Breaking Conventional Wisdom: Jama Software's Blueprint for Profitable Growth
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Only betting on strategics and burning cash and hoping one of them is, you know, going to buy you for some really strategic reason. That's a lower probability strategy. Welcome to Founded and Funded. I'm Madrona Managing Director Tim Porter, and today I have the privilege of hosting Marc Kosofsky, CEO of JAMA Software.

Under Mark's leadership, JAMA transformed into a powerhouse in requirements management and traceability, culminating in a $1.2 billion acquisition by Francisco Partners in March 2024.

Mark's journey with JAMA offers a masterclass in strategic growth, operational efficiency, fostering a results-driven culture, and navigating to a successful exit, all critical areas for any founder or operator aiming to scale their business. Today, we'll unpack Mark's approach to turning conventional wisdom on its head. We'll explore how focusing on intentional strategies can lead to sustainable success.

So whether you're looking to refine your go-to-market strategy, enhance operational efficiency, or prepare your company for an exit, this conversation is packed with actionable insights. So with that, here's Mark. Good to see you, Mark. Thanks so much. Yeah, always great to talk with you.

Well, let's start with a quick introduction. I was fortunate to be on the JAMA board for almost 10 years after Madrona invested, and you came on several years into that. Can you share a bit more about JAMA software, what it does, its journey, and a few of the milestones that led up to this exit to Francisco Partners? And then we'll dive into some of the lessons learned along the way. Sounds great.

I mean, JAMA Software, we basically help innovators succeed. And so we're focused on companies that build complex products, a product that has software, hardware, electrical, those types of things. So our customers are in the automotive space, semiconductors, aerospace, medical device, industrial. It's things with hardware and software.

We're really the first company that's helped bring those different engineering disciplines together to be able to improve the performance of the product development process so they can go faster and deliver higher quality products. Mark, part of what inspired this podcast was you were gracious and came and spoke to all the CEOs in our portfolio at our recent CEO Summit.

And that was super well received. And as we were talking, I realized, wow, there are a lot of learnings here that you've been thinking about. We should share this even more broadly. And this framework you had for thinking about those lessons learned, I also thought was really interesting. And that is to contrast sort of conventional wisdom with this idea of intentional wisdom. So this idea of accelerating growth, so many companies across our portfolio in the world right now

has gone through this period of slowdown. And it's like, how do we re-accelerate growth? How do we keep growing? But how do we do it efficiently? And the conventional wisdom around accelerating growth is, you know, you have to do it fast. You have to scale your sales team. You've got to hire more people. You've got to focus on quota and headcount and capacity.

But you really focused on something a little different starting from right when you started at JAMA. Tell the group what your intentional wisdom was in this area. I'll share things here that work for us. They might not work for everybody, but hopefully everybody steps back and thinks a little more critically about

conventional wisdom and doesn't just apply it. That is the core point of this notion of intentional wisdom, isn't it? That you have to find the right strategy for your company and not just think cookie cutter, sort of what everyone is saying you have to do. Right. Exactly. Yeah. This pattern application can take the place of critical thinking. I think the conventional wisdom is, yeah, you got to hire more salespeople. You got to have more quota capacity, right? It's very capacity centric.

and expectation-centric, right? We can't hit the number unless we have enough capacity. You know, the interesting thing that happens if you follow the conventional wisdom approach is you hire new salespeople. They're less experienced. They have generally a lower win rate because they're less experienced. They don't know the market as well. They don't know the product as well. So you end up lowering your win rates. So you're increasing, you know, headcount, but you're lowering win rates. So you get a negative capacity effect.

Obviously, that's one way of looking at it. The way we ended up looking at it was a bit different. So we started thinking about how much demand is in the market, how much TAM is being activated. And so, I mean, this gets into another concept around TAM. There's a lot of focus on TAM. How big is this market? How big is the potential market? How much is addressable or serviceable? But it's all about

total potential size of the market. There's no real focus on how much of that TAM is being activated in a given year. That's your actual demand, the TAM activation. And so once you realize that, that, okay, you might have a huge market potential, but only a small portion of that's being activated, well, you got to get as much of that as possible.

So what determines how much of that activated TAM you get? It's your win rate. And so we focused first on win rates. And our win rates were in the 30% range when I started. You know, it's probably pretty typical in a space where you've got multiple competitors. And so we focused on that and we ended up taking them up to north of 70%, almost 80%.

And so that alone, you know, more than doubles your capacity, right? If you think about all the time your salespeople spend on an opportunity and then you lose, all of that time is wasted, right? It's wasted capacity. So we essentially doubled and even two and a half X star capacity just by improving win rates. So it's not as simple as just hire more reps and get more capacity.

And just to give folks context, over the period you were at JAMA, you know, I know you're a private company, but just sort of ballpark in kind of the 20 millions of ARR and 6Xed it, you know, kind of in the timeframe. So just...

I think that's also important because sometimes these approaches are either much easier at big scale or are much easier at small scale, but you took it through the classic kind of growth range in implementing this approach to growth. Yep. No, that's right. I teased sort of the efficiency side of this equation in teeing up growth, and you did as well, in clearly increasing, doubling or two and a half X-ing your growth rates creates a lot of efficiency.

but that was also only part of it. And you got to a very high rule of 40 at JAMA, which is growth rate plus free cashflow rate. And if not the conventional wisdom around efficiency, it certainly at least has been the pattern, has been grow rapidly, grow at all costs maybe, and really just grow into efficiency. If we get to enough scale, we'll kind of get efficient. But if we don't, then

then we got to cut. So you end up in this sort of grow then cut trap, which is a phrase that you actually used and I'm grabbing here. Talk a little bit about what JAMA did to avoid this grow and then cut trap in addition to this focus on win rates. Yeah, I think it's an interesting topic. I mean, maybe some companies have pulled it off. God bless them if they did. I think it's a really hard thing to do.

So I was always nervous of falling into that trap. And the main reason is I think it's a completely different culture, an efficiency culture. If you go back to the Walmart days or something and the whole management discipline and culture around Walmart, just how cheap they were about everything they did as a corporation, right? That got embedded into the culture and embedded into how they did business. They don't want to waste a single dollar and have that increase the prices of the products. So that culture, I think it's really hard to flip.

Take a company that has a spend like crazy culture and then flip it to all of a sudden being efficient. Right. Nobody knows how to operate. Everybody thinks it can't be done. They need more resources. And so I think you have to start that culture early and really demonstrate that, yeah, we can grow and we can do these things in a very efficient way and build on that.

So we were very intentional about that. It was one of the reasons why we didn't want to go into the successive spend environment. I remember some of the things that you did in this area. Some of it's a big part of its hiring and team building. So there was very little overhead in the organization. Everyone was either building product or selling product for the most part.

Right now, a lot of people are coming back to the office. Frankly, we're seeing a lot of benefits for innovating and things back in the office. But you went very much remote, found subject matter experts wherever they were. Maybe talk a little bit to some of those actual decisions and approaches you use to bring this culture of efficiency to life. We probably are a bit unique in terms of our virtual first approach. So we shut down the office right after COVID, like most folks.

But at that same time, we decided to shift our whole go-to-market team, so sales, pre-sales, consulting, customer success, to be aligned vertically, and that we wanted to bring vertical expertise into the company. And when you think about, well, where's the expertise for automotive versus medical device versus aerospace, they tend to be in very specific geographies in the U.S. and in Europe and in Asia. So there's nowhere we could find expertise

all of that expertise that could be commuting distance to Portland, Oregon, which was where headquarters was. For that reason mainly, we decided to stay virtual first. And we left the office open and available for local folks and they could use it if they want, but we didn't force people into it. So that was really the main drivers. We focused on talent first, not geography or focusing on an office. I mean, there's great things about getting people together and we still do that.

Obviously, there's huge energy and creativity when that happens. But our primary driver was how do we attract the best talent we can no matter where they live? And that's really proven to be effective for us. There's a broader point here that I think was one of really the key strategic decisions JAMA made, which was to go vertical, to focus on these specific industry verticals that you've alluded to a few times. And I think that had impact on companies

growth, this concept of activated TAM, which maybe you can say a bit more about because I think that's really interesting. And a lot of people, including a lot of investors, get that wrong probably. To keep with our approach here, the contrasting and conventional wisdom there is you got to be broad to grow and be big. And that was something that we were trying to do for a number of years at JAMA, be the really broad, horizontal requirements product management platform. And that

that just didn't quite land the way the company started to take off once you put in this vertical orientation. I think this horizontal view of the market tends to lead to a conventional wisdom for the go-to-market team to be geographically aligned. The original origin of that, I believe, was around assuming face-to-face visits for salespeople and you wanted to minimize flight time and costs and how many calls could a sales rep make in a day. And so you

focused on geography and cost. That also leads to treating Europe like a single geography and having a head of sales in Europe. And then that leads to tension always between

the US and Europe around accounts because so many accounts are spanning geographies and that tension never is productive and it's actually challenging to manage. So that's sort of the conventional wisdom, do it by geography. So the reason we didn't, it's going back to the win rates, is we were digging into the win rates and saying, okay, why are we only winning 30% of the time and doing win-loss analysis and really digging into

Why did we lose and why did we win? We realized that fundamentally we had this horizontal product that was highly configurable. And when we had a knowledgeable person in the sales cycle that knew that industry and knew our product and could bring those two things together in terms of here's the best way to deploy and configure the product and meet industry standards, we'd win almost all the time.

When we had someone there who just happened to be in that geography and didn't know their industry and really didn't know what they were talking about and couldn't get to the depth of the details, we'd lose. And so that led to say, okay, well, we should really focus on industries and make sure in every one of these meetings that the people leave a conversation with JAMA saying, wow, these guys really get us. They understand our industry. They understand what we're trying to achieve. They speak our language, right? It's all those things you want to hear. And none of the other companies we talked to do.

So that's why we focused on industries. And that's the main reason why the win rates came up. I think companies sometimes resist this notion of going vertical because they, I don't know, overestimate the kind of complete overhaul that it takes to be able to do this. I mean,

You did a really authentic job of tailoring product and messaging and kind of customer empathy and understanding into these specific verticals, med device, automotive, semiconductor. But I was also impressed that the process didn't take a decade. You were able to make it happen pretty quickly. And I guess it's no one thing, right? You hired people that had the right experience. You put the right playbooks in place from a go-to-market side.

You just have to really commit, I guess, across each of those areas and then you can make this happen. Yeah, we tried to be just a bit systematic about it because it is a lot when you take it all the way. And now we've moved to business units even. So that's sort of the full extension of a vertical focus. But the starting point, you know, we focus really on the customer and that interaction and the expertise that mattered. Yeah.

and start there and start with the demos and how do we tailor those and how do we get the right people there from a pre-sales perspective and then post-sales and consulting. So we just took each step at a time and we created templates and approaches that

We could apply across all the industries, right? Here's how we do those things. And we created industry solutions that we productized, right? So those configurations of the product for each industry becomes products in themselves. But we didn't start there. We just started right with the expertise and the moment of truth with the customer at that moment. How do we demonstrate in the product, in the demo, in the person, right?

expertise that we can solve their problem better than anyone else. I'd be remiss to not mention, I think part of what helped you execute here so successfully was there was a great product and a great insight into market need. And the Germanians that had been there before you had done a great job from the founders to other people. So there was a great foundation, but you were able to tune in ways that really helped growth and efficiency both take off. This

This concept of culture has come up a number of times. Again, conventional wisdom, right? What is culture? Culture is defined by mission, vision, values. And those things are super important. Like you need to have those, JAMA has those.

But I think part of your intentional wisdom is also like it only really becomes impactful if you turn it into daily habits and behaviors. Maybe talk about how you were able to do that and just your philosophy on how to drive and build a high performance culture. We started with the definition, which I think is always hard. Like what is culture? You know, most people can't.

define it, right? It's one of those challenging terms. The definition I like the best is a very simple one. It's the sum of what we do and say, which is a very large definition and simple, but I think it helped us focus on very tangible things. We ended up going from that definition of the sum of what we do and say and realizing, well, what drives what we do and say? And it's largely habits.

And we tend not to think about habits in a work environment. We think about habits in our personal life, about we want to eat healthy, we want to exercise. Those are habits. But the reality is almost everything we do is habits, and we all have work habits. And I don't think a lot of us really reflect on those. And so we said, okay, well, what are the habits at work that

we want to focus on that we think is going to drive our success. I think one that's interesting to talk about is our habit to follow the scientific method. And most people, again, don't talk about the scientific method when it comes to business. It's not taught in business schools. But we are really trying to reflect on, you know, how are decisions made at companies?

What do we do with ideas? How do we prevent the negative things that happen with ideas? People become attached to their idea. It's I have my idea. Tim, you have your idea. We're going to argue about our ideas. We're going to get very emotionally attached to them. Which ideas win? It depends more on position or...

politics or not very rational things. So we said, okay, well, how could we enable more rational decision-making and more transparent decision-making in the company? And how could we get to better outcomes from decisions? And so the scientific methods, the best method that's been proven to do that in a structured manner. And so we just modified that for more of a business context.

And then we used our own software because I wanted to get everyone in the company using our software. So we've used our software to enable the scientific method. So people go in there and they enter hypotheses and tests and impacts and collaborate with others. And so everybody can see, you know, what are the potential hypotheses that we might implement. They can see the ones that are being tested. So we get the huge benefit of being completely transparent about the thinking

that's going on in the company so they don't have to wonder what's happening. I love this. There's

Three big things, at least, that I took away from what you're just saying. One, there's a mindset shift from ideas to experimentation and people emotionally holding on to polarizing ideas. But experimentation, that's a mindset shift. Two, you actually created a mechanism to do that. It's not just, hey, don't think A, think B, you know, as you put in this mechanism. And that mechanism, number three, involved your own product.

Well, let's talk about the process. You know, JAMA has a great land and expand, right? So sometimes you get adopted for a project and ends up being the platform that entire large product organizations and huge enterprises get run off. There are post-sales questions around who owns the renewal? Is customer success just there to drive CSAT or do they own the renewal?

Almost every company that I've worked with juggles how you organize the customer success group. And we juggle it a bit at JAMA over the years. And it's also, I think, not uncommon for it to evolve as companies scale and grow. But maybe nuts and bolts here, just explain a little bit how you organize this customer success side of the business. The way we went about it, we start with the customer and we start with the expertise we want to bring to bear. And I think for our situation, we are on the

on the more complex extreme, right? We're dealing with engineering departments building very complicated products and very

advanced industries. And so the expertise someone on our side needs to bring to be able to go toe-to-toe and bring value to a customer is a pretty high bar. That's really a consultant. I think that's too high a bar to expect out of a CSM profile. I think on the other extreme, if you're more of a horizontal product that's more workflow or more structured,

you know, doesn't have this level of complexity, right, then a CSM can play more of that consulting role. So I think that led us to put the expertise for best practices and post-sale adoption in the consulting group. And so the CSM team leads all the commercials, leads the relationship with the client, leads, you know, expansion conversations and sort of quarterbacking the whole experience. But we're not

putting the extra burden of them to try to, okay, and you have to be an expert in this very complicated engineering field. Did that function report into you? You also had a great head of sales. And on that side, I'm trying to remember who actually owned this responsibility. Was it sales or was this a direct to you as CEO? It evolved over time. So now it all rolls up to our CRO, Tom Secchi, who's wonderful. Yeah.

But, yeah, previously, while I was sort of in a nurturing state, all of us had so much to do. So I was taking that on. I'm a former consultant. So it's an area I enjoy. So a bit of an evolution. Yep. Makes sense. Let's talk about the process of selling to Francisco. It was an important process and milestone for the company. I think back to our conventional versus intentional wisdom.

There's conventional wisdom, at least in my world and VC around great exits require sexy markets, really rapid growth rates. You had solid growth rates. I mean, your growth rates were 25, 30%, which are not easy to come by in this market. So your intentional wisdom was a balanced approach with growth and profitability, as well as some strategic positioning. Maybe talk about

how you really ran that process, including what precipitated it, that it seemed like the right time, and then going all the way through, which was a pretty lengthy set of discussions and strategic decisions that culminated in this majority sale to Francisco Partners. That was a bit of a blur then. First it went slow, then it went fast. Right, exactly. I mean, the most important thing I think for

You know, founders, CEOs is if you can generate the rule of numbers, right, if you can have profitable growth and get that rule of 40 or even rule of 50, if you can get there as you scale up, that lets you really control your destiny more because then financial buyers come to the table that, you know, really buy on the numbers.

And so we were able to attract that whole swath of potential investors because of the numbers. And then because of the numbers, then they dig in. Some already knew the space. Those that didn't, you know, learned about it.

But that's the best thing about profitable growth is you bring all these financial buyers to the table. And there's so many of them now and there's so many great ones and there's so much capital and dry powder out there. And for high quality assets that are delivering those high rule of numbers, the valuations are quite fair and exciting.

The strategics are always more challenging in terms of how they make decisions, how long it takes them to make decisions, what's really driving their interest in certain areas, how do you fit into their existing portfolio. So that's a much different process in terms of your ability to control the outcome and timing. We had both strategics and financial sponsors involved, and so we went through all of those processes.

different experiences. But I think that's the fundamental difference, right? If you can do profitable growth and deliver these kind of numbers and have these kind of win rates, you can control your own destiny. And then hopefully, you know, you're in a fortunate position, you might have a chance to choose between a financial sponsor or a strategic.

but only betting on strategics and burning cash and hoping one of them is going to buy you for some really strategic reason, right? That's a lower probability strategy. Yeah. The whole process really was catalyzed by interest from some strategics who I think you and the company did a good job of not

thinking about an exit, but just from a business development, a partner standpoint, who do we need to work with? Who do we need to go to market with? Who does our product work best with? So that kind of catalyzed it. But then, as you said, it turned into, we had a banker, it was more of an auction. But ultimately, I was also struck by successful M&A comes down to relationships and building trust with who you're going to go work with afterwards. And

And even though there was a bunch of interest and it was private equity, it struck me that that was really ultimately a big part of how you did that successfully with Francisco. Anything, you know, thoughts or lessons around sort of even in these sort of competitive, tense, transactional things, how it's still really critical to maybe this sounds like, oh, duh, but it's hard in the moment to form kind of personal trust based relationships with who you're going to work with going forward.

For those that haven't been through this, I did more lunches than I think I've ever done. And so, yeah, I had the good fortune to meet all sorts of top private equity folks. And I'd say the most experienced ones and the most senior ones do focus very much on that personal relationship and spend a significant amount of time with me one-on-one. It's all about trust when you get down to it.

So that is a big part of it. It's a very big part of the process. And when I look at the other bidders at the end that came close, it was, again, strong personal trust had been built and relationships through the process. So this was a $1.2 billion exit, which is one of the biggest in the SaaS space over the last couple of years. Of course, now it's like, well, from here, what's the next 3x, 5x, 10x?

How is the transition gone and any thoughts on what this next phase at JAMA involves? I mean, there's always an evolution, but anything to share there on how this transition has gone thus far? I think the reason I'm still here and so many of the Germanians are still here is we're just at the beginning of this journey. This is not...

something that we felt we had finished achieving our vision or our mission. And so we have very good clarity on where we're trying to get to, and we still have many years ahead to fully achieve that. So

I think for all of us, it's just felt like a continuation of what we've been doing. Obviously, we got to scale and we got to deal with scale. I think the biggest thing we've done is move to this general manager structure, which is a big shift. And for a company of our size, it's probably a bit early going to conventional wisdom. I just saw a public company just starting to do this at a much bigger scale. So

We were probably early in making this move, but it's just another doubling down on our belief in the power of being focused on segments and trying to push authority, responsibility, decision-making down in the organization as much as possible to really be as successful. And it also creates all these great roles for people, and that's been a big part of our success. We've promoted from within. We delegate authority and responsibility. We hold people accountable, but

Uh, so many folks in the company have meaningful roles and having huge impacts. And, you know, I love seeing that. And it, frankly, it terrifies me if everything had to flow through me and I had to be expert in all these industries. And I mean, we'd fail. Yeah. And, um,

Obviously, we wouldn't be on this topic if things weren't going well. But that being said, this is super authentic. You and I have talked about it a bunch offline. And the fact that things are off to a great start, it's just not always the case. You hear a lot of horror stories about acquisitions, whether it's strategic or private equity. And I think it's just a real testament to how thoughtfully you aligned on a plan and a partnership going forward. And of course, the foundation that you'd built.

So just in wrapping up, lots of great thoughts here, I think, for

for companies to think about at different stages of their journey. Any last thoughts you'd give? Most of our investments, of course, are at the early end of this spectrum, right? So thinking back to when you first took the reins at JAMA or even before, any last thoughts or things you'd reinforce for founders and startups out there who are trying to get on the path that you've been on? Yeah, I think at the early stages, it's really focusing on how much TAM's being activated. Where's the demand?

really understand where's the demand? Can you measure it? I mean, you can do a rough measurement of identify all of your competitors or alternatives. How much are they growing each year?

how much of that is new versus just growth in their existing accounts, right? You can get to some estimates. So really trying to understand how much demand there is out there and then really understanding why you win and why you lose. So figuring out, okay, in these situations, if it's this industry and they have this problem or it's this situation, we have a really high win rate and in these other ones we don't, right? So that's the just having some discipline there I think is the

the starting point for everything. Well said. Mark, thanks so much. It's been fantastic to work together on JAMA. We would love to find more ways to work together going forward. And all of this advice and sharing these lessons, it's gold for our listeners and for me as well. So thanks for everything. And thanks for being on Founded and Funded. This is great. Hopefully it helps. See you, Tim.