The Cavalry Finally Came: Breaking Through the $5-$6m ARR Wall

Good afternoon, my name is David Apple. I'm head of the software and SAS vertical at Intact. We are the world's largest independent cloud ERP firm and very excited to be sponsors here at Saster. This is going to be our fourth session of the day here in the tactical stage and helping move Saster along. And I want to throw out there if anybody hasn't bought their Saster swag yet, they got the Saster socks, so they're out there if you want to get some. We've got a great session today on this is all about the Calvary has come and what do you do on getting to the 5,6 million dollar mark and what do you do afterwards? We got a fantastic panel of three people who are going through this or have gone through this. And we were talking a little bit before the session about what we'd like each of you to get out of this discussion. But there's that old adage, yesterday's solution becomes today's problem. And I recognize some of you out in the crowd, what got you to this point isn't necessarily what's going to get you to the next point. And what we hope for each of you is to hear from some practical insights about what they've gone through that you can take away to applying to your own business. Please allow me to introduce Laura, Fred and Lewis for coming on up and starting the session.

Thanks, aaron.

Cool.

So this is an exciting panel partially because I want to be in his seat next year. He wants to be in his seat next year or the year after. So I'm the CEO and founder of a company called Teamable. We're about 1 million in ARR closing our series A and we help companies like Lyft and Stripe and Uber hire through their social network connections. I'll let you introduce your companies and some key metrics as well.

So my name is Louis. I'm the co founder and co CEO of Showpad. Originally Belgian company, moved to the US four years ago. Company is trending close to 20 million right now. Showpad is a sales enablement platform. We basically make sure that salespeople have the right content at the right time. So if you have to give a presentation or share something through email, Showbot will deliver that content through the sales.

Rep. Hi, I'm Fred. I'm the CEO of Rainforest qa. We are replacing the QA team. So we're doing kind of what AWS did for infrastructure, we're doing for qa so you never need to hire QA again. That's our Main objective, we're just north of 6 mil. ARR. We raised our Series A at start of 2016 and we're currently 62 people.

Cool. And we made a pact that we're going to tell you all the painful things and not just be like rah rah. It's so, so easy. So we're going to be very open and honest with you. So to the extent can you talk about who you sell to, some of your key metrics now?

Yeah. So we sell to the engineering leader. Our ASP average sales price is roughly 70k thereabouts. Sales cycle time around 70 days. And we have an outbound driven sales engine. So our leads don't come from marketing, our leads come from our SDR team.

Cool. So I really want to start with a painful thing. Right. I think as you scale when you get to 5,6 million, like hiring the right type of salespeople becomes really crucial. Showpad is a pretty complex sale to do. So we sell to marketing and also to sales. We made a lot of mistakes in the beginning by hiring not those type of salespeople because if you look at the type of sales you have, if you put it on an axis, on the Y axis, it's the complexity of an offering. So do you have a complex product? And on the X axis it's the complexity of the buying process. And if you have a very simple product with a very simple buying process, then you need order takers. But if you're selling Showpad, then that's a bit more complex. So we made a lot of mistakes hiring the right type of salespeople. And that's something that I advise all of you who are trending towards 4, 5, 6 million to make a really good exercise. And what are the type of reps you need? Because hiring the wrong types of reps is pretty expensive. Yep, horribly expensive.

Nice. Now, Fred, you were telling me, actually I want to hear you to tell your story to Initial Traction. Because another thing that I think, you know, you come to these conferences and you underestimate is just how long sometimes it can take to get to initial traction. So why don't you tell the story of getting through YC and having to basically recreate the business.

That's like a really polite way of saying we're really slow to go three years for us. So we spent two years or so just building out the core technology of Rainforest. So we had a pretty deep amount of technology to build and so we weren't able to just kind of ship something out very quickly and start Testing it in the market. We had to do the kind of R and D phase for a couple of years. So we did the R and D phase for a couple of years. I sold very poorly for about a year. And I would say we hit initial traction kind of three years after we were started. We made all the same mistakes that Louis made. We hired the wrong salespeople, we tried selling the wrong way, we set the wrong price point, all of that stuff. But yeah, to get to the first mill took us three years or so.

Cool. So both of you, this is a while ago for you, but you're at initial traction. You're growing month over month. VCs that used to ignore you are calling you, you raise your Series A. What was the first wall that you hit? You think you're the best ever. What was the first wall that you hit where you're like, oh, I mean.

I think in the moment you need to. If you get to 1, 2, 3 million, then in a lot of companies it's like one rep or maybe two reps hitting that number. I think hitting the wall happens when you realize you need to have like five, six, seven of those types of sales reps. Very successful and getting five or six reps, super productive. Closing 7, 800, a million a year is really tough. So we had a lot of issues with making sure we could scale our best sales reps. And that's tough even until today.

Same for you, Fred?

For us, it was that we hadn't hired out the core executive team. Right. So when you're a founder and you start the company, you do everything right. Like you're kind of in that phase right now. I'm somewhere in that phase. Louis is way past that. And when you start, you sell, you do product, you do engineering, you do customer success, you do support, you do absolutely everything. And I'm sure if you're at that stage right now in the audience, you're kind of like, yeah, life is fucking hard. So once you hit Series A, you now have the capital to go and invest in a real leadership team. And I think that the challenges there is one. How do you make that transition from being a founder where you literally do everything, you perceive a problem and you go and fix it, to being an actual manager of people, right? Which is you enable your team to fix it once you've seen the problem. So that's a huge transition to go through. And honestly, for most of us who are first time entrepreneurs, you're not like a professional manager, right? You don't come from A deep background of managing humans. So you have to learn all those skills on the job while also trying to deliver and manage hyper growth. And I think the other thing is that, and we talked about this before, it's very, very easy to be distracted by the logos when you're hiring executives. Right? What's the classic mistake that every single SaaS business does? Goes and hires a bunch of Salesforce regional directors for their first kind of sales leader. Huge colossal mistake. Right. Salesforce super sexy Benioff is the absolute boss. But selling Salesforce and running a sales team at Salesforce is sex different from building a sales organization from the ground up with no brand, no collateral, no real experience. So I would say that for us post series, a big bump to get over was hiring the executives and getting them successful.

You mentioned something really interesting. We were chatting earlier that actually making the right hires kind of drives your business model. So we always talk about inbound versus outbound. We could talk a little bit about, you know, how you did good with the VP of sales and not so great with marketing and how that creates your business model in some way.

Yeah, for sure. So basically, yeah, we hired a VP of sales and a VP of marketing at basically the same time. So we were around 500k of ARR. It was just after Jason had invested and we were starting to get kind of serious. And yeah, we hired our first sales leader, our first marketing leader and first for whatever reason, basically luck of the draw. The marketing leader was not very effective. So we ended up parting ways with him after a few months. Our sales leader on the other hand, who's sitting in the front row was phenomenally successful. Handsome, talented, intelligent, well dressed. He's not well dressed. And I think what we found kind of interesting when we were talking about it earlier was just that, you know, frankly our business model today as a company is very much kind of like sales driven. Right? So we have BDR driven leads. We have a very kind of handheld sales process. There's no self serve, there's no signup. You have to go through a sales human to become a rainforest customer. And I think that that would have been very, very different if the person who'd worked out as the first VP was the VP marketing and the VP sales had not been as amazing as he had.

How about you? Do you have any analogies?

Yeah, very similar. I think we also did the same thing. We hired a VP sales, VP Marketing at the same time. The VP sales was great. We had some issues with marketing and again, there's nothing more Expensive in a company to have salespeople who don't have enough leads. So we figured out around 4 or 5 million ARR that inbound marketing wasn't going to do the job. I mean, we sell in a market that needs education. We, we sell a platform where 90% of the people we speak with don't even realize they need this. So we started to invest pretty heavily on Outbound and that really started scaling our business. So that's something that I've learned. Start earlier with outbound, especially if you have very, very early markets.

Cool. And we talked a little bit about how you did the thing where you hire a lot of salespeople and you had to contract. What were the things you did to get your reps more productive.

I mean, build a team around them because the worst thing salespeople can do is to not sell. So if you have a phenomenal sales guy, then give him an sdr. If he's really good, even give them somebody additional who can assist him with demo sales engineering, somebody who can help build this pipeline. So build teams around the best people you have. Because if you want to get to five, six, you have to do it a few sales reps. If you want to get to 10, 15, 20, that needs to grow. So we've built team around our account executives. We don't speak about this account executive, but team account executive like team Bartle or team Jessica because it's a team effort. Reps need to sell.

Now both of you have distributed teams and I'm sure for those of you raising your series A with distributed teams, you often get asked the question, does that scale? So can you talk about some of the challenges or benefits with the distributed teams?

I think there's definitely.

And also tell how your team's distributed.

So 60% of our company is in Europe, in London and in Belgium. And I mean there's definitely a cost benefit, there's definitely a talent benefit. I mean the value is extremely brutal in terms of finding the right talent. But for us, the biggest hurdle is not perceived being in different offices, but it's a time zones. Like we have a nine hour time zone difference, which is pretty brutal. You'll find a way around it. But it always delivers some unproductivity and like it's an ongoing struggle and process to improve that.

And what about your. I think a lot of people are thinking as they scale their SDR teams about other locations besides San Francisco, how is that working for you?

Yeah, so we decided to build our SDR team in Portland and There are like many other places in the states where you can do that. They're much cheaper there. They're super loyal, they're super active, they're very productive, they're very motivated. And look, if you need to build an SDR team of 15, 20, 30 people, then having 40% less salary per SDR kind of makes a difference. It's a role you can easily outsource to another location. I wouldn't do it with your account executives, but with SDRs for sure.

How about you?

So for us, nearly all of our engineering teams, we're about 62 people. Roughly half the company is product focused. And yeah, nearly all of our engineering team is distributed. We're not like Louis, so we don't have like two offices. Our distributed team is all over. So we have two guys in Hong Kong, girl in South Africa, guy in Peru, we have all over. So the pros and cons are pretty obvious, right? The pros are that it's way cheaper and that's a huge deal. If you look at our net burn versus our headcount, we're roughly around half of what you usually expect to see. Our size and our revenue. And that's because of the economic benefits of hiring someone where a great income is $35,000 a year. That's just not something you get with tech talent in San Francisco. I think the con is obviously communication. I think stuff like sdr, I think stuff like development is actually much more aligned with cross time zone, asynchronous communication. I think you'd be crazy to have product managers, designers and developers not all kind of aligned. You know what I mean? So for us, we have kind of marketing AES and we have product. All of that is in San Francisco and then the rest is distributed. The big one simple tip I have about this is that when investors ask you how do you know this will scale? The correct answer is you don't. I don't know it will scale. And you know how we treat it is as an experiment, right? You know, I think there's pros and cons to it and I would just encourage everyone, like experiment with this a little bit. Because the war for talent in San Francisco and Silicon Valley is real. You know, and if you've come from elsewhere to come to Sasta, that's awesome. Like, stay where you are. Come here to raise. Like, I'm not saying that selfishly. Stay where you are. Come here to raise money, come here to hire your VPs. But like you, your tech talent, your sales talent, stay the fuck Away from the valley, trust me. Because as we were talking about early, one huge downside to hiring here is that the people you attract, they're more and more mercenary, the more and more successful your company becomes. And so when you have that bad quarter, when you have to kind of grind through some stuff, a lot of those people are going to leave. And I think the thing that we both definitely have experienced is that the remote team, the distributed team, the people who aren't day to day in this crazy ecosystem we're in, where you get pinged every day with like a $300,000 offer from Google, these people are much more loyal. They're much more like ride or die. They're much more the people that you want on this startup journey. So I think that's the real kind of like intangible benefit to this.

Cool. Now you have a longer sales cycle. You have a six to nine month. And how can you tell when a salesperson's not going to work out?

You have to sit on the calls. If you want to assess the quality of a sales rep. Like follow a sales process, sit on calls, start a very thorough process around forecasting. That's something that we heavily improved in the last few years. And then you'll notice if people start to bullshit on where their deals are and if you hear different things in a sales conversation, then you know you have to fire that person as soon as possible. So keep an eye on them very closely.

Yeah. And only thing I'd add there is the classic Lemkin school of hiring AES. A B test. AES never, ever, ever hire a revenue generating role alone, ever. Because if they don't work out, then you're like, is the product crap? Is the AE crap? Is the training crap? You never know, right? Whereas you hire two of them, it gives you much stronger signals. So that's the one thing that we have consistently done right and that has always given us that leading indicator that the rep might not work out.

Cool. And as you get to 2,3 million, you have these people that have been in the trenches with you that have the same wounds you have, have been super loyal, believe in the mission. How do you know when one of them isn't going to become a leader or it's time to part ways? And how do you deal with that?

I mean, it's really hard. I think as a founder, as a CEO, your job is to constantly be making decisions based on your gut and then trying to kind of fact check those decisions with data, with more objective stuff. And so you Know, often you don't see someone's failing until, you know, maybe even several quarters in to that kind of slope off. All I would say is just that you have to recognize that every single vp, every single executive at your company is, has a certain range of capabilities. And if you just make that simple, you can just say there are like a 5 to 25 VP sales, right? Or there are a 5 to 25 VP marketing. And I think the safe way to do it is to ask and find out what their experience is, what range they have driven themselves in the past. And that gives you a kind of rough benchmark for where they're experienced.

Right.

The next time we all build companies, it's going to be a lot damn better than the way we built these companies. And so when I'm looking for our future VP marketing in five years, that person's going to need to have experience going from 200 to 500 mil. ARR. It's a very different person than the one who builds the first marketing team from the ground up. So I think, yeah, that's how I think about it.

We had a discussion on the topic before the panel. I think the value of a good board, maybe we discussed the value that a board delivers to founders that's challenging you and your executives. And our board did a terrific job. Like seeing us hire that fucking management team or fire that fucking management team, like start all over again. Like rebuild that team. Because managing 25 reps versus two reps, that's something totally different. Managing a customer success team from 5 to 50, that's a totally different world. So like constantly challenge yourself on the people that are building the business. And I totally agree. You need to hire people who have done a very similar growth path, who know what it is to get from 10 to 20, from 20 to 50. And that's hard. I mean those people don't come around that often.

Cool. Can you talk to me about board management as you make these mistakes? So before you have a VC and a board, you miss a quarter, it's you and your founders and you go drink about it and you don't tell anyone, Maybe your mom. How do you manage it when you actually have a board that you're reporting to?

I would say the biggest tip is always discuss your board topics prior to the board meeting. Have your board before the board actually starts and be super transparent because you'll be surprised that a board can act pretty positively on a bad quarter because it happens. Like there's no company presenting here at Saster who never Missed their numbers, so they get it. So the thing they want to know is like, what's happening, what's going on, going wrong and how can we help to fix it. So our board has been super supportive of anything we've done and I think most boards are.

Yeah, I mean, our board is amazing. Obviously Jason is on our board. But yeah, I think basically what Louis said, I've made that mistake so many bloody times where you're like, oh, let's just not talk about that churn until the board meeting and then it's a surprise. And that's when the real shit goes down. Nobody wants that. I think with the board, something I think that's not talked about very often is that the board is part of your team.

Right.

And so the same bar, the same tests, the same expectations you have of your team, whether that's culturally, personality wise, whatever it is, your board should have that as well. And I think that if you don't have that alignment, you can run into real issues. For us, we have three values. Every single person that we hire has to embody those values. And we applied that same test to the board and so that has enabled us to feel much more confident. I would also say that for first time founders, I think it's very, very, very important that you have former founders on your board. Because the stories that I've heard that really scare me and the experiences that I've been a part of that have been really detrimental to have all been about board members who think that the business is a spreadsheet. And it's very, very important that you have a board member who missed their own quarter in the past. Because when you have to have that conversation, it becomes a lot easier.

And I think another tip, especially when you scale is involve your executives in your board meetings. Let your VP Sales present, let your VP Customer Success present. It's super helpful because they know their part of the business the best. And that's a great tip that I can give everybody.

Yeah, cool.

So you mentioned you have 13 direct reports. You used to have 37. What are those roles? I mean, what are the roles that you've hired for that is this executive team that's so magical.

Yeah, yeah, yeah. So I mean, I think for me, you know, moving away from the, like, tactical stuff, I think the real challenge of breaking through this, this wall of ARR is basically your role as a founder completely changes. And I think that you basically go from leading, being in the trenches, being in the office until 10 every day, it's on you if you take one day of vacation, the graph slows down. It's on you and the transition you have to make. Because the company just has to be a certain size to deliver that next wave of growth. You have to make that transition from doer to manager. And for us and for me, the hardest thing has been realizing that the leadership team, the executive team, it's not just an empty phrase. This is a team of humans. Each of those leads one area of the business. And your job as the CEO, once you hire that team, is just to lead those people. That's your leverage. And so for us, that was a huge transition to go through to be able to delegate enough responsibility to allow them to make the mistakes themselves, to allow them to fuck up the board presentation or, you know, the company on site, welcome or whatever it is, right? So I think being able to let go and actually managing them really well, that's the really, really challenging thing. In terms of the actual roles, it's just the boring ones, right? It's VP product, VP Eng, VP Sales, VP marketing, Same thing. Cool.

And we talked before, we always hear VP of sales, VP of sales. But talk about how some of those other roles created leverage for you.

So I would say that the moment you hit 5, 6 million, the VP product becomes super important. Because what happens in a lot of companies is that you build your product in a way to close deals, right? You want to show the traction, you want to have customers, you want to have that first big logo. You start to build some stuff that maybe shouldn't belong in your product. The moment you're at 5, 6 million, you have to change that. You have to make some very tough decisions because you're not able to be in a position where you can develop a feature for one big customer. So the VP product has a huge impact once you're at five. And as you scale, that becomes even more important because you can kind of hack yourself to a few million ARR. But if you want to get to 15, 20, 50, like, your product and your product strategy needs to be solid, it needs to be great. And then a lot of companies struggle with that around Facebook. Five to six million.

Yep. Yeah, I totally agree with that. And I think the other big thing about the VP product role is at some point around 5 mil, you start to have enough customers, and each of those customers is important enough to you that you want that person to be on the road one or two weeks per month. And like, I used to do that, right? But it doesn't become sustainable at some point and so that's the other thing that I've seen with our VP product. He's like, just charging all around the world, like, meeting customers in a way that wouldn't be efficient for me to do. I think the one kind of real superpower hire that I encourage all of you to think about around this stage is a VP of hr, VP of People, VP of Vibe, whatever new age terminology you want for it. The HR function is one much like QA that's massively underappreciated, very stereotyped, but can be a huge game changer for your company. And I started to realize this about six months ago when I saw that we have a whole cohort of people who have been with us two or more years who have had the same salary, same title, the same responsibility. And the growth and the belief in the company can only keep those people together for so long. So for me, I started to realize, okay, we have to get really, really fucking serious about career development, about how we onboard people, about how we make sure that people are having a good time and we're delivering them that career growth that the top 10% need. Right. And so that can't just be ad hoc forever. And so that was just a hire that we made recently that has just been complete game changer for us.

And it's maybe a bit later in the growth, but around like 8, 9, 10 million. Like, hiring a CFO is also a game changer. And if you're very early, then you're sometimes wondering, how the hell can a CFO be so important to you? But they really are. If you raise a Series B, if you start to scale super aggressively, you need a great CFO to run the business. And gradually you will see that that person will own more and more of the business. It's not just about reporting and finance anymore. It's about operations. It's about compensation. It's about all those things where as a founder, you would like to have somebody who outsources versus them.

Yeah. And one thing you mentioned that I hadn't thought of as a CFO is not letting salespeople decrease the decrease their prices on sales, which is, you know, that has a real impact on ar.

CFO is the ultimate bad cop.

Yeah, that's me right now.

I mean, all hires are important, but if I think at why Showpad was successful, why we raised money, why we're growing so fast, I mean, customer success, like, that's something you have to invest in very, very early. And that's the only department where I Would advise to over hire, hire a phenomenal executive who knows it, who has done it, and then build a big team. And like the fruit of that will be low churn for the years that follow. Because the most expensive thing you can have when you're scaling is a churn of like 20, 30, 40%. And that kills startups.

Cool. So what was your most painful mistake and how did you recover besides alcohol?

I think the most painful mistake was and we hired a management team and after three months we saw it's not working and we had to let them go and we had to start all over again. And it took us six, seven months to find that team. And then after three months, you're seeing, no, not the right guys, we made a lot of mistakes, let's do it again. And that's painful. That asks a lot of energy.

How do I avoid that? That sounds really painful.

I mean, to listen to more experience people like to get the advice and to do your homework a bit more. After that happened, our backdoor references policy became much more strict. We didn't do that enough and we made a huge mistake.

How did you know in three months? That sounds fast.

Yes, it sounds really fast. But I think you see it, you expect an impact of an executive after two to three months. The team needs to perform better. The metric should stay start to shift a little bit, and you need to start believing that those people are really able to get you to the next level. And if you don't see that glimpse, then do it fast because otherwise you're into a lot of trouble.

How about you?

I mean, for me, the experience of being a founder is just like going from one failure to another, essentially. And that sounds hyperbolic, but it's really what it feels like. But the one that comes to mind most of all is we started scaling our sales organization without the repeatability in place. And so there's a famous quote inside the company from one of our board members where he kept repeating throughout the board meeting, so we've doubled the size of the sales organization, but we're adding the same amount of revenue per quarter. And you know, you come in with the presentations and there's all the nice graphs up into the right and everything's great. And then you have the board member being like, so you're fucking idiots. And you know, it's remarkably easy to lose sight of that, right? Like, that's a pretty simple metric, sales humans to revenue added. But we never looked at that. You know, we were like, oh, we're building the future, blah Blah, blah. And it's like, run the fucking business. And so we have been ultra careful now to look at quota retainment ramp time for unsuccessful and successful reps and just continually measure that to make sure that we're moving in the right direction. Because you can very easily end up with a completely bell curve distribution of rep attainment all on your payroll. And that's like the absolute worst. You don't want that.

And I think you mentioned an important word, predictability. And it's hard. I know lots of founders in enterprise SaaS and probably 5% has a very predictable business, at least until they get to like 2025. It's super hard. And predictability depends on the maturity of the market. If you're not selling into a mature market, being predictable at a million ARR is almost impossible. Like the predictability starts with the outbound, but still then your sales cycles are very like 6 months, 9 months, 12 months, 18 months, 18. It's super hard to forecast in a fast growing business. So be aware of that.

How did you fix that? You're like, we're still working on it.

I mean like each crisis, each massive fuck up we've done has been like, okay, well this is how we learn from it. So for us we got much tighter around managing the inputs, we got much tighter around rep forecasting. At some point you go from the reps close, however much they close, and if they're shitty for three months you're like, all right, you're not. Good bye. At some point you get into this world of like, each rep on a weekly basis provides their own forecast with actual logos, with ARR against each logo with a percentage likelihood of it closing within the quarter. And then you fact that, fact check that retroactively against what they close in the quarter. And so then you can see how accurate this rep is at predicting their own success. And you zoom out and you see that number for the whole team and so you start to build this predictability and so you can start to avoid those mistakes of doubling the team size while adding the same amount of revenue. And I think the big thing that I've learned is that management, and it's very abstract but I think it's applicable. Management requires equal parts like qualitative and quantitative and you can hear a lot of great noises coming out of your AES, but really what matters is is do they hit quota, right? And so I think you just need to make sure that you keep one eye on each of those things with everybody that you manage.

Cool guys. I really appreciate you being so open and honest. Let's end with something you're proud of that you did.

For us. What I'm most proud of is the collection of humans that we've built. It's one of the few times where I'm not in the mode of, like, wow, why the hell aren't we growing faster? Is when the company comes together and I'm able to take a pause and be like, wow, we really came from me and my friend in a basement to all these people believe in the same thing that we believe in and are working, giving it their all to make this vision a success. And that still blows me away. That's definitely the thing I'm most proud of.

I would say that as well. But a close second would be two metrics. Our NPS score, which is 54, which is extremely high. And then secondly, our churn, like our net churn, is 30%, meaning that our customer base grows 30% every year, which is pretty phenomenal because that means you have a solid product that delivers value. And, I mean, that's the most important foundation of any SaaS business. So, like, that's where I'm very proud of.

Yeah.

All right, guys. Well, you'll be sitting here next year. I'll be there, and one of you all will be here. So thank you all.

Thank you.