Industry experience as a competitive advantage with Spryker's Alexander Graf
Industry experience as a competitive advantage with Spryker's Alexander Graf
Alexander Graf:
It takes a very long time to build the proper network, the product knowledge, the customer knowledge, the software, the API infrastructure. There's nothing you can do in a year or two. It takes a long time. We brought our network into this game so we were working in this industry many years before we even started Spryker. That was a very strong advantage to us.
Peep Laja:
I'm Peep Laja. I don't do fluff. I don't do filler. I don't do emojis. What I do is study winners in B2B SaaS because I want to know how much is strategy, how much is luck, and how do they win? This week Alexander Graf, co-founder and co-CEO of Spryker, an eCommerce platform for enterprise marketplaces, B2B and B2C. Spryker was founded in 2014 in Germany and raised 130 million in Series E funding in 2020. This year, Spryker sits at 650 global employees with over 100% year-over-year growth. In this episode, we discuss how years and years of industry experience has become a deep moat for Spryker and why they're investing in a brand image they hope will earn them a reputation as the "Tesla of the commerce industry." Let's get into it.
Alexander Graf:
I was active on the agency side in the eCommerce market since 2011. My co-founder Boris was active since 2008. He was running one of the biggest Magento agencies in Europe. I was running the biggest Shopware agency, which is a Magento competitor, especially in the DACH-speaking markets. We were running projects based on PHP solutions. Some even on Java solutions like SAP hybrids or back then, it was a standalone business. And in 2010, 2011, it was quite clear how an eCommerce project was built. So the customer came to you with some 1000 line items saying these are the features and functions he wishes to have in his online shop or whatever business he wanted to build. Then we said, okay, this will cost you XYZ amount of money. It will take like six months. And then when it's finished, you're ready to go. Then we have a big launch day. And during that time, we had a couple of eCommerce businesses that were evolving in Europe. So particularly one was named Zalando, which was really the breakthrough for eCommerce in Europe. It was super successful, took over all the market share from Otro and other household brand names in the retail market. And they were just moving faster. And then beginning in 2012, 13 more and more customers from our agencies came to us and say, "Okay, Alex and Boris, we've told you about those 1000 line items, but now what we really want to do is we want to act quickly based on customer changes and market changes, even when we are launched." And then we said, "Okay, but this cost you a lot of money because with the software we are using and the way we are building, it was never meant to be in an agile state. So it's something we just forged one, and then you have to use it. If you want to be like Zalando or like Azos or others. It's a totally different way to build software, to build a team, to own product management." And then they said, "Okay. Anyway, we want to do it." And this was a time when we said, "Okay, we need to bring something new into the market. The old software providers cannot do it anymore." And that was actually our turning moment.
Peep Laja:
Mm-hmm. Tell me about the path to first million in revenue. How did you acquire your first customers?
Alexander Graf:
When we started this business in 2014, we used a team and a basic software that was already quite successful and quite known in the market. Our initial investor was called Project A Ventures, the former management team, or the management team of Project A Ventures was building Zalando, locondo, Lumia and many other businesses in this rocket internet universe. And they came with a software approach, which was super agile and very flexible and was pretty much our fit in that market. And when we announced that this kind of software architecture, this kind of philosophy was now available to the market. We got many inbound requests where customers came to us and said, "Anyway, we want to migrate now back from a Magento into a new technology, show us what you can do." So the first couple of wins were not so super complicated. Obviously, from a software licensees perspective, a million is quite a huge number. Though, it took us a while, but the very strong history of the product we used initially, which we then obviously rebuilt from scratch, but it was a very good start from a learning curve perspective that helped us to gain traction, especially in the German speaking network.
Peep Laja:
Once you went past the first million, marching towards the 10 million mark, what changed in your product strategy...In your marketing strategy?
Alexander Graf:
When we started in 2014, we thought we have to follow the VC playbooks. It's a product game.
Peep Laja:
Mm-hmm.
Alexander Graf:
So a very good product will follow to lots of happy customers and therefore more customers will follow. In our market that's not true. Obviously, you need a good product that fulfills the needs of the customer, but it's a market where there's not one single decision maker in the room. We have 10, 15, 20 people usually deciding over the software. Could be people from marketing, new business leaders deciding about new software. They want to get a little bit more independent from the core IT department. They don't want to align with their SAP or Microsoft or IBM strategy anymore. And initially we didn't understand it. We said, "Okay, we have a good software," so we play it for developers. It's a very good code from developers, for developers. And I think from the first million to the first 10 million, it pretty much changed the perception towards the business decision makers because those business decision makers coming into our corporate clients was titles like CDO, Head of eCommerce. Those were usually business people that came with a specific business problem. They wanted to act faster, they wanted to adapt faster and they wanted to innovate. That is usually not terms used in IT environment. In the IT environment, you have security standards, Java, PHP, all those words didn't matter to the business people. And I think this was the biggest change from a marketing and especially product marketing perspective in the first years.
Peep Laja:
And is that still how it is today or how has it evolved since?
Alexander Graf:
Today? It's getting much more complicated because it's not only those 20 people in the companies that are deciding over new software or new tool. It's also now your agency partners, DSIs depending if you're working with the Deloitte, Accenture or diva-e or others who will have a same in that decision process, it's Gartner, Forester, IDC with their yearly assessments of new software vendors. It's now more and more those software revenue sites like g2.com, OMR revenues, Trust Radio. So there's many more influential stakeholders I would say in the process. And it's a bit more balanced now. Even marketing people tend to ask IT questions now, could be, "Is your software modular?" That's a question that wasn't important a couple of years ago. So in eCommerce, we have the challenge that very strong strategic new eCommerce projects are usually the cornerstone of every transformation strategy. So the decision what to use and with whom to go in eCommerce is a decision that's very influential for all the following decisions, what PI system you're using and how you expand into new markets. That's why so many people do want to have a say in that decision. In general, it's still a business related talk we are in, but on some corners in this very complex decision making matrix, it's more tech again, yes.
Peep Laja:
With more stakeholders involved in every software buying decision today than ever before. It can be difficult to know who to market to. An alternate option that SaaS product and monetization expert Ismail Madni stands by is to focus your efforts on appealing to the end user, rather than decision makers.
Ismail Madni:
I really focus more and more now on users, less on decision makers than I used to because ultimately if I get users and I've provided an offering and an experience that solves their needs, that solves their problems, they will get the decision makers to buy in. We're no longer in that top down world. Software purchasing decisions in B2B context in particular is no longer top down, it is user driven. So I now optimize more for the user. It's great to have decision makers, but even then through interviews and through what I've seen based on experience and talking with customers, they love a product, they will get their organization to get on board. And I'll give you one example here. Three years ago, four years when I joined InVision is probably at the top of where it was. The design team started to slowly use Figma for brand. They loved the experience of Figma. They then started convincing their decision makers, "Hey, you know what, we have to get on Figma, even if we may not be getting as good of a deal with it." So I now optimize for end users.
Peep Laja:
How do you see the competition and what is your competitive strategy?
Alexander Graf:
So, obviously we have to fulfill our own vision and product strategy foremost, because if we are doing that, we are so far ahead from most of our competitors that there's no way for them to catch up. Our competitive matrix is dividable into two buckets. So one buckets are the incumbent companies, obviously like the SAPs and IBMs of this world that do by tradition have a very hard time to play catch up with their old product suite. They try it again and again, but they end up buying companies. So they do have a hard time to do it in turn. And then we have the new bucket and this new bucket it's us, it's companies like Miracle, Vtax and Elastic pass in this bucket. And obviously in this new bucket, we have to differentiate from the competition and we are doing it by having a very strong focus on the B2B market and marketplace market, so Spryker is not a solution you're going for if you just want to have a nice online fashion shop, but when it becomes really complex and complicated and if you really want to have a say in the workflows, and then if the SDK is important, if the middleware is important, if the code is important, now that's our competitive advantage here. And if we can keep our pace and keep moving fast, then we don't have to look so much for existing competitors. So we only have to focus on our customers and really fulfill our product vision.
Peep Laja:
What are you doing in terms of brand and marketing to stay ahead and compete?
Alexander Graf:
So brand and marketing, especially brand in our sector, wasn't important for years. So one of our most important competitors is called Hybris. So it's obviously the worst name you can choose for a company, right? And it wasn't important to have this big brand or sexy brand because it was a very strong partner-led industry. Our vision was always to become a very strong, very sexy brand for the customers, the Tesla of commerce industry. That's why we have invested so much in our brand appearance. That's why we invested so much in our events. If you would've visited our Spryker Excite event this year, you would've seen Michael Phelps, you would've seen Bob Iger, the former Disney CEO, last year we had Arnold Schwarzenegger. So we want to have our customers and our partners feel a very strong relation to Spryker and be saying, "Those are cool people. I want to work with Spryker because they're cool. That's a sexy brand I want to work with." Because this sexy brand is not just only attracting customers. It's also attracting the best employees. It's attracting the best partners. And in this war for talent environment, where we are in, and we expect to stay in this war for talent for the next couple of decades, maybe, you only can stick out with a strong brand, so if people really want to talk with you, and now we have reached the size where we really can invest in our brand from a global perspective. But I would say in the eCommerce market, that's by far the coolest and best brand, you can work for.
Peep Laja:
The smaller you are. The more important branding is for you. A strong brand is the reason why companies are successful. It is not a reward for its success. Association with high profile names in the industry can be a great way to stand out. Alex Kracov of at Lattice shared how this strategy worked for them. On a previous episode of how to win.
Alex Kracov:
I invested a lot into building a brand, building a community like my overall kind of approach and guiding light for Lattice was how can I make the marketing team, almost like a little media company that operates inside of Lattice where there's a single advertiser and that's Lattice. So one of the first things we did was actually interviews like this. We would have Jack sit down with heads of HR who were not customers of our, like the head of people at Reddit, the head of people at Asana, we would do a really high produced video, go into the offices, film a long thing, and then do a lot of video snippets and promote those over social. And it did this kind of wonderful thing for the brand, because people started to associate Lattice with these much bigger brands. And I think people thought that they were customers at the time, but they actually weren't. And then funny enough, they all became customers.
Peep Laja:
So is the competition not doing anything? How is what you're doing different from what others are doing?
Alexander Graf:
So when, when we are looking at our competition doing brands, I think the only competitor who plays at a similar flight tie is Salesforce. So obviously Salesforce is also inviting people like Will Smith as a keynote speak and having a very good band in a good experience and their events. From the other competitors, we've never seen similar things. So they obviously are not investing in that category as we are investing, it's their decision. Maybe they do have another ratio when it comes to this branding perspective, but no, the others are not doing it and the others, they don't follow our content strategy. So we have our own podcasts. We are obviously having a lot of written formats where we really try to create new knowledge for the market. We have a very strong market research department bringing out market research on a global level for the food industry, for example. There are investments that started five, six, seven years ago. Even if you want to play in the same league, that's nothing you can just buy. So it's something where you would invest two to three years, which is actually the case for every strong branding and brand awareness strategy. And we haven't seen this from our competitors.
Peep Laja:
How did you land on this strategy that you wanted be a media company? Blogs, podcast, events?
Alexander Graf:
Yeah. So I think I have been very active in this area even before we started Spryker I had my own blog, Kassenzone, and we had our own events. One was called the Digital Commerce Day, which was one of the biggest eCommerce events in the German speaking markets. I made a very good experience with our podcast and though I said, "Okay. That is something actually we have to scale as a company." So I don't want to say we are becoming a media company, but this kind of content marketing focus was already in the company when we started it. So we had tremendous success with the strategy. And then we just scaled it.
Peep Laja:
Besides the content and the events. Is there any other important channel to acquire customers?
Alexander Graf:
There's lots of important channels. So when I built the marketing team from Spryker, and most of the marketing initiatives, and obviously when we started, I believed in this funnel logic, obviously you have to find some customers in via some content marketing podcast, white paper, market research stuff. And then those customers land in your email database and then you can start nurturing them. And out of this nurturing strategy, they might show interest and then you can invite them to an event, and then you close the deal. That's not how it's working in enterprise in industry. As I said, we have 20, 30, 40 people involved in decision making process from some... We just don't know how they learned about Spryker might be a colleague told them, might be a white paper, the post forwarded, might be locked into an event we were pushing, might be visiting an event in Dubai or London where we were on stage. So it's super complex to measure this kind of customer journey. And it's super complex to find out what content initiative had, what kind of impact in the sales process. So it's not so easy to say what's working or what's not working. I think we are back at the time where you say, "Okay, 50% of my budget is working and 50% is not. I just don't know which is the 50%." I think it's even worse now with all those different channels with offline and online channels, many different peoples, various long and complex sales process. And obviously we have more and more experts per channel. So we have a channel called, The Analyst Channel, I would say, where we have people that really know how to work with the Gartner and Forester and other industry analysts. They do have their own language. They do have their own KPIs. They do have their own rhythm cadence. So that's obviously something where we just cannot put one template on top and say, "That's how it's working. That's how you can build the next Spryker in another industry." It's just a super complex environment. It's getting more complex every day.
Peep Laja:
Everyone wants to know the key causal factor in success. What's behind the growth. What can we attribute it to? Companies act in complex adaptive systems that inherently like linear causality. In other words, it's inherently impossible to know what one thing to focus on is, for instance, CXL was without a growth team for over six months, no marketing efforts were shipped for six months. Results? 45% growth year over year. This was because of momentum. It's because of what we did four years ago. We cannot know everything. We can't attribute everything. Traditional strategic planning does not work to the extent most seem to believe. In the right context, planning can absolutely work, but it can also create the illusion of working. Steven Levitt told the story of a company that every year advertising certain magazines and sales went up. They were certain it's because of the ads. After all sales went up every time. It also happened to be Christmas. If my team had been experimenting with PR or TikTok or whatever, and we had 45% year over year growth, it would've been tempting to say, "I think the results are because of the PR efforts." Balancing the long and short is a fine art. Marketing effectiveness, pioneers Les Binet and Peter Field advised to go for a 6O/40 split. Here's Les explaining further.
Les Binet:
The principles of balance are actually turn out to be relatively simple. This, as you will know, is the shape of the response curve that relates effectiveness to how we split our budget,100 percent brand on the right, no percent brand on the left. And the sweet spot actually over the last 20 years or so, at the moment, is about 62% brand. There are two ways we could make a mistake. We could go to the right hand extreme, put all our money on brand building. The cost of doing that is about a 20% loss of effectiveness, but the brand will remain strong. On the other hand, if we go this way, not only do we get an enormous loss of effectiveness, more than half, but the brand weakens and as the brand weakens, the effectiveness loss will get bigger. And there is no quick comeback.
Peep Laja:
When you look back, there were probably companies that maybe got started around the same time, but never really went anywhere. So in hindsight, what were some of the key things that you guys got right?
Alexander Graf:
I think what's important in our industry, there's not so much innovation in our industry. So there's maybe one or two new players in this category per year. In some years, there's nobody. It takes a very long time to build the proper network, the product knowledge, the customer knowledge, the software, the API infrastructure. There's nothing you can do in a year or two. It takes a long time. We brought our network into this game. So we were working in this industry many years before we even started Spryker. That was a very strong advantage for us, so I'm not so afraid about new competitors, because usually we are seeing them 2, 3, 4 years in advance. But having this time, not having a short sided exit strategy, having a team of people that really want to work in this industry for decades, just building the best product, this obviously brought a lot of competitive advantage. We had very good and strong investors helping us to get into this market, but not rushing it being active in a market that just takes your time. It's still a multi billion dollar market on a global level. Knowing that there's not too many competitors when we are reaching the top, and now we are one of the top five eCommerce software companies on a global level based on Gardner. I think these are some of the ingredients that worked out for us. Would that be the ingredients working out for others? I don't know.
Peep Laja:
Tell me about the globalization. You got started in Germany and I assume the first set of customers were all domestic, local. And how has that changed over the years? Was getting started in Germany, for instance, like an advantage or disadvantage?
Alexander Graf:
In our sector. It's an advantage because every second solution in our sector comes from Germany. So even a Salesforce commerce solution, that's from a Demandware out of Berlin, Hybris, the same, Intershop, also from Jena, even the Shopify founders from Germany, ePages from Germany. So it's a very German industry, I would say. So we have the best experts in this market. We have the best knowledge of how to build such a product. That's definitely an advantage. And we have a lot of B2B customers here in Germany and Austria and Switzerland, where we can have a very good feedback loop for building our product in the first one or two years. Yes, many customers came from the German speaking markets, including Switzerland and Austria, obviously. And expanding came with partners because many of our partners do have a global footprint like in Accenture or diva-e and many more. And the higher you are climbing into the ranks of the Forresters and Gartners into the global eCommerce solution, the easier it gets to get attention, even from markets like India, Singapore, Japan, South America, but it took a while. That's nothing that could have been achieved within the first three to four years. It took us a couple of years to have this kind of global footprint to build a delivery team also in the US, finding solution architect that can help out in the US. Having a team that can support 24/7 around to globe with our platform as a service cloud solution, though. That is nothing that comes overnight, though. It takes time to build this kind of infrastructure.
Peep Laja:
If you had to give advice to fellow founders, what would you tell them?
Alexander Graf:
Definitely focus on the right people. So today we would rather have an open position, even management position, not filled for a year or two, if we don't find the right person, because that's the only way how it's scaled. It must be a super strong competence and culture fit, especially, in a remote first business like ours, there cannot be any discussion about culture and how those people are fitting in.
Peep Laja:
You can't get ahead with a mediocre team. Prioritizing hiring only the best is a strategic focus, but talent selection is hard. Here are some of the things I have learned about the hiring interview process. Number one, most people can talk to talk. If they're not fresh out of school or something, most people can present themselves well, don't judge them by this alone. Use the first screening interview to weed out the first set of candidates. Check for motivation, values, pay alignment. Two, after the first prescreen, before spending hours on interviews, give them a test assignment. When they actually need to do something, a lot of the talk becomes cheap. Three, test assignments should be about the actual work they will do, not made up tasks, but things they'll actually work on. Simulate a reality, get them on a short term contract or project bases first, if possible. Four, Big 5 Psychology Test, is pretty much the only one respected by the scientific community, unlike DiSC or Myers Briggs, which are basically astrology. Data from Google says that high conscientiousness, which is one of the Big 5 factors, is one of the top workplace success predictors. The other top factor is cognitive abilities. Curiously, work experience matters little. Five, use external experts for hard skill assessment to further remove bias, bring in someone who doesn't care, who gets hired and will only assess candidate skills. It's been amazing for me. Six, if you Google interview questions to ask, you'll end up with a terrible random interview. Instead, have a structured process, always use the same questions with every candidate for every role ask what they were hired to do then ask what were the key accomplishments. Compared the two, often, you'll find massive discrepancies. Also, for every role, ask how their previous manager would rate their work or achievements on a 10 point scale. Seven, conduct reference interviews. I always ask to speak to the former managers at least the last five to seven years and ask the references to rate the accomplishments of the candidates on a 10 point scale. Pay attention to the discrepancies between how the candidates said the managers would rate them versus how they actually did. The best companies are super diligent about hiring, only the very best get in.
Alexander Graf:
And then obviously the companies that are succeeding are the companies that can adapt faster to market changes, and that can adapt faster to customer demands. And this is the only common denominator of success for B2C companies. So Zalando wasn't winning because they had more money or better marketing strategy. They just were adapting faster. They were delivering a better experience to the market than Orto could do it than other competitors could have done it, and that's the same for us. When customers or prospects are asking, "Okay, can you do this? Can you do that in our niche?" We have to be in a situation where we can fulfill this kind of wish. And third advice is, it takes time. So I don't think we will be back in this time, like in the early 2000s, when you could have built a business model in the market within a year or two, and then just sell it to, I don't know, Facebook. There's a standard way. Well, you have to stay in this market maybe for decades and you have to be ready for that. So you should find a business model in the market where you like the people. That is particular true in our market. I really love to be at the trade shows because it's very smart people in this eCommerce and tech industry, people I like to be around drinking a beer with. So we like this kind of industry. So if there were no Spryker, today for Boris and me, we still would have to found it. So it's actually, there's a market we want to be in, the market where we can win globally. And that's really fun to work with.
Peep Laja:
So what three key strategies are Spryker using to win. One, the invested in media and events to promote their brand.
Alexander Graf:
We want to have our customers and our partners feel a very strong relation to Spryker and saying, "Those are cool people. I want to work with Spryker because they're cool. That's a sexy brand, I want to work with."
Peep Laja:
Two, they see industry experience as a moat and choose to work with people who are in it for the long haul.
Alexander Graf:
Not having a short sided exit strategy, having a team of people that really want to work in this industry for decades, just building the best product. This obviously brought a lot of competitive advantage.
Peep Laja:
Three, by developing the product in Germany, before expanding, they were able to take advantage of the industry expertise network available to them there.
Alexander Graf:
It's a very German industry, I would say. So we have the best expert in this market. We have the best knowledge, how to build such a product. That's definitely an advantage. And we have a lot of B2B customers here in Germany and Austria and Switzerland, where we can have a very good feedback loop for building our product.
Peep Laja:
One last takeaway from Alexander.
Alexander Graf:
We have to fulfill our own vision and product strategy foremost. So because if we are doing that, we are so far ahead from most of our competitors that there's no way for them to catch up.
Peep Laja:
And that's how you win. I'm Peep Laja. For more tips on how to win, follow me on LinkedIn or Twitter. Thanks for listening.
