The Official SaaStr Podcast: SaaS | Founders | Investors

What does it take to build and scale a vertical SaaS giant over two decades? According to Tooey Courtemanche, CEO and Founder of Procore, it’s about focus, perseverance, and a relentless commitment to customer success.

In a recent conversation with SaaStr CEO and Founder Jason Lemkin, Tooey shared insights into his 23-year journey as CEO of Procore, the leading SaaS platform for construction management. From surviving economic downturns to scaling into a multi-product enterprise serving millions, Procore’s story is a masterclass in vertical SaaS excellence.

5 Unexpected Learnings from Procore’s 23-Year Journey to $1B+ in ARR:

* The Great Financial Crisis Was Actually a Massive Competitive Advantage. Most SaaS founders think economic downturns are purely negative, but for Procore, the 2008 crisis was an “extinction level event” that wiped out 20+ competitors. While painful (the founders went without salary for 2 years), emerging as one of the few survivors gave them an almost unbeatable market position. Sometimes survival = massive opportunity.

* Industry Veterans Often Make Terrible Sales Hires. Surprisingly, Procore learned that hiring people directly from construction to do sales usually fails. Instead, they found success doing the opposite: hiring great salespeople and teaching them construction. The domain experts are brought in as sales engineers instead. A key insight for vertical SaaS companies trying to crack industry-specific sales.

* Brand Building Has to Start from Zero in Every New Market. Even at $1.2B+ ARR. Procore discovered that their dominant U.S. brand meant nothing when entering new markets like the UK or UAE. There are no shortcuts – they have to rebuild their brand from scratch in each new region, even with huge resources behind them. A humbling lesson in global expansion.

* The Multi-Product Journey Took Way Longer Than You’d Think. While multi-product is all the rage in SaaS today, Procore didn’t start seriously implementing their multi-product strategy until years 14-15. And this was intentional – they waited until customers specifically asked for new products. Today their average customer uses 3-4 products, but it was a 15-year journey to get there.

* Enterprise Features Don’t Drive Out The Small Features Even at $1.2B+ ARR. and hundreds of millions in R&D spend, Procore still ships 3-4 “lighthouse features” in every release – just like they did as a small startup. They didn’t abandon small, focused improvements even while building massive enterprise functionality. A surprising insight into how to maintain product momentum at scale.

AI & The Future of Construction SaaS

The construction industry is infamous for being labor-constrained. With AI, Procore is poised to help its customers do more with fewer resources. “There just aren’t enough people who know how to build data centers, bridges, and skyscrapers,” Tooey explains. AI can help by automating repetitive tasks and improving decision-making through predictive analytics.

Procore isn’t looking to monetize AI separately—at least, not yet. “Our industry will unlock more budget for AI-driven insights once they see the impact on their bottom line.”

The company’s vision for the future centers on the strategic application of AI and automation. They’re focusing particularly on automating repetitive tasks through AI agents, freeing up human resources for more complex and valuable work. Their massive dataset, accumulated over years of industry leadership, provides a unique foundation for improving decision-making across all aspects of construction management. This data advantage could prove particularly valuable in mega-projects, where the potential to reduce errors through AI-driven insights could save millions of dollars and months of delays. The combination of their deep industry knowledge with cutting-edge AI capabilities positions Procore to potentially transform how construction projects are planned, executed, and managed in the coming years.

A SaaS Marathon

Tooey has been the founder and the helm of Procore for over two decades, a rare feat in an industry where leadership transitions are common. What’s kept him going? “When the thing that you do is part of who you are, it’s different,” he says. But balance is key: “When I get home, I’m not the CEO of Procore—I’m just Tooey.”

“ I will say this to all of the founders out there too, that as much as you want to be the face of the business, you don’t want to be the totality of the business. You can’t scale to a billion dollars in revenue without having an amazing team under you that is doing just that. Some founders conflate themselves as being the business and Procore has gotten so much bigger than me over the years that I’m just the I’m just the conductor.”

‘Duck Diving’ the Global Financial Crisis

Procore first started as a niche tool for high-net-worth residential builders in places like Aspen and Beverly Hills. “Our first customers were building homes for Eddie Murphy, Barbara Streisand, and Ben Stiller,” Tooey recalls. For Procore’s early customers, it was a combination of a homeowner who was on the road a lot and a distributed builder team. There was complexity around each home project as most of these homes were built like commercial buildings.

Procore quickly found early product-market fit by being narrowly focused and doubling down on its customer profile of custom home builders serving high-net-worth individuals. And with a pricing model of $195 per month, Procore was capital-efficient but not yet an established industry giant. Over its first decade, Procore grew and expanded from serving the construction project manager to serving multiple stakeholders, multiple products and multiple geos.

Then came the 2008 financial crisis. Almost overnight, residential construction came to a stop, forcing Procore to pivot toward commercial projects. “We lost nearly every customer,” Tooey admits. But the companies that survived the recession—mixed-use and commercial builders—became Procore’s new focus.

That pivot paid off. By 2016, Procore was a multi-product, multi-stakeholder platform expanding into enterprise and mixed-use construction firms.

Tooey explains: “Once everything came out of the great financial crisis, around 2011-12 in our industry, it was really interesting. I don’t know if you surf, but if you duck dive under a wave and on a surfboard and you go underwater, you come up the other side. I always think of that as the great financial crisis. Because when we duck dove that wave with 30 others, we were the only ones who came up the other side.

It was an extinction-level event, which gave us this huge advantage of buying us more time to capture the market share.”

The Multi-Product Journey: Patience and Precision

Procore’s multi-product evolution is a masterclass in timing and execution. While they started thinking about becoming a multi-product company around year five, they didn’t seriously implement this strategy until 2016-2017 – about 14-15 years after founding. This patient approach allowed them to build a strong foundation before expanding their product line.

The company’s multi-product strategy was firmly rooted in customer demand. Rather than rushing to build new products, Procore only developed solutions that customers explicitly requested. This disciplined approach was particularly effective in the construction industry, which was largely non-digitized and had obvious problems to solve. By letting customer needs drive their roadmap, they ensured each new product would find immediate market acceptance.

The transition from a single-product to a multi-product company proved to be one of Procore’s biggest challenges. It required careful resource allocation and strategic decision-making about where to invest their limited resources. The company had to maintain quality across all products while scaling, a balancing act that many companies struggle with. This transition was made easier by their patient approach and strong understanding of customer needs.

Today, integration across products has become a key differentiator for Procore. The average customer uses three to four products, while larger customers typically use five to six. This integration strategy has proven prescient as the era of point solutions has largely ended, with customers demanding comprehensive, integrated solutions rather than standalone products.

Perhaps most importantly, Procore’s multi-product approach has created a valuable data advantage. By collecting data across multiple products and workflows, they’ve built a comprehensive data corpus that enables better pattern recognition and insights. This has positioned them particularly well for the AI era, as they can leverage this data to provide increasingly sophisticated solutions to their customers.

Brute-Forcing Enterprise Adoption & Market Expansion

Moving upmarket wasn’t easy. Procore had to prove its value to large enterprises that had relied on pen and paper for decades. “We picked the Boston market, knocked on doors, and got one big name to trust us. That led to a FOMO effect, and soon, everyone wanted to meet with us,” Tooey explains.

That hyperlocal approach worked because Procore’s customers—project managers—moved between companies, bringing the software with them. “Our best salespeople have always been our customers,” he says.

Over the years, Procore also picked up on how to capitalize on what they call the triple TAM. Tooey explains, “if you think about it this way, an average commercial construction project probably has 30 different trade groups on it. And all of those folks are people that we sell to. We call it the triple TAM because one project, we can have three different cohorts of stakeholders that are customers which is really good for Procore because the nature of construction is very collaborative, and all teams. While all of these stakeholders work for different companies, they all share the same workflows. And so to be able to tie all that together and to de-risk it for everybody is really advantageous.”

The second secret that led to Procore’s success in going up-market was turning their best customers and users into in-house employees and resources. Field experience across sales engineering, and success – essentially doubling down on domain expertise has continued to help Procore thrive.

Today, the average Procore customer uses three to four products, with large enterprises using five to six. “The era of point solutions is over,” Tooey states. Customers expect an all-in-one platform and vertical SaaS founders must deliver from day one.

One challenge Procore faced in expansion was assuming brand awareness. “In the U.S., everyone in construction knows Procore. But when we enter a new country, we have to start from scratch.” The playbook shifts: heavy investment in domain experts to build the brand in a trusted way, and local market adaptation is key.

The Power of Domain Expertise in Vertical SaaS

Procore’s success hinges on their deep understanding of construction’s complexity. The construction industry presents unique challenges, operating on remarkably thin margins of just 2-3% while dealing with high liability and complex stakeholder relationships. These stakeholders include owners, general contractors, and subcontractors, all generating intensive data flows that need to be managed and coordinated effectively.

To address these challenges, Procore developed a multi-faceted approach that leverages deep domain expertise at every level of the organization. They made the strategic decision to hire industry experts as sales engineers, ensuring that their sales team could speak the language of construction and truly understand customer needs. They built specialized teams focused on different stakeholder groups, recognizing that owners, contractors, and subcontractors each have distinct needs and priorities. Perhaps most importantly, they created a platform robust enough to handle the complexity of construction projects at scale, something that could only be achieved through their thorough understanding of the industry’s nuances.

Final Takeaways

Tooey’s journey underscores key lessons for SaaS founders:

* Customer obsession wins – Focus on solving real problems, not chasing market share.

* Adapt or die – The best SaaS companies pivot when faced with existential threats.

* Multi-product is the future – Customers want an ecosystem, not a single tool.

* AI will redefine workflows – In industries with labor shortages, AI isn’t just useful—it’s essential.

For founders navigating the fast-moving SaaS landscape, Procore’s story is a testament to the power of long-term thinking and relentless execution. The industry is changing fast—but for Procore, that’s just another opportunity to build.

*

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SaaStr CEO Jason Lemkin joined ZoomInfo’s as its opening guest alongside ZoomInfo CEO Henry Schuck.

Along with co-host Ben Salzman, Jason and Henry discuss the transformative power of AI within SaaS and the evolving dynamics that are reshaping the landscape of software as a service.

There’s recruiting and there’s people building.

On the topic of building SaaS companies, Henry kicks off the conversation with: “I think a lot of bootstrapped founders who are less capital infused have to actually be great at developing their people. Almost equally to their ability to recruit great people. I bootstrapped ZoomInfo to 25 million in revenue. And then when I brought in private equity, it wasn’t like, ‘Go spend everything you can to grow.’ They’re like, ‘This thing looks good. Spend a little more and make it twice as big.'”

Without a big budget to get the best people, Henry believes part of the ZoomInfo difference has been recruiting good people that he then fostered and developed into great people.

“The best hack,” Jason adds,  “is not recruiting one management team. It’s recruiting five or six.”

Founders should spend 20-30 percent of their time soft recruiting execs. Nothing else matters, right? You can talk about the roadmap or sales strategy until you’re blue in the face, but if you don’t have the team to do it at scale, there’s no point in talking a ‘big game.’

Henry adds: “The other side of it is. You need to be evaluating your team 100 percent of the time. And that’s probably the most tiring part because you want to feel really good about your team. But if you’re trying to build, you’re constantly evaluating if they’re the right people.”

The best sales leaders are the ones that are even better recruiters than the CEO. The best VP of sales or CRO is a constant recruiter because they need a bench of leaders, and they need managers and directors, and VPs and SVPs to come and go in the mix because the sales reps who might be good at $1m won’t scale to 10-20 M. So founders need to steal this playbook and get better at this.

Otherwise, if you get tired on building your second management team, you’ll decelerate just when it’s getting good and you will stall out.

It’s mission-critical to go multiproduct on time — too early is bad but too late is bad too

We’ve written this up already a few times recently on SaaStr already as Jason did a deep dive on this just last week and Parker Conrad’s theory of the compound startup from SaaStr Europa is a masterclass on the matter. But the next point related to not building a second management team early enough is not going multiproduct soon enough.

On going multi-product Henry adds, “I think the foundational point is if you want high net retention, you get high net retention in two ways. Either a high net renewal rate or a high upsell into the customer base. And particularly during the last two years, if teams are shrinking then you don’t have the users to expand to. And so then you end up with no lever to offset scrutiny on net renewal rate or reduction in seats with another product to improve net retention.”

For example, when you hit a $100M, you just can’t sell enough to drive 40 points of new growth. Even if your net retention is a hundred, itt’s much more difficult to sell $40 million of net new logos. So eventually you’ll get to a point where regardless of how good your team is at new sales, if you’re not driving upsell in your customer base through new products, you will get stuck.

Don’t Hire B Players, Only Hire A Players

Ben Salzman, co-host of the ZI labs podcast and EVP & GM Strategy at ZoomInfo asks Jason:

‘(At Echosign) What was the one thing that allowed you all to punch above your weight from a go-to-market perspective?’

“The answer is so simple, but it really is that the best leaders do attract the most ambitious people under them.”

If you hire a magnet, then the talent just flocks to it. Don’t hire B players, just hire A players.

And sure, founders know that, but the point is that you have to internalize being OK with it taking way longer than you wanted to get the next great person in seat.

We give up too early Henry explains. “You’re hiring a new VP of sales and you’re on your 20th interview. And then you’re just like, ‘Forget it. That guy’s the best of everybody I’ve seen.’ But he’s not the best, he just the best of everybody you’ve seen. So you just get this guy who’s the best of the group you’ve met and bring him in, and that never ever works. And the real test, if you are going to be committed to hiring an A team is in that moment saying, ‘We’re still going. We just got to keep bringing people in until we find somebody that we really believe is an A player.”

What Will AI Change in Go-to-Market

“It will lead to a next level of transparency for leadership,” Jason answers. It will be a big change and a lot of friction.

Everything in post-sales is ahead of sales when it comes to AI, far ahead. For years there’s been a QA space where businesses were manually grading thousands of customer success agents. And AI has completely ripped through the space. Now, everything has AI in QA. If I have a thousand folks picking up the phone you’re not going to grade them manually anymore. AI can just injest all your data and tell you who’s got to go or stay.

Everything we’re talking about in sales and AI has already happened post-sales. And part of that is this transparency that doesn’t exist today.

So if you want to see where AI is going in sales, just pop over to post-sales.

“It’s already happened,” Jason explains. “If you look at the homepage of everyone doing customer support software, like Zendesk, Intercom, or Gorgias and you squint, you know what they all say?

That — in essence — you can lay off 40 percent of your support team.

We can argue whether that works in sales or not, but it’s the same. It’s just, that there’s more pull in post-sales. So we should learn from it in sales for leadership, for transparency, for product, because here’s your crystal ball. It’s not quite going to work in sales the same way, but it’s the same tsunami that’s going to come.”

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What are the top 10 mistakes founders are still making today when hiring their VP of Sales? SaaStr CEO and Founder, Jason Lemkin, has done numerous surveys now that confirm that a startling 70% of first VPS hires still don’t make it.

In this post, we’ll delve into the common pitfalls founders encounter when hiring a VP of Sales. Reflecting on twelve years of SaaStr’s hiring lessons, we’ll take a deep dive into Jason’s critical insights into why sales leaders fail and how founders can avoid these mistakes. The discussion will cover the importance of due diligence, understanding the product, embracing sales involvement post-hire, and recognizing the signs of jaded or broken candidates. Use this practical advice to ensure your next critical hire drives success.

#1: You Can’t Stay Founder-Led Sales Forever.

This one is newer. Being in founder mode doesn’t work for sales. Elements of it do, but you need a sales team to scale sales. Once you do make your first sales hire, the biggest mistake you can make is exiting sales. Maybe you’re tired, and you’ve been doing founder-led sales for some time. But you can’t leave, or sales will go down the toilet.

You have to spend as much time in sales after hiring a VP of Sales as you did before. You become a great middler, and they pull you into ten deals every month, but you don’t get that time back.

Another new trend is people reverting to founder-led sales because of mishires and getting burned. When you get big, it’s too much. You can do it for a month or a quarter, but you need to start recruiting the next day or week when it doesn’t work out.

Too much human capital is required, and sales have no efficiencies whatsoever. You will need to hire headcount infinitely and linearly with revenue. So, by $2M in ARR, you need to hire your first Head of Sales. If it doesn’t work out, hire another. Don’t stay in founder-led sales.

#2: You Can’t Hire the Jaded, the Broken, and the Done.

Over the last four years, so much change has happened, leaving us with many jaded, broken, and done people. They need a job, and their side hustle as a fractional CRO didn’t work out, but should you hire them? Many great companies are out there turning over VPs of Sales, but you have to be careful.

Don’t hire the jaded. Four minutes into an interview, they’ll say how the CEO or VC screwed them over, or the startup didn’t make it, and it wasn’t their fault. Don’t hire these people. Maybe you raised $500M and sold for $50M, and they claim to have crushed it single-handedly. No one makes any money in that scenario. You don’t get participation points in SaaS.

The related cousins are the broken and the done. They don’t want to sell anymore. Yes, they can make beautiful powerpoints, endlessly discuss process, and they might have done great things in their career, but do they want to sell? You have to ask them, “What do you want to do the first two weeks on the job?” If it’s not about meeting customers, don’t hire them.

#3: You Can’t Hire a VP of Sales that Won’t Do Sales Themselves.

80% of the VP of Sales candidates founders invest in and work with won’t do sales themselves. When making the hire, you have to listen. Just because they talk about how great they were at Datadog doesn’t mean they’ll do it themselves.

Once you’re at $200M ARR, they can get out of deals a little, but maybe not. A classic story is when Groupon was a customer at AdobeSign/EchoSign. Jason flew to Chicago in the middle of a terrible winter to pitch a 7-figure deal. And next door, Salesforce CEO Marc Benioff was making his own pitch.

He’s still doing it. Every year he meets with 200 prospects. We can’t all fly in our private jets, but the point is, even at $200M ARR, you still have to meet customers. Marc is doing it, and Salesforce is coming up on $30B.

#4: You Can’t Hire a VP of Sales that Can’t Be a Product Expert.

You might have hired a great “people person” as your VP of Sales, but if they’re not an expert on your product, it won’t work. Before you make the hire, do reference checks and have them do a demo. If you hire without them knowing the product, they likely never will.

It’s a tough market; if you can’t answer customer questions, the competition will. Every year, we become smarter buyers up and down the stack, so you can’t hire a VP of Sales who isn’t willing to learn the product cold before starting.

If they’re great, give them the offer, agree on the comp and equity, and give them a month to learn the product before they start. They can’t start learning the product on day one.

#5: You Can’t Hire a VP of Sales You Don’t 100% Believe In.

This seems obvious and might be the most important point on this list. If you don’t believe in your heart and soul that a candidate will be successful, it won’t work. When Jason hired Brendon Cassidy, the first Head of Sales at LinkedIn, a VC wanted someone more senior. But he knew 100% he was the guy.

Your job as a leader isn’t to tell the VP of Sales what to do but to backfill them. Not everyone can be great at everything, but if you 100% believe in them, and they need you in Chicago in the middle of winter, you go.

You don’t need to be 100% right. You just need to love them no matter what anyone else says.

#6: The “Full Stack” AE is Almost a Myth, and Probably the VP of Sales.

This might seem minor, but the mythical full-stack salesperson has cropped up more over the last couple of years. They exist, but finding someone who can do and own outbound, qualification, training, onboarding, and closing everything is rare.

We want this when a sales team is waiting around for an inbound lead, but it’s not a thing unless you’ve bred them to be this way from the beginning. Folks who haven’t done outbound, technical partnerships, and in-person can’t learn to do it on your dime unless you train them from day zero.

Are you curious if your potential VP of Sales can handle the full stack? Ask them. If outbound isn’t part of your model and it’s 100% inbound, you probably don’t want to hire an outbound expert today. If you love this Head of Sales who has never done inbound, there’s a 0% chance of success.

Don’t expect VPs of Sales to do these things. If you know you need them, ask if they’ve done it before, but don’t assume they’ll do all of it. Most won’t, haven’t, or don’t want to.

#7: A VP of Sales Mishire Sets You Back A Year.

This one is brutal, and it hasn’t changed over time. If you mishire, and they’ve never done channel sales, outbound, or sold to a technical buyer in your industry, it’ll set you back a year. Why?

When you make a true mishire, sales always go down, especially if you disappear after making the hire. You’re handing sales off to someone who doesn’t know the product, who then hires more people who don’t know the product.

You’ll know if you’ve made a mishire after a month. Read more about giving them only 30 days here. Say you hire Jim. He’s pretty good, and the board likes him, but he isn’t cutting it. You give him another quarter and try to let him go 6-7 months in, but Jim changed your mind because he’s a good sales guy. Finally, you move on and have another six months of searching.

You can avoid this story. When you’re tired and have honestly interviewed 30 candidates, push on and find someone you love. You’ll lose a year when you settle.

#8: A Stretch Too Far.

In the old days of SaaS, you could only find folks too junior for a role because we didn’t have all the veterans. Today, people are broken and burnt out. You can’t hire the SVP from Mongo or Twilio who doesn’t want to sell anymore, so you set out to find this perfect Goldilocks person who doesn’t exist.

You have to hire a stretch, a kid, someone who might be 60 or 26. You have to hire someone with energy but isn’t quite the full package, or they may have been fired once if they’re passionate and romantic.

Getting fired from every job is bad, but just once might be good. If they’re willing to sell, to get on the road and do the work, it all becomes about human capital. You have to grow the sales team because revenue is doubling every year.

Whatever it’s growing, you have to grow your headcount in sales roughly. You can’t avoid it. If the yielded quota for an AE is $500k, and you want to add $5M in bookings, you need ten scaled reps. If you’re going to add $50M, you need 100. You can’t get around the math.

So, at the end of the day, if they know the product and can sell and recruit, make the hire. They need to have hired 2-3 salespeople who have hit quota. If they can hire two people and make them successful, they can find 200. But don’t take their word for it. Talk to those salespeople.

#9: Your VCs and Investors Are Often Wrong.

If you have investors, they’re right on many things and almost always wrong on a VP of Sales. They all love the handsome 6’4” paratrooper who looks good in a button-down and has a deep voice. He’s a name-dropper, and VCs love it. But most VCs have never done sales, and they’ll give you terrible advice.

Many VCs, however, were successful founders or CEOs, but still, the company they founded years ago isn’t the same as yours. Just because they know sales at their company doesn’t mean they know your sales.

You can listen to them, nod your head, and thank them. But if your gut isn’t 100%, don’t make the hire. And if your gut is 100% and they say don’t make the hire, say thank you and then make the hire.

10: Yes, Your Great VP of Sales is Out There.

This point is old and new. If you’ve made some mishires, lost a year, and you’re feeling burnt, know that your great VP of Sales is out there. Don’t go back to founder-led sales. Even in today’s world, there are plenty of ambitious folks. Sales doesn’t breed ambition like it did pre-2020, but the best folks want their shot in sales.

Keep interviewing 100 until you find them. If you don’t think there are great VPs of Sales out there, you’ve never worked with one. There are so many greats out there, and once you work with one, you’ll never go back.

Find the person willing to meet with 50 customers in the first two weeks who comes back with ten insights you didn’t know about your customer. If you’ve made a mishire, get up off the floor, go out there, and find that great VP of Sales.

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So Monday is just a freight train right now.  It just keeps scaling and scaling.  It’s now crossed $1B in ARR, still growing a stunning 34% … with 22% Free Cash Flow margins!

That’s as good as it gets in SaaS, folks.  Jaw dropped.

What are the secrets?  A few, but 2 stand out:

* Going multiproduct early

* 70% of their customers are outside of tech.  So they’ve been immune from most “macro” impacts.

5 Interesting Learnings:

#1.  Still Growing Net New Customers +26%

This is the key to scaling.  You have to keep the net new customer count over 20%, even at $100m-$200m+.  And over 50% at $50m ARR to keep growing going.

#2.  110% NRR from SMBs, 114% From $50k+ Customers

It’s just so hard to scale at the SMB without 100%+ NRR.  110% is magical with SMBs.  And Monday’s consistently hit it.  NRR peaked in Q2’22 when the Crazy Good Times were ending.  But it’s still stayed at 110%+ every since, and in fact, is higher than it was in 2020.

#3.  $50k+ and $100k+ Customers Growing the Fastest

This isn’t unique to Monday.  Eventually, most of us have to go upmarket to keep the engine going.  But Monday didn’t rush there.  And the vast majority of its customers and revenue are still SMB.  78% of its accounts are 10+ seats, but that’s still not huge.  And 22% are still tiny.

#4,  Massively More Profitable and Efficient Than 24-36 Months Ago

Monday, like almost every Cloud and SaaS leader, has gotten incredibly more profitable and efficient the past 24+ months.  Even as it’s resumed faster hiring.

#5.  Only 30% of Customers in “Tech”, and Customers Broadly Span 200+ Industries

Perhaps the opposite of vertical SaaS here.

Wow, breathtaking.  Few in 2024 are firing on all cylinders as well as Monday.

Find your Monday.

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This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit cloud.substack.com

If you’ve read SaaStr or have been around for the last decade, you might be familiar with some of the repeated GTM mistakes founders tend to make, but the world of hiring, people, scaling, and workplace expectations are significantly different today than they were before March 2020.

SaaStr Founder and CEO, Jason Lemkin, shares the top GTM mistakes founders make today and some cheat codes to avoid them. Some are mistakes we make again and again, and others are newer territory as we evolve.

Mistake #1: A VP of Sales that Can’t Sell or Demo the Product

“Whatever you do, do not hire a Head of Sales who can’t demo the product before day one,” Jason says. The same is true for your first 5-10 reps. If they can’t demo the product before they sign the offer letter, don’t make the hire. If the VP of Sales needs someone to do the demo for them, or they won’t carry a bag… you guessed it. Don’t make the hire.

A huge mistake founders make is hiring someone who hasn’t sold in your space before. Maybe you’re doing vertical SaaS, selling to governments, or it’s a more complicated product than they’ve sold before.

You don’t want someone who talks only about processes, people, hiring philosophies, quota, and their views on revenue attainment because they’ll never learn the product. If they don’t learn the product before they start, they never will in most cases.

Likely, 80-90% of founders never force the VP of Sales to demo the product before starting the job, and that’s a mistake. You don’t have the resources or the brand to carry you, so your VP of Sales needs to know the product and how to sell it.

Mistake #2: A VP of Marketing that Can’t Do Demand Generation

Don’t hire a product marketer, a corporate marketer, or a strategist. Find out if your potential hire held a commit at their last role. Jason was talking to a founder at $14M-$15M, and they weren’t sure if their Head of Marketing was working out. They weren’t getting any leads.

What was this Head of Marketing’s previous role? A junior product marketer at Gitlab. Do you know what product marketers do at big tech companies? They don’t get you leads. They likely don’t even know who is on the sales team.

What this hire was doing was building out different landing pages. Should you fire someone like that if they’re smart and doing a good job at something they weren’t hired for? Not necessarily.

Jason suggested leveraging this person’s talents and having them build landing pages and host a weekly webinar explaining the product. It won’t be demand gen, so finding someone who can generate leads is important.

If you’re looking for someone good at demand gen, don’t hire someone on LinkedIn whose first line is labeled “strategist,” “corporate marketer,” or communications anything. Those people, especially strategists, won’t execute on anything or aren’t needed until your company is more mature. To find someone who knows their stuff, ask them what their commit was at their last role.

A real growth marketer will say $5M in pipeline per quarter or 300 MQLs or 2,000 signups. More from Jason about hiring the wrong type of VP of Marketing here. 

Mistake #3: Stepping Out of Sales

The number three mistake Jason sees founders make is exiting sales as things start to take off. It’s truer today because even though fundraising is harder, folks raise bigger rounds. They’ll raise $10M or $20M and say, “Thank god, I don’t have to do sales or Zoom calls anymore. I have to get back to product.”

There’s a lot of truth in that, which is why you should hire a great VP of Product far earlier than most founders are, but stepping away from sales isn’t how things work.

You have to do more in product and do the same amount of time in sales. When you hire a great sales leader, your job will be different. Instead of opening and closing every conversation, you’ll get pulled into the middle more often.

But never step out of sales. No one will ever know as much about your product’s nuances or whys, so you have to support sales that way.

Mistake #4: Cutting Marketing Too Deeply

If growth is down and cash is tight, you have to do something. But cutting marketing to zero isn’t the answer. You’ll be cutting your future potential. This one is new and didn’t happen in ‘08 or ‘09. Even then, marketing wasn’t cut to zero.

All struggling startups today are cutting marketing to zero, and it’s your job as founders and executives to find the balance here. If cash is tight, the first thing you look at are variable costs and the bottom 10%. Layoffs are tough, but everyone does better the next day when you cut the bottom 5-10% because they no longer consume time, energy, and resources.

Then, you look at variable costs, and you cut marketing. So many founders have seen slow growth, and when asked how pipeline is, they say it’s really slow, too. “How much are you spending on marketing?” Jason asks. What do you think they say? Zero. They’re spending nothing on marketing.

Instead, they say they’re doing all the free stuff, like spending three months starting a podcast. That’s “free,” but what about all the soft costs and time? Some go for content marketing because it’s cheaper, but is the content amazing? No, it’s terrible. You have to do the free stuff. It always works. But it almost never works unless you have an inherently viral app and word of mouth.

What’s actionable here? Rather than cutting to zero, unless you’re running out of time and runway, find a Head of Marketing that you trust to spend a set amount of budget as effectively as they can. And don’t expect it to convert tomorrow.

Marketing doesn’t convert overnight. But if you cut it, you might help in the short term at the sacrifice of your future.

Mistake #5: Not Properly Jumping on the AI Bandwagon

AI hasn’t changed every B2B and SaaS space in 60 seconds. The fact that two phones can talk to each other doesn’t mean your payroll app is magically better. Just because you can type some text and get a cartoon doesn’t mean you’re making your customers happier.

But you can’t hide from it, and too many founders are. Yes, hiring engineers is expensive, and maybe it’s not revolutionizing your space yet. But you will lose the deal if you’re not at feature parity in AI with your competition. You have no choice.

Many startup founders argue against this tsunami coming in, saying it doesn’t work, but you can’t fight this trend and the billions being deployed every week. This is where budget is.

Mistake #6: Putting Profitability Above Growth

People are getting this wrong on LinkedIn and social media. We’re in a new era of efficiency, with the average public SaaS company doing almost $400k in revenue per employee. So, they’re over twice as efficient as in 2021, where it was $100k per employee.

Efficiency matters, but profitability doesn’t on its own. Folks who aren’t growing but are profitable aren’t the folks you want to be. No one says, “Hooray, we’re profitable even though we aren’t growing.”

There is some truth that you still want to grow at outlier rates as you pass $10M or $20M in revenue-triple, triple, double, double. The best startups go from $1M-$3M, $3M-$9M, $9M-$18M, and $18M-$36M. It sounds like a lot, but if you want to get to $200M in revenue in less than ten years, it takes that amount of compounding.

The reality is, if you’re efficient at $10M to $20M, which is 30% or more growth and break even, you can get great PE exits and an offer for $200-$300M to buy your company. But growth has to be north of 30. There is no world where profitability is above growth.

Mistake #7: Hiring the Broken, the Bitter, the Fractional

The world has really changed since March 2020. For some folks today, it’s the hardest it’s ever been. Some SaaS leaders with hundreds of millions of revenue are growing at 0%. Others are more similar to 2018 when budgets had to be earned.

This has led to a lot of folks who are broken, bitter, and fractional. Folks who don’t want to do it anymore. You can’t hire anyone that won’t play the entire game. It’s too hard today.

They can’t be too angry at their last boss, think the system is loaded against them, believe that VCs are destroying people with their liquidation preferences, or think that the CEO is a terrible human being.

There is likely some truth in those things, but you can’t hire those people. A little chip on your shoulder is probably necessary for success in founders and VPs. A great background for your first VP is someone who says, “I was Director or Head of Sales and got the company to $20M. Then they topped me with a CRO from a big company, and I’m pissed.” That’s great.

You can’t hire that person when the chip is so heavy that it’s a rock weighing you down. They can’t recover.

Mistake #8: Hiring for the Logo

We all keep making this mistake of hiring someone because they worked for [insert Big Fancy Company]. This is an evergreen error and is even more prevalent now because so many folks are coming out of Datadog, Notion, Cloudflare, Zoominfo, Zoom, and other iconic companies.

Most don’t want to hire from a direct competitor because you’ll overlook the downsides, but an early guy from Datadog might be a good solution. Or it might not. When hiring someone, sit down with your team, cover up the logos of their previous work history, and ask everyone if they would hire this person if they had never worked for that company.

Most of the time, people say no. Once in a while, hiring that early person with the right-sized chip on their shoulder is okay, but if you’re just hiring for the logo, you might want to reconsider.

Mistake #9: Looking for Instant ROI

Yes, this is harder in tougher times, but pipeline takes time. This is tied to marketing; you’re cutting off your nose if you’re doing this. Everyone is looking for instant ROI. An extreme example is right here at SaaStr. We have 200 sponsors that we use as a lab.

Last year, things switched. Instead of measuring on pipeline, opportunity, awareness, influence, or brand, they wanted scans. People come to events and get a scan. It’s the very top of a pipeline, but most marketing in normal times view it with skepticism.

Having an SDR wave a scanner in your face before you can take home rubber ducky swag may not be the best KPI. If you’re looking for instant ROI in field marketing, you might have unreasonable expectations.

Events usually take at least six months to convert, and the reality is those people are already shopping. Building raw new events is somewhere between a high-intent Google search and randomly discovering someone on a piece of content. Instant ROI is not there in the middle of an event.

On a related note, instant ROI destroys customer success and relationships with customers.

Mistake #10: Elimination of True Customer Success

The bigger companies have pushed through multiple price increases in the last few years without commensurate value. A SaaStr vendor with a new CRO said they were doubling prices and to take it or leave it. It burned the relationship forever, and you don’t want to burn your base.

It might help you make this quarter, but will those people refer customers to you? At the end of the day, all software is powered by word of mouth. That is everyone’s number one source of new customers. As founders, ask yourself if your actions in the last 18 months have damaged word of mouth.

Another problem in the world of customer success is having CS report to sales. If that’s the case, whose job is it 100%, 40+ hours a week, to make at least your top customers happy? Someone charged with upselling can’t be that.

We just put up a G2 poll across customers and found that a majority of CS teams not only report to sales now but have a sales quota. Folks did this when needing to monetize sales more, and their job has become about protecting NRR.

It has become weaponized, and we might not be able to return to customer happiness as their number one job. As a founder, figure out who your top 20% or 50 customers are, hire a team that does nothing but make those top accounts happy, and prevent future and inevitable churn.

The Top 10 Don’ts When it Comes to GTM

* Don’t hire a VP of Sales that can’t sell or demo the product

* Don’t hire a VP of Marketing that can’t do demand generation

* As a founder, don’t step out of sales too early

* Don’t cut marketing too much, or too early

* Don’t ignore the adoption of AI into your business

* Don’t putting profitability above growth

* Don’t hire the broken, the bitter, the fractional if they’re not willing to play the game

* Don’t hire for the logo if their resume can’t back it up

* Don’t look for Instant ROI

* Don’t eliminate true customer success

Thanks for reading Scaling SaaS -- from SaaStr! Subscribe for free to receive new posts and support my work.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit cloud.substack.com

Pitching VCs is like anything.  You’ll get better at it over time.  Later, you’ll even get great at it.  Once you know how it works, it’s not even that hard to knock it out of the park.

But until then, so many founders make unforced errors.   Rookie errors.  Here are 16 that you can easily avoid / fix right now today.  Before your next pitch:

* Cold emails work.  But they need to be truly awesome.  Every part of them.  At the recent New New in Venture SaaStr event, we asked many of the top VCs, from Aileen Lee to Keith Rabois and more, if they read cold emails.  They almost all say that they do, and in fact read almost all of them.  So don’t listen to anyone that tells you cold emails don’t work.  VCs are in sales themselves, and they are hunting for that next great deal.  But a cold email especially has to be awesome.  The email subject line.  The email itself.  The deck.  It has to stand alone.  A cold email has to be so awesome, anyone would want to invest.  Or at least instantly want to learn more.  More here.

* Being cagey with answers. Just answer the question. How much are you raising? Where are you in the process? Being direct (and honest) builds trust. With VCs, you want to build trust quickly, if you can.  Especially over Zooms.

* Bringing the wrong people with you. Do not bring “consultants” to a VC pitch. Do not bring anyone with you that isn’t part of the senior team. As soon as you bring a “consultant” with you — most folks are out. It makes the team look weak and incomplete.

* Not sending the deck ahead of time. Just send it. You are wasting both a lot of time, and an opportunity, by not letting VCs do basically homework ahead of time. Make it easy on them.  And send it as a PDF.   Build trust.  Make it easy.  If you are the one selling, don’t put hurdles in front of getting a check.  Remove objections.  Send the deck.  Even if they might email it to someone you’d prefer they didn’t.

* Not doing at least basic homework on the VC firm. You should know their other investments in the space. VCs may be fungible, but no one wants to feel that way.  Share why your start-up may be of interest to them based on other investments.  That’s, again, Sales 101.  And you are selling shares of stock.  It’s still sales.

* Spending more than 2 slides on “the industry”. Do not do this, unless asked. Assume VCs understand what is “happening in the cloud”. This not only is a waste of precious time … I’ll fade away.

* Going in too strong. If you have 2 signed term sheets, for sure, go in strong. It saves everyone time. But being too aggressive, too take-it-or-leave-it, if you don’t have options — is a big mistake.  Creating urgency is part of sales, for sure.  But you don’t want to push it too hard.  When in doubt, just be transparent with timing and expectations.

* Going in too weak. Telling me you could succeed “if only you could raise $____” is just the wrong message. Winners always find a way to win. No matter how hard it is.

* Asking for coffee to “share notes”. Some VCs may want to do this, but most don’t.  I personally don’t have time.  Show me a product I want to invest in — I’m in. But coffee?  I already drink 4 cups a day. I don’t need a 5th.

* Hearing about how the founders met in elementary school. Even if this is true, I don’t want to hear it, at least not as a part of the core pitch. That’s not a positive for me. I want to hear why the founders are amazing.

* Not answering the questions. If I ask a question, there’s a good reason. Some VCs like to hear themselves talk. I don’t. Just answer it. If you don’t know the answer, tell me. Don’t tell me “you’ll get to that later”. Because if you do, that may well be too late.

* Not speaking with data. Always speak with data, if data is there. Even if it isn’t great. I don’t want some qualitative answer, once you have even just 10 customers.

* Claiming pilots, unpaid users, and anything similar are “customers”. They aren’t. And don’t claim they are MRR/ARR. They aren’t. Be clear what is a pilot, what is paid, and what isn’t. Otherwise, this blows up on you in diligence.

* Hiding anything. It will come back to bite you. Some things may be more appropriate for a second meeting, but make sure whatever top level issues there are, come up in the beginning.

* Poor understanding of competitive landscape. You have to get this right. You have to. First, always have a competition slide. Second, know it cold. Third, be respectful of any competitor larger than you. If you don’t understand the competitive landscape cold, then you don’t really understand the market — or what you are going after.

* Not having the >first< slide sell the company all on its own.  Just like every email pitch should stand on its own, so should the very first slide of your pitch deck.  If the first slide is the only slide you need, if it sells the whole deal … then your odds go up. Elevator pitches are important. So is a “1-slide” pitch. Make that first slide count. Metrics, team, product, financial goals. Put it all on Slide 1. Position the company, and answer all my questions right then and there.  Force yourself to distill the answer of “Why You Should Invest In Me” into 1 slide, the first slide.

> Your job is to pass the 20-minute test. <<

To get a VC to want to invest no later than 20 minutes into the first meeting. Anything you do that handicaps a VC getting to a decision in less than 20 minutes dramatically decreases your odds of getting funded.

Thanks for reading Scaling SaaS -- from SaaStr! Subscribe for free to receive new posts and support my work.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit cloud.substack.com

A little while back, Harry Glaser sold his SaaS analytics startup, Periscope Data, for $130M. It was a difficult, punishing, and rewarding experience. At a recent SaaStr Workshop Wednesday, he shared a behind-the-scenes look into what this process looks like and five key takeaways for other founders who want an inside look into the process. 

The Journey of Selling Your Startup

Harry was the co-founder and CEO of Periscope Data, which raised a seed round before finding customers, yet didn’t run out of money before becoming an overnight success 3-4 years later. They grew like crazy when they found product-market-fit and raised a big Series A and B. 

When you’re growing fast, everything can feel like it’s breaking constantly, and you’re hiring and rehiring people fast. During those rapid growth years, someone would reach out every once in a while and ask if Harry would consider selling. He always said no.

But then growth flatlined for a couple of years, and it was time to talk about selling. From the start of the company to a couple of years after being acquired, it was about a ten-year journey altogether. 

How Does the Classic Bread-and-Butter Startup Exit Happen

This learning isn’t about multi-billion dollar mergers or acqui-hiring. It’s about the $50-$500M bread-and-butter, classic startup exit. A lot happens quickly, and there’s a big information imbalance between you and an acquirer. How do these exits happen? Where do they come from? 

The adage is true that tech companies aren’t sold. They’re bought. You’re positioning the company to grow for the long term and could potentially have a great IPO someday. Or, if you get a great offer and can consider it because it’s not too late. 

Lesson 1: Offers Come When They Come

You should grow your company for the long run. If you build a company with the intention of getting acquired and you call up an acquirer, you lose your leverage. You want people to call you because you have a great business. 

Who does the acquiring? Most often, you get a call from a function called corporate development. They execute deals, and part of that is having relationships with companies in the space. It’s not a bad relationship to have, but understand that they’re deal executors, not deal creators.

At places like Google or Meta, they’re organized into business units. The VP or SVP of the business unit will be the relationship you want. At a pre- or post-IPO tech company, it’ll likely be the CEO or CPO. These people initiate the big offers. Yes, this is a longer-term strategic play to build relationships with these people, but it could be worth it in the end. 

Why Do Offers Come?

If it’s a CEO of a small-compared-to-Google but larger tech company, they’re coming to you because something happened to them internally that put them on their back foot. They may feel behind in where the industry is headed, and they need to make a splashy move to reset the narrative. 

Or, maybe they missed a couple of quarters in a row, and stock prices are threatened, so they make a move.It’s important to understand these humans and what’s happening that is making them reach out. By having a relationship with them, you:

* Stay top of mind. They’ll already be thinking of you. 

* Build trust, which is essential during an acquisition. 

*

Your Fundraising Valuations Matter

The last thing you want to do as a company is put yourself in a position where you can’t get the offer you want. In general, your valuation is a hard floor on a good acquisition price. Why? 

Often, acquirers won’t make an offer below your post-money valuation because they understand the complexities for the board to accept it; offering VCs less than a dollar on their investment is a good way to upset them, and they want relationships with these VCs. 

If the offer is below your number, it’s bad news for somebody. If you’re growing like crazy and earn that valuation, and it’s a reasonable multiple on your ARR, take it. Otherwise, you need to stop and think about it. 

What if a $100M outcome was great for you, but you’re being offered a $200M valuation? You’d essentially be walking away from a $100M acquisition in that moment. 

The Process

They’ve decided they need to make the splashy move and put this offer down. What happens now? Here’s the timeline from initial interest to closing for Harry: about six months for the entire process. 

The Letter of Intent was in late March or early April, toward the end of the process. Initially, you’ll get lunch and get to know each other. Then, you may hear what the offer might look like. It’s much like a term sheet in a fundraiser, but with an LOI, the process becomes exclusive. 

Once you sign an LOI, you aren’t engaging in acquisition talks with anyone else, which means they have all the leverage. You want all negotiations done that you care about before you sign the Letter of Intent. 

Don’t Give It All Up in the First Meeting

What’s going to happen first is they’ll say something vague, and you’ll say, “I see your point, but we’re growing for the long run.” Don’t give it all up in the first meeting. 

Before the LOI, you want to leverage the other relationships you’ve been building. Reach out and tell them that, as a courtesy, you’re letting them know you’ve had some interest and wanted them to hear it from you instead of the media. 

If they’re interested, they’ll start running their own internal processes to generate terms. Having multiple offers is the best way to generate a competitive dynamic. 

These folks will also talk to each other, so, at that point, even if only the original offerer makes an offer, they’ll notice that you’re shopping it a bit, which creates the perception of a competitive dynamic. 

Term Sheets Are Very Different From Letters of Intent

In fundraising, if you get a term sheet and sign it, there are only a few cases where it doesn’t close. 

* The VC discovers something in diligence where they think you’re lying to them. 

* There’s some foundational shift or big macro market change. 

Aside from that, VC term sheets from honorable VCs close. LOIs from acquirers generally don’t close. Harry’s legal team says there’s a 50% close rate, but he guesses it’s even lower than that.

So, as you’re going through an intense process and making peace with potentially losing your baby, know that it will probably fall through. You have to keep running your business as if that will be the outcome. 

The other dynamic is exclusivity. You’re about to enter a position where you can’t talk to anyone else about M&A. But also, there’s less than a 50% chance that you’re closing this deal. It’s a tough place to be.

Before you sign a Letter of Intent, make sure: 

* It specifies the exact price you’re going to get. 

* It says how long you’re going to be exclusive. 

* It clarifies any milestones you’re expected to meet. 

Don’t sign an LOI that is vaguely worded. An acquirer may say something like, “We trust each other. We’ll figure it out later. Don’t hold up the process. We’re excited!” Take a beat and make them sweat a little. Make sure that what you care about is in writing in the LOI before you sign it. 

You will lose almost every negotiation after you sign because lawyers get involved, and theirs are more numerous and better paid. 

You Must Keep Running Your Company

Deals can blow up the day they’re supposed to close. If your team is sitting around watching movies all day, thinking about what they will do with their money, you have a problem. 

First, you want to make sure only the essential people know about what’s going on during the process. Keep it as close as possible. Once a sense of getting acquired goes around, people stop hitting targets. And if the deal blows up, it could kill your business. It’s happened. 

Are You Sure You Want To Do This?

Harry guesses that what happens in about 92% of companies after they get acquired is: 

* The acquirer gets their hands on it. 

* They try really hard to integrate it and run your business. 

* If they trust you, they’ll ask you what they should do. 

* Eventually, they trip over themselves trying to execute a business they aren’t familiar with and screw it up. 

* Targets start getting missed. 

* There are bad feelings on both sides. 

* Your baby gets shoved in a corner. 

Sometimes, this doesn’t happen. Google’s acquisition of YouTube was awesome. If this slide looks worse than your current situation because your business is going great, maybe you should stick with your current situation. 

As a founder, you will have a hard time working for the acquirer. It can feel lonely. You aren’t part of their team, and yours is realizing that they aren’t in a cool startup world anymore. You become a bridge between these two worlds, and it can be a tough couple of years. 

It’s a big win, but it’s still hard. Harry doesn’t regret his acquisition but cautions every founder who enters this process that it might look like this. 

It’s Your Job to Keep Your Promises

The six months before and after your close date will impact your reputation and the reputation of the founders and senior team. You’ve made promises to your VCs and promises to your employees, and only you will be able to hold up those promises. 

The acquirer will propose various mechanisms for not having the VC get their 20% share or for an employee holding 1% to get their share. Stand by your team and your promises. Your reputation hinges on the following:

* Whether you kept your promises. 

* Whether you were transparent when it mattered. 

* Whether you were empathetic with everyone. 

5 Key Takeaways When Selling Your Business

* You can’t build to sell. But you can build relationships with likely buyers. 

* Buyers are CEOs, CPOs, and VPs of business units. Corporate development executes deals. 

* Get it in writing, always, in the LOI. You won’t win anything after you sign. 

* Keep it secret. It probably won’t close. Keep running the business. 

* Everyone gets what it says in the cap table. It’s your job to make sure that happens. 

Thanks for reading Scaling SaaS -- from SaaStr! Subscribe for free to receive new posts and support my work.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit cloud.substack.com

A Story About A Cobra

Meghan shared a fable.

Once upon a time, there was a village with a cobra problem. There were too many cobras, and they were a menace. So, the mayor told the village he would pay them a dollar for every cobra killed to get things under control. It didn’t work. Instead, people started breeding cobras and killing them in order to collect their bounty.

The moral of the story?

You have to think about what behavior you’re trying to drive. Compensation will drive it and have unexpected results. If you want to get rid of the cobras, paying for every cobra killed clearly wasn’t the right behavior to compensate.

What Is A “Consumption” Business

In the old days of software, you had a company like Oracle that popularized the perpetual license where customers own the software and vendors own the market. Then, we moved to a more customer-friendly model with SaaS and subscription-based pricing. There are still some complexities around SaaS-based approaches. So, it’s more customer-friendly, but it also has its pros and cons.

What’s evolved over the years and is driven by hyper-scalers like Google Azure, AWS, Twilio, and Stripe is the consumption-based model. It’s a very customer-oriented approach — you pay for what you use, and closing a deal is the start of a journey. This is MongoDB’s approach. They reoriented their sales team and de-incentivized reps from making deals upfront.

It was creating friction in the sales cycle. MongoDB wanted customers up and running quickly and to see the time to value so they could upsell future workloads. This is the idea behind a consumption-based business.

A Usage-Based Approach Is More Than Just Changing Compensation

A usage-based approach puts more of the onus on companies to constantly deliver value as a vendor. It’s unlike the old world, where you can sell a deal and walk away. You always have to stay engaged.

A usage-based approach is more than just changing compensation. It turns your GTM on its head. The VP of Strategy at Snowflake doesn’t have a Customer Success org. Their sales are playing that role, and they change what that role is within a consumption-oriented company. At MongoDB, they took a different approach and do have a customer success org.

Back to that original story that compensation drives behavior. Instead of the first thought being how to incentivize the sales team… You should think about who’s doing what within an org with a consumption-based approach. Who’s playing the role of Customer Success?

Measure Sales Impact Before Incentivizing It

Before getting into all the ways to incentivize, you need to think about being able to measure sales impact. This is something MongoDB puts a lot of work into internally and built into the product. They wanted to differentiate organic consumption from growth being driven by sales. Customers may be growing because their application is growing, but they don’t want to focus a rep on maintaining existing customers. Instead, the goal is to go out and find new workloads.

At MongoDB, they have a self-serve channel where they run a control group — a subset of accounts that they never touch, just to see what happens naturally. That way, they know what growth to expect and what incremental uplift they’re getting from having sales involved so they can continue to make better investments.

Compensate On What Reps Can Control

Compensation drives behavior, and you really want to compensate reps on what they can control. It’s frustrating as a sales rep to be compensated on something where you don’t think you can move the needle. In a consumption-oriented product, customers can fluctuate. Sometimes, that’s because of a sales rep’s involvement. Other times, it’s just macroeconomic conditions.

Imagine the made-up usage curve example above.

There’s a crypto company using the platform, and the past several years saw a large uptick because the market was booming. Then what happens? The crypto market stopped doing as well, so usage was down. It’s quite challenging to think through this in a consumption-based model. But we do know that incentives drive behavior. So, start with the behavior you want to drive.

Driving Market Acquisition

When designing a compensation plan, you have to decide what behaviors you want to drive. The first might be market acquisition. You want to land as many logos as possible. MongoDB initially took this approach — the logo team passed it to the expansion team. Rather than compensating based on ARR, it’s based on a volume and quality-based metric.

How do you incentivize this?

On a growth team, it’s overall ARR and on a unit basis (the number of new workloads of a certain quality). That means that a part of the ARR target is from organic growth coming anyway, and then you have to land a certain amount of new workloads. What are the pros and cons of measuring on a unit basis?

Pros:

* Dead simple comp plan

* Reps are laser-focused

* Drives high velocity and activity

Cons:

* It is harder for reps to overachieve on a unit-based plan

* Need to have criteria to ensure quality

You need to blend ARR and unit-based, or you’ll risk driving low-quality outcomes.

Driving Nurture & Growth

What if you want to focus on nurturing and growing your customers, driving product adoption, and cross-selling? In that world, you might want to measure the reps on gross billing with the customer and maybe even SPIFF on commitments and product-based SPIFFs. Crediting is simple because they’re credited for every dollar billed.

What are the pros and cons of measuring gross usage?

Pros:

* The rep, the company, and the customer are very aligned.

* Provides a consistent payout for the rep as the customer consumes

* Crediting is simple to understand

Cons:

* Getting quotas right is a challenge

* Reps are paid on retention

Growth expectations can be a bit of a “black box” to the reps. Companies have a growth expectation for every customer and can feel punitive to the rep (i.e., if you grow an account, your quota goes up.) Another tricky thing is how you align the sales team. In this approach, you’re paying a lot to reps for retention.

In the example above, their quota is to get to $725k billed. So, you’re essentially paying them for a $500k billing that already exists. Another way to nurture and grow is to measure on incremental ARR. At MongoDB, they wanted to neutralize whether a customer wanted to pay-as-you-go or make a commitment. They wanted reps to position pay-as-you-go and didn’t want them to slow down the sales cycle by forcing commitment unnecessarily. So, this idea of net ARR or incremental ARR was introduced, where the rep gets paid at the end of a quarter for the incremental usage above a baseline.

What are the pros and cons of measuring incremental ARR?

Pros:

* You’re only paying based on growth, which focuses the reps on driving new business

* Reps take more risk but get more upside

Cons:

* The challenge is it’s complicated to explain and operationalize

* Crediting can be negative, and reps hate that

This macroenvironment is tricky. Customers are focused on cost and cost optimization. So, if you’re measuring on incremental ARR, you create a large disincentive for a rep to talk to a customer about optimizing their environment… Because that means churn for them.

Driving Protective Behaviors

The last behavior might be protecting or taking a longer-term view. One compensation example is paying reps on commitment ACV. MongoDB de-incentivized this because the product is good, and they wanted reps to focus on getting as many workloads as possible and getting them consuming. It might be more competitive and secure revenue longer-term to put the commitment element on top of a compensation plan.

What are the pros and cons of a commitment approach?

Pros:

* Locks customers in

* Revenue is predictable

* Reps have control

Cons:

* Risk that reps oversell customers

* Can create friction in the sales cycle

When you over-incentivize commitment, you oversell the customer. It’s not customer-friendly, and it’s challenging for customers to predict what they’ll use.

Key Takeaways

Consumption-based pricing requires rethinking your organization.

* What are the roles and responsibilities of sales, pre-sales, and post-sales? The lines will blur.

* Product: Needs to invest in tooling to support GTM teams.

The key principles for designing compensation plans are to:

* Always start with the behaviors you want to drive

* Measure reps on what they can control

The approaches for consumption-based compensation include:

* Unit-based — number of workloads or new logos

* Gross usage

* Incremental ARR

* Commitments

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This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit cloud.substack.com

As you grow from nothing to $100M and beyond, you will run into a unique set of challenges at every stage. 

Spenser Skates, CEO and co-founder at Amplitude took the stage at SaaStr Annual 2023 to share four key lessons he learned building a great organization and a long-lasting sustainable business. 

Amplitude is a digital analytics platform that started out of another failed startup with three co-founders. They have customers like Intuit, DoorDash, Atlassian, Walmart, Disney, NBC, and more. In 2021, Amplitude was listed on the NASDAQ, but that was just the beginning. Going public isn’t the end goal, and founders must see beyond that to build a generational tech company. 

The four critical learnings of going from nothing to $100M+ in revenue are: 

* Maintain a culture of product innovation

* Treat new products like a mini startup

* Understand the three stages of executive hires

* Make the early-stage to large organization mental switch

Let’s start with lesson one. 

Lesson 1: Maintain a Culture of Product Innovation

This is super important, particularly in a tech business. Customers expect you to have the latest and greatest. The SaaS model means you can continue to iterate and make the product better for them. 

The core challenge? 

How to keep this up over time as you continue to grow and scale. It’s the hardest thing to achieve by far. A fallacy many people have is that your ability to innovate grows linearly with your number of employees. 

For example, as you continue to add engineers and folks to your product development team, your rate to ship stuff and innovate goes up. A team of 100 people will be 10x more innovative than ten people, right? 

Wrong. 

What happens in practice is the opposite. 

The three graphs above show what people expect to get as they grow their team, what they actually get, and then what your ideal is. Why would you grow your team if the ability to innovate goes down with a larger organization by default? Why wouldn’t you keep it small forever? 

This is a natural occurrence because, as your code base gets larger, there are more people, so the ownership of great products and product success get diluted. Every individual’s ability to coordinate gets harder. The trick is to get the curve to look more like the third graph. But how do you actually get there? 

One of the most overlooked parts of building and scaling great product development teams is setting the right structure and organization. 

Setting the Right Structure and Organization

There’s an old saying where you ship your org chart. This is the root cause of why your ability to innovate slows down as you grow and scale. You want to build functional teams that drive innovation. 

As a founder, you need to shift from thinking about how to drive all the innovation yourself. Instead, think about structure and how to create an organization with really clear guardrails and goals for each individual. This sounds basic, but every CEO who passes 50 engineers runs into this problem. 

At Amplitude, they have a model where deep functional experts are the single responsible person for each of these areas. They’ve spent a lot of time on the executive level defining each area and giving responsibility across engineering, product management, and design. 

You want to replicate the conditions of a startup team and manage the entire portfolio of “mini startups” as a leader, which you’ll learn more about in the next section. 

There’s a second part to maintaining a culture of product innovation beyond structure and organization. And that’s culture itself. 

You Have to Set The Tone of What You Value as an Organization

It’s not enough to set the org chart and give responsibilities out and go. You have to set the tone of what you value as an organization. 

In the early days as a small team, it’s a you against the world mentality. It’s a natural feeling because you have to keep swimming. Otherwise, you’re dead. As you grow, you have to be explicit about setting this culture. 

How does Amplitude do this? 

* “All hands” once a week. 

At every meeting, there is a product demo showing what they shipped that week. You have to constantly talk about and beat the drum of innovation — celebrating, rewarding, and highlighting innovation to create a culture around it. 

* #Feature-release Slack channel. 

Anytime a new feature goes out, it’s featured on this Slack channel. The product manager posts it with a GIF of how it works and which customers are using it. Amplitude looks at how much stuff is going through that channel each week. If there isn’t much, it’s a signal of a problem. 

* Week-long internal hackathons. 

Twice a year, the entire product development team takes a week off of whatever project they’re working on to work on exciting things that could provide customer value. They present it to the company, and cool things come from it. 

Early on, executives thought it was crazy for people to take a week off. But again, back to that culture of innovation. You have to provide opportunities for people to innovate if you want them to be innovative. 

As you grow as an organization, you get more abstracted from your customers. 

The final thing you can do to maintain a culture of innovation is to be ruthless in product prioritization. A question Spenser always asks is, “What customer uses it?” 

The wonderful thing about B2B SaaS is customers will tell you what they want and then pay to use it if you build it. So, you can use that as a North Star. Build what your customers ask for. 

Lesson #2: Treat New Products Like a Mini Startup 

Many organizations get this wrong. One of the rules in SaaS is, as you get to $100M in revenue, you want to start to find new pieces of value outside your core offering. 

What other adjacent things will the same buyer or user get value out of? Every company that makes it to a billion or more in ARR has done this successfully. 

The challenge? 

It’s really hard to do!

How do you capture lightning in a bottle a second time? 

A lot of companies create a new product innovation team. But there’s a problem that often happens…They have this new team sit next to the central product team and be folded into the same efforts. 

What works for a mature product at scale is completely opposite to what works for driving innovation for the first time. 

Quarterly goals and a long-term product roadmap might work for a mature product, but a new product could change tomorrow. Many things that work for a mature product are huge distractions for early innovative teams. Your job as a leader is to sequester them off and protect them from distractions so they can innovate quickly. 

The takeaway —

Protect the people driving innovation. They don’t need to worry about: 

* How it integrates with an existing product.

* The long-term roadmap. 

* What metric to optimize.

* Being in compliance. 

Their only job is to get something out there that has paying customers. As you grow, a lot of people want to be part of the new, hot, and innovative thing. As a leader, you have to deliberately isolate them from that. 

Lesson #3: Understand the Three Stages of Executive Hires

There are three stages of executive hiring. 

* Early-stage

* Mid-stage

* Late-stage

This lesson isn’t talked about much because it’s uncomfortable — what makes someone a good fit for one stage vs. another? Spenser’s learnings are based on each stage. 

Early-Stage Executives Make Things Happen

In the early stages of a company, not a ton is going on in your business yet. You might not have a product, no one cares, and you have zero brand awareness.It’s you against the world. You need an executive who is strong in operating in that environment of making something happen out of nothing. 

The biggest mistake early-stage companies make is…

Hiring a big executive from Microsoft or Amazon who isn’t used to operating in a scrappy startup. When you’re a few million in revenue, you need executives to embrace that idea of getting a lot done without a lot of resources. 

Mid-Stage Executives Help You Scale 

As you get to tens of millions in revenue, you transition as a SaaS company. Your product works. People are buying it. You aren’t just making stuff happen. You have something that works, and if you target this customer or have these conversations or product capabilities, they will do business with you. 

Now, the goal is to scale successfully to get to $10M, $20M, $50M, and beyond. 

You change from someone scrappy and making things happen to someone who takes something that works and scales it. 

* How do you hire your nth account executive? 

* How do you hire your nth engineer?

* How do you repeat that webinar that worked and do it 100 times over? 

That’s a different type of executive — a mid-stage scale executive. 

Why is the transition hard? 

Because some of the early on folks who were really good at making things happen may not be good at this stage. Creating deliberate, systematic processes that work at scale is a new kind of challenge. You need a specific skill set that differs from early-stage — accurate forecasting, territory strategies, etc. 

Late-Stage Executive Hires Are Good at Hiring

At late stages of $100M+, you are no longer hiring executives who do the work themselves. Their job is to hire other leaders who then do the scaling work and build out the teams. 

This one was hard culturally for Amplitude because they didn’t want people who sit in an office all day hiring out of a Rolodex and not delivering value themselves. But this is what you need at the late stage. 

Once you get to $100M and beyond, there’s so much complexity in the organization with so many different functions. One leader isn’t capable of leading all those functions by themselves. The late-stage executive superpower is hiring other leaders. 

There is an emotional element to this, which is one of the hardest parts of this stage. 

It’s difficult to move on from people who have helped build your company. 

Larry Ellison, co-founder of Oracle, is a ruthless businessman, and he even said letting valuable people go was the most difficult thing he ever had to do in business. 

Lesson #4: Making the Switch from Early-Stage Founder to Large-Org Executive

The way you manage is very different as a large-organization executive. You think more about talent and how to get the right people to do things. That’s the rate limiter on the growth of Amplitude. It sounds obvious, but it’s hard to practice. 

Spenser used to obsess about every single person at Amplitude getting a great experience. He held onto that idea for too long and tried to maintain it all the way to 200 people — checking in with and meeting with each of them. It worked for a while, with super high engagement and low attrition. 

Until it didn’t. 

He could no longer be in the weeds with everyone, and suddenly, attrition went from 10% to 30% overnight. He realized he was covering for organizational dysfunction instead of holding leaders accountable. He was covering those gaps. 

You can do unscalable things up to a certain point. 

And then you can’t. You want leaders who step up and are direct with other leaders instead of coming to you for help. Anytime anyone has to come to you first, you become a bottleneck. Your job isn’t to lead by example but to evaluate performance. 

Key Takeaways

* Never stop iterating or innovating, especially later in your growth. It’s the single biggest lever for long-term organizational success. Iteration gets harder as you scale, but it fuels output. 

* Treat new products as mini startups — replicate the experience in as many ways as possible. 

* A founder’s job is to ensure a company’s executive team is set up for its next stage of growth. Change is a hard but necessary part of scaling. 

* The early-stage founder to large-organization executive mental switch is essential for sustained growth. 

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This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit cloud.substack.com

How do you sell against the competition or become a market leader in a very crowded space? SaaStr’s CRO Confidential podcast host Sam Blond chats with the CRO of Apollo, Leandra Fishman, about just that. Leandra has over 30 years of experience leading large sales and revenue teams. This hypergrowth platform raised $100M at a $1.6B valuation in a challenging fundraising environment. 

Apollo is a next-gen sales tool that combines sales intelligence and execution workflows with AI. When Sam was at Brex in 2018, the tech stack usually consisted of Salesforce, ZoomInfo, Gong, and Outreach. Today, that tech stack would be different because of AI-enabled companies like Apollo. 

How did Apollo become a market leader in a hypercompetitive space? 

How to Differentiate from the Competition in a Crowded Space

When you think of companies like Hubspot and what they did with inbound marketing in a crowded space, they offered a better in-house solution that wasn’t cobbled together. What they did for marketers, Apollo is trying to do for sales. 

To sell against the competition, you have to differentiate yourself. How do you do that? For Apollo, Leandra’s sales model is built around a Product-Led Growth (PLG) motion. They were the first to get to millions of users at scale and found that their key differentiators in selling to sellers were:

* Sales leaders and reps needed to see value quicker. They want to know how quickly they can book a meeting or generate pipeline, not waste 3 weeks onboarding to a new sales tool. 

* It needed to be accessible and easy for end users, and for Apollo, that meant a hyperfocus on accessibility for SMBs. So Apollo users can be free forever at the SMB scale and still gain value from the platform. 

Apollo’s product actually gets better with scale, so they have a community with millions of free users unlocking that network effect. In a way, how they scale their GTM has created a virtuous cycle that helps them keep offering the best data set, and therefore bringing in new people to buy it. When you create a “must-have” product, it fosters a community around it, bringing in more and more of the type of users you’re after. They also actively encourage users to trial competitive apps either alongside or directly against their product and have found success in winning these trails. 

Highlighting Your Product vs. Selling Too Aggressively — How to Handle Buyer Perception

When you target companies, should you call out the competition? That depends on how you do it. Leandra says she isn’t the type of leader to call out competition. When you know the value you have to offer, that’s how you win. Apollo tries to be a trusted advisor with a consultative mindset. 

But sometimes, you do encourage prospective customers to compare products competitively, or you highlight why your product is better than the competition. So, how do you do this without being perceived as selling too aggressively? It’s easy to do a feature functionality comparison across competing products, but the magic happens when you understand the problem the customer is having and whether you’re the best solution to solve that problem. In a PLG model, if you aren’t getting what you came for, you take your money elsewhere. But if people want to talk to salespeople, you can ask them a question that makes talking about competitors better received, and it goes something like this…

”I understand you’re evaluating us vs. XYZ competitor. I’d love to learn more about your environment and tailor our product demo to what you’re using today. There are some big differences between us and other vendors. Would you like me to highlight those differences to compare and contrast?” 

Ninety-nine times out of 100, the buyer will want you to highlight the product differences. If you ask how they want the conversation to go, and they want to hear about the differences, you’re not being too aggressive. You’re just doing what they asked. 

How to Deal with Pricing in a Hyper-Competitive Environment

If you’re in a crowded space, it can feel like a race to the bottom on pricing, but it doesn’t have to be. Do you need to discount to match competitors or buy them out of contracts to compete in this space? No, you don’t. 

Apollo is affordable, but that doesn’t mean they’re setting prices based on everyone else in the space. Instead, they’re pricing based on the value they provide. What most companies try to figure out as growth slows is how to cut costs and save money on the tech stack. Apollo can replace 5-7 tools with one solution, which can be more effective and less expensive. So, cost is one thing, but when you look at your overall tech spend and tech stack, that’s another. Apollo can offer lower prices because of their PLG machine, while others need an SDR, AE, etc, to grow their business. 

When you have transparency and a hyper-efficient GTM strategy, you don’t have to take the same stance as everyone else on pricing. What Leandra has found is that legacy competitors are slashing pricing to compete with Apollo, so they don’t have to get into the race to the bottom or head-to-head pricing. What’s most important is going back to the value you provide. 

Key Takeaways: 

* Get more transparent in pricing. Today’s customers have a different expectation than a few years ago. A decade ago, you couldn’t find any pricing on a website. Today, if you don’t show pricing, it can actually cause mistrust with customers. 

* Position yourself as the premium provider and be explicit about it, depending on your motion and segment. 

Can You Successfully Hire Salespeople from Competitors

Leandra doesn’t hire from competitors. Instead of hiring from a competitor, she’s more focused on hiring salespeople and go-to-market leaders who know “the motion” vs. the product. It’s nice to come from the same type of industry and know the persona, but she wants someone who understands upselling from product-led growth, similar ACVs, and the stage of the company. 

Working for a startup or hypergrowth company is much different than working for a larger company at a different stage. Instead, look for traits of people, not who they’ve sold to. Sometimes, you can bring over bad habits from competitors. 

Some traits to look out for are: 

* Curiosity

* Persistence

* A proven track record

Sam added: “We made one hire from DocuSign at EchoSign. And then, there was Zenefits vs. Gusto, and then there was Brex vs. Ramp, and being on the receiving end of making a hire from one of those competitors, it has never worked out. And being on the end where you’re one of the competitors that ‘stole’ a hire directly from us, like the direct competitors, if DocuSign hired from EchoSign or if Ramp hired from Brex, they got the wrong person. The type of person that goes to a direct competitor is usually for personal reasons.”

The only time it might make sense to hire from a competitor is when someone successful at a competitor is pretty far down the list regarding where they stack rank in the space. If they’re the 4th or 5th best vendor in a competitive environment and they’ve found a way to be successful with an inferior product, then that person could bring value to your company because they’ve found a way to succeed with one hand tied behind their back. 

Common Pitfalls Selling into a Competitive Market

Sam asks Leandra what patterns or pitfalls she’s observed within other companies selling into a competitive market. Her response? If you’re trying to sell up against something, you have to be clear on the value benefit you provide on the so-what and why.

Less is more depending on the product and buyer, and it comes down to how you differentiate your product to be better than anything else on the market. You don’t want to let competitors or customers control the narrative of your product, so you have to take control of the conversation by showing them how you are different and why that matters. If people come in with information from a competitor, you’re already on your back foot and the defensive. Lastly, depending on your segment, in-person relationships will almost always beat out virtual ones. What does that mean? Meet your buyers in person, and spend time building those relationships, especially as you move upmarket into larger deals. 

*

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