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. This week 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 is episode twenty four and we've got to Moss toungoose to. Moss is managing director at red point ventures, really well known in the SASS world for a lot of 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 was at axeal and he since become a very prominent and noteworthy figure, both for the 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 to be a good person and it's a wonderful it's a wonderful interview. Now I want to thank a couple of the fans that have been reaching out. It really 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 what you want to do differently on the show. We want to know how he can improve and we want you to share the content with your folks, with with your friends. So James Bishop at underwrider labs. He listens while he's working 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 insights and that feedback. Tony, person out Rebecca Wetton Wetton W etten. She reached out to me based in the UK, excited about what we're doing over here at the salesacker podcast. Bernie Borgeous, who also runs the social business engine podcast. I'm sorry if I said your name your last name wrong, Bernie. And then Charles Kirkland from the Kirkland Media Group, who wrote me just a simple note. Great podcast. So, Charles, thank you for the feedback. I want to talk about our sponsors. We've got to the first is air call and I've talked about them a bit. They are a phone 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 sales force, hub spot or something else. They eliminate all data entry for your reps 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 minutes and 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 that io for sales hacker. That's are called dot io forward sales hacker. To See why uber done and Brad Street, pipe drive and thousands of others trust are call for the most critical sales conversations. Our second sponsor is Outreacht ioh. They recently acquired sales hacker. Rit Large. There are sales, the leading sales engagement platform. Outreach triples the productivity of sales teams empowers them to drive predictable and measurable revenue growth by prioritizing the right activities and scale and customer engagement. With intelligent automation, outreach makes customer facing teams more effective and approves his ability into what really drives results. That website is outreached, out io for sales hacker, and go there to see a thousands of customers, including cloud, Derek, glass door, Pandora, Zillo rely on outreach to deliver higher revenue for Sales Rep so thanks so much for listening and here is our episode 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 SASS world, but also somebody that has positioned himself and sort of built his career as a true thought leader when it comes to recurring revenue businesses. And I'm speaking, of course, of to MOS tungoose. So let me first tell you a little bit about Tamas and then we'll chat with him. But to MOSS IS A managing director at red point ventures. He invests in early stage software 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, and he wrote a book called winning with data. To Moss has been a product manager Google, a software engineer at Appian and he also founded a small start up 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 for inviting me on. Thanks for joining. So what we want to do for you know, there's probably like three people in the startup world that don't know who 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 is a 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 in consumer and enterprise companies at seed, series a, series B and gross stages. Wonderful. Do you have a sector focus for for your investments? I do. I focus on software as a service and infrastructure. And is there a stage, you know, ABC, that you're specifically focused on, ced and be okay, and then some of the flagship investments or 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 that work with is a business intelligence company called looker that's based in Santa Cruz and growing incredibly quickly. Were about some more than neighborhood of about five hundred employees and we invested at the series a there. Another one is a company called Dremeo that's in the day infrastructure world. That started by two of the key management team members from MAPAR and has rested the management teams from Malgo DB and that's a 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 audience might know. It's a sales intelligence company that has proprietary natural language stack that allows it to do all kinds of interesting things with phone calls that sale people might have. And then the fourth is a customer support company in New York called customer that's founded by the team that built key pieces of the service clouded service at sales force. Oh well, well, to your point, I think a lot of us are familiar with chorus and a lot of us are familiar with looker. To be honest, just because business intelligence is a key piece of you know what's happening with companies. You have to be able to turn your data into insights. Absolutely, I now you believe that, when he was Dada author over here. That's right, and I love data. So tell us. How did you get here, how did you get into VC, and walk us through. You know, there's a lot of people out there that one day they aspire to be to mostone goose. They aspire to be a partner at, you know, a blue chip tier a venture capital firm. How did your journey start? Yeah, I'll take you back to when I was about seventeen, my dad sent me to South America for an internship and we ended up my dad and I started company together. Oh well, he was the one doing the engineering and I was the one doing the selling, and we built a legal software company's doing document measurement, of building systems for law firms that had customers that operated in different languages. So I sold like my first three or four sales are like in a to k range, 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 by the bug of startups and it was a wonderful experience. But I knew that I had a lot to learn, and so I went to school and I studied mechanical engineering computer science and when I graduated from Grad School I went to work for a start up in Washington DC called APPI, and that was started by three Dartmouth alums who had left micro strategy, which is a big business intelligence company, and I was at job of engineer and I worked here for about ten months and it was a really wonderful experience. Company actually went public about three years ago and I learned, 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 enter price software at a different scale. We were a government subcontractor and so I was working for the Department of Homeland Security, or we were selling software to them, and so it was just like I was working on a large scale oracle databases, and I understood at least that part of it. Or were the deal sizes, you know, when you're selling to Department of Homeland Security, they were multi hundred thousand dollar deals. I think it's a long time ago, but yeah, yea, they were multi hundred thousand dollar deals and I wasn't the one doing the selling. Helped a little bit in Presales, which is like putting the demos together and modifying the platform that we had built and then,...

...as it did, fillment and a little bit of platform work. Fantastic. Yeah, it was. I've met some really wonderful people there. It was great. And then I went to work at Google. That read about this place in California and I was I remember interviewing there and recruiter took me after my my morning interviews. It took me 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. Never seen 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 I want 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, a Labor 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 so they wouldn't hire me as a product manager and engineers, but they hired me as a customer support person, like a customer success manager, in one part of the business, because I was knew. They gave me this new class of companies, which were social networks, and so I became an account manager for 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 and Mironment ran. It's a very famous program and so it's a two year management rotation program. And then I started building. Well, I started that was the product manager. Worked with teams to build advertising products for social media properties and so manage the my space agreement that we had and managed to facebook product that we had for a while, and then also launched the AD product that we had in a bunch of new languages. We launched it in Hebrew and Arabic and there was one time where we had we had to launch it in eastern Europe and we had the time to launches. Thig is in Serb and Croatian, sturt being in Croatian. WHO had the time to launch is exactly the same, because otherwise there would be some strong disagreements. You know, it's fun about who is getting preference. Yeah, exactly right. So that was a lot of fun. And then we also were doing like improvements in Chinese and stuff, and so I learned a lot about statistics and that's where a lot of my passions for data came from. Google had this view of the world that was incredible because of what we were doing in terms of crawling the Internet and the power of it was just awesome. That's when I first fell in love with data. Do I remember correctly that you were you chief of staff or some senior liaison for Eric Schmidt at one point, or am I misremembering? I'd never had that position. Each apm had a different role that served the management team in one way or another. So like Pete Kuman, who is the founder of optimizedly, did okay ours for Google, and then he worked with Jonathan Rosenberg, who was the head of product. My role was I worked on a bunch of different projects. One of them was like engineering pm and and ratios across the board. So how many product managers we have in one team versus how many engineers and making sure that kind of worked? I guess one question even before we get to read point. What do you if you're reflective and looking back on, you know, the mixture of skill and luck that led you to, you know, where you are today? You were clearly despite, you know, three three, which is really just a shameful GPA. Despite that, you you seem to be progressing pretty quickly through the Google Organization, which I'm sure is highly competitive, given that it's recruiting some of the smartest people in the world. What do you think you were doing differently or what certain insights or intuition that you developed into sort of marketable or experiential skills helped to enable that success? Yeah, I think the first thing is 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 I became a support rep and I just the rationale was had just need you know, there's this great saying, I think any RACKLIFFE has, which is when you...

...find a rocket ship, don't ask which seat you're going to get, just get on, you know, and so 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 calling Sheryl Sandberg at the time, saying the same thing to her, what are you doing futsing around? And I think she was like working for Larry Summers or something like. Yeah, yeah, she's so impressive. By the way, I remember my first day she gathered all the new employees that were working in her department and she gave us a talk about her expectations for how we would dress and how we would speak and how we would write and that we were representing Google to all these millions of people and that she expected great things from us. And I remember going up to her afterwards, you know, just like totally green, and I was like, I went up to her and I said, you are the most articulate person I've ever met. I'm so 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 excited that you joined, blah, blah, blah. But well, it's reastrying that even you know, and on a micro scale, that her skill and her her talent is conveyed. So yeahs, you'm superpressive. I remember that. So one thing you said was, you know, you weren't afraid to take a step back and that got you into Google. What do you think enabled your success at Google? I think the first thing was I had a plan. I really wanted to be an APM. So as soon as I figured out that was my gold and what I started doing is networking with people within those teams and understanding what the process was going to be. And then the second thing, which is even more important, is I had a manager who 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, and I had signed up to work for Charlie. Then about a month later, there was 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 of dynamics of air plane to forget the exact field. Was a mckinney for like ten years and he came in and all of a sudden he put us on quotas and I was like my stomach fell and I was like, Oh my God, quota, are you kidding me? There's no in the world. I went at you a quota. And you know, this is why I think it's really good for everybody, or a lot of people, to go and have a quota, just because there's a number there every day that's kind of staring you in the face and it forces you to kind of move along. But it's I was terrified. I was like, Oh my God, I got a transfer out of this. That was my first reactions, like there's no way I can succeed. I got a transfer out of his division. 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 had with a manager, and I allow the good amount. Yeah, he I wasn'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 so disciplined in the most wonderful way and you had a plan, and then he sort of taught you some of the benefits of just daily accountability, objectively measured. Yeaah, and then he gave me a lot of rope. So what I ended up doing is I had my day job and he would let me do that, and then I started building computer systems for our team and one of the systems I built was, you know, Google was crawling the internet at the time, Google ad since was competing directly with the product that Yahoo had built, his name, I forget, and we were 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 that would show exactly which sites Yahoo had one from US and which sites we had one from Yahoo, and that was the first one. And then I built the crm tool that we ended up using globally for a while called toothpaste, and so those projects were the ones that allowed me to kind of go to the associate product manager recruiting team and say I think I'm capable, or let me make the case that I'm capable to be part of this team. Did did the name 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 a been 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're going to do it in a word document.

And I couldn't stand that idea because I'm like how this information is going to be stuck in the square document and it's going to be useless. And so I stayed up all night and I built a piece of software helped toothpaste, and I named it that because I needed a name. And like I was like or four in the morning and it was like what am I going to call it? And I went to brush my teeth and there was my instration. Well, I think it's a good name. Like this is. I think it one of the things that sort of is jumping out of me. Maybe it's Google's culture, maybe it's you, maybe just how your wire, but you keep going well beyond whatever the 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 the hallmark of excellence. A lot of the time it sounds like you keep going above and beyond in the roles that you were in. And you know you're staying up all night building a CRM, you're building out databases. It seems to 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 do stuff that we didn't ask you to do, or was that also part of your plan to always overdeliver against whatever the specified job description was? Yeah, it was definitely a bit of both. You know, Google had this twenty percent project stuff and people are encouraged to build their own tools and that was a really strong part of our culture and so I probably talk it up more to that. So you've been a google for however long, and and how did you decide that you wanted to get into vc maybe, versus taking on, you know, being part of a founding team to start up, for example? Yeah, I had talked to a couple of startups when I was a google and I was like wow, it's so cool. Then I met my first vcat I ever met right and I had read about I can tech crunch in all these places about like people who walked on water and we're so smart and all this stuff, and I was like wow, it's a fascinating industry 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 like this would be the perfect career for you because you're so intellectually curious and always on 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 I really loved three parts about red point. The first was that there was an incredible culture of mentorship and training within the firm it. A second was that there was a really strong set of values that drove the firm, and then the third was that I felt at home, like that we all we work together as a team as opposed to a collection of individuals, and so all those three really resonated with me and that's why I came to red point and it's been an amazing journey since how long have we been there now? But about ten years, and the thing that that's really stood out for me is like I had no idea what I was doing for the first two years no clue, and I remember trying to read as many books as I could about venture capital and I I bought out of print books like there's this one called venture deals at one of our partners, Jeff Yang's, interviewed in and I read about George Dorio, who's the kind of the creator of American Research and Development, which is the first venture capital firm, and I've read to all these different things and I thought I was prepared and then I walked in on the first day and it really took me about and this is unlike any other job that I've ever had where, you know, at least I had some exposure, are understood what the role was, but venture capital is so different and I think you know, one of the things that I tell people who want to get an adventure is the thing that I never understood about it and took me about two years to learn, is it's really the closest job in the operating world is field sales. Wow, I've never heard that before. We're going to unpack that. What does that weight? So when you're an enterprise sales rep you are working on 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 in that account. You have to go and figure it out. Like you got to go and map who matters, who's going to influence the ultimate decision maker. You have to go and find that use case and figure out whether or not this particular team, this company, is going to be interested in buying your business intelligence software. Like you basically given a phone and a laptop and should okay, go go do some business. And is that the same process for sort of nurturing and developing...

...relationships with founders that you ultimately want to invest? Yeah, I think it's exactly the same. And basically it's a little bit different in that. Okay, like whatever I focus in, software is a service. Let me go pick a field where I think there might be something interesting, and then it's entirely up to you. If a venture capitalists all of a sudden decides customers success software is really interesting, you have to go immerse yourself into that space. You have to go and build a network of people who you think our thought leaders, who can help you identify 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 the side, which one you want to pursue, and then you have to take all that information, and this is the like. That's my understanding. What a field sales up would do is then drive it or like figure out who's going to influence it, the angel investors, the previous investors, any of your friends that you have in common. You gotta build that kind of consensus with a community around the company to put you in a self, in a position where you're trusted advisor, and that's one part of it. The second part of it is this is market making component, which isn't necessarily transparent to the outside. So a venture capitalist is a market maker between a founder and an 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 about a 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 person to partner with, a great firm to partner with. I have to go back to my partners and say, let me tell you about this really exciting Customer Support Company and why we should be moving forward and then bridge the gap between 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 and really 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 as like 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 team or 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 figure that out in the first couple of years, because I would imagine that there's muscle memory that needs to be developed for you to have to develop a point of view not just on sort of what space is interesting, but what the factors 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 used to fill out every time I meet a company. It's got like a hundred fields, great different companies on different metrics and attributes, you know, just to bring it at the highest level. I think what we really care about we're firm that really focuses on team first and the people, because we believe that people are the ones that build businesses and people are the ones that shape markets rather than the other way around. That's one the second thing that we look 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 and have something like two or three of those companies generate all of the returns that we 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 make sure that, if they do succeed, we have those return characteristics. Were you apprehensive in the early days of red point about like did you have a strategy around pitching companies? Because I would imagine, but you can tell me if 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 that 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 right returns. Did you have apprehension about that or you you sort of understood that implicitly? It took me a while to learn and he was crystallized my first year. Now one of our most most important investors that we have an annual meeting every year where we go through all the tea updates and developments in red point, 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's very tall, imposing man, he's one of our LP's, and he puts his arm around my shoulder and he says, Tamash I have a question to ask you, like, Oh my God, what I mean? It's like I'm the 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 or around 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 five x 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 percent probability, which would you choose? And he said think very carefully before you answer, and I was like, Oh my God, I'm funding bullets, and so I said, you know, I said the second one and he said that's the right answer every time. He said, if you're not losing money on investments, you're not taking enough risk. That's a hard lesson to fully digest, particularly if you're an operator. Yeah, but let me tell you another story. So there's a buddy of mine who works at a Hedge Fund and he's, you know, highly leveraged positions, like he's trading billions of dollars and national value, and I got drinks with him one night and he said I lost fifty million dollars today and I lost my job on one trade. I was like, Oh my God, that's crazy, and I said how you ever going to find another job and he said, everybody's calling me. I'm not going to have any issues because there are very few people who are willing to take make those bet and be willing to lose that amount of 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 first investments, but now you've been doing it sometime. You've been promoted to partner. Congratulations, that was a while ago. When you develop that muscle memory of the differences between success and failure for startups beyond, you know just the team, but what do you see personally and what data, because you are so data driven, with data points, can you look at at an early stage that are indicative of some think good going on? That published a blog 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 most correlated is net dollar expansion in fast company. So if you but year ago, you have all your customers and they spend a dollar, how much does that basket of customers spend this this year and that's the one. But even then the correlation is pretty small. So data is 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 exceptional team market fit or are these the right people to do this? And then the second thing is an exceptional product. Like a third of the enterprise companies that we invest in have no revenue when we do invest in them, and the you know, the vast majority of them have less than a hundred thousand a monthly recurring revenue and Investedt the a. So we're trying to invest really early on and so we're looking for those two attributes. Is there after you invest, I guess, and I'll give you someone else's frame, I think someone else said, which is an investor from a growth equity firm that was having 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 that is going to be a successful 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 the company's going to be successful? I mean, I'm sure it's always different, but like a particularly critical inflection point that you keep your eye on the only one that you can say is a hundred million in revenue growing at seventy percent the year, that's when you can go public. But is there like at five million or ten million or twenty million, there's a point in which, like the companies that I see successful? I'll give you my answer to the question. My answer is that the speed at which you can get past twenty million is, for me personally, based on my muncile memory,...

...a very strong indicator of whether or not the company's going to achieve success, breakout success. Do you have any frames like that? Here's the thing we seen, and I'm thinking of two examples 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 not a Tam issue, it was, sorry, a total a jablet market issue. It was a lack of competitive mode. So there was so much competition that suddenly came into the industry started giving the product away for three year near free, that even though there was terrific product market fit and they had this great customer base, that couldn't they couldn't continue to grow at that rate because all of a sudden the market that makes it changed. That's yeah, that's super interesting. So question sort of coming from the audience, or the the executive part of the audiences. At this point. Again you've got pattern recognition around success and failure. But specifically to begin and particularly because you invest in Sass, they're going to tend to have direct sales teams. What is like great vp of sales or CRO like? What are the differences in the board room that you notice between, specifically the revenue leaders that you think are really first rate and those that that are not as good? I'll talk about two things. The first is training and then the second is forecasting. I think the best sales leaders I've seen are consistently training their people and they're training them in 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 about three or four different sales teams and he spent his whole first year on sales calls and training them and showing them the processes and and creating the goals and the kind of the management infrastructure to make sure each one of those account executives was successful. And the results have been, I mean, from my point of views, incredibly impressive, just in the consistency of performance then, which is really critical. Like one of the data sets I love to look at at the midsize stass companies is quota attainment by rep and in a lot of companies you see a power law distribution where one or two of the reps is just crushing quota to x, three x and then you have most of the people not really attaining quota. And I think you know if you can see an even distribution or uniform distribution, but much more flat distribution across account executive performance, then you know you have a really great leader. And so it's not so much I mean obviously you want every ready to attain, but maybe it's the distribution of the attainment, because you could have technically a hundred percent quote attainment on a dollar basis. But yes, it's two people that are make closing all the deals and eight people are so they come in and say hey, Tomss, we hit the number and you say, well, let's look a little deeper. Yeah, because what you really want is you hire VP sales here, she brings in seven account executives. Great, you start 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 going to cost you, I don't know, half a million dollars, and so if 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't you don't see they Roli for that investment for nine, you know, at least nine months. So it's an awfully long time to be to wait to see that. So you need to have some confidence in the consistency of quote attainment, and that's it's the sales leaders who bears that responsive. The second thing 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 or sorrow embodies or deploys or strategies they use? Yeah, I think having really clear definitions and requirements about what goes in the pipeline seems really obvious, but doesn't happen with any consistency across sales teams that I've even like the language from company need the company is different. But like what is qualified pipeline? What is? One of the crows I work...

...with has this thing called available to close. He's got. He uses that. One another one says commit is a term that he uses. And so what is up happening is a board members, you go from company to company and the definitions everybody's using are totally different. So I wish the industry would want I wish the industry would actually adopt some standardized definitions. But the second is I think it's really important for both board members and the sales team to actually have very clear definitions on what exactly 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 sales teams or leads that actually meet band or medic or whatever and the account executives that actually go through and figure out, okay, have I done budget kneed timing authority? Is like less than ten percent of account executives with leads to do that. And so there's just not a discipline that's reinforced even at the most senior levels of most most sales organizations, the discipline of rig it, rigorous qualification before you. Yeah, count pipeline. In fact, exactly. You know, we were, me and my head of ops were just talking today, because we're putting all this infrastructure in place and you know, it's what pipeline number are we going to report to the board? Are we going to 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 now then that the lower later. Yeah, for sure. Yeah, exactly. And so I think you know if basically managing the organization below you well and then managing that team above you, well, that's what great executives do. So one of the things that you mentioned to Moss was you know I'd asked You the question. How much does the VP of sales, how much impact do 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 tell us what you mean by that? Yeah, if you think about the glowing gate bridge, 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 attached the both sides that's pulling the bridge on each side and making sure it stands up and withstands earthquakes and all that kind of stuff. And I believe management teams really great. Management teams are built exactly the same way and there's this tension that always existed between sales and marketing. I believe that that's really important and should remain and there's a tension that exists between sales and product and that's really important. And it's only because you have those tensions and the fact that each of those teams can challenge the other that you can really achieve really terrific things. That's what gets people push each other. Yeah, you feel like like a cro that has sales and marketing reporting up through them, or marketing has 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 on the at the next level, at the VPS VPM level, if they can challenge each other. If the crow comes through the sales organization, you might have kind of a upside at work where there's kind of a preference to favor the sales point of view as opposed to the marketing point of view. Does that makes sense? Yeah, of course it does. I've run marketing in the past and the other issue sometimes, as if you come up from a specific department, my fear was always I don't have enough to teach the marketing organization. You know, I don't know if I'll be able to hire the very best marketers because maybe they don't feel like they'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 of our time together. So first of all, thank you so much for just participating. We're all 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 in some of my own writings is you did a lot of research on deal size and sort of market segment and you concluded that there is no conclusion. I'm tell us a little bit about that work because it's super interesting 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, quote, is the 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've cut the data, you know, as many different ways as I could have imagined and then each time I can never get to a statistically significant answer that one is better than the other. Even...

...the sizes of companies, like even normous companies that sell to the SMB. You've got enormous companies. It's all to the mid market and the enterprise and the capital efficiency for each of those businesses is the same or close to the same, and so the ultimate conclusion is you can build a business selling to any size customer. You just have to 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 sales teams to go after SMB's. It means that you know it. Take like fleet mattox. Fleet Max is a great example of a company that sold to the SMB with a product that let me take a step back. Fleet Mannox was as a company that sells, lets just sticks software to some very small businesses. Like it's if you're a plumber or an electrician, then you have something between five to twenty trucks and you want to know where those trucks are and who's electricity they are going to fix. You Buy Fleet Mattox and you pay something like twenty five to thirty five dollars per truck per month. It's a really low ASP. You know you're talking about a couple of hundred dollars and the conventional wisdom in the valley is that you can't make a business work in that category because you can't hire sales people, because the ACVs are too low and it's going to burn a huge amount of money because the churn rates are so high. But this was a company that actually raise venture dollars and ultimately sold for something like three point two billion to verizon and was publicly trade before that. And the way they made it work is they match their go to market model to their ASP. So they did end up hiring inside sales teams and they made these account executives or the sales reps do like one to twozero calls per month and they got to a point where they would have a twenty four to forty eight hour sales cycle. And the last really critical part is that they signed everybody up to a three year contract within twenty four to forty 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. You can look at the s one in all the ten case and you think about it. Most people, that most investors that are typically a verse to a six hundred year price point. But there you have it. Three point you know whatever, three point two billion dollar exit. Maybe. Know, you're absolutely right. So some super quick fire stats. When do you think you should hire first feebia sales after the founder has made the first twenty sales him or herself? And good. That's an interesting answer now. On terms of market segment, you mentioned there's no one path to market. You have a preference. Yeah, I think the mid market is the easiest to start with. Giver worry in the Mid Market that you get seduced. My problem with the mid market personally is that it's easy to get to like between five and ten million and Rr but then once you have to start comping that, the Tam needs to be massive and you sort of get sucked upwards into the enterprise and sometimes the architecture or the business is not designed for the enterprise and you face 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 classic example is new relic and at that Emicx, so a new relic, kind of started with a Sixzero dollar annual price point and after they went public has been started to move up into the enterprise aggressively. And at dynamics started with an 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 stresses on the organization, because the sales motions all of a sudden are different and then 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 conclusion was, you know, there are some differences and sort of like the capital efficiency the business and the sales productivity of the business, but they're pretty similar employing 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 to become you in in fifteen years or ten years. You know you've clearly just devoured, speaking to your wife's point about an ellectual curiosity. You've sought out mentors, you've built networks and you've read...

...a bunch of really important and interesting books. Are there any specific habits or content or advice that you want to give 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 Dweck and this notion of Grit. She's a researcher at Stanford, and she said, actually, you know what, let me summarize it like this. Josh Reeves from Gusto, we were talking to him a long time of talking to him a long time ago. We were in a car and he said, you know, saying something about a problem I had, and he turned to me, 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 change in 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 and just 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 time and learn from it. I think that's that's one thing that I really admire in founders. It's great advice to Moss. If anybody out there wants to sort of get in touch with you or learn more or reach you in some way, is that okay, and what's your preferred medium for that outreach to occur? Yeah, of course, that's okay. My email addresses on the website it's tat goose at Red Pointcom. Anybody feel free to email me and I'll definitely get back to you. Wonderful Tomas. Thanks so much for joining the sales hacker podcast and congrats on all your success. It's wonderful to say it's privileged to be here. Thanks so much again for inviting me. Sam, you're welcome. Talk to you soon. Hello, friends, were here with Sam's corner, Tomastone Goose, a really exceptional human and a great investor, self taught, self build, who started his career as a salesperson down in Chili before working it append then moving to Google. You heard that he built 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 investments and sat on the board word of Axiala company that I worked at from twenty 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 out there listening to absorb. Tomas is a voracious reader. He reads and just looks. He's a learner. He's a constant learner, and so if you read his blog or if you follow what he says, he's always referencing some new books that he's read. He reads both the classic business texts, like, you know, reading about Michael Porter and porters five forces, and then he'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 a lot, but please read, please go out and find books and make yourself better, because it's free information. It's a free way to get experience from other people. So that's one sort of general piece of guidance. But here's something very specific that nobody does, and that is what Tomas does, which is 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 you don't, the public financial statements of all of these companies like new relic or APP dynamics or sales force or cloud era, they are all online. They're all free. So you can read their k, you can read their ten q you can read their various filings and within the k they tell you they're they'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 you want to know what's their strategy, or you just want to understand how our business is built and how to management teams think about strata to Gy and think about articulating that strategy. Well, there's free information and it is the K financial statements of public and trade it SASS companies. So make use of the free 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 guests and play more episodes from our incredible line up of sales leaders, visit salesackercom and 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 share it on Linkedin. We would love it. We would appreciate it. Otherwise, just tell people about it and if you want to get in touch with me, find me on twitter at Sam f Jacobs. Are On linkedin at Linkedincomlah in slash Sam f Jacobs. If you want to know more about the revenue collective, which is the global group of VP and above sales executives and 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 touch base 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 hundred percent natively integrated into any crm, and then outreach, a customer engagement platform that helps efficiently and effectively engage prospects to drive pipeline and close more deals. I will see you next time.

In-Stream Audio Search

NEW

Search across all episodes within this podcast

Episodes (384)