SaaStrU AMA | On Pilots, Discounts, Partners, Raising Capital, And More

I got it. Okay, let's just have some fun and answer these questions and then we will figure out a different tool and a better way to do this next time. But hopefully this will be useful because there's some good questions came in here. The first one we got was I think from Renea and this is something I've been thinking about. What commission should you give partners if they do all or most of the work to close a deal? And she says I'd mentioned in a post 20% of the first year deal and that certainly would be nice. So let's chat about partners for a minute because even if you don't have any, you're going to have some. And it's a complicated topic and I think it's changed. And what happened really is that Apple in particular changed the way everybody thinks about partnerships. So in it would be nice if you have a standard business partner to essentially pay them as much as you pay your own marketing team or if they close it, even your own sales team. So think about how you structure sales and marketing. We get our dander up. A partner wants 20%, 30% of a deal for closing it for you. But you can't close your own customer for 10 or 15% of the first year ACV you're going to have, your marketing team's going to have to generate the lead. Your sales team is going to have to pay a commission to close it. So typically it's fairly easy actually to pay from a continuum of say 10 to 40% of your first year ACV to a partner that brings you a deal. If they just hand you a lead, giving them 10% for finding you a lead, that's a great deal, that's cheaper than you can buy one through Capterra or another lead source. If they almost close it, but they do, they bring it pretty down the funnel. A warm lead, but then your sales team has to close it. Giving them 25 or even 30% of the first year is a good marketing deal. And if literally they close it on their paper, giving them 30 or 40% of the first year ACV sounds expensive. It will frustrate you, but it will cost you just as much to sell and market and close the deal on your own paper, then that 40% of the first year you're going to pay them. The issue ends up becoming two issues. One, the long tail do pay them after the first year and then do they really do the work to earn that 10 or 20 or 30 or 40%. And like in most things in SaaS and Cloud. There's been inflation. There's been inflation in particular over the last 24 months. Salesforce kicked this off. It used to. In the old days, it used to be cheap to or free to list on AppExchange. They. Then the noose came, and now Salesforce charges you forever. And everyone's used the Apple model, which is 25 or even 30% for the first year, and then a tail 10 or 15% of every revenue that comes in through that platform. And I see that now with dozens of partners, dozens of other systems, some today charge you nothing. Like, I know the Zendesk partner program pretty well. There's no charge at all to be part of Zendesk. But many others, like Salesforce, the expense has gone up. So you can pull your hair out and get frustrated, but what really matters is, one, you've got to play by the rules. It's not too negotiable. And two, platforms have changed. And this is what you have to think about. If a partner brings you a closed deal and they want an annuity on that deal in 2020, you're just gonna have to give them to them. You're gonna have to give them 10 to 15% of that deal forever. And you may even have to mark up your pricing to deal with it. So this stuff will drive you nuts. But you have to play the game, and it's tough to negotiate and assume that if a partner brings you a deal on their paper, which is more common these days, or they own the platform and you have to have it, you're going to be paying a 10 or 15% tax forever on that platform, like it or not. And. And the really hard part, the one that gets complicated today, is when multiple partners want to charge you that tax. When a contact center and Salesforce and a call center and all of them will. You can't add up to 100. I wish I had the answer. But you do have to pay to play so much more in 2020. Okay, next one. Let's see. Boy, there's too much on fundraising. I wouldn't want to spend all our time on fundraising. But let's talk about a few things that we have from all these questions, and then we'll move off of fundraising because you could spend all your time. The first one is, how much should we spend on fundraising? How much time should you spend on fundraising? And how much should you raise? Look, it's hard to raise money. There's no question. Even if you have all the privilege in the world, like I've had as a founder. You know, the first time I went out to raise, I had a $8 million term sheet, and it was pulled for me by the last moment when I had to make payroll and didn't have a dollar in life savings. This stuff's hard. And we're. You know, it's a privileged question to almost think about how much funding you should raise. But you know the answer. You know what the answer to this question is, which is it takes 24 months to get anything off the ground. In SaaS, we've written about this forever. Nothing explodes in B2B in a week or a day. Plaid just got bought for $5 billion this week. It's incredible. But their first 18 months were challenging. It's true for almost all of us. So the simple answer, unless you're crazy, you want to raise enough money to make it 24 months somehow. And that may mean in the early days, you have no salary. Even though you raise money, it may mean spending less. But if you raise less than 20, 24 months of Runway, you're adding systematic risk to your company that. That's not worth it. So figure out what you need for two years, try and raise it. And if you do raise money and you raise like a year or less, I would consider putting it on hold. Not doing. Unless your back is against the wall, of course. But a year is not enough. A year means. Especially because you can't write out of money. A year means you're going to be fundraising again in six or seven months and you won't make enough progress, progress in that time to raise more capital. So whatever it takes, make that money last at least two years. The second, what's the blind spot? I like these questions the more I read them. What are the blind spots that most entrepreneurs have in fundraising? I could summarize a lot of them. We've written a lot of them faster. But if you take one thing away from me, don't ask for coffee and no bullshit, okay? Don't ask for coffee and no bullshit. There are just people. There are just too many startups. Too many thousands and thousands and thousands of startups. If you talk to any reporter in SAS or cloud or in tech, they'll tell you they get over a thousand pitches a day from startups. A thousand a day. So if you ask someone for coffee and investor, they don't have time. They don't have time. I already had my cup of coffee. Don't do that. The point is, get to it. Get to the point and don't Hide stuff. If your metrics are bad, they're bad. Share your metrics. I have four customers and I'm doing $800 a month in revenue. Well, your investor is going to figure that out. Don't ask. Try to get coffee to hide the fact of where you're at. And investors are all different stages. There's angels, there's very early stage, there's Mary Meeker who did the last round at Plaid at two and a half billion. There's all different flavors and stages of investors. So stop hiding stuff. Stop playing games with metrics. Just be straight. And whatever you do, outbound works. We've said it in sales a million times on Saster. Outbound works. The trick is outbound works. Investors. I will tell you almost all the top investors in the world and there's only so many, but there are thousands. They read, they're in email all day long. Like the investors that I'm close to, that I've worked with for years as a founder, as a co investor, if I send them an email and it's from me and it's like a hot lead, like this is a hot startup, they're in town, if they're around, that email may get opened in about five minutes, maybe less. And that's for me and I have a certain amount of cred and karma points so that other investors will open an email that I send. But if you send and just think about this for a minute, because the same for any type of outbound sales, if you ABM investors, if you send them and you have to have the, either the metrics or the positioning to back this up. But if you send the best email to an investor that they've ever seen, they're going to open it and they're going to want to take the meeting. If you ask for coffee or send Sony baloney metrics or don't distinguish, you make sure that that email you send, just like a sales email, sells itself. Make sure that email you send to investors is so compelling, the metrics, the positioning, the case studies is so compelling that you would want to invest on the face of it alone. And go. We did this pitch at Sastra Europa, rather the session at Sasaeropa with Thiago Pajava, CEO of Talkdesk. Go look at it on YouTube or on the blog. Go to Sastor.com and search for Talkdesk and SAS Europa. And we literally showed the outbound email that he sent to me when I first met him, when he was, you know, it was him. And three Remote employees in Portugal and look at that and see what he did and see how good it was and see what it took and copy that. If you do that, you're going to get, you're going to get some meetings and the last one and then I'm going to, we'll go back to some more operational stuff. But the questions around what do investors want? Do they want dividends or profitability? Let me just help folks if they're confused about investors. There may be friends and family or folks that invest in restaurants and pizza shops that want dividends or cash flow or the folks on Shark Tank. But this is 2020. We're 10 years into a bull run and the cloud is just on fire. Fire. You know, there's, there's 70 cloud and SaaS unicorns and there's going to be hundreds soon. All the SaaS leaders, the hubspots, the Zendesk, they're all crossing a billion in revenue have gone past it. So any investor that any professional investor in Cloud or SaaS wants you to go long today. They don't want dividends, they don't want break even. And there's good and bad. There's good and bad. Everyone that used to look for a small exit then became a unicorn hunter a few years ago. Now every investor is a Decacorn hunter. They're all looking for datadog or better. They're looking for the next Zoom. People used to think Salesforce was an outlier, an anomaly, but now there's a sense that every year there'll be two or three zooms or slacks or datadogs out there. So everyone's hunting for them and they want crazy growth and crazy returns. And the bad side of venture investors today, the bad side is they want crazy growth. And you may not like this. If your growth is good but not great, they're looking for if not that. No one's expecting zoom, but they're expecting better and higher quality growth than a few years back. But if you're doing even reasonably, no one's going to twist your arm. No one's going to tell them you have to sell for a small amount of money. No one's going to looking for dividends or their money back fast. They're going to want to double and triple and quadruple down and they're going to want you to go long today in 2020. Okay, next question. A little bit about customers from Patrick. I won't do all of them, but there's some good ones. Number one, can you spend too much time with your early customers during the onboarding process feels like a trick question. How could you spend too much time with your customers? Of course you have to triage your customers. I love personally I did it myself and I love when I see other startups having everyone in customer success. I made every engineer, every designer, even my sales team who really didn't want to do it. I made everyone spend some of them spend an hour every day on support in the early days when we literally didn't have a support team and then later do at least ticket based support once or twice a month, forever. And everyone loves it. I really don't think you can spend too much time with your early customers during the onboarding. You need to be there 24 7. And let's talk about two things that are important to that. Let's talk about your whales, your big customers, and let's talk about the social contract. So your early customers, once in a while they'll think you're huge. They'll make a mistake, they'll get confused. Maybe your marketing side is really beautiful and they'll think you're as big as Salesforce or Zendesk. That does happen. But nine times out of 10, the customers are smart. They've always been smart and today they're smarter than ever. Right? The average, the average SMB has deployed over 70 SaaS apps. The average enterprise has deployed over 200. That means even SMBs have evaluated or used hundreds because you have to have tested hundreds before you've used 70. So we can smell it. We can tell when a startup is raw, when it's new. And we're okay with that, most of us, because we wouldn't be searching out a new vendor if we didn't have a problem to solve. And when we work with a new vendor, as customers we're willing to accept some limitations, some feature gaps, some issues. But what we expect back is extreme commitment to us as a customer. I want even for little teams. Saster, we're not tiny. We buy software all the time and oftentimes we're their biggest or newest customer. I expect instant support. Instant support. I mean, most of the folks here are on Saaster University. It's a cool platform. But I had an issue putting together the courses. The courses, the way they work is you can have up to 300 lessons in a course, but you have to put them into these sections or something so you can only have 30. So I went from my 31st and the act didn't work. I put hours and hours in Disaster University and I went and I had to file a ticket and the ticket said, we're all out. And the intercom or whatever app they use was three days old. Like I was building Sastru on January 3rd. And it said, we'll be back in a day or two. I'm like, guys, that's unacceptable. I know you're a small company, but get it done. And I sort of lit up every social media channel and then I got a response back and then I basically got real time help. And as soon as I got real time help, I upgraded from free to paid and I became an advocate of the product. But I expected that. I know the folks the company Mighty Networks that does sest universities not have a thousand employees. And I did not expect that. On January 3, it said, we're out for the holidays still. It's not okay. It's not okay at Salesforce, but maybe I can't do anything about Salesforce. When I worked at Adobe as a vp, they took two weeks off at the holidays. And I'll tell you, you can't get any good support over the holidays at an Adobe. They're just gone. And that's life. And Adobe is a brand, but we don't expect that from startups. So you have to find a way to do 24 7, 365. And I'll share one last story and then I'll give one other bit of advice. In the early days at Echo Sign, at Adobe Sign, we sort of accidentally got tons of customers in the UK and London. And it started off because we got British Telecom early, and then through British Telecom, we got ge, we got Dell Europe, and it just sort of grew from word of mouth and others. And all of a sudden, 20 to 30% of our revenue in year one was in London and I had no staff there and I had one person in support and he had to sleep. So I took my laptop and I had our contact center software open every single night for two months. And every single time there was a ticket, the bell would go off. And my wife almost killed me because I'd be doing 10 tickets in the middle of the night until my support guy could come at 6 Pacific and take over the European channel. And it was crazy. But those customers, we didn't lose any of them. That was my job. And that's your job. Your job is to create 24. 7 service for those early customers. And then the next thing, and then we could spend all our time on this. You got to do it. You got to be 247 for those early customers, because they know they're taking a risk on you and if you deliver for them, they'll do it, but otherwise they'll gone. The second thing, and I know you know capital and money and headcount's always tied in the early days, but think about this, you really gotta do. And I should write a post. As soon as you have two big customers, two big ones, not two customers at $5 a month, but two big ones, you need a full time head of top accounts. Whether, what do you call that? Customer success. Whether you call it business development, whatever. Development. When you have two big customers, whether they're $1,000 a month, $1,000 a year, 100,000 a year, two, it's full time. Even if it doesn't make sense, even if those two customers only add up to her salary or less, they know it, they deserve it. And this was, I stumbled into this. I had a personally. Not to share too many personal stories, but I had an intern our first year at both my startups. I grabbed an intern from the Berkeley Business School and they had different jobs, but I immediately put them on our largest customers and I just knew I needed the help. But those customers lasted forever. They last forever. And yeah, you can't do it if they're $2 a month or $10 or $20 a month, but your customers will get bigger. So you, if you only have small customers, it's 24,7 in the early days. And that's what distinguishes you. That's what honors the social contract back to your customers. And when you have a bigger customer, not five dollars, but maybe even only a thousand, two thousand, ten thousand dollars a year, you have to have someone full time and that they know Joe or Jason or Becky or Lorraine is their person. And that person can sleep, but they know when they send that email, it doesn't go into a bot, it doesn't go into a pool. It goes to Becky. And Becky knows the people at Dell or BT or Google and she gets to know them. And even if she can't go on site, they have that person. You owe that to your top 20% of your revenue forever. Your top 20% of her revenue should always have a named individual taking care of them, in my experience and opinion. Okay, next fun question from this one. I like these questions from Patrick. How fast would you aim to grow in the first few months? You know, like a thousand percent. I mean, look, here's the truth. I wrote about this a long time ago and I should refresh the post and I'll put it up on Sastor U because it's not there. The real truth is assuming, assuming money matter, assuming you have the time and money doesn't matter and competition doesn't kill you. The truth is it really doesn't matter how long it takes you to get to about a million in revenue. It really doesn't matter. What matters is after you hit real product market fit and after you hit initial traction, after you have even a small engine going, it matters that you have happy enough customers, enough product market fit that that growth continues and compounds, but growth in the very early days, percentage wise. Don't read too much into it. You know the Fun Talk Desk 1 I did at Sasjuro, but watch the one with Thiago and the cold email that we talked about. I didn't know when I got involved with Talk Desk I was there. They went from 1 to 15 million ARR in 15 months. Okay, today actually more startups do that. But in 2014 I didn't know anyone that went from 1 to 15 in 15 months. I didn't do it. Box didn't do it. Maybe Dropbox did it, but none of my peer class, the yammers, none of us went from 1 to 15 in 15 months. My jaw dropped. But when I went on stage with Thiago, I didn't realize even though I met him when he was it was just four people in the company, I didn't realize the first two years he had no revenue and was babysitting, babysitting to make ends meet. So even though in my little ecosystem it's one of the fastest growing startups in the early days, before you have product market fit, you just need to keep iterating as fast as you can, make whatever customers you have happy so that when you finally hit it 1 million, you can @ least triple or quadruple the next year. That's the magic of compounding math. So I would worry unless you're in Y Combinator and have that pressure, and that pressure does help, don't get me wrong, I would worry a little bit how much you grow in the first few months than that you close every customer you can and they're super happy and that you do grow and make sure no matter what. And this goes back to the first question of spending too much time with your customers. Here's what's more important to me in the first few months more than exactly how many customers you have. That they all love you. Or enough of them love you that you close each week and each month and each Quarter more happy and successful customers. And if you go back, there's a fun video. I have it on the you but I'll put it back. One of the best sessions I did was with Peter Gassner, who's the CEO of Viva, which I think is worth about 20 billion. And you can see that from the 27th annuals. Really, it was one of the first public speaking he ever did and it was great. And Viva from my perspective, because Peter and I started our company the same time, I thought it was a rocket ship. And what he said is, you know, we barely made it and we never thought we'd make it more than a quarter at a time. In the early days we only actually deep down, even though we had a roadmap, we only planned it a quarter of a time. But we wanted those customers each quarter to be wildly happy. And Viva is very enterprise. 10 million and up deals are consistent but all they did was make those customers happy and worried a little bit less about growth in the early days. This is one of the great success stories in enterprise cloud and that's all it took. And that would be. That would be my recommendation. Okay. And then, boy, these are so good. I want to go into other ones, but I want to zip through just a couple because they. Because Patrick's touched on so many different things in a. In a thoughtful way. If you've got some traction, is there a length of time an investor would find concerning about revenue growth when you're raising a seed? Let me just. I don't want to go back too much on fundraising, but there's a lot of good questions unpacked here today. If you read, you know, there's things that I look when I see a TechCrunch article on fundraising or in something in strictly VC that other people don't look at, which is how long. There was a big round. There was an article today that Productboard is one of the hot SaaS startups Sequoia and Bessemer did it at 350 post. But if you squint, I think Productboard was founded in 2014 and I think that's today's 2020. Maybe I've got it wrong and Product Board is a great company but it took them a while to get take off. And the reason I'm bringing up Product Board today, but we can come up with a lot of other examples is a few years ago investors would be really worried if you didn't take off quickly. Investors were freaked out, especially in SaaS. And when I started to do Some angel and then institutional investing. Look, if it took you more than 18 months, 20 months to become a rocket ship, that was kind of a pass for investors, like something's wrong. You didn't achieve product market fit. It was an issue. Now, we've been doing SaaS for a long time and we see companies all over the place. We see folks that explode out of the gate somehow, like Brexit's. You know, we can talk about whether that's SaaS, but it's B2B ish or B2B 2C. Or we could see others that like Talk Desk, which are rocket chips, but for two years, it takes a while. And I see more and more companies where it's five years until they raise their first institutional round. And that used to be a flag. It's no longer a flag. It's no longer. So that's the good news. If it takes you longer to get to that inflection point, you still have to grow quickly. After a million, you can't grow at 3% or 4% at a million. Institutional investors are looking for you to at least triple at a million trip, go from one to three at least in a year. But assuming you can do that, people don't care as much if it took even five years to get there. They really don't. As long as you're not tired, anyone can see people, the tiredness in your eyes. And if you have that, investors are going to pass, but otherwise they're much more flexible about how long it can take you to get there. What doesn't work, what didn't work five years ago and still doesn't work today. What hasn't changed is if you've raised too much money in. A rough rule of thumb to think about. A rough rule is if you're looking to raise less or you're only able to raise less than you've already raised, you're in trouble. You're in trouble. It doesn't work. If so if I meet a lot of folks, they're at a million and it's just starting to take off and they want to raise a couple million dollars. That's great. That's a perfect time. A million. And they are growing quickly. There's so many, like seed and late seed investors. There's hundreds of folks that love SaaS and Cloud now. There weren't that many five years ago, six years ago, there's hundreds. Perfect. We can talk about that. That's a perfect time to not raise a vast amount of money. You're very structurally Attractive at a millionaire are say, tripling, right? Going 8 to 10, 12, 14% a month. I mean, that's a wide range. But, but you're, you're in the zone. I'll hear from somebody, I'll be like, what'd you do? Why we raised 7 million to get here. Well, that. You're dead. Okay, you raised seven and now you want to raise three. Founders don't get it, but that's too much. There are exceptions, but they're super rare. So just assume a couple things. Assume each time you raise, you need to raise twice as much next time, which means your valuation and your value needs more to double. There are definitely things called second seeds and third seeds and endless safe rounds and endless notes. And if you don't burn too much, you can quietly keep raising bits of, and bits here from investors. You can do that, but ultimately you're going to pay the price when you need to raise significant money, and it's much more than you've raised before. So it's stressful. But at the end of the day, a rough rule of thumb is if you are able to raise money, and that is a luxury, it is a privilege, or at least it's preserved many of the privileges. If you raise much more than 2 to 3 million before a million in revenue, you have structural risk. You may not be able to raise more money unless you're a total rocket ship. It didn't hurt plaid. Plaid did 15 million in their A, but it took them a while to get there. But unless you're a real rocket ship, be careful before you raise 2 to 3 more million in like pre seed or seed money, because you're signing up to that. That has to be all that you raise. Okay. And then maybe just a couple others because these are fun. I don't want to take all of our time. What I bootstrapped and want to raise as much as possible. Is there an equity percent Investors won't go under for a seed round. Boy, this is a great thing for founders. The world's so much better today because there's, there's, there's so many more types of investors. So the venture capital model has not changed since we were children, since we were young kindergarteners raising venture capital or whatever. Bad joke. But, but since I started my, my, my first startup job, the model hasn't changed. For a big fund, for a tradition that's hundreds of millions or billions of dollars, it's very difficult for them to make an investment that's early stage, that's less than 20% of a company. If the company's super hot and taking off, they might go as low as 15. If it's early and they believe they might want to own 30, it's very hard for one of these larger funds, the Sequoias, the Bessemers, the Andreessens, to make a normal bet that's less than 15 or 20%. So it's hard to sell less. But the good news is there's lots of options. First of all, a lot of those funds have seed funds that are much less valuation sensitive. Now, you may not get that much value out of their seed fund, but those seed funds are less sensitive to outcomes as creating options. The second is all these. Since 2006, there's been over 1,000 micro VC funds, which is crazy. And a micro VC isn't $6. A micro VC, I think, is defined as 200 million in assets and under. And 200 million is a lot. But I know it's hard to get your math around venture math, but here's a way to think about it. Below about a $40 million fund size, 40 to 50 million. Investors can be fine owning less. They can be fine owning 3, 4, 5, 6%. It's still hard to make money in the business and do the Saster search on why VCs are hunting unicorns to get it. But it's just not enough of an outcome. If you own 5% of a company and boy, the company sold for 100 million, the VC only makes 5 million. And if the fund's 50 million, that's only 10% of the fund. Like, you haven't even gotten close to 1x. So it's hard if you don't own a lot. But there's so many more funds. Assume a fund that's 50 million or under, maybe very flexible, and owning 5% or less, and assume that a seed fund of a big fund may not care and hack it. And hack it. So if you, if you don't need to raise much and you don't want to sell a lot, meet more investors and ask them the question. And there are more investors that are okay buying smaller stakes than there were four or five years ago. Okay, good. The next one I want to do, we'll do maybe 10 or 15 minutes more. We're jumping around a lot, but it's fun. This one's really early, so it might be too early for Sastru, but I'll try to make the insights broader. This one's from Eric, which is how did I get my first 10 customers. And how would I do it now? How do you scale them up? Do you underprice? Do you do pilots and help? So let's talk a bit about that. First of all, let me step back. What I've learned both from myself, my peer group of CEOs, maybe the 25 founders I've invested in and the folks I meet with all the time. And I wrote this a long time ago on Saster, which I should refresh is everyone. It turns out everyone I talk to gets their first 10 customers a different way. For folks that have a sales background, that are sales magicians, they often get it through Raw Outbound. In fact, the best sales folks, and this is good and bad, the best sales leaders that are CEOs, they often sell vaporware, right? The PeopleSoft guys, the Mark Benioffs and others, they can just go out and sell a product that doesn't even exist. That's not my skill set. It's probably not your skill set, but folks with the sales background that I have found, especially enterprise sales background, can walk into a room, meet senior folks, people and say, hey, Linda, at whatever workday, or Bob at Dupont, what's your biggest problem? Bob? My biggest problem is my dashboard in tableau doesn't properly integrate with this. And Salesforce bought them this. That. It's like Baba. That's exactly my product. It's $100,000 a year and it integrates these three things. You fly back, you talk with your CTO and your co founder and four months later the buggy version releases. And some folks literally sell vaporware as much today as in the past. That works. That's not me. Other folks are good at lists or spamming or growth hacking. And growth hacking is a weird word, but I know plenty of folks who bought a list for or scraped a list or stole a list or hacked an events app and downloaded a list, spammed people, thousands and thousands of people hit one or two and got their first customers that way. Growth hacking, spamming. I don't like it, but that's the opposite end of the, of the continuum. There are. And I'll tell you what I did, I did it different ways. My first startup, I did abm. My first startup, it was easy. It was big customers. There were 10 of them. I figured out who the buyers were. I didn't know what ABM is at the time. I cold emailed them. I cold emailed the CEO of a $30 billion company. I cold emailed them with the best email in the world. He sent me to his head of engineering. And two weeks later I had a meeting. Okay, that's cold email. I did warm emails to other customers and I did, you know, a handful of super targeted, really good emails in my first startup and I got almost 100% success rate. These weren't spams. These were the best emails in the world that I had a product they were already buying that was 10, truly 10 times better. And here's why. I had 100% open rate and 100% meeting rate, so that's targeted outbound. And then what I did myself and then I. So then I knew enterprise. And then I started Echo Sign, Adobe Sign. And I'd never done like low end SaaS before. I had no experience, I didn't know what to do. This ABM toolkit didn't work. Closing million dollar deals through handcrafted emails for A$12 a month product at the time didn't work. So I didn't know what to do. I tried everything and I did PR and we launched on TechCrunch and I did every event that would have me. I went on every blog, every single blog I could find that talked about SaaS back in the day. I would try to get on the blog. I would go to every event, every bake off. We talked earlier about how I got going in London with British Telecom. I won them from an enterprise bake off at an SAP tech event. I did every single way I could get in front of people, whether it scaled or not. And I got only a little, you think in TechCrunch, I got a million customers, I probably got 10, but it got us on, it got us going. And I got BT from one event and I went to an HR tech event. I got one customer, but that was a great tech customer. That was probably where I got Dell. So I did field, I did pr, I got, I just did exposure because I didn't know what the hell else to do to get to more customers. And that's how I did it. And basically I think we all have different DNA and you try it and then you figure out like anything that barely works in the early days, anything that barely works, don't get discouraged, do more of it. Like, yeah, if you send out 100 emails and you get one customer 500, then send more. Okay, that's really good. In the early days, there's so many SaaS products, we don't need any more damn software. If anything works, it's amazing. If events work for you like they work for me, do more events. If PR works For you do it like just anything that performs in the early days is a gift. So lean in on anything that works. And then two related questions on this. Underpricing and pilots. Underpricing never works because you can't make somebody buy a crappy product just because it's cheaper. Like, this is. This is a classic desperation. We've all been there as founders. I wasn't there. My first startup, I could tell some fun stories where I raised prices during our $6 million negotiation, but then I got a little more gun shy later, and it's classic what you know. Hi, Bob. You like my product? Well, yeah, it's a little expensive. What if I cut the price in half? When they're saying expensive, sometimes that means it's expensive, but sometimes it means I'm not sure I see enough value. That's really what it means. 50 bucks a month, 100 bucks a month, 20 bucks a month. That's a lot of money for another streaming service when I already have Disney and Netflix. But if you're solving a big business problem for me, within a range, it doesn't matter. So making a product that's not compelling cheaper doesn't work. What does work is something different for pricing. And I've written about this, and I should write about it more. Now that we're SaaS veterans, now that we've all bought 80 or 100 SaaS applications, we know, like, we know what something should cost. Like, we know that. How much is Zoom? Zoom's like 20 bucks a month, right? Slack's like $5 per user. Salesforce, we pay probably $100 per seat. Okay, so we've got a continuum from 5 to 20 to 100 in. Our little team's faster, and we can't pay 100 for every app. And I don't want to pay $20 like Zoom for something that only gives me $5 of value. What do we. I mean, I love Notion. What do we pay for Notion? I can forget. We probably pay for Notion what we pay for Slack, but whatever we pay for Notion, when I went to go from free to pay to Notion, the pricing was so consistent with what I paid in the past, it might have been cheaper that I paid in 60 seconds. That's what you want to have happen. Figure out what your real comp is. Figure out the application that we all know. The Zoom, the Slack, the Asana, the intercom, the talk desk, the Algolia, whatever it is, the pipedrive that's like you, that feels like as valuable as you, and price it 20% cheaper than your comp. 20% cheaper than your comp. What that does, as is the last topic on this, and we'll move on. What 20% cheaper than your comp in the early days does is remove friction from sales. And that's what you want. If your product is too cheap, it adds friction. You get confused. I Pay. You pay $200 for Salesforce. If you charge me a dollar a month for a salesforce competitor, I won't even take the call. I don't have time. I know that your product does not do enough to replace salesforce for us. Right. I don't know what we pay for Mailchimp. 500 bucks a month. If you give me a mail product, that's $5 a month and I'm paying 500 for Mailchimp. I don't want it. I don't have time. I don't have time to do the discovery. You're freaking me out because it's too cheap. It's just too cheap. But if I'm worried about a vendor, and I love mailchimp. But let's imagine we were frustrated with it, which we're not. But let's imagine we were. And you said to me, hey, I've got a product just like mailchimp. We can migrate in 60 seconds. And it solves my one problem. And I'd be like, great. And I do some diligence. Have you been around for 10 years? You're brand new. They're new. Okay, well, I'm nervous. But if you come in at 20% or 30% lower, that just removes all the friction from the sales. So do that. Remove all these answers on pricing, pilots, everything. Your goal is to remove friction from the sales process. The more friction you take out, the faster the deal closes, the more revenue you're going to have. So going to pilots and pilots drive everyone nuts. When you have a sales team, the sales team hates pilots. They hate pilots. In 20, 17, 20, 18, 20, 19, 20, 20, 21, 20, they're going to hate pilots. 22, 20, they're going to hate pilots. And why do salespeople hate pilots? Salespeople hate them more than anybody else because they have to do the sales sale twice unless 100% of your pilots convert. Pilot's the worst thing in the world for a sales rep. Except losing the deal. And it's close because I got to close the deal. The second any good sales rep closes the deal, they don't want to do any customer support or any customer success. I've never met a Good sales rep that wants to do 1 second of work after the deal. Is Adobe signed or docusigned? Unless they can get more revenue out of it, they don't want to do one second of work. So the pilot is like doubling their work. Like I gotta sell that. Let's imagine it's a, you know, a thousand dollar month deal, a 12k deal. The rep closes it and there's a 90 day pilot with an out. Or even worse, it's not even out for the customer. The customer has to re sign after the pilot. That means the sales reps got to check in, talk with all the stakeholders again, do discovery, get, get all the complaints and whining from the pilot and then sign a second contract. It's a nightmare. So everyone's going to hate pilots. So definitely try to do opt out rather than opt in at the end of the pilots for sure. But my real advice as CO is jam it through. Jam it through. Force the team to accept pilots and if you don't even have a sales rep, force your engineering team to do it because you know it's much A pilot is much better than no deal at all. And a pilot, don't forget customers aren't stupid. Pilot says hey, I don't know who you are, I don't know your app. I don't know if I can trust you like Marketo or Salesforce or Trello or Zoom. I don't know but, but I'm willing to invest the time to find out and actually pay you. Free pilots are stupid. Okay, there are, there are use cases where free pilots make sense. The problem with free pilots isn't that they're free. The problem with free pilots is that no one takes them seriously. They put them on the shelf, they do it later. You gotta charge for a pilot or I hate the idea of skin in the game, but it's true there has to be some skin in the game. But if they want to do, if you're, if you can go live in a week and 60 days is enough to prove value, stand friggin behind your product, stand behind it, allow pilots and you know what's going to happen as you start. As those pilots don't convert, the team will be mad. But you will come up with a KPI which is 90% plus pilot conversions. Folks that do pilots, I see, if they stick with them, I see conversion going way up. Maybe sometimes they're 30 in the early days and they all end up being like 90 at the end because everyone knows the whole team springs in Action. They say this deal is not our. Is now ours to lose and we have to make the pilots win. Your product will be better, your customers will be happy, and if it's the way they want to buy, it's 2020. Let your customers buy the way they're used to buying. If they're used to doing pilots, let them do a pilot. If they're used to paying per seat, let them pay per seat. If they're used to utility pricing like Twilio or a hybrid of utility in a base, just whatever it is, let them buy the way they're comfortable and they more of them will buy just the way they're comfortable. That doesn't mean free, it doesn't mean giving it away, it doesn't mean cutting the price. But the way they know to buy, that's the way to buy more. Okay, I love this next question. We could like. I need to write more. I could write. Talk about this endlessly because I keep learning about this one yourself. This one is from Sergio. How do you realize the reason you're not closing deals? Is the product not good enough? Is the target correct? Is the size of the companies you're targeting? I want to answer a version of this question, which is what do you do when you're not growing enough deals? If you're closing no deals, I can't help you. I don't think anyone on this, on this chat on the side, or anyone here. If you're closing no deals, I genuinely don't think anybody can help you. Go figure it out. Something's wrong. You're not getting. You're not getting. Either your product's terrible or you're just. Your product is okay, but it's not valuable enough. Somewhat similar, or your product is very valuable. It's solving a huge problem. But you're so bad at marketing and sales, you can't find a single prospect. I find that even if you're babysitting like Tiago, eventually you iterate and you, you find one customer that will buy your product. And when you find one, you find another just like it. And you get 2 and then 4 and then 8 and 16 and it's too slow, but it does work. What is what will stress more of you out? And maybe even a majority of the folks that eventually watch or listen to this is when you're not growing fast enough. When, and I'm not talking about Brex rate or whatever, you know, datadog rate, but say you're at a million and you're growing 50% or you're at 500,000 and you're growing, you're not even doubling or you're at 2 million, you're growing 30%. That's not fast enough. The cloud alone is growing 20 to 30% a year. So even if you just show up, you should grow, you should grow that fast. And if you have net, net negative churn, if you, if you grow your accounts, you should grow another 20 or 30%. So today, even if you're terrible at everything, you should be growing 50 to 60% when you're reasonably big, just from cloud and net retention, you should be doubling or more earlier than that. So if you're not, something's off, something's off. And it's not just a crappy sales team and what you have to ask yourself, and maybe your sales team is terrible and maybe your marketing is awful and you don't know how to do Aptera and you don't get Facebook and you don't know how to grow how, you don't know any of these things. But if you're coming up on a million or past it and your growth is mediocre, what typically that means is you have a decent product because you have happy customers. Assuming your customers are happy and you're at a million or 500,000 or 2 million, but you don't really have product market fit. If you're growing too slowly either side of a million, what it means is that you've developed something that has some value. But you have to challenge yourself, challenge yourself as a team and go back and talk to your customers and most importantly, talk to the prospects you lost and find out why they didn't close. And the truth is, if cloud is so big and there's such trends and folks are more than amenable, if you're growing less than 100% in a million ARR, your product doesn't do enough or it doesn't do it well enough, it's solving a piece of a problem. But you don't really have true product market fit. And when you do, you'll feel it. Product market fit means more deals close than you expect. Product market fit means word of mouth is taking off. So you have more leads than you know, maybe not a trillion leads, maybe not like the maybe not Facebook level, you know, virality. But product market fit means sales and marketing gets a little bit easier than it used to because the referrals and you get better at selling than the product does more. And if that's not happening, I don't think you build enough Software or good enough software. And it's fixable. It's fixable if you have 50 customers or 100 happy customers, but you're not growing fast enough. But your MPS is 40 or higher. If you have a good enough engineering team or even decent engineering, you can solve this problem. But you have to be honest about it. You have to redefine is what is a true sellable product in this market, what are the gaps we're missing and how the fracture are we going to start nailing these gaps. The next quarter is so that the deal we lost last quarter, the deal we lost last week, we can win. And related to that, if you want to grow faster, stop celebrating just the wins and have lost meetings, you should have lost meetings every week if you can. If you have enough lost deals and you should certainly have them every month. Whereas a team, you review all the lost accounts. Talk about why. I don't know what you guys do, but even in our little team Sastra day and in all my startups, I get a wonderful email every day on a sponsor we've closed at Saster sponsor. It's great to get it. I never get an email on the deals we lost. I just find out in the hallway what happened. Why isn't whoever sponsoring Saster annual this year? Oh, they're not signing up. I didn't even know. But I sure get the emails on the new sponsors we bring in. But it's the lost ones where the team learns and you only learn a little bit from the 1:1. So do loss meetings at least every month. And if you have enough leads and you have anyone but yourself in sales, do loss meetings every week and then ask yourself honestly collect that data and say truly if we everyone's in sales is stressed. I lost the deal because I don't have stripe integration, I don't have whatever. But you got to separate the daily drama from the stuff that becomes a trend. But you have to figure out what are the three, four, five things we can build so that more deals close. And when you build those three or five things and more deals close, boom, growth is going to go faster. So sales is a problem. But before you blame sales, make sure marketing is delivering enough leads and to sales. And marketing's a problem. But before you play marketing not getting enough leads to sales, make sure that the product's good enough to close these leads. It probably isn't. It probably isn't. Okay, we'll do a couple more things and then we may, we may run out of time. But let me Just give me one second. There's, there's more of them here than I expected. But pause, bear with me for a second here because there's, there's so many good ones and I'm sort of learning how to use this app. Okay, just a couple more and then we'll wrap up. And we are kind of jumping around, but I guess that's the nature of the ama. 1 I just want to answer really quickly. I just answered a question on Quora that I put up on Saturday, but from Khashi, when hiring your first sales rep purely based on commission. What? Stop, stop. I'm not even going to read the rest of the question. Never, ever, ever, never ever, ever, ever in SaaS, in B2B ever, never ever, ever hire sales reps purely based on commission. This is not Avon cosmetics. This is not door to door products that are cheap where people already know the product and they already know the brand. And you can force your way through the door and Avon doesn't really work anymore either and get people to buy this. I'm sure there's an exception out there and I've never, I've never, ever, ever, ever seen commission only reps work. And there's, there's two issues there. First of all, even if it did work, you're better off doing it yourself. Even though you don't know how to do sales, even though you hate it, do it yourself. Because commission sales, it just doesn't work. And why doesn't it work? Well, you can get folks that aren't experienced to do a commission only thing. You can get folks that have limited experience, especially if they bet on themselves, they'll get excited. But until you have a brand, it's pretty rare to have a one hour sales cycle. Pretty rare. Until you have a brand, it can happen later. And even for bigger deals, when you really have a brand, I mean, they'll be like your brand may be supporting a discovery process you don't see. But look, I have closed multiple hundred K plus deals one day in my lifetime and it seemed like a day, but I had a brand at that point and the customer was doing their own learnings and discovery or they were a repeat customer or something like that. Your 1099 reps, as we call them, folks on. And I guess that's changed with the new California law where everyone's a 1099 rep, that is an employee. But anyhow, folks are in commission early. As soon as the deal takes 30 days, 60 days, as soon as it takes selling to multiple stakeholders as soon as it takes time, they're out, they're out. They have add. So I have just never seen it work. So never do commission based sales. Okay. Then you might ask yourself, well, you know, I can't afford sales. Like I have no money. Well, in the early days that certainly if you have no money, then it's got to be you like until you can afford money. But the other piece of advice is even when you have some revenue, 5k a month, 10k a month, let alone 20k or 40k or 50k a month, you have more revenue to pay sales than you think. As long as you hire someone good and one and a half reasons why. Remember that for any position, salary vests for any position. So whatever I pay someone, let's, let's use some simple numbers. It's a lot of money, but let's assume I pay not, not a sales rep, but let's assume. Assume I say a director or even a junior VP $120,000 a year. That's a lot of money when you have no money in the bank. But it's only 10k a month. It's only 10k a month. And if you pay no recruiting fee to get that person and that person that you're paying 10k a month in the first month, that VP or Director brings you more than 10k a month in leads or that sales leader closes more than 10k, they can be accretive in 30 days. It can cost you nothing to hire this person. That's accretive. That's true for any hire. And then for sales, remember, let's. And it could be different in the world, but let's say you hire a seasoned salesperson for. Could be more in the Bay Area, but let's say you hire someone for 120k. OTE to be simple, $120,000 a year ot, that's base and bonus. And you're like, I can't afford that. I need these on commission. So slow down. You can afford it if they close anything. Because as long as your deal size is more nickels. Because first of all, an OT is typically 50% base, 50% bonus. So this $120,000 a year compensation for the AE is only 60k in base and 60k divided by 12. Help me for someone on this. I'm getting tired. It's the afternoon. But 60k base is what, 505. Sorry, $5,000 a month. Yes. So to hire this $120,000 sales professional, you're paying her $5,000 the first month. If she can even close $5,000 of revenue, it's worth it. And the bonus. So she's got 120k ot, but remember the second half she has to close to get. So any rep that's half decent, or maybe not half decent, any rep that's even just pretty good will be accretive. Even at 120k, even at 140k ot, just have a program where she has to close three to four times what she brings in. Make sure they're decent. And remember, salary vests and bonuses earned. So you're going to make a lot more money hiring a sales rep with a couple years of SaaS experience than someone from the pool supply store down the street with none that will do it totally on commission. Like just don't do it. And okay, one last question and then we will run out of time. I wish I could get some others, but I'll try to answer a few on the Sastru. But one last one. If it affects folks, but I'm going to answer a version of the last one. The question is what's the difference between a pure SaaS product and a hardware enabled product? So Fergal's talking about product, but I want to talk about a different thing that's more common in 2020 if it affects folks that are listening to this, which are hybrid models. This is where, if you're reading Casper's Casper mattresses going public and you can all kind of. I don't want to take potshots at folks. I know they've worked hard, but I feel like if you look at the metrics, they're, they're, they're kind of trying to pull wool over people's eyes. They're talking about how that they spend $1 for every $3 they get out at Casper. And that would be great for a SaaS company if you spent a dollar and got three. The problem with Casper is, first of all, the margins are less than 50% and they have 20% returns. So when you look at what's left of the dollar they get in, they're spending more than a dollar to get a dollar. That doesn't work. And why am I using Casper as an example? Well, whether it's hardware or whether it's folks that have a telephony component like voice products, or there are folks that add an SMS experience or folks that do different things in payments, more and more of us are adding products to software that have costs, whether it's hardware or telephony or payments or other things. And that's great. That is great. That is that workforbill.com, which just had a tremendous IPO version of it worked for Plaid. Not they really have all this. But. But it's enabling. But, but you have to be careful with the playbook when your margins are lower than 80% and if you don't, if some of you won't even understand what a gross margin is. Let me, let me, let me simplify it. You can research it online. We're at a time. If your software costs anything to ship other than a few instances at aws, some of the advice on the Internet is wrong. In other words, you're going to have to be more careful with your sales efficiency and more careful with your marketing spend. As soon as your margins are low than 75 for 80, even Twilio at 60 had to be careful. And Twilio is a rocket ship and 60 is the edge. And if you truly understand your gross margin, I find most founders that have mixed models down. But a quick way to think about it is if you're below 60, you're not really software. And if you're in the 60 to 70 world, you're going to need to be 20 to 30% more conservative than your other friends and pals that are CEOs. You need to spend less. The sales reps are going to need to close more and you need to be conservative. And you may accidentally even run out of money like a Casper who needs a lot of money. If you get this just a little bit wrong. The truth is, in software, software is hard. It's hard to get the engine going. It's hard to get it off the ground. We can only recognize a twelfth of the money. The prices are low. But the. But once we have an engine in pure software, it rains. It's rained since Microsoft. It's rained since Intuit in the early days. It rains everywhere when you get it going. Because the truth is these bits, unless you have massive data lakes, these bits don't cost much to ship at scale. It's just the engineering and learning is expensive. But be careful. The playbook, when you have these hybrid models and hybrid isn't bad. Don't shy away from adding a hardware component. Don't shy away from adding payments, don't shy away from services which we've talked about. Just know thy margins and then leverage. Leverage services, leverage hardware, leverage payments, leverage all these pieces so that you have moats and that so you win. So that's an hour. Thanks for everyone. We'll try to do more. And if it's helpful and I can figure out how to do YouTube better, we'll do even more. Talk to you soon.