Welcome to Episode 182! Steve Lucas is the CEO of Marketo, the world leader in marketing automation for companies of any size. Prior to their IPO and eventual sale to Vista Equity partners for $1.79Bn they raised over $100m in VC funding from the likes of Battery Ventures, IVP, Mayfield, and Lead Edge Capital. As for Steve, prior to joining Marketo, he served in many leadership positions at SAP, Salesforce, Microsoft, BusinessObjects, and Crystal Decisions. If that wasn’t enough Steve also sits on the board of Tivo, SendGrid and The American Diabetes Society.
In Today’s Episode You Will Learn:
* How did Steve make his way into the world of SaaS and come to be CEO @ Marketo?
* Why does Steve describe his experience at Salesforce to be life-changing? What were the core takeaways for Steve? How has that impacted how he operates today with Marketo? What does Steve mean when he says Marc Benioff is a “master of relevance?”
* Why does Steve believe the key to success as a CEO is accessibility? How can CEOs be both vulnerable and strong in today’s SaaS world? What are the 2 different types of CEOs and how they engage with their CMOs? What do the best do? What do the worst do?
* Why does Steve believe that the “CRM” term is incomplete? How does Steve fundamentally believe the way that customers want to be engaged with has changed? How can marketers enact this level of personalisation and engagement with such large customer bases? How does the role of artificial intelligence fit into this mass scale personalisation?
* How does Steve view the broader martech landscape? Why does Steve strongly believe that we will be entering a period of consolidation in martech? How does Steve view the emergence of new categories such as ABM? How does this impact his overarching view on the next wave for martech?
Steve’s 60 Second SaaStr
* What does Steve know now that he wishes he had known when he started?
* Management upgrade is the most important role of CEO, agree?
* What keeps Steve up at night? How does that influence his running and operations of Marketo?
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Jason Lemkin
Harry Stebbings
SaaStr
Steve Lucas
Transcript:
Harry Stebbings: We are back for another week in the world of SaaStr with me, Harry Stebbings. It would be fantastic to see you on Instagram.
You can find me there at HStebbings1996. There you can suggest questions for future episodes and have the opportunity to suggest guests also. However, to the show today.
Today, we feature an episode from SaaS Annual 2018. Joining me, I was very proud to have the chance to interview Steve Lucas, CEO at Marketo, the world leader in marketing automation for companies of any size.
Prior to the IPO and eventual sell to Vista Equity Partners for $1.79 billion, they raised over a hundred million in VC funding from the likes Battery Ventures, IVP, Mayfield, and Lead Edge Capital, just to name a few.
As for Steve, prior to joining Marketo, he served in many leadership positions at SAP, Salesforce, Microsoft, Business Objects, and Crystal Decisions. If that wasn’t enough, Steve also sits on the boards of TiVo and SendGrid, and the American Diabetes Society.
However, that is more than enough of me. I’m now delighted to hand over to Steve Lucas, CEO at Marketo.
Announcer: Good. That’s perfect. I think we’re warmed up.
Harry: I’d love to kick off today with a little bit about you and how you came to be CEO of Marketo and that entrance into this very wonderful world.
Steve: I’m borderline obsessed with Marketo and the whole marketing automation and MarTech segment. It’s massive, but prior to Marketo, I was at SAP for seven years running their platform group, which was products like HANA all the way to analytics. We grew that over seven years from about 800 million to 4 billion‑ish in license revenues, so good job.
Harry: [laughs] Very good job.
Steve: For me, I think it felt like a calling to get back a little bit to my roots to a slightly smaller company. That’s not saying much, because there’s a lot of smaller companies than SAP. Also, a high desire to be CEO.
I felt like you get to that point in your career where you feel too comfortable. You’re like, “You know what? I am too comfortable today. I need to put everything at risk in my entire life!”
Harry: I think I haven’t got there yet, Steve. I’m going to be honest. [laughs]
Steve: I prefaced the news to my wife with, “This is not a midlife crisis, but…”
She was completely supportive, so it’s great.
Harry: I’d love to hear that you’re building SAP to that four billion mark and then moving to Marketo. What were the learnings that you took from that move to Marketo and having had that experience at SAP?
Steve: I think a lot of things. Number one, and I learned this lesson not just at SAP, I learned it at Salesforce.com. I have to take my hat off to Mr. Benioff, because my life‑changing experience for me was my time at Salesforce.
Marc is a master of relevance. He knows how to be relevant to his customers. It’s something that I spent a lot of time focusing on at SAP was not talking about your products and how excited you are about what you’re thinking about, but what are your customers thinking about? Understanding their pain, and ultimately how are they going to be successful.
It is not the thing that you have, because at the end of the day, that’s just a tool. It’s the thing to get to the thing, that quote from “Halt and Catch Fire.” It’s about making your customer wildly successful. I learned that lesson over and over and over again certainly at Salesforce, practiced it at SAP, and also learned a little bit differently that I’m a big believer in accessibility.
This is not an indictment against larger companies, but when you run a company or run a division of a company, there’s billions of dollars, and you’re getting all of these emails and tweets and things on LinkedIn. It’s blah, mass hysteria kind of a thing, I actually love that.
Some of my employees that work for me now don’t love that, but I do. I love the connective tissue that we live in that’s surrounding us in this world. I love that I can get connected from somebody half a world away that’s got a great idea. He just wants to be able to reach me and talk to me, and I’m inspired by her or him. I love that. I love being accessible.
I think that the world of the inaccessible, self‑elevated CEO kind of go away.
Harry: You’re slightly completely off schedule here. To be that kind of accessible…
Steve: You’re into the desk…
Harry: I’m in the desk, so I can… In terms of that accessible CEO, one thing that always intrigues me is vulnerability and transparency within the role of CEO without being too transparent and vulnerable.
How do you think about that with hundreds and thousands of employees? How many employees are at Marketo?
Steve: We have about 1,400 employees.
Harry: How do you balance that human, vulnerable CEO within the ever‑present, strong leader that we’re always presented with?
Steve: It’s a fine like to walk. There’s nothing wrong with being human. I was diagnosed with Type 1 diabetes when I was 24‑years‑old and I’m 45 now.
It was a unique experience for me. It was life‑altering in that I realized I’m not perfect, even though my wife reminded me constantly that I’m not, number one. Number two, you do a lot of contemplation about other people, how can you better empathize.
I’ll tell you, I’ve had it for 21 years. I’m a member of the board of the American Diabetes Association. I consider it my greatest gift, if you will, or blessing in life because it forced me to think about people other than myself.
Frankly, I was like I’m on track, this is what I’m doing. I’m going to be CEO. You guys get out of my way. I’m focused. We’re doing this thing. That was big pause moment for me in my life to really think about everything from mortality to whatever.
The reality is I’ve had so many amazing experiences by not letting a chronic illness like Type 1 Diabetes ‑‑ which can be perceived as a weakness. People like to hide those things. They do.
I think it’s a strength. I’m inspired by people that have overcome really hard things, that have beaten obstacles. Those are the people that inspire me. All of us have those challenges in our lives. We all do.
For me, I think, if anything, it has forced me to empathize more. I think I’ve become a better person because of the people that have come into my life because of this.
Harry: Yeah, absolutely. Making the very seamless transition from mortality to the MarTech landscape.
Steve: By the way, I still feel I’m a very sensitive person. It’s right here.
Harry: Making that seamless transition, with the proliferated landscape, the 5,000 vendors that we now have in MarTech, you look at the map, it’s quite astonishing.
Talk to me about that. Starting from the meta, how do think about that when you see such a vast array today?
Steve: You’ve said it. The MarTech landscape ‑‑ marketing technology ‑‑ whether it’s B2B or B2C is ridiculously fractured. It is. You have 5,000‑plus vendors. The beauty of cloud is that there’s a very low cost to entry.
I literally several months ago had a CEO of a company that is building AdTech for smart watches call me up and try to sell me the company.
That’s when I knew, OK, we’ve lost our stuff here a little bit in MarTech if we’re getting down to that level of ridiculous granularity in terms of what people are building.
There’s undoubtedly going to be consolidation. There has to be. Most of these companies, they’re not companies. They’re barely products. They’re probably features.
There’s this massive influx of investment into MarTech. We’re starting to see some interesting trends in terms of revenue come out of those companies, but consolidation has to happen.
Harry: Can I ask, how do you differentiate between a product company and a core systems of record potential company? Is there that inflection point between the two? Can one start as a product company and then expand that suite?
Steve: Yeah. I think it starts with what’s your vision and what are you trying to solve. The reality is, is that I think that the reason you have 5,000‑plus MarTech companies is that they’re not trying to solve something big enough. The temptation is just to easy to go to B2C and do something in AdTech. There’s too much of that.
The reality is that we need the world’s engineers. Not just the world’s engineers, but even in this country, we need to be focused on inventing incredibly highly valuable solutions for the world.
I’m not knocking ‑‑ yay SnapChat, I love it. The little ‑‑ not the prairie dog ‑‑ it’s not a prairie dog filter. There’s some cat filter, terrific. The thing is there is enough SnapChats.
The reality is that to build lasting, meaningful value, what the MarTech landscape frankly is missing is real product and companies that have a strong vision, where they’re obsessed with the customer, solving a real problem for the marketer, not another cat filter.
When you do that, when you’re obsessed over your customer, the marketer, and you intimately understand their problems, their challenges, things like, I have now 50 different apps in my MarTech landscape.
How do I even get these things to talk to each other and get a single view of the customer? When you understand the plight of the marketer, and you’re solving that, you create real value.
I think part of it is just the company orientation around do you have a strong vision. Are you trying to drive and create real value? How many concentric circles out are you in terms of the bigness of your vision and what you’re trying to solve?
Harry: One thing that always intrigues me, the vision, is you’ve got a piece still in one segment, sometimes talking about hyperlocal in the early days and really focusing on nailing that small niche, and then you also want to have the big vision.
When pitching investors and early stage founders, how do you get that balance of attracting that big vision but also not being too big vision, so to speak?
Steve: First of all, you should never fear being tactical, but at the end of the day, you have to start with a big story. It’s thinking about where is the world going, where is it headed. I’ll translate this into early stage in a minute.
When I think about the world of where marketing is headed, what marketers need, I truly believe ‑‑ it’s deep‑rooted ‑‑ that we are headed to a time and a place and a world where the marketer will merge with the machine, if you will.
I’m not obsessed. It’s not like I’m trying to be buzzword‑compliant and say AI too much. I do believe that we’re going to be in this almost Renaissance, if you will, renewal where the marketer will be able to leverage the machine to intimately connect with individuals aided by a machine.
The hard part for the marketer today is this, how do I personally connect with every one of my 500 customers, or 500,000, or even 5 million? It could be 50 million now. Personalized experience is a scale massive challenge.
Now you can translate that into I’m an early stage company and how do I create a big vision but not too big. I think the balance is it starts with understanding the problem, clearly articulating your TAM, or total addressable market.
I’m not knocking markets, I’ll just be radically transparent. It’s one of Marketo’s values. If you look at a market like ABM, account‑based marketing, super hot right now.
Everybody likes saying it. Anyone that was doing marketing, they just put “account” in front of it now. Suddenly, it’s like they’re charging twice what they were yesterday because it’s account‑based now. Really what have you done to make that change?
The reality is that the total addressable market right now for ABM’s $300 million, $200 million. It’s not that big, but yet, you see all these companies rushing in. It’s ABM, and ABM, and ABM.
If you take a step back from that and say, well, what’s the total addressable market for B2B marketing platform, as a case in point, which is a little bit bigger? It’s about $14 billion.
I think it’s making sure that your vision matches up with a TAM ‑‑ also, we know TAM expands over time ‑‑ but making sure that you have the connectedness with your customer intimately to understand how things are going to break.
Yeah, ABM’s hot today. Will it be relevant two years from now? Will that just be a feature that is part of lots of platforms?
Harry: You speak about connectedness with customers. It makes me interested in terms of whether firms should start SMB and scale up to enterprise, or enterprise and scale down. Both are challenging, especially at scale managing SMB relationships, which generally a lot more, it’s traditionally challenging.
How do you think about that and for founders basing whether to start enterprise with higher ACVs compared to a much wider SMB market? How would you think about that today?
Steve: It’s always easier to start small. It is.
Harry: Small in terms of number of primes?
Steve: Small in terms of SMB. The reality is architectures for products that serve small to medium businesses have to be able to scale out massively. They don’t have to scale up massively. That’s generally the way it works.
It’s the exact opposite for an enterprise‑type technology. It needs to be able to scale up massively and eventually scale out massively. It’s just easier to start for the SMB. I think that there’s this temptation to start in SMB and then just go, we’ll figure out this scalability thing.
I can assure you like Marketo, we just went through a massive replatform. I’ve been with the company about a year‑and‑a‑half and came in and made a decision to move the entirety of Marketo to Google Cloud Platform.
Now first and foremost that’s actually going to save Marketo, which is a good thing, hundreds of millions of dollars over the next several years, so that’s great in and of itself.
We had to make that move and get off of the architecture that Marketo was on if we were going to really meet the needs of our largest enterprise customers, like Google is a customer, Facebook.
It’s just so easy to make that choice. My only counsel to people out there that are building solutions is don’t just think about we’ll get in the market and we’ll solve the architecture for the enterprise tomorrow.
If that’s where you see your product going, you need to have conversations with people that have been there, that have walked that path, that have gone through the pain.
It is painful moving from an SMB‑oriented architecture to an enterprise architecture. Build that into your plan.
Harry: Can I ask, with such a transformational decision, what does that decision‑making process look like for you internally with the dilemma presented?
Steve: That’s not something that you should make a decision around lightly. The short version of the story is when I came into Marketo, I asked a simple question.
It was my third day on the job. I was like, hey, you guys, how’s it going? What are we looking at in terms of our infrastructure investment over the next five years? What does that look like? Did some homework, came back.
We own all our server infrastructure today. That’s why we’re making the move. We’re going to be selling about 7,000 serves on eBay coming up here pretty quick.
When we looked at that, what came back to me was, well, we’re probably going to spend around $350 million over the next five years, CAPEX and OPEX. After I got up off the floor, I said, OK, it’s time for us to move the company to this new 2017 thing going on with Google, Amazon, Microsoft.
We looked at all the different technologies ‑‑ GCP, AWS, Azure ‑‑ and they all are great platforms, all have their clear benefits. It was fairly clear seeing this convergence between AdTech and MarTech that’s definitely a trend ‑‑ that’s where the puck is going ‑‑ that Google was undoubtedly the right partner for Marketo.
The financials are stark, but it really wasn’t the financials. AWS, Azure could have been compelling for a lot of reasons but our technology really aligned well to Google. We’re rearchitecting on Spanner and a bunch of other interesting things.
For us, that, as well as it’s a much shorter drive down the 101, added up.
Harry: Absolutely. We started on the market landscape. Drilling down one layer, we were chatting before, and you said that CRMs, maybe you don’t feel that they’re complete, so to speak. I’d love to hear your thoughts on that, and why you feel there’s still progression within the CRM landscape.
Steve: I just think the acronym’s wrong.
Harry: Why?
Steve: Customer relationship management, you’re telling your customer, “I’m going to manage you.” If somebody called you up and said, “Hi, how are you? I’m about to manage you.”
Harry: I would say, “Hello, Jason Lemkin.”
[laughter]
Steve: There you go. Or in a relationship, I don’t want to be managed. I want to be engaged. There’s a huge difference between the two. I think that there has been this massive shift in the needs and wants of buyers.
This is all of us. We’re all buyers. We buy things. We don’t want to be sold to. When’s the last time you got up in the morning, you’re like, “I got to check Gmail. I got to check Gmail, so I can delete 47 emails that I don’t want”?
It’s so irrelevant these days. Spam is just this passé, we just gloss over it, but it’s astounding how many companies still don’t get it. They’re just like, “You know what? I’m just going to keep emailing you until you buy something. I’m going to sell to you. I’m going to market to you.”
We want to be engaged with. We want to feel like the companies that we do business with, they understand who we are. They value us. They understand my personal preferences. They understand that just because I bought a baby carrier doesn’t mean that we’re expecting a baby, or just because I bought a tent doesn’t mean I like camping. I hate camping.
Harry: So do I.
Steve: Camping for me is like, the whole reason we don’t camp anymore is because beds were invented.
[laughter]
Steve: The reality is, I’ve been marketed to from this one company ‑‑ I won’t say who it is, all camping gear ‑‑ and they will not stop. We’ve got to transition to what I would consider to be customer engagement, not customer relationship management.
It doesn’t mean CRM is wrong. CRM, amazing system of record. It’s just incomplete. I think you’re going to see this transition from CRM to CEM, if we need to come up with acronym. I don’t know if we need to, but I’d like some credit for it, if it’s used.
[laughter]
Steve: The reality is that the companies that will win will be the ones that can, of course, engage human to human. That’s not going away. As we scale as companies, we’ve just reached unprecedented scale today.
You have to ask yourself not, “How am I going to engage with maybe the 500 customers I have today, but how am I going to keep that level of personal engagement when I have 500,000, five million, or beyond?”
You need systems, platforms, technologies, yes, like what Marketo is building. Our vision is not to automate email. Our vision is not you tweet something, we auto‑respond. That’s nothing. Our vision is to build a system, which is what we’ve delivering, that understands who you are, what you value, why you do the things that you do.
Instead of sending you 200,000 emails this year, send you one, but that one is so valuable, you want that email. It’s a pull model. “I want to be engaged.” There are companies out there that are doing some really brilliant things with that.
Last month, I got two emails from Netflix. Two, that was it. Those two were very relevant. They were like, “Hey, man, you should watch ‘Narcos,’ and you should watch ‘Halt and Catch Fire.'” I was like, “OK,” because it seems that whatever the algorithm is has clearly figured out my brain.
[crosstalk]
Steve: They’re terrific, loved them. I was like, “Wow.” I actually pay attention to those communications because they mean something to me.
Harry: You mentioned AI earlier as the buzzword. Is that then the true integration, where it can create that highly engaged relationship with the customer at mass scale?
Steve: Yeah. The thing, though, to be careful of is, I think today, there’s this temptation where, everybody builds…Here’s what I have viewed as the standardized play for artificial intelligence, which was launched by IBM.
They built something. They named it Watson. Then now everybody builds something, and then they name it something. I have refused to name our AI technology anything. It’s just AI. I’m sorry, I can’t do it.
I think the play of building something that is sort of ambiguous, and then you name it, doesn’t create value. I’m not knocking IBM, but I haven’t showed up in the doctor’s office yet. I’ve seen the commercial, where Watson’s talking to the doctor. I haven’t seen that yet in my doctor’s office.
What I think we need to do is focus on very discrete problems, like build a big vision for AI, but focus on discrete problems or opportunities. A great case‑in‑point is for marketers that run very complex processes or workflows to retain their top customers.
That’s a thing. It’s a very common thing. We have customers that have human‑defined processes that run in Marketo, with literally, like, 2,000 steps to them. “If this happens, do that.” It’s all rules‑based. It’s all human‑defined.
We’ve introduced some AI technology that reduces the effort to change and modify that campaign to be more relevant to you over time. That solves a very specific problem or addresses an acute need, raises the relevance. That’s just the beginning.
I think the challenge is that we’ve got this big, grand thinking, and we’re going to have this one AI thing. Then it’s going to tell us that the solution is, like in “Hitchhiker’s Guide to the Galaxy,” is going to be 42. Then it’s going to be anticlimactic.
We need to get to the point where we’re solving very specific, acute needs today, with a larger vision for how we piece all these things together. Look, AI is the game changer. It’s here, and especially in marketing.
Whether it’s predictive lead scoring, or it’s content creation, where it’s personalizing content on demand, it’s here. It’s happening. Two or three years from now, AI will be the dominant tool, not just in marketing, but certainly the dominant tool in the front office.
It will be. I don’t think anybody sees it coming, and it’s going to be massive.
Harry: Last question before we do a quick fire round. You said about the dominant tool in the front office. With the ever‑increasing important on everything that we’ve discussed, reaching that customer, and being highly engaged, how do you view the role of the CMO in the coming years as potentially the most important in the C suite? Would you agree with that?
Steve: There’s two kinds of CEOs. There’s CEOs that view their CMO as, “Go generate leads, and I’m going to hit you with a stick until you generate more leads.” That is the CEO failing not just the CMO, but the entirety of the marketing organization, and frankly, the world.
Then there’s the CMOs that partner directly with the CMO. They’re almost the second CEO. They’re the chief engagement officer. That’s the CMO that is curating and architecting the experience of the customer.
That’s what it’s about. It’s about curating, architecting, meeting the customer on their terms, not yours. The onus is on businesses today to meet the customer wherever they are in their journey. A couple facts. A number of studies have been done.
Five years ago, the number of touch points the customer would go out and research on you as a company, before they ever talk to your salesperson, was four. That’s up to six now, and it’s going to continue going.
We have this trend going up. That means the marketing has to engage, curate experience, way before salespeople ever talk to them, because they made up their mind beforehand. That’s the reality of the, whether it’s B2C or B2B selling environment that we live in.
Here’s what’s at odds with that. If you look at the research from Korn Ferry, the tenure of the CMO is the shortest in the C suite. It makes no sense whatsoever to say to the CMO, “I need you to drive experience, transformation, and be my business partner, but I’m probably going to fire you in 18 months.”
That doesn’t make any sense at all. We need CEOs to step up to the plate, elevate the CMO to the chief engagement officer or chief experience officer, and really commit to that long term.
Harry: We have three minutes. I want to do a quick fire round with you now. I say a short statement, you give me your immediate thoughts. Let’s see how we can do in three minutes. Management upgrade is the most important role of CEO. Agree or disagree?
Steve: Agree.
Harry: Why?
Steve: It is not about the CEO. The character of the company is defined by the leadership team. We’ve seen too many companies out there with, we’ll just say, unfortunate behavior, especially in the tech world.
The reality is that if that was just the CEO, that’s an easy fix. Leaders have to lead, and it starts with the CEO.
Harry: What keeps you up at night, Steve? What are the big thoughts in your head?
Steve: If I take Ambien, nothing keeps me up.
[laughter]
Steve: I can tell you, I am out. Wherever I am, in eight hours, is where I’m going to wake up. What keeps me up at night is, are we relevant? That question plagues me all the time. I’m obsessed with, are we relevant to our customer?
Harry: What signifies that? Is that revenue?
Steve: I don’t think revenue has anything to do with it, actually. I’ve thought through that. I think it’s a question of if share of mind, share of heart, it’s part of that. First of all, you need to constantly measure, measure, measure, measure, ask questions around relevance to your customer.
Are we relevant? My question to you is, how many of you have called up 10 of your customers every month and said, “Are we relevant to you?” Such a powerful question. We don’t ask it enough. There’s layers to that. It’s like a parfait. I haven’t found the bottom of the parfait yet, or cake.
Harry: Then final one that I have to ask. What do you know now that you wish you’d known when you started?
Steve: Started, what…?
Harry: You can choose a couple. It could be started on the first day of Marketo. It could have been started at SAP. It could have been started in your first day in SaaS. What do you know now that you wish you had known at one of those points?
Steve: I say this a lot. It’s a little phrase of mine, “Be brave, be fast, and be bold.” Ultimately, fortune rewards the brave and the bold. It does. It’s been around for a while. Anytime I’ve worked at any company where someone that I’m working with…This is about people.
Great companies are about great people. They’re not technically about great software. It’s about great people. That’s what makes companies sing. It doesn’t matter who you are or where you are. When I came to Marketo, it was very clear to me, I’m the new CEO. Not everybody was all‑in.
The reality is that I would encourage, for anybody out there, is just ask people. Be direct with them. Be straight. “Are you in? Are you in on this journey with me? Are we in it together?” Find the people that are passionate about that, that are saying yes, that are leaning in, and give them big problems to solve.
Give them big opportunities to chase, and do it fast. Don’t wait for the people that are like, “Well, I don’t know. The fence, I’m sitting on it.” Don’t wait for those people to come around and say yes. Don’t. If I could go back in time even just a year and a half ago, I’d tell myself, “Go faster.”
Harry: I think on the theme of go faster, and fortune favors the bold, thank you so much for today. It was such a pleasure.
Steve: It was a great chat. Thank you.
[gong]
Harry: What an incredible guest to have on the show. I want to say a huge thanks to Steve for being so open and transparent. It really was one of the highlights of the whole SaaStr experience to me. A big hand to him for that.
If you’d like to see more from Steve, you can follow him on Twitter, @nstevenlucas. That really is a must. Likewise, we’d love to see you behind the scenes here at SaaStr. You can find us on Instagram @hstebbings1996, with two Bs. It’d be awesome to see you there.
As always, we so appreciate all your support. I cannot wait to bring you next week’s episode.
