Fireside Chat: The Four Phases of Go-To-Market Evolution in the AI Era

Well, I want to start with a question because Mark went to it. Mit, what did I teach you about selling?

Oh, we did have a class in there. There's one class. Peter Bell taught it. I don't know if you guys know Peter. I know he was really early at EMC and crushed it way back when. I mean, I went to school in 2005 at MIT. That's when I took this class. Howard Anderson was another guy. He started a Yankee group and then started Battery Ventures, I think, or something. And then, yeah, Peter went off to do vc. And I remember the moment because I just like I teach the students at Harvard today where they all walk in wanting to be founders and they think their sales process is a presentation about their product. I had the same misconception. And I remember Peter was just teaching us and he was like, all right, that's not what it's like, folks. And he was like, let's just.

He.

I think he role played it with Dharmesh Shaw, who was in the. He's the founder of HubSpot. He was in the class with us. And I think Dharmesh, like, I'm confused and I don't know. It was someone. I hope Dharmesh doesn't feel offended if I got this wrong. But it was something like he was like, okay, Dharmesh, let's just do it. I'm like, dharmesh, so why did you take this meeting? And Dharmesh was like, I don't know, I'm trying to like think about, you know, more modern ways of demand generation. And Peter was like, why? And I was like, holy, I get it. You know, I mean like that's like a total simplification. But like it totally right turns your viewpoint on how effective sales rooted in what we know about behavioral science and human behavior, what it. What works.

So you, you would educated in math and engineering and physics and, and all those things. What made you gravitate towards sales? And then.

Except. Yeah, yeah. So I think like when you said, what'd you learn about sales? I guess I was talking about belly to belly, which wasn't much to be honest with you. Like the 100 classes that I took, that was one. Right. But I think what was cool about that moment that changed my career was I didn't even think I was going to go into sales. I was starting tech companies. And I would credit the other co founder of HubSpot, Brian Halligan, with, you know, I am almost sneakily guiding me toward this discipline, which again, you have to go back to 2005 where almost every sales team was outside was no CRM adoption. There was no data. It was an art form. You, you hired sales reps based on like the golf courses they belong to. And we were about to like change to this whole movement of data driven sales and sales management and leadership. Like suddenly it became how do I get the data into the CRM? To what do I do with all this data? And you know, Brian had the foresight to not despite having a massive network at PTC and could have brought in like any rock star tenured sales leader, he wanted to do something different. He wanted like an MIT grad to come in and add a lot more science to the team and eventually the discipline and had had a clean slate to do it, which is a blast. Wrote the first book about that, the sales acceleration formula that drew me into like helping build out the sales. Basically building the sales curriculum at Harvard Business School and a new journey around understanding the science, around scaling revenue, I. E. When to do it and how fast and that you know, we've been investing through that methodology at Stage two Capital for eight years. I've been teaching that methodology at Harvard, mit, Stanford, et cetera and was asked to write it up last summer. So came out with the book two weeks ago. And that's the highest level overview of a pursuit of adding more science and rigor to a function that I think all three of us have benefited greatly from.

So you were the Billy Beans of HubSpot.

It's actually funny because I watched Moneyball with my kid, my boys, when they were like 12 and they were like, yeah, they're not like amazing sports fans. But like that was really cool. And I, I brought up a web, a website or a page from back in the day where I had the great pleasure where I was the evening keynote at this like real estate conference and Billy Bean was the morning keynote because it was all about bringing science to they the go to market discipline. And that was kind of cool to be able to say, hey, you don't watch that movie and like look at this page. And it's like how awesome Billy Bean is and how like Mark is. Has a little bit of Billy Bean asking in the field of sales, which is humbling to be compared to.

Do you have a copy of the book that you can hold up?

Oh yeah, it's right here. Yeah, make sure you get the green one. There's a couple competing but yeah, that's, that's it there. And like I mentioned the uniqueness to it relative to all the other Stuff out there is it's specifically for if you're bringing a new product to market, whether you're a billion dollar business or a $1 business. I just don't think there's enough rigor around deciding when to scale your revenue team and how fast to scale it. And I think that causes three times more failure in product launch and startup launch than is necessary. So the book is, you know, a 10, a 10 year in the working many speeches started as a saster speech in 2019 that went viral around just using your own data to figure that out. And 100% of the proceeds are donated to mental health, which is another huge motivator to put pen to paper.

So there are terms in the book that deserve explaining. What is go to market fit.

I think I need to just talk about product market fit for a second and I can do all this in like a minute and a half if I can be quick about when you're ready to scale and to add rigor to that scale, revenue rigor to that. You need product market fit first, then go to market fit. Product market fit's thrown around everywhere. We have product market fit. We lost product market fit. We're pivoting to find part market fit. And what's crazy is when you ask 100 founders what product market fit is, you get 100 different answers, most of which are about a revenue number or a customer number or how much inbound demand you have. And I very, very much disagree with those definitions. I think the original first principle essence of product market fit is that you have brought a product to market that continuously creates the value that was promised to the customers. That has nothing to do with signing a contract or having inbound demand. That's just marketing message fit. Sales message fit. You know, like, so that's what I think the definition of the first step is. Product market fit needs to be on qualitatively customer value creation. But it's best measured as customer retention. And because of that, because customer retention is a lagging indicator that we can't wait for, you must define your lead indicator retention, which we can unpack. Once you have that, you have proven that when you sign up 10 customers next month, that all of them are going to see the value you promised them. You haven't proven that you can sign them up and serve them profitably. That's what go to market fit is. It's like, yeah, I mean, I can get this customer and like get them to love my product, but can I do that with a low enough cac? And a high enough gross margin and all that kind of stuff. So that's at that point like in the product market fit phase. Your price, your quota for your reps, the commission, the close rate, scalable demand gen, none of that matters when you get to go to market fit. Those are the inputs to your profitability formula. In this case we're talking about unit economics is you have to figure out that that sales methodology one scalable demand gen channel your pricing model, your quota, your commissions, all that kind of stuff before you start adding 10 reps a month. So people don't do that.

Let's be practical and let's zoom back to HubSpot. You were one of the first leaders, sales leaders at HubSpot. How did you look at product fit?

Yeah, yeah.

And how did you measure it?

Terribly. I think we'd all, I was the fourth employee, there were like five of us from MIT sitting around a room and like I think we'd all admit for the first two or three years we effed this up and I think every SaaS business did. I mean we were crawling out of the on premise software world where retention didn't matter because when people bought software, you handed them a floppy disk, they handed you $4 million and they deployed it on 20 servers in the basement of the office. They were stuck with it. And that's why we had shelfware. But when we moved in the cloud era, it's like deployment was like log in and churning was log out and log into the competitor, right? So like it took I think everybody many years to realize that retention is the key. And when we finally did about three, four years in, we were probably about a 10 million in revenue. And that's when we, we discovered the leading indicator of retention. Like we literally, you know, the bad thing was it took us three years and we were at 10 million and we had bad churn. The good news is unlike most startups who have to hypothesize on it, we had years of user logs to run a statistical regression of user behavior to retention. And I think I hired some stats PhD at MIT to do it and they looked at 50 different things like what the heck is causing the. How do you know in the first month if someone's going to churn or retain? And we looked at like users contacts, it ended up being the highest correlation was whether they use five or more features in the platform at the time. There's like 25 features, you know, SEO analysis, email marketing, CRM, web traffic, mail, market automation, blah blah blah. If they Use five or more. That was our, that was our lir, our leading indicator retention and that was like game changing because even like just look at the world from like the CSM you have a, you're a 25 year old CSM, you come into a software company and for most cases they're like just make everyone retain, try to have 90% customer attention. You have no idea what to do versus if you had to codify down to this and you're like just get all your customers to use five more features. It's so much more tactical.

So when you think about those 25 features and you say if 20% of those features are used and you have a product fit that's acceptable, what moves the needle? Is it the, the integration process, is it the training? What selling.

Selling like I mean it's all the above. So first off let's just make sure that we are being abstract that bit like I appreciate the HubSpot example but like that's also appreciate the abstraction of this. You know for Slack as an example there's is if people send 2,000 messages a month and let's go way friggin abstract. My wealth manager at Morgan Stanley, his lead indicator retention for his clients is if they log into the platform, into the portal and look at their holdings once a month. I mean this is, this goes whether you're selling pharmaceuticals, tractors, consulting services. Like I've been, I've been at this for 10 years. Like there's, there's a science, there's like there's a whole process to define your lead indicator retention regardless of the type of business you are. But to your point, if you create it and then it turns out it sucks, let's just say you're Slack and it's like well our whole goal is to get our customers to send 2000 team messages and you finally analyze it and like 19% of customers are doing it and you're like oh my gosh, your first instinct is product which there's stuff there onboarding with the CSM team but in my experience 80% of the time it's sales, it's who they choose to sell to and the expectations they set. So like if you're just like if you're HubSpot, it's like yeah, I can get a deal and just win them on the SEO tool, I can get that deal. It's going to churn, but I can get the contract. But if you suddenly start comping your reps on the lir, they're going to sell them on The SE to SEO tool plus the CMS plus the CRM plus the email tool and that company, that customer is going to stick.

Is there a shift that has taken place in the HubSpot mindset once you discovered after three years of trial and error that huge, right?

Huge. Like it was like we went from. The only thing that matters was how fast we're growing revenue. Had we never moved from that, we would have gone bankrupt.

Wow.

Yeah.

So can you share some other examples because you have a portfolio of companies that you were betting on with stage two.

Yeah.

Give me an example of a almost product fit that didn't work out.

Oh man. Try to think about this one. All right. Yeah. All right, thanks. You're now my blood is boiling. But like, okay, yeah, we made 100 investments. I think we've got data evidence that we'll. Well, we have four funds. I think we got data evidence we're tracking toward top quartile performance on all vintages. There, there the. The one that was hard. You know, sometimes these things are hard when unpredictable events occur because in in venture you're usually looking at like at least a five year, oftentimes 10 plus year hold period. And when things like Covid or an interest rate increase occur that are hard to predict, that can really shake things up and that's when you have to step up as an operating board to write the ship and sometimes they're not recoverable. And I would say one that was challenging was Sales Impact Academy. So fairly relevant to this community. I would say like the founder there had approached me for a year plus saying I want to start a sales school. It should be. I'm like, dude, like 100 people told me talk to me about this over the years. I mean same with you, Garrett. But he was very, you know, aggressive about it and I was hitting milestones. And obviously given that stage two capital is our whole uniqueness is we're backed by a thousand sales and marketing leaders across tech. So obviously he was very aggressive on wanting us to be an investor because it would help him from a distribution standpoint and he got the thing to a million in revenue. It was interesting. And most importantly, people were renewing and expanding and then the next year they got to 6 million and they had a forecast pipeline to go to 20. And you know, I. While the retention, this was actually quite nuanced because the retention expansion was amazing. And I kept asking can we see the lir? And they just didn't give it to me. They. They weren't. It's. Sometimes it's harder to get and they just weren't operationally, operationally prioritizing it which was concerning to me. But I probably wasn't as aggressive around demanding it because the retention expansion was happening. So I intuitively thought like people are probably seeing value because why else would they be expanding? So I'll keep asking for it but I'm not going to like pound the table. And that was a mistake because it was evident what had occurred when the 2022 crash happened. We quickly shifted from a grow at all cost to an efficiency mindset. We quickly shifted from, you know, a war for talent to lay everyone off and that quickly shifted the value prop of sales impact Academy which in hindsight we realized was a unique addition to the employee brochure recruitment brochure that if you come to our company you are part of this academy. And when the war for talent shifted it all went away. So I said hopefully that, that you know that's a little bit of an and I apologize to the folks that worked hard on that business if that's hard to hear but we have to learn from those things. And in hindsight I wish I had pounded the tables more on customer value, you know, logs and this lead indicator attention because I think we probably would have seen this earlier and had an opportunity to salvage their progress. Well, that was a high note Gerhardt. Should we just end there?

I know, yes, it was an honest and dis because it shows that even the smartest people make mistakes.

Sure. I mean, hey, like VCs, like major league Baseball, you know, I mean if you, if you get a hit a third of the time you're an all star.

Right. I remember when I published my first book Super Achievers with Prentice hall and I had a conversation with a VP and I asked for the what was the secret sauce for a successful book and he says well it's simple math. You know, we buy 10 books, we don't know which one is going to be successful but if we have two runaway bestsellers it makes the other eight mistakes erased and disappear and we are happy. You know that's vc.

That is social media posting. You know, that's the movie business, the book business. A lot of people in academic institutions refer to that as the power law which means like the one or two that hit exponentially outweigh the losses. And that's how historically things have gone and it has actually retracted back to the science of scaling work where I do believe the power law is extraordinarily real in venture but I do believe that the failure rate's higher than it's needed to be because of this lack of rigor around scaling science. And so like, you know, thank you for bringing that up and that that is like one of the first principle purposes drivers and a hopeful change of the ecosystem that I think, I hope the work and can create.

Well, I think that your book is also part of the learning mindset that made HubSpot so successful. And I think all those experiences combined. Experiences. You, you're teaching now at Harvard and I, I, I, I want to share, I, I know the answer, but I want to share audience. How do you improve the level of intelligence of the students? It's usually not by talking.

You can't improve the intelligence of a Harvard student.

No.

He was like, no, like, first off, like, there's a stigma around Harvard that I don't see at the school. Like, you think these cocky, rich, snobby, that's not it. I mean, I teach my, you know, 40 of my students aren't even from the US and we're talking about like, from like developing African countries, you know, like just all these, you know, it's crazy. And they're extraordinarily smart and like super learners and they go off and do amazing things oftentimes in the social arena of bettering society. But yeah, the, the one thing that is actually a little surprising if you don't know the insides of the school much is like, if you go teach at any other school, most of the teaching is a lecture. You as a professor, you show up like that, we're going to learn about, you know, we're going to learn about cold calling today and let me do a lecture on cold calling. You are fired at Harvard if you do that. They absolutely lean into what they call the case method, which is probably, you know, more known as the Socratic method across the world, where you have to speak less than 20% of the time. And, and a lot of times we are, you know, not so much in the sales course, but when you're talking about strategy, economics, et cetera, you're just, you know, you've all prepared a 20 page. You've all read this 20 page case on a particular thing. Like, let's talk about Groupon and why they melted down and the, what's the reason why they melted down in the public stock market? So everyone reads that 20 page case. And then as a professor, your job is to go in there and be the composer to surface the key learnings that were supposed to come from that. And I know, like I have to know my 90 students. I'm like, okay Gerhard, that's a great comment. You know, like, is there truth to that? Like Brian, you were at Google in 2015 selling ads in the New York office. Can you relate Gerhard's comment to that point? And you know, Kelly, you were actually at UBS as the investment analyst on the ipo. Did this come up at all in the discussion? And that's where it's just like those are goosebump moments to be able to like tear apart this very specific case with such intellectual horsepower around you and then step back and organically service this beautiful learning together.

And there's a quick question from the audience.

Oh nice.

The main topics the students learn most from. And how do you support that?

What's the main topic?

Yeah, the students learn most from.

Well, it's funny that I think it sales is pretty high up there right now. You know, it took me and the team a while to get that to kick in. I think when I was invited to go there and build the first sales courses 10 years ago, it was largely in reaction to a massive shift in student interest away from banking and consulting toward entrepreneurship. And you can imagine that that shift required a whole new set of classes and professors around product and go to market and entrepreneurial finance, et cetera. At first I was like, I can convince these kids to go take a quota carrying sales job. And that was mixed reception. And I think every year it doesn't do, I think partially inspired by our work. But I think six years ago when we pivoted the class toward founder selling and helping the students realize that like I know a lot of you want to be founders and I think you all know that like from zero to one or something, you, you're the person so you better learn the basics here. That's when it's just taken off. And we filled our first 90 room classroom like five years ago, which is like an achievement at the school to like I put something together and we got good ratings on it. The next year we offered two classrooms filled it, three classrooms filled it were up to five classrooms. 450 students out of the 900 that are enrolled and there's still a wait list. And it's cool because I think the administration at the school from a business model standpoint is a bit paranoid that the case method could be their innovator's dilemma, that it propelled them to be one of the best business schools, if not the best in the world. But you can't teach everything to the case method. So we don't do a lot through the case method per se. We still do the Socratic method. But a lot of us is like, well you know, we teach you discovery calls. The first, you know, first week a student does a role play, we dissect it together and then the next day we don't meet as a class. You do a practice role play with a student recorded on Gone and you're assigned to a sales coach that reviews it and meets with you Tuesday night with a one on one and then we do demos the next week. So it's a very different pedagogy. But yeah, ironically I think sales is one of the biggest appetites that the students have a desire for.

So from what you learned about teaching by doing it, what advice do you have for revenue enablement leaders? Sales enablement leaders that want to help their salespeople learn faster and better?

Yeah. Well, we haven't talked much about AI and I probably direct them then. And I can know that's an eye roll and all that kind of stuff. But let me take a simplified approach to it. I think you and I gerhard have jammed about multiple phases of AI enrollment or that we, that I pontificate on. I would say like the first North Star for a rev ops individual or sales leadership or CRO would be to significantly increase selling time. That would be a good way to frame it. And for those of you, a lot of you know, but like selling time is typically measured as the percentage of a week that a salesperson's in front of a prospect or buyer or customer. I think best in class in the last decade has been 25 to 30%. There's a lot of administrative time, research time, preparation time, finding target accounts time. And I think that's the first easy to attain milestone of AI is to get that to 75%. It's work. And I would say less than 10% of sales teams will get to 75% by the end of the year. But it's possible. And if you just hold everything else constant in a, in a typical like scientific method, control group approach, same salesperson save account, same product, same methodology, if you move selling time from 25% to 75% they will triple their productivity. So there's a lot of opportunity there. And I think if you just take that as your North Star and get rid of all the non selling time through AI, that's the first wave.

What's next?

AI sellers in like small business, less complex environments like PLG.

Can you cite an example that1mind.com yeah,

if you go to them, you know we have an investment in letter AI that's like a platform for larger companies that's doing quite well and establishing the foundation for that stuff. So yeah, I think, I think it'll, I don't think, I think it'll be a while if ever that we do like million dollar deals. But if you're like there's small business reps that are like selling notion enterprise accounts to or even like Slack as an example, pretty easy to adopt. Like I think, I think an AI agent can do that.

Yeah, there are lots of opportunities to. I'm, I'm still impressed with the number. 75%.

Yeah.

From 25 to 75. So how would you prioritize AI tools to get you there faster?

Yeah, so I think there's some, a lot of innovation on the meeting setting side. Everything from like what is our ICP if we have sales capacity to approach 50 new accounts this week, let's move that from the ownership of like a 22 year old entry level SDR to like an AI agent to figure that out. Lots of AI opportunity in terms of like identifying the people in the decision making unit. The personalization needed any sort of intent signals and the execution of the cadence to get to the meeting. There's a lot of innovation there. I think honestly right now I think people rev ops folks are probably better off just building that right on the foundational model to give yourself. I'm not sure the vendors provide that much additive yet but anyway then there's the meeting to closed one where the way that's going to work in my opinion is you set the meeting, you got the director of marketing at Genzyme, Patty and the the platform stands up a buyer agent of Patti that you can practice with that knows everything about Genzyme and everything about Patti and can coach you. So like usually you have to wait for your manager to see if they're available to prep role play. Now AI can do that and then it attends the meeting with you to coach you in real time as Patti discloses what actually is happening. Ask this next question. Share this case study probe here and then after the meeting handles all the CRM update, the preparation of the demo wireframes, the follow up email, the forecast adjustments and then finally updates the skill assessment of the rep based on the call and their last 27 calls to put together the next best seven minutes of training videos that they should watch to up level their skill. That's all possible with AI today. It sounds like Star Trek. That company letter. AI is doing it. And I think that's where we go. And those are the opportunities that you can start to see how you get the 75%. And you start to get to a 25 to 1 rep to manager ratio. And, you know, we really up level the field.

Wow. That's the new North Star. Now, anybody who hasn't bought the book, get it now. It's a beautiful book. Thank you for joining us. Mark, I could go on for another two hours, but our time is up. And I can't thank you enough for joining us today and sharing your wisdom, your insight and your colorful stories.

Thank you, Gerhard. It's always a pleasure. I think it's been 20 years now that I've been benefiting the platform that you create. And I appreciate you inviting me back continuously.

We want to see you more often.