5 Scale-Up Mistakes for Startups with Dave Kellogg | SaaStr Software Community

Well, thanks for joining me today. My name is Dave Kellogg. I currently work as an EIR at Balderton Capital out of London, and today we're going to talk about the top 5 mistakes in scaling up a startup. I have a bunch of operating experience. I've been CEO of 2 startups— ah, there we go— I've been CMO of 3 startups for a combined 30 years in operating experience, including companies like Business Objects, where I was CMO, as we scaled from $30 million to $1 billion in revenue. So that was a 9-year journey. Uh, been CEO of 2 startups. One I scaled from $8 million to $50 million. The other I scaled from $0 to $80 million. So I have a lot of experience in growing startups as an operating person. And then on the advising side, I'm an angel investor in about 20 companies. I've advised about 20 companies. I've sat on the board of directors of 7 companies, and I think it gives me a kind of a 360-degree view on a software company, because I've been in the chair as a CMO or CEO, and I've been on the board. So you can kind of see it from both sides, which is hard to do. And some of the companies I've advised include, in Europe, Nuxeo out of Paris, Pigment out of Paris as well, that does performance management, and their CEO, Éléonore, is speaking today at 2 o'clock. Blog for her. Recorded Future, a Swedish-American company I was advising. Skoro, an Estonian company in work management where I'm on the board of directors, as well as some bigger, more global names after that. So that's who I am. In addition to all that, I also write a blog, and if you've not visited, I hope you do. It's called Kelblog. In French, it accidentally means what a blog. Quel blog! So in any case, that was an accident, and I will be posting the slides to this presentation on the blog later today. So if you're here, congratulations. First, it's wonderful to be in Barcelona, and second, it means you're thinking about scale-up, which is great because scale-up is what happens really after you hit product-market fit. And so much of a startup, you know, Marc Andreessen breaks the life of a startup in two at product-market fit. There's kind of, you know, AD and, you know, whatever it is, CE and CA, whatever There's common era and before common era. That's the way we think about startups. And a lot of content and a lot of energy is spent on figuring out, do we have product market fit? Right? And, and Marc Andreessen has blogged about it. Those are all links in the slides, so if you download them, you can link to these articles. Andreessen has written great stuff on product market fit. A guy named Sean Ellis, has a test that I like, which is you survey your users, and if 40% or more would be very disappointed if you took away your software, that's how he defines product market fit. Kind of a clever definition. You know, my definition's more typical. It's have you found someone to sell something to solve some problem, right? That's it. Someone, something, some problem, and sell. Right? They— it can't just be, oh, you solve a problem for me. It has to be, you solve a problem for me that I'm willing to pay to be solved. But if you have that, if you have someone to sell something to solve some problem, then you have PMF in my opinion. And, and you enter scale up somewhere between $2 and $10 million in ARR, right? And you're no longer in founder-led sales. The founder isn't out on every sales call, and the product is really no longer minimum viable. So this is what it means to me to be entering scale-up. And when you enter scale-up, you might think, wow, we solved all the hard questions, because establishing product-market fit is hard. Right, trying to figure out who that buyer persona is and what problem you're going to solve and how much they'll pay for it, right, and how to talk about the problem you're solving. That's all really hard. So you might go, whoo, the hard stuff is behind us, but that's not true. In fact, there's a lot of hard questions as you enter scale-up, right? Questions like, how hard should we step on the gas? In growing our go-to-market? Do we have the right people on the team? Do we have a repeatable sales formula? We'll spend a lot of time today talking about repeatability because it's such a core concept and it's so undefined, right? Everyone goes, do you have a repeatable sales model? And you go, yeah, yeah, I do. And, and then you say, well, what do you mean by that? How do you define repeatability? And the answer is most people don't have a good definition, and that causes a lot of trouble because if you think you have repeatability, you step on the gas hard, right? Um, and if you're wrong, you can burn a lot of money. So we'll talk about repeatability. Do you have the right support and enablement? What's your plan for international? What shape will the company be at $100 million? How much will come from which segments of your business, or if you have multiple products, which products? But at a high level, you know, I worked at one company that we hit $100 million. We were actually two $50 million businesses. It really, there was one vertical practice in government, one vertical practice in media, and it was if we had two $50 million businesses. When I joined Business Objects, we were like three $10 million businesses, a UK, a US, and a French operation. So what shape will you have? And if you think about the shape you want to have now, that will help you going forward. How do you stay focused in an idea du jour environment, right, where board members with all good intentions are asking you, are we going to have a run rate business? Are we going to do PLG? Are we going to have a second product, right? All these people who are trying to help you are asking you a lot of questions that can cause you to lose focus, and that's really hard to manage. Should you make a second album? You know, Jason M. Lemkin has done an interesting series of blog posts and tweets about when a startup needs its second product, and that's a question you're going to be asking yourselves the entire journey from 10 to 100. When do I need, and do I need a second product? In my opinion, most people start too early. Right? If, if you really have a $5 billion TAM for the thing that you just built and pitched, why do we need a second product? And the answer is someday we will. But in his research for enterprise companies, it's between $100 and $300 million. It's a long ways off. We'll talk more about that. And, and this one's my personal favorite. When should you start worrying about technical debt? Because it takes 13 years to get a company from inception to IPO. That's enough time to accumulate a staggering amount of technical debt. If all you do is have product managers prioritize features and keep adding features to the house of cards, it may tip over one day. So how do we think about that? So, so those are some of the questions you have when you enter scale-up. So we still have questions and they're still hard, but they're different. It's not about product market fit anymore. So that said, here are the top 5 mistakes that I think companies make. And because I knew this was a European audience, I've dialed it a little bit for kind of European companies, but, but mostly just companies make in scaling up. So one, 1, prematurely accelerating go-to-market. Number 2, putting, or more likely keeping people in the wrong roles. 3, losing focus. 4, messing up US expansion. And 5, accumulating debilitating technical debt. So we're going to talk about those 5 things in this presentation. And let's jump into the first one. So this is, in my opinion, by far, by far the number one mistake. You've just raised a lot of money. You just put out a very aggressive financial plan to raise that money. You're feeling a lot of pressure to grow fast, and you're hoping you have repeatability. You're not sure. but you kind of just hope you do because not having it is kind of too scary and defining it is too hard. So we kind of say, okay, I hope I have a repeatable model, but I know I have an aggressive expectation from my investors, so I'm going to step on the go-to-market gas hard. Um, and when you do that, if you do so prematurely, it looks something like you go from 3 salespeople to 13 salespeople in 2 months. And a year later you're back down to 3, right? That's what this looks like because you've hired 10 people, tried to ramp them, nobody was successful, and the whole thing fell apart. And then a few million dollars wasted, you say, I wonder if I had a repeatable model, or, or maybe we didn't do enough to define repeatability, right? So that's this problem, and it happens First, as I said, because you prematurely think you have repeatability. Second, because you're under board pressure. And third, because you've— I call this a spreadsheet-induced hallucination, but you spent enough time with some spreadsheet and played with the numbers enough, and you've convinced yourself that you have repeatability based on the spreadsheet. So, you know, the world's worst reason to hire a salesperson is what I have on the slide there. If I don't hire one, we have no chance of making plan. So I may as well hire one. And a lot of salespeople have been hired on that logic. And that's terrible, terrible logic, right? Because that salesperson, as we'll see in a minute, will be deceptively expensive. And if the only— you should want to hire them because you think they can be productive, right? That's the correct reason. To hire a seller. The incorrect reason is, oh my gosh, I won't have enough capacity according to the spreadsheet if I don't hire 3 now, so I'll hire these 3 even though I don't love them and even though I'm not sure if the marketing has generated enough pipeline for them and even though and even though, and we do it anyway. And this mistake, if you get it wrong, it will cost you millions of dollars because it will most certainly cost the head of sales their job, It will wound the founder CEO. You'll lose millions. The investors will have reduced confidence in you and employees. They'll have watched the whole train wreck. They will have reduced confidence in the company and its future direction, all because we stepped on the gas too hard. And one of the ways I try to convince people to be careful of this is to remind them how much it costs to hire a salesperson, because the wrong way to think about it is, oh, if they cost $300K, and they're $150K base, $150K variable. If they don't sell anything, well, they only cost me $150K, right? That's kind of the myopic way of looking at things. The right way to look at it is holistically and say, wait, their OTE, their on-target earnings, is $300K. They're going to cost $180K for two-thirds, and you could adjust these numbers to your local market, but do the exercise. Right? So I'm hiring a seller, I'm hiring 2/3 of an SC, I'm hiring 2/3 of an SDR to work with them, a 1/6 of a sales manager, and probably $100K in marketing. A typical opportunity in enterprise and mid-market costs between $2,000 and $4,000 to generate. So if we're gonna generate between 20 and 50 of those, we're gonna spend $100,000 in marketing to support this seller. So all in, that person cost me $700,000 to make that bet. And that's the way you should think about it, because you should be pretty sure you're going to get something back for your $700K. And by the way, the worst part about hiring bad ones, to me, it's not the fact that you waste a few million dollars, that's bad, but the heartbreaking part is watching the deal you lost speak at your competitor's user conference, right? That's heartbreaking. Seeing them on their website, knowing you were in that deal and you were competing for that business and you could have solved that problem, but you sent a bad team in and you lost. And now for the next 4 years, you're going to have to look at that person on your competitor's website. That's the part that kills me. So the way I think— the wrong way to think about this is impaired but contributing. Oh, they're not that productive, but at least they're selling something, and that's better than nothing, so we'll keep them limping along. Right, that's bad logic. The better logic is the opportunity cost. What if you had someone good in that slot who would have won that deal, and that big reference would be on your website, not the other guy's website? So the test I have for this is simple as, Those who read my blog know I'm very quantitative and we'll talk about quantitative ways to measure this, but I also like listening to your gut sometimes. And the gut test on this is simple. Are you proud they represent your company? That was always the test for me. If a seller was having trouble hitting their numbers, I would go on calls with them and watch them and say, this person understands our product. They ask good questions to the customer. I'm proud they represent my company. They can keep trying. And conversely, right, if you're not proud they represent your company, you should probably get rid of them tomorrow, right? So try to use that as a test. We'll talk about numbers as well, but go with your gut, listen to some Gong calls, go on some sales meetings with them, and if they're not the right person, remember the old venture capital adage, you can never fire someone too early, right? 'Cause by the time you're even thinking about it, there's been a lot of damage done. So first time I heard this, I was young and I thought it was really mean. And the older I get, the more I believe it. I'm like, no, no, they were right. Because especially as CEO, by the time you know about a problem, there's been a lot of things going wrong for a long time, right? It takes a while for you to find out. So if you have one of those people you're not proud of, move on them. Now, how do we avoid this mistake? And the answer is we need to be realistic in self-assessment. I do think that advisors and directors can help you. If you have good people on your board or good advisors you work with, you should grab them and just say, I'm trying to figure out how hard to accelerate right now, and let them ask you questions, right? Because they will tend to be more honest than you are. Especially if they're independent, so they're not bringing pressure, right? An investor may pressure you more because they really want you to hit that plan, but an independent advisor or director will usually be more objective and say, okay, let's talk about repeatability. That's the first thing. Second, hire according to empirical indicators, not the financing plan. Super important, right? Especially if you just raised money. Which I hope you did, 'cause it was a lot easier in the last 12 months than it's gonna be in the next 12 months. But if you just raised money, you've got a pretty aggressive plan out there, and in your head, you wanna go hit that. And that plan says you need to spend this much on marketing and this much on sales, and that plan is a terrible reason to go spend money, right? So think of the plan as a tool to help you raise money, and establish a direction you want to go in. But once you have the money, in my opinion, unless you're PE-backed, which is a whole different deal, you put the plan away and then you look at empirical indicators. You say, is now the right time to hire a salesperson or to invest more in marketing? So look at empirical indicators like quota attainment, what percent of your sellers are hitting their quota, forecast accuracy. Are you coming in where you think you're going to come in? Pipeline growth and coverage, right? Because sellers need pipeline to be successful. Second, beware pipeline discipline and what I call the pipeline chicken and egg problem. I.e., what comes first, the pipeline or the sellers? Because sometimes CEOs wait for the pipeline to build before hiring sellers, and I think that's a mistake. I think they should do both in parallel. That once you're sure you can make productive use of resources, that you should hire the sellers at the same time as you deploy dollars from pipeline. So the next thing to do is to learn what repeatability looks like, because the essence of all this in the end is repeatability. And repeatability is like a holy grail in enterprise software. Everyone's seeking it, but no one's really quite sure what it is. And I want to give you a simple definition of repeatability, which is If you take a standard input and you apply a standard process, do you get a standard output? So standard input, standard process, standard output. What's the input look like? Well, that's a hiring profile. What kind of background do we want our sellers to have? It's hiring criteria. What yardstick do we measure them against? And it's onboarding. So we're going to take a person who looks like this and we're going to put them through this onboarding class. And then standard process, we're gonna give them our standard sales methodology and tools. We're gonna give them our standard sales management, and we're gonna give them our sales process and methodology. So we take a standard person, put them through a standard training and tooling, and do we get a standard result? And the best way to measure that result is attainment. What percent of them hit their number? The problem is it takes about a year to know that. Right? So, so we are gonna need to find indicators along the way. But really the true measure of this is you take the cohort of reps you hired a year ago and you say today, how many of them are productive? We can look at them as they ramp, right? Because most people will put them against a ramp target and we can look at their productivity. How much are they selling per person? But the real key to repeatability is If we take someone who looks like this, put them through our program, there's an 80% chance they'll be selling $1 million or more a year in ARR. That's repeatability. If you have that, then you push all the accelerators forward. If you don't have that, then we have to figure out how to get that. So I do want to talk about attainment for a minute because there's a lot of nostalgia on attainment. And when I was an executive at software companies, we'd have these old board members and they'd say, "Well, back in the day, if somebody missed their quota 2 quarters in a row, we'd fire them. I can't believe that you guys have all these people who've missed their number 2 quarters in a row." Or they'd say, "Back in the day, we had 80% of our sellers at quota every quarter." And the answer is probably no, you didn't. First, you did not have on a quarterly basis in an enterprise company 80% of your reps every quarter. You might have had 80% every year. You might, right? 80% at 100% of quota on an annual basis is very good. On a quarterly basis, it's almost impossible in enterprise because it tends to be backloaded. It's very hard to hit your number every quarter. So I would just say beware of these comments because while you're out trying to find repeatability, That's noise. That hurts you. It doesn't help you. So my take personally, if you can get 80% and 80% annually, you're doing pretty darn well. And by the way, you should also be on your financial model, right? I won't do the math, but if you, if you have 80 and 80, there's a very, very good chance you're at or ahead of plan. We can talk about why later. So that was our first topic. We spent most of our time on it because I think it's so important. That we don't want to step on the gas too hard, too early because we're under pressure. We want to step on the gas because we think we can make resources productive. And if we do that, we'll avoid premature go-to-market acceleration. The second mistake is wrong people in the wrong roles. And the easiest way to think of this one is one day, I think it was a recruiter said to me, he goes, Dave, you're really a figured out person. I'm a figured out guy. And I said, well, what's the other type? And he goes, well, there's two types. There's figured outers and there's scale it uppers. And you're more figured outer. You like figuring it out. You like working with companies at a really early stage, for example, to find MVP and to find— sorry, PMF, product market fit. He's like, yeah, I do like that. I like figuring it out. And if you look at your startup and if you've worked at different companies across your career, If you look at people, you can start to say, oh, that's a figure it outer, that's a scale it upper, right? They're different animals. And the people who got you from 0 to 10 are almost by definition figure it outers, right? If a scale it upper joined your company at $0 million, they probably quit pretty quickly because they're like, uh-oh, I'm in the wrong place. I was at a very successful startup where we were $5 million in ARR and we hired a scale it upper, a now pretty famous scale it upper sales VP. And he quit in like 6 months because he's like, I'm sorry, you guys aren't ready for me. I come with checklists and clipboards and I want to put boots down in every NFL city. So every city that has a football team, we want to have sales reps and I want to do my process. You guys aren't ready for that. So the best thing I can do is quit, which was actually excellent of him to do because he was the wrong person for that job. We needed a figure-it-outer. Right? Who do we call on? What do we tell them? What tools do we need? Right? So, and the other thing about these two types of people is they don't always like each other. Sometimes they actually dislike each other, right? Because the figure-it-outers think the scale-it-uppers are not that smart or creative. And the scale-it-uppers think the figure-it-outers are kind of lunatics, right? Like you, you can never get anything done. I mean, you can do stuff by yourself, but you could never build an organization. And if you look at salespeople, there's definitely figure it out salespeople versus scale it up salespeople. And a lot of salespeople, particularly big companies, are scale it up, right? Give me a playbook and I just want to lather, rinse, repeat my way to lots and lots of money, right? That's all I want to do. I'm not here to win creativity awards. I'm not here to figure out hard problems. I'm here to make money. Tell me the playbook and I will go execute it. That is a scale it up company seller. A figure it out seller loves hard questions, unanswered problems. They don't like process. When the process people come in, they get very uncomfortable, right? Figure it out sellers, if you keep them at your company too long, they'll quit quickly. Scale it up sellers, sorry, they will quit slowly. Scale it up's the opposite. They will quit quickly if you hire them too early, right? Because they'll say, this is the wrong company. Figure it out people are artisanal. They're really sales as an art. Scale it up, they're industrial. Sales is a process. So on the left, they're like, give me a telephone and a machete and I can make my quota. On the right, it's give me a territory and a playbook. And I can make my quota. So these are very different animals, and you'll find them at different— all across the company. This is just one example with respect to sellers. And the thing that's hard is finding this balance, because as you grow your company, you're going to have loyalists, people who've been with you for a very long time, and you want to be loyal back to them, but they're probably figure it out people. They're not scale it up people. So what do you do when you have to scale it up? That's hard because maybe they're not the right person to lead sales anymore. I've worked with many startups where the figure it out sales VP had to leave when we hit $10 million. And I always feel bad about that because I don't actually think they have to leave. I think they should be redeployed. Like my answer is, what do you do with them? Go find something else to figure out. Hey, you want to move to Europe? Help us figure out how to open Europe. Hey, there's a new vertical. We want to sell to retail. Help us figure out how to sell to retail. So my advice is, if somebody is a figure-it-outer and you know that, and you need a scale-it-upper, just start with a blank list of problems you need to figure out and try to redeploy them. Worst case, you have to get rid of them. Best case, you can redeploy them. I think it shows that you value people. I think it's a creative use of the resources. It's always an uncomfortable conversation because that person doesn't sometimes admit to themself that they're not a scale-it-upper. I can scale it up. I'm really smart. Yeah, but do you like that? Is that what really wakes you up in the morning? And the answer will be no if they're honest with themself. No, what gets me out of bed is solving hard problems. So building and scaling are different. You know, again, building is about a small number of amazing, creative, unstoppable people. That's probably what you have at your company today. It's about solving problems. Quality is measured by individual excellence. And your motto is amazing people can do anything. And when you talk to investors, you talk about your amazing people. And what are you doing? You're blazing trails in the jungle, right? You're going where no company has gone before, opening a new market, solving a new problem. Scaling is very different. It's about a small number of amazing process and infrastructure-oriented leaders leveraging a large number of great but not necessarily amazing people, right? They're not solving problems, they're building systems and processes. Quality is about process, not individual excellence. And the motto is, we help great people do amazing things, right? A very different philosophy than the company on the left. And when you talk to investors, You don't talk about your amazing people anymore. You talk about your amazing machine, right? Because that's what they want to invest in at that phase. I want to invest in a money-making machine, not a bunch of really smart people opening a new market. And I dramatize this because it really is a big change for the company as you move from kind of a figure it out mode to a scale it up mode. Mistake 3, losing focus. I think it's very easy to lose focus. I think board members in particular, at least when I was a CEO, they were always burying me in ideas. What if we do this? What if we do that? We should do this. We should do PLG. We should do SaaS. We should do consumerization. We should do whatever it is. There was 10 of those a board meeting. And I'm sitting there on the one hand going, didn't you want me to build a machine to pursue this $5 billion TAM? Can you guys leave me alone and let me do that? Instead of giving me 10 new ideas a meeting? And the answer is, look, they're trying to be helpful. The first thing you need to understand is anybody who walks into your office with an idea is trying to be helpful. They're not trying to distract you. Be they a board member, an advisor, an investor, an employee, a customer, anyone with an idea is trying to help, and your job is to listen, to understand the idea, and then by and large not do it. Right? Because if you have a good plan and a good strategy, you need to go execute that. So they're trying to be helpful. The thing that I did that does not work is you try and throw them a bone, right? I literally had a board member, I sold the enterprise software package for $250,000 ASP, and a board member told me to paint it red and rent it in a board meeting. And I'm like, okay, what does it mean to paint it red? He, he wanted us to build an appliance. And I don't want to build an appliance, so like what problem does that solve for us? And I would get a series of those ideas every meeting, and I kind of put them into two buckets. One that you could only do over my cold dead body on the left, and the other ones where if I can't, you know, if I run out of excuses to say no, I might consider some of these. And I actually thought that if once in a blue moon I said yes, I'd kind of get some credit. Right, this kind of debits and credits and this spiritual account balance. And it was wrong because I did two of them, neither one worked, and I was not, I did not get a credit for trying. I got a fail for failing. So it's like, just don't do it. My advice, don't do it. If you don't want to do it and you're the CEO, don't do it. Don't play trading games or throwing a bone to a board member just because you think it'll get you something for two reasons. One, it won't get you anything, uh, and two, you'll lose focus. In terms of second product, I talked about Jason M. Lemkin's work before, but he's done a series of tweets and blogs, and from his research, to me, for most companies, it's probably $100 million plus in ARR and maybe multiple— for the companies I work with, multiple enterprise companies, multiple hundreds of millions. So if you're spending a lot of time worrying about a second product, look, if it's an integral part of your strategy, it's one thing. But if you're like, uh-oh, people are gonna ask me how I grow and I need to say I'm selling something new to our existing customers, right? New product, customer existing, new product existing, new, right? There's a matrix where it's new customer, sorry, existing customer, new product. That's what they're asking about. It could probably wait. So for most of the people in this room, don't worry about your second album. Stay focused that, you know, your company is not a fund. Investors get diversification by investing in 20 of you. You don't have to be diversified, right? Diversification is their problem, not your problem. Your problem is you're betting your whole life on the success of this one company, right? So go do that and do it well and don't throw bones to people. Don't ever do an idea that you don't want to do. Just to make someone happy because your job and your livelihood and your team's livelihood is riding on it. Number 4 is messing up US expansion. I won't cover this in depth here. I will hardly cover it at all just because I'm doing a series of blog posts on the Balderton blog on this topic. It's literally like 30 pages long. Sorry, it got a little deep, but I have a series of 6 posts that talk about the top 5 mistakes, which are listed here, in expanding to the US, because I've worked with a lot of European companies on US expansion, and enough to see patterns in what goes wrong, and that those are the common mistakes. The, let me see if there's one worth talking about here. Oh, my favorite one is hiring the wrong people. This one's fun, because Americans always inflate their resumes, and Europeans are pretty modest by comparison, and that's a terrible intersection, right? Because you have someone who's kind of modest interviewing someone who they think is modest, and that person has created this resume that makes them— one founder literally said to me, these people are gods, right? Because, because he believed their resume. And it's like, no, you don't believe the resume. Uh, no American resume is worth believing, right? You have to kind of discount it back to reality, and then you know who you're talking to. So, but there's 4 other mistakes. Hiring the wrong people is one of them. And if you're just starting out, one piece of advice, drill into resumes, right? Ask, what did you do at that company? Were you a driver of the bus or a passenger on the bus? The last mistake, number 5, is accumulating debilitating technical debt. You know, it takes on average 13 years to build a public company. Uh, I guess it was 11 years for the 2021 cohort. It was only 11. But just think about what technology looked like 11 years ago. So that company was founded in 2010, right? AWS was 4 years old and a $500 billion business. New Relic was 2 years old. MongoDB was 1 year old. React hasn't been developed yet. You have to wait a year. Uh, Terraform and Kubernetes wouldn't be developed, released for 4 more years, right? So think about how much technology has changed in those 11 years, and it's enough time to accumulate a huge amount of technical debt. And literally, I have one thing to say about technical debt, which is that shit will kill you. And it will. If you ignore it and you let it accumulate, you will eventually get to a point where your product becomes unmaintainable. And by the way, that takes around 11 years. So, so who wants to be going public just as your product becomes unmaintainable, right? Answer: no one. So the way to avoid it is 3 things. One, well, really 2 things. Hire and empower strong architects. Too few companies have an independent architect, not the VP of engineering, who keeps an eye on technical debt and the architecture. Critical role to have on your team. The second is do a trust release every 4 to 6 cycles where you just say, we're going to go retire technical debt. Hey, architects, take the lead, work with the PMs to figure out what we're gonna do. And if you just do those two things, strong architect plus trust releases, you will spare yourselves a huge amount of misery in the future. So ignore tech debt at your peril. So to wrap up, five things to think about as we scale up. One, we need to understand repeatability and avoid accelerating GTM. Prematurely. Second, let's build a team of mix of loyalists and new hires. Third, stay focused on winning, not doing people favors. Fourth, start in the USA early. And fifth, get a strong architect on board and manage technical debt. I think we'll be doing an Ask Me Anything right after this. Thanks so much for coming. And if you want them to stick around, see you. So bootstrap, trying to figure out how to scale up. Has a broken microphone. It doesn't work. Oh yes, it does. It works now. Bootstrap just opened an office in Austin, trying to scale the team. We have some SDRs, we have some AEs, we know our ICP, we have an idea of the TAM. Yep. How do we go about— I'm gonna move myself and my family to Austin full-time. Yeah, good. And actually lead the American venture, how do we split America into addressable bits? If you try and do it all, you're going to fail. It's a really good question. Okay, so the question is, in US expansion, how do we split America into addressable bits? And the answer— there's a couple of answers. One, US has geography and vertical industry, right? They're correlated. Like, if you're focused on pharma, you go to New Jersey. Finance, New York City. Entertainment, LA. And sometimes for a company, I actually recommend, even if you don't have to be vertically focused, be vertically focused anyway because it will drive your go-to-market. And you say, hey, why don't we just start in transportation? So we'll go to, I don't know, Atlanta or Seattle, right? Or why don't we start in oil and gas? So I think that's the advantage you have in the US is the correlation of vertical and geography. Barring that, I mean, a lot of people do NFL cities, which I think is a terrible strategy, but you could do that if you want. Just if there's a football team, put salespeople there. Not my recommended one, but people do it. Question, when do I hire a VP of Enterprise Sales? So when do you hire a VP of Enterprise Sales? Is there a magic number where it's not me anymore? Yeah. So I have a trick on this one. Here's another, I love this trick by the way. Don't hire a VP of Sales, hire a director. And let them try and earn the job. So, so I got this from one of the companies I work with where the, the CEO hired a regional sales VP, so not a super bigwig, but kind of a mini bigwig, and they went on every sales call together for like 6 months. And after that, he promoted him, right? And the knowledge transfer that happened during that period was intense. And so by taking somebody still willing to go sell, but who you know has management potential, right? Because the person was an RVP, they knew how to manage people. It's a magic formula. So I wouldn't actually go look for the traditional VP of sales. I'd try and hire somebody, oh, you've been a sales manager, you've managed 6, 10 sales reps? Awesome. Come sell. And you and I are going to be glued together for 6 months, a year, and then at some point I'm going to release you and you're going to hire a huge sales force. That's the magic in my mind. Super. Hi. Hi.

Hi. I, I wanted you to talk about whether you think it's a great opportunity that there's so much technical debt for startups to just jump in and do a cleaner, better, faster job.

Yeah.

Because some of them are so bogged down with legacy that they're terrible experiences for customers.

Yeah. So I think I understood the question. Unfortunately, the, the, the speakers are aimed for you to hear, not me. So, so I think I got it. It's what do you do when a startup is so bogged down with technical debt? Is that—

Yeah.

Yeah.

Oh, tax someone. Got it. Got it. I missed the question. Sorry. I'm going to answer two questions then. So there's the one she asked and the one I liked. I'll answer them both. One was, isn't it a great opportunity to go find somebody else who's dying in technical debt and attack them? And the answer is yes. That— and welcome to the cycle of disruption in Silicon Valley, right? You have all these old software vendors who don't know how to get to the cloud or can't go to subscription or can't move to consumption or can't make good UIs. Look, one of the companies I ran, the UI was so entangled with the business logic that we couldn't fix the UI, right? And, and I would say if you happen to have that problem, I actually believe private equity people are better than VCs at solving it, right? Because that's what they do for a living. They buy old, not the super big ones like Thoma Bravo or Vista, but the smaller PE firms who buy kind of $20 to $50 million, 20-year-old companies. They're actually really good at technical debt because they have to be. So if you're in that situation, maybe go try to find a friend who works at that one of those companies. There's a great book called Managing Legacy Code, by the way, uh, which is a, a book for how to deal with massive technical debt. But yes, we're startups. Those people are prime targets, right? If you're sure somebody's drowning, go kill them. Yeah, have fun. Yep.

Hello, so my name is Geoffroy from Alia. Alia, it's a SaaS AI platform. Yeah. Okay, to build AI projects for all enterprise. Yeah. My question is, you You said, and I'm sure you are really right, is that you must be repeatable before accelerate. But you spoke about sales process especially, but do you see other topics which mean be repeatable? Is my question.

I didn't get all the questions.

So yes, can you, can you detail when you say repeatable business? Yeah, yeah. What are the key points And repeatability. Yeah, repeatability more than the sales process you have figured out.

Yeah, so the question is repeatable sales process. To me, there's a couple of elements of it. I mean, one is just you have standard stages. We'll start at a mechanical level, but this is where most people fail. Do you have 7 or 8 stages? Do they have good definitions? Are they enforced by sales management? If a stage 4 is supposed to be solution fit confirmed, we'll just pick an example stage. To me, the definition of that should be customer verifiable, right? With one phone call, I should be able to verify that. And that one's easy. I just call the customer and say, do you think our product can solve your problem? Because that's what solution fit confirmed means, right? And if they say no, it's not stage 4. And if they say yes, than it is stage 4. So that's the foundation of a repeatable sales process is clearly defined stages.

Yeah.

Yeah.

Be very clear on outputs for each stage.

Absolutely. Output for each stage. Totally. Yeah. Exit criteria is another way to say it. And by the way, it may sound basic, but this is the stuff people get wrong. I, I literally did a consulting gig with a company that had 100x pipeline coverage. Can you imagine? So their pipeline was 100 times bigger and they still missed their number. So, so think about that. And the answer is they don't have what I call pipeline discipline. So that's the first level of it. The second level of it is more about the solution itself in my mind. Like if you use a sales process, there, there's a bunch of them out there. Medics, Selling Through Curiosity, Mastering the Complex Sale, Solution Selling, Customer-Centric Selling. There, there's a dozen sales processes. They're next level up. They're above the stage level. But having some process where you try to understand what the customer's trying to, what problem they have, what's the impact of that problem, how much money they can put to solving it. That's the next level up in sales process. And I'll call that sales methodology. When I write sales process is mechanical, sales methodology is more that next level up.

Yeah.

And it depends on the, depends on the size about the price. Yeah.

The larger the price, bigger.

Yeah.

Depends on the deal size. Yeah, for sure. Okay. Yeah, yeah, je l'ai vu. Okay. Hey, shall I just talk to you and then you can— Yeah, probably better if you talk to me and I repeat it. Good idea, Nick.

So we're at 3 million ARR.

Yep.

We found product market fit in UK and Europe.

Yep.

We are doing US We're about 6 months into it, it's going well. Our problem is in the US our customers are telling us that they need full service, they need all the kind of agency service, and I don't want to be an agency, I want to build a software company. But right now with the fundraising market, agency would be useful. So what is the best strategy when your customers are telling you basically they want like all the marketing ads and everything, and we're kind of more of a solution, you know, a solution?

Yeah, I think I understand the question. I'm going to genericize the question a little bit, so it may not be perfect, but I'll try to make it applicable to those that are hanging out. 3 million in ARR, expanding to the US. They have a core product that has kind of ancillary services that get wrapped around it to make a solution. Those, I guess in Europe, those services are provided by agencies, by third parties?

No, they just do it themselves in Europe.

Oh, in Europe they do it themselves.

In the US they will.

Okay, this is actually very typical. So in Europe, they're willing to buy his product and wrap it into a solution themselves using their own people to add value. The Americans, and this is not uncommon because in some ways we're lazier, they're telling you, no, Nick, I want to buy it all from you, and I want you to be responsible for delivering the business result, not just selling me a package of software. The tip— there's two ways to answer that question. One is you build your own services organization. If you go that route, then you got to be careful because if it gets too big, people are going to say you're not a software anymore. You're not a software company, Nick. You're a services company pretending to be a software company, right? So you have to be very careful it doesn't get bigger than around 20% or 30% of total revenue. Once you get above 20% or 30%, people are going to, oh no, it's a disguised services company. Right? So I think the correct answer, by the way, is to do both. Create your own agency or your own services org, charge for it, charge market rates, maybe even a little more than market rates. Actually, not maybe, charge more than market rates, and then build a partner network. It's super common in the US, but you do both, and partners will say, are you competing with me? You're going to say, I'm mathematically limited to 20% of revenue. I'm never going to let it get bigger than that because investors are going to be afraid of me and I'm trying to build a software company. So yes, I will have some services capacity to save troubled accounts, to win strategic deals, but I'm not in this. Yeah, yeah, for R&D. I'm not in this to build a services business. And it's very important the person you hire knows that because, because a lot of them are empire builders and you're going to tell them I just want you to make customers happy and not lose money, and they're going to get grand visions in their mind and try and build a big services business. So you need to make sure they're on the same page as you. And by charging above market rates, that's how you enable the partners. You say, hey, my guys are $2,000 a day, the partners charge $1,500, and I'm happy for them. Go buy from a partner if you can.

Can you please come back to the services in the— Can you use the mic?

Can you put some of the services in ARR is the question. Yeah, that's a really hard question in my mind. I'm not an expert on this issue. I believe that if you include a relatively standard onboarding, like for example, during one of my engagements, we put Gong in, right? Gong is a call recording tool, conversational intelligence. They had a CSM onboard us. It was free. It came with the subscription. I'm pretty sure she was in COGS, right? She was in cost of goods sold. She wasn't in sales, right? Just for an accounting, right? Oh, hi, you're COGS. And so she was in COGS is the answer to the question. So yes, you can do it. Had I paid a lot of money for it, she would have been in services COGS, right? She was in subscription COGS, right? Sorry to speak accounting, but that free onborder was effectively subscription COGS. At some point, if you're building a services business, they become services COGS because you're reporting two lines of revenue, right? Subscription revenue and services revenue, and then you're separating the COGS. So, but you could build it all in if you want to. But I personally, I don't love it because it makes it harder to do what I want to do, which is say you should use one of our partners. Oh, we have one, but we try not to do it. But we've got this awesome partner network. And if I bundle in free services into my subscription, I suck the air out of the room for the partners. Who's going to want to work with me because you give it away for free?

Yep.

All right. Thanks. Hi.

Thanks a lot, Dev. I watch all your videos. Thanks a lot.

Oh, thanks.

I have a question. We are a bootstrap business.

Yep.

5 years in Saudi Arabia.

Yep.

The product we do is a very localized product.

Yep. Do you want a microphone or no? No? All right. Bootstrap business, Saudi Arabia, localized product.

Yes. Is, um, if we can fund from customers, like we get more revenue from customers.

Yep.

And we get a lot of good opportunities from local VCs.

Yeah.

Um, it's a local product. That means we could go with the MENA region, not to US or Europe, because it's an HR technology.

Got it. Okay, HR technology, local.

Yeah. What would make us, um, go with VCs? And what's— yeah, I know it's a much more general question, but what we, you know, like what would make us, if we could get to revenue from customers, what are we losing here or what numbers, you know, looking at them or maybe metrics that we say no, maybe we need to go with VC or maybe continue with bootstrap.

Sure. Yeah. So interesting question. It relates to, it's a local business, does HR in the Middle East, and the question is VC versus bootstrap. And the answer I have is pretty simple. VCs in general, I'm gonna use American baseball, they try for home runs, right? They're trying to do big things. They'll accept a base hit, they'll accept a small outcome as a cost of doing business, but it's not what they're trying to do. For example, if you went to a typical VC and said, I'm trying to build this to $30 million in revenue and sell it for $90, they would say, awesome, good luck. I'm not investing because that's not what I do. I try to build billion-dollar businesses. And yes, we'll sell one for $200 or $300 million once in a while, and we might be happy we did, but it's not what we're here to do. So I think investor alignment is super important. So if you were to raise money, you need to find somebody who's trying for that outcome because most VCs— and these are all the big names we all know— they're not— they would not give you their money. And it's not because they don't like you or your business, it's because they're trying to build unicorns, basically.

From a founder perspective, like, I'm thinking what's driving on VC, not from a— you tell me from a VC perspective, which kind of sense.

Yeah, yeah.

From a founder perspective, like, are we losing if we're not raising, or, you know, like—

Yeah, so the question from a founder perspective, the answer is, yeah, look, in my opinion, and because you're a local business, I don't think you're sacrificing as much. My instinct is you should bootstrap. But the, uh, from the founder perspective, you look, it's to me, it's two sides of one coin. You don't want to raise money from a VC who wants you to be $1 billion and you want to sell at $100 million. I've had friends who wanted to sell at $100 million. VCs wouldn't let them, right? Um, because they'll say, no, we're, we're blocking the sale because we have that right, because we're not here to try and get $100 million, we're here to get $1 billion, and that's what you should have known when you signed us up. So to me, it's one coin. So from the founder perspective, you're giving up the chance for rapid growth, but that's— it's okay. If you can bootstrap and you're profitable, you can make it work. Cheers, have a good one.

Hi. Hi.

Hi.

Working? Yeah. So I'm from Lemmox. We just try to disrupt travel industry, and I wanted to thank you for a fantastic, fantastic presentation.

Thanks.

We are now at almost $3 million ARR, and we had some tough time because since we are in travel industry, because of the COVID Yeah, but I would like to hear maybe more tricks, uh, tricks and tips regarding the repeatable sales formula, because I think we are near. We, uh, I really like the slide about the figure it out people and scale people, because I think we are somewhere in the middle. And we introduced lots of processes, we split the sales cycle into 4 and 5 phases, but we are still not hitting the quota as we would like to. So maybe a few more details about repeatable model.

So it's more on repeatability, which is good. I think a lot of people have asked about repeatability.

Enterprise segment.

Enterprise segment repeatability. Look, I think the answer is try to write a playbook. Just imagine for a minute you were going to hire 10 salespeople in one shot and you were going to train them. If you can't write the playbook, then you don't have repeatability. It's kind of a backwards way of looking at it, but just imagine, right, like for a lot of companies I work with that don't have repeatability yet, who do I call on? What title in what size company, right? What do I say to them? What will get them to answer my phone call, right? What are the top 5 problems they're trying to solve? Say it's the head of finance. Most of the time, right, because if you really have repeatability, I'll know that I'm selling to a finance VP, one of their top 5 priorities is accurate budgeting, I will know that the top 5 problems they have with accurate budgeting are 1, 2, 3, 4, 5, and I know that if I say I can solve those problems, there's a good chance they will resonate on more than one of them. They'll go, oh, problem 3 and problem 4, 4, I need to solve those, right?

I think we are on a good way, on a very good way because we have almost the whole playbook.

Yeah.

Just we cannot now be sure what is— is like the problem with the COVID so big yet or we are very, very near repeatability.

It sounds like you're pretty close. Look, if you can write the playbook— Yeah, we have the playbook. That's big because a lot of people can't write the playbook because it's a symptom that you don't have it, right? They're like, oh, we're repeatable. And you say, write the playbook, and you say, what are their top 5 concerns? What are their top 5 priorities? And they don't know. Well, then you know they don't know. If you know all that, it's going to either be the hiring. Do you know who to hire? Like, what they look like?

Yes, but I'm not sure regarding the enterprise segment. Our salesmen are till 35, and I've heard that for the enterprise segment, maybe it would be better for people to have more more experience than 10 years.

Yeah, so that's one dimension. What— so we're talking about, in her case, maybe it's not the playbook that's missing. It sounds like they know a lot about their customer and their sales process. Maybe it's the seller, the seller profile. And you were talking about experience. There's a lot of other dimensions besides experience, right? One would be what other products have they sold? Like, for example, I once sold to publishers in New York, media companies. And we tried to hire salespeople who were from, who had sold to media companies before. As it turns out, no offense, those are some of the worst sellers in New York. All the good sellers in New York sell to finance. So we're like, even though it's counterintuitive, we're going to stop hiring people. Yeah, yeah, we're going to say we're going to stop. We thought they were an obvious target. They were actually wrong because the sales skills, usually in sales, skills matter more than knowledge. 'Cause the publishing people had media knowledge. Media's not that hard to learn, right? Federal government, hard to learn. Media, eh, pretty easy. So the sales, the raw salesmanship was more important than the experience. So maybe it's that one. That's the one I see the least thought put into and the most mistakes made is actually the seller. Like, who are we hiring to sell this stuff? Describe them in detail to me. And then challenge your thoughts, because the obvious answer is sometimes wrong. So cheers. Yeah, good to see you.

Hello, Dave.

One more? OK, one more. I'll do some more over there without the microphone.

Thanks for the fruitful session, by the way. While we are watching you, we say, oh, we live this, and we have this mistake. So it was a fruitful session.

Good.

I'm Daria. I'm a partner experience manager at Insider. Insider is a growth management platform. We offer cross-channel orchestration for our partners. By the way, we call our customers customers as partners. So like I'm a customer side, and while they are— we are scaling up, we have changed our team experience and partner experience and customer experience. And as you know, that change management was the key thing there. And do you have any tips for us that how we could run change management processes in scale-up companies?

Yeah, so change management in scale up with respect to customer adoption or no? I heard the word adoption.

Adoption metrics that you are tracking on change management.

Okay. So I don't think I have a good answer to this question, to be honest. I can try to make one up. I guess the question is what kind of change? Tell me what kind of change.

Starting from team, actually, like we build up the technical onboarding team, we will build up the product onboarding, and we added the account management. We had the people who were figured out, then we have changed the scale of that, but we had more processes, and then we needed to manage that process. And our main responsibility as a partner experience team to manage all experiences starting from top.

Yeah, I mean, look, the generic I mean, I can just go back to generic change theory, whatever the guy's name was. What was the person's name? I can't remember. But it basically makes people understand the change, communicate why you're doing it, try and measure it, understand. I mean, look, the first step is understanding there's two types of people and they may not get along or respect each other. And you try, I've always tried to get them to understand that. Like, we need them. Like, I'm a figure it out person, right? It's just saying we're all figured out people. Like, we need those people. We do, because we want to hire 100 people in the next year and we need to train them. And are you going to do it? Do you want to do it? Like, no. So to me, it's legitimizing, basically explaining to people patiently why we need them and why they're important, because we want to be successful, don't we? And that's usually the way I try to approach change, is explain the reason for it, and hopefully people will get on board. At some point, if they don't, it's a problem, right? I mean, you have to say, no, we're going to do this. Like, we're going to build an onboarding team, and you may not like the people who work there, and I don't care, but you're going to help them be successful in their mission because we need to hire and train 100 people next year.

Actually, when we go back to our HQ, we will first explain what work is and how that transition will be happening as well. Okay.

Good. Well, awesome. Thank you so much. I still can't remember the change guy. Cheers. I'll be out on the back if anybody has an extra question.