The 5 must-dos when you hit a phase shift in your business with Partners @ Greylock

Sorry, just to confirm, Caitlin's going to move the slides or I move the slides?

Caitlin will.

Hi everyone. I'm Sarah Goa, a general partner at Greylock focused on SaaS. Greylock is a venture capital firm investing in technology companies that matter from seed to scale, helping founders realize rare potential. In thinking about what would be useful to the SaaStr audience this year, we said we're really in uncharted territory in 2020. So we're hoping to bring to bear some of the tribal knowledge of Greylock's recent history and give some insight to founders facing make-or-break crucible moments for their businesses. I feel privileged to be with you all for a talk with our former portfolio CEO and now my partner, David Wadhwani, who is one of the top couple great growth and scale SaaS CEOs of our time, to share some of his experience guiding businesses through phase shifts and the must-dos to come out of those shifts stronger. David, tell us a bit about your background. Thank you for doing this with me.

Thanks, Sarah, and really good to be here, and thank you all for joining us. A little bit about my background, probably the— there are 3 relevant pieces of it. The first is I was at Adobe for the better part of 14 years, and for about a decade of that, I ran the digital media business. That's products like Photoshop and Illustrator After Effects, InDesign, the, the workhorse of the creative industry. Um, of course, uh, what many people now know is that that business had started to level off about 9, 10 years ago, and one of the things we had to do was really reinvent ourselves. We had to embrace cloud, we had to embrace mobile, we had to transition the business to subscriptions. And, you know, if you look at, uh, the, the results of that, uh, we went from probably close to $10 billion in market cap then to Adobe has now touch or come close to $250 billion market cap. So that was a major transition that I think I learned a lot going through. After that, I joined AppDynamics, which was a Greylock portfolio company, as the CEO when it was about $75 million in ARR. And there were really two big transitions, macro transitions that I drove there. One was moving the company from a single product company to a multi-product company, and in the context of that, continuing to elongate the growth cycle there. So we were able to grow revenue about 9x in 4 years because of that transition. At the same time, really had to bring a lot of discipline to the company as well. We had been, as many great growth companies are in the beginning, a company that was about grow at all costs, but we needed to transition, especially as we prepared ourselves for the public markets, to be a much more responsible grower. So we wanted to be much more disciplined. We moved the revenue from 50% subscription, 50% perpetual to 100% subscription. And we took operating margin from 80% to a negative 80% to cash flow positive and eventually just crossing over the profitability mark in about 4 to 5 years. So that was a big shift. And as we'll talk about, the transitions that we went through, the phase shifts that we went through at Adobe and AppD, had the same learnings, even though the methodologies that we used were very different. And of course, as Sarah mentioned, now I'm at Greylock. I've been here for just coming up on a year investing in companies and helping other founders go through this kind of transition.

Yeah, these are incredible journeys and a lot of hills, successive hills to climb to get to where Adobe and Apti have gone to. Let's talk about, those, those must-dos during a phase shift. First, the language. What do you exactly mean when you say phase shift?

Yeah, you know, this is a— agreeing. In fact, let me start with what I don't believe a phase shift is, because I hear this all the time. You know, I hear people talk about, you know, companies going from, you know, your first phase is, is, uh, $0 to $10 million, then your second phase is $11 to $50 million, and then, you know, $50 to $200 million. You know, I just think that's the wrong way to think about it. A phase shift in my mind is when one or more major functions of an operating business just need to operate differently. You know, that idea of what got you here isn't gonna get you where you want to go next. That's a phase shift, and it happens at a functional level throughout the organization on an ongoing basis. And in fact, in a growth company, I would argue that one or more of these departments are always in transitions, right? And we need to start thinking about how we run our businesses and growth much the way we think about how we build our product. This movement towards CI/CD and agile application development really needs to be there for agile business development as well. And these 5 must-dos can work in the context of a big corporate transition, but I'd encourage all of you to think about it more as this continuous transition at the departmental or functional level And those same 5 must-dos work at that level as well.

Yeah, that really squares with my experience as a board member. The challenges that will pop up in product and opportunities that pop up in go-to-market, in your own organization, in product, they might happen at $3 million or $10 million or $50 million, but it's not exactly correlated to that, right? It's based on the idiosyncrasies of your business and your market and how you've been building parts of the organization. And I think hopefully it's actually reassuring to founders in our audience that, you know, reassuring or challenging that you're never done. You're always rethinking some part of the business.

That's right.

Let's start with some examples. What are, you know, examples of phase shifts?

Yeah, you know, phase shifts come in all shapes and sizes. And things that I've noticed through my years are deal sizes. You know, when deal sizes start to grow, every startup as they go through starts with, you know, lower pricing. As they optimize pricing, deal sizes get bigger. As deal sizes get bigger, customer expectations grow. So customer success organizations need to go through a phase shift at some point where they're treating all customers the same way to tiering how they handle customer relationships. Same thing as deal sizes get bigger, marketing teams need to evolve the way they think from predominantly digital to maybe a mix of digital and events. Another area is sort of when organizations or companies introduce a new product, you know, the sales teams then has to completely change the way it looks at these products that it's selling from an enablement perspective, from a structure of the sales organization perspective, from incentives structure. Those kinds of things can have major, you know, negatives and major positives if you get right. Another big one is organizations moving from mid-market to enterprise, right? In that context, you don't think that much about the product team, but sometimes the product team then has to think completely differently about field escalations and how requirements from enterprise customers that are urgent need to be managed and how they organize themselves around that. And even sort of some of the internal functions as orgs get bigger, the data and ops teams have to completely rethink the way they do internal prioritizations and SLAs. Comms team have to think differently about how they work with and communicate with the company as a whole. So all of these things are phase shifts. And if you try to do them all at one time, it's just an overhead that a lot of people can't handle. So that's why I really encourage companies to take an iterative incremental view on all of this.

Yeah, and there are so many interconnected hard questions around the company design and redesign that you're talking about. I work with a number of product-led, end-user-led adoption companies, and it's sort of not sequential exactly like this, but many of them figure out how to go from adoption to a sale, from a tactical sale to a strategic enterprise sale, to trying to bundle different products, to figuring out, you know, we're, we're serving the mid-market and the enterprise, can we really do both? And all of those impact different parts of the organization. And I definitely think that there's a new science and art to designing an organization that is changing as you go. Let's, let's get into those 5 must-dos. And please talk through your experience with Adobe first, if you don't mind compressing a decade or so of incredibly challenging work into 5 minutes for us. Like, why do you start with simplicity? I don't think of moving the Adobe battleship as something that is simple.

Right. Yeah. So let me talk sort of a macro level about simplicity. I think my view on organizations over my 25 years is that one one true truism, one truism of every organization is that its natural motion is towards complexity, right? Because anytime there's a new opportunity or new challenge, generally speaking, organizations continue to do this, the old stuff, and then they add the new stuff onto it. And, you know, actually that's not necessarily a bad mode of functioning. There are some optimizations you should be constantly doing, but I look at it and I say like organizations kind of fit into two macro states, right? State 1 is the steady state, which is your goal as an organization is to scale what you've done and to do it efficiently. And to do that, you push decision-making lower in the organization, you optimize more locally as opposed to at a macro level, and that local efficiency actually drives, you know, extends the growth of the business, but it also, by localizing efficiently, you also increase the complexity because everyone's doing things slightly differently. And then when a, when a business hits a transition or a phase shift, you know, that complexity ultimately turns into the enemy of that transition. And so successful transition requires centralized decision-making and simplification so that you can actually get your arms around what you want to move from and to. And the only way to do that is to, to really push hard on simplifying the core of what you've spent complicating over the last many years before you, you can actually efficiently transition it.

So in terms of just your experience recognizing what state you're in, in an early-stage company, to me, there's very little steady state at all, right? So when, you know, tell me what that looks like or how that felt at Adobe.

Yeah, so getting very specific and tactical as an example of simplicity. So the business I inherited was a business that was in steady state for, I'd say maybe a decade, 10 years. And to that point on optimization, it had been hyper-optimized, right? We had dozens of products that we sold into hundreds of countries. We had them shipping in tens of languages, and we had optimized every single angle of pricing. So we'd optimize by segment. So what could photographers afford to pay versus videographers afford to pay? Versus illustrators versus animation folks. And we had optimized by pricing. If you were one version behind, there'd be a particular price to upgrade. If you were two versions or three versions behind or a new buyer, there were all these different points of complexity that had come in. And if I'm remembering correctly, we had well over 2 million SKUs. Think about that. We had 2 million SKUs for what we were selling. And we were selling it through thousands of global partners, right? But as I came in, one of the things I realized is that we were actually pretty late stage into the steady state. And one of the big markers I recognized, to your question, is that units were actually dropping. The growth that we were getting was marginal growth, and it was coming from a price point that we were increasing, you know, release after release. And that didn't compute for me, especially the point that units were dropping, because what I was hearing from the user base was that cross-discipline was a new trend, right? Everyone wanted to— if I was a photographer, I wanted to learn how to be a video editor. If I was an illustrator, I wanted to understand photography. I also saw a lot of non-professionals as the next generation was coming up, a lot of non-professionals being interested in the tool. So the solution, we realized, needed to be the ability to innovate faster across desktop, of course, but also starting to pull in mobile and web into the mix. We knew we had to actually innovate more quickly than we had been doing, so we needed to release weekly, and we needed to engage our customers directly on adobe.com as opposed to the partner ecosystem. So all of this needed massive simplification to actually be doable. I mean, you can't take 2.5 million SKUs, thousands of partners, and all of these— this hyper-optimization and move it into a new direction. So things we did as an example was we took product releases where we used to try to coordinate dozens of products to release on the same day every 18 months. And we freed the teams up. We said, look, just release whenever you're ready. If it's a small feature, just push it out. Don't wait for this massive train to align. We took our messages from hyper-optimized in video and photography and illustration to just one uber message, which was creativity for all. If you want to do anything creative, just come and use Creative Cloud, which was the new product. Direction we were taking. From a route-to-market perspective, we started to really deprioritize all that complex multi-tier channel stuff, and we just said, look, all that matters, the number one priority by far is Adobe.com. And from a pricing perspective, we took that 2 million SKUs and hundreds of price points for different upgrades and segments into a couple dozen offerings with literally two price points, a $10 a month offering and a $50 a month offering. And that really set us up to be able to say, look, this is something that we can get our arms around and that we can start to sort of actually take control over again at a global corporate level.

When you talk about that, you make it sound a lot easier than I'm sure it was. In terms of picturing the challenges that we see in our other companies or the founders here might be facing, did you take a hit for that? Simplification? Because you're talking about going from this massive, extremely complex optimization, which had been done for some reason, right? And so like, how did you think about the near-term impact of what you were changing at Adobe?

Yeah, you know, it sort of comes to that next point we'll be talking about, which is conviction, which is, yes, I mean, when we transitioned the business as we were going through this, there was obviously the obvious one, which is revenue impact, right? Moving to a subscription service means short-term, I think it was like $700 million of revenue impact in the following year. On the other side, however, when you look at it, we had employees and customers and investors sort of jump along. So it was a pretty significant effort.

Well, hopefully that gives founders some courage if they're trying to make a decision like that. Let's talk about conviction now. How did you, how did you develop that? How did you communicate it?

Yeah, on conviction. So here, first of all, you know, I put conviction on this list because if you think about when you're making, going through a phase shift, you have to recognize that the steady-state decision-making systems, all the systems you've been relying on to make good decisions, the reports, the research that you do, institutional instincts, that's a big one too, right, is defined by the framing of the past. And the data you get as you move to, as you look to sort of justify the change, is only as good as the questions you ask and the user base that you talk to. And so in the Adobe case, as an example, you know, just remember I just said this, that units were declining, the growth was really coming from price. So the entire system was, you know, set up around that. And when at that moment we commissioned a pricing study to figure out what should we charge as we move to subscription, on a monthly basis. And the study came back with these staggeringly high monthly prices. And it just didn't feel right to me, right? My personal belief was it had to be consumer-based pricing. So that's where $9.99 and $49.99 was stuck in my head. And as I dug in, the problem was that the study was skewed very much toward the professionals, right? Because it optimized for highly qualified users and highly qualified buyers. And my goal was exactly the opposite, which is we knew we had highly qualified buyers and users. I needed to optimize to the unqualified buyers and users. And so the systems really got in the way of that. And getting confidence in that was very, very difficult from a data perspective. And that's where conviction came in, right? So as we made that transition, it turned out quite well because we did launch, we forced ourselves to launch with $999, $4,999. Non-pros came in as we expected. Cross-discipline came in as expected. But then we got nice sort of additional tailwinds from emerging markets. And probably the biggest single one were pirates, just people that wouldn't pay the $2,500 to buy something like Creative Suite were now willing to pay $49.99 to buy Creative Cloud and be legit. So that's where you can't just rely on the data. You have to also rely on your own beliefs.

Yes, I hope we can still be friends if I admit to you that in a— Long ago hacker past, I operated on pirated Adobe software, but I eventually became a Creative Cloud customer. And now—

Sarah, I've heard that from so many founders, but I'm glad to know you're now legit.

Legit. OK, that massive decision that led to that $700 million near-term impact, how'd you do that quickly? Number 3 is quick decisions, right? That must be a huge boat to move.

Yeah, you know, this is, you know, throughout my entire career, I think any organization you talk to says, I wish we could make decisions faster. During a phase shift, it's never more important than that moment to be able to make decisions quickly. Because if you think about decision-making in the steady state, it's really, I look at this as sort of like a federal versus state kind of, you know, rights. In a steady state, you're really focused on states' rights, right? Which is you're pushing the decisions, you know, down in the organization throughout. Out in a transition or phase shift, you really need to pull decision-making back to the federal authority or a small group of people who are just going to make that decision. I think of it actually going very much back to this founder-led command and control model. And so we realized very early on that one of our core competencies had to be, if we're going to make this transition, cycle time to decision. Because we had hundreds of decisions to make to really transition the business. And that was going to be a problem. We had an organizational problem. And so what we did was we put together a small cross-functional team of people that I led that didn't all even report to me at the time. And at the end of the day, every day we did stand-up meetings. Stand-up meeting was for an hour. And I would say, you know, in that group, we were able to churn through so many decisions that needed to be made. And we'd probably make about 5 to 10 big business decisions every day, often with a good amount of data, but not always. Sometimes we just had to make it with our instincts because you just have to go. The enemy to the transition is the delay on the decision. And it's just faster to make those decisions, even if it's wrong, and then come back later and fix it and optimize it, right? And the only other hack that we kind of put into this was that this was such a big shift at the company level. What I also did was Shantanu Narayen, who was the CEO I reported to at the time, he and I had a standing 5:00 PM meeting every day at the end of this other standup I was doing. And that meeting, whether he was traveling or I was traveling, rain or shine, we always met for 30 minutes. And what I was able to do was any decision I thought was super controversial that was associated, that was going to impact, you know, how we communicated to the street or huge impact on potential revenue risk, I would be able to talk to Shantanu that day, and the two of us would be able to make a decision, and then we could go back. So no decision, no matter how big, was held up because of process for more than 24 hours, right? This is a critical part of it. You've just got to be willing to make decisions As a command and control organization, make a few mistakes and correct it as you go.

I imagine that given the success, history, optimization phase that Adobe was in for a period of time, you know, you had a lot of very capable people working for you who are also very confident in the decisions they've been making in that direction, right? That sounds like a really useful tactic to drive a different cycle time. Is there anything else you did in terms of culture or bringing people along?

Yeah, and this takes us down the path of communication. But first of all, tactically to what you were saying, I think without a doubt, we had— and some of the smartest people in the room were people who had actually created the last big innovation, which was sort of creating Creative Suite and drove that business as effectively and efficiently as they did. Many of them really needed to kind of rethink the new framing. And so that's where we kind of get into this fourth one, which is around communication, right? If you think about it, simplicity is what makes the transition possible. Conviction is what gives you, frankly, yourself, the empowerment you need to drive things even when the data isn't there. Decision-making is all about sort of executing efficiently. What communication is, is about bringing people along, including and especially the people you just described, which were, which are people who had been in the business for a long time, understood the business extraordinarily well, right? But as I think about communication, one of the principles we put forth is that communication is about the same communication. I don't want to manage different communications to different groups. So I want to be able to tell the, you know, employees, I want to be able to tell customers, I want to be able to tell investors the same story. And we really took a perspective that in order to bring people along, we needed to have, you know, communication be a two-way street from the beginning. And the whole idea that we, we pushed was, look, if you believe in something, promote it, but then listen, then improve it, and then go back and promote it again. So I, I really took that to heart and, and implemented that. So what I did in terms of communication and bringing people along was to decide I was going to talk to everyone in my org in a way that could allow for two-way communication. And that was, I don't know, 5,000, 6,000 people, something like that. So we started with the top 100 influencers. These were all the VPs that reported to me, plus, you know, handpicked people who just had huge networks of influence within the company. I had an hour of content where I explained what we were going to be doing and then 3 hours of discussion. Where they gave me all their concerns and we kind of worked through it. And then we incorporated that feedback. And then I did 25 more of those sessions with the rest of the org, with people of 200 to 250 people in a room. I also made sure that that group of 250 people was always cross-functional. I didn't want to be overweighted to product or sales or marketing or customer success or any, any field, because I wanted them to all work through it together. And we do those sessions for 30 minutes of me talking, 2 hours of discussion. I incorporated all that feedback. We then went to the all-hands and shared this with the entire company based on the feedback that I had garnered over the previous couple of months that it took me to do this. We then went to investors and had a broad investor day where the same message was there. And then eventually we had our user conference, which had, I think it was about 6,000, 7,000 people in the audience plus 250,000 streaming live. And that was the first day of that conference that we announced all of these changes. And then we had 3, 4 days with that audience to explain in more detail. And then we just took it on the road. We had, I think we did about 100 regional sessions around the world. So the point on communication is it's got to be open, transparent, singular, so everyone understands the motivation and trusts the motivation.

Yeah, that's an extraordinary— when it's easy to say communication, when you actually describe the set of communication and the cadence and the richness and the different audiences that you were describing this very risky strategy to. Hopefully it gives the founders in the audience a sense of what is the degree of overcommunication, quote unquote, that might be helpful. And maybe they'll even feel a little bit lucky that they're not doing this in public the way Adobe was.

Sure, yeah. And I think you bring up a good point in sort of reemphasizing this. This is the part I think a lot of people run past. Communication is so essential, and you frankly can't overcommunicate. Despite all that, there was still a lot of misinformation out there, and it took us, you know, years to do it. So absolutely agree.

Okay, so you talk about the huge Adobe user base, your customer roadshows that you went on. Let's talk about the fifth must-do: community. What's an example of that? What did that mean here?

Yeah, so, um, you know, the magic of everything that we just talked about, when you put all of that together, the magic really happens when you have broad-based buy-in. And, and it's remarkable when you start to see the tipping point where the group as a whole, when you're not there, is thinking in the new direction, right? That's, that's really when you know you've made the transition. Um, and that requires individual buy-in. And the thing I've learned over the years is that, um, that you need— and when you go through a transition or phase shift, you really need to sort of dial up your own personal empathy, because no matter how clear the transition is, no matter how obvious is that you need to do it, at the end of the day, we're all human, and every individual employee asks the question, is this phase shift good for me, or is this phase shift bad for me? And we needed to get ahead of that at Adobe, and one of the things we did was we created a carrot, which is, remember, we were a 30-year-old box software company, And we were going into all of these new areas. So we had a lot of employees throughout the organization that didn't know cloud, didn't know mobile, didn't know this iterative and incremental model that is about growth loops and these kinds of things. So what we did was we actually put in place programs internally to sort of retool engineers for cloud skills, for mobile app development, but not just at the technical or tactical level. We also started to put in place training around Lean Startup methodologies because we wanted our our employees to start thinking, you know, as GMs of the business. They could, if they had an idea in this model, they could now go actually build something, test it out, and make quick decisions of, you know, double down on it or kill it. And that was really important because individuals then felt very positive about this change. They knew why it was good for Adobe and our customers or investors, but now they also knew why it was good for them. And that really got the group buy-in and everyone marching in the same direction. Direction.

So one more question on this community aspect, and we'll try to wrap it up and go to maybe a little bit on AppDynamics and then group questions. It didn't— the external feedback around your phase shift and the strategies you were putting in place, it didn't feel good for a while, right? You know, Adobe was, if I can say, a little bit in the pits. And like you're talking about building community. Perhaps I can say that in Silicon Valley, these many companies thrive on the external sense of momentum and growth and success, right? So how did you keep the team bought into this strategy? How did they feel a sense of community and belief in you and Shantanu when the external feedback was challenging?

Yeah, it's a great question. And honestly, it was 6 to 12 months of just continuous work, right? You know, doubt crept into everyone's mind. Doubt crept into my mind at times too. And it was the team, I mean, Shatnu and the executive team that he built was truly exceptional. And, you know, I would go to, like, Anne Lounis, the head of marketing, was probably the strongest sort of person I could go to every time I started to have self-doubts. You know, she was incredible at sort of keeping me focused, and I helped obviously others. We all kind of came together because we realized we were burning the boats because we believed in something much bigger. And that is such a critical part of how we all think about— thought about this. We did have one other sort of secret weapon in this is that we saw the numbers. I mean, to give you sort of the juxtaposition of what we're experiencing, Shantanu and I got put on petition.org or whatever it was, where we had like 40,000 emails come at us about why this was a bad idea. At the same time, we saw that the broad spectrum of people choosing— because for a little while, we sold Creative Suite and Creative Cloud. The broad spectrum of people choosing Creative Cloud was massive. And we saw that this was an eventuality. And so we were able to lean on that for sure.

Got it. So it was making a lot of hard work in the culture and making people believe that there was something good on the other side, and then seeing the early signals, and I'm sure communicating those early signals internally as well.

Yeah. That's very well said.

OK. So let's— most people don't have the opportunity to lead an organization like Adobe. A lot of leaders in the audience are from earlier stage and growth stage companies. Can you share one example from AppDynamics?

Yeah. Yeah. Happy to. And the biggest difference between Adobe and AppD— Adobe was this massive corporate shift. At AppD, as a growth company, I think this will relate more to what you're saying is, there was a constant sense of transformation. And one of the biggest things you have to just get people comfortable with is change is normal, right? Growth is driven by change and extended by change, and that's a critical part. And the one I'll maybe call out here was the move and the shift from selling single product to multi-product as we went through that. AppDew had always been known as the app monitoring company. We sold APM, And what the company had done very logically was add to APM this foundation of a new product that we called Analytics. And we were trying to sell Analytics for a little while. And frankly, it wasn't taking for a variety of reasons. And one of the things that I noticed was that the most impactful point of Analytics wasn't about analyzing the application monitoring data. That was useful, but it wasn't that impactful. But rather, it was about looking at the business impact of application performance. So we really said, OK, well, we're taking this, and we have this application monitoring and analytics as a second product. Let's actually simplify this to be app and business monitoring. And we had an AppIQ and a BusinessIQ SKUs that we were able to do. And that little decision had profound impact. We were able to simplify— one, we were able to simplify our offers into this analytics to the business. It was the same— from analytics to business. It was the same basic concept. Concept, but it was about simplifying it to say, look, we're the monitoring company and we'll monitor your application and your business. Two is we were— we had to sort of like— the team had to sort of come together and exercise some conviction behind it, because if you think about our traditional buyer, the DevOps team, they didn't really have that much need to analyze the business and they didn't have dollars to spend more. So we had to believe that this combination of app and business monitoring was really going to play out. And so we had to sort of push through the data and the telemetry we were getting from our traditional buyers. Three, going back to the point of quick decision-making, what we did was we pulled together a cross-functional team across product, across pricing, messaging, demand gens, sales enablement, and incentives. And we put one person in charge, called him the GM of that group, and he ran that cycle the same way I ran it with Shantanu. And he and I had a daily meeting where we'd be able to work through all of those things. From a communication perspective, we told everyone, our board, and we told our employees, and we told our customers that our number one priority now was business monitoring. It wasn't that we stopped working on application monitoring, but it was really about getting into this new world of app and business monitoring. And that was hard for the APM team to hear because they were the lion's share team, but But them understanding that made them much more lean into the things we needed to change in application monitoring to drive business monitoring. And then from a community perspective, a small example was we chose not to introduce this idea of overlay or specialist reps because we wanted everyone to feel the ownership of this. And so we actually changed everything from the incentives to the pricing and the structures so that the same reps would be able to sell application monitoring and business monitoring and sort of everyone felt like they could benefit from this as opposed to they were being left out of it. And just as an aside, the results of that were very, very impactful. I think if you looked at the first year and a half of analytics, we had gone from zero to maybe 5, 6 million in ARR. So it really was just not taking off. When we moved to Business IQ, that became this rocket ship and it really created all these upsell opportunities. And our best estimate was, you know, again, we were probably about $700 million in revenue when I left, our best guess was, you know, in 3 years we had taken BusinessIQ to about a $200 million, you know, $200 million of that. So it was a really important sort of shift that we went through.

Yeah. And if I recall correctly, David, not only did it actually— did a bet on this little $5 or $6 million ARR product line for Apti at the time, you know, become a $200 million business, but it actually drove the story. For the core APM business as well.

Yeah, because you needed differentiation in a market that was popular, had great competitors with Dynatrace and New Relic and others. And one of the things we had to do is really sort of create this journey, long-term journey separation, and it had a profound impact in terms of how customers viewed us. And then just because it was all the same messaging, it had a profound impact about how we viewed ourselves in the market too.

So, Ala, thank you for sharing that AppDynamics example. Lots of— many, many years of leadership distilled very quickly. It's a great framework for people to be navigating the challenges of scale, and especially the challenges of 2020. Any questions from the broader group? Or I can, of course, dig much further into these examples and others. So, please submit questions through the Zoom webinar software. So our first one would be when you pivoted all these pricing changes, that's a massive move. Did you do it over time? How did you decide to do it all at once?

Or why? Yeah, it's a great question. We had tested, so we believed that Adobe, and by the way, very similar sort of model at AppD, that Australia is a wonderful test bed, right? The buying processes and things are, actually quite straightforward and similar. And so we tested subscription pricing in Australia before we actually started to roll it out more broadly, and that gave us a sense of whether this would even hunt. Once we decided that there was an opportunity here, what we did the very first year was we kept the traditional pricing in place with Creative Suite, and we introduced Creative Cloud pricing, and we were able to look at in that context, what did that do to the number one goal, which was unit sales? Did that increase unit sales? And two, did people actually start to adopt the subscription? And three, because a lot of people, you know, a lot of it was initially month to month, you know, how retentive was it? So we got a lot of good data in terms of building our confidence. And then at the end of that first year, roughly around there, that's when we made the announcement that actually we were going 100% to this new model. For all of the reasons. And that's the conversation we had in front of the 6,000 people live and the 250,000 online was to really make sure they understood the full reason behind why.

Okay, great. What about the people perspective here? Those 100 VPs and influencers that were working for you or the teams at Apti who built this amazing business around APM. How could you tell what people were on board for the future or couldn't adjust, or how did you think about that?

Yeah, it's a great question. My view on this from a leadership perspective is twofold. One is to just be very clear with what the— it's very easy in a one-on-one conversation to tell the person what they want to hear. But in doing that, you're not doing them any service, or tell a group what they want to hear, which is why I believe so strongly in a single consistent set of messages across these different audiences. It really comes back to that. And then you pair it with providing everything that those— that individuals need to do to make that transition and move themselves from maybe the bad side of that equation to the positive side of the equation. And if you do that, my view is you've done your job as a leader. And then it's really up to individuals to make the decision whether to make that transition or not. And whether it was at Adobe or whether it was at AppDynamics, there were definitely people who disagreed with the decision and made their— put the best foot forward and found themselves on the positive side. There were also some people who made the decision that they were going to disagree with it. With the decision and dug their heels in. And, you know, many of them self-selected out. Both of those are fine. The crew to watch out for are the people who dig their heels in and don't self-select out, because that becomes sort of the, the tragedy of this, of this transition. And frankly, we had to just have very honest conversations with some people who were frankly amazing contributors, and Appian wouldn't have been, or Adobe wouldn't have been what it was without them, and just sort of talk to them about it maybe being time to move on.

In your section, or your must-do around communication, we talked a lot about communication, you know, you and Chatnu, communication with your direct reports. How did you think about cross-functional team relationships during these times?

Yeah, this is a really important question. There are so many different nuances to this. One of the things that is very easy and I see happen all the time, and frankly, I made some of these mistakes too throughout my career, is you know the answer, you just want to go, so you don't spend the time on the communication, right? And then what invariably happens is a month into the decision, something starts to not look as rosy as you thought. And then you're now facing with, how do I fix that problem? And how do I deal with all the people that said, I told you so? You know, and that slows you down, which is why I always advocate, you know, really having these conversations up front. Now, one of the things that— one of the hacks, I don't know if you want to call it a hack, that I put in place when I got to AppD and I realized that, you know, I didn't want my team to make the same mistakes I had made, frankly, at times, you know, throughout my career, is I transitioned the entire business to any of these space shifts that were going on was something that we declared at my staff level. That we were going to meet on. And the owner— and I would always assign one person from my staff, just one person as the sponsor for that. It didn't matter how much of that transition was something that they owned, you know, directly, but they were responsible for making that entire transition successful. And by shifting the staff meeting from conversations about how's sales going and how is, you know, marketing going, how's product development going, to what we call these strategic initiatives or these phase shifts. I was able to have a staff conversation that wasn't about the individual silos, but rather was about, you know, the move to, you know, like we talked about with business IQ, how is business IQ going? And business IQ conversation invariably was across the entire spectrum of these changes. And that's really the power of the phase shift. The power of the phase shift has less to do with a team and more to do with an organizational change. That may affect one or more organizations. And by focusing on that, you really distill what's really important and focus the entire organization on it.

So you mentioned, despite these successes, there are mistakes that you've made in your career. One question from the audience, what didn't work, or what would you go back and do differently?

That's a great question. I think that the number one thing I would say is no matter how fast you get at making decisions, you kind of wish you could make them make them faster. You know, a small example was, you know, when we first introduced pricing, it was, you know, $50 and $20. And, you know, one of the things we had forgotten and lost empathy on is that there are many photographers that, you know, that really was a very significant, you know, pain point for to really pay $20 a month. And so we went back and forth. We probably stick— handled that one for longer than we needed to. And when we lowered the price, it made everything so much better because we showed empathy for the market. And that market really turned into be one of our biggest advocates. So I'd say the biggest mistake is, you know, despite my emphasis and focus on making decisions, you know, quickly, that's one that, you know, there's always things that you look back and you wish you could do, you could have done faster.

So as companies go through these, shifts. I mean, even at Adobe or AppD, during these times when you're making big changes, you still are bringing talent in, right? And often you might be bringing new or even more talent in, but not everything looks perfect from the outside, because it's not, right? So how did you think about communicating to hires about what the potential was? Or how transparent were you about being in a phase shift?

Yeah, we were very transparent. If you go back to 2011 as an example, like, you know, starting with, you know, the communication to the street, we were very, very clear about why we were making the transition. We were very clear about what that would have, the impact that would have on revenue. We were very clear about what that would have on EPS. And so people, I mean, internally, it was a, you know, it was a slog at that moment, right? And so, you know, there were people leaving because they were wondering whether this transition was too big and was it going to be successful. So there were people leaving from Appbee at the same time, right? And so the question really came to, like, when you're trying to recruit great people in and, you know, there's all this question swirling around the company or, you know, and there's all those questions swirling from the employees inside who know best who are leaving, how do you bring people in? And my view is actually that's the perfect context to bring people in because the people who are good and do join are joining because they have conviction in the direction and they have confidence in their own ability to affect the outcome. And so, you know, too often, like, you know, when a company is doing well, it's so easy to hire great talent, but what you're not really checking for is are they— is how committed and how capable is that talent to affect change and in a world that you require that change. And so I guess maybe the answer to your question directly is I didn't oversell the outcome. I sold the journey. I sold the belief. But I let them make the decision whether they were in on that belief and whether they were OK with the uncertainty or not.

Yeah, that makes sense. It aligns with my own perspective on recruiting, especially at the leadership level in startups, where if somebody comes in and they find out a situation is more challenging or more complex than they had been told, then, you know, you don't want that situation, right? Because you want somebody who's excited to go take those challenges on, sees them clearly, and then is going to see that as an opportunity versus many executives who are leaders of different kinds who might be incredibly successful in an optimization phase can't accept that level of change, right?

Yep. And by the way, if you're looking for a formula, I think the right formula is, you know, start with why you're excited as in the first couple conversations, then get into all the opportunities for improvement, which is like, this is what you're really inheriting. Then go back to, but I've got your back. I understand what you're— I have empathy for what you are taking on. But boy, this is an opportunity to distinguish yourself because if you're successful here with me, Then again, go back to why we're excited. So you kind of want to take, take candidates, I think, through that, that part so they end on the right note.

So a last question before we wrap here. The, the transition at Adobe as it started rolling along took a while. The transition at AppD obviously also took a while. How did you, how did you measure whether or not it was working, right? What were the things that you were tracking as you went along?

Yeah, I'm a big believer in early indicators. So for example, with, you know, as we added Business IQ, I was not interested in looking at, you know, what are the sales, you know, what's the sales closed rate. I was not even interested in looking at forecasts because the forecast was frankly too hard to tell. People really didn't know. I was mostly interested in looking at, you know, demand gen, top of funnel demand gen. And I was looking at— interested in looking at new business meetings that were booked around that topic of business IQ, right? And so I'm a strong believer in looking at the leading indicator. Similarly, you know, with the Adobe transition, you know, one of the things we looked at was the number of people subscribing, you know, because that was one where you could get sort of this immediate telemetry on it versus, you know, what the pipeline looked like and what, sort of the research was telling us. So it's about really getting to what is the— what are the early indicators, being really precise about that, and giving yourself the ability to monitor that every day. And then going back to this idea of conversation and transparency and community, making those publicly available, so every— and making sure everyone felt that same perspective on what success looked like, so they could all affect that change. So leading indicators and openness around it, I think, are the two most important things.

And to some degree, an ability to say, you know, the core metrics of our business, like overall top line, for example, are not the things we're focused on if we're trying to make this transition.

Yeah, and I'll give you the most extreme example of this that I've ever been a part of was, of course, at Adobe. So, you know, Shantanu, Mark Garrett, and I looked at a bunch of different— Mark Garrett being the CFO— a bunch of different ways to talk about the business. And every way it looked terrible, which is the more successful we were on the transition to subscription, the worse the revenue and EPS was going to be for the short term, right? And so we actually, you know, we did something which was a little risky, but it was necessary, was that we actually exposed two metrics to the street. One was number of subscribers and two was ARR. I mean, talk about it, you know, you look at all these amazing subscription ARR companies, one of the reasons they're so subscription, they're so successful is they don't they don't talk about ARR, right? They talk about revenue and billings. And that gives you the ability to sort of manage the ups and downs of any given quarter and smooth it out over time. At Adobe Scale, we gave out ARR because we wanted everyone to focus on ARR is more important than revenue in the short term. Revenue is a lagging indicator. ARR is the leading indicator, and it will catch up over time. So—

I think we're out of time here, but thanks again to Saster and for all of you for doing this discussion with us. And thanks, David, for sharing your knowledge.

Yeah, thank you all for joining.

Thank you, Sarah and David, and thank you all for tuning in. This session will be available on demand at a later date.