10 Things I'd Do Even Better and More Lessons Learned with Phillip Fernandez

Please welcome philip fernandez, former CEO of marketo. Hello, good morning. I will wait till people just walk in just another minute, but we'll get going here this morning. It's great. Welcome to Saastra. It's a phenomenal privilege and honor to be able to kind of kick off the event here. And thank you for all of you. Come in a little bit before the main event starts to hear what I've got to say. This is actually a really fun thing for me. It's the first kind of original big stage talk I've had a chance to do since I retired from Marketo just a little more than a year ago. And it's a wonderful time to do something like this. Jason actually gave me the idea to do these 10 things I would do even better. And it's been a wonderful opportunity over the last few weeks and months as I've been working on this to really get some distance from the great things we did at Marketo and to be able to think about and what kind of wisdom would I pass forward if I ever had a chance to do this again, which as I say very clearly, I will not. I am good and thoroughly retired and so take this only as whatever wisdom I have for anybody that's following in the Marketo footsteps. I'm really kind of amazed at how well Marketo is known, so I probably don't need to say a whole bunch but, but just a little bit about myself. I'm a 35 year Silicon Valley vet, been kind of building companies since the early 80s, so I've had a chance to see many, many cycles and it's just in my bones, I'm basically a product guy. But from my very first days and months in tech in the early 80s, I've been out selling. And so I really live in this world of customers and sales and then bring it back and how to translate that into products. I've had to honor of four IPOs along the way and now I'm just focusing on board service and mentoring and trying to give back to entrepreneurs that have had a lot to do. I co founded Marketo in 2006 and we had an amazing run. We were kind of the original T2D3. Neeraj Agrawal, who is an investor and on the board at Marketo and kind of invented that term, kind of did that coming from the growth and success we had at Marketo. We had a great IPO in 2013 and then Vista Equity Partners came along and put me out of my misery and gave me the chance to retire A year ago. And so here I am. I come from a family background or if I came home with an A minus from my report card as a kid, my parents would ground me and want to know what the heck I had done wrong with my school. And that kind of carried over to my management style as my staff, many of whom are sitting in the room here and my ex staff know in terms of how hard I am on myself and judging and as I talk about things I do better, that'll come through. But it's really important first to take just a minute and think about kind of all the things we got right at Marketo. We built just a phenomenal, great differentiated product and started a movement. You know, we took over this hotel several times until we went to Moscone with the Marketo marketing nation. And it was not just a. It's not just a user group but it was a movement to empower marketers. And it's really become kind of one of those emblematic things I think in the industry. Very proud of that. We were the last entrant in a very crowded market and we disrupted that market and we ultimately won it. And then obviously right into a great ipo. The team that we built, amazing. I look at John Miller, my co founder this founded Engagio, Nick Bonfiglio, that's done apptrinsic now and everybody on my team are going on in great things. We had a tremendous commitment to diversity. I had three women on my seven person board by the time we were done. I was going for four when Vista came along. So I didn't quite get there. We would have been one of the top public companies in terms of gender diversity on the board if I had gotten that last step done but still pretty proud of it. And we exited with just everybody winning. Customers won, employees won, investors won. And I'm just so proud to still watch what's going on with this thing. I helped build those many years ago. But with that let me jump into if I did it again, what would I do over and let me share just a few thoughts and a little bit of wisdom that might help for people that are doing it in my place. Going over. So these are in no particular order, I've got kind of 10 things that are worth talking to the first. And I get asked this probably when I spend time with entrepreneurs these days as often as anything else, which is what's a CRO? Should I have a CRO? What's a CRO do? I didn't get this right at Marketo. I Had a SVP amazing bill bench that just ran the most amazing customer acquisition machine. I had a separate head of marketing that my co founder. I had at one point to try to look at scale. I actually experimented with a chief revenue officer over marketing and sales. That was a mistake. I would never do that again. And then my chief customer officer had the whole back end of the customer process. So I really had lots of kind of moving parts. As I look at that and as I think about kind of modern SaaS companies and how things are going now, I would do that very differently. I think ultimately the way this has to happen is companies need a chief revenue officer that's a revenue person, that's a salesperson. It's somebody that's out there about putting money on the board. It comes out of a sales background and it owns every aspect of revenue. Soup to nuts kind of planning for acquisition. How does the demand funnel work? I don't mean that they necessarily own demand gen, but they have to understand it. How does growth happen? How does cross sell upsell multiple product sales go? How does success happen? How do renewals happen? That needs to fit under one executive. If you start to put seams inside those because different people run different pieces of that doesn't work. Professional services can go do enablement. Probably tech ops someplace has support and marketing is separate. I even wrote a book, my revenue disruption book. I talked about how marketing and sales need to come together and how there's lots in common and differences. But as I've kind of reflected over the years, I continue to realize how different marketing and sales are. Marketing is a long range strategic function. Sales is a right now make the quarter kind of function. So I think marketing needs to be separate from the CRO. But having one person that owns all the revenue is how I would do it over. And we're going to come back and we're going to talk about revops in a couple of minutes because I think that's one of the most important pieces of wisdom I would have to share. So last time broken up. Next time, one chief revenue officer that owns every aspect of revenue. One person to ask to own that entire piece. Now we'll shift gears just a little bit. I originally called this a cpo and then I realized everybody's going to think it was a chief product officer. So I've invented this term cplo. Looks a little funny, but this is one of the lessons that I really took away from Marketo that I think everybody can learn from. It'll be a little bit controversial Gave a little preview of this yesterday and it was very controversial with the group I spoke to. I outsourced HR for a number of years at Marketo and then as we were growing, brought in kind of a great operational VP that could make sure we could do payroll and we'd have benefits and kind of take care of the shop. But it was really only after we went public and had grown that I actually went out and found an amazing, very, very senior chief people officer. She's now doing that job at DocuSign here in the city. And it was transformative to me to have this kind of an individual and this kind of an executive in the company that was able to really look after the people function in the business. And one of the things that I would say is that if you're building a business, you're watching pennies, you've got investors that are asking you what your zero cash date's going to be, you're thinking about your next investment. And all those things make it really hard to make investments that aren't in product or aren't in go to market in the early stages of a company. But I assert that you ought to hire the most senior, most capable, most executive, chief, people, officer as soon as you can. If you've got 20 or 30 people or 40 people in the company, if you're scaling, if you're growing, you need to have an HR function up and running. I read an expose just in Business Exciter, I guess yesterday about a company that had gotten to some scale and didn't have an HR function and in fact had some goofy stuff going on with harassment in the company. And there was no kind of outlet for where that can happen. And I think it's just a terribly important thing to do in a business. You need to hire the most senior HR person you can find. They need to report to the CEO to have that direct pipeline and to have that kind of trust that comes in. And this is really important because number one, we are all in a global fight for talent. There is no safe refuge. I planted labs all over the world when we were at Marketo and we could no longer or no sooner be any place than Facebook and Google and everybody else come pounding in and started fighting for talent. And if you don't have somebody that's really helping you from day one, think about that global fight for talent, you're going to lose compared to people that do. And in this world, no matter what the tone at the top is, no matter how powerful the culture is in the Company, you need help to build a culture. You need somebody that's a safe place to ensure that even if you're setting the right tone at the top, everybody in the organization feels empowered, feels safe, feels that they have a place to go. And I think this is one of the most important things always. But even in the culture of kind of me too movement and other things today, I can't say enough about how important this is. So you still might not get the kind of amazing executive I was able to hire after ipo, but go big on this function, go early on this function kind of related to this a little bit. And another really interesting lesson I learned at Marketo was how to integrate social responsibility, community involvement, a perspective in the company beyond just the business. And I didn't do that at all when I started Marketo. I'm super high driving. My greatest weakness in the world is every time I get to the top of a hill, we accomplish something. We ship a product, we get our biggest customer, we land whatever. I get to the top of that hill and I say, great, let's go on to the next one and forget to kind of give people time. And so culturally, being able to create that kind of space in a culture is important in general. But I think one of the things I realized is how important it is to start to integrate that set of ideas more broadly with volunteerism, with community, with creating an environment where a company doesn't exist as an island, but instead exists in the community and in the places that it operates. So at Marketo, we had a volunteer time off program, but no real program about it. We had grassroots encouragement for people to do things, but there wasn't really very much that was going on. I would encourage you. As you know, Salesforce, of course, was amazing at this. Marc Benioff's 111 program of kind of instilling in that organization from day one a culture of giving back, a culture of volunteerism. I admire so many things about that company, but it's one of the things at the very top of the list of what I admire. And so even if you're just figuring out how to raise your series A or you're trying to figure out how to grow and scale a little bit. If you're leading a company, you ought to be thinking about how to start to bring things like social responsibility, community involvement into your program. You need to staff for it. This just doesn't happen by magic. We had a lot of energy going on at Marketo about it, but people had busy jobs and Creating opportunities. So later in the days we actually staffed a senior director level individual in the company just to help propagate and drive forward our involvement in the community. This is a CEO led function. For me. It was really an amazing epiphany when I happened on this idea that I could integrate my own personal beliefs about social justice and some even political beliefs within limits into the company environment as opposed to how I had kind of deeply compartmentalized all those things before. And by being able to bring an idea of what the company stands for, what the company stands for and the communities in which you operate, really changes the complexion of a company. That doesn't mean everybody that works for you have to believe. And in fact it's really important to create a safe environment. But it is important to lead from the perspective of, of what you believe in and to create that as an animating force in the company. Because I think it provides just a dimension to the workforce that you'll never get if you don't do something like that. And one of my great regrets, I could have, I would have, I should have. We were very close to setting up in fact some pre public stock for a foundation. I had one board member that wanted to lay down on the tracks about that and stopped me. I could have run over if I had had the chance, I could have won that one and I didn't. I chickened out and it was a mistake. So I'm not saying this is right for every company, but think of that magic thing because when we were public, when we were a $300 million run rate company, when we had great community involvement programs, man, I would have killed to be able to have some funds and some ability to be able to really invest in giving back as part of the company. And so if you ever think about that, if it's a moment, don't miss that moment in your company to be able to set aside and plan for the future. Because it's a special thing that you can only do once. This is kind of a weird one, but it's actually I'm involved in another, I'm on the board of another public company in New York that's fighting through the exact same issues that I did at Marketo. So I think it happens to more than just us. And that's about how to think about enablement and bringing customers alive and how you charge for it and the like. And I personally, in the early days of Marketo, remember writing the webpage about our customer services and support and I, and I wrote this line that was on our website probably for two and a half or three years that said at Marketo your success doesn't have a price. Big mistake, big mistake. And that produced and it was a culture that in fact translated right into the sales organization where sales then picked up on that and started to tell everybody, don't worry, it's really easy, you'll be up and running, don't bother, don't worry about what it is to get running. It's easy. And as a result we had these unstructured enablement programs and we got a mentality of like it's so easy that you just kind of get in and get out and let customers be alone. That's a mess. You know, if you don't do, if you don't do something better than that, it will translate directly into churn, it will translate directly into limiting the lifetime value of your customers. And really there's a psychological thing behind this that I think you know is rooted in a lot of lessons which is that if people don't put skewers skin in the game, if they don't have a mental commitment and a financial commitment to what you're asking them to do, it's really easy to get distracted, it's really easy not to follow through. And you just see that and I see this in SaaS companies over and over and over again where a sale takes place but the customer never really quite gets there with the product. And so I think in fact you should have expensive services with every time you sell a product you should ask people to make a commitment to your product, to sign up to a one time check, to be able to get live on your product that gives you the ability to lavish attention on them, that gives them the psychological commitment that they need to follow through. And I think it's actually even though you'll lose a deal here and there because you're a little more expensive or whatever else in terms of lifetime value to the customer, I pretty much guarantee you're going to win. It's very important if you're starting to think about this and if you have an all a service intensive product as well as create choice, create opportunity, don't just do it in house but do it, do some capability but also work very early days of building partners and building a network of people because it's quite remarkable and you can look at the statistics. I saw it at Marketo, I've seen it at other companies. The more there's an ongoing how to services relationship whether it's you or a partner that's engaged with a customer over time, the odds of a renewal, the odds of growth, the odds of success go up by a factor of who knows what, 2, 4, 10, something like that, in terms of being able to keep people to grow and stay with you. So I think this is very, very important to manage and grow the overall base of the business and to ensure that that engagement is continuing. So success has to have a price and you gotta be making people to make that commitment to you very early on. Boy, this is one of the important ones and it's one of the ones that I'm so thrilled to see finally, that I see a dialogue happening in the Valley, I see a dialogue happening in the SaaS community overall about the amazing importance of this function that I call Revops has been called sales Ops very frequently, but I think revops is a very, very much better term. At Marketo we went for the longest time, we had a great marketing ops function in marketing that figured out how the whole demand funnel would work. And my co founder John built this just amazing ability to really think about the marketing operation and how that impacted revenue. We had in sales a sales ops function we had in the chief customer officer then went and created a renewal ops function that figured out. And the honest truth is they didn't talk very much, they really didn't coordinate very well together. Really, really wasn't very good. And then the second thing that I see just like all the time is when people start to build a sales ops function, it really turns out you go get the best salesforce administrator you can possibly find and you ask them to be sales ops and they get Salesforce set up and they get the basic leads and opportunity models set up and all that kind of stuff. SFTC administration is not sales ops. It's not rev ops. RevOps is a very strategic function in a company. It's about modeling, it's about analysis, it's about vision, it's about really understanding the business. And I sort of put adjacent to this because it's worth talking about. The other thing we did at Marketo was for the longest time, the way we trained salespeople was we'd hire a new salesperson and we'd say there, go sit next to Chip or go sit next to Kevin or whatever and do what they do because they're making their numbers so listen to what they do and do the same thing. It doesn't work very well when you got 50 or 100 reps to hire, but frankly it doesn't work very well. When you got five to hire. Because people don't really come to understand the nuance of the business. And so if I were doing it over, first of all, even by 2 or $3 million in revenue, I would be wanting to staff a VP level Rev Ops executive. An executive that ideally comes out of a sales or a revenue function, but might be a financial planning analysis FPM person out of a finance organization, somebody that really knows how to model and understand a business, somebody that knows and can communicate. And one of the things I look for in this kind of a person is somebody who can storytell, who can come back to me as an executive, come back to the team and say this is what's happening in the revenue function, this is what's working, this isn't, this is how we should change it. And that ability to have that kind of a voice in the business, even very on is, is absolutely critical to designing the way in which you're going to go to market, where you're going to make money, how you're going to grow customers and ultimately how you build a great revenue go to market operation. This person needs to have responsibility for the full end to end revenue operation. They need to look up into marketing, up into demand gen, understand where leads are coming from, what kind of account based marketing activities are taking place, what else is going on and think about that all the way through the renewal process, the upsell process, the growth process. At the same time I assert that if you're not somehow, whether inside or going outside and investing in formal sales training programs, formal sales certification programs where you actually ask salespeople to be tested or do practical demo kind of things to a sales trainer, by the time you've got 10 reps, you are leaving money on the table. Because if you can take one more rep and make them 20% more productive or 30% more productive or lo and behold, 10 reps just by a little bit, you have paid for that function three times over before you're done. Very, very good investment. This sales rev ops thing is tough. I've worked with sales executives that are like that. Lean into it. In fact, I've worked with sales executives that are themselves revops people. They're terrible sales executives because they're not outselling, they're worrying about the model instead. So don't hire a salesperson that's a rev ops, a sales leader or a CRO that is. But you want that person in sales if possible. But a lot of times it doesn't work. You've got a salesperson that just doesn't get there. Then the answer is just put it in finance, give it to a cfo, give it to a director of finance, have it report to the CEO. But one way or the other make sure this function exists and thrives in the business. Boy, this is really quite the change from when I built Marketo. This focus on continuous expansion. Thinking that not about maximum initial deal size, not getting fixated. And every time we had a board meeting at Marketo we would get asked what's our asp? Has our average initial transaction size gone up? People were fixated on that. I'm involved in another company right in the middle of their T2D3 in New York City these days. I'm on the board and the CEO there just made a strategic decision to completely change incentives to go from a place where everything was incented about, get the maximum big deal to two year value of each initial customer and change sales comp plans and everything to think about how to think about continuous value creation. So at Marketo we had large monolithic products. We were always pushing for how big could we get the initial deal. And then we were really lousy frankly at how to come back and think about when and how to cross sell or upsell or start to grow customers. And even though we were a SaaS company and we had every last micro detail about what our customers were doing, we had no telemetry really flowing into the business or flowing into the sales team about who was using the product, how people were using the product and when and how you should go cross sell somebody or whatever's happening. I think that's all obsolete. A lot of people are getting this right, but it's really the most important thing to think about. Feature level packaging, smaller products, bite sized chunks, design products so that they can be bought and consumed in ways so that people can dip a toe in the water and then they can buy a little more and they can buy a little more with intentionally designed expansion paths. Product managers, product marketing people that either spec products or start to think about taking them to market are really good about what's the positioning and really good about what's the value message and all those things. But they don't necessarily do such a good job of starting to think about what's the two year path, what are the, what are the ways in which customers buy and grow and expand with products and so demand your product team or your product marketing team at the same time they're specing your product, you're starting to plan for go to market you ought to be able to answer the question, what's the second purchase, what's the third purchase? What's the fourth purchase? What's the fifth purchase? So you can start to think about this continuous lifetime value. There are amazing products starting to hit the market, right? A pendo at some size. I talked about apptrinsic that my longtime tech leader Nick has been building here. These companies that are starting to build technologies that you can build into your own products and bring back into the organization for marketing, for selling, for lifetime value, for service and support, the kinds of telemetry. You need to really be able to understand how products are being used and to use your product as a demand gen engine, right? If somebody's not using a key feature, the product ought to be telling the customer that they're not using a feature. A key feature and incenting and driving towards a sale and feeding that right back into your sales team. And then you got to build financial metrics, you got to build quotas. You've got to make sure that the incremental sale and the growth of a customer is incented every bit as much as the big initial deal. And you ought to celebrate it. Marketo would cover a board with all the new deals, but we didn't have any board anyplace for upsells. Wrong answer. Celebrate life cycle revenue. Every step you go quick glass of water. Boy, I failed at this miserably. New products. Been failing at this all my career. I think I've been phenomenal at building new products. No problem creating new products at all. But boy, figuring out how to get a second product, a third product, a fourth product, a fifth product to market and to have it start to really expand and have the kind of effect on the revenue growth of a company, it's a shockingly hard thing to do. At Marketo, between our organic product creation and MA we did, over time, we grew to have sort of five major product lines. And for good reasons and bad, I made the decision to ask the same revenue team to sell all of them. Big, big mistake number one, because they had gotten really good at selling the first one. And when you get really, really, really good at doing one thing, it's really hard to start to learn the next thing. And second, you know, it's really hard when you got the tyranny of a quarter breathing down your neck or you got a board that wants to see how the revenue's growing, to be able to not just say, ultimately, yeah, ahead of sales, I don't care what product you sell, just get the quarter made, big mistake. And then I did half hearted things to create a general manager to kind of own and did the classic thing of putting a GM in the product marketing organization that had an overlay responsibility and a quota. That junk just, it just basically doesn't, it just doesn't work from my point of view because sales is running at a different metabolism and they just run over and around that kind of stuff too often. And then downstream we just didn't do the right stuff. Service and support just kept doing their thing. So we fundamentally squandered a lot of resources in Marketo. Even in the context of all our success building new products that just never had the impact on revenue and growth that they should have. If I headed to do over each of the new products, I would have created a separate dedicated organization with a senior leader, had them report to me or had them report to a senior executive, maybe to the CRO or maybe even to somebody other senior, senior in the organization. You have to insist on separate quotas for the new products. If you don't have the steely resolve to have a separate quota to be able to say I don't care if we got to make the quarter, we have to sell this other product. If you have a company bonus plan, if you have incentives, those incentives have to be at the very top level in the organization because everything in the business is working against getting this right. And then finally I'm the last person in the world to ever recommend a business book. If you know me, it's just not my thing. But read Geoffrey Moore's Zone to Win. It's got a great thing about incubating new products that you need to know. Boy, tech is amazing, huh? Constant technology renewal at Marketo Tech Cycles were moving fast. We started to build the product on MySQL and no sooner did that happen and we were out. That Hadoop came along and no SQL stuff and then AWS and cloud stuff and then now you got containers and serverless and we got the same stuff going on in the front end and products. And then we labeled all the sort of old tech as tech debt. But tech debt just isn't as sexy as the new product boards. Don't want to talk about tech debt. And we just didn't renew our skill set at all adequately either because we were so focused on new product generation. If I headed to do over you need a research function from day one, it might be the cto, it might be another kind of early founder. You got to be looking outside because if you aren't reinventing your tech. Some new startup is going to grab the next new tech and they are going to beat you with it. I can basically promise you that. You've got to value technical currency as much as you value new products. You've got to allow scheduled time in every last product cycle to be sure you're staying current. It's really hard when you got to do features and you've got customers that want features. I guarantee you if you don't renew your technology and disrupt yourselves, somebody else will. The way these tech cycles are moving, M and A is a great way to drive currency. So look at that as an option. Always be seeking more tam. You know, at Marketo we grew up and we made a decision to grow on the slipstream of Salesforce. You know, they were growing so fast, it was nowhere near as big as they are now obviously in 2006. But we got really focused on this lather, rinse, repeat kind of thing in one market. Later we introduced Microsoft Dynamic support. This is obviously specific to our market, but we started to take baby steps towards new tam. But because we were so fixated on this one market, all of our BD resources, all of our partner resources were focused on this one company as opposed to finding new friends and expanding horizons and thinking about what we would do next. So no matter how good your initial TAM looks, no matter how big you think it is, don't get comfortable. Always be thinking about what's next. Get a strategic planning function. Force yourself, even at series A or early series B level to have a formal strategic planning process and think offensively. What are you going to do next? What's the next market you can take and think defensively. Salesforce bought exact target three weeks after Marketo went ipo. That was a big gulp because I hadn't done enough to think defensively about what happens if somebody makes a move like that. Turned out to be a non event as it turned out. But it was a pretty big gulp when it happened because I hadn't done enough planning for how the TAM might change if somebody makes a move. This has to be a top level organizational focus. And let me finally close here with my last set of thoughts. People ask me a lot of times what happened? Why did I sell the company to Vista? Why did Marketo with all of our success go down the path it did? And the answer is fundamentally I played the clock badly. By play the clock, I mean looking out and thinking about the time horizon of building the business. So you know, we scaled up just Fine thinking about what next year was going to look like. And we were at 100 million or maybe even 150 or so million of ARR in the business until this really started to come home. But we entered 2015 needing to add $50 million of ramped quota into the sales organization. So that means with you kind of do productivity models, entertainment models and that kind of stuff, that's 60 or 70 new reps that we needed to hire to just even make the numbers that people were expecting of the business. Which means we needed at least 10 new sales managers to hire those 70 new reps. Oh man. And we were driving towards profitability and we were driving towards break even. And all of those people are cost because all these people other than the front line reps don't make any money. So you need a formal long range planning process by $50 million to think about this scale up thing. And most importantly, if I leave you with any thought, you got to accurately model what this is going to cost. I have seen so many companies where they've got a nine month sales ramp time but some board member says that's too expensive, make it six. Do not do that because you're just lying to yourself. Live in the real world. Model how this works. Resist optimizing the magic number your customer acquisition costs at the cost of the required investments in scale up because if you get late, you will never be able to catch up. And that's what happened is Vista saw that we had gotten behind, we were catching up, we were just on that up ramp and they hit that magic moment to come in and acquire a phenomenally great company at an expensive price, but still a good price. And this is the lesson I took away is if you don't watch the clock every time you scale boy, it's really, really easy to get behind with the time dimension of bringing revenue online. So there you go. In 30 minutes, kind of 10 things that I learned from. I hope each of you find at least one little thing to take away. And thank you very much and enjoy the.