SaaStr 153: How To Build and Scale Sales Teams As A Technical Founder, How To Scale The Sales Learning Curve & Why No One Actually Cares About Your Product with Spenser Skates, Founder & CEO @ Amplitude

We are back for another week in the world of SASTA with me, Harry Stebbings, @hstebbings with two Bs on Snapchat, and brought to you by the main man at SASTA, Mr. Jason Lemkin, @jasonlk on Twitter. And Christmas is drawing ever closer, so buy your loved one that present they've always wanted: a ticket to SASTA Annual. And if you really love them, you'll enter the promo code DRINKSWITHHARRY, those three words, DRINKSWITHHARRY, when you purchase their tickets, and you'll not only get 10% off the ticket price, but they will also get an exclusive invite to a mojito-only event with me. What more could they want for Christmas? But to our episode today, and what What a founder we have in store for you as we welcome Spenser Skates to the hot seat today. Spenser is the founder and CEO at Amplitude, the only analytics solution built for modern product teams that helps you understand user behavior and ship the right solutions fast. They've raised over $55 million in VC funding from many friends of both SaaStr and The 20 Minute VC, including Eric Vishria at Benchmark, Niraj Agarwal at Battery Ventures, the teams at IVP, Data Collective, Box Group, and SV Angel, just to name a few of their incredible investors. And prior to Amplitude, Spenser founded Tonalight, an app that allowed users to text while they drive, backed by the likes of Y Combinator. I also want to give a big hand to Eric Vischer at Benchmark for the intro to Spenser Skates, without which this episode would not have been possible. But before we dive into the show today, you must check out Datadog. Datadog takes care of the complex task of managing metrics on the backend. Instead of figuring out how and where to store your data, you get to focus on actually using the data to make better decisions. With turnkey integrations, Datadog seamlessly aggregates metrics and events across the full DevOps stack, from automation from automation tools to source control and bug tracking to databases and common server components. And that's why thousands of enterprises love and trust Datadog, from eBay to Samsung to HP. And you can find out more at datadoghq.com. That really is a must. And thanks to my friends at WePay, let me introduce you to another very cool player in SaaS, Pluto, the payment management platform for SMBs that want to automate and streamline their payments. Trusted by more than 35,000 companies, Pluto offers a suite of simple features to give users complete control in managing bills, invoices, businesses, vendors, and customers all in one place. With it, people can spend less time on admin tasks, more time growing their businesses. Learn more at pluto.com. That's P-L-O-O-T-O.com. And to learn how you can grow your revenue with integrated payments like Pluto did, visit wepay.com/saasster. If you haven't checked out their smart cheat sheet on how to get started with platform payments, that really is a must. Again, that's wepay.com/saasster. However, that's quite enough of this terrible British accent, and so I'm now thrilled to hand over to Spenser Skates, co-founder and CEO at Amplitude. 3, 2, 1, 0. You have now arrived at your destination. Spenser, it's absolutely fantastic to have you on the show today. Big hand to the Benchmark team and Eric for the intro, but thank you so much for joining me today, Spenser.

Absolutely. Definitely super excited to talk to you about not just what we're up to here at Amplitude, but also how we see SaaS, how that fits into the broader world of VC and all of that.

Well, I'm very excited. So I'd love to start though with a little bit about you, how you came to found Amplitude and what you saw in the seemingly very crowded world of analytics itself?

You know, it was super interesting when we first started Amplitude. I remember how many different folks told us not to do it. If you look at the landscape of analytics, there's probably hundreds of different companies, if not more. There's that old— I don't know if you've seen it. There's like a poster or like a big image of the marketing analytics or like the marketing tech landscape. It has like a gajillion logos up there. I know it well.

Yeah.

Everyone we talked to was like, oh no, this doesn't make any sense. The analytics companies we've seen that have started recently haven't gone on to find success. A lot of the VCs we talked to were super skeptical. I remember when we raised a seed round back in 2013, and honestly, people were investing by and large on the strength of myself and my co-founder, not really on the idea and what we were doing. So I think it was definitely a really interesting and really different time back then.

I do want to also— you obviously said about the analytics space, a term thrown wildly around. How do you actually define product analytics to you?

That's a really good question. So I think of it as— I think one of the traps that people get into with analytics is they think about the fact that it's analytics. So that's kind of how you do it. They don't think about what the purpose behind the analytics is. And so I think the purpose of product analytics is to help you build a better product by understanding how your users are engaging with your product. And that might seem like a kind of trivial difference from marketing analytics or some of the other things, but that's actually really, really important because the sort of things that you're trying to understand are very, very different in product than in marketing. With marketing analytics, what you tend to want to understand is how folks are coming into your website or your application from the top of the funnel. So what referral sources they're coming from, what demographics are they, how they hear about you and how they're converting. And they care less about, okay, well, once you're in the product, how are you engaging? Whereas product analytics is kind of the reverse of that. Product analytics is very much about what features people are using, how are they getting value out of the product, what's causing them to churn out, what common paths they're taking through the product. And those are a very different focus and a very different set of questions that the product owner cares about than the marketing owner. So that's the big difference in my mind.

I'm really pleased you said about one of the traps there. I've just been working with a portfolio company on their analytics dashboard, and they didn't have it installed from day one. I'm intrigued. Does it have to be an integral part of the company from day one, do you think, as a kind of foundational cornerstone?

This might sound weird coming from the CEO of an analytics company, but I actually don't think— if I were to choose one thing you should be spending time on and nothing else, it's talking to your users in person. You know, Paul Graham has a bit on that where you should be talking to either building product or talking to users, and that's that's it. In my case, if you're a B2B company, you should either be selling to your users or building product, and that happens best in person. I think once you get to the realm of thousands of users, though, that's when product analytics becomes incredibly valuable because it can help you understand things about your product that people would never tell you, both from a scale perspective and how many people are doing the thing, and from a product perspective in that a lot of people will say, hey, I want this in the product, but you actually look at their behavior, you can actually see where they spend time and what it is they do. And that's kind They show you what's important as opposed to telling you.

You mentioned the kind of core part of speaking to customers and selling as a founder there. I'd love to start today on an element of your background being the engineering focus and learn how you look to learn sales really as an engineering-focused CEO. So I'm going to let you riff on that and be very meta.

Oh, absolutely. Absolutely.

Yeah.

You know, it's really interesting. I think one of the big things I saw when starting Amplitude was that a lot of engineering-centric teams and founders did not have an understanding of the importance, the difficulty, the complexity of sales as a problem to the business. Right. A lot of really, really good engineers. And so they build these wonderful products that were light years ahead of anything else in the market. I think Dropbox was a great example of that, but they wouldn't have kind of the appreciation or the respect for the importance of sales to the success of the business. And so they'd end up either not taking the time to understand what great sales looks like or approach it in a really different way from the standard. So people would say a lot of the other engineering-centric founders I talked to would say, hey, we don't want to build out a sales team. We don't want people on commissions plan. I don't like salespeople, so we're going to approach sales really differently. And I think the trouble with that is that it really misses the understanding of what sales is. Most people project their own experience as a person being a buyer of products, like let's say a car, and the dislike of interacting with a car salesman onto sales for a software product where actually the job of a good salesperson for a software product is very different and actually really valuable to people who are used to buying software. And so I think that mismatch is the why behind why a lot of teams don't. I think for me, just a little bit about myself. So I went to MIT, graduated in 2010, spent a bunch of time really involved with one of MIT's largest programming competitions. Battlecode was really into that. A lot of successful entrepreneurs come out of that. So I'm very, very kind of hardcore engineering myself, and especially my co-founder, very, very hardcore engineering mentality. And so I said, okay, well, what else is needed to succeed in business? And it was clear to me that Hey, you get engineering right, you get sales right, you can build a great business. And so that's what— when we launched the company in early 2014, I said, all right, I'm not going to spend any more time on engineering and product. I'm going to go learn and embrace and understand fully what this sales thing is and how to do it. And I didn't know anything about it. You know, it's not like I had any background on it or anything like that. But I said, hey, if this is going to be a core part of the business, this is something that I personally am going to need to be good at.

Okay, so walk me through that. You, from a foundational element, how did you look to really scale that learning curve of sales? From the engineering focus and real lack of sales experience?

Yeah, I think this is also an area where I see a lot of other founders get wrong. You definitely can't get it from a book. Books can be helpful. I think a lot of folks be like, hey, you know, it's like learning engineering and how do I learn engineering? Well, I can read this textbook or read this resource online. And what I found is sales is absolutely not like that at all. The first most important thing is just to get out there and do it, get in front of customers. We had a goal that we set for ourselves every month of, hey, we want to have this many conversations with customers. So the first and most important thing is just forcing yourself to do that. A lot of teams will say, you know, hey, I want to learn sales. So they'll have 1 meeting or 2 meetings or 3 meetings and it's like, no, no, no, you have to have like 30 meetings or 100 meetings in a month to really internalize and gain an understanding of what it is you're trying to do and get better at it. That's the first most important thing is to just do the motion. The second really important thing is to find someone who is a lot better than you at sales and to leverage their help. So we had a consultant by the name of Mitch Morando and, you know, he had worked with a few other engineering teams to teach them sales. There's a lot of great sales DNA in the Valley that is very, very open to teaching young engineering talent on how to learn about their field if they're open to it. And so finding a mentor or two that you can go to once a week and walk through, okay, here's the deals, here's the pipeline. I remember one of the things Mitch did for us is in meetings, we'd have a review of the deals that were in front of us, and he'd always ask, what's the pain? What's the pain? And I'd say, well, hey, they want to look at SQL charts, or hey, they want this metric in this particular way. And I didn't really understand what was behind that, though. So after enough times of him beating me over the head saying, what's the pain? I'd remember in the meetings, oh man, Mitch is going to ask me that next week. I better really understand the pain of the customer here. And so if I were to recommend any engineer first time learning about sales and making that a core part of the business, I'd say one is just getting out there and doing it and setting a goal for yourself of getting in front of X number of customers every week or month. And then the second is just getting some sort of external coaching or consulting or feedback for someone who's a lot better at it than you.

I'm just interested in terms of diving in on the first one of kind of getting in and doing it. With a lot of engineering-focused kind of B2B enterprise founders, and often there's trouble in selling and really negotiating around the price point. Often they're not so confident to come in with the lofty price points. How do you think about that importance of negotiation and high price points coming from a more conservative class of engineers who are more diligent and less salesy?

It's funny, 'cause now it's just an instinct in my mind to ask for what you want, and if what you want is $10,000 a month, then ask for that. I do think negotiation is like a kind of secondary skill. It is a skill, just like fundraising is a skill that can be learned, and that's definitely not the most important thing within it. I remember the first time we actually got to the negotiation phase with a prospective customer, and I'm sitting there, this, I think it was the CTO of this gaming studio, and he's asking, okay, well, what does it cost? And I'm like, whoa, I better come up with a number. So let me think of the highest number I can possibly think of now. And I'm like, $1,000 a month. And I'm like, oh my God, I don't know if he's, is he going to go crazy about that? Is he going to think that's way too high? And the first response out of his mouth is like, oh, that's really cheap. And I'm like, oh my goodness. So one just strategy there we did we asked for was $1,000 a month, and then we doubled it every single time. So the next one we asked for was $2,000 a month, and the next one was $4,000, the next one was $8,000, and the one after that was $10,000 a month until you get some pushback and resistance on the price point. So, but negotiation is definitely one of these kind of sub-skills as part of sales that you could do. Honestly, if you just get them to pay you anything, that's a win early on, you know, in the seed stage in my book.

If they don't pay, if you want to get a big brand name on early, get that logo on your site, does it matter if they don't pay? Pay, or does that prove that actually they don't see value in your product?

I think it is important to get people to pay relatively early on. You can definitely, with some beta testers and things like that, give the product away for free. But especially when you're talking to big companies, they want to know. Part of the expectation is that you do pay. You know, there's that old adage, you get what you pay for. And if you're getting something for free, the mismatch between values and expectation and alignment, like there's just a mismatch there. Whereas if they're paying for something, it's like, hey, we're giving you this thing. We expect something that much value or more back to us in return. And so I think especially with bigger companies, you know, if you're not getting them to pay, then there's definitely a lack of seriousness and value. I do think with some more smaller cost-conscious companies, it can be an okay strategy in the first few months to give away the product free so that you learn. But once you have a basis understanding of what you're doing, getting people to pay for the product really allows you to focus on the people that have the pain such that they're willing to pay, right? You can think of them, people paying you money, as an expression of how painful and how valuable the problem is to solve. And you always want to be focusing as a founder on valuable problems to solve. And so one of the best markers is just how much you're paying. And if someone is not willing to pay you a lot, that's a really good indication that the problem you're solving for them is not valuable and you should not spend time on it.

So you gave the great advice of get out there and do it, and then also kind of find that mentor for you. If you go back, what were your core challenges and stumbling blocks that you particularly found really hard in getting to grasp with the sales element?

I think the big thing for me was, in my mind, sales was was show them the demo, ask them for the money. Like, it's like, hey, here's this great product. So you want to buy it for like $50,000? And that's not how it works at all. It took me a while to internalize. It's really about is there an opportunity to do business? That's the highest level thing. Is there an opportunity to do business between you and the person looking at your software? And the way to figure out if there's an opportunity to do the business is you spend a bunch of time learning about their problems and then they will spend a bunch of time learning about what your product is. And if the problems they have are match for the product that you have, then there's kind of no question that it's kind of obvious that they should buy. And so what that means is when you're in a conversation with a prospective customer, really understanding what they're trying to do as a business is like the number one thing you should focus on. You should understand, okay, what's the pain that's driving them to talk to you about their software? For us with product analytics, it's like, why are you trying to improve your retention? Or why do you care about measuring your conversion funnel? And really understanding the why behind it, because often you'll hear things things like, oh hey, we spent the last year trying to build this out in-house internally, and that costs 3 engineers and a year of time, and we still don't have nearly the thing that we want. And that tells you, wow, okay, there's 3 engineers times a year's worth of salary pain. That's a lot of pain. Or you can hear, hey, we need to get our retention metric from 20% to 25% in the next 6 months because that is going to be the thing that makes us succeed or fail as a business. And that can help you understand, wow, there's a lot of pain around this. And so understanding the The big thing for me was instead of thinking about it as a, hey, let me show off why my product is so good. People don't really care about your product. They only care about their problem. And so spending the time to understand their problem is like, if you do nothing else in a conversation with a prospective buyer but that, then you've succeeded.

No, I completely agree. I think the relationship element of that, also just getting to know each other is crucial. I do have one other question regarding the integration of kind of engineering and sales mindsets, and it's often one that troubles engineering teams that I've worked with, and it's the compensation packages with sales teams and them obviously being incentive-aligned rather than the more traditional salary package of an engineer. How do you look to think about that and then communicate that to maybe disgruntled engineers?

It's really funny that you bring that up, Harry, because that was a big issue— or not a big issue, but it was definitely a concern in the early days of Amplitude, where all of a sudden you had this mindset. It's like, okay, we're a small cohesive team that's just really focused on winning as a business, and we have relatively low cash compensation. Compensation and you're bringing in this person who's comped entirely differently, who has variable compensation. And one thing I strongly believe in is high upside. If you close a lot of business, you should be able to get the opportunity to make a lot of money. And I think it really comes down to, well, first as a founder, just understanding that it's better to not take a religious approach on some things and instead just understand what works and why it works. And it turns out that with sales culture, what works really, really well is incentive compensation because a few different reasons. One, because there's such a clear metric for success, aligning an individual to that is really, really valuable. That's one. And then the second is because the job is really hard and really stressful in a bunch of ways and is a different sort of hard and stressful than an engineering job is. Having a motivator behind success in that is super, super important to getting people who are really excited to do a good job for a bunch of different reasons. It's important to look at the way you may create a successful sales culture different than the way you create a successful engineering and product culture.

Now, I absolutely agree. How do you actually communicate communicate that to the engineers who are disgruntled? Is it sitting them down and saying, hey, it's this incentive alignment because of this?

I think the first order thing is actually just saying that, hey, the two most important things in an early stage business are the engineering and the sales. And if we succeed at those, we're going to be successful as a company. And explaining to them that, hey, we need to ultimately make money as a company and we need to get value for the value we're providing out there to our customers. Because if we don't do that, we're not going to be able to be successful the business. And I think the most important thing that helped us at Amplitude was celebrating and helping the engineers understand the value of sales. Then once you do that, you know exactly how you compensate them and exactly the type of people you bring in and the incentive systems. Like engineers and salespeople have very, very different sort of personalities. You know, there's the typical introvert-extrovert thing, but also engineers tend to be very hyperfocused on a single problem and get all the context in their head around that, whereas salespeople are much more reactive and in the moment. So there's a bunch of really big differences. I do think one of the things we've done well at Amplitude culture-wise is what I love about really exceptional engineers and really exceptional salespeople is you give them like an almost impossible target to meet and the best ones out there will absolutely learn how to crush it. And so having an appreciation and mutual respect across the different sides of the business for that is just super important. And I do think engineers take the cue. A lot of the company does take the cue from the founders and the CEO about what is important. And so just saying that, Hey, this is important to the business and here's why all the time helps people understand, even if they've never been exposed to it before, why it's so important.

But I do want to dive into my favorite of any interview being the quickfire. So Spenser's 60 Second Saster. How does that sound?

Wonderful.

So discounting, what are your thoughts?

I think it's a valuable tool. I do think in general a lot of early stage teams are just too afraid to ask for the dollar. And so my recommendation is instead of being willing to discount super aggressively right away, instead just ask for that 2x more than your largest this contract and see what happens.

Customization acceptable in any case?

Oh, absolutely. If you look at the product roadmap of Amplitude in the early days, 99% of it was driven by, hey, we need this thing to close a customer. And so if I were to lean really hard in one direction, it'd be, yeah, just like make the product specifically for your customers. The one thing I would say about customization is that if it can't be used by anyone else in your customer base, then that's worth saying no to. But absolutely, I think A lot of people have this idea of here's this awesome product in the abstract, when in reality it could be a much better product if it was more driven by listening to their customers.

What was the biggest challenge that you faced in getting to $1 million ARR?

The $1 million ARR was really learning the sales skill and then bringing on the right set of people to help with that. I knew how to hire good engineers because myself and my co-founder were good engineers, and so recognizing talent there was not super difficult. But learning and appreciating and valuing and understanding how to evaluate good in the sales context is difficult. What typically happens to a lot of engineering-centric teams is they'll bring on someone who's not a good salesperson and they'll say, hey, sales is just stupid, instead of realizing maybe my evaluation of what a good salesperson is is not fully calibrated yet.

What's your favorite SaaS reading material? Rainy day, what do you sit down to?

Jason Lemkin. So I think there's good things for different stages. I'd say Jason Lemkin's stuff stuff between $1 and $10 million in ARR is excellent. Niraj Agarwal, one of our board members, he has a bunch about the SaaS adventure that he talks about where you want to triple the company from $2 to, I think it's like $18 million, and then you want to double the company a bunch of times after that. Paul Graham's stuff in like the early days, the pre-$1 million in ARR, is fantastic.

No, I couldn't agree more. They're all favorites of mine, especially Jason's, obviously. I would love though to finish the quickfire with what do you know now that you wish you'd known at the beginning of your journey with Amplitude?

That's a really good question. So I think we got a lot of things right, and I think it's definitely important to focus on those. Like the focus on sales was right, focus on bringing in strong engineering talent was right. The one thing I think I got wrong was that when the company got to about 25 or 30 people, it became really difficult to manage the business directly. And we had board members that told us to hire execs. Like Eric was big on hiring execs, and we tried to do it and we didn't have the level of success that we wanted. And what I realized was that I was so busy putting out fires day to day in the business that I just didn't dedicate the time and step back and say, hey, I know the existing team at Amplitude is saying this is the most important thing, but I know bringing on leadership to help me scale in the business is the most important thing. And as a result, I think we grew more slowly than we could have in 2016. So that would be the biggest thing that I would give myself advice on. Back then.

Are you a fan of hire fast, fire fast?

Definitely not hire fast. No, hire slow, fire fast. I think it's so hard. A lot of this management advice is just dependent on the context, and so people might be calibrated too aggressively in one direction or another. I think there's the advice that people hear that no one ever got fired too slowly, and that's always true. I knew it was true going into the first time we had to let someone go, and I still probably took a little too long on that, even though you you know you're probably gonna be too slow at firing someone, or you may be too quick at hiring someone. Still going more slowly when hiring and more quickly when firing is important, just because there's natural inertia in the other directions around both.

For sure, for sure. I do want to finish the episode today, not on the quickfire, so no worries there, but with a tweet from Sam Altman where he recently said that the right answer to many problems is often to do less things. So I want to apply that to two different areas today, being the product roadmap than the metrics themselves. So Amplitude, I saw, released 4 new products recently. How do you think about when's the right time to release secondary products? How do you know that that's the time?

So it was interesting when we released products, those were all things customers have been asking for. We don't actually think of them as different products, we think of them as extensions to the core product. And so as long as they fit under the umbrella of product analytics, I am all for doing them as CEO. I think a lot of analytics companies, one of the biggest mistakes I've seen. If you look across a lot of other companies, you look at Mixpanel or Localytics or Flurry or some of these other analytics companies, is that they've branched out beyond the core offering of analytics. And so they've done push notifications or A/B testing or surveys or ad network attribution. And I think those are all mistakes because product analytics or analytics is a difficult enough problem in itself. And so when we launched other products, you know, quote unquote products, those are just different ways of packaging changing the core product analytics thing up into value that people can understand. And so I think when it comes to focus, I totally agree with what Sam has to say on focus and doing less things. And I think people don't choose that option often nearly enough. The rule that I have is as long as it's within the realm of product analytics, it's open for us to do.

And then if we apply that same focus to the metrics themselves, I've had two different founders on the show recently, one who says that payback his key metric. Another says the CAC to LTV is— what's your core metric that determines the health of Amplitude to you?

Okay, well, that's interesting, that CAC to LTV, because especially, you know, if you're growing exponentially, you are not going to have a good measure on LTV. I think first most important thing, whatever one judges you is on top line ARR, so total bookings of your business. So focusing on that and celebrating that and driving that is like, I'd say, the top line thing. And that's how we can measure our success as a business. And then understanding the biggest driver behind that is net retention. So of a given customer, how much, how many more dollars are they paying you more or less over time? You know, understanding that that's the input to the top line ARR. That's how I break down Amplitude in my mind.

Spenser, it's been such a pleasure to have you on the show today. As I said, I heard so many great things from Eric, so thank you so much for joining me today.

Thank you, Harry. Really, really appreciated the interview.

What a fantastic guest to have on the show, and such exciting times ahead for Spenser and Amplitude. And if you'd like to see more from Spenser, you can find him on Twitter @SpenserSkates. That really is a must. Likewise, Jason Lemkin on Twitter is always a must-read for me, so you can find him @JasonLK on Twitter. I'm also on Snapchat @hstubbings to see all things behind the scenes from SASTA and the 20 Minute VC. And if you really want to see things behind the scenes, do not forget what we said earlier— Drinks with Harry. That promotion code gets you 10% off and an exclusive invite to our Mojitos Only event at SaaStr Annual 2018. It'd be fantastic to see you there. But before we leave you today, you must check out Datadog. Datadog takes care of the complex task of managing metrics on the backend. Instead of figuring out how and where to store your data, you get to focus on actually using the data to make better decisions. With turnkey integrations, Datadog seamlessly aggregates metrics metrics and events across the full DevOps stack, from automation tools to source control and bug tracking to databases and common server components. And that's why thousands of enterprises love and trust Datadog, from eBay to Samsung to HP. And you can find out more at datadoghq.com. That really is a must. And thanks to our friends at WePay, again reintroducing you to the other very cool player in SaaS, Pluto, the payment management platform for SMBs that want to automate and streamline their payments. Trusted by more than 35,000 companies, Plooto offers a suite of simple features to give users complete control in managing bills, invoices, vendors, and customers all in one place. With it, people can spend less time on admin tasks and more time growing their business. Learn more at plooto.com. That's P-L-O-O-T-O dot com. And to learn how you can grow your revenue with integrated payments like Plooto did, visit wepay.com/sasta. They've got this incredible cheat cheat sheet on how to get started with platform payments. Again, that's wepay.com/sasta. As always, I so appreciate all your support, and I cannot wait to bring you next week's episode.