How to Play Offense During a Downturn with Gokul Rajaram, Exec at DoorDash and Angel Investor

I need some traction.

Hey everyone, Lloyd Lobo here, co-founder at Boast.ai and Traction. Today's Traction webinar is brought to you by Boast.ai Launch Academy in partnership with Growth Blazers. As you're joining, please click everyone in the chat and introduce yourself, your name, where you're tuning in from, and what you're looking to get out of this session. David is from Los Angeles. I am in San Rafael today and our great speaker here, Gokul Rajaram, is in Cupertino, both in the Bay Area. Exciting, exciting topic. You know, with massive shifts and uncertainty in the markets right now, the default for most companies is let's work on a defensive plan. Let's reduce spend. Let's increase cash to get through. But while defensive strategies might help a company survive, thriving is a different matter, right? And in order to exit this current climate in a stronger, more competitive position, And to be a market leader, you need to play offense. And couldn't find a better speaker on the topic. Gokul Rajaram here. He is an executive team member at DoorDash, board member at Coinbase, Pinterest, Trade Desk, and an angel investor in over 100 companies with more than 40 exits and unicorns. And he's going to give us this playbook here on how do you play offense. Prior to Square, prior to DoorDash, he was at Square. And prior to that, he was product director for ads at Facebook. He also built Google AdSense and helped the product grow into a substantial portion of Google's business. And, you know, as I talk to more and more founders, the one theme is very consistent about Gokul. He is the most helpful investor on my cap table. And I personally have had many fond interactions with Gokul as well. And we recently invested in a company together. So Gokul, welcome to Traction. Thank you so much for joining us. I mean, I could go for an hour on your accolades, but we'll get into the topic here.

Thank you, Lloyd. Thanks for having me. Excited to be here.

Awesome. So, you know, you've had a super successful career as a leader and investor starting from very humble beginnings. And every founder I've interacted with. Like I said, says Gokul is the most helpful investor on my cap table. Give us your backstory. How did you get to where you are today? And how did you develop that muscle to pay it forward where everyone loves Gokul and wants him on their cap table?

That's really kind, Lloyd. I think ultimately, you know, all of us, almost all of us, when we look back at our careers, we'll probably find that we've been helped by people. And so for me, it's simply been, you know, and I'm the first one to say I've definitely been a beneficiary of luck, essentially joining Google early because Google was the only company that was hiring back in the early 2000s. And then starting a company after Google. And then I knew Sheryl Sandberg and a few other folks from Google that moved to Facebook, and that led to Facebook acquiring us. And from there, I knew some folks that joined Square and they pulled me into Square. and then from there DoorDash to an acquisition. So essentially I've just been, uh, I think, I think the things I've learned are two things from my career. One is the power of serendipity, which is you need to keep yourself open to interesting things and meet interesting people. And, and, and what that means is doesn't mean you can't— the first thing, when you work at a company, the number one thing to focus on is doing your core job well. Keep the main thing the main thing. But within 3 or 6 months, you get a, you get a sense of how to do your core job really well. At that point, it's important to not just be focused 100% on your job, but also to branch out and see what other people are working on and build relationships with other people in the company and broadly in your network, because those are the serendipitous conversations. Just asking people, what are you working on? How can I help? Leads to crazy coincidental things that can change your life and career. I'll give you a good example. When I joined Google, I was a product manager for a product called Syndication. Where Google search results were syndicated to other websites like AOL back in the day, Yahoo, etc. And so that's what my primary job was. After a month or two, I understood how to do that well. But then in the evenings, after 5, 6 PM, I would roam the offices of Google. So a few doors down from me, I came across 4 engineers who were working on a project, and I asked them, hey, what are you guys working on? They said, Sergey Brin, the co-founder of Google, has given us the task of figuring out take the index that Google has and reverse it. Google typically, when you search in a phrase, Google matches the best web pages that match that phrase. That means that we also have the ability for each web page to know what phrases are associated with it. And so that's what— and then build an ad engine based on it. So it's basically contextual advertising based on the web page that the person is on. And they said, well, I said, you have a PM? They said, no. I said, can I be your PM? They said, but aren't you working on syndication? I said, yeah, that's my day job. Why don't I just help you out? You know, anything you need, talking to customers, making presentations, figuring out what to do next, I can help you. And they very much welcomed it because they didn't have a PM. So I started working with them, and lo and behold, within a couple of months, that thing became AdSense. And then my boss put me full-time on it because she saw I was basically enjoying it a lot more, and, and that product basically skyrocketed and became a big product. And so completely serendipitous, keeping yourself open and to opportunities. And when you see something you enjoy, just going for it. And I think that's, that's my number one lesson. And the second one is paying it forward. When you help people without asking for something, good things happen in ways you don't even expect. For example, I had some folks I was advising their company, no equity, nothing. I was just helping them out. And the company ended up being bought by Square ultimately. And so when Jack, the CEO of Square, asked the CEO of this company, who's the best product person or the most product person, you know, for some reason they'd end up taking my name. and then Square reached out to me and ended up joining Square. And so it was basically, I had this company and I got to engage with the CEO that resulted in this thing a few years down the road, which I didn't even know would happen. So I think paying it forward is actually a very good long-term selfish strategy in some ways. Being selfless is the best long-term selfish strategy one can follow, just because the universe takes care of it, I think, in some way. I love it.

The karma always comes back. And you know, it's funny, we started Traction as doing pizza nights, and one day we had 200 people in the coworking space and they kicked us out and said, you can't have 200 people in the coworking space doing pizza nights. And so it evolved into a conference and a community and today over 100,000 subscribers. But we were able to bootstrap our company to 8 figures because of this community. The karma comes back. Our investors and a lot of customers came through that. And so, you know, you're right. If you pay it forward, if you help enough people get what they want without expecting in return, You are going to always get it back and the universe takes care of it. Awesome. Now we went from 1.5 unicorns being minted every day and sky-high valuations to a ton of uncertainty in the markets, right? Interest rates are up, stocks are taking a beating, valuations are down, layoffs are happening. In your view as an angel investor, as a serial super angel, What's happening in venture capital right now, and how should founders think about this investment decision-making and fundraising?

That's a good question. I think we are right in the middle of maybe some of the excesses that all of us have been part of over the last couple of years slowly being drained out of the market. And I think, as you know, as we know, we've seen great companies being created during downturns, during recessions. Still early to call it a recession. There's definitely a downturn. I don't think it's a recession, it's a downturn, uh, for sure. And I think all of us are again seeing that the number one area where it's already affecting companies is late-stage fundraising, because crossover funds that allocate money between public and private equities are seeing amazing bargains in the public markets. And so it's much easier for them to just say, look, I have this amazing company in the public market that's now worth 80% less than it was a few months ago. Let me deploy money there versus maybe a private company. So that said, there's a flight to quality on both private and public. I think that's a TL;DR. Amazing private companies are still able to raise at very strong valuations, and amazing public companies will still get a lot of capital flowing in. We have to have a long-term perspective. I've gone through multiple downturns starting with the 1999-2000 downturn, and then 2008, and then there's been many downturns in the middle. And all of them, I think the worst thing to do is to completely just sell and leave the market. I think you want to be careful, you want to focus your resources, whether as an investor or as a founder, on either initiatives as a founder that are the most fruitful, or investments that are the best and just double down on the things that you have a long-term conviction about versus that you're in for short-term gain. I think someone said the other day that when you buy shares of a company, you're not just buying shares, you're buying a part of the company and you should realize that. And which means is you should sleep well at night as long as the company is strong. So you should really understand what the company does. I think a lot of folks during bull markets buy almost any random stock, hearing it as a tip from people. Not even knowing what the company does. And I think focus on fundamentals is going to be much more important going forward. In fact, I've never seen as much focus on stock-based compensation as I have in the last week. Why? Because when you do stock-based compensation, companies issue shares, say, you know, every year if you're a public company, you're issuing 2% or 3% more shares to your employees. Now, people would say during up markets doesn't matter, But now when EPS and free cash flow starts mattering, what matters is free cash flow per share, earnings per share. And if the company's issuing more shares, the denominator is growing. So EPS actually— EPS comes down, or your free cash flow per share comes down, which means the value of one share in theory goes down because if you issued 3% more shares, the EPS has come down to 3%. And so your company's value is now lower by 3%. So there's a lot of fixation on stock-based compensation and all of these other things that didn't matter as much up markets. Now truly people are looking at DCF-based valuations versus revenue-based multiple. We all talk about 100x revenue, right? But revenue multiples are— we all invented that. The reality is ultimately cash flows are what matter. And so companies need to really focus on, especially scaled companies, need to focus on earnings and cash flow more and more over the next couple of years.

How is that translating at seed and Series A? I guess founders looking to raise seed and Series A, What are the metrics at seed, Series A, and maybe Series B at this time?

Um, I would— what is interesting is a lot of the late-stage investors are now moving into seed aggressively, or growth-stage investors, I should say. So seed investing hasn't yet— or seed investments haven't yet suffered. I think Series A, we're going to see as seed invest— seed companies go out to raise an A, the bar for the A has definitely been raised in At the highest level, 3 things matter. I always say there is 3 things you need to prove in the seed round, and you don't need to prove all 3, but you've got to prove at least some combination. One, that you have product-market fit, which means that some small set of customers are using your product and using it on an ongoing basis. They love your product, they continue to use it, they are not churning. Second, that you have product-channel fit, which means that you not just know how to reach a small number of customers, you have a good hypothesis around what channel you're going to use to get many, many more customers of this kind, whether it's direct sales, online marketing channel, some kind of partnership, whatever the case may be. You need to figure out how you have some proof points that this channel can actually be deep and productive, where you can actually get lots of customers similar to these first customers. And finally, you need to prove that there is a there there. What that means is if you have product-market fit, you have good retention, and you're able to acquire customers efficiently through this channel, this is a big company. And big company means no longer— and it's not meant for a while, it's not meant $100 million in net revenue, it's actually now hundreds of millions— that there is a path to get to $500 million or even a billion dollars. And now we all know, we all are seeing companies that are $200, $300, $400 million in revenue valued at a billion dollars. So no longer— I think we all used to— there was a shorthand that if you're at $100 million ARR, you'll be a unicorn. That's no longer the case. If you're at $100 million growing 10% year over year, guess what your valuation is? Probably $200 or $300 million. And so if that's— if you have good, good, good, like, cash flow and so on from that $100 million. So I think increasingly venture firms, if you want to build a venture-backed company, you've got to have a path to hundreds of millions, maybe even a billion dollars in revenue. It's obviously hard to show that, so you've got to somewhat hand wave, but the market needs to be— the TAM needs to be big enough, or the market you're creating. And then at that point, it needs to still keep growing. That's the other thing everyone forgets. Okay, when you hit that $500 million, is it growing at 5% year over year, 0%, or 50%? The greatest companies— look at Google. Google, I think, grows 20% at like, what, $100 billion or so in revenue? So it's adding $20 billion in new revenue. So terminal value matters so much in all these calculations of DCF, and terminal value is completely based on at the 10th year, what is that scale? What's the scale of revenue, cash flows, and what's the growth rate going forward?

Now, what is a good growth rate at a growth round? Let's say post-Series B, let's say north of $10 million. And what is a growth— good growth rate at seed and Series A, given current market conditions where it's like money is drying out and I can't go and spend like it's '99 over here, right?

Look, I think, I think it's a great question and I would caveat it by saying growth is not the same. All growth is not the same. All the growth that we need to focus on is efficient growth. And what I mean by efficient growth is, uh, a very simple metric there is take your net new revenue that you get in any time period, say 3 months, new revenue— new revenue is both from revenue from new customers as well as expansion revenue from existing customers— divided by the total burn of the company. That ratio should be, you know, obviously it's going to be low where, you know, initially where you're burning a lot but you're not getting new net new revenue. But that ratio should increase over time. That ratio should ideally be close to 1.7. Like initially companies are 0.1 or even 0, you know, no new revenue obviously when you start out. Then it becomes 0.1, 0.2. So you need to keep showing that with this, with some amount of burn, you're able to drive new revenue more and more efficiently. The best-in-class companies, they are greater than 1. So they might burn $1 million in a certain period of time, say in a quarter, but they're getting $1.5 million in new revenue. And so that efficiency is the most important thing. If you can grow efficiently, I think the world is yours, so you can do what you want. If you can't grow efficiently, I think the focus on efficiency is going to be— I think we got a little undisciplined over the last few years where we just said, well, growth at all costs. But now you're seeing a return back to really, okay, how much are you burning to grow? Because if you're just throwing money left, right, and center, not growing efficiently, that's not a good thing. But at a— so assume it's efficient, then I think if you're at a $1 million ARR, or $1 million annualized revenue, whether it's recurring or not, 1 to 5 is what you see the top decile companies do. And I think in this environment, it's going to be hard for companies other than top decile companies to really get great funding down. So 1 million to 4 million or 1 million to 5 million is what you see. And then I think beyond 10 million, you still want to see a doubling at least. So 10 to 20 and maybe even 20 to 40 or something like that, I think. Because remember, the goal is to get to 500 million. If you go from 10 to 15 million, you're never going to be able to get to 500. I mean, there's no model in the world because growth never— very rarely accelerates. Growth rate never increases. Growth rates always go down with time. So if you grow 50% from 10 million, next year is going to be 40%, then 30%. At some point, you're going to be growing 10%, and forget $500 million, you're probably not even going to be able to reach $100 million. So I think the math just becomes hard, and that's, I think, the challenge that people are, I think, going to subject all companies to. What is— is there a realistic pathway to get to $500 million? The reality with many public companies is you have companies that have already proven they can get to $500 million, so you— and they are trading at a all-time discount in many cases. And so you have a lot more data to evaluate them and analyze them compared to private companies. So that's why I think this public market, um, at the crossover stage— but that said, they're going to be— there are amazing companies that are going to be the next giants of 10 years from now that are going to grow efficiently, that are massive market opportunities, great founding teams.

They're going to be created right now. So there's a little bit of a dilemma here, right? Is boards and many investors are saying save on costs, reduce burn. At the same time, you want to grow triple, triple, double, double, double to hit that $500 million. You know, a lot of companies are saying rule of 40, but I guess rule of 40 doesn't really matter. You need to hit 2x or more growth to get to that $500 million, build a big company eventually. How should founders think about it? Right. Because you're immediately going on the defensive here, reducing spend and whatnot. What are some good offensive strategies you've seen? How do people do this?

It's a great point. I think, look, I think defense is first. You've got to play defense in order to play offense. So first of all, the two things you need to do is you need to make sure you reduce your burn and increase your runway. So anyone having less than 12 months of burn, I think every company I'm counseling or working with, I think everyone is trying to make sure we have 18 to 24 months of burn, as long a burn as possible. The second one is you want to try to raise cash. I think the smartest companies raised cash 6 months ago, and, you know, or luckiest companies, right? So many cases, it was, you know, they just took it, and then some folks basically said, well, I want a better valuation or certain milestones, and now it is going to be more challenging. But either case, you need to extend your runway. After that, there's a few different offensive strategies that you can play. I think I would group them into 5 buckets. The first one is improving operational efficiency. Second one is improving customer retention. Third one is improving your marketing or changing your marketing strategies, testing new marketing strategies. Fourth one is building a better vision for the future. And fifth one is upleveling your team. So let's go to each of them for one or two seconds. The first one I said was increasing operational efficiency. That basically means things like lowering the variable costs, inclusive of things like customer support. Are you doing customer support maybe from a high-cost area? Maybe there's a way to lower it. Or payment processing— have you optimized your payment processing cost? Have you improved the marketing and sales efficiency that you have? Are you, for example, if X number of your salespeople are not meeting quota, have you made sure that the payback period is there for your marketing dollars, etc. So improving operational efficiency instantly, even without cutting burn and all of those things, it automatically improves how quickly you're moving, how nimble you are, and gives you higher margin, uh, better mark— better efficiency of customer acquisition, etc., etc. Improves that capital efficiency metric I mentioned. Second one is improving customer retention. I think, uh, This is one of the most interesting things because this is true for every business. It is much more important to get a new customer— existing customer to stay on than it is to get a new customer, because your existing customer is already there with you. You already acquired them. And so what can you do? So that obviously it leads to a much better understanding of why they churn and, and to figure out what are the product or other processes you can put into place to get them to stay longer, because the longer they stay with you the more— I think Lindy's Law holds true in general, which is that customers or any, any, any individual entity tends to use, continue using something. The longer they continue to use something, the more likely it is to continue to use something else. For example, in food delivery, uh, we would always say, what is the best predictive indicator for a customer making 5 orders? Turns out it's customer making 4 orders. What's the best way to get a customer making 10 orders? It's a customer making 9 orders. Basically, getting the next order in is the highest predictor you can have of making the order after that. Retention, very, very powerful. The third one is testing new marketing strategies. During the pandemic, turns out, literally television, most advertisers started— stopped TV advertising. Smart companies were able to buy primetime CNN TV slots in the US for absolute dirt cheap. And I think you're going to find if companies start getting marketing, cutting marketing spend, your competitors, et cetera, you might find completely new marketing channels open up if things turn. Uh, and you can probably go beyond because one of the challenges companies are facing today is social media and other online channels are getting very expensive to spend. So you've got to try to not just rely on paid marketing, but also try to figure out how to get your loyal customers, uh, to do organic marketing. I strongly believe that if 90, you have to have, I think, uh, at least 40% of your new customers coming from organic channels or free channels, word of mouth, influencers, etc. If you are— or SEO— if 90% of your customers are coming from paid channels, that's not a sustainable model, and it is going to come bite you at some point, and you're not going to be able to grow to be a large enough company. Fourth is developing a vision for the future. You've got to figure out Are you aiming in the right direction? As, as we all know, it's much more important to aim in the right direction than to move really fast, run really fast in the wrong direction. So we've got to figure out how customer needs are going to evolve. Are they going to change? Are they going to evolve post this time? And use this insight to target new segments, grow your addressable market through new products, features, maybe geographical expansion, channel partnerships. And finally, upleveling your team. There's going to be a lot of great talent available. We've seen already some layoffs happening. We've seen, you know, people are going to want to leave companies maybe where their stock options are underwater, whatever the case may be. And so this is a chance for young companies to get amazing talent that would be much harder to pull otherwise from these, from these companies. So those are the 5 buckets, I would say.

Fantastic. What is, what is the best example of an offensive strategy during a downturn you've seen and a defensive strategy that you've seen collectively? What is crazy is I would say it's Facebook on both fronts.

On one side, Facebook basically was able to, during 2008-2009, attract the best engineers across the Valley. I mean, it was extremely hard, even, even though it was, quote unquote, a downturn. If you're going after a certain kind of engineer, you're always competing with a Facebook offer. So they used that time to just build up an incredible engineering team. But at the same time, I think defensively, they did that crazy round with— I forgot who it was, maybe it was DST or someone, where Dan Rose writes about it eloquently, where they raised— they needed to raise, basically they were almost out of money, and they raised around at very, very low valuation because they needed the capital, and it was just in time. So I think they both raised the capital, but they then went on offense in terms of getting incredible talent that, that basically many of them are leaders of the company now.

Fantastic. Now, where or how should founders think about where to double down investment and where to pull back? Is there some frameworks? I mean, these are some good ideas: increase operational efficiency, improve retention, test new marketing channels. Develop a vision for the future and uplevel your team. But as you're seeing, like, you know, founders can also be reactive, right? You see the market, it's going down, it's going down. I feel like we've not seen the bottom here. Like, my cloud index is completely tanked. We haven't seen the bottom, and you can share whatever, but like, people, it's very easy for people to react. Like, you're seeing this 30% layoff, these 40% layoffs. Good companies have raised lots of money. Where do you caution founders to not pull back from, and where do you say, hey, you know what, it's fine if you invest here a little bit?

It's a good question. Look, ultimately, every founder has to figure out what their core is. The first thing is, if you're doing too many things, you've got to cut down things that you're doing. And so the question is, what is your core? As I say, you can't really start— as soon as you start, you can cut fat, but you can't cut muscle or bone because you've got muscle or bone, your body stops working. So every founder needs to really take every initiative of the company and classify it as a nice-to-have or a must-have to satisfy, uh, to your company's mission, your goals, etc. And I would say anything that is— typically you can group initiatives into Horizon 1, which are going to have impact in the next 12 to 18 months on the company's business. Horizon 2 is 18 to 36 months, and Horizon 3 is probably 36 months plus. I think if you're a young company, you probably want to just focus on Horizon 1 and Horizon 2 initiatives and probably cut Horizon 3. So anything more that, that probably has more than a— the payback is 30 months out, you probably want to cut those at this point in time for young companies. and you probably want to make the mix shift between Horizon 1 and Horizon 2 be 80/20 from maybe, say, 60/40. You do need some Horizon 2 stuff. You can't just focus on, you know, one product. But again, that's only if your Horizon 1 products have product-market fit. The number one thing you need to focus on is retention. Are your current customers being retained or not with the current product? If your retention is not at par with what your industry sees— there's a lot of good benchmarks around based on industry marketplace, SaaS, etc., what retention numbers are— if they're not, You better be just focused on Horizon 1 and forget all the Horizon 2 stuff and just focus on how the heck to get your customers to be retained and expand with your product. That is the most important thing, because otherwise you have a leaky bucket and acquiring huge numbers of customers with that leaky bucket, leaky funnel is not going to do anyone any good.

More than ever before, now is the time to put an end to the founder shiny object syndrome, right? If I think the core startups are built in phases, you first, you validate it, like you said in the beginning, get a few customers to try it out. And then you want to optimize for retention. If you don't have retention, there's no point in figuring out how to build a scalable, repeatable channel if customers are not staying, because more money in is like literally throwing money in the fire. So I love that. Let's shift gears here for a bit. Now, we talked a lot about founders who have current businesses that are trying to grow. What about founders who are looking to start companies? Because if you, if you see this, some of the best companies like Uber and Airbnb came during a downturn. What advice do you have for founders starting companies right now as they go from idea to product market fit? What are some key ingredients to building a successful startup in a downturn?

Number one, Make sure it's a real problem, a hair-on-fire problem. I think a lot of founders, when they do customer research— first of all, it's better if you experience the problem yourself and you know it's a hair-on-fire problem. But if you haven't, then it's very important when you're doing customer interviews to truly understand, is this one of the top 3 problems faced by a prospective customer, especially if it's a B2B customer? If you ask— and there's a trick to interviewing customers— if you ask them, if you tell them what you're working on and you say, is this an important problem you face? They will of course say yes, but that's not the right way to ask. The right way to ask is without biasing them. You need to just ask them, what are your top 3 problems? What are the top 3 challenges? Even that's the wrong way to ask because no one really thinks what the top 3 problems are. What you need to really understand is interview them about the last time they performed a certain action. Ask them to tell you a story about the last time they filed an invoice if you're going into that space, or, you know, ran a budget or did a financial plan, and have them walk through the process and have them talk about what they liked about it, what tool they used, how they started, who told them to start it, what they didn't like, etc. And that's where you will get insights into what the pain point is, because otherwise I think it's a very perfunctory or superficial question, and then we get a checkbox. Oh yeah, this customer told me it's a problem, but that's never going to be the case. So you've got to truly interview customers deeply to understand, are they truly facing a pain? Is this something that is a big enough pain that they would— inertia is your biggest enemy in most cases. And even so, during downturns, people are less, I guess, unless it truly saves. I think the other thing is, in a downturn, things that more directly affect revenue or cost, increase revenue or lower cost, are going to be used. Things that are just nice superficial add-ons but don't truly move the top line or bottom line are going to be— going to probably be harder to justify the purchase of. So the more you can have your product solve a revenue or cost pain point, and most importantly, solve a true burning pain point for a decision maker, you've got to— so TL;DR, one, spend a lot of time on problem exploration because that's very important. Second, make sure you have a co-founder. I feel, you know, especially in these kinds of times, it's a startup— startups are lonely, and during downturns they're even more lonely. And so I think it's very important that you have a co-founder who's complementary in skill sets to you. I have invested in numerous companies where it's started by two quote-unquote business people or two engineers, and both have challenges because the co-founders are too close to each other in their skill set, and it ends up then they have to hire a third person who does the other thing, and that's— then that person, you know, what's their role? And there's confusion— what exactly do each of the co-founders do? And so I strongly believe in the co-founder, one of them being focused on building the product, owning the product, engineering, all of those pieces. The other focus on marketing, sales, and outward-facing selling the product. And I think it's very, very important to have those two skill sets represented in the founding team. And I ideally have a 2-person founding team. So those are the two things, very simple. Make sure this is a real problem. Make sure you're going to spend the next X years of your life on a problem that matters, on a problem that actually matters, right? It's a big enough problem, burning problem. And the second is make sure you have a great founder or a founder that you trust and that you can go through the next several years. Lots of ups and downs. Founder breakup is the number one cause of early startup failure, number one cause. And if you're not aligned with the— with your co-founder, or even suppose you've got a $10 million exit opportunity, say, after 3 months after starting up, would you take it? Would your co-founder take it? They might want to take it and you would not, or vice versa. And so you really need to— you're aligned on how decisions are made and how— what you guys both— or you guys, gals, whatever it is, are both looking for. Make sure you're aligned.

Now, I've heard you say this a number of times, Great companies are built self-serve first. Truly great software companies are built self-serve first, and it's an overlooked but essential paradigm underlying great software companies. Dive into this a little more because this could likely tie into how you build your company, right? You have an idea, you've talked to customers, you've understand a day in the life, you figured out there's some underserved, manual, broken process that they're jangling together. Now you're setting out to build. You found a great co-founder, but then you fit— you're hit with this dilemma. Do I go top-down enterprise sales first or sales motion first, or do I go product-led self-serve? So dive into this a little bit for that founder at that stage. Yep.

You know, it's a great question and I think We're already seeing the tide turning. I think, especially, I think the TL;DR is that most, more and more B2B companies are going to adopt a mindset of B2C. If you're a B2C company selling to consumers, there's no way you can have a salesperson call every consumer and basically try to get them to sign up. You can't. You need to have your product built in a way that a consumer can just come, sign up, and then start using your service. That's the reality of what B2B also increasingly— people don't want to be sold to. They want to do their own research. They want to kick the tires themselves, and then they want to choose a product. And individuals at companies are making decisions about what to use versus top-down decision-making. For example, I'll give you a good example. At Square, we were using an earlier observability tool— I forgot, I won't name the company— to observe our microservices and systems. Then suddenly, one of the engineers came across a company called Datadog, and they started using it. It spread into a few more groups. Then they basically said, "We're going to rip out this thing that had been, I think, started being used in 2011 or 2012. We're going to cut out this other company. We're going to replace it with Datadog." The CEO of this company that was being replaced appealed to our CFO saying, "Oh my gosh, 'Your engineers are replacing me. Can you do something?' She's like, 'Nope, I can't do anything. It's the engineer's decision. They adopted bottoms-up. It's their choice.' That's the reality. The old way of selling to CIOs or centralized decision-makers is increasingly fading away. People are choosing things. The same thing happened, crazily enough, when I was leading product engineering and design at Square. I basically tried to get Figma. I was very impressed with Figma in 2013. I tried to get Figma adopted top-down by Square. Square was using Sketch. The design team was using Sketch. I was like, designers, you've got to use it. They were like, absolutely not, we're not going to use it, we're comfortable with Sketch. 3 years later, an individual designer loved Figma so much that he convinced the entire design team to use Figma, and they kicked out Sketch. So complete bottoms-up adoption of the same product that top-down they refuse to adopt. So what is happening is software is being adopted bottoms-up. And what that means is as creators of software, companies need to figure out how to attract, how to onboard, how to retain individual users, not companies anymore, and treat them like consumers, which means that you need to build self-serve products that someone can use, onboard, and start paying for, become customers of, without ever talking to a single customer service rep or AE at your company. And if you look at the greatest, I think I firmly believe that the next set of greatest, you know, $100 billion companies, and if you think about even most of the $100 billion companies today are self-serve first, whether it's— well, those are, they're all $50 billion companies now, they all used to be $100 billion. But most of Google's ad revenue doesn't come from enterprise customers, it comes from self-serve advertisers. The same for Facebook. The same for almost every ad business. Square, completely self-serve. Datadog, completely self-serve. Snowflake, a lot of self-serve, crazy enough. So most of these companies are actually seeing a growing self-serve base, actually majority self-serve base. I think this is only going to accelerate. Definitely.

So that's a, that's a good framework to think about. Now, what about the metrics to keep in mind? What are the top metrics driving board conversations? We talk about North Star metric. But, you know, you don't want to find out a customer is churned once they churn. I mean, you got to also look at leading indicators, right? Walk us through that.

The number one leading indicator, I think, of, of customer churn is, is usage of the product. I think it's very rare that a customer using the product often and they churn. It happens sometimes, maybe a competitor comes in and snipes. In many cases, they churn because they're dissatisfied with the product and the usage starts dropping. And so I think that's why I think it's very important for SaaS companies that bill on a subscription basis, but not on usage basis, to monitor usage much more. Many companies are like, oh, my customer is paying, that's great. Turns out they're not using your product. So guess what? They're at massive risk of churn. And so you've got to really— I think this usage-based pricing, automatically these things get, uh, you know, reflected because your revenue goes down if they don't use it and you start monitoring. But there's enough companies who just monitor revenue but not the leading indicator of usage. And also the other one is, is it expanding in the company? So if it's not expanding and it's not being used, both of those are very negative signs. Because if it's staying in a team, a 10-person team, say within a larger company, but it's not then going to a 20-person team or bigger team, they're not expanding it or spreading it, that's a signal that there's something that's preventing the love of the product from being shown, or something that your product is not doing for them. So that's when you dig deeper. And so I think that you got— you're absolutely right. I think churn is too late. You've got to have leading— there's companies now that have— that are out there that are building these leading indicators and helping process it.

But, uh, you know, I fundamentally believe that if you wait for an NPS score— oops, I think Gokul dropped or he's still there. Yeah, I fundamentally believe that if you wait for an eNPS score or an NPS score, these are all lagging indicators. The leading indicator is engagement. If people are not coming in, if people are not engaged, even from an employee perspective, if people are not super engaged and they're not doing meaningful work, they're not recognized, it's obvious your eNPS score is going to be low and they're going to leave.

And the same thing on the product. Exactly right. Exactly right.

And, and the same thing with products. If they, if they don't, uh, engage and they don't use it, and the chances of them leaving are very, very high. I'm gonna drop some resources here as well, folks. The recording will be on YouTube as well as Spotify and Apple. We put the video on YouTube and the audio on Spotify and Apple. If you have any questions, type them in the Q&A tab. Just click Q&A and type them there, or feel free to type it in chat and we'll take them as we go along. Now, from a board perspective right now in this market, what are key metrics that the boards you sit on are focusing on, and what are some leading indicators of good versus great versus acceptable versus ugly?

I think every board is discussing, not just whether I sit down, I think every, every responsible board at every company is making sure, is the company well positioned? I think the same offense-defense thing. First, is the company have enough runway to hit its goals? But second, I think for the best companies, how do we play offense during this time? How do we make sure we're building the right products? Are we building the right products? Do we have the right team can we uplevel our team? Do we have the right strategy? Is our customer acquisition, is our customer retention strong? All of those things, I think, because the board's job is not to run the company on a day-to-day basis. The board's job is to make sure the company is well-positioned going forward. The company that I sit on, the boards of our public companies, they're actually fairly robust and strong. The question always is, we always, as board members, any company need to ask, You know, are we, you know, are we well positioned for 5 years out? How do we use this to our advantage this time to position ourselves out 5 years out? Are we making the right moves today?

Definitely. Now let's get into the management side of things, right? Um, at the helm of all of this is a CEO, is a founder, is a leader, and You know, everyone looks to that founder, the CEO, the leader, especially in difficult times. What is the CEO's most important operational responsibility, especially in these times?

It's— I think to, to your employees, it is communication. And I think it depends on the stakeholder, but the number one thing is, I think To the employees, it is being out there and telling them and painting the vision, all of the things that we're doing, how it all fits together. And I think people at companies at this point in time want to be assured that this company, yes, even though there's a lot of short-term pain with public companies that it has gone— the company has gone through, is the company the right company? Is the company going to come out of it stronger? Is the company going to be a successful company 5 or 10 years out? And I said, I think the number one thing that CEOs can do is paint that vision. And, you know, why is that this— that our strategy still holds true? And then why is it that this company, we will be one of the winners, uh, over the next 5 to 10 years? I think hopefully the CEO has always been doing that. I think the challenge is going to be if the CEO has been very fixated on the stock price or something and celebrating all-time highs in stock price, that's going to come back and boomerang in those companies. But hopefully the CEOs who've constantly been focused on, ignore the stock price, that's just a voting machine day to day. What we want to build is the best business, which is a weighing machine, which is going to manifest itself over the next 5 to 10 years. That message, that consistency of the message will get employees to feel excited and, and I would say even relieved. But if CEOs have been harping on the stock price all this while and getting people excited about, look, our stock price did this. I think employees will be nervous when the CEO goes from harping on the stock price to now ignoring the stock price, now that it's fallen, and focusing on, oh, let's, let's look, look, let's do this. They'll view that as a distraction from what they were saying earlier. They will view it as a CEO distracting them from focusing on the stock. So anyway, I think you've got to be— I think the number one lesson for me working with enough CEOs is CEOs have to be consistent in their messaging. Employees are really smart and are able to detect any inconsistency in your messaging. If you basically have a certain message and you suddenly change it, you don't, don't believe for one instant that your employees don't realize what you're trying to do there.

I fundamentally believe that one of the key jobs of a leader is articulating and communicating the vision to excite, inspire, and motivate people. And it's not a one-and-done activity, right? The leader's job is to do this day in, day out, because if people are excited, inspired, and motivated, they can move mountains. But what have you seen your best-in-class CEOs do? Because it's easier said than done, right? In tough times, people cancel all-hands meetings or cancel town halls, or they reduce the frequency. They immediately default to communicating less. So, you know, talk us through that. How do you enable your organizations to perform and act according to the vision, mission when you're not in the room? How do you train them to make better decisions when the leaders are not in the room? What frameworks you've seen, communication frameworks you've seen that work really well? Maybe it's a weekly town hall or it's like some form of communication that's ongoing on a cadence.

One of the things I think— what is it— I remember, you know, gone through a few of these. Facebook comes to mind a lot because Facebook went public in 2012, and very quickly the Facebook stock price dropped for several months. And what was inspiring then was that Mark actually increased the cadence of his appearance. Earlier, the town halls Many of the execs would come and speak, but Mark essentially started speaking at every town hall, so much more front and center. I think the best leaders, the best CEOs take the opportunity when they sense that employees need that reassurance to essentially put themselves out there. The vulnerability you show, I think people also want to make sure— there is an interesting mix you've got to have. You can't be overconfident, almost to the point of people are like, this person is blind to what I'm experiencing. But you also can't be so vulnerable that people are like, I have lost all confidence. So there is an interesting mix of confidence and vulnerability or empathy that you need to show. The confidence has to be in the vision and the strategy, that look, our vision is still consistent and our strategy— look, here's why the strategy still holds true. And look, all these proof points, they kind of make sense. They all fit well together. You need to give people confidence in that. But then on the other side, you need to have empathy for people, what they're going through. Many of them, especially public companies or even private companies, might have their 401s might be in jeopardy, or they might not be able to make certain payments that they depend on the stock for, whatever the case may be, or they might be worried about losing a job. You need to be honest and transparent with them. The— I think one of the most interesting things that people can do, especially if they haven't done it, is to CEOs to start a weekly email. I've started recommending weekly email in addition to a town hall. Town hall, I think, is one kind of forum, and a weekly email can, can actually go deeper and can talk about what the company is doing, but also what you as a CEO— what are the top 3 priorities you have? And have, have a personal way to reach people in a scalable way. And the third thing that you can do is essentially do reviews of initiatives if you're not already doing that. So every company needs to have some review cadence for the key initiatives that have been set out in the goals that are needed to hit the goals. And some initiatives you review at a fortnightly cadence, some at a weekly cadence, some at a monthly cadence, maybe some at a quarterly cadence. So You need to set up those reviews that essentially get you much closer to the work. I think you want to get closer to the work. People want to see during these times the CEO is involved and engaged in the work versus being disassociated and kind of at a distance. And so if you're not already doing reviews and attending reviews, it's a good time to start setting up reviews at a good cadence of the key initiatives and projects and getting people together and actually reviewing them and being there and giving feedback and input to them.

You talk a lot about culture because, you know, one of the key elements of culture is also transparent communication, right? Especially in bad times, if you disappear from the scene, people are going to get paranoid and think things are going south and leave. But what are some other drivers of culture? And, you know, as you grow really fast and you're hyper-growing, you don't want to break the culture, right? Initially, it's like the founder's set it, but then as you start bringing people, they're bringing their own values and culture in addition to what you have there. How do you move on from there?

You're absolutely right. Culture eats strategy for breakfast, as they say. I think the reason is because culture actually is embodied in the behaviors that you reward. One of the most interesting things is this notion of values. Values are not something you put on paper. Almost every company I've worked in, the values— actually, in every company I worked in, the values were already embedded. By the time the company is 100 people, guess what? The values are already there. Whether you have the values or not, they're already being exhibited in behaviors that executives display. I'm going to sell CEOs. You can say that you have these values, but if you are not firing your top salesperson who doesn't— who's the opposite of these values, you're basically telling your people that these values are just a facade. They're there for show only. Or if you're essentially, you know, not, uh, basically you're, you're basically, you got to walk the talk. You've got to make sure that you and the executive team are exhibiting the behaviors. So for example, if you say, uh, attention to detail, get to the lowest level of detail is one of your values, you better in reviews be going to the lowest of detail. If you're essentially reviews are completely superficial at super high levels, not getting into the inputs, not understanding what happens. People are seeing that there's, there's no, there's no coherence or consistency between the values and the behaviors. So number one driver of culture is value-behavior match. If behaviors don't match the values, or if there's not a consistency in how you implement them, and if hiring and firing and promotions are not aligned with behaviors and values, The culture is going to not— every company I've worked at, different— Square has a very different culture than DoorDash, which is a very different culture than Facebook, which is a very different culture than Google. But all of them, they shared the same thing, that they had a certain set of behaviors that were rewarded, and people understood what they were, and they were actually very consistent with the values of that company.

You know, I love that. Don't read the lips, watch the actions. Watch the hands.

Very well said. Very well said. Right.

And if you, you know, we did that at Boaster early on, we had a very toxic sales leader and we let the person go because ultimately culture is the leading indicator of growth. One toxic person leads to two and leads to many, and then you create this environment which normalizes that behavior and people leave. They think like, okay, you know what, they say they have these values written down, but I need to probably do some other set of actions to get a promotion or to get hired or fired. And so tied to that, I also see that founders latch on to executives too long before holding them accountable to values. And a person, a bad executive can set your company back for years, not months. Or kill it. Or even kill it. Right. So what thoughts and advice you have here for founders as they're, you know, you raised a Series A or B, you're bringing and executives. How should you— how should founders assess these leaders and hold them accountable? How do they, you know, because it's very hard to fire when you hired a C-suite.

That's right. When your company is scaling rapidly, one of the biggest impediments or boosters to growth will be your composition of executive team. If your executives are not able to scale with the company, entire functions will be thrown into disarray. and your adoption or revenue will stop scaling. You'll also fall into a mode as a CEO of constantly putting out fires or covering for executives, when in reality executives exist to give you more bandwidth and to do more as a company and a CEO. So here are some signs that an executive is not scaling, right? One is they're frazzled, they're not organized, they're constantly unprepared, they make ongoing comments about overwork, They don't plan ahead, come prepared for a meeting. They send everything last minute for executive reviews or board reviews. Second, they don't have an org plan, right? I mean, the great execs constantly refresh the org map and plan. They plan ahead on key hires and figure out how the team will matrix or coordinate with other counterparts. You know, basically, the, you know, execs that are not able to scale are constantly in reactive mode trying to find out who they should hire and constantly, you know, on the back foot in terms of hiring and don't have many of their heads filled. Third, they can't attract other senior talent. I think this is a very interesting thing. When you, when you're hiring an exec, the one thing you should absolutely look for is what are the best caliber of talent they have attracted in their prior role. And then you should go and check with that person. Did this person, did this exec actually hire you? Were they a good coach? Were they a good mentor? Did you stay because of them, or did you leave because of them? And, and how much did they mentor you? So I think that's another great signal. Are they able to attract great talent? And then they also make bad decisions. Essentially, sometimes a person clearly over their head and they make poor choices or unforced errors than others with the same role. And, you know, and they're not able to figure that out, they're not able to quickly correct it. And then you're pulled into their function more than would be— in general, an exec should own their function fully and should contribute and help you. If it's the opposite, where you get pulled into their function versus they helping you, you know that the executives are not able to scale. So I think these are warning signs, and you should hopefully, during interviewing, backchannel on all of these things. Backchannel is, in fact, many good companies, for any director plus or VP plus, depending on what the level is— I don't like those titles, but let's assume people reporting to the CEO, head of function— you've got to have at least 2 backchannel conversations, not from their references, but from people that you can find at the company that's worked with them. And you should not— and one of the questions, two or three other questions to ask is, would you stake your reputation on this person? Would you know what percentile would you rank this person at? Is it the 25th percentile, 5th percentile, etc.? And then third one is, of all the people of similar experience and similar role, where would you rank this person of all the people at this company? Who have a similar role? Are they 1 out of 10? Are they 5 out of 10? Are they 9 out of 10? Where are they? But I think that channeling is the most important thing you can do before hiring an exec, because like you said, Lloyd, a bad exec can kill your company, kill the function for sure, maybe even kill the company.

Definitely. And you know, what I've seen also is founders abstract too fast, right? Say everyone has these titles— CEO, President, CTO— but you're a company at a seed stage or pre-Series A, you're an individual contributor. Everyone is doing things themselves. Themselves. And you raise a big round of institutional funding, you should find people like if it's marketing or product, they have immediate experience rolling their sleeves in that specific channel. If they're far too abstracted, like they're a C-suite coming in that needs to hire VPs, that needs to hire directors, it slows your decision-making cadence down, I found. What are your thoughts there?

100% agree. I think you should only In fact, I've seen that founders who've taken time to run a function first themselves get a much better sense of what kind of leader they need to run a function. Ironically, unfortunately, this happens many times when founders have to fire a leader of the function, say sales leader, and then they have to step in and run sales. And then after 6 months running sales, they're like, ah, now I understand what kind of person I need to run the sales function, because earlier I just quickly hired someone because I had the money. Before even understanding what can I say, because all sales leaders are not created equal. And what you need for a sales leader at a company would be different from another company needs. So I think, I actually think founders before hiring anyone in any function should try to do the function themselves for 3-6 months. I know it's very hard. It's very, very, very hard. But you need to manage those people directly and then you have a much better sense of what questions to ask, what to look for and what to avoid versus just hiring a generic CFO or generic head of sales or generic head of product. What you need is different.

And the same goes when you hire those leaders. Have they done those functions themselves before they became the leader? Because, you know, exactly, it could waste a lot of time. Now, you're an investor in 100+ companies, more than 40 exits. How do you know when a startup can become a billion-dollar business, right? When, say, for example, What is your favorite company? I guess there's never any favorites, but the most successful company in your portfolio right now.

It's a company called Faire, F-A-I-R-E. Yeah. So to be honest, I didn't know that they'd be a billion-dollar company. Faire is a B2B marketplace for local businesses to basically be able to order wholesale. They're basically a next-generation online wholesaler. I didn't know that they'd be good. What I knew is that the founders, they were all from Square. I worked closely with them, the CEO worked for me. I knew they were just excellent at problem solving. They were absolutely determined in terms of just going through brick walls and that they would do whatever it took to build a big company. Now those are the only things you can— and then they were going after an interesting market, which I didn't know much about, but I knew that the three of them were amazing. And so ultimately I'm a very founder-centered investor. I feel that great founders create new markets, right? If you look at Airbnb, there's many examples. Market didn't exist, and in fact, it's very hard to even speculate, uh, what the market would have been. I mean, because so many people passed on them, because very smart people, because they said the, the home sharing, uh, space is very small, non-existent. The same for getting into someone's car, Uber, right? I think great founders create new markets, or They pivot into markets that are, that are big. If the initial market is not that big, they figure out adjacent problems to solve. And so you just want to bet on teams that are— it's almost like a YC model. I think YC is really smart because what Y Combinator invests in is teams that can build and teams that can hear customer feedback. Are you solving the right problem? Is the problem big enough? And move. Many of the best YC successes, because YC successes have been things that have third or fourth pivots. Like Segment, I believe, was a fourth pivot. After three pivots, they found this, this idea of a customer platform. So I'm increasingly in favor of amazing teams of builders and folks who have a full-stack team who are going after certain problem space or a customer segment exactly where it is. You don't know, but you know there's a big problem to be addressed here. Time and again, I've seen that's a great model to invest in. Great founders not exactly know what—

yeah, great founders who don't exactly know, but if you have a dynamic team that gels well together, it's like having a band that can produce hits over and over.

Exactly, very good analogy. Awesome.

Now, as you look back on your career, your great career, your journey, what do you wish you did less of and what do you wish you did more of?

I always wish I did more building and less managing. I feel that I— one of my best and most memorable times are when I was directly working with engineers and designers on products, whether at my startup or at Google and Facebook. And, you know, I like managing and leading. I like leading. I think the actual act of managing, which is writing performance reviews and all of that stuff, is something— there's a lot of process in there, and I want to do less of that. I always want to do less of that. I want to— so I always try to do one or two IC projects, individual contributor projects, myself in relation to being a manager, because I feel it keeps me close to the work. And so I always will do one or two projects. I always have tried to do one or twice in addition to being a team, so I get to experience the act of building myself, because otherwise you can get too abstract or far away from it.

Being an IC is so fulfilling, that's why I continue to produce these Traction webinars myself with no help. Completely agree. Sending those emails and whatnot. What is one piece of unconventional advice founders typically ignore but shouldn't?

You know what, I think it might seem that titles are the easiest way to make up for compensation. Many founders are like, well, I have the only thing to give, I can't give you enough cash, I can give you titles. But it'll really come back to bite you. So do not give titles easily, because titles are, you know, there's only one title called VP of Engineering at the company. If you give that up to the first good engineering manager you meet, you're basically mortgaging the future of the company for the next several years on this person. So I think that's still— I periodically tweet about it, and it raises a lot of discussion on Twitter. and LinkedIn, but I always try to repeat it. Don't give— like, I was meeting with a Series A company, and I was asking the founder, hey, you know, what's the number one hire you want to make? He said general counsel. This company has 25 people. I'm like, you mean a lead lawyer, right? It's like, yes, yes, a lead lawyer, because he was going to call a general— I'm going to— general counsel is like someone who, you know, is someone who can take a company public, basically. That's a general counsel. You don't hire a general counsel when you're 20, or you don't give the title general General Counsel, there's only one title General Counsel. And so, you know, that's the kind of stuff founders I think get confused and they give a title up because they're like, that's an easy negotiating thing. Guess what? You're right now robbing your present self to— sorry, robbing your future self to pay your present self, and future self is going to be very annoyed and upset that you did that. Awesome.

I want to take one last question here because it's come from the audience. There's a lot of info on product market fit, How do you know you have achieved product-channel fit?

Efficiency. Efficiency and depth. One, is the channel able to be efficient? In other words, what it costs you to acquire a customer, you can pay back the customer from that channel, that it pays back within, you know, ideally within a few months, definitely within a year, less than a year. So the payback period, less than a year. And the second is depth. Can this channel actually produce and can you see this channel producing enough customers for the next several years that can help you with your company goals? So efficiency and depth are the two metrics you would gauge a channel on.

Fantastic advice, Gokul. It's been a pleasure. Gold in every sentence. That's why I love talking to you. I love getting your advice. Gold in every sentence. Wishing you great success, wishing you the next 100 unicorns in your portfolio. Thank you so much for joining us, Gokul. Love it. Thank you, Lloyd.

Amazing. Thank you, folks. I need some traction.