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BetterUp: How BetterUp built a $1B Coaching Biz
Highlights from ✨Hot Deal Time Machine✨⏳ -- On Clubhouse Weekly at 8PM ET
💼The Business Case: First replacement, then expansion
When Alexi Robichaux, CEO of BetterUp, raised his seed round in 2015, a lot of investors didn’t yet buy into coaching as a venture-backable sector. To many, it was hard to grasp the size of the market or the acuteness of the need. Maliwal recalls that Robichaux’s success in fundraising came from his skill in focusing investors on an initial use case: that of replacing the inefficient spend on management training (e.g. weekend long retreats or tedious sessions locked inside a conference room) in industries like consulting. While the replacement of these trainings was only a fraction of what Robichaux saw as the long-term vision for BetterUp, this wedge made the concept quantifiable and accessible to early investors. From there, he could begin to paint the picture of expanding the market to tech companies, banks, and even hedge funds.
📊The Traction: Deducing product-market-fit from 3 pilot customers
BetterUp raised a $1.5M seed round and at the time had three pilot customers (both paid and unpaid) and three additional prospects in conversation. These initial customers spanned multiple industries: Deloitte (consulting), Thumbtack (tech), and Castlight Health (healthcare), demonstrating that BetterUp could in fact service a broad range of customer profiles. While early, Maliwal said she looked for two primary metrics to build conviction in the viability of coaching becoming a billion dollar business: 1) The number of seats each customer signed up for and how many high performing managers they would put on the platform (relative to their employee base), and 2) The completion rate of coaching sessions and how many times a month an employee would meet with their coach. While still early days for BetterUp, these two metrics provided the early signs of product market fit - showing that employers saw value in the platform and that employees loved the experience.
🚫The Risk: Is coaching a nice-to-have?
Six years ago, very few people were talking about coaching. And if they were, it was typically a high profile executive talking about spending $1000s of dollars per session. Maliwal explained that at the time of the seed round, the main question that her partnership asked was… “Is coaching just a nice-to-have versus a need-to-have?” The main concern was that people would use a coaching service sporadically, but not make it a recurring habit. In retrospect, the main issue was not that people did not need coaching. Instead, it was that they just didn’t understand it. Robichaux explained in his pitch that one of his main efforts going forward was to not only educate organizations on what coaching was, but also to educate the employees on what value they would get out of coaching. Like many other great companies, BetterUp did the hard work of educating a market first in order to ultimately expand it.
🧪The CHRO Formula: Value (✓) + KPI (✓) + Budget (✓)
From the early days BetterUp employed a top-down enterprise sales strategy. This meant that the Head of People or CHRO was a critical decision maker in every sale. Maliwal identified three key things that allowed BetterUp to crack the formula in selling to CHROs at a time when People Teams were overlooked and “the future of work” was not yet a buzzword. First was a product that added clear value. BetterUp provided a novel service that had a direct impact on employee engagement and employee retention. Second, the value that BetterUp was providing was quantifiable (through satisfaction surveys, retention rates, and repeat rates on sessions). These clear KPIs provided the CHRO with insight into the health of their organization, as well as clear ROI - something not always available in their toolkit. And lastly, BetterUp initially worked within the existing CHRO budget by replacing costly manager trainings - making it an easier sell. In turn, BetterUp’s share of this budget would expand over time as they continued to demonstrate their value and quantifiable impact to CHROs.
👉🏼 Up next this Thursday: Hear the story of how Latch scaled a smart access device into a full-building operating system - featuring Luke Schoenfelder, CEO of Latch, and Jason Black, Series A Investor at RRE.
👉🏼 ✨Hot Deal Time Machine✨⏳ is a 30-minute weekly Clubhouse show where we travel back in time to the early stages of some of today’s hottest deals. Hear from founders and investors on the original pitch and thesis…and how things actually played out, Thursdays @ 8PM ET