“The Art and Science of Scaling Go-to-Market with ICONIQ Growth”

Please welcome to the stage Doug Pepper, General Partner at Iconiq Growth, and Christine Edmonds, General Partner and Head of Analytics at Iconiq Growth.

Hey everybody, thanks for joining. We'll get started. I see some familiar faces in the room, which is always good. But thanks for attending. It's always good to be speaking at SaaStr. I think this might be my 10th year and our second year in a row together. My name is Doug Pepper. I'm one of the partners at Iconiq Growth. I've been investing in SaaS for 23 years. Uh, I'm amazed to say at this point, and was lucky enough to be involved with a number of the SaaS pioneers, companies like Marketo, Braze, Canva, Calendly, Airtable, and several others.

And I'm Christine Edmonds. I'm also a partner at Iconiq Growth where I've been building our analytics practice over the past 5 years. Really our mission with that is to answer questions that founders and leaders like yourselves have with a data-driven approach. So really excited to share some of that work today.

All right. So just a second on Iconiq Growth for those of you who don't know us. Iconiq Growth actually started as a firm called Iconiq Capital, which is a multifamily office helping some of the world's most successful technology founders, like many of you, to manage their wealth. And about a decade ago, we created what Christine and I work as a part of, which is a venture capital firm within ICONIQ Capital that we call ICONIQ Growth. And really what that is, is a vehicle for those founders, those families to invest in, back, and support the next generation of amazing and iconic technology companies. And this is a slide I think we're most proud of. This is the list of the companies over the last decade that we've been privileged and honored to work with partner with, and help support financially and otherwise, uh, for the last decade. We've had 27 companies go public in that time, and just in the last Cloud 100 list of private companies, we had 24 companies on the list.

As Doug mentioned, we feel really fortunate to have partnered with these companies, but more importantly, learned alongside them. And so we now have over a decade of data from quantitative learnings we've gathered as well as insights that we've really amassed through the network of leaders. And so today we're super excited because for the first time we're going to combine the work that we do across our entire portfolio engagement platform. So the data-driven work that we do, of course, but also the work that we support when it comes to building out executive teams, thinking about hiring, thinking about compensation, and then also various insights just through the vast network of leaders and experts that we have. And the topic today is also one that we have never before shared in this format. So very much looking forward to diving into all things go-to-market today. From a quick methodology and source background, we really feel that what we're gonna share today is both representative of breadth and the best. So 3 key sources of the work that we have. The first is our portfolio itself. We also ran a broad external survey internal survey earlier this year across over 200 leaders in the go-to-market space to really dive deep into some of these nuanced topics. And then finally, we're excited to share some insights from a proprietary database that we've amassed over the past few years, looking at every single major SaaS IPO from the last 8 years, what those executive teams look like at time of IPO, and what the backgrounds of those folks look like leading up to that point. As always, we're very ambitious with the amount of information we try and cover at SaaStr, and so rest assured, as always, we will have these slides available after the fact, and much of this information is also available on our website.

Alright, so we're gonna dive into the topic now. It's one that you probably know and have heard, but it's so important to always talk about, and that is the hard truth that a great product, while necessary, is not at all sufficient to to building a market-leading and eventually public company. And that the goal for us is to partner with companies and help them to build a go-to-market execution and strategy that is every bit as good as their product, if not better. My experience over many years is that the companies that ultimately win a market are just as good at go-to-market as they are at building great products. So what we're gonna talk about in this talk is 4 stages of growth: early stage, early growth, growth, and pre-IPO. Within each of those stages, the key go-to-market milestones, the benchmarks, and ultimately the team-building strategies that allow you to grow effectively through these stages.

The other reason we feel that go-to-market is particularly important today and coming up in almost every board meeting is in this new era of efficient growth, Sales and marketing spend remains the biggest proportion of SaaS company spend. And so again, as you think about the growth piece but also the efficiency piece, really honing in on is that spend being used to effectively build that engine and drive growth is a very important question. And on the growth side, I think as many of us have experienced, the past 3.5 years have been hard when it comes to sustained long-term growth, and we've seen that in the data. So One of the ways that we look at health of companies and health of the industry over time is attainment to plan. So for a company that sets their annual budget at the beginning of the year, when it comes to the end of the year, what percent of that were they able to hit in terms of net new bookings? And to put these numbers in perspective, pre-2020, we typically saw these fall in the 95 to 100% range. So really just speaks to the meaningful impact that we've seen Again, 83% in the first half of this year may feel like renewed optimism, but important to remember that many companies started this year with more tepid plans and a little bit more conservative growth.

Yeah, it is tough out there. Uh, let's start with the early stage, the first stage, $0 to $20 million ARR. And this is obviously a crucial stage. We're going to talk a lot about go-to-market. Uh, but the reality is at this stage, that the key is product-market fit. And we all know that, especially in the early days, that product-market fit is not going to be something that you get from your venture capital advisor or any go-to-market benchmarks or milestones. That's where an amazing product-oriented founder comes in, truly understands the market, has the right founder-market fit as well, and knows what product to build, the right features for the right ideal customer, and ultimately can build a differentiated product. But once you have that product-market fit, this is when go-to-market strategy and execution really comes in. We looked at all the data of our companies over a decade. Even the successful ones hit this thing that we call the growth plateau around $15 million ARR. You can see in the data, and again, these are the successful companies that made it through. They hit a bit of a growth plateau. Why would that be? Well, some of the things that got them there are a little bit less scalable after $15 million ARR. Founder selling works really effectively at the early stages. You start to run out of juice of that around $15 million ARR. And then especially with great products, there's always pull from initial early adopters. And again, that runs out. And the key is to start to build a go-to-market strategy that allows you to go attack a larger market.

So just a quick note, those of, those of you that are familiar with our work probably recognize the iconic Growth Enterprise Five. This is not the focus of today, but rather something that we want to use to frame performance across these different stages. These are 5 metrics that we really feel are indicative of fundamental health regardless of stage. And so while not every single one of these may be directly tied to go-to-market health, they're all indirectly tied in some form or fashion. So what do these look like from an early-stage standpoint? I think the, the one number to focus on here is year-over-year growth. This is a stage where the best-in-class companies we see are able to double or triple their revenue in the first few years of growth. And from a strategic standpoint, on the left-hand side here, we talked about product-market fit. But again, as Doug said, starting to think about building out the early stages of that team, transitioning from founder-led sales, Really thinking about incentivizing growth as you build those teams as well. So starting with the team, a common question we get is what is the sequencing and timing of those first few hires? And before we dive in, there's a lot going on on this page, but most simply the way to think about this is this is a fairly dumbed-down version of an org chart. Anything that's in a dark color is a role that in this first stage of $10 million and below, we see more companies have. Anything in a lighter shade is less common. And so what you'll note here is most companies will hire their first AE before a head of sales. This is a stage when, for the most part, founders are still leading sales. And that, that is strategic. Founders are very good at leading that sales. They need to hear the voice of the customer. They need to use it to refine their product. But they're also good at a lot of other things. And so it's super important to use that feedback to to think through when is the right time to transition sales to a proper head of sales. And what we found is that typically happens around the $10 million ARR mark. Again, along with the head of sales, this is where you're gonna start to build out some of the key hires on your customer success and your marketing teams, really start putting into place the foundation of sales ops and demand gen as well. One thing to note is this first head of sales will likely not be the head of sales that takes you up through IPO. And that's important because you wanna be really thoughtful about what you're looking for. In general, we find that most companies have somewhere between 2 and 3 sales leaders between founding and actually going public. And so thinking through who is gonna be able to take you from this early growth stage to a growth stage is really what you wanna focus on. That's not to say you can't have a super successful leader that evolves and scales with you, and, and we'll talk through that in a second, but want to make it clear that this phase is really oriented around getting through that growth phase.

So as Christine said, you're unlikely to have one sales leader from the beginning to the end, but you would love for that first head of sales to be as successful as possible. And, and some of that is measured by tenure. We actually went out and looked at all the data, and the reality is that if you're sub-20, let's say you're a $10 million ARR company, you're doing well, you're still relatively unknown. It's unlikely you're going to get everything you want in that first head of sales hire. So you're going to have to make some trade-offs. And the big question is, am I hiring somebody who has previously had the title head of sales, CRO, somewhere else, or somebody that may not have had the top job, but they've had that quota experience and responsibility, maybe at a somewhat larger company? And we had— we went out, looked at the data, we looked at all the public SaaS companies and literally looked at who did they hire as their first head of sales and what profile made them successful. The data was actually pretty clear. If you look at the chart on the right, that is hires who came into the experience with more than 25 times the current ARR that your business has. So if you're at $10 million ARR, you want to go look for somebody that had $250 million of quota responsibility on their team even if they weren't literally the CRO or the head of sales. And you can see in that case that 55% of those hires not only were successful, they made it all the way past $100 million ARR. If you hire somebody who had less than 25 times your current ARR in terms of their quota responsibility, 44% didn't even make it out of the early stage. They didn't even make it past $20 million. So our experience, in my real-world experience, is to go look for that person who has the experience, the quota, responsibility, not necessarily the title. I was on the board, am on the board, of a company called Braze. That's a public company. And way back in the day, I think they were like $2 or $3 million ARR, we went out to look for our first head of sales. And we hired a guy named Miles Klieger who had never had the top job. He was at Buddy Media, Salesforce, but had the experience. Of managing quota. By the way, he is there post-IPO, so it does happen sometimes. And also though brought that experience, but because he wasn't like the top person, still knew what it meant to roll up his sleeves and actually close deals, and which is obviously really important at this early stage. So the main thing, and I'm looking over at Scott Edmonds from Marketo right now, who helped build this, I think that first head of sales, not even on this slide, their job is to come in and convert a company that's truly kind of solely product-oriented and turn it into a sales-oriented, performance-driven, meat-eating culture. And that's a big change that I think a first head of sales can really do. One of the ways that they do that is build the first incentive compensation plan that includes variable compensation for specific goals. And we went out to talk to all of our— this, like, 260 executives to look at how do they do this compensation. Account executives, obviously the highest amount of variable comp, about 50%, typically around new bookings. SDRs, BDRs are next, new meetings, new opportunities. CSMs also have significant variable comp, 25%, around renewals and eventually driving net dollar retention. And again, the goal here for this first head of sales is to really build this performance culture. And we saw 82% of those surveys, 65% use accelerators in SPiFs to drive really specific goals. It could be selling more deals at the beginning of a quarter so a quarter isn't so backend loaded. It might be closing customers in a certain segment. Or long-term contracts. The idea is to just really build in that sort of sales performance culture. Actually, an anecdote from Marketo, now that I'm reminded of it. We hired a guy named Bill Binch, who I think you would agree turned that into a sales-oriented culture. And, you know, it's just everything. We would come to board meetings and the whole lobby is filled with balloons. And you're like, "What are these balloons for?" And then of course during the board meeting, there's a gong ring for all the deals that are closed. And then all the AEs gather. This is back when everybody was in the office. And the AE that closed the deal would pop the balloon and out would fall an iPod or some other gift. And it just— everything you can do to change the culture or at least add a sales orientation to the product orientation that you have is critical at this stage. Alright, transitioning to the next stage. We call it the early growth stage. This is $20 million to $50 million ARR. Crucial moment for the company. This is the first time companies, in our experience, are really starting to build their go-to-market organization for scale. So what are they doing there? Of course they're hiring a lot of people. And so because of that, they're segmenting their teams along a number of dimensions. That Christine will talk about. With that complexity, they're needing to build out their tech stack to manage that complexity, and then they're building out their management and leadership layer to enable and coach their individual contributors.

One of the keywords you just heard Doug say a number of times was scaling and team, and that really is what this phase is all about. So on average, we see As companies move up towards that $50 million ARR mark, they're doubling their team size on the sales, marketing, and customer success side. We obviously have worked with a number of companies over the past few years that are experiencing significant headwinds. We've also worked with some that have had many strong tailwinds, and the question they come to us with is, hey, we used to be above best-in-class benchmarks across growth, but also across all these efficiency metrics. We were just growing and growing and everything's remained efficient. All of a sudden, it seems like things are pivoting. Is that an issue? What amount of that is normal and to be expected? And which of these dynamics are maybe diagnostics on something underlying that we need to solve? And what we see is, of course, as your team scales, some of these numbers will come down. Your quota attainment will come down, your ramp time will go up. But making sure that you're really operationalizing these teams, getting the right leadership in place, will minimize the decrease in efficiency and productivity as your team continues to grow. So the first question is, how do you organize them? And again, this will always come down to your go-to-market motion, your customer base, and your strategy. But what you can see here is the maturity of segmentation really kicks in during this phase, with most companies prioritizing geography and size. As companies continue to scale, that's where we start to see see segments like industry come into play, where really understanding your customer in a detailed manner is important to moving upmarket, increasing ACVs, and having those higher-touch sales cycles. But first, making sure that you have really strong organization in place when it comes to both your geographic presence and the size of your customers.

So as Christine said, you're, you're dramatically hiring into your go-to-market team, you're segmenting them. All of that leads to complexity. It's necessary complexity, of course. I knew everybody would take the most pictures on this slide. Um, it leads to complexity. And in order to manage that, uh, you need to build a tech stack. And we actually went out and surveyed again 200 executives. These are the top 3 most utilized tools that we got feedback on in that survey. You can see Salesforce cuts across a number of the different categories. But there are amazing best-of-breed companies. This is what we look for. These are not all our investments, by the way. These are outside of our portfolio, many of them. Companies like Clary Forecasting, Highspot in sales enablement, CaptivateIQ in sales incentive management. But what's really notable at this stage is that companies that are really successful with these technologies are data obsessed. That's the glue. That's what pulls these systems together. And so at this stage, I think for the first time, people are really building out this sales ops, rev ops function to really make the best use of these technologies. One of the categories you saw on the prior slide was sales enablement. And the reason why that is such an important category is actually represented by the data on this slide. And that is that as you grow across stages, everything gets harder. And you can see that here with attainment numbers going down by stage and ramp times of your AEs and your SDRs going up. And when that happens, you need more salespeople for every unit of new revenue or new ARR, which of course increases your burn, shortens your runway, not good. And so at this stage, we really see companies building out enablement to train, to onboard, and to equip these salespeople with the right content, with the right playbooks to drive a really effective process and improve these numbers. And the reality is, at board meetings, we look a lot at, like, individual salesperson productivity. But the reality is that those salespeople, those individual contributors, are really only as good as the managers, the leaders that report to them. And so when we look at those charts in board meetings, we organize them by the managers because some really interesting patterns come in. So enabling hiring amazing managers at this stage is equally important as everything else. You could see in the $20 to $50 million range, the data that we have is that typically a manager can manage 5 to 7 individual contributors. Of course, as a company gets closer to IPO, they can scale that to 7 to 10.

In addition to your managers, this is now the stage where we see most companies start to look for a head of sales that can take you up through IPO. And this might feel a little early to some of you, but on average we find the sales leader that is there at time of IPO has been there for more or less 3 years prior to that. Just to have the time to build out the maturity and sophistication in that revenue repeatability. Again, this is where we find that prior experience in terms of the quota-carrying capacity is what really matters. And while the relative scale has decreased a little bit, obviously the absolute scale has increased. So again, you're looking for a sales leader that has at least 14 times of your ARR in quota-carrying background. This is also where you're gonna look for your first head of marketing. Again, one of the common questions we get asked is, do I look for someone that is really good at the branding piece? Do I look at someone that can really drive demand gen? And what we found is both from a commonality standpoint as well as a correlation with tenure and success, it's product marketing. And a lot of that, again, comes down to someone that has a skill set to really build on that messaging, really really share that feedback back with your product team and continue to hone in on that and build out the use cases across your customer base. Okay, we're getting there. We're now at the growth stage. So $50 to $100 million in ARR. And this stage is really all about building long-term efficient growth. And so we'll talk through pieces of these, but that relates to moving up market, starting to invest more in marketing, and of course orienting all of your processes around a more efficient process. On the marketing side, here's where you can see the percentage of sales and marketing really start to skew towards marketing. And again, there's— this will continue to steadily increase. There will be some one-time big marketing expenses associated with an IPO event, but it's also important to note that the absolute spend across both sales and marketing is increasing, and much of that is tied to increasing complexity when it comes to your sales cycles, moving upmarket, really focused on increasing those ACVs. This is obviously focused on companies that are, for the most part, targeting mid-market to enterprise customers. But we have consistently seen across the data that best-in-class companies are able to do this even when they're focused on SMB segments.

As Christine mentioned, some of our most successful companies grow by moving upmarket, increasing ACVs, and closing larger enterprise customers. But the reality is, of course, those enterprise customers, while wonderful, are more complex. They're more demanding. They ask for custom implementations, onboarding, and custom support. And that's why you see on this slide, as companies grow through stages, the percentage of their revenue that comes from support and services really starts to increase. Obviously, the goal is not just to retain, but to grow, cross-sell, upsell those customers. And this increase— spend and revenue— really can help drive that. Another big topic that we're all talking about these days is efficiency. Uh, of course, that comes into play even more at this stage than the prior stages, where companies are looking to still grow but really start to do more with less and move that business model towards an IPO business model. One of the ways we're seeing a lot of companies today get that efficiency is by building a global workforce. What you can see on this slide is some of the data that we've gathered around the cost differentials between onshore and global workforce between various roles and go-to-market. You can see there's significant savings that are possible there. The reality, though, is like if you don't have the right leadership, the right org structure in those locales, you're not going to see the benefits and cost savings. Okay. We made it to the end. Pre-IPO stage, $100 million to IPO. What's going on here? Now you're actually hiring your IPO-ready marketing leader, your last CMO before going public. Companies are continuing to build out their product suite, expanding internationally so that they can really tell a bigger TAM story, which is crucial when going public. And of course, they're refining their model for IPO. So speaking of that CMO leader that's ready to take a company public, you heard from Christine. This is happening much later than that last VP of sales. And you can see from the data, 30% are hiring their CMO a year, less than a year from going public. You know, a total of 54%, 2 years to IPO. And then on the dollar side, 46% are hired after $100 million ARR. Pretty late stage. Why is that? Well, the reason is because the CMO at this stage has to be really multidimensional. Of course, they're going to continue to scale go-to-market and demand gen marketing activities, but they need to do that in a much more sophisticated way that drives the predictability that's required of a public company. But the other piece is that IPO is really a branding event in many ways. And you also need to bring on a CMO that can not just do demand gen, but be that storyteller to really elevate the brand of the company to a public market ready company.

Another big piece of being IPO ready, of course, is the repeatability and predictability of revenue generation. And so when we look at where revenue is coming from, there's a few different ways where we see companies really start to to expand and diversify the makeup of that revenue. The first is thinking about the split between existing customer base and new customers. And what you see here is by the time companies are ready to IPO, over 50% of their revenue is generated by existing customers through either upsell or cross-sell. Cross-sell obviously requires a more diverse product suite. And what you can see along the bottom here is on average, companies at the IPO stage have products. That said, I think what we continue to see anecdotally is it really is that first core product that's driving growth up through IPO, and these accessory products that are helping bolster the use cases and really drive more of that cross-sell and upsell efforts. The other lever to further building out the revenue, of course, is international expansion. And this again needs to be a strategic decision decision and question that is asked. Do you have competitors in these markets? Do you have existing customers in those markets with compelling use cases that can be references to future customers? Are there potential partners that can help you sell in the early stages as you get your team set up there? If all of those are the case, then of course makes sense to start expanding internationally. And again, at the time of IPO, we typically see about 30% of revenue made up from non-North America customers. So transitioning quickly, if you've done all these things and you feel okay, we're ready to start thinking through going public, the big question that many people are asking is when will that window reopen? And this is a chart that I'm sure all of us are tired of seeing at this point. We know what happened with SaaS multiples rising and then dropping very quickly and for the most part shutting down the IPO market. And so today, instead of trying to guess when that timing will come about. What we really wanted to focus on is when it does reopen, what is going to matter when it comes to your growth, your efficiency, and the go-to-market engine that are powering both of these.

So we actually looked at the data. Again, not surprisingly, we looked at all the publicly traded SaaS companies and did a regression analysis of what are the key drivers of your valuation and your valuation multiple. And this is actually the answer in order. Revenue growth, probably not surprisingly, but not just growth itself, but what is the predictability of that revenue? How effective are companies at providing forward guidance and sticking to that guidance? Net dollar retention. We've talked a lot about that, but really what's the ability to drive future growth from your existing customer base, which is obviously a lot more efficient. And then gross margin and profitability. Speaking of efficiency, How effectively— what's your unit economics? How efficiently are you able to generate that revenue growth? And then of course the double-clicking on the age-old question of what's more important for me in terms of my valuation. Is it revenue growth or is it efficiency? And this chart seeks to answer that question. The colors are different. Okay. So the blue line is revenue growth and how it's correlated with valuation. The darker line is Rule of 40, which is a common measure of efficiency. Whichever line is on top is the one at that time that the market is stressing more in terms of how they value you. What you can see through kind of most of '22 last year was that efficiency went to the top. That's how companies were valued. And of course, now look at the very last point on the far right. Q2 2023, it's flipped again and on top revenue growth. And I think that tells us what we already knew, that ultimately in the businesses that most of us are trying to invest in and build in this room, revenue growth is paramount. Efficiency doesn't go away. It's going to be important. But without real revenue growth, market share gain, and ultimately leadership in a market, we don't get the kind of valuation that we want.

So we'll flip over to Q&A in a second and welcome anyone to come up to use the mics. Before we do that, just wanted to end with a few key, key takeaways, and then we'll share a few resources as well.

Yeah, well, we threw a lot of data at you, and, you know, hopefully you found a lot of it insightful and maybe helpful in terms of how you're thinking of building your businesses if you're founders. This just summarizes some of those milestones and decisions that we already talked about. But I wanted to just share, you know, one anecdote that I have from being on boards for 23 years. And ultimately, to me, it does come down to the team building, assembling, optimizing an amazing team that can go to market and win. And I think it is not just the most important job of a founder or executive team or CEO. I think it's the hardest job. And the reason it's so hard is it's the same thing as product. Just like product, team is never done. It's constantly evolving. And the hard part is that throughout the journey, founders, CEOs are having to switch people out who've done nothing wrong. They're actually executing, but they just aren't ready for that next stage of growth. And so while it's hard, it's also really inspiring to watch a leader, a CEO, a founder to make those changes proactively, build an incredible team, an incredible culture, and through that, a great go-to-market effort, and ultimately a company that's successful and, and maybe a public company one day.

So also wanted to mention that last week we just published our latest Growth and Efficiency Report, which covers these 5 metrics in a lot more detail, as well as a number of other drivers. You can find all of that on our website, iconicgrowth.com/report. Insights, along with a number of other resources. So again, today we really tried to pull together a cohesive story, but that's comprised of probably 5 to 10 different very detailed studies, and all of that is also available on our website. With that, thank you. We're always so excited to share this type of work at SASTR, and again, welcome anyone to come up now for questions.

Don't be shy. There's a mic, or we can talk afterwards. All right, thanks everybody. Really appreciate the attention. It's great. Take care.