S5E5: Early Stage, Go-To-Market Strategies with Ash Rust of Sterling Road

Welcome to The Room Podcast. I'm Claudia Laurie, co-CEO and founder of Pryve.

And I'm Madison McIlwain, partner of seed stage investments at Defy VC. Claudia and I are friends first and and business partners second. Living in the heart of Silicon Valley, we know what it's like to be on the inside of innovation, having worked at flagship companies like Gap Inc. and Uber. Now in our roles as a founder and a funder, we're changing the face of technology through our mission to bring more people into the room where it happens.

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Silicon Valley Bank understands these questions can keep founders up at night like Claudia. For over 35 years, Silicon Valley Bank has helped high-growth companies through scalable financial solutions, plus insights and expertise that many other banks just can't, which could be why 50% of US-based venture-backed tech and life science companies bank with SVB. Learn more at svb.com/next. Silicon Valley Bank, built for what's next.

Cooley is a global law firm built around startups and venture capital. The firm has been devoted to entrepreneurs and investors, partnering with both to transform breakthrough ideas into successful companies. Cooley works with thousands of entrepreneurs and newly formed companies to ensure that they are structured for growth and long-term success. Since 2005, Cooley has been ranked the number one most active law firm representing VC-backed companies going public. Learn more about the firm at cooley.com and also at cooleygo.com, Cooley's award-winning free legal resource for startups. We are so excited to welcome you back to another episode of The Room Podcast. On today's episode, we sit down with Ash Rust, managing partner of Sterling Road. Sterling Road is a pre-seed venture fund focused on founder coaching. Prior to Sterling Road, Ash himself was the founder of SendHub and personally lived through many experiences that made him passionate to coach founders as an early-stage investor today. On this episode, Ash chats about his journey from founder to investor, but we also deep dive on a crucial topic to every early-stage founder, cracking sales and go-to-market. We chat with Ash about validating early problem spaces and what it's like to actually get effective feedback from customers. We talk about frameworks around building an early sales org as well as early-stage go-to-market strategies. Such as how to think about pricing, packaging, and a lot more. Let's open the door. Thank you so much, Ash, for joining us on The Room today.

Thank you for having me. I really appreciate it.

You are a former founder, now funder, and we are excited to dig into the topic of enterprise sales today. But before we start discussing how the workplace is evolving and how folks are really focusing on sales and making that next step for them in their founding journey, we would love to share a bit more about you and your background. You are the managing Director of Sterling Road, a pre-seed fund focused on founder coaching. However, you were also YC Winter '12. Tell us a bit about your journey to founder and how you became passionate about helping and coaching others.

I moved to Silicon Valley in 2008, right before the financial crisis, and the first two startups that I worked at were failures. One of them was pretty bad, actually. They loaned me a bright yellow Porsche on my first day. I probably should have realized that was going to go badly at that point. Then I got really lucky in 2010 and was hired by Joe Fernandez at Klout was one of the first employees there at a startup that measured your individual influence on social media. That grew into a really big company really quickly. During that time, I was in regular communication with my friends from grad school, and one of them, Garrett Johnson, my best friend, was actually on the US Senate Foreign Relations Committee. So he was going out all over the world— this is back in 2011— traveling around, seeing all the SMS usage in other countries to deliver information at scale. We just weren't seeing that in the United States at the time, so we built this basically Mailchimp for SMS on top of Twilio over the course of a couple of months. And that ended up growing into SendHub. The first users were actually pastors. They spread it to small businesses, and we eventually found our niche in logistics. So Lyft and Wag were our biggest customers at the point of acquisition back in 2015. That was the journey from engineer, product manager, through to founder. And then after we sold the company in 2015, I took a job with Trinity Ventures and learned that I really didn't like the classic VC approach. I really liked the people at Trinity Ventures, and they were actually my first investors in Sterling Road. But I wanted to take a very different approach. And that was rather than the traditional Silicon Valley approach of let's meet someone for the minimum amount of time, make a decision on a large check as fast as possible, because that's the cool thing to do. That's what everyone wants you to do. I wanted to take the other end of that. So how do we spend a lot of time with people, be really valuable from a relationship perspective, from an advice perspective, and then give them money when you've actually decided that you like each other? Thinking about it that way, spending a lot of time with founders early on, and really from my own experience of seeing how people that were maybe the belle of the ball in raising a lot of money, like the first company I was at that loaned me that Porsche, versus Joe Fernandez at Cloud, who had to really fight in the early days just to get the business's first check of fundraising. I think those comparisons really showed me that you could get people who weren't the traditional Stanford MBA to the same kind of outcome if you were giving them the help. So that's what I'm really passionate about now is finding the diamonds in the rough, most of the time outside of Silicon Valley, spending a bunch of time with them. And then if we can find a way to make that into a venture-backable business, then I'd love to help them with cash as well.

That's incredibly interesting to hear about the different approach that you're taking with Sterling Road, which is, I believe, a pre-seed fund in helping to back early, early-stage companies. You learned about this whole world of software sales from, it sounds like, the school of life in this second startup that you worked for.

Yeah. We've seen enterprise sales at a number of different levels. The first few companies that I was at were consumer search engines, so the enterprise sales were to advertising companies, actually, when you were trying to sell multi-million multi-thousand-dollar, 5-figure contract, if not larger, to them on the basis of the traffic that you had. At Cloud, it was very much about CPG sales. So we're selling the access to our customer base for these companies in order for them to get references online. And then at SendHub, it was very much about SMB sales initially, and then we realized it was a disaster trying to sell to SMBs. Now, most of the information that I do give to startups is on the basis of the experience that I see through the 700 companies or so that I've mentored.

And that is the approach a lot of founders take, and particularly on this sales journey, as Claudia alluded to earlier in our pre-convo, she's figuring out what it's like to be a sales leader herself now with her own company. And when that's the case for a first-time founder who's also a first-time sales leader, what would you say are really important points in making that first enterprise sale happen?

First and foremost, we gotta validate the problem. So you want lots and lots of feedback from your potential customers and finding the route to that feedback is actually something a lot of founders really struggle with. Who is even going to be willing to talk to us at all about what we're selling? Oftentimes the best mechanism is trying to find warm introductions to those people who are your potential customers, but that usually requires some kind of existing industry knowledge or experience, and a lot of founders just don't have that. So I often advise people to use what I call the customer advisory board, which is essentially reaching out cold to people but asking them for advice rather than to buy. That feedback is critical. We have to validate your hypothesis of whether or not this problem is a real problem, if there's budget to solve problem. If the existing solutions for this problem are so bad that they're willing to take a chance on your two-person startup, right? There's a lot of questions that need to be answered about whether or not this is a viable idea just to get started. So that's waypoint number one. And I'd say 90% of the startups that I talk to, maybe 1,400 a year, don't get that far. They assume they have that. They say, oh, this must be the case. But you really have to validate that. You see a lot of startups where they really invest the time there end up pivoting to a slightly different idea because there's demand elsewhere. After the feedback piece, I I would say deployment is, is the next one. Can you get from verbal yes through the various stakeholders that exist? So a lot of people assume that once the director of HR says yes to your product, because it's an HR product, that that software is getting installed tomorrow. Ha! No chance. That is going through IT, that is going through legal. So getting through all of those people, understanding their requirements, trying to get them on the phone, that is really tough. And then of course, we're not even going to the point where the software actually works. Your promises that you've made to your customer as a salesperson versus what your engineers have actually built. There is a chasm very often between those two points, and you're only going to discover that through testing it in the wild. Once you get past deployment, I tend to want founders to focus on engagement. So how do we get this to be a product that people rely on, they believe in? And that's something that I really look for as an investor. One of my favorite stories is a company I just invested in out in Saskatchewan, Canada. They were constantly having to get up at 6 AM every day because when the site went down, everyone was really upset because when the factories opened and started all their work, they were reliant on the software. It caused a traffic spike, and then their service went down, they had to get up and get it back online. That kind of engagement, that kind of reliance is actually really powerful. And if you can talk to your customers enough, you can get them using it every day, get them to rely on it, then that's a huge win. And ultimately, if you can get to that point, everything else is solved. And then the engagement piece for a lot of early-stage enterprise sales companies actually has to come in the first 30 days when they're on trials. Once we get to that point of engagement and their reliance on it, then we're talking about the signed contract. And that's going through stakeholders, trying to get them to pay over a long-term contract, maybe pay up front for a year, that kind of stuff. So you're teeing yourself up for the upsell and renewal of that contract in the future. So those are probably the 4 key waypoints: feedback, deployment, engagement, and then ultimately the signed contract.

It's incredibly helpful to hear the entire sales process broken down in that way because I'm identifying with specific points in the process of, okay, we have users using our product, I'm trying to get them more and more engaged, they've given us their verbal yes, and yet getting through all the stakeholders is actually a lot trickier and takes a lot longer than I had initially expected. Thank you for breaking down those phases in making an enterprise sale happen. Looking forward to the rest of the year planning, for me personally, right now it's just me as a founder and salesperson. It's really tempting to want to start to hire for sales. However, I have received advice that when starting to hire your first salesperson, you really should wait until you're able to consistently sell your product without sales support. What framework would you give founders in evaluating if it's too soon to bring on a salesperson?

I like to think about this in the form of a sales playbook. I firmly believe in founder-led sales and taking notes. So marrying those two things together, as you close your first few sales as a founder, you need to be taking a lot of notes on what's working, what isn't, and you need to do that at every stage from outreach through to invoicing. Those notes, which can be in anything from a plain Notion doc to Google Docs, whatever, nothing special here. But those notes form the basis of your sales playbook. That's going to be a living document that you should be able to use to explain to anyone new on the team how they can sell your product. For example, the outreach chapter of that sales playbook would include the channels that you've tried, what's working best right now, the expected response rates, maybe some email templates and some call scripts, etc. When you've got that document such that it's understandable by someone else, maybe you've closed 5 to 10 sales at least, then I'd say it's time. And oftentimes I'm telling people, get help at the top of the funnel. So people who are generating new qualified leads, you very rarely want to hire somebody who is an executive at that point as your first hire, or somebody who's expected to take over all of your demos instantly. Not likely. We want somebody who is hungry to do what is a grind-oriented job, generate lots of leads as fast as they can, such that they have a future as your VP of Sales because they've turned into an absolute killer on this funnel filling.

Let's double-click into one specific moment in the sales process, which often might feel like you're nearing the end, but to your very point, it's often just the beginning. And that's asking for the sale, asking for the customer to purchase the software for the price that you are offering it. For many founders like myself, it's often easy to second-guess pricing or whether the product is even really ready to ask for an enterprise enterprise price, because for a lot of first-time founders, it's the first time that we're asking someone who might be very well-versed and seasoned in the industry for a 5 or 6-figure enterprise contract. Any advice on navigating asking for the sale and managing a sometimes overactive or overcritical product engineering mindset that I often find myself in?

First of all, we want to find a reasonable price, something that you can associate with existing numbers and maybe use that as a basis. So I like to think about 10x your cost of goods sold. So whatever you're paying in order to produce this service, let's 10x that at least, or maybe look at 10% of your ROI. So whatever value you expect to deliver to your customer, maybe 10% of that would be a reasonable place to start. Now, once you've got that number, then I would like you to triple it. Yes, triple it. So we're deliberately starting painfully high, super high, but it's okay to negotiate down. Remember, we're providing a concierge, high-touch experience. They're going to be on the phone with the CEO of this company all the time. That should be expensive. And I'll remind you that we're fairly early in your software journey. So it's unrealistic for us to expect to provide great self-serve experiences today. Instead, we can, as a small company, provide a great concierge white glove service. That's easy for us to do, but it's much harder for us to provide great software. So we've got to go down the high-touch line to be successful. And everybody knows that that's expensive. So people shouldn't be surprised about that. And you You would always be surprised by how much an enterprise is willing to pay you because they have high expectations. Because the other thing you're going to be surprised about is how much it's going to cost you to support them. They are going to be on the phone, like I said, 7 AM every day that it's broken, expecting you to fix it. And they'll call you 3 or 4 times, right? If somebody is getting fired for choosing you, you better believe that they're going to make that happen after they've deployed. You should expect to charge a lot more because you don't know how much it's going to cost to support them in the future. The other reason to go really high on the price is that this idea that you're we're going to find the correct price on some random walk of guessing prices where customers suddenly say yes. It's pretty hilarious. Everyone's going to negotiate down, right? Whatever price you say, they're going to push back on. So in order for us to find some kind of reasonable cluster of people together, we have to start high and expect to negotiate down. And when people start saying yes, it's going to be roughly around the same point. That's going to give us a much better idea of what the price should be. The first price that we charged was $10 month for unlimited text messaging on an enterprise service, which was hilarious. And within 18 months, that price was 16x, and it was for 1,000 text messages a month. Please learn from my mistake there. Start high, negotiate down. That's totally fine. And you'll find that the pricing tends to cluster if you are willing to go high. Now, that's not to say that you start— maybe your first customer, you might give it to them for free. Maybe your second customer, you might just charge them $1 or $50 or whatever they can get approved with zero effort in order to understand the sales process. But once we actually get into real money where we're trying to generate revenue from a sale, that's when I want you to do that 3x thinking like you're overcharging. But over and over again, I get calls from people. I got one today. Someone was like, oh, an email. Of course you were right about this. I asked for 3x and they didn't even wince. They just signed it right away.

You're giving a lot of helpful examples, both historical and current. And it makes me think about how this ecosystem has really evolved since the beginning of software sales. It used to be more of an art form with perhaps a few heuristics, and now it feels like there's a science and almost data-driven driven approach to how to sell. What has your perspective been on that changing landscape of how to do a sale at scale if you've got more than 10 salespeople?

I think the world is so different now. Software tracking data are making huge differences. You find one star salesperson, the AI analysis of their meetings over just a couple of weeks can help you understand what they're doing, make sure that becomes company-wide best practices, sometimes within a matter of hours. That is incredibly powerful. It's completely new. We've only seen it over the last 3 or 4 years, really become the mainstream opportunity. The side effect of that is a lot of early-stage founders who are maybe at the $0 to $1 million ARR think those are the systems they need to jump into right away. And that's not the case. First of all, a spreadsheet is enough for almost everybody up to probably the first 10 sales. You don't need to jump into all that technology immediately. But as you build out your team, as you start to make use of these kinds of tools, it becomes imperative because there's no other way of understanding what's working and what's not. If you think about 5, 10 years ago, VP of Sales' main job was basically getting everyone to fill in the CRM. Nowadays, that can be done automatically, analyzed, and then again, built into best practices in the sales playbook immediately. So there may not even need to be that much human interference. The VP of Sales becomes almost like a product manager managing an analytics system, and ideally focused on what they need to be doing, which is hiring more salespeople. So huge change for later-stage startups. I think it's been an opportunity for earlier-stage startups to use perhaps less technology, I'd love to see that. But I'm really excited about the level 2 of that, which is going to be how we automate the process for earlier stage founders as well.

Let's talk about that. We're curious about your perspective on how the future of optimizing the sales funnel looks either for early stage founders or later stage founders, as you called out, people continue to put technology into these processes.

I think that the future of the sales funnel is probably going to be much more about content than anything else. Over and over again, we have seen that less authentic advertising systems like cold outreach is getting less and less effective. Your inbox is getting more and more clogged. That's— that trend is not reducing, right? It's getting harder and harder now with the tab systems and inboxes to reach people's inbox. So outreach, I think, is going to become less and less of a factor. That means that the content marketing pieces and the delivery mechanisms of that content is going to become more of a factor. And then tracking that sales journey across the spider web of the customer journey. So, oh, they've listened to our podcast, then they visited our site, and now they're becoming a lead for us. I think how early-stage startups track that and understand that is going to be a big factor in how we see people go from zero to a million in revenue over the next 5 years. But again, the thing that I'm always surprised about, it's the breadth of technology distribution that actually is driving small startups to grow really rapidly. For example, it may not necessarily be about what software tools they're using. It may just be the fact that they can distribute their software to another continent now that Africa is coming online. Online. Those kinds of changes where a startup that ordinarily I would have been advising, oh, let's focus on California, let's focus on startups. Now I would be advising them to focus on manufacturers all over the world or a healthcare company in particular. Healthcare companies almost always should look outside the US for their first customers. And the ability of everybody to use the communication tools that we have, Zoom, etc., and then being so widely distributed, that is a huge change for the early-stage founders and has completely revolutionized the sales funnel, I think, for a lot of It reminds me of a piece of advice that I'd received where as a product manager, and my co-founder is also an ex-product manager, we focus so deeply on iterating and innovating to find product-market fit from the product perspective.

And yet it's almost as critical for an early-stage, especially enterprise startup, to innovate on distribution itself and really thinking outside of the box on what mechanisms can you innovate on in order to get the product into the hands of as many people as possible and kind of new communities of people that might traditionally have been overlooked. Looping back to one of the points that Madison had made in the old world, kind of Renaissance of sales, there was a magic and mystery to the process. You never really knew how a great salesperson did it. But as we've discussed, we're now living in a time that's a lot more methodical and process-oriented. We're breaking down the funnel, we're understanding the funnel, we're optimizing each subcomponent of the funnel, and there's tons of tools and technology to help us. We've chatted about leading indicators of sales success. One leading indicator potentially is the ratio of you talking versus a customer or client talking. Could you walk us through what some of these other indicators are and what we should pay attention to?

I like to keep it really simple on this, and a lot of the founders I work with, they're always trying to look at other metrics beyond my two favorites, which are demand and engagement. Demand is the most important piece. We want to make sure we have strong evidence our customer has this problem and that our customer discovery is indicating it costs them a boatload of money and the current solutions are absolutely terrible. Then when you're talking to your customers about this, are a lot of them interested? Is it hard to get them excited to talk to you? Is your open rate very close to your reply rate, for example, if you're doing a lot of email outreach? Those kinds of statistics make a big big difference in understanding whether or not this is a real problem. You want to be overwhelmed by demand. You want to be in a position where you start telling people that you're going to build this and they're like, "Well, I want this yesterday. Can you give it to me right now?" And if you're not at that point, then I think you want to ask serious questions about whether or not this is the exact problem you're trying to solve or should be trying to solve. Once we get to the point of delivering a solution to a particular problem, then the leading indicators are engagement. Do the customers immediately rely on the product? Even if your product sucks, even if your product is really early, there's a lot of edges on it. We want to be in a position where they're increasing their spend with us. Are they willing to give us a customer reference? Are they willing to give us a case study? These are again hard things to reach. They're not things that are going to come overnight. But if we start to see those early signs, and that's a leading indicator that we can do more of this, we can sell more of this product to other people. I advise founders not to build software before they sell it. We can test this demand piece, the most important piece, without any software built. We can do it all in Figma or InVision or something similar, uh, and really find out whether whether or not people want this. I would also say that on the engagement side, a lot of times when I'm talking to startup founders, we can figure out how to do this, test if people want to use this product, just using a cell phone and a spreadsheet. You can be the intermediary, do the project manually, provide the service, and see whether or not people come to rely on you instantly. Bill Gates has a famous quote about this. If you end up automating something first, then you're going to get the opportunity to build it twice.

I think something that I've been spending a lot of my time on when navigating kind of pilot periods or trial periods, and trying to get customers to engage and convert to a sale, I'm doing a lot of manual analysis or consulting work that feels like I'm doing something wrong because that's maybe not scalable for the product in the short term. But perhaps, as you've mentioned in the past, that is just par for the course, especially for an early stage product and team where that personal connection and having that kind of white glove service and consulting aspect is the thing that's going to allow you to get those customers actually onboarded to your product. And then that's where you actually learn the truth about feedback and engagement as the product continues to develop over time.

Exactly. Do you want to join my venture firm, Claudia?

Maybe after Pride exits. Indeed.

Yeah, that was perfect.

Awesome. As one of our final questions, any other kind of tactical tips, whether whether it's software or maybe not software, or little things that are often overlooked in mastering the enterprise sale for first-time founders.

Mine is just a mentality thing. A lot of people think they cannot sell, and that is really just a mental barrier. As a founder, you have been passionate enough about this product to leave the great job that you were doing, right? The future that you had that your parents would have been much more comfortable with you pursuing, by the way. So you were willing to sacrifice years of your professional life on this idea. You're the best person to sell it. There's a lot of knowledge and tactics that you can acquire to make this easier and help you along the way, but nobody can sell a product better than you.

That's incredibly encouraging. I definitely feel like I've never had a sales background, and so I must be doing the product a disservice because I don't necessarily have the full playbook down pat. But at the same time, I think you're truly right. It's the passion and the vision that you should be selling at the early stage, and hopefully as you practice the sale, it'll come a little bit smoother from, like, tactical execution of making it happen. Ash, we are at our last question for the podcast, or at least official question for the podcast. Who is a woman in your life that has had a profound impact on you and your career?

I was raised by my grandmother. She's one of the world's top 5 nicest people, and she really didn't have to raise me. She chose to, and so that was a really positive and powerful source of strength for me throughout my life.

Awesome. Thank you so much for sharing all of your tips, tricks, and wisdom on today's episode. Thank you so much for being here.

Thank you, Claudia.

Thank you for listening to this episode of The Room Podcast. We also hope to see you next Tuesday at 10 AM Eastern, 7 AM Pacific for another inspiring conversation. Please like, subscribe, join our newsletter, follow us on Twitter and Instagram, and leave us a review. We'd love to hear from you. In the meantime, we'll see you next week in the room. See you soon.

Support for The Room comes from Silicon Valley Bank. Silicon Valley Bank understands these questions can keep founders up at night like Claudia. For over 35 years, Silicon Valley Bank has helped high-growth companies through scalable financial solutions, plus insights and expertise that many other banks just can't. Which could be why 50% of US-based venture-backed tech and life science companies bank with SVB. Learn more at svb.com/next. Silicon Valley Bank, built for what's next.

Cooley is a global law firm built around startups and venture capital. Since forming the first institutional venture fund in Silicon Valley, Cooley has has formed more venture capital funds than any other law firm in the world. The firm has 60+ years working with VCs, helping form managed funds, make investments, and to handle the myriad of issues that arise through a fund's lifetime. Learn more about the firm at cooley.com and also at cooleygo.com, Cooley's award-winning free legal resource for startups.

All opinions expressed by Claudia Madison McIlwain and podcast guests are solely their own own opinions and do not reflect the opinion of the Five EC. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.