Josh Stein of DFJ: What Makes a Great SaaS CEO

All right.

Good morning, everybody. Thanks for coming back. How was the party? Was it good? Show of hands? It was fun. I thought it was pretty cool. Well, thanks for staying for day three. Hold on, let me find my clicker. Did anyone see it? Did it disappear? Oh, here it is. So, as you can see, we changed up the stage again. And the theme today is is Zen learnings, right? It's the journey that we're on. And so Tuesday, in theory was about scaling. Yesterday was clearly about unicorns and money to a large extent. And today's about the journey. It's a journey, right? And we've talked a lot on SAS or other places that it's seven to 10 years in SaaS, often to get to something real and even longer. And so we're going to kind of explore that in many cases with folks that have been on the journey for a while. So I want to start it off briefly and I won't read all of it, but I want to highlight a few things. My good friend Josh Stein from DFJ, who's done some amazing early SaaS investments, will help talk about what makes a great SaaS CEO. I want to have a little bit of one on one because we have a hole there. We'll have amazing long term stories from Marketo and Cornerstone. After that, I want to talk with Kiper all about building amazing teams. We'll have a fun break. So when Keith and I are done, stay here for five minutes for the Academy of Villains. Don't leave. We'll talk about and then we'll have two sessions in the afternoon about that next five years, how to really scale and how to take it to that next level. And I think this is one of the most important topics and one of the things I learned when I transitioned from founder to observer of founder and angel and investor and otherwise is year five is where it gets tough. You get tired and the best CEOs and VPs and teams push through to that six year. And the other ones, it's tough. You see a lot of transition in five years. You see a lot of folks handing the reins to other folks. So I want to hear three great stories which we'll have on that second five years. And then we'll end up with a fun session on founder and VP focused pr. What it really means. We'll have an amazing session on a fun topic. Should we even get pr? Why are people even here today on stage? How do you get it? What does it mean? And then we'll have a really fun wrap up, which I want you to stay after that briefly downstairs. It says it's all about sales. We've had a lot of sales this week, but it's really all about revenue. And we added some fun things. In the morning we'll have another session like we did last year, but you get to see it live of a great CEO and VP of Sales together. Someone from a B2D background that learned to love sales. And then watch not loving sales and then learning to love it. And watch, watch the impact of that, of going from nothing to millions and millions of revenue in one year, which will be fun. We'll talk about something that's a courant, which is account based sales development, how to really target big guys. We all need to learn this. And then these two sessions I added because we were a little bit light on marketing. We'll add more next year, but these are amazing. We'll have Jeff Yoshimura who's gone from Salesforce to Zuora to now elastic on building an epic brand. I can't think of anyone I'd want to learn more about corporate marketing and brand building. The Jeff. So this mysterious thing of building a brand. Come here, Jeff. The dude's awesome. A lot of us know him that have been in the industry for a long time. And then Megan Eisenberg who's now at MongoDB and was a docusign before that. And I watched, I competed with them and watched what she did from a distance. In terms of demand generation, lead generation, she's bad arse. So go see this session. I mean, it's going to be crazy. And then we'll have a few more sessions selling to the enterprise, a real session and two sessions on customer success, which as we know, in some ways, once you have something like nothing matters but customer success, right? It's getting that net negative churn and building on the customer. So the downstairs stuff, the tactical theater was an experiment. It's performed much better than we expected. So go see that stuff. It'll be awesome. And you know, some fun things that the team added. I'm not that fun. I'm intense. But we added some fun things. At 11am we'll have a pretty cool surprise mystery guest. You may be able to guess who it is, but we'll make this session super fun. On the box play playbook, we'll have the Academy of Villains, which I know nothing about but should be super fun. And in the afternoon, I'm sure none of you are tired, but I might be a little bit tired. So in addition to the bars opening at 8. We'll actually serve beer in the stands here, like at a ball game, to make the afternoon more fun. And I want to bring Josh out in just a second. But I do want to acknowledge one thing, because this whole event is about founders to founders, founders to VPs and folks on the journey. That's what we're about. And we did lose one speaker from the agenda today, which I'm bummed about. And I don't want to go into too much detail, but I want to say I have the utmost respect for any founder that's killed it, that's done better than me, that's blown it out of the water in a couple years, and also that treats people incredibly well, that has high ethics and morals, and that's who we lost today. I'm bummed, right? But, man, this shit's hard and it's not perfect, but to have accomplished any of this stuff, we're. This is the fellowship of the founders here. And I have the utmost respect for the one speaker we lost who was one of the first to commit and would have done anything to be here, so. And now with that, let me bring out Josh Stein and let's talk a little bit about great CEOs.

Thanks for having me.

Thanks for coming.

Yeah, absolutely.

So Josh is fairly stylish. So I DMed him and said, let's match the velour. And he said, I'm totally into that, so that's pretty good. So let me bring this up. But so a couple things on Josh. Josh was. He's done a ton of amazing SaaS and Enterprise investments. He invested in box at, I think, a TechCrunch early TechCrunch party. Right. First institutional investor after Mark Cuban.

Yeah, yeah, first institutional investor. We met him at Mike Arrington's house.

Actually, I remember those days. Mike Arrington's house. All right, so you know how to take a little bit of risk, Right? You've done other great ones, like Twilio and other amazing companies we'll talk a little bit about, but a few other things. I think it was eny you were the VC of the year. Right?

Deloitte.

Deloitte. Sorry, my Deloitte.

Deloitte. The Deloitte guys know what they're doing.

Deloitte. So cheers to that.

Thank you.

To the VC of the year. Right. We'll have sake on the theme here. So that's great. And there's been a tiny bit of turbulence in the market, but you closed your new fund recently, right?

Yeah, yeah, we Announced it on Tuesday. 300 million bucks.

So no matter what anyone else Goldman Sachs, the market say life is good, right?

Yeah, I think that's right. I'm a believer, man. I think the long term trends in SaaS are super solid. I mean, the market's gonna move up and down, it's gonna affect things, but stick with it. And I don't see anything changing fundamentally.

Yeah. So let's. A couple things I wanna just talk about on this theme of great cs, because when I was a founder, you and I met. When I was a founder, I didn't know what a great CEO was. But then I got to watch some of my cohorts, right. I got to watch Peter Gassner from Viva. I met him and I'm like, I don't know what this like Viva thing is, but this dude's badass. Right. I met David Sacks, who you invested in. I'm like, this guy's pretty good. I met Aaron Levy probably before you did. And I said like, I don't even like, I know this cloud content thing supported, but there's something in this guy. Right. But I didn't know what it meant until I got a chance to do some angel institutional investing and see it. So what's the difference between great and good? What do you see in Jeff at Twilio or Aaron and what's. Just to help people calibrate what's. Because it's so hard to see early from the outside what's great, what makes someone great.

Yeah. And you know, I think the greatness often becomes apparent later. Like you're talking about those guys when they're running big companies.

So how do you, how do you go all the way back in time and see it early when you invest?

I mean, you know, the role of the CEO founder through the whole company history, I think is going to be to be a magnet. So you're setting a vision, you're communicating a vision, you're attracting talent, you're attracting capital, you're kind of rallying people to the flag. It's like this pulling together initially and then as the company scales, it's kind of this north star that sort of pulls everything together when things start to fray. I think what's really interesting from our perspective because we tend to invest mostly Series A, series B and what you'd now call seeds. Like when I invested in Box, it was three people in a garage, literally. We're getting involved with these guys super, super early. And I think that sometimes people who are great early can scale all the Way through and sometimes they can't. And I think it's because the role typically changes over time. So when I was a student at Stanford, Tom Siebel, who, I don't know if people remember Siebel anymore, fastest growing company in history at the time, and he came in and he told us, he said, you know, when I was here, I thought accounting and finance were the only things that mattered. And all the touchy feely psychology stuff was just bullshit. And I'm here to tell you I had it completely backwards. He's like, I have people that do the accounting and the finance for me now I spend all my time dealing with people issues. And I think that's probably the hardest single thing is for founders who are often technical, who are often young, realizing that if you have 1,000 people, a big part of your job is making sure you've got the right leaders and the right chairs and making sure that you've got strong processes and like, you know, all those thousand people have hopes and dreams and career aspirations and how you kind of manage that. The leadership part is relatively constant throughout kind of the communicating the vision. But the people stuff really, really tends to trip people up. I think that's, that's one thing. The other thing I think, you know, with like a great CEO versus a good CEO is on the vision part. You know, being able to make the vision something that kind of transcends the company and captures the imagination. So this isn't a SaaS example, but I think Elon Musk is, for example, the best at this. Right. You know, SpaceX isn't about launching satellites into space, it's about going to Mars. Right. You know, Tesla's trying to save the world by, you know, killing, killing the car. I think, you know, Aaron, if I, if I look at Aaron, I think that's one of his great gifts is I think that Aaron is incredibly compelling at painting a vision of box beyond boxes and storing files, boxes, reinventing collaboration and changing how business is going to be done. Right. And I think that's, you know, that's not, that's the part I don't think you can necessarily teach. I actually think the other stuff can be, can be learned.

Fair enough. So let's have a little fun with Aaron. So you invested in Aaron when he was 21, right, or something like that? Probably, yeah. 22. That's sort of mid pack today for a lot of SaaS founders. But back in the day that was considered young. Right? Yeah. So how do you, I know you don't but how was. Because you've had a chance to observe him over 10 years. How did he scale? What were the things that he did to be able to. How many Box employees do we have today?

A little under 1400.

1400, right. So he scaled. Right. And he scaled. He's one of the most articulate, poised. He's almost like he's an elder statement of Sass for many of us today. Right. At 30, which is.

He's like 31 or 32.

Yeah. So how did he. How did he address some of those challenges and how was he able to scale as a CEO? Yeah.

You know, it's funny, you were saying, you know, when we first met Aaron, I actually sometimes tell people I feel like I really met Aaron for the first time about a year and a half or two years into our investment.

Yeah.

You know, when we. When I first started working there. And Box was actually more of a consumer idea when we originally backed it. And, you know, he was sort of your classic consumer founder. He was wearing, you know, T shirts and shorts and he'd, you know, have hair rumpled and the whole thing. And that kind of works when you're, like, dealing with, you know, credit card signups and $10 stuff. And then, you know, we kind of stumble on this idea of, wow, maybe the bigger opportunity here might be for businesses. And it was, you know, this realization that the best customers, the ones who are paying us the most, that churned the least, that actually were, interestingly consuming the least resources from a cost of goods standpoint, were the businesses. And I've never seen anyone make such a complete 180 here. He completely. He spent about a week, went from we're a consumer company to we're an enterprise company. And he burned the boats. He just said, we're going full enterprise, total commitment. And then I think he realized that to be successful in that, he would have to transform himself into this enterprise leader. And this is what I mean when I say I think it can be learned. There are resources out there. There's books. There's all the stuff that Jason has done on Saster, which we didn't have back then. I think that's an incredible corpus of information. There's people that you can learn from. I think a lot of it is just force of will. Aaron basically worked 24 hours a day, read every book he could get his hands on, tried to network and mentor with every enterprise leader he could find. And if you look at him today, he is a legitimate thought leader in the space. I mean, he walks with CIOs that are controlling $5 billion budgets. And they look at him as somebody that they're looking to for guidance about their strategy. And that is just pure force of will. He didn't pop out of the womb. You know, knowing about the enterprise transformation, I think having the, both the discipline and the desire and the lack of ego to say, I'm going to go learn this stuff is incredible. I think just the amount of written material that's available out there is staggering. I think, you know, one of the questions we sometimes get asked is, you know, hey, can, you know, can you make a great CEO? I believe you can. I think the people who often fail, not always, but often fail to make the transition to being a bigger company CEO, past that kind of initial founder stage is they don't want to change. They say, this is me. Like I'm not a good public speaker. I don't want to sit down and give people one on one reviews. Well, you know, that's a choice that you're making. You're saying that you're not good at that. You're saying that you don't want to do it, but you have to recognize that's a choice. Right. I can sit down and teach anybody how to do a one on one review. It's not that hard. But you just got to want to do it and you got to suck it up and say it. If you're afraid of public speaking, get out there and do it. I mean, practice makes perfect, but you need the commitment and you need the openness to change. Yeah.

So those are. So let's dig in a little bit on that. So I'm here. I'm a driven founder. I'm in a million in revenue or whatever. And I don't want to get burned out at year five. I want to go the distance. Right. I'm hardcore. I see all this. Those are some good anecdotes. But what are the best couple things I might be able to do today to ensure that I don't burn out and I at least have a shot at being the next next Jeff Lawson or Aaron Levy. Things. What can I do?

Yeah, Jeff, I think is a great example of this, actually. Someone who's just maintained incredible growth, incredible scaling and maintain this constant thing. I think one thing that helps a lot is to realize that it's not about being the hero leader, where I'm going to do it all myself. If you look at a leader like Marc Benioff today, he's mostly external. His job is really dealing with 7, 8, 10 senior leaders, all of whom could run large public companies themselves. So they're, in a sense, almost like peers to him and making sure that they have clearly defined roles and responsibilities and the resources they need. You know, what Jeff has done at Twilio that I think is so remarkable is he's hired an incredible team around him and he's built an incredible culture and set of values. So Twilio has this really neat. You can check it out at the Twilio website. It's these nine values of Twilio and they're these very clouds, clarifying kind of principles of this is what Twilio stands for, this is what we're gonna do, this is what we're not gonna do. And it makes everything so much easier because a lot of the stress in the CEO role comes when you have, you know, two executives or two people who are really. They're both trying to solve the problem, but they have this like, conflict.

Yeah, it's a tough one.

Yeah. And if you have clarifying culture and vision, it sometimes helps resolve that. So I'll give you one of the Twilio values I really love is no shenanigans. Right? So there's a lot of kind of nonsense and shenanigans in enterprise pricing. You know, it's like hidden up charges and, you know, Jeff's favorite bugaboo is the, you know, call us for the enterprise version. Right. You know, it's like 100 bucks a month, thousand bucks a month, call us. Which is basically code for, you know, we're gonna see how much we can get out of you. You know, Twilio is just transparent, simple pricing. And we've had talks like, hey, are we leaving money on the table? Like, you know, and he's like, nope, no shenanigans. Boom. That makes it a very short conversation, at least.

Makes the alignment very simple.

Yeah, you know, it saves him a lot of stress. And he's built it. He's built a tremendous team around him. So it's like, you know, the. As the company gets bigger, you should be moving up in the organization. So the span of your. You should be less involved with the day to day work, more involved in the strategy, and usually getting pulled more external to the company, not internal. It's not always, but that's the only thing I always tell people. We see three distinct breakpoints for CEOs. The first is around 40 or 50 people, and that's usually where communications break down. You can't just rely on osmosis to get information out in the company anymore. You gotta actually like write things down and have meetings. 200 people is usually the next one. That's where you start having span of control issues where it's not, you know, I have a report and then they have the report. And that's the engineer or that's the salesperson. But there's like maybe two or three layers.

Yeah. And so almost none of us have dealt with managers and managers before.

Right, Managers and managers. Exactly. And so understanding kind of. And that's where you start. And you know, you'll start bringing in people who are like.

Exactly.

And executives start grabbing power and resources and understanding how to deal with that. And then a thousand is really interesting because at 1000, like if you're interacting from a reporting relationship with more than, I'd say six to 10 people, you're really probably doing something wrong. Spending most of your time externally and then most of your time, you know, you probably have not met most of your employees in person, but you are known to them and you're a beacon to them. And so you're setting that kind of vision and you know, clarity of purpose. But it's really much more about being like a figure as opposed to a person that's, you know, interacting with them directly.

Yeah. So let me ask one question. And sometimes people make mistakes on it. So you've got to stop owning everything yourself early. Right. That's a mistake. We all, most of us that can multitask, we own too much store. So bring in the right management team. And a lot of times we try to bring in someone early that can do it all as COO sometimes. Right. And it worked great at Box. Yeah, it really did. And we talked with Aaron up here last year. But when should I bring in whether it's literally a COO or a deep number two? And when is that a crutch and too early and something that. Because I meet more and more founders that are a million in revenue. What's your next plan? I'm going to hire a coo. And I get nervous when I hear that. Right.

Yeah. I think they think it's going to be like a magic bullet. It's like a technical founder says, I'm going to hire the VP of sales and they're are going to start selling.

Yes. This is VP of Sales 2.0 is my COO is to handle all the operational stuff at a million in revenue.

So without getting. Ben Horowitz wrote a great post on this kind of on the dangers that I forget what he Called it. It was like shared. Anyway, look up Ben Horowitz post. He talks about why workday works and other ones don't. But I think the most important thing if you're going to bring in a CEO is having very clearly defined responsibilities and roles. What does not work is two in a box where people feel like they have to ask you and this other person to decide and you know, if you can't find both or they disagree, what happens and everyone gets really confused. People have to be clearly fine. So for example, at box, you know, Dan basically had the vast majority of. He has the entire go to market function kind of rolling up into him. And Aaron has product and has the CFO and has the external, kind of the entire external vision part of the company. And they have a trust relationship that's very clear. And you have to, if you're going to have a coo, you have to say I'm not going to overrule you even if I disagree with you. So you are empowered to make decisions. People know you're empowered to make decisions. We're going to have our one on ones to make sure we're aligned. But you just got to watch out for the two in the box thing. And I'd say a million in ARR is too early. I think 40, 50 people is probably where it might become relevant, something like that.

So I'd love to do a half an hour on this but let me do one last question on this whole thing because another thing. So I hear a lot, the COO too early. The other one that I don't like to hear as a founder is when I ever meet a founder and they're not sure if they're the right guy at 20 million or 30 million. Right. But as the VC of the year, you have to think about these issues. Right. When you make an institutional investment. So the question I have to you is if you're a founder here and you're doing well. Right. But I'm not sure I can go the distance. What's your advice to me? How should I be self critical? Right. I'm confident. I'm at 1.3 million AR, I'm growing 11% a month. I don't even have any venture backing. That's hard to do in the grand scheme of things. Right. So what's the advice if I don't know?

Yeah, two things. I would encourage people to not internalize the question. So it's not are you capable or are you good enough to do it? I think most people with sufficient commitment can make it happen. The question is, do you want to do it? Are you willing to make the commitment to do. Think of it as like, you have to basically go to school on the side to learn how to do that job.

The Aaron School story is a great.

Yeah, you know, it's like you gotta even wanna read everything that Jason's written on Quora. You wanna read every business book you can find. I mean, it's like, it's. You're gonna have to really commit to developing that and just say, you know, are you? Some people might say, you know, I just don't wanna do that. And then, you know, then you know the answer, right?

You don't wanna do it.

You know, if you don't wanna do it, it's you. Or that's the answer. Yeah, yeah, I think, I think that's really the key thing is are you, do you want, do you want to make it happen or not? And then I think, you know, self awareness is good. I think, you know, it's so hard as a, as a founder and CEO to, you know, you bear all these burdens and the doubt and it kind of, you know, can sort of eat away and you can't always share it. That's actually what I always tell people. That can be a role of a venture board member, which is, you know, the companies I work with, I only win if they win, I lose if they lose. Like, I'm competing completely aligned with the founders. And so, you know, have that conversation openly. We're not going to judge you. We're not going to say, oh, you know, you know, she's feeling inadequate, therefore, you know, must be time to go. We're going to say, hey, let's figure out how we either fix this together or if not, let's move on. One thing companies always forget is let's say you're going from 5 to 10 million in revenue. It's not just going from 5 to 10, it's going from 5 to 10. And in that year, you're laying the groundwork to go from 10 to 20. And if you're not, you're going to go from 10, 10 to 12, right. Or 10 to 14. It's the same thing with like being a CEO. So if you're going from 50 to 100 people, you want to be developing the skills to be going from 100 to 400. Right. And so it's like you've always got to be thinking six to 12 months ahead in terms of those skills you're building.

I think that's right. I think that's great advice. Every once in a while, have these doubts as founders. Don't internalize it too much. Get external feedback on this. Right When I went through it, I asked a lot of my peers and mentors, and everyone said, go for it, man. I mean, you got. You have something good. Just keep going for it.

Nobody born a CEO.

Nobody's born a CEO.

I mean, everyone learned it. So the question, you know, if you, if you got to a million in ARR, you're clearly smart enough that you can learn this if you want, that's.

A good way to end it. Thanks, Josh. This was amazing. Really appreciate it. It's a good way to kick it off.