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From Growth at All Costs to Efficient Growth: Adapting Your Sales Strategy with Pete Kazanjy
November 7, 2024
Episode details
This week on the Expert Voices podcast, Randy Wootton, CEO of Maxio, speaks with Pete Kazanjy, co-founder of Atrium, entrepreneur, author, and early stage GTM expert. Exploring the evolving dynamics of sales in the tech industry, Pete and Randy discuss the current sales landscape and the challenges faced by organizations in adapting to rapid changes. They also discuss the ‘Sales Performance Gap,’ a phenomenon that refers to the disparity between sales expectations and actual outcomes, and why sales leaders need to recalibrate their strategies for the current market environment. Pete emphasizes the importance of proactive sales management and accountability and argues that the era of unrestrained growth is behind us, with organizations now needing to focus on efficient growth and sustainable practices.
Video transcript
Randy Wootton (00:04):
Hello, everybody. This is Randy Wootton, CEO of Maxio, and your host of SaaS Expert Voices, the podcast where we bring the experts to you. And today I’m so excited to have an expert in SaaS on the sales go-to-market side, Pete Kazanjy.
Pete Kazanjy (00:19):
Kazanjy.
Randy Wootton (00:22):
Kazanjy. Thank you. With a name like mine, I have extra sensitivity to pronouncing it correctly, but thank you for correcting that. Pete’s been around for a long time, the co-founder of Atrium for the last eight years, which we’ll talk about, a really cool company. And the insights that he’s been able to collect via Atrium and around go-to-market teams, specifically around sales, are extraordinary. He’s an author of a book, Founding Sales, which I’ve read, it’s awesome for folks, early-stage CEOs who may not be sellers themselves thinking about how they should be building go-to-market teams and hiring revenue leaders, which we’ll get into. It’s a great book. And he’s the creator, I don’t know if you have a title of it, but the new sales reality deck and that’s how we got connected. What are you calling that deck?
Pete Kazanjy (01:11):
I think the concept that I’m aligning on is what I’m calling the sales performance gap. And then the decking question is really just an aggregation of my research and my meditation on what is driving what I perceive and what many people perceive, many leaders perceive, as this pretty pervasive performance gap in go-to-market right now. So we can call it the sales performance gap, it’s a good working title.
Randy Wootton (01:45):
There you go. Great. And we’ll include it in the show notes. And the people that are must have right now, go to LinkedIn and find Pete because he has it posted there with a lot of comments, it’s a robust deck. And to your point, it roots in the sales performance gap or go-to-market performance gap, but what I loved about it was all the research that you did upfront in terms of what is the current reality, what have been the trends that have impacted go-to-market, why are we in the state that we’re in? Which we’ll lead off in a second. But Pete, I’m so excited to have you on. Did I miss anything in your bio that you wanted people to know more about?
Pete Kazanjy (02:23):
I don’t think so. I think maybe helping folks understand the synthesis of my background and my arc might be helpful for folks so they know where I’m coming from. Yeah, I run a software company that’s focused on sales performance management right now, but how I got there is a long and winding road. No, not necessarily. I have a background in product management and product marketing. I started my career at a company called VMware a long time ago in a galaxy far, far away. And I went from being a business generalist, kind of product manager, product marketer type person to when I started my first software company, TalentBin, which was a recruiting software company.
(03:04):
I was our first, as business generalist founder, but then a seller, and that’s where I figured out like, “Oh, actually software doesn’t sell itself, the founder has to be the initial seller.” First seller, first sales manager, first sales leader. We were acquired by Monster Worldwide in 2014, and then that’s when I went from being a manager and a leader of a 20-person sales organization to responsible for new product sales across a 400-person sales organization at Monster. And really started thinking about what drives and what blocks high performance sales organizations and process excellent sales organizations, and what have you.
(03:49):
Wrote a book, as you noted, on modern sales and go-to-market, called Founding Sales, and then also started the nation’s largest sales operations and sales leadership community, called Modern Sales Pros. So, all that led to the founding of Atrium that exists to help organizations better measure, manage and improve sales performance. And that’s really what I think about. And so we work with hundreds of customers right now, and one of the things that I’ve been thinking about over the last six, 12, 18 months is this broad under performance in go-to-market, and specifically in sales performance that seems to be preventing the industry and trying to understand what might be driving that.
(04:37):
And I have this presentation that I’ve been aggregating together that synthesizes some of that, mainly hypotheses, but they seem pretty valid, and it seems to resonate a lot with CEOs and boards and CROs, and so on and so forth. Maybe it doesn’t resonate as much with the individual contributors who might think that there’s other things going on, but for folks who have been around the block, it really kind of synthesizes things in a way that they say like, “Yeah, those are the disparate themes that I’ve been seeing.” And this kind of pulls us together, so I’m excited to talk about it with you.
Randy Wootton (05:12):
Well, let’s dig in then. So, when we talk about the current go-to-market perception versus the reality, I think there’s this starting point in terms of how do people process reality via assumptions and data. So you have a set of data, you layer some assumptions on it based on your experience. If you’ve been through the recession or been around for a while, you have a broader set of assumptions, and based on that you make a conclusion, you have a hypothesis. I think Stephen Covey calls it the ladder of inference. And so, what was our previous reality, and then what has changed?
Pete Kazanjy (05:46):
Well, there was, what was the immediate previous reality, and then the funny thing is then there’s the reality before that, trends like maybe we could just for times around it. So, there was a state of go-to-market and also a new product, new technology, go-to-market, that maybe say it’s through 2000 through 2010 or so, 2010, 2012, 2014-ish. And a lot of people who are ICs, individual contributors, whether SDRs or AEs or whatever, they were in grade school or high school or what have you during that period. And then, something kind of substantially shifted, in 2009, and 2010, there was the great financial crisis driven by the housing financial crisis.
(06:40):
And of course, then the Federal Reserve’s reaction to that was a substantial reduction in the interest rate, the Fed fund rate to zero. But not just that, also a metric ton of quantitative easing as well. So essentially just like the entire economy was flooded with liquidity, which made for a very expansionary and easy money kind of environment. And that precipitated, and grew over time through 2012, 2014, 2016, et cetera, 2018. Interest rates started perking back up again in 2018, and 2019. But then of course we had COVID.
(07:31):
And of course, as soon as COVID happened, the interest rates dropped to zero. The Fed dropped interest rates to zero again, plus a ton, a ton, a ton of stimulus that came into the market. And so, what happened there was, again, more really easy money being deployed, and of course, especially in 2020, 2021, and the first half of 2022, what that meant was tons and tons and tons of investment by the venture community into new technology. And so what that meant was all sorts of positive, or at least momentarily positive impacts when it came to go-to-market, so very, very receptive buyers who have pretty flush budgets.
Randy Wootton (08:17):
And are told to grow, grow, grow, so, it’s like they’re going to-
Pete Kazanjy (08:21):
And are told to grow, grow, grow, yeah.
Randy Wootton (08:22):
Mm-hmm.
Pete Kazanjy (08:23):
Yeah. So, receptive buyers, what’s that going to do? Well, that’s going to positively impact win rates. Receptive buyers, what is that going to do? That’s going to positively impact willingness to take first meetings and pipeline generation. Very receptive buyers, that’s going to make it such that you have SDRs who can fish with dynamite if you will. And then, of course, the positive win rates are going to create really like a tailwind for account executive quota attainment and net revenue retention, and so on and so forth.
(09:01):
And then, of course on the marketing side and the pipe gen side as well, that was the buy side, but then also on the sell side you got marketers who have big budgets that they can spend a lot of money on LinkedIn ads or Google Ads, or what have you. A lot of hiring, “Oh, one SDR to three account executives, how about one SDR to each account executive?” And so, what this did was you had these cascading effects that were fairly far-reaching. So that’s just that. But then there are second-order effects as well. You’ve got a bunch, like all this money is coming into the system, now you’ve got organizations that are hiring like crazy.
(09:43):
Okay, cool, well, if you have a ton of organizations that are hiring like crazy, that’s probably going to modify how you manage your sales team. So if you have SDRs who are being told by, SDRs who are six months into their role or 12 months into their role, and then you have other organizations who are desperate to hire account executives telling them, “Hey, you’re ready to go. We’re hiring SMB AEs right now.” Well, then you might prematurely promote those folks as well. The same is true with the whole ladder.
(10:13):
You also might be very hesitant to performance manage in any meaningful way, like, “Hey, you got to be on top of your pipeline hygiene. Your pipeline’s a mess.” “Hey, screw you Randy, I’m out of here, I’m going to go be an account exec, I’m going to go take this call with a recruiter over here from the latest company that raised $100 million from Tiger Global.” And so essentially what you have is just this cascade of money across the entire industry from the 2012, 2014, I mean it really started ramping up in 2012, and then kind of went crazy in 2021 and 2022. But now that’s really meaningfully shifted, the Fed funds rate is at 5% now, venture investment has fallen off a cliff.
Randy Wootton (11:03):
Yeah, I just saw another article… Oops, sorry, just another article on that from I think it was CARTO that put that together, and you just see the number of investments the VCs are done is way down, and still down quarter over quarter. The dollars invested are higher, which means the VCs are still investing, but they’re looking for great deals. And if you disaggregate that and look at where they’re investing, the preponderance is going to AI, so if you try to spread it around more broadly. So I do think what we’ve talked about is this idea of the growth at all cost era versus the efficient growth era. And I think the point that you’re in your deck and making more broadly in this opening narrative is, this is a cycle. And so we’re in a new cycle.
Pete Kazanjy (11:04):
Totally. Yeah.
Randy Wootton (11:47):
And in the new cycle, you got to change your assumptions. I think the thing in our pre-briefer I thought was really interesting was how you talked about how these assumptions play through the different folks involved in the ecosystem from investors, LPs, VCs to CEOs to managers to ICs. Can you talk a little bit about that? Because everybody kind of has a different sense for, they have their radars up and they’re ingesting new information and new data, and they’re making decisions on different timelines. So how is that playing out? Because we’re right in the middle of this shift.
Pete Kazanjy (12:23):
So one of the things that humans are particularly bad at is understanding kind of time offset, multi-step processes. And so that’s kind of what’s happening right now is you have this big ripple going through the market of cheap money. And so that cheap money started drying up as soon as the Fed funds rate started going up pretty substantially mid-2022, and what have you. And so immediately the LP class, so the people who invest in venture funds, they started reallocating. The GPs, the venture fund folks, they immediately were like, “Oh, okay, these LPs are not going to give us more money, we’re going to slow our deployment rate.”
(13:04):
And so through the board meetings, they started telling the founders that they work with, the executives that they work with, et cetera, et cetera, like, “Hey guys, there’s not going to be more money and your incremental fundraisers are going to be really hard.” And so then the question of course is, did that information cascade to the VPs and organizations, frontline managers, ICs, et cetera? So I think in general, usually these things take six months to permeate for each layer of the stack, if you will, and that’s actually if you have good information transparency available.
(13:38):
And I was talking to a gentleman who’s a VP of rev ops, they’re a 50 person or a 50 sales, or a 50 rep company, the other day. And he was lamenting the fact that the board and the C-suite and the VP level, they live in one reality, and that the ICs live in a very different reality, even though this information is being communicated like, “Hey guys, we need people to raise their levels of effort, we’re not going to be able…” Like, “Hey, remember how we riffed the SDR team and took it down by 50% or took it down by 70%? We need you to bring that level of effort back up again because having five customer-facing meetings a week is really not tenable.”
(14:21):
And then for whatever reason, those messages aren’t sticking. And the question would be like, why? And I think part of it is it takes a little bit of time for people to update their priors, like re-update. And then the question of course, so it just takes time, and that’s cool. But then there’s a second component to it too, which is what is the information environment that folks are in that they give them that would help them update their priors or alternatively not? And I think a big component there is social media is, not only does it exist in a consumer context or what have you, obviously Instagram and TikTok and what have you, but also it’s starting to permeate the professional realm as well.
(15:04):
So the folks over at LinkedIn have done a very good job of getting the content flywheel going on the LinkedIn feed. And so the thing that folks need to remember is that these algorithmic-driven feeds, so the way that content gets prioritized in these feeds is twofold. One, the people who are posting the information obviously have selection bias. You don’t post boring things. This is why everyone on Instagram is always on vacation. It’s not because everyone’s always on vacation, it’s because people only post their vacation photos. They don’t post a photo of them, like their keyboard while they’re doing work. So that’s the first thing, is there’s selection bias.
(15:47):
And then the second thing is, is that the content that is prioritized for consumption is going to be stuff that is heavily engaged with, so liked and lingered on and commented on, and so on and so forth. And so typically those things have a tendency to be things that people like, people enjoy. So good examples of this would be on LinkedIn, when you open LinkedIn, the thing that’s at the top of the feed or the first handful of things is somebody’s promotion or the fact that somebody’s hiring. Or someone on a diatribe about how their boss is a micromanager because they were all over them to make sure that their MEDDPICC fields were appropriately updated. And then there’s a bunch of people being like, “Yeah, you tell them, man. Fight the man.” And so the problem is, because those things are fun, it’s like, “Yeah!”
(16:51):
And so, the problem of course is that if you’re an SDR or a junior AE that’s in that information environment, and this is compounded by work from home scenarios where you don’t have individuals who are sitting amongst six other reps or what have you, and can’t see what that manager is doing with that rep over there and observe the active management or observe these norms. But instead, the information environment that you’re in is this, then it’s going to make it such that it’s harder to update your priors on those realities. And then of course you have grumpy old men and women like me, and other sales leaders who are like, “Hey guys…” A very basic, well-known thing in sales leadership is that customer-facing activity actually is very important and that you should pay attention to these sorts of things, and if deals don’t close themselves, they’re the result of account executives pushing things uphill.
(17:51):
And you see people come out of the woodwork and are like, “Well, what about the quality of activity?” And it’s like, “Oh, my God, guys, come on.” And so what ends up happening is you have people who are soaking in that information environment and they’re not reading and rereading John McMahon’s The Qualified Sales Leader. They’re not rereading Jason Jordan’s Cracking the Sales Management Code, or what have you. What they’re instead having is they’re being fed feel-good, what I like to call pleasing lies, as opposed to the things that are actually going to be important for them. And so that’s going to make it harder for those folks to update their priors, and it makes it such that leaders, it’s more incumbent on leaders to realize that your staff is soaking in this information environment and that you have to counter-program, effectively.
Randy Wootton (18:48):
Yeah, great. A couple of just takeaways for me I think was just how this new information gets processed through the system. And the one, I think you called this out, but just want to underscore, like LPs are telling VCs that they want return and they’re not going to invest more money. And then VCs telling their CEOs and the Portcos that we’re not going to, when you thought you were going to raise money after 18 months, you need to make that investment last 36 months. And that’s what I hear from my CEO colleagues around, “Oh, gosh, we’re not going to be able to have that T2D3 growth curve because the market has changed. Because of that we need to move from growth at all costs to efficient growth and maximize our efficiency.”
(19:33):
And so how do you structure an organization to deliver on that, and realistic, aggressive, but achievable goals 100%. And so then as CEO, you’re spending time, that takes a year because you wrote out an operating plan at the beginning of fiscal year ’24. And I was talking to someone, I think it was Ray Reich who has this great survey he does around every year he asks people, it’s a benchmark survey, what are their growth aspirations for the year? And everybody was at 30% at the beginning of fiscal year ’24. And now people are not hitting their target. But if you set up this organization with that level of expectation in terms of investment, and well, top line growth and investment associated with it, now you’re changing, because if you’re not hitting the top line you got to control the cost. And so I think to your point, we’ll get into this, how do you translate this new reality?
(20:19):
It’s how transparent are you able to be with your organization and say, “These were the assumptions,” or as you described priors, “That were informing our plan, though as we’ve moved forward we are finding out those assumptions aren’t correct. So we have to restate the assumptions, and those have implications. And those implications are these sets of things.” And I think that’s getting managers, and then ICs, to your point, I think the other thing you just were really hammering, which I think is great, is in this world of social media, you don’t have the New York Times reporting on what I would call fine, some people may say lean’s left, but broadly facts and truth. We live in these echo chambers, to your point of feel-good opinions. And so I think it’s incumbent upon all of us as leaders and managers and individuals, is to create a broad listening post, a broad set of listening posts where you’re ingesting information so you are defining reality, and not just having it influenced by the influencers that you’re following.
Pete Kazanjy (21:21):
And a good buddy of mine is a gentleman named Cory Bray. He and his co-founder, Hilman Sorey, are amazing sales authors. One of my favorite sales management books is called Five Secrets of the Sales Coach. It’s written as a narrative, it’s like very Patrick Lencioni, kind of like Five Dysfunctions of a Team, sort of situation. Well, they’ve written a bunch of others, like a book on sales development, a book on sales enablement. They have their sales methodology book, Triangle Selling, et cetera, et cetera. And these guys are voluminous content producers and excellent, excellent content. And I think the challenge though is that staff are not reading those necessarily. Maybe some are, but for the most part not. And I think that it’s… I’ll give an example.
(22:11):
At Atrium, we had a reading program, we had a list of a couple dozen books that were kind of whitelisted, and actually we would pay a SPIFF if people read them. And we had some high performers that would do so. And the SPIFF was not 50 bucks, it was 250 bucks, it essentially netted out that, it would land you at 50 bucks an hour, depending on how quickly you read, anywhere between 25 to 50 bucks an hour to read Cracking the Sales Management Code, or The Qualified Sales Leader or Five Secrets of the Sales Coach, or my book, or what have you. And it was kind of remarkable to see how some people would consume it, but broadly people were not taking us up on this offer, which was fairly remarkable.
(23:05):
And I think that this is something that we as leaders need to be mindful of, this is something that I’ve told again, Cory, because we kind of joke about the keyboard warriors on LinkedIn, account executives who had three account executive roles during the zero interest rate environment, now sharing all their learnings about that, which of course don’t even apply. And I think it’s an important thing to think about how you can potentially down sample some of this content. I think an old man shakes fist at cloud sort of situation, and I think about this as it relates to my seven-year-old, it would be much better if folks could actually read long form and synthesize that, but go to war with the army, you have sort of situation meeting people where they are in order to micro -chunk these things or what have you, I think is important.
(24:01):
But whatever it is, you have to set expectations and say like, “Hey, there’s a bunch of people on LinkedIn who would love to sell you magic beans about the fact that you actually don’t have to do, like you can use magic AI to do your job, as opposed to doing your cold calling.” Or people are telling you, “Hey, actually it’s okay if you don’t have 10 customer-facing meetings a week.” Whereas the reality is, actually you should have a pit in your stomach if you don’t have 10 customer-facing meetings a week, you should be scared. Like that’s weird. That should feel bad. And making sure as a leader that you popularize these things and do it on a consistent basis is really important, which I think is very different than in the last five years.
(24:49):
Previously providing feedback or correcting folks or guiding folks in the right direction would be like, “Oh, man,” viewed as potentially problematic, “I’m going to leave this organization, et cetera, et cetera.” There are two thirds fewer job postings right now than there were 18 months ago, which is the result of that liquidity leaving the market. So managers and leaders need to again, update their priors as it relates to their managerial approach. Because one, there was a gentleman who, he was the VP of revenue operations at one of our customers. He recently departed. And in 2023, the organization did a bunch of riffs to control their costs. And then the big thing was is that they did those riffs at the beginning of 2023, but they didn’t update their performance culture. So what you had was you had a compressed organization with the same level of effort as the larger one.
(25:47):
And so in 2024, his phrase for this was like, “We’re going to go from inspiring…” Inspiring achievement was kind of their prior, like they watch where it… And he’s like, “No, in 2024, we’re going to demand excellence. We’re going to take our performance management tempo from quarterly.” We’re like, “We look at performance on a quarterly basis.” “No, no, no, no, we’re going to bring it forward and we’re going to be looking at these things on a monthly basis. We’re going to be looking at leading indicators.” Which the staff are kind of like, “Wait a minute, I thought this was 2021.” Like, “The fish jump into the boat, and you’re my professional best friend, not my manager, or a manager is a professional best friend, et cetera.” And so that’s going to take an adjustment, but you have to do it, or else your company going to be dead.
Randy Wootton (26:39):
I think you’re right. And I do think this idea that you’re talking about that at the core people have been in sales a long time, is a process. It’s like a training program, and you get up every day and you do the activity. And unlike many functions, there is a direct correlation between the work you put in, revenue generating activities, and the output you get. And I think broadly the best AEs you find are the ones, guess what? They don’t work just from 8:00 to 5:00, they’re working on Sunday night to get ready for their Monday morning outbound calling.
(27:10):
And so to that point, just this idea of, well, what is the new playbook? We’ve been talking about it. You’ve got to set expectations, I think there’s a piece, the other part is, but you’re also providing support in investment and training and sales methodology. For example, at Maxio, we started with Sandler as a program, which I liked. I’ve used it in other companies, with Webtouch, inside sales motion. We did it for a year here. We invested in Winning By Design, and all in on that at our go-to-market kickoff.
(27:39):
And so the idea was to help people develop, I call it sharpening their spears, help them develop the skills so that they know what’s expected of them, be super clear about the expectations, the metrics are going to be measured, the forms of accountability, and then support them with the investment in the training, and then make your sales managers better at coaching. So help us understand from your perspective, what is the new playbook to be successful? And maybe we can break it down by the different rounds. So a seed company, a series A or a series B, if that makes sense. But structurally, what’s the big difference?
Pete Kazanjy (28:15):
I think the big kind of delta from two or three years ago really is just proactive sales management is important. And it’s funny, one of the things, you mentioned the word coaching in there, which coaching is important, but I think one of the things that I… Actually, I had this realization, I think it was six or nine months ago, that coaching is actually a subcategory of management. So as a manager, you have a number of jobs to be done, one of which is as an example, the easiest one hopefully, is encouragement, kind of being a cheerleader, “Hey, good job on XYZ.” Motivating people, et cetera, et cetera.
(29:02):
Another component of management is accountability and saying, “Hey, we have agreed, we’re going to set expectations that you’re going to have. This is what an ideal week looks like. This is what an ideal day looks like. These are the measures that are going to indicate whether or not you’re executing a set of ideal days, a set of ideal weeks, et cetera, et cetera. And then by the way, if you’re not, I’m not going to ignore that. I’m going to say, hey, this is not in alignment with this thing right here.” And that’s actually just pure accountability.
(29:39):
And then of course there is coaching, which is like, “Oh, okay, cool. You’re not doing your calling activity, Mr. SDR, I’m going to hold you accountable to that. Oh, why are you not doing that?” “Oh, I’m afraid.” “Oh, okay, wonderful. Now we’re going to coach you on that and we’re going to do role plays and so on and so forth, and I’m going to apply a coaching plan, et cetera, et cetera.” But I think in a lot of organizations historically have said like, “Hey, we want our managers to coach more.” It’s like, yeah, definitely, but you also just want your managers to actually freaking manage as well.
(30:15):
And I think that that’s something, like someone like you and someone to me, or to someone who was an SDR or an account executive in 2006 or 2010 or 2012, they’d be like, “Yeah.” But for someone who came online in 2020 or 2021 or 2022 or 2019 or whatever, they might say, “Wait a minute, I thought that my manager was the person who is my number one cheerleader.” And then also, if I’m not putting the calories in, well then they encourage me to do more calories or whatever versus saying like, “Hey, you’re not doing this thing and that’s not acceptable. We’re going to go ahead and fix this, and if you don’t fix this, you’re not going to be here.”
Randy Wootton (31:05):
Yeah, I think it’s that distinction-
Pete Kazanjy (31:07):
And that sentence scares the hell out of… You could just imagine junior managers just puckering at the concept of that sentence.
Randy Wootton (31:18):
Well, I think a couple of thoughts. One is that you’re drawing the distinction between attitude, effort, and results. And that a lot of times people are like, “Hey, I have a great attitude and I’m really trying hard.” But in sales in particular, if you’re not delivering the results and they’re super clear, and one of the things that you’re helping to do with your company is identify what are the consistent patterns across many companies and the expectations to help address the performance gap, which is what your deck is about and your book is about, is the leverage point is really in the managers.
(31:49):
And so having a deliberate training for management. So at Microsoft, they called it management excellence. And at every company I’ve been at I’ve had two programs that we’ve developed. One is for leaders, is to help leaders, VPs, and above primarily understand what their roles are as they transition to that M2 or M3 role and how they think about their level of altitude and what they’re being held accountable for. And then the next program is around management excellence, and how do you take those basic skills, because as you probably have some stories, especially in sales, your bestsellers are often not your best sales managers, because they do it all just innately, and they crush in their quota and then all of a sudden they become a manager and they’ve got a wide spectrum of capabilities.
(32:30):
And being able to have the empathy, the ability to do the coaching and hold people accountable, and do the diagnosis to be able to write the right prescription for the individual is a learned skill. Every manager has to do it in terms of setting expectations for the job, what are your activities for the week, and then providing feedback and brainstorming when there are problems or issues. But I think in sales, in particular, we often promote the bestseller because they want to advance in their career and they think management is the way to do it.
Pete Kazanjy (33:00):
Yeah. For sure. And I think the other thing that folks really, the zero interest rate policy kind of bullwhip has two negative impacts there where people need to re-base what management is in a nonpermissive financial environment. So one, you have people who maybe were account executives in 2014, 2016 and 2018, maybe they got promoted to frontline managers in the bubble. Well, they had to behave in certain ways because, “Look at this, all the fish are jumping in the boat. This is crazy. My whole team is crushing their number. This is amazing. And being the heavy isn’t all that terribly fun. And actually, I don’t have to be the heavy, but even if I did need to be the heavy, that’s okay, these other guys are bailing us out from a quota attainment standpoint.”
(34:02):
Or moreover, “Man, if I even try to be the heavy, these folks are going to try it and go somewhere else,” I’m like, “I need to retain this quota capacity.” And so that’s that, that’s that cohort. And then you have the IC cohort where maybe someone was an SDR in 2016 or 2018 and they became an account executive in 2020 or 2021 or 2022. And then they see, “Wait a minute, this is how management happens.” And I think what folks need to do is go back and look at things like read the Qualified Sales Leader and learn about how the PTC sales diaspora, which then shows up in places like MongoDB and AppDynamics, and so on and so forth, how sales management has been done historically.
(34:56):
And there are reasons why sales management is very regimented, because one, sales is hard, there’s far more solutions being sold than there is budget to buy it. And so what that means is account executives have to be high effort, because there are lots of other account executives, not just your competition for a specific use case, there’s competition for budget and there’s lots and lots of folks who are out there seeking that budget. And so being high-level of effort and rigor, and so that’s the first thing.
(35:30):
And then secondarily, rigorous with respect to deal execution, this is why MEDDPICC was originally designed or spiced by Winning By Design is, deals are amorphous things, there are lots of stakeholders in these organizations. And so if you can provide structure around it, then now these deals can be legible and inspectable, but they can’t be legible and inspectable if we don’t populate the information.
(35:55):
And so that’s why managers need to be rigorous about enforcing that because otherwise, we’re not going to know where these various deals are at. And so there’s a reason why these things were designed this way over the last 20 years. And yes, there was this momentary point in time where physics was suspended, if you will, but now they-
Randy Wootton (36:19):
Yeah. Reality is bad.
Pete Kazanjy (36:23):
Yeah, they’ve reasserted themselves in a very muscular fashion. Right.
Randy Wootton (36:26):
Yes. Indeed.
Pete Kazanjy (36:28):
And so just reacting to that is important.
Randy Wootton (36:31):
Awesome. And so I think great advice, and again, people should check out your sales performance gap deck, which has a lot of these trends you’ve been talking about, and what it is implied in terms of what AEs do today versus what they do yesterday, what the expectations are going forward for both AEs and managers, embracing this idea around performance management. And it’s not a new concept.
(36:56):
But as we sort of wrap this up, performance management leading into the speed round where we talk about favorite metric and why, favorite book and why, you’ve been underscoring a Qualified Sales Leader, but you had some other ones in our pre-brief that you wanted to share, and then favorite influencer, so who’s the person that’s helping to poke a hole in distorted reality? So the favorite metric, you’ve called it out a couple of times, but let’s go back to it. What is the thing you think is your favorite metric with the sales organization to be tracking and looking at on a regular basis?
Pete Kazanjy (37:28):
Yeah, I mean, you really can’t beat customer-facing meetings, because it’s the fundamental unit of information transfer. It’s a face-to-face, either on site or via Zoom, information transfer where you are doing discovery of what their state is in their organization. You’re positioning your solution against that. You’re meeting more people, you’re multi-threading, et cetera. You’re forming rapport, et cetera, et cetera. It’s customer contact. And then you can do all sorts of wonderful things with customer-facing meetings as well. You can count the number of first customer-facing meetings.
(38:08):
You might say, “Well, I want to see new opportunity in flow.” “Sure, okay, cool. We can track that.” But the reality is is first customer meetings with an account, it’s kind of like an opportunity. You can also look at things like second meetings, or the ratio between first meetings and second meetings. If people get a lot of first meetings but they don’t get a lot of second dates, that tells you something. But even if you just are more simplistic and just count the total numbers of customer-facing meetings, like is somebody putting in the level of effort? You can’t go wrong with that.
Randy Wootton (38:39):
Awesome. So just two questions on that. One is, do you have a general sense across the companies you’ve worked with in terms of what the high watermark is and number of customer meetings per week for, I don’t know, call it a Series C company, average ACV, I don’t know if there’s a big distinction, but maybe call it 20 to $30,000. What are you expecting from all the information you’re gathering in terms of high water?
Pete Kazanjy (39:04):
Yeah, I mean, the way to think about that is just do a bottoms up analysis. It’ll be different on a per organization basis, but there are bell curves for different average selling price sales commissions. Like do a bottoms up analysis of there’s 40 hours in a week, how long are these meetings? Are these 45-minute or 60-minute on-sites, or are these 30-minute Zooms. You’ve got a 15, if it’s an hour-long onsite, you’re probably going to be doing a half hour, an hour prep associated with it, and probably an hour after.
(39:40):
You’re probably also going to be doing travel time as well, et cetera, et cetera. If it’s an SMB organization where these are 30-minute meetings, where you can do 15 minutes of prep ahead of time, 15 minutes after. In an SMB organization, you probably would want to expect your reps to be doing in the 12 to 17 customer-facing meetings a week, which you might say like, “Whoa, 12 meetings, that’s a lot, or 15 meetings, that’s a lot.” It’s actually just three meetings a day. It’s not a lot, especially if it’s half hour, it’s like nothing.
(40:08):
And then from a mid-market organization, that’s where you’d want to say, “Okay, cool, target 10.” And then maybe two of those or three of those are first meetings. The higher the ASP, the larger the ratio is going to be between first meetings to second and third and fourth meetings because there are more stakeholders. And then if you’re in the enterprise, you got to accommodate travel time, et cetera, et cetera. But if you’re under five customers… You would hope it would be seven to 10. If you’re under five, that’s scary, because what is that seller doing all week long?
Randy Wootton (40:47):
That was one of the things we introduced. So I track all my time, what meetings I’m in, and I try to be super deliberate about what percent of time I’m spending with customers and partners, because other stuff can just suck up your life. And I think we did this exercise throughout the sales organization was have them track their time, and we had a bucket which was revenue generating activities, and just split it into two, how much time are you spending on revenue generating activities versus everything else?
(41:13):
And I think you get surprised by what that ratio is. I think to your point, you double click down on that and say, “Okay, of revenue-generating activities where you could be reviewing Zoom calls, you could be doing outbound cadence.” I think to your point, I love this idea, the fundamental unit of information transfer is at the end of the day it comes down to customer meetings. So of all the other activities, how do you drive that? Go ahead.
Pete Kazanjy (41:37):
No, that’s what I mean, it’s like it’s face-to-face. That’s what we do as sellers, is we’re eliciting information from them and we’re providing information from us in a very rich and rich synchronous back and forth, like low latency. You ask a question, and I can tell that you’re thinking about it a little bit wrong, so I reframe your thinking there versus semi versus asynchronous via email where we’re playing ping pong back and forth every 24 hours, or what have you. So customer-facing meetings is the high order bit.
Randy Wootton (42:18):
Awesome. Well, let’s drop, we’ve talked about The Qualified Sales Leader is a book. I want to get to the influencer that you’re following because of the earlier conversation we had in terms of trying to create a broader reality. Who do you find is writing good stuff on LinkedIn, or you’re watching their emails or you’re listening to their podcast, who really is making an impact on you?
Pete Kazanjy (42:41):
So there’s a woman who previously, named Ellen Rataj, R-A-T-A-J. And she just started consulting, but she previously… She was at HubSpot for a decade. HubSpot has a really phenomenal sales diaspora, a very strong Boston sales culture. So Boston for the most part, because PTC came out of Boston. Also we love our Massholes, very direct, high accountability, not going to beat around the bush, et cetera, et cetera. Great sales organizations come out of Boston for these various reasons, and HubSpot is one of those. So John McMahon from PTC was an advisor to Mark Roberge for the longest time at HubSpot. So Ellen was actually the person who founded and then scaled the sales management program academy at HubSpot.
Randy Wootton (43:42):
Interesting.
Pete Kazanjy (43:45):
And so she talks a lot about what makes for effective sales management and how you can… Because again, if you’re only as strong as your frontline managers, then the response to that would be like, “Well, we better breed and train very good frontline managers.” And so she was responsible for that. And so she’s a great LinkedIn follow there, because it’s like real talk too, she’s very candid. And a lot of the messages are not like hand wave-y feel-good, because it is very like PTC, HubSpot-y, very brass tacks.
Randy Wootton (44:23):
Awesome. I just followed her. So I look forward to reading her stuff. And to your point around Boston sales, the sales leader at Seismic, a guy named Ed Calnan, was Boston. And I think you’re absolutely spot on, there’s something special about the water they’re drinking in Boston that makes them frothing revenue dogs, as we described.
Pete Kazanjy (44:42):
I buy it.
Randy Wootton (44:42):
Great. Pete, it’s awesome to have you. Thank you for sharing your perspective. Again, I recommend everyone reading your book, and following you on LinkedIn, you’re saying, helping to frame the broader truth. Other than that, on LinkedIn, how else would you like people to connect with you if they wanted to find out more about Atrium or find out more about some of your thoughts on broad trends and sales management?
Pete Kazanjy (45:05):
Yeah. Well, I think in general, if you as a sales leader or a CEO or a board member are thinking about how you can raise the tempo of performance in your organization, a lot of that comes down to doing a better job around performance management. So measuring, managing, and improving, and driving that accountability is 100 percent what we focus on.
(45:28):
We mainly work with organizations that have 20 or 30-plus sellers, up to a thousand-plus sellers. But the good news is is accountability is the new black, and performance management is no longer kind of a scary phrase, it’s more like a required thing. So if that’s the case, you can check us out at Atrium, just Google Atrium sales or go to AtriumHQ.com. And then yes, I’m on LinkedIn, I’m very identifiable. I’m the only Peter Kazanjy on there.
Randy Wootton (46:01):
Well, thanks very much for your time, Pete, and appreciate all the wisdom you shared and look forward to continuing the conversation.
Pete Kazanjy (46:07):
Cool. Thank you very much, Randy.
Lessons from the SaaS Trenches: Adapting to a Changing Market with Roee Hartuv
October 30, 2024
Episode details
This week on the Expert Voices podcast, Randy Wootton, CEO of Maxio, speaks with Roee Hartuv, Head of Revenue Architecture Practice at Winning by Design. Roee sheds a light on the drastic drop in IPOs from 98 in 2021 to just a handful in the subsequent years, underscoring a trend that has left many private companies in a precarious position. This bottleneck has forced SaaS leaders to reassess their strategies, focusing on sustainability rather than growth at all costs. Hartuv articulates that many companies are now faced with the challenge of maintaining operations amidst declining investment and a tightening market, emphasizing the importance of customer retention and the need for a solid go-to-market strategy.
Video transcript
Randy Wootton (00:04):
Well, hello everybody. This is Randy Wootton, CEO of Maxio, and your host of SaaS Expert Voices, where we bring the experts to you to talk about what’s going on in SaaS today, and what are some of the trends that are unfolding tomorrow as you build your company, or oversee your company, or invest in SaaS?
(00:20):
Super delighted to have Roee Hartuv, who’s actually coming to us from Germany today. He has an incredible background and experience. He’s been working as a startup executive for the last 18 years in high-growth SaaS companies, so lots of expertise to bring to bear. He’s built and managed sales, CS, and marketing teams. And in our pre-brief, we shared a lot because that’s my background as well. But what he has that I don’t have is he’s currently a revenue architect at Winning by Design, which is one of those great sales methodology companies, really the coolest kids have it. We signed up for it. But along the lines of Challenger, along the lines of Target Account Selling, and all the other models, Sandler, that you could. It’s an incredible program and I can’t wait to hear Roee’s lessons learned and some of the best practices that he’s going to share with us. Welcome, Roee.
Roee Hartuv (01:09):
Great to be here. Thank you for having me.
Randy Wootton (01:12):
We have all of these exciting things to talk about, but in our pre-brief, we had this really interesting conversation around, are we in a SaaS recession? What is that broader context that we’re operating in? I’m arguing for my board right now that it’s been super hard and there’s been a contraction in investment, and investment means that CFOs aren’t spending money. “Just talk to my sales team. They’re like, ‘It’s harder and harder than it was two years ago.'” And you had a really, really interesting perspective in terms of the IPO market and what’s been happening. Could you just share a little bit about your broader perspective, what’s happening in the market, and how this plays out for private companies and thinking about PE versus VC?
Roee Hartuv (01:51):
Yeah. Everybody feels distressed in the recession, right? Growth has declined drastically for most of the companies out there. We’re all feeling that, we had layoff rounds, we’ve all been there. But I want to add another perspective, and another indication that we are actually in a recession. The fact that there are no IPOs.
Randy Wootton (02:18):
It’s mind-boggling. Do you want to recite the facts? I got them written down here, but it is mind-boggling, what’s been happening.
Roee Hartuv (02:23):
Yeah. What are the recent IPO SaaS companies that went IPO? We had OneStream, what, six weeks ago? Before that, Reddit? That’s it. I’m probably missing a few that went under the radar, but that’s basically it.
Randy Wootton (02:42):
Yeah. I mean, to put it in perspective, and you had shared this in our pre-brief, in 2021 there were 98 software IPOs, in 2022 there was one, in 2023, three. And to your point, this year so far, there’s only been three-ish. Just mind-boggling.
(03:01):
Then I think the other thing you were talking about, what I thought was really interesting, was the number of private unicorns.
Roee Hartuv (03:06):
Yes, that’s another… But before we get to that-
Randy Wootton (03:10):
Yeah, sure, please.
Roee Hartuv (03:11):
… Why am I looking at IPOs? Because IPOs… We’re experiencing a bottleneck. Because our entire industry was like a company was founded, they grew, got investment from VCs, at some point, there was an exit event, usually, it’s IPO or acquisition, and basically, those companies became public companies, and the money went back to the VCs, who went back in investing. We had that cycle. No IPOs means that we’re stuck, there’s no movement here.
(03:50):
Which brings me to the next point. Back in 2021, according to Dealroom, there were 1,200 unicorn private SaaS companies. Just as a perspective, public SaaS unicorns, there were 364. And that includes Salesforce, Meta, and all these fantastic companies that were already public, right? Software companies, SaaS companies, 364, while in the private market, there were 1,200.
Randy Wootton (04:29):
And your point, just for people who may not know, a unicorn is a billion-dollar valuation.
Roee Hartuv (04:35):
Yeah.
Randy Wootton (04:35):
And the distinction you’re making is that public companies, who have all their financials out in the open, everybody’s reviewing them, only 364 of them were actually valued at greater than a billion dollars. Whereas private companies where their financials aren’t public, but you have a bunch of exuberance with investors who think these are going to be the next billion-dollar companies on the market or more, there were almost four times as many billion-dollar plus value companies and they haven’t gone public.
Roee Hartuv (05:04):
Exactly.
Randy Wootton (05:05):
So what’s happening?
Roee Hartuv (05:07):
All these companies were preparing to go public. They’re still preparing.
Randy Wootton (05:12):
Yeah, I remember.
Roee Hartuv (05:14):
[inaudible 00:05:15].
Randy Wootton (05:14):
And to your point-
Roee Hartuv (05:15):
… cease to exist, right? But most of them are [inaudible 00:05:18].
Randy Wootton (05:18):
Well, some of them have ceased to exist, and some of them have had to take down rounds. I think the other issue is a lot of people don’t want to take the down rounds, right? Because then all the VCs have to write down their valuation. I remember when I was coming up through when I was at Rocket Fuel, we were a public company, we were 400 something million gross, 240 million net. At that time, this was 2015, 2017, the rule of thumb was if you could get to $100 million dollars, you were tracking for an IPO. Today, I think what we’re seeing is it’s at least 300 million. I mean, OneStream, that just came out, they’re the belle of the ball, they had all the great metrics, incredible net retention, incredible gross retention, but they were $500 million. So you think about-
Roee Hartuv (05:59):
That’s why we need to move more.
Randy Wootton (06:02):
Sorry?
Roee Hartuv (06:03):
We’re working with a few pre-IPO companies, right?
Randy Wootton (06:08):
Yeah.
Roee Hartuv (06:08):
And we’re like, “100 million? No way.” Even 300. I’m currently supporting a 300 million ARR company. They have planned to do an IPO back in 2022. Of course, that got postponed. They still plan next year, but of course, that will continue to be postponed. They still haven’t reached that 500 million. Now, I don’t know what’s going on with discussions with the investment bankers, and that they are telling them, “Hey, this is the right timing for you.” And at the end of the day, there are, let’s say a few private investors, and they’re working with all those, let’s say 1000, 1,200 unicorns. Eventually, the market can absorb only, and that’s in the good days, 50 IPOs per year. What’s going to happen with the rest? Who knows?
Randy Wootton (07:05):
Well, I think that’s what we were talking about is some will go to PE, right? You’re seeing an enormous amount of acquisition, and the PE firms have a lot of capital on the side. The capital commit, is not actually in the bank. But people have said, “Yeah, we want you to go buy.” And some will be bought by strategics, but I think the mix has really changed.
(07:22):
But what does this mean? We were talking about a recession. Why does that create a knock-on effect in terms of the recession? Is it, to your point, that the VCs aren’t getting the liquidity from the transactions to be able to go back and invest in early-stage companies? Is that the primary reason or is there something else?
Roee Hartuv (07:38):
That’s exactly the reason. And what that creates is there are no additional funding rounds. But there are fantastic companies with great products that have 100, 300 in ARR. They’ve already proven that they are a successful company, but still, most of them are not profitable, and they’re losing money, and they need additional funding in order to continue to maintain operations. That’s the problem.
Randy Wootton (08:10):
In our Maxio growth report, one of the things we allude to is the dynamic of the VC funding that has continued to go down. Up until this quarter, it’s increased in total dollars in terms of quarter-over-quarter investment, but the number of deals is still low and decreasing. That to me shows that what you’re finding is VCs are still doing deals, but they’re only doing really good deals.
Roee Hartuv (08:37):
Or deals that have AI in the title.
Randy Wootton (08:40):
Right. Everybody in AI, that’s true.
Roee Hartuv (08:42):
That’s right.
Randy Wootton (08:43):
So Roee, here we are, we’re in a recession, everyone’s freaked out. I know friends when they were trying to raise money, it used to be: raise money every 18 months. You raise for six months, you execute for 12 months, you raise. And you’re trying to hit what used to be Vogue, the triple, triple, double, double, double, the T2, D3 growth rate.
(09:02):
Let me ask you before I ask… I want to get into, so what should you do? One of the things you have is this really interesting viewpoint because you’re working with a bunch of companies. What are you seeing in terms of growth rate? Obviously, without sharing private information. Did it used to be three years ago, four years ago, the assumption was 20% growth and those were the companies you’re working with, today it’s 15% growth? What are you seeing in terms of the reality of growth rates broadly across your portfolio? Obviously, you guys help people get better, but when you start with them, what’s happening?
Roee Hartuv (09:33):
Back then, in the good old days, as we called it in 2020, we worked with companies that triple, triple, double, double, double. So they doubled their growth, and they doubled their ARR year over year. That was the type of company that we worked with. Nowadays, 30% is projected to next year. Some still have very high targets from the investors, and that’s an indication, right? The market was in a shock for two years. We let people go, we extended runways. But now the investors are coming back and saying, “Hey, 2025, you guys need to find a way to continue to grow.”
Randy Wootton (10:19):
And drive efficiency through AI, right?
Roee Hartuv (10:25):
Drive efficiency. Let’s start with AI, but driving efficiency would mean we’re not only going to measure you guys on the growth rate, but we’re also going to measure the costs. And that’s the big difference.
Randy Wootton (10:37):
Yeah. Especially for VCs, right? It used to be what we call the growth at all costs. Put a bunch of money in there, it’s a land grab, grab market share, invest like crazy, and go-to-market. Everyone’s buying, every startup is buying each other’s startup technology. That shift to that efficient growth model and everyone’s been talking about it, like the rule of 40, where you got to be able to show that you’re on a path to profitability. If you’re still growing fast, you could be a little negative EBITDA, but if your growth is slowed down to 20% or less, you actually need to be profitable to show that you’re not going to burn because the profile won’t get invested in. I think that’s where we’re seeing this real dynamic.
(11:15):
So in the Maxio growth report, which we’ll include in the show notes, what we’ve seen across our 1,500 customers that are in the report, we have 2,000 total, is that the average growth rate was about 17% year over year. And these are all private companies, so these are all the companies that you’re talking about. We work with pre-seed to a couple hundred companies greater than 100 million.
(11:38):
I guess one of the questions I wanted to follow up on, you work with companies where there’s still this artificial, unrealistic expectation, because it’s always easy to build a plan, right? Here, let me show you the assumptions. Now we’re in the back half, we’ve just wrapped up Q3 for most companies in their calendar year, fiscal year, how many people are actually hitting the targets that they set out in January? The companies that you’re working with. Is it most are still okay, or many are like, “Oh God, we aren’t hitting our growth numbers, so now we’ve got to go into plan B.”?
Roee Hartuv (12:06):
Many are in that, “Oh God.”
Randy Wootton (12:07):
Yeah.
Roee Hartuv (12:12):
I think everybody’s updating their forecast for the entire year. We only just still have one quarter to go, but everybody is updating that.
Randy Wootton (12:21):
They’re all re-planning. They’re all trying to do the stub budget for the final quarter, so they can hit their bonus targets or negotiate.
Roee Hartuv (12:29):
No. Even they’re looking at 2025 because everybody’s now planning on 2025.
Randy Wootton (12:36):
Yeah, right.
Roee Hartuv (12:37):
One company, for example, last year they had that board discussion on 2025, and it was all about, “Hey look, we’re not going to hit our targets in 2025 and 2024, and you guys want us 80% year-over-year growth. You guys invested in us two and a half years ago, the market was different. What we predicted that we’re going to do in 2024 and 2025 is no longer applicable.” That’s the conversation. It’s not an easy conversation, but-
Randy Wootton (13:07):
No. I’ve been on both sides of it and it’s really hard. So what are you finding, as we were talking about in our pre-brief, in a recession, what are the classic plays? What are the two things that people initially focus on?
Roee Hartuv (13:21):
Yeah. Extending that runway, coming back. There are no fundings. You need to extend the runway. This is the first thing that everybody did, cut costs, which basically means letting go of people. Let’s look at our bottom 20% or bottom 40% and cut them off.
Randy Wootton (13:39):
Yeah, I think that was the thing-
Roee Hartuv (13:41):
[inaudible 00:13:41], from our experience, it did not influence the top line as predicted. Meaning it was a healthy cut, it was a healthy reduction.
Randy Wootton (13:57):
Oh, I see what you’re saying. Getting rid of the people. Well, I think what happened was we were in that weird scenario where you couldn’t hire anybody and you’re growing like crazy. So people were staffing, your number one constraint was capacity. You have this many more customers, you need this many more implementation folks. But to your point, when they did the cut, and I think you saw that broadly across the space, the big guys got in late, but millions of jobs lost. It was kind of like pulling the gum out of the machine. It was like, “No, no, no.” To your point, it was a healthy cut. They were able to maintain top line, maybe not at the same rate, but they were able to continue to grow. So great, everyone cut heads.
(14:32):
Now we’re back into a situation where it’s kind of a buyer market versus an employer market, but we’re still struggling to get to profitability. So what’s the next thing that everyone’s going to be focusing on?
Roee Hartuv (14:43):
First of all, everybody’s struggling to find how we move the mindset from growing at all costs, hiring people just to fill in the ranks, and let’s focus on things like productivity per rep, and how much revenue each seller brings in. How do we do that? Again, in the good old days, when we wanted to double our revenue, we just doubled the amount of sellers that we had. But we no longer have the ability to do that because we cannot pay the salaries. So we need to double our revenue, we can, but let’s say, sake of the example, we want to double our revenue, we need to find an effective way to do that. That transition is a totally different company, how a company operates, and the culture of the company. That’s where we spend a lot of our time with our customers.
Randy Wootton (15:41):
Well, let’s do that. Let’s shift to the lessons learned from your customers. I think the segue here was your broader point, which is, that once they cut the heads, then they start focusing on efficiency. And that efficiency is through automation, it’s through different ways of doing metrics, and automate, operate, eliminate. Are there processes you can totally eliminate? Are there things you can outsource to partners, etc? But you have a list of great lessons learned from your customers that you’re working with right now.
(16:10):
First let’s start with just what doesn’t work, in terms of your customers. What are the things you’re seeing, what people saying, “Oh, we’re going to go do this”, you’re like, “Oh, I don’t think that’s a good idea. I’ve seen 15 people do that.”? And then we’ll go into what works.
Roee Hartuv (16:26):
All right, the classical thing is focusing on acquisition only. Growth from acquisition, at some point, has a ceiling. There’s some sort of ceiling above that a company cannot continue to grow through acquisition.
Randy Wootton (16:47):
And new logo acquisition is what you’re talking about, not acquiring new companies?
Roee Hartuv (16:51):
Yeah.
Randy Wootton (16:51):
You’re talking about that [inaudible 00:16:52]-
Roee Hartuv (16:52):
Acquisition of new customers, yeah.
Randy Wootton (16:54):
Versus going into your customer base, which we’ll talk about in expansion. So new logo acquisition, you’re suggesting there’s some sort of asymptote. When you start to get to the efficient frontier, you just can’t add another body. You either need to open up a new segment, or a new region, or something. Is that what you’re pointing to?
Roee Hartuv (17:13):
Yeah, let’s say that. But you’re selling to a segment, there’s a limit to how much you can sell in a given year, right? At some point it plateaus. I don’t know, you’re generating 20, 50 million in new ARR, at some point, that’s the level, right? There’s a stage that a company now needs to focus on, you said expansion, but it’s not only expansion, it’s also retention.
Randy Wootton (17:40):
Yeah.
Roee Hartuv (17:41):
So let’s talk about retention first. When you think of a recurring revenue business, most of the revenue comes from existing customers who keep on renewing with us. This is an exercise everybody should be doing, and know the numbers. 80%, on average, of a company, let’s say mid-stage scale-up company, 80% of the revenue comes from retention usually.
Randy Wootton (18:16):
Well, that’s the beauty of the SaaS model. I remember being at Salesforce, and joining them in, gosh, this was maybe 2012, so it wasn’t huge. I remember Benioff standing up and basically talking about just that. I joined the customer success team under a woman named Maria Martinez. The emphasis around the retention, they knew what their full fiscal year was going to be, plus or minus a couple percentages at the beginning of the year, because they had the retention so dialed in, they knew that was true.
(18:45):
So the new logo acquisition, to your point, was important, but it didn’t affect their earnings. I think that’s why you’ve seen the SaaS business model, and SaaS companies, it’s all about future profits, predictability, and being able to deliver on that. Even if a lot of the companies used to be unprofitable, they’ve been able to show they can go profitable and then drive growth. So to your point, understanding gross retention, again, across your client base, what are some good metrics in terms of gross retention? Is it at least above 90%? You’re in trouble if you’re 70%. What’s the point at where you’re like, “This company really is struggling on gross retention.”?
Roee Hartuv (19:22):
It depends, right? It depends on your ACV, it depends on the segment that you’re selling to. Let’s say you’re an enterprise, you’re selling to enterprise Fortune 1000 companies, your retention, and usually, it’s a very big contract, large ACVs, multiple year contract, your retention rate should be close to a hundred.
Randy Wootton (19:43):
Right.
Roee Hartuv (19:43):
[inaudible 00:19:44].
Randy Wootton (19:44):
And it’s very hard to get out, right?
Roee Hartuv (19:47):
Of course.
Randy Wootton (19:47):
You go through this long sales cycle, 12 to 18 months, getting up and going. You’ve gone through a buying process, procurement, implementation process, the rollout. Once you’re in, you’re like, “Woo-hoo”, but it takes forever to get those guys. So yeah, close to a hundred percent. Go to the other end of the spectrum. Now we’re talking about low ACV, $5,000 deals, you can get up and running in a week. Not PLG, but that first stage where you need sales motion. What do you find is the gross retention at that end of the spectrum?
Roee Hartuv (20:14):
Above 90, it should be, right?
Randy Wootton (20:16):
Yeah.
Roee Hartuv (20:16):
At some point when you go too low, you’re not really a recurring revenue company. You are reoccurring to a certain extent, right?
Randy Wootton (20:24):
Yeah. The monthly, when there’s just purely monthly, you don’t know if they’re going to continue, I think there’s a lot of PLG companies start that way. They go out with a usage-based model, and monthly pricing, and they’re trying to convince people, “No, no, it’s ARR.” But really? Is it really ARR? But yeah, I think for us, anything below 90%, if we’re looking at deals, you scratch and want to go after it and see what’s really happening there.
Roee Hartuv (20:48):
And coming back to where we started off, companies need to start looking at increasing that. Every percentage point from retention comes at a fraction of the cost of acquiring new customers. We’re looking at efficiency, we’re looking at costs, let’s focus on that. Everybody knows that the recurring revenue business model is based on recurring, existing, or customers renewing with us, but what they actually follow and implement, and where they spend their resources on, usually it’s back to acquisition.
Randy Wootton (21:22):
Yeah. Let’s go there a little bit. Let’s talk a little bit, one of the things you mentioned earlier was what doesn’t work is when companies conflate product-market fit with go-to-market fit. Again, I think this is one of the things you and your company do really well is drive this distinction to the ground with your company. So tell us a little bit about when someone has product market fit and what’s the distinction or the evolution of go-to-market fit.
Roee Hartuv (21:49):
Let’s start off with product market fit, that usually happens first. This is where customers are willing to pay for your products. Now, you can ask three different people, “What’s product market fit?” You’ll find you’ll get five different answers. I like to say, you ask a VC, a series A investor, “What’s product market fit?” The usual answer is that you’ll get $1 million in revenue, or recurring revenue, and let’s say 2020 customers. You ask a founder, “How did you know when you reached product market fit?” And they would say, “Hey, it’s like surfing and riding waves. At the beginning, it’s very shaky, but once you catch that wave, you know that you caught the wave, right? It’s smooth sailing from there on.” We like to say, it’s not easy always, but when customers come back to buy the same thing.
Randy Wootton (22:46):
When they renew, when you have a series renewal.
Roee Hartuv (22:49):
When they renew, yeah. Sometimes, when you have long contracts, you don’t really know that, but you have leading indicators that allow you to understand, “Okay, the usage is high. I know that they’re going to renew.” That’s product market fit. That happens roughly, again, and I will take what the series A investors say, around 1 million give or take. Could be earlier, could be later.
(23:13):
But then you have go-to-market fit, and that’s where you start to have a repeatable process going to market. A repeatable process, and usually it’s around the sales process, is that you start to see common numbers across that sales process. This means the sales velocity, the time to close, it’s not all over the place. It’s not I’m closing one client after two calls, 10 days, and another client after six months. One ACV is 20K and the other one is 120K.
(23:56):
We all know that in the earlier stage, you are all over the place, your numbers are all over the place. But at some point they start to appear around a certain average. So all of the sales processes start to look the same. You’re selling to the same segment, it takes the same amount of meetings, and the sales process looks the same. That’s where you know have found your go-to market fit. And when you have achieved that, this is the time to press on the gas and move to that scale-up mode.
Randy Wootton (24:36):
Awesome. We’ll talk about that in just a second, but I think you’re absolutely spot on in that this idea of when you understand your ICP, you’ve been able to articulate that, you understand the persona that you’re going after, and you understand the competitive context in which you’re operating. So there’s a certain value that this prospect is going to ascribe to your solution, they’re going to compare it to alternatives, from spreadsheets to buying a Porsche, or whatever, and you’re going to figure out what the price point is. So to your point is, once you start to get enough at that, so they start to look the same, that’s when you can also start, to your point, add on the gas, i.e. adding more reps.
(25:16):
So this is where it’s so important when you’re moving from that product-market fit to go-to-market fit, when sales are moving from founder-led sales to having a CRO or a VP of sales who can come in and help scope all that, and has enough understanding of a process like Winning By Design, or something along those lines, they know how to run a pipeline, they know how to run a funnel, they know how to run a process, so that then they can start doing the qualification of prospects, and you start to get conversion analysis, win rate analysis, you start to build this radar around go to market.
(25:48):
If you don’t have that, then you start throwing reps at the problem, investing more dollars in reps and then marketing to feed the reps, you’re back in that mindset of growth at all costs. You’ve just spent money, and you’re throwing it at the wall, and you’re just hoping to bring stuff in. So I think the transition between product-market-fit and go-to-market fit is so essential.
Roee Hartuv (26:09):
Yeah, I want to give an example. Last year I was working, or supporting a company, they were at 10 million ARR. Around that number, I don’t remember the exact number. At that number, it’s quite impressive, right?
Randy Wootton (26:29):
Yeah.
Roee Hartuv (26:31):
Go to your series B, and series C, raise the next round, scale.
(26:37):
But when we looked under the hood, when we started to actually work with them, we understood that they have three, we call them go-to-market motions. So they were selling to enterprise accounts, and that was around 3 million. They were selling to SMBs, high-velocity sales process. By the way, same team.
Randy Wootton (27:00):
Wow.
Roee Hartuv (27:01):
And that was around five, five and a half million. An additional 3 million came from a self-serve PLG motion. They were all over the place. When we looked at that, none of these three motions were actually mature. Each motion by itself did not have a go-to-market fit. It wasn’t a repeatable process there. It was the same seller sometimes selling into this segment using, I don’t know, reference or the investors came in, some strategic kind of companies. Then they sold to SMBs, doing outbound processes with numbers all over the place. And PLG worked somehow to the totally different persona type individuals. That’s an indication that the company’s coming back to what you said, all over the place, nothing… They weren’t ready to scale. And when they came to us like, “Okay, we want to do everything at once”, and we’re like, “No, no, no. Stop. Let’s just focus.” We focused on the SMB market and we actually created a process and told them to focus only on that.
Randy Wootton (28:18):
I think that is one of the greatest pieces of advice for early stage companies is understand your ICP, run one go-to market motion for one product. Nail it. There’s always this inflection point. People talk, VCs are like, “Hey, when are you going to go multi-product?” Right? But you got to get the first product right. And that is that the value is clear, the pricing and packaging, the monetization is appropriate, and then you’ve got enough customers that are continuing on that you start to feed that SaaS flywheel that we were talking about before.
Roee Hartuv (28:48):
Exactly.
Randy Wootton (28:49):
I mean, you’re poking at this, or approaching this conversation we had before, about the difference between the startup versus scale-up mentality. The people that you… That was representative of startup mentality. Broadly, they’re coming in talking to you, what are those people thinking about? How are they framing their challenges when they’re in startup mode? And then we’ll shift to, what are the changes they need to make to be in scale-up mode?
Roee Hartuv (29:16):
In startup mode, it’s like testing. There are a few companies out there that have nailed this, that they have a very defined use case problem and product that solves that use case. They know right from the start, that this is what we’re solving, and yeah, they’re ready to scale. A company like that is HubSpot, I always like to look at HubSpot. HubSpot started off with a marketing automation platform, and they were focused on that until they hit a hundred million in ARR, before they launched their CRM platform, which was the [inaudible 00:29:52].
Randy Wootton (29:51):
Perfect example. Perfect example, yeah.
Roee Hartuv (29:54):
They were spot on. They were nailed on that use case and they did that. But unfortunately, that’s not how most companies find that growth path. Usually, companies try out different things. They sell to the enterprise, they sell… PLG is a bit extreme when you’re doing both of them at the same time. But let’s say enterprise and SMB, and doing different motions, and trying out until something sticks.
Randy Wootton (30:21):
That big distinction you’re making is what we were talking about a little earlier before between product market fit and go-to-market. If you have a scale up mentality, you’re focusing on that go-to-market fit, and that leads you to do some other things. For example, what are the types of people that you find are being hired at startups? What’s the mentality for how you hire and what they do, versus those that you start to bring in when you hit scale-up?
Roee Hartuv (30:42):
Startups are, we know that, superstars. Jack of all trades, right? These are the people that, whatever you throw at them, they will be able to figure it out. Today we’re selling to this industry vertical, tomorrow we’ll to another industry vertical. And guess what? We’re adding a sales engineer to help you do the sales. They will figure it out.
Randy Wootton (31:04):
And they love that. They actually like the chaos.
Roee Hartuv (31:05):
They love the chaos.
Randy Wootton (31:09):
If it stayed too consistent, they would get bored and want to leave and go to the next startup. But they like the chaos. In that model, the process is anathema. I think the point you made in our pre-meeting was that its success is based on people versus process. Can you say a little bit more about that? I mean, when you come in and see these guys, like the company, not the one you just referred to, but maybe another one, how it showed up that you got a bunch of rock stars, and they’re like, “No, no, no, you’re slowing me down if you introduce any process. I know what needs to be done here. I’m like a frothing revenue dog. I’m going to find the next deal.” How does that epitomize in some of the customers you work with?
Roee Hartuv (31:46):
Yeah, one of the things that we do is help create a process. Usually, for this example, the sales process. And, “Hey guys. Welcome. You’re now a scale-up company.” And in scale-up, you need to have processes in place.
Randy Wootton (32:05):
But they don’t want that, so how does that happen? Do you have the CEO call you in? Is it the board that brings you in? I mean, they’re not going to volunteer and say, “Yeah, what I want is more process in my life.”
Roee Hartuv (32:15):
Usually, it’s the CRO. The last company I worked with, or I’m still working with, the VP of Sales understood that. He has done this with another company and he told me, “I know that what we’re doing together will cause some of my reps to leave.” And that’s perfectly healthy. The culture of the company is going to change from everybody doing their own thing, opening partnerships, and figuring it out, how to bring in the revenue, now we need to start standardizing, and creating a unified process across the different team members.
Randy Wootton (32:57):
And ultimately to drive efficiency through consistency. That you have people, you can bring on people, you can train them, you can onboard them, you get them up to scale. So rapid time to onboard, reduce time to first sale. Then the way I think about it is, if you get the processes in place, you can help convince your AEs that they’re going to be able to pay their mortgage, they’re going to hit their quotas. So the process goes all the way through go to market, and then you guys have this great bow tie architecture where you talk about post-sales.
(33:27):
But I do think there’s this, at some point, you’re going to move away from being the 22-year-old, “Woo-hoo. I love closing anything”, to, “Oh my God. I have a family. I need to be able to trust the process.” I think sales in many ways, I worked with a guy who was an incredible sales leader, he would talk about, it is the process. It’s the activities that you do. Are you getting coached on a regular basis? Are you doing the film reviews? Are you being held accountable for your Monday morning, for costs, and your Friday afternoon checkout? And that mentality of the professional salesperson who’s able, they need, in many ways, that container to feel like they’re being set up for success.
Roee Hartuv (34:02):
Yeah. Which reminds me of a conversation I just had today. With a company that we’re working with, one of the things that we always focus on is the frontline managers. So we focus on that change management, and introduce new processes. Our ambassadors of change are the frontline managers, because without them, nothing will stick, so we need to get their buy-in. One of the things, the session that I had today, was to introduce, we call it an operational rhythm, or a cadence.
(34:34):
We know how it is, right? You have the top performing reps and they are promoted to become frontline managers. If they were not managed or coached properly, then they’ll just manage the way they were managed. In a lot of cases, or in this specific company that I’m talking about, some managers did one-on-one on a weekly basis, and some did it on a monthly basis. They don’t have forecasting meetings, they don’t have deal review meetings. The one-on-one meetings turn into a deal review meeting. And pipeline meetings, nobody’s really responsible for the pipeline. QBRs are not even doing that.
(35:13):
And we know, you’re coming from Salesforce, that’s Monday morning, you have a team meeting.
Randy Wootton (35:20):
Oh yeah.
Roee Hartuv (35:22):
Everything, that’s the cadence. I presented that to them and some of the frontline managers were making comments, “I don’t know if they’ll adopt my recommendation.” Which, by the way, is completely aligned with the leaders, with the executive team. That’s what they asked. All of a sudden somebody tells them, “Hey, Monday morning team meeting, you have to meet 30 minutes at least once a week with every rep. You need to listen to calls. Here’s the QBR template. You need to start implementing that. We missed this one, but Q1, you guys need to introduce that to your team members.” That change is difficult.
Randy Wootton (36:01):
Yeah, and I think the key insight there, and there’s a great author, Linda Hill, professor at Harvard who wrote a book on this, and I’m totally forgetting what the name of it is. But her essential point was that people get promoted to manager are probably people who shouldn’t be, because they’ve been incredibly successful as individuals and they know what needs to be done. Then all of a sudden you become a manager, especially as a sales manager, and all of this stuff feels peripheral, it’s not essential. What they don’t realize is that most of their team are going to be people that are either early stage professionals or B-level AEs, and their value as a manager is to unlock the potential of the people and the team. That is a different way of thinking about what their role is.
(36:40):
I think I’ve had sales managers who’ve gone back to become AEs because they make more money as an AE and they don’t want to deal with all the people issues. But everyone thinks the trajectory is you got to be a manager, and then a director, and then a VP. And it’s like, “Well, yes, if you like doing these sort of things.” Then having a company like yours helping you learn, what is the playbook for how to become a successful sales manager, and then a sales leader, and CRO is one of those career transitions that is critical. And you can still make a lot of money and not do it, but if you want to scale, if you really want to move forward in your career, to your company’s name, Winning By Design, you have to have a design.
Roee Hartuv (37:18):
Exactly. Now I want to connect what you just said to what we talked about earlier, connect that to the SaaS recession. Most of the frontline managers today have never experienced what we’re… They’re in there, and they haven’t experienced that. A lot of the frontline managers were doing fantastic as individual contributors in 2019, and 2020, where everybody was buying from everybody. And in a lot of cases, if you just had a good product, it wasn’t very hard to reach your quota. All of a sudden it’s a different industry, it’s an entirely different industry.
(37:59):
Now, I joined the workforce in 2006. I didn’t really understand what was going on in 2008. I can’t say I’m one of the veterans that have experienced that, or the dot com era. But a lot of the frontline managers right now, they joined in 2015, or 2016, right? They did this individual contributor for a few years and then got promoted. They have never experienced that. And it was easy to sell back in 2020, now it’s not [inaudible 00:38:34].
Randy Wootton (38:34):
Jason Lemkin from Saastr has a great set of expressions there. In 2024, it’s gotten hard.
(38:40):
But well, great. Well, Roee, this has been awesome. Just as we wrap up, I’d love to do the speed round. The speed round, as you may remember, is what’s your favorite metric and why? What’s your favorite book, it could be personal or business, and why? And then who’s the influencer that you’re following? Either LinkedIn or through email. Someone that you find that’s actually writing cool, interesting, new stuff. Not just part of the echo chamber. So favorite metric, what’s your favorite metric?
Roee Hartuv (39:06):
NDR.
Randy Wootton (39:07):
Okay. And for people who don’t know, NDR is net dollar retention. Why is that your favorite metric?
Roee Hartuv (39:12):
Because I think that indicates the health of the company. Basically, that’s the renewal rate. How much of your customers continue with you? And that’s the greatest indicator of, yeah, you’re delivering impact to your customers, they want more of that, you’re doing something right. And I think that’s the best indication of a healthy company offering.
Randy Wootton (39:39):
Got it. So beyond what we were talking about early on, which is gross retention, which is just can you keep the current cohort of customers at their spend level? NDR being they’re buying more from you. Either more seats, more modules, or you’ve penetrated the organization by going across the vision. You’ve demonstrated value and they want more. Okay, what’s your favorite book?
Roee Hartuv (39:58):
It’s not a business one. I don’t know if it’s all-
Randy Wootton (40:00):
That’s fine. We’ve talked about fantasy, science-fiction, and horror on this podcast. What’s your favorite book?
Roee Hartuv (40:06):
Yeah, my favorite book is Catch-22.
Randy Wootton (40:08):
Cash? Oh, Catch-22.
Roee Hartuv (40:10):
Yeah.
Randy Wootton (40:10):
Oh, brilliant. There you go, a little throwback to Catch-22. Why is that your favorite book? It’s an interesting call.
Roee Hartuv (40:18):
Anti-war.
Randy Wootton (40:19):
Ah, there you go.
Roee Hartuv (40:23):
[inaudible 00:40:23]. A lot of sarcasm there. I think I read it like five, or ten different times. I don’t know.
Randy Wootton (40:29):
Have you really? Oh God, yeah. No, I do think it’s a sophisticated read. You have to be able to, to your point, understand the multiple levels of it, and how it plays out. And it’s really compelling. Great, great, great recommendation. Okay, influencer? A person that you’re reading or listening to on podcasts, or reading their emails, that you think is really thought provocative?
Roee Hartuv (40:52):
Yeah. Probably you’ve heard that a lot, but Scott Galloway, Professor G.
Randy Wootton (40:57):
Oh, yeah. Awesome.
Roee Hartuv (40:58):
I just love it. Him and Kara Swisher are my go-to podcasts. I listen to every podcast. I just love that. I think he’s very thought-provoking. I love his view and how he analyzes different things. I think he’s fantastic.
Randy Wootton (41:20):
Wicked smart, irreverent, funny. Huge ego, but at the same time, self-effacing.
Roee Hartuv (41:25):
Exactly.
Randy Wootton (41:27):
For people that are listening, this may come out after, he’s got a conference coming on around AI, I think it’s this week or next, and I’m really excited. Because I think he asks really good questions, it’s not just the same that everyone else is. Well, Roee, this has been great. Thank you very much for your time. Really appreciate your insights.
Roee Hartuv (41:43):
Yeah, thank you for having me.
Randy Wootton (41:45):
And just as we wrap up, if people want to find out more, is LinkedIn the best way to reach you? Or how would you prefer?
Roee Hartuv (41:52):
LinkedIn is the best way, yeah.
Randy Wootton (41:59):
I think that’s how we got connected.
Roee Hartuv (41:59):
And [inaudible 00:41:59] the website of the company, if you want to go to directly to the website.
Randy Wootton (41:59):
That’s Winning By Design, and it’s an awesome website… Awesome website. It’s an awesome company, an awesome approach. We are, as I mentioned, customers. It took me a long time to get over the investment, but I will tell you, I just went through my QBRs with my AEs and they all said it has been a worthwhile investment. But to make it pay off, to your point, it has to be inculcated into the process and technology. We’ve adopted the SPICED framework in our Gong. We’re monitoring calls using it. So it has to be an entire behavior change and commitment to doing things differently for it to work.
Roee Hartuv (42:32):
Exactly, yeah. We haven’t found the magic potion on coming into a company and after three to six months changing everything and doubling the revenue. It takes time, it takes changing people’s behavior, cultures, and processes. It takes time.
Randy Wootton (42:52):
Yeah. And to your broader point, the final comment is, that the people who do this and survive it as sales managers will be great sales leaders in the years to come.
Roee Hartuv (42:59):
That’s right.
Randy Wootton (43:01):
Awesome. Well, thank you, Roee. Have a great day.
Roee Hartuv (43:03):
Thank you.
From VC to PE: What Founders Need to Know for a Successful Transition with Dave Woolliscroft
October 24, 2024
Episode details
This week on the Expert Voices podcast, Randy Wootton, CEO of Maxio, speaks with Dave Woolliscroft, Finance Leader and Big 4 Managing Director. Randy and Dave discuss the key differences between venture capital and private equity, particularly focusing on what it means for companies preparing for a sale to a PE firm. The conversation highlights the importance of understanding the operational changes that occur under PE ownership, emphasizing that companies often experience increased scrutiny and a more rigorous reporting structure. Dave shares insights on what makes a great PE firm and how their approach to growth can differ significantly from that of VCs, especially regarding profitability and operational discipline.
Video transcript
Randy Wootton
00:00:04.280 – 00:01:18.850
Hello, everybody. This is Randy Wootton, CEO of Maxio and your host of SaaS Expert Voices.
We’re bringing the experts to you to talk about what’s going on in SaaS today and what are some of the trends unfolding in tomorrow.
I’m delighted to have Dave Woolliscroft join me today who has 25 years of operating, consulting and board experience with a focus on B2B SaaS and technology enabled services company. Dave has a. He’ll talk more about this. This incredible background. Started at. Well, eventually did a tour at Deloitte where he advised PE firms.
He led finance transformations and he co-founded an internal venture accelerator to help Deloitte build recurring revenue businesses. Grew it from zero to $270 million in six years. I mean, extraordinary. He then took that experience and went to a great firm called K1.
If you all haven’t heard of them, they’re one of the best out there.
He was there for six years, worked with companies that range from $10 million to $300 million and is our audience knows it’s kind of the sweet spot for Maxio and focused on finance, pricing, strategy and executive recruiting.
And then just a little while ago he left K1 to start Exit Point Partners and this is where he’s supporting lower middle market PE firms on finance, pricing and M&A opportunities. Dave, did I get all that right?
Dave Woolliscroft
00:01:19.350 – 00:01:23.166
You did, yeah. Thanks, Randy. And thanks for having me here. Very excited.
Randy Wootton
00:01:23.318 – 00:02:03.930
It’s absolutely my pleasure.
And because of your background, what I’m really excited to talk about is PE and we’re going to get into the difference between VC and PE because I think a lot of our companies and CEO’s and CFO’s that are listening are probably more early stage and haven’t thought about PE.
So we’ll talk about the broader context between the two assets classes and then what does it mean to prepare for a sale to PE, how to make that successful? And then what does it mean to live under a PE regime? I’m doing that right now, basically.
And I think the things changes for the company, for the CEO, for the CFO when you’re working for a PE firm and it’s good to know that before you go in. So I’m excited to dig in.
Dave Woolliscroft
00:02:04.910 – 00:02:07.330
Cool. Me too. Yeah. Great topics.
Randy Wootton
00:02:08.190 – 00:02:12.650
So let’s start just broadly. How do you think about the difference between VC and PE?
Dave Woolliscroft
00:02:14.590 – 00:02:20.810
So I guess, yeah. And I think also there’s kind of like bootstrapping as part of that too. Sure.
Randy Wootton
00:02:22.810 – 00:02:23.306
Yep.
Dave Woolliscroft
00:02:23.378 – 00:02:24.026
Yep, totally.
Randy Wootton
00:02:24.058 – 00:02:24.458
Yep.
Dave Woolliscroft
00:02:24.554 – 00:03:29.274
So I think quite often it comes down to the preference of the founders and then also potentially the TAM that you’re looking at.
I think most VCs are looking for those opportunities where there’s a large TAM to be able to go and address a target addressable market with whether the company is going to really be able to get to scale, potentially have an IPO as an exit. On the PE side of things, you know, they’re not necessarily potentially more able to invest in vertical SaaS with smaller TAMs.
And then it becomes like your perspectives on what the outcome is going to be.
I think PE, I think one of the great things with PE and when you’re working with PE sponsors is that it’s very rare that they have losers, as we all know, on the VC side. Actually maybe only one or two in ten kind of get to really good exits. And so it becomes a little bit associated with your risk tolerances too.
But both have a lot of benefits depending on your own personal preferences.
Randy Wootton
00:03:29.402 – 00:04:07.342
And in general, I think we find VC firms are more early stage when there still is more financial risk, business model risk people are working on product market fit. Like I’ve heard often the early stage VC funds, they’re betting on a horse and a jockey.
And whereas PE firms tend to come in, I think when there’s a little bit more scale, I think of like series C and then beyond, and they, there’s the product market fit, they probably have a replicable sales model. And I think of PE firms helping to bring a level of discipline in scaling. Would you say that’s a fair distinction or too broad?
Dave Woolliscroft
00:04:07.366 – 00:04:38.914
Yeah.
And within your lifecycle, kind of within a company, you could be doing kind of like one or all three of those starting bootstrapped, becoming VC backed. And then PE could be a potential exit path for a VC backed company.
A lot of founder, kind of like bootstrap businesses become really good targets for PE companies too, as they say, reach ten, $15 million in ARR because there’s usually a decent level of profitability there too, which is also what they’re looking for, right.
Randy Wootton
00:04:38.962 – 00:06:16.930
I do think that’s one of the orientations as well as VC. I think things have changed over the last couple of years, in particular with moving from growth at all costs to efficient growth.
But in my experience with VC is it’s primarily around let’s invest to grow and less concerned with. Okay, so how profitable are we? Because they would say, hey, any money you have is go invest in your growth plays so that you can capture the market.
So to your point, if you have a big TAM, like you want to be first mover or you want to, you have some new capability, new technology, you want to get out in front. So invest, invest, invest.
I think that’s been modulated with the markets and the rise of inflation and interest rates where you now have VC’s also reading from the Bible of efficient growth rule of 40 models. But I think PE firms, the other thing I think about PE firms is they often have a set of operating partners.
So in addition to the investing partners they have people who are experts in go to market or finance or technology.
And so they bring those people to bear at one end of the spectrum, the really big guys like Tomo, Bravo and Vista have an entire consulting division that they use to come in and say, hey, here’s our playbook called the VCP. I think at Vista the value creation playbook and this is how we want to do it. And here’s people help you going to do it whether you like it or not.
They’re going to strongly recommend you to do X, Y and Z.
Whereas I think the VC, they may have like a people operating partner who helps you with recruiting but I haven’t seen that many VC’s with a large operating group. Do you find that to be true or what’s your experience been?
Dave Woolliscroft
00:06:17.430 – 00:07:50.580
I actually, I don’t have so much experience on the VC side but there’s even flavors within the PE kind of world too.
And there are flavors to those different types of operating partners and that is something to consider as your potentially looking to see who to work with, who comes with a very defined playbook where they’re going to want to really execute on that.
Some people’s operating partner approaches a former CEO who’s been in their seat probably had like two or three exits in the past potentially with that PE firm. And they’re a really good both bridge between the company and the investment team as well as a good coach to the CEO.
And then you’ve got the other model like you were talking about too Randy, where there’s actually these functional specific experts and they’re able to face off with different leaders within your own teams and bring best practices to bear at that point in time too.
It definitely becomes one of those things where I think also depending on the firm, sometimes they go through cycles of having have more of one or the other and then you’ll see a variety of companies that are p firms that have the variation of those approaches.
And I won’t necessarily say the one thing is better than the other, but I think it is really important to make sure that you understand the relationship with those people. If you are potentially talking about an exit to a p firm, you’re thinking about the people who do you want to work with?
Because you will work with them a lot.
Randy Wootton
00:07:50.920 – 00:09:44.976
We’ll come back to that in a second. What makes a great PE firm?
But just before we leave that point, I think the other thread you’re pulling is that VC is often a minority holder stakeholder, and so someone uses a VC, the seed round the Series A, the Series B, Series C. So you may have four different VC’s sitting around the table who come in at different valuations and have different orientations.
And so that’s a little bit of like managing the UN. Often PE firms take majority interest where they buy the whole thing or a majority of it.
And so that, for example, in Battery, we have three different portfolios. We have one, which is VC, which is the preponderance of Batteries.
Firms of 140, they have a majority owned growth equity portfolio, which is what Maxio is part of, and that’s about 30 companies. And then they have a pure PE, which is more solving for EBITDA in our case.
To your point, we have Chelsea, who’s the lead investor, Dillon, who is the principal, and Jason, who is a multiple time CEO, not a Battery employee, but a friend of Battery, who’s done it and is acting in that role that you described. He’s there as a coach, he’s there as an intermediary because it’s a much smaller board.
So sometimes if Battery, and I don’t agree around what we need to be doing, then, you know, Jason comes in and plays a little shuttle diplomacy.
And so I think it’s a great model when you have an operator who can help translate and who’s impartial and can kind of say, hey, here’s some things to think about for both of us. So I think that’s great. Part therapist. Amen. I absolutely hear you on that.
I have played independent observer or board member on a couple of boards, and I, and I do that for the CEO’s that I work with. I think there’s an empathy, a level of empathy that you can provide.
At the same time, you can kind of say, you know, in this case, I think the board member’s actually making a good point and you probably want to take it on.
Dave Woolliscroft
00:09:45.088 – 00:09:45.568
Yep.
Randy Wootton
00:09:45.664 – 00:09:59.232
So with that, we were talking about what makes a great PE firm, and you were talking about it being partner dependent. What were some of the other things that you found, like K1’s one of the best.
Like what makes K1 great and the other ones that are in that category and tier.
Dave Woolliscroft
00:09:59.296 – 00:11:04.000
I. I mean, I think kind of PE firms where they’ve got a really good focus on growth is important.
You know, it is still that profitable, efficient growth is how do you establish the playbook and then work out how to double down on it? It is kind of the introductions that they can bring you in the market too, potentially.
It can be with strategics, it can be with partners, it can be with other potential acquisition targets that are you going to look at over time? That ability to really help kind of, you know, you get the network effect of them working across many companies.
And then one of the things that is, I think, really valuable from a PE perspective is that they’ve seen many movies and so they’ve been through lots of situations in the past. Sometimes, you know, you might not think that they’ve actually, and they may not have an operating experience on the investment side question.
They don’t. But they have seen lots of movies, they have seen lots of situations and you can get kind of like that repeatability in those indicators.
And so they ask really good questions.
Randy Wootton
00:11:04.660 – 00:12:08.870
Yeah, the pattern matching, I think. And there’s excel jocks.
And so they’re gonna, they’re gonna help you figure out what metrics are going in the right direction, which ones are going in the wrong directions, and then to your point, they pattern match in terms of what’s worked across other companies. I think the other thing you had mentioned in our pre brief was the relevant experience of the partner.
So one of the reasons why I took this job at Maxio was Chelsea had been in the office of the CFO for, I don’t know, twelve or 15 years. Right. She’s forgotten more about the office of the CFO than I will ever know.
And so there is a lot of value to having deep seated expertise around the table, especially if you don’t come from that industry. So I grew up at Martech ad Tech. I wanted to shift over into a different industry. And I’ve been here two and a half years. I’m learning it.
But I think there are things where she’s been on the board of companies, like it was Anaplan and Avalara and a couple other ones that she helped through their growth phase. So she’s seen what it takes to take fintech or office of CFO Tech through the different stages and she’s seen success on the other side.
And there’s just, there’s a lot of value to help charting the course.
Dave Woolliscroft
00:12:09.570 – 00:12:34.840
Yeah, yeah.
Sometimes you see firms with that specific investment thesis where they want to be investing in this particular verticals or horizontals, but then to your point, you end up with partners or other principles that just naturally gravitate towards the same things and they’re making investments in repeated space. You get the benefit of that kind of learning and journey that they’ve been through before.
Randy Wootton
00:12:35.220 – 00:13:35.280
And so, yeah, I said that’s the last thing. And I think this is true at the VC and the PE.
If you’re raising money or preparing for a sale, which we’ll shift to in just a second, you want to make sure you know who’s going to be on your board because often they bring in the superstar and then they bring in the, you know, the principal or the analyst if the deal’s not that big and it’s that person who’s on the board. But wait, wait, wait. No, no, I want to go with Joe or Susie, who, you know, knows everybody, knows everything.
And I think that’s another important consideration is who actually is going to be there side by side with you through the, the ups and the downs and see it to a transaction.
So with that, maybe we can shift to preparing for a sale to a PE firm because I think a lot of companies that are bootstrapped in particular, but even if they’re kind of early stage, VC may not be ready for what comes to sell to a PE firm. So what are some of the criteria? I mean, this is where you’re advising a bunch of PE firms as well in terms of what their target should be.
What are you finding? What’s your pattern that you’re matching?
Dave Woolliscroft
00:13:35.890 – 00:16:31.730
Yeah, we also advise founders as they go into those sales. And so the diligence process is going to be hard, it’s going to be a challenge, it always is.
And it’s because they’re really going to get into the data.
And so being able to have a few things like predictability in your go to market execution sale process is probably going to take longer than you would expect. And you’re going to provide targets or expectations on what bookings you’re going to close.
You want to be able to make sure you hit those targets because otherwise you’ll have lots of other conversations around that. And it shows various scenes of doubt about whether it’s the market or whether it’s about the executability of the team.
So you want to have really good go to market execution, just a good muscle established in how you’re going to do that you’ve obviously got to have good ARR fundamentals. They care a lot about predictability of churn.
And if you’ve got below benchmark, whether you’re for enterprise or for SMB, that’s going to be a challenge and that’s going to impact your valuation because they really want to have that obviously sustainable and repeatable base there.
The profitability is important too, and this is sometimes where you can actually do something to really help prepare yourself to have the most successful exit. If you’re going to go that PE route, if you’re thinking ahead twelve to 18 months. But they are thinking about the Rule of 40.
So the rule of 40, I’m sure you’ve covered it before, is that ARR growth plus the EBITDA margin, and so obviously the growth rate is going to be there. But the profitability is like how do you work out?
Just take out inefficiency that already exists in the business that’s going to eventually get ferreted out under PE ownership anyway. So work out how to do it yourself and get some value for that.
The other big lever that I see on the profitability side for founders to remember as they’re thinking about getting ready for an exit process, to think about pricing, because quite often pricing that you’re going to market with, you probably determined that a few years ago, maybe just as you were starting to go out to market, you haven’t really thought about what levers there. There’s a lot of fear that exists with boundaries and changing pricing.
But when you’ve got a really good solution and you’ve got high retention rates, you’ve actually quite often got a lot of pricing power. And so how do you work out how to do something where you can not, maybe not just do like a one time price uplift?
Because that’s seen that as being more of a one time profitability improvement than an ARR improvement.
But how can you kind of continue to increase ARR year over year through price increase that drops down to the bottom line and obviously kind of like also improves your growth too?
Randy Wootton
00:16:32.030 – 00:16:36.930
Great comments, David. A couple of just clarifications, I think.
Dave Woolliscroft
00:16:37.470 – 00:17:32.284
Sorry, there’s one other one. The obvious one that I forgot is the finance guy. And it’s just like your data quality.
Like you’ve got to make sure that you’ve got like your financial data, like in order especially. Oh yeah. With the ARR schedule that it’s there by customer, it’s clean. Investment banks will often help you get ready and clean up.
Like just as you’re going into a process.
But on the flip side, like when you’re on the PE side investing, you can kind of tell that the bankers have pulled this together and you can tell that it’s not really the way that the company runs the business. So try to build just like good agreed data quality. Everyone agrees that bookings the same thing from sales to finance.
You are the types of metrics that you run the business with. Just make sure that you’ve built some discipline around that before you start to go into a sale process and you come out looking really good.
Randy Wootton
00:17:32.452 – 00:21:11.300
That was like an unpaid advertisement for Maxio because that’s exactly what we offer is we should have a flashing logo during that time. But that was my experience when I was at Percolate was my CFO. I may have told you the story. My CFO wanted to buy this technology.
It was called SaaSOptics, one of the legacy products of Maxio. And I was like, God, no. We have too much internal software. There’s no way we can take on yet another software. What are you talking about?
It’s just a spreadsheet. And he said no and he bought it. Typical CFO, ignored the CEO and did what he wanted and we got it.
And it changed my life and changed my life because it actually influenced the way we ran the business.
So we went from spreadsheets trying to figure out after we spent six to eight days closing the books at the end of the month, we spent another six to eight days trying to figure out what the heck happened through the spreadsheet. Someone fat finger or sell and we’d be, you know, pulling our hair out and we’d slide into the board meetings hoping it was right.
From that to what I have at Percolate and today. So it’s October 7, I don’t know, third business day of the month, given the weekend.
We already have our ARR sorted, our revenue sorted, we’re looking at. I was just talking to my sales rep right now in terms of what our win rates were by segments.
What was the discount that was done by segments and already teasing out what happened and what are we going to do about it? What’s our next pricing strategy, to your point?
So I do think, like, whether you buy it from us or not, having a system that allows you to do deferred revenue, allows you to do the ARR roll forwards, to do the customer cohort analysis is, to your broader point, that’s what the PE firm is buying. They’re buying revenue streams. Well, they’re buying cash. They’re buying EBITDA. So they need to trust that all the financial statements are accurate.
But really those are governed by GAAP. And as long as you have a pretty good CPA on staff or controller, you’re most likely going to be okay.
You’re going to argue over does customer success go above or below the line in gross margin? But 99.9% of the stuff is sorted. But in the world of ARR, it’s the world of wild, wild west.
And people, to your point, have different assumptions around bookings and gross retention and magic number and all these different things. And so having those sorted out before you even go into the process. So you have a couple of quarters of predictability.
And that’s what I was going to say about the go to market execution as well. It’s not just even in the process, because I find a fast process, I mean, there are always exceptions, right.
But normally it’s four to six months, it can go longer, it can go shorter.
So you’re going to get through two quarters during the process, but you kind of want to have, I think, at least four quarters before going into the process where you have predictability on your go to market execution. Like you have a sense for your sales velocity, you understand what your win rate is, you started.
If you have multiple segments and multiple products, you’re able to break it out to really be able to show. And then AE attainment and all those ratios like AEs to BDRs and how many do you have there?
And so I think having some practice at running the go to market and with visibility, as if you were, if you have investors, you should do it with your VCs. But what is the discipline you need to run that business is spot on.
And pricing, I’m so glad you brought that up because I think that’s one of the major levers that PE firms pull that not many VC companies do necessarily. They think about growth through new ARR or they think about growth through expansion, expansion being seats or modules or jumping divisions.
But you have this whole other component around what we call monetization, where you think about your offer, the price, the package, and that’s exactly what you were saying.
Like if you could start to show that you’re proactive in terms of your pricing strategy, it really shows the sophistication, I think, of the executive team.
Dave Woolliscroft
00:21:12.280 – 00:21:54.702
Yeah, that’s right. Yeah. And it really is an example of that discipline.
It’s just like there’s a regular whole company motion, because also a price increase is a whole company motion. From sales through the customer success and the back office team. And it’s got to happen every year.
But then it is one of the rare things in the rule of 40 where if you do it right, you get the double benefit because like I was saying, it’s obviously going to impact your profitability margin because you’re able to generate more profit. But if you’re able to do it in a repeatable way, you get the benefit of it in your growth rate, too, versus being kind of discounted.
So there’s actually very few things that you can then do. Kind of like where you get the double filling.
Randy Wootton
00:21:54.886 – 00:23:06.380
That’s great. The double barrel shotgun or some other great metaphor. Your last point, I think. Spot on.
One of the things you, as a founder CEO of a company, this is your baby, you think it’s beautiful. You go into a process of the PE firm.
They’re looking to find things that are wrong with it because they’re trying to discount and get a better valuation from their perspective, an asset at a lower price.
And so any of these things where it doesn’t pass a sniff test or they have to spend extra time on it, they will real on you on that and, and negotiate down the price. Now, if you are the best looking product on the market and you’ve got lots of bidders, then a competitive process is always better.
But we got to pick one at some point. And then you start going down that chute and you’re with them for four to six months.
And if you pull out of it, then everybody else who was at the beginning of the process is going to think, well, what was wrong?
What did that PE firm find that was dark and deep and so you never get another shot at that, you know, first impression, whatever that first go, I think.
And have you found that in terms of, I mean, I don’t think there’s any PE firm that’s going into a process saying, let me look for reasons why I should pay more for you.
Dave Woolliscroft
00:23:07.120 – 00:24:52.650
No, generally not. I don’t think necessarily looking to work out why to pay less. But they are looking to see, like, do I believe in this investment?
Because they’ve obviously got a fiduciary duty to their LP’s. And then I think everyone in PE knows that and they’re focused on their own returns. That’s kind of like the business that they’re in.
The biggest indicator of success for potential return for them is the price that they pay for something at the beginning.
So they’ve got to make sure the fundamentals are right and if you invest in a business where you think that maybe the product fundamentals are good, but perhaps you don’t have confidence in, or you find out that you don’t have a repeatable sales motion afterwards, you can lose a year, perhaps in your investment cycle, because you discover that and then you got to hire a new sales leader and then build a new approach and all of a sudden that’s another year, kind of like within the whole period. And that obviously costs money. So they want to make sure that they are really comfortable about the fundamentals of the business.
And then as a founder, the important thing to remember is that you can’t be in every meeting talking about every aspect of the business.
They’re going to talk to sales, they’re going to talk to product, and they’re going to look at the engineering side of the house, they’re going to talk individually with the CFO.
And so that’s where just that again, the rigor around execution and data commonality amongst the team that’s a data driven business will hold you in good stead.
Because if everyone’s talking about the same metrics in an internal management meeting each week, you can trust then that by the time they go and talk to a potential PE acquirer that they’re still going to say things in a consistent fashion.
Randy Wootton
00:24:52.950 – 00:25:44.500
It’s a great insight and great segue to our next conversation about life under a PE, because I do think it’s very, very different.
When I was a VC backed company, Percolate, we had Sequoia, GGV, Lightspeed, First Round Capital, and like, look, I haven’t done a bunch of these, but those are some top tier firms with great partners on board. We would meet once a quarter for the board meeting and we would do maybe once a month touch base.
I’d write an end of month report and you give them an update. But it wasn’t a full board meeting unless we were about to go through a process. And it wasn’t, it wasn’t regular, it was periodic with the PE firm.
I’m meeting with them every week. I mean, at least every other week at least. Yeah, right.
No, and, you know, I’m on no bat phone with the lead partner, so maybe give us a little bit of context and perspective on what does it mean to move into life under PE.
Dave Woolliscroft
00:25:45.600 – 00:26:30.316
Yeah, yeah, it’s good. And I think this is one of the things that I see as being for some people, the biggest change.
It can be quite a shock for some families as they kind of move into life under PE. But the active board is the largest one.
And so that ranges from, typically, I think there’s a touch base at least once a week with either an investment partner or an operating partner, there will quite often be monthly operating reviews. And I actually recommend all my clients to do monthly operating reviews with their PE sponsor because it just gains that regular alignment.
And that’s not just going through the financials, that’s going through the whole operational metric set for the business on a monthly basis. And then you got the quarterly board.
Randy Wootton
00:26:30.348 – 00:26:32.212
Meetings that happen, too.
Dave Woolliscroft
00:26:32.396 – 00:27:28.336
And then you’ve got the other reporting that you do, which is like generally, again, kind of in a PE environment, I suggest people provide weekly reporting of key metrics. It’s like what’s happening for leads, pipeline changes, bookings, upsells, churn, view cash. We’ll come back to cash in a minute.
But it’s like those kind of key heartbeat metrics for the business. The same thing that your management team should be looking at on a weekly basis.
It’s good to just give to your kind of like PE sponsored team because it’s one of those strange things about the human psyche, I guess, that if you don’t know what’s happening, you worry.
But if you receive the information on a regular basis, then, yeah, they may ask you a question as a result of it, but then they’re not necessarily thinking the worst because they don’t have access to the information.
Randy Wootton
00:27:28.528 – 00:29:22.000
Right.
So, oh, gosh, I could tell my executive team to listen to this part of the call because I think they’re like, randy, you are like over functioning in terms of the amount of information we produce. But what I always tell the team is this is, so we do a weekly forecast call, we do the red account call and do a weekly forecast call on Fridays.
By Monday, all of those numbers are wrapped into four or five slides which capture what’s going on with our pipeline, what’s going on with bookings, what’s going on with renewals, and we send that to the board with cash. So we also include the 13 week cash forecast. And to your point, it’s a predictable set of metrics. And I’ll throw in some commentary.
And then that happens every week except for if, like, we’re going to go into a board meeting or the end of the quarter. We also do an end of month review, which I’m working on now for September. I’ve got the narrative going.
People are adding comments and stuff, and I walk through more details around what happened on the bookings, what happened on the churn what happened?
Even, like, our costs in terms of p and l hosting costs, we had some things going on, like what’s playing out there, and you never want the board to be surprised. But if you get that out, right, you get that financial data out, and then you provide the data on a quarterly basis.
Ideally, what ends up happening, I think, is you’ve had the conversations around the financial metrics, and then you get to talk about the business. If you show up at the quarterly meeting and you haven’t been keeping people up to speed, they’re going to take you to math camp on your financials.
And then you say, okay, show me now the p and l, what’s going on here. Double click on this, do that. And then you’re going to go through the ARR reporting.
And so I don’t think you ever get a chance to have a conversation about the strategy or some of the things you want to dig in on and want their feedback as advisors. And so I think to your, this broad theme of PE is about predictability, meaning you’re regular and consistent.
You call out what’s working, what’s not. And I think, to your point, it’s almost like you don’t want to. It’s in the PE world. You’re not out of sight, out of mind.
If you’re out of sight, all of a sudden everyone’s like, okay, what’s going on?
Dave Woolliscroft
00:29:22.820 – 00:30:49.550
That’s totally right. Yeah. And it’s like a couple of things. You made me think of it, Randy.
Like, one thing on board meetings, by the way, like sometimes the default kind of underpes that every function is going to talk about their stuff, kind of like in a board meeting. And I generally don’t like that. It should be probably in the deck that goes out in advance, people to review.
But if you’ve kept everybody up to date, kind of like you, the CEO, get to talk with the operating partner or the investment partner and decide what’s going to be a good, interesting, useful agenda in that meeting. And then it may just be like just focused on marketing this one session, and then that’s good because it’s valuable to you.
So you do this other regular stuff to your points, and then you can direct those board meetings to what you care about. And really the whole thing, it’s just like, hopefully skills that you’ve learned early in your career of managing up. Now you do have a boss.
Like if you were a founder before, now you’ve got a boss and, like, what’s on their mind? How do they become successful, which should hopefully be aligned with you.
And then how do you make sure that they don’t have to worry about what you’re doing so they leave you alone? That to me, is always the art of managing up.
It’s like how do you give your boss enough so they leave you alone to do the things that you’re good at doing?
Randy Wootton
00:30:50.250 – 00:32:50.546
That’s great. I want to come back to that just a second. But the comment around the rhythm of the business, as I was mentioning, we do a quarterly board meeting.
It’s 3 hours. We do a monthly board meeting. I don’t bring everybody to it. It’s actually a monthly checking call and I will do topics.
So like in October, we’re going to talk. We have a new head of marketing.
She’s going to come in and give an overview of what’s going on with marketing, what’s working, what are the trends we’re seeing, what are her bets? For Q4? We’re really focused on expansion. So my head of customer success is going to come in and present that.
So it’s a very focused conversation around those specific topics. I will have provided the end of month summary report for September, so we’ll touch base on that.
But I don’t want to spend any time on that because these are the two things that are really important that happens monthly. The quarterly board meeting happens at the end of quarter.
In between the monthly meetings, I do, or try to do a one on three, I call it, where it’s the three other board members and me, and it’s an open agenda and I come in with a couple of things I’m thinking about, but it’s usually not a lot of prep or materials. And we, they have things they want to ask me about without everybody else in the room.
And so I do think having that balance of really formal quarterly board meetings where you’re going through and you’re approving the minutes and you’re making sure they’re especially in the VC world, but you’re sort of overseeing the fiduciary responsibility versus the monthly topical versus the just informal check ins. And just know that’s going to be part of your life.
And the point that you’re making earlier as a CEO, needing to be comfortable that the board is also going to be engaging with your executives directly. The CFO, one of the principals, we’re talking all the time.
We have an M&A conversation where I have other people involved and they’re going to reach out and they feel perfectly free to do it. Reach out to whom they want, when they want. Now, we try to keep each other informed, but you’re not going to be the conduit of all information.
And so again, to your point, if you have scorecards and a predictable rhythm and everyone’s singing off the same sheet of music.
Dave Woolliscroft
00:32:50.658 – 00:33:04.122
Yeah. You know, when you. That’s really good, Randy.
You know when you do those monthly spotlights and you bring people into those, do you end up having to coach your team to make sure that they’re sharing the ugly stuff as well as the stuff that’s going well?
Randy Wootton
00:33:04.186 – 00:35:16.360
Yeah, yeah, yeah. I think that.
I think if anything I’ve learned, like, my natural instinct is I’m one of those rah rah guys and I want to show you why everything’s possible. And I do think that’s probably true for a lot of early stage CEO’s as well.
Like they started a company with a vision for how they could change the world and they received a lot of no’s and people are telling me it was impossible and they had to like for through force of will and brute force, just get, get their product out the door and he or she getting people to buy into it. And then you move into this model where you’ve got to be very self reflective and self critical. And I call it managing the exceptions.
So if you have a scorecard, use scorecard with metrics and targets. You always start with what’s red? You say, here are the things that aren’t working. These are why we think it’s not working. Here’s our mitigation plan.
Here are the things that weren’t working last quarter. Here’s the status. And it’s like you’re just in this world of negativity, whereas you want to be spending time talking about everything that’s green.
But I think in general, my experience with investors is they assume you’re going to do good stuff. What they want to know is what’s not working. And then they want to try to be helpful and dialogue and work through those things and whiteboard.
And it’s kind of like, hey, look at my dirty underwear. But in some ways, like, I’m going to mix the metaphor here, but it’s like, yeah, you want them to help you clean your underwear.
And I do find that is the biggest value is as a CEO.
There’s so many times where I’ve got some pattern matching because I’ve been CEO three times, but I don’t have the pattern matching that they have sitting on 20 boards over the last ten years. And you just want some help. You wanna say, hey, look, we’re having this struggle. I’m not sure why. Here’s what I think it is.
And to be able to lead with that as the vulnerability and humility to say, I don’t have all the answers. Can you help co lead with me? I think is one of the greatest skills that executives have to learn.
Stepping up onto the C suite as you move from being the person with all the right answers to being the person who can feel comfortable enough saying, I don’t know why this isn’t working, but here are three ideas and what I think I’d like to do. You always have a recommendation, what do you think? And then inviting people to be part of the solutioning.
Dave Woolliscroft
00:35:17.020 – 00:35:38.240
Yeah, then that’s good. One other quick thing there is having a scorecard for each kind of functional leader is super important. I agree.
It is kind of a red flag if you can’t come up with a scorecard. I’ve seen that before. So do that. And then the other red flag is don’t change the scorecard each quarter because you don’t like the answer.
Randy Wootton
00:35:39.180 – 00:36:36.996
Right? Amen.
I do think that’s a great comment in terms of we in the companies I work with, we try to create a year long operating plan, and the operating plan has a set of objectives. It has a scorecard, it has some metrics, and we think the metrics are the right metrics.
And you can argue about the targets, the targets, right or wrong, but if you thought deeply about these are the leading or lagging indicators of success, then those shouldn’t change.
You can talk about why they haven’t improved, but you don’t want to change your metrics means you haven’t done the hard work up front to think about what are going to be indicators of success or things going off the rails. Yeah. So with that, so with PE, we talked about more active board, we talked about the lots of questions.
And for the CFO, the role really changed in the finance department, we talked a little bit about the reporting and the timelines. But what else would be your recommendations for CFO’s that are getting ready for a transaction?
Dave Woolliscroft
00:36:37.148 – 00:38:58.450
Well, so I think the thing to realize is that the game changes pretty substantially for finance once you go into PE ownership to, if you found a bootstrap, you might be running it on a cash basis.
And that’s totally okay because it’s all about how do you just manage the bank account BC you’ve got less chickens that are happening in PE, kind of like it’s a pretty serious game right from the get go for CFO’s. And you’ve got to make sure that you level up both from an accounting standpoint perspective.
You’ve got to be able to make sure that you’ve got the back office that will support the business growth. And then there’s going to be a lot more questions around FP&A from an FP&A perspective.
The other thing that I usually think of as part of FP&A is cash forecasting too, because the other thing to not forget is that there will usually be debt involved in a transaction at some stage. And so you never want to be the cause of a cash surprise.
The Friday afternoon call to an investment partner saying, yeah, we probably can’t make payroll next week. Could you send us some money? That’s a very difficult conversation.
So you’ve got to have a really good focus on cash and then you are going to get a lot more questions and there’s going to be a lot more rigor around the data that’s coming out of FP&A. So you’ve got to make sure that you’re resourced appropriately.
And that definitely means quite often that you need to hire FP&A potentially for the first time, you should make sure that you’ve got a reasonable level of FP&A resources for the business. And you might need to address some of the systems kind of like within your businesses too.
Whether that’s, you know, a full ERP implementation, whether that’s just like a really good revenue and billing subledger like Maxio. The types of things that will actually really help you do your job with, with confidence and reliability.
You know, you talked before as well, Randy, about like how you got three people that are involved, kind of like in your business. I assume that’s not including all the kind of associates and senior associates that are also looking at your data on a regular basis.
And they’re getting into stuff and they will find things that are wrong and you don’t want them to find things as a CFO. You don’t want them to find things that are wrong. Too often they will do, but not too often.
Randy Wootton
00:38:58.990 – 00:41:13.046
Yeah, because there’s Excel jocks, right? Like their whole agreement and those early stage analysts is to run models and do the due diligence and find what’s not working and sniffing out.
Cause then they look like the hero. Right? So I think you’re absolutely spot on.
When we talked earlier, we talked about when CEO’s flame out, a PE firms sort of the top two reasons you just called it out, one is not knowing the cash. And the other one, which you are alluding to is this.
They haven’t figured out what it takes to be successful and don’t bang on the table to get what they need.
I think often CFO’s feel like, gosh, you know, I’m telling everyone else not to invest in software, and I’m telling everyone else to reduce the amount of headcount. But I think seasoned CFO’s need to know for this size company, this complexity, what is the resourcing I need? The system, the process, the programs, the tech and the people. It’s still a work issue. And if you don’t set yourself up for success like that can be a death knell.
You know, one thing about Maxio we talk about is my CFO today is a seasoned CFO who’s worked at multiple companies, also has been at PE firm, Post, Vista, and Marlon, so has a broad perspective.
And he would say at a size, a company our size, with the complexity of number of customers, number of bills that go out, he would need a team of twelve, and we’re operating with six. And that’s the advantage of Maxio being able to help support the collections, payments, all the AR, et cetera, in the reporting.
Now, should we have seven, maybe. And so he and I have been having conversations like, yeah, we probably do need to invest in FP, the one we’ve been talking about.
But I do think CFO’s need to really be deliberate and intentional about what do they need at this stage where we are and what’s going to get them to the next 20 million or the next 30 million, and have that be part of the long range plan that you put together. Well, great. Well, Dave, this has been awesome. So just like to close out with our speed round.
Speed round includes three things, favorite metric and why. Your favorite book. You got lots on your bookcase back there. I’ll be interested to see which one. I love traction, the other one’s execution.
Oh yeah, I got great ones. But what’s your favorite book and why? And then your favorite influencer.
So, someone who you like to read, who you think is actually generating new content versus just cycling on the content that’s going around the echo chamber.
Dave Woolliscroft
00:41:13.238 – 00:41:56.040
Sure, good questions, but I’ve got a kind of a fudge answer for the favorite metric, because really it’s like whatever is the relevant leading metric for that business.
So the lagging ones are great, but really it’s about usually something go to market usually, quite often, it’s like what’s actually happening with Pipeline week over week or sales activity. But that’s the stuff that I think really helps. Just build a good, healthy rhythm and cadence within a business.
And predictability as a CFO, I think just helps you sleep better at night. So whatever’s going to give you the most predictability from the go to market motion is kind of like my favorite.
Randy Wootton
00:41:56.120 – 00:42:20.220
That’s great. That is. I really like that answer.
A lot of people say ARR or gross retention or net retention, but I think your point in terms of you’re trying to build a growth business because that’s what’s going to drive the valuation. What’s the indicator that all the effort and energy you’re putting forward is impacting the leading indicator.
I love week over week pipeline as one of those. Yeah, but, yeah, great. Okay, so favorite book.
Dave Woolliscroft
00:42:20.520 – 00:42:35.018
So yes, I do have a bunch of books on my shelf. I do love The Advantage by Patrick Lencioni, but I should take this opportunity to plug my book. So actually, in my spare time I write fantasy novels.
So check out my book, King’s Hold.
Randy Wootton
00:42:35.194 – 00:42:36.442
King’s Hole.
Dave Woolliscroft
00:42:36.586 – 00:42:38.626
King’s Hold. With a d at the end.
Randy Wootton
00:42:38.698 – 00:42:47.450
Hold. Oh, okay. Right on. I’m a huge fantasy science fiction fan, so, yes, I will. Is this been? Did you self publish it? Did you get a publisher?
Like, what’s the.
Dave Woolliscroft
00:42:47.570 – 00:42:56.334
I did find it on Amazon. I self published, yes, it’s available on Amazon. So I’ve got four novels that I’ve written kind of over the past six years.
Randy Wootton
00:42:56.422 – 00:43:03.130
Oh, have you really had no idea? That’s wonderful. Congratulations. I started four books, never finished any of them.
Dave Woolliscroft
00:43:03.710 – 00:43:06.526
Oh, well, we can chat about that separately if you like.
Randy Wootton
00:43:06.598 – 00:43:25.360
We chat about that at some point. I got this one that I’m putting together and I can’t get the darn thing across the finish line. So I will follow up with you on that.
Okay, so King’s Hold by a great author’s name, Dave Woolliscroft. So it must be good. Okay, favorite influencer, who do you follow and who do you like?
Dave Woolliscroft
00:43:25.480 – 00:44:20.040
So on LinkedIn, I really like from the Topline podcast, Sam Jacobs, AJ Bruno and Asad Zaman, I think. But Sam, I think is great. And I just also, it’s funny, more of a finance operational guy.
I kind of feel like I’m doing a little bit of inside baseball from the go to market side, and I both learn a lot, but I love the fact how they’ve become so focused on profitable, efficient growth over the past year.
And so I think there’s just great wisdom for a lot of founders out there, whether you are financially sponsored backed or not, but being able to make sure that you’re getting the right efficiency from your dollars and how do you build a business going to be, you know, long term, long term, accretive and sustainable for you? It’s good. So I would definitely recommend Topline and fan top.
Randy Wootton
00:44:20.120 – 00:44:21.980
It’s called the Topline podcast.
Dave Woolliscroft
00:44:22.320 – 00:44:24.368
Topline podcast. Yeah. Yeah.
Randy Wootton
00:44:24.544 – 00:44:40.880
Okay, well, we’ll put that in the shower notes, and then if people want to get in touch with you, Dave, either looking for some advice, because that’s what you do these days at exit point partners or want to catch up on fantasy novels, is the best way to track you down on LinkedIn? Or do you have other, your own website, or what’s the best way for people to get in touch with you?
Dave Woolliscroft
00:44:41.040 – 00:44:53.464
LinkedIn is good. I do have a website, and there’s a form on there, too. Let’s realize now that I have a very long name and also a very long name for the company, too.
So I didn’t really help anybody out there. But yes, you can find me in both places.
Randy Wootton
00:44:53.592 – 00:44:58.024
Awesome. Well, thank you again for your time, Dave. I really enjoyed the conversation. I look forward to reading your book.
Dave Woolliscroft
00:44:58.112 – 00:45:00.620
Thanks, Randy. I enjoyed it, too.
Building Trust in Product Leadership with The Product Coach Tami Reiss
October 16, 2024
Episode details
This week on the Expert Voices podcast, Randy Wootton, CEO of Maxio, speaks with Tami Reiss, Founder and CEO of The Product Leader Coach. Tami shares how understanding customer needs and creating a compelling vision that aligns with the company’s goals, leads to successful product management. Randy and Tami talk about the value of coaching for product leaders and the necessity of collaboration across departments to drive growth and innovation. Her upcoming children’s book, ‘What Do Product Managers Do?’, showcases her passion for demystifying the role of product managers, particularly for aspiring young professionals.
Video transcript
Randy Wootton
00:00:04.880 – 00:00:50.532
Hello, everybody.
This is Randy Wootton, CEO of Maxio and your host of SaaS Expert Voices, where we bring the experts to you to talk about what’s going on in SAS or how you could be more successful in SaaS. With me, I’m delighted to have Tami Reiss, who’s a longtime product expert, but she’s also been CEO and president.
She has 20 years of experience helping startups, established enterprise companies, and community organizations define their product strategy and set up product organizations for scale. Just that. We’re going to dig in on that.
Most recently, over the last four years, she’s been the founder of the product leader Coach, where she focuses on coaching product leaders speaking around the world about management and strategy. And she has a book in the work for children called what do product managers do? Welcome, Tami.
Tami Reiss
00:00:50.716 – 00:00:52.140
Thank you so much for having me, Randy.
Randy Wootton
00:00:52.180 – 00:01:02.390
It is absolutely my pleasure. And let’s take that last part. What do product managers do? What inspired you to write that book and who’s it targeted to and how’s it going to help?
Tami Reiss
00:01:02.930 – 00:01:13.554
All right, so we’ll go with the target and then go with inspiration. So what do product managers do? Is a children’s book, meaning that there’s children’s illustrations and the entire thing rhymes.
Randy Wootton
00:01:13.722 – 00:01:15.170
Wow, that’s ambitious.
Tami Reiss
00:01:15.330 – 00:01:25.310
The entire thing rhymes. And the subtitle is a primer for aspiring PM’s of all ages and parents who aren’t sure it’s a real job.
Randy Wootton
00:01:25.470 – 00:01:44.502
That is hilarious. I remember coming out of business school, this was 2000 and I was coming out of the military. I didn’t have any skills.
You know, I know just a little bit about finance, a little bit of accounting. The first job I landed was product management. And we didn’t have any courses about product management in business school.
I was like, I had no idea what to do yet.
Tami Reiss
00:01:44.526 – 00:01:45.342
You got hired, right?
Randy Wootton
00:01:45.366 – 00:02:12.360
And I got hired. I think it’s one of those.
You got hired because he seems like a smart guy and he’s a, you know, clearly can get stuff done, so let’s just drop them in. And at the point we didn’t have a product management discipline at the company I joined. It was one of these new startups.
So I found this thing called pragmatic marketing, which it sounds like you had gone to as well. I went in 2000. 2001. But you want to talk a little bit about your own journey to product management and why ultimately that led to writing this book.
Tami Reiss
00:02:12.820 – 00:03:21.862
Sure. So my first job out of grad school, out of business school was actually a fundraiser. I was a fundraiser event planner. It turned out.
I was the fundraiser event planner who cared about which zip codes worked best and was a b testing call scripts. But I didn’t know those words. That was just my natural inclination. And I went to the UCLA career center, of all places, because I’m a Bruin.
And they had a website and they were helping me find a new role. And Farmers Insurance had an associate product manager role on, and it was math and it was creativity and it was marketing.
And I said, okay, sure, I can do this. And I got the job, and I was paid less than men, but we fixed that. Legitimate story. Wow.
But one of the things that happened there was the product development team, which is what we now call product management.
Saw what I was doing and they said, Tami, you’re a little too creative to just be product management, which was pretty much filing things for states. We’d like you to be part of the product development team creating the new offerings.
Randy Wootton
00:03:21.926 – 00:03:22.790
We have got it.
Tami Reiss
00:03:22.870 – 00:03:42.134
And so I joined the product development team, and it’s been off to the races since then. But I also went to pragmatic marketing.
They sent me to pragmatic marketing, and I learned about basic product management, which we call product development. And I got to stay for the extra day back in 2008 on Agile.
Randy Wootton
00:03:42.262 – 00:03:45.702
Oh, got it. You got the extra special package.
Tami Reiss
00:03:45.886 – 00:04:06.952
And I was like, this is amazing. This is such a great idea. Why not do quick estimates of things and break things into small pieces? This is incredible.
Not sure why this isn’t the way we’re doing it. And I brought back t shirt sizing to find farmers insurance, and that was not something that they were ready to adopt.
Randy Wootton
00:04:07.016 – 00:04:08.656
Oh, and why was that?
Tami Reiss
00:04:08.808 – 00:04:14.264
Well, we had engineers that were offshore in India working in cobalt and mainframes.
Randy Wootton
00:04:14.312 – 00:04:15.840
And this was 2008.
Tami Reiss
00:04:15.960 – 00:04:21.792
Farmers Insurance was the first company west of the Mississippi to get a mainframe computer.
Randy Wootton
00:04:21.936 – 00:04:22.780
Okay.
Tami Reiss
00:04:23.200 – 00:04:36.026
And like many other companies in the financial services, mainframe was just something they couldn’t get rid of. I’m pretty sure JPMC is still using their mainframe as well, because you don’t delete mainframe, you only add on top.
Randy Wootton
00:04:36.098 – 00:05:19.742
Right, right. Talk about the quintessential monolith. Right. It just goes on and on and on, but. Got it. So they were more waterfall, not agile.
Couldn’t embrace this new methodology, but that launched your career.
Similarly, when I went to pragmatic marketing, I just remember it being this awesome experience, and they had this firm framework, the schematic they shared, and all the different, all the different activities throughout the process.
The other thing that was super valuable for me was the distinction they made between what they would call product or marketing activities versus product management activities and project management activities. And it was like a checklist. As I was working to launch a product, I had all these different things in the sequence that they needed to have.
I’ve used it ever since and it’s been 24 years. I continue to recommend it to people.
Tami Reiss
00:05:19.906 – 00:05:27.038
Honestly, like, they get a bad rap, but because they’re like old school. Right. They’re like the pre Silicon Valley.
Randy Wootton
00:05:27.134 – 00:05:28.086
Right, right.
Tami Reiss
00:05:28.238 – 00:06:05.948
But in reality, the stuff they’re teaching is so core and probably would have been solved.
A lot of the problems that are currently going on with product management where people were so focused on the internal and working with engineers as opposed to working with customers, working on go to market activities, making sure things were meshed. So seeing that Venn diagram, because, I mean, you and I are SaaS people.
Like if you’re a B, two B SaaS product manager and you’re not talking to your sales people, stop what you’re doing right now and go find one. Right?
Like talk to your salespeople, talk to your customer service people and start getting to know what’s going on, because living in a bubble is not helpful.
Randy Wootton
00:06:06.044 – 00:06:09.132
Well, that’s great context. So when does your book come out?
Tami Reiss
00:06:09.316 – 00:07:06.910
So I just launched the MVP.
Actually, I was speaking at the product collective industry conference last week and they have been such a supportive group for me that I created a video of me reading the like Google Slideshow version with the cool illustrations for their community to listen to and give feedback on. But I’m hoping by the end of the year to create an official YouTube video of that. And if there is enough demand, we will put it into print.
But it’s possible it might just end there.
And that’s okay with me because if it gets lots and lots of views on YouTube and it helps parents explain their jobs to their kids because that was the inspiration. I had a daughter and I had no resources to explain what mommy does. And I mean, we’ve gotten great feedback so far from kids, from parents.
Like, the most common thing to be said is, oh my God, this is awesome.
Randy Wootton
00:07:06.990 – 00:07:54.982
That’s great. Well, yeah, please do share with me the link. When it becomes available, I want to share it with my kids and say, hey, this is what I used to do.
And also it’s a viable career option. I think it’s this really interesting career. It’s where I started my career. And then that you get to balance to your point.
You get a little bit of the finance, the modeling, you get the marketing, the creativity, you get the defining process and operations. You get to work with engineering. That’s why I describe myself as being technical but not an engineer.
Translating business requirements, launching things. And I also think it’s a great. As we’ll go to, one of the topics we’ll deep dive in is preparation to be a general manager and then become a CEO.
If you’re running it like a little business. And how are you investing resources? What are the returns? And how do you create features tied to NPV?
Like, there’s all of these things that you learn in business school come together.
Tami Reiss
00:07:55.046 – 00:08:40.184
As a product manager, I incredibly agree with you. I didn’t realize that until I became a CEO. I was brought in to be a CEO of a small consultancy. And originally I said, no, no, I’m a product person.
I want to be CPO. And then within around six weeks, I was like, oh, this is what a CEO does.
Yeah, no, I’m ready for this because I think holistically, I think systemically, and I am okay with iteration. Right.
Like, to be a CEO means you’re going to make decisions with incomplete data, and you have to be confident enough in that to let other people follow you and empower them to do things. The same way product managers empower engineers to do things and then monitor it to make sure it works.
Randy Wootton
00:08:40.232 – 00:08:58.242
That’s right. Absolutely. I think that’s probably one of the key insights of being a CEO, is you’re never going to have all the data that you want.
You’re always going to have too much data. So at the end of the day, you got to make some assumptions, and you’re getting paid to make the decision.
Now, you take input from lots of different people, but if it doesn’t work, they’re all going to point at you and say you screwed it up. So.
Tami Reiss
00:08:58.426 – 00:09:00.150
Sounds like a product manager, though.
Randy Wootton
00:09:00.450 – 00:10:57.660
That’s what I’m saying. That’s a total parallel. Well, great. Okay, well, today’s conversation, we talked about what we can do in the next 30 minutes or so. Three parts.
One was establishing a winning strategy. Number two is why you need a coach as a product leader.
And then we’ll close off the speed round, which is your favorite book, your favorite I metric in your favorite influencers. So with that, when you and I were doing our pre reef, I was introducing you to what then was the seven secrets of success.
I’ve now expanded it to eight secrets of success. Whoa. I know it took a lot of arm wringing on that because I like the alliteration of seven secrets of success.
But I have another story for another time. But within that there’s seven things. One of them is establishing a winning strategy.
This is number two in my book, because number one is you’re ultimately responsible for the results, because if your company is not thriving, you’re falling short and you’re going to get replaced. And the overall resource is around delivering shareholder value in line with their expectations.
And I’m talking about companies that are VC or PE backed, where you’re playing with other people’s money. You’ve come in like what?
My sort of charter these days is coming in as a professional CEO to help move things forward or with Maxio, accelerate the integration. So you got to deliver the results. As part of that, though, you got to establish a winning strategy.
And one of the things I think about is if you’re a new CEO, you come in, one of the things you’re trying to figure out was what was the old strategy? Were there problems with that strategy? Was it not addressing the right challenges?
Was it not set up to articulate where you can win and how you’re going to win? My favorite book is playing to win, which outlines a whole strategic construct.
But it sounds like you, and you’re coaching today at the product leader coach, where you coach both product leaders and CEO’s and other executives. You spend a lot of time looking at this idea of strategy. So sometimes it can feel overwhelming talking about strategy.
But can you talk us through your overarching approach to establishing strategy, the future you want to create your kingdom, and then we’ll just pull it apart a little bit?
Tami Reiss
00:10:57.780 – 00:12:11.428
Sure. So overarching.
My philosophy centers on everything as a product, even you, which means that no matter what it is you’re working on, there are customers that, or that whatever you’re working on fills a job for, and you should be trying to solve their problems. And as you’re going through that process, you should get feedback so you can iterate.
And so that applies to your board deck, that applies to your organizational chart, that applies to you. If you’re applying for a job, that applies to the product you’re putting out into the world, new features for adoption, etcetera.
And so I believe that’s the core of the product mindset and that it can be applied to anything we’re doing. And so the last part of that product mindset is making sure you have a vision of where you want to go.
So once you’ve understood your customers problems and the way you think you’re solving them, you have to set forth a vision, like a storytelling vision, where there’s this group of people that are currently plagued with something.
They have some sort of migraine problem, and we are going to solve that for them, and they are going to love it, and they’re going to love us for providing it to them.
Randy Wootton
00:12:11.524 – 00:12:11.900
Right.
Tami Reiss
00:12:11.980 – 00:12:13.700
And their lives are going to get better.
Randy Wootton
00:12:13.780 – 00:12:28.172
Got it. It’s the before and the after. It’s like this is the problem that is existent in the marketplace, persistent and pervasive. Lots of people have it.
That helps define your. Both your TAM and your SAM. Right. There’s a market opportunity, and it’s a big problem. It’s a big problem, right.
Tami Reiss
00:12:28.196 – 00:12:39.844
Like, it’s something they understand as a problem. They’ve been looking for a solution.
Even if they’re currently using Excel or a piece of paper as their solution, they at some point hit something that says, I need something better.
Randy Wootton
00:12:39.932 – 00:13:05.438
Right. And you’re offering them. You’re painting the picture of the promised land, and that’s why people always use in the market materials.
Here’s why winners choose us, and here’s the things you get and the value prop. And then the next step is helping them understand why you’re the provider that they should choose at that point. Great.
So that’s the creating the vision of the future. You want to create it. Also, as we were chatting earlier, it helps your own company employees better understand.
Tami Reiss
00:13:05.574 – 00:14:05.724
It helps with everything. When you have a company, you have a really strong company vision.
It helps everybody make decisions on their level because especially if the middle management is doing their job, which means connecting the dots from the larger company vision to the activities being done by an individual team, then it doesn’t make a difference.
If you’re a CS person who’s answering tickets, SDR, who’s doing outbound calls, or you are an engineer who’s building infrastructure, you understand the purpose of your job is to do something which supports something else, which supports the larger vision becoming a reality. And that sense of connection helps people make decisions on their level because they say to themselves, okay, is this going to help this or not?
Is this going to be valuable or not? Is this going to be impactful or not? And most importantly, is this the most valuable? Is this the most impactful thing I can be doing at any time?
Randy Wootton
00:14:05.852 – 00:15:20.336
I think you nailed it on a couple of fronts, just kind of repeating what you’re saying is this whole idea of building community and culture is about building connections.
There’s a great guy that I interviewed a couple of weeks ago that has written a book on this, but it’s connections to the purpose, connections to the leadership and connection to the peers. And lots of people talk about engagement, employee engagement.
But I do think, to your point, the vision can sometimes feel Dilbert yes, it shouldn’t be. Yeah. So you just want to make sure there’s alignment. How do you create alignment?
How do you put an operating system in that, a company operating system that helps everybody understand what they’re trying to achieve and they can show the impact they’re making. And to your last point, informed trade offs, because I don’t know what the right trade off is.
I described truth is on the front lines and you need people to tee it up and say, hey, I could either do a or b. Here are the trade offs. Here’s what I would do.
You say, well, that makes a lot of sense, or here are three other things to think about as you’re evaluating those trade offs. But we can’t do it both.
And I think that is often the challenge with younger people, is they feel like they’re overwhelmed, but they don’t have clarity around how to make the decisions of trade offs and be okay with escalating it and say, look, you just told me to do that. That’s different than what you told me to do yesterday. Which one do you want me to do? Help me understand why this is the.
Tami Reiss
00:15:20.368 – 00:15:30.840
Right new direction and it’s management’s responsibility to explain why it’s the right new direction or to say, actually, no, what I said, the first day is still the priority. Second day is what you should do next.
Randy Wootton
00:15:30.880 – 00:15:31.264
That’s right.
Tami Reiss
00:15:31.312 – 00:16:27.588
That’s why they were in that order. But I think that something like there’s this whole discussion of founder mode, manager mode, whatever.
The essence of management is not answering that question for your employee. When they say, which should I do or which of these two things should I do? Me and this other person are disagreeing.
You don’t answer it because that’s micromanagement. They will only come to you with every question.
Instead, you give them the frame of how you would make the decision and you say, well, it’s really important that we’re having impact on this particular thing which is related to our vision. Which of these two things, if you were to have a conversation between the two of you, will elevate us towards that vision?
Which of these two is going to be most factful? Which of these two is going to be most valuable and decided for yourselves?
You don’t need me, but you might need me to remind you how do you frame the trade offs?
Randy Wootton
00:16:27.644 – 00:17:30.809
Yeah, I think that’s a great reminder. Two things pop for me. One is I do think what happens is we’ll get to this in a second. When you describe is define your kingdom.
And so how to narrow this down where you can have a set of objectives that are meaningful to either a function or an individual. And companies use all different types of programs, KPI’s, MBOs, John Doar’s okrs. I don’t care. I use okrs.
And I do think that then if you give them the objective, you leave it up to them to come up with a plan to achieve that objective. Having said that, I do think a manager’s responsibility is to be a thought partner and to help people think about what are their current assumptions?
Like, why are these the options they’re evaluating? Are there three other things that they could be thinking about, not ultimately make the decision?
Or, I mean, sometimes you have to make the decision because they’re making the wrong decision, but if they’re going to make the wrong decision, is this one of these things you can let them go do and have it be hard and then debrief it? And if you create a feedback loop on how that’s going, would you change courses?
I think to your point, you’re helping them develop their skills and capabilities.
Tami Reiss
00:17:31.589 – 00:17:43.141
Yeah.
And what I would add is that in the OKR model, which totally supportive of John Doerr recently actually gave a TED talk about this, that the objective is actually supposed to be inspiration.
Randy Wootton
00:17:43.205 – 00:17:43.809
Right.
Tami Reiss
00:17:44.549 – 00:17:46.877
And too often it’s like, increase revenue.
Randy Wootton
00:17:46.933 – 00:17:48.049
Right? Yeah.
Tami Reiss
00:17:48.349 – 00:18:19.582
And when it’s inspirational, when you do describe it as a vision, when you tell it as a story, it’s easier for people to understand what will be better. Right. When you’re trying to increase revenue, which isn’t gonna have higher impact on increased revenue, that’s more nebulous. Right.
But like, which of these is going to increase our customers satisfaction around using our tool, which will make them like us more and use us more because we are solving more problems, it’s a lot easier.
Randy Wootton
00:18:19.686 – 00:18:48.920
Yeah, you’re right. I remember John Doar talking about that. And we’re probably using a bastardized version of objectives, as is everybody else.
I need to go back and look at that again. Well, great. Well, let’s go back to the strategy.
I think one of the key things in the playing to win construct is you start off with this idea of what’s your aspiration? And then where are you going to play?
And so I think defining your kingdom the way you describe it is one way of thinking about where you’re going to play. Can you talk through some of the considerations and vectors that you help people explore?
Tami Reiss
00:18:49.040 – 00:19:03.464
I like to generally work with companies that already have product market fit, but I coach a lot of clients who aren’t necessarily there. And so first of all, you have to recognize through a variety of metrics whether or not you’re there right now.
Randy Wootton
00:19:03.512 – 00:19:23.628
So tell me that, because I do think that’s one of those concepts. Do you have product market fit? That there would be a lot of debate.
There’s a great guy out there, Bruce Cleland, who wrote a book, crossing the not crossing the casino. Oh, shoot. It’ll come to me. But he talks about having category alignment before you have product alignment. But go ahead.
How do you define product alignment?
Tami Reiss
00:19:23.724 – 00:19:27.852
I would agree with that. Category alignment. For product alignment, there’s lots of alignment. You have.
Randy Wootton
00:19:27.876 – 00:19:30.440
Okay, lots of alignment, but, okay, lots of alignment.
Tami Reiss
00:19:30.860 – 00:20:23.004
Finding product market fit is not a one day task. Ostensibly.
Like if we talk about a vision of what product market fit means, it means that there are a group of people, aka the market, that have similar problems, and those problems are insufficiently solved at the moment. And you are offering them something that they are excited to give you money for because of how you solve their problems.
And there are enough of them that have already chosen to give you money. They have lasted a cycle or two. They continue to give you money.
And a number of them are so excited about the value you provide, they’re willing to tell other people about it. And that is the plain english definition of six referenceable customers.
Randy Wootton
00:20:23.172 – 00:20:53.890
That’s perfect, because I do think a lot of people lose focus on the fact that initial sale does not mean product market. Fitzhen. They need to go through a cycle, go through a renewal cycle, and hopefully see some upsell.
And it’s got to be more than your mother and your best friends are buying it. Like there is a set of folks.
And that you have spent the time to understand what is the commonality in either their industry, their size, the problem. So now you start to really codify that what I loved in our pre brief is you said, who do you want to get a thank you note from?
Tami Reiss
00:20:54.270 – 00:20:54.654
Yeah.
Randy Wootton
00:20:54.702 – 00:21:24.000
And what would they say?
And to your last point, who are your raving fans that give you a sense of, now you’ve nailed the product a problem in a way with your product, that they’re delighted to pay you what they pay you. I mean, you got to be charging for it too. It can’t just be free. They’re investing time, money and those early adopters, enthusiasts. Yeah.
Social capital. And I thought that was a brilliant idea. What are they saying thank you for? Because that’s the pain that they’re really.
Tami Reiss
00:21:24.580 – 00:21:39.400
Who write you a thank you note that you would actually potentially like either post in your slack channel or your teams channel or post like put on a wall or that you would forward out to the whole company and say, look, we’re getting there, we’re doing the thing.
Randy Wootton
00:21:39.520 – 00:21:59.690
So with that, you talked about one of your things in defining your kingdom. We’ll come back to is this idea of a North Star metric.
So what is that how this dynamic we’re talking about, you got a set of customers, six referenceable customers. How do you take that to then create a North Star metric? Or I do.
You wait for a while until you have 100 customers, till you get the North Star metric. How do you think about landing that?
Tami Reiss
00:22:00.190 – 00:23:03.034
I think North Star metric to me is about some sort of usage that’s attached to this problem you’re solving. Right? So if you are, let’s be docusign, right. It’s number of contracts per person that are like being signed or total number of contracts.
I’d probably do total number of contracts. Cause for Northstar metrics, I don’t really like ratios. Ratios are perfect for actionable metrics.
But the North Star metric to me is something that should be constantly increasing with every customer. It should increase, thus getting bigger. Customers should increase it more. When a customer stays with you longer, it again should increase.
And it should be something tangible that the teams all understand. This is something of value to our customers. So that could be contract signed. I have a client who works in the construction business.
So it’s like number of plans that have been created, right? Number of projects that have been created.
Randy Wootton
00:23:03.082 – 00:23:07.910
And it’s something other than revenue. It’s tied to something other than some way that they’re interacting with your product.
Tami Reiss
00:23:08.450 – 00:23:10.090
It’s generally correlative, right?
Randy Wootton
00:23:10.130 – 00:23:10.714
Oh, quarterly.
Tami Reiss
00:23:10.762 – 00:23:12.826
Because it’s correlative.
Randy Wootton
00:23:12.978 – 00:23:14.930
It correlates. Got it correlates.
Tami Reiss
00:23:14.970 – 00:23:22.960
Right. In that. Like if we are delivering this and this is going up, it should translate into more business value too.
Randy Wootton
00:23:23.260 – 00:24:41.978
You know, it’s funny you bring this up, Tami, because one of the debates, well, from Maxio, selfish advertising for Maxio, right. We do billing invoicing for B, two B SaaS companies.
What we find is they often have one of two go to market models, a PLG product led growth model or an SLG sales led growth model. They have one of two pricing models, either fixed rate or usage based, and many companies will have hybridization.
And it’s been interesting to see the debate. Mark Benioff, for example, came out. I think it was him just recently who said, look, the old user seat model for charging is going away.
Everything is moving to usage. And so I think what you’re alluding to is if you get the northstar metric right, that’s also a way you could charge for it.
So there’d be direct correlation. If you can create value associated with the usage in the customer’s mind, it may be a ties back. And what are they saying? Thank you for us.
Hey, billing and invoicing work, they didn’t have any issues. So it’s number of issues, number of invoices delivered without an issue or something along those lines changes. Okay, well, great.
So Tami, we were talking about the doorstar metric and usage and how to think about driving value.
And one of the things this informs is you talk about under your kingdom is your product strategy and this idea of how do you think about new ideas for products you had framed these two vectors to consider. Can you tell us a little bit more about that?
Tami Reiss
00:24:42.074 – 00:25:13.912
Yeah. So first of all, the promise of SaaS is that your product is always going to get better, right? Right. It’s why someone’s paying for a subscription.
So you always have to keep that in mind. So there has to be something you’re doing to enhance your product for your current market.
Your current users are paying you on a monthly or annual basis, because theoretically you’re going to serve them more, solve more of their problems.
And so if we have our current market and our current customer base, and that’s our kingdom, we might have a defensible mode around it, all that fun stuff.
Randy Wootton
00:25:13.976 – 00:25:14.820
Big wall.
Tami Reiss
00:25:15.660 – 00:27:08.228
We have an option of going in two directions, direction. One is towards cross sell.
We know our market very, very well and we want to offer them new things, whether that’s new features that might be an upsell or full cross sell, that it’s an entirely new product. But hey, we understand you. We understand your problems. And currently we handle a, B and c, but now we’re going to handle d, e and f.
And we would love for you to take our FP&A software and also use it for product market fit, cash flow modeling or whatever. I don’t know. But something, right, you’re expanding what you can do. And so that is same market, new product or new features.
The alternative is same product, new market. So you’re not really changing your product very much, but you might be changing your sales motion going up market.
You’re gonna have an enterprise sales team going down market. You might start PLG motions going geographic expansion or otherwise, but you’re not changing your product very much.
You’re just saying, hey, there are other companies or other whole teams within a company that could use our product that we didn’t think about before because they were in our ICP and it turns out they could use us. And this is what Zendesk is doing right now. So they said, hey, we are like a premier customer service platform.
But it turns out what that really means is that we help people send templated emails and help people manage that and share who’s going to respond and all of these sorts of things. And the other group of people who also needs this is sales teams.
And so now they have Zendesk for sales and it’s a lot of the same backbone thing, but they’ve adapted a little bit, but not very much. But it’s a brand new market for them. The entire sales team budget is all of a sudden available to them. Huge new TAM, right?
Randy Wootton
00:27:08.284 – 00:28:04.568
Yeah, that’s interesting.
I think I was working as strategy guy, strategy officer at seismic after I sold percolate to them and we engaged Bain to help us frame our broader m and a strategy, and then specifically due diligence and they created this great template for us to use.
And on one dimension was user buyer similarity, on the other dimension was software similarity and that included both workflow flow and integrations in the ecosystem. So very similar to you. And we use that to inform if we were to look at the next adjacency that we would go after, was it to stay within our core?
In this case it was sales enablement or would we extend for Maxio, are we selling to primarily the controller or how would we extend to FP and a, what would that look like?
So I think that model that you’re talking about and being deliberate and in our pre brief you had talked about and be intentional, should only go once, one direction at a time, especially when you’re small, super hard, one direction at.
Tami Reiss
00:28:04.584 – 00:28:11.776
A time for sure. And also there’s this third option called new market, new product. I call that the red zone.
Randy Wootton
00:28:11.848 – 00:28:12.248
Okay.
Tami Reiss
00:28:12.304 – 00:28:21.120
Stay away from the red zone. If you are not knowledgeable about the product and you are not knowledgeable about the market, that is like a brand new company.
Randy Wootton
00:28:21.200 – 00:28:44.080
Yeah, that’s right. So let’s use that as a way to segue to the second part of the conversation of why you need a coach. You’ve been doing coaching for a while.
You’ve been in it very deliberately for the past four years. How do you convince someone like me, a CEO, that either I need you as a coach or I need to hire you to coach my product leader? What’s the pitch?
What do you find when you’re working with people that are the things you help with them the most?
Tami Reiss
00:28:44.820 – 00:29:14.780
So I have unique background in that. I was working with an insight partners and their portfolio of companies. At the time, I think there were 175. Now there are over 500 companies.
And so I have a unique perspective on seeing hundreds of companies, whether it was at insight or at pivotal labs or when I was a consultant. And so my coaching comes from lots and lots of data points and my trend recognition software, also known as my brain.
Randy Wootton
00:29:15.920 – 00:29:18.496
Your pattern matching. Yeah, totally pattern matching.
Tami Reiss
00:29:18.528 – 00:29:23.584
Right. The reason why you hire a coach is to see things and surface things you don’t see.
Randy Wootton
00:29:23.672 – 00:29:38.706
What do you find product leaders broadly, are not seeing?
Do you have patterns there that you, when you walk in and you help them do the assessment of the organization and the processes and the systems, the talent in general, what are product leaders missing that you’re able to help them?
Tami Reiss
00:29:38.898 – 00:29:56.130
Number one is they don’t know what their goal is. They think their goal is to get budget for something or to get headcount for something, etcetera. That is not their goal.
Your goal is always, in every interaction, to be building trust and confidence.
Randy Wootton
00:29:56.430 – 00:29:57.150
Okay.
Tami Reiss
00:29:57.270 – 00:29:59.050
And so that’s a big.
Randy Wootton
00:29:59.630 – 00:30:02.430
Sorry. Is that with customers, with the negatives.
Tami Reiss
00:30:02.470 – 00:30:17.164
With co workers, with the CEO, like, every interaction you have with your coworkers, with, like the CRO, is making sure they trust you as the person who leads one of the biggest resource teams.
Randy Wootton
00:30:17.262 – 00:30:17.744
Interesting.
Tami Reiss
00:30:17.792 – 00:30:18.024
Right.
Randy Wootton
00:30:18.072 – 00:30:20.216
Okay. All right. That’s number one. What’s number two?
Tami Reiss
00:30:20.328 – 00:30:23.688
Number two is that they don’t understand how political things are.
Randy Wootton
00:30:23.784 – 00:30:30.016
Does that depend on the size of the company, the culture of the company, or is that broadly across all companies you deal with?
Tami Reiss
00:30:30.208 – 00:31:08.748
I think broadly across all companies, there is some level of politicalness, right. Where someone is trying to get more budget for their own stuff. Right. And they are taking steps that will allow for them to do that.
And you have to do whatever feels authentic to you, but be aware of what might be happening around you. I work with a lot of product manager.
Sorry, product leaders who, they’re first time product leaders, and they don’t understand the relationship they need to build with the CRO who might be saying, oh, products not doing things. Right. And that’s why I can’t sell how.
Randy Wootton
00:31:08.764 – 00:31:35.548
Does that translate into the politics if sales is saying, hey, I mean, it’s classic, right? Sales and marketing do this. Sales, marketing and product do this.
But what help me understand is that because the salesperson is saying, okay, I need to spend more money on salespeople because the product team’s not working, or like, don’t give the product people more resources. Or is it the flip side, which is, hey, product’s not delivering.
So we actually need to invest more in product and engineering to get more capabilities.
Tami Reiss
00:31:35.604 – 00:31:49.712
I wish that was the case. The case you didn’t mention is sales says products doing all this discovery work and we know exactly what they need.
We know exactly what the customers need. Why don’t you just let us tell product what to do?
Randy Wootton
00:31:49.816 – 00:31:54.704
Okay. So it’s the prioritization, the roadmap conversation that sales is like, if they only.
Tami Reiss
00:31:54.752 – 00:31:56.360
Built this, we told them.
Randy Wootton
00:31:56.440 – 00:33:06.962
Right. Got it. Okay. I’ve never been part of that.
And I do think, I think that is one of those great points you’re making in terms of coaching product leaders. How do they set up their listening posts with sales and with cs?
And how do they become transparent in the way they set up prioritization and try to tag both dollars and logos to different capabilities and then force rank it with the entire team?
Because in as well as thinking about not just the horizon one capabilities you need to bring, but also the horizon two and Horizon three capabilities you need to be building.
And that’s the unique perspective that the product managers, they’re doing their jobs like we were talking about earlier, and they’re out talking to customers, they’re understanding what’s happening in the landscape because they go to conferences, they talk to analysts, they’re able to say, oh, these are the broader trends in the market and we need to intercept these. And so how do you balance those three things?
And then I think the product leader leading that conversation at the executive team on a regular basis and with the board, like, here’s the product strategy. It’s aligned with the corporate strategy, but here’s the product strategy. And these are the bets we’re making.
These are the investments we’re investing is where you can have those conversations.
Tami Reiss
00:33:07.026 – 00:33:17.746
Yeah. And so this is actually a meta coaching. Right.
So I coach the product leader to be aware of this, but I also coach them to help their product managers do the same thing.
Randy Wootton
00:33:17.778 – 00:33:18.514
Yeah, right. Totally.
Tami Reiss
00:33:18.562 – 00:33:51.296
Because they are a reflection of the product leader.
And so the product leader has to coach their employees and say, you need to set up listening posts with the onboarding team you need to set up listening posts with the platform team or whatever else, and emphasize to them that they are also building trust and confidence in the entire product team and the product way of working, etcetera. Right. And so that’s a big thing.
There are other things, but the only thing I would really mention is that not enough product leaders understand that if m and a is happening, they want to be involved.
Randy Wootton
00:33:51.408 – 00:33:55.704
Hmm. Okay. Be in the know. Absolutely.
Tami Reiss
00:33:55.752 – 00:34:11.112
Be in the know. Whenever it starts happening at your company, just be a fly on the wall. It is a unique opportunity, but it happens so often.
And the more you know about m and A and inorganic growth, the more valuable you are to other companies.
Randy Wootton
00:34:11.216 – 00:34:38.862
Amen. And I think especially for PE firms, I think if you’re, if your sponsors, PE firm, they’re all about organic and inorganic growth.
Or if you’ve hit that threshold of $50 million, you. They want to see continued growth. Your core growth is going to move at whatever it’s going to move.
But then you need a layer inorganic growth to drive growth. But also, I think at that stage, you’re approaching that hundred mil and you can get bought by another PE firm or strategic.
One of the capabilities they want to see is that you can do m and a. Yep.
Tami Reiss
00:34:39.006 – 00:34:59.470
So, yeah, absolutely.
But if you’re a SaaS company, that’s at around 50 mil, and all of a sudden you’re thinking about whether or not you should uplevel your vp of product or hire in a CPO. One of the biggest reasons you’re going to choose to hire in a CPO from the outside is because the VP of product you currently have has no money.
Randy Wootton
00:34:59.550 – 00:35:01.038
Ah. So there you go.
Tami Reiss
00:35:01.054 – 00:35:11.198
And you’re about to embark on those sorts of things. And you can’t handle the potential, like, mishaps that might happen from a novice.
Randy Wootton
00:35:11.254 – 00:35:33.966
All the risks around integration, creating a plan, consolidating teams, roadmaps considerations. Absolutely. 100% agree. All right, well, let’s shift to the final topic. Tami, speed rounds. So, three, three questions.
One, what’s your favorite metric and why? Number two, favorite book, other than your book on what was it? Oh, shoot. Product manager.
Tami Reiss
00:35:33.998 – 00:35:35.478
Product manager. What do product managers do?
Randy Wootton
00:35:35.534 – 00:35:41.770
That’s right. What do product managers do? So, other than that one, and the third one is favorite influencers and why? So, favorite metric?
Tami Reiss
00:35:43.040 – 00:35:44.544
Net revenue retention. Nr.
Randy Wootton
00:35:44.632 – 00:35:48.384
And why that versus gross retention? Sometimes people will argue gross retention.
Tami Reiss
00:35:48.552 – 00:36:21.926
To me, net revenue retention says, we had 100 customers before they were giving us $10 million. And next year of that $10 million, how much of that is left, plus how much of it is expanded.
And so in A, B, two B, SaaS World, like Star, red, like gold Star, companies are at 120%. Right. And it’s your way of saying, we know how to land and expand, we know how to maintain our customers, but also have them grow.
And so that’s why I love, I.
Randy Wootton
00:36:21.958 – 00:36:31.742
Thought the other thing was that NRR is a classic product management metric because you’re able to sell in the additional products. Right. You get those upsells and so tie with that. But, okay.
Tami Reiss
00:36:31.806 – 00:36:37.286
But it also falls back into the idea that, like, your first sale with a customer is always going to be the hardest.
Randy Wootton
00:36:37.318 – 00:36:37.904
Yeah.
Tami Reiss
00:36:38.062 – 00:37:00.684
And so if we as an organization are placing the right amount of investment in account management and in CS so that people can learn about the new products and features that are available, they might increase the number of seats they’re using with us or increase their usage. Right. And so that, to me, is what it’s really showing, and it’s a very holistic vantage point that everybody can be involved in.
Randy Wootton
00:37:00.772 – 00:37:37.566
I think a lot of people don’t spend a lot of time disaggregating the metrics that lead to NRR.
For example, taking customer acquisition costs and from a blended view to new versus expansion and allocating costs for marketing and customer success.
And it does often look better and easier because you already have, you have a spa in place, you’ve gone through procurement, you’ve got a point person who’s probably a champion.
But even in these days, what I’m hearing was there is an over rotation to try to drive customer sales, but everyone was tightening their budget, so we haven’t seen as much purchase as well. But I think it’s a great metric. All right.
Tami Reiss
00:37:37.678 – 00:37:58.232
And this also is a great opportunity for PLG. A lot of people think of PLG as only self service, initial enrollment.
But in fact, PLG can also include the motion towards upsell, cross sell within the product. Right. And contributing towards NRR without having an account manager or at least teeing it up for the account manager, etcetera.
Randy Wootton
00:37:58.286 – 00:38:00.628
That’s great. All right. Favorite book.
Tami Reiss
00:38:00.804 – 00:38:09.860
I love crosses. Never split the difference, because it’s all about interpersonal communication to get what you want and not about compromise.
Randy Wootton
00:38:10.020 – 00:38:12.880
Okay. Remind me not to negotiate with you.
Tami Reiss
00:38:13.540 – 00:38:26.916
Oh, I’m not that great at the negotiation stuff. I just, I like, I wish I could negotiate like a FBI hostage negotiator, you know, and make sure I get the people home, but.
Randy Wootton
00:38:27.028 – 00:38:40.380
All right, given the time, pick one influencer. You have three that we talked about Simon Sinek, Brenny Brown, and Leah Taren.
Which of the three do you like best and want other people to follow and learn from?
Tami Reiss
00:38:40.500 – 00:39:38.720
All right, so I think enough people are following Simon Sinek and Brene Brown and know who they are. But Leah Theron is someone who’s especially for your environment, someone people should be more aware of.
She is a PLG expert in all senses of the world. This word specifically in B two B SaaS.
And if I had to summarize a lot of what she talks about, it’s that PLG works best with collaboration, that it’s product and sales working together.
It’s product and customer service and sales working together to create PLG motions that are automated, that are product assisted sales, and that especially in a B two B environment, it’s never going to be one or the other.
And that when you get back to what we were talking about to begin with, which is we’re all on the same boat trying to accomplish the same thing, you don’t get as mad about, oh, this is going to come from product or this is going to come from sales because the pie is big enough.
Randy Wootton
00:39:38.800 – 00:39:40.552
Yeah, that’s great.
Tami Reiss
00:39:40.616 – 00:39:42.832
The main thing is that the company’s growing.
Randy Wootton
00:39:42.896 – 00:40:33.686
Yeah. It’s something that we’re not doing well yet. It’s hard to move from a company that’s. Look, we have lots of flexibility.
We allow for people to bring in their established processes. What that means, though, is it requires implementation.
So I think it’s hard for people that have one of these more sophisticated tools to slim it down, to make it valuable in a PLG motion, which is usually free out of the gate or trial or freemium that then you upsell folks. So we’re exploring it. I’ve been reading and working with a guy named Dave Boyce, who was the. I think he was a founder of winning by design.
He’s writing about PLG. There’s some other folks, so I will certainly add Leah to my list to go learn more about it. So thank you.
Thank you for that recommendation, and, Tami, thank you for your time. I’ve really enjoyed the conversation. It was great to spend a little bit more time with you.
Tami Reiss
00:40:33.798 – 00:40:36.974
Yeah, my pleasure. I would actually, if we have just 30 seconds.
Randy Wootton
00:40:37.022 – 00:40:37.446
Sure.
Tami Reiss
00:40:37.558 – 00:40:40.414
I want people to know why they should hire a coach.
Randy Wootton
00:40:40.502 – 00:40:40.870
Okay.
Tami Reiss
00:40:40.910 – 00:41:25.230
So as you advance in your career, you cannot turn to your boss for advice, either because they’ve never had your job or because that will again lose trust and confidence. And it is good to have a sounding board.
So if you are at any point in your career where you’re feeling like you want to advance but you need something more than your boss. Who’s going to hold you accountable? Who’s going to see the field right and tell you how to adjust your actions to accomplish your goals.
That’s when you want to hire a coach. And that could be a sales coach, a business coach, a product leadership coach, an interview coach.
There are so many different kinds of coaches out there, but the main idea is that it’s someone on the outside who’s invested in your progress and your growth and nothing more.
Randy Wootton
00:41:25.310 – 00:42:32.180
100% agree. In fact, my, I think it’s a leadership principle. Number seven, or secret of success is investing in your tribe.
And I frame it as your mentor, a coach, an advisory group like a vistage or YPO or EO and then a personal advisory board. People you go to who know who you are and call you on your b’s.
But the distinction I draw between a mentor and a coach is a mentor for me is someone who’s been in the situation you’ve been in. They’ve led turnarounds at, you know, $20 to $100 million companies B, two b SaaS or their finance executives.
The coach for me was, I asked for one when I first started at Rocket fuel to help me learn how to manage the board. So it was more about interpersonal effectiveness and managing the stakeholders and all that.
And so I do think being deliberate about what are you investing in as a leader, CEO or product person to continuing to your point, like just have someone who’s on your side and there is no other agenda other than to make you great, make you your best self is why people should look at coaches and get companies to invest in those coaches.
Tami Reiss
00:42:32.640 – 00:42:33.808
Couldn’t agree more.
Randy Wootton
00:42:33.944 – 00:42:37.384
Awesome. Well, with that, we’ll wrap it up. Thank you so much for your time, Tami.
Tami Reiss
00:42:37.472 – 00:42:39.120
Thank you. Thank you for having me.
Creating Customer Champions: How to Cultivate Loyalty and Advocacy with Drew Neisser
October 10, 2024
Episode details
This week on the Expert Voices podcast, Randy Wootton, CEO of Maxio, speaks with Drew Neisser, Founder and CEO of Renegade Marketing. Drew shares his extensive experience and key insights into the dynamic relationship between CEOs and CMOs, especially for early-stage founders. Randy and Drew explore crucial aspects such as hiring strategies for the first CMO, balancing roles between C-suite executives, and how to set up CMOs for success in the evolving SaaS landscape. Drew illustrates how innovative marketing strategies can significantly affect business outcomes and common pitfalls that can lead to CMO failures.
Video transcript
Randy Wootton (00:04):
Well hello, everybody. This is Randy Wootton, CEO of Maxio, and your host of SaaS Expert Voices, where we’re bring the experts to you to talk about what’s going on in the world of SaaS today and what are some of those trends that we’re seeing unfolding tomorrow.
(00:16):
Today I’m delighted to actually have a special guest join us, a gentleman named Drew Neisser, who I’ve known for years. He’s a leader, a luminary in the B2B marketing space, which I’ll give a little bit of background in a second, but we’re going to have a conversation around CEOs and CMOs. So if you’re an early-stage founder thinking about hiring that first CMO, what to look for, how to think about the role, how to think about the job, and what sets those folks up for success. We’ll also talk a little bit about the CMO and the CFO. So relevant insights for how to think about working across the C-suite for those early-stage founders.
(00:51):
But Drew, I’m really excited to have you here. You have such a great background. From what I could find, you worked in the agency world for 10 years with some of the biggest brands out there, Pepsi, Sara Lee, and Canon, and then you were the founder and CEO of Renegade Marketing for the last 30 years. You’re not that young. You’ve been doing this for a long time, where you’ve interviewed over 600 marketing executives for articles at Fast Company, Ford, Ad Age, MediaPost. You have podcasts. You have two books, one of my favorite books, Renegade Marketing for everybody. You should check it out. We’ll get into the details around that. And your podcast, which is on my must-listen to, Renegade Marketing.
(01:32):
So Drew, welcome.
Drew Neisser (01:35):
Well, thank you. And for all of those kind words, and I’m just glad my wife isn’t listening because she said she’ll probably think my head won’t be able to get out the door, so thank you for those kind thoughts.
Randy Wootton (01:45):
My pleasure. And the last thing I forgot to mention was you’ve actually transitioned to the CMO Huddles for the last four years where you are bringing together CMOs from big small companies, B2B CMOs, and hosting huddles, conversations, and you’re also doing a conference in the coming month or so. Can you talk a little bit more about CMO Huddles and if people are interested in getting their CMOs to attend or CMOs are listening to this, how they might join?
Drew Neisser (02:11):
Absolutely. I’m so lucky that things came together in 2020 where a group of CMOs I could see were really struggling right when the pandemic began. So we kicked off a huddling April 1st, 2020, and they helped me turn it into a business officially October 1st, 2020. We now have over 350 Huddlers, as we like to call them, who come together, as we like to say, to share care and dare each other to greatness, and that’s the focus.
(02:41):
Look, it’s a hard job and it’s wonderful to be around other CMOs who are facing the same challenges, but it’s amazing if you talk to another CMO who has the same challenge, how you two can solve it together. So that’s Huddles. And thank you for mentioning the Super Huddle. It’s our first on November 8th in Palo Alto, and they have an amazing speaker lineup and as we like to say, it’s going to be flocking awesome.
Randy Wootton (03:10):
Well, it’s interesting you talk about communities. One of the things I’ve been writing about, The Eight Secrets to Success for CEOs, and one of the things I talk about is this idea of building your tribe. And for me that includes a couple of components. One is having a mentor, so someone who has directly relevant experience for the situation and context that you’re in, having a coach who’s someone that helps you. Well, I need extra help in terms of emotional intelligence and working interpersonal effectiveness. And for A CEO, I found this super helpful in terms of working with the board and learning that motion because that’s new to anyone who has a first-time CEO gig.
(03:45):
The third element is having a peer group, which sounds like your CMO Huddles satisfies that. For me, there are other groups out there like EO, YPO, Alliance of CEOs. The one that I’ve been involved in most recently was Vistage, and then there’s other ones out there. And to your point, those are really wonderful opportunities and forums for you to just be real, to share, to care and to dare, and I think also to be just to be really transparent.
(04:11):
And then the fourth component, which I always talk about, is build a peer advisory group. And these are people who’ve known you for a bunch of years who know what you really care about, what you’re really motivated by and can call you on your own BS. So when you’re thinking about moving into a different job or thinking some life change, like checking in with your peer advisory board. So I love the CMO Huddles because it feels like it really speaks to a combination of those.
Drew Neisser (04:37):
It does. Boy, I love that lineup and I wish more CMOs invested that much time in having a mentor, having a coach in a peer group and then having the peer advisory group.
(04:52):
I will say I never had an advisory board for Renegade Marketing, but I do have one, and we have seven fantastic CMOs who we meet quarterly, and I can’t tell you how valuable it is. It’s a wonder, both, I can literally say, all right, thinking about doing this, what do you think? Here’s our overall plan, and they’ve just given such great input. So I understand the value of an advisory board and appreciate that.
(05:20):
The peer group thing, this is a funny thing and I want to make this, we also support CMOs in transition. And they have two realizations when they’re out of work. One is, gee, I wish I built my network while I had a job. And two, I wish I built my personal brand while I had a job. And so within CMO Huddles, obviously we make it easy for you to build your network. But two, we also have exclusive PR properties that build a personal brand and we have ways of amplifying it.
(05:49):
So it’s funny, you get a job, you’re head down, I got to just take care of everything, and you forget to give yourself an hour a month, and that’s all we’re talking about here, but it’s really important.
Randy Wootton (06:01):
Right. I think that to sharpen your spear and how do you build your skills? And I talk about also the fact that one of the things that my driving instinct is operating at the edge of my own ignorance. And so it’s what books am I reading, what conversations am I having, which conferences am I going to? It always is hard for a member with Vistage, it’s a full day and it’s once a month. And every time I go to do that, I’m resistant. I’m thinking, gosh, I have so much to do. How can I possibly spend eight hours in a conversation with other CEOs?
(06:33):
But I do there’s also there’s value where you just disconnect and let the subconscious work problems while you’re sitting in a room listening to other smart people talking about their problems. And it provides a perspective that you just don’t, I think most people just don’t create the time for meditating, percolating, stewing in the issues that you’re struggling with. And so the forum itself is you build connections, but it also is just the construct of taking that time out can be really, really valuable.
Drew Neisser (07:05):
I have to tell you, so a funny story about Vistage. I was in it for about four years. And I made the day, like you, dreaded it, then get in there and found it so valuable, particularly when they had outside speakers come in.
Randy Wootton (07:19):
Right.
Drew Neisser (07:19):
And my executive team absolutely dreaded that next day because I was there with five new things that we could do. So if you do Vistage, I strongly encourage you also to have an operating system like EOS or something so that they can say to you, “Drew, that’s not on our quarterly plan. Great idea. Let’s put it in the future.” And so it took me about a year to stop doing that because we’ll call it one of my mentors that was also working with us said, “You got to stop this.”
Randy Wootton (07:52):
Well, I imagine in your role, I mean we can shift to the roles of CEO versus CMO, one of the things we want from CMOs are ideation. The CMOs I think of the person for a CEO is often the thought partner in terms of company strategy, strategic narrative, next new cool idea that you’re going to do in the marketplace. And so you have this rapid ideation and activation that you want. I imagine as a CEO yourself, if you have that tendency, it’s let’s ideate. And your team is like, well, we got to execute on all the things we said we were going to do. I know I have that same challenge is I got lots of ideas and they say, “Randy, it’s great you’re having all these ideas. Not all these ideas are good.”
Drew Neisser (08:33):
Well, and it’s funny, so I love the term thought partner. I published an anonymous interview I did recently with a CEO who I felt just totally was amazing. And one of the things that they look for from their CMO is that they’re a strategy partner. And I wish more CEOs did that because they absolutely should be strategy partners who are thinking more long-term than just how are we going to get this one product out the door this quarter? That’s part one.
(09:08):
Now the other part of your point was about the idea-a-minute CEO. That’s the visionary founder. That’s that person. And so as a visionary founder, you better have an operations person underneath you who’s really good at managing you.
Randy Wootton (09:24):
That’s right. That’s right. That COO or president or chief of staff.
Drew Neisser (09:28):
Exactly.
Randy Wootton (09:28):
Especially as you start to scale and you’re out coming up with all these great ideas.
(09:32):
Well, let’s do that. Let’s bridge to in our pre-brief we talked a little bit about the relationship between CEOs and CMOs and there was three things that lead to success. One is defining what the role should be. Talking a little bit about what is a marketing problem versus a business problem, and then what sort of candidate should they evaluate for the role based on broadly what the role is, what the challenges are. And one of the big things with CMOs is no CMO can cover the full landscape well. They have areas, they spike, and we’ll talk a little bit about that.
(10:03):
But Drew, how do you think about for a CEO thinking about hiring that head of marketing to do marketing but not solve business problems in the same way, like a marketing problem versus a business problem, how have you thought about that and what do you coach your CMOs?
Drew Neisser (10:18):
So I wish I could also coach CEOs. The point I want to make here first and foremost is that less than 20% of all CEOs in B2B have any marketing experience in their career. And so there’s one of two outcomes that could happen with that. One is that they think they know marketing and then they’re really dangerous. Or two, they don’t know marketing and they’re suspicious of it. And so there is a happy medium in there somewhere where they’ve studied it, they’ve learned somehow through osmosis over the years because they’ve seen marketing’s effectiveness, and that’s really the key here. If a CEO has not seen how marketing impacted a business earlier in their career on a B2B level, it’s a problem because that CEO has no way of setting expectations.
Randy Wootton (11:08):
Right. Only thing I’d add to that is I think there’s a lot of VCs out there that think they’re marketers as well. So you end up-
Drew Neisser (11:15):
Oh, god. Don’t get me started. It’s the same thing with PE firms too.
Randy Wootton (11:17):
Right, yeah. No, let me tell you how to do the marketing, and really what they’re thinking about is how do you do demand gen ROI on search, but not broadly thinking about the ways you create demand in addition to capturing demand.
Drew Neisser (11:32):
No, it’s death by a thousand paper cuts. They get their spreadsheets out and they say, “Hey, we noticed in your search bids you were paying a little bit more than you should have for one of these keywords.” It’s like, really? You invested $20 million and we’re going to be having a conversation about which keywords we’re spending money on?
Randy Wootton (11:50):
Yeah. So then how do you, for the people that have experienced marketing experience, what’s the first thing in terms of framing what the role should be and drawing that distinction between the types of problems you’re having the CMO focused on, the marketing problems, versus the business problem that you, the CEO, and the rest of the executive team should be focusing on together because I think those two often get conflated?
Drew Neisser (12:12):
They do, and I think there’s business strategy versus marketing strategy. I often think in a lot of these companies there isn’t a business strategy. There’s a product that has been sold and they’ve gotten to a certain threshold and they can’t go any farther because it’s a product. There’s no business strategy. So they say, “Well, marketing solved,” with an absence of a business strategy, they say, “Marketing, fix it, just create demand.” And so if a marketer truly understands the difference between business strategy and goals, you’ll hear a CEO say, “We want to grow the business 20%.” That’s not a strategy. That’s a goal. And really understanding the difference is important.
(12:58):
Because you can’t just say, “Hey, we’re going to grow 20%.” You have to be able to say, “Okay, we’re going to do that because our current customers are going to buy more and they’re going to churn less and they’re going to recommend us and the analysts are going to promote us and we’re going to have some mind space.” So that’s this real serious challenge is business problem versus business strategy versus marketing strategy.
(13:25):
There’s another thing I want to make a point on, which is about helping them understand the notion of reputation. Because once you use that word versus brand, and we say, “Hey, you know what it takes to build your own personal reputation in your career.” Think about the brands that you love, the car that you just bought, or some other things where reputation really matters. They bought a Lexus instead of a Cadillac because they know Lexus’s reputation for reliability is really strong, or whatever it is. If they can understand that you cannot sell if you have no reputation, they’ll begin to understand what marketing does. If they can’t understand reputation, it’s just go sell the product, darn it, you have a problem.
Randy Wootton (14:16):
Especially in a B2B context where we’ve got so many different vendors and they all seem to be saying the same thing. You could take the logo off of one website and drop it in the other. I faced this my entire career. I think this distinction, I like that the reputation versus brand. For me, there’s this, maybe double clicking on that, having brand awareness and brand preference, and how do you build brand preference through the stories you’re telling, the thought leadership you’re doing, the podcast you’re hosting? There’s a whole set of things that you’re putting out into the ether that you hope is impacting people. Like everyone talks about now 90% of the buyers aren’t in market, but you want to be surrounding them with the brand. And I know how hard this is very directly after we tried to launch Maxio.
(14:59):
So we had two brands, SaaSOptics and Chargify, both of them had a lot of brand equity over 12 years. Good reputation, well known in the industry. I happened to be a customer of one of them, of SaaSOptics, and loved it. The brand names were descriptive of what they did. SaaSOptics gave you SaaS operating metrics. Chargify let you do subscription management charging. And then they brought the two companies together and they debated should we go to SaaSOptics or Chargify or ChargeOptics? And it just was getting convoluted.
(15:30):
And so they decided to come out with a brand Maxio, but there is no brand equity.
Drew Neisser (15:36):
No, no.
Randy Wootton (15:36):
There is no brand equity. And so over the last two years we’ve been trying to build the brand and be careful what you wish for as a CMO in getting the chance to build a new brand. It’s really freaking hard and trying to capture and take the brand equity of legacy brands and have it attached to the new brand isn’t necessarily going to work. And so we end up talking to a lot of people and we say, “Hey, we’re Maxio,” and they go, “Who are you?” And we say, “Oh, we’re legacy SaaSOptics.” They’re like, “Oh yeah, we know you.”
(15:58):
So can you say a little bit because I think we’re absolutely in that chute, that challenge, that gauntlet of trying to build reputation on the foundation of two great brands?
Drew Neisser (16:09):
So there’s a couple of thoughts. So let’s just define marketing as a heroic battle for mind space or mind share.
Randy Wootton (16:17):
Ah, love it.
Drew Neisser (16:18):
So we’re battling for that. It’s so hard. If you think about how hard it is to get something in your own brain about anything, and it gets harder every year, by the way. So you’re trying to own something. And so in order to own something, you need to say the the same thing that hopefully is different from what other people are saying over and over and over again. And if you’re lucky enough to build a brand or build a reputation in some space and then you, poof, walk away from it, it’s a problem.
(16:51):
And I’ve see this over and over again, not from just small companies, but really large companies where there’s this hubris, oh, well, we’re going to take two brands, we’re going to just create a new brand. Most of the time the business will tank.
(17:05):
I’ll give you a quick example. Eloqua was bought by Oracle. And about a year into it, they decided we can just turn the Eloqua website off. Business went down 30%, boom, just boom, like instantly. So the head of marketing for Eloqua said, “Can I turn this back on,” and it came right back on.
Randy Wootton (17:23):
Wow.
Drew Neisser (17:25):
I did a podcast with Jennifer Renaud probably two or three years ago. It’s funny because we recorded in a cap, but she had had the same experience at another company that took $4 billion brands and they merged them together, PE firm, and they renamed it. All $4 billion worth of equity lost in a second.
Randy Wootton (17:45):
Wow.
Drew Neisser (17:45):
And so what we talk about at that moment is you need something called a reverse migration strategy. Normally you would take two years to migrate a brand from one place to another. Think about a trade show. You go to a trade show booth and I see a brand, oh look, there’s the Apple booth. They never go to trade shows. Bad example. There’s the, let’s see, the Microsoft Windows booth, just in case you happen to be a customer. If you’re a customer of there’s, you’re going to stop. But if they suddenly changed their name to White Wall, you’re not going to stop. Those aren’t your people. You’re not a customer. So you need to be thinking about your customers and their ability to their find you at a trade show. They’re not going to do it with a new name unless you spent a zillion dollars.
Randy Wootton (18:34):
That’s brilliant. In fact, that was our big lesson learned. So we, in January of 2023, we did a brand awareness survey and we found we had low brand awareness at Maxio, but SaaSOptics and Chargify still had brand equity. And so then we went back to, hey, SaaSOptics and Chargify becoming Maxio at our trade show. In SaaStr this year, we actually have SaaSOptics and Chargify brands still on the trade show booth, it tied to Maxio hoping to catch those people who remember SaaSOptics and Chargify and come up and say, “Hey, I remember what SaaSOptics was. What’s going on in Maxio?”
(19:06):
But it was so interesting because the tension is it costs money to support three brands and three websites and all the marketing efforts. And so being PE-owned, they’re like, well, “You’re spending all this money on all these brands. Why are you doing that?” I think there’s a real calculus that a CMO needs to work with the CEO on. If you’re going to launch a new brand, what’s the drag that you have to carry forward for some period of time, and how do you determine if the equity of the new brand has outpaced the equity of the old brand? And I think having some battle scars, next time I do this, I’ll be like, look, it might be cool if we want to launch a new brand, but let’s be very clear about the expectations in terms of spend and payoff over time. And it’s not a one-year thing, it’s a five-year thing.
Drew Neisser (19:52):
It is. So if I went to the Maxio website and I saw these other two brands as products and they were a navigational item on your thing, so they would still show up in search, that’s the kind of migration strategy that folks need to think about.
Randy Wootton (20:11):
That’s right.
Drew Neisser (20:12):
It’s all about making it easy for people to find you. And the thing is if they haven’t heard of you, they won’t find you because think about how many times your site traffic is based on people actually typing in your brand name.
Randy Wootton (20:29):
The direct traffic versus the indirect keyword vibe.
Drew Neisser (20:32):
It’s a very simple thing, but I can’t tell you how often this mistake, and I’m so glad that you shared the story about Maxio and had you did the reverse migration because I know it’s worked. I’ve seen it work, but I haven’t recently heard that, so I’m delighted to have that case too. Thank you.
Randy Wootton (20:50):
Well, sure, my pleasure. And so let’s extend back just a little bit on when you were talking about marketing, I love it. It’s the heroic battle for mind share. You’ve written a book about this, Renegade Marketing. In that book, you talk about four different components, and I think there’s 12 steps within those, courageous, artful, thoughtful scientific method. Can you talk a little bit about those again? As we’re thinking about to a CEO, the 80% of CEOs who may not have marketing experience and they’re trying to get their head around marketing, other than buying your book, what’s the crib sheet?
Drew Neisser (21:22):
Yeah, so we start, so CATS. It’s an acronym, CATS, courageous, artful, thoughtful and scientific. And why we start with courageous strategy as the first one is full-stop fail, you don’t get that right, don’t bother with the next steps. And most, when you look at business strategies and then you look at marketing strategies, what you don’t see is differentiation. What you don’t see is some kind of insight that you’re building off of. What you do see is all things to all people in our marketplace and business goals. And so what I talk about in the first section of this book is step number one is to clear away the clutter and just focus and make everything simpler. Than you may be a brilliant engineer or founder who understands how all this stuff works, very few people actually care.
(22:20):
Then the next part of this courage is daring to be distinct. I mean, look, we’re having fun at CMO Huddles because it turns out a group of penguins as a huddle, so penguins are all over this thing. And I wear this penguin hat when I do interviews sometimes, and we have fun and we use the color purple because that helps us stand out, but we have an actual point of difference as well, and we are` prepared to dare to be distinct. That’s the thing. You really have to.
(22:49):
And then finally, you don’t have to, I call it pounce on your purpose. And I don’t want to say Simon Sinek, why this save the world, because I don’t think that’s the thing for most brands and it gets really tiresome. But I do think you need a North Star, you need something, and that’s what this courage is about. I’m going to stop there for a second because strategy is everything. If a good CEO sees a CMO as their strategic partner, this is the formula for the win right there, those first three chapters.
Randy Wootton (23:19):
I think you’re hundred percent correct. In fact, the way I’ve described it is at the end of the day, the marketing team, headed by the CMO and partners with the CEO, need to be able to create a disruptive claim that is rooted in differentiation that allows you to defend this claim in the market. And so you got to work with product to get super clear about what the differentiation is. You got to have your tentacles out in the market to understand what would be a disruptive claim that then would attract prospects to lean in.
(23:53):
I used to be a big fan of, and I still think they’re great, but the CEB that came out with the Challenger method, and they have this idea of a commercial insight. And so in my sales pitch, in our marketing materials, I always want to try to have some commercial insight. So one of the commercial insights at Maxio we talk about is revenue leakage. And so, for example, many analysts and industry folks will say, “Revenue leakage could be from 7 to 9% of your revenue.” You’re like, wait, what is revenue leakage? What does that mean? And 79% after I’ve acquired the customers, I got them up and running, I’m losing money on my invoicing? Well, now all of a sudden you have a distinctive claim in terms of we can address a core issue problem that’s significant and meaningful. How do you do that? That’s through some sort of differentiation, and then how do you create the messages to be able to defend against that?
(24:40):
So I think the marketing strategy being rooted in that clarity about who you serve, what’s the value you offer, how you do it distinctly. And the other thing about marketing is today the price of a word is zero. The price of an email is zero. So the ability to create compelling content, artful arguments, embracing your Aristotle through rhetoric, your ability to write well and have that be compelling and clear and crisp is the magic of a CMO.
Drew Neisser (25:12):
It’s true. It’s funny, you’re taking me back. So one of the things that I like to do when I think about strategy is can you articulate your brand in eight words or less? And I love this notion of revenue leakage. I had the privilege of naming a product for Panasonic, the Toughbook. This is a one-word strategy, and it’s been the same strategy since they launched, I mean, I don’t know, 20 years, years ago or whatever and it grew to a billion-dollar brand. All you had to do is say, “Notebooks die, Toughbook doesn’t.” And it’s a constant, the strategy is, and we literally launched the product by driving a Hummer over the first prototype on live television.
Randy Wootton (26:02):
Wow. I assume you practiced it first.
Drew Neisser (26:05):
We did not because there were only two prototypes. I write about this in my book, the engineers in the Japan, you could see them behind, they are sweating.
Randy Wootton (26:13):
Right, well, put up or shut up, right?
Drew Neisser (26:16):
But yeah, it was a major thing. And look, we quantified how much it costs. This is long before the clouds could protect everything, but quantified what the costs of broken notebooks were to business, it was $750 million. And then there’s the personal cost. Oh my god, when your notebook would die, how you would feel. So anyway, that one-word strategy was the North Star. You can change the execution. You can prove it a million different ways, but if you can get a strategy that is as simple as that, and you can own it, and we would do demos where it’d be in police cars and military and one of them kept running and it was shot through with a bullet.
Randy Wootton (27:05):
Well, that’s awesome. And I think that identifying what the pain is and then just having that be your core DNA, which allows you to have a differentiated claim in the marketplace that you can defend. And so the other producers of the laptops, unless you’re going to spend millions and millions of dollars to come out and try to address that same capability, they weren’t going to be able to compete in that market, that ICP that you were focused on where people needed bulletproof laptops.
(27:30):
And that leads us, I think, into your next category of art-filled ideation, that you have this perfect pithy, which is the eight-word story first. You want to talk a little bit more about the welcome we and the delight by designs, because I think both of those are great.
Drew Neisser (27:43):
Sure. I mean, part of the welcome we is everybody wants to play in the marketing space. Everybody in the company thinks they’re a marketer, so embrace that, involve them. Because the truth is if you are changing the business strategy or changing the marketing strategy, you need to bring employees along with you. So we say, welcome we and bring them in at the beginning. The book has an employee survey. That’s like day one CMO work because it’s easy to do. Oh wait, he cares about what we think or she cares, so that’s what welcome we is.
(28:19):
And then perfecting pithy is finding an eight-word story. I think it helps a lot, and I’ll give you a quick example. A company that we worked with for many, many years, it’s a paper company. It’s $400 plus million, a 80-year-old family owned business, and they literally sell paper to printers.
Randy Wootton (28:37):
Is this like The Office, like TV shows?
Drew Neisser (28:40):
It’s exactly like The Office. And by the way, I was with the current president when he met one of the actors from The Office, so it was hilarious. This ran with a lot of personality, but they distinguished themselves by service. So the three words were, “On the case, CasePaper on the case.” It was a pun. We actually squeezed the, “On the,” on top of the case in the logo, which was heretical. They had a lot of fun. And then they said to employees, “Okay, here’s what that means, reliable, responsive, and resourceful.”
(29:12):
Here’s how you do that. They spent six months retraining employees on how to do that well. They did employee awards about how they were on the case based on being reliable or responsive. Then they rolled it out to current customers, and they gave them awards because printers actually serve another group of people and they need to be on the case, so bestowed those two.
(29:34):
And they still are going with this. This is not something you walk away from. It’s the brand, and then they differentiated with their sense of humor and their design. I mean, they’re a colorful brand, as you would expect printers to appeal to because they are in the color business, but you’d be amazed. Everybody else in the paper business is boring as hell.
(29:56):
So artful ideation, I’ve met a lot of great CMOs who are not particularly creative, but they’re very good at seeing and helping and working with creative people and working with them to recognize big ideas when they’re presented to them.
Randy Wootton (30:14):
That’s great. Two quick thoughts on that. One, in terms of welcome the we, I do think marketing and if you’re trying to build a B2B brand, you have all your employees and they’re brand ambassadors and they’re on LinkedIn. And with social, they can help promote stuff and they can help build your brand for employment. So if on Facebook or whatever you have your Maxio group and people who are looking for jobs see that, it can make a significant impact. And I do also think, just even with this podcast, we would like more people in the back here to be listening to this podcast and sharing it. They have an opportunity to do that. And so I do think how does marketing activate the brand?
(30:54):
I think the other thing that I find sometimes in marketing organizations is they don’t do marketing. They do a lot of activities, but they’re not thinking about the actual campaigns that we’re launching, and how do I call it, marketing doing marketing. Every single marketer should be posting on social and practicing. I don’t care if you’re the campaign coordinator or if you’re the report generator, you have a different skill set. But if you want to be in marketing, you should want to do marketing.
(31:18):
And so one of the things I tell my team at Maxio and I’ve told other organizations is how do you as marketing demonstrate marketing? Every single all hands there should be some splash. How do we celebrate the SaaStr thing that’s going on, get people fired up because you speak to the heart as much as you speak to the head. And I think the brand identity, the brand values that you’re articulating are lived primarily by the brand ambassadors, which is the marketing organization.
Drew Neisser (31:43):
Yeah. Well, I would expand that even to the whole company. They’re the cheapest marketers you have. They’re already on the payroll, and if you added up the reach of every employee in your company, it would shock you. And so in the book I talk about in the next part of thoughtful execution, I talk about reverse how you think about your targets. You usually think about prospects, customers, employees, and in that order because you’re looking for your net new. You will grow, get more net news if every employee understands what you’re doing in business, why are you in business? If they understand why the business exists and the role in it, they will gladly celebrate the brand in any way they can. They will wear your gear. They will share their things, and they’ll participate when you ask them.
(32:41):
Then the next part is cultivating customer champions. And this is all about, I keep thinking about imagine if every single bit of marketing that you created was helpful to your customers, just think about that for a moment. Take your pithy, you talked about creating brilliant content with rhetoric, but imagine all you did was do stuff for your customers and how much more you would sell.
Randy Wootton (33:08):
Yeah, I have found that to be true. So here’s my pithy distinction. Having sold to CMOs and agencies for the last 20 years, 20 something years, and now for the last two years being in CFOs, when I would go to a market and I would invite CMOs to dinner, they would show up if it was a good restaurant. CFOs don’t come to dinner, they could go to McDonald’s. What they want is to know that there are going to be other peers there and somebody smart saying something, and so the idea of creating referenceable customers and reputation in where the CFOs are.
(33:39):
So there’s like the CFO mafia groups out there, like F Suite and Operators Guild. I can’t go sponsor, I can’t get to them, so you have to create brand stewards, brand ambassadors. I think the best proxy for this right now, even though it’s a bit of a pay to play, is G2, where you have people providing reviews on G2. And for companies, mid-sized, middle-market companies, like we’re targeting CFOs, that’s where they go for advice. They go for advice with their VC cohorts. They go to advice from the other CFOs they know, but they’re not coming to conferences. I don’t think they’re going to be many CFOs at SaaStr.
(34:15):
So I think that point of how do you create customer champions, people that want to get their brand tattooed on their arm because you’ve created such a great experience, you’ve been listening to them, you build products for them, and to your last point, you sell through service, you’re helping to answer the questions they have when they need to be addressed, creates these champions that then contribute to that broader reputation.
Drew Neisser (34:39):
Yeah, I mean it really is a wonderful, virtuous circle when you get this right. And I’ve seen it in a number of ways. One company just said their strategy was happy employees equal happy customers, so they put everything into their employees. And they were in the insurance business and it worked like crazy and then they ended up selling and they did very well and that CMO had a nice exit.
(35:04):
I’ve also seen companies that put everything into the customer thing. And so now you have a customer advisory board, you have user conferences, you go out to organizations where you have multiple users, and you get them together to talk about how they’re using it, and suddenly they go, wait, you’re using that product this way. We were using it over here that way, and they’re chatting. There are so many great ways to engage and cultivate your customers that it’s like exhaust that list, do all of those things that you can do, and then if there’s some leftover, go after net new with it.
Randy Wootton (35:45):
Brilliant. So we had a fourth category, scientific method. I actually want to transition, just given the time because I think you have some great insights and recommendations. The top three things to kill CMOs. When CMOs fail and those people, you’ve got Huddles, they’re all sharing without obviously sharing specifics, what are the broad trends of when a CMO fails? They thought it was going to be a great job. They dated, they had a great interview, they understood the product, they had a great vision, what are the dimensions along which they fail?
Drew Neisser (36:16):
So first, second, and third is just a mismatch between expectations of the CMO, the CEO and the board. I have heard this way too many times now where the CEO says, “Yes, I believe in marketing. Yes, you’ll have a budget. Yes, you’ll have a staff, and yes, you won’t have to grow the business 150% in the first week there.” And then the CMO takes the job and said, “Oh, I was just kidding about that. Your budget is 50% less and your growth goal is 50% more.”
Randy Wootton (36:46):
Right.
Drew Neisser (36:47):
And I wrote a post that went viral on LinkedIn that the headline was a quote of a CMO who literally said to their CEO, “I am not a miracle worker. I do not have a magic wand, and I certainly don’t have a magic wand that can bridge the delta between a 50% budget cut and a 50% growth goal.” I want to meet the CMO who could do that. I mean, I have some thoughts for them, but I don’t think they can do it in three months. So there’s the expectation of what marketing can do, and there’s a mismatch there and how long it takes.
Randy Wootton (37:25):
Right, and at what cost.
Drew Neisser (37:27):
And at what cost. And realistically, the CEO has been thinking about this business over and over and over again since they got hired, and they’re thinking about the board and they’re thinking about the pressure to show quarterly revenue to the PE and the VC firm, and you don’t grow businesses by the quarter.
Randy Wootton (37:45):
Right.
Drew Neisser (37:46):
It’s just really hard. There are impossible situations where do we actually have a clear strategy? And I want to go back to this for a second because there is a real misunderstanding, and this is the mistake I think CMOs make. They go in, new job, and they say, “Oh, it’s a brand problem. We need a new website, we need a new logo, we need a new color,” and that’s all they change. And to me, if you understand strategy, if you’re changing your strategy, you’re changing your product. And if you change, say we’re doing a brand refresh and we’re not changing something about the product, why are you bothering?
Randy Wootton (38:22):
Right, right.
Drew Neisser (38:23):
But that’s a huge leap, and it doesn’t happen all the time. But if it did, if we said, “We were going this way. Our promise was, as your promise was there’s-,”
Randy Wootton (38:34):
Revenue linkage.
Drew Neisser (38:35):
“…revenue leakage. We can plug that in, we can help you there.” And then suddenly you decide, “No, we’re really about this,” but you didn’t change the product, what are you doing? You’re just putting paint on an old barn.
Randy Wootton (38:47):
Yep, absolutely. That product market fit, I think, and to your point, defining. But I also think it’s up to the CMO to be able to put that plan together and say, “Look, this is what the bottoms-up build in terms of these types of activities, this type of budget, based on the historical trends, this is what I think we can achieve,” and there’s the tweaking around it.
Drew Neisser (39:08):
Couldn’t agree with you more. Set the agenda for the business strategy because nine out of 10 times the problem is not marketing. The problem is a business problem. You don’t have the right product fit. Your go-to-market strategy is flawed. Your pricing strategy is flawed. Your service isn’t quite where it’s, so set that agenda and drive it and the CEO will thank you.
Randy Wootton (39:30):
I think that was, in our pre-brief, that for me falls into that category of leaders like working with leaders.
Drew Neisser (39:35):
Right.
Randy Wootton (39:36):
And so be a leader. I think to your point, it’s just don’t tune the brand. It’s think about the 10 quick wins to prove value as a CMO. Where can you show that you’re optimizing and point to green shoots where you build credibility.
(39:47):
The other one that you mentioned was vision without an operating system. Can you talk a little bit about that? Because I do think there’s different types of marketers along that spectrum, that they’re demand gen folks that know how to drive spreadsheets and then the creatives that build pretty pictures, so help me understand that.
Drew Neisser (40:02):
Well, this is a problem for a lot of I think startups in particular is the CEO doesn’t have an operating system, so they don’t have EOs or OKRs or pick one. And so your visionary CEO is thinking about the business 24/7 and constantly texting the CMO, “Hey, what about this?” And so without an operating system and saying, “Wait, we’ve got our three goals, big goals, our rocks and all the other things,” there’s no way to deflect that.
Randy Wootton (40:32):
Right, right.
Drew Neisser (40:33):
So that’s part one. You got to have to have a business operating system. And I think I’ve lost my train of thought on part two. So you have to rephrase the question.
Randy Wootton (40:42):
Oh, the vision, so the vision without an operating system. CMOs, if they’re not operating within an operating system, a broader operating system, they’re going to get a struggle because there’s so many different levers, but then there’s also this idea of visionary without operating system.
Drew Neisser (40:55):
So I know a few CMOs, among many, who have one way of going, they have a go-to-market strategy that they use, or I’ll call it’s somewhere between a strategy and an executional plan where it’s content, PR and something, or it’s build community and go from there. And those CMOs say to the CEO before they get hired, “This is how I work. This is how we’re going to go to market, and I’ve seen it work four times, hire me to do that and I’ll make it happen for you.” That’s an approach. I don’t know that many CMOs who have that or that many CEOs who would take that.
Randy Wootton (41:39):
Right, that goes-
Drew Neisser (41:40):
That is one sort of unique way that I’ve seen CMOs be very effective because then it’s your playbook done your way, and if it fails, it’s all on you.
Randy Wootton (41:50):
Right, right, right. I think that goes back to the opening of our conversation between the CEO and the CMO is during that interview process, the CEO needs to get clear on what is the strategic context of which they’re operating. Talk to some mentors, some marketing people about framing what is the marketing challenge there, and then finding a CMO or head of marketing who spikes in that specific area. Do you have a brand problem? Do you have a demand gen problem? Do you have a product marketing problem? And I think marketers come up through three or four different disciplines, and that’s what their core capability is, and you want to make sure you’re matching that core capability with what the next stage of growth is that you need. Are you going multi-SKU from a single product? Are you opening up a channel? Do you need channel marketing?
(42:38):
So I think that’s the challenge of marketing. There’s all these different levers that could be pulled. The CEO, the CMO and the board, to your point, have to get aligned on no, no, no, over the next two to three years, this is the thing that needs to be done to unlock the value.
Drew Neisser (42:51):
This gets right back to business strategy versus marketing strategy. Make sure the business strategy is viable.
Randy Wootton (43:00):
That’s great. Well, the in the last minute or two, the second one you mentioned, which I think is a good reminder for all of us who think we’re very smart, is one of the things that kills CMOs is that they want to be the smartest person in the room. Can you talk a little bit about that and what you’ve seen and what your recommendations is for all those want to be CMOs who want to show up as a strategic thinker, so they want to be part of the conversations, how do they temper that so that they show up productively in executive meetings?
Drew Neisser (43:28):
I mean, you want to be a great listener first, a great question asker second. And you don’t want to be the person who’s showing through your questions how smart you are. You are childlike innocent asking the questions that everybody else in the room is thinking about. How are we going to do that? And so you have empathy for all the folks in the room and the challenges that they face. You’re a really good listener, and I’ll give you a little thumbnail on this.
(44:01):
So the biggest complaint with, very few CMOs actually ever get on boards, but when they do, half of them blow it because they think they’re still the CMO. You’re not. You have marketing expertise, but you’re there for your business expertise. So take your marketing hat off, be a student of the business. As one CMO says, “Everybody in my team knows the numbers of the business.”
Randy Wootton (44:31):
That’s great. I talk often about Patrick Lencioni’s book, Five Dysfyunctions of a Team, and that for the executive team you have to have a first team. And the first team, they’re like Maxio first, and then they’re functional leaders. And so how does the CEO and the executive team build the strategy collectively, think about the objectives collectively, have productive conversations about the business challenges? And the expectation is people in the room to be a business leader, not necessarily a functional leader. And often they will give up resources and say, “Hey, what we need to do now is invest more in engineering,” and it doesn’t turn into a, “No, no, no, I can’t give up my marketing spend,” because they recognize the overarching goal is we got to get this thing out the door, so I think that’s great.
Drew Neisser (45:13):
That’s such a great point. It really is. And I want to add one little button to that, one little notion to it, which is you don’t want to be just the marketer.
Randy Wootton (45:22):
That’s right.
Drew Neisser (45:23):
And I hear that, “Well, you’re just the marketer,” and that is the worst place to be. Because when they’re thinking about that, they’re thinking about the person who’s buying ads to generate leads. You want to be the strategic center of the organization, the glue. And so you better understand the difference between business strategy and know how to drive it in an organization, and then own some aspect that isn’t marketing.
Randy Wootton (45:53):
Yeah, that’s good advice. Where can you make an impact as a business leader?
Drew Neisser (45:56):
Right.
Randy Wootton (45:56):
I think you’re right. I think, again, in my experience as three times CEO is I turned to my head of marketing CMO to be my thought partner, to take the ideas of the business strategy, translate them into a narrative that is compelling both for employees and informs what we do as a business broadly that then plays out in our positioning and messaging. And so I think for CEOs, like me and others, you have an opportunity to sit at the table, a very small table, but you got to be able to step up and think broadly, ask good questions, be a good listener and challenge appropriately.
Drew Neisser (46:29):
And talk to a customer before every meeting with the board.
Randy Wootton (46:34):
Well, with that, we’ll leave it. Drew, every time we chat, I learn something. I have a bunch of notes and just really appreciate you sharing and caring and helping us all dare to be the best we can as business leaders and as marketers. Thank you very much.
Drew Neisser (46:51):
Thank you, Randy.
From Autocratic to Empowered: Leading the Gen Z Workforce with Matt Tresidder
October 3, 2024
Episode details
This week on the Expert Voices podcast, Randy Wootton, CEO of Maxio, speaks with Matt Tresidder, Co-founder and CEO of Leadr, a software company dedicated to enhancing personal and professional development. He is also the author of the thought-provoking book, “Management is Dead: There’s a Better Way.” Randy and Matt discuss the evolving landscape of management, exploring why traditional management methods are becoming obsolete in today’s hybrid and generationally diverse workplace. Matt also sheds light on the various shifts affecting today’s workplace—particularly the challenges of leading hybrid teams and the differing needs of Gen X, Millennials, and Gen Z employees.
Video transcript
Randy Wootton (00:05):
Well, hello, everybody. This is Randy Wootton, CEO of Maxio and your host of SaaS Expert Voices. We’re bring the experts to you to talk about what’s going on in SaaS today and more broadly what may be happening tomorrow. Today, I am delighted to have Matt Tresidder to join us. He’s a CEO and co-founder of Leadr, a software to help everyone get better, which he’s been part of for the last five years. We’ll talk a little bit about that. Matt started in sales, so we got some experience and ideas to share there, and he’s also the author of the provocative book Management Is Dead. There’s a better way, which we’re going to dig into. Then finally, he’s a Maxio customer, so it’s great to have you, Matt. Thanks for joining us.
Matt Tresidder (00:45):
So good to be here, Randy. Yeah. When we last talked, I don’t think you knew we were a customer right until the end of the conversation, so that was fun. I got surprised with that.
Randy Wootton (00:52):
That was great. Yeah, no, I should have known that ahead of time, but I certainly appreciate your business and very excited to be working with you and your team at Leadr.
Matt Tresidder (01:00):
Yeah, you bet. We’re a happy customer too for the record.
Randy Wootton (01:02):
Okay, well, there you go. Underline that, explanation point, and we’ll put that in the lead out.
Matt Tresidder (01:07):
I asked the CFO after the fact and he’s like, “Yes, we love Maxio.” So happy customer.
Randy Wootton (01:14):
Awesome. Well, thank you. So, I love your background because I’m recovering sales guy as well and we’re not going to go there, but love to talk about you’ve never been in software management or sales. You read all the books. How did you decide that this was going to be your journey?
Matt Tresidder (01:29):
It was forced upon me, I suppose. I don’t know if life is quite like you choose something and then it happens, but yeah, I joined a software company because a buddy of mine started one and said, “Hey, we’re going to invent mobile giving. Do you want to be a part of that?” I was like, “Yeah, sure. I’ve never really done sales or anything.” I was like, “I’ll join.” He’s like, “Well, we’re not hiring” is how the conversation went. I said, “Well, can I join as a salesperson on 100% commission?” He said, “Sure, no risk to me.”
Randy Wootton (01:54):
There you go.
Matt Tresidder (01:56):
That’s literally how that happened. I went from their first account executive to their first manager, then to the SDR director, and then ultimately, I was a VP of sales.
Randy Wootton (02:04):
That’s awesome. Well, I think that just gumption to be able to say, “Hey, I’m ready to risk it all” is an innate sales trait that he bet on you. That’s the end of the day. So, that’s awesome. The other thing I think is just people who know this podcast know that I’m really into books, I’m always reading books, and I got all frameworks. It drives my executives nuts that I’m always recommending yet another book, but what you said to me was you read all the books but didn’t have a playbook. So, what did that mean and what was the insight maybe from that experience that then led to you to think about founding or co-founding Leadr?
Matt Tresidder (02:37):
Well, anytime I talk about this, I don’t want to demonize the thirst for knowledge of books. I think I read insatiably, I love it. I think it’s fantastic, but there’s a disconnect between okay, teaching someone how to be a coach by reading a John Maxwell book for an example and then you sit down with someone in awkward feedback performance conversation. The book doesn’t really help, if I’m being honest. I mean, if you’re sitting down with someone and you’re firing for the very first time, you’ve never done that, the quote that you read in the book a year ago, that’s not coming to mind when you’re sitting down firing a friend. At least in my experience.
(03:12):
So, it’s the at bats of the street smarts. It’s falling on your face. It’s looking like a fool. It’s putting your foot in your mouth time and time and time again, and then slowly but surely you round out your edges. Then I think that’s when the change and the growth happens. But the books are important, but the application of the knowledge turning to wisdom and actually just falling on your face day in, day in, day out, I think that’s what actually makes the change happen.
Randy Wootton (03:35):
There’s a bit of irony here, Matt, because we’re going to talk about your book in a second.
Matt Tresidder (03:38):
That’s true. That’s true.
Randy Wootton (03:38):
But before we get there, I do think you have your finger on this point, which I try to tell people is that when I think about management, your first job as a manager when you move from an individual contributor and you’ve been rewarded, especially in sales, about being a great IC, you’re closing deals and then you move into a management role and not everyone’s going to be the A player. You got recognized and moved into this role to be the A player, and now you got to figure out how to take B players and C players and help develop them. So, it is this huge transition. Linda Hill, speaking of a book, at Harvard wrote about this, and I think the book was called Transitions. She focused on sales manager specifically because of this dynamic.
(04:23):
What I tell people is that my experience, it usually takes about three years to earn your spurs as a manager, because to your point, you have to go through the recruiting cycle, you have to go through the onboarding cycle, you have to go through the performance management cycle, and you got to go through one of those where you laid someone off or you fired them. So, until you have seen the at bats, to your point, or been in all the situations, it’s hard to say that you really are an intentional manager.
Matt Tresidder (04:48):
It’s very true. I like the sales analogy of moving from an IC to a manager because I think it’s quite binary. People understand the act of selling, the act of managing, but it’s apples and oranges. It literally is apples and oranges to say that someone’s really good at selling and then say that they’re just magically going to be able to teach someone else how to do it. It’s not the same thing. In fact, you’ve probably experienced this, the best sellers don’t often make the best managers. Now you can’t be super mediocre and average at selling, but they’re not usually the best ones either. Then what happens?
(05:18):
You’ve probably experienced this too, that idea of the curse of knowledge. So, because I’ve been a top performer, no one’s ever had to sit down with me and have those conversations. So, then I jump into the role and now I’m having all these performance conversations if you will that no one’s ever had to have with you. You’re like, “Wait a second, I have to talk to people about punctuality in the workplace. What?”
Randy Wootton (05:37):
Or activity, like number of emails. You’re not hitting your number. What are you talking about? Right, yeah.
Matt Tresidder (05:42):
No one’s ever had to do that with us. So, that’s when the learning happens and there’s probably a book for that, but it’s in the moment learning, I think, where the most of the spurs earning happens to your point.
Randy Wootton (05:54):
Well, that’s great. So, that I think is part of the premise of your book, the provocative title Management is Dead. Why is management dead, Matt? What have you seen or what are the trends that are contributing to a redefining of what it means to manage in this new world?
Matt Tresidder (06:09):
I just feel that the autocratic top-down style of leadership, the old school style of management, if you will, is having diminishing returns. The two biggest contributing factors to that in today’s workplace, one is the hybrid shift, moving from fully in-office to either fully remote or hybrid. We’re a hybrid team, by the way, and I think that’s probably the worst situation to be in. I’d rather all remote or all in office. Hybrid’s tough and we can talk about that. Then the other shift, Randy, is the generational change moving from Gen X to the millennial and now Gen Z’s in the workplace. The more approach style of development versus performance management, it has to be paramount within your culture or you’re missing something.
Randy Wootton (06:51):
Yeah. So, talk a little bit about that. I mean, I’m an old dude, 56, clearly the Gen X, but really on the cusp of Boomer. So, we won’t even go there. But what’s the distinction you draw between what is a Gen X individual contributor, even leader need versus a millennial or the Gen Z, which are my kids, which is really an interesting dynamic?
Matt Tresidder (07:11):
There’s a study done in Australia, shout out to my cousins down under, and they said… I’m from New Zealand, by the way. I’m not Australian before someone mislabels me. It’s almost a cardinal sin in New Zealand. We were born to hate each other, total sidebar, but we grew up, we play sports. It’s like, “Don’t like Australians.” I’m like, “Okay, got it.”
Randy Wootton (07:32):
When traveling, if you meet someone and you confuse the accents, it can lead to…
Matt Tresidder (07:38):
It’s not good.
Randy Wootton (07:39):
Not good.
Matt Tresidder (07:39):
It’s not good, but they did do a good study for what it’s worth.
Randy Wootton (07:43):
The breakdancer was a lot of fun, I mean, at the Olympics. My gosh, she just represented it in a way that is truly… I don’t know if you want to just call it down under in general, but it was a great scene.
Matt Tresidder (07:56):
She did own it. I mean that was something. So, the part of the study that was a light bulb moment for me is it asked Gen X’s, millennials, and Gen Z’s to describe the words for their ideal manager. What are the ways that you would sum up your perfect leader? Gen X said, “Directive, I want clear directives.” Millennials describe them as guiding. So, not quite directives, but enough guidance to tell me where to go. The shift that happened with Gen Z’s in the workplace is they described their ideal manager as empowering. So, you’ve gone from directing to guiding to empowering. Directing and empowering are very different styles of leadership.
(08:38):
Empowering almost feels like, “Hey, pump me up, give me a little talk. Give me the little boundaries maybe, and then just let me run.” If you are not used to leading folks with that style of expectation of how they expected to be led, your old school style of leadership, if you will, is going to fall completely flat. There’s one example, and I’ve seen it play out so many times. It’s like, “Hey, just give me what I need and then let me run.” If you do the opposite, they’re like, “Oh, you don’t trust me. You don’t believe in me. I’m not respected. I’m not valued in the workplace. My voice isn’t listened to,” hypothetically, right? Randy, you’re laughing. This is happening. It’s happening today in the workplace.
Randy Wootton (09:13):
It’s so fascinating. I talk often about this idea of someone’s confidence versus their competence. There’s another book out there called Confidence. One of the things from that book they found was in general, women are underconfident for their competence and men are overconfident for their competence. With Gen Z, it does feel a little bit to me that you never sold before, but you’re going to tell me how to do it or you never run a business before, but you’re going to tell me how to do it. Okay, well, let’s go with this. So, I do think it requires patience. Yeah, patience.
Matt Tresidder (09:50):
I think the cop out is to say, “Well, that’s their problem. Let’s not adapt.” But for example, I think it’s really easy to just throw the next generation under the bus and be like, “That’s their problem.” So for example, when I was coming up, the narrative around millennials in the workplace was entitlement. I don’t know if that was pretty much in your [inaudible 00:10:09].
Randy Wootton (10:08):
Sure.
Matt Tresidder (10:10):
But all that I heard coming up was, “You’re entitled. You expect things to be on a silver platter.” I used to think to myself, I’m just very mission driven. So, if I can attach myself to a deep why and that’s another millennial trait, then entitlement goes out the window. So, what’s that thing for Gen Z’s? Instead of just saying, “Oh, they don’t have the experience, let’s just disown them,” it’s like, no, because they want to be empowered, how do I have to adjust my leadership style in kind, if that makes sense?
Randy Wootton (10:40):
We’ll get there. I don’t want to skip over the hybrid workplace. I think it’s exacerbating the situation in terms of empower me and how do you mentor people and work within that context. But we will go to your five foundational elements to put in place to move and work from people management to people development, which I think is one of the keys. But before we get there, the hybrid workforce, we’re hybrid as well. Interesting to note, you said it’s the worst.
(11:06):
So, talk a little bit about what is the challenges that we’re all experiencing a hybrid? Why is it the worst? For those that are stuck in the middle, because it’d be hard for me. I have employees in the US. We have 240 employees worldwide. We have employees in 25 states in the US. It’d be hard for me to say everyone back in the office. So, we’re stuck. What do you do? So why is it hard working in the hybrid and managing people, especially this Gen Z? What can we do about it?
Matt Tresidder (11:33):
Well, the reason I say it’s the worst is because you’re not on an equal playing field anymore. So, if we’re all in office, we all have the same advantages and disadvantages. Well, remote, same difference. So, what I feel happens in my team, and we’re smaller than you guys, we have about 75 staff and we’re split almost 50/50. Half of us are in office, half of us are remote. So, this is the dynamic that comes to fruition. The in-office people are like, “Hey, love the camaraderie, love the community, love the hallway conversations, the water cooler, love the fact that we get to play ping pong. That’s great. Don’t love the fact that all my remote employees get to have all the flexibility in the world and have their schedule with no commute.”
(12:09):
All the remote employees are like, “I love my flexibility and the ability to work from home and have my own schedule and do the laundry during the day, but how come I feel like the B team? How come I don’t get to be in the conversations with the CEO when he walks around the office? Does he not care about us? Am I second tier? How come the SEAL teams are doing great in office and then the B teams are not?”
(12:28):
So that dynamic plays out literally all day every day here at my company. It’s how do I bridge the gap between saying flexibility and autonomy provided at the right times at the right place for in-office folks and then community if you will as a paramount priority for the folks that are remote. Trying to mesh those two things together is just a constant struggle. That’s why I say it’s the worst scenario, but I’m not going to change it because I love the benefits that we get with both, but it’s tough.
Randy Wootton (12:58):
As a CEO, we talk about this idea of how do you build culture and how do you create connections to the company, to the leaders, and to each other, and doing it for the remote employees is extra hard. The thing you had called out in our preview, I thought the three dimensions to think about were really interesting and you said it reinforces autonomy, freedom, and access. So, for those in office, how do you create more autonomy and freedom? Whereas that’s what they’re solving for in the remote, but the access is how do you create the access for the remote employees? So there’s some balance.
(13:34):
I think to your point, which we’ll get to in just a second, is about focusing on creating the culture. I loved your distinction. You had roomies or Zoomies. Can you talk a little bit about that and how do you think about the standards that you insist on in terms of everyone participating in the meetings or in Zoom calls? How do you think about creating equal playing field?
Matt Tresidder (13:57):
Yeah, we just have standards and they might sound harsh to an outsider, but it just means that we’re making culture and community to your point of priority. So, one of those standards is, so yes, we have roomies and Zoomies. Roomies are the folks when we have our company all hands, they’re in the room, and then the Zoomies are the folks that are remote. When we have our company all-hands meeting, all of the Zoomies, if you will, are on a big TV. So, we can all see them and they can see us. So, one of the standards that we have is if you’re in a meeting with a Zoomie, it’s cameras on all the time. It doesn’t matter what type of meeting. It doesn’t matter if there’s 100 people on the call. It doesn’t matter if there’s two people on the call.
(14:30):
Camera’s on all the time. Number two, if you’re in a meeting with a smaller group of people, mics off all the time, because camera’s off and mics off if you will, mute on, it is one step closer to disengagement. So, it’s not saying, “Oh, if you have cameras off in your team, you’re going to have a disengaged culture.” That’s not true, but it is one step closer to that. If you’re forced, if you will, to use that strong term, but if you’re forced to have cameras on, you have to be engaged. No one wants to be in a team meeting with someone that’s checked out looking around or walking the dog or doing the laundry.
(15:05):
So, it’s an accountability mechanism and constantly trying to call out to the Zoomies how to provide that access and constantly calling out to the roomies how to provide that autonomy, it’s a challenge, like I said, but we talk about it and think about it all the time. At least I do.
Randy Wootton (15:20):
That’s great. Your software, which we’ll get to in a second, is core to this. One of the things we talk about, the biggest driver of employee engagement is effective one-on-ones. So, how does that play out differently in a hybrid environment versus for your roomies and the Zoomies? How do you think about the one-on-ones?
Matt Tresidder (15:37):
It’s critical. I’m thinking about is it more critical for Zoomies? It probably is. It probably is.
Randy Wootton (15:50):
I would argue the reason why is because you don’t have that informal bumping into each other. Hey, I got a quick idea. This is what I miss so much. I sit in my little hovel in Oakland all by myself, and most of our employees are in Atlanta. I only get there one week a month. But the difference between just to pop in and say, “Hey, let’s just whiteboard this,” or you’re going out to lunch and grabbing a coffee. So, you have this informal, not just relationship building, but problem solving, unfolding conversation.
(16:18):
If you’re a Zoomie, I know for me, I have an EA, I have her deliberately track my one-on-ones with my executive team, with my leadership cadre. I try to meet once every six months with the teams that I’m meeting. Otherwise, it’s just out of sight, out of mind is what I worry about.
Matt Tresidder (16:33):
Very true. Very true. Even small things like I’m a whiteboard guy, I don’t know if you can see.
Randy Wootton (16:37):
Yeah, no, love it. Me too. Look at that. Right on. Yeah.
Matt Tresidder (16:40):
It’s very rare that I’m like, “Oh, quick random FaceTime call in the middle of the day. Let’s do a virtual whiteboard.” Actually, I don’t think I’ve ever done that. So, the priority of making very regularly scheduled, we say weekly one-on-ones with every employee regardless of remote is critical and even in office. So, I don’t want to say that it’s only important for remote just because you get to have those organic touch points. I think often as leaders, we use that as an excuse to not have one-on-ones. Well, I just saw Bob this morning and I talked to Sally last night. They’re great. That’s not the same thing. But the reason I’m wrestling with this is because I’d never really thought about, “Is it more important for remote?” I think to your point, it probably is.
Randy Wootton (17:19):
I think so. I think the other thing that you actually brought up, which got me thinking about it, was this idea of when you don’t have clarity, negativity fills the void. So, if you’re not doing the one-on-ones or you’re not having to bump into in a politically correct way, there’s void that gets filled. Can you talk a little bit more about that? I think that’s a really insightful insight in terms of where we tend to not default to the positive. We tend to default to the negative. What did you mean by that and how has that played out in your experience?
Matt Tresidder (17:51):
Yes, where clarity lacks, negativity fill the void. Our subconscious, our imagination is often, if not always, worse than reality. So, I read an article. When I first got promoted to a CEO, someone sent me this article that said, “Congratulations, you are now a full-time actor.” He went on to tell the story about how every single gesture, word that you use or don’t use is now interpreted or misinterpreted. He told this story about doing a company all-hands meeting. When he talked about the revenue number, he raised one of his eyebrows apparently, and one of his employees interpreted that as we were lying about the revenue number.
(18:27):
Because that void wasn’t closed, if you will, that employee did not have a one-on-one with their manager in the next two weeks, two weeks later, there was a bubble thing bubbling up under the surface where employees were like, “The executive team is lying about the revenue number.” When the CEO finally heard about this, he’s like, “Where did this all come from?” It’s like, well, you were lying about the revenue number at all-hands. Why? You raised your eyebrows, you never raise your eyebrows. Why did no one ask me about this? Why did you not meet with us? So clarity lacks, negativity feels the void.
(18:58):
That’s a very small example, but those examples happen all the time where we don’t provide transparency and clarity on even minimal issues and then mountains out of molehills all of a sudden. This has happened to me several times where you’re not a chief reminding officer, you haven’t bet the drum on the most important things consistently and you haven’t met with your employees. Then all of a sudden, this big drama is unfolding. I’m like, “How the heck did we get here?”
Randy Wootton (19:22):
Yeah. Hey, man, I heard that expression. I don’t know if I made this up or heard it from somebody, but the whisper at the mountain top turns into the thunderclap in the field. I know for sure, I’ve been caught by that where you haven’t been as sensitive as I could be in how I’ve communicated something and it’s been misinterpreted and I’ve had to clean it up. Four examples come to mind immediately. I do think to your point, this idea of being a chief reminding officer and the executive team broadly being adopting that and being on message, being consistent around what the vision is, the mission, what the strategy and the objectives and the priorities, using forums like all-hands.
(20:02):
I do a thing called a view from 30,000 feet where I’m coming back on an airplane, I’m writing articles about what I’ve seen and what I did. Because when I was not CEO, I was always wondering what CEOs were doing. But it’s just this constant drum beat of communication and being echoed, reinforced, amplified by the executive team is so critical. I think people start to look for dissonance and splinters between the different executives in terms of how they represent things.
Matt Tresidder (20:31):
It’s so true. I don’t mean to say that one-on-ones are a silver bullet, but if there’s one thing that’s going to move the needle, if every single one of your employees had a one-on-one at least weekly with their manager and it was a safe space or opportunity for them to say, “Hey, was Randy lying about the revenue number at all-hands on Monday?” The supervisor can close the loop, sideways energy eliminated. So, that’s the point. It’s like people can easily say, “I don’t have time for this,” or “I do it in the hallway.” No, you’ve got to create that safe space if you will.
Randy Wootton (21:00):
Awesome. So, maybe I want to come back to the five foundational elements to move an org from people management to people development. But because we’re at this cusp of this conversation around the one-on-one that really was a founding principle at Leadr, can you talk a little bit about the technology and what you’re trying to achieve and what the vision was and how it’s different than some of the other technologies that are out there today?
Matt Tresidder (21:22):
Yeah, no doubt. So, we started the conversation by saying people lack a playbook. So, we created a playbook and we call it Leaders by Foundations. It’s every manager should work to have regular one-on-ones and effective meetings with their team. They should recognize their employees for unique strengths. They should have effective feedback up, down, and all around the org chart, clear goals that aren’t set and forget, and then everyone should have a development plan. So, those are our five foundations. As I share these, people are like, “I’ve never heard that before.” No, basics, we know all of these things, but it’s the implementation and ensuring that they happen on a consistent basis that’s missing.
(21:58):
So, that’s what our platform does. It’s what do you have to do to turn your managers into coaches? It’s providing very simple and consistent habits. Our technology basically allows you to do that. So, whether it’s good meetings, goal setting, gathering feedback, performance reviews, development plans, all housed in one place, very simple, very intuitive, very easy, and it’s almost like a virtual coach. Here’s some advice. Here’s some suggestions. Here’s how to make these basic habits, if you will, more consistent in your company. The thing to your second point that sets us apart is we’ve built this platform for your employees.
(22:32):
So, from the ground up, we’re thinking, “Okay, this is a platform for development, not performance management. This is not an HR solution. This is not a silver bullet on Big Brother is watching. No, we believe that if you develop and have higher engagement with your employees, productivity will rise and retention will be at the level that you want it to be.” But it starts with that development culture with the frontline employees and that’s who we had in mind when we first built it.
Randy Wootton (22:56):
Yeah, I think that distinction between HR tech versus manager tech is an interesting one because a lot of HR tech is rooted in the idea of compliance. You get people onboarded, they sign their documents, and then you go through and you do your performance reviews. You have it all documented. The training everybody has to do every year gets documented. I think those systems are called like HRIS systems, but the development system falls more broadly in management tech. I think the other interesting thing, because I’m familiar with some of the other ones out there on the market, Culture Amp, 15Five, Lattice, but I think the way that you approach the problem is really interesting in terms of having this framework, what you call the foundation.
(23:39):
Then I think the other thing is you have this great partnership with Lencioni when we were talking a little bit about the executive team in our pre-brief, and I was like, “This guy wrote five dysfunctions of a team. He talks about you need to have this first team and make this investment in executives.” You’re like, “Oh yeah, we’ve got a partnership with him.” So can you talk a little bit about that partnership and how that plays out? Because you really do have a tech plus services, a tech plus framework construct, which is a little bit different than just workflow application.
Matt Tresidder (24:03):
Big time. Yeah. Patrick Lencioni and The Table Group, they’re phenomenal. He coined the term organizational health and it was the healthiest organizations, the ones that win. I think a lot of folks, especially in maybe the CFO suite, are like, “Well, if it’s not quantifiable, if you can’t show me the ROI, dollars in, dollars out, it’s not going to be successful.” I think we all know that’s not true when it comes to if you have healthy culture, you’re going to win. So, their partnership’s been phenomenal. We launched with them about a year ago, and the problem they were trying to solve was we’ve done a great job of establishing healthy, cohesive executive teams, but how do we cascade those habits all the way down the org chart?
(24:41):
Which is funny because the problem that we were facing was we built a software platform for frontline managers and frontline employees, but how do we get the buy-in from the executive team? So it was almost like a marriage made in heaven of we complement each other’s strengths and weaknesses. So, yeah, we’re about eight to nine months into launching this thing and it’s blowing up and it’s been a ton of fun working with them. He’s just the GOAT. They just have a real strong heart for creating healthy teams, and that’s our mission of developing a million leaders. We couldn’t be more aligned.
Randy Wootton (25:09):
That’s great, developing a million leaders. That’s awesome. Part of the reason you focused on the manager, I think the research shows or the old adage is people join companies for the vision. They stay because they have a friend and they leave because of a bad manager. What you had said was employees leave companies because they enable or tolerate bad management. How did you come to that insight and then drive that as your focus for that’s where you wanted to invest time and energy?
Matt Tresidder (25:41):
Well, I think first of all, that’s my journey. So, as I shared, I built this for me. So, let’s go back to my story. As I went from first-time sales rep, manager, director, now VP, managing managers, most of which had many, many more years’ experience than I did, I’m trying to figure it out as I go. So, if I could go back and do it again, leaders as the solution, if you will, that I wish I had had. So, that’s part one. Part two is it’s almost like a displacement of ownership when an executive team says people don’t leave companies, they leave managers. So, then I guess the strategy is, well, let’s just fire all our useless managers based on what we hear in the exit interviews and we’ll just hire and bring other people in. You’re just repeating the cycle.
(26:24):
So, first step, take ownership for actually the factors. They left the company that enabled bad management. So, step number one is the executive team. Don’t just say it’s bad managers. You’re the ones that enabled the bad management. So, take ownership for it. Step number two, it’s not that those bad managers were bad people. I think this is such an important point to get across. I’ve met very few people, if any, that wake up every day thinking, “How do I get my team to hate me today?” I just don’t think they exist. So, what happens? So why do employees leave thinking their manager hated them? Well, they weren’t equipped, they weren’t trained, they weren’t given a playbook.
(26:55):
To our earlier conversation, they were probably a top performer that never had to have the conversations they’re now having. So, why would we expect them to get it overnight? You said three years, three years to get your spurs. Sorry, I’m on my soapbox. I could talk about this forever. Three years to get your spurs. How many companies have the patience to wait three years for their managers to look like leaders? I don’t. There’s no way that I have three years of patience at my team. We’ve only been live for four years. So, it’s just we’ve got to take ownership and take accountability for the fact that equipping our managers and fixing that frontline employee experience is a game changer for our business.
Randy Wootton (27:34):
I mean, I’m going off script here, I didn’t ask you before, but do you have any data in terms of your ability to impact ramp time or do you have data in terms of people who use your program in terms of their employee engagement survey results or their NPS that they’re more effective than people who don’t? How do you make this case that you’re going to help people become effective leaders faster?
Matt Tresidder (27:59):
Yeah, love it. So, NPS is a very quantitative example. So, we have a pulse survey tool built within our platform called Leadr Insights, and it’s literally doing what you just did. So, it’s sending out a pulse survey anonymous to all your employees every single month. That allows me to stack rank the health of my managers based on what the employees would rate their experience at the company being. So, there’s one example that we can track train lines over time. Then with our customer base, we have about a thousand customers now. We’ve been starting to see data of retention prior to leaders playbook and post.
(28:34):
Now, because we’ve only been live for four years, we don’t have a huge Rolodex of examples of that, but we have seen about a half a dozen very clear examples of prior to the playbook being implemented and post, and now we’re starting to see retention in those teams with healthier managers being much higher, much, much higher.
Randy Wootton (28:51):
I think the hard thing to control for, because I’ve been around for a while, is just that last four or five years of the great resignation that played out in 2019 and 2020 versus now everyone, especially in technology, is hunkering down at the jobs they have because there aren’t the roles available with the B2B SAAS recession that no one’s talking about. So, I think over time, you will have a great data set that you and Patrick Lencioni can use to help make this broader case about the companies that are the healthiest ones or those who focus on organizational health. Just before we go to the speed round, one of the things we had talked about was this shift in your business model and how to add services in a software model.
(29:32):
You had quoted the guy, the founder of HubSpot in the article or the tweet that he had in April. Do you want to talk a little bit about it? Because I think it’s really interesting. Most people are like, “Oh gosh, you shouldn’t have any services like the pure SAAS, the way you get the valuation is by no more than 10% of your revenue coming from a services type model,” but you think there’s a different way. What have you learned and how are you thinking about that?
Matt Tresidder (29:55):
We’re in experimentation phase with this at the moment, and it resulted in our record sales quarter last quarter. So, let me just unpack a little bit of the experiment we’re running. So, Brian Halligan, the CEO of HubSpot, said… The tweet was 2004, software as a service, 2024, service as a software. The concept being everybody wants help and knowing that I need a coach or a consultant or an outside voice to come in and provide some services to us is a known and known. It’s a known quantity. What people don’t want right now is more software fatigue. I think the number one sales objection that I’m sure every SaaS company is facing is I have millions of tools. I have too many, especially coming off the back of the recession. It’s how do we carve out a lot of our systems?
(30:44):
So they’re thinking to themselves, “Well, I want to consolidate and I want to bundle.” So the competitive advantage that you have is leading with services as using software as the accountability mechanism to pull through that change that you’re trying to provide. So, for us, it’s hey, we want to make your managers more effective. We want to make your managers look like coaches. We’re trying to transform your managers into leaders. The result of that is what we just talked about. Well, we can come in and run monthly training sessions on site, we can do it quarterly, we can do it Zoom, we can come in person, we can do role plays, we can do breakouts.
(31:16):
The way that we’re going to see the change happen is by them using the platform, because what happens in these training sessions typically happen is mountaintop moment, had a great session, learned a lot, and then I forget it immediately. So, that’s the lead and the hook that we’re using now is leading with that services model and then bundling it into the software. The reality is what we’re seeing is you can’t really separate the two because the services that’s driving the adoption of the platform and the platform itself is the one providing the accountability mechanism for the training. So, we’re still in experimenting phase, but it blew up our sales last month, because we are attaching to something that’s easily understood and it doesn’t feel like they’re just getting that eye roll moment of, “Here we go again. One more piece of technology.”
Randy Wootton (32:00):
Yeah, it’s interesting. I think maybe because you’re focused on behavior change versus process efficiency. So, having been in sales for a while, adopted a lot of different sales methodology, Sandler and we just launched Winning by Design this summer with our sales team, my biggest pushback on our enablement team was for this to take, we need Winning by Design to be integrated into our Salesforce system, our sales process that the stages we’re using are attached to the Winning by Design bow tie model. If it doesn’t, it’s going to fall apart. Sandler did a wonderful job of this with their Sandler submarine.
(32:38):
I ran high velocity transaction sales teams, and you would go through the training once a month with Sandler and then you’d come back and all the systems were tuned. You had to invest in it, but all the systems were tuned to support that. So, they didn’t have a service plus tech offering, but it wasn’t going to work unless the service was instantiated in the tech. So, I think you guys have had a great insight in terms of behavior change and coaching. If you’re trying to do skill development, you need this services component layered and the training layered in and tightly tied to the technology. So, well done.
Matt Tresidder (33:12):
Thanks. I think the next evolution will be how do we replace manpower services with AI powered services? But that’s another evolution.
Randy Wootton (33:21):
Yeah, we can talk about that. I have a friend yesterday I was talking to about how he’s running a company that’s using AI experts to help people answer specific questions. It’s him and just all the prompting he’s doing. He thinks he can run the company with contractors and AI. Yeah, so it was wild. Who’s the first company that’s going to make a billion dollars? That’s just that one layer. AI augmentation will be interesting. Let me ask you a question, are you VC backed?
Matt Tresidder (33:50):
We are. So, our series A was led by a firm called Bedrock out of Austin. Geoff Lewis out of Founders Fund, he’s awesome.
Randy Wootton (33:58):
Oh yeah. Great. Yeah. When you presented this revenue model of services versus subscription, have they got it or are they pushing on you? Yeah. Okay. That sounds great. But don’t let it get to be more than 20% of your revenue because then we’re crushing our overall valuation in the market.
Matt Tresidder (34:15):
It’s a good question because we’re very much still in the incubator phase of this. There’s no rocks being thrown. It’s very much like, “Hey, we’re trying to figure this out.” At the moment, we’re throwing everything at every single deal and we’ll figure out gross margins down the road. So, I haven’t got to that fight yet, if you will, but they’re an amazing partner. I doubt it’ll get there.
Randy Wootton (34:34):
That’s great. Then if you can share some correlation between gross retention and the impact of those that have adopted this program versus those that may have just bought the platform. I guess it’s implementation adoption, success, time to live, and then gross retention at time of renewal.
Matt Tresidder (34:51):
Net revenue retention too. Because I think the unlocking and cracking the code on the adoption metric is the thing that allow us to fix cross-sales and expansions too. So, I think it’s going to win on both ends, not just the GRR metric, but also on NRR.
Randy Wootton (35:05):
Great insight. All right. Well, with that, let’s roll to the final phase of the conversation, the speed round. Three questions. One, what’s your favorite metric and why? What’s your favorite book and why? It doesn’t have to be business book, any book you might be excited about, and your favorite influencer, someone who’s creating content that you’re reading, consuming, or listening to that you think is really an original thinker. So, favorite metric and why?
Matt Tresidder (35:30):
Favorite metric, this is a very non-CEO metric, but it’s the burn ratio. So, tracking at a one-to-one burn to ARR ratio is the healthy keeping your metrics intention, not just focusing on growth at all costs and not just focusing on efficiency and profitability because that’s boring. How do you have one-to-one versus ARR?
Randy Wootton (35:49):
Why do you say that’s not a CEO metric? I think at the end of the day, the CEO has got to be responsible for capital allocation and short and long term. That comes down to how much cash you have, when you have to raise cash, and how you’re burning. I’m interested in that point of it’s not a CEO metric. Why do you say that?
Matt Tresidder (36:04):
You’re not wrong, but I would think that the CFOs may be thinking more about that and maybe your quintessential businesses, but that’s different now. Yeah, three years ago, if a CEO told you that burn ratio was his number one metric, he had a problem or she had a problem. It should have been triple, triple, double, double, right? That metric is dead, the T3, D2 metric. That does not exist anymore. So, I think that’s probably why I said that.
Randy Wootton (36:29):
Got it. Yeah.
Matt Tresidder (36:31):
Truly. Thinking about cash efficiency should be the… It takes SaaS B2B business world. That should be a number one focus.
Randy Wootton (36:39):
I agree. I think that when we talk about it, many people have said growth at all costs versus this new world we live in, which is around efficient growth. Rule of 40 is one of the ones that we’ve talked to. I think Bessemer has come out with a new rule of X, but the emphasis is growth is going to drive your overall valuation, but you better be able to be clear about your profitability. If you aren’t profitable right now, how can you get profitable quickly? And then you control your own fate when you’re profitable. You can take a deep breath and decide where you want to go invest next.
(37:12):
So, I think there’s a great guy out there I respect immensely, a guy named Todd Gardner that wrote about this. He called it the Dolphin Strategy, where you go unprofitable for a little while, you come up, you get profitable. You can float around them for a while, then you’re super deliberate about your next set of investments. If you’re bringing your investors along with you, that builds confidence that you’re able to manage the business and be deliberate about positive ROI investments over time.
Matt Tresidder (37:38):
I know this is the speed round, Randy, but I have to say this, if you’re a founder or CEO, don’t shrink back on your vision. So, just because you’re pursuing healthy growth or efficient growth or profitability, don’t use that as an excuse to say, “Well, we’re going to shut down all of our crazy ideas and not pursue something incredible,” because you’ll get overtaken and you won’t be able to catch up. Your competitors will eat your lunch. So, both of those things, intention.
Randy Wootton (38:00):
That’s right. That’s why CEO job is fun and hard. So, speaking of that, your favorite book is?
Matt Tresidder (38:06):
The Hard Thing About Hard Things by Ben Horowitz.
Randy Wootton (38:09):
Yeah. Do you have one takeaway from that other than it’s hard? What was enlightening for you?
Matt Tresidder (38:17):
It was probably the first business book where the author wasn’t afraid to say, “This is what it’s really like.” The fact that he cussed and told actual real stories about Netscape and working with Andreessen, I’m like, “Thank you. Thank you for not putting the glossing. Thank you for just giving us the real thing.” So if you are thinking about being an entrepreneur, if you’re thinking about stepping into management, read The Hard Thing About Hard Things. So, you go in with your eyes wide open.
Randy Wootton (38:46):
Someone gave me that book when I had my first CEO gig, and I remember feeling like an imposter. It was a public company. I didn’t know what the hell I was doing and freaked out on many dimensions. This guy gave me this book. It was just reassuring because I think the CEO job is just really lonely. Getting people to be authentic about the challenges they’re having is hard, right? Because as CEO, to our earlier point, you’re out there as the evangelist, everybody, your board, your employees, your ELT, this is where we’re going and why we’re going to win.
(39:17):
But I do think that’s one of the reasons why I always recommend people get involved in some peer group, like Entrepreneurs Organization, EO, Young Presidents Organization, YPO. I’m at Vistage right now, where you can get in the room with people and it’s high premium on authenticity, low premium on ego. People are sharing stories and it can really help provide perspective and ideas.
Matt Tresidder (39:41):
Yeah, love that, so good.
Randy Wootton (39:44):
And then finally, your favorite influencer?
Matt Tresidder (39:46):
I’m a Working Genius nut fan at the moment. So, if you haven’t taken the latest productivity assessment called the Working Genius from Lencioni, I strongly suggest you do it. I’m not a big personality assessment guy. I hate being put in a box. I don’t like people telling me, “Oh, you’re an eight on the Enneagram, which means this,” or “You’re an ENTJ, which means this.” I hate that because I want to be a 10.
(40:06):
But the Working Genius helps you be more effective with your team. It helps you understand what gives them energy and what drains energy, and it will help you pull the best out of your executive team. So, anything around the Working Genius content right now, I’m a little bit obsessed with, which if you told me that a year ago, that would’ve been the most antithetical Matt thing ever.
Randy Wootton (40:28):
Wow. All right. Well, I’ll take a look at it. I’ve done several of these over the years. I actually am a big fan of Insights, and what I tell people is when we take the Insights profiles, there is no right answer. But what it helps me do, and I think it’s actually extra helpful in a hybrid environment, is it gives me a year’s worth of one-on-ones in terms of understanding what your preferences are in communication and how do you want to be managed. It’s a catalyst for conversations that you wouldn’t necessarily have. So, for example, I have a new head of marketing who just started, she took her Insights, I gave her my Insights.
(40:59):
I have this document Working With Randy, and what I think it helps with is just you don’t have time to go out for coffee because you’re not working in the same office. So, the Insights, or maybe I’ll take a look at this Working Genius as another option, is a way for you to just break down those walls and have some authentic conversations around who you are, what motivates you, what demotivates you, and how best to manage and develop.
Matt Tresidder (41:22):
So good. Hey, what’s the Working With Randy doc?
Randy Wootton (41:26):
Aha. So, Working With Randy was one of these ideas, I can share it with you, but from someone who said, “Write down what you like, what you don’t like.” So for example, there is no space between the lines is one of the things I described. What I mean by that is I’m going to tell you how I feel about a report. It either works or it didn’t work. Me telling you the report wasn’t good doesn’t mean that you’re a bad person. So, there’s no space between the lines. I will tell you why the report wasn’t great and how we can evolve that. One of the things I talk about is my tendency is to build relationships through work, not through social chit-chat. So, I will end up starting a meeting with, “Hey, let’s dig into the scorecard, talk about what’s happening. I feel like that’s a really wonderful experience.”
(42:11):
Some people find that to be really intimidating as they show up and the first thing Randy says is, “Let’s break out your scorecard and talk about what’s red.” It’s just like a document that says… I’ve been managing people, gosh, 40 years, and this is what I have found has worked. These are the things where I’ve gotten feedback. This has popped for someone. I’ve given it to my executive team at Maxio. Twice a year, we do a performance review, full performance year and a mid-year check-in.
(42:44):
Part of that mid-year check-in is how am I supporting you? How are we working together? And then for someone new, I say, “Hey, here’s the Working With Randy doc. Tell me what works for you. It’s like the operating system. You can sure share one with me, but at this stage of my career, I’m going to probably want you to figure out how to work with this construct versus me figuring out yet a new way to work with someone else.”
Matt Tresidder (43:06):
I love that. That’s great.
Randy Wootton (43:07):
Yeah, I’ll send it to you. Take a look at it.
Matt Tresidder (43:09):
Yeah, yeah, please do. I think the leader going first as well is powerful. Starting by saying, “Hey, I don’t have everything right, but I’ve got nuances. You might get offended, but just know that about me.” Hopefully, they don’t get as offended as they would’ve otherwise.
Randy Wootton (43:26):
I think also, you can depersonalize it, meaning that it’s not a judgment. It’s like, “Hey, here’s what’s unfolding. How’s this playing out?” Well, you bring in some insights. The Insights doc can say, “Oh yeah, the way we view the world is just very different.” So I know we’re almost out of time. I’ll give you one example, right? So part of the Insight profile, I’m an extrovert by nature. I get energy from people. I have a couple of people on my team who are introverts and they need time to process information. So, my natural default is let’s get in the muck and start talking about the problems and what we’re going to do about it. Their inclination is I want to think about the problem and come back and report to you with some ideas and thoughts.
(44:05):
It drives me absolutely bat crazy because I want to get into it. But for them to be most effective, letting them have that time to process and come back and present is a learned skill for me and them being able to articulate that’s what they need is really valuable. So, some people, I can mix it up in the meeting. Other people, I got to say, “Okay, come back to me in two days. Let’s go.”
Matt Tresidder (44:25):
You and I come from the same cloth. I’ve had to learn to allow people to process the way that they want to process. It’s been a challenge for me. I’m like, “Do you not care? You’re not paying attention. Are you not thinking about this problem? Fight it out with me. Come on.” They’re like, “I do care. Just give me a freaking minute.”
Randy Wootton (44:43):
Exactly. Maybe that’s also with Working Genius, but that’s for me where the Insight profiles are super valuable as you can find out, “Do they process information more like what they call blue energy, very, very detailed?” They want everything locked down. Are they more green energy, which is they want to social and be able to go out to dinner and talk about things and have a coffee? It sounds like our energy is this red, fiery and dreary, which nets out as like be bright, be brief, be gone.
Matt Tresidder (45:15):
I love the language right there.
Randy Wootton (45:17):
Awesome. Well, Matt, thanks so much. Love the conversation. Really enjoyed it. Thanks again for being a customer. I look forward to continuing the partnership going forward.
Matt Tresidder (45:25):
Yeah, absolutely. Thanks for having me. This is fun.
Optimizing High-Intent Pages: Secrets to Streamlining Conversion Forms with Sahil Patel
September 26, 2024
Episode details
This week on the Expert Voices podcast, Randy Wootton, CEO of Maxio, speaks with Sahil Patel, CEO of Spiralyze, a firm specializing in optimizing website conversions through data-driven A/B testing. The conversation kicks off with an exploration of Spiralyze’s mission to make websites the most efficient and productive sales tools for B2B SaaS businesses. Patel elaborates on common pitfalls companies encounter when A/B testing, such as relying on anecdotes, running meek tests, and facing operational bottlenecks. Sahil and Randy discuss the importance of utilizing comprehensive data analytics to inform testing processes, mentioning Spiralyze’s approach of crawling thousands of web pages to identify effective strategies.
Video transcript
Randy Wootton (00:04):
Well, hello, everybody. This is Randy Wootton, CEO of Maxio and your host of the SaaS Expert Voices Podcast, where we’re bring the experts to you to talk about what’s happening in SaaS today and what’s on the horizon for tomorrow. I am really delighted to welcome Sahil Patel to join us. He’s not a typical guest, only because he’s not a CFO or just totally involved in what it means to be a CFO, but he has been a two-time CEO, first company 11 years in the healthcare tech and currently the CEO of Spiralyze, which is a tech-enabled service that helps people design, measure and execute A/B testing across their website. Really interesting model. He’s going to give a little bit more background on that, but prior to that, he was also a consultant, he went to business school and started at Emory in Atlanta where Maxio is actually based. So we have a lot of overlaps in our background and as part of that, the focus on marketing tech as well, Sahil. But it’s great to have you. Thanks so much for joining us.
Sahil Patel (01:03):
Thank you, Randy, for having me. Really glad to be here.
Randy Wootton (01:06):
Good. Well, why don’t you just give us a little bit of background on Spiralyze because we’re going to get into what you guys do, and we’re literally going to do a teardown on the Maxio website live, first time we’ve ever done something like this. But I think it’d be helpful if you set the context for the problem that you were trying to solve. How do you approach that at Spiralyze? We’ll broaden the aperture a bit and talk about how CFOs think about CMOs and marketing and how A/B testing can slot into that. And then as I mentioned, we’ll do a teardown on the Maxio website. So help us understand a little bit more about what was the problem you were trying to solve as Spiralyze and how are you approaching that today?
Sahil Patel (01:40):
These are fun problems to solve. And I want to say, Randy, thank you in advance. Not just for having me, but also for having the guts to do a live teardown and workshop on your website. I think it’s going to be a lot of fun. For B2B SaaS, which is that’s who our customer is, the number one asset they have to drive sales is their website. Sooner or later, all roads converge on the website. That could be you are a classic PLG product-led growth type of company where people come and they sign up for that 7-day free trial and you hope to convert them into an active user and then a paid user. It could be you have a more enterprise product and there’s a form that someone fills in, [inaudible 00:02:24] sales, get a quote, see a demo, some variation on that. And then there’s a bunch of low-intent things like read a white paper, attend a webinar, do something else. But they all happen on the website and companies spend an enormous amount of money just to get the traffic there.
Randy Wootton (02:46):
Yeah. I think in our pre-brief, you described your website as being your number one sales rep. I thought that was brilliant. That’s what I talk to people is your digital storefront, but it’s more than that. It is set up to really be the compelling experience for those people who may not have an intent to buy, who you don’t know, but who are showing up and exploring. And I think in today’s world, more and more people are trying to get the information they want before they actually engage in a sales motion. But I think that whole idea of how do you make it the best? We just went through a website migration and it was a huge initiative, a huge investment. Is it going to pay off? I don’t know. So keep going. So you’ve got all of these companies that you’re working with.
Sahil Patel (03:28):
Number one, your website, it has the potential to be your number one salesperson, but it is always your most expensive salesperson. If you just say [inaudible 00:03:41] for Maxio to run its website. Now, I don’t know this to be true, but if you’re like most of my other clients, it’s somewhere between half a million and a million dollars a year if you add up your hosting, the content, the tools, the website itself, whatever you’re paying, WordPress or whomever you use, all the different pieces of technology you have to plug into. And then there’s the people time, the developers, the designers, the copywriters, the engineers to just keep it up and running and hopefully making it better along the way. No brainer half a million to a million a year.
Randy Wootton (04:17):
Well, what’s interesting about that, I’ve never thought about adding all of those costs into just the website experience. I think the CMOs out there that might be listening to this are shaking in their shoes, which we’ll talk about a little bit. The CFOs are scratching their head and saying, “Gosh, I’ve never actually codified or created a unit cost economics for the website.” But I think you’re absolutely spot on. It’s probably that order or magnitude if you put all of those initiatives in place and capture the time allocation of the people that are building content, optimizing content, etc.
Sahil Patel (04:51):
You’re doing SEO, you’re running ad campaigns all to get traffic. And by the way, if you had [inaudible 00:04:57] and you brought her in the door and you said, “This is our new salesperson,” paying her half a million dollars a year, you better believe she would carry a pretty heavy quota. And it wouldn’t go long before your CFO or your CRO, chief revenue officer, all the Cs would say, “How much did she bring it in for half a million?” By the way, your website, it’s not like a salesperson where you pay them a little if they produce a little and a lot if they produce a lot. you are paying that website, whether it’s a little or a lot. So that’s the problem statement.
Randy Wootton (05:28):
And to that point, one of the things you had said as well is your homepage should be your most productive page because it’s going to have the most traffic. Even though there may other be pages like your pricing page, your demo page may have a higher conversion rate, you’re driving the most traffic, the organic, and then the branded keyword search. And then if you’re going to webinars or doing conferences, you’re driving people to your homepage and trying to make that most efficient. So that was the problem statement that you were trying to go after with Spiralyze, and you do it a really unique way. When I was taking all these notes about how you do it, you’re crawling 34,000 web pages a day. Can you talk a little bit more about that and what that means in terms of how you’re crawling and what you’re looking for and how you apply those lessons to the companies that you help?
Sahil Patel (06:16):
So there are 34,000 websites that do this thing called A/B testing where they’ll take, say, a landing page and they’ll make two versions of it and they’ll show half of their audience one version of the page, half randomly assigned a different version, and then they’ll compare which one got more conversions. By the way, conversion here could be someone signs up for that free trial. It could be they sign up for a webinar, download a white paper or click that [inaudible 00:06:44] those are all examples of classic conversions in a B2B SaaS website.
(06:52):
A/B testing is the best way to continually get your website to perform better, to turn it into that high performing salesperson because if you don’t A/B test, you’re just doing ideas, hunches. Someone goes, “Hey, I heard [inaudible 00:07:07] button’s blue let’s make the buttons blue. Or I heard that if you put the CEO’s dog on the home page, you get more people to click.” By the way, don’t do that. Now, A/B testing as a process is the best way to do it. But what most companies do is they test meek ideas. They do things like button color changes, or they test hunches and impulses. They listen to a podcast like this one and someone says, “I got more conversions when I put a blue background.”
Randy Wootton (07:44):
We were joking about when I first started the internet, I was doing display advertising and we used to talk about, “Hey, make it pink, make it blank, and you’ll get people to interact.”
Sahil Patel (07:52):
Make it blank, yeah. By the way, if it works for one company that has little to no predictive power then it’ll work for you or anyone else. And I’ll use this example. If you went to the doctor and the doctor looks at you and she said, “Hey, Randy, I got something for [inaudible 00:08:09] I want you to try this medicine.” And you said, “Great. I’ve never heard of this. Well, is this new medicine?” She’s like, “Oh, yeah. My neighbor tried it, worked pretty well for him. So I’m doing it to you.” I think you might pause and be like, “Okay, hang on a sec. Have you tested this somewhere? Is your neighbor the only person that’s tried this and did he even have the same symptoms? How is the dosing right? Is he a big guy, small guy? What on earth?” And the doctor says, “I don’t know. It seemed like a good idea. I want you to try it too.” This is almost like pre-scientific medicine. That is the state of most websites.
Randy Wootton (08:48):
What’s interesting about that-
Sahil Patel (08:49):
There’s good ideas and hunches.
Randy Wootton (08:50):
Right. What’s interesting about that is I’ve been talking about A/B testing for 20 years. We used to do A/B testing with email. We’ve done A/B testing with websites. I think the insights that you’ve determined or drawn out from all the ones you’ve observed is the three. One is that they run anecdotes, so like make it pink, make it bleak, put the CEO’s dog on. Number two, to your point, running meek tests rather than big bets. They’re testing dumb things like button colors. And then you said the other constraint, which I thought was really interesting, was the operational bottlenecks that keep you from doing monthly tests. So if people want to get an A/B test up and going, but can you walk through when you usually go into a customer and start to talk about, “Well, how are we actually going to build a muscle around rapid A/B testing so that we can actually make it efficient and effective and informative?” Where are the bottlenecks? Where are the constraints and the execution?
Sahil Patel (09:44):
So the first bottleneck is what should you test? Because once you’ve picked the low-hanging fruit, it gets a lot harder. Number two, you decide what to test. Then there’s a whole committee of people that have to approve the tests, copywriting, branding, product, legal. By the time they’re done, you’ve burned [inaudible 00:10:08]. And then number three, you got to actually build the test. You go to your developer and say, “Give me an A/B version of this page.” And she says, “I need a spec.” So you go to the designer and the designer says, “Great,.I got four other projects. I’ll get back to you in a couple of weeks.” That’s not high-velocity testing.
(10:29):
And let’s go back to how do you decide what to test? This is the problem we solve is we crawl 34,000 websites. We find everyone else’s A/B tests, and then we look for clusters of tests that work repeatedly. One test, one company, who cares? Running out to tell my clients, “You should run this test.” But if we see 10 companies all run the same test and they converge on an answer, that’s what we call proven winner. Those are the kind of tests I like to run for my clients.
Randy Wootton (10:57):
Good. Well, maybe we shift over there. So in addition to having the data, which you’re using big machines to go out and scrape the websites, it’s not like you have a bunch of folks in the back room checking out all the websites, you’ve had to build some real tech there. And that’s part of, as we were talking about, you’re in a tech-enabled service, not an agency. You’re a tech-enabled service [inaudible 00:11:16] the design, measuring, executing of the tests informed through the data that you’re collecting by the machines that are crawling all these web pages. What are some of the other best practices that you recommend? We’ll talk about it when we do the teardown on our website in terms of what’s working, what’s not, and how you would tune it just by looking at it. But in general, the takeaways for the audience, the CFOs, well, maybe not the CFOs, but we’ll get to that in a second. Just in general, you’re talking to head of marketing or marketing team. What are the three things that you recommend them to think about?
Sahil Patel (11:45):
Yeah. Here’s three things I think everyone listening can take away as being practical and generally applicable and relevant for their website in B2B SaaS. These are not idiosyncratic. They’re not things that will only work for one company, but no one else. They’re good general advice. Okay. Number one, show your product, show your product, show your product. Now, if you think, Randy, [inaudible 00:12:10] about the last time you saw a car company ad. Can you think of what it was?
Randy Wootton (12:17):
Gosh. I mean, I don’t-
Sahil Patel (12:20):
TV, internet, somewhere.
Randy Wootton (12:22):
Sometimes it’s the actor and sometimes it’s the car. But I think a lot of them, to your point, are the car. I mean, [inaudible 00:12:30] McConaughey, the guy who’s talking as the car is going.
Sahil Patel (12:32):
Yeah, McConaughey. He’s in the Lincoln, he’s driving. But imagine that same ad. You could subtract McConaughey. It wouldn’t be as good or charming, but it would still be recognizable as a car ad. But if you subtracted the car and you just had McConaughey, what would you have?
Randy Wootton (12:52):
Cool.
Sahil Patel (12:53):
Cool. Yeah. He would be just as charming, but I don’t think anyone would go out and test drive a Lincoln Navigator.
Randy Wootton (12:59):
Right.
Sahil Patel (12:59):
Same thing is true in B2B SaaS. It turns out… By the way, the data, that actually overwhelmingly supports showing the product in a prominent, visible way gets more conversions than happy people.
Randy Wootton (13:15):
Why do you think so many B2B websites don’t do that? What’s the hesitation, or what do you think the assumption is that’s driving having a dog jumping up on a trampoline on the front page?
Sahil Patel (13:29):
Well, I think one that we have largely been, let’s go back. You and I are old enough to… We were there at the dawn of the modern internet. It was like pre-scientific medicine. Before we knew surgeons should wash their hands, people didn’t wash their hands. [inaudible 00:13:52] should they wash them with soap? Yes. Okay. So a lot of internet has been based on hearsay hunch, anecdote. The first generation, really, we are still in the first generation of people that grew up in the internet era. Today’s senior executives at the board level and the C-suite level were starting out their careers in digital let’s say 20 years ago. There wasn’t science around this. It was a lot of anecdotes. By the way, it’s not their fault. There weren’t good tools to aggregate, to analyze. That’s the first thing [inaudible 00:14:32]
(14:33):
There’s some reticence. I think it’s based on unfounded fears that, boy, if you show the product, someone will steal it. Now, let’s just step back for a moment. Even if that were true, could you imagine running the car ad [inaudible 00:14:51] Toyota is going to steal the design for the latest Lincoln Navigator if they see the ad. Really? And even if they did, why and how would they execute on this? I think even if your competitor has a screenshot, they can find it if they wanted to. So what? I think that’s number two.
(15:15):
Number three, when we write websites, we labor over every word, every image. It’s not because people don’t care, but that process is inherently inward facing. It’s about me. Our product [inaudible 00:15:30] we’re great, here’s what we offer. And often I think it loses sight of the audience. They don’t know you. Okay? Most B2B SaaS, it’s not like high brand recognition. It’s like you’re selling an iPhone with a strong brand behind it [inaudible 00:15:48] I have a problem that I need to solve. I’m going to look at three or four vendors. If I’m in the enterprise market, I know I should look at these. And if I’m in SMB, I should look at these.
(16:03):
Decision making is pretty snap judgment [inaudible 00:16:06] that’s not the buying decision. Buying absolutely is lots of detail, buying committee, all those things. But that initial… They’re probably looking at your website for five to 10 seconds and they’re making a snap judgment inside of one second, “Hey, am I even in the right place?” That’s the mindset that you want to put it in. So you got to give your brain… Here’s the fact, your brain processes images faster than words.
Randy Wootton (16:29):
That’s what you had said to me before, which I thought was fascinating. The other thing, maybe a fourth I would offer is the website is often thought of as a canvas. And so if you have designers that are trying to bring to life the brand, they want to have a brand voice, value. Just a whole narrative about it. I think before the version that you saw, we had the product, the reporting tab highlighted, but we had these hands that were on the keyboards and someone told us, “That just looks kind of ghostly. Why’d you do that?” And I thought it looked very creative, but what it did was it pulled away from the emphasis being on the reports. The other things, I think, that happens is if you don’t have a great UI or UX, people will augment the product to make it look better, flashier, cooler. We were chatting a little bit about, “Hey, it’s probably okay to do a little augmentation. But when someone sees the reports on the homepage, it better look like what the reports are they’re going to get through the application.”
Sahil Patel (17:34):
That’s exactly right. So you’ve just described all the reasons people don’t do it. I think that now once they do do it, you show them the data, they go, “Wow!” Because an A/B test, we’ve run this through more than 100 companies, 52% of the time, showing the product on a demo request page gets more conversions than the control.
Randy Wootton (17:56):
So that’s number one. Show the product, show the product.
Sahil Patel (17:58):
Not just a few, 20% more. So it’s not just a little. If you tell someone, “You want 20% more leads?” Most people say yes.
Randy Wootton (18:05):
Awesome. Second thing, you’ve talked about the copywriting, and we were talking a little bit earlier about marketers spending all this time about getting the words just right and compelling narrative. What have you found through your testing for what works on websites mostly?
Sahil Patel (18:20):
Short, short, short, short, short, short, short, bullets. Three is the magic number. No more than two lines. Don’t try to get them to buy the product. Don’t try to explain why you’re better than everyone else. Make a single bold claim that’s different from your competitors. Your main job is to get the person to stop scrolling.
Randy Wootton (18:39):
Great. And so that actually was the third point I took away was this idea of a bold claim that’s quantitative and it needs to be positive. We were chatting a little bit about how I talk about when we sell Maxio, that we help you reduce revenue leakage. What you find is most B2B SaaS companies have 7 to 9% of their revenue going out the door because they’re not invoicing correctly period. Or they get customers that are contesting invoices and you’re like, “Randy, that’s really negative. You need to have a positive claim,” but you want it quantified on the page. Is that sort of the third point or would you add anything else to that about giving the benefit?
Sahil Patel (19:17):
You’ve put it perfectly.
Randy Wootton (19:18):
Okay. Well, there we go. And the thing before we go to the teardown, which we’re going to go to in just a second, I think the other thing that you talked about with your firm in particular is once you pay for performance, and number two is you are out to really have significant performance. And one of the data points you gave me was clients, you’ve worked with one in particular, had 50% lift on their home page. So it’s not just sub 10%. This is significant improvements by using this A/B testing informed by what’s working broadly across the internet of companies, the full superset of companies that are doing A/B testing.
Sahil Patel (19:55):
That is exactly right. We’re playing for big swing [inaudible 00:20:00] for Spiralyze, but we’re playing for big swings, double digit increase in conversion rate, and you only pay if you get the lift.
Randy Wootton (20:07):
Awesome. So let’s see what you got. I did this one-
Sahil Patel (20:12):
Let’s do the fun part.
Randy Wootton (20:12):
Let’s do the fun part. This is a follow on to… We went to Pep, who’s the CEO of Winter, and he does this public teardown of people’s websites on LinkedIn. It’s a lot of fun. We put the Maxio website through his process and there were some good insights, some of which we knew and we were incorporating into our new release, which we just did on the 27th of June. But I said, “Hey, you know what? Give me your best shot. What do you think we’re doing well? What could we be working on?” And your team was able to turn around in less than 24 hours, a couple of recommendations. And so if you’re ready to shame, I’m ready to reveal.
Sahil Patel (20:48):
I absolutely am. And I want to say Pep is the best in the biz. He’s so good, so smart. He’s been doing it… I mean, he was onto this before anyone else was. Pep is listening. I think he knows. I shamelessly steal from him every chance I get. Here we go. I’m going to bring up my [inaudible 00:21:09]. Now, even before we talk about some new ideas, let’s just take a look at your home page. Randy, let’s talk about it. Now, is this the new version of your home page? You’re doing a lot of things really well here.
Randy Wootton (21:21):
Thank you. Yes. It’s the most recent. It doesn’t incorporate all the changes we want, but we had to go back. We migrated back to WordPress, and that just went live on late June. So this is hot off the presses, but not the best yet.
Sahil Patel (21:34):
It looks great. Tell me, what are the things you think it’s doing well? I think you maybe have some more changes that you have coming. Where do you think you can do better because I think that’s a good place for us to start?
Randy Wootton (21:46):
Well, I think the thing that I like about it is, to your point, around product, product, product. We do have the product captured on the page. It’s done in an augmented way, but it’s big enough that I think that when people hit the web page, they can see it and engage with it. I think we’re descriptive of what we offer. So at one point, I had an ambitious vision for what we should be doing with Maxio. We did a little bit of testing on it, not in a professional way, but what we got to was we needed to be more clear about what we offer. And the challenge is we do have two different offers. We have a billing solution and we have a financial operations solution. So it was bring those two things together and then be very clear that our focus, our ICP, is B2B SaaS.
(22:26):
So if you’re a B2B SaaS CEO or CFO, our hope is you hit the page and you’re like you’re in the right spot and the product looks kind of cool. Now, let me see what we might want to do. And you got the [inaudible 00:22:40] across the top, and we do have two different calls to action, again, informed by feedback. One was get the demo, right? We want someone to do it. The other feedback we got was, “Hey, I don’t want to interact with anybody. Could we do a tutorial?” And so we do have a tutorial option, which is a self-run tutorial. We use a company called Torial, I think. Great CEO, really fun guy. And we’ve seen real interaction on that. I think it’s kind of pick your own adventure in terms of how do you want to take the next stop, super clean on the page?
(23:11):
And then finally, it’s great to see that in your rendition that the four capabilities below, the subscription billing, the revenue management and revenue recognition are above the form. That’s one of the things I’ve been a little anxious about is how’s that showing up so that people can see exactly what do we do for B2B SaaS companies.
Sahil Patel (23:31):
Yeah, really good. So I agree with all of those. To me, I’m just going to draw a little here, see if I can make that… I don’t like that, it’s op… Never mind. [inaudible 00:23:44] your headline, really good. It tells me exactly where I am. So many companies have this broad aspirational headline, excellence defined. The number one blank in blank. It just means nothing. Dual CTA, I like that. You’ve got a high intent CTA and a lower, I wouldn’t necessarily call this low, but lower. Hey, it’s my first time here. I don’t know how I want sales rep giving me the spiel. Maybe I just want to check this thing out, make sure I’m in the right place. And then showing the product, showing the product, showing the product. Really good. And depending on this, if I’m zoomed in a little, I may see only a little bit of this, but something tells me, “Hey, there’s something worth checking out”. And it’s only a quick scroll to see, okay, here are the four things you do. I think those things are really good.
Randy Wootton (24:35):
Great.
Sahil Patel (24:36):
Okay, let’s talk about some things you could do that would get you more conversions. Number one, there’s no hook. Now, categorically, I’m in the right place, but if I looked at your top three competitors and then I looked at you, I would think great. But I don’t know what’s different. By the way, I didn’t say better. I just said different. I don’t know what’s different. The sub headline, it’s okay, it feels a little wordy. I think this product’s [inaudible 00:25:04] really strong, but there’s just not a hook. So we took a swing at this and we can go over here.
Randy Wootton (25:13):
There you go.
Sahil Patel (25:15):
And we did fourth things here. So first, we moved your headline here, which I would call this a categorical headline. By the way, categorical headline, still better than broad aspirational. We moved it into what’s called the eyebrow, billing and [inaudible 00:25:33] is it immediately tells you, “Hey, I’m in the right place.” I think this is like you’re looking at a restaurant. I wonder, “Is this food? Is this fine dining? Is this burgers? Is this pizza?” Okay? That’s not what gets you to stop. It just tells you you’re in the right place.
(25:50):
Two, we paired it with a bold headline that delivers a clear benefit and a bold but believable claim. Now, I actually don’t know to be true, is 14% the right number? Yours may be more, it may be less. It needs to be believable. When you see someone say, “Hey, increase, grow your business by 30%.” I’m like, “Wait a minute.” A single vendor that can drive 30%… I was just like, “It’s just not possible.” Maybe you can move a single metric, but you got to make it specific and believable.
(26:28):
And then third what we did is we used this thing called Hero Tiles. By the way, this is not an idea that we came up with. We scraped this from Monday.com. So Monday.com, I’m going to… Let’s not get distracted. Anyone else willing to check out Monday.com, they ran this as an A/B test and proved that it got more conversions. We have since, by the way, run this for our clients. On average, it gets 17% more conversions on the homepage by running Hero Tiles.
Randy Wootton (26:54):
And Hero Tiles being, if you go back to the other screen for a second, different than what we do have on our page where we have the four boxes; the distinction between that and the Hero Tile is just because it’s a little higher and because it’s very specific? I mean, both are going to click through to other landing pages or other pages-
Sahil Patel (27:17):
Well, that’s a little bit different. So this, first of all, it’s kind of a weak CTA, learn more. Everyone’s seen it, learn more. Reminds me of school. I’m not too excited about that. Okay? It’s also below the form. So we call them Hero Tiles here because they’re in what marketers call the hero section of the page.
Randy Wootton (27:36):
Got it.
Sahil Patel (27:37):
Above the form.
Randy Wootton (27:38):
Okay.
Sahil Patel (27:38):
The tiles, that’s just a word for boxes. But here’s where they engage people. We’re pairing them with, instead of a sub headline, we’re actually posing a question. How can we help you automate? Which spurs your audience to think about what is it they want today? They check a box, and then to actually go forward, they have to put in their email address. Now, it’s a micro-commitment. We’re not hitting them over the head with a whole form, but we’re saying, hey… By the way, I don’t know these are the four things that… You know better than I do. Hey, if I’m interested in subscription billing, I put in an email. That’s not so bad. And then I’ve got this… Your product looks great, by the way. Beautiful product screenshot right here. Now, if we were working together, I might get a couple smaller screenshots. If you have a mobile app, you have a secondary and tertiary page, I would put them over on the side. Now, we haven’t done anything… Oh, then the last thing we did is we got your logos.
Randy Wootton (28:43):
And brought them up higher, right?
Sahil Patel (28:44):
Brought them up higher.
Randy Wootton (28:44):
The credit that we have, right?
Sahil Patel (28:48):
Yeah. Today, they’re here. It’s not bad. Your social proof can do a lot of lifting. You’ve got great Chili Piper, incredible company. Instant brand recognition.
Randy Wootton (29:00):
Right. Cool kids like to be with cool kids.
Sahil Patel (29:02):
Yep. You solve problems for people like me, problems like mine.
Randy Wootton (29:07):
So that’s option one. You did three of these. So what would you call this rendition versus the other two, or was there a guiding theme for this one?
Sahil Patel (29:17):
We did three different pages. We did a home page, we did [inaudible 00:29:21] download.
Randy Wootton (29:22):
Okay, great.
Sahil Patel (29:23):
So three different use cases, three different places in the user journey.
Randy Wootton (29:28):
Okay.
Sahil Patel (29:28):
Okay. Let’s talk about your demo request page. Okay. Now your demo request page here, you’ve double stacked the fields. You’ve got this micro texture, which I really like you, you have your social proof up high. For a high intent audience, you may not need all that information because if you get that high intent audience all the way to this page, our data shows you actually get more lift by removing distractions.
Randy Wootton (29:57):
It’s one of the things everybody debates is what’s the trade off between the give the information for free versus how much information do you need to be able to engage with them productively in a sales cycle? And I guess what you’re saying is you’ve shown that if you actually ask for less at this stage of the process, you get more people submitting.
Sahil Patel (30:18):
Let me be specific. This is on a page where you’re getting mostly high intent traffic, mostly organic traffic. We’ve actually tested it. This kind of approach does not work on paid landing pages.
Randy Wootton (30:30):
Okay.
Sahil Patel (30:31):
Because that audience lower intent, or at least a mix of intent, especially if it’s a non-branded search term campaign.
Randy Wootton (30:40):
Okay, great.
Sahil Patel (30:41):
So let’s say, Randy, I typed in billing software right now. I could be looking for a lot of things there. I might be looking for something like Bill.com. I might be looking for Maxio. I might even know what I’m looking for. Just my boss said, “Hey, we need some better billing software.” I’m all over the place. And they get to Maxio maybe because they see a great ad you’re running, which has a great hook. That is a totally different strategy, and we don’t have time to go through that. It’s a great conversation for another day on how do you tailor a great landing page experience for a paid landing page.
Randy Wootton (31:15):
Okay, so you’re solving for this by pulling back for that very specific use case of the high intent and pulling back on some of the required information to be submitted?
Sahil Patel (31:25):
Well, no. I’m not.
Randy Wootton (31:26):
Oh, sorry.
Sahil Patel (31:28):
It looks like that. I’ve actually just streamlined your form to make it look shorter.
Randy Wootton (31:33):
Okay.
Sahil Patel (31:34):
So I’ve taken your form and I’ve moved the field labels inside the fields. I’ve kind of doubled stacked the form-
Randy Wootton (31:41):
Oh, great. Created more white space, right? Yep?
Sahil Patel (31:46):
The form looks less overwhelming.
Randy Wootton (31:50):
Agree totally.
Sahil Patel (31:52):
Okay. Number two, what I did do is I stripped out all the distractions, your value props, your headline, your social proof, I even removed your top nav bar. These are escape doors. And if you get the high intent audience all the way to this page, the last thing you want them doing is walking out one of those escape doors because they might not walk back in.
Randy Wootton (32:15):
But do they feel that when they’re confronted with this, that the only way forward is this one way door? I mean, the testing shows it, right? The A/B testing that they also feel kind of frustrated because they want to be able to-
Sahil Patel (32:28):
They might. When we run this test, we would only call it a winner if you get double digit gains, because, yes, there is a part of your audience. Now we won’t exactly how many it is, but if you get 5 or 6% lift on this, I would call it not a winner. It’s not a loser, but it’s not a winner. Now, what you can do to get more insight is run some heat mapping software. There’s a lot of good options out there. Some of the A/B testing tools have it built in. I would recommend to everyone, if you don’t have one of these tools, Fullstory is another. If you don’t have one of these, get one. There’s good free ones. And if you see a lot of people doing what’s called rage clicking, then it probably means you’re frustrating your users.
Randy Wootton (33:17):
All right, good. Any other sort of insights on this page that you-
Sahil Patel (33:21):
Yeah. So two things. One is it’s sensitive to the right screenshot. You want to get something that creates a wow moment. Now, easy way is go to your sales reps and just ask them, “Hey, what’s the screen that gets everyone excited when you show it in a demo?” Your sales reps know. The second thing is, let me just focus here, the second thing is you want to blur the background image.
Randy Wootton (33:47):
Yeah, I love that. I think that’s really not just tasteful, but really intriguing. It feels very modern. It shows what’s behind, and it’s intriguing in that way.
Sahil Patel (34:00):
Yeah. Now, sometimes my clients ask me, “Well, we have three products. Should we show a different product depending on what someone’s interested in? We have 30 products, we’re a big company. We’ve got not just multiple suites, we’ve got multiple platforms.” And what I tell them is, “You’re overthinking it. You actually don’t want your audience thinking about what page that is.” First of all, I don’t actually think they care or remember. By the time they fill in this form, you schedule the demo and they show up for the demo, they don’t remember what was on this page. Number two, if they’re thinking about the image, they’re probably not going to convert. What you’re looking for is an instinctive emotional response that you’re trying to evoke for them to say… I call it the tinted window effect. “Good. That looks cool. I’d like to see what’s on the other side.”
Randy Wootton (34:50):
Right, exactly.
Sahil Patel (34:51):
Okay. So we’ve now looked at the home page. I’ve shown you what you could do there. We’ve looked at a demo [inaudible 00:34:58], which is going to be a bit of a high intent, typically more advanced in the user journey. Most of the people who come to this page have done their research. They’ve looked around. They probably looked at a couple of your competitors. And if they’re here, what you want to do is just make it easy for them.
Randy Wootton (35:14):
Right. Remove [inaudible 00:35:15]
Sahil Patel (35:15):
Okay. Now, let’s look at a totally different kind of page, which is an asset download. This is a classic, what people would call a low intent or lower intent type of experience. They’re probably pretty high up in your funnel. They’re almost never ready to, I don’t even want to say buy. They’re not even ready to typically entertain a sales rep or a free trial or anything. They’ve probably just looked at you and be like, “Huh, pretty interesting. This is pretty cool.” This often sometimes is a lead magnet where you’re promoting it and just trying to get your brand out there and say, “Hey, we have a bit of intellectual capital thought leadership. We’re not trying to get you to buy our product. We’re trying to show we’re credible in the marketplace.”
Randy Wootton (36:02):
And that is exactly what this initiative was. We launched the Maxio Institute, which is a “research arm” of Maxio, but basically it’s the marketing arm. We aggregate the data of our 2,400 customers, which is anonymous billing and invoicing data, about $16 billion a year. And then we have some analysts go crank on it to talk about, well, what’s been happening? And we’re one of the largest providers of insight into the SaaS industry in terms of private companies, not public company data, to talk about what’s going on, and we break it out.
(36:33):
So your point is spot on. It’s meant to be a lead magnet. It’s meant to build credibility as a brand of Maxio. It’s meant to be one of the pillars for thought leadership. I don’t expect anyone to be clicking through and buying tomorrow when they’re reading the report. What I do hope is that the Maxio brand sticks and that they have brand preference, brand favorability. If they were to then go into market, they’d be like, “Oh, yeah, Maxio.” And they may not even remember the report. They’re kind of like, “Oh, yeah. They seem like they’ve got a great brand. I’ll give them a shout.” So it’s exactly that. Low intent, high funnel engagement and brand building exercise.
Sahil Patel (37:11):
There you go. So, Randy, let’s take stock. What do you think this page does well? What do you think it doesn’t do well? And let’s agree. The goal is to get people to engage with the lead magnet to get the report. There’s some benefit if they just look at the page, but really they need to engage with the report. That’s the goal here.
Randy Wootton (37:29):
Well, now that you’ve given me all this coaching, I’m looking at it through a different lens, and I would say it’s what I would… What I’m struck by is how many words are on the page. People probably don’t really care about the table of contents at this point. The actual image could get bigger. There’s a lot of words underneath the growth state of B2B SaaS businesses in June. Given your example on the homepage, it seems to me like there could be a bold claim like the headline on the page around what the growth was in Q1. So we knew it had increased to 19% in Q2. Between us, it’s actually gone back down to 17%, which will be part of our report. So you could definitely create more compelling call to action or insight tied to number on the page. So I get all sorts of ideas, but you’re the expert. What did you get?
Sahil Patel (38:21):
Well, first off, you hit on something that I didn’t do, but I wish I had, which is do a bold headline. So let’s take a look here. Okay? So we didn’t do much with the headline, but I kind of wish we had. I think the value props, we made them easier to skim, and we did that by bolding the first few words. So someone’s eye can hit a few keywords and go, “Okay, I get what this is about.”
Randy Wootton (38:50):
And the rule of three. You’ve got only three.
Sahil Patel (38:52):
Yeah, rule of three. We also put the form on the page.
Randy Wootton (38:58):
Yeah, I see that.
Sahil Patel (38:59):
Now, you might want to test… You could test it both ways with just the CTA and with a form. I’ve seen it work both ways. The goal of this page is to squeeze the person for their contact info.
Randy Wootton (39:13):
Yeah.
Sahil Patel (39:14):
Number one. So you might as well squeeze. Number two, you are only asking for three things: first name, last name, email. So it’s a very light ask. Now, I think if you had a form where you were asking for all kinds of stuff… By the way, it is a terrible idea on an asset download, but you actually are doing the right thing by saying, “Hey, if you just tell us who you are, and we allow you to opt in or out of hearing from us, we’re going to let you see this.” You’re doing it the right way. You’ve done yourself a favor, so take advantage of that. So that’s why I would say go ahead and put the form on the page.
Randy Wootton (39:52):
Well, I hear you. I think we have a lot of debate about what do you give before effectively a paywall, and what do you give after the paywall in terms of information-
Sahil Patel (40:01):
Healthy debate on gating it.
Randy Wootton (40:03):
What do you gate-
Sahil Patel (40:05):
Since you have decided to gate it, you’ve done this one thing by doing a very light gating. Because I look at this and I know this is… I suspect this is gated because it doesn’t say download. It says get the report. That’s code for we want your email address. What I don’t know is, is it email plus [inaudible 00:40:25]
Randy Wootton (40:27):
That’s great. And then I also love the way that you’ve maximized the image. It looks really compelling. Well, great. So I really appreciate it. This is a lot of fun. I’m going to introduce you to our head of marketing. Having been in marketing for 20 or 25 years, I do appreciate using data to influence and impact your strategy and turn it from random acts of marketing into database campaigns and execution and learning how to get people… It’s not just about manipulating your audience, it’s trying to get people the information in the way that they want it. And that value to exchange in terms of what they’re willing to give versus what you give to them. And so I think it’s just a really great value prop that you guys are offering. If people wanted to learn more, other than finding you on LinkedIn, what’s the best way to track you down? Go to your website?
Sahil Patel (41:19):
Best way to track me down personally is LinkedIn. I post multiple mornings a week at 7:30 A.M. always in short, easy to digest. In about 60 seconds or less, you can get something interesting. If you’re interested in what we do as a company, Spiralyze.com.
Randy Wootton (41:38):
Awesome. Well, Sahil, this is the first where we’ve done a teardown or interactive exercise on the podcast. I hope people have found it valuable. I really do appreciate the time you put into it and the time you spent with me today. Best of luck and I look forward to continuing the conversation.
Sahil Patel (41:54):
Likewise, Randy. Really enjoyed it. Thanks for having me.
Diagnose Before You Deploy: Smarter Strategies for CEOs with Michelle Valentine
September 19, 2024
Episode details
This week on the Expert Voices podcast, Randy Wootton, CEO of Maxio, welcomes back Michelle Valentine, Co-founder and CEO of Anrok and a prominent figure in the SaaS industry known for her innovative strategies and effective leadership. Randy and Michelle explore the “Seven Secrets of Success,” focusing on delivering results, building winning strategies, and shaping company values. Michelle shares her unique experiences and methodologies, including the concept of “Murphyjitsu,” a strategic approach to anticipate and mitigate potential failures in business projects. She also shares how creating culture holds people accountable and fosters growth, elaborating on the power of intuition and making space for reflection.
Video transcript
Randy Wootton (00:05):
Well, hello, everybody. This is Randy Wootton, CEO of Maxio and your host of SaaS Expert Voices where we bring the experts to you to talk about what’s going on in SaaS today and what does the future hold. This is the first time for us on SaaS Expert Voices we have a repeat guest, Michelle Valentine, CEO of Anrok. I’m super excited to have you back, Michelle. Very specifically today we’re going to talk about a different aspect of building companies, and that’s how do you do it successfully as a CEO. We have been chatting a little bit about this over the time we’ve gotten to know each other, and so thank you, Michelle, for coming back and imparting some of your wisdom.
Michelle Valentine (00:39):
Excited to dive back in.
Randy Wootton (00:43):
As a starting point, as some people know, I’ve been working on this book, at some point it’ll get done. It’s called The Seven Secrets of Success for CEOs. What I will do is I will just catalog them really quickly and just describe what the seven secrets are and then, Michelle, you’ve got some comments on a couple of them. Then I think what’s going to be really interesting is how you thought about developing yourself as a CEO, and that falls under one of them, which is what have you been doing very specifically to broaden your perspective or what I’ve described as sharpening your spear? How do you get better at the job? To set the context, the seven secrets of success at the highest level, and people can read this on my LinkedIn, include driving overall results, specifically like shareholder value, because if your company isn’t thriving then you’re falling short. I think in the change in the market landscape, we’ve seen that play out and I’m sure you have lots of friends that are all super anxious about the results, so that’s number one.
(01:36):
Number two is establishing a winning strategy so everybody knows what businesses they are in today and where we’re going forward. Number three is shaping values and standards that will guide your company over time because there’s never a right answer. There’s always a series of choices and we need to use our values and standards to help us make clear where we’re going to go. Number four is building an effective executive team because you only have one pair of hands. Number five is managing your board and investors and setting the right kind of expectations, which we talked a little bit about your background last time and I think this will be great conversation there. Number six is allocating capital to balance the yield today with the necessary improvements, and then number seven, investing in your tribe. That means working with mentors, coaches, peer groups or building out a personal advisory group or panel to help you make the best decisions you can. Michelle, with that framing of those seven, where would you like to start? Which ones really resonate for you and what would be some of your thoughts?
Michelle Valentine (02:36):
You have to start at number one. Outcomes matter. That’s the reason why that one I think is your number one. What I come back to is people want to work on winning teams, and so results matter, rallying the team and seeing what you’re doing together is really important. Creating a culture that holds people accountable and stretches people for those goals is absolutely the number one thing that a CEO needs to keep their eye on. That said, to get to number one you really need number two, creating that winning strategy to get to those results. Something that we’ve done at Anrok is writing a short memo of why we think we’ll win as well as think about why we might lose and making sure that we have a plan of attacking all of the reasons why we might lose. This type of thinking is something we call Murphyjitsu at Anrok. It’s a term that’s borrowed from Center for Applied Rationality, so it’s not an Anrok original but it’s one that the team uses a lot, which essentially comes from this idea of Murphy’s law, anything that will go wrong will go wrong. It’s all about creating that plan to think about how do we make sure that things that could go wrong don’t go wrong?
Randy Wootton (03:54):
Let’s talk about that, Michelle, if you wouldn’t mind just a second because that is something I think again with your background as an investor that you’ve been able to look at businesses with an impartial view and think about what’s going to work, how it’s not going to work. You probably in many ways as you’re looking to make investments… I always think about it as they’re looking to kill deals more than invest in deals. Is that where your initial skillset, you developed this idea of how to work through the scenario planning and really step into the space of, “How could we fail?”
Michelle Valentine (04:27):
Those are similar frameworks. They’re different in one key way, but first I’ll talk about the similarity that you notice. For investing, the question is often like, “How does this go right?” Because it’s more easier to go wrong than go right, and so in investing it’s more about dreaming the dream and how big could the dream be and could it get there. In venture capital, it’s so easy to pass on a deal because it’s much easier to think about the ways it could go wrong, and so getting over that hurdle to actually invest and thinking about how could this go right is often the harder question to answer as an investor whereas as an operator, you are faced with all of the many things that can go wrong, you’re already in the seat, and your job is to really think about making sure that your team doesn’t miss the mark or miss an opportunity.
(05:19):
Going back to this Murphyjitsu framework, let’s say you’re working on a product launch and the question you can ask is, “Well, our go live date is January 1st. How surprised would I be if we missed the product launch date?” You’d say, “I wouldn’t be that surprised. I think we’d probably miss the product launch date.” “Okay, let’s think about all the ways it can go wrong and ensure that we have a plan to make sure that dates don’t slip or QA is done on time or we beta test correctly.” Now once you have all of those things in place, you almost go through that simulator again and think about, “How surprised would I be if this went wrong?” You might think to yourself again, “I still wouldn’t be that surprised if things went wrong.” Then you think about, “Okay, well, what else could go wrong? Marketing might not be prepared and might not have had a sufficient heads up. Okay, we’ll create a plan for that.” You keep going through this in a simulator several times until when you finally ask the question, “How surprised would you be if this went wrong?” You’d be, “I would be very surprised if this went wrong.” That’s when your plan is ready to be set off into the wild and execute on that plan.
Randy Wootton (06:28):
I remember the last time we were chatting, you were talking about this confidence interval and that when you write up plans, you assign a confidence interval to it and 60, 70, 80% so that you’re indicating to people when they’re reviewing your plan how confident you are in the ability to execute. I imagine this process, this Murphyjitsu, is part of how you increase your confidence for the different documents that you’re putting together or plans. Is that fair?
Michelle Valentine (06:56):
That is fair. I think the other way that you might use the confidence interval where you wouldn’t apply the Murphyjitsu framework is a strategy. The confidence interval is like, “How confident are you? Is this the right or wrong strategy to pursue?” Murphyjitsu is best applied to when you’re actually operationalizing something, when you know this is the right problem to go after or the right strategy to use. It’s more thinking about, “How do you operationalize this in a way that you minimize the risk that things go wrong?”
Randy Wootton (07:27):
Great. Help me understand… You only have so many hours a week. You could be spending time in terms of creating new ideas, building out product plans, doing some troubleshooting, but not the deep think cycling on what could go wrong and creating mitigation plans. How do you balance that? Maybe think about or maybe frame which things do you apply the Murphyjitsu to and then what’s your expectation in a week? How much time are you spending Murphyjitsu-ing versus creating?
Michelle Valentine (08:02):
The more important problem, I think the more important it is to make space and time for Murphyjitsu. It often comes up in a meeting setting. If I’m feeling a little bit worried that something might not go to plan, it’s a really useful framework to almost call out the elephant in the room without calling anyone specific out and framing it as a problem that we can all work on together. What’s helpful is that Murphyjitsu has a very cute name and it makes something scary, like thinking about risks and way things can go wrong, as if it were a fun game. I use this framework I would say almost weekly across all different departments, across product launches, across partnerships, across hiring like, “How surprised would you be if this person was the wrong hire?” And just thinking through like, “Okay, let me simulate if we hire them, what could go wrong? Okay, have I asked references about this way it could go wrong? Do I feel like we’ve tested all of the different aspects of what this hire will be doing for me to feel confident this is the right exec in the seat?” The more important the problem, the more important it is to make space for Murphyjitsu, and I do this at least weekly.
Randy Wootton (09:15):
That’s great. Sorry, it came from the Center for Applied… What was the last part?
Michelle Valentine (09:18):
Rationality.
Randy Wootton (09:19):
Rationality. Wow. Okay. Well, I have never heard of it. It sounds great. I think what I’m struggling with is my own sense of… I tend to be one of those guys that’s always defaulting to the optimistic potential outcome and I’m just going to gut it out and we’re going to do it because we’re just going to brute force it rather than spending the extra cycles to scenario plan and think about it. We do try to do some mitigations, but certainly not at this level. I do like the idea of it depersonalizes things.
Michelle Valentine (09:50):
Mm-hmm.
Randy Wootton (09:51):
One thing in our company we talk about, which lots of people talk about, are big rocks, so big opportunities are big problems. I’ve never used this framework before so I am going to go find the book, find the group, and apply it. That’s awesome. That really helps you feel more confident about the results you’re going to deliver and sort of double-clicking down into that from the winning strategy to specific tactical plans that you’re going to be executing that would then enable you to realize the strategy that you’ve articulated. Is that how they come together?
Michelle Valentine (10:26):
Yes, and it’s about tapping into something that I think is innate in all of us, which is the ability to play out a movie or simulate an environment, but we often don’t use that skill deliberately enough. Usually that’s something that comes out in a daydream scenario or maybe when you’re really optimistic, you’re playing out that movie, and we don’t apply that skill set that we innately have to downcase scenarios enough.
Randy Wootton (10:52):
How do you keep it… Do you do this with your executive team in person? Do you get together on a monthly basis and run through a set of future plans and say, “Okay, we’re going to Murphy this thing and Murphy that thing,” and everyone plays? Or maybe another question is how much coaching does it take to take people who haven’t experienced this and change the way they think about approaching problems and plans?
Michelle Valentine (11:15):
I think if you do it enough, it becomes part of the culture where now teammates at Anrok often bring this up without me, and it’s a good way for… Often high-performing team members have a lot of fear and concern that things might go wrong, and so for them it gives them a tool to put it out in the open to their team to say, “Hey, let’s Murphyjitsu this for a minute.” They might be worried that their teammate might drop the ball on something, and this is a good safe way to bring up that fear and allow the other person to say, “Hey, I’ve got this. I’m committing to this date or this date.”
(11:49):
I’ll give you an example of how it organically came up up actually already this week, it’s Monday, where we were going through our Q3 plan for one of our go-to-market teams. We looked at all of the things that we committed to and we paused to think, “Hey, how surprised would we be if we ended the quarter and didn’t complete all of these things?” We identified something that was missing because we were not surprised if we’d complete the quarter and things were missing, that we didn’t have kickoff dates for the different projects and we didn’t put those different projects in the context of a timeline and assign DRIs that were committed to kicking off those different projects and all we… Yeah.
Randy Wootton (12:32):
Sorry, what’s a DRI?
Michelle Valentine (12:34):
Directly responsible individual.
Randy Wootton (12:36):
Ah, okay. Mm-hmm.
Michelle Valentine (12:41):
One of the things that we do when we plan every quarter is to often bring in this Murphyjitsu framework to have a sense of, “Hey, if things went wrong this quarter, what went wrong? Are we resourcing correctly? Are we setting the right timelines and making sure that we catch things before the quarter ends?”
Randy Wootton (12:57):
Well, that’s great. That almost starts to bleed into the third secret of success, which is around shaping values and standards that will guide your company. This is one of your habits or patterns that when people come to Anrok, they’re going to learn it, much like with… I think about the memo at Amazon where they write the six-page memo and everybody reads it when they’re in the meetings so everyone’s operating from the same, pun intended, sheet of music, but are operating with the same information and they comment and then the discussion starts. Maybe expand on that a little bit. How else do you think about shaping values and standards that will guide your company over time?
Michelle Valentine (13:33):
If I think about the values exercise that companies often do, and we’ve gone through things like this at company offsites, I think what we’ve missed in the past and is common for a lot of companies is you often start from aspirational values and you don’t often start by, “What do people actually do?” I think that exercise is something that’s quite useful to understand, “Okay, what are our values based on what we actually do and how far apart is that from our aspirational values?” So when you get to the point where you want to codify your values as a company, and each company might decide at a sudden scale it’s time to codify the values, making sure that the aspirational values aren’t too far apart from what actually the company does today.
Randy Wootton (14:20):
Yeah, I think that’s great. Often the value exercise can turn into a Dilbert routine and you have a set of values, you put them on a poster on the side of the wall, and say, “Hey, those are our company values.” There is a great article in HBR, Harvard Business Review, and I can’t remember the name of it, but it talks about this, be careful about taking on the value exercise because there are these actual values, these expressed values, that you have to be able to acknowledge and name as much as you then want to articulate new values, and, to your point, the aspirational values introduce those over time. I think company has values whether or not they are labeled, and so being clear-eyed about what they are and then trying to reinforce moving in a different direction that people are committed to and then how do you set up… Maybe this is a question for you is how do you set up the reinforcement in terms of behavior and coaching and rituals to… Do you have a set of… I mean, can you tell me what your values are? Are they four things that you espouse, and then how do you create the rituals to reinforce them?
Michelle Valentine (15:27):
Well, I remember going through this shift at Airtable, actually, where we had very organic and innate values that came from just working with a very craft-minded team. Airtable as a product is very complex to build. For those that aren’t familiar, it’s a database that really presents itself like a spreadsheet, and so it’s a very powerful tool and a very difficult product to build from day one. You can’t release little feature by little feature. When you build it, you have to build the whole thing.
(15:58):
There was this culture of simmering where you’d actually sit and be really thoughtful with a craft and simmer. This was something that in the early days we used a lot, and then at a certain point that didn’t serve us very well because you needed to act with urgency and you needed to actually go to market with a product that you’ve built. There was a clear shift where we went from often in a conversation to say, “Hmm, let’s simmer on that or let’s think about it a little bit.” To like, “Okay, no, we need to make a decision and act with urgency.” That was a very clear shift that happened when we were about I think 100, 150 people where that framework just wasn’t serving us well anymore and the team had to really change the way in which we use that language because it ended up holding us back.
Randy Wootton (16:51):
What were the rituals that you were introduced or that you introduced to move from simmer to act with urgencies?
Michelle Valentine (17:01):
I think the biggest thing that I would say the CEO, how he did, was to stop using it himself and it was no longer in the vocabulary of every day. I think it’s also pointing out to the team that, “Hey, we need to change.” Often the analogy that Silicon Valley founders use is, “Hey, we’re building this plane as we’re flying. Things are going to change while we’re in flight and change is okay.” Something that I’ve learned through seeing companies go through a lot of changes is the biggest thing that holds people back from being able to change is this fear of loss that, “Hey, we’re going to lose something very precious that was very special to our culture.” There’s fear of losing that thing, and it’s important to remind people that change at a startup is very normal and there’s so much more to be gained and company culture is a living and breathing thing that evolves when you’re moving so quickly and when you’re growing from such a small base.
Randy Wootton (17:57):
Yeah. One of the things I found coming into Maxio, which is the mashup of two companies, SaaSOptics and Chargify, who both had been very successful in their own right for 12 years each, was they had ingrained ways of doing things and they were different. I mean, you almost couldn’t find two more different cultures than how things were done in terms of product release at SaaSOptics versus how they were done in Chargify, the way they interacted with each other, how they thought about go to market, management systems, just radically different. One of the things we had to confront was when I came on board in 2022, I was a Maxio employee and my stated mission was to bring the two companies together and do the best we could to build a great company. It was to honor the history and the values of each, but we couldn’t have competing values.
(18:44):
I think that was something we had to work through, and, to your point, I think what you found was the old guard, they weren’t being resistant just to resist, but I do think it was the sense of this fear of loss of what made them special as Chargify or SaaSOptics and how was it going to be consumed into this new board, Maxio? We did end up with some attrition so that by year two with the attrition and the hiring behind, we ended up with more people that were Maxio first than legacy SaaSOptics or Chargify. I think once you hit that tipping point, now you have a group of people say, “Hey, I only know what Maxio is.” It was really important for us to introduce a set of values, we call them HYPE, honest and open, your input matters, passion for progress, and expect excellence. Going to the point about rituals, one thing I like about it is it’s memorable. A lot of companies, you have your values and you’re like, “I don’t know. There are like 10 of them. I can’t remember them.” Having an acronym makes it easy.
(19:38):
Number two is we use every single all-hands every single month. There’s a winner for the HYPE Awards, and then we introduce the year-end… The person who had the most honest and open. The other thing we use Bonusly. I don’t know if you have heard of Bonusly. It’s this wonderful tool where you’re able to give basically token points for people catching them being great. I don’t know, a couple of bucks, but then they go into their Bonusly bank account and they can use it to buy swag, they can use it to buy gift certificates, and so rather than giving someone, “Oh, here’s a Maxio T-shirt.” Instead, it’s like, “Here’s some Bonusly points. If you’d like to buy the Maxio T-shirt, then please do.” But every employee has a certain number of bonus points they refresh every month, so if you don’t use them, you lose them, and when you give them, you have to call out someone along those dimensions, one of those four dimensions, honest and open, your input matters, passion for progress, and expect excellence. It’s just a constant remindering and it’s peer acknowledged feedback versus executives.
(20:42):
I think if you were to ask anyone across Maxio, they would know the values, HYPE, at least I hope they would know what the letters stood for. I’m not 100% sure if people would be able to distinguish between passion for progress and expect excellence, for example, so there might be some evolution of that we need to do over time, but I think the most important thing was we had this group that came together, they determined these were going to be the values, they were reflective of I think the expressed values of both companies, we looked for some commonality, and at the same time they set forward some aspirational values. That’s great.
Michelle Valentine (21:20):
I have a question.
Randy Wootton (21:21):
You go ahead. Mm-hmm.
Michelle Valentine (21:22):
I have a question for you about your fourth value around how to build that effective executive team. As someone who has merged two companies together, Chargify and SaaSOptics, how do you think about whether to discuss problems out in the open in a group versus multiple one-on-ones? Traditionally, if you’re more in an IC or manager seat, how you effectively get things done is to get buy-in from people individually and then bring it up in a group setting, so have multiple one-on-ones and then bring the problem and proposed solution in a group setting. There’s this other school of thought. This is more like Jensen at Nvidia. I know a few other executives say, “I don’t have one-on-ones meetings. I do everything in a group setting, and so all of my execs hear all of the issues out in the open and that’s more effective, and then you get into a habit of being able to have those tough problems with the visibility of everyone on the executive team.” I’m curious, when you’ve merged the two companies, how did you think about having and solving problems in one-on-ones versus in a group?
Randy Wootton (22:30):
Well, I think part of it comes down to what is your rhythm of the business and how do you think about that first team, the executive team. Patrick Lencioni wrote about The Five Dysfunctions of a Team, and that first team… You got to hire people who are committed to the overall business results versus their functional, and that goes… I’ve turned over 50% of the executive team. Not that the other people weren’t able to do that, but just as you bring in new people, you want to be hiring for that inclination orientation that, “I am there to be part of the first team.” I think the other… Not radical transparency, but that whole theory, but I do think getting super clear about what your objectives are, what are the metrics that matter and the targets, and you’re just completely transparent about that. You’re transparent about that at all-hands so if things are trending red, you call it out and you say, “Hey, it’s red and here’s all the things we’re working on.”
(23:20):
We also use column plans on the page, which are effectively like 90-day plans, and so then every executive… We just got done with executive offsite last week. They go through their Q2 plan on the page and talk about what was red, yellow, green, what things they pushed, and share that they have to talk about, “I have this one slide, which is the summary, which is what went well, what were the lessons learned, where are you stuck, what are your asks.” They give this overview of what’s happened in their function, then they reflect on their scorecard and the plan on the page and they use that to tee up their next quarter, so the Q3 scorecard plan on the page. There’s a lot of conversations around, “Well, if I want to try to achieve this target for this metric, here’s what I need to get done by myself and here’s what I need from you.”
(24:10):
There’s the what I call handshake metrics, like if you’re going to build up your pipeline, that’s being dependent upon marketing sales, and for us our customer success team does the expansion sales and then our rev ops team. All four of those people need to be kind of aligned and talk about the relative trade-offs that need to be made, so I think there’s a combination of what is success broadly across the organization that gets reduced down to the corporate scorecard, what is each individual taking from that to drive forward with regards to what happens in private versus how do we escalate so that we have good conversations? We use what I was describing before, that big rocks construct. Here’s a big rock, we’re going to spend time and talk about it. Pricing, for example, for us is one of the things we’ve been working on. Do we have it right? No, and lots of people can opine on it, but I think that’s where we try to take on the problems.
(25:07):
What I find is interesting, Michelle, and I’d love your perspective on this because this actually ties in with building an effective executive team, number four of the secrets of success, is you have people in there… For example, if you’re thinking about pricing, is the head of HR going to really be able to dig in on that? Maybe not, but having him or her as part of the conversation allows them to continue to build context around what’s going on in the business. Similarly, they may be the one that’s leading the [inaudible 00:25:37] program. Everyone has a point of view, they may want to engage on that, what’s working, what’s not on that, but that can be done in a public way where everyone’s participating, so I think how do you have your team engaged depends on the topic and how many people it affects.
Michelle Valentine (25:56):
I’m with you on that one.
Randy Wootton (25:59):
All right. Well, we’ve talked about a couple. I think when we were… The last one, unless you had any other one you wanted to call out, was investing in your tribe. In our pre-brief, I thought that you had this really interesting point of view on how do you build your own skills as a CEO and what are the three things that you’re really focused on in terms of what you do individually versus what you look for a mentor for or what you’re looking for feedback from a peer group. Can you talk a little bit about those three things and we’ll dig in?
Michelle Valentine (26:27):
Yeah. I would say the biggest support network that I’ve had is through a lot of other founders, and I often meet them through our investors, and creating space to swap notes on best practices, to zoom out with similar stage companies has been incredibly valuable. I think the few themes that I notice as a CEO is investing in their personal growth that seems to be productive really comes down to for me three things. One is the best CEOs tend to be right a lot, and the only way to do that is to invest in building your intuition. In our last conversation, Randy, you and I talked about how to quantify how confident you are about something. This could be like, “I have low epistemic confidence, I’m medium, I have high epistemic confidence.” Then you could even start prescribing a percentage on that. It really is so subjective. It’s for yourself, so you know what that means. It’s really hard to say is Michelle’s 80% confidence similar to Randy’s 80% confidence? It’s probably quite different, so it really is for yourself, but I find the best founders tend to be right a lot and the only way that I’ve been able to figure out how to be more like them is to build up my own intuition and quantify how I’m feeling.
Randy Wootton (27:47):
Let me ask you a question because I do think there’s this interesting… I remember when I first got promoted to CEO, it was like a battlefield promotion and I felt like a total imposter and didn’t know what was going on. Had been to business school, I don’t know, 20 years earlier and I felt like I didn’t have the pattern matching skill. Now this is my third time CEO, I’ve been on a couple of boards, I’ve participated, but it’s like 10 years. I was a chief strategy officer in another company, and I feel like I’ve built more confidence in my, what you would describe, intuition, but it’s come from pattern matching. It’s come from having seen it a couple of times. How do you think… I know I’m putting you on the spot, but how do you build your intuition without having that experience, without seeing things play out? Maybe, again, it’s your background as an investor and you’re tuned for the pattern matching a little bit, but what do you do to build your intuition so you know to trust your intuition?
Michelle Valentine (28:43):
It comes down to being curious because you’re right, I think a lot of the ability to diagnose problems, to spot where the business could be operating better comes from pattern matching, and you need a lot of curiosity to accelerate getting those inputs so that you can be a better output. There are ways to do that without running your own company, you’re right. Being in VC is one. I think the privilege of working with many incredible founders when I was at Index Ventures and going to their board meetings, working closely with the CEOs, that’s invaluable. I think in particular what comes to mind is watching Alex Wang at Scale AI really operate the business when they were less than 50 people and scaling to where they are now, a $10+ billion company. It’s been absolutely phenomenal, and even just those few years where I got to work alongside Scale and looking at what makes them a great business is their relentless focus on execution. It was a crowded and competitive space, and they really have won.
(29:45):
Being able to work with many companies like that in VC does help. That said, if you’re a founder and CEO that hasn’t had that opportunity, I do think reading a lot, not just podcasts and hearing other great CEOs speak, but books like the one you mentioned, Five Dysfunctions of a Team, those ones I think really help hone your input so that your output is more valuable. The other thing that I think about a lot comes from one of the Brex co-founders, which is how do you be that CEO that can scale scale with a company? Because it’s not just about seeing the movie once or twice before. It’s like if you hit that rocket ship, you’re probably going to see things you’ve never seen before, and so how do you scale as a CEO through that?
(30:29):
The key that the Brex team found was the people that could succeed and scale the most were the people that could reinvent themselves multiple times in their career. For them, the question then became, “How many times have you had to reinvent yourself in your career and change and adapt to that change?” I really like that framing. It resonates with more personal life concept that I have for myself, which is, “How can I live many lives in one?” One of the great privileges of this life of running Anrok with this team is that I think even within Anrok, we’re living many lives in one. The company is constantly changing. We’re constantly working with different companies where we have to think a little bit differently, we need to operate a little bit differently, and our roles change so much. To me, a good life is often about how many lives can you live in one.
Randy Wootton (31:21):
That is a great quote. I often tell people that one of my principles is this, I want to operate in the edge of my own ignorance. If I’m constantly doing that, then I’m building a broader understanding of things, and that goes through books and conversations, groups that you can join. I’ve been a member of Vistage. I know people out there do EO or YPO or, to your point, through your… But it’s just about putting yourself out there to have conversations with people, challenge assumptions. It’s like I have a point of view, but loosely held. That’s great. That’s the building your intuition and a couple ideas, suggestions for people to think about that. Get in a book club. We have a book club at Maxio. I’ve had book clubs at every company I’ve been part of.
(32:06):
You don’t know where the ideas are going to come from, so how do you create these almost orthogonal experiences to open the subconscious? It’s the chronos versus kairos time. I was just talking to one of the people on the team, and I ride bikes and I talk about bikes and running or any sport could be this way, really, it’s moving meditation. You’re not actually solving the problem that’s right in front of you. You’re just letting your subconscious work through it and you’re cycling through this… Maybe this is what your third point was, which you didn’t call out but I’m going to call it out for you, is make time for reflection, is where do you create space for that so that the subconscious can come out, so that you have some of these ideas evolving? I find my best ideas are often on a bike ride, and I got to stop and write it down on my phone so I don’t forget. But how do you think about the make room for reflection when you’re living many lives, you have all these demands? Do you have a routine you do on a daily basis or a weekly basis or what does that look like for you?
Michelle Valentine (33:08):
It comes in a few different flavors. I think one, yes, I think for me it’s swimming versus for you it’s biking. I often have great ideas by the pool and I have no pen and paper when I’m there. My workout is totally destroyed because I’m trying to remember this one thing lap after lap to make sure I don’t forget. What I do in a more structured way is two things. One, I have a running note that I try to do at least once a week. I borrowed this from Eric Yuan at Zoom where he purports to do this every day, which is write down one to three things that you could have done better. That’s really to give yourself a very fast feedback loop and reflect, “Oh, in that meeting I could have presented this tough question in a more egalitarian or collaborative way or I could have asked a question in a different way that would’ve saved me so much more time in this negotiation with this person.” So really making sure I’m updating that running note thread on my phone at least once a week. I used to do this on my commute to really think about what could I have done differently and grow faster.
(34:16):
Another way that I make room for reflection is through meditation, where realistically I’m only meditating for 10% of the time and the 90% of the time it’s really a time where random thoughts come into my head and it’s usually fixated on a few problems at work that I’m thinking about, but it ends up being productive. Those 10 minutes, those 12 minutes where I’ve sat down and have made that time, I rarely do at any other time and so good thoughts and ideas come to the fore and hopefully I get at least 10 breaths without thinking anything and I feel like I’ve succeeded in my meditation. But if I also come out with a few ideas from that meditation about Anrok, that’s also a success too.
Randy Wootton (34:58):
Mm-hmm. That’s great. Yeah, I’ve tried meditation over the years, many different types and forms. I often find either I fall asleep or I end up not being let go of the thought, whatever’s popped in my head, just to get back to whatever the mantra is. Maybe I’ll try that again and just be more kind to myself and let it be just a time to have some more reflection. Well, that’s great. Well, Michelle, we have time for probably one more, which I think is in line with your diagnose before you deploy. How do you think about that as a skill versus some of the other things we were talking about, establishing a winning strategy, setting up operational structures and contexts? Is there something nuanced around this idea of diagnose before you deploy?
Michelle Valentine (35:43):
Yes. It actually comes from my investing days where I think an underrated skill is the ability to take many data points and synthesize. This does roll up to this creating the right winning strategy. I do think diagnosing the problem that you’re solving for and is this the right problem to even solve and write a strategy for is the precursor, I think, to maybe your number two. The key, going back to the investor point, to diagnose well is the ability to synthesize. Often I think the role of the CEO in a meeting is to inflect the trajectory of the meeting and often ask, “Hey, we’re spending… We have 30 minutes set aside to solve this one thing, but is this even the right question to ask or is this problem even worth solving? Maybe we should get the time back.” This diagnosis before you deploy all the resources I think is important to make sure you’re allocating your resources and capital efficiently.
Randy Wootton (36:44):
Right, and it supports your first point as well, building your intuition to understand is this worth the time of the people in the room or of you yourself spending time on this specific problem versus something else. I don’t don’t know what book it was in, but it was this idea of run to the thing that you’re avoiding because that’s probably the biggest and hairiest problem that you need to address versus do the thing that you feel comfortable. I think as a CEO in particular, that is… I find… Meeting with customers, meeting with prospects, creating space for all of that, I love doing it. I often find that, “Oh, I can find 15 things I could do other than that because it’s hard to get them on the phone or try to set up a meeting.” But when it comes down to it, that’s probably the most important thing for me to be spending time and energy on. How do you adjust your schedule and change your energy around that I think is great.
(37:40):
The last point, I’d offer a story which I love. I was chief of staff at Microsoft for one of the top 14 guys, guy named Bill Veghte. He was brilliant, ran Windows and online services, and by virtue of being his chief of staff, I had entry into some of these meetings that were way above my pay grade, but at the time Steve Ballmer was CEO and he’s sitting around this room [inaudible 00:38:02] 40 executives around the table and all their hangers-on, their entourages were on the side. I was in the back row with the little people and he’d say, “Randy, your objective in this meeting is to listen to Steve Ballmer really carefully and try to anticipate what is the question he’s going to ask about that business, so whatever they’re going through, otherwise you’re wasting your time being in this room. I know you got to be here because you got to capture all these things, but if you can anticipate where Steve is going to pry or poke, you will be building your skill as an executive.”
(38:36):
I think that opportunity to be very thoughtful about business, using every opportunity you have when you work with other smart people to see how they think about a business and building your skill and intuition, is probably the most important thing. To your point around a CEO, you got to be right more than you’re wrong, and the way you get there is through pattern matching, it’s through investing in yourself, it’s operating in the edge of your own ignorance, it’s working with a bunch of people to help selfishly share and then be selfish and take in terms of time. To that point, thank you, Michelle, for sharing your time with me and your insights. I’ve walked away with 40 pages of notes, three things I want to apply tomorrow, and I’m very grateful.
Michelle Valentine (39:22):
Likewise. Thanks, Randy.
Small Companies, Big Growth: Why SaaS Companies Under $1M are Booming with Ray Rike
September 12, 2024
Episode details
This week on the Expert Voices podcast, Randy Wootton, CEO of Maxio, speaks with Ray Rike, CEO of Benchmarkit, a company specializing in providing the SaaS industry with comprehensive and contextualized benchmarking data. Randy and Ray discuss the growth trends seen among private B2B SaaS companies, emphasizing how certain market dynamics are influencing growth rates. They further break down the distinction between small companies under $1 million in revenue and their larger counterparts, elucidating intriguing growth patterns and the impact of pricing models on these dynamics. Listen as Randy and Ray examine infrastructure industries, pointing out how investment behaviors and market conditions are shaping which sectors thrive.
Video transcript
Randy Wootton (00:04):
Hello, everybody. This is Randy Wootton, CEO of Maxio and your host of SaaS Expert Voices, where we bring the experts to you to talk about what’s happening broadly across the SaaS marketplace and what could be unfolding tomorrow. It is my pleasure to welcome a friend and colleague, Ray Rike, CEO of Benchmarkit to join us. This is the second time Ray has been on board the SaaS Expert Voices train to talk about our growth report that we produced at Maxio and how it intersects with a industry benchmark report that he produces. Ray has a great background, started at GE, worked his way up, and then has had multiple roles as president, CEO, and COO. So been an operator mostly on the go-to-market side, but obviously has overseen all functions and started at Benchmarkit about four years ago. Welcome, Ray.
Ray Rike (00:52):
Thanks, Randy.
Randy Wootton (00:53):
Great to have you.
Ray Rike (00:53):
I’m so happy to be here, and a topic that I love talking about, which is benchmarks and growth.
Randy Wootton (00:59):
Yes. So maybe before we get into the actual reports, talk a little bit about the founding of Benchmarkit and your passion around metrics. What led to you to dedicate your life to this? It’s just a really interesting calling.
Ray Rike (01:12):
Yeah. Well, my first, almost 10 years out of undergrad, I worked at GE as you mentioned, and I went through their executive leadership development program for about five of those years, and you did not make a decision without understanding your financial performance metrics inside and out. And if you were asking for additional budget or doing a forecast, it had to be backed up with a lot of great data metrics and critical thought. And then, I came out to Silicon Valley with Netscape, and that was in 1996. And I went from amazing financial discipline and rigor to move as quick as you can. And I tried to introduce five-year planning and they looked at me and it’s like, “Yeah, let’s do five-month planning, best case, right?” So I realized very quickly that a lot of the financial discipline and rigor that I had learned in large, more traditional corporate America was in Silicon Valley.
(02:08):
So I wanted to try to introduce and bring that as we scaled companies, because when I was brought in, it was typically in that 5, 10 as high as 20 million, and how do you get to 100 million? And that required more repeatability, scalability, and predictability. So that’s why I did it. And then, even though I was a devout reader of the KeyBanc Capital Markets annual SaaS benchmark report that David Spitz did, it didn’t have the context I always required. I need to know what my customer acquisition cost ratio should be for a company at this stage with this ACV and selling to the enterprise market versus selling to the SMB market. And you just couldn’t do that with the KeyBanc Capital Markets.
(02:50):
So I sat on this goal four years ago to provide the industry’s largest, now 18,000 companies have participated in our benchmarking research and the most contextualized benchmarks out there. So you can go to benchmarkit.ai and say, “I’m a company with 5 million with a 25K product and I’m selling to the enterprise market,” and you can see the median for NRR or the 25th percentile. So that’s my goal is to give operators benchmarks, not as religion, but as guidance to where they should be striving to achieve.
Randy Wootton (03:21):
And I know we’ve really benefited from the insights you’ve provided. We’ve used it as part of our strategy process and our financial planning process, because to your point, I too tend to be one of those database operators having grown up in the military, but also just at Microsoft and at Salesforce. And they were very strong on the whole idea of you got to have database decisions, and so you got to trust the data or understand where the data is coming from and then use it to inform that decision making. And I think your Benchmarkit report has been immensely helpful.
(03:49):
I think the other thing, what you are alluding to is it’s not just a report that gets produced on a quarterly annual basis, it’s live via the website. And so, people can go interact with it, put in their information and then see where do they fit in those different cohorts, which is what is so important is a $10 million company selling small ACV deals versus a $10 million company selling large ACV deals is very different. And all the metrics that play out are different. And so, having enough companies in each of those cohorts is one of the things, if you have 18,000 people participating, you’re starting to get it at scale and you’re able to really provide context for people to understand cohort benchmarking.
Ray Rike (04:32):
Exactly.
Randy Wootton (04:34):
And so, then, you say, “Oh, well why are we partnering with you?” Well, the thing that we do at Maxio is your surveys is a survey. It requires people to input the information and most people are honest, and that’s great. It requires a lot of compilation. One of the things Maxio has, we have north of 2,000 customers and we have their actual billing and invoicing data. So we’re looking at it a slightly different lens, which is what’s happening with those customers. We split it similarly, not as robust as your segmentation. We don’t have the 18,000, but we do split it and we’ll get into the details around small companies, large companies. Our data set is primarily private companies, VC or PE-backed. We are able to draw the distinction between how they invoice, how they price, and then we’ve been layering in industry insights. And so, what are we seeing broadly across that?
(05:24):
And so, I think that’s what we’re going to talk about today is what we’re hoping to do is I’ll outline the five key takeaways from the Q2 Maxio growth report. We publish it every quarter, and some of these have continued throughout this year or over the last eight quarters, which we’ll talk about. And there’s been some interesting new developments in Q2 versus Q1 or previous years. So we’ll talk about those. And then, we’ll have you, Ray, talk a little bit about how does that correlate or correspond with what you’ve seen in the Benchmarkit report. And so, this is a way to bring these two things together. We’re looking at different data sets, but there’s a lot of overlap in terms of the insights we’re bringing to the broader SaaS landscape.
Ray Rike (06:05):
Perfect. Boy, some of the growth reports you had in the Q2 2024 Maxio growth report, really good so let’s start there.
Randy Wootton (06:15):
Let’s go in. All right, so the five key takeaways, I’ll go through them quickly and then we’ll come back to them, touch on them individually is one, private B2B companies are growing quickly. So this is good news for all of us. It sat through the, or suffered through the B2B SaaS recession, which wasn’t publicized, but I think a lot of us in the market saw it with the pullback from VCs and PE companies. And so, now, we’re starting to see a shift there. The first half of 2024 has been great for small businesses. And so, when we think of companies lower than $1 million in revenue where a ponderance of the startups are, there seems to be a resurgence. We’ll talk a little bit about that.
(06:54):
Pricing model matters, and this is one of the things that’s very interesting for us at Maxio where we support companies who both do subscription-based invoicing as well as fixed rate term subscriptions. The nuance is subtle, we’ll talk a little bit about it, but it is interesting. It does have an impact in terms of your growth rate and there’s some drivers for that.
(07:14):
Number four is businesses are spending on infrastructure and essentials. So when we look at the broader industry landscape, we’ll talk about some of the industries that are growing and some of those are contracting, but it’s interesting to see where people are spending the money and you, Ray, have some data on that. And then, finally, you can’t get through any of these types of talks without talking about AI. And it is interesting to see what’s happening. AI, I don’t know if we’re over the hype cycle or not. They’re growing, but not as quickly as they were in 2022.
(07:43):
So those are the five. Let’s dig in. So on the private B2B companies are growing quickly, what we’ve seen is that there’s an average annual growth rate of 17% since the beginning of 2022. And I think this is interesting because prior to that, right at the end of 2020, 2021, you saw the growth rate at 30%, and that was where a lot of investors were making investments. It became the expectation that you’re going to grow 30% per year. And if you didn’t have a plan that supported that, you were a dog. And I think what we’re finding is it’s starting to normalize more to a mean of 17%, and this is the second or third quarter where we’ve seen that across all customers that we have, it’s about a 17% increase.
(08:27):
And look, to put it in broad perspective, a 17% growth rate would be awesome. I mean, the members of the S&P 500 have an average annual growth rate of just under 7% over the last 5 years and are projected to grow at 5.5% in 2024. So we’re still talking about an industry B2B SaaS in particular is throwing three times the average. What have you seen with that, Ray, and how have you thought about the drivers of growth of these companies that might be different than the broader S&P 500?
Ray Rike (08:57):
Well, first of all, because all I follow is B2B SaaS and cloud. So you mentioned that 17% growth rate for the private companies across your end of which is 15, 65, public SaaS and cloud companies have a median growth of 12% right now. So private companies are definitely beating those. And what’s interesting is I really like the segmentation because we did research about four months ago what’s your planned growth rate? And the planned growth rate across about 1,000 private SaaS companies was 35%.
Randy Wootton (09:33):
Sorry, when was this? So it was 35% at the beginning of 2024?
Ray Rike (09:36):
Yeah, we did this research February through March, so their plan was 35%. And every segment of company size planned to have higher growth in 2024 versus 2023, except the less than a million, the less than a million size companies did a bloodbath in 2023. And they were more conservative. And actually, what your then shows is companies below a million are actually growing faster. I believe the max year growth report showed in Q2 ’24, under a million’s at 21%, and above a million’s at 16%.
Randy Wootton (10:19):
Yeah, that’s right. You nailed it. So I think that’s really interesting. So let’s go to those board meetings. You come out of November, December of 2023, you lay out your growth plans for the next year. Look, I was one of those guys. I wasn’t as aggressive as 35% growth in 2024, but was certainly up in that range. And so, February, we input our data to your survey and say, “We’re all going to grow 35%.” Now, fast forward to June of this year, and what we’re seeing is an average of 17% growth. People are flipping out at the board meeting. What’s happening? When you’ve been talking to all these people in your surveys and going around and getting context, the qualitative context around the quantitative numbers, what are you hearing is happening?
Ray Rike (11:06):
Well, there are two major ends of the spectrum. For those companies who had higher growth rate plans and aren’t coming close to achieving them, they are being ruthless and ripping out expenses, because they’re trying to preserve their cash runway, which as an investor, I want you to go from 12 months to 18 months if you’re not meeting your growth expectations. But at the same time, Randy, what our research shows is that companies are spending less than 25% of revenue on sales and marketing are growing 50% slower than a company’s investing 45% more.
(11:43):
So the question here is cause and effect. Is the cause of the higher growth because we’re spending more or is the effect I’m growing more so I can spend money? Now, usually, it’s companies that are in a good market, they have a highly repeatable and efficient customer acquisition, retention, and expansion process. They’re being to step on the gas because you’re killing your competition. So that’s the real thing. So that’s number one. So the fast-growing companies are investing more and growing faster. There’s much lower growth. It’s that middle that’s so hard. And that middle, they still are really focused more on efficiency and unit economics than growth. They will sacrifice some points of growth to get to at least break even, whether that’s EBITDA or free cash flow margin. But once you’re at 50 million above, Randy, right now, what most companies are targeting is about a 10% free cash flow margin.
Randy Wootton (12:45):
Got it. And very, I mean, relatively few companies that get to 50 million. But I think what you’re describing is this dynamic of, to your point, is don’t want to get caught in the middle. You either need to be solving for EBITDA, controlling your own fate. We talked about with this, our friend Todd Gardner about the dolphin strategy where you get profitable every once in a while, where you can show your investors you can do it, you start to generate a little bit of cash and then you can say, “Okay, where am I going to invest next?” You can go unprofitable, but you’re in control of your fate. And so, I think getting the EBITDA positive, critical, important, maybe not at a company that’s less than a million bucks, but certainly as you get to that %10, $20 million, if your growth starts to waver, like they’re going to come after you and say, “Cut people cost, cut internal software, cut investments,” and then you’re behind the ball and it’s super hard to be in front as the CEO running the company.
Ray Rike (13:34):
And one of my favorite metrics, and I may derail this, but I love this thing called the CAC ratio.
Randy Wootton (13:40):
Oh, well, that’s what I was going to go next. So tell us about the CAC ratio.
Ray Rike (13:44):
This measures your sales and marketing expenses divided by your new ARR, which is new name customer and expansion customer ARR, but then be more granular and look at your sales and marketing investment expenses allocated to the pursuit of new logos and the ARR, divide that by the new logo ARR. What I do with a lot of our customers is I actually build a matrix and I say, “Okay, let’s say the median for a company like yours should be spending $1.50 of sales and marketing to get $1 of new ARR.” And there’s a, “But if you’re growing at 5 points higher, you can spend 5% more. If you’re growing 5 points lower, you can spend 10% less. So then, your entire go-to-market team knows there’s a direct alignment between how fast I grow and how much I can spend,” if that makes sense.
Randy Wootton (14:39):
Yeah, totally. I hear you. And I think that is a powerful distinction of CAC ratio, specifically new CAC ratio. You have to be able to allocate the expenses and then understand by revenue streams, so you could split it out by product, by region as well if you get to that next level of granularity in terms of what are you spending to acquire that type of revenue, which is very different than I think the view where you look at total sales and marketing as a percent of revenue. I think the CAC ratio is the one that Battery beat me over the head over the last two years is to really focus on have that dialed in. And to your point, it’s got to be balanced. And this is what I tell my team is if we’re not seeing the growth we want, we got to ensure we at least we have the model set up so that we put more money in, we know what’s going to get the payoff.
(15:25):
The question for you, Ray, on this, and we’ve talked about this before, is it does seem like CAC ratios broadly have gone up, especially on the new front, meaning it’s getting more expensive. So sometimes in the board meeting, they’re like, “Well, last year you were spending only $1.05, why are you spending $1.20?” So how have you seen that dynamic play out in terms of it is getting more expensive? Is it more expensive in specific verticals or specific size companies that you’re seeing?
Ray Rike (15:50):
So three things. Number one, a lot of people call this the valley of death, and it’s that 20 to 50 million, it may even go up to 75 million. You grew really well with one or two primary targets, customer segments, but you want to try to retain some growth endurance so you have to go to a new market. Maybe you’re going from SMB to mid-market, or maybe you’re going from mid-market in the US and now you’re going to other English-speaking countries. And inherently, your customer acquisition cost is not as efficient. It’s going to go up. So that’s why you got a major CAC ratio by segment, very important.
(16:31):
But Randy, here’s, I’m going to blow your mind on point number two. So everyone knew with this cautious buyer capital environment and looking to consolidate, it was going to be harder to get new logos as customers. So yeah, you’ve seen new logo CAC go up in 2023 versus 2022 and went up 22%. So it was 22% more expensive over the entire population to acquire new customer logos in associate AR.
(17:01):
But listen to this, there’s something that I love called expansion CAC ratio. Now, it requires some discipline and some work to get this in place, but it’s how much sales, marketing, and customer success operating expense is allocated to the pursuit of expansion AR, and you divide that by the expansion AR you get from existing customers. Historically, and by the way, KeyBanc has done this measurement for eight years. I think David Spitz invented it. It was around 61 to 69 cents. So I spent 61 to 69 cents at median of sales marketing and CS expense in the pursuit of upsells and cross-sells. So heading into 2023, everyone knew it was going to be hard to get new customers, so they reallocated sales and marketing investment to retaining, but then expanding existing customer relationships.
(17:51):
In fact, if you look at percentage of growth ARR coming from existing customers, it went up from 30% to 35%. So it went up 5%, and larger, like 50 million above, it’s almost 50%. But listen to this, the cost in 2023 to get $1 of expansion ARR went to $1. It went from 69 cents to $1, a 42% increase. And by the way, only 18% of the companies we conduct research with actually major expansion cap ratio. So this was a pretty small population, well it was only about 100 companies, but 69 cents to $1, and the common wisdom was it’s cheaper to sell to existing customers, but no one knew how much. So when you’re the CEO going to your head of CS or sales say, “Well, we need to go from 5 million to 8 million of expansion ARR, what’s it going to take?” Most companies don’t know.
Randy Wootton (18:47):
The wisdom was, hey, it’s easier to sell to current customers, not just cheaper, but easier because you already have an MSA in place, you’ve already gone through the procurement, you’ve got a sponsor. If you’re doing well, you’ve got a value relationship where they’re valuing you. And so, if you roll out a new product, or even if you introduce a little bit more pricing, which is what a lot of B2B SaaS companies did in terms of just brute force increased prices, you thought that there was going to be room to move with your current customers. But I think what you’re showing is that everyone was locking down. People were, I know for us, for example, we had a focused effort on reducing internal software from a percentage that was too high to, I think, in what I’ve heard broadly, and this isn’t COGS, this is internal software, like 2 to 3% of your revenue.
(19:33):
And so, we just went after everything. And we had, as Battery would tell you, it wasn’t a good thing that every company that came and talked to him said that Maxio was a customer. We were customers of every single internal software that was out there. We had all the great stuff, we had all the Porsches, and we had to go back and cut. And I think, so even though we were current customers of many software, we were not just not going to expand, we were going to cut. And I think we saw that broadly across the stack. And so, that’s probably why those costs went up as well is because now you’re competing for trying to attack the walled garden. So any other thoughts on that before we shift to number two about what’s happening in the small company segment?
Ray Rike (20:14):
No, I’d love to go to that because there’s some data in the Maxio Growth Institute report that I really want to talk about.
Randy Wootton (20:19):
Yeah, no, super interesting for us, and this is another one of these counterintuitive, “Wait, the small companies aren’t growing?” What we saw is these are companies with less than $1 million in annual revenue, they’re growing significantly faster in 2024 than what they had been doing in ’22 and ’23, which is what you were alluding to. It was two years of anemic, single-digit revenue growth for $1 million and smaller customers. Their growth rate has now skyrocketed to 26% in Q1 of this year and continue to 21% in Q2, which to your point that you made earlier, significantly outpaces the growth that we’ve seen in the companies that are above a million bucks, which in Q2, it’s only about 16%. So I’ll be interested in hear what your thoughts are in terms of why do you think that’s playing out that way?
Ray Rike (21:07):
One of the things unfortunately that data doesn’t show is are any of these AI companies? Because I’m finding a lot of companies are experimenting with early stage AI companies, the Clays of the world, the STR AI systems, et cetera. So that’s one hypothesis, Randy, is we’re seeing a lot of investment going on in these AI products, which are small companies. Makes sense to you?
Randy Wootton (21:36):
Yep. I think we’ll talk a little bit about that as the fifth trend is what’s going on in the AI. I was thinking, Ray, if we look at our churn data, again, we have about 2,000 customers, 2,400 customers skew more to S, SMB, and mid-market. So have a couple 50-ish public companies that use us. We have a couple hundred that are greater than 100 million, but our core is in this space. So if we look at our smallest segment, our number one churn reason over the last year, 18 months has been declining or going out of business for small companies. And so, I do think there was a lot that just were running and they weren’t getting exit velocity and the VC said, “Hey, wrap it up or tuck it in.” And we’ve had a bunch of companies that were acquired. We had a much higher percentage of those companies that were acquired into other companies, and they were either ours, so we were able to extend it or they were acquired and we didn’t keep them as customers.
(22:31):
So I do think there’s been a bunch of churn at that low end. I think though there is still a lot of capital in the market. And so, to your point, I don’t think it’s all going to AI companies, but a lot of the early stage venture are putting money in now, but they’re smaller bets, they’re small companies, and the growth rate on a small number is, you know better than I do, can look great, even though it’s only, “Hey, I grew from $50,000 to $100,000 in ARR.” So when we’re working with those small companies in billing space and they’re just getting up and running, they have a product, they’re putting out their billing a little bit of dollars, it looks like a lot of growth.
Ray Rike (23:03):
One of the most illuminating things from the Maxio Institute report was you segmented by fixed rate pricing, i.e. traditional subscription pricing and usage based pricing. Now, you did that for small companies below a million and then above. So below a million, the fixed rate pricing companies were growing. They hit 44% in Q1 and 41% in Q2 of ’24. Compare that to usage-based pricing companies, Randy, same timeframe, they only grew at 24% in Q1 and I believe it was 18% in Q2. So off a smaller number, less customers getting some of that subscription booking upfront, so you get the cash in the door, you’re growing much faster.
(23:50):
But then, when you look at the company’s over $1 million, Randy, with that same filter lens, your companies with usage-based pricing are growing faster and much faster than traditional subscription-based pricing. So as an entrepreneur out there and as a CFO, it’s like, okay, reduce friction, upfront is good, but I also need cash to prove this model works. But as I grow, when do I introduce usage-based pricing and how does that change my processes and even my measurements? So I think that’s enlightening.
Randy Wootton (24:25):
Enlightening is completely counterintuitive to me because looking at early stage companies, startups, you think a lot of them are running a PLG model. A PLG model is often a usage-based construct. It’s a technologist who’s built this company. They’ve got, “Hey, come get access, my product sells itself.” And, “Oh, I’m going to sell it based on value.” You buy something, you pay for it. But I think the insight that you have is one of those that seasoned CEOs, CFOs, and or investors say, “Hey guys, you need to have contracts. We need to get paid upfront because the whole model is you got to hire people then to support it.” And so, I do think focusing in, getting product market fit, getting some customers on board, having the contracts, the annual contracts enables you to a set of foundation, and then you can introduce usage-based pricing.
(25:10):
I think usage-based pricing has a lot of volatility. We see that about half our customers are what we call usage-based customers. Depending on how their metric, the widget is going up or down by month and it can change from month to month, we see it just play out havoc in our financials and we have to isolate it and focus on it, understand what’s happening. We have growth there, but if you’re looking at it on a single month basis annualized by 12, which what you do often for ARR, it can totally go wackadoodle. So we’ve had to do things like look at the trailing three months of usage by customers, and we have to look at every single customer at the level of customer. And with 2,400 customers, it’s really hard to understand what’s happening and try to pattern match. Is it seasonality? Is it business model? So there’s a level of complexity once you introduce usage-based pricing. But to your point, for the bigger companies where you have that stable term subscription base, which we also have the platform fee, you benefit with the growth of your customer base.
Ray Rike (26:06):
So in fact, I just did a lot of research and did a couple sessions, training sessions on this, Randy. So in the Maxio Institute report, it was a great early indicator of the correction coming because the usage-based pricing companies, you started seeing in Q1 and Q2 of ’22, their growth rates came down. Subscription companies remained stable for two or three quarters. But then, when it became renewal time in January of ’23, that’s when the subscription companies came down. And now, starting two quarters ago, the usage-based companies started to grow faster than subscription on whole. So interesting data.
(26:45):
Now, here’s the thing for people to think about though, because sometimes, number one, they think PLG and usage-based pricing are synonymous. They’re often correlated, but not always. PLG is an acquisition motion and it can have subscription pricing. So don’t confuse the two, but the forecasting process with usage-based pricing is so hard, because during the good times, it grows faster. During the bad times, it shrinks faster, but then it grows faster again when we start to reinvent ourselves as an economy. So just be careful of thinking that usage-based pricing is a magic elixir. It’s not.
Randy Wootton (27:27):
Amen. And I think that understand the nuances of that and making sure you have the systems. I mean, advertisement for Axio, this is what we offer, is the ability to do that complex billing both in the billing and in the reporting is making sense of the madness. And as you add more customers, your Excel sheet breaks. So I pulled out from the report just a couple of data points to make this real. If you’re a fixed rate B2B company and your zero to $1 million, you’re in the top 10% of our cohort if your growth rate is 137%. For a usage-based company, zero to million bucks, your top 10% if you’re 106% growth rate, so significantly higher in that zero to 1 million.
(28:11):
At the other end of the spectrum, if you are a fixed rate B2B company and you are 20 to 50 million bucks, you’re in the top 10% if your growth rate is 39%, if you are usage-based, so this is the flip that we were talking to you, usage-based B2B company, top 10%, $20 to $50 million cohort, it’s 111% growth. So almost three times the growth by having usage base included in the pricing model. And honestly, I mean, Ray, I think it’s not a matter of either or, this isn’t like the Jets versus the Sharks. It’s what we’re, our green I think or advocating for is a hybrid approach, but being very disciplined and understanding how to do that. And so, you’re going to have some platform fees or more term subscription. You’re going to have some professional services, you’re going to have some statement of work stuff and you’re going to have usage. Usage is the future, but be super careful as you go down that path and try to incorporate it into your business model.
Ray Rike (29:13):
Yeah, a couple things we highly recommend, don’t go to your existing customer base and do the initial experimentation of usage-based pricing. Maybe it’s the new segment you’re going after or it’s a new product, but start without impacting your existing customers. That’s very, very important, Randy.
Randy Wootton (29:30):
Cool. Maybe this is a great segue to the fourth point around industries. So if you’re going to start a new industry, for example, that could be a place where you could introduce a new pricing model. Last year, we introduced the end of 2023. We introduced our first industry analysis to break out the growth metrics by industry. We had the aperture pretty tight at that point, specifically around B2B companies. We do have more than just B2B companies in Maxio. We have food beverage and tobacco, we have media and entertainment. And so, we saw this time we were able to double click down and provide more insights in terms of the broader set of industries and had some insights in terms of the ones that are doing well, the top growing ones are really the infrastructure and essentials.
(30:18):
And our idea is that in an inflationary market where funding is hard to come by, companies are tightening their belts and spending on the essentials. Infrastructure industries like transportation, supply chain, cybersecurity, and healthcare are growing aggressively. Discretionary industries like media and e-commerce are growing much more slowly. And I think that is in line with what I’ve seen broadly. I’m an old MarTech guy and you’re seeing MarTech just continue to get crushed.
(30:44):
Now, that’s part of supply and demand. There’s 20,000 MarTech providers, and part of it is CFOs going to heads of marketing and saying, we’re not going to support this very complicated MarTech stack that you have. You need to get down to the essentials, which is going to be the CRM used across marketing and sales, but it’s also going to be some sort of email. It’s going to be some sort of website. It’s going to be by search, but all this other whiz bang cool stuff, you’re going to have to cut. What have you seen in terms of industry trends from your data, and we’ll get to AI as the last thing? But before we go to AI, just broadly across industries and people’s appetite to buy.
Ray Rike (31:20):
Well, this is of course common sense, but anyone who had their primary customer base and B2B technology, especially in the SMB, really have had a tough last six to eight quarters, and I’ll use ZoomInfo as your poster child, 40% of their revenue as a $1.2 billion public company was from the SMB market in tech. They currently have a net revenue retention number of 85%. Why?
Randy Wootton (31:54):
Wow.
Ray Rike (31:54):
Because so many of those small tech companies either stop buying or are no longer here. Carta’s data, which is an equity platform, shows that twice the number of even $10 million and above SaaS companies are going out of business in 2024 compared to 2023, which was twice as much as 2022. So if you’re selling into the software industry, it’s still hard times. At the same time, if you look at infrastructure, especially when I say infrastructure, I’ll talk about technology infrastructure like cybersecurity and that and hyperscalers, cloud infrastructures like the Microsoft Azures, Google, and AWS in the world, they’re doing really well, Randy.
Randy Wootton (32:41):
Yeah, well, I think that was what we were pointing to a little earlier. We’ve seen that in our data as well as those small companies and we sell primarily B2B tech, we’re the ones declining or going out of business. And to your point, just what I talk about is a B2B SaaS recession. I think there’s just been this contraction. It’s driven by, you can point at inflation, but just I think VCs and PE companies just press pause and they said, “Hey, we used to be, we’d give you money for 12 to 18 months, now it’s going to be 36 months.” And all those CEOs of those little companies went, “Wait, what? I thought I was going to raise and spend 12 months executing, and then you spend the next 6 months of doing the next raise.” So I think the whole funding dynamic has really changed.
(33:20):
Now to earlier point, we’re starting to see that turn a little bit in the SMB space and what you were making a comment on was about the AI companies are the ones that are getting invested in. What we’re seeing, and so it’s interesting, I think with AI, there’s three different models of AI companies. There’s those that are wrap around GPT 4.0 type construct. And so, do they have real value or are they just augmenting a model? The other one is they have real data, system of record data that then they are aggregating and providing insights and intelligence in a way that is unique in the marketplace. And then, the third one I think of is augmentation of current tools that are already supporting end markets. So like Zendesk with their AI solution or Salesloft or Outreach with their AI solution, it’s tied into what they’re currently offering that you’re going to pay for.
(34:12):
So if you say broadly across those three types of AI companies in the marketplace, why that’s relevant is there is not, and we don’t have an AI vertical. What you have is a lot of companies that have AI that are supporting other verticals. So it’s an AI company supporting manufacturing or AI companies supporting retail. And so, we’ve gone through and we’ve aggregated all the companies from the data who are AI first to come up with an AI cohort, and what we’ve seen is they’re going fast, but not as quickly as 2022 when there was the hype cycle around AI. What have you seen in terms of the broad market trends for AI, either how the business models are being articulated or the investments are being made?
Ray Rike (35:01):
Well, let me start with investment because it’s data that you can easily get from the Crunchbases of the world, et cetera. So first of all, let’s look at US and I’m going to go US VC backing. So in Q2 of ’24, it hit about 42.9 billion, which was an increase from 33 billion in Q1. So that’s a nice 29% increase. So we’re starting to see some wakenings of VC, but now let’s look at how much of that VC investment in the US went to AI. 29% of that investment went to AI companies in first half of ’24. 29% went to AI first companies, 71% to non-AI companies.
(35:53):
If you compare that to two years ago, 2022 Randy, only 12% of VC investment went into AI. So it’s went up 2.5X over the last two years. So that tells me that the AI hype from an investor perspective is still going strong. Now, one more data point for you is how much of that is going into the foundational models versus application? The foundational models, the companies that have data and they’re going to train that large language model, foundational models got over 60% of total VC investment in AI companies in 2023. Application companies only got about 20%. So the investment in AI companies right now is way over-indexed in the foundational models and not in the, I’ll call them thin veil of applications writing on top of foundation models. So a lot of data there. Any questions?
Randy Wootton (37:02):
Well, I’m an English major, 60% plus 20% equals 80%. Where’s the other 20% going? Foundational models?
Ray Rike (37:10):
Technology.
Randy Wootton (37:10):
Applications.
Ray Rike (37:11):
Technologies and tools that enable AI, developer tools, et cetera, but not business applications.
Randy Wootton (37:18):
Got it. Yeah, no, I think those are the three categories. You said it much better than I did, but I think that’s super interesting in terms of the data is the gold or the data is the oil, and then you can wrap models on top of that that then allow you to do really bring value into the marketplace. So I think that’s interesting. I mean, if we take all this together, we pull this, all these little threads, what we see is, I think the broader theme is we saw a downturn in SMB over ’21, ’22, ’23, we saw that blow up. We’ve seen that increase significantly. There seems a direct correlation to be with where VCs are putting their money. To your point, we’re seeing investment in both. It’s up 20% from Q1 to Q2, and the way the mix is over the last year, it’s really in AI. So the hype cycle’s not over yet, but you better, I guess the takeaway is you better have a foundational differentiated offering as AI versus being a wraparound.
Ray Rike (38:22):
Definitely. And I also want to give one other variable there. So of that increase in Q2 over Q1, which I mentioned it was, if you look at it on a dollar basis, it was about $9 billion more was invested in AI. $6 billion of that $9 billion increase went to one company, one deal, and that was Elon Musk and xAI.
Randy Wootton (38:48):
Oh, gosh.
Ray Rike (38:49):
So that’s why-
Randy Wootton (38:50):
Well, that’s skews the data.
Ray Rike (38:52):
It skews the data. That’s why with all these metrics and benchmarks, you want to peel back one or two layers of the onion to really understand what’s under there. That’s why I had to mention the $6 billion deal at xAI.
Randy Wootton (39:05):
Well, Ray, every time I talk to you, I learn something. It’s so much fun to talk about metrics. I mean, you just talked to so many different people and you have all this data at your fingertips. What are you telling CEOs of companies that are less than $10 million? What are the things they need to focus on? What are the most important things to get right over the next 12 to 18 months?
Ray Rike (39:24):
Really understand your ideal customer profile and make that as narrow as you can. Yeah, you think you need to grow by extending your target customers. If you’re $5, $10 million, I’m sure hope that your primary ICP can let you at least become a $20 to $50 million company. And what I saw in the last 12 months for companies that really focus on ICP, that I’m seeing increased pipeline conversion rates from, and I know these are old school, but MQL, SQL, SQL to close one and demo to close one.
(40:01):
So the better you narrow and focus your ICP the better, and use your gross revenue retention and net revenue retention metrics as an input to your best ICPs. Because a lot of times we get hung up in, I closed these two or three new accounts in this new industry segment or new customer segment and it made my quarter and we’re all celebrating. But number one, how repeatable and economically repeatable is that? Number two, do they stick around 2, 3, 4 or 5 years? So if you’ve got a core that you know is profitable and you got good unit economics and double down on it.
Randy Wootton (40:41):
All right, I’m not going to let you off the hot seat. You said two things, which really I think I want to underscore, the idea of using gross retention and net retention to inform your ICP. I think a lot of companies think about why are we winning and so they do the analysis on the new logos and these are the types of customers we’re winning and we need to go get more of those. But I think to your point, why do we keep winning? Those are the customers that renew and they bought the product a year ago or two years ago, and so they’ve gone with you on this journey, you’ve been adding new features and new capabilities.
(41:14):
Are you still able to speak to the needs of the people that bought you? It’s like we went from dating to getting married. Is your wife sticking with you, or your husband sticking with you? Are they renewing? Are they upping again? Because that is then taking that information to go back to the ICP. I think it can also really help you nail the use cases, the value paths that inform the messaging that you use to go out and win more in that narrow ICP.
(41:38):
We’re north of, we’re big, call it series D. One of the things I’ve talked to my team when I first came on board was we needed to narrow the ICP and get it right to get the [inaudible 00:41:49] sales engine down and they said, “Gosh, Randy, we have all these other customers.” To my point, we have all these verticals outside of B2B SaaS. I was like, “No, no, no. We got to focus our energy and effort.”
(41:59):
But there is a point at which you want to be able to introduce multiple products, multiple ICPs. Where do you find that inflection point in terms of company size where now you got to be able to broaden a positioning and messaging to be able to say, “For us, we have an ICP, which is a B2B SaaS, but we have two personas, we speak to the early search founders, technical founders, and then we speak to series B, series D CFOs, those are two very different personas. We could be selling just billing or just FinOps, but the combination of the two companies means we have to speak to both.” Where do you find that inflection point in terms of company size or how executive teams need to think about broadening the ICP to continue to drive growth?
Ray Rike (42:40):
Of course, the answer is going to be, it depends, but some broad level, if your primary ICP stops performing before 20 million, God help you, because either you have a product category that is not big, your product market fit has went away, or you’re very ineffective in selling, so 20 million at least. Best in class companies, those growing at 45% and faster above 20 million typically are still in their same ICP until 50 million. So 20 to 50 million, you should focus on that primary ICP.
(43:25):
Now, at that point in time, I do see natural need, if you’re going to keep your growth endurance at that 80 to 85%, that means year-over-year growth is at least 85% of what it was the year before. Then, you’re going to need to expand. And then, when you do expand, you need to make sure that you break out your performance metrics. I’ll use CAC ratio we talked about earlier. If my CAC ratio for new customers is $1.40 and we’re celebrating and you’re now going from mid-market to enterprise, make sure you segment that out. Know what dedicated resources are going after enterprise, how much you’re spending in your marketing programs, and be prepared that those first two to four quarters is going to suck. Your CAC ratio may look at $2, $2.50, $3, but don’t let it taint your investors and board meetings that they think your entire CAC ratio is getting worse, it’s because I’m investing in this market. Right?
Randy Wootton (44:20):
Amen. I think that is a great way to end as we think about it’s August when we’re recording this. I think a lot of companies, if they’re smart, they’re starting to do strategy conversations with their board in September, which then informs our financial planning from November, December. They can lock it down and drop an operating plan. In that strategy, you want to be talking about your three-year growth plan. What are the growth drivers? And I think to your point, Ray, being able to isolate those different growth drivers and understand what the investments are and what are the metrics you’re going to use.
(44:49):
So for example, we’re looking at enterprise. Enterprise is a super interesting segment. It’s really expensive to go to enterprise. And so, if we’re going to do that, we need to be aligned with board in terms of this is like a year, 18, 24 month payback because the sales cycles are usually a year. And so, do we have the appetite to take that on right now or is there a different way to do it? And I think if you use that NPV, ROI analysis, the metrics aligned with the investment, you can have a clear-eyed conversation about it, and then you got to be able to hold the reins. And then things start getting tough, you don’t want to go into a market and then pull out of a market either, and that’s either by region or by segment. It’s you invest all that mental capacity and energy and then you put all these dollars in it and then you pull back because you got cold feet. So the job of the CEO and the executive teams make big bets. You got to be clear-eyed about how to frame those up.
Ray Rike (45:42):
And this might be heresy to some investors, but let’s say you’re going to enterprise, because I have had the opportunity to do that several times. My number one measurement is customer acquisition logo velocity. I want to know how many logos in the enterprise market or in the automotive industry and enterprise or healthcare, whatever, that I need to get over the next 1, 2, 4 quarters. And I will sacrifice ACV and ARR for logos. Because often if you can get 10 versus 2, but you get 40% less that muscle memory of what their buying criteria are, what the value proposition is, and their referenceability 6 to 12 months down the road, then you can start getting more value and charge higher prices. That’s my recommendation in that environment.
Randy Wootton (46:36):
Awesome. Ray, you just keep dropping wisdom and I think people can find you on LinkedIn. You have several podcasts that you’re hosting. Is there other places you’d like people to track you down or just follow you on LinkedIn? You’re always posting, putting out good stuff.
Ray Rike (46:51):
Yeah, LinkedIn, it’s just Ray Rike. I was user number 256. That tells you how old I am of LinkedIn.
Randy Wootton (46:57):
Wow.
Ray Rike (46:58):
So I’m on LinkedIn. That’s where I post every day. Two podcasts, I do one with Dave Kellogg, one of the OGs of the SaaS industry called SaaS Talk with the Metrics Brothers and the Metrics that Measure Up. It’s a great complement. So download the Expert Voices, SaaS Talk and Metrics that Measure Up. And then anyone can email me anytime, ray@benchmarkit.ai because every interaction I have with someone in the industry is a learning opportunity for me. So I’m not that smart, but when you talk to hundreds of people every year who are really successful, I learned so much.
Randy Wootton (47:30):
Great, Ray. Well, thanks for sharing your wisdom. Always enjoy our conversations and look forward to the next time and see you in person.
Ray Rike (47:36):
Cool. Thank you, Randy.
From Startup to Success: The Journey of SaaSOptics with Clayton Whitfield
September 11, 2024
Episode details
This week on the Expert Voices podcast, Randy Wootton, CEO of Maxio, speaks with Clayton Whitfield, Co-founder of SaaSOptics, a company that revolutionized financial operations for SaaS businesses by addressing critical gaps in their finance and operational systems. Clayton discusses the evolving roles within the office of the CFO, particularly focusing on critical SaaS metrics like revenue recognition, customer churn, and the composition of revenues. Randy and Clayton also underscore the importance of a finely-tuned work environment that facilitates a balance between front-office growth and back-office efficiency.
Video transcript
Randy Wootton (00:04):
Well, hello everybody. This is Randy Wootton, CEO of Maxio, and your host of SaaS Expert Voices, where we’re bringing the SaaS experts to you, to talk about what’s going on today, and what they foresee for tomorrow.
(00:15):
I am delighted to have one of the co-founders of SaaSOptics, which is one of the two companies that came together to make Maxio in 2021, Clayton Whitfield, who’s originally from Savannah, Georgia, another Georgia boy, and has had a really interesting background. Started off as an engineer, tech guy, and then became one of the co-founders of SaaSOptics. We plan to talk about that journey, his origin story, what he’s seen broadly in the office of the CFO, and then share some stories about what it means to be CEO. So thank you for joining us, Clayton. Really excited to have you here.
Clayton Whitfield (00:48):
Appreciate it, Randy. Good to join you.
Randy Wootton (00:50):
So let’s back up. Let’s roll back down memory lane to the founding of SaaSOptics. What was the idea? How did it come together, the motley crew that joined to take on this problem? What was the story?
Clayton Whitfield (01:03):
So SaaSOptics, one of the cool things that I always liked about it was, it’s a direct outgrowth of our experience running our previous SaaS business. We’d had a previous SaaS business before, and in that business we had the same problems that a lot of people turned to SaaSOptics and now Maxio for. We had a bunch of disconnected tools, Salesforce and QuickBooks and spreadsheets, gigantic spreadsheets and things like that. And so we had all those problems running that business, and we knew there was a market out there to clean that up.
(01:30):
Now, I’ll also say one thing that… We didn’t do everything right, but we were pretty disciplined guys in that previous business, so we got it mostly right with the spreadsheet and everything. But ultimately, it’s just the wrong tool for the job. When you’re trying to run a SaaS business to get your revenues right, get your metrics right, and all that stuff, especially a growing SaaS business, if you use all those disconnected tools, that puts a lot of pressure on the finance team and all those disconnected tools as you grow. And so we knew that just… Again, it’s a metaphor that my wife is sick of hearing me use. It’s like driving a nail with a pair of pliers. You can do it, you can do it, but sooner or later it’s going to fail, and you need the right tool for the job. So we knew that problem existed, so we decided to build the right tool for the job and that’s how we ended up with SaaSOptics and on that journey.
Randy Wootton (02:16):
That’s great. I know my experience with SaaSOptics, that I tell people, was I was CEO of another company, Percolate. We were, call us in the 30 million-ish range, lots of customers. And I just remember, and this was my second time as CEO, but at both companies, the amount of time and energy our finance people spent to close the books. They would spend the first eight to ten business days trying to just close the books, get your gap financials, and then they would spend the rest of the month trying to figure out what just happened in terms of ARR and gross retention, net retention, by customer, by segment, by region, and try to make sense of it. And I tell people, it felt like I was always sliding into the board meeting at the end of the month, hoping the numbers were right, and hoping that no-one had fat-fingered a cell or deleted something so that the information was different than what we represented the previous quarter or the previous month.
(03:09):
And then when we got SaaSOptics, it was like my life changed, and it went from not knowing anything until coming into the board meeting to having the information available literally on day one. When the month closed, all of a sudden you’re able to say, “Okay, so where were we from an ARR perspective, and how did that play out in terms of loss, contraction, expansion, and new?” Again, being able to break it down by customers. And it freed up an enormous amount of time for my finance team and allowed us to have productive strategic conversations throughout the month, versus just trying to get it all ready for the board meeting.
Clayton Whitfield (03:42):
Spot on. That’s exactly right. I love what you said, sliding into the board meeting with a handful of numbers you’re not sure of is such a nerve-wracking… I’m preaching to the choir here, but such a nerve-wracking feeling. And one of the things that I always loved, or really relished hearing over the years from prospects, was, “Where were you guys when I had my first business?”
Randy Wootton (03:59):
That’s right. That’s right.
Clayton Whitfield (04:02):
I still love hearing that from founders, especially second-time founders, because they have the battle scars, and you got them too. So it’s definitely one of the things that just never got old to hear that.
Randy Wootton (04:12):
And I do think that’s another thing. I’m a go-to market guy, and so you come into companies and you want to tune the go-to-market tech stack, and so you’re investing in marketing tech and sales tech and ad tech, and you’re like, “We’re going to get more prospects and leads,” and it makes a lot of sense, because as an early stage founder, what you’re trying to do is drive growth. But I think, to your point around being a second-time founder, is you recognize that you kind of have to balance the investments across front office tech and back office tech to bring it up to speed, so that you’re ready, especially if you have hopes to be invested with by VCs or PE professional money, or you’re moving from cash accounting to accrual accounting, and you’re going to need to be able to represent the ARR roll forward, and the customer cohorts, so that you can represent the business, because that’s where they’re going to spend all their time is looking at the ARR which is representative of the contracts, and making sure that’s accurate.
Clayton Whitfield (05:08):
That’s absolutely right. And that’s one thing that was always gratifying too at SaaSOptics is the population that found us earliest in their evolution as a business were second-time founders, because they knew, to your point, they knew, you got to get the go-to-market right, but you also need to… You don’t want to under-invest in the finance team, and have them constantly be playing catch-up. And the finance team, it’s stressful for them too, because if you under-invest in the finance team, the finance team then can quite literally slow the business down and nobody wants to be on that team.
Randy Wootton (05:41):
Right. You’re already a cost center. You don’t want to- [inaudible 00:05:44]
Clayton Whitfield (05:42):
Exactly right.
Randy Wootton (05:46):
You don’t want to be dragging things down. You want to make sure you’re unlocking the value. Well, good. Well, maybe…
Clayton Whitfield (05:48):
That’s right.
Randy Wootton (05:50):
That’s a great story, and again, congratulations on all your success. And so you were at SaaSOptics… When did it… It was founded in 2012, is that right?
Clayton Whitfield (05:58):
No, 2009.
Randy Wootton (05:59):
2009. Okay.
Clayton Whitfield (06:00):
Yeah, August 2009.
Randy Wootton (06:03):
So 15 years.
Clayton Whitfield (06:04):
Yes. Exactly right.
Randy Wootton (06:05):
Wow. What are some of your favorite memories in terms of inflection points of a startup, you going through that journey, having a really super successful… You were relatively low-invested in terms of how much capital is invested, I think you brought that bootstrap mentality to it, but what are some of those inflection points or your best memories of the SaaSOptics journey?
Clayton Whitfield (06:24):
So a couple that really stand out. One was… This is something you’ve probably heard me rattle on about before, but people get engaged intellectually in strategic stuff, but they write checks for operational stuff, in my experience. So one of the things that would happen in the early days, the very earliest iterations of the software, we only really did what you know as our Subscription Momentum Report. We really just had that top table, opening balance, new, upgrade, downgrade, and end-of-period balance. So that’s really all we had. And we started pitching that to people and they were like, “Yeah, it’s cool. I love it. But guys, I do this like four times a year.” Especially really early stage businesses, they might meet with their board once a quarter kind of stuff. And they’re like, “I do this four times a year. I’ve already got a spreadsheet guy. I really don’t need this. I really don’t need to pay…” What we were asking for at the time was really dirt cheap, but even then they were like, “Nope.” They couldn’t really get their heads around it, because they did it a few times a year.
(07:20):
But then we integrated invoicing, and improved on the way QuickBooks did invoicing for SaaS businesses specifically. We did SaaS invoicing, we did it really well. And once we did that, it changed the entire business. We started to grow… Because as you know, finance teams deal with invoices every single day. Somebody’s looking to invoice, whether trying to chase it down and get it paid, or it’s an invoice from our vendors, something like that. In any case, invoices happen every single day in finance teams. So we went from a product that was going to get touched four times a year to a product that was critical every single day, and that changed the entire trajectory of the business. That’s one really cool memory.
(08:00):
And the other one I would say is… This is more of a sort of origin story stuff. One day I was working on some cash projections, because as you know, you’re obsessed about that, and especially because, like you said, we had very little money, so we’re obsessed about cash projections. But we’ve been closing some sales and everything like that, and I was working on some renewals, I was working on projecting some renewals, because that’s… You get projected cash, you’ve got your cash on hand, got cash from new sales, and in SaaS, cash you can expect from renewals, as you know.
(08:29):
So I was working on a spreadsheet, because that’s all we really had at the time. We had this junky old spreadsheet that was my baby, so I was working on it and projecting some renewals and all that, trying to complete the cash projection. And all of a sudden I looked at it, and I was like, over the next six months, we’re going to have way more cash than I thought we would have, than was expected. And for us, it was a new thing to have that much cash. So it’s like, this can’t be right.
(08:53):
So I checked all my formulas, to your point, somebody fat-fingered something, I checked all my formulas twice and [inaudible 00:08:59] like that, and I was like, it still feels a little heavy on the… Like we’re going to have more cash than I thought. So I take the laptop to my co-founder’s office like, “Dude, you got to see this.” And so he looks at, he double-checks it and everything like that. So then we go to the worst deli in Atlanta, and sit down with my laptop, and we just [inaudible 00:09:14] it back and forth to each other and checking things, and it was obvious that we were going to have more cash than we’d ever had before. And it was a new phase of the business. To your point, it was an inflection point.
(09:23):
And we’re like, all right, right now we got to start hiring. Because at the time, it was just three of us smelly dudes in the business. It was just still the founders at that point. And so we were like, now we got to start hiring. So for the first time we were able to start to bring people into the team and everything like that, and it changed everything in the business. It was fantastic. It’s one of my favorite memories.
Randy Wootton (09:37):
Well, that’s great. I think that whole story around product market fit, and specifically for workflow applications, this distinction between the buyer and the user, I know I’ve been in that dynamic where, at Percolate, we were a content marketing platform, and you’d have the CMO would say, “This is great. I love seeing how marketing’s laid out, and I can track all the campaigns and see how everything cascades.” But what happened was that the user of the technology, the people that had to actually do the inputting, thought it was duplicative to the work that they were doing in their other systems and tools. And so that distinction between being able to create a tool that enables the users, the people on the front line, to be better, more efficient, and more effective, as well as having the… Not the secret sauce, but the sexy sizzle of the Sub-Mo report that people use, and the strategic level, having both of those is the ringer. But where you’re going to get paid for workflow automation is by making an operation more efficient and more effective. A daily operation more efficient and more effective.
Clayton Whitfield (10:38):
Spot on. I love that. That’s absolutely right. Yeah. I mean, everybody likes look at sexy dashboards. That’s just true. But they don’t mean anything if the invoicing is wrong to begin with.
Randy Wootton (10:47):
That’s right.
Clayton Whitfield (10:48):
If your inputs are wrong, they just… It’s useless.
Randy Wootton (10:50):
So maybe that’s a good segue into the second part of the conversation around the disruptions in the offices of the CFO, or the evolution of the role of the CFO. When you were first at SaaSOptics, I imagine you were targeting other early stage SaaS companies. They probably didn’t even have a CFO, or most of them using Bob their uncle as their accountant, or… How were they doing their finance, those small companies that you were targeting? And then we’ll talk about during their own inflection points of when they hire more seasoned and professional finance executives.
Clayton Whitfield (11:22):
Yeah. I love that. That’s exactly what was happening, especially with the first-time founders. They’re like, “Yeah, my aunt knows how to do QuickBooks,” so they just pull in Aunt Jane. And that was their first finance person, and sometimes not even a finance hire, sometimes it was part-time, that kind of stuff. And often that person came from a more traditional business. Interestingly, we’d often run into people that used to do the books for a landscaping company, and now very, very few… There’s very little crossover between a landscaping company and a B2B SaaS business, on the finance side. And so often they were out of their depth. So we often had some of our tech support people were better at SaaS finance than some of these brand new people that were brand new to the world of B2B SaaS.
(12:09):
So that was how they were doing it. Much like with their tools too, they were cobbling together people and tools. So whoever they knew that could do a spreadsheet, whoever they knew that could do QuickBooks, is who they would pull in. And then of course the market, as markets always do, started to evolve a little bit and get a little bit more mature. And then that’s when I would say that was the early rise of outsourced CFO and CPA… Fractional CFO and and accounting services. They cobbled together five, ten CPAs and some controllers and some CFOs, and everything like that, and then sell that service to these smaller startups.
(12:49):
And once that took hold, then we started to see a little bit more maturity in the market in general, because I don’t have to hire Aunt Jane now who doesn’t really know SaaS, but I can go and pay this team of seasoned professionals that are all battle-scarred, experienced SaaS finance experts, and I can hire them on a fractional basis and level up my entire company.
(13:14):
And that also, to your earlier point about the go-to-market and all that kind of stuff, that would free up CEOs and CFOs to focus on the go-to-market side, and focus on the growth, and just trust that this outsource team is doing their thing. And that was another thing that was always great at SaaSOptics is, often those teams use SaaSOptics internally themselves to support their own team, so they can support their multiple clients with a SaaSOptics account, they can support multiple clients and get that level of maturity across all of their clients, which was great. So it was a very nice hand-in-glove relationship there.
Randy Wootton (13:47):
That’s great. And so, one of the things you keep pointing to is this idea that SaaS is different. And so let’s assume that we got people who, other than my mother who’s listening to this podcast, but like my mother, probably doesn’t know what makes SaaS different. What’s the core thing that people don’t realize, if you’ve been doing lawnmower as a bookkeeper, and now you come over to a SaaS business, what are the… I can think of one in particular, but you’ve been in it a lot longer than I have. What one or two things that people really need to think about, in terms of getting the SaaS operating metrics right? They’re not gap, it’s just other way of representing how you’re getting, to your point, revenue and cash. What are the two to three things that people really need to think about?
Clayton Whitfield (14:29):
So the big thing for SaaS in particular is revenue recognition. The revenue recognition rules are just different. If you go and mow somebody’s lawn and give them an invoice or run their credit card, you basically can take all that revenue right away, because you’ve satisfied all the rules for recognizing that revenue. If, however, I sell a contract on January 1, a SaaS contract that lasts for one year, I might invoice them that day, but I can’t recognize all that revenue, because I haven’t delivered the entire service yet. So it’s obviously more complicated than that, but those are generally speaking the rules there. And so just the revenue recognition rules, you can’t claim all that revenue in a SaaS business until you’ve delivered that service. So it’s a $12,000 service, let’s say. You can’t claim all $12,000 on January 1, because you haven’t delivered the service yet. So for those of us that have been in SaaS for a long time, that’s obvious. But if you’re new to it, that’s not necessarily obvious, especially if you’re coming from more of a traditional business. The other thing I would say-
Randy Wootton (15:19):
Yeah, and I think… Oh, sorry. Just adding to that, I think, and then the distinction between paying for the software, and when you can recognize that revenue, and paying for things and recognizing the revenue for services, so statement of work services, so implementation. And then it gets complex in terms of, well, if you give people three months for free, but it’s only a 12-month contract, how does that play out? So all of that’s impacting the way you represent your ARR. And the ARR growth, bookings growth, is something that shows the future evolution of the company, and that’s what investors are investing in. They’re investing in the potential growth. And to your point, that then leads to cash, but understanding when you can recognize revenue, when do you collect cash are two different things. So keep going, you had another point in terms of SaaS, it was unique to our world.
Clayton Whitfield (16:07):
Yeah, that’s absolutely correct. Everything you just said is absolutely correct. The other thing I would add to there is, you can’t run a SaaS business unless you know what your churn is. To your point, it’s a non-gap metric, but it’s a very, very critical one. So who’s churning what dollars and what customers are churning? And things like that. You can’t run a SaaS business without knowing that.
(16:27):
And I’d also go one step further and say, you really, really need to know the composition of your revenues. You can probably run a SaaS business if you don’t know the composition of your revenues, and by that I mean new revenue, upgrade revenue, renewals, upgrades, downgrades, you need all that stuff to properly operate a SaaS business. And you can’t find that in financial statements. So anybody that’s coming to the SaaS world from another place, maybe just accustomed to looking at balance sheets and income statements, there’s no place on an income statement where you can find out what churn is. You can’t even back into it. And you really can’t even back into your revenue composition. You can see we grew revenues this year over last year, but can’t see what’s renewal revenue, what’s new revenue, what’s any of that. You just can’t see it. So you have to have metrics to run a SaaS business that just aren’t available in your typical financial statements.
Randy Wootton (17:14):
Yeah. Just building on that a little bit, I think one of the fundamental assumptions, and I’ve been in SaaS a really long time, is you spend a lot of money to acquire a customer. It’s a different type of business model. People aren’t buying a computer and they’re paying you $2,000 for the computer. They’re probably paying you lower on a per month basis, then to cover your go-to-market costs, your customer acquisition costs. And so understanding your churn, your lifetime value of a customer, means are you going to be able to acquire those companies and support them over time profitably? If you can’t, like if your gross retention in this case is below 70%, you got a real problem.
(17:50):
And so to your point, being able to break out gross retention versus contraction, so understanding which customer and segments are contracting, what’s happening there by product, by region, by segment, allows you to… Do you have a sustainable business model? So you move from product market fit to business model viability. And I think a lot of early stage founders focus on bookings growth, which then they turn into ARR growth, and then you hit that next inflection point, I don’t know, three, $5 million, you’ve been around for a little bit. You’ve really got to change the emphasis and focus on your customer retention, and what are the programs that you’re running.
(18:28):
And this is one of the things I think a lot of SaaS leaders, especially if you have early stage VP of sales who’ve never actually run the customer success motion they overlook, or don’t fully appreciate, is that’s… It’s not a cost center. Support’s not a cost center. It’s really a profit center in terms of securing and expanding your customers. Because the other piece is, to your point of, well, how much revenue is coming from expansion if you’re selling seats across divisions, or seats… How many more seats can you get next year? Or features, how do you drive features in? Because you’ve spent so much to acquire that current customer, that first customer, you’ve got to get the return and it’s usually like CAC payback periods of more than 12 months is problematic, but often it can be two to three years, and you’re like, I’m not making money on this customer until three years after we initially signed them.
Clayton Whitfield (19:18):
Yeah. And that’s a very uncomfortable feeling. But also to your point, what saves you there is your customer success crowd. To your point, they hear about the gaps in the product, they know the things that aren’t serving necessarily your customers as well as possible, and they know why they have those problems. And so to your point, yeah, the customer payback might take some time, but your support, your customer success crowd, is your information lifeline to how to serve those customers and make sure they stick around long enough for the cost to serve to go down, and for their overall contribution to your company to be sufficient.
Randy Wootton (19:58):
Yeah. You make me think, Clayton, I think we probably have talked about this before, that there are… As you think about a business, and this may lead in [inaudible 00:20:06] couple other minutes on office of the CFO, but this may lead into our conversation around what does it mean to be a CEO, is what are the metrics, the bucket of metrics? You have your finance metrics, those are dictated by gap. You’re going to have a good accountant that’s going to cover your butt on that, and to our conversation, get an accountant who understands SaaS. Even if they’re not doing the operating metrics for you, it helps for them to appreciate how you structure your reporting. Gap, you’re arguing about, does customer success go above the line or below the line? Everything else is pretty much dictated for you, and you’re just producing your balance sheet, your profit and loss, and your cashflow statement. So you have finance metrics.
(20:44):
I then think you have a set of operating metrics, which we were just talking about, gross retention, net retention, LTV to CAC, magic number. I mean, we can go on forever about all the operating metrics. In fact, Ben Murray, who is the SaaS CFO, who you and I know and have great admiration for, he runs a whole course on this. I took it before I joined Maxio, in part to refresh, in part because I was like, well, I’m going to a company that allows us to have operating metrics. I’d better know what the heck I’m talking about. But it was great. But I mean, his dashboard, there are like 27 metrics. And so when you think about operating metrics, and which ones you’re going to look at, and how do you set targets so you don’t get overwhelmed, is a huge discipline in and of itself.
(21:23):
And the third bucket of metrics I think are these investor metrics. And investor metrics are ones which you are only really reporting on a monthly or quarterly basis when you go to the board, or if you’re trying to raise money. And as a CEO with a CFO being able… I don’t know if you would have a fourth bucket, but being able to understand the relative importance of those different metrics, and the frequency at which you have to aggregate them and understand them and report on them, is critical to your ability to grow a company and secure funding.
Clayton Whitfield (21:57):
Right. Yeah. You’re absolutely right. I’m not sure I have a fourth bucket there. One thing I would say though is that… This just goes… This is my bias, because I’ve thought a lot over the years, is a lot of people just do metrics because they read a blog post on it. They don’t even know why they’re doing it, or maybe one of their board members asked them for it, not entirely sure what it tells them or how they should be using it. One of the things that I think, especially early stage businesses that are out for money, they go out and they get into a fundraising process, and get hammered with these questions from investors, and assume that they all got to do this all the time. We need to know that metric at all time, every board meeting, every… To go raise more money later on, everything like that. So they get into this cycle of not necessarily understanding why they’re doing those metrics.
(22:41):
Now, to your point, investor metrics, that’s for the investors, but operating metrics are for you to run the business. And understanding why you’re doing them, just because… Doing them just because you read a blog post or an investor asked about it is insufficient. It’s got to tell you something about the business.
Randy Wootton (22:56):
Yeah. Great. I think one… I mean, I can come up with three where there’s a nuance around what is the definition you’re using, because there is no gap. It’s kind of the wild wild west, and everyone can come up with their own definition. I know at SaaSOptics while you were there, you were doing SaaSpedia I think, and were providing a lot of YouTube videos that are still available for people, where you were explaining things, and you had your own bugaboos that you would take on, as waterfall versus roll forward, for example. But with gross retention in particular, it’s one of these metrics I find interesting, because I do think people will define it slightly different. Sometimes they just include loss, sometimes they include loss and contraction.
(23:33):
And so then when you’re trying to set a benchmark with other companies in the portfolio for your investors, or more broadly, like when Ray Wright publishes [inaudible 00:23:41] survey, to your point, really understanding what’s being included in this metric, so that you have an apples-to-apples comparison, and why is it important to think about gross retention minus loss versus gross retention minus loss and contraction, and how do you want to disaggregate that?
(23:58):
Do you have one… And the other one that pops for me is LTV to CAC, and how do you assume your retention rate there, and how that plays out with the formula, but is there another one that you think a lot of people maybe misunderstand or misrepresent?
Clayton Whitfield (24:12):
Misrepresent… Yeah, but it’s usually unintentional. It’s one of this- [inaudible 00:24:16]
Randy Wootton (24:16):
Right, or just misunderstanding. Mm-hmm.
Clayton Whitfield (24:18):
Right. Misunderstanding or an unintentional mistake. This is a conversation I’ve had with a dozen VCs over the years, is they just… Somebody inadvertently makes mistake or includes something in a calculation they shouldn’t, and that kind of stuff, as an example, include non-recurring revenues in an ARR calculation, stuff like that. Usually it’s a mistake, and unintentional, but it’s the kind of thing that invites more scrutiny when you hand that over to an investor, to potential investors, that just means they’re going to get a magnifying glass and tear your books apart. So it can often invite unwanted scrutiny that you didn’t have to have. And especially in a fundraising event, it slows things down.
(24:59):
I would say the other mistake I think people make, is to your point with the gross retention and everything like that, is they don’t segment enough. Now, part of that is, it’s hard, especially in junky old spreadsheets, segmenting your retention, your gross retention, along the lines of your customer base is tough. It’s one of the things that we kind of got right. Again, we [inaudible 00:25:22] get everything right. It’s one of the things we got right at SaaSOptics, is we had some pretty easy cohort reports that would allow you to segment your customer base pretty easily.
(25:29):
And gross retention is not created equal. Another frustration I’ve heard from VCs over the years is, they’ll see a business with an alarming retention rate or churn rate, and then they ask the prospect, their potential investee to segment it for them, so they can get a better closer look at it. And turns out, there’s only one segment of their customer base that churns at a high rate. Everything else looks okay. But blended all together, it looks like a mess, and it would be enough to send any investor running for the hills. So I would say that’s another thing that I would say, another mistake I see fairly frequently, is people just don’t segment enough, partly because it’s hard.
Randy Wootton (26:07):
Yeah. Right. And getting the data and sorting it and doing all the pivot tables on it. I rattle it off probably too quickly, but being able to understand your metrics by product, by segment, and then by region when you go multinational, is wicked important.
Clayton Whitfield (26:23):
Yes.
Randy Wootton (26:24):
Because to your point, your SMBs are probably going to churn faster, but what’s the trend? And be able to show trend over time, and then you can benchmark that. And that’s going to be different… Similar with CAC. So for example, we have a BDR construct for our early stage segment, what we call startup in SMB. We don’t have BDRs, because it’s an extra cost, and we can’t afford it at the price we’re charging. And so then you’re able to bring investment decisions and structure around go-to-market, customer success teams, by segment. And so you get to the unit cost economics of customer profitability, which I think is one of those things that is this combination of what you’re getting out of your financial statements, but it’s also this depth per unit cost of customer, that then you roll up by product, by region, by segment, that allows you to understand, are you running profitable business units? And that’s important to companies that are 1,000 customers, as much as it’s important… When I was at Microsoft and Salesforce, we did hundreds of thousands of customers. Getting that unit cost economics is critical.
Clayton Whitfield (27:26):
Absolutely right. And especially if you’re out for funding, being able to have that conversation with a potential investor is massive, and also helps you stand out. Funding is fairly competitive process, as you know. It also helps you stand out from the other people that might be seeking funding too, as like, wow, this bunch really knows what they’re talking about, and knows it- [inaudible 00:27:43]
Randy Wootton (27:43):
They have their [inaudible 00:27:43] all in one stock.
Clayton Whitfield (27:44):
Exactly right.
Randy Wootton (27:47):
Awesome. Well, good. Well, given the time, why don’t we go to what makes a great CEO? I’ve been a great admirer of you, and you’ve got just the special energy and magic. I’ve been writing on the seven secrets of success for CEOs. I’ve now added an eighth, because I’ve gotten beaten down by the people on this podcast, but the seven include… And then we can talk about which ones really you find are the most important in your own experience having been a multiple-time founder.
(28:11):
Number one is overall results. This is about delivering shareholder value, especially for someone like me who comes in as a professional CEO, behind VC or PE money. Other people have put money on the deck. You’ve got to deliver the results.
(28:24):
To inform that, number two is about establishing a winning strategy, so everyone knows what business you’re in and what you’re not in. I think early stage companies, it’s easy to spray and pray, and hope something hits. So having a winning strategy.
(28:36):
Number three, which I know you have a lot of a passion around, is shaping the culture, the vultures… The vultures. The values and standards that will guide your company over time.
(28:45):
Number four is building an effective executive team, so taking a group of people that are functional leaders and make them part of the first team.
(28:52):
Number five is managing your board and investors, so we’ve been talking a lot about that, setting the right kind of expectations.
(28:58):
Number six is allocating capital to balance the yield today with the necessary investments in tomorrow, so how do you do horizon one versus horizon two, horizon three.
(29:08):
Number seven is investing in you. So making sure you have a mentor, a coach, a peer group.
(29:12):
And then number eight is unlocking the potential of your team. How do you make sure that you’re growing your own and you’re helping people have extraordinary experiences?
(29:20):
So that’s a word salad, lots of topics there. Which ones resonate for you, you’d like to provide some insight on?
Clayton Whitfield (29:29):
So the one that… I love all of them, first of all, and I think they’re all required. I think that they are all critical to get to eventually, maybe not day one obviously, but as you evolve, they get there. I would say the one that jumps out a lot is… Two that really jump out. One is the team. One of the things that my co-founder and I talk about a lot is, we didn’t get everything right obviously, but one of the things we got really right at SaaSOptics was the team. It was an amazing team. Give me another team like that and I’ll take over the world. It was absolutely amazing. They were incredible from day one. [inaudible 00:30:07]
Randy Wootton (30:07):
And sorry, is this your executive team, or broadly every hire you had? I mean, that’s a broad statement to say everybody we hired was great, and we would take over the world. Or is there a way that you focused on… Maybe start with the executive team, the people that you hired for that early stage, your first set of senior executives. How did you think about that, and how did you ensure you got great people?
Clayton Whitfield (30:27):
It’s one of the things we… Again, we got this pretty right. And to your point, I was being overly broad. Yeah. One of the things we hired for, especially in the early days, we really had two attributes. We want people that have a high level integrity, and work really hard. Those are really the two attributes we hired for in the early days. As an example, this will be close to your heart, our very first sales rep had an English degree from the Naval Academy.
Randy Wootton (30:47):
There you go.
Clayton Whitfield (30:48):
Exactly right. On paper, anybody who was hiring for an experienced sales rep wouldn’t have hired this guy, but he turned out to be amazing. He was incredible. And so we had that… Our first of director of customer success had a theology degree. Again, on paper you would look at that person and go, “I’m not sure this is the right fit.” But these were really great hires, because again, high level of integrity and worked really hard, and they became leaders in the company, because they were early hires and things like that. And once we started hiring behind them, people naturally looked at them as the leaders, as the old guard that embodied the culture and embodied the way we thought about things. So I wouldn’t say it’s easy, because hiring is never easy, but what it became… Building a really good team became easier after those initial hires were in place, because they embodied the way we thought about things, and- [inaudible 00:31:38]
Randy Wootton (31:37):
And the values and the standards. So more about the how versus the what. One of the things we’ve codified at Maxio is what we call the great leader framework. And it’s all about capabilities, not specific skills in terms of I can run a [inaudible 00:31:51] account program.
(31:52):
One of the things I’ve been struck by and why I took the job, Clayton, was because it felt like the culture at SaaSOptics, Maxio, and Chargify, was different than a lot of the Silicon Valley companies I had been part of. People were just nicer. So what struck me is you said high integrity, worked hard, but you didn’t include two other things. Silicon Valley I think over-indexes on IQ. And then you also didn’t mention this idea of just being a nice person. How did you filter for that? Because the culture is really, in my opinion, unique in that way, that people are collaborative, they’re kind, they’re not out to get each other. It’s not a zero-sum game. It feels really different, and that must have been something that you guys embraced and articulated and hired for early on.
Clayton Whitfield (32:37):
That’s exactly right. Yeah. We had a… It’s good point. It was never really… I wouldn’t say we ever put it on a job description anywhere, but we had a kind of a no jerks policy there. And we also interviewed pretty strongly. Most everybody we ever hired at SaaSOptics went through at least three interviews. So sooner or later, if you are a jerk, or you can’t control your emotional reactions to something as simple as an interview, then you’re not going to get hired, because what happens when a customer calls up and is a little bit angry because they found a bug in the software? If you can’t control your emotional reaction in an interview, there’s no chance you can with a hostile customer or a frustrated customer, right?
Randy Wootton (33:16):
Yeah.
Clayton Whitfield (33:17):
So I’d say we naturally weed those things out in a pretty tough interview process over the years.
Randy Wootton (33:23):
Got it. And did you use a lot of back channel references, or was it friends of friends? Because I think that’s another thing is, if someone’s at a company, what you hope for is employee referrals, because if they’re doing well, they’re going to… Birds of a feather flock together. They would have a set of friends that you would want to bring across. Was that another watering hole you fished in?
Clayton Whitfield (33:41):
Absolutely, relentlessly. The sales rep I mentioned, the Naval Academy grad, he went to a small high school there in Roswell. And before you know it, we had hired almost all of his friends that he graduated with. Some that had graduated a year before, and some that graduated a couple of years after him. They were all still really tight, and they were all, to your point, birds of a feather. They were all great guys, and we hired them pretty relentlessly after that, and still in touch with quite a few of those guys, even after all this time.
Randy Wootton (34:09):
Oh, that’s great. Yeah. Talk about software being a people business, and it’s those relationships that are rooted in trust. Trust is tied to having high integrity and having a common sense for what it means to work hard.
Clayton Whitfield (34:20):
Spot on.
Randy Wootton (34:21):
[inaudible 00:34:21] it’s not a job, it’s a vocation. Okay. Well, we probably have time for one more of those eight secrets. We talked about really hiring a team and helping that team, and the cultures and values. Is there another one that pops for you with your wisdom now, looking back on the most important thing CEOs need to get right?
Clayton Whitfield (34:40):
There’s one other one that you listed, and I would call… It was allocating capital. It’s interesting how… I think it’s a critical skill, but a lot of CEOs, especially CEOs that came from the sales and the product side and founded their own thing, have very little experience with actually allocating capital. I was a product guy, I was a sales guy, and I started this business, and we’re getting a little bit of success now, but they often struggle to allocate capital. And I think finance can sometimes be a bit of a… It doesn’t have to be, but it can be a bit of a mysterious and spooky thing for somebody that’s come from the product side, to try and now all of a sudden to be allocating capital across the entire business. I think it feels a bit uncomfortable for some people. So I think it’s a critical thing to be doing, especially at the stage that Maxio is right now, allocating capital… And even before, allocating capital is a massively, massively important thing, and a lot of CEOs just are inexperienced with it.
Randy Wootton (35:33):
Yeah. I do feel fortunate… I mean, people give you grief for getting an MBA, but I do feel fortunate coming out of the military, having the opportunity to go do an MBA, learn the language of finance [inaudible 00:35:43] accounting, having the opportunity to take a class in finance, and learning how people thought about capital structure and investments. And it was a skill I had to build. And then what’s interesting is, you go through your early part of your career, you’re probably in… As a director, you’re not really spending a bunch of time thinking about finance and capital. I actually went back and took another course, finance for non-finance executives, when I was in between two CEO gigs, because I felt like, gosh, I had done this 20 years ago at business school, but it’s been a long time, I need to go refresh.
(36:13):
So I think, to your point, CEOs getting strong CFOs who are thought partners in helping to think about capital structure and investment, that’s a critical role of the CFO. But also I think the CEOs knowing that what they’re doing is playing with other people’s money, and so they got to be able to think about ROI, NPV, making business cases, how things are going to play out, what are expectations for things you’re making bets on in 18 to 24 months, instead of just solving for what I need to get done today. Because you’re never going to get to the next act if you haven’t placed some bets and are letting things play out a little bit.
Clayton Whitfield (36:47):
Spot on. I agree with all of that. I love that. I was also going to say, there’s one thing that’s not on your list, and this is very much my bias, but I saw it a lot in the early days in early stage companies. Early stage CEOs… This is 100% my opinion. Early stage CEOs I think need to be more like COOs than CEOs. Because a lot of them-
Randy Wootton (37:05):
What do you mean by that?
Clayton Whitfield (37:06):
Well, a lot of them… A lot of the conversation I heard over the years is, “Well, my job is to set the vision and to blah, blah, blah, blah.” And they extracted themselves from the day-to-day nuts and bolts. And I think in early stage business, that’s a mistake, because the nuts and bolts are where it’s at in the early days. When you’re incubating and trying to get the next stage, you’re never going to get to the set the vision stage if you can’t get past $1 million in ARR. And when you [inaudible 00:37:33] $1 million in ARR, you’re getting some things right, and the CEO needs to know at a very, very low level of detail what’s going on in the business. And if they have the ivory tower view of a CEO sits on high and does this and twists some buttons and everything like that, then I think it’s a mistake. And I saw a lot of that. So I would-
Randy Wootton (37:54):
I think that’s a good build-out of the first one I described. The number one thing you’re responsible for is overall results, and that does mean you’ve got to be in a level of detail and set up systems so you can monitor what’s happening. I mean, that’s the advertising for Maxio, is you get access to information that you as a CEO are able to inspect. You’re not relying on other people. But it’s also, how do you set up a rhythm of business? How do you do the… You get what you inspect, so what are the ways… You do it without over-functioning and micromanaging, there’s that balance, but you are the dude that the investors invested in, or dudette, and you’ve got to be able to deliver it. And if you don’t know it, you’re going to get removed.
Clayton Whitfield (38:30):
Exactly right. 100%. I couldn’t agree more.
Randy Wootton (38:32):
All right. Well, now we’re wrapping up. We talked a lot about… The speed round, I usually have three questions. What’s your favorite metric? What’s your favorite book? And who’s your favorite influencer? We talked a lot about metrics, but is there one that we didn’t address that you think is critical for people to really keep their eyes on?
Clayton Whitfield (38:46):
Yeah. This one is certainly, again, my bias, it’s sort of my golden goose, is customer lifetime value. And the reason for that is, to do a proper customer lifetime value, to get that proper customer lifetime value metric, you have to get a lot of this other stuff right too. You need to know your cost of capital, you need to know your retention, all that rolls up into the customer lifetime value calculation. So it’s a bit of a cheat, because you have to get some other stuff right to get CLV. But I think CLV is critical. I mean, who doesn’t want to know what a customer’s worth to them? And especially, segment it from there. Every business in the world should know that, or should want to know that. And so that’s definitely my favorite. It’s certainly my bias, but definitely my favorite.
Randy Wootton (39:23):
That’s a great one. And then I think you start to think about, if there are three ways to grow a business, acquire new customers, retain current customers, you have this other idea of monetizing the customers you have with pricing and packaging.
Clayton Whitfield (39:34):
Spot on.
Randy Wootton (39:35):
So customer lifetime value, how do you maximize it over time?
Clayton Whitfield (39:38):
Yes.
Randy Wootton (39:38):
What’s your favorite book, or what are you reading right now?
Clayton Whitfield (39:41):
I’m reading right now, it’s an investment book, but my favorite business book that I’ve read in the last ten years or so is The Hard Thing About Hard Things by Ben Horowitz.
Randy Wootton (39:48):
Yeah, absolutely.
Clayton Whitfield (39:48):
I love that book. Yeah.
Randy Wootton (39:50):
Yeah. I think any aspiring CEO should read that, and in your darkest moments, pull it back out and go back to look at your notes, because you know what? It’s hard.
Clayton Whitfield (40:03):
It is hard. It is hard. I agree with that 100%. It should be on every CEO’s shelf. 100%. Yeah.
Randy Wootton (40:07):
And then finally, influencers, people that you’re listening to, watching, or reading, that you think are actually saying new and interesting things versus just repeating the echo chamber.
Clayton Whitfield (40:16):
So this is a recent acquaintance, is a CEO named Maya Mikhailov. Shes CEO of Savvi AI. And she’s… So I freely admit I’ve explicitly ignored a lot of the hype around AI, because it felt just like a hype cycle thing to me, so I explicitly ignored it. It’s a little too reminiscent of the dotcom boom back in the day for me to get super, super intrigued by it. But that’s one of the reasons that I’ve been reading Maya’s stuff, is because she posts a lot on LinkedIn, and she’s got a very clear-eyed perspective on what AI is, and I’ve really enjoyed reading her stuff. So I’d say that she’s the most recent influencer for me.
Randy Wootton (40:53):
Got it. And sorry, it was Savvi AI? Is-
Clayton Whitfield (40:56):
Savvi, yes, is name of the business. Yeah.
Randy Wootton (40:58):
All right. Well, maybe we’ll try to put that in the show notes. I’m always looking for people to learn more about and learn from, so it’s great. Clayton, it’s always a pleasure chatting. Thanks for spending a little time with us, talking about where you’ve been, what you learned, and how CEOs can think about being successful.
Clayton Whitfield (41:14):
Likewise, man. It’s been great talking to you, and I’ll talk to you later.