Live From SaaStr Annual: Stage A Masters - Monday

[Music] [Music] um [Music] [Music] [Applause] [Music] [Applause] [Music] [Music] [Music] [Music] [Music] howdy [Music] hi good afternoon thanks for joining me today my name is dave kellogg i'm a principal of my own consulting firm i'm the author of a blog called kel blog and as we announced a couple of weeks ago i'm starting up an assignment as a eir an executive in residence at balderton capital a european-based vc firm based in london so today's presentation is a ceo's guide to marketing so so let's jump in and talk about the founder experience and you know most founders the story goes something like this that they're they're working one day and they see this kind of unserved need in the marketplace and they think i'm going to build a product to fill that need and they get a team together and they build a product and congratulations it works and things are going well and many years later they've built a successful sas business maybe on a sunday night they're looking at their p l and they notice something funny they say wait a minute i'm spending twice as much on sales and marketing as i do on r d i thought i found it a product company and they think well maybe maybe i'm abnormal right maybe those silver tongue folks and sales talk me into spending too much money or those crazy marketers that waste half the budget are wasting more than half maybe i'm abnormal so we go to meritech public comps and we start comparing ourselves to others and we find out now wait a minute i am normal the median enterprise sas company spends twice as much on sales and marketing as it does in r d sure you have folks like datadog that only spend as much on sales and marketing as r d but that's literally the 90th percentile 9 out of ten sas companies spend more on sales and marketing than r d fifty percent of sas companies spend more than double on sales and marketing than r d and it only goes up from there right if you look at some of the names up there kind of surprisingly folks like smartsheet and hubspot are coming in at two two and two four well salesforce they're a marketing juggernaut what do they spend well they spend three times as much on sales and marketing as they do on r d zoom four times as much although off really small numbers monday.com the work os aren't they kind of a plg company product led growth doesn't the product kind of sell itself well they spend five times as much on sales and marketing as they do with r d so in my opinion the founder experience that happens a lot is you found a product company and one day you wake up and you're running a distribution company and you go what happened and you say it's okay i'm gonna be all right because this sales thing i don't know exactly how it works but it's super measurable quota performance customer success that's pretty straightforward we know what they do we can measure it through renewals and churn or as we talked about last year net dollar retention but marketing there's this thing called marketing and i'll tell you what's the scariest thing a ceo can hear at a qbr the marketing sessions up next right now why is that right i've been i've been 25 years in the business probably literally a hundred different qbr's why is the marketing session always so scary right well think about it what's the session most likely to take more than double it's a lot of time slot marketing right what's the session most likely to leave people dazed and confused at the end of it marketing what's the session most likely to generate a knockdown drag out fight marketing right what's the session where people's careers can literally be ended like i've been in qbr's where after this session i said i don't know what that was but but but that can't happen again right we need to get a new head of marketing literally so the question is why is the marketing session so scary and the answer particularly for product oriented founders and executives is first it's unfamiliar territory most founders didn't grow up in marketing second you get overwhelmed by a blizzard of buzzwords and acronyms you know them as well as i do marketing people love them you're buried in the sea of numbers conversion rates and funnels and web traffic and clicks you're confused by ill-defined terminology and process most marketers are not that rigorous in their thinking and you're drawn into conflict between sales and marketing right so this is why the marketing session is so scary and the other reason is maybe just maybe you're a little afraid to admit that you don't understand all this stuff right and that makes it even harder so what do you do well you do what any good ceo would do you wait for the session to end and then you say with trepidation well that was great next session and you continue to leave you continue to leave a life of quiet marketing desperation right you don't understand it the session is terrible and and you just say it is what it is and i'm here to help change that today so i'm going to be your marketing guide for the rest of the session my name is dave i bring a perspective that comes from three places one i bid a cmo for 10 years at companies with as little as 1 million in revenue and as big as a billion dollars in revenue so i've been a cmo across a broad range of sizes i've been a ceo in the zero to 100 million range again for a combined more than 10 years and i've been combined well more than 10 years experience serving as independent director on startup boards so hopefully i'll be able to bring you this kind of marketing rooted but ceo vision ceo viewpoint on marketing so and the way i'm going to do that is we're going to talk about five things that every ceo should know about marketing and it's important that this is not a generic marketing 101 course this is not just some quick survey course on marketing this is rooted in my experience working with startups so it's biased towards the mistakes i see people make and the challenges that i think they face so that's where i'm coming from and these are the five things i think ceos and c-level execs need to understand about marketing to work effectively with marketing now there's two underlying themes in this one is use market research in this day and age we have so much data from our systems that there's a tendency to only want to analyze that data and back before we had these systems we used to rely on market research and now we almost don't and the problem with only relying on our data is it's kind of naval gazing right we're only analyzing that portion of the market that found it into our crm so one underlying theme i'll give you numerous examples is here's a question you should use market research to go figure out the other underlying theme is keep it simple don't get sucked into the complexity stay high level so i'm going to give you some high level models that you need to come back to that if your marketing person is kind of pulling you down in the details you can step back and pull things right back up so let's jump in here are our five principles the first one is that you can reverse engineer all of marketing from buyer empathy right if we just think about the buyer and we think about what marketing is trying to do we kind of figure out marketing's job and in effect you can derive marketing from these two things if i only knew two things i could derive marketing one the state of mind of the buyer in terms of what question they're trying to answer and in my mind there's two fundamental questions why buy mine or why buy one right and why buy mine is kind of exemplified by southwest's bags fly free right bags fly free answers the question why should i buy a ticket on southwest it doesn't answer the question why i should go see my uncle in toledo right it does say if i'm going to see my uncle in toledo why should i use southwest because bags fly free right that is a differentiation message the other state of mind the buyer can be in is a value message which is why should i buy one at all and for early stage startups this is often what you face you've made the first thing and they don't know whether they should buy one and in that case you need to sell value right here's the value of the thing i exemplify this with a old campbell soup campaign called soup is good food right here's why you should buy soup because soup is good food will make you healthy bags fly free versus soup is good food so answer incorrectly at your apparel right just say i work with a company called elation they sell data catalogs and say when you listen to the gong calls which i recommend that everyone do the whole e-staff as a group should do it once a week and you listen to gong calls are you hearing things like i'm going to buy a data catalog i called up gartner and they said to evaluate you and competitor b and c and i'd like to know why i should buy yours if you're hearing that and your salesperson gets on the phone and goes i've just been to value selling i know that people buy solutions to business problems let me tell you why you should buy a data catalog what's going to happen the customers will be like do you have like stuff in your ears i just told you i've already decided to buy a data catalog i want you to tell me why i should buy yours and you're telling me why i should buy a data catalog you're not listening to me right so don't get these things wrong and the easiest way to figure out what situation you're in is listen to gone calls market research can help also just looking at category formation if the category hasn't formed yet you're probably in a why by one mode hey i know there's a thing you never heard of let me tell you why i should buy one if there is a category and there's five vendors in it and there's a magic quadrant you're probably in a y by mine mode right and the buyer is probably trying to figure out which one to buy so that's the first question we can derive marketing from understanding where the the question in the buyer's mind the second is the consideration level of the purchase and i put this one in because there's some things two things confuse it one is plg and the other is lazy marketers um and the concept of marketing is simple we have two types of purchases low consideration and high consideration low consideration you're checking out the supermarket you see that pack of gum you grab it and throw it on the conveyor belt right that's a low consideration purchase you didn't think much about it buying a car is a high consideration purchase right you might spend weeks thinking about it comparing models going to consumer reports right you put a lot of energy in now you might think that price is the only factor that drives consideration level but it's not how about you want to buy tires for that car and you're going to put your whole family in that car and drive to lake tahoe in the snow is that high consideration or low consideration they're only a thousand dollars ah it's high consideration right because you're putting your family in potential peril driving on those tires so we need to understand which question the buyer is trying to answer and then how much energy they're putting into getting that answer because lazy marketing people will tell you the following no one has time to read these days we should only make short content nothing should be longer than a paragraph everything should be short and that's wrong because if this is a high consideration purchase right if i'm betting say i'm buying a financial planning system and i'm gonna i'm gonna bet the year's financial plan on it i'm gonna get all kinds of managers through the company to use it i have to set it up i don't care how much it costs to buy the cost of owning it and deploying it is high and if it fails i look bad that's a high consideration purchase so we have to understand how important the purchase is the buyer plg confuses this that little trial of a collaboration system with three people in your department that might be low consideration it's free who cares if it works no harm done to deploy that same software package to a thousand people in your engineering organization that's high consideration right so we need to understand first consideration level varies and second to quote one of my favorite traditional marketers david ogilvy long copy cells right and nobody says this anymore these days but the fact of the matter is if you're talking to your buyer and it's a high consideration purchase they will have time to read a 12-page white paper they will have time to go to a one-hour demo right instead a lazy marketer who doesn't understand this will be saying no the demo has to be 20 minutes the the white paper has to be a two-page e-book right so the action here that i recommend is one make sure your marketing is thinking about this issue produce a mix of long and short tools and if you're an early stage startup write what i call the seminal white paper which tells your story and 8 to 12 pages to your buyer they will have time to read it if you're thinking about the right buyer and almost nobody does this the best one i've seen lately is from a friend of mine who runs a company called sky flow and i suggested i suggested this idea to him and he wrote a banging white paper uh you can get it off their website i think it's gated so those are the actions there the other way to look at this is just imagine you were the buyer where would you go for information what process would you use who would you want to speak to as references important point the answer is always people like me so the question is what's like you mean your industry your company size your age your seniority your risk tolerance and profile right people want references who remind them of themselves so this is a large part of the whole crossing the chasm book is you can't take a you know technology pioneer and reference them against the pragmatist it doesn't work what process would you use to make the final decision and what criteria would you make the final decision so to me you don't have to just imagine this you could ask customers about it i think you know if we have 60 minutes with a customer we spend all 60 talking about their problem and our solution i'd actually say to carve off eight to ten at the end to say that was great can i talk to you about how you buy this stuff how do you think about this purchase process it's going to make me more effective it's going to help my company and ask them these questions to understand how they think about the buying process not just about buying your software so that's our first point we can reverse engineer marketing from buyer empathy the second point is that marketing is all about funnels and this to me is the only funnel you need to know there's a lot of funnels out there we'll talk about some of them but this is the one i always come back to when things get confusing awareness consideration trial purchase have you heard of a product yeah i've heard of a ferrari i've heard of a subaru i've heard of a buick have you considered buying one no i've not considered buying a ferrari why they're too expensive and i don't fit in them okay have you considered buying a subaru no not too much i mean i would have have you tried driving a subaru well no actually because you know what happened when i was making that purchase i didn't have time to test drive every car so i decided to test drive three and i tried the bmw the mercedes and the volvo so i was aware of subaru i'd considered buying a subaru but did i try one no right and this this is it are you aware have you considered buying and those are the reasons why you may or may not consider buying have you tried it right how easy in software example is it easy to use your trial right do i have a free download or a free trial does it take a lot of time to set up do i have to speak to a salesperson big impediment usually and if i do do they call me back promptly even bigger right so and then finally did you purchase and if you didn't did you buy a competitor did you did you just defer the whole thing and stick with the status quo so i was looking at buying a financial planning system i considered buying three vendors i tried two of them in the end i stuck with excel and again gonna be a continued theme you can and should use market research to understand this funnel you can't find this funnel in your crm it's not there right because it's a lot of people who never made it to you all the people who never heard of you all the people who never considered you won't be there so that's the first funnel come back to that when things are confusing if you go to a qbr this is the funnel you're more likely to see marketing will present the funnel on the left web traffic names responses to campaigns leads marketing qualified leads sales will present the funnel on the right sals sqls i did a blog on this but i always call sals s1s and sequels s2s and i use as my definition the safe deposit box two keys have to turn if a bdr or sdr thinks it's an opportunity they turn their key if a quoted sales person thinks it's an opportunity they turn their key so you have to turn two keys to get into the pipeline um which is appropriate if you think about how valuable the pipeline is it needs to be protected by two keys so sals and sqls we talk about conversion rates from there solution fit demo which i hate as a stage but a lot of people use it so i put it up there vendor of choice legal one you're gonna see these funnels the mistake i see people make is to forget about these funnels which is in reality you have four pipeline sources in your business marketing which gets a lot of attention sdr outbound which you should be using in a named account strategy alliances which can easily account for 10 to 30 percent of your pipeline usually that closes faster and with a higher rate and then sales outbound with a targeted strategy so the first mistake i see people make is they forget to think of all four funnels and they forget to allocate a target and a target not for arr pipeline dollars but a target for opportunity count to each of those pipeline sources now to me the best practice here is that marketing should be the quarterback of the pipeline because if you think about those four funnels the only person they all report to is the ceo so either you're gonna be the quarterback of the pipeline or you're going to delegate it to somebody who doesn't run all four i think you should delegate it to the cmo and say i know you're only one of those four sources but i want you to make sure that we start every quarter with enough pipeline coverage so i want you forecasting pipeline coverage i don't want to wake up on the first day of the quarter and go oh my god we don't have enough pipeline right i want you to forecast a quarter in advance or more if we're going to start next quarter with enough pipeline coverage and i want you to work with the other four sources to make sure we have enough if we don't and you're the quarterback of the pipeline so and in general look for these rates mql s1 5 to 10 percent s1 to s2 60 to 80 percent stage two to close 10 maybe but 15 to 25 percent those are all and the ranges can be much broader these are only rough benchmarks but these are sample rates for these rates now as soon as we talk about funnels that leads to models and we can build these amazing models where we have sales bookings capacity that starts with hiring and a rep ramp an attrition that generates a bookings capacity number that we shave to get the plan number for new arr maybe i'll cut 20 percent of that off to account for expansion so that i get a new logo ar target i divide that by an asp to get the number of deals i need 21.3 i phase shifted three quarters to say if i need 21 deals now i need 107 stage two opportunities three quarters prior and then i said well if i need 171 stage 207 stage 2 is that i need 1641 mqls a quarter before that right we could build this awesome model they're all over my blog i love these models but don't ever forget reality which is that's not how people buy enterprise software flat full stop period no right and this is gartner's buying models for enterprise software it'll be 15 contacts four rolls nurturing people across two different companies across two years well i used to work at company and i moved to company b right enterprise software buying cycles are complex and the question is what what do we think about all that the answer is pretty simple this quote all models are wrong but some are useful right and and that's the way i think about this of course that model's wrong should i not build it because it's wrong in my opinion no you should build it anyway but you should understand its limitations so we need to use models as guiding abstractions we need to use them as tools of enlightenment not oppression i think the number one mistake i've seen founders make is they hold people's feet to the fire on all those cells and i think that's wrong i think it's demotivating i think it it doesn't reflect an understanding of the fact that the model deviates from reality people don't like it so i think as ceo you should hold people accountable for the two things that matter pipeline coverage basically are we giving ourselves a chance to hit the number because if we don't have pipeline coverage we're not giving ourselves a chance and then actual sales did we hit the number that's it those are the only two things that matter everything else in the model is just helping to guide us so i'm going to skip the pro tips for now but i have two actions i suggest strongly on this which is because often particularly product oriented founders are very quantitative people they kind of fall in love with these models and they get kind of model myopia and they start using them as tools of oppression everybody hates the models and they forget the reality of the underlying business because the model's so simple and so clear the way to solve that is two things one quarterly win loss analysis at your qbr right hire a third party firm to analyze wins and losses to bring reality back into the room and second this is done far less often but i think even more important a win touch analysis take three to four deals you closed last quarter and have marketing present every single touch made over the last several years and when you're done with that you're going to be like oh my god that model i mean it's useful for making the budget but it's so far from reality right so it kind of keeps you humble it keeps you grounded in reality let's talk about messaging now so we're three-fifths of the way through messaging is a term marketers use all the time and i want you to think of messaging simply as a structured fact so a frequently asked questions document and it's just simply standard answers to commonly asked questions they teach journalists in journalism school that for any story it's about 5w plus 2h right who what where when why are the five w's how and how much of the two h's i add a third h for how different because in tech differentiation matters so much like so it's not just enough to have the 5w plus 2h we should also have the how is this different from the other people doing it so your messaging should address for a product launch for a company announcement it should address all those things and that's not to say you can't tell stories as part of those answers because i'm a big believer in storytelling but still the story is in response to a question now messaging should be simple you should be able to tell your story on a paper tablecloth that's my test whenever i test people on messaging i never do it with a deck i do it on either a whiteboard or a tablecloth and i start asking them questions about the company and i want them drawing pictures on on the tablecloth because i want the messaging in their head because it has to be simple right and i like the message to be black and white particularly when we're on offense we want to be black and white only we have this when we're on defense we want gray right well you of consolidation well they have consolidation you don't well actually we just introduced a consolidation module last week it's kind of thin but but it's out there and when you do that all of a sudden you've taken the other guy's black and white claim and made it gray and now they're obliged to explain why they're better which is hard right black and white is much easier than gray the other thing about messaging is you got to follow the rule of threes which is the answer to every question is three points this is well known i do have my own little spin on it which is what if you have more than three things to say what do you do then how do we how do we build messaging that we can remember that we have more than three things to say example this is an approximation of relations messaging alation's a leader in data intelligence and this is not their exact messaging but it approximates it what makes elation different from its competitors well three things glad you asked three things intelligence collaboration and guided navigation i can remember that i could let the customer pull the thread what do you mean by intelligence glad you asked i mean we have query log ingestion we have a behavioral analysis engine we have expert identification and for each of those features i should be able to do feature benefit right i won't do it now for time but when i name a feature i should instantly be able to go expert identification is great because it helps you identify the right people to govern your data which means your data governance program will be successful right i can go feature benefit for each of those the other fun thing i could do the same thing for collaboration and the same thing for guided navigation here's a demo hey only we have guided navigation we have an intelligent query editor that features real time suggestions so it helps you build your query and in real time it's suggesting where you should go to find the answer you want and it's got inbuilt data governance it will literally guide you towards thing you're supposed to use and guide you away from things you're not that's interesting tell me about real time suggestions glad to ask three things it can suggest tables joins or filters i got 27 things now i got a two level ternary tree right i can pack 27 things into this right so this is the key to building simple memorable messaging i still i launched business objects version 6 in 1996 i still remember the messaging pde why because it's hit a ternary tree right so i firmly firmly recommend using ternary trees to structure complex messages finally last thing you need to know about marketing relates to hiring your next cmo because cmos last one and a half two two and a half years you're gonna be hiring one soon whether you just hired one or not um and the number one mistake i see people make in cmo searches is you get down to the last three candidates which is when they call me they say hey dave we got three candidates love you to meet all three of them i say great and i meet the three of them and i go apple pear orange they're completely different you're a demand gen person you're a product marketing person and you're an sdr leader or a comms person or a brand person apple pear orange and i say how is it that we ran this process and we paid a recruiting from a hundred thousand dollars and we're at the end of it and we have one apple one pair of them on orange right and you may not want to admit to yourself that you do this because a lot of people are in denial but that's wrong if you get to that place you screwed up right because you never at the start of the search said we need an apple for a head of marketing or we need to pair for ahead of marketing or we need an orange for our head of marketing and at the end i had three oranges and then i got to pick the best orange right what do i mean by that marketing people come in different flavors you can think of marketing as having four pillars product marketing launch messaging content demand gen digital programs events marketing comps pr stories and brand sales development inbound up on hybrid note the rule of threes apply to the pillars by the way so in any case marketing pillar well there's four pillars but sometimes there's only three sometimes sdrs work in sales but at least each pillar has three sub points um and the issue here is marketing people like they don't make five five any there's nobody who's a five five god doesn't make them right you either grew up in product marketing or you grew up in demand generation right you also don't get 20 pointers i think 15 is the maximum number of points you can get on this scale so the first thing you have to do is be realistic and say what does the market have to offer me and you only get 15 points across the four pillars and then you need to decide what you want and then go tell the search firm and then find three of them and that's the way to avoid ending up with a search that results in you on the last day of the search deciding whether you need somebody stronger at demand gender product marketing which is really not a good place to be you don't want to be there personally i'm a 5352 i think it's very not only i mean god doesn't make five fives i'm not sure he or she made maybe five fours or four fives right those first two pillars it tends to be five three or three five there aren't many people who can honestly say i'm a four four or a four five so think about the pillars you can map your candidates out like this you can just put the four pillars up there and put each candidate's score and in this case i think we need to restart the search because the first bar is what we're looking for and nobody really approximates it so those are pillar profiles so to wrap this thing up odds are you're spending double on sales and marketing as you are in r d welcome to running a distribution business distributions about sales success and marketing marketing does not need to strike fear into the hearts of you and the e-team by the way great marketing people make it easy they love to teach marketing bad ones observate and if you remember these five things it'll be much easier for you to work with your marketers going forward first reverse engineer marketing for buyer empathy second marketing is all about funnels third marking use models as guiding abstractions fourth messaging is a structured fact and five use this notion of pillars to hire your next cmo so thanks very much i'll post the slides on my blog and thanks for attending the session take care [Music] is [Music] do [Music] [Music] [Applause] [Music] [Music] [Music] [Music] [Applause] [Music] so [Music] [Applause] [Music] [Music] [Music] so [Music] [Music] [Music] [Music] [Music] [Music] [Music] [Applause] [Music] [Music] [Music] [Applause] [Music] [Music] [Music] so [Music] god [Applause] [Music] hi everyone and welcome to our session i just want to thank jason lemkin sincerely and all of the organizers at saster we are so excited to be live and in person how wonderful is it ladies it's awesome yay great to see everyone i'm also so thankful to be here with you guys because we have a very hot topic that we're going to talk about so let's just do a quick round of introductions so why don't we start with you sarah go ahead yeah sure uh hi everyone i'm sarah varney i'm the cmo at twilio for those of you who aren't familiar with twilio we're a customer engagement platform delivering a series of apis for massive community developers covering everything from voice to sms email video you name it if you haven't heard of twilio you might not be in the right room i'm stacy epstein i'm the cmo at freshworks we make tools that make it really easy for companies to delight their customers and employees crm itsm hr you might have heard of us from our ipo which was last week [Music] my name is carrie lou dietrich i'm a former cmo most notably the head of marketing that took atlassian public these days i'm an advisor to companies including one password segment miro and other hyper growth companies hi everybody i'm viviana vega and i'm soon to be a general partner at valesis and i'm a three-time cmo with 20 years of experience as well so thank you all right so let's get to it we're here today to discuss a very hot topic that every ceo and c-suite leader is talking about today product led growth the beauty of it and some of the common pitfalls that we would like to help you avoid when you're working with sales so what is plg it's funny i went online this weekend to look up the technical definition so i'll read it to you so we're all on the same page it's a growth and customer acquisition model that relies on the product and it's viral hooks to drive customer acquisition retention and expansion and what we were just chatting about earlier today was that it's actually been around for about 10 years or so and so we're really excited to go through what we've learned in the last 10 years as it's been deployed across all the companies that we've been fortunate enough to work for so ladies tell us a little bit about plg at each of your companies who wants to start we decided i was going to start because atlassian's one of the most pure models and product led growth is really just using a product that sells itself and giving people access to use it right away without ever talking to the sales person and at atlassian that took place because the two guys who started the company were in australia and they didn't want to sell directly themselves and they didn't want to hire people to sell and they were selling to developers who were super excited to never have to talk to a salesperson and so putting the product online and making a product that is so wonderful it sells itself atlassian set up a business model that spent a ton on r d and very little on sales and marketing to help propel and make this viral product-led growth and now has tried you know has some sales that comes through upsell cross-sell and mostly kind of customer support sales and we'll talk a little bit more about that but but the whole motion is the product sells itself the consumerization of enterprise software and the hope that you don't really need a person to have to sell you don't the product does not need a person for you to be able to use it buy it and continue on happily until you do [Laughter] sarah so tell us a little bit about twilio and their model yeah absolutely so uh our joke at twilio is that we're a 14 year old company with a three-year-old sales organization um and up until very recently we were almost 100 percent of cell service and product led growth motion you know similar to atlassian we sell to developers you're not going to go throw inside sales reps at them to call them and ask what their budget is and time frame it's probably not going to go down too well and at twilio we really focus on how at every step of the journey we can unblock developers and get them to what they need to do so we invest a lot in documentation we invest a lot in code samples and snippets to get people going and thinking about what they can do with twilio and it's really just all about making our developer community successful yeah at freshworks it's a little different for us we don't sell to developers we sell to technical support teams sales teams marketing teams it teams that do internal itsm i say we we layered on sales a little bit earlier in our history than some of the companies we're also not like a a zoom or a slack where it's very viral i think there a lot of people think of plg and virality as synonymous but they're not i think you can still have a purebred plg model where it sells itself because the buyer can get right into the product and they can actually even use it in a trial or in a free version and really experience it and that's what leads them to buy but it you may not have the viral component of like you know zoom well i need another person to be on a zoom call with me so now suddenly carrie lou and viv are in zoom two that's not true with a customer service department it is actually a buying process and so even though they may go all the way through the product through the trial and decide they want to buy it you still might need some of that sales to come on and actually help with you know getting buy-in from a higher buyer in the organization etc so i i think you know it is when you're selling to a different constituent and you don't necessarily have the benefit of that virality you might have to think about layering in an outbound motion a little bit earlier in the process definitely before we dive into how to layer in that outbound motion one of the things that we were also discussing that was really interesting was just the level of investment required when you're um working within a plg model so carol you talk to us a little bit about that well i was going to add on to what stacey was saying because i think she's underselling freshworks which has a viral word of mouth business right the the core aspect of product-led growth and the reason it's so attractive is because it can be way less expensive than salespeople there are a whole bunch of things you might try to sell that don't warrant a very expensive enterprise sales person to pick up the phone that's why marketing and marketing automation and automated user journeys are so important in a product-led growth environment there can be a lot of sales that are happening when someone's in the product we used to call them wow moments and we had these amazingly smart growth analysts that would figure out how to make those show up faster or engage people through email and in product but you know one of the business model things that's required is to invest a ton in a fantastic product for product led growth to work the product has to be fantastic people have to be talking about it word of mouth and a sales person can follow up and sell that but if you have a dead product you can't have product like both so at atlassian the whole business is set up around this and we invest more and this is from a recent blog from the cro cameron teach on his linkedin that 35 percent of future revenue is invested in r d and only 15 percent is in sales and marketing because there is no sales team of significant size and so this type of business strategy underlies it it's not just something the marketing team slaps on the front of the website right yeah great all right so here's the million question and go for it well yeah i was before we get to sales um the why is it so hot and i know you'll add to it too i also think um and you touched on this i was having a conversation earlier about empathetic marketing and empathetic just that approach to business and building products and it really you have to get into the mind of your buyer and your user and what they want because you don't have a chance to do a pitch deck or to be a really dynamic sales person who just sells you by how great they talk about the product they are literally experiencing the product that they're going to buy and if the product doesn't meet their needs when they're experiencing it they're not going to turn into a paying customer so it it it is much more efficient and it's also it makes your team really focus on building that great product all those features all the value that they're going to get it you you have to be an empathetic product company in order to be successful with plg and i think that's it's been a good trend for us in sas to get more of that focus on that great feature yeah and i just add on exactly to that i think when you're thinking about the investment you need to make in plg you want to think about all right where does the ownership live and it can't just be one person who has to wake up and think about acquisition i think it's super critical for plg motions to work to have a shared metric across both your product and your growth team if that growth team sits in marketing wherever it sits but you know it can't be just uh the marketer you know keeping up at night sweating about you know hitting that metric it also has to come from the product because they're going to be uh you're they're going to have the leverage to to make the tweaks within that onboarding experience or flow or whatever it is to help move those numbers the right direction yeah and every team right the customer support team needs to think that way and the engineering team has to prioritize features that might be in the first five seconds of starting it and the email team needs to be thinking about how you get people back into the product if they've fallen off for the last day or two so i think it changes a lot of the fundamental metrics and teams yeah i think it's there's a journey that we talk about website to trial like if you if you're doing pure plg they they may be coming in through your product they may be coming in through the website but your whole goal is okay if i'm plg and they've come to my website how quickly do i get them to the trial and what does that journey look like okay now they're in the trial what features am i exposing at what point i don't want to overwhelm them but i want to show them value am i giving them cues along the way like how am i literally leading them through the process to become that paying customer which is really pretty different than the the old world of okay we're gonna do a requirements gathering session and then we're gonna come and pitch to you and then we're gonna do a custom demo and you know four months later you're gonna tell me if you wanna buy this is like you gotta get your journey from traffic to trial to conversion down it's so important with plg and i think we can learn a lot just from looking from our consumer lives right plg is the consumerization of the enterprise people want to research themselves they want to comparison shop themselves they want to try it out and see if they like it without any pressure i like shopping at dsw the shoe store where no one no sales person ever talks to you and they don't have the most stylish shoes i just don't want to talk to sales people i'm a great target for plg and i think we see across a number of things that there's some specific audiences most developers hate marketers and hate sales so for selling developer tools where atlassian started plg was a great fit and and up to 70 or 80 percent even of normal enterprise sales these days people research themselves they're not looking for someone else to educate them in person dave i think we might want to move to your next question i know everyone that's a salesperson in the room doesn't feel bad i feel really bad for every salesperson in this room i'm so sorry we actually do love you and you do play a very important role but you play a very important role later on in the process and we'll talk a bit about that but we don't i think you touched on this sarah one thing that we'll talk a bit about is the org chart and how different it is this idea that there's now a growth team which at yammer it was an independent team that was comprised of marketing sales customer service and support product played a big role analytics as well you kind of need one thing that you should think about building as you're building out your plg motion is to build this independent growth team oh now i think we could debate that so i advise like six or seven teams and the cer companies and the ceos are always like where should we put growth should growth sit under the cmo should it sit in product should we split it up and it's a really tough question because really it's both right the website team needs to think with the testing mindset that's the same as what's happening in product and there's so many different intersection points that i do think we'll see org charts evolve it depends on the company everybody does it differently i liked it how it worked independently but i've certainly seen it well in a product and i've seen it roll into marketing it just depends yeah i mean for us right now it does roll up to our marketing ops function but i was talking to another cmo the other day and they were talking about different models they've seen one that i thought was really interesting was that eventbrite actually um where they've got like a growth kind of swat team that goes in and attacks certain parts of the funnel depending on what's happening in the company right now they kind of embed themselves in that team if it's onboarding or if it's customer life cycle and nurtures or whatever it happens to be the issue and i thought that that was a really interesting approach because you're really you know you're not just saying oh i'm just coming out from marketing or i'm just coming out from a product angle it's really what the company needs most overall based on what you're seeing i love that that's what we did at yamaha was independent it was it would attack specific issues and go on from there so let's talk about sales our favorite um folks i think i went one slide too early so if we can go back that would be wonderful all right so where does sales add the most value um who would like to start stacy yeah i mean we we definitely have outbound sales i think certainly as you're moving up in the enterprise you're gonna the bigger customers the bigger companies are gonna expect to have that relationship and that higher touch they just it's part of um how they're used to doing business and especially if they're spending hundreds of thousands of dollars or millions of dollars they want they want to really meet the people and have that relationship um so that's certainly as you get higher up in the enterprise certainly companies are successful there with purebred plg models twilio is a great example um but that's i think one area where where sales might be necessary i also think you know there's inbound and there's outbound you talk about the growth team are you just trying to capture all the interests that exist for your market by capturing inbound or are you also trying to create new pipeline and new opportunities and we do a mix of both inbound and outbound because we want more people to know that we exist that we're an answer we're in very crowded markets crm itsm hr um and we we want people to know that there's an alternative way of doing business so we're doing outbound campaigns and programs and and that's you know sales is working both of those leads in that pipeline and they're going to events like this so i think you know again we don't sell to developers who mostly just want to buy online without talking to somebody we sell to department heads and cios and sometimes just sales is is the best way to meet those needs we were debating backstage about which way is easier to have a product-led growth company that adds on sales or a sales led company that tries to get into product led growth and we voted that it was easier to start with product led growth and layer on sales than to go the other way and one of the reasons is you know let's take one password for instance one password is a very successful consumer password security management company that is now in business for both passwords and securities management and so the model is actually very well established for product led growth because it's been a consumer company that's been successful for many years leads come in they can buy themselves they can install things work well and now there's a sales org to help with larger more complex deals and primarily to help people who are already using a lot of the products go wall-to-wall and i think really sales is absolutely helpful in upselling cross-selling accelerating deals it just has to be at a company and a scale of revenue that makes it worth paying those sales people and that really has to be the trade-off and so the inverse a company another company i advise is trying to add plg on to a very large enterprise sale to get some like cheap fast leads but it's totally disrupted their revenue they slapped it on the front page and they took off all the get a demo leads from their sales reps they messed up their seo the whole mechanism isn't necessarily working because it's not just something you can slap on it it requires so much different product development experience engagement and you can't just steal leads from sales reps and expect people to self-serve at this in the same format yeah i mean i would just say that at twilio we really think about applying our sales people again where we can help get people unstuck and yeah sure nine times out of ten the developer doesn't want to be called but there are signals you can see where they are stuck and they do want help and i think it's just a matter of making sure that you're applying the right resources one from a cost perspective you want your sales people on your highest you know value deals but you know second from an experience if someone is stuck and legitimately raising their hand you should be you know helping them and tell more us more about the um relationships that you guys had some massive clients before you had sales people and you found that you really needed the yeah i mean i think when you don't have a relationship uh and it's all self-service you're not gonna know you're not gonna have any year to the ground on what's actually happened in that account what challenges are happening maybe they're having an issue with pricing whatever it is um and without having that relationship in place it's you know those customers can um disappear as quickly as they came to your website and converted and so i think you've gotta just you know i think that that as you're moving up into bigger and bigger deals and bigger accounts and again echoing what both of you guys said in terms of how are they using their products you know understanding that at the account and being able to promote the next product or the next best thing or the best way to implement what they're doing is only going to lead to a healthier account long term i think it's also you got to stay true to who you are if you look at like the slack versus teams sort of fight that went on and obviously slack was pretty pure plg they would publicly say they didn't have sales people they eventually did but you know you would have never thought that teams stood a chance with such a great product and so much viral usage of slack but but microsoft had the relationships with the cios and people were companies were wall to mall while microsoft that their product didn't even have to be as good as slack they could still go win so many customers and they didn't say oh wow there's this new plg thing let's go try to have teams be plg they stayed true to an enterprise outbound we've got sales people we have relationships and i mean they certainly gave slack a run for their money then you look at zoom versus like webex and some of the earlier they just came in with pure plg and said we're just going to build it so it's so easy and so great obviously benefited by covid but i think that we talked about it that like i am going to build it so exactly what my customer wants that it's just going to take off and maybe they were a benefit of they benefited from later technology that webex and some of the earlier ones hadn't caught up to but they just purebred plg they just hit it out of the park yeah i think you took out something that's really interesting when you think of zoom the product is better yeah right and i think when you talk about teams and slack those deep entrenched relationships really mattered right um so that's a perfect example of where you needed sales to come in one thing to think about at yammer that we did to help the relationship with sales and i wonder how you guys run this is we built this system called mission control and what mission control did it was really in kind of an early warning system like hey there's this very specific lead that is very hot that could be very big and we want sales to call them right now and they fell into a very specific bucket did you guys have a system like that as well so the sales knew hey i need to jump in on this one but i shouldn't touch these other ones that maybe should be you should go directly to self-serve i mean i think there's a lot to segmenting your audience in any marketing and sales strategy and so lead scoring is very popular and account based marketing and enterprise targeting i think makes a lot of sense one of the things i was going to add on that's kind of interrelated to those two questions is i think that the product led growth methodology that i grew up in at atlassian requires a testing mindset that's very different than the sales methodology mindset that in a sales model and i started my career as an enterprise sales person in accounts where i had to sell internet infrastructure to more for more than a million dollars for client or something so i was doing like large account management there has to be a methodology and consistency in a sales territory and you have structure and predictability whereas in the product led growth you might add things in and out of the product all the time and change journeys and switch things around and i think that those different mindsets can be tricky and so i don't think you can just like throw things out of the product led growth into the sales org and expect them to go as well as thinking kind of like at the quarter or a half year whatever their sales quota is in you can't change things faster than that right yep yep and one thing i want to touch on when i said to talk about mission control really wasn't lead scoring it was that integration of product where we could see if a specific network like a product qualified lead yes well you could know how healthy was that network were people using the product right so that was a clear indicator as to whether or not the propensity to sell so that was really important so awesome i've got so many more questions ladies so talk to me a little bit about what are some of the challenges between sales and marketing that you guys have faced and how have you overcome them yeah i mean i think that you've got you have to have kind of an honor code between the two teams to not like if you started like twilio as a product led growth function and company and then you're graduating to sales you want to make sure that you're again not running like an enterprise playbook on a you know developer base like that because that could erode the trust and brand that you've built you know however long before that and so um we really try to make sure that we are um training our sales organization partnering with them to first like identify hey are there new signals that um we should be more aware of and trying to you know systematize across the whole sales organization and then you know just um and making sure that we're um connecting our sales people with uh our you know developers that are on the ground so that they understand what a good experience and what a bad experience might be i mean in some ways it's all going to work out in the wash if a sales rep's not able to convert these people and and and use what's in front of them to to close business they're probably not going to be at your company for the long haul anyway but i do think to the extent that you can recognize repeatable signals in your base and enable your entire sales organization to address them in a consistent way you're going to protect that brand while still being able to you know get more out of uh your customer base and upsell and crossover do you find that there's a good balance between sales reps not trying to steal too many leads from the product led growth funnel i look i'm always uh like i we um both i was at salesforce prior to twilio and salesforce antoinia we kind of have this horseman model of contributors to pipeline and i'm i never like to get too wound up around one horse but collectively what are they all doing together and if at the end of the day that you know by mining our self-service funnel in a smart and effective way that doesn't degrade the customer experience i'm all for it i will do it all day long um and you know i work with a lot of our sales leaders and sales development team to to make that happen yeah i i'm the same way i feel like we could do a whole session on like don't try to attribute this something to marketing and something different to sales it is a group effort all the time everything that i'm doing in marketing is helping the sales people win and everything that's happening in sales is leveraging you know we're leveraging each other we're helping each other we're all working on the same stuff i think where a big collaboration happens again i talked about this before is that journey for us the the trial is owned by product because it's product right they're going through the actual product so features get added to the trial by our product team but we're heavily involved in helping with what should that trial flow look like again what are we exposing along the way and because we study the pipeline and we we spend so much time looking at our conversions we can help product with how to build the trial so that it better converts and so it's not just a collaboration between sales and marketing it's also with plg it's all very much a collaboration with the product team i see a lot of problems as an adv advisor i get to see into lots of businesses which is awesome because i get to compare them to each other but i see a lot of problems where in a pure plg you don't have that much control over the sales pipeline you only get as many leads and sales as people who kind of come into you but in a sales model if you add philosophically for every salesperson you add you can add a hundred thousand two hundred five hundred thousand dollars of revenue for each sales person so companies start adding sales people really quickly faster than the plg model can feed them and then they're they're doing outbound and you're trying to feed them with these inbound organic product leads but you end up in this stealing process where where this the product qualified leads don't actually get to go down the low cost path to self-completion they just become leads for a salesperson to call as soon as possible and that could be okay it could be a great super highly qualified lead right i mean if it's a fortune 500 high-ranking person that's doing the product qualified then salesperson should call them but i see a lot of problems of this you know especially in the power dynamic between marketing and sales if if sales is is kind of the savior of the company because you're going to hire more sales people and make more money and and it's just sucking all the leads you can't have a product led success at the same time yeah and i think that's why you always have to be monitoring what is that threshold that kicks it over to sales or when it's going to hit their dashboard and is that at the right level should it be lower should it be higher um so that you know you're not leading a really expensive product led growth motion and feeding the purpose entirely and there is there is an argument to be had to say the ones that are actually really hot and growing fast are the ones that you should not be putting your expensive sales people on let those go and convert right right put your money and your resources on the ones that maybe need a little more nudging and a little you know it sort of feels risky but if you're looking for efficiency maybe you should be focusing on the other ones nurture goes more with product or or you know a little bit more stream yeah one thing i've certainly seen and for everybody to consider here is that when you touched on this sometimes companies will get so excited because they see some early signs of success with plg and then they add too many sales people and that can actually kill the culture in many respects because it's never good when sales people are not hitting their quotas right so be very thoughtful around when you hire and who you hire so you don't hire too quickly and i think that was why we were saying it's easier to have plg and add some sales people so atlassian has an upsell cross-sell enterprise sales organization that's not hunters it's all farmers and sarah was talking about that the twilio sales group as farmers it's harder when you have hunters and then you're trying to add leads that you're not going to work because hunters want leads and that's how they operate right and i know we only have a few minutes left so i wanted to actually ask you guys a question that i'd love to leave with the audience a couple key takeaways so if there was one or two like major lessons learned that you've experienced while building out plg within your company tell us a little bit about that why don't you go ahead and start stacy i knew you were going to ask me first i know um i mean i feel like i talked a lot about them i i go back to the the i think the collaboration is really important if you're spending your time arguing over the fact that well my sdr called this company 10 times and that's why they got a trial so why is marketing taking credit for this trial um because it was really sales and i just you know i look at my cro and we just look at each other like we sh we're not gonna fight over this we have a great prospect that's in a trial and that means pipeline so we're all we're doing it right so let's just keep doing more of it so i think that's um if you're gonna have both plg and an outbound sales sdr kind of motion you just don't get in the fight of who generated we're all one team right you might be making the pass you might be scoring the shot it doesn't matter as long as you score the goal that's what matters for the team so that collaboration extending it to product to me is i think the the a big takeaway for me you got a great product led growth crow too she has the last it looks lied yeah he's great sarah what do you think and we have a slide about this we do we get there takeaways but i wanted to just kind of hear quickly if there was one yeah i mean i think uh when you're thinking about marrying product led growth with a sales organization there's a bunch of surrounding programs that we haven't even touched on that have nothing to do with digital too right and like how can you think about joining both a bottoms-up motion and a tops-down selling process and so you know things we've thought about at twilio like we have what we call enterprise hackathons now and so we will bring developers along with uh the line of business owners at an account together will have them hack on real problems that they're having in their company and at the end of the day they'll do like an american idol style demo competition on what they do cool it's awesome because these um developers in a company get trained up on twilio in a day uh the custom the um you know business owners also get to see uh um you know proof of concept very quickly uh and you know our sales organization loves it as well because it obviously shortens the fuse between that bottoms up and top down motion so there's a whole world of surrounding programs that uh i think you need to think about when you're you're taking this path to to add on that sales organization just to bring those two groups together awesome awesome carrie lou anything you want to add my dad likes to invest personally and i have spent the last what 15 or 20 years being like dad tell me how it works if i do it just right how will i pick the company that makes a good investment and he's like well sometimes it's high high growth and low you know this and sometimes it's high this and high that and what's so frustrating is that there's no right answer and i think there is no right answer if you go home and you're like we have to do plg it's so hot and you're selling to large enterprise company customers who are like i don't know this would be misqualification but in hr and don't want self-service or some non-self service it won't work for your company like you have to look really closely at who are you selling to how do they want to buy and how are you going to set up the right profit loss business to serve them most effectively and and sales and product led growth are two tools in your tool belt that you might use but i don't think you can just over rotate on the most recent hot thing or you will fail the company has to be set up to be successful in that mechanism in a really serious long-term way it's pretty hard if you're selling to the fortune 50 to like plg probably isn't your thing you need to build relationships you need to think think about things a little bit differently so here's just a couple of the key takeaways that i think we've talked ad nauseam about on this session this has been so much fun but the first one was productive product market fit and must be fantastic people must love to use it and tell all their friends absolutely and they have to invest in product absolutely um the network effects are a critical critical driver um talk to me a little bit about the technical teams the small team buyers tend to like plg we talked a little bit about that um yeah and i think with like the examples we've used twilio slack zoom atlassian these are all companies that sell to buyers who are really comfortable buying that way small teams technical teams they don't they don't want to get on the phone you can roll them up later right that sounds good it's a building systems to rapidly identify these hot leads however you define them beware of the cannibalization so sales and plg will fight over leads but let's stop the battles and realize that although people get comped you know it's funny we talked about this once um whenever i would present to the board i would always present with our cro because i wanted this to be really one team so try not to allow that divide between sales and marketing so sales adds value in complex enterprise deals and build a self-serve model for non-enterprise deals it's something to really think about and it's hard to build both at the same time so try to pick one do that really well and then move on to the other all right and that's it and i think we're i have one other thing because we still have six minutes don't we do oh we do we still have six minutes that's six extra so i have a trick because last week i was speaking at a cmo event on product led growth and this one woman who worked at a very illustrious product led growth company said we just faked it i said you faked it how did that work and she said well we didn't really have them in the product because it wasn't a cloud product at that time so we had this really intricate demo where they like went into a web form and could click around and do all the key things we were telling them things would pop up and tell them to go places and they felt like they were getting the experience of the product then we'd kick them over to a sales person and we could do a custom demo or whatever they needed and it was fascinating because i think there is a lot you can take from product led growth to say how do i just help serve self-serve my customers better how do they want to experience a demo and a deep um feeling for what the product can do for them and you don't have to change your company to be product-led growth to have amazing online demos and yeah i think it's just premium i think it's getting prospects to see the value of a product as quickly as possible and that might be through a real product and or it could be through like an interactive demo or whatever you're talking about but um i think if they can't get to that that's you know that's where you are going to have to get a sales person to sell that vision or a you know sales engineering team and that's a whole other session right that's really growth hacking yeah yeah that's a totally other like let's find different ways to think through our user libby breathe them and how do we in effect hack their brains so they buy our product which is which is what they're talking like i think that's the part that energizes me about product led growth right like 20 some years ago i was an enterprise salesperson but all the new technologies around growth hacking and all the smart people you guys must have on your analytics teams too like pulling it apart i think that um speaks a lot to where things are going and how much better they're getting yeah i think one of the things we haven't really touched on today is that for product led growth to work you do need a somewhat similar set of best practices and needs by your customer so for example my last company servicemax like you know you look at slack you look at zoom twilio like most companies most buyers are going to use it in a somewhat similar way so they can go through one of several journeys and it works but like everybody does field service different and if they go through a standard journey you really risk them saying it's not going to work for me because i the way i dispatch my technicians is very different and then they have to do a debrief and so that's one of the reasons why plg won't work is if you can't walk people through a somewhat similar journey in your product really if it needs customization for it to meet the needs of the buyer you you're probably going to need a sales team to come set up a custom demo and and show it to them and it's not product market fit it's more about that like you know customers customer service is done you know i take i get the problem i try to solve the problem i tell my customer i solve their problem it's like not that different across industries that's great well anything else you guys want to add to our session this has been a lot of fun great thanks for having us thank you guys so much it's been great thank you [Music] [Music] [Music] [Music] is [Music] [Applause] [Music] [Music] [Music] [Applause] [Music] [Music] [Applause] [Music] [Music] [Applause] [Music] so [Music] [Music] all right sester 2021 great to be back great to be back do you have this do you have this chart do you have this chart first pothole we're talking about here i'm seen as a big problem in the industry for some reason our customers are buying more than they're using from us we're all in this like subscription consumption economy we're selling seats we're selling uh we're selling gigs we're selling leads we're selling contacts we're selling features and for some reason our customers are only using 50 of what we're selling why when i'm in the board meetings and we're looking at this like it must be the the product it must be the user experience yeah but they're not even trying to use the license okay well it must be the onboarding process it must be the csm's no they're pitching it they're doing a great job why why are our customers only using 50 of what they bought and it's a big problem because it doesn't make for a very good retention conversation a year later in fact it leads to revenue contraction why is it happening we're using a comp plan from the 1980s we're using a sales comp plan that was invented in the 1980s and it's causing our customers to utilize their licenses at a lower rate and it's causing revenue contraction and so i i did a little innovation at hubspot and with a bunch of our portfolio companies at stage two that i'll show you has worked on a very scalable way to get this utilization up and get us back into revenue expansion so a lot of these comp plans since the 80s we have compensated our sales people more for the first revenue from a customer pretty logical hard to get in the door but easier to renew and expand once we have a relationship but look at what happens in today's a subscription economy consumption economy our customers like i love your product i can see our entire thousand employees using this but i would just like to start with 10 licenses for this team to get it set up and then we'll roll it out to the rest of the company and what does the seller say no no you need to buy licenses for the whole company why and they make up some bs thing it's really because that's how i get paid i get paid for the first revenue from the account and because of that we we're left with low license utilization and we're left with revenue contraction simple innovation try paying them more for the expansion revenue try paying them more for the expansion revenue so when the buyer says i want to start with 10 accounts and then we'll roll out to the whole thousand they're like perfect i'm gonna make more money and your utilization goes up and you get back into a revenue expansion mode the beauty the gold mine for for sas uh businesses when i roll this out at hubspot when we were doing the crm i told the reps i said hey folks uh i'm gonna pay you 20 more for expansion seats than for new seats and the reps were like roberts you're so stupid they were like you know what i'm going to do i have 100 seat account right now in the pipeline i'm going to close five seats this quarter and then i'm going to get the other 95 next quarter and i was like beautiful that's exactly what i want because when you sell those five accounts you're not gonna lie you're gonna tell the truth because you know the money's made on the other 95 you're gonna set really good expectations i don't want you to turn into csm but you're gonna watch that account you're gonna make sure that thing on boards well and then you're going to get the 95 and you're getting paid and guess what if you sell that thing wrong i only lose five accounts as opposed to most sellers are getting the hundred counts and they churn and it crushes us okay now this is all connected to the pricing model too this is the the pricing model has to feed this as well and then a lot of board meetings were like hey you hit sales and second quarter you hit sales again great we should raise prices let's raise the prices and the ceo's like yeah maybe we should raise prices and the vp of sales is psyched yes let's raise the prices my whole pot we're gonna double our prices i need to close half the number of customers this is perfect and no one's paying attention to what this is doing to sales cycles close rates and most of most importantly our disruption risk we are misaligning our customers with our product because of the pricing model because we're raising the price and it takes them so long to equate that value the sales cycles go up the close rates go down and the one that we don't pick up on is our disruption risk goes way up our disruption risk goes way up because now you're charging 20 000 a month for this thing fine it works for a couple quarters because you're the only player in the court in the in the category but you are a ripe target for a bunch of hot shot engineers hill and here in silicon valley to rebuild your product and charge half the price so be careful about raising your prices unless you have a sustainable moat and that's number three well what is a sustainable mow how do i know if i have a sustainable mow because i asked like 10 engineers you know founders were talking about investing this sounds awesome it's a great market you're obviously very talented you've got some great traction can you tell me about your moat how are you going to defend against the competition and they're like well we built this awesome feature that everyone likes and i'm like okay well how long would it take the competition to build that feature and copy it because they're obviously going to find out about it and they'll say i don't know like three months and i'll be like well that's not a sustainable mode that's a temp remote so this begs the question what is a what is a sustainable moat and i can tell you like here's my little test here's my little test is great you're crushing it you're in the category you're the only person in the category fine you want to consider raising prices you want to have a good answer to mo tell me this imagine if five rock star engineers from right around the corner maybe they're at google or something quit their jobs raise 10 million from sequoia which is happening all the time right now and they reverse engineer your product and sell it for half the price do you still win do you still win if so you have a sustainable mo well that sounds really hard that sounds really hard and i'll tell you it's not because of product features it's not because of your support hotline it's not because of how much you raised 20 million bucks it's not because of the integrations you built and the best work that i've seen in this space was decades ago with porter's five forces michael porter anyone know porter's five forces a couple mbas in the room okay so let me try to translate because he did this decades ago and i'll translate his work which i think is the best he's an hps professor translated to today's modern software and sas businesses so network effect the more people that use the product the more valuable it is to all the users the first phone sucked like who do you call right but as we built and you know it got better and better it's the same thing with the stuff that's happening in in social networks and marketplaces with amazon et cetera that's a true network effect in sustainable mode brand why do we spend so much money money on our armani shirt right we build a brand and today if you've read play bigger then you know category creation is a way to build a sustainable mode it worked beautifully for us at hubspot we were like listen we're going to invent a word called inbound marketing and if if it fails the company will fail but if it works we'll have a sustainable moat because we'll own the first 10 pages of google the conference the book the linkedin network everything and it worked and the competition copied us and it just fed our demand everybody can build a category rate read play bigger and that's a sustainable mo economies of scale if we're buying bulk then we can buy it cheaper aws does this right they buy servers cheaper than anyone else and the big one right now is ai there's an economies of scale in terms of more volume so let's let's pretend we're selling gond.io all right so let's say the five you know google engineers quit and copy gan's product and they go and try to sell it why do i still win it's very simple it's like yeah fine you can you can buy that one for half the price but you know they've only processed 100 000 sales calls their algorithm is only that good we have been in business for six years we've processed five billion sales calls so what do you want how important is this software to you do you want the one to process a hundred thousand or the one that's processed five billion it's hard to catch that that's a sustainable moat switching costs i don't love but it's out there you know obviously i don't know if does anyone think they're paying too little for salesforce you know they really crush it here no offense they're rockstars they're good friends they're investors but they crush the switching costs and hey toast congrats ipo last year they have a little hardware software hybrid beautiful the only time they had churn was march of 2020 because of that craziness and ever since then and every time before then they had no churn because of that hybrid uh hardware software combination so that that's a true sustainable mode i don't love it because it doesn't help you to win evergreen deals it helps you keep people and you can raise the price through expansion but it doesn't help you win evergreen deals in fact it could work against you if it gets out that you're going to take advantage of your customers on that the other two are slightly less well distribution huge and i know that the women before uh talked about plg that was fantastic i'm a huge plg fan in terms of sustainable mode we kind of talked about the last piece with the pricing like calendly how do you how do you disrupt calendly like it starts for free imagine if they charge 10 000 a month like we'd just be attacking it but you start free slack zoom all these folks it's beautiful right now the other two like government policy and capital requirements those are just in in porter's work they're probably less applicable to us but i mean it would probably be hard to go after elon musk and spacex right now like you're not going to raise 20 million bucks and take them on but hopefully that gives you an example of sustainable mo and this is our job as founder ceo is we need to define that for the company and sometimes as you grow don't work on sustainable mode in my opinion it's series a but around series b and series c build them know what it is build the mo and sometimes it comes at the expense of growth and that's okay if i had to choose between this year building a great moat and only growing 80 or not building remote and growing 120 i'd choose the former i want to build that mode okay jesus more charts roberge i had a beer at lunch it's like i can't handle this what's going on in this one pothole four pothole four what is going on here switch gears from the first three what this means the chart on the left it shows that the better the salesperson is at hitting quota and their their percentile on the team the more likely they are to get promoted to manager promote your promote your top reps but it also shows that the better they are on the team the higher rank there as a sales rep the worst manager they are we've known this forever your top rep does not make your top manager it does not always make a good manager in fact the stats show it mostly fails but so many founders are like yeah tommy's been with us forever tommy's our top rep tommy does amazing why don't we just promote tommy the manager and he'll hire eight other people and teach him what he knows how to do it sounds logical but it doesn't work like the best athletes and the best musicians and the best actors don't always make the best coach and that's what's true in sales as well is sales management is about hiring talent and coaching talent it doesn't have a lot to do with sales so what do you do promote your worst rep you can't do that so what do you do so robert's just saying you can't promote my top rep to manager i need a manager well you got to put them through a process right so it's like okay fine you want to be manager here's what we're going to do um you just hit your quota for six months in a row hit your quarter for two quarters in a row you don't need to be number one you just need to hit your quota no one's going to respect you if you can't hit a quota so just hit your quota then i'm going to put you through a leadership development course you know this i built this when we were only like 5 million in revenue it's like it it sounds like a lot but it's just like i picked out i picked out like a bunch of subjects like managing conflict and building team spirit and and delivering negative feedback these are the things that a manager needs now i built this 12 years ago there's better readings out there but this will give you like the sense of what you need to do and i had them just read this 10 page ebook and then we did a role play for half an hour of like hey imagine one of your reps is furious because some other rep just sold a deal that they've been working on for three months how do you handle it thank gosh we role played all those scenarios because all of those happen the first week on the job and i just want to see how they do it and then the last thing i'm going to do is i'm like great you've been hitting your quota you uh you've gone through this and it seems like you like to do this stuff what i wanted you to do now is hire the next sales person we have a hire coming up next month you're going to make the higher you're still going to carry your quota not forever i hate the team lead hybrid carry you know carry your own personal quota and run a team that doesn't work but just for like two or three months you're going to make the hire you're going to tell me what you think after the interview so i know how how you interview and they're going to coach them for two or three months to see if you're good at it you're probably going to mess up but it's a lot it's a lot better to just mess up with one person than eight people right so if you like it and you do well then we'll promote you and so we had a a a pipeline of people vying for management i would tell you that less than half the people that got into the program became a manager and most of the time because they opted out themselves like i don't really want to do this i just want to stay a salesperson and we had a huge success rate through that model with our management layer which is so critical during scale now the other complement to this i don't know why more folks don't use this compensation plan what about the people that do want to stay as manager i mean as a salesperson they should be able to get promoted even though they're not going to manager so we just set up a uh like a a way to do that you know you come in you're making 80k a year as a junior sales person with 5000 stock options and you're going to get promoted when you ser sell a certain amount of monthly recurring revenue install base it's probably going to take you anywhere between seven months and 18 months to do it and you need to average your quota above your quota for three months in a row and then i'll promote you and i'll give you a bump in your variable and i'll give you more stock options and there's the next goal it's crazy that we do these annual reviews for sales people for such a a metrics driven success or failure function this is like we can just use a promotion path and sales people love this they obsess with this and you can you can alter the right hand side to be aligned with your strategy this is an example for an sdr team that's the hardest job sdr 12 to 18 minutes 18 months a cold calling if you're lucky you get one appointment a day holy cow what a hard job but this is six tiers that they go through every two or three months graduating up to a county executive school and it's very motivating for that 22 year old sdr okay i'll post these slides i'll tell you at the end and so if you didn't get it you can take a look at it all right now five and six five and six i think are causing more failure in sas than any of the other ones and number five is scaling before we're ready when are we ready to scale when are we ready to scale i ask 100 founders when are you ready to scale they all say when we have product market fit great thanks to eric reese and lean startup beautiful answer the problem is you ask them what is product market fit you get 100 different answers and half the answers are about revenue i have product market fit when i have a million in revenue i could not disagree more that's market message fit congratulations you know how to sell it doesn't mean your product works so it's like we got to work on this product market fit definition and know when to scale and so i know like some some people say it's like well you just know there's a lot of pull on the market like it just feels too squishy for me for such an important strategic question i do like shawn ellis's model he says if you survey your customers and 40 say they'd be very disappointed if your product didn't exist then your product market fit i actually really like that it's about the product experience and whether it's you know it delivered on the value but i do i don't like surveys they're just riddled with uh soft false positives so for me the metrics customer attention you know if someone used your product and buys it again i feel like we have product market fit the problem is it takes like a year to figure that out and so i love customer retention as a proxy to product market fit but it's a lagging indicator so what we encourage is to create a leading indicator of retention that is the key metric for you in the scale-up mode to know when you're going to scale what can you see in your customers behavior in the first month that if it happens they'll be with you forever and if it doesn't happen they're going to churn all right so the way i think about it is in this format if p percent of customers do event and t time then you have product market fit okay so slack right if two if 70 of our customers send 2 000 team messages in the first month then we have product market fit this is beautiful online i i don't talk to the slack people i think it's pretty close to what actually happened i mean imagine if the founder of slack stood up and say our first north star metric is a million in revenue which happens a lot or imagine if they stood up and said our first north store metro north star metric is to get 70 of our customers to send 2000 t messages in the first month that's beautiful that's a beautiful company i'd love to build a sales team on that company okay dropbox back up your device in one hour hubspot we we we caught this late at like 10 million in revenue our churn was not good and we ran 50 permutations and found out that if if um if our customers use five or more features in the platform in the first two months the retention rate is like 97 and if they don't the retention rate is like 50 wow we found something beautiful about our business okay so i'll post this here's a couple guidelines on how to think about defining that as you can see it differs with each per with each company but it's definitely something that's factual like not not a csm saying they're in good shape that's too subjective but it has to be a very measurable instrumentable event because we're gonna we're gonna measure this forever we're gonna measure this forever because it's gonna break okay so you can check that out and i like to have them occur in about the first month if possible you know if you're doing a big enterprise workday type thing it'll take a couple months and if you're doing a real plg dropbox then it'll take hours but something at least in the first month and then finally on this piece here's how i like to measure it is i like to measure it in customer acquisition cohorts so i can pick up on product market fit as early as possible so what this shows is let's say let's use the slack example this isn't their data but let's just use it so this company let's say slack acquired 24 customers in the early days in january after one month only three percent had hit the lead indicator retention had said 2000 t messages after two months 27 after six months only 39 had sent 2000 team messages in a month that is not good if you're a collaboration software so they made a bunch of changes to how they sell to their product to their onboarding and look at how that improved just look down the month two column in january only 27 percent of those customers they signed up had hit the leading kid of retention and sent to 2000 t messages but by september 68 had done it they have product market fit and it's not because some subjective thing or some random ar number it's because of their data and the success of their customers so that's how i think about product market fit now are you ready to scale yeah i don't think so because notice that i didn't really mention anything about uni economics and scale yet i believe that we have to tackle our customer attention and success first then focus on unit economics not do them at the same time david cancel the founder of drift they just had their exit two weeks ago uh sold only for a billion dollars these days oh my gosh um so so he did this beautifully in the early days like he was literally on an airplane flying to onboard customers that were paying him fifty dollars a month that is beautiful behavior at the product market fit stage it is so hard to get your customers to realize the value of product and he was doing that as founder doesn't scale but throw everything in the kitchen sink at making this happen and don't talk we don't need to talk about scalable demand gen or pricing models or compensation we're just trying to get 80 of our customers to do this event so are we ready to scale when that happens no we have to prove all we've shown now is that if we're going to sign up a hundred customers in this quarter or 10 or 20 customers in this quarter we know that most of them are going to see the value of our product but we don't know if we can sell them at a cac low enough to offset the ltv so we have to think about scalability uh and and profitability and we usually talk about that in sas of uni economics right so pick your pick your poison the magic number payback period ltv to cac i'm going to use ltv to cac okay so fine we want our ltv to cac to be greater than three all right so but like what does that mean like i can't tell a 26 year old account executive hey uh your job is to make an ltv the cat greater than three like they don't know what to do so we have to extract this back to actionable activities that they understand like the price per customer or the close rate on a lead it's not that hard to do i mean we can take lifetime value and it's just how much they pay us times the gross margin divided by the churn rate so there you go what is our average sale and the cac that's just the marketing cap plus the sales calc and the marketing cac is just our cost per lead divided by the close rate and our sales cap is just how much we pay our reps divided by the number of customers they sell and the number of customers they sell is just the number of leads we give each rep and what the close rate is so now i've extracted this like very hard to conceptualize unit economics thing of ltv to cat greater than three and extracted it back to stuff that's meaningful and we have a business model we can actually put that together and say hey if we're average sales twenty thousand dollars and our cost per leads a thousand and we close five percent of them we have a business and i can operationalize this into our dashboards as long as the blue line stays above the red we're we're able to scale our unit economics going to spit out great and this particular framework gives us direction about what should we we should work on now now we do need to build a sales playbook we didn't need it during the product market fit stage we do need to get our compensation model right and our pricing model right we didn't need it during the product market fit says fit stage so we can figure out what in sequence we should be working on whether you're starting a new company or rolling a new product out in a bigger company okay now now we know when we can scale we can scale when we have product market fit and go to market fit attacked in sequence and we have data on our business to know if we're able to scale okay now the other one the biggest one the biggest killer and the last one is how fast to scale pothole number six how fast should we scale because i hear this all the time these are real stories every quarter i hear another one you know hey mark yeah it's uh it's september 27th you know this summer we had a good summer we have 20 people in the company i think there's like 12 there's 12 engineers there's a couple product managers there's three sales people there's a marketer there's a customer success manager and we crushed it and we just raised a series a 15 million bucks great and so what'd you do we hired 20 sales people oh god what is that bad yeah you're gonna fire 20 sales people in like a year like are you kidding me do you know what it takes to hire 20 sales people in a month you know how many interviews that is and how are you going to feed them with demand and who's going to manage them the average rep to manage ratio inside sales is eight to one now you would need overnight you need three managers are you kidding me why'd you do that now you know the answer it's because they negotiated this huge round like the huge valuation and they showed the vc investor the triple triple double double and they actually bought it and gave them the 70 million valuation and now they're like oh my gosh now we have to do it let's hire a bunch of sales people all at once it's not good it kills company it's it's the number one killer so how fast should we scale all right let's not think about hiring as this lump sum hiring at the beginning of a fiscal year at the at the right after funding round let's establish a pace we are now ready to scale because we have product market and go to market fit let's establish a pace let's hire two reps every other month let's do that for six months and let's watch what this becomes which is our speedometer this is our speedometer it's going to break i guarantee you from zero to a billion this will break and when it does you know very early because most companies out there deciding if we're scaling too fast or too slow are looking at the quarterly p l at the board meeting and the quarterly p l is what happened nine months ago this is what's happening today so you know more than your peer you know about your business nine months faster than your peers so good hire two reps every other month and watch the speedometer if it stays green hire two reps every month do it for six months if it stays green hire four reps a month for six months if it stays green hire eight reps a month for six months congrats to your unicorn and you did it in a very scientific way okay that's the final pothole there and you can use uh you know not only does this framework help you understand the sequence of bringing a new product to market whether it's in a big company or small but it helps you understand what to focus on a couple of things here so uh yeah i started a vc firm three three years ago called statute capital my my co-founder jay po formerly from bessemer is out there it's the first vc firm running back by sales marketing and customer success leaders uh so you can see there the cro cmo co of atlassian zoom snowflake octa santa tula we have 250 of them that have backed us we look for companies that are around a million in revenue we don't really care how fast you're growing we care more about your customer attention and your customer engagement i love to help a company that's having trouble scaling sales but has amazing customer success okay so probably a little different than most of the investors out there if you want to download some of the stuff here a lot of this stuff is in this 45-8 page e-book i wrote on the website these slides i just posted on my linkedin profile so if you want to go to my linkedin profile you can click through download these slides and get these links i know a lot of you have sent me notes of like the book i wrote a couple years back thank you for the support there just note that a hundred percent of the proceeds are donated to build.org anyone involved in build oh it's an awesome organization they start out here they basically team up with the worst performing high schools in every major city kids that probably didn't have the beginnings that we had and they teach them entrepreneurship in their freshman year and they put them through a four-year program to try to get them through high school and into college and 99 of the kids graduate which is way higher than regular heist their regular graduation rate i think 85 percent uh go into college so if you support the book you're supporting them uh thank you for that jason thank you for an amazing platform enjoy the show stay safe everyone [Music] so [Music] you

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Published: Mon Sep 27 2021