The German HR software unicorn: Personio
Overview
Introduction to Personio
The SME HR software market and GTM(Go-To-Market)
A customer-centric team and culture
Product onboarding and pricing
Takeaways
Total read time: 10 mins.
Introduction
Managing HR tasks via excel sheets is tedious for HR professionals.
Personio, a Munich-based HR software SaaS startup, has the vision to solve this problem: Help HR professionals to be more productive, so they can focus on the most important asset of their companies: Employees.
Before digging deeper, let’s first understand what software Personio has built.
To put it simple, Personio wants to be the OS (Operation System) for HR professionals. Just like the iPhone uses iOS as the OS and adds Apps on top of it, Personio built a central HR system with its own functionalities and the ability to plug in 3rd party services using APIs. The functionalities range from uploading employee data to tracking applications...etc, all in one place.
My initial question is: How much value can Personio create?
The answer is: A lot, especially for SMEs (Small and Medium-sized Enterprises). When the CEO and Co-Founder Hanno Renner found that his friend, who was a startup CTO, had to manually deal with all the HR administration tasks, Hanno started Personio with his friends in TU Munich to address this common problem in SMEs.
How does the SME HR software market look like? And how did Personio approach it?
According to EU's 2018 report, there are around 25M SMEs in Europe. Most of them, however, don't have modern HR software[1]. They use outdated software or even excel sheets to manage HR tasks, which shows a big potential market for Personio.
Plus, one of Personio's venture capital Accel mentioned that the SME market is underserved by B2B SaaS companies due to the nature of a very fragmented market, small contract value, and higher likelihood to go bankrupt[2]. Furthermore, the SME market has benefits, such as a much quicker sales circle, lower customer requirements, and a higher willingness to try new products.
What Personio did right to enter this market? There are three main learnings:
High-Quality Content: Personio invested early to produce high-quality content via texts or video since this effectively educates potential customers at scale. The content includes not only product demos and roadmaps, but also HR experts’ talks and customer success stories[3], which helped Personio to attract potential customers without a sales team in the beginning.
Scalable and Transparent Pricing: There is s a pricing calculation page on Personio’s website to address customers' different needs and willingness to pay[4], so potential customers can calculate the cost without speaking to Personio. This allows the sales team to close more deals without spending too much time on pricing discussion.
Hub-and-Spoke Product Design: Personio realized that the more HR tasks can be handled on its platform, the stickier it will be for its customers. The central system (hub) should handle the basic tasks, then additional features (spoke) can be tailored to customers’ different needs[5]. Plus the ability to connect 3rd party services via APIs, HR professionals can effectively finish most of their tasks in one place.
Lastly, how did the venture capitals look at Personio so far?
Looking at the fundraising history, Personio got some smaller funding from German VCs and angels in the seed round. Unlike some Silicon Valley startups which are chasing growth and need lots of initial capital, Personio generated revenue in the beginning to fuel its own growth. Later on, it got more attention from leading global VCs, such as Accel and Index Venture, who invested in similar B2B SaaS companies that are serving SMEs. I saw Index joined the later rounds again and led the round (series D), which, I think, is a positive signal that Index really believes in Personio and puts the money where the mouth is. The lead investors for all the rounds so far are below:
Seed ($2.1M, 2016/07): Global Founders Fund, Picus Capital, Angels
Series A ($10.5M, 2017/08): Northzone
Series B ($40M, 2019/01): Index Venture (also invested in slack, zendesk, dropbox)
Series C ($75M, 2020/01): Accel (with portfolio companies targeting SMB software market)
Series D ($125M, 2021/01): Index Venture
Overall, I think the market Personio is targeting, the GTM (Go-To-Market) approach, and venture capital market response is highly aligned. So a steady growth rate can be expected.
How did Personio build a customer-centric team and a great company culture?
It’s surprising that all the Personio founders didn’t have any official work experience back then, particularly, none of them had HR experience. How did they start a business they didn’t understand? Building a customer-centered team and a great culture might be the answer.
I thought “come on, change topics!” when I heard CEO Hanno repeatedly talking about the importance of company culture and why he interviewed the first 500 employees himself. But it’s the right thing to do. Some of my observation about the company culture are:
Customer Empathy: This is one of Personio’s core values, and they operationalized it by setting up CAB (Customer Advisory Board) to improve its product and service[6]. CAB comprises 12 HR experts from Personio’s customers and will be re-elected every year. This is not only a step closer to the customers but also an effective marketing tactic to attract more potential customers.
Company Culture: The founders know they need top and experienced talents to join in order to grow their business. So they set up the EAB (Employee Advisory Board) to give feedback to the management team [7]. It makes sure that the whole company can align. Furthermore, I notice most of the management team have the same LinkedIn background, which shows a sense of a team. Additionally, even their CTO emphasizes how important company culture is in the Inside Personio video, which makes me believe that Personio really focuses on building a great culture.
Put “Customer Success” as the core of the company: An easy way to assess if a company focuses on its customers: Is there a C-level executive who is responsible for the customer success function? At Personio, customer success is under COO, which indicates that growing customers is extremely important. The current COO Jonas also shared in a Medium post that the key factors to build a successful customer success team which focus on customer and employee onboarding, as well as recruiting the right talents. These are all being designed to make their customers successful. [8].
Looking from the outside, I assume Personio really has a customer-centric culture created by building a great company culture.
How did Personio design customer-oriented onboarding and pricing for its product?
The first CTA (Call-To-Action) from Personio's website is "Book Your Demo", which shows that Personio aims to direct potential customers to talk to its sales team. As Christoph Janz from Point Nine Captial pointed out: Make your website your best marketing person [9], let’s dig deeper into how Personio did this.
Allow the potential customer to gradually discover your products.
The example here is Personio's implementation process page. Since B2B SaaS products can only drive value for its customers once they started using them, making sure that the implementation experience for the customers is as smooth as possible is key.
Instead of putting all the documentation in the help center, Personio separates the implementation process as a stand-alone section, and gradually reveals relevant information in the right place to help customers understand how to implement Personio’s product. This design also helps to manage customers’ expectations on how long the process might be, so the implementation team can deliver a great customer experience.
A clean pricing table.
Personio has a very detailed pricing calculation page. Why? Because getting pricing right is extremely important for SaaS companies. You don’t want your big customers to think your products are too cheap (not credible), and small customers to think it’s too expensive, both can lead to your customers leaving you. The promise for a SaaS product is that customers should pay the value they got. So how does Personio use a scientific method to decide the pricing?
Based on the current COO Jonas's medium post [10], I simplified it to a few steps:
Find your value metric(s). Ideally, it grows over time, fluctuates little, and corresponds to the customers' willingness to pay.
Do product anatomy till the most basic product unit.
Analyze the perceived value from your customers and your organization, plus the customer usage data.
Identify features, modules, and add-ons for the plans by combining the above data.
Test your packaging and pricing, then adjust from there.
If potential customers know the cost upfront, it will increase the trial rate and help sales to close deals faster.
This pricing design process tells me that Personio constantly optimizes the value it delivers to its customers to fit the revenue it should generate, so there won’t be money left on the table or it scares away customers with overpricing.
Takeaways:
Solving the right problem is even more important than domain knowledge and experience. So spend enough time to validate if a problem is worth solving.
There is no small market, as long as your solution can be scaled effectively and you find the right growth model.
Content is king. Invest early in high-quality content online, this will pay out nicely later. In a world where information is a Google click away, B2B buyers will probably do an investigation online before contacting your company. So do it right in the beginning.
Design your website, product, team, and culture around how to serve your customers best.
That’s all about it. Feel free to share this article or get in touch with your feedback, thanks!
Best,
Chih-Wei