20VC: The Metrics That Matter in SaaS Today; Why CaC Payback is Flawed & CAC Ratio is Better, Why You Need to Hire Three Sales Reps at a Time, How to Forecast in 2024 & Biggest Mistakes Made Forecasting & How to Make Customer Success Sell More with Dave K

23:16It needs to be done. So if I'm the enterprise seller and I care about my productivity and I've got to see a sample I trust and there's some prize with your burger. Hey, go ahead and get that one. By the way, more importantly and conversely, say there's a cross cell and it's not looking like fries with your burger It's looking like selling like for example those analytics be sold planning and solidation Solidation sold to different buyers same boss same CFO different buyer different competitors Right if I'm the CSM and I find a consolidation opportunity I should call my seller and say I found a cross cell of the consolidation module Can you please do this and I don't want to incent right the single biggest sentence ass is putting you your farmer against someone else's hunter, right?

23:57Because they will lose. What do you mean by your farmer against someone else's hunter for people eating? So a lot of people use the SaaS analogy of hunters and farmers, that the sales people of the hunters, they go out and kind of kill new accounts. They're very aggressive, right? They're being food back, you know, for the other people to eat. And the farmers are the CSFs, that they've just farmed the land and keep the accounts and keep them warm and nice. And it's not a bad metaphor. And all I'm saying is you don't want to put your farmer against someone else's hunter. IE, do you want your CSM trying to sell that consolidation deal against a one -stream rep who sells consolidation for a living?

24:30It's really good. You're personally will probably lose. You get on sports, though, it's talking about a mismatch. Right? You always try to tee up. It's the same thing. We've got a mismatch here. We've put an enterprise rep up against CSM. So get the ball out of the enterprise rep because he's going to win. I always think about that. I think it's Charlie Munger or Warren Buffett, one of the two. So to show me the incentive and I'll show you the outcome. Also writing incentive structure for CSN teams today, do you think? I think the right incentives to give them a portfolio and say I want this portfolio to be worth 105 units.

24:59It was worth 100 in the day. I handed it to you. I wanted to be worth 105 or 110 a year from now. And how you get that is up to you. How you spend the time is up to you. And you get to use the sales rep because you're going to pay you both at any expansion. So if you need help, you ask for it. As I found it today, when we think about CS teams and expectations of them, how do we approach churn analysis? And what I mean by that is similar sales forecasting, churn forecasting is really hard right now. How can I think about churn forecasting accurately and plan ahead of time? So churn forecasting to me is actually easier than new sales forecasting.

25:36I think new sales forecasting is really hard because you're in a bank off against multiple people, if they're a sophisticated buyer, they're deliberately denying you information. They're not going to tell you you're in the first place because they want to go to shape the best price. Right? And enterprise is a lot of different constituents. No one may actually even know who's winning, right? Because the VP of sales wants this. So we can find this one. So that's the FO wants this. There's committee, right? So I think the hardest thing is new sales forecasting, which we can talk about if you want.

26:00Personally, I think chart -first casting is relatively easy. Why? First, because you can look at product usage data. So you have a massive advantage in terms of data, right? like are they using the thing? Is the usage going up or down? Can I see anything in the usage pattern? Are they dumping a lot of data out of the system? Are there any signs that they're actually spinning up one of my competitors in the background which you could find? You also have relationships and usually if you're a good CSM part of that job I've been honest with you about my role. Be honest with me. Are you guys thinking about switching?

26:29Are you just spinning up any vow? So I just think CS for if a VP of sales misses their forecast I'm somewhat understanding to me. I'm not very sympathetic to a VPS, it was as their forecast because how was it that you didn't know? You better show us a record of the customer absolutely lying to you like a bunch of emails saying we're good over new, we're good over new, we're good over new, and then they don't. And if you have that paper trail, then okay, I guess you were really misled, but otherwise I just don't think it's as hard. So if churn forecasting is actually more science and there's data that makes it very evident, how do you think about sales forecasting?

27:01Because this is a hard one in 2024. How do you think about sales forecasting and an advice to sales leaders approaching it today with 2024 ahead. If I had one word it would be triangulate. What does that mean? It means you know like if you're lost in the woods right you say there's a mountain. This way there's a mountain that way where you're taking shots to try and figure out where you are you can do the same thing with sales forecasting. First make your own official forecasts which you will make then look at the sum of your managers and the sum of your rupees and the sum of the reps. Look at the stage weighted expected value.

27:29Look at the forecast category way to expect a value. Look at the week seven conversion rate if you're in week seven There's so many numbers you can look at and you should try to view each number as an independent shot as to where you are This also has implications by the way on operations because if a sales manager tells a rep what their forecast is You're undermining this process. I'd like a reps forecast to be what they think they're gonna do And I like to manage the forecast to be what they think that some of their reps will do but some companies, managers kind of muscle reps, yeah. So for me as a sales manager, I should say, to my team of reps, go away, look at the accounts that we have, look at pipe and come back to me with the targets.

28:09Make me a forecast every week, basically, that's what I would say. Every Sunday night, I want you to put it into a Google sheet or the CRM system, your forecast for the quarter. And I'm gonna watch how that number changes over time and I want it to be your forecast for the quarters, the main point here. What does a good forecast at like, and what does a bab one look like? So as soon as you do this weekly approach, you now get to look at the shape of the curve. And a good forecast looks like this, gently upsloping to the actual number you sell. Notice I never talked about quota, because forecast is not about quota.

28:38That eventual what you sold may be well above your quota, it may be well above your quota, but you didn't ask what a good sales performance was, you asked what a good forecast was. And a good forecast is gently upsloping, landing at the number that you actually sell. Because that means I'm not misleading my boss. and an aggregate when you're not misleading the company about how much we're going to sell. We're always slightly low -bowing it. If it's super low -bomb, it's very hard to run the business. The more common problem, if it's super optimistic, where I'm going to sell a million, I'm going to sell a million, just kidding, I sold 300K, right?

29:09It's impossible to run the business. Should full cost always be slightly unachievable? Should you always be 70 % of the way there, 80 % but never quite there? How do you approach that? So a forecast of my mind, it's a very important point, because it relates to the other thing I said, A forecast on my mind is your prediction as to what you're going to sell for the quarter period. Here's the thing that I think is the worst thing ever for forecasting. Harry, how much are you going to sell? You go 100, like a car. Harry, you can sell 120. What about the Jones deal? 120. You can do 120. Step up. Man up.

29:36Come on, Harry. And you say, OK, I can sell 120. Right? And say, OK, I'm going to write down 120 for your forecast. That 120 is a useless number for predicting the business. And this is where some sales managers use the forecast as a club to kind of push the reps around. Like I can just at a moment of week is getting you commit to 120 then I can hold it against you for the rest of the quarter. First, I don't think that's great sales management but you know by the gas you can interview about that. I know it's bad forecasting. I don't let that one 20 number. I want to know the 100 number because I think you thought you could sell before you were twisted.

30:09Do you know what thing you're just getting the best out of the reps by pushing them? Everyone has a stretch. There's a lot of talk about that. I've worked for bosses and very successful people who think you always keep the carrot in front of the donkey. So you're never happy, you're always wanting a little bit more. Personally, as you know, Harry, I grew up in enterprise software. I started at the bottom. I think it's a terrible way to be managed. So I've never wanted to manage people that way. You're, because basically you're constantly failing. And particularly for forecasting, it's no way to forecast.

30:37So all I'm saying is when you make your forecast, just write down what you think you're gonna sell. And then I can have a different conversation about Harry. Why can't you sell more? I think you can sell, but it's not about your forecast. Yes, that's already been sent off to find it. That's motivation from a leader or someone higher than you in the chain, so to speak. A lot of people say that you should hire wraps two at a time so that they kind of have a hunger games to compete, so to speak. Do you agree with hiring wraps two at a time, especially in the early days, or actually do you feel that it's overhyped?

31:08So I like hiring three at a time, but not for the hunger games effect, for the controlled experimental effect. Because if I think a rep of a certain profile with a certain background, right? So you worked at Salesforce for five years, you sold CRM, you've done deals in 50 to 100K and you sold to Fortune 500 companies. If I take that profile, is the one that's gonna work for me? Selling two banks in New York, I'd like to hire three of them. Why? Cause I want a good experiment. Cause I'm a higher one and they fail. What do I know? Maybe I've got an outlier, maybe I got a clown, right? I would say your job in the early days is to run good experiments.

31:39And it means if it works, we don't want to replicate. And if it fails, we know what knocks it to. And when you hire module one, you don't get that even module two to get a fire three of them And they all look really good on paper and they had that profile all three fail. I'm pretty like let's not do that again Inconversely, if it works really well like hey, let's go get six more. Let's get mine more Dave, how fast do you know if a rap's not good? Yeah, that's a really hard question I would say some are between six and 12 months and enterprise Whoa, not that long Well, in enterprise I did say because because you got six and I'm out sales cycles So it's hard.

32:12But that's on converted sales. Like you a month in you can be like, hey, show me what you've got and you can go, that pipe is not great. The number of calls you've had in the last week is not great. The cool notes are not great. Yeah, I guess the word that got me was no. Because I only know what's I've seen what they've done. I can guess I can have a feeling about it. Look, talk is cheap in sales, Harry. Talk is cheap. Do you know what I think you know from looking at the cool notes, from looking at pipe, from looking at how they spend that time. These are all indicators. I'll let me answer the question constructively.

32:44I've listened to call recordings or go on calls with them. That's a very important data point. And you could tell pretty quickly if you think this person's doing the right thing. And as usual, you want to give you the opposite case, Harry. The hardest case is not firing somebody who's not selling. That's easy. The hardest case is keeping somebody who's not selling. And if you haven't listened to calls, you can't do that. I'll give you a concrete example. Mark logic, we sold most of ourselves and two verticals media and government, but I had wraps outside those verticals. How is hard slog? You had no support from a company, no reference customers.

33:15I could have fired every one of those wraps and whenever it would sold anything because they couldn't sell anything. So every year I had to look at it and go, Mike, I've listened to your calls, I've been on calls with you. I think you're doing the right stuff and you came in at 80 % or 70%. I might even give you extra money to keep you around because you're doing the right things and I know you're doing the right things because I'm close enough to you to know that. So that's the hardest case. So that's zero to one. You got to do that, Harry. Any client can fire it at a big company. You have a hundred reps and you got a fire at the bottom.

33:4220%. That's easy. What's hard is knowing with you have three reps. Pretty keep it. Have you fired and when no one's selling? OK, so we do the core recordings. That's one way of like reviewing. When we think about like sales reviews, how often we're in early stage company and when we think about the audience is mostly 100 carer or to 10 million error because not actually many companies beat the 10 million error. when we think about that as a range, how often should the CEO slash sales leader be doing sales reviews? So in my world, there's three different types of calls. So let me just define that I think the calls are, there's a forecast call, there's a pipeline scrub, and there's a deal review.

34:20Purpose of forecast calls come up with the forecast, should be all numbers. One of my sides to fire a sales manager is a forecast call, it's all storytelling. Oh, I talked to Joe, Joe talked to Mary, Mary said this, but I did ask her that, how much she can sell the squirt. So that's forecast called pipeline scrub is all about scrubbing the fork key value fields of an opportunity value closed date stage and forecast category. So let's validate those validate those are real data and then a deal review is it to me a very collaborative exercise where we get is when many people who want to come and we say if you're the rat parry how are we going to help Harry win this deal.

34:53Harry tells everything about this deal. Let's help you win. So when you see sales review about sure what you mean if it's one of those three things I can talk otherwise you got to find it for me. I would say sales review in terms of the third and final one. Because to me, a lot of people to use sales review is a scary mean thing. And that's why I like my framing of it. It's not scary at all. We're trying to help you win. So tell us everything. It's your peers, it's your bosses, it's the CEO. By the way, if you're talking about, because you mentioned some pretty big deal sizes there, Harry. And if you're a small company doing $500K or a million dollar deals, the logic we did those, I would always think, how could I ever explain to the boss if I was the board?

35:29If I wasn't in the million dollar deal if we had a five or a ten million dollar quarter and there's a million or two million dollar deal And the board says what went wrong and I say I don't know you need to ask Joe Right, that's a terrible answer. So as a CEO founder, I think you just need to look at the materiality of the deal to the quarter And like are you negligent in your duties? I get some level of the deal's material of the quarter you better be in it deep and that's not just a deal review That's meeting the customer. Have you flown out talked to them? Do you know the names of the people?

36:00Because that's what it is to big deals. I sit in many board meetings and often they have the heads of sales there And we say well, why do we miss numbers and they go ah, you know the Jones account the Jones account It just slipped into next quarter next quarter slipped What do I say to that? Like what's a good reason to let an account slip into next quarter versus? Yeah, I think there are almost two types of companies these those were slip as an acceptable thing and those that aren't. Because at some level, I mean, let me just be a jerk for a minute. Okay, wait a minute. You don't make the software.

36:34So your only job is to sell the software. You're not a technical resource. You don't help customers deploy. So this is kind of the you had one job argument. Right? Like you had one job. And it's just remember, that's what you do in sales. So I'm not super sympathetic to slipping. Right? And as part of your one job, you're supposed to tell me how much you're gonna sell. And when? So I start with a pretty hard position. Let me just go in order. That's the first thing which is my philosophy is not Oh slips happen, you know, oh and evident well, no, it's your job is for not to be having this conversation So I'm immediately unhappy the next question is how much slipped into this quarter because people love to be asymmetric They'll have to say oh, yeah, we made the quarter except for this deal it slipped out I'm like well, that's funny because two million slipped in That should have been made last quarter So if we're going to do this slipping game, let's do it in a symmetric manner because I've noticed your tendencies The only one I kind of artificially pull things in my count the first week of next quarter you know week 14 Of the quarter or as they say you know day 366 of a year right no that doesn't happen the last point I'd say on the slips is that it's not a given T.

37:38All right Ask why and it from me the here let me give an example of an invalid excuse some of our excuse invalid The purchasing agent was on vacation. Well, gosh, nobody could have known that was going to happen. Like we could not have called like here's I make a thing called the Clothes plan and that's actually one of the questions who is going to sign the document whose name is going to be on the Inc on the document and are they around that week? Right and you can make a list of those questions. By the way, everyone should have a closed plan. Every time you hear one of those excuses, it should go out of the closed plan.

38:08You know, his uncle until you dog got married and no or whatever But we're never going to let this happen again. Because your job was to get the paperwork by midnight on the last day of the quarter. So anything about we didn't know this, we didn't know that, or another popular one. Oh, the last minute there was a committee that needed to approve it. You had one job. Your job was to know about the existence of that committee. Did you ask the buyer if they'd ever done a deal this size? Well, I asked them if they did a deal before. The biggest deal he'd done was 200K. There's 500K that required an extra level approval they didn't know about.

38:38Your job was to know that right put that question in the closed plan to make sure we never get bit by that again So in general I'm pretty unsympathetic area. The thing I love about our conversations is you just say so many things I'm like I can just go in so many different ways with this closed plan I don't need people to talk about that often Dave I interviewed a lot of sales leaders when should we create a closed plan? What are the standard steps? Are they standard and how do you get good versus back? So to me, the closed plan, in some ways, is the anti -slip plan, right? It's the list of things we need to know to make sure we can close the deal this month.

39:12So it's not strategic. My mind is a list of answers to questions like, what day is the deal going to close? Who's going to close it? What committee needs to approve it? Do they have budget authority? What's the product? Do we understand the process for getting a project authority? To a certain extent, just think of the closed plan as a list of questions that over time you build every time it deals slips that you could have known about. By the way, it should give you, to be nice, I'll give you a valid difference. The company got acquired in the last day of the quarter, all purchasing gut frozen.

39:41Okay, that we couldn't have seen coming, right? But it needs to literally be that level of active God, right, before it's an excusable reason for slip. But back to the closed plan, I can go dig one up and share it with you later, but it's just literally all the stuff I can go wrong is your, it's super mechanical. Have you ever shared one publicly before? Never. No, I'd like. Would you do it with the show? Yeah, it would take me a half an hour, but I'll go and analyze it. Actually, consider your real one from 2005, really. I think you'll be a phenomenal resource for so many sales teams would love in terms of a template of like actually put all those questions because the closed plan that misses two of the questions that you think are crucial is useless because then they could be one of the two in the closed bandels mark.

40:23So I'd love that. I think so many people would. Is that okay? Yeah, absolutely. How do you think about bias exaggerating? And what I mean by that is every bias says, oh, I'm the the buyer. Yeah, you're speaking to the buyer. How do you know if you're really speaking to a buyer, Dave? Yeah. So I'm a big believer in a semi obscure sales methodology called sewing through curiosity by Barry Ryan. And the whole first principle of selling through curiosity is just I'm curious. So my answer to that, I'm curious Harry, who else but so I understand you're the buyer, Harry. Who else might be involved in this process?

40:57Hey, I'm curious Harry. Who's budget is this going to be coming from I'm curious Harry Have you guys ever spent this much budget before in this kind of system? I'm curious aren't there other people who also is impacted by the decision don't they get a vote Harry? Can you just explain this to me and by the way the last time you did this kind of process? Can you tell me what went down how it worked and the timing was selling for curiosity? It's just amazing because most sales people are some ways they're too busy trying to prove how smart they are Be tough and confident and it's just so humble a place to come from which is Harry I'm really curious have you done this before and I'm not saying Harry you're not the buyer, come on, they're not going to let you spend 150 grand.

41:32It's going to be more. You're more on. Why would they give you a? That'd be hilarious. So it's an interesting reverse sales tactic, isn't it? I love that. In terms of getting to that close, we get to the close and then they go, Dave, the price is just quite high and we're looking at other options as well. Can you give me a 25 % discount? How do you think about discounting today in 2024 because it does depend on macro, I think. How do you think about discounting today and how do you advise sales teams on the best way to approach it? Yeah, first it's best not to get into them in the first place and second it's best to come armed.

42:08So a lot of the argument, the valor argument for value selling is harry. I thought we agreed that the system was going to save you $5 billion a quarter. Why are you coming to me for a 100K discount on the last day of the deal? I get you, but I've got you know two other options and they're afraid to me at that. And so I just have to make the business decision. Got it. So this is going to be a series of fallback strategies here. I'm not going to work. But what I'm trying to do is make sure at least I have cards to play. The next card I would play is, so the first card I'd play is value. Harry, this potentially delays the deal, because I need to go get approval on my end.

42:40So this could push it back a month or two. I'm not sure we can do it. And if we do, you're still going to lose a month or two of benefits. That's going to cost you more than the discount rate there. So that's who the first card I play, which is the risk of delay and value. The next card I'd play would be if you're managing the sales cycle as a series of give -gets, which you should be, to carry, we talked about this, we talked about pricing before, and we cut it the last time, right? Remember we had a negotiation, we took it down from two million to one eight, you may recall, I said, I can get you one eight if you can commit to me that we would do the steal, and you committed to me to do the steal.

43:12So it would be the next card I'd play, right? Like, hey, we had this conversation already, you're effectively using the last negotiation. There's a starting point for a new round of negotiation. And I'm calling Fowl, and I was saying the company may not do it, and my boss may not let me do it. But I can try. Because to some way, but the seller, is a seller you need to kind of play powerless as well. Because I'm kind of your advocate too. So like, hey, I can try. I'm really disappointed. Because my boss is gonna kill me. Because when I came down from two to one eight, you promised me you could get the steel done.

43:41And you might just say, I can't. I literally can't. The competitors in it, one seven, and they're going to buy them. So then I have to take it back to the company. I mean, at some point I'm going to play these cards. They may not work. The most common in my experience was competitors, because I tended to work in competitive spaces. And then you have to take it back to the VPSLs and say, how many times have we done this? Do we believe them? If I cut it to 180, they're going to come back and ask for 1, 6, 8 hours later, like how are we going to get this deal done done? Like, how can I trust your word anymore?

44:11It's hard, Harry. But most of the great salespeople I know will try very hard not to collapse. They're not going to be scared. Oh my god, we can get it at one seven and instantly cave because I'm signaling to you that why not ask for one six. There's a great metaphor, Harry, which is when do you stop squeezing or where I when the water stops coming out? As long as this water coming out, I'm going to keep squeezing. And then even then when the water stops coming out, what do you do? One last twist. So you've got to imagine yourself on the receiving you're the wet rag and they're squeezing you, well, it's coming out and then you're going to get one more.

44:45And you've got to say no, because otherwise, you're going to keep squeezing. Yeah, Dave, we could maybe move to one six, but you are a great brand logo customer. I need you logo on the website and they need a customer reference. How important are customer references? And our sales teams write to place a lot of weight and give for them. So I think they're important and I think a customer will do one anyway. So I don't love it as a negotiating chip. If I'm doing right by your business and if I'm delivering value, if we have a good relationship, you should do it anyway. And if you're only doing it because I've done to your head because you promised you do one, then I'm not sure how good a reference you're going to be anyway.

45:22So I don't love it. I think you do that as a last resort to try and maintain some shred of quid pro quo. That I have to ask for something. But in reality, it's not me. You should build a customer or a fish burger. So this customer actually, they wouldn't pay and they decided to go elsewhere. We need to go outbound again, Dave. You said before, the outbound, many found coal in their outbound stocking. I saw this and I just loved it. What did you mean by many found coal in their outbound stocking? I think for a lot of people, outbound was this kind of great savior. We talked earlier about the low hanging fruit problem and they went, oh gosh, we've picked all the low hanging fruit and we could possibly improve execution over there because I have to start questioning my people, because they're telling me it's all picked.

46:07So I guess the only thing I can do is outbound. And at least I can be in control of my destiny and I can give the salespeople something to do when they don't have enough leads. And I can quiet all the salespeople barking at me for not getting enough opportunity to marketing. So I remember exactly what causes kind of upbound fever, Harry, and I'm a big believer in upbound in the right circumstance, right? Typically, ABM, very tired of the account selling big deals. Outbound is a wonderful part of the strategy. But I'm not a believer in, oh, we can't generate enough inbound and we don't know what to do so let's do outbound.

46:35So we're just going to call random people like wait we don't have a targeted account strategy so we're just going to call a lot of people and try to make them show up to meetings and we think that's going to convert better than just getting more content out there that makes them interested in us and come to our events and download our white papers maybe we could try it but it converts low. As a VC can I offer an alternative suggestion which is to be sort of proliferation of outbound tools and the sophistication of outbound tools which many bought and then that put on sales teams is like, hey, we're now using this outbound tool, which helps you craft the perfect email for outbound targets.

47:09And I would be interested to see the correlation between the buying of outbound tooling and the proliferation of outbound activity. What's the other problem here is it's an arms race, which is now everybody has that tool and everybody has the perfect email. So the buyer becomes numb to it. I think outbound actually work better four years ago that does today, because I think everyone's doing it when people are getting flooded with it, they don't like getting called on their cell phone. They're not answering their regular phone. And you can do email sequences, but they're covered in email and I think there's new spam rules going in the fact that maybe they're not going to happen.

47:39I'm not sure. I just think everything about outbound is inherently difficult and got to get harder. By the way, the point of that statement was, I actually literally saw that happen. I saw CEOs who were two years ago were telling me outbound is a big savior. And I'm like, are you sure? And now they're back at me going to forget outbound. I thought it was going to save everything and they didn't. Is there any point in investing outbound? If you can invest in great content marketing, is there any point in investing in Outbound? This way, if the juices were the squeeze, as I say, because good Outbound is expensive.

48:09You're going to spend a lot of money stalking a company. Let's just say, for example, in the early stage start -up, I've sold two big insurance companies and there's ten more than I think need me. Stock to heck out of them. You're doing big deals. It's going to be worth it. You get an Outbound SDR, you get a sales rep, you get marketing, you do retargeting, and you stop these customers. Literally, like you don't know it yet, but you're a destiny, right? That's a thing. Like you're gotta buy for me. That can work very well, because you're replicating a use case in industry, right? You've got good reason to believe that these people need your software and they don't know it yet.

48:45I'm all in favor of targeted marketing in that case, because it's a big deal. If you're selling a $5 ,000 a year system to anybody, this is generic productivity tool, I have a lot more trouble getting excited about Apple. Where does it make sense and where does it not? Is it like when you cross the 100 ,000 ACV and you have a very limited number of buyers, is that the difference? Yeah, or you've deliberately limited the number of buyers because you're going to do a vertical expansion strategy. So let's just say, right? Because your tool might be sellable to everybody. But let's just say you've got some traction and insurance and you want to go replicate within insurance, then I'd go do it.

49:20And it's not to say the product is only useful insurance, but I'm deliberately going to constrain my go -to -market strategy, so I have useful references. I can summarize all of Jeffrey Moore in one sentence, which is people buy when they think people like them use your solution. Period. Do people like me use your solution? And I get to decide what's like me. So the question is what's like Mimi? Right? It means my industry, my use case, my problem, my size. So so much of sales is can I prove that people like you have bought this and it helped them. So in the problem sales reps is they're very quick to say, oh, you both breathe oxygen there for you're like each other, right?

49:58Because like, I have nothing in common with this person whatsoever, right? The customer gets a define who's like them. If you're a sales rep, how do you prove that people like you, Dave, use and love my product? Customer references, logos, name dropping, oh, well, I was talking to you X the other day. Yeah, all of the above. Look, vertical strategies work because the people like me affect, they're inherently limited and they're a little bit high cost because you now have to learn a lot about all your customers in that industry. But I think all of the above, name dropping, saying do you know that the company X and company Y uses us, literally, there's your space, demonstrating, understanding the use case.

50:36Is it when Harry meets Sally when they're competing each other sentences, right? No, no, that's Jeremy Warren. When you're describing your problem that I can finish your sentence, that builds credibility. It's like, whoa, this guy actually understands my problem. He's completed my sentence. And he says they're using me at the competitors down the street. And the SC just helped implement a system at one of those competitors. It's that whole effect of, oh my gosh, people like me. And by the way, a vertical dinner, right? So you get invited to a dinner and you find literally people like you there.

51:09It's very important. So it verticalized product marketing. It's kind of easier. You have a very specific industry or talk scene. They tend to have the same pains. They have the same data in many respects. Great, much harder when it's horizontal to effective product marketing. When you're notional air table, you're selling to developers and also to mothers and dentists and everyone in between. I love that everyone always uses dentists as the random analogy. It was a weird one, isn't it? Why dentists? But you said before, and so that's like a freaking hard product marketing challenge. And you said before, product marketing take a backseat, I was intrigued what you meant by product marketing take a backseat.

51:48Use case is the answer. So I have three layers I can fall back to, right? I can say, Hey, Harry, people like you use this. They're in your vertical. They're solving your problem. They're in your size range. But next level is just use case where I need to convince you that your use case is similar to someone else's use case that this case can people like you. you are people who have this task manager problem. Or I'll give you a real example from me, one of the stranger ones I had. I had tried to convince JetBlue Airlines that they were like McGraw Hill publishers. As well, we find planes, they sell books.

52:18This is not going to be easy, right? And I said, well, what's your problem with JetBlue? And they're like, well, you know, every plane is different. And therefore, the documentation for every plane is different. The plane can't leave the gates without a custom piece of documentation for that specific plane. And even if we change the coffee pot in a maintenance operation, I can't fly the plane unless the chapter on how to fix the coffee pot is changed. So every document is unique. And I said, you know, tell me from wrong here, but it sounds to me that it's a lot like what we do with McGraw Hill, because they sell educational textbooks.

52:49And evolution in California is a theory where it is in Kansas, it's actually just a hypothesis. It's been downgraded. Some people think. So therefore, in order for them to sell a book, or if they want to talk about Native American tribes, they need to use the local tribe, Fiddle -Cohomo versus the one in California for the sidebars. So if you want to sell textbooks in any state, the book needs to be customized. I think that problem sounds similar to you, right? And that's how we sold that use case. Got a million dollar deal by different industry, same problem. And the issue is you kind of need to lead the horse to water there, because it doesn't matter if I think it's the same problem.

53:25and then it doesn't seem problem. I love that and I think that's a very smart alignment. It's a challenge. What do you advise founders to? Because I think the biggest from my see -honesty Dave with early stage founders is as launch day comes, they broaden the ICP in fear that they're not going to get anyone use their product. And so they go, ah, we're not just actually for product managers now. But for anyone who needs it to do this, or whatever that is, in terms of the biggest product marketing mistakes that founders and early product people make. What are they that you see most often? So there's a lot in that question.

54:00I want to tell you story first. So I worked at an object database company, Harry. An object databases was a grim space back in the day. It was right after the relational database, everybody thought they'd be the second company. So there was a whole generational company. It's raised about 100 million in Accuria, which is a lot of money at the talk. And everyone tried to sell the stuff horizontally. And I joined, I'm running product marketing. and it doesn't, nobody wants to buy it because they're just learning how to adopt relational databases. And so one day I come to work and they literally fire the entire executive team.

54:27And I get my first VP marketing job, hey, battlefield promotion to VP of marketing. And they bring in a new CEO and we say, you know what, let's focus on what's working. Let's double down on what's working. And he said, Dave Larry, you guys go figure out what's working. So I mean, Larry went off and we came back who said, well, you know, only a $5 million company. So there's not a lot working here, but we think telecommunications network management and this new standard is working. This is great. Let's bet everything on that. All chips on telecom network management. And we grew that business from, say, two of the five to 15 over the next two years.

55:01And back in those days, the company could go public at 30. So they actually went public at 30 off that strategy. But as they were getting ready for the IPL, I'll never forget this because there's two reasons I went to business objects. One was I was very attracted by movie to France, love the founders, love the space. The other was I had watched Versaind fail trying to be everything to everybody succeed with this razor sharp focus. As we approached the $30 million IPO, no, no, we got a broad and broad and broad. So now it's good for finances, good for health care, it's good for telecom. And they literally went public at six bucks a share, it stayed at six bucks a share, fell down to three and then kind of went out of business, they got acquired.

55:38So I literally watched the whole life cycle of no focus driving nothing, intense focus driving success, and then the financial types coming in and saying this won't sell on Wall Street with no regard for the marketplace. So the short answer to your question is external pressure driven with good intent by people who don't understand the business. That's the biggest risk. I think what I see also is like a need to meet valuations that were 2021 valuations, and And the only way to do that is to expand into verticals or use cases that are not aligned not beneficial. Do we need to? Yeah. And those halves are dangerous here.

56:17So I imagine this all as a matrix of vertical versus use case. And every time you're hopping a cell, it's danger. You know how to sell the custom publishing use case to publishers. Can I sell it to airlines? First, the first one is really, really hard. Right. And once you've got one, then you can start to replicate. But any time you're hopping in this matrix, you should put a big yellow. This is going to be difficult flag And if you think you could just kind of knock these things down like dominoes know it We hail engineering founders today Dave and engineers are great no disrespect to them But with that praise or idolization we denigrate gdm focus gtm focus founders in some way less pure How do you think about that and what do you think they most often do not understand?

57:04I'm a tough person answer this question because I view my personal specialty is working with technical founders to explain sales and marketing Like that's my superpower. So my favorite thing to do is take you know PhD dropout or PhD student who's founded a business and tried to help them understand Do you find they respect it? I find most often there like sales and marketing Fluff well, because I think most people do a terrible job of explaining it So that is the typical reaction, but I don't believe the founder I blame the explainer and I think this is actually what I think I'm good at Harry we've hit the one superpower I think I have I think I'm really good at explaining that and what I find is that they're really good you know turns out PhDs are really good students and if they think you're credible and you could teach them something they learn incredibly fast and they're super interested you try to feed them bullshit no they're not interested right or you just say well they worked at your work to Cisco or work to Salesforce or work to wherever that doesn't work for them but if you can structure it and explain it I find in general they're from I'm only good to work with.

58:02Do you think we'd down a great GTM focus founders? I don't actually know. I would say the fashion right now is product oriented founders, for sure. I would say product not engineering by the way. That seems to be the best. Like, while I was advising a young person, work it a go. If you wanted to found a company in two or three years, I'd say product not engineering. Back in the day, really was engineering. Because I think product is seen as a kind of less intense form of engineering. Like, they're technical enough, they understand the product. Like, do you really have to understand exactly how to build a product?

58:29That's my perception of the preference in the industry tonight right now because because back in the day It really was engineering. I mean it was they were engineers. They weren't product people because some product people Aren't that technical which creates its own set of problems right because they're neither fish nor foul I think if in GTM founders are revered if they're selling GTM tech So I think that's the case where people want them right because they understand the buyer the problem I think the other interesting pattern to look at and I don't have data here But my sense is if and when you replace a founder which was extremely unpopular for the last five years, but I think we'll get more popular going forward.

59:02You will tend to replace them with a GTM person. That has always been the pattern of Silicon Valley that you replace product and engineering oriented founders with GTM oriented people. And Jason Horowitz, in my opinion, put that trend on hold for a decade or more. I can tell you back when I was at CEO, if you went to Bucks in Woodside or had lunch on Sandhill Road, you'd hear founder issues, founder issues, we got to replace the founder. there's a sell by date on the founder's head. And replacing founders was like super common in those days. And then in Dresden came a lot and said, no, the whole industry followed suit.

59:35They were very, very founder friendly. Why do you think that pendulum will swing back and we'll see replacing founders returning more commonly? Because I think like any extreme, it's wrong. And I think we were too far the other way before. We were too quick to throw out founders. I personally think a founder is the best person to run the business. I am super founder friendly. But no, they're not. I used to say they had an invisibility cloak. Literally, you can see the confounder could do anything. Part of it was jealousy because I was a non -founders CEO and I watch my back every day because I knew they could fire me and would.

1:00:09Whereas some founders just act like and sometimes by contractual terms they are, but they act unfurlable and I think it's not good. None of us should feel like we're inviits. I would also say that replacing a founder does not mean removing them from the company. I still see incredible value from having them in a role where they can empower teams, empower customers, television, but bluntly CEOs know how to make money printing machines. I think if you know MongoDB with Dev, Dev is a phenomenal CEO, very, very few founders or as good as CEOs, Dev is. And it takes a very different CEO to run a public company than to scale to a millionaire in an era, you can still have them in the company, but that's just not the CEO and leader.

1:00:52Agreed, by the way, and that was always my position and that's what I did at ArcGlochic, by the way, there were two PhD founders who founded it. I viewed myself as their Sherpa. I was going to get you to the top of the mountain, right? Because I like technical founders and know what I'm good at and what I'm not good at, especially you saw in the platform software, you need these geniuses driving the vision of the product. So totally agree with you, Harry, that replacing the founder as CEO doesn't have to me if ego doesn't get in the way and things are properly handled doesn't have to mean they're not the company more they can be a very important role.

1:01:22But basically I just think the pendulum is one too far. I think we're too quick to replace them in the 90s and early 2000s. I think for the last whatever 15 years we've been too many lives. Catas 9 lives it's like wow founders just have unlimited lives they can make his money in the States that they want to at some point you need to replace them. What I think is we're swinging back to a more reasonable middle ground. I do want to touch on sales tooling and AI before we move into a quickfire. We've seen this explosion of AI sales tools. How do you advise SaaS founders who are sitting looking at this landscape going, what do I do?

1:01:55How do you think they should approach it? Yeah, play with stuff. That's what I think. I mean, if you're a vendor in my mind, get out there and know you're playing musical chairs and when the music stops, you're either going to be a player or not. So if I were a founder, one of these companies would be very aggressive right now to get myself known and established in the market because this market will organize, right? We're in the chaos phase of the market. And so from the vendor side, this will organize. There will be winners or losers and it will happen overnight, you know, 18 months from now.

1:02:21Do you think it will, do you think it'll be baked into existing vendors? I'd include that in market organizing. Yeah, it might be done through M &A. It might be through turning companies into features. There's a lot of ways the market can organize that the thing I know is that it's not going to be 100 different companies with too many names and we can't understand who does what. But my advice is rather than try to pick winners, I mean, VCs have that problem. Customers can just play with tools and just go get yourself familiar with these things. Is this what I advise people? Yeah, try to pick the tool you think is gonna win, so you don't have to switch later.

1:02:50But more important than that, don't sit on the side by waiting for a winner to emerge before you figure out how this tool can help your business. Just go play. Tell yourselves, I've said, I want 30 % of your time playing with you tools. Just go out and try new stuff because we need to understand what these things are and how they can help us. because they can make phenomenal improvements in productivity. How much of an impact do you think AI tooling will impact sales in SaaS over the next five years? Well, you know, battery came up with a famous slide where they basically said, I'm going to get the, I think to support 30 sellers, they argued that today it takes 110 personal organization and then tomorrow it'll take 75.

1:03:27So they're saying for the same quota, for the same number of quota carrying AEs, you can cut the org from 110 to 75. So it's on the order of a 30 % cut. And I don't think that this is really raw. So they're saying the AI transformation of sales will be a 30 % increase. Is there anything that you think people misunderstand or don't appreciate when applying AI and the new AI sales tooling to SAS? I don't Harry because I think there's a enormous amount of drudgery in sales. And I just think this stuff's going to eliminate drudgery. I don't think it's going to eliminate quality work. It's going to be.

1:03:59Is Alba I'm going to become more or less important in an AI world? I can be too quick on these things Harry but I think it's going to saturate. Once everybody has great outbound tools, once I'm getting 50 ultra personalized emails a day, I'm going to ignore them all. I mean, I just think it's a transient advantage. That's why I come back to inbound. So go use it, right? Transient advantage is still an advantage, right? So go use it while it's there. But don't rely on it as your strategy because no, you're from now all your competitors are going to have these two. Dave, I would love to dive into a quick firearms.

1:04:32I say a short statement, you give me your immediate thoughts. That's not okay. Sounds dangerous, Eric. What worries you most in SaaS today? Subscription, pricing. Is it religion? In religions, scare me. I mean, I think there's a time and a place for it. I think we're now past the peak on it. But I get nervous whenever VCs show up to CEOs and say, do this. Everyone's doing it. It's the future. And if there's no underlying real reason other than everyone's doing it, I don't know if VCs know how to track and they can be the CEOs. Because I I listen, when I was a CEO, I listened, my VC's told me to do something, I'd do it.

1:05:04And you have to understand there's an opportunity cost of me looking at it, building a model, trying to make a model that's some hybrid. So just, I don't know, be careful what you asked for. And I just worry that subscription pricing during the Zerp days was the greatest thing in the world, because the money was flowing and everybody was expanding. And now the tide's going out to mix metaphors and we're seeing the downside of it. And by the way, the great paradox right now is the people who are in subscription pricing generally have been hit harder than those who are not, but they're nevertheless still growing faster.

1:05:35So put that little braid twist around. What's the biggest mistake founders make when expanding into enterprise? Product, they think that the product will work in enterprise without understanding the requirements. And enterprises, what's the expression of the big company is not a large small company, right? I've never had that before. What would you say is the biggest mistake founders make when hiring sales teams? Hiring a VP on pedigree value who turns out just to have been in the right place at the right time. How do you know if they're right place, right time? Very hard to know, right? Because you want somebody who's got a track record of success.

1:06:13You want to seek good brand names on the resume and you need to try and figure out how much where they just writing along. First and so much where they're driving. Sometimes attribution is not even reliable in the way that the person who sold the Uber account at Twilio. It was an entry -level sale. They just monitored it and then turned into a monster monster account. Yeah, we had Mark Logix this way back in the day, but we had one rep had one of the house accounts. And most of the people in the company really didn't like working with that rep and thought he was kind of semi -accompanied kind of bump late.

1:06:45And the board was like, we need more Shredley's. Shmedley's amazing because if you just look at the number, Shmedley was amazing. Whereas most of the people who had to drive it was just like, oh my god, Shmedley's kind of a pain in the neck. So much as I love numbers, you need to look beyond them. I think if you ask why questions about how decisions got made, you tend to find out if they were making them. Well, it will be the biggest challenge faced by SAS companies in 2024. The fishing growth, we learned how to do it. A fishing growth really well in the last four years. What in SAS would you most like to change?

1:07:15If you could change one thing in the world of SAS, What would you most like to change? I think it's already changed, which is the funding environment. I honestly don't believe the flag -growing startups, as they say, is stuff in them full of cash, is a healthy behavior. Some are actually good. I knew a few that seem good at raising money and not spending it, and the saving it to grow later. But most people, when you stuff them full of money, they go to spend it. It's a shame. So I'd like the funding environment to change, because I don't actually think it's been healthy. Well, do you know why my friend, I think that has changed?

1:07:45But listen David, I love it with you, because as I said, I always like listen to you and then I have 10 subsequent questions, as you can see from my arm. But Dave, I've loved this, so thank you so much for joining me. I mean, what a fantastic discussion that was, if you want to see the full video you can check it out on YouTube by searching for 20VC, I always loved to see you there, but before we leave each day, there's no shortage of helpful AI tools out there, but using the mean switching back and forth between yet another digital tool. What was supposed to simplify your workflow just made it way more complicated.

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1:10:16Now stay tuned for an incredible 20 product episode this coming Friday with with Wil Wu, CPO at match .com.