Ep. 349: Startups can get messy. Especially in growth. David Sacks (Yammer, PayPal) shares how to navigate from 50-500 employees.
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This episode is an excerpt from David’s session at SaaStr Summit: The New New in Venture. You can see the full video here, and read the podcast transcript below.
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The transcript for this episode is below:
David Sacks: So, probably the topic that I get asked about the most over the past 20 years, based on my operating experience, is just how do we get more organized? How do we solve this? And, wouldn’t it be nice if somehow we could turn this shit show into an army where instead of having this startup chaos, we could get the team working in lock step. Rather than having this feeling of disconnected functional areas, everyone in the company knows what to work on. Rather than having this erratic schedule around hitting sales targets, or hitting releases, that there’s a feeling that just quarter after quarter the company keeps shipping and selling. To me, that’s what the cadence says.
I learnt this operating myself. First, I was the founding era CEO of PayPal during the PayPal Mafia period, and I was a self taught product person, I learned how to do product management operations there. Then, my next company, I founded Yammer. I was the CEO. We adapted this operating philosophy for a SaaS company. We had to learn how to do sales and sales marketing and compete in heads up battles against other companies selling similar products. We refined the cadence then, and it worked extremely well.
We went from zero to 56 million in sales in under four years, and that resulted in a unicorn, we ended up selling the company to Microsoft in 2012 for 1.2 billion dollars. I think, to this day, it’s actually the fastest unicorn SaaS exit.
Now, during that time, we were competing against Salesforce, they had a competing product called Chatter. So, we studied what they were doing very closely, I read, Marc Benioff has a great book called Behind the Cloud, which I recommend to everybody. And, so we learned and adapted key elements of their system and incorporated it into this cadence. Salesforce is the most successful cloud software company, and so it’s worth, I think, learning from the things that they’ve done.
So, what is the cadence? Basically, it’s based on a few very simple insights, but very few startups are actually doing these things. So, the first insight is that there’s two key systems in a startup. The first system is what I call the sales finance system. And, the second system is what I call the product marketing system.
Both of these systems, in my view, run better on a quarterly cycle, and they should be planned on a quarterly cycle. Then the final, the third insight is that, well if you’ve got these two systems that are running on a quarterly cycle, if you just snap them together with a site off set, and we’ll talk about that, you can then create a single operating cadence for the company.
It’s very simple, I mean this is something that every start up can do. And, when a start up deteriorates into the thing I call the shit show, it’s always because one of these groups, or one of these systems is, either it’s not being run the way it needs to, or it’s not being snapped into alignment with the other systems. All right, so let’s talk about each of these systems and functional areas, and then I’ll explain how they all snap together.
So, the first system is a sales finance system, so let’s start with sales. So, sales, in my view, is best run on a quarterly plan. You can get there by process of elimination. But, two other ways to run a sales team is you can run them on annual quotas, or you can run them on monthly quotas, and in my experience, annual quotas are just too slow to judge performance, it doesn’t let you make modifications and adjustments mid course, you have to wait until the whole year is over.
By the same token, monthly plans are too volatile. Some startups can do monthly quotas if they have an extremely quick sales cycle. But, otherwise, for the vast majority of startups, you want to be on a quarterly quota plan. Then, the other thing you want to take into consideration is that if you adjust quotas and territories more than once a quarter, you’ll really start to affect the morale of the sales team, they’ll start feeling undermined.
So, the first part of the sales finance system is to recognize that sales must be on a quarterly plan, and then that allows you to create a series of milestones within each quarter. So, every quarter is going to start off the same, you’re going to start off with the sales kick off. At that kick off, the sales team is going to receive their plans, their territories, if there is any company objectives, or spiffs, things that the company wants to incentivize, those things will be covered then. And, you’re going to do some significant retraining, you’re going to retrain the sales team on the product, you’re going to train the sales team on any best practices. If some reps have been particularly effective, you’re going to want to share those learnings, that wisdom across the group.
The second month, mid quarter, you’re doing a lot of pipeline inspections, the sales leader is making sure their team is going to hit their goal, they’re making adjustments, giving advice in terms of how to actually close those deals. Then, and we’ll talk about this in a minute, but marketing and product will be generating news in the second month of the quarter, and sales can use that news to warm up prospects, email them news collateral, awards recognition that the company is getting and use that to help put deals over the top. Then, in the third month, you really want to avoid distractions, the team should just be head down on closing and making their number.
So, that’s the sales calendar. The sales calendar is part of one system with the finance calendar. I mean, this is pretty, I think obvious and intuitive, as well. But, the starting point for the finance calendar is to understand that there is a fiscal year, a financial or accounting based fiscal year for the company.
The question really is, well there’s only two choices for that, you can have a fiscal year that ends on December 31st, or you can put the calendar year, or you can have one that ends on January 31st, and my recommendation for most SaaS companies is that you want to have a January 31st fiscal year for the simple reason that you don’t want to be closing deals and have the entire year’s number, because a lot of deals will come down to the wire. You don’t want to be scrambling during that Christmas to New Year’s week when everyone is on vacation. It’s more humane for your sales reps to not make them work during that week, or to have their quarters depend on that. But also, it’s very hard to get hold of prospects during that time, and so I recommend generally a January 31st.
You also avoid being, smart prospects will know at the end of the year to demand discounts, because they know that if the vendor is scrambling to close deals to hit some number, they can get a better discount. You’ll be in a better position of leverage if you’re not having to give year end discounts, so I generally recommend January 31st.
Then, that means that your sales quarters that we talked about, will be based on that fiscal year end. So now, you can basically say okay, well look, if I’ve got that Q4 is going to end now on January 31st, so that means that my Q1, my quarter end is going to be now February, March, April, and then so April is the next quarter. Then, May, June, July, so July is the next quarter end. And then, August, September, October, October is the next quarter end.
So, we can now essentially snap the sales quarters to the fiscal year. You want to do this for reporting reasons, right? I mean, so if the finance team have closed the books on each fiscal quarter, report that to the board, you don’t want to be reporting incomplete, mid quarter sales numbers. You’ll have a much better idea of what’s happening in the business if your sales quarters are snapped to the fiscal year.
Then, the final thing I like to do as part of the finance calendar is make snap board meetings, because you want the board to review the information while it’s still fresh. So, I like to see board meetings, but typically quarterly board meetings occur two to three weeks after the close of these quarters, so we talked about when the results are fresh, that’s when we want to talk about it. And, now the team can get strategic insights from the board right at the beginning of the next quarter, and there’s still time to implement them for that quarter. So, that’s the finance calendar, and the combination of sales and finance working together is what I call the sales finance system.
So, let’s shift gears to the second system, it’s the product and marketing system, and the product calendar. So, the product calendar, I want to tell you about my philosophy on product management, and this is something I learned at PayPal and then refined it at Yammer is, a lot of people, a lot of founders I should say, resist the idea of having planned quarters around product management. I’ve really learned this is a good thing to do. Again, when you’re in that seed stage, when the founder can just run around and tell engineers what to build, that’s fine. But again, we’re talking about the time in a company’s life when they’re expanding from 50 to 500. And, just having the CEO running around every day or every week, telling people what to do just doesn’t scale, and so you need product managers, and those product managers, I’ve learnt, work best on a quarterly calendar.
So, the analogy you can use is, let’s say that you want to fill a jar with rocks, pebbles and sand, we have this graphic here down on the bottom right, and so how do you do it? You see the jar on the left here, they weren’t able to fit the rocks in the jar, because they filled up the sand first, then they put in the pebbles, and then they did the rocks. The right way to do this is to put the big stuff in first, the rocks, then you put in the pebbles then you put in the sand.
Product management is a lot like that, where what you’re trying to do is maximize, it’s about resource planning, right? So, you’re trying to maximize the amount of stuff that you can get pushed through the system with a fixed amount of resources, it’s about maximizing that.
What I found is that companies that don’t think in terms of a quarterly product management calendar, one of two things happens. Number one; they just ship sand, right? They don’t think in terms of shipping tent pole features, new products, major releases. Or, when they do, they end up going wildly, wildly over schedule. So, they’ll put together, and ship a new product, but because they never really planned it, they didn’t scope it correctly, and so you’ll be talking about a product that should’ve taken, or was supposed to take one quarter and you’ll still be doing it two, three, four quarters later. I’ve seen V2s that were supposed to take a couple of quarters end up being literally years late, and it paralyzed the development road map of the company.
So, product management is useful to make sure that you actually do big stuff, you don’t just get the sand done, you actually get some big rocks in there. But, it also helps you make sure you’re scoping correctly. The rule we had at Yammer is that every project we would assign somewhere between two and 10 engineers for two to 10 weeks. So, the absolute biggest project that we could ever do, would be 10 engineers for 10 weeks, and that would be for the absolute most strategic priority. We would just say the max is 10 engineers for 10 weeks, and if we couldn’t do that, the product needs to be re-scoped, it needs to be shrunk down into something that 10 engineers could ship in 10 weeks, that we could put in front of users, get feedback about whether they liked the product before we then went on to the next round.
This is a system that we’ve used, and again what having a product management calendar does is allow you to think in terms of what are the rocks? What are the pebbles? What are the sand? Let’s fill up that jar with rocks first, then pebbles, then sand. You will actually get more done like the jar on the right as opposed to the jar on the left, you will actually fit more through your road map.
Moving on to the marketing calendar. The marketing calendar, I guess a couple of key points here; one is that marketing and product, those calendars are one system for the obvious reason that start ups are product driven, and most news that the company puts out will feed off of new products, new product releases, and so marketing is really going to piggyback off of the product management calendar, it’s going to be marketing those product features. Those product features should be the centerpiece of marketing events.
I also believe that for marketing purposes, having four big releases is better than having 52 small ones. It’s not to say you can’t ship code weekly, or even daily, but in terms of for marketing purposes, and for planning, for product management purposes, you really want to think in terms of a big seasonal release. That’s what Salesforce has done very effectively for 20 years, is that they have a winter, spring, summer, fall release, and the compounding effect of that has been huge.
The other thing you want to think of for marketing purposes is you really want to have an event based marketing calendar, and I don’t know why more start ups and more founders don’t do this. Some of the most successful founder CEOs that we’ve ever had in our industry, have used this technique of event based marketing.
Steve Jobs, I mean the big iPhone release that we think about the big product releases that Apple’s done, they were always based around events. Marc Benioff of Dreamforce, now the largest tech conference, and obviously Elon, whenever he puts out a new product, it’s based on a live product demo.
So, having an event based marketing calendar, I think it does a number of really important things. Number one; it combines, there is so much clutter in the world right now, just putting out a press release doesn’t get it done. When you can combine the press release, that news, with an event, you bring together customers, and fans, and influencers, and you combine it with a live demo, you don’t just put out a press release and create what’s called a lightning strike, it’s much more compelling.
The next thing, though, is that there is an internal benefit, a huge internal benefit to the company in terms of setting dates, setting deadlines in advance. The deadline, the date for these events gets set well in advance. So, if the folks at Tesla know that Elon is going to be going on stage to present the Model 3, they’ve got to hit that deadline. Same thing with Marc Benioff at Dreamforce, knowing that you’re sending your CEO on stage with that product is tremendously motivating for the team inside the company, they know they have to hit those deadlines.
Then finally, it forces the leader of the company, not just the team but the leader of the company to think about prioritization, and what’s really important in a different way. Because, you the leader are going to have to go on stage, and present and explain this big product announcement. You’re going to have to effectively justify why it matters. So, it forces the leader of the startup to think months in advance about what is going to be important to customers.
What I find is that if you think about the product marketing calendar this way, it makes it a little bit more like the sales finance calendar where sales is about selling to customers, sales doesn’t work unless a customer buys what you’re selling. I think that’s a good dynamic, you get market feedback, and I think having to think about the customer and their reaction while you’re doing the product and marketing planning, is a very good thought exercise for the company.
So, that’s how the product and marketing system works. Now, let’s talk about how you snap these two systems together. The most important concept here is very simple, is that you want to have an offset, say a half quarter. You don’t want the product marketing system for their major event, for their launch event, to be coming due at the exact same time that the sales quarter is coming due. You don’t want to light everyone’s hair on fire at the same time, it creates too much chaos inside the organization.
Also, it’s not good change management. You don’t want the product and the product demos changing right when sales is trying to close deals, you want some stability in the product. By the same token, when you have these big lightning strike events in the middle of the quarter, that usually comes with a bunch of positive press coverage, and sales can take those articles, they can email them to prospects, they can use it to warm up prospects who’ve gone cold, or they can use it to help further deals, to help put deals over the top, so it’s just a much more useful time. So, if you think about these two systems, you just want to off set them by about half a quarter, okay?
So, now let’s think about, well how are we snapping this together? Number one, you’re going to decide your fiscal year, it’s going be December 31st, or January 31st, and then you’re going to snap the fiscal quarters to that, that will snap the sales quarters to it, and then you’re going to snap your event schedule, so that events occur in the middle of the quarter, then you’re going to plan your R&D cycle to hit those event deadlines. It’s very, very simple. But, this will give you a super structure for everything happening inside of the company.
Now, one objection that I get to this, I know a lot of you think that when you hear about events that you think no one is going to come to your event. That’s what I thought at Yammer, is that we decide we’re going to do this thing called Yam Jam, and we made it our annual user conference, and we were very worried that no one would care and no one would show up. But, you would be surprised, even our second year as a start up, that a large number of people showed up. If you have product market fit, sufficient to raise a series A and a series B, and you’re scaling from 50 to 500 employees, you have a fan base out there, you have a community and you can engage them.
You may start small, it may only be a few dozen people at this event, but it will grow. Just look at Dreamforce, the products that Elon and Tesla have rolled out, what Steve Jobs did at Apple, obviously those are very sexy products. But, what Marc Benioff has done at Salesforce, that’s CRM, it’s not inherently the most exciting product, it’s business software. And yet, they’ve been able to, starting from very modest beginnings, they’ve been able to turn that into the largest tech conference.
So, you will get people to turn up at your event, and what I recommend here is one user conference a year, and then three smaller webinars, or city events, doesn’t have to be a huge event for the other quarters. But again, it forces that discipline around making sure that what you’re working on matters.
So, let’s translate this. So, now you’ve snapped these two systems together, let’s just quickly review what’s going to be happening in a quarter. The amazing thing about the cadence is I can tell you what’s going to be happening inside your startup, inside a SaaS startup, without even knowing what software problem your business is addressing. But, if you’re using the cadence, you’ll be marching to this beat, and you’ll be well organized.
So, month one is going to be dominated by the idea of planning, and so you’re going to start off with the sales kick off, there’s going to be prep for the sales kick off. And, at the sales kick off, you’re going to get new sales plans, territories and quarters are going to be finalized.
Meanwhile, the finance team is closing out the quarter, and by the way, the PMs are presenting at the sales kick off, they’re basically re-training or training up the sales reps on the latest changes in the product and what’s coming out next, because selling your project road map is a very important part of the sales process as well. So, you’re going to have this cross functional opportunity at all these events for those kinds of interactions.
Next, you’re going to have board meeting prep, and you’re going to have the board meeting. Then, immediately on the heels of that board meeting, you’re going to want to feed those strategic insights that you’ve talked about back into the company, and typically you’re going to do a product road map prioritization for the next quarter’s launch event. Not for the one that’s just about to happen, but for the next quarter.
Meanwhile, code freeze and QA are beginning for the launch event that you’re about to do in month two. So, month two is going to be dominated by, say in week seven, you’re going to do this event. It’s either going to be your user conference, or it’s going to be a city event, or in the days of COVID, it could just be a webinar, that’s fine. But, you’re going to basically have this launch event, and the first couple of weeks of month two are going to be dominated by people getting ready for that, the marketing collateral is going to get finalized, the event prep, event details are going to get finalized. You’re certainly going to be doing QA and testing on the release, you might be in closed beta with some customers.
Then, the other thing that’s happening, though, is that the product managers should be racing ahead to be getting ready for what’s happening next quarter, and they’ll be working on specs and design reviews for what’s happening for the next quarter.
At the end of the month, at the end of month two, you’re going to want to debrief. You’ve just done this big launch event, how did it go? What are the learnings? You may have convened your customer advisory board, what did they say? You’re going to want to debrief and internalize those lessons. You’re going to want to do recognition inside the company, you’re going to want to recognize the people who made it all happen, there should be some celebration. Normally, there are good things to celebrate, you just did a big launch event, and so recognizing and celebrating that accomplishment is a good thing to do.
Like I mentioned, sales reps can now use the marketing news that you just generated at this event to warm up leads, and the engineering team is going to be really busy if you’ve just done a big launch event. If you’ve just done a big launch, there’s going to be bug fixes, and so for a week or so after launch, they’re going to be busy doing that. Meanwhile, the PMs are finalizing the next quarter’s launch, the next quarter’s release.
Then finally, you’ve got the third month of the quarter, which is really a heads down period inside the company. So, what’s happening in month three is that the sales reps are really focused on just closing deals, you want minimal distractions for the sales reps. Then, coding is going to begin, if it hasn’t already, for the next quarter,s release. Remember that in month two, the PMs and designers really finalized their part of the release, the planning, and now coding begins in earnest. So, month three is really this heads down period where people are just cranking out code and closing deals. And, that’s basically the quarter and then you start again with right back at it, now you’re at the beginning of the next quarter, and you’re right back at sales kick off, you’ve got the quarter end close, you’ve got your next board meeting and so on.
So, this really creates an operating cadence within the company. One of the big benefits of the cadence is, I think it has important cultural benefits. So, there’s this old debate about culture inside of start ups which is well, should a start be run like a sprint, or a marathon? You’ll hear founders defend both approaches. My view on this is actually, which one is better? I would say neither. I think the best approach is ladders.
So, for people that are into fitness, ladders are when you sprint for a while and you do a sprint and then you rest, you let your heart beat return to its resting rate, and then you repeat, and then you do it again. If you try to run, the fact of the matter is that start ups do take a long time, they’re an infinite game, and if you try to just run it as a sprint without rest, you will burn people out. Conversely, if you have this attitude that it’s just a marathon, I do think that is a recipe for going slow.
So, to me, ladders are the right balance culturally. Sprint, hit this big launch, let the sales team sprint to hitting their quarter end, but then you have a recovery period. You have the sales kick off, you have that week after the big launch event where you’re letting people celebrate the accomplishments, reflect on what has happened, and then you do it again.
So, let me just summarize. So, what is the cadence? I think the cadence is four key calendars in the company, which consolidate into two synchronized systems, and then one operating cadence when you have those two systems working in tandem with each other with this half quarter offset.
I think human beings are wired to think in terms of seasons and quarters, and I think this is a very natural way for all of us to work, is in terms of these quarterly planning cycles. The first system, the sales finance system, really orients around the quarterly close as its central event, what it’s building up to. And then system two, the product marketing schedule or system is oriented around this big launch event.
You want to use these two systems in tandem with each other. Whenever you have an event, it’s an opportunity to synchronize people inside of the company around cross functional collaborations. So, like I mentioned, the product managers are going to speak at the SKO. And, I also believe in the sales reps attending, say virtually, through streaming any of these product launches. I think it’s very important to involve the whole company in these big events. Then, what you’re going to want to do is, if you think about your all hands meetings, you’re going to want to work backwards from these events.
So, knowing that these are the big milestones inside the quarter, you almost know exactly what each all hands is going to be about. So, after the quarter closed, you’re going to do an all hands meeting to review the results, what just happened. The all hands meeting before the big launch event, you’re going to want to preview what’s coming out. The all hands meeting after the launch event, you’re going to want to debrief on what you learnt. The all hands meeting after the board meeting, I think it’s a good idea to review what you just talked about with the board.
You should also be thinking about, what are these key events, because each one creates cross functional collaboration, but each of these important events also creates the opportunity for an all hands meeting inside the company, so you can keep everybody up to date and synchronized.
Then, I would just tell you, the compounding effect of shipping just four great quarters a year. I know if you’re shipping daily or weekly, and you say well, wait four? Again, I’m not saying you shouldn’t just push code live, I think it makes sense just for version control, you want to push code. But, again in terms of the planning cycle, I know it seems like you’re getting less done to have four lightning strikes, or four mega launch events compared to 52, but again, think about the rocks versus sand, and the compounding effect of implementing the cadence quarter after quarter for years is enormous, because I can tell you most companies in this few hundred employee range, or big companies, they’re lucky if they have one great launch every year. So, if you can do this quarter after quarter after quarter, the way that Salesforce has, the compounding effect of that will be very big.
Then finally, like I mentioned, start ups are not a marathon or a sprint, think in terms of ladders, I think you’ll be pleasantly surprised culturally what that does for you.