Ep. 309: David Skok is a General Partner @ Matrix Partners, the firm with a portfolio including the likes of Hubspot, ZenDesk, Quora, CloudBees and more incredible companies. As for David, he started his first company in 1977 aged just 22. Since then David has founded a total of four separate companies and performed one turn-around. Three of these companies went public. David then joined Matrix from SilverStream Software, which he founded in June 1996. Prior to its July 2002 acquisition by Novell, SilverStream was a public company that had reached a revenue run rate in excess of $100M, with approximately 800 employees and offices in more than 20 countries around the world. David is also the author of foreentrepreneurs.com the must read blog in the world of SaaS metrics.
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In Today’s Episode We Discuss:
* How David made his way into the world of SaaS at the age of 22. How David went from founding 3 public companies to entering the world of venture with Matrix. Does David agree, “entrepreneurship does not get easier with time, it just gets different”?
* What does David believe is the crucial step missing in B2B when it comes to finding product market fit? What is the most common mistake B2B companies make in the hunt for PMF? How should founders think about budget and resource allocation in this search for PMF? When is to early to measure unit economics and CAC?
* How does David think about scaling sales teams? How does one know when is the right time to hire your first sales reps? What content and learnings should you have in place when you make the hire? How does David think about payback period on a per rep basis? What have been his lessons on optimizing payback period for sales reps?
* What numbers are David looking for when it comes to payback period? Why is 12 months so crucial? How should founders think about sales rep compensation? What have been David’s learnings on how to integrate sales and marketing so tightly? How does marketing and customer success intertwine to be successful?
You can find the graphics David references here.
Ep. 310: SaaStr CEO Jason Lemkin and EZPR Founder Ed Zitron sit down to talk about all things PR. Who actually gets into these outlets? Is PR just pitching and getting articles? Take a listen for more.
This episode is sponsored by Owl Labs.
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Below, we’ve shared the full transcript of Harry’s interview with David Skok or you can jump to the transcript of Jason’s interview with Ed.
Harry’s interview with David:
Harry Stebbings: This is the official SaaStr Podcast with me, Harry Stebbings and one of my favorite shows that I’ve ever done was our last one with David Skok over two years ago now. It’s a great episode and if you haven’t checked it out, it really is a must. But I’m thrilled to welcome David back to the show today to discuss a very specific topic, the nine stage model to get a B2B software company to get repeatable, scalable, and profitable growth.
Harry Stebbings: Before we dive in and for some context, David is a general partner at Matrix Partners, the firm with a portfolio including the likes of Hubspot, ZenDesk, Quora, and CloudBees, to name a few. As for David, he started his first company in 1977, aged just 22. Since then, David, has founded a total of four separate companies and performed one turn around. Three of those companies went public. David then joined Matrix from SilverStream Software and prior to its acquisition, SilverStream was a public company that had reached a revenue run rate in excess of $100 million with approximately 800 employees and offices in more than 20 countries.
Harry Stebbings: And David is also the author of foreentrepreneurs.com, the must read blog in the world of Saas metrics.
Harry Stebbings: David, what can I say. I’ve wanted to do this one for such a long time and following off first step. So one of my favorites to do. So thank you so much for joining me again. Once again.
David Skok: Harry, great to be back with you and looking forward to doing this.
Harry Stebbings: Now for those who maybe missed the first episode when maybe only my mother was listening, how did you make your way into the world of venture and come to be a GP at Matrix today in a swift three to four minutes.
David Skok: So I graduated with a computer science degree in the early days of that craft and few months after leaving college, I found a problem and I wrote some code to solve it and accidentally without even thinking what I was doing, I ended up creating a startup. It became quite successful and over a period of time evolved and then actually got into trouble because the platform that it was based on got replaced by the PC.
David Skok: But I ended up doing another four startups, so five in total, and the last two were backed by Matrix Partners and they stood out so strongly to me as being a really different and great firm to work with that when they asked me to join them, which was actually amazingly enough, it’s 19 years ago now, I was thrilled with the idea and really, really loved the culture, what I was going to be doing, which was really truly about helping entrepreneurs. So that’s how I got in.
Harry Stebbings: There is an incredible fun, and we had Ilya on the show recently and I absolutely love that episode. I do have to ask one before we dive into the meat of the show, and it is off schedule. But I have a few repeat founders on the show and they say, “Harry, it never gets easier, but it does get different. Just have to ask, given the five different companies that you founded, would you agree with that, it doesn’t get easier, it gets different or actually do some things get a little bit easier with experience?
David Skok: I think it gets a lot easier actually, to be honest with you. I think number one, you gain a reputation that allows you to raise money far easier. Number two, you have a team of people that you’ve worked with before and some of whom will come along with you. Number three, you typically have some customers who will just talk to you automatically. So you’ve got some ability of that. And then number four, you’ve got some of the ideas that I now have much, much more clearly codified, but this nine step model that we’re going to walk through today, you’re not going to make as many mistakes as you would’ve done the very first time round because you were already made some of them and you’ll avoid them.
David Skok: So I actually, I’m definitely a believer that it definitely gets easier and I think we see that in our venture investments too. If we can find a serial entrepreneur, that’s generally one of the most good indicators that will help you think that they’re going to be more successful than perhaps somebody who’s coming into it first time around.
Harry Stebbings: Absolutely. And especially, I think, when it comes to enterprise and kind of high ACV sales. You mentioned the nine stage model there. I do want to dive into that because you’ve said before about the nine stage model to get a B2B company to repeatable, scalable, and profitable growth. So if we start today on the hailed and much discussed topic of product market fit, there’s a common assumption that you find product market fit and then just aggressively scale. But you said before there’s an important step missing when it comes to B2B. So what’s the missing step here, David?
David Skok: The missing step is that product market fit will work very well in a consumer environment and allow you to scale, but in a B2B environment you have to figure out what your sales motion is and that’s actually several steps broken down that will take it down. The first one I think is to figure out how to repeatedly sell what you’ve got. Then once you’ve got it repeatable, you then need to figure out can you scale what you’ve repeated there and actually ramp that up and add more people in and will it keep just repeating after you’ve tried to scale it?
David Skok: And then after you’ve got it scalable, you’re going to need to figure out can you make it profitable and is this thing actually a worthwhile thing to do? I wanted to sort of emphasize the fact that the three words repeatable, scalable, and profitable are really interesting words. They’re super easy to say, but actually very hard to achieve in practice, which is why the step is not a quick and easy step and it’s not predictable how long it’s going to take.
David Skok: But if you’ve got something that’s repeatable and predictable and you can scale it, and every time you do it, it’s profitable. You’ve actually invented a money making machine and it turns out that growth investors really understand this very well and this is exactly what they’re looking for. So if you’re able to get repeatable scale on a profitable growth, you then are to this magical point where your company is far more valuable and you’re able to really hit the gas and just simply repeat this thing that you figured out and you just simply print more money. For every dollar that goes in, you’re able to print way more dollars coming out the far end of the thing. It might take some time before you get the dollars out, but that’s something that investors have no problem with at all.
Harry Stebbings: Can I dive in and ask? You said about the cash machine there, and absolutely it is if you have those economics. But sometimes in the early days, the CACs look good, actually. You haven’t hit saturation rates yet and actually it’s a very unit economically efficient model. But then suddenly taxed on to saturate and you don’t have diversified marketing channels and the unit economics that may be fundamentally different from how they did before and it’s no longer profitable or scalable. How do you think about the transition from a scalable, profitable, repeatable to not when CACs explode and marketing channels are constrained over time?
David Skok: You asked a great question there and it’s sort of a problem that I helped create because I was one of the very first people back in 2008 that wrote about unit economics and got everybody excited about the importance of them and why they should be thinking about them. But I made a mistake, which is I didn’t tell people that there was a point in time in your company’s evolution where it was really too early to measure them.
David Skok: And that point is, it’s too early to measure unit economics, CAC and LTV, if you haven’t hit the point where you already have a repeatable and scalable sales process. And so the situation that you just described a second ago where initially unit economics look great, but then deteriorated when you tried to scale it, is exactly why I would say don’t worry about profitability and the point where you are not yet repeatable and scalable because what’s happens is when you try to scale lead gen for example, in the early days you might have plenty of leads coming in just through inbound marketing with people finding your website, but that’s not scalable.
David Skok: And when you start trying to support a 10 person salesforce going up to a 20 person, going up to 50 person salesforce, the amount of lead flow you have to generate gets much higher than that. And therefore that organic lead generation probably not going to work any longer and you’re going to have to pay a lot more money to find those leads. And you may not have some of the sales expenses in the very early days that you then later on discover are necessary to really scale what you’ve got. So hence the situation you described as where somebody is looking at unit economics too early where they just aren’t ready to measure them and you’re only really ready to measure them when you’re truly predictable and truly scalable.
David Skok: That’s not to say you shouldn’t be looking at them early because it’s very important to know are you already off track before you even start trying to scale things, in which case you should make some adjustments to what market you’re going after, what prices you’re charging, but recognize that they’re not going to be reliable unit economics, that tool until you’ve proven that your process is scalable.
Harry Stebbings: So if that was one mistake, maybe in terms of measuring those unit economics, maybe it’s slightly too early or focusing on them too early. And you see many founders facing these kind of three sub phases being kind of a repeatable, scalable and profitable element. What other mistakes or what is the core mistake that you see most often?
David Skok: Well, the biggest mistake, and I see this just all the time, it’s beyond belief how frequent it is, is that companies want to rush through these phases and they skip them. So one of the most common examples would be that before the founders have figured out how to sell the product, they’ll go and hire salespeople, traditional ordinary salespeople, and those salespeople will turn up at the company and say, “Okay, how do we sell? What’s the playbook?” And there’s no playbook to hand to them, so they’re completely unsuccessful.
David Skok: Or they’ll start really trying to force growth in the company before it’s ready for growth because it doesn’t have anything that’s repeatedly working by hiring a lot of salespeople when it’s not even crystal clear how your first set of salespeople can actually effectively work through this process here. Another example would be earlier on in the thing, I think one of the most common mistakes I see people make is right in the very early stages.
David Skok: They go and build the product before they’ve done the validation with customers to figure out if this is actually something that the market wants to buy. And then unfortunately then they’ve got a real problem which is too much bias around what they’ve built as opposed to really open ears to actually hear what the customers are telling them about what they’d like to see.
Harry Stebbings: So if we avoid those… Sorry. Again, I’m going off schedule, but I am too interested. If we avoided those mistakes and actually we do have that humming machine and all looks good, the only other question I have is externalities and the one that often comes to mind is a real trouble for me often actually is just market size. I don’t know often how to think about it and how to assess it, but it can be one of the core limitations on the efficiency of your sales funnel, the efficiency of your sales reps, whatever that is. How do you think about market size as a barrier to this repeatable, scalable, profitable, and what’s the right way to think about it?
David Skok: I do think market size is extremely important and really should be addressed right in the very early pre product market fit phase because if you’re not going after a large enough TAM, then you can’t raise capital and you will have great difficulty building any kind of a decent business yet. So to our mind, I think when any venture capitalist is investing in markets, one of the very first questions they’re asking themselves is, is this a big opportunity? And the founders should be doing the same thing as well.
David Skok: So TAM, I think you should be addressing way before you even get to this phase of trying to build your repeatable and scalable sales process. And if the TAM isn’t big enough, you’re much better off saying, okay, let’s either recognize there’s going to be a tiny little business and not raise venture capital or build a large organization around it, or scrap the idea and go after something that’s different.
Harry Stebbings: No, I do agree with on the importance of market size early on. I do want to ask though, because you mentioned there about venture financing. If we get back in to the repeatable, scalable, and profitable, how does this mean then the founders should attach budget and spend according to each sub phase? And I guess how do they know when to transition from phase to phase?
David Skok: So to my mind there is something really important that I’ve learned about both searching for product market fit phase and searching for this repeatable, scalable, and profitable growth machine. Neither one of them is predictable in how long it’s going to take. So you’ll often see founders making a plan where they say, we’re going to have repeatable, scalable, profitable growth within nine months from now. Well, that just isn’t predictable at all. And any plan like that is really just a swag and a guess.
David Skok: And the number one thing that that tells me is that, since it’s unpredictable and you aren’t ready to scale, you should be lowering your expenses as much as you possibly can do while you’re in the search for product market fit or the search for a repeatable and scalable growth process. And only when you are crystal clear that you’ve got this repeatable, scalable, and profitable growth process, everything switches and changes in the company and it’s very funny how often founders actually have a hard time during that switch and really being aggressive enough in actually adding to the growth engine and hiring enough sales people and really being foot down on the pedal, the accelerator pedal to scale as fast as they should do at that point in time because they’ve been so used to saving money.
David Skok: But having said all of this, I think that’s the least of our worries, that mistake. The much more common mistake that I see over and over and over again is companies blowing their budget because they thought they could force progress through this repeatable, scalable stages and do that by spending money and it never works. They always have to come back and finish the stage that they failed to finish and they are going to have problems because they have, for example, too many salespeople of the wrong kind when there’s trying to simply find a repeatable model.
David Skok: So it might be worth our while if you’re okay with me doing that to just jump into that very first step here, because I do think there’s a really interesting problem that I see coming up here and it’s like a natural follow on from what we’ve been talking about.
Harry Stebbings: I would love you to. Totally take it away.
David Skok: Okay, great. So imagine you’re right at the very beginning of this search for a repeatable and scalable process. What it looks like is, you know there’s a path out there somehow or another to how you close customers, but you don’t have a roadmap for what that path looks like. And there’s a whole bunch of important things that you’re going to be trying to learn here. You’re going to be looking for this question about who are you selling to? Have you identified a really interesting problem that the customers are going to pay for that? Will the customers actually pay for this? And which target market should you go after?
David Skok: So often companies have a solution that could actually go off to maybe several different verticals, but each time they apply it to a different vertical, a product needs to change slightly. So they actually should focus in on a single target market. Who do you need to sell to in the organization? What specific use case and pain point are you trying to target with the product? What’s your messaging going to be? How are you going to find prospects and fill up the top of your funnel? How will you engage with those prospects? What’s your sales motion look like? What price points you will you sell at? What specific new product features are going to be needed to really actually have these customers purchase from you? What does an ideal customer profile, ideal prospect look like and what defines a bad prospect that you shouldn’t sell to them because they’re going to lose you money? And then what kind of an organization, what type of salespeople do you need? Do you need field salespeople? Do you need telesales people? Do you need business development reps? What kind of customer success processes do you need?
David Skok: So all of these are the things that we don’t know at the point where we’re starting this journey that we need to figure out. And I think it’s really interesting to understand that when you hire a traditional salesperson, they actually expect you to know all of those things and to have a sales playbook and be able to sit them down when they arrive and run them through an onboarding process where you teach them these things and they just simply execute your playbook.
David Skok: And the last thing you want in a sales person is somebody who’s constantly trying to reinvent your playbook because you often spent months at great cost to figure out exactly how to message and how to sell and what the right way to do this is, and you don’t want sales people trying to reinvent that. So ordinary sales people run the playbook. But now imagine a situation where you hire an ordinary sales person into your company and there is no playbook. They’re simply going to fail. They just don’t have the tools that they need to be able to be successful.
David Skok: So in this very first stage here searching for repeatable process, my advice is to, first of all have the founders be the people who are going to make the first sales, and possibly if they’re going to need it, because some founders are really just do need some help in selling, they need to hire where I call a trailblazer pathfinder sales rep and that’s a very different kind of person to this traditional ordinary sales rep.
David Skok: That’s somebody who understands that they’re working in an environment with nothing known and they’re really good and smart at going out there and running different experiments and trying to reach different people and trying out different messages and understanding that the product isn’t necessarily right and what might be needed in the way of features to finish off the product that might get this person to buy and running experiments on what the pricing needs to be to really make the sale work and that kind of thing to help define what this playbook is.
David Skok: And you are only really ready to leave this repeatable phase when it’s crystal clear that the founders can sell the product and possibly one or two trailblazer salespeople have been able to sell the product, and they’ve been able to not just sell it, but they’ve also done the work to document what they’ve done. So they’re ready to bring on board an ordinary salesperson and test trying to train that ordinary sales person on this path that they’ve worked out and see if the ordinary salesperson can actually follow that same path successfully.
David Skok: So that’s when you get into the beginning of the next phase where you’re starting to say, okay, can I make this thing scale? So you then have two ordinary salespeople and the founder’s job changes significantly from all of a sudden from being focused on selling, selling, selling. Their new job should be enabling. How do I enable this new, ordinary sales person? What materials are needed to help them learn what we were doing? Coaching, what training can I use to help them get up to speed as fast as possible?
David Skok: Because the easy mistake to make here is for the founder to keep selling and think that things are fine because they’re driving revenue like that. But actually that’s just going to limit the growth of the company. The company cannot scale because there’s any one or two founders if you rely on them. You’re going to have to make the transition to being able to have ordinary salespeople have a playbook that they can execute.
Harry Stebbings: Can I dive in and ask, it’s just I’m too interested. What’s great sales rep productivity to you? One. And then two, if you hire on say four to six new sales reps, how many would you expect to not work out? So sales rep productivity and then churn of the initial cohort.
David Skok: So one way that I think about sales rep productivity is pretty simple, which is, if they cost you, let’s say an inside sales rep might cost you 60K in base salary and then another 60K if they hit their target. So then 120K total on target earnings. I would like to get back from them at least four times that in the way of quota that they achieve and ideally probably higher than that. So four to six is the numbers that we should have as targets to go for, for what quota should be set up.
David Skok: And you could see some companies that are highly productive, achieve significantly higher numbers than that when they’re obviously the standouts. And it’s pretty hard to get to the numbers that I’ve just described there in the early days of a company when you’re trying to figure this out. So don’t be too upset if you’re not yet at the four X number, but know for sure that if you don’t get beyond that, you’re not going to have a very profitable company in the long run.
David Skok: And I think you asked a second question, which, what would you expect if you had four or five sales reps? So let me just kick off something here and say, I recommend that as you’re going through this transition from repeatable, where the founders have been able to sell, to the scalable phase where you’re trying to bring on these ordinary reps, that you don’t hire more than two at a time. Why two? Well, it’s better than one, because if one of them happens to not be a good person and can’t sell, you’ve at least got some protection that you’re going to see that it was just a bad hire rather than a real problem with your process.
David Skok: But why not more than two? Well, you’re going to be just burning a ton of cash and it’s going to be much harder to be trying to figure out what’s going on and as you start passing this knowledge across to four sales people versus what it is when you’re running to two, and your burn rates just going to be a lot higher at a time when you don’t know predictably if this is actually going to work or not work. And so you shouldn’t be burning money until you really are confident that it is going to work.
Harry Stebbings: Can I ask, and today and this is essentially an interesting question to answer. So apologies for this one. Such large rounds are happening so early. I mean, I’m seeing 100 million posts, 200 million posts for one to 3 million in ARR. And generally their sales team isn’t baked out and they probably don’t have the repeatable, predictable process that we’re talking about here. But then they suddenly got a 30 to 40 million round and get told to spend, spend, spend. How should they be thinking? What is the right approach?
David Skok: I’m glad you brought that up because this is literally one of the really terrible things that’s happening in the venture tech world right now, are these rounds that effectively force people to try to skip these steps. And I’ve seen it myself in companies where we’ve invested at these higher price points because the company’s got really an attractive big market and good founders, et cetera.
David Skok: And we’ve seen those founders be under enormous pressure to suddenly deliver results, which they’re not ready to do. And they then end up discovering, oh my God, we have the wrong people. We have to get rid of those people and they have to go back and re work through the step that I’ve mentioned to you, which is where everybody gets to understand that we don’t have a repeatable process here and we have to start at square one and work our way through that and we’re not going to do that by hiring a ton of ordinary sales reps that don’t have a clue how to run through that process.
David Skok: I think it’s deeply expensive for those companies. I think it creates incredible mistakes. I’m seeing those mistakes over and over and over again in the tech world. And my strongest advice to people is just recognize that you’re not at that step where you’re ready to scale, stick that money in the bank, hang onto it like crazy and go through these steps religiously and rigorously. And I think the good news is these steps are incredibly commonsensical. It doesn’t take a genius to understand that what I’m saying here makes sense. So people are just keen to try to force things and spending money doesn’t actually accomplish that.
Harry Stebbings: I’m so glad I’m not alone in being concerned about that. I do want to get back to that kind of initial onboarding of the sales rep there. And I want to ask, David, because you’ve seen so many different companies scale so efficiently, their sales model and their sales teams. But why do many not hit their plans? What’s the common cause there?
David Skok: Well, there’s actually a whole bunch of factors and I’m not certain I could give you such a lovely clear answer, but I would go back to these steps here for a second. So I would check that the first steps have been met. So do we really truly have product market fit? Because if we’re trying to get salespeople to sell and there isn’t true product market fit, that’s a huge mistake. You’ve jumped ahead too quickly and you’ve got to go back and say, is this product genuinely working for our customers? And when they see it and they understand what it’s capable of doing for them, do they immediately want to buy it?
David Skok: Because if that’s not true and you’ve got a whole bunch of sales people out there, they’re going to be floundering and trying to push something that isn’t really ready to be sold and isn’t maybe finished. So I would start with a product and check and validate whether the product itself is actually working, the customers are not churning, they’re happy with it, they’re getting the business benefits from it, they’re going to be referenceable.
David Skok: If that’s all correct, then you’re now into the step of is your process repeatable? Do you have real clarity on who you’re trying to sell to? Are you absolutely focused on a single use case initially? I see many companies cannot make that focus choice because it means saying no to opportunities and people have a hard time saying no to opportunities. So they try to focus on multiple use cases. The net result is their messaging is all over the place and their product features aren’t right for each of those use cases and instead of getting them right for one use case, they’re trying to sort of incrementally make small changes to satisfy a bunch of use cases but never getting fully there for each of those use cases.
David Skok: Have they figured out what’s the right way to really run the sales playbook? And again, that’s going to be different for each use case and for each different target market. And I think a lot of people fail to make that choice of focusing in. I can tell you the story of Hubspot in the early days if you’re interested [inaudible 00:23:42].
Harry Stebbings: I would love to hear that. I’m a big Hubspot user and fan, so that’d be awesome.
David Skok: Well, Hubspot had two founders and it had two different visions of who the ideal customer was. Marketing Mary was one of them. That was a marketing persona who existed inside of a company where there was different CEO. Was a reasonable sized company. And then there was Owner Ollie, where instead of the company being big enough to have a marketing person, the owner was doing the marketing themselves.
David Skok: One of the founders loved Owner Ollie and the other founder was most supportive of Marketing Mary. And their result was that they argued for years and years and years and never settled in on one of these particular markets. And that meant that you had different organizations–like the product organization. What was needed for Owner Ollie, was a completely different product to what was needed for Marketing Mary.
David Skok: The messaging was going to be different. The customer success, the onboarding, all of that stuff is going to be different and they never settled on that. And so the net result was a ton of churn and only finally about three years or so into the business did they finally settle in on the fact that now they needed to focus on Marketing Mary. And once they did that, everything changed. It was a really potent moment in the company’s history where they would tell you this was one of the key growth moments when they settled in and focused on that single persona there.
Harry Stebbings: Can I dive in? You said that about the churn of when they chose both of them, so to speak, and the challenges that, that caused. How do you think about kind of churn today being regrettable and nongrettable and whether founders should be woeful of all churn or actually whether some churn is healthy,, given your discovery of market fit within the persona that you’re looking to target?
David Skok: I mean, I think in the very early days you don’t know for certain which is the best segment to go after. So it’s good to have a set of places that you’ve done some scoring work on to see are these potentially good places for us to go after. And then maybe you run trials in say three market areas and you then watch what happens in those three to figure out which of them is really the best one for you to go after and validate that these ideas that you had when you were hypothesizing, which could be a good segment, which is actually the best.
David Skok: And at the moment where you’ve hit that, then I think it’s very good that you churn out the others and really don’t worry about them any longer. Or even if you figured out a particular segment that you want to go after, there’s then going to come this concept of an ideal customer profile, an ICP, and in the ICP definition you’re going to find that there are certain customers that are unprofitable for you. They might just be too small. They might actually be too big where you can’t satisfy them well with the features that you’ve got and you’re just churn around trying to keep them happy when really the product isn’t ready for them at all.
David Skok: And so being willing to churn up those customers that are not ideal for you and focus in on the set of customers that are ideal is something that requires a ton of discipline again, because you’re saying no to opportunities and people really have a hard time with that, but they should do it, in my opinion.
Harry Stebbings: No, I do totally agree in terms of really focusing on an ICP. And I do want to ask, the other reason that I often see for reps really not being able to hit quota is actually a lack of high quality lead flow. I’d love to discuss marketing. How do you think about the lack of quality lead flow really influencing hitting sales rep quota? And then how do you advise founders on when to arm the first few sales reps, we mentioned the first two there? How do we arm with the marketing team alongside it?
David Skok: So, I think one of the questions that as you’re going through this business of trying to figure out scalable, the scalable phase, you’re obviously not going to be smart to hire salespeople when you don’t have enough lead flow to provide to them. And expecting sales reps to go and generate their own leads–It’s a possible thing to have them do, but honestly, it’s one of the most expensive ways to run a sales person. It’s just not effective. They don’t love doing it. They’ll do everything they can do to avoid doing it. And really it’s a far less effective way of doing it than using marketing.
David Skok: So I think everybody understands these days, or at least I hope they understand, that the way to tie marketing and sales together is pretty simple, which is, there is a easy way to figure out through watching conversion rates in your whole sales funnel, how many marketing qualified leads or sales accepted leads are needed to close a single deal? And therefore, once you know that, how many single deals does a sales rep have to close in order to hit their quota?
David Skok: And if it’s, say, four deals, then you have to multiply by four, that number of marketing qualified leads per sales rep that you have to figure out how many leads are needed to support your entire sales organization. And this reaches into the scalability thing, which is does marketing have a scalable way to generate lead flow? Because if it doesn’t, you’re not ready to pass out of that scalable phase at all until you figured that one out. And it’s a hard one to figure out.
David Skok: I think it’s where a lot of companies get stumped and they can support maybe four sales reps, maybe possibly another fifth one. They’re certainly not ready to scale at the kind of rate that we did at Hubspot where we were adding two sales reps per month because we easily had cracked the flow of leads at that particular point in the company history.
Harry Stebbings: Can I ask, when we measure marketing success, how should they be measured? Because I always struggle slightly when they’re rewarded or compensated on MQL or even, sales accepted leads, I always think they should be tied directly to a number associated to revenue. Am I being a bit short sighted and forgetting the brand marketing there and other forms of marketing and how do you think by measuring the success of marketing in kind of hard cash?
David Skok: You do want them focused on MQLs. You do want a clear contract to exist between sales and marketing for the number of MQLs that they have to deliver. But if you’re going to compensate them, you need to look at the second factor there, which is, is the conversion rate of marketing qualified leads through to close deals holding steady at the level that you initially set it at? Or is it getting better? In which case you can pay them more. If it’s getting worse, then clearly they’re bringing in leads that they’re qualifying but they aren’t actually really good leads that the company can close.
David Skok: So even though they’re not fully responsible for that second phase of the salesperson closing the leads that they’re providing to them, you do need to tie their compensation, I believe, to that conversion rate that takes place between a marketing qualified lead and a fully closed piece of business and the dollars that come from it. So they may be, for example, able to bring in leads that result in much larger deals. That’s great for them. If they suddenly start producing lots of leads, but they’re only resulting in tiny deals, clearly that’s not a good thing and they shouldn’t be rewarded quite as much. So tying their compensation to what’s good for the company is the right thing to do.
Harry Stebbings: Can I ask, should they be rewarded for upsell opportunity in the future? Because they could bring in a small account in the early days and the startup that they brought in a year ago suddenly turns into one of the fastest growing startups and their budget is increasingly become one of your biggest companies. Should they have like continuation of tracking throughout the upsell process as well, given their bringing them in?
David Skok: In theory, yes. In practice, that sounds like it might be a hard thing to do. So I think a better way to accomplish that is through the ideal customer profile definition and rewarding for MQLs that fit the ideal customer profile. So in many companies we see that there are certain accounts that you know have a huge expand opportunity after your initial land and certain other types of prospects where they’re just not that big of a company.
David Skok: So you split those lead types into two different segments and your reward marketing higher for leads that come in in the higher segment that has that much greater ability to expand. I think if you try to keep tracking expansion revenue, it’s going to happen so much further down the field in terms of time that it’s just not going to really resonate that crystal clearly with what do I need to do right now as a marketing person to make sure the business is successful.
David Skok: So I think by tying it to an ideal customer profile and saying, look, you brought in 50 leads here, 20 of them fit this really ideal customer profile that we know. If it’s in a super large category, enterprise category, whatever you want to call it, that can expand a lot more, we’ll pay you more for those leads than we will do for the other 30 leads where they’ve fallen into the second segment that we have that doesn’t have as much growth capacity.
Harry Stebbings: You mentioned the expansion revenue that it gets onto a topic that I’m super passionate about, which is kind of customer success and you’ve said before, David, ensure customer success. I’d love to dive in on this. We spoke about kind of how the marketing team can really feed the sales team, how we should structure the sales team and then kind of scale it for growth. How should we think about scaling CS, the first time to hire our first CS, and the right way to approach CS really as a segment in itself within your company?
David Skok: One thing that might help people that are listening to this podcast is if they managed to get this nine-step diagram in front of them, to at least see where the step that we’re talking about might fit. So the step we’re talking about, which is ensure customer success comes in, generally speaking, right after you’ve started to figure out scalability. And the reason why it fits there is that most of the time I’ve seen companies once they can start getting scaling going, they run into some additional new customer success problems that they hadn’t anticipated because they started selling a little bit too aggressively and broadly.
David Skok: And they now need to go back and do some things like tamping down who they sell to and stopping the sales reps from over promising and fixing a bunch of issues, fixing the actual customer success organization to also scale and handle that. So that’s a separate stage there. But to go right back to the very beginning of the question you asked me, which is when should you hire your first customer success person?
David Skok: I think the answer to that, it’s going to come out during the repeatable phase because you’re going to work up and in order to repeatably successfully sell somebody and also onboard them and get them using the product successfully, you may or may not need people to do that. Some products are sufficiently simple and straightforward that they don’t need a customer success organization. Others may need a very intense form of customer success where there’s even on-premise onboarding taking place, hopefully not, because it’s very expensive.
David Skok: So that’s the stage where you’re going to work out what kind of staffing you need for customer success and then later on I think you’re going to have to revisit customer success after you’ve started to figure out scaling because it almost invariably breaks, in my opinion, and you’re going to have to re fix it at that point in time. That make sense?
Harry Stebbings: That totally makes sense.
David Skok: I’m sorry. There was one other question you asked me that I did want to answer here, which is, the question you asked was, how should a company think about customer success? And one thing that I think is a huge mistake is to believe that customer success is only the job of the customer success department. And so I think customer success is the entire company’s job. It can be fixed by people in the product development area by putting less bugs into the product or making the product so much easier to understand and just simply learn and have self-service in it versus have to find a human being.
David Skok: It can be fixed by people in the documentation area. It can be fixed by the salespeople not overselling and not over positioning the product, or finding the right people to sell to and not selling it to the wrong people where you know it’s going to fail. So it really should be something that the entire company knows that they own. And yes, you’re going to have to have a customer success department that really perhaps has a more direct contact with people after they’ve purchased the product to try to ensure that they get onboarded correctly.
David Skok: But never forget the importance of recognizing that product should be thinking about it. The engineers should be thinking about it. The documentation people, even the accounting department in terms of how they chase up money, they can also have an impact on whether you retain customers and have happy customers, et cetera. So it’s really right throughout the organization.
Harry Stebbings: I mean, my word, I’m so pleased you said about that, because more and more today I see marketing departments, and especially kind of content teams, working on content directly aimed at customer success and really kind of achieving the upsell opportunities that are available. And so my question to you is, are we not seeing the blurring of lines so to speak, in terms of marketing permeating into both sales and actually customer success? And then also sales into customer success in the way that relationships are built in the sales process and it’s difficult then to hand off. Are we seeing the blurring of lines between these functions, do you think?
David Skok: Yes, absolutely. This is one of my strong themes here is that if you want to get a successful growth team, the growth team needs to have members of the product team, the sales team, the marketing team, and the customer success team, and it’s probably going to have the CEO as the person who’s actually helping run and bring all of those groups together to stop thinking like silos. And the tool that I believe is the tool that creates the right kind of unification of those groups is the following.
David Skok: It’s a diagram of the buyer’s journey where you break out into steps, and this is typically hopefully something that exists on a large whiteboard in a room, and it has clearly marked on there what are the key things that happens to a buyer as they start going through the journey of looking for a product in your space, finding your product, testing your product out, maybe doing a POC or an evaluation, then bringing it in to the company and then what’s needed for the success of that and then what’s needed to make that expand.
David Skok: And then below that should be the diagram of what is our steps. What are the things that we do, what do our salespeople do? When do we introduce BDRs to try to call them? What marketing things we’ll be doing here? And those two diagrams, which I very rarely ever find in existence, but when I help make them come into existence, they create something extraordinary, which is they trigger really fabulous creative dialogue between these four different groups here about how you can fix the blockage points in those diagrams.
David Skok: And every single company in the world has major blockage points in those funnels and they don’t work as well as they would like them to work. Doesn’t matter how big you are, they’re still not working as well as you would like them to. And what’s cool here is that oftentimes it’s product that can create the breakthrough or sometimes it’s customer success, but often it’s the combination of those people talking together that leads to recognizing, okay, we should solve this in the product, or no, we can’t solve this in the product. Let’s solve it by using some people here or let’s use some marketing materials instead of the people that we’re currently using because that’s much more cost effective.
David Skok: So that’s the growth group and that’s the tool that I think should be used in it and that meeting should be a very regular meeting to understand and analyze, what’s not working well in your growth process and how’d you go about diagnosing and fixing it.
Harry Stebbings: The other element that I do have to ask that you mentioned was kind of the on premise, very heavy touch, customer service element and often actually really moving into the service’s revenue in a lot of cases that I’m seeing today. My question to you is VCs always wince when they hear services revenue, but actually in many cases it’s quite high margin. I’m seeing 45, 50% services revenue in terms of the margin itself, and when it’s 25 to 30% of revenue, is it really that bad and what do you think is a dangerous ratio of services to SaaS rep?
David Skok: I don’t think it’s that bad. I also will say though that the more a business is able to do things touchlessly, the more profitable those businesses are. So naturally VCs will try to gravitate towards ones where there’s less of this. But having said that, there are many, many very, very successful SaaS companies where there’s something like 30 to 35% of services revenue and it’s a real key to how they’re able to get the expansion out of the customer and to make the customer really, really get the benefits out of the product.
David Skok: And I don’t think there’s any issues with that at all. If it starts to get beyond 50% services revenue, that’s a big red flag to me that this isn’t any longer a real product company. And I would personally prefer probably not to be much above say 35, 40 just to give very, very rough outlines for that.
Harry Stebbings: No, I totally agree with you in terms of these outlines. And I do want to touch on some more incredibly unfair outlines of me to ask. But I do want to touch on kind of brass tacks and the profitable element that we have to hit on. So in terms of the cash element, what numbers are you looking for when it comes to, say payback period, one, and then CAC to LTV?
David Skok: So payback period, from my original blog posts that I wrote in 2008, I was the person who put out that it should happen within 12 months and I still stick by that, but in truth, the whole reason why I put there is because this is a metric that really defines how capital efficient your company will be in its growth process. So the more months it takes you to recover CAC, the more capital it’s going to chew up when you start growing your business.
David Skok: Having said the 12 month thing though, I’ve now found that not many companies actually really get to that, to be honest. I think a much more common number that I’m seeing is 18 to 20 months for businesses. There are still lots of really good businesses that I can point to that have the 12 month or less payback period, but unfortunately they’re rarer than I would have liked to have seen. So 18 months, I would say anything over 24 months is something that you should be very worried about and want to make sure you have a clear path to seeing how you’re going to fix that.
David Skok: And then LTV to CAC, I originally wrote, I thought that needed to be at least three times LTV to CAC ratio and I still stick by that. I think that one is actually has been born out remarkably well with practical experience over the last, whatever it is, 12 years, I guess we’re talking about now of looking at SaaS companies. Now the really good SaaS companies that have considerably above the three number, but if you’re below the three number, you’re almost certainly not viable and really need to go and fix that.
Harry Stebbings: I’m surprised you said about the 18 months on the payback period there. What would your expectations be then on churn, given actually the length, that being considerably longer than I was expecting more nine months today, actually?
David Skok: It’s rare to see nine. It’s really hard to achieve. The key things that I’m really looking for companies, I believe you have to be able to achieve negative churn, and what do I mean by that? It means that if you take a cohort of customers that you signed in, say January, and you look at them a year later, that even though you’ve lost some customers from that cohort, the overall cohort should be producing more revenue than it did when you originally signed up in January and that’s negative churn.
David Skok: That means instead of churning in a direction where you’re losing, you’re actually gaining revenue out of your cohorts. So to get that, companies have to have a couple of important things. So one of them is they must have a way for each customer that signs up to expand its usage of the product and pay more. And it’s funny, that seems like an obvious thing these days, but in Hubspot in the early days we didn’t have that. We actually had a single price point. Everybody paid $500 a month for the product and there was no way to get expansion revenue from our customers.
David Skok: So that was a key challenge we had to figure out was how to increase pricing over time and have some kind of usage metric that went up with it. The important reason why you have to get to this is churn is going to happen. You will lose customers. I’ve just never seen any business where you didn’t lose any customers at all, and if you don’t have negative churn, every business that I’ve been associated with that didn’t have negative churn was really struggling, and it’s only when you crack that, that the SaaS model really starts to work really well. And I think if you look at every one of the truly successful SaaS businesses out there that have gone public, this is one of the key factors that they can point to is that they have greater than 100% dollar revenue retention for their cohorts.
Harry Stebbings: Could I ask, when you have those kind of incredible cohorts and you have that incredible retention, in terms of speed, why is it important to scale as fast as you can and I guess what are your thoughts on the mechanics of the winner take all flywheel?
David Skok: So I think we’re in a winner take all environment most of the time in the high tech software business. So as soon as one company shows that there’s profit to be made in an area, this market is so efficient in terms of new ideas flying around and venture capital to back those new ideas that you will almost inevitably get competitors. But what we see is that there is a winner take all dynamic, so that once one company starts to become looking like it’s the leader, that’s where buyers tend to prefer to buy. They prefer to buy from that leader simply because it’s safer for them that, that company’s not going to go out of business.
David Skok: But you also get other effects, like you get an ecosystem. So look at Salesforce right now, even though their product is widely regarded as a terrible CRM product, it’s still used by everybody because the ecosystem of other products that have been built around Salesforce make it capable of doing so many powerful and interesting things just doesn’t exist for other competitors, or at least they may have a much smaller ecosystem so they can’t offer the full range of solutions for so many people.
David Skok: And then you get this effect that the company gets written about in the press so they get far cheaper customer acquisition, word of mouth is great. There’s lots of forces that reinforce the winner once they start to become the winner. So what that means is that if you hit the point where you’re ready to scale and you’ve got repeatable, you’ve got scalable and you’ve got profitable, I believe you’d really need to hit the gas hard. And it’s easy to hit the gas hard because typically if you are repeatable, scalable, and profitable, you can raise growth capital very easily and at good valuations and you should go and raise that capital and invest that capital in this cash making machine that you’ve created and scale as fast as you can do to get the winner takes all benefits and to prevent a competitor from displacing you from that winner-take-all position.
Harry Stebbings: I totally agree in terms of that winner take all and just the importance of moving as fast as you can. I do want to, on the elements of moving as fast as you can, I do want to go into our quick fire round, David. So you’ve done this before, but essentially I say a short statement and you hit me with your immediate thoughts, about 60 seconds per one. Are you ready to dive in?
David Skok: Fire away. Yep.
Harry Stebbings: So what’s the favorite book and why? What must I be reading this year?
David Skok: So this is not a new book, but it is absolutely my favorite book. It’s Sapiens, and I think it’s one of the most incredibly thought-provoking books because it explains why we are where we are in history and what could happen next and things that we need to do to shape that correctly.
Harry Stebbings: Tell me, who’s the best board member you’ve sat on a board with and why? What made them so great?
David Skok: Well, a while back I might’ve been able to answer that but I’ve now had the good fortune to work with a whole load of really great board members, so I’m not going to give any one name because I know that I would accidentally insult some of the terrific people I’ve worked with and I would say this is an amazing thing. The US, specifically the US and I don’t think this is really yet true in Europe or UK, is blessed with some really great investor board members and some non investor board members. So I think it’s possible to get fabulous board members in the US for startups.
Harry Stebbings: What advice would you give to me, having just joined my first board within the last 12 months? You’ve been on many, what would be your big advice to me?
David Skok: First thing I would tell you is that management team, focusing on the team, is far more important than you might think. I think you’ve probably, might pay lip service to it if you would like me. I paid lip service to this when I was first a venture capitalists, but over time it became increasingly apparent to me that there is nothing more important than you can do as a VC than help to build the team.
David Skok: Oftentimes the founder that you work with doesn’t recognize what a great team looks like, doesn’t realize why they need them and they need to be pushed quite hard by the VC who’s often got this pattern recognition of, okay, in six months time you’re going to run into this problem. So we need to start recruiting now because if we don’t do it now, it’ll take six months to recruit somebody. And so helping build that team is one of the most powerful ways that a venture capitalist is able to really positively impact a portfolio company.
David Skok: The second one is to keep the company tightly focused. And the way to bring the focus to them is to work backwards from their next fundraising. So after they first got money from you, everybody’s celebrating, they’ve got all this cash. Suddenly it feels like they can do all these things. The truth is they can’t do all these things and they don’t have much time. And the best way to get them to realize that is to focus in on, okay, what do we have to do to be successful in our next fundraising and you will quickly have them realize, oh my God, it’s very little time and not enough resources and that generally is the most important thing for them to accomplish so they can successfully survive as a business.
David Skok: They must go through–Typically they’re going to be going through some of these nine stages that we talked about. They’ve got to get the sales process repeatable, they’ve got to make it scalable, or they’ve got to prove that it’s profitable to get their next round. And I think that’s a great way to really have everybody understand what’s got to be done in the company.
Harry Stebbings: Well, I think I should invoice you for the advice because that was fantastic. But what do you know now that you wish you’d known at the start of your time in venture, if you’re being self reflective?
David Skok: It’s actually the two points that I just gave you above. But really the biggest thing that I wish I had known is this nine stage model. I knew it from my own experiences in little bits and pieces, but I hadn’t properly, properly understood just how crucial it was to go through these steps one by one and not try to jump ahead. And when I look at my own mistakes, they all fall in the bucket of jumping ahead on this nine stage model and all of my portfolio companies, we’ve all done it at some point in time and it’s been very costly both in cash and in terms of delay of getting where we needed to get to.
Harry Stebbings: What would you most like to change about the world of venture and tech today?
David Skok: So when I first joined the tech world, I loved what I was doing because I felt I could be very proud of the fact that our industry wasn’t like mining or certain others that kind of strip the earth. We did good things and almost everything we did was about doing good things and the people in the industry were good. I think sadly along the way recently we’ve discovered that our industries accidentally managed to do some bad things, and I think we’ve got a great responsibility to anticipate what these might be, particularly with things like artificial intelligence that’s coming along, and also to fix some of the negative things that have been caused by tech like the election interference and stuff like that that’s been damaged by social media and possibly things like attention span of kids who are overly focused on screen time versus real face to face interactions with other human beings.
Harry Stebbings: And then the final one, David, what’s the most recent publicly announced investment and why did you say yes and got so excited?
David Skok: So a company called Apollo GraphQL would be one that I’d highlight. I love this company. They’re building a brand new data API that allows all of the company’s data to be represented and very, very quickly and easily built into an application. So amazing opportunity. It’s a layer that I believe everybody’s likely to adopt over time. So a massive situation where it looks like this graphQL layer is going to become a standard part of everybody’s development stack.
David Skok: And the reason why I made the investment was simple. It was the quality of the founders, two individuals, Jeff Schmidt and Matt DeBergalis who were just spectacularly smart people and just a pleasure to work with. It really just came down to assessing the fact that these were phenomenal individuals that really likely had this ability to read the future and can execute on it.
Harry Stebbings: David, as I said at the beginning, and I always so love our chats. And as I said before our call, I just love your voice. So this has been an absolute pleasure and thank you so much for joining me again today.
David Skok: Harry, great pleasure as always. It’s so much fun talking to you.
Harry Stebbings: I mean, just such an incredible guest to have on the show. As you can tell, I just always so enjoy my conversations with David. He’s always been there for me and he’s been hugely supportive, so I really do appreciate his time there. If you’d like to see more from him, you can find them on Twitter at Boston VC. Likewise, his blog foreentrepreneurs.com really is a must. I cannot recommend that enough. And if you’d like to see us behind the scenes, you can do so on Instagram @hstebbings1996 with two B’s.
Harry Stebbings: As always, I so appreciate all your support and I can’t wait to bring you a fantastic episode next week with Karl Sun, the founder and CEO at Lucidchart.
Jason’s interview with Ed:
Announcer: This is SaaStr’s Founder’s Favorite Series, where you can hear some of the best of the best from SaaStr speakers. This is where the cloud meets. The future of work is here, and Owl Labs has the advanced tech you need to empower remote and hybrid teams. Their award-winning 360° smart conferencing camera, the Meeting Owl Pro, boasts 1080P resolution and a Crystal Clear tri-speaker system to ensure that everyone is seen and heard. Read more on Owl Labs and the Work From Anywhere Movement at owllabs.com. Up today, EZPR founder Ed Zitron.
Jason Lemkin: All right, this is Jason Lemkin. I’m your host today for the SaaStr podcast, and going to have a little bit of fun today. I brought in Ed Zitron from EZPR, and Ed and I have worked together on different PR projects going back, I think, to 2013.
Ed Zitron: Yep.
Jason Lemkin: So, that’s quite a while he’s helped me. He’s helped maybe a dozen different companies I’ve worked with from Mixmax, to Gorgeous, to who else am I missing?
Ed Zitron: GuideSpark.
Jason Lemkin: GuideSpark, a whole bunch of others. I’ve written on this on SaaStr, I had a tortured relationship with PR as a SaaS CEO at EchoSign, Adobe Sign. I got fired by multiple PR firms, a couple of them for wanting to measure PR, and actually measure the performance of PR, because it seems expensive in the early days.
Ed Zitron: And it is. But that’s … I have a client right now I won’t name, but that I’ve had for around a year now, coming up on a year, who literally came to me and said, “My PR firm just fired me,” which I think is … I’ve done that maybe twice in the last 10 years, and it’s never been for measuring. It’s because of a not great relationship, and those things happen. When it comes to measuring stuff, yeah you should, and you should start early. Say, “This is what I expect, this is what I want,” or “Hey, as we set these up I don’t understand this so please explain it to me.” If they won’t do that, there’s already a problem.
Jason Lemkin: Yeah, and we’ll dig into that. As I started to kind of come out of the fog and work with more startups, I asked a few that I had gotten to know that seemed to be getting good PR hits who they worked with, and got introduced to Ed, and we’ll dig into this a little bit. What I found out, fast forwarding today, six years down the road, is more and more startups I work with hack their way to marketing. They hack their way to content marketing. They hack their way to other things and, they’re actually more skeptical of the value of PR, in general, outside of a TechCrunch post, outside of a fundraise, so I want to dig into that. We’re going to talk a lot about “traditional PR” for most of this, the few minutes we have together, but I wanted to have a little bit of fun first and talk about what’s changed, and what’s hot, and what isn’t in PR and media in general. So, five real quickly and then let’s dig into press. But podcasts. We’re doing one right now, right?
Ed Zitron: I’ve heard of podcasts.
Jason Lemkin: You’ve heard of podcasts.
Ed Zitron: They are genuinely great. So the reason is, and I think you’ve said this before on SaaStr, is if you’re listening to a podcast say about sales, or about enterprise tech, dev ops, and what have you, you are choosing to spend half an hour to an hour or more listening to two people talk about subjects.
Jason Lemkin: Yes.
Ed Zitron: Right now that means very focused audience, and most of the time these people who are doing the podcasts are pretty well versed in it and yeah sure, some of them are quite … They’re clearly doing it for one reason. For the most part podcasts are so focused and they’re so, but those who are sitting through them really care. They’re giving them their attention. It’s really good to do. Whether you should do your own is another thing. I find this a lot with clients.
Jason Lemkin: A lot of Head of Marketing come in and they want to set up a podcast for the new company today, right?
Ed Zitron: Yeah, and it’s usually a bad idea just because the amount of time this takes, as you well know, Jason, is … It’s quite time intense. I’ve run several podcasts. I’ve actually had one get into the top 10 on iTunes. The one thing I’ve found is it’s very hard finding a specific audience, and then it gets even harder finding someone who’s actually good. Sometimes you can have one person who’s good and then one person who isn’t so good. If someone isn’t good on the microphone, they better bloody have something interesting to say. Usually that gets mangled up by them being boring. So, in many cases, if you have something that’s so niche, you should do it, but only if you can dedicate the time, and only if you have someone really good to talk about it. If you don’t have someone with a bit of charm but also a lot of knowledge, you’re going to lose listeners, and those who listen aren’t necessarily going to be interested. Getting a lot of shares isn’t even the thing. You need to really have a point as to why you’re doing it.
Jason Lemkin: So, doing your own is hard. For your clients, does it count as PR? Should they do other podcasts? Do you try to get them booked onto other folks’ podcasts?
Ed Zitron: Yes, I do. It’s always worth it for specific ones. Again it comes down to your CEO. He or she may not be great on microphone. There are people who were really good speakers who are terrible on podcasts, and they don’t know why. It’s sometimes the isolation and they’re not really having a focal point. If they are good on the microphone, yes, get them on there. But, a lot of podcasts are going pay to play. I was speaking to devops.com the other day and they said, “Yeah, it’s like a few grand,” which is crazy.
Jason Lemkin: A few grand to get a CEO to-
Ed Zitron: On a podcast.
Jason Lemkin: On a podcast.
Ed Zitron: Which, honestly, for a DevOps company is probably worth it.
Jason Lemkin: What’s the distro? What do you think a floor is for a number of … I know audiences vary, but when would you recommend a client do a podcast or to not do a podcast?
Ed Zitron: It is very difficult to tell, because it is a lot more time investment than a media hit. Potentially a much lower folks. There’s no podcast SEO. The lasting effect may count but probably not. Usually you want one that’s gets at least 10,000 listens an episode. The thing key podcasts I’ve done in the past with friends book like 15,000 an episode.
Jason Lemkin: But 10,000 is surprisingly hard to get. I would guess over 99% of podcasts … We get like 140,000 for SaaStr now and Harry built this up over years.
Ed Zitron: But that’s the thing, you have to build it up, and it has to be one that’s built up. If it’s someone who’s notable then you should do it because eventually what people will do is download the back catalog. If it’s a good podcast, and it gets big, that is the lasting thing with podcasts.
Jason Lemkin: Oh, we’ve got to learn how to do that. Okay, so interesting [inaudible 00:07:02], do podcasts, think about 10,000 as their floor, and bear in mind you may have to pay to play a little bit in 2020.
Ed Zitron: If it’s very niche, maybe you can go below that. It’s a judgment call but, yeah, it’s considered the classical PR pitching thing.
Jason Lemkin: Number two, blogging. Everyone since the dawn of time, especially every marketer, wants their CEO to be a thought leader. Blogging seems to have died, and then social media seems to have revived it. How much time should we spend blogging?
Ed Zitron: How interesting are you is the question.
Jason Lemkin: Most folks I know aren’t interesting.
Ed Zitron: Then they should not bother, because if you can’t regularly say … Something that you’ve done very well, Jason, is Quora, which is kind of Quora site blogging, which you’ve then taken them and turned into full blogs. That makes sense because you have a lot of very specific knowledge to share. If you have a ton of honest if it bleeds, it leads-type stuff that’s useful. More stuff about waste in the Silicon Valley blah. The moment that you start just falling asleep during the headline, you probably shouldn’t be writing, and if you can’t write, you shouldn’t unless you have a good ghost writer, and most likely you don’t. If that ghost writer has to struggle to pull things out of your head, don’t bother. But, conversely, if you have some really good hot takes … I used to work with a guy called Brian Brackeen at Kairos.
Jason Lemkin: Yep. We just saw him in Miami when we were at Miami Meetup.
Ed Zitron: Lovely fella, and we worked together. When we did last year it was, we did this thing about how police should not have access to face recognition.
Jason Lemkin: Well, that got a lot of … That took off.
Ed Zitron: I pitched that, and the idea was based on the fact that Brian had a lot of views on it. He was a thought leader in the sense that he actually had leading thoughts, and it did well. Conversely, I’ve had problems with other ones where it’s like, “Let’s do a blog about,” and they just … They want to be out there to be seen versus having any contribution, and that’s what it comes back to.
Jason Lemkin: I generally find that any type of PR where you want to be out there to be seen, being on stage doesn’t work, does it?
Ed Zitron: No, but you need to … You need to really … If it bleeds, it leads is important because people …
Jason Lemkin: If it bleeds, it leads.
Ed Zitron: … it leads, because- [crosstalk 00:09:08]
Jason Lemkin: What does that mean? Hold on. Slow me down.
Ed Zitron: I probably should-
Jason Lemkin: If it bleeds-
Ed Zitron: So what that means is, it goes back to the idea that you should be honest. You need to really show-
Jason Lemkin: Oh, I see. Be authentic, my vibrancy thing.
Ed Zitron: Also, a step beyond that. It needs to be … Sometimes it’s not fun. Sometimes the things you’re sharing show weakness, or they show your own fallibility, or your own failings. People learn from failings. People want to read about those so that they don’t make the same mistakes, or that they don’t feel alone. It’s a core emotional thing. So, when people read that they go, “Oh wow. Yeah, I felt like that.” That’s a bit high concept, very enterprising clients, sure, but if you can come back to a thing where you’re actually teaching them something that they really wouldn’t have read much of before. That’s worth it.
Jason Lemkin: It can work.
Ed Zitron: If not, don’t bother.
Jason Lemkin: A few other just quickies before we talk about press in general. Press releases. In 2020, do they do any … My PR firm, my marketer, wants to issue a press release. Is that going to get me a lot of good customers? Or what’s the …
Ed Zitron: No.
Jason Lemkin: Now, we laugh, but people are still doing press releases in 2020, aren’t they?
Ed Zitron: There is a certain degree of the courtesy that, “Oh, this is just what we do.” You don’t have to do it. You should consider-
Jason Lemkin: Will anyone read a press release in 2020?
Ed Zitron: They might ask for one, but the truth is, and this is going to steal from an old client of mine, Backblaze. Gleb Budman and his team there used to have this great idea of basically instead of a press release it would just be a fact sheet that was, “Here is the news,” the exact embargo. “Here is a blog about us.” Just remember a blog about what we’re talking about in three quotes. Have fun. That’s all the press release really is. Should you put it on the wire? Probably not, unless the person funding you has said, “I want this on the wire.” They’re probably wrong but it’s not worth the argument.
Jason Lemkin: It’s not worth the argument, is it?
Ed Zitron: And It’s $1,000, which you could spend literally anywhere else.
Jason Lemkin: You could. Two other quick ones and then let’s dig in with the time left. Social media. Should CEOs be spending their time tweeting?
Ed Zitron: Well, I tweet a lot, which is definitely not good for me. I would argue that unless you re–The answer is probably not. You should be active. You should be engaging with people, but make it authentic. Again, don’t do, don’t let your PR firm touch your social. Just don’t do-
Jason Lemkin: What about politics? Should-
Ed Zitron: No.
Jason Lemkin: When should CEOs talk about politics in SaaS and enterprise with business? When is it a good idea to wade into politics?
Ed Zitron: Here’s a great choice. Just don’t for the most part, but it is also … If you are particularly opinionated on something very obvious such as, “Hey, immigration is good.” That’s fine. Marc Benioff has been very nuanced. He has also strayed occasionally a little deeper than he should.
Jason Lemkin: Yes.
Ed Zitron: He has paid dearly for it. Well not dearly, but he’s looked kind of silly. The best choice is don’t talk about it. Now, if you have a situation where you have to address it, do not do so on social media. Do not immediately go and talk to people on Twitter about it. It’s a bad place for a deep discussion. Facebook, you should have customer service, and if it’s really bad, you should be talking to a lawyer. Just don’t jump on Twitter and go, “I’ll deal with this.”
Jason Lemkin: Yes.
Ed Zitron: It’s not worth your time. It is going to exhaust you, and you’ll get snarled up in an argument you really could never have won.
Jason Lemkin: Just two more on this. I agree with you on Twitter, although I tweet a lot too. One thing that’s changed a lot in terms of like guerilla PR over the last year and a half in SaaS is LinkedIn. The LinkedIn feed in my ecosystem has exploded. The engagement is very high, it’s hyper-promotional, and it seems to be okay to be promotional on LinkedIn …
Ed Zitron: Yes.
Jason Lemkin: … where on Twitter, it won’t work, and on Facebook you won’t get a view. So, what’s the strategy for LinkedIn in terms of promotion in general and PR as a concept?
Ed Zitron: LinkedIn, you have to invest in heavily, and you have to put a lot of time into it, and you have to be prepared to do a lot of work for very little engagement for a long time until you take off. I hate to say it, I’ve seen multiple people I’ve known invest that time and it never go anywhere. You can see that they’re up in the production values. They’re spending more time doing it and it sucks. It doesn’t mean that anything’s wrong with them, but for the most part it’s still a limited feed. You are right, though. It’s fine to like talk about your achievements on LinkedIn because that’s what it’s for. But, I would not buy into the idea that any social feed is a guaranteed win. If you have something unique, put it on LinkedIn if it’s professional, because more than likely people will appreciate some self-promotion there. They know what they’re getting into on LinkedIn.
Ed Zitron: The reason it looks so cheesy and kind of crappy on Facebook or Twitter is we are conditioned to see them as social and regular feeds. They’re not our work feeds, when LinkedIn is always that. LinkedIn, however, I have seen more people discussing politics. It’s never going to work. Stop trying. You do not want to … The arguments on there get very bad. However, for the most part it’s a great … If you’re going to put any time into social that’s the place.
Jason Lemkin: Right now probably for B2B.
Ed Zitron: Absolutely.
Jason Lemkin: So let’s talk about press. So first of all, you wrote, … We’re taking notes on presses, you wrote Business Insider, TechCrunch, HN, Hacker News?
Ed Zitron: Yeah.
Jason Lemkin: Is Wall Street Journal and the New York times still count? What is the … So let’s step back for a minute. There’s obviously A Tier, B Tier, and C Tier press, …
Ed Zitron: Yes.
Jason Lemkin: … and it’s always had a longitudinal exponential distribution, right?
Ed Zitron: Yes.
Jason Lemkin: A logarithmic distribution really. The good stuff performs and the crap at the end, if you’re lucky, does anything. So what is elite press in 2020?
Ed Zitron: The thing that I’ve started to do is go with longer-term engagements. I’ve started to do Master Tier, Tier 1, Tier 2. So, Master Tier is the New York Times, Bloomberg Television, 60 Minutes, like the hardest stuff to get, which in many cases, B2B does not matter. We don’t really care about 60 Minutes unless it’s something very specialized. But, I would say those Master Tier ones like the New York Times and Wall Street Journals are getting increasingly hard to get into. You’re not getting your own story in them unless you have … You need like a 10 billion dollar valuation now.
Jason Lemkin: So a unicorn is not enough?
Ed Zitron: God, no.
Jason Lemkin: Yeah, go on there.
Ed Zitron: You’ll get Bloomberg with a unicorn, and that’s actually a really good place.
Jason Lemkin: Print or TV?
Ed Zitron: Just online.
Jason Lemkin: Online.
Ed Zitron: Almost forgot about print-
Jason Lemkin: Maybe print’s the wrong word. I guess I meant …
Ed Zitron: Written media.
Jason Lemkin: … written or video, yeah.
Ed Zitron: What we’re doing. So, being a unicorn is not enough for the Times anymore. Having a big valuation in a hot space may be, but there are … It’s a vastly limited space now. They have really rolled back Deal Book, which is where they used to write about these deals. Even when they were writing those they were getting very picky, which is ultimately a good thing for their readers. The Wall Street Journal is getting very hard, because they love taking their venture capital. They’ll be saying, “Oh, we’d love to write about this interview with you,” and then you get in a paid-for newsletter or behind the paywall.
Jason Lemkin: [crosstalk 00:16:03] behind the paywall. I know that can be frustrating when you’re behind a paywall. Does that mean it doesn’t perform, or it doesn’t have value?
Ed Zitron: It happens with the Journal. The Journal, that is a black box. No one’s going. Sorry if you’re paying for the Wall Street Journal. I have never met anyone who’s paid for that. That being said, Business Insider Prime, which is their paid-for thing where increasingly funding announcement’s going, those do perform and they’re deeper pieces.
Jason Lemkin: Well, they’re super specific. They almost look like placed articles to me, to tell you the truth, some of them.
Ed Zitron: Some of them, yeah. I mean, knowing the-
Jason Lemkin: So be it.
Ed Zitron: So be it. We’ve done, and trust me being on the other side when you hear the questions, they’ll throw you. They’ve got good stuff there, but to that point, the Wall Street Journal has become kind of a flip of a coin, and you have to be very up front like, “Hey, I don’t want this behind the paywall,” and they may say, “No.” Okay, no longer interested.
Jason Lemkin: So to get … So let’s go. So we talked about Wall Street. What type of story can you get me into Business Insider? What does it take in enterprise in 2020?
Ed Zitron: Depends what the enterprise is. So, if you are a deep, deep, deep, deep, deep enterprise story, BI is probably the best choice because, depending on who you’re talking to there, you’ve got some really great … I love the people they’ve got at BI right now, but Rosalie Chan is their deep tech voice if you have an enterprise background. If she gives you the time of day, because all these reporters get thousands of emails a day. It’s thousands.
Jason Lemkin: Insane, right?
Ed Zitron: I used to know a Daily Show reporter who would get 25,000 a day. Just bonkers stuff. But Rosalie Chan, she isn’t just, a file them out, write them down, type reporter. I mean, none of them are, but she has such deep knowledge, such a real joy for specific clients. She worked with a client of mine at [inaudible], and she was really deep in the DevOps weeds there, which is great. More importantly, if you want a story that’s actually going to perform with investors, with potential customers, within your industry, that’s the kind of place. TechCrunch,, same deal, but they are just as overwhelmed. But you’re there for B2B in particular. If its got an eCommerce bent Anthony Ha’s very good, very eCommerce focused, but straight to business. Frederic Lardinois and Ron Miller, both B2B enterprise Z-type guys. Again, overwhelmed with pitches-
Jason Lemkin: Overwhelmed with pitches.
Ed Zitron: But if you can get them …
Jason Lemkin: Yes.
Ed Zitron: … they do the depth.
Jason Lemkin: So compare for them … Take two different pitches, take a product pitch and a fundraising pitch, and give me examples of what’s performed and what falls flat with those media. What will they write about and what do they say that would surprise, maybe folks, and what would they not write about that if you didn’t know anything you’d think they would write about?
Ed Zitron: You’ll be shocked how many 60 million dollar funding announcements BI will turn down.
Jason Lemkin: Just turn it down? Will they ask for an exclusive or will they turn it down entirely?
Ed Zitron: They may ask for an exclusive but they may just say, “It’s not for us, …”
Jason Lemkin: It’s not for us, yeah.
Ed Zitron: … which is-
Jason Lemkin: The climate we’re in now.
Ed Zitron: Just having a funding announcement is not enough. Product, TechCrunch. I have seen those perform very well. They convert. They convert into actual-
Jason Lemkin: But they don’t want to write about your spring release, do they?
Ed Zitron: No.
Jason Lemkin: So what’s exciting? What’s exciting, because sometimes founders get lost here. They just want people to write about their product. There’s so many pitches. What gets a reporter excited, or journalist today?
Ed Zitron: Relationships. You have to find a way to talk to the reporter at some point, but that’s … I can get into that a little later, but when it comes to a product it needs to be very direct, actually applicable to what they’ve written about. So, with TechCrunch and Mixmax, I worked with them a few times with Frederic, because he’s written about enterprise before, and bringing him this idea of, “Okay, this is a different way in which a sales team and an enterprise can approach their day.” It’s not just automation in a big wavy, wavy way. It’s, here is literally a set of rules you can set up and hit going, and someone can have their day. Of course I automated. I imagine the person is still a person with a brain. You can set a junior employee to go bam, bam, bam through their day. That was “beast mode.” That’s something which he was quite interested in. That also worked with Matthew Smalley at The Next Web, and he’s now at The Register.
Ed Zitron: These are the kinds of things that matter, because instead of these very big picture stories, which they’re bored of, and they’re never going to talk to your staff about, they’re going to talk to UIPath, or a huge company about those. They want to know, okay, directly, how are you changing an actual sales team’s day? Also, they deep down don’t give that much of a crap about a sales team. They give a crap about how good this software will work for a person. They do not like sales. Sales is like one of weirdest-
Jason Lemkin: As a category?
Ed Zitron: Yes. It’s weirdly-
Jason Lemkin: Sales software, marketing software, …
Ed Zitron: Yes.
Jason Lemkin: … boring too?
Ed Zitron: Marketing especially, because marketing is actually even more difficult to get journalists’ ear around. They’re like, How does that even work? Sales, you can kind of give an idea, but nobody likes salespeople on the journalism side, because in some ways, also, a bad PR firm will be lumped in with a sales team.
Jason Lemkin: I got you.
Ed Zitron: It’s just the stigma of sales, it’s nothing against anyone.
Jason Lemkin: Okay, Ed. This was terrific. Thanks for the time.
Ed Zitron: Thank you for having me.
Jason Lemkin: Ed Zitron, EZPR. Check him out. It’s been great working together over the years, and these are great insights.
Ed Zitron: Thank you.
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