Focus, Discipline and Execution Lead to Profitable Exit

Focus, Discipline and Execution
Lead to Profitable Exit
CEO Coaching International assists Grasshopper:
“The Entrepreneur’s Phone System”
Summary
Grasshopper, “The Entrepreneur’s Phone System,” enables small businesses to run
their company from their cell phone. With more than 150,000 customers served,
Grasshopper is the #1 choice for entrepreneurs seeking to sound more professional
and stay connected with their customers.
As clever marketers, the company’s commercials on satellite radio have become
ubiquitous and infectious.
In 2010, Grasshopper hired CEO Coaching International for business coaching. Over
the next five years, Grasshopper continued to grow rapidly as revenue doubled and
profits rose by a factor of 10. The company’s rapid growth attracted outside interest
and in April 2015, Grasshopper was acquired by Fortune 500 company Citrix Systems.
This is a story about the strategies, tactics and discipline Grasshopper implemented
that ultimately led to a profitable sale of the company.
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The Backstory
Siamak Taghaddos and David Hauser met at Babson College
and forged an immediate bond based on their shared interest
in entrepreneurship. In 2003, they joined forces and started
GotVMail, the forerunner to Grasshopper.
As a startup firm, the founders needed a way to project a
professional image and communicate effectively with their
customers.
As is often the case, necessity is the mother of invention.
Not seeing any off-the-shelf solutions, Siamak and David
created their own “virtual phone system” that offered “big
company phone system” benefits at a fraction of the cost.
What worked for Siamak and David turned out to be an
excellent solution for entrepreneurs in general who needed
the ability to sound, look and communicate professionally.
In a few short years, the rebranded Grasshopper grew rapidly
and was named to Inc.’s list of the 500 Fastest-Growing
Private Companies in America.
The Problem
By 2010, Grasshopper had been growing, but had some
challenges. Growth started flattening in the core VPS
business due to speculative investments in non-core
businesses. This resulted in focus off the main business.
They had the wrong team on the bus to move from the
startup phase to the sustaining innovation phase. In
addition, infrastructure hadn’t kept up with the growth,
causing a very disruptive outage along with several small
outages that was negative in the eyes of the customer.
Grasshopper appreciated the value of business coaching
and worked effectively with a coach up until 2010. Now it
was time to bring in a new coach with fresh perspectives
for Grasshopper’s next phase of growth.
The Solution
Between 2010 and 2015, Grasshopper implemented a series of strategies,
tactics, and disciplines that led to an accelerating growth rate and the eventual
sale to Citrix Systems. They get an “A” in terms of effectively implementing all
of the top 16 items key attributes that CEO Coaching Founder, Mark Moses has
recognized coaching top performers in coaching top performers.
Here are five keys that led to Grasshopper’s revenue and profit growth during
this five-year period working with CEO Coaching International.
Three Provocative Strategic Planning Questions
At a two day strategic planning session, the leadership team completed the
“Three Provocative Questions” exercise. To set the stage, the team was asked
to, “Imagine you are starting a new company and you are competing with the
one you operate now.”
With that scenario, the team answered these three provocative questions:
1. What am I doing now that I would stop doing in my new company?
2. What am I not doing now that I would start doing in my new company?
3. How would I compete to try to put my old company out of business?
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The team created a fictitious company “Iron PBX”
and answered the questions on a whiteboard.
After staring at what they designed, the general
consensus was, “That’s pretty cool. We want that
company instead of the one we have.” So, we
answered the question…”what will it take to get
from “A” (where we are now) to “B”.
Over the next few years year, Grasshopper
systematically pursued creating the desired
Grasshopper of the future.
Establish Wildly Important Goals (WIGs)
Knowing what you want is an important first step.
Grasshopper took the next step by setting WIGs
as Chris McChesney and Sean Covey discuss in
their book The Four Disciplines of Execution and
making sure the entire organization knew exactly
what these critical goals were.
As part of the planning process, the company
tracked and reviewed these WIGs on a regular
basis, identified and reviewed the leading
activities necessary to achieve the WIGs, and
implemented an accountability process to
ensure the leading activities were executed and
a system to keep score. One of the most
important WIGs early on was upgrading the
infrastructure such that if they ever had an
outage it could fail to a backup system without
the customers noticing.
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Upgrade the Leadership Team
The founders began to realize an important insight: The team that got you to
where you are today oftentimes isn’t the team that will get you to where you
want to go in the future.
As a result, over the next year or so, every person on the senior management
team except for one—COO Don Schiavone, who was a rock star—was replaced.
Grasshopper brought in strong players in marketing, technology, and finance.
Don said, “For us, having the right team at the right time of each stage of
growth is critical.”
Test and Measure Everything
It’s easy for management to pick a number out of thin air and say our goal is
to grow 20% topline next year. And then the sales team dutifully goes out and
tries to hit the number. But where does the number come from? What
marketing activities will generate the leads necessary to result in 20% growth?
Without a rigorous testing mindset, you’re simply stabbing in the dark.
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The Grasshopper team further refined its testing mindset by subjecting
everything to testing and measurement. By instilling discipline in the process,
results improved dramatically.
Don said being entrepreneurial is part of the company’s cultural values and
that squarely aligns with the testing mindset.
“To be an entrepreneur, you try things and get feedback,” said Don. “You need
to be able to test, learn and adjust. We want people to fail quickly because we
know failure is part of it, part of that test. You’re not going to be right every time
so fail quickly, learn and move on.”
Raise the Growth Rate Target
As a SaaS company, Grasshopper realized it could raise its valuation by focusing on several key metrics including CPA (cost per acquiring a client), churn
rate, ARPU (avg revenue per user), LTV (life time value of a client) and —its
revenue growth rate.
So, the company regularly focused on all of these but in the last year focused
heavily on pushing itself to raise its growth rate target and find new ways to
hit the numbers. This included market testing and doing more of what worked
and eliminating what didn’t. Over time, there wasn’t much more that could get
done on moving some of the other metrics. Raising the growth rate would have
the biggest impact on valuation.
The Outcome
Over the five years CEO Coaching International worked with
Grasshopper, the company experienced tremendous growth
not just financially, but in other key areas of the business, too.
Here are a few highlights.
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An increased focus on accelerating the revenue growth
rate helped lead to revenue doubling and profitability
rising an astounding 10X.
Revenue grew 21 quarters in a row and beat plan for 19
consecutive quarters.
A formalized strategic planning process was instituted,
WIGs were set, everyone was held accountable and we
kept score.
The senior leadership team was significantly upgraded
and financial results improved dramatically.
A testing mindset permeated the organization and led
to radically improved marketing results and material
cost savings.
To top it off, the “new” Grasshopper became such an
attractive company that it was sold to Citrix Systems in May
2015 for a substantial sum, enabling the founders to have a
life-changing liquidity event.
Reflection
Thinking back on five years of working with the Grasshopper team, here are
12 important insights that helped lead to the firm’s phenomenal results.
1. Figure out where you want the business to be 18 months or 2 years from now
and then hire those people today. Over hire today so these superstars can get
your business to where you want it to be much faster.
2. Use personality profiles to help you hire the right employees and to help existing
employees understand the best way to work with each other.
3. Keep it simple and be disciplined about executing on your annual and
quarterly planning sessions. Determine what your goals are, then ask, “What
will it take to guarantee you get them done? What’s going to stand in the way of
making it happen? How are you going to overcome what’s standing in the way?
Who owns it and when will it be done by?”
4. In weekly meetings spend time focusing on the initiatives that have come out of
the quarterly meetings rather than the whirlwind of the day-to-day operations.
Hold each other accountable to executing on the initiatives.
5. Be paranoid about what could disrupt your business so you don’t get blindsided
by a new competitor. Pay particular attention to new technology that could
enhance your business or put you out of business if you don’t incorporate it.
6. Exploit your niche and be careful about straying too far and taking your eye off
your growth engine.
7. Be zealous in embedding a testing mindset in not just your marketing strategy, but in
all aspects of the company.
8. Understand the metrics that matter in your business. As a SaaS company, Grasshopper
knew the key metric that led to increased valuation and they focused intently on
maximizing that number so they could achieve a premium outcome.
9. Understand where your company is in its lifecycle as well as within the larger industry
valuation cycle. Be prepared to “sell before midnight” while your company is thriving so
you can get a premium valuation.
10. Use outside resources such as coaches who can bring fresh insights and an impartial
perspective to your company’s challenges and opportunities.
11. Culture makes a huge difference. Happy people that are passionate about the
company’s mission and vision will meaningfully exceed the performance of those that
don’t. Eliminate people that don’t fit the culture.
12. Be proactive in terms of communicating with your customers when there are issues.
Grasshopper had some damaging outages and the communication team was
awesome in explaining what had happened and how the issues were going to be
rectified and even gave refunds or a free month to show its commitment to customers.
These insights are applicable to firms of all sizes. Grasshopper is just one of
many success stories from the coaches at CEO Coaching International.
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About Us
CEO Coaching International works with hundreds of the world’s top entrepreneurs, CEOs
and companies to dramatically grow their business, develop their people, and elevate
their own performance. We also deliver passionate and energizing keynote presentations
at industry conferences and company events worldwide.
About Grasshopper
Grasshopper, “The Entrepreneur’s Phone System,” enables small businesses to run their
company from their cell phone. With more than 150,000 customers served, Grasshopper
is the #1 choice for entrepreneurs seeking to sound more professional and stay connected
with their customers. The company was founded by Siamak Taghaddos and David Hauser
in 2003 and is headquartered in Needham, Massachusetts.
+1 (866) 622-9583
www.ceocoachinginternational.com
dawnpope@ceocoachinginternational.com