Rekener's 360 Degree Customer View Reveals Hidden Value in Black Duck's Business

Black Duck Customer Data Reveals Hidden Value of On-Demand Business

About Black Duck

Organizations worldwide use Black Duck SaaS products and On-Demand audit services to secure and manage applications and containers at the speed of DevOps, eliminating pain related to open source security vulnerabilities and license compliance.

Black Duck is led by Lou Shipley, CEO, a software industry veteran.  He came into Black Duck in 2013 with a mission of turning the business from a largely services-based company into a high-growth SaaS business.  

Fast forward to today and it's clear that Lou and the Black Duck team were able to create tremendous value.  Black Duck Software was acquired by Synopsys for $565 million at the end of 2017. One of the reasons why Black Duck received a great revenue multiple on the deal was by proving that their On-Demand audits not only generated services revenue, but also were a boon to their fast growing SaaS business.

Black Duck Background

Black Duck has two major lines of business.  The first is Black Duck On-Demand, which is a services business that does open source software audits for companies.  In On-Demand, Black Duck scans a customer’s code base, and helps the company understand both legal and security risks posed by open source software they use.  The most common scenarios for Black Duck On-Demand customers are when they're acquiring a company, being acquired, or seeking funding. The On-Demand audit is often part of due diligence associated with these events.

Black Duck’s second line of business is a SaaS-based product business. Black Duck’s flagship SaaS product is Black Duck Hub, which automates open source security and license compliance during application development.

The Problem

Black Duck’s On-Demand business is a stellar business on its own, with a large market and great margins.  But the On-Demand market is unpredictable because it’s tethered tightly to the volume of M&A and fundraising happening at any time.  Black Duck was frustrated because it's almost impossible to forecast the volume of M&A activity in any given year.

Also, when seeking funding and entertaining possible acquisition offers, Black Duck was getting a high revenue multiple for their SaaS business, but a low multiple on the audit business.  Black Duck needed to prove the connection between On-Demand and SaaS. This connection was critical for acquirers and investors to see that the On-Demand business was valuable in terms of both the revenue it generated, and also the conversion of those customers to SaaS customers.

But, Black Duck was having an extremely difficult time seeing any connection at all between On-Demand and SaaS.  They had years worth of data in Salesforce, but the data was messy. There were sometimes 20 accounts for the same company, due to multiple purchases over the years.  There were opportunities with products listed on them, but it was extremely hard to roll that product-level data up to accounts. So despite their best efforts, Black Duck really had no way to produce a 360-degree view of each customer that allowed them to see the entire history of that customer.  And since they had no 360-degree view of any one customer, they couldn't combine multiple customers together to understand purchase patterns to figure out connections between On-Demand and SaaS.

Rekener Solutions

Black Duck engaged Rekener to solve the problems described above.

Data - The first problem Rekener solved was the data problem.  By connecting their Salesforce and Marketo instances to Rekener, the Rekener Platform automatically cleaned up years worth of Black Duck data.  Rekener has built-in account resolution and deduplication technology that uses machine learning as well as internet lookups to join accounts that represent the same company.  So overnight, after Black Duck connected their systems, Rekener turned accounts like Cisco, which had 30 duplicate accounts in Black Duck’s Salesforce instance, into just one Cisco account in Rekener, with all of Black Duck’s historical data attached to it.

Analytics - Black Duck wanted to understand if, and how, companies move from On-Demand audits over to SaaS customers over time.  So, in Rekener, they identified the first offering a company purchased (On-Demand or SaaS). Then they bucketed companies based on which of those they purchased first.  Next, Black Duck created cohorts of companies that purchased On-Demand audits, based on when they made the purchase. On top of those cohorts, they overlaid data on SaaS purchases from those same companies.  

Further, Black Duck needed to segment their cohorts of On-Demand customers to see which yielded best results over the long-term.  Black Duck was easily able to create segments of customers based on size and industry, to see which had the best conversion rates to SaaS.

Results

By using the Rekener platform, Black Duck was able to make connections that they had never been able to in the past.  They proved that On-Demand customers do indeed become SaaS customers -- it just takes a bit of time. The average time from the first audit to the first SaaS purchase was about a year.  So, if Black Duck was consistent about messaging to these customers, they knew they’d be able to convert them. Further, Black Duck saw which industries converted best to SaaS. This allowed them to invest their cross-sell marketing dollars wisely, as certain industries had no need for their SaaS solution and therefore didn’t need to be marketed to.  Meanwhile, other industries converted very well, and so investing in cross-sell marketing to them would be beneficial.

The most critical result though, was the ability for Lou to see that bringing in On-Demand customers was highly valuable to his mission of growing the SaaS business.  While it wasn’t the case that every On-Demand customer could be a SaaS customer, a large subset could be. And, in fact, customers that had done an On-Demand audit first had a better win rate and higher ASP for SaaS opportunities than companies that had never done an audit.

That meant that revenue coming in from On-Demand could have a much higher value multiple than traditional services businesses.  When combined with the strong multiples for Black Duck’s SaaS revenue, Black Duck’s true enterprise value was clear. The following graph shows the amount of SaaS revenue generated by customers who started as On-Demand customers, by annual cohorts.  

Cohort analysis

“Rekener gave us visibility into how our On Demand customers grow over time,” said Lou Shipley, CEO of Black Duck.  “We knew that the On Demand business was great from a cash flow perspective, but we struggled to demonstrate the connection between the On Demand business and the Hub business.  With Rekener, for the first time, we could see how the On Demand services business contributed to the growth of our SaaS business. The proof was in the data.”

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Gregory Keshian

Greg is COO and Co-Founder at Rekener. Greg’s entire career has been focused on using BizOps to grow recurring revenue businesses. Before joining Rekener, he served as VP of Operations at ZeroTurnaround, where he built its BizOps practice and team. He did the same for the AVOKE call center analytics business, a SaaS company within BBN Technologies. He got his start in BizOps for recurring revenue businesses while at AppNeta.

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