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, three, three. Fo Hi folks, welcome to the Sales Hacker podcast. Thisweek is yet another amazing episode. They're all amazing. What can I say? I'm biased. I love the sound of my own voice. This isepisode twenty four and we've got to Moss toungoose to. Moss is managing directorat red point ventures, really well known in the SASS world for a lotof the data and analysis that he's done. It gets for benchmarking great companies.It's also a wonderful person. He was on my board when I wasat axeal and he since become a very prominent and noteworthy figure, both forthe acuity of his insight, the success of his investments such as looker,and also just the fact that he's a nice guy. He really tries tobe a good person and it's a wonderful it's a wonderful interview. Now Iwant to thank a couple of the fans that have been reaching out. Itreally just it's awesome. So we really appreciate you listening. I get feedback, which I really appreciate as well, and so we want to know whatyou want to do differently on the show. We want to know how he canimprove and we want you to share the content with your folks, withwith your friends. So James Bishop at underwrider labs. He listens while he'sworking out. He gave me a lot of good feedback about a recent episode. James, really appreciate your listening and and thanks for giving us those insightsand that feedback. Tony, person out Rebecca Wetton Wetton W etten. Shereached out to me based in the UK, excited about what we're doing over hereat the salesacker podcast. Bernie Borgeous, who also runs the social business enginepodcast. I'm sorry if I said your name your last name wrong,Bernie. And then Charles Kirkland from the Kirkland Media Group, who wrote mejust a simple note. Great podcast. So, Charles, thank you forthe feedback. I want to talk about our sponsors. We've got to thefirst is air call and I've talked about them a bit. They are aphone system and they're designed for the modern sales team. So Air Call,what they do is they seamlessly integrate right into your crm, whether that salesforce, hub spot or something else. They eliminate all data entry for yourreps and they give you much greater visibility into your team's performance through advanced reporting. When it's time to scale, you can add new lines in just minutesand you can use in caall coaching to reduce ramp time for your Reps.so here's the website. It's visit are called that Ioh so are called thatio for sales hacker. That's are called dot io forward sales hacker. ToSee why uber done and Brad Street, pipe drive and thousands of others trustare call for the most critical sales conversations. Our second sponsor is Outreacht ioh.They recently acquired sales hacker. Rit Large. There are sales, theleading sales engagement platform. Outreach triples the productivity of sales teams empowers them todrive predictable and measurable revenue growth by prioritizing the right activities and scale and customerengagement. With intelligent automation, outreach makes customer facing teams more effective and approveshis ability into what really drives results. That website is outreached, out iofor sales hacker, and go there to see a thousands of customers, includingcloud, Derek, glass door, Pandora, Zillo rely on outreach to deliver higherrevenue for Sales Rep so thanks so much for listening and here is ourepisode with to Mos Tungoose. Hey everybody, and welcome to the sales hacker podcast. We are incredibly excited to have one of the celebrities of the SASSworld, but also somebody that has positioned himself and sort of built his careeras a true thought leader when it comes to recurring revenue businesses. And I'mspeaking, of course, of to MOS tungoose. So let me first tellyou a little bit about Tamas and then we'll chat with him. But toMOSS IS A managing director at red point ventures. He invests in early stagesoftware and infrastructure companies. If you don't know about his blog, you should. So it's at Tom tungoosecom. That's too M Tun Gu zcom, andhe wrote a book called winning with data. To Moss has been a product managerGoogle, a software engineer at Appian and he also founded a small startup and he works with industry defining companies at red point like stripe, Tuilio, snowflake, looker, Sour A, Sonos, which I peeled last week, and duo security, which was recently acquired. So welcome to moss.We're super excited to have you. I'm...

...thrilled to be here. Thanks forinviting me on. Thanks for joining. So what we want to do foryou know, there's probably like three people in the startup world that don't knowwho you are. So for those people, your name is to Mos tungoose.You're an MD red point ventures. For those that aren't in the know, tell us a little bit about red point. Sure, red point isa venture capital firm based in California. We've been around for about twenty years. We managed about four and a half billion in capital and we invest inconsumer and enterprise companies at seed, series a, series B and gross stages. Wonderful. Do you have a sector focus for for your investments? Ido. I focus on software as a service and infrastructure. And is therea stage, you know, ABC, that you're specifically focused on, cedand be okay, and then some of the flagship investments or some of thecompanies that we should know about that you've either been on the board of orassisted with or invested in. Yeah, the one of the companies that workwith is a business intelligence company called looker that's based in Santa Cruz and growingincredibly quickly. Were about some more than neighborhood of about five hundred employees andwe invested at the series a there. Another one is a company called Dremeothat's in the day infrastructure world. That started by two of the key managementteam members from MAPAR and has rested the management teams from Malgo DB and that'sa Datea virtualization company is going really nicely. And the last is the two.Last one is called chorus, which many of the people in your audiencemight know. It's a sales intelligence company that has proprietary natural language stack thatallows it to do all kinds of interesting things with phone calls that sale peoplemight have. And then the fourth is a customer support company in New Yorkcalled customer that's founded by the team that built key pieces of the service cloudedservice at sales force. Oh well, well, to your point, Ithink a lot of us are familiar with chorus and a lot of us arefamiliar with looker. To be honest, just because business intelligence is a keypiece of you know what's happening with companies. You have to be able to turnyour data into insights. Absolutely, I now you believe that, whenhe was Dada author over here. That's right, and I love data.So tell us. How did you get here, how did you get intoVC, and walk us through. You know, there's a lot of peopleout there that one day they aspire to be to mostone goose. They aspireto be a partner at, you know, a blue chip tier a venture capitalfirm. How did your journey start? Yeah, I'll take you back towhen I was about seventeen, my dad sent me to South America foran internship and we ended up my dad and I started company together. Ohwell, he was the one doing the engineering and I was the one doingthe selling, and we built a legal software company's doing document measurement, ofbuilding systems for law firms that had customers that operated in different languages. SoI sold like my first three or four sales are like in a to krange, and I remember coming back from that about like a yearlong adventure,and it felt transformed and and I just loved and I was basically bitten bythe bug of startups and it was a wonderful experience. But I knew thatI had a lot to learn, and so I went to school and Istudied mechanical engineering computer science and when I graduated from Grad School I went towork for a start up in Washington DC called APPI, and that was startedby three Dartmouth alums who had left micro strategy, which is a big businessintelligence company, and I was at job of engineer and I worked here forabout ten months and it was a really wonderful experience. Company actually went publicabout three years ago and I learned, you know, that was like aseventy person company when I joined and I learned what it was like to buildenterprise software and sell enter price software at a different scale. We were agovernment subcontractor and so I was working for the Department of Homeland Security, orwe were selling software to them, and so it was just like I wasworking on a large scale oracle databases, and I understood at least that partof it. Or were the deal sizes, you know, when you're selling toDepartment of Homeland Security, they were multi hundred thousand dollar deals. Ithink it's a long time ago, but yeah, yea, they were multihundred thousand dollar deals and I wasn't the one doing the selling. Helped alittle bit in Presales, which is like putting the demos together and modifying theplatform that we had built and then,...

...as it did, fillment and alittle bit of platform work. Fantastic. Yeah, it was. I've metsome really wonderful people there. It was great. And then I went towork at Google. That read about this place in California and I was Iremember interviewing there and recruiter took me after my my morning interviews. It tookme to lunch at place called no name Cafe, which no longer exists,and this thing that stuck out to me with one lunch was free. Neverseen that before. And they had this huge bowl of raspberries, like enormous, I mean like buckets and buckets and Raspberries, and I was like wow, I can't believe, I can't believe I can have as many as Iwant and raspberries are a luxury fruit. A lot of talk has been,you know, going around about how blackberries are really kind of inferior or raspberries. So to have that many raspberries. Well, the crazy part is,you know, when I was working at the start up in Chile, aLabor there was much cheaper, so we would drink raspberry juice in the mornings. I was like what? So this felt like going back to Chile.That's that's right. But so my GP when I graduated school was low,is about are three, and Google had a three five requirements, and sothey wouldn't hire me as a product manager and engineers, but they hired meas a customer support person, like a customer success manager, in one partof the business, because I was knew. They gave me this new class ofcompanies, which were social networks, and so I became an account managerfor some of the large social networks and then learned how those businesses work,built some relationships and eventually transferred into the Associate Product Manager Program that Murce andMironment ran. It's a very famous program and so it's a two year managementrotation program. And then I started building. Well, I started that was theproduct manager. Worked with teams to build advertising products for social media propertiesand so manage the my space agreement that we had and managed to facebook productthat we had for a while, and then also launched the AD product thatwe had in a bunch of new languages. We launched it in Hebrew and Arabicand there was one time where we had we had to launch it ineastern Europe and we had the time to launches. Thig is in Serb andCroatian, sturt being in Croatian. WHO had the time to launch is exactlythe same, because otherwise there would be some strong disagreements. You know,it's fun about who is getting preference. Yeah, exactly right. So thatwas a lot of fun. And then we also were doing like improvements inChinese and stuff, and so I learned a lot about statistics and that's wherea lot of my passions for data came from. Google had this view ofthe world that was incredible because of what we were doing in terms of crawlingthe Internet and the power of it was just awesome. That's when I firstfell in love with data. Do I remember correctly that you were you chiefof staff or some senior liaison for Eric Schmidt at one point, or amI misremembering? I'd never had that position. Each apm had a different role thatserved the management team in one way or another. So like Pete Kuman, who is the founder of optimizedly, did okay ours for Google, andthen he worked with Jonathan Rosenberg, who was the head of product. Myrole was I worked on a bunch of different projects. One of them waslike engineering pm and and ratios across the board. So how many product managerswe have in one team versus how many engineers and making sure that kind ofworked? I guess one question even before we get to read point. Whatdo you if you're reflective and looking back on, you know, the mixtureof skill and luck that led you to, you know, where you are today? You were clearly despite, you know, three three, which isreally just a shameful GPA. Despite that, you you seem to be progressing prettyquickly through the Google Organization, which I'm sure is highly competitive, giventhat it's recruiting some of the smartest people in the world. What do youthink you were doing differently or what certain insights or intuition that you developed intosort of marketable or experiential skills helped to enable that success? Yeah, Ithink the first thing is I wasn't afraid of taking a step back in mycareer when I joined Google. I wasn't afraid of that. Like I waswhatever, an engineer and then I became a support rep and I just therationale was had just need you know, there's this great saying, I thinkany RACKLIFFE has, which is when you...

...find a rocket ship, don't askwhich seat you're going to get, just get on, you know, andso I I had that was I remember. I remember reading something about you know, it was like somebody, maybe it's John Dor but as somebody callingSheryl Sandberg at the time, saying the same thing to her, what areyou doing futsing around? And I think she was like working for Larry Summersor something like. Yeah, yeah, she's so impressive. By the way, I remember my first day she gathered all the new employees that were workingin her department and she gave us a talk about her expectations for how wewould dress and how we would speak and how we would write and that wewere representing Google to all these millions of people and that she expected great thingsfrom us. And I remember going up to her afterwards, you know,just like totally green, and I was like, I went up to herand I said, you are the most articulate person I've ever met. I'mso impressed. That is an awesome story. What did she say? You know, I think she's just she's she was really nice. She's like,Oh, thank you so much, I'm so you know, I'm so excitedthat you joined, blah, blah, blah. But well, it's reastryingthat even you know, and on a micro scale, that her skill andher her talent is conveyed. So yeahs, you'm superpressive. I remember that.So one thing you said was, you know, you weren't afraid totake a step back and that got you into Google. What do you thinkenabled your success at Google? I think the first thing was I had aplan. I really wanted to be an APM. So as soon as Ifigured out that was my gold and what I started doing is networking with peoplewithin those teams and understanding what the process was going to be. And thenthe second thing, which is even more important, is I had a managerwho I built a strong relationship with. So let me take a step back. So when I first joined or had this great manager named Charlie, andI had signed up to work for Charlie. Then about a month later, therewas this guy who came in who became our manager's name is Scott,and Scott is incredibly bright, like Pah, had a princeton and some kind ofdynamics of air plane to forget the exact field. Was a mckinney forlike ten years and he came in and all of a sudden he put uson quotas and I was like my stomach fell and I was like, Ohmy God, quota, are you kidding me? There's no in the world. I went at you a quota. And you know, this is whyI think it's really good for everybody, or a lot of people, togo and have a quota, just because there's a number there every day that'skind of staring you in the face and it forces you to kind of movealong. But it's I was terrified. I was like, Oh my God, I got a transfer out of this. That was my first reactions, likethere's no way I can succeed. I got a transfer out of hisdivision. My whole plan is going to it's not going to come to fruition. But that ended up actually being one of the most rewarding relationships I've hadwith a manager, and I allow the good amount. Yeah, he Iwasn't sure which direction the story was going. When Scott entered the pay 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 hesort of taught you some of the benefits of just daily accountability, objectively measured. Yeaah, and then he gave me a lot of rope. So whatI ended up doing is I had my day job and he would let medo that, and then I started building computer systems for our team and oneof the systems I built was, you know, Google was crawling the internetat the time, Google ad since was competing directly with the product that Yahoohad built, his name, I forget, and we were you know, Scotthad this question about what was our relative market here, and so Iworked with an engineer on the search team to build a dashboard that would showexactly which sites Yahoo had one from US and which sites we had one fromYahoo, and that was the first one. And then I built the crm toolthat we ended up using globally for a while called toothpaste, and sothose projects were the ones that allowed me to kind of go to the associateproduct manager recruiting team and say I think I'm capable, or let me makethe case that I'm capable to be part of this team. Did did thename toothpaste come from sort of like Larry's thing about a product use every day, like to the brush. Now it didn't. I wish it had abeen much better story it. Scott had come in and said, hey,we need to capture all always feels about every customer that we touch and we'regoing to do it in a word document.

And I couldn't stand that idea becauseI'm like how this information is going to be stuck in the square documentand it's going to be useless. And so I stayed up all night andI built a piece of software helped toothpaste, and I named it that because Ineeded a name. And like I was like or four in the morningand it was like what am I going to call it? And I wentto brush my teeth and there was my instration. Well, I think it'sa good name. Like this is. I think it one of the thingsthat sort of is jumping out of me. Maybe it's Google's culture, maybe it'syou, maybe just how your wire, but you keep going well beyond whateverthe you know, regimented job description would be for whatever role you're in. You're just building things because you need them, and seems to be thehallmark of excellence. A lot of the time it sounds like you keep goingabove and beyond in the roles that you were in. And you know you'restaying up all night building a CRM, you're building out databases. It seemsto me part of I don't know, is that the culture of Google,whether you know the twenty percent thing where they're just saying go out and dostuff that we didn't ask you to do, or was that also part of yourplan to always overdeliver against whatever the specified job description was? Yeah,it was definitely a bit of both. You know, Google had this twentypercent project stuff and people are encouraged to build their own tools and that wasa really strong part of our culture and so I probably talk it up moreto that. So you've been a google for however long, and and howdid you decide that you wanted to get into vc maybe, versus taking on, you know, being part of a founding team to start up, forexample? Yeah, I had talked to a couple of startups when I wasa google and I was like wow, it's so cool. Then I metmy first vcat I ever met right and I had read about I can techcrunch in all these places about like people who walked on water and we're sosmart and all this stuff, and I was like wow, it's a fascinatingindustry and I was talking to my wife at the time, or my wife, but my girlfriend at the time is now my wife, and she's likethis would be the perfect career for you because you're so intellectually curious and alwayson the latest, you know parts of technology and so wouldn't it be fun? And so I talked to a bunch of different firms and I really Ireally loved three parts about red point. The first was that there was anincredible culture of mentorship and training within the firm it. A second was thatthere was a really strong set of values that drove the firm, and thenthe third was that I felt at home, like that we all we work togetheras a team as opposed to a collection of individuals, and so allthose three really resonated with me and that's why I came to red point andit's been an amazing journey since how long have we been there now? Butabout ten years, and the thing that that's really stood out for me islike I had no idea what I was doing for the first two years noclue, and I remember trying to read as many books as I could aboutventure capital and I I bought out of print books like there's this one calledventure deals at one of our partners, Jeff Yang's, interviewed in and Iread about George Dorio, who's the kind of the creator of American Research andDevelopment, which is the first venture capital firm, and I've read to allthese different things and I thought I was prepared and then I walked in onthe first day and it really took me about and this is unlike any otherjob that I've ever had where, you know, at least I had someexposure, are understood what the role was, but venture capital is so different andI think you know, one of the things that I tell people whowant to get an adventure is the thing that I never understood about it andtook me about two years to learn, is it's really the closest job inthe operating world is field sales. Wow, I've never heard that before. We'regoing to unpack that. What does that weight? So when you're anenterprise sales rep you are working on really high value accounts, you're working ondeveloping a relationship you have very long sale cycles and there's no playbook for howyou in that account. You have to go and figure it out. Likeyou got to go and map who matters, who's going to influence the ultimate decisionmaker. You have to go and find that use case and figure outwhether or not this particular team, this company, is going to be interestedin buying your business intelligence software. Like you basically given a phone and alaptop and should okay, go go do some business. And is that thesame process for sort of nurturing and developing...

...relationships with founders that you ultimately wantto invest? Yeah, I think it's exactly the same. And basically it'sa little bit different in that. Okay, like whatever I focus in, softwareis a service. Let me go pick a field where I think theremight be something interesting, and then it's entirely up to you. If aventure capitalists all of a sudden decides customers success software is really interesting, youhave to go immerse yourself into that space. You have to go and build anetwork of people who you think our thought leaders, who can help youidentify what the right next opportunities are, who could help you with diligence.You have to go network with founders who are passionate about that space and theside, which one you want to pursue, and then you have to take allthat information, and this is the like. That's my understanding. Whata field sales up would do is then drive it or like figure out who'sgoing to influence it, the angel investors, the previous investors, any of yourfriends that you have in common. You gotta build that kind of consensuswith a community around the company to put you in a self, in aposition where you're trusted advisor, and that's one part of it. The secondpart of it is this is market making component, which isn't necessarily transparent tothe outside. So a venture capitalist is a market maker between a founder andan investment opportunity in the business, and then the partnership that's inside the firm. You know, what I have to do is when I get excited abouta company, I have to not only convince the founding team in that community, people around the startup, that red point and we are a great personto partner with, a great firm to partner with. I have to goback to my partners and say, let me tell you about this really excitingCustomer Support Company and why we should be moving forward and then bridge the gapbetween the two in terms of what the right financial transaction is in order.That underpins the broader business relationship. And also the thing that sales executives andreally any operator that's not a founder and venture gapples have in common is that, from my perspective, you may disagree, but I believe that my role aslike a sales or revenue leader. It's important, but it's not determinant, and the determining factors are often before I join the company. There's you, whether it's the combination of the product and the market and the engineering teamor the founding team, that can crystallize that into something that people absolutely love. And so a lot of my job, which is a lot of your job, I think, is picking the right company. How did you figurethat out in the first couple of years, because I would imagine that there's musclememory that needs to be developed for you to have to develop a pointof view not just on sort of what space is interesting, but what thefactors are that combine for the investment that read point wants to make. Yeah, this is this is why I ventures an apprenticeship business. It's also nuanced. I have a spreadsheet, like I've got this huge form that I usedto fill out every time I meet a company. It's got like a hundredfields, great different companies on different metrics and attributes, you know, justto bring it at the highest level. I think what we really care aboutwe're firm that really focuses on team first and the people, because we believethat people are the ones that build businesses and people are the ones that shapemarkets rather than the other way around. That's one the second thing that welook for is if it works, can it be enormous and category defining?Our business model is to invest in about thirty to forty companies per fun andhave something like two or three of those companies generate all of the returns thatwe need in order to sell or in order to raise the next fund,and so it's a power law business, and so we just have to makesure that, if they do succeed, we have those return characteristics. Wereyou apprehensive in the early days of red point about like did you have astrategy around pitching companies? Because I would imagine, but you can tell meif I'm wrong, that maybe the first couple, you're sort of nervous.What if they fail, without maybe fully internalizing the powerlot dynamics and understanding thatactually, you know a good percentage of them are going to fail. That'sokay, as long as you know the portfolio as a whole returns the rightreturns. Did you have apprehension about that or you you sort of understood thatimplicitly? It took me a while to learn and he was crystallized my firstyear. Now one of our most most important investors that we have an annualmeeting every year where we go through all the tea updates and developments in redpoint, and at the time we would...

...have a dinner with our largest investors, which you call Lp's, are limited partners, and one of the he'svery tall, imposing man, he's one of our LP's, and he putshis arm around my shoulder and he says, Tamash I have a question to askyou, like, Oh my God, what I mean? It's like I'mthe youngest guy. I feel like I know nothing about the industry.There's our most important investor and he put this arm around my shielding says,I'm going to give you two options and I want to hear your answer.And you know, he turned everybody at the table and he said I oraround us and he said I don't want anybody to reject you. Said,if I gave you an option of investing in the company that was guaranteed fivex or a company that could be a hundred ex with a one percent probability, or whatever it was, and a total zero with a ninety nine percentprobability, which would you choose? And he said think very carefully before youanswer, and I was like, Oh my God, I'm funding bullets,and so I said, you know, I said the second one and hesaid that's the right answer every time. He said, if you're not losingmoney on investments, you're not taking enough risk. That's a hard lesson tofully digest, particularly if you're an operator. Yeah, but let me tell youanother story. So there's a buddy of mine who works at a HedgeFund and he's, you know, highly leveraged positions, like he's trading billionsof dollars and national value, and I got drinks with him one night andhe said I lost fifty million dollars today and I lost my job on onetrade. I was like, Oh my God, that's crazy, and Isaid how you ever going to find another job and he said, everybody's callingme. I'm not going to have any issues because there are very few peoplewho are willing to take make those bet and be willing to lose that amountof money. That's a that is a great story. So at this point, when I met you, of course, actually was probably one of your firstinvestments, but now you've been doing it sometime. You've been promoted topartner. Congratulations, that was a while ago. When you develop that musclememory of the differences between success and failure for startups beyond, you know justthe team, but what do you see personally and what data, because youare so data driven, with data points, can you look at at an earlystage that are indicative of some think good going on? That published ablog post about this. There are very few data points at the series athat are correlated to success. So you can't look at like revenue growth,and the one that's the most correlated is net dollar expansion in fast company.So if you but year ago, you have all your customers and they spenda dollar, how much does that basket of customers spend this this year andthat's the one. But even then the correlation is pretty small. So datais really useful and later rounds and it's really useful as a benchmarking tool.But at the seed in series a, what you're really looking for is exceptionalteam market fit or are these the right people to do this? And thenthe second thing is an exceptional product. Like a third of the enterprise companiesthat we invest in have no revenue when we do invest in them, andthe you know, the vast majority of them have less than a hundred thousanda monthly recurring revenue and Investedt the a. So we're trying to invest really earlyon and so we're looking for those two attributes. Is there after youinvest, I guess, and I'll give you someone else's frame, I thinksomeone else said, which is an investor from a growth equity firm that washaving breakfast with they said, you know, the key number, this is,according to this particular fund, is seven million in new rre. If, at any point in the first couple of years, regardless of stage,if the company can generate seven million in new rre, we think that thatis going to be a successful company. Do you have any frame, oris there a stage at which, like now, that point, to thatpoint, is the indicator of whether or not the company's going to be successful? I mean, I'm sure it's always different, but like a particularly criticalinflection point that you keep your eye on the only one that you can sayis a hundred million in revenue growing at seventy percent the year, that's whenyou can go public. But is there like at five million or ten millionor twenty million, there's a point in which, like the companies that Isee successful? I'll give you my answer to the question. My answer isthat the speed at which you can get past twenty million is, for mepersonally, based on my muncile memory,...

...a very strong indicator of whether ornot the company's going to achieve success, breakout success. Do you have anyframes like that? Here's the thing we seen, and I'm thinking of twoexamples in particular. We see companies grow very quickly, like you know,one, seven, twenty, one, forty and then flat line or fall. In one case it was a churn issue and another case it was nota Tam issue, it was, sorry, a total a jablet market issue.It was a lack of competitive mode. So there was so much competition thatsuddenly came into the industry started giving the product away for three year nearfree, that even though there was terrific product market fit and they had thisgreat customer base, that couldn't they couldn't continue to grow at that rate becauseall of a sudden the market that makes it changed. That's yeah, that'ssuper interesting. So question sort of coming from the audience, or the theexecutive part of the audiences. At this point. Again you've got pattern recognitionaround success and failure. But specifically to begin and particularly because you invest inSass, they're going to tend to have direct sales teams. What is likegreat vp of sales or CRO like? What are the differences in the boardroom that you notice between, specifically the revenue leaders that you think are reallyfirst rate and those that that are not as good? I'll talk about twothings. The first is training and then the second is forecasting. I thinkthe best sales leaders I've seen are consistently training their people and they're training themin how to sell, how the process works. I'll give an example.There's one VP sales that I work with. He came into a company with aboutthree or four different sales teams and he spent his whole first year onsales calls and training them and showing them the processes and and creating the goalsand the kind of the management infrastructure to make sure each one of those accountexecutives was successful. And the results have been, I mean, from mypoint of views, incredibly impressive, just in the consistency of performance then,which is really critical. Like one of the data sets I love to lookat at the midsize stass companies is quota attainment by rep and in a lotof companies you see a power law distribution where one or two of the repsis just crushing quota to x, three x and then you have most ofthe people not really attaining quota. And I think you know if you cansee an even distribution or uniform distribution, but much more flat distribution across accountexecutive performance, then you know you have a really great leader. And soit's not so much I mean obviously you want every ready to attain, butmaybe it's the distribution of the attainment, because you could have technically a hundredpercent quote attainment on a dollar basis. But yes, it's two people thatare make closing all the deals and eight people are so they come in andsay hey, Tomss, we hit the number and you say, well,let's look a little deeper. Yeah, because what you really want is youhire VP sales here, she brings in seven account executives. Great, youstart hitting the number. You want to know that if you start hiring two, three, four sales teams per quorder, that they're all going to become productive. And if you have that distribution where two people are carrying the team, you're introducing a lot of it. I mean each sales team is goingto cost you, I don't know, half a million dollars, and soif you hire three sales teams a quarter of for sales teams a quarter,you're talking about an eight million dollar investment in a year. And you don'tyou don't see they Roli for that investment for nine, you know, atleast nine months. So it's an awfully long time to be to wait tosee that. So you need to have some confidence in the consistency of quoteattainment, and that's it's the sales leaders who bears that responsive. The secondthing that you mentioned is forecasting, or for I guess, forecasting accuracy,which is undoubtedly directly related to the consistency of the performance of the sales team. Are there other dimensions of forecasting that you think a good vp sales orsorrow embodies or deploys or strategies they use? Yeah, I think having really cleardefinitions and requirements about what goes in the pipeline seems really obvious, butdoesn't happen with any consistency across sales teams that I've even like the language fromcompany need the company is different. But like what is qualified pipeline? Whatis? One of the crows I work...

...with has this thing called available toclose. He's got. He uses that. One another one says commit is aterm that he uses. And so what is up happening is a boardmembers, you go from company to company and the definitions everybody's using are totallydifferent. So I wish the industry would want I wish the industry would actuallyadopt some standardized definitions. But the second is I think it's really important forboth board members and the sales team to actually have very clear definitions on whatexactly goes in which bucket. The last part about it, I'd say,is making sure and we see this through chorus, like the fraction of salesteams or leads that actually meet band or medic or whatever and the account executivesthat actually go through and figure out, okay, have I done budget kneedtiming authority? Is like less than ten percent of account executives with leads todo that. And so there's just not a discipline that's reinforced even at themost senior levels of most most sales organizations, the discipline of rig it, rigorousqualification before you. Yeah, count pipeline. In fact, exactly.You know, we were, me and my head of ops were just talkingtoday, because we're putting all this infrastructure in place and you know, it'swhat pipeline number are we going to report to the board? Are we goingto report when we set the meeting or after they meet the qualification standard?And I said after the qualification standard? I'd rather have a low number nowthen that the lower later. Yeah, for sure. Yeah, exactly.And so I think you know if basically managing the organization below you well andthen managing that team above you, well, that's what great executives do. Soone of the things that you mentioned to Moss was you know I'd askedYou the question. How much does the VP of sales, how much impactdo they have on the growth trajectory the business? And you said a lot. And you said the strongest structures are those built in tension, and tellus what you mean by that? Yeah, if you think about the glowing gatebridge, and I think about a lot because we're in San Francisco,the reason that that bridge is so strong is because there's a cable that's attachedthe both sides that's pulling the bridge on each side and making sure it standsup and withstands earthquakes and all that kind of stuff. And I believe managementteams really great. Management teams are built exactly the same way and there's thistension that always existed between sales and marketing. I believe that that's really important andshould remain and there's a tension that exists between sales and product and that'sreally important. And it's only because you have those tensions and the fact thateach of those teams can challenge the other that you can really achieve really terrificthings. That's what gets people push each other. Yeah, you feel likelike a cro that has sales and marketing reporting up through them, or marketinghas de facto alignment with sales by virtue of reporting to the same department head. You have a problem with that or that's not your preferred or chart?Well, it's fine if the marketing leader of cannons are and can pull onthe at the next level, at the VPS VPM level, if they canchallenge each other. If the crow comes through the sales organization, you mighthave kind of a upside at work where there's kind of a preference to favorthe sales point of view as opposed to the marketing point of view. Doesthat makes sense? Yeah, of course it does. I've run marketing inthe past and the other issue sometimes, as if you come up from aspecific department, my fear was always I don't have enough to teach the marketingorganization. You know, I don't know if I'll be able to hire thevery best marketers because maybe they don't feel like they're going to learn enough fromme. Yeah, that's a really interesting point. What's something you believe?You know, we're sort of coming to the end of of our time together. So first of all, thank you so much for just participating. We'reall big fans of all of the work that you've done. You know,one interesting data point that I think about a lot and I've actually referenced insome of my own writings is you did a lot of research on deal sizeand sort of market segment and you concluded that there is no conclusion. I'mtell us a little bit about that work because it's super interesting that there's sortof like no one, one way to go to market. Yeah, thisis the thing, you know, I've always looked for, quote, isthe optimal seed round to put together? What is the optimal series a?What is the optimal deal size? What is optimal customer segment? And I'vecut the data, you know, as many different ways as I could haveimagined and then each time I can never get to a statistically significant answer thatone is better than the other. Even...

...the sizes of companies, like evennormous companies that sell to the SMB. You've got enormous companies. It's allto the mid market and the enterprise and the capital efficiency for each of thosebusinesses is the same or close to the same, and so the ultimate conclusionis you can build a business selling to any size customer. You just haveto make sure that you are go to market motion is optimized for that segment. And so what does that mean? It means you can't hire field salesteams to go after SMB's. It means that you know it. Take likefleet mattox. Fleet Max is a great example of a company that sold tothe SMB with a product that let me take a step back. Fleet Mannoxwas as a company that sells, lets just sticks software to some very smallbusinesses. Like it's if you're a plumber or an electrician, then you havesomething between five to twenty trucks and you want to know where those trucks areand who's electricity they are going to fix. You Buy Fleet Mattox and you paysomething like twenty five to thirty five dollars per truck per month. It'sa really low ASP. You know you're talking about a couple of hundred dollarsand the conventional wisdom in the valley is that you can't make a business workin that category because you can't hire sales people, because the ACVs are toolow and it's going to burn a huge amount of money because the churn ratesare so high. But this was a company that actually raise venture dollars andultimately sold for something like three point two billion to verizon and was publicly tradebefore that. And the way they made it work is they match their goto market model to their ASP. So they did end up hiring inside salesteams and they made these account executives or the sales reps do like one totwozero calls per month and they got to a point where they would have atwenty four to forty eight hour sales cycle. And the last really critical part isthat they signed everybody up to a three year contract within twenty four toforty eight hours. Yep, I well, if to dig it on that one. I'm not trying to believe that what's true. It's true. Youcan look at the s one in all the ten case and you think aboutit. Most people, that most investors that are typically a verse to asix hundred year price point. But there you have it. Three point youknow whatever, three point two billion dollar exit. Maybe. Know, you'reabsolutely right. So some super quick fire stats. When do you think youshould hire first feebia sales after the founder has made the first twenty sales himor herself? And good. That's an interesting answer now. On terms ofmarket segment, you mentioned there's no one path to market. You have apreference. Yeah, I think the mid market is the easiest to start with. Giver worry in the Mid Market that you get seduced. My problem withthe mid market personally is that it's easy to get to like between five andten million and Rr but then once you have to start comping that, theTam needs to be massive and you sort of get sucked upwards into the enterpriseand sometimes the architecture or the business is not designed for the enterprise and youface this sort of existential question right around like the ten to twenty mark.I think most businesses should move into the enterprise if they start the mid market, but it's very difficult. It's very difficult. You need you the classicexample is new relic and at that Emicx, so a new relic, kind ofstarted with a Sixzero dollar annual price point and after they went public hasbeen started to move up into the enterprise aggressively. And at dynamics started withan enterprise little price point. I think it's like a hundred cake or something, and it started to move down and you know, there's a huge stresseson the organization, because the sales motions all of a sudden are different andthen the products that they need to build are different and the 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 couple weeks ago,I was reading your blog post comparing those two IPOS and I think the conclusionwas, you know, there are some differences and sort of like the capitalefficiency the business and the sales productivity of the business, but they're pretty similaremploying totally different go to mark of strategies. Yep, exactly right, exactly right. Yeah, so what advice do you have or books? You know, one part of the podcast that we want to do if somebody wants tobecome you in in fifteen years or ten years. You know you've clearly justdevoured, speaking to your wife's point about an ellectual curiosity. You've sought outmentors, you've built networks and you've read...

...a bunch of really important and interestingbooks. Are there any specific habits or content or advice that you want togive to the audience so so that they can excel in their careers? Yeah, I love this book about the learning mindset. I think it's Susan Dweckand this notion of Grit. She's a researcher at Stanford, and she said, actually, you know what, let me summarize it like this. JoshReeves from Gusto, we were talking to him a long time of talking tohim a long time ago. We were in a car and he said,you know, saying something about a problem I had, and he turned tome, and I'll never forget it, and he said it's not a problem, it's a puzzle that you have to solve and you just that slight changein nomenclature completely change my attitude toward it, and so I think that's really important. It's like growth mindset. It's like willing to accept the challenge andjust been horror threats about this and the hard thing, about hard things.It's all about like the struggle and the willingness to endure through a difficult timeand learn from it. I think that's that's one thing that I really admirein founders. It's great advice to Moss. If anybody out there wants to sortof get in touch with you or learn more or reach you in someway, is that okay, and what's your preferred medium for that outreach tooccur? Yeah, of course, that's okay. My email addresses on thewebsite it's tat goose at Red Pointcom. Anybody feel free to email me andI'll definitely get back to you. Wonderful Tomas. Thanks so much for joiningthe sales hacker podcast and congrats on all your success. It's wonderful to sayit's privileged to be here. Thanks so much again for inviting me. Sam, you're welcome. Talk to you soon. Hello, friends, were here withSam's corner, Tomastone Goose, a really exceptional human and a great investor, self taught, self build, who started his career as a salesperson downin Chili before working it append then moving to Google. You heard that hebuilt his own crm for Google that they ended up using, called toothpaste,and then moving on to red point or. He's made a number of successful investmentsand sat on the board word of Axiala company that I worked at fromtwenty ten to two thousand and fifteen. So what do we take from Tomas? There's a lot to take, but here's what I would encourage everybody outthere listening to absorb. Tomas is a voracious reader. He reads and justlooks. He's a learner. He's a constant learner, and so if youread his blog or if you follow what he says, he's always referencing somenew books that he's read. He reads both the classic business texts, like, you know, reading about Michael Porter and porters five forces, and thenhe'll read, you know, fiction and you know other more creative literature,and so that's just thing number one. You know we talked about it alot, 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 Tomas does, whichis he breaks down the financial statements of publicly traded companies in his world,which is Sass. So I don't know if you know, but if youdon't, the public financial statements of all of these companies like new relic orAPP dynamics or sales force or cloud era, they are all online. They're allfree. So you can read their k, you can read their tenq you can read their various filings and within the k they tell you they'rethey're obligated to list who are their competitors, what's their go to market strategy,whether they perceive their major risks to be. That's all free information.Whether you're in a specific space and you're competing with a public company and youwant to know what's their strategy, or you just want to understand how ourbusiness is built and how to management teams think about strata to Gy and thinkabout articulating that strategy. Well, there's free information and it is the Kfinancial statements of public and trade it SASS companies. So make use of thefree information and the competitive telligence that's out there. This has been Sam's corner. Thanks for listening. To check out the show notes, see upcoming guestsand play more episodes from our incredible line up of sales leaders, visit salesackercomand head to the PODCAST TAT. You'll find us on itunes or Google play. New episodes tend to come out every Tuesday and if you enjoyed this episode, please share with your peers on Linkedin,...

...twitter or elsewhere. Really do shareit on Linkedin. We would love it. We would appreciate it.Otherwise, just tell people about it and if you want to get in touchwith me, find me on twitter at Sam f Jacobs. Are On linkedinat Linkedincomlah in slash Sam f Jacobs. If you want to know more aboutthe revenue collective, which is the global group of VP and above sales executivesand marketing executives that were bringing together for thought, leadership and career advancement,let me know that. And if you're just a fan and want to touchbase and have some feedback about the show, let me know that as well.Once again, big shoutouts to our sponsors. That is air call,your advanced call center software, complete business phone and contact center, a hundredpercent natively integrated into any crm, and then outreach, a customer engagement platformthat helps efficiently and effectively engage prospects to drive pipeline and close more deals.I will see you next time.

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