturing professional communities beyond your immediate team. Kelley uses the example of Josh James (CEO of Domo and Omniture), who advocates for diversity initiatives such as the ParityPledge.
We have included the full interview transcript below.
Transcript
Interviewer: To start off, I wanted to ask about how you entered the world of SaaS and benchmarking. How did you decide to pursue benchmarking as a business?
Lauren Kelley: It's an interesting question. I was working as an executive in residence for an East Coast arm of SoftBank, who had invested in my last company, but I was at the point where I wanted to get back into an operating role.
I was interviewing at various companies, but I found that the typical scenario was for me to come in as an operating CEO to replace a Founder. So that meant I would be redirecting the expectations of the Founder who I was replacing, and then doing some restructuring in small companies. After downsizing large teams, after the internet crash, and after 9/11 and the next couple of years, I was just burned out on that.
I found that in every meeting I had with management teams and boards, I kept getting asked the same questions over and over again: what does good look like as the company grows? How would you shift resources from R&D and Product Development to Sales and Marketing? How do you build a scalable growth model and at the same time remain flexible and handle disruptions? And even just straight headcount questions, like how many people should a company of this size or that size have in each department (Sales, Marketing, R&D, professional services, etc.)?
Of course, because of the timing, I kept getting asked: what are the key SaaS metrics for a subscription business? How do you track if the company is growing properly when we don't get all the money up front or when it's buried in all these operating metrics? I kept hearing that. I was thinking it was crazy that there wasn't an industry network out there to share operating metrics in a safe and confidential way; one with dedicated, professional people managing the data (instead of me looking on the Internet, jumping from one survey to another for information, or calling 10 friends in my network to hear what their numbers were and trying to cobble something together). That's also a lot of work, although I like keeping up with my professional colleagues. Sometimes you're in the middle of something or you have a board meeting coming up and your needs are immediate. You won’t always have the time to spend a couple of days or a week calling everybody.
Another thing: the point of benchmarks is to identify strengths and weaknesses, which starts a conversation within the company. If the benchmarks that you collect from various sources don't really resonate or exactly fit your model – or if it's not clear where they came from – they don't have credibility. Then, the conversation gets off on the wrong track. I walked away from all of this and determined to build a safe place for everyone to share data confidentially, where we would validate your data and help walk you through the process. An environment where customers define their own cohorts to fit their needs based on either their current business model or something they are looking at.
That was really the genesis of OPEXEngine. I talked to numerous people in the industry and friends who were CFOs, CEOs, and investors, and everyone thought it was a good idea and it was needed. And they said they'd pay for it. The more I got into it, I realized there was a business there and it was something that I could do.
Interviewer: And you founded OPEXEngine how many years ago?
Lauren Kelley: I think we're coming up on 18 years now, which is really hard for me to believe. It's been so interesting, and so many things have happened over that period. When I started OPEXEngine, it was really in the early, first generation of SaaS, when pure play SaaS apps like Salesforce, HubSpot, Zendesk, or Gainsight were hitting credible markers, growing, and really dominating the industry. We were lucky enough to work with most of them (plus Docusign and companies like that). We learned so much from these companies about what KPIs were important to them. We built that into the product, and they really bought into the idea of a confidential peer network. Then, a sort of Gen 2 came along in the 2012-2015 period, with more marketplaces, partner systems, and infrastructure as SaaS. You also started to have more combinations of B2B and B2C or traditional big tech companies buying SaaS companies.
Then in the late teens with Gen 3, PLG became such a big thing, along with the whole conversation about platform versus product strategies. COVID hits in 2020, and you have this dramatic, worldwide shift to digital apps and digital infrastructure. Then, you have post-COVID and BI and cloud subscription models. And now, it's like post-COVID Gen 5, where we've had this slowdown in terms of investment in the end of 2022 and 2023 – after a crazy year of 2021 with so much money and incredible valuations. Now, the focus is more on efficient growth instead of growth at all costs and changes to productivity with AI coming in, which is going to impact the workforce both in terms of the productivity, but also you see with the big tech layoffs. On the one hand, they're laying off in some areas, but there's hiring in other areas because the skill sets are shifting.
It's super interesting for us on the benchmarking side, so it's been an amazing ride. And of course, we were acquired at the end of 2021 by Bain & Company. We're still an independent company. We're wholly owned by Bain and we support Bain in the work that they do, but we still maintain our independence in working with the external market and with SaaS companies directly. We benefit tremendously from Bain's expertise and knowledge base. We've recently introduced the R&D benchmarking that goes really deep into R&D efficiency and models – things like that have just been terrific for us.
Interviewer: The company has certainly evolved tremendously over the past few years. Taking a step back, how do you think your background prepared you for OPEXEngine?
Lauren Kelley: I'm an odd duck in many ways, but one way that I may be a little different than some other people is that I'm both analytical and operational. I started my professional life after grad school as an international economist in Washington working on trade policy and tech trade negotiations, and I spent a lot of time in smoke-filled rooms in Tokyo. At the same time, I'm action-oriented and I like to get things done, so the pace of government was just too slow for me. So then I spent 12 years working in tech companies, building some rapid growth businesses (both in the US and in Europe).
I really like seeing numbers and data, and frankly, it saved my bacon a number of times when I had to make management calls that were counterintuitive or against the mainstream. Even though I'm operational, I look to data to make or validate or change decisions. I've been successful because of that, I think – even though I'm a woman in the tech industry, which as we all know is primarily managed and invested in by men. I'm just not the typical personality or big talker that you sometimes see with company founders, and I didn't want to change my personality or values. It's funny, my CFO – who I love and we've worked together for many years – always laughs and tells me I'm very Midwestern, so you can interpret that however you want.
I think my background prepared me for OPEXEngine because it plays to my strengths. There are many odd ducks in the tech industry, and I like that.
I really recommend that everybody read Ben Horowitz's book, The Hard Thing About Hard Things. There’s a story in this book about hiring a head of Sales; first interviewing and then fighting to hire this head of Sales who just didn't look or act like the typical stereotype.
Ben’s board, other management, and investors were all saying, “don't hire this guy – he's not the right person.” Ben stood up against everyone and hired this person, and because this person was very analytical, he was wildly successful. And look at where Ben Horowitz is today – go figure.
Interviewer: So you speak about being both operational and analytical and how that's sort of been an asset to you in terms of decision-making. How does benchmarking reduce bias in decision-making?
Lauren Kelley: Loads of research has been done over the last 20 years in economics and some other fields about the bias in decision-making. Fundamentally, data levels the playing field. I think we've all sat in meetings where groupthink sort of takes hold, and sometimes in the wrong direction.
I've sat in many meetings where there's a quiet person in the back who is saying the right things and pointing to the right things, but doesn't get heard because of the bigger personalities. I think data reduces the over-impact that larger personalities can have on the decision-making process. It helps you make better decisions, which is what management's all about.
Our customers are typically in the finance department of SaaS companies, and they're also usually not the biggest personalities in the room, but they have to work with the heads of Sales, the heads of Marketing, the heads of R&D, and the CEO to support and provide information to make the right resource allocations across the company. We're all trying to make informed bets and protect against risk and downsize.
We could be buying a company, we could be building a new category, or we could be growing a company from one stage to another. Benchmarking data – if it's used properly and understood properly – really reduces the risk of failure and it illuminates a financial roadmap. If you think of a “Google Maps” of: what's it going to look like for me to get from here to there? Good, quality data that shows you what companies that look like you did and where they went is really helpful. It gives you information that you just can't get anywhere else.
Interviewer: And as you were starting OPEXEngine, why SaaS specifically?
Lauren Kelley: I'd like to say that I did a review of all the industries out there and picked SaaS, but I think I was incredibly lucky. My last two companies were software companies, so I was pretty well-versed in the industry. That's where my network of investors existed.
When I started OPEXEngine, SaaS was just coming onto the scene as a major evolution of the industry, so these are the only analytics that I really did. I think there are two fundaments to benchmarking: you have to have a large enough pool of similar companies in a particular vertical industry and it has to matter. SaaS made sense because the number of players on the market was exploding, and it really hasn't stopped. Current forecasts of how far the world has gone in terms of moving to the cloud and digital apps say that we're barely halfway there. All the growth and expansion and excitement of the last 15 years could easily double, and that's enough to make this space really interesting and show some nice growth.
Currently, the SaaS market is estimated to be a little over a quarter trillion dollars. So by 2030, it's expected to reach about a trillion dollars, and that's just talking about the market. That's the sales of companies. So now add in all the invested capital it took to get there, including for the companies that don't make it but were invested in, and you can see what I mean that getting the numbers right matters. Additionally, that amount of investment and the incredible valuations of SaaS companies, which in a downtime come down to 5 X revenue, is considered really conservative. There are plenty of deals that are 20 or 50 X revenues. That means getting the metrics right is valuable.
Even though we all think that we're special flowers in tech, there are really a couple major operating models: PLG, sales-led, SMB, enterprise sales, infrastructure, subscriptions, consumption-based usage, and a couple of variations.
The innovation in SaaS has really been in the business model and in the execution, and that's exactly what we benchmark. SaaS company operating models and best practices are different than they were 10 years ago, and that impacts the numbers. So it's always important to stay on top of the latest best practices and how that affects the numbers. For instance, right now, we're super interested in seeing how AI is going to affect the numbers. Certainly, employee productivity will probably go up, but it's not like AI is something magical that is just going to be free. There are going to be costs to it and we don't really know where it sits – are companies going to have to invest more in security?
So for example, in the early days of SaaS, everybody thought, “oh there's this opportunity with SaaS where I'm delivering my product through the cloud, so the more customers I have, my incremental cost of adding customers is almost nothing.” Like Salesforce, they would grow dramatically and some of their incremental cost of adding customers would go down, but then they would hit a plateau and their costs would suddenly go up. Part of that was because they were opening up the business in Europe, so they would have to invest in servers there. Customers in Europe didn’t want to wait for the lag or have their data sitting in the United States. Then the world got more complicated, so they were investing more in security and other areas.
SaaS is one of these industries where it's not just like the bigger you get, the more your costs go down like with some traditional manufacturing models. It's super interesting and there's a lot of change, which is a third component of why picking SaaS seemed like a really good basis for building a company.
Interviewer: My next question is about diversity and inclusion when building a company. How do you prioritize diversity and inclusion within your SaaS company?
Lauren Kelley: I’ll say this first. It's really about finding the best people – fairly – for the stage of the company that you're at and expecting to be at over the next couple of years. I don't hire based on a resume alone, especially today when people are so well-trained in writing their resumes, presenting their persona, and selling themselves. Everyone says, “yeah, I can do all these things.” Then when you get into it, they can't, or it's harder to do all those things than people think.
We're in the tech industry, so the needs are always changing. What remains fundamental is that you always have to keep building a company, earning revenue, and managing costs, but the specific skills needed to do that change. It's hard to find people who are trained in solving problems, thinking creatively and efficiently, and getting the job done. I'll always take a recommendation from a colleague that I respect over a resume. And because I am who I am, I might have a more diverse pool of people to select from because my professional network is pretty diverse.
Again, I'm analytical and the purpose of benchmarking is to get beyond groupthink or assumptions that are incorrect. If everybody in the company looks alike or comes from the same background, then you don't test the assumptions. I just find that diversity is really helpful, assuming the skillset is there. Tech is very competitive, so you need to make sure that you're never stuck in one way of thinking.
Josh James is the CEO and founder of two leading SaaS companies – Omniture and Domo. Both have been clients of OPEXEngine and benchmarked their growth with us. Josh is also a Founder of the ParityPledge, which is a public commitment to interview at least one qualified woman and/or person of color for every open VP, C-Suite, and Board position. All this is asking is that you add one person of color or one woman to your interview pool for senior level positions. That's a big deal. His point is that you have to go outside of your traditional professional network – especially as a white male.
I really respect how he describes this. He realized that when hiring, his first instinct was to reach out to his network and get recommendations. Those recommendations were almost always white males because who does he reach out to? The people he went to school with, the people he hung out with, and the people in his network. That's who he worked with as he worked his way up, so he's trying to change this because not everyone in a position of power has a diverse network.
And I’ll mention this as a little bit of SaaS history – Josh James is the person who articulated and promoted the Magic Number of Sales and Marketing efficiency as a great KPI to evaluate your Sales and Marketing investment (which is a KPI that we benchmark).
For me and other diverse CEOs that I know, our networks aren't typically like that, so we have an easier time of it.
Interviewer: So how important is it to seek out a professional community – sort of like you’re describing – beyond your immediate team?
Lauren Kelley: I think it's really important and here's why. The tech industry is really competitive and fast-paced. That's why I like it. It's important not to get too inward looking and too caught up in your team or your view of the world. It's terrific to challenge your assumptions and your ways of communicating and to learn about what’s happening. That comes from interacting with people outside of your team – outside of your immediate networks.
I'm based in Boston and I've been in the Boston area for about 20 years now. I think it's really important to stay in touch with professional networks on the West coast. And even from some of the smaller, but growing tech hubs like Austin, Colorado, Boulder, Denver, Salt Lake City, Silicon Slopes, Toronto. I think that it's important to make sure that if you were a Boston-based company, for instance, you should have investors from the East Coast and the West Coast. And that’s because of the different perspectives, different mentalities, and different networks that it opens up for you. Being insular and tech is a bad thing.
