Ep. 292: Manny Medina is the Founder & CEO @ Outreach, the market leading sales engagement platform that turns your team into a revenue driving machine. To date, Manny has raised over $114m in funding from some great people including friends of the show in the form of Alex Clayton @ Spark, Mayfield, Trinity Ventures and DFJ Growth, just to name a few. Prior to founding Outreach, Manny spent 7 years with Microsoft where he ran the Latin America and Canada business development group for Microsoft’s emerging mobile division, representing $50M of yearly revenue. Befofe that Manny was a Senior Product Manager @ Amazon where he engineered the compensation system for Amazon Associates and Web-Services which accounts for 15% of Amazon’s traffic. This interview originally aired as Episode 229 on April 29, 2019.
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In Today’s Episode We Discuss:
* How Manny made his way to found the leader in sales engagement from product management at Amazon and Business Development @ Microsoft.
* How does Manny fundamentally approach managing top of funnel? What are the 2 big dangers of not managing it aggressively? What can be done to ensure not only full but high quality top of funnel?
* Why does Manny believe it is so important to track pipeline coverage as one of your core metrics? What does good look like when it comes to pipeline coverage? How does this change if you are creating vs in an existing market? How does Manny think about specialization within the sales function? Why are SDRs 99% of the time not able to carry leads to completion?
* How does Manny think about quota construction today? Does Manny err on the side of setting high to be ambitious or setting low to increase confidence? How can managers really empower their reps to be aggressive in hitting their quota and exceeding it? How does Manny think about resource allocation on the individual rep level? What is sufficient? What is excessive?
* Does Manny believe that the founder should always be responsible for selling their product at one moment in time? How did Manny sell the first $1m in ARR simply through walking the streets of SOMA and selling door-to-door? What were his biggest lessons from doing this? Why does Manny believe that you should not have a VP before $5m?
Ep. 293: Congratulations you’ve built a product that’s proven itself in the marketplace! So how can you leverage that product’s success to obtain the valuation and funding you need to scale? Ashley Smith, Venture Partner at OpenView will provide insight on what investors are looking for in product metrics and growth indicators so you can capitalize on your product’s story for funding.
This episode is sponsored by Brex.
SaaStr’s Founder’s Favorites Series features one of SaaStr’s best of the best sessions that you might have missed.
This podcast is an excerpt from Ashley’s session at SaaStr Europa 2019.
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Below, we’ve shared the transcript of Harry’s interview with Manny.
Harry Stebbings: So, it’s been an incredible year here at The Official SaaStr Podcast. Over 50 episodes, many more thousands of listeners in many more countries joining us. And so I wanted to celebrate the incredible year we’ve had with the most downloaded shows of 2019. Really, we can split this into two different categories: investors and operators. And given that we’d have nothing without the incredible operators of this industry, I wanted to start with our most downloaded founder episode of 2019.
Harry Stebbings: This was one where I had a detailed and specific schedule and I asked about 10% of it. The discussion was amazing and just flowed so naturally, and so this was also one of my favorites to record of 2019. And so with that, I’m excited to welcome Manny Medina, founder and CEO at Outreach, the market leading sales engagement platform that turns your team into a revenue driving machine.
Harry Stebbings: To date, Manny’s raised over $114 million in funding from some great people, including the likes of Alex Clayton at Spark, Mayfield, Trinity Ventures, and DFJ Growth, just to name a few. Prior to founding Outreach, Manny spent seven years with Microsoft, where he ran the Latin America and Canada Business Development group for Microsoft’s emerging mobile division, representing $50 million of yearly revenue. Before that, Manny was a senior product manager at Amazon, where he engineered the compensation system for Amazon Associates and Web Services, which accounts for 15% of Amazon’s traffic.
Harry Stebbings: But that’s quite enough from me, so now without further ado, I’m very, very excited to hand over to Manny Medina, founder and CEO at Outreach.
Harry Stebbings: Manny, it’s absolutely fantastic to have you on the show today. As I said, I’ve heard so many great things from Alex at Spark, so thank you so much for joining me today.
Manny Medina: No, it’s great. I’m glad to be here. Thanks for having me.
Harry Stebbings: I would though love to start, Manny, with a little bit about you. So, tell me, how did you make your way into what I’ve come to love in the world of SaaS and really be one of the leaders in the world of sales engagement with the founding of Outreach?
Manny Medina: Well, we started Outreach because we were running out of cash in our previous company and we did the math and we figured that if we were able to get our reps to perform by booking 10x more meetings, that they would have been in the past, that we would actually dig ourselves out, that we would generate enough cash to get back on our feet. So, we decided to go ahead and build that and we built a workflow that generated 10x more meetings for our reps, and our reps were so excited. And as we were going to those meetings and the people holding those meetings would ask, “What’s your special sauce? What’s your special power?”
Manny Medina: And there would absolutely be a talk about how we built this workflow that allows us to book 10x more meetings. And people would immediately stop and be like, “I don’t want to buy your service. I want to buy that tool that you built internally.” And after about 60 of those meetings we realized that we had a pivot in our hands and that we need to really go do that.
Harry Stebbings: I love that. I’m too intrigued. You know, I’ve just come out of fundraising for a fund and often people say the reason that funds don’t raise is because they can’t get top of funnel full enough. And when we apply that to the SaaS world, is that why businesses don’t succeed? Because they can’t get top of funnel full enough? And how does that relate to actually conversion because you can fill top of funnel and not convert. How do you think about the balance between the two?
Manny Medina: So from my own experience, and I can only speak to that, I’m not a VC and I don’t have a portfolio per se. But from my own experience and from seeing our customers, what I can tell you is that if you don’t manage the top of funnel aggressively, you will either not have enough to feed the team or your revenue will be choppy. And this is for two reasons. One is there is a number that we track internally in many, many high-performance solo shops track internally, which is pipeline coverage, meaning how much pipeline do you have to cover the number that you’re trying to hit. And it varies depending on how well you’re doing in the market. So if it’s a new market where you’re still educating the market, like us, you need anywhere between three to five pipeline coverage to have somewhere in the range of 90% certainty you’re going to hit the number.
Manny Medina: If you are a company which, you’re dominating the market and it’s mostly you’re going in and you’re placing a solution or your people are order taking, you don’t need more than two, maybe less than that. So for instance, a company like Instructure that has a stronghold in the education market, they run a less than 2X pipeline coverage and it varies widely in between. And that coverage comes from being very deliberate about how you manage say your top of funnel.
Manny Medina: The second piece around that is that at the rep level, managing your top of funnel or managing at least your stewarding, your book of accounts, would allow you to be very recurrent in hitting your numbers. So there is something that we spoke about two to three years ago that we call the Sine Wave of Sales, and that’s a concept that Mark Kosoglow, our VP of sales, introduced me to, which says: When you’re a rep you begin your life building funnel, and then as the funnel gets built, you start switching your attention from building funnel to closing that funnel that you’ve built.
Manny Medina: And you’re very excited, because you can see that money coming through, you can see your commission checks clearing, you can see all sorts of vacations and assets that you’re buying given those new sources of income. But you stop minding the building of the funnel again. So you can see that the oscillation from closing back down to prospecting again. And then that will take a little bit to build out the funnel. And then you’re back to closing and forgetting that you have to build funnel. And so on and so forth.
Manny Medina: So for you as a rep, to have some kind of recurrency in the generation of your commission and the generation of your business, you need to be able to manage funnels. You need to be able to store your pipeline as well as close it. Does that makes sense?
Harry Stebbings: It does absolutely make sense. But hearing about the oscillation between the building and then transition to selling, and converting, actually bringing dollars. I do think about the specialization of sales in the pool. Why isn’t that rep focused purely on consistently building and then parsing over the highest quality, warmest leads to the closing sales rep? How do you think about the specialization of sales? So actually if they don’t have to transition between the two and they can consistently focus on that specific function?
Manny Medina: So roles facilitation is a bit of a catchall in a big bag of thing. And you can take two very successful sales leaders and you will get a different answer for that. So you can take somebody like Lars Neilson and he will tell you that your roles should absolutely be specialized. And then he would have a very good crack team whose job is to open doors and get appointments. And then you can ask somebody like Carlos Delatorre from Mongo and he uses pipeline generation as core function through his AEs. And there’s pros and cons for each, right?
Manny Medina: So broad specialization clearly makes sense cause you’re having a resource that specializes in that very narrow set of activities and they get very good and they’re getting very good at it. The problem, though, is that the SERs tend to be younger, less experienced and unable to carry conversations to the highest level. So even though you may be very good at opening doors, you may not be as good as opening the right doors. So you may need to put in more effort to get the same results.
Manny Medina: This is a question mark. This is why there’s no silver bullets in sales. You have to just try it in your environment and see what works with your product, your people, and your customer types. If you ask Carlos, he would argue that a seller needs to be a hunter by definition. So a seller who doesn’t prospect is of no use to her.
Manny Medina: So you can argue that a seller that is very experienced and gets a book of business, so for instance, if you were to look at the traditional industries. Like financial services, for instance, are given territories and then you get dropped into a city and they asked him, “Hey, you got a phone book?” And then you’re asked to deliver a number at the end of the year. So at that point you’re prospecting, you’re maintaining, you’re closing, you’re expanding, you’re renewing, etc.
Manny Medina: So the sales motion will depend on the efficient boundary of activity and results of whatever industry you’re selling into.
Harry Stebbings: You said the word “quota” there, and especially just now you said the word “results.” I’m always fascinated by quota construction and how to construct a quota that’s ambitious enough that really moves the business forward in terms of trajectory, but also that’s not too ambitious that if it’s not hit, which it likely won’t be if it’s too ambitious, it won’t deject the team. How do you balance between ambition and then not building kind of a dejected workforce if they don’t hit it?
Manny Medina: Well, I’m glad you asked me that question at the beginning of the podcast because I have a very nuanced view on this that it’s kind of a long story so I’ll [crosstalk 00:10:00].
Harry Stebbings: Great. I love that.
Manny Medina: So one of my north stars in this business is a gentleman by the name of Steve Walske. And Steve Walske was the chairman and CEO of a company called PTC, Parametric Technology Corporation. And PTC is sort of the source of some of the greatest sales minds of this age as, at least in B2B SaaS. And Steve Walske taught me the following lesson. There’s two numbers that are relevant in your business. So one is more relevant than the other.
Manny Medina: So you have the quota number. And the quota number is a number that tells the rep that you get to play another round. The quota number is a number that the rep needs to clear to remain in the business and continue to sort of work here, if you will. The probably with the quota number is that the quota number has a very high impact on your psychology and your mentality. So in his view, and I subscribe to this, you want to set your quota low so that the rep clears their quota early in the quarter or early in whatever period you are measuring so that he can change his behavior and have a bit of a different spring in his step and feel like a winner every time he’s walking into account because he already cleared quota and he has nothing to lose. He’s now here for the enjoyment of the game.
Manny Medina: But what he manages against, it’s not the quota. What he manages against is the average rep production. And that is the number that you want to make monotonically go up and to the right. So what you do is you look out across your reps and see what numbers are they hitting, take the average of that, draw a line, see who falls below that and work those people up. And continually do so. And the ones that don’t work out, you will see out.
Manny Medina: That way you achieve two things. One, you achieve the ability to increase rep efficiency and production without having the bearing of the quota on their head that you make them feel like time is running out on them. Does that make sense?
Harry Stebbings: It totally makes sense. I do have two subsequent questions, though, for you from that. And it’s, one, you said about kind of working them out. Does that not build a culture of almost fear if one fails to hit their numbers or fear of not making it, so to speak. And how do you think about that and approaching that with the team and morale at the center?
Manny Medina: Well, that’s a great question, and the question is how do you handle that? So hopefully you have an organization in which you have understood the factors that go into diagnosing and troubleshooting the rep’s performance. And that’s, is it building the pipeline? Is it managing your pipeline? Is it closing? Is it an understanding of the product. Is it your book of accounts? Is it your territory?
Manny Medina: There’s several factors that play into that. My preference is to make sure that the rep understands that they own their own business and that they have levers to pull for their business, such as a marketing or events or demand gen or SDR support. Things that can support either creating pipeline owning or engaging with more people in their account.
Manny Medina: But the rep by the end of the [inaudible 00:12:41] will be the quarterback and the owner of that sort of mini P & L if you would. And as long as you’re given them the resources and you’re explaining to them how you manage the resources, you hope that the coaching and the training that you give them is enough to continue to have them perform at or above average.
Harry Stebbings: You said about kind of the resources that allow them to really fulfill that potential. In terms of resources at the rep level. How do you think about resource allocation without maybe being too generous to allow them to use too many resources to hit what they should be hitting with less?
Manny Medina: And so that’s a great question. And frankly this is a bit of both an art and a science. And if you get too generous and your unit economics may go sideways. But if you don’t get too generous then you may force a rep that would otherwise be a great performer or get a region that otherwise would have been a great region for you to not perform. So I think about this problem in categories. My first problem is to make sure that you have enough capacity in our region to make sure that you get the return from that area.
Manny Medina: The second problem is, then you have to get the reps to production, through regular production that monotonically goes up. And once you have those nailed, and by the way, very few people actually even get to that on a regional basis. Once you have capacity and production, figure it out on a regular basis, then you can optimize. Then you can talk about driving efficiency.
Manny Medina: And efficiency is a journey. Efficiency is not like a one and done. Efficiency, you sort of draw a frontier as to where you want to go and you tweak the amount of investments you do via events, via sole prospecting, via SDR, via demand generation, via ABM or whatever so that the tool set that you used to continue to keep that pipeline stoked, you have to dial it over time. And it may change because you may change it depending on your [inaudible 00:14:15] change depending on your brand recognition and it may change depending on all sorts of market dynamics.
Manny Medina: So for instance, for us, the unit economics for our business continually get better as people know what sales engagement is. So when we started two years ago, it was a hundred percent educational sale where we were absolutely calling outbound because inbound was never going to show up. And if I got somebody on the phone, I was evangelized. Now to this day, now we’re seeing RFPs, now we’re seeing people switching. Now we’re seeing people asking the right questions. And that’s because the market is evolving as people get educated. And so your efficient frontier of how do you generate pipeline, so it changes over time. So this is why there’s no silver bullet. So you just have to constantly test and see what works and constantly optimize based on your dynamics.
Harry Stebbings: Can I ask you, in terms of that education element up front in that you had to go through, was that super tough for you given the longer sales cycle it takes, when you first have to convince someone just of the value prop itself being kind of a new category that you’re creating. Was that tough and how do you explain that to the sales team who may be used to a faster cadence of closing and also to investors who may look at kind of slower at the beginning growth in numbers than they’re used to given the new category creation. How did you approach that?
Manny Medina: Yeah. So it’s interesting because you have to navigate your adoption curve, sort of like the crossing of the [inaudible 00:15:26]. You have to navigate it incredibly carefully. And at this point we’re talking not just about selling, but we’re talking about company building.
Manny Medina: So I always have to build a product and sell against a market that is ready to buy what I have to sell. At the very early of Outreach, we were mostly tech, meaning selling to tech people. Matter of fact, the first million dollars of ARR came from me and a small team walking around SoMa District in San Francisco selling door to door. That kind of evangelism.
Manny Medina: Because what I had to sell, people would not believe it existed. And I can only sell to other startups that were ready to take on risks and to whom I don’t look any different. If I were to try to sell to AT&T, who is a customer now, or to AWS, who’s a customer now, they actually walked me out the door of AWS. Because they were like, “Yeah, we don’t need what you got.”
Manny Medina: And they didn’t even know that it was possible. And what will you bet on a four or five person startup? But as you continue to grow and the market continues to grow, then you can actually move to the early majority, if you would.
Harry Stebbings: What was the sign that you could transition from the startups in SoMa who are willing to adopt the product early versus your AT&T? When do you know when’s the right time to cross the chasm between early adopters to early majority ,so to speak?
Manny Medina: Funnily enough, we haven’t crossed the chasm, so it’s still very early in this category. So we’re still sort of just peeking into the early majority, just peeking into it. We’re still very tech-heavy, if you will. Now the size of the tech company is a lot larger and now you’re seeing sort of risk-takers, like a lot of the networks buying and then sort of setting the standard for everybody else.
Manny Medina: It’s still really early, so I can’t tell you how to tell it because I haven’t gotten there yet. But I think that there were some early indicators in terms of the quality of your inbound. All of a sudden A shows up and B is a little higher. The quality of the conversations as you go to things like SaaStr or Dreamforce or AISB or even Unleash, et cetera.
Manny Medina: Like when you start going through these conferences and you see the quality of the conversation sort of evolving from like, “All I need is CRM” to where are my reps going to live and what’s the engagement strategy going to look like. And that’s when you start getting the feel for the market and the market is charting a lot of it. The other one, I was talking to a gentleman yesterday, Ariel Myers, who used to run Apollo.
Manny Medina: And he was mentioning that he came into Apollo and he immediately doubled the price and nothing happened. That’s a sign that the market is a little bit more ready than you otherwise would. So there is other sort of tests that you can do. You can increase prices. You can sort of try to go upstairs.
Manny Medina: We had a motion that we called sort of like nights and weekends where we sold to mid market and commercial accounts because we were not, we were doubting that the velocity of those accounts was going to turn up. And then all of a sudden that nights and weekends activities took over our regular activities because there was so much of it.
Manny Medina: So that’s the other way to do it. So you sort of can carve out a few hours of your week to try to sell it to accounts that you are not supposed to or accounts that potentially may not be ready. And when they start taking over your activities, then all of a sudden you know that that’s the crossroads area of prospecting instead of closing.
Harry Stebbings: This is hilarious. I wrote a full schedule and I’m completely ignoring it because I’m so enjoying this conversation. You said about kind of walking around SoMa and selling door-to-door. I was meeting a founder the other day, early stage SaaS founder pitching for their seed round. And I said to him, “Have you been selling the product yourself? They’re at 50K MRR.” And he looked and said, “No, no, we’ve got sales reps. No, no, I don’t do the selling.” For me, I have this gut reaction of, Ooh, I think you should be doing the selling at some point. You are the founder, whether it’s the first 20K of MRR or 100, whatever it is, but you should be doing… Do you agree with that or am I missing a trick to think that the founder should always be at the forefront of the selling motion at some process of the journey.
Manny Medina: I tell any founder that wants to talk to me that if you haven’t sold at least half a million dollars worth of your product to somebody, then you’re not doing this right. I actually wouldn’t even take the call or that conversation will be over right there and then because then you’re not putting in the work. There’s a whole literature around product market validation and MVPs and product market fit and all that. I think a lot of is overstated. Take your product, sell it. If you can sell it to a lot of people, you got fit. And do it again. You know what I mean? And so that fit evolves over time. It’s very simple.
Harry Stebbings: No, I totally get you. I do love the simplicity of that. The other thing that I have to ask you about is the pricing. We touched on it there. In terms of pricing, I’m always constantly challenged by the element of disincentivization in pricing. And if you do seat-based pricing, people can share them and there’s often sharing within organizations. If you do volume- based pricing, it discourages people from using the products. How do you think about the optimal pricing mechanism to use with the right variables?
Manny Medina: So that’s a great question and I’m not an expert. Matter of fact, we only have pretty much one seat price that varies with value. So you’re talking to the wrong person here. But since you got me on the phone and all, my take is that pricing needs to be A, simple and B, it needs to encourage use. So, I don’t know, depending on the business that you’re in. So for instance, we are in the business of generating engagement per rep. So when a rep buys this, immediately they need to see a pop in the amount of accounts that are engaged and then eventually in the number of meetings set. And then that will translate in the opportunity to close.
Manny Medina: Throughout that entire journey is engagement. So for me, charging per seat is the right way to go. Now, we saw abuse when we were starting, of people buying five seats and taking those seats and sharing them. We released this feature that actually bit us in the ass that would allow you to sort of send from different email addresses. Mostly because we sold to a few agencies really early on and they were representing different customers.
Manny Medina: But we let that feature sort of run. And then we realized that users were taking that and turning a team of two into a team of ten by creating fake names and sending from all those names from different email addresses. So that created a bit of abuse in the application.
Manny Medina: But actually that is good news, because that just shows that people need more of what you’ve got. So I wouldn’t take abuse per se as a problem. I would take that as a sign of product market fit and that you need to create more education around what it is that you do so that people know how to use it and understand the value. Again, I see abuse as good news, because that means that the people need what you have, and you just need to package it and price it correctly and ship it.
Harry Stebbings: Yeah, no, I totally agree with you. If they’re that keen to use it that they’re abusing it is always a good sign. I do want to ask, though, to move into the quickfire round, Manny, so I say a short statement and then you give me your immediate thoughts in about 60 seconds per one. Are you ready to roll?
Manny Medina: Let’s do it.
Harry Stebbings: How does sales and prospecting evolve over the next ten years, Manny?
Manny Medina: I think that you’re going to see activities removed from your day to day, such as making sure that your CRM is synced then remembering the follow up and making sure you’re taking the right next action based on what is important. And the computer is going to tell you what to do. And the computer’s going to calculate in the background your efficiency and your capacity and it’s going to give your management a number of how many more of you there is needed to hit a particular number. It’s going to be very human and very automated at the same time.
Harry Stebbings: How important is brand today in the world of enterprise B2B?
Manny Medina: I think it’s incredibly important given the amount of noise that is out there. And I don’t know the answer to this question because we’re not a well-known brand and we’re still very much into the street game of capturing hearts and minds on a city by city basis. So I think in the future it will be relevant, very relevant. But for now the world is exploding. It doesn’t take much to start a company, so you have to go out and just fight it out without a brand.
Harry Stebbings: We spoke about founders and the importance of them selling there in the early days. When is the right time to hire your first VP of sales, to you?
Manny Medina: You only hire a VP of sales when you need to give somebody a title so that you can retain that person. You don’t hire anybody above a VP until you get to at least 5 million. So you may have somebody leading your team, in my mind, and that person needs selling as much as you are. The connotation of having a VP is that person who is sort of sitting back and managing the troops and nobody gets to just be a full time manager until you’re in the growth stage of your company. That’s my take.
Harry Stebbings: Yeah, no, I love it. What would you most like to change in the world of SaaS today, Manny?
Manny Medina: I would love for people to start going back to some first principles. So every year, every six months, there is a new flavor of brown or black in terms of metrics or efficiency. Magic for magic ratio, magic this percentage of that. And at the end of the day, the unit economics and your user engagement with your application is really what will determine winners from losers. So we need to stop talking about all these different ratios and economic indicators and talk about, “Is the dog eating the dog food? Are people willing to pay for it and sticking around?” So I would love to see a bit more back to first principles thinking into how we think about SaaS.
Harry Stebbings: So tell me, what do you know now that you wish you’d known at the beginning of your time with Outreach?
Manny Medina: That you have to quickly evolve as a leader. You have to quickly evolve from being driven by the next intervention to thinking in systems. And for me it was a few hard lessons of Manny, you need to stop running and trying to think of handling, move things around or change things because you know how to do it. But if you are building a company that will last and stand the test of time, you need to be able to see the system for what it is and try to diagnose what is making the system do what it’s doing.
Harry Stebbings: Manny, as I said at the beginning, I heard so many great things from Alex. I’ve been super excited for this one for a long time, so thank you so much for joining me today.
Manny Medina: Thank you. Thanks for the time.
Harry Stebbings: I mean what a hero, and as I said, the schedule completely went out the window there. I don’t think I asked one question off the schedule, but a sign of a brilliant interview for sure. And if you’d like to see more from Manny, you can find him on Twitter at @medinism ]. Likewise, it’d be great to see you behind the scenes here at SaaStr. You can find us on Instagram @hstebbings1996 with two Bs. Really would be great to see you there.
Harry Stebbings: As always, I so appreciate all your support and I can’t wait to bring you our most downloaded 2019 investor episode next week.