The Sales Hacker Podcast
The Sales Hacker Podcast

Episode · 3 years ago

24. Building a Tier-1 SaaS Company from the Investor Perspective w/ Tomasz Tunguz

ABOUT THIS EPISODE

E24 is a gold mine of information on what goes into building a scalable, successful SaaS company. Tune in as we chat with Tomasz Tunguz — legendary VC and SaaS expert!

One two one tee three: My folks welcome to the saleshackerpodcast this week is yet another amazing episode, they're all amazing.What can I say I'mbiased I love the sound of my own voice. This is episode.Twenty four and we've got Toma. Tungoos Tomos is Managing Directorate Red PointVentures really well known in the SASS world for a lot of the data andanalysis that he's done: Agait R for benchmarking, great companies, it'salso a wonderful person. He was on my board when I was at axl and he sincebecome a very prominent and noworthy figure both for the acuity of hisinsight, the successive as investments such as Lookor, and also just the factthat he's a nice guy. He really tries to be a good person and it's awonderful, it's a wonderful interview. Now I want to think a couple of thefans that have been reaching out it really just it's awesome. So we reallyappreciate you listening. I get feedback which I really appreciate aswell, and so we want to know what you want to do differently on the show. Wewant to know how he can improve and we want you to share the content with yourfolks with them with your friends, so James Bishop, at underwrider labs, helistens while he's working out. He gave me a lot of good feedback about arecent episode. James Really appreciate your listening and and thanks for forgiving us those insights an that feedback. Tony persout, Rebecca Wenton,Weton, wette n. She reached out to me, based in the UK, excited about whatwe're doing over here at the sales tacker podcast Bernie Borgos, who alsoruns the social business engine podcast. I'm sorry if I said your name, yourlast name wrong, Bernie and then Charles Kirklin from the KirklomediaGroup, who wrote me just a simple Knon, great podcast, so Tharles. Thank youfor the feedback. I want to talk about. Our sponsors we've got to. The first isEIR call and I've talked about them a bit. They are a phone system andthey're designed for the modern sales team. So air call what they do. Is theyseamlessly into greate right into your crm, whether that sales force help spotor something else? They eliminate all data entry for your reps and they giveyou much greater visibility into your team's performance through advancereporting when it's time to scale, you can add new lines and just minutes andyou can use in call coaching to reduce ramptime for your wepsoe here's thewebsite. It's visit air called that IOSO air called ot io for ash sales.tacker. That's air called that io forward slash sales hacker to see whyUber Donand, Bradstrade pipe drive and thousands of others trust air call forthe most critical sales conversations. Our second sponsor is out reached Adio.They recently acquired sales, tacker rit large. There are sales. The leadingsales engagement platform out, which triples the productivity of sales teams,empowers them to drive, predictable and measurable revenue growth byprioritizing the right activities and scaleing customer engagement withintelligent automation. Outreach makes customer facing teams more effectiveand approves his ability into what really drives results. That website isoutreached out iole for lish sales tacker and go there to see a thousandsof customers, including cloud Dere, glass door, Pandora, Zilo, RelianOutraghe to deliver higher revenue for sales rape. So thanks so much forlistening, and here is our episode with Tamas tungoose everybody and welcome tothe sales hacker podcast. We are incredibly excited to have one of thecelebrities of the SASS world, but also somebody that has positioned himselfand sort of built, his career as a true thought leader when it comes torecurring revenue, businesses and I wam speaking of course, of Tamas tungoose.So let me first tell you a little bit about Tamos and then we'll chat withhim. But tomoss is a managing director at red point ventures. He invests inearly stage software and infrastructure companies. If you don't know about asblog you should so it's at Tom Tungoozcom, that's Tomtu, N Juzcom andhe wrote a book called winning with data. Tamans has been a product manager,Google, a software engineer at Appion, and he also founded a spall startup andhe works with industry defining companies at red point like stripe.Tolio snowflake looker Zora Sonos, which I pealed last week and duosecurity, which was recently acquired so welcome to moss we're super excitedto have you, I'm trilled, to be here...

...thanks for inviting me on thanks forjoining. So what we want to do, for you know, there's probably like threepeople in the startof world that don't know who you are so for those people,your name is demostangus You'R, an MD red point ventures for those thataren't in the know. Tell us a little bit about red point. Show red point isa venture capital firm based in California. We've been around for abouttwenty years. We manage about four and a half billion in capital, and weinvest in consumer and enterprise companies at Sta, SEISB and grostagous.Wonderful, do you have a sector focus F for your investments? I do I focus onsoftware as a service and intrastructure, and is there o stage?You know ABC that you're specifically focused on CD, andb, okay and then someof the flagship investments are some of the companies that we should know about,that you've either been on the board of or assisted with or invested in yeah.The one of the companies I work with is a business intelligence company calledlooker. That's based, I tena Cruiz and growing incredibly quickly, O r aboutsome more neighborhood of about five hundred employees and we invested atthe series a there well another one is a company called Dremio? That's in thedid infrastructure world that started by to of the key management teammembers from map par and has rested. Th Management teams from mango DB andthat's a Dateo virtualization company is going really nicely and the last isthe two last one is called chorus which many of the people in your audiencemight know to sales intelligence company that has proprietary naturallanguage, tack that allows Im to do all kinds of interesting things with phonecall that talls people might have, and then the fourth is a customer supportcompany in New York called customer. That's founded by the team that builttee pieces of the service clouded service that sales forse. Oh Wow. Well,to your point, I think a lot of us are familiar with chorus and a lot of usare familiar with looker. To be honest, just because business intelligence is akey piece of you know, what's happening with companies, you have to be able toturn your data into insights. Absolutely now you believe that money we di Aterover here at's right and I love data, so tell us. How did you get here? Howdid you get into VC and walk US through? You know: There's a lot of people outthere that one day they aspire to be to Mostangoos they aspire to be a partnerat you know: a blue chip ter a venture capital firm. How did your journeystart yeah I'll? Take you back to when I was about seventeen. My Dad sent meto South America for an internship, and we ended up my dad and I startedcompany together. Oh ow, he was the one doing the engineering and ow with theone doing the selling and we filt a legal software company Thas doingdocument managaement an billing systems for law firms that had customers thatoperated in different languages. So I sold like my first three or four salesor Li can a O, thousnt, O fiftk range, and I remember coming back from thatabout like a year, long adventure and it I felt transformed and- and I justloved- and I was basically bitten by the bug I startups- and it was awonderful experience. But I knew that I had a lot to learn and so I went toschool and I studied mechanical engineering, Computer Science and whenI graduated from Grad School, I went to work for a start up in Washington DCcalled Appi an that was started by three Dart massalams, who had leftmicro strategy, which was a big business intelligence company. And Iwas a Jav engineer- and I was here for about ten months and it was a reallywonderful experience. Company acually went public about three years ago and Ilearned you know that was like a seventy person company when I joined,and I learned what it was like to build enterprise software and sell enterprisesoftware at a different scale. We were a government subcontractor, and so Iwas working for the Department of Homeland Security, Al Wow e wre sellingsoftwar to them, and so it was just like. I was working, a large killarticle databasis and I understood at least that part of it or the deal sizes.You know when you're selling to Department of HONGLAND security. Theywere multihundred thousand dolar deals. I think it's a long time ago, but yeahthey were multi hundred nddollar deals and I wasn't the one doing. The sellinghelped a little bit in Presales, which is like putting the demos together andmodifying the platform that we had...

...built and then Alsi did filmit and alittle bit of platform work. Fantastic yeah, it was ie met, some reallywonderful people there. It was great, and then I went to work at Tugo Gadright about this place in California, and I was I remember interviewing thereand the recruiter took me after my my morning interviews. It took me to lunchat Thi Place called no name cafe which no longer exists, and this thing thatstuck out to me was one. Lunch was free, never seen that before, and they hadthis huge bowl of rastberries. Like enormous, I mean like buckets andbuckets and raspberries and Iwas like wow. I can't believe I can't believe Ican have as many as I want and rasspberries are a luxury fruit. Alot of talk has been you know going around about how blackberries arereally kind of inferior to raspberry, so to have that many rasber. Well, the crazy part is you know when Iwas working at the startup in Shila Labor, there was much cheaper, so wewould drink raspberry juice in the mornings. I was like what this feltlike co, going back to Chilli axactly right, but so my GP, when I graduatedschool was low, is about a three three and Google had a three fiverequirements, and so they wouldn't hire me as a parduct manager and engineers.But they hired me as a customer support person like a customer success managerin one part of the business, because I always knew they gave me this new classof companies, which were social networks, and so I became an accountmanager for some of the large social networks and then learned how thosebusinesses work, built, ime relationships and eventuallytransferred into the Associate Product Manager Program that mercy. Mierment,ran yeah, a very famous program, and so it's like two year management rotationprogram and then I started building well. I started that was a productmanager worked with teams to build advertising products for social mediaproperties and so Menatto. The mice base agreement that we had and managedthe facebook product that we had for a while and then also launched the atproaduct that we had in a bunch of new language S. We launched it in Hebrewand Arabic and there was one time where we had. We had to launch it in easternEurope and we had the time to launchis figures and Serbe and Croation servingincroasion on hit the time o lounge is exactly the same, because otherwise etwould be some strong disagreement, Yeaso about who was getting preference yeahexactly right. So that was a lot of fun and then we also were doing likeimprovements in Chinese and stuff, and so I learned a lot about statistics andthat's where a lot of my passion for data came from Koogl had this view ofthe world. That was incredible because of what we were doing in terms ofcalling the Internet and the power of it was just awesome. That's when Ifirst fell in love with data. Do I remember correctly that you were youchief of staff or some senior liason for Eric Schmidt at one point, or am Imisremembering I'd never had that position. HAPM had a different rolethat served the management team in one way or another, so like Pete Cuman, whois the founder, optimizly did okrs for Google and H he workd with JonathanRosenburg, who was the head AF product. My role was: I worked on a bunch ofdifferent projects. One of them was like engineering pm and Ang ratiosacross the board, so how many product managers we have in one team versus howmany engineers making sure that kind of worked? I guess one question evenbefore we get to red point, what are you if you're reflective and lookingback on you know the mixture of skill and luck that led you to you know whereyou are today. You were clearly despite you know three three, which is reallyjust a shameful GPA. Despite that you, you seem to beprogressing pretty quickly through the Google Organization, which I'm sure ishighly competitive, given that it's recruiting some of the smartest peoplein the world. What do you think you were doing differently or what certaininsights or intuition that you developed into sort of marketable orexperiential skills helpd enable that success? Yeah, I think the first thingis, I wasn't afraid of taking a step back in my career when I joined Google,I wasn't afraid of that, like I was whatever an engineer and then when Wibecame a support rap and I just the rational was had just need. You know,there's this great saying I think Andy Rackliff has, which is when you find arocket ship, don't ask which feat...

...you're going to get jus get on you know,and so that was I remember, I remember reading something about. You know itwas like somebody, maybe itwas John Dor, but it s somebody calling SherylSanberg at the time saying the same thing to her. What are you doingfutzing around and I think she was like working for Larry Summers or somethinglike yeah, yeah, she's, so impressive. By the way, I remember my first day shegathered all the new employees that were working in her department and shegave us a talk about her expectations for how we would dress and how we wouldspeak and how we would write and that we were representing Google to allthese millions of people. A that she expected great things from us, and Iremember going up to her afterwards. You know just like totally green and Iwas like I went up to here, and I said you are the most articuoute person.I've ever met IM so impressed. That is an awesome story. What did shesay? You know I bit she's just like sshe was really nice she's like Oh,thank you so much I'm so you know ver, I'm so excited that you joined Blh,Blah Blah, but wat's reissuring that even you know, unn micro scale that herskill in her her talent is conveyed. So Yeah Yo supempressive. I remember thatso one thing you said was you know you weren't afraid to take a step back andthat got you into Google. What do you think enabled your success at Google? Ithink the first thing was. I had a plan. I really wanted to be an APM. So assoon as I figured out, that was my goal. Then what I started doing is networkingwith people within those teams and understanding what the process wasgoing to be, and then the second thing, which is even more important, is I hada manager who I built a strong relationship with. So let me take astep back. So when I first joined, I had this great manageer named Charlieand I had signed up to work for Charlie, then about a month later there was thisguy who came in who became our managers. Name is Scott and Scott is incrediblybright, like pch Ye had a princeton and some kind of dynamics of AR planes. TaForget the exact field was in mckimny for like ten years, then he came in enall of a sudden. He put us on quotas and I was like my stomach fell and Iwas like. Oh my God quota. Are you kidding me there's? No in I the world awin, a Takota, and you know this is why I think it's really good for everybody,allots of people to go and have a quota just because there's a number thereevery day, that's kind of staring you in the face and it forces you to kindof Move Aon. But I was terrified was like. Oh my God. I got to transfer outof this. That was my first reactions like there's nowhere I can succeed. Igot to transfer out of this division, like my whole plan is going to it's notgoing to come to fruition, but that ended up actually being one of the mostrewarding relationships. I've had with a manager and wegoomout yeah. He Iwasn't sure which direction the story was going when Scott entered the PAG.Well, I was terrified. I was really terrified because he was so he's sodisciplined in the most wonderful way and you had a plan and then he sort oftaught you some of the benefits of just daily countability, objectivelymeasured yeah, and then he gave me a lot of rope. So what I ended up doingis, I had my day job and he would let me do that and then I started buildingcomputer systems for our team and one of the systems I built was. You know:Google was cralling the Internet at the time who gill add sence was competingdirectly with the product that y'a who had built his name. I forget, and wewere you know Scott, had this question about what was our relative market here,and so I worked with an engineer on the search team to build a dashboard thatwould show exactly which sides Yaho had one from US and which sites we had onefrom Yahoo, and that was the first one, and then I built tha crm tool that weended up using globally for a while called toothpaste, and so thoseprojects were the ones that allowed me to kind of go to tha, associate productmanager, recruiting team and say I think I'm capable or let me make thecase that I'm capable to be part of this team did. Did the name toothpacecome from sort of like Larry's thing about a product to use. Every day, likea Tis pressure, no it didn't. I wish it had. It wit yo a much better story. ItGod had come in and said Hey. We need to capture all these fields, aboutevery customer that we touch and we're...

...going to do it in a ward document- andI couldn't stand that idea because I'm like all this information is going tobe stuck in the squore document and it's going to be useless, and so Istayed up all night and I built a piece of Software Hel toothpacte and I namedit that because I needed a name and like I was like whatwer for in themorning and it's like O, what am I going to callit and I went to brush myteeth and there was my inturation. Well, I think it's a good name tank. This is,I think it one of the things hat sort of is jumping out. I mean, maybe it'sgoogles culture. Maybe it's you, maybe just how you're wired, but you keepgoing well beyond. Whatever the you know, regimented job description wouldbe for whatever role you ere in you're, just building things, because you needthem and seems to be the hallmark of excellence. A lot of the time it soundslike you keep going above and beyond in theroles that you ere in, and you know, you're staying up on night building aCRM, you're building out databases, it seems to me part of I don't know- isthat the culture of Google whetthere. You know the twenty percent thing wherethey're just saying go out and do stuff that we didn't ask you to do, or wasthat also part of your plan to always overdeliver against whatever thespecified job description was yeah, it was definitely a bit of both. You know.Google had this twenty percent project stuff and people were encouraged tobuild their own tools, and that was a really strong part of our culture, andso I probably talked up more to that. So you've been a google for, howeverlong and and how did you decide that you wanted to get into VC, maybe versustaking on? And you know being part of a founding team that start up. Forexample, yeah. I had talked to a couple of startups when I was a google and Iwas like wow, this is so cool. Then I met my first VC. I ever met right and Ihad read about like in tec crunch and all these places a best is like peoplewho walked on water and we're so smart and all this stuff, and I was like wowits a fascinating industry, and I was talking to my wife at the time wor, mywife, but my girlfriend at time is not my wife and she's like this would bethe perfect career for you, because you're so, intellectually curious andyou're, always on the latest. You know parts of technology, and so wouldn't itbe fun, and so I talke to a bunch of different firms, and I really I reallylove three parts about red point. The first was that there was an incredibleculture of mentorship and training within the firm. A second was thatthere was really strong set of values that drove the firm and then the thirdwas that I felt at home like that, that we all we work together as a team asopposed to collection of individuals, and so all those three really resonatedwith me and that's why I came to red point and it's been an amazing journey,since how long have twey been there now about ten years and the thing thatthat's really stood out for me is like. I had no idea what I was doing for thefirst two years, like no clue- and I remember trying to read as many booksas I could about venture capital, and I get bought out of trint books liketheres, is one called vench deals at one of our partners. Jiff hang asinterviewed in and I read about George Dorio who's, the kind of the Creator ofAmerican Research and Development, which is the first ventric capital firm,and I read through all these different things, and I thought I was prepairedand then I walked in on the first day, and he really took me about- and thiswas unlike any other job that I'd ever had where you know at least I had someexposure or understood what the role was, but centor capital is so different,and I think you know one of the things that I tell people who want to get intoventure is the thing that I never understood about and took me about twoyears to learn. Is it's really? The closest job in the operating world isfield sales wow. I've never heard that before we're going to unpack that. Whatis that Wel? So when you're an enterprise sales rap, you are workingon really high value accounts, you're working on developing a relationship.You have very long sale cycles and there's no playbook for how you winthat account. You have to go and figure t out like you got to go a map whomatters who's, going to influence the ultimate decision maker. You have to goand find that eastcase and figure out whether or not this particular team.This company is going to be interested in buying your business intelligence,stuff forlike, you basically given a phone and a laptop than you, shouldg,okay, go go, do some business and is that the same process for sort ofnurturing and developing relationships...

...with founders that that you ultimatelywant to invent Y H? I think it's exactly the same, and basically it's alittle bit different in that. Okay, like whatever I focus in software as aservice. Let me go pick a field where I think there might be somethinginteresting and then it's entirely up. Toou like if you soventor capitalist,all of a sudden, decides customer success. Software is really interesting.You have to go immerse yourself into that space. You have to go and build anetwork of people who, you think are thought leaders who can help youidentify what the right next opportunities are. Who can help youwith diligence? You have to go network with founders who are passionate aboutthat space and deside, which one you want to pursue, and then you have totake all that information, and this is the like. That's my understanding. Whata field sales are? U Put. Do is tehen driving, like figure out who's, goingto influence that the angel investors that previous investors, any of yourfriends that you have in com on you got Ta build that kind of consensus for thecommunity around the company, to put you in Aself in a position where you'retrusted adviser and that's one part of it. The second part of it is this. Thismarket making component, which isn't necessarily transparent to the outside,so a venture capitalist, is a marketmaker between a founder and aninvestment opportunity in the business and then the partnership. That's insidethe firm. You know what I have to do is when I get excited about a company. Ihave to not only convince the founding team in that community people aroundthe startup that red point and we are a great person, a partner with a greatfirm apartner with I have to go back to my partners in t say. Let me tell youabout this really exciting Customer Support Company and why we should bemoving forward and then bridge the gap between the two in terms of what theright financial transaction is in order that underpins the broader businessrelationship and also the thing that sales executives and really anyoperator. That's not a founder and venture capitols have in common. Isthat, from my perspective, you may disagree, but I believe that my role aslike a salesr or revenue leader, it's important, but it's not determinant andthe determining factors are often before I join the company, there'swhether it's the combination of the product and the market and theengineering team or the founding team that can crystallize that intosomething that people absolutely love. And so a lot of my job, which is a lotof your job, I think, is picking the right company. How did you figure thatout on the first couple of years, because I would imagine that there'smuscle memory that needs to be developed for you to have develop apoint of view not just on sort of what space is interesting, but what thefactors are that combined for the investment that red point wants to makeyeah. This is this is why I ventures an apprenticeship business. It's alsonuanced. I have a spreadsheet, like I goad this huge form that I used to fillout. Every time I meet a company. It's got like a hundred fields, greatdifferent companies on different metrics nattributes. You know just tobring it at the hight level. I think what we really care about we're affirmethat really focuses on team first and the people, because we believe thatpeople are the ones that build businesses and people are the ones thatshape markets rather than the other way around. That's one. The second thingthat we look for is, if it works, can it be enormous and category definingour business model is to invest in about thirty to forty companies per funand have something like two or three of those companies generate all of thereturns that we need in order to sell or in order to raise e next fond, andso it's a powerlaw of business, and so we just have to make sure that if theydo succeed, we have those return characteristics. Were you apprehensivein the early days of read point about like? Did you have a strategy aroundpitching companies, because I would imagine, but you can tell me if I'mwrong, that maybe the first couple you're sort of nervous what if theyfail without maybe fully internalizing the powerlod dynamics and understandingthat, actually you know a good percentage of them are going to fail.That's okay! As long as you know, the portfolio as a whole returns the rightreturns. Did you have apprehension about that or you you sort ofunderstood that implicitly it took me a while to learn and he was crystallizedmy first year now, one of our most most important investors that we have anannual meeting every year where we go through all the key updates anddevelopments in red point and at the...

...time we would have a dinner with ourlargest investors, which you call lps or limited partners, and one of thehe's very tall imposing man he's one of our PPS and he puts his arm around myshoulder and he says Tomash. I have a question to ask you I'm like. Oh, myGod, what I mean bcause, it's like I'm, theyoungest guy I feel like. I know nothing about the Industry Hee's likeour most important investor and put this irm around my shoeld, and he saysI'm going to give you two options and I want to hear your answer and you knowhe turned everybody at the table and he said are around us and he said I don'twant anybody to Nterject said if I gave you an option of investing in a companythat was guaranteed byvex or a company that could be a hundredx with a onepercent probability or whatever it was, and a total zero with a ninety ninepercent probability which would you choose- and he said, think verycarefully before you answer- and I was like: Oh my God, Iw figting bullets,and so I said you know, I said the second one and he said that's the rightanswer every time he said: If you're not losing money on investments, you'renot taking enough risk, that's a hard lesson to fully digest, particularly ifyou're an operator, yeah ut. Let me tell you another story, so there's abuddy of mine who works at a Hedce Fund and he's you know highly leveragedpositions like he's trading, billions of dollars and national value, and Igot drinks for them one night and he said Ilost fifty million dollar todayand I lost my job on one trade. I was like, Oh my God, that's crazy. Andisaid how are you ever going to find another job and he said everybody'scalling me I'm not going to have any issues, because there are very fewpeople who are willing to take make those bets and be willing to lose thatamount of money. That's. That is a great story. So at this point, when Imet you, of course, axy was probably one of your first investments, but nowyou've been doing it some time you've been promoted to partner,congratulations. That was a while ago, when you developd that muscle memory ofthe differences between success and failure for startups beyond. You knowjust the team. But what do you see personally and what data? Because youare so data driven? What data points? Can you look at at an early stage thatare indicative of something good going on? I published a block post about this.There are very few data points at the series a that are correlated to success,so you can't look at like revenue, growth and the one that's the mostcorrelated is that dollar expansion in SAST company. So if you a year ago, youhave all your customers and they spend a dollar. How much does that basket ofcustomer spend this this year and that's Tsomeone, but even then thecorrelation is pretty small, so data is really useful and later rounds and it'sreally useful as a benchmarking tool, but at the seatin series a what you'rereally looking for is exceptional team market fit Ho. Are these the rightpeople to do this and then the second thing is an exceptional product like athird of the enerprise companies that we invest in, have no revenue when wedo invest in them, and you know the vast majority of them have less than ahundred thousand nd monthy recurring REVENU IL invested PA, so we're tryingto invest really early on and so we're looking for those two attributes isthere after you invest, I guess and I'll give you someone else's frame. Ithink someone else said, which is an investor from a growth equity firm thatI was having breakfast with. They said you know the key number. This is,according to this particular fund, a seven million in new arr. It ad anypoint in the first couple of years, regardless of stage if the company cangenerate seven million a new, a R re. We think that that is going to be asuccessful company. Do you have any frame or is there a stage at which,like now that point to that point is the indicator of whether or not thecompanyis going to be successful? I mean I'm sure it's always different,but like a particularly critical inflection point that you keep your eyeon the only one that you can say is a hundred million in revenue growing atseventy percent ha year. That's when you can go public, but is there like atfive million or ten million or twenty million there's a point in which, likethe companies that I see successful I'll, give you my answer to thequestion. My answer is that the speed at which you can get past twentymillion is for me personally, based on...

...my muscil memory, a very strongindicator of whether or not the company's going to achieve successbreak out success. Do you have any frames like that? Here's, the thingwe've seen and I'm thinking of two examples. In particular, we thinkcompanies grow very quickly, like you know, Onean, seven, twenty one, fortyand then flatline or fall in one case it was a churn issue. In another case, it was not a TAM issue.It was sorry a total justbol market isyue. It was a lack of competitive motes, so there wasso much competition that suddenly came into the industry started, giving theprorduct away for free or near free that, even though there was terrificproduct market fit, and they had this great customer base, they couldn't theycouldn't continue to grow. At that rate, because all of a sudden, the marketdynemics Hade changed. That's yeah, that's super interesting, so questionssort of coming from the audience or the the executive part of the audience isat this point again. You've got pattern, recognition around success and failure,but specifically be, and particularly because you invest in Sass they're,going to tend to have direct sales teams. What is like great VPF sales orcro like what are the differences in the boardroom that you notice betweenspecifically the revenue leaders that you think are really first rate andthose that that are not as good ltalk about two things. The first is trainingand then the second is fodecasting. I think the best sales leaders I've seenare consistently trading their people and they're training them in how tosell how the process works. I'll give ou an example, there's one VP salesthat I work with. He came into a company with about three or fourdifferent sales teams that he spent his whole first year on sales, calls andtraining them and showing them the processes and and creating the goalsand the kind of the management infrastructure to make sure each one ofthose account executives, Wase, successful and the result have been. Imean, from my point of view incredibly impressive, just in the consistency ofperformance now, which is really critical. Like one of the data sats, Ilove to look at at midsice. SAS companies is quote attainment by REPand in a lot of companies you see a powerlol distribution where one or twoof the reps is just crushing quota, twox Trex and then you have most of thepeople not really attaining quota, and I think you know if you can see an evendistributionor uniform distribution to much more flat distribution acrossaccounting, xecutive performance. Then you know you have a really great leader,and so it's not so much I mean. Obviously you want everybody to attain,but maybe it's the distribution of the attainment, because you could havetechnically a hundred percent quota taement on a dollar basis. But yes,it's two people that are make closing all the deals and eight people, and sothey come in and say, Hey Tamos. We hit the number and you say: Well, let'slook a little deeper yeah, because what you really want is you hire a vpsaleshere. She brings in seven account executives great. You start hitting thenumber. You want to know that if you start hiring two three four sales teamsper quarter that they're all going to become productive, and if you have thatdistribution, where two people are carrying the team you're introducing alot of Rit, I mean each sales team is going to cost you. I don't know half amillion dollars, and so, if you hire three sales teams, a quarter or foursale teams, a quarteror talking about an eight milliondollar investment in ayear- and you don't you- don't see they r Li for that investment for nine. Youknow at least nine months. So it's an Awfull long time to be to wait to seethat, so you need to have some confidence in the consistency of quoteattainment and that it's the salesleaders wo who there's thatResponsbi. The second thing that you mentione is forecasting or, for I guess,forecasting- accuracy, which is undoubtedly directly related to theconsistency of the performance of the sales team. Are there other dimensionsof forecasting that you think a good vpcales or SRO and bodies or deploys orstrategies they use yeah? I think, having really clear definitions andrequirements about what goes in the pipeline seems really obvious, butdoesn't happen with any consistences across sales teams that I even like thelanguage from company the company is different but like what is qualifiedpipe line? What is you know? One of the...

Cros I work with, as this thing calledavailable to close he's got he uses that one other one says commit is aterm that he uses, and so what ends up happening is a BOR members. You go fromcompany to company and the definitions everybody's using are totally different,so I wish the industry would one. I wish the indistry would actually adoptsome standardize definitions, but the second is, I think, it's reallyimportant for postboard members and the sales team to actually have very cleardefinitions on what exactly goes in which bucket the last part about it I'dsay, is making sure- and we see this through chorus like the fraction ofsales teams or leads that actually meet Bant, rormetic or whatever then haccount executive that actually go through and figure out. Okay, have Idone budget need timing authority, it's like less than ten percent of accountngexecutives with lead to do that, and so there's just not a discipline thatthreeenforced even at the moscenior levels of most most sales organizations,the discipline of Rigat, rigorous qualification before you yeah countpieline in fact exacty. You know we were me and my head of ops were justtalking today because we're putting all this infrastructure in place, and youknow it's what pipeline number are we going to report to the board? Are wegoing to report when we set the meeting or after they meet the qualificationstandard? And I said after the qualification stand. I'd rather have alow number. Now then, the have to lowerit later yeah for sure yeahexactly, and so I think you know, if basically managing the organizationbelow you well and then managing that team above you. Well, that's what greatexecutive do so one of the things that you mentioned Tomoss was you know I hadasked you the question: How much does t e VPS sales? How much impact do theyhave on the growth drojectory of the business? And you said a lot and yousaid the strongest structures ar those built intention and tell tell us whatyou mean by that yeah. If you think about the Goalan Gate Bridge and Ithink about a lot because we're in San Francisco the reason that that Ridge isso strong is because there's a cable that attached the both sides, that'spulling the bridge on each side and making sure it stands up and withstandearthquakes and all that kind of stuff, and I believe, management teams, reallygreat management teams, are built exactly the same way and there's thistension that always existed between sales and marketing. I believe thatthat's really important and should remain and there's a tention thatshould exist between sales and product and that's really important, and it'sonly because you have those tensions and the fact that each of those teamscan challenge the other that you can really achieve. Really, terrific things,that's what gets people to pwish each other yeah. You feel like like a crothat has sales and marketing reporting up through them, where marketing has defacto alignment with sales by virtue of reporting to the same department head.You have a problem with that Er and that's not your prefore or trart. Well,it's fine. If the marketing leader can exert and can pull on the the at thenext level of the VPFPM level, if they can challenge each other, if the theorocomes through the sales organization, you might have kind of a lobside inwork where there's kind of a preference to favor. The sales point of view isopposed to the marketing point of view, doe that make sense yeah. Of course itdoes. I've run marketing in the past, and the other issue sometimes is. Ifyou come up from a specific department, my fear was always. I don't have enoughto teach the marketing organization. You know, I don't know if I'll be ableto hire the very best marketers, because maybe they don't feel likethey're going to learn enough from me yeah. That's a really interesting point.What's something you believe you know we're sort of coming to the end of ourof our time together? So, first of all, thank you so much for justparticipating, we're all big fans of all of the work that you've done. YouKnow One interesting data point that I think about a lot and I've actuallyreferenced in some of my own writings is you did a lot of research on dealsize and sort of market segment, and you concluded that there is noconclusion. I'm tell us a little bit about that work, because it's superinteresting that there's sort of like no one one way to go to market yeah.This is the thing you know. I've always looked for quot as the optimaltseedround to put together what is the optimal series a what is optimal dealsize was. Is Optimal Customer segment and I've cut the data? You know as manydifferent ways as I could have imagined and then each time I can never get to astatistically significant answer that...

...one is better than the other. Even thesizes of companies like Youve enormous companies that sell to the SMB you'vegot enormous companies that tell to the midmarket and the enterprise and thecapital efficiency for each othe's. Businesses is the same or close to thesame, and so the ultimate conclusion is you can build a business selling to anysize customer you just have to make sure that Youre go to market motion isoptimized for that segment, and so what does that mean? It means you can't hirefield sales teams to go after smbs. It means that it take like fleet matics.Fruit. Mixs is a great example of a company that sold to the SMB with theproduct that Sel me tickets, stet back fleet matixs was, is a company thatsells let' just stick software to very small businesses like it's, if you're aplumber or an electrician, and you have something between five to twenty trucks,and you want to know where those trucks are and who's electricity, they'regoing to fix. You Buy Fleet Matics and you pay something like twenty five tothirty Fiveo per truck per month. It's a really low AFP. You know you'retalking about a couple of hundred dollars and the conventional wisdom inthe Valleyis tlike. You can't make a business work in that category becauseyou can't hire sales people, because the ACVs are too low and it's going toburn a huge amount of money, because the churn rates are so high, but thiswis a company that actually raised venture dollars and ultimately sold forsomething like three point: two billion to Vorizon and was publicly tripedbefore that and the way they made it work is they match their go to marketmodel to their ASP? So they did end up hiring inside sales teams and they madethese account executives or these sales reps to like one to two thousand callsper month, and they got to a point where they would have a twenty four toforty. I hour selltycle and the the last really critical part is that theysign everybody up to a three year contract within twenty four to fortyeight hours yeah. Well, if a dig it on that one, I'm nottrying to believe that it's true it's true! You can look at the son and allthe TNCASE and you think about it most people mostinvestors that I are typically averse to a six hundredllar yeur price point.But there you have it three point. You know whatever three point: two billiondollar exit may yeah, no you're, absolutely right. So some some superquick fire stats. When do you think you should hire your first FPU sals afterthe founder has made the first twenty cell him herself and good? That's aninteresting answer now on terms of market segment. You mentiond, there'sno one path to market. Do you have a preference yeah? I think the midmarketis the easiest to start with, give er worry in the mid market that you getseduced. My problem with the mid market personally is that it's easy to get tolike between five and ten million an Arr, but then, once you have to startcomping that the Tam needs to be massive and you sort of get suckedupwards into the enterprise, and sometimes the architecture or thebusiness is not designed for the enterprise, and you face this sort ofexistential question right around. Like the Ten d twenty mark, I think mostbusinesses should move into the enterprise if they start fot themidmarket, but it is very difficult. It's very difficult, b t you know theclassic example is new relic and APDYNAMICS 's, a new relly kind ofstarted with a six thousand dollar annual price point and after they wentpublic has been starting to move up into the enterprise aggressively and APdinamic started with an enterprise. Evel price point. I think a s like ahundred Kor something and it started to move down. And you know those are hugestresses on the organization, because the sales motions all of a sudden aredifferent and then the products that they need to build are different andthose transformations are painful, but I think to build really big companies.You need to go through them and then I think, even as I was reading a coupleweeks ago, I was reading your block post, comparing those two IPOS, and Ithink the conclusion was you know there are some differences in sort of likethe capital, efficiency, O the business and the sales productivity of thebusiness, but they're pretty similar, employing totally different, go tomarces strategies, Yep exactly right, exactly right, yeah. So what advice doyou have or books? You know one part of the podcast that we want to do ifsomebody wants to become you in in fifteen years or ten years. You knowyou've clearly just devoured. Speaking to your wife's point about an electualcuriosity, you've sought out mentors...

...you've, built networks and you've reada bunch of really important and interesting books. Are there anyspecific habits or content or advice that you want to give to the audienceso so that they can excel in their careers yeah? I love this book aboutthe learning mindset. I think it's Susan Duweck and this notion of gritshe's, a researcher at Stanford, a she said, actually know what let mesumirize it like this Josh Reeves from Gusto. We were talking to him a longtime talking to him a long time ago we were in the car, and he said you knowsaying something about a problem I had and he turned to me and I'll. Neverforget it and he said it's not a problem. It's a puzzle that you have tosolve and you just hav slight change in nomenclayture completely changed myattitude toward it, and so I think that's really important. It's hategross mindset. It's like willing to accept the challenge and just BenHorror, threats about this and the hard thing about hard things. It's all about,like the struggle and the willingness to endure to a difficult time and learnfrom it. I think that's that's one thing that it really admired infounders. It's great advice to Mus. If anybody out there wants to sort of getin touch with you or learn more or reach, you in some way is that okay-and what's your preferred medium for that outrage, to occur, yeah, of coursethat's okay. My email address is on the website. It's T tungoos at redpointcom.Anybody feel freetom email me and I'll definitely get back to you, wonderful,Tomos, thank so much for joining the sales, hacker, podcast and congrats onall your success. It's wonderful to say it's prettylige to be here thanks! Somuch again from nviting me, Sam you're, welcome talk to you soon. Hello friends were here with Sam'sCorner Tomastan, Gooz, a really exceptional human and a great investor,selftaught self built who started his career as a sales person down in Chilebefore working at appiend, then moving to Google, you heard that he built hisown crm for Google that they ended up using called tooth paste and thenmoving on to red point. Where he's made a number of successful investments andsat on the Board of the AXALA company that I worked at from to thousand andten to o thousand and fifteen? So what do we take from Tamos there's a lot totake, but here's what I would encourage everybody out there listening to absorbTamas is a voracious reader. He reads and just looks he's a learner he's aconstant learner, and so she readhis blog or if you follow what he says,he's always referencing some new books that he's read. He reads both theclassic business texts like Communi reading about Michael Porter and porterfive forces and then he'll read. You know fiction and you know other morecreative literature, and so that's just the number one. You know we talk aboutit a lot, but please read: Please go out and find books and make yourselfbetter because it's free information, it's a free way to get experience fromother people. So that's one sort of general piece of guidance, but here'ssomething very specific that nobody does, and that is what Tamastaes which,as he breaks down the financial statements of publicly traded companiesin his world which assass. So I don't know if you know. But if you don't thepublic financial statements of all of these companies like new, relic or APdynamics or sales forse or Cloudera, they are all online they're, all free.So you can read their tenk. You can read their Tenq, you can read theirvarious filings and within the TNK they tell you therthey're obligated to listwho are their competitors. What's their go to market strategy, what dor theyperceive their major risks to be. That's all free information, whetheryou're in a specific space and you're competing with the public company, andyou want to know if their strategy or you just want to understand how ourbusiness is built and how do management teams think about strategy and thinkabout articulating that strategy? Well, there's free information, and it is theTNK financial statements of public, a traded SASS companies so make use ofthe free information and the competitive intelligence. That's outthere. This has been Sam's corner thanks for listening to check out the show, notes, seeupcoming guests and play more episodes from our incredible lineup of salesleaders, visit sales, hackorcom and head to the podcast tap you'll find uson itunes or google play new episodes...

...tend to come out every Tuesday, and ifyou enjoyed this episode, please share with your peers on linked in twitter orelsewhere, really do share I on Linkden. We would love it. We would appreciateit. Otherwise, just tell people about it and if you want to get in touch withme, find me on twitter, at Samf Jacobs, ar on Linkdon at Lindoncom Inslah, Sam,F Jacobs. You want to know more about the revenue collective, which is theglobal group of VPN above sales executives and marketing executivesthat were bringing together for thought, leadership and career advancement. Letme know that and if you're just a fan and want to touch bass and have somefeedback about the show, let me know that as well once again, big shout outto our sponsors that is aircall. Your advanced call center software, CompleteBusiness Fhune and contact center hundred percent natively intrergratedinto any crm and then outreach a customer engagement platform that helpsefficiently and effectively engaged prospects to drive pipeline and closemore deals. I will see you next time.

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