Preface: This is a hard post to write, and one that’s taken far longer than I hoped to publish. Never before have I been so challenged to walk the line between empathy and transparency. Never before have I had to get a blog post approved by my boss, board, and legal team. And so I ask, humbly, that you read this knowing that unlike most of my “insider-baseball” posts, this one takes a step back from my usual, all-cards-on-the-table approach in order to be respectful of people who’ve left Moz and those who are still there.
On August 10th, I attended a board meeting during which it was decided that the company I co-founded and used to run, would change the strategy we’d been pursuing over the prior 2.5 years, refocus on our core SEO software business, prioritize making the business profitable, and lay off just over a quarter of our employees. Many, many companies and founders share openly about how they pursued a risky strategy and it brought great success. Almost no one writes about the reverse — when a path you’ve chosen to double-down on goes sideways with painful costs. To the best of my ability, I’m going to try to do that in this post.
(source)
I was in Edinburgh, Scotland (speaking at the Turing Festival) the Wednesday following that board meeting, when our CEO, Sarah Bird, announced the decisions to the team and published her post about the changes. It was heartbreaking. I got choked up. But Sarah did a good job on a day she later described to me as “the single lowest point of my professional life.”
Before we begin in earnest, I must provide this critical caveat — you’re reading my opinions, my experiences, and my perspective only. This post will certainly include some degree of inaccuracy and bias. I’m not speaking for everyone at Moz, or everyone on the board, or for our leadership team. Just for me.
Some Background on How We Got Here
If you’re not familiar with Moz, we used to be called SEOmoz. The project started as my personal blog about SEO in 2004. It evolved first into a consultancy and then, in 2007, a software company. We’ve raised three rounds of funding: $1.1mm in 2007, $18mm in 2012, and another $10mm in January of 2016. During that stretch, we’ve grown to ~$40mm revenue run rate, mid-market size for a SaaS business.
From 2007-2012, Moz had just one product — Pro — our self-service subscription for SEO professionals that helped sites track rankings, find crawl issues, improve on-page optimization, discover link opportunities, compare themselves to competitors, etc. Every tool we built and every piece of functionality created went into that subscription product. It was responsible for ~92%+ of our revenue (the rest coming from our API and our customer conference, Mozcon).
In 2011, I believed that in the years ahead, SEO would stop being a silo’d practice run by a single specialist in organizations and at agencies and would, instead, become one skill among several for the people and teams responsible for a multitude of inbound marketing channels (search, social, content, email, community, brand, etc). I worked with our Chief Product Officer, Adam Feldstein, to develop a software product that would serve this new “inbound marketer.” We called it Moz Analytics. That product took multiple years to build, and when launched in 2013, was largely a failure. It took most of 2014 to simply get the software into functional and usable shape, and much of 2015 to pay off technical debt. Growth slowed from the 100% year-over-year of the 2007-2013 era, to under 20%.
From 2007-2014, I served as Moz’s CEO. I left that role due to a pernicious bout with depression (depressed CEOs do not generally make for inspiring leaders). The board, at my recommendation and with my full support, promoted Sarah Bird (the company’s COO since 2008) to CEO. Sarah and I had a long partnership leading the company and making the hard decisions together. But, it was tough for me to give up control of the company I’d founded and run for so long, and my depression only contributed to those frustrations. I wasn’t my best self in that year after stepping down and, by the start of 2015, settled into a routine of disengagement and heads-down focus on my individual-contributor work (presentations for conferences, Whiteboard Friday, the Keyword Explorer project, the book I’m writing, blog posts, etc).
Moz, thanks to an ambitious and hard-working executive team and board, powered on. The new approach was to unwind the Moz Analytics concept of all inbound marketing channels sitting in one application and instead create different tools for different audiences and their unique needs. For social media marketers, we had Followerwonk (with the idea to evolve it into a “Moz Social” product). For content marketers, Moz Content. For SEOs, Pro. For local businesses, Moz Local. And for data-focused buyers, the Moz API. Separating these products, launching them, and supporting them with engineering, marketing, and organizational structure proved challenging and time consuming, but the team got it done.
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Above: Moz’s “Multi-Product” World
In January of 2016, the new, multi-product world of Moz was finally ready to roll out with the launch of Followerwonk and Moz Content as standalone subscriptions. We raised an inside round of funding with Foundry (our $10mm Series C) to help step on the gas. That same month, the board of directors approved a budget that had a significant amount of spend on people and paid marketing to support the expansion. It was a moderately risky bet that relied on growth from our existing products (Pro and Local) as well as relatively fast adoption of Content and Wonk. Q1 tracked very close to plan, at least on cash, Q2 was a bit off-target, but not dangerously so.
Then, in late July, just a few days after Sarah had completed a re-organization of many of the company’s departments in order to give each individual product more control over their marketing and sales funnels, our CFO sent out a revised forecast for the rest of the year based on his conversations with the various product leaders and updated estimates from the prior few months of financial data. That forecast showed Moz burning much more cash than we’d planned due to lower expectations for every product (Pro a little under plan, API a little, Local a little more, Wonk and Content significantly). Every product was growing in revenue and customers, but none of them were growing as fast as we’d forecast. Local, in particular, had an outsized impact on cashflow that we hadn’t previously understood well because of its upfront collection model. Suffice to say, those new estimates were the catalyst for events that followed.
A Reckoning for the Multi-Product & Inbound Marketing Strategies
At an executive team off-site that followed the revelation of those new financial projections, Moz’s leadership discussed potential options. Should we try to give the new products more time to get traction? It felt like Moz Content and standalone FollowerWonk never got the chance to prove themselves — 6 months is hardly enough to say we truly gave them a shot at success. Should we try to raise more money? Would we be able to do so? Should we turn Moz Pro into a cash cow by eliminating much of the team and marketing expenses, and use the margin to fund the new products + Moz Local? Or, should we end the journey into broader inbound marketing software and focus back on search with Moz Pro and Moz Local?
I missed the latter parts of these discussions (due to recovery from hernia surgery), but ultimately, the primary proposal brought to the August 10th board meeting was to double down on SEO software, become profitable as soon as possible, and wind down Content + Wonk.
Here’s what I believe:
- Given more time, and a significant amount more financial resources, Moz could have made both Content and Social into successful standalone products (just as Moz Local did in the 2 years prior).
- A smaller, more focused company doing nothing else but (either) Wonk or Content could probably have achieved those goals faster and with a much lower dollar expenditure (big companies have roadblocks, costs, and organizational friction that a small startup team just doesn’t face).
- We drastically underestimated the complexity of selling many products: how it dilutes brand association, impedes funnel optimization, and puts stress on product, marketing, sales, operations, customer service, and engineering teams (I found this to be exponential — two products felt like 2X the work/challenge, but four products was way more than 4X).
- Inbound marketing never really became a *thing,* at least, not in the way I thought it would. It’s a useful phrase to describe organic, earned marketing channels that work together, but it never turned into a job description or a role across the web marketing world. Social media marketers focus on social. Content marketers focus on content. Email marketers do email. And SEO professionals do SEO.
- Individuals and companies that need multiple functions across these channels don’t value “All-in-One” software, nor do they care if all their tools come from the same vendor. Instead, we (yeah, I’m the same way) would rather pay more, have a steeper learning curve, but get the best-in-class product for each task or function. The theory that Moz could better serve customers by having a wide breadth of good-enough features vs. being the absolute best at just one thing (or a handful) proved false.
What I regret most is not having the experience, the examples, and the proof to convince our team earlier to stay away from multiple products or all-in-one products while losing focus on our core customers and market. It took a long time, a lot of money, and now, this heartbreaking event to change direction. I really hope it’s a lesson we’ve learned for good.
The Painful Reality of Layoffs
With 12 months of cash in the bank and growing revenue, did Moz *have* to do layoffs in August? No. We could have carried on, done our best to limit non-personnel expenses, and tried to get growth fast enough to catch up to our expenses before we ran out of money entirely.
But I believe, as did our leadership team and board of directors, that making the company cash-flow positive ASAP was the right thing to do.
I say that even though the process sucked beyond belief. I’m pretty sure that because of this decision, I’ve lost close friends, perhaps permanently. I know there’s anger and disappointment from both those who lost their jobs and those who stayed. Geraldine (my wife) was brokenhearted and infuriated by the event. She and I have reflected for years about the shitshow that was her own layoff experience at board-game maker Cranium back in 2008. Cranium’s journey and lessons were ones I promised her we’d never repeat, yet here we were, overextending finances to try and grow into new product lines outside our core competency (just like they did), and winding up making too little progress at too high a cost (just like they did).
For a long time, this has been a point of tension with me inside the company. In November, 2013, I started growing what has become a ridiculous mustache as part of a commitment to return Moz to profitability.
Above: A very kind, whiteboard welcome from Skyscanner for a presentation I gave there while in Scotland
I stood on stage during an AllHands meeting and told our staff that I’d grow my mustache until Moz became profitable again. I hoped that would be only a few months away, but after I stepped down as CEO, the strategy changed from a more conservative approach to one seeking out growth and spending capital to find it. My advocacy for profitability may seem reasonable for a privately owned company, but it’s pretty much diametrically opposed to the traditional model for venture-backed SaaS businesses. Examples abound – Hubspot, Eloqua, Marketo, Salesforce, LogMeIn, ConstantContact, and 100s more all spent massive amounts of capital prior to IPO. In fact, that’s the traditional model (as evidenced by the average operating margins you can see here). Coupa Software, who just filed for an IPO this week, lost $46.2mm on $83.8mm in revenue last year. SaaS is a world where companies burn a lot of cash to get growth, and both investors and executives expect that model.
So why am I opposed to it? Because I hate the risk. I know entrepreneurs are supposed to be risk-takers, comfortable with the ups and downs of a startup’s journey, even if that means hiring fast one year and laying off a large portion of your workforce the next. But I just don’t have the stomach for it (which may be another reason I’m not a great choice for the CEO of a venture-backed company).
It’s toughest in the software world, because while software has high margins, it also has very few places to cut expense except people. Below is a model presented by Moz’s CFO showing where we were spending and where potential savings could come. As you can see, without dramatic cuts to staff, there was simply no way to get to profitability fast.
A reasonable observer of Moz’s finances might ask: why does the company need to be so aggressive in pursuit of profitability right now? It’s a fair question. Conceivably, we could have trimmed fewer expenses (in people and/or elsewhere) and relied on our slow but continuing growth to keep us on track. After all, if we went from 12 months of cash runway to 18 months, and that runway kept increasing as revenue grew, we’d likely be OK.
The counterpoint is risk. If Moz’s growth slowed, or if it turned negative, or if the world economy took a massive hit (The Economist’s Global Forecasting Services lists a few scary things that came up during the board meeting) and we weren’t aggressive in cutting costs now, we’d have to do a second round of cuts. That felt absolutely untenable to everyone on the board and on the leadership team. Our philosophy was to do this once, do it deep, be profitable almost immediately, and never have to go through it again. This approach hurt more in the short term, but gives us an infinite runway and risk mitigation to spare for the future.
As Sarah noted in her blog post, this cut-deep model also gives us cash to be opportunistic should a great offer present itself. We’re still believers that the right data, people, or even acquisition might be worthwhile bets for Moz to make, and we wanted to leave the company room to do that. Even after the expenses of severance and restructuring, Moz has ~$10mm in the bank we can use to help pursue a great opportunity should one arise.
We did some financial modeling to imagine what it would look like if revenues over the next few quarters ended up lower than our goal. This is NOT a board approved budget or actual projected financials, but rather an exercise to see how things would look in a terrible case, with the goal of being in OK shape even if the numbers looked like this:
In order to keep the visual above in this post, I had to include the following. Apologies, and get ready for some legalese:
We cannot predict the future and do not know if, or when, we will be profitable or cash-flow positive. This blog post is not intended, and you should not use it, for any investment decisions with respect to Moz stock. Our actual future results are uncertain and could be significantly different from the situations we considered. We do not know how things will turn out. Our customers could spend more or less with Moz, making our revenues higher or lower than we modeled, or we could see increased expenses. The exercise above is purely hypothetical, but was useful as we made very difficult decisions.
As you can see, even in a future where revenue declined (when, in fact, Moz’s revenue has been growing consistently the last 2 years and is still on pace for ~$40mm this year), assuming we kept expenses down, the budget cuts we’ve made could get us to cash-flow positive by Q1 2017. This type of “let’s imagine what a scary future looks like” modeling can help all of us feel more confident that additional, future cuts are unlikely.
In the board meeting, one of our directors noted that, in their experience, few companies and few leadership teams have the chutzpah to make deep cuts upfront and prevent more risk down the line. Often, it’s a high-conflict discussion at board meetings about how deep to go, and how optimistic to make the future-looking forecast. As you can see from that slide above, we chose to be very pessimistic, imagining a forecast where growth turns negative despite every indication that’s not going to happen. We wanted to be as critical as possible, so that we’d be prepared for even the worst case.
Thankfully, our August performance did, indeed, maintain growth. September’s look like they will, too.
Via our financial dashboard for August, 2016
I’m hopeful that as early as December, I’ll get to shave off this painful, fuzzy reminder of my past failures. And I’m glad that we’ve built in room for missteps and the unexpected. I feel that Moz’s leadership can honestly stand in front of our team and say “we have pursued every reasonable avenue to prevent the need for any future layoff.”
Why We’re Returning our Focus to SEO
A lot of arguments have been made over the last few years, both inside Moz and outside, that SEO software is a risky market, a low-growth potential market, or a tapped-out market. Here’s why I don’t believe any of those, and why I’m glad that our board and leadership team made the decision to keep focusing on SEO:
Market Reasons:
- Interest in SEO dwarfs interest in other inbound marketing fields like social and content
- Many competitors in the SEO software have built incredible businesses over the last 5 years, including a handful who are larger than Moz is today
- Organic search still sends a huge portion of the web’s traffic: Over 25% according to SimilarWeb (with faster growth than any channel apart from direct)
- Our internal data (using clickstream analysis) suggests that organic search gets over 90% of all the clicks that take place on Google’s US search results
- Google earns more than $60 Billion in paid search revenues each year, while the combined revenues of every SEO software company combined are less than than $1 Billion — a mismatch I don’t believe is sustainable if a great software vendor ever serves this market effectively. Organic search is greater in volume, in opportunity, and provides a true competitive advantage.
- 10 years ago, very few companies in the world had a dedicated SEO team or marketing professional. Today, hundreds of thousands do, with more adding them every day. It’s why SEO was #4 on LinkedIn’s list of the top skills that got people hired in 2015, the highest ranking it’s ever held.
- The search engines’ continual removal of data critical to the marketing process (e.g. keyword volume in AdWords) presents ever more opportunity for a company that can focus on replacing what’s been lost
- The competitive landscape in SEO software remains more accommodating and open than in social media, content, or many other web marketing fields (especially adtech)
Organizational Reasons:
- SEO is what Moz is known for, and how we’ve built our brand. Focusing on it means playing to existing branding strengths.
- The team we have across the company knows SEO – how to build products for it, how to market it to customers, how to create content for it, and how to support it.
- Our community and audience are vastly more passionate about and more dedicated to SEO than any other web marketing practice.
- It’s our area of greatest achievement and greatest competitive advantage.
- Selfishly, it’s the area where I think I can personally help the team and business the most.
- Doing one thing (even with two products – Local and Pro) will, I believe, make us a better company, with better data, better products, and a better story. And I feel strongly about stories:
(via Andy Raskin on Medium)
Moz has a ways to go to become industry leaders in SEO software on all the vectors we need to hit. But we’re contenders in a lot of those today, and given time, focus, and resources, I think this is where we can be best in the world.
A [email protected]#$d Up Cocktail of Emotion
Someone asked me how I felt about the changes just after they happened. I replied:
I love SEO. I love getting to focus. I’m so glad we’re aiming for profitability again.
I’m also really thankful that I wasn’t in a managerial position and didn’t have to make what were, I’m sure, insanely tough calls about who stayed at Moz and who didn’t. I feel guilty and awful for all who were in that position, and all those who are seeking jobs now. I remember what it was like when Geraldine and many of her coworkers were laid off and the feelings of doubt and fear, resentment and confusion that washed over us. My empathy and my heart are with everyone on both sides of this heart-wrenching process.
I was proud to see ex-Mozzers banding together to build the HireMoz site, which features a ton of amazing people you should hire right now if they match your needs. I’m also really proud to see the 130+ companies who reached out seeking to hire Moz folks for literally hundreds of open roles. That, to me, suggests that we built a reputation for employing high quality, in-demand people.
Finally, for anyone reading this who was part of those layoffs — if we haven’t already connected, and I can be helpful to you, my network is yours, my LinkedIn recommendation is yours, and if there’s anything else I can do for you or someone else you know, don’t hesitate to ask.
My New Role
As part of this shift in strategy, Moz has asked a few things from me:
- Manage the sale/divestiture of Followerwonk. I’ve talked to a number of folks and shared a bit about this on Twitter, but if you or someone you know is interested, please drop me a line (rand at moz.com)
- Lead the strategy for growing our self-service marketing funnel (for both Moz Pro and Moz Local) over the next few months. This is a project I’m excited to take on, but it’s also a massive beast of a work effort that requires a lot of coordination across teams. I hope to share more about what we learn here — successes and failures — in the months ahead.
- Assist our product leadership for Moz Pro to help make that software the best in class across 8 dimensions of SEO: Keyword research, rankings, crawl, on-page optimization, links, competitive intel, reporting, and workflow. After the success of Keyword Explorer, I’ve got some confidence we can eventually pull this off.
- Help to manage and run Mozcon in 2017. We are, tragically, losing two incredibly talented folks who’ve played pivotal roles turning Mozcon into the success its become – Charlene and Erica. I have no doubts they’ll go on to do amazing things, but I’m going to have a hell of a time trying to compensate for their departures. Thankfully, I’ve got the help of Danielle Launders, and many other Mozzers who’ve volunteered to assist. We’ll do our best to bring a great Mozcon back to Seattle next year.
- Work hard to re-engage and be less disconnected from leadership, even when I disagree. This one will be hardest for me, because disengagement is such an ingrained part of how I handle conflict. I’m going to have to be my best self here; I’ve promised to try.
All this is in addition to my already very full workload, so you may find me saying no to more requests, and backing out of a few obligations over the year ahead. Whiteboard Friday, the conferences and events I’ve committed to, and my book are the three I don’t want to let go, but other stuff will likely have to take a backseat.
Ask Questions; I’ll Answer Them
It’s a hard time to be transparent, but to me, that is the most important time to be so. If we shy away from transparency when things are rough, then it’s not really a core value, it’s just a marketing tactic. I don’t think I could look myself in the mirror if that were true, so I invite you to ask hard questions, easy questions, whatever’s on your mind and whatever this post left you wanting.