Episode 36: Edgar Baum of Avasta on
How to Correctly Size Your Market 

Episode Transcript

Shiv: All right, Edgar, welcome to the show. How's it going?

Edgar: Hey, doing well, enjoying the final summer-like weather that we got after months of cold.

Shiv: Yeah, it's great golfing weather. But well, look, I'm excited to have you on and have the audience learn from what you do. But why don't we start by an introduction about yourself and Avasta. We'll take it from there.

Edgar: Sure thing. I'm Edgar Baum. I'm the founder and CEO of Avasta. We're the profitable growth company. We started the company over five years ago, primarily to address a lot of things that I've kind of seen throughout my career in how companies were defining strategy, how they were going and valuing themselves and how to really integrate data that was heavily siloed. So people would look at customer data but not combine it with their own internal data. They would go and do financial calculations without considering market conditions. So much of what we did in the business was to solve for that. And we've gone and built a really good team who brings that out to a lot of B2B tech, private equity-owned companies, but also a lot of publicly listed companies that are trying to find a new pathway to success.

Shiv: Yeah, that's awesome. And one of the things that we talk a lot about with our customers and is just a general focus inside PE firms, especially after they make an investment or even when they're developing an investment thesis is to really size the market to understand how much opportunity there is. And that's an area where you guys specialize and have done a ton of work. So talk a little bit about segmentation and TAM, SAM, SOM-type of analysis work and how, what your perspective is on that.

Edgar: So you've definitely hit one of my trigger points in the market. I understand the value and the origins of TAM, SAM, SOM and I think it is well past its best before date. As a concept was originally created decades ago, it was very good because it kind of helped you quantify the financial upside maximum. But then we became extremely, I think, irresponsible in using it. I've gone and seen TAM calculations based on everybody buying it from us at our maximum price, which is an absolutely crazy amount. Or they would go and take a look at every single alternative way of buying the category and rolling it up into one large amount to make it look good. So turn into a vanity metric. 

And what we've gone and built in Avasta as a big part of our expertise is what we call WAM, winnable addressable market. And what this is, is to go and identify what share of the marketplace is willing to buy from you and you actually want to have them buy from you. So these are your profitable, sustainable, growing customers. And how do you go and figure those out? It takes work. It requires an ICP definition that's much more robust than what people are doing today. And it also requires what I would call an IVP, are you the ideal vendor profile for your customers as well, especially in B2B.

Shiv: Totally. And I think that's a great call out on your side is just that in general, how people look at TAM, SAM, SOM is just trying to define anybody that they can sell into. And even when they think about serviceable market, it's too loosely defined. One of the things that we see a ton of value in is analyzing existing customer data. For example, if you think your software can apply to any kind of firm that generally needs, let's say, task management solutions, that might not necessarily be where you play. Maybe your best fit customers are more service providers or professional services firms who need other capabilities, but that drastically reduces the type of customers you'll target. So looking at things like what are their conversion rates from MQL to closed-won? What's their LTV? What's their churn rate? Do they expand within the account as they grow over time? So things like that that I think is often just missed in trying to figure out what the right market is for a particular solution.

Edgar: Yeah, and I would add one of the biggest elements that is there is time. TAM is a static figure or people will go and say, well, we think TAM is going to grow to this amount in five years, but they're not talking about the pathway to be able to get there and not enough people are going and considering how much the market is even capable of buying right now. If you give a more of a consumer example, if you just went and bought yourself a nice car that met your needs. And then six months later, they announce a fully new redesigned model that you're like, my god, I love this thing. You're not going to go and replace it right away with a new car. So you might be out of market for years. And I think that's not considered enough. Like, TAM, SAM, SOM don't actually even consider buyer propensity or availability in the near term in that calculation. And that's what we do with our WAM calculation.

Shiv: So walk us through that a little bit more, like how are you factoring in things like buying propensity into that calculation?

Edgar: Yeah, so there's a few things that go into that calculation. One is what's the buying cycle that is there in the industry? People are very familiar in terms of how enterprise or B2B or B2C kind of go and buy in different cycles from mid-market to small business to enterprise, et cetera. What is happening is that people don't take into account new purchase versus replacement purchase versus incremental purchase. And if it's a new purchase, is it that they're buying the category for the first time ever, and there's a clear needstate for it, in which case there's usually an accelerated timeline to buy? Or are they switching from an existing competitor or alternative, in which case that buying cycle is a lot longer, and often requires a business case? So this is where the incentives between the buyer and the seller can become mismatched, because the seller is trying to go and hit the quarterly target or the fiscal target. The buyer is typically buying from a much longer timeframe. Like this thing needs to work for us for years, if not a decade. We've gone and worked with B2B companies where their expectation is that whatever purchase they make has a useful lifespan of 12 to 15 years. And that's a critical component that I think a lot of organizations miss in their definition of winnability.

Shiv: And so how do you translate that? Like, give us an example of how, when we look at a particular segment, how do we tighten that scope beyond just TAM, SAM, SOM to this WAM calculation and like, what are the different variables that you're looking at and bring it to life a little bit for us.

Edgar: Sure thing. So let's go and take a look at the time point of view. So what we go and take a look at is how long are people expecting for any purchase or vendor relationship to last before they need to kind of go and replace it. The second thing that we take a look at is how long does it take to make a purchase in the organization. This is of course heavily driven by two factors. One is price and the second one is invasiveness. So is this something that's going to have to require participation from multiple different departments or geographies within an organization because it really goes into the systems of a company. That goes and ties into who's involved in the buying process versus who you're trying to go and sell to. And then, so once you kind of got those two criteria figured out, you then need to go and understand what are the purchase drivers that are here. How many of them are led by ‘We want the latest and greatest technology’ versus how many of them are led by ‘We want the best integrability with the existing systems’ versus how many of them are led by ‘We want this to be as low disruption on our day-to-day operations as possible’. So by identifying the diversity of buyer needs, you kind of create a spectrum of purchase drivers over time in the marketplace. And then within that, our clients are able to go and identify where they're successful. So go and take a look at some of the great anecdotal stories in VC-funded companies where they've built the next generation great tool. And they have very rapid early adopter practices that are there where they can go and sell things in three to 12 months into enterprise. But what most people don't tell you is that at a certain point, they get to that slower sell-cycle because they're now getting into the next type of buyer who is more comprehensive, brings procurement in, takes more time to do so. So that illusion of being able to sell quickly in the early stages of the company, in almost all cases, never holds as you go through the market maturity curve. As you cross the chasm, get into early majority, late majority. Laggards sometimes take years to buy because for them, you really got to be the solution for the next 15 years. So those are all taken together. The mathematical modeling that we do ties it back to what our client is able to go and do in-market, and then we show them where in that market spectrum they can actually go and win.

Shiv: And would you say that the larger the targets that you're going after or the larger the ideal set of customers, the more tightly defined this needs to be? Because obviously, larger companies take longer to make decisions. There are more stakeholders involved. Sales cycles are longer. But then deal sizes are also larger. So it's kind of like the juice is worth the squeeze there. But you kind of have to invest a lot more time to get those accounts. And one of the things that we see is companies underestimating how quickly they can close deals in these types of circumstances. So they think their TAM is a certain amount, which might be fair as like a generalized statement, but then how much of that TAM they can actually capture given sales cycles and all these other complexities is not the same.

Edgar: Yeah, what you're pointing to there is kind of like what shows up in sales terminology of slippage, right? Like, we think we can go and win this quarter, but the reality is that it's going to take two, three, four, five quarters before it closes. And that is an analysis that we go and do for a lot of our clients is we actually go and identify what is the super majority of transactions by size, by industry types, by geography, and when they close versus when there's, call it an aspiration to close them. Something we're seeing in a lot of our clients that are PE-owned because of the short-term pressure that is there for quarterly or fiscal targets or two and a half to four year exits is that they kind of over promise on their sales targets and they don't actually systemically look at it. And you get into this interesting currency of, hey, we were able to go and close this $100,000 enterprise deal in only four and a half months. Well, yes, that was one out of 400 deals. So using that anecdote is actually misrepresentative of how the rest of the business operates. And most corporate strategy, most valuation practices, and most target setting practices should be based on the customer dynamics versus the sales aspirations. And I think that's missing in a lot of organizations today.

Shiv: Yeah, so in a way you're using a ton of more data beyond market segmentation to come to this answer, right? Because I would imagine you're looking at the TAM and SAM and all that data, but then also marketing and sales metrics, customer metrics. So talk a little bit about all those different inputs.

Edgar: So I think one of the core inputs that we're using that don't seem to be there when we're brought in by our clients is an anonymous outside-in understanding from the buyer base. So anonymously going and quantitatively understanding and qualitatively understanding how your customers and prospects go and buy. Why is there a segment of the marketplace that is not buying from you. Really kind of get into their world as to who's involved, who's buying, et cetera. And then the piece that we go and do in our work is that we hook it into internal reporting metrics and most critically into internal strategic objectives. Like what is the business trying to go and achieve? You know, PE is a great example and VC is a great example of like milestone-based valuations, right? Like, hey, we are at 300 million ARR. You know, we can go and do our next series of fundraising if we can get ourselves to 450 million ARR.

OK, fantastic. So if you're going to go and do that, is the composition of your next $150 million in ARR the same as your previous $150 million? And what we're seeing in working with our clients is that most of them make the false assumption that this is the case, when in reality that is not. And that's why the growth curves stall. That's why the valuations get impaired. So we're in the business of going and identifying, hey, each incremental revenue target that you have, is the composition of the buyer base in that market the same or dramatically different? And do you need to adjust your sales, marketing, and product strategy and channel strategy to correspond to it?

Shiv: So to put it just another way, it's almost like creating segments within your TAM. And it's like you have your segment A customers who are best fit, your likelihood of winning or right to win in that segment is significantly higher than your segment B targets where maybe the winability is a little bit lower, but still reasonably high. And then you have your C, D E, and all the way down.

Edgar: You don't even go that far, Shiv. We stop at D and what we do is don't sell to D and don't let them buy from you. There's a big practice that we're going and noticing, a lot of organizations is that they will go and take a look at their total ARR or ACV from the point of view of like the cost of the new state of the business. So say you went from 300 million ACV to 350 million ACV. And they look at their cost of revenue as a share of the 350 versus the share of the 300, what I think is absent in many of the organizations that we're working with is how much did it cost you to get that extra 50 million? When is that going to go on payback? And that has really not gone unconsidered from a time value point of view. So we account for the time that is there. So call it your A tier is your high value, winnable customers that are going to, on a cost adjusted basis, close quickly. So large deals, they may take months or years longer, but on a kind of on a daily basis, they're worth it, right? Then you have your B customers, which are, you know, they're, they're, they're going to be profitable for you, maybe not as profitable, but they're going to kind of keep the lights on. The C customers for us that we're seeing in working with our clients is don't sell to them, but let them buy from you. This is where channel, this is where B2B ecommerce, becomes really critical. So it could be low transaction size that you can go and direct to a channel partner or a marketplace or an ecommerce purchase in a B2B environment. And this is what we're kind of typically seeing is where a lot of private equity owned and even later stage VC-owned companies kind of miss the mark is that they don't set up their commerce environments to allow the long tail customers that are low transaction size, but profitable if they went through a lower cost of acquisition.

Shiv: Yep, totally. Well, and it's, it's funny to hear you say that because it's a different way of saying core marketing idea or just strategy ideas built around your best fit customers. Why every time you introduce a new segment, a new vertical, new industry, a new persona, a new size, it costs incrementally or exponentially more than your best fit customers to bring them in. And then it also costs more money to service those customers because you have back-end service load or product load that goes into keeping those customers happy, which often is lower margin revenue that then you just have to indefinitely support versus when you build around your best fit customers, the margins are higher, conversion rates are higher, just everything is better overall.

Edgar: Yeah, and let me kind of bring it back to the origins of how we're kind of looking at the company ourselves as who we are at Avasta, right? Like you talked about we're the profitable growth company. But what that means is that we're at the intersection of financial data analytics, buyer insights, and the underlying valuation principles of the company. And to your point, you're going and pursuing these different segments, these ICPs in the market, those aren't static. And I think that's what people are kind of confused by in the marketplace when they go and use TAM, SAM, SOM as a shorthand, or they go and take a look at their ARR trajectory, is you think that the next sale is going to be very similar to the current sale. You're probably right on that. But is the next sale going to be very similar to 10 sales ago? And that's actually not the mark. So we're going and seeing our clients go and have customer composition last quarter be dramatically different from customer composition eight quarters ago. But because they never monitor that, they lose the mark and then they get stuck in false expectations and get into the trap of retroactive diagnostics that stalls the growth of the business. So that's what we're saying is ICP evolves over time and you need to anticipate it rather than react to it.

Shiv: How do you balance that with this idea? Because a lot of companies we've seen, especially when they're horizontal or multi-vertical solutions, that one of the most natural growth expansion plans are to enter adjacencies. So if you can support one type of vertical that also helps, let's say you're an association management software. You can also support nonprofits. If you can support nonprofits, you can also support charities. And like that becomes a way to expand how many potential targets you can go after. And it allows you to potentially land more revenue. And then also geographies is another variation of that where people think, we're doing well in North America or we're doing well in France, Germany, UK. We should expand in North America. But when ability dramatically changes, when you enter new segments, new markets, new geographies.

Edgar: Yeah, I'll quickly use a client example that we have in B2B tech where we've kind of done this deep analysis and like no matter how you look at it, our clients should not be selling into agriculture. Like they should be selling into professional services. They should be selling into technology. They should be selling into manufacturing. And the reason for it is that like they just cannot go and win in that space because the transaction sizes are too small and the critical mass of the audience regardless of geography is too small for our clients. It's more valuable for another competitor of theirs, but not so much for them. And what this kind of brings to Shiv, which I think is called that inflection point of kind of like VC-based mentality of like, hey, we found our initial 12 to 30 use cases. There's a potential for product market fit here. Let's go and pursue it and scale from there. When you're a larger, more mature company, you actually need to go and validate that ‘Do I have a critical sustainable mass for several years to redirect sales, marketing, and channel efforts into this industry vertical or geography?’ And that requires an understanding of it almost as a whole new business rather than as an extension of your business. So you need to go to those segments, do an outside-in understanding of how do they behave, who's in their consideration set, how quickly do they buy, who's the primary buyer. And that intelligence relative to the cost of execution is actually really low. Kind of like a, call it a rule of thumb, which I hate using as a term, but you should probably going and be spending about a half a percent to a percent and a half of your target revenue over the next two years in any given market on validating it before you go and pursue it. Because if you're going to go and start throwing a team of four salespeople at expanding to Scandinavia as an example, It's going to cost you dramatically less than the cost of one salesperson to determine if you can credibly enter that market. And not enough people are thinking in those terms. They're viewing it as a cost to validate the market. Really what it is is you're risk mitigating and opportunity maximizing by validating the market before aggressively pursuing it.

Shiv: And what's that threshold, right? Because your win rates will look different across different segments. Like another example that comes to mind is a company that's a, let's say sells a more transactional or mid-market product. And they, a lot of these companies like to go upmarket to compete in the enterprise, but the winability is different in those, in those circumstances. So how do you think about thresholds to kind of figure out when is it good enough to say, this is worth, this is a market worth entering.

Edgar: There's a couple of questions here. So let me address the upmarket question first, because this is something we tackle on a regular basis. This is why market intelligence from a buyer's perspective is so critical. Upmarket is only really worth it if at least one of the incumbents in upmarket or enterprise has kind of stalled or is impaired from the perspective of the buyer base. If the incumbents are doing well, you're just really not going to be successful unless you have like a vertical optimization that nobody's really paying attention to. So that's kind of like a really critical piece that's there. We've seen too many companies aspire to get to enterprise because that's where valuation premiums are, or that's kind of like the anecdotal guidance that they're going and getting. The other side of it is to go and figure out, should we be actually be focusing on down-market? So should we be actually looking, we've been having a tough time in enterprise, we should be focusing on mid-market. Or we've been kind of slowing in mid-market should we look at upper-end of SMB. So this kind of becomes the dynamic of like, where is the buyer base in their maturity cycle? And are they already trying to go and buy? We have a client that we've been working with for a number of years where really the cost of purchasing was so high that enterprise was the only place that could really afford to even buy the solution. But as years went by, mid-market grew, became critical mass, the cost of procurement declined, and nobody was really servicing that space unless they came to the vendors. And that was kind of missed collectively by everybody because there was kind of like this collective hypothesis that was developed, led by industry analysts, and they never kind of revisited their assumptions of like, hey, have the market conditions changed? And that's what we're going and seeing frequently with our clients is the ones who are willing to go and see, hey, have the market conditions changed enough that we can take advantage of it? And what is driving that change? Size of company, diffusion of expertise. So mid-market companies are going and hiring from enterprise companies that know how to go and work with that type of solution. That to me is a really big signal that many companies are missing.

Shiv: What about like super horizontal companies? Like we use, for example, Monday .com for our project management here. And they in the last little while, they've been really pushing the ability to have a sales CRM inside Monday. And I can totally see how smaller businesses could use Monday as their CRM. But there are so many other CRM solutions out there for small businesses, that now Monday entering into this market, they now have to invest into product road mapping features and a bunch of other things in order to support customers that are looking for that solution instead of project management. So how do horizontal solutions manage? Another example is Notion and inside Notion you could project manage, you can write notes, you can publish web pages, and then also at the same time, you can use it as a lightweight CRM. So in those instances, like you have these horizontal products trying to be everything for everyone and competing with each other across different segments of the market or different verticals. How do you see that?

Edgar: You're touching upon something that we've come across in some of our public domain work last year. We went and ran a Challenger Index in B2B Tech, and we looked at six different verticals. The only prompt from validated buyers was, hey, here's the three leaders by market share. Who do you think is challenging them? And what emerged from it was that there are ecosystems that are evolving. Industry leaders in one area are challengers and others. A great example is Salesforce, right? Like they are called like the CRM origin, but they've been making investments into AI. They've been making investments into marketing automation and reporting, et cetera. And in those horizontal plays, you kind of got to go and make the bet of, are you better than the incumbent? If the incumbents are kind of entrenched and they're not kind of suffering, then you really need to change your business strategy and instead win a share of the new and the growing. And I don't think a lot of organizations think about it that way, is like win the share of the up and coming companies rather than try and displace the existing ones. Because it can't just be, hey, their license is 600,000 a year, our license is 300,000 a year, you're gonna save 300,000 bucks. No, no, no, you gotta go and take a look at the total cost of change management.

Like, do you know what is the cost of migrating off of SAP or off of Oracle? It's insane. And nobody's doing that calculation. But inside your buyer, they are, whether it's kind of like back of the napkin or whether they're systemically looking at it with procurement. And it costs you millions or tens of millions in kind of opportunity cost or systems cost to migrate from Salesforce to another CRM, as an example. So in these horizontal environments, you kind of got to go and go back to what I went and said on that ABCD tier, right? There's a segment of the market that is both valuable and winnable, so they want to buy and you want to sell to them. But then there's probably a large segment that you just need to have the patience and let them come to you. Build enough of a compelling business case that when there's a reason to switch where there's an incumbent competitor, that they will think of you top of mind because you have the best product at that moment of switching.

What are triggers for switching? Major failure from an incumbent in expected service. M&A transaction. Loss of strategic focus. We've gone and seen that in some of the categories that we're monitoring right now where incumbents just aren't sufficiently current. SaaS is one, SAP is another. Fortinet and cybersecurity is not meeting all of the wants that are there from a market point of view. So if you're a horizontal company, you really are playing the 10 to 25 year game rather than the two to three year game. And you need to be responsible for that.

Shiv: Yeah, I want to touch on, you said multiple things there that are worth diving into, but just this concept that if you are, if you're banking on customers of competitors in a new market that you're trying to displace, if you're banking on that customer to make the switch, their internal costs are significantly higher than you often predict. And so that's a very high likelihood then that you're going to miss your sales projections because you've, your expected TAM there is forecasting the number of available customers to be much higher than it actually is.

Edgar: Yeah, and I'll kind of use this call as an anecdotal way of thinking about it, right? Let's just go and take a look at Geoffrey Moore's work, because I think this is very relevant here. You go and have your innovators and your early adopters. These are people that are proactively going and actually either putting money aside or willing to switch to the most recent high value thing because they will make the product work for them. So they're ready for it. And it creates a false illusion for a lot of early stage and growth companies that, wow, there's like millions of companies like that. No, that isn't the case. You then kind of go to the early majority, which are organizations that are either attitudinally or from a timing point of view, ready to go to that next generation of offering, right? We know that we need this for like the next three, six, eight, 15 years, whatever it may be. But when you cross the chasm, and you're getting into late majority and you're getting, or like completing the crossing of the cast, and you're getting into early majority, late majority, laggards. Late majority, they are much more integrated typically as organizations. You don't have small companies being late majority unless it's like an attitude of the ownership or the leadership. And with laggards, it's the same thing. Like it is hard. Like laggards aren't just laggards in your product category. They're probably laggards across everything else that is dependent on it. So it's not just the cost of switching to you, it is the cost of switching to the other things to have your product actually work responsibly there. And that is not considered. And I think if organizations actually just went and tested the marketplace from an outside-in point of view of, hey, what is the composition by industry, by geography around early adopters by size of company versus early majority versus late majority versus laggards? That will help you know what is going to be that incremental time to acquire the customer, the incremental cost to acquire the customer, and any adjustments to the business case that you need to go and make. And I'll tell you, the ones that are doing that really well as companies, they're the ones that are having the hyper growth across five to seven years and becoming billion, $10 billion companies after inception. Most companies are missing that.

Shiv: Yeah, I think that's a really great insight. And the other one I wanted to touch on that you mentioned is just this idea that if you're horizontal and you're entering a new market or a new segment or vertical, you're banking on new and upcoming customers more than you are on existing customers that need to switch. Talk a little bit more about that just because I've seen other big platforms do this. And we mentioned Monday and Notion, another great one is Kajabi who was competing in the market with Shopify and other platforms like five, seven years ago. And then they really latched onto this concept of creators and they've been riding this creator economy wave for the last little while. And it's created a completely different position for them, even though they have a lot of commoditized features like website builder and ecommerce and courses and things like that. So talk a little bit about that.

Edgar: I love how you used the Shopify example. There's a great kind of like anecdote on Toby trying to go and raise money for Shopify years ago now. And one of the things that everybody was looking at was like, like your TAM is really small. There's only like tens of thousands of companies, small businesses that are on ecommerce. And like his whole validation, once people kind of clued into it is ‘Well, that is because it's very expensive and Shopify makes it cheaper, so you're going to go and get access to millions of companies that cannot afford enterprise grade solutions.’ So when you're looking at it from a horizontal point of view, what is so critical to go and measure is what is the barrier to entry for horizontal purchasing? So if you're going and taking a look at somebody like Notion and you're looking at somebody like Monday .com, what are all the things that Notion is replacing? How can you very rapidly identify, do I have a business case here at the prospective company? Because the combination of incumbent offerings are ones that are actually very difficult for us to supplant, either because the systems suck, the company is not sufficiently mature, or the contract obligations that is there. 

Actually, that gives me a really big aside that is there. A lot of horizontal companies do not take into account the contract renewal discrepancy that their customers have. So if you're doing a horizontal play, you're trying to consolidate from multiple vendors onto your horizontal platform. Most companies are going and saying, sign a three-year contract, two-year contract, or one-year contract with us. But what if the renewal is in 15 months for the competitor's product, meaning that they're still going to kind of need to use it for another 15 months. So unless you're going to go and incentivize for them to switch now through access to your product, or you're going to go and say, hey, we're going to revisit this in 15 months, but we're going to give you access to it three months earlier to make the transition period easier, you really need to be conscious of it. Well, that's one incumbent solution you're trying to take out. What if another incumbent solution has renewal at seven months? So what are you going to do for that gap between seven and 15 months? Because you're trying to take out both. So this requires a very different positioning strategy where you really got to go and take a look at what's the lifetime value that I'm really trying to win here. Like, is it actually worth my while to go and get the seat licenses in, get the adoption, get the migration happening while current contracts are expiring? And we're going to eat it at the beginning and in exchange come up with a new call it a four-year commitment from the customer instead of my default one, two, three-year commitment because we're going to give you something now, but we want that certainty on the backend so that you can do the consolidation to our platform. So that one at a time, I think is one of the biggest failures and is one of the biggest reasons why I think a lot of horizontal sales orgs stop selling is they're like, we can't sell this thing for another 15 months because that's when they're going to come up for contract renewal, forgetting to go and ask what are all the other things that the customer is considering maybe stopping them from making the purchase that is before them.

Shiv: Would it be better to then layer on additional offerings as they go so that when it comes time for renewal, they're far more likely to renew?

Edgar: I think so. And I think that kind of goes into the modularity that is there. And what you're pointing to potentially there is called the other side of the question. What if you're a really good point solutions player that is being challenged by horizontal or ecosystem play? What do you need to go and do? And sometimes you've got to enter the frenemy situation, where we're going to go and integrate. We're going to be the best solution. And maybe we share revenue with one of these ecosystem players that is there. And that's why you're going and seeing a lot of organizations becoming like Amazon Marketplace compliant, even though Amazon's kind of like a competitor to what they're going and offering. Because that's the only way they're going to go and get the revenue that they're looking for.

Shiv: Right. I almost, in those cases, it's always a trade off, right? Because nobody has, in general, companies don't have unlimited resources. So if you are a point solution, you can be the very best point solution and a horizontal player would have a hard time competing with you in that domain, but they might be good enough in that area and then be good enough in all the other areas that they're playing in, right? But then their advantage becomes being more of like an all-in-one tool, whereas your advantage is being a point solution. And then there's some synergies there, some opportunities to partner, and then yeah, you compete in some instances, but in general, your customers actually don't overlap because a customer that's looking for an all-in-one solution is often not the same segment that's looking for best-in-class for point solutions.

Edgar: I love what you're saying that because that is a lot of the segmentation that we're seeing for our B2B clients. There's kind of two major camps that we're seeing happening in between like direct versus indirect buyers. So direct buyers are kind of have the mentality of like we want to have the direct relationship with the vendor that is providing this point solution or even the ecosystem for us versus like the indirect buyer. They're like, hey, you know, you know, we want Accenture to do this for us or we want Deloitte to do this for us. We want them to kind of handle it or manage this for us or MSP is going to go and do it for us, or somebody like that. We're like, we're going to go through the indirect partner. We want everything kind of managed to us through a Microsoft integration. And somebody go and figure out what is all the tech that needs to be in the background. So there's that dynamic that's there. The second dynamic that is there, which is we want everything to be synergistic in our ecosystem, or we want the best tool for the job. And a lot of it that you're pointing to there in the point solution is, is, you need to know how much of the buying groups in the marketplace will collectively stand by best tool for the job versus most convenient tool from an ecosystem. Because if it's just one buyer on the team who wants best tool for the job and they get outvoted by most convenient, then you are dramatically oversizing your marketplace. And that is probably, I think, one of the biggest dilemmas that's there. And vice versa to the other side. A lot of the ecosystem players are saying, we're just going to go and consolidate 12 different products into our ecosystem. And they're all going to go and use our environments. Like, well, you got to go and do the same calculation from the other side. How many people are willing to kind of have like lower latency or lower quality or employee retraining to go and get a combined platform?

Shiv: Or yeah, for how many people is this actually a, it's like for how many people is this actually a problem where you, for example, if you have a website builder, you have payments through your system, but then you have, let's say membership management, how many people value your website builder enough as part of that to be combined versus they're quite happy with WordPress or Webflow or anything else that they're on. And then just needing the membership component of the best in class in that category. And feeling quite good about it, right? Whereas you think that just having it all in one place is or should be a priority, they may not care as much.

Edgar: Yeah, I think you're pointing to so many things that's there. And I also go back to like, who's driving this on the buyer side? Is this a finance led, we want lower cost? Is this a procurement led, we want less vendors? What is kind of like the imperative that is driving it? Is it regulatory? We have companies that we're going and working with where there's a regulatory change and all of a sudden, like there's a massive migration and how people go and change their behaviors, not because they want to, it's because they have to. Like go and take a look at what's happening in banking right now with new security compliance that's happening. There's a surge of changes in cybersecurity, professional services firms being brought in, IT services firms being brought in to be able to solve for this issue. And boom, two years from now, it's going to become the new norm again. So knowing what is kind of a temporary catalyst versus a kind of an overall momentum catalyst, I think is really critical. And it's where in the wave you're kind of riding the customer base.

Shiv: How do you see this playing out in M&A where there are a lot of loose assumptions, especially when we talk about roll ups or tuck ins and bolt ons and add ons. It's like in the financial model, cross selling and upselling is one of the base level assumptions in the investment thesis. But when you actually try to play it out or actually try to go for the sale, the customer may not be as interested as you previously thought. But just curious from your side how you see that unfolding.

Edgar: So I don't know if what I'm about to say is like unconventional or is kind of like known but not talked about. If you're like a Private Equity-led company and you're gonna go and do a bunch of roll ups and tuck ins and stuff like that, what you actually are is that you're a VC fund. And what that means is that like, you know, one in 20, one in 10, really bad case, one in 30 are gonna hit and hit it big on the cross-sell upsell. The rest of them are actually just going to be inorganic revenue at best or talent acquisition at best. We've done so much work with growth companies that are PE-owned and you go and take a look at them and they've like had like maybe one or two successes out of 17 acquisitions. And not often the ones that they thought were gonna be the big hit. And this is why I kind of view that, like, if you're going to do a roll up and tuck in acquisition, like treat yourself more as a VC firm and make the assumption that most of these are going to be failures from an organic revenue point of view, rather than they're going to be successes. And I think that's kind of like my unconventional wisdom that I go and use in looking at these opportunities, because unless you're doing a proper sizing of market demand for that product category, like if you're making a tuck in, that's a tiny company compared to you. So your overlap, right? Your Venn diagrams of people who know your brand versus the people who know the acquisitions brand or, you know, the acquired brand is, you know, being a real pain in the butt to the market leaders. Like, unless that is the case, that tuck-in is a gamble. So in the due diligence that we kind of recommend on the buy side for our PE clients is, find out if the tuck-in is threatening any of the incumbent three to five leaders. If the answer is no, then it's just they have found a niche and that niche is going to peter out very quickly. But if they are threatening any of the three to five incumbents, then you have something you can bring to your salespeople that they can go and use as a wedge issue to go and target in the marketplace.

Shiv: Right. How do you figure that out? How do you figure out that a tuck-in is actually a threat to one of the leaders?

Edgar: Anonymously go and engage with several hundred category buyers and find out what they're going and doing, and then go and determine do they even know the tuck-in that you're thinking of acquiring exists, or if the type of technology or solution that they provide is in the mindshare of the buyer base. If the answer is no, then you're acquiring a company where you're going to have to spend months educating before you can even begin the sales process and assume that your cost of activating the acquisition is going to be way higher on the marketing front than you planned for because most acquisitions and tuck-ins are, hey, we're just going to go and give it to the salespeople on a portfolio point of view. But if you need to educate the market, substantially ramp up your marketing investment and the time that it's going to go and take for you to go and hit the critical mass.

Shiv: It's almost like a different flavor of what we've been talking about with different segments and winnable customers. But in this case, because there's M&A capital behind it and now you've acquired this business, you're pot-committed, to use a poker term, to actually make this work. But it might not be a winnable segment and you're going to need to spend way more marketing and sales dollars to actually make it work.

Edgar: Yeah, we've gone and seen that. We've worked with large organizations who've gone and bought up and coming technology at 17, 30 times revenue because they're like, this is exactly what we kind of go and need. And then 12, 18 months later, they're at like 15% of their targets. And the reason for it is nobody bothered to go and test, is the market willing to buy it if you own it? Right. They're willing to buy it if it's independent, but do you have a strong enough brand that you can back the acquisition? And I think that is a hidden knowledge in the PE and the VC domain. And I think the VCs kind of know it because they're like, look, we don't care who buys the company that we've invested into at a significant premium. But if I'm a PE firm or I'm a publicly listed firm, I better find out if I have right-to-sell the acquired company's offer.

Shiv: That's great. I think that's a good place to stop because we're coming up on time. I wish we actually had some more time to discuss this, but if people want to learn more about what you're up to Edgar, what's the best way to reach you and how do they learn more about Avasta?

Edgar: Go to our website, Avasta .co, hit me up on LinkedIn or Twitter, and happy to go and have those conversations that are there. And hopefully what I've kind of said today kind of gets some ideas going in your background that wake you up at three o'clock in the morning and give you a eureka moment for your business.

Shiv: Awesome. Well, that's it. Thanks for coming on and sharing your wisdom. I think this was a very different conversation and I hope the listeners take a lot away from it as they think about value creation plans and segmentation and how to really drive revenue growth for their business. So I appreciate you coming on and doing this.

Edgar: Beautiful. You're welcome. We have a lot more examples of this on YouTube from conferences I've spoken at and content that we're going to start delivering as well in the coming months. So look forward to people engaging with it.

Shiv: Awesome. Thanks Edgar, I appreciate it.
Edgar: Cheers.