Q: What factors that make it difficult for a salesperson to sell a new product to a customer who has been buying a competing product for many years?
You can steal a customer from a competitor. But unless they are so fed up with you, that they’d inbounded to switch — you have to go further. And most vendors are too lazy to go far enough to get folks to switch to them.
I see so many reps trying to steal a customer that focus on:
Price (we can save you 10% vs the competition!! so what)
Wanting to get “on a call” to talk (i don’t have time to help you sell to me)
Why their product is so great (why do I care?)
None of this matters, most of the time, in SaaS. Not really. Because the switching costs are so, so high to rip one app out and replace it with another. To find the time to deploy a new app. To train the team. To figure out the corner cases that won’t work as well. To learn slightly different, new ways to do the same thing.
So a discount isn’t remotely enough. The switching costs will far exceed the costs for the software itself, in many cases.
What sales reps should be selling if they want to steal a customer from the competition is:
“We’ll do all the hard work for you to replace their app with ours. We’ll install it, tweak it, and even let you do a totally risk-free pilot for 90 days if that helps.”
“Is there 1 critical thing you are missing from your existing vendor? What is it? Let me know so we’ll see if we can solve that big problem for you.”
“Here is the 1 reason we are 10x better. Does this solve your problem? If so, again, we’ll do all the work.”
“We’ll buy out the term, if any, with the other vendor so the direct switching costs are zero.”
“If you want, you can use both apps at the same time and test them side-by-side. And we’ll do 99% of the work for you.”
Imagine you heard that …
Then, when there’s a real bump with an existing vendor … you just might switch.
But so few companies and sales orgs go this far. So very few. It’s more work, no doubt, than just closing a warm inbound lead.
As you get bigger, you may need a SWAT team that just does … this. At a minimum, the best marketing teams do. They track Lost to Competition Leads as ones they get a new shot at every 12-24-36 months down the road.
Q: What is more important, getting new customers or customer retention?
It’s a trick question of course — the crazy high net negative churn of top SaaS companies means that of course retention matters more than new customers. If you have 140% net revene retention at say $100m ARR and want to grow 50% that year … well, 80% of that growth will come from your base and existing customers!
73% of Salesforce’s new bookings coming from its existing customers, for example. More on that here.
And yet … there’s no point in doing customer retention if you don’t have enough customers 😉
So in the early days, retention alone only gets you so far. But ultimately, things change. As most SaaS companies scale, their existing customers often end up accounting for the majority of their revenue growth.
Obviously this can’t be the case the first few years. But it’s often the case as you approach $100m ARR, or even well before.
Let’s take PagerDuty as another example. When they IPO’d, they were growing 48% Year-over-Year. With 139% Net Retention Rate. That means the majority of their new bookings were from existing customers …
That’s not uncommon at scale in SaaS when your net revenue retention is that high.
Of course, you need new customers to fuel that engine. But the maths say at scale, customer retention is more important than new customers. Even though we tend to do actually do the opposite in terms of how many resources we deploy …
70% of Startups Don’t Have a CX Strategy — Do You?
If you’re a startup founder and you haven’t quite thought about customer support, you’re not alone. A recent survey of startup founders and decision-makers shows that less than ⅓ have a formal strategy for support in place. But, data shows that the fast-growing startups not only thinking about customer experience but actually integrating it into their bigger company strategy early on.
So what is customer experience (CX) and when should you start investing in it?
CX is just as it sounds — the experience and journey your customers have when interacting with your products, services, and company. When a startup has a solid CX strategy in place, it means they can anticipate customers’ needs and solve problems quickly and proactively with the right tools. And according to the Zendesk 2020 CX Benchmark for Startups, research shows that the sooner you start thinking about and prioritizing your customers, the better off you’ll be. Good customer service translates to happy, loyal customers for years to come!
It pays to start early
We looked at over 4,400 startups using Zendesk, and the data was clear. Fast-growing startups are quicker to adopt tools like Zendesk Support and integrate communication channels early to ensure a seamless experience for inquiring customers. These startups understand that it is important to be where their customers are, whether that’s on social messaging apps like WhatsApp or Twitter to email, chat, or phone. We call that an omnichannel approach. As a result, you’ll be responding to customers faster and more efficiently than competitors, and your customers will have an easier time connecting with you.
Work smarter, not harder
Fast-growing startups also employ more support tools, such as AI and automation, to streamline operations across their entire workflow. In fact, small, fast-growing teams do so with 2.8 times as many workflow tools as their slower growth counterparts. Because of this, they are able to do more with less. This thinking helps to set a protocol that prepares any team for early success. From collecting more data on customer issues to ensuring that urgent customer inquiries make it to the right support agent at the right time, these efforts help you stretch existing resources so your team can stay lean and agile.
“The key to startup growth isn’t just automating time-consuming manual work, but also scaling out processes across the entire organization to convert more leads, win more deals, respond more quickly to customer requests, and do more, faster.”
— Rich Waldron, CEO and co-founder of Tray.io
Put your customers first
It may seem obvious that putting your customers first is good for business. Still, we find that startups who put this in practice grow more quickly than those who don’t. We learned from the companies using Zendesk that have gone on to become unicorns were 37 percent more likely to offer omnichannel customer service, 38 percent more likely to have rolled out chat, and 48 percent more likely to have phone support. The data clearly shows that fast-growing startups who put more time and effort into their support operations early on see faster resolution times which leads to a better experience overall fortheir agents and customers.
So how can you do the same? Here are a CX few benchmarks that you can borrow from fast-growing startups:
How do I put my startup on a path for CX success?
There’s no magic formula for faster-growth, but there are obviously clear benefits from providing better customer experiences. Good customer service drives growth for startups.
To achieve this, do your research early and choose the right support platform — one that is easy to use and can scale as you grow. Next, adopt an omnichannel approach that prioritizes how your customer reaches out to you today in addition to how they would prefer to reach out to you so that you don’t miss interactions. You can also use self-help features like FAQs and help center articles to solve customer problems fast. Finally, always be searching for more efficient workflows and processes so that your team’s productivity won’t be compromised.
If you want to learn more about how you should build and set-up a CX strategy, the Zendesk for Startups Program can help. Startups like yourself can get access to our exclusive community of founders and partners for strategic advice, and get set up for CX success quickly with our customer support, sale and engagement solutions for free for six months.
At the recent SaaStr Summit: Bridging the Gap, Stewart Butterfield, CEO of Slack, shared a funny story. He said with work-from-home, he was able to talk to a lot more customers. A lot more. And that was Zoom’ing with a smaller enterprise customer they’d just closed, who told him “She was worried about Slack.”
“Why are you worried about the company,” Stewart asked?
“Because the CEO has time to talk to me! That’s always a bad sign!”
Ok laugh. But there’s a bunch of interesting points in that story. Stewart had more time to talk to more customers — and go further down the list and talk to customers he didn’t have time to before we were all working from home. Instead of 2-3 big meetings a meeting, and maybe a few in-persons a week … CEOs can now talk to 10+ customers a week if they want, or even 20.
Our session with the head of all corporate sales at Salesforce told a similar story. Yes, they missed the face-to-face interactions. But they were able to talk to 10x more customers over Zoom. And again, the customers love the addition connections.
One thing I’ve learned over 15+ years of selling in SaaS is that I truly have never lost a customer I’ve ever visited in person. And rarely lost a customer I’ve talked to “in person” over a length Zoom or two.
Today, it’s hard to get on jets and visit customers. So that may be a loss in your bigger accounts. You won’t get to take them out to lunch, and sit in person with a room full of your users. You won’t get to show homage, to show your respects and appreciation in the same way either. Simply showing up makes a difference. Both for closing deals, and retaining customers. I remember the first big customer I lost was because the competition had showed up in person — and I hadn’t ever even talked to them directly.
But you know what? You can do 5x as many customer Zooms now that we can’t travel or even Uber to visit customers. So force yourself to. You may lose those ones. The bond may not be as deep as over bread. But it’s still there if you as the CEO talk to your customers in person. That unique bond.
Customers love to talk to the CEO. Especially if the CEO listens. They feel respected. They feel heard. They feel a bond. A bond that lasts year.
And it turns out, it even works in a 5 person company. Your customers have invested a lot in your product. It means a lot to them to talk to the CEO, even when the vendor is tiny. It may even mean more.
Leverage that. It’s a retention and upsell weapon. Customers love to talk to the CEO.
So do 5x-10x of that now. Talk to at least 10 customers a week over Zoom. 20 if you can make it happen. They’ll trust you more. Stay longer. And buy more.
Ep. 362: The Future of the Customer with Bernadette Nixon, CEO @ Algolia, Jay Snyder, Chief Customer Officer @ New Relic, and Nick Mehta, CEO @ Gainsight. Customers’ expectations are higher than ever with more access to information and options. This dynamic trio of SaaS experts share how to stay customer-centric and set yourself apart in today’s rapidly changing environment.
Thank you so much and welcome, everyone. Really excited for engaging discussion on something I’m passionate about, the future of the customer. So I’m Nick Mehta, CEO of Gainsight and you probably have heard of Gainsight in the world of customer success and really excited to have two different voices in the world of how companies think about their customers. So Bernadette Nixon recently joined Algolia as CEO. Has been CEO before, was CEO of Alfresco Software and long career in software and comes in, I think, with a lot of passion for customers and customer success, which I’m excited to hear about and also comes in live streaming, my understanding is from a boat right now, right Bernadette? You’re on a boat.
That’s right. I’m on a boat in Rhode Island.
On a boat in Rhode Island and then our second guest Jay Snyder, who just recently took over as Chief Customer Officer of New Relic, publicly traded SaaS company. I’m sure many of you use New Relic. Comes out of a long background in EMC and Dell and has worked in the world of customers for very long time. And today is potentially broadcasting from the Italian Alps or maybe…
I am. I actually just got off the boat, Nick, and scurried up to make sure that I was ready to go for the presentation.
I got to say pretty good internet up there on the Italian Alps, so I’m impressed.
Got hotspot on my phone, so hopefully we’ll hold still.
So we have got a good group and we’ve got some good stories to tell as well.
So let’s dive into the future. So we talked about where things are today. A lot of these themes probably resonate with what people are seeing. We’re going to next talk about what’s the near future. So what’s happening right now and trends, and then we’ll do a little speculation about the far future and where to those trends go over time. Near future, I think it’s pretty obvious. There is a big set of trends happening right now, which is with the downturn and I tweeted this a while back like at the beginning of the downturn that like every customer is scrutinizing, do they really need this technology or not? It’s not just about it being cool, it’s about what Jay said, is it delivering value, right? And whether it’s Algolia, Gainsight, New Relic or anything else, you’re being measured on value, not just adoption and at the same time, even outside of COVID, there’s all these other trends happening.
Power of the developer, or the API economy, both of you play very much in both those trends. So let’s talk a little bit about the near term trends you’re seeing.I’m going to start with Jay, because Jay, you described it in the prep call this proliferation of technology. This sprawl that’s happened and you’re in the middle of it. A lot of your clients use New Relic heavily. Talk about what the near term trends are.
Yeah. So, you teed it up really well. Quite simply, and I guess no pun intended, things are too complex. I mean, they’re just too complex. And so I’m speaking specifically about the space that I’m operating in within New Relic. Customers live in a world of tools, and for everybody listening in here, I’m sure this isn’t shocking to you, but mass proliferation and sprawl has become a real problem and it’s created mass complexity, not just at the technical level, but at the business level, because that sprawl is expensive and worse, this fragmentation minimizes the ability to deliver value at scale, right? If everybody’s just doing a little sliver of the work, how do you roll it up into a meaningful business case? I don’t know anyone right now. I mean, maybe you do, but I don’t know anyone right now with extra money, time, or people, right?
So the pressure is to simplify. Provide a platform, not a tool, that can be a consolidator and something that can drive costs, but still have all the features necessary to get the business results. And I’m not saying this is easy, but that’s what we’re striving to do. I always say, companies are trying to do three things when they buy something. It comes down to, they’re trying to make money, they’re trying to save money, or they’re trying to reduce risk. And the good news at New Relic is we can do all three, but only if we align to the business drivers and keep in mind just how dynamic those are. So we ensure that we are constantly measuring and refreshing. Our challenge and our opportunity in customer engagement is staying tightly aligned with the business drivers, having the discipline to manage long term customer journey even when the short term options might be easier.
So I guess I’d say it’s forcing us to both challenge our customers more than ever, and by extension us to be educated and in tune with the customer’s business, more than ever. I know it’s something we’ve always aspired to do, but I’ve never seen it be pushed to the brink like it is right now. Generic business or customer success plans, they don’t work for me, but more importantly, they don’t work for our customers. Right? And for some folks that’s a lot of pressure and they have to dig deeper. They have to work smarter and they have to do more. So I think that’s what’s happening and that’s what we’re seeing on a day in and day out basis.
I’ll just ask a follow up on that, Jay, because it’s such an important point. I see it all the time, which is, you said it super well, make money, save money, reduce risk. It’s hard to find any other uber categories than that, but then for CS people sometimes, it’s challenging for them to make that connection from using a feature of New Relic to driving business value. They don’t know enough about their client, they don’t understand the business. Maybe they’re early in their career. How do you help your team make that link to value?
I mean, that is the, what would you say? The $24,000 question that I’m actually going through right now. And it’s a combination of things. One, it starts high up in the sales process, right? Because you need to start to deliver, deliver is the wrong word. You need to discover in the sales process. You need to do a lot more asking and listening than talking, right? So we need to create a template which I’m working on right now, which is what are the foundational elements that would drive a business case. And again, this would be somewhat generic to get the basic discovery done. Then it’s about really understanding the customer’s business and using the levers within that business case to determine is the goal, make money, save money and reduce risk. So it’s about operational efficiencies, productivity gains, digital experiences and making sure we’ve captured those.
That’s an enablement exercise that is not to be minimized, right? We’ve got a lot of training to do with our sales teams to get them to start to speak in these types of terms versus feature function. And we’re going through that evolution right now within the company. And then your question really is how does CS do that? I mean, what do they do? And again, if it’s not teed up correctly in sales, CS is already at a disadvantage. So it starts there. But then instead of a success plan, it’s a business plan. That business case becomes the success plan, right? And we’re constantly aligning the metrics in that business plan back to the technology and understanding which dials we need to turn, which types of implementational product feature functions do we need to use that will directly equate to these types of things.
I think the thing we’re doing Nick, to be able to force that is we’re getting a little bit more intelligent around account management. So today we do a good job there, but at the technical level, the deeply integrated technologists, that’s the piece that’s going to play a critical role in connecting those dots for our customers. And I’ll talk more about this later too, but I mean, the handoff from pre-sales to post-sales has to be crisp. Otherwise you’re going to lose that momentum and lose that connective tissue back to that business case and then the thing starts to fall apart. I mean, we can talk a lot about this, but that’s a little bit about where we’re headed on that, but it’s definitely a change in selling process, and then it’s definitely a change in the journey.
Yeah, I think you said it really well and we’ll come back to it. But so much is discovered in sales that’s lost often in that process. So really well said. Bernadette, you came into a company that’s very well respected for the technology built in the search world. What trends are affecting the way you think about your customers near-term?
So I think there’s a couple of things. There’s a macro point that I’ll make and then I’ll give a specific Algolia example of how we’re seeing it manifest. So, I think every organization right now can get constrained within their silos and in order to truly respond to your customers, you really need to be a nimble organization now. That doesn’t mean to say, you’re going to do away with the functions. You’re not, but you need to find a way of getting outside of those, come together as teams, squads, whatever you call them in order to be able to drive value for your customers. And it’s particularly poignant for us right now because we’ve made our bread and butter selling to the tech visionaries, the early adopters and now increasingly that early majority.
And so there are different things we need to do to bring to the table in crossing that chasm for our market. But as we look at our market, it’s not all created equal. We’ve got everything from self-service all the way up to the enterprise. So how we accomplish something at the enterprise level in a one to few or a one-to-one or a one to few is very different to how you would accomplish it in a self service model. And so I think when we start to look at some of the frictionless models at the lower end of that spectrum, I mean, we’ve got nine and a half thousand customers. So at the lower end of that spectrum, what we’re finding is your product has to be intuitive enough for the customers to be able to self direct their own journey.
And so it’s another spin, I guess, on the notion that you mentioned Jay, which is simplicity. But that simplicity is multifaceted. You’ve got to have it in the product, you’ve got to have it in how your customers can realize that value. And then you’ve also got to have it so that you can have it in a one-to-one or a one to few framework for your enterprise customers. So, there’s a lot of change going on right now. That’s the only thing that’s constant, frankly. And so trying to keep pace with it across all of those different sectors really requires you thinking deeply about how to deliver that value to your customer.
That’s great. Yeah. And well, that simplicity theme obviously is so massive and also just doing more in the product when you have that massive scale that you all have at Algolia and New Relic has as well. So that’s a good way to say, what are the things that are trends that you think over the next five years, you think are here to stay. Some of you probably know that… There’s that great Jeff Bezos quote that says, “Don’t focus on the things that are going to change, focus on the things that aren’t going to change.” Right? And that’s why you predict the future. What are some of the things, when you look at the next few years, that feel like this is just an unstoppable trend. And then we’ll go to the other side and talk about things that we think are going to be radically different in the future. Bernadette, I’ll go with you first.
Sure. So the thing that is here to stay is the maniacal obsession with adoption, adoption, adoption. So real estate is location, location, location. I think for anybody in the SaaS business, it’s obvious, but it’s adoption, adoption, adoption. And there’s no one key holy grail metric that’s out there in the market right now. So I think there’s a lot of experimentation going on here. I think that simplicity in the product is a key driver. I think in product telemetry, in product training are absolutely key.
Your goal, no matter where you are on that spectrum in terms of customer segment, the goal is the same. The question is how do you help and encourage and enable your customers to get to that maximum adoption point so they are really getting the value that they were hoping in the pre-sale cycle. How you deliver it will just be different depending on the segment. That’s here to stay.
Great. And Jay, what from your perspective?
Yeah, so I’m terrible at predicting the future. I turned down an executive role at ServiceNow six years ago, Nick so this is not my sweet spot. But Bernadette just said it incredibly well. I mean, I think she stole some of my thunder and she should have, because I agree with her 100%. It’s about adoption. I’ll say the same thing, but I’ll say it maybe a little bit differently. So if I had to say, what’s going to definitely be here five years from now, it’s this whole concept of customer success where customer success truly owns the customer. And sales would be just that at initial sale only. Customers want to know that someone is responsible and not just there to do the sale or the expansion, but there to get them to, as Bernadette said to adopt, consume and drive value from the platform, right?
We talked about needing to have an understanding of a customer’s business, their drivers, and also ensuring adoption or the business case breaks. So I’m not saying the role of a salesperson will disappear. I just think that definition of responsibility will change where they may simply be a sales and marketing person who’s focused on new logos, but immediately is handed to success from that point forward. And if I’m a customer and I’m asked to pick who I’m going to bet on for my future, when I signed the check, is it going to be that salesperson or that success person? And I think we’re already starting to see that lockstep with customer success is customer adoption, which means you have true engagement, which means you’re delivering true value. It’s one plus one equals three, it’s a simple math equation to me.
That’s great. Awesome. And if you flipped it around on its head and said, what are some of the things that as we go forward are going to seem almost dated? I showed my kids Back to the Future II last weekend, and if you remember that predicts the future, but they predict in the future that there would be fax machines everywhere. So they kind of got that wrong, right? What are the things, the concepts that we take for granted today that will seem dated five, seven years from now in the world of software. I’ll go to Jay first.
Well honestly, I’m going to come back to something we just talked about. I think in the future, we’re going to see a lot about low friction models and I’m going to be a little bit repetitive here, but I do think that we’re going to see a lot more intelligence built into the product as Bernadette said, that gives you… and not just intelligence from being able to extract metrics, but also enablement, right? I think that you’ll be able to self enable to a degree that we have never seen before. And you’ll have the applied intelligence, the AI in the product itself that will, they’ll make you smarter, right? It’ll be watching what you do, guiding you how to do it.
Today I have to manage and track health and my customer success, right? This will be built into the product. I believe that technology will become more and more intelligent to throw off these health metrics and it’ll put the CS team really in the driver’s seat to engage in a much more meaningful and prescriptive manner. One that is completely, almost custom for each account and very low touch. So I think you’re going to have this combination of low friction, but high impact, which is a real difference from where we are today, right?
We think about low touch to some degree as low impact and I think that paradigm shift can change. I mean, if you think about, if we can build more intelligent products and leverage the AI, you’re literally going to have the answer to the tests from the technology itself. I mean, wouldn’t it be something, if you could show up with a script of exactly what the customer needed and wanted based on the data in the technology to help them do better, go farther, move faster, right? Or better yet, you don’t even have to show up. You could just send them a Slack with the details and the enablements right there, and they can run. So I see our future allowing for a much more low friction, high impact way to leverage the technology and to involve change.
Yeah. I see. I think one thread I want to make sure people take away from that, Jay, is that low touch or low friction doesn’t mean a poor quality of service or not focused on the customer [crosstalk 00:32:52].
100%. And I think it does today, right? That the nomenclature today implies you’re not as valuable a customer. So you get a digital touch where somebody else gets hugged and visited by a real life human being. That’s true, but I think that shift is going to happen and we’ll see it in the next five years where the opposite becomes the value add.
That’s great. And Bernadette, from your perspective, what’s going to seem dated years from now?
Sure. I would actually just add onto what Jay was saying there just for a moment and say, it also depends upon the market you’re in. I mean, New Relic and Algolia, we’re very focused on the developer. So honestly, a lot of developers don’t want to speak to a human. They want to be on the self serve. They want to have a tech touch and that is a better solution for them than a high touch. So I completely agree with your point Nick, but what will seem dated in five years, hopefully clicking, okay to accept cookies on every freaking website you are going to have to go visit.
That’s the [crosstalk 00:33:50]. Well said.
But on a more serious note and perhaps a controversial one, I think a thing that will be a thing of the past will be concierge CSMs, because I think that there is a portion of the population out there that have come up and the relationship aspect and the soft aspect has been so important because it needed to counter balance. Sometimes the hard charging sales approach. There was a very high value placed purely on the soft skills. So to me though, the days of the concierge CSMs are numbered and there has to be value that the CSMs deliver beyond just the relationship. So I’m not saying that the soft skills aren’t important, they absolutely are. High EQ is always going to be critical, I think for that role, but they also need to be able to deliver value beyond that and what that form that takes will depend upon your business. But I think that connected to the in product telemetry and some of the stuff we talked about already will provide a powerful combination.
That’s so well said. It’s interesting. I did an event with CIOs recently. So probably some of your customers, I asked them what they thought of CSMs and they gave some of that feedback, Bernadette that they felt like some CSMs are super nice people that respond to emails, but don’t add a lot of value in the process. And I think for CSMs that are watching you do have to plot a course to having value either in the product knowledge or domain knowledge or being consultative or whatever. You can’t just be a nice person that responds to emails.
I completely agree that this is what we… I think we’re all talking about the exact same thing here, right? They’ve got to be able to bring a business case to the table and make sure it aligns to those drivers and when things start to stray, they’ve got to get everything back on track. Their success managers/program managers, they got to run that customer journey like a program and understand what that means. And they’ve got to be able to use all the data available to them, to be able to understand when the customer is going off their journey. And it’s not just about showing up to run the QBR, it’s driving the entire experience to get to the QBR. And that is a shift in mindset for a lot of folks.
One of the last questions we had talked about in prep was the org that’s most impacted in changes outside of CS in the future and Jay and Bernadette, you both said some thoughts on that. Jay, I’ll go to you first.
Which orgs are changing the most?
Yeah, which orgs change the most outside of customer success. What orgs have to evolve and change in this new world.
Yeah, I think if I was going to pinpoint this I would go to pre-sales and the reason I would go to pre-sales is I talked about the fact that a customer would like to be owned soup to nuts by somebody who is going to be responsible and look after their entire experience. And if you think about what pre-sales does, they build that connective tissue at a technical level with that customer early on, and that’s the mind meld, right? That’s incredible value. I’m not diminishing what a salesperson does. I’ve been in sales a long time, but ultimately that technical connection and a lot of times when you’re selling a harder technology product wins the day, right? But yet if you’ve created this model where that pre-sales person does the sale and then disappears, where’s that connective tissue and what happens beyond that?
So I think that we’re going to see an evolution in how pre-sales works with post-sales and maybe becomes one and the same so that you can have that long standing, truly intimate, technical engagement that our customers are looking for. Someone that spends the time upfront and then stays long term after to be with that customer based on that relationship, that mindset and that experience they already have. So I do see that getting upended, and it’s impacting them now because where isn’t formal, Nick, they’re doing it anyway. So I’m seeing pre-sales being heavily impacted by the fact that while their job is to be on pre-sales, they’re spending half their time in post-sales. So whether it’s formalized or not, it’s bleeding across that impact sales productivity, it has other ramifications to the business. And so we need to solve for that. I don’t know if the word is impact. I think there’s an opportunity to do something more intelligent around the pre-sales, post sales hand off.
I think it’s really well said and I think that what I’m seeing, actually, in some cases as chief customer officers getting value engineering, like you have in pre-sales, underneath them as well to tie that altogether. Bernadette, how about from your perspective, what org do you think is going to evolve the most in this new world?
I don’t think I could have said it better than Jay. I think he’s got it. There’s a lot of value to what he said and I think generally the sales org will face a lot of change coming out. But I’m going to pivot if I may, to one of the other questions that we talked about in prep, which was, in a downturn, what’s going to be the most important? A lot of people are saying that, “We’ve seen the worst of the downtown,” and you’ve got the other side of that saying, “There’s still more to come when furloughs and everything are no longer funded by governments and what have you throughout the globe.”
And I would say on that topic that the thing that is going to be most important is having the human touch, or should I say the humane touch and customers that you do the right thing by when they’re in a bind, not that you’ll be able to say yes to everything that they want. That’s not what I’m saying, but when you do the right thing, it’ll be recognized and those customers will remember that in the good times.
So well said. I think it’s a great segue to [crosstalk 00:39:28].
Yeah, I was just going to say, I literally had almost the same answer for that. I said the one thing that I’m telling my team all the time you need to have in this downturn and what’s the biggest impact to CS at the same time is you need to lead with empathy, right? You really do. I mean, because the people we’re talking to, their jobs are at risk, their companies are at risks, they’re being put in very difficult positions and we’ve got to really embrace and understand that. And that’s a difficult thing for a lot of folks because we’ve got a company to run, right? But if you really want to build customers for life, this is the time where empathy will shine and doing the right thing long term versus short term is going to make that customer either be a customer for life or not.
That’s well said, that’s a good way to close out. Well, a couple of key takeaways for folks, I do believe in this concept of human first leadership, which is really what customer success is all about and what the future of the customer. Wrote some thoughts about that online that you can find on our website and then for people who want to dig into future of the customer more, we just published our book, The Customer Success Economy, which is all about this concept and where we’re going in the future and actually just in partnership with SaaStr, we made this available for folks listening actually for free go to gainsight.com/freebook, and you fill the form, you’ll get a copy of it. And thanks so much to Jay and Bernadette. This has been phenomenal. Really appreciate it and next time I think we’ll have to do this with some karaoke as well. So think of your song selection.
Welcome, everybody. Super excited today to have one of my favorite thought leaders, in general, and enterprise, Loren Padelford from Shopify. It’s especially insightful conversation today now because we can talk about the intersection of two interesting things. Loren, among other things, has spearheaded Shopify Plus, which is Shopify’s enterprise platform from the early days, to now announced today almost 30% of the revenue. So that’s like a Slack-esque going up market, which is fascinating. Loren’s also, like many of us that are here, a longtime scholar and student of enterprise sales and what works and the tactics, and came in and has applied that at Shopify. And so every conversation, we did an incredible podcast, you should listen, that was one of our highest rated ones. But talking about how to become more enterprise, what trade-offs to make when you can’t do it all. When you don’t necessarily have a startup there. When you start out… always one of my favorite thought leaders. And I wanted to thank Loren for coming. And talk about this and leverage us to talk about a million customers at Shopify. A million right? I don’t know it was announced today maybe 1.1 million. It really doesn’t matter, does it? It’s a lot.
It’s a lot. We didn’t announce any new customer numbers today.
It’s probably gone up.
Thanks for having me. It probably has gone up. So yeah.
So Shopify today–we’ll touch into it, announced just kind of the jaw dropping numbers, it is the archetype of the COVID beneficiary. Shopify was on fire before, which is one of the first things I want to talk about. But just today announced essentially 100% year over year growth that essentially a $3 billion run rate. And we just have never seen this in the cloud before. So I want to talk about that and I want to talk about what we can all learn about going up market and serving customers of all different sizes. And please again, if you haven’t before, click into the Q&A, ask questions. We’re lucky to have Loren and we will get to a bunch of them toward the end of this session.
But Loren, I wanted to tease on a couple things. This was a tweet you made the other day. Aaron who’s the next and final speaker, “Amazon’s a $1.6 trillion company. We’re living in Amazon. Not if we can help it.” I want to talk about that exactly in the third point but before we talk about everything that’s changed in March 15th. Step back for a minute, I want to talk about one thing, why is eCommerce exploded? I almost get it. But my first job in internet was in eCommerce and I get why that was terrible, back in the day. But what’s changed in the last two years? What really has gotten better in terms of tools, technology, software? Why have we finally reached the age of eCommerce? I don’t totally get it. What’s changed? What’s the tech stack or awareness that’s gotten us to this next level finally?
So I think that’s a really good question. And I think it’s part of the reason why the enterprise is changing so fast, which we’ll get to. If you go back to when we started Shopify, Tobi didn’t want to build a software platform, he wanted to sell snowboards. The problem was he couldn’t find a platform to use. There wasn’t something for entrepreneurs to just start an online store and then go sell things. You had to spend a million dollars, you had to have developer experience. You needed all this infrastructure to just get yourself online. That became a gargantuan barrier to entry, which meant the sheer amount of choice we as consumer had was very limited. So when you went online to buy there wasn’t that many options. Well, technology comes along, SaaS comes along, Tobi comes along. Starts building a next generation of online platform, Shopify in this case. Built on a newer stack, built in SaaS and built for entrepreneurs to rapidly start up.
So the whole game here for us is, lower the barrier of entry to bend the proverbial curve down, so that starting something is very, very easy. As we’ve done that, as you alluded to, a million entrepreneurs jumped on that bandwagon and started to launch online stores. Well, these two things of, consumers got more choice, entrepreneurs launch more things, hit each other and boom, eCommerce became what it is today is, I can go online now as a consumer and find a huge variety of options to buy, for products that I want. And if I have a good idea, I can start it overnight. These two things drove both aspects, entrepreneurism and the proliferation of online stores, and consumers getting more and more comfortable purchasing online. I think that’s what you have the last two years is just, both are spinning together to create a more accessible market.
And we probably won’t talk too much about Amazon through this discussion. Although your tweet is very interesting. Is some of the acceleration last two years, is it a reaction from vendors to Amazon’s monopoly? Is it wanting to control their brand? There’s something in here that as an outsider, it’s a little bit hard to see. It seemed like Amazon might crush everybody. Not from a Shopify perspective, from an outside perspective but a thousand blossoms bloomed out of this Amazon growth. What’s the interaction here with owning your brand and owning your channel versus a third party?
Yeah. So I think as an entrepreneur, you start a business because you want to interact with customers, you want to provide value. And so this idea of having a one-to-one relationship with your customer is very attractive. And it’s what we’re trying to support. And it’s bi-directional. Consumers, I want to know who I’m buying from. We as human beings love stories. We love underdogs. We love the little guys. We love Main Street. We love this entire idea of entrepreneurs and our economy is driven by entrepreneurs. So there’s this innate desire as a society to have more and more choice. And entrepreneurs have this innate desire to have a one-to-one relationship. These two things meet in the middle, and so it isn’t about a competitor, it is about satisfying what is our natural desire as a society and as humans. And as entrepreneurs is to create one-to-one relationships and one-to-one stories. And you can’t do that on central marketplaces and these kind of central clearing houses. That’s not what they’re designed for.
They might be seemingly cost effective or time effective, but they erode at the fabric of what is human nature. And so, my tweet there is kind of like, society can’t let our choices be consolidated into a single option. That has never worked, historically. It cannot work in the future because that isn’t how society functions. We need more voices and more choice. And so Shopify is on the side of entrepreneurs, trying to support their one-to-one relationships with merchants–or with their consumers. And I think that’s an attractive proposition and why you see this proliferation and this move towards more entrepreneurs and platforms like Shopify. Because it is that you and I can talk as a consumer and the brand, without this middle in the way, right? Taking the money, taking the relationship, taking the leverage. And I think that’s a valuable proposition for a merchant and for the consumer on the other side.
Yep. And I want to talk about digital transformation and then enterprise, but let me hit the second point on traditional retail because you and I are having a backstage conversation, before we talked. Let me skip, this was a bit of data that we need a few more weeks on, but this was one that circulated across the internet on the right, right? Which our jaws dropped and then showed up in Shopify’s public announcements today. And you see it on those data and eCommerce, our jaws dropped, right? It’s literally almost one-to-one with Shopify giving its market position. I want to talk about, is it a bump or permanent in a second? But let’s talk before about, will retail recover?
And when I look back, maybe the fourth SaaStr post I wrote in 2012, I was walking, bumming around downtown Palo Alto and the last boarded up retail reopened. It’s now West Elm. But so it was four years, the last time when the cloud was smaller, right? When commerce was different, it took four years for retail in Palo Alto, which is pretty bougie, right? It’s pretty upscale. It took four years for the last retail. Will those boards come down? What are downtowns going to look like? What’s retail going to look like? We’ve seen five years pulled ahead and will retail recover?
Yeah. So I think that, I think I’ve said this on the podcast, and I’ve said this before. I’d actually go as far say it pulled 10 years forward. COVID is a time machine to pull 10 years ahead.
10 years. That’s the insight right there. 10 years.
But if you go back before COVID, we were in digital transformation already. There were headlines constantly about how shitty, pardon me for swearing on a live broadcast. About how shitty retail was over. It was just done. No one wanted to go to a crappy retail experience again. So people were going to have to focus on the experience and customer behavior and all that kind of stuff. There was a lot of talk about physical retail being consolidated. We just had too many. I heard a great quote, I can never remember who said it. That basically said, “There are 300 great malls in the United States. The problem is, is there 1400 malls.” And so you had this… this was already happening.
And so this consolidation, this refactoring of what retail and commerce was going to be was already underway. COVID hit and just dragged 10 years forward. So everyone thought they had another five, six years to sort themselves out. Now they realize they don’t and they’re all trying to refactor now. Physical won’t go away. So, let’s just be clear, it was never going to die in the sense of just disappear. eCommerce was never going to be the only way you’re going to shop. Humans still value tactile interaction. And so that will still exist, it will just be less so. So you can look at brands now, who even as we open back up, are saying, “I’m not going to open all the stores. I’m going to open some of the stores because I don’t need them all.” You’re going to see that. You’re going to see a real focus on that optimization of location and optimization of experience.
And because of this chart, and there is an updated version by McKinsey just a couple days ago, which shows it over three months and it’s even more stark. Because of the acceleration online, you’ve seen a whole lot of brands–the ones that will survive and thrive in this market–really refocus on how to create that digital experience, the way that consumers wanted. And that’s going to become a more dominant channel. So where it used to be physical retail was number one by material level and eCommerce came in under it. We’re seeing this equal itself and then it’s going to tip the other direction, right? Which will be eCommerce and online, the digital. Whether that’s mobile on your online store, whatever it happens to be, will become your dominant interaction style with your consumer, and your physical locations will be that tactile, real world experience that a consumer may encounter once in a while.
But it won’t be for most retailers. It won’t be their dominant anymore. Because we’re getting too used to the phones, our computers, our tablets, being isolated inside has kind of pushed us back there. But also the technology gets easier and better and so those experiences can be great. But I want to stress again, it’s not that physical goes away, it doesn’t go away. It’s just the change that was already happening, is now just going to happen a lot faster. And going to force a lot of physical first retailers, to become digital first retailers that have physical components. And that’s going to be a hard choice.
That’s interesting. The 10 years. I mean, you have the most… but the date is there, right? As is the Goldman aid and the others, but 10 years pulled forward. Right?
So it’s just inverting that ratio, and I think that means overall, when we talk with other cloud leaders and executives and CEOs today, the answers are more guarded. They’re like, “It’s faster.” But we’re not sure but eCommerce is at the… because of the nature of this little global pandemic, it’s at the cutting edge, right? And this 10 years is, it’s crazy. It’s unprecedented rate of change.
And it is. And it has been challenging for some folks because they were not prepared. They thought they had 10 more years. And so you saw major retailers go from hundreds of millions of dollars to zero in a day. Because they had to close the stores and that was their only line. There are still major retailers who have no online presence today. They are still transacting at zero. This is not a winnable solution. Right? You’re going to have to either innovate or the other option. And the other option is not existence.
And let’s talk about that. It’s interesting, this next slide on pull forward customers and what you’ve learned. Because if Shopify Plus, which is the enterprise segment, the largest segment, already grew to 29% already. As announced today, that’s a public metric. Right? And it’s increasing. It was 20 something percent when we did the podcast, right? So that’s huge change. That means customers deploy much faster. I mean, they deployed overnight, Shopify Plus. And they had no choice because their revenue went to zero. But what did you learn? What trade offs that folks were willing to let go? Or how did they change their teams? How do they actually implement this level of change? Right? Because business process change, even using Shopify, it’s not easy for big companies.
Yeah. I think if we go back, so Plus has been existence now for about five and a half years. So it started at five and a half years ago. And we started it because Shopify customers who were growing up, and we wanted them to stay. We couldn’t understand why you’d have to keep re-platforming just because you got bigger. Why can’t you just start on one platform and stay on it forever? So we created Plus for that. And so the whole premise was, what do customers actually want to do versus what the market has created for them? And so I mean that in, I’m not a huge fan of legacy enterprise software, because I think it created a set of realities that is not true anymore, but everyone believes is true. And so one of them is, it takes a long time and lots of money to deploy software. It is fundamentally false in a world of SaaS; it is just not true.
And so what we started to go to customers and say was, “Why? If you want to launch, let’s just launch the store. You don’t need to have this 12 month engagement with some consulting firm and all this work. You don’t have time for that, don’t you just want to be a brand?” That I think was our fundamental question. “Do you want to be an IT company or do you want to be a brand?” And if you-
When we chatted before on the podcast, we had a fun conversation about the high end of the customer. And some of them might want a lot of custom functionality and maybe even things Shopify didn’t do today. And you were okay for now letting them go. Right? We may hit that in the next slide. I suspect things have been different since March 15th because your priorities have changed.
I’m willing to let an esoteric integration with SAPR four go, because I need my business to run.
Right. And so these-
Were there examples like that? Where customer priorities just changed. Literally examples that you can think of?
Yeah. So I mean, I think I’ll give you three kind of real world examples of things we saw move very, very quickly that we wouldn’t have seen before. So Impossible Foods is a good one but like the CPG spaces, all these folks who were selling food and selling things traditionally through grocery stores and stuff, suddenly realized these channels were not available to them or were competing directly against them. And so they said, “Okay. We want to go direct to consumer but like… Oh, I guess it’s going to take us two years and look at all the systems we have.” And we’re like, “What if it takes you seven days?” Right? Because you just want to sell stuff, right? It’s not that hard. It’s like we’re going to put pictures online with a price and you’re going to start marketing it and that’s the thing.
And what the trade off was, was almost philosophical. It’s like they couldn’t understand how you could move that quickly. And so we showed them and so we have a whole bunch of examples of these massive CPGs launching in under a week, right? From contract signature to launch. Right? And that transformed their ability to innovate. They could just now start experimenting. So then you go and you take a much more, traditional retailer, like Staples, as an example. They had foresight, right? They came to us before COVID and they said, “Hey, we want to transform the business but this thing makes us nervous. We don’t know you. We don’t know this thing. It sounds too good to be true. But we’re willing to make trades,” and what we focused on was outcomes. What do you really want to here? You want it to be fast? Do you want it to be nimble? You want people to change it. You don’t want to have a big team supporting it. Okay, great. If that’s what you’re into, that’s what we are.
So we’re going to give control to the business. This isn’t an IT driven process. We’re focused on outcomes. And most importantly, your consumers don’t want all this crazy customization. It’s not a thing anymore. Hyper bespoke environments no longer convert, they just annoy everybody because we’re too lazy to go through it. Right? I just want to get to a store, see what I want to see, be able to buy it fast, not have to type in a bunch of stuff, right? Not have to go through 15 screens to do it. And big enterprises were so stuck in that model. Before COVID, we were like, “Okay. Fine, we can’t help you. If that’s what you want to do, call one of the legacies. They’ll gladly take your money.”
But when COVID hit they all came to us and like, “Okay, we give up. We don’t even know what to do anymore. But we’ve got to get off of this thing that costs $100 million. We’ve got to get back to talking to our customers. I don’t have an online store that can transact.” You saw on COVID so many of the legacies just go down. They just broke. You’d go to their websites and it was like, “We can’t help you right now. We’re busy.” And it’s just like what is happening? I saw one retailer, literally tell you to call them to place order. They gave you a phone number. Yeah, I was like we’re going backwards in time. And so I think what we said is, let’s get back to basics. You got to sell. You got to sell fast. It’s got to be fast. It’s got to be extensible. It’s got to be scalable because you are big, so you have to do a lot of volume.
But you can do this much faster. You just got to give up a lot of this like stuff that doesn’t matter anyways, and COVID forced their hand. Even if they didn’t want to, they didn’t really have a choice. And what they all learned very rapidly was, “Oh wow, It actually does work, you actually can do that. And you’re going to end up getting what you want. It doesn’t take the massive amounts of infrastructure investment that it required before. It doesn’t take a huge IT process to drive. You can move a lot faster and still get the outcomes that you want. You just have to think about it differently.”
Yeah. When we chatted before COVID on the podcast, I may be misrepresenting it or or misquoting a little bit, but we definitely talked about how even in the high end of Shopify Plus, a lot of your buyers were lying buyers. They own the business model and they were going… whether they were literally going around IT, they were making their own decision. I suspect since March 15th, your relationship with the CIO and IT has changed radically. And they’ve become your ally or much more of a stakeholder, in outcomes than before March 15. Maybe that’s wrong, but I suspect-
… you’ve had different conversations.
It’s totally true. So before COVID, we were heavily in the marketing department, right? We were talking to the brand owners.
They were the side stepping in the business and they were taken over and that was great. Post COVID, it’s still happening. It’s still brands are important, obviously. But the CIOs are definitely at the table and the CTOs. And I think, in large part, this is an opportunity for that organization to help their companies transform. Where before they thought they saw it as potentially a threat. It’s like, “Oh, the size of the organization is going to get smaller. You don’t have to own the infrastructure or the security or all that kind of stuff.” And they saw that as like, “Oh, you’re encroaching on the area I’m responsible for.” I think they see this digital transformation now as their next opportunity to support and lead a transformation of their companies. And that has changed dramatically and to the better, and I think the CIOs and CTOs have become huge partners in this. And can play that role for their companies. They just have to kind of… It’s not the same, right?
I think that’s still the thing is like it feels so different that they’re a little hesitant. But you’re not alone like… Now Plus, there are 7000 Plus customers, are now enrolled. And a number of them are a billion dollars or more online. These are big businesses. This is no longer bleeding edge. It’s the other way. It’s like if you’re still on the other system, you’re in trouble. I don’t know what to tell you.
And let’s tease on the second point. Folks like you and me and others, we’ve been talking about consumerification the enterprise or whatever version of that malapropism you want, for more than a decade, right? We like the idea of ease of use products with great design, that would consumerify the enterprise. And it’s true, but it hasn’t been totally true, right? There are other issues in the enterprise, right? There’s workflows, there’s integrations, there’s dashboards and analytics. And just because some app we can find on Product Hunt is easy to use, it’s not enough in the enterprise. But maybe this is the era when you… are the CIOs you’re talking to, are they using Shopify themselves? Touching it, playing with it in a way a CIO or CTO might not before? And does that kind of validate how we think about user experiences?
So yes, so they are using it themselves. What was always interesting before, COVID as an example, is you would talk to the CIOs and they’d be like, “Yeah. My cousin uses this for their sweater store, right? I know who you are, but you weren’t built for us.” There was the stigma associated with size. And what we’ve seen now is now when they get into it, they usually call after building a store. And they’ve built-
Even the CIO is after even the enterprise. Yeah.
They’ve quietly built it in the background. And then they’ve been so stunned they thought they did it wrong. And so they call us and they’d be like, “So I built this thing. Is that it? Do you just turn this on?” And we’re like, “Yeah. It’s been… sure turn it on.” When I talk to them, they’re like, “Well, how can we test and play with it?” I’m like Shopify.com, enter your email address, build yourself a store. And that is so hard for them to understand. You can have this easy to interact with tool that also scales to this level and supports this complexity, That you end up in a lot of conversations, just trying to explain to them how that’s possible.
And it’s possible because we built a platform to manage the scale of millions of merchants. So by default, it can manage the scale of any individual large merchant. And we built a platform that was API first. And so this idea of headless which is brilliant marketing but total misdirection of reality, is just you want to plug it into other things in your ecosystem. Guess what, we built an ecosystem and so you can do that with Shopify. And it’s like that’s the thing that ratchets them down to like… and it’s SOC 2 compliant. And it’s all this saying, it’s like security, check. Size, check. Integration, check. And they start running out of the check boxes and then they’re like “Holy crap. This thing is so much more usable,” right? “I can now move faster. I can actually innovate rapidly in the system,” right? Which allows them to showcase the capability of their organizations. Instead of being an anchor, they now get to be an accelerant to the business.
And they start grappling onto that and are like, “Oh, man, we could do this, and this and this, and this and this.” Because retail is experimentation and their CEOs are saying, you gotta experiment. I want to try this. I want to try that. And Shopify becomes that thing that allows them to go experiment. And so it becomes, what feels like a consumer app, right? And an enterprise experience. Right? And that’s such a powerful tool for these businesses.
Now as the CEOs are deploying themselves, like literally, I mean, that’s sort of every founder’s… that’s what they want to build in the beginning. Right? Is the CIO, any customer goes and builds and then they inbound, right? That’s the original dream. Are you finding maybe quietly in the background, you need a little bit more services, a little bit more onboarding, a little bit more things that maybe weren’t anathema a couple years ago. But as this torrent has happened, you do want to make this even easier for folks that maybe are still firing up IE or are struggling a little bit, or have other systems, right?
Firing up IE…that’s amazing. Yes. So I think for us, there’s some core… as we stretched up market, and I use that term intentionally. Shopify has never moved up market. We stretched up market. We took our current platform and pulled it up market. We have not moved Shopify in that sense. We are still heavily oriented to SMB and to entrepreneurs. The large ones are just a unique kind of entrepreneur. But as we’ve gone up, as we’ve gotten bigger, and so like when I started Plus, the largest merchant on Shopify was 10 million annually.
Largest merchant today is over a billion annually. So this is a materially different customers, much more employees, much more breadth, global, all this kind of stuff. So as we’ve gone up, we tried to help hold a few principles. One, we don’t custom build software. So I don’t care how much money you have. You can’t get us to custom build you anything, right? Because that doesn’t scale. And this is a trap companies fall into all the time, is a big company with a big brand shows up and says, “I got $10 million, just build me this thing.” You build it. And now you’re their software company instead of your own software company. So we’ve really held on to that. We’ve held on to the idea of not everyone’s a fit. I’m not good for everybody. We still say no to a huge number of customers every year, because we just can’t do what they want us to do. And we’re okay with that. We’re here for a long time. We’ll get them back later.
Also intentionally said, “I never want to be a services shop. I don’t want to be $10 in services for every $1 in software.” However, as we have gone up market, we have had to think about services more and more in a, where do we provide ultimate value that moves a customer from pre sale to launch as fast as we can? Versus consult with them on BPO and process optimization and all that kind of stuff. And we’ve just keep drawing the line, it keeps shifting slightly. But we have an amazing ecosystem where we push most of the services to and say, “You want to build the store. That’s the ecosystem for that. We don’t build stores. You want to customize an app? That’s the ecosystem for that. We don’t do that.” What we do is help you pick the right partners, help manage those partners with you. We will do some support work, some aggregate benchmarking, things like that, that we can provide.
And that gets more and more as we get higher and higher because expectations get more. But we are still constantly trying to hold this line, saying, “Do not become a consulting shop. We want to be a software company.” But it has expanded as we’ve gone up market just because we see things we have the data, so we’re the best position to support the merchant in that space. But I ultimately am trying to build an ecosystem that does it, instead of having Shopify do it.
I mean, even Salesforce which is obviously a very powerful software, but much more Byzantine than Shopify. I mean, they’ve struggled with this from the early days, as we know, right? They needed services much more but to outsource it, right? To build the Piraeus and PWCs and train them. So it sounds like it’s the same process. You don’t want to own it, you want to have best of breed partners. But there’s more and more to do. You say that Shopify is an SMB customer when I see 29%. I think Slack the majority of their revenue is enterprise even though their roots is SMB. I think it could happen to Shopify. Shopify could have the majority of its revenue be enterprise even though its roots are Slack-like.
And so, that’s true. I would say revenue is a terrible proxy for what a company’s trying to do. It just happens to be the thing that everyone wants to talk about. I’ve always thought employee base is a terrible proxy for success. Right? Having lots of employees doesn’t mean you’re actually successful, it just means you have lots of employees. So there are very large companies in the world with tons of revenue who have no customer value. And so I just don’t see this… I’m not arguing your point, I think our perspective would be the merchant mix is a better indication of our interests and what we’re doing, than where our revenue comes from. Because revenue is mathematics in our space. There’s monthly fees, payment fees, that kind of stuff. By mathematics, the large ones will overshadow the small ones but when you have a million small ones and 7000 large ones, ask me what the company’s doing, right? We’re doing both but no one could claim we’re not doing the small market just because of where revenue comes from.
So I think that’s a nuance I’d suggest is, your revenue is an interesting indicator of where some of your cash comes from, but it doesn’t tell you necessarily what the company cares most about.
Yeah, it’s a good insight. And it’s a fun, as all of us who have been doing this and this founders too, it’s a fun tension to watch right? And watching Stewart Butterfield start wearing a tie more often. I haven’t seen Tobi wear a lot of ties yet and suits. I am going to tweet at you if I see one. If I see the Kangol hat come off and the tie. Just one Bloomberg interview, at 10 billion run rate and then we’ll have a laugh about it. I’m not saying it’s going to happen, but-
I’ll tell you that, I would be more shocked than you if that were to happen because I think he’d get more internal chirping than he would external. But this is the, we are okay to say no to things. This is who we are, we say no constantly. And so I’ve said to my team, we say to Shopfiles, “Hi. We’re not trying to become the market. We’re trying to get the market to become Shopify.” And so it manifests itself in that kind of way. It’s like, yeah. If us showing up in a suit, is the reason you will or won’t talk to us, let me help you with this conversation. We’re out. Right? Because it’s just not like that, if that’s the thing you value, we’re having the wrong conversation. And it’s not about disrespect or anything. I’m sure there’s a scenario under which he would wear a suit, or I would wear a suit.
But when you think about it from a market perspective, this is the same as the CIOs. Is when the CIOs are like, “Well, we have to have all these things are we’re not doing business with you.” “Okay, great. Don’t do business with us then.” I’m sure there’s a bunch of software companies who will comply with this ancient way of doing things. We aren’t one of them. So when you figure out a different way or want to talk about a different way, we’ll still be here. And I think that’s been one of the keys to our success as we’ve stretched up market, is not falling for the brands or falling for the money and just saying, “Look, we’re trying to build something that not everyone’s going to believe in. And a lot of people will say no to us. But we’re here for a long time. And we’re going to do this and we think this is the right way.”
And it is a bit philosophical more than it is logical. But if you’re going to try and do something no one’s tried to do before, it is a little bit philosophy more than it is standard business. And I don’t know, I mean, Tobi’s tweet this morning was, I think indicative of, if you’re into this kind of thing, I think we’re doing okay.
All right. Just one follow up of that and then talk about boomerangs. We talked about it before, but then I want to make sure we have time for questions. So, because there’s usually at least a couple good ones. But just this, it’s a super interesting idea of 29% of the revenues from Plus, from enterprise. But you can’t let that be your North Star. It has to be the corpus of customers, right? The million and what they want. But at some level, when you’re doing resource planning, and Shopify is a big company now. It’s a tiny company. It’s a rebel but it is a big company. Do you have to do some of it that way? Do you have to allocate 29% of engineers and 29% of the team meeting? Because I find that a useful exercise even if you don’t follow it, it’s a useful paradigm to think about. Because if you don’t, the distribution can be based on passion or emotion and not data. So do you divide anything up based on that 29 versus 31 or 71 rather?
I think that the better way to think about how we make those kind of trade offs is, the mental model I have is Shopify is a flotilla.
And the big central cruise ship in the middle is that core merchant. And what you have outside of it are all the other ships in the flotilla. Plus is one of the ships. Retail is a ship. Shopify Money is a ship. We’re all ships. We’re all tethered to that middle and we’re all building along a continuum of merchants. It’s like there are small Plus merchants that are doing half a million dollars in revenue that are still on Plus, because they need some of the features. And then there are big Shopify merchants that are on a Shopify plan, and not on Plus because they don’t need some of the Plus features. So we’re building on this continuum. And the flotilla is pulling all the time. We’re each pulling in slight directions, and there’s this near constant discussion about resource allocation based on opportunity, but isn’t financial opportunity. It’s how do we make eCommerce better? How do we support more merchants? How do we give more flexibility and more extensibility?
It’s never a financial discussion where, “Hey, I can make you a whole lot of money if you just give me all the resources.” Because again, money is a bad proxy for success. And so we are in a constant discussion as a flotilla, about course alteration, right? It’s like, “Oh, we’re going to nudge it a bit this way this time and nudge it a bit this way this time.” But it’s not nearly as pragmatic as, “Oh well, X amount of the revenue comes from over here. So we’ll dedicate X amount to the resources.” And to give you the example of that. Plus is about 700 people worldwide. Against a 6000 person company, and is 29% of [inaudible 00:35:42].
That’s sort of the question. Yeah.
Right? And so it’s just like it’s disproportionately small. But it is amazing what you can do with small teams.
With just 700.
With just 700. Imagine.
All right. One more I want to do and then I want to make sure I get a couple questions offline and a couple questions online I wanted to get. But when we chatted before, you chatted about letting customers go or you weren’t the right vendor, having the confidence to do that, having the confidence about your mission, and that they might boomerang back later and that’s great, right? I assume there’s been a lot of boomerang since March 15th. Maybe not. Maybe it’s all actually been folks that had different solutions or different… but has boomeranging changed since March 15th? Have you learned about any lessons on how to handle boomerangs? Because if you go along, they will come back if you have a great solution.
Yeah. So this is a core belief of mine is, you have to be able to say no to customers. They’re not all good. Right? I mean, statistically impossible that every customer we talk to is going to be a good one. So you have to know what you’re good at. We’re optimized for success, not money. So I need customers to be ridiculously happy. So they go out and tell all their friends and all their friends come to us. And so we say no a lot and we still say no. But the premise is gracefulness. Say no gracefully. Right? It’s not you, it’s me conversation. Like, “You’re a great business. If you want to change… here’s the things we don’t think we can complete.” Either it’s you want to do the thing this way, and we want to do it this way. But you always leave the door open. Never close the door, never burn a bridge. You leave it open. “Hey, if you want to keep talking, we’re here. We’ll keep talking.”
So when they come back round again, you’re gracious. It’s not, “We told you so.” It’s not, “Oh, look at us. We were the right, you were…” It’s, “Hey, great. What would you like to do?” It’s the same discussion. “We’re still here to make you successful. If things have changed, let’s talk about it again.” But I see so many companies who just say yes to everybody, under the auspices of any money’s good money. And the problem is, it’s not because it’s a resource distraction. And ultimately, what you need is happy customers more than you need the money, because happy customers will lead you to the money.
Well, that’s the real answer.
You get both.
Sometimes I think you should take the customer if you could make them happy, if you don’t want to do it. But it’s the happy customers that matter more than the money. The money usually [crosstalk 00:38:06]-
And so I think that’s we’ve done. So your Boomerang question is 100%. Right? 100% we’ve had boomerangs that three years ago were like, “We’re never talking to Shopify. You can’t do what we want.” Who are back in our pipelines. And I think that’s great. We’ve developed a lot. The market’s developed a lot. They’ve developed a lot. Tobi has a great saying. He says, “We can all wake up tomorrow smarter.” Right? And so if we woke up the next day-
… and we were smarter, great. We get to make new choices. Right? And so those boomerangs I think are just, we all woke up smarter, new choices to be had, let’s move on and figure out how to make people successful.
One question because I think this is interesting to founders, even though it’s going back in time. But Adam asked, “What customer number or revenue?” But it may be more milestone based for you. Did you take the steps to do the SOC 2 that you reference to? To do more enterprise grade security and compliance? How did you think about that and sequence it, as you grew Plus?
I don’t think we did SOC 2 until last year.
Yeah. I’ve seen it. So that’s late. Stop fighting a lot of things late.
Well, and here’s the reason.
And it’s done pretty well.
So I don’t have an SLA. Okay. We have no SLA’s, at Shopify. Right?
Yes. The CIOs I bet asks since [crosstalk 00:39:21]-
Every time they ask.
Every time. Where’s your SLA?
And so, when we first got asked that everyone was like, “Oh my God. You’re going to have to SLAs.” The number of times I got told, “When you get to the real world, and sell to real customers, you’re going to have to change all these behaviors because no one will buy it.” That real world place sounded like a terrible place to live, so I just refused to go there. And so SLAs as an example of “enterprisey” things that we just avoided. When they showed up I was like, “Why do you want one? What do you think is going to happen if we go down?”
Well, nothing. SLA in some ways is the stupidest thing if you think about it, right? It accomplishes nothing. Even if you got $6, there’s nothing to do with it and it doesn’t make the app better. But they want it.
Okay. And so I had that exact conversation over and over again. And so I can count on one hand, the number of deals we lost because we didn’t have an SLA.
Yeah. I would have made one in a Google Doc, but I’m with you. I’m with you.
No one has time for that, I don’t have time to make you an SLA. Right? So I think we have avoided a lot of the “enterprisey” standards, by just questioning the standard. By being like, “Why? Why is that important to you? What is the thing you think you need here?” And then what we found is no one actually had good answers. What they were used to, is just like the big five legacy software companies would show up with the standard package, it became the norm. They asked everybody else in the world to comply to it. No one ever pushed back because they were big companies. And so all small companies adopted what those five legacy platforms created. And we just refused to adopt it. We just kept asking, “Why? Why do you want that? Why do you need this thing? Why do you need that thing?”
And so I’d applied for contracts. I have a one year contract. I mean, I don’t actually care if you sign it or not. I mean, I kind of care. Right? But if you sign that-
Yeah. In many ways contracts are just as stupid. Let them go.
Let them go. I want you to be here because-
Let them go. Let them go.
… this is the greatest platform in the world, not because I have you locked into some five year agreement you can’t escape from.
Right? It’s backwards. I’m here to make merchants better, not to lock them into things. And so there’s so many parts of enterprise, which are fiction. They don’t actually exist in reality, it’s just been created by organizations to make themselves more money. Right? Which, “Okay. I mean, you want to make more money. It’s fine, but there’s better ways to do it.” To lock in customers to platforms with crappy outcomes, so they couldn’t escape. Right? Once you’re there and it didn’t work, you can’t leave anyways.
A three year contract is powerful.
Yeah. And so my advice to everyone is, hold off longer than you think. Just keep asking your customers what they expect to get from you and those things. What do you want? And you’d be surprised most of them, they don’t really want that stuff. Right? What they want is the outcomes. They want to sell more stuff. They want to use your platform to get to some end goal of theirs. There’s a lot of lawyers, maybe they ask for things, but I don’t know. Don’t be-
It’s a good challenge.
… the enterprise.
No one agrees with you more that an SLA and a contract are stupid. They’re literally stupid if you think about them. They’re stupid. And they’re even antithetical to building a great product because you want to be held accountable every nanosecond right? Having said that, it is interesting that you say you lost some deals to it right? And so in the end, you want happy customers, it’s okay. But it’s an interesting comment on both sides. There is a trade off right? And that trade off doesn’t necessarily work for everybody at every stage of their life.
Sure, but let me clarify. I lost less than five, in six years.
Okay. Fair enough.
I did not lose customers over this, right? And the amount of time and effort it would have taken to comply with that, would have far exceeded any money I was going to make on those six customers. Right?
Well, that’s the more analytical than the ethical or moral example. The juice wasn’t worth the squeeze at the time.
Right. Totally. And it still isn’t. And so SOC 2, look, great thing to have. I’m glad we have it. We avoided it for a long time. And again, we never lost deals because of it. It’s one of those questions. Security shows up and ask, well, look we built this giant platform. We have an amazing security team. They talk to merchants all the time. They convince them that we are doing it and they get off this idea of needing this certification. That is 99% of customers. Now we did it because we’re also at scale. And we have some government customers and stuff like that. It’s like there was a good reason to do it. But we avoided it for a long time. The vast majority of our customers never ask if we have that kind of stuff. You’re talking about super outlier scenarios. So I think enterprise startups, and I really hate that term. We’ve got to come up with a better term.
Startups who serve large, complex customers, get convinced they need all these things in order to win. And what I’d suggest is that’s not true. Sit down with your customer, ask them what they’re really trying to do, what they care most about, right? What the outcome is and then walk them through how you operate. When we were early it was like, “Well, you need all this stuff because what if you go down?” “Mr. Customer look, my entire business is SaaS. My entire business is about being online. If I go down, I have much bigger problems than talking to you.”
It’s what I think about every moment of the day. It’s logical. I like the pep talk here. I’m feeling better about this approach.
And most customers will just be like, “Yeah. Okay, I get it. Let’s move on to the thing I really want, which is your platform that helps me do what I want to do.”
I’m with you. Let’s break. I think we’ve all just been through the brutal security audits. Those 500 page documents that come through procurement-
Oh, I never do them.
… that come through department, and that department is still here in July 19th. And we’ve all lost a deal, maybe it’s only five. But we all lost the deal for not responding to that questionnaire or not checking the boxes, when we’ve been in a multi vendor situation. So-
Don’t do RFPs.
… it’s a good challenge. What’s that?
Don’t do RFPs.
Yeah. We all want to not-
Don’t do RFPs.
We all want to not do the RFPs too but… and I’m with you. I’m aligned with your values. But sometimes as a small startup when you’re building your brand, when you don’t do the RFP, you don’t get to go to the dance. And it can be-
If it’s a game changer deal, if it’s closing a Shopify or a Microsoft or Google, sometimes you got to do the RFP, I think. But I’m not saying you’re wrong.
I would agree. What I’d say to all the founders is, do the math. 80% of RFPs are decided before they ever send them out to the public.
That is really [crosstalk 00:45:45].
If you aren’t talking to the customer already, before you get an RFP, the odds that you win are less than 1%. And so, is it worth it? I’m sorry, it’s just math. It’s not an opinion. It’s just the math. This is why we don’t do them. It’s like you can’t win. I didn’t write it so I can’t win it. If I wrote it, I can win it.
That is the art of the RFP. All right, it’s good. I know we’re exactly at 1:50 where we’ve got to end. Loren, this was amazing. Anything you want to add at the end that we didn’t touch or anything you want to hit? Any book tours or any new YouTube channels or anything you want to hit? Anything about Shopify Plus you want to highlight before we break?
Everyone in the enterprise space, stop acting like the enterprise, right? This was a world created by five software companies that worked perfectly for 50 years. It’s over. It’s over. Now they’re big, it’s going to take them a while to wind down some of this stuff. But that world is over. And it’s over the more we push on it. So don’t just comply to a world created by others. Let’s create a new space. There’s enough… you’re going to talk to Aaron shortly. It’s like, there’s a new version of enterprise in the world, led by everyone probably listening to this call and everything else. We all got to stop acting the way that the enterprise software space has acted for the last 50 years. Because-
I’m with you.
… it’s not worth it.
I’m going to try to quickly ask him about SLAs and RFPs but I am with you. Loren, it’s always more than a delight and a learning experience being with you. So thank you again for joining us. And this was terrific and stay safe.
Recently I was catching up with a good friend who used to be CEO of an enterprise-y SaaS social networking company — and the usage and engagement numbers of his business were just awful.
Customers bought because they thought their organizations needed this functionality, and so they wrote the checks for Year 1, and even Year 2. But the end-user usage just never appeared …
In SaaS, it actually takes until Year 3 for your customers to churn out from low engagement / low usage.
The reason is as follows:
Year 1 – the enterprise buys, but often doesn’t even fully deploy until month 6-9, or sometimes even longer. So the buyer really doesn’t even have any success metrics going into the first renewal.
Year 2 – renewal comes up, deployment only finally got going a few months ago. Engagement Metrics are often low but (x) it’s already in the budget, and (y) what do you expect, we finally just deployed? It took us 9 months to get our act together and use the service. OK, just renew at last year’s price.
Year 3 – hmmm. OK, finally, 15-18 months under our belt — and engagement / usage is still low. Should we renew? Meh. Well, if we do, let’s get a big price cut if usage isn’t high. Or put it aside for a year.
It’s not like Zynga, where you see the latest XXXVille usage trail off in a few months after launch, and the revenue comes to a grinding halt. Instead, from a revenue perspective at least, for enteprise SaaS with low engagement, it ‘s a long, slow steam railroad slowdown to zero revenue over 24+ months.
We also saw this at Adobe Sign / EchoSign, at least in small parts. Most of our larger enterprise customers deployed relatively quickly – the first 60 days. But some, most often due to internal manager changes (our purchase/champion quit, promoted, etc.), would never ever deploy at all in Year 1 despite all our attempts. Yet they would still renew for Year 2. And as long as we got them rolled and successful – we were good for the Year 3 renewal. If not, the customer would churn – but not until month 24.
So if a SaaS app is fast growing, often because there’s segment pull, and there’s a lot of churn in Year 3, it can take a long time to see it, as the numbers can be masked at first by all the new Year 1 and Year 2 deals. In other words, you just can’t tell unless you look at the engagement numbers, not just the churn numbers.
Churn is a lagging indicator. Especially where business process change is involved. Don’t let low churn give you comfort, unless it’s attached to high NPS and net retention.
(note: an updated version of a classic SaaStr post)
Ep. 361: Lara Caimi is the Chief Customer and Partner Officer @ ServiceNow, the company that allows you the power to make work, work better. Prior to their IPO, ServiceNow raised funding from some of the best in the business, including Sequoia Capital and Greylock. As for Lara, she joined ServiceNow in 2017 and spent 3 years as Chief Strategy Officer before assuming her current role just this month. Before ServiceNow Lara spent an incredible 17 years at Bain & Co across a variety of different projects and roles.
In Today’s Episode We Discuss:
* How Lara made her way into the world of ServiceNow and SaaS having spent an incredible 17 years at Bain & Co.
* What does the role of Chief Strategy Officer really entail? How did the role change in Lara’s 3 years in the position? What is the optimal relationship between the Chief Strategy Officer and the CEO? How does Lara advise founders on when to hire their Chief Customer Officer?
* How does Lara see the 4 phases of startup growth? What are the most challenging elements within each? How does one instill process and discipline without losing agility and speed? How does one set targets that are a stretch but also not a stretch too far? What is the right balance?
* How does Lara think about what great change management looks like today? How does that change in a COVID world? How does Lara approach the right way to address enterprise customer communications? Why has that been made easier in COVID times?
If you would like to find out more about the show and the guests presented, you can follow us on Twitter here:
Below, we’ve shared the transcript of Harry’s interview with Lara.
We are back. You are listening to the official SaaStr podcast, and you’re listening to Harry Stebbings. Now, joining me in the hot seat today, I’m thrilled to welcome Lara Caimi. Lara is the chief customer and partner officer at ServiceNow, the company that allows you the power to make work work better. Prior to their IPO, ServiceNow raised funding from some of the best in the business, including Sequoia Capital and Greylock.
As for Lara, she joined ServiceNow in 2017 and spent three years as chief strategy officer before assuming her current role just this month. And prior to ServiceNow, Lara spent an incredible 17 years at Bain and Company across a variety of different projects and roles.
But that’s quite enough for me, so now I’m very excited to hand over to Lara Caimi, chief partner and customer officer at ServiceNow.
Lara, it is so great to have you on the show today. I’ve heard so many good things from many former guests on the show, so thank you so much for joining me today, Lara.
Thank you. I’m so excited to be here.
Well, that is very kind. But I do want to start with a little bit of context. Tell me, how did you make your way into the wonderful world of SaaS, which we both know it is, but especially come to be chief strategy officer at ServiceNow today?
Yes. Well, it was, like many good career stories, not one that I had ever planned, but one I’m super happy to have landed in. I started my career at Bain and Company in consulting and unexpectedly spent over the course of 17 years staying at Bain mainly because when I would get comfortable, I would always have the next opportunity for the next promotion or the next client, et cetera, so I felt like I was always learning and growing.
And like many good opportunities, I wasn’t looking, but in fact was busy, had my head down, was happy in my job and had a headhunter call come across my desk. And a lot of those, as you do, you glance at them and move on with your day. But this one was like, “Oh.” It’s reporting to John Donahoe, who, as you know, is an amazing leader and started his career, like me, 20 years at Bain, so was renowned in the halls of my Alma mater and then ServiceNow, and of course, knew about ServiceNow.
And then the more I dug in and studied, the more intrigued I was about how amazing the opportunity for the company was. And so really, that’s where I landed in this role of chief strategy officer, which I held for two and a half years and actually a week ago just got promoted to chief customer and partner officer. And so that’s a bit about my history there.
Congratulations on the promotion. I do have to ask, though, because, again, we mentioned [inaudible 00:04:29] getting on schedule. I do just have to ask, in terms of John, obviously, as you said, amazing leader. I’m really intrigued, from your perspective, though now having had the chance to work side by side with him, what makes him the amazing leader that he so clearly is, from your perspective, having had the chance to work with him?
He’s an amazing strategist. I mean, he understands business. He’s a real student of leadership and understands how companies need to scale and evolve as they reach the next level of their growth. But also, he’s just a wonderful human and he’s a very down to earth, humble, thoughtful person who really cares about developing individuals. He’s the kind of person that when you read the review that he writes for you, you’re like, “Man, he nailed it.” He sees everything and the way he invests in helping you grow and develop and rise is really special. And so I learned so much from him. In the same way, I’m learning so much from Bill McDermott, who is a very different kind of leader in many dimensions, although shares a lot of the same core characteristics of John.
No, absolutely, and incredible to hear in terms of the commitment to people’s development. I do want to ask another one, which is 17 years at Bain enjoying that success, and I have a lot of university graduates coming into the workforce today and they always ask me, “Should I join a startup? Should I start a startup or should I join a large incumbent?” I’m always quite struck by the responsibility is suddenly placed on your advice, but then I’m mostly thinking especially for you with this incredible experience at Bain, and now in ServiceNow, how would you advise them and what would you say?
Well, I think my career is unusual to spend as much time and then jump over to the senior role that I had. I’m not sure it’s the thing that everybody gets to do. As I think back of what would I do differently, I don’t think I would change much because I’m so happy with where I landed.
But when I think about others starting their career, I do believe that the foundational training of strategy consulting or sometimes investment banking can provide is it gives you this baseline skillset around a general manager headset, foundational understanding of how to think about big problems and divide them up into meaningful chunks, focusing on the real pieces of value that’ll move the needle and then how to communicate very clearly to influence. And those are just, I think, core general business skillsets that get hammered into you formally through training, but then just through your experience with clients that at least a couple years getting that kind of skillset, if you haven’t already in your career, is a valuable thing to consider.
And then in terms of where to go from there, to me, it so depends on the opportunity, the team, and the track record of growth that others have seen. I like places where you don’t get pigeonholed in a particular function or a particular silo, that people are looking for talent that can grow and expand perhaps in unconventional ways, but will give people a shot and then identify high potential people and put them in roles of responsibility. And I think those are real great opportunities when you see a management team or a leader or a company who tends to do that, that will be a place where you will learn and grow faster maybe than in a different environment.
Totally with you in searching for those opportunities for growth within roles. We mentioned your promotion and I’m really interested because we have seen the rise of chief strategy officers over the last decade or so and it means different things to different firms. Can I ask, what does it really entail and how did your role change over the time that you were chief strategy officer?
Yeah, it’s interesting because when John brought me in, the company had never had strategy formally before or a chief strategy officer. And so in some ways I was defining it for the company and for my peers in the C suite. And it started by, of course, building a purpose-built function, often people that came from consulting or strategy backgrounds, but it was designed to be a feeder of talent into the organization, into other roles. It was never meant to be something that was permanent. It was always a source of talent.
And the way I thought about it was when you think about some chief strategy roles, one spectrum could be like, “Hey, it’s a staff role that makes slides for the CEO for board meetings or something.” And at the other end, it’s a true partner in the C suite that’s partnering and guiding the strategic agenda for the company. And that’s the much more powerful and meaningful end, which is what I think we created at ServiceNow.
And as I thought about that, it was definitely not to be John’s person or John’s team that would parachute into situations that the CEO wanted to fix, but rather it was to act as a true peer on the C suite with CJ Desai, who runs product, or Dave Schneider, who at the time was the president of customer operations, and really think about what we needed to do to make the company better.
And in that way, that’s really how that role evolved. It started with just proving myself and building out a basic team and adding some value to really thinking about the longterm strategic agenda. And for us, it was painting our path to $10 billion in revenue, which is the aspiration that we laid out, which is super exciting. And that was done very much in collaboration with the business, with the management team, with the board.
And so that for me is how it evolved as we built that, which it’s the most fun job I’ve ever had because I could think about the company, think about what we needed to do to get to the next level and improve and we would just go partner with the business and get that done. A lot of that has to do with the culture we had that we were true partners and we weren’t coming in to tell somebody what to do. But also I think the culture of the company, that one of our cultural values is hungry and humble and this notion that, “Hey, we all have a growth mindset and we can all get better and we all want to do a great job.” And that I think is conducive to partnering to solve problems and ultimately help individuals and the company be successful.
Can I ask, when I listen to this, it seems like such a foundational role that all companies should have really from day one in terms of the relationship with the CEO, the thought partner, how it expands throughout the different functions in the business. My question to you is I guess, how do you advise startups who are thinking about hiring a chief strategy officer? When’s the right time and how they should think about that from a strategic point-of-view?
It’s interesting because I think about phases of a software company, and I think the first person to coin this was probably Frank Slootman, who was the CEO before John, and then we borrowed it and expanded upon it. But as I think about it, phase one for a software company is zero to 100 million dollars in revenue where you want to find that lightning in a bottle and you’re just looking for product market fit.
And then phase two is when you go from 100 million to a billion and that’s when you found that product market fit and then you just have to scale the heck out of it while that window is open and scaling, building go to market, growing that revenue is the primary responsibility and thinking about growth and new customers is the main focus.
And then phase three, which is where I came in, which is when we were transitioning into that phase with John was going from a billion to a multibillion dollar company. And to me, that’s an interesting inflection point where you might think about this because you think about the business I think even more holisticall.y expanding customers and renewing them becomes more important so you introduce customer success in a meaningful way.
For us at ServiceNow, we were the best kept secret in Silicon Valley. And so we started to invest in brand that we’d never done before. And we had brand campaigns. That’s when we brought Pat Waters in as our CHRO, where we actually started to introduce a diversity and inclusion and belonging agenda and the company. It was really building the foundations for an enduring company.
And oftentimes, as you think about those phases, you have founders or early stage CEOs who are doing a lot of that strategy work themselves in maybe phase one, phase two. And it’s really in phase three when the problem becomes multi-dimensional, but it’s often good to bring in additional thinking. That’s also sometimes when companies go from a single product to multiproduct, et cetera, when they start expanding geographically. And so I think it helps to bring in more structured thinking around that.
And then of course, phase four is where we’re in now, which is where Bill’s really focused, which is where you go from four or five billion to a $10 billion company. And that’s where it’s even more complex because you start to think about the role of the ecosystem in a meaningful way, verticalization. You have to truly force multiply. That notion of customer success has to truly scale and deliver those customer value outcomes that you need. You have to expand not just to be known as your brand, but you actually have to be relevant to C suite buyers because you’ve started to have $10 million, $20 million, $30 million, $40 million customers. That is a C suite conversation at that point. There’s a lot of nuance, I think, as you think about those phases. And so I would say that phase three is when formal strategy might be important.
I think one thing that really strikes me in my thinking here listening to you is when you think about the scaling process that may be specifically in stage three and it’s like, how do you instill process and frameworks in this maturation stage without also creating barriers without creating a slowdown of process? How do you instill frameworks without slowing down activities so to speak?
Yeah. I think that is such an important question. When I have studied companies that scale, a lot of what slows companies down is not having a good go to market engine or not having a good product. It is truly that they start to die under the weight of their own bureaucracy. And so that was something I was super cautious about.
At the same time that we’re introducing a proper three year planning process and going through strategic product reviews once a year and actually having structure to how we think about our markets and our customers and our products and the product roadmap, all that stuff, we also started to think about talent and that was where we said, “Okay, of course diversity, inclusion, belonging is a super important conversation that we need to invest in and educate and build into the core culture of the company. But also, how do we really think about our cultural values and what are the things that we want to keep from the previous phase and what are the things frankly, that we want to evolve, which is a nice opportunity for a new CEO coming in to be able to do that?”
And for us, it was about foundationally articulating the company’s purpose supported by those values, right, and creating a rallying cry around that, that inspired and motivated people. And then also we invested in a little bit of foundational operational excellence. And I would say that’s simple stuff sometimes, right? But it’s like, we needed a decision making framework. Who has the D? Who gets to make decisions? How do you ensure that you teach people really great meeting management skills in addition to educating people about program management or change management or getting work done cross-functionally? A lot of those were conversations that we had in more formal leadership development programs that I think were super important to ensure that that dying under the weight of your own bureaucracy thing didn’t happen.
I totally get you. And I love that also, because it goes back to what you said also about John in terms of the commitment to people development. Kind of tied to framework in a way is the element of planning just in terms of strategic thought-provoking activity. My question to you on planning today is given the transient state of the world and given the current flux that we live in, how do you think about appropriate planning and try and be as accurate as possible? What does that look like?
Yeah. I mean, no one has a crystal ball and I think every quarter … We’ve now been through a couple in COVID, but it continues to be a question mark, how deep is it going to go? How long will it last? Et cetera. And so I find that there’s plan, plan and replan, and also build scenarios around that. So what is the worst case scenario that we could consider here?
And a part of how we’ve thought about doing that is you start to get pretty granular in how you think about that, like segmenting your customer base, which industries and companies are most impacted, how exposed are we to those companies and how exposed is our revenue base to that? We’ve been very conscious about costs. I was just talking to a CFO of a pre-IPO company earlier this week. And he was saying how this has actually been a really good opportunity to reign in spending because there’s a huge opportunity with no T&E, no travel, not being an offices, et cetera, and really focus on that cash burn rate.
For me, it’s about being super thoughtful about building multiple plans and the replanning as you learn more. And then I think inspecting is super important, so what pipeline do we need? For us with our go to market model, what kind of ramped reps will we need as we think about out quarters?
And then I think when it gets really interesting is when you start to think about, okay, this is a new normal, and there are new problems now in the world that our customers are facing, so what problems can we solve that create opportunities for our business, right? And so the example that we went through is very quickly at the beginning of the pandemic, we mobilized to support our customers by delivering four emergency response apps that were totally free in March, right, that just helped them with crisis management, and then we pivoted in May to this thinking around safe workplace, returning to work.
And so in the span of a quarter, we designed, developed, launched, took to market, and sold four different applications that were focused on employee readiness, employee health screening, workplace safety management, PPE and inventory management, contact tracing, which we had 500 customers that implemented. There were 2,500 app installations in that quarter alone. It was big names like Coca Cola, Uber, state of North Carolina, Sanford Health, Ascension Health, all of these different companies that we were really partnering with to help them think about the problem at hand, which was one that no one had ever imagined before, no one had ever planned for. And so I think that that’s a real opportunity too, in this pandemic, as you’re thinking about planning, also thinking about what are the new opportunities that we can help solve for customers that are new to the world that we may be well-suited to help with?
I totally agree with you there in terms of the product innovation and moving with the times, but I’m really interested. You mentioned some of the incredible customers that you have there with the product line that was created in the last couple of courses. My question to you is, customer communication is so key, especially in times like this. How do you think about the right customer communication process and how have you thought about that during the pandemic?
Yeah. I actually think it’s easier to schedule meetings now with people because it’s so much less logistics and meetings are shorter, they’re more frequent. I actually think the meaningful customer communications, especially when I start to talk to more senior folks in the organization, it’s created an opportunity to, I think, connect more frequently.
And in terms of how it’s changed, I think this should always be the case, but it’s even more acute during the pandemic, which is you have to lead with empathy and with understanding their business context. I’ll give an example. I had a conversation with Honor Health, and it was really important for me to dig into what was happening with COVID in Arizona, what was happening with the hospital system there, what was the context that they were dealing with? And it just creates opportunities to have curious conversations around their business problems and help them real time. And so it’s that frequency of conversation and the availability of senior people, as well as I think it’s raising the bar to help them in a time of need in a more thoughtful and nuanced and specific way to their specific needs.
A lot of customers in these challenging times are also adopting digital first tools, processes for the very first time, especially when you look at, as you said there, the life of COVID, thousands of employees around the world. And the big thing for me is change management and adoption. And it’s one that I think about far too much, I’m sure. But tell me, what does great change management mean to you from a starting point, I guess?
Well, I mean, I think what’s so interesting about this time is the amount of change that this situation has forced us to go through is in such speed, it’s really mind-boggling, right? You would never in a million years plan to transition your workforce all remote overnight. That would be a change management nightmare, but yet the urgency of the situation has left the world with no other options. And so in that way, you’ve created one of the most foundational change management strategies, which is you need a burning platform, you need to be very clear about why you need to change and what you’re changing for. And I think obviously COVID created a huge burning platform that drove accelerated change.
I think as we think about digital transformation, it’s a business imperative now. It’s not an optional thing to do. And frankly, the gap between those who are digitally transformed and those who aren’t will actually have meaningful business results and will accentuate the difference between winners and losers. I think the business imperative is incredibly clear, maybe more so than it’s ever been before. And so that creates an opportunity to have the burning platform, make a decisive decision about what you have to do, and then communicate that change over and over again until almost you feel like you’re babbling, you’ve said it so often, because I don’t think you can over-communicate enough about it.
And then importantly, and this is what I think about, which is what can get screwed up as a result of this, right, which is I think too often when people are doing programs or change or whatever, they think about a project plan and a bunch of progress milestones. And it’s like, that’s the wrong thing to measure. You need to measure outcomes and outcomes have leading and lagging indicators that actually indicate whether you’re doing the right thing or not and whether you’re going to be successful at the speed you want to be. And those are the things you need to be measuring, not just the progress maps.
Can I ask, when you think about measurement of KPIs and when you think about targeting goal setting, one other thing that I’m always so stuck on is how do you think about setting super ambitious targets which inspire a team to achieve maybe more than they could [inaudible 00:22:38] but also not too ambitious where if they don’t hit them, they’re massively dejected and it creates negative morale within the workforce? How do you strike that balance?
I mean, this is something that Bill McDermott is really amazing at. He’s a glass half full guy in a way that makes you realize that the glass was 10 times bigger than you ever imagined. He pushes you to think about not just what’s great, but what’s game changing. And he sets these big, audacious, big dream goals.
That being said, I think it’s super important to not create something completely unrealistic, in which case you pretty quickly lose credibility and that whole big dream plan becomes just a pipe dream. And so that’s where I think timing plays a big role and making sure that goals are set in the context of reality that they’re actually achievable, but that they’re pushing people to go a little faster than maybe they would comfortably sign up for on their own. I think it is art as you think about it, marrying that, but that big dream narrative that might be a little bit off in the distance I think helps inspire and rally in a way that’s incredibly powerful.
Yeah. I think you have to have that driving north star visionary so I totally agree with you there. I’m pleased to hear that. And I also love to hear art over science any day of the week, so that makes me very happy. I do want to move, though, into my favorite, which is a quick fire round. I say a short statement line then you give me your immediate thoughts, and it’s about 60 seconds per round. Does that sound okay?
Okay. That sounds fun.
Okay, so your biggest challenge with your role with ServiceNow today?
Yeah. My new role is chief customer and partner officer, which I’ve now been in for a week, so I’ll give you my top of mind thoughts here, which is we’ve launched customer success a year or two ago, found good results, but now we need to scale it and I think focus on how do we get it much more embedded to ensure our customers are seeing value, getting to outcomes, et cetera, in a meaningful way is a big challenge that I’m very excited to think about different models. And I think there’s business models that we can innovate around, et cetera, to think about how to do this differently. And so that’s exciting.
The second big piece of my job that I think about is the partner ecosystem. The partner ecosystem in SaaS, sometimes it’s underplayed. And the reality is that these guys have very deep, important relationships with big customers, right? They are helping drive their digital transformation agenda and recommending software platforms that can enable that. And so it’s really important to get to know these guys, go to market with them, help them build practices around you for at least the kind of software that we sell to the largest enterprises in the world. And I think there’s ways that their models can innovate, frankly, to accommodate a SaaS model. And so I think that partnership and really growing together is another piece of what I’m looking forward to impacting in my new role.
Tell me, what would you most like to change in the world of SaaS today?
I think it goes back to what I was saying about customer success. In a world where SaaS can proliferate in such an amazing way with anybody in the company that has a credit card can swipe and download something, I think it has a potential to take away the focus of what SaaS can really do for you and that ultimately it will have this negative consequence of almost giving SaaS a bad name.
And I think we can change the narrative where we really start to think about, what is the value or the outcome delivered from this software? And so to me, customer success in the past has always talked a lot about NPS and customer advocacy and stuff like that, which is important. But I think we can almost innovate the narrative where we can think about customer success being defined as realized value. We’ve introduced this concept of now value at ServiceNow that we really think about embedding through the life cycle where we’re always focused on how the customer can get the most value and that narrative I think is really important for SaaS to broadly develop and adopt because that will avoid that nightmare scenario that I laid out in the beginning.
Tell me, what was the biggest surprise for you internally since COVID began?
I just was really, I think, proud of our employees and how quickly we were able to pivot to remote work to stay productive and that people at the same time were dealing with unprecedented personal change and the amount of empathy and thoughtfulness that was applied and we ramped up our communications to employees. We treated them with care and respect. We cared about them and their families. That is a major pivot. And I think as a result, our employees are more loyal. And I think we’ve created a situation that obviously you have to keep evolving. This is a long trying time. People get Zoom fatigue, whatever, but I was surprised and I think proud of both our employees and just the way it was managed.
Yeah, absolutely. I think it’s been incredible to see. Tell me, what moment in your life has changed the way that you think? Very, very hard question to ask.
I mean, I guess I have to go back and credit Bill McDermott. It was a big transition where I started working for one CEO and within a couple of years had a very different and wonderful CEO to work with and learn from. And the biggest thing that he has done for me and for this company is instilled the power of the big audacious goals. He wants us to not just be a good company or a great company or just hit the quarter or whatever. Of course, he wants all that. But his goal for us is we want to be the defining enterprise software company of the 21st century. And when you set goals like that, it’s such a powerful unlock that lets people think about, I don’t just need to do what for us, what Salesforce did … I don’t need to just follow that model or think about other big software companies. I can think about how do we reinvent this? What are the problems that no one has figured out yet?
And that bandwidth for thought and that inspiration that he puts out, I see it trickle down in the organization in all sorts of ways that we’re doing things and thinking about things differently for the first time ever and moving faster and I think with more enthusiasm than I’ve seen, and that’s incredibly inspiring. That’s an incredible leadership lesson that I’ve taken from him that I’m really grateful for.
It’s amazing to hear that about Bill, but Lara, listen, I’ve so enjoyed today. I so appreciate you putting up with me getting off schedule quite so frequently, but thank you so much for joining me.
Thank you. This has been so fun. I really, really appreciate this conversation. Thank you for your time.
So enjoyed having Lara on the show there and such exciting times ahead for ServiceNow as they scale through phase four. And if you’d like to see more from us behind the scenes, you can on Instagram.
As always, I so appreciate all your support and I can’t wait to bring you a fantastic, fantastic episode next week with Kyle Parrish, head of sales at Figma.
Ep. 359: The Secrets to Vertical Growth, What it Really Takes to Build a $1B SaaS Company with Matt Garratt, SVP, Managing Partner @ Salesforce Ventures, Trisha Price, Chief Product Officer @ nCino and David Schmaier, CEO & Founder @ Vlocity. From strategies in recruitment and team building to sales tactics, these leaders from Salesforce, nCino, and Vlocity, will discuss the top tips for moving beyond horizontal SaaS and building a billion-dollar SaaS company.
SaaStr’s Founder’s Favorites Seriesfeatures one of SaaStr’s best of the best sessions that you might have missed.
This episode is an excerpt from a session at SaaStr Summit: Enterprise. You can see the full video here, and read the podcast transcript below.
Ep. 360: Digital transformation marks a radical rethinking of how companies use tech, people, and operations to fundamentally change their business performance. Coupa CEO, Rob Bernshteyn, and SaaStr CEO, Jason Lemkin, will discuss how the Cloud has changed in 2020.
Thank you. I’m really excited to be here today. I am Matt Garratt, Managing Partner of Salesforce Ventures, and we will be talking about the secrets to building a $1 billion vertical SaaS company, and we’re very fortunate to have two executives from leading enterprise software companies who have done this.
So first, Trisha Price, who is the Chief Product Officer of nCino, who recently had an amazing IPO, and also David Schmaier, who’s the founding CEO of Vlocity, and CEO now of Salesforce Industries, as they were recently acquired by Salesforce for over a $1 billion, as well. So, very excited to have both of you with us today, and thank you so much for making the time.
Before we go into our stories [inaudible] a bit more, provide a bit of context. I’ve had the fortune of working with both of you over the last few years and seeing, really, the change in the vertical SaaS industry change over a number of years. We’ve invested in over 300 companies at Salesforce Ventures and have partnered with both of you closely and it’s been amazing to see this story up close and personal over the years.
I remember a few years ago when companies were out fundraising, vertical SaaS was not as popular as it was today, and part of that is, the adage would go that, “Well, these are smaller TAMs and these are going to be lower gross margin businesses, and if you look at the chart we’re showing, the gross margin in the early days can be as low as 30% and maybe getting above 50%. There’s a lot of services. Are these really product companies? There’s heavy services, at least 30 to 45% versus best-in-class that want to be less than 10%.”
But then when you start to grow and you start to get these customers, you see some really nice benefits. These companies can scale really efficiently. They need fewer sales as a percentage of overall employees. When you look at sales efficiency as measured by magic number, it’s quite good. Retention is much better than most businesses and then the upsell opportunities are quite good, so it’s not surprising that while maybe not so popular a few years ago, you’ve seen quite a few successful exits in this space. A few of the leading companies in the Cloud 100 list, as put together by Forbes, of leading enterprise software companies are in industry verticals and just on the Salesforce platform, the three most valuable companies built on the platform were industry-vertical companies, including nCino, Vlocity, and Veeva.
If you just look at Vlocity and nCino, amazing businesses. Grew to over a hundred million dollars in revenue in five years. As I mentioned, acquired by Salesforce for over a billion dollars and nCino, amazing business. Had a fantastic IPO recently valued depending on stock price around $6 billion, so we wanted to hear firsthand: How did you do this? We have, again, David Schmaier of Salesforce Industries. David, maybe would you give us a quick background about you and what gave you the idea to start this company?
Yeah. Thank you, Matt, and it’s great to be here. Thanks for inviting me and welcome to all the folks from SaaStry. I’ve been working in the front office space for 34 years, so I’ve been doing this a long time and when I started, the worldwide market for what we now call CRM software was $50 million globally and so I worked back out of graduate school at a small company called Oracle in the ’80s and I met a guy named Tom Siebel there and I went off and founded a company called Siebel Systems with him and I met another guy named Marc Benioff who went off to found Salesforce, so I was either smart or lucky, and either answer’s okay by me, but maybe a little bit of both.
But I had built CRM and then I had built industry-specific verticals, actually over 20 in my prior life, and a few of my colleagues worked with Salesforce right when the app exchange started to found a company called Veeva Systems and Veeva became, I think, it’s still the biggest company ever built on the Salesforce platform and as the worldwide leader in life sciences CRM, and so I saw how successful Veeva was and I went to my first Dreamforce in 2013 to find the next Veeva and what I found was incredible. I was amazed by how big Salesforce was in the ecosystem. I was amazed by the app exchange. I think back then there was 2,800 companies. Now, there’s 5,000 and 2,799 of them were horizontal software companies and one was Veeva. Actually, two. I think nCino had been already started, but I didn’t see nCino there, I didn’t know of them then, so maybe there’s a couple of vertical SaaS companies, but Veeva was a big one and it became clear to me that this was a huge opportunity.
I’d built verticals before, so I called up my old friends from Oracle and Siebel who founded Veeva and I got together the next morning with the three Veeva founders, and of course it wouldn’t be a great software company without a cocktail napkin, so on a cocktail napkin, we drew out the strategy for what became Vlocity, so that’s how we got started.
Fantastic. Trisha, I’d love to get a bit more of your background for everyone and then talk about the founding story of nCino, which is certainly a little bit different than Vlocity.
Sure, Matt, and David, the reason you didn’t know about the other industry vertical is because that stage, we probably had like two customers or something like that, so we were just too small to be on your radar back then, but I appreciate the chance to talk to everybody today, Matt.
nCino is a little bit different in its background. We were actually built out of a bank called Live Oak Bank and Live Oak Bank was founded in 2009 and they had a need for a completely digital bank. Well, to most of you, that may not seem crazy today. You may even engage with a bank that is completely digital today, but at that time, it was pretty much unheard of to have branchless institutions, and so they started looking around for the right software to help digitize their processes and Cloud was important to them for scalability and they couldn’t find anything, so they started working on this concept of digital banking in the Cloud, and from there, very early on, we spun out and created nCino, which is Spanish for Live Oak, and we created nCino.
Our roots from the very beginning were built by bankers for bankers and from the very beginning, we made the choice to build the application on the Salesforce platform and since then, we’ve scaled quite a bit. We have over 1100 customers across the globe. We have offices in Tokyo, Sydney, Melbourne, Toronto, Salt Lake City, and then our headquarters here at the beach in Wilmington, North Carolina, and we have over 900 employees.
Super. We went to the idea, so let’s talk about the different phases of building a $1 billion vertical SaaS company. David was kind enough to share this framework that he uses. David, you talked a bit about the team and the founders. Can you talk about maybe a little bit broader than the initial founding team and when you were first hiring people, how did you think about hiring people who had SaaS and software experience versus people that had industry-specific experience?
Sure. I think the team is probably the most fundamental step, maybe even more important than the idea, so I’m a big believer in Jim Collins’s book, Good to Great, where “You want to get the right people on the bus and then figure out where you want to drive the bus to,” and luckily from my prior experience, I was able to call a few of my old colleagues who were like-minded, and I think that’s the key is if you’re starting a company, it sounds glamorous, but it’s 24 by seven and it’s a lot of work, it’s exciting, it’s thrilling. There’s amazing highs, but there’s low lows, too, and you have to do everything. You have to plug in the computers, you have to set up the network, you have to figure out how to pay people, you have to find office space, all that stuff.
But we found a team of people who are really passionate about building software and building a company and so I went through my Rolodex of top people that I knew from my prior networks of companies and there was a founding six and ultimately 10 of us that banded together in a little low-cost office to figure out how to build a bunch of industry Cloud verticals, and then the key part, which I think we’ll get to later, is we figured out that we had to do it with a partner and so there was no other choice in our mind, we were all aligned at doing it with Salesforce. That was maybe the other most fundamental decision besides the team is the partnership with Salesforce.
Thank you. Trisha, similar question: When you were starting to hire and scale out the team in Wilmington, were you focused on people who had experience in financial services or software experience or a little bit of both and how did you balance that?
Yeah, I mean, I couldn’t agree more with David. At nCino, it all comes down to the people and execution, right? Ideas are a dime a dozen, lots of people have lots of them, but to make a company successful, it takes grit, it takes determination, it takes a certain attitude, it takes relentless focus on customers, and that is just a level of execution that you need to get to the kind of success that David’s company and we at nCino have had, and so we’ve always been one to hire for attitude and aptitude more than a specific skill set.
Now, in an industry vertical like financial services, you absolutely have to have a deep banking experience and the built by bankers for bankers has been a part of our core DNA, so we absolutely have hired lots of folks with a banking background, but the problem you get if you only focus on folks with a banking background is the faster horse’s problem and what I mean by faster horses is they know how to automate the processes that already exist at a bank, but that’s not really going to disrupt an industry, that’s not really going to get people to get off of their current systems and processes, and so it’s not about faster horses, it was about inventing a car, right?
So, how do you get people who are innovative, who can think outside the box? It does require, certainly, people with technical background. For us that didn’t necessarily mean Salesforce. We’ve tended to hire just the best attitude and aptitude full-stack developers we can find and Salesforce has such a plethora of trailheads and training that that’s not really an issue, and so it has been a combo, I would say, of three types of people: the best technical talent we could find with the best attitude, certainly people with deep domain experience, which is needed in vertical SaaS, and then those out-of-the-box thinkers, those inventors, those creative folks who can really cause you to think about things in a different way.
Well, I can attest to the commitment to hire for aptitude versus specific skills. I don’t know if you recall, but we were at dinner one time and there was a waiter that she just blew us away. We were really impressed with her and she ended up becoming one of your… I kept saying, “You need to hire her,” and she became one of your customer success managers, if I recall.
A full testament to you never know where great talent is going to come from.
Let’s move on to the initial product. David, can you talk about the initial product that you took to market? Maybe to provide some framework, I generally think of industry-vertical solutions of having to be sort of full-stack and a bit broader than a horizontal app, and so there’s generally a higher build upfront. Can you talk about the first product and how did you know it was done or at least ready to take to market in the first place?
Sure. Yeah, I’m a product person by training and so we had had a lot of experience building SaaS and vertical products. The key for us was we were building not one industry Cloud, but four, and then at Vlocity, we later added two more and expanded to six, so the secret of building one vertical SaaS product is going deep. The secret to building more than one is reusing components so that you don’t have six engines that do the same thing, that you reuse that engine and you get to use what we call metadata to reimagine it for each one of these industries.
Luckily, we had had experience doing that, so I couldn’t agree more with what Trisha said: If you do industries, you got to have domain experts, so I had originally four domain experts, now six, leading each one of our industry teams. Then we also hired full-stack developers, so like you said, Trisha, not Salesforce experts, but just great developers and they all learned Salesforce. We immediately standardized on Salesforce and did the full training course, I think this was pre-trailhead, but did whatever the training was back then, can’t even remember what it’s called now.
We were amazed how fast we were able to build on top of the platform. So my prior life, I had built the platform and the core apps and the industry apps, but to build the platform can actually be several years of work and cost hundreds of millions of dollars depending on how you do it, and so we got incredible leverage, incredible. It’s hard to overstate this from the Salesforce platform and so we actually created our company in March of 2014 and at Dreamforce, we showed the four vertical apps, which is about six months later, and they were beta releases and then we shipped them soon after Dreamforce, so maybe in seven or eight months, we were able to ship for industry Clouds, and then we were off to the races. But the key again in industry-specific SaaS is understanding the business processes, understanding the critical problems and the issues, and really going deep in each one of these industries.
Now, I want to pick up on that in a second with you, Trisha, but David, I guess when you were building this out and you had such a big vision, can you talk about the fundraising? Did you need to raise more money to build such a big product platform and were there specific VCs that you sought out or that were going to be more attracted to this solution? How did you manage that?
Sure. Yeah, I think on the fundraising, maybe our experience was a little unique, which was we knew a lot of people in the industry, so because we wanted to partner with Salesforce, our first call was with Salesforce and John Somorjai and Marc Benioff wanted to immediately invest in our company, which was great. If you’re going to build a company with Salesforce, who better to invest than Salesforce? I think if that’s the question, the answer to that should be yes.
Salesforce became our lead investor and then in our second round, there was room for a second investor, and so we went with Sutter Hill Ventures was a VC partner of ours and I had known a bunch of the partners there. It’s a great tier one firm on Sand Hill Road, but I think what they’re looking at when they’re trying to fund you is this wheel of: Is there a great idea? Is there a strong team that’s done it before? What is the product, or what will the product be, or where is the product? Do you have customers? And then, how repeatable is the model? And so, because we had done this before, we were able to very quickly do the fundraising, so we literally had like two meetings with each one of the investors and were able to close on the financing, so I don’t think that’s normal. I wouldn’t expect that to be the typical process, but it was pretty straightforward for us
And Trisha, maybe back to the product and building the platform: How do you compare this building a more vertical industry solution versus a horizontal application and how challenging is that initial build?
Yeah, I mean, certainly when you’re in a vertical build, the depth you have to go to for customer success is deep, right? There has to be value that you’re delivering beyond a surface level set of features. It’s got to solve end-to-end problems at a financial institution or whatever your vertical may be. It may be that they’re on spreadsheets or word documents or things of that nature and so maybe your barrier to entry in those type of processes can be a little bit lighter, but if you’re doing a rip-and-replace of a legacy solution, that requires an end-to-end set of features that really solve that end-to-end business problem, and that typically means deep integrations, right?
Most of these vertical industries that we’re talking about, you’re not the only shop in town, right? It’s an ecosystem of applications and so having a very strong approach to integrations, whether it’s one like Salesforce took with having your own app exchange type concept and ecosystem or whether you’re building direct productized integrations or a combination of both, that takes quite a bit of time, not just to solve your end-to-end set of workflows and feature sets, but to get those integrations right for customer success.
I do think that takes time, but I completely agree with David: Building on top of Salesforce dramatically decreased our time to market. From my background, I’ve been building banking software for my entire 20-plus year career. It’s really the only thing I’ve ever done, pretty much, and so for me, this was the first time I’ve worked for a product company built on top of Salesforce. It was a tremendous difference for me to come in, certainly a learning curve of different ways of doing things that takes some getting used to, but the benefit that we received from it from a company perspective was tremendous.
It wasn’t just in the early days to get that product out quicker. Think about the scalability as you go global. I talked about our offices in all these different countries across the world, data centers. I mean, have you thought about data centers in Japan? Have you thought about data centers in Australia? These are not simple things to solve. And then you layer on top of that platform features like multicurrency, multi language, you layer on top of that things like entitlements in security and investment in security and so that certainly did impact our ability to get to market, even with the kind of complexity and depth that our product and our vertical requires.
You hit on something pretty interesting there, Trisha. When you said you’re talking about ripping out incumbent players. Even if it’s a bad solution, as long as people aren’t miserable, they’re not going to rip those out if it’s part of your banking platform. What was the core value proposition or the thing that you focused on most that was the most convincing thing or that really was compelling for banks, particularly the larger banks, to move off of their incumbent solution to you?
Yeah, I mean, for us, it has changed over the years and it has changed as we’ve launched new solutions, right? When we first started, we primarily focused in the commercial lending space and since then, we’ve launched retail banking solutions as well, and retail banking solutions tend to be more fully banked than the commercial lending space was when we first started, which was a lot of spreadsheets and Word documents in the early days. Changed a little bit now, but primarily, that’s still true.
But from the beginning, we’ve had core value that we’ve been able to deliver to our customers, right, faster. As a customer, what do you care about when you’re applying for a loan? Am I approved? When do I get my money, right? Whether you’re a business or you’re a consumer. And so, how do you help banks do that quicker? How do you help them do that at scalability and how do you as a software company do that for the smallest community and regional institution in the US to the largest, most sophisticated global institutions in the world on one code base, right? Cloud, definite differentiator, right? Because if you look at these financial institutions, they have growth aspirations, right? They get acquired, they acquire other institutions, so having immediate scalability of the Cloud, definite differentiator, and then having a set of features and solutions that drive value of regulatory compliance, supporting their growth strategies, doing it in a cost-efficient way are really our core values in how we think about building software and why I think so many customers have jumped on the nCino product.
Maybe a follow onto that: When you’re building an industry-vertical solution, how do you avoid a lot of the customization work? Is that a challenge from company to company? You have presumably a somewhat smaller TAM and if a large bank is coming knocking and they want something, how do you balance that in making something that’s reusable without too much customization and services?
Relentless focus, relentless focus. It is very easy in vertical and these kind of depth of applications, and I know David’s been faced with this, I’m sure, many times, to get off course from the industry product that you’re building and say yes to a customer. But if you have those creative people that I talked about earlier, you can figure out how to solve a customer problem, but do it in an industry way. I think, yes, that requires the customer to be able to apply configurations on top of your base product to meet their needs and it requires some ingenuity in how you code and create a product, but it certainly can be done, and I think coming back to the Salesforce platform, Salesforce has done this phenomenally as a platform, and so you can learn from what they’ve done and take advantage of a lot of their configurations to handle that in a similar way that they have.
Well, we are at the bottom of the hour, so, David, Trisha, thank you so much for taking the time, walking us through your experiences at Vlocity and nCino. It’s been a pleasure working with you, and a pleasure talking here, so thank you both so much.
Thank you, Matt.
Matt, thanks so much.
Transcript of Episode 360:
Good morning everybody. I’m super excited for the next session at SaaStr Enterprise with one of my favorite CEOs in one of, I think, one of the most interesting cloud companies, Coupa, and I’m glad to have Rob back at SaaStr in general. He was kind enough to come a couple of years ago when Coupa was still on fire, maybe had recently IPOed, I don’t know the timing. But I’m super glad to have Rob back now because Coupa, to me, in the crazy world we’re in, is at a very interesting intersection. And there are what we’ve talked about as COVID beneficiaries. Folks that have benefited from these crazy times and Coupa is one of them. Coupa’s growing quickly and its stock price has done fine and it has benefited.
But at the same time Coupa is the market leader in spend management, and managing procurement, and managing supply chains and those are areas that are deeply impacted by the economy, deeply impacted. It’s hard not to walk downtown through [inaudible 00:01:05] it to see what’s happening in healthcare all over the place, in financial services. And so Coupa is super interesting because it’s benefiting as a software player but yet it has this insight into the economy of software and the economy of the real world that I can’t think of another vendor that has. I’m super excited to talk with Rob and down at the bottom on the Zoom, hit Q&A, we will save time for questions. We had a few already come in but click there and I’ll remind you at the end so we can chat and I can let Rob talk a little bit about Coupa and then we can chat about it but managing almost 2 trillion of spend across basically all segments of our economy. Which we’ll chat about.
Coming up on 500 million in revenue, whatever the exact number is, no forward looking statements in this presentation but what’s super interesting that I’ll make sure we talk about even here is that Coupa has redefined the category and now has more revenue in this category than ever existed. What does that mean for the cloud? How do you change a category? And again, we’ve been talking about digital transformation for 20 years, probably, Rob, since you and I started in software but so much has changed. I want to dig into a bunch of things on the slide but what are you seeing? What’s changed the most since March 15th? What’s unexpected? What’s expected? What are the number one things that have shocked you, or have been pulled forward years that you weren’t expecting?
Well, I think as everyone is saying, Jason, and again thank you for having me on, there has been a greater energy and focus in what was already happening, which is the move to digital. I think in our case it’s even more interesting because when you’re in times of hyper growth folks tend to focus a little bit more on revenue than they do on profitability. And they do on operational efficiency frankly and our value proposition at Coupa has always been to help companies become more operationally efficient. To help them unlock all of their potential so they can pursue all of their missions and visions.
Obviously we’re doing that now for hundreds and hundreds of companies around the world. It’s an opportunity to engage in the same dialogue we’ve been having now for well over a decade but the ears are perking up even more because they know that they need to move to a digital method of driving their operational efficiency, understanding how they’re managing their spending as it pertains to everything they need for their business, how they’re thinking about supplier risk, how they’re thinking about their inventory levels, their sourcing activities, and so much more. It’s really, really exciting for us to have a greater emphasis into an area that we know is so important anyhow.
It’s interesting because it’s different for different vendors. Since March 15th, was there a trigger point where maybe I had a project that I was talking to Coupa, it might be a 2021, 2022, 2023 long term deployment because you have many enterprise customers. Was there a particular drama issue, shelter issue, a wedge issue that got projects pulled forward years?
Well, interestingly enough it was actually a bit of the opposite in the first month or so, and I mentioned that on the last earnings call. There was almost a deer in headlights moment amongst all the vast majority I would say of our prospects around the world whereas we don’t know what’s going to happen so we actually need your help. We need to get PPE equipment. We need to get things to sort it out so then I’m back in two, three weeks. You can do that. It was really rewarding for us here at Coupa. We have this robust community of existing customers and they came together on our platform to source personal protective equipment for their organization. We were less oriented to how do we close more business during that first month, to more oriented towards how do we help this community make sure that they are going concern which was very real in some industries for sure.
Yeah, we’ve all been through four phases since March. I hadn’t fully… I did hear that when you said it before but didn’t think through it. There were vendors where the end of March into April were crazy even Zoom the next day exploded. But even Slack it took a while for folks to figure out we needed to Slack more. Then Slack took off. You had the chief procurement officers, CIOs and others needed to survive for that first month. Then what was… Has there been four waves? What are the next couple of waves that you’ve seen across your partners and customers?
Well, the most interesting thing for us is that we’ve taken dozens of customers live since this hit. Because it’s one thing to sell new prospects, and of course we’re focused on that, and we’re doing just fine there but when you think about the existing inflight projects when suddenly these people are operating from home and they’ve never operated in a virtual environment, and to take large global deployments live and have see them start running massive amounts of spend through our system.
Ceding them control spend. We have a whole bunch of customers who didn’t have control over their spend. They couldn’t stop the company from spending money in certain places. We’re able to help them do that on their mobile phone through our integrated email capabilities offered via Coupa. That was very, very rewarding and powerful. And then of course we reemerged and we started looking at how we can drive our global reach and expansion, obviously we’re well into that now months after the crisis started.
For a big Coupa customer, pick one if you want or don’t or an example, but before March 15th what was a typical deployment to be fully into production? Not an agile kind but maybe an old school type. Would it be a year? Would it take a year from really signing and fully going live? If it was or whatever it was, how do you compress that into weeks? How do you manage the team? How do you do the internal change management and the external because we’re not necessarily wired that way until March, were we?
That’s right. Well the average is roughly six to nine months for our enterprise customers. Our mid-market customers, four, maybe five, weeks, so it’s not bad. But you know what happened is that we gained a lot of efficiency ourselves in working while our customers remotely, you don’t have the time. “Well we’ll meet you on Thursday we’re going to fly in. Were all going to get into a room.” “Well, it’s Monday let’s just do it right now.”
You’d get the systems integrator on the Zoom session, you have the existing customer on the Zoom session, you have my Coupa colleague on the Zoom session. We’re sharing as you’re sharing this slide the configuration set up and literally walking through it. In many ways we stand to gain an advantage in the efficiency with which we can work together as long as we can overcome the change management required for some folks, as you say, to be a little bit more tech savvy and be willing to work in this way. We’re seeing that happening without a doubt.
Where do you think… It’s hard… There’s so much change it’s hard to even predict but in some ways it’s great that you can now deploy customers over Zoom, right? It’s so much more efficient. You don’t have to get on an airplane. You don’t have to book the hotel and all this but some things are lost and some things are different. Has enterprise buying changed? Do you think it will swing back into the middle? Can we live this dream where we never have to get on jets again? Where do you think we’ll be on the other side of COVID?
You know it’s hard to predict that, Jason, of course, and probably it’s somewhere in the middle. I don’t think it’d be an extreme one way, or the other if I had to predict. But what I will tell you that will be consistent is that enterprise software is really about driving change management. Driving the change. One of our core values at Coupa is focused on results. In other words, identify exactly what it is that you’re attempting to achieve after you’re live, a year after you’re live and then focus everything in and around that. Limitations like the inability to travel, or advantages like the ability to get on a virtual session like this are the methods of getting to have that result. As long as we keep people oriented toward that outcome I think we’re in fine shape, and that’s how we think about this approach.
That’s good. I want to talk about this because you have some great data in this. I worry about supply chains. I try not to worry in the world but there’s a lot going on. You want to remain positive, but I look back at some of the first SaaStr blog posts in 2012. I wrote one in 2012 as I was walking Downtown University in Palo Alto when the last retail store reopened, but it was four years. Downtown Palo Alto, it’s a fairly gentrified community.
There’s a lot of money in Palo Alto–tech money, but it took four years for the last retail, what’s now West Elm to reopen for four years. I’m worried about this. What are you seeing? And this one is interesting, 43% of companies were worried about the ability to fulfill orders. At the beginning of COVID you still can’t get a webcam. You couldn’t get a monitor. We were worried there were some groceries you couldn’t get at the beginning of this. Tell us what you’ve learned being at the center of this.
Well, first of all brick and mortar retail absolutely is in trouble, and frankly brick and mortar retail to some extent has been in trouble well before this pandemic. We were looking at our business spend index, if your viewers go to spendindex.com they can see the data on that. We’ve been looking at retail for three, four quarters and it’s been trending down. When we’ve seen a lot of very interesting data I could share with you around the downward trend. But when you think about global supply chains and this massive globalization dynamic we’ve had in the world for the last six, seven, eight years. We’re getting into, let’s call it globalization 2.0, which begins to balance global with local. As this slide says is there some fragility in our supply chain? Yes. But I would argue that fragility is really in the area of information technology, information access rather than in physical access because the goods and services exist.
And as soon as there’s demand, supply gets there. You look at PPE there was a massive demand and within three, four weeks, there was massive supply. The challenge wasn’t there. The challenge was having the information at your fingertips to hot swap suppliers, get access to things you needed at the right time, make commitments contractually to people to know that you will fulfill your obligations. That’s the world in which we play in at Coupa. That was what makes it so interesting. We’ve got customers literally hot swapping suppliers, moving them into certain areas where they never even thought they’d be buying from, creating contingency plans for categories of spend. You need information technology for that and that’s what’s exciting about many of the things we’re doing and seeing in our customer community.
Well, that’s interesting. I was following after right when we got into this wonderful pandemic, how Coupa was at the center of getting PPE and identifying this but I didn’t fully understand why. Other than it’s a great thing to do but I guess it took a while for me but the supply got there within a relatively short period of time relatively speaking but it needed help, it needed liquidity, it needed connection. And I guess Amazon works again, right? We can still get Amazon products to our home. I guess we don’t need to worry as much that–the market will solve this, no matter what global turmoil there is in the short term as long as technology can connect us, I guess is the learning.
Yeah. Absolutely information technology. Access to the right data at the right time to make the right decisions and collaborate amongst the supply chain. It’s very exciting to see some of the largest companies in the world really reorienting themselves to fully modernizing their supply chain, their business spend management approach. It couldn’t be more exciting for us obviously.
I want to get some of the data next but on this last point in the slide. This is something I think about a lot. Did we know that the cloud would be this strong after March, that there would be this boost? It’s crazy, right? Coupa is on fire but you talk about retail, look at Shopify. Shopify is a $120 billion company today. It’s crazy and the growth factor is insane. It’s the maximum output of this trend that we’ve seen but can’t… If we’re in shelter, if we’re in this world through the end of next year, can we have this divergence? Can we have a cloud on… Can cloud remain on fire when one out of three people are essentially unemployed in the country? How long can we remain divergent? Do you have any insights here?
Well, it’s a tough question. It’s interestingly Shopify and Amazon, and these are our customers. Amazon runs in tens of billions they manage through Coupa so we’re close to these customers but the same value proposition that existed before this crisis exists now, it’s just seen as a higher priority. The ability to get greater speed, the ability to have information at your fingertips, the ability to embed, Jason, best practices into your deployments. Just about every CIO I talk to tells me, “Hey we’re going to go with Coupa, but hey promise me you’re going to deploy this in a way that’s going to be quote unquote, vanilla or best practice so that my team doesn’t start doing a whole bunch of end rounds that are going to make us on upgradable and slow us down.”
They want agility. They want access to community information, hopefully we’ll talk about. I think there are a lot of dynamics that are really tailwinds for us in pushing cloud faster into the world at large and obviously these are big, big markets we’re all playing in and I’m sure many of your viewers are playing in. The opportunity is now, really, to accelerate our efforts, no doubt.
It’s usually the CIOs wanting these best practices, right? They don’t want custom made. They have this sort of on-prem scars of some hack. Some bit of corner code written that–or weird workflow. I should have known Amazon was a customer. I didn’t know it, but my mistake. But boy you must learn a lot from Amazon. Amazon must be the like the Walmart of today, where they’re an amazing customer, but they school you a bit. What is like for an Amazon? What do all your other customers benefit from? What are some… That vanillaism? What are some things you’ve learned from really those mega customers like Amazon that–and how does that benefit the others? How have they leveled you up?
The beauty of enterprise software, as I think every one of you viewers knows is, is can you have minimal code that supports the massive amount of use cases, as many use cases as possible?
That’s the dream.
That’s the dream. What we learn from our largest customers, Amazon being one and others, is how to support massive complexity in the simplest way possible. And what we learned from some of our smaller customers is how to keep things very intuitive and user centric but at the same time abstract them from some of the complexity that they may never need to use and make everything configurable. We’re constantly learning about scale and stretching our platform from the larger enterprise and we’re consistently staying very, very true to usability and user centricity that we’re picking up from the smaller growing companies. And that’s a beautiful marriage to have on one platform.
Yeah. Relate to this. This is something I wanted to learn from you in the enterprise is brands. You and I chatted right before we went live, I asked you about competition. I had some fun talking about Ariba which we’re in 2020, Coupa isn’t really an Ariba 2.0 but maybe in the early days there was some truth to that. I had a lot of experience there and you said I don’t spend some… Now that we’re big enough, now that we’re actually larger than this category used to be, I don’t spend as much time thinking about competition. I think one reason is you have this trusted brand. You’ve become… Every deal is hard. You have to prove yourself to Amazon and Shopify but you are this brand. There’s suites and there’s best-of-breed which we thought about. But do folks want even more from trusted brands now in 2020, and even more after March 15th? And what does that mean, versus going more horizontal? And where do we want to invest more in trusted brands?
Well, it’s interesting. I’m looking at this slide and saying do enterprises want more from vendors? In some sense I would push back on the term vendors because I don’t consider our company, any one of my colleagues working here, anything that we offer, we’re not a vendor. When I think of vendors I think of a hotdogs at a baseball park-
I would have hated it myself as the CEO. You’re right. But-
Well so, but-
But CIOs might still use the term.
It plays into your question. It’s a term that’s grounded in business they used to be a products business, it smells of commoditization. The reality is what customers really want is they want trusted advisors, they want partners, they want people to bring best in class technology, embedded best practices, and they want folks that are focused on value creation with them and measurable success. That’s what they want more than ever and that’s what they deserve. They’ve always deserved. They just didn’t have the chance to get that on the first run of this thing, and enterprise software in the 90s and maybe a well into the new millennium.
When you develop trust, and I believe trust is built on transparency. You have to actually see measurably that we’re delivering value for you. If a third party came in and said, “Okay, there’s a relationship between Coupa and one of their customers and here’s what’s happening.” They will be able to point to measurable value X amount saved, or X user adoption, or X spend categories and a management, or X improvement in operational efficiency, whatever that may be.
Once that’s established, of course those customers are inclined to want to tap into subscribing to more what we call value as a service from those partners of theirs, and we consider ourselves to be that type of partner for them. We’ve benefited from that and I hope we’ll continue to benefit from that because we take every one of our customers very seriously. We want to keep them forever. We want to continue to drive more and more value for them.
Yeah, it’s interesting. I think at Salesforce, depending on how you look at it, CRM is either their fourth or third largest category now. It’s pretty crazy, isn’t it?
Sure is, sure is. Well look, understanding every component of your customer, how you market to them, how you sell to them, how you service them, how you interact along on the web it’s super important. But I argue it’s just as important to understand your entire supply base and how you buy from them, how much you spend with them, how you can collaborate with them, whether or not you can mitigate risk when they have risks. We’re really operating on the exact opposite side of the equation. We’re helping people, companies who spend money do it in the most operationally efficient and thoughtful way.
And related to this and at the bottom point, when I listened to the last earnings call, you said inbound demand is up from your base. Your customers want more and more from you, from a trusted vendor. A related question because it seems like–so you’re coming up on 500 million in revenue, whenever it exactly, I don’t know exactly what ARR, it doesn’t really matter for this, but how far can you see? Can you see… You obviously can see to a billion. You can see it right behind you going across the bridge but can you see 10 X? Can you see to 5 billion now as crazy as that might have sounded a couple of years ago? How far can you see in… What do you see? What do customers want? How should the product and things like… What do you see? What’s the furthest you can see, and what do you see?
Well, I appreciate that question, Jason. What I see is a $50 billion plus total adjustable market, and what I typically ask are two very, very simple questions of any prospect I interact with, frankly anyone I interact with whether it’s over Zoom, or before in the physical world. Do you think, number one, your company is doing a great job in managing the spending that it’s involved in for all the things and services that you need, or you think it’s done really, really well? I’ve rarely, rarely gotten an answer that says, “Oh yeah we’re great. We know everything about how we spend money. We have control over it. It’s complex.” Okay.
Then I ask the second question, “Do you think you’re employing information technology in a way that’s comprehensive, and fully integrated, and user centric, and deployed quickly that addresses some of the challenges described?” And the answer is always no. Just about every company in the world can really stand to improve the way that they do their business spending and the way they manage their business spending. I see a huge, huge opportunity and I think this is in many ways early innings for this category. We’re proud to do our part in trying to lead a focus into this area and then fulfill that leadership with a real brand promise and real measurable outcomes for every one of our customers. I think that is why we’ve seen more inbound interest and more capabilities, and additional features and functions of modules that we can deliver for our customer base of course.
A couple things, this is more a tactical point and I want to make sure we get a couple of things on the data you have but this is a bit of a mystery to me. I should know the answer to this, but I don’t. Why are payments so hot now? I understand the innovation of Stripe of two lines of code back in the day, but why–you’re seeing this? Why is this all coming together now, and why couldn’t payments be as hot five years ago? I put hot in quotes. What’s so much more valuable today than it was, or what’s changed in technology because I’m missing a bit of, why now.
Well first of all, it’s saying that the value proposition has been there for a long time. It’s been there for a long time. The question is, has the value proposition been fulfilled? I’m not sure [crosstalk 00:22:45]-
Well look at what’s happening in the consumer world. The value proposition has been there a long time too, but it’s only now starting to be fulfilled with Square, and Apple Pay, and Google Pay. Now if you look at B2B payments, my gosh. First of all it’s much bigger. There’s a lot more money flowing there but secondarily the technology, the capabilities there are really archaic. Old school technology, a lot of manual–a lot of paper. In the United States, nearly half is paper-based checks. What are we kidding ourselves? These systems are rigid, you have monthly batch jobs running out of incumbent solutions. There’s no ability to collaborate with your supply base around payment rails, around dynamic discounting, around virtual credit card payments and transfers, yet cross border is still super old school and complex.
Super old school.
There’s is so much we can do here. You got third parties enter to do supply chain finance. We’re in the very early innings of a huge market and it requires leadership, and it requires incredible tech. Some of the approaches that been taken in the past year have largely been driven by banks. The approach we’re taking is partnering with banks where we’re bringing what we’re really good at to the equation. A highly scalable, robust, transactional platform. What we know about usability and how important user centricity is to that problem, and we’re starting to really get somewhere. We have, as I mentioned in the last earnings call, nearly 100 customers leveraging components of Coupa Pay and that’s growing. It’s really exciting for us.
If you look at what’s happened with Shopify, how big payments have gone there. If you look the very low end adjacent to like bill.com that used to have any payments revenue and then it became one of their key drivers of growth. What do you see a few years out here in the enterprise? How core is this? It’s obviously core to Coupa but how big… Is this flip around and become one of the most essential parts of what we’re doing in terms of managing this business commerce? Or are we… In five years will this be massive?
It’s hard to make a detailed prediction. The way we like to do our business is do it very organically. Our customers are asking for these capabilities of us. We didn’t wake up and say we’re going to do payments. Our customers said we’re doing procure to okay to pay through your platform. How about we do procure to pay? [crosstalk 00:25:03]
Got to do the last mile, right?
Yeah, let’s do the last mile and pick off a bunch of use cases that we’re struggling with. We see a big opportunity here. We’re going to co-develop with our customer community. We want to take the same approach we’ve taken with every other set of modules we’ve deployed and we’ll see where it goes. But the likelihood of us being able to capture a real meaningful portion of this market, based on what everyone is saying, I think, that’s objectively looking at this appears to be quite high.
Yep. Now this next slide is something I picked out of your investor report because it’s interesting to me as a founder, how do you… Fiscal discipline is super interesting. You turn around you probably can’t believe all the unicorns you read about on tech crunch each day that are raising 400 million and you don’t even want to know what the bottom line looks like because it doesn’t matter. Coupa is a generation… We’re generations ago in terms of thinking about this, and then you look at weird things like Zoom. You know what Zoom’s burn rate was the year before it’s IPO? You know what it was?
I don’t, I don’t remember.
Zero. It wasn’t minus $1 or like Eric literally said to the marketing team, “You can spend every dollar we have, but it’s the funniest thing, it’s like 414 million in revenue and like 414 million of losses.” And it’s literally a zero. It’s the fun you can get it. You can imagine that conversation. Here’s your allowance. But what is this? What’s 50 is the new 40 and when should software be profitable? It’s supposed to… Shouldn’t it be really profitable? You need X number of engineers and everyone can buy it but what does this all mean? What are you saying about this 50 is the new 40?
Well, first off let me say I love how Eric thinks and I think similarly in the sense that there need to be guardrails on your business. The idea of spending at all costs, and by the way we’ve had some pressure as a public company certain quarters where people say, “Well why don’t you just press further in sales and marketing and grow-“
Press on the gas.
And then you’d have the other side as soon as there’s a little bit of backwards says “Hey, why don’t you accelerate the pace to profitability?” Look, we all know in software as a service what really matters is cash flow. Cash flow is what matters. That’s what fuels the business. We have put guardrails on the business now for 45 quarters. We’ve had guardrails on the business. Very, very careful and thoughtful growth not overextending ourselves, but at the same time, careful management of sales and marketing efficiency, and then getting scale into a model on the bottom line.
Those are the guardrails we’ve had every quarter for 45 quarters, and just as Eric does it, here’s what it’s going to be for the next quarter. We’ve got 12 weeks, go, and we see what exactly what happens. We distill that, we look at all the metrics by business unit, by geography, by product line, and then we unlock the investment we’re going to have for the next quarter, go and do it over and over again. When you do that for as many quarters that we’ve done you get into this situation where you can have this rule 50 dynamic that my colleague and CFO came up with, I think when he became 50 years old. But we are operating at this level now and it’s exciting.
There’s a benefit at 50? Is 50 too much? Obviously you’re a proponent of it because you put it out, but where we’re at… How do you set that guardrail? What is too efficient versus too inefficient when you’re able to be efficient? I can think about it [crosstalk 00:28:26].
I think you have to combine backwards looking metrics. When you complete a quarter, you look at all your backwards looking metrics and then you combine them with all your leading indicators as an executive which is what does the pipeline look like? What does our talent look like? Where are we in terms of stage of pipeline? Where would we want to make investments geographically? When are we launching the next product release, and then use your gut to fine tune exactly how you’re going to run out at the following quarter. You have the guardrails but you also don’t hamstrung yourself as an executive. Otherwise you could automate the job of the CEO in that area and that’s probably not the best way to do it.
Good. Let me skip… Oh, oops we had this slide. Maybe we lost one on the different segments. I want to talk about some of these points, but we might’ve taken some of this out, but tell me what you’re seeing across different industries because you do have some data on this. One of the most interesting things from some Coupa data I’ve seen is I read The Wall Street Journal, I read the New York Times. It seems like many banks are doing very well in this crazy environment. But like Coupa shows financial services under a lot of pressure, healthcare. It’s hard to get a handle on what’s happening in healthcare. Some hospitals are all at the edge of bankruptcy. On the other hand, other segments of healthcare are on fire. They’re literally on fire. Walk me through some of the data you see of different segments and maybe some things that are counterintuitive that you’re seeing in different parts of the economy.
Well, I think one of the biggest things that I think most people now understand is that given the amount of liquidity in the market it’s very hard to gauge the extent to which financial services firms are doing well and healthcare et cetera. You have to have that context in mind. It’s very difficult to answer that question in two sound bites, I really do urge your audience to go to spendindex.com. Here’s what we’ve done there Jason-
We have a slide on it here. I think I just lost it but yes it was a great one.
Let me tell you what we’ve done there because we have created an index that is a real leading indicator. Let me tell you why. We’re looking at things like what are the approval cycle times in the current quarter. In other words it didn’t take longer for people to prove something before they even bought it, before they even ordered it, before anything happened. We have a leading indicator in terms of how long, by industry, folks are thinking through purchases. That’s never been seen before, in an aggregate level with nearly $2 trillion worth of data. We’re looking at rejection levels. What percent of things are getting rejected? You never see that in the GDP. Now if there’s an increase in rejection levels, of course there’s a likelihood that that industry has concerns.
We’re looking at average spend per employee and companies and we’ve put that into an index to give leading indicators that we launched this every quarter and when we backwards tested this to 2016 against the GDP, we saw a very real and meaningful correlation. We think this could be a real enabler for people to get a sense for things. But if you look at the last one, what we shared at the last earnings call of course significant retail slow down, slow down across the board frankly but what’s more so on pronouncing retail. When you look at a financial services slow down there as well whether that’s seen or not in stock prices. I’d urge people to go to spendindex.com. We’re sharing this openly. We want to be a good corporate citizen. We’re not gaining anything from sharing this other than maybe a little bit more awareness about Coupa. I’d urge your folks to check it out.
Yeah. Everyone go to that because it’s pretty awesome, spendindex.com and I’m on it on my iPad. I had a screenshot in here but I think maybe we took it out because it was backwards looking but let me ask you one or two questions because it is great. Everyone should check this out. It is great to see this data and granted there’s a little bit of a lot. It’s not up to the minute, right? It takes you… You’ve got to get that data so it’s through Q1. But one that that surprise to me is high tech was down. How you define high tech, right? That was down in Q1. When the cloud’s on fire but in spend index high tech’s down, what are we seeing there? What should I see something? Is there a story behind the story there?
Well, you see what you see which is [crosstalk 00:32:27] Q1 when you look at the index purchases for hardware and software in the first quarter of the year, when you look at time to approve, when you look at number of rejections, we look at average spend per employee was down and that’s a reality of what happened there. Now whether or not that’s measured it in the stock prices of many of these companies, probably not. But again you could argue that the current liquidity environment and the longer term opportunity in the digitization area is very, very real. Look investors are looking for places where they going to get yield. They’re not going to get it U.S treasuries. They’ll look at placing a yield. They’re looking for longer term bets and there’s no question. Many things… My colleagues and I like Eric and others are doing have the opportunity to really stand the test of time and develop into very, very meaningful longterm businesses. That’s what we’re doing here.
I want to chat about your book next but on the spend index, the Q1 just remind me. Q1 is calendar Q1, right?
So Q1 is through March. This retail one plummets dramatic even through Q1. That trend you can see it in Q4. Retail was already off deeply in Q4 then Q1 is down. Boy it’s just epic. It’s almost a step function. It’s almost a step function here, right?
Absolutely step function. And look, if we have to make predictions I think they’re pretty obvious We’re going to see real backward seasoned retail, we’re going to see a lot of consolidation, we’re going to see brands get rolled up. It’s going to happen. It’s already beginning to happen because look, folks aren’t going to the mall and not buying in those stores. The retailers that are quick enough and nimble enough to get to consumers directly to figure out different innovative ways to manage their supply chain will stand the test of time but it’s a real struggle in retail. No question about it.
Yeah. I would literally encourage everyone listening now, or the thousands that will watch this later go to spendindex.com. It’s fascinating. Coupa has a massive… It has almost 2 trillion of spend thrown through the platform. If nothing else, this is a fascinating data point that you can segment across financial services, healthcare, high tech, manufacturing, retail, and it’s a slice but you may see right now a story that is worrisome of our economy. There is some optimism in this.
Actually health and life sciences out-performs more than I would expect from the press because our hospital’s not taking ordinary patients and our dentists at a lay level. I felt like that’s under more pressure than the spend index suggests. But outside of that, it’s a worrisome. It’s a bunch of more worrisome trends and maybe we’re all ballooned by the massive liquidity injections, the trillions of dollars in the economy, the planes fly nowhere and the extra unemployment checks but the real signals underneath our economy are very worrisome on these charts.
Yes perhaps. I’m looking forward to the next quarters release. We’re actually going to start slicing by category of spend. What are the categories folks are spending on? Were they increasing, decreasing as part of the blocking enterprises? We’ll have more robust data. Greater fidelity of data as we go, and hopefully it’ll help folks understand what’s going on in the world frankly.
Yeah. All right. I’m going to post this on SaaStr after the next one’s out because it’s super fascinating. Okay so book. You got a book. Is it out? I should know I’m going to buy 100 copies, 50 copies are… Tell us about the book.
Well, this is really a book that is the next step from values of service. A book that I did about three years ago. And this is really about breaking the silos of traditional enterprise software which was always deployed one customer time with one set of data and never being able to see anything across. Never able to take anonymized, sanitized, aggregated data. We’re beginning to take that data, distill insights from it, and push that back into individual customer environments so that we could be smarter together as a customer community.
I look at this book as really… I don’t have a PhD, Jason, I ended at my MBA. This is kind of my hypothesis, or thesis, or dissertation if you’d like, and it’s really a position paper on where we see enterprise software going, which is the breakdown of those silos so that we could be smarter together as enterprises and customers for the use of information technology. We’re on the very bleeding edge of that with what we’re doing here at Coupa and every day we discover more and more interesting use cases that we can employ for our customers to take advantage of, and I’m happy to share anything you’d like about that.
It’s interesting in these communities. SaaStr is a community. I never knew much about community before this. I’m still learning. There’s a lot of talk about communities and how that customer, vendors, technology solution. People will be communities, communities are out there. What do you mean by communities? What are you seeing? What have you learned at Coupa in general? What does this mean?
There’s so much but I would give you the metaphor that I love which is waves. I was very proud that Noma endorsed this book after having thought through our concept committee intelligence here-
Yeah, that’s a space you didn’t imagine community would exist on maps but it sure does.
Exactly. And with waves we’re truly smarter together as we traveled from destination, from A to B because we’re leveraging immediate access to data and that data requires almost no friction, in some cases zero friction to collect, aggregate and distill insights that could be pushed back to the individual driver they could find their way through. The exact same concept applies to everything happening in business processes. Best practices for how many people you should have in your workflow Jason. There’s companies out there 60 people in their workflow to approve something that’s $200. If they knew how far outlier they are in real time they could fine tune that.
They’re overpaying for categories of spend all over the place. They’re exposing themselves to risky suppliers and not leveraging community insights to figure out which suppliers they should be considering working with. The list goes on and on of all of these use cases where we can truly be smarter together, and proudly as a platform we’re enabling that for our customers. With every release of our product we’re turning on more and more of these community intelligence capabilities that allow them to be smarter together.
The book in large part, is it share a lot of learnings about how to build this community among your customer and partner base?
Well, first of all it frames what it actually means to have a community intelligence environment. What are the components of that? It explains why the time is now to strike. Particularly if you have early stage companies that are watching us, right now is the time to really build up a platform that can have the stand the test of time in leveraging cross company committee insights, and then it shows a whole host of use cases and case studies of what we’ve experienced so far, and asks the reader as I did with values of service to comment on what they’re seeing, pushback on some of the hypotheses in the book so that we can learn together as a community of readers, frankly, of the book as well.
Okay. That’s great. Well let’s… Everyone let’s… I’m going to do a deep dive. I think community for business software is super powerful. It’s so important and it’s something we’re learning today. Just like payments, maybe. Everything in enterprise sometimes it’s four to five years later than consumer. Maybe payments is there, and maybe community is there too. Waze to hit this five years ago but we need to learn this as leaders. Let’s all read this and, Rob, if you want, maybe whenever you want we could do a deep dive on community on the podcast to 130,000 people because I think this is a great topic on its own.
How to building this community thing because… Otherwise this is a great book. Let’s all read it and I will share some learnings on it on SaaStr in a bit. There’s more I want to talk about, let’s make sure we have a few minutes of questions before we end. Actually hold on. How are we doing that? Let me make sure I grab… Apologies for one second. There was one very specific I wanted to hit and then we’ll go into the Zoom. These are specific to procurement but I think these are good ones to hit for Rob. What are the three pain points for chief procurement officers, excluding generating savings and reducing supply chain. What are the top pain points in 2020 for CPOs?
One of the biggest pain points is ensuring that the CFO, the CEO, and the CIO become their truly connected colleagues in solving many of the challenges that they’ve been thinking about for a number of decades. If you go to a CPO conference of any kind, the conversation is typically, how do we get a seat at the table? How is it that the whole organization doesn’t understand all the value that we can offer? Now is the time to strike to showcase that value, and that value is in every possible way of course from savings, which is very obvious, but it extends to supplier risk mitigation, which is obvious, and all the way through managing the entire integrated way with which a business manages its spend through information technology. Now’s the time to strike.
Look if we have a phenomenal CPO and we use our own platform but if my CPO ping me on Zoom, email or walked into my office and said, “Look, hey I need a budget of X because I’m going to make sure that we’re going to mitigate our supplier risk. I’m going to save us this much money. I’m going to give us a platform that’s going to help us be modern and scale into the future.” Why in the world would I not support them if they were a trusted advisor? That’s the opportunity.
Yup. The next one it’s a bit of a lay up, or even a commercial but I always love to hear what a CEO has to say which is, which new Coupa product or feature are you most excited about?
Well, the most exciting one for me is community intelligence, which is a set of capabilities that we discuss in the book, but in the entire fabric of the product set. They appear for example in expense management, which we don’t talk about as often but we have hundreds of customers using Coupa’s expense management. We are mitigating fraud in spend management. We’re using the data set of our aggregated customer base and serving up individuals that are highest likely to be doing fraudulent activities so you can investigate rather than rigid policies, or a free for all. We found a way to use technology to be prescriptive, which is the P in Coupa. Prescriptive to individual controllers and people responsible for spending in a company leveraging community intelligence. And that’s just one example of many capabilities leveraging community intelligence within Coupa.
This one from Nikko. You probably don’t know the answer although it’d be wonderful if you did. I know Coupa works with many hospitality companies and how many quarters do you think bars and restaurants, hotels, airports will rebound? If you knew that you could probably be on CNBC any night, everywhere any night anyway but do you have any insights, or do you have a model? Do have an operating model, when will these hyper impacted hospitality businesses recover?
Well, I love the second part of the question because of course I’m not a fortune teller. In fact, the big unknown is when some of these things will happen but we have a very clear scenario based model for V, U, and L, and then we execute accordingly based on where things work out.
So V, E. V I get. Are we past V, or is there still a chance for V?
Well, it depends on how far you step back and looking at your V-
How wide it is.
But I think in many ways you’re right. We are pretty much past it. I think that’s a fair assessment of the market.
This one will take you back but let’s at least do one and have some fun because we did chat about this before we started. What were the biggest challenges early on when Coupa was a startup procurement folks hadn’t quite heard of. You didn’t have the brand and were replacing their competing with solutions like Ariba.
Well I can give you a very long list of challenges but I think the biggest is to get folks to give us a chance. If you look at some articles that came out in 2009 when I was raising money, and our first raise that I was involved in it was 15 million and a half post. There was I think $7 million raise, 15 and a half post. It was getting folks to try. We did things like we said, “Look, give us a year annual subscription. If we don’t deliver this quantifiable value to you within 12 months, you could cancel and we’ll give you your money back.”
That was a big, big risk to take in 2009 and 2010. But we delivered for these customers and they became fans, and they became highly referenceable and they gave us a chance to go to the next customer, next customer and grow our ACV, and grow our renewal rate. It was very, very hard to really early days of course but that built a foundation and the right culture I think in this company because we don’t take anything for granted.
Did any material number of customers really ask for their money back?
No, not even inmaterial. None asked for their money back.
I personally love the money back guarantee hack. It’s always one that asks for their money back, and it doesn’t matter because if you don’t keep the customer for life, it doesn’t matter if you give one year of revenue back, even though it’s stressful, it doesn’t matter.
Well, you know, Jason, the beauty of it is, even if let’s say they were to ask at the end of the year if you’re objectively looking at data that said on a mid-market customer you paid a $100,000 a year. Well we’ve saved you $700,000 this year. Isn’t a little egregious for you to ask for your money back and isn’t it obvious we delivered value for you? Are we not a valued service partner for you? So frankly, we didn’t have that but that doesn’t mean it wasn’t easy to get those deployments, to configure the product, to build new features, to do what it took to get it done, no question. It’s very hard.
Let me ask you one related early question, and then we can wrap up with a few more current questions. But one of the reasons in the early days that I got very… From afar, I was interested in Coupa as back at Adobe Sign, EchoSign I would meet with a lot of folks and mostly on the contract side we would deal with sales side of course in the early days, but there’d be a lot of buy-side conversations, a lot of them. And we would go in and we built an Ariba connector early. It was very hard to do because it wasn’t an open platform but, and I mean this is no disrespect to anyone at SVB, but I never heard so many complaints.
People would complain about Ariba and people complain, obviously you’re biased, but it lit up the hair on the back of my neck because I hadn’t heard this. When you’re selling those early days and you don’t have the brand, can you… Looking back on it without bias, how do you leverage those complaints? How do you turn those into an asset? Do you bash the competitor? Do you not? Does that create a bigger wedge then if they’re happy, and maybe you didn’t see it but I heard this again and again at so many global 2000 companies Ariba would be their least favorite vendor.
Well, to be frank, we did some bashing early on. We didn’t know whether it was right or wrong but that bashing wasn’t grounded in logic. It was grounded in facts. When you’re talking to a customer that’s getting 4% of their spend running through an incumbent system, the bar is not that high to get them to eight, nine, 10, 50.
It’s not that high.
It’s not that high but it’s a matter of bringing that to the forefront. Bringing facts to the forefront that everybody could look at so they can make the right choices. Those were early day things you have to do but obviously now thankfully we’re well beyond that.
All right. Maybe the last one, or the penultimate one. Maybe this will be the last one. In this… But this is probably more from a founder perspective if you thinking about. In these uncertain times some deals go more quickly but some go most slowly. Any tips you’ve learned to accelerate closing of deals in these shelter area?
Yeah I think it’s in the shelter area but I think it’s more broadly. What I notice now we work with so many different… I’ve had the chance to work with so many hundreds of sales professionals in my career, certainly hundreds of Coupa as well over this time. What you find is folks tend to pivot a little bit more towards being a bit aggressive. In other words, look where great, where the best, nine out of 10 people use us. I don’t love that. Then you have the other extreme which is they’re a little bit overly passive. In other words they chase balls. Yeah, let me give you 50 references. 50 references. Let me show you a customer exactly like you. What else can I do for you? Our mindset at Coupa is we don’t want to be too aggressive, and you don’t want to be too passive. You want to be assertive.
Focus on the facts, become a trusted advisor, get vision lock on what is you’re attempting to achieve in working with us, and if we agree to that vision lock, perhaps I’m the right player to help you achieve it. If I’m not, you can go find the other player to help you achieve it. We try to be very, very assertive in our dealings and always, Jason, always grounded in integrity. That’s very, very important to me. I never wanted an environment where the sales person would sell something and then they’d be afraid to interact with that prospect. That’s horrible. We want a lifetime relationship with this customer. They should be proud of what they’ve done and they should know they have now thousands of people behind them, they’re going to deliver for that customer. This is value of service. It’s a different way of thinking about the traditional product space business into the business that is today. I mean, SaaStr right? This is what it’s about.
Yeah. No turn and burn deals.
They’re the worst. Rob this was incredible, thanks for giving us the full 50 minutes. I love spendindex.com go to it. We’ll talk about more about it on SaaStr spending next [inaudible 00:50:01] you will. There’ll be another quarter of data coming out shortly I assume.
That true, it will.
But you will see things that are fascinating that are data-driven, which I love. Check that out and also Smarter Together. This community in B2B, I think, is super powerful for the next five years. So hopefully we can continue the conversation there but grab your copy. Rob again, this was wonderful. Thanks for taking the time out.
I remember the first time I had a “head of product” in SaaS. I’d known him for many years, and knew he was great … but didn’t really know what help he could give us. I just knew we needed help around $2m-$3m so I asked him to help. I told him just to help us however he thought best.
He went away and first did something I didn’t totally get. The first thing he did was meet in person or on a web conference with our Top 20 customers. I thought it was sort of training for him. I thought I knew what they all thought (our top 20 customers) anyway. I didn’t think this would really help us all this much. But I was wrong.
Later I realized it’s what all the great product leaders, and customer success leaders, do as Job #1 when they join. They go talk to the customers. Because you can’t really learn what they think, what they need, and where they want the product to go by just talking to your teammates. The best VPs of Product and Success always go talk to your customers as Job #1.
Now I’ve seen SaaS CEOs hire 20+ product and CS “leaders”. The hires are often a stretch hire, which is OK. A stretch hire is the way to go 90% of the time. And I watch for one thing. In their first 2 weeks, how many customer Zooms and meetings do they do? And within 30 days, do they come up with a strategy based on those customer conversations on how to do better? The best ones always do. And the weak VPs of Product and CS come up with a strategy based on … internal conversations.
When I see this, meeting with 20+ customers in their first few weeks, I know that stretch VP of Product or Success has a shot. They got it right at the start.
And when I see a stretch VP of Product or CS instead start with Gantt charts. Or debating features or pixels with the engineers. Or implementing new tools. Well, that’s all great. But that’s not the job. The job of a VP of Product is to make sure as the product gets more complicated, the customer needs more varied, that you keep up and then keep ahead. More or less with VP of CS, too.
And you can’t do that if you don’t know the customers cold.
If you’ve hired a product or CS lead recently and they haven’t done this in their first 2 weeks, you may still have a job for them. But they aren’t your VP. And you need that VP after just a few million in ARR, a true leader. Not a placeholder.
How much do you talk about Customer Marketing? Be honest.
While the concept may sound old hat to those that have been in the software business for a long time, in SaaS in particular, very little tools, processes, and software are applied to marketing to customers after they are closed.
Over the last 5+ years, we’ve all started to turn Customer Success into a science and a key discipline in SaaS. But Customer Success in many ways has been defined as an extension of Sales. Sales closes, and hands off to CS. While that’s chronologically accurate in most cases, really CS’s cousin should be Customer Marketing. If you do it right, you can keep your customers for 10+ years. Or even longer. And like retention, a marketing journey should also begin again once a customer closes.
Customer Marketing is similar to Demand Gen, but with very different end goals — retention and net account growth. The playbook is similar, but not the same, and needs different content, marketing, and ultimately, staffing:
Customer and Field events. These should be just as much about retaining customers and growing accounts. It’s fine even if no prospects come to your new Digital Event. It’s plenty great if 50 existing customers come. What % of your soft and hard budget for events goes to retention, and what % to lead gen? You can wing it in the early days, but you need a firm ratio and strategy after that.
Webinars and similar. Webinars are an underrated asset. Done regularly and right, they are great way to authentically interact with groups. Do a weekly webinar on something. But what % should be for prospects, and what % for retaining and enhancing existing customers?
Drip marketing. You’ve probably set up automated campaigns to your pipeline now. But what about your customer base? Are you sending them thoughtful content every week or two designed to help them get more out of the product? If so, is it any good? When was it last updated? I bet you don’t even know.
Whitepapers and static content. I bet right now all your whitepapers are about ROI calculators and similar pitches to leads. But how are you helping spread adoption and engagement at the customers you already have? How good is your onboarding content? I bet more effort went into the latest case studies to support sales.
Podcasts, blogs and video content. Podcasts are everywhere today. But it’s hard to get distribution on podcasts and blogs for your nichey-vendor content. They may not generate many leads. But you know who will read and listen? Your top customers. The ones that are responsible for your app, day-in and day-out. It might be better for just 50 of your customers to listen to your podcast than 1,000 folks who will never even convert.
Etc. etc. As you can see, almost every part of the demand gen toolkit can be repurposed for customer marketing.
What should you do? Well one big challenge is resource contention. Your marketing team will get a ton of pressure to generate leads. To help create pipeline. To help sales grow, grow, grow. And that pressure is good. But lead gen also has clear quantitative goals, e.g. grow leads 110% this year. More on that here. If you don’t come up with clear quantitative goals for Customer Marketing, it will never get enough attention.
So while these rules and guidelines aren’t perfect, and need to be tweaked over time, from say $2m to $30m in ARR, you can probably use the 10+10 Rule:
10% of your Revenue Up For Renewal should be invested in customer marketing. Yes, that may seem like a lot at first. But it’s a lot less than you are likely spending to acquire those customers. That’s probably 20%-30% or your first year ACV or more. You’ve gotta spend a decent fraction in retention, or you aren’t doing it right. and
10% of your Targeted Account Expansion $$ should be invested in customer marketing. If you want to grow say $2m of your existing base to $3m this year … that’s $1m in growth. Consider allocating $100k to customer marketing to help “close” that upsell. Don’t just leave it in the hands of Customer Success, Account Management, and Sales.
Depending on how your business runs, this may be a lot of money, and a lot of change. You can tweak the 10%+10% numbers. At least set goals and spend commits here once you have say 2 years of revenue under your belt.
Ultimately, if Second Order Revenue drives a huge amount of your growth (40%+) and you’re not following the 10+10 program … you are probably concentrating much too much of your marketing dollars on getting folks into the funnel. Rather than making sure they are Customers for Decades.
Ep. 337: Christine Trodella is Head of Americas for Facebook’s Workplace product, the communication tool that connects everyone in your company, through Groups, Chat, Rooms and Live video broadcasting. Prior to Workplace, Christine was Head of America’s for Facebook’s Audience Network and before that spent 5 years as a Group Director across multiple different sales and account teams within Facebook’s mid-market channel. Before Facebook, Christine was an Executive Director @ WebMD and before that spent close to 3 years in media sales at Yahoo.
Pssst 🗣 Loving our podcast content? Listen to the start of the episode for a promo code to our upcoming events!
In Today’s Episode We Discuss:
* How Christine made her way into the world of SaaS as part of a non-SaaS company and how that led to her leading Americas for Workplace by Facebook.
* What have been the biggest benefits of scaling a SaaS company within a non-SaaS company? What are the biggest challenges or misalignments of scaling Workplace within Facebook? What have been some of the core and early mistakes the team made in their strategy to build out the Workplace sales and marketing machine?
* What have been Christine’s biggest lessons on what it takes to sell really effectively to some of the largest enterprises in the world? What do CIOs most want in pricing? How does Christine think about the pricing problem of having a variable pricing mechanism without disincentivizing usage? How does Christine think about and approach discounting?
* Does Christine believe remote is the new normal? What really interesting data have Christine and the Workplace team seen since the world has move to work from home? How has behavior changed on the platform with the rise of remote work?
Ep. 338: These are unique times. In some ways, we can use our playbooks, make adjustments, and in other ways, things are very different. What isn’t likely to be very different is that recurring revenue … recurs. This is the bedrock of SaaS. Hear how Slack CEO, Stewart Butterfield, is adapting to change and his advice on how to take care of your team and customers.
Below, we’ve shared the transcript of Harry’s interview with Christine.
Harry Stebbings:This is the official SaaStr Podcast with me Harry Stebbings. And I always want your thoughts, who would you most like to hear on the show? Let me know on Instagram @HStabbings1996 with two Bs and I always love to see you there. But to the show today, and we welcome a guest who’s done an incredible job at scaling a SaaS company, within a non SaaS company. So with that I’m thrilled to welcome Christine Trodella, Head of Americas for Facebook’s Workplace Product. The communication tool that connects everyone in your company through groups, chat, rooms, and live video broadcasting. Prior to Workplace, Christine was Head of Americas for Facebook’s Audience Network. And before that, spent five years as a group director across multiple different sales and account teams within Facebook’s mid market channel. Before Facebook, Christine was an Executive Director of WebMD, and before that, spent close to three years in media sales at Yahoo.
Harry Stebbings:I do also want to say a big thank you to Julien Codorniou for the fantastic questions suggestions today, I really do so appreciate that and it made such a difference. That’s enough for me there, so now I’m delighted to welcome Christine Trodella, Head of Americas for Facebook’s Workplace Product.
Harry Stebbings:Christine, it is so great to have you on the show today. As I said, I’ve heard so many great things from Julien, so thank you so much for joining me today, Christine.
Christine Trodella:It’s my pleasure, I’m happy to be here.
Harry Stebbings:I would love to start today with a little bit of context. So tell me, how did you make your way into the world of tech and come to be Head of Americas to Facebook’s Workplace today?
Christine Trodella:Yeah. Well, my career I’ve got about 28 years behind me now, and I built my career with the rise of the internet and digital media. I’ve been at Advertising.com, AOL, Yahoo, WebMD back in the day. I’ve been at Facebook now for almost nine years and I remember Facebook was still relatively small and just getting into the digital media space, and every time I would go and talk to customers, they kept bringing up Facebook and how they were moving more budget to Facebook and just how intrigued they were with this new social platform. And I saw going to Facebook as an opportunity, essentially, to have an insurance policy against my career. I mean, this is clearly where everything was going and I came to the company when there were less than 2000 people. I think we’re up to about 30 or 40,000 now and so I’ve just seen the incredible scale and growth that the company has had over the last eight, nine years that I’ve been there.
Harry Stebbings:I mean, it’s been incredible to see that growth, I guess the biggest and quite striking question for me from that is, what has been the biggest takeaways from as you said, nearly nine years seeing on the front lines the hyper growth? What can the biggest takeaways for you, and I guess how did it impact your kind of operating mentality?
Christine Trodella:Thinking back to the really early days when we were just starting to scale the business and there was so much interest in the platform, so many people, advertisers wanting to understand how to leverage it. And at that time the biggest issues that we had or challenges were really around how to ruthlessly prioritize and how to best use our time. And I remember sitting in meetings and the conversations would center around like, “What’s the opportunity cost of spending our time investing our resources on this versus that?” And so I think when you’re in hyper-growth, when you have so much opportunity, there’s this tendency to just want to do so much and create very long to do lists and multiple work streams.
Christine Trodella:But I think you really focusing in on the two to three things that you just absolutely have to get a 100% right. And then just not veering from that is so critical, it was hard, but we were disciplined in the early days, it’s something that I take with me in my career moving forward. And again, with Workplace from Facebook being this SaaS startup within the broader organization, we’re having to employ those same rules of engagement and those principles of just being really ruthless in terms of how we prioritize what we do on the business.
Harry Stebbings:I think it’s the hardest thing I struggle with in terms of that ruthless prioritization, which is why I drop so many balls probably. But you can ask my partner that and he’ll probably [inaudible]. Tell me though, because you mentioned there about building a SaaS company within Facebook, which is obviously not a SaaS company, it’s a pretty unique experience for anyone to go through. What’s the biggest benefits of scaling SaaS companies within a non SaaS company.
Christine Trodella:Yeah. Well, first I think it’s important to mention that Facebook didn’t say, “Hey, we’re going to build a SaaS company.” That’s not how Workplace came to be and so I’ll share a little bit, just in terms of the evolution of Workplace. And again, it comes from personal experience because I was there when we did this. But essentially as Facebook was scaling in the early days, people that work there we would use the Facebook tools to communicate with each other and get work done, we’d create groups, we’d messaged each other. And it’s funny because when I started at Facebook, I maybe had 150, 200 friends on Facebook and a year later I had 1500 friends. Everybody thought I was very popular but it was really… I was friending people so that I could message them and get my work done. And so over time as the company scaled, there’s this realization that we need a Facebook for our company.
Christine Trodella:I mean, these are the tools that we’re using to get work done and be productive and communicate and collaborate with each other and so Workplace was born. And we used this private instance of Facebook for our own business. And then through the marketing partnerships that we had on the ad side of the business, some customers started to take notice and said, “Hey, this is really cool. We’d love to bring this into our company.” And thus Workplace as a standalone SaaS company within Facebook was born. And look in terms of the synergies, Workplace is built off all of the key features and functionality that Facebook is, right? We take the tools and the communication tools and collaboration tools that are so core to the Facebook experience and we bring those into Workplace.
Christine Trodella:And if you think about it, Facebook–this is a company that our core competency is in building communication tools and helping people build communities. I mean, if 3 billion people across our apps and services right now. We have 16 years of product and engineering expertise in building tools that communicate and build community amongst people. And so the fact that Workplace is able to draw on this and bring these same principles and features and functionality into the workplace environment is really where we see the synergy between Facebook Inc, and Workplace from Facebook, the SaaS company within Facebook.
Harry Stebbings:Totally. I mean, twofold really in the community building and then also how that aligns to product design and product philosophy, so I totally see that. I guess on the flip side though, there’s always challenges. What do you think have been some of the biggest challenges and hurdles that’ve happened in terms of scaling Workplace within the broader context of Facebook?
Christine Trodella:We’re very different businesses. Facebook is an ads revenue driven business and this is a very different business model, being a SaaS company within Facebook. I mean, there are a lot of just internal processes and operations, business operations, that we have to build from scratch. And they’re very unique to the Workplace for Facebook business and how we operate the business. There are some really interesting ways that we can scale within the organization or the broader organization. And you asked me, “Why did I come to the Workplace team or what was the impetus for that move?” I remember back when I was on the ad side of the Facebook business and we were really having deeper dialogues with these large marketing companies beyond just how to invest their ad dollars on Facebook. I mean, we were really having consultative conversations around what it was going to take to help them build their businesses and really understand what this new world of connecting to people on their mobile devices, what that looked like and how to execute that and how to measure that and how to value that.
Christine Trodella:And so we would be having these deeper discussions, these real business discussions with these very large marketers that would extend ultimately beyond just the tactics of running ad campaigns on Facebook. And we’d invite them to our campuses, we would have these engagements. And one of the most interesting insights that would come out of bringing executives onto campus, was there was always this response or commentary from them around, how do we essentially capture this energy, this culture and bring it back to our organizations. You so clearly live your values out in your business and how you operate and how can we do that? And so we almost became this place to really have a deeper conversation around corporate culture and employee engagement. And so to me, it really resonated with the Workplace opportunity, because I thought there’s such a need for this.
Christine Trodella:There is such a desire to have a way to connect more deeply and more closely with every single person within an organization, Workplace is such an amazing tool to do that. So I think as we look to scale Workplace within Facebook as well, we have such an amazing opportunity to work closely with the teams that are working with some of the largest marketers and even some of the smallest ones. 7 million advertisers on the Facebook platform and we offer something that not only allows them to scale their business through marketing on a mobile device but also really have an impact on their corporate culture and their employee engagement.
Harry Stebbings:Totally agree with you in terms of those jewel synergies and what that offers in terms of the client side. There’s always trials and tribulations along the way. I spoke to Julian before the show, as we mentioned. And he said that despite the incredible success, there’s always some mistakes that have been made. What have been some of the core mistakes, do you think, that were made in the early days, and how did the thinking change as a result of them?
Christine Trodella:I think one of the biggest things we have learned is just predictability is really important to large enterprises. And so when it comes to pricing and how to structure our arrangements and commercials with our clients, it’s really around giving them that predictability. So we made some changes last year to the way that we do pricing, we are very consistent with what is SaaS industry standards, fixed price models, all you can eat models. And that has been able to give these large enterprises the predictability that they need in terms of what their investment looks like on Workplace over time. I mean, these are typically large enterprises, their IT departments are run against annual budgets and having fluctuations in what that looks like was really big learning for us that that was just something that was easy for us to change and actually really appreciated by the enterprise environment.
Harry Stebbings:Can I ask, in terms of pricing, it’s one of my nerdy passion projects, but I’m always stuck in the quandary of how do you create pricing which doesn’t disincentivize customers with increased usage. How do you think about that and the per seat model say, maybe great but then it will disincentivize people from adding more seats there in a per conversation model would do the same. Where have you landed in terms of what is the block pricing looks like and how do you think about value extraction without disincentivizing people to really engage more?
Christine Trodella:It really comes back to how Workplace is adopted. I mean, Workplace is adopted on a wall to wall basis. I mean, companies when they go Workplace, the entire company goes Workplace. And obviously we can structure our commercials and our agreements with businesses based on how they want to roll things out. But typically it is something that at the very senior levels is seen as a full deployment to the entire company.
Harry Stebbings:I guess the other challenging I have in there, it’s just change management and it’s easy in certain segments of the organization but ensuring that adoption in all functions. How do you think about what good change management looks like?
Christine Trodella:When it comes to change management, especially when you’re talking about a tool that’s going to be rolled out to every employee in a business, it is critical to get executive buy-in and leadership buy-in. The leadership role in modeling and engaging in the product is better than anything else that you can have. I mean, that is core table stakes for that. Also just aligning on what the clear goals are with respect to Workplace. Making sure that we’re having a discussion around the problem that we’re trying to solve and the value that we can create in doing so. And let’s talk around the features and how to use particular features. We really focus in and talk about the use cases and the value that that’s going to bring to the employees and the organization overall. Again, really important to recruit a leadership to role model the behaviors on Workplace, and then also having a network of change agents within the organization who are going to be the early adopters and really evangelize it throughout the entire company.
Harry Stebbings:Can I ask, sorry. I’m too interested there. When you said about the role models, I love that as a model. But what do you ask them and recommend them to do? Is that weekly webinars with the company in terms of how they’re using and engaging with the product, is it them creating their own internal docs? What have you found works best from that role model view to really encourage adoption across all lines of the enterprise itself?
Christine Trodella:Yeah. Again it really comes back to what either the business problem is that we’re trying to solve or the value that they need to create within an organization. And so it tends to be pretty unique based on the corporate culture and the corporate values. But in general, we do see executives really leaning into using Workplace as a mechanism to connect with their entire organization. So they will do live broadcasts and we’ve gotten really great feedback from executives that they love this as a mechanism to not only communicate out to everybody and democratize information and the distribution of information, but really to get feedback. Because through live engagement, you’re able to see reactions in real time, you’re able to see comments, you’re able to field questions. So it’s a truly interactive way for executives to reach everybody and hear from voices that they may not typically hear from.
Harry Stebbings:Yeah. No. I totally agree in terms of hearing that maybe less heard voice. I guess the other thing is when you think about the wall to wall adoption that you see, obviously you have some great numbers especially, around retention specifically. In terms of metrics, how do you determine success and product market fit itself within an organization? Are there leading indications where it goes, “Absolutely this is working well in this organization.” or, “We need to do something here.” How do you think about the guiding metrics for what determines success?
Christine Trodella:Yeah, so we definitely look at metrics like, claim rates, adoption and then of course, we look at the number of monthly people on the platform, weekly, daily. We’ve got great analytics for admins to understand their reach, engagement, and even sentiment around the posts and things that are being communicated on Workplace. But at the end of the day we really are all about the stories, we love hearing about how Workplace is transforming an organization. We love hearing that CEOs, they wake up in the morning and that the first thing that they look at is Workplace. I mean, we see many instances where people that are working at a company that have used Workplace go to a new company and they want to bring Workplace with them. They want the company to adopt Workplace. So we just love hearing how companies really quite frankly, could not live without Workplaces and we’re hearing this a lot, particularly now given the current COVID situation.
Christine Trodella:I’ll share one example that I just love. A very large airline, we’ve seen real uptick in usage of Workplace, particularly during COVID. And this is a pretty significantly impacted industry right now, given the COVID situation. But one of their business leaders went live to communicate out to her team, which is a pretty large team within the organization. And she was working from home and she wasn’t wearing any makeup. And at the end, she apologized for not wearing any makeup and the entire company just rallied around her and just loved that authenticity. They started posting selfies of themselves without makeup, they created a new hashtag for it. And I just thought it was just such a really, really incredible moment and story around the solidarity of companies coming together, supporting one another and building community, particularly around a time where it’s really challenging and there’s a lot of anxiety.
Harry Stebbings:Listen, I totally agree and all I can say is I’m glad I do a podcast and not a video because I look like Evan Almighty with the long beard if I do video. I do want to ask, though, you mentioned COVID and the impact of COVID there. I’m especially intrigued in terms of how it changes the workforce itself. And so with the exposure that you have, I guess my question to you is, is remote work the new normal and how will COVID impact the customer base moving forward?
Christine Trodella:Look, we went from one extreme to the other with COVID pretty much overnight. So I do think it will be interesting to see how this changes remote work when we come out the other end of it. I hope personally that this is less of an inflection point around work from home or work remote logistics and really one more around a philosophy around work from home. I think there’s a lot of people that actually have found this to be kind of a blessing in disguise and a way to be more present with their families and have more flexibility. There’s a great article actually, I think it was early this week in the New York Times around how many people actually prefer this and have really enjoyed the time spent in their homes. And so I’m hoping that we come out of this at the end of the day with just more flexibility and just a different philosophy around what it means to work remotely.
Christine Trodella:I think in terms of the way that this is enabled, I think there’s still a long road ahead of us. We have seen Workplace usage skyrocket since COVID. I mean, people are really leaning into the tool and using it more than ever and we’ve seen a lot of demand as well from people who aren’t yet on the platform. But people came into COVID and this immediate work from home, everybody had email, everybody had phones but we saw video really skyrocket. I think this is an area we’re going to continue to see a lot of innovation. One thing that we lose, not all being together in a workspace or an office is just the spontaneity of being able to see people, bump into people, you lose that when you’re at home. I think how to bring that into a video experience is going to be really critical and important.
Christine Trodella:And I think again, even as we think out farther around what are the virtual experiences, how can we replicate a meeting or an interaction with someone in a virtual way that really simulates an office environment. I think these are things that you can expect to see from Facebook. They’re all things that we’re working on, we have our Portal device. Sales have been exceptionally good of Portal since COVID and everybody working from home. Oculus our VR gaming platform is now enterprise ready. We’re seeing a lot of work being done by large enterprises to use Oculus for training and even build Empathy. We see them building Empathy Labs. So I think things around video and how AR and VR continue to innovate and create these opportunities for spontaneity and just real true virtual interactions with each other are going to be really critical to see as things continue down this working from remotely path.
Harry Stebbings:It’s going to be a very different world post COVID, so I couldn’t agree more and exciting on those verticals, for sure. And my favorite there now is a quickfire round Christine. So I say a short statement and then you give me your immediate thoughts in 60 seconds or less. It’s an incredibly high pressured round, are you ready for it?
Christine Trodella:I’m ready, fire away.
Harry Stebbings:Okay. So let’s start with, what’s the biggest challenge of your role with Facebook today?
Christine Trodella:Patience. I’m very impatient and SaaS sales cycles are typically longer than media ones.
Harry Stebbings:Question for you, how much faster have sales cycles increased in velocity since COVID? Sorry too intrigued no to ask that one.
Christine Trodella:Yeah. You know they have, they really have. And still early we’re a month and a half in, so it’s still early to really give you anything quantifiable. But again, we’ve seen a big increase in demand and a lot of urgency around deployment.
Harry Stebbings:What do you know now that you wish you’d known when you started at Facebook almost nine years ago?
Christine Trodella:Focus on delivering value to customers. This was really an inflection point on the ad side of business at Facebook. And it is something that I will take with me for the rest of my career. Always focus on delivering value.
Harry Stebbings:Discounting, should reps do it to get the deal done in COVID times in a sense of urgency and need a lacking patience and often sales teams, should they discount?
Christine Trodella:Well, we have created some offers for impacted industries but really we’re trying to be a resource right now in whatever way that shows up for a particular customer or prospect. We want to deliver value and help companies build communities, particularly in a time of COVID, so we love the stories that we hear when we get that right.
Harry Stebbings:When I say success, who’s the first person that comes to your mind?
Christine Trodella:Well, they’re so many and so I’ll just be topical here, but I’m engrossed in the Last Dance documentary that’s on ESPN right now. And I think Michael Jordan, not only is he just an incredible talent, but his absolute grit and just commitment to winning, almost obsessively, is just incredible to watch. And I think he did the real insight from this documentary that I’ve been watching is just really, despite all the talent that Michael has, the Bulls didn’t really start to win until they really worked together as a team. And essentially when Phil Jackson, the coach, took the ball out of Michael’s hands, the real message was, “For us to win, everybody else has to get better, we can’t just rely on you.” And I think there’s so many great lessons to be learned from that whole story that can be applied into any walk of life.
Harry Stebbings:No. I absolutely have to get on that, I’ve seen it on Netflix. So that’s-
Harry Stebbings:Tell me, final one. If you could change one thing about the world of SaaS, what would it be and why?
Christine Trodella:More diversity. My observations and I’m relatively new to SaaS, but this seems to be a pretty insular industry. I think I’d love to see more diversity. I’d love to see more women in leadership positions. I’d love to see more people of color in leadership positions. There’s such great perspective that can come through having really diverse teams and I’d love to see that happen in the SaaS industry.
Harry Stebbings:Christine, as I said, I spoke to Julien before and he told me how exceptional you were. So this has been so much fun and thank you so much for joining me today, I really look forward to–
Christine Trodella:It’s my pleasure. Thank you so much.
Harry Stebbings:Absolutely love that discussion and such an exciting times ahead for the Workplace product. And if you’d like to see more from us behind the scenes, you can on Instagram at @Hstabbings1996 with two Bs. As always I so appreciate all your support and I can’t wait to bring you a fantastic set of episodes next week.
Ep. 335: David Spinks is the Founder @ CMX, the premier network for community professionals. In 2019, CMX was acquired by Bevy, where David now serves as the VP of Community. Bevy is a customer-to-customer community management platform, building products that brands use to build, grow and manage their community event programs, both virtual and IRL for companies like Slack, Twitch, Salesforce, Atlassian, and Duolingo. Prior to CMX, David founded 2 prior startups centred around different forms of community building and before that was Community Manager in the early days of LeWeb the largest tech/startup conference in Europe.
Pssst 🗣 Loving our podcast content? Listen to the start of the episode for a promo code to our upcoming events!
In Today’s Episode We Discuss:
* How David made his way into the world of SaaS and came to found CMX. Why David believes that community is so central for all SaaS companies today?
* How does David advise teams on expectation setting around virtual events? How ambitious should they be? What big mistakes does David often see in the early days of the planning? How does this differ if you have an existing cohort of users vs are starting new with no audience?
* How dependent is the success of the community on the platform it is hosted on? What is the ideal size for Slack, Telegram and Whatsapp communities? Should the host seed the discussion or allow it to be natural? How important is it to establish a handbook of expected actions and behaviors? Should you cull members who are inactive?
* What does David believe separates good from great when it comes to discussion groups? What innovative strategies has David seen work when it comes to bringing a virtual event to life? What is the right amount of people in that discussion group? What is the core role of the moderator for the group?
Ep. 336: Leveraging survey data from 66+ enterprise SaaS companies, Matt Garratt, Managing Partner of Salesforce Ventures, shares the landscape of how businesses are shifting their sales & GTM strategies to react to today’s uncertain times. Adnan Chaudhry, SVP of Sales at Salesforce, then provides actionable takeaways on how to refocus your sales teams, engage with customers, adjust your sales comp and how you can properly forecast in today’s new landscape.
Below, we’ve shared the transcript of Harry’s interview with David.
Harry Stebbings:Welcome back to the official SaaStr podcast with me, Harry Stebbings, and you can suggest both questions and guests for future shows on Instagram @Hstebbings1996, with two Bs. And I always love to see you there. But to our episode today. And there’s one question every SaaS company is asking themselves right now, “How the hell do I do virtual events, and what makes the best so good?” Well, diving into this today, I’m thrilled to welcome David Spinks, founder of CMX Media, the premier network for community professionals. In 2019, CMX was acquired by Bevy, where David now serves as the VP of Community. Bevy is the leading provider of in-person community software, powering community programs and incredible companies like Slack, Twitch, Salesforce, Atlassian, and more. And prior to CMX, David founded two other startups centered around different forms of community building, and before that was community manager in the early days of LeWeb, the largest tech startup conference in Europe.
Harry Stebbings:But enough from me, so now I’m very excited to dive into this extravaganza on what makes the best virtual events, with David Spinks, founder of CMX Media.
Harry Stebbings:David, it is so great to have you on the show today. And what you probably don’t know is I’ve been an admirer of yours from afar, mostly on Twitter, for a while. So thank you so much for joining me today, David.
David Spinks:Honored to be here.
Harry Stebbings:I would love to start, though, with some context. So tell me, how did you make your way into the wonderful world of startups, SaaS, and how did you come to found CMX?
David Spinks:Yeah, it’s a long story, but to make it as brief as possible, I’ve been building communities online since I was a kid. Started in middle school, around video games, Tony Hawk’s Pro Skater 4 was my game of choice, built a big online forum around that, and just became pretty fascinated by how technology could connect people and create community. And so I did that, I was just active on every online community platform I could. Eventually that became my career and I became community manager, joined a startup in Philly called Scribnia, at the time. And we were in an accelerator program for three months, and halfway through that accelerator program, we pivoted and started SeatGeek, which, everyone will know SeatGeek, and no-one will know Scribnia. And we kicked that off and that was my first entry into tech. And I ended up running that first company, Scribnia. I was the managing director and ran that company. And that just got me in the door and that led to more and more opportunities to work with different tech companies.
David Spinks:I ran community at a company called Zaarly for about a year, I ran community for LeWeb, which you may know was one of the biggest tech conferences in Europe for many years.
Harry Stebbings:Sure. Absolutely. Loic.
David Spinks:With Loic Le Meur. Yep. And helped Udemy kick off their first community program, and also started companies. So I started a company called Feast, which was delivering ingredients to your home, and you get this home cooking experience with videos that teach you how to cook.
David Spinks:And ultimately kicked off CMX six years ago, because throughout my career, starting companies and building community for companies, ironically, there was no community for community professionals. And so I would do everything I can to find other people who are doing this work and just get to meet up with them, ask them questions. I co-founded thecommunitymanager.com with a couple of friends, about eight or nine years ago as a place to just start writing about this stuff.
David Spinks:And eventually led to starting CMX Summit six years ago, which is our conference, as just a place to bring everyone together who’s doing this work, building community for companies. And so that grew, we bootstrapped it for five years. Last year, at the start of last year, we were acquired by a company called Bevy, which powers event programs, event communities for companies. And that’s how I’m here.
Harry Stebbings:And the rest is history. Speaking of communities today, every company in the world is thinking, “Shit, how do I move from physical to virtual events?” I want to dive into that because I think many are foundering and a lot of scratching their heads, doing it for the first time. So you’ve had a starting point, and expectations set slightly when thinking about the transition to virtual events. So when you think about maybe expectation setting for these companies, how do you advise companies to approach just how ambitious they should be when it comes to that first virtual event?
David Spinks:Yeah. It’s funny because I’ve been banging this drum of community for more than 10 years now, and all it took was a global pandemic, and all of a sudden everyone’s like, “Wait, this is important.” I’m like, “Yeah, I know.” And so there’s companies that have been doing this for a while, but even the ones who have been doing it for a while were probably still reliant on in-person events, and they’re trying to pivot. And then you have companies who weren’t really doing much in terms of community, or weren’t doing anything online and they’re kicking it off for the first time. If this is your first time doing that, I think just getting started’s really important.
David Spinks:It’s easy to overwhelm yourself and try to do too much, and launch a massive forum, and throw a huge virtual conference. But you can start in very simple ways with just simple discussion calls, kick off a Zoom call with your 10 top customers. People are craving community right now, they can’t connect with each other in person. And so they’re looking for any opportunity to connect with each other, and they’re all dealing with this epidemic. It’s affecting everyone, and so everyone has a lot of shared challenges and lot of things they want to ask each other right now. And so just start creating those spaces for them to come together, and a lot will start to happen organically.
Harry Stebbings:Can I ask, when you create these spaces for them to come together, and sorry, this is off schedule, but I’m intrigued, do you seed the discussion threads themselves, or do you let the discussions flourish naturally within the participants?
David Spinks:Ideally, it’s all happening organically, and you’re just sitting back and nudging the direction or facilitating. More realistically, you’re going to launch an online space and you’re going to have this vision of everyone showing up, and participating, and engaging. And then it’s just going to be crickets. There’s so many spaces for people to engage today, that to create a new space, you really have to put in the work and facilitate. And so in those early days, I think you really want to be creating a lot of the content yourself, be putting out discussions, be putting out conversations that you think would be interesting, and then don’t even wait for people to respond. As soon as you post it, message five people that you know, and already have a relationship with and say, “Hey, I just posted this question. I’d love to get a conversation going. Do you have a minute today to jump in and post a response?”
David Spinks:And so you’re manufacturing the example that you want others to see. So when someone new joins a group, now they see activity, they see people engaging, they see thoughtful responses in there. And now, that sets an example for them to be thoughtful in their responses and start posting. And it just puts out the message that this is an exciting place to be. It’s the same reason that a bar might only let some people in at a time, in order to create a long line, so it looks like it’s in high demand. Same kind of thing for communities, if people show up and it just looks empty and it looks dead, that’s not going to feel like an exciting place to participate, but if you start to create that experience of engagement and excitement in the community, then when people join, they’ll feel drawn into that group.
Harry Stebbings:So, as I said there, we write these schedules and then we just go completely off script, but I much prefer it that way. In terms of the platforms, I’m really intrigued. How dependent is the success on the platform choice that you make? Because you could do anything from a WhatsApp group to a Telegram group, to a Slack channel, to any of the collaboration tools that we have today. How dependent is success upon the platform choice?
David Spinks:Yeah, it’s a big question. If you already have an engaged audience, and a lot of people who are trusting the brand, aware of the brand, engaged with you, it’s going to be easier to launch your own owned platform. Maybe you kick off a Discourse forum, or you use one of the enterprise platforms, and you bring people to your site and your community, because they’re already engaged, because you already have an audience, that’s going to be easier.
David Spinks:If you’re starting from scratch and people still don’t know who you are, and they’re not fully engaged with your brand, and your team, and your product yet, maybe you don’t have a lot of users yet, it’s going to be really hard to get people to participate in a new space as well. You’re just creating a new habit, and people are so used to going to big social to interact now, that it’s hard to get people’s attention. And so in that case, it might be better to go to where they are already, which might be a Facebook group, Slack is really popular because people are already in there, Discord is really big for gaming, and use that to build the community. And then, once you have that engagement, once you have an engaged community, the community is the people, it’s not the product. And so once you have the people engaged, then it becomes easier to move them to different spaces that maybe they otherwise wouldn’t have.
Harry Stebbings:Totally get you. Can I ask, in terms of those groups and communities that you build in those initial days, how do you think about optimal size? Because you want enough where there’s enough discussion and enough content going around, to where it feels like the velocity of thought is high, but you also don’t want too much where there’s apathy and too much noise. How do you think about the optimal size in those early days?
David Spinks:Smaller is often better, right? A good quality group of 10 people is going to be much more valuable to someone than a hundred people that weren’t as curated, and in an experience that isn’t as intimate. And everyone knows that, like you go to a dinner with 10 really awesome people, this is the best experience, right? Everyone loves that kind of experience.
David Spinks:But then you go to the meetup with a hundred people just casually drinking, and it was open to anyone, that’s not nearly as valuable. It’s not as facilitated. You don’t get to talk to people as deeply. It doesn’t feel as curated. And so in general, I think smaller is better to start, and then you want to grow it incrementally. So if you’re looking at an online group, maybe ten’s a little small, unless you’re in a WhatsApp group, or a chat space that works with a small group, but let’s say you did a Slack or a Facebook group. You’re going to want more people than that, I would say maybe 50 or a hundred’s a good starting point.
David Spinks:And then you want to grow it gradually. So you don’t want to overwhelm it, right. Going back, I keep using bar examples, I don’t know why. It’s on my mind, I guess, I haven’t been to a bar in months, but you ever go to a bar, and you’re with friends, and it’s not that crowded and you’re having a great time, and you can hear each other and you have space to move, and you can get a drink quickly, and then rush hour hits. And all of a sudden it’s packed with like 500 people, and you can’t get to the bar and you can’t hear each other, and you don’t have space, and it no longer feels like it’s there for you? That’s what it feels like when someone kicks off an online community and they have a hundred people in it, and then they invite 500 people into the group. It just completely overwhelms the community dynamic that you had in there.
David Spinks:And so maybe a good rule of thumb is to keep it to like 50% growth each week, or each month, or even 25%. So if you have a hundred, then add 25 more each week, and then you can welcome those people properly. Everyone who’s in the group can contribute to welcoming them properly. And you create more of what feels like an organic growth, rather than a manufactured growth.
Harry Stebbings:Can I ask a tough one? Do you cull people who don’t engage or who don’t consistently show themselves to be a meaningful part of the community?
David Spinks:Usually, no. It depends on the format. Let’s say you did bring together 10 people in a discussion group, and it’s noticeable that someone is not participating, that they’re not showing up, that they’re not engaging. Then I might call that. And I might say to that person, “Hey, it seems like maybe this isn’t the best fit for you, so totally cool. But we want to make sure that we keep this group really focused. And so we’re going to keep rotating members out based on engagement.” You might be able to do that in that small group, just to keep it really high quality. In a larger group, it doesn’t matter. You actually want to have people, even if they’re passively engaging in these large groups, because that becomes an audience for those people who are creating, that makes them want to create.
David Spinks:So there’s the 90-9-1 rule is this old study on large online communities, and it basically said that 90% of people will passively consume in a community, 9% will be responding and engaging, and 1% will be creating. And so realistically, every community is going to have a very small percentage of people who are actively creating and contributing, and then a much larger percentage who are passively consuming. And then there are people who just go completely inactive. And at the end of the day, unless you’re paying per user, or some meaningful metric to you, you can just let those people do what they do. And you can also run campaigns to try to reengage them. So everyone plays a role in the community at all different levels of activity.
Harry Stebbings:Can I ask, we mentioned the different levels of activity and we mentioned some different behaviors there, in terms of very active, responsive, and then creating. In terms of guide books, or guidelines, when initiating people into the group, how important is it to have almost a guide book, a set of rules? “This is how the community operates.” How important is that, versus letting it be much more free flowing?
David Spinks:It’s absolutely critical. There are communities out there that prefer to just be completely free flowing. I think we’ve seen that historically devolves into some pretty bad behavior. And I think it’s really important that you have a lot of intention in any community space that you create. And so there’s a concept called setting the container. And I think that applies to anything from a small discussion group, where you’re trying to essentially explain, “Here’s how to participate in a quality way, and here are the rules that will make sure everyone feels safe and comfortable participating here,” right? So it’s not just rules, it’s not just what not to do. It’s also being explicit about, “Here’s how to contribute in a great way. Here’s the kind of behavior we encourage in this group.” That’s going to guide people to know how to participate in a quality way, that they may not have realized, or may not have been comfortable doing that before.
David Spinks:And so it’s really important to have that. That said, you should always be open to evolving and changing and learning from your community members. And so maybe someone one day recommends a different kind of guideline, or they do something within the boundaries that you’ve set, and you realize, wow, that was a great way of approaching this problem. Let’s turn that into an official guideline or rule. So you can constantly adapt and evolve your guidelines, but you always want to be intentional about how you want people to participate, and how you don’t want them to participate in the community.
Harry Stebbings:We’ve spoken quite a lot about discussion groups there, and I think a lot of companies in particular, are scratching their heads in terms of how to really encourage engagement within the community. I’d love to hear your thoughts, having seen so many different kinds of viral and vibrant communities, in terms of really, what cool methods of engagement have you seen really work well in virtual events?
David Spinks:Yeah, so the world of virtual events is evolving rapidly right now. And I honestly think everyone was sleeping on the value of virtual events before, and now that they don’t have a choice, everyone’s getting a crash course in it. The default has been the Zoom call. The Zoom webinar, the traditional webinar. Have a speaker, everyone watches that speaker. There’s a chat feed where they can respond, or ask questions, or talk to each other. And maybe there’s a Q and A at the end. It’s pretty one way, right? It’s one person broadcasting to a lot of people.
David Spinks:That’s not really going to be a virtual event in the same way that a physical event, you have the opportunity to meet people, to turn to your neighbor and talk, to network. And so the really great virtual events are incorporating more opportunities for those attendees to engage, to participate, to network with each other. And so, events that do this really well have a combination of different formats. They do have speakers that are presenting and educating, and then they have speed networking, so icebreaker.video is a really great tool for this, or if you use Hopin. A lot of these tools have speed networking built into it, where each attendee gets randomly matched up with another attendee. Icebreaker does a good job of giving discussion prompts for them as well. And you can choose the time that it rotates out. So you can do three minute talks, or five minutes talks, or seven minutes, and then it fades out then at seven minutes, and you get matched up with someone else. So our community loves that, that’s been really effective.
David Spinks:And then just a small discussion group. When you have a speaker broadcasting to everyone, no-one else is getting to meet each other or discuss the content. And so using breakout rooms, using smaller group discussions, is a really awesome way to make it feel more like a real event where they’re getting to meet people. They get to participate in the discussion, they get to bring their questions and hear from others. And so that’s a really valuable way of making your virtual event more engaging.
David Spinks:And you can combine these things, right? So we do, CMX Connect is our global event program that’s run by members of our community. We have over 60 chapters around the world. And for all of the events that we do, we combine all these different elements into one event. And so we might have 30 minutes of speed networking to start, and then we’ll have a speaker talk on a topic, like measuring your community, or running virtual events. And then we’ll break out into discussion groups, so that people can discuss that topic amongst themselves, and share their own challenges and their own lessons. And we might mix up that order, and mix and match different formats, but you can think it as modular like that, you have these different event modules, and you can combine them to make a more holistic experience for your community members.
Harry Stebbings:I’m really pleased you mentioned Hopin there, it’s one of our favorite platforms. So, really pleased to hear that. And you also mentioned discussion groups, and I’ve heard you say before that one of the key rules is, it’s under 10 and over 30. Explain this ratio and rationale to me here, David.
David Spinks:So it’s just a way of remembering how to make a discussion group really valuable. And it’s not a hard and fast rule, but more of a guideline. So under 10 means less than 10 people. We’ve all been in discussion groups with 15 people or 20 people, and there’s just no way that everyone gets an opportunity to have their voice heard, not everyone’s going to get to participate in the discussion. If you try to involve everyone, you just don’t get to go very deep. And so I think ideally discussion groups are generally six to eight people. I think 10 is about the most you want to have, so shoot to have less than 10 people per group.
David Spinks:And then over 30. So this depends, but generally, especially if the entire event is a discussion group, 30 minutes is just not going to be enough time. You want to have enough time for people to introduce themselves, for you to kick off the conversation, and then really give people opportunity to bring their challenges, bring their voice, be able to respond to each other, be able to get into conversation. And just so many discussion groups, especially virtual ones, which just take a little bit more time to really facilitate and engage, they get cut off at 30 minutes, and that’s when the conversation usually starts getting good. And so, just making sure that you have ample time for people to have that discussion, and you keep the group small enough that it can be a meaningful discussion.
Harry Stebbings:Totally with you there in terms of giving it ample time. You mentioned the facilitation, there. I’m interested, because it’s a tough role, being a facilitator. What’s the most important role for a facilitator to enforce, in your mind?
David Spinks:I think it’s about equity of voice. I think their job is to identify who hasn’t had a chance to speak, and making sure they create the space for those people to speak, and their job’s to see when somebody is taking up too much airspace, and moderate and facilitate and say, like, “Thank you so much for sharing. It’s been really great to hear from you. I’d love to hear from other members of the group. Harry, what do you think about this topic? Anything that you’d like to share?”
David Spinks:And so without that moderation, every single discussion group I’ve ever participated in has devolved into one person talking a whole lot, and everyone else is having to sit there and listen. And when people participate in a discussion group, they don’t feel like they’re in a position of power or authority to moderate themselves. And if they did, it might feel very, they’re bringing conflict to the group. And so first of all, every discussion group should have a moderator, a facilitator. You should never have an unmoderated or unfacilitated group. You always want to have someone who’s responsible for facilitating the discussion, and it’s that person’s job to make sure that everyone has an equal opportunity to share their voice
Harry Stebbings:Totally with you in terms of the voice equity. There’s one element, which is always challenging, which is that terrible, awkward silence, especially when you throw an open question out and everyone’s waiting for everyone else to answer. I’m interested, in terms of the awkward silence, what’s the right way for the facilitator to act and engage in those awkward silence moments?
David Spinks:You just got to sit with it, honestly. It’s always tempting to try to fill in empty space. You always want to take out the discomfort for everyone, but I think a good facilitator is comfortable just sitting with that silence and letting others fill it in with their voice. And sometimes it’s just people wanting to be polite, and they don’t want to be the first one to speak, and they want to give other people a chance to speak. I remember in elementary school or middle school, not wanting to be the first one to raise your hand. People just are hesitant to be the first one to volunteer, but then once one person gets going, then it opens it up, and others want to share.
David Spinks:And so just being comfortable with those uncomfortable silences, letting it sit and letting people fill it in themselves. I’ll just sit there on the Zoom call and smile, and see them start to smile as they realize that no-one’s saying anything. And then inevitably someone, within 30 seconds, which might feel like a lifetime, but it’s usually only 30 seconds, someone will be like, “All right, I’ll go.”
Harry Stebbings:That’s funny. 30 seconds, as a facilitative before, 30 seconds does feel like a lifetime, I tell you, David. I do have to ask, though, when we do Q and As, as well, the awful moment is when you say, “Does anyone have a question from the audience?” And you get the really awkward, no questions. What do you do in those situations? Do you seed people in the audience? Do you have backup questions ready? What’s the right way to approach that really awkward element?
David Spinks:Yeah. I think that you really do want to seed it ahead of time, if possible. And you want to continue to remind people to post those questions. One really fun thing you can do is ask people to send in questions ahead of time. And if you’re doing it like a webinar or Zoom call, you can actually have them send in videos of themselves asking the question, and then you can pull in the video and play it live, so it actually looks like someone came on and asks a question and then you bring it back to the speaker to answer the question. So that’s a fun way to make it work on virtual events that you couldn’t even do elsewhere and offline, but seeding things upfront is really good throughout the event.
David Spinks:Reminding people, like, “Hey, just as a reminder, we’re going to be moving to Q and A in 10 minutes. So please put in your questions now, so we can get rolling right away.” Right? So that’s the kind of thing, because sometimes you open up to Q and A and you forgot to remind anyone that it’s coming up, and then they’re not ready to ask a question. And so you want to try to seed it as much as possible. And then when you get to that Q and A point, if you realize that there are no questions in there, don’t stop and say, like, “All right, any questions?” Just keep rolling through it and say like, “All right, well, I have a few more questions that we seeded from the community ahead of time. Please keep posting your questions here in the chat, but let’s dive into the first one.” And so you don’t have that dead air time. And so that’s different, right?
David Spinks:If you’re facilitating a discussion group, uncomfortable silences are really good. If you are putting on content, you’re performing, you’re creating, it’s like doing a podcast or doing a radio show. You don’t want dead silence on a TV or on a radio. It’s the same thing in your webinar, you don’t want to be sitting there live with 200, or a thousand, people watching you and just saying like, “All right, any questions?” That’s just awkward and that just looks like people aren’t engaged, which isn’t a good look. And so I’ll just keep rolling through it, and just go right into those pre-seeded questions that you’ve already pulled in, or prepared. Or just make it up, say like, “Oh, we collected these questions ahead of time. Let’s dive into that.” Even if you literally made up those questions right before the call.
Harry Stebbings:Trust me, David, with my over-excited British way, there is never an awkward silence in my podcast, but I totally agree with you there. I do want to ask this, so we have this event, and we want to know if it’s successful, and we need to measure it. In terms of measurement, I’ve heard you say before that there were two lenses with which to really measure the success of your event. What are those two lenses and how do you break them down?
David Spinks:Yeah. So in working with any community team, we map it out that you have two, what do we call them, dual objectives. So you have a business outcome that you’re hoping to achieve, and then a community outcome that you’re hoping to achieve. And you should be able, in theory, to achieve both with any sort of experience or program that you run. So if it’s a forum, you have your engagement in the forum, your monthly active users, your daily active users, your sense of community, you can actually survey people, you can get NPS, and all these ways of measuring the health of community. And you might be looking at something like reducing support costs, or collecting feedback on your product, or retaining customers. And so you have both the community and the business objectives.
David Spinks:And it’s the same thing for events. You’ll have aspects of the event that you want to tie back to, are we building a healthy community? And in the same way as an online group or forum, you can send out surveys. “Do you feel like you belong in this community? Do you feel safe in this community?” Net Promoter Score. You can look at number of attendees. How many RSVPs did you have, and what percentage of them showed up? How many of those people were repeat attendees? So these are all kinds of things that show you, is your community happy, healthy, and engaged?
David Spinks:And then you’re going to have the business objectives. We use a really simple framework for identifying the business value of community programs. It’s called the SPACES model. So that breaks down into support, product, acquisition, contribution, engagement, and success. And so those are the six areas and you could probably figure it out from the name, but support is people supporting each other, answering questions, giving each other support with their technical problems. That tends to be more in an online forum space, but it can work in events as well.
David Spinks:Product is, you’re collecting feedback and insights on how to improve your product from your community members. So, did you collect that feedback at a booth at your event? Or did you have people fill out a survey at the event to help you improve your product?
David Spinks:Acquisition is growth. So this is actually a really key one for events, and everyone should be doing this, and every event platform should hopefully be able to help you do this. And so you should be able to say, who came to our events, how many people came, how many of them were new leads? How many of them were new prospects? How many of them were opportunities? How many of them ultimately closed to sale? How many of them were customers? And so that gives you a good idea of how your events are actually impacting pipeline.
David Spinks:Contribution is, if you have a platform, let’s say, Airbnb, you have hosts who are contributing to the platform. They run lots of events for their hosts, and they want to see that those events are helping their hosts become more successful at contributing to the platform.
David Spinks:Engagement is essentially customer attention. And so, are our customers more likely to be loyal, to stick around, customer lifetime value as a result of attending our events.
David Spinks:And then success is, customer success. It’s helping people be more successful at using your product, and growing in their career through education programs.
David Spinks:And so all of those can be powered by your events and your online communities, and you can tie any of those events back to one of those business outcomes.
David Spinks:And the last thing I’ll say there is just, we tend to think of these events as one-offs, right? We think of it as like, “This is an event and this event needs to drive this business value, this community value.” And that’s it. We look at it in that bubble, but what you should look at your events as, is touch points with your community over time. And so your goal is to build an ongoing, engaged community over years. And that event is just one single touch point amongst many touch points, that can include your forum, it can include your email, it can include events, in-person events, when those come back. It’s one touch point in an ongoing community member journey that people are having with you.
David Spinks:And so, think about holistically for your event program. Maybe you’re doing a big conference twice a year, and you’re doing regular meetups every month, and you’re doing office hours every week. Those are different kinds of events that you can create, and each one of those is going to have a different community goal, and it might even have a little bit of a business goal. Or maybe some of the events don’t have a business goal, it’s just about engaging the community, knowing that later it’s going to drive business value. And so when you think about it, now you start thinking about your entire community program holistically, and all the different events and touch points that might feed into that customer journey.
Harry Stebbings:I absolutely love that holistic perspective. And I really liked the breakdown there between the two different lenses. So I think that’s an awesome clarity to what is quite a murky, “How do I measure success?” I do, though, David, want to move into my favorite, which is the quickfire round. So, I say a short statement, and then you hit me with your immediate thoughts and I’m going to throw in a couple that aren’t in the schedule that you just mentioned because I’m too intrigued. So just roll with that. Okay. So you mentioned that RSVP to confirm in attendance, what’s a good measurement and a good success rate in terms of that RSVP to attendance of virtual events?
David Spinks:That range is going to be huge, because it depends on the size of the event, right? If you have a 10 person event, you probably want all 10, or at least nine out of 10 people to show up, because you personally invited them. If you have a big conference, it’s going to be lower and we’re seeing the range all across the board. Some people are seeing higher attendance rates than their offline programs were, some people are seeing lower rates, and so offline, historically we’d see for a free meet-up, or a free event, you’d see about 40% people show up. We just hosted CMX Global. We had 3000 people RSVP for that event and we had 2200 show up. It was about 70% showed up, which awesome. It was really cool to see that high of a turnout rate.
David Spinks:It’s hard to have a benchmark, just compare against your own events. So if you did a conference, how do you compare against the last one? If you do a meet-up, how do you compare against your previous meet-ups? And see what you can do to continue to improve that conversion rate by improving your emails, your communication flows, things like that, that might help people be reminded that the event’s coming up, and make sure they have it on their calendar, and that they’re ready to join when it kicks off.
Harry Stebbings:What a terrible question from me, I apologize for that. Benchmark- [crosstalk 00:30:08].
David Spinks:Well, it’s a terrible, “It depends,” answer, which everyone hates.
Harry Stebbings:Tell me, what’s the biggest misconception around virtual events?
David Spinks:There’s a belief that you just can’t build real community through virtual events, there’s just no way you can replace in-person experiences with virtual experiences. And that is true, that you can’t replace it, and there’s a hundred percent, many elements of in-person gatherings that we are just never going to be able to replicate virtually. Even if you got the VR experience perfect, and you have your haptic suit, and you could feel everything. And even then, it’s still not going to be the same as just being able to run into someone in the hallway of an event. It’s the serendipity that you miss out on.
David Spinks:That said, there are a lot of things that you can do to create really meaningful experiences that help people actually connect with each other, and form relationships and form legitimate bonds. And so you have to get creative, and you have to figure out ways of creating serendipity and connecting people with each other in ways that aren’t just a webinar.
David Spinks:You can replicate a good amount of things that you have in an in-person event. Will it do it a hundred percent? No, but there’s a lot of value that you couldn’t even do in an in-person event, because virtual events are just more accessible, for one. So people who may have not been able to travel, or afford a ticket, they can all come together in a virtual event in a way they couldn’t in person. So look for the unique values, or the unique opportunities that virtual events provide, rather than just trying to copy what an in-person event is.
Harry Stebbings:Totally agreed in terms of not being a copy of the in-person. Final one, but a really interesting one for me to hear is, obviously you have CMX, but of all the other virtual events you’ve been to, what has been your favorite virtual event, and what made it so good?
David Spinks:it would be the virtual Passover Seder that we hosted with our friends and family.
Harry Stebbings:Got you. And what made it so good was the bond between friends and family?
David Spinks:Yeah, it was awesome. It was a virtual Seder and, so Seder means order. And so it’s basically, you go through the order of Passover, and you read the stories and you sing the songs. And we had, everyone pulled up a virtual Seder, and they each read from it. So we rotate around. So everyone felt involved, everyone felt included, you drink a lot of wine during it. So it was fun. And so we used to host Seders at our house all the time, every year.
David Spinks:Obviously we couldn’t do that this year. So we did it virtually, but my family is in New York. I grew up in New York, I live in San Francisco now. And so they’ve never been able to be there for the Seder that we host. And this year they were able to join from New York. And we even had two other friends, from Australia, join us. It was morning for them, so they maybe had a little less wine than us, but it was really cool to be able to have our really close friends in San Francisco and our family involved. And just seeing that melding of different groups, that I think otherwise would have been really hard, because everyone would have just done it with their friends, or with their family, to be able to bring those groups together was really special.
Harry Stebbings:David, as I said, I’ve been an admirer from afar for a long time. So I can’t thank you enough for joining me today, and this has been fantastic.
David Spinks:Awesome. Well, thank you so much for having me.
Harry Stebbings:Absolutely loved that deep dive with David. And if you’d like to see more from David, you can find him on Twitter @DavidSpinks. Likewise, it’d be great to welcome you behind the scenes here. You can do so on Instagram @HStebbings1996, with two Bs.
Harry Stebbings:As always, I so appreciate all your support. And I can’t wait to bring you another fantastic episode next week.
It took me a little while to see activation rates as literally one of the 3-4 most important metrics in SaaS, but it probably is. I started to track activation rates at a lot of start-ups I work with, and I saw numbers that shocked me. I often say 60% or so activation rates 30 days in.
Think about that. That means after all the time and money put into building your product, marketing your product, trialing your product, demo’ing your product, selling your product, closing the deal, celebrating … and then … a ton of those customers are immediately at risk. Why? They don’t deploy.
I don’t have a perfect metric, but after working on this with a dozen+ SaaS companies recently, I have a simple heuristic:
90% or more of your customers need to activate in the shortest practical time. And you need to track this, measure it, and discuss it weekly. Every week.
If you don’t, so much of that hard work is down the drain.
The exact amount of time can vary. In some cases, it should be the day they pay, e.g. an in-app purchase or an upgrade from free to paid. For many apps, perhaps it takes a week. If there is real business process change, it might take a full month to deploy into production. It’s also important to distinguish between a limited pilot and true deployment, lest you take your eye off the ball here as well. And ideally, you’d track not just activation, but also % deployed as well in bigger deals. But just starting with activation and tracking it as a north star metric is enough.
Whatever the shortest time the team can agree makes sense, start measuring it now. What I can tell you is over 80% of start-ups are shocked how low their activation rates are, once they are faced with them as a core metric for discussion. Importantly, activation rates are always lower than people think intuitively. Yes, folks anecdotally know some of the customers that haven’t deployed. But they rarely have a 360-view of how many, and why. Put differently, almost everyone is doing worse here than they think.
The best way to grow your revenue in SaaS is to keep the revenue you do have. That’s the magic of compounding revenue.
And the simplest way to make that happen is to make sure all your customers go live as soon as possible. At least 90%. While B2C can be different, for a B2B app, why should it be less?
And then make sure you have clear action plans for the other 10%.
Ep. 333: Bridget Gleason is the Head of Sales and Customer Success @ Tidelift, the company providing managed open source, backed by maintainers. Tidelift has raised over $40M from some of the best in the business including Foundry Group and General Catalyst. As for Bridget, she has the most incredible track record. Before Tidelift, Bridget was VP of Sales @ Logz.io and before that was VP of Corporate Sales @ Sumo Logic where she drove ARR up by a record 237%. Prior to SumoLogic, Bridget was VP of Sales @ YesWare where she increased MRR per rep by 450%. Finally, before YesWare, she was VP of Sales @ Engine Yard, where she tripled monthly recurring revenue, over the course of her 3+ year tenure, in 3 key leadership roles.
Pssst 🗣 Loving our podcast content? Listen to the start of the episode for a promo code to our upcoming events!
In Today’s Episode We Discuss:
* How Bridget made her way into the world of SaaS and Sales and came to be Head of both Sales and Customer Success at Tidelift.
* Why does Bridget believe the best starting point for customer success is “company culture and value”? How does company culture impact the quality of customer success? In practice, what can one do to improve it? Who has done this well? How does value drive customer success forward?
* How does Bridget think Maslow’s Hierarchy of Needs drives the roadmap for customer success? What core elements does it change? Where do most teams go wrong in implementing the role out of their CS strategy? When should one hire their first CS rep? What should that hire look like from an experience perspective?
* How does Bridget advise her CS reps the best ways for them to build trust with their clients? What works? What does not work? Does Bridget believe CS teams should be involved in the upsell process? Does that endanger the element of trust?
Ep. 334: Hear from Michelle Zatlyn, co-founder and COO of Cloudflare. Michelle started the company during an economic downturn in 2009. In this talk, Michelle will share how she made her business idea come to life and some lessons learned that can help other entrepreneurs—from solving a real, meaningful problem, to communicating in a crisis, prioritizing when there’s a true lack of resources, and more.
Harry Stebbings:Hello, and welcome back to the official SaaStr podcast with me, Harry Stebbings. I always love to see behind the scenes, you can do that on Instagram at @HStebbhings1996, with two Bs.
But, time for the show today. We’ve spent a lot of time in the world of marketing lately, and so I wanted to switch it up today, and move to the sales and customer success side. So, with that, I’m delighted to welcome back to the show Bridget Gleason, Head of Sales and Customer Success at Tidelift, the company providing managed open source, backed by maintainers. Tidelift has raised over $40 million from some of the best in the business, including Foundry Group and General Catalyst.
As for Bridget, she has the most incredible track record. Before Tidelift, Bridget was VP of Sales at Logz.io, and before that was VP of Corporate Sales at Sumo Logic, where she drove ARR up by a record 237%. Before Sumo Logic, Bridget was VP of sales at Yesware, where she increased MRR per rep by 450%. And finally, before Yesware, she was VP of sales at Engine Yard, where she tripled monthly recurring revenue over the course of her three year tenure, in three key leadership roles.
But, that’s quite enough from me, so now without further ado, I’m so excited to hand over to Bridget Gleason, Head of Sales and Customer Success at Tidelift.
Harry Stebbings:Bridget, I have to say, it is such a joy to have you back on the show. Thrilled to see about your recent move to Tidelift, and such exciting times ahead there. But, thank you so much for joining me today, Bridget.
Bridget Gleason:Well, Harry, it was great. You know, the last time we did this, it was, I think, February 2019, so just a little over a year ago. Really great to connect, and get caught up.
Harry Stebbings:Absolutely it is. Listen, I loved that episode so much, when we did the first one. But, hit me, for those that maybe missed our first episode, which was so great, tell me, how did you make your way into the world of SaaS, and how did you come to be the rockstar head of sales and CS at Tidelift today?
Bridget Gleason:I love it, I love the rockstar name that you give me, whether it’s true or not. But, Harry, I like to tell people that I took the jungle gym route here, meaning that it wasn’t this straight line from rep, to manager, to VP, mine was nothing like that. I was an English business major in school, but I taught in the engineering, I was a [inaudible 00:04:08] in the engineering school.
I went into product marketing for the commercial arm of Xerox Park, which is a big computer research company here. Then, I went into sales school, Xerox sales school. Then, I started a company, which I sold in early 2000. Did a lot of consulting for high tech startups, I really love the startup space. Ended up taking VP of sales role with one of my customers, and then, gosh Harry, I did all sorts of things. I opened an office in Ireland for one of the companies, I was the first US employee for an Israeli company.
And now at Tidelift, which interestingly, the CEO reached out to me after he heard the podcast that you and I did more than a year ago.
Harry Stebbings:That is amazing to hear. I did not know that, but I’m absolutely to thrilled to hear that. He clearly has great tastes in podcasts.
Bridget Gleason:Well, he does have great taste in podcasts. And, I don’t know that I would have found Tidelift, and it’s just been a career defining role and move for me, and really, really inspiring. So, thank you, thank you Harry, for doing what you’re doing.
Harry Stebbings:I absolutely love doing it. But, I do want to start on a really interesting aspect, because when we spoke last time, you were head of sales. And now, with the new role with Tidelift, CS, customer success, has been incorporated into your purview.
With that, we have to have a starting point for the strategy and the plan, and when we spoke before you said the best starting point for customer success is company culture, and value. What did you mean by this? Maybe, is it better to take it turn by turn, and how does company culture play into the level and quality of customer success?
Bridget Gleason:There’s always been this discussion. Does customer success start after you close a sale? Should the handoff start before the customer becomes a customer? Should customer success start when reps are reaching out?
My belief, Harry, is that customer success starts with the culture of the company. I read a book, God, it was years ago, about Marriott. JW Marriott was notorious for this, and he said, “If we treat our employees right, they’ll treat the customers right.” I think Marriott started in 1927, and in the early ’30s, they were one of the earliest companies to give healthcare benefits to their employees. They really had an employee first, and by extension, a customer first orientation. I believe that 100%, that if we’re not treating each other well, and we don’t have a culture that is engaging, and respectful of the individual, it’s going to be very hard for us to extend that to the people who we’re dealing with.
When you look at, just in statistic, Harry, of it, companies that have employees who are highly engaged are 22% more profitable. So, how did we do that? You’ve got to have a culture where employees not only survive, but they have to thrive.
Harry Stebbings:Can I ask, if we take that to a practical level, because I totally agree in terms of that career development, and the thriving. We’ve seen the chastising of the foosball tables, and La Croix provisions that are deemed culture, often. What can one do, on a practical level, that you’ve seen work in terms of building that culture and company value so inherently into how we think about, also, customer orientation?
Bridget Gleason:Well, I think there’s a lot of different pieces of it.
I know, just at a manager level, one of the things that I try to do with my direct reports is, first of all, how are they doing? Just, how are they doing as humans? Especially now, around COVID-19, how we’re doing, we’re all under a lot of stress, so checking in with how people are doing. As well as their professional desires and aspirations, those are always top of mind. One thing we did as a company was … It was last Monday, our executive team said, “You know what? We need a Maintain Ourselves Monday.” Everybody just got a day off. It’s an allowing of people to bring their whole selves.
This leads to the next part, Harry, when you asked about value. I believe that values lead to value. So, values lead to more, also, value creation. Tidelift is unique in my experience, in terms of values. There is not a person in the company who couldn’t rattle off the four values, we talk about them every day, and have them integrated into their work. We don’t need to have them posted, we don’t need to have them, really, reviewed, they are so woven into our brand. So, that’s how we deal with one another internally, as well as externally.
I’ll tell you what they are really quickly, because I think they’re interesting. There’s four of them. So, optimistic, we see an amazing future. We deal in open source, we provide managed open source for large companies. We believe that open source is really awesome, and we want to be part of it. So, we’re optimistic, and as it relates to customer success, we believe that for our customers. We’re practical is value number two. We know that the words in these lofty ideals aren’t enough, so we try to be very pragmatic, and very honest, and have a really honest assessment of ourselves and our product. The third is additive. We have a growth mindset, that we’re capable of learning and doing more. Then finally, is around inclusivity and diversity, and we believe the world is a better place with diverse voices.
Those are the things that we practice internally, but also bring those to the table when we’re dealing with customers.
Harry Stebbings:I love the four values. I am really interested by one especially there, and it’s the element of open source. Now, you’ve been involved in both sales and customer success is closed source also. How does it differ, in terms of traditional enterprise software, versus open source? Specifically, when it comes to customer success, is there a core differentiator?
Bridget Gleason:Well, I’ll tell you, for us what’s a core differentiator is open source is an amazing phenomenon, of all of these people contributing with no expectation to get anything back. When we talk about additive, as it relates to open source, there’s been a history of companies harvesting the value from open source, but not, then, added back to it. So, when we think about customer success, we don’t want to just harvest the best things of open source, and not contribute back. But, we also want to be ones that are adding to the value, that’s a core, underlying mission.
So, our products and services are around how can we help companies utilize open source more effectively, more securely, more responsibly, as well as contribute. And then, it’s a two-sided marketplace, so we’ve got subscriber companies that we provide support for the open source that they use. And on the other side, we have the maintainers themselves, that we pay to keep their open source that they are responsible for secure, et cetera. We’re trying to add back in both ways, and make both parties successful.
When you have a commercial product, you don’t have this two-sided marketplace, where you’re trying to balance both. Making sure that we’re not just harvesting, but that we’re really contributing in a meaningful way back to the community, and we engage in that also with our customers, which I think is really, really powerful.
Harry Stebbings:Speaking of engaging with your customers in that way, I am really interested if we take the hat of head of sales that you have worn before, now incorporated the head of CS also. A lot of questions that I get asked from early stage founders is, “Okay, I’m always told that I need to develop a sales playbook before I can hire my first sales rep, and then I pass it onto them. With customer success, is it the same? Is there a customer success playbook that I have to develop? And, when should I hire my first rep?”
I guess, there’s three separate questions there, that are kind of integrated. How do you think about that requirement for CS playbook, and when to hire your first?
Bridget Gleason:So, I see sales and customer success as a continuum. I don’t see them as distinct, perhaps, as some might see them. When the sales team is engaging early on, what we’re trying to identify is what is the success criteria of this particular prospect, what are they trying to achieve? How might we be able to help them do that? By extension, then, that after the commercial are completed, we’re just extending what that looks like.
I think a highly functional, evolved team is one that starts the criteria really early on, and is just rolling it out, and playing it out. If you don’t do a good job on the sales side early on, and setting those expectations, it will be very difficult for you to do a good job on the customer success. So, the playbook needs to be written as you’re working this out with prospects.
In fact, Harry, I’m working right now on some big proposals. Some of the sales reps and I are working on some big proposals, and customer success is highly involved because in these proposals is the success plan. What we do is we send out, in a Google doc, a proposal. We ask that the prospect to review it with us, and tell us where we have it wrong before we submit something formal. It’s not just pricing, it goes all through the rollout, Harry, of what it’s going to look like as we rollout. Not just rollout and onboarding, but then, what does success look like? We start really, really early.
Then, to your question about when to hire, because it’s a continuum … Again, we’re an early stage company, so what we did, as you’ve probably seen before, is founder’s really involved, everybody’s involved. Founder’s really involved, then you have the sales team that’s managing it as it extends. And then, we got to a point, also … Again, we sell to very large, primarily regulated industries. Because we’re selling high, six figure deals, we just need to make sure that we’ve got enough resources on the ground to deliver a really incredible experience to them.
Harry Stebbings:How do you think about professional services, and the challenges that naturally occur in terms of delivering that in a COVID world?
Bridget Gleason:We’re all learning. We’ve had to adjust a lot of our delivery mechanisms, and these are things that we’re doing in conjunction with our customers.
It’s interesting, Harry. Because we sell a technical product to technical people, they’ve actually been distributed for quite some time because in order to get great talent, you’ve got to be distributed. You don’t have to be, but it helps if you can be, in terms of getting talent. I don’t know that we’re facing as much of a challenge, because the teams that we work with are often highly distributed anyway.
But, it’s going to continue to evolve, it’s continuing to evolve. It’s something, I think, we’re all really grappling with.
Harry Stebbings:Pulling on that thread, I’m really interested to dive in here. A lot of founders say “Hey, our professional services is growing, and it’s becoming 30, 35 percent of revenues.” At what point do you think professional services becomes too heavy weighted on the revenue front? And, how should founders think about that balance and tipping point?
Bridget Gleason:Well, I guess it’s what function is professional services performing, in terms of the sale, the implementation, and then the ongoing maintenance. And, how big a part of your business do you want that to be, do you want to be a services organization?
If delivering services is fundamental to your product, if it’s a core competency, keep it. Keep it, keep, keep, keep it. If it’s not, if it’s something that you’re delivering but it’s not really part of your core competency or differentiator, there would be an argument to bring in partners. Because there’s some benefits that you can’t achieve you’re also using partners, and letting them take on some of the professional services revenue.
I look at it, just how core is it to what you’re delivering, the value that you deliver?
Harry Stebbings:Yeah, absolutely. I love the integration there, of partnerships.
I do want to stay on CS though, so apologies for that drifting off. But, we discussed the first stating point. If we then think about enacting that, and putting a roadmap of success together, you’ve previously stated the importance of Maslow’s Hierarchy of Needs as a roadmap for customer success. A bit of a cliffhanger for me, with that one. So, talk to me about this one, Bridget. How is the Hierarchy of Needs a roadmap for customer success in your mind?
Bridget Gleason:It’s an interesting one, and our CEO Donald Fisher is the one who first started talking about this, with prospects and customers. If you think, Harry, at the very base level of the hierarchy, the basic needs, which are physiological and safety, what that translates to customer success as I look at it is implementation, onboarding, you answer my questions quickly, you handle my basic needs. And Harry, I think for too long, we’ve looked at these basic needs as, “I’m doing great customer success! They’re implemented, they’re onboarding, I answer their questions,” and we measure things by that.
If you go up a level, though, the next two levels in Maslow’s Hierarchy are belonging and esteem. Those, in the customer success world, they map to adoption and insights. Is there more that I can get? Because on the esteem side, and the belonging, and what are other people doing, that fits in there. Is there more, are a lot of people using it, do I feel good because I’ve gotten great adoption in the company? That’s better, customer success when it moves up to that, and you’re helping companies extend the adoption as well as get more insights, that’s good. I think most companies, if they get to that, they’re going to give themselves an A.
At Tidelift, we’re not stopping with those. The very tip is the self actualization, and what that looks like is a thought partner. For Tidelift specifically, how are we, together, making open source better, this community? We have an amazing community. Again, specific to Tidelift, there’s a movement, when you get to this level, of open source consumption. So, how are we, as a company, consuming open source in a way that is efficient, and secure, and responsible to an external contribution?
Harry, what is so amazing, and what’s so thrilling about being part of Tidelift is the companies who we are engaging with, they have a strong desire to move beyond the harvesting of open source, and getting whatever they can out of it because they know it’s amazing, so they want to keep using it. But, they also want to be contributors, and to give back to this community. That’s where you get this self actualization.
I think, in other companies, it’s similar, it’s not going to map in the same way that Tidelift will map. But, where do you find, at the tip of the pyramid, that you can engage with your customer to do something greater, and to be really a thought partner in whatever it is that they’re doing because they’re the star of the show.
Harry Stebbings:I totally love that positioning as the thought partner. Can I ask, in terms of check-ins, I think a lot of CS teams get this wrong. What does the right check-in structure look like to you? And, how do you think about really structuring that conversation ahead of time, without being too formulaic, and objective, and maintaining that human element of the relationship?
Bridget Gleason:I’m not a fan, Harry, of, “Hey, just calling to check in,” where there’s no structure to it.
If we go back to what we were talking about earlier, this success plan that we put in place before they become a customer, it does give you a roadmap. They often have a roadmap of what they’re trying to achieve, so we do two things. One, with good tooling, we try to understand as much as we can about what’s happening in their environment without having to ask them. Again, not being creepy, they need to know, “Hey, we’re looking at your dashboards,” or whatever it is, whatever kind of tooling makes sense. We learn as much as we can through tooling, because in SaaS you have a great opportunity for that.
Then, number two is, we really stick to and look at what they’re trying to achieve in the success roadmap, and use that as a template when we have these conversations. Has that shifted, have things changed? COVID-19 changes a lot of things for how things are going to be rolled out, how we implement things, and it’s a continual conversation.
We also let our customers guide, in terms of the frequency of check-ins, and the mode. Sometimes it’s phone, sometimes it’s Zoom, sometimes it’s Slack, sometimes it’s text, sometimes it’s email, sometimes it’s a report, sometimes it’s an in-app message. But, we work with them to develop the communication cadence and style that works for them.
Harry Stebbings:Sorry, you said there about the impact of COVID. I do just have to ask, with both hats on I’m sure you have such amazing purview, but I have so many SaaS founders who say, “Hey, Harry, so far, my sales pipe hasn’t been impacted.” I guess, how would you respond and advise that founder? How have you seen your sales pipe be impacted? And, how do you think a head of sales should be thinking now in enterprise, when looking at that pipe?
Bridget Gleason:When you’ve got founders who say the sales pipe hasn’t been impacted, that, to me, means if you think about an axis of companies that are least affected to most affected, and the financial strength, they’re selling into a quadrant that is financially strong, and not as affected. Which aren’t very many companies, by the way, not very many companies that haven’t had a supply chain disruption in some way. So, I think that’s great. I mean, that surprises me a little bit, but I think that’s great.
Harry Stebbings:But in enterprise, the contracts are long, the clients are slow moving, generally speaking.
Harry Stebbings:So with heavy enterprise, my concern is … I go, the big point here is, so far. Actually, we haven’t had the first round of renewals, and we haven’t had the first discussions on this accounting. This is going to be more painful than you think, don’t go into this thinking so far, we’ve been fine, so we can expect the same moving forward. Batten down the hatches is my advice.
Harry Stebbings:Would you agree with that?
Bridget Gleason:Yes! Yes, 100% because the plans are still evolving, the plans are still evolving. What one hears from a prospect or a customer may have been said to them with 100% integrity. “This is going to happen, in this timeframe,” 100% integrity. But, things can change because we’re not through it yet to know, nobody knows.
I agree with you, that we need to move through with a measure of caution, and realism. Again, one of our core values … Okay, I can’t get through the day without talking about one of our core values, but being practical. And just flexible, build that into the plan, that things are not going to go exactly as planned. They’re not going to.
Harry Stebbings:If we have that in mind then, a willingness to accept uncertainty, say, when we think about rollouts, the other big thing that I’m seeing is slippage, especially at the enterprise level. From the customer success perspective, what kind of core things are you seeing in terms of slippage, in terms of delayed rollouts, that you think COVID has really impacted?
Bridget Gleason:Well, COVID affects people, and people are part of these rollouts. People are getting sick, they’ve got family members who are sick, they are working in environments that they’re not used to working in. So, I think we see slippage, and time frames extended because of the very human element of what’s happening, and a lot of uncertainty.
Harry, people are more stressed, there’s more anxiety, they can handle less. Zoom fatigue is a real thing. You factor in the human element of all of it, and things are going to take a little longer. We’ve got to accommodate for the human part of the businesses that we’re selling into, that we’re not selling to robots. Again, just keeping that in mind, and having some buffer built in as we think about it. It’s a great muscle right now, that we can learn to flex as an organization, of being flexible, and resilient, and learning how to have some buffer but still keeping things going down as predictable a path as we can.
Harry Stebbings:You said there, flexible and resilient. The question that I get a lot from different founders is, “How much should we be willing to give when it comes to discounting?” When you think about discounting, and that flexibility and resilience in mind, you’ve got to meet your business objectives, but you also need to be flexible. How do you think about the right level of discounting to accept?
Bridget Gleason:God, it’s so funny, Harry, I haven’t thought about discounting at all.
Bridget Gleason:Well, I haven’t. I haven’t thought about it because we’re delivering against value. We’re really trying to look at what the value creation. I do understand how some companies would think about some discount, based on the new reality. It’s not my go-to place, it’s not my go-to place. We try to price things fairly from the outset, so we don’t get into that.
I don’t know, it’s a good question. I get it, but that’s not my go-to place.
Harry Stebbings:I mean, speaking of that pricing fairly though, it does take me something that you said to me before. Which is, the centrality of trust, for a CS team to be successful. So, I guess the biggest for me is, absolutely that makes sense, me the customer, you with Tidelift, how do we build trust in this relationship? And, what really work in building that relationship of trust?
Bridget Gleason:Well, I don’t think it’s a surprise to anyone that trust is a key factor in driving customer engagement and loyalty, it’s a key factor. Threading this pricing issue and trust, a great way to erode trust is to offer a customer a price, then when they ask for a discount, you give them one without asking for anything in return. Because what that says to them subconsciously is, “Oh, I thought you were giving me the best price, but then you give me this other one.” That sows a seed of distrust.
A way around that is a give to get. “All right, I can give you a discount, if you can close it this month because this is important for us.” Or, volume discounts are normal. Or, in exchange for a testimonial, there are things that you can do to give to get. What’s hard, also, about this give to get in this environment is if I were to tell a customer, “I’ll give you a discount if you can do it this month,” that doesn’t seem like it’s really taking into account their realities, also. I may be better off giving them extended terms, just to do it that way. Okay, that’s threading the two together.
Ways to establish this trust. I tell the team, “You have to be trustworthy in order to get trust.” Like, you have to be trustworthy, you have to tell the truth, first and foremost. Second, it’s okay, and in fact I often encourage it, Harry, to tell a prospect or a customer things that you can do and things that you can’t do, because it lets them know that you’re not just trying to sell them swampland in Florida. Also, another way to develop trust is to say, for example, “I will deliver this proposal to you by Friday at four PM,” and you put in a date and a time, and you deliver on it. That starts to say, “Oh okay, they do what they say they’re going to do.” Conversely, if you make commitments that you can’t keep, you’ll erode trust in that way.
Harry Stebbings:Totally aligned, in terms of … It sounds, I don’t mean it badly, but so people would do as you said, what they said they would do. “I’ll email you tonight,” and it comes through tomorrow. It’s like, you said tonight, build that trust in that really important way.
I guess, the biggest way that trust is often deemed to be eroded within the realm of customer success, or often a lot of people think it is, is when customer success is heavily involved in upsell processes. I’m interested to hear your thoughts here. Does being involved in an upsell process erode that element of trust? And, should customer success be involved?
Bridget Gleason:I don’t think it should erode trust at all, if a customer success person is involved in an upsell, because we shouldn’t be talking about an upsell if we don’t think that there is some value, based on that upsell. There needs to be a lot of integrity in the process. If there’s integrity in the process, I don’t see that there’s any issue with a customer success person also being involved in an upsell.
I think, sometimes where I see a separation as being helpful, is sometimes customer success people, if they’re more technical than not, they just don’t feel as comfortable, or as fluent around that process in the commercials. I don’t see that as a problem, I would rather them be clunky, and just be honest, because customers see that, and they respond well to it. But, sometimes I can see just a separation of roles, that you want one person that you just know, if it’s a highly technical product, that they just handle the technical side, and they like to have that handoff, a division of work. Because getting involved in the commercials, you’re involved in a lot of other pieces of the business.
So, I see it not as an issue of trust, as much as just a division of labor.
Harry Stebbings:Totally agreed, in terms of the division of labor. I’m glad we’re aligned on that.
I do want to dive into my favorite though, Bridget, which is a quick fire round. So, I say a short statement, and then you give me your immediate thoughts, in about 60 seconds or less. Are you ready to rock and roll?
Harry Stebbings:Okay. I love this one, actually. What motto or quote do you most frequently revert back to, and why?
Bridget Gleason:Okay. Well, I’ll tell you my most recent, and these change. So, the one that I’ve been quoting most recently is, “If you want to go fast, go alone. If you want to go far, go together.” I just finished this great book called Boys in the Boat, about this rowing team that won the 1936 Olympics in Berlin. I so believe, Harry, that we can do so much more if we do it together, I’m a big believer in teamwork. Again, at Tidelift we’ve got this opportunity to work together as a team, to work together teams within the company, to work together as teams within this larger open source community, and I just really believe that we’ve got this great opportunity if we work together. COVID-19’s another great example, let’s figure out how to do this together.
Harry Stebbings:What do you know now that you wish you’d known when you entered SaaS?
Bridget Gleason:I’m probably not giving a good answer here, but I love surprises. I love the unknowing. For me, I’m so curious, so to learn something new, so I’m glad I didn’t know any more than I knew so that I would have the privilege of discovery. Which, I think, is just a fantastic journey.
Harry Stebbings:Oh my word, it sounds wonderful. But no, I don’t enjoy the privilege of discovery, I’d much rather get to the endpoint much quicker.
Bridget Gleason:That’s funny.
Harry Stebbings:I do want to ask, biggest surprise about the move to Tidelift?
Bridget Gleason:I didn’t know that a company could be so rooted in values, and what that does to how we work together as a team and how we show up in the world, it is one of the greatest privileges of my professional career. This founding team are inspiring, they move me to tears what they’re trying to do in the world. I just feel really committed to what they’re doing, and who they are, and really wanting to bring about more diversity. Here are four individuals who don’t have to care who do, and are using their background to do it. So, just that I could be so inspired by a company.
Harry Stebbings:Building a team outside of the Bay, what’s the biggest pro, and the biggest con?
Bridget Gleason:Well, we’re 100% remote, so we’re all over the place. We’ve got a core of people in Boston, where I sit now. I think one of the pros is when you’re building all over the place, you’ve got a larger talent pool so we get great talent. Also, at this time, COVID-19, we’re all used to working remote.
The biggest con is, oh gosh, Harry, there’s nothing that can replace the in-person. We do get together as a company, several times a year. But, the camaraderie in an office, and that in-person, is probably the biggest con.
Harry Stebbings:If you could change one thing about the world of SaaS today, what would it be and why?
Bridget Gleason:It’s probably the one thing, and the one thing I hate. So, I think sometimes with SaaS, there’s the ability to leave something quickly, that you can be in and out because it’s easy to rip and replace. I think sometimes companies may not stick with a product or service long enough, and it puts a lot of pressure on quicker wins. I think we lose something if you’re not able to establish a longer term relationship, and moving to that point, like I said, of self actualization, really developing something great together.
Harry Stebbings:Do you think time to value can actually be quite an erosive, problematic principle? Essentially, you could try and gamify it to create short term value creation, to reduce the time to value pendulum. But actually, there might be more value, or an optimal situation created with just a little bit more time, and slower to value, but more value.
Bridget Gleason:Yes, plus one to that, I agree.
Harry Stebbings:Yeah, it’s something that always annoys me when people go, “Oh, it’s all about time to value.” Totally aligned there.
Final one. Who in SaaS customer success today do you think is killing it? And, why do you get inspired by them, in terms of their approach?
Bridget Gleason:A couple of companies come to mind, one is Outreach. The CEO, Manny Medina, I knew early on. What inspires me about them is they really are working with customers to try to get to that tip of Maslow’s Hierarchy, and partner to try to figure out what are sales teams trying to do. Okay, so that’s one.
Zapier, I think, is another one. I know the team there, and the woman that’s running customer success. Again, what inspires me about them is this close collaboration with their partners, and really pushing the envelope in terms of trying to help them do more, and the customers really being the star of the show.
Then finally, there’s a company, Catalyst, which is a startup. These two brothers, Edward and Kevin Chiu, that are creating a new customer success platform. I’m just really anxious to see what they’re going to come out with, but I love that they’re trying to change things up a bit.
Harry Stebbings:Totally with you, I think Catalyst are great. But Bridget, listen, as I said, I’ve wanted to do this episode for a while, since I saw about the move. Thank you so much for joining me today, and this has been so much fun.
Bridget Gleason:Likewise, Harry.
Harry Stebbings:I always so love my discussions with Bridget, and I want to say a huge thank you for her for giving up the time today to be on the show. If you’d like to see more from us, behind the scenes, then you can on Instagram at @HStebbings1996, with two Bs, it’s always so great to see you there.
As always, I so appreciate all your support, and I can’t wait to bring you a phenomenal set of episodes next week.
Transcript of Michelle’s podcast:
Announcer:This is SaaStr’s Founders Favorite series, where you can hear some of the best of the best from SaaStr speakers. This is where the cloud meets.
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Up today, CloudFlare COO Michelle Zatlyn.
Ben Dahl:Hi everybody. We are very lucky to have Michelle Zatlyn, co-founder of CloudFlare here today, to talk about starting a business in the midst of some economic headwinds. Clearly we have a little bit of a headwind at this point, and I think Michelle’s perspective as a founder during that sort of time period will be really useful. I think it would be really helpful for Michelle to just give a little bit of an overview about CloudFlare and about herself.
Michelle Zatlyn:Sure. Thanks, Ben. Thanks so much for being here everyone. I’m Michelle Zatlyn. I’m one of the founders and CEO of a company called CloudFlare. And we started CloudFlare during the economic downturn right after the financial crisis in 2008. And so we started to work on this in 2009. And while it’s different, it’s definitely a different thing going on in the world today. I do want to say that there are a lot of companies that actually started with us, that class of companies, and many of them have turned into big great companies today. So if you’re one of those entrepreneurs who are working on your ideas and thinking, “Man, is now the time to start?” it’s definitely possible. So we started CloudFlare in 2009 and today we have about 1400 people around the world. Our customers are internet properties, so websites, apps, APIs, and those customers come to CloudFlare to be fast, safer, reliable online.
So we built a service that does cybersecurity, global performance and reliability for any intranet property. And in these last 10 years, we have 26 million internet properties that use our service on any given day. So a huge scale. We stop about 50 billion cyber attacks daily on behalf of those 26 million internet properties. And we make the internet faster, safer and more reliable for a lot of people, so we’re really proud of that and our whole team is really proud of that. And so that’s some of the things we’ve done in the last 10 years.
And one thing that’s been really cool, starting the company 10 years ago in an economic downturn to today, about six months ago, Matthew and I and our team took the company public on the New York Stock Exchange. So we went from an idea that started during the economic downturn to a company that went public about six months ago. And today we’re about a 6, $7 billion market cap company.
Ben Dahl:So Michelle, as you think about starting CloudFlare in the midst of an economic downturn and you fast forward to today, do you have a sense or major tips for entrepreneurs as they’re thinking about either starting a new business, or extending their current business?
Michelle Zatlyn:Yeah. Sometimes I think it’s easier if you’re starting than extending. So I’m going to answer your question with that frame of mind. Because I think back to 2009 and it was really hard to get a job. I was doing my MBA at grad school, and so many of my classmates couldn’t get jobs. I had done my summer internship at Google. And I remember getting the call from Google, my manager at Google saying, “Hey, we’ve decided not to extend any of our summer internships a full time offer.” Because again, it was 2008. There was this huge financial crisis and people just were not hiring. And in many ways, when it’s hard to find a job, it’s actually, out of necessity it’s actually a really good time to start a company, the right company anyhow. Because I wasn’t competing with a lot of other offers. It wasn’t like you had a choice of a hundred things to go and do and you had to say no to a hundred things to go pursue this one thing.
So if I think back to our year at business school, a lot of amazing companies came out of that. And I think part of it is because the job prospects were kind of gloomy. And so for entrepreneurs who are starting to think about starting, again, I think for the right idea that you’re really passionate about and if you really think you’re solving a big meaningful problem of a big market with tailwinds to your back, it can be a really good time. That doesn’t mean it’s easy. It’s still really hard and there’s lots of things that was hard about it. You got to be really frugal and you got to innovate your way out of problems.
But I do think the mindset of, it’s almost like your option B or your other options, it’s almost easier to walk away from it because there aren’t that many other good things going on, so let me go create this thing that I just can’t stop thinking about. And so that’s for the people who are currently… And then the second thing I will say, I remember we raised, our first round of money from Ben who was one of the partners who helped us raise our series A, and then Venrock. And we raised $2 million, which, today people laugh. That’s like nothing for a series A. But back then, that was kind of the size of rounds.
And I just remember Matthew and Lee and I, and our team of the original eight people who really worked on this idea, we spent every dollar so wisely because it was a scarce resource. And when you only have a little bit of money, you really innovate your way out of problems or engineer your way out of problems. And we had this great engineering team and we really innovated our way out a lot of problems and tried to figure out ways to do things cheaper, better than we would instead of throwing at the problem. We used to have a saying, “Don’t throw money at the problem. Let’s innovate our way out of the problem.” And again, in a downturn like today, where money is still going to be hard to come by, that’s actually I think a really good, it can take you very far when you’re building your company.
Ben Dahl:I recall in the beginning that your rule used to be that the answer when someone wanted to spend additional dollars to solve a problem, was the first answer was always no. And that in the future, to the extent that you couldn’t solve it through creative programming or what have you, that potentially you’d loosen the purse strings. But the reality is, is that smart engineering was an important part of how you approached building the business.
Michelle Zatlyn:That’s exactly right.
Ben Dahl:In terms of when you were ideating on CloudFlare, how did you get to a conviction on the scale of what you were solving and the size of the market? Because largely at that point, particularly on both the content delivery, but also the web security side, this was not a problem that people were really focused on.
Michelle Zatlyn:I’m going to answer this question, but I want to make one caveat to my answer. When Matthew and Lee and I started CloudFlare, we really wanted to build a big company. That was our desire. And so a lot of my perspective is always behind building big companies. Again, a multibillion dollar public company. That’s what we wanted to do. And so I’m going to answer your question, because that was the frame of mind of what I was looking for. I was looking for a big, meaningful, hairy problem to solve that was going to turn into a big company. But there’s lots of different ways to build businesses, and there’s lots of amazing companies that never become a multibillion dollar company that are equally great and profitable, they’re just different.
So the advice that I’m going to share is really related to this swing for the fence model, and that works for some people and less for others. And so when we think back to what was happening when we started back in 2010 when we were working on this idea in 2009, we just saw there’s this huge shift going on, where we were going from a world from hardware and software that you owned, to services in the cloud that you rented. And I remember AWS was growing really quickly. And at the time there was a big debate of, will big companies ever really use AWS? Well fast forward 10 years later, that seems like such a naive thing to say today. I mean, them and Azure, they’ve just had tremendous success. But 10 years ago that wasn’t a given.
And so this huge shift was going on. There was all these software companies and then the advent of all these SAS application companies like Salesforce and Workday that were breakout successes. And we saw the same thing happening at the network layer where, yeah businesses have always wanted to be fast, safe, and reliable and I used to buy a lot of hardware boxes. And we said, can we turn that into a global service in the cloud that customers rent from us? And we knew that was a big idea. And there was just this huge shift going on. So again, kind of this idea there was a big market and there was a tailwind and there was this macroeconomic shift, which creates opportunities for new entrants. So that was the first kind of aha.
And the second thing that I was really proud of, and I think that if you’re a founder that can find both, it’s like, wow, there’s a big business here. Because the first thing you have to ask yourself, is there a business here because businesses are what sustain.
The second aha that we had was our go to market where we wanted to start with all of the startups and small businesses and nonprofits and developers out there, who today were using nothing. Because they didn’t have the budget or technical resources to buy these enterprise-grade services that existed for big companies. And so we had this big aha, like wow, we’re going to start with small businesses and small websites, and developers and startups and nonprofits who need to be fast, safe, and reliable around the world, and today they’re using nothing. So when we launched, our competitor was nothing. We were trying to get people to go from using nothing to something. And so we had to make it ridiculously easy to sign up and attractive. And if we did, it would kind of become a flywheel, knowing that our end goal is not only do we want to help startups and entrepreneurs and small businesses and developers and nonprofits, but over time, we also wanted to go help medium-sized businesses and large organizations and big enterprises and government organizations. And again, fast forward to today, we do all of that.
But early on we really started with a different go to market, and that allowed us to build our product and our technology and get momentum, so that we can then go compete more heavily with current competitors among large enterprises. And so it was those two things, it was like, “Wow, there’s a big macroeconomic shift. If we can help make the internet better for all these people around the world who currently have nothing, I’d be really proud to work on that.” And so it’s this idea of, I thought there was a big business opportunity and something that I think Matthew and Lee and I were really proud to show up every day and work really hard on.
Ben Dahl:One thing that I think it’s worth spending a brief moment on is just the distinction between good technology and a good business. And I think one thing that you and Matthew have always been focused on, is building both, really solid technology and a good business. But I think for people that are thinking about building a business in this environment, it’s not just solving a hard technological problem, but it’s also creating a real business out of it. And I think it’s worth you talking about that for a few minutes.
Michelle Zatlyn:Yeah. So again, when you start a company and then now we’ve scaled it to, in 2019 we did about we did 287 million in revenue last year. So just to give you a sense of going from 0 to 287 million in revenue last year. And some time along the way you realize as a founder, it’s all about mission and your vision, and do I have a problem here and how can I get people to come work for me? And how do I make sure that people love where they’re working? But at some point I remember having this big realization of “Wow, we’re founders and a business owner.” And it’s really hard for a company, you cannot, tech is amazing. I mean, we’re an engineering-driven company and that’s where we love and we celebrate it. But it is so hard to compare technology between one company and another. It’s way easier to compare business metrics.
And so at some point we had to keep all the great things about our technology. It is about the tech. We love that. It’s differentiation. We live that on a daily basis. But at the end of the day we also had to put our business owner hats on, and the questions we ask ourselves as business owners are different. They’re like, how fast can we acquire a customer? Do they renew our service? Do they want to adopt more of our services? How happy are they? How much does it cost us to deliver this service to them? And it turns out you really need to do both. And I think some founders forget about caring about the business metrics and I actually think that’s a real mistake. Because at the end of the day, if you have a really great business around awesome technology, that’s when magic happens.
And so I did not realize this on day one. And I wish someone had kind of come up to me in the face and told me really directly, “Michelle, at some point you got to think about the business metrics.” And for us it was around 50, 60, 70, 80 million in revenue that I really had an aha of like, “Oh wow, we are going to get compared on these KPIs and these metrics.” A, I got to know what they mean. And B, which ones are we good at today and which ones are we bad at? And the ones that we are bad at, how are we going to get better at them? And then over time we slowly moved them in a direction that we’re proud of. And even today there’s some that are better than others and we continue to work at it. But I think the faster that founders can realize that they’re also running a business, I hope that that means you’ll get to 80, 100 million in revenue faster than we did.
Ben Dahl:So as you think about that evolution as a company, how did you instill a culture that was about leveling up and continuing to evolve, and surrounding yourself with the people that you needed to build that business?
Michelle Zatlyn:Well, there’s kind of two points to that. There’s both the people you bring in to hire, to be part… Again, it doesn’t matter how great the founders are, you need a team to go really far. And I think trying to get that first team to come join you and then scaling the team. And who you need to be your first 20 teammates, who you need to be 20 to 100, who you need to go from 300 to 2000. Actually, people look different in those stages. And some things are the same, people matter. They make a huge difference. And there’s a huge difference between a great hire and a good hire at all those stages. But the types of person that we used to hire when we had 50 people in the company looked different than what we look for today.
Today it’s all about people who understand process and repetitive motion and automating things so we can do those things really efficiently so we can free up time and resources to do other things that help give us leverage in our business, versus when you’re employee number 20 or 30 or 40, you just need a lot of doers to roll up and do the actual work because you’re in build mode, build, build, build. And I think that the types of people you look for along the way are different. Once you have great people on your team, you want to make sure that they stay.
I was talking to one founder a couple of weeks ago, and they were really proud that they had 30% attrition of their team last year. And I said, “30%? That’s really high.”
And they said, “No, no, no. In a startup it’s normal for people to leave that often.”
I was like, “Well it’s true. People leave more frequently than a larger company, but 30% annual attrition, there’s something wrong. Either you’re not hiring the right people in, or you’re not a very good place to work.” I think most high-growth tech companies have annual attrition of 10 to 20%, and maybe 15 to 20% is considered average. So you want to be less than 25 and you want to be less than 20. And maybe in a nano point of time, it spikes because you’re going through some really important transition. But again, most of your peers are at 15 to 20% annually and you’re up at 25 to 30, something is wrong. Either you’re not spending enough time on the hiring side, or once they’re at your company, they feel like they can’t contribute or it’s not a good place to work, or the culture is bad or something is broken. And I really encouraged that founder to go back rethink what they thought was good there.
And at the end of the day that’s a leadership decision from founders of saying, “What kind of place do we want this to be for people to work?” And I think there’s lots of great stories. And then recently in the news, the last few years, there’s been some terrible stories. And I actually think it’s upon all of us as leaders in the tech industry to show there’s lots of ways to create a work environment, and some can be really healthy and be a place where people choose to work and want to be and have huge success stories. So that’s for the team and getting people in.
I would say one thing that we’ve done that worked really well for us that isn’t always well-appreciated or agreed upon, it just worked for us, is that hiring managers. We have a belief that people come work for their manager, and they stay if they like their manager. And so our hiring managers are heavily involved with hiring. And early on we didn’t have any managers so that meant the founders did most of the hiring. And then we hired managers and they did it. And when we were at less than 100 people, 50% of my time was hiring. So you just feel like you’re always looking for people to join. And I also had all my other things I had to do so it just meant I was working all the time.
And today of course, we have a recruiting team. We have a great recruiting team and they partner with the hiring managers. But even to this day, hiring managers are responsible for building their teams. And again, we have a much bigger organization today, and the recruiters partner with them to build great people in. And even to this day our hiring managers spends about 20% of their time hiring every week. And that might not sound like a lot, that’s like one day a week, or two hours every single day. And I just don’t believe you can outsource it. Good people, and we think there’s a big difference and a great hire and a good hire, and great people want to work for great people, and they need to know their manager.
So that’s a little bit about getting great people to come into your company. I think if you’re thinking about a founder scaling and how do you scale yourself through all these different phases, it’s slightly different. Because it’s rare to start a company and then still be running the company as a public company. And I’m really proud of that, and I know Matthew’s really proud of that. And I hope that, we have role models above us, whether it’s Marc Benioff and Parker Harris. Or whether it’s the Shopify founders or Atlassian or Jeff Lawson at Twilio. They are definitely people that we can look up to and I hope there’s a whole other class of companies coming up behind saying, “Wow, they did it. We want to do it too,” because I definitely think it’s possible.
And I guess there’s a couple of things I’d say about scaling yourself as a founder is, I remember someone said this to me once and they were totally right. They’re like, “Either you’re running your business, or your business is running you, and you got to decide which one it is.” And I mean, I’m a competitive person. Obviously I want to run the business. I don’t want the business to run me. And this is kind of going from a founder hat to a business owner hat. And so you got to do things to scale with the business because what matters at 20 million in revenue is different than a 100 million. It’s different at 300 million. And I think that if you can be a sponge, that is like, if I can only give you one piece of like advice, it’d be, be a sponge, this growth mindset, constantly learning. Read.
At SaaStr, Jason Lemkin and his team do an amazing job getting people here to help you. And if you just show up and listen for free, you will avoid making so many mistakes and grow as a leader. That’s what I did. I went to a lot of things like this and I learned from people ahead of me and we got to where we were faster. So there’s so many resources today that help you learn as a founder, way more than 10 years ago. It’s pretty phenomenal. You can read books and whatnot. I think as you hire your leadership team, sometimes people don’t want to hire people as good as them because they’re worried that they’re going to look bad. That’s rookie mistake 101. You need to hire a leadership team that’s better at you than everything you do. Because, as long as you’re confident that you’re the vision, you’re the founder, you’re going to care about this more than anyone ever does. And if you can partner with these amazing leaders who are so good, the best head of product, the best head of engineering, the best CMO and the best chief revenue officer, and you all get everyone rowing in the same direction, that’s how you build an amazing business, as a team together. And so you’ve got to really hire a leadership team better than you.
Ben Dahl:Well, Michelle, thank you for answering my questions.
Michelle Zatlyn:Yeah, likewise. And thanks to everyone who listened in and hopefully it was helpful. And I can’t wait to see everything you build and I hope you all build big companies quicker because you learned something today.
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Ep. 331: Jessica Lin is a Co-Founder and General Partner @ Work-Bench, one of New York’s leading early-stage enterprise funds with a portfolio including the likes of Cockroach Labs, X.ai, Dialpad, VTS and Catalyst to name a few. Prior to Work-Bench, Jessica was a Learning and Development Manager at Cisco Systems, where she worked with the Engineering organization on Agile transformation, innovation and culture. Jessica is actively involved with the education and workforce development community in New York City and as chair of the Industry Advisory Board at Opportunities for a Better Tomorrow.
Pssst 🗣 Loving our podcast content? Listen to the start of the episode for a promo code to our upcoming events!
In Today’s Episode We Discuss:
* How Jessica made her way from learning Swahili into the world of enterprise and into the world of venture with the founding of Work-Bench?
* How should founders expect to see their new business pipe be impacted by COVID? What does Jessica believe is the right way to do proper pipe reviews? What specific elements does Jessica really double click on in reviews? Where does Jessica find managers and founders do pipe reviews wrong?
* What does Jessica believe is the right way for sales reps to engage with new customers during this time? What is the right tone to adopt that achieves both empathy and a business objective? How should sales teams and CS respond to requests for discounts? What should be the compromise with discounts?
* What specific and deliberate things can startups do not just to prevent churn but also to increase usage and upsell? Does Jessica agree with the rule of thumb that in enterprise, on an annual basis, 95% of your customers should retain? What other strategies has Jessica seen work really well for retention?
Ep. 332: Prepare for the worst, hope for the best. Hear from Garry Tan, co-founder and managing partner at Initialized Capital, about how to protect your business during a crisis. He’ll cover remote work, team management, sales, marketing, product development, and more.
Below, we’ve shared the transcript of Harry’s interview with Jessica.
Harry Stebbings:Welcome back to the official SaaStr podcast with me, Harry Stebbings. And if you’d like to suggest future guests or questions for the show, you can on Instagram, @hstebbings1996 with two Bs. But to our episode today, and I’ve been such a fan of the model this team have built. They’ve also been incredible community builders and players in the New York tech ecosystem over the last few years, and I’m so very excited to welcome Jessica Lin, co-founder and general partner at Work-Bench, won new York’s leading early stage enterprise funds, with a portfolio including the likes of Cockroach Labs, X.ai, Dialpad, VTS and Catalyst, to name a few.
Harry Stebbings:Prior to Work-Bench, Jessica was a learning and development manager at Cisco Systems where she worked with the engineering organization on agile transformation, innovation and culture. Jessica is also actively involved with the education and workforce development community in New York city, and serves as chair of the Industry Advisory Board at Opportunities for a Better Tomorrow.
Harry Stebbings:But enough from me. So, now I’m very excited to hand over to Jessica Lin, co-founder and General Partner at Work-Bench. Jessica, it is such a pleasure to have you on the show today. I’ve heard so many great things from the one and only Jonathan Lehr. So, thank you so much for joining me today, Jessica.
Jessica Lin:Thank you so much, Harry, for having me.
Harry Stebbings:Not at all. I’ve actually really wanted to see this one for a long time. I love the Work-Bench model. But I do want to start today with a bit about you. So, how did you make your way into the world of SaaS, and how did you come to co-found Work-Bench? What was that aha moment?
Jessica Lin:Well, again, as you said, you may know us at Work-Bench as IT to VC with my co-founder Jonathan Lehr, who joined your podcast in 2017, John coming from Morgan Stanley corporate IT, my colleague Kelly coming from Forrester Research. But I’m actually not only IT to VC, I’m also Swahili to VC. So, I studied International Development in Swahili in undergrad, thought I was going to end up in a career in global health, but then serendipitously ended up taking an engineering class in my senior year of college that led me down a path of working with student startups.
Jessica Lin:Then, serendipitously again, took on a role at Cisco Systems, working with really great internal engineering teams. So, my story is the ultimate story of pivots, of having really lived and breathed our motto at Work-Bench as an enterprise tech VC fund, which is that great things happen at the intersection of suits and hoodies.
Harry Stebbings:Absolutely it does. I have one very pressing question. Have you ever used your Swahili in work?
Jessica Lin:I need to find more use cases for that for sure.
Harry Stebbings:It’s a burgeoning enterprise ecosystem, I’m sure.
Harry Stebbings:I do want to dive in straight though because it’s such a pressing and interesting environment right now, and I want to start on the lifeblood of any business, which is the sales. Everyone is anticipating COVID will kill the majority of pipe and new business discussions. If we get a sense of the lay of the land, when you sit down with your company’s pipe reviews, how should founders expect to see their new business pipe be impacted?
Jessica Lin:Absolutely. And how we review pipe now is actually the same as how we review any other time with our portfolio companies. I think a lot of SaaS VCs tend to look only at booked business or MRR, but where we like to spend time is actually a layer deeper, because we know just how nuanced enterprise sales can be, and most of all that they take a very long time and can be very complex. So, that means in every pipeline review, understanding, one, deal velocity. How are your meetings progressing, who are they progressing with, are the right stakeholders in the room, what’s the next action step, how fast is the next followup meeting getting scheduled, how are pilots going, and what else can we be doing to get our clients onboarded as soon as possible?
Jessica Lin:Then, most of all, really the quality of the pipeline. How can we continue experimenting to grow the top of the funnel, whether it’s content, now virtual events and more. We’re of course taking into account COVID, that there are delays, that stakeholders may be distracted, but we’re also still hearing demand from our corporate network.
Harry Stebbings:Can I ask, and this is totally off schedule, but why not? In terms of the stakeholders themselves, I always have the perception in my mind that if you’re not a top one, two, or three enterprise buy for the CIO, it’s going to be fundamentally challenging. And honestly, I don’t find it so interesting. Is that shortsighted of me given the huge amount of software that CIOs and the stakeholders have to engage with today, or do you think it is right to have that very rigid prioritization in mind?
Jessica Lin:One of the things that we talk a lot about with our companies and with our Work-Bench community is that the misconception is to go straight to the CIO. The CIO is the top dog, they have all the budget dollars to spend. But in our experience at Work-Bench, what we’re seeing is that the actual stakeholders who are evaluating and assessing your tech as a vendor is really N minus one, N minus two, N minus three. So, the titles may be MD, VP, director, and we actually advise our companies to go deeper within the org, and that’s where you’re going to find technologists who really appreciate and have the bandwidth and capacity to understand what you’re doing.
Harry Stebbings:Can I ask, how do you deepen that relationship when the CIO or the stakeholder is maybe more in the top echelons of the enterprise? How do you deepen that relationship and look to build those maybe more product champions when your key primary contact is in the higher echelons?
Jessica Lin:Yeah, and this is so much of what even we do at Work-Bench as we build up the corporate network, it really is about how do you provide value to those executives? And a lot of them really love tech. That’s the key part is that they really love learning about new tech, about what’s out there, about how these technologies will transform what they’re doing in their business. So, we really advise our companies to be able to build those relationships really authentically.
Jessica Lin:A sale may not happen within three months or even six months, but the more you can provide value to them, whether it’s connecting them with other peers, whether it’s inviting them to events, whether it’s sharing, those are the types of relationships and investment where you can see the enterprise relationship pay off, maybe sometimes even one to two years down the line, but can be very worth it.
Harry Stebbings:Totally, in terms of that sales cycle. You also mentioned pilots there, and it can be a nice onboarding into a much longer and more formal relationship. How have you seen the best engage with offering pilots, and what’s the structure of the pilots that you tend to advise when selling to enterprise?
Jessica Lin:Yeah, I think that’s the number one thing for especially the enterprise. And a big part of it is that time kills all deals, and this is more true than ever. So, how do you get people using and loving your product asap? So, you really need to speed up onboarding, especially for an enterprise customer. So, our company, Arthur, an explainable AI company, realized that the regulated industries they sell into also want their solution on prem, even during a pilot phase. So, they set up an install that now only takes 15 minutes per deployment, and also rolled out sample data sets and models so that customers can download and get models pumping into their platform in minutes.
Jessica Lin:Our company Fire Hydrant and Incident Response platform has set up what are effectively sandbox simulations where their prospective customers can actually use Fire Hydrant in the case of a simulated outage. So, it pulls the now-remote now-distributed reliability teams together and lets them collaborate on solving the problem where they can feel the power of the platform firsthand. So, I always advise our companies, it’s really accelerating the time to value.
Jessica Lin:How can you make sure your customer gets fully onboarded as soon as possible, which again, sometimes can take up to three months in the enterprise with implementation and deployment, and then make sure that there’s really high usage and active engagement within the first three months so that customers can see your ROI in value in that time, and that the next six months then can be focused on upselling and cross selling in the renewal.
Harry Stebbings:In terms of optimizing the onboarding, often for enterprise it can be a launch part, coaching, professional services, very much in-person, high touch, where the team really comes in and spends time on site. How do you think that high touch professional services onboarding changes in a COVID world?
Jessica Lin:Yeah, I think so much of that is being creatively done now, and we’re finding that there’s new ways, and a lot of it is blending. I think so much of new sales and customer success are blending together, and that’s actually for the best, but the love you show for your existing customers, you can now extend to new prospects as well. And I love that joke around VCs, “Let me know how I can help.” Well, this is true for enterprise start-ups too, instead of saying in generic, “How can I help?” go to your customers and prospects with three specific needs where you can help out the most based on other customers you’re working with.
Jessica Lin:So, for example, our company, RippleMatch, they started hosting community chats for university recruiters across their enterprise customers and prospects. These were really curated sessions where small groups of campus recruiters could have a safe space and come together and share what they’re doing around recruiting this year. Our company, Catalyst, a customer success platform, has been offering trainings, not only to customer success managers, but to so many other functions like support and product, since customer success and retention is so critical in this time cross-functionally.
Jessica Lin:So, I think it just looks and takes on a slightly different form, but being able to offer something that will truly help improve your customers and prospects lives is really what’s going to make you stand out during this time.
Harry Stebbings:You mentioned some of the companies that, in terms of Catalyst, RippleMatch, they’ve really done it well. When you look across the landscape and suite of companies, where do you think many potentially go wrong in terms of really engaging that enterprise sale, also maybe in the midst of COVID?
Jessica Lin:For many people, it’s tempting to throw out all messaging out the door and try to sell to COVID, and that may be relevant in a few industries like healthcare, but for most other enterprise software companies the principles still hold true. What is the technology, what is a unique opportunity, and what is the ROI that I can bring to my customer? We had Kelly Breslin, previously the EVP of Sales at Tableau, who led the company to over $1 billion in revenue, on one of our webinars yesterday at Work-Bench. And she said that, with Tableau in 2008 during the financial crisis, they actually didn’t change their messaging. If anything, actually reinforced their current mission, which became more important than ever.
Jessica Lin:So, if anything, it’s not just selling features, it’s not just selling functions, it’s about telling your story. So, for your customers, sharing with them user stories, how are other customers using your product. It may help illustrate new use cases that your prospects may not have known about before. Now, on the flip side, there is a chance that your messaging does have to change during this time in this new environment, and Bob Tinker, the founder and former CEO of MobileIron, shared with us that in 2008, for their smartphone security and management product, the downturn actually forced them to change their messaging.
Jessica Lin:They had previously gone out with a productivity pitch, but they realized that what was way more compelling to customers was cost savings, which honestly ended up being a huge inflection point for them, even better for them in the long run. And the hardest thing, Bob said, is for founders to let go of their founding idea. It can feel really uncomfortable. But you may need to go out and test new ideas, potentially refine or go-to-market urgency fit by validating customer’s new top pain points during this time.
Harry Stebbings:Yeah, no, absolutely. I totally agree, especially in terms of that more human narrative behind it. I guess, thinking about that human narrative, how do you advise founders and reps on the right tone to engage with potential customers in this time. It’s such a tough time, because you need to be empathetic, kind and caring, but you also have to achieve business objectives. So, what’s the right blend in terms of the tone that you adopt these discussions?
Jessica Lin:Bob said it best. During tough times like these for founders, you have to have both empathy, but also ruthlessness. And that gets talked about less. And I love that duality. And I see it in our founders. All of our enterprise companies still have sales targets. They may be adjusted, but the targets are still there, and they may just have to be more creative than ever to hit them. And I do think there is a way to strike that balance. And the best way really to do that is simple. It’s to truly care about your customers. And if you truly care about your customers in an authentic, genuine way, then you can be ruthless [inaudible 00:13:42] about solving problems for their business.
Harry Stebbings:Can I ask you, you mentioned target sales, and it’s such an interesting talking point for me, in particular. I’m really passionate about this one. And it’s, when you think about target assessing with your companies, and you were really part of that active discussion, how do you set targets that are ambitious and really stretch targets, but also you don’t want to create ones which are unachievable and will create disincentives within the team and then lack of morale if they’re not hit? How do you strike that fine balance, and what does that decision making process look like for you with the founders?
Jessica Lin:I think about that a lot, especially for sales teams who may be harder for them right now to close new sales during this time. And I think the key takeaway and lesson here is really just to over communicate. And what I mean by that is saying, “Hey look, we may have to adjust targets. This is how we may be able to make it up to you, whether it’s through spiffs, through other accelerants,” but to constantly be clear with your sales teams. Something I’ve heard from a lot of account execs right now, it’s less about the fact that they may not hit their original targets, but it’s the fact that they don’t have a clear roadmap in mind. What should I be doing with my time?
Jessica Lin:And again, sales teams tend to be very competitive. They like to have goals, they like to have metrics. So, I think as long as it’s very clear to the sales teams, “Hey look, we may have you focus less on closing new sales, but can we have you work at the top of the pipeline? Can we help you help out more with customer success?”, then I think that can be something that’s really important for sales teams and founders to be seen right now.
Harry Stebbings:Can I ask, I had Ben [inaudible 00:15:10], CR of [inaudible 00:15:11] on the show, and he denigrated the specialization of sales and said, really, you lose that natural human relationship when he was simply passed off from SDR to RAP to AE. How do you think about the specialization of sales, if that’s right, and do you lose that human relationship with the mechanical policy?
Jessica Lin:I do think, like I said earlier, that customer success and sales are blending now, and so much of what you were doing, again, for existing customers you should be doing for new prospects. So, I do think perhaps in the future that those lines will be a bit more blurred. I do think it’s still helpful to have some organizational structure, especially as teams grow bigger and bigger, but that customer success mindset coming to the center or for the organization. I actually think it’s a change for the better.
Harry Stebbings:I do agree. I think it’s better for the customer, fundamentally. I do want to ask, you mentioned customer success, that being more and more important than ever. If we dive in a bit, what specific and deliberate things can start-ups do, not just to avoid churn, but also on the upside, to expand the usage and upsell?
Jessica Lin:Yeah. So much of what I shared a bit with RippleMatch and Catalysts I think is so critical. And the key is how do you get customers using the product during this time. And there are of course products perhaps within dev ops, security, automation, that will be seen as more essential during this time, but it’s really proving that time to value that I mentioned earlier that is going to be so critical so that when renewal does come up, you can prove very clearly to them, “Hey, this is how much you’ve been able to use our product and for this ROI.”
Jessica Lin:And a great example, like I mentioned, is our company, Catalyst, the customer success platform, and what they’re seeing with their platform is more and more usage, again, not with just customer success managers, but across product, across sales, across marketing, coming in and using their platform to understand customer health, and again, what their customers need. So, it’s a bit meta, but it truly is showing that customer success is now the center of our organization.
Harry Stebbings:We love a good meta point, don’t we, on that one. But you mentioned that the renewals, and one thing I think we will see obviously a lot of, and I’m by no means that wise person for this, but I think we’ll see a huge obviously amount of discounts coming back. How would you advise, and how do you advise your founders to approach discounts, and how to think that through?
Jessica Lin:Yeah, I do believe at least at the early stage that we’re investing in, at the C2, that offering a discount to an enterprise or a larger logo can be worth it in this environment, but then you do have to write in your contract around price increases for your two, or just make it a one year deal, and then you readjust when the macro environment improves. And I do still think big contracts can still get done at the enterprise. We’re seeing this with our start-ups selling into large Fortune 500s. We just had a company close a multi-year, multi hundred thousand dollar deal with a large pharma company.
Jessica Lin:And the key is, of course, which sector and function. But if it’s a true pain point at the enterprise, it shouldn’t be a budget issue, from what we’re seeing. It tends to be a bit more black and white for large enterprises. Either there’s a budget freeze, or there’s cash to spend, and it might just get pushed back a quarter or two.
Harry Stebbings:Totally. And I always find a give and take, we give the discount, but then we’d also love for an extensive case study to be available from you guys, as a bit of a compromise. I think there’s a lot that you can negotiate with. I do want to ask, because there’s a lot of rules of thumb in enterprise around churn specifically, and that when we’re talking about customer success, often people will say logo should retain 95% on an annual basis. This is one of the core rules of thumb. Would you agree with this, and how do you think about the rules of thumb around churn, and maybe the ones you agree with versus disagree with?
Jessica Lin:Yes, I do think that’s a general good rule of thumb. What I will say is different than perhaps SMB is that, in the Fortune 500 with enterprise customers, your contracts are either churning, renewing at flat, or expanding. And it tends to be a bit more tied to the hip is what we see. And that’s why enterprise deals are of course so much more painful to close, but when you do get them they’re stickier. It’s that 12 to 18 month sales cycle versus the two to three month SMB contract. So, we do see that a bit more closely tied together, logo versus all our retention.
Harry Stebbings:Yeah, no totally, especially in the tie. I’m interested, because a lot of VCs always shirk when they hear the elements of professional services. I personally quite like it. Obviously not as good for the margin, but fundamentally, I think great for the retention and usage. How do you feel on the professional services basis, and what do you think is a healthy ratio of product to professional services rev?
Jessica Lin:At the early stage, what we’re seeing, we really advise our companies to just invest as much as possible in customer success and professional services. And especially in the early days where product is still getting built out, that’s where actually so much understanding from your customers of what needs to be built into products so it can be automated more in the future, is so important. So, the more that you can invest there in customer success, it feeds so much better into product, and that’s where staying close to your customer, customer feedback, can be such a critical part of your product roadmap and development.
Harry Stebbings:Yeah, no, I’m totally with you in terms of that, super tight communications channel. Can I ask, I want to delve into Work-Bench a bit more as an organization now, especially in terms of the current times, because Work-Bench has a specific strategy around events and community, and it’s absolutely killed in the last years. As I said, I love your model, and so many people talk to me about your events. It’s incredible. But I wanted to talk about how it’s been impacted in the recent environment. So, how have you adapted your approach and strategy in the face of COVID and the rise of virtual events?
Jessica Lin:Absolutely. Community has been such a core part of our DNA at Work-Bench since day one. We’ve, in the past, hosted up to 200 enterprise events a year in New York, and we’ve moved everything online. And in a way that surprised me. I’ve actually enjoyed it a lot more than I thought we would. It’s easier than ever to spin up events. There’s more access, more people across the country, the world can join. So, we’ve been doing at least one or two webinars and events a week with Fortune 500s, founders, sales leaders, our corporate round tables, sales leader chats. And the number one thing I always say is that, content still needs to be number one. And I think most conferences assume that speakers got it. And I actually think the opposite. I think most speakers need practice, they need feedback, they need run-throughs. So, don’t assume that can be masked on a Zoom.
Harry Stebbings:I totally agree. Can I ask, what do you find about the best speakers that makes them so good? I certainly have a lot of thoughts on this given the podcast, but what do you find makes the best so good?
Jessica Lin:I think it’s a lot of practice to be honest. We hosted a massive women in enterprise tech summit two years ago called Navigate, and the amount of time I saw our speakers put into their individual presentations, I think, has a direct correlation. The more time you put in, the more feedback you get, the more comfortable you’ll be, the more fun you’ll have. And I think that really comes through and resonates with the audience.
Harry Stebbings:Yeah, no, I’m totally with you in terms of the preparation. I guess, for you as the organizer of the event, have there been any big learnings in terms of what it takes to run a really successful online event, and I guess, why do you think many are maybe going wrong today as they make that transition?
Jessica Lin:I think even if mistakes are being made right now, they’re being made in the spirit of creativity, and we’re seeing so much creativity and personality and full throwers. I love what our company Fire Hydrant did. They actually created a video for a sponsored happy hour at a virtual developer conference on how to make an old fashioned drink. It was so well done, it had a great sense of humor, and I think it just really resonated. And we always do it. I worked [inaudible 00:22:40] at our events, it’s a tradition. And we had a presenter last week actually show a photo of herself via Zoom screen share of her sitting on an ostrich. These are things that were hard to do in person before. So, I think it’s having fun and recognizing that we’re all learning along with each other. That is so important during this time.
Harry Stebbings:Well, I mean I’ve never quite had anyone share a photo of them on an ostrich, and I’ve done over 3000 entities. So, clearly I’m missing something. I do want to move into my favorite element now, Jessica, which is the quick fire round. So, I’ll say a short statement, and then you hit me with your immediate thoughts, about 60 seconds or less. Are you ready to dive in?
Jessica Lin:Ready to go.
Harry Stebbings:Okay. So, the New York tech ecosystem, the pros and the cons.
Jessica Lin:The pros, I love our pizza, our hustle, our [inaudible 00:23:22], our geography, getting uptown and downtown in minutes, our diversity of industries, the number of suits and customers in New York, unmatched anywhere else in the country. And we’re all missing New York City so much right now, and praying for it to fight and come back during this time. What’s hard for New York, and I think specific to enterprise, is that certain enterprise roles are, of course, so harder to hire for. And it’s really just a function of not having had that long time enterprise ecosystem here. So, talent like enterprise marketing, product managers with a lot of experience, that’s still quite competitive to hire them.
Harry Stebbings:Can I ask, with the cost inefficiency of the Valley, with, I think everyone would agree, probably worsening living conditions in the Valley, are you seeing a migration of top tech talent from the Valley to New York?
Jessica Lin:We absolutely are. And we’re seeing a lot of folks say, “Hey, I’ve always wanted to live in New York,” come out. We’ve seen founders, serial founders who may have started their first company out in the Bay but have decided to start their second or third company in New York city. So, we’re so excited for that and we welcome them with big arms.
Harry Stebbings:Tell me the hardest element of your role with Work-Bench today.
Jessica Lin:I think it’s the hardest, but it’s also the best, which is just constant context switching and so much learning. So, constantly learning, constantly having to teach myself new things, new technologies, companies, peoples, deals, events, content, customer insights, our own fundraising, hustling alongside our start-ups. And it’s the best part of the job, but also by Friday my head actually hurts from just so much stuff in it. And we always joke at Work-Bench that on Fridays, “Did that happen this week?” because whatever happened on a Monday usually feels like two weeks ago by then.
Harry Stebbings:I totally agree, and I think in some ways magical thing about founding your own firm, knowing that I … It’s such a start-up, and I don’t think people quite realize how much of an operator founder fund managers are.
Harry Stebbings:Tell me, what would you most like to change in the world of SaaS and enterprise SaaS today?
Jessica Lin:I would say this about enterprise, which is, at Work-Bench, honestly, we’ve tried to just make enterprise more fun and more accessible. It’s historically been a white man’s game, and I think that’s why enterprise tech faces more diversity challenges than perhaps consumer tech or other verticals. But we’re making inroads, and that’s why we do so much to grow the New York tech community. Tons of events, think a lot about how to make it welcoming, and do a lot in supporting women enterprise across our women and enterprise founders database, our workshops, our lunches or conferences, and more.
Harry Stebbings:Jessica, hit me. Final one. What’s the most recent publicly announced investment, and why did you say yes and get so excited?
Jessica Lin:This is great timing because again, our company, Catalyst, a customer success platform, just announced their $25 million series B led by Spark Capital yesterday, and we actually met the founders back in 2016 through our New York city community when the founders were at Digital Ocean, and Ed, the CEO, led customer success there. And given our community with the VP customer success dinners, and [inaudible 00:26:21] we hosted, we saw this tremendous demand for truly unified customer success platform, and how Ed and Kevin [inaudible 00:26:28] really stood out.
Jessica Lin:So, they started Catalyst in 2017. We’ve led their C2 back in 2018, and we’ve been honored to be a part of their ride in New York City ever since. And as we’ve talked about so much, customer success is now being moved to the center of the org. And for us to have met them as a part of our Work-Bench community so many years ago, it just feels very full circle.
Harry Stebbings:Jessica, as I said, been a huge fan of the model for a long time. I loved having Jonathan on. I’ve wanted to make this happen for quite a while, so, thank you so much for joining me today, and it’s been a lot of fun.
Jessica Lin:Thanks, Harry, it’s been such a blast.
Harry Stebbings:As I said at the beginning, huge fan of that model and such exciting times ahead with Work-Bench. And if you’d like to see more from us behind the scenes, you can do so on Instagram at hstebbings1996 with two Bs. I always love to see that.
A set of guidelines, tips, and recommendations to align your Customer Success and Sales Teams.
I have a passion for Customer Success. Both at Georgian and during my time at Bain, I have been fortunate to collaborate with many companies on their customer retention and expansion strategies. Having seen many of these projects, there is one key pattern that sticks out to me. I find that teams focus on customer success operations and sales separately, when what they need to do is improve the alignment between these two customer-facing teams.
In this post, I’ll take you through a five-step process that will align objectives, incentives and processes for sales and CS to help you deliver a better experience for your customers.
Step 1: Segment Your Customers
It may seem that getting more customers in the door should always be your number one priority. But without a clear targeting and segmentation strategy, you might end up with the wrong type of customers – customers that will slow you down and drain your team’s energy.
It doesn’t feel great to turn away business, but there are good reasons to. Here are a few characteristics of “bad fit” customers:
They take up time: Implementation and Success teams spend loads of time ensuring that these customers are on the right track. This detracts from other customers and impacts your reputation and brand loyalty.
They’re not good advocates: when clients are not getting full value from your product, they’re unlikely to be good references.
They are prone to churn: it is unlikely these customers will want to continue to renew.
They may be unprofitable in the long run: the additional resources needed and lack of expansion could end up costing your business in the longer term.
Identifying your best-fit customers
So how do you get on track to targeting the right customer segments? You’re looking for segments that are relatively easy to close, easy to retain and continue to expand their usage of your products. There are two approaches that you can take:
Anecdotal: Gather your customer success and sales teams in a room and you’ll soon develop a good idea of how your product meets various customers’ needs, and how easy it is to acquire each type of customer. Customer Success Managers (CSMs) often offer insights into who is likely to be a good or bad fit for any given use case. Sales can provide color into how difficult it is to acquire customers from each segment. Take this approach if you want to get to a ‘good enough’ solution quickly, and if your pool of customers is relatively small. Use your intuition to place your customers into a matrix below based on what you know.
Data-driven: by analyzing your financial data and retention patterns you can measure the lifetime value and cost of customer acquisition by customer segment. This data-driven approach allows you to go through a more rigorous customer segmentation exercise, but might take – in my experience growth stage companies require some effort to gather and analyze required data. Take this approach if you want to gain a robust understanding of each customer segments’ economics. This approach becomes increasingly important as the number of customers grows, and when there is a high diversity in your customer base (e.g. different industries, customer size, specific departments, use cases).
Once you have this information collected, take a look at how many customers of each type you have to determine your segment penetration. You can then plot your customer segments onto a matrix to help you visualize where your sales teams should or should not focus. In particular, you can look for green field opportunities where you have low penetration in a segment, but high LTV / CAC.
Customer segments can also move between the four quadrants of the matrix as your product evolves and as you produce more data and insights (see step two).
Step 2: Build a Feedback Loop
As you act on the findings of your segmentation exercise, you’ll soon learn more about each segment. Setting up a feedback loop between your customer success and sales teams will allow you to adjust to these new insights and continuously refine your segments.
A good way to set this up is through regular collaborative workshops between CS and Sales teams — usually monthly or quarterly. Let the teams discuss the following questions:
Which use cases work well?
Which industries / sectors are good to work with?
Which geographies / regions are good to work with?
Are some of your sales reps more suited to certain customers/segments?
Are discounts influential?
Service packages – do they work? Can an entry level package help?
Partners – do they work well with certain customer types?
Asking these questions on a regular basis and profiling your customers accordingly will help you refine your go-to-market approach and focus your attention on the “good fit” customers. I would also recommend involving your Product team in these conversations, when possible.
Step 3: Define Your Model
One contentious organizational issue that SaaS leaders grapple with is the delineation of roles and responsibilities between Sales and Customer Success. How exactly should sales, account managers and customer success managers work together? Who is responsible for what? Who is the main point of contact for the customer? Who manages upsells and renewals?
Sales alignment models are informed by the stage of your company and the complexity of your product. Check out Gainsight’s work on different org structures for a deep dive on this topic.
The most common question I get is about the division of roles between CS and Sales in upsell and renewal situations. There are two main approaches here – let’s look at the pros and cons of each.
Approach One: Sales focuses purely on new sales; both upsell and customer value management is done by the Customer Success team.
One point of contact for the customer
CSM deeply understands the needs of the customer and can recommend the most relevant products/features
Difficult to hire for the AM/CSM role; diverse skill set is required
Hard for AM/CSM be a trusted advisor while pursuing sales quotas; hard to focus on sales when supporting customer
This approach works best when product complexity is relatively low, path to upsell is pretty straightforward, and the renewal process is simple.
Approach Two: new sales and upsell managed by Sales, customer value management done by Customer Success:
CSMs focus on keeping customers happy – perceived as ‘trusted advisors’ and not as ‘pushy salespeople’
Sales reps do what they do best – sell
Several points of contact for the client creates confusion
May create conflict of interest between sales reps and CSMs
This approach works best where product complexity is relatively high, when upsell is usually targeted towards new business users or new departments, and the renewal process is competitive and akin to resale.
Another approach is to allow Customer Success to handle simple upsell and expansion opportunities and straightforward renewals, and engage Sales for more complex scenarios.
To avoid confusion about respective roles and get everyone across both teams on the same page, I find it helpful to create a RACI map (Responsible, Accountable, Consulted, Informed). A RACI map shows responsibilities and assignments for every task, milestone, or key decision involved in completing a project.
Check out the example below to see how this works. These maps are pretty self-explanatory—the main rule to remember is that there can only be one person or role marked as Accountable for each task, yet there might be multiple people Responsible for the activity (people actually doing the work).
An example of a RACI map, where the CSM owns renewal and simple upsell, Sales owns expansion
Step 4: Incentivizing desired behaviour
However you set up your team structure, keep in mind that compensation and incentives need to be aligned to motivate the right behavior.
Start by defining your business objectives – you can use the ideas in the three categories below to get started:
New recurring revenue
Longer term contracts
Signing good-fit customers from preferred segments
Maximum renewal rate
Expansion / upsell
Capturing specific logos
Maximize number of new logos
Sell strategic or new products, or specific product mix
Keep high gross margins
Signing customers in your high ACV / low penetration quadrant
Expanding quickly to beat out the competition on green field opportunities
Maintaining pipeline predictability
How to Design Sales Compensation to Drive Good Sales Behavior
Compensation structure should be simple, where possible. For a good overview of comp design, read this article which provides the commission rates I’ve used below. Typically, this is split into three key areas:
Typical commission rates: 10-15 % of first year ACV
This is usually the largest part of sales compensation. However, if reps are only compensated on new sales, they may not care about renewals and lifetime value. They may also sell into non-optimal segments, or they might be motivated to oversell by making the initial scope of the sale too big, which can lead to difficulties with delivery, future downsell or even churn. To avoid these challenges, you might want to consider negative clauses such as clawbacks on customer churn, or positive incentives for future contract expansions.
Expansion, Upsell, Cross-sell
Typical commission rates: 8-9 % of ACV
This commands a lower commission rate as it is usually easier to upsell to existing customers.
Other incentives to help promote positive sales behavior include:
Spiffs: Offered for focused achievements such as length of contract, cash-up front, capturing specific logos etc. Can be additional 1-2% of ACV.
Non-cash rewards: Promotion, vouchers, team outings, “President Club” vacations, etc.
A good exercise for you to go through at this stage is to list your key objectives and decide whether your compensation structure fits with your key business objectives. Decide how often you should revisit and evolve your compensation structure as your business grows.
When you consider compensation structure based on the role, refer to the table below for guidance on how to structure incentives depending on the scope of responsibilities. Customer Success Managers whose role is to manage customer value should not be distracted by quotas and commissions. Just give them a nice 10% bonus for hitting their KPIs such as high NPS or number of referenceable accounts.
In contrast, sales-oriented roles should have commission-based compensation. The harder the sale, the bigger the variable part of the compensation: your ‘hunters’ should get ~50% of their compensation as a commission, while ‘farmers’ (account managers or customer success managers that have upsell targets) should get slightly lower variable compensation in the range 15-30% – again, the harder the upsell, the higher the variable component.
Another good approach is to create a team of CSM and AM focusing on the same group of customers, with a set of joint KPIs for the two of them. In this case the CSM will focus on making sure customers are using the product and getting the expected value, while the AM can focus on upsell, explaining new product functionality to the customer and building new relationships within customer organization. This way AMs will not get distracted by solving customer’s problems, while CSMs won’t have to worry about hitting quotas, and can fully dedicate the time to helping their customers succeed with the product. A common KPI for this type of team is Net Dollar Retention. This metric will allow the team to offset unfortunate churn by expansion of healthy accounts.
Step 5: motivate Sales and Success teams to help each other at every step along customer journey
The final step is to understand how to best optimize your customer journey by establishing a framework for cross-team collaboration. The best teams I have seen focus on mutual support of sales and customer success teams at every stage of the customer journey.
Acquiring the right customers and setting expectations: Early in the sales cycle, CSMs can help frame up an opportunity. As experts on product implementation, CSMs are key for expectation setting. They can help the sales rep scope the implementation and ensure that the right steps and timeframes are being established to deliver customer value. Build out a 30-60-90 day plan to make sure you are executing on delivering value quickly.
Handover from CS to Sales: The handover from Sales to CS is another crucial collaboration point. One way to ensure a smooth transition is to focus on customer goals and map those to product use cases. Identify the most pressing objectives to help prioritize those in onboarding. I would strongly encourage Sales and CS to create a Success Plan to capture target KPIs, expected ROIs, and desired timelines for each customer. This plan should become the main working document for CSMs past the onboarding phase.
This is often when sales teams tend to stand back to allow CS to do their work. However, by maintaining sales insight into the onboarding process, you can help improve the scope of future sales by watching new customers as they see value for the first time. Sales can also see first-hand any gaps between customer expectations and reality.
Expand Customers: Depending on the roles and responsibilities you set as per the previous steps, expansion may be a joint effort between Sales and CS. By maintaining regular sync ups between the two teams, it should be possible to actively identify opportunities for upsell.
Ensure Renewals: Finally, renewals can be complex – is it a renewal or is it a resale? Has the value prop changed since the last renewal? Is the customer realizing ROI? Sales can help CS team with renewals, especially with large strategic accounts. CS can help Sales identify new use cases and expansion opportunities to turn renewals into upsell.
There are many more ways to effectively align these two teams depending on the specifics of your organization. I often see companies benefit from running a workshop to brainstorm on three key questions for each stage in your customer journey:
What can Sales reps do to help CSMs?
What can CSMs do to help Sales reps?
What can leadership do to ensure alignment between these two teams?
Finally, review the workshop answers and prioritize them in terms of operationalization.
I hope this gives some useful insights into how Sales and CS can work together effectively to not only improve your acquisition and retention metrics but more importantly to provide a better experience for your customers.
If you have any questions about the strategies I have suggested here, I’d be happy to discuss them. Please feel free to connect with me!
Ep. 325: Carolyn Guss is VP of Corporate Marketing @ PagerDuty, the company keeping your digital operations running perfectly with their real-time operations platform. Prior to their IPO in April 2019, PagerDuty had raised funding from some of the best in the business including a16, Bessemer, Meritech, Harrison Metal and Elad Gil to name a few. As for Carolyn, prior to joining PagerDuty she spent 5 years as the GM of Method Communications San Francisco Office and before that spent time on the other side of the pond with a close to 7-year stint at Orange as Head of Corporate PR and Head of US Communications.
Pssst 🗣 Loving our podcast content? Listen to the start of the episode for a promo code to our upcoming events!
In Today’s Episode We Discuss:
* How Carolyn made her way across the pond from Head of US Communications at Orange to GM of Method in SF to then playing a key role in the marketing team at PagerDuty?
* How does Carolyn think startups and larger companies can replace the leads that are lost from having no events in a COVID-19 world? How are PagerDuty shifting their strategy? How does PagerDuty think about brand marketing? Does it have to be tied to a number directly tied to revenue? What are the challenges with brand marketing?
* What does Carolyn believe is the right tone to approach customers within this time? How can one be supportive but also drive towards business objectives? In terms of tone, what is the right tone to approach the broader team with? How does PagerDuty gain a sense of company morale at scale? What tools do they use?
* How does Carolyn think about the benefits of transparency both with employees and with customers? Is there an extent to the benefits of transparency? Can one ever been too transparent? How does one think about this in a very corporate perspective with PagerDuty now being a public company?
Ep. 326: Gusto’s Lexi Reese walks you through scaling high performance teams. Is trust earned or given? How do you communicate for impact?
Below, we’ve shared the transcript of Harry’s interview with Carolyn.
Harry Stebbings:Welcome back to the official SaaStr Podcast with me, Harry Stebbings. And if you’d like to leave feedback or suggestions for future episodes, I always love to hear your thoughts. And you can do so on Instagram at HStebbings1996 with two Bs. But time for the show today and I’m thrilled to welcome Carolyn Guss to the hot seat today.
Harry Stebbings:Now, Carolyn is VP of Corporate Marketing at PagerDuty, the company keeping your digital operations running perfectly with their realtime operations platform. Prior to their IPO in April 2019, PagerDuty had raised funding from some of the best in the business, including: Andreessen Horowitz, Bessemer, Meritech, Harrison Metal, and Elad Gil to name a few.
Harry Stebbings:As for Carolyn, prior to joining PagerDuty, she spent five years as the GM of Method Communications in the San Francisco office, and before that, spent time on the other side of the pond with close to a seven-year stint at Orange as Head of Corporate PR and Head of U.S. Communications.
Harry Stebbings:But now I’m delighted to hand over to Carolyn Guss, VP of Corporate Marketing at PagerDuty.
Harry Stebbings:Carolyn, it is such a pleasure to have you on the show today. I’ve heard so many great things from the one and only Jen, and so thank you so much for joining me today.
Carolyn Guss:Thanks, Harry, for having me here. It’s a pleasure to talk to you. We’ve obviously worked with SaaStr for a long time. Really enjoyed the relationship. Jennifer Tejada, our CEO, has always enjoyed speaking at SaaStr, so it’s great to be chatting to you in an unusual time for all of us.
Harry Stebbings:It is indeed an unusual time, but we so appreciate that. But I would love to start with a little bit on you, Carolyn. So tell me, how did you make your way into what I call the wonderful world of SaaS and come to be VP of Corporate Marketing of PagerDuty today?
Carolyn Guss:So like you, and as you can probably tell from my accent, I started out my career in London. I was running corporate comms for Orange, the large French mobile operator. We had 200,000 employees and were part owned by the government. So it was about as far away from SaaS startup land as you can possibly get. But it was a great experience, grounding me in tech. We launched a lot of products in emerging markets. Mobile was really booming at that time. We were getting into digital TV. But as time went on, I could really see the level of innovation that was coming out of Silicon Valley, in particular, but SaaS companies more broadly, so managed to find my way to the West Coast of the U.S. in about 2008. But my startup experience was actually a PR firm called Method Communications, where I worked with some of the most exciting companies. So Domo, Nutanix, Qualtrics, PagerDuty, of course, Robinhood. So many of the really exciting tech companies were really broken out by Method. And I ran the San Francisco office for the agency.
Carolyn Guss:So during that time I met Jennifer Tejada and the team at PagerDuty, worked with them through their IPO. What I really learned in that time was that PagerDuty was a pretty unique experience for me. It’s a complex technology, but it touches all of us every day. PagerDuty is used by the likes of Netflix, Zoom, Nordstrom, Gap. And many of us don’t realize that the digital experiences that we’re having and the apps and the websites that we’re visiting are working great because PagerDuty is there, used by the teams behind them. So I got excited about the mission of the company and the opportunity to really up level the marketing story because it is a complex technology. And so started talking to the team about the opportunities to work together and about six months ago came over from being an agency partner to PagerDuty to running the corporate marketing team.
Harry Stebbings:Can I ask, because it’s a very interesting transition. Because obviously at Method you work across a very broad landscape of clients and customers, and then obviously with PagerDuty, much more of a focus purview. How was the transition for you and how did you find that going from quite broad to quite focused?
Carolyn Guss:Absolutely. There was a real transition. I’d been working with PagerDuty for 18 months and I felt I really understood the business, but actually I didn’t. I was one step removed. So coming away from knowing lots and lots of companies a little bit to knowing one company really deeply, I think it’s helped me deepen my impact. What’s broad for me now is my remit. So I’m looking after internal comms, so really helping with the culture of PagerDuty. I’m looking after marketing, so events, brand marketing. And I’m looking after PR and communications as well. So how are we showing up in social media? Opportunities like this, talking to you, getting our voice out there in the media and making sure we’re well differentiated. So the breadth of my activities has grown and I think that’s kept me really engaged and excited to learn.
Harry Stebbings:Totally. And I think the breadth is what’s so fascinating. I do want to dive into a couple of those specific elements you mentioned there, and particularly placed in the context that we’re in, obviously the rise of COVID has meant a lot of marketing plans are quite simply out of the window in many cases. So I’d love to discuss how you think about changing strategies and pivots in the face of COVID. And you mentioned events there. Always a huge source of leads for B2B companies. How do you think about a lead replacement with such a large marketing activity now really gone?
Carolyn Guss:Absolutely. Events were a huge part of generating marketing qualified leads for PagerDuty and we had two different types of events. One is large scale customer events and the other is community events. It’s more focused on developers that use the platform. Obviously none of those events can take place at the moment. So what we did first was we mapped all the different events that we host and we mapped the value of leads that we expect to get from those events. And then we looked at how we can replace these with different digital channels. It was really a cross-functional effort with sales and marketing and product and a growth team that’s responsible for all our digital and web presence. And we’ve broken it out into a few areas.
Carolyn Guss:So most immediately we’ve pivoted to replace events themselves with virtual events. So we had an event in London, customer event, and we took that virtual. Required a lot of communication and fast action. And then the other thing that we’ve done is to create a series of webinars. So one of the things about PagerDuty where we really excel with events is that we provide a lot of community resources and information and best practice sharing. So it’s really easy to just take that and deliver it over a webinar. These webinars aren’t particularly about product push, they’re about the things that you can do to improve your own incident response and make sure that your own digital operations run well. So we had a ton of these resources already available in written form, so it’s just about having some of our execs or our experts take them out as webinars and promoting those to our customers.
Carolyn Guss:And then the next thing we’re doing is really doubling down on our digital media spending. We haven’t been really focused on above the line ever. We’ve done one or two brand campaigns, but it hasn’t been something that’s at the heart of PagerDuty marketing. We’ve been almost quite scrappy in our marketing, I’d say. So we’re taking some of that budget that was used for events and we’re moving over to things like sponsored content, web page takeovers, radio advertising. And the reason that we feel like that’s a good pivot for us right now versus the direct nature of events is because fundamentally PagerDuty keeps the Internet up and running and the whole world has just gone offline and online with shelter in place. So more than ever, companies need our services. So we are looking to cast a much wider net right now and get that message out there. So we definitely have brand awareness goals as well as marketing qualified lead goals with this shift that we’re making.
Harry Stebbings:You’re teeing me up so nicely because there’s so many things I just want to unpack from that. My first is if you take it in order, you mentioned the shift to virtual events there. A big one for me is how does it compare from a results basis in terms of MQLs, and what have been your initial takeaways from the first few that you’ve done now?
Carolyn Guss:It’s early to answer that. We have a certain number of MQLs that we expect to get from an event based on how that event performed in the past. We’ve been running our major user event, for example, PagerDuty Summit, for four years. So we’re preparing dashboards to figure out what we can expect to get from webinars and what we can expect to get. But I wouldn’t say that we have the answer just yet, Harry. I think that it’s possible we’re going to see that, but then equally PagerDuty’s really built on land and expand. That’s been the best sales motion, or the biggest sales motion that we’ve experienced as a company.
Carolyn Guss:So right now what we’re seeing is a ton of extra usage on our platform from existing customers. So what we want to do there is make sure that we’re offering resources and being really, really supportive to those customers. So I don’t actually think that we’re going to be able to say if we’ve got this number of leads from an event, the virtual equivalent of that event will get the exact same number of leads. I think it’s about taking a different approach and really leading with supporting our existing customers for that land and expand motion and then getting the broader awareness out there with bigger digital media spend so that we can be adding new logos.
Harry Stebbings:Totally agreed with you there, especially on the awareness. The awareness is an interesting one because brand marketing, there’s different views on brand marketing and awareness. And I guess my question to you is how do you think about and assess brand marketing and how do you respond to often people’s thoughts that it’s untraceable, it’s untrackable, and it’s therefore challenging as a core strategy in itself?
Carolyn Guss:So brand marketing, we ran our first brand campaign in the fall of last year. We rebranded and we ran campaigns for the first time ever. And I would agree that for a company with our culture, it’s not as obviously trackable. With our land and expand model, what we’ve always done is just really look to drive people to trial through our website. And that’s obviously extremely tangible. We know exactly how many people are coming through to trial and then how many people are becoming customers. So the brand marketing campaign, we looked at it differently. We weren’t expecting a brand campaign to generate leads in the same way that we see from our website. We were really looking at it as a way of building value in the PagerDuty brand and helping us to differentiate from other companies that are in our market or in adjacent markets that sometimes people will confuse with us.
Carolyn Guss:So we’re not necessarily expecting brand marketing to drive to very hard metrics. That said, we will be tracking those metrics and we will be running the exact same dashboards on marketing qualified leads to understand how it’s performing because there’s always the opportunity to improve and iterate. So right now, what we’ve done is created a plan for April for digital marketing spend. We’ll be benchmarking that and then we’ll iterate on our plan for May.
Harry Stebbings:Totally get you. Can I ask, you said that about using the same framework and I like that. It makes me think of something that CMO at Pendo, Joe Chernov, once said on the show. He said that all marketing activities have to be tied and held accountable to a number directly tied to revenue. Would you agree with him in terms of having to be tied directly to revenue, or is there a broader purview and a nuance to that?
Carolyn Guss:At the high level I do agree. And we use Pendo ourselves to understand exactly how we’re driving to revenue. There’s nuance within it, though. So if I think about my team, I have customer marketing in my team right now and we absolutely tie to revenue of customer marketing. We create a number of assets, we push them out through webinars, through other types of digital campaigns, and we track MQLs. If I take public relations, we don’t track to MQLs of public relations. That’s really for building brand.
Carolyn Guss:So ultimately, as a VP of Corporate Marketing, I am tied to a number, but I take my nuance within that as to which vehicles I’m using to reach that number. So my spend may be greater in one area than another depending on how I’m tracking against that number. So I think it’s about being able to pull different levers and I do think there’s some nuance in there.
Harry Stebbings:Absolutely. You mentioned the customer marketing team and it makes me think to the time that we’re in today because it’s a time where tone is something that you have to think a lot about. So I’m intrigued, given the time and actually moving to the conversations themselves with the customer, how do you think about adopting a tone of support and care, which is obviously very necessary in an uncertain time right now, but also a need to impact revenue and business objectives with the tone as well?
Carolyn Guss:This has been a really big conversation for us. So back in February, we started to see on our platform that our customers were labeling the types of incidents that they use PagerDuty for with pandemic or coronavirus or COVID-19. So we could understand then that our customers were experiencing some kind of business impact as a result of the situation. And so we began to think through, how do we support them in that situation? We were seeing some customers having really surging demand for their product. And you can imagine it’s companies in online learning, video conferencing, collaboration tools.
Carolyn Guss:And what that means is their teams are working around the clock and are working really hard to keep things running. And so it is not helpful for us to say buy more PagerDuty licenses. It’s really about showing them supports that if they’re spinning up an incident response team fast or they’re really scaling their ability to fix incidents on their networks, then it’s about us showing them with webinars, with videos, with white papers, how do you do that fast. So we have something called Incident Commander Training, which is how you train people to run major incidents. And as you can imagine with growing demand on networks, there’s going to be more people required to step into that job and help the core team keep the systems running perfectly.
Carolyn Guss:We have something called Virtual NOC Training because everyone’s just gone home. Companies were used to having a NOC in their office and they could all have a sense of the health of their systems and suddenly everyone’s gone home. So we’ve provided training on how to create a virtual NOC. So we’re already leading with a message of here’s best practices and support that we can provide to you. And we believe that that will lead to growth for us down the line. But it doesn’t feel right at the moment to be pushing product and license messages.
Harry Stebbings:I totally agree with you in terms of not feeling right there. I guess my question is it’s almost customer success, but it’s also definitely marketing. And I think more and more today we’re seeing marketing being pushed further and further down the funnel with the creation of that content being used to support and make their clients as successful as possible. Do you agree with this almost merging of the roles of marketing, especially around content, with customer success?
Carolyn Guss:Absolutely. We’re very much hand in hand with customer success now and I think account based marketing is something that’s growing within PagerDuty. Because we began with the land and expand motion, but we really, as we move up into larger companies, need to help with that expansion and that’s where customer success and marketing are hand in hand. We’re generating a lot of materials and then customer success are really personalizing them and having those conversations. But then we’re looking to amplify that, I guess, by having the same messaging show up in different kinds of channels where these customers are going to turn up. So yeah, very much cross-functional effort for us. It already was and it is so now more than ever.
Harry Stebbings:You mentioned the cross-functionality there between the different teams. It’s an incredibly hard thing to achieve. I guess my question to you, subsequently, is what do you think you do to allow yourself to do that, A, efficiently, but also with speed being cross-functional, and also being remote now too?
Carolyn Guss:We had actually just had, before all of the coronavirus changes began, we had gone off site with all of our leadership team to talk about how do we improve cross-functional working in PagerDuty and eliminate silos. And there was areas where it was working really well, but we needed to challenge ourselves to be better and more agile cross-functionally. And then of course this situation arose and it forced it to happen immediately and it forced it to happen in the most challenging way, which is with everybody going remote. So the way that we kicked it off was that we created a framework, crisis management framework, and it has four functional teams and those teams are all made up of people from different functions. One of them is about really protecting and promoting the welfare of our employees. One of them is about supporting and engaging our customers. Another one is about the resiliency of our platform. Because we like to say we are always on. When you’re down, we’re up and we’re helping you. And that promise is so important right now. And then the last one is about financial preparedness in our business.
Carolyn Guss:And so those work streams are not run individually by product or individually by finance or individually by sales and marketing. They have cross-functional team members across all of them. So that’s a new way of working for us. So it’s really accelerated a way of working that we were trying to accomplish. And I think that’s something I bet other companies are experiencing too, is that in times of crisis, it allows you to focus on what matters the most and you can work cross-functionally because people talk straight to each other and they just go and figure out who the person is and find them immediately. They don’t wait or put it on their to do list or hold back better opinion. So I think we’re going to see a huge improvement in cross-functional behavior and we’re kind of excited about it. It’s one of the real benefits of this situation that we keep talking about inside PagerDuty.
Harry Stebbings:I totally agree with you there, especially in terms of the massive transition overnight and forcing things that maybe would have taken slightly longer. I guess my question is, diving slightly more deeper into the granulars of navigating team morale, team culture in the shift, got to have this tone of empathy and support. So how do you think about the comms strategy around showing that empathy and support to the team in these very challenging and uncertain times?
Carolyn Guss:We’ve always had an internal comm strategy of ultra transparency. And when I joined PagerDuty it made me a little nervous because I was thinking, well, if we’re being this transparent to the employees, what if this gets outside of the business? But it’s really what we believe in in our culture. So that’s interesting now because we’re having AMAs every week, sometimes twice a week, with our executives. And anybody can submit a question that’s publicly seen by all of the employees. And people really want to understand what does this mean for me? So we’re being really honest. As a business we’re in a really strong cash position, but as I told you earlier, we’re still trying to figure out what this is going to mean for our pipeline. So we’re being really honest and transparent, but we’re really striking a balance there with a lot of support and empathy and also with celebrating the wins that we have.
Carolyn Guss:We are landing great deals still. There’s wins across the business with product teams, with sales teams, with marketing. So we’re really celebrating that more than we ever would. But in going back to the AMAs, what we believe is just a really, really strong cadence of communication right now. So Jennifer, our CEO, gets on video frequently. Other members of our executive leadership team do and they post that to the company. The AMA is run twice a week. We have updates to policies and FAQs that run twice a week. So it’s been sort of hyper communication.
Carolyn Guss:But we’ve also been polling the employees. So we use the survey tool called Culture Amp. We’re polling the employees weekly because the situation is so fluid, to understand are we’re getting it right, are we striking the right tone with you? Do you feel connected? Do you feel like you can carry on working in this way? Do you feel like you can carry on in this remote situation? So we’ve really been able to get a good pulse from the employees on how they’re feeling. And I think for many people their job is a highlight for them right now. We’re busy, we’re leaning into this, but it’s stressful. You’re at home, you feel heightened levels of anxiety. So we’re also trying to think ahead about what the needs will be. If we’re all going to be working from home for a long period of time, which is a possibility, what are people’s needs that we need to be able to predict? What about mental health issues, what about burnout issues and how can we support our employees there?
Harry Stebbings:Listen, I totally agree with you and I’d just highly recommend espresso martinis continuously throughout the day, on that note. And I do want to ask you, transparency is fantastic as a core ethos. My question to you is does one ever have to be careful about being too transparent? And if you were advising other comms strategists and professionals thinking about us within that companies, are there any limits to transparency?
Carolyn Guss:Yes, absolutely. Responsible transparency, I think, is the key. We need to make sure that anything that we want to talk about quite transparently today, we can see that through. We’ll lose trust of our employees if we end up having to go back on a commitment that we made. So we want to be transparent, we want to answer all questions and we do have that as a core part of our culture, but we don’t make big promises or make big commitments about the future. And I think part of that is being a new publicly traded company, as well. It’s part of the muscle that we’ve developed.
Harry Stebbings:No, I totally agree. I think that’s a real muscle that’s developed when you go public. And transparency is also tied to being real and being very authentic. In terms of authenticity and real, how do you think about being both transparent and real? And I guess on the real side, how do you think about that? If it potentially disincentivizes the team, say… A lot of founders that I work with say, hey, we lost a key client. I don’t know whether to communicate that back to the team. It’s yes, it’s not transparent, but I’m thinking about morale and I’m thinking about culture in a difficult time. What should I do? How would you advise them in those cases? You want it to be real and transparent, but you also have to think about wider morale and morale maintenance. How do you think about that?
Carolyn Guss:We think about it through the lens of vulnerability as a leader. So when we have a miss as a business, we talk about it with our senior leadership team and we talk about the learnings. We have a big culture of postmortems inside PagerDuty. It comes from the DevOps methodology that we were really built on. So anytime we feel that we’ve failed, lost, or could have done better, we host a postmortem and we really talk honestly and vulnerably with each other. So people are quite used to that. So then when is this a bigger deal that has more impact we’ll talk about it with our senior leadership team and we’ll be vulnerable there. And then we’ll ask them if it’s appropriate for you when you’re leading your teams, if you’re having a quarterly business review or just a stand up, bring vulnerability because it helps other people feel, it helps your employees feel that if they’re experiencing a challenge right now and they don’t know what to do about the challenge, they know that they’re safe with you, that you can relate to that.
Carolyn Guss:Because I think as much as we want to celebrate the positives now more than ever, if all we do is talk about the positives, it’s going to feel kind of disingenuous and we’re going to make employees, I think, disengage. So we look at it through the lens of vulnerability. It’s not that we’re specifically trying to share bad news so that everybody can level set. We’re looking to use it in a very intentional way.
Harry Stebbings:No, I totally agree. And I think absolutely vulnerability, actually, in many ways inspires a lot of strength in the team. But I do want to dive into my favorite element of any episode, being the 60 Second SaaStr, Carolyn. So I say a short statement and then you hit me with your immediate thoughts. Are you ready to dive in?
Carolyn Guss:I’m ready.
Harry Stebbings:So it’s been an incredible career in the marketing world for you, but what do you know now that you wish you’d known at the beginning of your time in marketing?
Carolyn Guss:Truncate. I used to be rather long winded, still am a bit, and not really be able to influence and land my points and couldn’t understand why I’d have to repeat something three times and it still felt like people didn’t get it. So I do a lot of media training with executives, preparing them for short soundbites. That’s actually a crucial skill in all parts of marketing because you need to influence and you need to sell a message. So thinking about the three points that you want to land and truncating the way that you land them.
Harry Stebbings:I think I could clearly do with some of your media training. I have that wonderful British bumblingness. But I do want to ask, what’s the hardest element of your role with PagerDuty today?
Carolyn Guss:Devising for good versus perfect. PagerDuty sets a really high bar, and yet we have to be very agile and move fast. So there’s the balance of being okay to ship something that’s not yet perfect, but it’s good enough when we always want better and we always hold ourselves to a higher bar and strive for more.
Harry Stebbings:ABM, is it a buzzword that’s just used too much these days, or is it a new, innovative and fundamental shift in the way we market?
Carolyn Guss:I think it’s a pretty fundamental shift in the way that we market. We were talking earlier about the relationship between marketing and customer success. One of the things that we’ve experienced in PagerDuty is we have many, many customer contacts. It is not a top down model in PagerDuty, it’s a bottom up model. Developers come in, they buy the product. It really expands through the business as a viral growth. Many teams and executives start using PagerDuty. We have to have an account based marketing approach. We have to have an account based marketing approach where we touch all of those different contacts with the right type of messaging for their need. So we feel that marketing is getting more personal than ever and that is a fundamental shift.
Harry Stebbings:If you could change one thing in the world of SaaS today, what would it be and why?
Carolyn Guss:Oh, we’re so inside in Silicon Valley we forget about the world at large. We forget about the fact that they don’t know what SaaS means, that they don’t use our tools, although they may be impacted by our tools. SaaS companies are used by traditional businesses across the world, but we tend to forget that and live in our Silicon Valley bubble. So I would love for all of us to get a broader mindset and just challenge ourselves every day on the assumptions that we make.
Harry Stebbings:Final one, but who in SaaS marketing do you think is killing it today and why do you think so?
Carolyn Guss:Zoom is killing it today. And this may be an obvious answer or a timely answer, but I feel Zoom’s always been killing it because they really put their ethos and their belief first. The narrative is that they want to make people happier. I mean, who doesn’t buy into that? And this is a B2B company, predominantly. And then I think they also really live through that values. They’ve given the product away for K through 12 educators and that’s a hard thing to do. That’s causing massive scaling for their business. But it’s living by their values that they should do good in the world. So I think they’re absolutely killing it in SaaS marketing right now.
Harry Stebbings:That’s awesome to hear and I couldn’t agree with you more there. But Carolyn, this has been so fun. I’ve absolutely loved doing it. So thank you so much for joining me today.
Carolyn Guss:Thank you, Harry. It’s been a real pleasure to talk to you.
Harry Stebbings:Absolutely loved having Carolyn on the show there. And such exciting times ahead for PagerDuty. And if you’d like to see more from us behind the scenes, you can do so on Instagram at HStebbings1996 with two Bs. I always love to see you there.
Harry Stebbings:As always, I so appreciate all your support and I can’t wait to bring you another fantastic episode next week.
Everyone usually gets pretty good at segmenting customers by ACV. Large, Medium and Small. Or at least by splitting up sales-driven and self-service revenue. Or enterprise vs smaller customer. And later, we often start segmenting by vertical and industry.
More of you right now should be putting that aside a bit and segmenting your customers into 3 new groups: Growing. Struggling. And Shrinking. And setting different goals for sales and retention for each segment:
Growing. Almost all of you have at least one segment of customers growing now. Maybe it’s healthcare. Or remote workers. Or call center. Or esports. Or e-commerce. Maybe it’s just 10% of your customer base, but there’s often at least a small piece that is growing faster, at least for now, than before these crazy times.
Struggling. Some of your customers may, on balance, be struggling but making do. E.g., generic SaaS companies. Many are doing OK but a lot of impacts today. Generally, anyone at 0.1% growth or higher counts here.
Shrinking (and Dire Straits). This category can just include clients already shrinking in size.
Most of you that I talk to haven’t fully finished segmented their prospects and existing customer base this way. And even if they have, they haven’t broken out clear goals for each segment.
For Growing categories:
Sales cycles may still be lengthening, but decent revenue goals can still be hit. Even if the overall company bookings goals might be way, way down.
And retention should remain close to pre-Covid 19 rates. And there is no reason for NPS to not to continue to increase.
For Struggling categories:
Sales may be way down, but some deals will still close. And pipeline may still grow. Encourage discovery calls. Maybe they can at least close later. You will have to adjust quotas here dramatically. But ideally, sales still at least covers it costs for now.
Logo retention will take a small hit, revenue retention a higher one. Struggling customers are seeking to cut costs everywhere. But they aren’t seeking to cancel vendors they trust and need. Set an aggressive goal for logo retention in the Struggling segment — not much lower than before. But allow material relaxation of account retention. Seats will shrink. If you don’t relax the goals here materially, you may break customer relationships that will last a decade or longer.
For Shrinking companies and Dire Straights Companies:
Sales may be on hold. Instead, just see what you can do.
Scale accounts down quickly, and simply, with these customers. If their business has fallen by 90%, so should your bill. Or maybe even just give them the next 6 months for free. Now is the time to grow share, not revenue, with these customers. Be proactive. They will appreciate it. Take a look at an innovative program from Gorgias.io for their Shrinking customers here.
Whatever you do exactly, it’s time to create 3 new categories of customers. And create different revenue and retention goals for each category.
If you don’t do this, you’ll allow too many excuses. Instead of finding the right goals, and right solutions, for each segment.
Ep. 323: Bhavin Shah is the Founder & CEO @ Moveworks, the cloud-based AI platform, purpose-built for large enterprises, that resolves employees’ IT support issues—instantly and automatically. To date Bhavin has raised over $108M with Moveworks from the likes of Mamoon Hamid @ Kleiner Perkins, Arij Janmohamed @ Lightspeed, Bain Capital, Sapphire Ventures and ICONIQ. Prior to Moveworks, Bhavin was the Founder and CEO @ Refresh which was later acquired by LinkedIn and then before that founded Gazillion Entertainment, a company he scaled to over 200 employees.
Pssst 🗣 Loving our podcast content? Listen to the start of the episode for a promo code to our upcoming events!
In Today’s Episode We Discuss:
* How Bhavin made his way into the wonderful world of SaaS and came to found Moveworks.
* What are the core challenges IT teams are facing as a result of the move to remote work? Where do many make mistakes here? What can one do from a structural perspective to set them up for success when moving to remote?
* What does great change management look like in Bhavin’s mind today? Where do so many go wrong here? How does this change in the world of remote? Who should be involved in executing on the change management plan?
* How does Bhavin think about the role of customer success today? Why does Bhavin believe that customer success and product should be in one org? How does Bhavin think about the interplay of marketing and customer success? Is marketing moving closer and closer to customer success with their content?
Ep. 324: Join SaaStr CEO Jason Lemkin and Bessemer Venture Partners Partner Byron Deeter for a deep dive on what’s going on in Venture Capital and Cloud.
Below, we’ve shared the transcript of Harry’s interview with Bhavin.
Harry Stebbings:Welcome back to the official SaaStr podcast with me, Harry Stebbings. I’d love to see you behind the scenes here at the show on Instagram @HStebbings1996 with two Bs. I always love to see you there. But to our episode today, and we welcome an incredible three time entrepreneur now rocking the world of enterprise SaaS, and so with that I’m thrilled to welcome Bhavin Shah, founder and CEO of Moveworks, the cloud-based AI platform, purpose built for large enterprises that resolves employees’ IT support issues instantly and automatically. Today, Bhavin has raised over $108 million with Moveworks from the likes of Mamoon Hamid at Kleiner Perkins, Arif Janmohamed at Lightspeed, Bain Capital, Sapphire Ventures, and ICONIQ, to name a few.
Harry Stebbings:Prior to Moveworks, Bhavin was the founder and CEO at Refresh, which was later acquired by LinkedIn, and then before that, founded Gazillion Entertainment, a company he scaled to over 300 employees.
Harry Stebbings:Now I’m very excited to hand it over to Bhavin Shah, founder and CEO at Moveworks.
Harry Stebbings:Bhavin, it is so awesome to have you on the show today. As I said, I’ve heard so many good things from pretty much every board member of yours and investor, but especially Mamoon at Kleiner and Arif at Lightspeed. So thank you so much for joining me today.
Bhavin Shah:Thanks, Harry. First time caller, long time listener. Excited to be on the show today.
Harry Stebbings:I mean, my word, that is so good for my ego. But I do want to start today with some context. So tell me, Bhavin, how did you make your way into what I definitely think is the wonderful world of SaaS, but also what was that founding ah-ha moment for you with Moveworks?
Bhavin Shah:So I grew up in Silicon Valley here in the Bay Area, and my parents immigrated in the late ’60s, was exposed to technology from a very early age. This endeavor with Moveworks is my third company. My last company was in the mobile productivity space called Refresh.io. We were acquired by LinkedIn about five years ago. Moveworks came about through a very deliberate process, a process by the four of us founders to understand where we could use machine learning in a very useful and impactful way in the enterprise. And the journey took us to a conversation with over 30 CIOs and IT leaders and analyzing a bunch of their IT tickets before taking our first bit of capital.
Bhavin Shah:The discovery was that there’s now about a billion knowledge workers worldwide, and each of those knowledge workers submits about one ticket a month. But those tickets still take three days to get resolved, and so we saw billions of dollars being spent on better ticketing systems, better automation tools, which the world definitely needed. But these tickets were still relatively slow, and when we dug into the details, what we realized is that they’re still written in natural language, and so no one had taken the approach of trying to solve the tickets directly by understanding and building machine learning frameworks to read these tickets and then solve them completely autonomously. And so that’s been our journey. How do we go from three days to three seconds?
Harry Stebbings:Absolutely, and it’s been an incredible journey to see those since then. I do, sorry, I’m too intrigued not to ask, you mentioned the two prior companies there. How did that experience with those two prior companies impact your operating mindset today with Moveworks?
Bhavin Shah:My career has involved a variety of different industries. I started off in the toy business. I went into the gaming world and it went into mobile productivity, and then now into enterprise SaaS, and if I could do it all over again, I would have done enterprise SaaS from the get-go. It’s a domain that I really enjoy, and I think I thrive in. But along the way of company building, I think you learn a lot about yourself. You learn a lot about what matters, how you build culture, how you build teams, how you listen to customers, how you don’t listen to customers. A lot of different factors went into this. But when it came down to Moveworks, there was a variety of different viewpoints that each of us founders were bringing to the table. I had spent a bunch of years thinking about how to make people productive on mobile, how to leverage that platform.
Bhavin Shah:Varun, my co-founder, was at Facebook building machine learning tools with specifically chat bot tools that were being used to optimize and improve the interview process for hiring managers. They could talk to a bot about who they were interviewing, etc. Jiang, my other co-founder, was at Google and was one of the founding engineers of the question-answer system that shows those paragraphs at the top of the Google search results, basically doing NLP on the fly and then figuring out what to show you, which is very important to our product today, and then Vaibhav, who had also been a serial entrepreneur like myself, building large enterprise scale systems.
Bhavin Shah:So I think a lot of these perspectives came together in a way that allowed us to all build from there and build this company.
Harry Stebbings:I mean, it’s such a unique blend of both backgrounds and skills associated, and so just [inaudible 00:06:23] teams. I do want to ask, though, because if we start on the most important topic that’s actually the front of every single portfolio a founder of ours has mind is the obvious move to remote work and the rise of work from home. You were on the front lines of this movement, and as you said there about speaking CIOs, you speak CIOs across all verticals really, making the switch to work from home. So I guess the first question is what are the core challenges IT teams face as a result of having to move to fully remote pretty much overnight?
Bhavin Shah:There’s so many challenges, and I think as the weeks go by, some of these challenges are getting solved, but initially connectivity, VPN issues, bandwidth, access, policies, procedures, related to all this is support, and that’s our world here at Moveworks. Now what’s interesting if you read the news, which everyone is doing right now, you hear a lot about bars closing, schools closing, gyms closing, but one thing that you don’t hear about is the fact that every walk up bar in the enterprise is now shuttered. It’s closed. We’re not able to go into the office anymore and walk up to someone in IT and say, “Hey, can you fix this for me?” And so overnight, IT teams have had to shift their strategies and deploy things like messaging platforms, remote conf and webinar tools, digital channels for IT support, a lot of other systems to ensure that workers working from home are staying productive.
Bhavin Shah:And the data, as part of the challenges that we’re seeing them face, we’re seeing a 500% gain in requests that employees are making for video conferencing apps like Zoom. We’re seeing the demand for IT support services double. We’re seeing two to three X the number of troubleshooting tickets come into the help desk. And so the good news is there’s lots of good solutions, there’s a lot of companies that want to help here, but the real test that’s going on right now is whether IT teams can put these systems in place in a matter of days and weeks, not months or years.
Harry Stebbings:You’ve seen a variety of different rollout, so to speak, from the IT teams themselves. When you think about perfecting the infrastructure stack and process of these rollouts, where do you see many maybe make mistakes and go wrong in really transitioning to work from home effectively?
Bhavin Shah:Yeah, I think what we’re seeing is it’s mostly about speed. I think a lot of IT teams were thinking that they would make these changes over the course of several years, and manage change management accordingly. I think the ones that are moving quickly now to pick up best of breed best practices and roll it out are finding that employees are quite receptive. Employees are able to make switches very quickly. I think we’re all seeing this. I’ve got kids, and overnight they’re all switched to now doing classes over Zoom. Even my kid’s TaeKwonDo and gymnastics classes are doing them over Zoom.
Bhavin Shah:So I think that where people believe that people can’t change, I think ends up getting them stuck in deliberation and where they know that if they make the change, people will adjust, those groups are winning. One thing I’ll say though is you are seeing kind of a shift in terms of the economy. While many businesses are shuttering and slowing down or weakening, there is a new type of economy, a new type of business that is starting to see more traction and/or thrive in this environment, and that is for businesses that are helping employees and individuals get work done anywhere and anytime. And I think that’s something that we’re seeing play into our business, and in general, the world of SaaS.
Harry Stebbings:One thing I’m really intrigued by is is this a flash in the pan momentary realization from traditional large incumbents and enterprise that obviously fundamentally by law, they have to be work from home? And then more of back to their traditional standards of practice and work? Or do you think this is actually fundamentally a shift in how society operates with regards to its relationship to work?
Bhavin Shah:Yeah, I think it’s the latter, and here’s our experience. So when we started the company, about 20% of CIOs that we talked to had an enterprise-wide collaboration/chat strategy. They’d be going with Slack or Microsoft Teams or Glip or GChat, etc. Last year, that percentage was about 50/50. 50 had adopted something, 50 were still figuring out when to deploy a new tool and how to go about doing that. That debate is over. Basically the next two months, every company in America is going to have decided and implemented one of these tools, and if you’ve used these tools in enterprise, once you start using them, it’s very, very hard to go back. And I think for us, we made an early bet in this world of enterprise chat being a big deal and being something that would overtake traditional means of communication like email.
Bhavin Shah:And so we see that happening in our personal lives with WhatsApp and SMS and everything else. Why not in the enterprise? And so this is actually causing that shift to occur very rapidly, and people will start to see the utility of this. I think through chat, the UI is very intuitive for everyone. It’s not one that we have to learn. We’re all familiar with writing, we’re all familiar with communicating. And so it allows us to have more interactivity, it allows us to simplify work streams, and basically work at real-time. So I think this is a permanent shift, even when we do go back to the office building.
Harry Stebbings:You mentioned an early bet that you placed in terms of the market itself and its transition. I have to ask, because now it seems inherently obvious, but it wasn’t at the time, and it was early. Why did you gain such conviction as opposed to other channels of support, like email and voice? And what led that decision making conviction?
Bhavin Shah:Yeah, it’s a good question. We are a conversational AI company, and there’s a variety of ways that you can obviously engage in conversation. I think that enterprise messaging for us provided a lot of affordances that just made sense if we wanted to provide support to employees. So just going back to the behavior, employees submit on average about one IT ticket a month, and it takes about three days for them to get a result. Now there are portals, there are self-service catalogs and things that people can use, but when you only have an issue every few weeks to a month, you don’t really know how to navigate those. Those UIs are wrought with friction, and email obviously had its inherent delays as well and it’s not real-time.
Bhavin Shah:And so what we wanted to do was find a way that employees could just do what’s intuitive, which is shoot off a quick note and send it off to IT through a chat and have that picked up and have that resolved, but more importantly, by doing it in the enterprise collab tool, we could get their attention, because they’re already checking that tool 100 times a day, collaborating with team members on projects, checking updates, etc. So we wanted to find an interface that allowed for that high volume, high frequency, and we just didn’t necessarily see that with voice, and of course, email has been clogged for years, and you can very effectively find people on their mobile devices, on their tablets, on their laptops, with these new messaging platforms, which really does a lot to help improve our engagement and overall resolve more tickets for those employees.
Harry Stebbings:You said that about engagement, and you also said that about the three day ticket resolution being the standard. I’m really interested, because I always think the definition of what success looks like is crucial, and metrics are often fundamentally quite uniform across industries and verticals. What metrics do you use to define success today? And I guess why do you focus on those specific metrics over others?
Bhavin Shah:Yeah, so until recently, I think SaaS has been mostly focused on the delivery model of the software, to go from your data center to a cloud, which that itself led to some new metrics that have been used for the greater part of a decade, which is to measure active users. And it’s pretty logical, but the problem with active users is it doesn’t really tell you how much value you’re getting. And so I think for us, we’ve been charging forward in a new way of energizing SaaS insomuch as we’re taking ownership of the actual end to end results. We’re doing the implementation and configuring overall, so looking at how many tickets did we resolve for each customer? And so that is the metric that we picked. It’s got perfect alignment between us and the customer. How many tickets did Moveworks resolve yesterday at Broadcom? How many tickets did Moveworks resolve yesterday at Nutanix?
Bhavin Shah:And we measure that, our customers measure that, and it allows us to focus on whatever might be the case to make those metrics better. Sometimes that’s engagement, sometimes that’s an additional integration that we need to do, sometimes that is triggering some other automation that the customer might already have. But the goal ultimately is to provide more workload relief for the IT teams by having a system like this resolve more and more tickets. So for us, the alignment is at a higher order around what was our output, what was the results of our system each day, each hour?
Harry Stebbings:Can I ask you, I’m on the board of many companies that face the challenge of change management. In a normal world where services, revenue, and in-person visits, meetings, seminars are possible, change management is still fundamentally a challenge. In a remote world, how does change management change, and does it get inherently more difficult given the lack of physical services that one can provide in terms of coaching, training seminars to really allow for a smooth transition?
Bhavin Shah:Well, I think that’s absolutely right. What I see a lot of, especially in our own experience of using other SaaS tools, there’s a heavy burden placed on the customer to learn the tool, to implement the tool, to train the employees on how to use the tool, and only then do you actually see the full value of what was created. With our product, and something that we strive for, is how do we take more and more of that work off the plates of our customers and how do we give them more value right out of the box? And so sometimes, it’s not just us delivering a set of tools. I always think of this analogy like Home Depot. A lot of enterprise SaaS mindset is, “Hey, let’s just give someone a tool and have them go figure this out or extract value from it.”
Bhavin Shah:At Home Depot, you go buy your tools to go do whatever home improvement project you want. Maybe you’re building a birdhouse. Maybe you’re building an extension to your living room. It doesn’t matter to them as long as you bought their tools. For us, we actually want to provide you with the end result of what you’re looking for. If you want that living room extension, let’s go build that and give you the keys when it’s ready so you can walk in and enjoy it. And so from our standpoint, the customer success motion, the engagement that we have with customers, is not just about improving our machine learning to understand yet another type of ticket utterance or language pattern, but it’s sometimes us adding a new integration into a back end system.
Bhavin Shah:Sometimes it’s us showing those customers how to clean up an old process or to change a system or record. All of that is so that we can track and show that progress with each customer, and that metric gives us the ability to know where we stand, and that’s something that’s very intrinsic with what we do. Really it’s about customer success being company success as we build this out.
Harry Stebbings:Can I ask, in terms of both customer success, I guess also marketing, but in terms of horizontal application, this is not a vertically specific tool and it’s so horizontal across so many different industries. How do you think about effective marketing in customer success, given the inherently different use cases, applications, and some challenges the different verticals will face with it.
Bhavin Shah:So one of the premises that we had when we founded the company, and this was insight that we derived by looking at IT ticket data, was that IT was homogenizing globally. What does that mean? That means that, and largely due to SaaS products, people had the same tickets that they were solving every morning about Zoom, GoToMeeting, WebEx, or BlueJeans about MacBook, Dells, Lenovos, or HPs. And so as a result, we found ourselves really excited about the opportunity to solve this problem because everyone was experiencing the same problems. So we could build machine learning models at scale that could resolve it out of the box up front for our customers.
Bhavin Shah:And so while we have customers in pharma and semi-conductor and other high tech and retail and services, we have the same types of tickets. And so as a result, our customer success team works broadly across all customers, but we’re solving the same issues. Organizationally, we put customer success and product into one org, because it’s not just important to build a feature and then deliver it to the customer. It’s about building that feature, delivering it, and then seeing how much value it delivers and figuring out what needs to happen on our side, on the customer side, to maximize that value.
Bhavin Shah:So there’s a variety of metrics that we track from a customer success standpoint, but in this sense, it goes back to this core drumbeat heartbeat that we have at the company, which is everyone in the company gets a daily report. And every morning, we all look at it and it tells us how many tickets we resolved yesterday at Broadcom, how many tickets yesterday did we resolve at AppDynamics, at Nutanix, at Freedom Financial. And for me, I get that report every morning, but others in the company are looking at that every hour, every few minutes, to understand really what is the impact that we’re having and what can change and evolve as a result of knowing that?
Harry Stebbings:Can I ask, you said there about CS, like sitting actually with product? Do you engage with a product postmortem, and what do you do to weave that very tight fabric between product and CS strategically other than sitting together?
Bhavin Shah:The journey of building a product or a feature inside of our company is perhaps different than others. So instead of it being a top down motion of the market saying, “Build this use case,” and then the product marketers figuring out the details of that going down to a product manager, going down to an engineer. It’s actually quite the opposite. The engineers are looking at ticket data every day, and they’re saying, “Hey, there’s these tickets, these 300 tickets we skipped at this customer today. What could we build? What kind of machine learning models? What kind of integrations can we build to solve that?” And that leads to further research, further discovery, customer conversations, and ultimately ties into well, what’s the impact going to be? Are we going to increase overall customer resolution by 5%, by 2%? Great. Let’s go do that. Let’s put that in the next quarter’s product plan.”
Bhavin Shah:So today, we’re resolving between 30 and 40% of all tickets on average across customers, and it didn’t just happen overnight. We were two years ago bragging about three to 5%, and over time, the analysis of ticket data, the understanding of how customers perceive that value but ultimately building these features, it’s not a black box. It’s not one of these things where we build them, then we market them, and then we sell them, and then we all pray that people will buy it. It’s something that’s a lot more fluid and a lot more certain before we even start writing the first line of code.
Harry Stebbings:Gosh, the joy of doing the show is I can take the conversation in any way I want. You said there about the improving efficiency of the resolutions there. It made me think we chatted before the show about information network effects with regards to podcasting. When you think about network effects with Moveworks, is there not data network effects where every subsequent ticket actually improves the efficiency of the subsequent thousand tickets, building higher efficiency and resolution speeds.
Bhavin Shah:100%, and I think that’s something that we haven’t seen a ton of in the enterprise world. In traditional settings, if I buy a database and you buy a database, the same database, the database doesn’t get smarter because we’re both using it. For us, we are absolutely benefiting from that, and our customers are, too. Think of different forms of AI. You hear about in the academic circles, weak forms of AI, which are basically making a prediction or a suggestion or better ranking things. Then you have strong forms of AI that are trying to take entire problems and solve them end to end. A level five self-driving car is a strong form of AI.
Bhavin Shah:We’re sort of like that in the IT world. You want a self-driving car that’s been driven a million miles before you get into it, or a billion miles. With us, similarly, our product is seeing now over 70 million tickets and we keep processing them. We keep getting better, we keep understanding, okay, what actions need to be taken for this kind of language pattern? What actually needs to be taken for this other? And so we are getting better. What that means is a variety of things. One is customers who become new customers of ours, and which today we’re doing almost one customer launch every day, a large enterprise, they’re seeing immediate time to value, like the first day we might resolve 20% of their tickets. The first week we might resolve 30% of their tickets. So they don’t have to wait around for six months, a year.
Bhavin Shah:And that’s where I think we’re breaking from the traditional SaaS model where you have a toolkit, have a lot of professional services, they get attached to it, and then you configure it, that’s custom, and then you see the results. You can’t get to the same results that we have with machine learning because we’re able to aggregate, but also we’re able to learn very quickly and to your point, have this true network effect, which ties into the homogeneity and ties into a lot of the other factors, which really gets down into how did we and why did we start this company? This is exactly why. We thought of all these things, these things were somewhat still hard to figure out how we were going to achieve, but the concepts were there, and that got us very excited.
Harry Stebbings:Can I ask, thinking large enterprise and some of their challenging requests, do you ever get pushback on the data sharing between companies in terms of allowing you to provide better efficiency across the client base because of the knowledge sharing and data sharing that allows you to do so?
Bhavin Shah:Yeah, so security’s super important to us from the get-go, very early on we made investments to ensure that we could keep customer data separate and not commingle data, but at the same time, build machine learning understanding across ticket data so that when we learned something in one environment, we can leverage it in the next. So we do a lot of abstraction tokenization, things that keep what’s proprietary proprietary, but also allow us to more generically learn from that. Our customers review that with us. We go through extensive discussions around how we handle that, and for the most part, I think people are starting to come around to the fact that they want an AI system that has been trained, that has learned, that delivers value out of the box, because if you’ve been tracking a lot of this AI space, there’s a lot of AI initiatives that crash and burn six months later, a year later.
Bhavin Shah:And it’s because these things are very hard to stand up on your own. They’re very hard to maintain. They’re very hard to make smarter and evolve. And so the real benefits of going SaaS with AI is that you get all that benefit right up front and you get that continuous improvement over time. So that’s how we’re seeing it and our customers are excited about getting those results without the kind of effort that they would normally have to put into it.
Harry Stebbings:We may be diving a little bit into the ML world here, but I am just interested, have you noticed this kind of asymptotic moment of data ingestion really where there’s decreasing efficiency with every additional dataset? Because once you hit 70 million, there must be some moment of asymptote. Does that make sense? And how do you think about that?
Bhavin Shah:Yeah, so instead of thinking about it as one machine learning model and a monolithic concept of 70 million tickets going to one model, think of it as thousands of models. Think about it as hundreds of techniques. Think about it as different capabilities, and so today, we’ve seen so many tickets, but we’re not solving 100% of tickets. In fact, we think the asymptote of tickets that can be resolved rises up to about 85 to 90%. There’s still some tickets that will always have to use people to better understand… Sometimes people are very vague in their tickets. It’s like, “Hey, I just got back from Hawaii, and everything’s broke. Can you help?”
Bhavin Shah:Well, in that case they really just want a hug from IT or they want someone to give them support, so it’s not intended for a machine to solve. But if you think about it from how we’ve gone about this is we’ve stitched together a framework of looking at all the intents in IT, all of the entities that we see in IT, and we’re building machine learning models to understand every intent entity pairing that’s out there. But as a result, it isn’t just a singular effort. We have to constantly review these things. We have to have human annotators that look at thousands of tickets a day and see are our models drifting? Are our models getting over fit? Do we have to inject noise into the training data? There’s a lot of other factors that go into this that we work on to ensure that this stuff works.
Bhavin Shah:But to your point, absolutely, models, techniques, are evolving very rapidly, and we see models peak in performance all the time, and so this idea that there’s one model and you just train it once and it’s modeling as a service, then you bring it back and you use it, forget about it. We’re changing stuff so often that sometimes we’ll remove entire sets of models and retrain them, some get retrained on a continuous basis, some on a weekly basis, some on a monthly basis, some don’t get retrained until we have a committee meeting, but it’s all towards the goal of what I’ve been saying this whole time, which is one metric. How many tickets did we resolve across all customers? How many tickets did we resolve across these customers? And that drives our behavior.
Harry Stebbings:Well, I can clearly chat to you all day about data asymptotes and the machine learning model. So I think it’s best we move onto the 60 second quick fire round, Bhavin. I say a short statement and you hit me with your immediate thoughts. Does that work well for you?
Harry Stebbings:So it’s a war for talent, as we always hear. What’s the hardest role to hire for today and why?
Bhavin Shah:That’s easy. Machine learning infrastructure. I think with machine learning systems, they’re both computationally and memory intensive, and so the challenges are just intense, and finding people with that experience is really hard.
Harry Stebbings:What’s the biggest challenge about your role today with the company and with Moveworks?
Bhavin Shah:We’re going through fast growth and I think nailing forecasting is still an art, still figuring that out. Sometimes we overshoot, sometimes we under call, and I think that’s something that we’re all focused on now, especially as we’re seeing everyone work from home and how to right size our investments accordingly.
Harry Stebbings:Sorry, this is kind of off schedule, but how do you think about transparency within the org, especially with regards to goals? Because you want people to drive towards something. You want to set ambitious goals. But you also don’t want to set too ambitious goals so people will be discouraged by it if they don’t hit them. How do you think that balance of ambitious but not discouraging if not hit?
Bhavin Shah:One of the folks that I had a chance to recently meet is Rob, the CEO of Coupa, and he has hit his target as a company I think for something like 44 quarters. It’s some larger than 40 quarters in a row. That is a hero. That is someone who has really figured out the right balance of making sure that you set a goal and that you hit it, even through good times and bad times. And I think that is super important. I don’t have a specific answer other than you do want to strike that balance, and the transparency is key, and so the good news is for us, a lot of our stuff is inherently transparent just given our product, and even today, later today I’m going to be reviewing the operating plan for the year with the team based on what we’re seeing now change in the market. And I think it’s just keeping everyone updated and keeping everyone tuned into the same channel.
Harry Stebbings:What’s the biggest area where investors have actively helped you and really moved the needle for the company?
Bhavin Shah:CIO introductions. Investors seem to know every CIO out there and their help with prospecting is huge.
Harry Stebbings:If you could change one thing about the world of SaaS today, what would it be?
Bhavin Shah:I think increase expectations from SaaS products. It’s like, let’s hold ourselves more accountable for the outcomes and deliver real results. Instead of just being a tools provider and making customers do the heavy lifting, let’s give them solutions. I think that’s something that I’d love to see the world of SaaS talk more about.
Harry Stebbings:Hit me. What’s the next five years for you and for Moveworks? Can you paint that vision for us?
Bhavin Shah:Yeah, so we’re doing IT today, but our goal is to go into many other domains and departments. I think ultimately, if knowledge workers need help, we want to be the company that solves it for them, and I think we’re on that journey and we’re super excited by the reception so far. So we’ll keep plowing ahead.
Harry Stebbings:Bhavin, as I said, I heard so many good things, as I said, from Mamoon, from Arif, so thank you so much for joining me today, and I’ve so enjoyed chatting.
Bhavin Shah:My pleasure, Harry, and these are obviously challenging times, but it’s been fascinating to see how SaaS apps and other products like that or like Moveworks are allowing folks to stay connected from afar.
Harry Stebbings:I have to say, I really could not be more excited for the time I had with Moveworks, and if you’d like to see more from Bhavin, you can find him on Twitter @Bhavinator. I do love that username. Likewise, it’d be great to see you behind the scenes here. You can do that on Instagram @HStebbings1996 with two Bs.
Harry Stebbings:As always, I so appreciate all your support and I can’t wait to bring you another fantastic episode next week.
Things are crazy now in SaaS. If times are tough, it isn’t sales that is going to pull us out, or demand gen. Its your existing customers. Being so loyal, so happy, that they keep your engine going. That they keep renewing. Telling their friends. And spreading the good word.
So even if other parts of your engine are struggling a bit, here are 14 basic things you can do right now to be more customer-centric:
Launching new features that matter every quarter — that they don’t have to pay more for. Your product continually gets better.
A named Customer Support Manager they can talk to. Not just bots, not just automation, or tickets. A real, live human being with an email address and a phone number that can help. The same one each time. Linda or Lou or Larry is there. To help.
No material annual price increases. Inflation is low, and your sales and marketing costs are amortized across Year 1. Why does that mean a price raise in Year 2? It shouldn’t.
Downtime is disclosed in real-time. It can be painful to share when your app is down, even just slow. But you owe it to your customers to be honest here.
New solutions to more of their problems. Raising prices for the same software isn’t cool. What is cool? Building new, fairly-priced solutions for customers that already trust you. If you already help me with support, make you can help me with outreach as well. Etc. Thank you.
No need to talk to an SDR if I don’t want to. Don’t qualify me out. If I didn’t care, I wouldn’t in-bound.
Year 2, 3, 4 .. and 10 are earned. What are you doing to earn the renewal? Just because you may get it in SaaS fairly easily in many cases … did you earn it?
Customers can buy the way they want to and are used to. Monthly instead of Annual? So be it. Maybe for a higher cost, but so be it. 3 Years for a discount? Well, OK. There often have to be limits here. But wherever possible, allowing customers to pay and buy the way they are used to paying and buying takes a lot of friction out of the process.
Professional services that are awesome. Free though not always important. If your product benefits from professional services, having a truly A+ team really helps. Services don’t have to be free, especially in the enterprise. It’s more important they are awesome. A bit more here: Don’t Forget the Services Revenue | SaaStr
Support in minutes, not hours or days. If I need help, I should just get it. A human being should answer the chat. Should pick up the phone. Should respond to my email. Not in hours or days. But now. Your customers’ time does matter. Why do they need to wait? Yes, doing this right is hard.