E1084: David Sacks on his foolproof operating philosophy: “The Cadence”

[Music] this week in startups is brought to you by vanta compliance and security shouldn't be a deal-breaker for startups to win new business vanta makes it easy for companies to get a sock to report fast twists listeners can get $1,000 off for a limited time at vanta dot-com / twist LinkedIn marketing to redeem a free $100 LinkedIn ad credit and launch your first campaign go to linkedin.com slash this week in startups and Fiverr find the perfect freelance services for your business go to fiverr.com and use code twist to receive 10% off your first order hey everybody welcome back to this week in startups the podcast we talk about building startup companies and here in Silicon Valley there are two individuals who are considered really three who are considered the greatest operators of all time one will be Sheryl Sandberg from Google Fame and also Facebook you got Keith whoo boy gets a lot of credit for Square and some other companies that he's co-founded and operated within and of course there's David Sachs who was the CEO of PayPal created Yammer which was the quickest SAS billion-dollar unicorn sale ever going from zero to over 50 million in revenues in about four years I think I have that number correct you know him he's one of my best friends in the world and he has now making his one two three four five six seventh appearance on this week in startups you can see his first one he was actually episode 5 back in May of 2009 thank you for doing it back in the day when nobody knew what podcasting was and you can find a large range of these but David like myself is focused on investing in companies and he co-founded and is the general partner of CREB ventures which has I believe three funds and over seven hundred eight hundred million under management ill correct me in a moment and it's become I would say easily top 7 venture capital firm in terms of venture capital founders asking me for introductions and then when it comes to SAS specifically software-as-a-service really David is one of two that I get asked along with Jason LEM kid who does a great job and run sastric conference David welcome back to the program yeah good to good to be here I see you're getting some light reading and for those of you watching the video I see I know there's so many nuggets in that book behind you that you need multiple copies to write all the notes and the side notes but thank you for that for those in olicity he's got a stack of 50 copies of angel behind him which is hilarious well done so just correct me if I got anything wrong there what craft is your writing a third fund well there we go there we go there we go craft really promote myself for a second yeah exact craft logo yeah so yeah craft were on fun - it's a five hundred million dollar fund we you know do classic early-stage venture seed Series A Series B and three funds we're on our second the first one was 350 so it's 850 million total great and yeah and you know like you said like we do consumer SAS and marketplaces primarily and I tend to focus on bottom-up SAS but what is bottom-up SAS mean it's it's SAS it's business software where the users or the employees of the company pull the software into the company like a consumer would so it's kind of consumer eyes business software and that was the that was the go to market strategy or the idea that Yammer really pioneered about you know a dozen years ago we were a bunch of consumer Internet guys you know me after PayPal I'd done consumer who decided to attack you know business software and we didn't really know anything about it but in those days business software was distributed via sales team and it was done through the IT department and our idea was that we can make it viral and go over the heads of the IT department this eventually became known as shadow IT and we sort of pioneered this concept of you know consumer eyes businesses I mean the old days Oracle was famous for having the greatest sales training program in Silicon Valley where they would try to sell some chief technology officer chief information officer on some 10 million dollar a year license and then everybody in the company found out one day okay we use an Oracle or okay one day we're using IBM whatever it was and then because the software was subscription-based and you didn't have to install anything on a server people could log into a website and just start using it so there were a couple of different pieces there that allowed it right yeah the prerequisite was software moving to the cloud you know back in the early 2000s it was still all you know on-premise it had to be physically installed on a server behind the firewall and once that requirement got lifted because you know software moved to the cloud you could then have users or employees in the company to start adopting it like they would any other product but that was a big that was a big change so we're sitting here today in 2020 and it's very easy to start a company in the SAS space however what is really hard is to scale it and you and I see this all the time me as an early seed stage investor and you as a seed Series A Series B investors just slightly down the road we overlap a bit there but you wrote in phenomenal piece which it resonated so deeply with me and I don't do this often but when I see a piece that's written by an expert that gives actual practical advice that's not some rehash that I see all the time on medium I immediately say hey can you come on the podcast and can we just chop it up into pieces and want people through it step by step and then the title of the piece is you'd think you need a CEO Oh a cheap chief operating officer which you were one of the elite ones here in Silicon Valley but what you say here in the headline is what you really need is an operating philosophy so I want to get right into this with you so I'm sure you have had this experience I've had this experience you're at the board meeting the startup starts feeling like it's coming apart at the seams and it's it's basically chaos right I think I use the word shitshow and your first sentence so somebody raises their hand and says we need a CEO oh you're saying you don't need two CEO what you need is an operating philosophy so explain what the operating philosophy we're talking about here is that you explain and if you type in you think you need a CEO what you're running is an operating philosophy into Google you'll find this or it's in the show notes right so that yeah that the title of the piece is the cadence and it's about how you put your startup on an operating cadence to reduce the sense of chaos and synchronize all of the efforts of the employee so that it's not you know a show and this is this is specifically meant for startups that are scaling from say 50 employees to 500 employees that's the the time period when this really matters in the early days of a startup the biggest problem is not you know sort of how to rein in the chaos it's just how to find product market fit that's the separate blog post I wrote you can check it out called wilderness period but this blog posts the cadence is about how you once you do find product market fit how you how do you scale the company in an elegant way so that you can solidify the you know the the initial traction that you have and you know and just scale this thing without it degenerating into this chaos and when you're under 30 people in my experience everybody's in the same room everybody's in the same you know your shot of each other so you haven't broken up into tribes you haven't broken up into functions as explicitly and even if you had you know you can kind of sit in on each other's meetings when would you get past 15 you got 20 people there's no conference room and if you did have a conference room big enough it's chaos correct so right so this is what happens is that in the early days in the beginning of a startup everybody is in the same room either physically or virtually you know in the days of kovat as a result everybody knows what everybody else is doing everybody is pretty much a generalist and the run around telling everybody what to do and what to build and that's the way the startup works in that seed stage all the way to say series a but around 50 employees that approach stops scaling because there's just too many people in the company for the founders to just sort of tell them what to do on a test level and so you start setting objectives you have to start managing teams and people and you start divvying up the organization you start breaking up the org chart into silos and functional areas you've got a you'll create a team for sales and customer support and and you know obviously you know Rd engineering marketing and and then you'll also hire your first product managers and so you'll go from the product roadmap being dictated ad hoc by the sort of the founder CEO to you know the founders have to work through product managers to guide the development the startup and so this is sort of the fundamental change as you get above 50 employees on your way to to save 500 and you know what what typically happens is that because of this these new functional silos in the company it starts to feel very compartmentalized and and so people kind of feel isolated or disconnected and at the same time you've got other functions which are underdeveloped they may not have mature leadership yet and then I'll have any leadership yet and so you've got other functions that you know just aren't quite working and the result of this sort of disorganization and disconnect is chaos and so the cadence is designed to describes my operating philosophy that I started using a PayPal of CIO kind of figured it out there and then I adapt it for SAS a Yammer and it's a sort of operating philosophy I think everybody can use and it basically tells you how to organize the four major functions of a SAS startup and then how to synchronize them okay so when we get back from this quick break we are going to go over those four groups in the company and then how to establish this cadence and I'm gonna crack open a cold Coors right now because it's Friday and it's nothing like islet nothing a little more than responsibly having a crisp Coors Light on the pod when we get back more with sex all right everybody if you don't have your sock to think lines buttoned up well you're not going to be able to close those giant enterprise customers it's really that simple and if you already have a saw to report don't you want to make it easier to maintain it year after year after year of course you do well Vantage compliance software makes it easier to get n to renew your sock to their software continuously test against technical and non-technical sake requirements and they partner with over two dozen Auto firms who have been trained to file sock two reports directly within vanta the average 2250 person company is sock - ready with Fanta 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got promoted to CEO to rein in that chaos and so we you know over the course of that that was kind of my first startup experience we learned how to how to manage a you know the startup that has hundreds of employees and still wants to be very productive and you know ship and sell and you know all those kinds of things so your tio is trying to keep it together and but there's only one Peter teal to go around you don't you've got nobody who's actually creating this operating philosophy or well Peter yeah I mean Peter you know Peter was never very interested in being kind of an operator per se he was always interested in more the financial side he great strategist tremendous strategist but he was you know very happy to kind of hand off a lot of the internal operations and then when I got to gammer I took a lot of the things I learned like I said I adapted it for a SAS startup you know main difference being that SAS startups need a sales team and so we learned you know how to do enterprise sales and then you know in order to enable the sales team you need a marketing team knows how to create the right kind of collateral and so on so we sort of adapted this this operating philosophy again I call it the cadence for a SAS company and you know at a Yammer I was basically my own CEO oh I didn't we didn't have a seed oil Yammer and it it worked quite what they worked fine okay so we mentioned there were four different key components of this you mean sales and marketing some people consider that the same but you break it into two pieces that are right that are kind of sharing the the bunk beds there I would yeah so yes ails them so I identify four functions that I think are critical a TAS a start-up there are sales and marketing but there's also product management and finance hi and those are really the four key functions now sales and marketing are related but they're actually in my system they're on very different schedules so that the first there's a few sort of key insights to the to the cadence okay so one is that you have the four key functional areas that have dis mentioned the second is that sales and finance are on the same calendar okay and and all four of these functions are best run on a quarterly cycle that's one of the things we should get into but they all make more sense they run more harmoniously on a quarterly cycle but it's not the same quarterly cycle sales and Finance are on one cycle and then product and marketing are on another cycle and you actually want to offset those two cycles by about half a quarter but when you snap them together with that offset that is what creates a single operating Keynes for the whole company and once you have that you can then define your events your all-hands meetings you can create you know again this operating rhythm to the company that you know alleviates this feeling of chaos and disorganization so most people would say okay everybody's on the same quarter and we're going to have a quarterly review sales goes up first you know marketing talks about what they did to drive that product tells us what's going on and finance tells us if we're still in business and how many months of run when we get you're saying put two in between what would be the traditional quarters of you know January to the end of March put one of those right on February 15th right you actually don't want to light everybody's hair on fire at the same time ah so so Finance and sales are gonna be on the same calendar and that is going to be the fiscal calendar okay and so the fiscal calendar every company as an accounting requirement has a fiscal year and they'll have fiscal quarters and so the first question you have to answer is well you know what what is my fiscal year-end gonna be you know most companies default timing it thirty first year end but for a sales driven SAS company can often make sense to have the calendar and the fiscal year end on January 31st for the simple reason that you want to be closing out the year during that sort of holiday period that Christmas to New Year's period it can be pretty rough on your sales team to be trying to close out the number trying to hit your number for the entire year during that holiday week and so what I recommend for most sales driven SAS companies they actually have a January 31st fiscal year which can be confusing if you don't know it but it's just levy eights that brutal thing where the sales people come to you and they're like I could have closed this but it was Christmas and they're gonna sign it but and it's just dumb that they're there forces a sprint when everybody else leaves on the 19th right it's it's inhumane for your sales reps and also smart customers know to demand discounts during that last week of the year because they know everyone's scrambling to try and make some number that they promised the board so I just generally find that it's better to kind of like opt out of that whole thing and just have your fiscal year end on January 31st remember December January is q4 yes exactly fabric you won I love it that's right so q1 is February March April and so on down the line okay so that's the first thing you do now the reason why sales is on that same calendar is because you want your fiscal quarters and your sales quarters to be you know snap together when your board reviews your corners you're you know the it reviews the data that your finance team puts together you don't want to be you don't be reporting out half-baked sales numbers right yeah you want to see a complete quarter sales activity to know how the sales team did and so what you're gonna do is you're gonna put your sales team on a quarterly plan that coincides with your fiscal quarters so you know on a say January 31st year-end you're gonna have February March April will be your first quarter sales plan and you know what I mean by sales plan is when you think about the quotas for your sales team you know they're going to be quarterly quotas that end on you know at the end of April and so on down the line so if you say hey we want to hit a million dollars in q1 we have ten Account Executives everybody's responsible for $100,000 in AR in q1 and you know it's a little more in q2 and a little more in q3 etcetera when you report your financials you can actually predict the financial need of the business in visa V fundraising and you know hey we're 105 110 % on plan or were 90 percent on plan and this is where the cash runs out because that's the other thing is you have everybody starts gaming the board I don't know if you've been in this board meeting where the sales team is sandbagging or exaggerating with the pipeline the finance team can't get a handle so they get conservative and everybody's kind of finger-pointing right right so what you want to do is well this is partly why sales and Finance need to be synchronized or coordinated right is the quarter begins I think every fiscal short quarter should begin with a sales kickoff where you bring your whole sales organization together and you hand out their new sales plans and the sales plan is going to contain their territory it's going to contain their quotas and their commission rates and if there's any spiffs or objectives that it will all get handed out the beginning of the quarter explaining and by the way my spife is just an objective where the company says okay we want to you know we want to incentivize the sales team to do something and maybe a non-financial goal got'em so if we get to if we hit any of these ten lighthouse customers high-profile customers everybody on the team gets an extra thousand bucks right or we want to encourage engagement at customers and that may not immediately translate into higher revenue but it's still a valuable objective for the company God so maybe something like that but the important thing generally are the the quarters and territories and commissions and you want to you you want to put your sales reps on a quarterly plan because well as most we mostly by process of elimination annual plans don't let you adjust things enough in a start-up they're too slow yep and then monthly plans are too volatile the sales results are it is too volatile for an individual rep on a month the basis and so you generally want to put your sales reps on quarterly quotas and you know for the startup that is doing everything ad-hoc and the founders are just running around telling the sales reps what to do and they're constantly changing the sales reps quotas and territories putting them on a written quarterly plan will instantly make the whole sales team feel better they'll feel like the goal posts aren't being arbitrary arbitrarily changed right and and it'll boost their morale and so you want to put them on these quarterly plans and you want these quarters to be synced your fiscal it's your fiscal quarterly is great because like you're saying not too short not too long right because sometimes sales executives are very interesting creatures in terms of management incentives actually manage matter to them more than anybody right they pick that profession because they like the incentive they like breaking the incentive so if its yearly you know it's - it's just too long defeat the feedback the feedback loop is - is too long yeah and if everybody crushes it you're the manager let's say everybody crushes the quarter if you're on a yearly plan well maybe they're gonna all ease off in q2 whereas you can change the quota for q2 reasonably cliche told them you were going to hey great job everybody was at 120% the reward for being at 120% is you got that extra 20% spiff q2 yeah it's gonna be a little bit higher we did great q1 see now you get to change it without it feeling like it was an unfair change we've pulled the rug out from under them or as you said move the goal posts right exactly yes and too many startups do that where they're just constantly changing things on the sales team and it undermines the morale of the sales team and that's why I'm moving to this idea of a quarterly plan with defined milestones so starts with sales kickoff and then that's the first month of the quarter and then the second month of the quarter you'll typically have a lot of pipeline inspections and then the third month the quarter is just heads down period where people are really focused on putting their deals over the top and and hitting their numbers let's stand it's like that routine they like that routine kickoff yes pipeline inspection and heads down loads closed pipeline inspection explained yeah so one of the biggest issues I see with in startups you know that haven't kind of nailed the sales function is that they never know how much business are gonna close in a quarter right it's like to your point it's that sales forecast that is never correct and one way or the other one way or the other and and and so inspection is really the art really by a Sales Leader to ask the right questions of the team to come up with a reliable forecast or estimate in terms of what they're gonna do at that quarter and there's software to do this now where you we track for example just for the sales of ads for this podcast we track you know everybody's deals one the you know proposals been sent out a demo has been done or a phone call has been done and and sometimes people grade leads as hot warm cold was the best practice for a SAS company in terms of the different status of a client and then where do the sales executives get queued and maybe massaged that you have to undo that investigation you know I'm saying yeah so so Salesforce you know if the default CRM system yep they will let you define or it will let you define the stages of a deal and then the sales reps will kind of advance the deal and then typically those stages will have a percent probability assigned to them and so you could come up with a weighted pipe but that's what a sales rep will do it's really up to the Sales Leader to conduct the inspection on those deals so that so that you actually can make sure that those estimates are reliable and what a good sales leader will do is ask the right questions like you know who exactly are you talking to in this organization is this the decision-maker or they merely have influence are they simply a champion do they have budget where is the budget coming from you know if IT is a stakeholder in the decision have they approved us yet you know do we have have we passed security review have they sent us security there's no are we are we talking to the CFO yet like what you know are we talking procurement I mean there's all these telltale signs and so like what an inexperienced sales rep will do is and I experience this is they'll come running over to the founder and say oh my god I've got a million-dollar deal we're gonna close it right and and you know then you find out well wait you know what they've really got is I had one good conversation with a low-level champion at a giant enterprise and that you know that low-level champion loves the product and would love to see their fortune 500 company buying it but they don't really have the clout to make it happen all right yeah we have we have nailed the sales and the finance part when we get back from this quick break let's talk a little bit about product and marketing and why you would bundle those together in the six week period between the financial quarters when we get back with David Sachs CEO o of uh you know one of the best CEOs I think of all time in Silicon Valley when we get back on the swing circles imagine you're about to launch a marketing campaign and it tested really well the team is really happy and everything is going according to plan except for that one thought in the back of your head how do I ensure the people I want to target will be in the mindset to receive my message right you got to get the right person at the right time well the answer is LinkedIn you know when you market on LinkedIn your message reaches people who are ready to do business that means your campaign will work as hard as it can as soon as you launch it no waiting no games no wasted audience you know reaching the wrong people nope there are over 62 million decision-makers on LinkedIn and they mean business that's why over 78 percent of b2b marketers rate LinkedIn as the most effective social media platform for reaching their objectives and you engage people you already know based on who's visiting your site or people who you've contacted in the past sometimes you gotta hit the same person with a message three four or five times and that boat you get them online for the demo and you close that sale so here is your call to action do business where business is done and that's LinkedIn and get $100 1 0 0 the hundy from your boy Jay Cal in advertising credits for your first LinkedIn campaign that's right if you've never tried this before $100 you got nothing to lose just get in there and visit LinkedIn calm that's easy it's an or authority in your tool bar slash this week in startups plural LinkedIn calm slash this week in startups and you will get that $100 in credit terms and conditions do apply because they're giving you 100 bucks okay so thanks again to LinkedIn marketing you solve so many problems for me and the team here and I really do appreciate that we were in fact I can tell you the story we're doing Angel University and men we're finding a lot of people high net worth individuals who want to come to my angel dot University class thanks telling did marketing so go get that hundy linkedin.com slash this week in startups thanks again LinkedIn you support everything we do and I really do appreciate that alright let's get back to this amazing episode alright welcome back to this week in startups really honor and privilege of having mister David sacks on the program for the seventh time this has only happened with five guests by the way for those of you accounting at home it's very rare that somebody has been on the program in this case getting close to being on the program once a year essentially but you know some folks are busy like mr. sacks great I really feel like I'm me on there I deeply understand the finance and the sales meeting right now marketing I thought marketing was supposed to be with sales now you've broken it and put it on a different cadence why well sales feeds off marketing okay but marketing feeds off product okay so that's why that's why marketing is on the same cadence as product it's amazing they just saying that it's so logical but nobody's written that down it's it's so obvious product gives marketing something to market and then marketing gives those leads so yeah so so so basically in a startup most news that a start-up Jenner will somehow be product news right sure so marketing feeds off product product it gives marketing the grist for the mill if the startup stops shipping you know the the the mark the news starts becoming kind of fake and manufactured right oh we had a fire we hired somebody or raised money it's not we released this new feature right that is going to blow you away you need a demo of this feature startup news should really be product centric right because if you're not shipping great product what's the point yeah I mean it's it's it's innovator die right I mean and this is why our friend Elon is just or Steve Jobs the or Benioff you know they've become incredibly good at this cadence of releasing product after product now some of them are duds some of them are not important some of them fall flat but some of them like the cyber truck people won't shut up about okay so that that's a great point those are the examples I give in my blog and here's the trick that they figured out is that you need to have a launch event to focus the world's attention so just putting out a press release is not good enough it doesn't penetrate the clutter you have to combine a live demo of your new product and then you know you add other things you talk about new customer logos you talk about your growing market share you talk about financing news you can include you know the new metrics or milestones that you've hit you can include partners in the announcement in customer stories and anecdotes all that matters and you can include it but the heart of it it always starts it revolves around a live product demo hmm and so what we're really talking about here is a launch event and you know if you think about like what Benioff does with Dreamforce every year I mean it's you know Dreamforce is a launch event I mean they do all the other stuff too there's partners and customers and all of it but they're always presenting a ton of new products which is a forcing function for the product team sinestro marketing team has we rented this space we put our asses on the line we got skin in the game right we need to show something right when Ilan says we are doing the model 3 you know or the cyber truck unveiling yes on such and such a date and you know we've been to some of those things that we get the invitations in advance like the engineers have to hit that they can't miss it no there can be there has to be a cyber truck at the cyber truck launch you're right right right and so those those events those launch events get scheduled months in advance and the invitations go out the press there's a press announcement and so the whole company I mean starting with the leader puts their you know butts on the line to hit that launch date skin in the game team right the sales team has skin in the game because they got that quarterly review if you don't hit your number now you're on a pip a performance improvement plan you don't hit your number two quarters in a row you're out right is that how you ran it yeah I mean what's what's really helpful about sales is you get customer feedback right away right so like if the if the customers not buying what you're selling you find out real quick and you can make adjustments and the great thing about a launch event is it works the same way I mean if people hate it you're gonna find out really quickly and that's a good dynamic to have now a lot of favors don't want it's scary a lot of founders are too scared that they might hear something they don't want to hear but I think yeah but that's a bad that that's not it's it's better to just get the news you know the other thing that I think a lot of founders are scared of you know what they'll say in response to this as well no one's gonna show up at our event they're worried they're gonna declare it they're gonna build it no one will come and you know my experience with Yammer even in the second year of Yammer as a startup we were able to fill a hotel ballroom and get people to go to our user conference and so you'd be surprised I mean again we're talking about startups are at that 50 to 500 employees stage and so they've raised a Series A or B or C and you know if they've done that there's enough of a community of support that they can rally that community and fill you know a you know a room now in today's sort of post kovat environment it may not it's not gonna be a hotel ball any more it's gonna be a virtual event a virtual conference that's fine it could just be a women you know webinar you're not gonna have a giant user event every quarter you know you may just have some sort of webinar and that's that's fine what's really important is that you have an audience so you can see what the reaction is and that you set the date in advance and send out the invitations because it's not just about the external benefit of generating all that positive marketing it's about the internal benefit of motivating the team to hit a deadline that you specify in advance which is the point of this blog post which is why it resonates so deeply I think with me and many people is you know you trying to reduce chaos so to reduce chaos and make people feel good you have to introduce some accountability accountability which is called the date and you know manifests itself with the date or the sales target accountability actually reduces chaos and the and that's a I would I would I would assume you would think is a healthy stress of being at a start-up yes it increases accountability it also increases transparency because everyone knows what they're working towards we know that two-and-a-half months from now we're all going to be convened together at this user conference and we're gonna have to you know deliver and so everyone's working towards the same goal and that creates you know tremendous amount of it synchronized everybody it creates you know a lot of Asprey decor and for those who don't speak French esprit de corps means I think you're spirited to your core like call it fellowship right everyone feel sorry for it means the spirit of the group right so you all feel like you're you're working on the same team Ryan kind of like the super bowl effect you know the Super Bowl is coming the amount of hype of the Super Bowl they give it that nice like I don't know if it's three weeks up until the the Super Bowl yeah this nice like energy building towards it thinking about a small company that's releasing you know every six months or something and it's at its new it's in year one or two would it not in today's cove it'd webinar environment where you can not show how many people showed up why not start this you know if the if the clubhouse which is the hottest start up right now in the consumer space if clubhouse just said on you know October first we're gonna be opening to the public we're going to show three new features and they did it in a webinar and ten or a hundred people show up who cares hey that least has the same effect so what would you say to a year one startup if they wanted to do something like this well it might it might be end up being too much structure for a first year startup there are advantages to you know when you're say a 10-person team just having the founder telling everybody what to do and building very quickly and you're doing you know one or two week Sprint's and because you're cut you're just basically throwing spaghetti against the wall seeing what sticks you're integrating towards product market fit and so you know maintaining that very fluid highly experimental approach is probably the right approach for God you know that that pre product market fit startup now you could do what I'm saying it wouldn't be necessarily a bad thing but I don't know that you need all the structure that I'm introducing but like I said around 50 employees it's just too big for you know it starts becoming too much for the founders just to manage in an ad hoc way and certainly as you get to hundreds of employees you need some sort of unifying structure for the company okay and any other advice in that marketing department that is the best practice for a SAS company like what is in state of the art today in 2020 that didn't exist in you know in the Yammer day that's you know certainly didn't exist in the PayPal days because things do change over time yeah I mean I think I think the the whole idea of being of this sort of event-driven marketing is still funding leak errect I think the change right now is just going to be more virtual events right but but but again remember that like the key thing from from my point of view is that the the launch event has both an external benefit and an internal benefit the external benefit is you create what's sort of more of a lightning strike marketing event right like just bring out a press release doesn't really get it done what you want to do is a big lightning strike where you get the whole world on you for you know a couple of days that's what Benny office or Ilana they have done brilliantly with their their events and then internally you know the one thing I would just add is obviously it's very motivating for the team to send their CEO on stage to showcase the new product but it's also a really good thought exercise for the leaders of the company for the see it starting with the CEO to think about they have to think about what wait in two months I'm getting onstage what am I going to be talking about what am I going to be announcing why is it gonna matter right you know why she'll always care yeah and if you write that script you know it was a great thing that Jeff Bezos makes his people do which is write the press release right for the product they want to build right well in this case having people I just thought of this it's kind of the new version of it forcing the leader the CEO to actually give the product demo with just you know with you know fake slides right and say how would you know the Wall Street Journal how would TechCrunch how would you know our top ten customers receive this do people even do that no and you know and it's a you know it's a really good thought experiment to think about you know what why is anyone gonna care when we showcase these products now you know what a lot of founders would say is well we're doing business software sits not that you know interesting you know it's not like Tesla where they do the you know these really sexy products but again I would say well look at look at Salesforce I mean that's CRM software it's you know it's pretty dry as for you know it's not yeah I mean how salespeople tracked ourselves right no offense of course it's essential it's important right on of exciting that's right and so what Benioff shows that it's that everybody can do it I mean not everyone says good penny off I think he's uniquely good at it but you can still achieve a lot by emulating what what they do and and the thing to think about is why is what we're gonna ship in two or three months or an announced this launch event why is this gonna matter you have to start justifying that that's an important segue into product so when we get back from this quick break we're gonna get to that fourth piece of the puzzle as we're building the structure here with David Sachs and talk about product breasts practices when you get back on the sweet start it's been a crazy couple of months we all know that and the way we are working now is completely different than it was at the start of the year and if there is one thing we have learned it's having access to the right resources it's essential when you need to adapt your business and we're all doing a lot of adapting and finding the right talent is time-consuming frustrating and it's expensive and that's where Fiverr can help fivers marketplace connects businesses with freelancers offering hundreds of digital services you know the digital services maybe you need to do ad buying maybe you need to do design maybe you need a developer web programming maybe need to edit that video well five were Scott those graphic designers they've got those copywriters have got those programmers sitting there waiting you can 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and you will receive 10% off your first order just by using the offer code twist TW rst find all the digital services you need in one place at FIV ER our comm fiber with two R's coms less twist again that's fiverr.com / twist thanks again to fiber for solving a lot of the problems we have at our startup companies and our firm and for the generous offer of 10% off that doesn't mean much to us ok let's get back to this amazing episode hey everybody welcome back to this week in startups we've got David sacks with us or you're at David sacks on Twitter or do sacks yeah David sacks on Twitter and if you have a SAS company and you want to have one of the Great's on your cap table I can tell you there is no better investor for your company then David Sachs and he is David at Kraft ventures calm I'm certain nobody else stole your email address and and you open your emails when a SAS person sends you an email you open it right yeah I do I mean you know I'm a the team look at it if it's not referred by somebody I know but but yeah we will we will get them now when you open that email what emails have you what have you seen in the top of an email above the fold for a SAS company that makes you say you know - you know the great Lainey or you know whoever on your team get them you know Billy whoever just get on it what do you see on the top half of the email it's typically we want to see I'd say like month over month growth rate is a pretty important thing to see god I mean that would definitely get our attention you know if you're growing you know anything above 10% is good but certainly in the 15 to 20 percent month-over-month it's gonna get our attention as you're you know get closer to that million-dollar air or milestone you know that certainly would get our attention God so if you if the email said we you know 17% average month over month growth last three months mr. sacks I saw you and Jason podcast we built SAS software for blank yes and we are sixty-two percent of the way on our current run rate to hitting your million dollars would love to take a deeper dive into it even a short email like that it's gonna make you click on the link shorter is better I mean well I really have to say well because all because all I really need to know is that you believe you're the early category leader in you know ex-sas business software and that you're kind of getting close to a we call it series a milestone which would be you know the million dollars or hundreds of thousands of dollars of ARR and that you're growing at that month over month growth rate that's all I need to know in the email to know that we should take a look at it and then you know the team's gonna so there's no to look at it there's no reason for me to write three paragraphs about my last two failed startups I mean it is the email we get right I mean and it's amazing how founders work against their own best interests though even the ones who have the goods will write three or four paragraphs of their life story and it's TLDR it's too long you know and people forget or emails we get yeah or you know the first couple of paragraphs we'll be talking about how much they love my blog on XYZ which you know I'm happy about but that doesn't you know it's I it doesn't matter right it's one cent it's okay read your blog post about X it resonated with me right then let's get to brass tacks right and the timing in which you in you contact an investor so important we I don't know how many emails do you get with people saying I have an idea or I'm building a product and they just haven't launched it yet yeah I mean I get I get a zillion of these emails but I get very very few that are in the format that I mentioned and it's such an unlock yeah it's an unlock if you actually have those metrics I mean I I wonder if the reason I don't get those emails because most companies don't most are start with those metrics it is hard I mean I we've been very intentional about telling people hey if you have ten five ten customers and five to 10 K and revenue even as little as 2 K we'll talk to you about the accelerator and that's really helped us with the true north and I think you just saying explicitly hey when you're trending towards a million and if you're over ten but you know more in the 15 that's good you know if you just keep putting it out there it does work now we've gotten through finance and sailes being in cadence on a quarterly basis starting with the you know February first quarter so you don't get caught up in the crazy end of your rush when people ask for discounts now we we got marketing we had the tentpole event we're working backwards but the product we have not gotten right and we all know that right at the end of the day you have to have a great product correct there's no great product there's no business there's no way around that there's no way around it's table stakes yeah so let's see if they raison d'être use another French word okay I'm having a sharp in the first place is to build a product that doesn't that is net new to the world right and for those of you don't speak French raison d'être means the reason of the day it means reason for being yes there's no actual raisins there's no actual raisins in it put some raisins in there one day okay you know what this is like deja vu all over again yeah I still don't understand French I've been trying for years okay prod what do we what do founders in tax companies need to know about product cadence okay so good product management is like filling a jar with rocks pebbles and sand have you ever seen people try to do this you've got kind of like big rocks might be like the size of your fist and there's like smaller pebbles and then there's sand well in product terms the rocks are like the new products there are sort of tentpole products or features there the big stuff that's designs a truck so yes for sure that would be like you know a big rock then you've got features which are you know important and take time they're not nor quite the level of like a temple but they're certainly very important self-driving to point out yes exactly it's usually a you know and some new version of something that already exists it's some some better some some new and improved version of something you've ready of a product line you've already got and then you've got the sand which are the bug fixes the UI fixes usability improvements it's polishing um no inserts nobody even notices probably well it matters in the aggregate quite a bit right and it might matter it might matter in terms of reducing your customer service caseload which might have an important impact on your gross margins and things like that so it certainly matters in the aggregate but no one of them typically matters all that much it's certainly not something you would make news over you would not gonna be some fixing something is not something you do at your tentpole event it's not something you do in a press release it's something you quietly do to polish it up so that less calls come in to support and less people churn yeah so for every 20 of those you do you might save 1% of churn or something so it's critically important but it all adds up it's not gonna be something that's on the main stage on it okay so so that's product management and what you want to do with product management is you want to put the rocks in the jar first you want to plan those first so the way you fill the jar is you do the big stuff first the rocks the pebbles then the sand if you try to fill the jar with sand first what you find is that somehow the rocks just don't fit and what happens in companies startups that don't have effective product management is that either they just never do the rocks they just never get around to shipping new temple features they only ships and they only end up doing small stuff or they will try to do the rocks but they will just be wildly over schedule you know one of those big temple features that was supposed to take one quarter will be you know quarters late you'll still be talking about it in that board meeting two or three quarters later yeah there you go so you see in this screenshot here the the jar on the left put the sand in first and the rocks don't fit the other jar did the rocks first the sand fits so you want to plan the rocks on a quarterly cadence to make sure that they get done and you also want to do that to make sure that they're scoped correctly because the reason why like these big rocks end up being years late is no one's scoped them correctly because they weren't on a quarterly product management cadence they just basically assign projects whenever they felt like it and you just expected them to get done whenever we in the throwing spaghetti you know winding first year trying to find product market fit it's fine to wake up one day as a CEO where the founder and say wait a second I figured it out stop what you're doing we're gonna do this drop everything drop everything this is we have to test this and know in the next two weeks if this works because if it does it's the game changer all gauging right that's right and that's okay right that's your that's totally okay you're one is all about finding silver bullets got it and so you don't want that overhead you do want the flexibility be able to drop everything and go all-in on that new greatest idea that you came up with how do you communicate to the team since this has come up hey we're moving from you know drop everything mode and now we're gonna be having this cadence mode you do a kickoff meeting or does it just happen organically well you gotta remember that the the team is is growing and so what's gonna happen is you're in the process of making this transition from this very spontaneous founder directed mode of operating and now you're in the 50 and then hundreds of employees and so what typically happens is that the chaos reaches such a crescendo in the company that everybody seems to quiet at once we need a CEO oh the Board says it the founders say it they're all like this is just too chaotic we need to get somebody in here to help us manage this and you know maybe that would help but my point is that if you put your star upon the cadence and that if you use it this operating philosophy I'm talking about you will actually you may not need that person right that person is typically the person who would implement the system perhaps or give people the feeling of this but it's actually not that complicated the way you explain it it's it's right it's overly complicated it's in a way having this discussion with you reminds me of discussions I've had with people about growth and trying to add growth to a start-up people sometimes say hey we just need the growth person and then other people say well maybe what you need is a growth mindset so you don't have a growth person come in and just look at the whole company and say here's what you each need to do you have each person understand where the churn is happening and they're part of the product etc and everybody moves to a grow mindset is incorrect in that yes yes I mean so so it's for any startup problem it's possible to posit that there's a perfect hire who can fix it for you but as soon as you say that and so you know most Board meetings that I've been and it always devolves into hiring into a hiring conversation because the board identifies all these problems and then it's oh well who's going to fix them and then the company says well we don't have anyone to fix them and then you start talking about hiring people to fix them and the problem with that is you're essentially deferring the solution to the problem I mean once you identify what the problem is you should just be able to fix it you shouldn't have to hire someone to fix it for you nothing is that complicated I mean if we were talking about I mean perhaps if you're in a start-up that needs to do something in computer vision and artificial intelligence that is so niche that you got to use LinkedIn talent job solutions LinkedIn complex ways to do it and get that out so you may be also I'm talking about it was learned on the job just learning by doing just do it and you know this white knight you know Superman's gonna land spider-man's gonna come out of the shadows Batman it's gonna swing in and all you know right is Batmobile in and save the day is unnecessary you're got 10 people or 20 people you got 50 people in the company just solve it right and you also don't have time to wait to find that I'm hiring hire slow yeah I could take weeks months that somebody turns over you lose a candidate okay what else on product do do founders need to know know as we as we rounded third base here yeah so you know I like Jeff Bezos to pizza rule at Yammer the way which is basically that he you know every feature they worked on it had to be done by a team that was no bigger than could be fed by two pizzas at a Yammer are the way we implemented this rule was that we said that any project would have between two and ten Engineers so ten at the absolute max for two to ten weeks so the absolute biggest strategic priority in the company could get 10 engineers for 10 weeks that's it and you know maybe that would and that's a lot by the way that's a lot of resources we might have had one or two of those a year so everything had to be shippable within ten weeks and we forced all of our products all those big rocks to be scoped down to the point where they could be shipped within 10 weeks and that helped improve the reliability of our of our release dates tremendously it also helps doesn't it also help with morale because you know if it is something that is so big in scope he just never get to feel like you accomplished anything it's better to break it up right yes you MVP it you just you you you shrink it down into an MVP and that allows you to get customer feedback so you don't you know end up over investing in a product that people don't actually want again it's a very good thought experiment to think about what's the most MVP version of this how do we get it out and then let's see what people think about it and then we reevaluate and so this philosophy this product management philosophy ties in with the launch event very well because you know what you do is you basically reverse engineer the launch you start with a date you'd send out the invitations you declare that you're gonna do this user conference and then you basically start building towards that and you've got that we build in those 10 weeks that's right if it takes 20 then break it into right you must ship it by that launch event or are you gonna miss the train yes the train is leaving the station so that is the way you work and and it's it's it's it forces a tremendous amount of discipline because you know either you can declare a launch date and then scope the project to hit that launch date or you can basically just decide what's in a product and have no release date and that that's sort of the problem is that you know without the the forcing function that release date things don't get properly scoped and they don't people don't make effective trade-off decisions you know one thing you mentioned was just the human nature and how we're wired for the seasons how we're wired for quarterly in some way or in these short sprints maybe get unpack that a little bit in terms of what you've learned about human nature and work in relation to this framework that's right so everything we've talked about is on a quarterly cycle your orders our seasons you know humans are wired for I think there's fundamentally something very organic about this way of working so let me kind of snap it all together okay so you're gonna have a fiscal year you know it's an accounting concept but you're gonna use it to generate your reporting the finance team will and your sales teams are going to be on quarterly sales plans our snap to those fiscal quarters so you know let's assume that q1 is now gonna be February March April and gr when you say fiscal versus calendar fiscal just means how the finance department defines three months a year you are you that's right when you say calendar it just means the calendar because people get caught up on what is the fiscal year right that's all it means is that you know which months are we gonna use in q1 so let's assume that we use we say q1 is February March April yeah so that means that the quarterly close is going to be in April and the sales kickoff is gonna be in February now what I would do if the launch event is slotted in March so this is the offset and for the simple reason that you don't want to set everybody's hair on fire at the same time you don't want the this sort of product marketing cycle which revolves around this launch event to be peaking at the same time that the sales finance team is sort of on that they're hitting they're kind of you being the founder in this because the founders attention is also important it is exhausting as a founder to have to do you know three to our meetings with four departments that's right and that's 12 hours so if you're doing it you know on this cadence yeah you know the sales teams off there in their pipeline review and an optimization and check but we're getting ready for the launch of the new product right right exactly so so what ends up happening is under the system and you stop it altogether month one of the quarter is very dominated by planning you've got this idea of sales kickoff I would also always do my board meetings in that first month of the quarter right after for the finance team closes the books that's in the previous quarter that's right I would always do it in the second or third week of the quarter why because the data is still fresh you want the the board to look at the freshest sales data as soon as it gets reported out that makes total sense right and then on the heels of that board meeting you're gonna you're gonna basically you're gonna be reprioritize your overall product roadmap so you're gonna take those strategic insights that you just have to board me you're going to reprioritize the roadmap not for the current quarter because your launch events about to be in a few weeks but for the following quarter okay so that's month one it's dominated by the idea of planning then you go to month to month two is dominated by the idea of this launch event right so the first couple of weeks to the quarter of the month month to the either you're finalizing the event details you're finalizing the marketing collateral you're finalizing the presentations there's a lot of work that goes into that it's you know marketing some centric work and then on the heels of that launch event and say the second or third week of month two right in the middle of the quarter you're gonna do a lot of debriefing you know you've just had this big launch how did it go you're gonna take all the customer learnings so you just got through all those conversations and you're gonna you know feed them back into the company and internalize that okay and then month three is and then you know and then immediately right after that that launch event the engineering team is gonna start working on the next quarters release right and so month three is this very heads down period in the company where the engineers are focused on coding and the salespeople are focused on closing and it's this it's basically you know it's it's closed it's a time that's why time it's nice quiet time no distractions on the not right now list etc what have you learned about board meetings and financing the ability to raise money when a company does adopt this well everything discussed a lot more predictable I mean that's really what you want is to have you know more predictability and you know you want your board to weigh in when the numbers are fresh right so you know if you if you don't do your board me if you do your board means the same month two or three of the quarter then either you're further away from the last you know from the last fresh data so you're two or three months away so the data you have isn't as fresh or you know or it's it's raaah festivals yeah we're rough estimates you're dealing with say a half half-baked quarter right and so then you get the excuses maybe it's actually we always do better towards the last six weeks anything can change or we're off to a strong start but I don't know if it's gonna keep up right it just becomes this sort of circular madness right yeah exactly so and then the last piece of it is is All Hands meetings which you know it's a very important way especially as a company gets bigger and bigger for you to keep everyone coordinated is to have you know a steady stream of all-hands meetings and what the cadence does is give you the topics for those meetings so so immediately right after the end of the quarterly close I think it's a really good idea for the CEO to go in front of the company explain how he just did right like Karen and Eleanor's how do we do exactly what were the sales results okay yeah then you're gonna have a board meeting and right after that I like going in front of the company and recapitulating the strategy the company right so because board is you know board means our time to take a 30,000 foot view of the company and you know think about your strategy so I like the idea of after the board meeting you present that strategy to the board if it hasn't changed in the last three months that's fine there may be a lot of new employees who need to hear the the strategy of the company but maybe there's some adjustments that you're making any to explain that then you've got the launch event coming up and what I like to do is I like to put the product managers in front of the company and you preview what's gonna happen at that launch event you tell people what's coming okay and then after the launch event you do a big company-wide debrief how did it go you know what was a reaction you're the marketing department might show press highlights you know it's been you basically do a big debrief and you feed those insights back into the company and all hands be monthly weekly or every two weeks because I you know in the early days of Google they were doing weekly I think Facebook I think was doing it twice a month is there some right cadence to that that you buy into or is it just the stylistic preference of the founder I think you know every two weeks is fine I think you know weekly is fine too but but I think that if you want to do it as frequently as weekly what I'd recommend is that every other all hands you get somebody else in the company go up and present God so I think it's I think it's good for the company to hear you know especially as the company gets bigger and bigger right you get this compartmentalization people don't know what's happening in other parts of the company I think it's very useful for people to hear from the engineering leader the Sales Leader the you know analytics leader and so on down the line they can tell the whole company what's happening in their teams so that's what I would do because I think it gets to be a little bit much if the founder cos is getting up there every single week yeah also you've run out of things to say therefore what you say is they looted therefore you just sound like a droning on you know it just becomes too much right David this is just a it's your best is your best piece of work and writing is I always tell people you know writing is clarity of thought and you clearly have nailed it with this one and so we're gonna link in the show notes to the piece and we thank you again for taking the time to be on the podcast for the 7th time also david is part of the quartet that we do the all in podcast with we just taped episode 5 and you can all check that out just do a search for all in with Chema Thiessen and sax & Freiburg great job and really appreciate you doing anything we missed no I forgot it I think we now they're right let's keep it tight let's keep it tight tight is right all right let's see everybody next time on this week in startups bye bye [Music]

Channel: This Week in Startups

Views: 117,475

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Id: pdCmk-42ULQ

Length: 68min 9sec (4089 seconds)

Published: Tue Jul 14 2020