SaaStr CSS Speaker Series 004: Phil Fernandez/Marketo + Doug Pepper/Shasta Ventures

All right, thanks, everyone, for coming for our fourth speaker. Almost joke selling space. So we've got a treat here. Two amazing speakers. I wish I'd known Doug when I was a Sassano, right? I didn't know him, but when I started to accidentally invest, about eight people said, doug's one of the good guys. And you hear that about once or twice a year in ventures. It's a pretty good compliment and Doug will give his whole background. But he started investing in whatever the trike term today is, Martech, all these things very, very early. He's the first investor in Marketo. We're going to hear some fun stories, and some of the very best investor stories are from our folks that have known each other from the very beginning. And I think we'll get to hear some amazing stories here. So Doug's one of the earliest and most successful investors in and anyone in the room would be lucky to have him in the company. So swarm him the second you can. Half the mill away and get your elevator pitch in really quickly. And he's brought his checkbook.

And then.

Phil is really one of the most amazing entrepreneurs in the industry. When I was a SaaS founder, I knew nothing about SaaS. We were one of the first 10 Marketo customers, and I didn't know what Marketo did. I didn't understand why a marketing automation tool, but my head of marketing said we had to buy this product and it was $20,000 a year. I'd never written a check. Everything was open source. I thought that, like Lamp meant everything was free. And I'd never written a check that was more than $50 a month before Marketo. But she said we had to have it. And then next I met Bill Bench, who was the first head of sales at Marketo. And he's spoken at the SAS triangle multiple times. And that was the first time I truly met a great B2B head of know what one was. And even in my limited interaction with Bill, immediately, it was special because I had a bar, right? And I said, I have to find a guy like this. And it took me a few stumbles before I found Brendan Castiglion, as some of you knew. But that was my great leveling. And then I met Phil, and there were a couple folks from my peer set, all of whom did better than me. Aaron Levies, Phil, a bunch of others, Kirk Prepay. And they just. They saw even more of the future. And it was just a gift to get to know Phil a little bit. Fast forward to today. There may be someone else in the industry that has done what Bill has done, which is ipo, Right. Go through it and then go through basically a $2 billion acquisition through private equity. And now be actually free to talk about stuff. There's a few. If you were at the Saster annual. It was great to hear Jody from Appdynamics, but Phil ran this thing from day zero through day. Second billion, second unicorn. Right.

Second horn.

And I can't imagine maybe I'm missing someone else in our industry that done that, that can talk honestly, but I don't think. I don't think there's anyone.

Right.

I think so you should write all of Saster content going forward. I will quit because he's done it an order of magnitude larger.

But.

So we'll let these two old friends do some Q and A they've done before and maybe dig in deeper than we have. And then we'll do this slido thing for Q and A and then I'll moderate it and I'll make sure only the good questions get asked. But to queue up your questions, how.

Do we do the slido remind?

Super easy.

Super easy. So just go to your browser and then go to slido.com, nothing to download, and then enter for an event code, enter Saster css and then you can submit your questions, upload those that you like, and then Jason will get them and he'll make sure that the best ones get asked.

All right, so let's give a warm welcome to Doug and Phil.

Thank you.

Hello. Hello. There we go.

Okay.

Works.

Hello, everybody. It's great to. Great to be here. Jason, thank you for inviting us. Thank you for the introduction. It's wonderful to be here. Lots of familiar faces in the room as well, so that's nice to see. As Jason said, my name is Doug Pepper. I'm a managing director at Shasta Ventures. We're an early stage venture capital firm. We invest in both consumer and enterprise startups. I've been in the venture business for about 17 years. I spent the first 16 years at a firm called Interwest that's also an early stage venture firm where I was fortunate enough to invest in Marketo and a number of other startups companies you may have heard of Optimizely, Flurry, AppBoy, News Cred, and a number of others that are in the SaaS, in particular the marketing tech area of SaaS. So for me, it's just a great honor to be on stage here with Phil. And for me, I always say that the greatest attribute of venture capital is the ability to back amazing people and be part of their journey to build incredible startups and then have the opportunity to back them again. And in some ways our relationships we've taken even to the next level, which is that Phil has now joined Shasta Ventures. And so for me, it's just a great privilege to have been through the journey of Marketo for 10 years with Phil and now have the opportunity to work with him as a founder. So that's wonderful. Maybe Phil, before we get started with the Q and A, maybe give just some of your background and what happened in your life before you got to Marketo and then we can take it away with questions.

Long, strange trip it's been for you and I for 11 or 12 years now. No. So I'm sort of a creature of the Valley and I'm sort of in shock to have found myself on the venture capital side because I came out of Stanford in 81 into A. Into a Kleiner Perkins backed startup that went public in 1983. So this is like so far away. And so, you know, kind of, I was just a young programmer at the time, but I just got the bug immediately. I saw the. I saw the entrepreneurial cycle in the Valley. I saw the entrepreneurs that had created this company I went to work for, I saw how they funded the company, I saw how the whole thing worked. I saw the way the IPOs worked and that was kind of fun too. And so I just became a creature of just this entrepreneurial cycle and I felt like I love it, I love the innovation. I've watched cycle after cycle and these newfangled PCs come out and, you know, search stuff long before we knew any of the search players. And I built a database company in the 90s called Red Brick Systems, took out in 96 and Netscape, I always want to say Netsuite, but Netscape was the big IPO of the year and we were the number two IPO of the year. So that's not too bad, way back then anyway. And have Fast Forward got the bug to do one more in the mid. Odd odds and it was hard, man. You know, despite having a track record of having taken the two previous companies that I was involved with public and lots of other things, people thought that we were like building a dead category and we'll probably talk some about this. I had people up and down Sand Hill Road say this is just the stupidest thing you're doing. And they would lace that with the F bomb and various other things and it was just really pretty ugly. Because people thought it was a failed category and nobody needed the software. It's just an amazing lesson of what it takes to be an entrepreneur, to have a vision, to have spirit and grit and all those things. And then through a amazing set of circumstances when my mother in law was breathing down my neck, that I better stop this nonsense. And my co founder John's wife was, you got one more week, John, and then this is over with. Literally. We were to that point I met Doug and he got what we were doing and what we were saying and wrote a check, a big $3 million series, a check that he gave us half of in his first tranche. The weirdest thing about being in venture now is to see the check sizes and see the valuations and it's like, oh my God, what? What have I helped do to this market? But anyway, it's been a great collaboration. Doug was on the board for pretty much the whole run and now I find myself all of a sudden a venture capitalist and listening to them talk around the table about entrepreneurs, just like I'm sure they talked about me back in the day. And Doug's always winking at me when they say something like, well, there's an entrepreneur that's not going to fill the room or something like that. So my own track record was I'm sort of a little bit of a nerdy guy, still trying to learn to fill a room, but absolutely loving this latest life and looking forward to sharing whatever we have tonight with you because that's the best part of being an entrepreneur, is passing it forward.

So with that, yeah, yeah, that's great. And you know, what you guys don't know about Phil is that he had the reputation of Marketo, of being able to do every role at the company as well or better than the VPs that were in those roles. He's incredibly deep and likes to think deep thoughts. And so when we talk tonight, I think you'll get a sense for how he thinks about business and building SaaS businesses. And I think you'll get a lot out of that. And for me, as an investor in Marketo, I just learned it was sort of my MBA in venture capital was working with Phil at Marketo. But tonight let's talk about some of the lessons learned and Phil's going to share a lot and I'm going to ask him some questions. And so like it should be as a venture capitalist. The show really is about the entrepreneur and that's what we're going to do tonight as well. So, you know, first Question that, that I wanted to talk about was actually a lesson that I learned through you and Phil knows this, that the reason that I invested in Marketo was actually a product thesis and a thesis around Phil and his team. John Miller, Dave Mirandi. When we looked at Marketo, we were interested in the marketing automation space. We had done customer references on a company called Eloqua, which some of you may remember and I love you Jill, but some of the things that we heard about the product were not glowing. And so, and so, and that was early, that was before Eloqua 10. And so we sort of had this thesis that that product we had ability, there was a seam there to run, to win in the market. And then we met Phil and we met John, we met Dave. And when we did references on that team, what we heard was this is a extraordinary, these are the words we heard. World class team in terms of building product. And our thesis was we're going to back the best product team in the space and they're going to build a great product, therefore they're going to win. And ultimately I think we were wrong about that. We were right that they were going to build the best product. But what we learned over time, what I learned was that building a great product is necessary but not sufficient. And I think that your thinking has evolved on that as well in terms of how to balance excellence in product versus go to market. Maybe talk a little bit about that for the audience.

Yeah, well, you get to hear him back my neck up just even telling the story now. You know, it's so funny. I've been in some ways feeling like I've been running from being a product person for so long and maybe only in the last year or two have I sort of decided I should embrace that center. But I had my, my founding story in some sense before we get there was I was at this little company I Talked about in 1981, 82 as a product guy and had this most amazing experience which was that our top enterprise field sales guy in Hartford, Connecticut that was selling to the big insurance companies spotted me and started bringing me out to the field and taught me the fine art of enterprise selling. And I just loved it. I just loved to be out mixing it up with customers and figuring out how to explain what we do and realized that if all the time I'm outselling, what I'm doing is listening and listening to what people are saying and listening to not what people are saying, that that was exactly where the gold was to be able to think about future products and think about how to see over the hill and beyond the horizon. Because you actually spent time with customers and you actually listened to them and you actually interpreted them. There was no other way to do it. So I built a whole career, in some sense on being kind of half a sales guy and half a product guide, which I would think is my first piece of advice, which is you just gotta have a foot in both of those worlds. But the interesting founding story for Marketo was that when John, my business co founder and I got started, we were not about products. In fact, we had a whole product plan that we had on the paper that we threw away and ripped up and threw a couple out. But what we did to start the company is we spent six months talking to customers about their pain and their needs. And, you know, what would you do, you know, if you had a new generation marketing product? And boy, they just wanted to just piss on our ideas. And it wasn't, you know, it was like, oh, that's a great product. Would you pay for it? No, we couldn't pay for it. And what we realized is that we, you know, we asked a set of questions about what people could actually pay money for and where the budgets were and who controlled the budgets and how the budgets worked. And that's really the founding story of Marketo is we realized that we had tapped into a certain kind of budget that was money. The people, this is 2006, 2007, were starting to allocate and set aside for Google AdWords because people's AdWords spend were kind of going through the roof as this thing was just emerging on the scene. And we spotted that there was an opportunity to tap into a budget pool that hadn't existed. And if we hit it with the right product and the right sales model, we would be able to build a great company. It's sort of interesting to be able to think about that triangulation between where is their money, whereas there's spendable money. How do you get after the money? You solve a problem that ties to that money. And that to me is the founding lesson of Marketo is that we succeeded at figuring out where there was money in the marketing space and then how to build a great product against it. But because we really started out thinking about markets and go to market, and the mantra then was, how do we get friction out of the system? We were watching salesforce.com having eaten Siebel's lunch, inventing this new business model that's become cloud and become SaaS and become subscription revenue still very early at the time we did the company, it was really clear that that opened the technology availability to just a whole set of people who couldn't buy the kind of sophisticated software that we bought. And we put together a company where we built a product that really could be used on day one. I remember the original story in our original marketing deck was if Facebook, if you've got a Facebook account and it took six weeks of implementation before you got to use your Facebook account, they wouldn't have been racing towards their first hundred million customers or whatever users at the time. And so we wanted to really take advantage of building a product that was incredibly easy to buy, incredibly easy to get up and running with, incredibly easy to grow with. And that sort of sense of ease pervaded the company. So we knew where people were going to buy, we knew where there was ease. And then you alluded to the secret weapon which was just the most amazing. Sales executive, Bill Bench, took the company from zero to public, offering to $180 million of recurring revenue. You know, people want to pigeonhole sales reps into, you know, they can do 0 to 10 or 0 to 20 or whatever. This is a dude that just took this thing the whole way. But it was just such an amazing collaboration because he and I got into this resonance where it was like every month it was like, what are we going to do? How are we going to make this thing better? And rather than what's the long range plan or what are we promising the board or where are we going? You know, Bill and I had a really, a really simple thing which was every month we were going to close out a month and then he'd walk into my office and he'd say, boss, what are we going to do next month? And we'd bounce it around and say, well, we did seven customers this month. How about we go for nine? And he'd say, I think I can do 10. And I'm like, if you do 12, then I'm going to buy you dinner. I had a whole lot. I figured out the best thing about sales guys, managing sales guys. You figure out how to get in their head and you're just home free. So I figured out how to get in this guy's head, meaning how to incent him, how to put things out there. That man, this guy was just going to kill for. And that relationship we built, I'm still just like, you know, we spent two hours talking this weekend, he's down in Australia on an assignment. We'll be a friend for life. But that ability to find those special talent that could do what needed to be done. And what needed to be done was build a go to market machine at Marketo because we knew we could build a good product, but to have that kind of a partner. So I don't know, I'm just sort of off riffing on ancient history at this point. But there's probably some lessons in all of that. And the lesson is think about where the money is, think about the business model and think about those things in parallel. I see a lot of companies today where the entrepreneurs build a great company, build a great product. They've got hooker by crook, convince themselves they have product, market fit, and then it's time to start to build, to go to market. And that's the other thing that was just amazing about the Marketo story, is I was off building the product and. And John Miller, my co founder, was busy building brand and building our name and getting Marketo out there and writing prolifically and blogging and building content that he was syndicating and all of a sudden had us number one in search rank for every term that mattered in our space. This is before we had a product. And by the time the product was ready, he had a database of 15,000 people that were ready to buy it. And it was the most incredible thing to have that parallel track going on where two powerful founders could work in parallel. We didn't talk very much, we kind of ignored each other because we had such trust. We were doing each the right thing. But that he brought a market to bear at the time I brought a product to bear and then it was the oh shit moment because accidentally six people bought it the first day. And we didn't have any customer support, we didn't have any customer success, we didn't have anything. And that was sort of basically the story for Marketo for the next 10 years, is that we were always a step late in customer facing. Some of my great people that bailed us out of some crisis moments are sitting here in the room and it was sort of like the tone of the company ever since was figuring out how to catch up with all that success. But that's sort of the founding story anyway.

I think that's perfect. You mentioned a couple things that I think are interesting. Maybe one quick point is, and we talked about it today when we were meeting with the company, is this question of do you run a monthly cadence versus a quarterly cadence at the early stages of a SaaS business in terms of how you're thinking about closing New customers and new mrr. What's your advice there?

It all depends on sale. I mean in some sense, you know, at marketo we had, you know, we went from our early days selling on credit cards. There were no sales people at all. So it was all self service, free trial kind of thing. And then we started this very SMB selling that bench. I talked about Scott Edmunds, who's our first sales rep, who's sitting here in the room, started to figure out how to go turn some deals and that wouldn't have, in my opinion, that wouldn't have worked at all without a monthly cadence. I mean we were having deals come in the pipeline, be lead, nurtured and triaged using our own software and moving into the hands of the SDRs and the Reps where we couldn't at the start of the month we didn't know who we were going to sell to. And from my point of view, doing anything other than a monthly cycle benefit would have just been like delaying the delaying deals that should have come off the table and not running at the right kind of cadence. But I realized as we grew, as we started to move towards mid market and as we started to move towards enterprise, that cadence, that monthly cycle began to be the absolute best way to take an $800,000 deal and turn it into an 80,000 deal. $80,000 deal. You don't want to do that by the way. Try not to take $800,000 deals and turn it into $80,000 deals. But because that pace was so fast, because people needed their monthly fixed, because people were running so fast, I realized we were building a completely broken enterprise business where there were GE and Google and Facebook and Microsoft and stuff wanting to write us million dollar checks. And we had a bunch of monthly sellers that were trying to turn them into fast, quick hit deals. So there's no one right answer. And really understanding that there isn't a sales model that's like the be all end all. When you turn into fast. I think you've got to do a monthly cadence because if your deals are coming in that fast, you do it. But if you're kind of selling big, more complex things on the phone still mostly quarterly, cadence is probably right. And then ultimately if you're going to give enterprise sellers time to actually mature deals and time to actually get to where the money is and get to approvals and build anything that's consistent, they got to be on annual cadences. So it's really to me that lesson of fit to the problem rather than fit the problem to the preconception is deep in everything we do makes sense.

And then you mentioned brand. And I do think that's one of the things that Marketo did really well over the years talk about, because we talk about brand and B2C businesses all the time. And some people may think that's not important. B2B talk about how important that was, how you do it, why you do it, and how much money would you actually devote towards building brand versus traditional go to market sort of customer acquisition.

Yeah, it was the goofiest thing as Marketo really got going. You know, it was all this stuff about the left brain marketer and about how data driven marketing and about how you got to do, you know, all the money into demand programs and everything else. And. Well, I've been a gigantic contrarian on that. I mean, I'm a contrarian for sort of simple reasons. Like, you know, even more today in worlds where we're doing things like voice search and stuff unaided or a branded, branded search that, you know, use pretty good trends that people are increasingly saying tell me about a brand rather than tell me about a category when people are doing Google searches or whatever. And that represents a significant part of inflow if companies are doing it well. And John, my co founder, who was doing this at the time, would come to me with Alexa rankings and stuff and talk about, hey, this is how much unaided search we're getting for the word Marketo. Even before we had a product in the marketplace because he had really been working on building a brand tone, we were still in my dining room before we had office space or anything else. He started to talk to me about the brand impression that he wanted to create for Marketo. We picked the color purple. He really wanted to have color be a part of the brand. But we talked about how we wanted to feel and how people should perceive the brand, what we wanted to stand for and we wanted to stand for advocacy for the marketer and that we wanted to build a brand impression that was a company that the marketers would love and see as one of them that could be part of their team or part of their organization. And I think we just succeeded tremendously at that notion of building a brand where people wanted to be associated with the company. And then that intersected with, in some ways, what I would say is, you know, probably the most profound piece of mentoring I've had. I mean, it's going to sound stupid when I say it. It always sounds stupid to me, but it's somehow been a profound Piece of mentoring. The guy who was my boss, the CEO of Epiphany, the previous marketing technology company where I was the president, chief operating officer, probably taught me half of what I know in business. But one of his mantras was, Phil, people are either rooting for you or rooting against you in the world. And that just somehow stuck to me, this notion that you're going to. In building a business, you're going to interact with all sorts of people. You're going to interact with customers, you're going to interact with employees, you're going to interact with gartner Group or G2 crowd or whoever's going to be assessing your company. You're going to be interacting with. With venture capitalists, you're going to be interacting with press people. And all of those people have an ability to decide that they want to vote for you or vote against you. Now, customers vote with their money, right? Employees vote by taking a job. But I'll tell you, if you're Gartner Group in an enterprise company or you're somebody that's going to write about the hottest new consumer company and put you. We were just talking to a company yesterday that got written up in Vogue somehow, and they just can't even believe it happened. People are making those decisions based on whether they like you as an entrepreneur or whether they like the totality of what you're doing. And so we really focus not only on brand as what is the color, what do we say, what do we do? But how do we conduct ourselves? How do we think about every interaction with another human being, about, are people working, rooting for us? Are people rooting against us? Are they rowing with us? Are they rolling against us? And as. As we got into bigger stage, as we were growing into $50 million ARR. 100 million, 150 million. And the challenges got harder. Boy, I'll tell you, that brand incredibly paid off. We created this thing called the Marketing Nation, which was our users, our user base, our partner base. Marketo built a partner ecosystem which is probably second only to AppExchange at this point in terms of its richness and depth of the kind of partners that have signed on to be part of the Marketo partner ecosystem. All of those people rooting for us. So they're bringing leads, they're bringing names, and the sheer force of energy we had. You know, I remember the Marketing Nation summits at Moscone last couple years where people would say it was a revival meeting, right? And people out telling their friends about, you need to be with Marketa. And to me that's just a set of lessons about what brand means. It means what are your colors, what's your brand? It means how do you feel? It means how do you treat people. It means how you conduct yourself in the world. And if you can get in that place where people are rooting for you, it's the single best asset that you're ever going to find in a company. And I think I still credit is what sort of, you know, got Marketo to launch Velocity and Escape Velocity more than anything else.

Yeah, I agree. One other aspect of go to market that I think anybody who's involved with the SaaS business can't get away from is competition. It's pretty clear that and the data is out there that the leader in a market to find typically get somewhere around 75% of the market market share, market value. So it matters. And I know you have strong opinions about this and I think there's always a balance between being maniacal in terms of focus on competition versus sticking to your own knitting and having your own decisions drive success. How do you balance out those thoughts?

Well, you know, I just got. Yeah, I get strong feelings about that. I think one of the things that I've seen through my whole career building technology products is number one that it's ridiculously easy to get your head hijacked by competitors. You know, they thought of an idea you didn't think of the day. I probably knew that Marketo had won, you know, was going to win, was going to emerge as ultimately the company that defined this category was this day that I was talking to a woman named Kim Collins who was actually leading the Gartner Group's Martech marketing technologies study practice or advisory practice at the time. And I was on a call with her one day and she said, phil, you know, some of your friends, your competitors were in here. Eloqua was in to present to us yesterday and they're showing us this amazing product they call Eloqua 10. It's like got this great new UI. It's wonderful. And they called it their Marketo kilo. And those were her words. And Eloquid been in saying, we built a Marketo killer. And when I hung up that phone, I turned to my colleagues in the room and I high fived and I said, we just won, you guys. We had gotten in their head rather than building a product that they were going to walk into Gartner and say, let me show you these seven things. We just innovated. They walked into Gartner and showed Gartner the product that they had built to kill a competitor that was one tenth their size of them. And that's the powerful idea of competitive ideas, is they get in your head. And product managers or CEOs or anybody start to want to chase that idea because, darn it, it's a good idea that somebody else invented, and it's really hard. So I've had a couple of really strong competitors. I built Marketo 10 years. I was the product visionary. I was probably behind every product feature. I've never seen Eloqua. I have never seen a demo of Eloquid. I've never seen a demo of HubSpot. I've never seen a demo of any other company. To this day, I don't know how they look. I don't know how they get used. I don't know. And I don't want to know because I don't want that in my head. Now. That doesn't mean I live in a bubble. There's none of this about living in a bubble and just ignoring the competition or anything else. I have people that did competitive analysis, really smart people that would talk to me about it and slice and dice and figure things out, but by being free, we would do this in Marketa, which is point at the North Star. Follow our North Star. Follow our idea. If you've got $100,000 to spend on a feature, a million dollars to spend on a feature, $10,000 to spend on a feature, is it better to chase somebody else's feature and get the parity? Or is it better to chase the thing you heard from customers when you're out selling that's innovative, that you're going to differentiate on? I think that's one of the things that I just feel so powerful. It's like, do not let the competition get in your head. Do not start looking at competitive products. Do not start copying features. And have the confidence in your own vision as an entrepreneur and your team's own vision. You know, live in the real world, see the other products. And I just think that served us so well because there were, you know, feature after feature. And, yeah, you have to grit through the pain. And you have salespeople that say, but, Phil, we don't have an ex. And I'm like, then change the subject and talk to them about the thing we do have. And being able to pervade that through a culture produces confidence, it produces leadership. It produces a vision sense that you just can't have any other way. And it was you know, to me, that's sort of, in some ways the things I'm proudest about is all the companies still in the space or whatever. You know, Marketo was actually the youngest, the latest founded. Well, you know, autopilot or some brand new things are kind of coming along. But that fact that we were able to kind of come from behind was, I think, rooted right in that set of ideas. Yeah.

Yeah, that's great. So, you know, one of the things that you all know as founders and employees of early stage companies is that even the ones like Marketo, that when you step back, you think we're just up into the right. Never are. It's always like this, right? There's ups, there's downs, employees leave, customers churn. It's hard to raise money sometimes. How do you build that culture that can drive through those challenges and be super aggressive, but also balance culture and lifestyle where people want to be at the company for a long time and don't burn out?

Yeah, hard question. I mean, my, you know, and one that I'm still discovering the answer to and is like my demon for, you know, my entire career, I was just like, somehow born and wired to have a mindset that's number one. Just relentless. I mean, I just, you know, you give me a problem to go solve and I just won't get my teeth out of it. I have. It gets in my head. And so I have this very relentless personality that rubs off on a company. This kind of grit and ability to persevere through the hard times. But I also have this tremendous weakness, which is I get to the top of the hill, we've got a major accomplishment, and I go, that's awesome. There's the next place to go. And that sort of grit and relentlessness during hard times and whatever, the ability to just keep moving the ball forward and calling the next shot and keeping the company moving forward in a place where three competitors are coming your way and you run out of money and all those things serves the company well. But it built a terribly hard culture, terribly hard culture in the company because I didn't know how to stop and smell the roses and stop and say thank you and stop and have a beer and a pizza. It's like I just wanted to be on to the next thing. So continuing to just. And try to learn that lesson of how to have grit and resolve and relentlessness and to realize that tomorrow's another day and there's another shot and you get another at bat and you got to get up. But what you got to do is make sure that you can actually run the race and people can actually stand to do it and can actually have lives. And so I think to the later stages of Marketo is really starting to focus on diversity programs and started to focus on enriching the workplace in lots of different ways and enriching the workplace in really meaningful work life balance. Things that showed people that like it really mattered in community volunteerism and built a very extensive community give back program and didn't force anybody to do it, but really encouraged people to just develop dimensions of their lives. I just really developed this appreciation for how critical that is. And I've talked to so many entrepreneurs that sort of talk about today, you know, we gotta be all about the money and all about making money last. But yeah, I look forward, you know, to the day when I can do things like community involvement programs and stuff. Man, Benioff just got it right. You know, his 111 program from day one, you know, that notion of bringing in that full dimension into a company and understanding how to have that granted relentlessness and also that softer side and to realize that, you know, that, you know, it's not having a bar, it's not, you know, in your. It's about truly realizing that you just can't have your brain going all the time on one thing. And I think that was the last greatest problem I had to solve to get this thing across the finish line. So thanks for bringing it up.

Yeah, yeah, I think we'll do one more and then I think, Jason, you're going to come up and do some Q and A as well.

Absolutely.

If I was going to ask one more question, I think for most CEOs in the room, and for you as well, building that relentless culture means bringing in people that can operate in a relentless culture and be, you know, incredible contributors. What did you learn about the ability to hire people that could deliver in a way that the average couldn't?

Well, you know, I mean, it started, you know, you learn a lot. It's easy to be, you know, we probably all, you know, do you believe in 10x engineers? Probably everybody in the room here believes in 10x engineers. Is probably a room full of 10x engineers here, right? I mean, this notion that there are people in that kind of function that can be 10 times more productive in their jobs. And I actually think that that's actually true throughout the organization. I mean, bitch built in my organization a 10x group of sellers. People who just had an innate ability to get to the number we had A marketing organization that on smaller numbers and smaller dollars was just run in circles around people. And I just got, you know, I got a couple, you know, a couple of things I look for when I interview people. I almost never interview people about domain knowledge. I really don't want to hear what they've done in the past. You know, for, are they a 10x er. I look at abstract thinking, creativity, how do you think about things? What are you interested in? I use this phrase eyes up and out. If I'm looking at somebody who I can tell that they're interacting with the world, looking out at things, asking questions, integrating into their thinking, what they're hearing about the world, what they're hearing from their fellow engineers, what they're hearing from a community site, whatever. And they show a true innate curiosity about that. I believe that that's extraordinarily predictive of 10x people. And then you got to just look at, you know, like I would say to people, you know, talk to me about grit, talk to me about staying power, talk to me about, you know, when you give up, talk to me about, you know, and I'm listening for that kind of set of do they tell me about a problem that defeated them or do they tell me about a problem that they got past kind of thing. And I find that if you can sort of, you see people that get, they want to tell you about a defeat or why somebody did something to them. There's other people that want to tell you about how they overcame something. And so if somebody's curious and they're able to tell me how they overcame a problem and they don't do something crazy. I'm not saying you hire everyone like that. I just think it's an absolute rest the of for extraordinary hire and for having the strength to persevere through these.

Other things we talked about, that's great. So Jason, I'll follow your lead.

Yeah, let me do, let me just do a couple things this on sort of on. Let me take a couple, tease a couple questions out in the crowd and then let's talk a little bit about venture in general and then we'll still take some questions. Let's open a question up and finish it. But one thing I want let's talk about because it's like, you know, the number one saster topic. So let's talk a little bit more about what you learned with Bill, with Bill Bench or VP of sales. And so one thing maybe I'm misremembering, but you probably broke a rule that That I find doesn't usually work because you hired Bill very early, didn't you?

When Bill.

If Bill closed me As a first 10 customer, you did not wait until you hit a million and a half or 2 million to hire your VP of Sales.

Well, I, I, the, the actual truth is I hired. I hired my first VP of sales five months before Bill, unfortunately didn't work out. I had to, you know, and I, I had this reputation as an ogre who was a product guy that couldn't do sales. And so my board wasn't very cool with me deciding to fire my first head of sales. You know, four months in, you were completely superfil. Right. I bet you had that discussion around the thing.

No, never. Never. No.

Doug knew the 70% rule. Right here to here. There's 70% chance it wasn't working out.

But. But Bill was, you know, he was. He was. The fourth month we were in market.

Yes.

You know, managed from starting on. Starting on May 27th to salvage that month. And, you know, it's magic ever since.

So, so why. And so the first. I don't want to spend too much time on the one that didn't work out, but it is a. It is a great learning. What. What was the mistake you made there that didn't work? Chasing logos or chasing. Or what did you want that didn't work out at that stage?

No, it wasn't anything. I think she was a great sales executive probably, but we were killing ourselves racing on product, whatever else, and it was a personality that started to inject drama into the system. Drama. Drama with my head of marketing, drama with me, drama with the sales reps. Stuff that wasn't about, you know, it was about did somebody say something that offended somebody or whatever. And there just wasn't time for that. And that's the thing. That bench was pretty amazing. He'd, you know, deal with real issues, tremendously ethical, whatever, but just no drama. Right. It was about the task and about. It's, you know, us for the customers against the competition with that, you know, people rowing with us. And it just never. He just didn't have a bone in his body to take anything out inside the company. And it just freed us to do what we had to do. Plus, he was down with sales rep, but he'd been.

He hadn't been a CRO before, but he had been the sales leader before. I don't know what his job was before Marketa, but he had. He been a VP of sales, a director of sales.

What was his background? He had been a VP of sales at a small, failing San Francisco startup that, you know, they're. Well, you know, it was hungry, but it really, you know, it did not look good in a resume, and it sort of looked like he was struggling, you know. Got it.

And did you hire him a half stage earlier or was it the right. I mean, you weren't even in a million of revenue.

No, no. Close.

Doug, he give you the second tranche or was he still holding it?

No, Doug was still holding it. No, no, no, no. I still had. I still had to get that second million and a half.

This is like the tranches were the good old days for investors. Like.

Yeah.

All right, so. So did it take a lot of convincing or did it help that you had a bit of a track record? How did you get even with his failed or struggling? How did you get him?

I got interested to him a year before I hired him.

So it took a year.

Took a year. I stayed in touch.

Doesn't take a week.

Doesn't take a week. I literally stayed in touch for a year that, you know, that first time, he was like, well, Phil, you know, you don't have anything here to show me at all, you know, so, you know, thanks for. Thanks for having coffee with me, but no, thanks. And then I kind of just stayed in touch and stayed in touch and stayed in touch and, you know, a little bit of that relentlessness. And then it was time. And I, you know, remember meeting with Starbucks and El Camino in San Mateo, and I said, bill, you know, I'm never gonna let you go. You know, so. And he said, it's time. And, you know, it took a year.

You can't hire a Bill bench in a week, can you? Unless magic. Unless some weird thing happens. It's. Even six months is hard, right, because you're pulling them out of something.

Oh, absolutely. If you're, you know, and hiring, it's like, you know, that sort of notion that you develop a candidate pool and then just hire. I mean, it's just. It's just a disaster. You know, you just got to work at really spotting talent and really thinking about, what am I going to need next? And building those relationships just all the time. Yeah.

And then one from this board I only want to touch on as much as you want. But, you know, Salesforce did enter your space in many ways.

Right.

And that's a unique dynamic. It's. I mean, you say ignore the competition and don't play with Eloqua, but it's. It's tough, man. Isn't it? How do you deal with that dynamic? Because it is actually going to happen to more of us. Maybe not with the drama, but it happens. It happens to all of us at some level, doesn't it?

It does. I mean, you know, we took the company public in May of 2013 and it was, it was about three weeks after the public offering that Salesforce bought exact Target. And we at that point were the biggest non big big company in AppExchange, biggest pure play company in AppExchange. We had the biggest booth at Dreamforce and all of that. So it was quite a shock to have that all happen. And the company was obviously freaking out over. He's a Tim Doyle, an investor. Were freaking out. It was the end of the world. You know, I got smouthed off about Benioff in the press and then he kicked me off the Bath Exchange and it was all, you know, a pretty ugly touch on those pretty ugly moment. The amazing thing is that we had built a brand, an enduring brand, an enduring brand. And the customers didn't budge. I mean, you know, they just didn't budge. And to me, that sort of sense of realizing that, you know, another one of the lessons from my great mentor is things are never as good as they seem and never as bad as they seem. And that sense that it just really isn't that bad. And it proved not to be that bad. It proved to be, you know, for every time that we lost a deal because of that, they gave us awareness and we got, you know, two more deals in the pipeline. And so from that perspective, it was just another, another day at the office.

I'll just give a brief perspective. As a young venture capitalist at that time, my biggest fear in life was that the competitors of Marketo would be bought by Salesforce and by Oracle. And both of those things happened and the company continued to ramp in a beautiful way. In fact, there was one moment, I think Eloqua was bought first by Oracle. And it happened, I think in December. December happened, December. And we called that our Christmas gift. So what was the biggest fear that I had as an investor in Marketo? Turned out to be a great benefit because all these customers that were in the Eloqua pipeline that we're going to close in December, when it was announced in December that Eloqua was being acquired by Oracle, all came over into the pipeline over to Marketo and said, I didn't sign up to be an Oracle customer. I want to be a startup customer. And I think we closed a lot of those Deals we did help propel.

Right into the IPO with that whole cycle.

So our worst fear became actually a great short term benefit over the longer term. Competing against Oracle and Salesforce is no picnic.

Not a picnic. That's right. Yeah.

Yeah, it is. We just all live with it. So any. So let's move on to the next one. But what advice did you give the team when that happened? How'd you get them through it? Because did they freak out as well or were they Zen about it?

No team was.

We all read the TechCrunch. I mean, the Twitter. It's very visceral, isn't it?

No, everybody was certainly freaking out over what it meant. And then, and then, you know, what the heck did I just go do? Get this kicked off the bath exchange by, you know, and on the other hand, if I, you know, kind of groveled and whatever else, then that wasn't going to be any good because then I was always in a power relationship where I was going to be, you know, I was going to be stepped on by the guy rather than, you know, trying to, you know, do our thing and not be just a vassal to Salesforce. So it was just a lot of spending time with employees, a lot of reassuring, a lot of coming back to this sort of sense of follow our North Star, everything's going to be okay. We've got to keep innovating as long as we keep innovating and let's talk, you know. And I started to turn the dialogue to how are we going to win? What do we need to do? What are the things we do to get advantage here rather than how are they going to hurt us? And as soon as you can get the dialogue into what are we doing from that sense of innovation, from that sense of creativity, rather than how are we responding, how are we, you know, I think it gets, you know, not everybody, but it got a lot of people able to go, well, I got a mission now. I gotta, you know, I gotta out innovate this and we gotta win. And so, you know, you get it into that frame rather than the victim frame and then, you know, right on down the road. That's right, yeah. Yeah.

So let's. Now that you've switched over to investing and let's get. I want to draw Doug into this. One of the things, you know, after I sold and then had a little bit of time off and I started working with the next generation of SaaS, I was just shocked how quickly companies were growing these days. Like, it was like a new. And I Wrote this early piece, like 5x is the new 2x and then 1 to 10 and 5 quarters or less is the new crazy R. And it's a different world.

So.

And then we look at like the last year, like we have Twilia, Coupa, Mulesoft, they're all at like 200ish, growing 70%, which has like become routine.

Right.

I put routine in clones.

Yeah.

A couple questions is what's the bar today? The markets are bigger. What's the bar today in terms of like metrics? And then what's the bar today in terms of tech? Like what? How good does software have to be these days? We don't need the 10,000th Marketo clone today, do we? I think we're pretty much done with that.

Yeah, yeah. No, I mean there are some amazing companies out there. You mentioned them. Twilio, Mulesoft, there's others that are at triple digit revenue. So 100 million revenue, growing 60, 70, 80, sometimes 100%. That is daunting. That is really, really hard to do. The good news is that's the top decile. Right. I mean, those are multibillion dollar companies. That's certainly what we all aspire to achieve, but that's not the requirement to do really well. So I think that's the first thing is that certainly we should set that as our North Star goal, but you can do really, really well in SAS even if you're not growing 100% at 100 million revenue, especially if you fund it.

Right.

And that speaks to some of the efficiency metrics that we're all talking about now. I'm a series A investor. Right. So what's the bar? What's the bar for me as a series A investor? So we typically invest in companies that we invested in Phil and his team when it was a PowerPoint deck, essentially. So we get involved before there's necessarily metrics. So what drives us is what you'd expect is, you know, big markets where there's a tremendous amount of what we call why now? Ingredients. So what are the ingredients in a market that are creating an opportunity now that may not have existed five years ago that leads to the ability for the rising tide to float a bunch of different companies. And then what we try to do is Bix pick the best team and the best product that can go win that market. And what really tells us as really early stage investors who might win is customer anecdotes. I want to be able to talk to 5, 10 customers and hear what's the problem in A market they're experiencing. What solutions have they evaluated? Why did they pick this particular product or company and how's it working? Are they going to buy more? More? Are more people using it? Would they recommend it to colleagues at other companies? Those are the things that I look for because we're not investing in, we're not spreadsheet investors. We're investing in big markets, teams, products.

But every company at YCWA this week had 10 customers that said they're the.

Best product on the planet.

Maybe, but I've made, I've made thousands of customer reference calls.

Yeah.

And you can get in there and really understand, understand how deeply they're really engaged with the product or not. But, but your question was a bit about the bar around momentum. And I think it is higher today. And so I will say this, and it is tough for a lot of founders to hear, but we hear companies come in all the time and say, I've got this great product, look at this team. And oh my gosh, we're growing from, you know, 1 million ARR to 2 million ARR this year or from 2 million ARR to 4 million ARR, which is great and really hard to do. But we need companies that are doubling when they're at 50 million RR. And if you're not quadrupling, if you're not growing 5x when you're in the single digits, then it's very hard for us as investors to believe that you can be doubling when you're at 50 million, certainly at 100 million. Because there is. And people talk about this, as you get larger, the gravity gets greater. It's just hard. And so if you can't grow 5x from 1 to 5 or from 3 to 9, I guess you tripled, was it?

We did 15 15.

15 15. So that was hard then. Now it's table safe. If you can't do that, you're not going to double when you're at 50. And I do think, unfortunately there are dozens, maybe be hundreds of SaaS companies out there right now that are between 50 and 100 million revenue that are growing 10%. They're bumping along at profitability and nobody cares. They don't have a natural buyer, they can't go public and it's a tough place to be. And so us, you know, as investors, we want to invest in companies that can be still doubling at 50 or close to that. And that means you the bar is higher at the early stage.

Yeah, I like, I'm going to steal that. And Write it. I think doubling at 50, you can back it. You can back solve into a lot of different ways to get there. Right. You can take 10 years to get to a million as long as you, as long as you accelerate. But what is it going to take to double the 50? And then how can you convince yourself and then investors, if you hit yourself, it's not that hard that you can get there.

Right.

If you don't believe that it, it's find a different way.

Right.

Certainly don't deal with the VCs. Right.

Don't raise $100 million. I mean, if you're, if you're Trello and you've raised, I think it was $10 million and you sell for 400 or much less than that, everybody's happy. If you raised $100 million, then you need to be doubling from 50 to 100 for everybody to be happy.

Yeah.

And let me ask Bill, let me ask you. Duck City gets harder as numbers get bigger. And it's true. But going back to what you said, I found what I didn't because I sold just as I was getting to brand. I didn't understand the power of how your brand bails you out. Right. And that's the one force of nature that as it gets hard. So what are your learnings on that as you go? Maybe after that Gartner Eloquo story, when you realize you actually had at least you're the number one brand in the space, right. Whatever your relative they are. Did it bail you out?

Well, I think it does. I mean it bails you out in a lot of things to have to have, I mean, to have brand. Because if you don't, I mean, in some sense, what I think is if you don't do something to get wind in your sales as you get to that need to sort of double from 50 to 120, 50, if you don't, if there isn't something that's making it easier, some market force, some competitive change, it's probably not doable. Now, I don't mean that you can't find an example, but it is. You know, the things that get harder scale up, more layers of the management team, more complexity of communication, many more people to hire and assimilate. Those things inevitably happen as you get to scale up and they do just keep getting harder. And if there isn't something that offsets that during that phase, I think it's just really hard to sustain that growth. And to me that's why, you know, why I talk so much about Brand is, I believe that ability to have people have a preference to enter your funnel without needing to do anything to be predisposed to buy your brand rather than to have to have the salesperson run a hard campaign to get it back. I mean that's exactly what happened to Salesforce when they just hit the stride was they became the default choice, which was a brand. It's really exactly right. And so it's that sense of if you can become the default choice through either the most incredibly superior product or a brand or the combination thereof, that's how you sustain that.

And did you have or get NPS religion on it, which I got late or what's your. Because I realized now that I've worked with 20something SaaS founder. Like I realized this is a big north star because if you have the brand but without the nps, you hit a wall. Did you obsess about this in Marketo or unless so.

Oh no. I mean one of my, you know, it's one of the, one of the core values of the company and one of the mantras that I've probably taught from the beginning which was just like only one way to ruin my day pretty much, you know, and the one way to ruin my day is for, well, this is my line. Maybe there's two, maybe there's two. But there's like, you know, in a day to day workday, you know, I mean, I've had an executive I did not want to ever see leave, walk in and tell me they're leaving. God, that sucks. I've had, you know, Salesforce buy, you know, competitor that sucks. But a customer, you know, reaching out to me and saying, you're not keeping your end of the bargain. I don't know, somehow that just hurts right here in this really, really deep way. And so we grew up with a culture at Marketo of, you know, customers are paying the bills and this value exchange between them and you know, that translated into metrics around customers. It translated in a really understanding churn. And we had pretty good churn numbers in Marketo and being able again to treat a customer like you really care, which then would get that customer through a tough time as well as an easy time. And then all of a sudden you take a customer goes through a tough time, they're even more. My original head of user experience design came to me one day and I still don't know whether he was kidding or not. He said he wanted to start and design 10 bugs into the product that we could piss customers off with. And Then quickly fix because psychologically they would be much happier if we did that.

And I'm just like, we have the most responsive.

Just like. And I still to this day don't, you know, 12 years later, don't really know whether he's kidding or not. I was kidding or not. We definitely got the bugs in the product. We got the bugs in the product. Say that on the chat.

So good. So, and so just one, one follow up question and we may be close to out of time, but now that, now that you have a little bit of a breather and you're looking at other companies and a question to both of you. So the bar, I love that.

Yeah.

To double at 50 million if you want to be a Decacorn. Right? If you want. Not everyone needs to be a Decacorn, but if you want to be a Decacorn or probably a Unicorn, you got to double at 50. What's the tech bar?

What, what is to you?

What is ML, AI, all this stuff, what does it mean? I believe that the age of the simple workflow and dashboard app is mostly behind us, but maybe you see it differently. What is, what's the bar today in terms of delivering a great experience?

Boy. Well, the bar is you need to have a web scale app that's built with the latest. I mean, the difference in the kind of responsiveness and user experience you can create with Hadoop, Spark, Streaming, Kafka, whatever kind of application versus anything that's even a notch back. So that's because table stakes, the ability to design a beautiful user interface. You know, our first, our first hire at Marketo was a user experience person is what I alluded to. And I would do that exactly the same way. So a very high premium on design and user experience. You know, if I sit through another pitch in my new role at Shasta, where an entrepreneur is pitching machine learning or AI, and I ask them, you know, what, you know, what are you predicting or what's the end? And I just get there's tremendous amount of babble out there. And then people will, you know, then you'll find somebody that says, you know, we're, you know, we're really using deep learning and we're taking the technology off the shelf. So they don't try to BS me about how they got the smartest data scientists inventing algorithms or talking to me about how they have domain experts that are figuring out how to apply it in a space and able to talk about real business value. And so I think any app that's not infused with deep learning or the equivalent algorithms, but where it's not a checkbox, where it's not something to just tell people, but where it's fundamentally changing the way the application can engage the problem and provide guidance, provide a dimension to easing the human burden of complexity that isn't otherwise there you're probably not going to go anywhere. I don't sort of bring that up couch, but watch out the Al stuff in your, in your pitch decks because it's really pretty gross.

I mean it feels right. It's, it's now in 2000. This year so far I would say 90% of all pitches talk about AI ML. It's unbelievable. And last year it was 50 and the year before that it was 2%. And so every pitch says we're AIML and it's very hard to, for us to pass through what's real, but, but we do it. That being said, for the last five years you've heard VCs talk about mobile first enterprise applications. And we do believe that there is a window here over the next five years for AI first and applying AI first technologies to the recruiting space, the marketing space. And there's going to be some startups that emerge that are able to take real technologies technology and solve harder business problems and go beyond workflow and use big data with machine learning, deep learning and drive decisions, automation, prediction. And they're going to lead to a whole new class of SaaS, applications that are just highly intelligent and way beyond what we invested in and built over the last 10 years. So there's a lot of hype, as often is the case, but there's a lot of prompt there as well. And yes, the bar is higher, right? You can't build just an easier to use cloud based workflow application anymore. There has to be something more. It could be tech, could be AI, it may be network effects, it could be a community, it could be virality, but there has to be something else that allows you to grow above the noise beyond just an easy to use application that you're moving from on prem to cloud. Those days are over.

And if you're a total hack, it sounds like Marketo in some ways started off as a hack. Can you bolt that on later? No, because this is the tablet question, right? There are so many great entrepreneurs building hacky apps today. I mean they do everything, they do everything in business. That's amazing. And they're hacking and there is no, there is no data play. There is doing nothing with this data and it is a limited workflow that is cool and maybe it's mobile first, but it's as primitive in some ways as what we were doing 10 years ago. It's just the toolkits are better. So if that's you, are you hopeless? Will you Never get to 100% growth of 50 million or can you bolt on that data science team at 2 or 10 million in revenue?

I mean, I would never say never, never say never. But those are the ones that are most obvious as companies we've been tracking for several years, where we've met with them over the years, and then lo and behold, this year they're an AI startup. And those are the ones where we get nervous, we run because they're just using that word now because they know it's hot. And so I think it's very hard to bolt on. I think you have to be built from the ground up with that philosophy, that technology, and quite frankly, that team.

Start a current enterprise grade B2B app with a $200,000 seed around there. Can you do it even if you work on Ramen or you just. Or the dev bar is just so high you can't do it?

I think the dev bar is lower than ever. I mean, stuff's just all off the shelf. I mean, it's just, you know, just all of the infrastructure layers are off the shelf in some sense, you know.

But you think the data science part is off the shelf?

I do. Well, the data science domain expertise to apply it is not optional. So you better have somebody that knows how to apply the data science. But you don't need to invent a prediction algorithm, you don't need to invent the next classification. I mean, whatever. What you need to do is know how to take it off the shelf, understand your business domain, and that's the skill. And you don't need a team of such people that are doing a bunch of hard development. You need somebody, you know, an individual that's able to, to understand how to unleash and unlock the value that off the shelf technology.

But that being said, just in general, we do very few enterprise seeds. We do a lot in consumer because there's the chance to create significant value very, very quickly. In enterprise, it's more of a steady build. So we feel like we can enter at series A and still get it at a reasonable valuation versus seed. That makes sense.

All right, Jane, are we probably out of time? Does that sound right? Yes. Okay. I think we're a little over. We can go forever. This is the 18th, but let's give it up for Doug and Phil.