SaaS Growth Secrets with Stijn Hendrikse

Foreign, We're talking about SaaS growth. What can we learn from fast growing software companies that we can apply to any company? If you're in a SaaS company, as we know many of our listeners viewers are, this is going to be a great show for you. If you're not, there's still things to apply from this to whatever kind of business you're in. As you know, I coach companies across a broad range, including SaaS, but certainly not limited to it. And you're going to hear the learnings from how they grow super fast and from our guest today. So hey, g' day everybody. My name is Bill Gallagher, scaling coach and host of the Scaling Up Business podcast. We bring our show to you every week, at least a couple times with a guest, author, guru, CEO, somebody to share about surviving, thriving, this whole process of trying to grow your business. Scaling Up. Right. And so We've got nearly 600 shows now at scalingcoach.com or wherever you're getting this right now. Everywhere I, there's nowhere that I don't think that we try to put it. So YouTube X LinkedIn, certainly all the folks on Apple, Podcasts and Stitcher. So audio, video, it's all available. Or you can go to scalingcoach.com where we also have monthly workshops that you can sign up for various coaching programs, cohorts, things like that. So I'll end more@scalingcoach.com. All right, so I want to welcome Stein Hendricks to our conversation today. He's a tech professional with 30 years of experience in SaaS and AI, spent time at Microsoft, helped create and launch Office 365. He wrote this fine book that so many oh, there's the back of it. T2D3 about software startup, scaling and how they fail and how the ones make it. And so we'll be talking about that and more. He's also the founder of Colungi B2B SaaS marketing agency and I don't know so much more. Welcome to the show, Stein.

Thanks for having me, Bill. Great to be here.

That's a pleasure to have you on. So we're going to get into all this and more today. I think it's interesting to think about the business lessons, but let's go back further. I'm curious what your time in the military in the Netherlands, what lessons you took from that into your career.

Yeah, it's a good place to start. I didn't finish my most of my schooling, Bill, and I was doing software development on the site since I was like 9 years old. And so what happened? My mom, at some point, she had a friend who was a high officer in the Dutch army. And when I had gotten it into my head, I was about 19 years old, I think that in addition to software development, and I had dropped out of school by then. I should go work as a croupier in a Dutch casino. She kind of gave him a nudge and said, hey, there's still a mandatory military service in the Netherlands. Right. It might be good to call Stein up. And so I got that letter on the. Monday morning. It was on the. Well, Sunday it was in the mail. And literally I had to go Monday morning. There was like a train ticket in the envelope to go to the local recruiting or actually training area I was in for only a little more than a year. It was one of the last groups of people who had mandatory service in the Netherlands. So we were turning the military into a professional army. I was in the army. I was a sergeant, so nco, I think in English.

Yes.

And communication services, which was. It was cool for me. It was a good, like, resetting kind of my. Sort of what it means to be a professional. And then when I came out, I had met my. Met my current wife. We've been together for a while. It was much more serious than before. But my time in the Maryland wasn't that interesting because it was really just a short period and mostly mandatory service. But I did learn, you know, discipline and being part of a group where you wouldn't always get your way and listening to authority. So it's good.

I served in the US Air Force when I was very young. And I was kind of encouraged to go in by my dad at the time because I was kind of mismanaging. I was a little immature for college. And after my first year of school, he encouraged me to take a break and go in the Air Force for a little while or do anything to, like, grow up a little bit. And I remember being really uncomfortable with the whole, like, mostly I didn't like it. There were things about it. But when I look back now over time, they're really powerful lessons. Like when you come in and you're getting. You're all disoriented, and then you start to learn to do things like simple things, like march as a group, and there's this moment where it goes from a bunch of scattered things to everybody's heel strikes at the same time, and you're finally moving together and you're like, wow. And I don't think that hit me. Then it Felt something. But later I thought and realized, yes, we're much more powerful together. When you can get people to all work together in harmony, like with Synchronicity, there's definitely some power there in getting things done.

Yeah, that's a great point. I think I was more commenting immediately what comes to mind, how it formed me, who kind of put me into shape at that age. But you're right, all the things I've learned about leadership in my following career, the fundamental principles get so much amplified in the military setting. Right? How groups form, how people evolve, how people work together, handle conflict. And I find myself a lot when I'm coaching people to use military analogies. And you have to be careful sometimes, but they are very useful often because it is an environment where things get very real, very quick. And it's a nice way to apply that into business, where you usually have a little more time and a little more. A little more leeway.

A little more is more persuasion business. Right. Because although you're paying, they can also just walk off the job, whereas in the military, you have actual control over their lives, which is really different. But I think even then, like you, I remember I was the first to be picked for leadership as I came in and I was given a small group of men to lead. And. And then almost as quickly, I lost that leadership. I was fired. And. And by your man. Yeah. Huh?

Fired by your man, Bill?

No. Well, I mean, maybe, but no, fired by, you know, by the. The. The leader who'd appointed me. Right. So. And I, at the time, it just kind of stung, you know, it was embarrassing and a little confronting. But as I looked down at later and with time, I realized it's because I was about being the authority rather than, like, I, like, took it on like, okay, I'm in charge instead of, hey, what do you guys. Instead of being a servant to the unit and what we needed, I was like, I'm in charge. And it was too much focus on me and not them. And so as quickly, you know, I got it because I speak up and I step forward and like, that kind of thing. And I lost it because I wasn't thinking about the team and the mission and, you know, super useful.

That's a great example. So I learned in my career about these, like, three power bases, right? How you have either formal power or you have power because people follow you, because they can learn something about expert power. And then the most powerful of the three is really referent power, right? Where people trust you. They. They know you have their best interest in. And you're really helping them grow for many other reasons than just your expertise or your formal position. And it was funny, I had the similar experience. I had a small team, just like an nco. I had two linemen. They were like rolling out electric electrical cable in the field. I was a company, company sergeant, communications. And I had one radio technician and I had a chauffeur and I had two drivers, I think one for the truck and one for the. For the jeep. But the radio technician was the only professional in my group. The rest were all conscripts.

Right.

And so he was kind of actually a much higher seniority than we are because he had committed for a much longer time. And I definitely didn't have much reference power or even expert power over this person in my team. Right. I may have had some authority, hierarchical, but it didn't really mean much. And he just did whatever he wanted. He was kind of laughing a little bit and it made me feel like I have to really earn this position. You cannot just. Yeah. Show your stripes. Right. So to speak. And it was a great learning.

Yeah. I'm curious about the, the culture and the experience of working with Microsoft. What was that like? And I know like, things change over time. You worked at a different time. What can you share with us about that time?

Yeah, I've actually talked about that a little bit the last couple of years. I'm in Seattle, so I live really close also to the Amazon headquarters. I've seen that kind of grow up here. And what's interesting, I was at Microsoft the first part of my career and especially the first year I was hired without a college degree. I had a little bit of management experience, but I came in relatively junior and I was asked, I had an opportunity to run the Microsoft consulting organization for the Netherlands, which was quickly becoming a team of about 50 people. I was 27 years old. And to be able to be given that opportunity without a lot of the formal training could only work because Microsoft invested a lot in the actual people in the company, especially leadership development. The amount of coaches and training I was exposed to by the like, I had training from like people who wrote all the books of those days. Right. And to have that opportunity was really what for me defined Microsoft. And it still, I think, does. When I look at how Nadella now runs the company, although it is so different from Gates and Ballmer, the one thing that has stayed the same is very people and leadership centric. Where I think when I compare it to Amazon, although they have a lot of Things in common when it comes to the way they do business and the way they optimize and copy sometimes things and make them better. The one thing that's very different in Amazon, I think it's much more about the machine being really well oiled and the people being parts of that. Not necessarily, not less val, but much easier to exchange. Right. In very well defined roles and the way they measure things and optimize where at. Microsoft is really more evolving around the people and the organization almost morphs around that. We were known from doing a lot of reorganizations like twice a year. Sometimes the whole team got shaken up and the reporting lines changed. And it was usually not just because of business needs. It was a combination of business, but also people. The talent that we had in leadership and how we best kind of morphed the organization to make the best use of the people. Right. And that's I think, still something that really makes Microsoft a little different from some of the other technology companies that I get exposed to.

Yeah, we spent some time in Seattle a year ago and we had a place in Lake Washington and I never spent so much time around so many Microsoft people. And to get a very different picture into it than being in the Bay Area, that's been certainly Microsoft presence here, but nothing like being up there where you, you can't help but trip across Microsoft X and current Microsoft and Boeing people and like that.

Yeah, that culture is interesting. So the person I was recruited in Microsoft in the Netherlands, but the person who recruited me to Redmond was actually Daniel Lewin who worked actually in San Francisco. He ran basically the Silicon Valley kind of side of Microsoft. He was the guy who came from Apple who ran education over there. Dennis. And he had this very different, of course, cultural, I guess, contribution to Microsoft. Then Microsoft when I joined was this army of a type personalities, right. If you were not able in a room to interrupt and to interrupt effectively, you were just not going to be heard, which means you would not be as relevant. Right. You wouldn't get a lot. Yeah, but it worked. Right. But it's also the reason why a lot of people, when they leave Microsoft, they have a harder. And I think now it might be different. I've been gone for a while. But they have a hard time adjusting environments where people do work in a different way. Right. Where there's a different form of collaboration. Because at Microsoft it did work, it wasn't necessarily bad, but it was definitely not the way most companies do it.

Really, really interesting. It's good to think about it and to think about the pros and cons of it and to take a look in the mirror at the kind of culture, the kind of business that you're building. Let's dive into some of your stories and that kind of thing. You've had successes, you've had mistakes. You've talked about both. As we prepared and collected notes for the show. I think it'd be great to start off with your mistake around spamming on LinkedIn and that kind of thing. Outbound marketing and the lesson learned there. Would you share that with us?

Yeah, yeah, sure. Yeah. I'm a software developer, like originally and I turned into a consultant and sales and then marketing. But I've been in marketing now for 20 years. And it's interesting, the fundamental job we do as marketers, specifically in technology, it's maybe a little different than other marketing fields. We try to change people's behavior and ultimately what. Change what people believe, right? And that and a lot of leads to action. And when you do that, there is no way around most people concluding, which I don't think is bad, that you have to proactively do something to either interrupt people, to make people look up, to make them pay attention, to make them, you know, do something with you sometimes instead of. And that, and that does lead to things like outbound marketing or other forms of kind of interruption marketing to sometimes being less effective. And what I learned when I started to get exposed to things like, you know, account based marketing and all these other things that are basically meant to basically find people in certain places in their journey where you can easily, but you can interrupt them in a less, less maybe a less clear way, right? Where it's less, less obvious maybe and less annoying. That if you look around you in daily life, we do outbound marketing all the time in our personal relationships, right. When we are at a cocktail party, right, and we talk about what we do at work or we have a business card maybe that we give to. We're doing outbound marketing, right? There's. There's many moments when we're trying to kind of tell our story to people who may not necessarily have googled us and found us organically. Right? So, so outbound in that sense. An inter. It happens all the time. But the trick is you need to, in everything you do, I think, but especially here, you need to make sure you try to add as much value as possible. The book that I still recommend every marketer to read and by the way, a lot of people, everybody in business, is Dale Carnegie's book From like the 30s, 36, or how to make friends and influence people. Because you have to learn how to understand what other people would be interested in. Right. How you can be interested in them. And the story that, that, that I sometimes tell. We landed here in the us we came from the Netherlands and we had our first house, had a lot of trees around it, Seattle. So we live here in this house, a couple of trees on it and our son was I think 8, 9 years old. Then someone knocks on the door, 8, 8pm at night and it was one of those three pruning services, cutting companies, etc. And they knocked on the door. We didn't open. Our son that I'm not even sure if we were home. I think we were, but maybe just busy. And he of course didn't have any decision making authority. So the door was closed relatively fast. But this person who knocked on the door at least left a flyer behind, right? They had something to leave behind. And yeah, what happens four or five months later? I think my wife sees a branch, a tree branch hanging over the garage and it looks kind of shady and she remembers that flyer in the kitchen drawer and we called that company, if she did and we're still using them like 25 years later. That was outbound marketing that they did. But what they didn't do, I assume they did not knock on every door. They knocked on the doors that had trees hanging over their garage. Right. And they were ready when the door opened to leave something relatively relevant behind. Right. So when you knock on people's ears, email inboxes or their LinkedIn profile and, and you're at least making an attempt to only do that with people who you think might benefit from your service and you're ready to at least give them something that they might be willing to keep around. Right Then, then this works. It's fine. Right? Because we do it all the time. We always interrupt each other when we want to get attention. But being relevant and making sure you think about who you're interrupting and why goes a long way.

I think it's really useful that effort. So for some attempt at targeting and then trying to create some relevance and value. Like here I have something that might be useful for you, you know, and I personally on the receiving end of things all day long that, that aren't particularly valuable. Hey, we'd like to help you with this. Okay. But I'm not looking for that. Hey, we'd like, let's sign it. We'd love to know what you're working on. Go do Your research. I'm not taking the time to tell. You're the third person today who asked me what I'm working on this year. Like, not interested. Right. Like, I think a lot of that. Or hey, have you ever thought about putting out a podcast? That's one of my favorite.

You know what makes that makes me think of Bill Solutions. Selling. Right. We probably both grew up in the world of consult of selling and things like that where you ask a lot of questions.

Yeah.

And the reality is that last 10, 15 years, people get a little bit tired of that. You know, you got to kind of do a little bit of homework. You know, don't come ask me 15 questions to tell you how to sell to me. Right.

Yes. Do your homework. Like, hey, we love that you have a show. We think we could help you in this way. Ooh, now I'm interested. Now I'm listening. Now I want to know, do you have any credibility? Do you work with any of my friends? Right. Like, or whatever it is. Hey, we notice you're a coach and we work with coaches and we see they have this problem. Do you have this problem? Different than the typical kind of message that we get thinking about that and then. But I love also the notion that you threw something out there. They threw something out there. It didn't hit immediately, but it came back later. I worked with a company. Was it last week? Last week, I think just briefly. And I did a one day thing and they're like, oh yeah, we first connected with you in 2020. I'm like, oh, yeah, I do kind of remember that. Right. Like I did, but I had really forgotten the whole. I mean, I know the company and. But I'm glad, like all that time I've been in the background of their mind to do something, you know, like, wow, that's interesting how sometimes it takes time to come back around.

Yeah. Patience goes a long way in outbound. Right. I compare it almost to the running game in football. I had a. When I started Kalungi in 2018, I started to do some LinkedIn marketing, as in there are still these tools around where you could kind of semi scrape LinkedIn and do some automated messaging. And I did that. But at least I tried to target and have like what I just talked about be a little bit relevant. And there were a bunch of companies who didn't think of that any other than spam. But one of them actually became Columbia's largest client. But they came back like two years later, they had absolutely categorized it as spam. I'm not interested. But then two years later, when they were looking for a fractional marketing agency to outsource to, they did remember the message. And I said, hey, we don't, we're not going to look for it. We may have one already. Let me go look in my archive. And it became the largest client for Columbia in that year.

It's funny and it does kind of reinforce the importance of not doing anything really stupid. Like, I've seen a couple of people's sort of last minute, like obnoxious email message to try to finally jar me. And that like, gets them permanently blocked because I'm like, you're just a jerk. And you're like willing to do anything at that point.

You have to put effort in. So my comparison with the running game in football, like, and this is not. Doesn't resonate necessarily people outside of the U.S. but when you have kind of four quarters of the game, it usually doesn't pay off in the first or the second quarter. You got to kind of keep testing what's working, what's not, and pound the defense a little bit. And with abm and it's a little bit similar, right. You really have to test what works, the subject lines, the messenger timing of those things or the channels that you use. But once you find what works, it can actually be really, really effective because there are a lot. Assuming you have a product market fit, you know what your ideal customer profile looks like, assuming you've done those basic things, then there should be prospects out there who will say at some point, hey, yeah, that's for me, I'm surprised.

Today at the marketing that I personally see. Right. Like the things that come at me in all realms, business, personal, professional. Right. That are, some of them are, feel really targeted, like they're really speaking to me. They're, they're, they're surveilling me, they're tracking, they're seeing the kinds of things that I'm interested in, they're feeding me up. And one way of viewing that is like spooky creepy. The other way is, oh, this is actually helpful because it's something I'm interested in, whether I choose to do business with them or not. And then I see these other things. It's like, what does that have anything to do with me? Where could that possibly. How is anybody spending money and doing so little targeting to anything that I care about? It does seem like we have both today.

Yeah, the term should nail a niche and of course and focus have been around for a while, but I think now, with the amount of data that people have available and the ability to learn from digital breadcrumbs. Right. And what people click on and it's just so fast that if you're not able to get to know your ICP so well that they think of you as part of their group. Right. Is not optional. You know, it would be. It's failure if you don't do that. It's not that hard.

In tech and SaaS, there's a staggering number of acronyms. ICP, ideal customer profile. But do you know who your ideal customer is? Are you. Do you have an avatar? Do you have more than some demographics around them that you're looking for? Is the. And are you speaking to them? Talk about the other side of it. We've been talking about outbound targeted kinds of interrupts. What about content marketing and what. What's getting it right? It's going through massive change today in AI. I know you've written scads of blog posts, that kind of thing. Maybe share with us about your thoughts on that.

So first, if you've reached product market fit, if you've kind of established what your ICP is and you've been successful selling to them and letting them not only use your product, pay for it and keep using it, you have this unique ability now to learn from those customers, right? So you should be ahead of the game versus your competition and also improving your product, improving your services. Right. Because you have access right there and then to what these people would also need. Right. And what they would need next. And then, yeah, AI helps to increase the capability of doing that fast and do the research and develop the content and all that. But I think relevancy has the game and the bar has gone up significantly because of all that in the last couple of years. The other thing that I always find very important to teach when we talk about an icp, people are very common and we'll throw in a couple more acronyms just for fun to go from the tam. Right. The total addressable market. All the people in the world that they think are in their market segment that they could possibly service to the serviceable part of the market. Right. The sam. Right. That's a pretty common. People get that. Like, I shouldn't go after types of clients that are just not going to be able to use what I do. They are in the. In the wrong country or they are the wrong size or for whatever reason, they're not serviceable. The much harder thing to do, and that goes from the CEO of a company to the board and to the people who work in the team is to actually go to the next step, the sum, right. Not only the serviceable part of that addressable market, but the obtainable part of that serviceable market. Because you have limited resources, you have limited time, right. And having the discipline to say, hey, out of all these customers that I could potentially serve that all fit my icp, that all are part of where I gotten product market fit, who do I go after first? Where's the friction going to be the lowest? Where's my likelihood to be able to get them to really become fans the highest? And that discipline, especially when you're a smaller company, is really, really difficult. It's very hard to say no to sometimes relatively easy, easy, easy bets, right. Where you can basically score points relatively quick. But of course, when sales then hands those customers down the, you know, the services line And I'm in SaaS, Bill. So for me, cost of acquisition, customer acquisition cost, let's keep the acronyms rolling here is not the only thing that counts. But in SaaS, it's really important to think about the cost to service these customers, right? Because these customers will stay with you. And especially when you're not great at dialing in not only the part of the market that you can service, but the part that you want, one, two servers, right. The somme, then your services cost will just not help you with your profitability goals, etc. And that is absolutely, for long term sustainability, a more important metric than pure growth.

Yeah, that piece that is affecting your gross margin. Can you serve them? Are you getting paid enough? We see this again and again where they're like, companies will start off doing stuff and they're doing all kinds of extra work to take care of customers. It's not yet streamlined and they're not charging for everything that they're providing and people are overjoyed. But they're getting an enormous amount of service for a very low price. Right. Because they're part of this initial thing and the focus is all on growth and adding logos or whatever to the company, like that's a different stage and it's easy to miss that. I've worked with a few companies, not all SaaS, but definitely quite a few who start to get going and then they realize, wait a minute, the cost of taking care of these clients. And usually then it's also like there's a question about the service attributes, what they're actually providing and the complexity of their offering needs to get simplified.

Yeah, I don't know how close you Are what happened really in the SaaS world in 2021, what a little bit of a SaaS bubble for a long time. And it was like growth at any rate, at any cost, et cetera. And that the balloon got pinched. And the reason partly was that there were all these really cool sounding terms like land and expand and where you kind of said, hey, let's just, we don't need to sell them everything we have. We'll do that later. We'll just get them in with the lowest friction possible. And the problem with all that is that of course the theory makes sense, right? It's cheaper to sell to customers that you already have, et cetera. But the problem is if you lower the bar of the initial sale too far, now you're just moving that problem down the line. And now you need a customer success organization that is very much a sales organization that you now have to start paying commission. And so before you know it, that land and expand. The economics are not necessarily that beneficial anymore. They're just the same as they were when you had to make a lot of effort to sell someone a high contract value in the first place. And a lot of that I think led to, in addition to just investor sentiment and things like that for the SaaS bubble to kind of increase and increase and increase. But the challenges that you face when you just need to need to sell something and you need to service a customer with a reasonable product for a reasonable price, when you keep pushing those things down the line because it makes your numbers look better, you get lower churn data, you get better customer bookings, new revenue bookings, that's I think, partly what happened. And then you get to exactly what you're describing. If the services that you provide keep growing partly because you're being told by your investors to reduce churn and things like that, right? Okay, let's just add some customer success managers. Let's add all this cost to my day to day operation. Now, you're forgetting that you can actually charge for that, right? And what I've seen really successful in the last couple of years, and I think this transfers to non SaaS companies as well, Bill, is that if you've done that, if you've built a lot of extra capability to take care of what I would call your hero customers that are in your hero price plan or your hero package that are really buying what you like them to buy, and you're adding onboarding and education and all kinds of service levels to do support, then at some point you could say, hey, I'M not just going to do a price raise for inflation reasons or other, many reasons why you could raise your price, but because I've actually provided them so much more lately than we used to have. And I call that the HERO plus price plan. So I've seen a lot of companies be very successful with adding, let's say they have a three tier price structure to add, like a middle tier plus plan, like a Ford that is 10, 20, 30% more expensive. But it doesn't really change the product, but it changes. It really charges for all these extras that you've been building. And usually it's a very easy way to sell your customers on that, especially the new ones who didn't know that they already got that for free.

I signed up for a health SaaS app thing recently and I got the base and then they started adding all kinds of things. Well, you could upgrade this and you could add that and you could add this. And I'm like, oh my God, what did I really pay for in the beginning? I'm like, but that kind of got me now, like, okay, they got me for a year, we'll see how it goes. Can they create value? Will they keep me around year two? Of course. In the SaaS world, a lot of it's betting that you'll just soon forget and you'll just let it roll out for a while. You can end up with a lot of services that you're not continuing to use and that creates future problems. Before we go there, let's talk about some examples. The book T2D3 is great, right? Right. Triple for a couple of years and then double for a few more. Seems great. Like, okay, we should all do that. Right. But of course that's easier. And very few companies that try to do it actually do that. You've worked with a few study. So how do we do that? Why don't you talk to us about Browzeware or one of the others that you like to talk about?

Yeah. The magic of SaaS is kind of these two assets. Right. You have the software, which has been magical for 50 years almost, if not more.

Right.

Where we have these economies of scale, you make something once and you can charge for it for a long, long time without having any other manufacturing cost. Right. That's one magical thing. And the other s, of course, is that if you can do that in a way that people keep paying you forever. Right. And that's the magic of SaaS. That's why that business model is so extremely valuable.

Yeah.

The problem that comes with it. And that's I think is really comes back then into the T2D3 kind of mindset is you have to realize if you want someone to pay again next year like you did with your subscription example that you just gave that you need to make sure you keep adding value, right? And if you don't do that then you get into the world of hey, I hope they don't. They don't even notice that their credit card gets charged again. And that's not a great way to do business.

Sometimes they will sometimes work.

So you have to figure out how do I do that right? So what T2D2 really means is once you've hit product market fit, you have some form of hey, I have one demand gen channel that got me to a couple million in revenue. I have a couple of clients that like me that pay for the software, that keep paying to get to exponential growth at that T2D3 curve, you need to diversify the demand. You need to start thinking about how do I monetize those customers, how do I get more revenue from a single client than I got yesterday, how do I grow either ACV or ARPU or asp? However you measure the size of an individual customer or a contract and you have to reduce churn, you have to get really on how do I make revenue retention a big part of my focus and all that at the same time of optimizing the funnel. The funnel has all kind the volume of the funnel, the speed of the funnel, the shape of the funnel, all those things. And that is is kind of the trick where a lot of companies get stuck when you are at the 5, 6, 7 million ARR level is that you've been able to do a couple of these things really well. But doing them all five at the same time requires a completely different leadership team, different types of talent, a different way to manage your company, a different way to think about product development, about revenue priorities, about the systems that you need. And that's really where you, you have to kind of hit that next stride with a completely new team. And maybe a better example that I can share is Akumatica. It was the first startup that I ran after I left Microsoft, Bill. So I did not start it. I started as their chief revenue officer. There was a founder who was basically the engineer who had built the product, a Russian team and I ran the commercial side of the business which was nonexistent. We went basically from about 0 to 6 million in array when I was there, which included building the brand and the team and all the commercial functions. It was interesting. So I got into product market fit. But then my successor because the investors asked me to go run another company for them after that my successor had to really get to that T2D3 level. And what was really cool is that my team was kind of all the people that I had hired because I had just came, I just came from Microsoft. So I had kind of hired actually the wrong team. I had hired a lot of people who are really good scaling and less maybe at doing things. You know I. When I started Documentica we were in Bethesda based Regis shared office, a couple of desks, a couple of people. I had no clue how to do that though. Luckily there were a couple of people who knew how to do things with like just duct tape and shoestring. Right. But I, I didn't. But I did know how to hire people that could kind of scale. So I hired early on hired a real product marketing manager and that's I think one of those things that in a marketing team usually isn't needed until you get 4, 5, 6, 7 million. Thinking about, about product and in a strategic way. What is our go to market model really? When you think of partnerships, when you think about the licensing structure, when you think about global expansion and how you have to do business in different parts of the world or different market segments just in completely different ways. So those are things that you don't have to do to get to 4 or 5 million in revenue. The same as scaling the ability of your founder or the core founding team to do the selling right. You kind of can get to 4 or 5 million without having to figure out how do I train everybody else and how do I accept that maybe my partners or my sales team will sell in a different way and that might also work. Or how do I build real customer service and customer support in a way that scales that doesn't fall into the trap that I just mentioned where you just keep adding bodies to drive down churn. But you figure out how do I do digital onboarding, how do I help these customers in a way that they can help themselves? All these things. And at Microsoft of course my last I ran global marketing for SMB millions of customers. There's no way you can do that with people. You have to do it with systems. Right. So one of the things I think that T2D3 really requires is that system thinking paired with still like a startup mindset when it comes to cost control and being agile and combining those is not easy.

Yeah, I think One of the things that you hear around any company scaling, and the most visible examples, the easiest are the SaaS. But lots of companies in different industries scale, we see it all the time, is not everybody levels up. Not everybody shifts from working with a small team to working through other leaders. Not everybody changes their approach to thinking about solving individual or small groups of problems to systematic approaches, developing tools and things that deal with it. But it's a very, very different kind of a person that goes through that, including yourself.

Right.

Like I remember a SaaS company actually I worked with about 11 years ago and they, the founder of it had no interest in being the CEO. He's like, nope, I start the thing, I get it going, I sit on the board. I am not the CEO. I do not want that job. Job. Right. That's a really, really useful insight. I know my son went through a few companies that didn't really pan out. He learned some great things along the process. And one of the biggest things he learned was he liked the technology and the science. He didn't particularly like being CEO and he really liked working with some kinds of people more than others. Right. I think that's a really powerful learning. Yeah.

I think also the world that you work in, right. With Gazelle and Rockefeller methods and Traction, all these kind of management systems. I fell in love at Microsoft already. And they didn't have a specific name then like with a quarterly rhythm, right. And now I'm usually using okrs, but in the end okrs are rocks. In the end it's all very similar in the sense that a business rhythm, the scope that you need to, how much system thinking you apply and tools, etc. Versus just being agile and letting humans do human work is a very good balance at that quarterly timeline. The horizon is not too far away for people not to care, which you really have with an annual plan and a two year horizon and all that. But it's close enough to drive a certain level of urgency. One of the things that I enjoy most in my work, Bill, is kind of to teach the art of urgency. Right. Especially to founders who just got some external funding. So now the clock is ticking. Of course people are starting to watch over your shoulder. And the art of urgency is all about mixing the right amount of attention to numbers and having an ability to do that without it becoming, how do you call it, micromanaging, right. And negative and cracking the whip, but really enabling and empowering, but using things like bowlers. And it's really cool to see how some CEOs really want to learn that. And then also in your example, some are really saying, hey, I'd rather go start something else and then have a new operator come in to really build that capability to get say from 5 to 50 million.

Yes. Totally different things. And at each stage. Let's talk about the stages, what happens? So you talked about the first thing. Like we have an idea for a product, we develop something, we've got our minimum viable product and we start to get that out there. Now we're looking for some customers. We're trying to figure out who the ideal customer actually is. Sometimes what they focus on changes the whole company pretty significantly. Walk us through some of those stages and what's required at each of them.

Yeah, and you see, I'm not sure if it's visible on the wall. I have this baseball diamond that I like to use as an analogy because you cannot really skip any of these. Right. I think of it as product market fit, then sort of T2D3 as kind of scale. But before product market fit, to your point, you have to get that MVP stage, a minimum viable product. And it kind of aligns with the two questions that you have to answer as an early stage company. The first question is really, what's it for? What is really the problem that we're solving? Right. What's the pain point that's meaningful enough for people to pay money for that? Right. They want us to keep working on that solution. They don't want us to take it away. I like to call it. They don't only vote with their voices, they vote with their feet. Right. If you do a really good MVP milestone, it means that people may not be paying you, but if you stop working on it, they kind of say, hey, can we help? Please keep going. So you find these early adopters, these fans that may not be the economical buyers that's also a little bit aligned with like crossing the chasm. And how do you get from the innovator early adopter audience to kind of the early adopters who are more economically interested? And that's really the product market fit stage. Right. Where you get people to have an economic interest. Right. They may not just like your solution because they understand the pain point and they care. No, they think it will help them be successful financially or in their career, etc. So product market fit is more about people voting with their wallet and then also voting by renewing their contract and maybe even telling others about it. Right. That's really product market fit. And you cannot really get to there before you do mvp. MVP is kind of what's it for? And product market fit really answered who's it for? That's when you can really establish that ICP that we talked about. Bill, it's very hard to ask a founder, what's your icp? Unless they've really reached product market fit, because there's no real proof points, right? It's not really easy to go call 10 customers and ask them, hey, is this really what you were looking for? Is just the founder smoked something and they were able to sell it to you. That might not really be that valuable. And those are the two questions you answer, right? What's it for? Mvp and then who's it for? Product market fit. And that allows you, if you have clear answers to both, like both your positioning, the what's it for? And the kind of the who's it for? The kind of the segmentation, the target market that you're going after now, you can say, okay, let's pour some fuel on that fire. And now you know which fire, right? And that's really what T2D3 is, right? And then you have to build in systems and get all the capabilities on your team to do all these things in parallel that you now have to do. And the reason in my baseball diamond analogy, kind of the next one is 100 million ARR. It's because that was kind of time when I wrote the book where it was all about scale, scale, scale. I would redo the baseball triangle today and say, that's the rule of 40 is really good 40, where you basically say, hey, it's not just about growth anymore. It's about profitable growth, right? How do you kind of balance profit and growth at the right, healthy level?

This has been a big shift in the last two years with our client companies, where before it was just growth, growth, growth, and we'll worry about the profitability later. And you know, you could say that really started in the 90s with early Internet, early web stuff. There was just a focus on capturing land, right? Getting a user base, getting something. And then we'll figure out how to make money later, which didn't always work, right? Sometimes the easiest way to make a million was to spend 10 or more in Internet lands in their early days, but especially after the initial spike post pandemic, then the correction was like, no, no, no. We need companies that are actually making money. And the change in both public markets and the VC community was really, really like, I felt it with my clients and in our world, it was a very sharp turn. Yeah, very sharp. Yeah, there were we in a couple cases companies got sold off, broken up and sold off. And in other cases there was a significant pivot to getting profitable. I can tell you the ones that have done really well, well, they got the new religion and they created a pathway to get profitable fast. And now we're seeing growth, but profitable growth. And we're starting to see that rule of 40 idea being applied and changing the multiple that the company for the subsequent valuations significantly.

Right.

Big difference in what those rounds are. Well, we've probably talked for a long time to read more about it. Of course, T2D3 the book, but also T2D3 Pro. We'll put the link there on the screen. We'll put it in the show notes. You can go find it. Read more about Stein's work and their company and that kind of thing. So Stein, thanks so much for joining us on the show today.

Thanks for the conversation, Bill.

So much to learn whether you're in SAS or not. If you're not in sas, you just have to work around the profusion of acronyms and concepts that are going there. Learn them to apply them to your business. Thanks to Stein. Thanks to our listeners, viewers for, for for watching for tuning in with us this week. Thanks to my friend and mentor Vern Harnish, who created the Rockefeller Habits and the scaling up framework that we use with our companies. To the folks at Storion, Christelle, Seth, Cameron and team. There's more over there than them, but they're the ones I talk to the most who get our show ready, produced out the door each and every week and so like it. Subscribe wherever you get it or go to scalingcoach.com check out one of our monthly workshops and get started. Scaling up until next time, keep scaling.