5 Questions To Unleash Your Company's Hidden Power with Matt Hulett, PetMeds

And what I always avoided was expensive consultants coming in telling me really a regurgitated version of what I already knew. I really believe in teams figuring out these problems themselves. You can certainly bring in industry leaders or insight advisors, but really the nuts and bolts of your business hopefully should be well known to you. I need some traction. You need some traction. Let's get some traction.

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30 years of experience building and leading world class SaaS and consumer companies. He's led growth for a number of companies including Rosetta Stone, Real Networks, Expedia. He recently wrote a book, five Questions to Unleash youh Company's Hidden Power, which you're going to tell us all about in this session today. So Matt, give us your backstory. How did you get into company building, investing, scaling?

My friends call my career background a little schizophrenic because I've jumped around between startups and turnarounds and it's wildly different difference and where I focus in terms of verticals as well. And so for the last 30 years, as you said, I think I officially call myself a change maker, but I have a funny way to describe myself. I've done late stage, early stage, and the reason why I wrote the book. And then I'm doing this talk today and I'm excited to interact with the community. Here is when I started out in my career, I was a product manager and I jumped around to a lot of different companies in particular one was called RealNetworks at that time was called Progressive Networks. At that time it was really the only way to experience streaming audio and video on the Internet. And then I went off with another gentleman to start a company called Atom Films, which is one of the first entertainment hubs on the Internet back when you still had 56k dial up modems. And so we were doing unique short form entertainment that's well known today. And that experience, going through a turnaround, that big one web 1.0 bubble pop, all those things that happened during that time really woke me up to the things that you need to learn how to do to keep your business viable and striving and thriving through all these different situations. So really the talk today is really about unleashing your company's hidden power. But I've taken 30 years of all this experience from startups and turnarounds and dialed it into five questions. And so this is really a framework for everybody. So I've unlocked about $2 billion of value. I just left Rosetta Stone several months ago and I'm actually CEO of a public company, the first CEO public company job I've had at PetMeds or on NASDAQ as pets. Pets. So I've been a CEO a couple times, a public company president several times. And this is my first public company CEO job. And I've raised a lot of money from folks like Allen & Co. And Draper, Fisher, Jerviston and Sequoia. So I can speak to that entrepreneurial venture capital side as well. When I wrote the the book, it was almost cathartic for me because I felt a lot of times when I take over these different businesses, I feel like the character from the 2008 movie Taken, Liam Neeson, when he says he's a man with a particular set of skills. I won't do the Irish accent. And so I've taken a lot of these jobs that are somewhat messy, most operators would have avoided them. And I really enjoy these puzzles. And so whether it's an early stage business or late stage business. I'm often brought in because I'm a man with a particular set of skills. So this is probably one of the few jokes, if anyone chuckled. I appreciate it. So let me step back. Everyone wants to be a market leader and not everyone explains what that means. And so market leader is high market share growth and high relative market share. And so what you see here is a two by two. I didn't invent it. This is from the Boston Consulting Group. It's their two by two growth matrix. And this is a guide to help you allocate capital based on where you are Tom on this chart. And so obviously a cash cow and a dog is not where you want to be. That's both low relative market share and low relative growth. And then so in those instances, Boston Consulting Group would turn around and say, hey, you should harvest that business and put that cash somewhere else. A question mark. Think of that as a, as a startup that has high relative growth rate but not a lot of market share yet and is striving to be a star. And everyone wants to be a star, of course. High relative growth, high market share. Those are your Amazons, your Google's, your Netflixes, that leader that's really compounding their business advantage over time. So not every business can be a star. I get that question quite a bit. There are businesses that can't be turned around, they should be harvested for their cash flows. They can't be high relative market share, high growth. There's a lot of mom and pop businesses that certainly don't need to be a star and they have high cash flow. But for a business that's going to be transformative, they that's going to deliver long term shareholder return or investor return. You want to be a star. The more you scale, it gives you a lot of options in terms of your unit economics, your ability to amortize your costs over a large base of fixed costs. There's lots of good reasons why you want to be a star. So can you change your market position? So this is one of the reasons why I wrote the book, because there was no manual on how to turn around a business. And so the answer unequivocally is yes. It's not like how the Greeks thought about predestination, like oh my gosh, I was born this way. The gods have determined that this is the way my market and my company is going to live. It's not that way. It takes a lot of work. If you're in a startup or in a Late stage business that wants to either turn around or pivot or go into a different vertical. It takes a lot of work. And what I always avoided was expensive consultants coming in telling me really a regurgitated version of what I already knew. And so I really believe in teams figuring out these problems themselves. You can certainly bring in industry leaders or insights advisors, but really the nuts and bolts of your business hopefully should be well known to you. So the the five questions are tam. So that's total addressable market, timing, track record, plan and momentum. And I try to copy the FICO score or emulate the copy the FICO score rating system and you're looking for those strong indicators. Equation is easy, so I do use a shorthand for it. T 3:00pm so Tam timing, track record, plan and momentum. We'll walk through each one and then I'll show you a real world example so that each variable TAM timing, track record and plan, it's 1, 2, 3 scored. And then you multiply that sum by 1, 2 or 3 on momentum. And that gives you a sense of the strength around momentum. You could have like a really strong tam, big tam, great timing, crappy track record, crappy plan, and still have the ability and momentum to attract capital and talent. And you're in good shape. You can have lots of different combinations of those, but typically momentum will tip you to the negative if you really can't turn things around. Usually means there's something wrong with momentum, but we'll walk through all that. Okay, let's go through the first question and feel free to score at home here. So is the market big and growing? So you can fix a lot of things in your business. You can fix your go to market, you can fix your strategy, but you really can't fix your total addressable market. If you're in a small total addressable market. It just limits your options and your optionality to do different things. And that may seem like the most obvious thing to say in the world, and it is. But you'd be surprised how many businesses that I've looked at, taken over, invested in, ignore that. And the founder or the CEO is enamored with whatever they're doing for some personal connection. So it's this funnel of life, the total addressable market, the service addressable market and the obtainable market. And that's the tam, SAM and som. Sure, most of this already. But if you have a billion dollar tam, my guess is you have a service or product or something that you're trying to do that can address a a Hundred percent of the total addressable market. So that's where your service addressable market comes in. That's that sliver of that market that is attainable by your business. And your attainable SOM is really your budget, your forecast, usually your five year. And so defining. That's really important. And if it's big enough, you have a lot of room to grow. If it's a small market, let's say you have a $20 million market you're going after and you're at half of that, you don't have that much more to grow before you bump them against that ceiling. You might see that in consulting business, for instance. So having a big market is super important. Sounds like the most obvious thing in the world. But you'd be surprised. A lot of great things happen when you have a big TAM and you have a sam. That's really interesting. And one thing I'd say about sam, the service addressable market, is think about a demographic psychographic, something with the customer set in terms of cohorts to focus on. Or if you're doing B2B, focus on firmographics or something around the size of business or the type of vertical. Don't try to go after everyone all at once. Think about the bowling pin strategy of defining something within your service addressable market that you can knock down. You understand those customer wants and needs, and you go after that. And you can always expand after that. So that's the tam. So one, if you're still. If it's still emerging. Two, if it's a billion less than a billion dollar market. And three, if it's large. So one, two, or three. And hires better, obviously. Okay. Timing is the most difficult discussion point. It was actually the most difficult part of the book when I wrote it. I actually asked a bunch of friends of mine that are really good at timing. Rob Sullivan, who was the chairman and CEO and still is a chairman and CEO of GoFundMe, the founder of Angry Birds, Nicholas Head, talked to a lot of folks about timing, especially things that were so far in advance you'd have to make a bet. How could you conceptualize that? And most entrepreneurs or founders that are successful, when I talk about timing, they usually officially wave their hands and say it was just serendipity that didn't matter. But they're all officially lying. They're lying because they believe that. But they usually have some unique insider edge that hasn't really been quantified to them. And so when you kind of break down what you want to look for in market timing is two things. You want to be in a small but growing market. Sounds obvious, but I can give you tons of examples of businesses that don't focus on that. So a small but growing market. And then second, is there a technology or a behavior shift in that market that will necessitate very rapid change? And lastly, I'll bring up data breadcrumbs and I'll explain what that means in a second. So market timing is super important in terms of that small but growing market. That's the first point. And if you think about an example, maybe think about Stripe. When you think about a business that years ago I think you would have scoffed at it. If you're honest with yourselves and you saw the Stripe investment investor deck, you may not have invested because there were already PayPal and Braintree and a lot of people in fintech already. But they looked at that market and said look, my service addressable market will be early stage businesses and we're going to focus on mobile and they're go to market was two lines of code, super simple. And they focus on small companies that were growing really fast and they broadened from there. And that's an example of a small but growing market and focus on a service addressable market that was inside a large tam. That's one example of good market timing. The technology shift and behavior shift are similar but different. Technology shift is if something already exists, something a concept infrastructure that already exists but you just have to apply it in a different context. You're not trying to convince people to use it. So for instance, using Stripe as that example, you would say that payments existed. Mobile payments didn't really quite exist. They took a traditional concept of digital fintech, they applied it to the mobile payments world. That would be an idea around technology shift. They didn't have to invent the market for a behavior shift. That's much more difficult. You're actually asking a customer to decide to do something different and create a new habit. So you think about Uber, you think about Uber Eats and Postmates. I mean my God, I know when the first sign of the Armageddon is when my mom called me and said oh my gosh, there's this thing called Instacart. It's amazing. So that's a behavior shift and she's definitely a late stage consumer. Another example I'd throw out there is cloud computing on prem on premise infrastructure obviously been around for many, many years. And the move to cloud computing was definitely a change in behavior and still is to this day. In A fast growing component of the market. So those are more difficult to predict. But you're looking for signs and those signs you can get through data breadcrumbs. And there's a lot of science around growth hacking around this if you're in the consumer space. For instance, some easy ways to test whether you're too early or too late in the market is to look at customer acquisition costs. So you can create low code or no code sites, a barely working product. You, you can actually drive people to landing pages to see if people will actually subscribe for something. Trying to get an early indicator of what the behavior looks like for that customer. Maybe test positioning and also get a sense of how crowded the market is for the customer acquisition costs. If they're already really high and it's crowded, that's not a good indication that you're timing it correctly. You can look at also Google search history and there's a lot of free tools out there that you can get a sense for consumer demand. You want a lot of consumer demand, but not a lot of competitors. For instance, years ago I was part of a company that did an ebay seller tool business and there was like 10 plus competitors in it and it was a very small market. Small TAM timing is wrong. And then when I joined as the CEO, we actually pivoted to a different business and that's a completely different story. But it's really, really important to understand some of those early data signals and I call them data breadcrumbs. And B2B has a whole other set of playbooks. But the more you can get a sense of early interest adoption, customer acquisition costs, the better. And data breadcrumbs is a great way to do it. And when I spend some time at Pioneer Square Labs, they have a really good sense of how to spin up ideas and kill ideas very quickly. So anyways, that's market timing. This could be a multi hour session, but give yourself a one if it's unclear, give yourself a two if it's shifting in your favor and then three. Yep, it's good for us. Again, TAM and timing very difficult. Now we're moving into something that's more in your control. TAM and timing not as much in your control. And this is really. Do you have a good track record in the space? And there's four components to that. The customer value analysis, the competitive assessment, the supply chain strength and the demand strength and customer value prop. It's not necessarily what you'd think it is. And what I mean by that is if you're doing a two by two analysis, which is how I usually deliver my customer value analysis. You'd have perceived value and perceived price on either axis with obviously very favorable. If your perceived price, depending on who you're going after is low and your value is high, you have an edge over someone who is the converse of that. You could actually be going after a higher end customer and your perceived price is high and also the value is high. So the meme around this value analysis is define who the customer is. That seems super obvious. But a lot of times when I see competitive analysis or customer value analysis, the company doesn't actually think about the customer they're serving. They're trying to solve a business problem versus customer problem. So example of this is when I was at Rosetta Stone, we weren't focused on the consumer business, we were focusing on other things. And the consumer business actually had a lot of strength to it. But when you looked at it from a perspective of all language learning, then you looked at Duolingo with a free offering and maybe Babel with a mid tier subscription offering, you would have backed out of it. In fact they did. What we ended up doing is actually going after a smaller cohort of customers that were more focused on learning language over a long period of time. There was some brand attributes that were associated with Rosetta Stone intrinsically a pretty good investor outcome. When we took the company private from being a public company, acted different than these other segments. And so we are perceived to be high price, but we're also perceived to have high value. And so we package the product that way and marketed the product that way and actually end up growing the business pretty significantly, which had it late last year. So when you think about it, think about the customer in mind. For B2B, it could be a segment like you're going after SMB versus mid market versus G2000. But think about what that segment, what that customer looks like and then map your advantage or disadvantage and then figure out if you have a disadvantage, is there an opportunity to increase your advantage. So competitive assessment, this is not the Harvey balls and the Chevrons that you see in most management consulting decks. This is flat out the baseball statistics of each competitor that you're going after. The revenue, the ebitda, the funding understanding, really the levers they have in their P and L and their business model to compete with you compare analysis on features is great. I'm a reformed product manager, I love to do it myself. But at this level of strategic planning and unlocking value, really understanding who you're up against and what levers you have is important. And as Bezos famously said, among many things is your margins my advantage. So if you can figure out different ways to compete on business model, more power to you. Those are hard to fight if you're an incumbent. And supply chain analysis usually not the sexiest topic. I actually think it's a really fun topic because you can be a distributor, you can be a developer, or you can be an aggregator. The developer is obviously the provider of the service. The publisher in some cases is someone that licenses the content or works with the developer to publish that through an aggregator or director or consumer and the aggregator is the aggregator. They take supply and demand and they make it happen. And there's a constant dance between aggregators, developers and publishers. We see this all the time. You see this with Home Depot for example. You can think of it as an aggregator, but they have their own private label brands like Kirkland and they've made a decision to put their own supply in their platform. Or in the case of Amazon, they have their own private label brands in their marketplace because they want higher margin and they have the ability to actually turn the knob of demand to their own brands. Think about supply on the travel side. You always have a dance between airlines going to direct to consumer around Expedia and Bookings.com. you can see this thing with Apple and Epic. All the all this is around advantage and being really careful to understand if you're building a business on someone else's dirt or real estate, how much leverage are they taking out of that that platform. If you're working on top of a platform, that platform is extracting a lot of value AKA they're extracting a lot of fees and a rake out of that system. You got to be really wary and have a plan B in the back of your mind which we've seen time and time again. And lastly with demand strength, this is your ability to acquire net new customers profitably. And so again, back to some of the earlier statements on testing how to do spend. Thinking about inorganic being paid or organic ways to drive traffic from the get go is obviously really important and understanding how to press the gas is really important. Pressing the gas means you have a handle on your unit economics and most importantly your ltv, your lifetime value. So understanding that early on and having levers so that you're in control of your destiny of acquiring customers is super important. Give yourself a one if it's too soon to tell. Give yourself a two if it's a strong fit and then three, if you have advantage. Second, last but not least, you have an executable plan. Again, this is really in your control, just like whether you have a track record. So executable plans, there's lots of ways to look at them. I like to think of like the four big operating dials. Are you selling more to the same customer? So think about that as upsells and cross sells and bundles. So that could be your existing products you're upselling and cross selling to or bundling. It could be a third party product that you do a rev share agreement with to incorporate that. But providing more products at checkout, increasing your average order value. Or in B2B maybe doing an ABM process to expand your current footprint inside a large company is the go to. It's the best way to grow your business because you have some beachhead with the customer. Whether it's a small pilot or a customer where you currently have some wallet share that's your go to. A lot of companies don't think that's that's sexy. I think it's very sexy to not spend more hard earned dollars acquiring net new customers. And you can expand within a current customer base. Then there's the sell to new customers and think about that as segment, geographic and channel. There could be a geographic adjacency. So I have a product in the U.S. i want to actually go into Europe and sell it for instance. Those are typically harder ones because you need net new team, maybe expertise, maybe localization of voice. They tend to be a little bit more expensive. You could always look for joint ventures, but that's one way to cut it. If it's a digital product, more likely you can go to geographic with less upfront costs but still more expensive segment. Example there would be let's say a mid market company in a SaaS play and I want to actually move upstream and sell to the G2000. That usually requires a different sales process, maybe a different sales tactics and team or specialization in your team. And then certainly there'll be more configuration requests and more customization as you move upstream. So that would be an example there. And then channel that'd be making a decision instead of going through a reseller channel where you're not directly selling a product or service and going direct to a consumer or a corporate customer. So those are examples there. More demand, which we talked below. More demand is always great, especially when it's profitable. And then be mindful about the portfolio spend that you have. Always testing about 10% of your spend in Terms of creative testing and experimentation to make sure that you're extracting as much as you can from a lot of channels. There's a lot of net new channels developing that I encourage everyone to explore, like ctv, which is what I think of more of a performance channel than it ever has been, in addition to the classics of Google and Facebook and other things. So lots of things to do in terms of more demand. But I would encourage everyone to have a portfolio view of their spend of their acquisition. If you're in the consumer space, always think about performance, always be testing different channels. It's easier to do than ever. And then B2B as well. So understanding whether you're going to start specializing in an outbound team, which is very difficult, an inbound marketing team, understanding where to extract more demand is something that is in your control. And then last one is buy it. So inorganically buying businesses. So if you're a public company, you have stock as a currency, you can buy businesses. Lots of things you can do, you could raise money and buy a business that's existing. It could be a tuck in business, which is small. It can be transformative. But inorganic is a way to definitely speed things up. It obviously cost you, depending if you're using debt or equity to finance it. But having an idea of where an acquisition does in terms of accelerating your returns and growing your business, that's another way to do it. When I was at Expedia, we primarily grew through acquisition because acquisition is really important. Some markets being big and getting big really fast, especially if you're an intermediary, is very important. Being very big is very helpful in some of these markets where your suppliers have a lot of alternatives. So becoming more important actually not only is helpful in terms of revenue growth, but also strategically thinking ahead to that question earlier about the supplier dynamics of aggregators versus developers, so give yourself a one, if it's not yet working, two, got plan, no resources, and three, we're ready to go. And lastly, the last question is momentum. Now sometimes I've taken people through this and I actually have a survey on my site which is called startupwhisper.com where there's a free version of this test and an assessment. While people will say, matt, is there really a scenario where you have all good scores and you can't attract capital in the form of team and capital? And the answer is yes. And so some of that does come down to the CEO and founder and investor making those decisions. It just could come down to like inexperience. It also can come down to you're not financeable for a variety of different reasons. But having the right capital and team is super important. This isn't a class on raising money. There's tons of great slide decks and approaches you can read about. Everyone's read them probably. But having the right team at the right time is a balancing act. So making sure that at the right stage of business, AKA if it's small, you don't over hire or you don't underhire, you hire like a Goldilocks at the right time and having those key positions hired is a long discussion. But I would encourage everyone to do things like I like the classic nine box assessment of looking at your successors and where they are in that nine box of rising stars or folks that are actually good where they're at and understanding where you want to go two or three years down the road in terms of where you're your HR plan is going to go in terms of your HR hires, your organizational structure and the types of people you'll need down the road. Because sometimes the businesses that are the most successful in the early days need different sets of people in the later days. It's very unusual to see a startup of a startup of a business, a CEO, founder and startup of a business actually develop to be the CEO in later stages. So this is so important to take advantage of capital and team. That's why I multiply it by three and it's really the key determinant to your success. So let's do a real world example. I've been flying through that healthier scoring it recent business is Rosetta Stone. I can speak to that because I'm not there anymore When I started, if I were truthful, I was. I think it was people called the dog. I mean they said worse things. I think they they called it dog with a sh and the apostrophe T at the end. And it was actually a perpetual software business when I started. Didn't really have an e comm team that was able to scale the product wasn't really designed for mobile. Lots of problems with it. In fact it was still associated with a CD. It felt like a CD business still even in 2017. And so that was a hard one. But it ended up being a 24 in the way I scored. I'm looking at my notes here. I scored it this way. So on my TAM I scored it as a 3 because language had a $50 billion with a B total addressable market with digital being just a small part of that. And so the Bet there which is playing out is education goes from offline to digital more and there's low penetration of digital and so digital native companies should do better. And there's lots of inefficiencies there. Obviously it's harder than that, but that's generally feels like a three in terms of timing. The second variable that was another three. Digital language learning products were taking off a lot of growth not just with Rosetta Stone, but other players like Du Lingo and Babel. Then Covid came along and actually was a huge pull forward in technical innovation and ed tech. And so even before that it was a three and then through the COVID experience maybe a five if there was one. All of our businesses, even outside of Rosetta Stone, we had a literacy business really accelerated. So that was definitely a three and track record. Crazy edge in terms of brand. Crazy edge meaning high brand awareness, like 97% brand awareness, but not really relevant. So I gave it a one, maybe it's unfair, maybe a two, but really languishing, not growing and declining. So recent track record. When I started I gave it a one. And then the plan, there was lots of different plans, which is usually a flag if there's lots of different strategies and lots of different businesses. And so I scored that A1 because the company where it's really doing too many things and then momentum since we're a public company. I had a good network of folks personally that I could pull in from the consumer space and also had a good team at Rosetta Stone as well. Felt like team. And then the ability to invest was quite high. We had a pretty high operating expenses that I could reallocate to other things so I didn't have to ask for additional capital. In fact we gave some of our capital to our other business to help finance that. So it grew faster. So I gave that a three. And so insight score of 24. I've, I've done this before and by myself. And the score, I would be honest typically is higher because I'm embellishing, I'm lying to myself that I can turn anything around. So when I do this exercise I definitely like to do it with my team because there's always somebody with a different personality type with a different girl diversity than I do who's not as optimistic as I am. And it's always good to have the naysayers with, with, with the positive, take the hill approach operators. And so I like to do these exercises before I start a company when I invest in a company and they're really helpful to do as a team. So this is a team sport. And I think if Rosetta Stone, I had a lot of naysayers, but there were some folks that really helped me along the way that gave me a perspective of whether it was a business that could be turned around. So shorthand for this, just in conclusion is T3pm TAM timing, track record, plan and momentum. That's the inside score.

You said not every company can raise capital. There are other reasons. What are some key traits of a company that can attract capital?

Yeah, and it's like I was going to come up with a fun analogy, but I think maybe I haven't had enough coffee. It does. I think with the early stage you can almost dial back my equation for a startup on Team Tammet and Team Tam and time, really. And so when I think about that, I think if you already have pmf, you're already product market fit and you're in a hot space, you're more than halfway there, especially in this market is pretty frothy. I see that some of the approaches of the founders just aren't financeable. Whether they have the right network or not, or they don't have the right skills or they don't have the right co founder set up. So that team configuration I think is the key. It depends on whether you're on the second slide or the last slide. If you have a strong team. If you don't have as strong of a team, you're an unknown team. Obviously there's a lot of natural networks to get you connected. But also associating yourself with an advisor or a board member or someone or maybe even like some pre money or early money and is helpful. But you generally don't see a situation where someone's got a hot idea that's growing, they can't get funding or that comedian Rodney Dangerfield, I don't get any respect. It's like you generally see people successful there in this market, but that team piece, I've seen that go the wrong way. If they're not financeable, they're not known, they don't have any street cred and.

Then the market is bonkers right now.

Right.

There's lots of money going in. Traditional VCs are getting attacked by hedge funds that have, you know, spotted huge growth in SaaS and public markets that are coming in and writing blanket checks and masks is what it seems like. But still, business fundamentals are important.

Yeah, it's bonkers right now. I don't get it personally. Early stage investing is almost like being a Talent scout. I have a lot of friends who do early, early stage vesting and I'm just like, I'm old school. I like to like discount cash flows, which are like ridiculous because you're assuming what the future is going to look like. You get your first million, you can write your own check. 1, 10 and 50. Those ranges, everyone's got the ranges. They're looking for even early revenues, getting massive premiums. Right now you've got like the tigers of the world coming in and throwing a ton of money at people. If you have PMF and reasonable sample revenue, you're going to be able to get to whatever premium threshold you want. But be careful if you ask for if your valuation is too high, you have to live with that and you're on the treadmill for the next tranche of revenue, which is just a multiple of the last thing you said. So I always tell people, manage the cap table appropriately and don't is raise as much money as possible with a reasonable valuation.

If you treat people like a transaction on the way in, that's how you'll get treated on the way out.

Right.

If you optimize for the valuation and if you can't hit that number, then things don't get as as pretty. Now, from your experience, a lot of people have different ideas of product market fit. Right. When you're looking at a company, how can you tell that this company has product market fit? What are, what are your indicators?

Yeah, the two that I love, they're not mine is one is the long Marc address quote about money comes from the ceiling and the bank accounts overflowing. That's the fun one. And it's like so long I can't even remember everything he says. It's like two paragraphs. The one that I really like that I've actually I used a version of this years ago. Is the PMF question that Rahul it's a superhuman quotes. It's not his, but it's the. If your answer to the Likert question is will you be really dissatisfied if this product didn't exist and it's over 40, you have PMF. I love that. And I've used a version of that for years and I just started using that. The other one is just the Dau MAU metrics. That's the other one that I look at in terms of just the raw engagement. Because the PMF 40 question is good for. It's a good litmus test. But also just looking at the event level data on engagement is super interesting and so if people want benchmarking on that. Like I had a friend of mine who was like self flagellating himself because like he felt like his Dao Mao was really low. And I said, look, go on app Annie, get some of their free stats and just benchmark your thing versus that thing and then come back to me. And he was like, well I don't feel as bad because you're not going to have the Dow Mao of a social network if you're more of a business app. So I look at Dao Mao, I Look at the PMF40 question and then I think that's those are good indicators.

If you have high retention and customers would be very disappointed if you were to leave. I think that that's a good sign of product market fit is what I'm hearing.

There's one exception. This is the founder Scott Dorsey, who's well known and CEO of Exact Target. He also has this quadrant. I can't even remember the axes. But you can also have customers that are trapped. Yeah, like they hate it but you're mandated to use it. Like I'm sorry, one of my close friends was this was the founder of Concur. But like how many people love their travel and expense software? Most people don't. But the exception to all that is you could be trapped. That's typically like a B2B thing where your company mandates to use this thing. No one really likes it, but they did a great job selling it into procurement or the Chro somebody. So that's one exception to that.

Like, I mean it's funny, right? Like one of the key things is to make your product sticky. And you can make a product sticky if it's the system of record for something thing.

Right. Like a salesforce for example.

And then it's just your data exists there and the more you would lose if you were to leave, it's just a headache.

Right.

And back to the whole nobody got fired for IBM or for moving to IBM or Salesforce thing. As you advise companies, you scale your companies. What are some key hires you make on the way to scale? Like what are some people that you absolutely need?

Yeah. At the earliest stage. And there's lots of debates about this, but I am a big believer on having the business founder. Let's drop the title for a second business founder and the technical founder. There's a Batman and a Robin. I'm a big believer in that. Now occasionally you meet someone who's both which has some weird genetic hybrid, but I'm a big believer in that. And I'm a big believer in early stage of having high deb ratios to everyone else. And I lean towards product led growth in terms of my bias for early stage businesses because I think you can just sling code really fast and get a product up and running and then the rest can figure it out. The business oriented founder can probably carry the load of biz dev or sales for quite a while, a lot longer than he or she thinks. As you scale, there's this really interesting dance between like the first 10 and the first 50 and that's always a very dangerous place. So I think once you get to specialization then you have to hire some managers because you don't want all these direct reports. And I think that's the scariest one that you look for. And you try to hire someone who in early stages, depending on the business, I like to hire more player coaches, someone who's actually can, can do the work and actually manage people. And those are key hires. And then I would say the most critical one between 10 and 50, even before you get to 50 really quick, is the product manager, which is one of the hardest jobs to fill. I'm biased because I'm a reformed product manager. And that first product manager is very hard because the founder is typically the product manager. And so getting someone is really good and appropriate for that business based on the wants and needs of the founder. Like if the founder isn't as technical, but there may be ui, ux, founder, getting someone who's a little bit more technical makes a lot of sense. But really mirroring what that founder or technical product person doesn't have with a product manager is going to be really important.

I like that you're a reformed product manager. I think it's a great skillset to have. I started my career in product as well. What are the key traits to be a good product manager?

Yeah, and I would say most companies aren't that great at it. But the skill sets that you need are heart and math. Product management now is mainly stats. But to be honest, it's like I'm old school. Like I remember doing lots of market research but we didn't have like amplitude or something like that where I track all the events. Like we had like really precambrian versions. There wasn't even homo sapien versions of product management. But you need heart and math, you need empathy, you need to understand the pain gain of the customer journey and really empathize with your customer. But you also have to be data oriented and I think those are the combinations I Look for. Otherwise you're looking if you're more heart than you're more Marcom Product manager talking about positioning all the time, which is great, but you're going to miss all the key components and statistics around what's going on with your business. If you're too stats oriented, I think you build robot products. And I was talking to someone who's an early Zynga person and I love the Zynga people but like Zynga built products that were really wired up for data. They're hugely successful at it. I think those good long term product managers can do both heart and math.

I like that analogy of heart and math, a little bit of both. Because ultimately it's people you're serving and people don't care about your fancy dashboards and your technology. They're looking for outcomes and you need a lot of heart to figure what those outcomes are and how to deliver them. At what point do you move forward from a player coach model? Because you've led companies now at massive scale. Initially it's the founders, small teams, everyone is like a ic Then you move to a player coach. When is it time to actually find execs who are just leader coaches versus player coaches?

I believe in roadmapping your time along with your strategy. And so if you're doing kind of like a five year strategy, like good luck and trying to actually put that down in the calendar, but you should have like some perspective on where you want to be every year. This is going to sound anal retentive, but every year I do and there's many versions of this. I just did my own version of this. I didn't read it from any book but I do a year plan that I dial it to quarter month, week and day. And I always have two or three kind of perspectives, initiatives that I want to get done and I really ignore everything else. And so from my perspective, if I can't get those three things done and I'm maxing my life out, which I typically do on a regular basis, then I know that's usually a time to hire some specialization or if the area of specialization is so poor and optimized it's clearly obvious. So there's my gut, my instincts are though, when you look at a company building, if you're building rapidly, you can actually do ratio analysis on who you need and when and so product manager to dev test to dev execs to everyone else. And so I benchmark that as well. I have my folksy way of doing it and then I Have my org way of doing it. I look a couple years out and go, okay, this is generally the ratio I need for this level of growth. I was just talking to a friend of mine who's the product head of product at Bark and that's they're growing really quickly and they're just all ratio driven on how they're building out their product management team. I thought that was really interesting.

In terms of like those ratios though, what have you found as an ideal ratio to number of reports to a manager or leader?

I think yeah, there's lots of studies on this. Like personally, if it gets over seven for me, that's rough. They call it span and scope. If you talk to HR people, what's the span and the scope of the person? I think six or seven gets to the limit. I think if you're a technical leader and it's a small team, I think you can get away with a lot more because it's really. You're doing daily standups, it becomes really obvious. But at scale, I think six or seven.

Having been in this leadership role across companies, what do you think is the key jobs of a CEO or a president in a company? What are the key functions that they should do day in, day out? Because a lot of people like, they get to a point of scale and they're just getting in the weeds, but that's likely not the job.

Right.

And that's when they start to destroy themselves.

Yeah, yeah. No, there's a clear line between being an art critic and an artist. Yeah. And when you're at scale and think about like you think about like if you quantify the amount of time you spend on something to get really good at it. And I had to take this honest look at myself. Like, could I spend all my time really diving into this query? Like I'm trying. I was actually trying to do something this morning. It took me an hour and I was just like, oh, this is taking me forever. Like that's actually unwise use of time. And so I think what I would say, the CEO, to answer your question, is you're an art critic. So it's capital allocation, it's strategy, big deals, big hires, and communication. That's how I define it.

That's fantastic. Strategy, key hires, big deals and communication. I think communication is one of the most underrated things. The job of the leader is to inspire and excite people. And it's not a one and done activity. You have to do this day in, day out. And a lot of people don't think of it that way. Do you recommend communication coaches to other founders, CEOs that you mentor or advise? Because it doesn't come naturally to a lot of people. Right?

Yeah, No, I think coaching is awesome, whether it's formal, informal, at any age. I had a lot of coaches, more mentors when I was younger. But you asked about coaches. Do I? Yeah, look, I've had some technical founders, friends of mine, like, who couldn't articulate their way out of anything. And so, yeah, I think it's helpful to do that. There's a lot of resources for folks to do that. I also think mentors is super helpful. And so at Rosetta Stone, one of the board members who became still a mentor to me, he's a friend of mine, was the former CEO of Coach and Tumi. I mean, he would literally text me in a board meeting what I'm screwing up on, or when I did something good and was like, real, I want this AI myself. Like, it was like Lawrence in my pocket. And he'd be like, okay, you nailed that. Actually, that sucked. You need to go back and say it's these three things. And so whether it's formal or informal through mentors. Absolutely. And the key thing about communication is I'm extremely verbose, which everyone can pick up, but I'm always like, I always remember to do stuff like this. If you heard nothing from me today, if you can't remember anything I said, remember tam timing, track record, plan and momentum. Just reinforcing some of those key things for media training is also important. So, yes, if you're a founder, get media training.

How do you make sure as you scale, everyone on the team and across the company is well aligned with the overall strategy and goals? Like, effectively, how do you train the organization to make better decisions when you're not in the room?

Frameworks and consistency. So what's the. How much is a subway sub cost?

5 bucks?

I don't know. 6 bucks? $5. Foot line is a jingle. Like, you got to make whatever you're measuring as an outcome, make it like, one thing and make it, like, memorable. And so I used to sing a little song. I was so desperate. And turnarounds, too. Your habits are so ingrained. You have to get consistent on one thing and then a framework. So, like, to be honest, I like the V2MOM framework from Salesforce. The vision, values, methods, obstacles and measures. I think it's awesome. It's simple. It's one page. Everyone should know it. You publish it all the time. All your slides reference the things you're focused on and the CEO posts his or her goals. I think V2MOM's a great framework. I use it to this day. Awesome.

Yeah, I love it as well. Your vision, values, methods, obstacles and metrics. It's a great one. I've been a big fan of Benioff and his book as well. Beyond the Cloud is amazing. Any hacks along the way that you picked up in terms of recruiting? Because you mentioned one of the key jobs of a CEO is to also make big hires.

I will have friends who are executive recruiters. I use them executive recruiters use as a last resort. Your recruiting is your job. I actually allocate time just to go through LinkedIn myself. I actually have positions. I'm crazy this way. I'll have like, okay, I know in two years I'm going to need this. Assuming I hit all my metrics, you know, I'm like, okay, I need that. So whether the relationships I'm going to cultivate now to do it. And so I dedicate time. Usually when I'm working out because it's boring, I go on LinkedIn and I'll find people, I'll message them and I'll, you know, I find something interesting about them and I just, I'm always doing it. It's like a habit. I'm always on LinkedIn, I'm always reaching out to people, I'm always texting them. And then if I, if it's a search that I feel like it's going to be outside of my network because I'm an old white guy and so I'm very conscious that all my friends are older white people. So like I always try to reach out to people who are my diverse friends, which my best friend's Mexican, my second best friend, don't tell me I said this is African American. I try to reach out to networks that aren't my networks as well because I think it's a cop out when you see people making non diversity hires because they can't find that talent. So it's a muscle, do it all the time. And also I think some of these groups that I'm in, like the University of Washington has a product management group that's focused on bipoc product managers. You get a lot of great talent in some of these really bespoke verticals. Like if you want to talk to like someone who does head of profit, Salesforce and Netflix, they're there and they're like, hey, I'm trying to find a cmo. Can you refer me to Someone from this network, get specific about what you want, be intentional and network.

I couldn't agree with that more. As we've gone from a bootstrap company to venture back to like we added up about 70 people in the last five, six months. And you got to be deliberate with hiring. I think like your mind as a leader then starts working in the direction of, as you talk to more and more good people, like, how can we work together in some capacity in the future? And you start evangelizing them. Matt, as you look back at your career, what do you wish you did more of and what do you wish you did less of?

I was extremely impatient and so I think being more mindful about the companies I should have stayed longer at and maybe mindful of the opportunities that may economically have been more interesting but not really satisfying me. So being a little bit more patient and more deliberate about career choices. I'm an adrenaline junkie and I love change and action. You know, pet meds, we're one of the leading pet pharmacies and Chewy kind of kicked our butt a little bit. And now we're going to, we're going to bite back a little bit. So being a little patient because not everything can be fixed overnight. And that's the advice I give myself.

But it also depends on the phase, right? Because if you're starting out and trying to get to product, market fit, it's a lot of sticking out elbows and any means possible and then you get to a point of scale and you got to balance that and be more patient. Any books that you love that have.

Been super helpful, I think, to be honest, the best strategy book is Seven Powers. I forget the author off the top of my head that Seven Powers is like the ultimate strategy book. There's a lot, there's, there's some light math in it too. So like it's not like a page turner, like you're going to be like looking at and studying and slowly going through it.

Thanks so much for joining us. Wishing you great success.

Matt.

I need some traction. You need some traction.

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