SaaStr 826: Why Only "WTF" Products Can Survive Today with Brett Queener Partner at Bonfire Ventures

0:00Welcome to the official Sastr podcast where you can hear some of the best Sastr speakers. This is where the cloud meets. Up today on the Sastra Podcast. 40 % of the U.S. population are using AI. We've never seen this. 80 % of code is getting written by AI. Now, for large companies that have large legacy data code bases, it's a little harder. But you all are seeing that a lot of the coding is written by AI. And what's happening now in product development is what matters most is synthesis and prototyping. As a founder, how well do you understand the problem and the pain that your user has and the job to be done they want solved?

0:38How quickly can you synthesize, prototype, and iterate on that?

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2:15Thank you for coming. So we're talking about the change economy. So just quickly, who's this guy? I'm a partner at Bonfire Ventures. We got about a billion under management. We write three to four million dollar checks at the seed stage traditional seed stage call companies have half million to million revenue think about your big institutional round before you'd go and raise a series a all we do is application software now one could ask as we ask ourselves what is application software in this age um if you think about how much has been commoditized in the platform stack. In 2003, when I was working at Salesforce.com, we took 60 cents of every dollar that we collect from customers and we bought servers and put them in our own data centers.

3:03So that was the first beginning of sort of the commoditization of the cloud at the lowest level before AWS and GCP. And basically so much of the tech stack is being commoditized as a service, especially inference and reasoning, which gets interesting. i'm on the board of some companies angel investor uh and before that was an early employee 70 at salesforce.com build out go-to-market build product launched the app exchange and a lot of their platform there um and then i ran a pre-revenue startup because i felt like it was a fraud only working for two billionaires that worked for larry ellison it was really hard which brings a lot of empathy companies now at 100 million in revenue but there were off sites of tears because I was in there running a playbook, innovators dilemma playbook that I'd use to sell to sales and marketing to sell to HR people.

3:53And this is our firm. We just raised a$250 million seed fund, which I wish somebody had told me the economics of venture capital before I got into it. But a$250 million seed fund means the return 10 billion net exit value for the LPs to get three times net. And when I got out of college, companies went public at 20 million in revenue. I don't know if going public is a thing anymore, but for those that are investors in funds, TVPI is interesting. DPI is really interesting because you're talking about 10 to 15 years. And it's the difference with Bonfire is, I don't know if it's the right model. We go deep with founders because this shit is hard.

4:33Most of my VC peers don't. They seem to be skiing or having a good time. They're doing something right. But when our founders struggle, we kind of like we feel the pain as well, but that's bonfire. And so I've been writing over the last year following chat GPT and its earliest incarnations and really thinking about how much, so much of software is fundamentally changing and our people recognizing all the changes. And what this presentation is really about is we'll get to like, How do you differentiate as founders? But what happens if product innovation is 10 times faster than ever, right? Saster, when it first started, you know, when Jason was doing this thing, it was the first vestiges of on-premise companies in existing category.

5:25There was a first winner in a SaaS version of it. But all these companies were the same, where they would have a dream force or whatever, a workday force, whatever. Once a year, somebody would be coming and be like, look at our amazing product changes. and the way in which we run these companies, full throttle across the entire organization. If we think about all the blogs that you read and all the shit about, here's how to go do this, it's all predicated in a world where your product kind of changes once a year. But what happens if your product changes every 30 days? Which, oh, by the way, if you're a founder in this room, your product has to change every 30 days.

6:00But what does that mean? No one has ever seen this pace of change. If you're sitting here as a founder thinking about differentiation and speed, et cetera. We have never, ever seen this pace of change in technology. I'm 55 years old. My first job, I got into business school because I was Jimmy Neutron. Company had DEC, VEX, green screens, and I was the first person to buy a PC. And I built a custom database on the old people in the room, like Access, Visual Basic, and Fox Pro, where I built a CRM system for sales forecasting. There was no email. I carved off a regional manager's hard drive on something called an IDO drive.

6:39I FedExed it to them. They updated, they brought it back, and that was the forecast. And that was amazing innovation.

6:4840 % of the US population are using AI. We've never seen this. And the weirdest jump in AI and OpenAI's business over the last two months is because they allowed you to do Studio Ghibli versions of yourself. Literally, if you look, they doubled their user count because people are really excited about doing Studio Ghibli versions, which is great. I love my neighbor Totoro, but I didn't know that that was what was going to drive it. 80 % of code is getting written by AI. Now, for large companies that have large legacy code bases, it's a little harder, but you all are seeing that a lot of the coding is written by AI.

7:24And what's happening now in product development is what matters most is synthesis and prototyping. As a founder, how well do you understand the problem and the pain that your user has and the job to be done they want solved how quickly can you synthesize prototype and iterate on that the other really interesting thing is agentic solutions fundamentally change this thing for 30 years i've had some degree of success but all the software i've associated is garbage because they're crud databases that somebody logs into enters information somebody else has a report that measures their performance but in doing their job and whatever they have to go do it doesn't help you do your job it just doesn't and it got worse in the cloud with rest apis when i was at siebel systems a sales rip would use one piece of shitty software now with rest apis they use 12 pieces of software and we don't understand why the hell they can't hit their number when they're alt tabbing through 11 pieces of software.

8:29MCP, if you haven't dug into it, is game-changing. It is destroying historic walled gardens from an integration perspective. If you're building an agentic solution, you're trying to think through, hey, what's the metadata I have in my database? What problem I'm solving? Because then at least from AI UX, I have context over this. but actually with MCP, your agent can actually talk to another agent for your user and have context for that. That's great. But it also means that somebody else's solution could talk to you or yours. So it's a prisoner's, it's a prisoner's dilemma, but, but every week, every month is an opportunity for delivering step fold innovation.

9:10Now what's really interesting, even at the seed stage, historically as a seed stage investor, somebody comes, they have a product. I got a team of five people. I've got two devs. Look at this wedge product I have, but if you give me money and then I get to my A and my B, I'm going to build this amazing product. Okay. The reality is with not a lot of money, you can build products. And I think you know what WTF stands for. What it basically means you walk into a customer who using all this shitty software and all their legacy systems and they see your product. They go, what the that can't work. Those are now possible.

9:46And if you build that, which I say you have to, If your product doesn't make people go, that can't work, keep trying. Because that's the bar for winning right now. And because these products basically have reduced the friction. If you think about most SaaS playbooks, if you've gone to SaaS three years ago, it'd be like, how to build a successful account management expansion and CSM team. In enterprise, how to insert SCs and have a value selling team. and I've got a piece of software that's going to help you build a business case that somebody's going to buy into, et cetera. And you had to raise all this money for venture capitalists.

10:26We had this burn rate and this magic number because you had to buy all. And as a founder, you're like, okay, raise the money. Okay. I figured it out. I'm ready to scale. I was kind of lying to you. And you go hire like 20 sales expensive people and you hope it pays off. And you're like, oh shit, I didn't have any pipeline for them. Oh, well, I'll get some SDRs to dial or email. Oh, that's not working. Why is that not working? Because you took a 22 relax, bro. and made them automate outbound emails, and nobody responded to that. So if you think about as a founder, so much of running a software grid last 10 years sucks because you have to have all these explainers in your business to your prospect.

11:03Why my product is going to help you solve your problem, how it's differentiated. Oh, I use clay with Octave, and this is a better message. And then I get in, and here's the product. And then you have a rep, and then you bring an SE, and then I have a CSM that's going to onboard. which was always ridiculous, but onboarding, even in SaaS, like your product's innovating, you want it to expand, but we're just going to have some poor CSM. They look at a cost center that somehow is going to hold up your customer. Like all of this is because when you delivered the product, it didn't deliver value. A customer would have to use your product and then go do their job.

11:37But if you have a product now with a what the fuck interface, they look at and they realize in their head, oh my God, this is going to immediately help me do this job that I need or do the jobs as people I don't need, you don't need all these explainers. What is there to explain? What is there an AE who brings donut who doesn't understand the product? The conversation is very quickly, hey, Mr. Customer, people like you tend to have these problems and these jobs are doing it. They suck. Yeah, let me show you how this does this. You don't need all... I'm the king of sales methodology. At Salesforce in 2003, I rolled out whatever the version of MedPick and value selling, and you had to go do it, and you had to do deals that wanted discovery and all that crap.

12:18Like the simplification in you running your business and the purity of running your business if you have this kind of product. As a founder, it makes somebody like me want to stop being a VC and go back into the game because I had to do it the hard way.

12:33And the ability to close deals in a few calls for six figures is something I've never seen. I have founders that have 10 people in their company. They walk to a customer, they show the product and the customer goes, hey, wait a minute. That's amazing. How much does it cost? $250 ,000. Oh, they go, okay, I want to go to this entire evaluation process. Now, I don't recommend this unless you're very bounded who you talk to and you know that you can solve this problem. It's not okay just to make your engineers work 24 hours a day because you commit to anything. The three-month out, which was a no-no, we would never do a three-month out.

13:08I'm not paying commission on an out. That's not recurring revenue. but the three months out, if you get them in and the users are in and you figure out onboarding is probably the most important part of what's changed in the SaaS playbook, you've just skipped three months of a sales process that people injected back into a sales process to handle risk. I don't know if this is going to work. How do I validate? Who can I talk to, et cetera? This is what's happening right now. Now you got to make sure your product works and it's not vibey revenue. So as a founder, while it's incredibly chaotic and oh my God, it's around the clock, it is if you have a product that's a what the fuck product that fundamentally solves a core set of jobs to be done for people that they resonate to, it is a great time to be a founder.

13:53You can tap brand new markets that you could never target before. There's an entire class of an SMB sector across many verticals that don't use software. Don't want to use software, just want to get their job done. You can't do paid search because they wouldn't even be looking for software. We have businesses that target one to five plumbers, contractors, etc. The team goes outbound with an agentic solution. They're adding a million and a half a month. and their magic number is like 1.5 and their cash burn is like 0.5 because the product does the work for the end users who don't want to... If you really think about agentic software, what are we talking about?

14:34Reduce as much software as possible that the user has to interact with just to get their job done. The ability to expand and become... I know if you're like Parker Conrad, I'm following the Parker Conrad compound startup model. Okay. Historically in SaaS, if you went to your venture capital, like, I'm doing product A, and they're interested in product B, it would be like, listen here, Sonny, you got to stick to your knitting. You need to dominate this one sector right now. You don't want to spread out your R &D team and get too distracted. And then maybe when you're series B and C, we'll go after product two.

15:06In fact, Clayton Christian's innovator's dilemma is all about how you move from product A to product two. The reality is that you're not building screens. If you have the metadata and your agentic interface understands the context, you can do it in a month. And what's really interesting because customers don't want to use multiple agents. A salesperson, an individual functional role does not want to use seven agents. No sales rep wanted to use 11 solutions. Just like on your phone, sometimes somebody, you know, you get texts, they work, but your weird friends on Android, it doesn't work with texts.

15:40So they send you a WhatsApp and then your Facebook. What the fuck? Just give me a unified feed. That's what they want. And so if you are successful, your customers are going to come to you and go, hey, can you do this? Hey, can you do this? And you're like, I don't know. Let me try, which sounds crazy. Now don't do what a lot of startups do is dev actually does. It doesn't tell success or sales and marketing releases it to the customer. The customer's like, oh, it's great. What does it cost? You're like, oh, I'm a pricing and packaging person, but you can do this. You can build more capital efficient businesses.

16:16And the last one is interesting, right? You can push your team to go super hard. The weird thing happened in the last 10 years of startups where you thought you could leave a large company, make the same money at a startup and get all the perks and have work life balance. That's a joke. Startups are war. You know, That's why at Salesforce, I gave new managers and hires two books, Sun Tzu, The Art of War, and Drive. And you could talk about work-life balance, but we know what we're trying to do is hire people that make horrible work-life balance decisions. And they can't imagine not, you know, spending more time making your work.

16:54And you can do this. You don't want to be a complete ass, but like the expectation is we're going to go hard. You're going to be in the office. We're going to iterate. Because the iteration loops are so fast in this new era. It's just not going to work otherwise. Now, what is differentiation? Now, are there technical moats? Were there technical moats in regular old SaaS?

17:24I guess in a world in which you're building a lot of screens, there are technical moats because you needed capital to build all these screens and have all these devs. You could say you have a broader product that no one knew how to use. But like, really, did you have technical moats? and the hardest thing as an investor is we're raising this$250 million fund, and I published an article that said 75 % of all application software companies that you see today are going to disappear, and 50 % of all application software categories are going to disappear. And then our investor's like, well, why are we going to give you$250 million?

17:59Oh, we'll figure out the right ones. We'll see. So you don't need large team of devs to out-code others. stop investing at the infralayer. Like the people that were investing at the infralayer in the last year, like two years ago, like, Oh, it's just a wrapper. We're building core things at the, at the infralayer to make the wrapper better. And then, you know, Claude and perplexity and, and then, uh, opening, I just built that. Like, don't do that. Um, MCP is something really to study at. It is a pretty, it's a prisoner's dilemma, but it's absolutely the way it's going. Now, what I will say, is that I do believe metadata matters.

18:40Like if you don't have enough metadata around the problem you're solving such that the context your agent provides to solve a job is more interesting than what somebody could just do with an internal set of tooling, use Glean or, you know, Anthropics partnership with Databricks, you're done. So I think metadata is interesting. Proprietary data, I think if you're in a vertical where you have enough specific data, enough customers that you actually inject good old-fashioned ML, good old-fashioned AI, which edited AI, such that what you recommend, especially if you're recommending math, if there's math involved, I think it could work.

19:20And the last one is interesting. The second R, what's the second R in ARR? Anybody want to say, what's the second R? Recurring. Hey, Bobby. the second r can no longer be taken for granted i mean it shouldn't have never been taken it for granted right we saw companies all the sales tech tools that went from 175 nrr to 70 grr in a year we shouldn't have taken this all for granted but like like what are you going to do and so what i will say when we look at startups is that this is what trumps everything the company raised money yesterday, I think Jason said, it's one of the best teams he's ever said.

19:58When somebody went to look at an owner.com, they went, we're going to build a better restaurant tech software for restaurants. They probably were like, what? That sounds hard. But if you go look at the team that they assembled and the way that they execute, they brought an A-plus team and an agentic sort of operational way to crush. I think they raised it$1 or$1.2 billion yesterday. But what has always been true, honestly, for the winners in on-premise and SaaS, and now AI SaaS, we call it is, do you have a unique insight that you can get the best talent to iterate the fastest on in others? Or you don't.

20:37That's your differentiator, especially at the application layer. And so you have to have a unique insight to a problem, and you need to sit in that problem better than somebody else. I call it 12 by six. Was that 12 hours a day, six days a week? People need to rest on Saturday or Sunday. You have to out-deliver the jobs to be done for your customer faster than someone else. Context focus is kink. Vertical as a founder is five times easier to go do than horizontal. It's very hard to win in the horizontal space. You need to be an unbelievable marketer. You need to have outsized market energy to win that battle.

21:25And I think what is true in SaaS, and it is true now, is I've always said that I think the only long-term differentiation is customer love. It's really at the application where which remote is. You need to turn that into a movement. Now, it requires new operating motions, right?

21:46This is not 80 % of the playbooks that have written over the last 10 years. Take those and chuck them. Which is, you know, Bobby and I would sit down and say, okay, what are we doing for Dreamforce? We got a big announcement at Dreamforce. We're changing the industry. There's a crack in the ground. The world has changed. Here's our new software. And then we'd all organize around this. Now, what we would launch wasn't actually GA. We had a rule where like, at least it was GA in the next six months, we can announce it. But most companies think about once a year. If you're delivering innovation, every month.

22:21Now what? If we're honest with ourselves, most companies suck and go to market explaining across their team, what is it we do for who that they give a shit about better than somebody else? Like it sits in some deck and some PowerPoint deck that maybe somebody put in like seismic that no one can go fine. But if you do this every month, now what? I was sitting with whatever AI native companies that's off to the races, went from zero to 20 million in 18 months, and I'm in their Slack feed and dev is just releasing shit like every seven days. Customer success, like, is this live? Marketing's like, have we told anybody about this?

22:59Does this work? What's alpha? What's beta? What the hell does GA mean anymore? It's complete chaos. And I try to remind them that like, just because you can ship quickly doesn't mean it's a good thing. Because if you ship something, like if a tree falls in the forest and no one's there and they don't understand, And they don't see it to the tree actually fall, which is humans could only absorb so much rate of change. And so orgs are fundamentally rethinking how they run their business. The world in which I had product and design and dev and QA, where we thought that dev and QA resources were expensive.

23:38So that product and design would have infinite time to come up with the perfect PRDs and MRDs. so we wouldn't waste, you know, devs' times. And dev would spend a lot of time trying to figure out t-shirt sizes because that somehow made us better because that's what Jira said. Those days are over. These orgs are getting munged together. And I'd say our most leading edge companies like design and product is just building prototypes. There's no doc. There's handing prototypes to dev. Success or support that we moved out of dev normally is back in dev because the iteration loops to hear from support, getting over to dev, to figure out what's working and not working, especially using AI, like the stuff you do today kind of doesn't work.