From Freemium to Enterprise with Slack (Video + Transcript)

Join Kevin Egan, Slack’s VP of North American Sales and Dannie Herzberg, Slack’s Director of Sales as they walk you through Slack’s Freemium to Enterprise strategies.

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Kevin Egan, VP of North American Sales @ Slack
Dannie Herzberg, Head of Mid-Market Sales @ Slack

FULL TRANSCRIPT BELOW

Kevin: Good morning everyone.

Dannie: Hi.

Kevin: Great to be here on the kick off session for SaaStr 2019. Welcome. My name is Kevin Egan. I manage North America sales for Slack, and I’m joined by my colleague Dannie Herzberg, who runs mid-market sales in our sales development team. We’re here to talk for the next 25 minutes or so about our experience going from freemium to enterprise.

Kevin: We kept it fairly vague, if you will, but we’re going to be really focused on the go-to-market elements of the freemium to enterprise model. Our hope is that in this time we can share a couple of key learnings, some non-obvious advice, some anecdotes that you guys can take back with you to your own companies, as you plan your own bold sales strategies.

Kevin: We will really be focused on one big framework. I’ve been in technology sales for 20 years. I joined Oracle in 1995. You’ll see other folks from the Oracle population, or from the crew at that time. Really focused on the biggest shift that I’ve seen in the last 20 years, and that’s the shift between buyer and seller.

Kevin: In the ’90s, when we were selling Oracle, I was a solutions engineer. Our sales team held all of the information, kind of an irrational amount of power in that dynamic. We had all the product information and whitepapers. We had all the technology, the software itself. We had all the pricing information, we had all the techniques for integrations and so forth.

Kevin: The buyer had to go through a tremendous amount of work and process to just even get their hands on the technology itself. Following the-

Dannie: Clicker fail.

Kevin: The clicker fail. Following five years at Oracle, I was lucky to land at Salesforce.com in 2002. In that time, I think obviously Salesforce… without Salesforce, a fundamental driver for cloud computing, and all of us in this room today, it had something to do with this massive shift going on.

Kevin: Being at Salesforce was fantastic, because you had the air cover of Marc Benioff leading this incredible message. We had a lot of work to do on educating the market below that air cover. One thing as a salesperson at Salesforce.com in 2002 and beyond, that I don’t really think we appreciated at the time to the extent that we should’ve, was this concept of a free trial.

Kevin: The Salesforce trail was a 30 day trial, up to five users, but the sales rep could toggle it up to 20 users, however many users they wanted, and really put the technology in the hands of the user. That was like the key differentiator from Siebel at the time, and anybody else out there.

Kevin: As we talk about the freemium model, it’s kind of interesting to look back and say, “I’ve got to give Marc Benioff some credit for that.” What was interesting about that motion was the sales reps that did really well in that phase of the company were the ones that could get into the technology with the buyer, understand what the buyer’s needs were, and actually get into a trial environment, hands on keyboard, and help do things like customize the Salesforce instance, add users to the instance, set up some permissions, add custom fields, float those custom fields up into reports that would provide business insights.

Kevin: It was like this shift of a seller moving from somebody who held all the cards, to somebody who actually had to dive in with the buyer. That was a great shift, and we’re seeing that just continue on today. Following 10 years at Salesforce, I joined Dropbox for four years. That was an amazing experience, because that was a similar concept but coming from a consumer world.

Kevin: I joined in 2013. There’s 100 million people that signed up for Dropbox. The virality model we all know well is really delivering value to an end user and a consumer for no charge, until they ran into a space limit, or what have you. That was starting to permeate into the enterprise, and it was a fantastic four years there, understanding how do we take a B to C technology that’s delivering value, that’s permeating the enterprise, and to what level can we go into the enterprise, and what does that sales motion look like?

Kevin: We’ll talk a little bit about that today. Then of course, last two years I’ve been at Slack, working with Dannie. Fantastic opportunity there, and really one where we did not come from that consumer orientation, but we did take a lot of that similar concept of end user love, driving virality over focus on a business user.

Kevin: That has informed how we go to market, and we’re going to talk a little bit today about, from freemium to enterprise, how do we apply different motions to different segments in a model where ultimately that dynamic between seller and buyer has completely changed, and really it’s a buyer-centric model. We’re excited to talk to you about that today.

Kevin: We have a Q&A following this session, I think, downstairs, so we’d love to open up to questions, but in the following session. Dannie, over to you.

Dannie: All right. I want to take this concept that Kevin just introduced, of shifting from a seller-centric universe where the seller holds the keys to the kingdom, to a buyer-centric universe. Giving it away a little bit, but there’s one mantra that we use at Slack that has been our north star that’s helped us operate in this buyer centric universe, and do so, I think, with great success.

Dannie: The mantra is, seek to create value, not to extract value. Say it again. Seek to create value, not extract value, which to most sales professionals I think is not super intuitive. You think of a salesperson and you think upsell as much as you can, extract as much value as possible, figure out what they have budget for, and then charge them that.

Dannie: That’s not our model. When I thought about other iconic, very successful B2B sales companies out there, including HubSpot where I used to work for the past six years before Slack, I realized that this is kind of a theme, whether people know it or not, that great companies embrace in order to do a great job of earning goodwill and loyalty from their buyer, and then delivering into a great business model.

Dannie: Let me go through two examples with you. I’ll take the ones that I know best. Let’s start with HubSpot, and again, we’re going into a buyer-centric universe here, so we’re putting our buyer hat on. Who’s the buyer at HubSpot? It’s a small business owner. They are not a professional marketer, but they need to use their website for marketing.

Dannie: They are doing their best to achieve their growth goals, and juggling a bunch of stuff at once, and they are just entering into the digital era as they figure out how to handle lead gen while working on a lot of other things in their business. HubSpot recognizes that that’s what the small business owner is thinking, or that’s what their marketing leader is thinking, and they meet them where they are in the buyer journey. They focus on that buyer.

Dannie: What did they do to create value for them? The HubSpot approach, and this was before HubSpot had a solid freemium model, which has now propelled the company, in its early days was to focus on sales and marketing as a way to meet the buyer where they are. In marketing, I would say the company did two brilliant things, and you can think of what your own version is going to be at your company.

Dannie: The first brilliant thing they did was they created a tool called the website grader. The website grader is totally free, anyone can use it on the internet. You run your website through it, and it gives you a couple suggestions about what you can tweak here and there to engage more traffic on your website, or convert that traffic into leads.

Dannie: The beauty of the website grader was that it wasn’t like this thinly veiled salesy thing that was obviously touting the HubSpot software, and required the HubSpot software to make any of the fixes. It was giving you some tips that you could improve on your WordPress site, if you’re a small business owner, and you could walk away with something tangible.

Dannie: Even more so when the company built its channel program, the website grader would be used tens of times by marketing agencies, who would use it to look really good or create some pain points with their prospective customers. By the time HubSpot sales ended up meeting that buyer, they had produced so much goodwill, because they offered this free tool that they had been utilizing to help them without even paying the time for the software.

Dannie: That’s part number one. Part number two is they coupled that with this content gen machine. The blog there, in its earliest days, I would say we were producing maybe a couple articles in a single week. Over time, it was a couple articles a day. Every one of those articles was anticipating questions that their buyer has about how to market their business, and then writing a pithy five-step article about how to address that question.

Dannie: How do I set up a webinar for the very first time? How do I attract more leads through my website? How do I market myself as a financial services company? Whatever the key words were, HubSpot showed up number one on Google with content answering that question.

Dannie: What happened is, like I said, they built up all this goodwill, and by the time the sales force was put in to action to engage with some of these prospects and turn them into true leads, it would be like they’re picking up the phone and they’re talking to a celebrity, when they talk to HubSpot, because they’re like, “Oh my god, HubSpot. You’ve been nurturing me, you’ve been giving me all this free content. So nice to finally meet you,” like HubSpot’s a person.

Dannie: It made for a really nice go-to market model. Then the unique thing about the sales reps that were hired there is that your first two weeks in sales are not learning Sandler’s sales method, they’re not learning pressing negotiation or anything like that. The first two weeks in sales, if you are focused on becoming an extension of the marketing engine that’s already built this goodwill with the buyer, is all about learning how to become an inbound marketing expert.

Dannie: Literally every sales rep spent two full weeks in a classroom building their own website, understanding what it feels like to be in a small business owner’s shoes, and then the sales process would take three, four, up to five calls before you connect the dots between HubSpot’s actual product that someone has to pay for, and what they learned about how this prospect could improve their marketing.

Dannie: That’s a great example of creating value rather than extracting it. Over time, it leads to a really healthy business model as well.

Dannie: Now let’s go to Slack; totally different buyer. Hard to put this buyer and user in a box, but I would say in our earliest days, the buyer is just totally different from the HubSpot one. It’s a super technical person. She may be running her own tech startup, and she may be looking for a better way to collaborate, ship product faster, communicate better across geographies, et cetera.

Dannie: Or, she might be leading a tech team within a slightly bigger organization, and still trying to figure out how to tackle those same challenges. I’m putting this buyer hat on. What does she want? How does she want to vet out a solution? Does she want to go to a webinar? Does she want to read a blog? No. She’s a technical buyer.

Dannie: She wants to get her hands on the product, and she wants to try it for herself, because she can vet it out, she can see whether it fits, she can see if it plugs into Jira and Jenkins and Bitbucket or GitHub, and then figure out whether this is going to add value quickly.

Dannie: What the early Slack team did very elegantly with Stewart’s leadership is, design a product that is so intuitive and so frictionless to sign up for, that it can add value from the get-go. A super technical buyer like the one that we knew we were targeting from the early days, could get what they wanted without having to talk to a single human in the meantime.

Dannie: If she wanted to talk to a human, we have a fully staffed customer experience team, so there is plenty of love to go around. She could, but she could buy the way that she wanted to buy, use it, and the value creation really came in this free part of the freemium model, with Slack.

Dannie: What happened is the product that was built was so good and free, and continues to be so good in its free version, that you can use it for months, as a startup. You could probably use it for years as a startup if you’re not at an extremely high growth inflection point, and get all the value that you need out of it.

Dannie: By the time it does make sense to pay, if it ever ends up making sense to pay for Slack, you’re grateful for what you’ve gotten so far, and you appreciate what you’ve gotten, and again that goodwill has been built up, and it makes the rest of the conversation much easier.

Dannie: The question I would be thinking if I were you is why are Dannie and Kevin on stage with sales in their title if this beautiful product sells itself, and that’s all you need? I think in a buyer-centric world, you need to be aware of all of the different buyers, and all the different stages of their journey.

Dannie: At certain stages of a buyer’s journey, they do actually get to a point where they want to talk to a go-to-market person about one of a number of topics. Common topics would be security, and sometimes you just want to talk to another person about what your specific requirements are, given your industry or your world you plan, and you want that person to really help you feel rest assured that their product meets your boxes.

Dannie: That’s one bucket. Another one could be legal, talking to a general counsel, or talking through commercials. A third bucket actually guides how we’ve built our sales development program here. When we were thinking about building a go-to-market playbook, specifically with BDR SDR program in mind, it was a little tricky, because we think first, what can’t we answer through a machine?

Dannie: What can’t the product answer on its own? Whenever possible, we want it to do that. Then second, if we want to reach people en masse, what can’t we do with a push of a button and a marketing automation system if that was our style for reaching out to people? We thought about what is uniquely human? When do you actually need a person to reach out, and engage in a way, again, that seeks to create value rather than extract value?

Dannie: What we realized is a lot of the time at a really big company, you might see momentum in little pockets of the organization. You might see free teams popping up all over a Fortune 100 company. What a BDR would do is they’d identify those free teams, perhaps a few other teams that look like they could be good candidates for collaborating on Slack, but aren’t.

Dannie: They call them, they engage with them, and then they end up having a user interview where they figure out what hurts, what drove them to Slack, what feels good about using Slack, and what could we do to help them as they think about collaborating even more smoothly across their whole org.

Dannie: What we do then is we synthesize those interviews. Let’s say you have four across this whole organization. You come up with the high level themes, and then you send that up to the CIO of that same organization, and guess what you’ve done? You’ve created value. You literally get a thank you in response to that email, because the CIO now knows what’s happening on his or her front lines, and now has surfaced some themes that they don’t have the time or bandwidth to figure out on their own.

Dannie: That’s yet another way that you can apply a go-to-market playbook here, that’s particularly valuable. The timing though, in a freemium SaaS company, and certainly at Slack, as you can see from the headline behind me, is totally dependent on what your buyer needs from you, when they need it, and what market you’re serving.

Dannie: Kevin’s going to focus on the enterprise market, upmarket, but my world is really thinking about downmarket. When does and when doesn’t it make sense to staff a go-to-market org? Who are the kind of people that we want to hire to meet the buyer where they are at this much more sophisticated place?

Dannie: They’ve used your product. They might know it better than you. They might have an integration installed that you’ve never even worked with before. We need to hire the kind of sales professional who hasn’t necessarily sold at Oracle for 20 years, but it’s someone who is obsessed with the Slack product, and just wants to meet our buyer, and completely geek out about what it means to use it, and also help them with some of the concerns that I was talking about earlier, bringing the right people around the table, facilitating that conversation in a trustworthy way, and teaching them new ways they can use it even beyond what they’ve done.

Dannie: That’s kind of the hiring profile that we’ve gone after, and it’s evolved over time. Early days we had an accounts team, and the accounts team would work out of Zendesk, not Salesforce, so it was almost like an extension of customer support. They would talk to a dentist’s office, and the CIO of a Fortune 100 company in the same day.

Dannie: They would have a pre-sales conversation and a post-sales conversation in the same exact day. Their job was basically just to figure out what our customer’s asking about, and then feed that information back to the product team so that we can more intuitively answer those questions.

Dannie: Over time, what we realized, and here’s where Kevin stepped in, and Bob who’s also leading the sales org, stepped in, and they realized our buyers had gotten so sophisticated, and their needs were so diverse and varied, that we started needing to specialize in terms of how we have the conversation with them, if we really wanted to treat them in the way they wanted to be treated wherever they are in their journey.

Dannie: The way we specialized is we segmented, so SMB originally, enterprise, large enterprise. Treat a Fortune 100 buyer, anticipate their questions very differently than you anticipate the questions of a small but growing startup. Then the second thing we did was we specialized by function. Pretty natural right? Pre-sales, post-sales, solutions engineering, et cetera.

Dannie: Suddenly, we could speak the buyer’s language much better. The last lesson I want to leave you with was I think what felt like a risky move, that Kevin and I thought through exactly a year ago today when we implemented it. It was thinking through once you’ve segmented once, how do you segment again and again so that you are constantly challenging yourself to speak the buyer’s language, and staff a finite go-to-market team in the right way, that creates the most value on the customer side, and also yields the most business value on your end.

Dannie: I think I mentioned this earlier, but when I was hired on, I hired onto lead an SMB team that was newly formed. They covered companies from one to 500 employees, and the first thing that I did was I flew out to Vancouver where that team was initially established, and I did kind of a listening tour. I asked the reps, “What are the kinds of questions that you get all the time? How do you spend your day?”

Dannie: The first thing that I learned was that the questions were super consistent, and that some of the questions really far down market were the most consistent. We come back, and we’re talking. Meanwhile, upmarket, there are much meatier, juicier conversations, much more nuanced.

Dannie: Most companies, by the time you hit 450 employees, there is a very different process in place for making a big software decision, especially one that has to do with how you’re going to communicate across an entire org. You have two ends of the spectrum, two very different ways to spend your day.

Dannie: At this point, we started thinking how do our peers, staff, go-to-market teams, downmarket in the SMB? We saw a really wide array of examples there. We saw Box on one end. Box has, I think, a sales team that staffs… even a 25 employee company can talk to a sales rep, and engage, and those people are on quota, and that’s a full team right there.

Dannie: Then on the other side of the spectrum is Atlassian, which is essentially no salespeople selling all the way up to Fortune 100, and so we go back to this buyer-centric journey. We put that hat on, and we say, “Who’s our buyer?” It’s kind of both. It’s the Box world. It’s the CIO who likes this tops down sales heavy approach, and then it’s also the technical buyer who I was talking about earlier, which is very much the Atlassian one.

Dannie: What we went back and looked at was, what can product answer systematically? What do we want product and marketing to be on the hook for that a human doesn’t necessarily need to do? In fact, the buyer doesn’t really want to engage with a human to ask the same questions over and over.

Dannie: What we decided to do was completely shift the SMB team upmarket, turn them into a mid-market organization, work super closely with our counterparts in the product growth team and the marketing team, to figure out how do we systematically build the answers to the kind of questions we were getting, into the product onboarding process to give the buyer what they want.

Dannie: Then how do we pay extra attention to these buyers upmarket who really, really need an individual to handhold them through the process a little bit more, and use their time even better? The calculus worked out. I think the result was that we end up having very happy mid-market buyers who get the attention they deserve, and an equally happy customer base of SMBs, our original bread and butter, who are now even more intuitively using the product, and getting the human support from our support team, and from one smaller portion of our sales team when they need it.

Dannie: As you guys leave this room, I urge you to think about when it comes to specialization and segmentation, first of all, don’t just do it once and then set it, and forget it. I would go back, use your annual planning process to rethink whether you’re applying the right head count in the right way, and also acknowledge that you have a finite amount of resources that you probably want to put in your go-to-market motion.

Dannie: Where does the buyer want you to put those in order to create the most value for them, and yield the best value for your business too? Kevin is now going to take it from here.

Kevin: All right, so yeah. No salespeople for us. Stewart, by the way, on that quote, claims that it was taken out of context, and he never said it.

Dannie: True.

Kevin: Three years later, we’re grateful. The sales organization, and the customer success, the CSMs, and professional services team makes up a meaningful percentage of the overall company at Slack right now. We’re about 13 or 1400 employees, and a good portion of us are in sales and customer success.

Kevin: As Dannie said, we’re looking after the customers. We’re a website. Where we can systematically approach and help customers buy on their own, we do. That’s largely in the SMB space, but in mid-market and above, it’s your full enterprise sales cycle, your full enterprise resourcing model.

Kevin: One thing that, as we look at this, and as Stewart has come too, Ben Horowitz is a great advisor to Slack. His blog really resonated with Stewart, and his blog post, if you haven’t read it, you should, which is ‘meet today’s enterprise buyer; it’s the same as yesterday’s enterprise buyer’.

Kevin: The concept of enterprise purchasing hasn’t changed that much. An enterprise buyer is typically a Lineup business manager who might like a particular service that might’ve come in through freemium, connecting the dots with other Lineup business managers, understanding how to purchase something within a large company, understanding how to get through the legal process of a large company, understanding how to get through the politics of all that, are still present in today’s large enterprises.

Kevin: That did not go away. Freemium didn’t solve that. What freemium did get to was a point where, as Dannie said, you could get into pockets of larger organizations. Our sales team does come in, and where we don’t see any usage at all, it’s obviously a low value prospect for us. We’re not going to spend a ton of time there.

Kevin: But, in larger organizations what we see is these pockets of usage, and the sales team’s job is to really connect the dots, understand what the business challenges are, help them envision what it would mean to pull all these groups of people together, these pockets of Slack usage, to get a company-wide transformation, or a company-wide insight, or some sort of efficiency and value that’s driven from having everybody on the same platform.

Kevin: That’s our job as the sales team. Once we do that, and the company comes onboard with our enterprise grid product, or one of our three products, and goes big, so to speak, we apply our customer success model. You’ve probably seen CSMs at other companies. Their job is to really drive adoption, drive training, ensure the renewal happens, and ensure that that customer grows with us, and sees value every day.

Kevin: Along with that, in the pre-sales motion we have solutions engineers who are demoing the product, getting into the deep technical conversations around how does Slack integrate into a large environment, given all the security requirements, and all the integration points that there might be presented.

Kevin: Solutions engineers also get into very heavy conversations around permissioning and, “How do I have different groups on the one hand have a common platform to communicate, but on the other hand not see each other’s stuff when it’s not appropriate?”

Kevin: A lot of deep technical pre-sales and post-sales work is going on, and I think what surprised Stewart, and whether he made that quote or not, I think what surprised Stewart was the pace at which Slack sprung up in large enterprises. Today, we count IBM as our largest customer, with close to 130,000 daily active users. Oracle is a customer that’s reaching about 90,000 active users.

Kevin: We also have wall-to-wall agreements with non-technical companies like TD Ameritrade and American Express. This is going into large companies, and it’s happening at a pace that I think was a surprise to Stewart as well. On the one hand it’s a little bit of a brag slide, because we have gone big very quickly in enterprise, but one thing I want to leave you with is that this was an internal debate at Slack, how high up the stack do you go?

Kevin: It was a very rich debate. The reason why is because you have to resource it in a very significant way. Going big in enterprise, or going up to the top of the pyramid is not some sales VP’s strategy that comes out at the annual planning. Going into large enterprise, and going after large enterprise customers, nothing is really changed.

Kevin: You need to make it a company decision. It’s not just a sales strategy decision. Your CEO, your marketer, your general counsel, your product team, everybody has to be on board. In some cases, like I saw at Slack and at Dropbox, you might bifurcate. There might be a marketing team for consumer brand, but at Slack we’ve got one team for consumer brand, and one team for enterprise.

Kevin: On the enterprise side, that marketing team has certain web content just specific to large companies. They’re throwing huge events around the country and around the globe, so they’re doing that big enterprise motion. On the product side, it largely comes down to what does it take to service a large company?

Kevin: You can’t just take a product and put a front-end SSO, or some skim provisioning one step into the SSO or security world. You kind of need to go all in. It might start with SSO, so to speak, but what your customers are going to be looking for from you is some of these things on the right hand side of the slide, which is around SOC 2 compliance, SOC 3 compliance, ISO certifications, HIPAA certifications, and there’s no finish line on this stuff.

Kevin: They want a relationship with your CSO, and the person making decisions around security. If they’re going to go big with your technology, they’re going to want a relationship with a CEO to know that enterprise is front and center for you as a business, and it’s a company wide decision, not just some sales team saying, “Hey, we’re going to go after this.”

Kevin: We show Gartner and IDC up here as well. It’s a competitive market when you go there, and you’ve got to play the full game. I’m sure there’s some folks from the analyst world with us today at this event, and they’re a very important voice in how a buyer buys, so you have to get close to IDC, you’ve got to get close to Gartner, Forrester, and all the rest to make sure that they understand where you’re going, and that enterprise is important to you, and they will challenge you very, very well.

Kevin: If you meet the challenge, so to speak, and have a very viable product for that space, and have a commitment to that space, they’ll also be your friend. It’s across the board. I would just like to emphasize this is not just a dip your toe in the pool, if you want to go into large enterprise companies as a customer.

Kevin: I will say you can get divisional wins. You can get small pockets of wins. You might be able to license those as rogue usage, which might be the right thing for your business. That’s, I think, what we want to leave you with, is that it’s not for everybody, right?

Kevin: There’s a lot of great companies going more with the low touch self-service route. Look at Intuit, or look at a company like Gusto. Gusto only services companies up to 100 users. When they break that 100 user market, I think the latest is that they’ll help you onboard onto a bigger solution that provides for more complexity.

Kevin: This is a core decision to make, and you don’t need to do both.

Kevin: Wrapping up. In summary, thanks for listening to us. I think what we wanted to highlight was, seek to create value, not extract value. That’s what buyers are used to today. This is the consumerization of IT, this is the freemium model. We’re in a better place now in terms of using the products, so your sales team and your go-to-market motion should be around creating value, and meeting the buyer where they are, and no longer holding the cards on the sales side.

Kevin: Secondly, you heard Dannie talk through some of the segmentation. How do we constantly get on segmentation, and apply different plays to different segments so that we’re driving the most efficient model? Sales resources are finite. They’re expensive, so you need to make sure you’re applying them properly.

Kevin: Then lastly, if you’re going to go into the large enterprise space or the enterprise space, go all in, make sure that this is a CEO-led decision, along with the board, and be ready for anything that comes along with it. It’s a very exciting place to be. There’s obviously big contracts, and a lot of great customers, and logos, and revenue to be had there, but you really need to be all in.

Kevin: With that, we’re going to wrap. It’s been a pleasure speaking with you guys as the opening session. I hope you have a great remainder of your event here, and I want to thank Dannie.

Dannie: Thank you.

Kevin: Yeah, thanks.

Published on July 2, 2019

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