The Official SaaStr Podcast: SaaS | Founders | Investors

So Redpoint Ventures published some of the slides they recently presented to their Limited Partners (their own investors) here.

There's a ton of good data there, but this one slide stood out to me, because it was put together in a really clear fashion, better than other data sources I've seen.

And what it says is that even though Seed stage investing remains arguably as strong as ever ... Series A hasn't bounced back.  Not at all:

Per there data, there is some modest pick-up at Series B and C, but that's less relevant to most founders.  What's most important is after a seed round ... how hard is it to raise another round?

Raising a Series A is as hard as it's been since 2018 is the answer.  And it hasn't gotten any easier since last year.

This just makes sense.  The public markets are up overall, but multiples aren't, and overall growth in public SaaS companies has slowed.

It shouldn't be any easier to raise a Series A, outside of AI Hype deals.   And per Redpoint's data -- it isn't.  Although Redpoint suggests that historical data suggests we may be bouncing off lows in terms of funding rates.

And on a related note, Redpoint data shows that the hottest late-stage "AI" deals are getting done at 3x the price of non-AI deals.  We knew that, too, but helpful to see it clearly here:

But, while AI deals are priced at 3x "normal" growth rounds -- investors are looking for 2.5x the growth.  There's no free lunch.

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Dear SaaStr: How Do You Take Care of Yourself As a Founder?

Quiet quitting, feeling sorry for yourself, working 30 hours a week, etc. — that doesn’t really work for a founder. It may feel good in the short term, but it doesn’t work. It doesn’t get you to success.

But you do need to take care of yourself, at least as much as possible.

What works:

* Go hire one great VP. A VP of Sales, Marketing, Product, Engineering, Customer Success. It almost doesn’t matter. But if you hire one truly great one, they will take some of the load off your shoulders. Their first week.

* Take one real vacation a year, and a bigger one every few years. Take a 2+2 vacation if you are truly burnt.  More on that here.

* Find a “late” co-founder. You don’t need to always have a great co-founder on Day 0. You can also find them later.

* Drop one thing. Not everything. But drop one thing that you know matters — but that won’t move the needle.

* Ship a game-changing feature.  This always makes everyone feel better.  Like they’ve finally moved the ball down the field.

* Hang out with some other founders at your stage or later. This may not immediately make you feel better. But it may kick you in the arse a bit. And get you out of a pity hole.

A related post here:

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So you’re hiring your first few sales reps in the early days?  Before you have a great VP of Sales?  It’s an interesting time.  Leads are precious, everyone is a team.  So you need a very certain type of sales rep.

Let me give you a checklist of a few signs they won’t work out:

#1.  They’re Late

Many will challenge me here, but if they’re late to the interview, they’ll be late to customer calls, too.  Don’t make the hire.  If they send you a professional message ahead of time, that they need to push?  That’s fine.  If they just show up at 2:05 onto the Zoom though, don’t make the hire.

#2.  You Wouldn’t Buy From Them

A classic SaaStr theme, as true today as it ever was.  If you honestly wouldn’t buy from them — well neither will your prospects.  At least not in the early days.  Not during founder-led sales

#3.  They Can’t Sell You This Pen

I don’t know if these days, a sales rep has to come to the first interview being able to do a strong sales demo of your sales product.  But at least make sure they can do it before you send over an offer.

#4.  They Don’t Do Any Research Before The First Zoom

Too many folks phone it in and do zero research before a “Learn More” meeting.  They’ll phone it in before they meet, prospects too.  Or worse.

#5.   They Struggle With Your Tech

If they can’t get your Calendly or Mixmax link to work, if they struggle to get Zoom to work … well … I get it.  But they’re gonna struggle to understand and sell your product, too.

#6.  They’ve Also Got Another Job

I know a lot of folks want to work 2 jobs at the same time today, or 2-3 additional big side hustles.  But I’ve just never seen early sales rep excel that do this.  It’s too intense, you have to be a product guru as an early rep.  You don’t get there if your mind is also focused on all your other jobs and businesses.  Can you still “sell”?  Sure — if it’s very transactional.  But it’s never that simple or easy in the early days.  If ever.

#7.  They’re Really Angry About Their Last Role

Almost every great sales exec I’ve ever worked with has had one tough role.  Many of the best have been fired once.  But if they are too bitter in the interview?  They’ll be just too sour once they start.

#8.  They’re Constantly on LinkedIn.  Like Posting Multiple Times Every Day, Constantly.

A little of this is OK.  But if they are spending tons of time promoting themselves, their experience, their courses, etc. on LinkedIn — be wary.  You want a hunter. Someone that wants to close deals and make coin.  Not be an influencer.   Hunters don’t have interest or time in being LinkedIn influencers.

#9.  Your Product is Just Much More Complex Than The Other Ones They’ve Sold

There are rare exceptions here, but in general, sales execs just struggle to sell much more complicated product than they’ve sold before.  By contrast, they can fly if you put them in an environment where the product is simpler and easier to sell.  Be way if you’re in vertical SaaS or complex fintech or developer-focused tools hiring folks that have only sold, basically, to folks like themselves.  They can wing that. They can’t wing environmental compliance sales to a Chief Compliance Officer.

#10.  They Aren’t Focused On Money

Sales is about a lot of things, but making money is one of them.  If they’re not focused on making money, they may be good at something.  But it’s likely not sales.

Ok that’s my checklist.  Many will challenge parts, or disagree.  And a great VP of Sales can take more liberties here. 

They have time to manage folks more than founders do.  But in the founder-led sales days, pass on these folks.  Just keep interviewing.

A related post here:

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So Okta is one of our favorite SaaS and Cloud leaders.

The story is super inspiring.  Founder CEO Todd McKinnon was VP of Engineering at Salesforce and left to start Okta in the depths of the last downturn.  Salesforce and Marc Benioff at first said the core market, security identity, was too small of a market.  Then, they brought out a competing product :). That mostly failed.

Today, Okta is at ~$2,500,000,000 in ARR!  More on that story here:

Okta is also interesting today, in today’s world. because it straddles two segments.  On the one hand, it’s a leader in security — a hot space that is still growing less a weed.  Cloudflare, Zscaler, Wiz, and so many more are on fire today.  But it’s also tied to B2B seat models and tech.  So as tech companies tighter their belts, and decrease seats, the same headwinds that have impacted ZoomInfo, Zoom, and many B2B leaders from Outreach to Gong and more also impact Okta.

Net net?  It’s growing 19% a year at $2.5 Billion, ARR, so at the edge of still being in growth mode.  But that’s way down from 37% at just $2 Billion in ARR.

5 Interesting Learnings:

#1.  Seat Contractions Have Brought NRR Down From 120% to 111%

While 111% NRR is still quite an engine at this scale, the drop in NRR from seat contractions explains a good chunk of the headwinds Okta has seen.

#2.  Much, Much, Much More Efficient Than 12-24 Months Ago

The story of almost every Cloud leader.  In just 12 months, Okta has gone from -1% non-GAAP operating margins to +13.7%. Free cash flow is even more impressive.  It’s rocketed to +21.6%.  That’s radically more efficient.  That’s 2024.

#3.  Customer Count Up 8% Year-over-Year to 18,950

It’s hard to find net net customers after $1B ARR.  At some point, it can feel like everyone already is a customer.  But Okta keeps going there even after $2.5B ARR.  8% new customers + 111% NRR = their +19% yearly growth now.

#4.  $100k Customers Growing Faster, at +12% a Year, and $1m+ Customers Up 30%

Okta’s bigger customers, at $100k+, aren’t growing radically faster than the rest.  But like many SaaS and Cloud leaders today, the bigger ones are still growing faster.  They are overall benefitting here from the growth in Cloud and security budgets, even if smaller companies and startups and scaleups are struggling more.  Their multi-million dollar contracts are up 30%.

#5.  Split Sales Team Managing SMB Accounts Into 2 Teams, One on New Business and One on Upsell

It’s interesting to see Okta do this a bit later in life than some, but it makes a ton of sense given the current macro environment.  While many tech SMBs are struggling, finding the gems in the SMB base that can grow into large accounts is still critical.  So it makes sense, where practical, to split the teams here.

And a few other interesting learnings:

#6.  8 Out of 10 of Top Deals Were Sourced or Influenced by Partners

And more than 40% of their total business is invoiced via channel partners.  AWS alone generated $175m of contract value for Okta, growing 130%. Way, way too many startups focus 100% on direct sales.  You usually have to start here, but as time goes on, you need to bring in partners in most cases.

#7.  GRR / Logo Retention in Mid 90% Range.

Strong, and what we’d expect.

Wow, what an engine at $2.5 Billion in ARR!  Go Okta!

And another great SaaStr Okta session here, this one with co-founder and COO Frederic Kerrest:

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Generative AI is a platform shift where models can take inputs such as text, image, audio, video, and code and generate new content into any of the modalities mentioned. TJ Nahigian, co-founder and Managing Partner of Base10 Partners, and Luci Fonseca, Partner, deep dive into the current GenAI landscape, incumbents vs. startups, and the six questions founders should ask themselves to drive value from GenAI.

For some context, Base10 is a research-driven investment firm focusing on companies automating the largest sectors of the real economy. They’re trying to figure out what will happen with GenAI and share what they’re observing today so startups and incumbents can take advantage of it to build significant value.

Base10 is interested in mega-trends that change how people live and work in the next ten years. We’re at the beginning of a platform shift, and for the first time, GenAI has become accessible to more than just the mega businesses of the world.

The Pace of AI is Increasing Dramatically 

Something ground-shifting has been happening over the last five years — the pace of innovation. The number of patents filed in 2021 in Artificial Intelligence was 30x the number published six years earlier. If we project out and keep the pace of innovation, think about what will happen in the next five years.

We’re on the cusp of a golden age in AI, and the lesson learned from Cloud was that Cloud sped up the pace of development by a lot. At Base10, they expect to see the speed of development and deployment accelerate so dramatically that it will make our heads spin. 

Another way to look at this is by how much venture funding goes into the sector. As founders, you know the last 18-24 months haven’t been the most fun time to fundraise, but with one exception — AI businesses. 

Last year, over $4B was raised in the first half. This year, it’s already 5x more than last year, which was 5x more than the year before that. 

Incumbents vs. Startups — A Framework to Understand Where You’re Building

It’s helpful to have a framework to understand the universe and who’s building where from incumbents to startups. By observing these segments, you can glean lessons if you’re building in the same category.

Within these categories, you have platforms, infrastructure, and applications.

* Platforms are the model layer, the Googles, Metas, and incumbents. Startup platforms are OpenAI, Hugging Face, and Cohere. 

* Infrastructure is the layer where anyone allows you to use these largely generalizable models to create something with a more specific use case. 

* The last bucket is applications, both horizontal and vertical. For the incumbents, you have Notion and Gorgias, and the startups are Jasper, Copy, and Harvey. 

Now, let’s walk through startups at the platform layer. 

New Startups: Platform Layer

The platform layer, or model layer, sees OpenAI as the clear giant in the room. Many others are also creating new LLMs and other models that folks use to get value out of GenAI. How are they doing this? By building their own tooling but leveraging third-party tooling as well. 

New Startups: Infrastructure Layer

The infrastructure layer is exciting and is tooling that enables you to tweak different models, integrate them, and scale them in cost-effective ways. LangChain is a popular framework to integrate and get value out of GenAI, for example. 

There is a whole host of companies innovating at the infrastructure layer to get more value, more control, and cut down costs as they scale GenAI for specific applications. 

New Startups: Applications Layer

There’s a lot of fascinating innovation happening at the applications layer — changing mediums with text, writing, images, and audio. Businesses are changing the way you create music, recreating how films are made or dubbed, and disrupting the way programmers code. 

On the startup side, these businesses have scaled incredibly fast by taking large foundational models and wrapping them in a magical experience for the end user. In the application layer for startups, many face challenges that boil down to retention. It’s been tough for a few reasons. 

* For those of you selling to Enterprise, they have experimental budgets that run out. 

* For those selling to the prosumer base, they can be very churny. 

* There are a lot of copycats, making it difficult to tell a differentiated story. 

If you’re a startup building in this space, retention is a challenge, and you’ll need to be more strategic. 

Incumbents: Platform Layer

At the platform layer, you can study these three large incumbents. 

* Microsoft

* Google

* Meta

Each is playing a different strategy. Google came out with the transformer model and then open-sourced it. That enabled LLMs built to leverage GenAI. Google was caught on its heels when it saw how fast OpenAI commercialized its offering. Since then, Google has rethought itself as an AI company, coming out with Bard. 

Meta has leveraged incredible tech, primarily for their ad model and monetizing in a material way over the last 7-8 years, and also their feed and content model. 

Microsoft is a master class in strategy for us. They’ve opted to partner and outsource innovation, partnering with OpenAI early on with a billion dollars and, more recently, $10B. They have a lot of preferred access, rights, and control over OpenAI. 

If you look at the market caps of these businesses, they’ve all done incredibly well this year. If you read earnings reports, two years ago, AI came up maybe once or twice in a call. Now, it’s 100+ times. 

Incumbent: Infrastructure Layer

How do you enable folks to do this? A perfect example is NVIDIA. They are the popularizer of GPUs necessary to run LLMs, and they’ve seen insane demand for GPUs. This last quarter announced revenue was up over 100% in the quarter, and now they’re a top five company in the world by market cap. 

We’re seeing this layer created and captured by incumbents. 

Incumbents: Applications Layer

Incumbents at the applications layer have, by no means, been sleeping at the wheel. NVIDIA is benefiting, not just because of applications at the startup level, but because every single company is developing an AI strategy, and no one wants to be caught without an answer as to what they’re doing with GenAI. 

An even more dramatic shift we’re seeing is that many of you are finding yourselves more productive these days. Engineers are more productive because Github’s Copilot writes 50% of code. That’s every other line of code. 

If you think about access and democratization of who can create, it’s a really exciting time. ServiceNow has added GenAI into the product so you can do summarization and text-to-code.

What you can see with these incumbent businesses is the ability to experiment quickly with GenAI. Many are doing this in-house, experimenting with open-source tools and building as they go, something worth noting if you’re trying to sell to them. 

Driving Defensibility and Finding Real Moats

When Base10 Partners started, they were throwing darts at the wall to figure out what would drive defensibility and where the real moats would be found. Everyone said they’d have access to proprietary data, get the best workflows, or hyper-customize in a way that would win. 

Today, there are only three things that matter. 

* Distribution

* Data

* Workflows

Because only these things matter, Base10 believes that incumbents will capture a lot of the value in this early platform shift because they have huge advantages in distribution, data, and workflow over startup competitors. 

Let’s walk through some case studies. 

A Case Study: casetext

Casetext is a legal software platform selling to Mid-Market and Enterprise law firms. If you’ve tried to sell to a law firm, you know it can be challenging to get through legal review. Casetext has been doing that for 11 years and built a strong platform. 

But business stalled out at around $10M ARR. As a founder of that business, what do you do? Then GenAI comes out, and they’re able to easily plug into GPT and launch their version of Copilot called Co-counsel, which does a lot of tasks lawyers need to do routinely. 

It launched last year as an add-on and took off, going from 0 to $9M ARR in nine months. It’s been acquired for about $650M in cash. They achieved this because they had distribution into these law firms, and the law firms wanted to use AI. 

If you’re a startup, you’d have a hard time getting through legal review. 

A Case Study: Notion

Base10 spends a lot of time with this team, and they use it every day, leveraging the benefits of NotionAI in their own workflows. Notion launched the first of many upcoming AI features, and they’ve priced it so that it may be at $100M ARR in the near term. 

Some important lessons in how Notion executed this include: 

* They turned this feature on to a user base of 30M people, including a growing Enterprise practice. Think about the expansion opportunity there. The embedded distribution is a fundamentally huge advantage. 

* When using NotionAI, you can utilize it in a workflow in tools that you use every day. It has access to your data and workflows. And while these models are incredibly generalizable, they are useful when you provide them with unique and private data. That’s a huge advantage. 

* Understanding Notion’s philosophy around GenAI, it’s clear that this version of NotionAI is a single feature. But they think about GenAI as a core technology, like electricity. So, they’ve gone back to the OG strategy they had 8-9 years ago, making tool-making ubiquitous. That’s the core mission. 

GenAI and the Business Model Perspective

From a business model perspective, a few things are happening. 

* ARPU, ACV, and LTV are increasing. Some of that is by launching add-on products that can be priced as subscription fees or transactional per conversation. 

* Drop in costs. In the case of medical billing and QA testing for software, a human used to do this. Humans still do, but a lot less of them when you leverage GenAI. Those businesses aren’t dropping prices, so you get a significant margin increase, increasing LTV. 

* Retention is increasing pretty dramatically across businesses with data, distribution, and the right use case. 

Returning to the hypothesis. Thinking back through Cloud and mobile, what can you learn from them? Amazon wasn’t built as a Cloud business or storage company. It was built as an incumbent e-commerce business. They just happened to launch AWS and ended up capturing way more value just in themselves than the entire on-prem storage market before them.

6 Questions Founders Should Ask Themselves

For founders who want to build a new GenAI company, ask yourself these three questions. 

* What niche, market, or vertical can you absolutely dominate? Not a slight solution, but it truly dominates in a way that’s not adjacent to particular incumbents. 

* Retention is absolutely key. GenAI has fundamentally shifted the way consumers and users actually expect to interact with your product. What can you really change in your product to drive product market fit in a way that tackles all the retention issues these startups are facing? 

How do you make GenAI core and foundational to your product and not just a feature? Some of the most interesting GenAI companies don’t even talk about GenAI, but it’s powering everything in the background. You’re building a business for the long term.

For incumbent founders wanting to drive value and new GenAI revenue streams. Ask yourself these three questions. 

* Let’s go back to the original mission and core problem you’re solving for the customer. What are the 1, 2, or 3 problems you can now solve that you couldn’t before because the tech didn’t exist? How do you tackle those and throw resources at them? 

* Take out your P&L or metrics dashboard and go through every metric. Ask how Generative AI can actually help you optimize your cogs, LTV, conversions, or whatever. 

* The pace of innovation is dramatically fast. How do you actually experiment and test in a way that meets the pace required for this platform shift? There may be cultural and organizational changes you might need to make to do that. 

*

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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

So Braze is one of the quiet winners in today’s SaaS and Cloud world.  At $500m in ARR, they’re growing a strong 33% and trading at about $6 Billion, so they’re in the 10x ARR Club.

When the average public SaaS company is still stuck at 6x.

Braze is a top leader in enterprise mobile marketing and communications.  The logos are strong, and the NRR is good.  They sent a stunning 37 Billion messages between Black Friday and Cyber Monday!

Let’s dig in.

5 Interesting Learnings:

#1.  $500k+ Customers Fuel Growth, Up 28% — And NRR is 121% There

A story of many SaaS and Cloud leaders today.   The big enterprise customers are fueling growth at Cloudflare, at Blackline, at Smartsheet, and more.  The $500k+ deals are now 56% of revenue for Braze.

#2.  NRR Remains Strong at 118%, Albeit Down From 126% at $250m in ARR.

So roughly, half of Blaze’s path is from new customers, and half from account growth.  A solid and healthy ratio.

#3.  Close to the Customer to Close Big Deals.  Blaze Now Has Offices Across the Globe.  And 44% of Revenue Outside U.S.

At SaaStr Europa 2023, CEO Bill Magnuson shared a great story.  They were able to break into France and other countries in Europe by selling over Zoom — so long as they sold to tech customers and earlier adopters. But they couldn’t break into top French brands until they opened a local office with an in-person sales and success team.  That’s the enterprise.

#4.  Customers Sign 2-Year Deals on Average.  

Not a surprise given the focus on $500k+ deals, but helpful to know

#5.  2,011 Total Customers, Up 17% Year Over Year.  

That’s strong new logo growth for an enterprise product at $500m in ARR.  Combined with 121% NRR from its bigger customers, Braze should have years of strong growth ahead of them.

And a few other interesting learnings:

#6.  4,000 Customers and Attendees at their annual customer conference

This stuff works, folks.  Especially in the enterprise.

#7.  More Efficient, But Not Hyper Efficient Yet

This is a theme of others growing at 30%+ at scale.  They are getting much more efficient, but not everyone is marching toward +20% operating margins if they’re still growing like a weed.   Braze is still hiring and expanding.  Still, they are just about free-cash flow positive now.  Operating margins have improved, but are still around -6%, but they are on pace to go positive in FY’25.  So Braze is getting more efficient, but not swinging too far, too quickly.  They’re managing expenses, and growing them more slowly than revenue.  But still hiring and spending.

Braze.  The quiet but mighty leader in enterprise messaging.  It’s what the markets, and $500k+ customers, want.

*

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As we gear up for SaaStr Europa 2024 in London on 4-5 June and SaaStr Annual 2024 in the SF Bay Area on September 10-12, we wanted to take a look back at some of our most iconic speakers and sessions.

Ben Chestnut CEO of Mailchimp joined us for a very open and honest discussion of the top challenges really building the #1 100% bootstrapped SaaS of all time.  At least so far. Just after this, Mailchimp was acquired by Intuit for a stunning $12 Billion. 

It seemed a good time to revisit my Top 10 Learnings from my chat with Ben, with a few updates:

My top 10 learnings from Ben Chestnut:

1. Yes, bootstrapping really does take 3-4 years longer.  We've talked about and written about this many times before, but Ben vigorously agreed.  Mailchimp took years to transition from an agency to a software business, and then years until it finally took off when they added freemium.  In fact, really, it took 2 years to get going and 4 years to hit Initial Traction.  Bootstrapping is less a lifestyle than something we just do when it's the only or best option.  More here.

2.  You may not need a moat. Maybe let them go if they aren't happy. Happiness is a moat.  I've had a lot of discussions over the years on what constitutes a "moat" for many SaaS products.  Ben confirmed there is no moat at Mailchimp.  He said in fact, he doesn't want moats.  If a customer wants to leave, he wants them to leave.  And hopefully earn them back later.  "Customer happiness is a moat".  You don't get that if you make it hard to leave.

3. Phase 2 might take 12 years to get to. It's OK. Talk to more customers to know when you are ready.  Mailchimp in the past 2 years has grown from an email company to a marketing automation company.  That's a big change, and their own version of finally going upmarket.  But boy -- they waited!  Almost 20 years.  They waited until $1b in ARR to go upmarket more, to add a much richer and broader product suite that took them out of "just" email.  So go at the right pace. A bit more here.

4. It can take 24+ months to get to real Product Market Fit. Mailchimp didn't really have product-market fit until it went Freemium a full 2 years in.  We've talked for years on SaaStr on how you have to budget 24 months to really get something off the ground in SaaS.  Here's another case study.  It also took Mailchimp 24 months, and a tilt to freemium (which they initially resisted), to even get to $1m in ARR.  A bit more here.

5. Existential threats never end. Even today, a GDPR-type or ChatGPT-type business model threat (or global pandemic) happens regularly.  Ben clearly even at $1b in ARR feels like things are always a bit fragile.  He agreed Mailchimp can't be killed now -- it's way too big.  But it regularly encounters huge threats.  He likened it a bit to "doom".  Doom looms, even at $1b+ ARR.  Not sure this made me feel better, but it was real.  It never gets easier.  You just get better.   And perhaps, only the paranoid survive, even in SaaS.

6. Brand matters, even very early. Be true to it. For Mailchimp, it was being fun.  Many of us are slow to learn the power of brand, even dismissive of it in the early days.  But Ben came from a brand marketing background and strongly believed in brand from Day 1.  Being "fun" was an important part of their brand.  I do remember it, in part, attracting me to Mailchimp as an early-ish customer.  Ben relayed a story of when he briefly considered taking an edgier approach to a competitor and taking out a taunting billboard across from their offices.  His marketing team nixxed it.   It wasn't fun, and it wasn't true to their brand.  A related post here.

7. Bootstrapping isn't a magical choice. No one would fund them.  We hit this point above, but Ben wasn't dogmatic about bootstrapping.  They just had no choice.  A bit more here.

8.  Went from agency -> software company only once they had enough cashflow to support it. It took them years.  We again hit this above, but it was interesting to hear just how conservative they were switching from running an agency to a software company.  They took years, and didn't fully switch over until they could pay their 3 salaries.  Perhaps that still works today.  But things also move faster today.

9. They begged their happy agency customers to buy software. The customers were mad about the change, but it worked, because their customers stayed with them during the tilt.  This was an interesting point.  Their agency customers didn't really want to buy email software from them.  They wanted the design agency to keep doing what they had been doing.  But because trust had been built up for years, they still bought the new product from the team.

10.  Thinks we'll be back to where we were, not soon, but sooner than we realize. Back in the office, back building together IRL. With a distributed flavor.  This was right, it just took a bit longer than we expected!

And fast forward 2.5 years later, Ben came back to SaaStr Annual to reflect, in a calmer mood, on the deal, the journey that got them there, and what metrics do and don't really matter in the end here:

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In this latest episode of CRO Confidential, Sam Blond, Partner at Founders Fund and former CRO at Brex, sits down with the CRO of Zapier, Giancarlo Lionetti (GC), to chat about Product-Led Growth (PLG) and Go-To-Market (GTM). Everything from hiring on the GTM side to layering in a sales-led motion into PLG. 

Before joining Zapier, Giancarlo was at Atlassian as a technical sales lead before moving to DropBox as a Senior Director of Growth and Monetization, and was CMO at Confluent – so he has a wealth of knowledge from Zapier’s Go-To-Market history as well as these successful SaaS companies to pull from. While we use Zapier here at SaaStr and are super familiar with it, for those who don’t use the tool, it’s a workflow automation platform that connects your data sources and apps to help maximize the efficiency of your teams, tools, and processes without relying on a developer team. 

From a Go-To-Market perspective, Zapier uses a hybrid model that involves a combination of freemium offerings, subscription plans, and partnerships. Let’s dive into what’s making that hybrid model successful: 

PLG and Sales Led? At the same time?

We’re in an era defined by interconnectivity and digital transformation, and Product-Led Growth (PLG) has become an increasingly pivotal approach for achieving scalable company success. In a product-led growth strategy, the product serves as the focal point of your company’s marketing and strategies. It is often the first point of interaction between potential customers and your company. Given this, you must understand the role that each facet of the business plays in promoting that product, from marketing and sales to customer service.

First, we’ve talked about this a lot at SaaStr: product-led or sales-led, which is right? Some say sales if you don’t have a product that lends itself to being self-service. Others say PLG because it provides you a more natural path to up-sell and expand from people who are already interested and familiar with your product. Zapier says for them, the right answer is actually a mix of both. ZoomInfo also says both, and so does Grammarly, for what it’s worth.

Either way, the foundation for success in Go-To-Market starts with the right team. GC thinks about building out your Go-To-Market team in 3 ways:

* Short vs. long-term needs

* Product maturity 

* Experimental vs. scale

Short-term vs. long-term needs. Often, when debating a role, especially on the GTM side, you’re balancing short and long-term needs. For example, a key goal of the company might be to drive top-line growth by 20% percent. The first role that comes to mind is driving revenue and it’s probably within sales. So, you might hire someone for inbound or outbound sales to meet that growth. That’s a potential short-term way of thinking. A long-term way of thinking would be hiring on the demand gen side since you might not hit that top-line growth unless you create demand coming in.

Product Maturity. Next, think about product maturity. When Giancarlo started at Zapier, its product maturity at the time on the upmarket side was still new for them. They had been building toward an SMB audience, so hiring 50 people in sales against a product that wasn’t ready for a specific audience would’ve been a mistake. You have to think about where your product maturity is before making the hire. 

Experimental vs. Scale. The last thing to consider when hiring on the GTM side is whether the role is more experimental or intended to help you scale. In a startup, you might have a strong hypothesis, but it might not work out. For Zapier, sales was a new function two years ago. They had two salespeople and one customer success person. They were still trying to prove that model, which wasn’t ready to scale. So, they were hiring a more experimental role vs. one ready to scale. 

New hires in your GTM team will usually fall within one of four categories:

* Distribution

* Revenue

* Storytelling or messaging

* Some form of operations

Most of the time, it’s distribution or revenue, qualify people as in or out for those two areas. You have to figure out how to prioritize against these categories and use the three areas above to help scale your go-to-market team. 

Going-To-Market With Budget Constraints 

Giancarlo joined Zapier as CRO when it was a more mature business, and admittedly, later than many hire their first CRO. So when’s the right time to invest more in sales and marketing when we’re all trying to become radically efficient? 

GC says we’re universally underinvesting in sales and marketing for a few reasons: 

* Your heads down focused on the product. At some point, you need to get that product out to the world, drive some level of demand, and close that demand into dollars. 

* You’re not clear on the actual needs your business has. There’s no silver bullet. When under-resourced, you try to find a temporary solution that causes a mismatch. 

Instead, hire based on an understanding of what the business needs and where the bottlenecks and constraints exist.  Oftentimes, there is over-resourcing in the middle of the funnel with closing customers and under-resourcing at the top of the funnel and generating demand. 

Another place that’s often misdiagnosed or under-resourced is post-sales. There are usually too many CSMs and not enough implementation hires.  The initial experience a customer has with a product or company has so much influence on the lifetime value of that customer. People often lump all customers into one category post-sales rather than segmenting them based on where they are in their experience with your product.

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How to Create a Successful PLG Motion

Zapier and Atlassian are famous for scaling product-led growth. How does GC define PLG? Simply put the product does the selling. So when you think about acquisition, retention, and expansion, they all revolve around the product capabilities in a PLG motion. PLG flips the traditional sales model and is less about the executive buyer and more about the end user. The product becomes your sales team. 

What are the most important things about this acquisition strategy that make it successful? 

* Product

* Audience

* Team and Organization Setup 

Product. It has to be easy to try and buy. Users need to be able to experience the entire product, not a diluted version, before paying for it. You also want to be very user-centric, with simplicity, intuitive interfaces, and addressing user pain points directly within the product. 

Audience. Ensure the audience prefers trying and buying before setting up a PLG motion. Self-serve worked for Atlassian because, early on, the audience was primarily developers who didn’t want to talk to salespeople. 

Team and organization setup. For PLG, you have to pay attention to the front and back end. The front end is executing the key tactics for growth, like your website, product onboarding, and human interactions (when the user wants/ needs it). The back end is often underestimated, and it focuses on data, systems, and tools to support the motion. 

For PLG, the experience with the customer starts as soon as the user comes into the product. You’re logging every data point from the top of the funnel throughout your product — activation rates, product usage, and key conversion rates across the funnel. There’s a lot more data and users to keep track of than when you’re using just a sales-led model, and because you don’t have a salesperson involved, no one is catching the user if they’re stuck or about to churn out. Zapier uses this data to segment and qualifies users based on product usage to either empower their success or now, pass them onto sales if there’s an expansion opportunity.

The Role of Sales in PLG

Plugging sales into a PLG approach might seem like a square peg in a round hole given that PLG focuses on the product rather than a sales team. However, used at the right time a sales team can provide significant value in a PLG strategy. In a product-led growth approach, more emphasis is given to the end user rather than executives who might traditionally be targeted in a sales-led motion. However, sales can complement this, as they do at Zapier, by acting as a link between the product and its users.

This human engagement is important in dealing with the complexities of the customer journey, particularly where there is a high level of complexity or a specific problem to be solved and with high-value stakeholders. In other words, they bridge the gap between the automation of the PLG approach and the human touch and can step in once the data shows their customer has high production usage and is potentially ready for an expansion.

Two pitfalls GC has seen when moving to a combination of product-led and sales-led:

#1 Keep in mind that PLG is a volume game. The whole point is to be very ROI-friendly and very budget-efficient. The moment you add a human on the sales team to that loop, it automatically brings down the ROI. While sales can help you zero in on more specific, larger deals or target a certain ICP, PLG by nature is a much broader swath of customers. But remember, the ROI should still be much better in pure PLG than sales-led. If it’s not, then it’s probably not working or your product is too complex to be self-serviced.

#2 Remember that the tactics and channels for product-led vs sales-led are actually .. the same. Now how you leverage those channels will be dramatically different but they are the same to start. As an example, for GC at Atlassian’s product-led growth, they leaned heavily into content and SEO in a very aggressive way. Whereas at Confluent, a sales-led growth model, they didn’t rely on content marketing and invested more into paid marketing where they could specifically target their core ICP.

The Highest ROI Activities from Each GTM Function

To wrap up, we asked GC what he’s seen work best in each of the Go-to-Market functions.

Highest ROI Product Marketing Strategies 

GC suggests building a charter and “anti-charter” for product marketing. Basically, what should product marketing work on, but also clearly define what they shouldn’t spend time on.  The charter at Zapier is focused on product positioning (messaging and storytelling), merchandising their product (pricing and packaging), product launches, and GTM strategy. The anti-charter has things like limiting project management and reducing the focus on lower-tier launches. 

Product marketing needs to understand the customer and have very specific goals around how they should be involved with the customer. GC gives his product marketing team a quota for how many customer calls per month they have to attend where they have to partner with sales to pitch to a prospect and see how the customer responds. 

Another strategy Zapier implements is running customer spotlight sessions with the product teams monthly to help them understand the key aspects of the business from a customer point of view by going through win-loss reports with marketing, sales and product all-together. 

Highest ROI Demand Gen Strategies 

For demand gen, the most effective campaigns are different, almost contrarian. If someone comes in and goes through the motions of what everyone else is doing, it won’t work. 

You want to figure out how to do paid online ads differently or outbound sales differently. Maybe you do some of the tablestakes things that are smart to do, but you’re also throwing stuff against the wall to see what works. 

You can reverse engineer competitor failures like Zapier does, or you can analyze micro-moments. This is where you know the user buyer paths and document micro steps. Then, you build campaigns to move each step, bit by bit. It takes time but is really valuable for understanding what knobs and levers to move to impact the business. 

Highest ROI Sales Strategies 

Atlassian and Zapier started out PLG and now have sales layered in. How do you know when to layer in sales, and what do you do when you’re ready to make that supplementation? 

For any PLG company, you have the PLG motion, and then you decide to start a sales motion. Often, companies treat these as separate things, with a contact form going to sales and everything else being self-serve. 

The buyer’s journey isn’t that simple most of the time. It’s important to understand that the more complexity you have, the more money per customer you have and the need to involve a human. 

There are a few scenarios where you may want to introduce a sales motion into a PLG motion. 

* Complexity

* Pricing and packaging are different 

* You’re getting a signal on willingness to pay

* Use case identification 

Another scenario is focusing on senior stakeholders. That typically translates to larger problems and more stakeholders to convince. 

You can also introduce humans into a PLG motion to learn about the funnel and figure out things about your product or the customer experience. 

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

The journey for a company to move upmarket can be daunting and varies widely depending on the internal and external factors that inspire a shift in go-to-market strategy. Join these incredible sales leaders are they share their experiences in the evolution from SMB to Enterprise.

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

In today's SaaStr insider episode SaaStr CEO Jason Lemkin shares 10 Simple Steps To Help Any Sales Exec Close More.

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